Canara Bank vs State of AP WP 21029 of 2017
Facts:
1) M/s.Sarawathi Educational Society availed Term Loan-I facility of Rs.480.00 lakhs under loan account No. 0661773006588 from the Kurnool Branch of the Petitioner Bank by securing various properties
2) The loan facilities availed by Respondent No. 2 and 3 became non-performing asset in view of the default committed in maintaining the account in its true perspective and the demand notice in case of M/s Keshavareddy Educational Trust was published in Hindu and Sakshinews papers on 28.06.2015 making a demand for a sum of Rs 4,22,23,480.90(constitutes Rs.70,87,698.23/- in account No. 0659773007973 and Rs.3,51,35,782.67 in account 2486256010111) as on 29/05/2015 together with interest at the rate of 19.0% per annum from 29/05/015 till the date of full and final payment
3) Respondent No.1 issued G.O.Ms.No.13, dated 17.02.2016 confirming the attachment of all the properties including the properties which are mortgaged in favour of the bank.
Issue: Whether the attachment is correct in terms of law ?
Arguments:
Petitioner:
1) Counsel submitted that . Once the proceedings are initiated under SARFAESI Act 2002, the question of Respondent No.1 proceeding against the security interest of the mortgaged property shall not arise. The action of the Respondent No.1 in proceeding against the secured assets is without jurisdiction to the extent of properties which are mortgaged in favour of the bank. The Respondent No.1 is proceeding with the attachment and sale of the properties belonging to Respondent No. 2 and 3. If the secured assets are auctioned and the sale proceedings are appropriated by the Respondent No.1 in exercise of the power under The Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999 (Act 17/1999), the very purpose of providing the loan facilities on the security of the properties mortgaged with the bank will be defeated and the public interest shall be put to jeopardy.
2) The provisions of this Act to override other laws and that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. He further contended that the petitioner bank has first charge over the properties which are mortgaged in favour of the bank and hence the petitioner do have the authority to proceed against the security interest for the recovery of the debt.
Respondent:
1) Counsel contended that as per Sec.3 of the Andhra Pradesh Protection of Depositors of Financial Establishments Act, 1999 (Act No.17 of 1999), the Government have the power to pass orders of attachment of properties to safeguard the interests of the depositors. Hence, the G.O.Ms. No. 13 of 2016 passed by the 1st respondent is justifiable.
2) It was submitted that The accused Nagireddy Keshava Reddy @ Keshava Reddy raised mortgage loans by depositing the title deed of the properties already purchased from the funds deposited by the depositors. The object of the act is to protect the interest of the depositors. The petitioner has no right over the properties, which are already attached under G.O.Ms.No. 13.
Decision: Hon’ble HC allowed the petition.
Rationale:
1) Hon’ble HC held that as per Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, after the words “the date of the application”, “and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;” is added which makes the said amendment or the 1993 Act applicable to all the debts which remains unpaid.
2) It noted that the attached properties were purchased much prior to the period when the facility of loan sanctioned to the borrowers. The banks while rendering the facilities were boanfide parties. It is not the case of the respondent that the attached properties were purchased after the loan was obtained. The mortgaged of the properties were done as bonafide purposes. None of the bank is involved in the schedule offence.
3) It held that The property of the Bank cannot be attached or confiscated when there is no illegality or unlawfulness in the title of the Appellant and there is no charge of money laundering against the petitioner. The mortgage of property is the transfer under the transfer of property act as there is no dispute as regards the origin of funds or the title of the properties.
Order:
