Pre-Deposit Under SARFAESI Can Be Based On Creditor's Claim If DRT Has Not Determined Debt: Kerala HC

On 2 June, the Kerala High Court held that where the Debts Recovery Tribunal (DRT) has not determined the debt due from a borrower, the pre-deposit required for maintaining an appeal under Section 18 of the SARFAESI Act can be computed on the basis of the amount claimed by the secured creditor.

A Division Bench comprising Chief Justice Soumen Sen and Justice Syam Kumar V.M. allowed Canara Bank's appeal in part against a Single Judge's order on the computation of pre-deposit for a SARFAESI appeal before the Debts Recovery Appellate Tribunal (DRAT), Chennai. It held:

“It was for that reason, some relaxation is given to the Tribunal to determine the quantum of deposit to be made based on the claims made by the secured creditor in absence of a date being determined by the Tribunal. Admittedly there has been no adjudication of the debt due from the borrower to the secured creditor by the Tribunal and it has proceeded on the basis of the enforcement of the security interest based on a claim made by the secured creditor, which is roughly over ₹10 crores.”

The dispute arose after borrowers challenged a DRAT order that directed them to deposit 40% of the debt claimed as a pre-deposit for maintaining their appeal.

The Single Judge modified this direction and held that the subject matter of the appeal must guide the determination of the pre-deposit.The Court also observed that the amount directed exceeded the value of the property under challenge and reduced the pre-deposit to Rs. 3.39 crore. Canara Bank challenged this decision before the Division Bench.

The Division Bench held that the Single Judge's interpretation did not align with the scheme of Section 18 of the SARFAESI Act. The Court noted that the provision requires authorities to compute the pre-deposit on the basis of the debt due “as claimed by the secured creditor or as determined by the DRT, whichever is less”.

The judges noted that the DRT had not adjudicated the debt due from the borrowers. It therefore held that the claim made by the secured creditor would form the relevant basis for computation of the pre-deposit.

While disagreeing with the Single Judge's interpretation, the Court granted the borrowers an additional three weeks to comply with the pre-deposit requirement. It also clarified that the Single Judge's order would revive in case of default.

Accordingly, the High Court allowed the appeal.

For Appellants: Advocates Dr. Pauly Mathew Muricken and Asvino Sheej S

For Respondents: Advocate Praveen K Joy