Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

1 Reportable  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.6016-6017 OF 2019

M/s Kut Energy Pvt. Ltd. & Ors.                …Appellants

VERSUS

The Authorized Officer, Punjab National  Bank, Large Corporate Branch,  Ludhiana & Ors.   …Respondents

J U D G M E N T

Uday Umesh Lalit, J.

1. These  appeals  arise  out  of  the  judgment  and  order  dated

19.03.2019 passed by the High Court of Himachal Pradesh at Shimla in

CMP Nos.4761 and 5386 of 2018 in CWP No.2274 of 2017.

2.  An agreement  was entered into between the appellants  and the

Government of Himachal Pradesh on 26.05.2008 for setting up 24 MW

“Kut Hydro Electric Project” in District Shimla.  For commissioning said

Project, the appellants availed loan from the consortium of Punjab National

Bank (‘the Bank’, for short), Corporation Bank and Central Bank of India.

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

2 On 29.09.2015 the account  of  the  appellant  was  declared  NPA1 by the

Bank.  A demand notice was thereafter issued by the Bank under Section

13(2)  of  the  Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement of Securities Interest Act, 2002 (“SARFAESI Act”, for short)

on 15.03.2017.  The amount due to the Bank as on 14.03.2017 was stated

to be Rs.106,07,91,644.26/-.

3. Soon thereafter,  three proposals  were made by the appellants  in

quick  succession  on  27.06.2017,  01.08.2017  and  19.08.2017  offering

Rs.84, 87 and 90 crores respectively for One Time Settlement (“OTS”, for

short).   On  22.08.2017 a  possession  notice  under  Section  13(4)  of  the

SARFAESI  Act  was  issued  by  the  Bank  in  respect  of  the  Project  in

question.  On 29.08.2017 a sale notice was issued in terms of which the

concerned properties were to be sold by e-auction on 06.10.2017 with a

reserve price of Rs.120 crores.   

4. Immediately an application seeking interim relief being SA No.481

of 2017 was moved by the appellants before the Tribunal2, which prayer

was rejected by the Tribunal by its order dated 06.10.2017.  On 06.10.2017

itself,  the  e-auction  was  conducted  by  the  Bank  in  which  a  bid  was

1 Non-Performing Asset  2 Debt Recovery Tribunal-(1), Chandigarh

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

3 received from 2nd respondent for Rs.120,00,11,000/-.  This prompted the

appellants to revise the OTS proposal to Rs.140 crores.  Such offer was

made on 07.10.2017 and was followed by filing of CWP No.2274 of 2017

before the High Court  on 10.10.2017 challenging (i)  The notices dated

15.03.2017  and  22.08.2017  (ii)  Sale  Notice  dated  29.03.2017  and  (iii)

Order dated 06.10.2017 passed by the Tribunal refusing to grant interim

relief.

5.   The matter came up for preliminary hearing before the High Court

on 11.10.2017 and the Counsel for the appellants submitted that in order to

establish their bona fides, the appellants were willing and ready to deposit

a sum of Rs.140 crores with the Bank.  The submission was recorded and

directions were issued by the High Court as under:

“Mr. B.C. Negi, learned Senior Advocate, states that without  prejudice  to  the  respective  rights  and contentions of the parties and subject to the outcome of  the  writ  petition,  pursuant  to  petitioners’ request (Annexure P-18), which is pending consideration with the lead Consortium Bank, in order to establish their bona fides, petitioners are ready and willing to deposit a  sum  of  Rs.140  crores  with  the  lead  Consortium Bank  (Punjab  National  Bank)  in  the  following manner:- (i) Rs.3  crores  already  deposited  along  with

communication,  dated  7th October,  2017 (Annexure P-18);

(ii) Rs.15 crores on or before 16th October, 2017;

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

4 (iii) Rs.22 crores on or before 1st November, 2017

and (iv) Rs.100  crores  on  or  before  11th December,

2017.

We direct that subject to the petitioners depositing a sum of Rs.140 crores with the Punjab National Bank, in terms of their statement, no coercive action shall be taken against them, more so when they are still in the actual physical possession of the assets, which fact is not disputed before us.   Also, such deposit shall be subject to further orders, which may be passed by the Court.  Deposit with the bank shall be treated to be a deposit in the Registry of this Court.  Further, bank shall take a decision on the petitioners’ request, dated 7th October,  2017 (Annexure P-18),  which Mr. Ajay Kumar, learned Senior Advocate, states shall be taken within a period of four weeks from today.  We further direct that in the event of petitioners’ succeeding in the present petition and/or the bank agreeing with the petitioners’ request, petitioners shall be liable to pay interest to the auction bidder on the amount already deposited pursuant to the auction.  We further direct that till further orders, it shall not be obligatory on the auction  purchaser  to  deposit  the  remaining  balance amount.

We have not expressed any opinion with regard to the rights and claims of the State.”

6. On 31.10.2017  the  Bank  rejected  the  revised  OTS proposal  for

Rs.140 crores i.e. even before the sum of Rs.140 crores was deposited by

the  appellants.   The  appellants,  therefore,  filed  CMP No.9618 of  2017

seeking modification of the aforementioned order dated 11.10.2017 stating

inter alia that deposit of Rs.100 crores be made subjection to the sanction

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

5 of the settlement proposal.  It may be noted here that as on the date the

appellants  had  deposited  a  sum  of  Rs.40  crores  in  keeping  with  the

commitment of first three stages as set out in the order dated 11.10.2017.

7.   The Bank challenged the order dated 11.10.2017 by filing Special

Leave Petition(C) Nos.4898-4904 of 2018 in this Court, submitting  inter

alia that the High Court ought not to have interfered in the matter while

exercising  writ  jurisdiction,  as  alternate  remedy  was  available  to  the

appellants.  The submission was accepted by this Court and the appeals

arising  from SLP(C)  Nos.4898-4904 of  2018  were  disposed  of  by  this

Court as under:

“Heard learned counsel for the parties. Delay condoned. Leave granted. The  respondent  is  a  debtor  to  the  tune  of Rs.325,00,00,000/-  (Rupees  Three  hundred  Twenty Five crores only) and above.  The Bank has rejected a One Time Settlement proposal to settle for a figure of Rs.150,00,000/-  (Rupees  one  hundred  Fifty  crores only),  of  which  the  debtor  has  deposited  only Rs.40,00,00,000/- (Rupees Forty crores only) till date. Meanwhile, an auction of the mortgaged property has already  taken  place,  but,  as  no  interim  relief  was granted by the Debt Recovery Tribunal by its order dated  06.10.2017,  Respondent  No.5,  who  is  the highest bidder, has paid 25% of the bid amount, after which sale confirmation has taken place by a letter dated  07.10.2017.   We  may  hasten  to  add  that  on 18.10.2017,  a  cheque  for  the  balance  of  75%  was

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

6 furnished by respondent No.5, but not encashed, and this was done again on 17.03.2018. In  a  recent  judgment  delivered  by  one  of  us  in Authorised  Officer,  State  Bank  of  Travancore  and Anr.  Vs.  Mathew K.C. (2018) 3 SCC 85, we have cautioned against the High Court interfering in such matters  in  the  writ  jurisdiction.   Such  caution  has unfortunately  not  been  heeded  in  the  present  case. Given the facts of the present case, we, therefore, set- aside the impugned orders passed by the High Court. The appeals are allowed in the aforesaid terms. Pending applications, if any, shall stand disposed of.”

8. On 22.05.2018 the Bank filed CMP No.4761 of 2018 in aforesaid

CWP No.2274 of 2017 seeking appropriation of amount of Rs.40 crores

deposited by the appellants in terms of the order dated 11.10.2017, against

the dues of the appellants.  On the other hand, CMP No. 5386 of 2018 was

filed by the appellants on 29.05.2018 in said Writ Petition for refund of

said amount of Rs.40 crores.  These applications were disposed of by the

High Court by its judgment and order dated 19.03.2019.   The submissions

advanced  by  the  rival  parties  were  dealt  with  and  the  directions  were

passed as under:-

“9. We have heard the learned counsel for the parties at a considerable length and gone through the record. So far as the prayer of the borrowers for the refund of the amount of Rs.40.00 crores is concerned, we do not find any substance in the same.  It is not a case where the  entire  loan  liability,  as  determined  by  the Consortium  of  Banks,  has  been  satisfied  on

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

7 appropriation of sale proceeds of secured assets.  The lead Bank has already filed suit for the recovery of Rs.129.47  crores,  which  is  pending  adjudication before the DRT.  While the borrower/guarantors have a right to contest the bank’s claim before the DRT, it is highly premature and presumptuous for this Court to  comment  upon  the  likely  outcome  of  those proceedings.

10. It  goes without saying that  if  the bank’s suit  is decreed,  fully  or  partially,  the  amount  of  Rs.40.00 crores, deposited by the petitioners before this Court, is  liable  to  be  adjusted/appropriated  towards  the decretal amount.  However, in the event of dismissal of such suit, with a finding that the borrower or the guarantors  are  no  longer  under  any  liability,  the amount  so  deposited  by  them  can  be  refunded  to them.  Since all these issues are yet to be adjudicated by the DRT, we are of the view that the prayer made by the borrower/guarantors for refund of the amount is liable to be turned down and we order accordingly.

11. The prayer made by the bank, on the other hand, deserves to be accepted in part to the extent that let the amount of Rs.40 crores lying deposited with the bank ‘without any lien’ be deposited with DRT, who in turn is directed to keep the same in a Nationalized Bank to fetch maximum rate of interest.  The amount shall remain in FDRs till the decision of the suit filed by the lead Bank (Punjab National Bank).  In case the suit is decreed and the decretal amount is more than Rs.40.00 crores or the interest accrued thereupon, the DRT is directed to transfer the said amount in favour of the Punjab National Bank for adjustment towards loan liability.  In the event of dismissal of the suit, the borrower/guarantors shall be at liberty to seek refund of the said amount from the DRT.”

9. While challenging the aforesaid view taken by the High Court, Mr.

P.S. Patwalia, learned Senior Advocate for the appellants submitted that the

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

8 deposit of Rs.40 crores with the Registry of the High Court in terms of the

order  dated  11.10.2017  was  only  to  establish  the  bona  fides  of  the

appellants in support of the offer made by them.  Once the Writ Petition

itself was held not to be maintainable and the offer made by the appellants

was rejected by the Bank, the amount so deposited must be returned to the

appellants.  Reliance was placed on the decision of this Court in Axis Bank

vs. SBS Organics (P) Ltd.3.  Mr. S. Guru Krishna Kumar, learned Senior

Advocate, appearing for the Bank however contended that the view taken

by the High Court was perfectly justified.  It was submitted that since the

dues of the appellants were far in excess of the value fetched by the sale of

assets, the directions issued by the High Court not only secured the interest

of the Bank but subserved public interest.  In his submission the directions

issued by the High Court were consistent with the principles laid down in

Axis Bank3, as the High Court had not allowed the application preferred by

the Bank in its entirety but had directed that amount be kept in deposit

“without any lien.”   

10. In  Axis  Bank3 the  questions  that  arose  for  consideration  were

whether the money deposited, in order to maintain an appeal under Section

18 of the SARFAESI Act before the Debts Recovery Appellate Tribunal

3 (2016) 12 SCC 18

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

9 (‘DRAT’,  for  short)  could  be  adjusted  towards  the  amount  due  to  the

concerned bank and whether the concerned bank had a lien over the money

so deposited.  The submissions of the concerned bank were recorded in

para  4,  the  definitions  of  terms  ‘secured  asset’,  ‘secured  creditor’,

‘secured debt’ and ‘security interest’ were set out in paras 9 to 12.  It was

observed in para 14 that the secured creditor was entitled to proceed “only

against the secured assets” mentioned in the notice under Section 13(2) of

the SARFAESI Act.  The nature of pre-deposit in terms of Section 18 of

the SARFAESI Act was considered in para 21 and it was concluded that

such deposit was neither a ‘secured asset’ nor was a ‘secured debt’ and in

the circumstances, the prayer for refund of amount in deposit was required

to  be  allowed.   This  Court  also  considered  the  submission  that  the

concerned bank had lien on the deposited amount in terms of Section 171

of the Contract Act, 1872.  The submission was rejected.  Paragraphs 14,

21, 22 and 23 of the decision of this Court in Axis Bank3 were as under:-

“14. A conspectus of the aforesaid provisions shows that  under  the  scheme  of  the  SARFAESI  Act,  a secured  creditor  is  entitled  to  proceed  against  the borrower  for  the  purpose  of  recovering  his  secured debt  by  taking action  against  the  secured assets,  in case the borrower fails to discharge his liability in full within the period specified in the notice issued under Section 13(2) of the Act. It is the mandate of Section 13(3) of the Act that the notice issued under Section 13(2) should contain details of the amount payable by the borrower and also the secured assets intended to

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

10 be enforced by the  secured creditor  in  the  event  of non-payment of the dues as per Section 13(2) notice. Thus, the secured creditor is entitled to proceed only against  the  secured  assets  mentioned  in  the  notice under  Section  13(2).  However,  in  terms  of  Section 13(11) of the Act, the secured creditor is also free to proceed first against the guarantors or sell the pledged assets. To quote:

“13.  (11) Without  prejudice  to  the  rights conferred on the secured creditor under or by this  section,  the  secured  creditor  shall  be entitled  to  proceed  against  the  guarantors  or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of  sub-section  (4)  in  relation  to  the  secured assets under this Act.”

…     …   …

21. The  appeal  under  Section  18  of  the  Act  is permissible  only  against  the  order  passed  by  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  DRAT  as  a  precondition  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 case, the appellant makes a prayer for  refund of the pre- deposit,  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

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

11 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.

22. We are also unable to agree with the contention that the Bank has a lien on the pre-deposit made under Section 18 of the SARFAESI Act in terms of Section 171  of  the  Contract  Act,  1872.  Section  171  of  the Contract Act, 1872 on general lien, is in a different context:

“171.  General  lien  of  bankers,  factors, wharfingers, attorneys and policy-brokers.— Bankers,  factors, wharfingers, attorneys of a High  Court  and  policy-brokers  may,  in  the absence of a contract to the contrary, retain as a security  for  a general  balance of  account, any  goods  bailed  to  them;  but  no  other persons have a right to retain, as a security for such  balance,  goods  bailed  to  them,  unless there is an express contract to that effect.”

…        …   …

23. Section 171 of the Contract Act, 1872 provides for retention of the goods bailed to the bank by way of security for the general balance of account. The pre- deposit  made  by  a  borrower  for  the  purpose  of entertaining the appeal under Section 18 of the Act is not with the bank but with the Tribunal.  It  is not a bailment with the bank as provided under Section 148 of the Contract Act, 1872. Conceptually, it should be an  argument  available  to  the  depositor,  since  the goods bailed are to be returned or otherwise disposed of,  after  the  purpose  is  accomplished  as  per  the directions of the bailor.”

11. In the present  case the deposit  of  Rs.40 crores in  terms of  the

order of the High Court on 11.10.2017 was only to show the bona fides of

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

12 the appellants when a revised offer was made by them.  The deposit was

not towards satisfaction of the debt in question and that is precisely why

the High Court  had directed that  the deposit  would be treated to  be a

deposit in the Registry of the High Court.   

Going  by  the  law  laid  down  by  this  Court  in  Axis  Bank3 the

‘secured creditor’ would be entitled to proceed only against the ‘secured

assets’ mentioned in the notice under Section 13(2) of the SARFAESI

Act.  In that case, the deposit was made to maintain an appeal before the

DRAT and  it  was  specifically  held  that  the  amount  representing  such

deposit was neither a ‘secured asset’ nor a ‘secured debt’ which could be

proceeded against  and that  the appellant  before DRAT was entitled to

refund of the amount so deposited.   The submission that the bank had

general lien over such deposit in terms of Section 171 of the Contract Act,

1872 was rejected as the money was not with the bank but with the DRAT.

In the instant case also, the money was expressly to be treated to be with

the Registry of the High Court.

 On the strength of the law laid down by this Court in Axis Bank3,

in our view, the appellants are entitled to withdraw the sum deposited by

them in terms of said order dated 11.10.2017. Their entitlement having

Civil Appeal Nos.6016-6017 of 2019  M/s Kut Energy Pvt. Ltd. & Ors. vs. The Authorised Officer,  Punjab National Bank, Large Corporate Branch, Ludhiana & Ors.   

13 been established, the claim of the appellants cannot be negated by any

direction that the money may continue to be in deposit with the Bank.

12. We, therefore set aside the judgment and order dated 19.03.2019

passed by the High Court, allow CMP No.5386 of 2018 preferred by the

appellants and direct that the amount deposited by the appellants in terms

of the order dated 11.10.2017 be returned to them within two weeks along

with interest, if any, accrued thereon.

13. These appeals stand allowed in aforesaid terms.  No costs.   

……………………..J. [Uday Umesh Lalit]

……………………..J. [Vineet Saran]

New Delhi; August 20, 2019.