Case Number: CIVIL APPEAL NO. 8969 OF 2022 with

CIVIL APPEAL NO. 8970 OF 2022 

CIVIL APPEAL NO. 8972 OF 2022 

CIVIL APPEAL NO. 8973 OF 2022 

CIVIL APPEAL NO. 8974 OF 2022 

Judges Name: Hon’ble Judges Justice M.R. Shah J, Justice C.T. Ravikumar J

Order dated: 05.01.2023

Facts of the Case:  

1. The common question in respect of all the appeals relate to the interpretation of section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002( SARFAESI Act, 2002).  
2. Siddha Neelkanth Paper Industries borrowed Rs. 15.5 crores from Andhra Bank in the year 2007 and approached Standard Chartered Bank to take over the debt taken by it. The debt was marked as a non-performing asset and a notice under Section 13(2) of the SARFAESI Act was sent after which action under section 13(4) were initiated and possession of one of the mortgaged properties was taken which was challenged in DRT (SA No. 264/2013). On failure to comply with the order of the DRT to deposit a sum of Rs. 2 crores within a period of 30 days and to find a better buyer, the properties were put to auction. 
3. A Writ Petition No. 6060/2020 was filed challenging the auction sale. The Delhi HC partly allowed the writ petition and directed the borrower to deposit 50% of the remaining 4.1 crores of the debt due (after deducting/adjusting Rs. 12.5 crores realized /recovered by selling the mortgaged property). The High Court also held that the DRAT may reduce the deposit amount to 25% and that any repayment by the borrower or the amount recovered by the secured creditor shall stand to the benefit of the borrower while computing the “amount of debt due” under the second proviso to Section 18 of the SARFAESI Act, 2002.
4. Facts of the Civil Appeal Nos.8972, 8973 & 8974 of 2022 are as follows
   The respondents of the present appeal borrowed Rs.150,00,000 as a home loan from Bank of Baroda. A property situated in the District Dewar was kept as security. The borrowers approached the DRT by filing SA No. 652/2019 against a possession notice. The bank withdrew the said notice and issued a fresh notice. Subsequently the bank issued a sale notice under Section 8(6) of the Security Interest Enforcement Rules, 2002 and put the mortgaged property to auction on 17.08.2020. The highest bidder deposited the entire amount and the sale deed was registered and the buyer took possession of the property.
   Aggrieved by the dismissal of SA No. 240/2020 the borrowers filed an appeal before the DRAT (Appeal No.344/2020) along with a waiver of the pre-deposit amount. The DRAT held that the requirement of pre-deposit was satisfied and the borrower/appellants were not required to tender any amount towards discharging the condition of pre-deposit for entertaining the appeal under Section 18 of the SARFAESI Act.
   Being aggrieved by the order of the DRAT, the auction purchaser and the bank filed writ petitions before the High court. The high court dismissed the petition observing that the borrower is not liable to deposit 50% of the amount of the debt as initially claimed by the secured creditor in view of the recovery of the amount by way of an auction sale. Hence sale consideration must be appropriated against the amount of pre-deposit.
5. Aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, the auction purchasers have preferred the present civil appeals and Civil Appeal No. 8969 and 8970 were preferred by both the principal borrower, Sidha Neelkanth Paper Industries and the secured creditor, Prudent Arc Limited against the judgment of the Delhi HC in the Writ Petition No. 6060/2020.

Hon’ble Supreme Court observed/held as follows:

• The Supreme Court observed and held that, “the borrower has to submit 50% of the amount of “debt due” as claimed by the bank/financial institution/assignee along with interest as claimed in the notice under Section 13(2) of the SARFAESI Act and the borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge.”
• Accordingly, the Supreme Court allowed the appeals preferred by the auction purchaser and assignees- Civil Appeal Nos. 8970, 8972, 8973 & 8974 of 2022 and dismissed the appeal by the borrower Civil Appeal No. 8969 of 2022. 
• The Apex court referred to Section 18 (Appeal to Appellate Tribunal), & 2(ha)(“debt”) of the SARFAESI Act and section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 and considered the decisions in Eskays Construction Pvt. Ltd. v. Soma Papers & Industries Limited & Others, 2016 SCC OnLine Bom. 9827, Narayan Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548. 
• The Supreme court noted that the high courts have seriously erred in holding that directing to adjust/appropriate the amount realized by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT and that the Delhi High court has also erred in excluding amount payable as interest while calculating the ‘debt due’. Therefore, debt includes the amount due as interest and the borrower cannot claim exemption from the amount realized by auction sale of secured properties when the sale itself is under challenge. 
• The Hon’ble Supreme Court allowed the Civil Appeal Nos. 8970, 8972, 8973 & 8974 of 2022 except Civil Appeal No. 8969 of 2022. The Hon’ble Court dismissed the Civil Appeal No. 8969 of 2022.