# ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS

- **Citation:** [2018] 5 S.C.R. 516
- **Court:** Supreme Court of India
- **Decided:** 2018-03-19
- **Case number:** Civil Appeal Nos. 2928-2930 of 2018
- **Bench:** S. A. Bobde, L. Nageswara Rao
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/itc-limited-v-blue-coast-hotels-ltd-ors-32934
- **Pages:** 35

## Headnote

Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.13(4) - Grievance of
debtor was that after the creditor issued the notice under s.13(2),
the debtor made a representation asking for a reschedulement of
the loan which the creditor neither considered nor communicated
the reasons for non-acceptance thereof - Whether recovery
proceedings were in breach of s.13(3A) for failure of the creditor to
reply to the representation of the debtor and for want of a reasoned
order - Held: s.13(4) envisages that if debt is classified as NPA, the
creditor may by notice in writing require the debtor to discharge his
liabilities within 60 days - After that debtor may make a
representation and creditor is then bound to consider the
representation and communicate the reasons for non-acceptance
of representation within 15 days - When debtor fails to discharge
his liability in full, the creditor may take any of the actions under
sub-section (4) which include taking over the possession of secured
assets - In the instant case, the creditor was induced by the debtor
not to take action against them through assurances and promises -
The creditor entered into negotiations for the settlement of the dues
and even accepted cheques in repayment much after the notice under
s.13(2) and after the debtor's letter of representation - Many
opportunities were granted by the creditor to the debtor to repay
the debt which were all met by proposals for extension of time - The
debtor ignored the symbolic possession taken over by the creditor
and continued to negotiate and even gave six cheques which were
dishonoured - The debtor then gave a final letter of undertaking
agreeing that the creditor could take over possession of the assets
if the debt was not repaid - All along, the debtor's response has
been that of seeking extension of time to pay, with the usual
unfulfilled promise of repayment - In the fact and circumstances of
[2018] 5 S.C.R. 516
 516
A
B
C
D
E
F
G
H
517
this case, the debtor is not entitled to the discretionary relief under
Art.226 of the Constitution which is indeed an equitable relief -
Equity - Constitution of India - Art. 226.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.13(3A) - Purpose of
introduction of s.13(3A) - Held: s.13(3A) was introduced with a
plain intention to introduce a pause for the creditor to rethink and
reconsider the action proposed by the debtor.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s. 13(3A) - Whether
s.13(3A) is mandatory or directory in nature - There is no doubt
that if a reply with reasons is an integral and indispensable part of
the statutory scheme, the Courts would not excuse a departure from
it - But, on the other hand, if the reply is merely a direction and not
of substance to the scheme, the non-compliance may be excused -
The language of sub-section (3A) is clearly impulsive - It states
that the secured creditor "shall consider such representation or
objection and further, if such representation or objection is not
acceptable or tenable, he shall communicate the reasons for nonacceptance" thereof - There is no reason to marginalize or dilute
the impact of the use of the imperative 'shall' by reading it as 'may'
- The word 'shall' invariably raises a presumption that the particular
provision is imperative - However, in the instant case, failure to
furnish a reply to the representation is not of much significance
since the creditor undoubtedly considered the representation and
the proposal for repayment made therein and in fact granted
sufficient opportunity and time to the debtor to repay the debt without
any avail - Therefore, in the fact and circumstances of this case,
the debtor is not entitled to the discretionary relief - Interpretation
of statutes.
Securitisation and Reconstruction of Fina

## Text

_Characters 0–39,777 of 80,855. This is a partial read: ask again with offset=39777 for what follows._

A
B
C
D
E
F
G
H
516
SUPREME COURT REPORTS
[2018] 5 S.C.R.
 ITC LIMITED
v.
 BLUE COAST HOTELS LTD. & ORS.
(Civil Appeal Nos. 2928-2930 of 2018)
 MARCH 19, 2018
[S. A. BOBDE AND L. NAGESWARA RAO, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.13(4) - Grievance of
debtor was that after the creditor issued the notice under s.13(2),
the debtor made a representation asking for a reschedulement of
the loan which the creditor neither considered nor communicated
the reasons for non-acceptance thereof - Whether recovery
proceedings were in breach of s.13(3A) for failure of the creditor to
reply to the representation of the debtor and for want of a reasoned
order - Held: s.13(4) envisages that if debt is classified as NPA, the
creditor may by notice in writing require the debtor to discharge his
liabilities within 60 days - After that debtor may make a
representation and creditor is then bound to consider the
representation and communicate the reasons for non-acceptance
of representation within 15 days - When debtor fails to discharge
his liability in full, the creditor may take any of the actions under
sub-section (4) which include taking over the possession of secured
assets - In the instant case, the creditor was induced by the debtor
not to take action against them through assurances and promises -
The creditor entered into negotiations for the settlement of the dues
and even accepted cheques in repayment much after the notice under
s.13(2) and after the debtor's letter of representation - Many
opportunities were granted by the creditor to the debtor to repay
the debt which were all met by proposals for extension of time - The
debtor ignored the symbolic possession taken over by the creditor
and continued to negotiate and even gave six cheques which were
dishonoured - The debtor then gave a final letter of undertaking
agreeing that the creditor could take over possession of the assets
if the debt was not repaid - All along, the debtor's response has
been that of seeking extension of time to pay, with the usual
unfulfilled promise of repayment - In the fact and circumstances of
[2018] 5 S.C.R. 516
 516
A
B
C
D
E
F
G
H
517
this case, the debtor is not entitled to the discretionary relief under
Art.226 of the Constitution which is indeed an equitable relief -
Equity - Constitution of India - Art. 226.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.13(3A) - Purpose of
introduction of s.13(3A) - Held: s.13(3A) was introduced with a
plain intention to introduce a pause for the creditor to rethink and
reconsider the action proposed by the debtor.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s. 13(3A) - Whether
s.13(3A) is mandatory or directory in nature - There is no doubt
that if a reply with reasons is an integral and indispensable part of
the statutory scheme, the Courts would not excuse a departure from
it - But, on the other hand, if the reply is merely a direction and not
of substance to the scheme, the non-compliance may be excused -
The language of sub-section (3A) is clearly impulsive - It states
that the secured creditor "shall consider such representation or
objection and further, if such representation or objection is not
acceptable or tenable, he shall communicate the reasons for nonacceptance" thereof - There is no reason to marginalize or dilute
the impact of the use of the imperative 'shall' by reading it as 'may'
- The word 'shall' invariably raises a presumption that the particular
provision is imperative - However, in the instant case, failure to
furnish a reply to the representation is not of much significance
since the creditor undoubtedly considered the representation and
the proposal for repayment made therein and in fact granted
sufficient opportunity and time to the debtor to repay the debt without
any avail - Therefore, in the fact and circumstances of this case,
the debtor is not entitled to the discretionary relief - Interpretation
of statutes.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s. 31(i) - Plea of debtor
that portion of land mortgaged by debtor as security interest
consisted of agricultural land to which s. 31(i) does not apply and,
therefore, land could not be recovered - Tenability of - Held: s.31(i)
is intended to protect agricultural land held for agricultural
purposes by agriculturists from the extraordinary provisions of this
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
518
SUPREME COURT REPORTS
[2018] 5 S.C.R.
Act, which provides for enforcement of security interest without
intervention of the Court - The plain intention of the provision is to
exempt agricultural land from the provisions of the Act - In other
words, the creditor cannot enforce any security interest created in
his favour without intervention of the Court or Tribunal, if such
security interest is in respect of agricultural land - The exemption
thus protects agriculturists from losing their source of livelihood
and income i.e. the agricultural land, under the drastic provision
of the Act - In the instant case, security interest was created in
respect of several parcels of land, which were meant to be a part of
single unit i.e. the five star hotel in Goa - Some parcels of land
claimed as agricultural land were apparently purchased by the
debtor from agriculturists and were entered as agricultural lands
in the revenue records - The debtor applied to the revenue authorities
for the conversion of these lands to non-agricultural lands which
is pending till date due to policy decision - The land in question is
not an agricultural land - The High Court mis-directed itself in
holding that the land was an agricultural land merely because it
stood as such in the revenue entries, even though the application
made for such conversation lies pending till date.
Interpretation of statutes: Mandatory provision - A provision
which requires reasons to be furnished must be considered as
mandatory - Such a provision is an integral part of the duty to act
fairly and reasonably and not fancifully.
Constitution of India: Plea that s.31(i) of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 is beyond the legislative competence of Parliament
- Held: The validity of s.31(i) which deals with security interest
created over agricultural land is an integral part of the Act and
cannot be questioned on the ground of legislative competence.
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.14 - Whether the
creditor could maintain an application of possession under s.14 of
the Act; even though it had taken over only symbolic possession
before the sale of the property to the auction purchaser - Held: In
the instant case, the creditor did not have actual possession of the
secured asset but only a constructive or symbolic possession - The
A
B
C
D
E
F
G
H
519
transfer of the secured asset by the creditor, therefore, cannot be
construed to be a complete transfer as contemplated by s.8 of the
Transfer of Property Act - The creditor nevertheless had a right to
take actual possession of the secured assets and must, therefore, be
held to be a secured creditor even after the limited transfer to the
auction purchaser under the agreement - Thus, the entire interest
in the property not having been passed on to the creditor in the first
place, the creditor in turn could not pass on the entire interest to the
auction purchaser and thus remained a secured creditor in the Act.
Fraud: Auction purchaser, allegation of collusion - Finding
by High Court that there was fraud and collusion between the creditor
and the auction purchaser based on fact that there was pending
dispute between the parties and still he went ahead and made a bid
for the property - Held: A risk of this kind taken up by an intending
purchaser cannot lead to inference of collusion.
Allowing the appeals, the Court
HELD: 1.1 Rule 3A of the Rules requires the authorized
officer who is an officer specified by the Board of Directors of the
secured creditor to consider the representation and modify the
notice of demand if satisfied of the need to do so in that regard. If
the authorized officer comes to the conclusion that such
representation or objection is not tenable or acceptable, he must
communicate the reasons for non-acceptance of the
representation or objection within fifteen days. [Para 21] [533-D]
1.2 There is nothing in the legislative scheme of Section
13 (3A) which requires the Court to consider whether or not, the
word 'shall' is to be treated as directory in the provision. As the
Section stood originally, there was no provision for the above
mentioned requirement of a debtor to make a representation or
raise any objection to the notice issued by the creditor under
Section 13(2). As it was introduced via sub-section (3A), it could
not be the intention of the Parliament for the provision to be
futile and for the discretion to ignore the objection/representation
and proceed to take measures, be left with the creditor. There is
a clear intendment to provide for a locus poenitentiae which
requires an active consideration by the creditor and a reasoned
order as to why the debtor's representation has not been accepted.
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
520
SUPREME COURT REPORTS
[2018] 5 S.C.R.
Moreover, this provision provides for communication of the
reasons for not accepting the representation/objection and the
requirement to furnish reasons for the same. A provision which
requires reasons to be furnished must be considered as
mandatory. Such a provision is an integral part of the duty to act
fairly and reasonably and not fancifully. [Paras 29, 30] [537-B-D]
Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC
311 : [2004] 3 SCR 982; Transcore v. Union of India
(2008) 1 SCC 125 : [2006] 9 Suppl. SCR 785; Keshavlal
Khemchand & Sons (P) Ltd. v. Union of India (2015) 4
SCC 770 : [2015] 2 SCR 51; State of U.P. v. Manbodhan
Lal Shrivastava [1958] SCR 533; State of U.P. v.
Baburam, Upadhya [1961] 2 SCR 679; State of Mysore
v. V.K. Kangan (1976) 2 SCC 895 : [1976] 1 SCR 369;
Govindlal Chhagan-lal Patel v. Agriculture Produce
Market Committee (1976) 1 SCC 369 : [1976] 2 SCR
758; Ganesh Prasad Sah Kesari v. Lakshmi Narayan
(1985) 3 SCC 53 : [1985] 3 SCR 825; B.P. Khemka
Pvt. Ltd. v. Birendra Kumar Bhowmik (1987) 2 SCC
407 : [1987] 2 SCR 559; Owners and Parties interested
in M.V. "Vali Pero" v. Fernandes Lopez (1989) 4 SCC
671 : [1989] 1 Suppl. SCR 187; State of M.P. v. Pradeep
Kumar (2000) 7 SCC 372 : [2000] 3 Suppl. SCR 235;
Sarla Goel v. Krishanchand (2009) 7 SCC 658 : [2009]
10 SCR 481 - relied on.
1.3 The creditor was induced by the debtor not to take
action against them through assurances and promises. The
creditor appeared to have entered into negotiations for the
settlement of the dues and even accepted cheques in repayment
much after the notice under Section 13(2) and after the debtor's
letter of representation. Many opportunities were granted by the
creditor to the debtor to repay the debt which were all met by
proposals for extension of time. Eventually, the debtor even
executed "A Letter of Undertaking" acknowledging the right of
IFCI to sell the assets in the case of default. In these
circumstances, the failure to furnish a reply to the representation
is not of much significance since the creditor has undoubtedly
considered the representation and the proposal for repayment
A
B
C
D
E
F
G
H
521
made therein and has in fact granted sufficient opportunity and
time to the debtor to repay the debt without any avail. Therefore,
in the fact and circumstances of this case, the debtor is not
entitled to the discretionary relief under Article 226 of the
Constitution which is indeed an equitable relief. [Paras 33, 34]
[539-F-H; 540-A-B]
Kiran Devi Bansal v. DGM SIDBI, AIR 2009 Guj 100
(DB); Clarity Gold Pvt. Ltd. v. State Bank of India, AIR
2011 Bom. 42 (DB); Vinay Container Services Pvt. Ltd.
v. Axis Bank, 2011 (1) Mh. L.J. 882; Krushna Chandra
Sahoo v. Bank of India, AIR 2009 Orissa 35; Tensile
Steel Ltd. & Anr. v. Punjab and Sind Bank & Ors., AIR
2007 Guj 126; M/s Jayant Agencies v. Canara Bank &
Ors., Jharkhand HC in WP (C) No. 4048 of 2010; M/s
Tetulia Coke Plant Pvt. Ltd. v. Bank of India, AIR 2013
Jhar 12; Mrs. Sunanda Kumari v. Standard Chartered
Bank, (2007) 135 Comp Cases 604 (Kar); Palash
Mukherjee v. U.O.I, W.P. 9876 (W) of 2014 Calcutta
High Court; Jaideep Singh and Ors. v. Union of India
and Anr., 2008 2 GLT (91); Malabar Sand and Stones
(Pvt.) Ltd. v. Catholic Syrian Bank Ltd. & Ors., AIR
2013 Ker 25 - approved.
1.4 Letter of Undertaking "Without Prejudice"
1.4.1 Much was sought to be made of the words "without
prejudice" in the letter containing the undertaking that if the
debt was not paid, the creditor could take over the secured
assets. The submission on behalf of the debtor that the letter of
undertaking was given in the course of negotiations and cannot
be held to be an evidence of the acknowledgment of liability of
the debtor, apart from being untenable in law, reiterates the
attempt to evade liability and must be rejected. Mere introduction
of the words "without prejudice" have no significance and the
debtor clearly acknowledged the debt even after action was
initiated under the Act and even after payment of a smaller sum,
the debtor has consistently refused to pay up. [Para 35] [540-C;
541-B]
1.4.2 All in all, as the matter stands, the debtor did not
repay the loan. The debtor managed to submit a letter purporting
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
522
SUPREME COURT REPORTS
[2018] 5 S.C.R.
to be a representation, containing a proposal for reschedulement
made much earlier to the creditor's notice and reserved a right
to file a reply. Apparently, the debtor induced the creditor to enter
into negotiations to ward off the reply and avoid the taking over
of possession. The debtor ignored the symbolic possession taken
over by the creditor and continued to negotiate and even gave
six cheques which were dishonoured. The debtor then gave a
final letter of undertaking agreeing that the creditor could take
over possession of the assets if the debt was not repaid. All along,
the debtor's response has been that of seeking extension of time
to pay, with the usual unfulfilled promise of repayment. There is
no reason why the debtor should not be stopped from questioning
the taking over of possession, particularly since, neither the debt
nor the liability is in dispute. The debt has not been repaid in
fact, and the objection raised is merely on the ground that the
taking of assets is illegal because the creditor failed to reply to
the representation. [Para 36] [541-C-E]
2. Inclusion of Agricultural Land as Security Interest in the
Notice of Recovery
2.1 Plea of debtor was that the inclusion of agricultural land
as security interest could not have been validly included in the
notice for recovery of the secured loan in view of Section 31 (i) of
the Act. The purpose of enacting Section 31(i) and the meaning
of the term "agricultural land" assume significance. This
provision, like many others is intended to protect agricultural
land held for agricultural purposes by agriculturists from the
extraordinary provisions of this Act, which provides for
enforcement of security interest without intervention of the Court.
The plain intention of the provision is to exempt agricultural land
from the provisions of the Act. It is also intended to deter the
creation of security interest over agricultural land as defined in
Section 2 (zf). Thus, security interest cannot be created in respect
of property specified in Section 31. In the present case, security
interest was created in respect of several parcels of land, which
were meant to be a part of single unit i.e. the five star hotel in
Goa. Some parcels of land now claimed as agricultural land were
apparently purchased by the debtor from agriculturists and are
entered as agricultural lands in the revenue records. The debtor
A
B
C
D
E
F
G
H
523
applied to the revenue authorities for the conversion of these
lands to non-agricultural lands which is pending till date due to
policy decision. [Paras 37, 38, 39] [541-F-G; 542-D, E-F; 543-A-B]
2.2 The total land on which the Goa Hotel was located
admeasures 182225 sq. mtrs. of these, 2335 sq. mtrs. are used
for growing vegetables, fruits, shrubs and trees for captive
consumption of the hotel. There is no substantial evidence about
the growing of vegetables but what seems to be on the land are
some trees bearing curry leaves and coconut. This amounts to
about 12.8% of the total area. As per the Corporate Loan
Agreement the mortgage is intended to cover the entire property
of the Goa Hotel. Prima facie, apart from the fact that the parties
themselves understood that the lands in question are not
agricultural, having regard to the use to which they are put and
the purpose of such use, they are indeed not agricultural. The
High Court mis-directed itself in holding that the land was an
agricultural land merely because it stood as such in the revenue
entries, even though the application made for such conversation
lies pending till date. [Paras 40, 41, 44] [543-D-F; 546-B]
Union of India and Another v. Delhi High Court Bar
Association and Ors. (2002) 4 SCC 275 : [2002] 2 SCR
450; State Bank of India v. Santosh Gupta and Ors. AIR
2017 SC 25 : [2016] 9 SCR 985; A.S. Krishna and Ors. v.
State of Madras AIR 1957 SC 297 : [1957] SCR 399;
Commissioner of Wealth Tax, Andhra Pradesh v. Officerin-Charge (Court of Wards) Paigah (1976) 3 SCC 864 :
[1977] 1 SCR 146; Kunjukutty Saheb v. State of Kerala
(1972) 2 SCC 364 : [1973] 1 SCR 326 - relied on.
3. Transfer of Security Interest by IFCI to ITC
3.1 The creditor took over symbolic possession of the
property on 20.06.2013. Thereupon, it transferred the property
to the sole bidder ITC and issued a sale certificate for
Rs. 515,44,01,000/- on 25.02.2015. On the same day, i.e.,
25.02.2015, the creditor applied for taking physical possession
of the secured assets under Section 14 of the Act. According to
the debtor, since Section 14 provides that an application for taking
possession may be made by a secured creditor, and the creditor
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
524
SUPREME COURT REPORTS
[2018] 5 S.C.R.
having ceased to be a secured creditor after the confirmation of
sale in favour of the auction purchaser, was not entitled to maintain
the application. Consequently, therefore, the order of the District
Magistrate directing delivery of possession is a void order. This
submission found favour with the High Court that held that the
creditor having transferred the secured assets to the auction
purchaser ceased to be a secured creditor and could not apply
for possession. The High Court held that the Act does not
contemplate taking over of symbolic possession and therefore
the creditor could not have transferred the secured assets to the
auction purchaser. In any case, since ITC Ltd. was the purchaser
of such property, it could only take recourse to the ordinary law
for recovering physical possession. [Paras 45, 46] [546-C-F]
3.2 There is nothing in the provision of the Act that renders
taking over of symbolic possession illegal. The question, however,
whether the creditor could maintain an application of possession
under Section 14 of the Act; even though it had taken over only
symbolic possession before the sale of the property to the auction
purchaser, depends on whether it remained a secured creditor
after having done so. In this case, the creditor did not have actual
possession of the secured asset but only a constructive or
symbolic possession. The transfer of the secured asset by the
creditor therefore cannot be construed to be a complete transfer
as contemplated by Section 8 of the Transfer of Property Act.
The creditor nevertheless had a right to take actual possession
of the secured assets and must therefore be held to be a secured
creditor even after the limited transfer to the auction purchaser
under the agreement. Thus, the entire interest in the property
not having been passed on to the creditor in the first place, the
creditor in turn could not pass on the entire interest to the auction
purchaser and thus remained a secured creditor in the Act. [Paras
47, 48, 50] [546-G; 547-A-B; 548-B-F]
M.V.S. Manikayala Rao v. M.Narasimhaswami AIR 1966
SC 470 - relied on.
4.1 The finding is based on the fact that the sale is a collusion
because the auction purchaser was aware that a dispute between
the parties was pending and still went ahead and made a bid for
A
B
C
D
E
F
G
H
525
the property. It is not unusual in the sale of immovable properties
to come across difficulties in finding suitable buyers for the
property. The property was eventually sold on the fourth auction,
and all the auctions were duly advertised. [Para 52] [549-B-C]
4.2 The undisputed facts of the case are that a loan was
taken by the debtor which was not paid, the debtor did not respond
to a notice of demand and made a representation which was not
replied to in writing by the creditor. The creditor, however,
considered the proposals for repayment of the loan as contained
in the representation in the course of negotiations which
continued for a considerable amount of time. The debtor failed to
discharge its liabilities and eventually undertook that if the debtor
fails to discharge the debt, the creditor would be entitled to take
realize the secured assets. As held, non-compliance of subsection (3A) of Section 13 cannot be of any avail to the debtor
whose conduct has been merely to seek time and not repay the
loan as promised on several occasions. Therefore, the debtor is
not entitled for the discretionary equitable relief under Articles
226 and 136 of the Constitution of India in the present case. [Paras
54, 55, 57] [549-F, G-H; 550-A, E-F]
State of Maharashtra v. Digamber (1995) 4 SCC 683 -
relied on.
Lindsay Petroleum Co. v. Hurd (1874) 5 PC 221 -
referred to.
Crawford's : Statutory Construction, p. 516; Mulla's the
Transfer of Property Act Page 104, 105 - referred to.
Case Law Reference
[2004] 3 SCR 982
relied on
Para 23
[1958] SCR 533
relied on
Para 27
[1961] 2 SCR 679
relied on
Para 27
[1976] 1 SCR 369
relied on
Para 27
[1976] 2 SCR 758
relied on
Para 27
[1985] 3 SCR 825
relied on
Para 27
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
526
SUPREME COURT REPORTS
[2018] 5 S.C.R.
[1987] 2 SCR 559
relied on
Para 27
[1989] (1) Suppl. SCR 187
relied on
Para 27
[2000] 3 Suppl. SCR 235
relied on
Para 27
[2009] 10 SCR 481
relied on
Para 27
[2006] 9 Suppl. SCR 785
relied on
Para 30
[2015] 2 SCR 51
relied on
Para 30
AIR 2009 Guj 100 (DB)
approved
Para 30
AIR 2011 Bom. 42 (DB)
approved
Para 30
2011 (1) Mh. L.J. 882
approved
Para 30
AIR 2009 Orissa 35
approved
Para 30
AIR 2007 Guj 126
approved
Para 30
AIR 2013 Jhar 12
approved
Para 30
(2007) 135 Comp Cases 604 approved
Para 30
(Kar)
2008 2 GLT (91)
approved
Para 30
AIR 2013 Ker 25
approved
Para 30
[2002] 2 SCR 450
relied on
Para 42
[2016] 9 SCR 985
relied on
Para 42
[1957] SCR 399
relied on
Para 43
[1977] 1 SCR 146
relied on
Para 44
[1973] 1 SCR 326
relied on
Para 44
AIR 1966 SC 470
relied on
Para 47
(1904) ILR 27 Mad
approved
Para 49
(1995) 4 SCC 683
relied on
Para 56
(1874) 5 PC 221
referred to
Para 56
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 29282930 of 2018.
From the Judgment and Order dated 23.03.2016 of the High Court
of Bombay in Writ Petition Nos. 222, 1150 and 2486 of 2015
A
B
C
D
E
F
G
H
527
WITH
C.A. No. 2931-2933 of 2018.
Harish Salve, Dr. A. M. Singhvi, Shyam Divan, Mukul Rohatgi,
P.S. Narsimha, C.U. Singh, Shekhar Naphade, Bharat Bhushan Parsoon,
Shyam Divan, Sr. Advs., L. K. Bhushan, Anirudh Arun Kumar, Mohit
Sharma (for M/S. Dua Associates), Kush Chaturvedi, Shubhanshu Padhi,
Somay Kapoor, Ajay Aggarwal, Anirudha Joshi, Manish Desai, Mahesh
Agarwal, Sowjanya Menon, Ankur Saigal, Ms. Nidhi Singh, Shakib
Dhorajiwala, Aman Varma, Ms. Smriti Churiwal, Rishabh Parikh, Munjaal
Bhatt, E. C. Agrawala, Ms. Sonam Priya, Vaibhav Mishra, Pratap
Venugopal, Ms. Surekha Raman, Dileep P. Kota, Anuj Sarma,
Ms. Niharika, Ms. Kanika Kalaiyarasan (for M/S. K J John And Co.),
Anshuman Srivastava, S.S. Rebello, Apoorva Bhumesh, Advs. for the
appearing parties.
The Judgment of the Court was delivered by
S. A. BOBDE, J. 1. Leave granted.
2. The auction purchaser ITC Ltd. is before us in the appeals
arising out of SLP (C) Nos.10215-10217/2016. The sale of a five star
luxury hotel property purchased in a public auction was set aside by an
order1 of the Bombay High Court in favour of the debtor Blue Coast
Hotels Ltd.
3. The circumstances under which the auction purchaser
purchased the hotel property are as follows:-
Industrial Financial Corporation of India (IFCI), [filed appeals
arising out of SLP (C) Nos.10196-10198/2016 in this Court], the secured
creditor (hereinafter referred to as 'the creditor'), in the capacity of a
financial institution entered into a corporate loan agreement2 with Blue
Coast Hotels (hereinafter referred to as 'the debtor') for a sum of Rs.150
crores. The agreement included a creation of a special mortgage to
secure the corporate loan. The mortgaged property comprised of the
whole of the debtor's hotel property- including the agricultural land on
which the debtor was to develop villas. The debtor defaulted in repayment
of the loan and the debtor's account became a Non- Performing Asset
(NPA)3.
1 Dated 23.03.2016
2 Dated 26.02.2010
3 w.e.f. 30.09.2012
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
A
B
C
D
E
F
G
H
528
SUPREME COURT REPORTS
[2018] 5 S.C.R.
4. Several notices intimating default in payment of the total
outstanding amount of Rs.133.18 crores were sent by the creditor to the
debtor. Upon failure to remit the overdue amount despite the notices, a
notice4 under Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as "the Act") was sent by the creditor calling
upon the debtor to pay the amount overdue within a period of 60 days.
5. In reply to the said notice, the debtor sent the creditor a proposal5
for extension of time for the payment of the outstanding dues. The High
Court held that the creditor's failure to deal with this representation
constituted a violation of Section 13 (3A) of the Act. Further, the High
Court held that the notice issued under Section 13 (2) by the creditor
comprising of agricultural property despite the bar under Section 31 (i)
of the Act is contrary to the law since the land was not converted into
non-agricultural land. The High Court also held that the auction/sale of
the property based upon symbolic possession of the property is contrary
to the scheme of the Act and the Rules.
6. On 18.06.2013, a notice was issued under Section 13 (4)
whereby symbolic possession of the hotel property was taken over by
the creditor. The debtor filed a securitization application6 before the Debts
Recovery Tribunal (hereinafter referred to as 'the DRT') against the
taking over of the symbolic possession by the creditor. In the meanwhile,
the creditor published the first auction sale notice7 with a reserve price
of Rs. 403 crores which came to be postponed in view of the negotiations
between the parties for the repayment of the dues. Upon default in the
repayment of the outstanding amount, a second sale notice was published
on 09.01.2014 with the same reserve price. The DRT passed an interim
order,8 directing the creditor to defer the acceptance of bids and not to
take any further steps for sale of the property for the next 60 days.
Subsequently, no bids were received and the auction failed.
7. The creditor challenged the interim order passed by the DRT
order before Debts Recovery Appellate Tribunal (hereinafter referred
to as 'the DRAT'). In the challenge, the Appellate Tribunal directed for
the second appeal to be disposed off within a month by the DRT.
4 Dated 26.03.2013
5 Dated 27.05.2013
6 Dated 31.07.2013
7 On 04.09.2013
8 Vide order dated 6.02.2014
A
B
C
D
E
F
G
H
529
8. The DRT disposed off the second appeal and set aside the
notice under Section 13(2)9 on the ground of non compliance with Section
13(3A) and for issuance of the demand notice jointly for the mortgaged
land comprising of agricultural land to which the provisions of the Act
did not apply as per Section 31(i) of the Act.
9. The creditor filed an appeal to the order of the DRT10 in the
DRAT which came to be allowed11 and the validity of the notice issued
under Section 13(2) was upheld. Against the order of the DRAT setting
aside the order of the DRT, the debtor filed the Writ Petitions leading up
to the present SLP, in the High Court.
The Auction Sale
10. On 04.09.2013, the creditor published a Notice of Sale by
Public Auction in the newspaper fixing the date of auction as 09.10.2013
at a reserve price of Rs 403 crores. In view of this, the debtor sent a
letter12 to the creditor undertaking that it will pay all outstanding
installments by 31.12.2013 and that the sale of assets be deferred upto
the aforesaid date. The debtor further stated that they shall not proceed
in respect of their Securitization Application13 before the DRT. In
pursuance of it, the creditor deferred the sale by issuing a public notice
on 08.10.2013 and granted the debtor an opportunity to clear the loan,
however, the creditor extended repayment only by 15-20 days.
11. Thereafter, on 25.11.2013, the debtor gave a letter of undertaking
accepting the schedule given by the creditor and also acknowledging the
right of the creditor to sell the assets in case of default as per the schedule.
12. On 30.12.2013, the debtor sought further time to repay the
loan to which the creditor issued a notice taking over symbolic possession.
13. On 09.01.2014, the creditor published a second notice of sale
at the same reserved price of Rs. 403 crores. The DRT14 passed an
interim order directing the creditor to defer the acceptance of the bids
and not take any further steps with regard to the sale of the property for
60 days.
9 Vide order dated 26. 03.2013
10 Vide order dated 31.03.2014
11 Vide order dated 10.09.2014
12 Dated 19.09.2013
13 Dated 31.07.2013
14 Vide order dated 06.02.2014
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
[S. A. BOBDE, J.]
A
B
C
D
E
F
G
H
530
SUPREME COURT REPORTS
[2018] 5 S.C.R.
14. On 08.10.2014 the creditor issued a third Notice of Sale by
public auction fixing the auction on 12.11.2014 at a reserve price of Rs.
542.57 crores. Pursuant to the writ petitions filed by the debtor, the High
Court15 allowed the bids to be received for the sale of the Goa Hotel to
be held in a sealed cover till the next date of hearing which was fixed to
be on 19.11.2014. However, no bids were received pursuant to the 3rd
Public Auction Notice.
15. In the meanwhile, the debtor wrote to the creditor stating that
the corporate loan will be taken over by Hyatt who were the operating
service provider for the hotel. Hyatt in turn wrote to the creditor stating
that they will not be responsible for the repayment of the loan. On
31.12.2014, a fourth and fresh notice for conducting the auction sale of
the Goa Hotel was issued by the creditor setting the reserve price at Rs.
515.44 crores. This notice led to the sale of the Goa Hotel to ITC Ltd.
(hereinafter referred to as 'the auction purchaser').
Findings of the High Court
16. The parties eventually moved the High Court by way of writ
petitions in its jurisdiction under Article 226 of the Constitution of India.
Three writ petitions were filed:-
(i) Writ Petition No. 2698 of 2014 (renumbered as 222 of 2015)
was filed on 04.10.2014 by the debtor challenging the order
of the DRAT.16
(ii) Writ Petition No. 1150 of 2015 was filed on 02.03.2015 by the
debtor against the order of handing over possession passed
by the District Magistrate. 17
(iii) Writ Petition No. 2486 of 2015 was filed on 19.03.2015 by
the debtor challenging the sale of the secured assets in an
auction on 25.02.2015.
The writ petitions were filed before the Panaji Bench of the High
Court at Goa, though eventually they were heard by the Bombay High
Court. The High Court set aside the judgment of the DRT and held the
entire proceedings for recovery and sale of the Goa Hotel to be illegal
being in violation of the Act.
15 Vide order dated 11.11.2014
16 Order dated 10.09.2014
17 Order dated 26.02.2015
A
B
C
D
E
F
G
H
531
17. In brief the High Court held that:-
(i) The recovery proceedings were a breach of Section 13 (3A)
for failure of the creditor to reply to the representation of the
debtor and reject the same by a reasoned order.
(ii) That a portion of the land mortgaged by the debtor as security
interest consisted of agricultural land to which the provisions
of the Act do not apply. The land, therefore, could not have
been recovered.
(iii) The proceedings under Section 14 were initiated by the creditor
who was not a secured creditor after having sold the property
in auction to the auction purchaser.
(iv) It was incumbent of the creditor to take physical possession
of the property before putting it to sale in an auction.
(v) Lastly, having regard to the manner in which the proceedings
of the auction sale were conducted, it was held that they
were vitiated by fraud and collusion.
Section 13 (3A) and its True Construction
18. One of the main contentions on behalf of the debtor which
found favour with the High Court was that after the creditor issued the
notice under Section 13(2), the debtor made a representation asking for
a reschedulement of the loan which the creditor neither considered
(constituting a breach of sub-section (3A) which is mandatory), nor
communicated the reasons for non-acceptance thereof. Thus, the
subsequent action of the creditor in resorting to a measure under Section
13(4) is liable to be annulled.
19. The statutory scheme in this regard has been enumerated
under Section 13 of the Act18.
18 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 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 of such debt is classified by the secured creditor as nonperforming 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).
 ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS.
[S. A. BOBDE, J.]
A
B
C
D
E
F
G
H
532
SUPREME COURT REPORTS
[2018] 5 S.C.R.
20. The Security Interest (Enforcement) Rules, 2002 (hereinafter
referred to as 'the Rules') framed under the Act19 elaborate on the
manner in which the representation of the borrower is required to be
(3)................
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any
representation or raises any objection, the secured creditor shall consider such
representation or objection and if the secured creditor comes to the conclusion that
such representation or objection is not acceptable or tenable, he shall communicate
within fifteen days of receipt of such representation or objection the reasons for nonacceptance of the representation or objection to the borrower:
PROVIDED that the reasons so communicated or the likely action of the secured
creditor at the stage of communication of reasons shall not confer any right upon the
borrower to prefer an application to the Debts Recovery Tribunal under section 17 or
the Court of District Judge under section 17A.
(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 business of the borrower including the right to
transfer by way of lease, assignment or sale for realising the secured asset: PROVIDED
that the right to transfer by way of lease, assignment or sale shall be exercised only
where the substantial part of the business of the borrower is held as security for the
debt:
PROVIDED FURTHER that where the management of whole of the business or part
of the business is severable, the secured creditor shall take over the management of such
business of the borrower which is relatable to the security for the debt.
(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.
(5)..................
(6)..................
(7)..................
(8)..................
(9)..................
(10)................
(11)...............
(12)................
(13)................
19 3-A. Reply to Representation of the borrower.-
(a) After issue of demand notice under sub-section (2) of section 13, if the borrower
makes any representation or raises any objection to the notice, the Authorised Officer
shall consider such representation or objection and examine whether the same is
acceptable or tenable.
A
B
C
D
E
F
G
H
533
dealt with. Section 13 (4) enables any creditor to enforce any security
interest without the intervention of a court or tribunal. The procedure
prescribed is that after classifying the debt as a non-performing asset,
the creditor may, by a notice in writing require the debtor/borrower to
discharge his liabilities within 60 days. On receipt of a notice, the borrower
may make a representation or raise any objection. The creditor is then
bound to consider the representation or objection. If the creditor comes
to the conclusion that the representation is not acceptable or tenable, the
creditor is required to communicate the reasons for the non-acceptance
of the representation/ objection within fifteen days. Where the borrower
fails to discharge his liability in full, the creditor may take any of the
actions under sub- section (4) which include the taking over of possession
of the secured assets et cetera.
21. Rule 3A of the Rules requires the authorized officer who is an
officer specified by the Board of Directors of the secured creditor to
consider the representation and modify the notice of demand if satisfied
of the need to do so in that regard. If the authorized officer comes to the
conclusion that such representation or objection is not tenable or
acceptable, he must communicate the reasons for non-acceptance of
the representation or objection within fifteen days.
22.