The Uttarakhand High Court clarified that the third proviso of Section 18(1) of the SARFAESI Act cannot be invoked to compel a pre-deposit of 25 percent of the debt from a person who is neither the borrower nor the guarantor, thereby setting aside the Debt Recovery Appellate Tribunal’s order and remitting the matter for fresh consideration.
Background & Facts
The Dispute
The petitioner, Sri Kartikey Garg, contended that he was neither the borrower nor the guarantor of any loan advanced by the State Bank of India. He challenged an order dated 28.04.2026 passed by the Debt Recovery Appellate Tribunal, Allahabad (Dy. No. 1777 of 2024), which conditioned the filing of his appeal under Section 18 of the SARFAESI Act on the deposit of a minimum of 25 percent of the amount due.
Key Facts
The petitioner is not a borrower or guarantor of any SBI loan.
The impugned order required a pre-deposit of 25 percent of the debt as a condition for entertaining the appeal.
Section 18(1) of the SARFAESI Act contains:
First proviso: different filing fee for borrower vs. other persons.
Second proviso: borrower must deposit 50 percent of the debt, reducible to 25 percent by the third proviso.
Third proviso: allows reduction of the pre-deposit for a borrower only; it is silent on persons other than borrowers.
The petitioner argued that the third proviso should not apply to him.
Procedural History
28.04.2026: Debt Recovery Appellate Tribunal, Allahabad, order (Dy. No. 1777 of 2024) directing petitioner to deposit at least 25 percent of the debt before his appeal could be entertained.
25.08.2026: The High Court delivered its judgment, setting aside the Tribunal’s order and remitting the matter back to the Tribunal for determination of the applicability of the pre-deposit condition.
Parties' Positions
Petitioner: Asserted that, being neither borrower nor guarantor, the statutory requirement of a pre-deposit under the third proviso does not apply to him.
Respondent (State Bank of India): Relied on the Tribunal’s interpretation that the pre-deposit condition was mandatory irrespective of the petitioner’s status.
Relief Sought
The petitioner sought a declaration that the pre-deposit condition was inapplicable to him, the setting aside of the Tribunal’s order dated 28.04.2026, and a remand to the Tribunal to decide the issue afresh.
The Legal Issue
Does the third proviso to Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, impose a mandatory pre-deposit of 25 percent of the debt on a person who is neither the borrower nor the guarantor?
Arguments Presented
For the Petitioner
The petitioner relied on the plain language of Section 18(1), emphasizing that the third proviso expressly refers to “borrower” and makes no provision for “persons other than the borrower”.
He argued that imposing a pre-deposit on a non-borrower would contravene the statutory scheme, which differentiates the procedural burden based on the party’s status.
For the Respondent
The respondent contended that the Tribunal’s interpretation was consistent with the purpose of the SARFAESI Act to ensure that any appellant, irrespective of status, provides a reasonable security before the appeal is entertained.
It submitted that the requirement of a pre-deposit is a procedural safeguard and should not be limited only to borrowers.
The Court's Analysis
The Court began by dissecting the three provisos to Section 18(1):
The first proviso distinguishes the filing fee for a borrower from that for a person other than the borrower.
The second proviso mandates that a borrower deposit 50 percent of the debt, which may be reduced to 25 percent by the third proviso.
Crucially, the third proviso is framed in the context of a borrower and contains no language extending its operation to “persons other than the borrower”.
"Since petitioner contends that he is neither borrower nor guarantor, therefore, whether third proviso would be attracted to the appeal, filed by petitioner, is a debatable issue, although on a plain reading, third proviso does not appear to be attracted in case of other person."
The Court held that the statutory text does not envisage a pre-deposit requirement for a non-borrower. It observed that the Tribunal had applied the third proviso without addressing the petitioner’s distinct status, thereby overlooking a material statutory distinction. Consequently, the order dated 28.04.2026 was set aside, and the matter was remitted to the Tribunal to decide the applicability of the pre-deposit condition to a person who is neither borrower nor guarantor.
The Verdict
The writ petition was allowed. The High Court set aside the Debt Recovery Appellate Tribunal’s order dated 28.04.2026 that imposed a mandatory pre-deposit of 25 percent of the debt. The case was remitted to the Tribunal to determine whether the pre-deposit condition under the third proviso to Section 18(1) applies to a person who is neither borrower nor guarantor.
What This Means For Similar Cases
Distinction Between Borrower and Other Persons Is Statutory
Practitioners must examine the specific language of Section 18(1) before arguing that a pre-deposit is required for a guarantor or any third party.
The third proviso cannot be extended by analogy; it applies only to borrowers.
Tribunal Orders Must Align With Statutory Provisions
Appellate tribunals should ensure that any condition imposed on an appellant is expressly supported by the statute.
Failure to do so may result in the order being set aside and remanded.
Practical Steps for Counsel
Identify the appellant’s exact relationship to the loan (borrower, guarantor, or other).
Cite the three provisos of Section 18(1) to demonstrate the statutory ceiling on pre-deposit requirements.
If the appellant is not a borrower, argue that no statutory provision mandates a pre-deposit, and seek dismissal of such conditions.
