Pre-Deposit For Filing SARFAESI Appeal Must Be Paid To Tribunal, Not Lending Bank: Kerala High Court

The Kerala High Court has clarified that the mandatory pre-deposit required to file an appeal under the SARFAESI Act must be paid to the Debts Recovery Appellate Tribunal and not to the lending bank.

A Division Bench of Justice Anil K. Narendran and Justice Muralee Krishna S delivered the ruling while allowing an appeal filed by Kerala Gramin Bank, setting aside a single judge's order that had directed the borrower to deposit money with the bank itself in order to pursue its appeal before the DRAT.

The dispute goes back to 2017, when a private construction company availed an overdraft of Rs 70 lakh from Kerala Gramin Bank. After the account slipped into default, the bank issued a demand notice under the SARFAESI Act.

That notice was later withdrawn after the borrower approached the High Court pointing out defects. A fresh notice was then issued. The borrower objected to it, alleging that the bank did not respond as required under law, and challenged the recovery steps before the Debts Recovery Tribunal.

While the tribunal initially ordered status quo on borrower's plea , it eventually dismissed the its challenge in June 2024.

With recovery proceedings resuming, the borrower approached the High Court again, saying its statutory appeal before the DRAT could not even be numbered because the mandatory deposit had not been made.

Taking note of the amounts already paid by the borrower to the lending bank, the single judge directed the borrower to deposit another Rs 15 lakh with the same bank. This was later clarified to be towards the statutory pre-deposit required to maintain the appeal.

The Division Bench disagreed. It noted that the SARFAESI Act does not permit the mandatory pre-deposit to be paid to the lender.

Explaining the position, the it said, “From the submissions made at the Bar, we notice that though there is no specific provision in the SARFAESI Act as to how the aforesaid predeposit has to be dealt with on conclusion of the appeal, the procedure followed by the DRAT is that after the conclusion of the appeal, the amount deposited before it will be returned back to the depositor, especially when considering the fact that even an aggrieved third party to the proceedings before the Tribunal, can appeal before the DRAT against the order of the Tribunal. In such circumstances, we find no legal backing for the order of the learned Single Judge to count the amount deposited before the Bank as the mandatory predeposit to be made before the DRAT.”

The court also addressed the borrower's decision to move a writ petition. Relying on settled law, it held that since an effective statutory remedy was available before the DRAT, the writ petition should not have been entertained.

The appeal filed by Kerala Gramin Bank was allowed, and the borrower's writ petition was dismissed.