DRAT Appeals Under Section 18 SARFAESI: The Pre-Deposit Requirement

An appeal against an order made by a Debts Recovery Tribunal under Section 17 of the SARFAESI Act lies to the Debts Recovery Appellate Tribunal under Section 18, and must be filed within 30 days from the date of receipt of that order. The appeal will not be entertained unless the borrower deposits 50 per cent of the debt due — reckoned as the amount claimed by the secured creditor or the amount determined by the DRT, whichever is less. The DRAT may reduce that figure for reasons recorded in writing, but it cannot go below 25 per cent, and it has no power to waive the deposit altogether.

That single condition decides the fate of more SARFAESI appeals than any argument on merits. As an Advocate practising at the Delhi High Court and Senior Partner at Unified Chambers And Associates, I see the pattern regularly: a borrower loses at the DRT, files an appeal on strong procedural grounds, and then discovers that the appeal cannot be heard because the money is not there. This note sets out how the provision works, how the amount is computed, how a reduction is properly sought, and why the same condition does not apply one rung lower, at the Debts Recovery Tribunal.

What Does Section 18 Actually Say?

Section 18(1) creates the only statutory appellate remedy against an order made by a DRT under Section 17. Any person aggrieved by such an order may prefer an appeal, along with the prescribed fee, to the Appellate Tribunal within 30 days from the date of receipt of the order.

Three provisos follow, and each of them matters.

The first proviso permits different fees to be prescribed for an appeal by a borrower and an appeal by a person other than a borrower — an early textual signal that the section treats those two categories differently.

The second proviso is the pre-deposit condition. No appeal is to be entertained unless the borrower has deposited with the Appellate Tribunal 50 per cent of the amount of debt due from him, as claimed by the secured creditor or determined by the Debts Recovery Tribunal, whichever is less.

The third proviso gives the DRAT a limited discretion: it may, for reasons to be recorded in writing, reduce the amount to not less than 25 per cent of the debt referred to in the second proviso.

Section 18(2) then provides that, save as otherwise provided in the Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the Recovery of Debts Due to Banks and Financial Institutions Act 1993 — since renamed the Recovery of Debts and Bankruptcy Act 1993 — and the rules made under it. That importation is not a formality. It is what supplies the DRAT with its procedural code and its disposal timelines, and it is the route through which questions of limitation are addressed.

Note the structure. The deposit is a condition on the appeal being entertained, not on it being filed. In practice the registry will receive and number the appeal; what the borrower does not get, until the deposit is made or reduced and then made, is a hearing on merits. The Supreme Court in Narayan Chandra Ghosh v UCO Bank treated the requirement as a mandatory condition precedent, holding that the Appellate Tribunal's power stops at reduction to the 25 per cent floor and does not extend to dispensing with the deposit.

When Does the 30-Day Clock Start Running?

The limitation runs from the date of receipt of the order, not from the date it was pronounced and not from the date it appears on the e-DRT portal. The distinction is worth preserving on the file: apply for the certified copy immediately, and record the date of receipt in writing, because that date is the one you will be asked to justify if the appeal is filed near the edge of the period.

Where the appeal is late, condonation has to be applied for; it is not assumed. Section 18(2) imports the RDDB Act 1993, and Section 24 of that Act applies the Limitation Act 1963 to applications made to the Tribunal, which is the route by which sufficient cause is pleaded before these forums. The juridical basis for condoning delay under Section 18 has been argued more than once, so the application should be made out on its own material rather than filed as a formality. It is a separate application, supported by an affidavit setting out the cause day by day. Condonation and pre-deposit are independent hurdles — clearing one does nothing for the other.

Contrast the trigger at the tier below. Under Section 17(1), a person aggrieved by measures taken under Section 13(4) has 45 days from the date on which the measure was taken. That period runs from an act of the creditor; the Section 18 period runs from receipt of a judicial order. Confusing the two is a common and unrecoverable error.

Who Is Required to Make the Deposit?

The second proviso speaks only of "the borrower". The definition in Section 2(1)(f) is wide: a borrower is any person who has been granted financial assistance by a bank or financial institution, or who has given any guarantee, or who has created any mortgage or pledge as security for such financial assistance, and it also covers a person who becomes the borrower of an asset reconstruction company on assignment of the debt.

The practical consequences are immediate:

• A personal guarantor appealing against a Section 17 order is a borrower and must deposit.
• A third-party mortgagor who secured someone else's facility is a borrower and must deposit.
• A borrower whose loan has been assigned to an ARC remains a borrower for this purpose.

Conversely, an appellant who is not a borrower within that definition — an auction purchaser challenging a direction that unsettles the sale, or a claimant asserting independent title — is not caught by the words of the second proviso. Whether a particular appellant falls inside or outside Section 2(1)(f) is frequently the first contested question in the appeal, and it should be pleaded squarely rather than assumed.

How Is the Pre-Deposit Amount Computed?

The section gives two candidate figures and directs you to the lower of them:

1. the amount of debt due as claimed by the secured creditor; and

2. the amount determined by the DRT.

The comparison is what makes the arithmetic unpredictable. "Debt due" in this setting is not principal alone — a secured creditor's claim in enforcement proceedings is principal together with contractual interest and charges computed to a stated date, and it is that composite claim which the second proviso works on. The precise content of "debt due" for the purposes of this proviso has itself been litigated, and the figure actually adopted by a DRAT will turn on the pleadings and the statement of account placed before it.

What Happens When the DRT Never Determined the Quantum?

This is the ordinary case rather than the exception, and borrowers are repeatedly caught by it.

A Section 17 proceeding is not a suit for accounts. Its subject matter is whether the measures taken under Section 13(4) were taken in accordance with the Act and the Security Interest (Enforcement) Rules 2002 — whether the demand notice was valid, whether the representation under Section 13(3A) was considered and answered, whether the possession and sale procedure was followed. A DRT can dismiss a securitisation application in full without ever fixing a rupee figure.

When that happens, there is no "amount determined by the Tribunal" to compare against. The only figure on the record is the secured creditor's claim, and the deposit is computed on that. A borrower who wants the benefit of a lower base must therefore plead quantum as a distinct ground at the Section 17 stage and ask the DRT to determine it, supported by the account reconciliation, payment receipts and interest computation. Silence at first instance is expensive later.

A Worked Computation

Assume in each scenario that the secured creditor's claim on the record is INR 6.00 crore.

Scenario B is the reason quantum should be argued at the DRT. A determination INR 1.60 crore below the claim reduces the entry price of the appeal by INR 80 lakh at the 50 per cent level, and by INR 40 lakh even at the floor.

Scenario C shows that "whichever is less" protects the borrower in both directions: a DRT finding that the debt is larger than the creditor pleaded does not enlarge the deposit beyond the claim.

A related question arises constantly and has no settled answer: whether amounts already realised by the creditor from sale of secured assets during the pendency of the proceedings must be credited before the 50 per cent is struck. It should be pleaded with the sale certificates and the credit entries annexed, but it should not be assumed.

Can the DRAT Reduce the Deposit, and How Far?

The third proviso is the only relief valve, and it is a narrow one. It permits reduction to not less than 25 per cent of the same base, and only "for reasons to be recorded in writing".

Two limits follow from that language. First, 25 per cent is a hard floor, not a starting point — the Tribunal cannot order 10 per cent, cannot order a token deposit, and cannot dispense with the deposit because the borrower is impecunious. Second, the requirement of recorded reasons means the discretion is a judicial one exercised on material. An application that simply asks for the floor, without a computation and without evidence, ordinarily fails, because there is nothing for the Tribunal to record reasons about.

The considerations that carry weight in practice — these are matters of forensic experience, not statutory grounds — include:

• Documented part payments or recoveries appropriated by the creditor but not reflected in the claimed figure.
• Realisation already made from sale of secured assets during the pendency of the Section 17 proceeding.
• A particularised dispute on quantum: an interest rate applied contrary to the sanction letter, penal interest levied without authority, a restructuring or moratorium not given effect.
• Financial incapacity established through audited accounts, bank statements and returns, rather than asserted in the affidavit.
• The value of secured assets already in the creditor's possession, which reduces the practical exposure the deposit is meant to protect.

A Filing Checklist for a Section 18 Appeal

The sequence below is the working order in which the steps have to happen. The appeal lies to the DRAT exercising jurisdiction over the DRT that passed the order; there are five DRATs, at Delhi, Mumbai, Kolkata, Chennai and Allahabad, and the jurisdictions page sets out the forums this chambers appears before.

1. Apply for the certified copy of the DRT order on the day of pronouncement, and record the date of receipt.

2. Compute both candidate figures — the creditor's claim and any DRT determination — and identify the lower base before drafting anything.

3. File the memorandum of appeal with the prescribed fee within 30 days of receipt, before the DRAT having jurisdiction.

4. File with it an interlocutory application under the third proviso seeking reduction of the deposit, supported by an affidavit annexing the computation contended for, the creditor's own statement of account, proof of payments and realisations, and the financial material relied on.

5. File a separate application for interim protection, and a separate application for condonation of delay if the appeal is beyond 30 days.

6. Expect the DRAT to take up the pre-deposit question before it touches the merits, and to pass an order fixing both the quantum and the time within which it must be paid.

7. Ask expressly for a workable payment window and for protection during it. An order allowing 25 per cent in thirty days is worth little if the sale is confirmed on day ten.

8. Make the deposit with the Appellate Tribunal, in the manner the order directs. It is a deposit with the Tribunal, not a payment to the creditor, and DRATs commonly direct that it be held in an interest-bearing deposit pending disposal.

9. On compliance, the appeal is entertained and listed on merits. On default, it is not entertained, and the DRT order stands.

Why Does the Pre-Deposit Not Apply at the Section 17 Stage?

Because it was tried, and it was struck down.

Section 17 as originally enacted in 2002 was headed "Right to appeal", and sub-section (2) required a borrower to deposit 75 per cent of the amount claimed in the Section 13(2) notice before the appeal could be entertained. In Mardia Chemicals Ltd v Union of India the Supreme Court upheld the constitutional validity of the SARFAESI Act broadly but held that condition to be unreasonable and onerous. The reasoning is the key to the present structure: a remedy available only on payment of three-quarters of the very amount in dispute, before any adjudicating authority had examined whether it was owed, is in substance not a remedy at all.

The amendment that followed in 2004 restructured the provision. Section 17 ceased to be an appeal and became an application against measures taken under Section 13(4), carrying no deposit condition at all. The financial filter was not abandoned; it was relocated one tier up, into Section 18, and set at a lower level with a built-in discretion to halve it further.

The logic of that placement holds up:

• Enforcement under Section 13(4) is non-judicial. Nothing has been adjudicated when the borrower reaches the DRT, and the creditor's figure is its own computation. Conditioning the first adjudicatory remedy on paying a share of that unilateral figure would let the creditor set the price of being heard.
• By the time a Section 18 appeal is filed, a Tribunal has examined the enforcement and ruled. The deposit is the price of a second look at a matter already decided once, a familiar design in Indian appellate statutes.
• The statute keeps the first-instance remedy quick in compensation. Section 17(5) requires disposal within 60 days, extendable for recorded reasons but not beyond four months from the date of the application, and Section 17(6) allows either party to move the DRAT for a direction to expedite where that outer limit is crossed.

What This Means for How a Section 17 Case Should Be Run

The practical inference is uncomfortable but clear: the Section 17 stage is the only free adjudication a borrower gets, and it should be run as though there will be no appeal.

For borrowers under SARFAESI enforcement, that means pleading every ground at first instance rather than holding material back, filing the complete documentary record before the DRT, asking for a determination of quantum as a distinct prayer, and treating an adverse order as the event that converts a costless remedy into one requiring at least 25 per cent of the debt in cash. Settlement arithmetic should carry that number from the outset.

For secured creditors, the claimed figure in the Section 17 proceeding should be precisely stated and fully reconciled to the statement of account. An inflated or unreconciled claim invites a reduction application at the appellate stage, hands the borrower a credible quantum dispute, and can raise questions about the demand notice itself. Institutions building panel processes will find the same discipline in the documentation expectations set out for banks, NBFCs and ARCs, and in the wider NPA resolution and debt recovery practice.

Is There Any Remedy Beyond the DRAT?

SARFAESI provides no statutory second appeal from an order of the DRAT. What remains is the writ jurisdiction of the High Court under Articles 226 and 227 of the Constitution, exercised sparingly in SARFAESI matters precisely because the statutory scheme is treated as complete. A writ petition whose real purpose is to escape the pre-deposit is unlikely to be entertained; the condition is part of the remedy the legislature created, not an obstacle to it.

One further provision deserves a place in the appeal itself. Section 19 provides for restoration of possession together with compensation and costs where the Tribunal or the appellate forum holds that the secured creditor's possession of the secured assets was not in accordance with the Act and the Rules. Where a borrower's case is that possession was wrongfully taken, that relief should be pleaded in the Section 18 appeal rather than reserved for a later proceeding.

For the statutory vocabulary used throughout this note — securitisation application, recovery certificate, secured creditor, NPA — the glossary of Indian legal terms sets out working definitions, and the complete guide to debt recovery in India places the SARFAESI route alongside the RDDB Act and IBC alternatives.

This article is general information on the law as it stands and is not legal advice; the correct course in any matter depends on its own facts and record. Queries on SARFAESI and DRAT proceedings may be directed through the contact page.