SG ASSOCIATES
DRAT must ask borrower to deposit minimum 25% of claim amount of secured creditor.
SG ASSOCIATES 3 Jul 2020

DRAT must ask borrower to deposit minimum 25% of claim amount of secured creditor.

DRAT can't entertain appeal filed before it by Borrower/mortgagor or co-borrower without order to deposit minimum 25% of the claimed amount of secured creditor.

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NONREPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1902 OF 2020

(@ SPECIAL LEAVE PETITION (CIVIL) NO.28608 OF 2019)

UNION BANK OF INDIA …APPELLANT(S)

Versus

RAJAT INFRASTRUCTURE PVT.

LTD. & ORS. …RESPONDENT(S)

WITH

CIVIL APPEAL NO. 1903 OF 2020

(@SPECIAL LEAVE PETITION (CIVIL) NO.1753 OF 2020)

J U D G M E N T

Deepak Gupta, J.

Leave granted.

2. These appeals were initially directed against the order dated

25.11.2019 of the Bombay High Court. By the said impugned order

the High Court had relegated the appellant before it i.e. respondent

no. 1 herein to avail the statutory remedy of appeal before the Debt

Recovery Appellate Tribunal (for short ‘the DRAT’).

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3. The short question which arises for determination is whether

the High Court was right in directing that predeposit

was not

required for entertaining an appeal before the DRAT as mandated

by Section 18 of the Securitisation and Reconstruction of Financial

Assets and Enforcement of Security Interest Act, 2002 (for short

‘SARFAESI Act’).

4. It is not necessary to set out the facts of the case in detail in

view of the decision which we propose to take. The basic facts are

that the respondent no. 1 stood guarantee and mortgaged its

property for repayment of loan availed by respondent nos. 4 and 5.

The property was put to auction and respondent nos. 2 and 3 who

are the alleged leaseholders in possession of the property are the

highest bidders for a sum of Rs.65.52 crores. The main objection of

the respondent no.1 to the sale is that it is for a low amount and

there is collusion between the officers of the Bank and the auction

purchaser. The petitioner challenged the order of the DRAT dated

11.11.2019 before the High Court and the High Court passed the

following order dated 25.11.2019:

“2. Relegating the Petitioner to the appellate remedy on

account of aforenoted facts and holding that the

Petitioner has an efficacious alternate remedy of appeal

before the learned DRAT where no predeposit

is

required, the Petition is rejected without making any

observation on the merits of the disputes between the

parties.”

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5. It appears that the successful bidders filed review petitions

before the High Court praying that the High Court could not have

issued directions that no predeposit

was required. Vide order

dated 16.12.2019 the High Court dismissed the review petition and

the relevant observations of the High Court are as under:

“7. Suffice it to state that where a proposed sale notice is

questioned with reference to the reserve price fixed and

the argument takes the form of considering valuation

report, such order, if challenged before DRAT, would not

require any predeposit

being made for the reason under

the impugned order, no decree has been passed or

liability fixed. It would depend on the nature of the order

whether before the appeal there against is entertained,

should a predeposit

be made.”

6. Mr. O.P. Gaggar, learned counsel for the appellant submitted

that the order of the High Court is not only against the provisions of

the Act but also against the law laid down by this Court. Mr.

Dushyant A. Dave, learned senior counsel for the auction

purchasers, respondent nos. 2 and 3, supported the case of the

appellant and submitted that the no appeal on behalf of respondent

no. 1 can lie without complying with the provisions of Section 18 of

the SARFAESI Act which mandates the deposit of 50% or at least

25% of the amount due, as claimed by the secured creditor or

determined by the Debt Recovery Tribunal (DRT). On the other

hand, Mr. Vikram Chaudhri, learned senior counsel appearing for

the respondent no.1 urged that the High Court has exercised its

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discretionary jurisdiction under Article 226 of the Constitution of

India while holding that it is not required to make predeposit.

He

also submits that the respondent no.1 is not a borrower and finally

submits that the main ground is that since the amount offered by

the highest bidder is below the value of the property, the DRAT is

entitled to entertain the appeal without deposit of any amount. It is

submitted that the value of the property is about Rs.160 crores and

even the value as per the circle rate is about Rs.120 crores, but the

same has been sold for a pittance of Rs.65.52 crores. He also

submitted that there is collusion between the employees of the

Bank and the successful bidders.

7. We may make it clear that we are not going into the merits of

the case in view of the fact that we agree with the High Court that

the matter must be decided by the DRAT. The only issue is whether

the High Court was right in holding that no predeposit

was

required. We may refer to Section 18 of the SARFAESI Act, which

reads as follows:

“18. Appeal to Appellate Tribunal.—(1) Any person

aggrieved, by any order made by the Debts Recovery

Tribunal under section 17, may prefer an appeal along

with such fee, as may be prescribed to an Appellate

Tribunal within thirty days from the date of receipt of the

order of Debts Recovery Tribunal.

Provided that different fees may be prescribed for filing

an appeal by the borrower or by the person other than

the borrower:

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Provided further 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 Debts Recovery Tribunal, whichever is less:

Provided also that the Appellate Tribunal may, for the

reasons to be recorded in writing, reduce the amount to

not less than twentyfive

per cent. of debt referred to in

the second proviso.

xxx xxx xxx”

This Court in the case of Narayan Chandra Ghosh vs. UCO Bank

& Ors.1, held that keeping in view the language of the Section even

if the amount or debt due had not been determined by the DRT, the

appeal could not be entertained by the DRAT without insisting on

predeposit.

The DRAT, at best could, after recording the reasons,

have reduced the amount to 25% but could not have totally waived

the deposit. This Court also held that the right of appeal conferred

under Section 18(1) is subject to the conditions laid down in the

second proviso therein which postulates that no appeal shall be

entertained unless the borrower has deposited 50% of the amount

of debt due from him as claimed by the secured creditors or

determined by the DRT, whichever is less. The third proviso

enables the DRAT, for reasons to be recorded in writing, to reduce

the amount of deposit to not less than 25%. The following

observations of this Court are relevant:

1 (2011) 4 SCC 548

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“7…Thus, there is an absolute bar to the entertainment

of an appeal under Section 18 of the Act unless the

condition precedent, as stipulated, is fulfilled. Unless the

borrower makes, with the Appellate Tribunal, a predeposit

of fifty per cent of the debt due from him or

determined, an appeal under the said provision cannot be

entertained by the Appellate Tribunal. The language of

the said proviso is clear and admits of no ambiguity.”

8. In view of the law laid down by this Court, we are clearly of the

view that the observation made by the High Court was totally

incorrect.

9. We are not in agreement with the submission of Mr. Chaudhri

that the High Court has exercised its discretionary powers under

Article 226 of the Constitution. The order of the High Court does

not show any exercise of such discretionary powers but according

to the High Court on an interpretation of the Section, predeposit

was not required. We are also not impressed with the argument of

Mr. Chaudhri that his client is not a borrower. A guarantor or a

mortgagor, who has mortgaged its property to secure the repayment

of the loan, stands on the same footing as a borrower and if he

wants to file an appeal, he must comply with the terms of Section

18 of the SARFAESI Act.

10. Furthermore, we may add that the High Court has no powers

akin to powers vested in this Court under Article 142 of the

Constitution. The High Court cannot give directions which are

contrary to law.

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11. In view of the above discussion, we set aside both the orders

dated 25.11.2019 and 16.12.2019 of the High Court in so far as

they hold that predeposit

is not required and allow the appeals.

We reiterate that we have not gone into the merits of the

contentions raised by the parties which shall be decided by the

DRAT when it entertains the appeal and is called upon to do so. We

extend the time given to the auction purchasers, respondent nos. 2

and 3 to deposit the balance of the sale amount till 20.03.2020. We

also direct that in case respondent no.1 files an appeal within 30

days of the pronouncement of this order it shall not be rejected on

the ground of limitation.

12. Pending application(s), if any, stand(s), disposed of.

…………………………..J.

(Deepak Gupta)

…………………………..J.

(Aniruddha Bose)


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