Case Note & Summary
The writ petition was filed by an auction purchaser under Article 226 of the Constitution of India, challenging two orders of the Debt Recovery Appellate Tribunal (DRAT) in Appeal No. 79 of 2008. The first order dated 1 April 2009 granted a complete waiver of the mandatory pre-deposit required under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to entertain an appeal. The second order dated 7 January 2014 allowed the borrower's appeal and set aside the order of the Debt Recovery Tribunal (DRT) dated 26 March 2008 which had dismissed Securitisation Application No. 17 of 2007. The dispute arose from the sale of immovable property (land and structures in Nashik) and movable properties by respondent banks (Bank of India, Union Bank of India, Corporation Bank, Dena Bank) under the SARFAESI Act after the borrower (Soma Papers & Industries Ltd.) defaulted on financial facilities. The borrower had challenged the auction before the DRT, which dismissed the application. On appeal, the DRAT first waived the pre-deposit requirement entirely, accepting the borrower's argument that the sale proceeds held by the banks exceeded the deposit amount, and later set aside the DRT order on merits. The auction purchaser, Eskays Construction Pvt. Ltd., contested these DRAT orders as illegal, asserting that Section 18 mandates a minimum deposit of 25% which cannot be waived, and that the sale was validly conducted. The High Court heard the petition with consent of parties, but the judgment text is incomplete, ending mid-hearing.
Issue of Consideration
Whether the DRAT could grant complete waiver of pre-deposit under Section 18 of SARFAESI Act, and whether the DRAT's order setting aside the DRT's dismissal of Securitisation Application was valid
Law Points
- Section 18 of SARFAESI Act mandates pre-deposit of minimum 25% of debt due or DRT determined amount to entertain appeal
- complete waiver impermissible
- High Court jurisdiction under Article 226 to examine DRAT orders
Case Details
2016 LawText (BOM) (11) 19
Writ Petition No. 1315 of 2014
S. C. DHARMADHIKARI & B.P.COLABAWALLA, JJ.
Mr. Prasad K. Dhakephalkar, Sr. Counsel a/w Mr Sanjay Jain, Ms Rashida F. Savliwala & Mr Ritvik Mavkin for Petitioner; Ms Jyotsna Vyas for Respondent No.1; Mr O.A. Das for Respondent No.2; Mr Jamshed Ansari for Respondent No.3
Eskays Construction Pvt. Ltd.
Soma Papers & Industries Ltd. & Others
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Nature of Litigation
Writ petition under Article 226 challenging DRAT orders granting complete waiver of pre-deposit under Section 18 SARFAESI Act and setting aside DRT’s dismissal of securitisation application.
Remedy Sought
Petitioner (auction purchaser) sought quashing of DRAT orders dated 1 April 2009 and 7 January 2014.
Filing Reason
DRAT granted complete waiver of pre-deposit contrary to mandatory minimum 25% requirement under Section 18, and later allowed borrower’s appeal setting aside DRT order that had upheld the auction sale.
Previous Decisions
DRT dismissed Securitisation Application No. 17 of 2007 on 26 March 2008; DRAT granted complete waiver of pre-deposit on 1 April 2009; DRAT allowed appeal and set aside DRT order on 7 January 2014.
Issues
Whether DRAT could grant complete waiver of pre-deposit under Section 18 of SARFAESI Act, which mandates a minimum deposit of 25%?
Whether DRAT's order setting aside the DRT’s dismissal of the securitisation application was valid?
Judgment Excerpts
This Writ Petition has been filed under Article 226 of the Constitution of India seeking a Writ of Certiorari or any other appropriate writ, order or direction, seeking to quash the orders dated 1 April, 2009 and 7 January, 2014 passed by the Debt Recovery Appellate Tribunal, Mumbai ( “DRAT” ) in Appeal No.79 of 2008.
Section 18 of the SARFAESI Act contemplates that before any appeal can be entertained by the DRAT, the borrower has to deposit 50% of the amount of debt due from him, as claimed by the secured creditors or as determined by the DRT, whichever is less. ... The minimum requirement of deposit is 25% of the amount as claimed as due from the borrower by the secured creditors or as determined by the DRT, whichever is less. This is a mandatory provision and cannot be waived.
Procedural History
Notice under Section 13(2) SARFAESI Act issued on 21 November 2005; possession taken under Section 13(4) on 27 February 2006; OTS revoked on 29 December 2006; valuation report obtained on 18 April 2007; reserve price fixed at Rs.8 Crores; public notice for sale on 20 April 2007; auction held and petitioner declared highest bidder at Rs.8.74 Crores on 29 May 2007; sale certificate issued and registered on 8 April 2009; borrower filed Securitisation Application No. 17 of 2007 before DRT; no interim relief granted; DRT dismissed application on 26 March 2008; borrower appealed to DRAT (Appeal No.79 of 2008); DRAT granted complete waiver of pre-deposit on 1 April 2009; DRAT allowed appeal and set aside DRT order on 7 January 2014; writ petition filed in 2014.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act): Section 13(2), Section 13(4), Section 18
- Constitution of India: Article 226
- Companies Act, 1956:
- Indian Registration Act, 1908:
- Sick Industrial Companies (Special Provisions) Act, 1985 (SICA):
