Pay Before Appeal, Supreme Court Tells Borrowers
Supreme Court of India (Source: PTI)

Pay Before Appeal, Supreme Court Tells Borrowers

In a positive development for lenders, the Supreme Court has held that borrowers will have to deposit the outstanding debt before filing appeals at the Debt Recovery Appellate Tribunal.

The requirement of pre-deposit cannot be done away with, the apex court has held. A three-judge bench of Chief Justice of India SA Bobde, Justice AS Bopanna and Justice V Ramansubramanian overturned a Delhi High Court order that had set aside the requirement and allowed the appeal to proceed at the DRAT.

The ruling will make it difficult for borrowers to file frivolous appeals and wasting the court’s time, Bishwajit Dubey, partner at Cyril Amarchand Mangaldas, said.

The top court bench examined Section 21 of the Recovery of Debts and Bankruptcy Act, 1993 which provides for depositing the amount of debt due on filing the appeal. The section, the court noted, said an “appeal shall not be entertained”. Therefore, according to the apex court, the DRAT by law is injuncted from entertaining an appeal by a borrower who has not deposited with it 50% of the amount of debt due.

The deposit amount, the apex court said, can be reduced up to 25% but the appellate tribunal will have to give reasoned orders when it chooses to do so.

“....when further amount is due and payable in discharge of the decree/recovery certificate issued by the DRT in favour of the appellant/bank, the High Court does not have the power to waive the pre-­deposit in its entirety, nor can it exercise discretion which is against the mandatory requirement of the statutory provision....” - Supreme Court.

The Supreme Court has correctly held that an appeal by a debtor can only be entertained if the pre-deposit requirement is fulfilled, Dubey said.

This judgment protects the rights of the banks and reduces frivolous appeals as was envisaged in the act.
Bishwajit Dubey, Partner, Cyril Amarchand Mangaldas

The judgment has settled the confusion regarding the statutory requirement for pre-deposit, Sameer Jain, managing partner at PSL Advocates & Solicitors, said.

The 50% requirement can be lowered only when there is a genuine cause and there must be a reasoned order before allowing it, he said. Such exemptions are absolutely fact-dependent, for instance, where there is genuine financial difficulty, Jain said.

In the case under litigation, the court granted exemption on certain other considerations. It reduced the pre-deposit to 25% citing:

  • That where was other security such as a mortgage that was available.

  • Availability of personal guarantees.

  • And the actual amount of debt is still to be determined by the DRAT.

The top court gave eight weeks to deposit the amount, failing which the appeal will cease to exist before the DRAT.

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