The court upheld the DRAT's order denying waiver of pre-deposit under the SARFAESI Act, emphasizing the need for a prima facie case and clarifying that financial hardship is not determinative.

JUDGMENT :

(M.S. Sonak J) :

1. Heard learned counsel for the parties.

2. Rule in each of these petitions. The Rule is made returnable immediately at the request of and with the consent of learned counsel for the parties.

3. Learned counsel for the parties agree that a common judgment and order can dispose of these petitions. In any event, Writ Petition (L) No. 18722 of 2024, the challenge is to the Debts Recovery Appellate Tribunal’s (“DRAT”) order dated 04 June 2024, to the extent this order does not grant the petitioner the waiver under the 3rd proviso to Section 18(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). In the remaining three petitions, the petitioners challenge the very same order dated 04 June 2024, to the extent the said order does not consider the interest component for determining the debt due. Accordingly, it is only appropriate that a common judgment and order dispose of these petitions.

4. Ms Pinky Anand, learned senior advocate for the petitioner in Writ Petition (L) and 18722 of 2024 (“borrower”) submitted that under the scheme of Section 13(2) of the SARFAESI Act, the invocation of jurisdiction under the SARFAESI Act is pre-conditioned by the account in question being classified as a Non-Performing Asset (NPA). She submitted that unless this jurisdictional fact was established, the proceedings and the SARFAESI Act could never be launched, and, if launched, were ex-facie without jurisdiction and ultra vires. She referred to the provisions of Section 13(2) of the SARFAESI Act and relied upon M/s Sravan Dall Mill Private Limited Vs. Central Bank Of India, AIR 2010 AP 35 in support of this submission.

5. Ms Anand then referred to the notice dated 08 May 2021 by which proceedings under the SARFAESI Act sought to be initiated and pointed out to the statement in paragraph 9, in which it was stated that the petitioner’s account had been classified as NPA on 04 May 2021. She then referred to Schedule 2B to the deed of assignment dated 01 December 2022, by which the debt in question was assigned to the Asset Reconstruction Company (India) Limited (“ARCL”) which refers to the date of the petitioner's account being classified as NPA as 05 July 2022.

6. Ms Anand submitted that this was a serious discrepancy. Therefore, if the jurisdictional fact about the petitioner's account being classified as an NPA was uncertain and, in any event, not achieved before proceedings were launched under the SARFAESI Act, such proceedings were void ab initio.

7. Ms Anand also referred to ARCL's reply before the DRAT. She submitted that some admissions were made about the borrower paying amounts even after ARCL issued notice under Section 13(2) of the SARFAESI Act. She submitted that accepting such amounts after the issue of Section 13(2) notice disentitles ARCL from proceeding further under the said notice. In any event, she submitted that these amounts have not been accounted for to determine the debt allegedly due by the borrowers to ARCL.

8. Ms Anand submitted that based on the above factors, the borrower had made a very strong prime facie case to succeed in the appeal before the DRAT. She submitted that even the DRAT admits to the discrepancies and states that the petitioner has made out an arguable case. However, DRAT incorrectly concludes that the petitioner has not made out ‘ a strong prima face case ’. On this reasoning, the DRAT declines the waiver, rendering the petitioner’s right to appeal DRAT’s order illusory. She submitted that the right to appeal is virtually the right of access to justice. Therefore, this right should not have been taken away in this fashion. She, therefore, submits that the impugned order warrants interference.

9. Ms Anand submits that necessary averments about financial hardships were made in the application seeking waiver. She even referred to the income tax returns of the borrower - firm while admitting that these returns were no