Gurumukhsingh Gurdassingh Panjwani & Ors vs ASREC India Pvt. Ltd

Ashok Menon, Chairperson

The matter is taken up for hearing by way of a praecipe filed by the appellants for seeking urgent relief.

The  appellants  are  in  appeal  impugning  the  order  dated 31. 07.2024 in I.A. No.2195/2024 in Securitisation Application No.133/2024 (S.A.) on the files of the Debts Recovery Tribunal-III, Mumbai (D.R.T.) filed by them under the provisions of Sec. 17 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002(“SARFAESI Act”. for short), disposing of the I.A. with the direction that the appellants shall pay 10% of the demand notice amount by 3 p.m. on the date of order and further 10% within three weeks and in default of deposit of either of the amount, the defendant was granted liberty to take possession of the subject property and the appellant was also directed to settle the loan either through OTS or otherwise at the earliest. The merits of the I.A. which was filed for stalling the Sarfaesi measures till the disposal of the S.A. were never gone into by the Ld. Presiding Officer. The direction to settle the dispute and to pay a certain amount based on which interim protection was granted is only an interim order, and an application seeking an injunction has always to be disposed of on merits. Even earlier, the appellants had filed I.A. No.998/2024 which was disposed by an order dated 22.04.2024 directing the appellants to settle the dispute by way of OTS proposal and interim protection was granted on payment of ₹50 lakhs in two tranches which was complied by the appellants but subsequently, the OTS proposal got rejected and the appellants had agreed to submit a fresh OTS proposal to be considered by the respondent. In the meantime, the impugned order was passed. The appellants had also complied with payment of 10% of the demand notice on the date of order but did not comply with the further payment of 10% within three weeks as directed and also did not move an OTS proposal to get the dispute settled. They have filed this appeal and seek protection from being dispossessed from their residential house.

To entertain this appeal, the appellants will have to comply with the mandatory requisite of making a pre-deposit u/s 18(1) of the SARFAESI Act. The appellants contend that they have a very good prima facie case based on merits and that the Sarfaesi measures should have been stalled till the disposal of the S.A. The D.R.T. did not delve into the merits of the case despite two applications as referred to above being filed by the appellants.

It is true that the appellants had expressed their concern to settle the dispute by making payments and substantial payments were also made but the OTS proposal submitted by them was rejected. They were also willing to submit a revised OTS proposal.

On merits, the contentions are that the classification of the account as NPA on 31.03.2020 during the Covid pandemic was in violation of the directions of the RBI and therefore, the entire Sarfaesi action will have to fail. A demand notice was issued on 28.06.2021 u/s 13(2) of the SARFAESI Act demanding the sum of ₹2,76,92,406.95 as of 31.05.2021. The appellants had raised objections to the demand notice u/s 13(2) stating that the classification of the debt as NPA was not as per the RBI guidelines. To this, the respondent sent a reply u/s 13(3)A of the SARFAESI Act on 04.09.2021. The reply has been evasive and nothing has been said regarding the classification of the account as NPA in violation of the RBI guideline. On the other hand, it is stated that the classification of the NPA was as early as 30.11.2019 and therefore, there is no violation of the RBI guidelines. After that, symbolic possession of the secured assets was taken on 15.02.2023 and followed that, an application u/s 14 of the SARFAESI Act, which was filed before the Chief Judicial Magistrate. It is pointed out that there is an infirmity in that application u/s 14 because it does not comply with the requirements of Sec14 which indicates that an affidavit has to be filed revealing the outstanding amount, and the objections raised to the notice. It is submitted that the application u/s 14 is conspicuously silent about the objections raised by the appellants and the reply sent by the bank, and there is an apparent suppression of the true information regarding the action taken by the respondent. However, on 22.01.2020, the Chief Judicial Magistrate passed orders u/s 14 directing the taking of physical possession of the subject property. At this juncture, the appellants filed the aforesaid S.A. No.133/2024. Their application for interim protection was considered and subject to payment of ₹50 lakhs they were granted protection for some time. But thereafter, the OTS proposal failed which caused the respondent to issue fresh notice for taking possession and consequently, an application was filed for amendment of the S.A. which too was allowed. The challenges to the Sarfaesi measures concerning the classification of the debt as NPA and the insufficiency of the order u/s 14 have not yet been decided. When the respondent attempted to take possession of the property once again, the appellants filed the present I.A. No.2195/2024 for getting the Sarfaesi measures stalled, the impugned order was passed.

In the impugned order, the Ld. Presiding Officer did not go into the merits of the contentions at least prima facie. For disposing of an interlocutory application seeking an injunction, it is essential for the D.R.T to at least enter a finding on merits prima facies and also consider the balance of convenience and the irreparable injury to the concerned party. It is pointed out that on submissions made by the appellants’ counsel that they are willing to come up with a fresh OTS proposal, the impugned order was passed directing the further payment of the amount to the respondent which has been partly complied with.

The Ld. Counsel appearing for the respondent submits that there is a huge balance still due and payable by the appellants. It is further submitted that the facility that was granted to the appellant was an overdraft facility and therefore, the Covid guidelines of the RBI regarding the classification of the NPA would not apply to the present debt. It is also submitted that the non-mentioning of the objection raised to the 13(2) notice and the reply sent by the respondent in the application u/s 14 is only an inadvertent omission and that in the reply which was sent by the respondent u/s 13(3A) of the SARFAESI Act mentioning the date of classification of the account as NPA on 31. 03.2019 is only a clerical error which would be explained by the respondent at the time of trial of the S.A. and therefore, there is no serious infirmity in the Sarfaesi measures taken by the respondent. It is further contended by the respondent that the impugned order was made based on consent given by the appellants and therefore, being a consent order, it cannot be challenged in appeal given the provisions u/s 20(2) of the RDB Act and therefore, the appeal itself is not maintainable, submits the Ld. Counsel appearing for the respondent.

The appellants have pointed out certain discrepancies in the classification of the account as NPA. They have also pointed out certain discrepancies in the application u/s 14. Be that as it may, whether the contentions are sufficient to quash the entire Sarfaesi action is something which will have to be decided in the S.A. But prima facie, there appear to be certain infirmities, which the Ld. Counsel appearing for the respondent refers to a clerical mistake and inadvertent omission. Even inadvertent omissions and clerical would lead to a prima facie case in favour of the appellants unless it is explained when the trial takes place. Hence, I find that the Ld. Presiding Officer ought to have found that there is a prima facie case in favour of the appellants.

The appellants have produced their Income Tax Returns to prove their impecuniosity. All the appellants have income but it ranges between ₹4 lakhs to ₹11 lakhs and the Ld. Counsel appearing for the respondent submits that the total income of the appellants would come to nearly ₹90 lakhs and therefore, the appellants have not succeeded in establishing their financial strain. The deposit contemplated u/s 18(1) has to be paid by the appellants together and therefore, their income will also have to be put together to decide whether they are under financial strain. Hence, it is submitted that the appellants have not succeeded in establishing their financial strain and therefore, they are not entitled to any indulgence under the 3rd proviso u/s 18(1) of the SARFAESI Act.

The appellants have to a great extent succeeded in establishing a prima facie case regarding the infirmities in the Sarfaesi action. But I do agree with the Ld. Counsel appearing for the respondent that the total income of the appellants will have to be taken to decide their impecuniosity and, on that account, they do not stand as persons under financial strain. The appellants are, therefore, not entitled to get the amount of pre-deposit reduced to 25% but since they have some prima facie case, they are entitled to some concession.

The  total  amount  claimed  as  per  the  demand  notice  is ₹2,76,92,406.95 towards which the appellants have paid ₹87,15,000/- instalments. But the amount which is claimed in the demand notice is as of 31.05.2021 and more than three years have elapsed and the interest would also have accrued. Therefore, in case the appellants want to take the benefit of the amounts which they have paid subsequently, they should also be made liable for the interest which has accrued subsequently and the Ld. Counsel appearing for the respondent submits that on a calculation of the interest, the approximate amount would be ₹2 crores and therefore, that amount is taken as the threshold for the calculation of the pre-deposit. The appellants are directed to deposit a sum of ₹60 lakhs as a pre-deposit for getting this appeal entertained. The Ld. Counsel appearing for the appellants submits that a sum of ₹10 lakhs is being paid by way of a demand draft towards the aforesaid amount. The balance amount of ₹50 lakhs shall be paid in two equal instalments as stated hereunder.

Numbers of Instalments

Payment on or before

1st Instalment of ₹ 25 lakhs

29.10.2024

2nd Instalment of ₹ 25 lakhs

12.11.2024

Upon deposit of the 1st instalment of the pre-deposit, the execution proceedings before the Recovery Officer shall stand stayed till the next date of hearing.

Default in payment of any of the amount/instalment on time shall entail the dismissal of the appeal without any further reference to this Tribunal.

The amount shall be deposited in the form of a Demand Draft/RTGS with the Registrar of this Tribunal. Payment by RTGS shall be communicated to the Registry for verification.

As and when the said amount is deposited, it shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalised bank, initially for 13 months, and thereafter to be renewed periodically.

With these observations, the I.A. is disposed of. The respondent is at liberty to file a reply in the Appeal with an advance copy to the other side.

Post on 30.10.2024 for reporting compliance of payment towards the 1st instalment.