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2012 Supreme(Cal) 817
IN THE HIGH COURT OF CALCUTTA
I.P. MUKERJI, J.
SUDHA KHEMKA
VS.
CENTRAL BANK OF INDIA
G.A. No. 2404 of 2012; C.S. No. 268 of 2012
Decided On: September 5, 2012
P. Chatterjee, R. Mitra. M. Das, R. Sarkar appear;
H.K. Mitra, S. Ghosh appear;
A. Singh appears;
U. Doshi appears;
R. Sikdar appears.
The Debts Recovery Tribunal has exclusive jurisdiction to determine the validity of a contemplated measure under the SARFAESI Act, including the assignment of loans and immovable properties.
Headnote:
SARFAESI ACT - ASSIGNMENT OF LOANS - SECTION 13(2), 13(3A), 13(4), 17, 34 - JURISDICTION OF DEBTS RECOVERY TRIBUNAL - SUMMARY
Fact of the Case:
A suit was filed by guarantors challenging the assignment of loans and immovable properties to the assignee under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The guarantors claimed that the bank should have first sold the shares deposited with them as security before assigning the immovable properties.
Finding of the Court:
The court held that the Debts Recovery Tribunal had exclusive jurisdiction to determine the validity of a contemplated measure under the SARFAESI Act, including the assignment of loans and immovable properties. The court relied on the Supreme Court's decision in Mardia Chemicals Limited v. Union of India & Others, which held that the jurisdiction of the Civil Court to entertain the legality of a contemplated action under the SARFAESI Act is barred.
Issues: 1. Whether the Debts Recovery Tribunal had jurisdiction to determine the validity of a contemplated measure under the SARFAESI Act. 2. Whether the bank was required to sell the shares deposited with the guarantors as security before assigning the immovable properties.
Ratio Decidendi: 1. The Supreme Court's decision in Mardia Chemicals Limited v. Union of India & Others held that the jurisdiction of the Civil Court to entertain the legality of a contemplated action under the SARFAESI Act is barred. 2. The Debts Recovery Tribunal is empowered to consider the question whether a measure can be taken or not under the SARFAESI Act, and all incidental questions are within the province of the Debts Recovery Tribunal.
Final Decision: The court directed the plaintiffs to approach the Debts Recovery Tribunal for appropriate orders on the basis of the observations made in the judgment. The court also allowed the second defendant to take symbolic possession of the immovable properties but restrained them from taking any further steps for six weeks.
The Court: This new motion was heard over three days. As all the relevant papers are on record, I think it fit, not to invite any affidavits and dispose of this application on the existing papers, by this order.
2. The plaintiffs are guarantors. The borrower was the fourth defendant, which is now in liquidation. The lender was the first defendant bank.
3. Ms. Sikdar for the Official Liquidator submitted that this suit was incompetent as no leave under section 446 [1] of the Companies Act, 1956 was taken before institution of the suit. The reply of Mr. Reetobrata Mitra, learned advocate for the plaintiffs, to this, in my opinion is correct. The fourth defendant is a proforma defendant and no reliefs are claimed against them in this suit. Therefore, no leave is required. This is a prima facie finding.
4. Now, the first defendant bank, acting under section 5 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [SARFAESI], assigned the "loans" of the fourth defendant to the second defendant. This assignment was made on 30th March, 2011.
5. There is no dispute with this proposition that once this kind of an assignment is made the assignee steps into the shoes of the lender.
6. Now, this assignment included the immovable properties of the plaintiffs described at page 96 of the petition. The properties are a residential flat at Ballygunge Park, Kolkata, and two office spaces at 37, Shakespeare Sarani, Kolkata-17.
7. Having stepped into the shoes of the financial institution, the second defendant started exercising powers under the above Act. They issued a section 13[2] notice on 1st June, 2012. This notice was replied to by the plaintiffs on 27th July, 2012, to which the second defendant once again responded on 17th August, 2012.
8. The case of the plaintiffs is this. As guarantors, they had not only provided the above immovable properties as security but had also deposited various valuable shares with the first defendant bank, as security. If those shares were sold, the proceeds thereof would be sufficient to satisfy the debt of the company now in liquidation. Therefore, the bank ought to have used their discretion in selling the shares first. If there was any short fall after such sale, then only should the rights in the above immovable properties been assigned by them to the second defendant.
9. The argument of Mr. Pratap Chatterjee, learned senior advocate for the plaintiffs was that the Debts Recovery Tribunal which hears complaints against measures taken under section 13[4] of the SARFAESI Act, under section 17 thereof, had no jurisdiction to determine this dispute between the parties.
10. He referred me to a case decided by the Supreme Court in the case of Nahar Industrial Enterprises Limited vs. Hongkong & Shanghai Banking Corporation, reported in 2009 (8) SCC 646, where the Supreme Court discussed about the jurisdiction of the Debts Recovery Tribunal. He argued that the Debts Recovery Tribunal could not entertain any original claim by a borrower or guarantor. They could only plead a set off or file a counter claim. Therefore, only this Court had the jurisdiction to go into the question in dispute.
11. He further submitted that since the amount demanded from the guarantors was less than 20% of the total dues of the debtor company, now in liquidation, powers under the SARFAESI Act could not be exercised. Thus, in deciding this question, the Debts Recovery Tribunal had not and this Court had the exclusive jurisdiction.
12. He also cited the case of M/s. Transcore vs. Union of India & Anr., reported in AIR 2007 Supreme Court 712 to emphasize that the SARFAESI Act involved a non-adjudicatory process and this kind of an adjudication was beyond the scope of this Act.
13. He also referred to some Reserve Bank of India guidelines. He urged that according to the Reserve Bank of India guidelines which the second defendant was bound to follow, according to the case of Citicorp Maruti Fi
