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Judgment
Ashok Menon, Chairperson
This is an appeal filed by the applicants in Securitisation Application (S.A.) No. 31/2022 on the files of the Debts Recovery Tribunal (DRT), Nagpur impugning the order dated 28/09/2022 in I.A. No. 1707/2022, wherein the learned Presiding Officer refused to stall the auction of the secured assets scheduled to be held on 28/09/2022.
The 1st Appellant is the principal borrower and Appellant Nos. 2 to 4 are the co-borrowers in a financial facility provided by M/s. GE Money. The debt was assigned to Magma Fin Corp, and finally to the first Respondent herein. The account of the Appellants was classified as Non-Performing Assets (NPA) on 30/04/2016. According to the Appellants, this was done in violation of the RBI guidelines. It is also stated that the original lender, namely GE Money had initiated arbitration proceedings before the sole arbitrator who also passed an Arbitration Award. Execution proceedings pertaining to the said award is pending before the District Court, at Nagpur. It is the contention of the Appellants that during the pendency of execution of the arbitration award, action under the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’, for short), cannot be initiated. The 1st respondent issued a demand notice on 02/07/2018 under Section 13 (2) of the SARFAESI Act demanding a sum of ₹2,65,59,956.41, outstanding as of 08/06/2018, together with future interest. Could the end The Appellants have already approached the creditor for settlement of the debt and are earnest in their attempt to settle it. That apart, the Appellants also contended that the interest calculated was not correct. The Appellants also admit that they are under financial strain and that during the period; a good offer came from a restaurant owner to occupy the secured assets to run a restaurant. An agreement of lease was also executed on 25/10/2018 and the property is at present, in the tenant's possession. The tenant had also approached the Civil Court to protect his possession and had obtained a status quo order, in his favour. The Appellants would also contend that the creditor has not complied with the statutory provisions under Section 13 (4) of the SARFAESI Act while taking possession of the secured assets. There is also the allegation that Rules 4, 5 and 8 of the Security Interest (Enforcement) Rules, 2002, have not been followed. The Appellants thus approached the DRT with an application under Section 17 of the SARFAESI Act seeking to quash the Possession Notice dated 05/08/2021, the auction notice dated 21/12/2021 to declare that the account of the Appellants is not NPA, and further give a direction to the bank to accept the principal amount from the Appellants and close the account. It is also contended that the security interest was not properly created.
The learned Presiding Officer vide the impugned order relegated the challenges raised by the Appellants to be decided in the final hearing of the S.A., and it was deemed to be not appropriate to stall the auction sale of the secured asset. It was however made clear that the auction if conducted, would be subject to the outcome of the S.A.
The Appellants were aggrieved and have come up on appeal challenging the aforesaid impugned order.
On hearing both sides, I find that prima facie the contentions raised by the Appellants may not lie. The validity of the mortgage pertaining to the secured assets is to be decided in the S.A., and therefore I do not intend to delve into that question in this Misc. Appeal. Arbitration is an adjudicatory process and those Financial Institutions which do not come within the purview of the RDB Act, are entitled to proceed with the Arbitration. The contention that the property is in the possession of a tenant who has obtained an order of status quo from the Civil Court would also not lie in view of the specific embargo under Section 13 (8) of the SARFAESI Act. The lease was admittedly created consequent to the issuance of the demand notice under Section 13 (2) of the SARFAESI Act. The questions regarding the improper classification of the debt as NPA are also something to be decided in the S.A.
Under the circumstances, I find that the Misc. Appeal has no merits and is only to be dismissed. The learned Presiding Officer is directed to dispose of the Securitisation Application No. 31/2022 as expeditiously as possible, at any rate, within a period of two months of receipt of the copy of this order.
In the result, the Misc. Appeal is dismissed.