The Bombay High Court has clarified a critical procedural safeguard for borrowers and guarantors under the SARFAESI Act, holding that the quantum of pre-deposit required to entertain an appeal must be strictly tied to the debt amount formally notified under Section 13(2). This ruling prevents arbitrary inflation of dues and reinforces statutory compliance in secured asset recovery proceedings.
Background & Facts
The Dispute
The petitioners, borrowers and guarantors, challenged an order by the Debts Recovery Appellate Tribunal (DRAT) directing them to deposit 25% of Rs.6,68,91,198 as a pre-condition to hearing their appeal against enforcement actions under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The petitioners contended that this figure was not supported by any documentary evidence and diverged significantly from the debt amount specified in the statutory notice issued under Section 13(2).
Procedural History
- 2021: Respondent No.2 obtained an order under Section 14 of the Securitisation Act to take possession of the secured asset
- 2025: Petitioners filed an appeal before DRAT challenging the enforcement measures
- 2nd January 2026: DRAT ordered petitioners to deposit 25% of Rs.6,68,91,198, an amount orally asserted by the bank without supporting documents
- 23rd January 2026: Writ petition filed before Bombay High Court challenging the DRAT order
Relief Sought
The petitioners sought quashing of the DRAT order and a direction to calculate the 25% pre-deposit solely on the amount of Rs.2,15,50,509/- as stated in the Section 13(2) notice. They also sought credit for the Rs.50,00,000 already deposited.
The Legal Issue
The central question was whether the amount for calculating the 25% pre-deposit under the proviso to Section 18 of the Securitisation Act must be determined by the debt amount specified in the Section 13(2) notice, or whether the tribunal may rely on later, unsubstantiated oral assertions of higher dues.
Arguments Presented
For the Petitioner
The petitioners relied on the Supreme Court’s decision in M/s Sidha Neelkanth Paper Industries Private Limited & Anr. v. Prudent ARC Limited & Ors., which held that where the challenge is limited to measures under Section 13(2) or 13(4), the debt due for pre-deposit purposes must be confined to the amount specified in the Section 13(2) notice. They emphasized that the inflated figure of Rs.6.68 crore lacked any documentary basis and violated principles of natural justice. They further argued that since no auction had yet taken place, interest beyond the notice amount could not be included.
For the Respondent
The Respondent-State and DRAT did not dispute the Supreme Court precedent but attempted to justify the higher figure by claiming it reflected cumulative interest and costs. However, they failed to produce any ledger, statement, or calculation sheet to substantiate the Rs.6.68 crore figure. No formal amendment to the Section 13(2) notice was produced, nor was any opportunity granted to the petitioners to cross-examine or rebut the oral assertion.
The Court's Analysis
The Court examined the statutory framework under Section 18 and its proviso, which mandates a pre-deposit as a condition for entertaining appeals. It emphasized that the purpose of the pre-deposit is not punitive but to prevent frivolous litigation while ensuring the secured creditor’s interest is protected. The Court held that the Section 13(2) notice is the foundational document that defines the scope of the dispute and the quantum of debt in question.
"The amount due for the purpose of calculating the 25% deposit under the proviso to Section 18 must be the amount specified in the notice under Section 13(2), so long as the challenge is confined to the measures under Section 13(2) or 13(4)."
The Court distinguished cases where auction sales are challenged, noting that only then does the debt include post-notice interest and costs. Here, since the petitioners were challenging the validity of the Section 13(2) notice and the possession order - not the auction - their liability was confined to the notified amount. The Court found the DRAT’s reliance on an unsubstantiated oral figure to be legally unsustainable and violative of the principles of fair procedure.
The Court also noted that the petitioners had already deposited Rs.50,00,000, which exceeded 25% of the Section 13(2) amount. However, to ensure procedural fairness and avoid further delay, it directed a modest additional deposit of Rs.10,00,000 to complete the 25% requirement.
The Verdict
The petitioners succeeded. The Bombay High Court held that the pre-deposit under the proviso to Section 18 of the Securitisation Act must be calculated exclusively on the debt amount specified in the Section 13(2) notice, and not on unsubstantiated oral claims. The DRAT’s order was modified to require only an additional deposit of Rs.10,00,000, with the total deposit deemed compliant upon payment.
What This Means For Similar Cases
Pre-Deposit Calculation Is Statutorily Fixed
- Practitioners must now insist that the DRAT or DRT base pre-deposit orders strictly on the Section 13(2) notice amount
- Any attempt to inflate the figure through oral submissions without documentary proof is legally untenable
- The burden shifts to the secured creditor to produce a certified statement if they seek to revise the notice amount
Notice Under Section 13(2) Is the Legal Anchor
- The Section 13(2) notice is not merely procedural - it defines the legal boundary of the dispute
- Borrowers can challenge enforcement actions without being subjected to arbitrary financial demands
- Courts will not permit post-hoc augmentation of dues to coerce settlement or delay appeals
Procedural Fairness Overrides Expediency
- Tribunals cannot substitute formal documentation with oral assertions, even if they appear plausible
- The right to be heard includes the right to know the exact quantum of debt being enforced
- Failure to produce supporting documents renders the pre-deposit order voidable on grounds of natural justice
