Section 13 of the Securitisation and Reconstruction of financial assets and enforcement of Security Interest Act, 2002

Court :
SUPREME COURT OF INDIA

Brief :
Section 13 of the Securitisation and Reconstruction of financial assets and enforcement of Security Interest Act, 2002 - Enforcement of security interest - Appellant-company took credit facility from respondent-bank against mortgage of its land and building but failed to make regular re-payment of loan - Consequently, respondent issued a notice on 16-10-2004 under section 13, in reply to which appellant allegedly submitted a representation on 20-10-2004 proposing to pay dues after selling land and building, of factory - However, respondent claimed that it had not received any such representation and issued notice to take over possession of residential house of director - Against this, appellant filed writ petition which was dismissed by high court in limine - Whether on facts, respondent was within its power to take appropriate action in consonance with law - Held, yes - Whether since appellant had suppressed material facts before writ court as it had never disclosed that it had created third party’s interests in mortgaged property and had also shifted machinery and materials without informing respondent prejudicially affecting interest of respondent, high court was justified in refusing relief to appellant by dismissing writ petition in limine - held, yes Article 136, read with article 226, of the constitution of India - Special leave to appeal by Supreme Court - Whether when a party obtaining interim relief intentionally and deliberately flouts such order by not abiding terms and conditions on which such a relief was granted by court in his favour, court may refuse that party to hear him on merits - held, yes FACTS The appellant-company obtained a loan of Rs. 85 lakhs from the respondent-bank against mortgage of its land and building. However, the appellant could not make the regular re-payment of loan and, therefore, the respondent issued a show cause notice on 16-10-2004 under section 13(2). According to the appellant, it submitted a representation on 20-10-2004 proposing to pay dues of the respondent after selling the land and building of the factory. The respondent, however, denied the receipt of said representation and issued notice to take over possession of the residential house of the director. The appellant filed writ petition which was dismissed by the High in limine. In appeal to the Supreme Court, the appellant submitted that once a representation was made, it was incumbent on the respondent-bank to consider the same, to extend an opportunity to the appellant to enable it to pay-off the amount and in case of rejection of such representation, to inform the appellant about such decision by recording reasons and nothing having been done by the respondent, action of the respondent was wholly illegal, unlawful and against the provisions of the Act and it was also in violation of the law laid down by the Supreme Court in Mardia Chemicals Ltd. v. UOI [2004] 51 SCL 513. The Supreme Court granted interim stay of dispossession to appellant, subject to payment of certain amount per month. At that stage, the respondent contended that appellant had suppressed material facts and did not come with clean hands and, therefore, the Court should not hear the case on merit, and that apart from failure to pay regular instalments, it had not complied with order passed by the Supreme Court and, therefore, the High Court was justified in refusing the relief to the appellant.

Citation :
Prestige Lights Ltd. v. State Bank of India