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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
UJJAL BHUYAN, P. MADHAVI DEVI, JJ.
M/s. S.V. Developers – Petitioner
Versus
State Bank of India and Another – Respondents
W.P. Nos. 23067, 27138 of 2019, 22195 of 2021
Decided On : 07-06-2022
SARFAESI ACT - SECTION 13(2) NOTICE - VALIDITY - JURISDICTION OF HIGH COURT - OTS SCHEME - ELIGIBILITY - SELECTION OF REMEDIES UNDER SARFAESI ACT AND RECOVERY OF DEBTS AND BANKRUPTCY ACT, 1993 - PARALLEL PROCEEDINGS - DOCTRINE OF ELECTION - SUPPRESSION OF MATERIAL FACTS - WRIT JURISDICTION - CLEAN HANDS DOCTRINE.
Fact of the Case:
Petitioner, a proprietary concern, availed a loan of Rs. 5,00,00,000 from respondent/SBI. The loan account was declared as non-performing asset (NPA) with effect from 29.12.2017. Respondent/SBI issued notice dated 08.01.2018 under Section 13(2) of the SARFAESI Act. Petitioner paid an amount of Rs. 25,00,000 by way of cheque on 15.02.2019 along with a proposal for OTS. Respondent/SBI encashed the cheque for the aforesaid amount whereafter the possession notices were subsequently withdrawn on 19.02.2019. Petitioner came to know that e-auction notice was issued by respondent/SBI on 26.09.2019 proposing to auction sale the mortgaged movable and immovable assets (schedule properties) of the petitioner on 23.10.2019. Petitioner filed W.P. No. 23067 of 2019 to set-aside the notice dated 08.01.2018 issued by respondent/SBI under Section 13(2) of the SARFAESI Act. Petitioner filed W.P. No. 27138 of 2019 for quashing of letter dated 22.11.2019 issued by respondent/SBI stating that petitioner is not entitled to the benefit of one time settlement (OTS) scheme and further seeks a direction to the respondent/SBI to grant the benefit of OTS scheme to the petitioner in terms of the Circular of SBI dated 13.08.2019. Petitioner filed W.P. No. 22195 of 2021 for a declaration that respondent No. 1 i.e. Debts Recovery Tribunal-I, Hyderabad would not have the jurisdiction to entertain an Original Application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (briefly “the 1993 Act” hereinafter), if respondent No. 2 had first initiated proceedings under the SARFAESI Act.
Finding of the Court:
1. Notice dated 08.01.2018 issued by respondent/SBI under Section 13(2) of the SARFAESI Act is legal and valid. High Court should not interfere in such a notice under Article 226 of the Constitution of India. 2. Petitioner is not entitled to the benefit of the OTS scheme under SBIOTS 2019 and High Court under Article 226 of the Constitution of India cannot issue a direction to the respondent/SBI to accept the OTS proposal of the petitioner. 3. Respondent/SBI would not be precluded from taking steps under the 1993 Act after having invoked provisions of the SARFAESI Act. 4. There is blatant suppression of material facts by the petitioner for which he is not entitled to any relief from the Court.
Issues: 1. Whether the notice dated 08.01.2018 issued by the respondent/SBI under Section 13(2) of the SARFAESI Act is legal and valid? Corollary to the above is the question as to whether the High Court should interfere in such a notice under Article 226 of the Constitution of India? 2. Whether petitioner is entitled to the benefit of the OTS scheme under SBIOTS 2019 and whether the High Court under Article 226 of the Constitution of India can issue a direction to the respondent/SBI to accept the OTS proposal of the petitioner? 3. Whether respondent/SBI would be precluded from taking steps under the 1993 Act after having invoked provisions of the SARFAESI Act? 4. Is there any suppression of material facts by the petitioner? And If so, whether the same would disentitle the petitioner to any relief from the Writ Court?
Ratio Decidendi: 1. At the stage of issuance of notice under Section 13(2) of the SARFAESI Act, no interference is called for by the Court. Therefore, question of examining legality and validity of such demand notice would not arise. The adjudication would have to wait till the stage of Sub-Section (4) of Section 13 is reached, where after the aggrieved person including a borrower can file securitization application under Section 17 of the SARFAESI Act in which all grounds of challenge would be available. 2. No borrower can as a matter of right pray for grant of benefit of OTS scheme. That apart, no Writ of Mandamus can be issued under Article 226 of the Constitution of India directing a bank or financial institution to positively grant the benefit of OTS scheme to a borrower. Such decision should be left to the commercial wisdom of the bank or financial institution. 3. Both the SARFAESI Act and the 1993 Act are complimentary to each other and parallel proceedings can go on under both the said acts. In other words, proceedings under the two enactments can be pursued side by side. There is no embargo in either of the two enactments restraining the secured creditor from pursuing both the remedies either simultaneously or one after the other. 4. A prerogative writ remedy is not available as a matter of course. In exercising its extra-ordinary powers, a writ Court would need to bear in mind the conduct of the party invoking such jurisdiction. If the applicant does not disclose full facts or suppresses material facts or is otherwise guilt of misleading the Court, the Court may dismiss the action without adjudicating the matter.
Final Decision: All the writ petitions are dismissed with cost of Rs. 50,000/- to be deposited to the Telangana State Legal Services Authority, Hyderabad within 30 days from today.
JUDGMENT :
UJJAL BHUYAN, J.
This order will dispose of W.P. Nos. 23067 of 2019, 27138 of 2019 and 22195 of 2021.
1. We have heard Sri M. Laxmi Prasad, learned counsel appearing on behalf of Smt. Ch. Vedavathi, learned counsel for the petitioner and Sri Maruthi Jadhav, learned counsel appearing for Pearl Law Associates for the respondents.
2. In W.P. No. 23067 of 2019 the prayer made is to set-aside the notice dated 08.01.2018 issued by the respondent State Bank of India (SBI) under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (briefly ‘the SARFAESI Act’ hereinafter). Petitioner in W.P. No. 27138 of 2019 has sought for quashing of letter dated 22.11.2019 issued by the respondent/SBI stating that petitioner is not entitled to the benefit of one time settlement (OTS) scheme and further seeks a direction to the respondent/SBI to grant the benefit of OTS scheme to the petitioner in terms of the Circular of SBI dated 13.08.2019.
3. In the later Writ Petition i.e. W.P. No. 22195 of 2021 the prayer made is for a declaration that respondent No. 1 i.e. Debts Recovery Tribunal-I, Hyderabad would not have the jurisdiction to entertain an Original Application under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (briefly “the 1993 Act” hereinafter), if respondent No. 2 had first initiated proceedings under the SARFAESI Act.
4. Case of the petitioner is that it is a proprietary concern having its office and place of business at Bengaluru in the State of Karnataka.
5. Petitioner had availed a loan of Rs. 5,00,00,000.00 from the second respondent i.e. SBI, Hoskote SME, Bengaluru Rural on 30.05.2015 for its real estate business. It is stated that the said amount was repayable in 36 monthly installments but with a moratorium period of 12 months from the date of sanction of the loan. The moratorium period was subsequently extended for another 10 months and thereafter by another six months. Notwithstanding the same, petitioner was repaying the loan amount regularly.
6. Respondent/SBI had issued notice dated 08.01.2018 under Section 13(2) of the SARFAESI Act whereby petitioner was informed that its loan account was declared as nonperforming asset (NPA) with effect from 29.12.2017.
7. It is this notice dated 08.01.2018 issued by the respondent/SBI under Section 13(2) of the SARFAESI Act which is under challenge in W.P. No. 23067 of 2019. The challenge has been made on the ground that the said demand notice was bereft of any details. Respondent/SBI did not follow the Reserve Bank of India (RBI) guidelines regarding classification of loan account as NPA. As such, classification of the loan account of the petitioner as NPA is arbitrary and illegal. Respondent/SBI acted hastily in issuing the notice under Section 13(2) of the SARFAESI Act without waiting for the period of two years thirty days from the date of first default to expire. Therefore, respondent/SBI illegally and erroneously assumed jurisdiction under Section 13(2) of the SARFAESI Act.
8. Thereafter respondent/SBI issued notice dated 16.04.2018 and again on 29.05.2018 under Section 13(4) of the SARFAESI Act. Petitioner had paid an amount of Rs. 25,00,000.00 by way of cheque on 15.02.2019 along with a proposal for OTS. Respondent/SBI encashed the cheque for the aforesaid amount whereafter the possession notices were subsequently withdrawn on 19.02.2019.
9. While representation of the petitioner dated 05.10.2019 for OTS was declined by respondent/SBI on 08.10.2019, subsequent representation of the petitioner dated 16.10.2019 for re-consideration of the OTS proposal was pending consideration.
10. In the meanwhile, petitioner came to know that e-auction notice was issued by respondent/SBI on 26.09.2019 proposing to auction sale the mortgaged movable and immovable assets (schedule properties) of the petitioner on 23.10.2019.
11. It is in such circumstances, the petitioner has been compelled to approach the High Court und
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