1 WP 9073.11.sxw JPP IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE SIDE JURISDICTION WRIT PETITION NO. 9073 OF 2011 Shree Vindhya Paper Mills Ltd. ... Petitioner. V/s. Stressed Assets Stabilization Fund and Ors. ... Respondent. Mr. Sanjay Jain with Ms. Priya Ranade and Mr. Vivek Phadke i/b. Kaikini Phadke and Associates for the Petitioner. Mr. Berjis Colabawala i/b. V. Deshpande & Co. for Respondent 1. Mr. Sanjay Anabhawane ib/. Ms. N.I. Bakali for Respondent 4. Mr. Shyam Mehta, Senior Advocate with Mr. Mayur Khandeparkar and Mr. A. Ramkrishna i/b. Kanga & Co. for Respondent 14. CORAM : DR. D.Y. CHANDRACHUD & A.A. SAYED, JJ. 15 NOVEMBER 2011. ORAL JUDGMENT (Per Dr. D.Y. Chandrachud, J.) :- The Petitioner has challenged in these proceedings the correctness of an order passed by the Debt Recovery Appellate Tribunal, requiring the Petitioner to deposit under Section 18 (1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, 30% of the amount due which is stated to be Rs.250.50 2 WP 9073.11.sxw crores. The amount was directed to be deposited on or before 4 November 2011. 2. Following a notice under Section 13(2) dated 20 June 2009 issued by the First Respondent, a measure was adopted under Section 13(4) on 18 January 2011. The Petitioner filed an application under Section 17 before the Debt Recovery Tribunal. The Tribunal, by its Judgment dated 26 May 2011 came to the conclusion that (i) The First Respondent had not obtained the consent of secured creditors representing more than 75% of the secured debt on a “record date” and that consequently, the First Respondent was not entitled to proceed under Section 13(4), representing all other members of the consortium of lending institutions; and (ii) The authorized officers of the First Respondent had not followed the procedure laid down in the Security Interest (Enforcement) Rules 2002, while bringing the property of the Petitioner for sale and that consequently, the notice of sale would stand set aside. On a separate Roznama dated 26 May 2011, the Tribunal however directed the First Respondent to proceed with a fresh sale by giving a fresh notice in accordance with Rules 8 and 9. 3 WP 9073.11.sxw 3. The Tribunal had during the course of its order noticed that the First Respondent had relied upon diverse dates on which all the secured creditors had given their consents. Consequently, the Tribunal held that no single date could be arrived at as a record date for the purpose of calculating three fourths of the value of the outstandings with reference to a record date. 4. Following the decision of the Tribunal, the secured creditors convened a meeting on 6 May 2011 at which over 75% of the secured creditors representing the secured debts attended. The record date was agreed as 31 December 2010. On 13 June 2011, a sale notice was published for the sale of the assets of the Petitioner. The Petitioner instituted a challenge under Section 17 once again before the Debt Recovery Tribunal. The Tribunal by its order dated 25 July 2011 dismissed the application. The Tribunal held that the consent of the secured creditors representing more than 75% of the secured debts as on 31 December 2010, which was the record date, had been granted. The proceedings were held to be maintainable. The Tribunal also rejected the contention 4 WP 9073.11.sxw that there was a breach of the Rules. Following the order of the Tribunal, a sale certificate has been issued in favour of the Fourteenth Respondent on 6 August 2011. The Fourteenth Respondent is stated to have paid an amount of Rs.12.07 crores for the movables which form the subject matter of the sale. 5. The Petitioner filed an Appeal against the first order of the Tribunal dated 26 May 2011. An objection was raised to the maintainability of the Appeal filed by the Petitioner against that order of the Tribunal, for want of pre-deposit. According to the Petitioner, it was not required to comply with the requirement of pre-deposit under Section 18 of the Securitization Act, since the order of the Tribunal which was challenged did not contain a determination of the debt due and the Tribunal had found that the First Respondent was not entitled to proceed under Section 13(4). The grievance of the Petitioner was that though the Tribunal had allowed the application under Section 17, it had not granted consequential relief of restoring the possession of the secured assets. On this ground it was urged that the Petitioner was not required to make any deposit under Section 18. 5 WP 9073.11.sxw 6. The Debt Recovery Appellate Tribunal, by its impugned order dated 13 October 2011 has come to the conclusion that the Petitioner is bound to comply with the second proviso to Section 18(1) by making a pre-deposit. The Petitioner has been directed to deposit 30% of the amount due to the secured creditors which, in terms of an affidavit filed by the First Respondent, has been computed at Rs.250.50 crores. 7. Counsel appearing on behalf of the Petitioner submitted that by the order of the Tribunal dated 26 May 2011, it was held that the First Respondent had not obtained the consent of the secured creditors representing more than 75% of the secured debts on a record date and that consequently, the First Respondent was not entitled to proceed under Section 13(4). The submission which was urged on behalf of the Petitioner is that the order of the Tribunal holds that the First Respondent is not entitled to enforce its claim for non- compliance of the provisions of Section 13(9) and hence, nothing is due from the Petitioner. Under the second proviso to Section 18, the borrower has to deposit before the Appellate Tribunal 50% of the debt due from him, as claimed 6 WP 9073.11.sxw by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. The Tribunal having set aside the measures adopted under Section 13(4), it was urged that the First Respondent is not entitled to enforce its claim and there is nothing due. In the absence of anything being found to be due, it was urged that there was no requirement of pre- deposit. 8. Besides supporting the order of the Tribunal, Counsel appearing on behalf of the contesting Respondents have argued before the Court that the Petitioner has suppressed from this Court the events which have taken place after the order of the Tribunal. Save and except for an averment in paragraph 45 of the Petition, the Petitioner has not even annexed a copy of the subsequent order of the Tribunal dated 25 July 2011. The object of challenging the first order of the Tribunal is, it is urged to somehow get over the requirement of pre-deposit under Section 18. However, it was submitted that even in relation to the first order, the Petitioner is bound to comply with the mandatory requirements of the second proviso to Section 18(1). 7 WP 9073.11.sxw 9. The Petitioner had moved the Debt Recovery Appellate Tribunal in the first instance in order to challenge the measures adopted by the First Respondent under Section 13(4). Section 13(9) stipulates that in the case of financing of financial assets by more than one secured creditor or a joint financing by secured creditors, no secured creditor shall be entitled to exercise any or all the rights conferred on him under sub-Section 4 unless the exercise of such right is agreed upon by the secured creditors representing not less than three fourths in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors. The expression “record date” is defined in the Explanation to mean the date agreed upon by the secured creditors representing not less than three fourths in value of the amount outstanding on such date. The Tribunal opined that the secured creditors had granted their consents on diverse dates and found certain discrepancies in the amounts which were stated to be due and outstanding to the secured creditors. On this ground, the Tribunal came to the conclusion that the First Respondent did not obtain the consent of secured creditors representing more than 75% of the secured 8 WP 9073.11.sxw debts on a record date and could not proceed under Section 13(4) so as to represent all the other consortium members. The Petitioner is aggrieved by the order of the Tribunal, though the Tribunal allowed the application under Section 17 since according to the Petitioner, the Tribunal did not grant consequential relief of restoring possession of the secured assets. The issue before the Court is as to whether the requirement of a pre-deposit must be attracted to such an Appeal. 10. Under the second proviso to sub-Section 1 of Section 18, an Appeal cannot be entertained unless the borrower has deposited with the Appellate Tribunal 50% of the amount of debt due from him as claimed by the secured creditors or as determined by the Tribunal, whichever is less. The jurisdiction of the Appellate Tribunal to reduce the amount required to be deposited is such that the reduction can be only to an extent of not less than 25% debt referred to in the second proviso. This requirement of pre-deposit is mandatory. The Appellate Tribunal cannot order a reduction beyond what is permitted by the statute. 9 WP 9073.11.sxw 11. In Narayan Chandra Ghosh V/s. UCO Bank1, the Supreme Court held that even when the amount of the debt is yet to be determined by the Tribunal, the borrower, while preferring an Appeal would be liable to deposit 50% of the debt due from him as claimed by the secured creditors :- “ Under the second proviso to sub-Section (1) of Section 18 of the Act the amount of fifty percent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring appeal, would be liable to deposit fifty percent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre- deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third provisos to the said Section. At best, the Appellate Tribunal could have after recording the reasons, reduced the amount of deposit of fifty percent to an amount not less than twenty five per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining 1 AIR 2011 SC 1913 10 WP 9073.11.sxw appellant’s appeal without insisting on pre-deposit was clearly unsustainable and therefore, the decision of the High Court in setting aside the same cannot be flawed.” (emphasis supplied). 12. The submission of the Petitioner is that since the Tribunal came to the conclusion that the First Respondent could not proceed under Section 13(4) to represent all the other members of the consortium on the ground that it had not obtained the consent of more than 75% secured creditors representing the secured debt on the record date, there is no debt due and hence no requirement of pre-deposit. This submission clearly overlooks the legal position that even when the debt has not been determined by the Tribunal, the borrower is required under the second proviso to deposit 50% of the debt as claimed by the secured creditors. All that the Tribunal held in its first decision dated 26 May 2011 was that the First Respondent had been unable to establish that the secured creditors representing more than 75% of the secured debt had agreed upon a record date. This finding of the Tribunal cannot, by any means, be stretched to infer that there is no debt due and payable. The infirmity which was found by the Tribunal was capable of being cured but apart 11 WP 9073.11.sxw from that, a finding that a secured creditor is not entitled to represent the entire consortium for want of compliance of Section 13(9) cannot result in an inference that there is no debt due. Even in the absence of a determination by the Tribunal of the debt due, the law requires the borrower to deposit 50% of the debt as claimed by the secured creditors. The use of the plural expression “secured creditors” is indicative of the fact that what is required to be deposited is 50% of the entire debt due to all the secured creditors cumulatively. The Tribunal was, on the basis of the affidavit filed by the First Respondent, duly satisfied that the debt as claimed by the secured creditors was in the amount of Rs. 250.50 crores. The Tribunal has given a reduction in the requirement of a deposit of 50% by directing a deposit of 30% of the aforesaid amount. The order of the Tribunal is in consonance with law and does not warrant interference. 13. For these reasons, we do not find any merit in the Petition. The Petition shall accordingly stand dismissed. (Dr. D.Y. Chandrachud, J.) (A.A. Sayed, J.)