“Debt Due” U/S 18(1) SARFAESI Act Includes Future Interest Accrued Till Filing Of Appeal: Kerala High Court

Justice Mohammed Nias C P delivered the judgment in a petition challenging orders of Debt Recovery Appellate Tribunal rejecting his application for waiver of pre-deposit and consequently dismissing the statutory appeal.

The petitioner has availed a housing loan of Rs. 50 lakhs and an additional housing loan of Rs. 35 lakhswith 44 cents land as security. The 2nd respondent, a private limited company in which the petitioner's husband is a Director, availed an overdraft facility of Rs. 2,50,00,000/- from the same bank, secured by 75.5 cents of land and building. On default of the company's loan, the bank clubbed the petitioner's liability with that of the company and issued a demand notice for Rs. 3,64,68,465/- followed by a possession notice. The financial asset was assigned to the first respondent under Section 5 of SARFAESI Act and securitisation application was filed before DRT seeking dispossession from the petitioner's residence, which was dismissed.

An appeal was preferred against the DRT order seeking waiver of pre-deposit. The DRAT directed the petitioner to deposit Rs. 1,57,63,026 which is 40% of the amount demanded in possession notice in two installments, failing which the appeal would be dismissed.

The petitioner contended that the interest accrued after issuance of notice under Section 13(2) of the SARFAESI Act cannot be reckoned while computing the 'debt due' for the purpose of Section 18 (1) of the SARFAESI Act.

While the respondent argued that the definition “debt” under Section 2(ha) of the SARFAESI Act read with Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 includes interest, and thus, the entire liability as on the appeal date must be considered. The counsel for the respondents further argued that the issue was longer res Integra as the Apex Court decided in Sidha Neelkanth Paper Industries Pvt Limited v Prudent ARC Ltd (2023 SCC Online SC 12) that 'debt due' included the entire liability claimed by the secured creditor.

The High Court examined the two lines of authority submitted by both the parties. First, where the “debt due” referred only to the amount claimed in the Section 13 (2) notice, excluding the future interest as decided in Sivakumar Textiles v DRAT (AIR 2012 Madras 57). Second, the instances where the “debt due” was interpreted to include continuing interest as in decisions like M/s MRB Roadconst. Pvt. Ltd v Rupee Co-op Bank Limited (2016 2 AIR BomR 256).

The court observed that the Supreme Court in Sidha Neelkant Paper Industries Pvt. Ltd. v ARC Ltd (2023 SCC OnLine SC 12), has held that for the mandatory pre-deposit under Section 18(1), the “debt due” must include not merely the sum mentioned in the Section 13(2) notice but also the interest accrued till the date of the filing of the appeal, as the borrower's liability under the Act is continuing till the full discharge of the debt.

“The judgment of the Apex Court in Sidha Neelkanth (supra) does not exclude such interest; rather, when read as a whole, it supports the computation of “debt due” as on the date of appeal, encompassing both principal and accrued interest.” the bench noted.

The Court concluded that the term 'debt due' under the proviso to Section 18 (1) of the Act necessarily includes the interest accruing even after the issuance of notice under Section 13(2) of the Act. 

The Court further held that since the amount directed by DRAT to be deposited was less than 50% of the total liability, the order of DRAT was legal.

The Court thus, dismissed the original petition.

Case Title: Mini Zakir v M/S Phoenix Arc Private Limited

Case No: OP(DRT) 183/ 2025

Citation: 2025 LiveLaw (Ker) 678

Counsel for Petitioner: Zakeer Hussain, K A Sanjeetha, Aby George

Counsel for Respondents: Nidhi Sam Johns, Lijo Joseph, A Kevin Thomas, Celia Santhosh, A V Thomas (Sr.)