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2016 (4) TMI 917 - SUPREME COURT

2016 (4) TMI 917 - SUPREME COURT - TMI - Eligibility of appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Held that:- The Central Excise Act, 1944, The Consumer Protection Act, 1986, The Motor Vehicles Act, 1988, etc. However, unlike those statutes, the purpose of the SARFAESI Act is different, it is meant only for speedy recovery of the dues, and the scheme under Section 13(4) of the Act, permits the secured cre .....

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inst the secured assets.

The Appeal under Section 18 of the Act is permissible only against the order passed by the DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on 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 aggrieved per .....

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re-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law.

We are also unable to agree with the contention that the Bank has a lien on the pre-deposit made under Section 18 of the SARFAESI Act in .....

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argument available to the depositor, since the goods bailed are to be returned or otherwise disposed of, after the purpose is accomplished as per the directions of the bailor.

In the case before us, the first respondent had in fact sought withdrawal of the appeal, since the appellant had already proceeded against the secured assets by the time the appeal came up for consideration on merits. There is neither any order of appropriation during the pendency of the appeal nor any attachmen .....

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(Enforcement) Rules, 2002. - Civil Appeal No. 4379 of 2016 ( Arising out of SLP (C) No. 13861/2015 ) - Dated:- 22-4-2016 - Kurian Joseph And Rohinton Fali Nariman, JJ. JUDGMENT Kurian, J. Leave granted. 2. An appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act ) before the Debt Recovery Appellate Tribunal (hereinafter referred to as DRAT ) can be entertained only if the borro .....

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be necessary for us to refer to the factual position in detail. The first respondent, being a borrower and aggrieved by the steps taken by the secured creditor, filed Securitisation Application No. 152 of 2010 before the Debt Recovery Tribunal, Ahmedabad. Though, initially an interim relief was granted, the same was vacated by order dated 20.01.2011. Therefore, the first respondent moved the Debt Recovery Appellate Tribunal, Mumbai under Section 18 of the SARFAESI Act. In terms of the proviso u .....

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g it subject to the disposal of the appeal. As the appeal itself was being withdrawn, the first respondent moved the High Court of Gujarat at Ahmedabad by way of Writ Petition (Special Civil Application), aggrieved by the observation that the withdrawal would be subject to the result of the appeal. The same was disposed of by order dated 05.03.2015 by the learned Single Judge, setting aside the said condition and permitting the first respondent herein to withdraw the amount unconditionally. Aggr .....

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dition for entertaining the appeal. The said amount has to be set off against the dues of the first respondent, which has actually been quantified and for which, Section 13 recovery steps have been permitted. It is submitted that the appellant-Bank has to secure the entire debt by proceeding against the secured assets, and therefore, the deposit is liable to be appropriated by the Bank. Reference is also made to Section 13(10) of the SARFAESI Act and Rule 11 of The Security Interest (Enforcement .....

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secured creditor pursuant to sub-section (10) of section 13 of the Act shall be presented to the Debts Recovery Tribunal in the form annexed as Appendix VI to these rules by the authorised officer or his agent or by a duly authorised legal practitioner, to the Registrar of the Bench within whose jurisdiction his case falls or shall be sent by registered post addressed to the Registrar of Debts Recovery Tribunal. (2) The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993 made unde .....

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gh Deepnarayan v. Union of India and another AIR 2009 Guj. 98, which has been followed by the Division Bench in the impugned judgment, does not reflect the true legal position, it is further submitted. 7. Babu Ganesh (supra) was a case involving a challenge on the vires of the second proviso under Section 18 of the SARFAESI Act, on the mandatory pre-deposit. While upholding the provision, at paragraphs-5 and 6, it was observed that, in case the appeal is dismissed, the amounts deposited for ente .....

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s no difficulty in the enforcement of the order appealed against in case the appeal is ultimately dismissed. Imposition of such a condition is essential, so that frivolous appeals would not be filed. Ultimately if the appeal is dismissed, the aggrieved party can always seek refund of the amount deposited and therefore, he is not in any way aggrieved. Further the Third Proviso to Section 18 (1) of the Securitization Act also enables the Appellate Tribunal, for the reasons to be recorded in writin .....

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provision in the Statute, enabling the secured creditor to adjust or appropriate the amount deposited by the borrower to prefer an appeal under Section 18(1) of the Act. On dismissal of the appeal the amount deposited as a pre-condition for filing the appeal will be refunded to the appellant and therefore, he is no way prejudiced. We therefore, find no merit in the contention raised by the petitioner that the second proviso to Section 18(1) of the Act is discriminatory or violative of Article 14 .....

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and speedier mechanism for the recovery. Almost a decade of experience proved that the recovery process was not achieving the intended objects and hence, the SARFAESI Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest was enacted. The Act incorporates a system whereby direct action for recovery of secured debt may be initiated against the secured assets of a borrower after the debt is declared to be a non performing asset (NPA). 9. Borrower .....

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ank or financial institution in relation to such financial assistance; 10. Secured Asset , under Section 2(1)(zc), is defined as: 2(1)(zc) secured asset means the property on which the security interest is created 11. Section 2(1)(zd) provides for definition of secured creditor , which reads as follows: 2(1)(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes- (i) debenture trustee appointed by any ba .....

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a debt which is secured by any security interest . 13. Security interest is defined under Section 2(1)(zf): (zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; 14. The mechanism for enforcement of security interest is contemplated under Section 13 of the Act. Sub- Sections (1), (2),(3),(3A) and (4) of .....

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d creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as nonperforming asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section .....

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tation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the 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 Debts Recovery Tribunal under section 17 or the Court of District Judge under .....

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way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt. Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) .....

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cheme of the SARFAESI Act, a secured creditor is entitled to proceed against the borrower for the purpose of recovering his secured debt by taking action against the secured assets, in case the borrower fails to discharge his liability in full within the period specified in the notice issued under Section 13(2) of the Act. It is the mandate of Section 13(3) of the Act that the notice issued under Section 13(2) should contain details of the amount payable by the borrower and also the secured asse .....

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tion, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses(a) to (d) of sub-section (4) in relation to the secured assets under this Act. 16. Section 17 of the Act provides for a right to appeal to the DRT in respect of the grievances on the measures taken by the secured creditor under Section 13 of the Act. To quote for easy reference, Section 17 of the Act: 17. Right to appeal.-(1) Any .....

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han the borrower. Explanation: For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under sub-section (1). (2) The Debts Recovery Tribunal shall consider whether an .....

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of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such orde .....

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e or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the .....

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Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder. 17. Though Section 17 of the Act is titled as a Right to appeal , the libert .....

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Act. The provision reads as follows: 18. Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal alongwith such fee, as may be prescribed to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower: Provided further that no appeal shal .....

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r as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder. 19. Any person aggrieved by the order of the DRT under Section 17 of the SARFAESI Act, is entitled to prefer an appeal along with the prescribed fee within the permitted period of 30 days. For preferring an appeal, a fee is prescribed, whereas for the Tribunal to entertain the appeal, the aggrieved person has to ma .....

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context of a similar provision in the Uttar Pradesh Sales Tax Act,1948 where it was held that in such context, the expression has the meaning of admitting to consideration . The relevant discussion is available at paragraphs - 9 and 10: 9. The word 'entertain' is explained by a Divisional Bench of the Allahabad High Court as denoting the point of time at which an application to set aside the sale is heard by the court. The expression 'entertain', it is stated, does not mean the .....

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take an application which is backed by deposit or security, it cannot refuse judicially to consider it. In a single bench decision of the same court reported in Bawan Ram & Anr. v. Kuni Beharilal A.I.R. 1961 All. 42, one of us (Bhargava, J.) had to consider the same rule. There the deposit had not been made within the period of limitation and the question had arisen whether the court could entertain the application or not. It was decided that the application could not be entertained because .....

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ted in Haji Rahim Bux & Sons and Ors. v. Firm Samiullah & Sons A.I.R. 1963 All. 326, a division bench consisting of Chief Justice Desai and Mr. Justice S. D. Singh interpreted the words of O. 21, r. 90, by saying that the word 'entertain' meant not 'receive' or 'accept' but proceed to consider on merits' or 'adjudicate upon'. 10. In our opinion these cases have taken a correct view of the word 'entertain' which according to dictionary also mean .....

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something tangible had to accompany the memorandum of appeal. If the memorandum of appeal had to be accompanied by satisfactory proof, it had to be in the shape of something tangible, because no intangible thing can accompany a document like the memorandum of appeal. In our opinion, making 'an appeal' the equivalent of the memorandum of appeal is not sound. Even under O. 41 of the Code of Civil Procedure, the expression "appeal" and "memorandum of appeal" are used to .....

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entertainment of the appeal, it means that the appeal such as was filed will not be admitted to consideration unless there is satisfactory proof available of the making of the deposit of admitted tax. 21. We are also conscious of the fact that such a precondition is present in several statutes while providing for statutory appeals, like The Income-Tax Act, 1961, The Central Excise Act, 1944, The Consumer Protection Act, 1986, The Motor Vehicles Act, 1988, etc. However, unlike those statutes, the .....

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eved, is not entitled to approach DRT under Section 17. That right is restricted only to persons aggrieved by steps under Section 13(4) proceeding for recovery against the secured assets. 22. The Appeal under Section 18 of the Act is permissible only against the order passed by the DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for consider .....

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the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known .....

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