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Whether The Applicant Can Be Permitted To Adduce Evidence To Support The Ground Relating To Public Policy In An Application Filed Under Section 34 Of The Arbitration & Conciliation Act, 1996

Arbitration

In a recent  matter between M/s Alpine Housing Development Corporation Pvt. Ltd. (“Appellant”) and  Ashok S. Dhariwal and Others (“Respondents”) [CIVIL APPEAL NO. 73 OF 2023], the Appellant  approached  Hon’ble Supreme Court against the order by the High Court of Karnataka in a Writ Petition, by which the High Court had set aside the order passed by the learned Additional City Civil and Sessions Judge, and permitted the Respondents to adduce evidence in an interim application under Section 34 of the Arbitration & Conciliation Act, 1996 (“Act”). The award, passed in 1998, was an ex-parte arbitral award wherein no evidence was led by the Respondents.

The interim application filed along with the application under Section 34 of the Act by the Respondents, was rejected by the learned Additional City Civil and Sessions Judge refusing to permit the Respondents to adduce evidence on the ground that it would delay further hearing of section 34 application. The Court relied on Section 34(2)(a) of the Act, as amended in the year 2019, by which expression “furnish proof” in section 34(2)(a) came to be substituted with the expression “establish on the basis of record of arbitral tribunal”.

The Hon’ble High Court while following the decision of Supreme Court in the case of Fiza Developers and Inter-Trade Private Limited v. AMCI (India) Private Limited & Another [(2009) 17 SCC 796] allowed the writ petition filed by the Respondents and set aside the order passed by the lower court permitting them to adduce evidence in the proceedings under section 34 of the Act. The Court reasoned that the provisions of Section 34 (2)(a) of the Act, as it stood prior to the amendment in 2019, would apply.

The Appellant approached the Hon’ble Supreme Court.

The Supreme Court, at the very outset, laid down that since the arbitration proceedings commenced and even the award was declared prior to the amendment of Section 34(2)(a) in 2019, therefore, Section 34(2)(a) pre-amendment shall be applicable. The Court further reasoned that there was a substantial change vide amendment of section 34(2)(a) by 2019 amendment. Prior to the amendment of section 34(2)(a), an arbitral award could be set aside by the Court if the party making an application “furnishes proof” and the grounds set out in section 34(2)(a) and section 34(2)(b) are satisfied. However, subsequent to the amendment of section 34(2)(a), the words “furnishes proof” have been substituted by the words “establishes on the basis of the record of the arbitral tribunal”. The Court, therefore opined that in case of arbitration proceedings commenced and concluded prior to the amendment of section 34(2)(a) by Act 33/2019, pre-amendment of section 34(2)(a) shall be applicable.

The Court, after examining the findings in the judgments of  Fiza Developers, Canara Nidhi Limited v. M. Shashikala [(2019) 9 SCC 462] and Emkay Global Financial Services Limited v. Girdhar Sondhi [(2018) 9 SCC 49], concluded that the three judgments lay down the position and the scope and ambit of section 34(2)(a) pre-amendment. Section 34 application will not ordinarily require anything beyond the record that was before the arbitration and that cross-examination of persons swearing in to the affidavits should not be allowed unless absolutely necessary. The Court made the observation saying that the ratio of the aforesaid three decisions on the scope and ambit of section 34(2)(a) pre-amendment would be that applications under sections 34 of the Act are summary proceedings. An award can be set aside only on the grounds set out in section 34(2)(a) and section 34(2)(b). Speedy resolution of the arbitral disputes is the objective behind the legislation. Therefore in the proceedings under section 34 of the Arbitration Act, the issues are not required to be framed which would otherwise defeat the said object of speedy resolution.

So far as leading evidence is concerned the Court observed that ordinarily in the Section 34 proceedings, the examination by the Court shall not require anything beyond the record that was before the arbitrator. However, the Court added, if there are matters not contained in such records and the relevant determination to the issues arising under section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both the parties in exceptional cases, although cross-examination of the persons swearing in to the affidavits should not be allowed unless absolutely necessary.  The Court further added that the requirement of “furnishing proof” as per pre-amendment of section 34(2) (a) of the Arbitration Act shall also be equally applicable to the application for setting aside the award on the grounds set out in section 34(2)(b) such as the ground of public policy, provided the same cannot be established and proved from the record before the arbitrator.

After setting the law, the Court went on to examine whether the Respondents were able to establish  an exceptional case that it is necessary to grant opportunity to the Respondents to file affidavits and adduce evidence. Factually, the Court found that the evidence sought to be brought on record vide the interim application was subsequent to the passing of the award and therefore naturally the same shall not be forming part of the record of the arbitral tribunal. Additionally, the award of the arbitral tribunal was an ex-parte award and no evidence was before the arbitral tribunal on behalf of the Respondents. The affidavit, on the other hand, discloses specific document and the evidence required to be produced in order to determine the issue at hand. In that view of the matter, the Court found that a strong exceptional case is made out by the Respondents to permit them to file affidavits/adduce additional evidence. The Court also allowed the Appellant to cross-examine and/or produce contrary evidence at the same time. In the light of the reasoning thus, the Judgment of the High Court was upheld by the Supreme Court.

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Availability Of An Alternative Remedy Of Appeal Or Revision Alone Would Not Oust The Jurisdiction Of The High Court

Constitution of India

In the matter before the Hon’ble Supreme Court recently[1], an order of the High Court declining to exercise its jurisdiction under Article 226 of the Constitution of India in the light of availability of alternative remedy of appeal provided under section 33 of the VAT Act came to be challenged. In order to set the premise, the Court observed that “[t]he power to issue prerogative writs under Article 226 is plenary in nature. Any limitation on the exercise of such power must be traceable in the Constitution itself… Article 226 does not, in terms, impose any limitation or restraint on the exercise of power to issue writs….” The Court further opined that although the exercise of writ jurisdiction may not be made in a routine matter, however it is also not the right approach to mechanically dismiss the petition merely on the ground that the petitioner has not pursued the alternative remedy available to him/it. Therefore, a mere availability an alternative remedy of appeal or revision, not pursued by the party invoking the jurisdiction of the high court under Article 226, would not oust the jurisdiction of the High Court. The Court clarified that “the rule, which requires a party to pursue the alternative remedy provided by a statute, is a rule of policy, convenience and discretion rather than a rule of law”.

The Court then went on to explain the fine line distinction between “maintainability” of a writ on one hand which goes to the root of the matter which if lacking, may render the court “incapable of even receiving the lis for adjudication” and “entertainability” on the other hand,  which is within the realm of discretion of the High Courts. A writ that is maintainable may still not be entertained by the High Court in its discretion for want of public interest. The Court went on to quote from State of Uttar Pradesh vs. Mohd. Nooh 1958 SCR 595 wherein it was held that “there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute…”

The Court then referred to the judgment in Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai and Others (1998) 8 SCC 1 wherein the Court had carved out four exceptions whereof a Writ Court would be justified in entertaining a writ petition despite the party approaching it not having availed the alternative remedy provided by the statute. The principle set out in Whirlpool Corporation was reiterated recently in Assistant Commissioner of State Tax vs. M/s. Commercial Steel Limited  2021 SCC OnLine SC 884 . The exceptions set out were where the writ petition seeks enforcement of any of the fundamental rights, where there is violation of principles of natural justice, where the order or the proceedings are wholly without jurisdiction, and where the vires of a legislation challenged.

In the case of State of Uttar Pradesh & ors. vs. Indian Hume Pipe Co. Ltd. (1977) 2 SCC 724 it was held that if the issue at hand raises a pure question of law and if investigation into facts is unnecessary, the High Court could entertain a writ petition in its discretion even though the alternative remedy was not availed of. Similarly in the case of Union of India vs. State of Haryana (2000) 10 SCC 482 it was held that where the court finds the issue raised by the appellant to be “pristinely legal” an exercise of jurisdiction under Article 226 is maintainable. The Court therefore appllied the law as established that where the controversy is a purely legal one and it does not involve disputed questions of fact but only questions of law, then it should be decided by the High Court instead of dismissing the writ petition on the ground of an alternative remedy being available. In the case at hand, the Court found that it was jurisdictional issue raised by the appellant in the writ petition questioning the competence of the Revisional Authority to exercise suo motu power. The Court found it to be a pure question of law and that the writ petition ought not to have been thrown out at the threshold. The Court, therefore, held that the High Court by dismissing the writ petition committed a manifest error of law and the order under challenge is unsustainable and liable to be set aside.

[1] M/s Godrej Sara Lee Ltd. v. The Excise And Taxation Officer cum-Assessing Authority & Ors.  [CIVIL APPEAL NO.5393 OF 2010 decided on 01.02.2023]

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Is Cow Hug Day a Victim of Indian Politics or is it the Intellectual Colonialism?

CommonMan

Do you know what is Turmeric Latte (American), traditional Indian daybed (Australian), Chew Sticks (European) or Gratitude Rock (American) presently being marketed and sold in foreign markets? It is nothing but Haldi ka doodh, Chaarpai/Khaat, Daatun and Shiv Ling/similarly rounded stones.

We are aware of the patents granted for Turmeric, Basmati rice, Neem and Yog techniques in the United States and the India’s long legal battle against it. Recently, I also found that cow urine or what we know as Gau Mutra has been awarded as many as seven patents for its medicinal properties across the world, more particularly for its bio-enhancer and an antibiotic, antifungal and anti-cancer agent. [More information in Journal of Ayurveda and Integrative Medicine]. I am sure your learned self can add more to the list.

But the most mind boggling fact that I have come across lately is Koe Knuffelen. It is prevalent in the West for two decades now, particularly in Holland and is supported by research papers in the International Journals. There are numerous publications found on the US National Library of Medicine website. Koe Knuffelen  is the name of a therapy which literally means ‘cow hugging’. The services are charged on hourly basis in the US and Europe. Queer! This fact finding of mine was a by-product of search on the benefits of cow cuddling, which in turn was prompted by recent notification from the Animal Welfare Board of India to make February the 14th as a Cow Hug Day (now withdrawn without any explanation). As much as it was ridiculed, trolled, memed and made subject to politically motivated speeches and discussions (CNN being on the top of the searches on Google), the only question I had was – is there really a possible science behind it? To my surprise, there is.

The people of the wiser generations would know better. As scientifically found and proven in the West (and I am ashamed to be quoting this rather than referring to the practice of caressing cows that has been part of Indian society and the references found in the Vedas) it, amongst other therapeutic cures, releases oxytocin and thus lowers the stress. In India, Sri S P Gupta, former Chairman of Animal Welfare Board of India started a cow cuddling Centre. Gau Sparsh Chikitsa has been started in 2021 by Kamdhenu Gowdham and Ayogya Sansthan in Haryana.

Sad part is that the less wise generation of ours (if I may call them the ‘have-nots’- including me)  have been so ignorant and disconnected with the depth and richness of the Indian culture – the actual education (not speaking of Macaulay’s prototype education system of making human robotic servants for serving the British Government) – that what they know is to heedlessly ridicule and color an initiative as political and impractical rather than understanding where is it coming from and attacking it systematically and rationally to come out with something substantial for the benefit of everyone. It seems this culture is imbibed from our Parliament lately.  It is unfortunate to see youngsters (even politicians) saying “Oh how insane to hug a cow, it will hit me..!!!” Well, bingo! You got it right. It will. 12th of February is a Hug Day. My question is – do you go berserk and just hug anyone on the street??  Or do you kiss random people on February 13th?

No, this is not something that I am writing to educate anyone (me being the most ignorant) or to support a ‘Cow Hug Day’ vis-a-vis Valentine’s Day. I am happy to celebrate anything that makes me cheerful, provided it is lawful and moral and not hurtful to ‘common prudent man’. This is rather to question the very fad on social media of contesting and approaching something cynically as the first mechanism of attack rather than approaching it rationally with pertinent questions in the first place.

Well, on the flip side, I also believe the approach of the Animal Welfare Board is to be equally blamed. After all, one should not assume the general awareness and metal preparedness of the people to accept the idea, more so, when cow is now a political animal and what all one witnesses, and is familiar with, is cows consuming single use plastics on the streets of National Capital.  I conjecture at the same time that people who are in the National Capital and own cows and can enlighten us on this aspect are either shy of expressing their views or perhaps do not use such social media platforms at all. Needless to say about others – the cow-owners who do not stay in metropolitan cities. So I do not expect to find a balance in the type of people who would be expressing their views on such platforms.

Nevertheless, in my view, for introducing anything close to a Cow Hug Day, there is a need for a close examination of the very reason why the West is studying the need of cow therapies. Why now? It demands an introspection of how the family structures have significantly transformed within a generation (family being the smallest unit of a society). The families in India for that matter have diminished from joint families, with farm animals around, to nuclear families and individuals living alone. One of the products of such disintegrated society over the years is stress, clinically known as depression if it persists. It is therefore now, in the last couple of decades that social scientists are compelled to think of methods of emancipation from the effects of solitude and artificially generated social pressures.

Broadly speaking, unless the ground realities are checked, acknowledged and studied and an acceptable mechanism is charted, there will be rejections of domestic initiatives. So much so that the tragedy being that the very concept, that the Indians of my generation never even realise as an integral part of our cutural fabric, comes back to us as an intensely researched and proved theory/therapy and we on the other hand regressively dismiss the domestic initiatives in limine as conservative or absurdly ludicrous.

Anubha Dhulia Advocate, Delhi, Founder and Managing Partner, Nautiliyaa Legal.

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Understanding Section 149 of Code of Civil Procedure 1908 as an exception to Section 4 of Court Fees Act 1870

Procedural

In one of the recent cases before the Supreme Court[1], the question arose whether inability to pay the court fees can be pleaded as a reason for not filing the appeal within the limitation period. Appellant contended that the High Court had erroneously rejected the application filed under Section 5 of the Limitation Act, 1963 for condonation of delay of 254 days. The reason assigned by the appellant for the delay of 254 days in filing the First Appeal was that he was not having sufficient funds to pay the court fee. According to the Appellant the delay ought to have been condoned and his appeal should have been heard on its merits.

The provision regarding court fees was first introduced during the British period. While in the earlier times, administration of justice was considered to be the basic function of the Ruler and there was no levy of any charge on the party approaching for resolution of dispute, the idea that a litigant must pay for availing the justice system was first introduced in the late 18th century in Madras, Bengal and Bombay in order to discourage institution of frivolous litigation and as a deterrent to the abuse of process of court.[2]  The Court Fees Act was enacted in this background. 

The machinery of criminal justice administration is treated as different from that of civil justice. It is basically understood that administration of criminal justice is a sovereign function of the State is that no fee can be levied. So far as civil administration is concerned, Court Fees Act was introduced for imposition and computation of court fees payable on certain suits listed in the Schedule of the Court Fees Act. However, it was agreed that the substantial costs of the administration of justice should be met through general appropriation and governmental funding and not through the device of court fees alone. Therefore, it was decided that the court fees must be minimal creating somewhere a balance between right to access justice and being deterrent against frivolous litigations.

Payment of court fees is mandatory. As per section 4 of the Court Fees Act 1870,  no document of any of the kinds specified in the Act, as chargeable with fees, shall be filed, exhibited or recorded in, or shall be received or furnished by, any of the High Courts in any case coming before such Court in the exercise of the jurisdictions as specified, unless in respect of such document there be paid a fee of an amount not less than that indicated by either of the said Schedules as the proper fee for such document.

There are exceptions. Order 33 of the Civil Procedure Code, 1908, for instance, exempts indigent persons from paying court fees where they are unable to afford, given their economic status. Trite is to say that the same may be contested and is required to be proved by filing a suit under Order 33. Order 44, CPC allows exemption from payment of court fees on appeals by indigent persons. It is however, important to mention that indigence has to be determined on facts existing at the time of application. Therefore, even if the trial court may have rejected the prayer under Order 33 of the CPC, the Appellate Court will have to determine the application under Order 44 independently as to whether the appellant, on facts, is entitled to be treated as an indigent person.[3]  Further, the Court Fees Act 1870 and parallel legislations in various states provide the list of persons who are exempted from payment of court fees. For instance, SRO No. 575 of 1994 issued by the Government of Orissa under Section 35 of the Court Fees Act, 1987 states that women are exempted from the payment of court fees.[4]

The Supreme Court while dealing with the appeal against the order rejecting the application for condonation of delay, did not find a sufficient reason for the condoning the delay on the ground of inability to pay the court fees as the appellant was an affluent businessman and a hotelier. Court was of the opinion that even for the sake of argument it is presumed that the appellant at the relevant point of time was not able to pay court fee on account of shortage of funds, nothing barred him from filing the appeal. The Court referred to Section 149 of the CPC[5]  under which the Court has power to make up deficiency of court fees. As per the provision, “Where the whole or any part of any fee prescribed for any document by the law for the time being in force relating to court fees has not been paid, the Court may, in its discretion, at any stage, allow the person, by whom such fee is payable, to pay the whole or part, as the case may be, of such court-fee; and upon such payment the document, in respect of which such fee is payable, shall have the same force and effect as if such fee had been paid in the first instance.”

The Court explained that Section 149 is provision under the law for filing a defective appeal, i.e., an appeal which is deficient with respect to court fee alone. The court fee is required to be paid within the time given by the Court in such circumstances. The Court emphasised that “Section 149 CPC acts as an exception, or even a proviso to Section 4 of Court Fees Act 1870”. Section 149 “mitigates the rigour of Section 4 of the Court Fees Act” and it is for the court in its discretion to allow a person who has filed a memorandum of appeal with deficient court fee to make good the deficiency and the making good of such deficiency cures the defect in the memorandum from the time when it was first presented in court. The Court further added that the “provisions of the Court Fees Act and the Code of Civil Procedure have to be read together to form a harmonious whole …” In the case of S. Wajid Ali v. Mt. Isar Bano Urf Isar Fatima & Ors.[6]  it was held that a court has to exercise its discretion for allowing a deficiency of court fees to be made good but once it is done, a document is to be deemed to have been presented and received on the date when it was originally filed, and not on the date when the defects were cured.

The Court therefore concluded that where the appellant is capable of purchasing the court fees which can be gathered from the fact that the appellant ultimately did pay the court fee along with the appeal accompanied by an application under section 5 of the Limitation Act, the reasons as to inability to pay court fees as assigned for the delay in filing the appeal cannot be a valid reason for condonation of the delay, since the appellant could have filed the appeal deficient in court fee within time as per section 149 CPC. Thus, Section 149 is procedural exception to strictures prescribed under section 4 of the Court Fees Act in addition to the exceptions as provided under the Court Fees Act itself and on the ground of indigence as provided under CPC.

[1] Ajay Dabra v. Pyare Ram & Ors. [SLP (C) No.15793 OF 2019 decided on January 31, 2023]

[2] As per the 189th Law Commission Report, 2004, there was further upward revision of court fees recommended “to build financial disincentives to discourage vexatious litigation”. In the Commission was of the firm view that as the right to access to justice is now recognized as a basic human right world over, high rates of Court fee may become a barrier to access to justice.

[3] Sushil Thomas Abraham v. M/s Skyline Build. Thr. Its Partner & Ors. [CIVIL APPEAL No.117 OF 2019 decided on January  07, 2019]

[4] Sanjay Kumar Das v. Munmum Patnaik, 2018 SCC OnLine Ori 445 decided on 21-12-2018]

[5] As per the judgment in Mannan Lal v. Mst. Chhotaka Bibi & Ors. (1970) 1 SCC 769. Section 149 of the Code of Civil Procedure, 1908 is Section 522-A of the erstwhile Code of Civil Procedure, 1882 inserted in the Code vide amendment of 1892.

[6] AIR 1951 All 64

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SC: The Amount Received from the Auction Purchaser Cannot be Appropriated Against Pre-Deposit Contemplated Under the Section 18 of the SARFAESI Act, 2002

Bank And Financial, Uncategorized

Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) mandates that the borrower deposits 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, with the Appellate Tribunal, as a condition precedent for filing an appeal against the order of the Debt Recovery Tribunal before the Debt Recovery Appellate Tribunal.  The question is how to determine the ‘debt due’? The amount of ‘debt due’ may be different at different stages of procedure contemplated for recovery of debt, 50% of which amount the borrower is required to deposit as pre-deposit under Section 18 of the SARFAESI Act. For instance, a dispute may arise when steps are taken under Section 13(2)/13(4) against the secured assets or when the secured assets are under notice of sale or when the assets have already been sold. So the amount of debt due may vary from the amount that is mentioned in the notice under Section 13(2) of the SARFAESI Act to the amount mentioned in the sale certificate.

In an appeal filed by the auction purchasers, a similar question arose for consideration of the Supreme Court i.e. whether, while calculating the amount to be deposited as predeposit under Section 18 of the SARFAESI Act, 50% of which amount the borrower is required to deposit as pre-deposit. Secondly, in a situation where the secured assets have been auctioned and the amount is received from the auction purchaser, 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?

There were two set of appeals. In the first set of appeals, Sidha Neelkanth Paper Industries Private Limited was the principal borrower who availed the credit facility extended by the Andhra Bank. Immovable properties were mortgaged by the guarantors and by the borrower to secure the said cash credit facility. On the borrower failing to repay the loan, the account was declared as a Non Performing Asset. Andhra Bank after issuing notice under Section 13(2) of the SARFAESI Act, calling upon the borrower to pay the outstanding amount of Rs. 16.61 lakhs, initating measures under Section 13(4) of the SARFAESI Act and taking possession of one of the mortgaged properties, being property bearing No. 170, Deepali, Pitampura, Delhi-110034, the mortgaged properties were put to auction. Despite several resistance and litigations from the principal borrower, 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.

The borrower filed an appeal before the DRAT challenging one order 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 directed the borrower to comply with the requirements of making a pre-deposit under Section 18 of the SARFAESI Act which was challenged before the High Court. 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 predeposit under the second proviso to Section 18 of the SARFAESI Act can be said to have been met.

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 the borrower. Against the said order, the borrower and the owner of the mortgaged property filed an appeal under section 18 of the SARFAESI Act. The borrower sought waiver of the statutory pre-deposit under Section 18 of the SARFAESI Act, relying on the earlier order of the High Court. 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.

The secured creditor/assignee filed the writ petition before the High Court. The High Court 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 predeposit amount to 25%, after recording reasons in writing for the said reduction. The High Court held that 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 and 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.”

In another set of appeals, 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. The High Court also held that 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.

The relevant part of the Section 18 of the SARFAESI Act is as follows:

“18. 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:”

The Court first went into the analysis of whether the “debt due” under Section 18 of the SARFAESI Act would include the liability + interest. By the combined reading of Section 18, & 2(ha) of the SARFAESI Act and section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, the Court concluded that “debt” means any liability inclusive of interest which is claimed as due from any person. The Court then went on to observe that 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 only and only when 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. Next question is meaning and determination of ‘debt due’. The Court explained that in case steps taken under Section 13(2)/13(4) against the secured assets, the ‘debt due’ shall be amount is mentioned in the notice under Section 13(2) of the SARFAESI Act. When the challenge to the sale of the secured assets, the amount mentioned in the sale certificate shall be the ‘debt due’. However, where both, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets are under challenge, in that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher.

The Court was of the opinion that 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. Therefore the concluded that where the borrower challenges the auction sale, thereafter it will not be open for the borrower to pray to use the sale proceeds received from the sale of the secured properties to be adjusted/given credit in an application for waiver of pre-deposit.

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