CW/8167/2022 of UCHHAB KANWAR Vs AUTHORIZED OFFICER on 22 December 2022

S.B. Civil Writ Petition No. 8090/2022

Surendra Kanwar Shekhawat W/o Brijraj Singh Shekhawat,Aged About 53 Years, Resident Of C-112, Shastri Nagar,Bhilwara (Raj.).

----Petitioner

Versus

Authorized Officer, Punjab National Bank, Circle SastraCenter, First Floor, Lic Building, Sub City Center, Reti Stand,Udaipur (Raj.).

----Respondent

Connected With

S.B. Civil Writ Petition No. 8167/2022

Uchhab Kanwar W/o Bhopal Singh Shekhawat, Aged About83 Years, Resident Of 112-C/a, Shastri Nagar, Bhilwara(Raj.).

Versus

----Petitioner

Authorized Officer, Punjab National Bank, Circle ShastraCenter, First Floor, Lic Building, Sub City Center, Reti Stand,Udaipur (Raj.).

----Respondent

For Petitioner(s) : Mr. Lokesh MathurMr. Suresh KhadavMr. Naresh K. BishnoiFor Respondent(s): Mr. Dhanesh Saraswat HON'BLE MR. JUSTICE VIJAY BISHNOI

22/12/2022

Judgment / Order

These writ petitions have been filed by the petitioners beingaggrieved with the impugned notices dated 16.5.2022 issued bythe respondent-bank demanding peaceful possession of securedassets of the petitioners, which were mortgaged with therespondent-bank against a loan advanced to M/s Super ShivShakti Chemicals Private Limited, Bhilwara (for short ‘the principalborrower’).

Brief facts of the case are that the principal borrowerobtained loan from the respondent-bank and in respect of thesame, the petitioners stood as guarantors for repayment of theloan and created security interest of their residential houses infavour of the respondent-bank. When the principal borrower failedto repay the loan amount as per the terms and conditions of theloan agreement, the respondent-bank declared the debt as a Non-Performing Asset (for short ‘NPA’) on 30.3.2017 and recalled theadvance granted to the principal borrower and notices underSection 13(2) of the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 (for shortthe SARFAESI Act’) were issued to the petitioners on 5.2.2019.When the petitioners have failed to pay the dues of therespondent-bank, notices under Section 13(4) of the SARFAESIAct were issued by the respondent-bank on 15.5.2019 andsymbolic possession of the properties, description of which wasmentioned in the notices, was taken by the respondent-bank. The property in question was put to auction under Rule 8(6) of theSecurity Interest (Enforcement) Rules.

The petitioners have preferred SBCWP Nos.17345/2019 and17347/2019 before this Court claiming that without auctioning theproperty of the principal borrower, the respondent-bank isauctioning the residential properties of the petitioners. This Court,in the above-referred writ petitions, has passed order that therespondent-bank may carry out the auction proceedings of thepetitioners’ residential properties, but the same shall not befinalized with a further direction that the possession of the subjectproperties shall also not be taken from the petitioners, withoutleave of the Court. However, later on, the above referred writpetitions were withdrawn by the petitioners on 3.2.2021 withliberty to file fresh writ petition, as the respondent-bank has notconducted e-auction as per the notice issued by it.

Subsequently, the respondent-bank has filed applicationunder Section 7 of the Insolvency and Bankruptcy Code, 2016 (forshort ‘the IB Code’) before the National Company Law Trilbunal,Jaipur (for short ‘the NCLT’) for initiation of Corporate InsolvencyResolution Process (for short ‘the CIRP’) against the principalborrower. Pursuant to that, a Resolution Professional wasappointed to proceed the CIRP.

Arguments

During pendency of the insolvency proceedings against theprincipal borrower before the NCLT, the respondent-bank hasagain issued notices on 11.2.2021 whereby, the residential housesof the petitioners were put to auction. The petitioners have againpreferred SBCWP No.4070/2021 and 4092/2021 before this Courtand this Court vide order dated 5.3.2021 has interfered in the matter and while issuing notices to the respondent-bank hasordered that the respondent-bank may carry out the auctionproceedings of the petitioners’ residential properties, but the sameshall not be finalized with a further direction that the possession ofthe subject property shall also not be taken from the petitioners,without leave of the Court. On 9.3.2022, the above-referred writpetitions were dismissed as rendered infructuous by this Courtwhile granting liberty to the petitioners to avail appropriateremedy available to them under the law, if occasion so arises,probably because the auction proceedings could not take place.

After that, the respondent-bank has issued notices to the petitioners under Section 13(4) of the SARFAESI Act on16.5.2019, however, when the petitioners have failed to satisfythe liabilities, the impugned notices dated 16.5.2022 have beenissued, which are challenged by the petitioners before this Courtby way of instant writ petitions.

Learned counsel for the petitioners has argued that since theinsolvency proceedings under the IB Code are already initiatedagainst the principal borrower, the respondent-bank cannot initiateproceedings against the petitioners under the SARFAESI Act forthe purpose of recovery of the loan amount. It is submitted thatthe provisions of Part-III of the IB Code were brought into force bythe Ministry of Corporate Affairs by issuing Notification dated15.11.2019 by which on 1.12.2019, the provisions of Part-III in sofar as they relate to personal guarantors to corporate debtorscame into force and from the above provisions, it is clear that theintent of the legislature is to provide single forum remedy forrealization of dues of the creditors, which is NCLT only. Learned counsel has submitted that in view of availability of remedy ofinitiation of insolvency or bankruptcy process against guarantorbefore the NCLT, the respondent-bank could not have takenrecourse to the SARFAESI Act and, therefore, the impugnednotices dated 16.5.2022 are liable to be set aside. It is furthersubmitted that as per Section 60(2) of the IB Code, where a CIRPor liquidation proceedings of a corporate debtor are pendingbefore the NCLT, an application relating to the insolvencyresolution or liquidation or bankruptcy or a corporate guarantor orpersonal guarantor, as the case may be of such corporate debtorshall be filed before such NCLT.

Learned counsel for the petitioners has further argued thatthe respondent-bank has no authority to proceed against thepetitioners under the SARFAESI Act. It is also argued that oncethe provisions of Part-III of the IB Code have been notified andrules have been issued as regards initiation ofinsolvency/bankruptcy of the guarantor, the provisions of the IBCode take dominance over the provisions of the SARFAESI Act andby virtue of Section 238 of the IB Code, the provisions of the Codeshall have effect not withstanding anything inconsistent containedin the SARFAESI Act. It is further argued that the respondent-bankought to have approached the NCLT against the guarantors andproceedings could not have been initiated against the petitionersunder the SARFAESI Act.

On the strength of the above arguments, learned counsel forthe petitioners has prayed that the instant writ petitions may beallowed and the impugned notices dated 16.5.2022 may kindly beset aside.

On the other hand, Mr. Dhanesh Saraswat, learned counselfor the respondent-bank has vehemently submitted that the writpetitions filed by the petitioners against the impugned notices arenot maintainable in view of availability of alternate remedy tothem under the SARFAESI Act. It is argued that against theimpugned notices, the petitioners have alternate remedy of filingappeal under Section 17 of the SARFAESI Act and, therefore,these writ petitions are not maintainable. Learned counsel for therespondent-bank has placed reliance on the decision of theHon’ble Supreme Court rendered in the case of Phoenix ARCPrivate Ltd. Vs. Vishwa Bharti Vidhya Mandir and Others,reported in (2022) 5 SCC 345.

Learned counsel for the respondent-bank has also arguedthat implementation of Part-III of the IB Code will not come in theway of the respondent-bank to initiate recovery proceedingsagainst the petitioners for recovery of the loan amount. It issubmitted that Part-III of the IB Code provides a mechanism forinitiating insolvency process against the corporate debtor andcorporate guarantor and the provisions of Part-III of the IB Codewill apply where the financial/operational creditor desires to go forinsolvency of the corporate guarantor and if thefinancial/operation creditor desires not to go for insolvency of thecorporate guarantor and desires to proceed against the personalguarantor under the SARFAESI Act, it cannot be said to be illegalin any manner.

It is further submitted that the insolvency proceedings are alltogether different from the recovery proceedings and thepetitioners are trying to create confusion that insolvency and recovery proceedings are the same. It is argued that the recoveryproceedings are independent of the CIRP initiated against thecorporate debtor because the recovery proceedings initiatedagainst the corporate guarantor are under the SARFAESI Act and,therefore, it is wrong to say that since CIRP initiated against thecorporate debtor is pending, the respondent-bank cannot initiateproceedings against the corporate guarantor under the SARFAESIAct. It is further submitted that there is no bar in the IB Code forproceeding against the corporate guarantor under the SARFAESIAct.

Learned counsel has also submitted that Section 238 of theIB Code will not come into picture in any manner because there isno inconsistency between the IB Code and the SARFAESI Act.

Learned counsel has further submitted that the petitionershave not approached this Court with clean hands as every timewhenever the respondent-bank took any action against them, theyapproached this Court by way of filing writ petitions and onaccount of that, when the auction proceedings stalled, thepetitioners withdrew the writ petitions. Learned counsel for therespondent has, therefore, prayed that the writ petitions filed bythe petitioners may be dismissed with heavy cost.

Heard learned counsel for the parties and perused thematerial available on record.

The question as to whether proceedings under the SARFAESIAct can be initiated against the petitioner-corporate guarantors,when insolvency proceedings are pending against principal debtorunder the IB Code is no more res integra.

The Hon’ble Supreme Court in State Bank of India Vs. V.

Ramakrishnan and Another, reported in (2018) 17 SCC 394, while dealing with the aforesaid question extensively has held asunder :

“23. It is for this reason that Sub-section (2) of Section 60speaks of an application relating to the "bankruptcy" of apersonal guarantor of a corporate debtor and states thatany such bankruptcy proceedings shall be filed only beforethe National Company Law Tribunal. The argument of thelearned Counsel on behalf of the Respondents that"bankruptcy" would include SARFAESI proceedings must beturned down as "bankruptcy" has reference only to the twoInsolvency Acts referred to above. Thus, SARFAESIproceedings against the guarantor can continue under theSARFAESI Act.”

Relying on V. Ramakrishnan’s case (supra), again theHon’ble Supreme Court in Lalit Kumar Jain Vs. Union of India and Ors., reported in 2021 SCC Online SC 396, while takinginto consideration the fact that the provisions of Part-III of the IBCode came into force vide Notification dated 15.11.2019, has heldas under :

“123. It is clear from the above analysis thatParliamentary intent was to treat personal guarantorsdifferently from other categories of individuals. Theintimate connection between such individuals andcorporate entities to whom they stood guarantee, aswell as the possibility of two separate processes beingcarried on in different forums, with its attendantuncertain outcomes, led to carving out personalguarantors as a separate species of individuals, forwhom the Adjudicating authority was common with thecorporate debtor to whom they had stood guarantee.The fact that the process of insolvency in Part III is tobe applied to individuals, whereas the process inrelation to corporate debtors, set out in Part II is to beapplied to such corporate persons, does not lead toincongruity. On the other hand, there appear to besound reasons why the forum for adjudicating insolvency processes-the provisions of which aredisparate-is to be common, i.e. through the NCLT. Aswas emphasized during the hearing, the NCLT wouldbe able to consider the whole picture, as it were, aboutthe nature of the assets available, either during thecorporate debtor's insolvency process, or even later;this would facilitate the CoC in framing realistic plans,keeping in mind the prospect of realizing some part ofthe creditors' dues from personal guarantors………

133. It is therefore, clear that the sanction of aresolution plan and finality imparted to it by Section 31does not per se operate as a discharge of theguarantor's liability. As to the nature and extent of theliability, much would depend on the terms of theguarantee itself. However, this Court has indicated,time and again, that an involuntary act of the principaldebtor leading to loss of security, would not absolve aguarantor of its liability. In Maharashtra StateElectricity Board (supra) the liability of the guarantor(in a case where liability of the principal debtor wasdischarged under the insolvency law or the companylaw), was considered. It was held that in view of theunequivocal guarantee, such liability of the guarantorcontinues and the creditor can realize the same fromthe guarantor in view of the language of Section 128of the Contract Act as there is no discharge UnderSection 134 of that Act………

136. In view of the above discussion, it is heldthat approval of a resolution plan does not ipso factodischarge a personal guarantor (of a corporate debtor)of her or his liabilities under the contract of guarantee.As held by this Court, the release or discharge of aprincipal borrower from the debt owed by it to itscreditor, by an involuntary process, i.e. by operation oflaw, or due to liquidation or insolvency proceeding,does not absolve the surety/guarantor of his or herliability, which arises out of an independent contract.”

Thus, from the above, it is clear that when the Hon’bleSupreme Court has clearly held that approval of a resolution plandoes not ipso facto discharge a personal guarantor of her or hisliabilities under the contract of guarantee, it cannot be said that simply because insolvency proceedings against the principalborrower are pending consideration, the proceedings under theSARFAESI Act cannot be initiated against a corporate guarantor.Hence, the argument of learned counsel for the petitioners to thiseffect is rejected as merit-less.

The argument of learned counsel for the petitioners to theeffect that in view of Section 238 of the IB Code, the Code has anoverriding effect and the proceedings under the SARFAESI Actcannot be initiated, is also liable to be rejected, for the reason thatinitiation of recovery proceedings against the principal borrowerunder the IB Code and initiation of recovery proceedings under theSARFAESI Act against the corporate guarantor being distinct andseparate statutory legal remedies available to the financial oroperational creditor. Hence, there is no question of applicability ofprovisions of Section 238 of the IB Code or no question regardinginconsistency between the provisions of the IB Code or theSARFAESI Act has at all arise.

Learned counsel for the respondent-bank has rightlysubmitted that the petitioners are trying to create confusion forthe purpose of misleading this Court by equating insolvencyproceedings with recovery proceedings, though both are quitedistinct. It is, therefore, held that the proceedings under theSARFAESI Act are independent and totally for recovery of the loanamount. It is true that the corporate guarantor though related tothe debt, but it cannot be said that it is related to the insolvencyof the corporate debtor. When the dispute is not only related tothe insolvency proceedings of the corporate guarantor and purelyunder the SARFAESI Act for recovery of the loan amount, it cannot be said that the action of the respondent-bank is suffering fromany defect.

It is to be noticed that every time when the respondent-bankinitiated any action against the petitioners under the SARFAESIAct, writ petitions are being filed and stay orders are beingobtained and when the auction/recovery proceedings are started on account of the said orders, the writ petitions are beingwithdrawn. From the above fact, it is clear that the petitionershave not approached this Hon’ble Court with clean intention toevade the proceedings under the SARFAESI Act anyhow.

The Hon’ble Supreme Court from time to time has held thatthe writ under Article 226 of the Constitution of India is ordinarilynot maintainable against the proceedings under the SARFAESI Actin view of availability of statutory remedy to the aggrieved person.Reference can be placed on United Bank of India Vs.Satyawati Tandon and Ors., reproted in 2010 SCC Online SC776; Authorized Officer, State Bank of Travancore Vs.Mathew K.C., reported in 2018 SCC Online SC 55 andAgarwal Tracom Pvt. Ltd. Vs. Punjab National Bank, 2017SCC Online SC 1368.

Recently, the Hon’ble Supreme Court in Phoenix’s case(supra), where proceedings under Section 13(4) of the SARFAESIAct are under scrutiny, has held as under :

“16. Assuming that the communication dated13.08.2015 can be said to be a notice Under Section13(4) of the SARFAESI Act, in that case also, in viewof the statutory remedy available Under Section 17of the SARFAESI Act and in view of the law laid downby this Court in the cases referred to hereinabove,the writ petitions against the notice Under Section13(4) of the SARFAESI Act, in that case also, in viewof the statutory remedy available Under Section 17of the SARFAESI Act and in view of the law laid downby this Court in the cases referred to hereinabove,the writ petitions against the notice Under Section 13(4) of the SARFAESI Act was not required to beentertained by the High Court………

21. Applying the law laid down by this Court inthe case of Mathew K.C. (supra) to the facts onhand, we are of the opinion that filing of the writpetitions by the borrowers before the High CourtUnder Article 226 of the Constitution of India is anabuse of process of the Court. The writ petitionshave been filed against the proposed action to betaken Under Section 13(4). As observedhereinabove,evenassumingthatthecommunication dated 13.08.2015 was a noticeUnder Section 13(4), in that case also, in view ofthe statutory, efficacious remedy available by wayof appeal Under Section 17 of the SARFAESI Act,the High Court ought not to have entertained thewrit petitions….....”

In view of the above discussion, I do not find any merit inthese writ petitions and the same are hereby dismissed with a costof Rs.10,000/- upon each petitioner.

ms rathore

(VIJAY BISHNOI),J