Case Synopsis by Adv. Jaydeep Mehta
Banking Laws / SARFAEST Act update
Borrower is required to deposit 50% debt due while filing SARFAESI-appeal before DRAT
Case Citation: (2023) ibclaw.in 04 SC
Synopsys of the judgement is as follows:
1. SC, while interpreting Sec. 18 of the SARFAESI Act, rules that the borrower has to deposit 50% of the amount of debt due as claimed by the bank/financial institution/assignee along with interest as claimed in the notice u/s 13(2) of SARFAESI Act and the borrower is not entitled to claim adjustment/ appropriation of the amount realised by selling the secured properties and deposited by the auction purchaser when the auction sale is also under challenge.
2. The borrower (‘Appellant’) and auction purchasers / assignee (‘Respondents’) filed the present appeals challenging HC orders that upheld a DRAT-order, wherein, DRAT while entertaining appeals u/s 18 of SARFAESI Act held that the borrower was not liable to deposit 50% of the amount of debt as the secured property had been sold and the amount was realised as the same was paid by the auction purchasers and was to be appropriated towards the amount liable to be deposited as pre-deposit u/s 18 of the SARFAESI Act.
3. Adverting to Sec. 2(ha) of the Act that defined “debt” to have the same meaning assigned to it as Sec. 2(g) of the RDB Act, viz. any liability inclusive of interest which is claimed as due from any person by a bank or a financial institution during the course of any business activity undertaken by the bank or the financial institution, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on the date of the application, SC establishes that debt means any liability inclusive of interest.
4. Elucidating that as per the second proviso to Sec. 18 of the SARFAESI Act, it is the borrower who prefers an appeal before the Appellate Tribunal and the borrower who shall have to deposit 50% of the amount of “debt due” from him, SC remarks that “If the words used in the second proviso to Section 18 of the SARFAESI Act are “borrower has to deposit. it is not appreciable how the amount deposited by the auction purchaser on purchase of secured assets can be adjusted and/or appropriated towards the amount of pre-deposit, to be deposited by the borrower.
5. In light of provisions pertaining to appeal before DRT and DRAT u/s 17 and u/s 18 of the SARFAESI Act, respectively, SC elaborates that in case of challenge to the sale of the secured assets, the amount mentioned in the sale certificate will have to be considered while determining the amount of pre-deposit u/s 18 of the SARFAESI Act, however, goes on to hold that in a case where both are under challenge viz. steps taken under Sec. 13(4) of the SARFAESI Act against the secured assets and also the auction sale of the secured assets, then the “debt due” shall mean any liability, inclusive of interest, which is claimed as due from any person, whichever is higher.
6. Accordingly, allowing the appeals against impugned HC orders, Hon’ble SC concludes that the HCs have “seriously erred in directing to adjust/appropriate the amount realised by auction sale of the secured properties/deposited by the auction purchasers while considering the 50% of the amount as pre-deposit to be deposited by the borrower, while preferring an appeal before the DRAT.
(Supreme Court judgment date 05.01.2023)