Tenant Not Required to Make Pre-Deposit to Appeal Under Section 18 of SARFAESI Act, Rules Karnataka High Court
In a significant ruling, the Karnataka High Court has quashed an order by the Debt Recovery Appellate Tribunal (DRAT) that mandated a tenant to make a pre-deposit to appeal under Section 18 of the SARFAESI Act. The case, involving ITTIAM Systems Private Limited as the petitioner against Bharath Co-Operative Bank (Mumbai) Limited, revolved around the interpretation of the pre-deposit requirement under the SARFAESI Act.
The bench, comprising Justices Suraj Govindaraj and Dr. K. Manmadha Rao, clarified that the statutory requirement of pre-deposit under the second proviso to Section 18(1) of the SARFAESI Act applies solely to borrowers. The court emphasized that the legislative intent was to distinguish between borrowers and other aggrieved parties, such as tenants, who may be affected by orders under Section 17 of the Act.
The petitioner, ITTIAM Systems, claimed tenant rights over certain premises in Bengaluru and challenged the DRAT's directive to make a pre-deposit as a condition for appeal. The High Court ruled that the DRAT's order was inconsistent with the statutory language and the legislative framework of the SARFAESI Act. The bench cited previous judgments, including the Hindustan Polymers case, to support its interpretation that non-borrowers are not liable for pre-deposit requirements.
The ruling has significant implications for non-borrowers, such as tenants, who may be aggrieved by actions under the SARFAESI Act but are not direct parties to the loan agreement. The court directed the DRAT to proceed with hearing the appeal on its merits without insisting on the pre-deposit, thereby reaffirming the rights of tenants to seek judicial redress without undue financial burdens.
The judgment underscores the importance of adhering to legislative distinctions and ensures that non-borrowers are not unjustly burdened with obligations intended for borrowers alone. The case has been remanded back to the DRAT for expeditious disposal within eight weeks, with all contentions regarding the tenancy and appeal maintainability left open for adjudication on merits.
Bottom line:-
Under Section 18(1) of the SARFAESI Act, the mandatory pre-deposit requirement for filing an appeal is applicable only to a borrower and not to a non-borrower such as a tenant, who is aggrieved by an order passed under Section 17 of the Act.
Statutory provision(s):
SARFAESI Act, 2002 Sections 18(1), 17(4-A), 13(2), 13(4), 14
