Disposed

Ms Sri Abhishek Steel and Power Ltd. v. Asset Reconstruction Company Indai Ltd.

DRAT13 Apr 2023

Case brief

AI extract

What is this about?

The DRAT disposed of an application for waiver of pre-deposit. Relying on the Supreme Court judgment in Sidha Neelkanth Paper Industries, the Tribunal held that a borrower challenging the auction sale cannot use sale proceeds to meet the pre-deposit obligation. The Tribunal directed the appellant to deposit 50% of the debt determined by the DRT, disallowing the request for a 25% reduction.

What did the court decide?

Appellant directed to deposit 50% of Rs.75,37,64,534.00 as pre-deposit within six weeks or face dismissal of the appeal.

Ms Sri Abhishek Steel and Power Ltd. versus Asset… — Banking and Recovery | DRAT (2023)

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT KOLKATA

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Diary No. 446 of 2019

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THE HON’BLE MR. JUSTICE ANIL KUMAR SRIVASTAVA CHAIRPERSON

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13.04.2023 M/s. Abhishek Steel & Power Limited & 4 Others … Appellants -Vs-

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Asset Reconstruction Company (India) Limited & Another … Respondents

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Mr. A. K. Dhandhania, Learned Senior Counsel, with Mr. Kaushik Banerjee and Mr. Jewel Biswas, Learned Counsel for the Appellant

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Mr. Joy Saha, Learned Senior Counsel with Mr. Subhajit Saha, Learned Counsel for Respondent No. 1

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Mr. Om Narain Rai with Mr. Prashant Agarwal, Learned Counsel for Respondent No. 2/Auction Purchaser

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THE APPELLATE TRIBUNAL :

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I.A. 517 of 2019

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This is an application for waiver for making pre deposit under Section 18 of the SARFAESI Act.

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It is stated that notice under Section 13 (2) of the SARFAESI Act 2002 was issued by the Canara Bank for an amount of Rs.45,29,09,819.59 that was assigned to the Appellant. The secured assets were auctioned for an amount of Rs.53,80,00,000.00. Accordingly, an amount, more than the required amount, is already received by the Respondent No. 1. Appellant do not have any source to pay any amount as pre deposit.

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Objections were filed by Respondent No. 1 as well as Respondent No. 2.

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I have heard the Learned Counsel for the parties and perused the record.

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Appellant has preferred this appeal against an interlocutory order passed by the Learned DRT on 3^rd December, 2019 wherein the delay of 649 days in filing the application under Section 17 of the SARFAESI Act could not be explained by the Appellant, accordingly, the application was rejected.

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Appellant filed an application for waiver for making pre deposit under Section 18 of the SARFAESI Act.

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Learned Counsel for the Appellant submits that the appeal was filed in the year 2019, thereafter, recently the Hon’ble Supreme Court has delivered a judgment on 5^th January, 2023 in M/s Sidha Neelkanth Paper Industries Private Limited & Another Vs. Prudent ARC Limited & Others [2022 LiveLaw (SC) 11]. Learned Counsel further submits that the O.A. No. 1792 of 2017 (Old Number 124 of 2014) of DRT-I, Hyderabad was decided by the Learned DRT Hyderabad on 9^th August, 2018 wherein the following decree was passed :

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“The Defendant Nos. 1 to 4 are jointly and severally liable to pay the Applicant Company a sum of Rs.55,25,57,889.42p under OCC Loan and Defendants No. 1 to 5 are jointly and severally liable to pay a sum of Rs.6,98,84,431.17ps under Term Loan, minus Rs.53.80 Crore from out of the total O.A. claim, realized by Applicant Company by sale of Schedule B to G properties under Securitisation Act proceedings, together with future interest @ 16.70% p.a. simple from the date of filing O.A. till the date of realization”.

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Learned Counsel submits that in terms of the decree passed by the Learned DRT, Appellant is liable to pay at the most Rs.12,00 crore approximately which also includes the up-dated interest. Learned Counsel further submits that 2^nd Proviso to Section 18 of the Act provides that the borrower is liable to deposit 50% of the amount of

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debt due from him as claimed by the secured creditor or determined by the Debts Recovery Tribunal, whichever is less.

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Learned Counsel submits that since debt determined is less than the debt due from him, he is liable to make pre deposit of 50% of Rs.12.00 crore only. It is further submitted that since the property of the Appellant has already been auctioned and he has no other source, hence the amount may be reduced to 25%.

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Per contra, Learned Counsel for the Respondent No. 1 submits that in view of the law laid down by the Hon’ble Apex Court in M/s Sidha Neelkanth Paper Industries Private Limited & Another Vs. Prudent ARC Limited & Others [2022 LiveLaw (SC) 11] Appellant is under a legal obligation to deposit 50% of the debt due, inclusive of up-dated interest. Learned Counsel further submits that in view of the judgment of the Learned DRT Hyderabad, passed in O.A. 1792 of 2017 dated 9^th August, 2018, an amount of Rs.75,37,64,534.00 is due (inclusive of interest); an amount of Rs.53,80,00,000.00 was deducted from the total amount as determined by the Learned DRT. The detailed chart is annexed with the affidavit as Annexure B wherein total calculation is shown.

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As far as question of pre deposit is concerned, it is not in dispute that the Hon’ble Apex Court in the case of M/s Sidha Neelkanth Paper Industries Private Limited & Another Vs. Prudent ARC Limited & Others [2022 LiveLaw (SC) 11] has specifically observed and held in paragraph 13 of the judgment 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”

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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.”

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In the cited judgment Hon’ble Apex Court has also relied on the judgment of Narayan Chandra Ghosh Vs. UCO Bank [(2011) 4 SCC 548] wherein it was held 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

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Section 18(1) stipulates that no appeal shall be entertained by the DRAT unless the borrower has deposited with it 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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“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 not accept the said submission by observing that it would 22 be ludicrous to suggest that the money realised by the bank from sale of the secured assets could be used by the borrower to fulfil the condition of pre-deposit under Section 18. The Bombay High Court has observed that it would be a different matter if the sale is accepted and confirmed by the borrower. The Bombay High Court further observed that the borrower cannot be permitted to use the sale proceeds received from the sale of the subject properties to be adjusted/given credit for in the application for waiver of deposit and at the very same time challenge the sale of very same subject properties.

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The said decision of the Bombay High Court has been confirmed by this Court as the special leave petition preferred impugning the same, has been dismissed. Even otherwise, we are in full agreement with the view taken by the Bombay High Court in the case of Eskays Construction Pvt. Ltd. (supra). We are of the firm opinion and view that in a case where the borrower challenges the auction sale, thereafter it will not be open for the borrower to pray to use the sale proceeds received from the sale of the secured properties to be adjusted/given credit in an application for waiver of pre-deposit.”

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As far as the question of sale proceeds received out of the auction of the secured assets is concerned, Appellant cannot take advantage of the sale proceeds in view of the law laid down in M/s Sidha Neelkanth Paper Industries Private Limited (supra).

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In the present case, a decree was passed by the Learned DRT on 9^th August, 2018 wherein an amount of Rs.55,25,57,889.00 plus Rs. 6,98,84,431.17 total Rs.62,24,32,320.00 was decreed. Direction was also issued to deduct Rs.53,80,00,000.00 from this amount. After deduction of this amount, as per the statement submitted by the Respondents, an amount of Rs.75,37,64,534.00, inclusive of interest, is due to the Appellant. No rejoinder to the calculation, submitted by the Respondent, is filed by the Appellant. Hence, no mistake is found in calculation filed by the Respondent. Accordingly, the Appellant is liable to make pre deposit of Rs.50% of this amount under Proviso 2 of the Section 18 of the SARFAESI Act 2002.

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Accordingly, I.A. 517 of 2019 is disposed of with a direction to the Appellant to deposit 50% of Rs.75,37,64,534.00 as pre deposit within a period of six weeks; failing which, the appeal shall stand dismissed.

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List on 15^th June, 2023 for further orders.

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(Anil Kumar Srivastava,J) Chairperson

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Dated: 13^th April, 2023 01/ac

Ms Sri Abhishek Steel and Power Ltd. v. Asset Reconstruction Company Indai Ltd.

Case brief

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What did the court decide?

Ms Sri Abhishek Steel and Power Ltd. v. Asset Reconstruction Company Indai Ltd.

Case brief

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