Multiple pre-deposits not needed to file SARFAESI appeals in DRAT on same debt: Karnataka High Court

The Karnataka High Court recently answered a crucial question concerning a precondition for filing appeals before the Debt Recovery Appellate Tribunal (DRAT) in cases concerning proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) [G Corp Lotus Mall Pvt. Ltd. v. Axis Bank and ors]..A Division Bench of Justices S Krishna Dixit and G Basavaraja clarified the application of provisos to Section 18 of the SARFAESI Act. This provision makes it mandatory for those wishing to file an appeal challenging a Debt Recovery Tribunal (DRT) order to deposit 25-50 per cent of the "debt due" to maintain the appeal before the DRAT. The question before the Court was whether multiple deposits have to be filed when there is more than one appeal in respect of the same "debt due."The Court answered this question in the negative, holding that if multiple appeals filed by the litigant relate to the same debt, the pre-deposit need to be filed only once."We are of the considered opinion that when there are multiple appeals, pre-deposit in one of them enures to the benefit of other, provided that debt is the same," the January 29 ruling said. .The Court made the observation while granting relief to G Corp Lotus Mall Private Limited (petitioner), which had stood as the guarantor in respect of a loan taken by Lotus Shopping Centers Private Limited.Lotus Shopping Centres (borrower) defaulted on the loan and is presently undergoing liquidation. SARFAESI proceedings were initiated against the borrower as well as the petitioner, being the guarantor. The petitioner later challenged a possession notice and a sale notice issued under the SARFAESI Act by filing two separate applications. Both applications were dismissed by the DRT, prompting the petitioner (guarantor) to file two separate appeals before the DRAT. Under Section 18 of the SARFAESI Act, the petitioner was required to deposit a part of the debt due as a condition to file these appeals.However, the petitioner sought to pay this deposit only with respect to one of its two appeals, rather than make duplicate deposits for each of the appeals.It, therefore, filed an application before the DRAT to waive the pre-deposit condition for one of the two appeals, since both appeals concerned the same debt.In December 2024, the DRAT rejected this waiver application and told the petitioner to pay 25 percent of the debt due (about ₹20.64 crores each) as the pre-deposit for each of its two appeals. The petitioner then approached the High Court for relief. .The petitioner argued that in cases where a litigant files multiple appeals in respect of the same debt, a pre-deposit made under Section 18 for one appeal should be sufficient to maintain all such appeals. Duplication of pre-deposits is not justified, it argued. It added that the intention of the Parliament was not to make the appeal process unreasonably difficult for a borrower or a surety, but only to secure a part of the amount due, as determined by the DRT.The Court found merit in this stance. It observed that even the parliamentary debates on these issues supported the petitioner's argument that the requirement to make pre-deposits under Section 18 of the SARFAESI Act is not appeal-specific, but debt-due specific."In other words, notwithstanding multiple appeals, if pre-deposit is made in one of them, the requirement of section 18 is complied with and that there is no justification for insisting upon the same pre-deposit being made in each of the appeals," the Court said..The Court also reasoned that if more than one deposit is demanded in such cases, the pre-deposits filed for maintaining appeals may even exceed the debt due."Apparently, that is not the intent of the parliament," the Court said.The Bench further observed that if at all the appeal in which the deposit was made is withdrawn while other related appeals remain pending, the DRAT would still have sufficient powers to ensure that a pre-deposit is put in place. "What should happen when one such appeal in which pre-deposit is made is withdrawn? Answer to this need not detain us long. The DRAT will be within its power to insist upon the pre-deposit in one of the rest of appeals. In which of such appeals pre-deposit should be insisted upon, is also within the domain of DRAT," the Court said.It proceeded to quash the DRAT's December 2024 decision under challenge. "The subject applications are remitted back to the portals of Debt Recovery Appellate Tribunal, Chennai, for consideration afresh in the light of observations herein above made," the Court added..Advocates Manu P Kulkarni and Shristi Widge by Poovayya & Co represented the petitioner, G Corp Lotus Mall Private Limited.Advocates Rayappa Y, George Joseph and BC Aniketh represented Axis Bank and its authorised representative.Senior Counsel GL Vishwanath and Manasa B Rao represented Anushka Construction Private Limited..[Read Order]