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Supreme Court Rules That It Is Mandatory To Make Pre-Deposit for Filing Appeal Before Debt Recovery Appellate Tribunal

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In a judgment dated 16 February 2021, it was observed by the bench of the Supreme Court that the entire waiver of pre-deposit was not permissible for filing an appeal under Section 21 of the Recovery of Debt and the Bankruptcy Act, before the Debt Recovery Appellate Tribunal (DRAT).

Facts of the case

In this case, Respondent no. 3 Hindon River Mills Ltd. had availed financial assistance from Respondent No. 6. The personal guarantee of this financial assistance was given by Respondent no. 1 and 2. After the default in making payment of the dues by Respondent 1 and 3, the account was classified as a non-performing asset, the Respondent no. 6 auctioned the account whose successful bidder was the Appellant. According to this, the unpaid debt and non-performing asset were assigned in the favour of the Appellant. Respondent no. 1 and 3 assailed this assignment in the High Court which was dismissed. Afterwards, an SLP was filed which too was dismissed as the parties entered into a settlement.

According to the settlement, Respondent no 1 and 3 were obliged to repay the sum of Rs.145 Crore along with the interest of 15% per annum on or before 31.7.2012, which they failed to do. Therefore, the Appellant bank instituted recovery proceedings before DRT, New Delhi. While the proceedings were pending, a portion of the mortgaged property was acquired by Respondent No. 7 “NHAI” and the compensation amount with a total sum of Rs. 152,81,07,159/- was deposited on behalf of Respondent no. 3 relating to the mortgaged property.

The DRT passed the order, by limiting the decretal amount to Rs. 145 Crore with the future interest at 9% per annum till the realization of reducing balance. Aggrieved by the order of DRT, an appeal was made to DRAT and after that to the High Court of Delhi and finally to the Supreme Court. Here the issue was regarding the correctness or otherwise of the order passed by DRAT and High Court of Delhi in the matter relating to pre-deposit of DRAT, due in an appeal before DRAT. The issue was also regarding the extent to which pre-deposit is to be ordered in this case.

Pleadings in the Court

The learned Counsel on behalf of the Appellant argued that it was equally fallacious and the Appellate Tribunal could entertain the appeal without insisting on the pre-deposit as the determination of the Debt amount which was due had not been done by the Debt Recovery Tribunal. 

On the other hand, the learned senior counsel on behalf of Respondent contended that the pre-deposit would be burdensome to Respondent 1 and 2 when the entire amount of the compensation was deposited and the major portion of the due debt was discharged because the portion of the property belonging to the Respondent no 3 was acquired and the remaining property was in a mortgage.

Court’s Observation

The Court observed that it was not permissible to make an entire waiver of the pre-deposit under Section 21 of the Recovery of Debts and Bankruptcy Act for filing an appeal before DRAT. However, the proviso of that section confers on the Appellate Tribunal the power to reduce the amount to be deposited on grounds to be reported in writing, but that reduction shall not amount to less than twenty-five per cent of the amount of such debt due.

The bench comprising CJI SA Bobde, Justices AS Bopanna, and V. Ramasubramaniam further observed that the power to waive the pre-deposit in its entirety was not given to the High Court, nor the High Court could exercise discretion which violated the mandatory requirement of Section 21.

Court’s judgment

The Court in this judgment set aside the order of the High Court of Delhi and modified the order passed by DRAT. The Court also allowed the appeal in part, closed the contempt petition as it was unnecessary, and disposed of all other pending applications. In addition to it, the Court permitted Respondent No. 1 and 2 to deposit 25% of RS. 68,18,92,841. Along with this, the Court also directed the Respondents (respondent no. 1 and 2) to prosecute the appeal with the condition that such deposit should be made within 8 weeks, otherwise the appeal would not subsist in the eyes of law. 

Case: Kotak Mahindra Bank Pvt Ltd vs. Ambuj A. Kasliwal [Civil Appeal No. 538 of 2021]

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