Allowed

Paresh Nath Dutta & Ors. v. Uco Bank & Ors.

DRAT9 Sept 2022REGULAR APPEAL/293/2018

Case brief

AI extract

What is this about?

The court considered whether an appellant could avail the benefit of sale proceeds already realized by the secured creditor against the amount needed for the mandatory pre-deposit under Section 18 of the SARFAESI Act for filing an appeal. While acknowledging the mandatory nature of the deposit, the court held that realized proceeds can be adjusted to meet the deposit requirement if the sale is con

What did the court decide?

Application for waiver/approval of pre-deposit adjustment based on auction sale proceeds was allowed.

Paresh Nath Dutta & Ors. versus Uco Bank & Ors. — Contract and Commercial Disputes | DRAT (2022)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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(Appeal No. 293 of 2018) (IA 208 OF 2021) (IA 209 OF 2021)

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(Arising out of S.A. 445 of 2016 in DRT-2 Kolkata)

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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09.09.2022

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Paresh Nath Dutta & Ors.

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… Appellants

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-Vs-

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UCO Bank & Ors. … Respondents Mr. S. Dey, learned counsel with Ms. S. Pal, ld. Counsel for the appellants. Mr. S. Pal Chowdhury, learned counsel with Mr. P.Mitra, ld. Counsel for the respondent.

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THE APPELLATE TRIBUNAL :

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Opposition filed by the respondent is taken on record.

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I.A. 396 of 2018 has been filed by the appellant seeking waiver from pre-deposit. As per demand notice u/s 13(2) of the SARFAESI Act amount due is 3,37,92,464.96. Secured asset was auctioned at Rs.1.50 crores and auction sale was confirmed and sale certificate was issued. Thereafter, Bank has liquidated FDR of Rs.60.00 lakhs. Learned counsel for the appellant submits that since secured creditor bank has already received more than 50% of the amount due, hence, appellant may be exempted from making pre-deposit under Section 18 of the SARFAESI Act, 2002.

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Before proceeding further, it would be appropriate to quote the Section 18 of the SARFAESI Act.

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”(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 the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: (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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As it appears from the bare reading of the provisions, it is clear that any person aggrieved by the order of DRT, under Section 18 of the SARFAESI Act is entitled to prefer an Appeal along with prescribed fee within

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the permitted period of 30 days. Further, in order to entertain an Appeal by the Appellate Tribunal, aggrieved person has to make a deposit of 50% of the amount of debt due from him as claimed by the secured creditors or determined by DRT, whichever is less. This amount can, at the discretion of the Tribunal in appropriate cases for recorded reasons, be reduced to 25%.

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The scheme of the SARFAESI Act, Act was intended to facilitate easy and faster recovery of loans advanced by the Banks and Financial Institutions. The banker recovery mechanism contemplated in the Code of Civil Procedure, 1908 was not considered sufficient. Thus, the Recovery of Debts due to Banks and Financial Institutions Act 1993 was introduced for a speedier mechanism for recovery. Almost a decade of circumstances proved that the recovery process was not achieving intended objects and hence, the SARFAESI Act, an act to regulate securitization and reconstruction of financial asset and enforcement of security interest, was enacted. The Act incorporates a system whereby direct action for recovery of secured Assets may be initiated against the secured assets of a borrower after the debt is declared to be a Non-Performing Asset.

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In Narayan Chandra Ghosh Vs. UCO Bank [(2011) 4 SCC 548], the Hon‘ble Apex Court had upheld the constitutional validity of the Second proviso to Section 18(1) of SARFAESI Act.

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“(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 the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: (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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Now the question arises regarding sale proceeds of the secured assets received after auction sale. On this point, Ld. Counsel for the borrowers has made very detailed submissions. It is submitted that the sale proceeds should be adjusted towards the amount to be deposited under second proviso of Section 18(1) of the SARFAESI Act. To buttress the submissions,

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reliance has been placed upon the judgments of different High Courts in the following cases.

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i) Akash Ganga Airlines Ltd. Versus Debt Recovery Appellate Tribunal and ors. Writ Petition No. 3973 (M/S) of 2015 (6) ALJ 307 Lucknow Bench. ii) Gopal Ji Gupta versus DRAT Allahabad AIR 2013 Allahabad 175. iii) Prudent ARC Vs. Sidha Neelkant Paper Industries & ors. decided by Hon’ble Delhi High Court Division Bench in W.P(C) 6060 of 2020 decided on 22.12.2020. iv) Shrishti Arogyadham Pvt. Ltd. Vs. Punjab National Bank (2018) SCC On Line Delhi 12716 v) Shri Mohan Products Pvt. Ltd. & ors Vs. State Bank of India and others 2020 SCC On Line Chattisgarh 2302 in Writ Appeal No. 362 of 2019 decided on 18.05.2020.

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In the case of Union Bank of India Vs. Rajat Infrastructure

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Private Limited & others [(2020)3 SCC 770] wherein the Hon’ble Apex Court has placed reliance upon the law laid down by the Apex Court in Narayan Chandra Ghosh (supra). It was held that –

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“ This Court in Narayan Chandra Ghosh vs UCO Bank, held that keeping in view the language of Section 18 even if the amount or debt due had not been determined by DRT, the appeal could not be entertained by DRAT without insisting on pre-deposit. DRAT, at best could, after recording the reasons, have reduced the amount to 25% but could not have totally waived the deposit. This Court also held that the right of appeal conferred under Section 18(1) is subject to the conditions laid down in the second proviso therein which postulates that no appeal shall be entertained unless the borrower has deposited 50% of the amount of debt due from him as claimed by the secured creditors or determined by DRT, whichever is less. The third proviso enables DRAT, for reasons to be recorded in writing, to reduce the amount of deposit to not less than 25%.

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The following observations of this Court in Narayan Chandra Ghosh case are relevant:

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“Thus, there is an absolute bar to the entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity.”

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Reliance was further placed on Para 71 of the Prudent ARC case

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(supra) wherein it was held by the Division Bench of Delhi High Court that –

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“71. We find no reason for taking a different view than that taken above. The money recovered by a secured creditor is not to be treated as the equivalent of a deposit made under Section 18 of the SARFAESI Act. It is only to be considered for reducing only safeguard

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the interest of the secured creditors, it would also ensure that frivolous appeals are sifted out at the appellate stage.

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73. In the light of the above discussion, it is held that any amount of debt that has been repaid by the borrower after filing of the Section 17 petition, either through return of money, or on sale/ auction of a secured asset shall stand to the benefit of the borrower and while computing the “amount of debt due’ under the second proviso to Section 18, the amount stated in the Section 13(2) notice shall be proportionately reduced by any amount recovered by a secured creditor in the above manner. Subject to the limited discretion vested in the Appellate Tribunal, 50% of this amount shall have to be deposited by the aggrieved person for the appeal to be entertained. 74. To sum up, the conclusion drawn is as follows: (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.

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(b)While computing the “amount of debt due”, the amount of debt claimed by the secured creditor in its notice issued under Section 13(23) of the Act, shall be relevant and any further interest need not be taken into consideration for purposes of determining, “the amount of debt due as claimed by the secured creditor”, in cases where the DRT has not determined the liability of a borrower.

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(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 under the RDDB Act.

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(d)Any amount that has been repaid by the borrower and/ or recovered by a secured creditor after filing of the petition under Section 17, shall stand to be benefit of the borrower while computing the “amount of debt due” under the second proviso to Section 18 of the SARFAESI Act, 2002.

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It is argued that the provisions of second proviso of Section 18(1) of the Act are mandatory in nature. Learned counsel has also placed reliance upon the Law of Precedence wherein in the matter of two judgements of same strength of Hon’ble Judges of different High Courts a judgment which is more appropriate to the facts of case should be followed. It is further argued that in Prudent ARC case Judgment of Hon’ble Supreme Court in the case of Rajat Infrastructure (supra) was not considered wherein it was held that provisions of Section 18 of the Act are mandatory in nature. He has further placed reliance upon judgment of Hon’ble Himachal Pradesh High Court in the case of Shivalik Fibres (P) Ltd. Vs. Punjab National Bank [2019 SCC OnLine HP 961] wherein a Division Bench of the Hon’ble Himachal Pradesh High Court has held that-

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“Primarily, the second proviso to sub-Section (1) of Section 18 of the SARFAESI Act imposes an obligation upon a person filing an appeal before the Appellate Tribunal cannot take advantage of the amount paid by other parties, except under certain circumstances. Say, for instance, the Bank was proceeding against the properties of a guarantor, after exhausting its remedies against the borrower and

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after recovering a portion of the debt due from the borrower. In cases of that nature, the very attempt of the Bank would only be to recover from the guarantor, the balance of the money due after appropriating the sale proceeds of the properties of the borrower. But in cases where the borrowers themselves are the appellants, they cannot claim the benefit of the money recovered through an auction, which itself had become the subject matter of challenge. A borrower who assails an auction conducted under the Act, as null and void, cannot take advantage of the amount recovered by the Bank through such an auction. If in the opinion of the borrower, an auction is invalid, it would not confer any benefit upon any of the parties, including the secured creditors and the auction purchaser. As a corollary, such an auction cannot confer a benefit upon the borrower. To put it upon the auction purchaser or the secured creditor, on account of being a nullity, cannot confer a benefit upon the borrower either. To show the sale process of the very auction that is assailed in an appeal, as a money recovered by the Bank, would tantamount to the proverbial act of eating the cake even while retaining it.”

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The Division Bench of the Hon’ble Himachal Pradesh High Court did not agree with the judgement of Delhi High Court in Shrishti Arogyadham Pvt. Ltd. case (supra). It was held by the Hon’ble Himachal Pradesh High Court that no borrower accepts before the Appellate Tribunal that his right to redemption is already lost due to the confirmation of sale or issue of sale certificate and its registration. So long as it is contended by the borrower/ guarantor that his right to redemption is not lost and he is not entitled to have the sale certificate set aside by the Appellate Tribunal, the money recovered by the Bank through the auction is not a money fully and finally recovered.

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On the strength of the judgement, Learned Counsel submits that he can take advantage of the money realized out of the sale of secured assets. Further, the reliance was placed on Indian Bank Vs. Blue Jaggers Estates Limited & Ors decided on 9^th August, 2010 [2010(8) SCC 129] wherein it was held in para 25 that-

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“ The Court cannot lose sight of the fact that the Bank is a trustee of public funds. It cannot compromise the public interest for benefiting private individuals. Those who take loan and avail financial facilities from the Bank are duty-bound to repay the amount strictly in accordance with the terms of the contract. Any lapse in such matters has to be viewed seriously and the Bank is not only entitled but duty bound to recover the amount by adopting all legally permissible methods. Parliament enacted the Act because it was found that legal mechanism available till then was wholly insufficient for recovery of the outstanding dues of banks and financial institutions. Reference in this connection deserves to be made to the judgments of this Court in Delhi Transport Corpn V. D.T.C. Mazdoor Congress, Central Bank of

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India V. State of Kerala and United Bank of India V. Satyawati Tondon.”

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In the case of Parsn Medicinal Plant Pvt. Ltd. & Anr. Vs. Indian

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Bank & Ors. [Civil Appeal No. 2074- 2078 of 2011] decided on 25.02.2011 reported in (2011)15 S.C.C. 253 reliance has been placed by the Appellants. The judgment of the Hon’ble Apex Courts reads as under:

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“ ORDER

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1. Leave granted.

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2. We have heard the learned Counsel for the parties.

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3. These appeals emanated from the judgment and orders dated 16^th June, 2010 passed by the High Court of Judicature at Madras in Writ Petition No. 17016/2009 and Civil Revision No. 2467 of 2009 and M.P. Nos. 1 & 2 of 2009 in Civil Revision No. 2467 of 2009 by which, while allowing the writ petition and the civil revision petition, the High Court has set aside the order passed by the Debts Recovery Appellate Tribunal (“DRAT”).

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18. Our attention has been drawn to a letter dated 13.12.2010 sent by the Chief Manager, Indian Bank, to the Director of the Appellant Company, the relevant portion of which reads as under:

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“As regards the liabilities, we wish to state that the amount due as on 30.11.2010 is Rs.3467.89 Lakhs after appropriation of a sum of Rs. 410.00 lakhs collected after filing of suit and Rs. 5525.00 lakhs being the sale proceeds of property said above” (page 226).

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19 . Learned Solicitor General submits that if the Bank is allowed to appropriate this amount, then he has no objection to the appeal of the Appellant being heard on merit by the Hon’ble DRAT. We direct that the Indian Bank would be at liberty to appropriate the amount which is already with the Bank, however, this would be subject to the final decision of the appeal by the Hon’ble DRAT.

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20 . In the facts and circumstances of this case, we direct the DRAT to hear and dispose of the appeals on all questions of law, as expeditiously as possible, in any event, within two months from the date of the communication of this order. 21 . These appeals are accordingly disposed of, leaving the parties to bear their own.”

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Section 18 of the SARFAESI Act is an enabling provision. The object to get the pre-deposit for the maintainability of the Appeal is to get the deposit from the borrower against the amount due in Recovery proceedings. Recovery of the dues can be set aside either by deposit of the amount by the borrower or to recover the amount by selling the property of the borrower. Therefore, the amount received by the Bank by way of sale proceeds by the auction of the property of the borrower can be treated as the deposit and the borrower would be entitled for adjustment of the amount of the sale proceeds. Section 18 being enabling provision is to be construed to achieve the object liberally in favour of the borrower.

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Division Bench of the Hon’ble Himachal Pradesh High Court in the case of Shivalik Fibre (supra) have not considered the case of Parsn Medicinal Plant (supra) wherein the Hon’ble Apex Court has given the benefit to appropriate the amount which is already realised by the Bank and was lying with the Bank. However, it was made subject to the final decision of the Appeal by the Hon’ble DRAT. Hence, the Bank cannot take any advantage of the judgment of Shivalik Fibres. At this stage, it would be relevant to refer that the sale Certificate issued in the format of Appendix ‘V’ [Refer Rule 9(6)] of Security Interest Enforcement Rule, 2002 which is as under:

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“ Sale Certificate (For immovable property)

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Whereas

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The undersigned being the authorised officer of the ……….. (name of the Institution) under the [Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)] and in exercise of the powers conferred under section 13 read with [rules 8 and 9] of the Security Interest (Enforcement) Rules, 2002 sold on behalf of the …………..(name of the secured creditor/ institution) in favour of ……..(purchaser), the immovable property shown in the schedule below secured in favour of the ………. (name of the secured creditor) by… .(the names of the borrowers) towards the financial facility …. ( description) offered by … (secured creditor). The undersigned acknowledge the receipt of the sale price [of Rs…….Rupees……..only] in full and handed over the delivery and possession of the scheduled property. The sale of the scheduled property was made free from all encumbrances known to the secured creditor listed below on deposit of the money demanded by the undersigned. ”

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Perusal of the format will show that it is issued under Rule 9(6) of the Rules wherein the Authorised Officer also acknowledges the receipt of the sale price in full and also handed over the delivery and possession of the Scheduled property. It means that when the sale certificate is issued, transaction is completed except for the Registration of the same under the provisions of Indian Registration Act. In the case of Prudent ARC Ltd. (supra) decided on 22.12.2022, the Division Bench of the Hon’ble Delhi High Court has held in Para 65 that-

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“Applying the same analogy, any amount that may have been deposited by the borrower with the secured creditor or with the Debt Recovery Tribunal after filing of the petition under Section 17 of the SARFAESI Act, must also be taken into consideration while computing the “amount of debt due” for purposes of entertaining the appeal, as contemplated under the second proviso of Section 18 of the SARFAERSI Act, 2002.

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Further it was held in para 74 that –

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“Applying the above conclusion to the facts of the instant case, it is held that the learned DRAT could not have completely waived the requirement of making a pre-deposit under Section 18 of the Act. It did so by relying on the order dated 26.12.2018 passed by the High Court, which has been held as per incuriam. Since against an original amount of debt of Rs. 16.61 Crores, Rs. 12.5 Crores has been recovered by the petitioner, it is held that only for the purposes of Section 18 of the Act, the amount of debt due to the petitioner will have to be treated as the remaining sum of Rs. 4.1 Crores. As a result, respondent No. 1 shall have to deposit 50% of the said amount to have its appeal heard by the learned DRATR. Needless to state that it shall be open to the learned DRAT to reduce this pre-deposit amount to 25% after recording reasons in writing for the said reduction.”

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We may find that in the case of Prudent ARC also the case of Parsn Medicinal Plant was not considered which is on the same point of law. Hence, the case of Prudent ARC could not be applicable in the facts of the present case.

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In the case of Sri Mohan Products (Supra), Division Bench of Hon’ble Chattishgarh High Court decided on 18.05.2022 held that the 50% of the amount to be deposited by the borrower for entertaining the appeal preferred before the DRAT in terms of the Second proviso of Section 18 of the SARFAESI Act is 50% of the amount of debt due from him as claimed by the secured creditors in the notice issued u/s 13(2) of the Act and never beyond. Further, in the said case also the amount received by way of auction sale was adjusted towards the second proviso of Section 18(1) of SARFAESI Act as was held in the case of Parsn Medicinal Plants (supra).

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Following the law laid down in the Parsn Medicinal Plant (supra), the Lucknow Bench of the Hon’ble Allahabad High Court has held in the case of Akash Ganga (supra) that where an amount more than the amount due from the borrower/ guarantor had already been realised by auction sale which stands confirmed and the possession of the property also had been handed over to the Bank which is utilizing the same or not utilizing the property having purchased the same in the said auction. Insistence on the deposit referred to under second Proviso of Section 18 of the Act would be contrary to the legislative intent.

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Learned Counsel for the Bank vehemently argued that the provisions of Section 18 of the SARFAESI Act are mandatory in nature which could not be diluted by extending the benefit of different case laws which is against the law laid down by the Hon’ble Apex Court in the case of Narayan Chandra Ghosh (supra). He has also placed reliance upon Para 71 of the ARC Prudent case (Supra) wherein it was held that the money recovered by a secured creditor is not to be treated as the equivalent of a deposit made under Section 18 of the SARFAESI Act.

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It is no doubt true that the provisions of Section 18 are mandatory in nature as has been held by the Hon’ble Apex Court in the case of Narayan Chandra Ghosh (supra). Therefore, in the case of Parsn Medicinal Plants Pvt. Ltd. (supra), Hon’ble Apex Court had further extended the benefit of the deposit received by the Bank by way of auction sale in favour of the borrower. It has no doubt to be taken into consideration when the sale is confirmed and possession of the secured assets is also delivered to the auction purchaser or the Bank as the case may be, hence, the case of Parsn Medicinal Plants Pvt. Ltd. is to be followed.

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Accordingly, application for waiver from making pre deposit under Section 18(1) of SARFAESI Act is liable to be allowed and I.A. No. 146 of 2022 is accordingly allowed.

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O R D E R

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