THE MORATORIUM UNDER BANKRUPTCY CODE NOT A BAR ON SARFAESI ACTION AGAINST GUARANTOR’S PROPERTIES

The Insolvency and Bankruptcy Code, 2016 (IBC) has been introduced to yield faster results in the recovery of Corporate NPAs. The erstwhile SICA, was enacted to address the corporate debts and to facilitate faster recovery, rehabilitation and revival of the sick company. Contrary to this legislative intention to revive the sick companies, the provisions of SICA were used by the Corporate Debtors to weave a protective cocoon around themselves under BIFR. Thus once a company entered into BIFR, nobody could recover money from them. The need for a new legal system was necessitated by such inbuilt provisions of SICA which helped the Corporate Defaulters to thwart and delay the recovery process by the financial creditors.

 The IBC also stipulates for a moratorium period from the date of commencement of the Insolvency proceedings until the approval of a resolution plan under Section 31 of the Code. Unlike SICA , under the provisions of the new Code if at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under Section 31(1) or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. Further the IBC has restricted the insolvency resolution process period to 180 days, beginning from the insolvency commencement date and ending on One Hundred and Eightieth day.

The Supreme Court in Innoventive Industries Ltd v. ICICI Bank Ltd (2017) had observed that the intent behind the moratorium was “to provide the debtors a breathing spell in which he is to seek to reorganize his business.” Section 14 (1) (c) of the IBC prohibits any action to foreclose, recover or enforce any security interest, created by the corporate debtor in respect of its property including any action under the SARFAESI Act during the moratorium period. The view of the Apex Court that this provision intends to give a “breathing spell” to corporate debtor raises a question as to whether the same breathing space was intended to be extended to the promoters and guarantors to the corporate debtor also. The question as to whether this moratorium envisaged under IBC shall give protection to the promoters/guarantors, whose personal properties have been mortgaged for securing the credit facilities availed by the Corporate Debtor, was not answered till the NCLAT decision in Alpha & Omega Diagnostics India Ltd v Asset Reconstruction Company of India Ltd.  

Without bothering to read between the lines to give a broader scope to the provision, the Appellate Tribunal had concurred with the view of the NCLT which had adopted the canons of literal interpretation in understanding the scope of the provision. The Tribunal pointed out that the language of the sub section is clearly prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of "its" property. It was held that the term “its” used in the language of Section 14 (1) (c) denotes the property owned by the Corporate Debtor, which is reflected in the balance sheet of the Corporate Debtor. The Tribunal had concluded that such properties which are not owned by the Corporate Debtor do not fall within the ambit of the Moratorium declared under the Code. The Appellate tribunal had further clarified that just by the mere fact that the assets, movable or immovable, of a third party (i.e., promoter or a guarantor) have been proceeded against before the Debt Recovery Tribunal, does not qualify to bring it within the scope of Moratorium envisaged under the Code.

From the language of this decision it becomes very clear that there is no bar for financial creditors/banks to proceed against the Guarantor/s or to initiate SARFAESI proceedings against the properties in the personal name of the promoters/guarantors which have been offered as a security for the credit facilities availed by a corporate debtor. 

COMPETENCY OF A POWER OF ATTORNEY HOLDER TO FILE AN APPLICATION UNDER INSOLVENCY & BANKRUPTCY CODE, 2016

In general all the Banks are in a practice of authorising its officers under a power of attorney document to initiate or defend any legal proceedings by or against the Bank in any court of law. In M/s. Palogix Infrastructure Pvt Ltd. Vs. ICICI Bank a question was raised before the NCLAT as to whether a Constituted Attorney authorised, prior to the enactment of Insolvency and Bankruptcy Code 2016, to file suits and/or proceedings against the company for recovery of the amount can file application for initiation of corporate insolvency process under Section 7 of the Insolvency and Bankruptcy Code (IBC) 2016 without having specifically authorized to lodge Application/Petition under IBC 2016.

Rule 23 (1) of NCLT Rules permits an ‘authorised representative’, to present an application or petition before the Tribunal. The issue which was debated in the case in hand was whether a power of attorney holder who was given power of attorney prior to the enactment of IBC 2016 can be treated as an ‘authorised representative’ under the NCLT Rules.

It was argued by the Corporate Debtor that a Power of Attorney is an authorization by a 'principal' to its 'agent' to do an act and that such authorisation can only be of acts which are in the contemplation and knowledge of the 'principal' as on the date when such authorisation is given. If the 'principal' itself is unaware of an eventuality, it cannot authorize its agent for such eventuality. This is more so when IBC sets in motion a very serious and irreversible process, therefore, according to the Corporate Debtor, the procedural pre-requisites under the IBC must be strictly construed.

The NCLAT, while determining the question of competency of a Power of Attorney holder, observed that as per Section 7 of the IBC, an application for initiation of 'Corporate Insolvency Resolution Process' requires to be filed by 'Financial Creditor' itself and that the IBC and the Adjudicating Authority Rules recognize that a 'Financial Creditor' being a juristic person can only act through an "Authorised Representative".

To understand the issue in full NCLAT had made a reference to the provisions of the Power of Attorney Act, 1882 related to the execution of a power of attorney and the decision of Hon’ble Supreme Court in  T C Mathai & Anr v District and Sessions Judge, Thiruvananthapuram, [(1999) 3 SCC 614]. In this case the Hon'ble Supreme Court had held that "Section 2 of the Power of Attorney Act, 1882 cannot override the specific provision of a statute which requires that a particular act should be done by a party in person.” In the light of this dicta and the view of the Apex Court expressed in  M/s Innoventive Industries Ltd v ICICI Bank & Anr  that the Insolvency and Bankruptcy Code 2016 is an exhaustive code on the subject matter of insolvency in relation to corporate entities, it was held by NCLAT that a 'Power of Attorney Holder' is not competent to file an application under Section 7 or Section 9 or Section 10 of IBC on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'.

However NCLAT made it unambiguously clear that this general view cannot be adopted in the case of an officer of a ‘Financial Creditor’ Bank who has been delegated powers under a power of Attorney by the Board of Directors of the Bank. It was pointed out by NCLAT that if general authorisation is made by any 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant' in favour of its officers to do needful in legal proceedings by and against the 'Financial Creditor'/'Operational Creditor'/'Corporate Applicant', mere use of word 'Power of Attorney' while delegating such power will not take away the authority of such officer and for all purposes it is to be treated as an 'authorization' by the 'Financial Creditor'/'Operational Creditor'/'Corporate Applicant' in favour of its officer, which can be delegated even by designation. In such case, officer delegated with power can claim to be the 'Authorized Representative' for the purpose of filing any application under section 7 or Section 9 or Section 10 of IBC.

Further as it was clarified by NCLAT that while computing the 7 days period stipulated therein under Section 7 (5) of the IBC for rectifying the defects in the Application, apart from the date of receipt of the order for removal of defects, the holidays such as Saturdays, Sundays and other holidays of the Tribunal to be excluded. 

RENTING OUT OF COMMERCIAL PROPERTY - SERVICE TAX LIABILITY

The question as to upon whom the onus to pay service tax in the matter of renting out of commercial property was discussed in detail by Hon’ble Supreme Court in its recent judgement in Union of India & Ors. V. Bengal Shrachi Housing Development Limited & Anr. The judgement continues to be relevant in the GST era also as renting out of commercial property is subject to GST.

In the case in hand Indian Coast Guard had taken the premises owned by the Respondent on Lease and a lease deed was entered upon by the parties. Under clause 6 of the Lease Deed it was mentioned,  

“The lessor / lessors shall pay all rates, taxes, assessment, charges and other outgoings whatsoever of every description which under the statutes are primarily leviable upon the lessor and shall keep the premises free from all encumbrances and interference in this behalf. Rates and taxes primarily leviable upon the occupier shall be paid by the Government.”

Since disputes and differences arose between the parties as to who was liable to pay service tax for the aforesaid commercial premises the matter was challenged in the High Court and it came to Supreme Court in appeal to the decisions of the High Court.

Who is liable to bear the burden of service tax in the matter of renting out of commercial premises?

It was pointed out by the court in the earlier portion of its judgement that, by virtue of Rule 2(1)(d) of the Service Tax Rules R/w Section 68 of the Finance Act, it is the provider of the service alone who is liable for paying service tax. The question primarily before the Court was as to on whom the service tax was to be primarily leviable upon.

While answering this question the Apex Court had observed that service tax being an indirect tax, can be passed on by the service provider to the recipient of service and it shall depend upon the taxable event and taxable person. The Court pointed out that in the case in hand the “taxable event” is the service of renting out immovable property and “taxable person” is the person liable to pay the tax, namely the lessor.

It was observed by the Court that the expression ‘levy’ will include assessment also. The Court pointed out that the levy is always based on the specific aspect which ought to be taxed and not based on the assessment of any individual. In the case in hand the expression “primarily leviable” is used in relation to a person and not an activity and hence it refers to the assessee upon whom the assessment is made under the Act. Thus the Court construed that the person liable to pay the tax is the Assessee under the Act, who is the service provider and not the recipient of service.

However if the Lease Deed for renting out the premises contains an undertaking by any of the parties to the agreement, contrary to the liability imposed under the Act, the Court seems to have a different view. Mentioning the decision of High Court of Delhi in, Satya Developers P Ltd v Pearey lal Bhawan Association[1], it was pointed out that a contract has to be construed by looking at the document as a whole and the meaning of the document has to be what the parties intended to give to the document keeping the background in mind and conclusion that flouts business commonsense must yield unless expressly stated. It was observed by the Court that since payment of service tax was not contemplated by the parties and it was agreed that the lessor shall continue to pay taxes, it was evident that the parties contemplated only existing taxes and not taxes which may arise in the future. Based on the Sanction Letter of DIG Coast Guard which specifically stated that all the registration charges, stamp duty, service taxes etc will be the liability of the Lessee, the Court upheld the Single Bench Decision of the High Court that lessee should be made to pay service tax.

From the rationale of this decision it may be presumed that if a lease deed categorically requires the Lessee to pay the service tax and there is no ambiguity as to the intention of parties, then the Lessee will have to bear the burden of service tax even though the provisions of the Finance Tax imposes the liability on the Lessor, i.e., the service provider.

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[1] (2015) 225 DLT 377

GST CORNER – A READY RECKONER TO GST STATUTES INCLUDING SGSTS’

From midnight of 1^st July, India has adopted the GST regime. All States and Union Territories (UTs), except Jammu & Kashmir, have passed the State GST Acts. The States of Kerala and West Bengal have promulgated Ordinances to approve the SGST Act, while all other states and UTs have passed it in their respective legislative assemblies.

Given the special status under the Constitution, J&K needs to ratify all GST-related laws in its Assembly, unlike other states which had to pass only State GST Acts.

GST ACTS

1.  CGST Act, 2017

2.  IGST Act, 2017

3.  UTGST Act, 2017

4.  STATE GST Acts:-

ANDHRA PRADESH	KARNATAKA	SIKKIM
ARUNACHAL PRADESH	KERALA	TAMIL NADU
ASSAM	MADHYA PRADESH	TELANGANA
BIHAR	MAHARASHTRA	TRIPURA
CHHATISGARH	MANIPUR	UTTARAKHAND
DELHI	MEGHALAYA	UTTAR PRADESH
GOA	MIZORAM	WEST BENGAL
GUJARAT	NAGALAND
HARYANA	ODISHA
HIMACHAL PRADESH	PUDUCHERRY
JAMMU & KASHMIR	PUNJAB
JHARKHAND	RAJASTHAN

Banking Ombudsman Scheme Amended

The Reserve Bank of India has, vide its Notification dated 16.06.2017,  modified and widened the ambit of the Banking Ombudsman Scheme 2006. The Scheme has been modified to cover the new areas of Banking business including Bancassuarance, third party products, and has modified the existing provisions related to Card operations and electronic banking.
Under the modified scheme the deficiencies arising out of sale of insurance/ mutual fund/ other third party investment products by banks have been brought under the ambit of the Banking ombudsman.  RBI has modified and widened the deficiencies related to the Card Operations including non adherence of RBI guidelines related to Debit Card/ATM, Prepaid Card operations, Credit Cards etc under the Banking Ombudsman’s Jurisdiction. Under the modified Scheme the new/modified clauses (8) (l), (m) and (n)  has been inserted and the existing clauses (m) and (n) has been renumbered as (o), (p) (r) and likewise.  Further expanding the scope of the Banking Ombudsman Scheme, in view of the wide scale digitalisation, the customer would be now able to lodge a complaint against the bank for its non-adherence to RBI instructions with regard to Mobile Banking/ Electronic Banking services in India.
Under the original Ombudsman Scheme the pecuniary jurisdiction related to the Awards of the Banking Ombudsman was limited to Rs.10 Lakhs. Presently under the modified scheme the same has been increased to Rs. 20 Lakhs (Two Million). The existing power of the Ombudsman to award compensation of Rs. 1 Lakh taking into account the loss of the complainant's time, expenses incurred by the complainant, harassment and mental anguish suffered by the complainant which was limited only to the credit card related complaints has been extended to all the type of complaints.

The procedure for complaints settled by agreement under the Scheme has also been revised. Appeal has now been allowed for the complaints closed under Clause 13 (c) of the existing Scheme relating to rejection which was not available earlier.
The amended Scheme shall come into force from July 1, 2017. The modified Scheme is available here.

__________________
Modified Para. 8 Clauses:-

(l). non-adherence to the instructions of Reserve Bank on ATM /Debit Card and Prepaid Card operations in India by the bank or its subsidiaries on any of the following:
i. Account debited but cash not dispensed by ATMs
ii. Account debited more than once for one withdrawal in ATMs or for POS transaction
iii. Less/Excess amount of cash dispensed by ATMs
iv. Debit in account without use of the card or details of the card
v. Use of stolen/cloned cards
vi. Others
(m). non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on credit card operations on any of the following:
i. Unsolicited calls for Add-on Cards, insurance for cards etc.
ii. Charging of Annual Fees on Cards issued free for life
iii. Wrong Billing/Wrong Debits
iv. Threatening calls/ inappropriate approach of recovery by recovery agents including non-observance of Reserve Bank guidelines on engagement of recovery agents
v. Wrong reporting of credit information to Credit Information Bureau
vi. Delay or failure to review and correct the credit status on account of wrongly reported credit information to Credit Information Bureau.
vii. Others
(n). non-adherence to the instructions of Reserve Bank with regard to Mobile Banking / Electronic Banking service in India by the bank on any of the following:
i. delay or failure to effect online payment / Fund Transfer,
ii. unauthorized electronic payment / Fund Transfer 

MCA RELXES THE NORMS OF TRANSIT FROM SICA TO INSOLVENCY CODE

The Ministry of Finance had, vide its notification S.O.3568(E) and S.O.3569(E) brought into force the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 w.e.f. 01.12.2016. Under the Eighth Schedule of the Insolvency and Bankruptcy Code, 2016, the Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act was amended whereby any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) shall stand abated. Further, it was provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make a reference to the National Company Law Tribunal under the Code within one hundred and eighty days from the date of commencement of the Code.
Considering the difficulties arisen regarding review or monitoring of the schemes sanctioned under sub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the SICA in view of the repeal of the SICA, substitution of clause (b) of section 4 of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 and omission of sections 253 to 269 of the Companies Act, 2013, the Ministry of Commercial Affairs has presently made certain modifications in this regards vide its Order S.O. 1683(E) dated 24.05.2017.
Under the Order two new provisos have been inserted  in the Insolvency and Bankruptcy Code, 2016, in the Eighth Schedule, relating to amendment to the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, in section 4, in clause (b), after the second proviso. It provides that any scheme sanctioned under sub-section (4) or any scheme under implementation under sub-section (12) of section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall be deemed to be an approved resolution plan under sub-section (1) of section 31 of the Insolvency and Bankruptcy Code, 2016 and the same shall be dealt with, in accordance with the provisions of Part II of the said Code. Further the statutory period within which an appeal was allowed under the Sick Industrial Companies (Special Provisions) Act, 1985 against an order of the Board had not expired as on the date of notification of this Act, an appeal against any such deemed approved resolution plan may be preferred by any person before National Company Law Appellate Tribunal within ninety days from the date of publication of this order.

SALE NOTICE TO BORROWER AND PUBLICATION OF SALE NOTICE UNDER SARFAESI CAN BE DONE SIMULTANEOUSLY - SUPREME COURT

 A few months back, Rule 8 (6) of the Security Interest (Enforcement) Rules 2002 was given an entirely new interpretation by the Hon’ble High Court of Hyderabad. The High Court had held that Rule 8 (6) read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 (for short ‘the said Rules’) mandates the secured creditor to put the borrower on a separate individual notice prior to deciding on the mode of sale of the secured asset before the public notice fixing the date of auction/sale was issued. It was observed by the Hon’ble Court that such notice should be in addition to the notice of 30 days duration to be given by the secured creditor conveying its intention to put the secured asset on sale, which is mandatory under the Sub Rule 6 of Rule 8. It thus mandated that the Authorised Officer has to first issue a 30 days Notice to the Borrower notifying him the intention of the secured creditor to liquidate his mortgaged assets. If the Borrower fails to repay the liability within this period, then only the Authorised Officer is permitted to issue the public notice regarding the intention to sell the secured asset under the Sub Rule 6 of Rule 8.
Justifying its stance the High Court had observed that putting the Borrower on notice, threatening him with the prospects of liquidation of assets, shall enhance the efficacy of realizing/securitizing the secured assets and that abstaining from issuing such notice shall sub-serve the object behind Section 13 (8) of the SARFAESI Act.
This Ruling was heavily blow to the Banks who were already ailing from their huge NPA burden as the view held by the High Court required them to give an additional 30 days notice period to the Borrower apart from the Statutory notice period of 30 days for the Sale of the property stipulated by Rule 8 (6). Canara Bank who was on the receiving end of the Judgement had preferred an appeal before the Supreme Court against this view held by the High Court.
While deciding the matter in Canara Bank v M Amarender Reddy (AIR 2017 SC 1441; MANU/SC/0271/2017) the Hon’ble Apex Court made a detailed analysis of the process of issuing the Sale Notice stipulated under the Security Interest (Enforcement) Rules, 2002. The Court held that the stipulation of the notice of intention of sale required to be given to the borrower in terms of Rule 9(1) read with Rule 8(6) of the said Rules, is to give intimation to the borrower about the proposed date of sale to be held after the statutory period of thirty days. However, there is nothing in the Rules, either express or implied, to take the view that a public notice under sub-rule 6 of Rule 8 must be issued only after the expiry of 30 days from issuance of individual notice by the authorized officer to the borrower about the intention to sell the immovable secured asset.
The Court pointed out that the High Court has committed a manifest error in assuming that the notice of intention of sale to be given to the borrower and a public notice for sale cannot be simultaneously issued. The Apex Court expressly held that there is no need to wait for the expiry of 30 days from issuance of notice of intention to sell the secured asset given to the borrower, for publication of a public notice for sale of such asset and that it is permissible to simultaneously issue notice to the borrower about the intention to sell the secured assets and also to issue a public notice for sale of such secured asset by inviting tenders from the public or by holding public auction.

Banking Regulation (Amendment) Ordinance 2017 Notified

  The Central Government has, on 04.05.2017 come out with the Banking Regulation (Amendment) Ordinance, 2017, giving more powers to the Reserve Bank of India (RBI) to deal with non-performing assets. According to the present Ordinance, RBI can effectively ask banks to sit down with defaulters and reach a settlement as part of the package, aimed at accelerating a resolution of the Rs9.64 trillion in bad loans choking the banking system. The NPA problem is, to a large extent, confined to 50 large loan defaulters.

Under the Ordinance.,

1) The government may authorise the Reserve Bank of India (RBI) to issue directions to banks to initiate insolvency proceedings against defaulters under the bankruptcy code.

2) RBI on its own accord can issue directions to banks for resolution of stressed assets.

3) RBI may form committees with members it can choose to appoint to advise banks on resolution of stressed assets.

DRT is having the power to withdraw or cancel Recovery Certificate suo moto - Madras High Court

While deciding B Rajarajeshwari v The Presiding officer & Ors, it has been held by Madras High Court that under Section 26 of the RDDBFI Act, 1993, the Presiding Officer of DRT has been vested with the power to withdraw or cancel a Recovery Certificate after its issuance, either on application by the defendant or suo moto, to rectify any errors in the same including arithmetic or clerical errors. 

The Appellant in this Writ Petition had originally availed credit facilities from Tamil Nadu Mercantile Bank. Owing to non repayment of the dues the account was classified as NPA and the Bank had initiated recovery proceedings under SARFAESI Act. Under the SARFAESI appeals filed by the Appellant before the DRT Madurai conditional injunctions were issued wherein under the Appellant was directed to deposit Rs.16 Lakhs, which she had complied with.

The Bank had filed an Original Application before the DRT-II Chennai for recovery of the loan dues and DRT had issued a Recovery Certificate for the entire loan dues claimed by the Bank. While issuing this Final Order and the Recovery Certificate, the deposits made by the Appellant as per the orders of DRT Madurai in the SARFAESI Applications were not taken into consideration and orders were issued for the entire suit amount.

Aggrieved by this decision the Appellant had preferred an application before the DRT II Chennai for withdrawal of the Recovery Certificate on the ground that the deposits made by her have not been taken into consideration. The Tribunal rejected her application on the ground that once the Recovery Certificate has been issued it cannot be recalled. The present Writ was filed against this Order.

While deciding the matter, the Hon’ble High Court made an in depth analysis of Section 26[1] of the Recovery of Debts due to Banks and Financial Institutions Act, 1993. The High Court held that Section 26 was incorporated by the legislature for giving an opportunity to the defendant to approach the Presiding Officer to rectify any mistakes, including any clerical or arithmetic mistake, crept in while issuing a recovery certificate, which had escaped the notice of the Presiding Officer. The Court also examined the prospects as to  whether the powers conferred upon the Presiding Officer under the Section was limited only to the rectification of clerical or arithmetic errors or whether this was only illustrative.

While answering this question the Court pointed out that in Section 26 (2) of the Act the word "or" is used twice - "withdraw the certificate or correct any clerical or arithmetical mistake". While issuing a Recovery Certificate there could be a clerical error and there is also a possibility of an arithmetical error. Court held that if the section is read as a whole, there is no reason to read the word "or" as "and", that only on the happening of both, a recovery certificate could be corrected by the Presiding Officer. It was held that even though it has not been specifically mentioned under S. 26 (2) the circumstances under which a recovery certificate could be withdrawn, a bare reading of Section 26(2) of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993, makes it clear that power is conferred on the presiding officer to withdraw a certificate or correct any clerical or arithmetical error.

Court pointed out that clauses 3 and 4 of Section 27[2] of the Act were also providing for the amendment or withdrawal of the Recovery Certificate by the Presiding officer in instances where the outstanding demand is reduced or amended in appeal, on an application made by the defendant.

From the language of both these sections and from the ratios put forth by other Courts in similar matters the High Court held that the Act is unambiguously conferring powers upon the Presiding Officer to withdraw or cancel the Recovery Certificate either Suo Moto or on application by a Party and is not limited to correct or rectify the arithmetical or clerical error.

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[1] Section 26. Validity of certificate and amendment thereof:

(1) It shall not be open to the defendant to dispute before the Recovery Officer the correctness of the amount specified in the certificate, and no objection to the certificate on any other ground shall also be entertained by the Recovery Officer.

(2) Notwithstanding the issue of a certificate to a Recovery Officer, the Presiding Officer shall have power to withdraw the certificate or correct any clerical or arithmetical mistake in the certificate by sending intimation to the Recovery Officer.

(3) The Presiding Officer shall intimate to the Recovery Officer any order withdrawing or cancelling a certificate or any correction made by him under sub-section (2).

[2] 27. (1) Notwithstanding that a certificate has been issued to the Recovery Officer for the recovery of any amount, the Presiding Officer may grant time for the payment of the amount, and thereupon the Recovery Officer shall stay the proceedings until the expiry of the time so granted.

  (2)  Where a certificate for the recovery of amount has been issued, the Presiding Officer shall keep the Recovery Officer informed of any amount paid or time granted for payment, subsequent to the issue of such certificate to the Recovery Officer.

 (3) Where the order giving rise to a demand of amount for recovery of debt has been modified in appeal, and, as a consequence thereof the demand is reduced, the Presiding Officer shall stay the recovery of such part of the amount of the certificate as pertains to the said reduction for the period for which the appeal remains pending.

 (4) Where a certificate for the recovery of debt has been received by the Recovery Officer and subsequently the amount of the outstanding demands is reduced 1[or enhanced] as a result of an appeal, the Presiding Officer shall, when the order which was the subject matter of such appeal has become final and conclusive, amend the certificate or withdraw it, as the ease may be.

Secured Creditors to have priority over all debts and Government dues- Madras High Court

In a recent Judgment[1] Hon’ble Madras High Court held that in view of the newly introduced Section 26E[2] of the SARFAESI Act and Section 31B of the Recovery of Debts due to Banks and Financial Institutions Act, 1993, the rights of a secured creditor to realise debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or Local Authority. The law would govern the rights of the parties in respect of matters lis pendens.

The Revenue had claimed priority over moneys, which have been received by the petitioner Bank upon sale of the mortgaged properties under SARFAESI Act. The stand of Revenue is that a prior statutory charge is created in its favour by virtue of the provisions Section 42(1) and Section 43 of the Tamil Nadu Value Added Tax, 2006.

High Court held that there is, thus, no doubt that the rights of a secured creditor to realise debts due and payable by sale of assets over which security interest is created, would have priority over all debts and Government dues. This section introduced in the Central Act is with "notwithstanding" clause and has come into force from 01.09.2016.

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[1] SBI v Asst. Commissioner (MANU/TN/3619/2016)

[2] "26E. Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.

Explanation.--For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016, in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code."

Where the Borrower company is not under Liquidation workmen do not have right to claim their dues by distribution of sale proceeds in proceeding under SARFAESI Act

While deciding Pegasus Assets Reconstruction Private Limited v. HaryanaConcast Limited [(2016) 4 SCC 47], Supreme Court had clarified that the fact that a Borrower company is in liquidation shall not impede the rights of a secured creditor to enforce its secured interest in the property of the liquidated company under SARFAESI Act without the intervention of the Court or tribunal. The Apex Court had held that there is no lacuna or ambiguity in the SARFAESI Act to warrant reading something more into it. Thus, there is no plausible reason to take recourse to any provisions of the Companies Act and permit interference in proceedings under SARFAESI Act either by Company Judge or liquidator. Section 13 (9) of SARFAESI Act fully protects workmen's interests by incorporating scheme of Sections 529 and 529-A of Companies Act, 1956.

In a recent instance Janta Chini Mill Mazdoor Sangh (2016(8)ADJ347, 2016 (119) ALR 120, MANU/UP/1636/2016).After examining the legal position the Hon'ble Allahabad High Court held that at the post sale stage, the rights of the persons or parties having any stake in the sale proceeds are taken care of by sub-section (9) of Section 13 and its five provisos of the SARFAESI Act.  If borrower is a company in liquidation, the sale proceeds have to be distributed in accordance with the provisions of Section 529A of the Companies Act even where the company is being wound up after coming into force of the SARFAESI Act, if the secured creditor of such company opts to stand out of the winding up proceedings, it is entitled to retain the sale proceeds of its secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of Section 529A of the Company Act.

Based on the Apex Court decisions in Bank of Maharashtra v.Pandurang Keshav Gorwardkar and others [(2013)7 SCC 754] and Pegasus Assets Reconstruction Private Limited v. Haryana Concast Limited and another [(2016) 4 SCC 47] the High Court held that for the enforcement of its security interest, a secured creditor has been not only vested with powers to do so without the intervention of the Court or tribunal but detailed procedure has also been prescribed to take care of various eventualities such as when the borrower company is under liquidation.

The Hon’ble High Court concluded that under the provisions of SARFAESI Act, 2002, in terms of Section 13(9) interest of such workmen has been protected where the Company is under liquidation and in case company is not under liquidation then workmen have no right to claim their dues by distribution of sale proceeds in proceeding under SARFAESI Act and have no right to resist the proceedings so undertaken under the provision of SARFAESI Act for their dues.

Stranger to a loan account have no locus standi to seek information under RTI regarding loan accounts – CIC

While deciding the appeals filed by one Arun Pradhan against State Bank of India, the Central Information Commission has clarified that a person who is neither a borrower nor a guarantor in a loan account has no locus standi to seek information regarding the account.

Earlier, while deciding AR Shah v UBI, the CIC had held that Bank is clearly in a fiduciary relationship with its customers, both in relation to the information entrusted by them to the Bank as well as in regard to the business dealing between the two and hence the Bank may invoke Section 8(1)(e) of the RTI Act to deny information related to the customers, sought by a third party.

The CIC also reiterated that the rights available to public under the RTI Act is to be exercised with full responsibility so as not to overburden the public authority with frivolous and vexatious RTI applications which impinge on the scarce resources of the public authority and use the cherished right given in the RTI Act, 2005 in a diligent manner so as to enable the public authority to use its time and resources for providing information expeditiously and efficiently.

Right of Lenders to Publish Photgraphs of Wilful Defaulters in Newspapers

Reserve Bank of India guidelines in this regard stipulates that a lending institution can consider publication of the photographs of those borrowers, including proprietors/ partners /directors / guarantors of borrower firms/ companies, who have been declared as wilful defaulters following the mechanism set out in the RBI instructions stipulated in its Master Circular on Wilful Defaulters DBR.CID.BC.No.22/20.16.003/2015-16 dated July 1, 2015. However such publications of the details of the Wilful Defaulters by the Banks have been quite often dragged to the corridors of the Courts and unfortunately there have been conflicting decisions given by various High Courts in this regard.

In the past, while the Bombay[1], Madras and Madhya Pradesh[2] HCs had allowed banks to publish the names and photographs of defaulters, the Calcutta[3] and Kerala[4] HCs held such moves as unconstitutional and impermissible in law. 

However a clarified picture was brought in this regard by the ApexCourt[5], when it upheld the decision of Bombay High Court in D.J.EximIndia P Ltd v SBI, in the Appeal filed by the Petitioners. A bench headed by justice Fakkir Mohamed Ibrahim Kalifulla upheld the Bombay High Courts Order allowing the Lender to publish names and photographs of directors and guarantors of defaulter firm in newspapers on the grounds that Rule 8 framed under the SARFAESI Act specifically authorised the banks to publish the names and addresses of wilful defaulters and there is also no legal bar that prohibits them from publishing such information. The Supreme Court had accepted the view that there is no legal bar either in the said rule or under any provisions of the Act which expressly prohibits the bank from publication of photographs and therefore, the action of the bank in publishing the photographs cannot be held to be ultravires. From the banks point of view, the duty to maintain secrecy is superseded by a larger public interest as well as by the banks own interest under certain circumstances, it held.

Recently the Division Bench of Hon’ble Madras High Court elaborately discussed this matter while deciding M.R.Motor Company vFederal Bank. The High Court concurred with the views expressed by the Bombay High Court, which was upheld by Supreme Court that the banks have the right to publish the name of the defaulters by giving their names and addresses which serves the two fold purpose of notifying the public that these persons are wilful defaulters and to caution the prospective buyers who may be offered the property which is mortgaged by these defaulters with the bank. The Court held that this being the primary objective for the publication of the notice, there would be no impediment in publication of photographs of wilful defaulters and particularly those defaulters who have committed various acts of misfeasance.

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[1] D.J.Exim India P Ltd v SBI [(2015)1CompLJ138(Bom)]

[2] M/S Prakash Granite Industries vs. The Punjab National Bank

[3] Ujjal Kumar Das and Another v. State Bank of India

[4] Venu. P.R Vs. SBI [[2013(3) KLT 691]]

[5] Special Leave to Appeal (C) No. 37726 of 2013 with T.P.(C) No. 691 of 2014, dated 14/7/2014, reported in CDJ 2014 SC 617