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2009(2) Bankmann 61 (Pat.)
PATNA HIGH COURT
Navaniti Prasad Singh, J.
Shyam Kishore Prasad and
Another –Petitioners
versus
Bank of Baroda and
Others –Respondents
C.W.J.C. No.3169 of 2007
Decided on 5-9-2008
For the Petitioners:Mr. S.D. Sanjay, Ms. Sushila Agrawal and Mr. Gautam Kejriwal, Advocates.
For the Respondents:Mr. Vivek Prasad, Mr. Arbind Kumar Jha and Mr. Nirmal Kumar, Advocates.
IMPORTANT POINT
Though the Bank has discretion in choosing the property or the person from amongst many available to it for the purpose of satisfying its debts, surely the discretion is neither absolute nor unfettered nor unguided or unbridled.
Headnote:Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002—Section 13—Recovery proceedings by Bank against property mortgaged by petitioners ex-Directors of company while opting not to move against property of company or mortgaged property of working Director—Challenge thereagainst—Even though the bank has discretion in choosing the property or the person from amongst many available to it for the purpose of satisfying its debts, surely the discretion is neither absolute nor unfettered nor unguided or unbridled—The discretion must be exercised based on sound principles and in transparent manner giving no party a cause to complain—Merely because liabilities of debtors, sureties, guarantors are co-extensive, they being jointly and severally liable does not mean that actions of banks in exercising its discretion in the matter is unquestionable—All exercise of discretionary power has to be tested and must satisfy test of Article 14 of Constitution in regards fairness, reasonableness, non arbitrariness and non-discriminatoriness of actions—Bank’s stand that it chose not to more against property of company as it was a second charge holder held incorrect—No cogent reason except a bald statement was given for leaving other mortgaged properties of existing director—Hence held that exercise of bank in terms of Section 13(4) could not be held to be consistent with principle enshrined under Art 14 of constitution—Proceedings against petitioners held liable to be quashed—Petition allowed. (Paras 11 to 19)
Navaniti Prasad Singh, J—The petitioners are the husband and the wife. They were Directors of a Public Limited Company respondent No. 4, which has other Directors as well. The Managing Director of the said company is Sri Parmeshwar Prasad, through whom the company has been sued in the present proceeding.
2. Company has appeared in the matter.
3. The grievances of the petitioners are as against the proceedings taken under Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the Securitization Act”) by the respondent Nos. 1, 2 and 3 being Bank of Baroda and its officers.
4. Many contentions were raised but I will deal with only one which is necessary for the purpose of disposal of this case.
5. Bank of Baroda has appeared.
6. Heard the parties and with their consent this writ application is being disposed off at the stage of admission itself.
7. When the company was incorporated, the petitioner and the said Parmeshwar Prasad were Directors. The company sought financial accommodation in the shape of inter alia cash credit facility from Bank of Baroda. For securing the same, the petitioners gave personal guarantee and mortgaged some of their properties by submission of title deed. Sri Parmeshwar Prasad also along with his wife gave guarantee and mortgaged their property. The movable and immovable property of the company, which was substantial, was also charged.
8. Here I may notice that prior to the said financial accommodation being given by the respondent-Bank of Baroda, the company had taken financial assistance from the Bihar State Credit and Investment Corporation Limited. The said Corporation is the statutory Corporation constituted under the State Financial Corporations Act, 1951. The Corporation for the financial assistance given to the company had created first charge on the assets of the company. Thus, the charge of the bank on the assets of the company was initially second charge, second to the charge of BICICO. It appears, as time went the dues of the company swelled. Amongst the Directors, there was a re-arrangement whereby the petitioners opted out the company in furtherance to the agreement as between the Directors but the guarantee and the mortgage continued. Subsequently, the petitioners gave notice to the bank in terms of Clause (1) of the letter of guarantee, withdrawing their guarantee on 19.11.2003. Bank in its turn required the existing Director to either get the guarantee renewed or substitute it with valid surety, which on not being done, they had no option but to move DRT, Bihar, Patna for recovery of the due of the bank. In those proceedings, the company and the director i.e. original director and the present director were made parties. Apparently, finding that the proceedings were likely to drag on, bank decided to resort to the provision of the Securitization Act. It accordingly issued notice to all the parties in terms of Section 13(2) of the said Act. Replies were filed in terms of Section 13 (3-A). These notices were responded to by the petitioners and others and replied on behalf of the bank by its lawyer. Bank not being satisfied with reply, took up the proceedings in terms of Section 13 (4) of the Act. At this stage, petitioners took an objection. They submitted that bank has not chosen to move against the property of the company nor has chosen to move against all the mortgaged property of the present working Director but has mala fide chosen to proceed only against all property mortgaged by the petitioners who had long since retired as Directors of the Company. The bank not willing to drop the petitioners, this writ application was filed.
9. The contentions of the petitioners are: (i) in terms of Clause (i) of the guarantee agreement, the petitioners having acted and noticed the bank, the petitioners were relieved of their guarantee and as such bank could not proceed against them, (ii) bank havi
