Disposed

Archana Nirman Private Limited v. Iifl Homr Finance Limited

DRAT13 Jun 2023

Case brief

AI extract

What is this about?

DrAT held that the second proviso to Section 18 of the SARFAESI Act is mandatory and applies even to appeals against interlocutory orders. Consequently, the appellant was directed to make a 50% pre-deposit of the debt due, failing which the appeal would not be entertained.

What did the court decide?

Appellant directed to deposit 50% of the debt due as on 20.10.2021 (Rs. 2,02,30,754/-) within six weeks; appeal listed for further orders.

Archana Nirman Private Limited versus Iifl Homr Finance Limited — Income Tax | DRAT (2023)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Misc. Appl. Dy No. 337 of 2023

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THE HON’BLE JUSTICE SHRI ANIL KUMAR SRIVASTAVA, CHAIRPERSON

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13.06.2023

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Archana Nirman Pvt. Ltd.

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… Appellant Vs.

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IIFL Home Finance Ltd. & Ors.

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….. Respondents

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For Appellant : Mr. Maloy Dhar, ld. Counsel. Mr. Shouvik Naskar, ld. Counsel.

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For Respondent : Mr. A. K. Dhandhania, ld. Senior Counsel Mr. Rajiv Maity, ld. Counsel. Mr. K. Deb, ld. Counsel.

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THE APPELLATE TRIBUNAL :

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An application u/s 18 of the SARFAESI Act, 2002 is filed by

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the appellant praying for waiver from making pre-deposit.

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Heard learned counsel for the parties and perused records.

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Learned counsel for the appellant has moved this application

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on the ground that application for impleading intervener was allowed by the learned DRT. E-auction sale was held and the property was sold and delivered to the auction purchaser. This appeal is arising from an interlocutory order. Learned counsel submits that there is no requirement of pre-deposit under second proviso to Section 18 of the SARFAESI Act.

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Learned counsel for the appellant submits that present appeal is filed against an order dated 24.03.2023 wherein an application for impleadment was allowed and appellant was directed to carry out necessary amendment. Learned counsel further submits that appeal is preferred against an interlocutory order. Admittedly appellant is a borrower. Property in question

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was sold. As appeal is preferred against an interlocutory order no pre-deposit is required under second proviso to Section 18 of the SARFAESI Act.

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Learned counsel for the appellant has placed reliance upon the judgement of Hon’ble High Court at Madras dated 30.09.2019 delivered in the case of M/s. Ashok Wood Works & Anr. Vs. Indian Overseas Bank in WP No. 22981 of 2019.

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Per contra, learned senior counsel for the respondent submits that second proviso of Section 18 of the SARFAESI Act, 2002 is mandatory in nature wherein an appeal filed u/s 18 of the Act only be heard after making pre-deposit. Learned senior counsel has placed reliance upon the judgement of Hon’ble Bombay High Court in the case of Vinay Container Services Pvt. Ltd. & Ors. Vs. Axis Bank, Mumbai in WP No. 8915 of 2021 decided on 16.11.2010 and Hon’ble Kerala High Court in the case of A.P.Varghese Vs. Chief Manager, Vijaya Bank reported in 2019 (4) KLT SN 94 (KER).

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Admittedly, appeal is preferred against an interlocutory order. Second proviso of Section 18 of the SARFAESI Act provides as under :

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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 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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Hon’ble Apex Court in the case of M/s Sidha Neelkanth Paper Industries Private Limited & Another Vs. Prudent ARC Limited & Ors [2022 LiveLaw (SC) 11] specifically

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observed and held in paragraph 13 of the judgement that :

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“13. As per Section 2(ha) of the SARFAESI Act, “debt” shall have the same meaning assigned to it in clause (g) of Section 2 of the Act 1993. As per section 2(g) of the Act 1993, “debt” means any liability inclusive of interest which is claimed as due from any person….., by a bank or a 17 financial institution during the course of any business activity undertaken by the bank or the financial institution, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on the date of the application. That the “debt” means any liability inclusive of interest. As per Section 18 of the SARFAESI Act, any person aggrieved, by any order made by the DRT under section 17, may prefer an appeal within thirty days to an appellate Tribunal (DRAT) from the date of receipt of the order of DRT. Second proviso to section 18 provides that no appeal shall be entertained unless the “borrower” has deposited with the Appellate Tribunal fifty percent of the amount of “debt due” from him, as claimed by the secured creditors or determined 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 18 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.” In the cited judgement Hon’ble Apex Court has also

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relied on the judgement of Narayan Chandra Ghosh Vs. UCO Bank [(2011) 4 SCC 548] wherein it was held

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that:

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“Thereafter, the Bombay High Court considered in detail Section 18. After considering the decision of this Court in the case of Narayan Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548, it was observed and held that provisions of Section 18, more particularly the second and the 21 third proviso thereto are mandatory in nature and that the DRAT has no power to grant full waiver of deposit. In paragraph 16, it is observed as under:

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“16. Section 18(1) clearly stipulates, any person aggrieved by any order made by the DRT under Section 17, may prefer an appeal to the DRAT within 30 days from the date of receipt of the order of the DRT. The 2 nd proviso to Section 18(1) stipulates that no appeal shall be entertained by the DRAT unless the borrower has deposited with it

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50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. The 3rd proviso to Section 18(1) gives a discretion to the DRAT to reduce the aforesaid amount to not less than 25%, provided the 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 creditors 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 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.”

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Hence, it is clear that pre-deposit is condition precedent to

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maintain an appeal filed u/s 18 of the SARFAESI Act. Now the issue arises as to whether the condition of pre-deposit would also be applicable in an appeal filed against an interlocutory order?

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Learned counsel for the appellant has placed reliance upon the Hon’ble Madras High Court judgement. This case relates to recovery of debt due under the Recovery of Debts and Bankruptcy Act, 1993 wherein Section 21 of said Act provides for making of pre-deposit which reads as under :

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— “21. Deposit of amount of debt due, on filing appeal. Where an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution or a consortium of banks or financial institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal seventy-five per cent. of the amount of debt so due from him as determined by the Tribunal under section 19:

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Provided that the Appellate Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section.”

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As far as Section 21 of the said Act is concerned it stands on a different footing. In second proviso to Section 18 of the

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SARFAESI Act the amount of debt due, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less is to be looked into, whereas in Section 21 of the said Act the recovery amount as determined by the DRT in an application filed u/s 19 of the said Act is to be looked into. Accordingly, appellant cannot take advantage of the decision of the Hon’ble Madras High Court.

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12. As far as judgement of Hon’ble Bombay High Court and Hon’ble Kerala High Court are concerned it was specifically held that the provision of second proviso to Section 18 of the SARFAESI Act would be applicable even in the appeal filed against an interlocutory order. In the case of Vinay Container Services Pvt. Ltd. (supra) in Para 13 it was held :

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For the aforesaid reasons, we hold that the requirement of pre-deposit under sub-section (1) of section 18 of the Act would also apply where an appeal is filed before the Appellate Tribunal against an interlocutory order passed by the Debts Recovery Tribunal under section 17 of the Act. The power of the Tribunal to pass an interlocutory order is ancillary to its jurisdiction under section 17 in view of the judgment of the Supreme Court in Mardia Chemicals Limited (supra). The provisions of section 18(2) cannot be so interpreted to mean that an interlocutory order passed by the Tribunal is not referable to the provisions of section 17. Indeed, it is in the context of proceedings under section 17 that the Tribunal assumes jurisdiction and it is in aid of that jurisdiction that the Tribunal can pass an interlocutory order. This position is consistent with the judgment of a Division Bench of this Court in Nashik Merchant's Co-operative Bank Ltd. v. Aditya Hotels Pvt. Ltd. , 2009(4) Mh.LJ. 183

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Whereas in the case of A.P.Varghese (supra) Hon’ble Kerala High Court held as under :

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Statute does not distinguish an interim order or a final order made in the SARFAESI application filed under Section 17 of the Act. Section 18 starts with an opening sentence that any person aggrieved, by any order by the Debt Recovery Tribunal, shall make a pre-deposit of 50% of the debt referred to in 2nd proviso to Section 18 of the Act. An order passed in an

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interim application is also falls within the ambit of Section 18 of the Act.

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Present appeal is preferred u/s 18 of the SARFAESI Act, 2002. Second proviso of Section 18 of the Act would be applicable in this case. Accordingly, I am of the view that predeposit is condition precedent for maintaining this appeal filed by the appellant.

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Outstanding due amount in the notice u/s 13(2) of the SARFAESI Act. is Rs.1,53,82,537/- while sale certificate was issued for an amount of 01.88 lakhs. In the e-auction sale notice total outstanding dues as on 20.10.2021 was Rs.2,02,30,754/-. Be that as it may appellant is required to deposit 50% of the debt due as on 20.10.2021 i.e. 50% of Rs.2,02,30,754/- as predeposit within a period of six weeks from today.

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List on 31.07.2023 for further orders.

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(Anil Kumar Srivastava, J) Chairperson

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Dated : 13.06.2023 / 08 /pkb

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Archana Nirman Private Limited v. Iifl Homr Finance Limited

Case brief

What is this about?

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Archana Nirman Private Limited v. Iifl Homr Finance Limited

Case brief

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