Jammu & Kashmir High Court
Cecil Pharmaceutical Pvt. Ltd And ... vs State Bank Of India And Another on 18 December, 2020
Equivalent citations: AIRONLINE 2020 J AND K 504
Bench: Dhiraj Singh Thakur, Javed Iqbal Wani
HIGH COURT OF JAMMU AND KASHMIR
AT JAMMU
(Through Video Conferencing)
MA No. 14/2020
CM Nos. 3738/2020, 3739/2020 & 3740/2020
Reserved on: 20.10.2020.
Pronounced on: 18.12.2020.
Cecil Pharmaceutical Pvt. Ltd and Another
.....Appellant(s) / Petitioner(s)
Through: -
Mr. Anuj Dewan Raina, Advocate
V/s
State Bank of India and Another
.....Respondent(s)
Through: -
Mr. Parveen Kapahi, Advocate for R-1.
Mr. Abhimanyu Sharma, Advocate &
Mr. Abhinav Malhotra, Advocate for R-2
CORAM:
HON'BLE MR. JUSTICE DHIRAJ SINGH THAKUR, JUDGE.
HON'BLE MR. JUSTICE JAVED IQBAL WANI, JUDGE.
JUDGMENT
JAVED IQBAL, J:
1. This is an appeal filed under Section 18-B of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (herein after for short „the Act of 2002‟).
2. The appellants challenge order dated 20.03.2020 (hereinafter for short the impugned order) passed by the Principal District Judge, Samba, (hereinafter for short the court below) upon an application filed by the appellants herein under Section 17-A of the Act of 2002 wherein inter-alia amongst other reliefs quashment of e-auction sale notice dated 07.12.2018 had been sought.Page 2 of 26 MA No. 14/2020
3. Before dealing with the instant appeal, it would be necessary to extract and refer here under Section 17, Section 17-A as also to Section 18 and Section 18-B of the Act of 2002, being relevant and germane to the controversy.
17. Application against measures to recover secured debts--
(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this chapter, [may make an application along with such fee, as may be prescribed,] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measure had been taken:
[Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.] [Explanation.--For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section.] [(1-A) An application under sub-section (1) shall be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction--
(a) the cause of action, wholly or in part, arises;
(b) where the secured asset is located; or
(c) the branch or any other office of a bank or financial institution is maintaining an account in which debt claimed is outstanding for the time being.] [(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made there under.Page 3 of 26 MA No. 14/2020
[(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub- section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made there under, and require restoration of the management or restoration of possession, of the secured assets to the borrower or other aggrieved person, it may, by order,--
(a) declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured creditor as invalid; and
(b) restore the possession of secured assets or management of secured assets to the borrower or such other aggrieved person, who has made an application under sub-section (1), as the case may be; and
(c) pass such other direction as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.] (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made there under, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.
[(4-A) Where--(i) any person, in an application under sub- section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy,--
(a) has expired or stood determined; or
(b) is contrary to section 65-A of the Transfer of Property Act, 1882(4 of 1882); or
(c) is contrary to terms of mortgage; or Page 4 of 26 MA No. 14/2020
(d) is created after the issuance of notice of default and demand by the Bank under sub-section (2) of section 13 of the Act; and
(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause (c) or sub- clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.] (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any part to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made there under.] [17-A. Making of application to Court of District Judge in certain cases.--In the case of a borrower residing in the State of Jammu and Kashmir, the application under section 17 shall Page 5 of 26 MA No. 14/2020 be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application.
Explanation.--For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons shall not entitle the person (including borrower) to make an application to the Court of District Judge under this section.]
18. Appeal to Appellate Tribunal: (1) Any person aggrieve, by any order made by the Debts Recovery Tribunal (under Section 17, may prefer an appeal along with such fee, as may be prescribed( to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal:
[Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower]:
[Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not les than twenty-five percent of debt referred to in the second proviso.] (2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made there under.
18-B. Appeal to High Court in certain cases.--Any borrower residing in the State of Jammu and Kashmir and aggrieved by any order made by the Court of District Judge under Section 17-A may prefer an appeal, to the High Court having jurisdiction over such Page 6 of 26 MA No. 14/2020 Court, within thirty days from the date of receipt of the order of the Court of District Judge:
Provided that no appeal shall be preferred unless the borrower has deposited, with the Jammu and Kashmir High court, fifty percent of the amount of the debt due from him as claimed by the secured creditor or determined by the Court of District Judge, whichever is less:
Provided further that the High Court may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five percent of the debt referred to in the first proviso.]
4. A plain reading of the above provisions of the Act suggest that under section 17 of the Act of 2002 in rest of India an application can be made by any person (including a borrower) aggrieved by any of the measures referred to in sub section 4 of Section 13 of the Act taken by the secured creditor to the Debts Recovery Tribunal having jurisdiction in the matter and a borrower residing in Jammu and Kashmir can maintain such an application under Section 17-A of the Act of 2002 to the court of District Judge having jurisdiction over the borrower.
5. Further reading of the above provisions suggest that any person aggrieved by any order made by Debts Recovery Tribunal under Section 17 can prefer an appeal to an Appellate Tribunal, subject to the proviso‟s appended to Section 18 and whereas under Section 18-B a borrower residing in Jammu and Kashmir and aggrieved by an order made by the court of District Judge under Section 17-A can prefer such an appeal to the High Court having jurisdiction over such court subject to the proviso‟s appended to Section 18-B. Page 7 of 26 MA No. 14/2020
6. The background facts those stem out from perusal of the record are required to be delineated here under: -
(i) That the Appellant No. 1 being a private limited concern raised loan from respondent No. 1 (herein after for short „the bank‟) by mortgaging its leasehold land along with its plant and machinery.
(ii) That the aforesaid account of the appellant No. 1 came to be declared as Non-Performing Asset (NPA) on account of having defaulted in repaying the loan amount.
(iii) That the respondent bank issued a demand notice dated 03.10.2011 under section 13 (2) of the Act of 2002, demanding immediate repayment of outstanding loan amount of Rs. 5,14,31,890.42/= as on 02.10.2011.
Appellants failed to repay the outstanding amount supra in response to the notice dated 03.10.2011 supra resulting into issuance of a notice dated 22.02.2012 for taking possession of the mortgaged property.
(iv) That the matter relating to the applicability of the Act 2002 to the erstwhile State of Jammu and Kashmir became subject matter of litigation till 2017 when the Hon‟ble Apex court finally decided the same.
(v) That in between the years 2012 to 2017 various settlements inter-se appellants and respondent bank had been undertaken which, however, failed. A last One Time Settlement in the month of August, 2018, (hereinafter OTS 2018) was arrived at between appellants and respondent bank which too failed.
(vi) That between May, 2017 and 1st of August 2018, respondent bank initiated sale of the mortgaged property in question unsuccessfully through auction.
(vii) That an e-auction notice for sale of the mortgaged property dated 07.12.2018 came to be issued by respondent bank reflecting therein the outstanding Page 8 of 26 MA No. 14/2020 amount of Rs. 5,14,31,890.42/= against the appellants as on 02.10.2011.
(viii) That on 07.12.2018 bank issued 3rd auction notice to the appellant as envisaged under the Act and the said auction had been scheduled to be held on 09.01.2019.
(ix) That on 09.01.2019 in response to the auction notice bid of respondent No. 2 herein came to be accepted by respondent bank for an amount of Rs. 3.32 Crores as against reserve bid of Rs. 3.19. Crores qua the mortgaged property.
(x) That respondent No. 2 deposited the sale consideration on 10.01.2019 whereupon respondent bank issued two sale certificates qua the property in question in favour of the respondent No. 2.
(xi) That on 10.01.2019, appellants herein filed an application under Section 17-A, before the Principal District Judge, Samba, seeking quashment of auction sale notice dated 07.12.2018 on multiple grounds primarily on the ground that no notice under Section 34 of the Act of 2002 had been served, as mandated by Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002.
(xii) That in the aforesaid application only respondent bank herein was impleaded as party respondent and respondent No. 2 herein before the court below moved an application for impleadment as party respondent which application had been dismissed by the court below on 23.03.2019.
(xiii) That respondent No. 2 herein assailed the order dated 23.03.2019 supra before this court in OWP No. 563/2019 and this court in terms of order dated 20.05.2019 set aside order dated 23.03.2019 supra of the court below and ordered impleadment of respondent No. 2 herein as party respondent in the application filed by appellants under Section 17-A before the court below.
Page 9 of 26 MA No. 14/2020(xiv) That order of this court dated 20.05.2019 supra came to be challenged by the appellants herein before the Hon‟ble Apex Court in SLP bearing No. 18903/ 2019 which, however, came to be dismissed on 16.08.2019, where after respondent No. 2 herein formally became a party respondent before the court below and contested application filed by the appellants herein under Section 17-A before the court below.
(xv) That vide order dated 20.03.2020 court below dismissed the application filed under Section 17-A by the appellants herein which order is impugned in the instant appeal.
7. The appellants assail the impugned order in the instant appeal on the following grounds: -
(a) Because the impugned order passed by the Learned Court below is not legally sustainable and justiciable as the impugned auction notice dated 7.12.2018 which was required to be served upon the borrower/ appellant with time period of 30 days as provided under Rule 8 (5) of the Security Interest Enforcement Rules, 2002, by the respondent bank only sent an email dated 25.12.2018 enclosing a copy of the notice, wherein it was stated that auction has been scheduled on 09.01.2019, thereby neither conferring a complete period of 30 days to the borrower and nor even 15 days in case of subsequent auction (even if assumed to be subsequent auction notice, though not admitting). Hence, Learned court below having not appreciated that the impugned auction notice dated 07.12.2018 is not a valid notice meeting the requirements of the Rule 8(6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 has committed an error in law.
(b) Because the Learned court did not appreciate that the respondent bank neither in the impugned auction notice nor in the pleadings filed before the Learned court had set up a case that 15 days auction notice was served upon the appellant whereas to the contrary the respondent bank at all time Page 10 of 26 MA No. 14/2020 emphasized that the impugned auction notice provided 30 days notice to the appellants. Therefore, there being a contrary stand by the respondent No. 2 cannot be held to be justiciable.
(c) Because the very purpose of conferring 30 days period to the borrower is to ensure that the minimum reserve price for auction is fixed after consultation with the borrower so that the secured assets may not be sold for less than the actual value. Moreover, the respondent bank deliberately chose not to comply with the sub-rule (1) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 which provides that the authorized officer shall serve, affix and publish notice of the auction sale.
(d) Because the impugned judgement reveals that the Learned Principal district Judge did not legally appreciate and adjudicate upon the legal issues raised by the Appellants in the application much les the issue qua the giving statutory notice to the appellant in terms of rule 8 (6) and Rule 9 (1) of the Security Interest Enforcement Rules, 2002 before proceeding with the auction proceedings. A bare perusal of the impugned auction notice reveals that respondent had to declare the successful bidder amongst the bidders who had submitted the highest bid. For further reference the relevant extract of the auction notice is reproduced as under:
9. During the online Inter-se-bidding, Bidder can improve their bid as per the Increase Bid Amount (mentioned above) or its multiples and in case the bid is placed in the last 5 minutes of the closing of the auction, the closing time will automatically extended by 5 minutes (subject to unlimited extensions of 5 minutes each) each time till the closure of e-
auction process, otherwise it‟ll automatically gets closed. The bidder who submits the highest bid amount (not below the Reserve Price) on the closure of the e-auction process shall be declared as Successful bidder by the Authorized Officer/ Secured Creditor, after requisite verification.
Page 11 of 26 MA No. 14/2020So as to come to the conclusion one has to be the successful bidder there is a pre-requisite of highest bidder and in absence of multiple bids, single bidder cannot be regarded as a „Highest bidder‟. The expression used "Successful bidder"
has been interpreted by the Hon‟ble Division bench of the Himachal Pradesh High Court in case titled Anil Kumar Thakur versus State of H.P & Ors, for further reference the relevant extract of the judgment is reproduced as under:
Petitioner by the medium of this writ petition, has questioned the action of the respondents on the ground that he has participated in the tender process and he was a successful single bidder. The respondents have issued fresh tender vide Annexure P9, on the ground that the participation of one bidder in the tender process is not permissible. We have gone through the documents on record. It is admitted position of law, Rules and Regulations occupying the filed that minimum bidders are essential and one bidder cannot be held to be a successful bidder. Thus, the respondents have rightly issued the fresh tender. Having said so, the petition is dismissed in laminae, along with pending applications, if any.
(e) Because the learned Principal District Judge did not take into consideration that the Auction dated 07.01.2019 was void ab-
initio being against the mandate of Section 13 (4) of the SARFAESI Act, 2002 read with Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002. That Rule 8 (6) of the Security Interest (Enforcement) Rules, 2002, mandates the requirement of serving notice of 30 days for the sale of the immovable secured assets, which in the present case has not been complied with as the information about the auction was conveyed to the appellants electronically only on 25.12.2018 through an e-mail along with which a copy of the newspaper publication pertaining to the auction was attached, no proper notice under the „Act‟ was ever served to the Appellants even till the date of auction. The appellant as such, was never served with any notice for action which otherwise is a sine qua non for initiating and proceeding with an auction process Page 12 of 26 MA No. 14/2020 under the „Act‟. For further reference, provisions of rules are reproduced as under:
Rule 8 (5) (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-
(a)by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
(b)by inviting tenders from the public;
[(c) by holding public auction including through e- auction mode; or]
(d)by providing treaty.
(6)the authorized officer shall serve to the borrow a notice of thirty days for sale of the immovable secured assets, under sub-rule(5):
[Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.] [(7)every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorized officer shall upload the detailed terms and conditions of the sale, on the website of the secured creditor, which shall include;
(a)the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b)the secured debt for recovery of which the property is to be sold;
(c)reserve price of the immovable secured assets below which the property may not be sold;Page 13 of 26 MA No. 14/2020
(d)time and place of public auction or the time after which sale by any other mode shall be completed;
(e)deposit of earnest money as may be stipulated by the secured creditor;
(f)any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.]
(f) Because despite being apprised during the course of arguments the Learned Court failed to take note of the fact that the submissions with regard to the receipt of email on 21.12.2018 was a typographical error and the email by virtue of which the copy of publication pertaining the to the auction notice dated 07.12.2018 was sent to the appellants was actually received on 25.12.2018, the same being apparent from the record annexed thereto.
(g) Because despite taking notice of the legal issue raised with regard to the compliance of the mandatory requirement for service of notice under sub-rule (1) of the Security (interest) Enforcement Rules, 2002 which even after the amendment provides that the authorize officer shall serve, affix and publish the notice of sale meaning thereby that the physical service of notice in addition to the publication and affixation of the same is required under then mandate of law, has not been adjudicated upon.
(h) Because the Learned Court ought to have considered the mala fide conduct of the Bank and the Respondent bank herein as the Bank first enters into a One Time Settlement ("OTS") with the Appellant company and accepts the payment to be made therein by 29.02.2019. The Bank further directs the Appellant to deposit Rs. 1.50 crores to hold back from proceeding with the auction, leaving the Appellant no choice but to pay Rs. 1.50 Crores on 08.01.2019. Despite this payment, on the very next day i.e., 09.01.2019, the Bank conducts the auction and expands the scope of litigation deliberately by setting up Respondent No. 1.
Page 14 of 26 MA No. 14/2020(i) Because even after the acceptance of the amount from the applicant as duly admitted by the respondent Bank the respondent Bank cannot proceed with the impugned Auction Notice but, in the instant case the respondent Bank has acted arbitrarily and illegally against the mandate of Act and the Rules.
(j) Because the Learned court did not consider that the last date for settlement of account One Time Settlement (OTS) Scheme which was initiated on 30.08.2018 was still subsisting as the OTS provided the Appellants a time of six months to payment of amount which duration was due to expire on 28.02.2019. The applicant who had already paid the amount of Rs. 1.65 Crores was about to pay the remaining amount shortly thereafter.
(k) Because as per mandatory requirement of Rule 4 (2B) of the Rules, Security Interest (Enforcement ) Rules 2002, issued in terms of power conceded under section 13 of the SARFAESI Act, all notices are to be served upon the borrower through electronic mode in addition to mode under Rule 3, but in the instant case, no notice much less the impugned notice was served as per the requirement of law. As such, impugned notice may be set-aside as no opportunity was accorded to the applicant to seek remedy provided under law.
8. Respondent No. 2 has filed detailed reply in opposition to the memo of appeal of the appellant, whereas, respondent No. 1 has not chosen to file any response in opposition thereto.
9. Both the respondents raised a maiden preliminary objection qua the maintainability of the appeal on the ground of failure of the appellants to comply with the mandatory pre-deposit as envisaged under Section 18-B of the Act.
10. Besides above, the respondent No. 2 further contested the appeal in its reply supra inter-alia on the premise that the appellants being chronic Page 15 of 26 MA No. 14/2020 defaulter is not entitled to any relief and that the respondent No. 2 being a bona-fide 3rd party auction purchaser, purchased the property in question validly and legally as a consequence whereof sale certificates dated 10.01.2019 came to be issued by respondent bank in its favour where under right, title and interest qua the property in question vested unto it and consequently rights being, if any, of the appellants to redeem property in question extinguished and that the appellants consciously conceded to the said sale and did not question the said sale or else undertook any kind of amendment to the pleadings thereto either before the court below or before this court. [
11. Heard, considered and perused the record.
12. The counsel for appellants made his submission in line with the contentions and grounds raised and urged in the memo of appeal.
Confronted with the preliminary objection supra raised by the learned counsel for the respondents, the counsel for appellants submitted that in compliance to order dated 24.08.2020 passed by this court an amount of Rs. 28,10,000/= has been deposited as a pre-deposit before this court while treating the amount reflected in OTS 2018 as the amount of debt due from it as claimed by the respondent bank.
13. According to the learned counsel for the appellant against the aforesaid outstanding OTS amount, the appellant had deposited earlier with the respondent bank an amount of Rs. 1,65,00,000/=.
14. According to the learned counsel for the appellants after deducting the aforesaid deposited amount from the aforesaid OTS amount, the appellants deposited pre-deposit of Rs. 28,10,000/= in compliance to the order passed by this Court dated 24.08.2020 as a 25% of the same.
Page 16 of 26 MA No. 14/202015. Per Contra, learned counsel for the respondent No. 1, however, submitted that the amount covered under OTS 2018 is neither amount of debt due from the appellant as claimed by the respondent bank nor is the same determined by court of District Judge.
16. According to learned counsel for the respondent bank the amount of debt due from the appellants as on 17.10.2020 is 8,82,28,271/= out of which the appellant has deposited an amount of Rs. 1,65,00,000/=.
17. According to the learned counsel for the respondent bank the pre -
deposit amount deposited by the appellant before this court even is not 25% of the amount of debt reflected in e-auction notice dated 07.12.2018 after deducting the aforesaid amount of Rs. 1,65,00,000/= deposited by the appellants with respondent bank.
18. Without adverting to the case set up by the learned counsel for the parties and having regard to the preliminary maiden objection raised by learned counsel for the respondents, it becomes imperative for this court to have a discourse qua the maintainability of the appeal.
19. Before adverting to the question of maintainability of the appeal and rival submissions made by the appearing counsel for the parties, it would be appropriate to refer to following decisions of the Apex court being relevant and germane to the controversy. The Apex court in case titled as "Narayan Chandra Ghosh Vs. UCO Bank and Others" reported in 2011 (4) SCC 548 in paras 7, 8 & 9, has noticed as under: -
"7. Section 18(1) of the Act confers a statutory right on a person aggrieved by any order made by the debts Recovery Tribunal under section 17 of the Act to prefer an appeal to the Appellate Tribunal. However, the right conferred under Page 17 of 26 MA No. 14/2020 Section 18(1) is subject to the condition laid down in the second proviso thereto. The second proviso postulates that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. However, under the third proviso to the sub-section, the Appellate Tribunal has the power to reduce the amount, for the reasons to be recorded in writing, to not less than twenty- five per cent of the debt, referred to in the second proviso. Thus, there is an absolute bar to the entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty percent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity."
"8. It is well settled that when a statute confers a right of appeal, while granting the right, the legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. Bearing in mind the object of the Act, the conditions hedged in the said proviso cannot be said to be onerous. Thus, we hold that the requirement of pre-deposit under sub-section (1) of section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the statute. We have no hesitation in holding that deposit under the second proviso to Section 18(1) of the Act being a condition precedent for preferring an appeal under the said section, the Appellate Tribunal had erred in law in entertaining the appeal without directing the appellant to comply with the said mandatory requirement."Page 18 of 26 MA No. 14/2020
"9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, the appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third provisos to the said Section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining appellant's appeal without insisting on pre- deposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed."
The Apex court in case titled as "Union Bank of India Vs. Rajat Infrastructure Private Limited and Others" reported in 2020 (3) SCC 770", at paras 10, has noticed as under: -
"10. This Court in Narayan Chandra Ghosh V. UCO Bank, held that keeping in view the language of Section 18 even if the amount or debt due had not been determined by DRT, the appeal could not be entertained by DRAT without insisting on pre-deposit. DRAT, at best could, after recording the reasons, have reduced the amount to 25% but could not have totally Page 19 of 26 MA No. 14/2020 waived the deposit. This Court also held that the right of appeal conferred under Section 18(1) is subject to the conditions laid down in the second proviso therein which postulates that no appeal shall be entertained unless the borrower has deposited 50% of the amount of debt due from him as claimed by the secured creditors or determined by DRT, whichever is les. The third proviso enables DRAT, for reasons to be recorded in writing, to reduce the amount of deposit to not less than 25%."
20. Keeping in mind the aforesaid decisions of the Apex court in "Narayan Chandra Ghosh Vs. UCO Bank & Others" and "Union Bank of India Vs. Rajat Infrastructure Private Limited & Others" supra, the short interesting question for determining the issue of maintainability of the appeal would rest on determination of the question as to which amount is to be taken into consideration by this court whilst determining the amount of pre-deposit that ought to have been deposited as 25% by appellants herein under Section 18-B, before this court while preferring the instant appeal. Would it be the amount of Rs. 2,77,36,827/= reflected in the OTS of 2018, or amount of Rs. 51431890.42/= as on 02.10.2011 as reflected in the e-auction notice dated 07.12.2018 or else the amount of Rs. 8,82,28,271/= worked out by respondent bank due from the appellants as on 17.10.2020 [minus the amount deposited by the appellant with respondent bank i.e. 1,65,00,000/=].
21. Before proceeding further it would be profitable to refer to the definition of expression "debt" as defined in the Act.
The expression "debt" has been defined in Section 2 sub Section 1 and clause [(ha)] of the Act of 2002 and same reads as under:
Page 20 of 26 MA No. 14/2020[(ha) "debt" shall have the meaning assigned to it in clause
(g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and includes--
(i) unpaid portion of the purchase price of any tangible asset given on hire or financial lease or conditional sale or under any other contract;
(ii) any right, title or interest on any intangible asset or licence or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable any borrower to acquire the intangible asset or obtain licence of such asset;].
Under Section 2 clause (g) of The Recovery Debts due to the banks and Financial Institutions Act 1993 reads as under: -
[(2-g) "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application."
22. A plain reading of the aforesaid definition reveals that word "debt"
has been given a wider meaning and means a liability (inclusive of interest which is claimed as due from any person via bank or a Financial Institution during the course of any business activity Page 21 of 26 MA No. 14/2020 undertaken by an such bank or Financial Institution under any law for the time being in force in cash or otherwise, whether secured or unsecured or assigned or whether payable under a decree or order of any Civil Court or any Arbitration award or otherwise or under a mortgage and subsisting on and legally recoverable on the date of the application.
23. As is noticed above the proviso‟s appended to Section 18-B of the Act of 2002 read with definition of the expression "debt" supra it becomes manifest that before an appeal of a borrower in Jammu and Kashmir can be entertained by this Court, the borrower has to deposit 50% of the amount of debt due from him as claimed by the secured creditor or as determined by the court of District Judge whichever is less and if there is no determination by the District Judge then the borrower would have to deposit 50% of the amount of debt or else 25% of the debt, if for reasons to be recorded in writing High court directs so.
24. In view of above the debt referred to in the Act in general and in Section 18-B in particular cannot by any sense of imagination be treated or as a substitute by the amount determined in the process of a Settlement between borrower and a creditor.
25. Therefore, it can safely be said that the amount reflected therein OTS 2018 is neither amount of debt due from the appellant as claimed by the respondent bank or else amount of debt determined by the court of District Judge as is referred to in the proviso‟s to Section 18-B.
26. Thus the aforesaid contention of the appellants in this regard is misconceived, misplaced and misdirected.
Page 22 of 26 MA No. 14/202027. Now in the event the amount of debt due from the appellant as claimed by the respondent bank or determined by the court of Dsitrict Judge is taken to the amount reflected in e-auction notice viz Rs.
5,14,31,890.42/= as on 02.10.2011 and after deducting form it the amount of Rs. 165,00,000/= i.e. the amount deposited by the appellants with the respondent bank, the balance amount payable by the appellants to the respondent bank is Rs. 3,49,31,890.42/= as on 02.10.2011 and 25% of the said amount would be Rs.
87,32,972.61/=.
28. And in the event the amount of debt due from appellants as claimed by respondent bank is taken to be Rs. 8,82,28,271/= as on 17.10.2020 and after deducting form it the amount of Rs. 1,65,00,000/= i.e. the amount deposited by the appellants with the respondent bank, the balance amount payable by the appellants to the respondent bank is Rs. 7,17,28,271/= as on 17.10.2020 and 25% of the said amount would be Rs. 1,79,32,067.75/=.
29. For the purposes of the maintainability of the instant appeal if, the debt due from the appellants as claimed by the secured creditor or else determined by the court of District Judge while dealing with the application of the appellants filed under Section 17 is treated to be the amount of Rs. 5,14,31,890.42/= as on 02.10.2011 minus the amount of Rs. 1,65,00,000/= i.e. the amount deposited by the appellants with respondent bank, being the lesser amount as envisaged in first proviso appended to Section 18-B of the Act as is worked out above in the preceding paras, 25% of the remaining amount of debt after deduction from the amount reflected in e-auction notice is Rs. 87,32,972.61/-.
Page 23 of 26 MA No. 14/2020The appellants even qua the said amount seemingly have failed to comply with the requirement of pre-deposit of 25% as mandated by Section 18-B of the Act and in compliance to the order passed by this court dated 24.08.2020. The said non-compliance, therefore, can indisputably be said fatal to the maintainability of the instant appeal.
30. It needs to be mentioned here that even though this court issued a notice in the instant appeal in as much as passed an interim order on 24.08.2020 directing the appellants to deposit 25% of outstanding loan amount, yet it cannot be construed that the instant appeal has been entertained as, in law, entertaining an appeal has been held to mean "admitting to consideration". Reference in this regard would be appropriate here to the judgment of Apex Court titled as "Axis Bank Vs. SBS Organics Private Limited and another" reported in 2016 (12) SCC 18, wherein paras 18 and 19, it has been noticed as under:
"18. Any person aggrieved by the order of DRT under section 17 of the SARFAESI Act, is entitled to prefer an appeal along with the prescribed fee within the permitted period of 30 days. For "preferring" an appeal, a fee is prescribed, whereas for the Tribunal to "entertain" the appeal, the aggrieved person has to make a deposit of 50% of the amount of debt due from him s claimed by the secured creditors or determined by DRT, whoever is less. This amount can, at the discretion of the Tribunal, in appropriate cases, for recorded reasons, be reduced to 25% of the debt.
"19. This Court, in Lakshmiratan Engg. Works Ltd. V. CST, had the occasion to consider the meaning of the expression "entertain" in the context of a similar provision in the Uttar Pradesh Sales Tax Act, 1948 wherein it was held that in such context, the expression has the meaning of "admitting to Page 24 of 26 MA No. 14/2020 consideration". The relevant discussion is available at paras 9 and 10: (AIR pp 492-93).
"9. The word "entertain" is explained by a Division Bench of the Allahabad High Court as denoting the point of time at which an application to set aside the sale is heard by the court. The expression "entertain", it is stated, does not mean the same thing as the filing of the application or admission of the application by the court. A similar view was again taken in Dhoom Chand Jain v. Chaman lal gupta in which the learned Chief Justice Desai and Mr. Justice Dwivedi gave the same meaning to the expression "entertain". It is observed by Dwivedi, J. that the word "entertain" in its application bears the meaning "admitting to consideration", and therefore when the court cannot refuse to take an application which is backed by deposit or security, it cannot refuse judicially to consider it. In a single Bench decision of the same court in Bawan Ram v. Kunj Behari Lal one of us (Bhagava, J.) had to consider the same rule. There the deposit had not been made within the period of limitation and the question had arisen whether the court could entertain the application or not. It was decided that the application could not be entertained because proviso (b) debarred the court from entertaining an objection unless the requirement of depositing the amount or furnishing security was complied with within the time prescribed. In that case (sic meaning) of the word "entertain" is not interpreted but it is held that the court cannot proceed to consider the application in the absence of deposit made within the time allowed by law. This case turned on the fact that the deposit was made out of time. In yet another case of the Allahabad High Court in Haji Rahim Bux v. Firm Sanaullah & sons, a Division Bench consisting of Chief Justice Desai and Mr. Justice S.D. Singh interpreted the words of Order 21 Rule 90, by saying that the word " entertain" meant not "receive" or "accept" but „proceed to consider on merits" or "adjudicate upon".
10. In our opinion these cases have taken a correct view of the word "entertain" which according to dictionary also means Page 25 of 26 MA No. 14/2020 "admit to consideration". It would therefore appear that the direction to the court in the proviso to section 9 is that the court shall not proceed to admit to consideration an appeal which is not accompanied by satisfactory proof of the payment of the admitted tax. This will be when the case is taken up by the court for the first time. In the decision on which the Assistant Commissioner relied, the learned Chief Justice (Desai, C.J.) holds that the words "accompanied by"
showed that something tangible had to accompany the memorandum of appeal. If the memorandum of appeal had to be accompanied by satisfactory proof, it had to be in the shape of something tangible, because no intangible thing can accompany a document like the memorandum of appeal. In our opinion, making "an appeal" the equivalent of the memorandum of appeal is not sound. Even under Order 41 of the Code of Civil Procedure, the expression "appeal" and "memorandum of appeal" are used to denote two distinct things. In Wharton‟s Law Lexicon, the word "appeal" is defined as the judicial examination of the decision by a higher court of the decision of an inferior court. The appeal is the judicial examination; the memorandum of appeal contains the grounds on which the judicial examination is invited. For purposes of limitation and for purposes of the rules of the court it is required that a written memorandum of appeal shall be filed. When the proviso speaks of the entertainment of the appeal, it means that the appeal such as was filed will not be admitted to consideration unless there is satisfactory proof available of the making of the deposit of admitted tax."
31. For what has been observed, discussed and analyzed hereinabove the preliminary objection raised by the respondents qua the maintainability of the appeal succeeds, as a result whereof the appeal is held not maintainable and is, accordingly, dismissed, along with all connected CM(s).
Page 26 of 26 MA No. 14/202032. Interim directions, if any, shall stand vacated.
33. The appellants, however, shall be at liberty to seek release of the amount of pre-deposit made before this court in compliance to order dated 24.08.2020, in view of law laid by the Apex court titled as "Axis Bank Vs. SBS Organics Private Limited and Another"
reported in 2016 (12) SCC 18 wherein it has been held that deposit made by considering the appeal in terms of Section 18 of the Act is neither a secured asset nor a secured debt created by the borrower or aggrieved person in favour of the secured creditor.
(Javed Iqbal Wani) (Dhiraj Singh Thakur)
Judge Judge
JAMMU
18/12/2020
Ishaq
i. Whether the Order is speaking? Yes/No.
ii. Whether the Order is reportable? Yes/ No.
ISAQ HAMEED BHAT
2020.12.23 12:36
I attest to the accuracy and
integrity of this document