BANK OF RAJASTHAN LTD Vs. SHOBHAGAYA STEELS LTD

JUDGEMENT

(1.) THIS writ petition has been preferred by the Bank of Rajasthan Limited (hereinafter re?ferred to as the 'bank') against the order dated 19. 4. 2007, passed by the Debt Recovery Ap?pellate Tribunal (hereinafter referred to as 'drat') in M. A. No. 191 of 2006 with further prayer to direct Debt Recovery Tribunal-II (hereinafter referred to as DRT-II Chennai, to proceed with O. A. No. 189 of 2003 as against the borrower-respondent Shobhagaya Steels Ltd.

(2.) THE case of the petitioner is that the re?spondent Shobhagaya Steels Ltd. , is a com?pany incorporated under the Companies Act, 1956, and is engaged in the manufacture of steel ingots, tor steel and CTD bars, The Bank had granted credit facility to the said respon?dent during 1994, who created equitable mort?gage of the immovable property situated at Plot Nos. B-58, B-74 and B-76, SIPCOT In?dustrial Complex, Guimmidipoondi. On the request made by the respondent-company, the facility granted was periodically enhanced by the Bank and the respondent confirmed that the equitable mortgage of the property will be continued by the Bank to secure the liabilities of the company. The mortgage was duly regis?tered with the Registrar of Companies. Since the respondent's account was overdue and was irregular, the bank called upon the respondent to regularise the account. The company having failed to take steps far regularization of the account the bank recalled the entire credit facil?ity by notice dated 22. 11. 2001 and called upon the respondent-company to deposit a sum of Rs. 890,89 lakhs in response to which the com?pany made payment of Rs. 6,50,000/- only in three instalments, the last of which was re?ceived on 18. 3. 2002. Later on, by letter dated 23. 3. 2002 of the Registrar, Board of Industrial and Financial Reconstruction (hereinafter referred to as 'bifr'), the petitioner-Bank was informed that the respondent-company was registered with the BIFR vide registration No. 134 of 2002. But, in the meantime, as the respon?dent-company's account has been classified as non-performing asset (NPA), the Bank initi?ated action against the respondent's property under Section 13 (4) of the Securitization and Reconstruction of Financial Assets and En?forcement of Security Interest Act, 2002, (hereinafter referred to as the 'sarfaesi Act' ). An application, O. A. No. 189 of 2003 was filed before the DRT-II, Chennai, under the Recovery of Debts due to Banks and Financial Institutions Act (hereinafter referred to as the 'rddb and Fl Act' against the respon?dent and the guarantors for recovery of Rs. 10,68,77,857. 12.

(3.) AFTER complying with the statutory re?quirements prescribed under Section 13 (2) of SARFAESI Act, the Bank proceeded and took physical possession of the property situated at Plot Nos. B-58, B-74 and B-76 at SIPCOT In?dustrial Complex, Gummidipoondi, under Section 13 (4) of the SARFAESI Act. Peaceful possession was handed over on 21. 12. 2003 but the respondent filed I. A. No. 546 of 2005 seeking for dismissal of O. A. No. 189 of 2003 on the ground that the said application was in contravention of Section 22 (1) of Sick Industrial Companies (Special Provisions) Act, 1985, (hereinafter referred to as 'sica, 1385' ). The Bank filed a counter affidavit contending that the reference pending before BIFR deemed to have been abated under 3rd proviso to sub-section (1) of Section 15 of SICA, 1985, in view of the fact that the Bank is the exclusive creditor having taken possession of the property under Section 13 (4) of the SARFAESI Act. Other plea were also taken. However, the DRT-II, after hearing the parties, by way of its order dated I7. 3. 2006, dis?posed of the interlocutory application and stayed the proceedings in O. A. No. 189 of 2003 against the respondent-company. Faced with the aforesaid situation, the Bank filed M. A. No. 191 of 2006 before the DRAT. During the pendency of the appeal, the Bank also published auction notice in the local newspapers setting out the terms and conditions of the sale of the respondent's property of which the Bank had taken possession under Section 13 (4) of the SARFAESI Act. The re?spondent-company filed a writ petition before this Court in W. P. No. 40069 of 2006 chal?lenging the simultaneous proceeding under the SARFAESI Act and the RDDB and FT Act and sought for stay of the proceeding. Since similar matter was pending before the Su?preme Court, this Court initially granted an order of exparte interim stay on 18. 6. 2006. However, the writ petition preferred by the re?spondent-company was finally dismissed. The respondent-company, thereafter, filed S. A. No. 132 of 2007 before the DRT-II, Chennai, challenging the proceeding under Section 13 (4) of the SARFAESI Act on the ground that the upset price fixed far the sale of the property was improper. The DRT-II granted an interim stay and directed the bank to file its counter. So far as the appeal preferred by the Bank is concerned, the DRAT, by impugned order dated 19. 4. 2007 dismissed M. A. No. 191 of 2006 on the ground that the 3rd proviso to sub-section (1) of Section 15 of SICA, 1985, was introduced by Section 41 of SARFAESI Act. And as such the benefit of amendment will enure only to the proceeding under the SARFAESI Act and cannot be relied on for the proceeding under the RDDB and FT Act. The Appellate Tribunal stayed the entire proceed?ing pending before the DRT-II, which gave rise to the present writ petition.