The Delhi High Court, presided over by Justices Vibhu Bakhru and Amit Mahajan, recently rendered a decision of significance, addressing the extension of interim orders granted by the Debts Recovery Appellate Tribunal ("DRAT") during the pendency of appeals. The court ruled that the extension of such interim orders at the time of remand is not automatic and necessitates a prima facie finding justifying the need for such an extension.
The case in question involved a writ petition filed by Deco Industries, seeking an extension of an interim order granted by DRAT in its favor. Deco Industries contended that the interim order should persist during the remand period. However, the Division Bench dismissed the writ petition, emphasizing that an extension of interim orders without a prima facie case would set an impractical precedent.
The genesis of the legal dispute revolved around a loan obtained by Deco Industries from Karnataka Bank, secured by equitable mortgages over two of its properties. As Deco defaulted on repayment, Karnataka Bank took action by issuing possession notices concerning the mortgaged properties. The financial interest in Deco's case was later assigned by Karnataka Bank to JM Financial.
In response to the dismissal of Deco's Securitization Applications by the Debt Recovery Tribunal (DRT), the company appealed to DRAT. The appellate tribunal, in a decision that set the stage for the subsequent legal proceedings, remanded the matter back to DRT for fresh consideration. DRAT observed that DRT had failed to determine whether the transaction between JM Financial and Karnataka Bank constituted an outright sale of Deco's properties or an assignment of debt under Section 5 of the SARFAESI Act.
Deco's position hinged on the assertion that the transaction was an outright sale, necessitating compliance with RBI guidelines and specific rules. According to Deco, the Security Interest (Enforcement) Rules, 2002, specifically Rules 8 and 9, had not been adhered to in this instance. Moreover, Deco argued that the interim protection granted by DRAT in relation to the mortgaged properties should have endured throughout the remand process.
The court, on a prima facie evaluation, found that the transaction between Karnataka Bank and JM Financial did not constitute a sale of Deco's properties. This finding formed the basis for the court's decision to dismiss the petition. Additionally, the court underscored that Deco had the option to file an application seeking interim relief before DRT during the remand proceedings.
The critical aspect of the court's ruling was its emphasis on the necessity of a prima facie finding before extending interim relief during remand. The court expressed concerns that a blanket extension of interim orders in every remand situation, without establishing a prima facie case for such orders, would be impractical and against the principles of justice.
Advocates Sangram Patnaik, Rajiv Gupta, Manish Kumar Mathur, and Pushkar Anand represented Deco Industries in this legal battle. The court's decision sets a precedent highlighting the importance of demonstrating a prima facie case when seeking the extension of interim orders during the remand process, contributing to the jurisprudence surrounding debt recovery and appellate proceedings.
TAGS: Delhi High Court Debts Recovery Appellate Tribunal (DRAT) Interim order Remand Prima facie finding Writ petition
