Mandatory Pre-Deposit For SARFAESI Appeal Applies To Mortgagor Who Secured Another's Loan: Bombay High Court

The Bombay High Court has clarified that, in the facts before it, a person who mortgages property to secure another party's loan is treated as a “borrower” under the SARFAESI Act and must comply with the mandatory pre-deposit before an appeal can be heard by the Debts Recovery Appellate Tribunal.

A Division Bench of Justices R.I. Chagla and Farhan P. Dubash said the statute leaves no scope to exclude such mortgagors from the deposit requirement.

“We are of the view that there is no need and or requirement to import any other meaning thereto, by employing other rules of statutory interpretation,” the court observed. It added that the petitioner “would squarely fall within the meaning of the term 'borrower' as contained in Section 18(1) of the SARFAESI Act.”

Under the law, an appeal before the DRAT cannot be entertained unless the borrower deposits 50% of the debt due, though the tribunal has limited power to reduce the amount to not less than 25%.

The dispute concerns a redevelopment project where Sunshine Builders and Developers entered into co-development agreements in 2011. As part of the arrangement, registered deeds of simple mortgage were executed in favour of HDFC Bank to secure loans taken by a co-developer.

After defaults, the bank initiated SARFAESI proceedings, took possession of the property through statutory measures, and eventually sold it in auction in December 2019.

Sunshine Builders had already approached the Debts Recovery Tribunal but later sought to amend its case and implead the auction purchaser after learning that the sale had been completed. Those applications were dismissed by the tribunal in October 2022. When the firm appealed, it argued that it was not the principal borrower and that the DRT's order was only procedural. On that basis, it claimed the statutory pre-deposit did not apply.

The High Court rejected both contentions. It held that the DRT's order had real and lasting consequences, including shutting out any challenge to a concluded auction and allowing third-party rights to crystallize.

“The common order passed by the DRT in the present case cannot be said to be a mere procedural order,” the court said. It added that this was sufficient to trigger the pre-deposit requirement. The writ petition was dismissed.