Summary
Borrowers challenged both SARFAESI enforcement measures and the auction sale of their secured assets. In their appeals to the DRAT, they argued that the sale proceeds paid by the auction purchasers should count towards the 50% pre-deposit required under the second proviso to Section 18. The Madhya Pradesh High Court accepted this. The Delhi High Court gave credit for the sale proceeds and also excluded interest. The Supreme Court held that the proviso requires the borrower himself to deposit 50% of the debt due. Under Section 2(g) of the RDB Act, that debt includes interest as claimed in the Section 13(2) notice. Following Eskays Construction, a borrower who challenges the auction sale cannot take credit for its proceeds, and may do so only if he unequivocally accepts the sale.
Issues
- Whether, in computing the 50% pre-deposit under the second proviso to Section 18 of the SARFAESI Act, the amount realised from an auction sale of the secured assets can be adjusted where the borrower also challenges that sale.
- Whether the 'debt due' for the pre-deposit includes interest.
Provisions considered
- Section 18 (second and third provisos) and Section 2(ha), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002No appeal can be entertained unless the borrower deposits 50% of the debt due as claimed or determined, whichever is less, reducible to not less than 25% for recorded reasons; debt takes its meaning from the RDB Act. (¶¶ 12, 13, 14)
- Section 2(g), Recovery of Debts and Bankruptcy Act, 1993Debt means any liability inclusive of interest claimed as due, so interest cannot be excluded in computing the pre-deposit. (¶¶ 13, 16)
Held
- The debt due for the pre-deposit is the amount in the Section 13(2) notice where measures under Section 13(4) are challenged, the amount in the sale certificate where the sale is challenged, and the higher figure, inclusive of interest, where both are challenged. (¶ 13)
- The second proviso requires the borrower to deposit the amount, so sale proceeds paid by the auction purchaser cannot be credited towards it unless the borrower unequivocally accepts the sale; a borrower challenging the sale cannot blow hot and cold (Eskays Construction approved). (¶¶ 14, 15)
- The High Courts erred in allowing adjustment of auction proceeds, and the Delhi High Court further erred in excluding interest from the debt due. (¶¶ 16, 17)
Result
Civil Appeal Nos. 8970, 8972, 8973 and 8974 of 2022 by the assignee and auction purchasers allowed and the borrower's Civil Appeal No. 8969 of 2022 dismissed; the judgments of the Delhi High Court dated 22.12.2020 and the Madhya Pradesh High Court (Indore Bench) dated 12.04.2022 set aside to that extent, the borrower being required to deposit 50% of the debt claimed with interest; no costs.