The Kerala High Court (Ernakulam Bench) held that the expression “debt due” under the proviso to Section 18(1) of the SARFAESI Act necessarily includes the entire liability claimed by the secured creditor, inclusive of accrued and future interest up to the date of appeal. The Court also explained that excluding interest would defeat the legislative intent, which seeks to ensure that only genuine borrowers approach the appellate forum after fulfilling part of their financial liability.
The Court clarified that the term “debt”, as defined in Section 2(g) of the RDDB Act, is of the widest amplitude, covering any liability, inclusive of interest claimed as due from the borrower, and when read with Section 18(1) of the SARFAESI Act, it mandates that the pre-deposit must reflect the borrower’s entire subsisting liability, comprising both principal and interest, either as claimed by the secured creditor or as determined by the DRT, whichever is less.
While emphasizing that the borrower’s liability under the SARFAESI Act is a continuing one until full discharge of the debt, a Single Judge Bench of Justice Mohammed Nias C.P. observed that there is no exclusion in the statute of future or accrued interest, and, therefore, the computation of “debt due” must necessarily reflect the total liability as on the date of filing of the appeal before the DRAT and not be confined to the amount specified in the Section 13(2) notice.
Accordingly, the Bench dismissed the petition filed by the borrower challenging the Debt Recovery Appellate Tribunal (DRAT) order, whereby the borrower was directed to deposit 40% of the amount mentioned in the possession notice, inclusive of interest, as a condition for hearing the appeal.
Briefly, in this case, the petitioner had availed of two housing loans from South Indian Bank, secured by 44 cents of land. Her husband’s company, Kaerl Tech Projects Pvt Ltd., also obtained an overdraft facility of Rs. 2.5 crores, secured by another property. Upon default, the bank clubbed both accounts and issued a demand notice under Section 13(2) of the SARFAESI Act for Rs. 3.64 crores, followed by a possession notice.
The recovery action challenged by the petitioner before the Debt Recovery Tribunal (DRT) was dismissed, and the bank’s loan portfolio was subsequently assigned to Phoenix ARC Pvt Ltd., which stepped into the lender’s shoes under Section 5 of the SARFAESI Act. On appeal, the DRAT sought for waiver of pre-deposit under Section 18(1). However, the DRAT directed her to deposit Rs. 1.57 crores as 40% of the debt due, within six weeks in two instalments.
Cases Relied On:
Sidha Neelkanth Paper Industries Pvt Limited vs. Prudent ARC Ltd. [Civil Appeal No. 8969 of 2022] dated January 05, 2023
Golden Netsoft Pvt Ltd. vs. HDFC Bank Ltd. [MANU/DE/2299/2024]
Shree Ram Rayon vs. Tamilnad Mercantile Bank Ltd. [MANU/GJ/0239/2023]
Sony Mony Developers Pvt Ltd. vs. Asset Care and Reconstruction Enterprises [MANU/MH/8082/2024]
Appearances:
Advocates Zakeer Hussain, K.A. Sanjeetha, and Aby George, for the Petitioner
Senior A.V. Thomas Advocate, along with Advocates Nidhi Sam Johns, Lijo Joseph, A. Kevin Thomas, and Celia Santhosh, for the Respondent
