Case Note & Summary
The Supreme Court considered appeals against the Bombay High Court's order dated 25.11.2019 and 16.12.2019, which had relegated the appellant (Union Bank of India) to the appellate remedy before the Debt Recovery Appellate Tribunal (DRAT) but held that no predeposit was required for entertaining the appeal. The respondent no.1, Rajat Infrastructure Pvt. Ltd., had stood guarantee and mortgaged its property for repayment of loan availed by respondent nos.4 and 5. The property was auctioned for Rs.66.52 crores, and respondent no.1 challenged the sale alleging low valuation and collusion. The High Court, while rejecting the writ petition, observed that no predeposit was required under Section 18 of the SARFAESI Act. The Supreme Court examined the language of Section 18, which mandates that no appeal shall be entertained unless the borrower deposits 50% of the debt due, reducible to 25% by the DRAT for reasons recorded. The Court relied on its earlier decision in Narayan Chandra Ghosh v. UCO Bank, which held that the predeposit condition is absolute and cannot be waived. The Court rejected the argument that the High Court exercised discretionary powers under Article 226, noting that the High Court's order was based on an interpretation of the Section, not on discretion. It also held that a guarantor stands on the same footing as a borrower for the purpose of predeposit. The Supreme Court set aside the High Court's orders insofar as they held that predeposit was not required, allowed the appeals, and directed that if respondent no.1 files an appeal within 30 days, it shall not be rejected on limitation grounds. The Court extended time for the auction purchaser to deposit the balance amount until 20.03.2020.
Headnote
A) Banking Law - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 18 - Predeposit Requirement - Mandatory nature of predeposit under Section 18 - The High Court cannot waive the predeposit requirement under Article 226 of the Constitution as the language of Section 18 is clear and admits no ambiguity - Held that the appeal cannot be entertained without deposit of 50% or at least 25% of the debt due (Paras 7-10). B) Banking Law - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 18 - Guarantor's Liability - A guarantor or mortgagor stands on the same footing as a borrower for the purpose of predeposit under Section 18 - Held that if a guarantor wants to file an appeal, he must comply with the terms of Section 18 (Para 9). C) Constitutional Law - Article 226 - High Court's Discretion - The High Court cannot give directions contrary to law under Article 226 - The High Court has no powers akin to Article 142 of the Constitution - Held that the High Court's observation that no predeposit was required was totally incorrect (Paras 8-10).
Issue of Consideration
Whether the High Court was right in directing that predeposit was not required for entertaining an appeal before the DRAT as mandated by Section 18 of the SARFAESI Act.
Final Decision
The Supreme Court set aside both orders dated 25.11.2019 and 16.12.2019 of the High Court insofar as they hold that predeposit is not required, and allowed the appeals. The Court extended time for auction purchaser to deposit balance sale amount till 20.03.2020 and directed that if respondent no.1 files an appeal within 30 days of the order, it shall not be rejected on limitation grounds.
Law Points
- Predeposit under Section 18 SARFAESI Act is mandatory
- cannot be waived by High Court under Article 226
- Guarantor stands on same footing as borrower
