Pre-Deposit Above Auction Price Without Written Justification Held Illegal Under Section 18 SARFAESI
- REEDLAW
- 5 hours ago
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the High Court clarified that a pre-deposit under Section 18 of the SARFAESI Act cannot exceed the value of the auctioned asset forming the subject matter of the appeal. The Court observed that although the Appellate Tribunal possesses limited discretion to reduce the statutory 50% deposit, such a reduction must be supported by written, reasoned findings. An order issued without recorded justification was held to be legally unsustainable.
The Kerala High Court Single-Judge Bench of Justice C. Jayachandran, while adjudicating a petition challenging the Appellate Tribunal’s direction, held that the statutory framework under Section 18 permits only a reasonable and legally supported reduction from the mandatory 50% pre-deposit. The Court emphasised that directing a pre-deposit exceeding the auction value of the asset or issuing a reduction order without explicit reasons violates both statutory safeguards and judicial discipline. Consequently, the impugned order was declared invalid.
The Petitioners had approached the High Court challenging an order issued by the Appellate Tribunal under the SARFAESI Act, which required them to deposit 40% of the debt due as a pre-condition for entertaining their appeal. They contended that one of the secured assets had already been auctioned for ₹3.39 crores, and therefore, directing a deposit exceeding the auction value was onerous and legally unsustainable. It was further argued that the Appellate Tribunal had exercised its discretion under the third proviso to Section 18 without recording any reasons, even though the statute mandated that any reduction from the 50% requirement must be supported by written justification.
The Respondent-Financial Creditor maintained that the statute required a 50% deposit, reducible only to 25% in appropriate cases, and that the Petitioners had no right to insist on limiting the deposit to 25%. The Auction Purchaser questioned the maintainability of the petition under Article 227 and asserted that the subject matter of the appeal was irrelevant while determining the pre-deposit amount, as Section 18 referred only to the “debt due” and not to the value of the disputed asset.
The Court held that misquoting the constitutional provision did not bar relief and treated the petition as one under Article 226. It was observed that the discretion under the third proviso to Section 18 had to be exercised with recorded reasons, which were conspicuously absent in the impugned order. The Court declared that the subject matter of the appeal could not be ignored, particularly when the appeal itself concerned an auction sale for a specific amount. Requiring a pre-deposit exceeding that amount would violate the principles of fairness and the fundamental principles of judicial procedure recognised in precedents such as Mask & Co. and Dhulabhai.
The Court found that fixing the pre-deposit at an amount larger than ₹3.39 crores—the very subject matter of the appeal—was unjustified and legally untenable. It held that the Tribunal’s failure to record reasons vitiated the order and modified the pre-deposit requirement to ₹3.39 crores, representing 33.53% of the debt due. The Court permitted payment in two instalments within a one-month period and disposed of the writ petition accordingly.
Mr. Praveen K. Joy, Advocate, represented the Petitioners.
Mr. M. Gopikrishnan Nambiar, SC, appeared for the Respondent No. 1.
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