Shree Vindhya Paper Mills Ltd vs Stressed Assets Stabilization ...
2011 Latest Caselaw 61 Bom

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    JPP




                                                                      
          IN THE HIGH COURT OF JUDICATURE AT BOMBAY
               CIVIL APPELLATE SIDE JURISDICTION




                                              
                 WRIT PETITION NO. 9073 OF 2011

    Shree Vindhya Paper Mills Ltd.                 ... Petitioner.




                                             
          V/s.

    Stressed Assets Stabilization Fund and Ors.    ... Respondent.




                                        
    Mr. Sanjay Jain with Ms. Priya Ranade and Mr. Vivek Phadke
    i/b. Kaikini Phadke and Associates for the Petitioner.

    1.
                       
    Mr. Berjis Colabawala i/b. V. Deshpande & Co. for Respondent

    Mr. Sanjay Anabhawane ib/. Ms. N.I. Bakali for Respondent 4.
    Mr. Shyam Mehta, Senior Advocate with Mr. Mayur
                      
    Khandeparkar and Mr. A. Ramkrishna i/b. Kanga & Co. for
    Respondent 14.

                        CORAM : DR. D.Y. CHANDRACHUD &
      

                                    A.A. SAYED, JJ.

15 NOVEMBER 2011.

ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.) :-

The Petitioner has challenged in these proceedings the

correctness of an order passed by the Debt Recovery

Appellate Tribunal, requiring the Petitioner to deposit under

Section 18 (1) of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act,

2002, 30% of the amount due which is stated to be Rs.250.50

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crores. The amount was directed to be deposited on or before

4 November 2011.

2. Following a notice under Section 13(2) dated 20 June

2009 issued by the First Respondent, a measure was adopted

under Section 13(4) on 18 January 2011. The Petitioner filed

an application under Section 17 before the Debt Recovery

Tribunal. The Tribunal, by its Judgment dated 26 May 2011

came to the conclusion that (i) The First Respondent had not

obtained the consent of secured creditors representing more

than 75% of the secured debt on a "record date" and that

consequently, the First Respondent was not entitled to

proceed under Section 13(4), representing all other members

of the consortium of lending institutions; and (ii) The

authorized officers of the First Respondent had not followed

the procedure laid down in the Security Interest (Enforcement)

Rules 2002, while bringing the property of the Petitioner for

sale and that consequently, the notice of sale would stand set

aside. On a separate Roznama dated 26 May 2011, the

Tribunal however directed the First Respondent to proceed

with a fresh sale by giving a fresh notice in accordance with

Rules 8 and 9.

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3. The Tribunal had during the course of its order noticed

that the First Respondent had relied upon diverse dates on

which all the secured creditors had given their consents.

Consequently, the Tribunal held that no single date could be

arrived at as a record date for the purpose of calculating

three fourths of the value of the outstandings with reference

to a record date.

4.

Following the decision of the Tribunal, the secured

creditors convened a meeting on 6 May 2011 at which over

75% of the secured creditors representing the secured debts

attended. The record date was agreed as 31 December 2010.

On 13 June 2011, a sale notice was published for the sale of

the assets of the Petitioner. The Petitioner instituted a

challenge under Section 17 once again before the Debt

Recovery Tribunal. The Tribunal by its order dated 25 July

2011 dismissed the application. The Tribunal held that the

consent of the secured creditors representing more than 75%

of the secured debts as on 31 December 2010, which was the

record date, had been granted. The proceedings were held to

be maintainable. The Tribunal also rejected the contention

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that there was a breach of the Rules. Following the order of

the Tribunal, a sale certificate has been issued in favour of the

Fourteenth Respondent on 6 August 2011. The Fourteenth

Respondent is stated to have paid an amount of Rs.12.07

crores for the movables which form the subject matter of the

sale.

5. The Petitioner filed an Appeal against the first order of

the Tribunal dated 26 May 2011. An objection was raised to

the maintainability of the Appeal filed by the Petitioner against

that order of the Tribunal, for want of pre-deposit. According

to the Petitioner, it was not required to comply with the

requirement of pre-deposit under Section 18 of the

Securitization Act, since the order of the Tribunal which was

challenged did not contain a determination of the debt due

and the Tribunal had found that the First Respondent was not

entitled to proceed under Section 13(4). The grievance of the

Petitioner was that though the Tribunal had allowed the

application under Section 17, it had not granted consequential

relief of restoring the possession of the secured assets. On

this ground it was urged that the Petitioner was not required

to make any deposit under Section 18.

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6. The Debt Recovery Appellate Tribunal, by its impugned

order dated 13 October 2011 has come to the conclusion that

the Petitioner is bound to comply with the second proviso to

Section 18(1) by making a pre-deposit. The Petitioner has

been directed to deposit 30% of the amount due to the

secured creditors which, in terms of an affidavit filed by the

First Respondent, has been computed at Rs.250.50 crores.

7.

Counsel appearing on behalf of the Petitioner submitted

that by the order of the Tribunal dated 26 May 2011, it was

held that the First Respondent had not obtained the consent of

the secured creditors representing more than 75% of the

secured debts on a record date and that consequently, the

First Respondent was not entitled to proceed under Section

13(4). The submission which was urged on behalf of the

Petitioner is that the order of the Tribunal holds that the First

Respondent is not entitled to enforce its claim for non-

compliance of the provisions of Section 13(9) and hence,

nothing is due from the Petitioner. Under the second proviso

to Section 18, the borrower has to deposit before the

Appellate Tribunal 50% of the debt due from him, as claimed

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by the secured creditors or determined by the Debts Recovery

Tribunal, whichever is less. The Tribunal having set aside the

measures adopted under Section 13(4), it was urged that the

First Respondent is not entitled to enforce its claim and there

is nothing due. In the absence of anything being found to be

due, it was urged that there was no requirement of pre-

deposit.

8. Besides supporting the order of the Tribunal, Counsel

appearing on behalf of the contesting Respondents have

argued before the Court that the Petitioner has suppressed

from this Court the events which have taken place after the

order of the Tribunal. Save and except for an averment in

paragraph 45 of the Petition, the Petitioner has not even

annexed a copy of the subsequent order of the Tribunal dated

25 July 2011. The object of challenging the first order of the

Tribunal is, it is urged to somehow get over the requirement of

pre-deposit under Section 18. However, it was submitted that

even in relation to the first order, the Petitioner is bound to

comply with the mandatory requirements of the second

proviso to Section 18(1).

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9. The Petitioner had moved the Debt Recovery Appellate

Tribunal in the first instance in order to challenge the

measures adopted by the First Respondent under Section

13(4). Section 13(9) stipulates that in the case of financing of

financial assets by more than one secured creditor or a joint

financing by secured creditors, no secured creditor shall be

entitled to exercise any or all the rights conferred on him

under sub-Section 4 unless the exercise of such right is agreed

upon by the secured creditors representing not less than three

fourths in value of the amount outstanding as on a record

date and such action shall be binding on all the secured

creditors. The expression "record date" is defined in the

Explanation to mean the date agreed upon by the secured

creditors representing not less than three fourths in value of

the amount outstanding on such date. The Tribunal opined

that the secured creditors had granted their consents on

diverse dates and found certain discrepancies in the amounts

which were stated to be due and outstanding to the secured

creditors. On this ground, the Tribunal came to the conclusion

that the First Respondent did not obtain the consent of

secured creditors representing more than 75% of the secured

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debts on a record date and could not proceed under Section

13(4) so as to represent all the other consortium members.

The Petitioner is aggrieved by the order of the Tribunal,

though the Tribunal allowed the application under Section 17

since according to the Petitioner, the Tribunal did not grant

consequential relief of restoring possession of the secured

assets. The issue before the Court is as to whether the

requirement of a pre-deposit must be attracted to such an

Appeal.

10. Under the second proviso to sub-Section 1 of Section 18,

an Appeal cannot be entertained unless the borrower has

deposited with the Appellate Tribunal 50% of the amount of

debt due from him as claimed by the secured creditors or as

determined by the Tribunal, whichever is less. The jurisdiction

of the Appellate Tribunal to reduce the amount required to be

deposited is such that the reduction can be only to an extent

of not less than 25% debt referred to in the second proviso.

This requirement of pre-deposit is mandatory. The Appellate

Tribunal cannot order a reduction beyond what is permitted by

the statute.

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11. In Narayan Chandra Ghosh V/s. UCO Bank1, the

Supreme Court held that even when the amount of the debt is

yet to be determined by the Tribunal, the borrower, while

preferring an Appeal would be liable to deposit 50% of the

debt due from him as claimed by the secured creditors :-

" Under the second proviso to sub-Section (1) of Section 18 of the Act the amount of fifty percent, which is

required to be deposited by the borrower, is computed either with reference to the debt due from him as

claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less.

Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to

deposit fifty percent of the debt due from him as claimed

by the secured creditors. Therefore, the condition of pre-

deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond

the provisions of the Act, as is evident from the second and third provisos to the said Section. At best, the Appellate Tribunal could have after recording the

reasons, reduced the amount of deposit of fifty percent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining

1 AIR 2011 SC 1913

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appellant's appeal without insisting on pre-deposit was clearly unsustainable and therefore, the decision of the

High Court in setting aside the same cannot be flawed." (emphasis supplied).

12. The submission of the Petitioner is that since the Tribunal

came to the conclusion that the First Respondent could not

proceed under Section 13(4) to represent all the other

members of the consortium on the ground that it had not

obtained the consent of more than 75% secured creditors

representing the secured debt on the record date, there is no

debt due and hence no requirement of pre-deposit. This

submission clearly overlooks the legal position that even when

the debt has not been determined by the Tribunal, the

borrower is required under the second proviso to deposit 50%

of the debt as claimed by the secured creditors. All that the

Tribunal held in its first decision dated 26 May 2011 was that

the First Respondent had been unable to establish that the

secured creditors representing more than 75% of the secured

debt had agreed upon a record date. This finding of the

Tribunal cannot, by any means, be stretched to infer that

there is no debt due and payable. The infirmity which was

found by the Tribunal was capable of being cured but apart

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from that, a finding that a secured creditor is not entitled to

represent the entire consortium for want of compliance of

Section 13(9) cannot result in an inference that there is no

debt due. Even in the absence of a determination by the

Tribunal of the debt due, the law requires the borrower to

deposit 50% of the debt as claimed by the secured creditors.

The use of the plural expression "secured creditors" is

indicative of the fact that what is required to be deposited is

50% of the entire debt due to all the secured creditors

cumulatively. The Tribunal was, on the basis of the affidavit

filed by the First Respondent, duly satisfied that the debt as

claimed by the secured creditors was in the amount of Rs.

250.50 crores. The Tribunal has given a reduction in the

requirement of a deposit of 50% by directing a deposit of 30%

of the aforesaid amount. The order of the Tribunal is in

consonance with law and does not warrant interference.

13. For these reasons, we do not find any merit in the

Petition. The Petition shall accordingly stand dismissed.

(Dr. D.Y. Chandrachud, J.)

(A.A. Sayed, J.)