Dana Interiors Private Limited v Union of India, ECGC Limited, Reserve Bank of India, South Indian Bank Limited, Branch Manager, South Indian Bank Limited, Authorized Officer, South Indian Bank Limited

## `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR. JUSTICE GOPINATH P. ``` ``` WEDNESDAY, THE 30[TH] DAY OF NOVEMBER 2022 / 9TH AGRAHAYANA, 1944 ``` ## `WP(C) NO. 29793 OF 2021` ## `PETITIONER:` ``` 1DANA INTERIORS PRIVATE LIMITED DOOR NO 12/965(5), PHT ARCADE, IN GROUND FLOOR, OPP VIGILANCE &ANTI-CORRUPTION BUREAU, GB ROAD PALAKKAD, DISTRICT, PIN-678 001, REPRESENTED ITS DIRECTOR MS. HAFSA BY ADVS. SHAJI CHIRAYATH JIJI M. VARKEY SAVITHA GANAPATHIYATAN M.M.SHAJAHAN BHOOMIKA SAJAN ``` ## `RESPONDENTS:` - `1 UNION OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES, 3RD FLOOR, JEEVAN DEEP BUILDING, SANSAD MARG, NEW DELHI PIN-110 001, REPRESENTED BY ITS FINANCE SECRETARY` - `2 ECGC LIMITED, HDFC HOUSE, 2ND FLOOR, RAVIPURAM, M G ROAD, ERNAKULAM DISTRICT, PIN-682 015, REPRESENTED BY MANAGER` - `3 RESERVE BANK OF INDIA REPRESENTED BY ITS EXECUTIVE DIRECTOR & CHIEF VIGILANCE OFFICER, CENTRAL OFFICE BUILDING, SHAHID BHAGAT SINGH MARG MUMBAI-440 001.` - `4 SOUTH INDIAN BANK LIMITED, REGISTERED OFFICE, SIB HOUSE, T.B ROAD, MISSION QUARTERS THRISSUR DISTRICT, PIN-380006, REPRESENTED BY ITS MANAGING DIRECTOR` - `5 BRANCH MANAGER, SOUTH INDIAN BANK LIMITED, PALAKKAD BRANCH, D NO 12/858 JOBYS MALL.G.B ROAD, PALAKKAD(PO) PIN-678 001.` - `6 AUTHORISED OFFICER, SOUTH INDIAN BANK LIMITED, REGIONAL OFFICE, FIRST FLOOR, D &D ARCADE, CHITTUR ROAD, MANAPULLIKAVU, KUNNATHURMEDU, PALAKKAD DISTRICT, PIN-678 013.` ``` BY ADVS. VINU T.V. SUNIL SHANKER VIDYA GANGADHARAN ``` ``` WPC No.29793 of 2021 ``` 2 ``` THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 30.11.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ``` ``` WPC No.29793 of 2021 ``` 3 ## **JUDGMENT** ## **Dated this the 30[th] day of November, 2022** The petitioner has approached this Court seeking the following reliefs: “a. To issue writ of Mandamus directing the 02nd Respondent to disburse the ECGC amount of 50,50,259/- of the Petitioner to the 4 Respondent. b. Declare that specific performance of a Contractual liability pursuant to Exhibit P1 and P2 are frustrated when the State of Kerala put an embargo or restrictions on its citizens, restricting their movement and employment or business of Petitioner. c. To issue writ of Mandamus directing the 02nd Respondent to regularise Petitioner's loan accounts by paying defaulted amount along with regular instalments”. It is the case of the petitioner that the act of the respondent bank in declaring the accounts of the petitioner as a Non-Performing Asset and proceeding with action under the SARFAESI Act on that basis is ``` WPC No.29793 of 2021 ``` 4 ## completely illegal and unsustainable in law. 2. Firstly, it is the case of the petitioner that the petitioner is an exporter and was covered by the Export Credit Guarantee Scheme of the Export Credit Guarantee Corporation of India. It is submitted that an amount of approximately of Rs.51,00,000/- is the amount to be disbursed by the Export Credit Guarantee Corporation of India to the respondent bank in respect of certain exports made by the petitioner for which a claim has been raised on the ECGC. It is submitted that if that amount is given credit to, the accounts of the petitioner cannot be treated as Non-Performing Assets. 3. Secondly, it is pointed out that owing to restrictions placed by Covid-19 pandemic, the agreement between the petitioner and the bank was frustrated and was incapable of performance and therefore, going by the provisions of Section 56 of the Indian Contract Act, 1872, the petitioner is relieved ``` WPC No.29793 of 2021 ``` 5 from the obligations to perform his part under the terms of the contract. It is also submitted that under Section 65 of the Contract Act, the person who has received the benefit or advantage under a void agreement or a contract is bound to restore such benefit or advantage to the other party. It is submitted that the provisions of Section 65 do not, however, mean that proceedings can be initiated by the respondent bank under the provisions of the SARFAESI Act. 4. The learned counsel appearing for the respondent bank points out that the writ petition is clearly not maintainable. It is submitted that the prayer No.1 sought for by the petitioner is for adjustment of the amount received from the Export Credit Guarantee Corporation of India towards the loan liability of the petitioner. It is pointed out that the ECGC scheme envisages that any pay out by the Export Credit Guarantee Corporation of India is to be ``` WPC No.29793 of 2021 ``` 6 maintained in a separate account by the bank and the bank is bound to recover the entire amount due from the borrower. It is submitted that only the amount of short fall can be adjusted from the amount paid by the Export Credit Guarantee Corporation of India. It is submitted that the balance amount after such adjustment is to be refunded to the Export Credit Guarantee Corporation of India and therefore, prayer No.1 made by the petitioner is clearly not maintainable. It is submitted that the question of adjudicating prayer No.2 in proceedings under Article 226 of the Constitution of India does not arise. It is submitted that if the prayer of the petitioner is allowed it would mean that all contracts entered into during the Covid-19 pandemic would have to be declared null and void. It is submitted with reference to the judgment of the Hon'ble Supreme Court in **Small Scale Industrial Manufacturers Association v. Union of India [(2021) 8 SCC** ``` WPC No.29793 of 2021 ``` 7 **511]** , that the Hon'ble Supreme Court has found that it is for the Government of India and Reserve Bank of India to take such steps as may be necessary to grant relief to persons like the petitioner who may have been affected by the Covid-19 pandemic. It is submitted that the petitioner cannot seek a writ from this Court in proceedings under Article 226 of the Constitution of India to declare the contract as one which compels the petitioner to do an impossible act as contemplated by Section 56 of the Contract Act. It is submitted that if the petitioner has any grievance against the steps initiated by the respondent bank under the SARFAESI Act, it is for the petitioner to approach the Debts Recovery Tribunal by filing a Securitisation Application and a writ petition is not the appropriate remedy for the petitioner. 5. Having heard the learned counsel for the petitioner and the learned counsel appearing for the respondent bank, I am of the view that there is ``` WPC No.29793 of 2021 ``` 8 considerable merit in the contention taken by the learned counsel for the respondent bank. 6. Prayer No.1 made by the petitioner is for a direction to the 2[nd] respondent (Export Credit Guarantee Corporation of India) to release the amount of Rs.50,50,259/- to the 4[th] respondent bank. Obviously, this prayer is made on the basis that the amount disbursed by Export Credit Guarantee Corporation of India would be straight away adjusted against the liability of the petitioner. It is evident from Ext.R4(b) that the amount payable by the Export Credit Guarantee Corporation of India to the 4[th] respondent bank has been disbursed to the 4[th] respondent bank and the same is kept in a separate account by the 4[th] respondent bank as contemplated by the provisions of the ECGC Scheme. A perusal of the ECGC Scheme makes it clear that the payment of any amount by the ECGC does not absolve the bank of the responsibility to recover the entire amount due ``` WPC No.29793 of 2021 ``` 9 from the borrower. It is only to the extent of short fall in any recovery that amounts can be adjusted from the amount paid by the Export Credit Guarantee Corporation of India. It is also clear that the obligation of the bank to recover the entire amount from the borrower is not wiped out by the payment of any amount by the Export Credit Guarantee Corporation of India [see Ext.R4(a)]. Therefore, the payment of any amount by the Export Credit Guarantee Corporation of India to the bank under the provisions of the Scheme cannot be straight away adjusted against any liability of the petitioner and therefore, prayer No.1 sought for by the petitioner cannot be granted. 7. Prayer No.2 made by the petitioner is for a declaration that the performance of the obligations of the petitioner in terms of Exts.P1 and P2 agreements are frustrated on account of the restrictions placed by the Government of Kerala on the activities of citizens ``` WPC No.29793 of 2021 ``` 10 during the Covid-19 pandemic. Exts.P1 and P2 are loan agreements executed by the petitioner. If the prayer of the petitioner were to be accepted, it would mean that all contracts and agreements which places obligations on a party who may have been subject matter of certain restrictions on account of the Covid19 pandemic will have to be declared unenforceable in law and having no effect on account of the provisions contained in Section 56 of the Contract Act, 1872. The obligations of the petitioner in terms of Exts.P1 and P2 did not become impossible by virtue of restrictions placed on activities of the petitioner on account of the Covid-19 pandemic. It is evident from judgment of the Hon'ble Supreme Court of India in **Small Scale Industrial Manufacturers Association (Supra)** that the Government and the Reserve Bank of India have issued directions from time to time which also provided for extending emergency credit to borrowers who may have been ``` WPC No.29793 of 2021 ``` 11 affected by restrictions placed on account of the Covid-19 pandemic. While the petitioners may have been entitled to the benefit of such circulars extending emergency credit as also any circular imposing a moratorium etc subject to eligibility, the petitioner cannot be heard to contend that he is relieved from all obligations in terms of Exts.P1 and P2 agreements. 8. The only other prayer in the writ petition is for a direction to the 4[th] respondent bank to permit the petitioner to regularise the account by paying defaulted amounts along with regular instalments. In view of the submission of the learned counsel for the respondent bank that an original application has already been filed in the matter in respect of the loan accounts of the petitioner, the prayer for regularisation cannot be granted by this Court. The writ petition fails and it is accordingly dismissed. However, it is made clear that if the petitioner ``` WPC No.29793 of 2021 ``` 12 approaches the bank with a proposal for an OTS/ restructuring of the loan, the same shall be considered by the respondent bank in accordance with law. It is also made clear that it will be open to the petitioner to avail any statutory remedy that may be available to the petitioner against the proceedings initiated against the petitioner under the provisions of the SARFAESI Act. In order to enable the petitioner to seek any statutory remedy that is open to him, further proceedings under the SARFAESI Act shall be kept in abeyance for two weeks from today to enable the petitioner to seek appropriate interim reliefs in such proceedings. The period during which the writ petition was pending in this court from i.e. 21.12.2021 till today shall be excluded for the purpose of determining any period of limitation. ## **Sd/-** ## **GOPINATH P.** ## **JUDGE** SKP/30-11 ``` WPC No.29793 of 2021 ``` 13 ## `APPENDIX OF WP(C) 29793/2021` |`PETITIONER’S EXHIBITS:`|| |---|---| |`EXHIBIT P1`|`COPY OF THE SANCTION LETTER ISSUED BY THE 4TH`| ||`RESPONDENT DATED 20.5.2019`| |`EXHIBIT P2`|`COPY OF THE LOAN AGREEMENT OF BETWEEN THE`| ||`PETITIONER AND 4TH RESPONDENT DATED 20.5.2019`| |`EXHIBIT P3`|`COPY OF THE DEMAND NOTICE UNDER THE SARFAESI`| ||`ACT DATED 11.6.2021`| |`EXHIBIT P4`|`COPY OF THE REPLY/OBJECTION TO EXHIBIT P3`| ||`NOTICE DATED 10.8.2021`| |`EXHIBIT P5`|`COPY OF THE REJECTION NOTICE ISSUED BY THE 6TH`| ||`RESPONDENT DATED 24.8.2021`| |`EXHIBIT P6`|`COPY OF THE POSSESSION NOTICE ISSUED BY THE 6TH`| ||`RESPONDENT IN PROPERTY MENTIONED IN THE`| ||`SCHEDULE B ITEM NO 2 OF THE EXHIBIT P1 DEMAND`| ||`NOTICE DATED 26.10.2021`| |`EXHIBIT P7`|`COPY OF THE POSSESSION NOTICE ISSUED BY THE 6TH`| ||`RESPONDENT IN PROPERTY MENTIONED IN THE`| ||`SCHEDULE B ITEM NO 1 OF THE EXHIBIT P1 DEMAND`| ||`NOTICE DATED 10.11.2021`| |`RESPONDENT’S EXHIBITS:`|| |`EXT.R4(A)`|`TRUE COPY OF THE TERMS AND CONDITIONS PF EXPORT`| ||`CREDIT INSURANCE COVER FOR BANKS WHOLE TURNOVER`| ||`PACKING CREDIT -ECIB`| |`EXT.R4(B)`|`TRUE COPY OF THE LETTER DATED 4.3. 2022 OF THE`| ||`2ND RESPONDENT`| ||`TRUE COPY`| ||`P.A. TO JUDGE`|