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Judgment
Ashok Menon, Chairperson
This is an appeal filed under Sec. 18 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002, (‘SARFAESI Act’, for short).
The Appellant is in appeal impugning the order dated 18.01.2024 in the Securitization Application (S.A.) No. 13/2024 on the files of the Debts Recovery Tribunal-I, Mumbai (D.R.T.) wherein the Ld. Presiding Officer not only declined to grant an injunction against the Respondents from the proceeding with the Sarfaesi measures, but the S.A. itself was dismissed and found that the Appellant would have to obtain an order of protection from the NCLT considering the IBC proceedings filed by one of the creditors of the Appellant against him under Sec. 95 of the Indian Bankruptcy Code(IBC).
The Appellant is aggrieved and hence, in appeal. The Ld. Counsel appearing for the Appellant submits that the Ld. Presiding Officer did not either go to the merits and the application filed u/s 95 of the IBC proceedings nor were the merits of the challenges to the Sarfaesi measures gone into. Ignoring the statutory moratorium u/s 96 of the IBC preventing the respondent creditor from proceeding against the Appellant, it was held that as in an earlier proceeding before the D.R.T., it was held by the D.R.T. that it is for the NCLT to grant protection relief or interim moratorium under the IBC the S.A. was dismissed.
At the very outset, it has to be observed that the dismissal of the S.A. was not proper because even if it was observed that the application is filed u/ 95 of the IBC is to be held as collusive, the statutory moratorium comes into place immediately on applying u/s 95 by a creditor, and the interim moratorium till it is lifted or altered by the NCLT. As long as no such order has been passed by the NCLT, the moratorium continues. The S.A. could not have been dismissed by the D.R.T. merely because the NCLT had not granted an order of protection. The moratorium u/s 96 is a statutory moratorium that comes into effect immediately on applying u/s 95 and precludes any creditor from proceeding with Sarfaesi measures. Even if the D.R.T. finds that prima facie, the application u/s 95 appears to be collusive and is filed only to protect the Appellant, no such order ignoring or nullifying the statutory implication of section 96 could have been passed by the D.R.T. The D.R.T. cannot also insist on getting an order from the NCLT concerning the relief and protection to be granted under the SARFAESI Act. Any person who is aggrieved by the Sarfaesi measures initiated by the Respondents can approach the D.R.T. with an application u/s 17 (1) and based on the prima facie findings the D.R.T. is entitled to pass an injunction preventing further Sarfaesi measures.
It is interesting that in the impugned order the Ld. Presiding Officer has not at all gone into the merits of the contention and challenges raised by the Appellant in the S.A. and dismissed it solely for the reason that an order of injunction cannot be passed about the matter pending before the NCLT. It has to be observed that the interim moratorium is a statutory injunction that prevents any creditor from proceeding with the realisation of the debt. Since Sec. 96 of the IBC itself describes it as an ‘interim moratorium’, it is for the NCLT to decide whether the statutory moratorium u/s 96 has to be extended or vacated. The D.R.T. cannot shut the debtor out as the statutory moratorium came into effect immediately on applying u/s 95, and once the existence of such a moratorium is brought to the notice of the D.R.T., it cannot permit the creditors to proceed with the Sarfaesi measures. Dismissal of the S.A. could in effect tantamount to giving authority to the creditor to proceed with the Sarfaesi measures even without there being a finding regarding the challenges which have been raised against the Sarfaesi measures initiated by the Respondents. At best, it could have been observed by the D.R.T., that given the moratorium, the creditor could not have proceeded to recover the amount and hence, considering the fact that there was no immediate threat of any Sarfaesi action being proceeded with, declined to grant the injunction.
To entertain the appeal, the Appellant will have to first comply with the statutory provision u/s 18 (1) of the SARFAESI Act by making a pre-deposit. The prima facie the order of the Ld. Presiding Officer does not seem to be maintainable and therefore, there is a very strong case in favour of the Appellant to agitate in appeal. The Appellant has pleaded that he is under financial strain, and has produced certain income tax returns which would indicate that he is not in a position to pay the 50% of the debt due as pre-deposit. He seeks the indulgence of this Tribunal to reduce the deposit to 25 %.
The Ld. Counsel appearing for the Respondent bank submits that the provisions of the IBC prevent the D.R.T. from granting any injunction concerning the moratorium. Indeed, the D.R.T. cannot grant a moratorium or an injunction under the IBC. But the D.R.T. at the same time will have to respect the statutory provision u/s 96 which prevents the creditor from proceeding to realise the debt even under the SARFAESI Act, soon after the filing application of an application u/s 95. The D.R.T. cannot, therefore, insist on the borrower getting an order from the NCLT to protect him from the Sarfaesi measures. Apart from the challenges raised to the Sarfaesi measures, the Appellant is also at liberty to produce the statutory moratorium which prevents a creditor from proceeding with the Sarfaesi measures to recover the debt.
The demand notice u/s 13 (2) is demand a sum ₹1,13,91,606.06 as of 16.08.2021. Since the Respondent has initiated steps under 13 (4), the amount mentioned in the demand notice should be the threshold amount for making the pre-deposit. Given the fact, that the Appellant has made out a prima facie case, and has also to some extent succeeded in establishing that he is not in the financial position to deposit 50% of the amount, he is entitled to concession though not to the extent to 25%. The Appellant is, therefore, directed to deposit a sum ₹45 lakhs as pre-deposit. The Ld. counsel appearing for the Appellant is producing the demand draft of a sum of ₹15 lakhs today. The balance ₹30 lakhs shall be payable in two equal instalments within the gap of two weeks each as stated hereunder.
Numbers of Instalments
Payment on or before
1st Instalment of ₹ 15,00,000/-
26.02.2024
2nd Instalment of ₹ 15,00,000/-
11.03.2024
Given the payment of the ₹15 lakhs upfront today, the further Sarfaesi measures initiated against the secured assets shall stand stalled till the next date of hearing.
Default in payment of any of the instalments/amount on time 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.
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 27.02.2024 for reporting compliance regarding the payment of the 1st instalment.