Telangana High Court
M/S Penguin Textiles Limited vs The Debt Recovery Appellate Tribunal on 5 July, 2023
Author: P.Naveen Rao
Bench: P.Naveen Rao, Nagesh Bheemapaka
THE HON'BLE SRI JUSTICE P.NAVEEN RAO
&
THE HONOURABLE SRI JUSTICE NAGESH BHEEMAPAKA
W.P.Nos.13507 & 11461 OF 2023
Date: 05.07.2023
Between:
1. M/s. Penguin Textiles Limited,
Rep by its Executive Director, Mr.N.R.Chettiar,
Tarnaka-Uppal Road, Hyderabad-500039
And its Regd. Office at
No.131, Nungambakkam High Road, Chennai-600034
and another.
.....Petitioners
And
1. The Debt Recovery Appellate Tribunal
9, Old Post Office Street, 7th Floor,
Kolkata-700001 and others.
.....Respondents
The Court made the following:
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THE HON'BLE SRI JUSTICE P.NAVEEN RAO
&
THE HONOURABLE SRI JUSTICE NAGESH BHEEMAPAKA
W.P.Nos.13507 & 11461 OF 2023
COMMON ORDER :
Heard learned counsel Sri T. Vijay Kumar appearing for the petitioners, Sri R. Venkata Subba Rao, appearing for respondent No. 2 and 3 and learned senior counsel Sri V Ravinder Rao for respondent no.4.
2. As the petitioners and respondents in these two writ petitions are same and writ petition no. 13507 of 2023 is filed against the order in Appeal Diary No.401 of 2020 dated 27.4.2023 and writ petition no. 11461 of 2023 is filed against Appeal Diary No.401 of 2020 dated 17.3.2023 respectively passed by the Debt Recovery Appellate Tribunal, Kolkata, (for short, 'the DRAT), we have heard the writ petitions together and the common order is passed.
3. 1st petitioner-company is the borrower from the Indian Bank and defaulted in repayment of the loan, that resulted in classifying the loan account as non-performing asset and bank has taken recourse to the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, 'the SARFAESI Act, 2002'). -3- Petitioners filed Securitization Application No.8 of 2014 before the Debt Recovery Tribunal-I, Hyderabad, (for short, 'the Tribunal') challenging the sale notice dated 02.12.2013. During the pendency of the said S.A., the respondent-bank issued another sale notice on 02.08.2014 for the sale of secured asset. Petitioners filed I.A.No.3454 of 2014 to carryout amendment to the said S.A., by incorporating the grounds of prayer challenging the sale notice dated 02.08.2014. It appears that no sale took place pursuant to the sale notice dated 02.08.2014. Further during the pendency of the said S.A., the respondent- bank assigned the case of the 1st petitioner company to M/s. Reliance Asset Reconstruction Company Limited - respondent No.3 herein on 18.12.2014. Respondent No.3 issued sale notice on 12.07.2016 proposing to sell Acs.30.87 gts., in Survey No.1, Uppal Kancha, Tarnaka-Uppal Road, Hyderabad on 18.08.2016. The said property was sold in the sale conducted on the said date. In view of these developments, petitioners filed I.A.No.3209 of 2015 to implead respondent No.3 as respondent No.2 and I.A.No.2355 of 2016 to implead respondent No.4, the auction purchaser, as respondent No.3 and the said applications were allowed by the Tribunal vide order dated 30.11.2016. Petitioners have also filed I.A.No.1950 of 2016 on 03.08.2016 to carryout amendment to the S.A., to challenge sale notice dated -4- 12.07.2016 by way of incorporating new grounds and prayer. It appears that the I.A.No.1950 of 2016 filed by the petitioners praying to amend the prayers was not allowed. But even though the said I.A., was not allowed, fresh S.A.No.8 of 2014 copy was filed incorporating the amendments and on the said issue, again counters and replies were filed, arguments were advanced.
4. The Tribunal observed that the issue of amendment would be considered along with the main case. The Tribunal heard the S.A.No.8 of 2014 and by order dated 10.12.2019 dismissed the S.A. Aggrieved by the said order of the Tribunal, petitioners filed appeal before the DRAT. The appeal was numbered as Appeal Diary No.401 of 2020 for consideration of pre-deposit of the amount. Petitioners also filed I.A.No.239 of 2020 for waiver of pre-deposit. The DRAT by order dated 17.03.2023 has not accepted request for waiver of pre-deposit and directed petitioners to make pre-deposit of 50% of the debt due including interest and dismissed the I.A.No.239 of 2020. Petitioners were directed to deposit 50% of amount of Rs.103,37,70,069/- within four (4) weeks from the date of order, failing which, the appeal would stand dismissed.
5. As the pre-deposit amount directed by DRAT was not deposited within the time granted, the DRAT vide order dated -5- 27.04.2023 passed orders dismissing the appeal for want of pre-deposit as required u/s 18(1) of the SARFAESI Act, 2002. Aggrieved thereby, petitioners filed W.P.No.13507 of 2023.
6. According to learned counsel for the petitioners, the DRAT has grossly erred in fixing the debt due as Rs.103,37,70,069/- and further directing petitioners to deposit 50% of the said amount. According to learned counsel, the original amount due determined by the respondent-bank as early as in the year 2005 was only Rs.4.00 crores and odd amount and therefore, the amount specified by DRAT is highly excessive and without any basis. He would submit that there was no basis for respondent-bank to specify the amount as due before DRAT and the DRAT accepting the same and passing the order.
7. Per contra, according to learned Senior Counsel appearing for respondent No.4, as per the definition of debt due as incorporated in Section 2(ha) of the SARFAESI Act, 2002 and Section 2(g) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, 'the Act, 1993'), the 'debt due' includes interest and debt due includes the actual amount due as on the date of preferring the appeal and out of that amount, 50% has to be pre-deposited to avail the remedy of an appeal. Learned Senior Counsel further submits that as held by the -6- Hon'ble Supreme Court in M/s Sidha Neelkanth Paper Industries Private Limited & Another vs. Prudent ARC Limited & Ors.1, which was relied upon by DRAT, the petitioners have to pay the amount as specified by DRAT and therefore, the DRAT has not committed any error in directing the petitioners to deposit the amount specified in the order.
8. Learned Standing Counsel appearing for respondent No.3 has placed before this Court a Memo incorporating the statement of amounts due, wherein, as on 30.06.2014, the amount due was Rs.22,92,51,381/- and from 30.06.2014, i.e., the date on which the sale was conducted, to 12.07.2016, the amount of interest was calculated as Rs.9,72,55,805/-. In addition, the bank calculates interest from 13.07.2016 to 04.07.2023 @ 17.75% and specifies the amount of interest accumulated as Rs.77,12,19,828/- and adds to the total which comes to Rs.1,10,00,16,102/-.
9. As per Section 2(ha)2 of the SARFAESI Act, 2002 read with Section 2 (g) of the Act, 19933, we are considering the scope of 1 2023 SCC Online SC 12 2 Section 2(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 -7- definition of 'debt' for the purpose of Section 18 of the SARFAESI Act, 2002. For the purpose of pre-deposit of an amount to prefer an appeal under Section 18 of the SARFAESI Act, 2002, debt due shall be the amount mentioned in the notice issued under Section 13(4) or if the Tribunal quantifies the amount due to the bank, whichever is less. In the instant case, there is no determination by the Tribunal.
10. On 02.08.2014, notice under Section 13(4) of the SARFAESI Act, 2002 was issued specifying the amount due including interest as Rs.23,40,89,862/-. On 12.07.2016, sale notice was issued specifying the amount due as Rs.33,34,00,000/-. On 18.08.2016, sale was conducted with a sale price of Rs.35,50,00,000/-. For the purpose of consideration of the issue, we take the amount mentioned in the sale notice dated 12.07.2016 and the amount paid by the auction purchaser in the sale conducted on 18.08.2016, as basis.
11. However, if the sale is already conducted, higher amount is realized in the sale proceedings and sale proceedings are 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; 3 Section 2 (g) 'debt' means any liability inclusive of interest which is claimed as due from any person, by a bank or a financial institution etc. -8- challenged by the borrower, for the purpose of computation of 50% of the amount to be deposited by the borrower to prefer appeal, the amount realized in the sale proceedings had to be taken into consideration. In this case, the amount realized in the sale held on 18.08.2016 is Rs.35,50,00,000/-. This figure shall be the relevant figure to determine 50% of the pre-deposit as per the second proviso of Section 18 of the SARFAESI Act, 2002.
12. Though learned Senior Counsel appearing for respondent No.4 vehemently contended that pre-deposit amount has to be assessed based on the present assessment made by respondent No.3 which comes to Rs.1,10,00,00,000/- and 50% of the pre-deposit amount has to be out of this amount having regard to Section 2(ha) of the SARFAESI Act, 2002 read with Section 2 (g) of the Act, 1993, and Section 18 of the Act, 2002 the amount recovered from the sale proceedings held on 18.08.2016 alone is the criteria.
13. In M/s. Sidha Neelkanth Paper Industries Private Limited (supra), the Hon'ble Supreme Court delineated the scope of Section 18 of the SARFAESI Act, 2002 in paragraph Nos.34 and 35. They read as under:
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"34. As per Section 18 of the SARFAESI Act, any person aggrieved, by any order made by the DRT under Section 17, may prefer an appeal within thirty days to an appellate Tribunal (DRAT) from the date of receipt of the order of DRT. Second proviso to section 18 provides 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 DRT, whichever is less and only and only then, an appeal under Section 18 of the SARFAESI Act is permissible against the order passed by the DRT under Section 17 of the SARFAESI Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. Therefore, whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the 'debt due' within the meaning of proviso to Section 18 of the SARFAESI Act. In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act. However, in a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in that case, the "debt due" shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher.
35. As observed hereinabove and as per the second proviso to Section 18 of the SARFAESI Act, it is the "borrower" who has preferred an appeal before the Appellate Tribunal and the "borrower" who shall have to deposit 50% of the amount of "debt due" from him. If the words used in the second proviso to Section 18 of the SARFAESI Act are "borrower has to deposit", it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower. It is the "borrower" who has to deposit the 50% of the amount of "debt due" from him. At the same time, if the borrower wants to appropriate and/or adjust the amount realized from sale of the secured assets deposited by the auction purchaser, the borrower has to accept the auction sale. In other words, the borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In a case where the borrower also challenges the auction sale and does not accept the same and also challenges the steps taken under Section 13(2)/13(4) of the SARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along with
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interest as per Section 2(g) of the Act, 1993 and as per section 2(g), "debt" means any liability inclusive of interest which is claimed as due from any person".
14. Taking cue, from the opinion expressed by the Hon'ble Supreme Court in the above paragraphs, we derive our conclusions and therefore, we are of the opinion that for the purpose of pre-deposit, the sale proceeds in the sale conducted on 18.08.2016 alone, is relevant to determine quantum of pre-deposit to file appeal. We hold so, for one other reason also. From the statement furnished by the learned Standing Counsel appearing for respondent No.3, it is seen that respondent No.3 computed interest as due from 13.07.2016, i.e., a date after the sale notice was issued, to 04.07.2023 and arrived at figure of Rs.77,12,19,828/- as due towards interest, whereas, sale was conducted on 18.08.2016 and bank has realized more than the amount specified in the sale notice. At the most the bank is entitled to recover more money in the form of interest for the period between 12.07.2016 to 18.08.2016, i.e., from sale notice to actual sale and thereafter it cannot hold loan amount as due and levy interest only because petitioner is challenging the sale conducted by the bank. At any rate, Rs.77,00,00,000/- is a fancy figure. Therefore, the contention of learned Senior counsel that for the purpose of determining 50%
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amount as pre-deposit to prefer an appeal, it should be Rs.110 crores, is stated to be rejected.
15. Having regard to the above it is clear that the order of the DRAT in directing petitioners to deposit 50% out of Rs.103,37,70,069/-, is erroneous and would amount to clear non-application of mind. Therefore, the order passed by the DRAT is liable to be set aside.
16. At this stage, learned Senior Counsel sought to raise the plea that the deponent (the Executive Director of 1st petitioner- company) is not competent to represent petitioner No.1 and therefore writ petitions are liable to be dismissed on that ground.
17. On perusal of the records, we have noticed that while considering the I.A.No.203 of 2016 in SA.No.8 of 2014, the Tribunal took note of an order passed by the Hon'ble Madras High Court in W.P.No.16178 of 2007 holding that Sri N.R. Chettiar is the Executive Director of the company and the same was not denied by the applicants therein. On this, learned Senior Counsel sought to contend that it was the position much earlier, but as of now, the company data would disclose that there is no signatory access for the company. Therefore, the deponent is not competent to represent the company.
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18. This plea was raised before the DRAT and the DRAT noted that as the issue was at the stage of pre-deposit to prefer an appeal, the issue would be considered when the appeal is taken up for consideration after the appellant deposits the amount quantified by the Tribunal. Since the Tribunal left the issue open to be considered when the appeal is taken up for consideration, we do not intend to express any opinion on the competence of the deponent to represent the first appellant.
19. The quantum of pre-deposit order passed by the DRAT is set aside and the writ petitions are accordingly allowed. The petitioner is only required to deposit 50% of the sale proceeds i.e., Rs.35,50,00,000/-. We give four (4) weeks time from the date of receipt of copy of this order for the petitioners to deposit the said amount. If petitioner does not deposit the amount before the DRAT within the time granted, the appeal automatically stands dismissed. Miscellaneous petitions, pending if any, shall stand closed.
20. Before parting with this case, we have noticed that the issue of competency to represent the company was not even looked into by the Registry, having regard to the issue involved and the objections raised by learned Senior Counsel, we caution
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the Registry to insist the deponent to any writ petition filed on behalf of the company/ a corporate body to file authorization given to him by the competent authority to represent the corporate body.
____________________ P.NAVEEN RAO, J ____________________________ NAGESH BHEEMAPAKA, J Date: 05.07.2023 PVT THE HONOURABLE SRI JUSTICE P.NAVEEN RAO & THE HONOURABLE SRI JUSTICE NAGESH BHEEMAPAKA
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W.P.Nos.13507 & 11461 OF 2023 Date: 05.07.2023 PVT