Safiya Malik

The Karnataka High Court has set aside an order passed by the Debts Recovery Appellate Tribunal (DRAT), Chennai, which had directed the petitioner to deposit 25% of the outstanding loan amount as a pre-condition for hearing an appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The High Court ruled that the pre-deposit requirement must be construed in a manner that does not impose an unreasonable burden on borrowers and guarantors. The matter has been remitted back to the DRAT for reconsideration, directing it to take into account the payments already made and determine whether multiple appeals arising from the same debt should require separate deposits.

The writ petition was filed by G. Corp Lotus Mall Private Limited, represented by its authorized signatory, challenging an order passed by the DRAT, Chennai, on December 13, 2024. The petitioner, acting as a guarantor for a term loan of ₹150 crore availed by Lotus Shopping Centers Private Limited, was subjected to recovery proceedings initiated by Axis Bank Limited under the SARFAESI Act. The bank issued a possession notice on February 12, 2020, followed by a sale notice on July 26, 2022, under Section 13(4) of the Act.

The petitioner challenged these notices by filing applications before the Debts Recovery Tribunal (DRT), Bengaluru. The DRT dismissed the applications on November 9, 2023, leading the petitioner to file two separate appeals before the DRAT. In addition, the petitioner sought a waiver of the pre-deposit requirement under Section 18 of the SARFAESI Act.

On December 13, 2024, the DRAT directed the petitioner to deposit ₹20,64,71,885—equivalent to 25% of the outstanding debt—before proceeding with the appeals. The petitioner contested this order before the Karnataka High Court, arguing that the requirement for multiple pre-deposits arising from the same debt was excessive and contrary to legislative intent.

A division bench comprising Justice Krishna S. Dixit and Justice G. Basavaraja examined the petitioner’s claims regarding the pre-deposit requirement. The court noted that Section 18 of the SARFAESI Act mandates that an appellant must deposit 50% of the outstanding debt as determined by the DRT before an appeal can be entertained, with a discretionary power granted to the DRAT to reduce this amount to a minimum of 25%. The court observed that "the right of appeal is a creature of law and may be subject to reasonable conditions, provided they are not unjustifiably onerous."

The court referred to the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311, which had previously struck down a pre-deposit requirement under Section 17 of the SARFAESI Act as being overly burdensome. The High Court stated that "Parliament in its wisdom has reintroduced the pre-deposit requirement in Section 18 while ensuring that the appellate tribunal retains discretion to reduce the amount where appropriate."

The court further examined the parliamentary debates surrounding the amendment to Section 18 and observed that "the requirement of pre-deposit is not appeal-specific but debt-specific. Multiple appeals arising from the same debt should not result in duplicative pre-deposits, as that would impose an unjustified financial burden on the borrower or guarantor."

The judgment also discussed the implications of requiring multiple pre-deposits in cases involving joint borrowers or multiple sureties. The court recorded that "if each borrower and surety were required to make separate pre-deposits for the same debt, the total amount deposited could exceed the outstanding liability, which is clearly not the intent of the legislature."

The petitioner also argued that any payments made by the surety or guarantor should be deducted while computing the pre-deposit amount. The court agreed that "any payment already made towards the debt in question must be given due deduction before determining the required pre-deposit." It directed the DRAT to examine whether the amount payable should be adjusted accordingly.

The respondents, including Axis Bank and the auction purchaser of the secured asset, defended the DRAT’s order, arguing that the pre-deposit requirement was a statutory mandate that could not be circumvented. The bank’s counsel contended that "the statute clearly requires a pre-deposit in each appeal, and there is no explicit provision allowing a single deposit to suffice for multiple appeals." However, the High Court found that a purposive interpretation of Section 18 was necessary to avoid unreasonable hardship.

The Karnataka High Court allowed the writ petition and issued a writ of certiorari quashing the DRAT’s order. The court remitted the matter back to the DRAT, directing it to reconsider the pre-deposit requirement in light of the following principles:

1. The pre-deposit should be calculated after accounting for any payments already made by the borrower or guarantor.

2. Multiple appeals arising from the same debt should not necessitate separate pre-deposits unless justified by specific circumstances.

3. The DRAT retains discretion under Section 18 to reduce the pre-deposit to a minimum of 25% and must exercise this discretion judiciously.

The court concluded that "the requirement of pre-deposit must be interpreted in a manner that balances the rights of secured creditors while ensuring that borrowers and guarantors are not subjected to an unreasonably onerous burden."

Case Title: G. Corp Lotus Mall Private Limited v. Axis Bank Ltd. & Others
Case Number: Writ Petition No. 1059 of 2025 (GM-DRT)
Bench: Justice Krishna S. Dixit and Justice G. Basavaraja

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