Notice Issued U/S 13 SARFAESI Act Constitutes Part Cause Of Action For Securitisation Application: Allahabad HC
The Allahabad High Court held that the notice issued under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) constitutes part cause of action as per Section 17(1-A) of the said Act.
The Court held that Clause (a) of Section 17(1-A) of the SARFAESI Act is disjunctive from clauses (b) & (c) of Section 17 (1-A) of the SARFAESI Act and is to be read separately.
The Lucknow Bench of the Court held thus in a case in which a reference was made by the Chief Justice of the High Court and subsequently to the Division Bench in pursuance of questions referred by the Single Judge.
A Division Bench of Justice Jaspreet Singh and Justice Manish Mathur observed, “Notice issued under Section 13 of the SARFAESI Act would constitute part cause of action as per Section 17 (1-A) of the SARFAESI Act due to which the Debts Recovery Tribunal at Lucknow would also have jurisdiction to entertain the securitisation application filed by the borrowers. … Section 3 of the Recoveries of Debts due to Banks and Financial Institutions Act 1993 does not confer exclusive jurisdiction vide notifications issued by the Central Governments thereunder and such notifications would be subject to Section 17 (1-A) of the SARFAESI Act.”
The Bench said that the provisions of Section 13 of the SARFAESI Act clearly envisages providing a notice under Section 13(2) by the secured creditor to the borrower in respect of a debt which is classified as a non performing asset in order to enable such borrower to discharge in full his liabilities to the secured creditor, failing which the secured creditor has been made entitled to exercise all or any of the rights provided under sub section (4).
Advocate Ambika Prasad Mishra appeared for the petitioners while State Counsel Dileep Kumar Tiwari appeared for the respondents.
Brief Facts -
The respondent bank being UCO Bank granted loan facility to the petitioner from its branch situated in District Amethi, Uttar Pradesh. The loan was secured by mortgage of property situated at Amethi and the borrower and guarantor committed default in repayment of loan whereafter a demand notice was issued by the authorized officer from the zonal office in Lucknow. Possession and sale notice were also issued from the zonal office in Lucknow whereafter the petitioners filed a securitization application before the DRT, Lucknow. Upon service of notice upon the respondent bank, a preliminary objection was raised regarding jurisdiction of the Tribunal at Lucknow with the submission that territorial jurisdiction pertaining to district Amethi lies with the DRT Allahabad.
The aforesaid preliminary objection was rejected, leading to filing of regular appeal by the respondent bank, which was allowed, upholding the preliminary objection and transferring the proceedings of securitization application to the Tribunal at Allahabad. The said decision passed by the DRT Allahabad was challenged in the writ petition in which the Single Judge referred the issue for consideration by Larger Bench in view of his conflict of decision with the judgment of another coordinate Bench in the case of Saurabh Gupta v. Union of India and another, 2018 (127) ALR 388.
The High Court in view of the above facts noted, “It is thus quite evident that the notice under Section 13(2) of the SARFAESI Act must precede any action taken by the secured creditor under Section 13(4) of the aforesaid Act. In this view of the matter, it is evident that notice under Section 13(2) of the Act forms a chain with the action that can be taken by the secured creditor under Section 13(4) of the Act and would thus constitute a continuing cause of action either for the borrower or for the secured creditor.”
The Court further held that since notices under Section 13 were issued by the authorized authority situated at Lucknow from where the e-auction was also conducted, part cause of action in terms of Section 17(1-A)(a) was evidently at Lucknow where the securitisation application was thus maintainable.
“… it is evident that provisions of the SARFAESI Act will supersede the provisions of Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993 and any notification issued thereunder, particularly dated 5th December, 2017 would also be subject to provisions of the SARFAESI Act”, it added.
The Court also held that the judgment rendered by the Single Judge in the case of Saurabh Gupta being per incuriam, does not lay down good law and hence it overruled the same.
Accordingly, the High Court answered the reference and overruled the judgment.
Cause Title- Ram Pal Soni and Another v. State of UP Thru. Prin.Secy. Finance and Ors. (Neutral Citation: AHC-LKO:27835-DB)
Appearance:
Petitioners: Advocate Ambika Prasad Mishra
Respondents: State Counsel Dileep Kumar Tiwari, Advocates Anand Kumar Singh, and Gyanendra Mishra.
