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Gujarat High Court
Judgename :Ms.R.M.DOSHIT
TENSILE STEEL LTD - Appellant
Versus
PUNJAB AND SINDBANK - Respondent
Spl. Civil Appln 16154 Of 2005
Decided On : 05/01/2006
Bank dues - Recovery proceedings - Two distinct and separate remedies - Doctrine of election - Applicability - Scope of - Finding as to.
Head Note :
Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 - Sections 13, 14, 17 and 41 - Recovery of Debts due to Banks and Financial institutions Act, 1993 (Central Act 51 of 1993) - Sections 19, 19(1), proviso there to, and 19(15) - Act of 1985 - Sections 15, 15(1), 22 and 24 - Bank dues - Recovery Proceedings - Two distinct and separate remedies - Doctrine of election - Applicability - Scope of - Finding as to - Bank had initiated recovery proceedings before Debt Recovery Tribunal, therefore, it is contended that bank is debarred from taking measures for recovery under the Act of 2002 and resort to remedy of recovery by sale of secured assets - It is submitted that bank has first to withdraw application filed before Tribunal to proceed under the Act of 2002 for recovery of its dues - Court considering the provisions under the Act of 1993 and specially relevant provisions of first proviso to Sub-section (1) of the Section 19 and held that contention of learned Counsel for petitioner is without any force and substance, therefore, it cannot be accepted - The proviso to Section 19 does not refer to the withdrawal of the application pending before the Tribunal for the purpose of taking action under the Act of 2002 - It is not the mandatory requirement of land and it would lead to multiplicity of the proceedings and raise various questions - Court held that bank may avail of the remedy under the Act of 2002 without first withdrawing the application pending before the Tribunal - However grievance of company that objections were raised by it against notice for remittance of dues but bank has not considered the same - Sub-section 3-A of Section 13 of the Act of 2002 enjoins on bank mandatorily to consider and decide the same and communicate the decision thereof unless and until the said exercise is not completed the bank is not authorised to proceed further and take action under Section 13(4) of the Act - In the case indisputably the bank without complying this mandatory requirement under Section 13 (13-A) has proceeded under Section 13(4) to take over possession of security assets - The action of bank is contrary to this statutory mandate, therefore, it is quashed and set aside.
Held :
Court is, therefore, inclined to hold that the proviso to Sub-section (1) of Section 19 of the Act of 1993 which provides for withdrawal of the application pending before the Tribunal is directory and not mandatory. In other words, a bank or a financial institution which has approached the Tribunal either before or after 11.11.2004, if so chooses, may avail of the remedy under the Act of 2002 without first withdrawing the application pending before the Tribunal.
[Para 18]
This brings Court to the last of the contentions which, in Courts view, requires to be upheld. It is the grievance of the company that the objections raised by it against the notice for remittance of the dues issued by the Bank under Section 13(2) of the Act of 2002 have not been considered by the Bank. It is not denied that the said reply had been received by the Bank. However, the Bank did not consider and decide the same. Sub-section (3A) of Section 13 of the Act of 2002 enjoins the Bank to consider and decide such reply/objection and to communicate the decision thereof. Unless and until the said exercise is completed, the Bank is not authorised to proceed further and take any of the measures under Sub-section (4) of the said Section 13. [Para 23]
In the present case, it is indisputable that the Bank, without complying the mandatory requirement under Sub-section (3A) of the said Section 13, proceeded further under Sub-section (4) of the said Section 13; took the assistance of the District Magistrate under Section 14 of the Act of 2002; and took over the possession of the secured assets. The action of the bank is certainly contrary to the statutory mandate. The same requires to be quashed and set-aside on that ground alone. [Para 24]
Law Laid Down :
It is the statutory mandate that before bank proceeds and take any measures to recover outstanding dues it must consider the reply of defaulter and communicate the decision.
Case Law Analysis :
Sahir Shah vs. Bank of India, 2006 (1) ISJ (Banking) 263 [Para 12];; Wardhaman Shamjibhai Dharamsi and another vs. Bank of Maharashtra, 2006 (1) DRTC 339 [Para 13].-Relied on
Conclusion :
The notice for remittance of the dues issued by the bank under Section 13(2) of the Act of 2002 is contrary to the statutory mandate, therefore, the same is required to be set aside and quashed.
Cases Referred :
Bihar State Co-operative Marketing Union Ltd. vs. Uma Shankar Sharan and Another, 1992 (4) SCC 196;; Andhra Pradesh State Financial Corporation vs. M/s. GAR Re-rolling Mills and Another, AIR 1994 SC 2151;; Central Bank of India vs. Ravindra and Others, AIR 2001 SC 3095;; Unique Butyle Tube Industries (P) Ltd. vs. U.P. Financial Corporation and Others, 2003 (2) SCC 455;; Mardia Chemicals Ltd. vs. Union of India and Others, AIR 2004 SC 2371;; Kalyani Sales Company and Another vs. Union of India and Another, 2006 (I) BC 1;; Punjab National Bank vs. O.C. Krishnan and Others, 2001 (6) SCC 569;; Gujarat Fisheries Central Co-operative. Association Ltd. vs. Union of India and Others, 2004 (1) DRTC 90;; Kundanben Jayantilal Sanghvi vs. State Bank of Saurashtra, 2005 (2) DRTC 129;; Bank of Rajasthan Ltd. vs. Karan Fibres and Fibrics Ltd. and Others, 2003 (2) GLR 1392;; M/s. Digivision Electronics Ltd. vs. Indian Bank and Another, W.P. No. 13056 of 2005, decided on 07.07.2005.
Decided in Favour of :
Petitioner
Petition Allowed
( 2 ) THE petitioners before this Court are a company incorporated under the Companies Act, 1956 and one another (hereinafter referred to as "the Company"), the borrowers in default. The respondent No. 1 is the punjab and Sind Bank Limited (hereinafter referred to as. "the Bank" ). The Bank had extended financial assistance to the Company. The Company challenges the action of the Bank in initiating the recovery proceeding under the Securitization and Reconstruction of Financial Assets and enforcement of Security Interest Act. 2002 (hereinafter referred to as, "the Act of 2002") and the order of the District Magistrate, vadodara made on 4th January. 2005 under Section 14 of the Act of 2002.
( 3 ) MRS. Mehta has submitted that the action of the Bank in invoking the provisions contained in the Act of 2002 is illegal, made without the authority of law. She has submitted that the Company s account has not been declared to be the non-performing asset. The Bank, therefore, has no authority in law to invoke the provisions contained in the Act of 2002 for recovery of its dues. She has submitted that the Bank has instituted recovery proceeding before the Debt Recovery Tribunal (hereinafter referred to as, "the Tribunal") on 1st October, 2002. The Bank having invoked the jurisdiction of the Tribunal for recovery of its dues under the Recovery of Debts Due to Banks and Financial institutions Act, 1993 (hereinafter referred to as, "the Act of 1993"), the Bank is debarred from taking measures for recovery of its dues against the secured assets under the Act of 2002. She has submitted that the Bank does have a remedy of recovery by sale of secured assets under the Act of 2002. However, the Bank does have equally efficacious remedy for recovery of its dues under the Act of 1993. As the Bank has two separate and distinct remedies available the doctrine of election of remedy shall come into play. The Bank must decide whether it wants its recovery to be made through the process of adjudication under the Act of 1993 or by the measures taken against the secured assets under the Act of 2002. She has further submitted that the Company has offered to settle its account under one Time Settlement scheme introduced by the Reserve bank of India. So long as the Company s application for settlement of account is pending, its assets cannot be recovered by the Bank. She has further submitted that on receipt of the notice under Section 13 (2) of the Act of 2002 the Company has lodged its objections. The said objections have not yet been considered and decided. Unless the said objections are considered, decided and the decision is communicated to the petitioners, the Bank has no authority to take measures under Section 13 (4) of the Act of 2002. She has further submitted that against the loan of Rs. 40 lakhs advanced by the Bank, the Bank has sought to recover a sum of Rs. 5 crores. The Bank has failed to submit its accounts and to justify the recovery sought to be made by it. On receipt of the notice under Section 13 (2) of the Act of 2002, the petitioners had lodged objections. The Bank was under an obligation to consider and decide the said objections and to communicate the decision thereof. In absence of such consideration or communication the Bank had no authority to proceed further with taking over the possession of the secured assets. She has submitted that the impugned notice does disclose that the Bank has charged penal interest and has also claimed interest over such interest. e. the Bank has capitalized on the penal interest. She has submitted that the Bank is not empowered to capitalize on penal interest. She has submitted that the matter had once been settled with the bank. The Bank had agreed to settle the accounts for a
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