Pre-Deposit Under Section 18 SARFAESI Is Not Mandatory for Non-Borrowers or Non-Guarantors: Bombay High Court Revives Appeal of Tenant Allottee

“While an appeal under Section 18 can be filed by any aggrieved person, the mandatory pre-deposit applies only to the borrower or guarantor” —  In a ruling that reaffirms the settled legal position on the scope of Section 18 of the SARFAESI Act, 2002, the Bombay High Court allowed a writ petition filed by a tenant allottee, who had challenged the Debt Recovery Appellate Tribunal’s (DRAT) order directing him to deposit 40% of the outstanding loan amount as a precondition for hearing his appeal.

The Division Bench of Justice Manish Pitale and Justice Shreeram V. Shirsat held that pre-deposit under the proviso to Section 18 applies only to borrowers or guarantors, and cannot be imposed on any other aggrieved person, such as the present petitioner who was a tenant with rights under a Permanent Alternate Accommodation Agreement (PAAA).

“We find substance in the contention that while an appeal under Section 18 of the SARFAESI Act can be filed by any aggrieved person, the proviso mandatorily requiring pre-deposit… can apply only to the borrower or the guarantor. Apart from the language of the provision being clear, the position of law clarified in binding judgments enures to the benefit of the Petitioner.”

Tenant Not Liable for Pre-Deposit While Challenging Bank Action Under SARFAESI

The dispute arose in the context of a redevelopment project, where the petitioner, Ishtiyaque Aslam Khan, was a tenant in the original building. In 2020, the developer executed a Permanent Alternate Accommodation Agreement (PAAA) allotting him Flat No. 403. However, unknown to the petitioner, the same flat had earlier been sold by the developer to borrowers (Respondents 2 and 3), who availed a loan from DCB Bank (Respondent No. 1) back in 2018.

After the bank initiated action under the SARFAESI Act to recover dues from the borrowers, the petitioner, claiming fraud and violation of his rights as a legitimate allottee, filed a Securitisation Application before the DRT. When his application for interim relief was rejected, he preferred an appeal before the DRAT, which insisted on a pre-deposit of 40% of the loan amount, invoking the proviso to Section 18.

When the petitioner failed to deposit, the DRAT automatically dismissed his appeal, citing its own self-operating clause. Aggrieved, the petitioner approached the High Court under Article 226 of the Constitution.

DRAT Committed Jurisdictional Error in Applying Pre-Deposit Condition

The High Court observed that the DRAT’s direction was contrary to both statutory interpretation and binding precedent. It relied on a Division Bench decision in Anchor Electricals Pvt. Ltd. v. Canara Bank, as well as several judgments of the Delhi High Court and the Supreme Court in Sidha Neelkanth Paper Industries Pvt. Ltd. v. Prudent ARC Ltd., to hold that:

“The language of the provision itself is absolutely clear… The condition of pre-deposit under the proviso to Section 18 of the SARFAESI Act cannot be imposed on a person who is neither a borrower nor a guarantor.”

The Court emphasized that the right to file an appeal under Section 18 is available to any aggrieved person, but the requirement of pre-deposit is restricted only to the borrower or guarantor. Imposing such a burden on a third-party allottee, as in the present case, would not only be unjust but also legally unsustainable.

Merits of Dispute Over Allotment Not to Be Decided at Pre-Deposit Stage

Addressing the bank’s argument that the PAAA with the petitioner was executed in 2020, while the loan was granted in 2018, the High Court declined to engage with such factual controversies at the stage of writ jurisdiction:

“We are of the opinion that such arguments can be reserved, to be placed before the DRT and DRAT when the matters are taken up for consideration on merits.”

The only question before the Court was whether the DRAT could have insisted on a pre-deposit from a non-borrower, and the Court found that issue no longer res integra, holding that the impugned DRAT order dated 26.06.2025 suffered from legal infirmity.

Appeal Restored, Interim Application to Be Decided in 4 Weeks

Setting aside the DRAT’s order, the High Court revived and restored the appeal, and directed that it be heard on merits without insisting on any pre-deposit from the petitioner. The Court further directed the DRAT to consider the pending interim application at the earliest.

“The Interim Application No. 446 of 2025 filed by the Petitioner in the pending Appeal shall be taken up for consideration by the DRAT at the earliest, and an endeavour shall be made to dispose of the Application within four weeks from the date a copy of this order is produced before the DRAT.”

DRAT Cannot Mechanically Impose Pre-Deposit on Third-Party Appellants

This ruling sends a clear and firm message to debt recovery forums that pre-deposit under Section 18 of the SARFAESI Act is not a universal requirement. Courts must examine who the appellant is—whether borrower, guarantor, or any other person—before invoking the proviso to Section 18.

The Bombay High Court’s judgment aligns with constitutional guarantees of access to justice, and protects third-party stakeholders like tenants and allottees from being unfairly burdened with liabilities arising from loans they never took.

Date of Decision: January 20, 2026