Partly allowed

M/S Dolce Foods Pvt. Ltd. v. Debts Recovery Appellate Tribunal at Allahabad

Uttarakhand HC15 Nov 2021WPMS/1149/2021

Case brief

AI extract

What is this about?

This High Court distinguished the Delhi High Court's Prudent ARC judgment, holding that since a significant debt remains outstanding, petitioners must deposit 25% of the unrecovered amount despite prior auctions, while quashing impugned orders restricting the hearing.

What did the court decide?

Impugned orders quashed; petitioners directed to deposit 25% of the outstanding amount of 70,52,180/- within 45 days.

M/S Dolce Foods Pvt. Ltd. Vs Debts… — Contract and Commercial Disputes | Uttarakhand HC (2021)

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IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL

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Writ Petition No. 1149 (MS) of 2021

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M/s Dolce Food Pvt. Ltd.

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and others. .......….......Petitioners.

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-Versus-

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Debt Recovery Appellate Tribunal and others. ……...Respondents.

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Present:

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Shri Vivek Kumar Singh and Shri Pradeep Chamyal, Advocate for the petitioners. Shri Ashish Joshi, Advocate for respondent no. 2.

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Shri Shankar Agarwal, Advocate holding brief of Shri Sagar Kothari, Advocate for respondent no. 3.

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Sri S.K.Mishra, J.

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Date of Hearing and Judgment: 15.11.2021

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1. Heard Shri Vivek Kumar Singh, learned counsel for the petitioner, Shri Ashish Joshi, Advocate for respondent no. 2 / Bank and Shri Shankar Agarwal, Advocate holding brief of Shri Sagar Kothari, Advocate for the respondent no. 3.

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2. This writ petition is filed under Articles 226 and 227 of the Constitution of India with a prayer to issue a writ of Certiorari quashing the order impugned dated 21.11.2019 (Annexure No. 14 to the writ petition) and order dated 19.03.2021 (Annexure No. 19 to the writ petition) passed by Debt Recovery Appellate Tribunal (hereinafter referred to as “Tribunal” for brevity) and further to issue a writ of Mandamus directing the Tribunal to hear the appeal on merits, in accordance with law, allowing the waiver application of the petitioners, which was filed for hearing the appeal without making statutory deposit, as envisaged in second

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proviso to sub-Section (1) of Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act” for brevity).

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3. It is not disputed that initially, on 31.10.2014 a first demand notice under Section 13 (2) of the SARFAESI Act was issued against the petitioners demanding a sum of Rs. 2,64,51,383.50/-. Against the said demand notice, the petitioners, on 14.10.2016, deposited Rs. 31,49,604/- with the respondent Bank. A second demand notice was issued by the respondent Bank demanding Rs. 1,99,86,784.90 and on 13.12.2017, the land of the petitioners was put to auction and Rs. 66,00,000/- were realized by the Bank. Then, an appeal was filed by the petitioners before the Tribunal on 25.10.2018. On 17.11.2018, the plant and machinery were put to auction and a total sum of Rs. 31,85,000/- were recovered and adjusted towards loan. Now, the remaining outstanding amount of loan to be paid by the petitioners is Rs. 70,52,180.

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4. Learned counsel for the petitioners filed an application before the Tribunal for waiver of the deposition of the statutory amount. The Tribunal took the matter into consideration and came to the conclusion that petitioners should be directed to deposit 25% of the outstanding amount, as on the time of filing of appeal, which is Rs. 30,00,000/- in the form of demand draft on or before the next date. However, petitioners filed another application for recall of the aforesaid order and for complete waiver of the statutory deposit. The learned Tribunal did not accede to the same and directed that 25% of the amount due should be deposited by the petitioners.

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5. Learned counsel for the petitioner has relied upon the judgment dated 22.12.2020 passed by the Division Bench of the

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Delhi High Court in WP (C) No. 6060 of 2020 (Prudent ARC Ltd. Vs. Sidha Neelkanth Paper Industries and others) wherein the Delhi High Court, after taking into consideration various judgments, has summed up the conclusion, which reads as under:

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“(a) Pre-deposit contemplated under the second proviso of Section 18 of the SARFAESI Act, 2002 is mandatory in nature and cannot be waived by the learned DRAT.

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(b) While computing the "amount of debt due", the amount of debt claimed by the secured creditor in its notice issued under Section 13(2) of the Act, shall be relevant and any future interest need not be taken into consideration for purposes of determining, "the amount of debt due as claimed by the secured creditor", in cases where the DRT has not determined the liability of a borrower.

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(c) The interest component shall be ignored only for the purposes of Section 18 of the Act. This judgment shall not affect the rights of the secured creditors to claim interest from the borrower, for recovery of amounts due under the RDDB Act.

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(d) Any amount that has been repaid by the borrower and/or recovered by a secured creditor after filing of the petition under Section 17, shall stand to the benefit of the borrower while computing the "amount of debt due" under the second proviso to Section 18 of the SARFAESI Act, 2002.”

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6. He has further drawn attention of this Court to the order waiving the entire deposit passed by Chairman of the Tribunal wherein the amount recovered is more than the amount due as has been reflected in the notice under Section 13 (2) of the

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SARFAESI Act. He would further argue that the amount recovered by the Bank, after filing of the appeal, from auction of the property of the petitioners shall stand to the benefit of the petitioners, therefore, in view of the judgment passed by the Delhi High Court in the case of Prudent ARC (supra) which is the judgment quoted above, the requirement of pre-deposit is satisfied, as recovery has been made by the secured creditor by auction of the property, as such, the petitioners are not required to deposit any amount towards the pre-deposit for entertaining into the appeal.

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7. The facts of the case cited by the learned counsel are different from this case. In that case, the entire money has already been recovered, so the Tribunal came to the conclusion that prerequisite deposit need not to be made compulsory. However, the facts of the present case are that entire has not been recovered, rather an amount of Rs. 70,52,180/- is still outstanding against the petitioners, as per calculations appearing paragraph 46 of the writ petition.

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8. In that view of the matter, there cannot be a finding of this Court that the Tribunal is treating the petitioners with discrimination by asking him to deposit 25% of the outstanding dues. However, this Court is of the view that Rs. 70,52,180 is still to be recovered and rest of the amount has already been recovered by sale of land and plant & machinery on which business was established, therefore, 25% of Rs. 70,52,180/- should be deposited by the petitioners before the Tribunal.

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9. Learned counsel for the petitioners has very emphatically and vehemently argued that the amount of Rs. 70,52,180/- is not relevant for the purpose of statutory deposit. In fact, Rs. 1,99,86,784.90/- can never be disputed in any court. As 50% of

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that amount has already been deposited, therefore, the petitioners should be exempted from the statutory deposit, as required under the second proviso of Section 18 (1) of the SARFAESI Act.

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10. This Court is not in agreement with the submission made by learned counsel for the petitioners. The purpose of legislating the SARFAESI Act is to enable the Banks and other Financial institutions to enforce the security interest without having to take recourse of the courts of law. The objects for enacting the SARFAESI Act reads as under:

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"The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with international prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narsimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These committees, inter

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alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 200 was promulgated on 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction."

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11. One of the objects of promulgating the SARFAESI Act is speedy disposal of the recovery cases initiated by the Bank or the cases initiated by borrowers challenging the actions of the financial institutions. In that view of the matter, this Court is of the view that the Delhi High Court has not observed that recovery made after notice under section 13 (2) should also be reduced from the amount due.

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12. This Court, keeping in view the fact that there is an allegation that the land has been sold to a single bidder, who is wife of the Chartered Accountant giving services to the Punjab National Bank and the fact that bank has already recovered a sum of Rs. 1,29,34,604/- out the demanded debt amount of Rs. 1,99,86,784.90/-, is of the opinion that 25% of Rs. 70,52,180/- should be deposited by the petitioners within 45 days from today.

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13. Ordered accordingly. Impugned orders are quashed.

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14. In case, the petitioners fail to comply with the order passed by this Court today, then this order shall have no effect.

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15. With the above observations, writ petition stands disposed of. Urgent copy of this judgment be provided to the counsel for the parties, as per Rules. No order as to costs.

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(S.K.Mishra) Judge

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SKS

M/S Dolce Foods Pvt. Ltd. v. Debts Recovery Appellate Tribunal at Allahabad

Case brief

What is this about?

What did the court decide?

M/S Dolce Foods Pvt. Ltd. v. Debts Recovery Appellate Tribunal at Allahabad

Case brief

What is this about?

What did the court decide?

What the court decided

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