While explaining the interpretation of Sections 2(1)(f) and 18 of the SARFAESI Act, the Bombay High Court has clarified that a ‘mortgagor’ is included within the definition of a ‘borrower’ as defined in Section 2(1)(f) of the SARFAESI Act. Consequently, a mortgagor, like the Petitioner, is subject to the mandatory pre-deposit requirement stipulated in the second proviso to Section 18(1) of the Act when filing an appeal before the DRAT.
Further, the Court held that the phrase “any order” in Section 18(1) is to be interpreted broadly and encompasses all orders, whether final, interlocutory, or procedural, made by the DRT under Section 17. An order dismissing application for condonation of delay, impleadment, and amendment, which effectively extinguishes a party’s right to challenge substantive recovery measures like an auction sale, is not a mere procedural order. Such an order has substantive implications, and an appeal against it squarely attracts the pre-deposit condition under Section 18.
Emphasising that the right of appeal is a statutory creation, and it must be exercised subject to the conditions laid down in the statute itself, which in this case includes the mandatory pre-deposit, the High Court declined to exercise its extraordinary and equitable jurisdiction under Article 226 and upheld the order of the Debts Recovery Appellate Tribunal (DRAT) which directed the Petitioner to make the mandatory pre-deposit as a condition precedent for its appeal to be entertained.
The Division Bench comprising Justice R.I. Chagla and Justice Farhan P. Dubash observed that the Petitioner was shown as a mortgagor in the two registered Deeds of Simple Mortgage. Despite the Petitioner filing a Commercial Suit in 2019 to challenge these deeds on grounds of fraud, no interim relief had been granted, and therefore, the tribunals and the Court could not ignore the validity of these documents.
The Bench noted that the Petitioner was aware of the sale of the property as early as 12th February 2020 but chose to challenge it before the DRT only about a year later, on 28th January 2021, well after the 45-day limitation period under Section 17 of the SARFAESI Act had expired.
The Bench further observed that the DRT’s common order was not merely procedural. It was passed after considering that the Petitioner had slept on its rights, failed to explain the inordinate delay, and that allowing the amendments would unsettle the rights acquired by the auction purchaser.
The Bench also took into account the significant equities that had been created in the interim. The property had been sold, a fresh mortgage was created, a Development Agreement was executed with Respondent No. 6, over Rs. 80 crores had been spent on construction, 10 rehab buildings were constructed, and about 53% of units in the free sale component had been sold to third-party homebuyers. Given the Petitioner’s delay and the irreversible situation created, the Bench found that neither the merits nor the equities were in the Petitioner’s favour.
Briefly, the case revolves around a property in Andheri, Mumbai, for which Sunshine Builders and Developers (Petitioner) was appointed as the developer for a slum rehabilitation scheme. The Petitioner entered into a series of Co-Development Agreements with Gigaplex Developers Pvt Ltd. (Respondent No. 3), appointing them as a Co-Developer. Subsequently, Respondent No. 3, purportedly using a Power of Attorney from the Petitioner, executed two Deeds of Simple Mortgage in favour of HDFC Bank (Respondent No. 1) to secure a loan, mortgaging the said property. The Petitioner contends these mortgages were executed fraudulently and without its knowledge or authority.
Upon default by Respondent No. 3, HDFC Bank initiated measures under the SARFAESI Act, issuing a notice under Section 13(2) on 13th February 2017. The Petitioner challenged these measures by filing a Securitisation Application (SA) before the Debts Recovery Tribunal (DRT). Later, the bank proceeded with the recovery and sold the property via auction to Havemore Realty Pvt Ltd. (Respondent No. 5), issuing a Sale Certificate.
The Petitioner later filed two applications in the pending SA to implead the auction purchaser and to amend the SA to challenge the sale, along with an application for condonation of delay. When the DRT dismissed both applications, the Petitioner appealed to the Debts Recovery Appellate Tribunal (DRAT), which, directed the Petitioner to make a pre-deposit of Rs. 125 crores as a condition for the appeal to be entertained.
Appearances:
Senior Advocate Simil Purohit, along with Advocates Vikramjit Singh Garewal, Rutwij Bapat, Shashank Fadia, and Priyanka Fadia, for the Petitioner
Senior Advocates Prateek Seksaria, Nitin Thakker, and Venkatesh Dhond, along with Advocates Nishant Chothani, Rohit Agarwal, Ishwar Nankani, Huzefa Khokhawala, Karan Parmar, Kartik Gupta, Nimay Dave, Saloni Sulakhe, Declan Fernandes, Krushika Udeshi, Karishma, Umang Mehta, Aamir Attari, Bhavi Vora and Yashvi Dave, for the Respondent
