South Indian Bank Limited v. M/s New Horizon Mosaics and others

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT** **THE HONOURABLE THE CHIEF JUSTICE MR.S.MANIKUMAR** **&** **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** **TUESDAY, THE 16[TH] DAY OF NOVEMBER 2021 / 25TH KARTHIKA, 1943** **WA NO. 1495 OF 2021** **AGAINST THE JUDGMENT IN WP(C) 20065/2021 OF HIGH COURT OF KERALA, ERNAKULAM DATED** ## **20.10.2021** ## **APPELLANTS/RESPONDENTS IN WPC:** - 1 THE SOUTH INDIAN BANK LIMITED, REPRESENTED BY ITS MANAGING DIRECTOR, REGISTERED OFFICE, THRISSUR, PIN - 680 001. - 2 THE CHIEF MANAGER/AUTHORIZED OFFICER, SOUTH INDIAN BANK LIMITED, REGIONAL OFFICE, 2ND FLOOR, TMJ COMPLEX, RAMANCHIRA, THIRUVALLA, PATHANAMTHITTA DISTRICT, PIN - 689 107. BY ADVS.MOHAN JACOB GEORGE P.V.PARVATHY (P-41) REENA THOMAS NIGI GEORGE ## **RESPONDENTS/PETITIONERS IN WPC:** - 1 M/S NEW HORIZON MOSAICS, KULANJIPURACKAL BUILDINGS, THIRUMOOLAPURAM, THIRUVALLA, PATHANAMTHITTA DISTRICT, PIN - 689 115 REPRESENTED BY ITS MANAGING PARTNER-SAM JOSE, AGED 63 YEARS, S/O.VARGHESE SAMUEL. - 2 SAM JOSE, AGED 63 YEARS, S/O.VARGHEE SAMUEL, MANAGING PARTNER, M/S.NEW HORISON MOSAICS, RESIDING AT THOZHUVATHINKAL HOUSE, NEDUMBRAM P.O., THIRUVALLA, PATHANAMTHITTA DISTRICT, PIN - 689 110. - 3 TOM JOSE, PARTNER, M/S.NEW HORIZON MOSAICS RESIDING AT KAYYALETHU MALAYIL HOUSE, OTHERA WEST P.O., THIRUVALLA, PATHANAMTHITTA DISTRICT, PIN - 689 551. SRI.S.JAYAKRISHNAN FOR RESPONDENTS THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 16.11.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.A.NO. 1495 OF 2021 :: 2 :: ## **JUDGMENT** ## Dated this the 16[th] day of November, 2021 ## **S. MANIKUMAR, C.J.** Appellants are the respondents in W.P.(C) No.20065/2021. Writ petition was filed by the respondents challenging Section 13(2) notice under the SARFAESI Act, 2002. Writ appeal is filed being aggrieved by the judgment dated 20.10.2021 in W.P.(C)No.20065/2021, by which, the learned Single Judge interfered and granted eight months’ time to make payment commencing from 15.11.2021. ## 2. Impugned judgment dated 20.10.2021 in W.P.(C) No.20065/2021 reads thus: “Petitioners seek only a limited relief of repayment of the overdue amount in instalments. The learned counsel for the respondent Bank submitted that pursuant to Ext.P2 judgment of this Court, the Bank had offered four instalments for repayment as evident from Ext.P3. However, petitioners did not comply with the same. 2. The learned counsel for the petitioners submitted that the instalment offered by the Bank was too minimal in number and due to the Covid pandemic situation, all activities of the petitioners came to a halt and hence the petitioners could not repay the amount. He prays that the petitioners would be able to repay the amount if a limited instalment facility is granted, atleast twelve in number. 3. I have considered the contentions raised and heard Adv.S.Jayakrishnan, the learned counsel for the petitioners as well as Adv. Mohan Jacob George, the learned counsel for the respondent Bank. W.A.NO. 1495 OF 2021 :: 3 :: 4. Having regard to the circumstances and the type of business the petitioners indulge in, I am of the view that an opportunity to repay the amounts in eight instalments can be granted to the petitioners. Accordingly the petitioners shall clear the entire overdue amount as specified in Ext.P3 in eight equated monthly instalments. The first instalment shall be paid on or before 15.11.2021. In the event of default of any one instalment, the respondent bank shall be entitled to proceed in accordance with law. In order to enable the petitioners to repay the entire amounts, all coercive proceedings shall be kept in abeyance. The writ petition is disposed of as above.” 3. Assailing the correctness of the impugned judgment, Mr. Mohan Jacob George, learned counsel for the appellants, contended that intervention of the writ court under Article 226 of the Constitution of India challenging Section 3(2) notice is against the dictum laid down by the Hon'ble Apex Court in _**United Bank of India v. Satyawati Tondon and others [(2010) 8 SCC 110]**_ ; _**Authorized Officer, State Bank of Travancore and another v. Mathew K.C. [(2018) 3 SCC 85]**_ and _**ICICI Bank Ltd. v Umakanta Mohapatra [(2019) 13 SCC 497].**_ 4 _**.**_ Learned counsel for the appellants further contended that as per the decision reported in _**Anilkumar N v. Authorised Officer, State Bank of India, Kottarakkara and others [2020 (2) KLT 756]**_ , the High Court should not ordinarily entertain a petition under Article 226 of the Constitution of India without exhausting the statutory remedy available. W.A.NO. 1495 OF 2021 :: 4 :: 5. Mr. S. Jayakrishnan, learned counsel for the respondents, made submissions justifying the impugned judgment that due to COVID-19 Pandemic, amount due to the bank could not be repaid in time, and prayed not to interfere with the impugned judgment. ## 6. The Hon'ble Supreme Court in _**Mardia Chemicals Limited and others v. Union of India and others [(2004) 4 SCC 311]** ,_ held as under: 75. In relation to the argument on behalf of the petitioners that they are entitled to be heard before a notice under subsection (2) of Section 13 is issued failing which there is denial of principles of natural justice, a reference has been made to certain decisions to submit that in every case, it is not necessary to make a provision for providing a hearing. For example, in the case of a licensing statute, see 1961(3) SCR p.135, Kishan Chand Arora (supra). The other decisions referred to are : 1963 (2) SCR p.353 Lachhman Das V. State of Punjab, 1977 (2) SCC 256 at 262, Chairman, Board of Mining Examination v. Ramjee and 2002(3) SCC 496 at 504 para 7, Haryana Financial Corporation V. Jagdamba Oil Mills to submit that concept of natural justice is not a straight jacket formula. It, on the other hand, depends upon the facts of the case, nature of the enquiry, the rules under which the Tribunal is acting and what is to be seen that no one should be hit below the belt. Relationship between the creditor and the debtor, it is submitted, is essentially in the realm of a contract. 76. In regard to the submission made by the parties as indicated in preceding paragraphs, we would like to make it clear that issue of a notice to the debtor by the creditor does not attract the application of principles of natural justice. It is always open to tell the debtor what he owes to repay. No hearing can be demanded from the creditor at this stage. So far the provision of appeal is concerned, we have already discussed in the earlier part of the judgment that W.A.NO. 1495 OF 2021 :: 5 :: proceedings under Section 17 of the Act have been wrongly described as appeal before the Debt Recovery Tribunal. It is in fact a forum where proceedings are originally initiated in case of any grievance against the creditor in respect of any measure taken under sub-section (4) of Section 13 of the Act. Hence, the decisions on the point as to whether provision for an appeal is essential or not are not of any assistance in the facts of the present case. 77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice under Section 13(2) of the Act has been considered applying mind to it. The reasons howsoever brief that may be for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery. 78. It was sought to be argued that fairness cannot be a one way street. The plea of absence of natural justice lies ill in the mouth of chronic defaulters who have not paid the principal amounts admittedly due to the banks. The said argument pre-supposes admission of the liability by the borrowers and all of them to be chronic defaulters. It would only be pre-judging an issue. We hope it was not meant to be said that all those who defaulted according to the banks and financial institutions must be condemned unheard who might not deserve any hearing to place their side of the case, unless they must go through the crushing pre-conditions of W.A.NO. 1495 OF 2021 :: 6 :: deposit of 75% of the amount demanded over and above their secured assets already having been taken possession of. We feel this can well be one example of hitting below the belt. 79. Some submissions have been made pointing out that in certain circumstances it would not be clear as to in what manner the provisions of the Act would be workable. We feel the objections pointed out are not such which render the statute invalid or unconstitutional. Such problems about working of any particular provision of the Act in any particular factual situation, may be considered as and when it may arise. We, therefore, do not think it necessary to go into those questions. 80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :- 1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal under Section 17 of the Act, at that stage. W.A.NO. 1495 OF 2021 :: 7 :: 2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal. 3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose. 4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down. 5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court. 81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest. 82. We, therefore, subject to what is provided in paragraph 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is W.A.NO. 1495 OF 2021 :: 8 :: declared ultra vires of Article 14 of the Constitution of India. 83. Before we part with the case, we would like to observe that where a secured creditor has taken action under Section 13(4) of the Act, in such cases it would be open to borrowers to file appeals under Section 17 of the Act within the limitation as prescribed therefor, to be counted with effect from today. 84. The transfer cases, appeals and the petitions thus stand partly allowed limited to the extent indicated above. For the rest of the reliefs, they stand dismissed. 85. Costs easy” 7. Writ petition has been filed seeking to quash Ext.P1 demand notice issued under Section 13(2) of the SARFAESI Act, 2002 and to consider Ext.P4 representation submitted against Ext.P3 decision taken by the bank. Insofar as entertaining the writ petition as against proceedings initiated by the Bank for recovery, it is trite law that the Hon'ble Supreme Court held that no such writ petition is maintainable. ## 8. Reference can be made to a few decisions: “Repeatedly, the Hon'ble Supreme Court has held that writ petitions as against proceedings initiated under the SARFAESI Act, 2002 should not be entertained. Reference can be made to a few decisions of the Hon'ble Supreme Court on that aspect. (i) In **Authorised Officer, State Bank of Travancore and Another v. Mathew K.C.** reported in **(2018) 3 SCC 85** , at paragraphs 15 to 18, the Hon'ble Supreme Court held as under: W.A.NO. 1495 OF 2021 :: 9 :: “15. It is the solemn duty of the Court to apply the correct law without waiting for an objection to be raised by a party,especially when the law stands well settled. Any departure, if permissible, has to be for reasons discussed, of the case falling under a defined exception, duly discussed after noticing the relevant law. In financial matters grant of ex-parte interim orders can have a deleterious effect and it is not sufficient to say that the aggrieved has the remedy to move for vacating the interim order. Loans by financial institutions are granted from public money generated at the tax payers expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same. The caution required, as expressed in **United Bank of India v. Satyawati Tondon and others** [AIR 2010 SC 3413], has also not been kept in mind before passing the impugned interim order:- “46. It must be remembered that stay of an action initiated by the State and/or its agencies/ instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which (sic will) ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. Of course, if the petitioner is able to show that its case falls within any of the exceptions W.A.NO. 1495 OF 2021 :: 10 :: carved out in _**Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad**_ , [1969 AIR 556, 1969 SCR (1) 518], _**Whirlpool Corpn. v. Registrar of Trade Marks**_ [(1998) 8 SCC 1], and _**Harbanslal Sahnia v. Indian Oil Corpn. Ltd.**_ [AIR 2003 SC 2120] and some other judgments, then the High Court may, after considering all the relevant parameters and public interest, pass an appropriate interim order.” (emphasis supplied) 16. The writ petition ought not to have been entertained and the interim order granted for the mere asking without assigning special reasons, and that too without even granting opportunity to the Appellant to contest the maintainability of the writ petition and failure to notice the subsequent developments in the interregnum. The opinion of the Division Bench that the counter affidavit having subsequently been filed, stay/modification could be sought of the interim order cannot be considered sufficient justification to have declined interference. 17. We cannot help but disapprove the approach of the High Court for reasons already noticed in **Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. and Another** , [(1997) 6 SCC 450], observing :- “32. When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the subordinate courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of the subordinate courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops.” W.A.NO. 1495 OF 2021 :: 11 :: 18. The impugned orders are therefore contrary to the law laid down by this Court under Art.141 of the Constitution and unsustainable. They are therefore set aside and the appeal is allowed.” (ii) In **ICICI Bank Ltd. v. Umakanta Mohapatra and Others,** [2018 (13) SCALE 724], the Hon'ble Apex Court reaffirmed the legal position that High Court has no jurisdiction to entertain writ petitions under Article 226 of the Constitution of India, relating to matters coming under the purview of SARFAESI Act, 2002, where a statutory remedy is available by filing an application under Section 17 of the said Act.” 9. Though Mr. S. Jayakrishnan, learned counsel for the respondents, submitted that due to Covid-19 pandemic, the outstanding amount could not be repaid in time, it could be seen that considering the representation made earlier, bank has passed Ext.P3 order dated 14.9.2021 directing the writ petitioners/respondents herein to pay the outstanding amount in four equal monthly instalments, which has not been done. 10. Although the Hon'ble Apex Court in various decisions held that a writ petition is not maintainable against the action for recovery, posed with a question, as to whether time can be extended to clear the outstanding dues as per Ext.P3 order dated 14.9.2021, Mr. Mohan Jacob George, learned standing counsel for the bank, submitted that the bank W.A.NO. 1495 OF 2021 :: 12 :: has a prescribed financial planning, within which, amounts have to be cleared. However, on the facts and circumstances of this case, he submitted that the bank would be willing to extend the time for payment, by the end of January, 2022. 11. As the bank has consented for the above and placing on record the abovesaid submission, it is for the respondents to clear the outstanding amount, by remitting the instalments, as prescribed in Ext.P3 order dated 14.9.2021, and at any rate, clear the balance amounts before 31[st] January, 2022, with all interest. 12. Learned standing counsel for the bank also candidly submitted that accounts of the respondents will be regularised, if the payment, as per Ext.P3 dated 14.9.2021, is made in time. Writ appeal is disposed of accordingly. **SD/S.MANIKUMAR CHIEF JUSTICE** **SD/SHAJI P. CHALY JUDGE** jesxxxxx