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SUPREME COURT OF INDIA
S.A. Bobde, L. Nageswara Rao, JJ.
ITC Limited – Appellant
Versus
Blue Coast Hotels Ltd. & Ors. Respondents
Civil Appeal Nos. 2928 of 2018 [Arising out of SLP (C) Nos. 10215-10217 of 2016] With Civil Appeal Nos. ... of 2018 [Arising out of SLP (C) Nos. 10196-10198 of 2016]
Decided On : 19-03-2018
(2004) 4 SCC 311 – Relied upon
(b) Interpretation of statute – Mandatory or directory – Depends upon legislative intent gathered from language of the provision by considering its nature, its design, and the consequences which would follow. (Para 27)
AIR 1957 SC 912: 1958 SCR 533; AIR 1961 SC 751 : (1961) 2 SCR 679; AIR 1975 SC 2190: (1976) 2 SCC 895; AIR 1976 SC 263 : (1976) 1 SCC 369; (1985) 3 SCC 53: AIR 1985 SC 964; (1987) 2 SCC 407: AIR 1987 SC 1010; AIR 1989 SC 2206: (1989) 4 SCC 671; (2000) 7 SCC 372: (2000) 10 JT 349; (2009) 7 SCC 658: (2009) 9 JT 21; AIR 1961 SC 751 – Relied upon
(c) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(3A) – Use of word ‘shall’ – Locus poenitentiae requiring an active consideration by the creditor and a reasoned order for rejection – Provision held imperative or mandatory. (Para 28, 29, 30)
(2004) 4 SCC 311; AIR 1957 SC 912; (2008) 1 SCC 125; (2015) 4 SCC 770 – Relied upon
AIR 2009 Guj 100 (DB); AIR 2011 Bom. 42 (DB); 2011 (1) Mh. L.J. 882; AIR 2009 Orissa 35; AIR 2007 Guj 126; WP (C) No. 4048 of 2010; AIR 2013 Jhar 12; (2007) 135 Comp Cases 604 (Kar); W.P. 9876 (W) of 2014 Calcutta High Court; 2008 2 GLT (91); AIR 2013 Ker 25 – Approved
(d) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13(3A) – Representation of debtor not replied by creditor – However, creditor considering the representation and granted sufficient opportunities to debtor – Debtor even giving undertaking acknowledging right of creditor to sell the assets in the case of default – Held, debtor not entitled to any relief. (Para 33, 34, 57)
(1995) 4 SCC 683 – Relied upon
(e) Constitution of India – Article 226 – Discretionary relief under – An equitable relief. (Para 34)
(f) Section 31(i) – Validity – Legislative competence of Parliament to legislate on land – Section 31(i) exempting agricultural land from operation of the Act – Not a legislation on agricultural land – Provision referable to Entry 45, List I and not Entry 18, List II – Moreover provision deals with security interest in agricultural land and not agricultural land itself – Validity of the provision cannot be questioned on ground of legislative competence. (Para 42, 43)
(2002) 4 SCC 275; AIR 1957 SC 297; (1976) 3 SCC 864; (1972) 2 SCC 364 – Relied upon
(g) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 13 – Symbolic possession – Well known device in law – Not prohibited under the Act – Amounts to interruption of adverse possession of a party – Article 114, Limitation act, 1963. (Para 47)
AIR 1966 SC 470 – Relied upon
(h) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Section 2(d) and 14 – Secured creditor – Instantly, creditor not having actual possession but only a constructive or symbolic possession of the secured asset – The transfer of the same by creditor not a complete transfer – Section 8, Transfer of Property Act – Creditor having right to take actual possession of secured assets held to be a secured creditor even after limited transfer to the auction purchaser – Entire interest in property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser – Held, secured creditor remaining a secured creditor in the Act. (Para 50)
(1904) ILR 27 Mad 131, 31 IA 1 – Relied upon
Facts of the case:
Industrial Financial Corporation of India (IFCI), the secured creditor, in the capacity of a financial institution entered into a corporate loan agreement [Dated 26.02.2010] with Blue Coast Hotels for a sum of Rs. 150 crores. The mortgaged property comprised of the whole of the debtor's hotel property-including the agricultural land on which the debtor was to develop villas. The debtor defaulted in repayment of the loan and the debtor's account became a Non- Performing Asset (NPA) [w.e.f. 30.09.2012].
Upon failure to remit the overdue amount despite the notices, a notice[Dated 26.03.2013] was sent by the creditor calling upon the debtor to pay the amount overdue within a period of 60 days.
On 18.06.2013 symbolic possession of the hotel property was taken over by the creditor. The debtor filed a securitization application [Dated 31.07.2013] before the Debts Recovery Tribunal against the taking over of the symbolic possession by the creditor.
The creditor filed an appeal to the order of the DRT [Vide order dated 31.03.2014] in the DRAT which came to be allowed [Vide order dated 10.09.2014] and the validity of the notice issued under Section 13(2) was upheld. Against the order of the DRAT setting aside the order of the DRT, the debtor filed the Writ Petitions leading up to the present SLP, in the High Court.
On 04.09.2013, the creditor published a Notice of Sale by Public Auction in the newspaper at a reserve price of Rs. 403 crores.
On 31.12.2014, a fourth and fresh notice for conducting the auction sale of the Goa Hotel was issued by the creditor setting the reserve price at Rs. 515.44 crores. This notice led to the sale of the Goa Hotel to ITC Ltd.
The High Court set aside the judgment of the DRT and held the entire proceedings for recovery and sale of the Goa Hotel to be illegal being in violation of the Act.
Finding of the Court:
Impugned judgment is not sustainable.
Result: Appeals allowed.
Certainly. Based on the provided legal document, the key points are as follows:
The creditor is legally bound to consider any objections or representations raised by the debtor before proceeding under Section 13(4) and must accept or reject them accordingly (!) (!) .
The nature of a legal provision—whether mandatory or directory—depends on legislative intent, which is determined by analyzing the language, purpose, and consequences of the provision (!) (!) .
The use of the word "shall" in a statutory provision generally indicates a mandatory requirement, especially when it involves the communication of reasons for non-acceptance of objections or representations (!) (!) (!) .
The obligation to consider and communicate reasons for rejecting objections under Section 13(3A) is a mandatory duty, and failure to do so constitutes a breach of statutory obligation (!) (!) .
The procedural safeguards provided by the Act and Rules, including the requirement to consider objections and communicate reasons, serve to ensure fairness and transparency in the enforcement process (!) (!) .
The provision for a "locus poenitentiae" allows the debtor to raise objections or representations, which the creditor must actively consider before taking further enforcement actions (!) .
The communication of reasons for non-acceptance is an essential part of the statutory scheme, and non-compliance with this requirement is not merely procedural but affects the legality of subsequent actions (!) (!) .
The legislative intent is to provide a pause for the creditor to reconsider or re-evaluate their course of action upon receiving objections, promoting fairness in proceedings (!) .
The non-response by the creditor to a debtor’s representation, especially when the debtor has made proposals for rescheduling or repayment, can be seen as a breach of the statutory obligation under Section 13(3A) (!) (!) .
The consideration of whether the land involved is agricultural or non-agricultural is crucial, as the law exempts agricultural land from enforcement actions under the Act. The character and use of the land, as well as its registration, are relevant factors (!) (!) (!) .
The validity of security interests created over lands classified as agricultural depends on their actual use and purpose, and security interests in lands not used for agriculture may be validly enforced (!) (!) .
The transfer of secured assets through symbolic possession and subsequent transfer to a third party must be scrutinized to determine whether the creditor remained a secured creditor and whether the transfer was valid under the law (!) (!) .
The findings of fraud or collusion in the enforcement process require clear and substantive evidence. Mere suspicion or awareness of disputes does not automatically imply manipulation or collusion (!) (!) .
The conduct of the debtor, including repeated promises to repay, negotiations, and execution of undertakings, indicates a pattern of seeking extensions rather than fulfilling repayment obligations, which influences the discretionary relief available under the law (!) (!) .
The judgment emphasizes that non-compliance with procedural obligations, such as considering objections and communicating reasons, can invalidate enforcement actions, especially when such non-compliance is established (!) (!) .
The court's discretionary relief under constitutional provisions is limited when the conduct of the debtor is blameworthy, especially if it demonstrates evasion or avoidance of repayment obligations (!) (!) .
The final order mandates the debtor and its agents to hand over possession of the secured properties to the auction purchaser within a specified period, emphasizing the importance of lawful and procedural compliance in enforcement proceedings (!) .
Please let me know if you require further elaboration or specific legal advice based on these points.
JUDGMENT
S.A. Bobde, J.
Leave granted.
2. The auction purchaser ITC Ltd. is before us in the appeals arising out of SLP (C) Nos.10215-10217/2016. The sale of a five star luxury hotel property purchased in a public auction was set aside by an order [Dated 23.03.2016] of the Bombay High Court in favour of the debtor Blue Coast Hotels Ltd.
3. The circumstances under which the auction purchaser purchased the hotel property are as follows:-
Industrial Financial Corporation of India (IFCI), [filed appeals arising out of SLP (C) Nos.10196-10198/2016 in this Court], the secured creditor (hereinafter referred to as 'the creditor'), in the capacity of a financial institution entered into a corporate loan agreement [Dated 26.02.2010] with Blue Coast Hotels (hereinafter referred to as 'the debtor') for a sum of Rs. 150 crores. The agreement included a creation of a special mortgage to secure the corporate loan. The mortgaged property comprised of the whole of the debtor's hotel property-including the agricultural land on which the debtor was to develop villas. The debtor defaulted in repayment of the loan and the debtor's account became a Non- Performing Asset (NPA) [w.e.f. 30.09.2012].
4. Several notices intimating default in payment of the total outstanding amount of Rs. 133.18 crores were sent by the creditor to the debtor. Upon failure to remit the overdue amount despite the notices, a notice [Dated 26.03.2013] under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the Act") was sent by the creditor calling upon the debtor to pay the amount overdue within a period of 60 days.
5. In reply to the said notice, the debtor sent the creditor a proposal [Dated 27.05.2013] for extension of time for the payment of the outstanding dues. The High Court held that the creditor's failure to deal with this representation constituted a violation of Section 13 (3A) of the Act. Further, the High Court held that the notice issued under Section 13 (2) by the creditor comprising of agricultural property despite the bar under Section 31 (i) of the Act is contrary to the law since the land was not converted into non-agricultural land. The High Court also held that the auction/sale of the property based upon symbolic possession of the property is contrary to the scheme of the Act and the Rules.
6. On 18.06.2013, a notice was issued under Section 13 (4) whereby symbolic possession of the hotel property was taken over by the creditor. The debtor filed a securitization application [Dated 31.07.2013] before the Debts Recovery Tribunal (hereinafter referred to as 'the DRT') against the taking over of the symbolic possession by the creditor. In the meanwhile, the creditor published the first auction sale notice [On 04.09.2013] with a reserve price of Rs. 403 crores which came to be postponed in view of the negotiations between the parties for the repayment of the dues. Upon default in the repayment of the outstanding amount, a second sale notice was published on 09.01.2014 with the same reserve price. The DRT passed an interim order, [Vide order dated 6.02.2014] directing the creditor to defer the acceptance of bids and not to take any further steps for sale of the property for the next 60 days. Subsequently, no bids were received and the auction failed.
7. The creditor challenged the interim order passed by the DRT order before Debts Recovery Appellate Tribunal (hereinafter referred to as 'the DRAT'). In the challenge, the Appellate Tribunal directed for the second appeal to be disposed off within a month by the DRT.
8. The DRT disposed off the second appeal and set aside the notice under Section 13(2) [Vide order dated 26. 03.2013] on the ground of non compliance with Section 13(3A) and for issuance of the demand notice jointly for the mortgaged land comprising of agricultural land to which the provisions of the Act did not apply as per Section 31(i) of the Act.
9. The cre
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