DRT Solutions Weekly Mail – 290th Issue dated 29^th November ’13

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(1) Magistrate Rejects Application of the Bank u/s 14 of Securitization Act – Copy of the Order in English

Mr Sanjay Jain, one of our clients at Nagpur has informed that the Magistrate has dismissed the application of the Bank u/s 14. He had sent the copy of the judgment and the order passed by the said Magistrate. Complete order was in Marathi and the same was reproduced on our web site. Now he has sent the translation of the said order in English which is available on our web site vide link http://www.drtsolutions.com/State%20Bank%20Patiala-Meghraj.htm .

(2) DRAT Allahabad Upholds Appeal by Borrower – Notice u/s 13(2) Quashed & Set Aside – Auction Sale Set Aside – Bank Directed to Return Money received from Auction Purchaser with Interest – SA Allowed

In the matter of Midex Global Pvt Ltd vs AO & State Bank of India decided on 30.07.13 vide citation 2013(2) DRTC 571, the DRAT Allahabad has allowed the Appeal filed by the Borrower stating that the notice u/s 13(2) issued by the bank is quashed and consequently, all the taken by the bank including the auction are also set aside. The SA stands allowed. The bank is directed to return the money received from the auction purchaser and the money shall be returned to the auction purchaser along with interest @ 10%

DRT Solutions Weekly Mail – 289th Issue dated 22^nd November ’13

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(1) Pleadings in DRTs relating to Defence of Borrowers and Guarantors

Despite our dealing with this topic in several weekly mails as well as in our web site viz. www.drtsolutions.com , we continue to receive various queries. Our views are as under:-

(a)           The pleadings should contain the facts and facts only.

(b)           The facts in DRT cases relate to banking, industry and finance.

(c)           The major pleadings in the matter of Securitization Act is the application u/s 17 of the Act. Whereas in respect of the DRT Act, the major pleadings are WS and the Counter-claim.

(d)           The pleadings should be prepared by a person having mastery over relevant facts (i.e. Banking, Industry and Finance) as well as mastery over relevant laws (DRT Act, Securitization Act, Banking Regulations Act, RBI Act, Nationalization Act, Law of Torts, Law of Damages, CPC, Constitution of India etc)

(e)           In relation to the banking cases pertaining to the defence of borrowers and guarantors, the material pleadings will include appraisal, sanction, enhancement if any, revival, rehabilitation or restructuring if any, observance and violations of Govt policies and RBI Guidelines, all such wrong doings etc.

(f)            Loss and Damages suffered due to said wrong doings by the bank or the counter-claim must be pleaded based on documents such as project report or Balance Sheets and or the relevant correspondence.

(g)           The loss and damages or the counter-claim must include all types of damages i.e. direct pecuniary loss, business opportunity loss, loss of image, reputation, mental tension, image and reputation, aggravated damages, exemplary damages etc. The ingredients such as remoteness of damages and limitation must be dealt with properly.

(h)           As a whole whatever material facts are pleaded, it must be ensured that there will have to be proved in accordance with the established law of evidence.

(i)            We have observed that the borrowers are not aware of the intricate facts relating to the banking, industry and finance. Further they are also not aware of related legal aspects and hence they are not able to brief their advocates properly. The advocates mostly know the general legal aspects. Hence most of the pleadings relating to defence of the borrowers and guarantors have inherent incompleteness and imperfections leading to incomplete and imperfect trials which cannot be corrected later on.

(j)            The role of the judge is like a referee who can not take part in correcting above mentioned deficiencies and hence the case is destined to be decided in favor of the banks.

(k)           On account of our exposure for past several years, we have caught hold of the above state of affairs and accordingly developed suitable pleadings on account of which either the banks lose the case or are forced to settle at a very low amount ranging from 5% to 20% of the claim amount.

(2) Kingfisher DRT Case – Rs 6200 Crores Loans without Securities – Recovery thereof

The following is the latest development relating to recovery of Rs 6200 crores worth of loans given to the Kingfisher airlines. We need to know as to how such a large amount of loans were sanctioned without securities. The Chairmen of the concerned banks are questionable. On one hand small borrowers are denied small loans without collateral and personal guarantees and in the matter of recoveries for which even external factors are responsible, they are driven out of their only dwellings, large loans of thousands of crores are sanctioned without securities and recovery matters are dragged on for years without any results.

DRT case-Karnataka HC restrains KAL, UBHL and Mallya from transferring any asset

DRT Solutions Weekly Mail – 288th Issue dated 15^th November ’13

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(1) Magistrate Rejects Application of the Bank u/s 14 of Securitization Act

Mr Sanjay Jain, one of our clients at Nagpur has informed that the Magistrate has dismissed the application of the Bank u/s 14. He has sent the copy of the judgment and the order passed by the said Magistrate. Complete order is in Marathi and the same has been reproduced on our web site vide link:-

www.drtsolutions.com/Magistrate-Nagpur.pdf

Our comments are as under:-

State Bank of Patiala vs Shri Homraj Meghraj Hiranvar decided on 22.10.13 by District Magistrate, Nagpur Mr Saurav Rao

DRT Solutions Citation –  DRTS-022-State Bank Patiala vs Homraj Meghraj-2013

The entire judgment is in Marathi and is available vide link mentioned above i.e.

www.drtsolutions.com/Magistrate-Nagpur.pdf

We have now numbered the Judgments published on this web site as DRTS-00. Accordingly all the judgments published so far have been numbered. This judgment has been numbered as DRTS-022.

The important extract from the said judgment in English is as under:-  

“The notice  u/s 13 (2)  sent by bank was returned "not claimed ".hence the bank should have followed rule 3 of sarfasi act for proper service of notice .Following procedure should have been followed by the bank:-  

a) Affixing of notice at the premises of guarantor                                                                             

b)publishing of notice , one in vernacular language & one in English newspaper.                               

In this case, bank has not submitted any document showing affixation of notice at the premises of guarantor & notice has been published in English language  and in Marathi language papers. Hence bank has not followed procedure  mentioned in rule 3 of sarfasi act. Before apporoaching to this office u/s 14 of sarfasi act , bank should have followed rule 3 of sarfasi act for service of notice to the guarantor, which they have not done, hence the application of bank for taking possession of secured asset is dismissed.” 

Comments by DRT Solutions

The above mentioned Nagpur District Magistrate Judgment  lays down that since the Bank has not followed the prescribed procedure, the application u/s 14 is dismissed.

Utility of this Judgment –

As mentioned by us in the 284^th issue of our Weekly Mail, the borrower should endeavor to secure opportunity to present his reply by way of counter affidavit before the CMM/DM questioning the affidavit presented by the Bank. If proper representation and objections have been raised against the notice u/s 13(2) mentioning wrong doings committed by the Bank as well as the situation of ‘No Debt Due’, it will not be possible for the Magistrate to accept the said application by the bank u/s 14 until and unless the application u/s 17 is finally decided by the DRT.

(2) Video Recording of Court Proceedings

The following news item published in internet edition of ‘Indian Express’ dated 11^th instt is self explanatory. Since 2007, we have been emphasizing great utility and advantages of this technology. In fact we developed special method of ‘Video Arguments’ and demonstrated the same before the District Judge, Indore in 2007 and sent the DVDs to High Court and Supreme Court in 2008.

In this connection it is relevant to note that in US, since 1935, all the court proceedings including oral arguments are audio and video recorded. The same are transcripted on the same day. The said recordings and the transcript appears on the website on the same day. By such recordings, the advocates will be careful about their oral submissions. Also the judges will be careful in asking questions. Such recordings will be quite useful to the litigants, particularly when they are not present in the court.

New Delhi, Mon Nov 11  2013, 19:35 hrs

 

http://www.indianexpress.com/news/legal-reforms-government-for-video-recording-of-court-proceedings/1193581/

With an aim of enhancing transparency in functioning of the judiciary, the government is pushing for video recording of court proceedings as part of reforms in the legal system.

Law Minister Kapil Sibal said the issue was discussed recently at a meeting of an advisory committee of his ministry and it unanimously made the recommendation in this regard.

"The Advisory Council met here. Unanimously the council believed that court proceedings must be videographed and that the technology (for the same) must be put in place now," he told PTI here.

Explaining the reason behind the move, Sibal said the processes of the law must be "as transparent" like the processes of the government.

Sibal said the plan is to begin with video recording of the proceedings of the trial court.

"...start with the trial courts as it is the foundation of the justice system," he said.

The Minister said the judiciary will be taken on board on the issue.

"We'll have to discuss it with the judiciary as this is not something on which the government can decide on its own," he said.

The Advisory Council of the National Committee for Justice Delivery and Legal Reforms, chaired by Sibal, decided to seek the views of the higher judiciary as trial courts fall under High Courts and it cannot be implemented without their consent.

Members of the Council discussed the case in other countries where the facility is available to record what the judges, witnesses and the prosecutors say during a court proceeding.

The Advisory Council includes Planning Commission Deputy Chairman Montek Singh Ahluwalia, Attorney General G E Vahanvati, National Innovation Council chief Sam Pitroda and chairman of Parliamentary Committee on Law and Personnel Shantaram Naik.

During the meeting, the issue of pendency in subordinate courts also came up with members expressing concern over the annual rising trend in pendency.

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DRT Solutions Weekly Mail – 287th Issue dated 8^th November ’13

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(1) Review and Appeal

Recently one of our clients submitted an application before DRT in the matter of OA filed by the bank. The said application was rejected. When the matter was brought to our notice, we advised for filing of Review as well as Appeal. The Review Petition was prepared by our client. Our observations on this matter were as under:-

(a)   Review should be filed first and then Appeal should be filed. If Appeal is filed first, the Review Petition will not be maintainable. As per Rule 5A of DRT (Procedure) Rules 1993, the limitation for filing of Review in DRT is 60 days. As per Sec 20(3) of DRT Act 1993, the limitation for filing of Appeal is 45 days. Hence the Appeal needs to be filed within 45 days and the Review should be filed earlier to the said Appeal. The Review is before the same court i.e. DRT whereas the Appeal is before the higher court i.e. DRAT.

(b)   The Review is an important and very useful remedy. In our country, people are not generally in favour of Review thinking that the same Judge will not be inclined to change his own order. The importance of Review will be realized when one goes through the leading historic case contained in AIR 1948 Allahabad 353 (FB), Behari Lal vs MM Gobardhan Lal. This case describes the evolution of Review since past 150 years or even earlier, importance of Review and its comparison with Appeal. Thorough study of this case will remove the confusions which legal community of our country is having in respect of Review.

(c)   In the present matter, it was found that certain new documents or evidence would reverse the impugned order. Such new documents or evidence can be placed before the DRT only by way of Review and not by way of Appeal. Had the Review jurisdiction not invoked, such new documents or evidence can not be placed before DRAT or higher court.

(d)   The ingredients for Review are (i) discovery of new and important matter or evidence which after the exercise of due diligence was not within knowledge or could not be produced at the time when the order was made; (ii) some mistake or error apparent on face of record in respect of facts or law (iii) any other sufficient reason (iv) violation of law declared by the SC is regarded as apparent error on face of records.

(a)   The fundamentals of Appeal vs Review will be understood when on studies the above Allahabad ruling along with Nahar Industrial Enterprises vs Hong Kong & Shanghai Banking Corporation vide citation 2009(10) Scale 360. Generally the Appeal will be confined to the matter which were dealt with the lower court and new matter can not be raised whereas new matter or evidence can be considered in Review but not in Appeal. Hence in this respect the Review becomes unique. This was so in the present matter. 

(2) Ministry of Finance asks DRTs to expedite DRT Cases

The following news item is self explanatory. It is interesting to note that despite past 15 years old verdict of SC, the DRTs are not being transferred from Ministry of Finance to Ministry of Law. The Ministry of Finance is posting even the Bank Officials as the POs and Recovery Officers. Even conferences are being held with the POs asking them to expedite the bank recoveries. In fact the delays in DRTs are due to violations of law and wrong doings committed by the bank officials since appraisal and sanction of loans. There are numerous violations of RBI Guidelines particularly in detection of incipient sickness and in restructuring, rehabilitation and revival of sick units etc. Instead of following the laid down law, the bank officials desire that the same should be done by the court or the DRTs. The POs are bound by the law and they can not violate the same just to expedite the matter. In fact on account of such hurry, legal mistakes are committed which give rise to numerous Reviews and Appeal which lengthens the recoveries. It becomes a long drawn process. The prudent course of action for the Ministry should be that the bank officials should be asked to abide by law right from the inception of loan sanction and the case should be legally audited before coming to DRT. Such cases alone will result in quick adjudication in DRTs otherwise it will take long time.

Rajiv Takru asks DRT to make process of loan recovery more swift

http://economictimes.indiatimes.com/news/economy/finance/Rajiv-Takru-asks-DRT-to-make-process-of-loan-recovery-more-swift/articleshow/24659191.cms

After asking banks to do their best to check bad loans, Financial Services SecretaryRajiv Takru has now turned to the Debt Recovery Tribunals (DRTs), which directly comes under the government supervision. He has held several meetings with the presiding officers, the rank of a district or session judge, to make the process of loan recovery more swift and transparent. 

"It is tax payers' money that comes as a capital support for banks," Takru told ET. 

"People cannot simple get away with it. I have met judges of DRTs. We are trying to sort out issues for the sake of faster loan recoveries. Banks would be benefited out of it. Judges have laid down certain problems. We are examining those. Solutions are being worked out," he said. 

Currently, there are 33 DRTs and five Debt Recovery Appellate Tribunal across the country. These are kind of fast track courts to resolve disputes between banks and borrowers in case of any default. 

As per DRT Act 1993 guidelines, cases should take six months time to come out with final judgement. But, it generally takes one to two years on an average to get a final decision going by the prevalent practice. A bank refers a case to the DRT when loan size is 10 lakh or above.

"The legal proceedings under DRT cannot be taken in hurried way," Ramnath Pradeep, ex-chairman and managing director at Corporation BankBSE -2.93 %. 

"The property charged with the bank should be disposed off following a due process. In case of distressed sales, it is not only the borrower but the bank also loses in terms of net realisation. The solution also lies with more appointment of recovery and presiding officers rather than pressurising the judicial process by the concerned authorities." 

The rising number of DRT cases, according to bankers, are leading to delay in resolving those. Banks, which have asked to by the Takru to take stern action against the wilful defaulters, seek for a speedy legal process to recover their loans. This in turn, would help arrest the rising bad loans. 

"One important issue as we feel, is coming from clean loans (that default). Banks struggle to find additional securities from borrowers for the same. Borrowers sometimes are reluctant to disclose their asset details. This lingers cases," said a senior official from a Mumbai-based DRT. He did not wish to be identified. Banks give clean loans without securities but based on repayment capacity and credentials. 

Data compiled by the ministry of finance, revealed that that pending cases filed in 33 DRTs by banks and financial institutions to recover their debt had spiked nearly 22% year-on-year Rs 42,819 as on March 31, 2013 from Rs 35,221 in the previous year. This involved a whopping Rs 1.43 lakh crore as against Rs 1.1 lakh crore, a jump of 30% y-o-y.

DRT Solutions Weekly Mail – 286th Issue dated 1^st November ’13 - A Very Happy, Healthy & Prosperous Diwali to You & Your Family

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(1) Top 30 NPA Accounts of PSU Banks under Govt Scanner : P Chidambaram

The following news item is self explanatory:-

Top 30 NPA accounts of PSU banks under government scanner: P Chidambaram

By PTI | 22 Oct, 2013, 03.40PM IST

http://economictimes.indiatimes.com/news/economy/finance/Top-30-NPA-accounts-of-PSU-banks-under-government-scanner-P-Chidambaram/articleshow/24541555.cms

NEW DELHI: Concerned over defaults by big borrowers, Finance Minister P Chidambaram today said the government is monitoring the top 30 NPA accounts in each PSU bank and asked the lenders to set up separate verticals to recover money from written-off accounts.

Talking to reporters after meeting the heads of PSU banks, the minister said he hoped that non-performing assets (NPAs) are a "function of economy" and would improve with the recovery in economic growth.

"We are monitoring the top 30 NPA accounts in each bank, each zone. It is a matter of concern that it is the big borrowers (with loans of over Rs 1 crore) who are defaulting," Chidambaram said.

The minister said the situation was not as bad as it was in 2000, when gross NPAs touched a high of 14 per cent. The NPAs, which plateaued over the years at about 2 per cent, have started creeping up with the deceleration in growth in the past few years.

As of June, the gross NPA of nationalised banks was 3.89 per cent and State Bank Group at 5.50 per cent.

Chidambaram said that like the State Bank of India (SBI), other PSU banks should set up separate verticals to recover as much as possible from accounts that were written off.

The minister, however, expressed satisfaction over credit growth by PSU banks in the first and second quarters of the current financial year and expressed hope that it will remain "satisfactory" in the remaining part of the fiscal.

Observing that there were some wilful defaulters, Chidambaram said, "The bulk of the people do not wilfully default. They default because of circumstances. Once the economy and cash flow pick up, they will pay."

The bulk of the NPA was from those who borrowed Rs 1 crore and more, he said, adding, "We have told them (PSU banks) to keep a very close watch on these largest accounts and have to recover the amount...recoveries are taking place, but not as much as I would like...I hope recoveries will improve."

Noting that defaulters often try to stop the recovery process, he said, "Banks have been advised to empower or set apart an officer of senior rank, at least of General Manager rank, to look at recovery, especially recovery from written-off accounts...We will try to recover as much as possible from the written-off accounts."

The banks, he said, can look to establish a separate vertical, as was done by SBI, to improve recovery from such written-off accounts.

(2) The First Three Bharat Ratnas saw the Future with Clarity

Mr Firoz Poonawalla sent the following useful information:-

The first three Bharat Ratnas saw the future with clarity

A CHRONICLE FORETOLD

The first three Bharat Ratnas saw the future with clarity - Gopalkrishna Gandhi      
 (From top) : C.V. Raman, S. Radhakrishnan, C. Rajagopalachari

=========================================================

Three Indians were decorated with the Bharat Ratna in the very first year — 1954 — that the civilian awards were instituted: the elder statesman, Chakravarti Rajagopalachari, the vice- president, Sarvepalli Radhakrishnan and the Nobel laureate, C.V. Raman. No one said at the time that all three were south Indian, all three Brahmins. Their pre-eminence was manifest. They accepted the decoration with respect and went about their work according to their lights.

All three had a Calcutta connection. CR had served as the first governor of West Bengal, the other two had taught, with distinction and dedication, at the University of Calcutta. *Om krato smara kritam smara, *the Isha Upanishad tells us. The work alone is to be remembered, the work alone. It is instructive to see, on the anniversary of our Independence, what these men had to say in the midst of and, indeed, from the very heart of their work, about their country, their people. 
CR was a prisoner of the *raj* in 1921. Holed up in Vellore Jail, he could have been bitter about his jailors, about the imperial power. He could have looked forward to *swaraj* as one might to a dreamlike goal. But no, he did something that surprised his contemporaries then and surprises us now. *He wrote in his jail diary: “We all ought to know that Swaraj will not at once or, I think, even for a long time to come, be better government or greater happiness for the people. Elections and their corruptions, injustice, and the power and tyranny of wealth, and inefficiency of administration, will make a hell of life as soon as freedom is given to us. Men will look regretfully back to the old regime of comparative justice, and efficient, peaceful, more or less honest administration. The only thing gained will be that as a race we will be saved from dishonour and subordination.” *

This was a full quarter century before *swaraj* was attained. Radhakrishnan was a member of the constituent assembly on the midnight of August 14/15, 1947 when, with Jawaharlal Nehru, he made a speech of surpassing value. *Reminding the nation of “our national faults of
character, our domestic despotism, obscurantism, narrow-mindedness, superstitious bigotry”, he said almost exactly what CR had said 25 years earlier. Radhakrishnan’s words: “Our opportunities are great but let me warn you that when power strips ability, we will fall on evil days… From tomorrow morning — from midnight today — we can no longer throw the blame on the British. We have to assume the responsibility ourselves for what we do. A free India will be judged by the way in which it will serve the interests of the common man in the matter of food, clothing, shelter and the social services. Unless we destroy corruption in high places, root out every trace of nepotism, love of power, profiteering and black-marketing which have spoiled the good name of this great country in recent times, we will not be able to raise the standards of efficiency in administration…”*

That was said at the very moment free India was born.

I do not have access to any comment made by C.V. Raman on the eve of Independence but the following observation of CVR’s to young Indians is an agnatic cousin of CR’s and SR’s: “Success can only come to you by courageous devotion to the task lying in front of you and there is nothing worth in this world that can come without the sweat of our brow. I can assert without fear of contradiction that the quality of the Indian mind is equal to the quality of any Teutonic, Nordic or Anglo-Saxon mind. What we lack is perhaps courage, what we lack is perhaps driving force which takes one anywhere. We have, I think, developed an inferiority complex. I think what is needed in India today is the destruction of that defeatist spirit…”

Today, those three Bharat Ratnas would have been saddened to see their apprehensions and prognoses coming true. Generalizations are wrong but who can deny that efficiency of administration is not India’s best introduction ? Who can deny that our elections have brought us a great stature in the world but have also brought corruption? And where is the doubt that the power and tyranny of wealth — CR’s startling phrase — rules the land?

Power, political and monetary power, outstrips ability by a long measure. And corruption in high places — Radhakrishnan’s astonishingly prescient expression — has disfigured the image of our public life. As for the sweat of the brow, Raman’s ideal, that has long since ceased to be valued, especially in oneself. The concept of hard work, of service, of what used to be called pride in one’s work, is now an archaism. *Except in our gifted artisans who survive miraculously, in our armed forces, in the body of farm labourers across the country and in a few remarkable professions like those of nurses and teachers, ‘work ethic’ is a national casualty.*

We seek to derive the maximum advantage from the minimum effort. There is a mentality, widespread if not omnipresent, which sees the plodder as a fool, the successful shirker as clever. It only follows that the man or woman who is honest with money is regarded as naïve, to be pitied and the crook who gets caught making illegal money as unlucky. It is the honest politician, by which I mean one who does not encash files, sell favours, turn opportunities of service into ATMs, and there still are many of those, who keeps us in hope. It is, likewise, the exceptional official, doing the work of a hundred, who keeps the administrative machine from collapsing. Thank god there are some such exceptional men and women, still, amidst us. But by and large, the surface density of work-shirking, responsibility-dodging, blame-shifting, back-biting, tale-carrying and, alas, palm-itchy laggards has swelled beyond belief. What we are, the State is.

Radhakrishnan also spoke of intolerance.

This trait takes many forms but nowhere more seriously than in politics. Ironically and paradoxically, the denominationally intolerant are being projected as administratively able. Those with a questionable secular integrity are said to be men of unquestionable financial integrity.

The first three Bharat Ratnas foresaw more than ordinary mortals can. But even they could not foresee the self-contradictory piquancy of our predicament today. The liberal Indian, the Indian with a secular conscience, an innately democratic instinct, a value for civil rights, is shown up as effete , a political pansy, whereas the macho rattler of sabres, is offered to the nation as its saviour. A country with its work ethic weakened, its abilities outstripped by narrow self-interests, and its domination by the power and tyranny of wealth well-nigh complete, is easily persuaded to say ‘give us a benign dictator’. Fascism comforts the sloth of mind, the slow of thought, the valuationally sluggish. Fascism excites the timid, the languid and the bored.

DRT Solutions Weekly Mail – 285th Issue dated 25th October ’13

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(1) Recording of Conversations and Meetings with the Bank Officials

We have been advising our clients to make audio/video records of the meetings and telephonic conversations with the bank officials. Many of our clients started this practice as a routine. Recently this came quite useful for one of such clients. While replying to one of the applications submitted by the Bank in DRT, it was stated by the said client that such and such matter was decided in a meeting held with the Bank Officials. The Bank Officials denied that no such meeting was held. The court decided the matter in favour of the Bank. Since there was complete audio record of the meeting with the client, we advised the client to submit a Review application wherein the said audio record along with the transcript of the same be submitted as an evidence to prove the said meeting. Under the fact and circumstances, the Review is the only remedy (and not the Appeal) due to the specific provision of law pertaining to Review i.e. “ …..discovery of new and important matter or evidence which, after the exercise of due diligence was not within his knowledge or could not be produced by him at the time when decree was passed or order made …..” Normally this will not be permitted in Appeal which will be confined to the matters which were adjudicated upon in the original court and not any new matter for which the most appropriate remedy is Review only.

Nowadays with the use of smart phones, it has become quite simple to record the audio of such meetings or conversations. There are several other devices such as specks or pen which contain the camera and microphone for making the intended audio and video records.

(2) Democracy needs a Powerful Judiciary

The following news item is self explanatory:-

'A democracy needs a powerful judiciary'

Published: 10th October 2013 08:20 AM

Last Updated: 10th October 2013 08:20 AM

“

The courts in the country are under tremendous pressure due to the weakness of the executive and the legislature,” Governor Hans Raj Bhardwaj on said on Wednesday. 

Delivering his lecture on ‘The Rule of Law and Indian Judiciary’ at a programme organised by Bangalore Advocates’ Association at the High Court Bhardwaj said a democratic nation like India requires a powerful judiciary. “The writ jurisdiction and judicial review are the unique features of the Indian judiciary. There will be lawlessness when the rule of law is violated,” he said.

Bhardwaj said the functioning of the courts would be stalled if judges are not appointed on time. “In Karnataka, the judges from the High Court have to go to Dharwad and Gulbarga division benches and this affects high court proceedings. When I was the law minister, we used to anticipate vacancies in the judiciary and appoint judges in time”, Bhardwaj added.

Talking on making justice accessible to the rural masses, Bhardwaj said, “I had initiated the process to start 9,000 grameen nyayalayas in the rural areas when I was the law minister. However, nothing has happened after I quit”.

Highlighting the need to give importance to junior members of the Bar, Bhardwaj said, “The courts should hear junior advocates with the same zeal with which it hears senior advocates. If only a few seniors get promoted, that will be against the principles of justice”.

DRT Solutions Weekly Mail – 284th Issue dated 18th October ’13

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(1) Sec 14 of Securitization Act – Possession – Conditions Precedent, Problems & Suggestions 

Consequent on our views expressed in last weekly mail, there has been lot of comments, feedback and interactions with the recipients of the weekly mail. Most important feedback was from Mr R.P. Agarwal, Senior Advocate who made reference to the latest SC Judgment (Standard Chartered Bank vs V. Noble Kumar decided on 22.08.13)

While we are still working on the said SC Ruling, on face of it, we can say that it will severely affect the small borrowers or those borrowers who do not pay attention to the judicial process right from the stage of receiving notice u/s 13(2).

In respect of remedial measures against the said SC Ruling, the borrower should be adept in the 9 clauses of the affidavit to be submitted by the bank along with the application u/s 14 before the Magistrate. The defence against the said clauses must be built in in the Representation and Objections against the notice u/s 13(2). The borrower must file caveat before the Magistrate just after submitting the said Representation and Objections and must have the liason with the office of the Magistrate so that he secures opportunity to submit his defence against the said 9 clauses of the affidavit. It is needless to mention that all this should be possible particularly due to following environmental factors:-

(a)   There are more than 3 crore cases pending before the civil courts and AP HC sitting judge has said that it will take 320 years to clear the pendency.

(b)   Justice Krishna Iyer has said in respect of judicial system that we are 200 years behind the developed countries.

(c)   UK took 157 years to attain proper working of tribunals and we do not want to learn from their experience.

(d)   The RBI Guidelines since 1976 are being openly violated by the banks. There is scant regard for serious implementation in respect of appraisal, revival and rehabilitation.

(e)   There is single point program only for recovery even to the extent of ignoring principles of natural justice and constitutional rights. To meet such aim, the DRTs were established, the DRTs are not being transferred from Ministry of Finance to Ministry of Law despite 15 years old verdict of SC. The bank officials are being posted as POs and Recovery Officers in DRTs.

(f)    In order to cover up lapses of the banks in genuine appraisal, revival and rehabilitation, attention is being diverted to misuse of public funds, shortage due to NPAs etc. Example is being given to quick and forceful recoveries in developed countries. But no comparison is made to developed judicial systems which efficiently decides equally the claim of the bank as well as the counter-claim of the borrowers. The book ‘Lender Liability and Banking Litigation’(update 2012) published by ‘Law Journal Press, New York’ opens with the sentence ‘Multimillion dollar verdicts against financial institutions have become almost commonplace.’

(g)   Thanks to our constitution, the knowledgeable borrowers who are able to fight against the above adverse environment which is seriously affecting the growth of entrepreneurship in our country. Day is not far when few verdicts in the matter of counter-claims against the banks will alone confirm our contentions that best recovery is out of generation of funds rather than coercive recovery out of the securities. In the meantime, large number of small borrowers will be sacrificed resulting into huge outcry but small reoveries.  

In view of above our suggestions to mitigate against the SC Ruling are as under:-

(A) Representation and Objections against the Notice u/s 13(2):- Under the present environment and in the context of the prevailing law as well as the law laid down by the Supreme Court in the said SC Judgment, this becomes most important document. It contains all the points on which the affidavit covering 9 points will be filed by the authorized officer u/s 14 before the Magistrate. It is observed that this document is not being prepared properly by the borrowers. Further in most of the cases, the banks are also not considering and replying the same with due application of mind (as desired by SC in the matter of Mardia Chemicals). Our suggestions are as under:-

(a)   All the wrong doings committed by the bank e.g. under financing, inadequate and delayed working capital, delays in sanction and flow of bank funds, violations of RBI Guidelines, delays and non-implementation of viability studies, delays in revival, rehabilitation and restructuring, impact and responsibilities for the external causes and conditions beyond control of the borrower, real reasons for the defaults committed by the borrowers etc have been thoroughly pleaded in the said Representation and Objections..

(b)   Assessment of the Loss and Damages suffered due to the above wrong doings and impact on the ‘Debt Due’ is included in the said Representation and Objections. In case the said Loss and Damages are more than the amount claimed by the bank, the situation of ‘No Debt Due’ is clearly pleaded in the said Representation and Objections.

(c)   Incidence of ‘NPA’ should be thoroughly questioned based on the relevant RBI Guidelines as well as the internal policies of the bank.

(d)   The claim of the Bank is thoroughly examined and pleaded with reference to the accounts statements submitted by the Bank.

(e)   The details of the securities and security interest created is thoroughly examined and pleaded with reference to the documents executed.

(f)    Copies of the said Representation and Objections should be endorsed to the Chairman of the Bank.

(g)   For the above, whatever documents are needed, the same should be asked for from the bank before submitting the said Representation and Objections.

(h)   Since as per Mardia, the banks are duty bound to reply to the said Representation and Objections with due application of mind within 15 days, the pleadings in the said Representation and Objections should be quite exhaustive so that there is no scope for the bank to say that they had any difficulties in replying with due application of mind. 

Comments:- In the present environment and prevailing law as well as the law recently declared by the SC, the above mentioned Representation and Objection will become highly essential for the following reasons:-

(a)   The application of the bank u/s 14 is to be accompanied by an affidavit duly affirmed by the authorized officer of the bank declaring 9 points viz dealing with:-

(i)    total financial assistance granted and total claim of the bank on the date of filing of the application.

(ii)   Borrower has created security interest over various properties or bank is holding valid and subsisting security interest over such properties and claim of the bank is within limitation.

(iii) Borrower has created security interest over such properties giving details of the properties.

(iv)  Borrower has committed default.

Comments:- If the default is caused due to wrong doings of the bank, that needs to be pleaded in the said Representation and Objections. This needs to be pointed out to the Magistrate based on the Injunction Suit mentioned below.

(v)   Consequent on default, account has been classified as NPA.

Comments:- If the NPA declaration is wrong, that needs to be pleaded in the said Representation and Objections. This needs to be pointed out to the Magistrate based on the Injunction Suit mentioned below.

(vi)  Notice u/s 13(2) served on all borrowers and guarantors.

(vii)Representation and Objections of the Borrower considered with due application of mind and reasons for non-acceptance, if it is there is communicated within 15 days.

Comments:- If the non-acceptance is wrong, that needs to be pointed out to the Magistrate based on the Injunction Suit mentioned below.

(viii)   Borrower has not made any payment despite notice and hence the bank is entitled to take possession u/s 14.

Comments:- The borrowers can make use of this clause suitably.

(ix)      Provisions of this Act and Rules had been complied with.

Comments:- This is one of the most important part of the Affidavit. The borrower should cover the lapses on part of the bank in the said Representation and Objections and put up before the Magistrate at appropriate time. The same be covered in the Injunction suit given below and a later date in the SA to be filed u/s 17. 

(b)   If the bank rejects the said Representation and Objections without due application of mind, one can file ‘Declaratory and Injunction Suit’ in civil court. Till that suit is decided, the authorized officer should not invoke Sec 14 for physical possession. Even if he invokes, the Magistrate cannot issue orders against the bank’s application u/s 14.

(c)   As per Mardia, nobody can be left remediless. Further as per the provisions of law u/s 13[3(A)], 34 and 37 of the Act combined with the principles of natural justice, the above mentioned Injunction suit is one of the best remedies. If there is any problem in the civil court, one may approach the High Court.    

(B) Caveat before Magistrate & Liason with his Offfice:- These have been dealt with in detail in previous weekly mails in detail.

(2) Courts go Digital in Four States, Cases Put Online

The following news item is self explanatory:-

Courts go digital in four states, cases put online

TNN Oct 16, 2013, 05.37AM IST

http://articles.timesofindia.indiatimes.com/2013-10-16/india/43105599_1_pending-cases-high-courts-3-2-crore-cases

NEW DELHI: Andhra Pradesh, Kerala, Karnataka and Maharashtra have computerized most of their courts and are the only states where all pending cases in all courts have been put online and connected with the National Judicial Data Grid, monitored by the Supreme Court.

Law ministry sources said by next year, all pending cases in all courts across the country are likely to be put online and efforts are on to introduce facilities for litigants like updates on their cases through text messages.

A pilot project was launched in August by the Chief Justice of India in these four states to put online all pending cases in lower courts and high courts and link it to the National Judicial Data Grid (NJDG).

The NJDG was conceived as part of judicial reforms and initiated under the eCourts project. The data grid is mandated to warehouse all critical information of court cases. "Through intra-net and secured digital environment with authorized user facilities, judges, court staff and other stakeholders will be able to access the grid," a senior law ministry official said.

The deadline was earlier fixed for December 13 for all high courts to update their backlog cases online and later by all lower courts in these states. By 2014, the government hopes to update all pending cases in all courts online which will help in policy formulation and bringing down pendency which has gone above 3.2 crore cases across the country.

Intended to facilitate better resource management of courts, the judicial data grid will analyze the number and type of pendency in every court in the country on a real-time basis and provide timely inputs for policy decisions to reduce delay and arrears in the system.

The NJDG will be available on a web portal for all courts across the country having real-time data. The implementing agency, National Informatics Centre, has provisioned 100 virtual machines at its national data centre (NDC) in New Delhi for this purpose.

DRT Solutions Weekly Mail – 283rd Issue dated 11^th October ’13

All Weekly mails right from 1^st Issue to latest, click links below:-

Weekly Mails - 1-10  11-20  21-30  31-40  41-50  51-60  61-70  71-80 81-90 91-100 101-110 111-120 121-130 131-140 141-150 151-160 161-170 171-180 181-190 191-200 201-210 211-220 221-230 231-240 241-250 251-260 261-270  271-Latest

(1) Sec 14 of Securitization Act – Physical Possession  – Misconception about Power of Magistrate 

There is misconception about the power of the  Magistrate acting u/s 14 of the Securitization Act. In this connection, it will be relevant to go through the said Sec 14 which is reproduced below:-

“14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.- (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him-

(a) take possession of such asset and documents relating thereto; and

(b) forward such asset and documents to the secured creditor.

(2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.

(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.”

Our observations and comments are as under:-

(i)            As per the title, the CMM or DM will assist the secured creditor in taking (physical) possession of the secured assets.

(ii)           As per the sub section (3), no act of the CMM or the DM done in pursuance of this section shall be called in question in any court or before any authority. Hence no adjudication of matters relating to ‘Debt Due’ can be carried out by these Magistrates.

(iii)         There is no provision of any notice to the Borrower.

(iv)          Thus the Act of the Magistrate is limited to only providing police help to the Bank to taken physical possession of the secure assets and nothing more. Since this Act will result in deprivation of the property, the Magistrate will check whether there is any Recovery Certificate of the DRT or Decree from any civil court. If these documents are not produced by the Bank, the Magistrate will decline to help the Bank. Hence such Act of the Magistrate will not be questionable in any court and for such Act, the Magistrate need not give any notice to the Borrower.

(v)           The Banks and their legal advisors carry a misconception that at the back of Borrower, they can approach the Magistrate and get his order for police help to take physical possession of the secured assets. They have been doing this also. Thus they have scarred the Borrower and the public. The Courts also have been giving confusing orders.

(vi)          In view of above, we have been advising the Borrowers to take action as advised above and spread this knowledge to the Borrower community including their Advocates. We are confident that in due course of time clear-cut court orders will be obtained as our views are based on legal fundamentals.

(vii)        In this connection, the following Supreme Court judgment will be highly useful:-

Karnataka State Financial Corporation Vs. N. Narasimahaiah {2008 (5) SCC 176}, the Supreme Court held as follows:-

“40. Right to property, although no longer a fundamental right, is still a constitutional right. It is also human right. In the absence of any provision either expressly or by necessary implication, depriving a person therefrom, the Court shall not construe a provision leaning in favour of such deprivation.”

“In a case where a Court has to weigh between a right of recovery and protection of a right, it would also lean in favour of the person who is going to be deprived therefrom. It would not be the other way round.”

(2) War on NPA Assets to Intensify, New SBI Chief Says

Mr Himanshu Mehta, one of our clients from Mumbai have drawn our attention to the following news item which is self explanatory:-

War on non-performing assets to intensify, new SBI chief says

TNN | Oct 9, 2013, 07.44AM IST

http://timesofindia.indiatimes.com/business/india-business/War-on-non-performing-assets-to-intensify-new-SBI-chief-says/articleshow/23769138.cms

MUMBAI: The new chief of the country's largest bank has said that the war on non-performing assets has intensified and that non-performing managements have no reason to continue being in office.

"There is no way that anybody can say that the war against NPA is over or that we are going to lessen the intensity. If anything, we are going to increase the intensity. Besides continuing to do what we did, we will use a lot of weapons to control the NPAs," said Arundhati Bhattacharya, chairperson, SBI, in her first interaction with the media after taking charge.

According to Bhattacharya, the new weapons would be analytics using information technology. The bank will also rationalize structures on how NPAs are managed and who takes up the issue within the bank and at what stage in order to get better and quicker responses. "We will also be looking at how to cut down the time span that we normally take for resolving NPAs by cutting down processes so that the turnaround time is less," she said. In the case of retail and farm sector, the bank is focusing on creating teams that will get down to the grassroots and contact each and every defaulting borrower and ask them to repay. According to Bhattacharya, controlling NPAs will help the bank improve other ratios such as return on equity and return on assets.

Elaborating on the scope for changing managements of defaulting companies, Bhattacharya said, "At this point, it is very difficult to bring about a change in managements, partly because earlier we did not take pledge of promoter shares. Also, while trying to sell a particular unit, there are issues. For instance, in businesses such as aluminium and steel, the permits for the ore are with other companies. But having said that, everyone in the banking industry agrees that should the management not perform, they have no right to be there and they should be changed."

On the changes that she proposes to bring in as the first woman chief of SBI, Bhattacharya said, "As a woman, I think that some problems are peculiar to women. I would try and be more sensitive to them. When I was in SBI Caps, we introduced a 6-year sabbatical for employees without pay as against 13 months in SBI. Any employee can take three sabbaticals of two years each." The only condition was that the sabbatical was available to only 5% of employees on first come, first served basis as it was a small organization.

Bhattacharya said that women usually take a break three times in their career. One is when they get married and have children. Second, when their kids are in class 10 or 12 and the third, when either parents or in-laws fall sick. "Whether I can replicate this sabbatical in SBI, I don't know," said Bhattacharya. However, she said that she has already taken a decision in the bank to remove the cap on the number of transfers that an employee can seek on account of a spouse relocating.

Our Comments

Public can only watch as to how SBI can recover Rs 7000 crores from Kingfisher Airlines and similar other high value accounts. It is needless to mention that small borrowers of few crores continue to have sleepless nights for illegal deprivation of their properties with coercive legal tools but nothing happens to thousands of crores of NPAs. But the day is not far, when the Borrowers will also acquire the application of Constitutional provisions combined with Counter-claims to hold the bank officials including their Chairman responsible to achieve just and fair court decisions.  

DRT Solutions Weekly Mail – 282^nd Issue dated 4^th October ’13

All Weekly mails right from 1^st Issue to latest, click links on top of this page

(1) Invocation of Sec 14 by the Bankers to take Physical Possession with the help of Police against Order by the Magistrate – Conditions Precedent 

The matter of physical possession has been dealt with by us in several weekly mails. We find that the borrowers and their advocates still have not paid serious attention to the conditions precedent. Our views are as under:-

(a)   In the initial stages for recovery of debt due under the Securitization Act, the bankers are only entitled for taking symbolic possession i.e. possession on paper.

(b)   Thereafter if the borrower has gone to DRT u/s 17 of the Act, the bankers are not entitled to initiate any action for taking physical possession until and unless the said DRT has issued a Recovery Certificate in favour of the bank.

(c)   Despite above, if the bankers initiate prior action for taking physical possession i.e. just after notice u/s 13(4), it will be premature and hence illegal.

(d)   When there is any Recovery Certificate issued by DRT in favour of the bank, the bank has to first arrange a buyer for the secured assets by following the prescribed procedure of law. When proper buyer has been decided, the bank should approach the borrower to give physical possession. If the borrower refuses to give the physical possession, then only the bank is entitled to approach the Magistrate to order taking physical possession with the help of police.

(e)   It is observed that the banks are invoking sec 14 even just after issue of possession notice u/s 14. As advised the borrower should issue a caveat so that he gets an opportunity of hearing before the Magistrate. Side by side the borrower should be in touch with the office of the Magistrate so that as soon as the bank approach, suitable reply is submitted to the Magistrate outlining that such approach by the bank is premature and hence illegal.

(f)    In the meantime, the borrower should file his defence including the counter-claim with the DRT.

(g)   Subsequently the borrower should file a stay application with the DRT outlining the above conditions precedent.

(h)   If proper case is made out, the DRT is bound to issue stay or to maintain status quo.

(i)    If the order of DRT goes against the borrower, he should file appeal with the DRAT. Since it will be an interim application, the DRAT should not insist for deposit if any.

(j)    If the decision of the DRAT goes against the borrower, he may approach to the High Court and the Supreme Court.

(2) Court slaps Fine on Bank for Selling Auctioned Land

The following news item published by the Times of India is self explanatory:-

Court slaps fine on bank for selling auctioned land

Manish Raj, TNN | Sep 29, 2013, 02.04 AM IST

http://timesofindia.indiatimes.com/city/chennai/Court-slaps-fine-on-bank-for-selling-auctioned-land/articleshow/23226394.cms

CHENNAI: The Madras high court has imposed an exemplary cost of 1 lakh on Indian Bank for having accepted deposit money from a third party for a property which had been auctioned and sold to another person by the bank itself.

Slamming the bankers and doubting their intentions, the court also cautioned that such conduct of a nationalised bank would result in erosion of public trust on the institution. "This conduct of the bank will certainly create a fear in the minds of the public to participate in auctions conducted by banks. By this kind of deprecatory action of the bank, the confidence level of the public in nationalised banks will certainly get diluted," observed a division bench comprising Justice K Suguna and Justice M Duraiswamy.

The matter relates to a petition filed by V S Muthupandian and S Chandresan saying though they were the confirmed auction purchasers of a property mortgaged to the Thousand Lights branch of Indian Bank, the bank authorities had received deposit money from third parties and did not give them possession of the land. They charged the bank with attempting to defraud them as well as creditors.

Manickchand Balecha and Kiran Kanwar, who were guarantors and owners respectively of the property, however, told the court that the authorised officer of the bank had played fraud as they had neither availed themselves of any loan nor did they stand guarantors for any loan secured by any person. 

Smelling fraud, the division bench pointed out that the Debts Recovery Appellate Tribunal (DRAT) had set aside the auction sale on the ground that Manickchand Balecha and Kiran Kanwar had never deposited the original documents of the property to the bank.

Wondering what prevented the duo from establishing their case before the Debts Recovery Tribunal (DRT) and not the DRAT, the judges blamed the bank for the chaos. "The bank is the sole cause for all these chaos and confusion."

Directing the bank to immediately return the money received from the third parties, the judges said: "In order to prevent nationalised banks from involving themselves in unhealthy practice, as in the present case, at least in future, this cost of 1 lakh is imposed on the bank, to be paid to the third party."