Bombay High Court
Asrec (India) Ltd vs Fastgrowth Hospitality Llp on 18 January, 2023
Author: Nitin Jamdar
Bench: Nitin Jamdar, Abhay Ahuja
1 905. WP(Lodg.) 39107.2022..doc
JPP
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (Lodg.) NO. 39107 OF 2022
ASREC (India) Ltd.
Solitaire Corporate Park, Bldg. No.2,
Unit No. 200A-201 and 200B-202,
Gr. Floor, Ghatkopar Link Road,
Chakala, Andheri (East),
Mumbai - 400 093 ... Petitioner
V/s.
1. Fastgrowth Hospitality LLP,
a limited liability partnership,
having address at Office No. 202-203,
Golden Bungalow, Juhu Road,
Santacruz (West), Mumbai - 400 054
represented by its Designated Partner
Bhaven Parikh
2. Diagrams Realty LLP,
a Limited Liability Partnership
having address at 202-203,
Golden Bungalow, Juhu Road,
Santacruz (West), Mumbai - 400 054
represented by its Designated Partner
Bhaven Parikh
3. Miten Parikh,
aged adult, Indian Inhabitant,
having address at 33, Hatkesh Society,
6th Floor, Vrindavan Building,
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2 905. WP(Lodg.) 39107.2022..doc
N.S. Road No.5, Vile Parle (West),
Mumbai - 400 056
4. Bhaven Parikh,
aged adult, Indian Inhabitant,
having address at 33, Hatkesh Society,
6th Floor, Vrindavan Building,
N.S. Road No.5, Vile Parle (West),
Mumbai - 400 056. ... Respondents
Mr. Venkatesh Dhond, Senior Advocate with Mr. Kunal Mehta and
Ms. Jinelle Gogri and Ms. Shreya Bhagnari i/b. Negandhi Shah
Himayatullah for the Petitioner
Mr. Mukesh Vashi, Senior Advocate with Mr. Sean Wassoodew, Mr.
Viren Vashi, Ms. Vijaya Ingule and Mr. Rupesh Mandhare for the
Respondents
CORAM : NITIN JAMDAR &
ABHAY AHUJA, JJ.
DATE : 18 JANUARY 2023
JUDGMENT (Per Nitin Jamdar, J.) :-
Rule. Rule made returnable forthwith. The Respondents waive service. Taken upon for disposal.
2. The Petitioner has challenged the order passed by the Debt Recovery Tribunal dated 2 June 2022 granting ad-interim relief to the Respondents to restrain the Petitioner in any manner taking any steps in respect of the secured assets, and the order passed ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 3 905. WP(Lodg.) 39107.2022..doc by the Debt Recovery Appellate Tribunal dated 2 December 2022 dismissing the Petitioners appeal.
3. IIFL Wealth Finance Ltd. (IIFL), the Respondent's secured creditor, has assigned the debt to the Petitioner, an Asset Reconstruction Company.
4. On 29 December 2017, IIFL and the Respondent -
Borrower (Respondent) entered into a Master Finance Agreement with terms and conditions under which IIFL agreed to provide a loan. On 29 December 2017, IIFL sanctioned a loan of approximately Rs. 20 Crores in favour of the Respondents. Pursuant to an application made on 12 March 2019, IIFL enhanced the facility to Rs.21.50 Crores as per the terms and conditions of the second sanction letter. On 26 December 2019, IIFL further enhanced the loan under the Master Finance Agreement to Rs.23 Crores as per the third sanction letter. On 25 June 2020, IIFL issued a notice declaring an Event of Default and called upon the Respondents to pay the outstanding amount. By two separate agreements for sale dated 25 December 2020 and 12 February 2021, the properties at Lonavala, which one R.M. Parikh HUF mortgaged, were sold by R.M. Parikh HUF to third parties, and the proceeds were adjusted against the outstanding loan. On 18 May 2021, the Respondents requested to grant temporary financial assistance, provide a maximum moratorium, and reduce the interest rate on loan. IIFL, ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 4 905. WP(Lodg.) 39107.2022..doc on 10 June 2021, again declared an Event of Default and called upon the Respondents to pay the then outstanding amounts. The Respondents did not make any payment. IIFL filed Commercial Suit (L) No. 15734 of 2021 in the Original side of this Court on 12 July 2021 against the Respondents for recovering the outstanding loan amount of Rs.24,39,28,178/- inclusive of interest, penal interest and TDS till the date of the filing of the Suit and for enforcing the mortgage security. On 13 August 2021, IIFL filed three Arbitration Petitions in the Delhi High Court under Section 9 of the Arbitration & Conciliation Act, 1996, against Respondent Nos.3 and 4 and Mr. Hemant Parikh as personal guarantor. IIFL issued a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), on 24 August 2021, calling upon the Respondents to pay the then outstanding amount of Rs.24,78,91,801/- along with further interest, penal interest and TDS.
5. On 28 September 2021, IIFL and the Petitioner entered into Assignment Agreement as per Section 5(1)(b) of the SARFAESI Act on agreed terms and conditions. On 27 September 2021, the Respondents replied to the Notice dated 24 August 2021 under Section 13(2) to IIFL, and the Petitioner replied to this communication on 6 October 2021. The learned Single Judge of this Court, by order dated 27 January 2022 in IA(L) No. 25021 of 2022, permitted the Petitioner to withdraw the Commercial Suit ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 5 905. WP(Lodg.) 39107.2022..doc with liberty to file proceedings before the Debts Recovery Tribunal (DRT) in view of the assignment of the loan in its favour.
6. The Petitioner filed Original Application No. 64 of 2022 on 11 February 2022 before the DRT-II, Mumbai. On 10 March 2022, the Petitioner filed an Application under Section 14 of the SARFEASI Act before the District Magistrate, Goa, for taking forcible possession of the properties situated in Goa and on 31 March 2022, the District Magistrate allowed the said Application. On 9 May 2022, the Mamlatdar issued a notice informing the Respondents that the possession of the property at Goa, named Socollem Gallum, was scheduled to be taken on 3 June 2022.
7. The Respondents filed the Securitization Application No. 160 of 2022 on 11 May 2022, challenging the actions of the Petitioner under Section 13 of the SARFAESI Act. By Interim Application No. 1377 of 2022, the Respondents sought interim relief. After hearing both sides, the Presiding Officer, DRT-II, granted ad-interim relief by the impugned order on 2 June 2022 in Interim Application No. 1377 of 2022 in Securitization Application No. 160 of 2022, in terms of prayer clause (c) of the Application, which reads thus :
"(c). That pending the hearing and final disposal of the present Securitization Application, this Hon'ble Tribunal be pleased to restrain the Respondent, their officers, servants, agents, assigns and successors in ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 6 905. WP(Lodg.) 39107.2022..doc office from in any manner taking any manner taking any further steps in pursuance of the SARFAESI action in respect of the subject properties."
Challenging this order, the Petitioner filed Miscellaneous Appeal No.80 of 2022 on 15 June 2022 to the Debts Recovery Appellate Tribunal (DRAT), Mumbai. The Respondents filed an affidavit-in- reply on 5 July 2022. DRAT dismissed the Appeal by the impugned order dated 2 December 2022. Challenging these orders, the Petitioner is before us.
8. We have heard Mr. Venkatesh Dhond, learned Senior Advocate for the Petitioner and Mr. Mukesh Vashi, learned Senior Advocate for the Respondents.
9. The Respondents at the outset, argue that since only ad- interim relief has been granted and the next date is assigned to the main Application is coming up soon, this Court in writ jurisdiction should not interfere in the concurrent use of discretion. Petitioners contend that the exercise of discretion by the Tribunal is entirely perverse, and even for grant of an ad-interim order, that too without any conditions, the policy and object of the governing enactment could not have been ignored as by the ad-interim order the Petitioner has been restrained from taking any steps whatsoever. In light of these contentiions, first the nature of the proceedings before the DRT will have to be highlighted.
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10. The origin of the Debt Recovery Tribunal lies in the recognition of the acute problem of delay in recovering loans and enforcement of security interest. The Recovery of Debts and Bankruptcy Act, 1993 (Act of 1993) was enacted, as noted in the Statement and Object of the Act, because the existing recovery procedure of recovery of debts due to the banks and financial institutions being woefully inadequate had blocked a significant portion of funds in unproductive assets whose value would deteriorate with time. Committees on the financial system reforms recommended setting up tribunals with special powers for adjudication in such matters and speedy recovery because it was critical for the successful implementation of financial sector reforms. Successive Committees recommended urgent remedial measures, including changes in the law to set up special tribunals for the speedy recovery of dues of the banks and financial institutions by following a summary procedure. It was noticed that locking up huge sums of public money in litigation prevented the proper utilization and recycling of funds for the country's development. With the same objective in mind, the SARFAESI Act was enacted. Under Section 13 of the SARFAESI Act, the secured creditor has a right to enforce secured interest. Under Section 14 of the SARFAESI Act, the Chief Metropolitan Magistrate or the District Magistrate is to assist the secured creditor in taking possession of the secured asset. There is, therefore, the clear legislative intent to confer a right on secured ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 8 905. WP(Lodg.) 39107.2022..doc creditor upon default of the borrower to enforce the secured security interest without the interference of the courts, albeit upon conditions. The speedy recovery of loans and realisation of secured assets are the underlying principles for these enactments. The Hon'ble Supreme Court, in the case of United Bank of India v. Satyawati Tondon1, has emphasized this position of law observing thus:-
"5. An analysis of the provisions of the DRT Act shows that primary object of that Act was to facilitate creation of special machinery for speedy recovery of the dues of banks and financial institutions. This is the reason why the DRT Act not only provides for establishment of the Tribunals and the Appellate Tribunals with the jurisdiction, powers and authority to make summary adjudication of applications made by banks or financial institutions and specifies the modes of recovery of the amount determined by the Tribunal or the Appellate Tribunal but also bars the jurisdiction of all courts except the Supreme Court and the High Courts in relation to the matters specified in Section 17. The Tribunals and the Appellate Tribunals have also been freed from the shackles of procedure contained in the Code of Civil Procedure.
6. To put it differently, the DRT Act has not only brought into existence special procedural mechanism for speedy recovery of the dues of banks and financial institutions, but also made provision for ensuring that defaulting borrowers are not able to invoke the jurisdiction of the civil courts for frustrating the proceedings initiated by the banks and other financial institutions.
*** 1(2010) 8 SCC 110 ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 :::
9 905. WP(Lodg.) 39107.2022..doc The Supreme Court has thus emphasized the specialized nature of the Debt Recovery Tribunals and the object of speedy recovery of loans. Because of setting up Tribunals with a special procedural mechanism for the expedited recovery of the dues of banks and financial institutions, the jurisdiction of Civil Courts is barred as it would frustrate the special mechanism. Therefore, though the Debt Recovery Tribunal has the power to grant interim relief, the approach of the Tribunal while considering the applications for interim orders would be different from Civil Courts in a regular civil suit. If it is not so, the underlying object of excluding the jurisdiction of the civil courts, as stressed by the Supreme Court in the above- quoted passage, would be nullified.
11. Reverting to the case at hand, the reasoning of the Presiding Officer, DRT-II, in the impugned order on 2 June 2022, for granting ad-interim relief in terms of prayer clause (c) of the Application reads as follows :
"2. On 24 August 2021, IIFL Wealth Prime Limited (original lender or assignor) issued a 13(2) notice calling upon the borrowers to pay Rs.24.78 crores along with the further interest at 14% p.a. with quarterly rests, penal interest at 14% p.a. with quarterly rests from 25 August 2021 until payment or realisation within sixty days. Mr. Nagori questions the validity and legality of the statutory demand notice. The authorised officer proceeded to take measures on the baseless foundation. The reading of the 13(2) notice prima facie reveals the capitalisation of the penal interest at 14% p.a. with quarterly rests. In the Tribunal's prima facie view, claiming ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 10 905. WP(Lodg.) 39107.2022..doc penal interest with quarterly rests is contrary to the law laid down in the Central Bank of India V/s. Ravindra and Ors. (2002) 1 SCC 367.
3. The Tribunal prima facie opines that paragraph nos. 9 and 10 of the demand notice do not give details or bifurcation of the interest, further interest or penal interest. The breach of Section 13(3) of the SARFAESI Act appears. Mr. Gupta presents that the authorised officer in the secured creditor's reply to the borrower's representation gave break up and details. Mr. Gupta's argument means the secured creditor accepts that the authorised officer erred in not giving the details as per Section 13(3). According to Mr. Gupta, the secured creditor filed a recovery Suit against the borrowers before the Hon'ble Bombay High Court in which the Court Receiver was appointed and discharged later on. Therefore, the applicants cannot plead ignorance of Section 13(3) details. The secured creditor may have the right to pursue two simultaneous remedies. But the Tribunal prima facie views that the SARFAESI Act mandates the secured creditor or its authorised officer to apply it in the manner prescribed and not generally.
4. Most importantly, Mr. Nagori challenges the unlawful mode and manner of executing the Section 14 order dated 3 March 2022. Mr. Nagori drew the Tribunal's attention to the Mamlatdar's Notice dated 9 May 2022 scheduling to take possession of the secured assets stated therein on 3 June 2022. The Mamlatdar sub-delegated the authority favouring "Head Clerk" to take physical custody of the secured assets by the said letter. The Tribunal prima facie views the Mamlatdar or the delegatee's incompetency to further delegate the power to take physical possession to Head Clerk by exceeding his jurisdiction. Though Mr. Gupta presents that the Tribunal may quash or set aside the sub-delegation but not to injunct in entirety. According to Mr. Gupta, the Tribunal must allow the ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 11 905. WP(Lodg.) 39107.2022..doc Mamlatdar to take physical possession of the secured assets. The Tribunal disagrees with Mr. Gupta. Mr. Gupta's submission concerning the admission of liability does not persuade me at the ad-interim stage. The conduct of the authorised officer does not inspire confidence. The Tribunal cannot allow the authorised officer to approbate and reprobate at the same time. He should have consciously adopted the appropriate proceedings to rectify the error and not insisted upon implementing the Section 14 order. The authorised officer failed to do equity in the Tribunal's prima facie view. The authorised officer adopted the mode and manner of recovery against the SARFAESI Act read with the Rules."
Thus DRT founded the grant of injunction on three grounds. First, that Mamlatdar, in the notice dated 9 May 2022, delegated the authority to take physical custody of the secured assets to the Head Clerk. Second, the notice under Section 13(2) of the SARFAESI Act shows capitalization of penal interest. Third, the notice under Section 13(2) of the SARFAESI Act does not provide a breakup of the principal interest, and penal interest is sought to be recovered. Additional grounds were advanced before us by the Respondents in support of the injunction questioning the reply of the notice by the Petitioner when IIFL issued the Notice. The Respondents also allege lack of bona fides in the Petitioner's actions.
12. Since the Securitisation Application filed by the Respondents under Section 17 of the SARFAESI Act is pending before the Tribunal, our analysis is restricted to ascertain whether the use of discretion to grant a protective order without any ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 12 905. WP(Lodg.) 39107.2022..doc conditions whatsoever in the facts and circumstances is defeating the object of the enactment in question, and our observations are to be construed in that context.
13. As regards the aspect of Mamlatdar sub-delegating the authority to take physical possession, the Petitioner contends that the Petitioner, to avoid needless delay, had submitted to the DRT that the sub-delegation to take physical possession of secured assets to the Head Clerk can be set aside, and necessary directions can be issued to take physical possession of the secured assets by the Mamlatdar in accordance with the law. The Petitioner contends that the Division Bench of this Court in the case of Punjab National Bank v/s. State of Maharashtra and Ors.2 and in the case of Mrs Anjali Motiram Waghmare v/s. HDFC Bank Ltd.3, had followed this course of action, and these orders were placed on record before the Tribunal. The Respondents, on the other hand, contend that both DRT and DRAT have rightly held at this prima facie stage that the powers delegated by the District Magistrate to the Mamlatdar could not have been further delegated to the Head Clerk to take possession of the secured assets and even the Petitioners have accepted this position. Thus, the action under Section 14 is illegal, and proceedings in furtherance of such illegal delegation cannot be continued.
2 Writ Petition (St.) No. 26048 of 2019, dated 12 December 2019 3 Writ Petition (St.) No. 2876 of 2020, dated 14 February 2020 ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 13 905. WP(Lodg.) 39107.2022..doc
14. As regards the delegation by the Mamlatdar to the head clerk, nothing is shown to us that this sub-delegation was because of the Petitioner nor the impugned orders record so. The Petitioner had taken a stand before the DRT that, to avoid any further delay, the Petitioner was ready to proceed on the basis that the sub-delegation was not legal, appropriate directions can be issued to cancel the sub- delegation and that the Mamlatdar should proceed further. It is not the position that if the sub-delegation was not permissible no dues would be recoverable from the Respondents. The impugned order does not also proceed on this basis. Therefore, before the Tribunal, the parties were ad idem regarding the legality of the sub-delegation. If the sub-delegation was the impediment and the Petitioner had conceded to cancel the sub-delegation, the DRT could have passed appropriate orders cancelling the sub-delegation or the Petitioner could have been permitted to take steps to get the sub-delegation cancelled and to proceed under Section 14 of the SARFAESI Act. The Tribunal has not permitted this course of action on the ground that the stand of the Petitioner does not inspire confidence and the Petitioner cannot approbate or reprobate. As rightly contended by the Petitioner, the concept of approbate and reprobate was entirely inapplicable. In what manner the Petitioner has approbated and reprobated is not explained in the impugned order. Impugned order does not record a finding that the Petitioner was instrumental in getting the sub-delegation done or had benefited from it. Even ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 14 905. WP(Lodg.) 39107.2022..doc otherwise, the Petitioner had conceded this point. Refusal of the Tribunal to accept this position and proceeding further to injunct the Petitioner for taking all steps permissible in law under SARFAESI Act is contrary to the legislative intent and is perverse.
15. Next ground the Tribunal considered germane for the grant of interim injunction is that the Petitioner has capitalized the penal interest. The Petitioner contended that there is no capitalisation of penal interest as capitalisation of penal interest would occur if the penal interest gets included in the principal amount and the principal amount is shown to have increased. The Petitioners contend as per the terms and conditions of assignment letters dated 29 December 2017, 12 March 2019 and 26 December 2019, the Respondents - borrowers had agreed that interest at the rate of 14% to be charged per annum would be paid quarterly. The Petitioner contends that the particulars of the principal amount of Rs.24,78,91,701/- claimed in the Suit filed in the High Court; the claim in the Arbitration application; and the particulars of claim in the notice under Section 13(2) of the Act has remained constant over a period of time and there is no capitalisation. The Respondents contend that DRT and DRAT had rightly come to the prima facie finding that there was capitalisation of penal interest, as this was evident from the notice under Section 13(2) itself. It is contended that the notice calls upon the Respondents to make payment of further interest and further penal interest on a quantified sum which ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 15 905. WP(Lodg.) 39107.2022..doc includes penal interest, and it is clear from the record that IIFL from 31 December 2018, every quarter was levying penal interest. The Respondents thus contend that there is no perversity in the approach of the Tribunal on this count.
16. Perusal of the record would show that the principal amount has remained at Rs.24,78,91,701/-. It is the same in the Commercial Suit (as of 12 July 2021), Arbitration Petition (13 August 2021) and the Notice (24 August 2021). Thus amount mentioned in the Suit, Arbitration Petition and Notice at different periods has remained constant. Also we have to consider this issue from the perspective of the ad-interim/interim order. There is no debate by the Respondents, either in reply to the Notice or arguments before us, regarding the liability to pay the principal amount. Even at the ad-interim stage, any adjudicating authority would have called upon the borrower making an application for interim relief to make submissions regarding the principal amount, and consider whether the same should be directed to be deposited or at least a substantial part thereof. The DRT has proceeded as if the moment legal argument is made by the borrower, no enquiry was necessary for grant of injunction and even admitted amounts can be ignored. The Tribunal could have called upon the Respondents to address it on the admitted amounts and as to why the Respondents should not be directed to deposit the same or substantial part thereof as a condition to injunct the Petitioner from proceeding further. This ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 16 905. WP(Lodg.) 39107.2022..doc aspect is not explored at all.
17. There was substantial debate before us on the mandatory nature of Section 13(3) of the SARFAESI Act. The DRT held that since there was no break up given in the notice under Section 13(3), the recourse under Section 13(4) would fail, and therefore prima facie case was made out. Admittedly the notice under Section 13(2) does not give a break up of the principal amount, interest and Penal interest. In paragraph 9 of the notice, it is stated that an aggregate sum of Rs.24,78,91,701/- is outstanding as on 24 August 2021.
18. The Petitioner contends that the approach of the DRT and DRAT considering the aspect of not providing a breakup to be in violation of Section 13(3) of the SARFAESI Act as a ground to grant unconditional interim order, is hypertechnical. It was contended that the Respondents are fully aware of the entire breakup, and the provisions of Section 13 of the SARFAESI Act enacted in interest of the borrower can be waived by the borrower, or can substantially complied with by the creditor. It is submitted that the Respondents were furnished with a complete breakup as regards the principal interest and penal interest as on 12 July 2021 and 13 July 2021 in the Suit and the Arbitration proceedings, and the Respondents are fully aware of the same. The Petitioner has relied upon the decisions of the Hon'ble Supreme Court in the cases of ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 17 905. WP(Lodg.) 39107.2022..doc State Bank of India V/s. Hon'ble Debts Recovery Appellate Tribunal and Ors.4; ITC Limited V/s. Blue Coast Hotels Limited and Ors .5 and ARCE Polymers Pvt. Ltd. V/s. Alpine Pharmaceuticals Pvt. Ltd. and Ors.6 to contend that every breach in the notice under Section 13(2) cannot be considered as fatal and prejudice must be demonstrated.
19. The Respondents support the above finding of the Tribunal relying on the decision of the Division Bench of Gujarat High Court in Punjab National Bank v/s. Mithilanchal Industries Pvt. Ltd.7 and contend that failure to give details would nullify the right to the borrower to make a representation or raise an objection to a notice under Section 13(3A) of the SARFAESI Act. It is contended that if the secured creditor does not strictly fulfill and discharge the obligations under Section 13, the measures taken thereunder will fail. It is contended that the DRT and DRAT have rightly held, at the prima facie stage, that details, as mandated under the provisions of Section 13(3) of SARFAESI, have not been given by the secured creditor. It is submitted that the Petitioner had admitted before DRT and DRAT that details were not given in the said notice. The Respondents submit that there is no need to show prejudice and contend that obligation under Section 13(3) is absolute, and the Respondent cannot be expected to import details of 4 (2010) 115 DRJ 304 (DB) 5 (2018) 15 SCC 99 6 (2022) 2 SCC 221 7 2020 SCC OnLine Guj 3441 ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 18 905. WP(Lodg.) 39107.2022..doc amounts disclosed by the IIFL in other proceedings and treat them as incorporated in Section 13(2) notice. It is contended that the waiver by the borrower must be in precise terms, and in this case there is no such waiver. There is therefore no error in the view taken by the Tribunal.
20. The Petitioner has relied upon the decision of Gujarat High Court in the case of Sugarwala Tradelink Pvt. Ltd. V/s. Authorized Officer, Bank of India8 to contend that the decision of Mithilanchal Industries relied by the Respondents was rendered in the facts of that case and does not lay down a proposition of law.
21. The Tribunal has granted interim order on the ground that the notice under Section 13(2) did not give a breakup of the principal amount interest and penal interest. We will consider the arguments on this point in the context of grant of an unconditional interim relief and injuncting the Petitioner from proceeding as per law even for recovery of the dues which were not seriously disputed before the Tribunal. That the notice did not give the breakup is not in dispute. The Petitioner contends that it has caused no prejudice to the Respondents as the Respondents are fully aware of the entire breakup, which from time to time were provided with the accounts. It is specified so in the plaint of the Commercial Suit and the Arbitration Petitions. Prima facie, we find merit in the case of the 8 Manu/GJ/2331/2021 ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 19 905. WP(Lodg.) 39107.2022..doc Petitioner that the Respondents were aware of the complete details prior to issuance of the notice. Merely because the notice does not give particulars again, grant of unconditional interim order was not warranted. The Petitioner has given an example of a case where the borrower is supplied with the necessary particulars and the breakup just a day before issuance of the notice and the notice refers only to the total sum. Even in such a situation, going by the Respondents' arguments, the action would fail. To again emphasis, the case at hand needs to be looked into from the perspective of the equities to be balanced at the interim stage. The notice under Section 13(2) refers to the High Court suit. The Plaint of the Suit served on the Respondents has given all the details. Accounts are also handed over, and details are provided. The Tribunal could not have ignored the undisputed positions on record in this case and has committed a serious error in side stepping the vital position before granting a blanket interim order.
22. The Respondents then contend that the course of action adopted by the Petitioner is malafide as only when IIFL failed to obtain an order of actual physical possession from this Court on 14 September 2021 that they decided to assign the debt to the Petitioners on 28 September 2021. The Petitioner has explained that there was no ill intention but that it is normal practice to assign the NPA to Asset Reconstruction Companies prior to the beginning of a new quarter in a financial year as quarterly filings are required to be ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 20 905. WP(Lodg.) 39107.2022..doc done and therefore the Assignment Agreement was entered into on 28 September 2021 before the quarter ending on 30 September 2021. This being a reasonable explanation, this argument of the Respondent has no merit. There is nothing illegal or malafide in the timing of assigning the debt to the Petitioner.
23. The Respondent advanced one more argument to support the impugned order that since IIFL issued the initial notice under Section 13(2) the Petitioner, who was merely the assignee of the debt of IIFL, had no authority to give a response to the Respondent's reply to the Section 13(2) notice. Only the debt was assigned and not the right to continue proceedings initiated by the Section 13(2) notice. Section 5 of the SARFAESI Act does not give any power to the assignee of a debt to continue with any action pursuant to the Section 13(2) notice issued by its predecessor in title. It is contended Assuming the Section 13(2) notice to be a proceeding, it would require an order of DRT or DRAT under Section 5(5) of the SARFAESI Act for substitution of the Asset Reconstruction Company in the pending proceedings. The Petitioner contends that this argument was never advanced before both the Tribunals and even otherwise, the assignment in favour of the Petitioner is duly made, and the Petitioner has invested a substantial amount. The contention of the Petitioner is that in law and fact, it has rightly responded to the Respondent's reply to the ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 21 905. WP(Lodg.) 39107.2022..doc notice.
24. We find no merit in the Respondents submission. The answer to the Respondents submissions is to be found in Section 5 of the SARFAESI Act, where the Asset Reconstruction Companies would step in the shoes of the secured creditor on assignment. The assignment is as per the statutory scheme, which is framed to overcome delaying tactics by the borrowers. The SARFAESI Act has recognised the mechanism of loan recovery through the Asset Reconstruction Companies as necessary for effective recoveries. Because of the difficulties in recovering the bad loans, Asset Reconstruction Companies have come into existence and their role has been recognised. If the Asset Reconstruction Companies (ARC) cannot respond to the reply given to the original secured creditor, then the entire statutory scheme will fail because the earlier secured creditor, having assigned the debt to the ARC will not be able to respond.
25. The Respondents contended that they had called upon the IIFL to reconcile the accounts to show how a sale consideration of Rs.2.05 crores of the Lonavala properties has been adjusted, and it was incumbent on IIFL to address this issue, however, the Petitioner has merely stated that the Respondents had been shown the reconciliation of accounts, even though Section 13(3A) of the SARFAESI Act obliges the secured creditor to give a detailed ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 22 905. WP(Lodg.) 39107.2022..doc response. The Petitioner has relied on the record to demonstrate that the accounts show adjustment.
26. The Respondents' arguments that the Respondents are not made aware as to how the proceeds from the sale of the properties were adjusted, does not appear to have merit. In the accounts furnished to the Respondents, amounts have been shown as received from the Respondents and according to the Petitioner, they tally with the sale of the properties. There was no further debate on this point.
27. The Respondents then sought to support the impugned orders on the grounds of lack of bonafides in the Petitioner's conduct. The Respondents contend that the Hon'ble Supreme Court in Mardia Chemicals Ltd. & Os. v/s. Union of India and Ors. 9 has held that it is necessary for the financial institution to act reasonably and in good faith and there is lack of good faith in the Petitioner's conduct. It was only when the Respondents sought concession in interest and for providing the maximum moratorium in accordance with the RBI circular on account of Covid-19 Pandemic, that IIFL sought to withdraw all facilities and treat the Respondents' account as NPA. The Respondents, through their Advocates letter dated 24 January 2020, made a one-time settlement for payment of an amount of Rs.15 Crores, and it was rejected the same day without 9 (2004) 4 SCC 311 ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 23 905. WP(Lodg.) 39107.2022..doc any counter proposal. The Petitioner counters this submission stating that this ground was not urged before the DRT. The Petitioner's contend that repeated accommodation was given to the Respondents, and defaults were condoned at least on three occasions. It was contended that on multiple occasions, the debt was restructured. Petitioners contend that the Account was classified as an NPA when the Respondents sought further restructuring, reduction in interest, and an additional loan . As regards the One- time Settlement, the Petitioner contends that firstly Petitioner is not bound to accept a One-Time Settlement, and secondly, the offer has no merit and it was contingent offer.
28. The record placed before us shows that the loan was restructured as the liability increased, and the IIFL and the Petitioner have in fact granted indulgence to the Respondents. The secured creditors cannot be expected to wait indefinitely for it's dues. The record does show that defaults were condoned, and it is not that at first default the action was taken. As regards the Respondent's offer to pay Rs.15 Crores as one time settlement, it is much less than the amount due. Apart from the fact that the Secured Creditor is not bound to accept any One-Time Settlement, the offer itself is conditional. The offer was subject to the sale of one of the mortgaged properties that too after completing interior decoration work and for which the Respondent would borrow monies from a ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 24 905. WP(Lodg.) 39107.2022..doc third party. No fault can be found with the Petitioner for rejecting this settlement offer. If the Respondents are unable to pay the loan amounts, then the Petitioner should be permitted to go ahead with the sale of the secured assets to recover the dues.
29. Coming now to the dismissal of Miscellaneous Appeal No.80 of 2022 by the DRAT by the impugned order of 15 June 2022. The reasoning of the DRAT is as follows :
"9. This is an application seeking a stay of the impugned order of the learned Presiding Officer granting an interlocutory order of stalling the SARFAESI measures till the disposal of the Securitization Application on prima facie finding is that there is a flaw in the Notice under Section 13(2) of the SARFAESI Act. On reading the Notice under Section 13(2), the learned Presiding Officer also deduced that the penal interest had been capitalised. In view of the finding of the learned Presiding Officer in the impugned order that the Securitization Application itself could be heard and disposed of is suggestive of the fact that it is not a final finding on merits but only a prima facie finding which is not going to influence his finding when the Securitization Application is taken for final hearing. Regarding the sub-delegation of the duty to take over possession of the property to the head clerk by the Mamlatdar is also a prima facie defect. It is true that when the Securitization Application is ultimately disposed of, the learned Presiding Officer can direct that the Mamlatdar himself should carry out the orders of the District Magistrate and thus cure that effect. For the interregnum, I find no defect in the impugned order of the learned Presiding Officer. I have not expressed myself on the merits of this case. I am sure that the learned Presiding Officer has also not expressed himself ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 25 905. WP(Lodg.) 39107.2022..doc finally on these contentions. And therefore, I am not inclined to interfere with the order and declined to grant any stay in this matter.
10. In view of the above observations, I am declining to grant the stay of the impugned order, nothing remains in this Appeal and therefore, the Appeal is also disposed of with a direction to the learned Presiding officer, DRT-II, Mumbai to dispose of the Secularization Application No. 160 of 2022 as expeditiously as possible."
**** The DRAT thus refused to render any finding on merits but still held that it did not find any defect in the order dated 2 June 2022. Only a direction was issued to the DRT to dispose of the Securitization Application as expeditiously as possible. The parties before the DRAT had filed pleadings and written arguments, and the judgment was reserved. As can be seen from the reasoning, the dismissal of the Appeal is mechanical. None of the points highlighted by us have been considered. The DRAT has also not kept the object and scheme of the governing enactments in mind. The DRAT has also not considered whether the grant of unconditional injunction, if at all an injunction was warranted in the facts of the case.
30. The Respondents lastly submitted that the impugned order is only an ad-interim order, and the matter is fixed before the DRT on 7 February 2023, the Petitioner has already filed their reply, and the Respondents can be put to terms as regards filing their reply, ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 26 905. WP(Lodg.) 39107.2022..doc and time-bound disposal can be directed, and the Respondents are ready to co-operate and will not take unnecessary adjournment and therefore, this Court ought not to interfere with the discretionary orders. It is contended that if the impugned interim orders are vacated, the Securitization Application filed by the Respondents would become infructuous.
31. The Respondents' submissions are as if the proceedings before the DRT are akin to a civil trial. The DRT, in the present case, has also proceeded as if, if some technical grounds are raised, order of injunction should follow. The primary position that the Respondents have availed of a loan facility from IIFL is not in dispute. Defaults in repayment and consequential action taken by the secured creditor are not in dispute. That a secured interest that has been created is not in dispute. During the arguments and in the correspondence, there is no serious dispute regarding the principal amount of Rs.22,50,66,826/-. Therefore, the Petitioner - Asset Reconstruction Company is legitimately proceeding to recover the dues for enforcement of security interest. The Petitioner has pointed out that it has invested a substantial amount pursuant to the Assignment Agreement, and under the impugned order it is injuncted from any action whatsoever since June 2022, We find this grievance legitimate. Before injuncting the Petitioner completely from proceeding further, the Tribunal should have looked into these admitted positions and the implications thereof and whether any ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 27 905. WP(Lodg.) 39107.2022..doc conditions were necessary to be imposed. Unfortunately, both, the DRT and the DRAT, have treated the grant of interim relief as a routine matter. The DRAT did not interfere because it is only an ad- interim measure.
32. Thus. before injuncting the Petitioner from proceeding as per law to recover the dues, the Tribunal was obliged to consider the implications of the arguments advanced by the Respondents on the final outcome of the application and whether it merited an unconditional interim order and in what manner equities could have been balanced. The DRT should have seen that having not seriously disputed the principal liability, the Respondents are taking technical objections. Against the backdrop of these facts, such a pedantic and indifferent approach by the DRT in injuncting the Petitioner from taking any action was not warranted. No deposit was ordered. Even the option of correcting the sub-delegation was ignored. This approach is not commensurate with the underlying legislative policy emphasized by the Hon'ble Supreme Court in the case of Satyawati Tandon.
33. Ordinarily, the Writ Court would be slow in interfering with the exercise of discretionary powers granting ad-interim orders, however, the manner in which both the DRT and DRAT have proceeded, ignoring the policy and object of the legislation in question, we are constrained to interfere to emphasise on the ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 28 905. WP(Lodg.) 39107.2022..doc approach to be adopted in the cases such as the present one, and to order corrective measures. To conclude, the use of discretion in granting injunction in this case, and that too without any conditions whatsoever to restrain the Petitioner from proceeding to recover its legitimate dues as per law, was perverse. The dismissal of the Appeal by the DRAT was mechanical and in the facts of the case, contrary to the object of the governing statutes.
34. Thus, we hold that the Respondents are not entitled in the facts and circumstances of the case, to the ad-interim/interim injunction in these proceedings unconditionally, if the injunction is to be granted. Since the next date assigned by the Tribunal is 7 February 2023, the appropriate course of action would be to set aside the order passed in appeal and to limit the ad-interim order to the next date assigned in the impugned order, that is, 7 February 2023, and to direct that any further continuation, if any, will not be automatic but after considering the issues indicated in this judgment.
35. Accordingly, the order passed by the DRAT, Mumbai, in Miscellaneous Appeal No.80 of 2022, dated 15 June 2022, is quashed and set aside It is directed that the impugned order passed by the DRT on 2 June 2022 will operate till 7 February 2023, and it will cease to operate unless extended by the DRT. The extension of the ad-interim/interim arrangement, if any, post-7 February 2023 will not be automatic and unconditional. The DRT, if it decides to ::: Uploaded on - 20/01/2023 ::: Downloaded on - 30/05/2023 05:54:03 ::: 29 905. WP(Lodg.) 39107.2022..doc continue the ad-interim/interim relief, will either direct the Respondents to deposit the principal sum due or the substantial part thereof in the time limit so stipulated as a condition for grant of interim relief or the Tribunal will issue the necessary directions to cancel sub-delegation made by the concerned Mamlatdar to the Head Clerk and/or permit the Petitioner to take the necessary steps to take corrective measures regarding the sub-delegation made by the Mamlatdar to the Head Clerk to enable the Petitioner to proceed to take action as per the provisions of the SARFAESI Act.
36. The Writ Petition is allowed. Rule is made absolute in the above terms. No costs.
ABHAY AHUJA, J. NITIN JAMDAR, J.
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