Disposed

Dashmesh Airconditioning Engineers Pvt. Ltd. v. Asset Care and Reconstruction Enterprise Ltd.

DRAT28 Jun 2022IA/179/2022

Case brief

AI extract

What is this about?

The DRAT clarified the calculation of mandatory pre-deposit for an appeal under the SARFAESI Act. While initially considering the total dues, the court held that the deposit should relate to the specific transaction challenged. It directed the appellant to deposit Rs.50 lakhs by a specified date.

What did the court decide?

Appellant directed to deposit Rs.50,00,000/- as mandatory pre-deposit; balance due within four weeks; earlier stay continues.

Dashmesh Airconditioning Engineers Pvt. Ltd. versus Asset… — Company and Corporate | DRAT (2022)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present : Mr. Justice Ashok Menon, Chairperson

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I.A. No. 179/2022 (WoD) In Appeal No. 42/2022

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Between

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Dashmesh Air conditioning Engineers Pvt. Ltd. … Appellant/s & Ors.

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V/s. Indiabulls Housing Finance Ltd. …Respondent/s

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Mr. Rajesh Nagori, i/b Ms. Sanjana Ghogare, Advocate for Appellants.

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Mr. Rishabh Shah, i/b M/s. T. N. Tripathi & Co., Advocate for Respondent.

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-: Order dated: 28/06/2022:-

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This Interlocutory Application is filed under the second proviso to Section 18(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Act, 2002 ('SARFAESI Act' for short) for waiver of mandatory pre-deposit. The Appellants had filed Securitization Application (S.A.) No. 27 of 2021 on the files of Debts Recovery Tribunal No. III, Mumbai (DRT for short) u/s 17 of the SARFAESI Act challenging the Sarfaesi proceedings initiated by the Respondent Financial Institution against the Applicants for the realization of debt due to them by resorting to the Sarfaesi measures. The Ld. P.O. dismissed the application vide impugned order dated 30.11.2021. Aggrieved, the Applicants are in Appeal, challenging the said order.

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Facts in a nutshell essential for deciding this application is thus: The first Appellant is a company and the rest of the Appellants are its Directors. The Respondent company is a Financial Institution engaged in lending and financing. To enrich their business of air-conditioners, the Appellants approached the Respondent Company and availed Cash Credit Facility in three different transactions and the outstanding dues on 30.12.2021 are as detailed hereinunder :

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No. HLAPVSH00196915: dated 18.07.2014: Rs.4,86,05,892/-

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No. HLAPVSH00200477: dated 30.08.2014: Rs.2,36,81,976/-

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No. HLAPVSH00223406: dated 31.03.2015: Rs.1,44,76,965/-

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Separate notices u/s 13 (2) of the SARFAESI Act were issued to the Appellants for the realization of the amount and the outstanding amount demanded as per the third transaction on 21.04.2019, with which we are concerned, was Rs.1,06,10,118/-. The Appellants defaulted, and consequent to that, proceedings u/s 14 of the SARFAESI Act were initiated and the Tahsildar took steps against the secured assets belonging to Appellants Nos.2 and 3. The auction of the assets was fixed on 26.03.2021 as per the sale notice dated 18.02.2021. It is at this juncture that the Appellants approached the D.R.T. for relief challenging the Securitisation measures on various grounds. Though initially a stay was granted, on the final hearing of the application, the Ld. P.O. by the impugned order refused to accept the grounds of the Applicant and the S.A. was dismissed.

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The grounds on which the Securitization measures were challenged before the D.R.T. are the mandatory norms, guidelines, or directions of the Reserve Bank of India in respect of the classification of the account as Non-Performing Asset (N.P.A. for short) have not been followed. It is also stated that the Demand Notice u/s 13 (2) of the SARFAESI Act which was received by the Appellants also did not contain the details of the amount such as the principal amount, interest or penal interest demanded from them which is a condition mandatorily to be followed under the provisions of Sub-section 3 to Section 13 of the SARFAESI Act. Consequent to that, the entire proceedings which followed have no legs to stand on.

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The Respondent opposed the application by contending that though demand was made, separately for payment of amounts on three transactions, the entire dues from the Appellants which adds up to Rs.7,69,75,540/- as of 15.02.2021 needs to be paid. The proceedings u/s 14 of the SARFAESI Act have been initiated against the secured assets for the realization of the amount due on all the aforesaid three transactions. The Appellants have approached this Tribunal in Appeal after filing an S.A. against the realization of the amount due as per the transaction bearing No. HLAPVSH00223406 alone. Since the properties have been scheduled for auction sale in all three transactions, the Appellants cannot get over the Securitisation measures unless the entire amount is paid.

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The Ld. P.O. had in the impugned order observed that consequent to the receipt of Demand Notice u/s 13 (2) of the SARFAESI Act, the Appellants did not raise any objections as

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contemplated under sub-section 3-A to Section 13 of the SARFAESI Act and, therefore, their action amounts to a waiver of the right to challenge the demand, and consequent to receipt of Demand Notice, the Appellants had also approached the secured creditor with an offer to pay the amount. This would indicate that the objection raised by the Appellants is based on the decision of the Hon’ble High Court of Gujarat in Punjab National Bank Vs. Mithilanchal Industries Pvt. Ltd. MANU/GJ/1069/2020 which does not apply to the facts of the instant case, therefore, the Ld. P.O. dismissed the Securitization Application.

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In Order dated 02.12.2021 in Writ Petition (L) Nos. 24293 of 2021 and 24630 of 2021, the Hon’ble High Court of Judicature at Bombay owing to the vacancy of the seat of the Chairperson of this Appellate Tribunal, gave general directions that any party who is desirous of challenging an order passed by any D.R.T. situated in the State of Maharashtra before the DRAT (M) shall be at liberty to present an Appeal together with the requisite fees and on making a pre-deposit of at least 25% of the debt due from them as claimed by the secured creditors or determined by the D.R.T., whichever is less and on making such payment, the recovery shall remain injuncted and that the order was to continue till 04.01.2022.

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Taking the refuge under the aforesaid Order, the Appellants deposited a sum of Rs.26,75,000/- on 17.01.2022 and thereafter, based on interest that may have accrued, made a further payment of Rs.9,45,000/- on 28.01.2022; depositing altogether, a sum of Rs.36,20,000/- as pre-deposit before this Tribunal. The Appellants

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would contend that the said amount would take care of more than 25% of the amount that is due and, therefore, the appeal may be entertained and a stay granted to them in tune with the prayers in the stay application filed as I.A. No. 180/2022.

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The Respondent appeared and vehemently opposed the application for waiver of pre-deposit as also the application for stay. The Respondent would contend that for entertaining the Appeal, the Appellants are required to comply with the second proviso to Section 18 of the SARFAESI Act which directs a deposit of 50% of the amount due or determined. As stated above, the total amount that is due from the Appellants added up with interest as on the date of filing of the Appeal consequent to the issuance of notices u/s 13 (2) of the SARFAESI Act would come to Rs.8,67,64,833/- and, therefore, the Appellants may be directed to deposit 50% of the said amount and no indulgence whatsoever may be shown to reduce the amount any further, submit the Appellants.

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Heard Mr. Rajesh Nagori, Advocate for Appellants, and Mr. Rishabh Shah, Advocate for Respondent. Perused the documents.

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The argument of the learned counsel Mr. Nagori is that the Appellants have challenged only the transaction as per Demand Notice dated 26.04.2019 u/s 13 (2) of the SARFAESI Act about the Loan Account No. HLAPVSH00223406 and, therefore, the amount due as per that notice being Rs.1,06,10,118/- on the date of the notice, even if accrued interest is added, the amount of Rs.36,20,000/- now deposited by the Appellants would more than

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sufficient. And therefore, he seeks indulgence of this Tribunal to limit the mandatory pre-deposit from 50% to the amount already deposited.

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The Appellants had received a notice u/s 13 (2) which shows the amount due as Rs.1,06,10,118/-. There is indeed no break-up of the principal, interest, penal interest, costs, etc. detailed in that notice. The learned counsel for the Appellants gave a catena of decisions rendered by the Hon’ble High Court of Gujarat in Punjab National Bank Vs. Telstar Industries Pvt. Ltd. 2019 SCC OnLine Guj 4467; Punjab National Bank Vs. Mithilanchal Industries Pvt. Ltd. (Supra); Bhavdipbhai Arunbhai Dave Vs. Kotak Mahindra Bank Ltd. MANU/GJ/0273/2022, argues that the finding in the impugned judgment is prima facie unsustainable because the Ld. P.O. has given much importance to the Appellants not replying to the notice u/s 13 (2) of the SARFAESI Act by resorting to a provision under Sub-Section 3-A to Section 13 of the SARFAESI Act distinguishing the judgment in Punjab National Bank Vs. Mithilanchal Industries Pvt. Ltd. (Supra) by stating that the facts were different since in that case there was a reply given by the borrower under sub-section 3-A to Section 13 of the SARFAESI Act, whereas, in the instant case they have not sent a reply and, therefore, there is a waiver of their right to challenge.

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I am not inclined to go into the details of the finding of the Ld. P.O. because that would be tantamount to disposal of the Appeal itself. At present, we are only concerned with the payment of the mandatory deposit contemplated under the second proviso to Section 18 of the SARFAESI Act, and what has been called upon to

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determine at this stage, is only the total amount to be deposited for entertaining the appeal.

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Mr. Rajesh Nagori argues that since the notice about a particular transaction demands only a sum of Rs.1,06,10,118/-, the Appellants are liable to pay the pre-deposit based on that amount and cannot be insisted upon to pay 50% of the amount which has been demanded as per three notices about three transactions that the Appellants have with the Respondent.

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It is true that the secured assets as far as the three transactions are concerned, are the same and the Respondent has also proceeded to put in the auction the property for the realization of the amount due as per the three transactions. But is also pertinent to note that three separate notices u/s 13 (2) of the SARFAESI Act have been issued and in case the Demand Notice concerning a particular transaction stands complied by the borrower, within the stipulated time, the secured creditor could not have proceeded with further measures in that particular loan. The proceedings u/s 14 of the SARFAESI Act before the Chief Metropolitan Magistrate was also initiated separately but the auction sale includes the amounts due as per all the three transactions. According to the Respondent, in case there is a stay, it would stall the proceeding concerning all the three transactions, though the Appellants have not approached the D.R.T. concerning the Sarfaesi measures initiated in the other two transactions.

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Given the decision of the Hon’ble High Court of Gujarat,

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there appears to be a prima facie case made up by the Appellants sufficient to entertain the appeal. The correctness of the decision taken by the Ld. P.O. concerning the waiver of the right of the Appellants to challenge the notice u/s 13 (2) of the SARFAESI Act for not having objected as contemplated under the Sub-section 3-A of Section 13 of the SARFAESI Act is something which needs to be considered in detail. The Appellants have exhibited their readiness to settle the loan account. They suffered a letdown in business because of the pandemic, and there is no material to show that they are chronic defaulters.

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I am of the view that under the circumstances, the Appellants need not be called upon to deposit 50% of the amount which is due as per all the three transactions about which the Sarfaesi measures have been initiated. In case the notice u/s 13 (2) of the SARFAESI Act specifically issued for a particular transaction is found to be insufficient, the secured creditor cannot proceed against the secured property concerning that transaction. Nothing precludes the secured creditor from proceeding with the Sarfaesi measures concerning the other two transactions which have not been challenged by the Appellants. In case there is any insufficiency in the sale auction notice concerning the amount shown, it is for the secured creditor to correct that. Under the circumstances, I find that the objection raised by the Respondent concerning the amount due from the Appellants is not sustainable. The amount due could only be stated as Rs.1,44,76,965/- as of 30.12.2021 and 50% of that amount would come to Rs.72,38,482.50. The amount deposited by the Appellants

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would come to more than 25% of the said amount.

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Considering the entirety of the facts and circumstances, the Appellants are directed to deposit a sum of Rs.50,00,000/- towards mandatory pre-deposit from out of which they have already paid Rs.36,20,000/-, and the balance amount i.e. Rs.13,80,000/- shall be deposited within four weeks from today i.e. on before 26.07.2022. The stay granted earlier shall continue till the next date.

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Failure to deposit the above-referred amount within the stipulated time would entail automatic dismissal of the Appeal.

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The amount shall be deposited in the form of a Demand Draft with the Registrar of this Tribunal.

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As and when the said amount is deposited, it shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalized bank, initially for 13 months, and thereafter, it will be renewed periodically.

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Post on 27.07.2022 for reporting compliance.

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Sd/Chairperson

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dpj-1

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Dashmesh Airconditioning Engineers Pvt. Ltd. v. Asset Care and Reconstruction Enterprise Ltd.

Case brief

What is this about?

What did the court decide?

Dashmesh Airconditioning Engineers Pvt. Ltd. v. Asset Care and Reconstruction Enterprise Ltd.

Case brief

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What did the court decide?

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