Kiran Raj

The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan held that not all orders passed by the Debts Recovery Tribunal (DRT) under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) should automatically trigger the pre-deposit condition under Section 18. The Court ruled that procedural orders, such as those refusing impleadment applications, must be treated differently from final determinations of liability. It accordingly set aside the Bombay High Court's judgment affirming a Debts Recovery Appellate Tribunal (DRAT) direction for pre-deposit and remanded the matter to the High Court for reconsideration.

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The appeal before the Supreme Court arose from a judgment dated March 19, 2024, delivered by the High Court of Judicature at Bombay in Writ Petition No. 3929 of 2024. The petition had challenged an interim order passed by the DRAT on February 29, 2024, in IA No. 614/2022 within Appeal (Diary) No. 1208/2022. The DRAT had directed the appellant to make a pre-deposit of ₹125 crore under Section 18(1) of the SARFAESI Act as a condition precedent to entertain the appeal.

The appellant, M/s Sunshine Builders and Developers, approached the Supreme Court following the High Court’s refusal to interfere with the DRAT’s pre-deposit requirement. The DRAT’s order was made in the context of interim applications arising out of proceedings pending before the DRT, specifically in a securitisation application (SA) filed under Section 17 of the SARFAESI Act. The SA was still pending before the DRT.

In the SA, the appellant had filed two interim applications: IA No. 183/2021 for impleading the auction purchasers and IA No. 1652/2022 for condoning delay in filing that application. These applications were procedural in nature and unrelated to the determination of liability or merits of the case.

The appeal to the DRAT was filed following the rejection of the impleadment application. It was in this appeal that the DRAT imposed the pre-deposit condition of ₹125 crore, stating that such a deposit was mandatory under Section 18(1) of the SARFAESI Act.

The appellant argued before the Supreme Court that the DRAT's direction and the High Court’s affirmation thereof were legally unsustainable. The appellant submitted that the provision for pre-deposit was not intended to apply to appeals concerning procedural or interlocutory orders unrelated to the substantive debt or liability. The DRAT’s finding that the appellant had consented to the creation of a mortgage and was thus liable as a "borrower" under Section 2(1)(f) of the SARFAESI Act was also disputed.

Section 2(1)(f) of the SARFAESI Act defines a "borrower" to include any person who has been granted financial assistance, or who has given any guarantee or created any mortgage or pledge as security. The DRAT and the High Court both invoked this definition to hold that the appellant, having consented to a mortgage, fell within the ambit of “borrower” and was therefore liable to make the statutory pre-deposit.

The Supreme Court, however, focused on the nature of the order appealed from and the applicability of Section 18’s deposit requirement in the context of such orders.

Justice J.B. Pardiwala, delivering the order of the Bench, recorded: “Prima facie, it appears that the High Court got enamoured by the finding recorded by the DRAT that the appellant – herein had consented to the creation of the mortgage.”

The Court noted that the High Court had accepted the DRAT’s reasoning that even a mortgagor who is not a guarantor or principal borrower would fall within the definition of “borrower” under Section 2(1)(f) of the SARFAESI Act and thus be liable to make the pre-deposit under Section 18.

The Court observed: “We take notice of the fact that the Securitisation application filed under Section 17 of the SARFAESI Act is pending with the DRT. In the said SA which is pending before the DRT, two interim applications were filed... for impleading the auction purchasers... and for condonation of delay.”

It framed the critical question: “If such an application... stands rejected and an appeal is preferred before the DRAT against such order which is more a procedural part, should Section 18 so far as the aspect of pre-deposit is concerned, apply? This is the moot question that the High Court should have considered...”

The Bench then analyzed Section 18(1) of the SARFAESI Act, observing: “The plain reading... would indicate that if any person which should also include a borrower is aggrieved by any order made by the DRT under Section 17... he may prefer an appeal subject to the pre-deposit.”

However, the Court added: “We are of the view, of course prima facie, that the expression ‘any order’ should be given some meaningful interpretation. Should any and every order that may be passed by DRT, if sought to be challenged, be made subject to pre-deposit?”

The Court distinguished between procedural and substantive orders, stating: “One can understand that if any final order is passed by the DRT, determining the liability of the borrower... the provision of pre-deposit would come into play. However, what would be the position if an order like the one passed in the present litigation, i.e., declining to implead the auction purchaser...?”

The Supreme Court allowed the appeal and set aside the judgment passed by the Bombay High Court dated March 19, 2024, in Writ Petition No. 3929 of 2024. The Court remanded the matter to the High Court for reconsideration, specifically directing the High Court to examine whether the nature of the order passed by the DRT warranted a pre-deposit condition under Section 18 of the SARFAESI Act.

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The order reads: “The impugned order passed by the High Court is set aside. The matter is remitted to the High Court. The High Court shall rehear the Writ Petition No.3929/2024 and decide it afresh in accordance with law.”

The Court clarified that if any adverse order is passed by the High Court upon reconsideration, it would be open to the appellant to return to the Supreme Court for appropriate relief.

The Court further ordered that: “The Appeal is disposed of. Pending applications, if any, shall also stand disposed of.”

Advocates Representing the Parties

For the Petitioners: Mr. C.U. Singh, Senior Advocate; Mr. Anirudh Joshi, Senior Advocate; Ms. Radhika Gautam, Advocate-on-Record

Case Title: M/s Sunshine Builders and Developers v. HDFC Bank Ltd. & Ors.
Case Number: Civil Appeal No. 5290 of 2025 (arising out of SLP (C) No. 10875 of 2025 / Diary No. 13444 of 2025)
Bench: Justice J.B. Pardiwala, Justice K.V. Viswanathan

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