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Judgment
Ashok Menon, Chairperson
The appellants are in appeal impugning the order dated 09.02.2023 in Interlocutory Application (I.A.) No. 23 of 2023 in Securitisation Application (S.A.) No. 7 of 2023 which was dismissed by the Debts Recovery Tribunal, Nagpur (DRT). The application was filed for protection from being dispossessed of the secured asset by the respondent bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short).
The facts in brief are thus:
Appellants are admittedly borrowers, guarantors and mortgagors who had borrowed the money from the first appellant company and defaulted in repayment. A demand notice was issued under Sec. 13(2) of the SARFAESI Act on 28.04.2022 demanding ₹10,58,33,233/-. It is contended that the Sarfaesi measures are improper because the demand notice does not give a bifurcation of the principal amount and interest as required under Sec. 13(3) of the SARFAESI Act. It is stated that the date of NPA is also not mentioned in the notice. In paragraph No. 4 of the notice, it is stated that all accounts have been classified as NPA but the date on which it was classified, is not specified and therefore, it is submitted that the classification of the account as NPA and also the demand notice are invalid. Therefore, the entire Sarfaesi measures taken thereafter should fail. The appellants had objected to the demand notice on 08.06.2022 detailing the objections that they have pleaded in the S.A. To that notice, there is a reply sent by the bank under Sec. 13(3A) on 20.06.2022. In that notice, it is alleged that there are no pointed objections which have been raised specifically regarding the non-compliance of Sec. 13(3) of the SARFAESI Act. Thereafter, there was an OTS proposal on 27.07.2022 after the demand notice, in which the bank agreed to close the debt subject to the payment of ₹10.5 crores. Prior to that, on 11.02.2021, the bank had also issued a ‘No Objection Certificate’ (NOC) to sell a portion of the secured assets with the consent of the bank. Accordingly, some property was sold to a third party for ₹10.5 crores. The appellants would contend that the entire amount which they received as sale consideration on that sale was paid to the Bank and therefore, the demanded amount has been paid in full. The Ld. Counsel appearing for the appellants contests that on payment of the amount received by the bank as the sale consideration, the account should have come in regular because towards an outstanding liability of ₹10.58 crores, ₹5 crores were immediately adjusted towards the loan amount and therefore, the account should have become regular. A possession notice was however, issued under Rule 8(1)of the Security Interest (Enforcement) Rules, 2002, on 13.12.2022 in which after deducting ₹5 crores received the sale consideration and ₹94,54,000/- as subsidy received from the Government and an amount of ₹4,60,79,233/- is mentioned as the outstanding amount due toward the debt.
The Ld. Counsel appearing for the respondent bank has vehemently opposed the application for waiver of deposit stating that the contention raised is not sustainable. It is pointed out that the entire sale consideration of ₹10.50 crores received on the sale of the property on 24.02.2021 did not come to the bank for being adjusted towards the debt. It is admitted that ₹5 crores were deposited by the purchaser on 23.02.2021 but that amount went to the current account of the appellants which they withdrew for clearing the other liabilities which they had, and only a sum of ₹5 crores which was paid by the purchaser on 24.08.2022 came into the loan account of the appellants and hence, the contention that the entire sale consideration was appropriated by the respondent bank is not true. that is the reason why the possession notice issued by the respondent bank indicates an outstanding balance of ₹4,60,79,233/-. The Ld. Counsel appearing for the respondent bank submits that the appellants are not entitled to any concession and 50% of that amount may be directed to be paid for entertaining this appeal.
The appellants contend that they have proved a prima facie case as well as their financial strain to get 25% of the pre-deposit amount waived. The appellants have admittedly after the receipt of the demand notice accepted an OTS proposal of ₹10.50 crores given by the bank and towards that, the payment of ₹5,97,54,000/- alone had come and the appellants had written a letter to the respondent bank on 27.10.2022 admitting that ₹5 crores alone had paid towards the debt as agreed by the OTS and they sought further extension of time to pay the balance amount which according to the Ld. Counsel for the respondent stipulated that the entire sale consideration had to come into the loan account of the appellants. That did not happen.
Given the acceptance of the OTS proposal after the issuance of the demand notice, the appellants are precluded from raising a contention challenging the validity of the Sec. 13(2) notice, given the decision of the Hon’ble Supreme Court in ARCE Polymers Private Limited vs. Alphine Pharmaceuticals Private Limited & Ors. (2022) 2 SCC 221. The only sustainable contention that is raised by the appellant would, therefore, be whether the entire amount has been paid as a consequence of the sale. Their letter indicates that they have only permitted and adjusted ₹5 crores towards the loan and the rest of the amount did come into their loan account. but as is borne out from the account statement produced by the respondent bank it indicates that the balance sale consideration was deposited into the current account of the appellants and they had withdrawn it for being adjusted towards their other liabilities.
The GST returns of the first respondent company have been produced which indicates that the company has been shut down and that there is no business taking place and no income is derived from the company. However, the directors of the company and the other appellants who are the guarantors/mortgagors have not produced their income tax returns which is also essential because they also would come within the definition of the borrowers under the provisions of the SARFAESI Act.
Hence, the appellants are not entitled to get a waiver of 25% of the pre-deposit amount but they are entitled to some concession because, after the demand notice, they admittedly pay ₹5,97,54,000/-towards the debt and only a balance of ₹4,60,79,233/- remains to be paid. Subsequent interest also would have accrued but given the decision of the Hon’ble Supreme Court in M/s Sidha Neelkanth Paper Industries Private Limited & Ano. vs. Prudent ARC Limited & Ors. 2023 SCC OnLine SC 12, the appellants are only liable to make a pre-deposit based on the threshold amount mentioned in the demand notice and therefore, I rely on the amount mentioned in the possession notice under Rule 8(1) as the threshold amount for calculation of the pre-deposit. The appellants have in instalments already deposited the total sum of ₹1.30 crores towards pre-deposit. Today, the Ld. Counsel appearing for the appellants has furnished a demand draft of ₹5 lakhs which would make the total payment of ₹1.35 crores. 25% of the amount would come to ₹1.15 crores but since I have found that the appellants are not entitled to get the entire 25% waived. They are directed to deposit a further amount of ₹50 lakhs as pre-deposit for entertaining this appeal in three instalments within a gap of two weeks each as stated hereunder.
Numbers of Instalments
Payment on or before
1st Instalment of ₹ 20,00,000
21.01.2025
2nd Instalment of ₹ 20,00,000
04.02.2025
3rd Instalment of ₹ 10,00,000
18.02.2025
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.
Given the payments of amounts made so far, the Sarfaesi measures shall not be proceeded by the respondent bank till the next date of hearing.
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 Nationalized bank, initially for 13 months, and thereafter to be renewed periodically.
With these observations, the I.A. is disposed of. The Respondents is at liberty to file a reply in the Appeal with an advance copy to the other side.
For reporting compliance regarding the first instalment, call on 22. 01.2025.