First Proviso to sub-section 1 of Section 19 says that the bank or financial institution may, with the permission of the Debts Recovery Tribunal withdraw the application made to the DRT for realisation of debts for initiating proceedings under SARFAESI Act.
For the purpose of analysing the said section the exact wordings of the provision is provided below:
Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Act, 2004 for the purpose of taking action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security InterestAct, 2002, if no such action had been taken earlier under that Act.
What we can infer from this provision is that the Bank has to obtain permission of the DRT for initiating action under SARFAESI in case an application is pending with DRT. But the said permission is not required if the SARFAESI action had been taken earlier.
In M/s Transcore versus Union of India and another it was contended by M/s Transcore the appellant in Supreme Court of India that the bank has not obtained the sanction of DRT and hence the action of the bank under SARFAESI is liable to be set aside. The brief facts of the case are as follows:
The bank issued notice under Section 13(2) of the Sarfaesi before the Amendment Act of 2004. Then after the amendment, possession notice was issued. Transcore challenged it by saying that the earlier notice was just a show cause notice and it did not constitute an action in terms of first proviso to Section 19(1). There is another question in this whether two simultaneous proceeding are possible. The bank contended that the provision was an enabling one and hence it is not mandatory.
It may be noted that SARFAESI Act is a powerful tool in the hands of Banks and financial institutions. The constitutional validity of the said Act was challenged in Mardia Chemicals Ltd and others versus Union of India and others in 2004 and the same was upheld. Notice under Section 13(2) is not a mere show-cause notice. It specifically asks the defaulter to repay the entire dues within sixty days of the issue of notice. This notice can be said to be the initiating step for the entire Sarfaesi proceeding. Furthermore as per Section 13(13) of the Sarfaesi Act the transfer of secured assets is prevented by way of issue of notice under Section 13(2). So it cannot be said that the notice is not an empty formality. It is not a mere show-cause notice. It does constitute "action taken" in Proviso to Section 19(1) of DRT Act.
Here in the above case also it was argued by the bank's counsel that Section 13(2) is a pre-condition to invoke the provision of Section 13(4). If the DRT did not grant permission to withdraw the application, then what could be the status of the banks is a question to be considered. The whole process has to be done within the period of limitation also. The counsels also contended that unless there is any express bar, a curative relief must not be restrained with the doctrine of election. The bank can choose one or more remedies open to them. In the case of no inconsistency between two remedies, the doctrine of election has no application.
Now the position is that the Bank need not obtain the permission of DRT mandatorily to proceed under SARFAESI Act.
Critical Analysis:-The Parliament has enacted a law. The Court cannot go beyond the provisions. Since the Bank has the right to come back to DRT after Sarfaesi, the provision has to be interpreted literally as it is. There is likely chance that the DRT will disallow the application to withdraw the case before it. Even if it does so and there is nothing provided in the statute in such a situation, there is no need for any fear as there will be a High Court to raise your pleadings. The Courts just don’t want the number of cases to built up. This ruling may have such an intention. Since there is a big power to the Banks without the interference of Court in Sarfaesi why should the Courts bother? I feel that this decision may be questioned sometimes later.