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IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
M.S. Ramachandra Rao, H.S. Madaan, JJ.
Kotak Mahindra Bank Ltd. – Appellant
Versus
District Magistrate & Anr. – Respondents
CWP-435-2022
Decided On : 03-08-2022
SARFAESI Act - Legal Heirs - Section 13(2), Section 14 - Summary of Acts and Sections: The court discussed the necessity of issuing a fresh notice under Section 13(2) of the SARFAESI Act to the legal heirs of a deceased guarantor or borrower. It also considered whether the proceedings initiated under Section 14 of the SARFAESI Act prior to a guarantor's/borrower's death automatically abate and cannot be continued against his legal heirs. The court referred to various judgments and legal provisions to conclude that the proceedings initiated against the original borrower for enforcement of security interest stand concluded by virtue of intimation served upon them, and the death of the original borrower occurring at that stage of the proceedings will not result in abatement of the entire steps already taken. The court set aside the impugned order and remitted the matter back to the respondent No.1 for passing fresh orders within 4 weeks, confining himself to the limits of his jurisdiction as laid down in the relevant judgments and orders.
Fact of the Case:
The petitioner-Bank filed a Writ Petition to challenge the order rejecting its request to pass orders under Section 14 of the SARFAESI Act for delivery of possession of a secured asset owned by respondent No.2. The respondent No.1 rejected the application under Section 14, stating that a fresh notice must be given to the heirs under Section 13(2) of the SARFAESI Act.
Finding of the Court:
The court found that the proceedings initiated against the original borrower for enforcement of security interest stand concluded by virtue of intimation served upon them, and the death of the original borrower occurring at that stage of the proceedings will not result in abatement of the entire steps already taken.
Issues: The court considered the necessity of issuing a fresh notice under Section 13(2) of the SARFAESI Act to the legal heirs of a deceased guarantor or borrower, and whether the proceedings initiated under Section 14 of the SARFAESI Act prior to a guarantor's/borrower's death automatically abate and cannot be continued against his legal heirs.
Ratio Decidendi: The court referred to various judgments and legal provisions to conclude that the proceedings initiated against the original borrower for enforcement of security interest stand concluded by virtue of intimation served upon them, and the death of the original borrower occurring at that stage of the proceedings will not result in abatement of the entire steps already taken.
Final Decision: The impugned order was set aside, and the matter was remitted back to respondent No.1 for passing fresh orders within 4 weeks, confining himself to the limits of his jurisdiction as laid down in the relevant judgments and orders.
JUDGMENT
M.S. Ramachandra Rao, J. - Backgrounds of the case This Writ Petition is filed by the petitioner-Bank to quash the order dt.15.12.2021 passed by the District Magistrate, Ludhiana ( respondent No.1) rejecting petitioner's request to pass orders under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [for short 'the SARFAESI Act'] for delivery of possession of a secured asset owned by respondent No.2 and also mortgaged by him to the petitioner-Bank. M/s Oswal Spinning and Weaving Mills limited ( for short 'the Company') had been granted certain credit facilities by UCO Bank and other financial institutions. In order to secure the credit facilities sanctioned, the Company created security interest by way of creation of mortgage in favor of the lenders on it's moveable and immoveable assets. The said financial facilities were also secured by the Personal guarantees of respondent No.2 Raj Pal Oswal and 2 others.
2. On account of continuous defaults made by the Company/Guarantors/Mortgagors to discharge the dues, the lenders classified the account of the Company as NPA.
3. The petitioner Bank acquired the debts/debentures of the lenders under 6 deeds of assignment/transfer dt.6.11.2007 and these assignments were confirmed by the Company and the Guarantors vide Letter of Acceptance dt.26.12.2007.
4. Pursuant to the assignment of debts/transfer, the petitioner also extended financial facilities to the Company and the Company created a charge on it's moveable and immoveable properties for securing the financial facilities assigned in favor of the petitioner Bank. The said financial facilities were also secured additionally by personal guarantees of respondent No.2 and others.
5. But on 17.12.2013, the accounts of the Company were declared as NPA by petitioner. So it issued notice dt.4.4.2014 under Section 13(2) of the SARFAESI Act to the Company and guarantors including respondent No.2. calling upon them to pay Rs. 63,42,83,420.68 as on 04.04.2014 together with interest on contractual rates from 05.04.2014 till payment and/or realization.
6. Objections to the said notice were filed by the Company and Raj Pal Oswal ( respondent No.2) on 29.05.2014 and were also replied by the petitioner on 16.06.2014/25.8.2014 and the amount claimed was modified as Rs.63,37,21,410/-.
7. The Company filed CWP-10957-2014 before this Court to set aside the notice dt.04.04.2014 issued to it under Section 13(2) of the SARFAESI Act. The said Writ Petition was dismissed as withdrawn on 23.03.2015 with liberty to submit a representation. It then filed a Review application No.160 of 2015 which was also dismissed on 01.04.2015.
8. The Company again filed CWP-13888-2015 challenging the initiation of proceedings under the SARFAESI Act against the petitioner but the same was dismissed on 11.04.2016 and Review Application No.256 of 2016 seeking review of the said order was also rejected on 16.09.2016. SLP (Civil) No.7124/7125 of 2017 filed by the Company before the Supreme Court was also withdrawn.
9. Thereafter, the petitioner filed an application on 2.5.2016 under Section 14 of the SARFAESI Act before respondent No.1 seeking its assistance to take over the secured asset belonging to respondent No.2 vide Annexure P13.
10. Respondent No.2 filed a reply/objections in August 2016 to the said application vide Annexure P14.
11. Respondent No.1 rejected the application under Section 14 filed by the petitioner on 17.05.2017 on the ground that the petitioner failed to produce the statement of account and there was no material available with him to record his satisfaction to pass an order of possession.
12. Petitioner challenged it in CWP-18174-2017, which was allowed on 23.04.2021 and a direction was given to respondent No.1 to decide the application under Section 14 of the SARFAESI Act within one week. This order will be discussed more in detail later in this order.
13. Thereafter respondent No.2 died on 04.0
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