SARFAESI Act Sec 17 (1),Sec 13 (4),Sec 13 (20,),and Sec 18 -
No Appeal Unless the Borrower has deposited50% of the debt due
Civil Misc. Writ Petition No.50624 of 2011
Mohan Lal Saraf
Vs.
Chairperson, Debts Recovery Appellate Tribunal, Allahabad & Ors.
SARFAESI Act It is thus clear that an appeal under sub-section (1) of S. 17 would lie only after some measure has been taken under sub-section (4) of S. 13 and not before the stage of taking of any such measure. According to sub-section (2), the borrower has to deposit 75% of the amount claimed by the secured creditor before his appeal can be entertained. Section 18 – Appeal to Appellate Tribunal – no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:advocate mm mohan
AFR
Judgment reserved on 19th November, 2012
Judgment delivered on 5th December, 2012
Court No.2
Judgment reserved on 19th November, 2012
Judgment delivered on 5th December, 2012
Court No.2
Civil Misc. Writ Petition No.50624 of 2011
Mohan Lal Saraf
Vs.
Chairperson, Debts Recovery Appellate Tribunal, Allahabad & Ors.
********
Mohan Lal Saraf
Vs.
Chairperson, Debts Recovery Appellate Tribunal, Allahabad & Ors.
********
Hon’ble Dilip Gupta, J.
The petitioner as the guarantor and mortgagor of the loan taken by Hyper Chemicals & Cosmetics Pvt. Ltd. from the Kanpur Branch of the State Bank of Patiala (hereinafter referred to as the ‘Bank’) and against whom proceedings under Section 13 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘Act’) were initiated by the respondent-Bank, has filed this petition for quashing the order dated 14th July, 2011 passed by the Debts Recovery Appellate Tribunal, Allahabad (hereinafter referred to as the ‘Appellate Tribunal’) by which the appeal filed by the petitioner under Section 18 of the Act against the order dated 11th April, 2011 passed by the Debts Recovery Tribunal Allahabad (hereinafter referred to as the ‘Tribunal’) was dismissed for the reason that the requisite Court fee was not deposited and for the reason that the petitioner had not deposited 50% of the amount of debt due as required under the second proviso to Section 18(1) of the Act. Further relief that has been claimed in this petition is for a direction upon the Appellate Tribunal to decide the appeal filed by the petitioner on merits without requiring the petitioner to make any further payment of Court fee or deposit any amount under the second proviso to Section 18(1) of the Act.
It is stated that the Bank had filed Original Suit No.549 of 1996 against Hyper Chemicals & Cosmetics Pvt. Ltd. & Ors., (principal borrowers) and the guarantors/mortgagors on 16th May, 1996 for recovery of dues to the extent of Rs.13,89,430/-. The petitioner was impleaded as a defendant in the said suit in the capacity of a guarantor and mortgagor of his half share in the House No.2797, Chirkhana, Gali Matawali, Chandani Chowk, Delhi. The suit was filed by the Bank with the allegation that equitable mortgage of the said property was created by the petitioner by depositing the title deeds on 15th February, 1992. The said suit was subsequently transferred to the Tribunal and was renumbered as T.A. 507 of 2000. The defendants filed a counter claim/set off, but the Tribunal by the judgment dated 18th February, 2003 allowed the claim of the Bank in full and dismissed the counter claim/set off. This judgment of the Tribunal was challenged by the defendants in an appeal before the Appellate Tribunal which remanded the case back to the Tribunal for fresh adjudication with liberty to the parties to adduce additional evidence. This order of remand was challenged by the defendants in Writ Petition No.18606 of 2004 in which further proceedings before the Tribunal were stayed by the order dated 17th May, 2006, and the interim order is said to be operating till date.
It is further stated that thereafter the Bank initiated proceedings against the petitioner by issuing a notice dated 10th May, 2007 under Section 13(2) of the Act by which the petitioner was called upon to discharge the dues of the Bank aggregating to Rs.1,19,56,663.67/- within sixty days from the date of receipt of the notice. The petitioner sent a reply denying his liability to pay the amount. The objections were, however, rejected by the Bank by the order dated 2nd June, 2007 and thereafter the petitioner received a notice captioned ‘Possession Notice‘ dated 13th March, 2008. The petitioner sent a reply dated 10th April, 2008 inter alia pointing out that the notice did not specify the date on which the alleged possession was taken or would be taken and nor was the notice affixed at the outer door or at any other conspicuous place of the house in question and nor it was published in two newspapers having circulation in the locality. When no reply was received from the Bank, the petitioner believed that the Bank had dropped the proceedings but by way of abundant caution sought information from the Bank under the Right to Information Act on 12th March, 2010. The Bank supplied information dated 15th April, 2010 to the petitioner that a composite possession notice covering 11 properties of different borrowers was published in the Kanpur Editions of Pioneer and Swatantra Bharat on 18th February, 2009 in which the property of the petitioner was shown at Serial No.11 and reference to the earlier possession notice dated 13th March, 2008 was made.
The petitioner, thereafter, filed an application under Section 17 (1) of the Act before the Tribunal on 31st May, 2010 to challenge the measures taken by the Bank which application was numbered as S.A. 68 of 2010. In the said application the petitioner asserted that the application had been filed within the limitation period of 45 days from the date of knowledge of the measures taken by the Bank but by way of abundant caution, the petitioner also filed an application under Section 5 of the Limitation Act 1963 (hereinafter referred to as the ‘Limitation Act’) for condoning the delay, if any, in filing the application. This delay condonation application was accompanied by an affidavit. The Tribunal, however, dismissed the application filed under Section 5 of the Limitation Act on 11th April, 2011 and consequently the application filed by the petitioner under Section 17(1) of the Act was also dismissed.
This order dated 11th April, 2011 passed by the Tribunal was assailed by the petitioner in Writ Petition No. 27545 of 2011. The petition was dismissed by the Court on 12th May, 2011 with the observation that the petitioner could file an appeal under Section 18 of the Act.
The petitioner then filed an appeal before the Appellate Tribunal under Section 18 of the Act for setting aside the order dated 11th April, 2011 passed by the Tribunal. The appeal was dismissed by the Appellate Tribunal by the judgment dated 14th July, 2011 for the reason that the petitioner did not pay the requisite Court fees of Rs.32,300/- and for the reason that the petitioner had not deposited 50% of the amount of debt due as claimed by the Bank as was required to be deposited under the second proviso to Section 18(1) of the Act.
Sri R.P. Agarwal, learned counsel appearing for the petitioner submitted that the Appellate Tribunal committed an illegality in dismissing the appeal for the aforesaid two reasons. Learned counsel submitted that the appeal had been filed against the order passed by the Tribunal on the application filed by the petitioner under Section 5 of the Limitation Act for condoning the delay in filing the application under Section 17(1) of the Act and, therefore, the Court fees of Rs.200/- only as contemplated under Rule 13(2)(1)(e) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the ‘Rules’) was required to be paid which was paid and the appellant was not required to deposit the Court fees contemplated under Rule 13(2)(1)(d) of the Rules. Learned counsel has pointed out that under Rule13(2)(2) of the Rules, the amount of fee payable in an appeal against any order passed by the Tribunal is the same fees as provided at Clauses (a) to (e) of Rule 2(2)(1) of the Rules and, therefore, the fees provided for at Serial No 1(e) of Rs.200/- for ‘any other application’ was required to be paid as the appellant was actually aggrieved by the order passed on the delay condonation application and the order dismissing the application under Section 17(1) of the Act was only a consequential order as the delay condonation application had been rejected. In support of his contention, learned counsel for the petitioner placed reliance on a decision of the Kerala High Court in Mohd. Fariz & Co. Vs. Commissioner of Central Excise 2010 (260) ELT-29 (Ker).
Learned counsel for the petitioner also submitted that the condition of pre-deposit under the second proviso to Section 18(1) of the Act would be applicable only when an order is passed on the application filed under Section 17(1) of the Act and not when it is passed on ‘any other application’ as the pre-deposit under the said proviso is linked to amount of debt due from the borrower as claimed by the secured creditor or determined by the Tribunal, whichever is less and likewise the fee payable under Rule 13 is linked to ‘debt due’ while fee for ‘any other application’ is fixed at Rs.200/-. Learned counsel for the petitioner, therefore, submitted that the requirement of pre-deposit under the second proviso to Section 18(1) of the Act will not apply to all appeals filed under Section 18, but only to the appeals filed against a final order and not against an interim order. In this connection, learned counsel pointed out that, if the condition of pre-deposit under the second proviso to Section 18(1) of the Act is held to apply even when the Tribunal has not determined the debt due then it would be hit by Article 14 of the Constitution of India as being arbitrary, onerous and expropriatory in view of the decision of the Supreme Court in Mardia Chemicals Ltd. etc. etc. Vs. Union of India & Ors., AIR 2004 SC 2371.
Learned counsel for the petitioner also submitted that the possession notice dated 13th March, 2008 was patently illegal as it did not specify the date when possession was taken and nor was it affixed at the outer door of such conspicuous place of the property as provided for under Rule 8(1) of the Rules. He also pointed out that the notice was not published in two newspapers within the stipulated period of seven days as provided for under Rule 8(2) of the Rules and in support of his contention, reliance was placed on the decision of the Division Bench of the Karnataka High Court in K.R. Krishnegowda & Anr. Vs. The Chief Manager/Authorised Officer, Kotak Mahindra Bank reported in 2012 (2) D.R.T.C. 684 (Knt.).
It is in this context that learned counsel for the petitioner submitted that the application was filed under Section 17(1) of the Act against the measures allegedly taken by the Bank under Section 13(4) of the Act but it was rejected for the reason that it was filed beyond the period prescribed even though it was within the stipulated period from the date of knowledge of the information conveyed by the Bank that it had taken possession and even otherwise good and sufficient reasons had been given by the petitioner for condoning the delay in filing the application. Learned counsel for the petitioner, therefore, submitted that in such circumstances, when the application for condoning the delay was rejected in an arbitrary manner, the petitioner should not be compelled in an appeal filed under Section 18 of the Act to not only pay the Court fee as if it were an appeal against a final order passed under Section 17(1) of the Act but also to make the deposit of 50% of the amount of debt due as claimed by the Bank under the second proviso to Section 18 of the Act.
Sri M.P. Sarraf, learned counsel appearing for the respondent-Bank, however, submitted that the condition of pre-deposit under the second proviso to Section 18(1) of the Act is mandatory and will apply to all the appeals and in support of his contention he has placed reliance upon the decision of the Supreme Court in Narayan Chandra Ghosh Vs. UCO Bank & Ors., 2011 AIR SCW 2572. Learned counsel further submitted that what has first to be considered by the Court is whether the Appellate Tribunal was justified in dismissing the appeal for non-compliance of the condition of pre-deposit because if the appeal has to be dismissed for this reason, then it will not be necessary for the Court to examine whether the appellant had paid the requisite Court fee or not. It is also his contention that the view taken by the Appellate Court regarding deficiency of Court fees is correct and does not call for any interference by the Court.
I have considered the submissions advanced by learned counsel for the parties.
In order to appreciate the rival contentions, it would be appropriate to refer to the relevant provisions of Sections 13, 17 and 18 of the Act which are as follows:-
“Section 13 – Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:–
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;]
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.
(6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
………………
(17). Section 17 – Right to appeal. (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken.
Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation- For the removal of doubts, it is hereby declared that the communication of reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person ( including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1) of Section 17.
(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.
………………………………..
18. Section 18 – Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal.
Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower.
Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and rules made thereunder.”
It is stated that the Bank had filed Original Suit No.549 of 1996 against Hyper Chemicals & Cosmetics Pvt. Ltd. & Ors., (principal borrowers) and the guarantors/mortgagors on 16th May, 1996 for recovery of dues to the extent of Rs.13,89,430/-. The petitioner was impleaded as a defendant in the said suit in the capacity of a guarantor and mortgagor of his half share in the House No.2797, Chirkhana, Gali Matawali, Chandani Chowk, Delhi. The suit was filed by the Bank with the allegation that equitable mortgage of the said property was created by the petitioner by depositing the title deeds on 15th February, 1992. The said suit was subsequently transferred to the Tribunal and was renumbered as T.A. 507 of 2000. The defendants filed a counter claim/set off, but the Tribunal by the judgment dated 18th February, 2003 allowed the claim of the Bank in full and dismissed the counter claim/set off. This judgment of the Tribunal was challenged by the defendants in an appeal before the Appellate Tribunal which remanded the case back to the Tribunal for fresh adjudication with liberty to the parties to adduce additional evidence. This order of remand was challenged by the defendants in Writ Petition No.18606 of 2004 in which further proceedings before the Tribunal were stayed by the order dated 17th May, 2006, and the interim order is said to be operating till date.
It is further stated that thereafter the Bank initiated proceedings against the petitioner by issuing a notice dated 10th May, 2007 under Section 13(2) of the Act by which the petitioner was called upon to discharge the dues of the Bank aggregating to Rs.1,19,56,663.67/- within sixty days from the date of receipt of the notice. The petitioner sent a reply denying his liability to pay the amount. The objections were, however, rejected by the Bank by the order dated 2nd June, 2007 and thereafter the petitioner received a notice captioned ‘Possession Notice‘ dated 13th March, 2008. The petitioner sent a reply dated 10th April, 2008 inter alia pointing out that the notice did not specify the date on which the alleged possession was taken or would be taken and nor was the notice affixed at the outer door or at any other conspicuous place of the house in question and nor it was published in two newspapers having circulation in the locality. When no reply was received from the Bank, the petitioner believed that the Bank had dropped the proceedings but by way of abundant caution sought information from the Bank under the Right to Information Act on 12th March, 2010. The Bank supplied information dated 15th April, 2010 to the petitioner that a composite possession notice covering 11 properties of different borrowers was published in the Kanpur Editions of Pioneer and Swatantra Bharat on 18th February, 2009 in which the property of the petitioner was shown at Serial No.11 and reference to the earlier possession notice dated 13th March, 2008 was made.
The petitioner, thereafter, filed an application under Section 17 (1) of the Act before the Tribunal on 31st May, 2010 to challenge the measures taken by the Bank which application was numbered as S.A. 68 of 2010. In the said application the petitioner asserted that the application had been filed within the limitation period of 45 days from the date of knowledge of the measures taken by the Bank but by way of abundant caution, the petitioner also filed an application under Section 5 of the Limitation Act 1963 (hereinafter referred to as the ‘Limitation Act’) for condoning the delay, if any, in filing the application. This delay condonation application was accompanied by an affidavit. The Tribunal, however, dismissed the application filed under Section 5 of the Limitation Act on 11th April, 2011 and consequently the application filed by the petitioner under Section 17(1) of the Act was also dismissed.
This order dated 11th April, 2011 passed by the Tribunal was assailed by the petitioner in Writ Petition No. 27545 of 2011. The petition was dismissed by the Court on 12th May, 2011 with the observation that the petitioner could file an appeal under Section 18 of the Act.
The petitioner then filed an appeal before the Appellate Tribunal under Section 18 of the Act for setting aside the order dated 11th April, 2011 passed by the Tribunal. The appeal was dismissed by the Appellate Tribunal by the judgment dated 14th July, 2011 for the reason that the petitioner did not pay the requisite Court fees of Rs.32,300/- and for the reason that the petitioner had not deposited 50% of the amount of debt due as claimed by the Bank as was required to be deposited under the second proviso to Section 18(1) of the Act.
Sri R.P. Agarwal, learned counsel appearing for the petitioner submitted that the Appellate Tribunal committed an illegality in dismissing the appeal for the aforesaid two reasons. Learned counsel submitted that the appeal had been filed against the order passed by the Tribunal on the application filed by the petitioner under Section 5 of the Limitation Act for condoning the delay in filing the application under Section 17(1) of the Act and, therefore, the Court fees of Rs.200/- only as contemplated under Rule 13(2)(1)(e) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the ‘Rules’) was required to be paid which was paid and the appellant was not required to deposit the Court fees contemplated under Rule 13(2)(1)(d) of the Rules. Learned counsel has pointed out that under Rule13(2)(2) of the Rules, the amount of fee payable in an appeal against any order passed by the Tribunal is the same fees as provided at Clauses (a) to (e) of Rule 2(2)(1) of the Rules and, therefore, the fees provided for at Serial No 1(e) of Rs.200/- for ‘any other application’ was required to be paid as the appellant was actually aggrieved by the order passed on the delay condonation application and the order dismissing the application under Section 17(1) of the Act was only a consequential order as the delay condonation application had been rejected. In support of his contention, learned counsel for the petitioner placed reliance on a decision of the Kerala High Court in Mohd. Fariz & Co. Vs. Commissioner of Central Excise 2010 (260) ELT-29 (Ker).
Learned counsel for the petitioner also submitted that the condition of pre-deposit under the second proviso to Section 18(1) of the Act would be applicable only when an order is passed on the application filed under Section 17(1) of the Act and not when it is passed on ‘any other application’ as the pre-deposit under the said proviso is linked to amount of debt due from the borrower as claimed by the secured creditor or determined by the Tribunal, whichever is less and likewise the fee payable under Rule 13 is linked to ‘debt due’ while fee for ‘any other application’ is fixed at Rs.200/-. Learned counsel for the petitioner, therefore, submitted that the requirement of pre-deposit under the second proviso to Section 18(1) of the Act will not apply to all appeals filed under Section 18, but only to the appeals filed against a final order and not against an interim order. In this connection, learned counsel pointed out that, if the condition of pre-deposit under the second proviso to Section 18(1) of the Act is held to apply even when the Tribunal has not determined the debt due then it would be hit by Article 14 of the Constitution of India as being arbitrary, onerous and expropriatory in view of the decision of the Supreme Court in Mardia Chemicals Ltd. etc. etc. Vs. Union of India & Ors., AIR 2004 SC 2371.
Learned counsel for the petitioner also submitted that the possession notice dated 13th March, 2008 was patently illegal as it did not specify the date when possession was taken and nor was it affixed at the outer door of such conspicuous place of the property as provided for under Rule 8(1) of the Rules. He also pointed out that the notice was not published in two newspapers within the stipulated period of seven days as provided for under Rule 8(2) of the Rules and in support of his contention, reliance was placed on the decision of the Division Bench of the Karnataka High Court in K.R. Krishnegowda & Anr. Vs. The Chief Manager/Authorised Officer, Kotak Mahindra Bank reported in 2012 (2) D.R.T.C. 684 (Knt.).
It is in this context that learned counsel for the petitioner submitted that the application was filed under Section 17(1) of the Act against the measures allegedly taken by the Bank under Section 13(4) of the Act but it was rejected for the reason that it was filed beyond the period prescribed even though it was within the stipulated period from the date of knowledge of the information conveyed by the Bank that it had taken possession and even otherwise good and sufficient reasons had been given by the petitioner for condoning the delay in filing the application. Learned counsel for the petitioner, therefore, submitted that in such circumstances, when the application for condoning the delay was rejected in an arbitrary manner, the petitioner should not be compelled in an appeal filed under Section 18 of the Act to not only pay the Court fee as if it were an appeal against a final order passed under Section 17(1) of the Act but also to make the deposit of 50% of the amount of debt due as claimed by the Bank under the second proviso to Section 18 of the Act.
Sri M.P. Sarraf, learned counsel appearing for the respondent-Bank, however, submitted that the condition of pre-deposit under the second proviso to Section 18(1) of the Act is mandatory and will apply to all the appeals and in support of his contention he has placed reliance upon the decision of the Supreme Court in Narayan Chandra Ghosh Vs. UCO Bank & Ors., 2011 AIR SCW 2572. Learned counsel further submitted that what has first to be considered by the Court is whether the Appellate Tribunal was justified in dismissing the appeal for non-compliance of the condition of pre-deposit because if the appeal has to be dismissed for this reason, then it will not be necessary for the Court to examine whether the appellant had paid the requisite Court fee or not. It is also his contention that the view taken by the Appellate Court regarding deficiency of Court fees is correct and does not call for any interference by the Court.
I have considered the submissions advanced by learned counsel for the parties.
In order to appreciate the rival contentions, it would be appropriate to refer to the relevant provisions of Sections 13, 17 and 18 of the Act which are as follows:-
“Section 13 – Enforcement of security interest.-(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:–
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;]
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.
(6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
………………
(17). Section 17 – Right to appeal. (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken.
Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation- For the removal of doubts, it is hereby declared that the communication of reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person ( including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1) of Section 17.
(2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt.
………………………………..
18. Section 18 – Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal.
Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower.
Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and rules made thereunder.”
It will also be useful to reproduce the relevant provisions of Rules 8, 12 and 13 of the Rules which deal with sale of immovable secured assets, Application to the Tribunal/Appellate Tribunal and Fees for applications and appeals under Sections 17 and 18 of the Act and the same are as follows:-
“8. Sale of immovable secured assets.-(1) Where the secured asset is an immovable property, the authorised office shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
(2) The possession notice as referred to in sub-rule(1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer.
(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.
…………………..
12. Application to the Tribunal/Appellate Tribunal. (1) Any application to the Debt Recovery Tribunal under sub-section (1) of section 17 shall be, as nearly as possible, in the form given in Appendix VII to the rules.
(2) Any application to the Appellate Tribunal under sub-section (6) of section 17 of the Act shall be, as nearly as possible, in the form given in Appendix VIII to the said rules. Any appeal to the Appellate Tribunal under Section 18 of the Act shall be, as nearly as possible, in the form given in Appendix IX to the said rules.
13 Fees for applications and appeals under Sections 17 and 18 of the Act.- (1) Every application under sub-section (1) of section 17 or an appeal to the Appellate Tribunal under sub-section (1) of section 18 shall be accompanied by a fee provided in the sub-rule(2) and such fee may be remitted through a crossed demand draft drawn on a bank or Indian Postal Order in favour of the Registrar of the Tribunal or the Court as the case may be, payable at the place where the Tribunal or the Court is situated. .”
(2) The amount of fee payable shall be as follows:-
No.
Nature of application
Amount of fee payable
1.
Application to a Debt Recovery Tribunal under sub-section (1) of section 17 against any of the measures referred to in sub-section (4) of section 13.
“8. Sale of immovable secured assets.-(1) Where the secured asset is an immovable property, the authorised office shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix-IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
(2) The possession notice as referred to in sub-rule(1) shall also be published in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer.
(3) In the event of possession of immovable property is actually taken by the authorised officer, such property shall be kept in his own custody or in the custody of any person authorised or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property.
…………………..
12. Application to the Tribunal/Appellate Tribunal. (1) Any application to the Debt Recovery Tribunal under sub-section (1) of section 17 shall be, as nearly as possible, in the form given in Appendix VII to the rules.
(2) Any application to the Appellate Tribunal under sub-section (6) of section 17 of the Act shall be, as nearly as possible, in the form given in Appendix VIII to the said rules. Any appeal to the Appellate Tribunal under Section 18 of the Act shall be, as nearly as possible, in the form given in Appendix IX to the said rules.
13 Fees for applications and appeals under Sections 17 and 18 of the Act.- (1) Every application under sub-section (1) of section 17 or an appeal to the Appellate Tribunal under sub-section (1) of section 18 shall be accompanied by a fee provided in the sub-rule(2) and such fee may be remitted through a crossed demand draft drawn on a bank or Indian Postal Order in favour of the Registrar of the Tribunal or the Court as the case may be, payable at the place where the Tribunal or the Court is situated. .”
(2) The amount of fee payable shall be as follows:-
No.
Nature of application
Amount of fee payable
1.
Application to a Debt Recovery Tribunal under sub-section (1) of section 17 against any of the measures referred to in sub-section (4) of section 13.
(a)
Where the applicant is a borrower and the amount of debt due is less than Rs.10 lakhs
Rs.500 for every Rs.1 lakh or part thereof
(b)
Where the applicant is a borrower and the amount of debt due is Rs.10 lakhs and above
Rs.5000 + Rs.250 for every Rs.1 lakh or part thereof in excess of Rs.10 lakhs subject to a maximum of Rs.1,00,000
(c)
Where the applicant is an aggrieved party other than the borrower and where the amount of debt due is less than Rs.10 lakhs
Rs.125 for every rupees One lakh or part thereof
(d)
Where the applicant is an aggrieved party other than the borrower and where the amount of debt due is Rs.10 lakhs and above
Rs.1250 +Rs.125 for every Rs.1 lakh or part thereof in excess of Rs.10 lakhs subject to a maximum of Rs.50,000
(e)
Any other application by any person
Rs.200
2.
Appeal to the Appellate Authority against any order passed by the Debt Recovery Tribunal under Section 17
Same fees as provided at clauses (a) to (e) of Serial Number 1 of this rule.
Where the applicant is a borrower and the amount of debt due is less than Rs.10 lakhs
Rs.500 for every Rs.1 lakh or part thereof
(b)
Where the applicant is a borrower and the amount of debt due is Rs.10 lakhs and above
Rs.5000 + Rs.250 for every Rs.1 lakh or part thereof in excess of Rs.10 lakhs subject to a maximum of Rs.1,00,000
(c)
Where the applicant is an aggrieved party other than the borrower and where the amount of debt due is less than Rs.10 lakhs
Rs.125 for every rupees One lakh or part thereof
(d)
Where the applicant is an aggrieved party other than the borrower and where the amount of debt due is Rs.10 lakhs and above
Rs.1250 +Rs.125 for every Rs.1 lakh or part thereof in excess of Rs.10 lakhs subject to a maximum of Rs.50,000
(e)
Any other application by any person
Rs.200
2.
Appeal to the Appellate Authority against any order passed by the Debt Recovery Tribunal under Section 17
Same fees as provided at clauses (a) to (e) of Serial Number 1 of this rule.
It is seen that notice under Section 13(2) of the Act that was issued by the Bank on 10th May, 2007 required the petitioner to deposit Rs.19,56,663.67/-. In the original suit, which the Bank had filed, the amount claimed by the Bank from the defendants was Rs.13,89,430/- which comprised of Rs.6,47,571/- as principal amount and Rs.7,41,865/- as interest. The petitioner filed a objections to the aforesaid notice issued under Section 13(2) of the Act but the objections were not accepted by the Bank and this fact was communicated to the petitioner by the communication dated 2nd June, 2007.
It is thereafter that the Bank issued ‘possession notice’ dated 13th March, 2008 and the relevant portion is as follows:-
“The borrower and/the guarantors having failed to repay the amount, notice is hereby given to the borrower/guarantor and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him/her under Section 13(4) of the said Act read with Rule 8/9 of the said rules on this………………….Day of ……………..the year ……………”
It is thereafter that the Bank issued ‘possession notice’ dated 13th March, 2008 and the relevant portion is as follows:-
“The borrower and/the guarantors having failed to repay the amount, notice is hereby given to the borrower/guarantor and the public in general that the undersigned has taken possession of the property described herein below in exercise of powers conferred on him/her under Section 13(4) of the said Act read with Rule 8/9 of the said rules on this………………….Day of ……………..the year ……………”
Rule 8(1) of the Rules provide that the ‘possession notice’ should be prepared as nearly as possible in Appendix IV to the Rules which is as follows:-
“Appendix IV
Possession Notice.
Whereas
The undersigned being the authorised officer of the ………….(name of the Institution) under the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 and in exercise of powers conferred under section 13(12) read with rule 9 of the Security Interest (Enforcement) Rules, 2002 issued demand notice dated……………… calling upon the borrower Shri…………………………../M/s……………….. to repay the amount mentioned in the notice being Rs……….(in words……………) within 60 days from the date of receipt of the said notice.
The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described hereinbelow in exercise of powers conferred on him/her under section 13(4) of the said Act read with rule 9 of the said rule on this……………day of ………..of the year………….
The borrower in particular and the public in general is hereby cautioned not to deal with the property and any dealings with the property will be subject to the charge of the……………..(name of the Institution) for an amount of Rs…………… and interest thereon.
Possession Notice.
Whereas
The undersigned being the authorised officer of the ………….(name of the Institution) under the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 and in exercise of powers conferred under section 13(12) read with rule 9 of the Security Interest (Enforcement) Rules, 2002 issued demand notice dated……………… calling upon the borrower Shri…………………………../M/s……………….. to repay the amount mentioned in the notice being Rs……….(in words……………) within 60 days from the date of receipt of the said notice.
The borrower having failed to repay the amount, notice is hereby given to the borrower and the public in general that the undersigned has taken possession of the property described hereinbelow in exercise of powers conferred on him/her under section 13(4) of the said Act read with rule 9 of the said rule on this……………day of ………..of the year………….
The borrower in particular and the public in general is hereby cautioned not to deal with the property and any dealings with the property will be subject to the charge of the……………..(name of the Institution) for an amount of Rs…………… and interest thereon.
Description of the Immovable Property
All that part and parcel of the property consisting of Flat No………………/Plot No…………In Survey No………………/City or Town Survey No……………../Khasra No…………….within the registration Sub-district……………..and District……………………
Bounded:
On the North by
On the South by
On the East by
On the West by
Bounded:
On the North by
On the South by
On the East by
On the West by
Authorised Officer
(Name of the Institution)
Date:…………………..
Place…………………..”
(Name of the Institution)
Date:…………………..
Place…………………..”
Learned counsel for the petitioner pointed out that the said ‘possession notice’ dated 13th March, 2008 did not specify the date when the possession was taken or was likely to be taken and nor was it affixed at the outer door of conspicuous place of the property. Learned counsel also pointed out that it was also not published in the two newspapers within the stipulated period of seven days as provided for in Rule 8(2) of the Rules. Learned counsel, therefore, contended that the notice was not issued in accordance with the provisions of sub-rules(1) and (2) of Rule 8 of the Rules and in fact possession was never taken by the Bank either physically or symbolically and the petitioners are still occupying the dwelling house. It is for this reason that learned counsel for the petitioner submitted that the application was filed by the petitioner under Section 17(1) of the Act for setting aside the alleged measures taken by the Bank under Section 13(4) of the Act.
In support of his contention learned counsel for the petitioner placed reliance upon the decision of the Karnataka High Court in K.R. Krishnegowda (supra) wherein it was held that issuance of notice as per sub-rules (1) and (2) of Rule 8 of the Rules indicating the date on which possession of property would be taken from the borrower is mandatory, non-observance of which would invalidate the exercise of power.
The relevant observations are:-
“14. On a conspectus reading of sub-section (4) of Section 13, Section 14 with Rule 8 the question that would arise is, as to the stage at which notice under Rule 8 would have to be issued, as the contention of the Counsel for the Respondent is that the notice regarding possession would be issued after an order under Section 14 is passed and possession is taken and before sale. When once there is non-compliance of the demand made under sub-section (2) of Section 13, steps could be initiated under sub-section (4) by taking possession of the secured asset. The question is, as to whether the borrower ought to know as to when exactly possession of the secured asset would be taken, when once the demand under sub-section (2) of Section 13 is not complied with the borrower. Having regard to sub-section (13) read with sub-section (2) of Section 13 would imply that the receipt of notice under sub-section (2) results in a virtual attachment of the secured asset. If the demand made in sub-section (2) of Section 13 is not complied with and the representation as well as the objections filed by the borrower are also not accepted and communicated to the borrower, then in that case, steps could be initiated under sub-section (4) of Section 13. Having regard to the fact that sub-section (6) of Section 13 enables a secured creditor to transfer the secured asset after taking possession would imply that the possession of the secured asset vests with the secured creditor prior to any such transfer. The procedure for taking possession or control of the secured asset by the secured creditor is envisaged in Section 14 after the date mentioned in the possession notice at which stage, it is not necessary to actually inform or indicate to the borrower, the taking of possession by secured creditor. Section 14 in fact does not prescribe an opportunity of hearing the borrower before an order is passed with regard to taking of possession. But we have held that if possession has to be taken by the secured creditor, then in that event, the borrower must be informed or intimated about the taking of possession, more precisely, the actual date on which possession would be taken over from the borrower by the secured creditor which would have to be indicated to the former. It is in this regard, that insofar as immovable property is concerned, sub-rules (1) and (2) of Rule 8 prescribe notices or intimation to the borrower in two ways; (i) by delivery of possession notice and (ii) by newspaper publication, clearly indicating the date on which possession of the secured asset would be taken by the secured creditor. If on the date indicated in the possession notice, the secured creditor is unable to take possession of the secured asset, then in that case, recourse may be had to Section 14 of the Act, at which stage a further notice to the borrower is not envisaged under the said section.
15. Therefore, what emerges is the mandatory requirement under the Act read with the Rules, that in order to enable the borrower to know the date on which possession would be taken by the secured creditor, sub-rules (1) and (2) of Rule 8 would have to be complied with by issuance of notices indicating the date on which possession would be taken. There is another purpose for issuing the notice prior to taking possession and that is, to enable the borrower to discharge the liability to the secured creditor. Also a person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower can pay the secured creditor, so much of the money as is sufficient to pay the secured debt as per Clause (d) of sub-section (4) of Section 13 read with sub-section (5) thereof. We have also borne in mind the fact that on an application being filed under Section 14 of the Act before the Magistrate, there is no provision for issuance of notice to the borrower before an order to take possession is issued. We are, therefore, of the considered view that before initiating action under sub-section (4) of Section 13 of the Act, the issuance of notice as per sub-rules (1) and (2) of Rule 8 has to be complied with indicating the date on which possession of the property would be taken from the borrower by the secured creditor. If on the said date possession of the secured asset cannot be taken or it is not surrendered by the borrower, then the secured creditor can take recourse to Section 14 of the Act and take possession of the secured immovable property, of course, he hasten to add that the Notices issued under sub-rules (1) and (2) of Rule 8 cannot be assailed per se as the purpose of issuance of such notices is only to indicate the date of taking possession.
15 (a) Therefore, the issuance of notice in terms of Rule 8 of the Rules is a mandatory requirement having regard to the purpose of following the principles of natural justice so as to prevent miscarriage of justice and so as to ensure fair play in action. Issuance of notice prior to initiation of action under sub-section (4) of Section 13 is thus, a mandatory procedural requirement, the non-observance of which would invalidate the exercise of power. The taking of possession of a secured asset of a borrower under sub-section (4) of Section 13 is a drastic measure and the exercise of such a power would definitely visit the borrower with civil consequences. In Mohinder Singh Gill v. The Chief Election Commissioner, AIR 1978 SC 851, the Supreme Court has opined the civil consequences would cover not merely civil liberties and personal rights of a person but also material deprivations as well as right to property. Therefore, we have held that the issuance of notices in terms of Rule 8 of the Rules is a necessary requirement prior to taking possession, although Rule 8 speaks of sale of immovable secured assets, even if eventually after taking possession the secured assets are not sold.
………………..
18. In that view of the matter compliance of sub-rules (1) and (2) of Rule 8 of the Rules, is a mandatory requirement before possession of the secured asset is sought to be taken by a Financial Institution. Any violation or infraction of Section 13(4) of the Act by the Financial Institution could be called in question by way of filing an Appeal under Section 17 of the Act, and the DRT has the power to restore possession to the borrower.”
In support of his contention learned counsel for the petitioner placed reliance upon the decision of the Karnataka High Court in K.R. Krishnegowda (supra) wherein it was held that issuance of notice as per sub-rules (1) and (2) of Rule 8 of the Rules indicating the date on which possession of property would be taken from the borrower is mandatory, non-observance of which would invalidate the exercise of power.
The relevant observations are:-
“14. On a conspectus reading of sub-section (4) of Section 13, Section 14 with Rule 8 the question that would arise is, as to the stage at which notice under Rule 8 would have to be issued, as the contention of the Counsel for the Respondent is that the notice regarding possession would be issued after an order under Section 14 is passed and possession is taken and before sale. When once there is non-compliance of the demand made under sub-section (2) of Section 13, steps could be initiated under sub-section (4) by taking possession of the secured asset. The question is, as to whether the borrower ought to know as to when exactly possession of the secured asset would be taken, when once the demand under sub-section (2) of Section 13 is not complied with the borrower. Having regard to sub-section (13) read with sub-section (2) of Section 13 would imply that the receipt of notice under sub-section (2) results in a virtual attachment of the secured asset. If the demand made in sub-section (2) of Section 13 is not complied with and the representation as well as the objections filed by the borrower are also not accepted and communicated to the borrower, then in that case, steps could be initiated under sub-section (4) of Section 13. Having regard to the fact that sub-section (6) of Section 13 enables a secured creditor to transfer the secured asset after taking possession would imply that the possession of the secured asset vests with the secured creditor prior to any such transfer. The procedure for taking possession or control of the secured asset by the secured creditor is envisaged in Section 14 after the date mentioned in the possession notice at which stage, it is not necessary to actually inform or indicate to the borrower, the taking of possession by secured creditor. Section 14 in fact does not prescribe an opportunity of hearing the borrower before an order is passed with regard to taking of possession. But we have held that if possession has to be taken by the secured creditor, then in that event, the borrower must be informed or intimated about the taking of possession, more precisely, the actual date on which possession would be taken over from the borrower by the secured creditor which would have to be indicated to the former. It is in this regard, that insofar as immovable property is concerned, sub-rules (1) and (2) of Rule 8 prescribe notices or intimation to the borrower in two ways; (i) by delivery of possession notice and (ii) by newspaper publication, clearly indicating the date on which possession of the secured asset would be taken by the secured creditor. If on the date indicated in the possession notice, the secured creditor is unable to take possession of the secured asset, then in that case, recourse may be had to Section 14 of the Act, at which stage a further notice to the borrower is not envisaged under the said section.
15. Therefore, what emerges is the mandatory requirement under the Act read with the Rules, that in order to enable the borrower to know the date on which possession would be taken by the secured creditor, sub-rules (1) and (2) of Rule 8 would have to be complied with by issuance of notices indicating the date on which possession would be taken. There is another purpose for issuing the notice prior to taking possession and that is, to enable the borrower to discharge the liability to the secured creditor. Also a person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower can pay the secured creditor, so much of the money as is sufficient to pay the secured debt as per Clause (d) of sub-section (4) of Section 13 read with sub-section (5) thereof. We have also borne in mind the fact that on an application being filed under Section 14 of the Act before the Magistrate, there is no provision for issuance of notice to the borrower before an order to take possession is issued. We are, therefore, of the considered view that before initiating action under sub-section (4) of Section 13 of the Act, the issuance of notice as per sub-rules (1) and (2) of Rule 8 has to be complied with indicating the date on which possession of the property would be taken from the borrower by the secured creditor. If on the said date possession of the secured asset cannot be taken or it is not surrendered by the borrower, then the secured creditor can take recourse to Section 14 of the Act and take possession of the secured immovable property, of course, he hasten to add that the Notices issued under sub-rules (1) and (2) of Rule 8 cannot be assailed per se as the purpose of issuance of such notices is only to indicate the date of taking possession.
15 (a) Therefore, the issuance of notice in terms of Rule 8 of the Rules is a mandatory requirement having regard to the purpose of following the principles of natural justice so as to prevent miscarriage of justice and so as to ensure fair play in action. Issuance of notice prior to initiation of action under sub-section (4) of Section 13 is thus, a mandatory procedural requirement, the non-observance of which would invalidate the exercise of power. The taking of possession of a secured asset of a borrower under sub-section (4) of Section 13 is a drastic measure and the exercise of such a power would definitely visit the borrower with civil consequences. In Mohinder Singh Gill v. The Chief Election Commissioner, AIR 1978 SC 851, the Supreme Court has opined the civil consequences would cover not merely civil liberties and personal rights of a person but also material deprivations as well as right to property. Therefore, we have held that the issuance of notices in terms of Rule 8 of the Rules is a necessary requirement prior to taking possession, although Rule 8 speaks of sale of immovable secured assets, even if eventually after taking possession the secured assets are not sold.
………………..
18. In that view of the matter compliance of sub-rules (1) and (2) of Rule 8 of the Rules, is a mandatory requirement before possession of the secured asset is sought to be taken by a Financial Institution. Any violation or infraction of Section 13(4) of the Act by the Financial Institution could be called in question by way of filing an Appeal under Section 17 of the Act, and the DRT has the power to restore possession to the borrower.”
(emphasis supplied)
As noticed hereinabove, it was this issue which was raised by the petitioner in the application filed under Section 17(1) of the Act but it has not been examined by the Tribunal for the reason that the application filed by the petitioner under Section 5 of the Limitation Act for condoning the delay was rejected.
Learned counsel for the petitioner, however, submitted that the application under Section 17(1) of the Act was filed within the period of forty-five days as provided for in Section 17(1) of the Act. In this connection it is his submission that the application under Section 17(1) of the Act was required to be filed within forty-five days from the date on which measures under Section 13(4) of the Act were taken by the Bank but as the ‘possession notice’ was invalid and the petitioner had pointed out this fact in the registered letter dated 1st April, 2005 to the Bank to which no reply was sent, the petitioner bona fide believed that the Bank had dropped the proceedings and it is only when the petitioner in order to be satisfied that the Bank had dropped the proceedings, filed the application under the Right to Information Act before the Bank on 12th March, 2010 to seek such information that information dated 15th April, 2010 which was received by the petitioner on 28th April, 2010, was given by the Bank that the possession had been taken and the ‘possession notice’ was also published in two newspapers on 18th February, 2009 in which the property of the petitioner was shown at Serial No.11. Learned counsel pointed out that even in this notice which was published, the Bank did not specify the date on which the possession was taken and only reference was made to the earlier ‘possession notice’ dated 13th March, 2008 which also did not indicate the date when possession was taken or was likely to be taken.
Learned counsel for the petitioner submitted that the petitioner had filed an application under Section 17(1) of the Act on 31st May, 2010 against the alleged measures taken by the Bank with the assertion that it was within the stipulated period of forty five days since the petitioner acquired knowledge of such alleged measures having been taken by the Bank on 26th April, 2010 only and it was only by way of abundant caution that the petitioner had filed the application under Section 5 of the Limitation Act to condone the delay, if any, in filing the application under Section 17(1) of the Act.
The delay condonation application filed by the petitioner was rejected by the Tribunal by the order dated 11th April, 2011 holding that the appellant was negligent in pursuing the remedy. Accordingly, the application filed under Section 17(1) of the Act was dismissed as being barred by limitation.
Learned counsel for the petitioner submitted that the application under Section 5 of the Limitation Act was maintainable even though Section 17(1) of the Act may not provide for condoning such delay in view of the provisions of Section 29(2) of the Limitation Act 1963 and in support of this contention learned counsel for the petitioner placed reliance upon the decision of a learned Judge of this Court in State Bank of Patiala Vs. Chair Person, Debt Recovery Appellate Tribunal, Allahabad & Ors., AIR 2012 Allahabad 1 wherein it was observed:-
“21. In my view considering Section 17(7) of Act 2002 and Section 24 of Act 1993 there ought to be no difficulty in answering the issue raised above that the Limitation Act, 1963 shall apply to the Tribunal which would include Sections 5 and 14 also.
……………………
26. Considering the authorities above, wherein various judgments of the Apex Court and other High Courts cited on behalf of the parties to argue that Act 1963 ought not be applied to the proceedings under Section 17(1) have been discussed threadbare, and distinguished, with which I find myself in complete agreement. I do not find any reason to repeat the same thing hereat and suffice it to mention that decisions in respect of different special Acts having been rendered considering provisions contained therein would not be relevant in the context of application to Act 2002 whereto statutory scheme is totally different. Unless two Special Acts are shown in all respect pari materia, a decision rendered considering statutory scheme of one such Act by itself may not apply to another Act. I, therefore, hold that Limitation Act 1963 would be attracted and an application under Section 5 would be maintainable for the purpose of Section 17(1) of Act 2002.”.
As noticed hereinabove, it was this issue which was raised by the petitioner in the application filed under Section 17(1) of the Act but it has not been examined by the Tribunal for the reason that the application filed by the petitioner under Section 5 of the Limitation Act for condoning the delay was rejected.
Learned counsel for the petitioner, however, submitted that the application under Section 17(1) of the Act was filed within the period of forty-five days as provided for in Section 17(1) of the Act. In this connection it is his submission that the application under Section 17(1) of the Act was required to be filed within forty-five days from the date on which measures under Section 13(4) of the Act were taken by the Bank but as the ‘possession notice’ was invalid and the petitioner had pointed out this fact in the registered letter dated 1st April, 2005 to the Bank to which no reply was sent, the petitioner bona fide believed that the Bank had dropped the proceedings and it is only when the petitioner in order to be satisfied that the Bank had dropped the proceedings, filed the application under the Right to Information Act before the Bank on 12th March, 2010 to seek such information that information dated 15th April, 2010 which was received by the petitioner on 28th April, 2010, was given by the Bank that the possession had been taken and the ‘possession notice’ was also published in two newspapers on 18th February, 2009 in which the property of the petitioner was shown at Serial No.11. Learned counsel pointed out that even in this notice which was published, the Bank did not specify the date on which the possession was taken and only reference was made to the earlier ‘possession notice’ dated 13th March, 2008 which also did not indicate the date when possession was taken or was likely to be taken.
Learned counsel for the petitioner submitted that the petitioner had filed an application under Section 17(1) of the Act on 31st May, 2010 against the alleged measures taken by the Bank with the assertion that it was within the stipulated period of forty five days since the petitioner acquired knowledge of such alleged measures having been taken by the Bank on 26th April, 2010 only and it was only by way of abundant caution that the petitioner had filed the application under Section 5 of the Limitation Act to condone the delay, if any, in filing the application under Section 17(1) of the Act.
The delay condonation application filed by the petitioner was rejected by the Tribunal by the order dated 11th April, 2011 holding that the appellant was negligent in pursuing the remedy. Accordingly, the application filed under Section 17(1) of the Act was dismissed as being barred by limitation.
Learned counsel for the petitioner submitted that the application under Section 5 of the Limitation Act was maintainable even though Section 17(1) of the Act may not provide for condoning such delay in view of the provisions of Section 29(2) of the Limitation Act 1963 and in support of this contention learned counsel for the petitioner placed reliance upon the decision of a learned Judge of this Court in State Bank of Patiala Vs. Chair Person, Debt Recovery Appellate Tribunal, Allahabad & Ors., AIR 2012 Allahabad 1 wherein it was observed:-
“21. In my view considering Section 17(7) of Act 2002 and Section 24 of Act 1993 there ought to be no difficulty in answering the issue raised above that the Limitation Act, 1963 shall apply to the Tribunal which would include Sections 5 and 14 also.
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26. Considering the authorities above, wherein various judgments of the Apex Court and other High Courts cited on behalf of the parties to argue that Act 1963 ought not be applied to the proceedings under Section 17(1) have been discussed threadbare, and distinguished, with which I find myself in complete agreement. I do not find any reason to repeat the same thing hereat and suffice it to mention that decisions in respect of different special Acts having been rendered considering provisions contained therein would not be relevant in the context of application to Act 2002 whereto statutory scheme is totally different. Unless two Special Acts are shown in all respect pari materia, a decision rendered considering statutory scheme of one such Act by itself may not apply to another Act. I, therefore, hold that Limitation Act 1963 would be attracted and an application under Section 5 would be maintainable for the purpose of Section 17(1) of Act 2002.”.
Learned counsel for the petitioner contended that the Tribunal committed an illegality as not only was the application under Section 17(1) of the Act filed within time but even otherwise the delay had been satisfactorily explained. It is for this reason that the petitioner filed an appeal under Section 18 of the Act with the following reliefs:-
“(i) to set aside the impugned order dated 11-04-2011 (Annexure-1 hereto) passed by the Ld. Presiding Officer, DRT, Allahabad, in SA-68 of 2010-Mohan Lal Saraf Vs. State Bank of Patiala and other;
(ii) to hold that there is no delay in filing the above SA and/or condone the delay, if at all any, for reasons explained in the Delay Condonation Application;
(iii) to direct the Ld. P.O., DRT, Allahabad, to decide the above S.A. on merits;
(iv) to pass such other and further order as this Hon’ble Tribunal may deem fit and proper in the interest of justice;
(v) to award cost.”
“(i) to set aside the impugned order dated 11-04-2011 (Annexure-1 hereto) passed by the Ld. Presiding Officer, DRT, Allahabad, in SA-68 of 2010-Mohan Lal Saraf Vs. State Bank of Patiala and other;
(ii) to hold that there is no delay in filing the above SA and/or condone the delay, if at all any, for reasons explained in the Delay Condonation Application;
(iii) to direct the Ld. P.O., DRT, Allahabad, to decide the above S.A. on merits;
(iv) to pass such other and further order as this Hon’ble Tribunal may deem fit and proper in the interest of justice;
(v) to award cost.”
Learned counsel for the petitioner, with reference to the reliefs claimed in the appeal, submitted that the principle relief was to hold that there was no delay in filing the application and/or to condone the delay and to direct the Tribunal to decide the application on merits and, therefore, as the appeal was directed against the order passed on the application, the requisite fee of only Rs.200/- was required to be paid. He, therefore, submitted that the Appellate Tribunal was not justified in dismissing the appeal for the reason that the requisite Court fee was not paid.
Learned counsel for the respondents, however, submitted that the order of the Appellate Tribunal dismissing the appeal for this reason does not suffer from any illegality but in any case it will not be necessary to examine this issue if the appeal is otherwise held to be not maintainable for the reason that the condition of pre-deposit of the amount under the second proviso to Section 18(1) of the Act was not satisfied.
Learned counsel for the respondents is justified in asserting that what needs to be first decided is whether the condition of pre-deposit was required to be satisfied by the appellant because if it is held that the appellant was required to make the deposit as provided for in the second proviso to Section 18 (1) of the Act, the appeal would have to be dismissed for non-deposit of the amount and it will not be necessary to examine whether the requisite Court fee was paid by the appellant.
The submission of learned counsel for the petitioner regarding pre-deposit of amount has to be examined in the context of Section 18 of the Act. It provides that any person aggrieved, by any order made by the Tribunal under section 17, may prefer an appeal within thirty days from the date of receipt of the order of the Tribunal. The second proviso to Section 18(1) of the Act, however, provides that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the Bank or determined by the Tribunal, whichever is less but this amount can be reduced to not less than 25% by the Appellate Tribunal.
Learned counsel for the petitioner contended that as the Tribunal has yet to determine the amount of debt due from the petitioner since the application under Section 17(1) of the Act filed by the petitioner was not decided on merits but had been rejected for the reason that it was filed beyond the period prescribed, the petitioner should not be compelled to deposit 50% of the amount as claimed by the Bank because, in such circumstances, the requirement will be arbitrary and onerous and contrary to the decision of the Supreme Court in Mardia Chemicals Ltd. etc. etc. Vs. Union of India & Ors., AIR 2004 SC 2371 as it would require pre-deposit of the amount at the first instance of proceedings and in support of his contention he has placed reliance upon paragraphs 40, 59, 60, 61, 62, 63, 64 and 80 of the judgment in Mardia Chemicals Ltd. (supra) rendered in respect to the unamended provisions of Section 17 of the Act. The relevant paragraphs on which reliance has been placed by learned counsel for the petitioner are :-
“40. Now coming to S.17, it provides for filing of an appeal to the Debt Recovery Tribunal within 45 days of any action taken against the borrower under sub-section (4) of S.13 of the Act. It reads as under :
Learned counsel for the respondents, however, submitted that the order of the Appellate Tribunal dismissing the appeal for this reason does not suffer from any illegality but in any case it will not be necessary to examine this issue if the appeal is otherwise held to be not maintainable for the reason that the condition of pre-deposit of the amount under the second proviso to Section 18(1) of the Act was not satisfied.
Learned counsel for the respondents is justified in asserting that what needs to be first decided is whether the condition of pre-deposit was required to be satisfied by the appellant because if it is held that the appellant was required to make the deposit as provided for in the second proviso to Section 18 (1) of the Act, the appeal would have to be dismissed for non-deposit of the amount and it will not be necessary to examine whether the requisite Court fee was paid by the appellant.
The submission of learned counsel for the petitioner regarding pre-deposit of amount has to be examined in the context of Section 18 of the Act. It provides that any person aggrieved, by any order made by the Tribunal under section 17, may prefer an appeal within thirty days from the date of receipt of the order of the Tribunal. The second proviso to Section 18(1) of the Act, however, provides that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the Bank or determined by the Tribunal, whichever is less but this amount can be reduced to not less than 25% by the Appellate Tribunal.
Learned counsel for the petitioner contended that as the Tribunal has yet to determine the amount of debt due from the petitioner since the application under Section 17(1) of the Act filed by the petitioner was not decided on merits but had been rejected for the reason that it was filed beyond the period prescribed, the petitioner should not be compelled to deposit 50% of the amount as claimed by the Bank because, in such circumstances, the requirement will be arbitrary and onerous and contrary to the decision of the Supreme Court in Mardia Chemicals Ltd. etc. etc. Vs. Union of India & Ors., AIR 2004 SC 2371 as it would require pre-deposit of the amount at the first instance of proceedings and in support of his contention he has placed reliance upon paragraphs 40, 59, 60, 61, 62, 63, 64 and 80 of the judgment in Mardia Chemicals Ltd. (supra) rendered in respect to the unamended provisions of Section 17 of the Act. The relevant paragraphs on which reliance has been placed by learned counsel for the petitioner are :-
“40. Now coming to S.17, it provides for filing of an appeal to the Debt Recovery Tribunal within 45 days of any action taken against the borrower under sub-section (4) of S.13 of the Act. It reads as under :
“17. Right to appeal. — (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of S.13 taken by the secured creditor or his authorised officer under this Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken.
(2) Where an appeal is preferred by a borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy-five per cent. of the amount claimed in the notice referred to in sub-section (2) of S. 13 :
Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section.
(3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder.”
It is thus clear that an appeal under sub-section (1) of S. 17 would lie only after some measure has been taken under sub-section (4) of S. 13 and not before the stage of taking of any such measure. According to sub-section (2), the borrower has to deposit 75% of the amount claimed by the secured creditor before his appeal can be entertained.
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59. We may like to observe that proceedings under Section 17 of the Act, in fact are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in Civil Court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. We may refer to a decision of this Court reported in (1974) 2 SCC 393, Smt. Ganga Bai Vs. Vijay Kumar and others, where in respect of original and appellate proceedings a distinction has been drawn as follows:-
“……..There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless one’s choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and, therefore, an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute.”
60. The requirement of pre-deposit of any amount at the first instance of proceedings is not to be found in any of the decisions cited on behalf of the respondent. All these cases relate to appeals. The amount of deposit of 75% of the demand, at the initial proceeding itself sounds unreasonable and oppressive more particularly when the secured assets/the management thereof along with the right to transfer such interest has been taken over by the secured creditor or in some cases property is also sold. Requirement of deposit of such a heavy amount on basis of one sided claim alone, cannot be said to be a reasonable condition at the first instance itself before start of adjudication of the dispute. Merely giving power to the Tribunal to waive or reduce the amount, does not cure the inherent infirmity leaning one-sidedly in favour of the party, who, so far has alone been the party to decide the amount and the fact of default and classifying the dues as NPAs without participation/association of the borrower in the process. Such an onerous and oppressive condition should not be left operative in expectation of reasonable exercise of discretion by the concerned authority. Placed in a situation as indicated above, where it may not be possible for the borrower to raise any amount to make the deposit, his secured assets having already been taken possession of or sold, such a rider to approach the Tribunal at the first instance of proceedings, captioned as appeal, renders the remedy illusory and nugatory.
61. In the case of Seth Nandlal (supra), while considering the question of validity of pre-deposit before availing the right of appeal the Court held “……….. right of appeal is a creature of the statute and while granting the right the Legislature can impose conditions for the exercise of such right so long as the conditions are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory. ….” (Emphasis supplied). While making said observation this Court referred to the decision in the case of Anant Mills Co. Ltd. (supra). In both the above noted decisions this Court had negated the plea raised against pre-deposit but in the case of Seth Nandlal (supra) it was found that the condition was not so onerous since the amount sought to be deposited was meager and that too was confined to the landholding tax payable in respect of the disputed area i.e. the area or part thereof which is declared surplus by the Prescribed Authority (Emphasis supplied) after leaving the permissible area to the appellant. In the above circumstances it was found that even in the absence of a provision conferring discretion on the appellate authority to waive or reduce the amount of pre-deposit, it was considered to be valid, for the two reasons indicated above. The facts of the case in hand are just otherwise.
62. As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the Court of the first instance under the Code of Civil Procedure. No doubt in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the property before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But for obtaining such orders a case for the same is to be made out in accordance with the relevant provisions under the law. There is no such provision under the Act.
63. Yet another justification which has been sought to be given for the requirement of deposit is that the secured assets which may be taken possession of or sold may fall short of the dues therefore such a deposit may be necessary. We find no merit in this submission too. In such an eventuality the recourse may have to be taken to sub-section 10 of Section 13 where a petition may have to be filed before the Tribunal for the purpose of making up of the short-fall.
64. The condition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii)there is no determination of the amount due as yet (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor (iv) no special reason for double security in respect of an amount yet to be determined and settled (v) 75% of the amount claimed by no means would be a meager amount (vi) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75% of the undetermined demand. Such conditions are not alone onerous and oppressive but also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of Section 17 of the Act is unreasonable, arbitrary and violative of Art. 14 of the Constitution.
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80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :-
1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal under Section 17 of the Act, at that stage.
2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal.
3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose.
4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down.
5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil Court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court.”
(emphasis supplied)
(emphasis supplied)
Learned counsel for the respondent-Bank, however, submitted that Section 17 of the Act has since been amended and the petitioner had filed an Appeal under Section 18 of the Act. Learned counsel further placed reliance upon the decision of the Supreme Court in Narayan Chandra Ghosh Vs. UCO Bank & Ors., 2011 AIR SCW 2572, and submitted that since there is an absolute bar on entertaining an appeal under Section 18 of the Act unless the condition precedent of pre-deposit is satisfied, the Appellate Tribunal committed no illegality in dismissing the appeal as the said mandatory condition was not satisfied. It is his submission that even if the amount of debt had not been determined by the Tribunal, then too the appellant would be required to deposit the amount of debt due as claimed by the Bank.
The observations made by the Supreme Court in Narayan Chandra Ghosh (supra) are as follows:-
“2. This appeal by the borrower is directed against judgment dated 7th December, 2010 delivered by the High Court of Calcutta in C.O. No.3608 of 2009. By the impugned judgment, the High Court has set aside the order passed by the Debts Recovery Appellate Tribunal, Kolkata (for short, “the Appellate Tribunal”) in Appeal No.35 of 2009, whereby the Appellate Tribunal, while allowing the application filed by the appellant under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the Act”) had exempted the appellant from making any deposit in terms of second proviso to Section 18 of the Act before entertaining the appeal against the order passed by the Debts Recovery Tribunal.
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4. Assailing the judgment, Mr. Ranjan Mukherjee has submitted that since the Debts Recovery Tribunal had not entertained the appeal preferred by the appellant under Section 17 of the Act on a technical ground and the quantum of amount due from the appellant had not been determined, the Appellate Tribunal could not saddle the appellant with any liability of pre-deposit under Section 18 of the Act. It is thus, asserted that the Appellate Tribunal was justified in entertaining the appeal without insisting on any deposit in terms of Section 18 of the Act.
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8. Section 18(1) of the Act confers a statutory right on a person aggrieved by any order made by the Debts Recovery Tribunal under Section 17 of the Act to prefer an appeal to the Appellate Tribunal. However, the right conferred under Section 18(1) is subject to the condition laid down in the second proviso thereto. The second proviso postulates that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. However, under the third proviso to the sub-section, the Appellate Tribunal has the power to reduce the amount, for the reasons to be recorded in writing, to not less than twenty-five per cent of the debt, referred to in the second proviso. Thus, there is an absolute bar to entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity. It is well-settled that when a Statute confers a right of appeal, while granting the right, the Legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. Bearing in mind the object of the Act, the conditions hedged in the said proviso cannot be said to be onerous. Thus, we hold that the requirement of pre-deposit under sub-section (1) of Section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the Statute. We have no hesitation in holding that deposit under the second proviso to Section 18(1) of the Act being a condition precedent for preferring an appeal under the said Section, the Appellate Tribunal had erred in law in entertaining the appeal without directing the appellant to comply with the said mandatory requirement.
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9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third proviso to the said Section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining appellant’s appeal without insisting on pre-deposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed.”
(emphasis supplied)
The observations made by the Supreme Court in Narayan Chandra Ghosh (supra) are as follows:-
“2. This appeal by the borrower is directed against judgment dated 7th December, 2010 delivered by the High Court of Calcutta in C.O. No.3608 of 2009. By the impugned judgment, the High Court has set aside the order passed by the Debts Recovery Appellate Tribunal, Kolkata (for short, “the Appellate Tribunal”) in Appeal No.35 of 2009, whereby the Appellate Tribunal, while allowing the application filed by the appellant under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the Act”) had exempted the appellant from making any deposit in terms of second proviso to Section 18 of the Act before entertaining the appeal against the order passed by the Debts Recovery Tribunal.
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4. Assailing the judgment, Mr. Ranjan Mukherjee has submitted that since the Debts Recovery Tribunal had not entertained the appeal preferred by the appellant under Section 17 of the Act on a technical ground and the quantum of amount due from the appellant had not been determined, the Appellate Tribunal could not saddle the appellant with any liability of pre-deposit under Section 18 of the Act. It is thus, asserted that the Appellate Tribunal was justified in entertaining the appeal without insisting on any deposit in terms of Section 18 of the Act.
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8. Section 18(1) of the Act confers a statutory right on a person aggrieved by any order made by the Debts Recovery Tribunal under Section 17 of the Act to prefer an appeal to the Appellate Tribunal. However, the right conferred under Section 18(1) is subject to the condition laid down in the second proviso thereto. The second proviso postulates that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. However, under the third proviso to the sub-section, the Appellate Tribunal has the power to reduce the amount, for the reasons to be recorded in writing, to not less than twenty-five per cent of the debt, referred to in the second proviso. Thus, there is an absolute bar to entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity. It is well-settled that when a Statute confers a right of appeal, while granting the right, the Legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. Bearing in mind the object of the Act, the conditions hedged in the said proviso cannot be said to be onerous. Thus, we hold that the requirement of pre-deposit under sub-section (1) of Section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the Statute. We have no hesitation in holding that deposit under the second proviso to Section 18(1) of the Act being a condition precedent for preferring an appeal under the said Section, the Appellate Tribunal had erred in law in entertaining the appeal without directing the appellant to comply with the said mandatory requirement.
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9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third proviso to the said Section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining appellant’s appeal without insisting on pre-deposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed.”
(emphasis supplied)
Learned counsel for the petitioner, however, submitted that the decision of the Supreme Court has to be considered in the light of the facts mentioned by the Appellate Tribunal and in this connection he has placed the decision of the Kolkata Appellate Tribunal reported in Narayan Chandra Ghosh Vs. UCO Bank & Ors., 2010 (1) Bank CLR 353. Learned counsel pointed out that the reason assigned by the Appellate Tribunal for not insisting on the pre-deposit is that the actual physical possession of the secured asset of the borrower had been taken and the application filed by the appellant for waiver of the deposit was allowed, but in the instant case, waiver application had not been filed as there was no requirement of pre-deposit. Paragraphs 10 and 11 of the Appellate Tribunal on which reliance was placed by learned counsel for the petitioner are as follows:-
“10. In the case in hand, the disposal of the petition under Section 17(1) of the said SARFAESI Act as above merely puts a seal of approval to the measures that have been taken by the creditor-Bank for recovering the amount as claimed in the notice under Section 13(2) of the said Act. Such disposal clearly implies that the amount so claimed in the notice under Section 13(2) of the said Act was recoverable in law from the borrower or the guarantor as the case may be. As per the provisions thereof the appellant-borrower is required to deposit the maximum 50% of the amount as claimed to be due from him or determined to be due to the secured creditor by the Debts Recovery Tribunal. This is a fetter put under the Act upon the borrower or the guarantor whoever wants to prefer an appeal against an order passed in the proceedings under Section 17 of the said SARFAESI Act, 2002. No one has absolute right of appeal under the law. Right of appeal is the creature of statute. Such right of appeal may be circumscribed by any condition or term as may be prescribed by a legislature.. This fetter should not be read in the manner so as to oust the right to appeal altogether. If the said provisions are looked at such angle it would not be difficult to hold that once actual physical possession of the secured assets of the borrower has been taken over by the creditor-Bank, there would be sufficient compliance of either of the provisos of Section 18(1) of the said Act for the purpose of entertaining an appeal of the borrower by the Appellate Tribunal. Because, primarily secured assets stand as security for full and final satisfaction of the debts of the borrower. Again in the absence of any contest by the borrower against any measures that have been taken by the creditor-Bank under Section 13(4) of the said Act, the creditor-Bank would be left with no other option than to proceed as against the secured assets in the manner as prescribed thereunder for recovering it’s debts. In such situation it cannot ask for further deposit by the borrower unless it is established in law that such secured asset will not satisfy fully the debts of the creditor. Therefore, the creditor-Bank cannot demand further payment by the borrower after it had taken actual physical possession of the secured properties. The financial assistance had been given to the borrower by the creditor-Bank upon being satisfied with the security of such properties. The natural presumption therefore arises that such secured assets would satisfy fully and finally the outstanding dues of the creditor-Bank unless proved otherwise.
11. In such consideration and by taking into consideration the fact that actual physical possession of the secured assets of the borrower appellant has been taken over by the Bank in the meantime. I am of the view that for the purpose of entertaining this appeal, by this Appellate Tribunal no further deposit is required to be made by the appellant-borrower. For the reasons as aforesaid and also by taking note of the fact that a sum of Rs.9,00,000/- (Rupees Nine Lakh) has already been deposited by the borrower-appellant with the creditor-Bank in the meantime, I allow the application under Section 18(1) of the SARFASEI Act, 2002 as filed by the borrower-appellant by exempting him from making any further deposit for the purpose of entertaining this appeal for disposal on merits.”
“10. In the case in hand, the disposal of the petition under Section 17(1) of the said SARFAESI Act as above merely puts a seal of approval to the measures that have been taken by the creditor-Bank for recovering the amount as claimed in the notice under Section 13(2) of the said Act. Such disposal clearly implies that the amount so claimed in the notice under Section 13(2) of the said Act was recoverable in law from the borrower or the guarantor as the case may be. As per the provisions thereof the appellant-borrower is required to deposit the maximum 50% of the amount as claimed to be due from him or determined to be due to the secured creditor by the Debts Recovery Tribunal. This is a fetter put under the Act upon the borrower or the guarantor whoever wants to prefer an appeal against an order passed in the proceedings under Section 17 of the said SARFAESI Act, 2002. No one has absolute right of appeal under the law. Right of appeal is the creature of statute. Such right of appeal may be circumscribed by any condition or term as may be prescribed by a legislature.. This fetter should not be read in the manner so as to oust the right to appeal altogether. If the said provisions are looked at such angle it would not be difficult to hold that once actual physical possession of the secured assets of the borrower has been taken over by the creditor-Bank, there would be sufficient compliance of either of the provisos of Section 18(1) of the said Act for the purpose of entertaining an appeal of the borrower by the Appellate Tribunal. Because, primarily secured assets stand as security for full and final satisfaction of the debts of the borrower. Again in the absence of any contest by the borrower against any measures that have been taken by the creditor-Bank under Section 13(4) of the said Act, the creditor-Bank would be left with no other option than to proceed as against the secured assets in the manner as prescribed thereunder for recovering it’s debts. In such situation it cannot ask for further deposit by the borrower unless it is established in law that such secured asset will not satisfy fully the debts of the creditor. Therefore, the creditor-Bank cannot demand further payment by the borrower after it had taken actual physical possession of the secured properties. The financial assistance had been given to the borrower by the creditor-Bank upon being satisfied with the security of such properties. The natural presumption therefore arises that such secured assets would satisfy fully and finally the outstanding dues of the creditor-Bank unless proved otherwise.
11. In such consideration and by taking into consideration the fact that actual physical possession of the secured assets of the borrower appellant has been taken over by the Bank in the meantime. I am of the view that for the purpose of entertaining this appeal, by this Appellate Tribunal no further deposit is required to be made by the appellant-borrower. For the reasons as aforesaid and also by taking note of the fact that a sum of Rs.9,00,000/- (Rupees Nine Lakh) has already been deposited by the borrower-appellant with the creditor-Bank in the meantime, I allow the application under Section 18(1) of the SARFASEI Act, 2002 as filed by the borrower-appellant by exempting him from making any further deposit for the purpose of entertaining this appeal for disposal on merits.”
It needs to be noticed that the view taken by the Appellate Tribunal was set aside by the Calcutta High Court and it is against this decision that the borrower approached the Supreme Court.
It is not possible to accept the contention of learned counsel for the petitioner in view of the decision of the Supreme Court in Narayan Chandra Ghosh (supra). The Supreme Court rejected the arguments of the counsel for the appellant that as the amount of debt due had not been determined by the Tribunal, an appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit for the reason that the amount of pre-deposit is computed either with reference to the debt due as claimed by the Bank or with reference to the amount determined by the Tribunal, whichever is less. Thus, even if the amount of debt has yet to be determined by the Tribunal, the appellant would be liable to deposit of the 50% of the debt due from him as claimed by the Bank. The Supreme Court further pointed out that this was a mandatory condition and at best the amount could be reduced to not less than 25% of the debt on an application for waiver having been filed.
Thus, without examining on merits as to whether there was a delay or not in filing the application under Section 17(1) of the Act and if not then whether the delay was required to be condoned and without examining the quantum of the Court fees that was required to be paid by the appellant, the writ petition is dismissed for the reason that the Appellate Tribunal committed no illegality in dismissing the appeal on account of failure to make the pre-deposit as contemplated under the second proviso to Section 18(1) of the Act.
Date: 5.12.2012
It is not possible to accept the contention of learned counsel for the petitioner in view of the decision of the Supreme Court in Narayan Chandra Ghosh (supra). The Supreme Court rejected the arguments of the counsel for the appellant that as the amount of debt due had not been determined by the Tribunal, an appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit for the reason that the amount of pre-deposit is computed either with reference to the debt due as claimed by the Bank or with reference to the amount determined by the Tribunal, whichever is less. Thus, even if the amount of debt has yet to be determined by the Tribunal, the appellant would be liable to deposit of the 50% of the debt due from him as claimed by the Bank. The Supreme Court further pointed out that this was a mandatory condition and at best the amount could be reduced to not less than 25% of the debt on an application for waiver having been filed.
Thus, without examining on merits as to whether there was a delay or not in filing the application under Section 17(1) of the Act and if not then whether the delay was required to be condoned and without examining the quantum of the Court fees that was required to be paid by the appellant, the writ petition is dismissed for the reason that the Appellate Tribunal committed no illegality in dismissing the appeal on account of failure to make the pre-deposit as contemplated under the second proviso to Section 18(1) of the Act.
Date: 5.12.2012
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