(j) "default" means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor.
(o) "non-performing asset" means as asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset,
(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;
(b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank;
(zb) "security agreement" means an agreement, instrument or any other document or arrangement under which security interest is created in favour of the secured creditor including the creation of mortgage by deposit of title deeds with the secured creditor;
(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes-
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or
(iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;
(ze) "secured debt" means a debt which is secured by any security interest;
(zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31;
13. Enforcement of security interests-
(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section(2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower.
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;
(c) appoint any person (hereafter referred to as the manager) to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
(5)........ .....................
.. .. .. .. .. .. .. .. .. ..
(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
.. .. .. .. .. ..
17. Right to appeal-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which such measures had been taken:
Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation- For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1) of Section 17.
31. Provision of this Act not to apply in certain cases.- The provisions of this Act shall not apply to-
(a)........
(b).......
(i) any security interest created in agricultural land;
(j)..........
34. Civil Court not to have jurisdiction- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no jurisdiction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)."
We have considered the rival submissions of the learned counsel for the parties, the relevant provisions of the Act as well as perused the record.
On the recommendations made by the "Narasimham Committee" for speedy recovery of dues of Banks and Financial Institutions, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short the ''Act of 1993') was enacted by the Parliament by which the Debt Recovery Tribunals and the Debt Recovery Appellate Tribunals were established for expeditious adjudication of disputes relating to debts due to the Banks and Financial Institutions and the jurisdiction of the Civil Courts was barred and all such pending matters were transferred to the Tribunal. The bar of jurisdiction of the Civil Courts was for the purpose that the proceedings initiated by the Banks and other Financial Institutions may not be frustrated. Initially, the proceedings were carried out expeditiously but thereafter it was realized that because of the dilatory tactics adopted by the borrowers and procedure adopted by the Tribunals, there was delay in disposal of the cases instituted before the Tribunals. Then, a second report was submitted by the "Narasimham Committee", which suggested that the existing machinery for recovery of non-performing assets, which were abnormally high, was wholly insufficient and the Committee suggested further reforms in the adjudicatory mechanism.
The Government of India thereafter constituted "Andhyarujina Committee" for considering the need for changes in the legal system. Both the Committees suggested for a process of recovery of the dues to the Banks and Financial Institutions without the intervention of the Courts or Tribunals. Such recommendations led to the enactment of the Act of 2002, which provides for secured creditors to take steps for recovery of the dues without the intervention of the Courts or Tribunals.
Section 13, which relates to the enforcement of security interest, deals with this aspect. Sub-section (1) provides for enforcement of the security interest created in favour of any secured creditor without the intervention of Courts or Tribunals. Sub-section (2) provides that if the borrower defaults in payment of secured debts to the secured creditor under the security agreement (and such debt having been classified as non-performing assets) and on a notice being given by the secured creditor to him in writing fails to discharge his liabilities within sixty days, the secured creditor would be entitled to exercise the rights under sub-section (4), which relates to the measures to recover the secured debts by the secured creditors. Sub-section (3) provides for the details to be given in the notice to the borrower. Sub-section (3A) of Section 13 was inserted in 2004 after the judgement of the Apex Court in the case of Mardia Chemicals Limited vs. Union of India, (2004) 4 SCC 311. By this sub-section (3A), the borrower has been given a right to make a representation or objection to the notice issued to him under sub-section (2), which is to be considered by the secured creditor and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, it has to communicate reasons for non-acceptance of the representation or objection to the borrower within one week. Sub-section (4) relates to the modes by which the secured creditor may recover the secured debts. Sub-section (10) takes care of the situation where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets; in such a situation the secured creditor may file an application before the Debts Recovery Tribunal for recovery of the balance amount from the borrower.
Section 17 of the Act of 2002 provides for the remedy to appeal, which may be filed by any person (including borrower) who is aggrieved by any of the measures referred to under sub-section (4) of Section 13. The proviso to the sub-section specifies that such right to appeal would not be available on the representation or objection of the borrower having been rejected by an order under sub-section (3A) of Section 13.
Section 31 carves out an exception and provides for certain cases in which the provisions of the Act of 2002 would not be applicable. Sub-section (i) of Section 31 specifies that the provisions of the Act shall not apply to any security interest created in agricultural land.
Section 34 of the Act of 2002 bars the jurisdiction of Civil Court from entertaining any suit or proceeding in respect of any matter which the Tribunal is empowered by or under the Act to determine. It further provides that no injunction shall be granted by any of the Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by the Act of 2002 or the Act of 1993.
In the light of the aforesaid provision of the Act of 2002, we are to examine the merits of the present case.
Much emphasis has been laid by the learned counsel for the appellant on the fact that no security interest can be created in agricultural land for the purpose of recovery under the Act of 2002 as an exception is carved out under sub-section (i) of Section 31 of the Act in this regard and thus the same cannot be treated as secured debt which may be enforced.
What has to be considered is at what stage security interest would be created. In our view, the enforcement of the security interest would be when the measures are taken to recover the secured debt, which is provided for under sub-section (4) of Section 13. At the stage of filing of the suit by the plaintiffs, it cannot be said that measures to recover the secured debt of the plaintiffs had been taken by the Bank as proceedings under sub-section (4) of Section 13 had not been initiated. Mere issuance of notice would, at best, show the intention of the Bank but the same cannot be said to be measures already taken for such recovery from the properties under notice. In the present case, the stage of enforcement of the security interest had yet not arrived. The plaintiff-appellants had the opportunity of submitting their reply to the said notice under sub-section (3A) of Section 13, which they had done and it is not disputed by the plaintiff-appellants that subsequently the Bank has not taken measures for recovery from the agricultural land, which was mortgaged or hypothecated with the Bank.
The submission of the learned counsel for the appellants that such question being jurisdictional in nature could only be challenged before the Civil Court and not before the Tribunal, does not have much force. The borrower has the right to file his reply to the notice and if, even after considering the reply, the Bank or Financial Institution proceeds further with regard to enforcement of security interest created in agricultural land, it is then only that the borrower would have any grievance. For such a situation, the Act provides for a remedy as such a borrower can then file an appeal under Section 17 of the Act of 2002. Prior to the same, the borrower would not have any cause of action to approach the Civil Court or otherwise.
With regard to the challenge to the classification of non-performing assets, we would not be inclined to go into such question as to whether the same would or would not be open to challenge in a suit before the Civil Court as in the facts of the present case, in support of such prayer, there were no averments made in the plaint, as no details as to why such classification of non-performing assets was bad or it violated which guidelines, has not been given in the plaint. As such, in our view, the court below was not wrong in rejecting the plaint on the ground that the averments made were vague and not substantiated.
The Act of 2002 is a complete code in itself with regard to recovery of debts due to the Banks or Financial Institutions. It provides for when the borrower would become a defaulter and how the account of such borrower is to be classified as non-performing assets. After the insertion of sub-section (3A) of Section 13 of the Act, a safeguard has been provided to the borrower as he has been given a right to file his representation or objection to the notice and if the representation or objection is not accepted by the secured creditor, the secured creditor is under an obligation to pass an order within a week of receipt of such representation or objection. As such, the stage of the appellant-plaintiffs having a grievance or cause of action to file a suit had not arrived.
We have examined the decisions relied upon by the learned counsel for the parties.
In the case of Kanaiyalal Lalchandra (supra), the Apex Court was dealing with the case where possession of secured assets were taken under Section 14 of the Act, which was held to constitute action taken after the stage of sub-section (4) of Section 13. The facts of the present case are different and as such, the ratio of this decision will not have any application to the present case.
The Supreme Court in the case of Mardia Chemicals Limited (supra) has, in paragraphs 50 and 51 of the said judgement, has held as under:-
"50. ......... A full reading of Section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debts Recovery Tribunal or an Appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say, the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be which taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, civil court will have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13. (emphasis supplied)
51. However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages........"
In paragraph 59 of the said judgement, it has been held that the right to appeal as provided under Section 17 of the Act of 2002 is a misnomer as in fact it is the initial action brought before the Tribunal raising grievance against the action taken by one of the parties to the contract. It has thus been held that remedy under Section 17 of the Act is the stage of initial proceedings like filing a suit in Civil Court and in lieu of a civil suit, which remedy is ordinarily available, but for the bar under Section 34 of the Act of 2002.
The ratio of the aforesaid judgement of the Supreme Court would thus be that the jurisdiction of the Civil Court would be barred in all such matters where cognizance can be taken by the Debt Recovery Tribunal even later on after measures are taken under Sub-section (4) of Section 13. It would thus mean that bar of Civil Courts would be there in respect of matters where any action has already been taken or to be taken in pursuance of the power conferred under this Act. In the present case, the action, which could have been taken at the stage of filing a suit, was measures under sub-section (4) of Section 13 of the Act of 2002, for which notice had been given under sub-section (2) of Section 13. As such, filing of the suit would be barred under section 34 of the Act of 2002. It is not a case where any fraud has been alleged or that the claim of the secured creditor was absurd or untenable so as to require probe by the Civil Court.
In support of his submission that the guidelines of the Reserve Bank of India are binding on the Banks, reliance has been placed by learned counsel for the appellants on the judgements in the cases of Sardar Associates (supra) and ICICI Bank Limited (supra). There is no quarrel with regard to such proposition. However, what is noticed in the present case is that though it has been mentioned in the plaint that the guidelines of Reserve Bank of India have not been followed by the respondent-Bank but no specific mention has been made as to which such provision of the guidelines has been violated by the Bank. The averments made in the plaint in this regard are thus absolutely vague.
In the case of United Bank of India vs. Satyawati Tondon (supra), the Apex Court was dealing with an interim order passed in writ jurisdiction and the present case is a case where a suit has been filed by the borrower. However, while setting aside the interim order granted by the High Court, the Apex Court has, in paragraph 36, observed that "...Normally, this Court does not interfere with the discretion exercised by the High Court to pass an interim order in a pending matter but, having carefully examined the matter, we have felt persuaded to make an exception in this case because the order under challenge has the effect of defeating the very object of the legislation enacted by Parliament for ensuring that there are no unwarranted impediments in the recovery of the debts, etc. due to banks, other financial institutions and secured creditors". The Apex Court has further, in paragraph 43, held that "...In our view, while dealing with the petitions involving challenge to the action taken for recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasi-judicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitution, a person must exhaust the remedies available under the relevant statute." In the present case, the appellant-plaintiffs have approached the Civil Court even when the remedy was available to them under the Act of 2002.
The Apex court in the case of Transcore (supra) has, in paragraph 66, held as under :
"66. We have already analysed the scheme of both the Acts. Basically, the NPA Act is enacted to enforce the interest in the financial assets which belongs to the bank/FI by virtue of the contract between the parties or by operation of common law principles or by law. The very object of Section 13 of the NPA Act is recovery by non-adjudicatory process. A secured asset under the NPA Act is an asset in which interest is created by the borrower in favour of the bank/FI and on that basis alone the NPA Act seeks to enforce the security interest by non-adjudicatory process. Essentially, the NPA Act deals with the rights of the secured creditor. The NPA Act proceeds on the basis that the debtor has failed not only to repay the debt, but he has also failed to maintain the level of margin and to maintain value of the security at a level is the other obligation of the debtor. It is this other obligation which invites applicability of the NPA Act. If is for this reason, that Section 13(1) and 13(2) of the NPA Act proceed on the basis that security interest in the bank/FI needs to be enforced expeditiously without the intervention of the court/tribunal; that liability of the borrower has accrued and on account of default in repayment, the account of the borrower in the books of the bank has become non-performing. For the above reasons, the NPA Act states that the enforcement could take place by non-adjudicatory process and that that said Act removes all fetters under the above circumstances on the rights of the secured creditor."
In the case of Sopan Sukhdeo (supra), the Supreme Court was dealing with a case relating to Order VII Rule 11 of CPC, wherein it has been held that while dealing with such provisions, what is relevant to be looked into are the averments made in the plaint. In paragraphs 12 and 15 of the said judgement, it has been held as under:-
"12. The trial Court must remember that if on a meaningful and not formal reading of the plaint it is manifestly vexatious and meritless in the sense of not disclosing a clear right to sue, it should exercise the power under Order 7 Rule 11 of the Code taking care to see that the ground mentioned therein is fulfilled. If clever drafting has created the illusion of a cause of action, it has to be nipped in the bud at the first hearing by examining the party searchingly under Order 10 of the Code.
15. There cannot be any compartmentalisation, dissection, segregation and inversions of the language of various paragraphs in the plaint. If such a course is adopted it would run counter to the cardinal canon of interpretation according to which a pleading has to be read as a whole to ascertain its true import. It is not permissible to cull out a sentence or a passage and to read it out of the context in isolation. Although it is the substance and not merely the form that has to be looked into, the pleading has to be construed as it stands without addition or subtraction or words or change of its apparent grammatical sense. The intention of the party concerned is to be gathered primarily from the tenor and terms of this pleading taken as a whole. At the same time it should be borne in mind that no pedantic approach should be adopted to defeat justice on hair-splitting technicalities." (emphasis supplied) What we find in the present case is that there were no specific pleadings in the plaint as to why the classification as non-performing assets was bad; or as to which specific guidelines of the Reserve Bank of India were not followed while considering the application of the petitioner for one time settlement. The rejection of the plaint on the ground of being vague and without material facts, cannot be faulted. The purpose of enactment of the Act of 2002 was clearly for speedy recovery of secured debts. If suits filed on vague averments are permitted to be entertained in the teeth of the specific bar provided under Section 34 of the Act of 2002, then the entire purpose of the enactment of the Act of 2002 would be defeated.
While considering an application under Order VII Rule 11 of CPC, the Courts have to take into account that cause of action is not to be considered by the relief claimed by the plaintiff, but from the pleadings in the plaint and the intention of the plaintiff. In the present case, the intention of the plaintiff-appellants is clearly to stall the proceedings initiated by the Bank for recovery of its dues. The recovery, as provided for under the Act of 2002, is to be without the intervention of the Court or Tribunal. The Act of 2002 is a special Act enacted for such purpose and is a complete code in itself. The Tribunal is clearly empowered to determine in respect of any action taken or to be taken in pursuance of the power conferred under the Act and the bar of Civil Court applies to all matters, which may be taken cognizance of by the Tribunal. If big borrowers, who have access to legal expertise, are allowed to proceed with the suits filed by them after issuance of notice under Section 13(2) of the Act of 2002 and stall the proceedings, the very purpose of the Act of 2002 would be frustrated. The questions which are raised in notice under Section 13, can be agitated by the party in its representation or objection which can be filed by it under the provisions of sub-section (3A) of Section 13. The said sub-section clearly provides for communication of the reasons for non-acceptance of representation or objection of the borrower. Thus, it is clear that the borrower has an opportunity, as he has a right to raise the objection, for which the procedure is prescribed under the Act itself. The cause of action for the borrower arises only when some action is taken against him, i.e. when measures to recover the secured debts are initiated. The present case is not one where such cause of action had arisen.
Perusal of the averments made in the plaint, as well as the prayers in the plaint, go to show that the averments are vague and not specific with regard to classification of the accounts of the plaintiff-appellants as non-performing assets or the specific provision of the Reserve Bank of India's guidelines for not accepting the proposal of one time settlement of the plaintiff-appellants. The cause of action regarding the other prayers had also not arisen at the time of filing of suit. As such, the rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure by the Trial Court is fully justified.
Even otherwise, it is admitted to the parties that after the cause of action had arisen and measure under sub-section (4) of Section 13 of the Act of 2002 have been initiated (which was after the filing of suit) and the plaintiff-appellants have already approached the Tribunal, where the matter is pending adjudication.
In view of the aforesaid, this appeal is devoid of merits and is accordingly dismissed. However, there shall be no order as to costs.
Dt: 12th April, 2012.