IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI
DATED THE 14TH JULY, 2008
PRESENT: HON’BLE MR. JUSTICE T.V. MASILAMANI
(ASA-16/2006 – DRT, Bangalore)
1. The Authorised Officer/General Manager,
Sri Basaveshwar Co-Operative Bank Ltd.,
C.T.S.No.704, 705, Raviwarpeth,
2. Sri Basaveshwar Co-Operative Bank Ltd.,
C.T.S.No.704, 705, Raviwarpeth,
By its General Manager. … Appellants.
S/o. Basavaraj Hiremath,
No.51/B, Sangameshwar Nagar,
APMC Road, Nehru Nagar,
2. Sandeep G. Palkar,
No.2696, Sector No.12,
Near Ganapathi Temple,
Near Love Dale School,
Malmaruthi Extension, Belgaum.
3. Ranjani Gundurao Palkar,
No.2696, Sector No.12,
Near Ganapathi Temple,
Near Love Dale School,
Malmaruthi Extension, Belgaum. … Respondents.
Counsel for the Appellant Bank: M/s. V. Girish Kumar, S. Shahul Hameed & J. Arun Prasad.
(Respondents remained exparte)
This appeal is preferred by the Appellant Bank challenging the impugned Order passed by the DRT, Bangalore in ASA-16/2006 on 12.2.2008.
2.The facts of the case leading to the filing of this Appeal may be set out briefly as under:
The Appellant Bank initiated the proceedings under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein after called as SARFAESI Act) against the 1st respondent and his guarantors for recovery of loan amount of Rs.4,92,000/-, availed by the 1st respondent. Consequently, auction was conducted on 10.1.2006 and the secured asset was sold on the same day to the 2nd and 3rd Respondents herein. The said sale was confirmed and sale certificate also issued by the Appellant Bank. The 1st Respondent resisted the proceedings by filing the Appeal before the DRT, Bangalore, challenging the action initiated by the Appellant Bank, on various grounds. The Appellant Bank and the auction purchasers (i.e.) the Respondents 2 and 3 herein had also filed their objections in the said proceedings. After hearing the arguments of both sides and after considering the materials placed before the Tribunal, the Ld. Presiding Officer, disposed the Appeal without costs, holding that in view of the decision rendered in “ILR 2007 KAR 4740”, the Appellant Bank are not entitled to initiate the proceedings under Sections 13(2) and 13(4) of the SARFAESI Act and the said proceedings are void.
3.Heard the learned counsel for the Appellant Bank.
4. In the above facts of the case, the points for consideration are as follows:
1. Whether the proceedings initiated by the 1st Appellant Bank herein (viz) the Authorised Officer/General Manager of Sri Basaveshwar Co-Operative Bank Ltd., is not maintainable in law?
2. Whether the impugned Order passed by the DRT, Bangalore in ASA-16/2006 dated 12.2.2008 is liable to be set aside?
5. POINT Nos.1 & 2:
It is not disputed that the Appellant Bank is a ‘Society’ registered under the Karnataka Co-Operative Societies Act, 1959, and as per the notification of the Ministry of Finance and Company Affairs, (Banking Division), New Delhi, dated 28.1.2003, it comes under the definition of ‘Co-operative Bank’ as per Clause (cci) of Section 5 of Banking Regulation Act, 1949. In the above circumstances, the Ld. Counsel for the Appellant Bank has argued, at the outset, that the respondents have no locus standi to invoke the provisions of the SARFAESI Act, 2002 so as to initiate the proceedings before the DRT and he has cited the decision rendered by the Full Bench of the Hon’ble Supreme Court in “Greater Bombay Co-operative Bank Ltd. Vs. M/s. United Yarn Tex. Pvt. Ltd. & Ors., 2007 AIR SCW 2325” and the ratio laid down in paragraphs 59, 60 and 61, read as follows:
“59. …………The meaning of ‘banking company’ must, therefore, necessarily be strictly confined to the words used in Section 5© of the BR Act. It would have been the easiest thing for Parliament to say that ‘banking company’ shall mean ‘banking company’ as defined in Section 5 © and shall include ‘co-operative bank’ as defined in Section 5 (cci) and ‘primary co-operative bank’ as defined in Section 5 (ccv). However, the Parliament did not do so. There was thus a conscious exclusion and deliberate ommission of co-operative banks from the purview of the RDB Act. The reason for excluding co-operative banks seems to be that co-operative banks have comprehensive, self-contained and less expensive remedies available to them under the State Co-operative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts.
60. The RDB Act was, therefore, designed to deal with other banks and financial institutions which had to have recourse to the time-consuming process of the Civil Courts. The Statement of Objects and Reasons, stated hereinabove refers to more than 15 lakh cases filed by public sector banks and about 304 cases filed by the financial institutions pending in various courts. The Statement of Objects and Reasons also refers to the Tiwari Committee which had expressly commented on delays in ‘civil courts’ and the Narsimhan Committee which recommended setting up of Special Tribunals.
61. Accordingly, the burden of the Civil Courts in the matter of suits by banks and financial institutions was shifted to the Debt Recovery Tribunals. The disputes between co-operative banks and their members were being taken care of by the State Co-operative Acts and they were to remain where they were. If co-operative disputes are also to go to the Debt Recovery Tribunals, then those Tribunals will be over-burdened and the whole object of speedy recovery of debts due to banks and financial institutions would be defeated. The Co-operative Societies Acts on the one hand and RDB Act on the other cannot be regarded as supplemental to each other viz., the provisions of the said Acts cannot be said to be pari material.”
6. In this connection, the ratio laid down in the said decision by the Hon’ble Supreme Court in Paragraph 88 is extracted hereunder:
“For the reasons stated above and adopting pervasive and meaningful interpretation of the provisions of the relevant Statutes and Entries 43, 44 and 45 of List I and Entry 32 of List II of the Seventh Schedule of the Constitution, we answer the Reference as under:-
“Co-operative banks” established under the Maharashtra Co-operative Societies Act, 1960 (MCS Act, 1960); the Andhra Pradesh Co-operative Societies Act, 1964 (APCS Act, 1964); and the Multi-State Co-operative Societies Act, 2002 (MSCS Act, 2002) transacting the business of banking do not fall within the meaning of “banking company” as defined in Section 5 (c)of the Banking Regulation Act, 1949 (BR Act). Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) by invoking the Doctrine of Incorporation are not applicable to the recovery of dues by the co-operatives from their members.”
7. Section 37 of the SARFAESI Act, 2002 may be usefully referred to hereunder to appreciate the position of law in proper perspective:
“The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force”.
A fair reading of the said provision of law and the principle laid down in the said decision would indicate clearly that the provisions under SARFAESI Act have to be read in addition to the provisions under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and therefore, as per the ratio of the decision cited above, it goes without saying that the Appellant Bank had no power or authority to invoke the provisions under SARFAESI Act and that the 1st respondent’s Application filed before the DRT is not maintainable in law.
8. Further, it is evident from the provisions in the Karnataka Co-operative Societies Act, 1959 (Karnataka Act 11 of 1959), that it is a self-contained enactment, which provides for recovery of the amount due from the member of the Co-operative Bank like the Appellant Bank herein. Section 2(b-1) defines “Co-operative Bank” as meaning a co-operative society which is doing the business of banking and Section 2© defines “Co-operative Society” as a society registered or deemed to be registered under this Act (Karnataka Act 11 of 1959). Section 2(f) defines a “Member” as a person admitted to membership in accordance with the said Act, the rules and the bye-laws. Sections 99 to 101 of the Karnataka Act 11 of 1959 prescribe the procedure for execution of Award, Decrees, Orders and Decisions made by the authorities empowered thereunder so as to recover the amount due under secured loan from the Member of the Bank.
9. It is relevant to note that u/s.118 (3) of the Karnataka Act 11 of 1959, no order, decision or award made under that Act shall be questioned in any Court on any ground whatsoever and the said provision of law reads as follows:
“118. Bar of jurisdiction of Courts:--(3) Save as provided in this Act, no order, decision or award made under this Act shall be questioned in any Court on any ground whatsoever.”
In this context, a fair reading of the provisions u/s.17 of SARFAESI Act, 2002 would indicate that the 1st Respondent being aggrieved by the measures taken by the Appellant Bank could have initiated the proceedings before the DRT, only if there is no bar of jurisdiction under any law for the time being in force. As has been referred to above, Section 118(3) of the Karnataka Act, 11 of 1959 clearly bars the jurisdiction of not only Courts but also Tribunals from entertaining any proceeding challenging the decision or award made by the Co-operative Society or bank, as the case may be, governed by the provisions contained thereunder. The proper remedy to the 1st respondent is that he may be initiate a proceedings before the Appellate Authority, prescribed under the Karnataka Act 11 of 1959 or else to file a Writ Petition before the High Court for quashing the impugned order passed by the Authorized Officer of the Appellant Bank and it is apparent from the records of the case that the 1st respondent had not chosen to follow either of the said courses open to him under law. Hence, this Tribunal is of the considered opinion that the proceedings initiated by the 1st respondent before the DRT, Bangalore is not maintainable in law.
10. Having regard to the facts and circumstances of the matter as narrated above in the light of the ratio laid down by the Hon’ble Supreme Court in the said decision, this Tribunal has no other option except to hold that the DRT has no jurisdiction to entertain the application filed by the 1st Respondent challenging the action taken by the Appellant Bank under the said Act and it follows necessarily that the impugned order has to be set aside and accordingly, the same is set aside.
11. For the aforesaid reasons, this appeal is allowed by setting aside the impugned order passed By the DRT, Bangalore in ASA-16/2006 on 12.2.2008 and consequently, the said application filed by the 1st Respondent is dismissed with costs. Further, the Appellant Bank is at liberty to proceed against the Respondents under the provisions of the Karnataka Co-operative Societies Act, 1959 and the Rules made thereunder. However, there will be no order as to costs in this appeal.
(Dictated to Stenographer in open court today 14th day of July, 2008 and the transcript corrected and signed by me)
[JUSTICE T.V. MASILAMANI]