Mandatory Pre-Deposit Upheld: DRAT Rejects Waiver Plea for Lack of Prima Facie Case and Financial Hardship

The DRAT upheld the requirement of mandatory pre-deposit under Section 18(1) of the SARFAESI Act, rejecting the appellants’ plea for waiver on the grounds that they failed to establish a strong prima facie case or genuine financial hardship.

The Debts Recovery Appellate Tribunal (DRAT), Mumbai Bench, comprising Justice Ashok Menon (Chairperson), considered an interlocutory application in an appeal and held that the appellants failed to demonstrate a strong prima facie case or establish genuine financial hardship to warrant a waiver of the mandatory pre-deposit under Section 18(1) of the SARFAESI Act. Accordingly, the Tribunal directed the appellants to deposit 25% of the debt amount as a condition precedent for entertaining the appeal. The Tribunal further observed that the procedural defects alleged in the demand notice were minor, non-fatal, and curable.

The matter was taken up by the Debt Recovery Appellate Tribunal (DRAT), Mumbai, pursuant to a praecipe filed by the appellants seeking urgent relief against the SARFAESI measures initiated by the respondent Bank. The appeal challenged the order dated 20.01.2025 passed by the DRT in S.A. No. 182/2023, wherein the appellants' prayer for interim protection was declined. The appellants had admittedly availed of three credit facilities from the respondent Bank but defaulted in repayment, resulting in the classification of their accounts as Non-Performing Assets on 03.02.2022. A demand notice under Section 13(2) of the SARFAESI Act was issued on 29.10.2022, demanding an amount of ₹1,12,67,987.52. The appellants objected to the notice, alleging the absence of a breakup of principal and interest and claiming that the fluctuating interest rate was improperly applied and reflected in the account statement.

The appellants further contended that the symbolic possession notice was defective, as it lacked a specific date for possession and mentioned the demand notice date instead. They also challenged the validity of the demand notice on the ground that it did not disclose the designation of the Authorised Officer. Upon rejection of their interim prayer by the DRT, the appellants filed this appeal and sought waiver of the pre-deposit mandated under Section 18(1) of the SARFAESI Act, citing financial hardship supported by income tax returns.

The respondent Bank opposed the appeal, arguing that the appellants had no sustainable grounds to challenge the SARFAESI action and that they had not paid any amount towards the dues of ₹1.37 crores. It was submitted that the secured assets were insufficient to cover the debt, and that further delay would prejudice the Bank’s recovery due to accrual of interest. The DRAT noted that the demand notice clearly mentioned the principal and total dues, from which the interest could be inferred. The Bank’s reply under Section 13(3A), along with account statements, revealed monthly accrual of interest at prescribed rates, which the Tribunal held to be permissible under RBI guidelines. The contention that interest could only be charged when the rate changed was rejected as misconceived and unsupported by the sanction letter.

The Tribunal observed that the absence of the Authorised Officer’s designation in the demand notice was a curable defect and not fatal to the notice’s validity. It concluded that the appellants failed to establish a strong prima facie case to challenge the SARFAESI measures. As to the plea of financial strain, the Tribunal found that the appellants' income tax records did not conclusively establish impecuniosity, particularly in light of evidence showing interest income and capital reserves. Accordingly, the request for waiver of the statutory pre-deposit was rejected.

The Tribunal directed the appellants to deposit ₹53 lakhs, being 25% of the demand amount, to maintain the appeal. Against this, the appellants produced a demand draft of ₹5 lakhs. Considering that possession was scheduled for 25.01.2025, the Tribunal deferred it and granted time to pay the balance ₹48 lakhs in two equal instalments—₹24 lakhs by 07.02.2025 and ₹24 lakhs by 21.02.2025. The Tribunal made it clear that failure to comply with the payment schedule would result in automatic dismissal of the appeal without further reference.

The amounts were directed to be deposited with the Registrar, DRAT, Mumbai, either via Demand Draft or RTGS, and upon receipt, to be invested in term deposits with any nationalised bank. The respondent was permitted to file a reply in the main appeal. The matter was posted for compliance reporting on 10.02.2025. The interim application was accordingly disposed of.

An Advocate for the Appellants is present

Mr. Rajesh Nagory, Advocate i/b Mr. R.L. Motwani, Advocate, appeared for the Respondent.

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