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Judgment
Ashok Menon, Chairperson
The appellant is a company challenging the dismissal of the Securitisation Application (S.A.)No. 140/2019 by the Debt Recovery Tribunal-I, Mumbai (D.R.T.) vide judgment dated 30.01.2024 wherein the appellant company had challenged the Sarfaesi measures initiated by the respondent bank under the provision of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002( “SARFAESI Act”, for short) action for recovery of the debt allegedly due from the company.
In the S.A. the appellant has challenged the Sarfaesi action on various grounds, the main among which is that the demand notice issued u/s 13 (2) of the SARFAESI Act on 01.04.2019 demanding a sum of ₹21,19,89,075/- as of 31.03.2019 is defective. The first defect is that the classification of the account as a Non-Performing Asset (NPA) is on 31.03.2019 which, at a later point in time is mentioned as 30.03.2019. It is further contended that there is no bifurcation of principal amount and interest as is required u/s 13 (3) of the SARFAESI Act. Moreover, the notice also does not mention the name and the designation of the Authorised Officer who allegedly issued it.
It is also contended that the appellant company is an MSME entitled to the benefit under the MSME Act and that the account cannot be classified unless there is a default in repayment for the debt for 90 days. It is stated that initially when the facility was granted on
08.2016 there was only one guarantor namely, Mr Sajid Iqbal Khatau. A simple mortgaged deed was also registered on 02.08.2016 concerning the subject property which is now being proceeded against. On 03.02.2018 the facilities were renewed and the terms and conditions of the original transactions were also renewed. Subsequently, to that, there was a modification to the terms made on
04.2018. Two more guarantors were added and thereafter, again as per the modification letter on 23.04.2018, the bank insisted on a corporate guarantor apart from three personal guarantors and the guarantee of M/s. Crest Metal Industries Pvt. Ltd. was obtained and the guarantee document was executed on 06.02.1019.
The argument of the Ld. Counsel appearing for the appellant is that on the date of the executing the guarantee on 06.02.2019, there is no mention of the default in payment and therefore, it has to be assumed that till that date, there was no default in repayment. If that is so, it is not possible to classify the account as NPA either on 30.03.2019 or 31.03.2019 and therefore, the classification account of as NPA violates the RBI Guidelines as well as the MSME Act. An objection was raised by the appellant to the demand notice on 29.05.2019 to which the bank responded by sending a reply on 12.06.2019. It is stated that there is no clarification regarding the objections raised by the appellant in the objection notice. However, a clarification is given stating that the classification of the account as NPA was on 30.03.2019. This is contradictory to the date mentioned in the demand notice. The symbolic possession was taken on 19.06.2019 u/s 13 (4) of the SARFAESI Act. The respondent bank applied u/s 14 before the Chief Metropolitan Magistrate (CMM) and obtained an order to take physical possession of the subject property on 16.11.2019. The appellant has filed an S.A. questioning the validity of the Sarfaesi measures. Interim protection was granted on 19.12.2019 by the D.R.T. but later when the S.A. was taken up for consideration finally, all the objections raised were discarded and the S.A. was dismissed. The appellant is aggrieved and hence, in appeal.
To entertain this appeal, the appellant will have to first comply with the mandatory requisite of making a pre-deposit u/s 18 (1) of the SARFAESI Act. The Ld. Counsel appearing for the appellant argues that the appellant company is running at losses and the income tax returns submitted and therefore, the discretionary power of this Tribunal may be exercised under the 3rd proviso to section 18 (1) of the SARFAESI Act to waive the 25% of the debt due.
The Ld. Counsel appearing for the respondent bank submitted that none of the contentions raised are sustainable legally. It is stated that the original application has already been filed and the documents regarding the details of the debt due as well as the classification of the account as NPA were produced before the DRT. Therefore, the S.A. was rightly dismissed and the Ld. Counsel defends the dismissal of the S.A.
Prima facie, it seems that the demand notice does not contain a breakup of the principal amount and interest as required u/s 13 (3) of the SARFAESI Act. The rate of interest was not mentioned. At the time of sanctioning the loan, the interest rate was 4.5% above the MCLR but subsequently, when more guarantors were added there was an alteration and the interest rate was reduced to 3.75% above the MCLR. Mentioning the rate of interest is essential and it was incumbent upon the bank to have given the breakup of the interest hence, the demand notice is faulty and when the demand notice which is the basis for the action under SARFAESI Act is found to be faulty. I find substance in the argument by the Ld. Counsel in his challenge to the demand notice u/s 13 (2) and it is a settled proposition that the breakup of the principal amount and interest need to be given in the demand notice. The reply was given to the objection raised by the appellant but even in that reply, there is no such bifurcation forthcoming from the bank.
The Ld. Presiding Officer has in the impugned order stated that the amount sanctioned is clear from the sanction letter and therefore, it can be easily contrived as to what the interest portion is deducting the demanded amount from the sanctioned amount. However such calculation is not what is intended by incorporation of section 13(3) in the statute book. And, therefore, I find that the appellant has a prima facie case. The income tax returns also would indicate the impecuniosity of the appellant company.
The Ld. Counsel appearing for the respondent bank vehemently submits that the directors of the company are well off and they can easily be offered to pay 50% of the debt due but interestingly the Sarfaesi action is only against the company and not against the directors. Even notice u/s 13 (2)has not been issued against the directors who are guarantors, in their personal capacity. The corporate guarantor has also not been served with the demand notice u/s 13 (2). It is true, that the demand notice u/s 13 (2) mentions that a copy of the notice to the corporate guarantor and one of the personal guarantors. But that is not sufficient service of notice u/s 13 (2). Serving a copy is only for information, and a separate demand notice should have been addressed to each of the borrowers/guarantors/mortgagors. Hence, the appellant is entitled to the concession of getting the pre-deposit amount waived to the extent of 25% of the debt due. The amount demanded is ₹21,19,89,075/-, Taking this as the threshold, the appellant is, directed to deposit a sum of ₹5.30 crores as a pre-deposit for entertaining this appeal. The Ld. Counsel appearing for the appellant undertakes that a sum of ₹2.50 crores would be remitted by way of RTGS by 4:00 PM tomorrow. Subject to the compliance of payment of the amount undertaken, the taking over of physical possession of the subject property scheduled on 18.12.2024 shall stand stalled till the next date of hearing. The balance pre-deposit of ₹2.80 crore shall be deposited within three weeks i.e., on or before 06.01.2025.
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 and intimated to the counsel for the respondent.
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 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 07.01.2025 for reporting compliance regarding the payment of the 2nd instalment of pre-deposit.