Supreme Court Declines To Hear Petition Contesting SARFAESI's Pre-deposit Condition For DRAT Appeal

Supreme Court Declines To Hear Petition Contesting SARFAESI's Pre-deposit Condition For DRAT Appeal

The Supreme Court has declined to grant notice in a petition filed by a company director challenging the validity of the 50% pre-deposit condition for appeals to the DRAT (Debt Recovery Appellate Tribunal) under Section 18 of the SARFAESI Act.

The petitioner's main contention was that the conditions outlined in Section 18 are arbitrary and contravene principles of natural justice. These conditions mandate depositing either 50% of the amount owed to the bank or 25% (at the discretion of the Court) for the DRAT to consider an appeal against an order of the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act. According to the petition, these provisions render the appeal process redundant and ineffective.

The petition highlights that a significant portion of bank loans are long-term loans spanning 10–15 years. In cases where the SARFAESI Act is invoked due to default, the outstanding amount typically constitutes only 5% or less of the total loan borrowed. However, despite this relatively small default percentage, borrowers are compelled to deposit 50–25% of this sum to pursue their appeal.

"The banker is permitted to invoke SARFAESI when an account is in default for a period of 90 days. Which 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, however 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 a pre-deposit of at least 25 percent. Section ex facie renders the provision for appeal nugatory. In practice, the proviso is made applicable even to appeals arising from interim orders."

The vacation bench, comprising Justices AS Oka and Rajesh Bindal, declined to hear the petition, noting that the petitioner, a director of CJEX Biochem Pvt. Ltd., had already filed a petition on similar grounds before the Supreme Court. The petitioner sought relief from the condition under Section 18 of the SARFAESI Act.

The court disposed of the matter with the following observations:

"We decline to entertain the petition for two reasons: firstly, the petitioner has recourse to 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 filed Writ Petition No. 3038 of 2022. The final order in that petition has been challenged by the company before this Court, with the petitioner's counsel having appeared and an order for listing issued before a specific bench. Given the petitioner's alternative remedies before the High Court, we decline to entertain this petition under Article 32 of the Constitution of India. Subject to the above observations, the petition stands disposed of."