M/S KUT ENERGY PVT. LTD. & ORS. versus THE AUTHORIZED OFFICER, PUNJAB NATIONAL BANK, LARGE CORPORATE BRANCH, LUDHIANA & ORS. on 20 August 2019

1. These appeals arise out of the judgment and order dated19.03.2019 passed by the High Court of Himachal Pradesh at Shimla inCMP Nos.4761 and 5386 of 2018 in CWP No.2274 of 2017.

2. An agreement was entered into between the appellants and theGovernment of Himachal Pradesh on 26.05.2008 for setting up 24 MW“Kut Hydro Electric Project” in District Shimla. For commissioning

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Asaid Project, the appellants availed loan from the consortium of PunjabNational Bank (‘the Bank’, for short), Corporation Bank and CentralBank of India. On 29.09.2015 the account of the appellant was declaredNPA[1] by the Bank. A demand notice was thereafter issued by the Bankunder Section 13(2) of the Securitisation and Reconstruction of FinancialAssets and Enforcement of Securities Interest Act, 2002 (“SARFAESIBAct”, for short) on 15.03.2017. The amount due to the Bank as on14.03.2017 was stated to be Rs.106,07,91,644.26/-.

3. Soon thereafter, three proposals were made by the appellantsin quick succession on 27.06.2017, 01.08.2017 and 19.08.2017 offeringRs.84, 87 and 90 crores respectively for One Time Settlement (“OTS”,Cfor short). On 22.08.2017 a possession notice under Section 13(4) ofthe SARFAESI Act was issued by the Bank in respect of the Project inquestion. On 29.08.2017 a sale notice was issued in terms of which theconcerned properties were to be sold by e-auction on 06.10.2017 with areserve price of Rs.120 crores.

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4. Immediately an application seeking interim relief being SANo.481 of 2017 was moved by the appellants before the Tribunal[2], whichprayer was rejected by the Tribunal by its order dated 06.10.2017. On06.10.2017 itself, the e-auction was conducted by the Bank in which abid was received from 2[nd] respondent for Rs.120,00,11,000/-. ThisEprompted the appellants to revise the OTS proposal to Rs.140 crores.Such offer was made on 07.10.2017 and was followed by filing of CWPNo.2274 of 2017 before the High Court on 10.10.2017 challenging (i)The notices dated 15.03.2017 and 22.08.2017 (ii) Sale Notice dated29.03.2017 and (iii) Order dated 06.10.2017 passed by the Tribunalrefusing to grant interim relief.F

5. The matter came up for preliminary hearing before the HighCourt on 11.10.2017 and the Counsel for the appellants submitted that inorder to establish their bona fides, the appellants were willing and readyto deposit a sum of Rs.140 crores with the Bank. The submission wasrecorded and directions were issued by the High Court as under:G

“Mr. B.C. Negi, learned Senior Advocate, states that withoutprejudice to the respective rights and contentions of the partiesand subject to the outcome of the writ petition, pursuant to 1 Non-Performing Asset 2 Debt Recovery Tribunal-(1), Chandigarh M/S KUT ENERGY PVT. LTD. & ORS. v. THE AUTHORIZED OFFICER, PNB,LARGE CORP. BRANCH, LUDHIANA [UDAY UMESH LALIT, J.]

petitioners’ request (Annexure P-18), which is pendingconsideration with the lead Consortium Bank, in order to establishtheir bona fides, petitioners are ready and willing to deposit a sumof Rs.140 crores with the lead Consortium Bank (Punjab NationalBank) in the following manner:-

(i) Rs.3 crores already deposited along with communication,dated 7[th] October, 2017 (Annexure P-18);

(ii) Rs.15 crores on or before 16[th] October, 2017;

(iii) Rs.22 crores on or before 1[st] November, 2017 and

(iv) Rs.100 crores on or before 11[th] December, 2017.

We direct that subject to the petitioners depositing a sum of Rs.140crores with the Punjab National Bank, in terms of their statement,no coercive action shall be taken against them, more so whenthey are still in the actual physical possession of the assets, whichfact is not disputed before us. Also, such deposit shall be subjectto further orders, which may be passed by the Court. Depositwith the bank shall be treated to be a deposit in the Registry ofthis Court. Further, bank shall take a decision on the petitioners’request, dated 7[th] October, 2017 (Annexure P-18), which Mr. AjayKumar, learned Senior Advocate, states shall be taken within aperiod of four weeks from today. We further direct that in theevent of petitioners’ succeeding in the present petition and/or thebank agreeing with the petitioners’ request, petitioners shall beliable to pay interest to the auction bidder on the amount alreadydeposited pursuant to the auction. We further direct that till furtherorders, it shall not be obligatory on the auction purchaser to depositthe remaining balance amount.

We have not expressed any opinion with regard to the rights andclaims of the State.”

6. On 31.10.2017 the Bank rejected the revised OTS proposal forRs.140 crores i.e. even before the sum of Rs.140 crores was depositedby the appellants. The appellants, therefore, filed CMP No.9618 of 2017seeking modification of the aforementioned order dated 11.10.2017 statinginter alia that deposit of Rs.100 crores be made subjection to the sanctionof the settlement proposal. It may be noted here that as on the date the A

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Aappellants had deposited a sum of Rs.40 crores in keeping with thecommitment of first three stages as set out in the order dated 11.10.2017.

7. The Bank challenged the order dated 11.10.2017 by filingSpecial Leave Petition(C) Nos.4898-4904 of 2018 in this Court, submittinginter alia that the High Court ought not to have interfered in the matterBwhile exercising writ jurisdiction, as alternate remedy was available tothe appellants. The submission was accepted by this Court and the appealsarising from SLP(C) Nos.4898-4904 of 2018 were disposed of by thisCourt as under:

“Heard learned counsel for the parties.

CDelay condoned.

Leave granted.

The respondent is a debtor to the tune of Rs.325,00,00,000/-(Rupees Three hundred Twenty Five crores only) and above. TheBank has rejected a One Time Settlement proposal to settle for afigure of Rs.150,00,000/- (Rupees one hundred Fifty crores only),of which the debtor has deposited only Rs.40,00,00,000/- (RupeesForty crores only) till date.

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Meanwhile, an auction of the mortgaged property has alreadytaken place, but, as no interim relief was granted by the DebtERecovery Tribunal by its order dated 06.10.2017, Respondent No.5,who is the highest bidder, has paid 25% of the bid amount, afterwhich sale confirmation has taken place by a letter dated07.10.2017. We may hasten to add that on 18.10.2017, a chequefor the balance of 75% was furnished by respondent No.5, butFnot encashed, and this was done again on 17.03.2018.

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In a recent judgment delivered by one of us in Authorised Officer,State Bank of Travancore and Anr. Vs. Mathew K.C.(2018) 3SCC 85, we have cautioned against the High Court interfering insuch matters in the writ jurisdiction. Such caution has unfortunatelynot been heeded in the present case. Given the facts of the presentcase, we, therefore, set-aside the impugned orders passed by theHigh Court.

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The appeals are allowed in the aforesaid terms.

Pending applications, if any, shall stand disposed of.”

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8. On 22.05.2018 the Bank filed CMP No.4761 of 2018 in aforesaidCWP No.2274 of 2017 seeking appropriation of amount of Rs.40 croresdeposited by the appellants in terms of the order dated 11.10.2017, againstthe dues of the appellants. On the other hand, CMP No. 5386 of 2018was filed by the appellants on 29.05.2018 in said Writ Petition for refundof said amount of Rs.40 crores. These applications were disposed of bythe High Court by its judgment and order dated 19.03.2019. Thesubmissions advanced by the rival parties were dealt with and thedirections were passed as under:- “9. We have heard the learned counsel for the parties at aconsiderable length and gone through the record. So far as theprayer of the borrowers for the refund of the amount of Rs.40.00crores is concerned, we do not find any substance in the same. Itis not a case where the entire loan liability, as determined by theConsortium of Banks, has been satisfied on appropriation of saleproceeds of secured assets. The lead Bank has already filed suitfor the recovery of Rs.129.47 crores, which is pending adjudicationbefore the DRT. While the borrower/guarantors have a right tocontest the bank’s claim before the DRT, it is highly prematureand presumptuous for this Court to comment upon the likelyoutcome of those proceedings.

10. It goes without saying that if the bank’s suit is decreed, fullyor partially, the amount of Rs.40.00 crores, deposited by thepetitioners before this Court, is liable to be adjusted/appropriatedtowards the decretal amount. However, in the event of dismissalof such suit, with a finding that the borrower or the guarantors areno longer under any liability, the amount so deposited by them canbe refunded to them. Since all these issues are yet to beadjudicated by the DRT, we are of the view that the prayer madeby the borrower/guarantors for refund of the amount is liable tobe turned down and we order accordingly.

11. The prayer made by the bank, on the other hand, deserves tobe accepted in part to the extent that let the amount of Rs.40crores lying deposited with the bank ‘without any lien’ be depositedwith DRT, who in turn is directed to keep the same in a NationalizedBank to fetch maximum rate of interest. The amount shall remainin FDRs till the decision of the suit filed by the lead Bank (PunjabNational Bank). In case the suit is decreed and the decretal amount A

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Ais more than Rs.40.00 crores or the interest accrued thereupon,the DRT is directed to transfer the said amount in favour of thePunjab National Bank for adjustment towards loan liability. In theevent of dismissal of the suit, the borrower/guarantors shall be atliberty to seek refund of the said amount from the DRT.”

B9. While challenging the aforesaid view taken by the High Court,Mr. P.S. Patwalia, learned Senior Advocate for the appellants submittedthat the deposit of Rs.40 crores with the Registry of the High Court interms of the order dated 11.10.2017 was only to establish the bonafides of the appellants in support of the offer made by them. Once theWrit Petition itself was held not to be maintainable and the offer madeCby the appellants was rejected by the Bank, the amount so depositedmust be returned to the appellants. Reliance was placed on the decisionof this Court in Axis Bank vs. SBS Organics (P) Ltd.[3]. Mr. S. GuruKrishna Kumar, learned Senior Advocate, appearing for the Bankhowever contended that the view taken by the High Court was perfectlyDjustified. It was submitted that since the dues of the appellants were farin excess of the value fetched by the sale of assets, the directions issuedby the High Court not only secured the interest of the Bank but subservedpublic interest. In his submission the directions issued by the High Courtwere consistent with the principles laid down in Axis Bank[3], as the HighCourt had not allowed the application preferred by the Bank in its entiretyEbut had directed that amount be kept in deposit “without any lien.”

10. In Axis Bank[3]the questions that arose for consideration werewhether the money deposited, in order to maintain an appeal underSection 18 of the SARFAESI Act before the Debts Recovery AppellateTribunal (‘DRAT’, for short) could be adjusted towards the amount dueFto the concerned bank and whether the concerned bank had a lien overthe money so deposited. The submissions of the concerned bank wererecorded in para 4, the definitions of terms ‘secured asset’, ‘securedcreditor’, ‘secured debt’ and ‘security interest’ were set out in paras 9to 12. It was observed in para 14 that the secured creditor was entitledGto proceed “only against the secured assets” mentioned in the noticeunder Section 13(2) of the SARFAESI Act. The nature of pre-depositin terms of Section 18 of the SARFAESI Act was considered in para 21and it was concluded that such deposit was neither a ‘secured asset’nor was a ‘secured debt’ and in the circumstances, the prayer for refund H3 (2016) 12 SCC 18

of amount in deposit was required to be allowed. This Court alsoconsidered the submission that the concerned bank had lien on thedeposited amount in terms of Section 171 of the Contract Act, 1872.The submission was rejected. Paragraphs 14, 21, 22 and 23 of thedecision of this Court in Axis Bank[3 ]were as under:- “14. A conspectus of the aforesaid provisions shows that underthe scheme of the SARFAESI Act, a secured creditor is entitledto proceed against the borrower for the purpose of recovering hissecured debt by taking action against the secured assets, in casethe borrower fails to discharge his liability in full within the periodspecified in the notice issued under Section 13(2) of the Act. It isthe mandate of Section 13(3) of the Act that the notice issuedunder Section 13(2) should contain details of the amount payableby the borrower and also the secured assets intended to beenforced by the secured creditor in the event of non-payment ofthe dues as per Section 13(2) notice. Thus, the secured creditor isentitled to proceed only against the secured assets mentioned inthe notice under Section 13(2). However, in terms of Section 13(11)of the Act, the secured creditor is also free to proceed first againstthe guarantors or sell the pledged assets. To quote:

“13. (11) Without prejudice to the rights conferred on thesecured creditor under or by this section, the secured creditorshall be entitled to proceed against the guarantors or sell thepledged assets without first taking any of the measuresspecified in clauses (a) to (d) of sub-section (4) in relation tothe secured assets under this Act.”

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21. The appeal under Section 18 of the Act is permissible onlyagainst the order passed by DRT under Section 17 of the Act.Under Section 17, the scope of enquiry is limited to the stepstaken under Section 13(4) against the secured assets. The partialdeposit before DRAT as a precondition for considering the appealon merits in terms of Section 18 of the Act, is not a secured asset.It is not a secured debt either, since the borrower or the aggrievedperson has not created any security interest on such pre-depositin favour of the secured creditor. If that be so, on disposal of theappeal, either on merits or on withdrawal, or on being renderedinfructuous, in case, the appellant makes a prayer for refund of A

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the pre-deposit, the same has to be allowed and the pre-deposithas to be returned to the appellant, unless the Appellate Tribunal,on the request of the secured creditor but with the consent of thedepositors, had already appropriated the pre-deposit towards theliability of the borrower, or with the consent, had adjusted theamount towards the dues, or if there be any attachment on thepre-deposit in any proceedings under Section 13(10) of the Actread with Rule 11 of the Security Interest (Enforcement) Rules,2002, or if there be any attachment in any other proceedings knownto law.

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22. We are also unable to agree with the contention that the Bankhas a lien on the pre-deposit made under Section 18 of theSARFAESI Act in terms of Section 171 of the Contract Act, 1872.Section 171 of the Contract Act, 1872 on general lien, is in adifferent context:

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“171. General lien of bankers, factors, wharfingers,Dattorneys and policy-brokers.—Bankers, factors, wharfingers,attorneys of a High Court and policy-brokers may, in theabsence of a contract to the contrary, retain as a security for ageneral balance of account, any goods bailed to them; but noother persons have a right to retain, as a security for suchEbalance, goods bailed to them, unless there is an expresscontract to that effect.”

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23. Section 171 of the Contract Act, 1872 provides for retentionof the goods bailed to the bank by way of security for the generalFbalance of account. The pre-deposit made by a borrower for thepurpose of entertaining the appeal under Section 18 of the Act isnot with the bank but with the Tribunal. It is not a bailment withthe bank as provided under Section 148 of the Contract Act, 1872.Conceptually, it should be an argument available to the depositor,Gsince the goods bailed are to be returned or otherwise disposedof, after the purpose is accomplished as per the directions of thebailor.”

11. In the present case the deposit of Rs.40 crores in terms of theorder of the High Court on 11.10.2017 was only to show the bona fidesof the appellants when a revised offer was made by them. The depositH

was not towards satisfaction of the debt in question and that is preciselywhy the High Court had directed that the deposit would be treated to bea deposit in the Registry of the High Court.

Going by the law laid down by this Court in Axis Bank[3]the ‘securedcreditor’ would be entitled to proceed only against the ‘secured assets’mentioned in the notice under Section 13(2) of the SARFAESI Act. Inthat case, the deposit was made to maintain an appeal before the DRATand it was specifically held that the amount representing such depositwas neither a ‘secured asset’ nor a ‘secured debt’ which could beproceeded against and that the appellant before DRAT was entitled torefund of the amount so deposited. The submission that the bank hadgeneral lien over such deposit in terms of Section 171 of the ContractAct, 1872 was rejected as the money was not with the bank but with theDRAT. In the instant case also, the money was expressly to be treatedto be with the Registry of the High Court.

On the strength of the law laid down by this Court in Axis Bank[3],in our view, the appellants are entitled to withdraw the sum deposited bythem in terms of said order dated 11.10.2017. Their entitlement havingbeen established, the claim of the appellants cannot be negated by anydirection that the money may continue to be in deposit with the Bank.

12. We, therefore set aside the judgment and order dated19.03.2019 passed by the High Court, allow CMP No.5386 of 2018preferred by the appellants and direct that the amount deposited by theappellants in terms of the order dated 11.10.2017 be returned to themwithin two weeks along with interest, if any, accrued thereon.

13. These appeals stand allowed in aforesaid terms. No costs.

Nidhi Jain

Appeals allowed.

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