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Judgment
Ashok Menon, Chairperson
The matter is taken up for hearing by way of a praecipe filed by the appellants for seeking urgent relief.
The appellant is in appeal impugning the order dated 24.12.2024 in Securitisation Application No. 197/2024 (S.A.) on the files of the Debt Recovery Tribunal-II, Ahmedabad (D.R.T.) declining to grant any protection to the appellants against the measures initiated by the respondent bank for recovery of debt allegedly due from the appellants under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002 ( “SARFAESI Act” in short). The 1st appellant is a company and the rest of the appellants are its directors. Admittedly, they had availed several facilities from the respondent bank. The 1st appellant claims to be an MSME unit entitled to the benefit of the MSME Act. It is contended that the respondent bank has violated the provision of the MSME Act and also the RBI guideline and classified the debt as a Non-Performing Asset (NPA) on 26.06.2023 and it is pointed out that the bank had reduced the facilities on 08.06.2023. But even before there was a default of 90 days, a demand notice was issued u/s 13 (2) of the SARFAESI Act by classification of the account as NPA on 26.06.2023. Given the renewal of the facilities on 08.06.2023, there could not have been a default of 90 days. Moreover, being an MSME unit the appellants were entitled to the benefit under the MSMED Act. The financial strain of the company should have been referred to a committee to explore the possibility of the revival of the unit. The bank allegedly did not do so, and the case of the appellants was never referred to the committee constituted under the Corrective Action Plan (CAP).
It is further submitted that soon after taking symbolic possession on 21.09.2023, the appellants filed S.A. No. 724/2023. But subsequently, the earlier demand notice was withdrawn as a consequence of which, the S.A. was also disposed of as withdrawn on 14. 12.2023. subsequently, a fresh demand notice was issued on 21. 12.2023 and symbolic possession was again taken on 22.03.2024 in consequence of which, the present S.A. No. 197/2024 was been filed.
It is also contended that the order obtained by the respondent bank u/s 14 of the SARFAESI Act from the Court of the CJM, Morbi on 01.08.2024 does not indicate an application of mind to the compliance of the mandatory provision required u/s 14 of the SARFAESI Act. After the passing of the order of taking physical possession u/s 14 the existing S.A. was amended on 08.08.2024 raising a challenge to the order passed u/s 14 by the CJM. On 26.12.2024 a notice was issued by the commissioner deputed by the CJM for taking physical possession of the properties except the residential house. As a consequence, the possession of all the properties except the residential house was taken.
The appellants contend that the demand notice issued u/s 13 (2) is faulty because there is no bifurcation as required u/s 13 (3) of the SARFAESI Act. The name and designation of the Authorized Officer who issued the demand notice are also not mentioned in the notice.
It is also contended that the appellants did not raise any objection to the demand notice u/s 13 (2) despite that in the application filed u/s 14 it is specifically stated that there was an objection raised to the demand notice to which the respondent bank has sent the reply as required u/s 13 (3A) of the SARFAESI Act. The Ld. Counsel appearing for the appellants contended that they have a very good prima facie case. It is also submitted that the appellants are under financial strain and the income tax return of the company and financial statement of the company have been produced to indicate that the company is running at a loss. The 1st appellant has produced the income tax return to indicate that they do not have the financial capacity to pay 50% of the said demanded amount.
The Ld. Counsel appearing for the respondent submits that under the MSME Act, it is not incumbent upon the bank to refer the case to a committee for consideration by the CAP. The Ld. Counsel has relied upon the decision of the Hon’ble Apex Court in M/s Pro Knits & Ors vs. Board of Directors of Canara Bank & Ors. SLP (C) 7898 of 2024 wherein it was held that the borrowers claiming the benefit of the MSME Act can send a representation for consideration by the committee. Admittedly there is no such representation made by the appellants and therefore, there was no requirement for referring the account to the committee.
It is also contended by the respondent that the demand notice issued u/s 13 (2) is not faulty and has no infirmity because the breakup of the unapplied interest, the principal amount and the sanctioned amount concerning each of the facilities have been separately mentioned. The rate of interest is also mentioned in the demand notice and therefore, does not appear any infirmity in the interest. As regards the classification of the account as NPA also there is no default, submits the respondent. It is pointed out that as of this date, there is an outstanding due of ₹18,73,54,356.65 and the demand notice issued u/s 13 (2) on 21.12.2023 demands a sum of ₹17,03,45, 270.15 as of 21. 12.2023. The Ld. Counsel appearing for the respondent submits that no concession needs to be given to the appellants and they may be directed to deposit 50% of the demanded amount as pre-deposit u/s 18 (1) of the SARFAESI Act to get the appeal entertained.
On considering the rival submissions made by the parties and also on perusal of records, I find that the demand notice u/s 13(2) gives the breakup of the unapplied interest and the penal interest as well as the principal amount concerning each of the facilities. Probably the breakup of the interest depending on the fluctuating rate of interest is not given but the demand for giving a breakup of the fluctuating rate of the interest seems to be too pedantic and not acceptable. As regards the application of the MSMED Act and concerning the question as to who has to initiate the action for referring the case to the committee, it is something that has to be considered in detail and this is not the stage where the finding on that point is called for.
The appellants have however an arguable case but not a very strong prima facie case. They have to some extent also succeeded in establishing that they are under financial strain. Under the circumstances, even though the appellants are not entitled to get the 25% of the debt due towards pre-deposit waived they are entitled to some concession. The appellants are directed to deposit a sum of ₹5.25 crore as a pre-deposit for getting the appeal entertained. The possession of the secured asset is intended to be taken on the 15th instant. The Ld. Counsel appearing for the appellants submits that the sum of ₹40 lakhs would be deposited within one week, i.e., on or before 10.01.2025. The appellants shall deposit a sum of ₹60 lakhs more on or before 15.01.2025 and in compliance with that direction, the possession intended to be taken on the 15th instant shall stand deferred till the next date of hearing. The balance amount a sum of ₹4.25 crores shall be within three instalments within the gap of two weeks each as stated hereunder.
Numbers of Instalments
Payment on or before
1st Instalment ₹ 1.45 Crore
29.01.2025
2nd Instalment ₹ 1.40 Crore
12.02.2025
3rd Instalment ₹ 1.40 Crore
26.02.2025
In default in payment of any of the amount/instalment on time shall entail the dismissal of the appeal without any further reference to this Tribunal.
The amount shall be deposited in the form of a Demand Draft/RTGS with the Registrar of this Tribunal. Payment by RTGS shall be communicated to the Registry for verification and intimated to the counsel for the respondents.
As and when the said amounts are deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any Nationalised bank, initially for 13 months, and thereafter to be renewed periodically.
With these observations, the I.A. is disposed of. The Respondent is at liberty to file a reply in the Appeal with an advance copy to the other side.
List the matter on 13.01.2025 for reporting compliance regarding the payment of the pre-deposit.