India: Principles Governing Waiver Of Deposit Contemplated Under Section 21 Of The Recovery Of Debts Due To Banks And Financial Institutions Act , 1993

As per the mandate of Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the DRT Act") that an appeal filed by the person from whom the amount is due shall not be entertained unless seventy-five per cent of the amount of debt so due from him has been deposited with the tribunal. The proviso to Section 21 gives power to the Appellate Tribunal to waive the deposit contemplated in the Section. The relevant extract of Section 21 of the DRT Act and Rule 8 of the Debt Recovery Appellate Tribunal (Procedure) Rules, 1994 (hereinafter referred to as "the DRAT Rules") may be enumerated as below:

Section 21 of the DRT Act:

21. 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 seventy-five 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, waive or reduce the amount to be deposited under this section.

Rule 8 of the DRAT Rules"

Deposit of amount of debt due. –Where an appeal is preferred by a person referred to in section 21 of the Act, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal seventy-five per cent of the amount of debt so due from him as determined by the Tribunal under section 19 of the Act, provided that the Appellate Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under section 21 of the Act.

In the case of Satinder Kapur and Ors. v. IFCI Ltd. and Ors., W.P. (C) 5138 of 2011, the Hon'ble Delhi High Court considered the scope and ambit of the power to waive deposit as contemplated under Section 21 of the DRT Act. In this case, a decree had been passed by DRT in favour of IFCI Ltd., IDBI Ltd. and Kotak Mahindra Bank Ltd. upon failure of debtors/ guarantors in making repayment of the debt. An appeal was filed along with a miscellaneous application u/s 21 of the DRT Act for waiver of deposit. The same was contested by Kotak Mahindra Bank Ltd. DRAT disposed off the application by directing deposit of 25% of the decretal amount pertaining to the share of Kotak Mahindra Bank Ltd. The same was on the ground that no document had been placed on record to show that the debtors were not in a position to pay their debts. The Hon'ble High Court held that the powers contemplated by Section 21 of DRT Act had to be exercised on well known judicial principles. It has duly held that:

"Para 15. Apart from considering the usual prima-facie case, balance of convenience and irreparable loss and injury, the Appellate Tribunal has to consider: "Whether it would be a case of undue hardship if the letter of the law has to be complied with by the Appellant before it."

Para 16. Suffice would it be to state that No. person should be denuded the right of appeal if there is financial hardship and this is the reason why the legislature has enacted the proviso to Section 21 of The Recovery of Debts due to Banks and Financial Institutions Act, 1993. Otherwise, the section would be susceptible to a constitutional challenge of being unreasonable.

In a subsequent case of Vinay Rai v. IFCI Ltd. and Ors., WP (C) No. 15954/2006, it was held that it was not a case wherein there can be total waiver of the predeposit, but, at the same time, it was also not equitable to direct the petitioner to give a deposit of Rs.750 crores in order to enable him to argue his appeal. The petitioner was directed to deposit only 10% as against 75% of the amount of the Recovery Certificate.

Therefore, the DRAT has to consider the judicial principles of prima-facie case, balance of convenience, irreparable loss and injury and whether it would be a case of undue hardship if the literal wordings of the provision has to be complied with by the Appellant. The true objective behind the law is that no frivolous appeal should be filed and no person should be denuded from his right to appeal because of his/her financial hardship.

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