IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN FRIDAY, THE 25TH NOVEMBER 2011 / 4TH AGRAHAYANA 1933 OP (DRT).No. 3472 of 2011(O) ---------------------------------------- PETITIONER(S): ------------------------ THE SOUTH INDIAN BANK LTD., REPRESENTED BY THE CHIEF MANAGER G. MARIA FRANCIS (AUTHORISED OFFICER UNDER THE SARFEASI ACT) REGIONAL OFFICE, HOTEL SAFA INTERNATIONAL, NEAR ARISTO JUNCTION, THAMPANOOR(E) THIRUVANANTHAPURAM - 695 014. BY ADVS. SRI.GEORGE VARGHESE (MANACHIRACKEL) SMT.LIZA P.CHERIAN RESPONDENT(S): ------------------------- 1. M/S. KAIKKARA CONSTRUCTION COMPANY, KAITHAVARAM BUNGLOW, KANAKATHUMUKKU, KOLLAM -12, REPRESENTED BY ITS MG. PARTNER A. ABDUL SALAM. 2. A. ABDUL SALAM, MG. PARTNER, M/S. KAIKKARA CONSTRUCTION COMPANY, KAITHAVARAM BUNGLOW,KANAKATHUMUKKU, KOLLAM -12, 3. MRS. JUVALRY SALAM, W/O. ABDUL SALAM PARTNER M/S. KAIKKARA CONSTRUCTION COMPANY, KAITHAVARAM BUNGLOW, KANAKATHUMUKKU, KOLLAM - 12. 4. M/S. PRASANTHI CASHEW PVT. LTD. NO.21, PRASANTHI NAGAR, MANGADU, KOLLAM - 691 015. BY ADVS. SRI.LEO GEORGE FOR R1-R3 SRI.K.N.SASIDHARAN NAIR FOR R1-R3 SRI.M.SUNIL FOR R1-R3 SMT.BABITHA THOMAS FOR R1-R3 THIS OP (DEBT RECOVERY TRIBUNAL) HAVING BEEN FINALLY HEARD ON 25/11/2011, ALONG WITH OP (DRT) NO. 3545/2011 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: DS OP (DRT).No. 3472 of 2011(O) APPENDIX PETITIONER(S) EXHIBITS: EXHIBIT-P1- TRUE COPY OF THE NOTICE DATED 18/07/2008 ISSUED TO R1-R3 UNDER SECTION 13 (2) OF SARFAESI ACT. EXHIBIT-P2- TRUE COPY OF THE NOTICE DATED 19/07/2008 ISSUED TO R2-R3 UNDER SECTION 13 (2) OF SARFAESI ACT. EXHIBIT-P3- TRUE COPY OF THE NOTICE DATED 22/07/2008 ISSUED TO R2-R3 UNDER SECTION 13 (2) OF SARFAESI ACT. EXHIBIT-P4- TRUE COPY OF THE LETTER DATED 04/12/2008 ISSUED TO 1ST RESPONDENT BY THE BANK. EXHIBIT-P5- TRUE COPY OF THE JUDGMENT DATED 16/01/2009 IN W.P(C) 1053/2009. EXHIBIT-P6- TRUE COPY OF THE JUDGMENT DATED 03/02/2009 IN W.P(C) 2251/2009. EXHIBIT-P7- TRUE COPY OF THE JUDGMENT DATED 07/07/2009 IN W.P(C) 18325/2009. EXHIBIT-P8- TRUE COPY OF THE JUDGMENT DATED 29/07/2009 IN W.P(C) 20533/2009. EXHIBIT-P9- TRUE COPY OF THE ORDER DATED 20/10/2009 IN W.P(C) 29172/2009. EXHIBIT-P10- TRUE COPY OF THE ORDER DATED 05/11/2009 IN W.P(C) 29172/2009. EXHIBIT-P11- TRUE COPY OF THE ORDER DATED 18/11/2009 IN W.P(C) 29172/2009. EXHIBIT-P12- TRUE COPY OF THE ORDER DATED 09/02/2011 IN W.P(C) 29172/2009. EXHIBIT-P13- TRUE COPY OF THE SALE NOTICE DATED 02/07/2011. EXHIBIT-P14- TRUE COPY OF THE I.A NO. 1735/2011 IN SA 272/2011. EXHIBIT-P15- TRUE COPY OF THE ORDER DATED 17/08/2011 IN I.A 1735/2011. EXHIBIT-P16- TRUE COPY OF THE JUDGMENT DATED 19/08/2011 IN W.P(C) NO 22667/2011. EXHIBIT-P17- TRUE COPY OF THE I.A NO. 1106/2011 BEFORE DRAT. EXHIBIT-P18- TRUE COPY OF THE COUNTER AFFIDAVIT FILED IN I.A 1106/2011. OP (DRT).No. 3472 of 2011(O) EXHIBIT-P19- TRUE COPY OF THE ORDER DATED 11/10/2011 IN I.A. NO. 1106/2011. RESPONDENTS' EXHIBITS: NIL R2(a): COPY OF O.A.NO.212/2009 BEFORE THE DEBTS RECOVERY TRIBUNAL, ERNAKULAM, DATED 15/5/2009. R2(b): COPY OF I.A.NO.320/2011 IN O.A.NO.212/2009 FILED BY THE PETITIONER BEFORE THE DRT, ERNAKULAM DATED 04/02/2011. R2(c): COPIES OF THE NOTICES PUBLISHED BY THE PETITIONER UNDER RULE 8(1) OF THE SECURITY INTEREST (ENFORCEMENT) RULES DATED 17/03/2011. R2(d): COPIES OF THE NOTICES PUBLISHED BY THE PETITIONER UNDER RULE 8(1) OF THE SECURITY INTEREST (ENFORCEMENT) RULES DATED 17/03/2011. R2(e): COPY OF THE VALUATION CERTIFICATE ISSUED BY THE APPROVED VALUER OF STATE BANK OF INDIA DATED 16/07/2011. R2(f): COPY OF THE VALUATION CERTIFICATE OBTAINED BY THE PETITIONER IN RESPECT OF PROPERTY DESCRIBED AS ITEM NO.1 IN EXHIBIT P13 SALE NOTICE. R2(g): COPY OF THE APPLICATION FILED BY US BEFORE THE DEBTS RECOVERY TRIBUNAL IN S.A.NO. 272/2011 DATED 17/08/2011. R2(h): COPY OF THE MEMORANDUM OF APPEAL FILED BY ME BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL DATED 09/09/2011. R2(i): COPY OF CONSENT STATEMENT FILED BY THE RESPONDENTS BEFORE THE DEBTS RECOVERY TRIBUNAL, ERNAKULAM IN O.A. NO.212/2009 DATED 17/08/2011. R2(j): COPY OF THE ORDER OF DRT DATED 20.04.2009. /TRUE COPY/ PA TO JUDGE DS S.SIRI JAGAN, J. - - - - - - - - - - - - - - - - - - - O.P.(DRT) NO.3472 & 3545 OF 2011 - - - - - - - - - - - - - - - - - - - - Dated this the 25thday of November, 2011 J U D G M E N T These original petitions are filed by the South Indian Bank and a purchaser of properties sold by the Bank of proceedings under the Securitisation And Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as 'the Act') challenging the order of the Debt Recovery Appellate Tribunal, Chennai in an appeal filed by the borrower, M/s. Kaikkara Construction Company and its partners. 2. O.P.(DRT) No. 3472 of 2011 is filed by the Bank and O.P.(DRT) No.3545 of 2011 is filed by the purchaser, who purchased the property sold by the authorized officer of the bank in the proceedings under the Act. 3. In the proceedings under the Act, Ext. P13 sale notice was issued on 02/07/2011. In the said notice, the amount due was shown as ` 12,06,78,097.62. The said sale O.P.(DRT)No.3472/2011 -2- notification was issued for sale of three items, but only one item of property was sold pursuant thereto, which was purchased by the petitioner in O.P.(DRT) No.3545 of 2011 for `15 crores. 4. The sale was confirmed by Ext. P2 on 19/08/2011. By Ext. P3 the Chief Judicial Magistrate, in exercise of powers under Section 14(1) of the Act, directed taking over and handing over possession of the property to the bank. Ext. P4 sale certificate was issued in favour of the purchaser on 06/09/2011. In September, 2011, the purchaser complained to the bank that trees in that property were cut down. The same was reported to the police. 5. While so, the borrower approached the Debt Recovery Tribunal, Ernakulam, with an application under Section 17 of the Act, in which he sought stay of further proceedings pursuant to the sale. By Ext. P15 order, the Tribunal found that there are no valid and sufficient cause to O.P.(DRT)No.3472/2011 -3- interdict the proposed sale proceedings and therefore the interlocutory application is only to be dismissed. However taking a lenient view, the Tribunal granted an interim order as follows: “However, notwithstanding the findings as above, taking note of the persuasive submissions made by the learned Counsel for the petitioner/applicant, and on grounds of equity and fair play, the Tribunal reluctantly is inclined to grant the more final opportunity to find any amicable settlement. Accordingly, the respondents/ defendants are hereby directed to defer the sale (i.e., the opening of the tenders only; and the tenders received, if any, upto the stipulated time - 18.08.2011 at 5.00 p.m., should be held intact in safe custody) till 06.09.2011, awaiting the further directions of the Tribunal, subject to the condition that in order to show his bonafide, the petitioner/applicant shall deposit a sum of Rs. 1.50 crores before the scheduled sale (19.08.2011), and a further sum of Rs. 1.50 crores on or before 03.09.2011, to be appropriated towards the recoverable dues under the impugned action. In the event of prompt compliance, apart from this, the petitioner/applicant is also directed to submit a concrete action plan to settle the remaining dues within a time bound manner. It is made clear that if the first tranche of Rs. 1.50 crores is not remitted as above, the respondents/defendants are at liberty to proceed with any further action (including the sale as scheduled) in accordance with law.” O.P.(DRT)No.3472/2011 -4- 6. The borrower did not comply with the conditions stipulated by the Debt Recovery Tribunal in Ext. P 15 order. Instead, he approached this court by filing WP(C)No. 22667/2011. In the same this court refused to interfere with the proceedings taking note of the fact that the borrower had not complied with the conditions stipulated by the Tribunal. Thereafter, the borrower filed an appeal against Ext. P15 order before the Debt Recovery Appellate Tribunal, Chennai, in which he filed an interlocutory application seeking waiver of the condition of pre-deposit of 50 per cent of the amount due, under Section 18 of the Act. In that Interlocutory Application, by Ext. P18 order, instead of passing an order on the request for waiver of pre-deposit, the Appellate Tribunal passed the following order; “Call this IA on 15.11.2011 for awaiting the final order in OA No.212/2009 and in the meanwhile the Authorized Officer shall stand restrained from in any way proceeding further under the provisions of the SARFAESI Act in any manner including the taking of physical possession of the secured asset set out in the notice issued by the Advocate Commissioner dated 12.09.2011 pursuant to the order of the Chief Judicial Magistrate, Kollam, Kerala State or O.P.(DRT)No.3472/2011 -5- causing taking of physical possession of the said secured asset till further orders.” 7. That is under challenge in this these original petitions. The impugned order is Ext.P18 in O.P.(DRT) No.3545/2011 and Ext. P19 in O.P.(DRT) No.3472/2011. The contention of the petitioners is that the borrower has been trying to protract the matter without paying amounts due and has been filing writ petition after writ petition, judgments in some of which have been produced as Ext. P7, Ext. P8, Ext. P9, Ext. P10, Ext. P11, Ext. P12 and Ext. P16. Therefore according to the petitioners, the borrower is not entitled to any leniency in this matter since their only intention is to protract the matter as far as possible. The petitioners challenge the impugned order particularly on the ground that the said order has been passed in an application for waiver of pre-deposit under Section 18 of the Act without either granting waiver of pre-deposit or refusing waiver of pre-deposit. According to them, without first passing an order on the question of waiver of pre-deposit, the Tribunal O.P.(DRT)No.3472/2011 -6- could not have validly passed any other order insofar as, unless Section 18 is complied with, the appeal itself is not maintainable. It is further pointed out that under Section 18, which is mandatory, 50 per cent of the amount due to the bank has to be deposited as a pre-condition for maintaining the appeal and the power of the Appellate Tribunal to waive pre-deposit is limited to 25 per cent. Therefore without at least a deposit of 25 per cent of the amounts due, the appeal itself is not maintainable. Therefore, the impugned order has been passed in an appeal which is not maintainable for which the Tribunal does not have powers is the contention of the petitioners. 8. On the other hand, the counsel for the borrower would dispute the fact that borrower is a chronic defaulter. According to him the borrower has made offers to pay all amounts, and the borrower in fact paid more than ` 2 crores. According to him the sale notice itself is invalid insofar as the amount stated therein as due from the borrower is much O.P.(DRT)No.3472/2011 -7- more than the actual amount due. As per the provisions of the Act and Rules, the financial institution is bound to give correct figures in the sale notice, is his contention. He would further submit that Section 18 should be construed in such a way that the pre-deposit mentioned therein is mandatory only in the case of final orders and not in the case of interim orders. He points out that a contrary interpretation of Section 18 would make the right of appeal itself illusory. He cites an example to the effect that in an appeal against the order of the Tribunal directing audit of the accounts by the bank there is no meaning in directing payment of 50 per cent of the amount due insofar as that interim order would not involve payment of any money at all. He further points out that under Rule 22 of the Debts Recovery Appellate Tribunal (Procedure) Rules, 1994, the Appellate Tribunal has powers to make orders or give directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice. According to him, the Appellate Tribunal has, pending O.P.(DRT)No.3472/2011 -8- consideration of the application for waiver of pre-deposit, passed in Ext. P18 order, in exercise of the powers conferred on the Tribunal under Rule 22 of the Debts Recovery Appellate Tribunal (Procedure) rules. Therefore, according to the borrower, the Tribunal was perfectly justified in passing the impugned order and the same does not suffer from any infirmity whatsoever. 9. The counsel for the bank would submit that Section 18 is mandatory as held by the Supreme Court in Narayan Chandra Ghosh Vs. UCO Bank & others 2011 AIR SCW 2572. He particularly relies on paragraphs 8 and 9 of the said decision which reads as follows: “8. Section 8(1) of the Act confers a statutory right on a person aggrieved by any order made by the Debts Recovery Tribunal under Section 17 of the Act to prefer an appeal to the Appellate Tribunal. However, the right conferred under Section 18(1) is subject to the condition laid down in the second proviso thereto. The second proviso postulates 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 O.P.(DRT)No.3472/2011 -9- determined by the Debts Recovery Tribunal, whichever is less. However, under the third proviso to the sub-Section, the Appellate Tribunal has the power to reduce the amount, for the reasons to be recorded in writing, to not less than twenty-five per cent. of the debt, referred to in the second proviso. Thus, there is an absolute bar to entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent. of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal. The language of the said proviso is clear and admits of no ambiguity. It is well-settled that when a Statute confers a right of appeal, while granting the right, the Legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. Bearing in mind the object of the Act, the conditions hedged in the said proviso cannot be said to be onerous. Thus, we hold that the requirement of pre-deposit under sub-Section (1) of Section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the Statute. We have no hesitation in holding that deposit under the second proviso to Section 18 (1) of the Act being a condition precedent for preferring an appeal under the said Section, the Appellate Tribunal had erred in law in entertaining the appeal without directing the appellant to comply with the said mandatory requirement. O.P.(DRT)No.3472/2011 -10- 9. The argument of learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-Section (1) of Section 18 of the Act the amount of fifty per cent., 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 per cent. 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 per cent. 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 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.” 10. According to the petitioners, in view of the said decision it must be taken that the Supreme Court has held that even an appeal against an interim order is maintainable O.P.(DRT)No.3472/2011 -11- only if Section 18 is mandatorily complied with. According to them under Section 18(1) an appeal lies against any order made by the Debt Recovery Tribunal, which includes interim orders and final orders and for maintaining an appeal against even an interim order, the second proviso is mandatory. It is pointed out that in the decision of the Supreme Court in Indian Bank V/s. Blue Jaggers Estate Ltd. & others. , AIR 2010 Supreme Court 2980 [corresponding to (2010) 8 Supreme Court Cases 129] the Supreme Court has indirectly held that for maintaining an appeal against an interim order also the pre-deposit is mandatory. They rely on paragraphs 10 to 12 of the said decision which read as follows. “10. By an order dated 09.06.2008, the Tribunal dismissed SA No.221 of 2007. It held that the appellant herein had taken action under the Act because the borrower did not pay the outstanding dues. The Tribunal took cognizance of the compromise deeds signed by the parties and observed that the appellant is entitled to recover the outstanding dues because the borrower failed to fulfil its commitment in accordance with the terms of compromise. O.P.(DRT)No.3472/2011 -12- 11. The respondents challenged the aforementioned order of the Tribunal by filing an appeal under Section 18 of the Act. They also applied for restraining the appellant from taking action in furtherance of the notices issued under Sections 13(2) and 13(4) of the Act. By an order dated 21-07-2008, the Debts Recovery Appellate Tribunal at Chennai (for short “the Appellate Tribunal”) granted interim stay subject to the condition of deposit of `3 crores in two equal instalments of ` 1.5 crores each. This did not satisfy the respondents, who filed Writ Petition No. 20772 of 2008 for an absolute and unconditional stay of the recovery proceedings. The same was dismissed by the Division Bench of Madras High Court vide its order dated 26-08-2008, paras 7 to 10 whereof read as under: “7. In the present case, we are not inclined to decide the question whether NPA account commenced in the year 1996 or 1998, which can be looked into by the Debts Recovery Tribunal I, Chennai on the basis of record, if such plea is taken. In the original application filed under Section 19 of the DRT Act, it is open to the parties to take such plea. 8. Insofar as the action taken under Section 13(4) of the SARFAESI Act is concerned, it is independent to the action that may be taken by the Bank under Section 19 of the DRT Act, 1993. In such case, if an appeal is preferred even against an interim order or refusal to grant interim order, under Section 18 of the SARFAESI Act, it is mandatory to deposit the statutory amount which has been ordered in the present case. 9. In the circumstances, while we are not inclined to interfere with the impugned order, we allow the borrowers to take all such pleas before the Debts Recovery Tribunal I, Chennai and may point out irregularity if any committed in taking O.P.(DRT)No.3472/2011 -13- action under Section 13(4) of the SARFAESI Act, in the application preferred under Section 17 of the SARFAESI Act. 10. In the meantime, if the borrowers fail to deposit the amount in terms of the impugned order of the Appellate Tribunal, it will be open to the Bank to auction-sale the property in question, but may not confirm the sale without prior permission of the Debts Recovery Tribunal I, Chennai.” 12. Special Leave Petition (C) No.24286 of 2003 filed by the respondents was dismissed by this Court on 17-10-2008. According to the petitioners, in the said decision, the Supreme Court has approved the law laid down by the Division Bench of the High Court that even in case of appeals against interim orders, compliance with the second proviso to Section 18 is mandatory. 11. The borrower would contend that in the decision in Blue Jaggers case (supra), it was not necessary to decide the question as to whether even for maintaining an appeal against an interim order compliance with the second proviso to Section 18 is mandatory. It was only a general observation, which cannot be regarded as a law laid down by the High Court or the Supreme Court, in respect of the O.P.(DRT)No.3472/2011 -14- question as to whether for maintaining appeal against an interim order, compliance with the second proviso to Section 18 is mandatory. He relies on the decision of the Supreme Court in M/s. Rival and company Versus K.G.Ramachandran and Others (1974) 1 Supreme Court Cases 424, wherein the Supreme Court has held that general observations in a judgment should be confined to the facts of the case and general observations cannot apply in interpreting the provisions of an Act unless the court has applied its mind to and analysed the provisions of that particular Act. 12. I have considered rival contentions in detail. I am of opinion that it is not necessary for this Court to go into the question as to whether compliance with the second proviso to Section 18 is mandatory for maintaining an appeal against an interim order, in these original petitions. That is a matter which the Appellate Tribunal has to consider in the first instance in accordance with law after considering the rival contentions. A reading of the impugned order will O.P.(DRT)No.3472/2011 -15- show that the said question has not been considered at all by the Tribunal. Instead in the application for waiver of pre- deposit an order of stay has been passed without considering the question of waiver of pre-deposit. I do not agree with the proposition of the borrower that under rule 22 of the Debts Recovery Appellate Tribunal (Procedure) Rules, the Tribunal can pass orders in the interest of justice without first deciding the question as to whether the appeal is maintainable for non-compliance with second proviso to Section 18. According to me, the Tribunal will get jurisdiction to pass further orders only after passing an order in the application for dispensing with pre-deposit under the second proviso to Section 18 of the act so as to make the appeal maintainable in law. It is not as if the Tribunal cannot pass orders in the interest of justice simultaneously with an order under the second proviso to Section 18 of the act. It is perfectly open to the Tribunal to pass simultaneous orders after considering both questions simultaneously. The same has not been done in this case. Without even deciding O.P.(DRT)No.3472/2011 -16- the question as to whether the appeal itself is entertainable for want of pre-deposit, the Tribunal has simply passed an order of stay of further proceedings before the Authorized Officer, which according to me is not permissible under law. In the above circumstances the impugned order which is the same in the two original petitions, is quashed. The Debt Recovery Appellate Tribunal, Chennai, is directed to pass fresh orders in the matter. While passing orders as directed above, the Appellate Tribunal shall first consider the question as to whether the borrower is bound to make pre- deposit as contemplated in second proviso to Section 18 and if so to what extent. Only after passing orders on the same, further orders shall be passed, which can