Jaffar v. The Dhanalakshmi Bank Limited and State of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE K.RAMAKRISHNAN** ## **THURSDAY, THE 30TH DAY OF JANUARY 2014/10TH MAGHA, 1935** ## **Crl.MC.No. 938 of 2014** ## **--------------------------** **CRL.MP.NO. 132/2012 OF CHIEF JUDICIAL MAGISTRATE COURT, PALAKKAD DATED 03-01-2014** **.....** ## **PETITIONER(S):1ST RESPONDENT:** **-----------------------------------------------------** **JAFFAR, S/O.UMMER K.T, KURUPPAM THODIYI HOUSE, MELE PATTAMBI P.O. 679 303, PALAKKAD DISTRICT (PROPRIETOR, BISMI TRADING COMPANY, 2/36B, PERINTHALMANNA ROAD, SANKARAMANGALAM, PATTAMBI).** **BY ADVS.SRI.K.G.BALASUBRAMANIAN SMT.AMBILY PREMKUMAR** ## **RESPONDENT/PETITIONER:** **------------------------------------------** **1. THE DHANALAKSHMI BANK LIMITED., REPRESENTED BY ITS PATTAMBI BRANCH, REPRESENTED BY ITS AUTHORISED OFFICER, SUNIL K., ASSOCIATE VICE PRESIDENT (LAW), DHANALAKSHMI BUILDINGS, POONKUNNAM, THRISSUR 682 001.** **2. STATE OF KERALA, REPRESENTED BY PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.** **R2 BY PUBLIC PROSECUTOR SRI.K.K.RAJEEV** **THIS CRIMINAL MISC. CASE HAVING COME UP FOR ADMISSION ON 30-01-2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **Kss** ## **Crl.MC.No. 938 of 2014** **---------------------------------** ## **APPENDIX** **PETITIONER(S)' ANNEXURE: -----------------------------------------** **ANNEXURE 1. COPY OF ORDER DATED 3/01/2014 IN CRL. MP.NO. 132/14 BEFORE** **THE CHIEF JUDICIAL MAGISTRATE, PALAKKAD.** **RESPONDENT(S)' ANNEXURES: ----------------------------------------------N I L** **/TRUE COPY/** **P.S.TO JUDGE** **Kss** **“CR”** ## **K. RAMAKRISHNAN, J.** ................................................. Crl.M.C.No.938 of 2014 .................................................. Dated this the 30th day of January, 2014. ## **O R D E R** This is an application filed by the petitioner, who is the first respondent in Crl.M.P.No.132/2012 on the files of the Chief Judicial Magistrate Court, Palakkad, to quash Annexure-1 order under Section 482 of the Code of Criminal Procedure. 2. It is alleged in the petition that, the first respondent Bank moved the court below seeking assistance for taking possession of certain property said to be secured asset under the Securitisation and Reconstruction of Financial Assets and Enforcement of the Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act). The court below earlier passed an order, which was challenged by the petitioner before this Court by filing Crl.M.C.No.4770/2013 and this Court allowed the application and directed the court below to decide the matter afresh in accordance with law. Thereafter Annexure- 1 order has been passed by the learned Chief Judicial Magistrate, which is being challenged before this Court. 3. Heard the counsel for the petitioner on the question of admission itself. The only allegation was that the procedure to be Crl.M.C.No.938 of 2014 2 followed under Section 13 of the SARFAESI Act has not been followed by the Bank before resorting to the proceedings under Section 14 of the Act. 4. There is no dispute regarding the fact that there was loan transaction between the petitioner and the respondent bank on furnishing security of the property belonging to the petitioner. It is also not in dispute that default has been committed by the petitioner in payment and amounts are due to the bank from the petitioner. It may be mentioned here that the SARFAESI Act itself has been enacted for the purpose of enabling the financial institutions to get speedy remedy to recover the amounts due to them from the borrower by proceeding against secured interest without the intervention of the court. 5. Section 13 of the SARFAESI Act (prior to amendment) deals with Enforcement of Security Interest, which reads as follows: _13._ _**Enforcement of security interest:-** (1) Notwithstanding anything contained in Section 69 or Section 69A 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 the court or tribunal, by such creditor in accordance with the provisions of this Act._ Crl.M.C.No.938 of 2014 3 _(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)._ _(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._ _[(3-A) If, on receipt of the notice under subsection (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 one week 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 borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A]._ _(4). In case the borrower fails to discharge his liability in full within the period specified in subsection (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;_ Crl.M.C.No.938 of 2014 4 _(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 for 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;_ _(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._ _(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 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_ Crl.M.C.No.938 of 2014 5 _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 o 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) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor and no further step shall be taken by him for transfer or sale of that secured asset._ _(9) 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 three-forth 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 529- A of the Companies Act, 1956 (1 of 1956):_ _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 (1of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues within the liquidator in accordance with the provisions of Section 529-A 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_ Crl.M.C.No.938 of 2014 6 _the provisions of Section 529-A 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 or 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 to 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._ _Explanation- For the purposes of this subsection-_ _(a) “record date” means the date agreed upon by the secured creditors representing not less than three-fourth in value of that 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_ Crl.M.C.No.938 of 2014 7 _(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._ _(13) No borrower shall, after receipt of notice referred to in subsection (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.”_ 6. If they want to get possession of the property without resorting to take possession by themselves, then they can seek the assistance for taking possession through the court resorting to Section 14 of the Act (prior to amendment), which reads as follows: _14.Chief Metropolitan Magistrate or District Magistrate to assist - secured creditor in taking possession of secured asset_ _(1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him-_ _(a) take possession of such asset and documents relating thereto; and_ Crl.M.C.No.938 of 2014 8 _(b) forward such asset and documents to the secured creditor._ _(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary._ _(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.”_ ## 7. The Chief Judicial Magistrate will entertain the application only on satisfaction that the procedure provided under Section 13 has been compiled with by the Bank. Only if such satisfaction is made, then only the Magistrate shall proceed with the matter. Earlier this Court has held in the decision reported in **Sami v. Bank of India** (2011 (3) KLT 554) that invoking Section 14 of the SARFAESI Act itself will be an act of the Bank under Section 13(4) of the SARFAESI Act and that cannot be questioned by filing writ petition under Section 226 of the Constitution of India and the remedy of the borrower is to file an appeal under Section 17 of the SARFAESI Act. The same view has been reiterated by the Division Bench of the Madras High Court also in the decision reported in **M/s. Saraspathy** **Sundararaj v. Authorised Officer and Assistant General** Crl.M.C.No.938 of 2014 9 **Manager, State Bank of India** (AIR 2011 Madras 1). Further in the decision in **Sami's case** (supra), this Court has held that it is not necessary that possession of the property must be taken by invoking Section 13(4) or Section 14 of the SARFAESI Act for giving rise to a right for the borrower to file an appeal under Section 17 of the SARFAESI Act. This was supported by an earlier decision of the Supreme Court in **Kanaiyalal Lalchand** **Sachdev and Others v. State of Maharashtra and Others** (2011 (2) SCC 782) and the Supreme Court has held that, it is well settled that extra ordinary relief under Sections 226 and 227 of the Constitution of India is not available, if an efficacious alternate remedy is available to any aggrieved person. In that case, it has been held that initiating proceedings under Section 14 of the SARFAESI Act will be deemed to be an action for enforcement of possession under Section 13(4) and the remedy of the borrower is to file an appeal. But, now in a recent decision of the Supreme Court in **Standard Chartered Bank v. Noble Kumar** (2013 (4) KLT 531(SC), it has been held that right to file an appeal will arise to a borrower only if, dispossession is done by invoking Section 13(4) and Section 14 of the SARFAESI Act. Crl.M.C.No.938 of 2014 10 But, in that case also, the Hon'ble Supreme Court interfered with the order of the High Court and set aside the same holding that as on the date of filing of the application by the Bank, there exists no obligation on the part of the Magistrate to undertake any exercise to conduct any enquiry and allowed the appeal filed by the Bank holding that in view of the delaying tactics made by the borrower, they are not entitled to file appeal under Section 17 of the Act but leaving open the right of the borrower to seek for restoration of possession as provided under Section 13(8) of the SARFAESI Act. 8. In this case, earlier the petitioner has filed Crl.M.C.No.4770/2013 before this Court questioning maintainability of the application under Section 14 of the SARFAESI Act before the Chief Judicial Magistrate and this Court disposed of Crl.M.C.No.4770/2013 with the following direction: _“In the facts and circumstances noticed above, the Crl.M.C is disposed of, directing the Chief Judicial Magistrate, Palakkad to consider CMP.No.6409/2013 and to pass orders in accordance with law within a period of one month from the date of receipt of a copy of the judgment. Proceedings initiated under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 shall be kept in abeyance_ Crl.M.C.No.938 of 2014 11 _till the disposal of Annexure 5 petition'._ 9. It is seen from the impugned order that, after the receipt of the order of this Court, the case was posted for hearing the question of maintainability and thereafter the petitioner in that case obtained an order from this Court to dispose of the petition within two months. It is also mentioned in the order that, even though the petition was posted for hearing, the respondent, who is the petitioner herein, was continuously absent. Further it can be presumed that the Chief Judicial Magistrate will be proceeding with the application for assisting the Bank to take possession under Section 14 of the Act only if he is convinced that the procedure to be followed under Section 13 of the Act has been complied with by the respondent Bank unless the contrary is proved by the petitioner herein. Except asserting that procedure contemplated under Section 13 has not been complied with, there is nothing brought out before this Court also as to how the procedure has not been complied with. Further the proceedings were initiated in the year 2012 prior to amendment of Section 14 of the Act in the year 2013 and during that time Crl.M.C.No.938 of 2014 12 the scope of enquiry by the Chief Judicial Magistrate is limited as he needs only satisfy with the document produced and no elaborate enquiry is also contemplated. It appears that the attempt of the petitioner is only a rouse to prolong the proceedings to avoid payment and nothing more. I do not find any reason to interfere with the impugned Annexure-1 order passed by the Chief Judicial Magistrate directing Commissioner to take possession of the property in order to enforce the right of the Bank to take possession of the property under Section 13 of the SARFAESI Act. It is needless to say that, after dispossession, if the borrower is aggrieved by the order as provided in the decision reported in **Standard Chartered Bank** (supra), he can avail the remedies available under the Act. With the above observation and direction, this petition is dismissed. ## **Sd/-** ## **K. RAMAKRISHNAN, JUDGE.** cl /true copy/ P.S to Judge