Allowed

Ms Narsinha Sugar Pvt. Ltd. v. Rare Asset Reconstruction Ltd.

DRT18 Jun 2024SA/152/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed the securitization application filed by a sugar factory auction purchaser challenging the validity of a lease agreement granted by the Assignee to a third party. The court held the lease was void ab initio for lacking statutory compliance and directed the return of the deposited security amount with interest.

What did the court decide?

The lease deed dated 04.04.2024 is declared void. The deposit of Rs.4,38,75,000/- is to be returned to the applicant with 10% interest from the date of deposit.

Ms Narsinha Sugar Pvt. Ltd. versus Rare Asset Reconstruction… — Company and Corporate | DRT (2024)

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Presented on: 09 05 2024 Registered on: 09 05 2024 Decided on: 18 06 2024 Duration: Y M D 0 1 9

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IN THE DEBTS RECOVERY TRIBUNAL, at Aurangabad

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Securitization Application No. 152 of 2024

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M/s Narsinha Sugar Pvt Ltd 303, Western Edge-1 WE-Highway, Boriwali east, Mumbai 400066 Through its director, Sonal d/o Shankarrao Borkar R/o 602 Radhamukund Building, BP Road, Dhaisar(w), Mumbai 68

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… Applicants

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Versus

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Rare Asset Reconstruction Ltd through Its promoter 104-106, Gala Argos Beside Hari Krupa Tower, Gujrat Collage Road, Ellisbridge, Ahemdabad 380006

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The Liquidator, Narasimha Sahkari Sakhar Karkhana Ltd. Indapur, Taluka Washi, Dist Dharashiv, Office at Assistant Registrar Coop Societies, Washi, Near Civil Hospital, Taluka Washi, Dist Dharashiv

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Sitaram Maharaj Sakhar Karkhana (Kharadi), Ltd, Through its CEO, Mrs Rajlaxmi w/o Raviraj Gaikwad R/o Wadikuroli, Taluka Pandarpur, Dist Solapur

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.... Respondents

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[SBJ] (SA No.152/2024) Page 1 of 11

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Appearance :

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For Applicant Mr. Ganesh Jyotiram Kore - Advocate For Respondents No.1 Mr. Sanjeev Deshpande, Senior Counsel a/w Mr L R Tade For Respondent no 2 Mr. V.D. Sapkal, Senior Counsel a/w A N Sakhare Advocate For Respondents No.3 Mr Devkate Advocate

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Shri Vimal Gupta Presiding Officer

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Judgment Pronounced on: 18^th June 2024

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J U D G M E N T

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This Securitization Application is filed under sub-section (1) of Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short “the 2002 Act”) and the Security Interest (Enforcement) Rules (for short “the said Rules”) by applicants seeking declaration that the Lease deed dated 04.04.2024 executed between the respondents thereby leased out the Narasimha Sahkari Sakhar Karkhana Ltd. Indapur is illegal, Void and in violation of government resolution 04.09.2020, and the same be cancelled alongwith other reliefs.

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The Applicant submits that the Narasimha Sahkari Sakhar

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(SA No.152/2024) Page 2 of 11

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[SBJ]

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Karkhana Limited (hereinafter referred to as the “said Karkhana”) was established under the provisions of Maharashtra cooperative Society Act. The said sugar factory was ordered to be wound up for non-payment of the loans, borrowed by the Karkhana from banks, and the Assistant Registrar co-operative societies was appointed as Liquidator under section 103 of the Maharashtra Co-op. Society Act on 03.02.2018.

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As the said factory had not repaid the loan amount of the Bank, the Punjab and Maharashtra cooperative, bank Ltd, has initiated the proceedings under the SERFAESI act by notice under Section 13(2) on 06/05/2014 and possession was also taken by the bank on 12.08.2014.

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It is further submitted by the counsel for the applicant that the Respondent No. 1 has issued publication notice for auction of the said sugar factory on 03.12.2016 in the news Papers. Pursuant to the said notice, the present applicant has participated in the said auction process and quoted bid. The bank has accepted the bid of the applicant and issued letter of acceptance of tender on 04.01.2017 and accepted the bid price of Rs.17,55,00,000 /-. As per condition in the tender, the applicant has deposited 25% of the tender Amount i.e Rs.4,38,75,000/- through demand draft in favour of the bank on the same day.

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Immediately on 06.01.2017, the applicant requested the bank to provide the relevant mortgage documents to proceed further regarding the remaining amount, the bank has not provided the said

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[SBJ] (SA No.152/2024) Page 3 of 11

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information and the applicant could not deposited the remaining amount as it had to arrange for funds by showing those documents. The applicant was continuously pursuing the bank, for getting the relevant mortgage documents, but he same were not supplied to the Applicant and therefore they could not deposit the remaining amount. One meeting was also held between the applicant and the bank on 03.12.2020, the bank has informed to the applicant that they should pay/deposit the remaining amount of Rs.13,16,25,000/- along with interest at the rate 10% per annum, which came to RS.18,83,64,000/-

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Later on the said PMC bank was merged in unity, small finance bank Ltd, Mumbai in the year 2021 and thereafter the said unity bank was also merged into the present respondent No. 1 i.e RARE asset reconstruction Limited in the month of January 2024.

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In the meanwhile, the Government of Maharashtra has issued one GR dated 04.09.2020 whereby determined the norms for leasing sick sugar factories in the state, which are under liquidation. As per the said G.R. the procedure was prescribed for Leasing out the Karkhana. As per the Said GR, it is mandatory to implement through E-Tendering procedure while leasing out the Karkhana on rent basis. In the present case, no such procedure has been followed and one meeting the said Karkhana was leased out on rent basis to the Respondent No. 3, by executing the registered Lease deed in favour of respondent number 3 which is not legal and proper, the applicant has made grievance to the commissioner about the same,

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[SBJ] (SA No.152/2024) Page 4 of 11

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the commissioner has issued show cause notice to Liquidator, asking as to how he has taken the decision to lease out the Karkhana by executing the registered document.

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The applicant filed W.P. NO. 10899/ 2023 before the Hon’ble High Court Bench at Aurangabad for seeking direction to the respondents to proceed further as per the tender acceptance in favour of the applicant in the said Writ Petition notices were issued and the same is pending. The Applicant has also challenged the Lease Deed/Tripartite agreement dated 04.04.2024 before the Hon’ble High Court by filing W.P. No. 4219/2024, the same was withdrawn on 24.04.2024 by the applicant with liberty to approach the appropriate forum and filed the present S.A. before this Tribunal.

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It is further contented that the respondent can only be appointed as Manager of the secure assets & not leasee and he has only right to manage the business of the borrower and he has no right to take on lease Karkhana. Therefore, Prima facie the action of leasing out The Karkhana illegal and contrary to the provisions of SERFAESI act, 2002 in complete violation to Directions issued by State of Maharashtra & prays to set aside the same. It is vehemently argued that when in 2020 they were given offer to pay balance amount of 75% it shows that the 25% of bid amount was not forfeited and thus could not be forfeited now and if the Respondent no 1 wishes to proceed then the money should be returned to them alongwith 10% interest (which ARC was claiming from Applicant for balance

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[SBJ] (SA No.152/2024) Page 5 of 11

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amount).

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All the respondents appeared before the Tribunal in the present case. The Respondent No. 1 filed affidavit reply to the securitisation application. The Respondent No. 1 has raised the objection mainly on the ground that the application is time barred and the applicant has no locus to file the present application . The respondent submits that after gap of seven years of auction and more than four years of finally extended timeline , the applicant belated approach to the tribunal to delay the recovery proceedings. It is further stated that the original lenders have forfeited the 25% bid amount by resolution dated 21.01.2019, the said action was not challenged by the applicant and claims the application is not maintainable. The Respondent No. 1 further submit that the Respondent No.1 has appointed the respondent No.3 as Manager of the secured asset under the custodian agreement And the Karkhana was handed over to them. It is further submitted that the said Karkhana was not in position of the Liquidator and the government resolution dated 04.09.2020 is not applicable to the present case. The Respondent No. 1 specifically stated that the applicant has misconceived nature of custody in agreement dated 04.04.2024, the said agreement is not a lease deed. No independent right has been created in favour of Respondent No.3 except right to act as Manager and within four corners of the agreement dated 04.04.2024. The Respondent No.1 further submitted that the financial institutions/lenders in spite of delay has considered the request of the applicant sympathetically and extended the time, to

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[SBJ] (SA No.152/2024) Page 6 of 11

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deposit the balance amount, but the applicant failed to pay the balance amount. The Respondent No.1 further submits that the financial institution has given the final opportunity to the applicant in good faith to pay the balance amount on 31.12.2019, as last opportunity. The applicant again made request on 19.11.2020 to the bank and requested to accept the revise proposal. Therefore, the Respondent No.1 prays for dismissal of the Securitization Application.

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I have heard learned counsels on both the sides at length. There are certain facts which are undisputed which are as under :-

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The said Karkhana is Registered under the provisions of Maharashtra Co-operative Societies Act & Rules made thereunder. The Said Karkhana has borrowed Loan from various Banks / Financial Institutions & due to non-payment of Loan the Karkhana Went in Liquidation, therefore the Registrar of Co-operative Societies has appointed Liquidator on the said Karkhana as Per Section 103 of the Maharashtra Co-operative Societies Act.

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The Bank has also initiated proceeding under the SERFAESI Act2002 for recovery of Loan Amount. The Said Karkhana was put to on Auction by publication in News Paper on 03.12.2016. The Applicant participated in the tender process and being the successful bidder, the Applicant has deposited 25% of tender amount Rs.4,38,00,000/- on 02.01.2017. The Bank has issued the Tender Acceptance Letter on 04.01.2017.

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[SBJ] (SA No.152/2024) Page 7 of 11

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The Applicant sought Documents from said Karkhana on 06.01.2017, but the same were not supplied by them. Therefore, the Applicant has not deposited the remaining amount within stipulated period and it remains unpaid. The Bank has sympathetically extended the time to deposit the remaining amount & lastly the Bank vide its letter dtd. 03.12.2020 has given the Proposal to the Applicant to Deposit an amount of Rs.18,83,64,000/- . The Deed of assignment was executed by Original Lenders in favour of the Respondent No. 1 & stepped in the Shoes of “Secured Creditor” on 25.01.2024. The Resp. No. 1 executed Custodian-Tri-Party Agreement & given the Said Karkhana on lease for period of 5 years on fixed charges 1.1 Crore to the Resp. No.3 without any compliance of 13(4) of Securtisaton Act.

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W.P. No. 10899/2023 filed by Petitioner for seeking direction to the Concern authority to proceed further acceptance letter in favour of Applicant and complete the procedure by handing over possession of said karkhana before the Hon’ble High Court Bench at Aurangabad. In the said Writ Petition Notices were issued and the Respondents appeared & the Said is pending. Writ Petition No. 4219/2024 filed by Applicant for Cancellation of Lease Deed Dtd. 04.04.2024 & not to hand over possession of the Said karkhana to Resp. No. 3 herein before the Hon’ble High Court Bench at Aurangabad. The said Writ Petition was withdrawn by the Applicant on 24.04.2024 with liberty to avail the remedy permissible in law and filed the present Securitization Application.

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[SBJ] (SA No.152/2024) Page 8 of 11

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The argument by Respondent no 2 questioning the jurisdiction is not tenable in view of Hon’ble High Court permitting the Applicant to approach the DRT. Any squandering away of secured asset on which action under Securtisaton is taken comes under DRT jurisdiction. He also submits that it is cooperative of farmers so it becomes more important that all the action are transparently taken to safeguard their interest.

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The agreement with liquidator to lease out the property is not tenable as it is not appropriately covered under provisions of Act. The said lease deed is executed without inviting any tenders form the public and speaks of some dealing which otherwise is not permitted under law. If at all the karkhana was to be given on lease then it should have been done as per rules under Securtisaton Act. The borrower has no right to be party to such agreement one the possession is with ARC.

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The submission of Respondent no 2 that the matter was listed under the category of Arguments was done mistakenly by Court master as the matter was heard earlier and Respondent no 2 failed to address any arguments on such date when other counsels made arguments and matter was for pronouncement of orders. However, matter was again heard and R2 was permitted to file written notes of arguments as the same were not filed by them. The Presumption was that the arguments of R1 & R3 have covered the arguments of R2 but when a question was raised about issuance of public notice then this changed attitude came.

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[SBJ] (SA No.152/2024) Page 9 of 11

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The Tribunal is satisfied that the lease deed executed is sans the legal provisions of Securtisaton Act more so when the Applicants were told to deposit balance amount as late as in 2020 for auction conducted in 2016 thus without refunding the amount he Respondent no 1 could not have proceeded.

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Hence, I pass the following order:

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O R D E R

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A. Securitisation Application No.152 of 2024 is allowed in following terms

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(i) The lease deed dated 04.04.2024 is without legal backing under Securitisation Act and as such is ultra virus and void ab initio.

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(ii) Before proceeding under Securitisation Act the Respondent no 1 is under legal duty to refund the amount deposited by the Applicant ass the right forfeit get extinguished upon expiry of 15 days period as per law and the Respondent no seeking the deposit after 4 years itself 0confirm the same.

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(iv) Amount deposited of Rs.4,38,75,000/- by the auction purchaser be returned alongwith accrued interest of 10% from the date of deposit of such amount, ( 10% is the interest which Respondent no1 claimed from applicant herein ).

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B. The above orders will not give effect till appeal period is over.

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C. Interim applications, pending if any, stand disposed of

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[SBJ] (SA No.152/2024) Page 10 of 11

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accordingly.

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File be consigned to the Record Room.

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The Registrar is directed to send copy of the Judgment to the

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E. applicants and respondents.

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Judgment be uploaded on the official website

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( Vimal Gupta ) Aurangabad PRESIDING OFFICER, Date : 18/06/2024 DEBTS RECOVERY TRIBUNAL, Aurangabad.

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Uploaded on 18.06.2024

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[SBJ] (SA No.152/2024) Page 11 of 11

Ms Narsinha Sugar Pvt. Ltd. v. Rare Asset Reconstruction Ltd.

Case brief

What is this about?

What did the court decide?

Ms Narsinha Sugar Pvt. Ltd. v. Rare Asset Reconstruction Ltd.

Case brief

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What did the court decide?

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