Agarwal Tracom Pvt. Ltd. vs Punjab National Bank

CIVIL APPEAL No. 19847 OF 2017 (ARISING OUT OF SLP (C) No. 33514/2016)

Agarwal Tracom Pvt. Ltd. ...Appellant(s)

VERSUS

Punjab National Bank & Ors. …Respondent(s)

JUDGMENT

Abhay Manohar Sapre, J.

1. Leave granted.

2. This appeal is directed against the final

judgment and order dated 11.05.2016 passed by

the High Court of Delhi at New Delhi in LPA No.699

of 2015 whereby the Division Bench of the High

Court dismissed the appeal filed by the appellant

herein for quashing the order dated 01.09.2015 Signature Not Verified Digitally signed by ASHA SUNDRIYAL Date: 2017.11.27 16:12:36 IST Reason: 1 passed by the Single Judge, which dismissed the

appellant’s W.P.(c) No.8314 of 2015.

3. The controversy involved in the appeal centers

around the short facts and is essentially a legal one.

However, few relevant facts need mention, in brief,

to appreciate the controversy.

4. Respondents-Punjab National Bank(hereinafter

referred to as "PNB") is a Nationalised Bank. The

PNB had given loan facility to a Company called

"M/s India Iron & Steel Corporation Limited" (in

short, "Borrower”) for their business, which they

were carrying at a place called Noorpur Khirki,

Village Farid Nagar, Tehsil Dhampur, District Bijnor

(U.P.).

5. To secure the loan amount, the Borrower had

secured their assets, which consisted of the land,

factory building, plant and machinery situated at

Dhampur. The Borrower, however, failed to clear

their loan amount and became a defaulter in its

2 repayment. The PNB, therefore, invoked their

powers under Section 13(4) of the Securitization and

Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 2002 (hereinafter referred to

as “SARFAESI Act”) and issued a public sale notice

in leading English newspapers for sale of the

mortgaged assets of the Borrower in the public

auction fixed for 17.06.2014 (Annexure-P-1). The

appellant herein was one of the bidders, whose bid

was declared the highest.

6. The appellant's bid was accordingly accepted

by the PNB followed by execution of memorandum

of understanding between the appellant and the

PNB (Annexure P-4). The PNB also sent a letter to

the appellant stating that the entire plant,

machinery, land and the building is auctioned in

favour of the appellant. The letter also authorized

the appellant to dismantle and sell the scrap plant

and the machinery which was lying at the

3 Borrower’s factory's premises after depositing the

necessary installment of sale amount, as agreed

upon between the parties in the memorandum of

understanding.

7. The appellant, however, failed to pay the

regular installments towards sale money in terms of

memorandum of understanding to PNB and sought

extension of time to pay and remove the scrap

material from the site.

8. This gave rise to the disputes between the

parties, namely, PNB, appellant (auction purchaser)

and the Borrower before the Debt Recovery Tribunal

(DRT), Lucknow being S.A. No 310 of 2014 wherein

an order was passed on 03.07.2014

(Annexure-P-11) directing the appellant not to

remove any material from the factory premises. The

appellant then wrote a letter to PNB requesting

them to refund their money with interest. This led to

another dispute between the parties which was filed

4 in the DRT and then before the appellate authority-

DRAT and finally, in the High Court at Allahabad in

Writ Petition(c) No. 22246/2015 by the Borrower.

This writ petition was disposed of finally on

29.05.2015 observing therein that since the

appellant had failed to comply with the term of

memorandum of understanding inasmuch as the

appellant having failed to deposit the requisite

installment of sale money, the PNB cannot proceed

with the auction sale held on 17.06.2014 and nor

can the appellant be permitted to remove the scrap

material lying in the factory premises.

9. This led the PNB to forfeit the appellant's

deposit by their letter dated 26.06.2015

(Annexure-P25). The appellant objected to the action

of PNB by letters and then filed the writ petition in

the High Court of Delhi challenging therein the

action of PNB in forfeiting the appellant's deposit of

money.

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10. The Single Judge of the High Court, by order

dated 01.09.2015, dismissed the appellant's writ

petition on the ground of availability of alternative

statutory remedy to the appellant of filing the

application under Section 17 of the SARFAESI Act

before the DRT to challenge the action of PNB in

forfeiting the deposit money of the appellant. The

Single Judge, therefore, declined to go into the

merits of the case.

11. The appellant, felt aggrieved of the order of the

Single Judge, filed intra Court appeal (LPA 699 of

2015) before the Division Bench. By impugned

judgment, the Division Bench dismissed the appeal

and confirmed the order of the Single Judge. The

Division Bench was also of the view that the writ

petition filed by the appellant was rightly not

entertained by the Single Judge (writ Court) on the

ground that the proper remedy of the appellant was

to file an application before the DRT under Section

6 17 of the SARFAESI Act to question the action of

forfeiture made by PNB and not in filing the writ

petition under Article 226 of the Constitution. Felt

aggrieved, the auction purchaser has filed the

present appeal by way of special leave in this Court.

12. Heard Mr. Jaideep Gupta, learned senior

counsel for the appellant and Mr. M.T. George,

learned counsel for the respondents.

13. Mr. Jaideep Gupta, learned senior counsel

appearing for the appellant (auction purchaser)

while questioning the legality and correctness of the

view taken by the two Courts below contended that

the reasoning and the conclusion arrived at by the

writ Court and the Appellate Court is not correct

and hence deserves to be set aside. His main

submission was that the action impugned by the

appellant in their writ petition, namely, "forfeiture

of the deposit of money by PNB" is not one of the

measures specified under Section 13(4) of the

7 SARFAESI Act and, therefore, provisions of Section

17 of SARFAESI Act are not attracted so far as the

appellant's right to challenge such action under

Section 17 before the DRT is concerned.

14. In other words, the submission was that in

order to attract the rigor of Section 17 of the

SARFAESI Act, it is necessary that the action

complained of by the party concerned must satisfy

the conditions set out in Section 13 (4). It was urged

that the “forfeiture of deposit" impugned in the writ

petition is not and nor it could be considered as one

of the measures falling in Section 13 (4) so as to

attract the rigor of Section 17 of the SARFAESI Act.

It was urged that the dispute in question was

essentially between the PNB (secured creditor) and

the auction purchaser (appellant) and arose after

the measures under Section 13(4) had been taken

by the secured creditor (PNB) against the borrower

and, therefore, the dispute in question fell outside

8 the purview of Section 13(4) and, in consequence,

fell out of purview of Section 17. In short, the

dispute in question had nothing to do with any of

the measures specified in Section 13(4).

15. It was further urged that reading of Section 17

would go to show that the application under Section

17 can be made to DRT by “any person” including

borrower to challenge any of the measures referred

to in Section 13(4) once taken by the secured

creditor. However, since forfeiture of the amount

made by the secured creditor against the auction

purchaser is not one of the measures under Section

13(4) and hence, the action of forfeiture made by the

secured creditor cannot be challenged by the

auction purchaser under Section 17 of the

SARFAESI Act by filing an application. It was

urged that under these circumstances the appellant

had rightly filed the writ petition under Article

226/227 of the Constitution to challenge the action

9 of forfeiture of deposit money in the High Court,

that being the only remedy available to them and,

therefore, the writ petition should have been

entertained for its hearing on merits by the writ

court. It is these submissions, which were

elaborated by the learned counsel for the appellant

by pointing out relevant provisions of the SARFAESI

Act.

16. In reply, learned counsel for the respondents

(PNB) supported the impugned judgment and

contended that the action impugned in the writ

petition does attract Section 13(4) read with the

Rules framed thereunder and hence the remedy of

the appellant lies in approaching DRT by filing an

application under Section 17 of the SARFAESI Act

as was rightly held by the two Courts below.

17. Having heard the learned counsel for the

parties and on perusal of the record of the case, we

find no merit in the appeal. In other words, the view

10 taken by the High Court appears to be just and

reasonable and hence does not call for any

interference.

18. The short question that arise for consideration

in this appeal is whether the High Court was

justified in holding that the remedy of the appellant

(auction purchaser) lies in challenging the action of

the secured creditor (PNB) in forfeiting the deposit

by filing an application under Section 17 of the

SARFEASI Act before the DRT or the remedy of

auction purchaser is in filing the writ petition under

Article 226/227 of the Constitution of India to

examine the legality of such action.

19. Section 13(4) and Section 17 of the SARFAESI

Act, Rules 8 and 9 of the Security

Interest(Enforcement) Rules,2002(hereinafter

referred to as “the Rules”) to the extent they are

relevant for deciding the question involved in the

appeal are quoted below:

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Section 13(4)

13. Enforcement of security interest-

(1) to (3A)……………………………………………….

(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;

(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset:

Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:

Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;

12 (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”

Section 17

“17. Application against measures to recover secured debts-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken:

(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.

13 (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management or restoration of possession, of the secured assets to the borrower or other aggrieved person, it may, by order,-

(a) to (c)……………………

(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.

(4A)…………………………………………………….. (5)……………………………………………………….. (6)………………………………………………………..

(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993) and the rules made thereunder.

Rule 8

8. Sale of immovable secured assets- (1) to (8)………………………………………………….

14 Rule 9

9. Time of sale, issue of sale certificate and delivery of possession, etc.-

(1) to (4)…………………………………………………

(5) In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited to the secured creditor and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.

(6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to these rules.” (Emphasis supplied)

20. Section 13(4) is invoked by the secured

creditor against their borrower when the borrower

fails to discharge his liability in full within the

specified time. The secured creditor then can take

possession of the assets of the borrower, transfer

the assets by lease or by assignment or sell the

assets to recover the outstanding dues under clause

(a).

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21. The secured creditor under clause (b) can also

take over the management of the business of the

borrower or transfer by way of lease, assignment or

sale. However such power can be invoked only when

the creditor holds substantial part of the borrower’s

business as security and further it satisfies the

condition set out in second proviso.

22. The secured creditor under clause (c) can also

appoint any manager to manage the borrower’s

business and lastly under clause (d), the secured

creditor can ask any person to whom the money is

due or become due to pay to the secured creditor

instead of paying to borrower which is sufficient to

satisfy the debt.

23. So far as Section 17 is concerned, it provides a

remedy to a person who is aggrieved by the

measures taken by the secured creditor or his

authorized officer under Section 13(4) in relation to

secured assets of the borrower. It says that "any

16 person (including borrower)" may make an

application to the DRT within 45 days from the date

of measures taken under Section 13(4). Sub-section

(2) of Section 17 was added by way of amendment

w.e.f. 11.11.2004. It provides that the Tribunal, on

such application being made under Section 17(1),

shall consider whether the measures referred to and

taken under Section 13(4) by the secured creditor

are in accordance with the "provisions of this Act

and the Rules made thereunder". Similarly, sub-

sections (3), (4) and (7) of Section 17 which deal

with the power of the DRT also use the expression

“in accordance with provisions of the Act and the

Rules made thereunder”.

24. Rule 8, which has 8 sub-rules, deals with the

manner of sale of immovable secured assets and

provides detail procedure as to how and in what

manner the sale of secured assets, is to be held.

17 Rule 9 deals with time of sale, issue of sale

certificate and delivery of possession

25. Rule 9(6) empowers the authorized officer to

issue sale certificate in favour of the purchaser.

Rule 9(9) then empowers the authorized officer to

deliver the properties to the purchaser whereas Rule

9(10) empowers the authorized officer to mention in

sale certificate that the property is free from

encumbrances.

26. So far as this case is concerned, sub-rule (5) of

Rule 9 is relevant. It provides that, if the auction

purchaser commits any default in payment of sale

consideration within the time specified, the deposit

made by auction purchaser shall be “forfeited” to

the secured creditor and the auctioned property

shall be resold and the defaulting purchaser shall

“forfeit” all claims to the property or its part of the

sum for which it may be sold subsequently.

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27. Reading of the aforementioned Sections and

the Rules and, in particular, Section 17(2) and Rule

9(5) would clearly go to show that an action of

secured creditor in forfeiting the deposit made by

the auction purchaser is a part of the measures

taken by the secured creditor under Section 13(4).

28. The reason is that Section 17(2) empowers the

Tribunal to examine all the issues arising out of the

measures taken under Section 13(4) including the

measures taken by the secured creditor under Rules

8 and 9 for disposal of the secured assets of the

borrower. The expression "provisions of this Act

and the Rules made thereunder" occurring in

sub-sections (2), (3), (4) and (7) of Section 17 clearly

suggests that it includes the action taken under

Section 13(4) as also includes therein the action

taken under Rules 8 and 9 which deal with the

completion of sale of the secured assets. In other

words, the measures taken under Section 13 (4) 19 would not be completed unless the entire procedure

laid down in Rules 8 and 9 for sale of secured assets

is fully complied with by the secured creditor. It is

for this reason, the Tribunal has been empowered

by Section 17(2),(3) and (4) to examine all the steps

taken by the secured creditor with a view to find out

as to whether the sale of secured assets was made

in conformity with the requirements contained in

Section 13(4) read with the Rules or not?

29. We also notice that Rule 9(5) confers express

power on the secured creditor to forfeit the deposit

made by the auction purchaser in case the auction

purchaser commits any default in paying

installment of sale money to the secured creditor.

Such action taken by the secured creditor is, in our

opinion, a part of the measures specified in Section

13(4) and, therefore, it is regarded as a measure

taken under Section 13(4) read with Rule 9(5). In

our view, the measures taken under Section 13(4) 20 commence with any of the action taken in clauses

(a) to (d) and end with measures specified in Rule 9.

30. In our view, therefore, the expression “any of

the measures referred to in Section 13(4) taken by

secured creditor or his authorized officer” in Section

17(1) would include all actions taken by the secured

creditor under the Rules which relate to the

measures specified in Section13(4).

31. The auction purchaser (appellant herein) is

one such person, who is aggrieved by the action of

the secured creditor in forfeiting their money. The

appellant, therefore, falls within the expression “any

person” as specified under Section 17(1) and hence

is entitled to challenge the action of the secured

creditor (PNB) before the DRT by filing an

application under Section 17(1) of the SARFAESI

Act.

32. Learned counsel for the appellant placed

reliance on the decision of the Division Bench of

21 High Court of Bombay in Umang Sugars Pvt. Ltd.

vs. State of Maharashtra & Anr., 2014(4) Mh.L.J.

113 which, according to him, supports his

submission. We have gone through the decision

and unable to agree with the view taken therein.

Their Lordships, while holding that Section 17(1)

does not apply to auction purchaser and, therefore,

writ petition filed by him can be entertained in such

cases, did not notice the Rules, which deal with the

measures taken under Section 13(4) and nor

considered its effect on the measures.

33. In United Bank of India vs. Satyawati

Tondon & Ors., (2010) 8 SCC 110, this Court had

the occasion to examine in detail the provisions of

the SARFAESI Act and the question regarding

invocation of the extraordinary power under Article

226/227 in challenging the actions taken under the

SARFAESI Act. Their Lordships gave a note of

caution while dealing with the writ filed to challenge

22 the actions taken under the SARFAESI Act and

made following pertinent observations which, in our

view, squarely apply to the case on hand:

“42. There is another reason why the impugned order should be set aside. If Respondent 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, then she could have availed remedy by filing an application under Section 17(1). The expression “any person” used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.

43. Unfortunately, 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

23 State Legislatures for recovery of such dues are a 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, the 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.

44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution.

45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance.”

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34. In the light of foregoing discussion, we are of

the considered opinion that the Writ Court as also

the Appellate Court were justified in dismissing the

appellant's writ petition on the ground of availability

of alternative statutory remedy of filing an

application under Section 17(1) of SARFAESI Act

before the concerned Tribunal to challenge the

action of the PNB in forfeiting the appellant's

deposit under Rule 9(5). We find no ground to

interfere with the impugned judgment of the High

Court.

35. The appellant is, accordingly, granted liberty to

file an application before the concerned Tribunal

(DRT) under Section 17(1) of the SARFAESI Act,

which has jurisdiction to entertain such application

within 45 days from the date of this order. In case,

if the appellant files any such application, the

Tribunal shall decide the same on its merits in

accordance with law uninfluenced by any of the

25 observations made by this Court and the High

Court in the impugned judgment.

36. With these observations and liberty granted to

the appellant, the appeal fails and is accordingly

dismissed.

………...................................J. [R.K. AGRAWAL]

…...……..................................J. [ABHAY MANOHAR SAPRE] New Delhi;

November 27, 2017

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