Interpretation of the amended provisions of Sections 13 and 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, hereinafter for brevity’s sake referred to as ‘the Securitization Act’, is involved in this reference made to the larger Bench. By a common order passed in W.P.Nos. 37148 & 37534 of 2007, the Division Bench has referred the following questions which fall for our determination:-

(i)Whether even where no stay is prayed for by the Borrower, during pendency of the proceedings under Section 17 before the Debt Recovery Tribunal, the Secured Creditor can proceed to auction the secured asset even before a declaration envisaged under Section 17(4) of the SARFAESI Act as made by the Debt Recovery Tribunal?

(ii)Whether for granting any stay of auction, the Debt Recovery Tribunal can impose any condition relating to deposit?

(iii)Whether, even before finalisation of the proceedings under Section 17 of the SARFAESI Act, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal has any incidental or ancillary power to pass any interim order relating to restoration of possession or restoration of management, subject to imposition of any reasonable condition as deemed fit and proper?

(iv)What is the scope of enquiry under Section 17 of the SARFAESI Act and whether the merits of the contentions raised by the borrower can be decided while dealing with the question relating to validity of the action taken by the Bank under Section 13 of the Act?

2. Since the reference arises in the above two writ petitions, we may briefly refer to the relevant facts of the writ petitions.

3. The petitioner’s availed open cash credit facility and working capital turnover limit on various occasions since 1991 from the first respondent-Indian Bank. The Bank issued a demand notice under Section 13(2) of the Securitisation Act and took possession of the mortgaged properties. Aggrieved by the action of the Bank, the petitioners approached the Debts Recovery Tribunal and in the I.A. for interim relief taken out by the petitioners the Debts Recovery Tribunal directed the petitioners to deposit a sum of Rs.28.25 lakhs within three weeks from the date of receipt of its order and allowed the Bank to proceed with the auction, but defer further proceedings including the confirmation of sale, etc till further orders. It was further directed by the Tribunal that the stay would stand automatically vacated if the petitioners fail to comply with the condition imposed in the order. The Bank, thereafter, conducted auction and the second respondent herein emerged as the highest bidder. Since the petitioners failed to deposit the amount as per the condition imposed by the Tribunal, the Bank proceeded with issuing confirmation letter to the purchaser and subsequently issued sale certificate to the purchaser. The petitioners then, preferred an appeal to the Debts Recovery Appellate Tribunal, Chennai (In SARFAESI) No. 744 of 2007 wherein stay of further proceedings was granted on condition that the petitioners shall deposit a sum of Rs.30 lakhs in two installments. The Debts Recovery Appellate Tribunal ultimately vacated the interim relief by order dated 28th November, 2007. Aggrieved by the order of the Debts Recovery Appellate Tribunal, the present petition has been filed.

4. This petition is preferred by the Canara Bank The petitioner Bank on behalf of the third respondent issued a Deferred Payment Guarantee (DPG) in favour of a foreign Bank namely, Raiffeisen Zentral Bank, Oesterrich, Vienna, Austria to finance for the installation of a spinning mill. The DPG was for 19,000,000/-Austrian Shillings, which is equivalent to Rs.6,04,13,421/- in Indian currency as on 21. 1998. The value of the guaranteed amount less commission was credited to the account of the third respondent by the said Austrian Bank. The third respondent executed a counter indemnity in favour of the petitioner undertaking to rei