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2021 Supreme(Ker) 865
IN THE HIGH COURT OF KERALA AT ERNAKULAM
BECHU KURIAN THOMAS, J.
M/s Sree Sankara Funds (P) Ltd. - Petitioner
Versus
The Tahsildar (Land), Kattakada Thiruvananthapuram & Ors. - Respondents
W.P.(C) No. 18263 of 2021
Decided On : 22-09-2021
For the Petitioner: Raghul Sudheesh, K.J. Glaxon, Sanish Sasi Raj, J. Lakshmi, Amal Jees Alex, Xavier Thomas V.T.
For the Respondent: GP. Sabeena P. Ismail.
Point of Law: Initiating proceedings under SARFAESI Act is right of a secured creditor. Once proceedings are initiated under Act, they cannot be interrupted abruptly and be kept in a fluid state. If proceedings under SARFAESI Act that have already been initiated, are made to depend on cancellation or otherwise of CoR, it will lead to an anomalous situation where rights of secured creditor will be fluctuating depending on a variety of factors.
Headnote:
Reserve Bank of India Act, 1934 - Sections 45-IA(6), 13 and 2(m) - Kerala Land Tax Act, 1961 - section 3(3) - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - Mortgage over two immovable properties - Enforcement of Security Interest - Petitioner was a Non-Banking Financial Company [for short, 'NBFC'] engaged in business of providing loans and advances. certificate of registration - two persons availed loans from petitioner and created a mortgage over two immovable properties in year - Due to default in repayment of dues - petitioner's registration as NBFC was cancelled by Reserve Bank of India, through Ext.P4 and directed petitioner to repay deposits already accepted by petitioner so as to bring down financial assets below 50%. reason for cancellation of CoR is stated to be failure of petitioner to achieve required net owned fund before - Security interest created for loan, which had already fallen as NPA, were brought for sale and petitioner itself bid at auction held - petitioner applied for effecting mutation based 1st respondent referred same to 2nd respondent for legal advice and thereafter 2nd respondent issued stating that since RBI had cancelled certificate of registration of petitioner as an NBFC with effect sale certificate was registered subsequent to said date, petitioner had no authority to execute deed.
Finding of the Court: Detract from right of entity to recover debts owed to it by continuing proceedings initiated nor does it destroy rights that accrued to it already. Initiating proceedings under SARFAESI Act is right of a secured creditor. Once proceedings are initiated under Act - AESI Act that have already been initiated, are made to depend on cancellation or otherwise of CoR, it will lead to an anomalous situation where rights of secured creditor will be fluctuating depending on a variety of factors. Thus, in order to have certainty, to both secured creditor as well as borrower, it is necessary to hold that once proceedings have been initiated under SARFAESI Act - Landholder is defined as including a registered holder for time being in force. registration of sale certificate, as is evident - revenue authorities cannot adjudicate on validity or otherwise of title deeds none has raised any question on validity of title deed of petitioner-not even borrowers.
Result: Writ petition is allowed
JUDGMENT :
Petitioner’s attempt to effect mutation of a property purchased by it was not successful. The application was ‘rejected’ on the basis of legal opinion obtained by the District Collector. Through Ext.P9, the first respondent has communicated to the petitioner, the nature of the legal opinion. It is stated in Ext.P9 that since petitioner’s registration under Section 45-IA(6) of the Reserve Bank of India Act, 1934 ( for short ‘the Act’) has been cancelled with effect from 02-06-2018, the sale deed executed after such date is without authority. Apart from challenging Ext.P9, petitioner has also sought for a direction to the respondents to effect mutation of the property purchased by the petitioner.
2. Petitioner was a Non-Banking Financial Company [for short, 'NBFC'] engaged in the business of providing loans and advances. The certificate of registration (CoR), as an NBFC, is dated 15-12-2000 with No.B-16.00135. While it was carrying on its business as an NBFC, two persons availed loans from the petitioner and created a mortgage over two immovable properties in the year 2012. Due to default in repayment of the dues, after classifying the account as NPA, proceedings were initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘SARFAESI Act’), as is evident from Ext.P1 and Ext.P2 notices dated 18-01-2018, issued under section 13(2) of the SARFAESI Act.
3. While so, petitioner's registration as NBFC was cancelled by the Reserve Bank of India, through Ext.P4 dated 03-07-2018 and directed the petitioner to repay the deposits already accepted by the petitioner so as to bring down the financial assets below 50%. The reason for cancellation of CoR is stated to be the failure of the petitioner to achieve the required net owned fund before 01-04-2017, which was found to be a violation of the directions issued by the Reserve Bank of India. As a matter of fact, Ext.P4 was issued after following the statutory procedure.
4. In the meantime, the security interest created for the loan, which had already fallen as NPA, were brought for sale and petitioner itself bid at the auction held on 28.02.2019. Since petitioner was the highest bidder, the sale was confirmed in its favour, Ext.P6 sale certificate was also issued and the sale certificate was registered on 05.08.2019. However, when the petitioner applied for effecting mutation based upon Ext.P6, the 1st respondent referred the same to the 2nd respondent for legal advice and thereafter the 2nd respondent issued Ext.P9 stating that since RBI had cancelled the certificate of registration of the petitioner as an NBFC with effect from 02.06.2018 and the sale certificate was registered subsequent to the said date, petitioner had no authority to execute the deed. This writ petition has been filed in the above circumstances.
5. Adv. Sabeena P. Ismail, the learned Government Pleader submitted upon instructions that, the refusal to effect mutation was based upon the cancellation of certificate of registration and that the 1st respondent received the opinion from the 2nd respondent stating that the deed could not have been executed by the petitioner and that they have acted in accordance with the directions issued.
6. I have heard Adv. Glaxon K.J., the learned counsel for the petitioner as well as Adv. Sabeena P. Ismail, the learned Government Pleader for the respondents.
7. The question to be considered is whether the cancellation of registration as an NBFC will render the petitioner disabled to execute a sale deed?
8. An NBFC is defined in section 45-I(f) of the Act as a Company, which has, as its principal business, the receiving of deposits, under any scheme or arrangement or in any other manner; or lending in any manner. Section 45-IA of the Act, deals with the requirement of registration and net owned fund for commencement or carrying on the business of an NBFC. It states that no NBFC shall commence or carry on the busine
