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 Counter-claim Permissible in Sec 17 - SARFAESI  Act

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Vijaya Bank versus B. L. Gupta decided on 16.03.11 by Debts Recovery Appellate Tribunal, Delhi upholding that counter-claim can be filed in the application u/s 17 of the Securitisation Act in DRT. This is validation of our contentions past nearly 10 years. The full text of the judgment is given below with important portions marked in Red. 

Comments by DRT Solutions :- Our further comments are given at the end of the judgment below. 

 

Debts Recovery Appellate Tribunal, Delhi

 

Before:

HON'BLE J.M. MALIK, CHAIRPERSON:      

Vijaya Bank...................................................................................... Appellantt

                                                        Versus

;,

B.L. Gupta & Ors........................................................................ Respondents                                                            

Misc. Appeal No. 148 of 2011, decided on 16.3.2011 

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Sections 13(4) and 17­ 

JUDGMENT

 

J. M. Malik, Chairperson.-The controversy in this appeal revolves around the question whether the respondents can file counter-claim in the proceedings under Section 17 of the SRFAESI Act. The learned Counsel for the appellant opined that the respondents cannot file counter-claim.

 

He explained that there is specific provision in the Recovery of Debts to Banks and Financial Institutions Act, 1993. The attention of the Court was invited towards Section 19, sub-sections (8) and (9) of the above said Act. It was argued that. no such provision is provided in the SRFAESI Act. He also argued that Section 17 of the SRFAESI Act deals with the measures referred to in sub-section (4) of the Section 13 of the SRFAESI Act. 

2. I see no merit in these arguments. The application under Section 17 of SRFAESI Act is to be treated as civil suit. This view finds support from the Apex Court authority reported in Mardia Chemicals Ltd. v. Union of India, 2004; (4) SCC 311 and latest authority by the Madras High Court in Misons Leather Ltd. represented by its Managing Director v. Canara Bank, represented by its Chief Manager, I (2008) BC 440 wherein it was held:

"8.     Learned Counsel appearing for, the petitioners strenuously contended that in Mardia Chemicals's case, the Supreme Court has clearly held that the proceedings under Section 17 of the Act are in lieu of Civil Suit, which remedy is already available but barred under Section 34 of the Act. Our attention was drawn to the observations in paragraphs 59, 62 and 71 of the judgment, which read as follows:

 

59.    We may like to observe that proceedings under Section 17 of the Act, in fact, are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in Civil Court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. We may refer to a decision of this Court in Ganga Bai v. Vijay Kumar where in respect of original and appellate proceedings a distinction has been drawn as follows: (SCC p. 397, para 15)

 

There is a basic distinction between} the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless the suit is barred by statute one may at one's peril, bring a suit of one's choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But, the position in regard to appeal is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute.

 

62.     As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the Court of the first instance under the Code of Civil Procedure. No doubt, in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the property before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But, for obtaining such orders a case for the same is to be made out in accordance with the relevant provisions under the law. There is no such provision under the Act.

 

71.    Arguments have been advanced as to how far principles of lender's liability are applicable. Whatever be the position, however, it cannot be denied that the financial institutions, namely, the lenders owe a. duty to act fairly and in good faith. There has to be a fair dealing between the parties and financing companies/institutions are not free to ignore performance of their part of tlte obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American Courts, in view of the facts and circumstances and the terms of the contract and other details relating to those matters, that may or may not strictly apply, nonetheless, even in absence of any such decisions or legislation, it is incumbent upon such financial institutions to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of the concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely, borrowers and assumes all drastic powers for speedier recovery of NP As. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defence deficiencies on the part of the Banks and financial institutions.'

 

10     We are afraid that the contention is totally misconceived. The provisions of Section 17 (1) of the Act provides remedy for the borrower / guarantor / mortgagor to challenge the action of the Bank under Section 13 (4) of the Act before the Debts Recovery Tribunal. The Debts Recovery Tribunal is required to decide whether the action of the Bank/ Financial Institutions, under Section 13 (4) is in accordance with the provisions of the Act and the rules framed thereunder, It is open to the borrower/guarantor /mortgagor to demonstrate before the Debts Recovery Tribunal that resort to Section 13 of the Act is not permissible by law. In a given case, the claim of the Bank/Financial Institutions may be barred by limitation or there may be cases, where the adjustment of the amount paid is not reflected in the notice or the calculation of interest may not be in accordance with the contract between the parties. Needless to say that all such grounds, which render the action of the Bank/Financial Institutions illegal can be raised in the proceedings under Section 17 of the Act before the Debts Recovery Tribunal.

 

11     Learned Additional Solicitor General and the learned Counsel appearing for Banks and financial institutions fairly stated that all the objections which can be legally raised in the reply to the notice under Section 13 (2) of the Act can also be raised in the proceedings under Section 17 (1) of the Act. It would be for the Debts Recovery Tribunal to decide in each case whether the action of the Bank is in accordance with the 'provisions of the Act and is legally sustainable."

 

3. In the light of the above discussion the petitioners/respondents can file the counter-claim I see no illegality or infirmity in the order passed by the learned Trial Court. The appeal is, therefore, dismissed in limine.

4. Copies of this order be furnished to the parties as per law and one copy be sent to the learned DRT forthwith.

Appeal dismissed in limine.

Comments by DRT Solutions :- Our comments are as under:-

(a)   Past nearly 10 years we have been telling our clients to include loss and damages (i.e. counter-claim) in their application u/s 17 of the Securitisation Act. In fact in several of the said applications drafted by us, we have done so e.g. in case of one of our clients from Bangalore in 2006.

(b)   We have voiced our contentions in our web site, DRT All India Conferences held at Indore in 2008 and 2011 as well as in our weekly mails.

(c)   In the above DRAT Delhi judgment, reference has been made to the SC Judgment of 2004 in the matter of Mardia Chemicals.

(d)   As a whole our contentions are based on the following legal analysis:-

(i)            The borrower as a citizen has fundamental rights of fair trial under the constitution of India and the said rights can not be abridged or curtailed by anybody or by any enactment including the Securitisation Act of 2002.

(ii)           Since Sec 34 of the said Securitisation Act has barred the civil court, the said rights of fair trial for the borrowers are to be ensured and assured by the DRTs.

(iii)         Since as per Mardia in 2004 and now specifically explained by the DRAT Delhi in 2011, borrower’s counter-claim has to be adjudicated upon by fair trial by the DRTs.

(iv)          The DRTs may adopt expeditious and summary process to judicial determination of the bank claims but for the counter-claim of the borrower, full and exhaustive trial has to be conducted and carried out as he was entitled in the civil court before the said bar due to Securitisation Act of 2002.

(v)           Since in most of the cases, we have found that the said loss and damages or counter-claim is much more than the claim of the bank, there is the situation of ‘No Debt Due’ and hence no recovery action on the securities can be initiated till the said ‘No Debt Due’ is judicial determined by the full and fair trial.

(vi)          On account of above, the DRT Act, Securitisation Act and DRTs have limited role or function as it would have been better to improve the civil courts as a whole instead of creating new forums like DRTs.

(vii)        W e don’t want to learn from the experience of other countries. In UK, the tribunals were introduced in 1800. It took more than 150 years to find out correct solution i.e. by Sir Frank Committee in 1957.

(viii)       As told by eminent justice Krishna Iyer that our courts are 200 years behind the courts in developed countries.. There are 73 countries whose judicial systems are betttter than us. The only and better solution is to improve the courts based on the system developed in those countries which have better judicial system.

(ix)          Since the relevant institutions like Govt, Law Commission, Bar Council of India and Law Colleges are not doing desirable work (and they will not do for obvious reasons), the public has to come forward. While litigants in civil courts can not do much, those in DRTs can do much better as the Businessmen and Industrialists as litigants are much more competent and resourceful. Till the judiciary and judicial systems are improved, we cannot have real democracy i.e. rule for public, rule by public and rule of public as against rule by Bureaucrats & Politicians, rule of Bureaucrats & Politicians and rule for Bureaucrats & Politicians.

(x)           The full and fair adjudication of claim for loss and damages or counter-claim will alone bring to light the wrong doings committed by the bureaucracy in the banks and financial institutions after which only the banks and the said institutions will improve and after that only the hold of the politicians on these institutions will come down. Thus the DRT litigants have a great responsibility and role to play.

DRT Judgments Favourable to Borrowers and Guarantors – Now Full text of such Judgments is being provided on this Web Site with Important Portions marked in Red  

vide link  DRT Judgments Favourable / Useful to Borrowers

We have been providing citations and extracts of judgments favourable / useful to Borrowers and Guarantors. Subsequently several borrowers approached us to provide the full text of the said judgments. Hence we have now started providing full texts of such judgments on our this web site itself as above. Since the advocates are quite busy in their routine work, we have marked the important portion of such judgments in Red. Thus with passage of time, a library of important judgments with full text in soft copies and important portions marked in Red is being built up on the internet at our web site. The borrowers should go through such judgments periodically and apprise their advocates. It is needless to mention that such valuable information is free of cost in the best interests of borrowers and guarantors. You may therefore spread the word among the litigant borrowers, guarantors and their advocates to visit the above link periodically. If one finds judgments useful and favourable to the borrowers and guarantors, he may mail the full text of such judgment for publication on our web site.

 

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Application of Law of Torts in claiming Damages from Municipal Corporations for demolition of structures, closure of shops etc:- In many parts of the country, the Municipal Corporations are demolishing structures like shops and houses which existed for number of years. The shops existing for number of years are proposed to be shut down. The affected persons should claim Damages under the Law of Torts, which would be substantial. It is learnt that in Delhi itself about 5 lac shops are to be closed down and about 25 lac persons would be out of jobs. All these persons should file damage suits in the civil court. Since the damages would be substantial, the suits may be filed as Indigent Persons. Since the damages would attract interest, the usual delay by the civil courts will not affect the final outcome. The affected shop owners may discuss the details with us on phone.

Our Articles for Borrowers and Guarantors:- Our articles on DRT matters have been published in the Financial Express. The All India Manufacturers Organisation in its famous web site www.aimoindia.org has reproduced copies of our four articles. These original articles can be searched in the archive of the Financial Express in its web site www.financialexpress.com Two of these articles have been reproduced in other pages of this web site. 

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About Us in Brief :-  (1) We specialize in DRT (Debt Recovery Tribunal) and NCLT (National Company Law Tribunal) matters. As a whole you may approach us for all DRT Problems and Solutions as well as matters connected with ARCIL i.e. Asset Reconstruction Company (India) Limited,  We have a Joint Venture with an America based law firm for various activities like BPO, legal BPO and DRT. The details of the said American firm and the joint venture may be seen at the page - Our US Joint Venture with Anand Ahuja Associates or in www.usindolegal.com (2) For your all problems including those in DRT, please phone us or send e-mail. Please give your contact details along with your problems in brief. As a whole you may approach us for all DRT Problems and Solutions.  (2) With our Legal Opinion, you need not worry about the Securitisation Act or other DRT matters or NCLT. Please visit the page Products & Services and Frequently Asked Questions (3) On account of our expertise in the Law of Torts and Banking and experience past 15 years, we can help you to submit suitable defence with winning strategy in DRT cases, Securitisation Act, Guarantors' defence etc.  (4) We need only copies of all available documents  to render our expert 'Legal Opinion' which will be quite useful and valuable to you particularly in DRT i.e. Debt recovery Tribunal. (5) We have also handled assignments for preparation of damage claims against Electricity Boards, Insurance Companies, Municipal Corporations etc. all on the basis of the Law of Torts.  (6) The DRT counterclaims is to be prepared well in advance so that it could be raised at proper time in DRT or other forum to safeguard the securities and assets. (7) Several DRT counterclaims drafted by us are being handled by different advocates at DRT Mumbai, DRT Delhi, DRT Jabalpur etc. Thus DRT advocates are available in these cities. Cases in other Debt Recovery Tribunals are under process. (8) This site is updated monthly mostly on every first Monday of the month or for urgent release on any day with latest material. (9) For further details about us, please visit the page About Us-DRT Solutions As a whole you may approach us for all DRT Problems and Solutions. We hail from the place to which Maharishi Mahesh Yogi and Acharya Rajnish belong and hence this site is dedicated to them.

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