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Union Bank of India v. Rajat Infrastructure Pvt. Ltd.

Civil Appeal · 2020 INSC 250Decided 2 Mar 2020
Civil Appeal No. 1902 of 2020
Justice Deepak Gupta · Justice Aniruddha Bose

Background

A company had mortgaged its property as security for a loan taken by other borrowers. When the loan went unpaid, the bank auctioned the mortgaged property, and the mortgagor challenged the auction sale before the Debt Recovery Appellate Tribunal (DRAT). The Bombay High Court ruled that the mortgagor could appeal to the DRAT without making the "pre-deposit" that the law normally requires before an appeal can even be heard. The bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 18 of the SARFAESI Act creates an absolute bar on entertaining an appeal before the DRAT unless the borrower first deposits 50% (reducible to not less than 25% by the Tribunal, for recorded reasons) of the debt claimed. It held that a mortgagor/guarantor who mortgages property to secure someone else's loan stands in the same position as a borrower for this purpose, and the High Court had no power under Article 226 to waive this mandatory deposit requirement, which only the DRAT can reduce. The Court set aside the High Court's orders, allowed the bank's appeals, but as a concession extended the time for the auction purchaser to pay the balance sale price and protected the mortgagor's right to file a time-barred-free appeal within 30 days.

Lesson Learnt

Anyone challenging a bank's SARFAESI auction before the DRAT, whether the actual borrower or someone who mortgaged property as security for another's loan, must make the legally mandated pre-deposit; courts cannot simply waive this requirement.

Official source (sci.gov.in)View Judgment (PDF)

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