CASE VII

Sahara Industries, Patrampur Road, Jaspur and others v State Bank of India Main
Branch, Kashipur1

FACTS:

Petitioners had borrowed a loan from the respondent-Bank, namely, State Bank of
India, Main Branch, Kashipur, District-Udham Singh Nagar in the year 2010, for an amount
of 65.00 lakhs. This loan could not be repaid and, consequently, the respondent-Bank
proceeded under the Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (from herein after referred to as "the SARFAESI Act ").

A notice u/s. 13 (2) of the SARFAESI Act, 2002 was given to the petitioners to which
petitioners gave a reply. Meanwhile, the respondent-Bank also filed an Original Application
before the Debt Recovery Tribunal, Lucknow u/s. 19 (1) of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993(from herein after referred to as "the DRT Act").
Thereafter, the Bank proceeded u/s. 13 (4) of the SARFAESI Act and took a symbolic
possession of the secured asset, namely, the land which was mortgaged to the Bank. Now,
actual possession is being taken and further proceeding are to be done by the Bank, as
indicated u/s. 13 (4) of the SARFAESI Act. Meanwhile, the respondent-Bank proceeded to
file another application before the DRT u/s. 19 (1) of the DRT Act.

ISSUE:

Bank has already given a notice u/s. 13 (2) of SARFAESI Act, they cannot proceed under any
other provision of law against the borrower and, (b) they have to take prior permission of the
Debt Recovery Tribunal before proceeding further against the borrower in terms of proviso to
S. 19 (1) of the DRT Act?

REASONING:

The provision which is contemplated u/s. 19 (1) of the DRT Act is a provision which only
emphasizes a particular contingency. Hon'ble Apex Court in the case of M/s Transcore 2006
Indlaw SC 900  has dealt the purpose of S. 19 of the DRT Act, which reads as follows:-

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2013 Indlaw UTT 1888
"The question still remains as to the object behind insertion of the three provisos to S. 19(1)
of DRT Act vide amending Act 30 of 2004. The DRT is a tribunal, it is the creature of the
statute, it has no inherent power which exists in the civil courts. Order XXIII Rule 1
(3) CPC states inter alia that where the court is satisfied that there are sufficient grounds for
allowing the plaintiff to institute a fresh suit for the subject-matter of a suit or part of a claim
then the civil court may, on such terms as it thinks fit, grant the plaintiff permission to
withdraw the entire suit or such part of the claim with liberty to institute a fresh suit in respect
thereof. Under Order XXIII Rule 1(1)(4)(b), in cases where a suit is withdrawn without the
permission of the court, the plaintiff shall be precluded for instituting any fresh suit in respect
of such subject-matter. Order XXIII Rule 2 states that any fresh suit instituted on permission
granted shall not exclude limitation and the plaintiff should be bound by law of limitation as
if the first suit had not been instituted. Order XXIII Rule 3 deals with compromise of suits. It
states that where it is proved to the satisfaction of the court that a suit has been adjusted
wholly or in part by any lawful agreement or compromise or where the defendant satisfies the
plaintiff in respect of whole or any part of the subject- matter of the suit, the Court shall order
such agreement, compromise or satisfaction to be recorded, and shall pass a decree in
accordance therewith.

The object behind introducing the first proviso and the third proviso to S. 19(1) of the DRT
Act is to align the provisions of DRT Act, the NPA Act and Order XXIII CPC. Let us assume
for the sake of argument, that an O.A. is filed in the DRT for recovery of an amount on a
term loan, on credit facility and on hypothecation account. After filing of O.A., on account of
non disposal of the O.A. by the tribunal due to heavy backlog, the bank finds that one of the
three accounts has become sub-standard/ loss, in such a case the bank can invoke the NPA
Act with or without the permission of the DRT. One cannot lose sight of the fact that even an
application for withdrawal/ leave takes time for its disposal. As stated above, with inflation in
the economy, value of the pledged property/ asset depreciate on day to day basis. If the
borrower does not provide additional asset and the value of the asset pledged keeps on falling
then to that extent the account becomes non- performing. Therefore, the bank/ FI is required
to move under NPA Act expeditiously by taking one of the measures by S. 13(4) of the NPA
Act. Moreover, Order XXIII CPC is an exception to the common law principle of non-suit,
hence the proviso to S. 19(1) became a necessity.

For the above reasons, we hold that withdrawal of the O.A. pending before the DRT under
the DRT Act is not a pre- condition for taking recourse to NPA Act. It is for the bank/FI to
exercise its discretion as to cases in which it may apply for leave and in cases where they may
not apply for leave to withdraw. We do not wish to spell out those circumstances because the
said first proviso to S. 19(1) is an enabling provision, which provision may deal with myriad
circumstances which we do not wish to spell out herein."

CONCLUSION:

One cannot lose sight of fact that even application for withdrawal/leave takes time for its
disposal. With inflation in economy, value of pledged property/asset depreciates on day to
day basis. If borrower does not provide additional asset and value of asset pledged keeps on
falling then to that extent account becomes non-performing. Bank is required to move under
NPA Act expeditiously by taking one of measures by s.13 (4) of NPA Act. O. 23 of CPC is
exception to common law principle of non-suit, hence proviso to s. 19(1) of 1993 Act became
necessity. Withdrawal of application pending before DRT under DRT Act is not pre-
condition for taking recourse to NPA Act. It's for bank/FI to exercise its discretion as to cases
in which it may apply for leave and in cases where they may not apply for leave to withdraw.
First proviso to s. 19(1) of 1993 Act is an enabling provision, which provision may deal with
myriad circumstances. 

CASE VIII
JAYAN V HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED2

FACTS:
The petitioner who is the title holder of 19 areas and 95 square metres of land, availed a loan
of 15 lacs from the respondent No. 1. The loan was sanctioned as per the letter dated 25th
June, 2002 fixing the period of the loan repayment at 144 months and interest at 11% per
annum. The petitioner created an equitable mortgage over the schedule property in favour of
the respondent No. 1. Since the instalments are not paid regularly the respondent No. 2 issued
a notice under Sec. 13 (2) of SRFAESI Act read with Rule 9 of the Rules on 16th July, 2004
calling upon the borrower/petitioner to repay the amount within 60 days, on failure, the
possession of the property will be taken in exercise of the powers conferred on the respondent
No. 2 under Sec. 13 (4) of SRFAESI Act read with the Rule 9 of the Rules.

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2009 Indlaw KER 587
Since the amounts demanded was not paid, the respondent No. 2 took possession of the
mortgaged property. Exhibit P7 notice prior to sale, dated 24th May, 2005, was issued by the
respondent No. 2. The petitioner submitted that the very existence of the building and value
of the building was suppressed, that the notice has been issued in gross violation of the
provisions and requirements of the Act and the Rules with the clear intention of the Recovery
Manager to knock off the property in collusion with some real estate brokers close to him and
to have illegal enrichment for themselves.
Petitioner issued a registered notice dated 4th June, 2005 pointing out that the payments made
by the petitioner had not been taken into account and that the action taken by the respondent
No. 2 was in utter violation of all norms laid down by the R.B.I. Exhibit P8 is the true copy of
the said registered notice. It is submitted by the counsel for the petitioner that the respondent
No. 2 proposed to sell the property at a reserve price of about 10 lacs which is worth more
than 40 lacs and that the conduct reflects the fraudulent intentions of the respondents and
their officers to make undue enrichment for themselves. The petitioner filed a suit as O.S. No.
880/2005 before the Munsiff Court, Ernakulam praying for a decree of permanent prohibitory
injunction restraining the respondents from selling the schedule property pursuant to the
notice dated 24th May, 2005. The respondent entered appearance and contended that the suit
is barred under Sec. 34 of SRFAESI Act. It is submitted by the petitioner that he continued to
remit the instalment amounts towards the discharge of the debt ever since the proceedings
initiated by the respondent No. 2. The suit was subsequently dismissed for default.
The charged property was sold to the respondent No. 3 for an amount of Rs. 12,40,000/-. The
petitioner filed the securitisation application No. 77/2006 before the Tribunal. Exhibit P11 is
the copy of the said application filed under Sec. 17 of SRFAESI Act. The time limit for filing
the application is 45 days from the date on which measures had been taken under Sec. 13 (4)
of SRFAESI Act. The securitisation application was filed belatedly. Therefore I.A.
2089/2006 was filed for condoning the delay of 554 days in filing the securitisation
application. Exhibit P12 is the copy of I.A. No. 2089 of 2006 in S.A. No. 77/2006.
ISSUE:
Whether Tribunal has power to condone delay in filing securitisation application filed
u/s.17 of 2002 Act.
REASONING :

Section 24 of RDDBFI Act, 1993 provides that the provisions of the Limitation Act as far as
may be apply to an application made to a Tribunal. It means that the provisions of
the Limitation Act are applicable to original applications and interloctoury applications
wherever applicable. The interlocutory applications filed in the main applications i.e. Sec. 17
(1) application, such application can be entertained by the Tribunal in accordance with the
provisions under Sec. 5 of the Limitation Act provided the applicant satisfies the Tribunal
that he had sufficient cause for not preferring the application within the period prescribed by
the Limitation Act. Applications under Sec. 5 of the Limitation Act are maintainable in
relation to interim application filed in the main/original application. It is a settled principle of
law that in the absence of enabling provision to condone the delay there is no such thing as
any inherent power of Court to condone the delay in filing the proceedings before it. The said
question was considered by the Apex Court in Prakash H. Jain v. Marie Fernandez3. The
Apex Court held that whether a statutory authority has power to condone the delay in filing
statutory application, not only the nature and character of the authority as to whether it is a
Court or not but also the nature of powers to condone the delay in filing statutory application,
not only the nature and character of the authority or Court, the extent thereof and the
limitations thereon with particular reference to the legislative intent and the scheme of the
enactment have to be taken into consideration and that in the absence of enabling provision
there is no inherent power conferred on the statutory authority or Court to condone the delay
in filing the proceedings before it. The Apex Court also held that the mere fact that such
authority is deemed to be Court only for limited and specific purposes, cannot make it a
Court for all or any other purpose and at any rate for the purpose of either making the
provisions of the Limitation Act,1963 attracted to proceedings before such competent
authority or clothe such authority with any power to be exercised under the Limitation Act.
The Apex Court further held that such competent authority is merely and at best a statutory
authority created for a definite purpose and to exercise, no doubt powers in a quasi-judicial
manner but its powers are strictly circumscribed by the very statutory provisions which
conferred upon it those powers and the same could be exercised in the manner provided
therefore and subject to such conditions and limitations stipulated by the very provision of
law under which the competent authority itself has been created. It is a settled position that
the provisions of the Limitation Act are not applicable to proceedings before bodies other
than Courts, such as quasi judicial Tribunal or an executive authority. The Apex Court in
Transcore's case cited supra held that the D.R.T. is a creature of the statute and that it has no
inherent power which exists in Civil Courts. Apart from the legal position discussed above, I
may refer to Sec. 36 of the Act which clearly reveals that no secured creditor shall be entitled
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2003 Indlaw SC 789
to take all or any of the measures under Sec. 13 (4) of the Act unless his claim in respect of
financial asset is made within the period of limitation prescribed under the Limitation Act. I
have already referred to Arts.19 to 22 and 62 in the schedule of the Limitation Act. In Sec. 13
(4) of the Act it is clear that a secured creditor may take recourse to one or more of the
measures stated therein only after the liability is due which is a legally recoverable liability
within the meaning of debts as defined in Sec. 2 (g) of RDDBFI Act, 1993.There is no
enabling provision in the Act or in RDDBFI Act to condone the delay in filing securitisation
application under Sec. 17 (1) of the Act and original application filed under Sec. 19 (1)
of RDDBFI Act. In the absence of an enabling provision, a statutory authority created for a
definite purpose and to exercise powers in a quasi judicial manner, circumscribed by the very
statutory provisions which conferred upon it with limited powers to be exercised in the
manner provided therein and subject to such conditions and limitations stipulated by the said
statute, the D.R.T. cannot apply Sec. 5 of the Limitation Act to an original application. The
learned counsel for the petitioner contended that the Tribunal committed gross error in
assuming that the securitisation application is an original proceedings which is similar to an
original suit and hence Sec. 5 of the Limitation Act would not apply. According to him there
is absolutely nothing anywhere in the Act or in the Rules to suggest that the Legislature had
intended at any point of time to treat an application under Sec. 17 of the Act as equivalent to
an original suit for the purpose of application of the Limitation Act. The counsel also focused
the attention of this Court to the word "appeal" in Sec. 17 of the Act which according to him
shows the intention of the Parliament is not to treat the same as original suit. The learned
counsel further contended that even if the proceedings before the Tribunal is to be taken as an
application in view of the specific provisions contained in the Act, the provisions of section
would apply to applications also.
CONCLUSION:

The discussions as above leads to the conclusion that the provisions of Limitation Act are
applicable to the proceedings under the Act and the D.R.T. shall apply the provisions of
the Limitation Act. The discussion further concludes that Sec. 5 of the Limitation Act is
applicable to the proceedings under Act but is not applicable to the filing of an original
application under Sec. 17 (1) of the Act. Yet for another reason also this Writ Petition is not
maintainable. The orders passed by the D.R.T. under Sec. 17 (1) is appealable under Sec. 18
of the Act. Therefore the dismissal of the Sec. 17(1) application consequent on the dismissal
of the delay condonation of the petition are matters to be agitated before the Appellate
Tribunal. The learned counsel for the petitioner relied on the decision of the Bombay High
Court reported in UCO Bank v. Kanji Manji Kothari & Co. The Bombay High Court held
that the provisions of Sec. 5 of the Limitation Act will apply to proceedings under Sec. 17 (1)
of SRFAESI Act and D.R.T. could consider same. The said Court further observed that while
exercising these powers D.R.T. must bear in mind scheme of SRFAESI Act and not allow
any person to proscrastinate proceedings by making frivolous applications. In view of the
decisions of the Apex Court, discussed supra, I do not propose to follow the decision of the
Bombay High Court. In the result, this writ petition is devoid of any merits, hence dismissed.
Ratio - In absence of provision in statue to affirmed power or jurisdiction to statutory to
condone delay no such plea is allowed to be agitated before such authority.