The Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 or the SARFAESI Act has provided for considerations of the debtor’s case to be heard including the reasons for the alleged default, which may be due to account of unexpected and unseen circumstances. The Legislature has intended to give an opportunity to the debtor to put forth its case in reply to any notice issued to it under Section 13(2) of the Act by the secured creditor. The Supreme Court, in the matter of ITC Limited V/s Blue Coast Hotels Ltd. And Ors, heard the appeal filed by the Appellant challenging the stay on public auction of the hotel property of the respondent.
The Respondent Debtor i.e. Blue Coast Hotels had sought a loan from IFCI for a sum of Rs. 150 crores. The Respondent Debtor, however, defaulted in repayment of the loan, and hence, its account was declared as a Non-Performing Asset (NPA). After issuance of the notice by IFCI under Section 13(2) of the Act, the Respondent Debtor sought extension of time for payment of dues. However, the Respondent Creditor took symbolic possession of the mortgaged property and published a notice for auction sale of the property.
Although the Apex Court set aside the order of the Bombay High Court and directed the handing over of the mortgaged properties to the Appellant, it also concluded that the Sub-Section 3A to Section 13 of the Act is mandatory as such that a provision which provides for communication of reasons for not accepting the representation must be considered mandatory. It further elaborated in its reasoning stating that “Such a provision is an integral part of the duty to act fairly and reasonably and not fancifully. We are not prepared in such circumstances to interpret the silence of the Parliament in not providing for any consequence for non-compliance with a duty to furnish reasons. The provision must nonetheless be treated as ‘mandatory’.”
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