TaxTMI 
TaxTMI 
2023 (1) TMI 445
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....ective Writ Petition Nos. 5494/2021, 5470/2021 and 5478/2021, by which the High Court has dismissed the said writ petitions preferred by the original writ petitioners - auction purchasers and has confirmed the orders passed by the Debt Recovery Appellate Tribunal, Allahabad (for short, 'DRAT'), by which the DRAT while entertaining the appeals under Section 18 of the SARFAESI Act held that the borrower is not liable to deposit 50% of the amount of debt as the secured property has been sold and the amount is realised as the same was paid by the auction purchasers and is to be appropriated towards the amount liable to be deposited as pre-deposit under Section 18 of the SARFAESI Act. Factual aspects in Civil Appeal Nos.8969 & 8970 of 2022: 4. That the appellant in Civil Appeal No. 8969/2022 - Sidha Neelkanth Paper Industries Private Limited (hereinafter referred to as the 'principal borrower') approached the Andhra Bank for sanction of credit facility and in the year 2008, it had approached Standard Chartered Bank for taking over the debt taken by it. In the year 2010, the Andhra Bank sanctioned open cash credit limit for a sum of Rs. 15.5 crores in favour of the principal borrower.....
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....d all its debts and underlying securities to Prudent ARC Limited, the appellant in Civil Appeal No. 8970/2022. The borrower filed Writ Petition (Civil) No. 12791/2018 before the High Court challenging the assignment of debts by Andhra Bank, which came to be dismissed by the High Court on 28.11.2018. An intra-court appeal also came to be dismissed. 4.3 That thereafter, the borrower filed an interlocutory application before the DRT to prevent the auction scheduled on 05.12.2018. However, the DRT allowed the creditor/assignee to proceed with the auction. The auction was conducted on 05.12.2018 and one M/s Tejswi Impex Pvt. Ltd. (auction purchaser) was the successful highest bidder for an amount of Rs. 12.5 crores. The entire amount was deposited and a sale certificate came to be issued in favour of the auction purchaser on 19.12.2018. 4.4 The borrower filed an appeal before the DRAT being Appeal No. 616/2018 challenging the order dated 05.12.2018 passed by the DRT dismissing the application filed by the borrower praying that the Bank/assignee be restrained from proceeding with the auction. The DRAT vide order dated 20.12.2018 directed the borrower to comply with the requirements....
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....0% of the remaining 4.1 crores being debt due (after deducting/adjusting Rs. 12.5 crores realised/recovered by selling the mortgaged property). The High Court has also observed that it shall be open to DRAT to reduce the said predeposit amount to 25%, after recording reasons in writing for the said reduction. The aforesaid order is passed by the High Court, after observing and concluding as under: "(a) Pre-deposit contemplated under the second proviso of Section 18 of the SARFAESI Act, 2002 is mandatory in nature and cannot be waived by the learned DRAT. (b) While computing the "amount of debt due", the amount of debt claimed by he 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 purposes of determining, "the amount of debt due as claimed by the secured credit", in cases where the DRT has not determined the liability of a borrower. (c) The interest component shall be ignored only for the purposes of Section 18 of the Act. This judgment shall not affect the rights of the secured creditors to claim interest from the borrower, for recovery of amounts due u....
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....f the auction purchaser and he was put in possession of the secured asset. 5.2 Vide order dated 13.11.2020, the DRT dismissed SA No. 240/2020. Being aggrieved by the order dated 13.11.2020 passed by the DRT, the borrower approached the DRAT by way of Appeal No.344/2020 along with an application seeking waiver of the pre-deposit of the amount under Section 18 of the SARFAESI Act. By order dated 9.2.2021, the DRAT held that as the bank had already recovered the debt by selling the mortgaged property and there was no remaining amount of debt due, the requirement of pre-deposit was satisfied and the borrower/appellants were not required to tender any amount towards discharging the condition of pre-deposit for entertaining the appeal under Section 18 of the SARFAESI Act . 5.3 Being aggrieved by the said order, the auction purchaser as well as the Bank filed the subject writ petitions before the High Court. By the impugned common judgment and order, the High Court dismissed the said writ petitions by observing that the borrower is not liable to deposit 50% of the amount of the debt as initially claimed by the secured creditor in view of the recovery of the amount by way of an aucti....
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....wer to deposit 50% of the remaining Rs. 4.1 crores only as pre-deposit. It is contended that the said order is under challenge by the financial institution in the present case and it is the case on behalf of the financial institution that the High Court ought to have directed the borrower to deposit 50% of the original amount of debt of Rs. 16.61 crores. 7.1 It is submitted that the High Court has very seriously erred in directing that the amount realised from auction sale of the secured property shall have to be appropriated for the pre-deposit amount which is to be determined on the balance of the "debt due", without considering the interest component. 7.2 It is further submitted that as per proviso to Section 18 of the SARFAESI Act, the amount of pre-deposit is to be calculated in respect of the amount of "debt due" and the "debt" in SARFAESI Act is defined in Section 2(ha). It is submitted that as per section 2(ha) "debt" shall have the same meaning as assigned to it in section 2(g) of the Act of 1993. It is submitted that on perusal of Section 2(g) of the Act of 1993, "debt due" would include liability + interest. It is submitted that in the present case the High Court i....
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....ants to question the sale, then he cannot claim the amount of deposit for his benefit. The borrower cannot be allowed blow hot and cold. 8.2 Reliance is placed on the decision of this Court in the matter of M/s Shilpa Shares and Securities v. National Cooperative Bank Ltd., (S.L.P (Civil) No. 14717/2022, decided on 21.11.2022) wherein it has been held that the amount deposited pursuant to the order of this Court cannot be adjusted in pre-deposit. That in the said case, the borrower applied for OTS and the matter reached this Court and to show the bona fides of the borrower, while considering its prayer for OTS, this Court directed to deposit certain amount. That thereafter the special leave petition came to be dismissed and in an appeal challenging the proceedings under the SARFAESI Act, the borrower wanted to adjust and/or appropriate the amount deposited pursuant to the order passed by this Court and that Court negatived the same by observing that the amount deposited pursuant to the order of this Court cannot be adjusted in pre-deposit. 8.3 Making above submissions, it is prayed that the impugned judgment and order passed by the High Court be set aside and the borrower be ....
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....f 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. 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 asset or an obligation incurred or credit otherwi....
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.... 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 SA....
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....nexures 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 ....
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....ere 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." 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 no....