India: Time Barred Claims Under Securitization And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002

Last Updated: 29 August 2017
Article by Tushar Roy

The Hon'ble Calcutta High Court ("High Court") in its recent judgment titled as Dr. Dipankar Chakraborty vs Allahabad Bank & Ors. numbered as W.P.No. 16511 (W) of 2016 had decided the issue as laid down as under:

"Whether the period of limitation stops on filing of a proceeding under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for a bank or a financial institution to invoke the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in respect of the same claims?"

FACTS:

Dr. Dipankar Chakraborty ("Petitioner") is a medical professional who had obtained loan from Canara Bank for starting a medical diagnostic centre. The credit facility availed by the petitioner has been claimed to be paid. Thereafter, Petitioner had approached Punjab National Bank for credit facility, according to Petitioner; bank had sanctioned credit facility in favour of the Petitioner. As security, immovable property being a residential property was mortgaged with the Bank in 1995 against the credit facilities.

Petitioner paid the last installment in 1995 and thereafter defaulted, Bank filed an original application being O.A. no. 137 of 2001 under Section 19 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ("RDDBFI ACT, 1993") before the Debt Recovery Tribunal – I, Kolkata. Prior to the filing of the O.A. No. 137 of 2001, Petitioner had already filed a suit for damages for money being Money Suit no. 120 of 2000 before the City Civil Court at Calcutta against the Bank.

After institution of O.A. No. 137 of 2001, bank had issued a notice dated 04.02.2011 under Section 13 (2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI ACT, 2002"), being aggrieved Petitioner had filed a writ petition before the Hon'ble High Court for quashing of the notice dated 04.02.2011. The writ petition was dismissed by the Hon'ble High Court on the ground that the Petitioner has alternative efficacious remedy. In furtherance, Bank had invoked the provisions of Section 13 (4) of SARFAESI Act, 2002 on 13.04.2011, possession notice had been published vide publication dated 27.04.2011 and a sale notice was published on 10.05.2011. Petitioner had filed securitization application under Section 17 of SARFAESI Act, 2002 before the Debt Recovery Tribunal, Kolkata. Before the Debt Recovery Tribunal, Kolkata, Bank had undertaken to withdraw all the measures under SARFAESI that they have invoked till date. Vide publication dated 06.06.2011, Bank had withdrawn their SARFAESI measures against the Petitioner.

Soon after withdrawing the notice dated 04.02.2011, Bank had again issued another demand notice dated 05.07.2011 only against the Guarantor. Detailed objection under Section 13 (3A) of SARFAESI Act, 2002 has been sent on 29.07.2011, the Bank had dealt with the same by their letter dated 09.08.2011.

Bank issued a fresh demand notice dated 03.03.2016 under SARFAESI Act, 2002 being the impugned notice, the Petitioner had replied to the demand notice on 21.03.2016.

ARGUMENTS:

  • The contention of the Petitioner before the High Court is that the claim as claimed through the avenues of SARFAESI Act, 2002 is time barred being hit by the provisions of the Limitation Act.
  • That the argument of the Respondent Bank is that the limitation has stopped soon after the filing of the O.A. No. 137 of 2001 and henceforth the invocation of SARFAESI measures against the Petitioner is not time barred.

JUDGMENT

The observation of the Hon'ble High Court is laid down as under:

  • The provisions of the Limitation Act, 1963 would apply to the proceedings of SARFAESI Act, 2002 by virtue of Section 36 of the SARFAESI Act, 2002. Further, similar question1 fell for consideration before the Hon'ble Delhi High Court and the Hon'ble Delhi High Court has also held that the claim to subsist under SARFAESI Act, 2002 has to be compliant with Section 36 of the SARFAESI Act, 2002.
  • If the period of 12 years had not expired as mentioned under Article 62 in the schedule of the Limitation Act then there was still time to file the proceedings under SARFAESI Act, 2002.
  • Pendency of the proceedings before the Debt Recovery Tribunal under the RDDBFI act, 1993 will not save the period of limitation for a proceeding under SARFAESI Act, 2002. In other words, a Bank cannot take the benefit of the pendency of the proceeding before the Debt Recovery Tribunal to claim a proceeding under the SARFAESI Act, 2002, which is otherwise, barred by laws of limitation.
  • Secured creditor as held in Transcore2, is entitled to take a remedy or a measure as available in the SARFAESI Act, 2002, despite the pendency of the other proceedings, including a proceedings under Section 19 of RDDBFI Act, 1993, in respect of the self-same cause of action, the invocation of such right under the SARFAESI Act, 2002 has to be done within the period of limitation prescribed under the Limitation Act, 1963 in terms of Section 36 of the SARFAESI Act, 2002.
  • The laws of limitation do not take away a subsisting right, it merely postpones the enforcement of an existing right to be revived for enforcement of future event. The Bank on receiving a certificate under Section 19 of the RDDBFI Act, 1993, has its right to proceed under the Act of 2002 revived. It then needs to proceed under the Act of 2002, within the period of limitation, from the date of such certificate.
  • Demand notice dated 03.03.2013 is barred by limitation. The initiation of the proceedings by the bank was barred by the laws of limitation on July 5, 2011 and all proceedings taken by the bank consequent upon and pursuant to the notice under Section 13 (2) of the Act of 2002 dated July 5, 2011 are quashed including such notice.

ANALYSIS

In view of the aforementioned observation of the Hon'ble High Court, it can be concluded that the SARFAESI proceedings at the time of invocation has to pass through the test of Section 36 of the SARFAESI Act, 2002 and Limitation Act, 1963. It is imperative to mention that "limitation count" does not stop on filing of original application under Section 19 of the RDDBFI Act, 1993 before the Debt Recovery Tribunal as both the rights are independent of each other and the banks are at liberty to invoke either of the rights as available to them under the Act, however, such rights and remedies as available while invocation has to be within the period of limitation prescribed under the Limitation Act, 1963.

Footnotes

1 Somnath Manocha vs Punjab and Sind Bank & Anr.; 2012 (129) DRJ 654

2 Transcore vs Union of India and Anr.; (2008) 1 SCC 125

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