Bombay High Court Rules Section 18 SARFAESI Pre-Deposit Mandatory, Bars Complete Waiver By DRAT

On 8 June, the Bombay High Court held that borrowers cannot bypass the mandatory pre-deposit requirement under Section 18 of the SARFAESI Act while challenging orders of the Debts Recovery Tribunal, including orders refusing to condone delay, and reiterated that the statute permits only limited reduction of the deposit and not complete waiver.

Justices Manish Pitale and Shreeram V Shirsat allowed writ petitions filed by HDFC Bank and auction purchaser Aloukik Construwell LLP and set aside orders of the Debts Recovery Appellate Tribunal, Mumbai that had granted complete waiver of pre-deposit and directed maintenance of status quo. The Division Bench held:

“The respondent – borrower cannot be in a better position while approaching the DRT, after the period of limitation has expired, apart from the fact that the claims made by the respondent – borrower, seeking complete waiver, are in the teeth of the binding position of law laid down by the Supreme Court in the aforementioned judgements and the Division Bench of this Court in the case of Vinay Container Services Pvt. Ltd., Navi Mumbai and others vs. Axis Bank, Mumbai (supra). Therefore, the impugned order dated 08.12.2025 is wholly unsustainable and it deserves to be set aside.”

The dispute arose from recovery proceedings initiated by HDFC Bank against Pradeep Gordhandas Vora, proprietor of Vora Enterprises, after the loan account was classified as a Non-Performing Asset. The bank initiated action under the SARFAESI Act, auctioned a mortgaged parcel of land, and the auction purchaser Aloukik Construwell LLP paid the entire consideration, obtained a registered sale certificate, and took possession.

The borrower then filed a securitisation application challenging the auction sale. As the application was filed beyond limitation, the borrower also filed an application seeking condonation of delay, which the Debts Recovery Tribunal dismissed.

The borrower appealed to the DRAT against the dismissal of the delay-condonation application and also sought waiver of the pre-deposit required under Section 18 of the SARFAESI Act. The DRAT granted status quo and later waived the pre-deposit requirement, relying on the Bombay High Court's decision in Gadekar Ginning and Pressing Pvt. Ltd. v. Canara Bank.

HDFC Bank and the auction purchaser challenged the DRAT order before the High Court, contending that Section 18 mandates pre-deposit and does not permit a complete waiver. They further argued that Gadekar Ginning had been rendered per incuriam as it ignored binding Supreme Court precedents and coordinate Bench rulings.

The High Court noted that the borrower's appeal before the DRAT did not remain confined to the rejection of the delay-condonation application and included substantive reliefs. It relied on the Supreme Court decisions in Narayan Chandra Ghosh v. UCO Bank and Union Bank of India v. Rajat Infrastructure Pvt. Ltd., and reiterated that Section 18 requires mandatory pre-deposit and that the DRAT can reduce the amount only within the statutory range of 25% to 50% of the debt, but cannot waive it entirely.

The Bench held that Gadekar Ginning had been decided without considering binding Supreme Court precedents and the coordinate Bench ruling in Vinay Container Services Pvt. Ltd. It observed:

“We find that the Division Bench of this Court, in the case of M/s. Gadekar Ginning and Pressing Pvt. Ltd. and another vs. Canara Bank and another (supra), ignored the binding precedent of this Court in the form of the judgement of the Division Bench rendered as far back as in the year 2010 in the case of Vinay Container Services Pvt. Ltd., Navi Mumbai and others vs. Axis Bank, Mumbai (supra).”

It further stated:

“The mandatory nature of pre-deposit, emphasized upon by the Supreme Court in the aforementioned judgments in the cases of Narayan Chandra Ghosh vs. UCO Bank and others (supra) and Union Bank of India vs. Rajat Infrastructure Private Limited and others (supra), was also not brought to the notice of the Division Bench of this Court, when the order was passed in the case of M/s. Gadekar Ginning and Pressing Pvt. Ltd. and another vs. Canara Bank and another (supra).”

Therefore, the Court held that Gadekar Ginning was rendered per incuriam as it ignored binding Supreme Court and coordinate Bench precedent on Section 18.

It further held that accepting the borrower's argument would place a litigant who files a delayed application in a better position than one who approaches within limitation, which would defeat the statutory scheme. It also held that the completed auction sale and transfer of possession do not affect the statutory requirement of pre-deposit under Section 18(1) of the SARFAESI Act.

Accordingly, the High Court set aside both impugned orders and directed the DRAT to reconsider the borrower's application afresh in accordance with law. It clarified that the DRAT must determine the applicable percentage of pre-deposit within the statutory range of 25% to 50% after hearing the parties.

For Aloukik Construwell LLP: Advocates Ankit Lohia, Saloni Sulakhe, Krishika Udesh and, Dhaval Vussonji

For HDFC Bank: Advocates Charles DeSouza, Rupa Sawangikar, Pragati Gothi and Manaswi Agrawal

For Borrower: Senior Advocate Girish Godbole, Advocates S.S Kanetkar, Bharti Bhansali and Farzeen Pardiwala