Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: s.18 – Appeal to appellate tribunal – Pre-deposit of 50% of the amount due from the borrower as claimed by the secured creditor under the second proviso of s. 18 – Requirement of – Auction sale – Amount already been recovered/realised by the secured creditor by selling the mortgaged property through an auction– While calculating the amount of “debt due”, the amount deposited by the auction purchaser on purchase of the secured assets, if to be adjusted and/or appropriated towards the amount to be deposited by the borrower u/s. 18 i.e., 50% of the debt due – Held: Under s. 18, the borrower has to deposit 50% of the amount of “debt due” as claimed by the bank/financial institution/assignee along with interest as claimed in the notice u/s. 13(2) – The borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale – Borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge – On facts, as the auction sale was challenged by the borrowers, the High Courts erred in directing to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT – Recovery of Debts and Bankruptcy Act, 1993 – s. 2(g).
s. 18 - “Debt due” u/s. 18, if includes the liability plus interest – Held: “Debt” means any liability inclusive of interest – On facts, the High Court erred in excluding the amount payable towards interest while considering the “debt due” – Recovery of Debts and Bankruptcy Act, 1993 – s. 2(g).
Disposing of the appeals, the Court
HELD: 1.1 As per Section 2(ha) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, “debt” shall have the same meaning assigned to it in clause (g) of Section 2 of the Act 1993. As per section 2(g) of the Act 1993, “debt” means any liability inclusive of interest which is claimed as due from any person, by a bank or a financial institution during the course of any business activity undertaken by the bank or the financial institution, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on the date of the application. That the “debt” means any liability inclusive of interest. [Para 13][569-D-F]
1.2 An appeal under Section 18 of the SARFAESI Act is permissible against the order passed by the DRT under Section
17 of the SARFAESI Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. Therefore, whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the ‘debt due’ within the meaning of proviso to Section 18 of the SARFAESI Act. In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act. However, in a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in PRUDENT ARC LIMITED & OTHERS
that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher. [Para 13][567-H; 568-A-C]
1.3. As per the second proviso to Section 18 of the SARFAESI Act, it is the “borrower” who has preferred an appeal before the Appellate Tribunal and the “borrower” who shall have to deposit 50% of the amount of “debt due” from him. If the words used in the second proviso to Section 18 of the SARFAESI Act are “borrower has to deposit”, it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower. The borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In a case where the borrower also challenges the auction sale and does not accept the same and also challenges the steps taken under Section 13(2)/13(4) of the SARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along with interest as per section 2(g) of the Act 1993. [Para 14][568-D-G]
1.4. Where the borrower challenges the auction sale, thereafter it will not be open for the borrower to pray to use the sale proceeds received from the sale of the secured properties to be adjusted/given credit in an application for waiver of predeposit.[Para 15][571-F]
1.5. In the present case, the respective High Courts have seriously erred in directing to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT. Even the High Court of Delhi has erred in excluding the amount payable towards interest while considering the “debt due”. [Para 16][571-G-H]
1.6 As per Section 2(g) of the Act 1993, “debt” means liability inclusive of interest as claimed by the bank/financial institution.the borrower has to deposit 50% of the amount of “debt due” as claimed by the bank/financial institution/assignee along with interest as claimed in the notice under Section 13(2) of the SARFAESI Act and the borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge. [Paras 16 and 17][571H; 572-C] Eskays Construction Pvt. Ltd. v. Soma Papers & Industries Limited & Others 2016 SCC OnLine Bom. 9827– approved.
Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC
548 : [2011] 3 SCR 1024 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.