M/S ALIN CASHEWS vs UCO Bank

_**WP(C).3891/22**_ 1 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.G.ARUN** **THURSDAY, THE 6[TH] DAY OF OCTOBER 2022 / 14TH ASWINA, 1944** ## **WP(C) NO. 3891 OF 2022** ## **PETITIONER/S:** 1 M/S.ALIN CASHEWS DOOR NO.KP-VI-459 B, MANGADU POST, KOLLAM 691015 REPRESENTED BY ITS MANAGING PARTNER MR.SHIHANSHA ABDUL SALAM, PIN - 691015 2 MR.SHIHANSHA ABDUL SALAM AGED 50 YEARS , SON OF MR.ABDUL SALAM, 25-7-622, KATTUPUTHUSSERY PALLICKAL, KILIMANNOOR THIRUVANANTHAPURAM- 695604, PIN - 695604 3 MRS.SHINYMOL AGED 41 YEARS WIFE OF MR.SHIHANSHA 25-7-622, KATTUPUTHUSSERY PALLICKAL, KILIMANNOOR THIRUVANANTHAPURAM- 695604, PIN - 695604 BY ADV B.J.JOHN PRAKASH ## **RESPONDENT/S:** UCO BANK REPRESENTED BY ITS AUTHORISED OFFICER, KHAISE BUILDING BEACH ROAD, KOLLAM DISTRICT-691001 REPRESENTED BY ITS AUTHORISED OFFICER, KHAISE BUILDING BEACH ROAD, KOLLAM DISTRICT-691001, PIN - 691001 BY ADV H.RAMANAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 1.9.2022, THE COURT ON 06.10.2022 DELIVERED THE FOLLOWING: _**WP(C).3891/22**_ 2 ## **V.G.ARUN, J. ----------------------------------------------W.P(C).No.3891 of 2022 ----------------------------------------------Dated this the 6[th] day of October, 2022** ## **JUDGMENT** The first petitioner is an MSME unit engaged in processing and trading of cashew. Petitioners 2 and 3 are partners of the first petitioner unit. The first petitioner availed cash credit and buyers credit facility from the respondent Bank, which, by the year 2018 stood enhanced to Rs.19,80,00,000/- According to the petitioners, even though regular repayments were being effected, certain setbacks in the business during 2019 followed by the Covid-19 induced lockdown rendered it impossible for the petitioners to continue the prompt repayment. In order to get over the liquidity crisis petitioners applied for extending the benefits under Emergency Credit Line Guarantee Scheme. That request and application for nursing finance and for restructuring of the account were rejected by the respondent Bank. The petitioner alleges that not only did the bank reject its request for additional finance, but it also charged interest, contrary to the sanction letter and terms of agreement. Based on such calculation, Bank issued Exhibit P21 notice under Section 13(4) of the SARFEISI Act demanding _**WP(C).3891/22**_ 3 payment of Rs.2,13,46,324.52 and threatened to sell immovable properties if payment is not effected. Aggrieved, this writ petition is filed seeking the following reliefs; - _“I. issue a writ in the nature of mandamus or any other appropriate writ, order or direction to the respondent directing the respondent to extend the benefits provided to MSME units in Exhibits P7, P15, P16 and P17 to the petitioner._ - _ii. Issue a writ in the nature of mandamus or any other appropriate writ, order or direction to the respondent directing the respondent not to proceed with the recovery proceedings until proposals made by the petitioners in Exhibits P6, P8 and P9 are considered in light of the benefits as envisaged in Exhibits P7, P15, P16 & P17 and the account of the petitioner is restructured as per the terms contained in Exhibit P13._ - _iii. Issue a writ in the nature of mandamus or any other_ - _appropriate writ, order or direction to the respondent direcrting the respondent not to proceed with the recovery procedings until the mandates in Exhibit P11 has been complied with._ - _iv. Issue a writ in the nature of certiorari or any other_ _**WP(C).3891/22**_ 4 _appropriate writ calling for records leading to issuance of Exhibit P19, Exhibit P20 and Exhibit P21 and quash the same._ - _v. Issue a direction to the respondent bank not to further proceed against the petitioners until the mandates in Exhibit P11 are duly complied with by the respondent Bank._ 2. Learned Counsel for the petitioners contended that the petitioners’ accounts had become stressed accounts from 2018 onwards. Being an MSME unit, the Bank ought to have referred the account to the MSME committee. If referred, the committee would have considered the merits of the account and deviced a corrective action plan based on detailed techno economic viability study. The options under the corrective plan are; (a) rectification, (b) restructuring and (c) recovery. If recovery process is resorted to, the committee can decide the best process to be followed from among the various legal and other recovery options available. It is argued that the above procedure having been prescribed in Exhibit P11 master circular of the Reserve Bank of India, the Bank committed gross illegality in initiating recovery measures without following the prescribed procedure. It is also submitted that, had the Emergency Credit Line Guarantee Scheme being _**WP(C).3891/22**_ 5 extended, the first petitioner could have overcome the financial crisis and repaid the amount due to the Bank. Finally it is contended that even though the petitioners have approached the Debts Recovery Tribunal, assailing Exhibit P21 notice, the Tribunal has no justification to consider and decide the issues highlighted in this writ petition. 3. Learned Standing Counsel for the Bank raised preliminary objection regarding maintainability of the writ petition, contending that the petitioners’ attempt is to challenge the recovery measures initiated by the Bank in a circuitous manner. It is contended that the petitioners have already approached the DRT by filing S.A.No.423 of 2022 and hence the writ petition should not be entertained. Refuting the allegation that Emergency Credit Line Guarantee Scheme was illegally declined, it is submitted that the respondent wanted to help and support the petitioners’ corrective plan and had taken up the matter with the competent authority. In the meanwhile, the petitioners’ account having become NPA, did not meet the requisite eligibility criteria. Hence, the petitioner's proposal was rejected. 4. After hearing the learned counsel on either side at length, I am not inclined to accept the contention put forth by the Counsel for the petitioners that the Debts Recovery Tribunal is not vested _**WP(C).3891/22**_ 6 with jurisdiction to consider the issues canvassed in this writ petition. As would be discernible on reading the preamble of the SARFAESI Act, the objective of the enactment is to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights and for matters connected therewith or incidental thereto. Section 13(2), which empowers the secured creditor to issue notice requiring the borrower to repay the defaulted amount, reads as under; ## _“13._ _**Enforcement of security interest.—(1)**_ _xx xx xx_ _(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).”_ 5. Section 13(3-A) providing opportunity to the borrower to make representation or raise objection against the proposal for recovery, is extracted hereunder for easy reference; _“(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_ _**WP(C).3891/22**_ 7 _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 3 [within fifteen days] of receipt of such representation or objection the reasons for nonacceptance 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 17A._ ” 6. Section 13(4) empowers the secured creditor to take recourse to the measures enumerated therein for recovery of the secured debt, in the event of the borrower failing to discharge the liability within the period specified in Section 13(2). As per Section 17, any person (including borrower) aggrieved by the measures under Section 13(4) can make an application to the Debts Recovery Tribunal. Thereupon, the Debts Recovery Tribunal will consider whether the measures taken under Section 13(4) by the secured creditor are in accordance with the provisions of the Act and the Rules thereunder. 7. On a conjoint reading of the above provisions, it is clear that, in the event of the borrower raising objection under Section 13(3-A), the secured creditor is bound to consider the objection and communicate the reasons for non-acceptance of the objection to the borrower. Going by the proviso to Sub-Section (3-A) of _**WP(C).3891/22**_ 8 Section 13, the reasons so communicated does not confer any right upon the borrower to prefer an application under Section 17 to the Debts Recovery Tribunal. Being so, while considering the challenge against legality of the measures taken by the secured creditor under Section 13(4), the Debts Recovery Tribunal can consider the correctness or otherwise of the reasons stated by the Bank for rejecting the objection raised by the borrowers under Section 13 (3-A). Exhibit R1 produced by the Bank is the notice under Section 13(2) issued by the Bank to which the petitioners submitted Exhibit R2 reply under Section 13(3-A). The reply was considered by the Bank and Exhibit R3 communication issued stating the reasons for rejecting the representation. Only thereafter Exhibit P21 was issued by the Bank under Section 13(4) of the Act. Even though the writ petition is liable to be dismissed for suppression of material facts, in view of the statement that notice under Section 13(2) was not issued before initiating measures under Section 13(4), I refrain from doing so, since the petitioners' challenge against Exhibit P21 is pending before the Debts Recovery Tribunal. As observed earlier, the Debts Recovery Tribunal is competent to consider the circumstances under which Section 13(4) measures were taken, including whether the objection/representation of the borrower under Section 13 (3-A) _**WP(C).3891/22**_ 9 was considered in the proper manner. Yet another pertinent aspect is the availability of alternative remedy before the Banking Ombudsman, regarding the charging of excess interest and denial of the benefit of Emergency Credit Line Guarantee Scheme. In the result, the writ petition is dismissed, without prejudice to the petitioners’ right to raise all contentions before the Debts Recovery Tribunal and/or to approach other forums, if any. **Sd/-** **V.G.ARUN, JUDGE** _vgs_ _**WP(C).3891/22**_ 10 ## **APPENDIX OF WP(C) 3891/2022** |PETITIONER EXHIBITS|| |---|---| |Exhibit1|TRUE COPY OF THE UDYOG AADHAR| ||REGISTRATION CERTIFICATE OF THE 1ST| ||PETITIONER UNIT| |Exhibit2|TRUE COPY OF THE STATEMENT SHOWING THE| ||EXPORTS CARRIED OUT BY THE PETITIONER| ||BETWEEN THE FY 2013-2021| |Exhibit3|THE TRUE COPY OF THE MASTER CIRCULAR| ||PROMULGATED BY RBI WITH NO. RBI/2018-| ||19/100 DBR.NO.BP.BC.18/21.04.048/2018-19| ||DATED 01.01.2019| |Exhibit4|THE TRUE COPY OF THE STATEMENT DEPICTING| ||LEVY OF EXCESS INTERESTS FROM THE 1ST| ||PETITIONER'S ACCOUNT.| |Exhibit5|THE TRUE COPY OF THE STATEMENT OF| ||ACCOUNT EVIDENCING THE LOSS INCURRED IN| ||THE EXPORT SALE BETWEEN THE PERIOD OF| ||1ST APRIL 2020 TO 31ST MARCH 2021| |Exhibit6|: THE TRUE COPY OF THE APPLICATION DATED| ||02.06.2020 FOR ECLGS SUBMITTED BY THE| ||APPLICANTS TO THE RESPONDENT BANK| |Exhibit7|THE TRUE COPY OF THE MASTER CIRCULAR| ||DATED 21.06.2020 ALONG WITH THE CIRCULAR| ||DATED 23.05.2020 ISSUED BY THE NATIONAL| ||CREDIT GUARANTEE TRUSTEE COMPANY| |Exhibit8|THE TRUE COPY OF THE APPLICATION DATED| ||01.01.2021| |Exhibit9|THE TRUE COPY OF THE APPLICATION DATED| ||18.03.2021 SUBMITTED BY THE PETITIONERS| ||FOR RESTRUCTURING OF THEIR ACCOUNTS| |Exhibit10|THE TRUE COPY OF THE REPLY LETTER DATED| ||29.07.2020 ISSUED BY THE RESPONDENT BANK| |Exhibit11|TRUE COPY OF THE MASTER CIRCULAR NO.| ||RBI/2015-| _**WP(C).3891/22**_ 11 ||16/338FIDD.MSME&NFS.BC.NO.21/06.02.31/20| |---|---| ||15-16 DATED 17.03.2016| |Exhibit12|THE TRUE COPY OF THE G.O NO. 643/2019| ||DATED 06.07.2019| |Exhibit13|THE TRUE COPY OF THE RELEVANT PAGES OF| ||THE BUDGET 2019-2020 OF THE KERALA STATE| ||GOVERNMENT| |Exhibit14|THE TRUE COPY OF THE RELEVANT PAGES OF| ||THE BUDGET 2020-2021 OF THE KERALA STATE| ||GOVERNMENT| |Exhibit15|TRUE COPY OF THE UPDATED THE EMERGENCY| ||CREDIT LINE GUARANTEE SCHEME ON| ||07.06.2021| |Exhibit16|TRUE COPY OF THE CIRCULAR NO. 170/2020-| ||21 DATED 24.06.2020 ALONG WITH ITS| ||ANNEXURE| |Exhibit17|THE TRUE COPY OF THE CIRCULAR NO.| ||184/2021-22 DATED 04.10.2021| |RESPONDENT EXHIBITS|| |Exhibit R1|S.13 (2) NOTICE DATED 7.11.2021ISSUED BY| ||THE RESPONDENT TO THE PETITIONERS (TRUE| ||COPY)| |Exhibit R2|PETITIONER'S REPLY DATED 27.11.2021 U/S| ||13 (3A) TO THE RESPONDENT TO EXT R-1.| ||(TRUE COPY)| |Exhibit R3|RESPONDENT'S REPLY DATED 15.12.2021TO| ||THE PETITIONERS TO EXT R-2 (TRUE COPY)| |PETITIONER EXHIBITS|| |Exhibit-P23|TRUE COPY OF THE DAILY ORDER IN S.A. NO.| ||453 OF 2022 DATED 09.09.2022 BEFORE THE| ||HON'BLE DRT-2.|