UMMER FAROOQUE v THE CATHOLIC SYRIAN BANK LTD

## IN THE HIGH COURT OF KERALA AT ERNAKULAM ## PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI WEDNESDAY, THE 18TH DAY OF DECEMBER 2019 / 27TH AGRAHAYANA, 1941 ## WP(C).No.24592 OF 2019(Y) ## PETITIONER/S: UMMER FAROOQUE AGED 57 YEARS S/O.M.BASHER,41/312,MAILANCHIKKAL HOUSE,KOKKAPURAM,GOPALPETTA, THALASSERY,KANNUR. BY ADVS. SRI.V.K.PEERMOHAMED KHAN SRI.V.RENJITH ## RESPONDENT/S: - 1 THE CATHOLIC SYRIAN BANK LTD REPRESENTED BY ITS MANAGER, HEAD OFFICE,THRISSUR. 2 THE AUTHORISED OFFICER, CATHOLIC SYRIAN BANK LTD, ZONAL OFFICE,ARAYEDATHUPALAM JUNCTION,INDIRA GANDHI ROAD, KOZHIKODE-673004. - 3 DEBTS RECOVERY APPELLATE TRIBUNAL, CHENNAI R1-2 BY ADV. SRI.P.PAULOCHAN ANTONY ## OTHER PRESENT: SC SUNIL FOR PAULOCHAN ANTONY THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD AND RESERVED ON 05.12.2019, THE COURT ON 18.12.2019 DELIVERED THE FOLLOWING: **W.P.(C) No.24592/2019** **-2-** ## **J U D G M E N T** Dated this the 18th day of December 2019 Heard Adv.V.K. Peer Mohamed Khan for petitioner and Adv.Paulochan Antony for respondent Bank. 2. This writ petition has been heard along with W.P.(C) Nos:9331 and 11506 of 2019 as similar questions of law are stated for decision. 3. The petitioner filed Ext.P1 appeal before DRAT Chennai aggrieved by order dated 31.01.2019 made by Debts Recovery Tribunal (DRT)-I, Ernakulam. The petitioner challenges the legality of Ext.P3 order in I.A. No.523 of 2019, which reads as follows: “The appellants have challenged the order dated 31.01.2019 passed by DRT-I, Ernakulam by which S.A. No.44/2018 was dismissed and possession notice was affirmed. The counsel for appellants submits that bank had issued **W.P.(C) No.24592/2019** **-3-** notice of demand on 17.05.2017 under Section 13(2) of SARFAESI Act for a sum of Rs.1.54 crores. The counsel for appellants further submits that due to business failure and reasons beyond control, appellants could not make payment and prayed for maximum waiver. In view of the fact that DRAT cannot entertain any Appeal unless and until the appellants comply with the formalities on pre-deposit up to 50% of debt amount, which can be reduced to 25%, but not less than 25% in any case and bank is looking for recovery of Rs.1.54 crores since more than last three years, I hereby direct the appellants to make a predeposit of Rs.50 lakhs with the Registrar of this Tribunal within a period of four weeks from today. In the event of failure in complying with the order on predeposit, the Appeal shall stand dismissed automatically for want of mandatory compliance. IA is disposed and closed. On receiving pre-deposit amount, appellants will be entitled for protection from recovery exercise and parties will maintain status quo.” 4. Advocate Khan argues that in the second proviso to Section 18(1) the words 'debt due' as claimed by secured creditor under Section 13(2) is the determining factor, DRAT **W.P.(C) No.24592/2019** **-4-** cannot include interest on the debt due and claimed by secured creditor under Section 13(2) of SARFAESI Act 2002 for the purpose of pre-deposit for maintianing the appeal. In this writ petition the grounds and prayers are similar to the legal grounds raised in W.P.(C) Nos:9331 and 11506 of 2019. 5. While dealing with the scope and ambit of Section 18(1) second proviso, this Court has held in the connected cases as follows: “26.3 I have carefully perused the decisions relied on by both sides. The argument now put forward for petitioners against inclusion of interest post to Section 13(2) notice ought not to be rejected by an off the cuff conclusion on the judgments relied on by respondents. This Court is also of the view that the argument now put forward by the petitioners is distinguishable from the contentions considered and decided in the decisions noted supra. Before adverting to decisions which have bearing on the interpretation of second proviso to Section 18(1) of SARFAESI Act, 2002, the following well established principle of interpretation of statutes are adverted to. **W.P.(C) No.24592/2019** **-5-** 26.4 SARFAESI Act, 2002 is considered as a complete Code enacted by Parliament for realization of debts due to banks, and with this enactment the intervention of civil court for obtaining a Decree and filing E.P. etc. are done away with. Now, the debt due to bank is treated as an executable decree and for the said purpose of execution secured creditors are conferred powers by Section 13 of SARFAESI Act, 2002 and Rules to enforce the security interest in accordance with the provisions of Act 2002. The Parliament has not presumed infallibility or legality to all the measures taken by the secured creditor while exercising all or any of the rights the secured creditor has, viz. take possession, sell the property etc. Therefore, to the extent required procedural safeguards are provided without hampering expeditious realization of debts due to financial institution. A person aggrieved by any of the measures taken by financial institution has remedies viz. file original application under Section 17 before DRT and further file appeal under Section 18 before DRAT. In the scheme of SARFAESI Act, 2002 both the remedies are valuable redressal remedies against illegal or arbitrary enforcement of security interest by Financial Institutions. These measures resulting in securitization could be challenged before the DRT/DRAT as the case may be. A person aggrieved by an order of DRT has the statutory right **W.P.(C) No.24592/2019** **-6-** of appeal under Section 18 before DRAT. The controversy deals with interpreting the pre-deposit condition mandated by second proviso to Section 18. At the cost of repetition, this Court finds it useful to reproduce Section 18 of SARFAESI Act, 2002 here under for immediate reference. 18(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower: Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: (emphasis applied) 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. (emphasis added) (2) Save as otherwise provided in this Act, 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 **W.P.(C) No.24592/2019** **-7-** Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder. 26.5 The consideration and interpretation of second proviso to Section 18(1) of SARFAESI Act, 2002 determine the extent of pre-deposit under second proviso to Sec.18(1) of the Act. According to golden rule or literal construction of statutes, the words of the statute are, first, understood in the natural, ordinary or popular sense and phrases, sentences are construed, according to their grammatical meaning unless such construction of words/phrases leads to some absurdity or that there is something in the context or in the object of the statute to suggest contrary. As Lord Brougham observed in _Crowford_ vs S _pooner_ (1846 (4) MIA 179 page 181 (6) MOOPC Moors Privy Council, to take words as the legislature has given them and to take the meaning which the words given natural imply, unless where the construction of those words is, either by the preamble or by the context of the words in question “controlled or altered”. The interpretative tools/principles viz. literal and “ _NOSCITUR A SOCIIS_ ” are applied to the section under interpretation to derive the meaning of the words, particularly in the company in which the words are used by Parliament. ' _Noscitur'_ means 'to know' and ' _Sociis'_ means 'Association'. Therefore, the full meaning of latin expression "NOSCITUR A SOCIIS" is “to know the meaning of words by association **which according to the** **W.P.(C) No.24592/2019** **-8-** **context** ”. The often quoted expression of Lord Macmillion on the latin expression reads thus: “A word is known by the company, it keeps”. 26.6 The pre-deposit condition for maintaining appeal is covered by second and third provisos to Section 18(1) of Act 2002. The rules of interpretation of proviso are also elaborate and 'a proviso is interpreted in more than one form'. As discussed in Vepa P.Sarathi's Interpretation of Statutes, 5[th] Edition, there is no guideline in any judgment as to when a particular form is the proper form of interpretation. Interpretation depends upon the context, objects etc. a) When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso. b) A proviso must be construed with reference to the preceding parts of the clause to which it is appended. c) Where the proviso is directly repugnant to a section, the proviso shall stand and be held to be a repeal of the section as the proviso speaks the later intention of the makers. d) Where the section is doubtful, a proviso may be used as a guide to its interpretation; but when it is clear, a proviso cannot imply the existence of words of which there is no trace in the section. e) The proviso is subordinate to the main section. f) A proviso does not enlarge an enactment except for compelling reasons. **W.P.(C) No.24592/2019** **-9-** g) Sometimes an unnecessary proviso is inserted by way of abundant caution. h) A construction placed upon a proviso which brings it into general harmony with the terms of the section should prevail. i) When a proviso is repugnant to the enacting part, the proviso will not prevail over the absolute terms of a later Act directed to be read as supplemental to the earlier one. j) A proviso may sometimes contain a substantive provision. The above shows that a "proviso" can be interpreted in so many forms. But there is no guideline in any judgment as to when a particular form is the proper form. It all depends upon the context and object. 26.7 To the case on hand, this Court interprets proviso by keeping in mind the following broad principles of interpretation. a) When one finds a proviso to a section the natural presumption is that but for the proviso the enacting part of the section could have included the subject matter of the proviso. b) A proviso must be construed with reference to the preceding parts of the clause to which it is appended. A construction placed upon a proviso which brings into the general harmony with the terms of the section “ought to While these are the broad on prevail”. guidelines interpretation of proviso, I do not propose to burden the **-10-** ## **W.P.(C) No.24592/2019** judgment with reported case law on these often stated interpretative tools of proviso”. 26.8 Cause of action as a _lis_ between the parties in the present scheme of things under Act 2002, arises with the issue of notice by Financial Institution/Bank under section 13(2) of SARFAESI ACT, 2002. The default of borrower in complying with the demand in Section 13(2) notice, enables financial Institution to take one or any of the measures under sub section (4). A person aggrieved by the mode and manner in which measures are taken up by a financial Institutions moves under section 17, the DRT for all the reliefs stated in Section 17. In an application filed under section 17 against the measures so taken by Financial Institution, DRT decides whether the measures initiated by the banker/Financial Institution under Section 13 subsections (2) and (4) conform to the provisions of Act 2002. A person aggrieved by the decision of DRT has statutory remedy of appeal under Section 18 of SARFAESI Act, 2002. The condition of pre-deposit arises while the statutory remedy of appeal is worked out by the unsuccessful party before DRT. The argument of petitioners as already noted is not against the condition of pre-deposit but on inclusion of interest post to section 13(2) notice by DRAT as part of predeposit under second or third provisos of Section 18. **W.P.(C) No.24592/2019** **-11-** 26.9 Let me first examine a situation where an appeal is filed from an order in challenge to measures under Section 13(2) to (4) i.e. as in the present case and interpret the requirement of second proviso of section 18(1). The proviso imposes a restriction on the Appellate Tribunal to entertain an appeal presented under Section 18(1), unless the condition precedent i.e, pre-deposit is fulfilled by the borrower. The appellate tribunal while entertaining appeal reads second proviso by _Noscitur a sociis_ and literal interpretation to important words in second proviso of Section 18. Interpreting so, the words 'debt due and as claimed' refer to the amount claimed by Financial Institution under section 13(2) of Act 2002. Therefore in the appeals arising from challenge to measures taken under Section 13(2) to 13(4), the DRAT imposes pre-deposit of 50% or 25% on the debt due and claimed in notice under Section 13(2), but can't calculate interest on the amount claimed and order pre-deposit. Therefore the debt referred and claimed by bank is the determining figure on which DRAT could order pre-deposit of 50% or 25% as the case may be. "Debt" claimed by Financial Institution in notice under Section 13(2) is inclusive of interest accrued on the sanctioned loan amount till the date of demand. Therefore the definition of debt in Sec.2 (g) of Act 1993 remains unaffected in any manner with **W.P.(C) No.24592/2019** **-12-** the above interpretation of words debt due from borrower, as claimed by the secured creditor in second proviso. The second proviso, by literal interpretation and by applying associative coherence to all the words in second proviso, it can't be stated or understood to include _pendente lite_ or post Section 13(2) notice interest on the outstanding amount claimed in the notice under Section 13(2). Let me take yet another illustration as readily available in the facts of these writ petitions, that Bank filed O.A. No.56 of 2008 under Section 13(10) of SARFAESI Act 2002 for realising the balance due upon giving credit to the sale consideration received in the sale held on 05.10.2006. The order of DRT finally is challenged by filing appeal under Section 18(1), then DRAT stipulates pre-deposit condition on the amount demanded by financial institutions or on the final determination of debt by DRAT whichever is less. In cases arising under Section 13(10) the DRT decides interest payable during the pendency of recovery claim till the date of realisation. Second proviso provides for the contingencies referred to above, i.e. firstly deals with situations arising on one hand under Section 13(2) to 13(4) and on another under section 13(10) separately. The Parliament, in its wisdom, provided for applicable condition for filing appeal in both the situations. The above interpretation satisfies the meaning of the word 'debt' used **W.P.(C) No.24592/2019** **-13-** in second proviso as is defined by Section 2 of Act 1993. The definition clause is interpreted in the company of words i.e. "as claimed by the secured creditor" in which the words “debt due” are used. In the interpretative exercise undertaken by this court the words are given literal and also associative coherence is attained by not including interest post Section 13(2) notice. 26.10 The emphasis in second proviso is that the borrower deposits with the Appellate Tribunal 50% of the amount of debt due from the borrower as claimed by the secured creditors. So the 50% amount on the debt claimed by bank or determined by DRT. There is no third angle, i.e., as determined by DRAT. This Court is of the view that the calculation and inclusion of interest by DRAT amounts to determination of debt by DRAT, and the third angle is not available from the text or syntax of second proviso. 26.11 At this juncture, it is useful to refer to the judgment of Madras High Court in _Sivakumar Textiles v Debt Recovery Appellate Tribunal, Chennai and others.[1]_ 13. In the event the borrower is not satisfied as to the measures taken by the secured creditor by issuance of notice under Section 13(4), he may prefer appeal to the Debts Recovery Tribunal under Section 17 with a further provision of appeal under Section 18 to the Debts Recovery Appellate Tribunal, in 1 AIR 2012 MADRAS 57 **W.P.(C) No.24592/2019** **-14-** case any order adversely affecting him is passed by the Debts Recovery Tribunal. Under Section 17, the borrower or any person, aggrieved by any of the measures referred to in subsection (4) of Section 13, may appeal to the Debts Recovery Tribunal. That appeal is in respect of the amount claimed under Section 13(2) of the Act. The provision of Section 13(4) does not contemplate any indication as to the quantum of debt to be shown in the possession notice necessarily meaning thereby that for the purpose of challenging the recovery proceedings made under Section 13(4), the demand made under Section 13(2) is alone relevant. Section 18 contemplates a further appeal to the Debts Recovery Appellate Tribunal by a person who is aggrieved by the orders of the Debts Recovery Tribunal. In that sense, the amount demanded under Section 13(2) alone has relevance, as the proceedings under Section 13(4) which was questioned under Section 17 are the proceedings which culminated into one of further appeal under Section 18 of the Act. 16. The above interpretation is alone possible, as it is reasonable and is strengthened by further fact that there is an alternate provision namely that the amount could be as determined by the Debts Recovery Tribunal. In the event, the Debts Recovery Tribunal determines the amount, then 50% of the amount must also be with reference to the amount as determined by the Debts Recovery Tribunal. However, there is a further rider in the said proviso that in the event the amount claimed by the secured creditor is less than the amount determined by the Debts Recovery Tribunal, 50% of the amount to be deposited would be **W.P.(C) No.24592/2019** **-15-** with reference to the amount claimed by the secured creditor and not the amount determined by the Debts Recovery Tribunal. As the borrower has a remedy of appeal to the Debts Recovery Appellate Tribunal, which is the final fact-finding body, his right of appeal may be defeated in the event the second proviso to Section 18 is interpreted to mean that 50% of the amount to be deposited by the borrower would be with reference to the amount claimed by the secured creditor at the time when the Debts Recovery Appellate Tribunal considers the application for waiver. If such interpretation is given, it will lead injustice to the borrower while availing the appellate remedy and shall consequently result in undue hardship. 26.12 The Bombay High Court in _MRB Roadconst.Pvt.Ltd. v Rupee Co-op.Bank Ltd._[2] referred to Division Bench judgment of Madras High Court and the operative portion reads as follows: "18. On a plain reading of the 2nd proviso to section 18(1) of the SARFAESI Act read with the definition under the word "debt" as defined in section 2(g) of the RDDB Act, it is clear that before an appeal can be entertained by the DRAT, the borrower has to deposit 50% of the amount of debt due from him as claimed by the secured creditors or as determined by the DRT whichever is less. If there is no determination of the debt by the DRT under the provisions of the RDDB Act, then the borrower would have to deposit 50% of the amount of debt due from him as claimed by the secured creditors. The provision on a plain reading does not in any way exclude taking into consideration the future 2 2016(2) ABR 256 **W.P.(C) No.24592/2019** **-16-** interest that is accrued on the debt owed by the borrower to the secured creditor. In fact, the definition of the word "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution. Therefore, if the claim made by the secured creditor in the section 13(2) notice includes future interest, the same would certainly be included in the "amount of the debt due" from the VRD 14 of 26 RPW78.15 FINAL.doc borrower to the secured creditor as contemplated under the 2nd proviso to section 18(1) of the SARFAESI Act. There is therefore no justification to hold that it is only the figure that is mentioned in the section 13(2) notice that is to be taken into consideration and not the future interest accrued on the said sum, whilst determining the deposit amount under the 2nd proviso to section 18 of the SARFAESI Act. The amount of deposit would have to be determined on the basis of the amount of debt due by the borrower to the secured creditor on the date when the appeal is filed in DRAT. This would not only include the amount mentioned in the section 13(2) notice but also interest accrued thereon till the date of filing of the appeal under section 18 of the SARFAESI Act. To our mind, this is the only interpretation that is possible of the 2nd proviso to section 18 of the SARFAESI Act." 26.13 This Court is of the view that by allowing Appellate Tribunal to independently decide what is the debt due, would amount to adding words, viz "debts due, as claimed by bank and payable by the debtor" at the time of filing appeal **W.P.(C) No.24592/2019** **-17-** to second proviso of section 18(1). Such course of interpretation is impermissible. In between the reported judgments in _Sivakumar Textiles_ and MRB Road Constitutions Pvt.Ltd., I am convinced and persuaded to following the principles laid down in _Sivakumar Textile_ case. This Court has perused both the judgments and the interpretation by Madras High Court in _Sivakumar Textile_ case as additional reason for holding that debt due as debt due and claimed by secured creditor in Sec.13(2) notice and inclusion of interest post Sec.13(2) notice is unavailable to DRAT. Let me now refer to the principle of law laid down by the Apex Court in _Axis Bank v SBS Organics Pvt.Ltd.[3]_ on how and to whom the pre-deposit is returned after DRAT pronounces judgment. The operative portion reads as follows: "The Appeal under Section 18 of the Act is permissible only against the order passed by the DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre- deposit in favour of the secured creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in 3 2016(12) SCC page 18 para.21 **-18-** ## **W.P.(C) No.24592/2019** case, the appellant makes a prayer for refund of the predeposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. " (emphasis applied) 26.14 The statutory appeal with a concomitant condition of pre-deposit is not interpreted in such a way that the remedies within the four corners of the scheme of SARFAESI Act 2002 are shut out by onerous and burdensome interpretation. The delay, if any, in the proceedings should not be detrimental to a _bona fide_ aggrieved person, pursuing available legal remedies. In the considered view of this Court, second proviso of Section 18(1) can be literally interpreted in the company of the other words i.e. "as claimed by secured creditor" in which the 'debt due' is positioned in the second proviso. Hence this Court holds that a) The borrower in cases filed before DRT questioning measures issued under Sec.13(2) to (4) and appeal filed from such order, the borrower is required to deposit 50% or 25% of amount claimed as debt by secured creditor and interest **-19-** ## **W.P.(C) No.24592/2019** post Section 13(2) can't be notionally calculated by DRAT. b) In cases where an appeal is filed against a decision under Section 13(10), the pre-deposit condition is stipulated by referring to the amount determined by the Tribunal or debt claimed by secured creditor whichever is less. Thus interpreted, the remedy of appeal though not an absolute right on a borrower, but a statutory right is worked out within the scheme of the Act. ” 6. The point whether the Appellate Tribunal can fully waive or exercise its discretion below 25% is no more . _res integra_ Advocate Khan has laid emphasis on including interest on sum claimed in Section 13(2) notice and thereupon directing deposit of 25% is unavailable. In other words, his argument is that the petitioner for arguing the appeal on merits, debtor ought to be put to the condition in third proviso, i.e., 25% on the debt due and claimed by the respondent Bank in Section 13(2) notice. Keeping in view the conclusions recorded in W.P.(C) Nos.9331 and 11506 of 2019, the writ petition is ordered and the petitioner is directed to deposit 25% of Rs.1,54,00,000/- i.e., the **W.P.(C) No.24592/2019** **-20-** debt claimed by Bank, on or before 31.01.2020 before the DRAT. DRAT considers and disposes of appeal subject to such deposit within three months thereafter. The order under challenge is modified as indicated above and the writ petition is ordered accordingly. Sd/S.V.BHATTI JUDGE jjj **-21-** ## **W.P.(C) No.24592/2019** ## APPENDIX PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF THE APPEAL WITHOUT ANNEXURE EXHIBIT P2 TRUE COPY OF THE APPLICATION FOR WAIVER OF PREDEPOSIT EXHIBIT P3 TRUE COPY OF THE PROCEEDINGS OF THE DEBTS RECOVERY APPELLATE TRIBUNAL,CHENNAI. EXHIBIT P4 TRUE COPY OF THE SALE NOTICE.