High Court Cannot Entertain Writ Petition to Bypass Statutory Pre-Deposit Mandate Under SARFAESI Act: Kerala High Court

In a significant ruling, the High Court of Kerala has reinforced the principle that the judiciary will not entertain writ petitions aimed at circumventing mandatory statutory requirements under the SARFAESI Act. The division bench, comprising Mr. Justice Anil K. Narendran and Mr. Justice Muralee Krishna S., dismissed a writ appeal, asserting that litigants must exhaust the efficacious alternative remedy of an appeal before the Debts Recovery Appellate Tribunal (DRAT).

The Conflict: A Cycle of Litigation

The dispute originated from an overdraft facility granted by the Kerala Gramin Bank to M/S. Prajith Builders & Developers Private Limited. Following defaults, the bank initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Security Interest Enforcement Act, 2002 (SARFAESI Act).

The borrowers, repeatedly frustrated by the bank’s recovery measures, sought relief through multiple writ petitions. Their core contention was that the bank’s actions lacked procedural validity and that they were financially unable to meet the statutory pre-deposit conditions required for an appeal before the DRAT—a mandatory prerequisite of 25-50% of the claimed debt.

Determining the Scope of Judicial Interference

The appellant (the Bank) argued that the borrowers were attempting to bypass Section 18 of the SARFAESI Act, which specifically delineates the procedure for appealing orders of the Debts Recovery Tribunal (DRT). The Bank contended that the High Court’s earlier permission to treat a bank deposit as a mandatory pre-deposit was legally unsustainable.

The Court leaned heavily on established precedents, including the Apex Court’s rulings in * Union Bank of India v. Rajat Infrastructure Private Limited * and Sreedhar K. v. M/S. Raus Constructions Pvt. Ltd. , which clarify that the SARFAESI Act is a "code unto itself."

Key Observations

The judgment firmly underscored the limits of judicial intervention in banking recovery matters:

• "The requirement of pre-deposit under the second proviso to Section 18 (1) is mandatory, and the Debts Recovery Appellate Tribunal, which is a creature of the statute, cannot refuse to give full effect to the provisions."
• "The High Court under Article 226 of the Constitution of India can entertain a writ petition only under exceptional circumstances and that it is a self-imposed restraint by the High Court."
• "By entertaining the writ petition straightway under Article 226/227 of the Constitution of India challenging the order passed by the DRT-I, the High Court has allowed/permitted the borrower to circumvent the provision of appeal before the DRAT under the provisions of the SARFAESI Act."

Final Verdict: Judicial Propriety

The Kerala High Court concluded that the learned Single Judge had erred by allowing the borrowers to circumvent the statutory hierarchy. By permitting the writ petition, the court effectively allowed the litigants to bypass the mandatory pre-deposit required for a DRAT appeal.

In setting aside the previous judgment, the division bench emphasized that in matters pertaining to recovery of public money, the High Court must show restraint. Unless there is clear evidence of a total violation of natural justice or the application of repealed laws, parties must pursue the statutory remedies provided by the legislature—even if those remedies come with the burden of a mandatory pre-deposit. This ruling serves as a vital reminder to both borrowers and banking institutions that the SARFAESI Act’s procedural mechanisms are designed for efficiency, and judicial oversight is not a tool to bypass those processes.