Sidha Neelkanth Paper (P) Ltd. vs Prudent ARC Ltd., (2023) 236 Comp Cas 448

M/s Sidha Neelkanth Paper Industries Private Limited & Another …Appellants

Versus

Prudent ARC Limited & Others …Respondents

WITH

CIVIL APPEAL NO. 8970 OF 2022 CIVIL APPEAL NO. 8972 OF 2022 CIVIL APPEAL NO. 8973 OF 2022 CIVIL APPEAL NO. 8974 OF 2022

JUDGMENT

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 Signature Not Verified Digitally signed by Neetu Sachdeva

appeals are decided and disposed of together by this common judgment Date: 2023.01.05 16:39:17 IST Reason:

and order.

1

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, 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

2 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.

3 264/2013 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, Delhi-

110034. 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

4 by Andhra Bank, which 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

5 due is secured/recovered and therefore the requirement of making a pre-

deposit 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 pre-

deposit 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.

6 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 pre-

deposit amount to 25%, after recording reasons in writing for the 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.”

7 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

8 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 pre-deposit for entertaining the appeal under

Section 18 of the SARFAESI Act .

9 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.

10 16.61 crores and therefore no further order could have been passed

directing the principal borrower to deposit any amount towards pre-

deposit 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.

6.3 It is next submitted that while passing the impugned judgment and

order, the High Court has erred in not applying the literal rule of

interpretation for construing the second proviso to Section 18 of the

SARFAESI Act for ascertaining true and correct meaning on the

expression of “debt due”.

7. Learned counsel appearing on behalf of the financial institution

and the auction purchaser have vehemently submitted that the High

Court has materially erred in directing the borrower to deposit 50% of the

remaining Rs. 4.1 crores only as pre-deposit. It is contended that the

11 said order is under challenge by the financial institution in the present

case and it is the case on behalf of the financial institution that the High

Court ought to have directed the borrower to deposit 50% of the original

amount of debt of Rs. 16.61 crores.

7.1 It is submitted that the High Court has very seriously erred in

directing that the amount realised from auction sale of the secured

property shall have to be appropriated for the pre-deposit amount which

is to be determined on the balance of the “debt due”, without considering

the interest component.

7.2 It is further submitted that as per proviso to Section 18 of the

SARFAESI Act, the amount of pre-deposit is to be calculated in respect

of the amount of “debt due” and the “debt” in SARFAESI Act is defined in

Section 2(ha). It is submitted that as per section 2(ha) “debt” shall have

the same meaning as assigned to it in section 2(g) of the Act of 1993. It

is submitted that on perusal of Section 2(g) of the Act of 1993, “debt

due” would include liability + interest. It is submitted that in the present

case the High Court in the impugned judgment and order has observed

and held that while considering the pre-deposit under Section 18 of the

SARFAESI Act, interest component is to be ignored. It is submitted that

the same is contrary to Section 2(ha) of the SARFAESI Act.

7.3 It is further submitted that as the borrower has challenged the

notice under Section 13(2) of the SARFAESI Act and has also

12 challenged the auction sale, adjustment of the amount recovered from

sale of the secured assets against the pre-deposit under Section 18 of

the SARFAESI Act, could not be permitted. Reliance is placed on the

decision of the Bombay High Court in the case of Eskays Construction

Pvt. Ltd. v. Soma Papers & Industries Limited & Others, 2016 SCC

OnLine Bom. 9827, against which a special leave petition was filed and

dismissed. It is submitted that even the proviso to Section 18 of the

SARFAESI Act does not provide for any such adjustment. It is averred

that therefore in the present case, the High Court has erred in allowing

adjustment of the amount recovered from sale of secured assets, the

amount which has been deposited by the auction purchaser and not

borrower while considering pre-deposit under Section 18 of the

SARFAESI Act.

Rival submissions in Civil Appeal Nos.8972 to 8974 of 2022

8. Shri Vinay Navare, learned Senior Advocate appearing on behalf

of the auction purchaser, in addition, has vehemently submitted that the

requirement of deposit under Section 18 of the SARFAESI Act is not for

the purpose of securing payment of the creditor. That the objective is to

require the borrower to prove his bona fides and to discourage frivolous

litigation from being initiated by the borrower. It is submitted that

therefore, this Court in the case of Axis Bank v. SBS Organics Private

13 Limited, (2016) 12 SCC 18 has held that the amount of pre-deposit is

refundable to the borrower after disposal of appeal.

8.1 It is next submitted that the language of Section 18 of the

SARFAESI Act is very clear and unambiguous. It says that the

“borrower shall deposit”, which means such amount is required to be

brought in by the borrower and the amount standing with creditor

through auction sale cannot be for the benefit of the borrower. That the

borrower can take benefit of the amount received by the creditor in an

auction sale only if he unequivocally accepts the sale. It is submitted

that if the borrower wants to question the sale, then he cannot claim the

amount of deposit for his benefit. The borrower cannot be allowed blow

hot and cold.

8.2 Reliance is placed on the decision of this Court in the matter of

M/s Shilpa Shares and Securities v. National Cooperative Bank Ltd.,

(S.L.P (Civil) No. 14717/2022, decided on 21.11.2022) wherein it has

been held that the amount deposited pursuant to the order of this Court

cannot be adjusted in pre-deposit. That in the said case, the borrower

applied for OTS and the matter reached this Court and to show the bona

fides of the borrower, while considering its prayer for OTS, this Court

directed to deposit certain amount. That thereafter the special leave

petition came to be dismissed and in an appeal challenging the

proceedings under the SARFAESI Act, the borrower wanted to adjust

14 and/or appropriate the amount deposited pursuant to the order passed

by this Court and that Court negatived the same by observing that the

amount deposited pursuant to the order of this Court cannot be adjusted

in pre-deposit.

8.3 Making above submissions, it is prayed that the impugned

judgment and order passed by the High Court be set aside and the

borrower be directed to deposit 50% of the “debt due” without adjusting

and/or appropriating the amount realised by selling the secured assets.

9. Learned counsel appearing on behalf of the original borrowers

have supported the impugned judgment and order passed by the High

Court of Madhya Pradesh and have submitted that the High Court has

not committed any error in dismissing the writ petitions and confirming

the orders passed by the DRAT by which the DRAT after

adjusting/appropriating the amount realised by sale of the secured

property held that the borrowers are not required to deposit any further

amount towards pre-deposit as the amount realised is more than 50% of

the ”debt due”.

Consideration:

10. We have heard learned counsel appearing on behalf of the

secured creditor/assignee, the respective auction purchasers and

respective borrowers.

15

11. The short question which is posed for the consideration of this

Court is, “whether, while calculating the amount to be deposited as pre-

deposit under Section 18 of the SARFAESI Act, 50% of which amount

the borrower is required to deposit as pre-deposit and whether while

calculating the amount of “debt due”, the amount deposited by the

auction purchaser on purchase of the secured assets is required to be

adjusted and/or appropriated towards the amount of pre-deposit to be

deposited by the borrower under Section 18 of the SARFAESI Act?”

Another question would be, “whether the “debt due” under Section 18 of

the SARFAESI Act would include the liability + interest?”

12. While considering the aforesaid issues/questions, Section 18, &

2(ha) of the SARFAESI Act and section 2(g) of the Recovery of Debts

and Bankruptcy Act, 1993, which would have a direct bearing are

required to be referred to. The said provisions read as under:

18. 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 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:

16

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.

2(ha) “debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and includes—

(i) unpaid portion of the purchase price of any tangible asset given on hire or financial lease or conditional sale or under any other contract;

(ii) any right, title or interest on any intangible asset or licence or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable any borrower to acquire the intangible asset or obtain licence of such asset;

Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 - “debt” means any liability (inclusive of interest) which is claimed as due from any person [or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956),] by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;]”

13. As per Section 2(ha) of the SARFAESI Act, “debt” shall have the

same meaning assigned to it in clause (g) of Section 2 of the Act 1993.

As per section 2(g) of the Act 1993, “debt” means any liability inclusive of

interest which is claimed as due from any person….., by a bank or a

17 financial institution during the course of any business activity

undertaken by the bank or the financial institution, in cash or otherwise,

whether secured or unsecured, or assigned, or whether payable under a

decree or order of any civil court or any arbitration award or otherwise or

under a mortgage and subsisting on, and legally recoverable on the date

of the application. That the “debt” means any liability inclusive of

interest.

As per Section 18 of the SARFAESI Act, any person aggrieved, by

any order made by the DRT under section 17, may prefer an appeal

within thirty days to an appellate Tribunal (DRAT) from the date of

receipt of the order of DRT. Second proviso to section 18 provides 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 DRT,

whichever is less and only and only then, an appeal under Section 18 of

the SARFAESI Act is permissible against the order passed by the DRT

under Section 17 of the SARFAESI Act. Under Section 17, the scope of

enquiry is limited to the steps taken under Section 13(4) against the

secured assets. Therefore, whatever amount is mentioned in the notice

under Section 13(2) of the SARFAESI Act, in case steps taken under

Section 13(2)/13(4) against the secured assets are under challenge

18 before the DRT will be the ‘debt due’ within the meaning of proviso to

Section 18 of the SARFAESI Act. In case of challenge to the sale of the

secured assets, the amount mentioned in the sale certificate will have to

be considered while determining the amount of pre-deposit under

Section 18 of the SARFAESI Act. However, in a case where both are

under challenge, namely, steps taken under Section 13(4) against the

secured assets and also the auction sale of the secured assets, in that

case, the “debt due” shall mean any liability (inclusive of interest) which

is claimed as due from any person, whichever is higher.

14. As observed hereinabove and as per the second proviso to

Section 18 of the SARFAESI Act, it is the “borrower” who has preferred

an appeal before the Appellate Tribunal and the “borrower” who shall

have to deposit 50% of the amount of “debt due” from him. If the words

used in the second proviso to Section 18 of the SARFAESI Act are

“borrower has to deposit”, it is not appreciable how the amount

deposited by the auction purchaser on purchase of secured assets can

be adjusted and/or appropriated towards the amount of pre-deposit, to

be deposited by the borrower. It is the “borrower” who has to deposit

the 50% of the amount of “debt due” from him. At the same time, if the

borrower wants to appropriate and/or adjust the amount realised from

sale of the secured assets deposited by the auction purchaser, the

19 borrower has to accept the auction sale. In other words, the borrower

can take the benefit of the amount received by the creditor in an auction

sale only if he unequivocally accepts the sale. In a case where the

borrower also challenges the auction sale and does not accept the same

and also challenges the steps taken under Section 13(2)/13(4) of the

SARFAESI Act with respect to secured assets, the borrower has to

deposit 50% of the amount claimed by the secured creditor along with

interest as per section 2(g) of the Act 1993 and as per section 2(g),

“debt” means any liability inclusive of interest which is claimed as due

from any person.

15. An identical question came to be considered by the Bombay High

Court in the case of Eskays Construction Pvt. Ltd. (supra). Before the

Bombay High Court, it was the case on behalf of the borrower that

though as per Section 18 of the SARFAESI Act, no appeal filed by the

borrower can be entertained by the DRAT unless the borrower deposits

with the DRAT 50% of the amount of “debt due” from him, as claimed by

the secured creditor or as determined by the DRT, whichever is less,

however, that does not mean that in a case where the properties of the

borrower are sold and the entire dues of the bank are recovered from

that sale, the borrower still has to deposit 50% as contemplated under

Section 18 of the SARFAESI Act. While negativing the said submission,

20 the Bombay High Court considered the purpose and object of the

SARFAESI Act in paragraph 14 as under:

“14. We have heard the learned counsel for the parties at length and perused the papers and proceedings in the Writ Petition along with the annexures thereto. Before we deal with the rival contentions, it would be necessary to set out the purpose and object for which the SARFAESI Act was brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Committees and the Andhyarujina Committee for the purposes of examining banking sector reforms. These Committees inter alia suggested enactment of a new legislation for securitization and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Accepting these recommendations, the SARFAESI Act was brought into force w.e.f. 21-06-2002. There have been several amendments to the SARFAESI Act, the latest being an amendment of 2016 that received the assent of the President on 12 August, 2016 and was published in the Official Gazette dated 16 August, 2016. It is called the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016. The preamble of this amending Act indicates that the same was intended to further amend the SARFAESI Act, the RDDB Act, the Indian Stamp Act, 1899 and the Depository Act, 1996 and for matters connected therewith or incidental thereto.”

Thereafter, the Bombay High Court considered in detail Section 18.

After considering the decision of this Court in the case of Narayan

Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548, it was observed and

held that provisions of Section 18, more particularly the second and the

21 third proviso thereto are mandatory in nature and that the DRAT has no

power to grant full waiver of deposit. In paragraph 16, it is observed as

under:

“16. Section 18(1) clearly stipulates, any person aggrieved by any order made by the DRT under Section 17, may prefer an appeal to the DRAT within 30 days from the date of receipt of the order of the DRT. The 2nd proviso to Section 18(1) stipulates that no appeal shall be entertained by the DRAT unless the borrower has deposited with it 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. The 3 rd proviso to Section 18(1) gives a discretion to the DRAT to reduce the aforesaid amount to not less than 25%, provided the DRAT gives reasons for the same which are to be recorded in writing. What becomes clear from the aforesaid provisions is that there is a jurisdictional bar from entertaining an appeal filed by the borrower from an order passed under Section 17, unless the borrower deposits 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. There is also a discretion granted to the DRAT to reduce this amount to 25% provided it finds adequate reasons for doing so and gives reasons, that are recorded in writing. If this deposit is not made, then the DRAT has no jurisdiction to entertain the appeal of the borrower. The crucial words “debt due from him” have to be interpreted consistent with the object and purpose sought to be achieved by the SARFAESI Act. Unless the debt due is secured, the borrower cannot be allowed the luxury of litigation. If that is permitted, the secured creditors would be engaged in a continuous and futile litigation. On a plain reading of the section, it is clear that the DRAT has no power or jurisdiction to reduce the deposit amount to less than 25%. This is ex-facie clear from the plain and unambiguous language of Section 18 of the SARFAESI Act.”

That thereafter the Bombay High Court considered the submission

on behalf of the borrower that as the bank had already sold the secured

assets for a consideration that fully secured their claim and therefore

there was no requirement for the borrower to deposit any amount as

contemplated under Section 18 of the SARFAESI Act. The Bombay

High Court did not accept the said submission by observing that it would

22 be ludicrous to suggest that the money realised by the bank from sale of

the secured assets could be used by the borrower to fulfil the condition

of pre-deposit under Section 18. The Bombay High Court has observed

that it would be a different matter if the sale is accepted and confirmed

by the borrower. The Bombay High Court further observed that the

borrower cannot be permitted to use the sale proceeds received from the

sale of the subject properties to be adjusted/given credit for in the

application for waiver of deposit and at the very same time challenge the

sale of very same subject properties. The said decision of the Bombay

High Court has been confirmed by this Court as the special leave

petition preferred impugning the same, has been dismissed. Even

otherwise, we are in full agreement with the view taken by the Bombay

High Court in the case of Eskays Construction Pvt. Ltd. (supra). We

are of the firm opinion and view that in a case where the borrower

challenges the auction sale, thereafter it will not be open for the

borrower to pray to use the sale proceeds received from the sale of the

secured properties to be adjusted/given credit in an application for

waiver of pre-deposit.

16. In view of the above and for the reasons stated above, in the

present case, the respective High Courts have seriously erred in

directing to adjust/appropriate the amount realised by auction sale of the

23 secured properties/deposited by the auction purchasers while

considering the 50% of the amount as pre-deposit to be deposited by the

borrower, while preferring an appeal before the DRAT. Even the High

Court of Delhi has erred in excluding the amount payable towards

interest while considering the “debt due”. As per Section 2(g) of the Act

1993, “debt” means liability inclusive of interest as claimed by the

bank/financial institution.

17. In view of the above and for the reasons stated above, the

respective appeals preferred by the financial institution/assignee and

auction purchasers being civil Appeal Nos. 8970, 8972, 8973 and 8974

of 2022 are hereby allowed. The appeal preferred by the borrower

against the judgment and order passed by the Delhi High Court being

Civil Appeal No. 8969/2022 deserves to be dismissed and is accordingly

dismissed. It is observed and held that the borrower has to deposit 50%

of the amount of “debt due” as claimed by the bank/financial

institution/assignee along with interest as claimed in the notice under

Section 13(2) of the SARFAESI Act and the borrower is not entitled to

claim adjustment/appropriation of the amount realised by selling the

secured properties and deposited by the auction purchaser when the

auction sale is also under challenge.

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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.

……………………………………….J. [M.R. SHAH]

NEW DELHI; ……………………………………….J. JANUARY 05, 2023. [B.V. NAGARATHNA]

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