The Bombay High Court has unequivocally reaffirmed that the mandatory pre-deposit requirement under Section 18 of the SARFAESI Act applies to every appeal filed before the Debts Recovery Appellate Tribunal, regardless of whether the challenge is to a final order or merely to the rejection of an application for condonation of delay. This ruling overturns a prior Division Bench decision that had created an exception for condonation-related appeals, restoring the statutory mandate as interpreted by the Supreme Court and binding precedents.
Background & Facts
The Dispute
The dispute arises from the enforcement of security interest by HDFC Bank Limited against M/s. Vora Enterprises, a proprietary concern owned by respondent Pradeep Gordhandas Vora. The bank had extended credit facilities secured by a flat and a piece of land. The borrower’s account was classified as a Non-Performing Asset (NPA) on 01.05.2020. On 04.09.2020, the bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The borrower challenged these actions through multiple proceedings before the Debts Recovery Tribunal (DRT) and the Debts Recovery Appellate Tribunal (DRAT), culminating in two writ petitions filed by the auction purchaser and the bank challenging DRAT orders that waived the mandatory pre-deposit requirement.
Key Facts
- The borrower filed Securitisation Application No. 52 of 2020 before DRT-I on 16.12.2020.
- DRT-I dismissed the application on 12.05.2023.
- The borrower filed Appeal (D) No. 950 of 2023 before DRAT on 10.06.2023.
- On 07.12.2023, DRAT directed pre-deposit of Rs. 12 crores under proviso to Section 18(1). The borrower failed to comply, and the appeal was dismissed.
- On 07.01.2025, the bank took possession of the mortgaged land under Section 14, following a magistrate’s order.
- In April 2025, the bank issued an e-auction notice for the land on 09.05.2025.
- The auction was held on 19.06.2025; petitioner Aloukik Construwell LLP was the successful bidder.
- The auction purchaser deposited the full bid amount on 16.09.2025.
- On 23.09.2025, the bank issued and registered the sale certificate in favor of the auction purchaser.
- On 01.10.2025, physical possession of the land was handed over to the auction purchaser.
- On 26.06.2025, the borrower filed a second securitisation application (No. 1068 of 2025) before DRT-II, which was barred by limitation.
- On 15.09.2025, DRT-II dismissed the application for condonation of delay.
- On 14.10.2025, the borrower filed Appeal (D) No. 1711 of 2025 before DRAT challenging the dismissal of the condonation application.
- On 18.11.2025, DRAT passed an order directing parties to maintain status quo while hearing the waiver application.
- On 08.12.2025, DRAT allowed the waiver application and directed registration of the appeal.
Procedural History
- 01.05.2020: Account classified as NPA
- 04.09.2020: Section 13(2) notice issued by HDFC Bank
- 16.12.2020: First Securitisation Application filed before DRT-I
- 30.11.2021: DRT-I rejected interim application
- 02.12.2021: Bombay HC directed payment of Rs. 1 crore and deferred takeover of land; writ petition disposed of on 15.03.2022 with liberty to approach DRAT
- 28.03.2022: Miscellaneous Appeal No. 15 of 2022 filed before DRAT
- 06.04.2022: DRAT directed pre-deposit; deposits made
- 15.07.2022: DRAT remanded matter to DRT-I for merits hearing
- 12.05.2023: DRT-I dismissed securitisation application
- 10.06.2023: Appeal (D) No. 950 of 2023 filed before DRAT
- 07.12.2023: DRAT directed Rs. 12 crore pre-deposit; appeal dismissed for non-compliance
- 07.01.2025: Bank took possession under Section 14
- 09.05.2025: E-auction notice issued
- 19.06.2025: Auction conducted; Aloukik Construwell LLP emerged as successful bidder
- 16.09.2025: Full bid amount deposited by auction purchaser
- 15.09.2025: DRT-II dismissed application for condonation of delay (in second securitisation application)
- 23.09.2025: Sale certificate issued and registered
- 01.10.2025: Physical possession handed over to auction purchaser
- 14.10.2025: Appeal (D) No. 1711 of 2025 filed before DRAT challenging dismissal of condonation application
- 18.11.2025: DRAT passed order directing status quo pending waiver application
- 08.12.2025: DRAT allowed waiver of pre-deposit and directed registration of appeal
- 10.04.2026: Judgment reserved
- 08.06.2026: Judgment pronounced
The Parties' Positions
Petitioners (Auction Purchaser and HDFC Bank): Argued that the DRAT erred in granting waiver of pre-deposit under Section 18(1) of the SARFAESI Act, as the mandatory deposit requirement applies to all appeals against DRT orders, irrespective of their nature. They contended that the DRAT’s reliance on M/s. Gadekar Ginning and Pressing Pvt. Ltd. v. Canara Bank was misplaced and that the order was rendered per incuriam for ignoring binding precedents of the Supreme Court and this Court’s Division Bench in Vinay Container Services v. Axis Bank. They further asserted that the auction purchaser, having acquired a registered sale certificate and physical possession, has locus standi to challenge the DRAT orders.
Respondent (Borrower): Contended that the appeal before DRAT was limited to challenging the dismissal of the condonation application and therefore fell within the exception laid down in Gadekar. They argued that the DRAT’s order of status quo was properly reasoned and that the petitioners had not challenged subsequent orders continuing the status quo, thereby waiving their right to object.
Relief Sought
The petitioners sought quashing of the DRAT orders dated 18.11.2025 and 08.12.2025, setting aside the waiver of pre-deposit, and directing the DRAT to enforce the mandatory pre-deposit requirement under Section 18(1) of the SARFAESI Act. They also sought vacation of all subsequent orders continuing the status quo.
The Legal Issue
Is the mandatory pre-deposit requirement under the second proviso to Section 18(1) of the SARFAESI Act applicable to an appeal before the DRAT that challenges only the dismissal of an application for condonation of delay, or does an exception exist where no pre-deposit is required?
Arguments Presented
For the Appellant/Petitioner
The petitioners relied on the binding precedents of the Supreme Court in Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC 548 and Union Bank of India v. Rajat Infrastructure (2020) 3 SCC 770, which held that the pre-deposit condition is mandatory and non-negotiable. They cited the Division Bench judgment in Vinay Container Services v. Axis Bank [2011(1) Mh.L.J. 882], which clarified that the phrase “any order” in Section 18(1) includes interlocutory orders and orders rejecting condonation applications. They argued that the DRAT’s reliance on Gadekar was invalid because it ignored these binding precedents and misapplied a judgment under the Maharashtra Co-operative Societies Act, which deals with a different statutory regime. They further emphasized that the auction purchaser, having acquired a registered title and possession, has a direct interest in the outcome and is entitled to challenge the DRAT’s order.
For the Respondent/State
The respondent argued that the appeal before DRAT was confined to the question of condonation of delay and therefore fell squarely within the exception recognized in Gadekar. They contended that the DRAT’s order of status quo was adequately reasoned and that the petitioners’ failure to challenge subsequent orders continuing the status quo rendered their challenge defective. They also argued that the Gadekar judgment was not per incuriam because the factual context of the earlier precedents concerned final orders or interim relief, not condonation applications.
The Court's Analysis
The Court undertook a detailed examination of the statutory language of Section 18(1) of the SARFAESI Act, particularly the second proviso, which mandates that no appeal shall be entertained unless the borrower deposits 50% of the debt claimed by the secured creditor or determined by the DRT, whichever is less. The Court emphasized that the Supreme Court in Narayan Chandra Ghosh had held this condition to be a mandatory condition precedent, not a procedural formality, and that the DRAT has no power to grant a complete waiver.
The Court then analyzed the Division Bench judgment in Vinay Container Services v. Axis Bank, which held that the pre-deposit requirement applies even when the DRT has not yet determined the debt amount, and even when the appeal challenges an interlocutory order. The Court noted that this judgment was rendered in 2010 and remained binding.
The Court found that the Gadekar judgment, relied upon by the DRAT, was rendered per incuriam because it failed to consider these binding precedents. The Division Bench in Gadekar had relied on a Single Judge order under the Maharashtra Co-operative Societies Act, which is fundamentally different in structure and purpose. The Court held that the Gadekar judgment’s reasoning - that pre-deposit is not required when the appeal only challenges condonation of delay - was inconsistent with the plain language of Section 18(1) and the Supreme Court’s interpretation.
"The language of the said proviso is clear and admits of no ambiguity... Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal."
The Court further held that the DRAT’s order dated 18.11.2025, granting status quo, was procedurally defective. It contained no discussion of the three essential parameters for interim relief - prima facie case, balance of convenience, and irreparable loss. The Court cited its own recent order in Anil Ankush Pawar v. Union Bank of India to underscore that such orders cannot be passed in a casual manner, especially when they affect third-party rights.
The Court also rejected the respondent’s argument that the auction purchaser lacked locus, noting that the registered sale certificate and physical possession conferred a legitimate interest. It further held that the recovery from auction sale, as clarified in Sidha Neelkanth Paper Industries v. Prudent ARC, cannot be considered for pre-deposit purposes.
The Verdict
The writ petitions are allowed. The impugned orders dated 18.11.2025 and 08.12.2025 passed by the DRAT are quashed and set aside. The application for waiver of pre-deposit shall be decided afresh by the DRAT, which must now apply the mandatory pre-deposit requirement under the second proviso to Section 18(1) of the SARFAESI Act. The DRAT may, after hearing the parties, direct a deposit of between 25% and 50% of the debt claimed by the secured creditor, as permitted under the third proviso. The appeal (D) No. 1711 of 2025 stands de-registered and shall be re-registered only upon compliance with the pre-deposit requirement. All subsequent orders continuing the status quo are vacated. The DRAT is at liberty to consider the application for interim relief on its merits after compliance with the pre-deposit condition.
What This Means For Similar Cases
Pre-Deposit Is Non-Negotiable for All SARFAESI Appeals
- Practitioners must now treat the pre-deposit requirement under Section 18(1) as absolute for any appeal against any DRT order, including those rejecting condonation applications.
- No distinction can be made between final orders and interlocutory orders; the word “any order” in Section 18(1) is inclusive.
- Applications for waiver of pre-deposit must be rejected unless the DRAT reduces the amount to not less than 25%, with reasons recorded.
Third-Party Purchasers Have Standing to Challenge DRAT Orders
- Auction purchasers who have obtained registered sale certificates and physical possession have locus to challenge DRAT orders that threaten their title or possession.
- Courts will not permit borrowers to use procedural delays to frustrate completed auctions.
- Any order granting status quo affecting third-party rights must be supported by reasoned analysis of the three interim relief parameters.
Per Incuriam Doctrine Applies to Overrule Erroneous Precedents
- A judgment that ignores binding precedents on the same statutory provision may be declared per incuriam, even if rendered by a coordinate Division Bench.
- The doctrine is not to be invoked casually but applies where the omission is glaring and affects the ratio.
- Practitioners must cite all relevant binding precedents when arguing statutory interpretation under SARFAESI Act.
