In a major relief to Kotak Mahindra Bank, the Supreme Court while dismissing a decade-long dispute held that the Bank cannot be prevented from exercising rights as a secured creditor on the pretext of debt to the Excise Department.
The State Bank of India was a secured creditor and the debts were transferred to the respondent, Kotak Mahindra Bank. The secured debt was created on 24.06.1985. M/s Amod Petrochem Private Limited which gave the security of both movable and immovable property fell into a difficult financial position. The Excise Department has also raised subsequent demands for the period 1985-1986 and 1986-1987 as per an order dated 25.02.2006 in terms whereof there was evasion of duty to the extent of Rs.8,67,011/- and Rs.9,87,477/-. There is also the imposition of penalty and the option of fine in lieu of confiscation.
The respondent Bank took out proceedings before the Debt Recovery Tribunal under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The debt was crystallized and thereafter steps were taken in terms of Section 14 of the Said Act before the District Magistrate for attachment of properties. The movable assets undisputedly stand sold. The question now arose with regards to the immovable property.
The question has arisen on account of a direction sought by the Bank before the High Court qua non-implementation by the District Magistrate. In those proceedings, the Single Judge raised certain issues, including, whether the Bank could steal a march over the rights of the central government to recover its dues. The matter was kept pending by the Single Judge. The Bank, aggrieved by the same, filed a Letters Patent Appeal and by an elaborate judgment, the Letters Patent Appeal and the Writ Petition both were allowed in terms of the impugned judgment.
“We must note the great irony of the situation where the Bank is required to protect an immovable property for more than a decade on account of this issue pending and consequently, incur further amounts for the said purpose,” the division bench of Justice Sanjay Kishan Kaul and Justice Hrishikesh Roy.
The bench further said that the respondent Bank cannot be prevented from exercising its rights as a secured creditor on the pretext that there is a debt to the Excise Department arising from the confiscation order dated February 25, 2006.
“On realization of the dues of the Bank, if amounts are still left, those amounts can be utilized to satisfy the dues of the Excise Department, and naturally, if there are still amounts left, the debtor would be the beneficiary of the same. All we can say is that possibly the passage of time may have resulted in real estate escalation which may, in turn, result in the satisfaction of everybody’s claim! That is the only positive aspect of this long prolongation of a dispute of over a decade,” the bench observed.
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