Introduction
The appellate remedy under the SARFAESI Act, 2002 occupies a critical position within India's debt recovery framework. While the statute confers extensive enforcement powers upon secured creditors, it also provides borrowers and other aggrieved persons with statutory remedies to challenge measures taken under the Act. However, unlike proceedings before the Debts Recovery Tribunal (DRT), access to the appellate jurisdiction of the Debts Recovery Appellate Tribunal (DRAT) is conditioned upon compliance with a mandatory financial requirement i.e., the pre-deposit prescribed under Section 18 of the Act.
In practice, many appeals fail at the threshold stage because the appellant-borrower is unable to satisfy the statutory pre-condition. Consequently, challenges involving possession proceedings, auction sales, valuation disputes, and procedural irregularities often remain unexamined on merits. The appeal fails not necessarily because the challenge lacks substance, but because the statutory gateway to appellate review remains closed.
How the Two-Tier Appeal Structure Actually Works
The SARFAESI Act establishes a two-tier remedial framework. Under Section 17, any person aggrieved by measures adopted by a secured creditor under Section 13(4) may approach the jurisdictional DRT within forty-five days of the measure being taken[1]. Significantly, no pre-deposit is required at this stage. Parliament thus ensured that an aggrieved person is not denied an initial opportunity to challenge the secured creditor's actions on account of financial incapacity. Accordingly, the borrower's first statutory challenge against the Bank's action is not conditioned upon compliance with the monetary requirement prescribed for the next stage of proceedings.
The position, however, changes materially at the appellate stage i.e. under Section 18. In terms of sub-section (1) of this provision, any person aggrieved by any order made by the DRT under Section 17 may prefer an appeal to the DRAT within thirty days from the date of the receipt of the order of the DRT. The second proviso appended to the sub-section (1) of this provision mandates that no appeal shall be entertained unless the borrower deposits fifty per cent of the debt due from him, as claimed by the secured creditor or determined by the DRT, whichever is less. The third proviso adds a sliver of relief for the borrowers by empowering the DRAT to reduce the amount to not less than twenty-five per cent, provided reasons are recorded in writing.
This is not an idiosyncrasy of the SARFAESI Act. A substantially similar pre-deposit requirement is prescribed under Section 21 of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), which governs appeals preferred under Section 20 against orders of the Debt Recovery Tribunal[2]. The procedural mechanics live in Rule 9 of the DRAT Procedure Rules, 1994, which mirrors the same percentages of pre-deposit[3]. Owing to the substantial similarity between Section 21 of the RDB Act and Section 18 of the SARFAESI Act, courts and tribunals, across the country, have consistently drawn upon the jurisprudence under both provisions while examining questions relating to pre-deposit and maintainability of appeals.
Why the Pre-Deposit Cannot Be Waived: The Narayan Chandra Ghosh Line
The single most-cited authority on Section 18 is Narayan Chandra Ghosh v. UCO Bank[4], decided by a two-judge Bench of the Hon'ble Supreme Court in 2011. The borrower had argued that the appeal should be heard without any pre-deposit because the DRT had not actually determined the quantum of debt. The Hon'ble Calcutta High Court reversed the DRAT's waiver. The Hon'ble Supreme Court agreed, in language that has bound every DRAT and High Court since:
Thus, there is an absolute bar to the entertainment of an appeal under Section 18 of the Act unless the condition precedent, as stipulated, is fulfilled. 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 language of the said proviso is clear and admits of no ambiguity.
The Court held that even where the DRT had not determined the amount of debt, the appeal could still not be entertained without pre-deposit. The borrower must deposit 50% of the amount claimed by the secured creditor. The DRAT could, after recording reasons, reduce that amount to 25%, but it could not waive it entirely. The significance of the decision lies in its characterization of the requirement as jurisdictional rather than procedural. While the DRAT may reduce the deposit to twenty-five per cent, it possesses no authority to dispense with the requirement altogether.
The Hon'ble Supreme Court reaffirmed this position in Union Bank of India v. Rajat Infrastructure Pvt. Ltd. (2020). In that case, the Hon'ble Bombay High Court had exercised its jurisdiction under Article 226 of the Constitution to entertain a challenge to proceedings under the SARFAESI Act without insisting upon compliance with the statutory pre-deposit requirement under Section 18, inter alia on the ground that the auction price was allegedly lower than the market value of the secured asset. Setting aside the judgment of the High Court, the Hon'ble Supreme Court reiterated that the right of appeal under Section 18(1) of the SARFAESI Act is expressly subject to the pre-deposit requirement contained in the second proviso thereto. The Court further observed that while the third proviso confers a limited discretion to reduce the pre-deposit amount, such reduction cannot be below twenty-five per cent of the debt due. Emphasising the mandatory nature of the provision, the Hon'ble Supreme Court held that the statutory scheme admits of no ambiguity and that the High Court, in exercise of its writ jurisdiction, cannot dispense with or dilute a condition precedent that even the Appellate Tribunal is not empowered to waive[5].
Every High Court has followed this position. In Anand and Associates v. Bank of India, the Delhi High Court refused to interfere with a DRAT order requiring 50% pre-deposit, reiterating that the Tribunal can reduce the amount to 25% but cannot waive it[6]. The Bombay High Court (Nagpur Bench) in Galvanotek Industries v. Coventry Spring answered the question whether the DRAT can grant complete waiver with a flat no, noting that the discretion under the third proviso is not absolute but limited, and the prayer for total waiver is itself impermissible under the statute[7].
Mandatory Pre-Deposit Under Section 18: Applicability to Interlocutory and Procedural Orders
In M/s. Sunshine Builders and Developers v. HDFC Bank & Ors. (WP No. 3929 of 2024, decided on 04.02.2026), the Hon'ble Bombay High Court considered an important question concerning the scope of the mandatory pre-deposit requirement under Section 18 of the SARFAESI Act, 2002.
The dispute arose out of redevelopment and mortgage transactions in which the petitioner alleged that the mortgage deeds had been executed fraudulently and without authority in favour of the secured creditor. During the pendency of the proceedings, the secured creditor initiated measures under the SARFAESI Act by issuing a demand notice under Section 13(2), taking symbolic possession of the secured asset and eventually conducting an auction sale of the property.
The petitioner had already instituted proceedings under Section 17 before the Debt Recovery Tribunal. Following the auction sale, applications were filed seeking amendment of the securitisation application, impleadment of the auction purchaser, and condonation of delay so as to challenge the subsequent sale-related measures. By order dated 07.10.2022, the DRT rejected the amendment, impleadment and delay condonation applications.
Aggrieved by the said order, the petitioner preferred an appeal before the DRAT. The principal contention advanced was that the impugned order was merely procedural or interlocutory in nature and, therefore, an appeal against such an order could not attract the mandatory pre-deposit requirement prescribed under Section 18 of the SARFAESI Act. The DRAT rejected this contention and, by order dated 29.02.2024, directed the petitioner to comply with the statutory pre-deposit requirement of ₹125 crores.
The Bombay High Court upheld the DRAT's view and held that the expression “any order” occurring in Section 18 is of wide amplitude and is not confined to final adjudicatory orders alone. The Court observed that once an appeal arises from an order passed in proceedings under Section 17, the statutory requirement of pre-deposit becomes applicable irrespective of whether the order is characterised as procedural, interlocutory or final in nature. It was further held that a litigant cannot circumvent the legislative mandate of pre-deposit merely by describing the impugned order as procedural.
On the facts of the case, the Court found that the DRT's order was not a mere procedural direction. By refusing amendment, impleadment and condonation of delay, the order effectively prevented the petitioner from challenging the auction sale and, therefore, had a direct bearing on substantive rights. Consequently, the insistence on pre-deposit under Section 18 was held to be justified.
The litigation thereafter travelled to the Hon'ble Supreme Court. By order dated 17.04.2025, the matter was remanded to the High Court for fresh consideration. While remanding the matter, the Hon'ble Supreme Court had expressed a prima facie view that the condition of pre-deposit shall not be applicable to procedural orders. Upon reconsideration, the Bombay High Court, by its judgment dated 04.02.2026, once again upheld the applicability of the mandatory pre-deposit requirement under Section 18. The challenge to the said judgment was ultimately rejected when the Hon'ble Supreme Court dismissed SLP (C) No. 9823 of 2026 on 20.03.2026.
The decision reinforces the principle that the requirement of pre-deposit under Section 18 is attracted to appeals against all orders passed by the DRT in proceedings under Section 17 of the SARFAESI Act and cannot be avoided on the ground that the impugned order is interlocutory or procedural in character.
What Counts as 'Debt Due': The Sidha Neelkanth Ruling
The most important recent clarification came in January 2023 from the Supreme Court in Sidha Neelkanth Paper Industries v. Prudent ARC Limited. The borrower's mortgaged property had been sold at auction for Rs. 12.5 crores against an outstanding debt of Rs. 16.61 crores. The borrower argued before the DRAT that since the sale had already realised more than 50% of the debt, no further pre-deposit was required. Some High Courts had accepted this reasoning; others had rejected it. The Supreme Court resolved the conflict definitively.
The Bench (Justices M.R. Shah and B.V. Nagarathna) held two things. First, the term debt due under Section 18 carries the definition of debt given in Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993, which expressly includes interest. The amount claimed by the secured creditor in the Section 13(2) notice, with future interest accrued up to the date of filing the appeal, is the figure on which 50% is calculated. Second, and this is the part that decides outcomes, the borrower cannot adjust the auction sale proceeds against the pre-deposit obligation while simultaneously challenging the auction sale itself[8]. The Court was direct about the logical inconsistency:
It is the borrower who has to deposit 50% of the amount of debt due from him. At the same time, if the borrower wants to appropriate and/or adjust the amount realised from sale of the secured assets deposited by the auction purchaser, the borrower has to accept the auction sale. In other words, the borrower can take the benefit of the amount received by the creditor in an auction sale only if he unequivocally accepts the sale.
The practical consequence is sharp. If you are a borrower challenging the sale itself, the auction proceeds are not yours to invoke for the pre-deposit calculation. The 50% has to come from your own pocket, on top of the property the bank has already taken. The borrower's election is binary: accept the sale and adjust the proceeds against the pre-deposit (with whatever residue is still owed paid in cash), or contest the sale and find 50% of the original debt claimed.
The Bombay High Court applied this framework in December 2024 in Royal Traders v. ARCIL, confirming that debt due includes interest accrued until the appeal-filing date. The Court did, however, note an important carve-out: where the borrower has made any part-payment of the debt between the Section 13(2) notice and the appeal, that payment must be credited against the debt before the 50% is computed[9]. Voluntary deposits made during the proceedings are therefore not wasted; they reduce the base figure on which the pre-deposit is calculated.
When the DRAT Will Reduce the Pre-Deposit to 25%
Although the discretion conferred under the third proviso is genuine, reduction is not granted as a matter of course. The burden lies upon the appellant to establish circumstances warranting such relief. The third proviso to Section 18(1) of the SARFAESI Act, 2002 says the DRAT may, for reasons to be recorded in writing, reduce the deposit to 25%. The word may carries judicial discretion, but that discretion is not exercised lightly. A borrower seeking reduction must place material on record establishing prima facie merit in the appeal, financial hardship that is real (not asserted), or a peculiar circumstance such as substantial recovery already made by the bank.
The strongest pattern of reduction comes when the bank has already realised a large part of the debt through sale of one of multiple secured assets. In Atul Kumar Goel v. DRAT, the Punjab and Haryana High Court held that where the secured creditor had already realised more than the debt due through the sale of secured property, requiring the borrower to additionally deposit 50% would amount to over-recovery and the pre-deposit could be reduced to 25%[10].
What does not persuade a DRAT to reduce the pre-deposit, on the consistent reading of the reported cases:
A bare statement of inability to pay, without bank statements, balance sheets, or other evidence of the borrower's actual financial position.
The argument that the DRT's order is wrong on merits. Pre-deposit is a jurisdictional precondition to entertaining the appeal; the merits cannot be examined at the threshold.
The argument that the auction price was below the reserve price or the market value, where the borrower is still challenging the sale itself.
The argument that the borrower is a guarantor and not a principal borrower. The phrase 'debt due from him' has been read to cover guarantors who pursue Section 17 applications and resultant Section 18 appeals.
An application seeking reduction of the statutory pre-deposit before the DRAT should ordinarily be supported by specific, cogent, and verifiable material. Such material may include evidence of amounts already realised by the secured creditor, detailed computations demonstrating that the "debt due" requires adjustment after giving due credit for payments and recoveries already made, and the borrower's audited financial statements reflecting its financial position. The underlying objective is to place before the Appellate Tribunal sufficient material to enable it to exercise its discretion under the third proviso to Section 18 in a judicious manner.
At the same time, no rigid or exhaustive standard can be prescribed as to the nature of material that may be relied upon in every case. The exercise of discretion under the third proviso is necessarily fact-specific and depends upon the overall circumstances placed before the Tribunal. Indeed, judicial practice indicates that, in appropriate cases, the DRAT has considered the question of reduction of the statutory pre-deposit even in the absence of a formal application seeking such relief, where the relevant facts and circumstances were otherwise available on the record. For instance, in Murari Lal & Others v. PNB Housing Finance Limited & Another (Appeal No. 81 of 2026, decided on 11.05.2026), the DRAT, Delhi expressly recorded that no application for reduction of pre-deposit had been filed by the borrowers. Nevertheless, having regard to the financial circumstances placed on record, the Appellate Tribunal exercised its discretion under the third proviso to Section 18 and directed the borrowers to deposit 30% of the outstanding dues, instead of insisting upon the higher statutory pre-deposit otherwise payable. The decision demonstrates that while the requirement of pre-deposit remains mandatory, the DRAT may, in an appropriate case and on the basis of the material available before it, consider the borrower's financial position and other relevant circumstances while determining the extent of reduction to be granted within the limits prescribed by the statute.
That said, practical experience also indicates that the exercise of discretion by the DRAT is not confined solely to arithmetic calculations or financial records. While assessing a request for reduction of pre-deposit, the Tribunal has, in appropriate cases, also taken into account factors such as the borrower's financial hardship, the extent of repayments already made towards the debt, serious medical conditions affecting the borrower or immediate family members, and other relevant circumstances bearing upon the borrower's ability to comply with the statutory requirement. These considerations, however, are evaluated on a case-to-case basis and do not dilute the mandatory nature of the pre-deposit requirement itself.
What Happens If You Cannot Pay the Pre-Deposit
This is the question every borrower wants answered honestly. The reported law is unforgiving. If the pre-deposit is not made within the time fixed by the DRAT, the appeal is dismissed for non-compliance, and the DRT's order becomes final. The Supreme Court in Narayan Chandra Ghosh expressly declined to read in any equitable exception even where the borrower argued that the DRT had not determined the debt. The High Courts have refused to use Article 226 jurisdiction to bypass the pre-deposit, with the Supreme Court in Rajat Infrastructure explicitly setting aside such an attempt by the Bombay High Court.
From a practical standpoint, three broad courses may be available to an aggrieved borrower. First, where there exists a genuine possibility of an amicable resolution, efforts towards settlement with the secured creditor are best undertaken before the appeal is instituted. Once an appeal under Section 18 is filed and the issue of pre-deposit arises, the parties' negotiating positions may materially change, often making settlement more difficult to achieve.
Second, the appeal may be accompanied by an application under the third proviso to Section 18 seeking reduction of the pre-deposit requirement from 50% to 25% of the debt due. Such a request should, as far as possible, be supported by relevant material, including financial statements, evidence of amounts already recovered by the secured creditor, and computations demonstrating that the debt due has been overstated or requires adjustment after accounting for payments, recoveries, or other credits.
Third, in cases involving multiple borrowers, mortgagors, guarantors, or other persons aggrieved by the same order, a joint appeal may be maintainable depending upon the facts and the nature of the challenge. In such cases, it may be argued that the statutory pre-deposit is linked to the debt due forming the subject matter of the appeal and is not separately payable by each appellant. The maintainability and implications of such a course would, however, depend upon the facts of the individual case and the applicable procedural requirements.
Constitutional Validity: Settled, But Worth Knowing
Constitutional challenges to Section 18 have been mounted repeatedly and have failed every time. The Supreme Court in Mardia Chemicals v. Union of India (2004) had struck down a different, harsher, pre-deposit requirement (75% under the original Section 17) as arbitrary, leading Parliament to restructure the Act through the 2004 amendment. The current scheme, with Section 17 carrying no pre-deposit and Section 18 carrying the 50%/25% pre-deposit, was framed in response to that ruling. Subsequent challenges to Section 18 itself, on the ground that even the reduced 50% rate causes hardship, have been rejected by multiple High Courts including the Delhi High Court (Allahabad Bench), the Bombay High Court, and the Madras High Court. The constitutional question is now closed; the practical fight is about reduction under the third proviso.
Common Pitfalls That Can Jeopardise an Otherwise Meritorious Appeal
Certain recurring mistakes frequently undermine appeals that may otherwise have substantial merit. These pitfalls are largely avoidable with timely planning and careful preparation.
One common error is delaying the filing of the appeal until the verge of expiry of the limitation period. The thirty-day period prescribed under Section 18 is relatively short, and any delay in instituting the appeal may significantly constrain the borrower's ability to arrange the requisite pre-deposit. In practice, the DRAT generally grants a limited period for compliance with the pre-deposit requirement. Where an appeal is filed at the last moment without adequate arrangements for the deposit, the appellant may face adverse orders at the very initial stages of the proceedings, including dismissal for non-compliance with the statutory condition.
A second mistake is treating the application for reduction of pre-deposit under the third proviso to Section 18 as a mere formality. A request for reduction is more likely to receive favourable consideration when supported by comprehensive and verifiable material. Such material may include audited financial statements, a reasoned computation of the debt due identifying specific adjustments or credits claimed by the borrower, particulars of amounts already recovered by the secured creditor, and other evidence demonstrating the appellant's financial position. General assertions of financial hardship, unsupported by documentary material, may not sufficiently assist the Tribunal in exercising its discretion.
Another area of caution concerns the treatment of auction-sale proceeds while simultaneously challenging the validity of the sale itself. Judicial precedents have recognised that certain arguments seeking adjustment of sale proceeds may not be available where the borrower continues to assail the legality of the auction sale. Accordingly, the litigation strategy adopted in relation to the sale and the computation of pre-deposit should be carefully assessed in light of the prevailing legal position.
Finally, borrowers often fail to claim credit for amounts already paid or deposited during the pendency of proceedings before the DRT. Any payments made to the secured creditor, deposits made pursuant to interim orders, or other amounts appropriated towards the outstanding dues should be specifically brought to the attention of the Appellate Tribunal while computing the "debt due" for the purpose of Section 18. Failure to account for such credits may result in the borrower being required to deposit a higher amount than is legally warranted.
What to Take Away
The jurisprudence surrounding Section 18 leaves little room for doubt that the pre-deposit requirement is mandatory, jurisdictional, and incapable of complete waiver. The principal controversies today concern the computation of the debt due, the treatment of recoveries already realized by the secured creditor, and the circumstances in which the DRAT may exercise its discretion to reduce the deposit to twenty-five per cent.
The pre-deposit under Section 18 SARFAESI is mandatory, jurisdictional, and not negotiable below 25%. It is calculated on the debt due claimed by the secured creditor with interest, less any genuine part-payments. Auction sale proceeds cannot be set off unless the borrower accepts the sale. The DRAT's discretion to reduce to 25% is real but requires justifiable grounds for reduction of the pre-deposit from 50% to 25%. Plan the deposit before filing the appeal, not after.
The expert sections that follow address what statutes and reported judgments cannot: the realistic figure DRATs accept in different circuits for a 25% reduction, the order in which to file the appeal and the reduction application, the documents that genuinely move the bench in a hardship plea, and how to negotiate with the secured creditor during the narrow window when both sides still have leverage.