Supreme Court clarifies pre-deposit requirements under RDBA Act: Kotak Mahindra Bank vs. Ambuj A. Kasliwal (2021)

Date of the Judgment: February 16, 2021
Citation: 2021 INSC 78
Judges: S. A. Bobde, CJI, A. S. Bopanna, J, V. Ramasubramanian, J. The judgment was authored by Justice A.S. Bopanna.

Can an appellate tribunal completely waive the mandatory pre-deposit required to hear an appeal under the Recovery of Debts and Bankruptcy Act, 1993? The Supreme Court addressed this question in a recent case involving Kotak Mahindra Bank and a group of borrowers. The core issue revolved around the interpretation of Section 21 of the Recovery of Debts and Bankruptcy Act, 1993, specifically concerning the pre-deposit required for filing an appeal before the Debts Recovery Appellate Tribunal (DRAT).

Case Background

Hindon River Mills Ltd. (Respondent No. 3) had taken financial assistance from IFCI Ltd. (Respondent No. 6). Ambuj A. Kasliwal and another (Respondents No. 1 and 2) provided personal guarantees for this loan. When Hindon River Mills defaulted on repayments, the account was classified as a non-performing asset. IFCI Ltd. auctioned the debt, which was acquired by Kotak Mahindra Bank (the Appellant).

The assignment of the debt to Kotak Mahindra Bank was challenged by the borrowers in the High Court, but this challenge was unsuccessful. Subsequently, a settlement was reached where the borrowers agreed to repay Rs. 145 Crores with 15% annual interest by July 31, 2012. However, the borrowers failed to adhere to this settlement.

Kotak Mahindra Bank then initiated recovery proceedings before the Debts Recovery Tribunal (DRT), claiming the entire outstanding amount, which was Rs. 572,18,77,112 as on 31.12.2014, along with interest and other charges. During the pendency of these proceedings, the National Highways Authority of India (NHAI) acquired a portion of the mortgaged property of Hindon River Mills and deposited compensation of Rs. 152,81,07,159 with the DRT.

The DRT issued a recovery certificate for Rs. 145 Crores with 9% annual interest, taking into account the compensation already received. Both the bank and the borrowers appealed this order before the DRAT. The borrowers sought a waiver of the mandatory pre-deposit required to hear their appeal.

Timeline:

Course of Proceedings

The Debts Recovery Tribunal (DRT) ordered the issuance of a recovery certificate for Rs. 145 Crores with future interest at 9% per annum, after considering the compensation amount of Rs. 152,81,07,159 already paid. Both the bank and the borrowers filed appeals before the Debts Recovery Appellate Tribunal (DRAT). The DRAT directed the borrowers to pre-deposit 50% of the remaining debt, which it calculated to be Rs. 68,18,92,841, after adjusting the compensation amount. The borrowers then approached the High Court of Delhi, challenging the DRAT order.

The High Court of Delhi, swayed by the fact that the bank had already received Rs. 152,81,07,159, allowed the borrowers to prosecute their appeal without any pre-deposit. The bank, aggrieved by this order, appealed to the Supreme Court.

Legal Framework

The core legal provision in question is Section 21 of the Recovery of Debts and Bankruptcy Act, 1993 (RDBA Act), which deals with the pre-deposit required for filing an appeal before the DRAT.

Section 21 of the RDBA Act states:

“Deposit of amount of debt due, on filing appeal – 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 [fifty per cent.] of the amount of debt so due from him as determined by the Tribunal under section 19:
Provided 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 twenty-five per cent. of the amount of such debt so due] to be deposited under this section.”

This section mandates that an appeal will not be entertained by the DRAT unless the appellant deposits 50% of the debt determined by the DRT. However, the proviso allows the DRAT to reduce this amount, but not below 25% of the debt due.

Arguments

The arguments presented by the parties are as follows:

• Appellant (Kotak Mahindra Bank):
  • The bank argued that Section 21 of the RDBA Act mandates a pre-deposit of 50% of the debt determined by the DRT before an appeal can be entertained by the DRAT.
  • The bank contended that the High Court erred in allowing the borrowers to pursue their appeal without any pre-deposit.
  • The bank stated that the DRAT had correctly calculated the remaining debt by taking into consideration the compensation amount received.
  • The bank argued that the High Court could not have waived the pre-deposit requirement completely, as it is against the statutory provisions.
• Respondents (Borrowers):
  • The borrowers argued that the bank had already received Rs. 152,81,07,159, which was more than the principal amount of Rs 145 crores as decreed by the DRT.
  • They contended that no further amount was due, and therefore, no pre-deposit should be required.
  • The borrowers argued that the compensation amount received by the bank should be considered as payment towards the debt and not merely an adjustment.
  • The borrowers stated that they had already lost a portion of their property and the remaining property was also mortgaged.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the High Court was correct in allowing the appeal before the DRAT without insisting on the pre-deposit as contemplated under Section 21 of the RDBA Act?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the High Court was not justified in setting aside the order of the DRAT, which had correctly applied the provisions of Section 21 of the RDBA Act. The Supreme Court emphasized that the pre-deposit requirement is mandatory, and while the DRAT has the discretion to reduce the amount, it cannot waive it entirely.

The following table shows how the authorities were viewed by the Court:

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory mandate of Section 21 of the RDBA Act, which requires a pre-deposit for appeals before the DRAT. The Court emphasized that the language of the provision is clear and unambiguous, leaving little room for interpretation. The Court also considered the fact that the DRAT had already taken into account the compensation amount while calculating the remaining debt.

The Court was also mindful of the fact that the purpose of the pre-deposit is to ensure that the financial institution has some security while the appeal is pending. The court also took into consideration the fact that the borrowers had already lost a portion of their property and the remaining property was also mortgaged.

The ratio of fact:law that influenced the court to decide was as follows:

The Court considered the argument that the bank had already received a substantial amount, but it clarified that this does not negate the requirement for pre-deposit. The Court also noted that the DRAT had already taken into account the compensation amount while calculating the remaining debt. The Court also considered the fact that the borrowers had already lost a portion of their property and the remaining property was also mortgaged.

The court stated:

“Thus, when prima facie it was taken note by the DRAT that further amount was due and the pre-deposit was ordered, without finding fault with such conclusion the High Court was not justified in setting aside the orders passed by the DRAT.”

The Court further clarified that:

“Therefore, in the facts and circumstances arising herein, 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 as contained in Section 21”

The court also observed that:

“In all cases fifty per cent of the decretal amount i.e. the debt due is to be deposited before the DRAT as a mandatory requirement, but in appropriate cases for reasons to be recorded the deposit of at least twenty-five per cent of the debt due would be permissible, but not entire waiver.”

Key Takeaways

• The Supreme Court clarified that pre-deposit under Section 21 of the RDBA Act is mandatory for appeals before the DRAT.
• The DRAT has the discretion to reduce the pre-deposit amount, but it cannot be less than 25% of the debt due.
• High Courts do not have the power to waive the pre-deposit requirement entirely, as it is against the statutory provisions.
• The amount received by the bank towards the debt, even if received before the final judgment, does not negate the pre-deposit requirement.
• The actual amount of debt due is to be determined by the DRAT in the appeal proceedings.

Directions

The Supreme Court directed the following:

1. The order of the High Court of Delhi was set aside.
2. The order of the DRAT was modified to allow the borrowers to deposit 25% of the remaining debt (Rs. 68,18,92,841), which is Rs. 17,04,73,210.25, within 8 weeks. Failure to do so would result in the appeal not being entertained.
3. The contempt petition was closed.

Development of Law

The Supreme Court’s decision reinforces the mandatory nature of the pre-deposit requirement under Section 21 of the RDBA Act. The judgment clarifies that while the DRAT has the power to reduce the pre-deposit, it cannot waive it entirely. This ruling ensures that the statutory provisions are strictly adhered to, providing a balance between the rights of the borrowers and the financial institutions. The ratio decidendi of the case is that the pre-deposit is mandatory for an appeal before the DRAT, and while the DRAT can reduce it, it cannot be waived entirely. This is in line with the previous position of law.

Conclusion

The Supreme Court’s judgment in Kotak Mahindra Bank vs. Ambuj A. Kasliwal clarifies the pre-deposit requirements under Section 21 of the RDBA Act. The court held that while the DRAT can reduce the pre-deposit amount, it cannot be waived entirely by the High Court. The court emphasized the mandatory nature of the pre-deposit to ensure that the financial institutions have some security while the appeal is pending, balancing the rights of the borrowers with the interests of the financial institutions.