Sardar Steel Trading Company vs Bank Of Baroda And Ors.

Ranjit Singh, J

Appeal filed by Sardar Steel Company against the order passed by the Tribunal below was dismissed by this Tribunal on 16.7.2104. The appellant/applicant, in fact, had challenged the order passed in two I.As. filed in the S.A. pending before the Tribunal below pleading that sale of some land was illegal and nullity in the eyes of law.

To maintain the appeal before this Tribunal, the appellant/applicant had sought waiver of the requirement of pre-deposit In the said application, the plea by the applicant was that against the claim of Rs. 1,31,17,084/- made in the demand notice, an amount of Rs. 54.99 lacs had been deposited in the Bank. The applicant/ appellant had further submitted that without prejudice to its right it was ready to make further deposit of an amount to make 50% of the amount required as pre-deposit. Consequently, the applicant/appellant had deposited a sum of Rs. 10.60 lacs by way of demand draft in the name of the Registrar of this Tribunal on 22.1.2014. Upon dismissal of his appeal, the applicant/appellant has filed a miscellaneous case for refund of amount of Rs. 10.60 lacs.

On the other hand, Counsel for the respondent Bank has filed another application seeking release of this amount to be adjusted against the loan liability standing against the applicant/appellant. Notice in both the applications was issued to the Counsel opposite filing the applications. The Counsel appearing for the parties stated that their applications may be treated as reply to the application filed by the opposing side. Both the applications have accordingly been heard today.

Counsel for the applicant/appellant would submit that the amount of Rs. 10.60 lacs was deposited to maintain the appeal and was without prejudice to the rights of the appellant. As per the Counsel, upon dismissal of his appeal, applicant/appellant is entitled to refund of this amount which was only deposited as a precondition for maintaining the appeal. In support of his plea that this amount is required to be refunded to him, the Counsel has drawn my attention to case of Bahu Ganesh Singh Deepnarayan v. Union of India & Anr., 2009 (3) Bankers Journal 516. In this case, the petitioner before the High Court of Gujarat had challenged the constitutional validity of second proviso to Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) on the ground that it is violative of Article 14 of the Constitution of India. The Court in this case has observed that the right to appeal is a creature of statue and Legislature can impose condition under which it is to be exercised. Without statutory provision, a person aggrieved is not entitled to prefer an appeal. It is also observed that Legislature, while granting right of appeal, can impose condition which it thinks reasonable As held by the Court, such conditions merely regulate the exercise of right of appeal so that the same is not abused by a recalcitrant party As per the Court, imposition of such condition is essential so that frivolous appeals are not filed, It is in this background that the Court has observed that ultimately if the appeal is dismissed, the aggrieved party can always seek refund of the amount deposited and, therefore, he is in any way not aggrieved.

These observations in this judgment thus are made while considering the challenge raised against the constitutionality of the second proviso to Section 18 of the SARFAESI Act. There was no issue before the Court about the refund of the amount which the appellant may have deposited to maintain the appeal The constitutional validity of this provision has been upheld and in this context such observations are recorded, which also relates to the power of the Tribunal to reduce the amount to not less than 25% of the debt. Accordingly, it was held that the second and third provisos to Section 18 of the SARFAESI Act were not onerous in nature so that the right of appeal become illusory. In the passing it is mentioned that the Court has not come across any provision enabling the secured creditor to adjust or to appropriate the amount deposited by the borrower to prefer an appeal under Section 18(1) of the Act. It is then observed that on dismissal of the appeal the amount deposited as pre-condition for filing the appeal will be refunded to the appellant and therefore he is nowhere prejudiced.

Refund of the amount was not an issue raised before the Court in this case. Thus, this observation made by the Court with respect, would be obiter dicta and not the 'Ratio' of law, Otherwise also, in my view, if the amount deposited as pre-deposited, which is a condition precedent for maintaining an appeal, is held to be refundable, then the very purpose of the Act to impose such a condition of pre-deposit would be rendered redundant. In all cases, any person aggrieved will very easily file an appeal Before this Tribunal against any order with the knowledge that even in the case of dismissal of the appeal, he will be entitled to seek refund of the amount required to be deposited for maintaining the appeal. It is to be noted that this condition is a pre-condition for maintaining the appeal and if this conditions is not met even the appeal cannot be maintained by an aggrieved borrower If there, is no provision in the Act for refund of the amount, then there is also no provision regulating the fact that such refund can be claimed even after the dismissal of the appeal. If the refund of the mount is permitted in this manner, would it not render the appeal to be not maintainable for want of pre-deposit when it has been dealt with after entertaining the same and is dismissed as well? In my view, it will not be fair to hold that in such eventualities the borrower is entitled to the refund of the pre-deposit made by him to maintain the appeal.

Mr. Aggarwal, the Counsel appearing for the Bank, has referred to a judgment of the Calcutta High Court in the case of Akshat Commercial Pvt. Ltd. v. Smt. Kalpana Chakraborty, IV (2010) BC 267 (DB) = W.P. 2/2009 decided on 20.1.2009, where the Court has considered the provisions of Section 18 of the SARFAESI Act which requires a substantial deposit to be made before an appeal can be entertained. The guarantor, in fact, had challenged the notices when the petitioner before the High Court who had made an offer as auctioner was called upon to pay the balance sum of consideration, This application was dismissed by the Tribunal against which the guarantor filed an appeal before the Appellate Tribunal and applied for exemption of the requirement of pre-deposit on the ground that it being onerous condition be waived. The Tribunal entertained the appeal without any deposit on the ground that secured creditor had already received a sum of Rs. 3 crores by way of auction sale through the appellants. The petitioner before the High Court had accordingly challenged the order before the High Court pleading that the guarantors could not stand on the legs of the auction purchaser's deposit. In this context, it was observed that the pre-deposit that the Act requires for an appeal to be entertained is both for the purpose of ensuring that the lending Bank sees some money till the protracted process of adjudication is completed and also to put the borrower or the guarantor on terms. Relying on these observations, Mr. Aggarwal would submit that the Court did not approve the action of the Appellate Tribunal in allowing the guarantor to maintain their appeal by treating the money deposited by the auction purchaser for the guarantor's luxury to challenge the Bank's action. This was termed as gross injustice. The Counsel would accordingly contend that the purpose of pre-deposit is to ensure that the lending Bank sees some money till protracted process of adjudication is complete and the borrower is also put to some term. This observation, as per Counsel, would clearly show that pre-deposit is meant for the Bank and not for refund.

The Counsel has also referred to the case of Vinay Rai v. IFCI Ltd., AIR 2008 Delhi 65, where the Court has interfered in the order requiring the petitioner to make a deposit of Rs. 750 crores to enable him to argue his appeal by directing the petitioner to deposit a sum of Rs. 75 crores which was only 10% as against 75% of the amount of recovery certificate. While requiring the petitioner to deposit this amount as a condition of hearing the appeal, the Court has observed that it (IFCI respondent) would be able to recover Rs. 75 crore which would be a substantial amount from its point of view Counsel has relied on these observations to urge that pre-deposit is required to be adjusted towards the liability of the Bank and therefore is not required to be refunded as prayed for by the applicant/appellant.

The Counsel for the Bank would further urge that the amount if adjusted towards the loan liability would benefit the appellant as it would lessen the liability of the appellant to this extent whereas this amount if kept with the Tribunal, it would earn much less interest. In response to this submission for the Counsel for the applicant-appellant that as on date no amount is payable by the appellant, the Counsel for the Bank would submit that if the Tribunal holds that the appellant is not liable to pay any amount, then the amount deposited with the Bank and if at lowed to be appropriated then Bank would undertake to return the said amount with interest. I think this course seems to be a fair and reasonable. Otherwise also, I have not been able to persuade myself to accept the submission made by the applicant/appellant that though he had deposited this amount to maintain the appeal upon dismissal of the same he is entitled to get the refund of pre-deposit. As already noticed, this may make the condition of pre-deposit look redundant. Let us have a look at the proviso which has made a provision for the requirement of pre-deposit for entertainment of appeal. Section 18(1) of SARFAESI Act provides for right of appeal to any person aggrieved against 'any order' made by Debt Recovery Tribunal to prefer an appeal before Appellant Tribunal. This is subject to the condition contained in the proviso which says:

Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower.

Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellant Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:

Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the Second Proviso.

Thus an appeal cannot be entertained unless the borrower has deposited with Appellate Tribunal fifty per cent of the amount of debt due from him or determined by the Debt Recovery Tribunal whichever is less. Thus the amount required to be deposited is fifty percent of the 'debt' claimed or determined. Once the requirement is of deposit of portion of 'debt' determined or claimed then this amount deposited being part of debt cannot in any fairness be returned or refunded to the debtor. This will amount to saying that one can seek hearing of appeal which can not be maintained without pre-deposit by making a deposit of debt and then can claim back that amount once the appeal is dismissed. It will certainly affect the right of borrower to maintain the appeal or for being entertained. Would it not make those appellants look fool, who could not deposit the amount and their appeals were dismissed.

Accordingly, I would dismiss the application filed by the applicant/appellant while I will allow the prayer of the Bank. I direct that the amount deposited with this Tribunal along with the interest accrued thereon be remitted to the Bank for being appropriated towards the loan liability of the applicant/appellant. The Bank would file an undertaking in the form of an affidavit of a competent officer of the Bank that if the Tribunal holds that the applicant/appellant is not liable to pay any amount then this or any other amount deposited by the applicant/appellant would be refunded to him at the same rate of interest as is charged by the appellant.