M/S Chandragiri Estates Panathoor & Ors v. Indian Overseas Bank, Ernakulam Branch

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU** **MONDAY, THE 23RD DAY OF JULY 2018 / 1ST SRAVANA, 1940** **OP (DRT).No. 95 of 2018** ## **OA 429/2012 of DEBT RECOVERY TRIBUNAL, ERNAKULAM ============** ## **PETITIONERS** **1 M/S. CHANDRAGIRI ESTATES PANATHOOR, PANATHADI PO, KASARGODE, A PARTNERSHIP FIRM, REPRESENTED BY ITS MANAGING PARTNER, MR.C.P MATHEW.** **2 MR. C.P MATHEW, AGED 66 YEARS, S/O C.A PAILY, CHOTTANYIL HOUSE, THODUPUZHA EAST PO, THODUPUZHA, IDUKKI DISTRICT-685585.** **3 MRS.LALY JOSEPH, AGED 43 YEARS, W/O C.P MATHEW, KOITHANATH HOUSE, KARIMANNOOR PO, THODUPUZHA, IDUKKI DISTRICT-685581.** **BY ADV.SRI.ZAKEER HUSSAIN** ## **RESPONDENT** **INDIAN OVERSEAS BANK ERNAKULAM BRANCH, XL/8892, 1ST FLOOR, THEKKAKARA MANSIONS,OPP. KAVITHA THEATRE, M.G ROAD, ERNAKULAM, KOCHI-682035.** **BY ADV. SRI.SUNIL SHANKAR, SC, INDIAN OVERSEAS BANK** **THIS OP (DEBT RECOVERY TRIBUNAL) HAVING BEEN FINALLY HEARD ON 23-07-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **OP (DRT).No. 95 of 2018 (O)** ## **APPENDIX** ## **PETITIONERS' EXHIBITS** **EXHIBIT P1 TRUE COPY OF O.A NO.429/2012 DATED 28.9.2018. EXHIBIT P2 TRUE COPY OF THE IMPLEADING PETITION. EXHIBIT P3 TRUE COPY OF THE AMENDED O.A EXHIBIT P4 TRUE COPY OF THE I.A NO.110 OF 2018 TO DISCLOSE THE ASSETS. EXHIBIT P5 TRUE COPY OF THE PROCEEDINGS/ORDER DATED 30.1.2018 IN O.A NO.429/2012. EXHIBIT P6 TRUE COPY OF THE APPEAL NO.139 OF 2018 OF DEBT RECOVERY APPELLATE TRIBUNAL. EXHIBIT P7 TRUE COPY OF THE PROCEEDINGS/ORDER IN AIR 139 OF 2018 ON THE FILE OF THE DEBT RECOVERY APPELLATE TRIBUNAL.** ## **RESPONDENT'S EXHIBITS** ## **NIL** ## **// TRUE COPY//** ## **P.A. TO JUDGE** ## **SD** ## **C R** ## **DAMA SESHADRI NAIDU, J.** ================================== **O.P.(DRT) No. 95 of 2018** ================================== **Dated this the 23[rd] day of July 2018** ## **JUDGMENT** ## **Introduction:** The Recovery of Debts Due to Banks And Financial Institutions Act, 1993, was the first full-fledged enactment that tried to extricate the financial sector from the convoluted Code of Civil Procedure (CPC). Tortuous as it is, CPC boasts of one torturous provision, too: Order 21, a veritable maze, where a creditor gets lost forever, after getting a decree. The 1993 Act now stands retitled as “The Recovery of Debts and Bankruptcy, Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms Act, 1993” (RDBFI Act). 2. The 1993 Act partially succeeded, if ever it did. To cure the systemic maladies, after a decade later, the Parliament brought another legislation: Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFESI Act). 3. The latter, I reckon, complements the former: one is supposed to -2- ## O.P.(DRT) No. 95 of 2018 be speedy and the other expedient; but both, caught in the procedural cobwebs, still struggle to deliver. Here, I refer to these mouthful legal titles as the RDBFI Act and SARFESI Act. 4. Both these Acts have analogous provisions. A creditor or a debtor can invoke either Act, based on the rights it wants to enforce. Section 20 of the RDBFI Act and Section 19 of the SARFESI Act provide for the appellate mechanism. They both refer to the same forum, but with subtle variation in the scope and sweep of the remedy. 5. The case we have on hand arises out of RDBFI Act. It throws open a question: Can the Appellate Tribunal impose a precondition— predeposit of part debt—to entertain an appeal against a Primary Tribunal’s Order—an interlocutory one, at that? ## **Facts in Brief:** 6. The 1st petitioner is a partnership firm. The 2nd and 3rd petitioners are its partners. The petitioner firm took an agricultural term loan and defaulted on repayment. The outstanding debt as on 21.07.2018 stands at Rs.9,68,96,074/-. The petitioners seem to have become part of the firm with its reconstitution after it took the loan. But the debt binds all the partners—so contends the bank. 7. The Bank began recovery proceedings and filed OA No.429 of -3- O.P.(DRT) No. 95 of 2018 2012 before the Debt Recovery Tribunal-I, Ernakulam (“the Primary Tribunal”), under Section 19 of the RDBFI Act. The Bank filed IA No.110 of 2018, requiring the petitioners to provide “the particulars of their properties, assets, and bank accounts.” Through the Ext.P5 order, the Tribunal directed the petitioners 2 and 3 to disclose the information, within two weeks. 8. Aggrieved, the petitioners assailed that order in the Ext.P6 appeal before the Debt Recovery Appellate Tribunal, Chennai. Seen from the record, the Appellate Tribunal passed the Ext.P7 interim order. And it reads thus: “Heard on IA-369/2018 application for condonation of two days delay in filing of appeal. In view of the contents of IA, delay appears to be unintentional and is condoned. IA-369/2018 is allowed. In view of the fact that this matter is related to recovery of Rs.8.26 Crores, next date of listening, Appellants will make a deposit of Rs.4 Crores with the Registrar of this Tribunal. List for confirmation of deposit of Rs.4 Crores on 24.07.2017.” 9. Now, questioning Ext.P7, the petitioners are here. 10. Sri S. Sreekumar, the learned Senior Counsel for the petitioners, contends that the Appellate Tribunal does have the power to insist on the pre-deposit as a condition precedent to entertain an appeal, but that power is under Section 21. According to him, Section 21 can be invoked only when the final order of the Primary Tribunal is assailed. -4- ## O.P.(DRT) No. 95 of 2018 While the Appellate Tribunal considers the correctness of an interlocutory order, it cannot, he submits, invoke Section 21, to impose a precondition. 11. In response, the learned Standing Counsel for the bank has strenuously contended that the Ext.P5 is an innocuous order. The petitioners 2 and 3, according to him, are duty bound to disclose the assets, because their liability remains joint and several. He has also submitted that the debt is huge and it involves public money. 12. To elaborate, the learned Standing Counsel has submitted that, first, the Appellate Tribunal has exercised no power under Section 21; instead, it has used its inherent powers. Second, if the petitioners want to avoid, what they call, the onerous condition, they can as well disclose their assets and proceed with the matter on merits, before the Primary Tribunal. 13. Heard Sri Zakir Hussain, the learned counsel for the petitioner as also the learned Standing Counsel for the respondent Bank. **Discussion:** 14. As seen from the statutory mandate, Section 21 does apply to the Primary Tribunal’s final order. It is trite to observe that once the statute mandates that there can be a pre-condition to entertain an appeal under particular circumstances, applying that condition under other -5- O.P.(DRT) No. 95 of 2018 circumstances, by implication, stands excluded. Section 21 restricts the judicial discretion. 15. Here, we may examine two decisions, one from the Supreme Court and the other from the Bombay High Court: _Narayan Chandra Ghosh v. UCO Bank_[1] and _M/s. Vinay Container Services Pvt. Ltd v. Vinay Container Services Pvt. Ltd_[2] . Both the decisions, I must say, arose out of the SARFESI Act. ## **Precedent and its Holding:** 16. There can be no cavil about what binds of a decision as a precedent. Its holding. And holding emerges when the ratio—the pure principle of law—is applied to the facts of a case. That is, a holding is what the court decides after combining the facts of a case with the legal — principles those facts attract. In a recent commentary on _stare decisis_ The Law of Judicial Precedent —Bryan A. Garner, et al., have elaborately treated this principle. 17. A near-synonym for ‘holding’ is the fuzzy Latinism _ratio decidendi_ — often shortened to ratio. The Latin phrase means “reason for deciding.” While holding might be thought to equate more nearly with the court’s determination of the concrete problem before it, _ratio decidendi_ is 1(2011) 4 SCC 548 2AIR 2011 BOM 37 -6- ## O.P.(DRT) No. 95 of 2018 normally seen as a genus-proposition of which the concrete holding is one species or instance. So the _ratio decidendi_ is a more generalised statement of the holding—more generalised, typically, than one finds in the decision or opinion itself. The distinction is a fine one for those who observe it. 18. Ratio requires adherence to the extent possible, but the holding compels compliance fully. _Stare decisis_ admits of no exception to a ‘caseholding’ in the adjudicatory hierarchy. ## **The Judgments:** (a) Narayan Chandra Ghosh: 19. In _Narayan Chandra Ghosh_ the Appellate Tribunal, as I gather, exempted the appellant from making any deposit under the second proviso to Section 18(1) of the SARFESI Act before its “entertaining the appeal against the order passed by the Debts Recovery Tribunal.” So the Supreme Court had the occasion to interpret Section 18 (1) of the Act. 20. There is an absolute bar, _Narayan Chandra Ghosh_ notes, against the Appellate Tribunal’s entertaining an appeal under Section 18 of the Act unless the appellant fulfills the condition precedent. The language of the proviso to Section 18, it also observes, admits of no ambiguity. From paragraph nine of the judgment, we get to know that the -7- O.P.(DRT) No. 95 of 2018 appeal arose out of an interim order. _Narayan Chandra Ghosh_ , in fact, holds: 9. The argument of the learned counsel for the appellant that as the amount of debt due had not been determined by the Debts Recovery Tribunal, the appeal could be entertained by the Appellate Tribunal without insisting on pre-deposit, is equally fallacious. Under the second proviso to sub-section (1) of Section 18 of the Act the amount of fifty per cent, which is required to be deposited by the borrower, is computed either with reference to the debt due from him as claimed by the secured creditors or as determined by the Debts Recovery Tribunal, whichever is less. Obviously, where the amount of debt is yet to be determined by the Debts Recovery Tribunal, the borrower, while preferring an appeal, would be liable to deposit fifty per cent of the debt due from him as claimed by the secured creditors. Therefore, the condition of pre-deposit being mandatory, a complete waiver of deposit by the appellant with the Appellate Tribunal, was beyond the provisions of the Act, as is evident from the second and third provisos to the said section. At best, the Appellate Tribunal could have, after recording the reasons, reduced the amount of deposit of fifty per cent to an amount not less than twentyfive per cent of the debt referred to in the second proviso. We are convinced that the order of the Appellate Tribunal, entertaining the appellant's appeal without insisting on pre-deposit was clearly unsustainable and, therefore, the decision of the High Court in setting aside the same cannot be flawed. ## (b) Ancillary powers: 21. Before we examine _Vinay Container Services,_ we will consider the concept of “ancillary powers” of a Tribunal. In _Mardia Chemicals Limited v. Union of India_ ,[3] the Supreme Court spoke about the Tribunal’s “ancillary powers.” It has held that “the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose.” 3(2004) 6 SCC 464 O.P.(DRT) No. 95 of 2018 -8- (c) Vinay Container Services: 22. Relying on _Mardia Chemicals_ , a Division Bench of the Bombay High Court in _Vinay Container Services_ , examined the Tribunal’s ancillary powers. In fact, it dealt with the same issue as has arisen here—but under SARFESI Act. The appeal arose out of an interlocutory order, yet the Appellate Tribunal directed the appellants to comply with the condition of pre-deposit under section 18(1) of the Act. So the Division Bench of the Bombay High Court had to address whether Section 18(1) of the Act—pre-deposit—would apply to an appeal against an interlocutory order. 23. _Vinay Container Services_ notes that Section 18 provides a right of appeal to a person aggrieved by any order made by the Debts Recovery Tribunal under section 17. The right of appeal under section 18 arises over “any order made by the Debts Recovery Tribunal”, although under section 17. 24. There is no reason or justification, _Vinay Container Services_ observes, for the courts to exclude an interlocutory order from the purview of sub-section (1) of section 18. The plain language of section 18 must be interpreted and given effect to. A restriction not envisaged cannot be read into section 18. The Court cannot rewrite legislation. According -9- ## O.P.(DRT) No. 95 of 2018 to _Vinay Container Services_ , passing an interim order is ancillary to the power Section 17 conferred on the Tribunal. Hence, an Appeal which arises out of an interlocutory order of the Tribunal under section 17 must be governed by the requirement of pre-deposit under section 18 of the Act. In para 9, _Vinay Container Services_ holds: [W]here the amount of the debt is yet to be determined by the Tribunal and an appeal is preferred before the Appellate Tribunal by the borrower, the condition of pre-deposit would continue to apply by virtue of subsection (1) of section 18. In such a situation, the borrower would be liable to deposit fifty per cent of the amount of debt due from him inasmuch as there is no determination at that stage by the Tribunal of the amount of the debt. ## **What does the statute say?** ## 25. Section 20 of the RDBSFI Act deals with the appeal mechanism. Section 21, pivotal for our purpose, deals with the “deposit of amount of debt due” on a debtor’s filing an appeal. It reads thus: “Where an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution or a consortium of banks or financial institutions, _such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal fifty per cent of the amount of debt so due from him as determined by the Tribunal_ under section 19: Provided that the Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to be deposited by such amount which shall not be less than twenty-five per cent. of the amount of such debt so due to be deposited under this section. (italics supplied) ## 26. To paraphrase, I may observe that a debtor can file an appeal against an “order made, or deemed to have been made.” The Appellate -10- O.P.(DRT) No. 95 of 2018 Tribunal, however, will not entertain a debtor’s appeal unless the debtor has deposited with the Appellate Tribunal 50% of the debt so due from him “as determined by the Tribunal” under section 19. Granted, the Appellate Tribunal may reduce the amount to twenty-five percent. 27. But both the decisions— _Narayan Chandra Ghosh_ and _Vinay Container Services_ —we have examined above arose out of the SARFESI Act. So let us examine Section 18 of that Act to see how the precondition prevails. It reads thus: (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 the 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_ : 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 shall, as tar 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 and rules made thereunder. (italics supplied) 28. We cannot fail to notice the difference in the phraseology employed in Section 21 of the RDBFI Act and Section 19 of the -11- O.P.(DRT) No. 95 of 2018 SARFESI Act, confining them to the precondition. One speaks about the debt as determined by the Tribunal under section 19, the other about the debt, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less. |Section 21 of RDBFI Act|Section 18 of the SARFESI Act| |---|---| |The Appellate Tribunal shall not<br>entertain the appeal unless the<br>appellant-debtor has deposited<br>with the Appellate Tribunal 50%<br>(reducible to 25%) of the debt<br>due from it**as determined by the**<br>**Tribunal under section 19**:|The Appellant Tribunal shall not<br>entertain the appeal unless the<br>appellant-debtor has deposited<br>with the Appellate Tribunal 50%<br>(reducible to 25%) of the debt due<br>from it **as claimed by the**<br>**secured creditors or determined**<br>**by the Debts Recovery**<br>**Tribunal, whichever is less.**| 29. Under Section 21 of the RDBFI Act, in the appeal, to insist on predeposit, the Appellant Tribunal must have had an order from the Primary Tribunal under Section 19—that is, the debt quantification must have taken place. But under Section 18 of the SARFESI Act, the quantification can be either as determined by the Primary Tribunal or as claimed by the Creditor, whichever is less. So I must hold, by inference, that if an interlocutory order is appealed against under RDBFI Act, Section 19 confers no power on the Appellate Tribunal to impose any precondition. But Section 21 of the SARFESI Act, on the other hand, does not limit the Appellate Tribunal’ powers. How? -12- O.P.(DRT) No. 95 of 2018 30. First, I may observe that both _Narayan Chandra Ghosh_ and _Vinay Container Services_ are under SARFESI Act; second, the doctrine of collateral power, I am afraid, cannot be applied once enactments _pari materia_ contemplate diverse procedural consequences. Similar language in statutes with a common purpose, I reckon, must be interpreted in the same way. Pithily put, different Acts having the same subject matter must be read together. Even otherwise, if the phraseology used in two Acts are in _pari materia_ , interpretation under one Act, according to the Supreme Court, will precedentially bind the interpretation under the other. 31. In _Kusum Ingots & Alloys Ltd. v. Union of India_ ,[4] the Supreme Court acknowledged that Section 141 of the CPC excludes its application to writ proceedings. But the Court lays down that “the phraseology used in Section 20(c) of the CPC and clause (2) of Article 226 are _pari materia_ . So the decisions of the Supreme Court “rendered on interpretation of Section 20(c) CPC shall apply to the writ proceedings also.” 32. Courts, in fact, have held that when there are different statutes in _pari materia_ , though made at different times, or even expired, and not referring to each other, they shall be taken and constructed together, as 4(2004) 6 SCC 254 -13- O.P.(DRT) No. 95 of 2018 one system, and as explanatory of each other. But here, the integration between the two enactments is unmistakable. Section 19 (2) of the SARFESI Act, the latter enactment, refers to the RDBFI Act, and lays down that “the Appellate Tribunal 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 and rules made thereunder.” 33. To put the lid on the controversy, let me recapitulate the discussion. In an appeal preferred under Section 18 of the SARFESI Act —even against an interim order—the Appellant Tribunal’s both statutory and incidental powers remain intact. But the appeal preferred under Section 20 of the RDBFI Act, the Appellant Tribunal can impose the precondition _vis-à-vis_ the final orders—not interim orders. Right to remedy: 34. I must also observe that whatever be the merit or demerit of the petitioners' contentions, their right to judicial remedy cannot be denied. The petitioners have, indeed, exercised that right through the Ext.P6 appeal. That said, while interfering with the Ext.P6, I cannot ignore the public interest. Under these circumstances, the Appellate Tribunal imposing a condition _dehors_ statutory mandate for entertaining an appeal against an interlocutory application cannot be sustained. At the same -14- ## O.P.(DRT) No. 95 of 2018 time, the petitioners 2 and 3 shall alienate none of their assets until the Appellate Tribunal disposes of the appeal. 35. I, therefore, interfere with the Ext.P7 to the extent that it imposes the condition against the petitioners to deposit Rs.4 Crore. 36. True, as the learned Standing Counsel contended, the Ext.P7 contains no default clause, nor does it speak in so many words that the petitioners' failure to comply will cause the dismissal of the appeal. But, to clarify, I hold that the Appellate Tribunal will hear the appeal, without the pre-condition. With these observations, I dispose of the writ petition. Sd/- **DAMA SESHADRI NAIDU JUDGE** sd