Appeal No. 284 of 2009. Case: Kotak Mahindra Bank Ltd. Vs Marvel Industries Ltd. and Anr.. Mumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Case NumberAppeal No. 284 of 2009
Party NameKotak Mahindra Bank Ltd. Vs Marvel Industries Ltd. and Anr.
CounselFor Appellant: Mr. Berjis Colabawala and Mr. Madekar, i/b Madekar and Co., Advocate and For Respondents: Mr. Rishabh Shah, Ms. Jyoti Singh, holding for Mr. Avinash Singh Gautama, Advocates for the Respondent No. 1, Mr. Satish Shetye and Mr. Vinod Kothari, Advocates for the Respondent No. 2
JudgesAllah Raham, J. (Chairperson)
IssueBanking Regulation Act, 1949 - Sections 5(1), 6(1), 6(2), 8; Companies Act, 1956 - Sections 433, 434; Securitisation And Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 - Sections 13, 13(2), 13(3), 13(4), 13(9), 17, 2(r), 2(zd), 37, 41; Sick Industrial Companies (special Provisions) Act, 1985 - Sections 13(9), ...
Judgement DateJuly 07, 2010
CourtMumbai DRAT DRAT (Mumbai Debt Recovery Appellate Tribunals)

Judgment:

Allah Raham, J. (Chairperson)

1. This is an appeal against judgment and order dated 23rd September, 2009, passed by the learned Presiding Officer, DRT-II, Mumbai, whereby Securitisation Application No. 22/2009 filed by Marvel Industries Ltd. (respondent No. 1 herein) against Kotak Mahindra Bank Ltd. (appellant herein) and Asset Reconstruction (India) Ltd. (for short ARCIL) (respondent No. 2 herein), was allowed and the action by respondent No. 1 of taking symbolic possession of the secured asset on 15th April, 2009, was set aside. The appellant is an Assignee of Corporation Bank (for short CB) and South Indian Bank Ltd. (for shot SIBL) in respect of debt due and payable by the respondent No. 1 to CB and SIBL. Both, CB and SIBL have executed Deed of Assignment in favour of the appellant thereby assigning the debt to the appellant. Assignor of respondent No. 2 is ICICI.

2. It is common ground that references filed by the respondent No. 1 being Case No. 391/2000 and Case No. 20/2002 (filed before BIFR on 26th November, 2001) were pending when the appellant took measures under the provisions of Sec. 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SRFAESI Act).

3. The applicant (Marvel Industries Ltd.) has pleaded that the assignment by CD and SIBL in favour of the appellant herein was not legal since one bank cannot assign its debts to another bank in terms of the Banking Regulation Act, 1949. Moreover, even if for the sake of arguments the assignment of debt is considered to be permissible under law, this assignment of a debt could not, by any stretch of imagination, entitle the assignee bank to come within the definition of secured creditor under the SRFAESI Act since the assignee bank is neither 'originator' as defined in Sec. 2(r) of the SRFAESI Act nor is a secured creditor under Sec. 2(zd) of the SRFAESI Act.

4. The appellant herein, it has been pleaded, wrongly issued notice under Sec. 13(2) of the SRFAESI Act on 3rd October, 2008, demanding a sum of Rs. 17,04,00,000/- together with further interest from 1st August, 2005, till actual payment in respect of debt assigned to the appellant by Central Bank and an alleged amount of Rs. 7,07,98,307/- together with further interest from 1st November, 2003, till actual payment in respect of debt assigned to the appellant by SIBL within a stipulated period of 60 days from the date of said notice failing which the appellant would exercise its rights under Sec. 13(4) of the SRFAESI Act in respect of current assets hypothecated by the respondent No. 1 herein and the immovable properties mortgaged by respondent No. 1. The notice is illegal and has been issued in derogation of the provisions of the SRFAESI Act. The alleged consolidated demand without giving facility-wise bifurcation of the principal amount, interest and rate of interest etc. is contrary to Sec. 13(3) of the SRFAESI Act. The appellant also failed to mention about the consent under Sec. 13(9) of the SRFAESI Act of the secured creditors, if any obtained by the appellant. Notice dated 3rd October, 2008, is ex-facie illegal as the same has not been issued in strict compliance of the SRFAESI Act as it was also sought to be treated as notice under Secs. 433 and 434 of the Companies Act, which is altogether a separate and distinct remedy and cannot be clubbed with the remedy available to the secured creditor under the SRFAESI Act. No permission from the BIFR under Sec. 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as SICA) was sought before initiating the process under the SRFAESI Act. It was also pleaded that appellant's action is in contravention of the provisions contained in Sec. 13(9) of the SRFAESI Act. There was no consent for action under the SRFAESI Act of the secured creditors not less than 3/4th of the value of the amount outstanding. The respondent No. 2 held 48% stake of the said amount as on 30th Mach, 2009. In view of the settlement, consent given by the respondent No. 2 to SICOM for an action under the SRFAESI Act is sought to be withdrawn. In result, the remaining two secured creditors (appellant and SICOM) amongst themselves are less than 75%. The appellant had also given consent to SICOM for action under the SRFAESI Act and, therefore, could not proceed to take action under the SRFAESI Act. In any case there was no consent of other secured creditor (SICOM) for action under 13(4) of the SRFAESI Act.

5. The appellant herein filed affidavit of Mr. Charudatta Khona, Executive Vice-President, in reply. It has been stated in the reply affidavit that there were several meetings between the three creditors of respondent No. 1 herein. In meeting held on 1st October, 2008, all the three secured creditors agreed to take steps against the respondent No. 1 herein under Sec. 13(4) of the SRFAESI Act and authorized SICOM who had already issued notice under Sec. 13(2) of the SRFAESI Act to take action. The appellant herein issued notice under Sec. 13(2) of the SRFAESI Act on 3rd October, 2008, calling upon the respondent No. 1 herein to make payment. Despite all the secured creditors having agreed and consented to take action under Sec. 13(4) of the SRFAESI Act and authorizing SICOM to do the needful on behalf of all the secured creditors, SICOM did not take necessary steps for a long time. The appellant, therefore, requested other secured creditors that it would proceed to take possession of the secured assets on failure of SICOM to do so. A meeting between secured creditors was held on 6th March, 2009, in which it was agreed that SICOM would immediately take possession of the property and also issue notice dated 12th Mach, 2009, to the applicant but failed to actually take possession. The appellant, therefore, visited the factory premises on 15th April, 2009, and took symbolic possession. Possession notice was published in daily local newspapers viz. Deshdoot and Gawkari on 16th April, 2009.

6. The appellant has further contended that respondent No. 2 has colluded with the respondent No. 1 herein inasmuch as it posted letter on 13th April 2009 purportedly dated 31st March, 2009, which was received by the appellant on 17th April, 2009, informing that its claim against the applicant has stood settled. It was only by subsequent letter dated 20th April 2009 that the respondent No. 2 informed that it is withdrawing its consent given under Sec. 13(9) of the SRFAESI Act. It is the contention of the appellant that withdrawal of the consent is of no consequence as (a) the appellant had already taken possession, (b) the respondent No. 2 had no substantive say after it got major part of the settlement amount. It is the further contention of the appellant that pending reference before BIFR automatically stood abated on taking possession under Sec. 13(4) SRFAESI Act.

7. Respondent No. 2 also filed its reply and has supported respondent No. 1 herein.

8. It was argued on behalf of respondent No. 1 herein that the assignment by CB and SIBL in favour of the respondent No. 1 is not legally permissible on the ground that the provisions of the SRFAESI Act do not contemplate assignment by one bank to another bank. However, this contention was refuted with the help of RBI Guidelines dated 13th July, 2005, on purchase/sale on Non-Performing Assets (NPA) by one bank to other bank/F.Is./N.B.F.Cs. (excluding Securitisation Companies/Reconstruction Companies). The Presiding Officer accepted the...

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