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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE F.M. IBRAHIM KALIFULLA & THE HONOURABLE MR. JUSTICE N. KIRUBAKARAN
Sheeba Philominal Merlin & Another
Versus
The Repatriates Co-op Finance & Development Bank Ltd., Chennai & Others
W.P. No.15272 of 2009
Decided on : 10-08-2010
ABUSE - Meaning of the above words - The object of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 - The Act aims at speedy recovery of defaulting loans and to reduce the mounting levels of non-performing assets of banks and financial institutions - The Act clothes the authorized officer of the bank with enormous powers to deal with the secured assets to recover the outstanding amounts - The financial institutions owe a duty to act fairly and in good faith - The Act bars the jurisdiction of civil courts and transfers pending matters to the Tribunals - The auction sale was vitiated by fraud and not following the procedure contemplated under the Act - The entire proceedings initiated by the bank in favor of the fourth respondent gets vitiated and is set aside - The fourth respondent is directed to hand over the possession of the property to the petitioner within 15 days from the date of receipt of a copy of this order - There will be an order of exemplary cost of Rs.50,000/- payable by the respondents bank 1 to 3 to the petitioners within 15 days from the date of the receipt of a copy of this order
Fact of the Case:
The first petitioner's husband died, and the property was sold for the alleged collateral security offered by the deceased for a loan transaction - The petitioners challenged the auction and the Sale Deed, claiming it was vitiated by fraud and not following the procedure contemplated under the Act
Finding of the Court:
The entire proceedings initiated by the bank in favor of the fourth respondent gets vitiated and is set aside - The fourth respondent is directed to hand over the possession of the property to the petitioner within 15 days from the date of receipt of a copy of this order - There will be an order of exemplary cost of Rs.50,000/- payable by the respondents bank 1 to 3 to the petitioners within 15 days from the date of the receipt of a copy of this order
Issues: Non-compliance of mandatory provisions of the Act, fraud, lack of fair play, bonafides etc. - Violation of principles of natural justice and constitutional right to hold property as per Article 300A of the Constitution of India - Violation of statutory provisions and principles of natural justice
Ratio Decidendi: The entire proceedings initiated by the bank in favor of the fourth respondent gets vitiated and is set aside - The fourth respondent is directed to hand over the possession of the property to the petitioner within 15 days from the date of receipt of a copy of this order - There will be an order of exemplary cost of Rs.50,000/- payable by the respondents bank 1 to 3 to the petitioners within 15 days from the date of the receipt of a copy of this order
Final Decision: The entire proceedings initiated by the bank in favor of the fourth respondent gets vitiated and is set aside - The fourth respondent is directed to hand over the possession of the property to the petitioner within 15 days from the date of receipt of a copy of this order - There will be an order of exemplary cost of Rs.50,000/- payable by the respondents bank 1 to 3 to the petitioners within 15 days from the date of the receipt of a copy of this order
N.KIRUBAKARAN,J
1. "ABUSE", "MISUSE" – Meaning of the above words is the facts of this case.
2. The object of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is to regulate Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest and for matters connected therewith or incidental thereto and the Act came into force on 17-12-2002. The Act aims at speedy recovery of defaulting loans and to reduce the mounting levels of non-performing assets of banks and financial institutions. The Act has been passed based on the recommendations of Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms and to consider the need for changes in the legal system in respect of these areas. The provisions of the would enable the banks and financial institutions to realise long-term assets, manage problems of liquidity and asset liability mismatches and to improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.
3. For getting a decree in usual course before a Civil Court litigants including Banks have to file the suit before a civil court. After service of notice, written statement and trial, the suit would be decided by passing a decree. The decree would possibly be challenged by way of appeal upto Supreme Court and it would take about 5 to 15 years to attain finality. There would be possibility of dismissal of suit on various grounds. After the decree is passed by the competent civil court, the same would be put to execution by filing E.P. The Execution Court after service of notice would bring the property of the debtor/guarantor for sale through auction. To reach this stage, lot of money, especially very long time have to be spent. The above process is dispensed with by the Special Act "SARFAESI ACT" which is meant only for the financial institutions. As per the Act, the first step would be to issue notice U/s. 13(2) by the authorised officer who is deemed to be armed with a money decree which attained finality. By the statute the authorised officer, is clothed with powers of trial court and execution court and the code of Civil Procedure which governs the civil proceedings is no more necessary. To put it otherwise, by the Special Act, the authorized officer acts like a Civil Court clothed with powers hitherto exercised by it.
4. What the Honourable Supreme Court held in Mardia Chemicals Ltd., -Vs- Union of India reported in A.I.R. 2004 S.C.2371:(2004) 4 S.C.C.311, while upholding the validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002(54 of 2002) is as follows:
“ The financial institutions, namely the lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies/institutions are not free to ignore performance of their of the obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American Courts, in view of the facts and circumstances and the terms of the contracts and other details relating to those matters, that may or may not strictly apply, nonetheless, even in absence of any such decisions or legislation, it is incumbent upon such financial institutions to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of concept of lenders liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely, borrowers and assume all drastic powers for speedier recovery of NPAs. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless
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