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NARENDRA NATH TIWARI, J.
M/s. Stan Commodities Pvt. Ltd.
Versus
Punjab and Sind Bank.
W. P. C. No. 1572 of 2007
Decided on : 27 - 6 - 2008.
NPA - Loan Recovery - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2), Section 13(3-A), Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Summary of Acts and Sections: The court discussed the provisions of Section 13(2) and Section 13(3-A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the first proviso to Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The court emphasized the requirement of fair play, communication of reasons for non-acceptance of objections, and compliance with the prescribed procedures before taking harsh measures under Section 13(4) of the said Act, 2002.
Fact of the Case:
The petitioner, a manufacturing unit, took a loan from the respondents-Punjab and Sind Bank. The bank declared the petitioner's account as non-performing assets (NPA) and issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitioner objected to the notice, and the court directed the bank to consider the objection before proceeding under Section 13(4) of the said Act, 2002. The bank failed to communicate the reasons for non-acceptance of the objection within the stipulated time frame.
Finding of the Court:
The court found that the bank's declaration of the petitioner's account as NPA without prior information or opportunity to settle the controversy/doubts was not justified. The court also held that the bank was duty-bound to communicate its decision to the petitioner within one week from the date of receipt of his objection, as required under Section 13(3-A) of the said Act, 2002. The court further ruled that the impugned notice seeking revival of the action under the said Act, 2002 was without legal basis and unsustainable, and thus quashed the notice.
Issues: The issues before the court included whether the declaration of the petitioner's account as NPA without prior information/ opportunity to settle the controversy/doubts was justified, whether the bank was duty-bound to communicate its decision to the petitioner within one week from the date of receipt of his objection, and whether the impugned notice seeking revival of the action under the said Act, 2002 was valid and legal.
Ratio Decidendi: The court emphasized the requirement of fair play, communication of reasons for non-acceptance of objections, and compliance with the prescribed procedures before taking harsh measures under Section 13(4) of the said Act, 2002. The court also held that the bank's failure to communicate the reasons for non-acceptance of the objection within the stipulated time frame was a violation of the provisions of Section 13(3-A) of the said Act, 2002.
Final Decision: The court quashed the impugned notice seeking revival of the action under the said Act, 2002, and allowed the writ petition to that extent. The court also clarified that its observations would not prejudice either party, and the respondents were at liberty to proceed against the petitioner in accordance with the provisions of the DRT Act.
The petitioner, which is a manufacturing unit of MS Ingots, castings and other still products, had taken loan of Rs. 55 Lacs from the respondents-Punjab and Sind Bank under hypothecation after equitable mortgage in the year 2001 by way of cash credit facility.
2. The petitioner had been paying the amount of accrued interest and submitting the stock statement and other documents as prescribed by the Bank.
3. By letter dated 9-3-04 (Annexure-2), the petitioner was informed by the respondent-Bank that the sale proceeds as well as the stock statement have not been submitted and the same must be submitted to the Bank.
4. The petitioner submitted all the required documents and also explained that the delay was due to illness of the Director (Annexure-3). The petitioner requested the respondents-Bank to resume the transaction.
5. Suddenly the petitioner was served with a notice dated 29-11-04 (Annexure-8) from the respondents-Bank purportedly sent under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the said Act, 2002'). The notice was addressed to the petitioner and the guarantors. By the said notice the petitioner and the guarantors, jointly and severally, were asked to make the payment and discharge the liabilities amounting to Rs. 51,05,383.88/- with interest w.e.f. 1-11-04 with monthly rests, within 60 days from the receipt of the notice. It also mentioned that on failure of the same, the Bank shall take measures under the provisions of Chapter-III of the said Act, 2002 for recovery of the secured dues and in that case, the said persons shall be jointly and severally liable for payment of all costs and other expenses arising therefrom.
6. Against the said notice the petitioner filed their reply stating, inter alia, that the notice purportedly issued under Section 13(2) of the said Act, 2002 is illegal and without jurisdiction. The petitioner's Unit has been running against the sanctioned limit and at no point of time the petitioner was intimated that his account has been declared as non-performing asset (NPA). Further, even after the declaration of the account as NPA in March 2004, the petitioner was allowed to make transaction from the said account till November, 2004 without any break. It has been stated that the petitioner had taken cash credit loan of Rs. 55 lacs on 12-1-2001 for doing his business of manufacturing MS Ingots, castings and other steel products with interest @ 15.75% per annum. Raw materials, finished and semi finished goods of MS Ingots, plant machinery and scraps were hypothecated. The loan was also secured by way of equitable mortgage in respect of the immovable properties. The Bank had sanctioned Bank Guarantee limit of Rs. 15 lacs as on 12-1-2001, but the same was not utilized. It was well within the knowledge of the Bank that the petitioner's Unit has been running successfully. The interest payable to the Bank was being regularly paid within time. The Bank Officers, on the other hand, always put the petitioner into trouble. There was no occasion for issuing the notice under Section 13(2) of the said Act, 2002. No intimation was given to the petitioner regarding the proposed action and there was no occasion for sending such notice or approaching the Bank. The petitioner, thus, requested the Bank to recall the notice purportedly sent under Section 13(2) of the said Act, 2002.
7. When no order was passed on the said application, the petitioner filed a writ petition being W.P. (C) No. 6908/2004 challenging the said notice dated 29-11-2004 sent under the said Act, 2002.
8. The said writ petition was disposed of directing the respondents-Bank to consider the objection/representation filed by the petitioner and pass a reasoned order before proceeding under Section 13(4) of the said Act, 2002.
9. The petitioner filed representation dated 14-1-2005 before the respondents-Bank regarding compliance of the said or
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