Dismissed

Excel Vinyl Coatings Pvt. Ltd. v. Union Bank of India

DRAT14 Oct 2022

Case brief

AI extract

What is this about?

The Appellate Tribunal held that it cannot grant a total waiver of the mandatory pre-deposit under Section 18(1) of the SARFAESI Act for an appeal against an interlocutory order. Relying on Supreme Court precedents, the Court exercised its power to reduce the deposit from 50% to 25% of the claimed debt.

What did the court decide?

Appeal conditionally entertained subject to deposit of 25% of the claimed debt amount, i.e., Rs. 67,30,240/-.

Excel Vinyl Coatings Pvt. Ltd. versus Union Bank of India — Banking and Recovery | DRAT (2022)

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IA-292/2022 in AIR (SA) 194/2022

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 29^th of September, 2022

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PRESENT: Hon’ble Mr. Justice S. Ravi Kumar

CHAIRPERSON

IA-292/2022

AIR (SA) 194/2022

[IA 1943/2022 in SA 489/2022 on the file of DRT, Coimbatore)

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Between

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Excel Vinyl Coatings Private Ltd., Rep. by its Managing Director, K. Natarajan, S.F. No.8/630, Arulpuram, Palladam Road, Tirupur 641 605.

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……Petitioner/Appellant

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And

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The Authorised Officer, Union Bank of India, SME Branch, No.15, Ganga Nagar, First Street, Avinashi Road, Tirupur.

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….. Respondent

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For Petitioner : Mr. S. Mohan For R 1 : Mr. N. Somasundaar

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IA-292/2022 in AIR (SA) 194/2022

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ORDER UNDER SECTION 18 (1) OF SECURITIZATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTERESTS ACT (SARFAESI ACT), 2002

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This Application is filed seeking total waiver of pre deposit required under Section 18(1) of SARFAESI Act, 2002, for entertaining the Appeal.

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Appellant preferred this Appeal under Section 18 of SARFAESI Act, 2002, challenging Order dated 19.05.2022 in IA 1943/2022 in SA 489/2022 passed by DRT, Coimbatore.

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According to Affidavit filed in support of Petition, Petitioner/Appellant is not required to deposit any amount in view of judgement of Hon’ble High Court of Madras in Sree Jeya Soundharam Textile Mills Pvt. Ltd . Vs. Canara Bank

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& Ors. , reported in 2019 (5) MLJ 385, since Appeal is against

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IA-292/2022 in AIR (SA) 194/2022

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an Interim Order passed by DRT, Coimbatore in SA

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489/2022.

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Heard Learned Advocates of both parties.

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Advocate for Petitioner/Appellant submitted that, in view of judgement of Hon’ble High Court of Madras referred to above, Petitioner/Appellant, who has filed an Appeal before DRAT against an Interlocutory Order passed by DRT, is not liable to make pre deposit, as liability is not determined by DRT in Interlocutory Order. He submitted in view of said decision, Petitioner/Appellant need not deposit any amount and Appeal has to be entertained.

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On the other hand, Advocate for Respondent Bank submitted that this Tribunal has no power to grant total waiver, it can only reduce statutory deposit from 50% to 25%. He further submitted in SARFAESI Act, 2002, there is no separate provision for passing an Interlocutory Order, and all Interlocutory Orders are passed under Section 17 of

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IA-292/2022 in AIR (SA) 194/2022

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SARFAESI Act, 2002, and Appeal remedy is provided for all Orders passed under Section 17 of SARFAESI Act, 2002. As per Section 18 of SARFAESI Act, 2002, it makes no distinction for pre deposit for an Appeal against a Final Order and for an Appeal against an Interlocutory Order. He further submitted a Division Bench of Madras High Court in earlier decision, held that even for an Appeal against an Interlocutory Order, deposit is mandatory. He further submitted that in the decision relied on by Petitioner/Appellant, earlier judgement of Division Bench of Hon’ble High Court is not referred, therefore a contrary view taken by equal Bench in a subsequent decision, has to be ignored under the principle of per incuriam .

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After filing of Appeal before this Tribunal,

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Petitioner/Appellant herein filed Writ Petition No. 19511, 19512 & 19513/2022 seeking a direction to number the Appeal, and Hon’ble High Court of Madras through a Common Order dated 28.07.2022 disposed of Writ Petitions by directing this Tribunal to dispose of Waiver Applications

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IA-292/2022 in AIR (SA) 194/2022

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taking into consideration judgement of Hon’ble High Court of Madras in Sree Jeya Soundharam Textile Mills Pvt. Ltd . , case, within a period of two weeks from the date of receipt of copy of that Order. Advocate for Petitioner/Appellant produced copy of Hon’ble High Court Order before this Tribunal on 11.08.2022. Case is listed before Bench on 26.08.2022, as I was on leave on that day, it was reposted to 30.08.2022. On 30.08.2022, arguments commenced, as requested by both parties, matter was heard on 07.09.2022 and 14.09.2022 and finally concluded on that day. Thus delay in disposing the case within two weeks as fixed by High Court.

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Now, the point arises for consideration is whether this Tribunal can grant total waiver by considering the judgement of Hon’ble High Court of Madras in Sree Jeya Soundharam Textile Mills Pvt. Ltd . Vs. Canara Bank & Ors. , case.

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IA-292/2022 in AIR (SA) 194/2022

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As already referred to above, only ground on which Petitioner/Appellant sought total waiver is, based on the above referred judgement. Objection of Respondent Bank is that this Tribunal has no power to grant total waiver; therefore, it may be necessary to examine Section 18 (1) of SARFAESI Act, 2002, and proviso thereto, which empower this Tribunal to pass Orders in respect of pre deposit. Section 18 of SARFAESI Act, 2002 and proviso thereto, which is relevant for our purpose, reads as follows:-

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“ 18. Appeal to Appellate Tribunal. —(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal1 [under section 17, may prefer an appeal along with such fee, as may be prescribed]to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal.

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[Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:]

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[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

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IA-292/2022 in AIR (SA) 194/2022

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due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:

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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.]

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(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.”

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From a plain reading of above provision, when an Appeal is by a borrower, such Appeal shall not be entertained unless borrower has deposited with Appellate Tribunal 50% of amount of debt due from him, as claimed by Secured Creditors or determined by DRT, whichever is less.

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According to Advocate for Respondent Bank, in an

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enquiry under Section 17 of SARFAESI Act, 2002, DRT is empowered only to examine measures taken by Secured

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IA-292/2022 in AIR (SA) 194/2022

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Creditors referred to in Sub-section 4 of Section 13 of SARFAESI Act, 2002, and if on enquiry, it is found that those measures are not in accordance with the provisions of Act and Rules made thereunder, DRT has to declare that recourse to any one or more measures referred to in Sub-section 4 of Section 13 of SARFAESI Act, 2002, as invalid, and then order for restoration of possession. He submitted, power of DRT under Section 17 of SARFAESI Act, 2002, is limited to that extent only, and there will not be any enquiry with regard to determination of debt under Section 17 of SARFAESI Act, 2002. He further submitted that clause mentioned in proviso 2 of Section 18 (1) of SARFAESI Act, 2002, as “debt determined by DRT” wound only arise where Secured Creditor has invoked provisions of SARFAESI Act, 2002, in respect of Recovery Certificate already granted in favour of Secured Creditor, for realization of money and in those cases only, Tribunal has to take into consideration, “debt claimed by Secured Creditors or debt determined by DRT, whichever is

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less”.

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IA-292/2022 in AIR (SA) 194/2022

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Advocate for Respondent Bank submitted that Hon’ble Supreme Court clarified that Banks and Financial Institutions can invoke both remedies simultaneously, for that proposition, he relied on the judgement of Hon’ble Supreme Court in M/s. Transcore vs Union Of India & Anr. , reported in AIR 2007 SC 712 , and this proposition of Hon’ble Supreme Court is not disputed by Advocate for Petitioner/Appellant.

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11. Learned Advocate for Respondent Bank submitted that in Narayan Chandra Ghosh vs Uco Bank & Ors. , reported in

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AIR 2011 SCW 2572 , Hon’ble Supreme Court held that there is absolute bar to entertain an Appeal under Section 18 of SARFAESI Act, 2002, unless condition precedent as stipulated is fulfilled. He further submitted, Hon’ble Supreme Court held in that decision, no court, much less, Appellate Tribunal, a creature of Act itself, can refuse to give full effect to provisions of statute. He submitted, in that case, DRAT

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IA-292/2022 in AIR (SA) 194/2022

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granted total waiver of pre deposit, which was challenged before Hon’ble High Court, and Hon’ble High Court of Kolkata, has set aside Order of DRAT, and same was challenged before Hon’ble Supreme Court, and the point before Hon’ble Supreme Court was whether Appellate Tribunal has jurisdiction to exempt a person preferring an Appeal under Section 18 of SARFAESI Act, 2002, from making any pre deposit in terms of said provision. He submitted, para 9 of said decision is relevant for our purpose. For better appreciation, it may be relevant to extract said para, which is as follows:-

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“9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts

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IA-292/2022 in AIR (SA) 194/2022

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Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third proviso to the said Section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining appellant's appeal without insisting on predeposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed”.

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10. ……..”

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12. Learned Advocate for Respondent Bank submitted that

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Hon’ble Supreme Court in Union Bank Of India vs. Rajat

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Infrastructure Pvt. Ltd. & Ors. , reported in AIR online 2020

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SC 268 , held that Hon’ble High Court has no power akin to

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IA-292/2022 in AIR (SA) 194/2022

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powers vested under Article 142 of the Constitution and High Court cannot give directions which are contrary to law. He submitted, in that decision, Hon’ble High Court gave a direction to DRAT stating that pre deposit is not required for entertaining an Appeal as mandated by Section 18 (1) of SARAFAESI Act, 2002, while holding that observation of Hon’ble High Court are as totally incorrect, Hon’ble Supreme Court clarified that, High Court cannot give direction which are contrary to law. He submitted, when Section 18 (1) of SARFAESI Act, 2002 mandates, pre deposit as per decision of Hon’ble Supreme Court referred to above, whether DRAT or Hon’ble High Court, has no power to pass any orders contrary to the provisions of SARFAESI, Act, 2002.

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13. Learned Advocate for Respondent Bank further submitted, Hon’ble Supreme Court in Kotak Mahindra Bank Pvt. Limited vs. Ambuj A. Kasliwal, reported in AIR 2021 SC 1041, held that High Court is not empowered to waive pre

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deposit in its entirety, nor can it exercise discretion which is

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against mandatory requirement of statutory provision. He

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IA-292/2022 in AIR (SA) 194/2022

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submitted, though said decision was in respect of Section 21 of Recovery of Debts and Bankruptcy Act (RDB Act), 1993, principle is very much applicable, and in view of that, Hon’ble High Court cannot give any directions contrary to statutory provisions.

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14. Learned Advocate for Respondent Bank submitted, Hon’ble High Court of Madras in M/s. Lakshmi Shankar Mills (P) Ltd. & Ors. vs. The Authorised Officer/Chief Manager, Indian Bank & Ors, reported in AIR 2008 MHC 181 , Hon’ble High Court, held that Tribunal under Section 17 of SARFAESI Act, 2002, can decide the issue of validity of measures taken by Bank and Financial Institution, but it cannot adjudicate exact amount due to Secured Creditor. He further submitted, Hon’ble High Court of Madras in its Full Bench judgement, held that, scope of enquiry under Section 17 of SARFAESI Act, 2002, is only to decide issue of validity of measures, and cannot adjudicate as to amount due to Secured Creditor, therefore, question of determination of debt

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IA-292/2022 in AIR (SA) 194/2022

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in a proceedings under Section 17 of SARFAESI Act, 2002,

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does not arise.

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15. Learned Counsel for Respondent Bank further

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submitted, Hon’ble High Court of Madras in M/s. A. R. Moulds and Dies India Private Limited & Ors. Vs M/s. International Asset Reconstruction Company Pvt. Ltd.

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reported in 2018 (3) TLNJ 502 (Civil), has not accepted the contentions of Appellant therein that, deposit under Section 18 of SARAFAESI Act, 2002, is not mandatory since amount

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has not been crystallized, and Appellant has only challenged Interim Order. It is submitted, Hon’ble High Court of Madras, has not accepted such contention, and upheld the Order of DRAT, ordering pre deposit for entertaining the Appeal. He submitted, decision relied on by Petitioner/Appellant is contrary to principle laid down in this decision, which is also of a Division Bench, therefore, decision relied on by Petitioner/Appellant, which is subsequent, has to be ignored on the principle of per incuriam .

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IA-292/2022 in AIR (SA) 194/2022

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16. Advocate for Respondent Bank further submitted, in

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M/s. Vinay Container Service Pvt. Ltd. and Ors. Vs. Axis

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Bank, Mumbai, reported in AIR 2011 Mombay 37 , Hon’ble High Court of Mombay, held that power of Tribunal to pass an Interlocutory Order is ancillary to its jurisdiction under Section 17 of SARFAESI Act, 2002, in view of the judgement of Hon’ble Supreme Court in Mardia Chemicals Limited , and provisions of Section 18(2) cannot be so interpreted to mean that an interlocutory order passed by Tribunal is not referable to the provisions of Section 17 of SARFAESI Act, 2002, and even if an Appeal preferred against an Interlocutory Order, conditions under Section 18 of SARFAESI Act, 2002, have to be complied with.

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17. Learned Counsel for Respondent Bank also relied on the judgement of Hon’ble High Court of Delhi in M/s. Satnam

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Agri Products Ltd. & Ors. Vs. Union of India & Ors., reported in 2015 (129) SCL 603 , for the same proposition that, even for an Appeal against Interlocutory Order, it is

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IA-292/2022 in AIR (SA) 194/2022

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mandatory to comply with pre deposit as required under Section 18 (1) of SARFAESI Act, 2002.

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18. Advocate for Respondent Bank also relied on the judgement of Hon’ble High Court of Himachal Pradesh in M/s. Amy Agro Pvt. Ltd. Vs. State Bank of Patiala and Ors., reported in AIR 2016 HP 26 , for the proposition that Appeals arising out of Orders on Interlocutory Applications, cannot be exempted from pre deposit as required under Section 18(1) of SARFAESI Act, 2002.

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19. Advocate for Respondent Bank further submitted that, Hon’ble High Court of Kerala, in A.P. Varghese Vs. The Chief Manager (Authorised Officer ), reported in 2019 (5) KHC 685 , held, statute does not distinguish an Interim Order or a Final Order made in Application filed under Section 17 of SARFAESI Act, 2002, and pre deposit under Section 18 of SARFAESI Act, 2002, is mandatory, and order passed in Interlocutory Application is also falls within ambit of Section 18 of SARFAESI Act, 2002.

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IA-292/2022 in AIR (SA) 194/2022

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20. Advocate for Respondent Bank also relied on the judgement of Hon’ble High Court of Madhya Pradesh in Devendra Kumar Rai Vs. State Bank of India & Ors., reported in 2022 (3) M. P. L. J. 305 , for the proposition that, ‘any order’ referred to under Section 18 of the SARFAESI Act, 2002, includes an Interlocutory Order.

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21. I have carefully examined all the above referred decisions cited on behalf of Respondent Bank. As rightly pointed out by Learned Advocate for Respondent Bank, Hon’ble Supreme Court made it very clear that, no court, much less, DRAT, which a creature under statute, has power to grant full waiver, and Appeal cannot be entertained without complying with mandatory requirement of Section 18(1) of SARFAESI Act, 2002. Here, Admittedly, Petitioner/Appellant is a borrower, and as per Second Proviso

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to Section 18 (1) of SARFAESI Act, 2002, any Appeal by borrower, shall not be entertained without complying with pre

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IA-292/2022 in AIR (SA) 194/2022

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deposit. As rightly pointed out by Learned Advocate for Respondent Bank, when this Tribunal has no power to give full waiver, and when Hon’ble Supreme Court clarified that even Hon’ble High Court has no power to give direction contrary to statutory provisions, I have to accept the submissions of Learned Advocate for Respondent Bank that, without making pre deposit, Appeal cannot be entertained.

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22. As per Section 18(1) of SARFAESI Act, 2002, this

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Tribunal is vested with power to reduce statutory deposit from 50%, but, it cannot be less than 25%. Here admittedly, the Appeal is against an Interlocutory Order, and is not against a Final Order. Though, Advocate for Petitioner/Appellant contended that in view of fraud pleaded, Tribunal can grant total waiver, I am not convinced with that request, in view of decisions of Hon’ble Supreme Court referred to above, with regard to power of this Tribunal. As regards fraud pleaded, it is a matter to be considered in the main Appeal. Since Appeal is against Interim Order, I am of

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the view that I can exercise my power to reduce statutory

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IA-292/2022 in AIR (SA) 194/2022

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deposit from 50% to 25%, and accordingly, direct

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Petitioner/Appellant to deposit 25% of amount demanded by Authorised Officer of Respondent Bank under Section 13(2) of SARFAESI Act, 2002, for entertaining the Appeal.

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23. According to Demand Notice issued under Section 13(2) of SARFAESI Act, 2002 dated 20.11.2018, amount claimed by Authorised Officer of Respondent Bank is Rs.2,69,20,959.21p. In view of my above observations, Petitioner/Appellant has to deposit 25% of Demand Notice amount, which comes to Rs.67,30,240/-. Therefore, Petitioner/Appellant shall deposit Rs.67,30,240/- on or before 13.10.2022.

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For the reasons stated above, Petitioner/Appellant shall deposit Rs.67,30,240/-, on or before 13.10.2022, failing which Appeal shall stand rejected. On making such deposit by Petitioner/Appellant, Registrar is to invest the same in a Nationalized Bank, from time to time till further orders are passed.

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