The Punjab & Haryana High Court has clarified a critical procedural requirement under the SARFAESI Act, resolving a long-standing ambiguity about the basis for calculating the mandatory pre-deposit by borrowers appealing to the Debt Recovery Appellate Tribunal. This judgment ensures that borrowers are not burdened with inflated deposits based on unverified creditor claims, reinforcing statutory intent and procedural fairness.
Background & Facts
The Dispute
The petitioner, M/S Shri Krishna Poultry Feed, availed a cash credit limit from Canara Bank in 2015. During the COVID-19 pandemic, the account was declared a Non-Performing Asset (NPA). The bank initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), issuing notices under Sections 13(2) and 13(4), ultimately auctioning the borrower’s property for ₹39,24,000. The petitioner challenged the auction before the Debt Recovery Tribunal (DRT-II), Chandigarh, which dismissed the application on 30.10.2024.
Procedural History
- 2017: Canara Bank filed OA No. 4553/2017 before DRT-II, Chandigarh seeking recovery.
- 29.12.2018: DRT-II issued a Recovery Certificate determining the outstanding debt at ₹35,49,723 plus 12% simple interest per annum (Annexure P-4/B).
- 2024: Bank claimed ₹1.25 crore as due amount and initiated SARFAESI enforcement.
- 2024: Petitioner filed appeal before DRAT, Delhi under Section 18, depositing ₹31,00,000 (approx. 25% of ₹1.25 crore).
- 13.12.2024: DRAT rejected the appeal for non-compliance with the 50% pre-deposit requirement, insisting on deposit based on the bank’s claim.
- 2025: Petitioner filed writ petition under Articles 226/227 before the Punjab & Haryana High Court.
Relief Sought
The petitioner sought a writ of certiorari to set aside the DRAT’s order and a writ of mandamus directing the DRAT to hear the appeal without requiring additional deposit, arguing that the pre-deposit should be calculated on the lower amount determined by the DRT.
The Legal Issue
The central question was whether the 50% pre-deposit under the second proviso to Section 18 of the SARFAESI Act must be calculated based on the amount claimed by the secured creditor or the amount finally determined by the Debt Recovery Tribunal, whichever is less.
Arguments Presented
For the Petitioner
Learned counsel argued that the plain language of the second proviso to Section 18 mandates that the pre-deposit be based on "the amount of debt due... as claimed by the secured creditor or determined by the Debts Recovery Tribunal, whichever is less." The Recovery Certificate dated 29.12.2018, issued by the DRT-II, crystallized the debt at ₹35,49,723, which was significantly lower than the bank’s claim of ₹1.25 crore. The petitioner had deposited ₹31,00,000, which exceeded 50% of the DRT-determined amount. The DRAT’s refusal to recognize this was legally erroneous and contrary to statutory intent.
For the Respondent
The bank contended that the Recovery Certificate was not formally placed on record before the DRAT at the time of appeal, and therefore the tribunal was justified in relying on the bank’s claim of ₹1.25 crore. It argued that the burden lay on the borrower to produce the DRT’s order to claim benefit under the proviso, and failure to do so rendered the pre-deposit inadequate.
The Court's Analysis
The Court undertook a textual and purposive interpretation of Section 18 of the SARFAESI Act, emphasizing the clear language of the second proviso: "whichever is less." The Court observed that the statutory scheme is designed to balance the rights of secured creditors with the procedural rights of borrowers, ensuring that appeals are not stifled by arbitrary deposit demands.
"The phrase 'whichever is less' clearly lays down that the borrower has to make pre-deposit... which shall be 50% of the amount of debt due from him as claimed by the secured creditor or determined by DRT, whichever is less."
The Court rejected the bank’s argument that the Recovery Certificate must be formally "placed on record" before the DRAT. It held that the certificate, being a public document issued by a statutory tribunal and annexed to the writ petition, was admissible and sufficient to establish the DRT’s determination. The DRAT’s failure to consider this binding determination was a legal error.
The Court further noted that the SARFAESI Act is a special law intended to expedite recovery, but not to penalize borrowers for technical lapses when the statutory benchmark is clearly met. The DRAT’s order, therefore, was unsustainable.
The Verdict
The petitioner succeeded. The Court held that the 50% pre-deposit under Section 18 of the SARFAESI Act must be calculated on the lower of the amount claimed by the secured creditor or the amount determined by the DRT. The impugned DRAT order was set aside, and the DRAT was directed to hear the appeal on merits upon the petitioner depositing 50% of ₹35,49,723 (i.e., ₹17,74,861.50), if not already deposited, within 30 days.
What This Means For Similar Cases
Pre-Deposit Must Reflect DRT’s Determination, Not Creditor’s Claim
- Practitioners must now calculate pre-deposit based on the DRT’s Recovery Certificate, not the secured creditor’s inflated claim.
- If the DRT has already determined the debt, the borrower need not deposit 50% of the higher claim, even if the creditor insists on it.
- Failure to consider the DRT’s determination renders the DRAT’s order legally flawed and liable to be set aside.
Recovery Certificate Is Sufficient Proof Without Formal Filing
- A Recovery Certificate issued by the DRT and annexed to the writ petition qualifies as admissible evidence under Section 74 of the Indian Evidence Act.
- Borrowers need not re-file the certificate before the DRAT if it is part of the record before the High Court.
- Courts will now accept certified copies or annexures as proof of the DRT’s determination.
Burden of Proof Shifts to the Creditor to Dispute DRT’s Determination
- Once the borrower produces the DRT’s order, the burden shifts to the secured creditor to prove that the determination is erroneous or fraudulent.
- Mere assertion of a higher claim without supporting evidence will not override the DRT’s binding determination.
- This prevents abuse of the pre-deposit mechanism to delay or deter legitimate appeals.
