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2015 Supreme(Bom) 1082
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
V. M. KANADE & A.R. JOSHI, JJ.
Kotak Mahindra Bank Ltd. - Petitioner
Vs
Trupti Sanjay Mehta of Bombay Indian Inhabitant & Anr. – Respondent
Writ Petition no. 722 of 2015
Decided on : 16/07/2015
Advocate Appeared:
Ms. Rajani Iyer, Sr. Counsel with Mr. Rafeeque Peermohidin, Mr. Nikhil Rajani i/b V. Deshpande & Co. for the Petitioner.
Mr. Umesh Shetty with Mr. Roshan D'Souza i/b Ms. Hina Mody for the Respondents.
Only debts which are assigned to a Bank from another Financial Institution or to the Financial Institution from a Bank, such debts alone are covered under the term “borrower” and can be enforced under Section 13 of the SARFAESI Act.
Headnote:
SARFAESI ACT - ASSIGNMENT OF DEBT - BANK - ENFORCEMENT OF SECURITY INTEREST: Whether the Bank to whom a debt has been assigned by the Non-Banking Financial Corporation ("NBFC") is entitled to adopt proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 ("SARFAESI, Act")?
Fact of the Case:
Petitioner, a Banking Company, sought a declaration that regardless of the status of the assignor, if the assignee of a debt along with its underlying security is a bank or Financial Institution it is open to such bank of Financial Institution to adopt steps under the RDDB Act / or SARFAESI Act and /or Civil Law. Petitioner had taken steps for realization of the outstanding amount and invoked the provisions of SARFAESI Act. Respondent Nos. 1 and 2, claiming to be the owners of the Flat, challenged the action of the Petitioner by filing Securitization Application before the DRT, Mumbai on various grounds and more particularly on the ground that they have been dispossessed by the Petitioner without following due process of law. The DRT held that since Respondent No.3 - Citi Financial Consumer Finance Ltd. was not a Financial Institution within the definition of “financial institution” under the SARFAESI Act, Petitioner, despite being a Bank, was not entitled to exercise any powers or authority as a Bank under the provisions of the said Act against Respondent No.4. The DRAT dismissed the appeal filed by the Petitioner and directed the Petitioner to restore the possession of Respondent Nos. 1 and 2.
Finding of the Court:
The Court held that the measures under the SARFAESI Act can be enforced by a secured creditor only against the borrower as defined under the said Act. The term “borrower” is defined under section 2(f) to mean a person who fulfills two criteria viz (1) who has been granted financial assistance by any Bank or Financial Institution, (2) who has given any guarantee or created any mortgage or pledge as a security for financial assistance granted by any Bank or Financial Institution and (3) it includes a person who becomes a borrower of Securitisation Company or Reconstruction Company upon acquisition by it of any rights or interest of any Bank or Financial Institution in relation to such assistance. The third part, therefore, clearly restricts definition of the term “borrower” of a Bank or Financial Institution who acquires any right or interest and specifically excludes any other type of Institution such as Non-banking Financial Institution or a private person. As a corollary therefore it is clear that by virtue of the restrictive definition, only debts which are assigned to a Bank from another Financial Institution or to the Financial Institution from a Bank, such debts alone are covered under the term “borrower”.
Issues: Whether the Bank to whom a debt has been assigned by the Non-Banking Financial Corporation ("NBFC") is entitled to adopt proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 ("SARFAESI, Act")?
Ratio Decidendi: The Court held that the debt which is assigned to a Bank or Financial Institution by Non-banking Financial Institution is not covered within the definition of the term “borrower” and therefore cannot be enforced under Section 13 of the said Act. The submission made by Ms. Rajani Iyer, the learned Senior Counsel appearing on behalf of the Petitioner, therefore, cannot be accepted and we concur with the view taken by the DRT and DRAT.
Final Decision: Writ Petition is dismissed.
1. Heard.
2. Rule. Rule is made returnable forthwith. By consent of the parties, Petition is taken up for final hearing.
3. The short question which falls for consideration before us is : whether the Bank to whom a debt has been assigned by the Non-Banking Financial Corporation (“NBFC”) is entitled to adopt proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 (“SARFAESI, Act”)?
4. Brief facts which are relevant for the purpose of deciding this Petition are as under:-
5. By this Petition which is filed under Article 226 of the Constitution of India, Petitioner is seeking the following substantive reliefs:-
“a. to hold and declare that regardless of the status of the assignor, if the assignee of a debt along with its underlying security is a bank or Financial Institution it is open to such bank of Financial Institution to adopt steps under the RDDB Act / or SARFAESI Act and /or Civil Law.”
“b. to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction calling for the records of the case in Appeal No.235 of 2014 and in Securitization Application No. 39 of 2014, from the Debts Recovery Appellate Tribunal, Mumbai and after considering the legality veracity and correctness of the impugned order dated 20th January, 2015 read with the Trial Courts order dated 28th November, 2014, this Hon'ble Court be pleased to quash and set aside the same or such part thereof as this Hon'ble Court deems fit and proper.”
6. Petitioner No.1 is a Banking Company incorporated and registered under the Companies Act. Respondent No.1 and 2 claim to be the owners of Flat No.55, 5th Floor, “B” Wing, Gita Smruti Premises CHS Ltd., Pandita Ramabai Road, Gamdevi, Mumbai – 400 007. This Flat was given and accepted as security by Respondent No.4 with Respondent No.3 for advances made to Respondent No.4. It is an admitted position that Respondent No.3 is a Non-Banking Financial Institution, which was pleased to assign this debt to the Petitioner by virtue of a Deed of Assignment dated 18/07/2012 alongwith underlying security.
7. Since Respondent No.4 had committed defaults in repayment of his debts, Respondent No.3 invoked the Arbitration Clause in the agreement and finally an award was passed in favour of Respondent No.3 on 31/07/2010, directing Respondent No.4 to pay sum of Rs 75,30,872/- with interest @ 13.24 % per annum with effect from 25/02/2010 to 31/07/2010 and thereafter @ 14% per annum till the actual payment and/or realization. Thereafter, Respondent No.3, by a Deed of Assignment dated 18/07/2012, transferred, assigned and released in favour of the Petitioner – Kotak Mahindra Bank Ltd. the entire amount payable by Respondent No.4 to Respondent No.3.
8. In view of Deed of Assignment, Petitioner started taking steps for realization of the outstanding amount and invoked the provisions of SARFAESI Act. Initially, notice dated 03/07/2013 under section 13(2) of the SARFAESI Act was issued to Respondent No.4, calling upon him to pay an amount of Rs 1,10,39,111/- due and payable as on 02/07/2013 with interest @ 14% per annum. No reply was given to the said notice by Respondent No.4. Petitioner, thereafter, filed an application under section 14 of the SARFAESI Act in the Court of Chief Metropolitan Magistrate, Esplanade, Mumbai. At the time of taking possession, Respondent No.1 was found in the premises, though Respondent No.4 had mortgaged the premises to Respondent No.3, which mortgage was assigned to the Petitioner.
9. Respondent Nos. 1 and 2 thereafter claiming to be the owners of the said Flat, challenged the action of the Petitioner by filing Securitization Application being Securitization Application No.39 of 2014 before the DRT, Mumbai on various grounds and more particularly on the ground that t
