Case Note & Summary
The petitioner, Godavari Laxmi Co-operative Bank Ltd., a cooperative bank, had issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to respondent no.2, a borrower, on 11/5/2007, followed by a possession notice under Section 13(4) on 26/12/2009. The borrower filed a securitisation application under Section 17 before the Debt Recovery Tribunal (DRT), Aurangabad, which was dismissed on 7/3/2011. The borrower then appealed under Section 18 of the Act before the Debts Recovery Appellate Tribunal (DRAT), Mumbai, and simultaneously filed an application (M.A.328/11) seeking waiver of the mandatory pre-deposit of 50% of the debt amount required under Section 18(1). The DRAT, by order dated 27/4/2011, allowed the waiver application, holding that the borrower could not be asked to deposit any amount and no amount was required to be deposited under Section 18(1). The bank challenged this order by way of a writ petition before the Bombay High Court. The High Court examined the provisions of Section 18(1) of the SARFAESI Act, which mandates that no appeal shall be entertained unless the borrower has deposited 50% of the amount of debt due from him, as determined by the DRT, or as agreed upon by the parties. The court noted that the DRAT had not recorded any exceptional circumstances justifying the waiver of the pre-deposit. The court held that the requirement of pre-deposit under Section 18(1) is mandatory and can only be waived in exceptional circumstances with recorded reasons. Since the DRAT's order did not disclose any such exceptional circumstances, it was unsustainable. The High Court allowed the writ petition, set aside the DRAT's order dated 27/4/2011, and directed the DRAT to decide the appeal on merits after hearing both sides, subject to the borrower complying with the pre-deposit requirement as per Section 18(1).
Headnote
A) Banking Law - Securitisation - Pre-deposit for Appeal - Section 18(1) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Mandatory Deposit - The borrower filed appeal against DRT order dismissing his securitisation application. DRAT waived the entire pre-deposit of 50% of the debt amount without recording any exceptional circumstances. Held that Section 18(1) imposes a mandatory pre-deposit requirement and waiver can only be granted in exceptional circumstances with recorded reasons. DRAT's order was set aside. (Paras 3-6) B) Banking Law - Cooperative Banks - Secured Creditor - Section 2(1)(zd) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Cooperative banks are included within the definition of 'secured creditor' under the SARFAESI Act. The petitioner bank, a cooperative bank, is entitled to enforce security interest under the Act. (Para 2)
Issue of Consideration
Whether the Debts Recovery Appellate Tribunal (DRAT) can waive the mandatory pre-deposit requirement under Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 without recording exceptional circumstances justifying such waiver.
Final Decision
The High Court allowed the writ petition, set aside the DRAT order dated 27/4/2011, and directed the DRAT to decide the appeal on merits after hearing both sides, subject to the borrower complying with the pre-deposit requirement under Section 18(1) of the SARFAESI Act.
Law Points
- Section 18(1) of SARFAESI Act
- 2002 imposes mandatory pre-deposit of 50% of debt amount for appeal
- waiver only in exceptional circumstances
- DRAT cannot waive deposit without recording reasons
- cooperative banks are 'secured creditor' under SARFAESI Act
