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Axis Bank Ltd. (S) v. Sbs Organics Pvt. Ltd. & 1 (S)

Gujarat High Court

Apr 1, 2015

Judgment

Subsequent
References

CaseIQ

Smart Summary (Beta)

Structured Summary of the Opinion (Letters Patent Appeal)

Factual and Procedural Background

This is a Letters Patent Appeal preferred against the order dated 05.03.2015 passed by the learned single Judge in a writ petition.

The appellant's counsel (Ms. Nalini Lodha) submitted that Securitization Application No. 152/2010 filed by respondent no.1 before the Debts Recovery Tribunal-II, Ahmedabad (DRT) was partially allowed and that the notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the "Securitisation Act") was held to be valid by the DRT. It was also submitted that the appellant had filed Original Application No. 90/2011 before the DRT under Section 19 of the Recovery of Debts by Banks and Financial Institutions Act, 1993 for recovery of a substantial amount with interest.

The single Judge granted relief in the writ petition by quashing an order of the DRAT, Mumbai which had made withdrawal/refund of an amount conditional on disposal of any appeal that might be filed by the bank. The single Judge directed refund of Rs. 50,00,000 (Rupees Fifty lacs) deposited by the petitioner before the DRAT, Mumbai.

On appeal, the appellate Bench (K.S. Jhaveri, J.) considered the single Judge's reasoning and ultimately rejected the Letters Patent Appeal, upholding the single Judge's order. The appellate court noted that the appeal was withdrawn and that the deposit had been made as a pre-condition.

Legal Issues Presented

Whether an amount deposited as a pre-condition for availing the statutory remedy of appeal (before DRAT/DRT) must be refunded to the depositor when the appeal is disposed of or withdrawn, particularly where the deposit is held by an institution in trust.
Whether the respondent bank can claim the deposited amount directly when the deposit was made as a pre-condition for filing an appeal.
Whether the court may exercise its discretionary jurisdiction under Article 226 of the Constitution to prevent alleged abuse of statutory power and to order refund of such a deposit.
Whether an order of DRAT which conditions withdrawal/refund of the deposit on the disposal of a potential appeal by the bank is sustainable.

Arguments of the Parties

Appellant's Arguments

It was submitted that the learned single Judge failed to appreciate that Securitization Application No.152/2010 filed by respondent no.1 before the DRT was partially allowed and that the notice under Section 13(2) of the Securitisation Act was held valid by the DRT.
The appellant had filed Original Application No.90/2011 under Section 19 of the Recovery of Debts by Banks and Financial Institutions Act, 1993 seeking recovery of a large sum with interest; accordingly, the single Judge's order ought to be quashed and set aside (as contended by the appellant).

Respondent's (Bank's) Arguments

Learned Senior Counsel Shri S.N. Soparkar submitted that a huge amount remained outstanding and therefore the deposited amount may not be refundable to the depositor.
It was urged that the scope of judicial review under Article 226 should be limited and that the court should not interfere in a manner that would permit abuse of statutory powers vested in the bank or in statutory fora.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Babu Ganesh Singh Deepnarayan (Division Bench of the High Court of Gujarat) (referred to as "supra")	Supports the principle that where an amount is deposited as a pre-condition for availing the statutory remedy of appeal and the appeal is disposed of, the deposited amount must be refunded because the institution holds it in trust and it cannot be claimed by the bank.	The single Judge relied on this authority (together with Section 18 of the Securitisation Act) to quash the DRAT order that made withdrawal/refund conditional; the appellate court accepted that reliance and affirmed the single Judge's approach.

Court's Reasoning and Analysis

The courts proceeded from the factual premise (accepted for the purposes of the orders) that the deposit had been made as a pre-condition for availing a statutory remedy (an appeal before DRAT). The single Judge analyzed the matter along the following lines:

The submission that a large outstanding amount justified withholding the deposited funds was characterized as misconceived; the bank retains other remedies available in law, including remedies under the Securitisation Act.
The court emphasized the nature of judicial review under Article 226: it will not countenance an abuse of statutory power. Where the deposit was placed as a pre-condition to avail a statutory remedy and that remedy has been disposed of (or withdrawn), the deposit — held by the tribunal/institution — is to be regarded as held in trust for the depositor and must be refunded rather than being appropriated by the bank.
The single Judge expressly referred to Section 18 of the Securitisation Act and relied on the decision of the Division Bench in Babu Ganesh Singh Deepnarayan to support the proposition that an institution holding such a deposit does so in trust and the deposited amount cannot be claimed by the bank once the appeal/recourse condition has been satisfied or the appeal disposed/withdrawn.
Applying those principles, the single Judge concluded that the DRAT (Mumbai) order which made withdrawal/refund conditional upon the outcome of a potential appeal by the bank could not be sustained; the deposited sum (Rs. 50,00,000) was ordered to be refunded forthwith.
The appellate Bench agreed with the single Judge's reasoning, noting specifically that the appeal had been withdrawn and that the deposit had been put as a pre-condition; on that basis the appellate court found no merit in the Letters Patent Appeal and rejected it.

Holding and Implications

APPEAL REJECTED.

Direct consequences and immediate effects:

The Letters Patent Appeal against the single Judge's order dated 05.03.2015 was rejected by the appellate Bench.
The single Judge's order quashing the DRAT, Mumbai order (which had conditioned withdrawal/refund of the deposit on disposal of a potential appeal by the bank) was upheld.
The petitioner is permitted to withdraw the deposited amount of Rs. 50,00,000 forthwith, consistent with the single Judge's direction that the institution held the sum in trust.
The court noted that the bank continues to have available remedies in accordance with law, including under the Securitisation Act; but the bank could not claim the deposited sum directly from the institution holding it as a pre-condition deposit.

The opinion relied on Section 18 of the Securitisation Act and an existing Division Bench decision (Babu Ganesh Singh Deepnarayan) to reach its conclusion; the appellate decision affirms the single Judge's application of those authorities and does not purport to create a new broader precedent beyond the application to the facts before the court.

Show all summary ...

K.S Jhaveri, J.:— This Letters Patent Appeal has been preferred against the order dated 05.03.2015 passed by the learned single Judge in the captioned writ petition.

2. Ms. Nalini Lodha learned counsel for the appellant submitted that the learned single Judge failed to appreciate the fact that Securitization Application No. 152/2010 filed by respondent no. 1 before the Debts Recovery Tribunal-II, Ahmedabad (DRT) was partially allowed and the Notice u/s.13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the Act”) was held to be valid by the DRT. It was submitted that the appellant had already filed Original Application No. 90/2011 before the DRT u/s.19 of the Recovery of Debts by Banks and Financial Institution Act, 1993 for recovery of huge amount with interest. However, the learned single Judge failed to appreciate the matter in its proper perspective. Hence, the same deserves to be quashed and set aside.

3. While entertaining the writ petition, the learned single Judge in Paras 8 - 10 observed as under;

“8. The submission made by learned Senior Counsel Shri S.N Soparkar that the huge amount is outstanding and therefore it may not be refunded, is misconceived. The Bank may have appropriate recourse in accordance with law including the Securitisation Act.

9. The submission made by learned Senior Counsel Shri S.N Soparkar with regard to the scope of judicial review under Article 226 has not impressed inasmuch as the court cannot permit the abuse of the statutory power. In the facts of the case, the amount which has been deposited for availing the statutory remedy as a precondition has to be refunded and the same cannot be permitted to be claimed by the Respondent Bank. It may have its own recourse in accordance with law including the statutory provisions of the Securitization Act. Therefore, for recovery, they can take the necessary steps as may be advised in accordance with law., but the amount which is deposited is lying with the institution like DRT holding it in a trust and cannot be permitted to be recovered straightway by the Respondent Bank making claim over such an amount which is deposited by the litigant to avail the statutory remedy. Therefore, the discretionary jurisdiction under Article 226 has to be exercised to prevent any miscarriage of justice or abuse of power by the Respondent Bank.

10. Therefore, considering the statutory provision of Section 18 of the Securitisation Act and the judgment of the Hon'ble Division Bench of the High Court of Gujarat in case of Babu Ganesh Singh Deepnarayan (supra), it is evident that if the amount is deposited as a pre-condition for availing the statutory remedy of appeal and the appeal is disposed of, the same has to be refunded as the institution would hold it as in the trust and therefore it cannot be a matter for claim by the Bank. Therefore the order passed by the DRAT, Mumbai making the withdrawal of the amount or refund of the amount conditional that it is subject to disposal of the appeal that may be filed by the Bank cannot be sustained and the impugned order deserves to be quashed and set aside and is hereby quashed and set aside. The amount of Rs. 50,00,000/- (Rupees Fifty lacs) deposited by the petitioner before the DRAT, Mumbai is permitted to be withdrawn forthwith. Rule is made absolute. No order as to costs.”

4. We are in complete agreement with the reasonings given by the learned single Judge in the impugned order since the appeal was withdrawn and the deposit was put as a precondition. In view of the same, we find no merits in the appeal and is, accordingly, rejected.