Section 18 of SARFAESI Act- Borrower has to deposit 50% of the amount of “debt due” as claimed by the bank/financial institution/assignee along with interest as claimed- Supreme Court

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

M.R. SHAH; J.,

B.V. NAGARATHNA; J.

CIVIL APPEAL NO. 8969 OF 2022;

JANUARY 05, 2023

M/s Sidha Neelkanth Paper Industries Private Limited & Another

versus

Prudent ARC Limited & Others

J U D G M E N T

M.R. SHAH, J.

1. As common questions of law and fact arise in this group of appeals, namely, interpretation of Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’), all these appeals are decided and disposed of together by this common judgment and order.

2. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 22.12.2020 passed by the High Court of Delhi at New Delhi in Writ Petition (Civil) No. 6060/2020, both, the borrower as well as the secured creditor have preferred Civil Appeal Nos. 8969 and 8970 of 2022.

3. Civil Appeal Nos. 8972, 8973 and 8974 of 2022 have been preferred against the common impugned judgment and order dated 12.04.2022 passed by the High Court of Madhya Pradesh, Bench at Indore in respective Writ Petition Nos. 5494/2021, 2 5470/2021 and 5478/2021 , by which the High Court has dismissed the said writ petitions preferred by the original writ petitioners – auction purchasers and has confirmed the orders passed by the Debt Recovery Appellate Tribunal, Allahabad (for short, ‘DRAT’), by which the DRAT while entertaining the appeals under Section 18 of the SARFAESI Act held that the borrower is not liable to deposit 50% of the amount of debt as the secured property has been sold and the amount is realised as the same was paid by the auction purchasers and is to be appropriated towards the amount liable to be deposited as pre-deposit under Section 18 of the SARFAESI Act.

Factual aspects in Civil Appeal Nos.8969 & 8970 of 2022:

4. That the appellant in Civil Appeal No. 8969/2022 – Sidha Neelkanth Paper Industries Private Limited (hereinafter referred to as the ‘principal borrower’) approached the Andhra Bank for sanction of credit facility and in the year 2008, it had approached Standard Chartered Bank for taking over the debt taken by it. In the year 2010, the Andhra Bank sanctioned open cash credit limit for a sum of Rs. 15.5 crores in favour of the principal borrower. Immovable properties were mortgaged by the guarantors and by the borrower to secure the said cash credit facility. After taking over the existing cash credit facility, a further ad-hoc open cash credit to the tune of Rs. 3 crores, due to the Standard Chartered Bank, was cleared by the Andhra Bank. 4.1 Since, the principal borrower failed to make the repayment to the Andhra Bank, its account was declared as a Non Performing Asset (NPA). A notice dated 10.05.2013 was issued by the Andhra Bank under Section 13(2) of the SARFAESI Act, calling upon the borrower to pay the outstanding amount of Rs. 16,61,91,174.67 (Rupees sixteen crores sixty one lakhs ninety one thousand one hundred seventy four and paise sixty seven only), payable as on 27.04.2013. Objections thereto were raised by the principal borrower under Section 13(3A) of the SARFAESI Act. Since the amount demanded was not paid under Section 13(2) of the SARFAESI Act, measures under Section 13(4) of the SARFAESI Act were initiated by the Bank and possession of one of the mortgaged properties, being property bearing No. 170, Deepali, Pitampura, Delhi-110034 was taken. An Appeal was filed being SA No. 264/2013 by respondent Nos. 2 & 3 herein challenging the measures taken by the Andhra Bank under Section 13(4) of the SARFAESI Act. 4.2 On 25.07.2013, a conditional interim stay was granted by the Debt Recovery Tribunal-III (for short, ‘DRT’) and the applicants in SA No. 264/2013 were directed to deposit a sum of Rs. 2 crores within a period of 30 days. The said applicants were also directed to bring a better buyer in respect of the properties in question within a period of 60 days along with 10% of the proposed sale consideration. Since the borrower failed to comply with the order of the DRT, the mortgaged properties were put to auction. Attempts made by the owners of the property to challenge the proposed auction failed inasmuch as the application moved before the DRT and the appeal preferred before the DRAT were both dismissed. The writ petition filed by the owners before the High Court also came to be dismissed as withdrawn on 17.02.2016. That thereafter, the property in question was put to auction after getting the property valued and obtaining a valuation report of the property in question, namely, property bearing No. 170, Deepali, Pitampura, Delhi110034 . In the meantime, the Andhra Bank assigned all its debts and underlying securities to Prudent ARC Limited, the appellant in Civil Appeal No. 8970/2022. The borrower filed Writ Petition (Civil) No. 12791/2018 before the High Court challenging the assignment of debts by Andhra Bank, which 3 came to be dismissed by the High Court on 28.11.2018. An intra-court appeal also came to be dismissed. 4.3 That thereafter, the borrower filed an interlocutory application before the DRT to prevent the auction scheduled on 05.12.2018. However, the DRT allowed the creditor/assignee to proceed with the auction. The auction was conducted on 05.12.2018 and one M/s Tejswi Impex Pvt. Ltd. (auction purchaser) was the successful highest bidder for an amount of Rs. 12.5 crores. The entire amount was deposited and a sale certificate came to be issued in favour of the auction purchaser on 19.12.2018. 4.4 The borrower filed an appeal before the DRAT being Appeal No. 616/2018 challenging the order dated 05.12.2018 passed by the DRT dismissing the application filed by the borrower praying that the Bank/assignee be restrained from proceeding with the auction. The DRAT vide order dated 20.12.2018 directed the borrower to comply with the requirements of making a pre-deposit under Section 18 of the SARFAESI Act. The said order was in the nature of an interim order. The order dated 20.12.2018 passed by the DRAT was challenged before the High Court by way of Writ Petition No. 14066/2018. 4.5 The High Court directed the DRAT to hear the appeal on merits by observing that on realising the amount of Rs. 12.5 crores against the debt of Rs. 16.61 crores, it can be said that more than 50% of the debt due is secured/recovered and therefore the requirement of making a predeposit under the second proviso to Section 18 of the SARFAESI Act can be said to have been met. That thereafter, the DRAT disposed of the appeal vide order dated 1.8.2019 with a direction to the DRT to dispose of the main Securitization Application within a period of three months. Subsequently, vide order dated 05.10.2019, the DRT dismissed SA No. 264/2013 filed by respondent Nos. 2 & 3 herein. Against the said order, the borrower and the owner of the mortgaged property filed Regular Appeal No. 467/2019. The borrower sought waiver of the statutory pre-deposit under Section 18 of the SARFAESI Act, relying on the earlier order dated 26.12.2018 passed in Writ Petition No. 14066/2018 and contending, inter alia, that as Rs. 12.5 crores had already been recovered/realised by selling the mortgaged property and the same had been deposited by the auction purchaser, which can be said to be more than 50% of the debt of Rs. 16.61 crores and therefore the borrower is not required to pay any further amount towards the predeposit as envisaged under Section 18 of the SARFAESI Act. The DRAT allowed the waiver of the statutory pre-deposit by observing that the amount already realised by selling the mortgaged property/secured property is required to be adjusted towards the pre-deposit and/or the same can be said to be a deposit of 50% of the amount as pre-deposit, as envisaged under Section 18 of the SARFAESI Act. 4.6 Feeling aggrieved and dissatisfied with the order passed by the DRAT allowing waiver of the statutory pre-deposit on the aforesaid ground, the secured creditor/assignee filed the subject writ petition before the High Court being Writ Petition No. 6060/2020. By the impugned judgment and order, the High Court has partly allowed the said writ petition preferred by the secured creditor/assignee by directing that the borrower is required to deposit 50% of the remaining 4.1 crores being debt due (after deducting/adjusting Rs. 12.5 crores realised/recovered by selling the mortgaged property). The High Court has also observed that it shall be open to DRAT to reduce the said predeposit amount to 25%, after recording reasons in writing for the 4 said reduction. The aforesaid order is passed by the High Court, after observing and concluding as under: “(a) Pre-deposit contemplated under the second proviso of Section 18 of the SARFAESI Act, 2002 is mandatory in nature and cannot be waived by the learned DRAT. (b) While computing the “amount of debt due”, the amount of debt claimed by he secured creditor in its notice issued under Section 13(2) of the Act, shall be relevant and any future interest need not be taken into consideration for purposes of determining, “the amount of debt due as claimed by the secured credit”, in cases where the DRT has not determined the liability of a borrower. (c) The interest component shall be ignored only for the purposes of Section 18 of the Act. This judgment shall not affect the rights of the secured creditors to claim interest from the borrower, for recovery of amounts due under the RDDB Act. (d) Any amount that has been repaid by the borrower and/or recovered by a secured creditor after filing of the petition under Section 17, shall stand to the benefit of the borrower while computing the ”amount of debt due” under the second proviso to Section 18 of the SARFAESI Act, 2002.” 4.7 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, both, the secured creditor/assignee – Prudent ARC Limited and the original borrower – Sidha Neelkanth Paper Industries Pvt. Ltd. have preferred the present appeals. Factual Aspects in Civil Appeal Nos.8972, 8973 & 8974 of 2022:

5. That the respective respondents in the present appeals took financial assistance by way of a Home Loan to the tune of Rupees one crore fifty lakhs from Bank of Baroda – the financial creditor. In order to secure the loan, the borrowers had mortgaged their property situated at Survey No. 542/2/2/1, Patwari Halka No. 18, Junior Dewas, District Dewas. Upon committing the default in returning the loan amount, the Bank issued a demand notice dated 3.8.2019 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’) for a debt of Rs. 1,40,81,936/-. A possession notice was issued on 10.10.2019. The borrowers approached the DRT by filing SA No. 652/2019. The bank withdrew the said notice and issued a fresh notice dated 13.1.2020 under Section 13(2) of the SARFAESI Act for the outstanding amount of Rs. 1,40,81,936/- from the borrowers. That thereafter the bank published the possession notice in daily newspapers on 24.03.2020. Subsequently, the bank issued a sale notice under Section 8(6) of the Security Interest Enforcement Rules, 2002 and put the mortgaged property to auction on 17.08.2020. 5.1 The borrowers again approached the DRT by way of SA No. 240/2020 on 14.08.2020. The bank conducted the auction proceedings on 17.08.2020 in which the appellants herein – original writ petitioners before the High Court, as one of the bidders, was declared as a successful highest bidder, having bid of Rs. 1,55,10,000/- . That thereafter the auction purchaser deposited the entire bid amount. The sale in favour of the auction purchaser came to be finalised and the sale certificate was registered on 23.11.2020 in favour of the auction purchaser and he was put in possession of the secured asset.  

5.2 Vide order dated 13.11.2020, the DRT dismissed SA No. 240/2020. Being aggrieved by the order dated 13.11.2020 passed by the DRT, the borrower approached the DRAT by way of Appeal No.344/2020 along with an application seeking waiver of the pre-deposit of the amount under Section 18 of the SARFAESI Act. By order dated 9.2.2021, the DRAT held that as the bank had already recovered the debt by selling the mortgaged property and there was no remaining amount of debt due, the requirement of pre-deposit was satisfied and the borrower/appellants were not required to tender any amount towards discharging the condition of predeposit for entertaining the appeal under Section 18 of the SARFAESI Act .

5.3 Being aggrieved by the said order, the auction purchaser as well as the Bank filed the subject writ petitions before the High Court. By the impugned common judgment and order, the High Court dismissed the said writ petitions by observing that the borrower is not liable to deposit 50 % of the amount of the debt as initially claimed by the secured creditor in view of the recovery of the amount by way of an auction sale. Thus, according to the High Court, the amount realised on deposit of the sale consideration by the auction purchaser is required to be appropriated and/or adjusted towards the amount of pre-deposit required to be deposited by the borrower under Section 18 of the SARFAESI Act.

5.4 Feeling aggrieved and dissatisfied with the common impugned judgment and order passed by the High Court, the auction purchasers have preferred the present civil appeals. Rival submissions in CA Nos.8969 & 8970/2022

6. Learned counsel appearing on behalf of the principal borrower has vehemently submitted that the High Court has materially erred in directing the principal borrower to deposit 50% of the remaining sum of Rs. 4.1 crores as pre-deposit under Section 18 of the SARFAESI Act.

6.1 It is further submitted that in the present case the secured property was sold in a public auction for a sum of Rs. 12.5 crores against the original amount of debt of Rs. 16.61 crores. That therefore the amount recovered was more than 50% of the original amount of debt of Rs. 16.61 crores and therefore no further order could have been passed directing the principal borrower to deposit any amount towards predeposit as required under Section 18 of the SARFAESI Act. It is contended that the amount realised by the financial institution by selling the secured property is required to be adjusted/appropriated while considering the “debt due”.

6.2 It is further contended that while passing the impugned order, the High Court has misinterpreted the definition of “debt” defined under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as the ‘Act 1993’). That the “debt due” required to be calculated to determine the pre-deposit amount shall have to be calculated deducting the money received by the bank/financial institution during the pendency of the proceedings before the DRT.

10. We have heard learned counsel appearing on behalf of the secured creditor/assignee, the respective auction purchasers and respective borrowers.

18. Civil Appeal Nos. 8970, 8972, 8973 & 8974 of 2022 are accordingly allowed except Civil Appeal No. 8969 of 2022. Consequently, Civil Appeal No. 8969 of 2022 stands dismissed, as observed hereinabove. However, in the facts and circumstances of the case, there shall be no order as to costs.