SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. & ANR versus PRUDENT ARC LTD. & OTHERS on 5 January 2023

[2023] 1 S.C.R. 553

SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. & ANR

v.

PRUDENT ARC LTD. & OTHERS

(Civil Appeal No. 8969 of 2022)

JANUARY 05, 2023

[M. R. SHAH AND B. V. NAGRATHNA JJ.]

Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002: s.18 – Appeal toappellate tribunal – Pre-deposit of 50% of the amount due from theborrower as claimed by the secured creditor under the second provisoof s. 18 – Requirement of – Auction sale – Amount already beenrecovered/realised by the secured creditor by selling the mortgagedproperty through an auction– While calculating the amount of “debtdue”, the amount deposited by the auction purchaser on purchaseof the secured assets, if to be adjusted and/or appropriated towardsthe amount to be deposited by the borrower u/s. 18 i.e., 50% of thedebt due – Held: Under s. 18, the borrower has to deposit 50% ofthe amount of “debt due” as claimed by the bank/financialinstitution/assignee along with interest as claimed in the notice u/s.13(2) – The borrower can take the benefit of the amount receivedby the creditor in an auction sale only if he unequivocally acceptsthe sale – Borrower is not entitled to claim adjustment/appropriationof the amount realised by selling the secured properties anddeposited by the auction purchaser when the auction sale is alsounder challenge – On facts, as the auction sale was challenged bythe borrowers, the High Courts erred in directing to adjust/appropriate the amount realised by auction sale of the securedproperties/deposited by the auction purchasers while consideringthe 50% of the amount as pre-deposit to be deposited by theborrower, while preferring an appeal before the DRAT – Recoveryof Debts and Bankruptcy Act, 1993 – s. 2(g).

s. 18 - “Debt due” u/s. 18, if includes the liability plus interest– Held: “Debt” means any liability inclusive of interest – On facts,

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Athe High Court erred in excluding the amount payable towardsinterest while considering the “debt due” – Recovery of Debts andBankruptcy Act, 1993 – s. 2(g).

Disposing of the appeals, the CourtB

HELD: 1.1 As per Section 2(ha) of the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002, “debt” shall have the same meaning assignedto it in clause (g) of Section 2 of the Act 1993. As per section2(g) of the Act 1993, “debt” means any liability inclusive of interestCwhich is claimed as due from any person, by a bank or a financialinstitution during the course of any business activity undertakenby the bank or the financial institution, in cash or otherwise,whether secured or unsecured, or assigned, or whether payableDunder a decree or order of any civil court or any arbitration awardor otherwise or under a mortgage and subsisting on, and legallyrecoverable on the date of the application. That the “debt” meansany liability inclusive of interest. [Para 13][569-D-F]

1.2 An appeal under Section 18 of the SARFAESI Act isEpermissible against the order passed by the DRT under Section17 of the SARFAESI Act. Under Section 17, the scope of enquiryis limited to the steps taken under Section 13(4) against thesecured assets. Therefore, whatever amount is mentioned in thenotice under Section 13(2) of the SARFAESI Act, in case stepsFtaken under Section 13(2)/13(4) against the secured assets areunder challenge before the DRT will be the ‘debt due’ within themeaning of proviso to Section 18 of the SARFAESI Act. In caseof challenge to the sale of the secured assets, the amountmentioned in the sale certificate will have to be considered whileGdetermining the amount of pre-deposit under Section 18 of theSARFAESI Act. However, in a case where both are underchallenge, namely, steps taken under Section 13(4) against thesecured assets and also the auction sale of the secured assets, in H

that case, the “debt due” shall mean any liability (inclusive ofinterest) which is claimed as due from any person, whichever ishigher. [Para 13][567-H; 568-A-C]

1.3. As per the second proviso to Section 18 of theSARFAESI Act, it is the “borrower” who has preferred an appealbefore the Appellate Tribunal and the “borrower” who shall haveto deposit 50% of the amount of “debt due” from him. If thewords used in the second proviso to Section 18 of the SARFAESIAct are “borrower has to deposit”, it is not appreciable how theamount deposited by the auction purchaser on purchase of securedassets can be adjusted and/or appropriated towards the amountof pre-deposit, to be deposited by the borrower. The borrowercan take the benefit of the amount received by the creditor in anauction sale only if he unequivocally accepts the sale. In a casewhere the borrower also challenges the auction sale and doesnot accept the same and also challenges the steps taken underSection 13(2)/13(4) of the SARFAESI Act with respect to securedassets, the borrower has to deposit 50% of the amount claimedby the secured creditor along with interest as per section 2(g) ofthe Act 1993. [Para 14][568-D-G]

1.4. Where the borrower challenges the auction sale,thereafter it will not be open for the borrower to pray to use thesale proceeds received from the sale of the secured propertiesto be adjusted/given credit in an application for waiver of pre-deposit.[Para 15][571-F]

1.5. In the present case, the respective High Courts haveseriously erred in directing to adjust/appropriate the amountrealised by auction sale of the secured properties/deposited bythe auction purchasers while considering the 50% of the amountas pre-deposit to be deposited by the borrower, while preferringan appeal before the DRAT. Even the High Court of Delhi haserred in excluding the amount payable towards interest whileconsidering the “debt due”. [Para 16][571-G-H]

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[2023] 1 S.C.R.

A1.6 As per Section 2(g) of the Act 1993, “debt” meansliability inclusive of interest as claimed by the bank/financialinstitution.the borrower has to deposit 50% of the amount of “debtdue” as claimed by the bank/financial institution/assignee alongwith interest as claimed in the notice under Section 13(2) of theBSARFAESI Act and the borrower is not entitled to claimadjustment/appropriation of the amount realised by selling thesecured properties and deposited by the auction purchaser whenthe auction sale is also under challenge. [Paras 16 and 17][571-H; 572-C]C

Eskays Construction Pvt. Ltd. v. Soma Papers &Industries Limited & Others 2016 SCC OnLine Bom.9827– approved.

DNarayan Chandra Ghosh v. UCO Bank (2011) 4 SCC548 : [2011] 3 SCR 1024 – relied on.

Case Law Reference

[2011] 3 SCR 1024relied onPara 15

ECIVIL APPELLATE JURISDICTION : Civil Appeal No.8969of 2022.

From the Judgment and Order dated 22.12.2020 of the High Courtof Delhi at New Delhi in W.P. (C) No.6060 of 2020.F

With

Civil Appeal Nos.8970, 8972, 8973 and 8974 of 2022.

Vinay Navare, Ratan K. Singh, Sr. Advs., Achin Mittal, RahulGGarg, Tuhin, Samir Malik, Keshav Baheti, Nachiketa Joshi, Vikas Rathi,Aakash Rathi, Kashish Narang, Abhishek Agarwal, Raghav Mudgal,Rajat Bhardwaj, Bimlesh Kumar Singh, Rajeev Kumar Gupta, VivekPhadke, Atul Sharma, Rajiv Ranjan Dwivedi, Arun Aggarwal, Advs. forthe appearing parties.H

The Judgment of the Court was delivered by

M. R. SHAH, J.

1. As common questions of law and fact arise in this group ofappeals, namely, interpretation of Section 18 of the Securitisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002 (hereinafter referred to as the ‘SARFAESI Act’), all theseappeals are decided and disposed of together by this common judgmentand order.

2. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 22.12.2020 passed by the High Court of Delhi at NewDelhi in Writ Petition (Civil) No. 6060/2020, both, the borrower as wellas the secured creditor have preferred Civil Appeal Nos. 8969 and 8970of 2022.

3. Civil Appeal Nos. 8972, 8973 and 8974 of 2022 have beenpreferred against the common impugned judgment and order dated12.04.2022 passed by the High Court of Madhya Pradesh, Bench atIndore in respective Writ Petition Nos. 5494/2021, 5470/2021 and 5478/2021, by which the High Court has dismissed the said writ petitionspreferred by the original writ petitioners – auction purchasers and hasconfirmed the orders passed by the Debt Recovery Appellate Tribunal,Allahabad (for short, ‘DRAT’), by which the DRAT while entertainingthe appeals under Section 18 of the SARFAESI Act held that the borroweris not liable to deposit 50% of the amount of debt as the secured propertyhas been sold and the amount is realised as the same was paid by theauction purchasers and is to be appropriated towards the amount liableto be deposited as pre-deposit under Section 18 of the SARFAESI Act.

Factual aspects in Civil Appeal Nos.8969 & 8970 of 2022:

4. That the appellant in Civil Appeal No. 8969/2022 – SidhaNeelkanth Paper Industries Private Limited (hereinafter referred to asthe ‘principal borrower’) approached the Andhra Bank for sanction ofcredit facility and in the year 2008, it had approached Standard CharteredBank for taking over the debt taken by it. In the year 2010, the AndhraBank sanctioned open cash credit limit for a sum of Rs. 15.5 crores infavour of the principal borrower. Immovable properties were mortgagedby the guarantors and by the borrower to secure the said cash creditfacility. After taking over the existing cash credit facility, a further ad- A

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Ahoc open cash credit to the tune of Rs. 3 crores, due to the StandardChartered Bank, was cleared by the Andhra Bank.

4.1 Since, the principal borrower failed to make the repayment tothe Andhra Bank, its account was declared as a Non Performing Asset(NPA). A notice dated 10.05.2013 was issued by the Andhra Bank underBSection 13(2) of the SARFAESI Act, calling upon the borrower to paythe outstanding amount of Rs. 16,61,91,174.67 (Rupees sixteen croressixty one lakhs ninety one thousand one hundred seventy four and paisesixty seven only), payable as on 27.04.2013. Objections thereto wereraised by the principal borrower under Section 13(3A) of the SARFAESIAct. Since the amount demanded was not paid under Section 13(2) ofCthe SARFAESI Act, measures under Section 13(4) of the SARFAESIAct were initiated by the Bank and possession of one of the mortgagedproperties, being property bearing No. 170, Deepali, Pitampura, Delhi-110034 was taken. An Appeal was filed being SA No. 264/2013 byrespondent Nos. 2 & 3 herein challenging the measures taken by theDAndhra Bank under Section 13(4) of the SARFAESI Act.

4.2 On 25.07.2013, a conditional interim stay was granted by theDebt Recovery Tribunal-III (for short, ‘DRT’) and the applicants in SANo. 264/2013 were directed to deposit a sum of Rs. 2 crores within aperiod of 30 days. The said applicants were also directed to bring aEbetter buyer in respect of the properties in question within a period of 60days along with 10% of the proposed sale consideration. Since theborrower failed to comply with the order of the DRT, the mortgagedproperties were put to auction. Attempts made by the owners of theproperty to challenge the proposed auction failed inasmuch as theapplication moved before the DRT and the appeal preferred before theFDRAT were both dismissed. The writ petition filed by the owners beforethe High Court also came to be dismissed as withdrawn on 17.02.2016.That thereafter, the property in question was put to auction after gettingthe property valued and obtaining a valuation report of the property inquestion, namely, property bearing No. 170, Deepali, Pitampura, Delhi-G110034. In the meantime, the Andhra Bank assigned all its debts andunderlying securities to Prudent ARC Limited, the appellant in CivilAppeal No. 8970/2022. The borrower filed Writ Petition (Civil) No.12791/2018 before the High Court challenging the assignment of debtsby Andhra Bank, which came to be dismissed by the High Court on28.11.2018. An intra-court appeal also came to be dismissed.

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4.3 That thereafter, the borrower filed an interlocutory applicationbefore the DRT to prevent the auction scheduled on 05.12.2018.However, the DRT allowed the creditor/assignee to proceed with theauction. The auction was conducted on 05.12.2018 and one M/s TejswiImpex Pvt. Ltd. (auction purchaser) was the successful highest bidderfor an amount of Rs. 12.5 crores. The entire amount was deposited anda sale certificate came to be issued in favour of the auction purchaseron 19.12.2018.

4.4 The borrower filed an appeal before the DRAT being AppealNo.616/2018 challenging the order dated 05.12.2018 passed by the DRTdismissing the application filed by the borrower praying that the Bank/assignee be restrained from proceeding with the auction. The DRATvide order dated 20.12.2018 directed the borrower to comply with therequirements of making a pre-deposit under Section 18 of the SARFAESIAct. The said order was in the nature of an interim order. The orderdated 20.12.2018 passed by the DRAT was challenged before the HighCourt by way of Writ Petition No. 14066/2018.

4.5 The High Court directed the DRAT to hear the appeal onmerits by observing that on realising the amount of Rs. 12.5 crores againstthe debt of Rs. 16.61 crores, it can be said that more than 50% of thedebt due is secured/recovered and therefore the requirement of makinga pre- deposit under the second proviso to Section 18 of the SARFAESIAct can be said to have been met. That thereafter, the DRAT disposedof the appeal vide order dated 1.8.2019 with a direction to the DRT todispose of the main Securitization Application within a period of threemonths. Subsequently, vide order dated 05.10.2019, the DRT dismissedSA No. 264/2013 filed by respondent Nos. 2 & 3 herein. Against thesaid order, the borrower and the owner of the mortgaged property filedRegular Appeal No. 467/2019. The borrower sought waiver of thestatutory pre-deposit under Section 18 of the SARFAESI Act, relying onthe earlier order dated 26.12.2018 passed in Writ Petition No. 14066/2018 and contending, inter alia, that as Rs. 12.5 crores had alreadybeen recovered/realised by selling the mortgaged property and the samehad been deposited by the auction purchaser, which can be said to bemore than 50% of the debt of Rs. 16.61 crores and therefore the borroweris not required to pay any further amount towards the pre- deposit asenvisaged under Section 18 of the SARFAESI Act. The DRAT allowedthe waiver of the statutory pre-deposit by observing that the amount A

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Aalready realised by selling the mortgaged property/secured property isrequired to be adjusted towards the pre-deposit and/or the same can besaid to be a deposit of 50% of the amount as pre-deposit, as envisagedunder Section 18 of the SARFAESI Act.

4.6 Feeling aggrieved and dissatisfied with the order passed byBthe DRAT allowing waiver of the statutory pre-deposit on the aforesaidground, the secured creditor/assignee filed the subject writ petition beforethe High Court being Writ Petition No. 6060/2020. By the impugnedjudgment and order, the High Court has partly allowed the said writpetition preferred by the secured creditor/assignee by directing that theborrower is required to deposit 50% of the remaining 4.1 crores beingCdebt due (after deducting/adjusting Rs. 12.5 crores realised/recoveredby selling the mortgaged property). The High Court has also observedthat it shall be open to DRAT to reduce the said pre- deposit amount to25%, after recording reasons in writing for the said reduction. Theaforesaid order is passed by the High Court, after observing andDconcluding as under:

“(a) Pre-deposit contemplated under the second proviso of Section18 of the SARFAESI Act, 2002 is mandatory in nature and cannotbe waived by the learned DRAT.

(b) While computing the “amount of debt due”, the amount ofEdebt claimed by he secured creditor in its notice issued underSection 13(2) of the Act, shall be relevant and any future interestneed not be taken into consideration for purposes of determining,“the amount of debt due as claimed by the secured credit”, incases where the DRT has not determined the liability of aborrower.F

(c) The interest component shall be ignored only for the purposesof Section 18 of the Act. This judgment shall not affect the rightsof the secured creditors to claim interest from the borrower, forrecovery of amounts due under the RDDB Act.

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(d) Any amount that has been repaid by the borrower and/orrecovered by a secured creditor after filing of the petition underSection 17, shall stand to the benefit of the borrower whilecomputing the ”amount of debt due” under the second provisoto Section 18 of the SARFAESI Act, 2002.”

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4.7 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, both, the secured creditor/assignee– Prudent ARC Limited and the original borrower – Sidha NeelkanthPaper Industries Pvt. Ltd. have preferred the present appeals.

Factual Aspects in Civil Appeal Nos.8972, 8973 & 8974 of2022:

5. That the respective respondents in the present appeals tookfinancial assistance by way of a Home Loan to the tune of Rupees onecrore fifty lakhs from Bank of Baroda – the financial creditor. In orderto secure the loan, the borrowers had mortgaged their property situatedat Survey No. 542/2/2/1, Patwari Halka No. 18, Junior Dewas, DistrictDewas. Upon committing the default in returning the loan amount, theBank issued a demand notice dated 3.8.2019 under Section 13(2) of theSecuritisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESIAct’) for a debt of Rs. 1,40,81,936/-. A possession notice was issued on10.10.2019. The borrowers approached the DRT by filing SA No. 652/2019. The bank withdrew the said notice and issued a fresh notice dated13.1.2020 under Section 13(2) of the SARFAESI Act for the outstandingamount of Rs. 1,40,81,936/- from the borrowers. That thereafter thebank published the possession notice in daily newspapers on 24.03.2020.Subsequently, the bank issued a sale notice under Section 8(6) of theSecurity Interest Enforcement Rules, 2002 and put the mortgaged propertyto auction on 17.08.2020.

5.1 The borrowers again approached the DRT by way of SA No.240/2020 on 14.08.2020. The bank conducted the auction proceedingson 17.08.2020 in which the appellants herein – original writ petitionersbefore the High Court, as one of the bidders, was declared as a successfulhighest bidder, having bid of Rs. 1,55,10,000/-. That thereafter the auctionpurchaser deposited the entire bid amount. The sale in favour of theauction purchaser came to be finalised and the sale certificate wasregistered on 23.11.2020 in favour of the auction purchaser and he wasput in possession of the secured asset.

5.2 Vide order dated 13.11.2020, the DRT dismissed SA No. 240/2020. Being aggrieved by the order dated 13.11.2020 passed by theDRT, the borrower approached the DRAT by way of Appeal No.344/2020 along with an application seeking waiver of the pre-deposit of the A

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Aamount under Section 18 of the SARFAESI Act. By order dated 9.2.2021,the DRAT held that as the bank had already recovered the debt byselling the mortgaged property and there was no remaining amount ofdebt due, the requirement of pre-deposit was satisfied and the borrower/appellants were not required to tender any amount towards dischargingthe condition of pre-deposit for entertaining the appeal under Section 18Bof the SARFAESI Act .

5.3 Being aggrieved by the said order, the auction purchaser aswell as the Bank filed the subject writ petitions before the High Court.By the impugned common judgment and order, the High Court dismissedthe said writ petitions by observing that the borrower is not liable toCdeposit 50% of the amount of the debt as initially claimed by the securedcreditor in view of the recovery of the amount by way of an auctionsale. Thus, according to the High Court, the amount realised on depositof the sale consideration by the auction purchaser is required to beappropriated and/or adjusted towards the amount of pre-deposit requiredDto be deposited by the borrower under Section 18 of the SARFAESI

Act.

5.4 Feeling aggrieved and dissatisfied with the common impugnedjudgment and order passed by the High Court, the auction purchasershave preferred the present civil appeals.

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Rival submissions in CA Nos.8969 & 8970/2022

6. Learned counsel appearing on behalf of the principal borrowerhas vehemently submitted that the High Court has materially erred indirecting the principal borrower to deposit 50% of the remaining sum ofRs. 4.1 crores as pre-deposit under Section 18 of the SARFAESI Act.F

6.1 It is further submitted that in the present case the securedproperty was sold in a public auction for a sum of Rs. 12.5 crores againstthe original amount of debt of Rs. 16.61 crores. That therefore the amountrecovered was more than 50% of the original amount of debt of Rs.16.61 crores and therefore no further order could have been passedGdirecting the principal borrower to deposit any amount towards pre-deposit as required under Section 18 of the SARFAESI Act. It iscontended that the amount realised by the financial institution by sellingthe secured property is required to be adjusted/appropriated whileconsidering the “debt due”.

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6.2 It is further contended that while passing the impugned order,the High Court has misinterpreted the definition of “debt” defined underSection 2(g) of the Recovery of Debts and Bankruptcy Act, 1993(hereinafter referred to as the ‘Act 1993’). That the “debt due” requiredto be calculated to determine the pre-deposit amount shall have to becalculated deducting the money received by the bank/financial institutionduring the pendency of the proceedings before the DRT.

6.3 It is next submitted that while passing the impugned judgmentand order, the High Court has erred in not applying the literal rule ofinterpretation for construing the second proviso to Section 18 of theSARFAESI Act for ascertaining true and correct meaning on theexpression of “debt due”.

7. Learned counsel appearing on behalf of the financial institutionand the auction purchaser have vehemently submitted that the High Courthas materially erred in directing the borrower to deposit 50% of theremaining Rs. 4.1 crores only as pre-deposit. It is contended that thesaid order is under challenge by the financial institution in the presentcase and it is the case on behalf of the financial institution that the HighCourt ought to have directed the borrower to deposit 50% of the originalamount of debt of Rs. 16.61 crores.

7.1 It is submitted that the High Court has very seriously erred indirecting that the amount realised from auction sale of the securedproperty shall have to be appropriated for the pre-deposit amount whichis to be determined on the balance of the “debt due”, without consideringthe interest component.

7.2 It is further submitted that as per proviso to Section 18 of theSARFAESI Act, the amount of pre-deposit is to be calculated in respectof the amount of “debt due” and the “debt” in SARFAESI Act is definedin Section 2(ha). It is submitted that as per section 2(ha) “debt” shallhave the same meaning as assigned to it in section 2(g) of the Act of1993. It is submitted that on perusal of Section 2(g) of the Act of 1993,“debt due” would include liability + interest. It is submitted that in thepresent case the High Court in the impugned judgment and order hasobserved and held that while considering the pre-deposit under Section18 of the SARFAESI Act, interest component is to be ignored. It issubmitted that the same is contrary to Section 2(ha) of the SARFAESIAct.

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A7.3 It is further submitted that as the borrower has challenged thenotice under Section 13(2) of the SARFAESI Act and has also challengedthe auction sale, adjustment of the amount recovered from sale of thesecured assets against the pre-deposit under Section 18 of theSARFAESI Act, could not be permitted. Reliance is placed on the decisionof the Bombay High Court in the case of Eskays Construction Pvt.BLtd. v. Soma Papers & Industries Limited & Others, 2016 SCCOnLine Bom. 9827, against which a special leave petition was filedand dismissed. It is submitted that even the proviso to Section 18 of theSARFAESI Act does not provide for any such adjustment. It is averredthat therefore in the present case, the High Court has erred in allowingCadjustment of the amount recovered from sale of secured assets, theamount which has been deposited by the auction purchaser and notborrower while considering pre-deposit under Section 18 of theSARFAESI Act.

Rival submissions in Civil Appeal Nos.8972 to 8974 of 2022

D8. Shri Vinay Navare, learned Senior Advocate appearing on behalfof the auction purchaser, in addition, has vehemently submitted that therequirement of deposit under Section 18 of the SARFAESI Act is notfor the purpose of securing payment of the creditor. That the objective isto require the borrower to prove his bona fides and to discourage frivolousElitigation from being initiated by the borrower. It is submitted that therefore,this Court in the case of Axis Bank v. SBS Organics Private Limited,(2016) 12 SCC 18 has held that the amount of pre-deposit is refundableto the borrower after disposal of appeal.

8.1 It is next submitted that the language of Section 18 of theFSARFAESI Act is very clear and unambiguous. It says that the“borrower shall deposit”, which means such amount is required to bebrought in by the borrower and the amount standing with creditor throughauction sale cannot be for the benefit of the borrower. That the borrowercan take benefit of the amount received by the creditor in an auctionsale only if he unequivocally accepts the sale. It is submitted that if theGborrower wants to question the sale, then he cannot claim the amount ofdeposit for his benefit. The borrower cannot be allowed blow hot andcold.

8.2 Reliance is placed on the decision of this Court in the matterof M/s Shilpa Shares and Securities v. National Cooperative BankHLtd., (S.L.P (Civil) No. 14717/2022, decided on 21.11.2022) wherein it has been held that the amount deposited pursuant to the order of thisCourt cannot be adjusted in pre-deposit. That in the said case, theborrower applied for OTS and the matter reached this Court and toshow the bona fides of the borrower, while considering its prayer forOTS, this Court directed to deposit certain amount. That thereafter thespecial leave petition came to be dismissed and in an appeal challengingthe proceedings under the SARFAESI Act, the borrower wanted to adjustand/or appropriate the amount deposited pursuant to the order passedby this Court and that Court negatived the same by observing that theamount deposited pursuant to the order of this Court cannot be adjustedin pre-deposit.

8.3 Making above submissions, it is prayed that the impugnedjudgment and order passed by the High Court be set aside and theborrower be directed to deposit 50% of the “debt due” without adjustingand/or appropriating the amount realised by selling the secured assets.

9. Learned counsel appearing on behalf of the original borrowershave supported the impugned judgment and order passed by the HighCourt of Madhya Pradesh and have submitted that the High Court hasnot committed any error in dismissing the writ petitions and confirmingthe orders passed by the DRAT by which the DRAT after adjusting/appropriating the amount realised by sale of the secured property heldthat the borrowers are not required to deposit any further amount towardspre-deposit as the amount realised is more than 50% of the ”debt due”.

Consideration:

10. We have heard learned counsel appearing on behalf of thesecured creditor/assignee, the respective auction purchasers andrespective borrowers.

11. The short question which is posed for the consideration of thisCourt is, “whether, while calculating the amount to be deposited as pre-deposit under Section 18 of the SARFAESI Act, 50% of which amountthe borrower is required to deposit as pre-deposit and whether whilecalculating the amount of “debt due”, the amount deposited by the auctionpurchaser on purchase of the secured assets is required to be adjustedand/or appropriated towards the amount of pre-deposit to be depositedby the borrower under Section 18 of the SARFAESI Act?” Anotherquestion would be, “whether the “debt due” under Section 18 of theSARFAESI Act would include the liability + interest?”

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A12. While considering the aforesaid issues/questions, Section 18,& 2(ha) of the SARFAESI Act and section 2(g) of the Recovery ofDebts and Bankruptcy Act, 1993, which would have a direct bearing arerequired to be referred to. The said provisions read as under:

18. Appeal to Appellate Tribunal.—(1) Any person aggrieved,Bby any order made by the Debts Recovery Tribunal [under section17, may prefer an appeal along with such fee, as may beprescribed] to an Appellate Tribunal within thirty days from thedate of receipt of the order of Debts Recovery Tribunal.

[Provided that different fees may be prescribed for filing an appealCby the borrower or by the person other than the borrower:]

[Provided further that no appeal shall be entertained unless theborrower has deposited with the Appellate Tribunal fifty per cent.of the amount of debt due from him, as claimed by the securedcreditors or determined by the Debts Recovery Tribunal, whicheveris less:DProvided also that the Appellate Tribunal may, for the reasons tobe recorded in writing, reduce the amount to not less than twenty-five per cent. of debt referred to in the second proviso.]

(2) Save as otherwise provided in this Act, the Appellate TribunalEshall, as far as may be, dispose of the appeal in accordance withthe provisions of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993 (51 of 1993) and rules madethereunder.

2(ha) “debt” shall have the meaning assigned to it in clause (g) ofFsection 2 of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 (51 of 1993) and includes—

(i) unpaid portion of the purchase price of any tangible assetgiven on hire or financial lease or conditional sale or underany other contract; G

(ii) any right, title or interest on any intangible asset or licenceor assignment of such intangible asset, which secures theobligation to pay any unpaid portion of the purchase priceof such intangible asset or an obligation incurred or creditotherwise extended to enable any borrower to acquire theHintangible asset or obtain licence of such asset; M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

Section 2(g) of the Recovery of Debts and Bankruptcy Act,1993 - “debt” means any liability (inclusive of interest) which is claimedas due from any person [or a pooled investment vehicle as definedin clause (da) of section 2 of the Securities Contracts (Regulation)Act, 1956 (42 of 1956),] by a bank or a financial institution or bya consortium of banks or financial institutions during the course ofany business activity undertaken by the bank or the financialinstitution or the consortium under any law for the time being inforce, in cash or otherwise, whether secured or unsecured, orassigned, or whether payable under a decree or order of any civilcourt or any arbitration award or otherwise or under a mortgageand subsisting on, and legally recoverable on, the date of theapplication [and includes any liability towards debt securities whichremains unpaid in full or part after notice of ninety days servedupon the borrower by the debenture trustee or any other authorityin whose favour security interest is created for the benefit ofholders of debt securities or;]”

13. As per Section 2(ha) of the SARFAESI Act, “debt” shall havethe same meaning assigned to it in clause (g) of Section 2 of the Act1993. As per section 2(g) of the Act 1993, “debt” means any liabilityinclusive of interest which is claimed as due from any person….., by abank or a financial institution during the course of any business activityundertaken by the bank or the financial institution, in cash or otherwise,whether secured or unsecured, or assigned, or whether payable under adecree or order of any civil court or any arbitration award or otherwiseor under a mortgage and subsisting on, and legally recoverable on thedate of the application. That the “debt” means any liability inclusive ofinterest.

As per Section 18 of the SARFAESI Act, any person aggrieved,by any order made by the DRT under section 17, may prefer an appealwithin thirty days to an appellate Tribunal (DRAT) from the date ofreceipt of the order of DRT. Second proviso to section 18 provides thatno appeal shall be entertained unless the “borrower” has depositedwith the Appellate Tribunal fifty percent of the amount of “debt due”from him, as claimed by the secured creditors or determined by theDRT, whichever is less and only and only then, an appeal under Section18 of the SARFAESI Act is permissible against the order passed by the

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ADRT under Section 17 of the SARFAESI Act. Under Section 17, thescope of enquiry is limited to the steps taken under Section 13(4) againstthe secured assets. Therefore, whatever amount is mentioned in thenotice under Section 13(2) of the SARFAESI Act, in case steps takenunder Section 13(2)/13(4) against the secured assets are under challengebefore the DRT will be the ‘debt due’ within the meaning of proviso toBSection 18 of the SARFAESI Act. In case of challenge to the sale of thesecured assets, the amount mentioned in the sale certificate will have tobe considered while determining the amount of pre-deposit under Section18 of the SARFAESI Act. However, in a case where both are underchallenge, namely, steps taken under Section 13(4) against the securedCassets and also the auction sale of the secured assets, in that case, the“debt due” shall mean any liability (inclusive of interest) which is claimedas due from any person, whichever is higher.

14. As observed hereinabove and as per the second proviso toSection 18 of the SARFAESI Act, it is the “borrower” who has preferredDan appeal before the Appellate Tribunal and the “borrower” who shallhave to deposit 50% of the amount of “debt due” from him. If the wordsused in the second proviso to Section 18 of the SARFAESI Act are“borrower has to deposit”, it is not appreciable how the amountdeposited by the auction purchaser on purchase of secured assets canbe adjusted and/or appropriated towards the amount of pre-deposit, toEbe deposited by the borrower. It is the “borrower” who has to depositthe 50% of the amount of “debt due” from him. At the same time, if theborrower wants to appropriate and/or adjust the amount realised fromsale of the secured assets deposited by the auction purchaser, theborrower has to accept the auction sale. In other words, the borrowerFcan take the benefit of the amount received by the creditor in an auctionsale only if he unequivocally accepts the sale. In a case where theborrower also challenges the auction sale and does not accept the sameand also challenges the steps taken under Section 13(2)/13(4) of theSARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along withGinterest as per section 2(g) of the Act 1993 and as per section 2(g),“debt” means any liability inclusive of interest which is claimed as duefrom any person.15. An identical question came to be considered by the BombayHigh Court in the case of Eskays Construction Pvt. Ltd. (supra). BeforeH

the Bombay High Court, it was the case on behalf of the borrower thatthough as per Section 18 of the SARFAESI Act, no appeal filed by theborrower can be entertained by the DRAT unless the borrower depositswith the DRAT 50% of the amount of “debt due” from him, as claimedby the secured creditor or as determined by the DRT, whichever is less,however, that does not mean that in a case where the properties of theborrower are sold and the entire dues of the bank are recovered fromthat sale, the borrower still has to deposit 50% as contemplated underSection 18 of the SARFAESI Act. While negativing the said submission,the Bombay High Court considered the purpose and object of theSARFAESI Act in paragraph 14 as under:

“14. We have heard the learned counsel for the parties at lengthand perused the papers and proceedings in the Writ Petition alongwith the annexures thereto. Before we deal with the rivalcontentions, it would be necessary to set out the purpose andobject for which the SARFAESI Act was brought into force. Thestatements of object and reasons of the SARFAESI Act indicatethat the financial sector, being one of the key drivers in India’sefforts to achieve success in rapidly developing its economy, didnot have a level playing field as compared to other participants inthe financial markets of the world. There was no legal provisionfor facilitating securitisation of financial assets of banks andfinancial institutions, and unlike international banks, the banks andfinancial institutions in India did not have the power to takepossession of securities and sell them. The Legislature felt thatour existing legal framework had not kept pace with the changingcommercial practices and financial sector reforms, which resultedin delays in recovery of defaulting loans. This in turn had theeffect of mounting levels of non-performing assets of banks andfinancial institutions. In order to bring the Indian Banking Sectoron par with International Standards, the Government set up twoNarasimhan Committees and the Andhyarujina Committee for thepurposes of examining banking sector reforms. These Committeesinter alia suggested enactment of a new legislation for securitizationand empowering banks and financial institutions to take possessionof the securities and to sell them without the intervention of theCourt. Accepting these recommendations, the SARFAESI Actwas brought into force w.e.f. 21-06-2002. There have been severalamendments to the SARFAESI Act, the latest being an amendment AB

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Aof 2016 that received the assent of the President on 12 August,2016 and was published in the Official Gazette dated 16 August,2016. It is called the Enforcement of Security Interest andRecovery of Debts Laws and Miscellaneous Provisions(Amendment) Act, 2016. The preamble of this amending Actindicates that the same was intended to further amend theBSARFAESI Act, the RDDB Act, the Indian Stamp Act, 1899 andthe Depository Act, 1996 and for matters connected therewith orincidental thereto.”

Thereafter, the Bombay High Court considered in detail Section18. After considering the decision of this Court in the case of NarayanCChandra Ghosh v. UCO Bank, (2011) 4 SCC 548, it was observedand held that provisions of Section 18, more particularly the second andthe third proviso thereto are mandatory in nature and that the DRAT hasno power to grant full waiver of deposit. In paragraph 16, it is observedas under:D

“16. Section 18(1) clearly stipulates, any person aggrieved byany order made by the DRT under Section 17, may prefer anappeal to the DRAT within 30 days from the date of receipt of theorder of the DRT. The 2nd proviso to Section 18(1) stipulates thatno appeal shall be entertained by the DRAT unless the borrowerEhas deposited with it 50% of the amount of debt due from him, asclaimed by the secured creditors or as determined by the DRT,whichever is less. The 3rd proviso to Section 18(1) gives adiscretion to the DRAT to reduce the aforesaid amount to not lessthan 25%, provided the DRAT gives reasons for the same whichare to be recorded in writing. What becomes clear from theFaforesaid provisions is that there is a jurisdictional bar fromentertaining an appeal filed by the borrower from an order passedunder Section 17, unless the borrower deposits 50% of the amountof debt due from him, as claimed by the secured creditors or asdetermined by the DRT, whichever is less. There is also aGdiscretion granted to the DRAT to reduce this amount to 25%provided it finds adequate reasons for doing so and gives reasons,that are recorded in writing. If this deposit is not made, then theDRAT has no jurisdiction to entertain the appeal of the borrower.The crucial words “debt due from him” have to be interpretedconsistent with the object and purpose sought to be achieved by G

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the SARFAESI Act. Unless the debt due is secured, the borrowercannot be allowed the luxury of litigation. If that is permitted, thesecured creditors would be engaged in a continuous and futilelitigation. On a plain reading of the section, it is clear that theDRAT has no power or jurisdiction to reduce the deposit amountto less than 25%. This is ex-facie clear from the plain andunambiguous language of Section 18 of the SARFAESI Act.”

That thereafter the Bombay High Court considered the submissionon behalf of the borrower that as the bank had already sold the securedassets for a consideration that fully secured their claim and thereforethere was no requirement for the borrower to deposit any amount ascontemplated under Section 18 of the SARFAESI Act. The BombayHigh Court did not accept the said submission by observing that it wouldbe ludicrous to suggest that the money realised by the bank from sale ofthe secured assets could be used by the borrower to fulfil the conditionof pre-deposit under Section 18. The Bombay High Court has observedthat it would be a different matter if the sale is accepted and confirmedby the borrower. The Bombay High Court further observed that theborrower cannot be permitted to use the sale proceeds received fromthe sale of the subject properties to be adjusted/given credit for in theapplication for waiver of deposit and at the very same time challengethe sale of very same subject properties. The said decision of the BombayHigh Court has been confirmed by this Court as the special leave petitionpreferred impugning the same, has been dismissed. Even otherwise, weare in full agreement with the view taken by the Bombay High Court inthe case of Eskays Construction Pvt. Ltd. (supra). We are of the firmopinion and view that in a case where the borrower challenges the auctionsale, thereafter it will not be open for the borrower to pray to use thesale proceeds received from the sale of the secured properties to beadjusted/given credit in an application for waiver of pre-deposit.

16. In view of the above and for the reasons stated above, in thepresent case, the respective High Courts have seriously erred in directingto adjust/appropriate the amount realised by auction sale of the securedproperties/deposited by the auction purchasers while considering the 50%of the amount as pre-deposit to be deposited by the borrower, whilepreferring an appeal before the DRAT. Even the High Court of Delhihas erred in excluding the amount payable towards interest whileconsidering the “debt due”. As per Section 2(g) of the Act 1993, “debt”

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Ameans liability inclusive of interest as claimed by the bank/financialinstitution.

17. In view of the above and for the reasons stated above, therespective appeals preferred by the financial institution/assignee andauction purchasers being civil Appeal Nos. 8970, 8972, 8973 and 8974Bof 2022 are hereby allowed. The appeal preferred by the borrower againstthe judgment and order passed by the Delhi High Court being Civil AppealNo. 8969/2022 deserves to be dismissed and is accordingly dismissed. Itis observed and held that the borrower has to deposit 50% of the amountof “debt due” as claimed by the bank/financial institution/assignee alongwith interest as claimed in the notice under Section 13(2) of theCSARFAESI Act and the borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured propertiesand deposited by the auction purchaser when the auction sale is alsounder challenge.

18. Civil Appeal Nos. 8970, 8972, 8973 & 8974 of 2022 areDaccordingly allowed except Civil Appeal No. 8969 of 2022. Consequently,Civil Appeal No. 8969 of 2022 stands dismissed, as observed hereinabove.However, in the facts and circumstances of the case, there shall be noorder as to costs.

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Nidhi Jain

(Assisted by : Abhishek Pratap Singh, LCRA)

Appeals disposed of.

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