Gujarat High Court
M/S Shree Ram Rayon vs Authorised Officer And Chief Manager, ... on 11 January, 2023
C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 15281 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question Yes
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S SHREE RAM RAYON
Versus
AUTHORISED OFFICER AND CHIEF MANAGER, TAMILNAD MERCANTILE
BANK LIMITED
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Appearance:
MR KULDEEP K ADESARA(9222) for the Petitioner(s) No. 1,2,3,4,5,6,7
MR KM PARIKH(575) for the Petitioner(s) No. 1,2,3,4,5,6,7
Ms. HIMANI KINI(7489) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE ANIRUDDHA P. MAYEE
Date : /01/2023
CAV JUDGMENT
1. The present writ petition is filed praying for the following reliefs :-
"A. This Hon'ble Court be pleased to admit and allow the petition filed by the Petitioners.Page 1 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023
C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 B. This Hon'ble Court be pleased to quash and set-aside the impugned order dated 27/06/2022 passed by Ld. Debt Recovery Appellate Tribunal in Interlocutory Application No.217/2022 in Misc. Appeal Diary No. 434/2022 and be pleased to hold and declare that the discretionary powers so used by Ld. DRAT, Mumbai while disposing off waiver application being IA no. 217/2022 in Misc. Appeal Diary No. 434/2022 is unsustainable, irrational, not based on sound principles of equity and justice and the same is without consideration of aspects of undue hardship and financial hardships of Petitioners and consequently, be pleased to direct Ld. DRAT, Mumbai to exercised discretionary powers of waiver of pre-deposit to the extent of 25% of the outstanding amount due claimed in Demand Notice dated 07/07/2020 issued u/s. 13(2) of the Act and consequently, be pleased to hold and declare that upon payment of Rs.2Crores by Petitioners as a First Installment be treated as compliance of 25% of amount due claimed in Demand Notice as full compliance of Section 18(1) of SARFAESI Act, 2002 and be pleased to direct the Ld. DRAT, Mumbai to hold that Petitioners have complied with pre-condition of pre-deposit of Section 18(1) of SARFAESI Act, 2002 in toto and be pleased to Ld. DRAT, Mumbai to decide disposed off Misc. Appeal Diary No. 434/2022 in accordance with law without insisting Second Installment.
C. This Hon'ble Court be pleased to direct the Ld. Debt Recovery Appellate Tribunal to consider the amount of Rs.7,51,08,852.49 being outstanding amount as per the Demand Notice issued by the Respondent Bank u/s. 13(2) of the SARFAESI Act, 2002 as "amount of debt due" as per the provisions of Section 18(1) of the SARFAESI Act, 2002 for calculation of amount of pre-deposit.
D. Pending hearing and final disposal of this Petition, this Hon'ble Court be pleased to stay the execution, implementation and the operation of the impugned order dated 27/06/2022 passed by Ld. Debt Recovery Appellate Tribunal in |A No. 217/2022 in Appeal (Diary) No. 434/2022 and restrain Respondent Bank from taking any coercive measures under Securitisation Act in respect of the Secured Assets of the Petitioners in the Demand Notice dated 07/07/2020.
E. This Hon'ble Court be pleased to grant any other just and proper relief in the facts and circumstances of the case in the interest of justice and equity."Page 2 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023
C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023
2. The facts giving rise to filing of the present writ petition are as follows :-
2.1 The petitioner No.1 is the principal borrower, partnership firm and mortgagor. The petitioner Nos.2 to 6 are the partners and guarantors of the petitioner No.1, whereas the writ petitioner No.7 is the mortgagor and guarantor of petitioner No.1. The respondent is the Banking Institution. That the respondent Bank, at the request of the petitioner No.1, sanctioned and granted (1) Cash Credit facility of Rs.4,25,00,000/-, (2) Term Loan - I facility of Rs.1,45,00,000/-, (3) Term Loan - II facility of Rs.3,45,00,000/-, (4) Term Loan - III facility of Rs.53,55,000/-, (5) Term Loan - IV facility of Rs.19,81,176/-, (6) Term Loan - V facility of Rs.12,40,793/- and (7) Cheque Purchase facility of Rs.10,00,000/-, and thereby, sanctioned and granted total aggregate credit facilities to the tune of Rs.10,10,76,915/ to petitioner No.1 by way of various loan agreements. The petitioner No. 1 through its partners have signed and executed various loan and security documents in favour of the Respondent Bank as per the terms of sanction.
2.2 That the petitioners failed to repay the interest and installments in respect of their cash credit and term loan facilities as per the terms & conditions mentioned in the sanctioned letter and therefore, the respondent Bank classified the cash credit and term loan account of the petitioner No.1 as NPA on 30.03.2019.
2.3 That the respondent Bank thereafter initiated the measures under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act" for short) and issued the demand notice under Section 13(2) of the SARFAESI Act on Page 3 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 07.07.2020 thereby calling upon the petitioners to repay the alleged outstanding dues as claimed in the said demand notice. That, thereafter, further measures were initiated against the petitioners under Section 13(4) of the SARFAESI Act and the symbolic possession of the immovable properties belonging to the petitioner No.1 came to be taken on 15.10.2020.
2.4 Accordingly, the petitioners herein preferred Securitisation Application No.478 of 2020 before the Debts Recovery Tribunal-II, Ahmedabad praying for the following reliefs :-
"6. RELIEFS PRAYED:
The applicants therefore most respectfully pray that:
(a) YOUR LORDSHIPS MAY BE PLEASED to hold and declare that all the measures initiated by the A. O of Respondent Bank under SARFAESI Act against the applicants are bad, illegal, improper, unjust unwarranted, uncalled for, without authority of law, without jurisdiction and same are not consonance' with the provisions of the Securitization Act and rules and the same deserve to be quashed and set aside.
(b) YOUR LORDSHIPS MAY BE PLEASED to hold and declare that the demand notice dated 07/07/2020 and symbolic Possession Notice U/s 13(4) dated 15/10/2020, issued under the provision of Securitization Act, 2002, are to be stayed and consequently Your LORDSHIP MAY BE PLEASED to quash and set aside the aforesaid all the notices.
(c) YOUR LORDSHIPS MAY BE PLEASED to hold and declare that the action of classification of Cash Credit and Term Loan Accounts of applicants by Resp. Bank is contrary to the guidelines issued by RBl in that regards time to time.
(d) YOUR LORDSHIPS MAY BE PLEASED to award the cost of the said S. A. from Respondent Bank.
(e) This Hon'ble Tribunal be pleased to quash and set aside the order dated 22/02/2022 passed by Ld. D.M., Surat u/s. 14 of the Act on the grounds stated therein and consequently, be pleased to direct the Mamlatdar Executive Magistrate - Kamrej Surat Dist.
and Mamlatdar and Executive Magistrate - Puna Surat and A. O. of the Resp. Bank not to implement and carry out sec.14 order passed by Ld. DM Surat dated 22/02/2022 without prior permission of this Page 4 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 Hon'ble Tribunal.
(f) This Hon'ble Tribunal be pleased to hold and declare that A. O. of the Resp. Bank has not complied with first proviso of the section 14(1) of the SARFAESI Act, 2002 and Ld. DM Surat while passing the order u/s.14 of Act2002 not recorded any satisfaction to that extent, impugned order passed by Ld. D.M. Surat dated 22/02/2022 requires to be quashed and set aside by this Hon'ble Tribunal."
2.5 By order dated 13.05.2022, the learned Presiding Officer, Debts Recovery Tribunal-II, Ahmedabad was pleased to reject the prayer for interim relief for the reasons stated therein.
2.6 Aggrieved by the said order, the petitioners herein preferred Misc. Appeal No.434 of 2022 before the Debts Recovery Appellate Tribunal, Mumbai. Further, an Interlocutory Application came to be filed in the said Misc. Appeal praying for the status quo order qua the suit property till hearing and final disposal of the appeal before the Debts Recovery Appellate Tribunal, Mumbai. By impugned order dated 27.06.2022 in Interlocutory Application No.217 of 2022 in Misc. Appeal No. 434 of 2022, the learned Chairperson, Debts Recovery Appellate Tribunal, Mumbai was pleased to pass an order directing the writ petitioners to pay an amount of Rs.4 crores as pre-deposit for entertaining the appeal, which was directed to be deposited in two installments. The first installment of Rs.2 crores was to be deposited on or before 18.07.2022 and the second installment of Rs.2 crores was to be deposited on or before 08.08.2022. It was further directed that on payment of first installment, the appellants are entitled to stay of further proceedings under the SARFAESI Act. That, accordingly, the writ petitioners have deposited an amount of Rs.2 crores and filed the present petition.
Page 5 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023
3. Learned advocate Mr. K. M. Parikh appearing for the writ petitioners submitted that the demand notice issued under Section 13(2) of the SARFAESI Act by the respondent Bank shows the debt due of Rs.7,51,08,852.49, whereas the learned Debts Recovery Appellate Tribunal has considered the debt due as the amount of Rs.10,50,35,000/- which, according to the respondent Bank, was the amount payable as on the date of filing of the appeal. He submitted that the learned Debts Recovery Appellate Tribunal ought to have considered "amount of debt due" as per the provisions of Section 18(1) of the SARFAESI Act and it ought to have been the amount as shown in the demand notice issued under Section 13(2) of the SARFAESI Act. He submitted that the learned Debts Recovery Appellate Tribunal ought to have considered the amount of debt due as Rs.7,51,08,852.49. He further submitted that the pre-deposit amount of Rs.4 crores as directed by the learned Debts Recovery Appellate Tribunal is equivalent to 40% of the outstanding amount of Rs.10,50,35,000/- as on date and therefore, the same is bad, illegal and not tenable in the eye of law and it is beyond the provisions of Section 18(1) of the SARFAESI Act. He further submitted that the amount of debt due should have only been considered as per the demand notice issued under Section 13(2) of the SARFAESI Act. He submitted that if the amount of debt due is taken as per the amount due in the demand notice issued under Section 13(2), then the petitioners have already deposited an amount of Rs.2 crores which is more than 25% of the amount as per the demand notice. Further, according to his submission, the Debts Recovery Appellate Tribunal ought to have taken a lenient view by directing the petitioners to deposit the amount equivalent to 25% of the outstanding amount as per the demand notice issued under Section 13(2) and therefore, the pre- deposit of Rs.2 crores before the Debts Recovery Appellate Page 6 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 Tribunal be considered as sufficient and valid pre-deposit as per the provisions of Section 18(1) of the SARFAESI Act for entertaining the appeal of the petitioners on merits. He further submitted that this Court, in various judgments involving the issue of pre-deposit, has taken a view that the issue of pre-deposit should be leniently considered when interim orders are challenged before the Appellate Tribunal under various Acts.
3.1 Learned advocate Mr. K. M. Parikh appearing for the writ petitioners has relied upon the following judgments in support of his contentions :-
(i) Sivkumar Textiles vs. Debts Recovery Appellate Tribunal [AIR 2012 Mad 57]
(ii) Shri Mohan Products Pvt. Ltd. & Ors. vs. State Bank of India & Ors. [MANU/CG/0390/2020]
(iii) Prudent ARC Limited Vs. Sidha Neelkanth Paper Industries & Ors. [MANU/DE/2284/2020]
(iv) Union Bank of India vs. Rajat Infrastructure Pvt. Ltd.
and ors. [Judgment dated 02.03.2020 passed in Civil Appeal No.1902 of 2020 by the Hon'ble Supreme Court] In all the above-mentioned judgments, it has been held that the amount of debt claimed by the secured creditor in its notice issued under Section 13(2) of the Act, shall be relevant and any future interest need not be taken into consideration for determining the amount of debt due as claimed by the secured creditor in cases where the Debts Recovery Tribunal has not determined the liability of a borrower.
4. Per contra, learned advocate Mr. Vinay Bairagar appearing for the respondent Bank submitted that admittedly and Page 7 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 undisputedly, the petitioners have availed the various credit facilities from the respondent Bank and in turn, executed the loan documents and created charge in favour of the respondent Bank. He further submitted that as there was a continuous default on the part of the petitioners in repayment of the principal debt and interest thereon, the loan account of the petitioners was classified as Non-Performing Asset on 31.03.2019 as per the guidelines/directives of the Reserve Bank of India. He submitted that the petitioners have not made any payment to the respondent Bank since that date. He submitted that the respondent Bank issued demand notice dated 07.07.2020 under Section 13(2) of the SARFAESI Act and requested the petitioners to make the outstanding payment. Despite the said demand notice, as there was no repayment to the respondent Bank, the respondent Bank took further steps of taking symbolic possession of the secured assets on 15.10.2020. The petitioners thereafter filed an application under Section 17 of the SARFAESI Act before learned Debts Recovery Tribunal, Ahmedabad challenging the measures undertaken by the respondent Bank, however the learned Debts Recovery Tribunal vide order dated 13.05.2022 was pleased to reject the interim relief of the petitioners. Aggrieved by the said order, the petitioners challenged the same before learned Debts Recovery Appellate Tribunal, Mumbai along with an application seeking waiver of the pre-deposit under Section 18 of the SARFAESI Act. By the impugned order, the learned Debts Recovery Appellate Tribunal has directed the petitioners to make the payment of Rs.4 crores as pre-deposit for entertaining the appeal preferred by the petitioners. In compliance of the same, the petitioners did make the payment of first installment of an amount of Rs.2 crores and further instead complying with the direction of deposit of second installment of Rs.2 crores, the petitioners filed the present petition.
Page 8 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 He submitted that under the provisions of Section 18 of SARFAESI Act, the appellant borrower has to mandatorily deposit with the Appellate Tribunal 50% of the amount of debt due from him as claimed by the secured creditor or determined by the Debts Recovery Tribunal, whichever is less. He submitted that in terms of second proviso to Section 18(1) of the SARFAESI Act, the Appellate Tribunal has power to reduce the amount for the reasons recorded in writing, which will not be less than 25% of the debt due. He submitted that in the present case, the learned Appellate Tribunal has, in the facts and circumstances of the case, reduced the pre- deposit to 40% of the amount of debt due from the petitioners for the reasons mentioned in the impugned order. He further submitted that learned Debts Recovery Appellate Tribunal, Mumbai has rightly calculated the amount of debt due as the amount which was due along with interest accrued till the date of filing of the appeal. He submitted that the amount specifically mentioned in the demand notice was outstanding only as on 30.06.2020 and undisputedly, the respondent Bank had also demanded the future interest at 14.50% or BRR plus 2% penal interest with monthly rests for Cash Credit, Term Loan I, Term Loam II, Term Loan III and 14.75% or BRR plus 2% penal interest with monthly rest for Term Loan IV, Term Loan V, on the aforesaid amount together with incidental expenses, cost, charges etc. He therefore submitted that in the present case, as the claim made by the respondent Bank in the demand notice issued under Section 13(2) includes future interest, the same is required to be included in the amount of debt due as contemplated under the second proviso to Section 18(1) of SARFAESI Act. He therefore disputed the contention of the petitioners that it is only the figure mentioned in the notice under Section 13(2) that is to be taken into consideration and not the future interest accrued on the said sum while determining the pre-
Page 9 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 deposit amount. He submitted that such a contention of the petitioners is in violation of the provisions of Section 18(1) of the SARFAESI Act. He further submitted that in the present case, undisputedly, the amount of debt due on the date of filing of the appeal before the learned Appellate Tribunal including the interest thereon was Rs.10,50,35,000/-. Therefore, the learned Debts Recovery Appellate Tribunal has rightly taken the same in terms of the provisions of Section 18(1) of the SARFAESI Act to order the pre-deposit. He therefore submitted that the petitioners are not entitled to any relief and the present Special Civil Application be dismissed. In support of his contentions, learned advocate Mr. Vinay Bairagar has relied on the following judgments :-
(i) MRB Roadconst. Pvt. Ltd. vs. Rupee Co.op. Bank Ltd.
[2016(3) Mh.L.J.589]
(ii) Nathi Lal Rathore vs. Debts Recovery Appellate Tribunal, Allahabad [2016 SCC Online All 3139]
(iii) Sekar Stores Home Mart vs. Pridhvi Asset Reconstruction & Securitization Co. Ltd.
[MANU/TN/6032/2018]
(iv) Sekar Stores Home Mart vs. Pridhvi Asset
Reconstruction & Securitization Co. Ltd. [Order dated 07.12.2018 passed in SLP(c) NO.31190/2018 of the Hon'ble Supreme Court]
(v) Raliable Polyesters Pvt. Ltd. vs. Bank of Baroda [Order dated 29.06.2022 passed in SCA No.10802 of 2022 of this Court].
(vi) Kotak Mahindra Bank Pvt. Ltd. vs. Ambuj A. Kasliwal and ors. [Judgment dated 16.02.2021 passed in Civil Appeal No.538 of 2021 by the Hon'ble Supreme Court].
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5. Heard learned advocates for the respective parties at length and perused the documents placed on record in the present case.
6. It would be beneficial to refer to the relevant sections of the SARFAESI Act.
6.1 Section 18 of the SARFAESI Act reads as under :-
"18. Appeal to Appellate Tribunal.--(1) Any person aggrieved, 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 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:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty- five per cent. 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 thereunder."
6.2 Section 2(ha) of the SARFAESI Act reads as under :-
"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 intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible Page 11 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 asset or an obligation incurred or credit otherwise extended to enable any borrower to acquire the intangible asset or obtain licence of such asset;
6.3 Section 2(g) of the Recovery of Debts and Bankruptcy Act reads as under :-
"debt" means any liability (inclusive of interest) which is claimed as due from any person [or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956),] 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 [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;]"
7. While there was a divergence of the views with respect to the interpretation of "amount of debt due" under Section 18 of the SARFAESI Act, very recently, the Hon'ble Supreme Court in Civil Appeal No. 8969 of 2022 and other connected appeals by its judgment dated 05.01.2023 has settled the law and interpretation with respect to the said issue. The Hon'ble Supreme Court has held thus:-
"13. As per Section 2(ha) of the SARFAESI Act, "debt" shall have the same meaning assigned to it in clause (g) of Section 2 of the Act 1993. As per section 2(g) of the Act 1993, "debt" means any liability inclusive of interest which is claimed as due from any person....., by a bank or a financial institution during the course of any business activity undertaken by the bank or the financial institution, 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. That the "debt" means any liability inclusive of interest.Page 12 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023
C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 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 be 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.
14. 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 realised 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 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.
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15. An identical question came to be considered by the Bombay High Court in the case of Eskays Construction Pvt. Ltd. (supra). Before the Bombay High Court, it was the case on behalf of the borrower that though as per Section 18 of the SARFAESI Act, no appeal filed by the borrower can be entertained by the DRAT unless the borrower deposits with the DRAT 50% of the amount of "debt due" from him, as claimed by the secured creditor or as determined by the DRT, whichever is less, however, that does not mean that in a case where the properties of the borrower are sold and the entire dues of the bank are recovered from that sale, the borrower still has to deposit 50% as contemplated under Section 18 of the SARFAESI Act. While negativing the said submission, the Bombay High Court considered the purpose and object of the SARFAESI Act in paragraph 14 as under:
"14. We have heard the learned counsel for the parties at length and perused the papers and proceedings in the Writ Petition along with the annexures thereto. Before we deal with the rival contentions, it would be necessary to set out the purpose and object for which the SARFAESI Act was brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Committees and the Andhyarujina Committee for the purposes of examining banking sector reforms. These Committees inter alia suggested enactment of a new legislation for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Accepting these recommendations, the SARFAESI Act was brought into force w.e.f. 21-06-2002. There have been several amendments to the SARFAESI Act, the latest being an amendment of 2016 that received the assent of the President on 12 August, 2016 and was published in the Official Gazette dated 16 August, 2016. It is called the Page 14 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023 C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The preamble of this amending Act indicates that the same was intended to further amend the SARFAESI Act, the RDDB Act, the Indian Stamp Act, 1899 and the Depository Act, 1996 and for matters connected therewith or incidental thereto."
Thereafter, the Bombay High Court considered in detail Section
18. After considering the decision of this Court in the case of Narayan Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548, it was observed and held that provisions of Section 18, more particularly the second and the third proviso thereto are mandatory in nature and that the DRAT has no power to grant full waiver of deposit. In paragraph 16, it is observed as under:
"16. Section 18(1) clearly stipulates, any person aggrieved by any order made by the DRT under Section 17, may prefer an appeal to the DRAT within 30 days from the date of receipt of the order of the DRT. The 2 nd proviso to Section 18(1) stipulates that no appeal shall be entertained by the DRAT unless the borrower has deposited with it 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. The 3rd proviso to Section 18(1) gives a discretion to the DRAT to reduce the aforesaid amount to not less than 25%, provided the DRAT gives reasons for the same which are to be recorded in writing. What becomes clear from the aforesaid provisions is that there is a jurisdictional bar from entertaining an appeal filed by the borrower from an order passed under Section 17, unless the borrower deposits 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. There is also a discretion granted to the DRAT to reduce this amount to 25% provided it finds adequate reasons for doing so and gives reasons, that are recorded in writing. If this deposit is not made, then the DRAT has no jurisdiction to entertain the appeal of the borrower. The crucial words "debt due from him" have to be interpreted consistent with the object and purpose sought to be achieved by the SARFAESI Act. Unless the debt due is secured, the borrower cannot be allowed the luxury of litigation. If that is permitted, the secured creditors would be engaged in a continuous and futile litigation. On a plain reading of the section, it is clear that the DRAT has no power or jurisdiction to reduce the deposit amount to less than 25%. This is ex-facie clear from the plain and unambiguous language of Section 18 of the SARFAESI Act."Page 15 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023
C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023 That thereafter the Bombay High Court considered the submission on behalf of the borrower that as the bank had already sold the secured assets for a consideration that fully secured their claim and therefore there was no requirement for the borrower to deposit any amount as contemplated under Section 18 of the SARFAESI Act. The Bombay High Court did not accept the said submission by observing that it would be ludicrous to suggest that the money realised by the bank from sale of the secured assets could be used by the borrower to fulfil the condition of pre-deposit under Section 18. The Bombay High Court has observed that it would be a different matter if the sale is accepted and confirmed by the borrower. The Bombay High Court further observed that the borrower cannot be permitted to use the sale proceeds received from the sale of the subject properties to be adjusted/given credit for in the application for waiver of deposit and at the very same time challenge the sale of very same subject properties. The said decision of the Bombay High Court has been confirmed by this Court as the special leave petition preferred impugning the same, has been dismissed. Even otherwise, we are in full agreement with the view taken by the Bombay High Court in the case of Eskays Construction Pvt. Ltd. (supra). We are of the firm opinion and view that in a case where the borrower challenges the auction sale, thereafter it will not be open for the borrower to pray to use the sale proceeds received from the sale of the secured properties to be adjusted/given credit in an application for waiver of pre-deposit.
16. In view of the above and for the reasons stated above, in the present case, the respective High Courts have seriously erred in directing to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT. Even the High Court of Delhi has erred in excluding the amount payable towards interest while considering the "debt due". As per Section 2(g) of the Act 1993, "debt" means liability inclusive of interest as claimed by the bank/financial institution.
17. In view of the above and for the reasons stated above, the respective appeals preferred by the financial institution/assignee and auction purchasers being civil Appeal Nos. 8970, 8972, 8973 and 8974 of 2022 are hereby allowed. The appeal preferred by the borrower against the judgment and order passed by the Delhi High Court being Civil Appeal No. 8969/2022 deserves to be dismissed and is accordingly dismissed. It is observed and held that the borrower has to deposit 50% of the amount of "debt due" as claimed by the bank/financial institution/assignee along with interest as claimed in the notice under Section 13(2) of the SARFAESI Act and the borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge."
Page 16 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023C/SCA/15281/2022 CAV JUDGMENT DATED: 11/01/2023
8. Coming back to the facts and circumstances of the present case, it is seen that the amount claimed by the respondent Bank as per notice dated 07.07.2020 under section 13(2) is Rs.7,51,08,852.49. The respondent Bank has stated that the amount including the interest as on the date of filing of the appeal is about Rs.10,50,35,000/-. In the present case, the petitioners have challenged the notice issued under Section 13(2) of the SARFAESI Act and the steps taken under Section 13(4) of the SARFAESI Act. For the reasons mentioned in the impugned order, the learned Debts Recovery Appellate Tribunal has directed the appellants to pay a sum of Rs.4 crores as pre-deposit to be deposited into two installments. The first installment of Rs.2 crores was to be deposited on or before 18.07.2022 and the second installment of Rs.2 crores was to be deposited on or before 08.08.2022.
9. In view of the law declared by the Hon'ble Supreme Court and for the observations and reasons stated herein above, the present Special Civil Application is devoid of merits. No interference is called for in the impugned order. The discretion is left to the competent authority to determine and direct pre-deposit between 25% to 50%. This Court is not inclined to exercise its extraordinary jurisdiction over the decision taken by the Debts Recovery Appellate Tribunal for directing pre-deposit of around 40% of the amount of debt due. No any error of jurisdiction or law can be said to have been committed by the learned Appellate Tribunal while passing the impugned order. The Special Civil Application is accordingly dismissed. Interim relief granted earlier is hereby vacated. No order as to costs.
(ANIRUDDHA P. MAYEE, J.) cmk Page 17 of 17 Downloaded on : Wed Jan 11 20:53:17 IST 2023