The Supreme Court has passed a latest orders on ejecting tenants and lessees of a mortgaged properties under provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002.

Under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, a CMM/ DMM cannot dispossess a tenant/ lessee of a mortgaged property.

The remedy of appeal to Debts Recovery Tribunal (DRT) by any aggrieved person, provided under section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, is not a good remedy for a tenant or lessee, as the Debts Recovery Tribunal (DRT) has no powers to put a dispossessed tenant/ lessee back into the property.

Under section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, a Debts Recovery Tribunal (DRT) has powers to put only the owner of the asset back into the property, but no one else.

The CMM/ DM should hear and decide whether the person staying in the mortgaged property is a tenant/ lessee and has a right to stay in the property before accepting an application u/s 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, of a bank to eject any person staying in the mortgaged property.

Maharashtra Rent Control Act is not saved by the SARFAESI Act hence a tenant/ lessee of a mortgaged property cannot go to the Court of Rent Controller over the order or CMM/DM u/s 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, the SARFAESI Act.

For full text of the judgment as well as analysis of the judgment visit bankdrt.com

The Debt Recovery Appellate Tribunals (DRAT) do not have any powers to admit an appeal with out insisting on pre-deposit of debt due. At best the DRATs can reduce the amount of pre-deposit to 25% of the due amount, that too for adequate reasons to be recorded in writing.


Under the Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act 2002 an appeal can be filed before the DRAT against orders passed by the DRT. The relevant provisions of the SARFAESI Act is Section 18 of the Act. One of the conditions given in the first proviso under that section is that 50% of the debt due as determined by the DRT, or as claimed by the bank, which ever is lower, must be deposited as a condition precedent for admitting the appeal by the DRAT. The second proviso under the Section empowers the DRATs to reduce the amount of pre-deposit, for adequate reasons to be recorded in writing, subject to a maximum of 25% of the debt due as determined by the DRTs or as claimed by the Bank. That means that DRATs have to insist on at least 25% of the amount as pre-deposit for admitting an appeal. This second proviso of the SARFAESI Act came up for consideration before the Supreme Court. In that matter the DRAT had waived off the amount of pre-deposit on the ground that neither the matter had been adjudicated by the DRT nor the amount has been crystallized. The bank took up the matter before the High Court which over turned the order of the DRAT. The borrower then took up the matter before the Supreme Court.


Section 18 of the SARFAESI Act, which provides for appeal to DRAT, reads as under :
"18. Appeal to Appellate Tribunal.— (1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower: Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less: Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso. (emphasis provided)


(2) ..... ..... ..... ..... ..... ..... ..... .... ..."


It can be seen from the provisos under the Section reproduced above, pre deposit of debt due is a precondition precedent for admitting an appeal by the DRAT. The only power with the DRAT is to reduce the amount by half, which shall not be less than 25% of the amount, as claimed by the banker or as determined by the DRT. Therefore, where no decision has yet been given by the DRT, and appeal is required to be preferred, then at least 25% of the amount as claimed by the bank needs to be deposited as condition precedent for the admittance of an appeal by the DRAT. It is not necessary that the DRTs should have adjudicated the debt due amount. If no orders has yet been passed by the DRTs then the claim made by the bank would be the amount on which pre-deposit will have to be made. The Supreme Court referred to well settled principles of law that when a Statute confers a right of appeal, the Legislature can impose conditions for the exercise of such right, so long as the conditions are not so onerous as to amount to unreasonable restrictions, rendering the right almost illusory. The Supreme Court held that the very objective for which the Act was created was the recover debt dues and as such conditions hedged in the said proviso cannot be said to be onerous for the objective to be achieved. The Court held that requirement of pre-deposit under sub-section (1) of Section 18 of the Act is mandatory and there is no reason whatsoever for not giving full effect to the provisions contained in Section 18 of the Act. In that view of the matter, no court, much less the Appellate Tribunal, a creature of the Act itself, can refuse to give full effect to the provisions of the Statute.


The intention of the legislature in stipulating the conditions for making an appeal is perfectly legal as well necessary to prevent unscrupulous borrowers in holding on to public money by engaging the banks in endless litigations. But the judgment of the Hon’ble Supreme Court may face certain problems in its implementation at the level of DRATs and hence will require to be revisited in due course of time. Firstly, in a given situation, there could be a number of appeal arising out of a single notice issued u/s 13(2) of the SARFAESI Act. In addition, occasions may arise for filing an appeal to DRAT out of some procedural issues arising out of proceedings of DRTs. Similar would be the situation in matters connected with the proceedings u/s 13(4) as well as 13(3-A) of the SARFAESI Act. Given the situation, insisting on pre-deposit each time an appeal is to be made may result, in parties being asked to deposit an amount which could be more than the actual amount claimed by the bank. Besides appellate provision under S. 17 of the Act may become illusory . For this some curative orders may be necessary to over come these short comings.


Read full text of the Judgment