Canara Bank vs Supreme Ceramics Ltd.

S.N.H. Zaidi, J

The instant appeal impugns the order dated 18.2.2011 passed by DRT-III, Delhi, whereby S.A. No. 70/2011 has been disposed of by directing the applicant/respondent to pay Rs. 1 crore by 15.3.2011, Rs. 50 lacs by 15.4.2011 and Rs. 8,76,78,578/- along with interest @ 10% per annum simple on reducing balance basis w.e.f. 1.10.2010 in 18 equal monthly instalments commencing from 1.8.2011 to be cleared by 31.12.2012. It appears that the appellant Bank had sanctioned certain credit facilities to the respondent company on 29.1.2010, which were secured by hypothecation of stocks, plant, machinery, etc., by personal guarantee of its Directors and by creating equitable mortgage of immovable properties. As the respondent failed to maintain the financial discipline, the loan accounts were classified as non-performing assets (NPA) on 18.9.2010 and a demand notice of Rs. 10,26,78,578/-, dated 25.10.2010, under Section 13(2) of the SARFAESI Act was issued, but since no payment was made by the respondent within the stipulated period of 60 days, the Bank took symbolic possession of the mortgaged properties and issued possession notice dated 11.1.2011, which was duly published in the newspapers as per rules. Challenging the measures taken by the appellant Bank, the respondent company filed an application (S.A. No. 28/2011) under Section 17 of the SARFAESI Act before the Tribunal below. On 2.2.2011, the learned DRT passed an interim order restraining the Bank from taking actual possession over the mortgaged/hypothecated properties and directing the respondent company to deposit Rs. 1 crore with the Bank within the given time, but the respondent did not pay any amount in compliance of the said order. On 15.2.2011, the learned DRT again directed the respondent company to pay the said amount before the next date, failing which it was observed that the S.A. would be dismissed. On 18.2.2011 the learned DRT disposed of the S.A. by the impugned order with the directions, as mentioned above.

Ms. Seema Gupta, appearing on behalf of the appellant Bank, has submitted that though respondent company had not deposited the amount directed by the order dated 15.2.2011 but instead of dismissing the S.A. for failure to comply with its order, the learned DRT arbitrarily and wrongfully determined the amount of debt to be payable by the respondent company and disposed of the S.A. without taking any evidence and following the established procedure for hearing of the application. She has also pointed out that the credit facilities were taken by the respondent company for commercial purposes, but learned DRT did not consider this aspect and while directing the payment of the amount demanded through the notice issued under Section 13(2) of the SARFAESI Act, reduced the rate of interest from the contractual rate compounded monthly to 10% per annum simple on reducing balance basis w.e.f. 1.10.2010, whereas the interest in the said notice dated 25.10.2010 was calculated only up to 31.8.2010 and as such the interest of one month has wrongly been declined.

Mr. Sudarsh Menon, learned Counsel for the respondent company, has submitted that the respondent also does not support the impugned order as it has also preferred an appeal against the said order which has yet not been admitted and listed for disposal of the application for condonation of delay in filing the appeal. He has also admitted that the learned DRT while disposing of the application had not taken any evidence of the applicant/respondent and did not follow the procedure for hearing of the application filed under Section 17 of the SARFAESI Act.

Both The parties to the appeal are not satisfied with the order impugned and have their respective grievance against it. The DRT in exercise of the jurisdiction under Section 17 or the SARFAESI Act is only required to consider the question of validity of the actions taken by the secured creditor under Section 13 (4) of the said Act and is not required to adjudicate/determine the exact amount of debt due to the secured creditor. Since the learned Tribunal below has not found any illegality or procedural irregularity qua the actions taken by the Bank under Section 13(4) of the SARFAESI Act, it has committed manifest error in determining the amount of debt due to the Bank and directing the borrower for its payment as per the time-schedule given by it. The Tribunal below has also committed error in disposing of the application filed under Section 17(1) of the said Act without following the procedure in accordance with law as admittedly no opportunity was given to the parties to produce evidence in support of their case. 1 also find force in the submission of Ms. Gupta that when the respondent company had failed to comply with the DRT's orders dated 2.2.2011 as well as 15.2.2011 by failing to deposit the amount directed by it, the Tribunal should have vacated the interim order.

In view of above, the order impugned cannot be allowed to sustain and is liable to be set aside and the appeal is entitled to be allowed and the matter is required to be remitted back to the DRT concerned for its disposal as per law.

The appeal is accordingly allowed and the impugned order dated 18.2.2011 is set aside. The matter is remanded to the Tribunal below for disposal of the S.A. afresh in accordance with law. Parties to bear their own costs. Copy of this order be furnished to the parties as per law and be also sent to the DRT concerned forthwith.