[Case Brief] Central Bank of India v/s State of AP & Others, 2005

Case NameCentral Bank of India v/s State of AP & Other, 2005 (6) ALD 480
Case Number WP No. 19925 of 2005
Court Andhra Pradesh High Court
BenchJustice V.V.S. Rao
Decided On September 30, 2005
Relevant Act/Sections1) Constitution of India - Article 226

2) Securitisation Act, 2002- Sections 2, 13(4), 35, and 37.

3) Recovery of Debt due to Banks and Financial Institutions Act, 1998- Section 17 and 18
Author of the Case BriefAditya Gor

Brief Facts and Procedural History:

The petitioner, Central Bank of India, is a nationalized bank. According to the petitioner, M/s. Kirlampudi Sugar Mills Limited (KSML), the fifth respondent, availed cash credit limit and term loans from one of the branches of the petitioner bank. To secure the loan, KSML had hypothecated the plant and machinery of its factory and created equitable mortgage by deposit of title deeds in respect of the agricultural land.

As on 31/08/2005, KSML owes a sum of R. 392.37 Lakhs to the petitioner bank. It appears that the Government is proposing to proceed against KSML for realizing sugarcane dues payable to farmers and arrears of purchase tax to the Government. This action of the Government is in lieu of A.P. Revenue Recovery Act, 1864. The petitioner bank claims priority over the mortgaged properties and is aggrieved by such notice of the Government pertaining to the public auction of the land. According to the petitioner, if the public auction is conducted then the bank would be deprived of its right to recover the loan amount sanctioned and disbursed to KSML. A writ petition under Article 226 of the Indian Constitution is thus filed before the AP High Court.

Issues before the Court:

1) Whether a writ petition filed by the bank (secured creditor) for restraining the Government from realizing sugarcane arrears and purchase tax arrears is maintainable under Article 226 of the Indian Constitution?

2) Can it be permitted for the petitioner bank to enforce its rights under Article 226 of the Indian Constitution when it has on its own volition not availed any of the remedies under the RDB Act and other enactments?

The ratio of the Court:

Statutory Provisions-

By virtue of Section 2(zd) of the Securitisation Act, “secured creditor” means any bank or financial institution or any consortium or group of banks or financial institutions including other such classes of financial institutions. Chapter III of the Securitisation Act provides for enforcement of “security interest” which as per section 2(zf) means right, title and interest of any kind whatsoever upon property, created in favor of any secured creditor and includes any mortgage, charge, hypothecation, and assignment. This Chapter III also contains provisions enabling a secured creditor to enforce security interest. In case of default of repayment of secured debt, the secured creditor may classify it as Non-Performing Asser (NPA) and may require the borrower by notice to discharge the liabilities within 60 days. As per section 13(4) of the Securitisation Act, it borrower fails to discharge the liability within 60 days then it is open for the secured creditor to take possession of the secured asset and to use it in order to realize the secured debt. Section 35 of the Securitisation Act gives an overriding effect. According to Section 37, the Securitisation Act shall be in addition to, and not in derogation of the Companies Act, 1956; Securities and Exchange Board of India (SEBI) Act, 1992; RDB Act and Securities Contracts (Regulation) Act, 1956 or any other law for the time being in force.

According to section 19(2-A) of Sugarcane Act, if the price of the cane is unpaid on the expiration of 14 days of the delivery then such amount shall be recovered as an arrear of land revenue with 15% interest rate from the date of delivery. Under section 21(3), any sum due to other government towards purchase tax shall be a first charge on the sugar produced out of the cane already subject to purchase tax. According to section 21(6) if the tax is not paid with interest, it shall be recoverable as an arrear of land revenue. Under section 19(4), if the price of sugarcane delivered is not paid then the competent authorities can either initiate action under the Revenue Recovery Act and/or proceed to recover the sugarcane price by the sale of 65% of sugar produced from out of sugarcane.

Judicial Interpretation-

The constitutional validity of the Securitisation Act was upheld by the Division Bench of the Supreme Court in Mardia Chemicals Limited v/s Union of India (Air 2004 SC 2371).

Additionally in Allahabad v/s Canara Bank ([2000] 2 SCR 1102), the Supreme Court held that at the stage of adjudication or execution of recovery certificate, the provisions of RDB Act, 1993, confers exclusive jurisdiction on the Tribunal and the Recovery Officer in respect of the debts payable to the banks and financial institutions and that there can be no interference by the company court under section 442 read with Section 537 or under Section 446(1) of the Companies Act. It was also held that even in regard to execution, the jurisdiction of the Recovery Officer is exclusive.

A joint reading of the above two judgments and the provisions of the RDB Act and the Securitisation Act would show that the bank has ample powers to proceed against a borrower for the realization of a secured debt. These powers of the bank are also enumerated under the provisions of other enactment mentioned under section 37 of the Securitisation Act.

In the present case, the bank has not availed any remedy available under section 13(2) of the Securitisation Act or any other enactments. In such a situation, a writ petition before the High Court is not maintainable. It is to be concluded that the harmonious reading of section 17 and section 18 of the Act shows that it is only in regards to the matters enumerated under section 17 of the RDB Act that a writ petition is maintainable before the High Court by virtue of section 18 of the RDB Act. In the present case, the petitioner has directly approached the High Court without approaching the DRT and thus the writ is not maintainable.

Decision Held:

Thus, by virtue of the preliminary observations, the writ petition is dismissed. All the questions pertaining to the merits of the case will be accordingly decided by the appropriate legal forum.

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