* IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 23.07.2012

% Date of decision: 17.09.2012

+ W.P.(C) 1487/2011

CHEMSTAR ORGANICS INDIA LIMITED ..... Petitioner

Through: Mr.Sumesh Dhawan, Mr.Akshay Ringe

and Mr.Arnav Kumar, Advocates.

versus

BANK OF BARODA & ORS. ..... Respondents

Through: Mr.R.P.Agrawal, Ms.Priyadarshini

Varma and Mr.Krishna Dev Pandey,
Advocates for R-1/Bank of Baroda.

Mr.Amit Mahajan, Advocate for R-2.

CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‘BLE MR. JUSTICE VIPIN SANGHI

SANJAY KISHAN KAUL, J.

1. M/s Chemstar Organics India Limited (COIL), petitioner-company,

availed of term loans from both Gujarat Industrial Investment
Corporation (GIIC) and Bank of Baroda (BOB), R-2 and R-1
respectively with R-2 being the lead financial institution. It is the say
of the petitioner that more than 75% of the long term financial
assistance was obtained from R-2 while the remaining was availed
from R-1.

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WP (C) No.1487 of 2011 Page 1 of 20
 2. The petitioner-company had financial difficulties and failed to adhere
to the discipline of the terms of the loan. This resulted in a notice
being issued by BOB to the petitioner-company dated 15.06.2006
under Section 13(2) of The Securitization and Reconstruction of
Financial Assets and Enforcement of Security Act, 2002 (SARFAESI
Act). This notice is stated to be qua the residential property of the
promoters of the petitioner-company – Mr. Ashutosh Majmudar and
Mrs. Ami Majmudar – in respect of which equitable mortgage had
been created in favour of BOB. It may be noticed that some dispute
has been raised by the petitioner/company qua the alleged equitable
mortgage, but the fact remains that in pursuance to the said notice,
BOB took over symbolic possession of the residential property of the
promoters under Section 13(4) of the SARFAESI Act on 12.01.2007.
The promoters of the petitioner/company, who are the owners of the
residential property thus approached DRT-I, Mumbai under Section
17 of the SARFAESI Act by filing SA No.4/2007 on 09.02.2007
alleging that no security/equitable mortgage had been created qua the
residential property and that BOB could not have issued the notice or
taken symbolic possession of the residential property as they did not
constitute 3/4th of the secured creditors and did not have the consent
of the majority creditors i.e. GIIC as per the requirements of Section
13(9) of the SARFAESI Act before initiating the process under
Section 13(4) of the SARFAESI Act. In these proceedings, the DRT
on 08.03.2007 granted an order of status quo prohibiting the BOB
from taking further action in pursuance to the symbolic possession
taken by them of the residential property.

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WP (C) No.1487 of 2011 Page 2 of 20
 3. The second set of legal proceedings emanated from the claim of the
petitioner-company that its net worth had been wiped out and thus it
filed a reference before the Board for Industrial and Financial
Reconstruction (BIFR) in April, 2007 under Section 15 of the Sick
Industrial Companies (Special Provisions) Act, 1985 {SICA}. The
reference was still pending consideration when a second notice was
issued on 05.04.2008 by BOB under Section 13(2) of the SARFAESI
Act qua the assets of the petitioner-company situated at Village
Nandesari, District: Vadodara and at Umraya, Taluka: Padra, District:
Vadodara. The notice was replied to by the petitioner-company
through their counsel on 21.04.2008 alleging that the assets over
which BOB was claiming security interest had been secured by GIIC
and that the requirement of the statute of consent of at least 3/4 th of
the secured creditors was not satisfied as no consent by GIIC had been
forwarded to the petitioner. A more detailed reply dealing with the
other aspects was sent by the petitioner on 22.05.2008 and since no
response had been received in respect of the query raised by the
petitioner/company, a stand was sought to be taken that the right to
take any further action against the petitioner-company had lapsed. In
the proceedings held before the BIFR on 03.07.2008, it is alleged,
conflicting stands were put forth by the BOB and GIIC inasmuch as
the representatives of BOB submitted that the symbolic possession of
the assets of the petitioner-company had been taken over with the
consent of the GIIC while on the other hand the representative of the
GIIC states that till that date they did not give the consent to BOB for
taking any action under Section 13(4) of the SARFAESI Act. The
GIIC, however, simultaneously stated that in the proceedings before
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WP (C) No.1487 of 2011 Page 3 of 20
 the Gujarat High Court emanating from the provident fund recovery,
an agreement had been recorded that the land, building, plant &
machinery to be sold by public auction and the proceeds realized
shall, after squaring the amount of provident fund, be distributed
between GIIC and BOB having pari passu charge over the assets.
The BIFR consequently called upon the BOB to submit a copy of the
consent letter obtained from GIIC for taking action under Section
13(4) of the SARFAESI Act.
4. The petitioner-company immediately on the next date of hearing on
04.09.2008 sought release of the possession of the properties taken
over under Section 13(4) of the SARFAESI Act.
5. The promoters of the petitioner-company on 22.08.2008 moved an
application in SA No.4/2007 predicated on the plea that since the
petitioner-company‘s reference was pending before the BIFR, there
was protection qua the proceedings under the SARFAESI Act in view
of Section 22 of SICA which benefit was available even to the
guarantors. An additional plea was also taken that BOB did not
represent 3/4th of the value of the total outstanding of the financial
assistance rendered to the petitioner-company. The petitioner-
company claims that the issue of absence of consent stood clarified as
BOB itself filed an affidavit affirmed on 01.09.2008 to the effect that
it was under an impression that the consent and approval of GIIC was
available qua the proceedings initiated for realization of security
under the SARFAESI Act, but the GIIC vide letter dated 17.07.2008
had conveyed that the issue of consent had been put up to the higher
authorities of GIIC and instructions were awaited. This fact was
noticed in the proceedings before the BIFR held on 04.09.2008 when
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WP (C) No.1487 of 2011 Page 4 of 20
 the orders were reserved. The orders were pronounced by the BIFR
on 12.11.2008 dismissing the reference as non-maintainable. The
basis for this order was that the petitioner/company had not been able
to dispute that its factory was lying closed since 2001 and both the
industrial units had been taken over by GIIC in 2001 and 2004. The
closure had resulted in the loss of industrial character of the
petitioner-company as envisaged under Section 3(2)(b) of SICA r/w
Section 3(d) of the Industries (Development and Regulation) Act,
1951 which defines an ―industrial undertaking‖ in the following
terms:
― ‗industrial undertaking‘ means any undertaking
pertaining to a scheduled industry carried on in
one or more factories by any person or authority
including Government.‖

The petitioner-company, thus, filed an appeal u/s 25 of the

SICA being Appeal No. 246/2008 before the appellate authority i.e.
AAIFR on 03.12.2008.
6. In the other parallel proceedings pending before the DRT emanating
from the notice of BOB under Section 13(4) of the SARFAESI Act
where an application had been filed on 22.08.2008 in SA No.4/2007,
the DRT on 06.10.2009 dismissed the stay application. The petitioner-
company filed miscellaneous appeal no.274/2009 before the DRAT,
Mumbai against that order and partly succeeded when the DRAT on
20.04.2010 directed the DRT to proceed with SA No.4/2007 keeping
all contentions of the parties open including the issue raised in the
miscellaneous application.

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WP (C) No.1487 of 2011 Page 5 of 20
 7. The proceedings initiated before the AAIFR against the order of the
BIFR dated 12.11.2008, however, failed when the appeal was
dismissed on 14.01.2011. The petitioner-company raised the issue of
the proceedings under Sections 13(2) and 13(4) of the SARFAESI Act
being bad in law as the notice dated 15.06.2008 had been issued by
BOB alone apart from the fact that it was qua the residential property
alleged to have been given as collateral security and not qua the
company‘s assets. This residential property was owned by the
guarantors who were the promoters of the petitioner-company. BOB
did not have the permission of the GIIC which was 75% charge holder
of the assets of the petitioner-company. This position was contested
by BOB stating that the account of the petitioner-company was
declared NPA on 30.09.2000 though the notice under Section 13(2) &
13(4) of the SARFAESI Act was issued much later. Symbolic
possession of the factory, land & building had also been taken over on
30.06.2008. This had been followed up by an order dated 06.10.2009
of the DRT, Mumbai in SA No.4/2007 where the application of the
petitioner-company filed on 22.08.2008 had been dismissed observing
that in view of the third proviso to Section 15(1) of SICA, the
reference pending before BIFR would stand abated. The third proviso
was observed to equally apply to the proceedings before the AAIFR.
The AAIFR noted the undisputed fact of there being pari passu
charge over the factory premises and in view of the escalation of dues,
GIIC had taken over possession of the units of the petitioner-company
– Nandesari unit on 01.10.2002 and the Umraya Unit on 23.06.2004
under Section 29 of State Financial Corporation Act, 1951.

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WP (C) No.1487 of 2011 Page 6 of 20
 8. A reference has also been made to the proceedings before the Gujarat
High Court where consent had been recorded for sale of the assets of
the petitioner-company by public auction and the endeavour of the
petitioner-company to seek a recall of that order dated 10.08.2007
clarifying that the order would not come in the way of the petitioner-
company in the proceedings before the BIFR or AAIFR i.e. it should
not be treated as an order granting permission to sell the property of
the company. The stand of the GIIC before the AAIFR was that since
possession of the unit had been taken over by the GIIC under Section
29 of the State Financial Corporation Act, 1951, the petitioner-
company could not have been employing more than 50 workers as the
factory was lying closed for more than three years. The electricity
meters were found to be lying locked and thus obviously the factory
was not running. The GIIC also stated that subsequently on
30.10.2009 it had given consent to BOB to take action under the
SARFAESI Act subject to certain terms and conditions.
9. The AAIFR took up the issue of abatement of proceedings first which
arose from the action taken by BOB under Section 13(4) of the
SARFAESI Act. In this context, the stay had been declined on
06.10.2009 by the DRT in SA No.4/2007 but the DRAT vide order
dated 20.04.2010 had disposed of the appeal with the observations
that in view of the legal position enunciated in M/s.Patheja
Bros.Forgings and Stamping and Anr. v. ICICI Ltd and Ors.; AIR
2000 SC 2553, the matter required to be examined in that context.
The only prayer made on behalf of the petitioner/company was that
the observations/findings of the Tribunal should not be taken as final
between the parties so as to preclude the petitioner from raising the
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WP (C) No.1487 of 2011 Page 7 of 20
 point before the Tribunal when SA No.4/2007 is taken up for final
disposal. The DRAT directed that SA No.4/2007 be taken up in
accordance with law and all the contentions of the parties were kept
open including the ones raised at the time of disposal of the interim
stay application on 06.10.2009 which order would not influence the
final adjudication. If we may say so, the effect of this order was only
thus that the observations made at the interlocutory stage would not
prejudice the final adjudication of the SA. In view of the aforesaid
order, the AAIFR drew the conclusion that the DRT would be called
upon in SA No.4/2007 to decide whether the action taken under
Section 13(4) of SARFAESI Act was legal or not which in turn would
be dependent on whether the consent of the secured creditors
representing 3/4th of value of the total outstanding of the financial
assistance rendered to the petitioner-company, was or was not taken.
The AAIFR, thus, refused to assume concurrent jurisdiction under
SICA to decide the same issue relying upon its earlier order in Appeal
No.229/2008 Sheel International Limited decided on 19.05.2010
where it was held that whether the parameters of Section 13(9) of the
SARFAESI Act on consent of 3/4th of the secured creditors was or
was not fulfilled has to be determined under the SARFAESI Act.
Insofar as the BIFR/AAIFR is concerned, it cannot look into the
correctness or legality of that action as otherwise it would be using the
powers to be exercised under Section 17 of SICA which it could not
do. The conclusion thus was that once action is taken under Section
13(4) and symbolic possession is also taken, then in view of the third
proviso to Section 15(1) of SICA the reference would abate but with a
clarification that if such action is taken under Section 13(4) is set
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WP (C) No.1487 of 2011 Page 8 of 20
 aside by the competent court, the petitioner would be at liberty to seek
revival of the appeal before the AAIFR and the AAIFR would in turn
be free to decide the question of dismissal of reference as not being
maintainable.
10. The further development which we would like to note arising post
filing of the writ petition is that SA No.4/2007 has been dismissed by
the DRT, Mumbai vide order dated 07.02.2012.
11. The DRT found that a proper equitable mortgage by deposit of title
documents has been created qua the residential property to secure the
outstandings and original documents had been deposited in that behalf
apart from it being recorded in the Memorandum of Entry dated
30.01.2012. The plea of inability to create equitable mortgage on
account of negative lien in favour of GIIC has been rejected as no
negative lien was found. The second aspect on which finding has been
recorded by the DRT is that the securitization proceedings had been
initiated only against the guarantors qua the residential property
owned by them for which no consent of GIIC was necessary. The
GIIC had got the first charge over the fixed assets including land and
building, plant & machinery leaving the second charge for BOB while
the residential property was mortgaged exclusively to BOB and thus
the notice under Section 13(2) and 13(4) of SARFAESI Act qua the
residential property could be proceeded with or without any consent
of GIIC.
12. Insofar as the relevance of judgment in M/s.Patheja Bros.Forgings
and Stamping and Anr. v. ICICI Ltd and Ors‘s case (supra) is
concerned, it laid down that a suit against the guarantor of a loan or
advance granted to concerned industrial company would not be
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WP (C) No.1487 of 2011 Page 9 of 20
 maintainable or be proceeded with, without the sanction of the BIFR
or the appellate authority. Thus, Section 22 of SICA was held to be
wide enough to cover a suit for enforcement of a guarantee in respect
of a loan or advance to the industrial company.
13. We would also like to note the judgment referred to by learned
counsel for the respondent of the learned Single Judge of the
Karnataka High Court in WP(C) No.21646/2005 M/s Saketh India
Limited v. Indian Bank & Anr, decided on 20.03.2008. In the said
case also, similarly two questions had been raised i.e. the secured
creditors cannot proceed under Section 13(2) of the SARFAESI Act
without the consent of 3/4th of the value of the secured creditors
outstanding in view of Section 13(9) of the SARFAESI Act and
second, the notice under Section 13(2) of the SARFAESI Act is not
maintainable where a reference is pending before the BIFR under
SICA. In order to appreciate the said orders, it is relevant to state that
the Chapter III of the SARFAESI Act deals with enforcement of
security amount. The relevant parts of Section 13 read as under:
―13.ENFORCEMENT OF SECURITY INTEREST.-

(1) Notwithstanding anything contained in section 69

or section 69A of the Transfer of Property Act, 1882
(4 of 1882), any security interest created in favour of
any secured creditor may be enforced, without the
intervention of the court or tribunal, by such creditor
in accordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a

secured creditor under a security agreement, makes
any default in repayment of secured debt or any
instalment thereof, and his account in respect ofsuch
debt is classified by the secured creditor as non-

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WP (C) No.1487 of 2011 Page 10 of 20
 performing asset, then, the secured creditor may
require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor within
sixty days from the date of notice failing which the
secured creditor shall be entitled to exercise all or any
of the rights under sub-section (4).

xxxxxxx

(4) In case the borrower fails to discharge his liability

in full within the period specified in sub-section (2),
the secured creditor may take recourse to one or more
of the following measures to recover his secured debt,
namely:—

(a) take possession of the secured assets of the

borrower including the right to transfer by way of
lease, assignment or sale for realising the secured
asset;

(b) take over the management of the secured assets of

the borrower including the right to transfer by way of
lease, assignment or sale and realise the secured asset;
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the possession
of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any
person who has acquired any of the secured assets
from the borrower and from whom any money is due
or may become due to the borrower, to pay the
secured creditor, so much of the money as is sufficient
to pay the secured debt.

xxxxxxxxx

(9) In the case of financing of a financial asset by

more than one secured creditors or joint financing of a
financial asset by secured creditors, no secured
creditor shall be entitled to exercise any or all of the
rights conferred on him under or pursuant to sub-
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WP (C) No.1487 of 2011 Page 11 of 20
 section (4) unless exercise of such right is agreed
upon by the secured creditors representing not less
than three-fourth in value of the amount outstanding
as on a record date and such action shall be binding on
all the secured creditors:
… … … … … … … … … … … … …‖

14. In fact, in the present case, the consent from the other secured
creditors is stated to have been obtained subsequently which was
contended to be of no avail. However, all these pleas were negated. It
was held that Section 13(9) of the SARFAESI Act would apply to
creditors where all the financiers have jointly financed a financial
asset and thus a single creditor cannot exercise any or all of the rights
conferred on him under Section 13(4) of the SARFAESI Act. Thus, if
a Bank is proceeding against the debtor, only in respect of the
properties offered as security to it, by exercising powers under the
provisions of Section 13(4) of the SARFAESI Act, the debtor cannot
contend that such proceedings are bad in law in view of Section 13(9)
of the SARFAESI Act.
15. A second limb of the conclusion was that if the provisions of Section
13(9) of the SARFAESI Act can be exercised by any other Bank or
financial institutions who have advanced loans to the creditor in order
to safeguard their interest, a borrower cannot avoid payment by
relying upon Section 13(9) of the SARFAESI Act. In that case, no
other bank or financial institution had raised such a contention before
the Court. In the present case also, there is ultimate consent by the
GIIC and the initial action taken against the residential property was
qua an asset which had been given as security only to BOB while in
respect of the assets of the company, there was a pari passu charge of

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WP (C) No.1487 of 2011 Page 12 of 20
 GIIC and BOB. It has also been held that the proceedings before the
BIFR stand abated when the financial institution has been permitted to
proceed under Section 13 of the SARFAESI Act.
16. On the other hand, the petitioner has relied upon the judgment of the
Division Bench of the Madras High Court in WP(C) No.29330/2010
M/s India Radiators Ltd v. India Bank & Ors and connected matters,
decided on 13.06.2011 where it was held that the BIFR and AAIFR
had committed error in closing the proceedings by declaring them as
abated without awaiting orders of the DRT. It has thus been held that
the BIFR should have ensured that a factual adjudication was made by
the statutory authority with regard to the contention raised by the
petitioner that the banks do not represent 3/4th in value of the amount
of outstandings as a positive finding in this behalf is necessary before
the proceedings would abate and thus the BIFR was not justified in
declaring the proceedings as abated even before the disposal of the
SARFAESI appeal.

CONCLUSION
17. The most important aspect to be kept in mind is that there are two
different sets of assets. The first is the residential property owned by
the promoters of the petitioner-company qua which equitable
mortgage has been created only in favour of BOB. The second set of
assets are the factory premises over which GIIC and BOB had pari
passu charge. Thus, the initialization of the proceedings under the
SARFAESI Act was separate. BOB issued notice under the
SARFAESI Act qua the residential property on 15.06.2006 and took
over symbolic possession on 12.01.2007. The second notice issued
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WP (C) No.1487 of 2011 Page 13 of 20
 qua the factory premises by BOB was dated 05.04.2008. It is qua the
second notice really that the question arose as to whether the
requirement under the statute of consent of at least 3/4th of the secured
creditors was not satisfied as a consequence of absence of consent of
GIIC. BOB sought to take a stand that the consent of GIIC was
available, while the stand of GIIC was that till date they had not given
the consent to BOB. However, GIIC also simultaneously took a stand
that an agreement had been recorded that the land, building, plant and
machinery be sold at public auction and the proceeds realized
therefrom after squaring the amount of provident fund, be distributed
between GIIC and BOB having pari passu charge over the assets.
This aspect was, however, clarified thereafter by BOB stating that it
was under an impression that the consent and approval of GIIC was
available, but as it transpired, the issue of consent had been placed
before the higher authority of GIIC and instructions were awaited.
18. The rationale for dismissal of the reference as non maintainable by the
order dated 12.11.2008 of BIFR was, however, that the petitioner-
company had not been able to dispute that its factory was lying closed
since 2001 and both the units had been taken over by GIIC in 2001
and 2004 which had resulted in the loss of industrial character of the
petitioner-company in view of Section 3(2)(b) of SICA r/w Section
3(d) of the Industries (Development and Regulation) Act, 1951. It is
this order which was assailed by the petitioner in Appeal No.246 of
2008 before the AAIFR. The appeal was, however, dismissed on
14.01.2011 which order is now sought to be assailed in the present
writ petition filed under Article 226 of the Constitution of India.

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WP (C) No.1487 of 2011 Page 14 of 20
 19. The order of the AAIFR dated 14.01.2011 records the plea of the
petitioner-company that qua the mortgaged property owned by the
petitioner-company, the notice dated 15.06.2006 issued by BOB was
bad in law as the consent of GIIC having pari passu charge had not
been obtained. Thus, the consent of 75% of the charge holders of the
assets of the petitioner-company was not available. The AAIFR took
note of the GIIC having taking over possession of the units of the
petitioner-company under Section 29 of State Financial Corporation
Act, 1951 – Nandesari unit on 01.10.2002 and the Umraya Unit on
23.06.2004. The order of the DRT, Mumbai dated 06.10.2009
dismissing the application of the petitioner-company was also taken
note of where it had been observed that in view of the third proviso to
Section 15(1) of SICA, the reference pending before BIFR would
stand abated, the said provision equally applying to proceedings
before the AAIFR. Another aspect taken note of by the AAIFR is the
consent recorded for sale of assets of the petitioner-company before
the Gujarat High Court coupled with endeavour of the petitioner-
company to seek recall of that order dated 10.08.2007 clarifying that
the order would not come in the way of the petitioner-company in the
proceedings before the BIFR or AAIFR i.e. it should not be treated as
an order granting permission to sell the property of the company.
20. The facts germane, taken note of by the AAIFR qua the closure of the
factory of the petitioner-company, were the taking over of possession
of the units by GIIC under Section 29 of the State Financial
Corporation Act, 1951 and the impossibility of the petitioner
employing more than 50 workers on account of the factory lying
closed for more than 3 years. Even the electricity meter was found to
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WP (C) No.1487 of 2011 Page 15 of 20
 be lying locked and the factory could not be said to be running.
Insofar as the abatement of proceedings before the BIFR is concerned,
it was noticed that the notice issued by BOB under Section 13(4) of
SARFAESI Act qua the assets of the company was material and stay
had been declined by the DRT on 06.10.2009 in SA No.4/2007. The
DRAT while dealing with the appeal in its order dated 20.04.2010
considered the prayer for the petitioner-company that the
observations/findings of the DRT should not be taken as final between
the parties so as to preclude the petitioner-company from raising the
point before the DRT at the stage of final disposal of SA No.4/2007.
The DRAT, thus, only ensured the legal principle that the decision on
an interim application should not prejudice the ultimate decision on
the appeal.
21. The AAIFR was of the opinion that the aforesaid proceedings imply
that the DRT would ultimately be called upon in SA No.4/2007 to
decide whether the action taken under Section 13(4) of SARFAESI
Act was legal or not, which in turn was dependent upon the consent of
the 3/4th value of the secured creditors and thus the AAIFR refused to
assume concurrent jurisdiction as that was an aspect to be decided
under the SARFAESI Act and not under SICA.
22. The AAIFR has, thus, concluded that once interim findings have been
arrived at against the petitioner-company in the proceedings before
the DRT/DRAT under the SARFAESI Act, with possession being
taken over, the reference would abate in view of the third proviso to
Section 15(1) of SICA. This was, however, with a clarification that if
the action taken under Section 13(4) of the SARFAESI Act is
ultimately set aside, the petitioner-company would be at liberty to
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WP (C) No.1487 of 2011 Page 16 of 20
 seek revival of the appeal before the AAIFR and the question of
dismissal of reference being erroneous would be examined.
23. We may also note that a further material development which has
taken place during the pendency of the present writ petition is that SA
No.4/2007 has been dismissed by the DRT, Mumbai vide order dated
07.02.2012. Thus, the final order has also been passed by the DRT,
Mumbai. Various pleas of petitioner-company about absence of
equitable mortgage qua residential property, inability to create
equitable mortgage on account of negative lien in favour of GIIC
(negative lien not having been found), all stand rejected. In fact, the
DRT has observed that the securitization proceedings being initiated
only against guarantors qua the residential property owned by them
and mortgaged with BOB, did not require consent of GIIC.
24. We have set out the salient facts in view of the multiplicity of
proceedings which had been initiated. To our mind, the crucial
question is the very object of introduction of the SARFAESI Act and
as to how Section 13(9) of the said Act has to be read in that context.
The purpose of enactment of SARFAESI Act was to enable the banks
and financial institutions to realize long term assets, manage problems
of liquidity, asset liability mis-match and improve recovery by
exercising powers to take possession of the securities and realize
proceeds through sale. This was to assist in reduction of non-
performing assets by adopting measures for recovery or
reconstruction. Chapter III deals with enforcement of security interest
and Section 13 forms a part of this Chapter. Any security interest in
favour of secured creditors has, thus, been made enforceable without
intervention of court or tribunal in accordance with the provisions of
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WP (C) No.1487 of 2011 Page 17 of 20
 SARFAESI Act. If Section 13(9) is read in that context, it is obvious
that this is a beneficial provision for the secured creditors and not the
debtor. The reason for the same is that there may be more than one
secured creditor or joint financiers and one secured creditor should
not be able to appropriate the proceeds of the secured assets or take a
decision in that behalf without concurrence of the other secured
creditors. The benchmark provided herein is of three-fourth value of
the secured creditors. Thus, if this benchmark is met, a secured
creditor exercises all rights conferred on him in pursuance to Section
13(4) of the said Act. This protects the interests of the other secured
creditors as also gives weightage to their opinion. The only infirmity
qua the action of BOB relied upon by the petitioner-company in the
present case is the absence of consent beforehand from other secured
creditor viz.GIIC so as to meet the benchmark of three-fourth in value
of the secured creditors. It is, however, not in dispute that consent was
accorded by GIIC. The provisions of Section 13(9) of the SARFAESI
Act are not meant to be an instrument of defence by a borrower to
avoid payment where ultimately three-fourth of the value of the
secured creditors are at idem on the action proposed or taken. We
have to also keep in mind that with regard to the initial notice of BOB
qua the residential property of the promoters of the petitioner-
company, GIIC had no interest. Qua the other assets, there was a pari
passu charge of GIIC and BOB as is admitted by GIIC. It is obvious
that the petitioner-company is using the absence of earlier consent of
GIIC as a ruse to deny payment of liability to both the creditors.
25. We are in complete agreement with the view of the learned single
Judge of the Karnataka High Court in M/s Saketh India Limited Vs.
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 Indian Bank and Another‘s case (supra) where it has been observed
in para 21 as under:
― 21. After carefully considering Section 13(9) of the
Securitization Act, this Court is also of the opinion that
the petitioner cannot raise such a contention because
the petitioner has not availed the loan from various
financial institutions jointly or separately offering the
very same properties as security. When the respondent
No.1 Bank is proceeding against the petitioner only in
respect of the properties offered as security by
exercising its power under the provisions of the
Securitization Act, the petitioner cannot contend that
such a proceeding is bad in law in view of Section
13(9) of the Securitization Act. Moreover, the
petitioner cannot press the provisions of Section 13(9)
of the Act. Since such a right can be exercised by any
other Bank or financial institutions who have advanced
loan like the respondent No.1 in order to safeguard
their interest and a borrower cannot avoid payment to
respondent No.1 relying upon Section 13(9) of the Act.
In the instant case no other bank or financial institution
have raised such a contention before this Court.‖

26. Now coming to the view taken by the Division Bench of the Madras
High Court in M/s India Radiators Ltd v. India Bank & Ors‘s case
(supra) requiring the BIFR to await the orders of the DRT qua the
issue of secured creditors of three-fourth value, before abating
proceedings, we are of the view that the AAIFR in the present case
has taken due precaution to give leave to the petitioner-company to
revive the appeal in case of a favourable verdict by the DRT and the
AAIFR would in turn be free to decide the question of dismissal of
reference as not being maintainable. We have adopted this view, as a
prima facie view has already been arrived at by the DRT unfavourable
to the petitioner-company which had been approved by the DRAT.

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WP (C) No.1487 of 2011 Page 19 of 20
 No doubt the final view of the DRT was awaited. Thus, the approach
adopted by the AAIFR cannot be said to be patently erroneous so as
to call for interference under Article 226 of the Constitution of India.
In fact, the subsequent development of the DRT having dismissed SA
No.4/2007 vide the order dated 07.02.2012 leaves no manner of
doubt.
27. We are thus of the view that the impugned order of the AAIFR dated
14.01.2012 does not call for any interference by us in exercise of
jurisdiction under Article 226 of the Constitution of India especially
as, while directing that the reference has abated, due care has been
taken by the AAIFR by simultaneously clarifying that if the action
taken under Section 13(4) of SARFAESI Act is set aside by the
competent court (as it transpires now, the result is to the contrary as
the appeal stands dismissed), the petitioner-company would have
liberty to seek revival of the appeal before AAIFR and the AAIFR
would be free to decide dismissal of reference as not maintainable.
28. The writ petition is accordingly dismissed leaving the parties to bear
their own costs.

SANJAY KISHAN KAUL, J.

SEPTEMBER 17, 2012 VIPIN SANGHI, J.

dm

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