M/S S B Valves (India) Private ... vs The Debt Recovery Appellate ...
2022 Latest Caselaw 2040 Kant

         IN THE HIGH COURT OF KARNATAKA,
                  DHARWAD BENCH

       DATED THIS THE 09TH DAY OF FEBRUARY 2022

                        PRESENT

        THE HON'BLE MR.JUSTICE S.G. PANDIT
                          AND
 THE HON'BLE MR. JUSTICE ANANT RAMANATH HEGDE

       WRIT PETITION NO.103026 OF 2021(GM-RES)

BETWEEN:

M/S S B VALVES (INDIA) PRIVATE LIMITED
PLOT NO. 120B, IIND PHASE
TARIHAL INDUSTRIAL AREA, TARIHAL
HUBLI-580026, DHARWAD DISTRICT
KARNATAKA,
REPRESENTED BY ITS MANAGING DIRECTOR
MR. BASAVARAJ N. SARANGI.
                                            ...PETITIONER

(BY SMT SUMANGALA.A.CHAKALABBI, ADVOCATE)

AND:

1.   THE DEBT RECOVERY APPELLATE TRIBUNAL
     REPRESENTED BY ITS SECRETARY
     7TH FLOOR, ADDITIONAL OFFICE
     SHASTRI BHAWAN, NEW BUILDING
     CHENNAI-600006.

2.   THE CANARA BANK
     TRAFFIC ISLAND COURT CIRCLE
     HUBLI-580029.

3.   AUTHORIZED OFFICER
     CANARA BANK
     TRAFFIC ISLAND, HUBLI-580029.
                            2



4.   M/S SHALIMAR VALVES PRIVATE LTD.,
     #4-846/1 MIDC REBALE, NAVI MAMBAI-400701.
     ALSO AT SURVEY NO. 213/2/2
     ANCHATGER VILLAGE KARWAR ROAD
     HUBLI.

5.   THE DEBT RECEOVERY TRIBUNAL
     NO.4, JEEVAN MANGAL BUILDING
     RESIDENCY ROAD, BANGALORE-560025
     REP BY ITS REGISTRAR.
                                            ...RESPONDENTS

(BY SRI C.V.ANGADI., ADVOCATE FOR R2 & 3;
SRI N.G.RASALKAR., ADVOCATE FOR R4;
SRI.SHIVARAJ S.BALLOLI., ADVOCATE FOR R6;
NOTICE TO R1 AND 5 IS DISPENSED WITH)


     THIS PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING THIS HON'BLE
COURT TO HOLD AND DECLARE THAT THE SECOND AND THIRD
PROVISO OF SECTION 18 OF THE SARFAESI ACT TO THE
EXTENT OF REQUIRING THE BORROWER TO MAKE A PRE
DEPOSIT FOR THE PURPOSE OF ENTERTAINING THE APPEAL BY
THE 1ST RESPONDENT IS UNCONSTITUTIONAL AS BEING ULTRA
VIRES ARTICLE 14 OF THE CONSTITUTION OF INDIA AND TO
QUASH   THE   ORDERS   DTD     26/7/2021,    24/8/2021   AT
ANNEXURE-H AND ANNEXURE-K RESPECTIVELY PASSED BY THE
1ST RESPONDENT.

     THIS PETITION COMING ON FOR PRELIMINARY HEARING
THIS DAY, ANANT RAMANATH HEGDE J., DELIVERED THE
FOLLOWING:
                                 3



                              ORDER

The writ petition is filed challenging the constitutional

validity of proviso to Section 18 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 (for short 'the SARFAESI Act')

and also prayer is made to quash the order passed by the

Debt Recovery Appellate Tribunal, Chennai (hereinafter

referred as 'the DRAT' for short) in proceeding No.AIR(SA)

523/2015 wherein in terms of order dated 24.8.2021, the

DRAT rejected the appeal filed by the present writ

petitioners.

2. The matter is listed for preliminary hearing.

Learned counsel, Smt. Sumangala.A.Chakalabbi fairly

submitted that challenge to the constitutional validity of

proviso to Section 18 of the SARFAESI Act is upheld and as

such, the prayer to strike down the proviso to Section 18 is

made in this petition is not surviving. Nevertheless, it is

the submission of the learned counsel for the petitioner

that in the peculiar facts and circumstances of the case,

the petitioner is not required to deposit the amount as

required under proviso 2 and 3 of Section 18 of the

SARFAESI Act.

3. The facts unfolding in the petition can be

summarised as under;

The Canara Bank, Hubli branch had advanced loan to

the petitioner. As a security for the loan, some of the

immovable properties were mortgaged in favour of the

said bank. The bank initiated an auction for recovery

invoking the provisions of the SARFAESI Act.

Subsequently, the property was auctioned and the auction

sale in favour of the 4th respondent is confirmed on

19.2.2014. The 4th respondent was declared the highest

bidder as he quoted Rs.112 lakhs as the price for the

property auctioned. The said auction was called in question

by filing writ petition No.100382/2014. The writ petition

was not entertained on the ground that the petitioner has

got an alternative remedy. This order is questioned by

filing writ appeal No.100349/2014. The said appeal is also

dismissed on 19.8.2014 on the ground that the petitioner

has got an alternative remedy. The petitioner applied

before the Debt Recovery Tribunal No.4, Bengaluru-

respondent No.4 (hereinafter referred to as 'the DRT' for

short) in proceeding LR No.4482/2015. Since there was a

delay of 157 days in applying, to condone the delay, an

application is also filed. The DRT did not find any reasons

to condone the delay and dismissed the application.

Against the said order, an appeal is filed before the DRAT

in AIR No.523/2015. In that proceeding, an application is

also filed seeking waiver of pre-deposit mandated under

the provisions of the SARFAESI Act. In terms of order

dated 26.7.2021, the DRAT passed an order to deposit

Rs.2 crores in 2 instalments of Rs.1 crore each by fixing a

time for each deposit. Later, noticing the fact that the

appellant before the DRAT has not deposited the amount in

terms of order dated 26.7.2021, the appeal is dismissed

for non-compliance of the order relating to pre-deposit.

The order of dismissal of appeal passed on 24.8.2021 is

called in question, in this writ petition.

4. Learned counsel, Smt. Sumangala

A.Chakalabbi raised the following grounds;

(a) The order that was questioned before the

DRAT is the order passed on inter-locatory application,

seeking condonation of delay filed before the DRT. The

said order being an interlocutory order and challenge to

the said order is filed by way of an appeal before the DRAT

does not attract the provision relating to pre-deposit.

According to the learned counsel for the petitioner, the

provision relating to pre-deposit is only applicable in

respect of orders passed on the main application, not on

the interlocutory application.

(b) Bank has committed fraud while conducting

the auction and has not advanced the amount to the

borrower as per the agreement and because of serious

lapses on the part of the bank, the borrower is put to great

hardship and as such, should not be saddled with the

burden of pre-deposit under Section 18 of the SARFAESI

Act.

(c) Alternatively, it is also submitted that some

amount is already recovered by way of an auction and the

said amount is to be adjusted towards pre-deposit.

5. This Court considered the contentions raised

by the petitioner with reference to the documents placed

before the Court as well as the provision of law. Section 18

of the SARFAESI Act would read as under;

18. (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 the 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 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.]

6. Section 18 is the provision that provides for an

appeal against any order made by the DRT. The expression

'any order' found in Section 18(1) does not make any

distinction between order on interlocutory or on the main

application. The word 'any order' in its grammatical

connotation includes orders on the interlocutory application

as well as the orders on the main application. The 2nd

proviso to the said Section mandates that no appeal shall

be entertained unless the borrower has deposited with the

DRAT, 50% of the debt due from him as claimed by the

secured creditors or determined by the DRT, whichever is

less. From a reading of the said proviso, it is apparent that

there need not be an award determining the liability to

insist on pre-deposit. The expression debt due from him,

as claimed by the secured creditor would lead to the

inevitable conclusion that the amount claimed by the

secured creditors is the basis to determine the quantum of

pre-deposit. The only rider is, in the case of difference

between the amount demanded and the amount

determined, the person filing an appeal is required to

deposit 50% of the lesser amount. The said proviso to the

said Section 18 enables the DRAT to reduce the pre-

deposit amount by another 25% and at any rate, the pre-

deposit cannot be lesser than 25%. To exercise 3rd proviso

to Section 18, the DRT has to assign reasons in writing.

The petitioner has applied to waive the pre-deposit and the

DRAT in terms of order dated 26.7.2021 has directed the

appellant before it to deposit Rs.2 crores in two

instalments. Since there is no provision to waive the pre-

deposit, the DRT has not waived the requirement of pre-

deposit. When the order was not complied with and the

amount is not deposited, the appeal is dismissed for not

complying with the requirement of Section 18. From a

reading of Section 18, it is apparent that there is no power

vested with the DRAT to waive the pre-deposit. When the

power is not conferred on the authority by the statute and

when the statute specifically prescribes that the pre-

deposit amount shall not be reduced below 25%, it is to be

held that there is no power in the authority to waive pre-

deposit and there is only scope to reduce the pre-deposit

to the extent of 25% of the amount determined or

demanded whichever is less. The contention that the

petitioner is not in a position to deposit the amount or that

the creditors committed fraud on the borrower cannot be

the ground to waive the requirement of Section 18 of the

SARFAESI Act. Hence, the contention of the petitioner

cannot be accepted.

7. As far as 2nd contention of the petitioner to

treat the amount realized in the auction, as the pre-deposit

amount, reliance is placed on the order passed by the co-

ordinate bench of this Court in W.P.No.102125/2021. We

have gone through the judgment cited by the learned

counsel for the petitioner. In the aforementioned

judgment, the person whose appeal was dismissed by the

DRAT applied to review the order on the ground that after

the demand part payment was made by the borrower. The

contention was that the part payment made by the

borrower is to be taken into account to determine the

actual amount due from the borrower. Based on the

amount due, the pre-deposit amount is to be quantified. In

the said case, the application seeking review was

dismissed without assigning reasons. This Court in the

backdrop of these facts allowed the writ petition and

remanded the matter to the DRT to reconsider the

application for review on merit by taking into account the

amount deposited after the demand. In the instant case, it

is noticed that the petitioner has not filed any application

for review on the ground that she has made payment after

the demand. If any payment is made after the demand or

if the amount realized after the auction sale is to be

adjusted to the amount due while calculating the balance

amount due, then it is open to the petitioner to apply the

DRAT for review of the order dismissing the appeal or the

order dated 26.7.2021 directing payment of Rs.2 crores as

a deposit. If such application is filed by the petitioner for

review of the order, same shall be considered by the

DRAT, keeping in mind, the ratio laid down in the case of

MRB Road Construction Private Limited Vs Rupee Co-

operative Bank Limited1.

With these observations, the writ petition is disposed

of.

Pending applications, if any, do not survive for

consideration and accordingly, they are disposed of.

SD/-

JUDGE

SD/-

JUDGE am

2016 (3) MLJ 589