Delhi High Court

Srishti Arogyadham Pvt Ltd vs Punjab National Bank & Anr on 27 November, 2018

    * IN THE HIGH COURT OF DELHI AT NEW DELHI
    %                                 Date of decision: 27th November, 2018

+    W.P.(C) 12299/2018, CM No. 47696/2018
     SRISHTI AROGYADHAM PVT LTD
                                                                    ..... Petitioner
                             Through:      Mr. Rajeeve Mehra, Sr. Adv. with
                                           Ms. Niti A. Sachar, Adv.
                             versus

     PUNJAB NATIONAL BANK & ANR
                                                                ..... Respondents
                             Through:      Mr. Rajinder Wali, Adv. for R1
                                           Mr. Sanjeev Sagar, Adv. and
                                           Ms. Nazia Parveen, Adv. for R2

     CORAM:
     HON'BLE THE CHIEF JUSTICE
     HON'BLE MR. JUSTICE V. KAMESWAR RAO

    V. KAMESWAR RAO, J. (ORAL)

1. The present petition has been filed by the petitioner

challenging the order dated October 18, 2018 passed by the learned

Debt Recovery Appellate Tribunal, Delhi (in short „DRAT‟) which

rejected the M.A. No.630/2016, filed by the petitioner for waiver of

the pre-deposit of 50% of the amount which had been demanded

from the appellant by the respondent No.1 Bank or as determined by

the DRT, whichever is less.

2. The facts as noted from the record are that the petitioner was

sanctioned credit facility of `8.20 crores, whereas the Bank had

disbursed only `7,76,62,288/- for the construction of super structure

on the land admeasuring 27 Kanals 9 Marlas, (which was also

mortgaged with the Bank). The project could not be completed as

per schedule for various reasons. The petitioner applied for

enhancement in loan, which was not responded by the Bank. The

total repayment of `2.45 crore was made as on March 31, 2015. It

appears that a notice under Section 13(2) was issued on April 13,

2013 to which the petitioner had filed objections on June 06, 2013.

The Bank had taken possession of the property. The petitioner

approached the Bank after knowing that the property has been put to

sale.

3. It is the case of the petitioner that the Bank had not

published proper publication for sale of property. According to the

petitioner, the same was in violation of Rule 8 of the SARFAESI

Rules, as the respondent No.1 Bank has failed to give prior 30 days

notice to the petitioner before fixing sale. The Bank hurriedly sold

the property to a third party (respondent No.2, herein) at throw

away price of `11.77 crores. The OTS proposal submitted by the

petitioner was rejected. Suffice it to state that the petitioner filed an

application under Section 17 of the SARFAESI Act challenging the

sale of the property by the respondent No.1 Bank. The said SA

No.120/2015 was dismissed by the DRT-I, Chandigarh on October

20, 2016, against the said order the petitioner had filed an appeal

under Section 20 of the SARFAESI Act along with an application,

M.A. 630/2016 for waiver of the condition of pre-deposit.

4. It is noted by the DRAT that the property in dispute already

stands auctioned in favour of the respondent No.2 for a sum of

`11.77 crores whereas the amount shown in the auction notice to be

recoverable from the petitioner was `6,84,28,157.56/-. The case of

the petitioner before the DRAT for waiver of pre-deposit was that

since the property in dispute has already been sold and the bank has

recovered `11.77 crores from the respondent No.2, the auction

purchaser, there remains no requirement of pre-deposit at all and in

fact the bank is liable to pay interest on the excess amount received

and withheld by it. In other words, the auction money recovered by

the bank is liable to be considered towards the compliance of the

pre-deposit.

5. Reliance was placed on the judgment of this Court in W.P.

decisions of Punjab and Haryana High Court in CWP No.

9131/2012 and 10957/2012 decided on February 19, 2013. Some

judgments of the Allahabad High Court were also relied upon by the

learned counsel for the petitioner on the aspect of adjustment of sale

proceeds of mortgaged property while calculating the amount of

pre-deposit. There was one order by consent passed by the Supreme

Court on February 25, 2011 in Civil Appeal No.2074-2078/2011

which was also relied upon.

6. The respondent No.1 i.e. bank and the auction purchaser

have opposed the application for waiver of pre-deposit. The DRAT

observed that the Tribunal has already taken a view, relying upon a

judgment of the Supreme Court in the case of Indian Bank vs. Blue

Jaggers Estates Ltd. reported in 2010(3) Banker's Journal 9(SC),

that auction money received by a bank from the successful auction

purchaser of the mortgaged property cannot be considered towards

compliance of the mandatory condition of pre-deposit when the

defaulting borrower is not accepting the auction of his property and

is challenging its legality in legal proceedings before the DRT.

According to the DRAT, the pre-deposit has to be made with the

DRAT and that pre-deposit has to be returned back to the depositor

only irrespective of the fact whether the appeal is allowed or

rejected. When no deposit has been made with the DRAT then

nothing would be there to be returned to the appealing borrower and

the borrower would have succeeded in getting entertained his appeal

and disposal of appeal on merits also without making a pre-deposit.

It was held that in case the borrower challenges the auction sale in

legal proceedings the sale remains in a nebulous stage and the sale

will get finality / confirmed only when the legal proceedings come

to an end. In other words, there is no confirmation of the sale of its

property so far. The DRAT was of the view the aforesaid aspects

were not considered in the judgments relied upon on behalf of the

petitioner.

7. The DRAT relied upon the judgment of the Bombay High

Court in W.P. No. 1315/2014 dated November 31, 2016, Eskays

Construction Pvt. Ltd. vs. Sona Papers & Industries Ltd., wherein

it was held that the auction money cannot be considered while

calculating the amount of pre-deposit, when the auction sale itself is

under challenge at the instance of the borrower.

8. That apart, the DRAT rejected the plea made on behalf of

the petitioner that excess amount recovered by the Bank by sale of

the property in dispute along with interest thereon which the Bank is

liable to pay on that amount because of it having kept the same

illegally, at least is liable to be adjusted while calculating the

amount of pre-deposit. The Tribunal also held that it is not a good

case where it should exercise the discretion in reducing the amount

of pre-deposit even by 25%.

9. Mr. Mehra, learned Senior Counsel appearing for the

petitioner submits that the DRAT fell in error in rejecting the MA

filed by the petitioner for waiver of pre-deposit as according to him,

the issue is no more res integra as the Supreme Court in Civil

Appeal No. 2074-2078/2011 in Persn Medicinal Plants Pvt. Ltd. &

Anr. vs. Indian Bank & Ors.(supra) decided on February 25, 2011,

dealing with the question of pre-deposit under Section 18 of the

SARFAESI Act allowed Indian Bank to appropriate the amount

which is already with the Bank, as a condition precedent for hearing

of the appeal filed by the appellant therein.

10. That apart, he has relied upon the following judgments on

the propositions in support of his submissions:

S. No.         Case Law                    Proposition





 1.             Poonam Manshani       Amount already recovered
               vs. J&K Bank Ltd.     by the Bank of the Debt
               & Anr.                Due, the condition of pre-
                                     deposit will not arise
               W.P. (C) 13042/2009
               decided          on
               November 10, 2005
2.             Mukerian     Papers   Amount deposited post
               Ltd. & Anr. vs.       13(2) notice should be
               DRAT,         CWP     adjusted at the time of
               No.9131/2012          deciding the issue of pre-
               decided on May 24,    deposit under Section 18
               2012                  of the SARFAESI Act,

3.             S.R.        Forging   No requirement of pre-
               Limited vs. UCO       deposit when sufficient
               Bank          CWP     amount i.e. more than 50%
               No.10957/2012         of the amount due is

decided on February recovered by the Bank in 19, 2013 public auction

4. Gopal Ji Gupta vs. As the amount recovered Debts Recovery is through auction is more Appellate Tribunal, than 50%, the purpose of Allahabad & Others. the proviso stands satisfied AIR 2013 AII 175 decided on July 09,

5. Allahabad Bank vs. No requirement of pre-

               DRAT,         WP.     deposit in the case where
               No.2941/2012          the sale is confirmed and
               decided on January    the auction purchaser has
               20, 2014              deposited     the   entire
                                     outstand amount

6. Tride International No requirement of pre-

vs. Bank of Baroda deposit once the property II (2016) BC 41 taken as security has been (DRAT) sold and amount realized therefrom credited in the

loan account of the petitioner. It would be highly unfair and unreasonable not to take this amount for the purpose of pre-deposit

7. M/s Akash Ganga In a given situation where Airlines Ltd. vs. an amount more than the Debt Recovery amount due from the Appellate Tribunal, borrower had already been (2016) 1 BC 306 realized by auction sale, insistence on the deposit referred to under proviso to section 18 would be contrary to the legislative intent as also the express provision as is evident from the use of the words "50% of the amount of debt due from him"

8.             Smt. Sarla Devi       Sum recovered by the
               Mishra vs. Debts      Bank is more than 100%
               Recovery Appellate    of the debt claimed from

Tribunal, Allahabad the petitioner, therefore, in WP the petitioner is not No.45995/2015 required to deposit any decided on August sum under section 18 of 20, 2015 the Act to maintain the appeal

9. Nathi Lal Rathore Amount deposited post vs. DRAT, 13(2) notice should be Allahabad, WP No. adjusted at the time of 32026/2016 decided deciding the issue of pre- on October 05, 2016 deposit under Section 18 of the SARFAESI Act, 2002.

11. According to him, in view of the position of law above, the

petitioner is not required to make any pre-deposit.

12. On the other hand, Mr. Sanjeev Sagar, learned counsel

appearing for the respondent No.2 has vehemently opposed the writ

petition by stating that the DRAT was justified in rejecting the M.A.

filed by the petitioner for waiver of pre-deposit. According to him,

the Supreme Court in the case of Axis Bank vs. SBS Organics

Private Limited and Another (2016) 12 SCC 18 has in clear terms

stated by referring to Section 18 of the SARFAESI Act that for the

Tribunal to entertain the appeal, the aggrieved person has to make a

deposit of 50% of the debt due from him as claimed by the secured

creditor or determined by the DRT which ever is less.

13. In other words, according to him, in view of the mandate of

Section 18, the petitioner is required to make the pre-deposit. Mr.

Rajinder Wali, learned counsel appearing for the Bank also relied

upon the judgment of the Bombay High Court reported as I (2017)

BC 461 (DB) Bom.) in Eskays Construction Pvt. Ltd. vs. Soma

Papers and Industries Ltd. & Anr. to contend that if the borrower

is allowed to adjust / given credit for the sale proceeds received

from the sale of the subject property in the application for waiver of

pre-deposit and at the very same time allowed to challenge the sale

of the subject property then the same would defeat the very purpose

for which Section 18 was enacted, which is to curb unnecessary and

frivolous litigation. He seeks the dismissal of the writ petition.

14. Having heard the learned counsel for the parties, the

admitted facts are that the property in question has been auctioned

by the Bank and purchased by the respondent No.2 for an amount of

`11.77 crores, whereas the notice under Section 13(2) to be

recovered from the borrower / petitioner was `9,25,11,879.56 (page

507 of the paper book). Pursuant to the sale, as seen from the reply

filed by the respondent No.1 Bank (at page 507 of the paper book),

the sale certificate has been issued in favour of the respondent No.2,

and even a sale deed has been executed in favour of respondent

No.2. Physical possession of the property has also been given to the

said respondent. The petitioner has challenged the auction sale.

The ground is also that the amount for which the property has been

sold is very less. The ground for seeking waiver of pre-deposit is

that the Bank has recovered the debt due and in fact excess money

is lying with it and the amount received / recovered can be

considered towards the requirement of pre-deposit envisaged under

Section 18 of the SARFAESI Act. The issue that needs to be

decided in the facts of this case is whether for entertaining the

appeal by the Appellate Tribunal, the petitioner is required to

deposit 50% of the amount of debt due from the petitioner as

claimed by the secured creditors or determined by the Recovery

Tribunal, in terms of second proviso to Section 18 of the

SARFAESI Act.

15. To answer the question, it is necessary to reproduce

hereunder Section 18 of the SARFAESI Act:

"18. Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal [under section17, 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 borrow 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, 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."

16. On a perusal of the second proviso to Section 18, it is clear

that the same pre-supposes two eventualities; (i) that debt is due

from the petitioner as claimed by the respondent No.1 Bank or; (ii)

debt has been determined by the Debt Recovery Tribunal, and the

same is liable to be paid / recovered on the date when the appeal is

entertained by the DRAT. In either of the eventualities 50% of the

amount of debt need to be made as pre-deposit. We may state here

that the Supreme Court in Narayan Chandra Ghosh vs. UCO Bank

and Others reported as (2011) 4 SCC 548, has inter alia held that

the requirement of pre-deposit is a mandatory provision and need to

be complied with. There cannot be any dispute on the said

proposition and the same is binding upon this Court. In the said

case, the argument of the petitioner therein was, that the debt has

not been determined by the DRT. The Supreme Court rejected the

plea by holding, if the debt has not been determined by the DRT,

the borrower is liable to pay 50% of the debt due from him as

claimed by the secured creditors. The facts being at variance, as

there is no amount due from the borrower i.e. petitioner herein when

more than due amount has already been realized by the Bank the

judgment has no applicability.

17. It is a conceded case of the respondents that none of the

eventualities exist as the amount due to the Bank has been

recovered. The application has been opposed by the respondents

and decided by the DRAT primarily on an apprehension that since,

the petitioner has challenged the auction, the same may be set aside.

In other words, the sale remains in a nebulous stage and the sale will

achieve finality / confirmed only when the legal proceedings come

to an end.

18. Surely such an apprehension as noted above, cannot govern

the interpretation of Section 18 of the SARFAESI Act, 2002. The

Section is clear and contemplates a situation stated in the earlier

paragraph and the same has to be interpreted in the manner it exist,

by giving a plain meaning.

19. We are conscious of the fact that the amount of pre-deposit

has to be made in DRAT and not in the Bank. But still when no

amount is due from the petitioner whether the pre-deposit can still

be insisted upon. The argument can be made that the condition of

pre-deposit is to discourage frivolous litigation which if permitted,

would defeat the very purpose of the enactment of early settlement

of the disputes. The argument is appealing but the same shall not

hold good in the facts of the case with which we are concerned.

Otherwise, the provision of appeal for persons / entities like the

petitioner, shall become otiose / illusory. In fact, the insistence of

pre-deposit shall be inequitable in the facts. Nothing precludes

DRAT while deciding the appeal, if it finds that the appeal filed by

the petitioner is frivolous, to impose such cost as deemed fit, to be

recovered from the excess amount already lying deposited with the

Bank.

20. Further, the Supreme Court in Axis Bank (supra), has

clearly held that pre-deposit is not a secured asset and on the

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. This conclusion of

the Supreme Court also signifies that even if the auction is set aside,

and the Bank has to return the money to the auction purchaser, the

pre-deposit cannot be appropriated by the Bank. It shall go to the

borrower.

21. The judgment of Eskays Construction Pvt. Ltd. (supra) as

relied upon by Mr. Rajinder Wali, and more particularly para 15, to

contend that on a similar issue the Bombay High Court has inter

alia held that the pre-deposit is mandatory except that the Tribunal

has a discretion to reduce the pre-deposit to 25%. We find that in

the said judgment the High Court was of the view that the provision

of pre-deposit is to secure the debt due from the borrower /

guarantor. This conclusion of the High Court is at variance with the

ratio of the judgment of the Supreme Court in Axis Bank case

(supra).

22. The DRAT in the impugned order has referred to the

judgment of the Supreme Court in Indian Bank vs. Blue Jaggers

Estates Ltd. reported in 2010(3) Banker's Journal 9(SC), wherein

a similar issue arose before the Supreme Court. In the said case, it

has come on the record that even though, the mortgaged property

was put to auction, the appellant i.e. Indian Bank had not been able

to realise the amount because the sale was yet to be confirmed by

the Appellate Tribunal. In fact, the Supreme Court rejected the

contention raised on behalf of the respondent i.e. Blue Jaggers

Estate Ltd. by stating that the sale was yet to be confirmed by the

Appellate Tribunal as per the directions of the High Court.

23. In other words, in the said case, the sale had taken place, but

the same had not been confirmed. In such a situation, it can be said

that the sale remains in a nebulous stage whereas in the case in

hand, as noted above, after the sale has taken place, the sale deed

has been executed in favour of the respondent No.2 purchaser and

the possession of the property has also been handed over. To that

extent the judgment in the case of Indian Bank vs. Blue Jaggers

Estates Ltd. (supra) is distinguishable.

24. Mr. Mehra in support of his submission has relied upon the

judgment of the Allahabad High Court in the case of M/s Akash

Ganga Airlines Ltd. vs. Debt Recovery Appellate Tribunal,

Allahabad and Others 2015 SCC OnLine All 8084, wherein the

facts are identical to the facts of this case and the Court by noting

the position of law as referred to above has allowed the petition and

directed the DRAT to reconsider the application of waiver of the

petitioner therein by setting aside the earlier order of the DRAT

insisting on the pre-deposit. We concur with the view taken by the

Allahabad High Court and a similar view as also taken by the

Division Bench of Punjab and Haryana High Court in S.R. Forging

Limited vs. UCO Bank 2013 SCC OnLine P&H 3902, wherein it

was held as under:

"Challenge in the present petition is to the orders passed by the Debts Recovery Appellate Tribunal Delhi (for short the 'Tribunal') dated 30.4.2012 (Annexure P-14) and dated 13.7.2012 (Annexure P-

15), whereby the appeal filed by the petitioners- herein was not entertained for failure to comply with the requirement of law i.e. the deposit of 50% of the due amount before entertainment of the appeal.

Challenge in the appeal was to the sale proceedings whereby a bid of Rs. 17.75 crores as against the reserved price of Rs. 17.17 crores was received in respect of the property of the petitioners herein. It is the case of the petitioners that the total amount due and payable by the petitioners was Rs. 18.24 crores. Once, the substantial amount has been received by the Bank in pursuance of the auction conducted, the

requirement of pre-deposit in terms of the proviso to Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the 'Act') stands satisfied as the substantial loan amount has already been received by the Bank. The condition of pre-deposit in these circumstances, over and above the sale price received by the Bank, will in fact lead to undue enrichment in the hands of the Bank when substantial amount to the loan amount stands liquidated by virtue of the auction.

At this stage, we find that out of total due amount of Rs. 18.24 crores, Rs. 17.75 crores have been received by the Bank in a public auction. Therefore, the deposit of 50% of the amount due prior to sale from the petitioner would be wholly unjustified. The proviso to Section 18 of the Act restricts the entertainment of the appeal unless the borrower deposits 50% of the amount of the debt claimed by the secured creditors. Once Rs. 17.75 crores have been received by the secured creditors, that is more than 50% of the debt due from the petitioners, the purpose of the proviso stands satisfied.