Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2009 Supreme(Mad) 3084

High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.K. MISRA & THE HONOURABLE MR. JUSTICE R. SUBBIAH
Jupiter Jewel Tech represented by its Partners & Others
Versus
Authorised Officer, Indian Overseas Bank, Kilpauk Branch, Chennai
C.R.P. (NPD) No. 2296 of 2009 and M.P. No. 1 of 2009
Decided On : 10-08-2009

Advocates Appeared:
For the Petitioners: S. Sethuraman.
For the Respondent: Benjamin George P. Raghunathan and Javesh Dolia for Amicus Curiae.

The main legal point established in the judgment is that the duty to consider representations or objections and take suitable action under Section 13(3-A) of the SARFAESI Act may be performed by the same officer, and the alleged violation of principles of natural justice in this regard was not countenanced by the court.

Headnote:
SARFAESI Act - Enforcement of Security Interest - Section 13(2), Section 13(3-A), Rule 3-A - Summary of Acts and Sections: The court discussed the provisions of the SARFAESI Act, particularly Section 13(2) and Section 13(3-A), along with Rule 3-A, and their interpretation in the context of considering representations or objections by the borrower and the actions to be taken by the secured creditor or authorized officer.
Fact of the Case:

The petitioners, a partnership firm and its partners, challenged the order of the Debts Recovery Tribunal regarding the enforcement of security interest by the Indian Overseas Bank under the SARFAESI Act. The main contention was the illegality of the reply given by the Authorised Officer under Section 13(3-A) of the SARFAESI Act.
Finding of the Court:

The court found that the submissions made by the petitioners could not be accepted. It held that the provisions of the SARFAESI Act and the Rules empowered the secured creditor to exercise various powers and duties through authorized officers, and the duty to consider representations or objections and take suitable action may be performed by the same officer.
Issues: The issues involved the interpretation of the provisions of the SARFAESI Act, particularly Section 13(3-A) and Rule 3-A, and the alleged violation of principles of natural justice in considering representations or objections by the same officer who issued the notice.
Ratio Decidendi: The court's decision was based on the interpretation of the provisions of the SARFAESI Act and the Rules, emphasizing that the duty to consider representations or objections and take suitable action may be performed by the same officer, and the contention regarding the violation of principles of natural justice was not countenanced.
Final Decision: The petition was dismissed at the stage of admission, without any costs, and the court made it clear that it had not dealt with any other aspect considered in the impugned order of the DRT, leaving them to be considered by the appellate authority or any other competent authority in accordance with the law at an appropriate stage.

Judgment :

Per P.K. Misra, J.

Heard Mr. S. Sethuraman, learned counsel for the petitioners and Mr. Benjamin George, learned counsel for the respondent/Bank at the stage of admission of the present petition under Article 227 of the Constitution of India, challenging the order dated 7. 2009 passed by Presiding Officer, Debts Recovery Tribunal-III, Chennai, in S.A. No. 84 of 2008.

2. The first petitioner is a partnership firm of which the petitioners 2 to 4 are partners. They had availed a cash credit limit of Rs.1.50 crores on 30.1.2003 and ad hoc limit of Rs.90 lakhs on 24. 2006 from the Indian Overseas Bank, respondent herein. The sole Respondent issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein referred to as “SARFAESI Act”) calling upon the petitioners to repay a sum of Rs.5,46,74,088/- on the allegation that the account had been classified as NPA as on 312. 2007. The petitioners gave a reply which was apparently rejected by the Authorised Officer. Thereafter, the bank took steps under Section 13(4) of the SARFAESI Act by issuing notice regarding taking of possession. Subsequently the petitioners filed S.A.No.84 of 2008 before the Debts Recovery Tribunal challenging the action purportedly taken under Section 13(4) of the SARFAESI Act. The main contention which was raised before the Debts Recovery Tribunal and reiterated before us, relates to the illegality of the reply given by the Authorised officer. It is submitted that having himself issued a notice under Section 13(2) of the SARFAESI Act, the objection/reply filed by the petitioners under Section 13(3-A) of the SARFAESI Act, should have been considered by the Secured Creditor and not by the very same Authorised Officer. Apart from contending that such a course is not contemplated under the provisions of the SARFAESI Act and the Rules framed thereunder, it is also contended that consideration of the objection by the very same Authorised Officer who had issued notice under Section 13(2) of the SARFAESI Act is against the principles of natural justice.

3. As per Section 2(zd) of the SARFAESI Act a “secured creditor” means any bank or financial institution or any consortium or group of banks or financial institutions and includes-

(i) debenture trustee appointed by any bank or financial institution; or

(ii) Securitization company or reconstruction company, whether acting as such or managing a trust set up by such Securitization company or reconstruction company for the Securitization or reconstruction, as the case may be, or) (iii) any other trustee holding securities on behalf of a bank or financial instruction, in whose favour security is created for due payment by any borrower or any financial assistance;

4. Chapter III of the SARFAESI Act refers to enforcement of Security interest. As per Section 13(1) of the SARFAESI Act any security interest created in favour of the secured creditor may be enforced by such creditor in accordance with the provisions of the SARFAESI Act. As per Section 13(2) of the SARFAESI Act, where a borrower commits any default in repayment of the secured debt and his account is classified by the secured creditor as non-performing asset, then the secured creditor may issue notice to the borrower to discharge the liability to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4) of Section 13. Under Section 13(3-A) of the SARFAESI Act, if the borrower makes any representation or raises objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to be conclusion that such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance within one week of such representation of objection. In case, the borrower fails to discharge any liabi

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