2025 (5) TMI 473 - HC - Indian Laws

Liability of mortgagor distinct from the borrower to pay the amount claimed as debt due under the SARFAESI Act for the purpose of pre-deposit under Section 18(1) - HELD THAT - There is no dispute about the proposition of law as laid down in the judgments of Narayan Chandra Ghosh 2011 (3) TMI 1478 - SUPREME COURT that condition of pre-deposit for entertaining appeal under section 18 of the SARFAESI Act is not an onerous condition and any person aggrieved contemplated under said section will include mortgagor or even third party purchaser. Plain reading of Section 13(3A) of the SARFAESI Act (introduced w.e.f. 11.11.2004) makes it clear that on receipt of notice under Section 13(2) of the SARFAESI Act the borrower can make a representation or raise an objection and if so done the secured creditor is under statutory obligation first to consider such representation or objection and secondly to communicate its response to the same. The word used at both places by the legislature is shall . Therefore if after such exercise the secured creditor indicates a distinct quantum of liability due from the borrower or even its absence we do not find any reason to exclude consideration of such response for the purposes of determining the amount of pre- deposit under 2nd and 3rd proviso to section 18(1) of the SARFAESI Act. The proviso to Section 13(3A) specifically provides that the reasons communicated for non-acceptance or likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the Borrower to prefer an application to the DRT under Section 17. Again words used are shall not . Borrower includes mortgagor. This creates a clear bar for the Borrower (including mortgagor) to approach the DRT at that stage . Conclusion - While arriving at the amount of pre- deposit under 2nd and 3rd proviso to section 18(1) of the SARFAESI Act there is no reason to restrict the determination of debt due as claimed only on the basis of notice under Section 13(2) of the SARFAESI Act and there is no reason to exclude the consideration of the Bank s response if given pursuant to the objection / representation given by the borrower / mortgagor to the notice issued under Section 13(2) of the SARFAESI Act. The DRAT Mumbai is directed to consider the effect of the Petitioner s reply dated 14.02.2020 and Bank s rejoinder dated 28.02.2020 alongwith documents referred therein alongwith judgments referred above while deciding I.A. No.118 of 2022 and decide the pre-deposit as may be deemed fit by the Appellate Tribunal - impugned order is quashed and set aside - petition allowed in part.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

- Whether a mortgagor, distinct from the borrower, is liable to pay the amount claimed as 'debt due' under the SARFAESI Act for the purpose of pre-deposit under Section 18(1).

- Whether the amount of 'debt due' for pre-deposit under the 2nd proviso to Section 18(1) of the SARFAESI Act should be determined solely on the basis of the amount claimed by the secured creditor in the notice under Section 13(2), or whether the borrower's/mortgagor's representation and the secured creditor's response thereto under Section 13(3A) must also be considered.

- Whether the Petitioner, being Mortgagor-I who has disclaimed liability for repayment of loan amounts, can be compelled to make a pre-deposit as a condition for entertaining the appeal under Section 18(1) of the SARFAESI Act.

- The scope and interpretation of the term 'borrower' under Section 2(1)(f) of the SARFAESI Act and whether it includes mortgagors.

- The legal effect of the exchange of notices and replies under Section 13(2) and 13(3A) of the SARFAESI Act on the quantum of debt due for the purpose of pre-deposit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Inclusion of Mortgagor within the Definition of Borrower under SARFAESI Act

Relevant legal framework and precedents: Section 2(1)(f) of the SARFAESI Act defines 'borrower' and Section 2(1)(ha) defines 'debt'. The Division Bench judgment in Keystone Constructions Vs. State Bank of India held that a mortgagor falls within the ambit of 'borrower' and the amount due from him under the mortgage is covered within the expression 'amount due from him' in the second proviso to Section 18(1).

Court's interpretation and reasoning: The Court affirmed that the Petitioner, as Mortgagor-I, is included within the definition of borrower for the purposes of the SARFAESI Act. The Court emphasized that the debt due from a mortgagor means the amount due under the terms of the mortgage deed.

Application of law to facts: The Petitioner had executed a mortgage deed explicitly stating that Mortgagor-I was not liable for repayment of the loan but only responsible for providing security by way of mortgaged properties. Despite this, the Court acknowledged that the mortgagor is included as a borrower under the Act and thus subject to the provisions including pre-deposit requirements.

Conclusion: Mortgagors are encompassed within the definition of borrower under the SARFAESI Act; however, the quantum of debt due from them must be assessed in light of the terms of the mortgage deed.

Issue 2: Determination of 'Debt Due' for Pre-deposit under Section 18(1) of SARFAESI Act

Relevant legal framework and precedents: Section 18(1) of the SARFAESI Act mandates a pre-deposit of the amount of debt due as claimed by the secured creditor as a condition to entertain an appeal. The 2nd proviso to Section 18(1) allows the appellate tribunal to require such pre-deposit. Prior judgments including Keystone Constructions and Narayan Chandra Ghosh have interpreted this provision.

Court's interpretation and reasoning: The Court held that the determination of the amount of debt due should not be restricted solely to the amount claimed in the notice under Section 13(2). Instead, the borrower's or mortgagor's representation or objection under Section 13(3A) and the secured creditor's response thereto must be taken into account. The Court reasoned that Section 13(3A) imposes a statutory obligation on the secured creditor to consider and communicate reasons for non-acceptance of objections, which forms part of the factual matrix for determining the debt due.

Key evidence and findings: The Petitioner had submitted a detailed reply dated 14.02.2020 under Section 13(3A), denying liability for repayment and pointing out breaches by the Bank in disbursing the loan. The Bank's rejoinder dated 28.02.2020 admitted that the liability to repay was pinned on the Borrower (Respondent No.5), not the Petitioner.

Application of law to facts: The Court found that these exchanges must be considered to arrive at the correct figure of debt due from the Petitioner for the purpose of pre-deposit. Ignoring these would be contrary to the statutory scheme and the principle of natural justice.

Treatment of competing arguments: The Respondent contended that the amount claimed by the secured creditor at the relevant time or determined by the Tribunal should be the threshold for pre-deposit and that the mortgagor is covered as borrower under the Act. The Court agreed with the inclusion of mortgagor as borrower but held that the quantum of debt due must consider the borrower's objections and the secured creditor's response.

Conclusion: The amount of debt due for pre-deposit under Section 18(1) must be determined after considering the borrower's/mortgagor's objections and the secured creditor's response under Section 13(3A), not merely on the amount claimed in the notice under Section 13(2).

Issue 3: Liability of Mortgagor for Repayment and Implications for Pre-deposit

Relevant legal framework: The mortgage deed clause expressly stated that Mortgagor-I (the Petitioner) was not responsible for repayment of the loan or related charges and was liable only to the extent of providing security.

Court's interpretation and reasoning: Although the mortgagor is included within the definition of borrower, the Court recognized that the terms of the mortgage deed limit the Petitioner's liability. Therefore, the Petitioner could argue that no amount is due from him personally, and this argument should be considered by the appellate tribunal while fixing the pre-deposit amount.

Application of law to facts: The Petitioner's reply and the Bank's rejoinder, which admit that the liability is pinned on the Borrower (Respondent No.5), support the Petitioner's contention that no amount is due from him.

Conclusion: The Petitioner is entitled to argue that no amount is due from him personally, and this must be examined before imposing a pre-deposit condition.

Issue 4: Effect of Section 13(3A) of SARFAESI Act on Determination of Debt Due

Relevant legal framework: Section 13(3A) mandates that the secured creditor shall consider any representation or objection made by the borrower on receipt of notice under Section 13(2) and communicate reasons for non-acceptance within fifteen days.

Court's interpretation and reasoning: The Court emphasized the mandatory nature of the obligations under Section 13(3A) ('shall' indicates a statutory duty). It further noted that the proviso to Section 13(3A) bars the borrower from preferring an application to DRT at that stage, but does not exclude consideration of the borrower's objections and the creditor's response in subsequent proceedings, including in determining pre-deposit under Section 18(1).

Application of law to facts: The Petitioner's detailed objections and the Bank's response under Section 13(3A) must be considered in fixing the pre-deposit amount, as excluding them would be contrary to the statutory scheme.

Conclusion: The statutory exchange under Section 13(3A) plays a crucial role in determining the debt due and must be considered for pre-deposit calculations under Section 18(1).

3. SIGNIFICANT HOLDINGS

- "A mortgagor, therefore, falls within the ambit of the term 'borrower' and the amount due from him under the mortgage falls within the ambit of the expression 'amount due from him' in the second proviso to section 18(1)."

- "While arriving at the amount of pre-deposit under 2nd and 3rd proviso to section 18(1) of the SARFAESI Act, there is no reason to restrict the determination of debt due as claimed, only on the basis of notice under Section 13(2) of the SARFAESI Act and there is no reason to exclude the consideration of the Bank's response, if given, pursuant to the objection / representation given by the borrower / mortgagor to the notice issued under Section 13(2) of the SARFAESI Act."

- "If a lesser liability of the borrower/mortgagor is indicated in the Bank's response than the liability indicated in the notice issued under Section 13(2) of the SARFAESI Act or even if absence of liability is indicated, the same is required to be taken into consideration while arriving at the pre-deposit figure under 2nd and 3rd proviso to section 18(1) of the SARFAESI Act."

- The Court quashed the impugned order directing a pre-deposit of Rs. 248,45,08,646/- without considering the Petitioner's reply and the Bank's rejoinder under Section 13(3A), and directed the appellate tribunal to reconsider the pre-deposit amount after considering these documents and submissions.

- It was held that the Petitioner is entitled to argue that no amount is due from him personally based on the mortgage deed and the statutory exchange of notices, and this contention must be kept open for adjudication by the appellate tribunal.