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IN THE HIGH COURT OF KERALA AT ERNAKULAM
N.Nagaresh, J.
M/s Aryanet Trust And Ors. – Petitioners
Versus
Dhanlaxmi Bank Ltd. And Ors. – Respondents
OP (DRT) NO. 24 OF 2024
Decided On : 30-01-2024
Article 227 - Credit Facilities - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Section 13, Section 14) - The court discussed the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, particularly Section 13 and Section 14, and their application in the case. The court also considered Rule 5A of the Debts Recovery Tribunal (Procedure) Rules, 1993 and the power of the Tribunal to pass interim orders and to modify or vacate them under Rule 18.
Fact of the Case:
The petitioners, who availed credit facilities from the bank, challenged the bank's actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The bank invoked Section 13(2) and Section 14, issued possession notices, and later sought to vacate an interim order granted by the Tribunal.
Finding of the Court:
The court found that the bank's actions were in accordance with the provisions of the Act, and the Tribunal had the power to vacate the interim order under Rule 18 of the Debts Recovery Tribunal (Procedure) Rules, 1993.
Issues: The issues revolved around the bank's invocation of the Act's provisions, the validity of vacating the interim order, and the power of the Tribunal to regulate its own procedure.
Ratio Decidendi: The court held that the bank's actions were lawful under the Act, and the Tribunal had the authority to vacate the interim order to prevent abuse of its process or to secure the ends of justice.
Final Decision: The court dismissed the petitioners' challenge and upheld the bank's actions under the Act.
JUDGMENT :
The petitioners, who have availed credit facilities from the 1st respondent-Dhanalakshmi Bank, have invoked Article 227 of the Constitution of India to impugn Ext.P10 order dated 05.01.2024 in IA No.510 of 2021 in SA No.382/2018 of the Debts Recovery Tribunal-I, Ernakulam.
2. The 1st petitioner is a Trust running educational institutions and other petitioners are its Trustees. The Bank sanctioned Term loans and vehicle loans to the petitioners. When the loan repayments were defaulted and maintenance of credit accounts failed, the Bank invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and issued Section 13(2) notice. The Bank issued possession notice and invoked Section 14 also. The Advocate Commissioner appointed by the court also issued notice to the petitioners to take over possession of secured assets.
3. The Bank later issued a notice of sale by public auction of the secured assets. The petitioners submitted a One Time Settlement proposal. When the Bank refused to consider the OTS proposal and proceeded with sale of the secured assets, the petitioners filed Ext.P1 SA No.382/2018 in the DRT challenging the proceedings. When the Bank issued fresh possession notices, the petitioners filed Ext.P4 IA No.1125/2019 for amendment and Ext.P5 IA No.1124/2019 for stay. As the Bank failed to file counter affidavit, the DRT passed Ext.P6 interim order dated 02.07.2019 directing to defer the scheduled sale on 03.07.2019.
4. The petitioners state that after lapse of two years of Ext.P6 interim order, the 1st respondent-Bank filed Ext.P8 IA No.510/2021 seeking to vacate Ext.P6 interim order. The petitioners filed Ext.P9 counter affidavit in IA No.510/2021. The Tribunal, however, vacated Ext.P6 interim order as per Ext.P10 order. The petitioners seek to set aside Ext.P10 order.
5. The counsel for the petitioners argued that Ext.P10 order is highly illegal and unsustainable for many reasons. Ext.P10 order has been passed vacating an interim order, after more than two years of grant of the interim order. When an interim order is left to operate for a period of two years and when the main SA itself was ripe for hearing, the Tribunal ought not have vacated the interim order after two years.
6. The counsel for the petitioners pointed out that Ext.P6 interim order, which is now vacated, is not an ex-parte interim order. It was an order passed after hearing all the parties. There is no change of circumstances warranting variation of interim order now. Hence, the Tribunal committed a grave error in vacating the interim order.
7. The counsel for the petitioners relied on Rule 5A of the Debts Recovery Tribunal (Procedure) Rules, 1993 and argued that once an IA is allowed and finally disposed of, the order therein cannot be varied or reversed otherwise than by filing a review application or through an appeal under Section 18 of the Act, 2002. Ext.P8 application to vacate the interim order itself is not maintainable.
8. The Standing Counsel representing the 1st respondent-Bank resisted the OP(DRT). On behalf of the respondents, it is submitted that the petitioner was given a loan of Rs.12 Crores which, due to the default of the petitioners, has accumulated into a liability of about Rs.27 Crores. The loan account was declared as NPA in the year 2016 itself. The SA was filed in the year 2018. The secured assets were put to sale in the years 2018 and 2019. The sale did not fructify at that time.
9. Ext.P6 interim order staying further proceedings was passed by the Tribunal on 02.07.2019. A counter affidavit was filed immediately thereafter, on 10.07.2019. By that time, Covid-19 pandemic broke out. In view of the Covid-19 restrictions and multiple orders regulating the loan accounts of banking institutions, the respondents could not file an application to vacate the interim order during that time. The respondents filed interim application to vacate Ext.P6 order in the year
The Tribunal must consider merits and apply due diligence in SARFAESI Act proceedings, treating them like civil suits, to ensure fair adjudication.
The impact of communication from the bank on the actions of auction purchasers and the compliance with the Security Interest (Enforcement) Rules were central to the court's decision.
The discretion of the court in granting stay orders and the consideration of extenuating circumstances such as the impact of the pandemic on businesses.
The petitioner should avail appellate remedy under Section 18 of the Act of 2002 to challenge the confirmation of sale by the Debt Recovery Tribunal.
Courts must refrain from intervening if an efficacious alternative remedy is available under the law.
The secured creditor has the discretion to charge interest and receive delayed payment from the auction-purchaser, and the conduct of the borrowers determines the exercise of discretion in their favo....
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