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In view of Section 18 of the SARFAESI Act, the Supreme Court observed that "The High Court cannot give directions which are contrary to law."
The Supreme Court on Monday held that an appeal before the Debt Recovery Appellate Tribunal (DRAT) cannot be filed without mandating that 50% of the amount due to be recovered from the borrower be deposited.
The Bench of Justices Deepak Gupta and Aniruddha Bose was considering a matter under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), when it noted that a pre-deposit of a stipulated portion of the debt owed is mandatory before filing appeals in such cases before the DRAT.
This was inferred from the provisions of the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act).
Section 18 of the SARFAESI Act, which deals with the appeals filed to the Appellate Tribunal lays down that 50% of the amount due should be deposited before the DRAT. Without this pre-deposit, the appeal shall not be entertained, the provision states.
This amount may be reduced to not less than 25%, the Section adds in its proviso. However, the reasons for the same shall be reduced in writing.
In the instant case, an order of the DRAT was challenged by the Respondent before the Bombay High Court, which relegated the matter, without hearing it on merits, to the DRAT. The High Court, while doing so held that no pre-deposit would be required before the DRAT.
A revision of this order was sought by some parties but the same was dismissed by the High Court. The main case pertained to the auctioning of a property by a party, which had stood as guarantor and mortgaged the property for enabling the repayment of a loan availed by another.
The sale of such a property was the bone of contention in the matter. The High Court observed that "where a proposed sale notice is questioned with reference to the reserve price fixed...such order, if challenged before DRAT, would not require any pre-deposit being made."
The Supreme Court, however, disagreed with this interpretation and held that the High Court was wrong in saying that a pre-deposit was not required. The Supreme Court examined Section 18 of the SARFAESI Act in detail to conclude that the view taken by the High Court was "totally incorrect."
The Supreme Court also rejected the argument made by the Respondents that the Bombay High Court passed the said order in exercise of its discretionary power under Article 226 of the Constitution.
The Supreme Court added that not only does the High Court not have a discretionary power similar to the one conferred on Supreme Court under Article 14, the challenged order showed that it was passed in accordance with the Court's interpretation of the provision itself and not under its discretionary powers. The Bench added that, "The High Court cannot give directions which are contrary to law."
The Court, thus, set aside the orders passed by the High Court.