Case Note & Summary
The petitioner, M/s. Sanjeevini Drug House, a proprietorship concern, had availed credit facilities from Kavery Grameena Bank (respondent No.1). Upon default, the bank initiated proceedings under the SARFAESI Act, 2002, and the petitioner filed an appeal before the Debts Recovery Appellate Tribunal (DRAT), Chennai, being Appeal No.402/2019. The petitioner also filed an application (I.A. No.09/2020) seeking waiver or reduction of the pre-deposit condition under Section 18 of the SARFAESI Act. The DRAT, by order dated 22.01.2020, directed the petitioner to deposit Rs.30,92,508/- (being 25% of the debt amount) in two installments: the first of Rs.15,46,254/- within four weeks from the date of the order, and the second of Rs.15,46,254/- within the next four weeks. Aggrieved by this condition, the petitioner filed the present writ petition under Articles 226 and 227 of the Constitution of India before the High Court of Karnataka. The petitioner contended that the pre-deposit condition was onerous and that the DRAT had failed to exercise its discretion properly. The respondent bank argued that the condition was justified. The High Court, after hearing both sides, observed that the DRAT has discretion under the proviso to Section 18(1) to waive or reduce the pre-deposit requirement, and that such discretion must be exercised judiciously, considering the financial hardship of the appellant. The court found that the DRAT had not considered the petitioner's financial capacity and that the condition was disproportionate. Accordingly, the High Court set aside the impugned order of the DRAT insofar as it imposed the pre-deposit condition, and directed the DRAT to hear the appeal on merits without insisting on any pre-deposit. The writ petition was allowed.
Headnote
A) SARFAESI Act - Pre-deposit Condition - Section 18 - Discretionary Power - The DRAT has discretion to waive or reduce the pre-deposit of 25% of the debt amount under the proviso to Section 18(1) of the SARFAESI Act, 2002. The condition must be imposed judiciously, considering the financial circumstances of the appellant and the merits of the appeal. In this case, the DRAT's order requiring deposit of Rs.30,92,508/- in two installments was set aside as onerous, and the appeal was directed to be heard without any pre-deposit. (Paras 2-4) B) Constitutional Law - Writ Jurisdiction - Article 226/227 - Interference with Interlocutory Orders - The High Court can interfere with an interim order of the DRAT if it is arbitrary, perverse, or causes grave injustice. The court held that the pre-deposit condition was disproportionate and not based on any assessment of the petitioner's financial capacity, warranting interference. (Paras 2-4)
Issue of Consideration
Whether the Debts Recovery Appellate Tribunal (DRAT) was justified in imposing a pre-deposit condition of Rs.30,92,508/- (25% of the debt) as a condition for hearing the appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and whether such condition can be interfered with by the High Court under Article 226/227 of the Constitution of India.
Final Decision
The High Court allowed the writ petition, set aside the impugned order of the DRAT dated 22.01.2020 insofar as it imposed the pre-deposit condition, and directed the DRAT to hear the appeal on merits without insisting on any pre-deposit.
Law Points
- Pre-deposit condition under Section 18 of SARFAESI Act is discretionary
- DRAT must consider financial hardship
- writ court can interfere if condition is arbitrary or onerous
