TaxTMI 
TaxTMI 
2020 (1) TMI 746
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....rs are called upon to deposit a sum of Rs. 4.57 crores in addition to Rs. 1.75 crores already deposited by the Petitioners on 12.07.2017. Respondent no. 1 is the assignee in whose favour State Bank of India has assigned the debt of Petitioner No. 1 perpetually. Respondent no. 2 is the purchaser of the two properties belonging to Petitioner No. 1 viz. Alampur property (Land admeasuring 12.1875 acres situated at Village Alampur, National Highway No. 6, Andul, District Hawraha, West Bengal, Mouza Alampur (land under JL No. 25) and Nagpur property (Plot no. D2, in Nagpur Industrial Area of M.I.D.C, Village Wadi, Tah. Wadi, District Nagpur, admeasuring 60,905 sq. meters alongwith building and construction standing therein.) in the proceedings before the DRAT. 3. Shri Purohit, learned counsel appearing on behalf of the Petitioners submitted that Respondent no. 1 could not have taken any steps under the SARFAESI Act pertaining to execution of claim of assignment dated 17.08.2007 whereby Respondent no. 1 had assigned its debt to B.M.W. Industries Ltd. for a sum of Rs. 8.1 crores (approximately) with a further fee of Rs. 3 crores admittedly paid to Respondent no. 1 for acting as Resoluti....
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....bsisting debt which was recoverable by Respondent no. 1 from the Petitioners. He submitted that the condition for 50% amount as pre-deposit stated in the impugned order ought not to have been considered in view of the fact that the secured creditor had already recovered by way of public auction, more than 50% of the amount claimed in the statutory notice issued under Section 13(2) of the SARFAESI Act in the present case. He submitted that on 25.08.2007 and 29.08.2007, Respondent no. 1 took physical possession of two immovable properties belonging to Petitioner no. 1 viz. Nagpur property/land admeasuring 60,905 sq. meters alongwith building and structure standing thereon and Alampur property/land admeasuring 12.1875 acres situated at Howrah in Kolkatta. He submitted that both the above properties were sold by Respondent no. 1 to Respondent no. 2 by private treaty for a total consideration of Rs. 7,60,50,000/-. 6. Shri Purohit submitted that Respondent no. 1 received a sum of Rs. 7,60,50,000/- pursuant to sale of properties which has been held by Respondent no. 1 from 17.08.2007. He submitted that if a secured creditor has recovered more than 50% of the amount claimed in the Notic....
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....re the DRAT, Mumbai alongwith Waiver Application bearing no. 626/2011. Waiver Application came to be initially allowed by DRAT by order dated 04.07.2011 and complete waiver of pre-deposit was granted to the Petitioners as requirement of deposit was dispensed owing to secured assets being sold and the secured creditor having recoverd the amount claimed. He submitted that the order of waiver was recalled due to objections raised by Respondent no. 2. DRAT after hearing the parties, passed fresh order dated 11.04.2012, once again holding that requirement of pre-deposit under Section 18(1) stood satisfied. Respondent no. 2 filed Writ Petition No. 5005/2012 before this Court challenging the order dated 11.04.2012. The order of the High Court dated 01.11.2012 admitted the Petition and directed that outcome of the proceedings before DRAT would be subject to result of the Petition. Respondent no. 2 being aggrieved, approached the Hon'ble Apex Court and filed S.L.P. No. 35012/2012 against order dated 01.11.2012. The S.L.P. came to be dismissed as not pressed by Respondent no. 2. On 07.08.2013, this Court passed additional order in Writ Petition No. 5005/2012 directing Respondent no. 2 to....
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....he matter. 9. Shri Purohit submitted that on 28.06.2017, DRAT gave a fresh hearing of the waiver application and directed the Petitioners to deposit 25% of the amount demanded by Respondent no. 1 in its statutory Notice dated 26.07.2006 issued under Section 13(2) of the SARFAESI Act. Respondent no. 1 in its statutory notice had claimed a sum of Rs. 6,96,58,955/- as outstanding debt and thus accordingly 25% of the said amount was computed at Rs. 1,75,00,000/-. The Petitioners deposited this amount with DRAT. Shri Purohit submitted that in the proceedings filed before DRAT-1, Kolkata, Original Application No. 168/2004 filed by State Bank of India against the Petitioners came to be dismissed. In the said O.A., the Petitioners had filed its counter-claim. The counter-claim filed by the Petitioners was kept pending for adjudication and still subsists as on date. He submitted that Respondent no. 2 challenged the order dated 20.06.2017 directing the Petitioners to deposit 25% of the amount demanded under Section 13(2) notice by filing Writ Petition No. 4683/2017 before this Court. On 25.01.2018, this Court disposed of the Writ Petition directing that Waiver Application would be decided....
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.... Bank Ltd. 2010 (1) DRTC 527; (ii) Judgment of Hon'ble Delhi High Court in Srishti Arogyadham (P.) Ltd. v. Punjab National Bank [W.P. (C) No. 12299 of 2018, dated 27-11-2018] (iii) Judgment of Hon'ble Allahabad High Court in Gopalji Gupta v. Debts Recovery Appellate Tribunal [CMWP No. 36314 of 2013, dated 09-07-2013]; (iv) Judgment of Hon'ble Allahabad High Court in Gopalji Gupta (supra) (v) Judgment of Hon'ble Allahabad High Court in Smt. Sarla Devi Mishra v. DRAT, [Writ C No. 45995 of 2015 dated 20-08-2015]; and (vi) Judgment of Hon'ble Punjab and Haryana High Court at Chandigarh in S. R. Forging Ltd. v. UCO Bank [CWP No. 10957 of 2012 dated 19-02-2013]. 13. Shri Purohit submitted that judgment of the Division Bench of Gujrat High Court in the case of Pritesh Meghaji Penthani v. Union of India 2014 SCC Online Gujrat 9175 was rendered in Writ Petition challenging the constitutionality of the provisions of Section 18(1) of the SARFASI Act. He submitted that the law declared in the above judgment would be applicable and was required to be taken into account by this Court. 14. Shri Purohit referred to and re....
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.... remains operative and is capable of enforcement in the eye of law. (ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. (iii) Doctrine of merger is not a doctrine of universal or unlimite application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter. (iv) An order refusing ....
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....his Court in Kunhayammed v. State of Kerala, [2000] 6 SCC 359. The following observation are worth noting. (SCC p.383, para 43) "The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding the petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate jurisdiction over it. If the order impugned before the Supreme Court cannot be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage." 20. It follows that disposal of SLP against a judgment of the High Court does not meas that the said judgment is affirmed by such dismissal. The order on a special leave petition is also never res judicata. In the present case we are at a stage where we are hearing appeals i.e. leave to appeal has already been granted and these are full-fledged appeals against the judgment of the High Court before us. Therefore, we are entitled to go into the question of legality and correctness of the impugned judgment.' 16. On the basis of the aforesaid judgments, Shri Purohit submitted th....
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....sp; ** 14. Having heard the learned counsel for the parties, the admitted facts are that the property in question has been auctioned by the Bank and purchased by the respondent No.2 for an amount of 11.77 crores, whereas the notice under Section 13(2) to be recovered from the borrower / petitioner was 9,25,11,879.56 (page 507 of the paper book). Pursuant to the sale, as seen from the reply filed by the respondent No. 1 Bank (at page 507 of the paper book), the sale certificate has been issued in favour of the respondent No.2, and even a sale deed has been executed in favour of respondent No.2. Physical possession of the property has also been given to the said respondent. The petitioner has challenged the auction sale. The ground is also that the amount for which the property has been sold is very less. The ground for seeking waiver of pre-deposit is that the Bank has recovered the debt due and in fact excess money is lying with it and the amount received / recovered can be considered towards the requirement of pre-deposit envisaged under Section 18 of the SARFAESI Act. The issue that needs to be decided in the facts of this case is whether for entertaining the....
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....e money to the auction purchaser, the pre-deposit cannot be appropriated by the Bank. It shall go to the borrower. 21. The judgment of Eskays Construction Pvt. Ltd. (supra) as relied upon by Mr. Rajinder Wali, and more particularly para 15, to contend that on a similar issue the Bombay High Court has inter alia held that the pre-deposit is mandatory except that the Tribunal has a discretion to reduce the pre-deposit to 25%. We find that in the said judgment the High Court was of the view that the provision of pre-deposit is to secure the debt due from the borrower / guarantor. This conclusion of the High Court is at variance with the ratio of the judgment of the Supreme Court in Axis Bank case (supra). 22. The DRAT in the impugned order has referred to the judgment of the Supreme Court in Indian Bank v. Blue Jaggers Estates Ltd. reported in 2010(3) Banker's Journal 9(SC), wherein a similar issue arose before the Supreme Court. In the said case, it has come on the record that even though, the mortgaged property was put to auction, the appellant i.e. Indian Bank had not been able to realise the amount because the sale was yet to be confirmed by the Appellate Tribunal. In fa....
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....s of the proviso to Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the Act') stands satisfied as the substantial loan amount has already been received by the Bank. The condition of pre-deposit in these circumstances, over and above the sale price received by the Bank, will in fact lead to undue enrichment in the hands of the Bank when substantial amount to the loan amount stands liquidated by virtue of the auction. At this stage, we find that out of total due amount of Rs. 18.24 crores, Rs. 17.75 crores have been received by the Bank in a public auction. Therefore, the deposit of 50% of the amount due prior to sale from the petitioner would be wholly unjustified. The proviso to Section 18 of the Act restricts the entertainment of the appeal unless the borrower deposits 50% of the amount of the debt claimed by the secured creditors. Once Rs. 17.75 crores have been received by the secured creditors, that is more than 50% of the debt due from the petitioners, the purpose of the proviso stands satisfied. Consequently, we set aside the orders dated 30.4.2012 and 13.72012 passed by th....
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....stand of the Petitioners that the assignment was illegal and incorrect. He submitted that the Petitioners had argued it thoroughly before the DRT as can be seen from the aforesaid pleadings and having taken a stand that the assignment was illegal, the Petitioners cannot now argue for the first time in the present Writ Petition that Respondent no. 1 was not a secured creditor. 21. Shri Bhangde submitted that the aforesaid deed of assignment was executed during the pendency of litigation before DRT on 18.01.2008. The date of filing of the Secrutisation application was 08.10.2007, therefore according to him lis pendens prevailed in view thereof and Respondent no. 1 was bound by the secrutisation proceeding. In support of this proposition, he referred to and relied upon the judgment in the case of Guruswamy Nadar v. P. Lakshmi Ammal [2008] 5 SCC 796. He submitted that in litigation pending between parties, any decision of the Court in the suit is binding not only upon the litigating parties but also upon those who derived title under them by alienation made pending the suit, where such alienees had or had no notice of the pending proceedings. He referred to paragraph nos. 10 to 13 o....
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....e during an action might defeat its whole purpose, and there would be no end to litigation. And hence arises the maxim pendent elite, nihil innovetur; the effect of which is not to annul the conveyance but only to refer it subservient to the rights of the parties in the litigation. As to the rights of these parties, the conveyance is treated as if it never had any existence; and it does not vary them." 13. Normally, as a public policy once a suit has been filed pertaining to any subject matter of the property, in order to put an end to such kind of litigation, the principle of lis pendens has been evolved so that the litigation may finally terminate without intervention of a third party. This is because of public policy otherwise no litigation will come to an end. Therefore, in order to discourage that same subject matter of property being subjected to subsequent sale to a third person, this kind of transaction is to be checked. Otherwise, litigation will never come to an end.' 22. Shri Bhangde thereafter referred to the order dated 06.09.2016 passed by DRT-1, Kolkatta in O.A. No. 168/2004 between State Bank of India and the Petitioners. He submitted that this appli....
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....h inflation in the economy, value of the pledged property/ asset depreciate on day to day basis. If the borrower does not provide additional asset and the value of the asset pledged keeps on falling then to that extent the account becomes non-performing Therefore, the bank/ FI is required to move under NPA Act expeditiously by taking one of the measures by Section 13(4) of the NPA Act. Moreover, Order XXIII CPC is an exception to the common law principle of non-suit, hence the proviso to Section 19(1) became a necessity. 69. For the above reasons, we hold that withdrawal of the O.A. pending before the DRT under the DRT Act is not a pre-condition for taking recourse to NPA Act. It is for the bank/FI to exercise its discretion as to cases in which it may apply for leave and in cases where they may not apply for leave to withdraw. We do not wish to spell out those circumstances because the said first proviso to Section 19(1) is an enabling provision, which provision may deal with myriad circumstances which we do not wish to spell out herein. (ii) On Point No. 2 on question of possession:' He further submitted that abandonment of the proceeding by a secured cre....
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....imed by the secured creditors. The provision on a plain reading does not in any way exclude taking into consideration the future interest that is accrued on the debt owed by the borrower to the secured creditor. In fact, the definition of the word "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution. Therefore, if the claim made by the secured creditor in the section 13(2) notice includes future interest, the same would certainly be included in the "amount of the debt due" from the borrower to the secured creditor as contemplated under the 2nd proviso to section 18(1) of the SARFAESI Act. There is therefore no justification to hold that it is only the figure that is mentioned in the section 13(2) notice that is to be taken into consideration and not the future interest accrued on the said sum, whilst determining the deposit amount under the 2nd proviso to section 18 of the SARFAESI Act. The amount of deposit would have to be determined on the basis of the amount of debt due by the borrower to the secured creditor on the date when the appeal is filed in DRAT. This would not only include the amount mentioned i....
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....d 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. 18A. Validation of fees levied.-Any fee levied and collected for preferring, before the commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004, an appeal to the Debts Recovery Tribunal or the Appellate Tribunal under this Act, shall be deemed always to have been levied and collected in accordance with law as if amendments made to sections 17 and 18 of this Act by sections 11 and 12 of the said Act were in force at all material times. 18B. Appeal to Hi....
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.... cases in support of his submissions. (i) In the case of R. N. Gosain v. Yaspal Dhir, [1992] 4 SCC 683, he referred to and relied upon paragraph no. 10 of judgment which reads thus :- '10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that "a person cannot say at one time that a transaction is valid any thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage". [See: Verschures Creameries Ltd. v. Hull and Netherlands Steamship Co. Ltd., (1921) 2 R.B. 608, at p.612, Scrutton, L.J]. According to Halsbury's Laws of England, 4th Edn.,Vol. 16, "after taking an advantage under an order (for example for the payment of costs) a party may be precluded from saying that it is invalid and asking to set it aside'. (para 1508). (ii) In the case of Nagubai Ammal v. B. Shama Rao AIR 1956 SC 593, he referred to and relied upon paragraph no. 23 which reads thus - '23. But it is ....
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....s only one application of the doctrine of election, and that its operation must be confined to reliefs claimed in respect of the same transaction and to the persons who are parties thereto. The law is thus stated in Halsbury's Laws of England, Volume XIII, page 454, para 512: "On the principle that a person may not approbate and reprobate, a species of estoppel has arisen which seems to be intermediate between estoppel by record and estoppel in pais, and may conveniently be referred to here. Thus a party cannot, after taking advantage under an order (e.g. payment of costs), be heard to say that it is invalid and ask to set it aside, or to set up to the prejudice of persons who have relied upon it a case inconsistent with that upon which it was founded; nor will he be allowed to go behind an order made in ignorance of the true facts to the prejudice of third parties who have acted on it". The plaintiff obtained no advantage against the appellants by pleading in 0. S. No. 92 of 1938-39 that the proceedings in 0. S. No. 100 of 1919-20 were collusive; nor did they acting on those pleadings acquire rights to the suit properties. Nor is there any question of electio....
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....0, 2009 and two decisions of Punjab and Haryana High Court in CWP No. 9131/2012 and 10957/2012 decided on February 19, 2013. Some judgments of the Allahabad High Court were also relied upon by the learned counsel for the petitioner on the aspect of adjustment of sale proceeds of mortgaged property while calculating the amount of pre-deposit. There was one order by consent passed by the Supreme Court on February 25, 2011 in Civil Appeal No.2074-2078/2011 which was also relied upon. 6. The respondent No. 1 i.e. bank and the auction purchaser have opposed the application for waiver of pre-deposit. The DRAT observed that the Tribunal has already taken a view, relying upon a judgment of the Supreme Court in the case of Indian Bank v. Blue Jaggers Estates Ltd. reported in 2010(3) Banker's Journal 9(SC), that auction money received by a bank from the successful auction purchaser of the mortgaged property cannot be considered towards compliance of the mandatory condition of pre-deposit when the defaulting borrower is not accepting the auction of his property and is challenging its legality in legal proceedings before the DRT According to the DRAT, the pre-deposit has to be mad....
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....ion, the same may be set aside. In other words, the sale remains in a nebulous stage and the sale will achieve finality / confirmed only when the legal proceedings come to an end. 18. Surely such an apprehension as noted above, cannot govern the interpretation of Section 18 of the SARFAESI Act, 2002. The Section is clear and contemplates a situation stated in the earlier paragraph and the same has to be interpreted in the manner it exist, by giving a plain meaning. 19. We are conscious of the fact that the amount of pre-deposit has to be made in DRAT and not in the Bank. But still when no amount is due from the petitioner whether the pre-deposit can still be insisted upon. The argument can be made that the condition of pre-deposit is to discourage frivolous litigation which if permitted, would defeat the very purpose of the enactment of early settlement of the disputes. The argument is appealing but the same shall not hold good in the facts of the case with which we are concerned. Otherwise, the provision of appeal for persons / entities like the petitioner, shall become otiose / illusory. In fact, the insistence of pre-deposit shall be inequitable in the facts. N....
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....ery Appellate Tribunal. The relevant paragraph no. 5 to 10 are reads thus :- "5. From the impugned order dated 1.10.2009, it would be evident that the DRAT, Mumbai, has noticed that the secured asset has been sold for a sum of Rs. 50.20 crores. Taking into consideration the same, it was observed by the DRAT, Mumbai, that the amount claimed by the borrowers (appellants therein) is less than the sale consideration and on that ground, it was held that the borrowers were not liable to pay any further amount under the second proviso to Section 18(1). 6. Learned counsel appearing on behalf of the borrowers rightly pointed out that the amount of Rs. 50.20 crores has not been deposited by the borrowers. The said amount has been deposited by the third party-auction purchaser and the sale is under challenge before the DRT/DRAT 7. In the above background, the sale amount of the secured asset cannot be taken into consideration to determine as to whether any amount is due from the borrowers. 8. Learned Senior Counsel for the borrowers referred to one or other order, including the impugned order passed by the DRAT, Mumbai, to suggest that the due amount has al....
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....hat the amount received from a third party on sale/auction of the properties cannot be counted to be amount paid by the borrower in order to reduce the amount of pre-deposit particularly when the sale is under challenge. He submitted that in the present case also the Petitioners have challenged the same and the said proceedings are pending. 32. Shri Bhangde while concluding his submissions relied upon the judgment in the case of Eskays Constructions (P.) Ltd. v. Soma Papers and Industires Ltd. AIR 2017 Bom. 10 and decided by the Bombay High Court at its principal seat at Mumbai. Paragraph no. 18 of the said judgment reads thus :- '18. Faced with this situation, Ms Vyas submitted that DRAT has granted full waiver of deposit in peculiar facts and circumstances of the present case. She submitted that considering the fact that the Respondent Banks had already sold the subject properties (secured assets) for a consideration that fully secured their claim, there was no requirement for the 1st Respondent -borrower to deposit any amount as contemplated under Section 18 of the SARFAESI Act. We are unable to accept this submission. In our view it would be ludicrous to suggest....
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....and 3 adopted the submissions made by Shri Bhangde. Shri Sundaram submitted that there were certain outstanding claims of Respondent no. 3 against the Petitioners which were due and payable, however Respondent no. 3 had not filed any reply nor details of the said claim on pleadings before the Court. 34. Shri Purohit in his brief rejoinder with the leave of the Court submitted that the debt which was due was never determined at any stage in the proceedings before the DRAT or the DRT and therefore the question of 25% of pre-deposit would not arise in the present case. He repeated and reiterated that Respondent no. 1 was no longer a secured creditor once it had assignd its debt to Respondent no. 2. He submitted that DRAT did not give any ruling on the aforesaid issue that Respondent no. 1 had ceased to be a secured creditor. He referred to and relied upon the definition of "secured creditor" under the provision of Section 2(zd) of the SARFAESI Act which reads thus :- '2(zd). "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes- (i) debenture trustee appointed by any bank or financ....
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....imed by the secured creditor or as determined by the DRT, whichever is less. The third proviso to Section 18(1) gives a discretion to DRAT to reduce the aforesaid amount to not less than 25%, provided that 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 creditor 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 DRAT has no jurisdiction to entertain the appeal of the borrower. The crucial words "debt due from him" are to be interpreted in consonance 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 creditor would be engaged in a continuous and futile lit....
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.... interest and therefore in so far as application for waiver of pre-deposit is concerned, we would have to determine that as of now the amount of debt due which is required to be interpreted and determined in the present case would be the debt which is claimed by the secured creditor in its notice under Section 13(2) of the SARFAESI Act. Hence, we have no hesitation in holding that the debt due would be debt which would be outstanding under the statutory notice issued by Respondent no. 1 under the SARFAESI Act. This debt would be debt due as on 2006. Further in addition to this debt due, an amount of interest and future interest that would be added from 2006 onwards until 2017 would escalate the "debt due" to a higher sum. The Petitioners would therefore be liable to deposit 25% of this amount as condition precedent under the provisions of the said Act in the appeal proceedings as pre-deposit, in view of the challenge made by the Petitioners to the sale of its properties as well as due to the pendency of the counter-claim of the Petitioners. We therefore, fail to see as to how the Petitioners can make a grievance and seek complete waiver of the pre-deposit amount. 40. In the fact....