The Kerala High Court (Ernakulam Bench) has clarified that under Section 18 of the SARFAESI Act, the quantum of pre-deposit to be made as a condition for preferring an appeal is to be determined by the Tribunal by reference to the amount of debt due from the borrower as claimed by the secured creditor or as determined by the DRT, whichever is less. Where no adjudication of the debt has been made by the Tribunal, the Tribunal retains the discretion to determine the quantum of pre-deposit on the basis of the secured creditor’s claim.
While disagreeing with the Single Judge’s interpretation on the basis for determining the pre-deposit amount, the High Court did not set aside the direction to deposit but instead extended the time available to the borrower to make the deposit by three weeks from the date of the order. The said direction was made peremptory, meaning that in the event of default in making the deposit within the extended period, the order of the Single Judge would stand revived.
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The Division Bench comprising the Chief Justice Soumen Sen and Justice Syam Kumar V.M. observed that the interpretation rendered by the Single Judge with respect to the pre-deposit requirement under Section 18 of the SARFAESI Act was based on a misreading of the provisions of the Act. The Bench observed that Section 18 clearly stipulates that in determining the quantum of pre-deposit, the Tribunal shall take into consideration the amount of debt due from the borrower as claimed by the secured creditor or as determined by the DRT, whichever is less.
The Bench noted that since no adjudication of the debt due from the borrower had been made by the Tribunal, and the proceedings had proceeded purely on the basis of enforcement of the security interest founded on the secured creditor’s claim, the Tribunal was entitled to some relaxation in determining the quantum of deposit, to be assessed on the basis of the claims made by the secured creditor in the absence of a Tribunal-determined figure. The Bench further observed that at this stage, it was not possible to conclusively determine whether the debt due from the borrower would be more or less than the amount claimed by the secured creditor, which was roughly over Rs. 10 crores.
Briefly, the matter arose in the context of enforcement measures taken by the secured creditor under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), pursuant to which certain secured assets of the borrower were put up for sale. Following these enforcement measures, the borrower preferred an appeal under Section 18 of the SARFAESI Act.
The dispute centred on the quantum of pre-deposit required as a condition precedent for preferring an appeal under Section 18 of the SARFAESI Act, and the basis on which such pre-deposit was to be determined by the Tribunal. The secured creditor’s claim against the borrower was approximately Rs. 10 crores, and no adjudication of the debt due from the borrower had been carried out by the Debt Recovery Tribunal (DRT) at the relevant stage.
