The Bombay High Court has delivered a significant ruling on Section 18 of the SARFAESI Act, establishing that borrowers cannot bypass the mandatory pre-deposit requirement while challenging Debts Recovery Tribunal orders. On 8 June, Justices Manish Pitale and Shreeram V Shirsat allowed writ petitions filed by HDFC Bank and auction purchaser Aloukik Construwell LLP, setting aside orders of the Debts Recovery Appellate Tribunal that had granted complete waiver of pre-deposit and directed maintenance of status quo. The Division Bench held that the statute permits only limited reduction of the deposit and not complete waiver, reiterating that borrowers cannot bypass this mandatory requirement.
The court's ruling was based on Supreme Court decisions in Narayan Chandra Ghosh v. UCO Bank and other binding precedents. According to the court's judgment, the borrower's appeal before the DRAT did not remain confined to the rejection of the delay-condonation application and included substantive reliefs. The court noted that accepting the borrower's argument would place a litigant who files a delayed application in a better position than one who approaches within limitation, which would defeat the statutory scheme. The court also held that the completed auction sale and transfer of possession do not affect the statutory requirement of pre-deposit under Section 18(1) of the SARFAESI Act.
The dispute arose from recovery proceedings initiated by HDFC Bank against Pradeep Gordhandas Vora, proprietor of Vora Enterprises, after the loan account was classified as a Non-Performing Asset. The bank initiated action under the SARFAESI Act, auctioned a mortgaged parcel of land, and the auction purchaser Aloukik Construwell LLP paid the entire consideration, obtained a registered sale certificate, and took possession. The borrower then filed a securitisation application challenging the auction sale, which was filed beyond limitation, prompting the borrower to also file an application seeking condonation of delay, which the Debts Recovery Tribunal dismissed. The borrower appealed to the DRAT against the dismissal of the delay-condonation application and also sought waiver of the pre-deposit required under Section 18 of the SARFAESI Act.
The High Court has set aside both impugned orders and directed the DRAT to reconsider the borrower's application afresh in accordance with law. The court clarified that the DRAT must determine the applicable percentage of pre-deposit within the statutory range of 25% to 50% after hearing the parties. This ruling establishes important precedent for SARFAESI Act proceedings, emphasizing that the statutory pre-deposit requirement cannot be waived completely even when challenging tribunal orders, ensuring that the legislative scheme remains intact.
