IDFC FIRST BANK LIMITED versus UNION OF INDIA AND ORS
CWP 2550 of 2020
Facts:
1.Petitioner entered into a Loan Agreement on 30.12.2015 bearing Loan Account No. 4938084 for an amount of ₹23,00,000 with respondent no.1 and 2. Thereafter, respondent no.1 and 2 created security interest in respect of the built up property captioned 1/16953, First Floor, Khasra No. 270, Village Skidarpur, Abadu Babarpur Road, Shivaji Park, ILAQA, Shahadra, Delhi.
2.Respondent no.1 and 2 were unable to comply with their repayment obligations and therefore, the loan amount was classified as Non-Performing Asset. Demand Notice was issued of ₹24,71,141.85 along with interest and other charges within a period of 60 days from the said date.
3.An application under Section 14 of the SARFAESI Act as a secured creditor, before the learned District Court, Karkardooma, Delhi. On 09.02.2018, the learned District Court appointed one Sh. Praveen Kumar Chauhan as a receiver to take the possession of the Property on behalf of the petitioner.
4.Petitioner sold the Property for an amount of ₹21,38,000/- and issued a sale certificate dated 15.09.2018 to the successful purchaser. It was submitted on behalf of the petitioner that after adjusting the sale proceeds recovered from the loan amount, an amount of ₹6,92,551.63 remained outstanding. Therefore, the petitioner filed an application under Section 13(10) of the SARFAESI Act read with Rule 11 which was dismissed.
Issue: Whether the order passed is correct ?
Arguments:
Petitioner:
1.Counsel contended that pecuniary limit under Section 1(4) of the Recovery of Debts and Bankruptcy Act, 1993 is inapplicable for recovery of balance amount by the secured creditor under Section 13(10) of the SARFAESI Act read with Rule 11 of the SIE Rules. It is contended that an application under Section 13(10) of the SARFAESI Act is not an application under the RDB Act and therefore, the provisions of the RDB Act are not applicable.
2.There is no provision in the SARFAESI Act that corresponds to Section 1(4) of the RDB Act and limits the amount to be claimed by a bank or a financial institution to ₹10,00,000. Section 34 of the SARFAESI Act bars the jurisdiction of civil courts from entertaining any suit or proceedings in respect of any matter that the learned Debts Recovery Tribunal is empowered to adjudicate under the SARFAESI Act, thereby, empowering only the learned Debts Recovery Tribunal to entertain its application.
3.Counsel submitted that application under Section 19 of the RDB Act can only be filed by financial institutions covered by Section 2(h) of the RDB Act, which in turn renders financial institutions covered under Section 2(1)(m) of the SARFAESI Act remediless thereby, defeating the object of the SARFAESI Act.
Respondent:
1.Counsel for respondent no.2 submitted that the present petition ought to be rejected as the petitioner has an equally efficacious alternate remedy. It was submitted that as per Gazette Notification dated 06.09.2018 of the Ministry of Finance (Department of Financial Services), the provisions of the RDB Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ₹20,00,000.
2.Counsel submitted that Section 13(10) of the SARFAESI Act lays down that if any amount is left due even after selling the secured assets, the same will be recoverable, but that does not mean that the application for recovery shall be maintainable under the SARFAESI Act as the recovery of the balance amount falls under the provisions of the RDB Act.
Decision: Hon’ble HC dismissed the application.
Rationale:
1.Hon’ble HC noted that Sub-section (4) of Section 1 of the RDB Act as originally enacted, did not include the opening words, “save as otherwise provided”. These words were added by virtue of Section 249 read with the Fifth Schedule of the Insolvency and Bankruptcy Code, 2016 (hereafter ‘IBC’).
2.It held that to the extent that the Debts Recovery Tribunal is expressly conferred jurisdiction, it would exercise the same notwithstanding, the pecuniary threshold specified under Sub-section (4) to Section 1 of the RDB Act. It noted that legislature has enacted express provisions for deciding such matters, which the legislature intended the Debts Recovery Tribunal to decide.
3.It further held that the nature of the application under Section 13(10) of the SARFAESI Act is that of an original action for the recovery of an amount payable by the borrower to the secured creditor. An application under Section 13(10) of the SARFAESI Act is not an action for enforcement of a security interest in respect of a financial asset. The nature of the said application is precisely that of the original action, which is covered under the RDB Act.
4.It noted that the SARFAESI Act does not contain any express provisions, that stipulates which Debts Recovery Tribunal has the jurisdiction to decide any original claim as to the outstanding amount that remains after the secured creditor has enforced the security interest. This is in contradistinction to the provisions of Section 249 of the IBC by virtue of which certain provisions of the RDB Act were amended to expressly confer jurisdiction on the Debts Recovery Tribunals to exercise jurisdiction, powers and authority of an Adjudicating Authority conferred under the provisions of the IBC.
5.A bank or a financial institution has recourse to the RDB Act for the recovery of debts due from a borrower. It is difficult to accept that whereas, an original action for an amount less than 20,00,000/- would be available under the SARFAESI Act before the Debts Recovery Tribunal constituted under Section 3 of the RDB Act, the Debts Recovery Tribunal would have no jurisdiction to entertain such a claim under the RDB Act.
6.It held that If the petitioner’s contention is accepted that an application under Section 13(10) of the SARFAESI Act must be construed in isolation of the provisions of the RDB Act, the remedy of an appeal under Section 20 of the RDB Act would not be available. Neither the creditor nor the borrower, would have the right to file an appeal in respect of a determination of the amount due under Section 13(10) of the SARFAESI Act, the same having not been provided under
the SARFAESI Act.
Order Copy:
