Appeal No. 135 of 2011 and M.A. Nos. 625, 891 of 2011 and 71 of 2012. Case: Coventry Spring & Engineering Company Ltd. Vs ARCI Ltd.. Mumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Case NumberAppeal No. 135 of 2011 and M.A. Nos. 625, 891 of 2011 and 71 of 2012
Party NameCoventry Spring & Engineering Company Ltd. Vs ARCI Ltd.
CounselFor Appellant: Umesh Shetty along with Roshan D'Souza and Sonali Bafna i/b Legal Assistance, Advocates and For Respondents: S.N. Kumar i/b Kumar & Co. and Rajesh Nagori along with Meena Kshirsagar i/b Meena Kshirsagar & Associates, Advocates
JudgesRaj Mani Chauhan, J. (Chairperson)
IssueCompanies Act, 1956 - Section 138; Securitisation and Reconstruction of Financial Assets And Enforcement Of Security Interest Act, 2002 - Sections 13(2), 13(3-A), 13(4), 14, 17, 18(1), 3, 31, 8(5)
CitationIII (2014) BC 40 (DRAT)
Judgement DateJanuary 13, 2014
CourtMumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Judgment:

Raj Mani Chauhan, J. (Chairperson)

  1. This Appeal under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act) has been directed by the original applicants (for convenience hereinafter referred to as the appellants) against the impugned judgment and order dated 3rd June, 2011 passed by Mr. Irshad Hussian, the learned Presiding Officer (learned P.O.), Debts Recovery Tribunal (DRT), Nagpur, in Transferred Securitisation Application (T.S.A.) No. 73/2010 (Securitisation Application (S.A. No. 71/2007)](Coventry Spring and Engineering Company Ltd. v. Assets Reconstruction Company (India) Ltd. (ARCIL), whereby the learned Presiding Officer has dismissed the aforesaid S.A. in the following terms:

    (1) T.S.A. No. 73/10 is dismissed.

    (2) The action of respondent No. 1 is confirmed. The action for sale of properties by respondent No. 1 in favour of respondent No. 6 is also confirmed.

    (3) Respondent No. 6 is allowed to deal with these properties and carry on its business in whatsoever manner as per their desire respondent No. 6 is declared absolute owner of these properties situated at Alampur as well as at Nagpur as respondent No. 6 had already paid sale proceeds.

    (4) All the charges and claims are satisfied by this order in favour of respondent No. 6 in respect of movable and immovable properties of Alampur Unit as well as Nagpur Unit.

    (5) LA. No. 166/11 filed by the proposed intervenor, Conventry Springs Ltd. is decided by passing separate order, whereby I.A. No. 166/11 is rejected.

    No order as to costs.

    The relevant facts giving rise to the present Appeal may be, briefly stated, as under:

    "The appellant No. 1 is a public limited company duly incorporated under the provisions of the Companies Act, 1956 (hereinafter referred to as the company) which carries on various business including that of acquiring and to start engineering workshop with the purpose of manufacturing iron steel and other metal products, specially springs of every description and sizes, jigs, tools, implements, spring doors, bed stands, etc. The company was incorporated on 16th May, 1952 at Calcutta. The company had its manufacturing units at Alampur (Howrah) situated at J.L. No. 25, in Mouza Alampur, P.S. Sankrail, District Howrah, (West Bengal) and at Nagpur situated at Unit D-2, M.I.D.C. Industrial Area, at Hinga, Nagpur (Maharashtra). The company availed various credit facilities sanctioned by the respondent No. 4, the SICOM Limited, against creation of charge over the movable and immovable properties of Nagpur unit which had got the first charge. The company further availed various credit facilities sanctioned by the respondent No. 3, the State Bank of India (SBI), against creation of charge over the movable and immovable properties of Alampur and Nagpur unit. The SBI had second charge over Nagpur property. The SICOM Ltd. later on assigned the debt of the appellant No. 1 company to the appellant No. 2, Conventry Coil-O-Matic (Haryana) Limited. The appellant No. 3, Prakashmal Bafna, the appellant No. 4, Mr. Ashokmal Bafna, the appellant No. 5, Mr. Narendramal Bafiia and the appellant No. 6, Mr. Shri Rajendra Bafna who were the directors of the appellant No. 1 stood guarantors to the credit facilities availed by the appellant No. 1 Company. Admittedly, the appellant No. 1 could not maintain its account as regular. Consequently, the respondent No. 1 classified its account as Non Performing Asset (N.P.A.) and proceeded under the SARFAESI Act to cover its dues."

  2. The Authorized Officer of the respondent No. 3, the State Bank of India, on 19th August, 2004 issued demand notice under Section 13(2) of the SARFAESI Act to the appellant No. 1 indicating outstanding dues as Rs. 5,36,96,882.76 and called upon the appellant No. 1 to pay the outstanding dues within 60 days from the date of issuance of notice. The appellant No. 1 after receiving the aforesaid notice sent its reply to the respondent No. 3 on 13th August, 2004. The respondent No. 3 again on 13th August, 2004 issued demand notice to the appellant No. 1 through its Advocates, Sandersons & Morgans, indicating outstanding dues as Rs. 5,52,70,413.76 and called upon the appellant No. 1 to pay the outstanding dues within 60 days from the issuance of the notice. The appellant No. 1 vide its letter dated 3rd September, 2004 replied to the aforesaid notice.

  3. The respondent No. 3 on 30th March, 2005 assigned the debt of the appellant No. 1 along with underlying securities in favour of the respondent No. 1, Assets Reconstruction Company India Limited (ARCIL) through the deed of assignment. The respondent No. 1 on 26th July, 2006 through its Advocate, Khaitain & Co., again issued demand notice under Section 13(2) of the SARFAESI Act to the appellant No. 1 indicating total outstanding dues as Rs. 6,96,58,955/- and called upon it to pay the outstanding dues within 60 days from the date of issuance of the notice. The appellant on 10th September, 2006 replied to the aforesaid demand notice issued by the Advocate of the respondent No. 1.

  4. The respondent No. 1 thereafter on 7th November, 2006 appointed one Mr. Dhananjay S. Achrekar as its Authorized Officer. Admittedly, the appellant Nos. 1, 3 to 6 could not pay the amount as demanded by the Advocate of the respondent No. 1 through his demand notice. The respondent No. 2, Usha Martin Finance, acting as holder of power of attorney on behalf of the respondent No. 1, on 18th December, 2006 filed an application under Section 14 of the SARFAESI Act before the District Magistrate at Howrah to take over the physical possession of the secured assets of Alampur unit and hand over the same to the Authorized Officer of the respondent No. 1. The Additional District Magistrate (Gen.), Howrah vide order dated 29th March, 2007 allowed the aforesaid application filed by the respondent No. 2. The appellant No. 1 challenged the aforesaid order passed by the Additional District Magistrate (Gen.) at Howrah by filing Writ Petition No. 8287 (W) of 2007 before the Hon'ble High Court of Calcutta. The Hon'ble Court dismissed the Writ Petition observing that the appellant may approach to the DRT for redressal of its grievances.

  5. It is undisputed that the appellant No. 1 had not paid statutory dues payable towards the Provident Fund of the employees, therefore, the respondent No. 5, the Provident Fund Commissioner, Nagpur, on 25th July, 2007 issued warrant of attachment to attach the movable and immovable properties of the appellant's unit at Nagpur. The Assistant Provident Fund Commissioner, the Recovery of Nagpur unit in pursuant to the warrant of attachment attached the immovable and movable properties of the appellant No. 1's Nagpur unit on 29th May, 2007 and prepared Panchanama and inventory of the movables attached by him. One Mr. Indranil Chatterjee, representing the respondent No. 2 (i.e. constituted attorney of the respondent No. 2) on 30th May, 2007 published advertisement in the newspaper 'Economic Times* inviting intending purchasers to purchase the assets of the appellant No. 1 on "As is where is" and "As is what is" basis. The Employees Provident Fund Organization at Kolkata on 25th July, 2007 ordered for attachment of the immovable property of the appellant No. 1's unit at Alampur.

  6. The respondent No. 2 as power of attorney holder of the respondent No. I on 25th August, 2007 took over physical possession of the Nagpur unit of the appellant No. 1 and prepared Panchanama as well as the inventory of the movables found there. He also pasted the possession notice on the building of the unit. The Authorized Officer thereafter on 29th August, 2007 took over the physical possession of Alampur unit in pursuant to the order dated 29th March, 2007 passed by the Additional District Magistrate with the cooperation of the authorized signatory of the District Magistrate. The Authorized Officer had issued sale notice to the appellant No. 1 on 30th August, 2007 as per requirement of the Rule 8(6) and the Rule 6(2) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the Rules), through Registered Post A.D. which was received by Mr. P.M. Bafna on 8th September. 2007.

  7. The appellants being aggrieved by the measures taken by the respondent No. 1 under Section 13(4) of the SARFAESI Act including demand notice issued by the advocate of the respondent No. 1 under Section 13(2) of the SARFAESI Act filed Appeal/Securitisation Application (S.A) No. 71/2007 on 8th October, 2007 under Section 17 of the SARFAESI Act in DRT-II, Mumbai.

  8. During pending aforesaid S.A., the respondent No. 1 on 23rd October, 2007 sold Alampur unit and on 24th October, 2007 sold Nagpur unit of the appellant No. 1 to the respondent No. 6 by way of private treaty. The appellant thereafter amended their S.A. challenging the validity of the sale conducted by the respondent Nos. 1 and 2 in favour of the respondent No. 6.

  9. The appellant in the aforesaid S.A. has challenged the demand notice issued by the respondent No. 1 through its Advocate under Section 13(2) of the SARFAESI Act, the measures taken by the respondent No. 1 under Section 13(4) of the SARFAESI Act including the validity of the sale, inter alia, on the following grounds:

    (i). The appellants have challenged the validity of the demand notice on the ground that the demand notice under Section 13(2) of the SARFAESI Act issued by the Advocate of the respondent No. 1 did not indicate crystallized dues. The demand notice also did not indicate when the account of the appellant No. 1 became N.P.A. in fact, the account of the appellant No. 1 had never become N.P.A., therefore, neither the State Bank of India nor its assignee, the respondent No. 1 could issue demand notice under Section 13(2) of the SARFAESI Act. The demand notice also does not contain the details of the amount payable by the borrower and the...

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