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2024 Supreme(Online)(Bom) 6876
HIGH COURT OF BOMBAY
M.S. Sonak, J
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED (TRUSTEE OF ARCIL-CPS-II-TRUST) – Appellant
Versus
ROYAL TRADERS – Respondent
WPL/19411/2024
Ms Pinky Anand, Senior Advocate, a/w Mr Samrat Pasriccha, Ms Pooja Gera, Mr Umang Mehta, Ms Aalisha Sharma i/b. Dhruve Liladhar & Co., for the Petitioner in WPL/18722/2024 and for Respondents in WPL/19404/2024, WPL/19406/2024, WPL/19411/2024. Mr Nitin Thakker, Senior Advocate, a/w Ms Megha Gupta, Ms Priyanka Dubey, Ms Pranjali Khemnar i/b. Hedgehog & Fox LLP, for the Petitioner in WPL/19404/2024, WPL/19406/2024, WPL/19411/2024 and for Respondent in WPL/18722/2024.
The court held that a borrower must establish a prima facie case for waiver of pre-deposit under the SARFAESI Act, and the interest component must be included in the debt calculation.
Headnote:(A) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 18(1) - Waiver of pre-deposit - Petitioners challenged the DRAT's order for not granting waiver under the 3rd proviso to Section 18(1) - The court held that the borrower failed to establish a prima facie case for waiver, as the classification of the account as NPA was valid and no substantial evidence of financial hardship was presented - The court emphasized that the requirement for pre-deposit under the SARFAESI Act is mandatory unless compelling reasons are shown - The court also clarified that the interest component must be included in determining the debt due - The petitions were dismissed. (Paras 21-59)
(B) Judicial discretion - The court reaffirmed that the exercise of discretion in waiver applications must be based on established legal principles and relevant evidence, not mere assertions. (Paras 24-26)
Facts of the case:
The borrower challenged the DRAT's order regarding the waiver of pre-deposit required for an appeal under the SARFAESI Act, claiming discrepancies in the classification of their account as NPA and financial hardship.
Findings of Court:
The court found no merit in the borrower's claims and upheld the DRAT's decision, noting the absence of a prima facie case and inadequate evidence of financial hardship.
Issues: Whether the borrower made a case for waiver of pre-deposit under the SARFAESI Act and whether the interest component should be included in the debt calculation.
Ratio Decidendi: The court ruled that a borrower must provide substantial evidence for waiver applications, and the classification of the account as NPA was valid based on the evidence presented.
Result: Writ Petition (L) No. 18722 of 2024 dismissed; remaining petitions disposed of.
Jitendra Jain, JJ.
RESERVED ON : 18 December 2024
PRONOUNCED ON : 19 December 2024
JUDGMENT ( Per MS Sonak J) :-
1. Heard learned counsel for the parties.
2. Rule in each of these petitions. The Rule is made returnable immediately at the request of and with the consent of learned counsel for the parties.
3. Learned counsel for the parties agree that a common judgment and order can dispose of these petitions. In any event, Writ Petition (L) No. 18722 of 2024, the challenge is to the Debts Recovery Appellate Tribunal’s (“DRAT”) order dated 04 June 2024, to the extent this order does not grant the petitioner the waiver under the 3rd proviso to Section 18(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). In the remaining three petitions, the petitioners challenge the very same order dated 04 June 2024, to the extent the said order does not consider the interest component for determining the debt due. Accordingly, it is only appropriate that a common judgment and order dispose of these petitions.
4. Ms Pinky Anand, learned senior advocate for the petitioner in Writ Petition (L) and 18722 of 2024 (“borrower”) submitted that under the scheme of Section 13(2) of the SARFAESI Act, the invocation of jurisdiction under the SARFAESI Act is pre-conditioned by the account in question being classified as a Non-Performing Asset (NPA). She submitted that unless this jurisdictional fact was established, the proceedings and the SARFAESI Act could never be launched, and, if launched, were ex-facie without jurisdiction and ultra vires. She referred to the provisions of Section 13(2) of the SARFAESI Act and relied upon M/s Sravan Dall Mill Private Limited Vs. Central Bank Of India,
5. Ms Anand then referred to the notice dated 08 May 2021 by which proceedings under the SARFAESI Act sought to be initiated and pointed out to the statement in paragraph 9, in which it was stated that the petitioner’s account had been classified as NPA on 04 May 2021. She then referred to Schedule 2B to the deed of assignment dated 01 December 2022, by which the debt in question was assigned to the Asset Reconstruction Company (India) Limited (“ARCL”) which refers to the date of the petitioner's account being classified as NPA as 05 July 2022.
6. Ms Anand submitted that this was a serious discrepancy.Therefore, if the jurisdictional fact about the petitioner's account being classified as an NPA was uncertain and, in any event, not achieved before proceedings were launched under the SARFAESI Act, such proceedings were void ab initio.
7. Ms Anand also referred to ARCL's reply before the DRAT. She submitted that some admissions were made about the borrower paying amounts even after ARCL issued notice under Section 13(2) of the SARFAESI Act. She submitted that accepting such amounts after the issue of Section 13(2) notice disentitles ARCL from proceeding further under the said notice. In any event, she submitted that these amounts have not been accounted for to determine the debt allegedly due by the borrowers to ARCL.
8. Ms Anand submitted that based on the above factors, the borrower had made a very strong prime facie case to succeed in the appeal before the DRAT. She submitted that even the DRAT admits to the discrepancies and states that the petitioner has made out an arguable case. However, DRAT incorrectly concludes that the petitioner has not made out ‘ a strong prima face case ’. On this reasoning, the DRAT declines the waiver, rendering the petitioner’s right to appeal DRAT’s order illusory. She submitted that the right to appeal is virtually the right of access to justice. Therefore, this right should not have been taken away in this fashion. She, therefore, submits that the impugned order warrants interference.
9. Ms Anand submits that necessary averments about financial hardships were made in the application seeking waiver. She even referred to the in
