2017 (4) TMI 476 - HC - Indian Laws

Pre-deposit by Third party who is not a borrower within the meaning of Section 2 (f) of the Securitization Act as a pre-condition for having his appeal heard - whether the appellants before the Debt Recovery Appellate Tribunal, Delhi, who are neither borrowers, nor guarantors and have not pledged or mortgaged any property to the Respondent Bank can be called upon to deposit a percentage of the loan amount claimed and/or adjudicated against the borrower as the condition precedent for entertaining their appeal under Section 18 of the Securitization Act? Held that - Section 18 makes it absolutely clear that an appeal may be filed by any person aggrieved, whether or not, he is a borrower within the meaning of Section 2 (1) (f). This is evident from the first proviso to Section 18 (1), which provides that different fees may be prescribed for appeals by the borrower or by the person other than the borrower. The Second proviso reads that no appeal is to be entertained unless the borrower has deposited with the Appellate Tribunal 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. The second proviso relates to the appeal of a borrower, for a third party, who has not obtained any finance from a Bank or a financial institution is under no obligation to pay. The second proviso reads that no appeal is to be entertained, unless the borrower has deposited with Appellate Tribunal 50% of the debt due from him. If the proviso is to be read literally to mean that no appeal, be it of a borrower or a third person, is to be entertained unless the borrower has deposited 50% of the amount of debt due from him, appeals by third persons would in effect and substance, be rendered nugatory for a third person, who would never be able to get his appeal entertained. Significantly, in this case each of the appellants have been directed to pay 50%, which means that the total deposit would far exceed the amount due and payable by Ajay Kumar Gupta.The writ petition is allowed. The impugned order is set aside to the extent that each of the appellants have all been required to pay 50% of the amount due from Ajay Kumar Gupta.

Summary

Issues:
Challenge to order of Debts Recovery Appellate Tribunal regarding withdrawal of status quo on property under Securitisation Act, requirement of deposit by third parties for appeal under Securitisation Act.

Analysis:
1. The writ petition challenged an order withdrawing status quo on a property under the Securitisation Act. The Debt Recovery Appellate Tribunal directed the appellants to deposit 50% of the amount demanded by the Respondent Bank from a borrower. The petitioners claimed to be purchasers of shop rooms at the property and relied on various documents to support their claim.

2. The key issue was whether third parties, not borrowers, guarantors, or mortgagors, could be required to deposit a percentage of the loan amount for an appeal under Section 18 of the Securitisation Act. The definition of 'borrower' under the Act includes guarantors or mortgagors. Section 18 allows appeals by any aggrieved person, not just borrowers, as evident from the provision for different fees for appeals by borrowers and others.

3. The requirement that no appeal shall be entertained unless the borrower deposits 50% of the debt due from them poses a challenge for third parties. In this case, each appellant was directed to pay 50%, exceeding the amount due from the borrower. This could render appeals by third parties futile, as they may not have obtained any finance from a bank or financial institution.

4. The judgment set aside the order requiring the appellants to pay 50% of the amount due from the borrower. It clarified that the appeal could proceed without insisting on any deposit. The decision emphasized that the merits of the appeal should be considered in accordance with the law, and interim relief should be granted based on established criteria like a strong prima facie case and balance of convenience.

5. In conclusion, the judgment addressed the issue of deposit requirements for third parties in appeals under the Securitisation Act, ensuring that such parties are not unduly burdened. It upheld the right of third parties to appeal without mandatory deposits and emphasized the need for proper consideration of appeals based on legal principles and criteria for interim relief.