WAIVER OF THE REQUIREMENT OF PRE DEPOSIT FOR FILING APPEAL BEFORE APPELLATE TRIBUNAL UNDER SECTION 21 OF THE RECOVERY OF DEBTS AND BANKCUPTCY ACT, 1993

[Mr. M. GOVINDARAJAN]

The Recovery of Debts And Bankruptcy Act, 1993 (‘Act’ for short) was enacted to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. The Act provides for the establishment of Debts Recovery Tribunal (‘Tribunal’ for short) and Debts Recovery Appellate Tribunal (‘Appellate Tribunal’ for short).

Where a bank or a financial institution has to recover any debt from any person, it may make an application under Section 19 of the Act to the Tribunal within the local limits of whose jurisdiction.  The Tribunal may, after giving the applicant and the defendant, an opportunity of being heard, in respect of all claims, set-off or counter-claim, if any, and interest on such claims, within thirty days from the date of conclusion of the hearings, pass interim or final order as it deems fit which may include order for payment of interest from the date on which payment of the amount is found due up to the date of realization or actual payment.  The Presiding Officer shall issue a certificate of recovery along with the final order, for payment of debt with interest under his signature to the Recovery Officer for recovery of the amount of debt specified in the certificate.

Section 20 of the Act provides that any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to an Appellate Tribunal having jurisdiction in the matter within a period of  30 days from the date on which a copy of the order made, or deemed to have been made.

Section 21 of the Act provides a condition precedent for filing appeal before the Appellate Tribunal.  Section 21 provides that where an appeal is preferred by any person from whom the amount of debt is due to a bank or a financial institution or a consortium of banks or financial institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal 50% of the amount of debt so due from him as determined by the Tribunal under section 19.  The proviso to this section provides that the Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to be deposited by such amount which shall not be less than 25% of the amount of such debt so due to be deposited under this section.

From the analysis of Section 21 of the Act it can be concluded that pre deposit @ 50% of the amount of debt is mandatory since the word ‘shall’ has been used and not directory.  Without the payment of 50% pre deposit appeal shall not be entertained.  However the proviso provides that the pre deposit amount may be reduced to 25% of the amount of debt from 50% at the discretion of the Appellate Tribunal.  Therefore the pre deposit cannot be waived by the Appellate Tribunal. 

The issue to be discussed in this article is as to whether the High Court can waive the requirement of pre deposit under Section 21 of the Act.  In KOTAK MAHINDRA BANK PVT. LIMITED VERSUS AMBUJ A. KASLIWAL & ORS. - 2021 (2) TMI 1251 - SUPREME COURT, the Supreme Court held that the High Court is having no power to waive the pre deposit before filing an appeal before the Appellate Tribunal.

In the above said case Hindon River Mills Limited had availed financial assistance from IFCI Limited, the 6^th respondent in this case.  The respondents No.1 and 2 had offered their personal guarantee in respect of the said financial assistance.  The respondents No.1 to 3 had defaulted in repayment of the dues.  Therefore the account has been classified as nonperforming asset by IFCI Limited.  The IFCI Limited auctioned the non performing Asset.  The Kotak Mahindra Bank (appellant in this case) was the successful bidder and accordingly, the unpaid debt and nonperforming asset was assigned in their favor. The said assignment was challenged by the respondents No. 1 to 3 before the High Court which dismissed the same. 

A special leave petition was filed before the Supreme Court against the order of High Court.  A settlement has been reached between the parties.  According to the settlement the

respondents No. 1 to 3 had agreed to repay the sum of Rs.145 crore with interest at 15% per annum subject to the same being repaid on or before 31.07.2012.  But repayment was not made.

The appellant Bank, therefore, instituted recovery proceedings by filing an application before Tribunal.  Before the Tribunal the appellant contended that the respondents No. 1 to 3 would be liable to pay the entire outstanding since the benefit of the settlement wherein the outstanding amount was frozen had not been availed within the time frame.  Accordingly, the sum of Rs. 572,18,77,112/-  was due as on 31.12.2014 along with interest and other charges was claimed before the Tribunal.

In the meanwhile the respondent No. 3 deposited a sum of  Rs.152.81 crore awarded by the Arbitrator on the settlement of the dispute with National Highways Authority of India on the property acquired by it. 

The Tribunal proceeded the case and ordered for issue of a recovery certificate to the tune of Rs.145 crore with future interest @ 9% after adjusting the compensation amount deposited by the Respondent No. 3 on 15.03.2018.  The appellant as well as the respondents filed an appeal before the Appellate Tribunal.  In the appeal proceedings the respondent No. 1 and 2 filed an interim application with the prayer to waive the requirement of 50% of the debt due in filing appeal.  The Appellate Tribunal arrived at Rs.68.18 crore as due payable to the appellant and directed to deposit 50% of Rs.68.18.  The Review Petition filed in this behalf was also came to be dismissed.

Being aggrieved against the above said order the respondents filed a writ petition before the High Court.  The High Court passed order that the respondents No.1 and 2 are to be permitted to prosecute the appeal without pre deposit on 16.07.2019 and directed accordingly.

The appellant, being aggrieved against the order of High Court filed the present appeal before the Supreme Court.  The Supreme Court took note of the proceedings before the Tribunal and Appellate Tribunal and also High Court.  The short issue for consideration by the Supreme Court is with regard to the correctness or otherwise of the order passed by the DRAT and the High Court of Delhi in the matter relating to pre deposit of the debt due, in an appeal before the Appellate Tribunal.  The Supreme Court analyzed the provisions of Section 21 of the Act.

The Supreme Court observed that the phrase ‘appeal shall not be entertained’ indicates that it injuncts the Appellate Tribunal from entertaining an appeal by a person from whom the amount of debt is due to the Bank, unless such person has deposited with the Appellate Tribunal, 50% of the amount of debt so due from him as determined by the Tribunal under Section 19 of the Act.  The proviso to the said Section, however, grants the discretion to the Appellate Tribunal to reduce the amount to be deposited, for reasons to be recorded in writing, but such reduction shall not be less than 25% of the amount of such debt which is due.  Therefore the discretion to waive pre deposit is allowed to swing between 50% and 25% per cent of the debt due and not below 25%, much less not towards total waiver.

The Supreme Court observed that all that the High Court has concluded is that the benefit of the receipt of Rs.152,81,07,159/-  as against the decretal amount cannot be denied though it was received before passing of the final judgment. Such conclusion in any event could not have tilted the balance in favor of the respondents No.1 and 2 to waive the entire pre deposit, unless the High Court had rendered a categorical finding that the entire decretal amount stands satisfied from such receipt and there was no debt due.

The Supreme Court held that 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 as contained in Section 21. In all cases 50% of the decretal amount i.e. the debt due is to be deposited before the Appellate Tribunal as a mandatory requirement, but in appropriate cases for reasons to be recorded the deposit of at least 25% of the debt due would be permissible, but not entire waiver.  The Supreme Court, therefore, set aside the order of High Court.

For the purpose of determining the pre deposit, the decretal amount due is taken at Rs.68.18 crore.  The Supreme Court held that a total waiver would be against the statutory provisions.  The Supreme Court deems it appropriate that in the peculiar facts and circumstances of this case to permit the pre deposit of 25% of Rs.68.18 crore.