Kalpeshkumar Dhirajlal Kothari & Ors vs HDFC Bank 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 24.03.2023 in Securitization Application (S.A.) No. 695/2022 on the files of the Debts Recovery Tribunal-II, Ahmedabad (D.R.T.) wherein the prayer of the Appellants to grant interim protection concerning the Sarfaesi measures initiated by the Respondent bank was declined. The Ld. Presiding Officer has observed that the Appellants had sought adjournment for settling the dues and had also come up with an OTS proposal which has been rejected by the Respondent bank on the ground that the offer was too meagre for more than 12 crores is outstanding to be paid by the Appellants. The Appellants are aggrieved and hence, in appeal.

The Ld. Counsel appearing for the Appellants submits that the order declining to grant any protection to the Appellants was not based on the merits of the case. It is pointed out that the Appellants have a fairly good case on the merits challenging the Sarfaesi measures initiated by the Respondent bank under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act” for short). It is contended that the notice u/s 13 (2) was issued on

03.2019 claiming the amount of ₹6,78,68,782.87. After that, the Appellants paid a total of ₹1,44,94,550/- and it is also pointed there are six items of properties and out of the five secured assets was already taken possession of and the remaining one item of property is intended to be taken the possession on the 15th instant.

The Appellants would contend that the notice u/s 13 (2) has not been properly served on all the Appellants which is a condition precedent for proceedings under the SARFAESI Act. It is further contended that the amount demanded in the demand notice does not give a bifurcation of the components of principal and interest which is a violation of sub-section 3 to section 13 of the SARFAESI Act. It is also contended that the classification of the account as a Non-Performing Asset (NPA) was not in terms of the guidelines of the RBI. It requires 90 days of non-payment of the outstanding amount to get the account classified as NPA. But in the instant case, the classification of the NPA comes on 89 days and therefore, is not proper.

The Appellants had objected to the demand notice in which all these contentions were taken up, but the Respondent sent a reply without coming up with the specific answers to the contentions raised or addressing them properly. The Ld. Counsel relying on the decision of the Hon’ble Apex Court in Mardia Chemicals Ltd & Ors V/s Union of India & Ors ( 2004) 4 SCC 311 to submit that the reply u/s 13 (3A) by the Bank should be a meaningful exercise and should address all the objections that have been raised by the borrowers. In the instant case, the Ld. Counsel points to the reply sent by the Respondent bank to argue that the reply does not comply with the purport of section 13 (3A) SARFAESI Act. That apart, it is also contended that the application filed u/s 14 before the Chief Metropolitan Magistrate (CMM) does not produce proof regarding the service of demand notice u/s 13 (2) of the SARFAESI Act on all the borrowers and without going through that evidence, the Ld. Chief Metropolitan Magistrate has passed an order in favour of the Respondent bank and therefore, the said order is improper.

The Ld. Counsel appearing for the Appellants submits that the impugned order does not consider all these contentions challenging the Sarfaesi measures and had declined to grant an interlocutory order of protection based on the reasoning that the Tribunal is empowered to restore the possession of the secured asset u/s 13 (3) if ultimately the applicant succeed in establishing the case challenging the Sarfaesi measures.

The Ld. Counsel appearing for the Respondent bank submits that the Appellants have been purchasing time by coming up with proposals of settlement about which they are never serious. It is pointed out that as of date, there is an outstanding due of ₹13.96 crores to be paid to the Respondent bank. It is also submitted that even after the passing of the impugned order of 12.04.2023 the Appellants submitted before the D.R.T. that they are willing to settle the entire dues and therefore, seek time to pay the amount. The Ld. Counsel appearing for the Respondent has also produced a letter purportedly sent by some of the Appellants and the guarantors on 01.10.2023 offering to settle the debt by making a payment of ₹5.70 crores in three instalments during October and November. But not a dime has been paid as undertaken by the Appellants. hence, there appears no bonafide in coming up with the proposal for the settlement and indicates that such proposals of the settlement are made with malafide intention to protract the matter by deploying dilatory tactics, submit the Ld. Counsel for the bank. The Ld. Counsel appearing for the bank also relies on the decision of the Divison Bench of Hon’ble High Court of Bombay in Writ Petition No.873/2015 dated 11.06.2015 wherein it was observed that once the statement is made by the party giving consent to make the payment of the certain amount, the question of going into the merits of the case does not arise and therefore, the contentions of the Appellants challenging the Sarfaesi measures need not be considered because of the specific proposal of the settlement made by the Appellants.

To entertain the appeal the Appellants will first have to comply with the mandatory provision of the pre-deposit provision under section 18 (1) of the SARFAESI Act. The Hon’ble Supreme Court has in the decision of Sidha Neelkanth Paper Industries Pvt. Ltd. & Ano. vs. Prudent ARC Ltd & Ors., 2023 SCC OnLine SC 12, observed that when the borrower challenges the Sarfaesi measures up to the stage of section 13 (4) of the SARFAESI Act, the amount mentioned in the demand notice shall be taken as the threshold amount for making a pre-deposit. In the instant case, the Appellants have admittedly paid ₹1,44,94,550/- after acceptance of the demand notice leaving a balance of ₹5,33,74,232/-. The Ld. Counsel appearing for the Appellants submits that the mandatory pre-deposit may be reduced to the minimum of 25% given the good prima facie case that the Appellants have and also on the ground of financial strain of the Appellants in making the payment.

The Ld. Counsel appearing for the Respondent Bank submits that given the proposal made by the Appellants on 01.10.2023 which is after the filing of this appeal on 01.04.2023, offering to pay a sum of ₹5.70 crores by way of settling the debt indicates that the Appellants have sufficient financial means to make the pre-deposit contemplated u/s 18 (1) of the SARFAESI Act. The Appellants have not produced any documents to prove that they are under financial strain. Under the circumstances, I am not inclined to invoke the discretionary jurisdiction of this Tribunal under the 3rd proviso to section 18 (1) to reduce the amount to a minimum of 25%.

Taking the entire facts and circumstances, the Appellants are directed to deposit a sum of ₹2.50 crores as pre-deposit. The Appellants shall deposit a sum ₹50 lakhs by 3:00 PM on or before 15.12.2023 and the balance of ₹2 crores shall be deposited in two equal instalments of ₹1 crores each, as stated hereunder.

Numbers of Instalments

Payment on or before

1st Instalment of ₹ 1,00,00,000/-

29.12.2023

2nd Instalment of ₹ 1,00,00,000/-

19.01.2024

The subject to payment of ₹50 lakhs within the stipulated time, the possession intended to be taken on the 15th instant shall stand deferred till the next date of hearing.

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

The amount shall be deposited in the form of a Demand Draft with the Registrar of this Tribunal.

As and when the said amounts are deposited, they 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 18.12.2023 for reporting compliance