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Judgment
Ashok Menon, Chairperson
This application is filed u/s 18 (1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the SARFAESI Act). The Appellants are aggrieved by the common judgment of DRT-II, Mumbai, in S.A. Nos. 273/2017, 450/2019 & 136/2021 dated 21. 04.2022. The Appellants in all these three S.As are the same, viz. M/s Parthesh Developers, represented by Respondent No. 2 & 3 who applied for reliefs u/s 17(1) of SARFAESI Act before DRT.
S.A. No. 273/2017 was filed to quash and set aside notice issued u/s 13(2) of the SARFAESI Act, and to declare all measures under the SARFAESI Act taken by Respondent Bank as illegal, arbitrary, unreasonable and unjustified.
S.A. No. 450/2019 was filed to quash and set aside the Advocate Commissioner's notice dated 29.11.2019, and to restrain the Bank from taking measures against the residential flats in Ganga Jamna Sangam CHS and declare the measures u/s 13(2), 13(4) and 14 as illegal, arbitrary, unreasonable and unjustified and also to injunct the Respondent Bank from taking physical possession of the secured assets during the pendency of the S.A.
S.A. No. 136/2021 was filed to quash and set aside auction sale notice dated 23.08.2021 as defective to hold that as null and void, bad in law and also to quash and set aside auction held on 14. 09.2021 which was based on the aforesaid defective notice and to cancel and declare Sale Certificate as illegal, null and void and wrong in law.
Respondent Bank had filed objections and sought dismissal of all three S.As. stating that all these applications are frivolous, misconceived and baseless and filed in bad faith.
Applicant Appellants are the principal borrowers, guarantors and mortgagors. The Ganga Jamna Sangam Co-operative Housing Society (in short 'the Society') is the owner of the property described as a plot of land bearing CTS Nos. F/111 and F/115 in Bandra Village, Andheri Taluka situated on the 14th and 24th Road, Khar (West), Mumbai. On 25.03.20210, the Society unanimously resolved to redevelop the said property by demolishing the existing "A" and "B" wings of the building that were in existence. The society entered into a Redevelopment Agreement on 23.02.2011 with the Applicants granting permission to them to redevelop the said property and construct a new building in place of the old, and to provide a permanent alternate accommodation for existing occupants. Thereafter, on 29.10.2013, the Society entered into a supplemental Development agreement providing that nominee members of the first Applicant who owned twelve out of eighteen flats intended to be constructed. A No Objection Certificate was also issued by the Society to obtain a loan from any nationalized bank against the securities of the land and that of the proposed building to be constructed consisting of flats, and shops on all premises. There was also a stipulation in the agreement that in case of members intend to sell the allotment or earmarked permanent alternate accommodation to any third party, the subject sale shall be routed through Escrow Account opened with Respondent i.e. Bank of Baroda. On 26.12.2013, the Society passed a resolution to mortgage the land and building thereon to the Respondent Bank. The very next day various credit facilities were sanctioned by Bank and Mortgage Deed was executed, the mortgaged property is Flat No. 701, Kamla Heritage, Plot No. 124, Gulmohar Cross Road No. 10, JVPD Scheme, Mumbai, and a plot of land bearing CTS Nos. F/111 and F/115 of Bandra Village referred to earlier. The Escrow Agreement was also subsequently executed between Borrower and Creditor.
The Applicants, however, faced a financial crisis and defaulted the payment resulting in a loss. The Bank did not enhance the credit facility. It also alleged that the Bank has charged excessive interest contrary to the agreed terms in the contract. On 17.04.2014, the Bank addressed a letter to the Applicants for giving consent or NOC to sell Flat No. 803, 8th Floor, B-Wing to the prospective buyer of Rs.3.25 Crores. Similarly, consent was also given by Bank on the request made by the Applicants to sell Flat No. 804 of the same building on the same date for similar consideration. On 23.04.2014, the Respondent Bank consented to sell Flat No. A-801 on the 8th Floor of 'A' Wing for a sale consideration of Rs.3.10 Crores. Thereafter, on 09.06.2015, the Respondent Bank extended the time to repay the Term Loan by 12 months, up to 30.06.2016.
The Applicants, however, again defaulted on the payment. When default was committed, the Bank classified the Applicant's Account as Non-Performing Asset (NPA) as consequent to that the notice was issued u/s 13(2) of SARFAESI Act on 11.07.2016 demanding the payment of Rs.20.38 Crores within the stipulated time of 60 days. An objection was raised by the Applicants within the stipulated period. On 14.09.2016, the Authorized Officer delivered the possession intimation of the property and the Bank took symbolic possession and formality regarding the same was completed. On 06.10.2016, Applicants once again addressed a letter to the Deputy General Manager of the Bank admitting the liability, creation of mortgage and requesting for NOC to sell the flats. The order was passed by Chief Metropolitan Magistrate (CMM) u/s 14 of SARFAESI Act on 18.05.2017 consequent to that Applicants filed the first S.A. No.273/2017 with reliefs as stated earlier.
The Ld. Presiding Officer of DRT after considering the rival contentions in S.A. No. 273/2017 found that the S.A. is time-barred as CMM has passed order u/s 14 of SARFAESI Act on 18. 05.2017. Despite receiving notice u/s 13(2) on 11.06.2016, no reply or objection was raised. No illegality as regards the contention in the classification of the loan as NPA was also found.
As mentioned earlier, the CMM passed has passed u/s 14 on 18. 05.2017 and consequent to that the Advocate Commissioner issued notice to the Applicants on 29.11.2019 to take over possession of the Flat No.701, Kamla Heritage, Plot No. 124, Gulmohar Cross Road, No.10, JVPD Scheme, Mumbai and various other Flats in Ganga Jamuna CHS on 20.12.2019 & 27. 12.2019. The Applicants also pointed out that even though Bank had once stage declared the account as NPA on 30.06.2016 in the letter dated 18.03.2019, the Assistant General Manager of the Bank has mentioned the NPA date as 16.08.2016 which would render all proceedings morbid and illegal.
Defendant Bank opposed the application S.A. No. 450/2019 stating that the Applicants have filed multiple applications to prevent the recovery of the amount due to the Bank. Earlier Misc. Appeal No. 109/2017 was filed by the Applicants from Orders dated 04.09.2017 and 29.07.2017. Appellate Tribunal has dismissed it on 25.04.219. Writ Petition No. 11408/2017 was filed by Applicants before Hon'ble Bombay High Court in which they admitted the mortgage and also sought NOC to sell the Flats. The Bank has also refereed to various Suits and Writ Petitions filed by Applicants before the Hon'ble High Court and DRT.
S.A. No. 136/20121 was filed by Applicants on being aggrieved by Respondent Bank's act of announcing the eighth auction held on 14.09.2021 and the ninth auction scheduled on 8. 10.2021. The Applicants alleged that they had agreed to rehabilitate seventeen owners of the demolished flats in the newly constructed building. It was also submitted by the Applicants that no right of mortgage that could be created on those rehab flats and, therefore, they filed the S.A. to prevent the Creditor Bank from selling the rehab flats, which according to them, was not mortgaged. On 14.09.2021, Applicants made an OTS proposal for Rs.20.39 Crores and also issued a Demand Draft of Rs.1.89 crores and a cheque for Rs. 1.78 Crores but OTS was rejected by Bank, all although the Demand Draft and cheque were returned. The Applicants, therefore, wanted to stall the auction of the buildings that application was again vehemently opposed by Respondent Bank stating that the Applicants altering to come up with a new issue about rehab flats not being part of the mortgage. It is also pointed out that in S.A. No. 273/2017 Applicants have made the payment as part of compliance of order dated 29.07.2017 and admitted liability, creation of mortgage and seeking time to repay the debt. The said stand was mentioned by Applicants even in the Writ Petition No.11408/2017. From the mortgage deed it is adequately clear that the Applicants intended to include land and building on the property, and a unanimously resolution was also passed by the Society with a proper declaration to secure the loan for completing construction, submits the Respondent.
After considering rival contentions in all the three S.As. the Ld Presiding Officer, DRT-II dismissed them all with costs of Rs.4.50 lacs to be paid by way of donation to the National Defence Funds against the Applicants and legal experts wasted precious judicial time.
Heard the Ld. Counsel Mr. Rafeeq Peermohideen, for Appellants and Mr. Nitin Thakkar, Sr. Advocate, for Respondents No.1 & 2.
Perused records and documents.
What is required to be determined in this application filed u/s 18 (1) of the SARFAESI Act is the extent of the waiver that the Applicants are entitled to. The Ld. Counsel for the Appellants submits that a prima facie case has been made out by Appellants and, therefore, he is entitled to be heard on the Appeal. Given the fact that a substantial amount has already been paid and realized from Respondent Bank, very little remains to be paid by way of deposit as amount dues to the Respondent Bank. The total amount which was claimed on 11.07.2016 is Rs.20,38,98,896/-. The Appellants have admitted to paying a sum of Rs.11.39 Crores on different dates from 2017 to 2021. Besides that, the Appellants have also tendered to the first Respondent Bank a demand draft of Rs.1,89,00,000/- on 14.09.2021 along with the OTS proposal. If that is so, the Appellants have deposited and paid to the first Respondent Bank more than 55.8% of the amount claimed.
The Ld. Counsel for the Appellants relies on the decision of Hon'ble Gujarat High Court in Peitesh Meghaji Penthani V/s Union of India & 5 Ors. [2014 SCC OnLine Guj 9175] wherein the second proviso of Section 18 was declared ultra vires, and read down as under:
“Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty percent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less, unless, in the meantime, the creditor has already recovered that amount by way of auction sale or otherwise and any amount recovered by way of auction sale or otherwise shall be adjusted towards 50% of the amount of debt due for this provision."
In the said decision, 50% amount of dues was already recovered by the sale of the mortgaged property. Therefore, it was found that there is no necessity t for payment of pre-deposit as condition precedent for maintaining the Appeal u/s 18 of Act.
The Ld. Counsel for the Respondents relies on the decision of Hon'ble Bombay High Court in MRB Roadconst. Pvt. Ltd. V/s Rupee Co-operative Bank Ltd. 2016(3) Mh.L.J. 589 wherein it is held by the Division Bench that deposit of amount as a condition precedent for entertaining Appeal requires petitioner borrower to deposit the amount demanded in the Sec. 13(2) notice and also interest accrued thereon till the date of filing of the Appeal u/s 18(1) of SARFAESI Act.
Coming to the merits of the case, it is seen that the Appellants have challenged every measure taken under the SARFAESI Act, and also the orders as made by DRT. They have left no stone upturned in challenging the proceedings. Hon'ble High Court has been approached multiple times. The contentions have been raised to see that the recovery was stalled. The challenge of fact regarding the existence of the mortgage of entire property including the redevelopment of the rehab flat and the other flats came up late during the proceeding, but there is also admission to the extent that even rehab flats are part of the mortgage and the Society was also aware of the mortgage under redevelopment Scheme. The fact remains that most of the rehab flats were owned by persons connected with the Appellant.
I do not intend to go into the calculation of the exact amount due from the Appellants because determination needs to be made while considering the Appeal in its merits but going through contention of the Appellants and the Respondent. I am not completely enthused about a strong prima facie case of the Appellants. However, I also do not intend to throw their Appeal overboard at the threshold. Sufficient materials are there to indicate that a sum of Rs.25 Crores still remains to be paid.
Considering that the amount is huge and certain amounts have already been realized on the sale of the flats which was furnished as security, I am not instructing the payment of 50% of the amount due. Appellants are, therefore, directed to pay a sum of Rs.7,00,00,000/- as pre-deposit u/s 18 (1) of the SARFAESI Act in two equal tranches of Rs.3,50,00,000/- each. The first tranche of Rs.3,50,00,000/- shall be deposited on or before 27. 06.2022 and the second tranche of Rs.3,50,00,000/- shall be deposited on or before 18.07.2022. Default in payment of the any of tranches on time would result in the Appeal being dismissed.
On the payment of the first tranche within the time stipulated, there shall be a stay on all further proceeding with regards to the subject secured property under the SARFAESI Act.
As and when the said amounts are deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalized bank, initially for 13 months and thereafter it will be renewed periodically.
Post on 28.06.2022 for reporting compliance concerning payment of the first installment.