Dhanlaxmi Electricals & Ors Vs Deutsche Bank AG

Ashok Menon, Chairperson

1. The matter is taken up for hearing by way of praecipe filed by appellants for seeking urgent relief.

The appellants are in appeal impugning the order dated 14.10.2024 in Securitisation Application (S.A) No. 356/2024 on the files of Debts Recovery Tribunal-II, Mumbai, wherein the D.R.T was not inclined to grant any protection to the appellants concerning the sale of the secured assets fixed on 23.10.2024.

2. The main contention which was raised in challenging the Sarfaesi measures by the appellants was that the auction notice which was published on 01.10.2024 scheduled the sale on 23.10.2024 without giving 30 days' notice as required under rule 9(1) of the Security Interest (Enforcement) Rules. The D.R.T has observed that the appellants had agreed to settle the dispute and sent a letter to the respondent on 20.06.2024 agreeing to pay the entire overdue amount of ₹ 2.87 crores as on 20.06.2024 and had offered to pay ₹ 50 lakhs by 26.06.2024 and the balance in two tranches. The appellants could pay only ₹ 50 lakhs and did not comply with the payment of the rest of the two instalments. As a result of which, the offer failed.

3. In the offer letter it was specifically stated that in case, there is a default committed by the appellants the possession could be taken over by the respondent for further proceeding under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (“ the SARFAESI Act” for short). Giving importance to this admission and the offer to settle the entire dues, the D.R.T declined to grant any protection to the appellants and hence, the appellants are in appeal.

4. Apart from the fact that the sale notice does not give 30 days' notice, it is also stated that demand notice issued u/s. 13(2) of the SARFAESI Act indicates only the name of the authorised officer but not his designation and that it is an infirmity in the demand notice. Further, it is submitted by the Ld. Counsel appearing for the appellants that the account statement indicated that penal interest has been capitalized and penal interest is levied at regular intervals and the fact that penal interest is capitalized goes against the settled precedents of the Hon’ble Supreme Court.

5. The D.R.T had raised doubt regarding whether the auction sale was being conducted for the first time or whether it was a subsequent sale. No decision has been taken by the D.R.T. on that. The Ld. Counsel appearing for the respondent submits that the appellants have been giving offers of settlement repeatedly and that it is not the first time that he had made an offer to settle the debt by making payment and then failed to comply.

6. Even on earlier occasions he had sent letters offering to pay the amount that was outstanding and failed to comply with the offer which he had given and therefore, no confidence can be reposed on the offers which were made by the appellants. The Ld. Counsel also has submitted that this is the third time the property is being put up for sale the earlier two attempts had failed for want of bidders. The copies of the sale notice were produced across the bar by the Ld. Counsel for the appellants of this Tribunal. The Ld. Counsel also submits that given the offers to pay the debt made by the appellants, challenges raised to the Sarfaesi measures will have to be taken as waived given the decision of the Hon’ble Supreme Court in Arce Polymers Pvt Ltd V/s. Alphine Pharmaceuticals Pvt. Ltd and Ors (2022) 2 SCC 221

7. The appellants have also not proved that they are under any financial strain and therefore, the Ld. Counsel appearing for the respondent submits that the appellants be directed to deposit 50% of the debt due and demanded. It is further submitted that no interim protection be granted to the appellants given the offers made by them and having breached them.

8. I have considered the materials placed before me and heard the rival arguments. It appears that the appellants have more than once, offered to settle the entire debt and failed to comply. The last time they made an offer to settle the dues, they paid ₹ 50 lakhs but thereafter could not comply with the payments. In that letter, it is specifically stated that the bank could proceed with the Sarfaesi action in case the payments are not made and therefore, there is a strong indication that the appellants have waived their rights to challenge the Sarfaesi action.

9. The amount demanded in the notice issued u/s. 13(2) is ₹ 8,23,56,050.77. The contention of the appellants that the designation of the authorized officer is not mentioned would appear to be prima facie true, but the S.A. is not yet disposed of and the respondent bank has the opportunity to produce evidence to indicate that the authorized officer was competent to issue a demand notice u/s. 13(2) and therefore, that contention may not be relevant at this stage.

10. There is no documentary evidence to indicate the financial strain of the appellants and therefore, I find that this is not a case where the appellants can be given any indulgence about the reduction of the amount from the mandatory 50%. The appellants are therefore directed to deposit a sum of ₹ 4,10,00,000/- as pre-deposit for entertaining this appeal. The Ld. Counsel appearing for the appellants submits that ₹ 50 lakhs has been transferred by way of RTGS in favour of the Ld. Registrar of this Tribunal today and seeks stay of the auction which is scheduled to today.

11. Considering the facts that the appellants do not have a strong prima facie case. I am not inclined to grant a stay of the sale but a confirmation of the sale shall await orders of this Tribunal and the respondent is directed to produce evidence regarding the earlier auctions which were attempted for which time is granted till the next date of hearing. The balance amount of ₹ 3.60 crores shall be paid in three equal instalments, as stated hereunder.

12. Default in payment of any of the amount/instalment on time shall entail the dismissal of the appeal without any further reference to this Tribunal.

13. 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 and intimated to the counsel for the respondent.

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

15. With these observations, the I.A. is disposed of. The Respondent is at liberty to file a reply in the Appeal with an advance copy to the other side.

Post on 07.11.2024 for reporting compliance regarding 1^st instalment.