The Hindu : Business : Banks can proceed with notices to borrowers: High Court

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Saturday, Jul 09, 2005

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Banks can proceed with notices to borrowers: High Court

Special Correspondent

CHENNAI: The Madras High Court has ruled that it would not interfere with the notices issued by banks to mega borrowers under the Securitisation Act, and said that if notices were issued before November 11, 2004 the banks need not withdraw their applications before the Debts Recovery Tribunals (DRT) to proceed under the Act.

Dismissing a large number of writ petitions from borrowers, the First Bench comprising the Chief Justice Markandey Katju and Justice F.M. Ibrahim Kalifulla said: "Notice under Section 13(2) of the Act is really a show-cause notice, and ordinarily this court does not interfere with show-cause notices. The notice does not give rise to any cause of action because it does not affect any right or liability of a borrower." Noting that the writ petitions challenging such notices were "premature," the Bench said, "it is possible that the secured creditor may be satisfied with the reply of the borrower and may drop the proceedings." It then dismissed all such petitions on the ground that they were premature and there existed an alternative remedy.

Some of the petitioners had contended that if an application of a bank or financial institution was pending before the DRT then action could not be taken under the Securitisation Act without first getting permission from the DRTs to withdraw the pending applications. They relied on an amendment made in 2004 and which came into effect from November 11, 2004.

To this, the Bench said: "In our opinion, if the notices had been issued prior to November 11 there is no requirement to take permission from the DRT for withdrawal of an application pending before it.

"It is only where notice under Section 13(2) is sought to be issued subsequent to November 11, that permission for withdrawal of an application before the DRT is necessary. And no action can be taken under the Securitisation Act before grant of such permission by the Tribunal."

Pointing out that the Act dealt only with secured assets, the Bench said that in case of unsecured assets banks' applications before the DRTs could continue or even fresh applications could be filed.

As for the prayer that the court direct one-time settlement or fixing of instalments, the Bench said this could be done only by the bank or financial institution which granted the loan and not under the writ jurisdiction.

The bench observed that interim orders staying recoveries passed by various courts, "were wholly unjustified" and based on an over liberal approach.

This resulted in harm to the economy and denial of credit to those who were genuinely in need of credit.

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