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2021 Supreme(MP) 700
IN THE HIGH COURT OF MADHYA PRADESH BENCH AT INDORE
SUJOY PAUL, PRANAY VERMA, JJ.
M/s Indison Agro Food Pvt. Ltd and Ors. – Appellants
Versus
State Bank of India and Ors - Respondent
W.P.No.21803 of 2021
Decided on : 08-11-2021
Advocate Appeared:
For the Appellant : Shri Amit S.Agrawal, learned Senior counsel With Shri Anant Ratnaparkhi
For the Respondent: Shri Ajay Mishra, learned Senior counsel with Shri R.C Sinhal
The main legal point established in the judgment is the requirement of authorization for representation under the SARFAESI Act and the bank's right to demand authorization from the borrower's counsel to maintain confidentiality and uphold the fiduciary relationship.
Headnote:
SARFAESI Act - Authorization for Representation - Section 13(2), 13(3-A), 13(4) - The court discussed the requirement of authorization for representation under the SARFAESI Act and the bank's right to demand authorization from the borrower's counsel. The court emphasized the importance of authorization for maintaining confidentiality and the fiduciary relationship between the bank and the borrower. The judgment also clarified that an advocate can represent the borrower if duly authorized, and failure to provide authorization can result in the representation not being considered valid. The court's decision upheld the bank's right to demand authorization and emphasized the need for transparency and compliance with legal requirements.
Fact of the Case:
The petitioners, a company and its directors/guarantors, challenged the actions of the bank under the SARFAESI Act. The bank issued demand notices, and the petitioners' counsel sent representations under section 13(3-A) without providing authorization. The bank requested authorization, and subsequent actions were taken by the bank. The petitioners failed to comply with an interim order, leading to the issuance of sale certificates.
Finding of the Court:
The court found that the bank was justified in asking for authorization from the petitioners' counsel before deciding on the objection filed under section 13(3-A) of the SARFAESI Act. The court emphasized the importance of authorization for maintaining confidentiality and the fiduciary relationship between the bank and the borrower. The court held that the representation submitted by the counsel without authorization could not be considered valid.
Issues: The key issues included the bank's right to demand authorization for representation, the validity of the petitioners' representations without authorization, and the consequences of non-compliance with an interim order.
Ratio Decidendi: The court's decision emphasized the importance of authorization for maintaining confidentiality and the fiduciary relationship between the bank and the borrower. The judgment clarified that an advocate can represent the borrower if duly authorized, and failure to provide authorization can result in the representation not being considered valid.
Final Decision: The court upheld the decision of the Debt Recovery Appellate Tribunal (DRAT) and held that the bank was justified in asking for authorization from the petitioners' counsel. The court emphasized the need for transparency and compliance with legal requirements.
ORDER :
Sujoy Paul, J.
This petition is filed by the petitioners (borrower) questioning the judgment dated 14.09.2021 (Annexure P/21) passed by the Debt Recovery Appellate Tribunal (DRAT), whereby the order passed by the Debt Recovery Tribunal (DRT), Jabalpur is set aside.
2. Briefly stated, the case of the petitioners is that the petitioner no.1 is a company and the petitioner no.2 to 7 are Directors/Personal Guarantors for the petitioner no.1/Company, whereas petitioner nos.8 to 10 are Corporate Guarantors of petitioner no.1/company.
3. Indisputably, on different occasions, sanction letters were issued sanctioning credit limits in favor of petitioner no.1. On 28.10.2015, authorised accounts of petitioner no.1 were declared as non-performing asset (NPA) and consequently on 29.08.2016 a demand notice under section 13(2) of The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (SARFAESI Act) was issued by respondent no.1/bank as a leader of consortium of banks. Another demand notice under section 13(2) of SARFAESI Act was issued on 11.07.2016 by respondent no.2/bank which are filed as (Annexure P/3 and P/4) respectively.
4. The stand of the petitioner is that through its counsel on 24.10.2016 (Annexure P/5) and dated 06.09.2016 (Annexure P/6) the petitioner sent representation/objection to respondent nos.1 and 2/banks as per section 13(3-A) of the SARFAESI Act. On 09.11.2016 (Annexure P/7), the respondent/banks served a letter to the counsel for the petitioner no.1/company demanding a valid authorization proof authorizing him to represent the petitioners.
5. In turn, counsel for the respondent no.1 on 26.11.2016 sent a recall notice demanding payment of outstanding dues from the petitioners as on 25.11.2016. Counsel for the petitioner sent reply on 09.12.2016.
6. Respondent no.1/bank sent another letter dated 21.01.2017 to the counsel for the petitioner no.1/company that since no authorization has been provided, therefore, representation dated 24.10.2016 will be treated as unauthorized. In absence of authorization, the representation of counsel will be treated as 3rd party representation and the bank will proceed further under the SARFAESI Act assuming that no representation has been made.
7. Shri Amit S.Agrawal, learned senior counsel for the petitioner submitted that no action was taken by the banks in pursuance to aforesaid demand notices (Annexure P/3 and P/4). Indeed, on 02.08.2017 (Annexure P/9), the respondent no.1/bank in the capacity of lead bank of consortium issued a fresh 2nd demand notice under section 13(2) of the SARFAESI Act demanding the outstanding dues of Rs.2,19,06,84,216.87/-allegedly stood outstanding as on 30.06.2017. The petitioner's counsel on 28.09.2017 (Annexure P/10) again preferred a representation as per section 13(3-A) of the SARFAESI Act. Once again, the respondent/bank issued a letter dated 21.10.2017 (Annexure P11) to the counsel for the petitioners' demanding authorization proof to represent the petitioners. Learned counsel for the petitioners submits that there is no bar against the borrower for being represented by a Lawyer under the SARFAESI Act much less under section 13 of the Act.
8. It is urged that the respondent no.1/Bank did not take action on the objection submitted by the counsel for the petitioners under section 13(3-A) of the SARFAESI Act and straight away proceeded to take action under section 13(4) of the SARFAESI Act read with Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 and took symbolic possession of movable assets mortgaged by issuing possession notices dated 28.02.2018., 05.03.2018 and 09.03.2018. By placing reliance on the judgment of the Apex Court in ITC ltd. Vs. Blue Coast Hotel ltd. reported in AIR 2018 SCC 3063, it is contended that section 13(3-A) is a mandatory provision and it was incumbent upon the respondent/bank to decide the representation of the petitioners before taking steps under section 13(4) of th
