2018 (11) TMI 1897 - HC - Indian Laws

Maintainability of petition - waiver of pre-deposit - validity of auction sale - auctioned property - proper publication for sale of property, published or not - Section 20 of the SARFAESI Act - HELD THAT - The admitted facts are that the property in question has been auctioned by the Bank and purchased by the respondent No.2 for an amount of₹ 11.77 crores, whereas the notice under Section 13(2) to be recovered from the borrower / petitioner was ₹ 9,25,11,879.56. Pursuant to the sale, as seen from the reply filed by the respondent No.1 Bank (at page 507 of the paper book), the sale certificate has been issued in favour of the respondent No.2, and even a sale deed has been executed in favour of respondent No.2. Physical possession of the property has also been given to the said respondent. Whether for entertaining the appeal by the Appellate Tribunal, the petitioner is required to deposit 50% of the amount of debt due from the petitioner as claimed by the secured creditors or determined by the Recovery Tribunal, in terms of second proviso to Section 18 of the SARFAESI Act? - HELD THAT - On a perusal of the second proviso to Section 18, it is clear that the same pre-supposes two eventualities; (i) that debt is due from the petitioner as claimed by the respondent No.1 Bank or; (ii) debt has been determined by the Debt Recovery Tribunal, and the same is liable to be paid / recovered on the date when the appeal is entertained by the DRAT. In either of the eventualities 50% of the amount of debt need to be made as pre-deposit - It is a conceded case of the respondents that none of the eventualities exist as the amount due to the Bank has been recovered. The application has been opposed by the respondents and decided by the DRAT primarily on an apprehension that since, the petitioner has challenged the auction, the same may be set aside. In other words, the sale remains in a nebulous stage and the sale will achieve finality / confirmed only when the legal proceedings come to an end. The amount of pre-deposit has to be made in DRAT and not in the Bank. But still when no amount is due from the petitioner whether the pre-deposit can still be insisted upon. The argument can be made that the condition of pre-deposit is to discourage frivolous litigation which if permitted, would defeat the very purpose of the enactment of early settlement of the disputes. The argument is appealing but the same shall not hold good in the facts of the case with which we are concerned. Otherwise, the provision of appeal for persons / entities like the petitioner, shall become otiose / illusory. In fact, the insistence of pre-deposit shall be inequitable in the facts. Nothing precludes DRAT while deciding the appeal, if it finds that the appeal filed by the petitioner is frivolous, to impose such cost as deemed fit, to be recovered from the excess amount already lying deposited with the Bank. Petition disposed off.

Summary

Issues Involved:
1. Challenge to the order of DRAT rejecting waiver of pre-deposit.
2. Alleged improper publication and hurried sale of mortgaged property.
3. Consideration of auction proceeds towards compliance of pre-deposit.
4. Legal interpretation of Section 18 of the SARFAESI Act regarding pre-deposit requirements.

Detailed Analysis:

1. Challenge to the order of DRAT rejecting waiver of pre-deposit:
The petitioner challenged the DRAT's order dated October 18, 2018, which rejected the petitioner's application for waiver of the pre-deposit of 50% of the amount demanded by the respondent Bank or as determined by the DRT, whichever is less. The petitioner argued that since the property had already been sold and the bank had recovered ?11.77 crores, there was no need for a pre-deposit.

2. Alleged improper publication and hurried sale of mortgaged property:
The petitioner contended that the Bank did not follow proper procedures for the sale of the property, violating Rule 8 of the SARFAESI Rules by not giving a prior 30-day notice. The property was sold at a throwaway price of ?11.77 crores, and the petitioner's One-Time Settlement (OTS) proposal was rejected. The petitioner challenged the sale under Section 17 of the SARFAESI Act, which was dismissed by the DRT-I, Chandigarh.

3. Consideration of auction proceeds towards compliance of pre-deposit:
The petitioner argued that the auction proceeds recovered by the bank should be considered towards the compliance of the pre-deposit requirement. The petitioner relied on multiple judgments, including those from the Supreme Court, Punjab and Haryana High Court, and Allahabad High Court, which supported the argument that the amount recovered from the auction should be adjusted against the pre-deposit requirement.

4. Legal interpretation of Section 18 of the SARFAESI Act regarding pre-deposit requirements:
The DRAT and the respondent Bank opposed the waiver, citing that the auction money received cannot be considered towards compliance of the mandatory pre-deposit condition when the borrower is challenging the auction's legality. The DRAT relied on the Supreme Court's judgment in Indian Bank vs. Blue Jaggers Estates Ltd., which held that the sale remains in a nebulous stage until legal proceedings conclude. The DRAT also referred to the Bombay High Court's judgment in Eskays Construction Pvt. Ltd. vs. Sona Papers & Industries Ltd., which stated that the auction money cannot be considered while calculating the pre-deposit amount when the auction sale is under challenge.

Court's Conclusion:
The court held that the DRAT erred in rejecting the waiver application. It noted that the property had already been sold, a sale deed executed, and possession handed over to the purchaser. The court emphasized that Section 18 of the SARFAESI Act should be interpreted plainly, and when no amount is due from the petitioner, insisting on a pre-deposit would be inequitable. The court concurred with the Allahabad High Court's view in M/s Akash Ganga Airlines Ltd. vs. Debt Recovery Appellate Tribunal, which allowed the petition without insisting on a pre-deposit when the auction proceeds exceeded the debt due. The court set aside the DRAT's order and directed it to hear the appeal on merits.

Disposition:
The writ petition was disposed of, and the DRAT was directed to hear the appeal on merits. The accompanying application (CM No. 47696/2018) was dismissed as infructuous.