Research › Search › Judgment

Karnataka High Court · body

2022 DIGILAW 179 (KAR)

S. B. Valves (India) Private Limited, Represented By Its Managing Director Mr. Basavaraj N. Sarangi v. DEBT Recovery Appellate Tribunal Represented By Its Secretary

2022-02-09

ANANT RAMANATH HEGDE, S.G.PANDIT

body2022
ORDER : 1. 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. 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 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. 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 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 coordinate 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. 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 Cooperative Bank Limited, 2016 (3) MLJ 589. With these observations, the writ petition is disposed of. Pending applications, if any, do not survive for consideration and accordingly, they are disposed of.