Pre-Deposit Not Always Mandatory

In a significant ruling, the Hon’ble Supreme Court of India in the case of M/s Sunshine Builders and Developers v. HDFC Bank Ltd. & Ors., (Civil Appeal No.5290/2025), dated April 17, 2025, the Court took a prima facie view that appeals against procedural orders of the Debts Recovery Tribunal (DRT) may not mandatorily require a pre-deposit under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, and remanded the matter for reconsideration, observing that such a provision should not be invoked mechanically for every order.

The case arose from proceedings initiated by the appellant, M/s Sunshine Builders and Developers, before the DRT in the form of a securitisation application under Section 17 of the SARFAESI Act. During the pendency of the said application, the appellant filed interim applications seeking impleadment of the auction purchasers and condonation of delay. Upon rejection of these applications by the DRT, the appellant approached the Debts Recovery Appellate Tribunal (DRAT) under Section 18 of the SARFAESI Act. The DRAT directed the appellant to make a pre-deposit of ₹125 crores as a condition for hearing the appeal. This order was challenged before the Hon’ble High Court of Bombay, which upheld the DRAT’s direction, leading to the present appeal before the Supreme Court.

The Hon’ble Supreme Court scrutinized the rationale adopted by the Bombay High Court and DRAT, particularly the reliance placed on the definition of ‘borrower’ under Section 2(1)(f) of the SARFAESI Act. The DRAT had prima facie held that the appellant consented to the creation of a mortgage and was therefore a ‘borrower’ under the SARFEASI Act. The High Court, endorsing this view, held that the appellant fell within the ambit of the term ‘borrower’, even though not a principal borrower or guarantor, and thus could not avoid the pre-deposit requirement under Section 18 of the Act. The Supreme Court, however, took a more nuanced view.

The Court emphasized that Section 18 of the SARFAESI Act must have a meaningful interpretation. While it was agreed that the section allows a borrower or any aggrieved person to prefer an appeal against an order of the DRT, the Court questioned whether every kind of order, particularly interim or procedural orders, should trigger the requirement of a pre-deposit. It noted that the phrase ‘any order’ in Section 18 should not be interpreted literally without context. Instead, it advocated a purposive approach wherein only substantive orders determining liability, such as final determinations of debt or borrower liability, should attract the pre-deposit mandate. The rejection of an impleadment application or condonation of delay, which are procedural in nature and do not touch upon the merits of the financial dispute, in the Court’s view, did not reasonably justify imposing the financial burden of a pre-deposit. This consideration, according to the Court, had not been adequately addressed by the High Court, which appeared to have been swayed by the DRAT’s interpretation of the appellant’s status as a borrower without independently examining the scope of Section 18 in the procedural context.

Consequently, the Court found it appropriate to remand the matter to the High Court for a fresh hearing, directing that the High Court reconsider the applicability of the pre-deposit requirement in light of the nature of the order under challenge.

This judgment reinforces the principle that procedural fairness must govern statutory interpretation, particularly when financial thresholds like pre-deposits risk denying access to appellate remedies.