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Sidha Neelkanth Paper Industries Pvt. Ltd. vs Prudent ARC Limited

Civil Appeal · 2023 INSC 14Decided 5 Jan 2023
Civil Appeal No. 8969 of 2022
M.R. Shah · B.V. Nagarathna · C.T. Ravikumar as the second judge

Background

Sidha Neelkanth Paper Industries had borrowed from Andhra Bank against mortgaged property; the account turned bad and the bank demanded about Rs 16.61 crore. The debt was later assigned to Prudent ARC, and one mortgaged property in Pitampura, Delhi was auctioned for Rs 12.5 crore in December 2018. When the borrower wanted to appeal to the Debt Recovery Appellate Tribunal (DRAT), it argued it need not make the statutory pre-deposit of 50% of the debt because the Rs 12.5 crore already realised from the auction exceeded half the debt. The Delhi High Court partly agreed (asking for 50% of only the remaining Rs 4.1 crore, and ignoring interest). In three connected appeals from Madhya Pradesh, borrowers of a Rs 1.5 crore home loan from Bank of Baroda got a complete waiver on the same logic after their property fetched Rs 1.55 crore at auction. The lenders and auction purchasers appealed.

Decision Breakdown

The Supreme Court ruled in favour of the lenders and auction purchasers. Under the second proviso to Section 18, an appeal by a borrower cannot even be entertained unless the borrower deposits 50% of the "debt due" (reducible to a minimum of 25% by the DRAT for recorded reasons); this is mandatory and cannot be fully waived. The words "borrower has to deposit" mean the money must come from the borrower -- money paid by an auction purchaser cannot be counted as the borrower's deposit, especially when the borrower is simultaneously challenging that very auction. A borrower may get credit for sale proceeds only if it unequivocally accepts the sale. The Court also held that "debt due" includes interest, as defined in Section 2(g) of the Recovery of Debts Act, 1993, so the Delhi High Court erred in excluding interest. The borrower's appeal was dismissed and the lenders' and purchasers' appeals allowed.

Lesson Learnt

A borrower who wants to appeal against a bank's SARFAESI action must first put down at least 25-50% of the total claimed debt (with interest) from its own pocket; it cannot point to money the bank has already recovered by auctioning the property while at the same time attacking that auction. You cannot both reject a sale and claim its benefit.

Official source (sci.gov.in)View Judgment (PDF)

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