IMPORTANT POINT
Withdrawal of application pending before the Debt Recovery Tribunal under the DRT Act is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Headnote:Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 19(1), Provisos, inserted by the Amending Act No. 30 of 2004 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13(2) - Recovery of dues - Entitlement of bank to invoke provisions of Securitisation and Reconstruction Act (NPA Act) under proviso to Section 19(1) of DRT Act without prior permission of Debt Recovery Tribunal - Applicability of doctrine of election - Whether the banks or financial institutions having elected to seek their remedy in terms of DRT Act, 1993 can still invoke the NPA Act, 2002 for realizing the secured assets without withdrawing or abandoning the application filed before the DRT under the DRT Act - (Yes) - Remedy under DRT Act falls short as compared to NPA Act - NPA Act is treated as an additional remedy which is not inconsistent with the DRT Act - Together they constitute one remedy, therefore, doctrine of election does not apply.
       Held : Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/ FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of NPA Act is recovery by non-adjudicatory process. A secured asset under NPA Act is an asset in which interest is created by the borrower in favour of the bank/ FI and on that basis alone the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of NPA Act. It is for this reason, that Sections 13(1) and 13(2) of the NPA Act proceeds on the basis that security interest in the bank/FI; needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. For the above reasons, NPA Act states that the enforcement could take place by non-adjudicatory process and that the said Act removes all fetters under the above circumstances on the rights of the secured creditor.(Para 46)
       The object behind introducing the first proviso and the third proviso to Section 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 Section 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 Section 19(1) became a necessity.(Para 48)
       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 Section 19(1) is an enabling provision, which provision may deal with myriad circumstances which we do not wish to spell out herein.(Para 49)
       (ii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2), 13(4), 17 - Security Interest (Enforcement) Rules, 2002 - Bank loan - Recovery of debt - Recourse to take possession of secured assets of the borrower u/s 13(4) of NPA Act - Whether comprehends the power to take actual possession of immovable property - (Yes).
       Held : The word possession is a relative concept. It is not an absolute concept. The dichotomy between symbolic and physical possession does not find place in the Act. As stated above, there is a conceptual distinction between securities by which the creditor obtains ownership of or interest in the property concerned (mortgages) and securities where the creditor obtains neither an interest in nor possession of the property but the property is appropriated to the satisfaction of the debt (charges). Basically, the NPA Act deals with the former type of securities under which the secured creditor, namely, the bank/FI obtains interest in the property concerned. It is for this reason that the NPA Act ousts the intervention of the courts/tribunals. Keeping the above conceptual aspect in mind, we find that Section 13(4) of the NPA Act proceeds on the basis that the borrower, who is under a liability, has failed to discharge his liability within the period prescribed under Section 13(2), which enables the secured creditor to take recourse to one of the measures, namely, taking possession of the secured assets including the right to transfer by way of lease, assignment or sale for realizing the secured assets. Section 13(4-A) refers to the word "possession" simpliciter. There is no dichotomy in sub-section (4-A) as pleaded on behalf of the borrowers. Under Rule 8 of the 2002 Rules, the authorised officer is empowered to take possession by delivering the possession notice prepared as nearly as possible in Appendix IV to the 2002 Rules. That notice is required to be affixed on the property. Rule 8 deals with sale of immovable secured assets. Appendix IV prescribes the form of possession notice. It inter alia states that notice is given to the borrower who has failed to repay the amount informing him and the public that the bank/FI has taken possession of the property under Section 13(4) read with Rule 9 of the 2002 Rules. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. (Paras 52 and 53)
       Therefore, the scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions of the Act, then the DRT is entitled to put the clock back by restoring the status quo ante. Therefore, it cannot be said that if possession is taken before confirmation of sale, the rights of the borrower to get the dispute adjudicated upon is defeated by the authorised officer taking possession. As stated above, the NPA Act provides for recovery of possession by non-adjudicatory process, therefore, to say that the rights of the borrower would be defeated without adjudication would be erroneous. Rule 8, undoubtedly, refers to sale of immovable secured asset. However, Rule 8(4) indicates that where possession is taken by the authorised officer before issuance of sale certificate under Rule 9, the authorised officer shall take steps for preservation and protection of secured assets till they are sold or otherwise disposed of. Under Section 13(8), if the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the creditor before the date fixed for sale or transfer, the asset shall not be sold or transferred. The costs, charges and expenses referred to in Section 13(8) will include costs, charges and expenses which the authorised officer incurs for preserving and protecting the secured assets till they are sold or disposed of in terms of Rule 8(4). Thus, Rule 8 deals with the stage anterior to the issuance of sale certificate and delivery of possession under Rule 9. Till the time of issuance of sale certificate, the authorised officer is like a court receiver under Order XL Rule 1 CPC. The court receiver can take symbolic possession and in appropriate cases where the court receiver finds that a third party interest is likely to be created overnight, he can take actual possession even prior to the decree. The authorized officer under Rule 8 has greater powers than even a court receiver as security interest in the property is already created in favour of the banks/FIs. That interest needs to be protected. Therefore, Rule 8 provides that till issuance of the sale certificate under Rule 9, the authorized officer shall take such steps as he deems fit to preserve the secured asset. It is well settled that third party interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by Rule 8 read with Rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules. (Para 53)
       (iii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13, 17 - DRT (Procedure) Rules, 1993 - Rule 7 - Application u/s 17(1) NPA Act - Whether ad valorem Court fee prescribed under Rule 7 of the DRT Rules is payable in absence of any rule framed under the Act - (Yes).
       Held : In fact, the proviso to Section 17(1) indicates that different fees may be prescribed for making an application by the borrower. The reason is obvious. Certain measures taken under Section 13(4) like taking over the management of the fee vis-a-vis the secured creditor taking possession of financial assets have to bear different fees. Each measure is required to be separately charged to the borrower (applicant) for which different fees could be prescribed. The said proviso indicates that the tribunal under Section 17(1) exercises Original Jurisdiction and, therefore, as far as the fees are concerned, the terminology of original or appellate jurisdiction in the context of fees is irrelevant. Secondly, under the Order 2004 issued by the Central Government under Section 40 of the NPA Act, it is provided that the fee for filing an appeal to the DRT under Section 17(1) of NPA Act shall be mutatis mutandis as provided for filing an application to the DRT under Rule 7 of the 1993 Rules. The word mutatis mutandis indicates that a measure is adopted for assessing the fees required to be paid by the borrower when he applies by way of application to the DRT under Section 17(1) of NPA Act challenging the action taken under Section 13(4) of NPA Act by the secured creditor. Lastly, we do not find any merit in the argument advanced on behalf of the borrowers that since fees have not been prescribed by the rules after 11.11.2004, fees cannot be levied on the basis of the Order 2004 which was there prior to 11.11.2004.(Para 57)
       (iv) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 19(1), Provisos as inserted by the Amending Act No. 30 of 2004 - Section 19 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 13, 17 - Recovery of debt - Application filed by Bank from the Debt Recovery Tribunal for recovery of dues from appellant firm - Interlocutory application filed by bank to bring the properties to sale which is still pending - Notice u/s 13(2) of the NPA Act was issued - Bank issued Possession Notice u/s 13(4) of the NPA Act - Appellant was called upon to repay an amount of Rs. 4.15 crores - Appellant failed to repay the amount - By the Possession Notice, the public in general were also told not to deal with the properties as they were subject to the charge of the bank - Whether bank could have invoked the NPA Act under the proviso to Section 19(1) of the DRT Act without the prior permission of the Tribunal - (Yes) - Whether withdrawal of the application in terms of the first proviso to Section 19(1) of the DRT Act is a condition precedent to taking recourse to the NPA Act - (No).(Para 64)
       (v) Civil Procedure Code, 1908 - Order XXXIII Rules 1, 2 and 3 - Permission for withdrawal of entire suit or part of the claim - Order XXIII CPC is an exception to the common law principle of non-suit.
       Held : 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.(Para 47)

JUDGMENT

Kapadia, J. - A short question of public importance arises for determination, namely, whether withdrawal of O.A. in terms of the first proviso to Section 19(1) of the DRT Act, 1993 (inserted by the Amending Act No.30 of 2004) is a condition precedent to taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("NPA Act" for short).

Facts in Civil Appeal No. 3228 of 2006:

2. Since the above question arises in a batch of matters, for the sake of convenience, we refer briefly to the facts in civil appeal No. 3228/06, in which M/s Transco is the appellant.

In March 1999, O.A. No. 354/99 was filed by Indian Overseas Bank ("the bank") before the DRT, Chennai for recovery of dues from M/s Transcore- appellant herein. The claim was disputed. An interlocutory application was filed by the bank in the said O.A. to bring the properties to sell. That I.A. is pending even today.

3. On 6.1.2003, a notice under Section 13(2) of the NPA Act was issued. On 11.11.2004 the following provisos were introduced in Section 19(1) of the DRT Act vide amending Act 30 of 2004:

"Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debts Laws( Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act:

Provided further that any application made under the first proviso for seeking permission from the Debts Recovery Tribunal to withdraw the application made under sub-section (1) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application:

Provided also that in case the Debts Recovery Tribunal refuses to grant permission for withdrawal of the application filed under this sub-section, it shall pass such orders after recording the reasons therefor."

4. On 8.1.2005, the said bank issued Possession Notice under Section 13(4) of the NPA Act read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 ("2002 Rules") stating that, vide notice dated 6.1.2003, the appellant herein (M/s Transcore) was called upon to repay an amount of Rs. 4.15 crores (approximately) together with interest within sixty days; that the appellant had failed to repay the amount; that a notice was also given to the guarantor; that the bank had taken possession of the immovable properties mentioned in the schedule to the Notice; and, that the appellant and the guarantor were directed not to deal with those immovable properties. By the said Possession Notice, the public in general were also told not to deal with the properties mentioned in the Notice as they were subject to the charge of the bank for the aforesaid amount with interest and cost. The immovable properties were put to auction. However, pending civil appeal, confirmation of auction sale had been stayed.

5. As far as M/s Transcore, the appellant herein, is concerned, the argument is that the respondent-bank (Indian Overseas Bank) could not have invoked the NPA Act under the above proviso to Section 19(1) of the DRT Act without the prior permission of the Tribunal before whom O.A. 354/99 was pending. The contention of the appellant is, that prior to the insertion of the proviso on 11.11.2004, the bank had issued a show cause notice under Section 13(2) of the NPA Act; that Notice dated 6.1.2003 was merely a show cause notice and such a Notice did not constitute an action in terms of the first proviso to the said Section 19(1) of the DRT Act. Briefly, the first proviso states that, the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the O.A. made before

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2006 Supreme(SC) 1205

IMPORTANT POINTWithdrawal of application pending before the Debt Recovery Tribunal under the DRT Act is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Cases Referred (4)

IMPORTANT POINT
Withdrawal of application pending before the Debt Recovery Tribunal under the DRT Act is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.