Rajabhau Babasaheb Shinde & Anr Vs Bank of India & Ors

Ashok Menon, Chairperson

1. The appellants impugn the order dated 04/07/2024 dismissing I.A. No. 1448 of 2024 in Securitisation Application (D) No. 1033 of 2024 on the files of the Debts Recovery Tribunal, Pune (D.R.T.) and declining to grant any protection to the appellants against the Sarfaesi measures initiated by the respondent Bank of India for recovery of debt allegedly due from them under the provisions of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short).

2. The facts and brief as required for disposal of this I.A. for waiver of pre-deposit filed by the appellants under Sec. 18 (1) of the SARFAESI Act, are thus:

M/s Transfab Power (India) Pvt. Ltd., as the principal debtor had availed various loan facilities from the respondent bank from 2008 to 2014 with the appellants being the directors of the company, as guarantors. Repayment was defaulted as a result of which, the account was classified as non-performing assets (NPA) on 30/09/2017 and a demand notice was issued on 01/12/2018 under Sec. 13 (2) of the SARFAESI Act demanding ₹36,00,61,000/- from the appellants. Further measures were taken under Sec. 13 (4) of the SARFAESI Act by the bank and an order was obtained from the District Magistrate, Pune on 06/12/2019 under Sec. 14 for taking physical possession of the secured assets. The appellants allegedly received a notice on 22/06/2024 from the Tehsildar on 18/06/2024 intimating them about his intention to take physical possession of the secured assets. The appellants approached the D.R.T. by applying under Sec. 17 (1) of the SARFAESI Act challenging the Sarfaesi measures initiated by the bank. I.A. No. 1448 of 2024 was filed by them to protect their possession of the secured assets. It was contended that the demand notice under Sec. 13 (2) is invalid as multiple notices are issued to the principal borrower and guarantors. The notice does not give bifurcations of the outstanding amount consisting of the principal, interest, and other charges. The borrower company had gone into liquidation and the appellants were informed by the liquidator appointed in the proceedings that the bank had auctioned the secured assets on 26/03/2024 after issuing auction notice on 16/02/2024 under the provisions of the SARFAESI Act. It is stated that the appellants were not served with the auction notice and the mandatory rules required to be complied with were violated. It is also pointed out that the auction notice published in newspapers on 20/02/2024 states that physical possession of the secured assets has been taken but the auction notice dated 16/02/2024 would indicate that the bank has only constructive possession over the assets. Hence the auction notices contradict each other. The auction notice was not published in two newspapers as required. No valuation of the mortgaged property was obtained before it was auctioned, and the reserve price fixed is very low. It is further contended that proceedings are pending before the NCLT for initiation of liquidation of the borrower company under Sec. 33(3) of the Insolvency & Bankruptcy Code, 2016 (IBC). The appellants preferred an appeal before the NCLAT, New Delhi over the order passed by the NCLT. A resolution plan has been submitted by the appellants. The business of the company was adversely affected during the COVID-19 pandemic. It is contended that the D.R.T. has allowed the bank to take possession of the secured assets despite the property being in the possession of the liquidator pursuant to the order of the NCLT. Aggrieved, the appellants are in appeal. The operation of the impugned order was stayed by the D.R.T. till the appeal period was over subject to a deposit of ₹10,00,000/-.

3. To entertain the appeal, the appellants will have to comply with the mandatory provisions of making a pre-deposit under Sec. 18 (1) of the SARFAESI Act. The appellants contend that they have a good prima facie case and hence, seek the indulgence of this Tribunal to waive 25% of the mandatory pre-deposit.

4. Per contra, the respondent bank has vehemently opposed the application stating that there is a huge amount of arrears remains to be paid. It is stated that the NCLT proceedings are initiated in respect of the property belonging to the company and Sarfaesi measures are initiated concerning the property belonging to the guarantors. The secured asset which is the subject matter of this appeal has already been sold. The appellants, being guarantors cannot take advantage of the NCLT proceeding pending against the company. The appellants do not have any prima facie case and therefore, they have to deposit 50% of the debt due from them.

5. Heard both sides and records perused.

6. On perusal of the records, it is seen that the demand notice issued under Sec. 13 (2) of the SARFAESI Act does not give a bifurcation of the amount demanded. This is apparently in violation of Sec. 13(3). The rest of the objections do not appear to be sustainable prima facie. The IBC proceedings before the NCLT are against the principal borrower company. Nothing would prevent the creditors from proceeding against the guarantors. The appellants appear to have a prima facie case about the challenge to the demand notice. However, no documents have been produced to prove the financial strain on the appellants. Hence, the appellants are not entitled to get the pre-deposit amount reduced to the extent of 25% of the debt due. Nevertheless, they are entitled to some concession. The respondent has not produced any material to indicate the amount due from the appellants. The demand notice indicates the outstanding dues as ₹36,00,61,000/- but the auction sale notice indicates the debt to be recovered as ₹10,93,88,189.17 with interest from 2017. Hence, the amount with approximate interest is taken as ₹14 crores as the threshold for the calculation of pre-deposit.

7. The appellants have yet to produce any material to indicate their financial strain. They are directed to deposit a sum of ₹6 crores as pre-deposit to get the appeal entertained. The amount shall be paid in two equal instalments of ₹3 crores each within a gap of two weeks as mentioned hereinunder.

8. On the payment of the first instalment in time, the further Sarfaesi measures initiated by the bank shall stand deferred till the next date of hearing.

9. Failure to pay the instalment/amount within the time stipulated would entail in dismissal of the appeal without any reference to this Tribunal.

10. The amount shall be deposited in the form of a Demand Draft/RTGS with the Registrar of this Tribunal. Payment by RTGS shall be communicated to the Registry for verification.

11 As and when the said amounts are deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalised bank, initially for 13 months, and thereafter to be renewed periodically.

12. With these observations, the I.A. is disposed of. The respondents are at liberty to file a reply in this appeal with an advance copy to the other side.

Post on 11.09.2024 for reporting compliance regarding the first instalment.