Case Note & Summary
The petitioner, Shree Vindhya Paper Mills Ltd., challenged an order of the Debt Recovery Appellate Tribunal (DRAT) dated 4 November 2011, which required the petitioner to deposit 30% of the amount due (Rs.250.50 crores) under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) as a condition for hearing its appeal. The background of the case involves a notice under Section 13(2) dated 20 June 2009 issued by the first respondent (Stressed Assets Stabilization Fund), followed by measures under Section 13(4) on 18 January 2011. The petitioner filed an application under Section 17 before the Debt Recovery Tribunal (DRT), which by judgment dated 26 May 2011 held that the first respondent had not obtained the consent of secured creditors representing more than 75% of the secured debt and had not followed the procedure under the Security Interest (Enforcement) Rules, 2002. Consequently, the DRT set aside the sale notice but directed a fresh sale. The petitioner appealed this direction to the DRAT, which passed the impugned order requiring the pre-deposit. The petitioner argued that the DRAT had no power to impose such a condition and that the order was arbitrary. The High Court, however, held that the pre-deposit requirement under Section 18(1) is mandatory and the DRAT has no discretion to waive or reduce it. The court further held that the DRAT must decide the appeal on merits only after the deposit is made. The High Court found no jurisdictional error in the DRAT's order and dismissed the writ petition.
Headnote
A) Banking Law - SARFAESI Act - Pre-deposit under Section 18(1) - Mandatory Nature - The Debt Recovery Appellate Tribunal directed the petitioner to deposit 30% of the amount due (Rs.250.50 crores) as a condition for hearing the appeal under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitioner challenged this order on the ground that the DRAT had no power to impose such a condition. The High Court held that the pre-deposit requirement under Section 18(1) is mandatory and the DRAT has no discretion to waive or reduce it. The court further held that the DRAT must decide the appeal on merits only after the deposit is made. The High Court dismissed the writ petition, finding no jurisdictional error in the DRAT's order. (Paras 1-3) B) Banking Law - SARFAESI Act - Section 17 Application - DRT's Findings - The Debt Recovery Tribunal (DRT) had earlier set aside the sale notice under Section 13(4) on the ground that the respondent had not obtained consent of 75% secured creditors and had not followed the Security Interest (Enforcement) Rules, 2002. However, the DRT directed a fresh sale. The petitioner's appeal against this direction was pending before the DRAT. The High Court noted that the DRAT's order for pre-deposit was in accordance with law and the petitioner's challenge was without merit. (Para 2)
Issue of Consideration
Whether the Debt Recovery Appellate Tribunal (DRAT) was justified in directing the petitioner to deposit 30% of the amount due under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) as a condition for hearing the appeal.
Final Decision
The High Court dismissed the writ petition, holding that the pre-deposit requirement under Section 18(1) of SARFAESI Act is mandatory and the DRAT has no discretion to waive or reduce it. The court found no jurisdictional error in the DRAT's order.
Law Points
- Pre-deposit under Section 18(1) of SARFAESI Act is mandatory
- DRAT cannot waive or reduce it
- DRAT must decide appeal on merits only after deposit
- High Court cannot interfere with DRAT's order if no jurisdictional error
