While dealing with a case pertaining to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, the Kerala High Court has held that in every case, it is not the mandate of law that the pre-deposit amount to entertain the appeal shall be 50% of the debt due, invariably.

The Petitioner approached the High Court challenging the Order of the Debt Recovery Appellate Tribunal, Chennai, which mandated them to pay 40% of the debt due as a predeposit to entertain the appeal preferred by the petitioners before the Appellate Tribunal.

The Single Bench of Justice C. Jayachandran asserted, “Coming to the second aspect, it cannot be said that the subject matter of the appeal is completely and wholly irrelevant, when the pre-deposit amount to entertain the appeal is to be determined. In every case, it is not the mandate of law - irrespective of the attendant facts - that the pre-deposit amount to entertain the appeal shall be 50% of the debt due, invariably. The very purpose of granting a discretion by virtue of the third proviso, itself, would vouch the proposition that it all depends on the facts of the case, and varies from case to case.”

Advocate Praveen K. Joy represented the Appellant while Advocate S.S.Aravind, represented the Respondent.

Arguments

It was the petitioner’s case that for the realisation of the amount due from the petitioners, one of the properties offered as security was sold in an auction for a price of Rs 3.39 crore. It was pointed out that, as per Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act), discretion was granted to the Appellate Authority to direct a pre-deposit ranging from 25% up to 50% of the debt due. The petitioner was aggrieved by the fact that no reason was given for fixing the pre-deposit as 40%. The petitioner further contended that the direction to pay an amount, more than the said sum of Rs 3.39 crore, would be onerous.

The respondents argued that there was no justification for the petitioners to insist that the pre-deposit amount to maintain the appeal should be limited to 25% of the debt due.

Reasoning

The Bench noted that under the second proviso to Section 18, there is an interdiction that the appeal shall not be entertained, unless 50% of the debt due from the appellant, as claimed by the secured creditors, or determined by the Debt Recovery Tribunal, whichever is less, is paid. It was noticed that in the present case, there was no determination of the amount due by the Debt Recovery Tribunal.

The Bench explained that the third proviso to Section 18 would give adequate liberty and discretion to the Appellate Tribunal to reduce the deposit amount to not less than 25% of the debt referred to in the second proviso, for which, reasons are to be recorded in writing. On the issue of maintainability of the Petition, the Bench noted that the High Court is within its limits to treat the instant Writ Petition as one filed under Article 226, even though the petitioners have quoted Article 227.

“On the propriety of mandating pre-deposit of an amount more than the subject matter of the appeal, this Court is guided by the concept of ‘fundamental principles of judicial procedure’, coined by the Privy Council in Mask and Co.’s case (AIR 1940 PC 105) and recognized by the Hon’ble Supreme Court in a series of judgments, including the landmark judgment by a five judges Bench in Dhulabhai v. State of Madhya Pradesh”, it stated.

The Bench explained, “When the purpose of a pre-deposit at the time of filing an appeal is considered, it can only be said that such deposit cannot be more than the apparent subject matter of the appeal especially when such pre-deposit is only to entertain the appeal. Any interpretation otherwise will run foul of the concept of fundamental principles of judicial procedure.” Considering that the amount fixed in the auction was Rs 3.39 crore, the Bench held that a direction to deposit an amount more than the said 3.39 crore, which constitutes the subject matter of the appeal, cannot surpass legal scrutiny, besides being onerous.

The Bench stated, “That apart, this Court also notice that no reason, whatsoever, is stated in the impugned Ext.P12 Order for fixing the amount at 40%. Once a discretion is granted by virtue of the third proviso to Section 18, the same can be exercised only in accord with the mandate of that proviso, wherefore it is imperative and incumbent on the part of the Tribunal to state adequate reasons for fixing the pre-deposit at 40% of the debt due. The absence of the said fundamental requirement vitiates Ext.P12.”

The Bench thus modified the order by asking the petitioners to pay Rs 3.39 crore constituting 33.53% of the debt due, as a pre-condition for entertaining the appeal in terms of the second and third provisos to Section 18 of the SARFAESI Act. The Bench disposed of the Petition by directing, “The entire amount as directed has to be paid within one month from the date of receipt of a copy of this judgment.”

Cause Title: Glenny C.J v. Authorised Officer (Neutral Citation: 2025:KER:79419)

Appearance

Appellant: Advocate Praveen K. Joy

Respondent: Advocates S.S.Aravind, Tinu Abraham, Standing Counsel M. Gopikrishnan Nambiar

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Kerala HC

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.