Delhi High Court

M/S Swadeshi Cement Limited vs Asset Care Enterprises Limited on 30 April, 2010

Author: A. K. Pathak

* IN THE HIGH COURT OF DELHI AT NEW DELHI

+      W.P. (C) 13143/2009 & CM No. 5051/2010

%                              Decided on: 30th April, 2010

M/s Swadeshi Cement Limited                   ..... Petitioner

                         Through:    Mr. Arvind K. Nigam, Sr.
                                     Adv. with Mr. Arun Kathpalia
                                     and Mr. Vivek Malik, Advs.
                 Versus
Asset Care Enterprises Limited                .... Respondent

                         Through:    Mr. Dushyant Dave, Sr. Adv.
                                     with Mr. Amarjit Singh, Mr.
                                     S.L. Gupta, Mr. Ram Gupta,
                                     Mr. Gaurav Dua and
                                     Ms. Shweta, Advs.

CORAM:
HON'BLE MR. JUSTICE VIKRAMAJIT SEN
HON'BLE MR. JUSTICE A.K. PATHAK

       1.Whether the Reporters of local papers          Yes
       may be allowed to see the judgment?

       2.To be referred to Reporter or not?             Yes

       3.Whether the judgment should be reported        Yes
         In the Digest?


A.K. PATHAK, J. (ORAL)

1. Petitioner has filed this Petition under Article 226 and 227

of the Constitution of India praying therein that the Order dated

12th October, 2009 passed by the Debts Recovery Appellate

Tribunal, Delhi (hereinafter referred to as "Appellate Tribunal")

in Appeal No. 238/2009 be quashed.

2. It appears that a sum of Rs. 5284.08 lakhs was due and

payable by the Appellant to Respondent No. 2 as on 30 th

September, 2007. Respondent No. 1 is assignee of Respondent

No. 2. A notice under Section 13(2) of the Securitization and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (hereinafter referred to as "SARFAESI Act")

was issued by Respondent No. 2. to the Appellant on 5th June,

2008 demanding the outstanding dues, as aforesaid; possession

notice under Section 13(4) of SARFAESI Act was also issued.

Appellant challenged these notices before the Debts Recovery

Tribunal (hereinafter referred to as "DRT"). Said proceedings

are still pending. An interim Application being I.A. No.

396/2009 was filed, inter alia, praying therein that a Receiver be

appointed to prepare the list of assets including plant and

machinery and to take possession thereof and to thereafter hand

over the same to the Appellant. Application was disposed of by

the DRT on 11th September, 2009 whereby Appellant was

directed to deposit an amount of Rs. 10 crores within ten days

and another sum of Rs. 10 crores within next ten days and

subject to such deposits, Respondent No. 1 was directed not to

proceed with the property in question.

3. Instead of depositing these amounts Appellant preferred

an Appeal before Appellate Tribunal challenging the Order

dated 11th September, 2009 passed by the DRT. An Application

was filed for waiving the requirement of pre-deposit as

envisaged under Sub-Section (1) of Section 18 of SARFAESI Act.

Appellate Tribunal held that Appeal cannot be entertained

without Appellant depositing 25% of the debt as claimed by the

secured creditor i.e. 25% of Rs. 52.84 crores which worked out

to be Rs. 13.25 crores. Though the Application seeking waiver

of pre-deposit was dismissed by the Order impugned before us

but Appellate Tribunal ventured to touch upon the merits of the

case as well. Appeal was dismissed.

4. Section 18 of the SARFAESI Act reads as under:-

"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 different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:]

[Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent 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 percent of debt referred to in the second proviso.]

(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder."

5. Bare reading of aforesaid provision clearly shows that the

Appeal cannot be entertained unless borrower deposits 50% of

the amount of debt due from him. However, Appellate Tribunal

is vested with the power to reduce this condition of deposit of

50% but is statutorily prohibited from venturing to less than

25% of the debt. The condition of pre-deposit is mandatory.

Language employed in the proviso to Section 18(1) of SARFESI

Act mandates that Appeal shall not be entertained unless 25% of

the amount of debt due is deposited with the Appellate Tribunal.

In this case Appellate Tribunal did reduce the condition of

deposit to the extent of 25% but this amount had not been

deposited. Thus, we are of the view that Appeal itself could not

be entertained. A Division Bench of this Court has upheld this

Constitution validity of the second proviso to Section 18(1) of

the Act in R.V. Saxena vs. UOI & ORS. 127 (2006) DLT 267

(DB). Speaking for the Bench, Hon'ble Mr. Justice Markandeya

Katju observed as under :-

"The right of appeal is not an inherent right but is a creature of the statute. The Legislature can impose conditions under which this is to be exercised. Moreover, the proviso to Section 18 does not require the entire amount to be deposited, but only 50% thereof which can be reduced to a minimum of 25% of the sum. We see no illegality in this proviso. There are similar provisions in many enactments and they are being upheld by the Supreme Court. For example, in the second proviso under Section 15 (1) of the Foreign Trade (Development and Regulation) Act, 1992, it is provided that the appeal against an order imposing a penalty or redemption charges shall not be entertained unless the amount of the penalty or redemption charges have been deposited by the appellant. Similarly in many other statues, there are such similar provisions."

6. We do not find much force in the contention of learned

senior counsel for the Appellant that Appellant being a "BIFR

Unit" complete dispensation of pre-deposit has to be made.

Judgment titled as Parekh Platinum Ltd. vs. Union of India

2008 (221) ELT 485 (SC), reliance whereupon has been

placed by the learned senior counsel for the Appellant, is of no

help in the present case. On SARFESI Act coming into force

Section 15(1) of the Sick Industrial Companies (Special

Provision) Act, 1985 (hereinafter referred to as "SICA") was

amended and the same reads as under :-

"15. Reference to Board - (1) When an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company:

Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company:

Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitization company or

reconstruction company under sub-section (1) of section 5 of that Act:

Provided also that on or after the commencement of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act."

7. In view of amendment in Section 15(1) of the SICA, on

SARFESI Act coming into force, AAIFR held that reference filed

under SICA by M/s Swadeshi Cement Ltd. (Appellant) had

abated in view of proviso to Section 15(1) of SICA in view of the

action taken by ACE (Respondent No. 1) under Section 13(4) of

the SARFAESI Act on 23rd October, 2008. In this scenario,

Appellant had shed its character of BIFR unit.

8. During the course of arguments, we enquired from the

learned senior counsel for the Appellant whether Appellant was

willing to deposit 25% of the debt so that matter is considered

by the Tribunal afresh on deposit so being made. However,

learned senior counsel responded by saying that Appellant is not