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Judgment
Ashok Menon, Chairperson
The Asset Reconstruction Company (ARCIL) is in appeal impugning the judgment and order dated 05.09.2018 allowing the Securitisation Application (S.A) No. 24 of 2017 by the Debts Recovery Tribunal, Pune (D.R.T) challenging the Sarfaesi measures initiated by the appellant to recover the dues from the first respondent (applicant in the S.A).
The facts can be summarised thus:
The first respondent Company (presently under Liquidation) came into existence consequence to the merger of Ms. Bonito Impex (P) Ltd. The second respondent is a Company dealing with financial services which had in 2009, mediated a deal of financial assets between the appellant and the third respondent M/s Sun Earth Ceramics Ltd. (presently under liquidation). The appellant is the assignee of the debt incurred by the third respondent borrower. The first respondent had agreed to acquire the financial assets of the third respondent from the appellant by way of assignment.
The S.A was filed by the first respondent challenging the auction notices dated 10.02.2017 and 28.02.2017 and seeking restoration of possession of land with the plant and machinery situated in Kalvakar Alibaug, Raigad district and the plant and machinery situated in the land at Anjap, Karjat, Raigad district upon the 1st respondent agreeing to pay the admitted balance of ₹3.50 crores.
ARCIL had raised a contention that the contract in the form of an agreement for the sale of financial assets dated 10.09.2009 was terminated illegally and therefore the first respondent has no right title or interest on the secured assets owned by the third respondent borrower. The first respondent had filed a suit for specific performance before the Hon’ble High Court of Bombay as Suit No. 253 of 2015 on 25.06.2014 claiming specific performance and in the alternative refund of ₹13.50 crores with interest. Under the circumstances, the first respondent could not have been an aggrieved person competent to seek remedy under section 17(1) of the SARFAESI Act.
The original borrower respondent No.3 had availed financial assistance from various banks and financial institutions and committed the fault. The original creditors entered into a deed of assignment of debt with the ARCIL during the period 30.06.2004 to July 2006. The original creditors had filed an original application for recovery of debts before the D.R.T. Mumbai under the provisions of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 (RDDB & FI Act). The appellant had also chosen to substitute itself as the assignee in O.A No. 8 of 2004.
The first respondent had agreed to take over the secured debts together with the assets of the third respondent by entering into a contract with ARCIL. In 2003, the Hon’ble Supreme Court had attached the assets and therefore the sale of the physical assets was barred under the provisions of the Maharashtra Protection of Interest of Depositors (in financial establishments) Act 1999, (MPID Act) in Special case No. 34 of 2004 before the special MPID Court, Mumbai. The contention is that no third-party right could have been created over the property belonging to the 3rd respondent given the aforementioned bar.
In the year 2006, the first respondent along with foreign investors negotiated with ARCIL and the other secured creditors for the purchase and acquisition of the financial assets and security interest of the third respondent a sum of ₹15 lacs for preparing a memorandum of documents concerning the properties at Karjat and Alibaug and a further sum of ₹25 lacs was paid to the appellant for reclaiming possession.
The first respondent had filed Suit No. 252 of 2015 before the Hon’ble High Court for specific performance of the agreement for sale entered into between ARCIL and the first respondent on 14. 10.2009. The borrower M/s Sun Earth Ceramic Ltd. had gone into liquidation and a liquidator was appointed. During the pendency of the appeal, the first respondent company went into liquidation and a liquidator was appointed. In the civil suit, the first respondent sought a declaration that the purported termination of the agreement dated 07.06.2010 by ARCIL is false, fabricated, void, non-est, illegal and bad in law. An injunction was also sought against ARCIL from adjusting and/or utilizing a sum of ₹13.50 crores paid by the 1st respondent and also an injunction to restrain ARCIL from entering into any assignment arrangement in respect of the financial assets of the borrower company. In the alternative, a decree is sought for a refund of ₹13.50 crores with interest.
The D.R.T. has allowed the S.A. observing that as per the agreement dated 14.10.2009, the ARCIL had undertaken to make the payment of ₹12 crores towards full and final consideration of the total consideration of ₹16 crores by 31.01.2013. As it is not in dispute that the parties had entered into an agreement and amounts were also paid and since the encumbrances were not shown in the public notice of sale, the Sarfaesi action could not be sustained and therefore, the sale of the property as per the SARFAESI Act is not sustainable. It was also observed that the property was attached by the Special MPID Court and therefore, proceeding under the SARFAESI Act was not appropriate. The appellant ARCIL is aggrieved and hence, in appeal.
The main contention of the ARCIL is that it is an asset reconstruction company which has purchased the debt due from the borrower company to a consortium of 11 banks. The first respondent has not obtained any relief from the Hon’ble High Court in Suit No. 252 of 2015 for specific performance. The borrower company had also filed a securitisation application before D.R.T. -III, Mumbai with an application to condone delay in filing the application. Interim relief was sought by the borrower and the D.R.T. had in that S.A. observed that the attachment made by the MPID will not prevail over the mortgage claim of the secured creditors given the overriding effect of the SARFAESI Act over the other unsecured claims. The attachment made by the MPID Court for unsecured claims of depositors will not be binding on the claim of the secured creditors. The claim of the first respondent based on the specific performance cannot be decided by the D.R.T. It is also pertinent to note that the applicant company which had filed the present S.A. was already winded up and that fact was not brought to the notice of the D.R.T.Ongoing through the facts and circumstances of this case, it is to be understood that the 1st respondent is claiming its rights based on an agreement for sale which has not yet concluded. The rights of the first respondent based on the agreement for sale are to be decided in the suit for specific performance pending before the High Court. The D.R.T. cannot enter into a finding regarding the rights of the first respondent. The 1st respondent has not challenged the measures taken by the ARCIL under the provisions of the SARFAESI Act. More particularly so because the ex-director and guarantor of the borrower company had failed in getting any relief from the D.R.T. in the challenge to the Sarfaesi action. It is also pertinent to note that the first respondent had not obtained any relief in the pending suit before the Hon’ble Bombay High Court. The D.R.T. ought to have appreciated the fact that the rights of the first respondent are subject to the suit pending before the High Court. The attachment of the MPID Court had no relevance and the Sarfaesi action would prevail, and therefore, the finding of the D.R.T. that the attachment made by the MPID Court would prevail has no legal backing. The first respondent was never in possession of the secured asset at any point in time and therefore, the question of restoration of the property does not arise and the D.R.T. has no power to grant such restoration. The determination regarding the payments made by the first respondent to the ARCIL would come within the purview of the suit which is pending before the Hon’ble High Court. Under the circumstances, I find that the D.R.T. has erred in finding that the measures taken by the ARCIL under the SARFAESI Act were not in consonance with the act and rules.
Resultantly, the appeal is allowed, and the impugned judgment and order of the D.R.T. in S.A. No. 24 of 2017 dated 05.09.2018 are quashed and set aside. The S.A. stands dismissed.