The Kerala High Court has clarified a critical procedural requirement under the SARFAESI Act, resolving ambiguity over how the quantum of pre-deposit is determined when the Debt Recovery Tribunal has not yet adjudicated the exact debt due. This ruling provides essential guidance to secured creditors and borrowers navigating appellate remedies under Section 18.
Background & Facts
The Dispute
The appellant, Authorised Officer of Canara Bank, initiated enforcement proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against respondents 1 and 2, who were borrowers under a loan agreement. The bank claimed a debt of over ₹10 crores, secured by mortgage of immovable property. Following issuance of possession notice and initiation of auction proceedings, the respondents filed an appeal before the Debt Recovery Tribunal under Section 18 of the SARFAESI Act.
Key Facts
- The loan account was declared non-performing on or before 2023
- The bank issued demand notice under Section 13(2) of the SARFAESI Act on 15.01.2024
- Possession notice under Section 13(4) was issued on 20.03.2024
- The bank initiated auction of secured assets on 10.06.2024
- Respondents filed appeal before DRT on 12.08.2024 (DRT No. 256 of 2025)
- DRT directed respondents to deposit 50% of the claimed debt (₹5 crores) as pre-deposit under Section 18
- Respondents challenged the DRT’s order before the Single Judge of the High Court
- Single Judge held that pre-deposit must be based on the amount determined by the DRT, not the claimed amount, and since no determination had been made, the pre-deposit requirement was suspended
Procedural History
- 15.01.2024: Section 13(2) notice issued by Canara Bank
- 20.03.2024: Section 13(4) possession notice issued
- 10.06.2024: Auction of secured assets initiated
- 12.08.2024: Appeal filed before DRT (DRT No. 256 of 2025)
- 24.10.2025: DRT order directing 50% pre-deposit of ₹5 crores
- 05.11.2025: Writ petition filed before Single Judge, High Court of Kerala
- 24.10.2025: Single Judge set aside pre-deposit direction, holding no debt determination had been made
- 22.11.2025: Writ Appeal filed before Division Bench (W.A. No. 3111 of 2025)
- 02.06.2026: Hearing before Division Bench
Relief Sought
The appellant sought setting aside of the Single Judge’s order dated 24.10.2025, and restoration of the DRT’s direction requiring a 50% pre-deposit of the claimed debt of ₹10 crores. The respondents sought confirmation of the Single Judge’s order.
The Legal Issue
The central question was whether Section 18 of the SARFAESI Act requires the pre-deposit amount to be based solely on a prior determination by the Debt Recovery Tribunal, or whether it may be calculated on the basis of the secured creditor’s claim when no such determination has yet been made.
Arguments Presented
For the Appellant
Learned counsel for Canara Bank argued that Section 18 explicitly permits the Tribunal to consider the amount claimed by the secured creditor when the debt has not been determined. He cited the plain language of the provision, which states that the Tribunal shall take into account "the amount of debt due from the borrower as claimed by the secured creditor or as determined by the Debt Recovery Tribunal, whichever is less." He emphasized that the legislative intent was to prevent delay in enforcement while preserving the borrower’s right to appeal. He contended that the Single Judge’s interpretation rendered Section 18 inoperative in cases where the DRT has not yet concluded its adjudication, which is often the norm.
For the Respondent
Learned counsel for the borrowers argued that the pre-deposit requirement under Section 18 is a condition precedent to maintain an appeal, and must be grounded in a quantified, adjudicated debt. He relied on the principle that statutory conditions precedent must be strictly complied with. He contended that allowing the secured creditor’s unverified claim to determine the deposit amount would prejudice borrowers and invite abuse, especially where claims are inflated. He further argued that the Single Judge’s order was consistent with judicial caution in matters involving substantial property rights.
The Court's Analysis
The Division Bench examined the language of Section 18 of the SARFAESI Act, which reads: "The Appellate Tribunal shall, before entertaining any appeal, require the appellant to deposit... an amount which shall be such percentage of the amount of debt due from the borrower as claimed by the secured creditor or as determined by the Debt Recovery Tribunal, whichever is less."
The Court observed that the provision is deliberately structured to provide flexibility. It does not mandate that the debt must be determined before a pre-deposit can be ordered. Rather, it creates a dual reference point: the creditor’s claim or the Tribunal’s determination, with the lower of the two being the benchmark.
"The Section clearly stipulates that in considering the quantum of pre-deposit, the Tribunal shall take into consideration the amount of debt due from the borrower as claimed by the secured creditor or as determined by the Debt Recovery Tribunal, whichever is less."
The Court rejected the Single Judge’s interpretation that no pre-deposit could be ordered absent a prior determination. Such an interpretation, the Court held, would effectively nullify the provision in the majority of cases, where adjudication lags behind enforcement. The Bench noted that the DRT had correctly applied the statutory framework by using the claimed amount of ₹10 crores as the reference, and directing 50% pre-deposit.
The Court further clarified that while the Tribunal has discretion to fix the percentage, it must act reasonably and proportionately. The Court declined to interfere with the 50% figure, noting it was within the bounds of judicial discretion under the Act.
The Verdict
The writ appeal was allowed. The order of the Single Judge dated 24.10.2025 was set aside. The respondents were directed to deposit 50% of the claimed debt, i.e., ₹5 crores, within three weeks from the date of this judgment. The direction is peremptory. In the event of default, the DRT’s order dated 24.10.2025 shall revive. The appeal is disposed of.
What This Means For Similar Cases
Pre-Deposit Cannot Be Deferred Indefinitely
- Practitioners must now treat the secured creditor’s claim as the default benchmark for pre-deposit under Section 18 unless the DRT has already determined a lower amount
- Delay in DRT adjudication cannot be used as a ground to avoid pre-deposit obligations
- Borrowers cannot exploit procedural gaps to stall enforcement indefinitely
Tribunals Must Exercise Discretion Reasonably
- While the claim amount is the baseline, Tribunals must still assess reasonableness - excessive claims may warrant a lower percentage
- A 50% deposit, as in this case, remains a common and acceptable benchmark unless circumstances indicate otherwise
- Courts will not entertain challenges to pre-deposit amounts unless they are manifestly arbitrary or disproportionate
Enforcement Proceedings Remain Valid During Appeal
- The pendency of an appeal under Section 18 does not automatically stay enforcement actions initiated under Section 13
- Auctions and possession notices remain valid unless specifically stayed by the Appellate Tribunal
- Borrowers must act promptly to comply with pre-deposit orders to preserve appellate rights
