Borrower Has To Pre-deposit 50% Of Which Amount In Appeal Before DRAT U/S 18 SARFAESI Act? Supreme Court Explains

While calculating the amount to be deposited as predeposit under Section 18 of the SARFAESI Act, 50% of which amount the borrower is required to deposit as pre-deposit? The Supreme Court has explained in a judgment delivered on Thursday (5 Jan 2023).

The bench of Justices M R Shah and B V Nagarathna held as follows:

1. Whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the ‘debt due’ within the meaning of proviso to Section 18 of the SARFAESI Act.
2. In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act.
3. In a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher.

The court also held that the borrower is not entitled to claim adjustment/appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge. 

In this case, the High Courts (judgments of a few High Courts were impugned) directed to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT. The High Courts also directed to exclude the amount payable towards interest while considering the “debt due”. 

Section 18 SARFAESI Act

As per Section 18 of the SARFAESI Act, any person aggrieved, by any order made by the DRT under section 17, may prefer an appeal within thirty days to an appellate Tribunal (DRAT) from the date of receipt of the order of DRT. Second proviso to section 18 provides that no appeal shall be entertained unless the “borrower” has deposited with the Appellate Tribunal fifty percent of the amount of “debt due” from him, as claimed by the secured creditors or determined by the DRT, whichever is less and only and only then, an appeal under Section 18 of the SARFAESI Act is permissible against the order passed by the DRT under Section 17 of the SARFAESI Act.

Issues raised and their answers

The issue raised in appeals before the Apex Court were answered as follows

(1) Whether, while calculating the amount to be deposited as predeposit under Section 18 of the SARFAESI Act, 50% of which amount the borrower is required to deposit as pre-deposit

Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. Therefore, whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge 18 before the DRT will be the ‘debt due’ within the meaning of proviso to Section 18 of the SARFAESI Act. In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act. However, in a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher.

(2) Whether while calculating the amount of “debt due”, the amount deposited by the auction purchaser on purchase of the secured assets is required to be adjusted and/or appropriated towards the amount of pre-deposit to be deposited by the borrower under Section 18 of the SARFAESI Act?

If the words used in the second proviso to Section 18 of the SARFAESI Act are “borrower has to deposit”, it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower. It is the “borrower” who has to deposit the 50% of the amount of “debt due” from him. At the same time, if the borrower wants to appropriate and/or adjust the amount realised from sale of the secured assets deposited by the auction purchaser, the 19 borrower has to accept the auction sale. In other words, the borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In a case where the borrower also challenges the auction sale and does not accept the same and also challenges the steps taken under Section 13(2)/13(4) of the SARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along with interest as per section 2(g) of the Act 1993 and as per section 2(g), “debt” means any liability inclusive of interest which is claimed as due from any person.

(3) Whether the “debt due” under Section 18 of the SARFAESI Act would include the liability + interest?

As per Section 2(g) of the Act 1993, “debt” means liability inclusive of interest as claimed by the bank/financial institution.

In this regard, the bench upheld the view taken by the Bombay High Court in Eskays Construction Pvt. Ltd. v. Soma Papers & Industries Limited & Others, 2016 SCC OnLine Bom. 9827.

Allowing the appeal, the court held that the High Courts seriously erred in directing to adjust/appropriate the amount realised by auction sale of the 23 secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT. Even the High Court of Delhi has erred in excluding the amount payable towards interest while considering the “debt due”, the court observed.

Case details

Sidha Neelkanth Paper Industries Private Limited vs Prudent ARC Limited | 2023 LiveLaw (SC) 11 | CA 8969 OF 2022 | 5 Jan 2023 | Justices M R Shah and B V Nagarathna

For Parties Samir Malik, AOR Mr. Abhishek Agarwal, AOR Mr. Tuhin, AOR Mr. Rajat Bhardwaj, AOR Mr. Bimlesh Kumar Singh, AOR Mr. Rajeev Kumar Gupta, Adv. Mr. Vivek Phadke, Adv. Mr. D.k Thakur, Adv. Mr. Rajiv Ranjan Dwivedi, AOR Mr. Arun Aggarwal, AOR

Headnotes

SARFAESI Act, 2002 ; Section 13(2), 13(4), 18 - Recovery of Debts and Bankruptcy Act, 1993 ; Section 2(g) - Whatever amount is mentioned in the notice under Section 13(2) of the SARFAESI Act, in case steps taken under Section 13(2)/13(4) against the secured assets are under challenge before the DRT will be the ‘debt due’ within the meaning of proviso to Section 18 of the SARFAESI Act - In case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit under Section 18 of the SARFAESI Act - In a case where both are under challenge, namely, steps taken under Section 13(4) against the secured assets and also the auction sale of the secured assets, in that case, the “debt due” shall mean any liability (inclusive of interest) which is claimed as due from any person, whichever is higher -The borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale. In a case where the borrower also challenges the auction sale and does not accept the same and also challenges the steps taken under Section 13(2)/13(4) of the SARFAESI Act with respect to secured assets, the borrower has to deposit 50% of the amount claimed by the secured creditor along with interest. (Para 13-16)

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