Constitution bench of Supreme Court upholded Centre’s 2016 decision to ban Rs 1000 and 500 currency notes (02/01/2023)

[advtanmoy]

Text of Prime Minister’s address to the Nation dated 08-November-2016 My dear citizens I hope you ended the festive season of Diwali with joy and new
[See the full post at: Constitution bench of Supreme Court upholded Centre’s 2016 decision to ban Rs 1000 and 500 currency notes (02/01/2023)]

[Ria]

<h2>AMD Industries Limited (Earlier known as M/s. Ashoka Metal Décor Pvt. Ltd.) v. Commissioner of Trade Tax, Lucknow and Anr. (SC-09/01/2023)</h2>

The short question which is posed for consideration of this court is:

“Whether for the goods, manufactured by use of modern technologies can be said to be “diversification”, and manufacturing of the goods of a nature different from the goods manufactured earlier entitle the appellant to claim the exemption from trade tax as provided under Section 4-A (5) of the U.P. Trade Tax Act?

8. While considering the aforesaid issue, relevant provisions of Section 4-A are required to be referred to, more particularly, Section 4-A(2)(c), Section 4-A(5)(b)(i) & (ii) and Section 4-A(5)(c), which reads as under:

     “Section 4-A – Exemption from trade tax in certain cases

     (1) …………..

     (2) It shall be lawful for the State Government to specify in the notification under sub-section (1) that the exemption from, or reduction in the rate of tax, shall be admissible—

     (a) …….

     (b) …….

     (bb) …….

     (c) in respect of those goods only which are manufactured in a unit which has undertaken expansion, diversification or modernisation on or after April 1, 1990, and which in the case of diversification, are different from the goods manufactured before such diversification, and in the case of expansion or modernisation are additional production as a result of such expansion or modernisation; and

     (3) …….

     (4) …….

     (5) “Unit which has undertaken expansion, diversification or modernisation” means an industrial undertaking—

     (a) …….

     (b) whose first date of production of goods,–

        (i) of a nature different from those manufactured earlier by such undertaking, in case of units undertaking diversification, and

        (ii) manufactured in excess of base production in such undertaking, in case of units undertaking expansion or modernisation, falls at any time after March 31, 1990;

     (c) the production capacity whereof except as provided in the proviso to sub-section (1) has increased by atleast twenty-five percent as a result of expansion or modernisation, or wherein goods of a nature different from those manufactured earlier are manufactured after diversification;”

8.1. Thus, on a fair reading of the aforesaid provisions, it is clear that in case of “diversification” the goods manufactured by diversification shall be different from the goods manufactured before such diversification [Section 4-A(2)(c)].

8.2. In the case of “expansion or modernization”, the exemption shall be available, if there is an additional production as a result of such modernization or expansion. In the present case, we are concerned with the case of “diversification”. Therefore, the goods manufactured after diversification must be different goods from the goods manufactured before such diversification. As per the settled position of law, in case of an exemption notification/exemption provision, the same is required to be construed literally and the person claiming the exemption must satisfy all the conditions of exemption provision.

8.3. In the present case, the appellant was manufacturing / producing “Spun Line Crown Cork” used for sealing the glass bottles. With the use of modern technologies, now the appellant is manufacturing “Double Lip Dry Blend Crowns”, which is also used for sealing the glass bottles. The earlier product being manufactured by the appellant was used for sealing glass bottles and subsequently the additional product produced with the use of modern technology is also being used for the same purpose namely, “sealing glass bottles”. Therefore, the same cannot be said to be manufacturing of goods different from being manufactured before such diversification. With the passage of time, due to advancement in technology, if there is a replacement of the old machinery with the new machinery for improvement in quality and quantity of a product, at the most, it can be said to be expansion and/or modernization, but it cannot be said to be “diversification”, which is “manufacturing of goods different from the goods manufactured before such diversification”. In a case of “diversification”, the effect has to be that the quality and quantity of the product should have been improved and/or increased but if the ultimate use is the same, the product manufactured on use of modern and/or advanced technology cannot be said to be manufacturing the different goods for claiming the exemption from payment of trade tax. The words used in Section 4-A are very clear and unambiguous. As per the settled proposition of law and as observed hereinabove, the Statute and more particularly, the exemption provisions are to be read as they are and to be construed literally and should be given a literal meaning. Giving the literal meaning to the exemption provision namely, Section 4-A, it cannot be said that the appellant is entitled to the exemption as claimed.

8.4. Considering the aforesaid facts and circumstances of the case and as observed hereinabove, when the provisions of the Act unequivocally provides that the “diversification” can be considered only in a case where “goods of different nature” are produced, and only then the exemption shall be available. The goods manufactured on “diversification” must be a “different”, “distinct” and a “separate” good in nature. In the present case, the goods manufactured on use of advance and/or modern technology, cannot be said to be a different commercial activity at all. The High Court has not committed any error in refusing to grant exemption to the appellant. We are in complete agreement with the view taken by the High Court.

 

[Ria]

B. Venkateswaran & Ors. v. P. Bakthavatchalam (SC- 05/01/2023)

1. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of judicature at Madras in Criminal (OP) No.33505 of 2019, by which, the High Court has dismissed the said petition under Section 482 of the Code of Criminal Procedure and has refused to quash the criminal proceedings initiated by the private respondent herein, initiated against the petitioners for the offence under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989, the accused have preferred present appeal.

2. That the private respondent herein has filed a private complaint under Section 200 of the Code of Criminal Procedure in the Court of learned Metropolitan Magistrate, Egmore, Chennai for alleged offence under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 alleging inter alia that the petitioners herein – original accused have conspired and unlawfully encroached the pathway adjacent to his house and started to construct temple. It was alleged that the said temple was built up on the complainant water pipeline, Sewage Pipeline and EB cable and thereby caused obstructions to him to enjoy his property. Therefore, it was alleged that even after order passed by the High Court, the accused persons did not stop the illegal construction and thereby committed atrocities on the peaceful living of his family. It was further alleged that the accused persons prevented the complainant from putting up further construction on his building and also criminally intimidated. That the Special Court after receipt of the complaint, recorded the sworn statement of the complainant under Section 200 of the Code of Criminal Procedure and also examined the witnesses under Section 202 of the Code of Criminal Procedure who were produced by the complainant and thereafter took cognizance of the case under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 and issued summons to the accused persons. Being aggrieved and dissatisfied with the summons issued by the learned Special Court, the accused persons filed the petition under Section 482 of the Code of Criminal Procedure before the High Court to quash the criminal proceedings against them. By the impugned judgment and order, the High Court has dismissed the said application and has refused to quash the criminal proceedings. Hence, present appeal at the instance of the original accused.

3. We have heard Shri Nagamuthu, learned senior counsel for the appellants – original accused and the respondent appearing in person. We have also gone through the complaint and considered the allegations in the complaint made against the accused. Having considered the allegations in the complaint and the material on record, it appears that initiation of the criminal proceedings by the respondent against the appellants – original accused for the offence under the provisions of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 is nothing but an abuse of process of law and the court and also provision of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. It appears that a private dispute was going on between the parties with respect to the illegal construction. As per the allegations in the complaint, the original complainant had purchased the vacant land and constructed the building. It is alleged that adjacent to his house and on the common pathway, the accused have unlawfully encroached upon the pathway and started constructing the temple and thereby have put up illegal construction on his water pipeline, sewage pipeline and EB Cable. In the entire complaint, there are no allegations that the complainant is obstructed and / or interfered with enjoyment of his right on his property deliberately and willfully knowing that complainant belongs to SC/ST. From the material on record, it appears that a civil dispute is converted into criminal dispute and that too for the offence under the provisions of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. Prior to filing of the complaint, it appears that the temple was already in existence since many years. The complainant, who resides adjacent to the temple, filed WP No. 1272 of 2007 before the Madras High Court. Pursuant to the order passed by the High Court, the Commissioner of Corporation, Chennai conducted the inspection and found that there was absolutely no encroachment by the temple. It appears that thereafter the complainant filed another Writ Petition No. 30326 of 2013 before the Madras High Court. The High Court directed the official respondent to proceed with the inquiry against both the parties. At this stage, it is required to be noted that it was the case on behalf of the original accused that in fact complainant had violated all building norms and had constructed a building in blatant violation of the set-back rules and had also put-up unauthorized construction on the ground floor and first floor. That thereafter, the Temple filed writ petition being No.3322 of 2017 before the High Court. The Division Bench of the High Court vide order dated 10.2.2017 stayed the proceedings against temple. It appears that thereafter the complainant filed a private complaint for the aforesaid offences under the provisions of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989. From the aforesaid, it seems that the private civil dispute between the parties is converted into criminal proceedings. Initiation of the criminal proceedings for the offences under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989, therefore, is nothing but an abuse of process of law and Court. From the material on record, we are satisfied that no case for the offences under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 is made out, even prima facie. None of the ingredients of Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 are made out and/ or satisfied. Therefore, we are of the firm opinion and view that in the facts and circumstances of the case, the High Court ought to have quashed the criminal proceedings in exercise of powers under Section 482 of the Code of Criminal Procedure. The impugned judgment and order passed by the High Court, therefore, is unsustainable and the same deserves to be quashed and set aside and the criminal proceedings initiated against the appellants deserves to be quashed and set aside.

4. In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the High Court dismissing the writ petition is hereby quashed and set aside. The criminal proceedings initiated against the appellants, initiated by the respondent herein – original complainant for the offence under Sections 3(1)(v) and (va) of the Scheduled Castes and the Scheduled Tribes (Prevention of Atrocities) Act, 1989 including summons issued by the learned Special Court in a private complaint filed by the respondent herein are hereby quashed and set aside. Present appeal is allowed accordingly.

 

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<h2>K. Sreedhar v. M/s Raus Constructions Pvt. Ltd. & Ors. (SC-05/01/2023)</h2>

5. We have heard the learned counsel appearing on behalf of the secured creditor – Bank as well as the learned senior counsel appearing on behalf of the auction purchaser of property at Item No.8 and learned senior counsel appearing on behalf of the borrower.

6. At the outset, it is required to be noted that what was challenged before the High Court by the borrower in a writ petition under Article 226 of the Constitution of India was the judgment and order passed by the DRT-I. Against the judgment and order passed by the DRT-I dismissing the application, the borrower had a statutory remedy available by way of appeal before the DRAT. If the borrower would have preferred an appeal before the DRAT, he would have been required to deposit 25% of the debt due. To circumvent the provision of appeal before the DRAT and the pre-deposit, the borrower straightway preferred the writ petition before the High Court under Article 226/227 of the Constitution. Therefore, in view of alternative statutory remedy available by way of appeal before the DRAT, the High Court ought not to have entertained the writ petition under Article 226/227 of the Constitution of India challenging the judgment and order passed by the DRT-I. By entertaining the writ petition straightway under Article 226/227 of the Constitution of India challenging the order passed by the DRT-I, the High Court has allowed / permitted the borrower to circumvent the provision of appeal before the DRAT under the provisions of the SARFAESI Act.

6.1. Even on merits also, for the reasons stated hereinafter, the impugned judgment and order passed by the High Court is unsustainable.

6.2. By the impugned judgment and order, the High Court has set aside the sale in favour of the auction purchaser with respect to the property at Item No.8 on the ground that there was a violation of Rules 8(1) & (2) and 9(4) of the Rules, 2002. However, while observing so, the High Court has not properly appreciated that in the present case, the Possession Notices were published in two leading newspapers having sufficient circulation in the locality. Even the Possession Notices were also served upon the borrowers also. Therefore, the High Court has materially erred in holding that there was a breach of Rules 8(1) & (2) of the Rules, 2002.

6.3. Now, so far as the finding recorded by the High Court on Rules 9(3) and 9(4) of the Rules, 2002 is concerned, the findings recorded by the High Court are just contrary to the provisions of Rule 9 of the Rules, 2002. The High Court has observed that 25% of the amount was not deposited on the date of auction and that balance 75% amount was not deposited on or before 15th day of confirmation of the sale. Both the aforesaid findings are just contrary to Rules 9(3) and (4) of the Rules, 2002. Rules 9(3) and 9(4) read as under:

     “9. Time of sale, issue of sale certificate and delivery of possession, etc.

     (3) On every sale of immovable property, the purchaser shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;

     (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.”

The purchaser was required to deposit 25% of the amount of the sale price on the same day of sale or not later than the next working day. Therefore, 25% of the sale price could have been deposited either on the same day of the sale or on the next working day. In the present case, the auction was held on 17.02.2017. The auction purchaser deposited Rs.26 lakh through RTGS on 14.02.2017 i.e. prior to the auction on 17.02.2017. He deposited a further sum of Rs.45 lakh again through RTGS on the very next day of the sale i.e. on 18.02.2017 itself. Therefore, the entire 25% of the sale price came to be deposited by 18.02.2017. Therefore, the deposit of 25% was permissible not later than next working day and the entire 25% was deposited on 18.02.2017 i.e. on the next day of the sale dated 17.02.2017. Therefore, the High Court has committed an error in observing and holding that there was a breach of Rule 9(3) of the Rules, 2002.

6.4. Similarly, the High Court has also erred in holding that there was a breach of Rule 9(4) of the Rules, 2002. The High Court has held so by observing that the auction purchaser did not deposit the balance 75% of the sale price on or before 15th day of confirmation of sale. However, it is required to be noted that by communication / letter dated 08.03.2017, the secured creditor – Bank directed the auction purchaser to deposit the balance 75% of the bid amount within 15 days and the auction purchaser deposited the balance 75% of the sale price on 23.03.2017, i.e., on the 15th day from the date of communication by the secured creditor – Bank to deposit balance 75% of the bid amount within 15 days. As per Rule 9(4) of the Rules, 2002, the balance amount of purchase price payable shall be paid by the purchaser to the Authorized Officer on or before 15th day of confirmation of sale of the immovable property or such extended period, in any case not exceeding three months. Therefore, the communication dated 08.03.2017 can be said to be the extended period by the secured creditor / Bank. Therefore, on the 15th day from the date of communication dated 08.03.2017, when the entire 75% of the sale price was deposited, it can be said that the entire sale price was deposited within the time prescribed under Rules 9(3) and (4) of the Rules, 2002. Therefore, the High Court has committed an error in holding that there was a breach of Rules 9(3) & (4) of the Rules, 2002.

7. Now, so far as with respect to remaining properties / secured assets viz. Item Nos.3 and 9 to 12 and the submission on behalf of the borrowers that as the said scheduled properties were agricultural properties, therefore the said properties were exempted from the provisions of the SARFAESI Act in view of Section 31(i) of the SARFAESI Act is concerned, at the outset, it is required to be noted that except the revenue records, the borrowers did not file any evidence to show that the agricultural work was being done in the said properties. On the contrary, the secured creditor produced the photographs to show that there was no agricultural activities being done and no agricultural activity was going on. The High Court has observed and held that the scheduled properties in question were exempted from the provisions of SARFAESI Act in view of Section 31(i) of the SARFAESI Act on the ground that the revenue records and Pattadar pass-books and the title deeds show that the properties were agricultural properties / lands and that no evidence is produced by the secured creditor that these properties are non-agricultural lands and have been put to non-agricultural use after obtaining permission from the competent authorities. Therefore, the High Court has shifted the burden upon the secured creditor to prove that the properties are non-agricultural lands. The view taken by the High Court is just contrary to the two decisions of this Court in the case of Blue Coast Hotels Limited and Others (supra) and K. Pappireddiyar and Another (supra). In both the aforesaid decisions, this Court has specifically observed and held after considering the object and purpose of Section 31(i) of the SARFAESI Act that merely because in the revenue records the secured properties are shown as agricultural land is not sufficient to attract Section 31(i) of the SARFAESI Act. In the aforesaid decision, it is specifically observed and held that for the purpose of attracting Section 31(i) of the SARFAESI Act, the properties in question ought to be actually used as agricultural lands at the time when the security interest was created. In the case of Blue Coast Hotels Limited and Others (supra), it is also further observed by this Court that since no security interest can be created in respect of agricultural lands and yet it was so created, goes to show that the parties did not treat the land as agricultural land and that the debtor offered the land as security on this basis. After following the decision of this Court in the case of Blue Coast Hotels Limited and Others (supra), in the case of K. Pappireddiyar and Another (supra), it is observed and held in paragraphs 8 and 9 as under:

     “8. The expression “security interest”, both before and after the amendment, excludes what is specified in Section 31. Clause (i) of Section 31 stipulates that the provisions of the Act will not be applicable to any security interest created in agricultural land. The statutory dictionary in Section 2 does not contain a definition of the expression “agricultural land”. Whether a particular piece of land is agricultural in nature is a question of fact. In the decision of this Court in Blue Coast Hotels Ltd., a security interest was created in respect of several parcels of land which were meant to be a part of a single unit, for establishing a hotel in Goa. Some of the parcels were purchased by the debtor from agriculturists and were entered as agricultural lands in the revenue records. The debtor had applied to the revenue authority for the conversion of the land to non-agricultural use, but the applications were pending. This Court held that the fact that the debtor had created a security interest was indicative of the position that the parties did not treat the land as agricultural land. The undisputed position was that the hotel was located on 1,82,225 sq m of land of which 2335 sq m were used for growing vegetables and fruits for captive consumption. In this background, the two-Judge Bench of this Court held that:

        “49. The mortgage is thus intended to cover the entire property of the Goa Hotel. Prima facie, apart from the fact that the parties themselves understood that the lands in question are not agricultural, it also appears that having regard to the use to which they are put and the purpose of such use, they are indeed not agricultural.”

     The Court further held that: (SCC OnLine SC para 57)

        “57. …having regard to the character of the land the purpose for which it is set apart, we are of the view that the land in question is not an agricultural land. The High Court misdirected itself in holding that the land was an agricultural land merely because it stood as such in the revenue entries, even though the application made for such conversation lies pending till date.”

     9. The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESI Act does or does not apply. Whether a parcel of land is agricultural must be deduced as a matter of fact from the nature of the land, the use to which it was being put on the date of the creation of the security interest and the purpose for which it was set apart.”

7.1. The purpose of enacting Section 31(i) of the SARFAESI Act has been considered by this Court in the case of Blue Coast Hotels Ltd. (supra) in paragraph 36, which reads as under:

     “36. The purpose of enacting Section 31(i) and the meaning of the term “agricultural land” assume significance. This provision, like many others is intended to protect agricultural land held for agricultural purposes by agriculturists from the extraordinary provisions of this Act, which provides for enforcement of security interest without intervention of the Court. The plain intention of the provision is to exempt agricultural land from the provisions of the Act. In other words, the creditor cannot enforce any security interest created in his favour without intervention of the court or tribunal, if such security interest is in respect of agricultural land. The exemption thus protects agriculturists from losing their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act. It is also intended to deter the creation of security interest over agricultural land as defined in Section 2(1)(zf)35. Thus, security interest cannot be created in respect of property specified in Section 31.”

7.2. Thus, as per the law laid down by this Court in the aforesaid two decisions, only in a case where the secured property is actually put to use as agricultural land and solely on the basis of the revenue records / Pattadar and once the secured property is put as a security by way of mortgage etc. meaning thereby the same was not treated as agricultural land, such properties cannot be said to be exempted from the provisions of the SARFAESI Act under Section 31(i) of the SARFAESI Act. Applying the law laid down in the aforesaid two decisions to the facts of the case on hand and when no evidence was led at all on behalf of the borrowers that the secured properties in question were actually put to use as agricultural land and/or any agricultural activity was going on, the High Court has committed an error in applying Section 31(i) of the SARFAESI Act and quashing and setting aside the entire Possession Notice, Auction Notice as well as Sale etc.

7.3. The High Court has also materially erred in shifting the burden upon the secured creditor to prove that the properties were not non-agricultural lands or have been put to non-agricultural use. When it was the case on behalf of the borrowers that in view of Section 31(i) of the SARFAESI Act, the properties were agricultural lands, the same were being exempted from the provisions of the SARFAESI Act, the burden was upon the borrower to prove that the secured properties were agricultural lands and actually being used as agricultural lands and/or agricultural activities were going on. Therefore, the High Court has materially erred in shifting the burden upon the secured creditor to prove that the properties are non-agricultural lands or have been put to non-agricultural use.

[Ria]

Basavaraj v. Padmavathi & Anr. (05/01/2023)

Suit for specific performance

1. Feeling aggrieved and dissatisfied with impugned judgment(s) and order(s) dated 27.11.2020 and 06.12.2021 passed by the High Court of Karnataka at Kalaburagi Bench in Regular First Appeal (RFA) No. 5033/2011 and Review Petition (RP) No. 200036/2021 respectively, by which, the High Court has allowed the said appeal preferred by respondents herein – original defendants and has quashed and set aside the judgment and decree passed by the learned Trial Court decreeing the suit for specific performance, the original plaintiff has preferred the present appeals.

2. The facts leading to the present appeals in a nutshell are as under:

2.1. That respondent No. 1 herein – original defendant No. 1 executed an agreement to sell dated 13.03.2007 in favour of the appellant herein – original plaintiff – buyer agreeing to sell the land in question on or before 31.07.2007 for a sale consideration of Rs. 12,74,000/-. Rs. 3 lakhs were paid as earnest money. The receipt was issued by respondent No. 1 for the same. That thereafter, as respondent No. 1 – seller did not execute the sale deed, the appellant got issued a legal notice dated 20.11.2007 asking the respondent(s) to receive the balance sale consideration and execute the sale deed. The seller replied to the legal notice vide reply dated 03.12.2007 denying the execution of agreement to sell. That thereafter, the appellant – buyer filed the suit for specific performance on 14.02.2008 vide O.S. No. 17/2008. The original defendants – sellers filed their written statement and opposed the suit. The defendants denied the execution of agreement to sell. It was also the case of the defendants in the written statement that the plaintiff was not ready to perform his part of the contract. Therefore, the defendants denied readiness and willingness on the part of the plaintiff – buyer to perform his part of the contract.

2.2. Both the parties led evidence before the Trial Court. The plaintiff led evidence by examining witnesses, on his readiness and willingness to perform his part of the contract. It was brought on record that plaintiff went with cash to the seller but the seller did not accept the same. That thereafter, on appreciation of evidence the learned Trial Court decreed the suit for specific performance vide judgment and decree dated 30.09.2011. The learned Trial Court believed the case of the plaintiff – buyer as to the execution of agreement to sell. The learned Trial Court also believed the plaintiff’s case as to the payment of earnest money of Rs. 3 lakhs to the seller. The learned Trial Court also held that the plaintiff – buyer was ready and willing to perform his part of the contract. That pursuant to the judgment and decree passed by the learned Trial Court, the buyer – original plaintiff deposited an amount of Rs. 9,74,000/- before the learned Trial Court which is still reported to be lying with the Trial Court.

2.3. Feeling aggrieved and dissatisfied with the judgment and decree passed by the learned Trial Court, respondents herein – sellers preferred the appeal before the High Court. By the impugned judgment and order the High Court has allowed the said appeal and has set aside the judgment and decree passed by the learned Trial Court, mainly on the ground that the plaintiff was not ready and willing to perform his part of the contract. The impugned judgment and order passed by the High Court is the subject matter of present appeals.

2.4. The appellant also filed a review petition which came to be dismissed by the High Court, and the judgment passed in the review petition is also the subject matter of one of the appeals.

3. Shri K. Parmeshwar, learned counsel appearing on behalf of the appellant has vehemently submitted that in the facts and circumstances of the case, the Hon’ble High Court has materially erred in reversing the findings of the Trial Court on readiness and willingness of the appellant.

3.1. It is submitted that on appreciation of entire evidence on record the learned Trial Court recorded findings as to readiness and willingness of the appellant, in favour of the appellant, and such findings were not required to be interfered with by the High Court.

3.2. It is further submitted that all through, out and right from the very beginning, the appellant – buyer was ready and willing to perform his part of the contract. He has prayed that the following aspects emerging from the evidence on record be considered, while considering the issue as to readiness and willingness on the part of the appellant to perform his part of the agreement dated 13.03.2007:

(i) That the appellant specifically averred in the plaint that he is ready and willing to perform the agreement dated 13.03.2007;

(ii) That in the suit notice dated 20.11.2007 the plaintiff specifically averred that he is ready and willing to pay the balance sale consideration;

(iii) The plaintiff in his evidence stated that he is ready and willing to perform the agreement. In the deposition it was further stated that he approached the defendant – seller in the month of June, 2007 and again in July, 2007 with the balance sale consideration. That there is no cross-examination in this regard;

(iv) The plaintiff examined PW2 and PW3, the attestors to the agreement to sell, who specifically stated that in June, 2007, the plaintiff approached the defendants and asked them to take the balance sale consideration in cash. That there is no cross-examination in this regard;

(v) That the DW-1 – first defendant admitted in her cross-examination that she executed the agreement and that she was the owner of the said property;

(vi) That she had affixed her signatures on the agreement and that she received Rs. 3 lakhs;

(vii) That the appellant had deposited the balance consideration of Rs. 9,74,000/- before the learned Trial Court on 31.10.2011.

3.3. Learned counsel appearing on behalf of the appellant – buyer has further submitted that as such the defendant took a dishonest stand before the learned Trial Court and denied the execution of the agreement. It is further submitted that in the written statement, the specific stand taken by the defendants was that no agreement to sell was executed between the parties. It is contended that however, defendant No. 1 subsequently admitted that Rs. 3 lakhs were received by her, and a receipt dated 13.03.2007 was issued in that regard.

3.4. It is further contended that even the seller – defendant No. 1 took contradictory and dishonest pleas. She initially denied the execution of the agreement, then denied that it was an agreement to sell but only an agreement in respect of a loan transaction.

3.5. It is next contended by learned counsel appearing on behalf of the appellant that as such there are concurrent findings recorded by the learned Trial Court as well as the High Court on execution of the agreement to sell by defendant No. 1 and to the effect that Rs. 3 lakhs were paid by the buyer by way of earnest money and that the agreement to sell was not in respect of security and/or a loan transaction but it was for an outright sale.

3.6. Learned counsel appearing on behalf of the appellant has heavily relied upon the decision of this Court in the case of Indira Kaur and Ors. v. Sheo Lal Kapoor [1988 (2) SCC 488] (para 8, 9 and 10) and the subsequent decision of this Court in the case of Beemaneni Maha Lakshmi v. Gangumalla Appa Rao [JT 2019 (6) SC 349 : 2019 (6) SCC 233] (para 14) on the aspect of readiness and willingness on the part of the buyer. It is submitted that in the case of Indira Kaur (supra) it was held that no adverse inference can be drawn against the plaintiff as to whether he had the means to pay the balance consideration on the grounds of non-production of passbook, accounts or other documentary evidence.

3.7. It is submitted that in the case of Beemaneni Maha Lakshmi (supra) it was observed and held by this Court that failure on the part of the vendee to “demonstrate” that he was having sufficient money with him to pay the balance sale consideration by the date of his evidence is not of much of consequence.

3.8. It is further submitted that in the case of Ramrati Kuer v. Dwarika Prasad Singh [1967 (1) SCR 153] (para 9), it was observed and held by this Court that in the absence of a specific prayer asking for the party to produce accounts and their subsequent failure to do so, no adverse inference could be drawn.

3.9. Making the above submissions and relying upon the aforecited decisions, it is submitted that the High Court has materially erred in reversing the findings of the Trial Court on readiness and willingness on the part of appellant. Therefore, it is prayed that the present appeals be allowed and the impugned judgments bet set aside.

4. Present appeals are vehemently opposed by Shri Shailesh Madiyal, learned counsel appearing on behalf of the seller – respondents – original defendants.

4.1. Learned counsel appearing on behalf of the respondents – seller submitted that cogent reasons have been assigned by the High Court while reversing the judgment and decree passed by the learned Trial Court and reversing the findings as to the readiness and willingness on the part of the appellant.

4.2. It is further submitted that the appellant – original plaintiff has not demonstrated and/or led any evidence that he had sufficient means/funds/cash to pay the balance sale consideration. It is submitted that in absence of such evidence the High Court has rightly held that the buyer – original plaintiff has failed to establish and prove readiness and willingness on his part to perform the agreement dated 13.03.2007.

4.3. It is submitted that in the written statement itself it was the specific case on behalf of the defendants that the plaintiff was not ready and willing to perform his part of the agreement.

4.4. Learned counsel appearing on behalf of respondents – original defendants, has relied upon the decision of this Court in the case of J.P. Builders and Anr. v. A. Ramadas and Anr. [JT 2010 (12) SC 588 : 2011 (1) SCC 429] as well as the recent decision of this Court in the case of U.N. Krishnamurthy v. A.M. Krishnamurthy [2022 SCC OnLine SC 840] in support of his prayer to dismiss the present appeals.

5. We have heard learned counsel appearing on behalf of the respective parties at length.

6. At the outset, it is required to be noted that the learned Trial Court, on appreciation of evidence on record, specifically recorded findings on readiness and willingness on the part of the plaintiff to perform his part of the agreement. The findings recorded on readiness and willingness on the part of the plaintiff were on appreciation of the entire evidence on record. In the legal notice which was issued on 20.11.2007, the plaintiff asked the defendant to receive the balance amount and execute the sale deed. In reply to the legal notice, the defendant denied the execution of agreement to sell itself. That thereafter, the plaintiff filed the suit for specific performance in which it was specifically averred that he was ready and willing to perform the agreement dated 13.03.2007. In his deposition, the plaintiff specifically stated that he was ready and willing to perform his obligations under the agreement. He further stated that he approached the defendant in the month of June, 2007 and again in July, 2007 with the balance sale consideration. There is no cross-examination in this regard. The plaintiff also examined two witnesses, PW-2 and PW-3, who were attestors to agreement to sell dated 13.03.2007, who specifically stated that in July, 2007, the plaintiff approached the defendants and asked them to accept the balance sale consideration in cash, to that also there is no cross-examination. The receipt of Rs. 3 lakhs by way of earnest money, has been held to be proved by both the courts below. Within a period of one month from passing of the decree, the plaintiff deposited the balance sale consideration i.e., Rs. 9,74,000/- before the learned Trial Court. Considering the aforesaid facts and circumstances of the case, it is observed that the High Court has materially erred in reversing the decree by reversing the findings of the Trial Court on readiness and willingness of the appellant.

6.1. From the impugned judgment and order passed by the High Court, it appears that the reasoning given by the High Court is that the plaintiff has not proved that he had the cash and/or amount and/or sufficient funds/means to pay the balance sale consideration, as no passbook and/or bank accounts was produced. In the case of Ramrati Kuer (supra) which has been specifically considered by this Court in the case of Indira Kaur (supra), it was observed and held as under:

     “Fourthly, it is urged that the respondents did not produce any accounts even though their case was that accounts were maintained and that Basekhi Singh used to give maintenance allowance to the widows who were messing separately. It is urged that adverse inference should be drawn from the fact accounts were not produced by the respondents and that if they had been produced that would have shown payment not of maintenance allowance but of half share of the income to the widows by virtue of their right to the property. Itis true that Dwarika Prasad Singh said that his father used to keep accounts. But no attempt was made on behalf of the appellant to ask the court to order Dwarika Prasad Singh to produce the accounts. An adverse inference could only have been drawn against the plaintiffs-respondents if the appellant had asked the court to order them to produce accounts and they had failed to produce them after admitting that Basekhi Singh used to keep accounts. But no such prayer was made to the court, and in the circumstances no adverse inference could be drawn from the non-production of accounts. But it is urged that even so the accounts would have been the best evidence to show that maintenance was being given to the widows and the best evidence was withheld by the plaintiffs and only oral evidence was produced to the effect that the widows were being given maintenance by Basekhi Singh. Even if it be that accounts would be the best evidence of payment of maintenance and they had been withheld, all that one can say is that the oral evidence that maintenance was being given to widows may not be acceptable; but no adverse inference can be drawn (in the absence of any prayer by the appellant that accounts be produced) that if they had been produced they would have shown that income was divided half and half in accordance with the title claimed by the appellant.”

6.2. In the case of Indira Kaur (supra) this Court after considering the observations made by this Court in the case of Ramrati Kuer (supra) has set aside the findings recorded by three courts below whereby an adverse inference had been drawn against the plaintiff therein for not producing the passbook and thereby holding that the plaintiff was not ready and willing to perform his part of the agreement. It is observed and held that unless the plaintiff was called upon to produce the passbook either by the defendant or, the Court orders him to do so, no adverse inference can be drawn.

6.3. Applying the law laid down by this Court in the aforesaid two cases to the facts of the case on hand, no adverse inference could have been drawn by the High Court. The High Court seriously erred in reversing the findings recorded by the learned Trial Court on the readiness and willingness of the appellant.

7. Considering the circumstances narrated hereinabove, we are of the opinion that the High Court has materially erred in quashing and setting aside the judgment and decree passed by the learned Trial Court by reversing the findings on the readiness and willingness of the appellant. Under the circumstances, the impugned judgment(s) and order(s) passed by the High Court is/are held to be unsustainable and the same deserve to be quashed and set aside. However, at the same time, to do the complete justice, we are of the opinion that if the plaintiff is directed to pay a further sum of Rs. 10 lakhs towards sale consideration, it will meet the ends of justice.

8. In view of the above discussion and for the reasons stated above, the present appeals succeed. Impugned judgment(s) and order(s) passed by the High Court are hereby quashed and set aside. The judgment and decree passed by the learned Trial Court for specific performance of the agreement to sell dated 13.03.2007 is hereby restored. However, to do complete justice, we direct the plaintiff to pay to defendant No. 1 a further sum of Rs. 10 lakhs to be deposited within a period of eight weeks from today and on such payment, defendant No. 1 is directed to execute the sale deed in favour of the original plaintiff – appellant within a period of two weeks therefrom. Defendant No. 1 shall also be permitted to withdraw the amount i.e., Rs. 9,74,000/- deposited by the plaintiff on 31.10.2011, pursuant to the judgment and decree passed by the learned Trial Court, with the interest accrued thereon, which shall be paid to defendant No. 1 by an account payee cheque. Present appeals are accordingly allowed with the above further directions.

[Ria]

<h2>M/s Sidha Neelkanth Paper Industries Private Limited & Another v. Prudent ARC Limited & Others (SC-05/01/2023)</h2>
<h3>Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act)</h3>
<h4>Debt Recovery Tribunal (DRT)</h4>
4. That the appellant in Civil Appeal No. 8969/2022 – Sidha Neelkanth Paper Industries Private Limited (hereinafter referred to as the ‘principal borrower’) approached the Andhra Bank for sanction of credit facility and in the year 2008, it had approached Standard Chartered Bank for taking over the debt taken by it. In the year 2010, the Andhra Bank sanctioned open cash credit limit for a sum of Rs. 15.5 crores in favour of the principal borrower. Immovable properties were mortgaged by the guarantors and by the borrower to secure the said cash credit facility. After taking over the existing cash credit facility, a further ad-hoc open cash credit to the tune of Rs. 3 crores, due to the Standard Chartered Bank, was cleared by the Andhra Bank.

4.1. Since, the principal borrower failed to make the repayment to the Andhra Bank, its account was declared as a Non Performing Asset (NPA). A notice dated 10.05.2013 was issued by the Andhra Bank under Section 13(2) of the SARFAESI Act, calling upon the borrower to pay the outstanding amount of Rs. 16,61,91,174.67 (Rupees sixteen crores sixty one lakhs ninety one thousand one hundred seventy four and paise sixty seven only), payable as on 27.04.2013. Objections thereto were raised by the principal borrower under Section 13(3A) of the SARFAESI Act. Since the amount demanded was not paid under Section 13(2) of the SARFAESI Act, measures under Section 13(4) of the SARFAESI Act were initiated by the Bank and possession of one of the mortgaged properties, being property bearing No. 170, Deepali, Pitampura, Delhi-110034 was taken. An Appeal was filed being SA No. 264/2013 by respondent Nos. 2 & 3 herein challenging the measures taken by the Andhra Bank under Section 13(4) of the SARFAESI Act.

4.2. On 25.07.2013, a conditional interim stay was granted by the Debt Recovery Tribunal-III (for short, ‘DRT’) and the applicants in SA No. 264/2013 were directed to deposit a sum of Rs. 2 crores within a period of 30 days. The said applicants were also directed to bring a better buyer in respect of the properties in question within a period of 60 days along with 10% of the proposed sale consideration. Since the borrower failed to comply with the order of the DRT, the mortgaged properties were put to auction. Attempts made by the owners of the property to challenge the proposed auction failed inasmuch as the application moved before the DRT and the appeal preferred before the DRAT were both dismissed. The writ petition filed by the owners before the High Court also came to be dismissed as withdrawn on 17.02.2016. That thereafter, the property in question was put to auction after getting the property valued and obtaining a valuation report of the property in question, namely, property bearing No. 170, Deepali, Pitampura, Delhi-110034. In the meantime, the Andhra Bank assigned all its debts and underlying securities to Prudent ARC Limited, the appellant in Civil Appeal No. 8970/2022. The borrower filed Writ Petition (Civil) No. 12791/2018 before the High Court challenging the assignment of debts by Andhra Bank, which came to be dismissed by the High Court on 28.11.2018. An intra-court appeal also came to be dismissed.

4.3. That thereafter, the borrower filed an interlocutory application before the DRT to prevent the auction scheduled on 05.12.2018. However, the DRT allowed the creditor/assignee to proceed with the auction. The auction was conducted on 05.12.2018 and one M/s Tejswi Impex Pvt. Ltd. (auction purchaser) was the successful highest bidder for an amount of Rs. 12.5 crores. The entire amount was deposited and a sale certificate came to be issued in favour of the auction purchaser on 19.12.2018.

4.4. The borrower filed an appeal before the DRAT being Appeal No. 616/2018 challenging the order dated 05.12.2018 passed by the DRT dismissing the application filed by the borrower praying that the Bank/assignee be restrained from proceeding with the auction. The DRAT vide order dated 20.12.2018 directed the borrower to comply with the requirements of making a pre-deposit under Section 18 of the SARFAESI Act. The said order was in the nature of an interim order. The order dated 20.12.2018 passed by the DRAT was challenged before the High Court by way of Writ Petition No. 14066/2018.

4.5. The High Court directed the DRAT to hear the appeal on merits by observing that on realising the amount of Rs. 12.5 crores against the debt of Rs. 16.61 crores, it can be said that more than 50% of the debt due is secured/recovered and therefore the requirement of making a pre-deposit under the second proviso to Section 18 of the SARFAESI Act can be said to have been met. That thereafter, the DRAT disposed of the appeal vide order dated 1.8.2019 with a direction to the DRT to dispose of the main Securitization Application within a period of three months. Subsequently, vide order dated 05.10.2019, the DRT dismissed SA No. 264/2013 filed by respondent Nos. 2 & 3 herein. Against the said order, the borrower and the owner of the mortgaged property filed Regular Appeal No. 467/2019. The borrower sought waiver of the statutory pre-deposit under Section 18 of the SARFAESI Act, relying on the earlier order dated 26.12.2018 passed in Writ Petition No. 14066/2018 and contending, inter alia, that as Rs. 12.5 crores had already been recovered/realised by selling the mortgaged property and the same had been deposited by the auction purchaser, which can be said to be more than 50% of the debt of Rs. 16.61 crores and therefore the borrower is not required to pay any further amount towards the pre-deposit as envisaged under Section 18 of the SARFAESI Act. The DRAT allowed the waiver of the statutory pre-deposit by observing that the amount already realised by selling the mortgaged property/secured property is required to be adjusted towards the pre-deposit and/or the same can be said to be a deposit of 50% of the amount as pre-deposit, as envisaged under Section 18 of the SARFAESI Act.

4.6. Feeling aggrieved and dissatisfied with the order passed by the DRAT allowing waiver of the statutory pre-deposit on the aforesaid ground, the secured creditor/assignee filed the subject writ petition before the High Court being Writ Petition No. 6060/2020. By the impugned judgment and order, the High Court has partly allowed the said writ petition preferred by the secured creditor/assignee by directing that the borrower is required to deposit 50% of the remaining 4.1 crores being debt due (after deducting/adjusting Rs. 12.5 crores realised/recovered by selling the mortgaged property). The High Court has also observed that it shall be open to DRAT to reduce the said pre-deposit amount to 25%, after recording reasons in writing for the said reduction. The aforesaid order is passed by the High Court, after observing and concluding as under:

“(a) Pre-deposit contemplated under the second proviso of Section 18 of the SARFAESI Act, 2002 is mandatory in nature and cannot be waived by the learned DRAT.

(b) While computing the “amount of debt due”, the amount of debt claimed by he secured creditor in its notice issued under Section 13(2) of the Act, shall be relevant and any future interest need not be taken into consideration for purposes of determining, “the amount of debt due as claimed by the secured credit”, in cases where the DRT has not determined the liability of a borrower.

(c) The interest component shall be ignored only for the purposes of Section 18 of the Act. This judgment shall not affect the rights of the secured creditors to claim interest from the borrower, for recovery of amounts due under the RDDB Act.

(d) Any amount that has been repaid by the borrower and/or recovered by a secured creditor after filing of the petition under Section 17, 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.”

4.7. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court, both, the secured creditor/assignee – Prudent ARC Limited and the original borrower – Sidha Neelkanth Paper Industries Pvt. Ltd. have preferred the present appeals.

Factual Aspects in Civil Appeal Nos.8972, 8973 & 8974 of 2022:

1. That the respective respondents in the present appeals took financial assistance by way of a Home Loan to the tune of Rupees one crore fifty lakhs from Bank of Baroda – the financial creditor. In order to secure the loan, the borrowers had mortgaged their property situated at Survey No. 542/2/2/1, Patwari Halka No. 18, Junior Dewas, District Dewas. Upon committing the default in returning the loan amount, the Bank issued a demand notice dated 3.8.2019 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’) for a debt of Rs. 1,40,81,936/-. A possession notice was issued on 10.10.2019. The borrowers approached the DRT by filing SA No. 652/2019. The bank withdrew the said notice and issued a fresh notice dated 13.1.2020 under Section 13(2) of the SARFAESI Act for the outstanding amount of Rs. 1,40,81,936/- from the borrowers. That thereafter the bank published the possession notice in daily newspapers on 24.03.2020. 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.

5.1. The borrowers again approached the DRT by way of SA No. 240/2020 on 14.08.2020. The bank conducted the auction proceedings on 17.08.2020 in which the appellants herein – original writ petitioners before the High Court, as one of the bidders, was declared as a successful highest bidder, having bid of Rs. 1,55,10,000/-. That thereafter the auction purchaser deposited the entire bid amount. The sale in favour of the auction purchaser came to be finalised and the sale certificate was registered on 23.11.2020 in favour of the auction purchaser and he was put in possession of the secured asset.

5.2. Vide order dated 13.11.2020, the DRT dismissed SA No. 240/2020. Being aggrieved by the order dated 13.11.2020 passed by the DRT, the borrower approached the DRAT by way of Appeal No.344/2020 along with an application seeking waiver of the pre-deposit of the amount under Section 18 of the SARFAESI Act. By order dated 9.2.2021, the DRAT held that as the bank had already recovered the debt by selling the mortgaged property and there was no remaining amount of debt due, 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 .

5.3. Being aggrieved by the said order, the auction purchaser as well as the Bank filed the subject writ petitions before the High Court. By the impugned common judgment and order, the High Court dismissed the said writ petitions by 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. Thus, according to the High Court, the amount realised on deposit of the sale consideration by the auction purchaser is required to be appropriated and/or adjusted towards the amount of pre-deposit required to be deposited by the borrower under Section 18 of the SARFAESI Act.

5.4. Feeling aggrieved and dissatisfied with the common impugned judgment and order passed by the High Court, the auction purchasers have preferred the present civil appeals.

Rival submissions in CA Nos.8969 & 8970/2022

1. Learned counsel appearing on behalf of the principal borrower has vehemently submitted that the High Court has materially erred in directing the principal borrower to deposit 50% of the remaining sum of Rs. 4.1 crores as pre-deposit under Section 18 of the SARFAESI Act.

6.1. It is further submitted that in the present case the secured property was sold in a public auction for a sum of Rs. 12.5 crores against the original amount of debt of Rs. 16.61 crores. That therefore the amount recovered was more than 50% of the original amount of debt of Rs. 16.61 crores and therefore no further order could have been passed directing the principal borrower to deposit any amount towards pre-deposit as required under Section 18 of the SARFAESI Act. It is contended that the amount realised by the financial institution by selling the secured property is required to be adjusted/appropriated while considering the “debt due”.

6.2. It is further contended that while passing the impugned order, the High Court has misinterpreted the definition of “debt” defined under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as the ‘Act 1993’). That the “debt due” required to be calculated to determine the pre-deposit amount shall have to be calculated deducting the money received by the bank/financial institution during the pendency of the proceedings before the DRT.

6.3. It is next submitted that while passing the impugned judgment and order, the High Court has erred in not applying the literal rule of interpretation for construing the second proviso to Section 18 of the SARFAESI Act for ascertaining true and correct meaning on the expression of “debt due”.

1. Learned counsel appearing on behalf of the financial institution and the auction purchaser have vehemently submitted that the High Court has materially erred in directing the borrower to deposit 50% of the remaining Rs. 4.1 crores only as pre-deposit. It is contended that the said order is under challenge by the financial institution in the present case and it is the case on behalf of the financial institution that the High Court ought to have directed the borrower to deposit 50% of the original amount of debt of Rs. 16.61 crores.

7.1. It is submitted that the High Court has very seriously erred in directing that the amount realised from auction sale of the secured property shall have to be appropriated for the pre-deposit amount which is to be determined on the balance of the “debt due”, without considering the interest component.

7.2. It is further submitted that as per proviso to Section 18 of the SARFAESI Act, the amount of pre-deposit is to be calculated in respect of the amount of “debt due” and the “debt” in SARFAESI Act is defined in Section 2(ha). It is submitted that as per section 2(ha) “debt” shall have the same meaning as assigned to it in section 2(g) of the Act of 1993. It is submitted that on perusal of Section 2(g) of the Act of 1993, “debt due” would include liability + interest. It is submitted that in the present case the High Court in the impugned judgment and order has observed and held that while considering the pre-deposit under Section 18 of the SARFAESI Act, interest component is to be ignored. It is submitted that the same is contrary to Section 2(ha) of the SARFAESI Act.

7.3. It is further submitted that as the borrower has challenged the notice under Section 13(2) of the SARFAESI Act and has also challenged the auction sale, adjustment of the amount recovered from sale of the secured assets against the pre-deposit under Section 18 of the SARFAESI Act, could not be permitted. Reliance is placed on the decision of the Bombay High Court in the case of Eskays Construction Pvt. Ltd. v. Soma Papers & Industries Limited & Others [2016 SCC OnLine Bom. 9827], against which a special leave petition was filed and dismissed. It is submitted that even the proviso to Section 18 of the SARFAESI Act does not provide for any such adjustment. It is averred that therefore in the present case, the High Court has erred in allowing adjustment of the amount recovered from sale of secured assets, the amount which has been deposited by the auction purchaser and not borrower while considering pre-deposit under Section 18 of the SARFAESI Act.

Rival submissions in Civil Appeal Nos.8972 to 8974 of 2022

1. Shri Vinay Navare, learned Senior Advocate appearing on behalf of the auction purchaser, in addition, has vehemently submitted that the requirement of deposit under Section 18 of the SARFAESI Act is not for the purpose of securing payment of the creditor. That the objective is to require the borrower to prove his bona fides and to discourage frivolous litigation from being initiated by the borrower. It is submitted that therefore, this Court in the case of Axis Bank v. SBS Organics Private Limited [JT 2016 (4) SC 293] has held that the amount of pre-deposit is refundable to the borrower after disposal of appeal.

8.1. It is next submitted that the language of Section 18 of the SARFAESI Act is very clear and unambiguous. It says that the “borrower shall deposit”, which means such amount is required to be brought in by the borrower and the amount standing with creditor through auction sale cannot be for the benefit of the borrower. That the borrower can take benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. It is submitted that if the borrower wants to question the sale, then he cannot claim the amount of deposit for his benefit. The borrower cannot be allowed blow hot and cold.

8.2. Reliance is placed on the decision of this Court in the matter of M/s Shilpa Shares and Securities v. National Cooperative Bank Ltd. [S.L.P (Civil) No. 14717/2022], decided on 21.11.2022) wherein it has been held that the amount deposited pursuant to the order of this Court cannot be adjusted in pre-deposit. That in the said case, the borrower applied for OTS and the matter reached this Court and to show the bona fides of the borrower, while considering its prayer for OTS, this Court directed to deposit certain amount. That thereafter the special leave petition came to be dismissed and in an appeal challenging the proceedings under the SARFAESI Act, the borrower wanted to adjust and/or appropriate the amount deposited pursuant to the order passed by this Court and that Court negatived the same by observing that the amount deposited pursuant to the order of this Court cannot be adjusted in pre-deposit.

8.3. Making above submissions, it is prayed that the impugned judgment and order passed by the High Court be set aside and the borrower be directed to deposit 50% of the “debt due” without adjusting and/or appropriating the amount realised by selling the secured assets.

1. Learned counsel appearing on behalf of the original borrowers have supported the impugned judgment and order passed by the High Court of Madhya Pradesh and have submitted that the High Court has not committed any error in dismissing the writ petitions and confirming the orders passed by the DRAT by which the DRAT after adjusting/appropriating the amount realised by sale of the secured property held that the borrowers are not required to deposit any further amount towards pre-deposit as the amount realised is more than 50% of the ”debt due”.

Consideration:

1. We have heard learned counsel appearing on behalf of the secured creditor/assignee, the respective auction purchasers and respective borrowers.

2. The short question which is posed for the consideration of this Court is, “whether, while calculating the amount to be deposited as pre-deposit under Section 18 of the SARFAESI Act, 50% of which amount the borrower is required to deposit as pre-deposit and whether while calculating the amount of “debt due”, the amount deposited by the auction purchaser on purchase of the secured assets is required to be adjusted and/or appropriated towards the amount of pre-deposit to be deposited by the borrower under Section 18 of the SARFAESI Act?” Another question would be, “whether the “debt due” under Section 18 of the SARFAESI Act would include the liability + interest?”

3. While considering the aforesaid issues/questions, Section 18, & 2(ha) of the SARFAESI Act and section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, which would have a direct bearing are required to be referred to. The said provisions read as under:

4. Appeal to Appellate Tribunal.—(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal [under section 17, may prefer an appeal along with such fee, as may be prescribed] to an 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 shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent. of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:

Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent. of debt referred to in the second proviso.]

(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far 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.

2(ha) “debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and includes—

(i) unpaid portion of the purchase price of any tangible asset given on hire or financial lease or conditional sale or under any other contract;

(ii) any right, title or interest on any intangible asset or licence or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable any borrower to acquire the intangible asset or obtain licence of such asset;

Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993-

“debt” means any liability (inclusive of interest) which is claimed as due from any person [or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956),] by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or;]”

1. As per Section 2(ha) of the SARFAESI Act, “debt” shall have the same meaning assigned to it in clause (g) of Section 2 of the Act 1993. As per section 2(g) of the Act 1993, “debt” means any liability inclusive of interest which is claimed as due from any person….., by a bank or a financial institution during the course of any business activity undertaken by the bank or the financial institution, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on the date of the application. That the “debt” means any liability inclusive of interest.

13.1. As per Section 18 of the SARFAESI Act, any person aggrieved, by any order made by the DRT under section 17, may prefer an appeal within thirty days to an appellate Tribunal (DRAT) from the date of receipt of the order of DRT. Second proviso to section 18 provides that no appeal shall be entertained unless the “borrower” has deposited with the Appellate Tribunal fifty percent of the amount of “debt due” from him, as claimed by the secured creditors or determined by the DRT, whichever is less and only and only then, an appeal under Section 18 of the SARFAESI Act is permissible against the order passed by the DRT under Section 17 of the SARFAESI Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. Therefore, whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the ‘debt due’ within the meaning of proviso to Section 18 of the SARFAESI Act. In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act. However, in a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher.

1. As observed hereinabove and as per the second proviso to Section 18 of the SARFAESI Act, it is the “borrower” who has preferred an appeal before the Appellate Tribunal and the “borrower” who shall have to deposit 50% of the amount of “debt due” from him. If the words used in the second proviso to Section 18 of the SARFAESI Act are “borrower has to deposit”, it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower. It is the “borrower” who has to deposit the 50% of the amount of “debt due” from him. At the same time, if the borrower wants to appropriate and/or adjust the amount realised from sale of the secured assets deposited by the auction purchaser, the borrower has to accept the auction sale. In other words, the borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In a case where the borrower also challenges the auction sale and does not accept the same and also challenges the steps taken under Section 13(2)/13(4) of the SARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along with interest as per section 2(g) of the Act 1993 and as per section 2(g), “debt” means any liability inclusive of interest which is claimed as due from any person.

[Author]

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