In a couple of appeals filed by the State Bank of India (SBI) before the Bombay High Court seeking the setting aside of an order dated 08-03-2023 by the Special Judge, MPID, a Division Bench of Justice A.S. Gadkari and Justice Kamal Khata set aside the impugned order while holding that there was no justification to interdict SBI’s statutory remedy.
By an application, SBI sought permission to auction and sell the duly mortgaged properties of respondent 4 under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), but the application was rejected. Hence, the present appeal was filed.
SBI sanctioned certain credit facilities to respondent 4 from time to time, for which certain documents were executed in SBI’s favour, including 8 mortgage deeds. Due to repeated defaults by respondent 4, it was classified as a Non-Performing Asset (NPA) on 27-02-2015, in accordance with the RBI Prudential Guidelines on Income Recognition and Asset Classification. Thereafter, SBI issued a Demand Notice to respondent 4 and its guarantors under Section 13(2) of the SARFAESI Act, 2002. Despite receipt of the notice, respondents 4 to 8 failed to comply with the requisitions and discharge their liabilities within the stipulated 60-day period. SBI took symbolic possession of all secured assets under Section 13(4) of the SARFAESI Act.
Respondents 4 to 8 challenged SBI’s action before the Debt Recovery Tribunal (DRT), which was dismissed on 31-01-2017. Meanwhile, respondent 1 issued a notice dated 08-08-2016 to SBI stating that the Economic Offences Wing, Mumbai, was investigating an offence in the NSEL scam under Sections 465, 467, 468, 471, 474, 477(A), 120B of the Indian Penal Code, 1860 (IPC), read with Sections 3 and 4 of the MPID Act, 1999. On 19-01-2016, respondent 3 filed an application seeking a restraint order against SBI to prevent it from taking physical possession of the properties and selling them under the SARFAESI Act.
On 16-02-2016, SBI preferred an application before the Trial Court seeking to lift the attachment and permit the sale of the mortgaged properties, formally possessed by the appellant. On 15-09-2017, the Trial Court partly allowed the application preferred by SBI and the application by respondent 3 was disposed of. The government of Maharashtra, by three notifications, provisionally attached the properties mortgaged to SBI. Despite being aware that the properties were mortgaged to SBI, respondent 2 failed to make SBI a party to its application.
After respondent 2 confirmed the attachment by an application, the Trial Court rejected SBI’s application as well as the review preferred therefrom on the ground that the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) would prevail over the SARFAESI Act.
SBI contended that the Trial Court had erred in rejecting the application and that it could not have held that Section 26-E of the SARFAESI Act was not applicable to the present case because the subject of attachment was in the nature of deposits and unrelated to taxes or debts. It was also submitted that SBI, a deemed custodian of public money, had a higher right than investors in the National Spot Exchange Ltd. (NSEL). SBI asserted that respondents 4 to 8 owed Rs. 183.38 crores to them and that non-realization of the same for such a continued period caused prejudice to SBI.
The Court questioned respondent 2 as to whether it could be seriously contended that SBI, being a nationalized bank, was not in a position to account for the monies realized upon sale of the secured assets, or that any failure to deposit at this stage would render the claims of the depositors unsecured, to which a negative response was given. The Court opined that the mere failure of SBI to deposit the amount as per the order dated 15-09-2017 could not operate to non-suit SBI or deprive it of the right to be heard.
The Court noted that the subject properties were mortgaged in favour of SBI and constituted secured assets in respect of the financial assistance extended to respondents 4 to 8. Therefore, the Court said that SBI occupied the position of a secured creditor, whose rights cannot be lightly defeated. Hence, the Court opined that SBI would be entitled to proceed against the secured assets as per the SARFAESI Act, 2002, and recover the monies.
It was held that no prejudice would be caused to any party by the said course of action because if, eventually, it is ultimately held that the sale proceeds are to be appropriated towards claims of NSEL depositors under the MPID proceedings, SBI, having unquestioned financial capacity, can be directed to account for and deposit the required amounts without delay. Therefore, the Court held that there was no justification to interdict SBI’s statutory remedy and allowed the appeal.
The Court set aside the impugned order and allowed the appeals.
Appearances:
For Appellants – Mr. Birendra Saraf (Sr. Adv), Mr. Vinayak Chitale, Mr. Om Ajay Gupte, Parinam Law Associates
For Respondents – Mrs. Leena Patil (Spl. PP), Mrs. P.P. Shinde (APP), Mr. Arvind Lakhawat, Mr. Nimeet Sharma, MZM Legal LLP
