Judgment:
(PRAYER: Writ petition filed under Article 226 of the Constitution of India for the issue of a Writ of Certiorari, calling for the records of the second respondent in I.A.No.809 of 2012 in AIR.No.668 of 2012 dated 14.08.2012 and to quash the same as non-reasoned, arbitrary and illegal.)
CHITRA VENKATARAMAN, J.
The writ petitioner is a borrower and the owner of the property which was given as security for the loan taken by the petitioner. It is stated that the petitioner intended to construct a building on the property by availing a bank loan and rent it for non-residential purpose. The Bank is stated to have granted this cash credit loan of an amount of Rs.340 lakhs, repayable in 23 months.
2. In the meantime, there appears to be a dispute pending in W.P.No.25368 of 2008 before the Andhra Pradesh High Court as regards the permissible areas for construction. The petitioner states that on this account, the petitioner could not complete the construction within 23 months. Consequently, there was also a default on the part of the petitioner in complying with the terms of the loan. The petitioner is stated to have paid a sum of Rs.1,10,61,684/- till December, 2010, which consisted of Rs.55 lakhs towards interest till December, 2010 and principal amount of Rs.50 lakhs. Faced with such a situation and the fact that the Bank had refused to accept further interest payment and insisting on the dues to be paid in full, the petitioner requested the respondent Bank to convert the 23 months SME loan to a term loan or for considering one-time settlement. However, proceedings were taken under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter called the SARFAESI Act), which was questioned by the petitioner on the ground that there was no notice served. In spite of written assurance stated to have been given by the Bank through letter dated 08.09.2011 to defer further action, the Bank got an order from the Chief Metropolitan Magistrate, Hyderabad, under Section 14 of the SARFAESI Act to take physical possession of the secured asset on 23.09.2011. Pursuant to that order, on 11.02.2012, the respondent took physical possession of the secured asset through an Advocate Commissioner on 28.02.2012 to bring the property for sale on 29.02.2012. A sale notice was accordingly published by the Bank.
3. In the meantime, the petitioner approached the Debts Recovery Tribunal, Hyderabad, in S.A.No.171 of 2012 under Section 17 of the SARFAESI Act, challenging the proceedings, that the respondent Bank did not issue demand notice under Section 13(2) of the SARFAESI Act; hence, all further proceedings by the Bank were bad and non-est in law. Pending consideration of this, the petitioner sought for a stay of the auction notice dated 28.02.2012, fixing the auction on 04.06.2012.
4. It is stated that the Tribunal passed an order on 22.03.2012, directing the petitioner to deposit a sum of Rs.75 lakhs directly to the Bank within four weeks, out of which Rs.15 lakhs was directed to be paid on or before the auction date i.e., 30.03.2012. There was also a default clause therein that in the event of failure of the borrower to deposit the said sum before the auction date, the Bank would be at liberty to go ahead with the sale.
5. The petitioner is said to have deposited Rs.15 lakhs by way of demand draft on 22.03.2012 and filed a petition for extension of time to deposit Rs.60 lakhs within eight weeks. The matter was posted for hearing on 23.05.2012, as the Presiding Officer did not sit on 27.04.2012. However, the Bank issued an auction notice on 02.05.2012, fixing the date of auction on 04.06.2012. Once again, the petitioner sought for a stay. Since the Presidng Officer was not sitting in the month of May, 2012 at Hyderabad, the petitioner moved the Interlocutory Applications before the In-Charge Presiding, Debts Recovery Tribunal-II. The Debts Recovery Tribunal, however, passed an order on 31.05.2012, permitting the Bank to sell the property, but not to confirm the sale for a period of thirty days. The petitioner was directed to pay the amount under Section 13(8) of the SARFAESI Act. It thereby rejected the petition for extension of time and posted the case for 04.07.2012. The Debts Recovery Tribunal also directed that if the petitioner goes for One-Time Settlement within a week from 31.05.2012, the same can be considered by the Bank within two weeks from 31.03.2012. The petitioner accordingly moved for One Time Settlement, which was rejected by the respondent, that there was no direction from the Debts Recovery Tribunal to settle the matter.
6. On 05.07.2012, the Debts Recovery Tribunal, Hyderabad, taking note of the auction conducted on 04.06.2012 wherein the successful bidder was directed to deposit 25% of the sale amount, namely, Rs.2,05,25,000/- and as the balance 75% was not paid, passed an order not to confirm the sale. The petitioner moved another application seeking extension of the order dated 31.05.2012 passed in I.A.No.624 of 2012. In the circumstances, the petitioner was directed to pay a sum of Rs.2,05,25,000/- within a period of four weeks from the date of the order along with 6% simple interest on Rs.2,05,25,000/-, to the successful bidder who had paid the said sum on the date of auction, namely, 04.06.2012, till the date of payment to the auction purchaser. The Bank was directed to cancel the auction and refund the amount with interest to the purchaser and that only after the compliance of both the conditions, the Authorised Officer could cancel the auction. In the event of any failure to comply with the above conditions, the Authorised Officer was at liberty to proceed further in accordance with law on the expiry of four weeks, confirm the auction and receive the balance 75% from the successful bidder.
7. Aggrieved by this order, the petitioner filed a further appeal before the second respondent in A(IR) 668/2012, contending that the auction conducted on 04.06.2012 was illegal and arbitrary and that the order passed on 22.03.2012 directing the petitioner to deposit Rs.75 lakhs without going into the merits of the case, was not proper. It is further stated that by reason of the order passed, the main application itself had become infructuous.
8. In the appeal, the petitioner filed a petition to waive the mandatory deposit in terms of Section 18 of the SARFAESI Act. The Tribunal passed an order, directing the petitioner to deposit a sum of Rs.1,14,65,556/- before the Tribunal on or before 31.10.2012. In view of the fact that the Tribunal was bound by Section 18 of the SARFAESI Act and that the interest of the borrower could not overweigh the interest of the Bank, which is the custodian of public money, the petitioner was directed to deposit 50% of the amount of Rs.2,79,31,113/- which comes to Rs.1,39,65,556/- and after giving due credit to the amount of Rs.25 lakhs paid by the petitioner, the balance worked out to Rs.1,14,65,556/-. Aggrieved by this order, the petitioner has come before this Court for the issuance of a Writ of Certiorari to quash the order of the Tribunal.
9. At the time of admission, this Court passed an order dated 15.11.2012, recording the undertaking of the petitioner to pay a sum of Rs.45 lakhs on or before 19.11.2012 and in the event of failure on the part of the petitioner in paying the said sum, the petitioner undertook to withdraw the writ petition itself. While recording the said undertaking, this Court expressed that in the event of a default committed by the petitioner, the writ petition would be dismissed in limine. This Court further observed that in the event of the petitioner approaching the Bank, they shall consider the settlement offer and report to this Court as to the outcome of the settlement by 23.11.2012.
10. On notice, the first respondent Bank filed its counter affidavit. It pointed out that the Bank granted sufficient time to the petitioner to pay the entire amount due to the Bank and on 05.06.2012, the petitioner addressed a letter to the Bank for settlement of dues under One Time Settlement. By letter dated 11.06.2012, the Bank rejected the request, on the ground that the realisable value of the security was much more than the outstanding and that One-Time Settlement was not applicable to the petitioner. It also justified its action on the issuance of auction notice that it was properly complied with and the auction was conducted in accordance with law. The first respondent herein also stated that the Bank had sanctioned working capital for a sum of Rs.3.40 crores by letter dated 05.09.2008 on the terms and conditions that the Bank had exclusive first charge on construction material/receivables and any other current assets of the project land admeasuring 1015 sq. yards and proposed construction thereon situated at Plot No.737A, S.No.Old 4031 of Sheikapet Village New 120 and 1021 of Hakimet Village, Ward No.8, Block No.2, Road No.37, Jubilee Hills, Hyderabad, as primary security together with personal guarantee of the petitioner's husband K.Satyanarayana Rao.
11. As far as the order passed by the Tribunal is concerned, the respondent submitted that the non-payment of the balance price was only to postpone the issuance of sale certificate to the successful bidder as per the orders of the Tribunal. In spite of the opportunity granted, the petitioner had not made the payment. The sale price of Rs.8.31 crores is more than Rs.2 crores of the reserve price and hence, the sale was not a distress sale. When the Debts Recovery Tribunal had given reasons for insisting on payment of 50% of the amount due as pre-deposit, there could be no ground to interfere with the said order.
12. We may point out herein that subsequent to the directions given by this Court, on the representation made by the petitioner on 19.11.2012, the Bank had replied on 22.11.2012, taking the view that the offer made by the petitioner for One-Time Settlement could not be accepted, for the following reasons:
"(a)That the scheme of OTS for MSME framed by the Bank is not applicable to you as the loan was considered and sanctioned under C&I; segment and not under SME segment.
(b) That the value of realizable security is Rs.8.21 crores as bidded in the auction held by the Bank is much more than the outstandings of Rs.3.25 crores payable by you. Bank cannot loose/sacrifice public money.
(c) That the loan is collaterally also secured by the personal guarantee of your husband Sri.K.Satyanarayana Rao.
(d) Your request for settlement under the SBI OTS-MSME 2012 was not approved by the Bank as advised to you earlier vide our letters dt.30.07.2012 and 27.08.2012. "
13. Learned counsel appearing for the petitioner submitted that the petitioner had already deposited a sum of Rs.70 lakhs, which is above 25%, as directed by this Court as well as by the Tribunal and when there is an earnest effort taken by the petitioner for a One-Time Settlement, the Bank had rejected the said offer as unreasonable. She further pointed out that the letter dated 01.09.2008, given by the petitioner, was under SME Scheme. In the circumstances, the claim of the Bank that the matter could not be settled, is not correct. She further submitted that by letter dated 11.06.2012, the Bank itself had pointed out that if there is an order from the Debts Recovery Tribunal, the claim could be received and considered for One Time Settlement; otherwise, there is no scheme for settlement of dues under One Time Settlement. Thus the Tribunal's order is bad in law.
14. Countering the claim of the petitioner, learned counsel appearing for the Bank placed reliance on the decisions reported in (2011) 4 SCC 548 (Narayan Chandra Ghosh Vs. UCO Bank and others) and (2010) 8 SCC 129 (Indian Bank Vs. Blue Jaggers Estates Limited and others) that even before this Court as well as the before the Tribunal, the petitioner had not complied with the conditions as stipulated under Section 18 of the SARFAESI Act. He pointed out that when the Section itself insists on payment of the amount due at 50% as per the second proviso and as per the third proviso, discretion is available to reduce at not less than 25% of the amount due, all that the petitioner prayed for before the Tribunal was total waiver of the amount payable by it. Thus, when the prayer itself cannot be sustained, the whole exercise of the petitioner is misconceived and the appeal filed is only a ruse to postpone the issuance of sale certificates. Relying on the decision reported in (2010) 8 SCC 129 (Indian Bank Vs. Blue Jaggers Estates Limited and others), learned counsel pointed out that when the petitioner had not evinced any interest to repay the loan, no exception could be taken to the decision of the Bank to reject the petitioner's request for One Time Settlement. In any event, he pointed out that the loan granted to the petitioner was only under C&I; segment. In the circumstances, the petitioner does not deserve any indulgence from this Court. Hence, the course taken by the Bank is not to be interfered with by this Court.
15. In M.P.No.2 of 2012, the auction purchaser had filed a petition to implead himself as a respondent in the writ petition. Learned counsel appearing for the impleading respondent pointed out that the writ petitioner had moved an application in I.A.No.764 of 2012 in S.A.No.171 of 2012 for setting aside the auction sale conducted on 04.06.2012, wherein, this respondent was declared as successful bidder. He submitted that since the said respondent had already parted with substantial amount, his right merits is to be protected; hence, he be impleaded in this petition. Learned counsel appearing for the impleading party also referred to the decision reported in (2011) 4 SCC 548 (Narayan Chandra Ghosh Vs. UCO Bank and others) as regards the maintainability of the writ petition on the order passed by the Tribunal in the face of provisos 2 and 3 to Section 18(1) of the SARFAESI Act, which mandates pre-deposit of the defaulted amount for entertaining an appeal, and submitted that when the writ petitioner had not complied with the order of the Tribunal, no indulgence could be shown to the writ petitioner herein. He also pointed out to the decision reported in AIR 1955 SC 233 (1) (Hari Vishnu Kamath Vs. Ahmad Ishaque and others) to submit that even though this Court had ample jurisdiction under Article 226 of the Constitution of India, yet, the Tribunal's order cannot be interfered with by this Court.
16. Heard learned counsel appearing for the petitioner, learned counsel appearing for the respondent Bank and the learned counsel appearing for the impleading party and perused the materials placed on record.
17. As far as Section 18 of the SARFAESI Act is concerned, we find that while providing for an appeal to the Appellate Tribunal, the second proviso to Section 18(1) stipulates that no appeal shall be entertained unless the borrower had deposited with the Appellate Tribunal, 50% 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 third proviso to Section 18(1) provides that the Appellate Tribunal may, for reasons recorded in writing, reduce the amount to not less than 25% of debt referred to in the second proviso. Thus, for the purpose of maintaining an appeal, while there can be no total dispensation of the payment of the amount due to the secured creditor and insists on payment of the defaulted amount, nevertheless, the third proviso grants a discretion to the Appellate Tribunal for fixing an amount not less than 25% of the debt referred to in the Second proviso. Hence, it is clear that for maintaining an appeal, at least 25% of the debt due to the secured creditor, as determined by the Debts Recovery Tribunal, has to be paid by the defaulter, so that the appeal could be entertained by the Tribunal. As far as the present case is concerned, the Debts Recovery Appellate Tribunal had passed an order under Section 13(2) of the SARFAESI Act that the amount claimed by the secured creditor was Rs.2,79,31,113/-, out of which, 50% comes to Rs.1,39,65,556/-. Holding the view that the Tribunal was bound by Section 18 of the SARFAESI Act and that the interest of the borrower could not overweigh the interest of the Bank, which is meant for circulation among the citizens of the nation, the Tribunal directed the writ petitioner to deposit 50% of the amount of Rs.2,79,31,113/- which comes to Rs.1,39,65,556/- and after giving due credit to the amount of Rs.25 lakhs paid by the petitioner, the balance worked out to Rs.1,14,65,556/-.
18. As already seen, while there can be no doubt as regards the discretion available to the Debts Recovery Tribunal as provided under the proviso to Section 18 of the SARFAESI Act to fix the amount payable as a condition for entertaining the appeal, it is clear that the discretion must be tempered with reasons for reducing it to 25% or ordering it anywhere between 25% and 50% or 50%. Except for a generalised statement that the Bank's money should be available for circulation to other citizens of the nation, it fails to take note of the case made out in the petition seeking waiver of the payment of the defaulted amount. While this Court does not agree with the said claim of the petitioner that there could be a total dispensation of the payment of the amount demanded, it may be seen that the Tribunal did not dismiss the petition on the ground that the petitioner had sought for a total dispensation on the deposit of the due amount; on the other hand, it referred to the second proviso to sub section (1) of Section 18 of the SARFAESI Act when it ordered 50% payment. Except for stating that the interests of the borrower could not outweigh the interest of the Bank which is the custodian of public money and which is meant for circulation among the other citizens of the nation and hence, while stipulating the condition for depositing 50%, the Tribunal had not given any reasons. More so, when there is a provision for exercise of a discretion available to the Tribunal under the third proviso to Section 18(1) of the SARFAESI Act, the Tribunal should have considered the case projected by the petitioner while ordering 50% of the disputed amount payable by the petitioner as a condition for maintaining the appeal. Consequently, we have no hesitation in setting aside the order of the Tribunal. We do agree with the respondent counsel's argument that a defaulter cannot be given a free hand to adopt delay tactics and thwart the efforts of the Bank to realise the amount due. But when the proviso provides sufficient safeguards to the Bank, the Tribunal is given a discretion in matters of fixing the quantum payable as a condition for maintaining the appeal, we do not find any justification to hold that payment at 50% alone would safeguard the interests of the Bank. The question of payment thus depends on the merits of each case and the Tribunal, while considering the second and the third provisos, must exercise its discretion on reasons which are justifiable in law. In the circumstances, we have no hesitation in setting aside the order of the Tribunal.
19. As already noted herein, after issuing a notice to the respondent Bank, we directed the respondent Bank to consider a One-Time Settlement, since, even as per the letter of the Bank dated 11.06.2012, they offered to consider a claim for settlement, if there be an order from the Tribunal. Irrespective of the conditions under which the loan was taken, this Court felt that the Bank should also take an earnest step to consider the claim of the petitioner for a One-Time Settlement, particularly in the wake of such an offer coming from the petitioner before us. This Court also informed the petitioner that any settlement by the petitioner for the loan amount with the Bank would be a final One-Time Settlement. Thus, this Court felt that the interests of the Bank being one of realising the amount due to it and when the petitioner had offered to settle the dues, we felt, there could be no inhibition on the part of the Bank in entertaining such an application from the petitioner. Thus, as directed by this Court, the petitioner also made an application on 19.11.2012. Unfortunately, the Bank once again sent a letter, refusing to heed to the request for One-Time Settlement, a course of action taken by the petitioner as directed by this Court.
20. As is evident from the letter of the Bank dated 22.11.2012, the grounds for rejecting such offer was that the value of the realisable security was Rs.8.21 crores. Admittedly, the total amount due to the Bank as on 21.11.2012 was a sum of Rs.325.31 lakhs. The outstanding amount (with interest applied upto 31.03.2011) was Rs.212.27 lakhs. The accrued interest from 01.04.2011 to 20.11.2012 at the contracted rate was Rs.101.86 lakhs. The other expenses payable viz., legal expenses, security agency charges and recovery agency charges etc., comes to a sum of Rs.11.18 lakhs. Thus, the total amount stated in the letter came to Rs.325.31 lakhs. It is not clear as to whether the Bank had given credit to the amount paid by the petitioner at Rs.15 lakhs and the amount paid by the petitioner as per the orders of this Court. Whatever be the facts on this, we regret that the reasons given by the Bank seem to be motivated only by the value of the realisable security. We wish, the Bank's attitude is a pragmatic one in realising the debts due to it, particularly when a debtor seeks a settlement by One Time Settlement and not to be persuaded by considerations which are of relevance only in real estate dealings. The business of the Bank is lending money and no doubt, it has the right to recover it. In the process, when there is more than one option, the Bank should look at them fairly and balance it in an equitable manner that the business of the Bank as well as the interests of the business receive proper weightage. As of today, it is stated that the amount so far paid by the petitioner comes to a sum of Rs.70 lakhs. Taking note of the amount due and payable as per the notice issued to the petitioner originally and the amount paid thus satisfying 25% of the amount payable by the petitioner under the second proviso, we restore the appeal to the files of the Debts Recovery Appellate Tribunal and direct the Tribunal to take up the appeal on merits.
21. As far as the claim made by the learned counsel appearing for the impleading party is concerned, we had already pointed out that except referring to the provisions of the Act for fixing 50% payment as a benchmark for entertaining an appeal, the order passed by the Tribunal does not contain any reason. Learned counsel appearing for the impleading party expressed his anxiety as regards the huge amount paid to the Bank, which was taken as loan by the petitioner, on which he is paying interest. Taking note of this state of affairs, this Court thought of a final settlement in this matter, which, as we have noted earlier, was rejected by the Bank. In the circumstances, we can only record our anguish over the attitude of the Bank acting as someone dealing in real estate business in not considering the One-Time Settlement to protect the interests of all the stakeholders to avoid a protracted litigation.
22. Thus, taking note of the circumstances, this Court feels that the proper course herein would be to direct the Debts Recovery Appellate Tribunal to take up the appeal petition filed by the writ petitioner and dispose of the same at the earliest.
The writ petition is disposed of accordingly. It is open to the impleading respondent to get himself impleaded in the appeal. No costs. Connected M.P.Nos.1 and 2 of 2012 stand closed.