A Division Bench of the Delhi High Court recently ruled that an interim order granted by the Debt Recovery Appellate Tribunal (hereinafter referred to as “DRAT”) during the pendency of an appeal was not necessary to be extended in pursuance of remand, without a prima facie finding on the necessity of such an order. The Bench asserted that the mere occurrence of remand did not automatically dictate the continuation of interim orders, underscoring the significance of establishing a prima facie case for such relief.
Brief Facts:
The dispute stemmed from a loan transaction between Deco Industries India and Karnataka Bank. To secure the repayment of the loan, Deco Industries had created equitable mortgages on two of its properties. Subsequently, due to default in repayment, Karnataka Bank assigned the financial interest related to Deco Industries to JM Financial Assets Reconstruction Company Ltd. This gave rise to a series of legal proceedings, including Securitisation Applications and appeals before the Debt Recovery Tribunal (hereinafter referred to as “DRT”) and DRAT.
Contentions of the Parties:
Deco Industries contended that the nature of the transaction between Karnataka Bank and JM Financial was crucial to the case. Specifically, the question revolved around whether the transaction constituted an outright sale of Deco's properties or an assignment of debt under the SARFAESI Act. Deco Industries argued that it was an outright sale, necessitating compliance with RBI guidelines and Security Interest (Enforcement) Rules, which, according to Deco, had not been adhered to.
In response, JM Financial Assets Reconstruction Company Ltd maintained that the transaction was an assignment of debt, citing an Assignment Deed executed between the parties. The terms of this deed were instrumental in determining the nature of the transaction. JM Financial argued that the DRAT correctly remanded the matter to the DRT for fresh consideration, particularly on the aspect of the transaction's nature.
Observations by the Court:
Deco Industries contended that the interim order granted by DRAT should have been extended during the remand process. However, the High Court, in its decision, rejected this argument. The Bench held that the mere fact of remand did not automatically necessitate the continuation of interim orders, emphasizing the importance of establishing a prima facie case for such relief.
The court further observed that the Assignment Deed between Karnataka Bank and JM Financial indicated an assignment of debt rather than an outright sale. The terms of the deed were examined, and the court concluded that the petitioner's claim of non-compliance with RBI guidelines and SIER Rules for outright sales did not prima facie hold.
The decision of the Court:
In light of these findings, the Delhi High Court dismissed Deco Industries' writ petition, affirming the decision of the DRAT and clarifying the principles governing the extension of interim orders during remand proceedings.
Case Name: Mis Deco Industries India v. JM Financial Assets Reconstruction Company Ltd through its AO Kumar Gaurav & Ors
Coram: Hon’ble Mr. Justices Vibhu Bakhru and Hon’ble Mr. Amit Mahajan
Case No.: CONT. CAS(C) 1402/2022 & CM APPL. 55395/2022 & CM APPL. 55396/2022
Advocates of the Petitioners: Mr. Sangram Patnaik, Mr. Rajiv Gupta, Mr. Manish Kumar Mathur & Mr. Pushkar Anand
Advocates of the Respondent: Mr. Chitranshul A. Sinha & Mr. Jaskaran S. Bhatia, Advocates for R-1.
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