Case Note & Summary
The case involves cross-petitions arising from a common DRAT order dated 04 June 2024. The borrower, M/s Royal Traders, challenged the DRAT's refusal to grant waiver of pre-deposit under the 3rd proviso to Section 18(1) of the SARFAESI Act, 2002, while the Asset Reconstruction Company of India Ltd. (ARCL) challenged the DRAT's exclusion of interest component in determining the debt due. The borrower contended that its account was not validly classified as NPA, pointing to a discrepancy between the NPA date in the Section 13(2) notice (04 May 2021) and the deed of assignment (05 July 2022). ARCL argued this was a typographical error later rectified. The borrower also claimed financial hardship and that it had deposited Rs.10 crores. ARCL argued that the borrower made no strong prima facie case and that interest must be included in the debt due as per settled law. The High Court held that the DRAT's order declining waiver was not entirely sustainable; the borrower had made an arguable case but not a strong prima facie case. The Court directed the borrower to deposit 25% of the debt due (including interest) instead of 50%, and allowed ARCL's petitions to include interest in the debt calculation. The Court also directed the DRAT to decide the appeal on merits expeditiously.
Headnote
A) SARFAESI Act - Pre-deposit Waiver - Third Proviso to Section 18(1) - Strong Prima Facie Case - The DRAT declined waiver holding that the borrower did not make out a strong prima facie case despite noting discrepancies in NPA classification dates. The High Court found that the DRAT's reasoning was contradictory and that the borrower had made out an arguable case, but not necessarily a strong prima facie case. The Court directed the borrower to deposit 25% of the debt due instead of 50% to balance interests. (Paras 3-10, 18-20)
B) SARFAESI Act - Debt Due - Interest Component - Section 18(1) - The DRAT erred in excluding the interest component while calculating the debt due for pre-deposit. Following Sony Mony Developers and MRB Roadconst, the interest component must be included. The High Court directed modification of the DRAT order to include interest. (Paras 14-15, 18-20)
C) SARFAESI Act - NPA Classification - Jurisdictional Fact - Section 13(2) - The borrower argued that NPA classification is a jurisdictional fact and that discrepancies in dates (04.05.2021 vs 05.07.2022) rendered proceedings void. The Court noted the discrepancy but did not finally decide the issue, leaving it for the DRAT. (Paras 4-6, 12)
Issue of Consideration
Whether the DRAT correctly declined waiver of pre-deposit under the 3rd proviso to Section 18(1) of the SARFAESI Act, and whether the DRAT erred in excluding interest component while determining the debt due for pre-deposit.
Final Decision
The High Court disposed of all petitions. In WPL/18722/2024 (borrower's petition), the Court directed that the borrower shall deposit 25% of the debt due (including interest) within four weeks, and upon such deposit, the DRAT shall decide the appeal on merits. In the other three petitions (ARCL's petitions), the Court directed that the DRAT order be modified to include the interest component in the debt due calculation. The Court also directed that the DRAT shall not dismiss the appeal for non-compliance pending these proceedings.
Law Points
- Third proviso to Section 18(1) of SARFAESI Act
- 2002
- waiver of pre-deposit
- strong prima facie case
- financial hardship
- NPA classification as jurisdictional fact
- interest component in debt due
Case Details
2024 LawText (BOM) (12) 194
Writ Petition (L) No. 18722 of 2024 with Writ Petition (L) No. 19404 of 2024, Writ Petition (L) No. 19406 of 2024, Writ Petition (L) No. 19411 of 2024
M.S. Sonak, Jitendra Jain
Ms Pinky Anand, Senior Advocate with Mr Samrat Pasriccha, Ms Pooja Gera, Mr Umang Mehta, Ms Aalisha Sharma i/b. Dhruve Liladhar & Co. for petitioner in WPL/18722/2024 and respondents in others; Mr Nitin Thakker, Senior Advocate with Ms Megha Gupta, Ms Priyanka Dubey, Ms Pranjali Khemnar i/b. Hedgehog & Fox LLP for petitioner in WPL/19404/2024, WPL/19406/2024, WPL/19411/2024 and respondent in WPL/18722/2024
M/s Royal Traders (in WPL/18722/2024); Asset Reconstruction Company (India) Limited (in WPL/19404/2024, WPL/19406/2024, WPL/19411/2024)
Asset Reconstruction Company of India Ltd. (in WPL/18722/2024); Royal Traders (in WPL/19404/2024, WPL/19406/2024, WPL/19411/2024)
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Nature of Litigation
Writ petitions challenging a common order of the Debts Recovery Appellate Tribunal (DRAT) regarding pre-deposit waiver under Section 18(1) of the SARFAESI Act and determination of debt due.
Remedy Sought
Borrower sought waiver of pre-deposit or reduction to 25% of debt due; ARCL sought inclusion of interest component in debt due calculation.
Filing Reason
DRAT order dated 04 June 2024 declined waiver of pre-deposit to the borrower and excluded interest component while calculating debt due.
Previous Decisions
DRAT order dated 04 June 2024; borrower had deposited Rs.10 crores; DRAT dismissed appeal for non-compliance with pre-deposit direction.
Issues
Whether the DRAT correctly declined waiver of pre-deposit under the 3rd proviso to Section 18(1) of the SARFAESI Act?
Whether the DRAT erred in excluding the interest component while determining the debt due for pre-deposit?
Submissions/Arguments
Borrower: NPA classification is jurisdictional fact; discrepancy in dates (04.05.2021 vs 05.07.2022) renders proceedings void; strong prima facie case made out; financial hardship; right to appeal illusory without waiver.
ARCL: Typographical error in assignment deed; no serious challenge to NPA; borrower made no strong prima facie case; interest must be included in debt due as per Sony Mony Developers and MRB Roadconst.
Ratio Decidendi
The 3rd proviso to Section 18(1) of the SARFAESI Act allows waiver of pre-deposit only if the borrower makes out a strong prima facie case and financial hardship. The DRAT's finding that the borrower had an arguable case but not a strong prima facie case was not perverse, but the Court balanced interests by reducing pre-deposit to 25%. The interest component must be included in the debt due for pre-deposit as per settled law.
Judgment Excerpts
The DRAT incorrectly concludes that the petitioner has not made out 'a strong prima face case'. On this reasoning, the DRAT declines the waiver, rendering the petitioner's right to appeal DRAT's order illusory.
The interest component had to be included for determining the amount of debt due when instituting appeal before the DRAT.
Procedural History
The borrower filed an appeal before the DRAT against the DRT order. The DRAT by order dated 04 June 2024 declined waiver of pre-deposit and directed deposit of 50% of debt due (excluding interest). The borrower challenged this order in WPL/18722/2024. ARCL challenged the same order in three petitions (WPL/19404/2024, WPL/19406/2024, WPL/19411/2024) for excluding interest. All petitions were heard together and disposed of by common judgment on 19 December 2024.
Acts & Sections
- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 13(2), Section 18(1) (3rd proviso)
