Rainbow Exports vs Bank of Baroda

Mr. N.V. Anjaria, J. - Heard learned advocate Mr.Jal Soli Unwalla assisted by learned advocate Ms.Tejal Vashi for the petitioners, at length.

This petition is filed jointly by several petitioners-six in numbers. All the petitioners joining together, seek to invoke the writ jurisdiction of this Court under Article 226 of the Constitution, praying for a direction to set aside notice dated 16th November, 2016 issued to the petitioners by respondent No.1 Bank pursuant to proceedings initiated under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

2.1 The prayer is made to set aside the notices produced collectively at Annexure-A issued by the District Magistrate. What is further prayed is to quash the proceedings before the District Magistrate pending in the nature of Case No.17 of 2016 being proceedings under Section 14 of the SERFAESI Act.

A prelude of relevant facts may be necessary to have the total factual picture. Around the years 2004-05, the respondent Bank appears to have sanctioned financial facility and credit limit in favour of the petitioner No.1, which is a partnership firm named as M/s.Rainbow Exports, to the tune of Rs.30.00 lakhs, which was allowed to be increased upto 200.00 lakhs in March, 2006. The limit was further increased to Rs.480.00 lakhs in the year 2007 and thereafter came to be revised upwards from time-totime. The fourth petitioner herein mortgaged by way of deposit of Title Deeds immovable properties for securing the said financial facilities granted by the Bank to the petitioner. Further mortgage was made for the same purpose, of other properties by the second petitioner herein.

3.1 It is the further case that somewhere around 18th July, 2006 another partnership firm named M/s.Rainbow Industries-the sixth respondent herein was incorporated with petitioner Nos.2 and 3 as partners. The said Rainbow Industries also extended the credit facility for which petitioner Nos.2 to 5 mortgaged property bearing Survey No.970/1 Paiki situated at Unjha, Mehsana.

3.2 In the year 2009, the credit limit for the petitioner was once again increased to Rs.900.00 lakhs. The Bank proceeded to further hike the credit extent to Rs.1,350.00 lakhs including packing limit of Rs.1,200.00 lakhs and stand-by limit of Rs.150.00 lakhs. Further Title Deeds were deposited and mortgage was created.

3.3 It is further averred that the business of the petitioner dwindled in the year 2011-12 and financial crunches were faced by it. Attempt was made to sell the property bearing Survey No.970/1 Paiki which was jointly owned by petitioner Nos.2 to 5 and mortgaged with the Bank as stated above. Agreement to Sell came to be executed on 24th December, 2012 in favour of one M/s.Yogamrut Developers who later on defaulted in the payment of instalment of the sale price. As the dues of the Bank were seen in jeopardy, the sanction limit of the credit facility to the petitioner No.1 firm-M/s.Rainbow Exports was revisited with and was reduced. It appears that the overdue portion which was Rs.512.00 lakhs of the limit was converted into working capital term loan.

3.4 The Bank appears to have permitted the petitioner No.1 firm to bring the funds by attempting sale of the property again, however the buyer of the property again defaulted and failed to abide by the commitment of payment of sale price as agreed. As the time to pay was not extended, the buyer this time instituted Special Civil Suit No.53 of 2014 in the Court of Principal Senior Civil Judge, Mehsana against the present petitioners as well as the respondent Bank. The Civil Court, Mehsana allowed Exhibit 5 application of injunction in favour of the plaintiff buyer which is in force. The Suit is pending having been transferred to the Civil Court at Visnagar registered as Special Civil Suit No.91 of 2015.

3.5 As the dues of Bank was not paid by petitioner No.1, disputes between petitioner No.1 and the Bank arose and recurred time and again. The correspondence was sought to be exchanged by the petitioner No.1. The petitioners have averred in detail about those correspondence by narrating relevant facts in that regard in the memorandum of petition, which is not required to be set out herein.

3.6 Finally the respondent Bank issued demand notice dated 24th February, 2016 under Section 13(2) of the SERFAESI Act to petitioner No.1-M/s.Rainbow Exports and petitioner No.2-the guarantor wherein the outstanding dues with reference to the limit of Rs.350.00 lakhs obtained by petitioner No.1, were mentioned to be Rs.03,64,09,947/-. The notice was affixed on the same day on the property in question being revenue Survey No.978/1 and the petitioners were orally informed, by the Regional Manager of the Bank, the petitioners have averred. The petitioners have further stated that they visited the Bank and addressed letters and also addressed letter dated 15th March, 2016 through advocate. It is sought to be stated by the petitioners that the Bank wrongly treated the communications as objections under Section 13(3A) of the Act to reject the objections. Again the correspondence was entered into by petitioner. Petitioner No.2 and petitioner No.4 also engaged themselves into correspondence and inspection of the documents.

3.7 This long drawn exercise which could be successfully attempted by the petitioners post-13(2) notice, finally failed when the Bank took symbolic possession of the mortgaged properties on 03rd June, 2016 through the authorised officer. The notices regarding possession was published in two newspapers on 08th June, 2016.

3.7.1 The Bank has filed before the Debt Recovery Tribunal Original Application No.261 of 2016 which was served on the petitioners on 13th June, 2016 and 14th June, 2016, along with order of injunction dated 02nd May, 2016 where under the petitioners are restrained from dealing with the property.

3.7.2 On 26th March, 2016, the petitioners themselves approached the Debt Recovery Tribunal by filing Securitisation Application No.115 of 2016 challenging the notice dated 03rd June, 2016 and 08th June, 2016, being the possession notice mentioned above as well as the newspaper-notice published.

3.7.3 On 05th July, 2016 the Debt Recovery Tribunal passed order against the Bank not to take possession without an order under Section 14 of the Act.

3.7.4 The respondent Bank filed Application under Section 14 of the Act before the District Magistrate, Mehsana.

3.8 Following related developments may also be mentioned-(i) M/s.Yogamrut Developers filed Special Civil Application No.12431 of 2016 challenging the order passed by the Civil Court below Exhibit 57 in Special Civil Suit No.91 of 2015. This Court directed the petitioner to deposit Rs.05.00 crores with the Bank; (ii) Petitioner preferred Letters Patent Appeal as it was ex-parte order; (iii) Letters Patent Appeal was withdrawn with liberty reserved to the appellant petitioner to move learned Single Judge with appropriate application; (iv) petitioners deposited the amount as directed on 26th September, 2016, and preferred Civil Application for vacating the interim direction; (v) it is stated that learned Single Judge has directed the Bank to furnish the statement of accounts; (vi) the petitioners have intimated the Bank on 24th October, 2016 about the order.

The petitioners have filed the present petition when the notice was received by the District Magistrate in Section 14 proceedings initiated by the Bank. The petitioner complained that they were directed to remain present for hearing by issuing summons by the Magistrate.

The aforesaid conspectus of facts is highlighted only for the purpose as it vividly demonstrates as to how the petition is thoroughly misconceived and premature. The whole set of the contentions sought to be agitated by the petitioners herein involve going into facts. The petitioners have remedy at an appropriate later stage to file an appeal before the Debt Recovery Tribunal under Section 17 of the Act. Even that stage, that eventuality and the facts constituting such cause of action have not arisen.

5.1 Over and above all, the petitioners have already filed their Securitisation Application No.115 of 2016 before the Debt Recovery Tribunal challenging notice dated 03rd June, 2016 and 08th June, 2016 referred to above. The clinching fact is that present petition is directed against issuance of notice/ summons only by the District Magistrate who has acted pursuance to the application of the Bank presented under Section 14 of the Act. No order is passed by the learned Magistrate. The petitioners are called upon to remain present and answer the case.

5.2 Even otherwise and even at later stage after final order which may be passed by the Magistrate in the proceedings complained against, the petitioners could approach the Debt Recovery Tribunal for agitating their grievances. In Union Bank of India v. Satyavati Tondon [(2010) 8 SCC 110] the Apex Court observed thus,

"the High Court overlooked the settled law that the High Court will ordinarily not entertain a petition under Article 226 of the Constitution if an effective remedy is available to the aggrieved person and that this rule applies with greater rigour in matters involving recovery of taxes, cess, fees, other types of public money and the dues of banks and other financial institutions. In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc., the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute."

5.2.1 Sounding caution, the Supreme Court observed further thus,

"...despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. It is hoped and trusted that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."

It is quite clear that the District Magistrate, upon an application being filed by the respondent Bank under Section 14 of the SERFAESI Act, has only issued a notice/summons to the petitioners to remain present on 07th November, 2016 and answer the case. It is this notice which is challenged by the petitioners and it is at this stage that the petitioners have filed this petition. It appears that the petitioners sent letter to the Bank on 14th November, 2016 and requested not to proceed with the hearing. The District Magistrate kept the next date to 21st November, 2016. In the meantime, on 17th November, 2016, the present petition came to be filed. It is entirely incomprehensible as to what was the justification on part of the petitioners not to respond to the notices, but straightway to rush to file the present petition.

6.1 Thus there was no occasion to invoke the jurisdiction of the writ court at the stage and in the circumstances obtained. The self-convenient act of on part of the petitioners to file present petition seeking to invoke the writ powers of the Court are indeed not well conceived in law and partakes an abuse of process of law, warranting a strict view.

In the circumstances, the meritless petition is dismissed with cost of Rs. 5,000/-, to be deposited by the petitioners with the Gujarat High Court Legal Aid Committee within 10 days from today and the receipt thereof shall be produced on record with the Registry.