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2023 (1) TMI 445 - SC - Indian LawsInterpretation of statute - calculation of amount of pre-deposit u/s 18 of the SARFAESI Act - 50% of which amount the borrower is required to deposit as pre-deposit - Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - possession of one of the mortgaged property was taken by the Bank as amount demanded was not paid under Section 13(2) of the SARFAESI Act. Whether while calculating the amount of debt due , the amount deposited by the auction purchaser on purchase of the secured assets is required to be adjusted and/or appropriated towards the amount of pre-deposit to be deposited by the borrower under Section 18 of the SARFAESI Act? - Whether the debt due under Section 18 of the SARFAESI Act would include the liability interest? HELD THAT - As per Section 18 of the SARFAESI Act, any person aggrieved, by any order made by the DRT under section 17, may prefer an appeal within thirty days to an appellate Tribunal (DRAT) from the date of receipt of the order of DRT. Second proviso to section 18 provides that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent of the amount of debt due from him, as claimed by the secured creditors or determined by the DRT, whichever is less and only and only then, an appeal under Section 18 of the SARFAESI Act is permissible against the order passed by the DRT under Section 17 of the SARFAESI Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. Therefore, whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the debt due within the meaning of proviso to Section 18 of the SARFAESI Act. As per the second proviso to Section 18 of the SARFAESI Act, it is the borrower who has preferred an appeal before the Appellate Tribunal and the borrower who shall have to deposit 50% of the amount of debt due from him. If the words used in the second proviso to Section 18 of the SARFAESI Act are borrower has to deposit , it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower. It is the borrower who has to deposit the 50% of the amount of debt due from him. At the same time, if the borrower wants to appropriate and/or adjust the amount realised from sale of the secured assets deposited by the auction purchaser, the borrower has to accept the auction sale. In other words, the borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In the case of ESKAYS CONSTRUCTION PVT. LTD. VERSUS SOMA PAPERS INDUSTRIES LTD. AND ORS. 2016 (11) TMI 1731 - BOMBAY HIGH COURT , the Bombay High Court considered in detail Section 18. After considering the decision of this Court in the case of NARAYAN CHANDRA GHOSH VERSUS UCO BANK 2011 (3) TMI 1478 - SUPREME COURT , it was observed and held that provisions of Section 18, more particularly the second and the third proviso thereto are mandatory in nature and that the DRAT has no power to grant full waiver of deposit - we are in full agreement with the view taken by the Bombay High Court in the case of Eskays Construction Pvt. Ltd. (supra). We are of the firm opinion and view that in a case where the borrower challenges the auction sale, thereafter it will not be open for the borrower to pray to use the sale proceeds received from the sale of the secured properties to be adjusted/given credit in an application for waiver of pre-deposit. In the present case, the respective High Courts have seriously erred in directing to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT. Even the High Court of Delhi has erred in excluding the amount payable towards interest while considering the debt due . As per Section 2(g) of the Act 1993, debt means liability inclusive of interest as claimed by the bank/financial institution. Appeal allowed.
Issues Involved:
1. Interpretation of Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 2. Requirement of pre-deposit by the borrower under Section 18 of the SARFAESI Act. 3. Calculation of "debt due" and whether it includes interest. 4. Appropriation of the amount realized from the auction sale of secured property towards the pre-deposit. Issue-wise Detailed Analysis: 1. Interpretation of Section 18 of the SARFAESI Act: The Supreme Court addressed the interpretation of Section 18 of the SARFAESI Act, which mandates that no appeal shall be entertained unless the borrower has deposited 50% of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal (DRT), whichever is less. The Court emphasized that this provision is mandatory and cannot be waived by the Debt Recovery Appellate Tribunal (DRAT). 2. Requirement of Pre-deposit by the Borrower: The Court examined whether the borrower is required to deposit 50% of the remaining debt after adjusting the amount realized from the auction sale of the secured property. It was held that the borrower must deposit 50% of the "debt due" as claimed by the secured creditor, including interest, without appropriating the amount realized from the auction sale. The Court clarified that the borrower cannot use the sale proceeds to fulfill the pre-deposit requirement if the auction sale is also under challenge. 3. Calculation of "Debt Due" and Inclusion of Interest: The Court analyzed the definition of "debt" under Section 2(ha) of the SARFAESI Act and Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, which includes any liability inclusive of interest. The Court concluded that the "debt due" for the purpose of pre-deposit under Section 18 includes the principal amount along with interest as claimed by the secured creditor in the notice under Section 13(2) of the SARFAESI Act. 4. Appropriation of Amount Realized from Auction Sale: The Court addressed whether the amount realized from the auction sale of the secured property can be appropriated towards the pre-deposit required under Section 18. It was held that the borrower cannot claim adjustment of the auction sale proceeds for the pre-deposit if the auction sale is also being challenged. The borrower must independently deposit 50% of the "debt due" without considering the auction sale proceeds. Conclusion: The Supreme Court allowed the appeals preferred by the financial institution/assignee and auction purchasers, directing that the borrower must deposit 50% of the "debt due" including interest, without adjusting the auction sale proceeds. The appeal by the borrower was dismissed, affirming that the pre-deposit requirement under Section 18 is mandatory and must be fulfilled as per the statutory provisions. The Court emphasized that the borrower cannot benefit from the auction sale proceeds while simultaneously challenging the auction sale.
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