Isabella Mariam

The High Court of Telengana, Division Bench of Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar delivered a significant ruling concerning the scope of Section 21 of the Recovery of Debts and Bankruptcy Act, 1993. The Bench set aside an order which had directed a party to make a mandatory pre-deposit of twenty-five percent of a debt amount for the purpose of hearing an appeal. The Court held that the appeal in question was procedural in nature and not a substantive appeal arising from a determination of debt. In its final directive, the Division Bench allowed the writ petition, set aside the impugned order of the Debts Recovery Appellate Tribunal (DRAT) dated 06.03.2025, and ordered closure of pending miscellaneous applications without costs.

The dispute originated from an order passed by the Debts Recovery Tribunal-I, Hyderabad (DRT-I) in Original Application No.625 of 2019 filed by the State Bank of India (SBI). The application sought recovery of Rs.47,13,93,098.80 from multiple defendants, including the petitioner. On 31.01.2020, the DRT-I held that defendant Nos.1 to 4 were jointly and severally liable to pay the said sum and authorized the bank to proceed against their persons and properties. The order recorded that the defendants had been set ex parte on 08.11.2019.

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Subsequently, the petitioner, who was defendant No.4, filed MAIR No.171 of 2024 under section 22(h) of the Recovery of Debts and Bankruptcy Act, 1993, seeking to set aside the ex parte order. Alongside, the petitioner filed I.A.No.736 of 2024 under section 5 of the Limitation Act, 1963, for condoning a delay of 1484 days in filing the application. On 01.10.2024, the DRT-I dismissed the application, concluding that no sufficient cause had been shown for the inordinate delay.

Challenging this dismissal, the petitioner approached the Debts Recovery Appellate Tribunal at Kolkata through Miscellaneous Appeal Diary No.972 of 2024. Simultaneously, the petitioner filed I.A.No.567 of 2024 seeking exemption from the requirement of pre-deposit under section 21 of the Act. However, by its order dated 06.03.2025, the DRAT directed the petitioner to deposit twenty-five percent of Rs.66,86,20,751/- within four weeks as a condition to hear the appeal on merits.

The petitioner thereafter sought relief from the High Court, asserting that Section 21 was inapplicable to appeals arising from interlocutory or procedural orders, particularly those contesting rejection of applications for condonation of delay in setting aside ex parte orders.

The petitioner’s counsel argued that the appeal before the DRAT was not directed against any determination of debt under Section 19 of the Act but solely challenged the refusal to condone delay in seeking to recall an ex parte order. It was contended that compelling a pre-deposit under Section 21 in such circumstances was contrary to legislative intent.

The counsel for the respondent-bank, however, maintained that Section 21 imposed a mandatory condition of pre-deposit on all appeals to the DRAT, without distinction. It was argued that the DRAT’s order was valid as the statute contemplated deposit of at least twenty-five percent in any appeal concerning the amount of debt.

The High Court examined the statutory framework of the Recovery of Debts and Bankruptcy Act, 1993, including Sections 19, 21, and 22, and the interplay of these provisions with the Code of Civil Procedure, 1908.

The Bench reproduced Section 21 of the Act and stated: “A purposive reading of section 21 of the RDB Act makes it clear that the bar on filing an appeal by a person aggrieved by the order of the DRT is conditional on two factors: a determination of debt; and that the appeal is directed against the determination of debt.”

The Court elaborated that the wording “as determined by the Tribunal under section 19” indicated that only appeals arising from substantive adjudication of debt would fall within the scope of Section 21. It observed: “The nature of the Appeal contemplated under section 21 is a substantive Appeal arising from a determination of debt due from the appellant to a Bank, Financial Institution or a consortium thereof.”

On the applicability of Section 21 to the present matter, the Bench recorded: “In our considered view, the Appeal filed by the petitioner before the DRAT is not a substantive appeal, but is rather a ‘procedural appeal’.” The Court clarified that the appeal stemmed from an order rejecting an interlocutory application for condonation of delay in setting aside an ex parte order, and not from adjudication of debt.

Referring to Section 22 of the RDB Act, the Bench noted: “Section 22(2)(g) of the RDB Act preserves the power of the Tribunal and the Appellate Tribunal to recall an ex parte order.” It further observed: “Ex parte orders are an exception and not the rule. Courts have held that such orders lack the flavour of finality in the absence of the contesting party.”

The Court drew parallels with provisions of the Civil Procedure Code, stating: “Order XLIII Rule 1(d) makes an order under Order IX Rule 13 appealable… If this distinction is applied to the RDB Act, it must logically follow that appeals from final determinations of debt are subject to section 21 of the RDB Act as opposed to appeals from interlocutory/procedural orders.”

It was also observed that imposing a mandatory pre-deposit on appeals contesting procedural orders would be inconsistent with the legislative scheme: “Placing undue burden of a pre-deposit for such procedural access would certainly be onerous on the appellant and discordant to the legislative intention behind section 22(2)(g) of the RDB Act.”

The Bench referred to earlier decisions including New India Assurance Co. Ltd. Vs. Union Bank of India, Kotak Mahindra Bank (P) Ltd. Vs. Ambuj A. Kasliwal, and recent rulings of the Supreme Court and High Courts which distinguished between appeals arising out of debt determinations and appeals against interlocutory orders.

The Court stated: “The petitioner’s appeal cannot be brought within the stranglehold of the deposit requirement under section 21 of the RDB Act or the proviso contained therein.”

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The court held: “The appeal filed by the petitioner before the DRAT is not a substantive appeal from an adjudication of debt but an appeal for restoration of the principles of natural justice from an ex parte order excluding the petitioner from presenting his case.” It held that the appeal did not attract the requirements of Section 21.

 “The impugned order of the DRAT dated 06.03.2025, directing the petitioner (appellant) to make a pre-deposit thus calls for interference. The impugned order dated 06.03.2025 is accordingly set aside.”

 “W.P.No.12395 of 2025 is allowed in terms of the above. Miscellaneous applications pending, if any, shall stand closed. There shall be no order as to costs.”

Advocates Representing the Parties

For the Petitioner: Sri V. Murali Manohar, Advocate

For the Respondent: Ms. V.L.V. Devi, representing Sri G. Prabhakar Sarma, Advocate

Case Title: Gade Sreenivas Reddy v. State Bank of India and Others

Case Number: Writ Petition No.12395 of 2025

Bench: Justice Moushumi Bhattacharya and Justice Gadi Praveen Kumar