Abhilash Berly v. The Federal Bank Limited

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: K. Vinod Chandran
Judgment Date: 2017-02-07
Court Decision / Holding: Writ petition dismissed. No costs.
Final Disposition: Petition dismissed

Parties to the Case

Appellants / Petitioners

Abhilash Berly, S/O P.S. Berly

Respondents

The Federal Bank Limited, Mararikulam Branch, Kalithattu Junction, Alappuzha District, represented by its Authorized Officer/Chief Manager - 688001

Legal Representation & Advocates

Counsels for Petitioners

• Sri. K.C. Sudheer

Counsels for Respondents

• Sri. Reji George
• Sri. Binoy Davis

Case Synopsis & Summary

The petitioner challenges recovery proceedings initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, by the respondent bank. The challenge is grounded on two primary objections: (i) limitation under Section 36 read with the Limitation Act, and (ii) lack of satisfaction of the prerequisites for initiating a proceeding under Section 13(2) of the SARFAESI Act. The court examines the limitation aspect, noting that Article 62 of the Limitation Act prescribes a 12-year period for enforcement of money secured by a mortgage, to run from the date the debt became due; in this case, that date is traced to the loan recall in February 2000. The respondent bank relies on E.P. Sreedharan v. The Manager Indian Bank (2011) KLJ 633 to contend that limitation runs from the decree dated 24.07.2002 under Article 136. The court accepts that a debt under SARFAESI can include a debt payable under a decree and holds that the limitation for recovery measures under Section 13(4) must be observed within the Limitation Act, rendering the 13(2) notice issued in May 2013 timely. On the second ground, the petitioner argues that without declaring the debt as NPA, SARFAESI proceedings cannot be initiated; the bank cites Keshavlal Khemchand and Sons Pvt. Ltd. v. UOI (2015) SCC 770 and RBI guidelines that support treating the account as NPA. The court nonetheless finds no obstacle to recovery, notes that the account was treated as NPA in accordance with RBI norms, and dismisses the petition with no costs.

Provisions of Law Cited

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2); Section 36Limitation Act, 1963 - Article 62; Article 136Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 2(ha); Clause (g) of Section 2

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner argued that the recovery action under SARFAESI is time-barred under the Limitation Act and that Section 13(2) compliance was not satisfied; further argued that without proper NPA declaration the proceedings should not proceed, relying on Article 62 and Article 136 of the Limitation Act and on precedents like E.P. Sreedharan, Keshavlal Khemchand and Sons Pvt. Ltd., and RBI guidelines for NPA classification.

Contentions of Respondents

The bank argued that the debt is a decree-based debt under the SARFAESI Act and that the limitation should be governed by Article 136 from the decree date; they maintained that notice under Section 13(2) in 2013 is timely and that the debt falls within the SARFAESI framework, supported by prior case law and RBI norms.

Cited Precedents (3)

Case Name	Citation	Treatment	Explanation
EP Sreedharan v. The Manager Indian Bank & Anr.	2011(2) KLJ 633	Positive	Used to support the view that limitation in SARFAESI matters can be governed by Article 136 from the decree date, influencing the timing of Section 13(2) notices.
Keshavlal Khemchand and Sons Private Limited and Others v. Union of India	(2015) 4 SCC 770	Positive	Cited to contend that a debt must be declared NPA for SARFAESI proceedings, supporting the RBI-based NPA classification asserted in the case.
Mardia Chemicals Ltd. v. Union of India	(2004) 4 SCC 311	Positive	Cited for RBI guidelines on income recognition and asset classification, underpinning the NPA discussion in the judgment.

Extracted Judgment Text

Exact text extracted from official judgment records.

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **TUESDAY, THE 7TH DAY OF FEBRUARY 2017/18TH MAGHA, 1938** **WP(C).No. 25010 of 2016 (A) ----------------------------** **PETITIONER :** **ABHILASH BERLY, S/O.P.S.BERLY, PALLIPARAMBIL,KATTOOR.P.O, PIN-688546.** **BY ADV. SRI.K.C.SUDHEER** **RESPONDENT :** **THE FEDERAL BANK LIMITED,** **MARARIKULAM BRANCH,KALITHATTU JUNCTION, ALAPPUZHA DISTRICT,REPRESENTED BY ITS AUTHORISED OFFICER/CHIEF MANAGER - 688001** **BY ADV. SRI.REJI GEORGE BY ADV. SRI.BINOY DAVIS** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 07-02-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **bp** **WP(C).No. 25010 of 2016 (A)** **----------------------------** ## **APPENDIX** |**PETITIONER(S)'**|**EXHIBITS**| |---|---| |**-----------------------**|| |**EXHIBIT P1:**|**TRUE COPY OF PLAINT DATED 6.9.2000 IN O.S**| ||**131/00 FILED BY BEFORE THE SUB COURT,ALAPPUZHA**| |**EXHIBIT P2:**|**TRUE COPY OF THE JUDGMENT DATED 24.7.02 IN**| ||**O.S.131/00 OF THE SUB COURT,ALAPUZHA**| |**EXHIBIT P3:**|**TRUE COPY OF THE NOTICE DATED 21.1.13 OF THE**| ||**RESPONDENT TO THE PETITIONER**| |**EXHIBIT P4:**|**TRUE COPY OF THE OBJECTION DATED 21.3.13 OF**| ||**THE PETITIONER TO THE RESPONDENT**| |**EXHIBIT P5:**|**TRUE COPY OF THE NOTICE DATED 15.5.13 OF THE**| ||**PETITIONER TO THE RESPONDENT**| |**EXHIBIT P6:**|**TRUE COPY OF THE OBJECTION DATED 13.7.13 OF**| ||**THE PETITIONER TO THE RESPONDENT**| |**EXHIBIT P7:**|**TRUE COPY OF THE REPLY DATED 18.7.2013 OF THE**| ||**RESPONDENT TO THE PETITIONER.**| |**EXHIBIT P8:**|**COPY OF THE REPLY DT 24/9/2013 OF THE**| ||**RESPONDENT TO THE PETITIONER.**| |**EXHIBIT P8:**|**TRUE COPY OF THE NOTICE DATED 19.7.2016 OF THE**| ||**ADV. COMMISSIONER TO THE PETITIONER.**| |**RESPONDENT(S)'**|**EXHIBITS**<br>**:**<br>**NIL.**| ||**//TRUE COPY//**| ||**P.A. TO JUDGE**| ## **bp** *CR* ## K. VINOD CHANDRAN, J - - - - - - - - - - - - -- - - - - - - - - - - - - - - - W.P(C) No. 25010 of 2016 A - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 07[th] day of February, 2017 ## J U D G M E N T The petitioner is aggrieved with the recovery proceedings initiated under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'SARFAESI' Act) The challenge raised is on two grounds; one of limitation and the other of the necessary requirement for initiating a proceeding under Section 13(2) of the SARFAESI Act having not been satisfied. 2. The ground of limitation is urged on the contention that, as per Section 36 of the SARFAESI Act, there is a limitation provided for taking proceedings under WPC.No.25010/2016 : 2 : the Act, which is relatable to the limitation as provided in the Limitation Act. Article 62 of the Limitation Act, provides a period of 12 years, for enforcement of payment of money secured by a mortgage; which has to run from the date when the money became due, which in the instant case, relates back to the date on which the amounts were recalled in the year 2000. 3. The brief facts to be noticed are that the petitioner availed a credit facility from the respondent Bank on 10.03.1999 of Rs.3,00,000/-. The petitioner also mortgaged his property for the aforesaid loan. The Bank filed a suit numbered as O.S No.131/2000, the plaint of which is produced as Ext.P1, on 06.09.2000. The notice was issued prior to the filing of the suit on 05.02.2000 and the WPC.No.25010/2016 : 3 : suit was decreed on 24.07.2002 by Ext.P2. A proceeding for execution of the decree, is filed before the Debt Recovery Tribunal Ernakulam numbered as O.A 426/2013. The present proceedings under the SARFAESI Act, initiated first in 2013, is challenged on the ground that the limitation expired in 2012, taking the period when the period of limitation as commenced on 05.02.2000, on which date, the loan was recalled and notice was issued. 4. The learned Counsel for the respondent Bank however relies on 2011(2) KLJ 633 (E.P Sreedharan v. The Manager Indian Bank & Anr.) to contend that the limitation applicable, insofar as a decree having been obtained, would be Article 136 of the Limitation Act, which runs from the date of decree; i.e., 24.07.2002. The WPC.No.25010/2016 : 4 : notice under Section 13(2) is dated 15.05.2013 as is seen from Ext.P5, well within the limitation period prescribed, based on which the present proceedings are continued. The argument is advanced on the contention that a decree too would come within the definition of a debt as defined in the SARFAESI Act. 5. A debt as defined under the SARFAESI Act is as here-under: Section 2(ha): “debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993...” Hence clause (g) of Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is also WPC.No.25010/2016 : 5 : relevant which is extracted here-under: “debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or a by consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the WPC.No.25010/2016 : 6 : application.” 6. A debt hence inter alia means a liability payable under a decree or order of any Civil Court. The decree being defined a debt under the SARFAESI Act, the limitation as provided under Section 36 of the SARFAESI Act would have to be related to Article 136 of the Limitation Act, which is the period of limitation provided for execution of a decree. 7. Section 36 of the SARFAESI Act is extracted herein below: S.36 Limitation: “No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of Section13, unless his claim in respect of the financial asset is made WPC.No.25010/2016 : 7 : within the period of limitation prescribed under the Limitation Act, 1963” 8. The measures under sub section (4) of Section 13 has to be taken within the period of limitation prescribed under the Limitation Act, 1963 and hence for recovery of the amounts due under a decree, the limitation provided in the Limitation Act; being twelve years from the date of decree, the notice issued under the SARFAESI Act, is well within the period of limitation. 9. Further contention taken is of the debt having not been declared as a non performing asset (NPA). The learned Counsel would specifically refer to ground D in the writ petition to contend that the same has not been controverted by the respondent in their counter affidavit. WPC.No.25010/2016 : 8 : Reliance is also placed on 2015(4) SCC 770 (Keshavlal Khemchand and Sons Private Limited and Others v. Union of India) to contend that unless there is declaration of debt as a Non-Performing Asset (NPA) there could be no proceedings taken under the SARFAESI Act, 10. In the present case, the notice issued under Section 13 (2) is at Ext.P3. The notice itself specifically says that the account became a NPA (Non Performing Asset) as per the guidelines of the Reserve Bank of India. The guidelines of the RBI mandate the account to be classified as an NPA when there is a default made for a specified period and the loan remains unserviced. “RBI's Prudential Norms on Income Recognition, Asset Classification and Provisioning---Pertaining to Advances” brought out by a WPC.No.25010/2016 : 9 : Circular dated 30.08.2001 are the guidelines issued by the RBI. This has been extracted, in Mardia Chemicals Ltd. Vs Union Of India (2004) 4 SCC. 311. An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A Non Performing Asset, as per the circular, is defined as a credit facility in respect of which the interest and/or instalment of principal has remained 'past due' for a specified period of time, which from 1995 onwards was two quarters. As of now it is one quarter is the submission of the learned Counsel appearing for the respondent bank. 11. In any event, here, the petitioner does not have a contention that he has made any repayment as stipulated in the original agreement at least after the WPC.No.25010/2016 : 10 : decree has been passed. In such circumstance, the contention that the account has not been declared as an NPA is a mere ruse to get over the recovery proceedings. This Court does not find any reason to thwart the recovery proceedings initiated by the respondent Bank. In such circumstance, writ petition would stand dismissed. No costs. Sd/- (K. VINOD CHANDRAN, JUDGE) jma //true copy// P.A to Judge