Kerala High Court Clarifies: SARFAESI Pre-Deposit Must Go to Tribunal, Not Bank; Writ Petition Dismissed for Alternative Remedy

Introduction

In a significant ruling for debt recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), the Kerala High Court has held that the mandatory pre-deposit required for filing an appeal before the Debts Recovery Appellate Tribunal (DRAT) must be paid directly to the tribunal and not to the lending bank. A Division Bench comprising Justice Anil K. Narendran and Justice Muralee Krishna S. delivered this verdict in Writ Appeal No. 2323 of 2025, setting aside a single judge's order that had directed the borrower to deposit funds with the bank as part of the pre-deposit requirement. The court also dismissed the underlying writ petition, emphasizing that an effective statutory appeal remedy under Section 18 of the SARFAESI Act was available, rendering the writ jurisdiction under Article 226 of the Constitution inappropriate.

The case, titled The Authorized Officer and Chief Manager, Kerala Gramin Bank v. M/s Prajith Builders and Developers Private Limited and Ors. , arose from a dispute over an overdraft facility default by the respondent company, leading to SARFAESI recovery actions by Kerala Gramin Bank. This decision reinforces the stringent procedural safeguards in debt recovery laws, ensuring that pre-deposits serve as a check on frivolous appeals without benefiting the creditor directly during pendency. It aligns with broader Kerala High Court developments in 2025-2026, including enhanced notional income assessments in motor accident claims and infrastructural reforms for mediation centers, highlighting the court's focus on procedural integrity across civil jurisdictions.

Case Background

The origins of the dispute trace back to June 29, 2017, when M/s Prajith Builders & Developers Private Limited, represented by its Managing Director Mr. Prajith C.M., availed an overdraft facility of Rs. 70 lakhs from Kerala Gramin Bank for its construction business operations. The account soon fell into default, prompting the bank to issue a demand notice under Section 13(2) of the SARFAESI Act on August 31, 2021, targeting the overdraft and two other related accounts totaling Rs. 88,59,605.33, inclusive of interest.

The borrowers challenged the initial notice in Writ Petition (C) No. 18140 of 2022 before the Kerala High Court, leading to its withdrawal by the bank on June 16, 2022, due to procedural defects. A fresh demand notice followed on June 27, 2022. The borrowers filed objections, alleging non-compliance by the bank under Section 13(3A) of the Act, which requires a reasoned reply to such representations. Without a response, the borrowers approached the Debts Recovery Tribunal-I (DRT-I), Ernakulam, via Securitisation Application (SA) No. 530 of 2022 on October 28, 2022.

The DRT initially granted status quo via IA No. 2618 of 2022 but later dismissed the application and related interlocutory applications on June 15, 2023, and November 14, 2023, allowing the bank to proceed with possession of secured assets. Concurrent writ petitions—OP(DRT) Nos. 258 and 529 of 2023—were filed before the High Court, which deferred coercive actions until January 5, 2024, noting a Rs. 35 lakh one-time settlement (OTS) payment by the borrowers. On January 16, 2024, the High Court directed the DRT to expedite the SA's disposal within two months.

The DRT dismissed the SA on June 14, 2024 (Ext. P9 order). Fearing delays in appealing to the DRAT and immediate dispossession without fresh notice, the borrowers filed Writ Petition (C) No. 21833 of 2024 under Article 226, seeking to quash the DRT order and declare procedural lapses by the DRT and DRAT. The single judge, via judgment dated August 14, 2024, closed the petition with directions: the borrowers had deposited Rs. 10 lakhs per an interim order; they were further directed to deposit Rs. 15 lakhs with the bank to meet the 25% minimum pre-deposit threshold under Section 18, enabling appeal numbering. The DRAT was to hear the appeal on merits within two weeks and decide within three months, with a stay on bank actions for 3.5 months. A review petition clarified this as statutory pre-deposit.

Aggrieved, the bank filed the present writ appeal with a 357-day delay (condoned on November 11, 2025), challenging the deposit direction to the bank and the writ's maintainability.

The core legal questions were: (1) Whether the pre-deposit under Section 18 can be satisfied by payment to the bank rather than the DRAT? (2) Is a writ petition maintainable when a statutory appeal with pre-deposit is available?

Arguments Presented

The appellant, Kerala Gramin Bank, represented by Advocates Jawahar Jose and others, argued that Section 18 of the SARFAESI Act mandates a 50% pre-deposit of the debt due (reducible to 25% by the DRAT for recorded reasons), payable exclusively to the DRAT to entertain an appeal. They contended no provision allows crediting bank deposits toward this requirement, as the amount is returned to the depositor post-appeal, not adjusted against the debt. Citing precedents like Union Bank of India v. Rajat Infrastructure Private Limited (2020) 3 SCC 770, they emphasized the pre-deposit's mandatory nature to deter frivolous appeals.

The bank further asserted the writ petition's non-maintainability, as an efficacious remedy under Section 18 exists. They disputed the borrowers' claims of prompt repayments and objected to clubbing accounts, clarifying actions targeted all three. As of September 17, 2025, the debt stood at Rs. 1,12,87,071.97, requiring a Rs. 28,21,766 pre-deposit (25%). The bank's counter-affidavit highlighted the DRT's detailed reasoning in Ext. P9, urging exhaustion of statutory remedies.

Respondents 1 and 2 (borrowers), represented by Senior Advocate George Poonthottam and Advocate Nisha George, countered that prior deposits (Rs. 36 lakhs total post-notice, including Rs. 10 lakhs interim) should count toward the 25% threshold. They argued the single judge's direction aligned with equity, especially since the bank conceded in review proceedings that these covered the minimum. Disputing the debt quantum, they claimed SARFAESI actions pertained only to the overdraft account, not clubbed ones.

The borrowers justified the writ due to alleged DRAT delays and procedural defects by the bank/DRT, invoking Article 226 for justice. They noted the appeal (AIR(SA) No. 1048 of 2024) was filed but unnumbered pending deposit, and sought priority hearing with continued stays.

Legal Analysis

The Division Bench meticulously analyzed Section 18 of the SARFAESI Act, which allows appeals against DRT orders under Section 17 within 30 days, subject to a 50% pre-deposit of the debt due (as claimed by the secured creditor or determined by DRT), reducible to 25% by the DRAT with reasons. The court underscored the provision's absolute bar on entertaining appeals without compliance, drawing from Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC 548, where the Supreme Court held: "there is an absolute bar to the entertainment of an appeal under Section 18 of the Act unless the condition precedent... is fulfilled."

Rejecting bank deposits as substitutes, the bench noted the SARFAESI Act's silence on post-appeal treatment but observed DRAT practice of refunding to the depositor, accommodating third-party appeals. This distinguished it from creditor benefits, finding "no legal backing" for the single judge's order. Precedents like Kotak Mahindra Bank Private Limited v. Ambuj A. Kasliwal (2021) 3 SCC 549 clarified waivers cannot drop below 25%, while Sidha Neelkanth Paper Industries Private Limited v. Prudent ARC Limited (2023 SCC OnLine SC 12) affirmed only the borrower deposits, without auction proceeds adjustments if sales are challenged.

On writ maintainability, the court invoked Authorized Officer, State Bank of Travancore v. Mathew K.C. (2018) 1 KLT 651 (SC), limiting Article 226 to exceptional cases like statutory non-compliance or natural justice violations—none present here. South Indian Bank Ltd. v. Naveen Mathew Philip (2023) 4 KLT 29 (SC) and Sreedhar K. v. M/s Raus Constructions Pvt. Ltd. (2023 KLT OnLine 1007 (SC)) reinforced exhausting statutory remedies in recovery matters, deeming SARFAESI/RDB Acts as self-contained codes. The borrowers' delay fears were deemed unsubstantiated.

This ruling distinguishes pre-deposit from OTS payments, emphasizing tribunal-centric procedures to balance creditor rights and appeal access, without encroaching on High Court discretion absent exceptional circumstances.

Key Observations

The judgment features several pivotal excerpts underscoring the court's reasoning:

• On pre-deposit mechanics: “From the submissions made at the Bar, we notice that though there is no specific provision in the SARFAESI Act as to how the aforesaid predeposit has to be dealt with on conclusion of the appeal, the procedure followed by the DRAT is that after the conclusion of the appeal, the amount deposited before it will be returned back to the depositor, especially when considering the fact that even an aggrieved third party to the proceedings before the Tribunal, can appeal before the DRAT against the order of the Tribunal. In such circumstances, we find no legal backing for the order of the learned Single Judge to count the amount deposited before the Bank as the mandatory predeposit to be made before the DRAT.”

• On statutory bar: Referencing Narayan Chandra Ghosh , the court quoted: "Thus, there is an absolute bar to the entertainment of an appeal under Section 18 unless the condition precedent, as stipulated, is fulfilled. Unless the borrower makes, with the Appellate Tribunal, a pre-deposit of fifty per cent of the debt due from him or determined, an appeal under the said provision cannot be entertained by the Appellate Tribunal."

• On writ limitations: "When the facts of the instant case... are analyzed in the light of the judgments... it can only be said that since an efficacious statutory remedy is available to the respondents 1 and 2 before the DRAT under Section 18 of the SARFAESI Act against the order of the Tribunal, a writ petition under Article 226 of the Constitution of India is not maintainable."

These observations highlight the judgment's emphasis on statutory fidelity and procedural purity.

Court's Decision

The Division Bench allowed the writ appeal, setting aside the single judge's August 14, 2024, judgment in W.P.(C) No. 21833 of 2024, and dismissed the writ petition outright. No further directions were issued, restoring the parties to pursue the statutory appeal under Section 18, with the borrowers required to deposit 25% (Rs. 28,21,766 as calculated) directly with the DRAT to number and proceed.

This decision has profound implications for SARFAESI proceedings nationwide, clarifying that pre-deposits cannot be routed through banks, preventing circumvention of tribunal oversight and ensuring funds remain neutral pendente lite. It deters writ misuse in debt recovery, potentially reducing High Court interference and expediting tribunal resolutions. Borrowers must now strictly comply with Section 18, possibly facing higher barriers in distress scenarios, while banks gain procedural certainty.

In the broader context of Kerala High Court jurisprudence, this aligns with recent rulings enhancing victim compensations in motor accident claims—such as re-fixing notional income at Rs. 22,500 monthly based on overseas remittances despite lacking formal proof ( The Divisional Manager v. Ameer Hamsa , —and addressing mediation infrastructure deficits via a dedicated committee (WP(C) No. 42844/2025). These developments underscore the court's commitment to accessible, efficient justice mechanisms, impacting legal practice by prioritizing statutory exhaustion and infrastructural equity. Future cases may see stricter adherence to pre-deposit norms, influencing lending institutions' recovery strategies and borrowers' appellate tactics.