Non-Borrower Tenants Need Not Make Pre-Deposit Before Filing Appeal Before DRAT: Karnataka High Court

The Karnataka High Court has held that a tenant or other non-borrower cannot be compelled to make a pre-deposit to maintain an appeal against a Debt Recovery Tribunal order under the SARFAESI Act. It held that the requirement applies only to borrowers.

A Division Bench of Justice Suraj Govindaraj and Justice K Manmadha Rao said the statute draws a clear distinction between borrowers and non-borrowers in prescribing conditions for appeal.

“Once the appellant is admittedly not a borrower within the meaning of the Act, the statutory requirement of pre-deposit under the second proviso cannot be imposed merely because the respondent disputes the appellant's claim on merits. To hold otherwise would amount to converting every disputed claimant into a borrower for the limited purpose of insisting upon pre-deposit, which would defeat the very distinction consciously created by the legislature.”

The ruling came in a petition by Ittiam Systems Private Limited, which claimed tenancy rights over commercial premises in Bengaluru. It said it had been occupying the property since 2001.

The premises formed part of a secured asset after owner Hiro Uttamchandani defaulted on a loan obtained from Bharath Co-operative Bank. The bank then initiated proceedings to take possession of the property.

Ittiam had challenged the bank's action before the Debt Recovery Tribunal. It contended that its possession as a tenant could not be disturbed by the secured creditor. However, its securitisation application was dismissed on July 31, 2025.

It then appealed before the Debt Recovery Appellate Tribunal, Chennai, and sought exemption from the pre-deposit requirement.

The DRAT rejected the plea. It directed Ittiam to deposit 25% of ₹13,33,02,744, amounting to ₹3,33,25,686, in two instalments.

Before the High Court, Ittiam argued that it was merely a tenant with no connection to the loan transaction between the landlord and the bank. It said it could not be treated as a borrower or guarantor for the purpose of imposing a pre-deposit condition.

The bank opposed the plea. It argued that Ittiam could not avoid the pre-deposit requirement merely by claiming tenancy. It said Ittiam would first have to establish that its tenancy was valid, subsisting and legally enforceable.

“The use of the expression 'any person aggrieved' assumes significance in the context of proceedings under the SARFAESI Act, where several categories of persons, apart from the borrower, may assert independent or derivative rights in respect of the secured asset. Such persons may include tenants, lessees, purchasers, guarantors, co-owners or any other person claiming lawful possession or interest in the secured asset.”

The Court noted that while the law grants a right of appeal to any aggrieved person, the condition requiring pre-deposit is specifically worded to apply only to borrowers.

“If the legislative intent were to impose the condition of pre-deposit upon every appellant irrespective of status, nothing prevented the legislature from employing the expression 'any person aggrieved' even in the second proviso. Equally, the legislature could have used the phrase 'borrower or any other person' while prescribing the condition of pre-deposit. Significantly, the legislature has chosen not to do so.”

Rejecting the bank's argument, the bench held that questions about whether Ittiam's tenancy was valid, enforceable, or had expired were matters to be decided in the appeal itself. These issues could not be conclusively determined at the threshold stage as a condition for entertaining the appeal.

Setting aside the DRAT's order, the High Court held that no pre-deposit could be insisted upon from Ittiam. It directed the appellate tribunal to hear and dispose of the appeal on its merits within eight weeks from the first date the matter is taken up for hearing.

For Petitioner: Senior Counsel T Suryanarayana and Advocate Smitha R.B

For Respondent: Advocate Pundikai Ishwara Bhat