SARFAESI Act: Supreme Court declines to issue a notice in a petition against the validity of the pre-deposit condition for an appeal to the DRAT

On June 26, 2024 (Wednesday), the Supreme Court (SC) vacation bench constituting Justice Abhay S Oka and Justice Rajesh Bindal refused to issue a notice in a petition filed by a Company Director against the validity of pre-deposit condition for an appeal to the Debt Recovery Appellate Tribunal (DRAT) under Section 18 of the SARFAESI Act. In its decision, the bench noted that the company of which the present petitioner is a director has already filed a similar petition before the top court. The SC bench ordered “There are two reasons why we are not entertaining the petition, firstly the Petitioner has remedy before the Bombay High Court under Article 226 of the Constitution of India and secondly, the Petitioner is a director of CJEX Biochem Pvt. Ltd. which was the Petitioner in writ petition...The final order passed in the said writ petition has been challenged by the Company before this Court in which the counsel for the Petitioner himself appeared and an order was passed that the petition shall be listed before a particular bench. As the petitioner has remedy before the High Court we decline to entertain this petition under Article 32 of the Constitution of India and subject to what is observed above the petition is disposed of.”

During the proceedings, the petitioner was represented by Advocate Mathews J Nedumpara. In this case, the petitioner’s main contention was that the provisos under Section 18 of the SARFAESI Act impose a condition of depositing 50% of the due sum to the bank or 25% for the DRAT to hear an appeal against an order of the DRT under Section 17 of the Act was arbitrary and against the principles of natural justice. The petition also stated that this proviso makes the provision for appeal negatory and redundant. The petition reads, “The Banker is permitted to invoke SARFAESI when an account is in default for a period of 90 days. This would mean that what is in default is not even 5 percent of the amount due. A borrower who is made to face action under the SARFAESI Act for not being able to pay, for instance, 5 percent of the amount outstanding, is required to pay 50 percent of the entire loan amount to even maintain his appeal, howsoever atrocious the order of the DRT. Still worse, the terminology used being any order, no matter what the nature of the appeal, the DRATs insist on pre-deposit of at least 25 percent. The Section ex-facie renders the provision for appeal nugatory. In practice, the proviso is made applicable even to appeals arising from interim orders.”

After hearing the matter, the vacation bench declined to issue a notice in a petition against the validity of the pre-deposit condition for an appeal to the DRAT.