Federal Bank Ltd. v. PEEYAR EXPORTERS, PEEYAR ANEX & KERALA STATE CONSUMER DISPUTES REDRESSAL COMMISSION

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR** **MONDAY, THE 11[TH] DAY OF OCTOBER 2021 / 19TH ASWINA, 1943 WP(C) NO. 12493 OF 2021** ## **PETITIONER/S:** **FEDERAL BANK LTD., EAST FORT BRANCH, EAST FORT, THRISSUR - 5 REPRESENTED BY ITS RELATIONSHIP MANAGER SIJO C. C.** **BY ADVS. MADHU RADHAKRISHNAN M.D.JOSEPH NELSON JOSEPH DEEPAK ASHOK KUMAR** ## **RESPONDENTS:** |**1**|**PEEYAR EXPORTERS,**| |---|---| ||**PEEYAR ANEX,**| ||**DOOR NO.X/779-55, 56, 57, 58, 59 & 60,**| ||**CHURCH CIRCLE,**| ||**THRISSUR - 680 001,**| ||**REPRESENTED BY ITS MANAGING PARTNER RAPHY**| ||**ANTONY.**| |**2**|**KERALA STATE CONSUMER DISPUTES REDRESSAL**| ||**COMMISSION,**| ||**VAZHUTHACAUD,**| ||**THIRUVANANTHAPURAM,**| ||**PIN - 695014.**| ||**BY SRI.S.VINOD BHAT, STANDING COUNSEL**| 2 W.P.(C) No.12493 of 2021 **SMT.ANAGHA LAKSHMY RAMAN SMT.GREESHMA CHANDRIKA.R SMT.PRINCY XAVIER, GOVERNMENT PLEADER** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 05.10.2021, THE COURT ON 11.10.2021 DELIVERED THE FOLLOWING:** 3 W.P.(C) No.12493 of 2021 **P.B.SURESH KUMAR, J. --------------------------------------------------------W.P.(C) No.12493 of 2021 ---------------------------------------------------------Dated this the 11[th] day of October, 2021.** ## **J U D G M E N T** Petitioner is a banking company carrying on business under the Banking Regulation Act, 1949, having branches at various places in the State including Thrissur. The first respondent, a partnership firm engaged in the business of export of gold ornaments has been enjoying, among others, an export packing credit facility and a cash credit facility from the petitioner since 2016 on the strength of the various securities including movable and immovable properties. It is stated by the petitioner that it was observed in course of time that the first respondent was utilising the export packing credit facility 4 W.P.(C) No.12493 of 2021 granted to them for purposes other than their export business and the petitioner had to recall, in the circumstances, the said facility, while permitting them to enjoy the remaining facilities. It is stated by the petitioner that the cash credit facility extended by them to the first respondent is one to be renewed from time to time and despite the specific directions, the first respondent refused to renew the said facility. It is also stated by the petitioner that in the said circumstances, the petitioner had to classify the accounts of the facilities extended to the first respondent as non-performing assets on 1.3.2021 as per the norms in force. In the meanwhile, on 12.2.2021, the first respondent had instituted Ext.P3 complaint before the second respondent, the Kerala State Consumer Disputes Redressal Commission (the State Commission) as C.C.No.4 of 2021 alleging deficiency of service on the part of the petitioner and sought a sum of Rs.1,50,00,000/- by way of compensation from them. In Ext.P3 complaint, the first respondent had filed an W.P.(C) No.12493 of 2021 5 interlocutory application as I.A.No.145 of 2021, seeking a direction to the petitioner to refrain from taking any coercive action against them including declaration of their accounts as non-performing assets. On 3.3.2021, the State Commission passed Ext.P4 interim order in I.A.No.145 of 2021 directing the petitioner to refrain from taking any coercive action against the first respondent or in respect of their accounts including declaration of the same as non-performing assets. Ext.P4 is under challenge in the writ petition. 2. Heard the learned counsel for the petitioner as also the learned counsel for the first respondent. 3. The learned counsel for the petitioner contended that in the light of Sections 34 and 35 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act), the State Commission is precluded from passing an interim order in the nature of one impugned in the writ petition. 6 W.P.(C) No.12493 of 2021 4. Per contra, the learned counsel for the first respondent contended that the State Commission is not denuded of authority to pass an interim order in the nature of Ext.P4. It was also contended by the learned counsel that in the light of the decision of the Apex Court in **Cicily Kallarackal v. Vehicle Factory** (2012) 8 SCC 524, the writ petition is not maintainable. It was pointed out by the learned counsel that **Cicily Kallarackal** is a case where this Court had entertained a writ petition challenging a decision of the National Consumer Disputes Redressal Commission (the National Commission), against which an appeal was provided before the Apex Court in terms of the provisions of the Consumer Protection Act, 1986 which was in force then. It was argued by the learned counsel that although the proposition laid down by the Apex Court in **Cicily Kallarackal** was that High Courts shall not entertain writ petitions against orders issued by the forums under the Consumer Protection Act, 1986, it was understood by the High W.P.(C) No.12493 of 2021 7 Courts that the said decision would only preclude High Courts from entertaining writ petitions against the decisions of the National Commission. It was pointed out by the learned counsel that the Madhya Pradesh High Court has entertained a writ petition against an order passed by the State Commission ignoring the decision of the Apex Court in **Cicily Kallarackal** and in SLP No.4127 of 2021 preferred against the said decision, the Apex Court expressed the view that in the light of **Cicily Kallarackal** , the High Court ought not to have entertained the writ petition. According to the learned counsel, in the light of the decision of the Apex Court in **Cicily Kallarackal** and the order passed in SLP No.4127 of 2021, the writ petition is only to be dismissed as not maintainable. 5. Section 2(1)(j) of the SARFAESI Act dealing with the definition of 'default' reads thus : ”2. (1) In this Act, unless the context otherwise requires,— x x x x x x x x x 8 W.P.(C) No.12493 of 2021 ## ( _j_ ) “default” means— - ( _i_ ) non-payment of any debt or any other amount payable by the borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor; or - ( _ii_ ) non-payment of any debt or any other amount payable by the borrower with respect to debt securities after notice of ninety days demanding payment of dues served upon such borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of such debt securities;” ## Section 2(1)(o) of the the SARFAESI Act dealing with the definition of 'non-performing asset' reads thus : - ”( _o_ ) “non-performing asset” means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset,— - ( _a_ ) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the 9 W.P.(C) No.12493 of 2021 directions or guidelines relating to assets classifications issued by such authority or body; ( _b_ ) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank;” ## Section 13 of the SARFAESI Act dealing with 'enforcement of security interest' reads thus : ## ” **13. Enforcement of security interest** .— (1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4): [PROVIDED that— 10 W.P.(C) No.12493 of 2021 - ( _i_ ) the requirement of classification of secured debt as nonperforming asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and - ( _ii_ ) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee;] (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. [(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate [within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: PROVIDED that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the 11 W.P.(C) No.12493 of 2021 borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17A.] (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 realising 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 realising 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.] - ( _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; 12 W.P.(C) No.12493 of 2021 ( _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. (5) Any payment made by any person referred to in clause ( _d_ ) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. [(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of Section 13. 13 W.P.(C) No.12493 of 2021 (5C) The provisions of Section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under subsection (5A).] (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of 14 W.P.(C) No.12493 of 2021 publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,— - ( _i_ ) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and - ( _ii_ ) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.] (9) [Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of] financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than [sixty percent] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: PROVIDED that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956): 15 W.P.(C) No.12493 of 2021 PROVIDED FURTHER that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of Section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of that Act: PROVIDED ALSO that liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: PROVIDED ALSO that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: PROVIDED ALSO that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. 16 W.P.(C) No.12493 of 2021 _Explanation_ .—For the purposes of this sub-section,— - ( _a_ ) “record date” means the date agreed upon by the secured creditors representing not less than [sixty percent] in value of the amount outstanding on such date; - ( _b_ ) “amount outstanding” shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses ( _a_ ) to ( _d_ ) of sub-section (4) in relating to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. 17 W.P.(C) No.12493 of 2021 (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.” It is evident from the extracted definitions and provision that if a borrower commits default in remitting the amounts payable to a secured creditor, if the secured creditor wants to enforce the security as provided for in the the SARFAESI Act, it is obligatory for the secured creditor to classify the account of the borrower as a non-performing asset in accordance with the directions issued by its regulatory bodies or the Reserve Bank of India, as the case may be. In other words, classification of the account of a borrower as non-performing asset is an action taken or to be taken by a secured creditor in pursuance of the power conferred under the SARFAESI Act for enforcing the security interests created in its favour by its borrowers in terms of the 18 W.P.(C) No.12493 of 2021 provisions of the said statute. That apart, there cannot be any doubt to the fact that enforcement of security interest created by a borrower in favour of a secured creditor is certainly a coercive action, in so far as the borrower is concerned. The question to be examined is as to whether the State Commission could issue an interim order prohibiting coercive actions under the SARFAESI Act. 6. Section 34 of the SARFAESI Act reads thus : ” **34. Civil court not to have jurisdiction** .—No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).” Although the first part of the Section ousts only the jurisdiction of civil courts to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate 19 W.P.(C) No.12493 of 2021 Tribunal is empowered by or under the SARFAESI Act to determine, the latter part of the section expressly bars the jurisdiction of not only civil courts, but also other authorities from granting any injunctions in respect of any action taken or to be taken in pursuance of any power conferred by or under the SARFAESI Act. There cannot be any doubt that the State Commission would fall within the scope of the expression 'other authority' in terms of Section 34 of the SARFAESI Act. Needless to say that in so far as the jurisdiction of courts and other authorities to pass orders injuncting any action taken or to be taken in pursuance of any power conferred by or under the SARFAESI Act has been specifically ousted in terms of Section 34 of the said statute, no court or authority will have jurisdiction to grant an order of injunction in respect of any such action. There is no dispute to the fact that the petitioner is a secured creditor entitled to enforce security interest created in its favour by the first respondent. In other words, the impugned 20 W.P.(C) No.12493 of 2021 order being one restraining the petitioner from taking action in pursuance of the power conferred on it under the SARFAESI Act, the same is one passed without jurisdiction. 7. It is seen that similar view has been taken by this Court in **Punjab National Bank v. Consumer Disputes Redressal Forum** , 2011 (3) KLT 616 and in **B.Reghu v. State Bank of Travancore** , 2015 (3) KLT 645, relying not only on Section 34 of the SARFAESI Act but also Section 35. Section 35 of the SARFAESI Act reads thus : ## “35. **The provisions of this Act to override other laws.** The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” The Consumer Protection Act, 1986 has now been repealed and re-enacted as Consumer Protection Act, 2019. The impugned order is one issued on a complaint instituted in terms of the reenacted statute. Since the re-enacted statute was not a statute which was in force at the time when the SARFAESI Act was 21 W.P.(C) No.12493 of 2021 brought into force, though it would appear that the provision contained in Section 35 of the said statute may not apply to the proceedings instituted under the re-enacted statute, according to me, there cannot be any doubt as regards the application of Section 35 of the SARFAESI Act to a proceedings instituted under the Consumer Protection Act, 2019 also for, the said statute being one re-enacted after repealing the earlier one which was in force, the same is liable to be treated as a statute brought into force in continuation of the earlier one. I am fortified in this view by the decision of the Apex Court in **Gammon India Ltd. v. Spl. Chief Secy.** , (2006) 3 SCC 354 where, the Apex Court has took the view, placing reliance on the judgment of the U.S. Court of Appeals in **The Pentheny, Ltd. v. Govt. of the Virgin Islands** , [360 F. 2d 786 (3rd Cir. 1966)], that a statute which is repealed and re-enacted is liable to be treated as a statute brought into force in continuation of the earlier one. The passage in the judgment of U.S. Court of 22 W.P.(C) No.12493 of 2021 Appeals which was quoted with approval by the Apex Court in **Gammon India** reads thus : “Simultaneous repeal and re-enactment of substantially the same statute, or part thereof, is a substitution and not a repeal, and the statute, or part thereof, thus substituted is construed as a continuation of the original provisions to the extent re-enacted and jurisdiction of administrative agency under such statute is not disturbed as to those provisions which were continued under the new statute.” 8. I shall now deal with the contention raised by the learned counsel for the first respondent as regards the maintainability of the writ petition. As pointed out by the learned counsel for the first respondent, **Cicily Kallarackal** is a case where a writ petition was entertained by this Court against the decision rendered by the National Commission. It was held by the Apex Court in the said case that it is not appropriate for the High Courts to entertain writ petitions under Article 226 of the Constitution against orders passed by the National Commission against which an appeal is provided for and lies 23 W.P.(C) No.12493 of 2021 before the Apex Court under the statute. It was also held by the Apex Court in the said case that once the legislature has provided for a statutory appeal to a higher court, it may not be appropriate to permit the parties to bypass such statutory appeals and entertain petitions under Article 226 of the Constitution. I have perused the decision of the Madhya Pradesh High Court dealt with by the Apex Court in SLP No.4127 of 2021 and the order passed by the Apex Court in the Special Leave Petition. True, it is observed in the order in SLP No.4127 of 2021 that the writ petition dealt with by the Madhya Pradesh High Court is not maintainable. According to me, merely on account of the said observation alone, the order of the Apex Court cannot be understood as one laying down the proposition that no writ petition can be entertained against any order of the forums constituted under the Consumer Protection Act, 2019 even if they are vitiated by lack of jurisdiction, for the very purpose of the jurisdiction conferred on the High Courts under 24 W.P.(C) No.12493 of 2021 Article 226 of the Constitution is to ensure that judicial or quasi judicial tribunals or administrative bodies do not exercise their powers in excess of their statutory limits. When a statue ousts courts and other authorities from granting injunctions in respect of a particular matter, orders issued flouting the said provision would certainly be vitiated by excessive exercise of jurisdiction, and according to me, it is the duty of the High Court to ensure that courts and authorities do not exercise such powers. As it is found that the impugned order is one passed in excess of the jurisdiction vested in the State Commission, the contention as regards the maintainability of the writ petition is only to be rejected and I do so. In the result, the writ petition is allowed and the impugned order is quashed. Sd/- **P.B.SURESH KUMAR, JUDGE.** rkj 25 W.P.(C) No.12493 of 2021 ## **APPENDIX OF WP(C) 12493/2021** **PETITIONER EXHIBITS Exhibit P1 COPY OF THE SANCTION LETTER DATED 10.07.2019. Exhibit P2(a) COPY OF THE EMAIL DATED 3.8.2020. Exhibit P2(b) COPY OF THE EMAIL DATED 28.8.2020. Exhibit P2(c) COPY OF THE EMAIL DATED 29.8.2020. Exhibit P3 COPY OF THE CONSUMER COMPLAINT NO.4/2021. Exhibit P4 COPY OF THE ORDER DATED 03.03.2021 IN I.A.NO.145/2021 IN CC NO.4/2021. Exhibit P5 COPY OF THE JUDGMENT OF THIS HON'BLE COURT IN W.P.(C) NO.5957/2011(T). Exhibit P6 COPY OF THE JUDGMENT PASSED BY THIS HON'BLE COURT IN W.A.NO.1522 OF 2015.**