Natural justice limits recovery certificates: prior notice and hearing are required before pre-deposit can be insisted upon.

Issuance of a recovery certificate under the Recovery of Debts Due to Banks and Financial Institutions Act requires prior notice and a fair opportunity of hearing, especially where the Tribunal relies on an alleged admission of debt. The statutory scheme contemplates that the defendant must be heard before any certificate is issued to the admitted extent and allowed the prescribed time to pay. An order passed without any application, without notice that it would be considered, and without opportunity to meet the proposed basis is contrary to natural justice and unsustainable. In that situation, insistence on pre-deposit under the appellate provision is also unwarranted, and waiver should be granted.

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Issues: Whether the order directing issuance of a recovery certificate, passed without prior notice or application and without affording a fair opportunity of hearing, was vitiated by breach of natural justice, and whether the Appellate Tribunal ought to have waived the pre-deposit.

Analysis: The Tribunal's power to pass an interim or final order under section 19(20) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, read with Rule 12(5) of the procedure rules, is conditioned by notice to the defendant and an opportunity of hearing. Where an admission of debt is relied upon, the statutory scheme contemplates that the defendant must first be heard and, if admission is made, allowed the prescribed time to pay before a recovery certificate is issued to the admitted extent. Here, the recovery certificate was directed without any application by the bank, without notice that such an order would be considered, and without fair opportunity to meet the basis of the proposed order. That non-compliance constituted infraction of natural justice and fair play, rendering the Tribunal's order unsustainable. In that situation, insistence on pre-deposit under section 21 was not justified and the waiver application ought to have been allowed.

Conclusion: The order directing issuance of the recovery certificate and the appellate order refusing waiver of pre-deposit were unsustainable and were liable to be set aside in favour of the petitioner.

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