Partly allowed

Posco Poggennamp Electrical Steel Private Limited v. Uco Bank

DRAT10 May 2024IA/295/2024

Case brief

AI extract

What is this about?

In an appeal challenging the DRAT's refusal to grant protection against SARFAESI action and the grant protection before payment of pre-deposit, the Bench held that appellants are not entitled to a 25% waiver. The Bench directed a ₹4 crore pre-deposit and stayed further SARFAESI action by the 1st Respondent pending compliance. The stay does not affect the 2nd Respondent.

What did the court decide?

Directed deposit of ₹4 crores as pre-deposit. Stayed further SARFAESI action by 1st Respondent pending compliance. Appeal disposed of with liberty to file reply.

Posco Poggennamp Electrical Steel Private Limited versus Uco… — Banking and Recovery | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr. Justice Ashok Menon, Chairperson I.A. No. 295/2024 (WoD)

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Appeal on Diary No.932/2024

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Between Posco-Poggenamp Electrical Steel Pvt. Ltd & … Appellant/s Ors.

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V/s.

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UCO Bank & Anr. …Respondent/s

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Mr. Gaurang Kinkhabwala, along with Ms. Sheetal Shah, i/b M/s. Mehta & Girdharlal, Advocate for Appellants.

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Mr. Meghnath Navlani, along with Mr. Shashikant Gaikwad, i/b M/s. SSP Legal, Advocate for Respondent No. 1.

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Mr. Rajesh Nagory, i/b Uma Fadia, Advocate for Respondent No. 2.

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-: Order dated: 10/05/2024:-

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

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The Appellants are in appeal impugning the order dated 10.04.2024 in S.A. No. 863/2023 on the files of Debts Recovery Tribunal – II, Ahmedabad (D.R.T) declining to grant any protection as against the notice received for dispossessing them on 23.12.2023 under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“ SARFAESI Act”, for short) for recovery of debt allegedly due from them on account of a cash credit facility advanced by the 1^st Respondent UCO Bank.

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The appellants are aggrieved and hence, in appeal. They admit to the availing of various facilities from the 1^st respondent bank. Facilities were also availed from other sources, and the second Respondent Axis Bank is yet another creditor which has facilitated

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the appellants with the loan. The appellants defaulted in repayment of this cash credit facility as a result of which a demand notice was issued u/s. 13(2) on 10.06.2021 demanding a sum of ₹ 11,39,60,366.40 as on 31.05.2021. The appellants said an objection to that demand notice raising various grounds.

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It is contended that the appellants are an MSME unit entitled to the benefit during the pandemic. It is further contended that the moratorium was not granted and the details of the outstanding amount are not explained. The rate of interest was fluctuating but only an aggregate amount is given in the notice without giving a breakup of the principal amount and interest. Despite having received the notice the 1^st respondent bank did not respond to that objection and therefore, the bank has allegedly violated the mandatory provisions under Sec.13(3-A) and therefore, the Sarfaesi measures would fall.

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The symbolic possession was taken on 10.01.2022 and thereafter, an application was filed u/s. 14 before the Chief Judicial Magistrate (CJM) on 30.09.2023 and an order was obtained to take physical possession of the property on 25.11.2023. It is contended that the order u/s. 14 is not sustainable because the Ld. Chief Judicial Magistrate (CJM) did not discuss anything about the ninepointer affidavit which was submitted along with the application and therefore, no application of mind concerning the points was there, and hence, the order is defective.

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The Ld. Presiding Officer was not enthused with the submissions made by the Appellants. The main reason being that the 1^st appellant had made an undertaking before the D.R.T on

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19.12.2023 offering to pay the entire dues on this cash credit facility to the 1^st respondent bank and requested for the Sarfaesi measures to be stalled for 90 days. The bank did not accept that proposal readily but submitted that the appellants were at liberty to approach the bank for a settlement.

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Recording that fact the Ld. Presiding Officer directed the appellants to approach the 1^st bank for a settlement but did not grant any protection. Then the 2^nd Respondent Axis Bank also intervened by stating that they have a pari passu charge over the secured assets. They have also filed an O.A. for recovery of the amount due to them from the appellants and have also proceeded under the SARFAESI Act for recovery of the amount due to them. The intervention application was allowed and Axis Bank was impleaded as an additional respondent. In the meanwhile UCO Bank proceeded with issuance of the sale notice on 27.03.2024 intending to conduct an e- auction on 08.05.2024.

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It is submitted across the bar that the e-auction was not proceeded with and has been cancelled because, after the orders passed by the D.R.T, the appellants approached the Hon’ble High Court of Gujarat and got some protection which was further extended till the 15^th instant and therefore, the appellants apprehend that after the stay granted by the Hon’ble High Court concluded, the 1^st Respondent may again proceed to sell the property.

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The appellants would contend that they have a very good prima facie case. They are also under financial strain which is attempted to be supported by the income tax returns of the appellants and therefore, they seek a waiver of 25% of the mandatory

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pre-deposit, exercising jurisdiction of this Tribunal under the third proviso of Sec. 18(1) of the SARFAESI Act.

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The 1^st Respondent had sought time to file a reply but no reply has been filed so far. The appellants want urgent attention to this application for waiver of deposit apprehending that the 1^st Respondent may proceed with the sale of the property. The 2^nd Respondent Axis Bank has appeared and filed a reply stating that their action may be protected and that any order passed against the 1^st Respondent may not preclude them from proceeding against the property under the SARFAESI Act or the provision of the RDB Act. 10. The Ld. Counsel appearing for the appellants submits that the prayer that they have sought is only concerning action taken by the 1^st Respondent bank under the SARFAESI Act and no relief whatsoever is sought against the 2^nd Respondent. 11. considering all these facts, I find that the Ld. Presiding Officer had refused to grant any protection to the appellants mainly on the ground that there was an undertaking given by them to clear the entire debt and therefore, they have waived their challenge to the Sarfaesi action based on the decision of Hon’ble Supreme Court in Arce Polymers Pvt. Ltd. V/s. M/s. Alphine Pharmaceuticals Pvt. Ltd and Ors in Civil Appeal No. 7372/2021 and the decision of the Bombay High Court in Deepika Paresh Thakkar V/s. Gruh Finance Ltd and Ors in Writ Petition No. 873/2015.

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The undertaking was with a rider that the appellants were willing to pay the amount subject to being granted protection for 90 days. Given the submission made by the Counsel for the 1^st

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Respondent bank, the D.R.T did not pass any orders and therefore, it cannot be said that the undertaking was accepted by the D.R.T.

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The Ld. Counsel appearing for the respondents submits that the bank had proceeded based on the appellants approaching them for a settlement and had agreed to grant protection to the Appellants provided their payment was made in tranches. They were asked to produce a notarized submission of the OTS proposal for it to be accepted and submitted before the D.R.T. However, the appellants did not submit any OTS proposal in the form of a notarized application and therefore, nothing was submitted before the D.R.T concerning the acceptance of the OTS proposal. However, the Ld. Counsel for the 1^st Respondent submits that the bank did not proceed with further Sarfaesi action for 90 days as was agreed, but despite that the appellants did not make any payment as undertaken and therefore, they were in breach and hence, the order of the Ld. Presiding Officer cannot be faulted.

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It is adequately clear that there was no concluded OTS proposal accepted by both parties and approved by the D.R.T and therefore, there is no binding nature on such an acceptance. Nor can it be given the colour of consent terms based on which the Sarfaesi action was stalled. Therefore, I find that the impugned order appears to be prima facie erroneous. As regards the other challenges raised by the appellants about the bank not responding to their objection as required u/s. 13(3-A) and also not giving a bifurcation in the demand notice u/s. 13(2) there appears to be a prima facie case in favour of the appellants, but I am not concluding on those findings because it will have to be ultimately decided by the D.R.T in the S.A.

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The Ld. Counsel appearing for the respondents have pointed out that even though the 1^st Appellant is running at a loss as shown from the income tax returns, the income tax returns of Appellant Nos. 2 and 3 indicate that their income has been steadily rising and that they are not as impecunious as is attempted to be made out and therefore, it cannot be said that they are under financial strain.

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On taking the entire facts and circumstances into consideration, and on hearing the rival arguments, I find that the appellants are entitled to some concessions but not to get a waiver of 25% of the pre-deposit. The threshold amount is taken to the amount mentioned in the demand notice u/s. 13(2) and on that basis the appellants are directed to deposit a sum of ₹ 4 crores as predeposit. The Ld. Counsel appearing for the appellants submits that a sum of ₹ 1 crore is being deposited by way of a demand draft today and the balance of ₹ 3 crore shall be deposited in two tranches within a gap of three weeks each, as stated hereunder.

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Numbers of Instalments	Payment on or before
1^stInstalment₹1.5 crores	31.05.2024
2^ndInstalment₹1.5 crores	21.06.2024

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Given the payment made today, the further Sarfaesi action based on the demand notice issued by the 1^st Respondent concerning the secured assets 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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It is made clear that this order does not concern the Sarfaesi action taken or intended to be taken by the 2^nd Respondent Axis Bank.

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The amount shall be deposited in the form of a Demand Draft/ RTGS 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 Respondents is at liberty to file a reply in the Appeal with an advance copy to the other side.

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Post on 03.06.2024 for reporting compliance regarding payment of 1^st instalment.

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Sd/Chairperson

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rm-6

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Posco Poggennamp Electrical Steel Private Limited v. Uco Bank

Case brief

What is this about?

What did the court decide?

Posco Poggennamp Electrical Steel Private Limited v. Uco Bank

Case brief

What is this about?

What did the court decide?

What the court decided

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