Holding

s.13(3A) is mandatory but its breach does not void the creditor’s action where the creditor considered the borrower’s representation, the creditor remained a secured creditor and could take possession, the land was not agricultural, and no collusion was found, so the High Court’s order was set aside.

Summary

The case involved a dispute between ITC Limited, the auction purchaser of a five‑star hotel, and Blue Coast Hotels Ltd., the original borrower, under the SARFAESI Act. The borrower argued that the creditor (IFCI) violated s.13(3A) by not replying to its representation for loan rescheduling and that the inclusion of agricultural land in the security was unlawful under s.31(i). The Supreme Court held that s.13(3A) is a mandatory provision but its breach does not invalidate the creditor’s action where the creditor had duly considered the representation and given the borrower ample opportunity to repay. The court found the land was not agricultural, the creditor remained a secured creditor despite taking symbolic possession, and there was no collusion in the auction. Consequently, the High Court’s order was set aside and the borrower was denied equitable relief under Articles 226 and 136.

Issues considered

The effect of non‑compliance with s.13(3A) of the SARFAESI Act on the validity of recovery proceedings
Whether s.13(3A) is a mandatory or directory provision
The applicability of s.31(i) to land classified as agricultural in the security interest
Whether the creditor remained a secured creditor after taking symbolic possession and transferring the asset to the auction purchaser, thus able to invoke s.14 for possession
The existence of fraud or collusion in the auction sale
The entitlement of the borrower to discretionary relief under Articles 226 and 136 of the Constitution
The legal effect of a "without prejudice" letter of undertaking

Legislation cited

Banking Regulation Act, 1949s. 5(c)
Constitution of Indias. Article 136, s. Article 226
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. 13(2), s. 13(3A), s. 13(4), s. 14, s. 31(i)
Transfer of Property Act, 1882s. 8

Subjects

SARFAESI ActSection 13(3A)mandatory provisionagricultural land exemptionsymbolic possessionsecured creditorauction salediscretionary reliefArticle 226without prejudice

Judgment

516 [2018]REPORTS
SUPREME COURT 5 S.C.R. 516 [2018] 5 S.C.R.

A ITC LIMITED
v.
BLUE COAST HOTELS LTD. & ORS.
(Civil Appeal Nos. 2928-2930 of 2018)
B 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),
C
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
D 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
E
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
F 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
G
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
H
516
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 517

this case, the debtor is not entitled to the discretionary relief under A
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 B
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 C
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 D
objection and further, if such representation or objection is not
acceptable or tenable, he shall communicate the reasons for non-
acceptance” 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 E
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, F
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 G
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
H
518 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B
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
C 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
D
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
E 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
F – 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
G 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
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 519

transfer of the secured asset by the creditor, therefore, cannot be A
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
B
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 C
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
D
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 E
communicate the reasons f or 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 F
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 G
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.
H
520 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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]
B
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
C 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
D 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
E 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
F 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
G 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
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 521

made therein and has in fact granted sufficient opportunity and A
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]
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 C
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 D
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.
E
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 F
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 G
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 H
522 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B
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
C 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]
D
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
E 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
F 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
G 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
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 523

applied to the revenue authorities for the conversion of these A
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 B
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 C
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 D
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 E
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. Officer-
in-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. F

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 G
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
H
524 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B
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
C 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
D 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
E 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
F 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]
G 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
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 525

the property. It is not unusual in the sale of immovable properties A
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 B
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 C
fails to discharge the debt, the creditor would be entitled to take
realize the secured assets. As held, non-compliance of sub-
section (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 D
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. E
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.
F
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
G
[1976] 1 SCR 369 relied on Para 27
[1976] 2 SCR 758 relied on Para 27
[1985] 3 SCR 825 relied on Para 27

H
526 SUPREME COURT REPORTS [2018] 5 S.C.R.

A [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
B [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
C
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
D
(2007) 135 Comp Cases 604 approved Para 30
(Kar)
2008 2 GLT (91) approved Para 30
AIR 2013 Ker 25 approved Para 30
E
[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
F
[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
G
(1874) 5 PC 221 referred to Para 56
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2928-
2930 of 2018.
From the Judgment and Order dated 23.03.2016 of the High Court
H of Bombay in Writ Petition Nos. 222, 1150 and 2486 of 2015
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 527

WITH A
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, B
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, C
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. D

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. E

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 F
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 G
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 H
528 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B
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
C 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
D 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
E 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
F 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
G 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
H 8
Vide order dated 6.02.2014
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 529
[S. A. BOBDE, J.]

8. The DRT disposed off the second appeal and set aside the A
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 B
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 C
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 D
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.
E
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. F
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.
G
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 H
530 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B
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
C 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
D
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)
E 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
F (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
G 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
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 531
[S. A. BOBDE, J.]

17. In brief the High Court held that:- A
(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 B
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. C
(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.
D
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
E
(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. F
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 G
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 non-
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).
H
532 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 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
B 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 non-
acceptance 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
C
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;
D (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
E 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.
F (5)………………
(6)………………
(7)………………
(8)………………
(9)………………
(10)…………….
G (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
H acceptable or tenable.
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 533
[S. A. BOBDE, J.]

dealt with. Section 13 (4) enables any creditor to enforce any security A
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
B
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 C
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 D
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. The Act and the Rules thus provide for a locus poenitentiae.
The borrower may raise an objection or make a representation of any E
nature that the creditor must consider, and if found not acceptable, may
reject the same before proceeding to resort to any of the measures
provided by Section 13(4) of the Act. The borrower may thus raise an
objection against the proposed measures or make a representation
explaining the circumstances in which he cannot discharge his liabilities
and propose reschedulement. This may result in reconsideration by the F
creditor of whether or not it would be prudent to carry out the proposed
measures and may even result in a renovation of the contract.
(b) If on examining the representation made or objection raised by the borrower, the
secured creditor is satisfied that there is a need to make any changes or modifications in
the demand notice, he shall modify the notice accordingly and serve a revised notice or G
pass such other suitable orders as deemed necessary, within fifteen days from the date
of receipt of the representation or objection.
(c) If on examining the representation made or objection raised, the Authorized Officer
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 non-acceptance of the representation or objection, to the
borrower. H
534 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 23. Sub-section (3A) of Section 13 was introduced in the Act by
the Parliament in pursuance of the following observations of this Court
in Mardia20 Chemicals:
“45. …The purpose of serving a notice upon the borrower
under sub-section (2) of Section 13 of the Act is, that a reply
B may be submitted by the borrower explaining the reasons as
to why measures may or may not be taken under sub-section
(4) of Section 13 in case of non-compliance with notice within
60 days. The creditor must apply its mind to the objections
raised in reply to such notice and an internal mechanism must
be particularly evolved to consider such objections raised in
C the reply to the notice. There may be some meaningful
consideration of the objections raised rather than to ritually
reject them and proceed to take drastic measures under sub-
section (4) of Section 13 of the Act. Once such a duty is
envisaged on the part of the creditor it would only be
D conducive to the principles of fairness on the part of the banks
and financial institutions in dealing with their borrowers to
apprise them of the reason for not accepting the objections
or points raised in reply to the notice served upon them before
proceeding to take measures under sub-section (4) of Section
13. Such reasons, overruling the objections of the borrower,
E must also be communicated to the borrower by the secured
creditor. It will only be in fulfillment of a requirement of
reasonableness and fairness in the dealings of institutional
financing which is so important from the point of view of the
economy of the country and would serve the purpose in the
F growth of a healthy economy. It would certainly provide
guidance to the secured debtors in general in conducting the
affairs in a manner that they may not be found defaulting
and being made liable for the unsavoury steps contained
under sub-section (4) of Section 13. At the same time, more
importantly, we must make it clear unequivocally that
G communication of the reasons for not accepting the objections
taken by the secured borrower may not be taken to give
occasion to resort to such proceedings which are not
permissible under the provisions of the Act. But communication
20
(2004) 4 SCC 311
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 535
[S. A. BOBDE, J.]

of reasons not to accept the objections of the borrower, would A
certainly be for the purpose of his knowledge which would
be a step forward towards his right to know as to why his
objections have not been accepted by the secured creditor
who intends to resort to harsh steps of taking over the
management/business of viz. secured assets without
B
intervention of the court. Such a person in respect of whom
steps under Section 13(4) of the Act are likely to be taken
cannot be denied the right to know the reason of non-
acceptance and of his objections. It is true, as per the
provisions under the Act, he may not be entitled to challenge
the reasons communicated or the likely action of the secured C
creditor at that point of time unless his right to approach the
Debts Recovery Tribunal as provided under Section 17 of the
Act matures on any measure having been taken under sub-
section (4) of Section 13 of the Act.”
(emphasis supplied)
D
24. The Parliament transformed the observations of this Court
into a provision in the Act with a plain intention to introduce a pause for
the creditor to rethink and reconsider the action proposed by the debtor.
It is a departure from the usual steps that an ordinary creditor is bound
to take for recovering the loan i.e. through the intervention of the Court.
E
25. The question that arises for consideration before us is whether
the Parliament intended for a total invalidity to result from the failure to
reply and give reasons for the non-acceptance of the borrower’s
representation. In other words, whether sub-section (3A) of Section 13
is mandatory or directory in nature.
F
26. 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.
G
27. This question must be answered upon a construction of the
statute according to its true intent by taking into account the language in
which the intent is clothed. In a passage from Crawford’s Statutory
Construction, it is stated -

H
536 SUPREME COURT REPORTS [2018] 5 S.C.R.

A “The question as to whether a statute is mandatory or directory
depends upon the intent of the Legislature and not upon the
language in which the intent is clothed. The meaning and
intention of the Legislature must gov-ern, and these are to be
ascertained not only from the phraseology of the provision,
but also by considering its nature, its design, and the
B
conse-quences which would follow from construing it the one
way or the other.”21
This has been followed in several decisions of the Supreme Court22.
Subbarao, J. in State of U.P. v. Babu Ram Upadhya23 points out, “For
ascertaining the real intention of the Legislature, the court may
C consider inter alia, the nature and design of the statute, and the
consequences which would follow from construing it the one way
or the other; the impact of other provisions whereby the ne-cessity
of complying with the provisions in question is avoided; the
cir-cumstances, namely, that the statute provides for a contingency
D of the non-compliance with the provisions; the fact that the non-
compliance with the provisions is or is not visited by some penalty;
the serious or the trivial consequences, that flow therefrom; and
above all, whether the object of the legislation will be defeated or
furthered”.
E 28. We find the language of sub-section (3A) to be 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 non-
acceptance” thereof. We see no reason to marginalize or dilute the impact
of the use of the imperative ‘shall’ by reading it as ‘may’. The word
F
21
Passage from CRAWFORD: Statutory Construction, p. 516.
22
State of U.P.v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p. 918: 1958 SCR 533;
State of U.P. v. Baburam, Upadhya, AIR 1961 SC 751, p. 765 : (1961) 2 SCR 679; Article
143 of the Constitution of India, In the matter of, supra, p. 769; State of Mysore v. V.K.
Kangan, AIR 1975 SC 2190, p. 2192: (1976) 2 SCC 895; Govindlal Chhagan-lal Patel v.
G Agriculture Produce Market Committee, AIR 1976 SC 263, p. 267 : (1976) 1 SCC 369;
Ganesh Prasad Sah Kesari v. Lakshmi Narayan, (1985) 3 SCC 53, pp. 59, 60 : AIR 1985
SC 964; B.P. Khemka Pvt. Ltd. v. Birendra Kumar Bhowmik, (1987) 2 SCC 407, p. 415 :
AIR 1987 SC 1010; Owners and Parties inter-ested in M.V. “Vali Pero” v. Fernandes
Lopez, AIR 1989 SC 2206, p. 2213 : (1989) 4 SCC 671; State of M.P. v. Pradeep Kumar,
(2000) 7 SCC 372, p. 377 : (2000) 10 JT 349; Sarla Goel v. Krishanchand, (2009) 7 SCC
658 pp. 668, 669 para 30 : (2009) 9 JT 21.
H 23
AIR 1961 SC 751.
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 537
[S. A. BOBDE, J.]

‘shall’ invariably raises a presumption that the particular provision is A
imperative24.
29. 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 B
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 C
consideration by the creditor and a reasoned order as to why the debtor’s
representation has not been accepted.
30. 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 D
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.
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’. E
We agree with the view of this Court in this regard in Mardia
Chemicals Ltd. v. Union of India25, Transcore v. Union of India26
and Keshavlal Khemchand & Sons (P) Ltd. v. Union of India 27.
We also approve of the view of several High Courts in this regard28.
F
24
State of U.P. v. Manbodhan Lal Shrivastava, AIR 1957 SC 912, p. 917
25
(2004) 4 SCC 311 (para 45, 47, 77 and 80)
26
(2008) 1 SCC 125 (para 24 and 25)
27
(2015) 4 SCC 770 (para 19 and 61)
28
Kiran Devi Bansal v. DGM SIDBI, AIR 2009 Guj 100 (DB)(para 9 and 10); Clarity
Gold Pvt. Ltd. v. State Bank of India, AIR 2011 Bom. 42 (DB)(para 11, 12 and 13);
Vinay Container Services Pvt. Ltd. v. Axis Bank, 2011 (1) Mh. L.J. 882 (para 6); G
Krushna Chandra Sahoo v. Bank of India, AIR 2009 Orissa 35 (para 6 and 7); Tensile
Steel Ltd. & Anr. v. Punjab and Sind Bank & Ors., AIR 2007 Guj 126 (para 21); M/s
Jayant Agencies v. Canara Bank & Ors., Jharkhand HC in WP (C) No. 4048 of 2010
(para 27, 28, 29, 32 and 33); M/s Tetulia Coke Plant Pvt. Ltd. v. Bank of India, AIR
2013 Jhar 12 (para 5, 9, 20, 22, 23 and 24); Mrs. Sunanda Kumari v. Standard Chartered
Bank, (2007) 135 Comp Cases 604 (Kar) (para 5); Palash Mukherjee v. U.O.I,
H
538 SUPREME COURT REPORTS [2018] 5 S.C.R.

A 31. It was submitted on behalf of the creditor that the conduct of
the debtor does not warrant an interference in this case. However, we
are of the view that the construction of the Act should not be affected
by the facts of a particular case. For, indeed, where the remedy invoked
is a discretionary remedy, the Court may deny relief if the circumstances
so warrant.
B
32. In the present case, it is a fact that the creditor has not replied
to the debtor’s representation29, and thus appears to be in breach of
Section 13 (3A), but the following attendant circumstances are important:
(i) On 26.03.2013, the creditor issued a notice under Section
13(2) to the debtor to discharge his liabilities within 60 days.
C
On 27.05.2013 the debtor made a representation to the creditor
containing a proposal for reschedulement (which was the
same as the one made as far back as on 22.08.2012) and
reserving the right to file a reply.
(ii) On 07.06.2013, the debtor again sent a proposal for extension
D
of time for repayment, repeating its proposal dated
27.05.2013.
(iii) On 20.06.2013, the creditor issued the notice of possession
under Section 13(4). The taking over of possession was purely
symbolic. We are informed that the debtor is in possession
E of the hotel till date and is running its business without any
noteworthy repayment.
(iv) On the next day 21.06.2013, the debtor wrote a letter to the
creditor seeking extension of time and enclosed six cheques
for upfront payment of Rs.33.16 crores without making any
F reference to the notice of taking over of possession. The
cheques were dishonoured.
(v) 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.
G
(vi) Following this the debtor sent a letter to the creditor on
19.09.2013 undertaking that it will repay all outstanding
W.P. 9876 (W) of 2014 Calcutta High Court (para 1, 2 and 67); Jaideep Singh and Ors.
v. Union of India and Anr., 2008 2 GLT (91) (para 25 and 28); Malabar Sand and Stones
(Pvt.) Ltd. v. Catholic Syrian Bank Ltd. & Ors., AIR 2013 Ker 25 (para 7, 8, 9 and 10).
H 29
Dated 27.05.2013
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 539
[S. A. BOBDE, J.]

installments by 31.12.2013 and that the sale of assets be A
deferred up to the said date. The debtor further stated that it
shall not proceed further in respect of their Securitization
Application before the DRT.
(vii) On 08.10.2013, the creditor deferred the sale by issuing a
public notice while considering the debtor’s proposal. B
(viii)On 29.10.2013, the creditor granted an opportunity to the
debtor to clear the debt as stated in the debtor’s letter dated
03.10.2013 wherein it sent forth another proposal for extension
of time for repayment stating that it will repay a principal
installment of the corporate loan of a total of Rs. 89 crores C
by 31.12.2013. However, the creditor only extended the time
for repayment by 15-20 days.
(ix) On 25.11.2013, “A Letter of Undertaking” was given by the
debtor accepting the schedule given by the creditor on
29.10.2013 and also acknowledging the right of the creditor D
to sell the assets in case of default as per the above mentioned
schedule.
(x) The creditor wrote to the debtor on 08.01.2014 informing the
debtor that due to the default in repayment, the creditor is
proceeding with steps to recover the dues and accordingly E
rejected the debtor’s request letter dated 30.12.2013 seeking
further time to repay the outstanding dues.
33. From the above, it is clear that 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 F
the settlement of the dues and even accepted cheques in repayment
much after the notice30 under Section 13(2) and after the debtor’s letter
of representation31. 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 Undertaking32”
acknowledging the right of IFCI to sell the assets in the case of default. G
34. In these circumstances, we have no doubt that the failure to
furnish a reply to the representation is not of much significance since we
30
Dated 26.03.2013
31
Dated 27.05.2013
32
On 25.11.2013 H
540 SUPREME COURT REPORTS [2018] 5 S.C.R.

A are satisfied that the creditor has undoubtedly considered the
representation and the proposal for repayment 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, we are of the view that the debtor is not entitled to the discretionary
relief under Article 226 of the Constitution which is indeed an equitable
B
relief.
Letter of Undertaking “Without Prejudice”
35. Much was sought to be made of the words “without prejudice”
in the letter33 containing the undertaking that if the debt was not paid,
C 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
acknowledgement of liability of the debtor, apart from being untenable in
law, reiterates the attempt to evade liability and must be rejected. The
submission that the letter was written without prejudice to the legal rights
D and remedies available under any law and therefore the
acknowledgement or the undertaking has no legal effect must likewise
be rejected. This letter is reminiscent of a letter that fell for consideration
in Spencer’s34 case as pointed out by Mr. Harish Salve, “as a rule the
debtor who writes such letters has no intention to bind himself
E further than is bound already, no intention of paying so long as he
can avoid payment, and nothing before his mind but a desire,
somehow or other, to gain time and avert pressure.”
It was argued in a subsequent case35 that an acknowledgment
made “without prejudice” in the case of negotiations cannot be used as
F evidence of anything expressly or impliedly admitted. The House of
Lords observed as follows:
“But when a statement is used as acknowledgement for the
purpose of s. 29 (5), it is not being used as evidence of
anything. The statement is not an evidence of an
G acknowledgement. It is the acknowledgement.”
Therefore, the without prejudice rule could have no application.
It said:
33
Dated 25.11.2013
34
Spencer v. Hemmerde [1922] 2 AC 507, HL at 526
35
H Bradford and Bingley vs. Rashid [2006]
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 541
[S. A. BOBDE, J.]

“Here, the respondent, Mr. Rashid was not offering any A
concession. On the contrary, he was seeking one in respect
of an undisputed debt. Neither an offer of payment nor actual
payment.”
We, thus, find that the mere introduction of the words “without
prejudice” have no significance and the debtor clearly acknowledged B
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.
36. All in all, as the matter stands, the debtor did not repay the
loan. The debtor managed to submit a letter purporting to be a
representation, containing a proposal for reschedulement made much C
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 D
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. We see 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 E
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.
Inclusion of Agricultural Land as Security Interest in the
Notice of Recovery F
37. One of the contentions raised on behalf of the debtor questioned
the correctness of the finding of the High Court on the ground that the
inclusion of agricultural land as security interest could not have been
validly included in the notice for recovery of the secured loan. The
correctness of the finding of the High Court depends on the effect of G
Section 31 (i) of the Act, which reads as follows:-
“31. Provisions of this Act not to apply in certain cases-The
provision of this Act shall not apply to-

H
542 SUPREME COURT REPORTS [2018] 5 S.C.R.

A (a)….
(b)….
(c)….
(e)….
B (f)….
(g)….
(h)….
(i) any security interest created in agricultural land;
C
(j)….”
38. 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
D 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
E 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. It is also intended to deter the creation of
security interest over agricultural land as defined in Section 2 (zf)36.
Thus, security interest cannot be created in respect of property specified
in Section 31.
F
36
(zf) “security interest” means right, title or interest of any kind, other than those
specified in section 31, upon property created in favour of any secured creditor and
includes-
(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any
kind, on tangible asset, retained by the secured creditor as an owner of the property,
given on hire or financial lease or conditional sale or under any other contract which
G secures the obligation to pay any unpaid portion of the purchase price of the asset or
an obligation incurred or credit provided to enable the borrower to acquire the tangible
asset; or
(ii) such right, title or interest in any intangible asset or assignment or licence of such
intangible asset which secures the obligation to pay any unpaid portion of the purchase
price of the intangible asset or the obligation incurred or any credit provided to enable
the borrower to acquire the intangible asset or licence of intangible asset;
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 543
[S. A. BOBDE, J.]

39. In the present case, security interest was created in respect A
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 applied to the revenue authorities for the conversion of these
B
lands to non-agricultural lands which is pending till date due to policy
decision.
40. It is undisputed that these lands were mortgaged in favour of
the creditor under a deed dated 26.02.2010. Obviously, since no security
interest can be created in respect of agricultural lands and yet it was so
created, goes to show that the parties did not treat the land as agricultural C
land and that the debtor offered the land as security on this basis. The
undisputed position is that 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 D
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.
41. The Corporate Loan Agreement37 that deals with the mortgage
in question in the relevant clause38 reads as follows:- E
“The Borrower shall create mortgage on Exclusive basis on
the ‘Park Hyatt Goa Resort and Spa” Hotel Property
admeasuring 1, 82, 225 Sq Mtrs with a built up area of 25182
Sq. Mtrs situated at 263 C, Arossim, Canasaulim Goa.”
The mortgage is thus intended to cover the entire property of the F
Goa Hotel. Prima facie, apart from the fact that the parties themselves
understood that the lands in question are not agricultural, it also appears
that having regard to the use to which they are put and the purpose of
such use, they are indeed not agricultural.
42. At the outset, it was argued on behalf of the debtor that Section G
31(i) is beyond the legislative competence of the Parliament since it is
only the State Legislature which is competent to legislate on land under
Entry 18 of List II. This contention appears to be completely untenable.
37
Dated 26.02.2010
38
Clause 2.1, part b
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544 SUPREME COURT REPORTS [2018] 5 S.C.R.

A Though Section 31(i) exempts agricultural land from the operation of the
Act it is not possible to construe such a provision as a legislation on
agricultural land. In fact, it is quite the contrary. Moreover, Section 31
(i) is one of the provisions in the Act which has been held by this Court
as referable to Entry 45 of List I, in Union of India and Another v.
Delhi High Court Bar Association and Ors.39. The Court held that:-
B
“14……. Entry 45 of List I relates to “banking”. Banking
operations would inter alia, include accepting of loans and
deposits, granting of loans and recovery of the debts due to
the bank. There can be little doubt that under Entry 45 of
List I, it is Parliament alone which can enact a law with regard
C to the conduct of business by the banks. Recovery of dues is
an essential function of any banking institution. In exercise
of its legislative power relating to banking, Parliament can
provide the mechanism by which monies due to the banks and
financial institutions can be recovered.”
D In State Bank of India v. Santosh Gupta and Ors.40 this Court
concluded that the Act is referable to Entries 45 and 95 of List I. It
observed that:-
“43……. the entire Act, including Sections 17-A and 18-B,
would in pith and substance be referable to Entries 45 and
E 95 of List I,….”
43. The validity of Section 31(i) which in any case deals with
security interest created over agricultural land and not agricultural land
itself, is an integral part of the Act and cannot be questioned on the
ground of legislative competence.
In A.S. Krishna and Ors. v. State of Madras 41 this Court
F
observed as follows:-
“It would be quite an erroneous approach to the question to
view such a statute not as an organic whole, but as a mere
collection of sections, then disintegrate it into parts, examine
under what heads of legislation those parts would severally
G fall, and by that process determine what portions thereof are
intra vires, and what are not.”
Thus, this contention on behalf of the debtor must be rejected.
39
(2002) 4 SCC 275
40
AIR 2017 SC 25
H 41
AIR 1957 SC 297
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 545
[S. A. BOBDE, J.]

44. In ‘Commissioner of Wealth Tax, Andhra Pradesh v. Officer- A
in-Charge (Court of Wards) Paigah 42, this Court interpreted the
definition of the term ‘Agricultural Land’ with respect to Section 2(e)
of the Wealth Tax Act, 1957 that excluded the said term from the
definition of assets. This Court observed:-
“We agree that the determination of the character of land, B
according to the purpose for which it is meant or set apart
and can be used, is a matter which ought to be determined on
the facts of each particular case. What is really required to
be shown is the connection with an agricultural purpose and
user and not the mere possibility of user of land, by some
C
possible future owner or possessor, for an agricultural purpose.
It is not the mere potentiality, which will only affect its valuation
as part of “assets”, but its actual condition and intended user
which has to be seen for purposes of exemption from wealth-
tax. One of the objects of the exemption seemed to be to
encourage cultivation or actual utilisation of land for D
agricultural purposes. If there is neither anything in its
condition, nor anything in evidence to indicate the intention
of its owners or possessors, so as to connect it with an
agricultural purpose, the land could not be “agricultural
land” for the purposes of earning an exemption under the
E
Act. Entries in revenue records are, however, good prima facie
evidence.”
(emphasis supplied)
Similarly, in the case of Kunjukutty Saheb v. State of Kerala43,
this Court held as follows: F
“We suppose that something or other can be, and often is,
grown on any vacant land, but that would not necessarily
make it agricultural land for our purposes. To give an example
the possibility of cultivating, or even the actual cultivation
of, what is essentially a building site in the heart of a town
G
would not make it agricultural land. It is the purpose for which
it is held that determines its character and the existence of a
few coconut trees or a vegetable patch on the land cannot
42
(1976) 3 SCC 864
43
(1972) 2 SCC 364
H
546 SUPREME COURT REPORTS [2018] 5 S.C.R.

A alter the fact that it is held for purposes of building and not
for purposes of agriculture.”
In any event, having regard to the character of the land and the
purpose for which it is set apart, we are of the view that the land in
question is not an agricultural land. The High Court mis-directed itself in
B 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.
Transfer of Security Interest by IFCI to ITC
45. As noticed earlier, the creditor took over symbolic possession
C 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.
D 46. According to the debtor, since Section 14 provides that an
application for taking possession may be made by a secured creditor,
and the creditor 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
E 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
F 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.
47. We find nothing in the provisions of the Act that renders taking
over of symbolic possession illegal. This is a well- known device in law.
G In fact, this court has, although in a different context, held in
M.V.S.Manikayala Rao v. M.Narasimhaswami44 that the delivery of
symbolic possession amounted to an interruption of adverse possession
of a party and the period of limitation for the application of Article 144 of
the Limitation Act would start from such date of the delivery.
44
H AIR 1966 SC 470
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 547
[S. A. BOBDE, J.]

48. The question, however, whether the creditor could maintain A
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.
Section 2(d) of the Act defines ‘secured creditor’ to mean a B
“banking company” having the meaning assigned to it in clause (c)
of section 5 of the Banking Regulation Act, 1949;
Clause 2(L)45 includes debts or receivables and any right or interest
in the security whether full or part underlying such debt or receivables
or any beneficial interest in property vide (L)(i)(iv) & (v)46. C
Sub-section (6) of Section 13 posits that the transfer of the
47

secured asset by the secured creditor shall vest in the transferee all the
rights as if the transfer had been made by the owner of the secured
asset.
49. In Mulla’s the Transfer of Property Act48:- D
“The section (s.8) does not apply to court sales, for such sales
effect a transfer by the operation of law. The principle of the
section was, however, applied in a case decided by Madras
High Court where a debt for unpaid purchase money on a
sale of land was attached and sold, and the auction purchaser E
was held entitled to the charge which the vendor had under s
55(4) (b) on the property in the hands of the buyer. The court,
after observing that the present section did not apply to court
45
2(L) SARFAESI Act
46
2 (l) “financial asset” means debt or receivables and includes — F
(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or
(iv) any right or interest in the security, whether fall or part underlying such debt or
receivables; or
(v) any beneficial interest in property, whether movable or immovable, or in such debt,
receivables, whether such interest is existing, future, accruing, conditional or contingent;
or
(vi) xxx
G
47
13 (6) Any transfer of secured asset after taking possession thereof or take over of
management under sub-section (4), by the secured creditor or by the manager on behalf
of the secured creditor shall vest in the transferee all rights in, or in relation to, the
secured asset transferred as if the transfer had been made by the owner of such secured
asset.
48
Page 104, 105 H
548 SUPREME COURT REPORTS [2018] 5 S.C.R.

A sales, said: The effect of applying s 8 is to strengthen the sale
certificate by transferring the lien along with it.”
This Court observed in Abdul Aziz49 that a sale through court is
different from a sale inter parties:-
“What is sold at a court sale is the right, title and interest of
B the judgment debtor, and the extent of that interest is a mixed
question of fact and law to be decided according to the
circumstances of each particular case, and depends upon
what the court intended to sell, and the purchaser intended
to buy.”.

C We note that even though the entire right, title and interest were
purported to have been transferred, all the rights, transfer and interest
could not be said to have been transferred since the possession of the
property was not transferred to creditor. The possession was retained
by the debtor who continued to do business and receive rent from the
rooms on the property and has in fact continued to do so till date. There
D is no doubt that after taking over the property from debtor, the creditor
also acquired the right to receive the usufruct of the property i.e. the
rent in this case. However, this was an interest in the property which
was not at any point of time transferred to the auction purchaser.
50. In this case, the creditor did not have actual possession of the
E 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
F
under the agreement50. 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.
Findings of Fraud and Collusion by the High Court
G
51. Finally, the High Court in its judgment renders a finding that
there was in fact fraud and collusion between the creditor and the auction
purchaser. According to the High Court, since the measures were taken
49
Abdul Aziz v. Appayasami (1904) ILR 27 Mad 131, 31 IA 1.
50
Dated 25.02.2015
H
ITC LIMITED v. BLUE COAST HOTELS LTD. & ORS. 549
[S. A. BOBDE, J.]

in breach of all laws, the inference of manipulation and collusion cannot A
be ruled out.
52. We fail to see how such a finding of manipulation and collusion
is sustainable on account of breach of law in the present case. A risk of
this kind taken up by an intending purchaser cannot lead to an inference
of collusion. Mainly, the finding is based on the fact that the sale is a B
collusion because the auction purchaser was aware that a dispute
between the parties was pending and still went ahead and made a bid
for the property. It is not unusual in the sale of immovable properties to
come across difficulties in finding suitable buyers for the property. We
find that the property was eventually sold on the fourth auction, and all
the auctions were duly advertised. C

53. Another fact on the basis of which the High Court has observed
an inference of collusion is that the property was sold and the sale was
confirmed in favour of ITC Ltd. though a statement was made in the
morning of 23.02.2015 before the DRT that the sale would not be
confirmed till the order is passed. This seems to be recorded in the D
order of the DRT. However, what is overlooked is the fact that in the
statement on behalf of the creditor, the creditor only agreed to not confirm
the sale till 3 pm. In the absence of any finding as to what actually
transpired, it is not possible for us to infer manipulation and collusion on
this account. There is no dispute that the property was actually purchased E
by ITC Ltd. in pursuance of a public auction and that the entire amount
of sale consideration has been deposited by it.
54. We have anxiously considered the entire matter and find that
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 F
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. Several opportunities
were in fact availed of by the debtor for the repayment of the loan after
the proceedings were initiated by the secured creditor. The debtor failed G
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.
55. As held, we are of the view that non-compliance of sub-section
(3A) of Section 13 cannot be of any avail to the debtor whose conduct H
550 SUPREME COURT REPORTS [2018] 5 S.C.R.

A has been merely to seek time and not repay the loan as promised on
several occasions.
56. This Court in the case of State of Maharashtra v. Digambar51
observed as follows:-
“19. Power of the High Court to be exercised under Article
B 226 of the Constitution, if is discretionary, its exercise must
be judicious and reasonable, admits of no controversy. It is
for that reason, a person’s entitlement for relief from a High
Court under Article 226 of the Constitution, be it against the
State or anybody else, even if is founded on the allegation of
C infringement of his legal right, has to necessarily depend upon
unblameworthy conduct of the person seeking relief, and the
court refuses to grant the discretionary relief to such person
in exercise of such power, when he approaches it with unclean
hands or blameworthy conduct.”
D It relied on the judgment of the Privy Council in Lindsay Petroleum
Co. v. Hurd52, where the Privy Council observed:-
“…….Two circumstances, always important in such cases, are,
the length of the delay and the nature of the acts done during
the interval, which might affect either party and cause a
E balance of justice or injustice in taking the one course or the
other, so far as it relates to the remedy.”
57. 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.
F 58. We accordingly, set aside the impugned judgment of the High
Court and direct the debtor and its agents to handover possession of the
mortgaged properties to the auction purchaser within a period of six
months from the date of this judgment along with the relevant accounts.
59. Appeals are allowed accordingly.
G
Devika Gujral Appeals allowed.

51
(1995) 4 SCC 683
52
H (1874) 5 PC 221