The Supreme Court on March 2, 2020 in Union Bank of India vs. Rajat Infrastructure Private Limited has held that the pre-­deposit as required under Section 18 of the SARFAESI Act, 2002, is mandatory for entertaining an appeal before the DRAT.

Brief Facts:

Rajat Infrastructure Private Limited stood guarantee and mortgaged its property for repayment of loan availed by the borrowers. The property was put to auction and the alleged leaseholders in possession of the property were the highest bidders. Rajat Infrastructure objected to the sale, by filing an interlocutory application, asserting that it was for a low amount and there exists collusion between the officers of the bank and the auction purchaser, but the application was rejected. The order of the DRAT was challenged before the Bombay High Court. The HC dismissed the writ petition and held that there lies an efficacious alternate remedy of appeal before DRAT. Successful bidders filed review petitions before the HC and the HC dismissed the review petition. The HC held that the statutory remedy of appeal before DRAT should be availed since no pre-deposit is required. It made no observation on merits of the matter.

Issue:  

Whether the High Court was right in directing that the pre­-deposit was not required for entertaining an appeal before the DRAT as mandated by Section 18 of the SARFAESI Act, 2002?

Finding:

The Supreme Court referred to its earlier decision in Narayan Chandra Ghosh vs UCO Bank & Ors (2011) 4 SCC 548, where it was held that there is an absolute bar to the entertainment of an appeal under Section 18 of the SARFAESI Act,2002, unless the condition precedent, as stipulated, is fulfilled. It affirmed that the it’s mandatory for a borrower to make the pre-deposit before filing an appeal and the appellate tribunal can at best, after recording the reasons, reduce the pre-deposit to twenty five percent of the debt as referred to in the second proviso. It also remarked that the language of the said proviso is clear and unambiguous.

While upholding the said decision, the Apex Court further held that a guarantor or a mortgagor, who has mortgaged his/her property to secure the repayment of the loan, stands on the same footing as a borrower and if he/she wants to file an appeal, he/she must comply with the terms of Section 18 of the SARFAESI Act,2002.

This update has been contributed by Maneesha Kongovi (Partner) and  Anusha Chatra (Associate).