Mohammed Afzal Mohammed Aslam And ... vs Chief Manager And 5 Ors
2021 Latest Caselaw 12041 Bom

                                                       13-WPL.17505.2021


     IN THE HIGH COURT OF JUDICATURE AT BOMBAY
        ORDINARY ORIGINAL CIVIL JURISDICTION

                 WRIT PETITION (L) NO. 17505 OF 2021

Mohammed Afzal Mohammed                        }
Aslam and Anr.                                 }   Petitioners
         Versus
Chief Manager, Indian Bank                     }
and Ors.                                       }   Respondents


Mr.Rohan Cama with Mr.T.N.Tripathi and
Ms.Kalyani Wagle i/b. T.N.Tripathi and Co. for
the petitioners.

Ms.Selvi Laxman for respondent no.1 (Indian
Bank)


                      CORAM :- DIPANKAR DATTA, CJ &
                               G. S. KULKARNI, J.

                      DATE :-    AUGUST 30, 2021


PC:-

1. An order dated 2nd August 2021, passed by the Chairperson, Debts Recovery Appellate Tribunal at Mumbai (hereafter "the DRAT", for short) is under challenge in this writ petition under Article 226 of the Constitution of India. The DRAT, by the impugned order disposed of I.A. No.46/2021 (being an interim application filed by the petitioners seeking partial waiver of pre-deposit) in Appeal No.8 of 2021, presented on 29th April 2021, under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereafter "the SARFAESI Act", for short). Under challenge in the said appeal

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is an order dated 20th April 2021 of the Debts Recovery Tribunal No.II, Mumbai dismissing Securitization Application No.678 of 2016 of the petitioners. The DRAT held that the petitioners are required to deposit Rs.34,71,525/-, being 25% of the rounded amount of Rs.1,38,86,181.07p, on or before 31st August 2021 for entertainment of the appeal, failing which the same would stand dismissed automatically.

2. Since the sole contention of Mr.Cama, learned advocate for the petitioners is that the DRAT fell in error in quantifying the "amount of debt due" to the secured creditor from the petitioners, the scrutiny would obviously be limited to the point whether there has been any procedural error in such quantification. It would, thus, be necessary to read section 18 first. Relevant portions thereof are quoted below for facility of convenience:

"18. Appeal to Appellate Tribunal. -- (1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under Section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal:

Provided that ...:

Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso.

(2) Save as otherwise provided in this Act, ..."

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3. In the present case, the order under appeal dated 20th April 2021 before the DRAT does not determine the dues. Therefore, it is the first alternative in the second proviso, i.e., "amount of debt due from him (the borrower) as claimed by the secured creditors", which required the attention of the DRAT for quantifying "the amount of debt due". Paragraph 18 of the impugned order of the DRAT contains the relevant discussion for formation of opinion that Rs.1,38,86,181.07p is the "amount of debt due" from the petitioners and, accordingly, it is extracted below: -

"18. So it is to be seen what is the claim of secured creditor. It claimed Rs.1,57,36,475/- under 13(2) notice. It claimed Rs.1,38,86,181.07 as on filing of Appeal. Advocates for Applicants vehemently contended that a sum of Rs.2,33,00,000/- is recovered by Bank after 13(2) Notice and Bank is holding a sum of Rs.13,67,495/- as FDR. According to Bank's Advocate, Applicants cannot claim this Rs.2,33,00,000/- as it relate to firm. Further it is stated that after giving credits of this amount, outstanding is arrived at Rs.1,38,86,181.07, therefore, that amount is to be taken. With regard to FDR that amount cannot be taken towards deposit under Section 18 of the SARFAESI Act. I find some force in the submission of Bank's Advocate. On a scrutiny of entire material with reference to submissions of both sides, either amount claimed under section 13(2) Notice or amount claimed in the calculation of Bank as on 29.04.2021 is to be taken. Out of these two, amount shown in calculation is lesser than 13(2) Notice amount. As per Section 18, lesser amount is to be taken. Therefore, without prejudice to the rights of both parties with reference to calculations, I am of the view Rs.1,38,86,181.07 which is lesser is to be taken as claim of secured creditor for the

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purpose of Section 18. It is made clear that issue relating to calculation is kept open and no finding is given on calculations."

4. The DRAT was right in holding that what is less between the sum claimed by the secured creditor in the notice issued under section 13(2) of the SARFAESI Act and the sum claimed on 29th April 2021, i.e., the date of presentation of the appeal under section 18, had to be considered and bearing in mind the lesser sum of the two demands, pre-deposit of 50% or 25%, as the case may be, calculated. However, in our opinion, the DRAT erred in arriving at the correct conclusion because of a flawed procedure that it adopted.

5. The DRAT, as would be evident from paragraph 18 extracted supra, noted the submission on behalf of the secured creditor that the petitioners "cannot claim this Rs.2,33,00,000/- as it relate (sic relates) to firm". The next sentence records that "after giving credits of this amount, outstanding is arrived at Rs.1,38,86,181.07, therefore, that amount is to be taken". These, after a sentence about non- acceptability of FDR towards deposit, is followed by the sentence "I find some force in the submission of Bank's advocate".

6. The reason as to why the petitioners were not entitled to claim that credit of Rs.2,33,00,000/- be given to them is not quite clear. We inquired of Ms. Laxman, learned advocate for the secured creditor, the meaning of the expression "as it relate to firm". According to her, credit of any part of the debt realized or recovered by the secured creditor cannot be claimed towards adjustment of the dues by the petitioners.

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Acceptance of such an answer as correct by the DRAT, if at all, ought to have been supported by reasons, which are lacking. We are afraid, the DRAT committed an error in failing to do so. Next, the DRAT accepted the plea of the secured creditor that the outstanding sum of Rs.1,38,86,181.07p was arrived at after giving the petitioners credit of an amount of Rs.2,33,00,000/. That the secured creditor had arrived at the outstanding sum of Rs.1,38,86,181.07p after giving credit of the sum of Rs.2,33,00,000/- was not placed on record by way of an affidavit. On the contrary, it has been submitted before us by Mr.Cama, and not disputed by Ms.Laxman, that a calculation sheet dated 22nd July 2021 of the Assistant General Manager, Indian Bank was tendered across the bar and accepted by the DRAT as evidence of the sum outstanding as on 29th April 2021 overlooking that such calculation sheet did not at all reflect giving credit to the petitioners of the sum of Rs.2,33,00,000/. It has not been shown to us from the counter affidavit filed by the secured creditor to the application for waiver that the sum of Rs.1,38,86,181.07p, outstanding as on 29th April 2021, was arrived at after giving credit of Rs.2,33,00,000/-. Over and above that, there is an apparent contradiction in the stands taken by the secured creditor. On the one hand, the stand of the secured creditor is that the petitioners cannot claim Rs.2,33,00,000/- as it relates "to firm" and immediately thereafter, the stand is that credit of Rs.2,33,00,000/- has been given before "outstanding is arrived at Rs.1,38,86,181.07". It is on these grounds that we propose to interfere with the impugned order of the DRAT and order a remand.

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7. However, before so ordering, it would be appropriate to consider a couple of issues arising from the impugned order dated 2nd August 2021 of the DRAT for the purpose of its guidance to deal with similar such situations in future. We feel such discussion is required to remove certain misconceptions about pre-deposit under section 18 of the SARFAESI Act as well as the fact that the DRAT in its order dated 2nd August 2021 brushed aside binding precedents cited before it, in a way, which borders on impropriety. We also place on record that Mr.Cama invited our observations for appropriate guidance for the DRAT to decide the interim application for waiver.

8. Having regard to what section 18 ordains, the appellant (be it a borrower or a guarantor) cannot claim that its appeal be entertained without pre-deposit. Pre-deposit is a pre- condition for entertaining the appeal by a borrower as defined in section 2(f) of the SARFAESI Act. No doubt, the debt of the borrower as claimed by the secured creditor has to be borne in mind while quantifying the sum of pre-deposit (50% or 25%, as the case may be), in a case where the Debts Recovery Tribunal, under section 17 of the SARFAESI Act, has not determined the dues. If determined, the lesser of the two sums has to be considered. It would not be correct to say that the sum the secured creditor demands in the notice under section 13(2) would guide quantification of the sum of pre- deposit. This is for two reasons. First, section 18 does not specifically refer to the sum claimed in the notice under section 13(2) to be taken into consideration; on the other

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hand, it uses a wide term such as "amount of debt due". Secondly, events subsequent to receipt of the demand notice would assume relevance. It could be so that a borrower, within the meaning of the SARFAESI Act, does not make any payment after receiving the demand notice under section 13(2) and interest on the unpaid dues starts accruing. On the date the appeal is presented before the DRAT under section 18 of the SARFAESI Act, the dues might have been far in excess of the amount claimed in such demand notice. The "amount of debt due" as on date of presentation of the appeal would, therefore, constitute the debt based whereon the sum of pre-deposit has to be quantified. There could also be a converse case where a borrower, after receiving the notice under section 13(2) of the SARFAESI Act and till such time the appeal is presented before the DRAT, makes payments at regular intervals and thereby the dues fall below the amount demanded in the section 13(2) notice or that the borrower claims liquidation of the entire dues by reason of the payments made. In such a case, it is the "amount of debt due" as on date of presentation of the appeal which has to be ascertained while considering what would be the quantum of pre-deposit that the appellant (borrower) should be required to make.

9. Now, let us assume a case where both the borrower and the guarantor(s) elect to explore the appellate remedy under section 18 by presenting separate appeals. Although the pre- deposit is related to the "amount of debt due", is it the law that the "amount of debt due" remaining the same, both

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borrower and guarantor(s) have to put in 50% each as pre- deposit, notwithstanding that such pre-deposit could exceed the "amount of debt due"? The answer to this question has to be explored keeping in mind binding decisions of the Supreme Court to which reference could profitably be made.

10. In Axis Bank vs. SBS Organics (P) Ltd., reported in (2016) 12 SCC 18, the Supreme Court was considering the fate of the pre-deposit made under section 18 of the SARFAESI Act on disposal of the appeal presented before the Appellate Tribunal in terms thereof. The Court endorsed the impugned view of the relevant High Court though for different reasons as well (emphasis supplied). Thus, the view taken by the High Court was supported by different reasons also, in addition to the reasons already assigned. A passage extracted from the impugned decision of the High Court reads thus:

"5. Right of appeal is a creature of the statute. Legislature can impose conditions under which it is to be exercised. Without a statutory provision creating such a right, a person aggrieved is not entitled to prefer an appeal. Legislature while granting right of appeal can impose conditions which it thinks reasonable. Such conditions merely regulate the exercise of right of appeal so that the same is not abused by a recalcitrant party, and there is no difficulty in the enforcement of the order appealed against in case the appeal is ultimately dismissed. Imposition of such a condition is essential, so that frivolous appeals would not be filed. Ultimately if the appeal is dismissed, the aggrieved party can always seek refund of the amount deposited and therefore, he is not in any way aggrieved."

After discussing the provisions of the SARFAESI Act, it was, inter alia, observed by the Supreme Court as follows:

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"21. The appeal under Section 18 of the Act is permissible only against the order passed by DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before DRAT as a precondition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in case, the appellant makes a prayer for refund of the pre-deposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law."

(emphasis supplied)

11. The aforesaid decision is an authority for two propositions. First, the object behind the requirement of pre- deposit is to prevent frivolous appeals from being presented for entertainment and to allow entertainment of such appeals only when the requirement of pre-deposit is met. Secondly, it clarifies the position that any pre-deposit made by a borrower in terms of the second proviso to section 18 for the purpose of having the appeal entertained is neither a secured debt nor a secured asset and such sum, as put in by way of pre-deposit, is liable to be refunded to the appellant should the appeal fail, for whatever reason, or be withdrawn. Thus, the sum put in

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as pre-deposit cannot be appropriated by the secured creditor towards liquidation of its dues, unless of course there is existence of circumstances as noted in the concluding part of paragraph 21. If not appropriated in any of the ways as mentioned, it would logically follow that the relation between the quantum of the dues payable to the secured creditor (whether claimed by the secured creditor or determined by the DRT, whichever is less) and the pre-deposit required to be made under section 18 by the appellant would only be to the extent that the former would constitute the basis of determination of the sum to be put in as statutory pre-deposit and nothing more.

12. The view taken in Axis Bank (supra) has been followed by the Supreme Court in an unreported decision dated 20th August 2019 while disposing of Civil Appeal Nos. 6016-17 of 2019 (M/s. Kut Energy Pvt. Ltd. Vs. Punjab National Bank).

13. In Union Bank of India vs. Rajat Infrastructure (P) Ltd., reported in (2020) 3 SCC 770, the Supreme Court was considering whether the relevant High Court was right in observing that pre-deposit is not required for entertaining an appeal before the Appellate Tribunal as mandated by section 18 of the SARFAESI Act. The High Court on being approached by the respondent no.1/a guarantor had observed that no pre-deposit would be required to be made in view of the impugned order of the Debts Recovery Tribunal dated 11th November 2019. The merits of the dispute were not examined because the Supreme Court agreed with the view of the High

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Court that the matter had to be decided by the Appellate Tribunal under section 18. However, after considering the earlier decision in Narayan Chandra Ghosh vs. UCO Bank, reported in (2011) 4 SCC 548, the Court held:

"10. This Court in Narayan Chandra Ghosh v. UCO Bank, held that keeping in view the language of Section 18 even if the amount or debt due had not been determined by DRT, the appeal could not be entertained by DRAT without insisting on pre-deposit. DRAT, at best could, after recording the reasons, have reduced the amount to 25% but could not have totally waived the deposit. This Court also held that the right of appeal conferred under Section 18(1) is subject to the conditions laid down in the second proviso therein which postulates that no appeal shall be entertained unless the borrower has deposited 50% of the amount of debt due from him as claimed by the secured creditors or determined by DRT, whichever is less. The third proviso enables DRAT, for reasons to be recorded in writing, to reduce the amount of deposit to not less than 25%.

***

12. In view of the law laid down by this Court, we are clearly of the view that the observation made by the High Court was totally incorrect."

(emphasis supplied)

14. In view of the aforesaid decisions, the legal position seems to be settled that so long a borrower owes any sum as due to the secured creditor under a security agreement, no appeal by the borrower/guarantor can be entertained by the Appellate Tribunal except upon compliance with the requirement of statutory pre-deposit; and such deposit should ordinarily be refunded but for the existence of specific circumstances as pointed out in Axis Bank (supra). The situation would have been different if the statutory pre-

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deposit were open to appropriation by the secured creditor towards full or partial satisfaction of its debt. In such a case, pre-deposits in successive appeals arising out of the same debt such that the sum of pre-deposit cumulatively exceeds the debt itself could not have been required to be made. This answers the point referred to in paragraph 9 supra.

15. However, it does not follow from the aforesaid legal position that despite there being no "amount of debt due" to the secured creditor by the borrower, the requirement of pre- deposit would continue to haunt the borrower for entertainment of its appeal under section 18. It is here that the DRAT, in our considered view, faltered by failing to consider the calculations of the petitioners and proceeding to hold the ratio of the decisions cited before it as inapplicable without even giving a single reason for such inapplicability, viz. Division Bench judgments of this Court dated 27th January 2011 in Writ Petition No.66 of 2011 [Taj Exim International Limited & anr. vs. Bank of Baroda] and dated 9th June 2015 in Writ Petition Nos. 2414 and 2512 of 2013 [Vasanji Asaria Mamania vs. M/s. Kalyani Exporters & ors.]. The DRAT also appears to be unduly critical of the Division Bench decision of the Gujarat High Court in Pritesh Meghaji Panthani vs. Union of India & ors., reported in 2014 SCC OnLine Guj 9175, where the second proviso to section 18 was read down. The ratio of these decisions, if reconciled, is that any sum of money paid to the secured creditor towards liquidation of the dues by the borrower after notice under section 13(2) is issued has to be accounted for while

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quantifying the "amount of debt due" relevant for the purpose of the statutory pre-deposit. Insofar as money received by a secured creditor upon auction sale of the secured asset is concerned, due credit can be given towards quantification of the "amount of debt due" if the auction sale instead of being challenged is unconditionally accepted by the borrower. This is obvious, because the legislative intent is to require an appellant (borrower) to pre-deposit 50% or 25% of the "amount of debt due", as the case may be, and cannot be stretched to require a pre-deposit to be made by the borrower although more than the "amount of debt due" stands recovered. The decision in Pritesh Meghaji Panthani (supra) does not while reading down section 18 in the manner appearing from paragraph 10 thereof take into consideration what would be the position should the borrower question the auction sale and not agree to adjustment of the money received with the "amount of debt due". That is provided by the decision in Vasanji Asaria Mamania (supra).

16. Although not arising from the facts of the present case but since considerable attention to section 18 has been devoted, we also hold that if an appeal under section 18 is at the instance of a person not being a borrower or a guarantor, he/she/it is not required to make any pre-deposit for having its appeal entertained because it is only a borrower, within the meaning of section 2(f) of the SARFAESI Act, on whom the liability is foisted by the second proviso to section 18 to make the statutory pre-deposit.

17. Turning to the facts of the dispute at hand, we wish to reiterate that the DRAT ought to deal with the issue

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specifically as to whether the recovered sum of Rs.2,33,00,000/- was accounted for while quantifying Rs.1,38,86,181.07p as the "amount of debt due" to the secured creditor. Also, if the petitioners propose to have the principal as well as accrued interest of the relevant FDR adjusted with the "amount of debt due", but the DRAT declines to accept such proposal, appropriate reasons ought to be given.

18. To enable the DRAT to pass an appropriate order in the light of what has been expressed above, we set aside the order under challenge dated 2nd August 2021, and order a remand. This would result in revival of both I.A. No.46/2021 in the appeal as well as Appeal No.8/2021 on the file of the DRAT. We grant the secured creditor time till 15th September 2021 to file an additional affidavit to bring on record the calculation for arriving at the sum of Rs.1,38,86,181.07p. The petitioners shall have a week's time from date of receipt of such affidavit to take exception to it, also on affidavit. Once such affidavits are filed or if the secured creditor chooses not to file an additional affidavit, the DRAT will proceed to decide the application for waiver of pre-deposit in accordance with law as early as possible. We record that the parties have agreed to cooperate with the DRAT and not to seek any unnecessary adjournment.

19. The writ petition stands allowed to the extent mentioned above. No costs.

                       (G. S. KULKARNI, J.)                               (CHIEF JUSTICE)

          Digitally
          signed by
          PRAVIN
PRAVIN    DASHARATH
DASHARATH PANDIT
PANDIT    Date:
          2021.09.06
          21:06:44

                       J.V.Salunke,PS