SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. & ANRversusPRUDENT ARC LTD. & OTHERS

                           [2023] 1 S.C.R. 553                              553


SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. & ANR                            A
                                   v.
                 PRUDENT ARC LTD. & OTHERS
                   (Civil Appeal No. 8969 of 2022)
                                                                            B
                         JANUARY 05, 2023
          [M. R. SHAH AND B. V. NAGRATHNA JJ.]
       Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002: s.18 – Appeal to
                                                                            C
appellate tribunal – Pre-deposit of 50% of the amount due from the
borrower as claimed by the secured creditor under the second proviso
of s. 18 – Requirement of – Auction sale – Amount already been
recovered/realised by the secured creditor by selling the mortgaged
property through an auction– While calculating the amount of “debt
                                                                            D
due”, the amount deposited by the auction purchaser on purchase
of the secured assets, if to be adjusted and/or appropriated towards
the amount to be deposited by the borrower u/s. 18 i.e., 50% of the
debt due – Held: Under s. 18, the borrower has to deposit 50% of
the amount of “debt due” as claimed by the bank/financial
                                                                            E
institution/assignee along with interest as claimed in the notice u/s.
13(2) – The borrower can take the benefit of the amount received
by the creditor in an auction sale only if he unequivocally accepts
the sale – Borrower is not entitled to claim adjustment/appropriation
of the amount realised by selling the secured properties and
                                                                            F
deposited by the auction purchaser when the auction sale is also
under challenge – On facts, as the auction sale was challenged by
the borrowers, the High Courts erred in directing to adjust/
appropriate the amount realised by auction sale of the secured
properties/deposited by the auction purchasers while considering
                                                                            G
the 50% of the amount as pre-deposit to be deposited by the
borrower, while preferring an appeal before the DRAT – Recovery
of Debts and Bankruptcy Act, 1993 – s. 2(g).

      s. 18 - “Debt due” u/s. 18, if includes the liability plus interest
– Held: “Debt” means any liability inclusive of interest – On facts,        H
                                  553
554            SUPREME COURT REPORTS                       [2023] 1 S.C.R.


A     the High Court erred in excluding the amount payable towards
      interest while considering the “debt due” – Recovery of Debts and
      Bankruptcy Act, 1993 – s. 2(g).

            Disposing of the appeals, the Court
B
             HELD: 1.1 As per Section 2(ha) of the Securitisation and
      Reconstruction of Financial Assets and Enforcement of Security
      Interest Act, 2002, “debt” shall have the same meaning assigned
      to it in clause (g) of Section 2 of the Act 1993. As per section
      2(g) of the Act 1993, “debt” means any liability inclusive of interest
C
      which is claimed as due from any person, by a bank or a financial
      institution during the course of any business activity undertaken
      by the bank or the financial institution, in cash or otherwise,
      whether secured or unsecured, or assigned, or whether payable
D     under a decree or order of any civil court or any arbitration award
      or otherwise or under a mortgage and subsisting on, and legally
      recoverable on the date of the application. That the “debt” means
      any liability inclusive of interest. [Para 13][569-D-F]

            1.2 An appeal under Section 18 of the SARFAESI Act is
E
      permissible against the order passed by the DRT under Section
      17 of the SARFAESI Act. Under Section 17, the scope of enquiry
      is limited to the steps taken under Section 13(4) against the
      secured assets. Therefore, whatever amount is mentioned in the
      notice under Section 13(2) of the SARFAESI Act, in case steps
F
      taken under Section 13(2)/13(4) against the secured assets are
      under challenge before the DRT will be the ‘debt due’ within the
      meaning of proviso to Section 18 of the SARFAESI Act. In case
      of challenge to the sale of the secured assets, the amount
G     mentioned in the sale certificate will have to be considered while
      determining the amount of pre-deposit under Section 18 of the
      SARFAESI Act. However, in a case where both are under
      challenge, namely, steps taken under Section 13(4) against the
      secured assets and also the auction sale of the secured assets, in
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                   555
          PRUDENT ARC LIMITED & OTHERS

that case, the “debt due” shall mean any liability (inclusive of     A
interest) which is claimed as due from any person, whichever is
higher. [Para 13][567-H; 568-A-C]

      1.3. As per the second proviso to Section 18 of the
SARFAESI Act, it is the “borrower” who has preferred an appeal       B
before the Appellate Tribunal and the “borrower” who shall have
to deposit 50% of the amount of “debt due” from him. 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     C
assets can be adjusted and/or appropriated towards the amount
of pre-deposit, to be deposited by the borrower. 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         D
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. [Para 14][568-D-G]                                     E

      1.4. 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-     F
deposit.[Para 15][571-F]

      1.5. In the present case, the respective High Courts have
seriously erred in directing to adjust/appropriate the amount
realised by auction sale of the secured properties/deposited by      G
the auction purchasers while considering the 50% of the amount
as pre-deposit to be deposited by the borrower, while preferring
an appeal before the DRAT. Even the High Court of Delhi has
erred in excluding the amount payable towards interest while
considering the “debt due”. [Para 16][571-G-H]                       H
556            SUPREME COURT REPORTS                       [2023] 1 S.C.R.


A            1.6 As per Section 2(g) of the Act 1993, “debt” means
      liability inclusive of interest as claimed by the bank/financial
      institution.the borrower has to deposit 50% of the amount of “debt
      due” as claimed by the bank/financial institution/assignee along
      with interest as claimed in the notice under Section 13(2) of the
B     SARFAESI Act and the borrower is not entitled to claim
      adjustment/appropriation of the amount realised by selling the
      secured properties and deposited by the auction purchaser when
      the auction sale is also under challenge. [Paras 16 and 17][571-
      H; 572-C]
C
            Eskays Construction Pvt. Ltd. v. Soma Papers &
            Industries Limited & Others 2016 SCC OnLine Bom.
            9827– approved.

D           Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC
            548 : [2011] 3 SCR 1024 – relied on.

                             Case Law Reference

      [2011] 3 SCR 1024               relied on               Para 15
E
            CIVIL APPELLATE JURISDICTION : Civil Appeal No.8969
      of 2022.

            From the Judgment and Order dated 22.12.2020 of the High Court
      of Delhi at New Delhi in W.P. (C) No.6060 of 2020.
F
            With

            Civil Appeal Nos.8970, 8972, 8973 and 8974 of 2022.

            Vinay Navare, Ratan K. Singh, Sr. Advs., Achin Mittal, Rahul
G     Garg, Tuhin, Samir Malik, Keshav Baheti, Nachiketa Joshi, Vikas Rathi,
      Aakash Rathi, Kashish Narang, Abhishek Agarwal, Raghav Mudgal,
      Rajat Bhardwaj, Bimlesh Kumar Singh, Rajeev Kumar Gupta, Vivek
      Phadke, Atul Sharma, Rajiv Ranjan Dwivedi, Arun Aggarwal, Advs. for
      the appearing parties.
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                             557
          PRUDENT ARC LIMITED & OTHERS

      The Judgment of the Court was delivered by                               A
      M. R. SHAH, J.
      1. As common questions of law and fact arise in this group of
appeals, namely, interpretation of Section 18 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’), all these           B
appeals are decided and disposed of together by this common judgment
and order.
       2. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 22.12.2020 passed by the High Court of Delhi at New
Delhi in Writ Petition (Civil) No. 6060/2020, both, the borrower as well       C
as the secured creditor have preferred Civil Appeal Nos. 8969 and 8970
of 2022.
        3. Civil Appeal Nos. 8972, 8973 and 8974 of 2022 have been
preferred against the common impugned judgment and order dated
12.04.2022 passed by the High Court of Madhya Pradesh, Bench at                D
Indore in respective Writ Petition Nos. 5494/2021, 5470/2021 and 5478/
2021, by which the High Court has dismissed the said writ petitions
preferred by the original writ petitioners – auction purchasers and has
confirmed the orders passed by the Debt Recovery Appellate Tribunal,
Allahabad (for short, ‘DRAT’), by which the DRAT while entertaining            E
the appeals under Section 18 of the SARFAESI Act held that the borrower
is not liable to deposit 50% of the amount of debt as the secured property
has been sold and the amount is realised as the same was paid by the
auction purchasers and is to be appropriated towards the amount liable
to be deposited as pre-deposit under Section 18 of the SARFAESI Act.
                                                                               F
      Factual aspects in Civil Appeal Nos.8969 & 8970 of 2022:
       4. That the appellant in Civil Appeal No. 8969/2022 – Sidha
Neelkanth Paper Industries Private Limited (hereinafter referred to as
the ‘principal borrower’) approached the Andhra Bank for sanction of
credit facility and in the year 2008, it had approached Standard Chartered
                                                                               G
Bank for taking over the debt taken by it. In the year 2010, the Andhra
Bank sanctioned open cash credit limit for a sum of Rs. 15.5 crores in
favour of the principal borrower. Immovable properties were mortgaged
by the guarantors and by the borrower to secure the said cash credit
facility. After taking over the existing cash credit facility, a further ad-
                                                                               H
558             SUPREME COURT REPORTS                          [2023] 1 S.C.R.


A     hoc open cash credit to the tune of Rs. 3 crores, due to the Standard
      Chartered Bank, was cleared by the Andhra Bank.
             4.1 Since, the principal borrower failed to make the repayment to
      the Andhra Bank, its account was declared as a Non Performing Asset
      (NPA). A notice dated 10.05.2013 was issued by the Andhra Bank under
B     Section 13(2) of the SARFAESI Act, calling upon the borrower to pay
      the outstanding amount of Rs. 16,61,91,174.67 (Rupees sixteen crores
      sixty one lakhs ninety one thousand one hundred seventy four and paise
      sixty seven only), payable as on 27.04.2013. Objections thereto were
      raised by the principal borrower under Section 13(3A) of the SARFAESI
      Act. Since the amount demanded was not paid under Section 13(2) of
C     the SARFAESI Act, measures under Section 13(4) of the SARFAESI
      Act were initiated by the Bank and possession of one of the mortgaged
      properties, being property bearing No. 170, Deepali, Pitampura, Delhi-
      110034 was taken. An Appeal was filed being SA No. 264/2013 by
      respondent Nos. 2 & 3 herein challenging the measures taken by the
D     Andhra Bank under Section 13(4) of the SARFAESI Act.
             4.2 On 25.07.2013, a conditional interim stay was granted by the
      Debt Recovery Tribunal-III (for short, ‘DRT’) and the applicants in SA
      No. 264/2013 were directed to deposit a sum of Rs. 2 crores within a
      period of 30 days. The said applicants were also directed to bring a
E     better buyer in respect of the properties in question within a period of 60
      days along with 10% of the proposed sale consideration. Since the
      borrower failed to comply with the order of the DRT, the mortgaged
      properties were put to auction. Attempts made by the owners of the
      property to challenge the proposed auction failed inasmuch as the
      application moved before the DRT and the appeal preferred before the
F     DRAT were both dismissed. The writ petition filed by the owners before
      the High Court also came to be dismissed as withdrawn on 17.02.2016.
      That thereafter, the property in question was put to auction after getting
      the property valued and obtaining a valuation report of the property in
      question, namely, property bearing No. 170, Deepali, Pitampura, Delhi-
G     110034. In the meantime, the Andhra Bank assigned all its debts and
      underlying securities to Prudent ARC Limited, the appellant in Civil
      Appeal No. 8970/2022. The borrower filed Writ Petition (Civil) No.
      12791/2018 before the High Court challenging the assignment of debts
      by Andhra Bank, which came to be dismissed by the High Court on
      28.11.2018. An intra-court appeal also came to be dismissed.
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                            559
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

       4.3 That thereafter, the borrower filed an interlocutory application   A
before the DRT to prevent the auction scheduled on 05.12.2018.
However, the DRT allowed the creditor/assignee to proceed with the
auction. 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
                                                                              B
a sale certificate came to be issued in favour of the auction purchaser
on 19.12.2018.
       4.4 The borrower filed an appeal before the DRAT being Appeal
No.616/2018 challenging the order dated 05.12.2018 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             C
vide order dated 20.12.2018 directed the borrower to comply with the
requirements of making a pre-deposit under Section 18 of the SARFAESI
Act. The said order was in the nature of an interim order. The order
dated 20.12.2018 passed by the DRAT was challenged before the High
Court by way of Writ Petition No. 14066/2018.                                 D
       4.5 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 pre- deposit under the second proviso to Section 18 of the SARFAESI         E
Act can be said to have been met. That thereafter, 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 respondent Nos. 2 & 3 herein. Against the
said order, the borrower and the owner of the mortgaged property filed        F
Regular Appeal No. 467/2019. The borrower sought waiver of the
statutory pre-deposit under Section 18 of the SARFAESI Act, relying on
the earlier order dated 26.12.2018 passed in Writ Petition No. 14066/
2018 and contending, inter alia, that as Rs. 12.5 crores had already
been recovered/realised by selling the mortgaged property and the same        G
had been deposited by the auction purchaser, which can be said to be
more than 50% of the debt of Rs. 16.61 crores and therefore the borrower
is not required to pay any further amount towards the pre- deposit as
envisaged under Section 18 of the SARFAESI Act. The DRAT allowed
the waiver of the statutory pre-deposit by observing that the amount
                                                                              H
560             SUPREME COURT REPORTS                           [2023] 1 S.C.R.


A     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.
              4.6 Feeling aggrieved and dissatisfied with the order passed by
B     the DRAT allowing waiver of the statutory pre-deposit on the aforesaid
      ground, the secured creditor/assignee filed the subject writ petition before
      the High Court being Writ Petition No. 6060/2020. By the impugned
      judgment and order, the High Court has 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
C     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 pre- deposit amount to
      25%, after recording reasons in writing for the said reduction. The
      aforesaid order is passed by the High Court, after observing and
D     concluding as under:
            “(a) 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.
            (b) While computing the “amount of debt due”, the amount of
E           debt claimed by he secured creditor in its notice issued under
            Section 13(2) of the Act, shall be relevant and any future interest
            need not be taken into consideration for purposes of determining,
            “the amount of debt due as claimed by the secured credit”, in
            cases where the DRT has not determined the liability of a
F           borrower.
            (c) The interest component shall be ignored only for the purposes
            of Section 18 of the Act. This judgment shall not affect the rights
            of the secured creditors to claim interest from the borrower, for
            recovery of amounts due under the RDDB Act.
G           (d) 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.”
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                             561
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

      4.7 Feeling aggrieved and dissatisfied with the impugned judgment        A
and order passed by the High Court, both, the secured creditor/assignee
– Prudent ARC Limited and the original borrower – Sidha Neelkanth
Paper Industries Pvt. Ltd. have preferred the present appeals.
        Factual Aspects in Civil Appeal Nos.8972, 8973 & 8974 of
2022:                                                                          B
       5. That the respective respondents in the present appeals took
financial assistance by way of a Home Loan to the tune of Rupees one
crore fifty lakhs from Bank of Baroda – the financial creditor. In order
to secure the loan, the borrowers had mortgaged their property situated
at Survey No. 542/2/2/1, Patwari Halka No. 18, Junior Dewas, District          C
Dewas. Upon committing the default in returning the loan amount, the
Bank issued a demand notice dated 3.8.2019 under Section 13(2) of the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI
Act’) for a debt of Rs. 1,40,81,936/-. A possession notice was issued on
10.10.2019. The borrowers approached the DRT by filing SA No. 652/             D
2019. The bank withdrew the said notice and issued a fresh notice dated
13.1.2020 under Section 13(2) of the SARFAESI Act for the outstanding
amount of Rs. 1,40,81,936/- from the borrowers. That thereafter the
bank published the possession notice in daily newspapers on 24.03.2020.
Subsequently, the bank issued a sale notice under Section 8(6) of the          E
Security Interest Enforcement Rules, 2002 and put the mortgaged property
to auction on 17.08.2020.
       5.1 The borrowers again approached the DRT by way of SA No.
240/2020 on 14.08.2020. The bank conducted the auction proceedings
on 17.08.2020 in which the appellants herein – original writ petitioners       F
before the High Court, as one of the bidders, was declared as a successful
highest bidder, having bid of Rs. 1,55,10,000/-. That thereafter the auction
purchaser deposited the entire bid amount. The sale in favour of the
auction purchaser came to be finalised and the sale certificate was
registered on 23.11.2020 in favour of the auction purchaser and he was
put in possession of the secured asset.                                        G
      5.2 Vide order dated 13.11.2020, the DRT dismissed SA No. 240/
2020. Being aggrieved by the order dated 13.11.2020 passed by the
DRT, the borrower approached the DRAT by way of Appeal No.344/
2020 along with an application seeking waiver of the pre-deposit of the
                                                                               H
562            SUPREME COURT REPORTS                          [2023] 1 S.C.R.


A     amount under Section 18 of the SARFAESI Act. By order dated 9.2.2021,
      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
B
      of the SARFAESI Act .
             5.3 Being aggrieved by the said order, the auction purchaser as
      well as the Bank filed the subject writ petitions before the High Court.
      By the impugned common judgment and order, the High Court dismissed
      the said writ petitions by observing that the borrower is not liable to
C     deposit 50% of the amount of the debt as initially claimed by the secured
      creditor in view of the recovery of the amount by way of an auction
      sale. Thus, according to the High Court, 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
D     to be deposited by the borrower under Section 18 of the SARFAESI
      Act.
            5.4 Feeling aggrieved and dissatisfied with the common impugned
      judgment and order passed by the High Court, the auction purchasers
      have preferred the present civil appeals.
E           Rival submissions in CA Nos.8969 & 8970/2022
             6. Learned counsel appearing on behalf of the principal borrower
      has vehemently submitted that the High Court has materially erred in
      directing the principal borrower to deposit 50% of the remaining sum of
      Rs. 4.1 crores as pre-deposit under Section 18 of the SARFAESI Act.
F
             6.1 It is further submitted that in the present case the secured
      property was sold in a public auction for a sum of Rs. 12.5 crores against
      the original amount of debt of Rs. 16.61 crores. That therefore the amount
      recovered was more than 50% of the original amount of debt of Rs.
      16.61 crores and therefore no further order could have been passed
G     directing the principal borrower to deposit any amount towards pre-
      deposit as required under Section 18 of the SARFAESI Act. It is
      contended that the amount realised by the financial institution by selling
      the secured property is required to be adjusted/appropriated while
      considering the “debt due”.
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                             563
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

       6.2 It is further contended that while passing the impugned order,      A
the High Court has misinterpreted the definition of “debt” defined under
Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993
(hereinafter referred to as the ‘Act 1993’). That the “debt due” required
to be calculated to determine the pre-deposit amount shall have to be
calculated deducting the money received by the bank/financial institution
                                                                               B
during the pendency of the proceedings before the DRT.
       6.3 It is next submitted that while passing the impugned judgment
and order, the High Court has erred in not applying the literal rule of
interpretation for construing the second proviso to Section 18 of the
SARFAESI Act for ascertaining true and correct meaning on the
expression of “debt due”.                                                      C

       7. Learned counsel appearing on behalf of the financial institution
and the auction purchaser have vehemently submitted that the High Court
has materially erred in directing the borrower to deposit 50% of the
remaining Rs. 4.1 crores only as pre-deposit. It is contended that the
said order is under challenge by the financial institution in the present      D
case and it is the case on behalf of the financial institution that the High
Court ought to have directed the borrower to deposit 50% of the original
amount of debt of Rs. 16.61 crores.
        7.1 It is submitted that the High Court has very seriously erred in
directing that the amount realised from auction sale of the secured            E
property shall have to be appropriated for the pre-deposit amount which
is to be determined on the balance of the “debt due”, without considering
the interest component.
       7.2 It is further submitted that as per proviso to Section 18 of the
SARFAESI Act, the amount of pre-deposit is to be calculated in respect         F
of the amount of “debt due” and the “debt” in SARFAESI Act is defined
in Section 2(ha). It is submitted that as per section 2(ha) “debt” shall
have the same meaning as assigned to it in section 2(g) of the Act of
1993. It is submitted that on perusal of Section 2(g) of the Act of 1993,
“debt due” would include liability + interest. It is submitted that in the     G
present case the High Court in the impugned judgment and order has
observed and held that while considering the pre-deposit under Section
18 of the SARFAESI Act, interest component is to be ignored. It is
submitted that the same is contrary to Section 2(ha) of the SARFAESI
Act.
                                                                               H
564             SUPREME COURT REPORTS                              [2023] 1 S.C.R.


A            7.3 It is further submitted that as the borrower has challenged the
      notice under Section 13(2) of the SARFAESI Act and has also challenged
      the auction sale, adjustment of the amount recovered from sale of the
      secured assets against the pre-deposit under Section 18 of the
      SARFAESI Act, could not be permitted. Reliance is placed on the decision
      of the Bombay High Court in the case of Eskays Construction Pvt.
B
      Ltd. v. Soma Papers & Industries Limited & Others, 2016 SCC
      OnLine Bom. 9827, against which a special leave petition was filed
      and dismissed. It is submitted that even the proviso to Section 18 of the
      SARFAESI Act does not provide for any such adjustment. It is averred
      that therefore in the present case, the High Court has erred in allowing
C     adjustment of the amount recovered from sale of secured assets, the
      amount which has been deposited by the auction purchaser and not
      borrower while considering pre-deposit under Section 18 of the
      SARFAESI Act.
             Rival submissions in Civil Appeal Nos.8972 to 8974 of 2022
D             8. Shri Vinay Navare, learned Senior Advocate appearing on behalf
      of the auction purchaser, in addition, has vehemently submitted that the
      requirement of deposit under Section 18 of the SARFAESI Act is not
      for the purpose of securing payment of the creditor. That the objective is
      to require the borrower to prove his bona fides and to discourage frivolous
E     litigation from being initiated by the borrower. It is submitted that therefore,
      this Court in the case of Axis Bank v. SBS Organics Private Limited,
      (2016) 12 SCC 18 has held that the amount of pre-deposit is refundable
      to the borrower after disposal of appeal.
             8.1 It is next submitted that the language of Section 18 of the
F     SARFAESI Act is very clear and unambiguous. It says that the
      “borrower shall deposit”, which means such amount is required to be
      brought in by the borrower and the amount standing with creditor through
      auction sale cannot be for the benefit of the borrower. That the borrower
      can take benefit of the amount received by the creditor in an auction
      sale only if he unequivocally accepts the sale. It is submitted that if the
G     borrower wants to question the sale, then he cannot claim the amount of
      deposit for his benefit. The borrower cannot be allowed blow hot and
      cold.
             8.2 Reliance is placed on the decision of this Court in the matter
      of M/s Shilpa Shares and Securities v. National Cooperative Bank
H     Ltd., (S.L.P (Civil) No. 14717/2022, decided on 21.11.2022) wherein
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                           565
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

it has been held that the amount deposited pursuant to the order of this     A
Court cannot be adjusted in pre-deposit. That in the said case, the
borrower applied for OTS and the matter reached this Court and to
show the bona fides of the borrower, while considering its prayer for
OTS, this Court directed to deposit certain amount. That thereafter the
special leave petition came to be dismissed and in an appeal challenging
                                                                             B
the proceedings under the SARFAESI Act, the borrower wanted to adjust
and/or appropriate the amount deposited pursuant to the order passed
by this Court and that Court negatived the same by observing that the
amount deposited pursuant to the order of this Court cannot be adjusted
in pre-deposit.
      8.3 Making above submissions, it is prayed that the impugned           C
judgment and order passed by the High Court be set aside and the
borrower be directed to deposit 50% of the “debt due” without adjusting
and/or appropriating the amount realised by selling the secured assets.
       9. Learned counsel appearing on behalf of the original borrowers
have supported the impugned judgment and order passed by the High            D
Court of Madhya Pradesh and have submitted that the High Court has
not committed any error in dismissing the writ petitions and confirming
the orders passed by the DRAT by which the DRAT after adjusting/
appropriating the amount realised by sale of the secured property held
that the borrowers are not required to deposit any further amount towards    E
pre-deposit as the amount realised is more than 50% of the ”debt due”.
      Consideration:
      10. We have heard learned counsel appearing on behalf of the
secured creditor/assignee, the respective auction purchasers and
respective borrowers.                                                        F
       11. The short question which is posed for the consideration of this
Court is, “whether, while calculating the amount to be deposited as pre-
deposit under Section 18 of the SARFAESI Act, 50% of which amount
the borrower is required to deposit as pre-deposit and whether while
calculating the amount of “debt due”, the amount deposited by the auction    G
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?” Another
question would be, “whether the “debt due” under Section 18 of the
SARFAESI Act would include the liability + interest?”
                                                                             H
566                SUPREME COURT REPORTS                          [2023] 1 S.C.R.


A           12. While considering the aforesaid issues/questions, Section 18,
      & 2(ha) of the SARFAESI Act and section 2(g) of the Recovery of
      Debts and Bankruptcy Act, 1993, which would have a direct bearing are
      required to be referred to. The said provisions read as under:
            18. Appeal to Appellate Tribunal.—(1) Any person aggrieved,
B           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
C           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
D           is less:
            Provided also that the Appellate Tribunal may, for the reasons to
            be recorded in writing, reduce the amount to not less than twenty-
            five per cent. of debt referred to in the second proviso.]
            (2) Save as otherwise provided in this Act, the Appellate Tribunal
E           shall, as far as may be, dispose of the appeal in accordance with
            the provisions of the Recovery of Debts Due to Banks and
            Financial Institutions Act, 1993 (51 of 1993) and rules made
            thereunder.
            2(ha) “debt” shall have the meaning assigned to it in clause (g) of
F           section 2 of the Recovery of Debts Due to Banks and Financial
            Institutions Act, 1993 (51 of 1993) and includes—
            (i)      unpaid portion of the purchase price of any tangible asset
                     given on hire or financial lease or conditional sale or under
                     any other contract;
G           (ii)     any right, title or interest on any intangible asset or licence
                     or assignment of such intangible asset, which secures the
                     obligation to pay any unpaid portion of the purchase price
                     of such intangible asset or an obligation incurred or credit
                     otherwise extended to enable any borrower to acquire the
H                    intangible asset or obtain licence of such asset;
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                            567
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

      Section 2(g) of the Recovery of Debts and Bankruptcy Act,               A
      1993 -
      “debt” means any liability (inclusive of interest) which is claimed
      as due from any person [or a pooled investment vehicle as defined
      in clause (da) of section 2 of the Securities Contracts (Regulation)
      Act, 1956 (42 of 1956),] by a bank or a financial institution or by     B
      a consortium of banks or financial institutions during the course of
      any business activity undertaken by the bank or the financial
      institution or the consortium under any law for the time being in
      force, in cash or otherwise, whether secured or unsecured, or
      assigned, or whether payable under a decree or order of any civil
      court or any arbitration award or otherwise or under a mortgage         C
      and subsisting on, and legally recoverable on, the date of the
      application [and includes any liability towards debt securities which
      remains unpaid in full or part after notice of ninety days served
      upon the borrower by the debenture trustee or any other authority
      in whose favour security interest is created for the benefit of         D
      holders of debt securities or;]”
       13. As per Section 2(ha) of the SARFAESI Act, “debt” shall have
the same meaning assigned to it in clause (g) of Section 2 of the Act
1993. As per section 2(g) of the Act 1993, “debt” means any liability
inclusive of interest which is claimed as due from any person….., by a        E
bank or a financial institution during the course of any business activity
undertaken by the bank or the financial institution, in cash or otherwise,
whether secured or unsecured, or assigned, or whether payable under a
decree or order of any civil court or any arbitration award or otherwise
or under a mortgage and subsisting on, and legally recoverable on the
date of the application. That the “debt” means any liability inclusive of     F
interest.
       As per Section 18 of the SARFAESI Act, any person aggrieved,
by any order made by the DRT under section 17, may prefer an appeal
within thirty days to an appellate Tribunal (DRAT) from the date of
receipt of the order of DRT. Second proviso to section 18 provides that       G
no appeal shall be entertained unless 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 and only and only then, an appeal under Section
18 of the SARFAESI Act is permissible against the order passed by the         H
568             SUPREME COURT REPORTS                           [2023] 1 S.C.R.


A     DRT under Section 17 of the SARFAESI Act. Under Section 17, the
      scope of enquiry is limited to the steps taken under Section 13(4) against
      the secured assets. Therefore, whatever amount is mentioned in the
      notice under Section 13(2) of the SARFAESI Act, in case steps taken
      under Section 13(2)/13(4) against the secured assets are under challenge
      before the DRT will be the ‘debt due’ within the meaning of proviso to
B
      Section 18 of the SARFAESI Act. In case of challenge to the sale of the
      secured assets, the amount mentioned in the sale certificate will have to
      be considered while determining the amount of pre-deposit under Section
      18 of the SARFAESI Act. However, in a case where both are under
      challenge, namely, steps taken under Section 13(4) against the secured
C     assets and also the auction sale of the secured assets, in that case, the
      “debt due” shall mean any liability (inclusive of interest) which is claimed
      as due from any person, whichever is higher.
             14. As observed hereinabove and as per the second proviso to
      Section 18 of the SARFAESI Act, it is the “borrower” who has preferred
D     an appeal before the Appellate Tribunal and the “borrower” who shall
      have to deposit 50% of the amount of “debt due” from him. 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
E     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
F     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
G     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.
            15. An identical question came to be considered by the Bombay
      High Court in the case of Eskays Construction Pvt. Ltd. (supra). Before
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                             569
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

the Bombay High Court, it was the case on behalf of the borrower that          A
though as per Section 18 of the SARFAESI Act, no appeal filed by the
borrower can be entertained by the DRAT unless the borrower deposits
with the DRAT 50% of the amount of “debt due” from him, as claimed
by the secured creditor or as determined by the DRT, whichever is less,
however, that does not mean that in a case where the properties of the
                                                                               B
borrower are sold and the entire dues of the bank are recovered from
that sale, the borrower still has to deposit 50% as contemplated under
Section 18 of the SARFAESI Act. While negativing the said submission,
the Bombay High Court considered the purpose and object of the
SARFAESI Act in paragraph 14 as under:
      “14. We have heard the learned counsel for the parties at length         C
      and perused the papers and proceedings in the Writ Petition along
      with the annexures thereto. Before we deal with the rival
      contentions, it would be necessary to set out the purpose and
      object for which the SARFAESI Act was brought into force. The
      statements of object and reasons of the SARFAESI Act indicate            D
      that the financial sector, being one of the key drivers in India’s
      efforts to achieve success in rapidly developing its economy, did
      not have a level playing field as compared to other participants in
      the financial markets of the world. There was no legal provision
      for facilitating securitisation of financial assets of banks and
      financial institutions, and unlike international banks, the banks and    E
      financial institutions in India did not have the power to take
      possession of securities and sell them. The Legislature felt that
      our existing legal framework had not kept pace with the changing
      commercial practices and financial sector reforms, which resulted
      in delays in recovery of defaulting loans. This in turn had the          F
      effect of mounting levels of non-performing assets of banks and
      financial institutions. In order to bring the Indian Banking Sector
      on par with International Standards, the Government set up two
      Narasimhan Committees and the Andhyarujina Committee for the
      purposes of examining banking sector reforms. These Committees
      inter alia suggested enactment of a new legislation for securitization   G
      and empowering banks and financial institutions to take possession
      of the securities and to sell them without the intervention of the
      Court. Accepting these recommendations, the SARFAESI Act
      was brought into force w.e.f. 21-06-2002. There have been several
      amendments to the SARFAESI Act, the latest being an amendment            H
570            SUPREME COURT REPORTS                          [2023] 1 S.C.R.


A           of 2016 that received the assent of the President on 12 August,
            2016 and was published in the Official Gazette dated 16 August,
            2016. It is called the Enforcement of Security Interest and
            Recovery of Debts Laws and Miscellaneous Provisions
            (Amendment) Act, 2016. The preamble of this amending Act
            indicates that the same was intended to further amend the
B
            SARFAESI Act, the RDDB Act, the Indian Stamp Act, 1899 and
            the Depository Act, 1996 and for matters connected therewith or
            incidental thereto.”
             Thereafter, the Bombay High Court considered in detail Section
      18. After considering the decision of this Court in the case of Narayan
C     Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548, it was observed
      and held that provisions of Section 18, more particularly the second and
      the third proviso thereto are mandatory in nature and that the DRAT has
      no power to grant full waiver of deposit. In paragraph 16, it is observed
      as under:
D           “16. Section 18(1) clearly stipulates, any person aggrieved by
            any order made by the DRT under Section 17, may prefer an
            appeal to the DRAT within 30 days from the date of receipt of the
            order of the DRT. The 2nd proviso to Section 18(1) stipulates that
            no appeal shall be entertained by the DRAT unless the borrower
E           has deposited with it 50% of the amount of debt due from him, as
            claimed by the secured creditors or as determined by the DRT,
            whichever is less. The 3rd proviso to Section 18(1) gives a
            discretion to the DRAT to reduce the aforesaid amount to not less
            than 25%, provided the DRAT gives reasons for the same which
            are to be recorded in writing. What becomes clear from the
F           aforesaid provisions is that there is a jurisdictional bar from
            entertaining an appeal filed by the borrower from an order passed
            under Section 17, unless the borrower deposits 50% of the amount
            of debt due from him, as claimed by the secured creditors or as
            determined by the DRT, whichever is less. There is also a
G           discretion granted to the DRAT to reduce this amount to 25%
            provided it finds adequate reasons for doing so and gives reasons,
            that are recorded in writing. If this deposit is not made, then the
            DRAT has no jurisdiction to entertain the appeal of the borrower.
            The crucial words “debt due from him” have to be interpreted
            consistent with the object and purpose sought to be achieved by
H
 M/S SIDHA NEELKANTH PAPER INDUSTRIES PVT. LTD. v.                            571
   PRUDENT ARC LIMITED & OTHERS [M. R. SHAH, J.]

      the SARFAESI Act. Unless the debt due is secured, the borrower          A
      cannot be allowed the luxury of litigation. If that is permitted, the
      secured creditors would be engaged in a continuous and futile
      litigation. On a plain reading of the section, it is clear that the
      DRAT has no power or jurisdiction to reduce the deposit amount
      to less than 25%. This is ex-facie clear from the plain and
                                                                              B
      unambiguous language of Section 18 of the SARFAESI Act.”
        That thereafter the Bombay High Court considered the submission
on behalf of the borrower that as the bank had already sold the secured
assets for a consideration that fully secured their claim and therefore
there was no requirement for the borrower to deposit any amount as
contemplated under Section 18 of the SARFAESI Act. The Bombay                 C
High Court did not accept the said submission by observing that it would
be ludicrous to suggest that the money realised by the bank from sale of
the secured assets could be used by the borrower to fulfil the condition
of pre-deposit under Section 18. The Bombay High Court has observed
that it would be a different matter if the sale is accepted and confirmed     D
by the borrower. The Bombay High Court further observed that the
borrower cannot be permitted to use the sale proceeds received from
the sale of the subject properties to be adjusted/given credit for in the
application for waiver of deposit and at the very same time challenge
the sale of very same subject properties. The said decision of the Bombay
High Court has been confirmed by this Court as the special leave petition     E
preferred impugning the same, has been dismissed. Even otherwise, we
are in full agreement with the view taken by the Bombay High Court in
the case of Eskays Construction Pvt. Ltd. (supra). We are of the firm
opinion and view that in a case where the borrower challenges the auction
sale, thereafter it will not be open for the borrower to pray to use the      F
sale proceeds received from the sale of the secured properties to be
adjusted/given credit in an application for waiver of pre-deposit.
       16. In view of the above and for the reasons stated above, in the
present case, the respective High Courts have seriously erred in directing
to adjust/appropriate the amount realised by auction sale of the secured      G
properties/deposited by the auction purchasers while considering the 50%
of the amount as pre-deposit to be deposited by the borrower, while
preferring an appeal before the DRAT. Even the High Court of Delhi
has erred in excluding the amount payable towards interest while
considering the “debt due”. As per Section 2(g) of the Act 1993, “debt”
                                                                              H
572              SUPREME COURT REPORTS                        [2023] 1 S.C.R.


A     means liability inclusive of interest as claimed by the bank/financial
      institution.
             17. In view of the above and for the reasons stated above, the
      respective appeals preferred by the financial institution/assignee and
      auction purchasers being civil Appeal Nos. 8970, 8972, 8973 and 8974
B     of 2022 are hereby allowed. The appeal preferred by the borrower against
      the judgment and order passed by the Delhi High Court being Civil Appeal
      No. 8969/2022 deserves to be dismissed and is accordingly dismissed. It
      is observed and held that the borrower has to deposit 50% of the amount
      of “debt due” as claimed by the bank/financial institution/assignee along
      with interest as claimed in the notice under Section 13(2) of the
C     SARFAESI Act and the borrower is not entitled to claim adjustment/
      appropriation of the amount realised by selling the secured properties
      and deposited by the auction purchaser when the auction sale is also
      under challenge.
             18. Civil Appeal Nos. 8970, 8972, 8973 & 8974 of 2022 are
D     accordingly allowed except Civil Appeal No. 8969 of 2022. Consequently,
      Civil Appeal No. 8969 of 2022 stands dismissed, as observed hereinabove.
      However, in the facts and circumstances of the case, there shall be no
      order as to costs.

E     Nidhi Jain                                              Appeals disposed of.
      (Assisted by : Abhishek Pratap Singh, LCRA)




F




G




H