2019 (6) TMI 1198 - HC - Indian Laws

Jurisdiction - Appeal to Appellate Tribunal - SARFAESI Act - default in making repayment of loan - whether the order dated 13th January, 2014 passed by the Debts Recovery Appellate Tribunal on merits of the appeal in violation of second and third provisos below Sub-section (1) of Section 18 of the Securitisation Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002, becomes non-est for lack in inherent jurisdiction? HELD THAT - In the present case, there is already an adjudication by this Court rendered in Writ Petition No. 5005 of 2012 on 9th March, 2015 to which the petitioner and the respondents in the present case were parties. The question involved was whether the Debts Recovery Appellate Tribunal had jurisdiction to grant a complete waiver of pre-deposit. After taking into consideration the decision of the Apex Court in Narayan Chandra Ghose v. UCO Bank 2011 (3) TMI 1478 - SUPREME COURT , this Court has held that though a discretionary power has been conferred on the Debts Recovery Appellate Tribunal under third proviso to Sub-section (1) of Section 18 to determine the amount of deposit as a pre-condition for entertaining the appeal, the discretion is not an absolute one, but a limited one, and the Tribunal is not competent to reduce the amount of deposit below twenty-five per cent of the debt. The Court held that Debts Recovery Appellate Tribunal has misguided itself on the clear mandate of law and wrongly granted complete waiver of pre-deposit of the amount. Thus the second proviso below sub-section (1) of Section 18 of the Securitisation Reconstruction of Financial Assets Enforcement of Security Interest Act, 2002, is of a mandatory nature. The Debts Recovery Appellate Tribunal does not get its jurisdiction to decide the appeal on merits unless there is a compliance of requirement of at least third proviso below Sub-section (1) of Section 18. If there is a failure to comply with such requirement, the appeal itself becomes incompetent, leaving no jurisdiction with the Debts Recovery Appellate Tribunal to consider and decide it on merits. It is not an error in exercise of the jurisdiction but the Debts Recovery Appellate Tribunal was suffering from inherent lack of jurisdiction to decide the appeal on merits. The decision of the Debts Recovery Appellate Tribunal rendered on 13th January, 2014 in Appeal No. 135 of 2011 on merits of the matter cannot be sustained and the same is required to be quashed and set aside - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Jurisdiction of Debts Recovery Appellate Tribunal (DRAT) to proceed without pre-deposit.
2. Validity of the sale of secured assets.
3. Compliance with Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
4. Restoration of possession of secured assets.

Detailed Analysis:

1. Jurisdiction of Debts Recovery Appellate Tribunal (DRAT) to proceed without pre-deposit:

The core issue was whether the DRAT had jurisdiction to decide the appeal on merits without the mandatory pre-deposit of at least twenty-five percent of the debt as required under Section 18 of the SARFAESI Act. The court emphasized that the second proviso to Section 18(1) mandates a fifty percent deposit of the debt or a minimum of twenty-five percent if reduced by the tribunal. The DRAT had granted a complete waiver of this deposit, which was later set aside by the High Court in Writ Petition No. 5005 of 2012. The court held that the DRAT's decision on merits without this pre-deposit was beyond its jurisdiction and thus non-est.

2. Validity of the sale of secured assets:

The sale of the secured assets by the respondent no.7 (M/s. Assets Reconstruction Company of India Ltd.) to the petitioner was initially confirmed by the Debts Recovery Tribunal (DRT) but later quashed by the DRAT. The High Court noted that the DRAT's order setting aside the sale was passed without jurisdiction due to the lack of pre-deposit, rendering the sale valid.

3. Compliance with Section 18 of the SARFAESI Act:

The court reiterated the mandatory nature of the pre-deposit under Section 18 of the SARFAESI Act. It referred to the previous decision in Writ Petition No. 5005 of 2012, which clarified that the DRAT could not waive the deposit below twenty-five percent of the debt. The DRAT's decision to proceed without ensuring this compliance was deemed a jurisdictional error, not merely an error in exercising jurisdiction.

4. Restoration of possession of secured assets:

Given the jurisdictional flaw in the DRAT's order, the High Court quashed the DRAT's decision and restored the status quo regarding the possession of the properties. The petitioner, who was in possession, was directed to maintain status quo for six weeks, ensuring no third-party interests were created or possession parted.

Conclusion:

The High Court quashed the DRAT's order dated 13th January 2014, due to the lack of jurisdiction stemming from non-compliance with the mandatory pre-deposit requirement under Section 18 of the SARFAESI Act. The sale of the secured assets to the petitioner was upheld, and the petitioner was directed to maintain status quo regarding the properties for six weeks.