The borrower who neither paid debt nor replied to notice was to be estopped from challenging the violation of Section 13(3A), rules SC

Case Details: Arce Polymers (P.) Ltd. v. Alpine Pharmaceuticals (P.) Ltd. - [2021] 133 taxmann.com 42 (SC)

Judiciary and Counsel Details

• • Sanjiv Khanna, L. Nageswara Rao and B.R. Gavai, JJ.

Facts of the Case

In the instant case, the borrower was sanctioned a working capital limit and term loan by Bank. Under terms of the loan, subject Property was mortgaged by Borrower with Bank. The borrower failed to repay the loan as per payment schedule as a result of which, loans were declared as a Non-Performing Asset.

Hence, Bank issued notice to the Borrower under Section 13(2) of the SARFAESI Act calling upon the Borrower to discharge its liability within sixty days failing which Bank would be entitled to exercise all or any of its rights under sub-section (4) to Section 13 of the SARFAESI Act.

Borrower neither made any payment nor responded by way of a reply within sixty days of notice under Section 13(2) of the SARFAESI Act.

Borrower wrote repeated request letters for restructuring of loans, which prayers were considered by Bank by giving indulgence, time, and opportunities. Bank actively considered Borrower’s request for extension of the moratorium period.

When Bank proceeded with auctions under SARFAESI Act, Borrower kept silent. As earlier auctions failed, Bank issued a notice informing Borrower about the auction to be held at a reduced reserve price. Borrower challenged actions taken by Bank after Subject Property had changed hands and third-party interests had been created.

Placing reliance on ITC Limited v. Blue Coast Hotels Limited and Others (2018) 15 SCC 99, the High Court held that compliance with Section13(3A) was mandatory and failure on the part of the Bank to respond to the representation of the borrower would vitiate the recovery proceedings. The High Court further observed that the stipulation of sixty days within which the response was demanded by the Bank was not prescribed in the provision.

The High Court held that compliance with Section 13(3A) was mandatory and failure on the part of the Bank to respond to the representation of the borrower would vitiate the recovery proceedings. The High Court further observed that the stipulation of sixty days within which the response was demanded by the Bank was not prescribed in the provision.

Relying on the decision of the Authorised Officer, Indian Overseas Bank and Another v. Ashok Saw Mill (2009) 8 SCC 366, it was held that when the Borrower challenges the measure in Section 13(4), it is open for them to also challenge the steps taken by the Bank under Section 13(2) of the Act from the date of action till the sale confirmation under Section 17 as a part of the same cause of action. Therefore, the Court held that the challenge was not barred by limitation.

The High Court also noted that the machinery and the building should have been auctioned separately by the Bank.

Supreme Court Held

On appeal, the Supreme Court observed that the entire fact of the case perspicuously reflects disingenuous conduct on part of Borrower to gain the indulgence, unfulfilled assurances, and promises and their unwillingness to pay. It was viewed that Borrower had waived and was estopped from challenging the violation of section 13(3A) of the SARFAESI Act.

The Supreme Court took note of the fact that the ITC Ltd. judgment referred to by High Court to establish violation of Section 13(3A) of the SARFAESI Act had on the facts of the case distinguished the principle to state that the creditor having given sufficient opportunity to the debtor to pay, the debtor is not entitled to the discretionary relief under Article 226 of the Constitution, which is an equitable relief.