Disposed

M/s Mm International v. pegasus assets reconstruction pruvarte limited

DRAT15 Feb 2024IA/103/2024

Case brief

AI extract

What is this about?

The Debt Recovery Appellate Tribunal considered an application for waiver of the mandatory pre-deposit. While the tribunal noted arguable defects in the SARFAESI measures, it denied a waiver due to lack of proof of financial strain. It imposed a partial deposit of ₹60 lakhs and suspended further enforcement actions pending payment.

What did the court decide?

Appellants directed to deposit ₹60 lakhs by 15/03/2024 to stall further SARFAESI measures; failure to pay results in dismissal of the application.

M/s Mm International versus pegasus assets reconstruction… — Execution and Attachment | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson I.A. No. 103/2024(WoD)

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Appeal on Diary No. 311/2024

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Between

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M/s. M. M. International & Ors. … Appellant/s V/s.

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Pegasus Assets Reconstruction Pvt. Ltd. …Respondent/s

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Mr. Sunil Humbre, along with Mr. Pankaj Uttaradhi, Advocate for Appellant.

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Mr. Charles D’souza, along with Mr. Shadad Khan, Advocate for Respondent.

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-: Order dated: 15/02/2024:-

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The matter is taken up for hearing by way of a praecipe filed by Appellants for seeking urgent relief.

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The Appellants are in appeal impugning the order dated 13.02.2024 in I.A. No. 435/2024 in S.A. No. 487/2023 on the files of the Debts Recovery Tribunal-III, Mumbai (D.R.T) whereby the Ld. Presiding Officer refused to grant any protection to the Appellants concerning the Sarfaesi measures initiated by the Respondent under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (“the SARFAESI Act” for short). The Appellants are aggrieved and hence, in appeal.

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To entertain the appeal, the Appellants will first have to comply with the mandatory provisions of u/s. 18(1) of the SARFAESI Act. The Ld. Counsel appearing for the Appellants submits that the Sarfaesi measures are defective for the reasons

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stated in the application u/s. 17 of the SARFAESI Act.

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It is pointed out that the classification of the debt as NPA was illegal and contrary to the directions of the Supreme Court and the RBI guidelines. The debt was classified as Non-Performing Assets (NPA) on 04.01.2021 while the Hon’ble Supreme Court had specifically directed that where the debts were not already classified as NPA they could not have been classified as NPA between the period 28.02.2020 to 23.03.2021 and therefore, the subsequent actions of wrongfully classified the debt as NPA would also fail. It is further contended that the rate of interest is not mentioned in the demand notice and the name and designation of the authorized officer are also not stated.

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The Ld. Counsel appearing for the Appellants points out that the Appellants had sent an objection to the demand notice to which there was no response from the Respondent thereby violating the mandatory provisions u/s. 13(3A) of the SARFAESI Act. It is also stated that although the Respondents had stated that they had sent a reply to the objections, the application u/s. 14 filed before the CMM only states that there was no response from the debtors to the demand notice within the stipulated period of 60 days.

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The Ld. Counsel appearing for the Appellants further submits that they have a strong prima facie case and being under financial strain, the mandatory pre-deposit may be kept at the minimum of 25% of the amount demanded.

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In response to this, the Ld. Counsel appearing for the Respondent submits that the Appellants do not have any prima facie

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case. It is pointed out that the contentions regarding the classification of the account as NPA are further clarified by the RBI guidelines which indicate that if action is not taken, it could be subsequently taken under the provisions of the RBI guidelines and therefore, the demand notice which was issued only on 30.09.2021 causes no harm whatsoever to the debtors due to the classification of debt account as NPA on 04.01.2021.

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It is further contended by the Ld. Counsel for the Respondent that the Respondent has sent a reply to the objections submitted by the Appellants to Sec. 13 (2) notice which was returned as “addressee left” and therefore it should be deemed to be sufficient service under the provisions of Sec. 27 of the General Clauses Act.

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It is also contended by the Ld. Counsel appearing for the Respondent that the Appellants had come up with the OTS proposal not once, but three times and in the last OTS proposal they had offered to settle the debt for a sum of ₹ 1.70 crores which was rejected by the Respondent for the reason that the then outstanding amount was ₹ 2.37 crores.

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Having offered an OTS settlement Appellants are deemed to have waived their challenge to the Sarfaesi measures and therefore, they cannot go back by stating that they have the right to challenge the Sarfaesi measures in the S.A. and therefore, there is no prima facie case as pointed out by the Ld. Counsel appearing for the Appellants and it is also pointed out that the symbolic possession was taken on 07.09.2022 and it has not been challenged.

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Under the circumstances, the entire challenge to the Sarfaesi

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measures would fall to the ground and the Appellants would have to deposit 50% of the amount demanded. The Ld. Counsel also relies on the decision of the Hon’ble Bombay High Court Sony Mony Developers Pvt Ltd & Ors. Vs Asset Care & Reconstruction Enterprises & Anr. in Writ Petition No. 797/2024 wherein the decision of the Hon’ble Supreme Court of India Sidha Neelkanth Paper Industries Pvt. Ltd. & Ano. vs. Prudent ARC Ltd & Ors., 2023 OnLine SC 12 has been interpreted by stating that the pre-deposit should be on “the debt due”, which is inclusive of interest and therefore, the Appellants will have to deposit 50% of ₹ 2.37 Crores and not the amount which is demanded in the 13(2) notice.

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The Ld. Counsel appearing for the Appellants would rejoin by stating that as per Rule 3 of the Security Interest Enforcement Rules, the demand notice if not served on the debtor, will have to be published in the newspaper and by pasting on the conspicuous portion of the place where the borrower address is situated, which was not complied in the instant case. This would equally apply to the reply which has been sent by the Respondent u/s. 13(3A) and therefore, the presumption u/s. 27 General Clauses Act would not protect the Respondent in the instant case.

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This being an application for waiver of deposit, I am not delving deep into the adequacy of the compliance of Sec. 13 (3A) at this stage, which anyhow the D.R.T. will have to decide in the S.A. which is still pending consideration. It would be sufficient to indicate that the Appellants have an arguable case although they have not succeeded in establishing that they are under financial strain.

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Hence, taking the entire facts and circumstances into consideration, I hold that sum of ₹ 1,67,79,121.80 mentioned in the demand notice u/s. 13(2) as the threshold amount and the Appellants are directed to deposit a sum of ₹ 60 lakhs as pre-deposit. The Ld. Counsel appearing for the Appellant submits that a demand draft for ₹ 15 lakhs is being submitted today and the balance amount shall be paid in two instalments within a gap of three weeks and two weeks each as stated hereunder.

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Numbers of Instalments	Payment on or before
1^stInstalment (₹22,50,000/-)	07.03.2024
2^ndInstalment (₹22,50,000/-)	21.03.2024

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Given the payment of ₹ 15 lakhs the further Sarfaesi measures shall stand stalled till the next date of hearing. In default, the Appeal shall stand dismissed, without any further reference to this Tribunal.

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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 amounts are deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalised bank, initially for 13 months, and thereafter to be renewed periodically.

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With these observations, the I.A. is disposed of. The Respondent is at liberty to file a reply in the Appeal with an advance copy to the other side.

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Post on 08.03.2024 for reporting compliance regarding 1^st instalment.

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Sd/Chairperson

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rm-26

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M/s Mm International v. pegasus assets reconstruction pruvarte limited

Case brief

What is this about?

What did the court decide?

M/s Mm International v. pegasus assets reconstruction pruvarte limited

Case brief

What is this about?

What did the court decide?

What the court decided

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