Tribunal must consider relaxation of interim deposit conditions without treating the application as default.

The petitioner, widow of the deceased borrower, challenged the interim order dated 21 August 2026 passed by Debts Recovery Tribunal-II, Bengaluru, in D.No. 2517/2026.

The Tribunal had stayed her dispossession from the secured property subject to payment of ₹20,00,000 to respondent Nos. 1 and 2 in two instalments of ₹10,00,000 each, payable by 25 September 2026 and 25 October 2026 respectively.

The underlying housing loan had been availed by the petitioner’s son, who died on 5 August 2025.

Following his death, the loan account allegedly fell into default and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) were initiated by the finance company.

The petitioner contended that the loan was covered by insurance issued by respondent Nos. 3 to 5 and that the insurance proceeds would discharge the outstanding loan liability.

She therefore sought quashing of the payment condition imposed by the Tribunal.

1. Whether the High Court should interfere under Articles 226 and 227 of the Constitution with the condition requiring the petitioner to deposit ₹20,00,000 as a prerequisite for continuation of the stay against dispossession.

2. Whether the petitioner was entitled to place reliance before the Tribunal on the principle that housing-loan insurance may discharge the outstanding loan liability upon the borrower’s death, and seek relaxation of the deposit condition.

The Court exercised its supervisory jurisdiction under Articles 226 and 227 of the Constitution in relation to an interim order of the Debts Recovery Tribunal passed in SARFAESI proceedings.

It relied on the Division Bench decision of the Telangana High Court in Mrs. B. Madhvi v. SBI Life Insurance Company Limited, which held that where an insurer receives and retains the premium without properly communicating rejection of insurance coverage, a presumption of acceptance may arise; in the context of housing-loan insurance, the insurer cannot defeat legitimate coverage by relying on technical or procedural objections.

That decision, relying on D. Srinivas, further recognised that retention of premium without communication of rejection may establish insurance liability, and that, where the borrower is entitled to insurance benefits, the outstanding loan liability is liable to be discharged from the date of death and the consequential classification of the loan account as NPA may become unsustainable.

The High Court found that the petitioner’s contention regarding the insurance coverage was not insubstantial, particularly in light of the principles stated in Mrs. B. Madhvi.

However, the impugned order was only an interim order of the Tribunal and the writ petition challenged merely the condition attached to the interim protection.

Instead of deciding the insurance claim or quashing the condition directly, the Court considered it appropriate for the petitioner to raise the insurance-based defence before the Tribunal and seek relaxation of the deposit requirement.

The Court directed that the Tribunal consider such an application in accordance with law and without treating its filing as a default of the original payment condition.

The petitioner was permitted to file an appropriate application before the Debts Recovery Tribunal within one week, on or before 1 October 2026, seeking relaxation of the condition requiring payment of ₹20,00,000.

The Tribunal was directed to consider the application in accordance with law and not to construe its filing as default of the condition imposed by the order dated 21 August 2026.

All contentions on the merits were expressly kept open for consideration by the Tribunal.