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Judgment
Ashok Menon, Chairperson
This is an application filed under section 18 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short) for waiver of mandatory pre-deposit contemplated under the 2nd proviso to section 18 (1). The appeal impugns the order dated 25.08.2022 in IA No. 1454/2022 in SA No. 165/2022 on the files of Debts Recovery Tribunal -3, Mumbai (‘DRT’ for short).
The Appellants are the Applicants in the aforementioned SA filed under section 17 of the SARFAESI Act challenging the Sarfaesi measures taken by the Respondent financial institution. The Appellants had borrowed a sum of ₹6 crores on mortgaging of property. On defaulting repayment, the debt was classified as non-performing assets (‘NPA’ for short) and the notice was issued under section 13 (2) of the SARFAESI Act on 01/12/2021 demanding a sum of ₹ 67,006,921/-the Appellants sought a stay of the Sarfaesi proceedings till disposal of the SA.
The Ld. Presiding Officer considered the contentions raised by both sides and came to the conclusion that there is no prima facie case made out by the Appellants as a result of which he declined to grant any stay of the Sarfaesi proceedings. Resultantly, the physical possession of the property was taken and the property now stands posted for sale. The Appellant has, therefore, come up in the challenge of the order passed by the Ld. Presiding Officer and seeks a waiver of deposit by submitting that it may be kept to the minimum invoking the jurisdiction of this Tribunal under the 3rd proviso to Sec.18(1) of the SARFAESI Act also.
Heard the Ld. Counsel for the Appellants and Ld. Counsel for the Respondent Financial Institution. Records perused.
The Appellants had in the S.A. challenged the classification of the debt as NPA stating that the directions of the Hon’ble Supreme Court were not followed. The directions had come in the light of the Covid Pandemic and it was not followed in letter and spirit by the Respondent Financial Institution. Further, the notice under Sec. 13(2) is also pointed out to be faulty for the reason that the details of the demanded amount are not given and the reply given to the notice has not been properly addressed by the Respondent as required under Sec. 13(3A) of the SARFAESI Act.
The contentions of the Appellants are that the first Appellant is a Company involved in providing training to seafarers who were not able to function properly because of the pandemic. The classes had to be discontinued, students dropped out, and the Appellants had to face much hardship which resulted in the loss of their income and that is the reason why there was a default in payment of the equated monthly instalments. The Appellants also would contend that although online training of the students was permitted, and thereafter, contact classes with a limited number of students were also permitted but it did not work out in favour of the Appellants’ business since the students did not join the course and the Appellants had to refund the fees paid by about 250 students. The Appellants have also produced the Income Tax Returns for the year 2021-2022 and 2022-2023 to indicate that they had lost their income. Under the circumstances, the Appellants submit that they have a good prima facie case and the financial strain that they are undergoing is also established. It is further submitted that Sec 13(2) notice does not mention the name and designation of the authorised officer who has issued it which by itself is a flaw. To add to the misery of the Appellants, the Director General of Shipping (DGS) has also cancelled for a period of one year, the licence granted to the Appellants for conducting the above-mentioned courses.
The Ld. Counsel for the Respondent submits that the Appellants have not made out any case so as to enable them to maintain an application under Sec. 17 before the D.R.T. The allegation regarding the classification of debt as N.P.A. is not correct and decision leverage was granted to the Appellants in view of the pandemic despite that they have not paid the amount. The objection with regards to demand notice under Sec. 13(3) is also contradicted by the Respondent. It is further submitted by the Ld. Counsel for the Respondent that the IT Returns for the last five years have not been produced only those returns are produced to clear the picture of the income earned by the Appellants prior to the pandemic and during that period. Hence, the impecunious situation of the Appellants is also not sufficiently proved by them.
The Ld. Counsel for the Appellants submitted that a proposal was made by the Appellants for settling the amount but the same was way under the actual amount that is due and moreover the EMI which was proposed would not even have satisfied the interest due, and that is why it was not acceptable to the Respondent. According to the Respondent, the amount that is due as of the date of filing of the Appeal is ₹7,57,12,170.45 and there are no reasons to show any indulgence to reduce the amount from the mandatory 50% as required in the second proviso to Sec. 18(1).
Considering the entire facts and circumstances of this case, I find that the contention raised by the Appellants regarding the wrong classification of the debt as Non-performing Assets and inadequacy of the demand notice under Sec. 13(2) of the SARFAESI Act will have to be considered. Even though the Appellants have not made out a very strong case for themselves, there is an arguable case which can be gone into in the Appeal. It is true that the Appellants have not produced their Income Tax Returns for the last five years, but Returns for the last two years would indicate that they had little income which would have left them to default on the payment instalments due to the Respondent Financial Institution.
Taking these factors into consideration, I am of the view that the interest of justice would be served if the Appellants are directed to deposit a sum of ₹ 2 Crores in two equal instalments within four weeks.
The Ld. Counsel appearing for the Appellants undertakes to deposit ₹1 crore on or before 07.11.2022 and the balance amount of ₹1 crore shall be deposited on or before 01.12.2022. Failing with the Appeal shall stand dismissed, 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.
On deposit of the payment within the stipulated time, all further proceedings to be initiated by Respondent under the SARFAESI Act shall stand stayed.
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 09.11.2022 for reporting compliance concerning the payment.