In a recent legal matter, the Delhi High Court dealt with a petition filed under Articles 226 and 227 of the Constitution of India, seeking the quashing of certain orders and directions issued by the Debt Recovery Tribunal (DRT) and the Debt Recovery Appellate Tribunal (DRAT) in relation to the petitioner’s home loan under the SARFAESI Act. The petitioner, who had defaulted on a significant home loan, sought to challenge the tribunal’s orders that required her to make a 25% pre-deposit for the hearing of her appeal, arguing that the debt related to her loan had been improperly clubbed with a separate loan taken by her son's business.
Factual Background:
The petitioner, who had availed a home loan from a bank for an amount of Rs. 3 crore in 2017, had been regular in her payments until she defaulted on the December 2023 installment. Following this, the bank declared the loan a Non-Performing Asset (NPA) in February 2024, and initiated proceedings under the SARFAESI Act. Despite making payments of Rs. 1 crore in April 2024 and subsequent payments, the bank proceeded with auction notices in July 2024, showing an outstanding loan of Rs. 1.52 crore.
The petitioner requested the bank to restructure her loan, proposing to pay off the outstanding amount through revised EMIs. However, the request was not granted, and the bank continued the proceedings, including obtaining orders to take possession of her property. The petitioner contested these actions, arguing that the loan amounts owed by her and her son’s business were wrongly amalgamated and that the pre-deposit requirement imposed by the DRAT was arbitrary.
Petitioner’s Arguments:
The petitioner’s legal counsel argued that the home loan she took and the cash credit facility availed by her son’s business should not be treated as a single debt. They emphasized that both loans were distinct, with no legal or financial link between the petitioner’s home loan and her son’s business loan, which amounted to Rs. 10 crore. The petitioner contended that the bank’s actions in combining the loans and directing her to make a pre-deposit on the total sum of Rs. 12.58 crore were legally unjustified.
Additionally, the petitioner argued that the declaration of the loan as NPA in February 2024 was premature, as the SARFAESI notice was issued before the formal declaration of the loan as NPA. The petitioner’s counsel also pointed out that the subject property was mortgaged only for a portion of the loan, specifically the enhanced debt of Rs. 2.5 crore, and thus the entire proceedings were flawed.
Respondent’s Defense:
The respondent bank’s counsel, in contrast, asserted that the loan was secured by multiple properties, including the petitioner’s home, and that the mortgage covered the total amount of Rs. 10 crore. They highlighted that the petitioner had signed various documents, confirming her understanding that her property was collateral for the entire debt. They further argued that the petitioner’s failure to honor payment deadlines in 2024 substantiated their actions.
Regarding the pre-deposit, the bank emphasized that the direction issued by the DRAT was consistent with the Supreme Court’s ruling, which mandates a 25% pre-deposit of the outstanding debt before an appeal is heard. The respondent argued that the petitioner had not shown sufficient bona fides to warrant a waiver of the pre-deposit requirement.
Court’s Analysis and Judgment:
The Delhi High Court examined the legal issues presented in the petition, focusing on the question of whether the petitioner was required to pre-deposit 25% of the disputed amount of Rs. 12.58 crore as a condition for appealing the DRAT’s decision.
The Court found that the petitioner’s property had been offered as collateral for the entire loan, not just the enhanced debt portion. The Court noted that the documents referenced by the petitioner did not support the claim that the mortgage was limited to the Rs. 2.5 crore enhanced loan. Additionally, the Court rejected the argument that the loan’s NPA status was prematurely declared and found that such matters should be decided by the DRAT based on the facts.
The Court ultimately ruled that it was not within its purview to revisit factual disputes, especially those regarding the quantum of the debt. It stated that the petitioner’s appeal before the DRAT should proceed with the mandated pre-deposit, as stipulated by the applicable legal framework. The writ petition was therefore dismissed, and no cost was imposed.
Conclusion:
This case highlights the complexities surrounding loans under the SARFAESI Act, particularly when multiple loans are involved, and the legal requirements for pre-deposit in appeals. The Court’s decision emphasizes the importance of adhering to procedural mandates, including pre-deposit requirements, while also clarifying the extent to which property can be used as collateral in securing loans. The petitioner’s request for a revision of the pre-deposit amount based on the nature of the debt was rejected, underlining the need for accuracy in documenting loan agreements and the legal implications of defaulting on such financial obligations.
