IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.                        OF 2010. (Arising out of SLP(C) NOS. 4981-4982 OF 2010)

Indian Bank …Appellant   

Versus

M/s. Blue Jaggers Estates Ltd. and others …Respondents

J U D G M E N T  

G.S. Singhvi, J.

1. Leave granted.

2. These appeals filed for setting aside order dated 23.10.2009 passed by  

the Division Bench of  Madras High Court  are illustrative  of  how a defaulting  

borrower can use the court process for frustrating the action initiated by a bank  

under the Securitization and Reconstruction of Financial Assets and Enforcement  

of Security Interest Act, 2002 (for short ‘the Act’) for recovery of its dues.

3. The  appellant-Bank  sanctioned  loan  to  M/s.  N.S.  Investments,  a  

partnership firm in 1989 and again in 1991.  After some time, the account of  

M/s.  N.S.  Investments  was  declared  as  non-performing  asset.   In  1995,  

respondent No.1 M/s. Blue Jaggers Estate Ltd. took over the assets and liabilities  

of  M/s.  N.S. Investments.   The respondents claim that  this  was done at  the  

asking of the appellant who agreed to provide additional financial assistance to  

the tune of Rs.1 crore, but no tangible evidence has been produced in support of  

this assertion.   

4. Since the respondents failed to clear the outstanding dues, the appellant  

filed an application under Section 19 of the Recovery of Debts Due to Banks and  

Financial  Institutions  Act,  1993  (for  short,  `the  DRT  Act’)  for  recovery  of  

Rs.2,15,38,158/- with interest.  The same was registered as O.A. No. 1098 of  

1998 and is pending before Debts Recovery Tribunal, Chennai (for short, `the  

Tribunal’).  

5. During the pendency of O.A. No. 1098 of 1998, the parties signed Joint  

Memo of Compromise dated 23.6.2004 whereby the appellant agreed to accept  

an amount of Rs.153.50 lakhs towards full and final settlement of its claim  as  

against the outstanding dues of Rs.661.30 lakhs.  The schedule of repayment  

was fixed by the parties and the appellant agreed for proportionate release of  

the mortgaged and non-mortgaged properties.  The parties also agreed that in

case of non-compliance of any of the conditions, O.A. No. 1098 of 1998 shall  

stand  decreed.   This  is  evinced  from  paragraph  4  of  the  Joint  Memo  of  

Compromise which reads as under:

“In  the  event  of  Non-compliance  of  any  one  of  the  aforesaid  conditions, the Original Application No. 1098 of 1998 shall  stand  decreed as prayed for and the Applicant bank shall be entitled to  recover  the  full  amount  of  Rs.2,15,38,158.00  as  prayed  in  the  Original Application with future interest at contract rate from the  Application date till payment in full with costs and also proceed to  bring the schedule mentioned properties in the Original Application  for sale through public auction at the cost of the defendants.”

6. Although,  the  respondents  did  not  pay  full   amount   in  terms  of  

compromise dated 23.6.2004 and as a result of that, the appellant acquired the  

right to recover all the dues, it signed another compromise with the respondents  

who  undertook  to  pay  the  balance  amount  of  Rs.63.50  lakhs  on  or  before  

31.3.2005   along  with  interest  at  the  rate  of  11.50%  per  annum.  

Notwithstanding  this,  the  respondents  defaulted  in  payment  of  the  balance  

amount, which they finally paid on 28.3.2007.

7. In the meanwhile, the appellant issued two notices dated 19.2.2004 and  

30.12.2006 under Section 13(2) of the Act.  By the first notice, the respondents  

and some others were called upon to pay Rs.6,47,21,885/- together with interest  

at the rate of 19.89% per annum with quarterly rests.   By the second notice,  

they  were  asked  to  pay  Rs.9,86,25,736/-  which,  according  to  the  appellant,  

became due as on 31.12.2006 together with interest at the rate of 19.89% per

annum with  quarterly  rests.   The  respondents  filed  objections  under  Section  

13(3-A)  of  the  Act  and  claimed  that  during  the  pendency  of  the  recovery  

proceedings  instituted  under  the  DRT  Act,  the  appellant  cannot  invoke  the  

provisions of the Act.  They also claimed that the Tribunal has the discretion to  

decide the rate of interest payable after filing of an application under Section 19  

of the DRT Act and requested that the proceedings initiated under the Act may  

be dropped.  The appellant did not accede to the request of the respondents and  

issued  notice  dated  26.7.2007  under  Section  13(4)  of  the  Act  for  taking  

possession of the mortgaged properties.

8. Faced with the imminent threat of sale of the properties mortgaged by  

them, the respondents filed an application under Section 17 of the Act (S.A. No.  

221  of  2007)  for  quashing  the  proceedings  initiated  by  the  appellant  under  

Section 13 thereof.  While doing so, the respondents must have been conscious  

of the fact that it will not be possible for them to avoid the inevitable for a long  

time.   Therefore,  with  the  sole  object  of  delaying  final  adjudication  of  the  

application filed by them, the respondents filed three interlocutory applications.  

In the first application, they prayed that O.A. No. 1098 of 1998 may be heard  

and disposed of  along with S.A.  No. 221 of  2007.  In the second and third  

applications, they prayed for summoning of NPA registers of the period between  

1993  and  1997  and  Board’s  notings  recorded  on  the  file  of  the  appellant.  

Respondent  No.2  also  filed  Writ  Petition  No.  7562  of  2008  for  issue  of  a

mandamus to the Tribunal to take up O.A. No. 1098 of 1998 and decide the  

same along with S.A. No. 221 of 2007.  That petition was referred by the High  

Court  to  the Tamil  Nadu Mediation  and Conciliation  Centre,  which  submitted  

report dated 4.9.1998 incorporating therein the offer made by respondent No.2  

herein that  he is  ready to  pay interest  for  the delayed payment of  Rs.63.50  

lakhs.  It, however, appears that the appellant did not accept the offer because  

as a result  of  the respondents’  failure to pay the agreed amount,  the entire  

amount became payable in terms of paragraph 4 of the Memo of Compromise  

dated 23.6.2004.  

9. By an order dated 9.6.2008, the Tribunal dismissed S.A. No. 221/2007.  It  

held  that  the  appellant  herein  had  taken  action  under  the  Act  because  the  

borrower did not pay the outstanding dues.  The Tribunal took cognizance of the  

compromise  deeds  signed  by  the  parties  and observed that  the  appellant  is  

entitled to recover the outstanding dues because the borrower failed to fulfil its  

commitment in accordance with the terms of compromise.  

10. The respondents challenged the aforementioned order of the Tribunal by  

filing an appeal under Section 18 of the Act.   They also applied for restraining  

the  appellant  from  taking  action  in  furtherance  of  the  notices  issued  under  

Section 13(2) and 13(4) of the Act.  By an order dated 21.7.2008, the Debts  

Recovery  Appellate  Tribunal  at  Chennai  (for  short,  `the  Appellate  Tribunal’)

granted interim stay subject to the condition of deposit of Rs.3 crores in two  

equal instalments of Rs.1.5 crores each. This did not satisfy the respondents,  

who filed Writ Petition No.20772 of 2008 for an absolute and unconditional stay  

of the recovery proceedings.  The same was dismissed by the Division Bench of  

Madras High Court vide its order dated 26.8.2008, paragraphs 7 to 10 whereof  

read as under:

“7. In  the  present  case,  we  are  not  inclined  to  decide  the  question whether NPA account commenced  in the year 1996 or  1998, which can be looked into by the Debts Recovery Tribunal-I,  Chennai  on  the  basis  of  record,  if  such  plea  is  taken.   In  the  original Application filed under Section 19 of the DRT Act, it is open  to the parties to take such plea.

8. Insofar  as  the  action  taken  under  Section  13(4)  of  the  SARFAESI Act is  concerned,  it  is  independent to the action that  may be taken by the Bank under Section 19 of DRT Act, 1993.  In  such case, if an appeal is preferred even against an interim order  or refusal to grant interim order, under Section 18 of the SARFAESI  Act,  it  is  mandatory  to  deposit  the  statutory  amount  which  has  been ordered in the present case.

9. In the circumstances, while we are not inclined to interfere  with the impugned order, we allow the borrowers to take all such  plea before the Debt Recovery Tribunal-I, Chennai and may point  out  irregularity  if  any  committed  in  taking  action  under  Section  13(4)  of  the  SARFAESI  Act,  in  the  application  preferred  under  Section 17 of the SARFAESI Act.

10. In the meantime, if the borrowers fail to deposit the amount  in terms of the impugned order of the Appellate Tribunal, it will be  open to the Bank to auction sale the property in question, but may  not confirm the sale without prior permission of the Debt Recovery  Tribunal-I, Chennai.”

11. Special Leave Petition (C) No. 24286 of 2008 filed by the respondents was  

dismissed by this Court on 17.10.2008.  

12. Since  the  respondents  did  not  comply  with  the  order  passed  by  the  

Appellate Tribunal, the authorised officer of the appellant auctioned some of the  

mortgaged properties for which bids of Rs.5 crores were received.  Thereafter,  

the respondents filed three applications before the Appellate Tribunal for waiver  

of the requirement of pre-deposit enshrined in second proviso to Section 18(1) of  

the Act.  While dealing with those applications, the Appellate Tribunal suo motu  

took cognizance of the fact that the notice had been issued to the respondents  

for recovery of Rs.9,86,25,736.95 and directed them to deposit Rs.4.50 crores in  

two  equal  instalments.   This  enabled  the  respondents  to  indulge  in  further  

litigation.  They filed Writ Petition No. 19346 of 2009 for quashing order dated  

15.5.2009 passed by the Appellate Tribunal and another Writ Petition bearing  

No. 19746 of 2009 for issue of a mandamus to the Tribunal to dispose of O.A.  

No. 1098 of 1998 along with I.A. No. 237 of 2008 within a fixed time frame.  

When those petitions were taken up for hearing, learned counsel appearing for  

the appellant fairly conceded that the Appellate Tribunal does not have suo motu  

power to increase the amount required to be deposited in terms of the mandate  

of second proviso to Section 18(1).  After taking cognizance of his statement, the  

Division Bench of the High Court passed the impugned order whereby it not only  

set aside the second interim order passed by the Appellate Tribunal, but also  

nullified  the earlier conditional interim order by declaring that as a result of sale  

of  the property worth Rs.5 crores, the requirement of deposit  of Rs.3 crores

stands satisfied.  The Division Bench also directed the Tribunal to dispose of O.A.  

No. 1098 of 1998 and I.A. No. 237 of 2008 within two months.

13. Arguments in these cases were heard on 12.7.2010, on which date Shri  

Dharmendra Kumar Sinha, learned counsel for the respondents made a request  

for adjournment to enable him to seek instructions regarding the time within  

which his clients will deposit Rs.3 crores in terms of the first interim order passed  

by the Appellate Tribunal.  Thereupon, the case was adjourned to 26.7.2010.  On  

the  next  date,  Shri  Pallav  Shishodia,  senior  counsel,  appeared  for  the  

respondents and stated that his clients are not willing to deposit  Rs.3 crores  

because the appellant has already recovered more than Rs.3 crores by selling the  

mortgaged properties. Shri Shishodia then argued that the appellant is bound by  

the  terms  of  one  time  settlement  and  it  cannot  recover  the  entire  amount  

specified  in  the notices  issued  under  Section 13(2)  with  interest  at  a  wholly  

arbitrary rate of 19.89% per annum merely because there was some delay on  

the respondents’ part to pay a fraction of the agreed amount i.e., Rs.63.50 lakhs,  

which was also paid on 28.3.2007.  Learned senior counsel emphasized that as  

against the dues of Rs.169.49 lakhs, which were payable at the time of taking  

over the assets and liabilities of M/s N.S. Investments, a sum of Rs.2,32,71,480/-  

has already been paid by the respondents and an additional sum of Rs.5 crores  

has been realised by auctioning the mortgaged properties and submitted that the  

appellant cannot make fanciful claim for Rs.12 crores by computing interest at a

rate, which is ex facie unconscionable, expropriatory and contrary to Section 34  

of  the Code of Civil  Procedure.  Learned senior counsel pointed out that  the  

appellant had also auctioned flats No. B-15 and B-22 for an aggregate amount of  

Rs.96.75 lakhs and, as such, all the outstanding dues will be deemed to have  

been  paid.   With  a  view  to  convince  this  Court  that  his  clients  have  been  

subjected   to  unfair  treatment,  Shri  Shishodia  referred  to  second  proviso  to  

Section 18(1) of the Act, which requires a person filing an appeal against the  

order of the Tribunal to deposit 50% of the debts due, as claimed by the secured  

creditors or as determined by the Tribunal, whichever is less and argued that in  

the absence of any determination by the Tribunal,  the direction given by the  

Appellate Tribunal for deposit of Rs.3 crores was legally unsustainable and totally  

unwarranted.   

14. Shri  P.S.  Patwalia,  learned  senior  counsel  appearing  for  the  appellant  

argued that the impugned order is liable to be set aside because the Division  

Bench  of  the  High  Court   did  not   have  the  jurisdiction  to  nullify  the  first  

conditional interim order passed by the Appellate Tribunal ignoring that the writ  

petition filed against that order was dismissed by the High Court and the special  

leave petition was dismissed by this Court.  Learned senior counsel pointed out  

that even though the mortgaged properties were put to auction,  the appellant  

has not been able to realise the amount because the sale is yet to be confirmed  

by the Appellate Tribunal.  He then submitted that the High Court committed

serious error by taking note of the bids given at the auction for the purpose of  

relieving  the respondents  of  their  statutory  obligation  to  deposit  50% of  the  

debts  due.   Shri  Patwalia  argued  that  the  respondents  cannot  question  the  

contractual rate of interest which they had agreed to pay at the time of availing  

the loan and other financial facilities and, in any case, this issue cannot be raised  

for the first time in a matter emanating from an interlocutory order passed by  

the Appellate Tribunal.   Learned senior counsel invited our attention to order  

dated 9.6.2008 to show that after considering rival pleadings and documents, the  

Tribunal  unequivocally  approved  the  demand  created  vide  notice  dated  

31.12.2006 issued under Section 13(2) and argued that this must be treated as  

determination made by the Tribunal for the purpose of second proviso to Section  

18(1) and the respondents are not entitled to question the interlocutory order  

passed by the Tribunal on the ground that the amount payable by them was not  

determined by the Tribunal in terms of second proviso to Section 18(1).

15. We have considered the respective submissions. In our view, there is no  

merit in the argument of Shri Shidhodia that the direction given by the Appellate  

Tribunal  to  deposit  Rs.3  crores  was  nullity  because  the  Tribunal  had  not  

determined the amount due.  Undisputedly, interlocutory conditional order dated  

21.7.2008  passed  by  the  Appellate  Tribunal  had  become  final  because  the  

respondents’ challenge to that order was negatived by the High Court and this  

Court.   Therefore,  the  respondents  cannot  be  allowed  to  indirectly  question

correctness of that order in the appeal preferred by the appellant against the  

order  passed  by  the  High  Court  in  the  subsequent  writ  petition.   We  are  

convinced that the order impugned in this appeal cannot be sustained on the  

premise  that  the  Tribunal  had  not  determined  the  amount  required  to  be  

deposited by the respondent under Section 18(1) of the Act.  A reading of order  

dated 9.6.2008 passed in S.A. No.221 of 2007 makes it clear that the Tribunal  

had recorded a specific finding that the appellant-Bank is entitled to claim the  

entire amount of Rs.11,59,08,727/-, which was due as on 30.9.2007 with future  

interest.  This is clearly borne out from the following portion of that order:

“Further  in  the  written  arguments  dated  08.02.2008,  the  Respondent-Bank has clearly and also rightly pointed out that the  Appellants  having committed default  in  making the payments  in  accordance with Joint Memo of Compromise dated 08.02.2008, the  Respondent-Bank has clearly and also rightly pointed out that the  Appellants  having committed default  in  making the payments  in  accordance  with  Joint  Memo  of  Compromise  dated  23.03.2005,  now they cannot claim that they are liable to pay only a balance  amount with interest and the Respondent-Bank is entitled to claim  entire amount of Rs.11,59,08,727/- as on 30.9.2007 with further  interest.”

16. The argument of the learned counsel for the respondents that the rate of  

interest is unconscionable, expropriatory and contrary to law also merits rejection  

because at no stage the respondents had questioned the terms on which loan  

and other financial facilities were extended by the appellant.  That apart, after  

having  enjoyed  those  facilities  for  more  than  one  decade,  the  respondents  

cannot turn around and raise an argument based on the judgments of this Court  

in  Central Inland Water Transport Corporation v. Brojo Nath Ganguly

(1986)  3  SCC  156  and  Delhi  Transport  Corporation  v.  D.T.C.  Mazdoor  

Congress and others 1991 Supp. (1) SCC 600.  It must be remembered that  

the respondents were not in a position of disadvantage vis-à-vis the appellant.  If  

they so wanted, the respondents could have declined to avail loan and other  

financial  facilities  made available by the appellant.   However,  the fact of  the  

matter is that they had signed the agreement with open eyes and agreed to  

abide  by  the  terms  on  which  the  loan,  etc.  was  offered  by  the  appellant.  

Therefore,  the  doctrine  of  unconscionable  contract  cannot  be  invoked  for  

frustrating the action initiated by the appellant for recovery of its dues.   

17. The respondents’ accusation that the appellant had not treated them fairly  

sans credibility.  It is they who had failed to repay the outstanding dues.   Not  

only  this,  after  signing  two  compromise  deeds,  they  failed  to  fulfil  their  

commitment and delayed the payment of Rs.63.5 lakhs by almost three years.  

We have not felt  impressed by the submission of  the learned senior  counsel  

appearing for the respondents that the default amount was too small to warrant  

initiation of proceedings under Section 13 of the Act.   The Court cannot lose  

sight of the fact that the bank is a trustee of public funds.  It cannot compromise  

the public interest for benefitting private individuals.   Those who take loan and  

avail financial facilities from the bank are duty bound to repay the amount strictly  

in accordance with the terms of the contract.  Any lapse in such matters has to  

be viewed seriously and the bank is not only entitled but duty bound to recover

the amount by adopting all legally permissible methods.  The Parliament enacted  

the Act because it was found that legal mechanism available till then was wholly  

insufficient  for  recovery  of  the  outstanding  dues  of  banks  and  financial  

institutions.  Reference in this connection deserves to be made to the judgments  

of this Court in  Delhi Transport Corporation v. D.T.C. Mazdoor Congress  

and others (supra),  Central Bank of India v. State of Kerala and others  

(2009) 4 SCC 94 and   United Bank of India v.  Satyawati Tondon and  

others [Civil  Appeal  arising  out  of  SLP(C)  No.  10145 of  2010 –  decided  on  

26.7.2010].

18. The reasons assigned by the High Court for declaring that the requirement  

of pre-deposit will be deemed to have been satisfied do not stand scrutiny.  The  

High Court failed to notice that in terms of the order passed in Writ Petition No.  

20772  of  2008,  the  auction  of  the  mortgaged  properties  was  subject  to  

confirmation by the Appellate Tribunal, which had not passed any order in that  

regard.

19. In the result the civil appeal arising out of SLP(C) No. 4981 of 2010 is  

allowed.  The impugned order of the High Court is set aside insofar as it declares  

that the direction given by the Appellate Tribunal to the respondents to deposit  

Rs.3 crores stands complied.  The respondents are given four weeks’ time to  

deposit Rs.3 crores in terms of conditional interim order dated 21.7.2008 passed

by the Appellate Tribunal,  failing which the appeal  filed by them against  the  

order passed by the Tribunal in S.A. No. 221 of 2008 shall stand dismissed and  

the appellant shall be free to recover all the outstanding dues.

20. The  civil  appeal  arising  out  of  SLP(C)  No.  4982  of  2010  is  dismissed  

because we do not find any valid ground to interfere with the direction given by  

the High Court for time bound disposal of O.A. No.1098 of 1998 and I.A. No. 237  

of 2008.

………………………………….J. (G.S. Singhvi)

………………………………….J. (Asok Kumar Gunguly)  

New Delhi, August 09, 2010