SENTHILNATHAN V. UNION OF INDIA

WP(C)/42127/2017

AI Insights

The case involves Senthilnathan and his wife, S. Sivakami Sundari, who were guarantors for loans taken by three companies amounting to nearly Rs. 4 Crore. After defaulting, the original lender initiated proceedings under the SARFAESI Act. The loans were later taken over by Reliance Asset Reconstruction Company Ltd, which also initiated recovery proceedings. The petitioners sought to quash a notice issued under these proceedings, claiming abuse of process and lack of jurisdiction by the Chief Judicial Magistrate. The court dismissed their petition, citing binding precedents and the petitioners' failure to adhere to the terms of their financial settlement.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 722308 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 27-07-2018
• Assessment Year: misc
• Other Referred Cases: Radhakrishnan v. State of Kerala, Muhammed Ashraf v. Union of India
• Laws Referred To: SARFAESI Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MINI GOPINATH; T RAJESH; N NAGRESH
• Assessee Lawyers: SANTHAN NAIR
• Keywords: Asset Reconstruction; Jurisdiction; Loan default; One time settlement; SARFAESI Act; Writ petition
• Section: 13(2); 14

Judgement Text

" IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY, THE 27TH DAY OF JULY 2018 / 5TH SRAVANA, 1940 WP(C).No. 42127 of 2017 PETITIONERS 1 SENTHILNATHAN S/O. A.K.KATHIRESAN CHETTIAR, \"KATHIR ILLAM\" SASTHRI ROAD, VADUTHALA, KOCHI-682023 2 S.SIVAKAMI SUNDARI W/O. K.SENTHIL NATHAN \"KATHIR ILLAM\" SASTHRI ROAD, VADUTHALA, KOCHI-682023 BY ADV.SRI.SANTHAN V.NAIR RESPONDENTS 1. UNION OF INDIA REPRESENTED BY SECRETARY, MINISTRY OF FINANCE, JEEVAN DEEP BUILDING, PARLIAMENT STREET, NEW DELHI PIN-110001 2. RELIANCE ASSET RECONSTRUCTION COMPANY LTD RELIANCE CENTER, NORTH WING, 6TH FLOOR,PRABATH COLONY, SANTHA GROUP, MUMBAI, REPRESENTED BY ITS AUTHORISED OFFICER, CHIEF MANAGER R1 BY ADV. SMT.MINI GOPINATH, CGC R2 BY ADV. SRI.T.RAJESH R1 BY SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 27-07-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 42127 of 2017 (M) APPENDIX PETITIONER(S)' EXHIBITS EXHIBIT P1: TRUE COPY OF THE ORDER DATED 29.11.2014 OF THE KERALA AGRICULTURAL INCOME TAX AND SALES TAX APPELLATE TRIBUNAL, ERNAKULAM IN T.A.NO.233/2010 EXHIBIT P2: TRUE COPY OF THE FIRST LOAN STATEMENT GIVEN BY THE 2ND RESPONDENT EXHIBIT P3: TRUE COPY OF THE REVISED LOAN STATEMENT WITH INTEREST LOADED AT 13.5% EXHIBIT P4: TRUE COPY OF THE FINAL ORDER DATED 30.6.2017 OF DRT, ERNAKULAM PASSED IN SA NO.366/2017 EXHIBIT P5: TRUE COPY OF THE REPRESENTATION DATED 30.10.2017 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P6: TRUE COPY OF THE NOTICE DATED 13.12.2017 ISSUED BY THE ADVOCATE COMMISSIONER EXHIBIT P7: TRUE COPY OF THE ORDER DATED 28.11.2017 OF THE CJM COURT, ERNAKULAM IN MC NO.564/2017 EXHIBIT P8: TRUE COPY OF THE INTERIM ORDER DATED 7.12.2017 OF THE HON'BLE APEX COURT PASSED IN SLP(C) NO.5109/2016 AND SLP(C) NO.5141/2016 RESPONDENTS' EXHIBITS NIL // TRUE COPY // P.A. TO JUDGE SD DAMA SESHADRI NAIDU, J. ========================================= W.P.(C). No.42127 of 2017 ========================================= Dated this the 27th day of July, 2018 JUDGMENT The petitioners, a temple renovator and his wife, have approached this Court to have the Ext.P6 notice quashed. They allege that the Bank abused the process. Besides, they seek more time to pay off the dues. They have also sought an interim direction: staying all further proceedings under the Ext.P6 notice. 2. The petitioners' counsel submitted that the Chief Judicial Magistrate has no jurisdiction under Section 14 of the SARFAESI Act to entertain an application for possession. For this, he relied on the Supreme Court’s Ext.P8 interim order. 3. To begin with, in 2011, three companies borrowed nearly Rs.4 Crore from Lord Krishna Bank (according to the petitioner) or from Lakshmi Vilas Bank (according to the -2- W.P.(C). No.42127 of 2017 respondent bank). The petitioners offered their properties as security. On default, the original lending- bank initiated proceedings under the SARFAESI Act and issued the Section 13(2) notice. After that, the 2nd respondent, an asset re-construction company, took over the loan. 4. When the 2nd respondent company resumed the recovery proceedings, the petitioners filed S.A.No.366/2016 and invited the Ext.P4 order. In fact, as seen from the order, the petitioners withdrew all their contentions raised in the S.A., but reserved their right to approach the respondent company for a negotiated settlement, under OTS. The petitioners undertook before the DRT to pay the respondent company Rs.1 Crore in three months, to advance their proposal for OTS. The petitioners failed. 5. Later, as contended by the petitioners' counsel, the petitioners requested the company to enlarge the time. -3- W.P.(C). No.42127 of 2017 The company did not respond. Instead, it invoked Section 14 of the SARFAESI Act and filed M.C.No.564 of 2017. The Chief Judicial Magistrate appointed an Advocate Commissioner for taking physical possession of the property. In turn, the Advocate Commissioner issued the Ext.P6 notice. Assailing that notice, the petitioners have filed this Writ Petition. 6. The petitioners' counsel has strenuously contended that the Chief Judicial Magistrate, under Section 14 of the SARFAESI Act, has no jurisdiction to entertain any application. To hammer home his contentions, he has drawn my attention to the Ext.P8 order. According to the learned counsel, as the issue raises a pure question of law, and a jurisdictional one at that, all proceedings under M.C.No.564/2017 and the consequential Ext.P6 notice must be stayed—until the Supreme Court decides the issue. -4- W.P.(C). No.42127 of 2017 7. The counsel for the respondent company, on the other hand, submits that this Court, per two Division Benches, has held that the Chief Judicial Magistrate does have jurisdiction. He relies on Radhakrishnan v. State of Kerala1 and Muhammed Ashraf v. Union of India2. He also submits that the petitioners lack good faith and they have abused the process. According to him, the petitioners withdrew all their contentions and wanted to have a One Time Settlement. But they did not abide by the conditions. And again, they fell in arrears. Rather than pay off the loan, the petitioners, the counsel concludes, resorted to long-drawn litigation, on obtaining an interim stay. 8. Heard the learned counsel for the petitioner and the learned counsel for the respondent Corporation, besides perusing the record. 9. Indeed, the petitioners are the guarantors to the loan taken by three companies. They are the Directors of 1 2008(4)KLT 944 2 2008(4) KLT 1 -5- W.P.(C). No.42127 of 2017 those companies. When the outstanding amount went up to more than Rs.10 Crore, the petitioners approached the DRT and undertook to pay Rs.1 Crore, besides withdrawing all their contentions. To be precise, they undertook before the DRT to pay Rs.1 Crore in three months and then negotiate with the respondent Company for one-time settlement. They did not do that. 10. Instead, the petitioners submitted the Ext.P5 representation, seeking time till January 2018. In the meanwhile, in November 2017, the respondent company invoked Section 14 of the Act. Now, we are in July 2018. To prove their bona fides, the petitioners could have deposited, at least, some amount. But they did nothing to show their good faith. 11. The Supreme Court, in Ext.P8, held that the parties in that case did not bring up CJM’s competence to entertain an application under Section 14 of the SARFAESI Act. But -6- W.P.(C). No.42127 of 2017 it noticed the judicial cleavage on the issue. As it is a question of law, and as the jurisdictional issue requires an answer, the Court entertained the SLP. Yet the Court has not stayed the impugned judgment. The Supreme Court, in Ext.P8, observed: 12. “We may mention here that the question of competency of the Chief Judicial Magistrate to entertain the application filed under Section 14 of the Act was neither raised before the High Court nor taken in the special leave petitions but as it goes to the root of the matter being purely a question of law and jurisdiction to exercise the powers by the Chief Judicial Magistrate, we have permitted the learned counsel appearing for the parties to address the Court on this issue also. More so when the issue is sub-justice in appeal before this Court. These petitions shall not be treated as part-heard.” 13. Once a judgment remains unaffected, precedentially it binds, a pending appeal notwithstanding. Not one but two Division Bench judgments precedentially compel me to adhere to them. In Muhammad Ashraf and in Radhakrishnan, this Court has held that the Chief Judicial -7- W.P.(C). No.42127 of 2017 Magistrate has jurisdiction under Section 14. True, the issue is pending before the Supreme Court. But the Supreme Court has not interdicted the precedential efficacy of the impugned judgment, pending further adjudication. Here, I cannot violate the binding precedents. 14. Here, the petitioners have abused the process, too. First, they filed an SA, then withdrew all their contentions, took leave from the Tribunal to negotiate with the Bank. And that leave they obtained on a condition: depositing one crore rupees with the Bank within a time frame. They failed. Later, they filed this writ petition and obtained a stay on stay on 29.12.2017. On 27.04.2018, a learned Single Judge vacated the stay observing: 15. “The Interim order I granted on 29.12.2017 was intended to operate for a short period so as to enable the petitioners to seek settlement of the account. However, it is surprising that the order is still continuing to be in force. In such circumstances, I vacate the interim order dated 29.12.2017.” -8- W.P.(C). No.42127 of 2017 16. After that, on 11.05.2018, before a ‘Vacation Bench’, the petitioners once again filed a fresh I.A., and obtained another stay—of course on a condition of their depositing ten lakh rupees in a month’s time. They did not comply with that condition on time; they paid the amount beyond one month, though. The petitioners have offered an excuse for not complying with the condition on time—the 1st petitioner was arrested in a cheating case and was later released on bail. 17. Now, the petitioners' only contention is that the Chief Judicial Magistrate has no jurisdiction to act under Section 14. I have already referred to the binding precedents on that count. Under these circumstances, I see no merits in the Writ Petition. I dismiss it. Sd/- DAMA SESHADRI NAIDU JUDGE sd "