SARFAESI , Section 13(3A)

 

 

SARFAESI Section 13(2) – Delay of 14 days in filing application  - DRT declined  to condone the delay -  Appellant approached the High Court who  relegated the appellant to Debt Recovery Appellate Tribunal  - High Court also directed the appellant to deposit 25% of the amount covered by the 13(2) notice – Matter has been pending before this Court for the last two years - Interest of justice would be met in case the appellant is permitted to pursue his objection to the notice under Section 13(2) before the DRT -  Delay of 14 days is condoned -  Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,  

 

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(2018)2 SCeJ 1111

 

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 (2018)1 SCeJ 613

DOD:19th March, 2018

Reported :19th March, 2018

 

SARFAESI

 

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(i) Security Interest (Enforcement) Rules, 2002, Rule 3A  - Rules  framed under the Act  elaborate on the manner in which the representation of the borrower is required to be dealt with  - Rule 3A requires the authorized officer who is an officer specified by the Board of Directors of the secured creditor to consider the representation and modify the notice of demand if satisfied of the need to do so in that regard -  If the authorized officer comes to the conclusion that such representation or objection is not tenable or acceptable, he must communicate the reasons for non-acceptance of the representation or objection within fifteen days - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(3A).



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(ii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13(3A) - The borrower may raise an objection against the proposed measures or make a representation explaining the circumstances in which he cannot discharge his liabilities and propose reschedulement - This may result in reconsideration by the creditor of whether or not it would be prudent to carry out the proposed measures and may even result in a renovation of the contract - The borrower may raise an objection or make a representation of any nature that the creditor must consider, and if found not acceptable, may reject the same before proceeding to resort to any of the measures provided by Section 13(4) of the Act - The Parliament transformed the observations of this Court in Mardia Chemicals, into a provision in the Act with a plain intention to introduce a pause for the creditor to rethink and reconsider the action proposed by the debtor - It is a departure from the usual steps that an ordinary creditor is bound to take for recovering the loan i.e. through the intervention of the Court - SARFAESI,  Section 13(3A).                     



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(iii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13 (3A)  - Whether Section 13 (3A) is mandatory or directory in nature - We find the language of sub-section (3A) to be clearly impulsive - It states that the secured creditor “shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance” thereof - We see no reason to marginalize or dilute the impact of the use of the imperative ‘shall’ by reading it as ‘may’ - The word ‘shall’ invariably raises a presumption that the particular provision is imperative - Moreover, this provision provides for communication of the reasons for not accepting the representation/objection and the requirement to furnish reasons for the same - A provision which requires reasons to be furnished must be considered as mandatory - Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully - We are not prepared in such circumstances to interpret the silence of the Parliament in not providing for any consequence for non-compliance with a duty to furnish reasons - The provision must nonetheless be treated as ‘mandatory’ - It was submitted on behalf of the creditor that the conduct of the debtor does not warrant an interference in this case - However, we are of the view that the construction of the Act should not be affected by the facts of a particular case - For, indeed, where the remedy invoked is a discretionary remedy, the Court may deny relief if the circumstances so warrant - SARFAESI,  Section 13(3A).  

 

(iv) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 13 (3A)  - Violation of Section 13 (3A)  cannot be of any avail to the debtor whose conduct has been merely to seek time and not repay the loan as promised on several occasions - Loan was taken by the debtor which was not paid, the debtor did not respond to a notice of demand and made a representation which was not replied to in writing by the creditor - Creditor, however, considered the proposals for repayment of the loan as contained in the representation in the course of negotiations which continued for a considerable amount of time -  Several opportunities were in fact availed of by the debtor for the repayment of the loan after the proceedings were initiated by the secured creditor -  The debtor failed to discharge its liabilities and eventually undertook that if the debtor fails to discharge the debt, the creditor would be entitled to take realize the secured assets - Therefore, the debtor is not entitled for the discretionary equitable relief under Articles 226 and 136 of the Constitution of India in the present case - Constitution of India, Articles 136 and 226- SARFAESI,  Section 13(3A).            



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(v) “Without Prejudice”  - Letter of Undertaking “Without Prejudice” – Letter containing the undertaking that if the debt was not paid, the creditor could take over the secured assets - Submission on behalf of the debtor that the letter of undertaking was given in the course of negotiations and cannot be held to be an evidence of the acknowledgement of liability of the debtor, apart from being untenable in law, reiterates the attempt to evade liability and must be rejected - The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected - Mere introduction of the words “without prejudice” have no significance and the debtor clearly acknowledged the debt even after action was initiated under the SARFAESI Act and even after payment of a smaller sum, the debtor has consistently refused to pay up - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - SARFAESI.

 

(vi) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 2(zf) ,  31 (i)  - Agricultural Land  - Inclusion of Agricultural Land as Security Interest in the Notice of Recovery - The purpose of enacting Section 31(i) and the meaning of the term “agricultural land” is intended to protect agricultural land held for agricultural purposes by agriculturists from the extraordinary provisions of this Act, which provides for enforcement of security interest without intervention of the Court  - The plain intention of the provision is to exempt agricultural land from the provisions of the Act - In other words, the creditor cannot enforce any security interest created in his favour without intervention of the Court or Tribunal, if such security interest is in respect of agricultural land - The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act -  It is also intended to deter the creation of security interest over agricultural land as defined in Section 2 (zf) - Thus, security interest cannot be created in respect of property specified in Section 31 – SARFAESI, Section 2(zf) ,  31 (i) .


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(vii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 31 (i)  - Inclusion of Agricultural Land as Security Interest  - Obviously, since no security interest can be created in respect of agricultural lands and yet it was so created, goes to show that the parties did not treat the land as agricultural land and that the debtor offered the land as security on this basis - Security interest was created in respect of several parcels of land, which were meant to be a part of single unit i.e. the five star hotel in Goa - Some parcels of land now claimed as agricultural land were apparently purchased by the debtor from agriculturists and are entered as agricultural lands in the revenue records -  The mortgage is intended to cover the entire property of the Goa Hotel -  Prima facie, apart from the fact that the parties themselves understood that the lands in question are not agricultural, it also appears that having regard to the use to which they are put and  the purpose of such use, they are indeed not agricultural - – SARFAESI, Section 2(zf),  31 (i).  

 

 

(viii) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 31 (i)   - The validity of Section 31(i) which in any case deals with security interest created over agricultural land and not agricultural land itself, is an integral part of the Sarfaesi Act and cannot be questioned on the ground of legislative competence – SARFAESI.                                                                                                                       

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(ix) Symbolic Possession - We find nothing in the provisions of the Act that renders taking over of symbolic possession illegal - This is a well- known device in law - Delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation Act would start from such date of the delivery – SARFAESI - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.                                                                                                                                  

(x) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 2(d) , 14  - Whether the creditor could maintain an application of possession under Section 14 of the Act, even though it had taken over only symbolic possession before the sale of the property to the auction purchaser, depends on whether it remained a secured creditor after having done so - Creditor took over symbolic possession of the property on 20.06.2013 - Thereupon, it transferred the property to the sole bidder and issued a sale certificate on 25.02.2015 -  On the same day, i.e., 25.02.2015, the creditor applied for taking physical possession of the secured assets under Section 14 of the Act - In this case, the creditor did not have actual possession of the secured asset but only a constructive or symbolic possession - The transfer of the secured asset by the creditor therefore cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act - The creditor nevertheless had a right to take actual possession of the secured assets and must therefore be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement dated 25.02.2015 - Thus, the entire interest in the 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 and thus remained a secured creditor in the Act - Symbolic possession - SARFAESI.