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The Gujarat High Court Single Judge Bench comprising Justice Aniruddha P. Mayee was hearing a petition on SARFAESI Act and held that the borrower, in order to appeal against an order of the DRT under Section 17 of the SARFAESI Act, must deposit 50% of the amount of debt due from them, and the sale proceeds from the auction of secured assets cannot be used for this purpose if the borrower is challenging the sale.
The matter pertains to the interpretation of Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. Section 18 allows any person aggrieved by an order made by the Debts Recovery Tribunal (DRT) under Section 17 to prefer an appeal to the Appellate Tribunal within thirty days from the date of receipt of the DRT order. However, the second proviso of Section 18 states that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the DRT, whichever is less.
The interpretation of the term "amount of debt due" under Section 18 has been a subject of divergence. However, the Supreme Court, in a recent judgment, settled the interpretation of this provision. The Court clarified that the term "debt" has the same meaning as defined in clause (g) of Section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act). According to the RDDB Act, "debt" means any liability, inclusive of interest, claimed as due from any person by a bank or a financial institution during the course of any business activity undertaken by them.
The High Court further explained that the "debt due" for the purpose of Section 18 includes the amount mentioned in the notice under Section 13(2) of the SARFAESI Act when steps taken under Section 13(4) against the secured assets are under challenge before the DRT. In case of a challenge to the sale of the secured assets, the amount mentioned in the sale certificate should be considered while determining the amount of pre-deposit. However, if both the steps taken under Section 13(4) and the auction sale of the secured assets are challenged, the "debt due" will mean any liability (inclusive of interest) claimed as due from any person, whichever is higher.
The Court emphasized that it is the borrower who has to deposit 50% of the amount of debt due, and the amount realized from the sale of secured assets cannot be adjusted or appropriated towards the borrower's pre-deposit. The borrower can benefit from the amount received in an auction sale only if they unequivocally accept the sale. If the borrower challenges the auction sale and the steps taken under Section 13(2)/13(4) of the SARFAESI Act, they must deposit 50% of the amount claimed by the secured creditor along with interest as per the RDDB Act.
The judgment of the Supreme Court settled the interpretation of Section 18, affirming that the second proviso is mandatory, and the Appellate Tribunal has no power to grant full waiver of the deposit requirement. The Court cited a Bombay High Court decision that supported this interpretation and held that the purpose of the SARFAESI Act is to facilitate the recovery of defaulting loans and provide a level playing field to banks and financial institutions.
The recent Supreme Court judgment clarifies the interpretation of Section 18 of the SARFAESI Act, stating that the borrower must deposit 50% of the debt due as claimed by the secured creditor or determined by the DRT, whichever is less, to file an appeal before the Appellate Tribunal. The borrower cannot use the sale proceeds of the secured assets to fulfil the pre-deposit requirement if they challenge the auction sale.
The High Court found no reason to interfere with the impugned order and determined that the decision of the Debts Recovery Appellate Tribunal to direct a pre-deposit of around 40% of the debt amount was within its jurisdiction and not erroneous.
Therefore, the High Court dismissed the Special Civil Application and vacated the interim relief granted earlier.
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