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Judgment
Ashok Menon, Chairperson
The matter is taken up for hearing by way of a praecipe filed by the appellants for seeking urgent relief.
The appellants are in appeal impugning the dismissal of the Interlocutory Application (I.A.) No.1690/2024 in Securitisation Application (S.A.) No. 161/2024 by the Debts Recovery Tribunal, Nagpur (DRT) vide order dated 30.09.2024 wherein the appellants have sought protection from being dispossessed from the secured assets and from issuing a sale certificate to the successful auction purchaser of the secured assets. The respondent bank had initiated steps under the provisions of the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) for recovery of the debt allegedly due from the appellants and to protect themselves, they have filed the S.A.
Since no interim protection was granted, the appellants were aggrieved and are in appeal. To entertain the appeal, the appellants will have to comply with the mandatory requisite of making a pre-deposit under Sec. 18(1) of the SARFAESI Act. The appellants have filed this application to get a waiver of 25% of debt due stating that they have a good prima facie case and that they are under financial strain.
The appellants have challenged the validity of the demand notice under Sec. 13 (2) on the ground that the demand notice has not been served on each of the appellants as required under Rule 3(4) of the Security Interest (Enforcement) Rule, 2002 (“Rules”, for short). It is also contended that the demand notice demands a consolidated sum inclusive of principal and interest and does not give a break-up as is required under Sec. 13(3) of the SARFAESI Act. There were two demand notices issued to the appellants. The appellants consist of a partnership firm and its two partners. It is pointed out that in the first demand notice concerning seven facilities, demand has been made for the outstanding dues in six facilities from the firm and its partners but despite the fact that the name of the firm is shown as a proprietorship and the name of the partners are mentioned, no individual service is made on each of them and there is no evidence produced by the respondent with regard to service of notice on each of partners and firm. The second demand notice concerns the individual loan taken by appellants Nos. 1 and 3 who are the partners of the firm in their individual capacity. We are not concerned with that notice because the Ld. Counsel appearing for the respondent bank submits that what is being proceeded against is only for recovery of the amount demanded from the firm and its partners. It is further contended that the order under Sec. 14 is not proper because there is application of mind regarding the satisfactory compliance of Sec. 14 of the SARFAESI Act by the District Magistrate.
As regards the financial capacity of the appellants, the income tax returns of the firm as well as partners are produced which indicate that they have little income, and therefore, are under financial strain.
The Ld. Counsel appearing for the respondent bank submits that the property has already been sold and what remains will be handing over physical possession to the auction purchaser and registration of the sale certificate. Since the sale has already taken place and the appellants are not appending the sale, the amount due as of date will have to be taken as a threshold amount for calculation of pre-deposit, according to the respondent bank. The outstanding dues from the firm and its partners as of 19.08.2024 is ₹1,05,18,498.85, and therefore, the Ld. Counsel for appearing for respondents insists on the appellants paying 50% of the amount.
Concerning the existence of the prima facie case, it has to be observed that the demand notices do not give up a break-up of the principal amount, interest and other charges. It is also pertinent to note that the partnership firm is mentioned as a proprietorship and the names of the partners are also mentioned in the address portion but the respondents have not categorically denied the fact regarding not service of notice on each of the partners and the firm separately. Rule 3(4) of the Rules insists on service of notice on each of the borrowers when there is more than one borrower. Hence, there appears to be a lacuna in service of notice in compliance with Rule 3(4) in the instant case. There is also apparently a violation of Sec.13(3) since a break-up of the amount demanded is not given. Regarding the challenge to the order under Sec. 14 further evidence will have to be adduced because the application by the accompanying is not produced, but nevertheless, the appellants have established a prima facie case as regards the non-service of demand notice under Sec. 13(2) as also the violation of Sec. 13(3) of the SARFAESI Act. It is a settled principle that when the foundation is false, the entire structure shall fall, going by the Latin dictum sublato fundamento cadit opus. The appellants, therefore, have a very strong prima facie case. As regards their financial strain also, they have succeeded in establishing neither the firm nor the partners have sufficient income to get 50% of the debt due. The amount stated by the respondents in their reply is taken as threshold amount and the appellants are, therefore, directed to deposit a sum of ₹30 lakhs as pre-deposit for entertaining this appeal. The Ld. Counsel appearing for the appellants submits that the demand draft of ₹10 lakhs is being submitted today. The balance of ₹20 lakhs shall be paid in two instalments of ₹10 lakhs each within a gap of two weeks each as stated hereunder.
Numbers of Instalments
Payment on or before
1st Instalment of ₹ 10,00,000
27.12.2024
2nd Instalment of ₹ 10,00,000
10..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.
Given the payment of ₹10 lakhs made today, the taking over of possession of the subject property and also the issuance of the sale certificate shall stand stalled till the next date of hearing.
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 respondents.
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 Respondents is at liberty to file a reply in the Appeal with an advance copy to the other side.
For reporting compliance regarding the first instalment, call on 30.12.2024.