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Thursday, April 17, 2014

Section 13(3A) of the SARFAESI Act - credit facility - declared as non- performing asset (NPA)- without availing sec.13(3)A filed writ - Writ was dismissed as not maintainable - application under sec.13(3)A filed and also filed inter appeal to D.B. - writ appeal was dismissed - Application was also rejected - Every process was completed - possession was also taken - Apex court held that confirm the orders of High court and directed to file any appropriate remedy if any available = Devi Ispat Limited & Anr. ….Petitioners versus State Bank of India & Ors. ..Respondents =2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41426

   Section 13(3A) of the SARFAESI Act - credit facility - declared as non- performing asset  (NPA)- without availing sec.13(3)A filed writ - Writ was dismissed as not maintainable - application under sec.13(3)A filed and also filed inter appeal to D.B. - writ appeal was dismissed - Application was also rejected - Every process was completed - possession was also taken - Apex court held that confirm the orders of High court and directed to file any appropriate remedy if any available =
Devi Ispat had availed of credit facilities from  the  State  Bank  of
India with an overall limit of Rs. 29.5 crores.  This  credit  facility  was
enhanced from time to time to Rs.  68.5  crores  and  Devi  Ispat  sought  a
further enhancement to Rs. 93 crores but that was not sanctioned.

3.    While the Bank was processing the request of Devi Ispat, it  issued  a
letter to it on 10th January 2013 informing that its cash credit account  is
irregular inasmuch as the outstanding was about Rs.11.7 crores  against  the
permissible limit of Rs. 5.6 crores.  Devi Ispat was also informed  that  it
was not servicing  the  interest  of  cash  credit,  Foreign  Currency  Non-
Resident Bank Account etc.  It  was  also  informed  that  its  account  was
heading for becoming  a  non-performing  asset  (NPA)  and  Devi  Ispat  was
requested to regularize all its accounts by 14th January 2013 failing  which
there would be no alternative but to call up the advance.
 Instead of regularizing its accounts, Devi Ispat sent a reply on  22nd
January 2013 pointing out that the cash credit account had been operated  on
19th October 2012 and therefore its declaration as an NPA  on  16th  January
2013 (that is on the 90th day instead of on completion of 90  days)  was  in
violation of the guidelines issued by the Reserve Bank of India.

7.    The Bank then issued a notice to Devi Ispat  under  Section  13(2)  of
the Securitization and Reconstruction of Financial  Assets  and  Enforcement
of Security Interest Act, 2002 (the  SARFAESI  Act)  on  28th  January  2013
demanding payment of the outstanding liabilities due to the extent of  about
Rs. 17.9 crores,  $ 1.11 crores  (of the FCNB account ) and interest.=
 Section 13(3A) of the SARFAESI Act reads as follows:

           “13. Enforcement of security interest.

           1) , (2) and (3)  xxx

           (3A) If, on receipt of the notice  under  sub-section  (2),  the
           borrower makes any representation or raises any  objection,  the
           secured creditor shall consider such representation or objection
           and if the secured creditor comes to the  conclusion  that  such
           representation or objection is not  acceptable  or  tenable,  he
           shall  communicate  within  one  week   of   receipt   of   such
           representation or objection the reasons  for  non-acceptance  of
           the representation or objection to the borrower.

                 Provided that the reasons so communicated  or  the  likely
           action of the secured creditor at the stage of communication  of
           reasons shall not confer any right upon the borrower  to  prefer
           an application to the Debts Recovery Tribunal under  section  17
           or the Court of District Judge under section 17A.”

  After  the  dismissal  of  its  writ  petition,  Devi  Ispat  made  a
representation to the Bank under Section 13(3A) of the  Act  on  22nd  March
2013.  This was followed almost immediately thereafter  by  an  intra  court
appeal filed against the order of the learned Single  Judge.   Although  the
appeal was filed on 1st April 2013 (and we have gone  through  the  contents
of the appeal memo) there  is  no  mention  of  Devi  Ispat  having  made  a
representation to the Bank under Section 13(3A) of the Act.=

       While challenging the order  dated  26th  April  2013  passed  by  the
Division  Bench,  learned  counsel  submitted  that  Devi   Ispat   had   no
alternative but to file a writ petition challenging  the  notice  issued  by
the Bank on 18th January 2013. We find no merit in this contention.

16.   Firstly, Devi Ispat had an alternate remedy to make  a  representation
to the Bank under the provisions of Section 13(3A) of the Act and there  was
no reason to by-pass the statutory mechanism.

17.   Secondly, Devi Ispat did in fact make a  representation  to  the  Bank
under Section 13(3A)  of  the  SARFAESI  Act  and  that  representation  was
rejected on 2nd April 2013 during the pendency of the  intra  court  appeal.
The statutory remedy having been availed of by Devi  Ispat,  nothing  really
survived in the dispute raised.

18.   Thirdly, we now find from the written  submissions  submitted  by  the
Bank that it has taken possession of the secured assets  of  Devi  Ispat  on
25th May 2013 and 27th May 2013 under the provisions  of  Section  13(4)  of
the  SARFAESI Act  and  a  possession  notice  has  also  published  in  the
newspapers on 31st May 2013.

19.   On the facts on record and the statutory remedy  having  been  availed
of, we see no reason to interfere with the  impugned  order  passed  by  the
Calcutta High Court. However, it is left open to Devi  Ispat  to  take  such
appropriate steps as  may  be  considered  necessary  for  safeguarding  its
interests.

20.   There is no merit in this petition and it is accordingly dismissed.
          2014 (April.Part ) http://judis.nic.in/supremecourt/filename=41426
GYAN SUDHA MISRA, MADAN B. LOKUR
    IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

              SPECIAL LEAVE PETITION (CIVIL) NO. 19466 OF 2013



Devi Ispat Limited & Anr.                                 ….Petitioners

                                   versus

State Bank of India & Ors.                           ..Respondents

                       J U D G M E N T

Madan B. Lokur, J.

1.    Petitioner No.1 (Devi Ispat) is engaged in the manufacture  and  trade
of iron and steel products while petitioner no.2 is one of its Directors.

2.    Devi Ispat had availed of credit facilities from  the  State  Bank  of
India with an overall limit of Rs. 29.5 crores.  This  credit  facility  was
enhanced from time to time to Rs.  68.5  crores  and  Devi  Ispat  sought  a
further enhancement to Rs. 93 crores but that was not sanctioned.

3.    While the Bank was processing the request of Devi Ispat, it  issued  a
letter to it on 10th January 2013 informing that its cash credit account  is
irregular inasmuch as the outstanding was about Rs.11.7 crores  against  the
permissible limit of Rs. 5.6 crores.  Devi Ispat was also informed  that  it
was not servicing  the  interest  of  cash  credit,  Foreign  Currency  Non-
Resident Bank Account etc.  It  was  also  informed  that  its  account  was
heading for becoming  a  non-performing  asset  (NPA)  and  Devi  Ispat  was
requested to regularize all its accounts by 14th January 2013 failing  which
there would be no alternative but to call up the advance.

4.    Devi Ispat replied to the above letter but since the response was  not
satisfactory another letter was issued by the  Bank  on  14th  January  2013
calling upon Devi Ispat to regularize its accounts  position  failing  which
the Bank would be constrained to take appropriate action.

5.    Since there was again no positive response from Devi Ispat,  the  Bank
issued a letter on 18th January 2013 intimating Devi Ispat that its  account
had been classified as an NPA on 16th January 2013 and it was  requested  to
regularize the accounts position within seven days.

6.    Instead of regularizing its accounts, Devi Ispat sent a reply on  22nd
January 2013 pointing out that the cash credit account had been operated  on
19th October 2012 and therefore its declaration as an NPA  on  16th  January
2013 (that is on the 90th day instead of on completion of 90  days)  was  in
violation of the guidelines issued by the Reserve Bank of India.

7.    The Bank then issued a notice to Devi Ispat  under  Section  13(2)  of
the Securitization and Reconstruction of Financial  Assets  and  Enforcement
of Security Interest Act, 2002 (the  SARFAESI  Act)  on  28th  January  2013
demanding payment of the outstanding liabilities due to the extent of  about
Rs. 17.9 crores,  $ 1.11 crores  (of the FCNB account ) and interest.

8.    Devi Ispat reacted by filing a writ  petition  in  the  Calcutta  High
Court challenging, inter alia, the declaration of its being an NPA  and  for
setting aside the previous letters issued by the Bank.

9.    The learned Single Judge hearing the writ petition dismissed it by  an
order dated 19th March 2013 on the  sole  ground  that  Devi  Ispat  had  an
alternate statutory remedy under Section 13(3A)  of   the  SARFAESI  Act  to
make  a  representation  against  the  letter  issued  under  Section  13(2)
thereof.

10.   Section 13(3A) of the SARFAESI Act reads as follows:

           “13. Enforcement of security interest.

           1) , (2) and (3)  xxx

           (3A) If, on receipt of the notice  under  sub-section  (2),  the
           borrower makes any representation or raises any  objection,  the
           secured creditor shall consider such representation or objection
           and if the secured creditor comes to the  conclusion  that  such
           representation or objection is not  acceptable  or  tenable,  he
           shall  communicate  within  one  week   of   receipt   of   such
           representation or objection the reasons  for  non-acceptance  of
           the representation or objection to the borrower.

                 Provided that the reasons so communicated  or  the  likely
           action of the secured creditor at the stage of communication  of
           reasons shall not confer any right upon the borrower  to  prefer
           an application to the Debts Recovery Tribunal under  section  17
           or the Court of District Judge under section 17A.”



11.    After  the  dismissal  of  its  writ  petition,  Devi  Ispat  made  a
representation to the Bank under Section 13(3A) of the  Act  on  22nd  March
2013.  This was followed almost immediately thereafter  by  an  intra  court
appeal filed against the order of the learned Single  Judge.   Although  the
appeal was filed on 1st April 2013 (and we have gone  through  the  contents
of the appeal memo) there  is  no  mention  of  Devi  Ispat  having  made  a
representation to the Bank under Section 13(3A) of the Act.

12.   Be that as it may, the representation was considered by the  Bank  and
rejected on 2nd April 2013. The Division Bench was informed of  this  during
the hearing of the intra court appeal on 26th April 2013.

13.    The  Division  Bench  was  of  the  opinion  that  in  view  of   the
observations by this Court in Mardia Chemicals v. Union of India[1] as  well
as the provisions of Section 13(3A) of SARFAESI  Act,  the  writ  court  was
right in not entertaining  the  writ  petition  and  permitting  the  issues
raised by Devi Ispat to be considered by  the  Bank  through  the  statutory
mechanism.

14.   While upholding the view of the learned Single Judge and  despite  the
fact that the representation made by Devi Ispat had  been  rejected  on  2nd
April 2013, the Division Bench heard the matter on merits. However,  it  did
not deal with the merits of the case since Devi Ispat  had  availed  of  the
statutory remedy available to it.  Accordingly, the  appeal  filed  by  Devi
Ispat was dismissed on 26th April 2013.

15.   While challenging the order  dated  26th  April  2013  passed  by  the
Division  Bench,  learned  counsel  submitted  that  Devi   Ispat   had   no
alternative but to file a writ petition challenging  the  notice  issued  by
the Bank on 18th January 2013. We find no merit in this contention.

16.   Firstly, Devi Ispat had an alternate remedy to make  a  representation
to the Bank under the provisions of Section 13(3A) of the Act and there  was
no reason to by-pass the statutory mechanism.

17.   Secondly, Devi Ispat did in fact make a  representation  to  the  Bank
under Section 13(3A)  of  the  SARFAESI  Act  and  that  representation  was
rejected on 2nd April 2013 during the pendency of the  intra  court  appeal.
The statutory remedy having been availed of by Devi  Ispat,  nothing  really
survived in the dispute raised.

18.   Thirdly, we now find from the written  submissions  submitted  by  the
Bank that it has taken possession of the secured assets  of  Devi  Ispat  on
25th May 2013 and 27th May 2013 under the provisions  of  Section  13(4)  of
the  SARFAESI Act  and  a  possession  notice  has  also  published  in  the
newspapers on 31st May 2013.

19.   On the facts on record and the statutory remedy  having  been  availed
of, we see no reason to interfere with the  impugned  order  passed  by  the
Calcutta High Court. However, it is left open to Devi  Ispat  to  take  such
appropriate steps as  may  be  considered  necessary  for  safeguarding  its
interests.

20.   There is no merit in this petition and it is accordingly dismissed.



                                              ………………………………J
                                             (Gyan Sudha Misra)



                                                             ………………………………..J
(Madan B. Lokur)
New Delhi;
April 16, 2014


ITEM NO.1B               COURT NO.14             SECTION XVI

            S U P R E M E   C O U R T   O F   I N D I A
                         RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Civil) No(s).19466/2013
(From the judgement and order  dated 26/04/2013 in APOT No.172/2013  of  The
HIGH COURT OF CALCUTTA)

DEVI ISPAT LTD. & ANR.                        Petitioner(s)

                 VERSUS

STATE BANK OF INDIA & ORS.                   Respondent(s)

[HEARD BY HON'BLE GYAN SUDHA MISRA AND HON'BLE MADAN B. LOKUR, JJ.]

Date:16/04/2014   This    Petition    was    called    on    for    judgment
    today.


For Petitioner(s)      Mr. Rameshwar Prasad Goyal,AOR


For Respondent(s)      Mr. Anil Kumar Sangal,AOR


            Hon'ble Mr. Justice Madan B. Lokur pronounced  the  judgment  of
      the Bench comprising Hon'ble Gyan Sudha Misra and His Lordship.


            For the reasons recorded in the Non-Reportable  judgment,  which
      is placed on the file, the special leave petition is dismissed.






      |(Parveen Kr.Chawla)                    | |(Phoolan Wati Arora)                  |
|Court Master                           | |Assistant Registrar                   |
|                                       | |                                      |

-----------------------
[1]    AIR 2004 SC 2371


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