| I had the privilege of appearing in some cases | | | | The Supreme Court in Central Bank of India vs. |
| under SARFAESI Act, 2002 both for the Banks | | | | State of Kerala and others reported in 2009 (4) |
| and also for the debtors/guarantors. No citizen is | | | | SCC 94 restated the object of the Act as |
| allowed to say that they will take loan, execute | | | | follows: |
| documents and will not repay the loan to the | | | | "44. Simultaneously, the jurisdiction of the civil |
| Bank taking advantage of technicalities and the | | | | courts was barred and all pending matters were |
| delay the process in Traditional Courts. As such, | | | | transferred to the Tribunals from the date of |
| though the legislature has felt it necessary to | | | | their establishment. For some years, the new |
| enact a special legislation allowing the Banks to | | | | dispensation of adjudication worked well. However, |
| speed-up their recovery process and though the | | | | with the passage of time, proceedings before the |
| issue of Constitutional validity of the Debt | | | | Debts Recovery Tribunals also started getting |
| Recovery Laws were challenged, the Apex Court | | | | bogged down due to invoking of technicalities by |
| has laudably held that the special enactments | | | | the borrowers. Faced with this situation, the |
| meant for speedy recovery or recovery of loan | | | | Government again asked the Narasimham |
| by the Banks are valid though certain | | | | Committee to suggest measures for expediting |
| observations were made pertaining to certain | | | | recovery of debts, etc. due to banks and financial |
| provisions of the Act. However, under the guise | | | | institutions. |
| of special law, the rights of the ordinary people | | | | 45. In its Second Report, the Narasimham |
| should not be ignored and the rights of the people | | | | Committee observed that the non-performing |
| innocent owners are to be protected at any cost. | | | | assets of most of the public sector banks were |
| Under the Securitisation and Reconstruction of | | | | abnormally high and the existing mechanism for |
| Financial Assets and Enforcement of Security | | | | recovery of the same was wholly insufficient. In |
| Interest Act, 2002 (in short "SARFAESI Act"), | | | | Chapter VIII of the Report, the Committee |
| the Bank can proceed with the recovery process | | | | observed that the evaluation of legal framework |
| and proceed with the property mortgaged as a | | | | has not kept pace with the changing commercial |
| security without recourse to traditional Civil | | | | practice and financial sector reforms and as a |
| Courts. Its true that the Bank may not be able to | | | | result of this the economy has not been able to |
| recover the money from the debtor or it may | | | | reap full benefits of the reform process. |
| get unreasonably delayed if they have to | | | | 46. By way of illustration, the Committee referred |
| approach the Civil Courts for recovery and | | | | to the scheme of mortgage under the Transfer |
| consequential steps. Many know as to what | | | | of Property Act and suggested that the existing |
| happens in Civil Courts and many know as to how | | | | laws should be changed not only for facilitating |
| to delay a Civil Case for so many years. Under | | | | speedy recovery of the dues of banks, etc. but |
| SARFAESI Act, 2002, the Bank itself determines | | | | also for quick resolution of disputes arising out of |
| the amount of debt when there is a default and | | | | the action taken for recovery of such dues. |
| proceeds with the property mortgaged in | | | | 47. The Andhyarujina Committee constituted by |
| accordance with the provisions of the Act and | | | | the Central Government for examining banking |
| the concerned regulations. The Bank makes a | | | | sector reforms also considered the need for |
| demand for payment, receives the reply if any, | | | | changes in the legal system. Both the Narasimham |
| addresses the grievance of the debtor if required | | | | and Andhyarujina Committees suggested |
| and if it is not satisfied with the reply, then, | | | | enactment of new legislation for securitisation and |
| accordingly, the Bank proceeds with auctioning the | | | | empowering the banks and financial institutions to |
| property in accordance with law and thereby | | | | take possession of the securities and sell them |
| quickens the recovery process. Thus, the object | | | | without intervention of the court. " |
| of SARFAESI Act is really laudable if the law is | | | | 5. The aforesaid Act clothes the authorized |
| implemented in letter and spirit. But, when there | | | | officer of the bank with enormous powers to |
| is a clear violation of statutory provisions or when | | | | deal with the secured assets to recover the |
| the Bank proceeds against a property | | | | outstanding amounts. Once the power is given, |
| unreasonably using the provisions of SARFAESI | | | | the Courts have held that the same has to be |
| Act, 2002, then, there should be effective | | | | exercised in the way it is to be done and not |
| remedy available to the innocent owner of the | | | | otherwise. Here is a case where the first |
| property. It is true that the Act itself provides a | | | | respondent/bank, contrary to the Act acted in |
| relief to the aggrieved to file an appeal challenging | | | | whimsical and capricious manner and brought the |
| the steps taken by the Bank pursuant to the | | | | property of the petitioners and sold the same to |
| notice issued by the Bank under section 13 (2) of | | | | the fourth respondent in an ill-devised manner |
| the SARFAESI Act, 2002, however, many feels | | | | which is unknown to law." |
| that the remedy is not effective despite | | | | In the same judgment, dealing with the issue of |
| establishing a clear case against the Banks in | | | | availability of alternative remedy under the |
| many cases. It is also seen that the Debt | | | | SARFAESI Act, 2002 before the Debt Recovery |
| Recovery Tribunal constituted under the Act | | | | Tribunal, the High Court has laudably held as |
| which deals with the grievance of the aggrieved, | | | | follows: |
| passes conditional order many times while granting | | | | "With regard to alternative remedy, it is seen that |
| stay. It is true that in some peculiar cases, a | | | | there is a statutory violation by not issuing notice |
| conditional order can be passed, but, it has | | | | under Section 13(2) and 13(4) as per the Rule 3 |
| become routine as I have seen and heard from | | | | of the Security Interest (Enforcement) Rules |
| my colleagues at the Bar. What can an innocent | | | | 2002. There is contravention of statute and |
| owner do when he is not provided with an | | | | violation of principles of natural justice and also |
| effective remedy against the Bank? He may | | | | violation of constitutional right to hold property as |
| hesitate to approach the High Court directly as | | | | per Article 300A of the Constitution of India. It |
| many legal practitioners advice the aggrieved to | | | | has been held by the Honourable Supreme Court |
| approach Tribunal as it is likely that the High Court | | | | in Vimala Ben Ajith Bhai Patel -Vs- Vatsala Ben |
| may not entertain a Writ Petition directly and in | | | | Ashok Bhai Patel reported in 2008 (4) SCC 649 |
| many cases such Writ Petitions are disposed | | | | that the right to property can be taken away |
| giving liberty to the aggrieved to approach the | | | | only as per law and right to hold the property has |
| Tribunal. It is really understandable and in such | | | | been glorified as "Human Right". |
| cases, the Debt Recovery Tribunal should really | | | | That apart, it is well settled law that availability of |
| be effective and should not invite any criticism, | | | | an alternative remedy is not an absolute bar for |
| but, everyone knows as to what happens in Debt | | | | exercising the writ jurisdiction and it is only a |
| Recovery Tribunals and Appellate Tribunals. | | | | self-imposed restraint on its power. This has been |
| Some presiding officers of the Debt Recovery | | | | held so in the judgment in State of Uttar Pradesh |
| Tribunals may adopt a different and right | | | | -Vs- Mohammad Nooh reported in AIR 1958 SC |
| approach, but, every legal practitioner can tell or | | | | 86, in Whirlpool Corporation -Vs- Registrar of |
| guess as to what happens before the Tribunal. | | | | Trade Marks, Mumbai and others reported in AIR |
| There may be cases where the debtors may try | | | | 1999 SC 22, and in Mariamma Roy -Vs- Indian |
| to delay the recovery process by filing cases and | | | | Bank and others reported in 2009 AIR SCW 654. |
| nobody sympathizes in those cases and those | | | | Therefore the plea of availability of alternate |
| cases to be dealt with very strictly. | | | | remedy miserably fails. The petitioners cannot |
| It can not be said that the provisions of the | | | | approach the Tribunal, as the measures taken by |
| special legislation to be implemented in letter and | | | | the Bank were belatedly known to the petitioners |
| spirit without thinking at the consequences and it | | | | and by that time the time prescribed under the |
| can not be said that the ultimate object of the | | | | Act was over. The Judgement in Hongo India (P) |
| enactment is to be taken into consideration while | | | | Ltd relied upon by Mr.K.M.Vijayan, in fact, justifies |
| dealing with the cases challenging the action | | | | the contention of the petitioners. As per the |
| initiated by the Bank under SARFAESI Act, | | | | judgement, Courts cannot extend the time limit |
| 2002. For example, with a very laudable object, | | | | prescribed by the Statute. As such the only |
| the Chapter-XVII was introduced in Negotiable | | | | remedy for the petitioners is to file a writ petition |
| Instruments Act, 1881 making the act of | | | | which has been rightly done by them. |
| dishonour of cheque an ‘offence' though civil | | | | The Tribunal is not competent to look into |
| remedy is also available for recovery of money. | | | | violation of fundamental rights and constitutional |
| Section 139 of the N.I.Act says that there would | | | | rights and this Court being a custodian of |
| be presumption available in favour of the | | | | Constitutional rights is entitled to examine the |
| Complainant that the cheque is issued for | | | | matter. A Constitution Bench of the Honourable |
| discharging a legally enforceable debt. Despite such | | | | Supreme Court in its judgment in State of West |
| clear wording and special provisions dealing even | | | | Bengal and others -Vs- The Committee For |
| with the procedure in cheque bouncing cases, the | | | | Protection of Democratic Rights, West Bengal and |
| Courts have interpreted the provisions from time | | | | others reported in 2010(2) Scale 467 held that |
| to time protecting the rights of the innocent and | | | | Article 226 of the Constitution of India can be |
| providing protection to the innocent against | | | | exercised for enforcing any legal right conferred |
| motivated harassment using the special law. As | | | | by a statute and it is further held that under |
| such, the rights of the innocent or the innocent | | | | Article 226 of the Constitution of India, the High |
| owners or the debtors are to be protected under | | | | Court has got more wider power than the |
| SARFAESI Act, 2002 and the remedy should | | | | Honourable Supreme Court. In Secretary |
| really be effective and adjudication to be really | | | | Cannanore Muslim Educational Association, Kanpur |
| logical. I have seen a wonderful judgment of a | | | | vs. State of Kerala reported in 2010 (5) SCALE |
| bench of Madras High Court comprising Hon'ble | | | | 184, the Apex Court held that the High Court is |
| Mr.Justice F.M.Ibrahim Kalifulla & Justice | | | | conferred with wide power to " reach injustice |
| N.Kirubakaran in W.P. No. 15272 of 2009. It was a | | | | whenever it is found". Therefore as injustice is |
| case where the High Court has taken a serious | | | | writ large and glaring, necessarily the judicial arm |
| view of procedural irregularities committed by the | | | | of this court has to reach there and it cannot be |
| Bank using the provisions of SARFAESI Act and | | | | prevented by plea of availability of alternative |
| provided an instant relief to the aggrieved. | | | | remedy." |
| The reference to the legal position in the said | | | | In many cases, despite having a clear case, the |
| judgment is as follows: | | | | aggrieved may hesitate to approach the High |
| "The object of the Securitisation and | | | | Court under Article 226 or 227 of Constitution of |
| Reconstruction of Financial Assets and | | | | India looking at the ‘principle of availability of |
| Enforcement of Security Interest Act, 2002 is to | | | | alternative remedy', however, the Hon'ble High |
| regulate Securitisation and Reconstruction of | | | | Court has deal with the issue elaborately in the |
| Financial Assets and Enforcement of Security | | | | judgment under reference and I am sure that the |
| Interest and for matters connected therewith or | | | | observation can not be overruled in my opinion. |
| incidental thereto and the Act came into force on | | | | Not only dealing with the law and laying down a |
| 17-12-2002. The Act aims at speedy recovery of | | | | guiding principle with regard entertaining Writ |
| defaulting loans and to reduce the mounting levels | | | | Petitions in respect of "SARFAESI Act" cases, the |
| of non-performing assets of banks and financial | | | | High Court has provided an effective remedy to |
| institutions. The Act has been passed based on | | | | the Petitioner and the relevant portion of the |
| the recommendations of Narasimham Committee | | | | judgment is as follows: |
| I and II and Andhyarujina Committee constituted | | | | "46. In this case the action of the bank officials |
| by the Central Government for the purpose of | | | | resulted in loss to bank as well as to the |
| examining banking sector reforms and to consider | | | | guarantor, as the property ex-facie was allegedly |
| the need for changes in the legal system in | | | | sold for a very low price. It is common |
| respect of these areas. The provisions of the | | | | knowledge that it is very difficult to get a ground |
| would enable the banks and financial institutions to | | | | in and around Chennai for a price lesser than |
| realise long-term assets, manage problems of | | | | Rs.50 lakhs where as in this case a property |
| liquidity and asset liability mismatches and to | | | | measuring about 3168 ¾ sq. ft. in Ayanavaram |
| improve recovery by exercising powers to take | | | | was allegedly sold palpably at a very low price of |
| possession of securities, sell them and reduce | | | | Rs.33,50,000/-. As stated above, this Court |
| non-performing assets by adopting measures for | | | | orders high level inquiry to go into every aspect |
| recovery or reconstruction. | | | | about the transaction involving bank officials, P.Md. |
| For getting a decree in usual course before a Civil | | | | Thahir and the bidders. Given facts and |
| Court litigants including Banks have to file the suit | | | | circumstances of the case, this court is prima |
| before a civil court. After service of notice, | | | | facie convinced that violations were made with |
| written statement and trial, the suit would be | | | | the connivance of Bank Officials the Bidders and |
| decided by passing a decree. The decree would | | | | P.Md.Thahir son of Sheik Mohammed, 309 "D" |
| possibly be challenged by way of appeal upto | | | | Block, East Cemetry Road, Chennai-600 021. |
| Supreme Court and it would take about 5 to 15 | | | | Therefore this Court directs the respondent Bank |
| years to attain finality. There would be possibility | | | | to entrust the matter to an investigation agency |
| of dismissal of suit on various grounds. After the | | | | preferably CB-CID who can investigate and |
| decree is passed by the competent civil court, the | | | | proceed as per law. |
| same would be put to execution by filing E.P. The | | | | 47. For non-compliance of mandatory provisions |
| Execution Court after service of notice would | | | | of the Act, fraud, lack of fair play, bonafides etc., |
| bring the property of the debtor/guarantor for | | | | the entire proceedings initiated by respondent |
| sale through auction. To reach this stage, lot of | | | | bank in favour of the fourth respondent gets |
| money, especially very long time have to be | | | | vitiated and is hereby set aside. In view of the |
| spent. The above process is dispensed with by | | | | same, the fourth respondent is directed to hand |
| the Special Act "SARFAESI ACT" which is meant | | | | over the possession of the property to the |
| only for the financial institutions. As per the Act, | | | | petitioner within 15 days from the date of receipt |
| the first step would be to issue notice U/s. 13(2) | | | | of a copy of this order. |
| by the authorised officer who is deemed to be | | | | 48. There will be an order of exemplary cost of |
| armed with a money decree which attained | | | | Rs.50,000/- (Rupees fifty Thousand only) payable |
| finality. By the statute the authorised officer, is | | | | by the respondents bank 1 to 3 to the petitioners |
| clothed with powers of trial court and execution | | | | within 15 days from the date of the receipt of a |
| court and the code of Civil Procedure which | | | | copy of this order. Consequently, connected |
| governs the civil proceedings is no more | | | | M.P.No.1 of 2009 is closed." |
| necessary. To put it otherwise, by the Special | | | | It is true that there can be inevitable complications |
| Act, the authorized officer acts like a Civil Court | | | | in an Appeal before the Debt Recovery Tribunal |
| clothed with powers hitherto exercised by it. | | | | and it is so where the property belongs to |
| What the Honourable Supreme Court held in | | | | Company and many proceedings were pending |
| Mardia Chemicals Ltd., -Vs- Union of India reported | | | | against the Company. There can be liquidation in |
| in A.I.R. 2004 S.C.2371:(2004) 4 S.C.C.311, while | | | | respect of the Company and in such cases; the |
| upholding the validity of the Securitisation and | | | | Official Liquidator should defend the rights of the |
| Reconstruction of Financial Assets and | | | | Company before the Tribunal. There can be a |
| Enforcement of Security Interest Act, 2002 (54 | | | | scheme pending for consideration before the High |
| of 2002) is as follows: | | | | Court in respect of a Company and these issues |
| "The financial institutions, namely the lenders owe | | | | complicates the cases before Debt Recovery |
| a duty to act fairly and in good faith. There has | | | | Tribunal at times. But, in other cases, there can |
| to be a fair dealing between the parties and the | | | | not be any complications and there should |
| financing companies/institutions are not free to | | | | effective remedy available to the aggrieved if |
| ignore performance of their obligation as a party | | | | there is merit in the contention and I do strongly |
| to the contract. They cannot be free from it. | | | | feel that the High Court is required to entertain |
| Irrespective of the fact as to whatever may | | | | Writ Petitions even in respect of "SARFAESI Act" |
| have been held in decisions of some American | | | | if required and in exceptional cases. We know |
| Courts, in view of the facts and circumstances | | | | that there can be people to approach the High |
| and the terms of the contracts and other details | | | | Court with ulterior motives and such cases can |
| relating to those matters, that may or may not | | | | easily be dealtwith. But, there should be effective |
| strictly apply, nonetheless, even in absence of any | | | | remedy to the innocent owners and the innocent |
| such decisions or legislation, it is incumbent upon | | | | owners should not get troubled with the |
| such financial institutions to act fairly and in good | | | | irregularities committed by the Bank or |
| faith complying with their part of obligations under | | | | committed by individuals with the involvement of |
| the contract. This is also the basic principle of | | | | Bank either directly or indirectly. |
| concept of lender's liability. It cannot be a | | | | Thus, it is difficult to deal with the question as to |
| one-sided affair shutting out all possible and | | | | whether the rights of innocent owners of |
| reasonable remedies to the other party, namely, | | | | property protected are under SARFAESI Act, |
| borrowers and assume all drastic powers for | | | | 2002. But, no innocent should be troubled |
| speedier recovery of NPAs. Possessing more | | | | unnecessarily and without any relief. It is not |
| drastic powers calls for exercise of higher degree | | | | correct to refer very frequently that the "Right |
| of good faith and fair play. The borrowers cannot | | | | to property" is not a Fundamental Right and High |
| be left remediless in case they have been | | | | Court should not entertain Writ Petitions in |
| wronged against or subjected to unfair treatment | | | | respect of cases under SARFAESI Act, 2002 |
| violating the terms and conditions of the contract. | | | | though caution is to be exercised. |
| They can always plead in defence deficiencies on | | | | Note: the views expressed are my personal and |
| the part of the banks and financial institutions." | | | | have no intention to insult any one or organization. |