Appealing to the DRAT: The 50% Pre-Deposit Rule Under SARFAESI Section 18

A borrower who loses at the Debts Recovery Tribunal under Section 17 of the SARFAESI Act, 2002 has exactly thirty days to move higher, but the door to the Debts Recovery Appellate Tribunal (DRAT) does not open on filing alone. Section 18 attaches a price to the appeal: fifty per cent of the debt due must sit in the tribunal's account before a single ground is heard. This is the most misunderstood clause in the entire enforcement chain, and misunderstanding it has cost borrowers their appeals more often than any weak argument on merits. This playbook sets out precisely what the 2002 statute requires, how the Supreme Court read the pre-deposit in 2011, and where the twenty-five per cent floor gives a squeezed borrower room to breathe.

The Statutory Position

Section 18(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 gives any person aggrieved by an order of the DRT made under Section 17 a right to appeal to the DRAT within thirty days from the date of receipt of that order. The appeal is the second and final rung of the tribunal ladder created by the 2002 statute, sitting above the Debts Recovery Tribunal that first hears the borrower's challenge to enforcement.

The condition that decides most appeals is buried in the provisos to Section 18(1). The second proviso states that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the DRT, whichever is less. The third proviso lets the DRAT, for reasons to be recorded in writing, reduce that amount to not less than twenty-five per cent of the debt. The full text of the SARFAESI framework and its provisos is published on India Code at indiacode.nic.in.

Two features of the fifty per cent figure are worth reading slowly. First, the base is the lower of two numbers: the amount the secured creditor claims, or the amount the DRT has determined as due. Where the tribunal has already scaled the bank's claim down, that lower determined figure becomes the base, not the creditor's original demand. Second, the deposit is a percentage of the whole debt, not of any disputed slice of it, a point the 2002 Act leaves no discretion on at the entertainment stage.

The DRAT itself is constituted not under SARFAESI but under the Recovery of Debts and Bankruptcy Act, 1993 (the RDDB Act, originally the Recovery of Debts Due to Banks and Financial Institutions Act, 1993). Section 18 of the 2002 Act borrows that appellate machinery and adds the pre-deposit as its own gate. The interaction matters because procedure before the DRAT follows the 1993 Act and its rules, while the entertainment condition is a creature of the 2002 statute alone.

Procedure Step by Step

The pre-deposit does not appear in a vacuum. It sits at the top of an enforcement sequence that began, in most cases, months earlier with a demand notice. Understanding the whole chain shows why the thirty-day appeal window is so tight and why the deposit has to be arranged before, not after, filing.

1. Demand notice under Section 13(2). Once an account is classified as a non-performing asset in line with RBI's income-recognition norms, the secured creditor issues a notice under Section 13(2) giving the borrower sixty days to discharge the full liability. This is the statutory starting gun for the entire process.

1. Representation under Section 13(3A). The borrower may make a representation or raise objections within the sixty-day window. The secured creditor must consider it and, if it does not accept the objections, communicate the reasons within fifteen days under Section 13(3A). A rejection here does not by itself create a right of appeal to the DRT.

1. Enforcement measures under Section 13(4). If the dues are not cleared within sixty days, the creditor may take possession of the secured asset, take over management, or appoint a manager. Physical possession of immovable property frequently requires the District Magistrate's assistance under Section 14 of the 2002 Act.

1. Application to the DRT under Section 17. The borrower's first real challenge is a Section 17 application to the DRT, which must be filed within forty-five days from the date on which the Section 13(4) measure was taken. Our companion playbook on the Section 17 application within forty-five days sets out that stage in detail; note that no pre-deposit applies at the Section 17 stage.

1. Appeal to the DRAT under Section 18. If the DRT rules against the borrower, the thirty-day clock under Section 18 starts from receipt of that order. Before or at the time of filing, the borrower must arrange the fifty per cent deposit, or move an application for reduction to twenty-five per cent with recorded reasons.

The compressed arithmetic of these limitation periods is the single most common reason borrowers lose the right to be heard. A missed forty-five-day window at Section 17 cannot be cured at Section 18, and a Section 18 appeal filed on day twenty-nine without the deposit in hand is, in practice, an appeal not yet competent to be entertained.

Borrower Defences Available

The defences that survive at the DRAT stage divide into two families: those that reduce the deposit base, and those that go to the merits of the enforcement. Both matter, but only the first buys immediate cash relief.

Argue for the lower base. Because Section 18 fixes the deposit at fifty per cent of the amount claimed or determined, whichever is less, the first defence is arithmetical. Where the DRT has recorded a figure lower than the bank's Section 13(2) claim, insist that the determined figure is the base. On a claim of Rs 80 lakh reduced by the DRT to a determined Rs 60 lakh, the fifty per cent base is Rs 30 lakh, not Rs 40 lakh, and a granted reduction to twenty-five per cent brings it to Rs 15 lakh.

Apply for reduction to twenty-five per cent. The third proviso to Section 18(1) is the borrower's pressure valve, but it is not automatic. The DRAT must record reasons in writing to bring the deposit below fifty per cent, and it cannot go below twenty-five per cent under any circumstances. A reduction application should be filed with the appeal itself and supported by documented evidence of the borrower's financial position, not bare assertion, since the 2002 Act frames the reduction as a reasoned exception rather than a default entitlement.

Preserve the redemption right under Section 13(8). Independent of the appeal, Section 13(8) of the 2002 Act allows the borrower to redeem the secured asset by tendering all dues, together with costs and expenses, before the date of publication of the notice for public auction or inviting quotations. This redemption right, as it stands after the 2016 amendment to the enforcement laws, is a hard deadline tied to the sale notice, and it runs on its own timeline separate from the Section 18 appeal. A borrower who can raise the full dues may prefer to redeem the collateral outright rather than litigate. Modelling the payoff on the foreclosure calculator or, for a mortgaged property, the loan against property calculator helps decide whether redemption beats appeal.

Challenge the classification and the notice. On merits, common grounds include a defective Section 13(2) notice, non-compliance with the fifteen-day reasoned reply under Section 13(3A), premature NPA classification against RBI's ninety-day overdue norm, or enforcement of a debt below the Section 31 thresholds. Section 31(j) of the 2002 Act, for instance, excludes any security interest for the repayment of financial assets not exceeding one lakh rupees, taking small debts outside SARFAESI enforcement altogether.

The one-time settlement route. Running parallel to litigation, a one-time settlement (OTS) is negotiated under each lender's board-approved policy, framed within the Reserve Bank of India's Framework for Compromise Settlements and Technical Write-offs dated 8 June 2023, published on rbi.org.in. An OTS accepted and paid can make the Section 18 appeal infructuous, but a borrower should never withdraw an appeal until the settlement is documented, because an oral OTS carries no statutory protection under the 2002 Act.

Recent Tribunal/HC Position

The governing authority on the Section 18 pre-deposit remains the Supreme Court's decision in Narayan Chandra Ghosh v. UCO Bank & Ors, decided on 18 March 2011 and reported at (2011) 4 SCC 548. Justice D.K. Jain, writing for the Court, held that the deposit under the second and third provisos to Section 18(1) is a mandatory condition precedent for entertaining an appeal, and that the DRAT has no power to waive it in full. The judgement is available on Indian Kanoon at indiankanoon.org/doc/59938062.

The Court in Narayan Chandra Ghosh drew a sharp line that borrowers still test in vain. The DRAT's discretion under the third proviso runs only downward to twenty-five per cent, and only on reasons recorded in writing; there is no residual power to dispense with the deposit entirely, however genuine the hardship. In that 2011 case the appellant had deposited nothing, and the Court held the appeal was rightly not entertained, since a total waiver would rewrite the statute the Parliament enacted in 2002.

The ruling has hardened into settled law through repeated application. Indian Kanoon records that the 18 March 2011 judgement has been cited in more than one hundred subsequent decisions, and High Courts have consistently declined to read any equitable exception into the twenty-five per cent floor. The practical lesson for 2026 is unchanged from 2011: a borrower who cannot fund at least a quarter of the debt due should not expect the DRAT to hear the appeal on merits, however strong those merits may be.

Where borrowers have found relief is on the base rather than the rate. Courts applying the "whichever is less" limb have accepted that a DRT's own lower determination of the debt controls the deposit, and that inflated or unliquidated claims by the secured creditor cannot silently enlarge the pre-deposit. This is the single most valuable line of argument the 2011 framework leaves open, because it attacks the multiplicand rather than begging for a lower multiplier.

FAQ

How much must I deposit to appeal a DRT order to the DRAT?

Under the second proviso to Section 18(1) of the SARFAESI Act, 2002, you must deposit fifty per cent of the debt due, taken as the lower of the amount claimed by the secured creditor or the amount determined by the DRT. The DRAT may reduce this to not less than twenty-five per cent for reasons recorded in writing under the third proviso.

Can the DRAT waive the pre-deposit completely?

No. The Supreme Court held in Narayan Chandra Ghosh v. UCO Bank, (2011) 4 SCC 548, decided on 18 March 2011, that the deposit is a mandatory condition precedent and cannot be waived in full. The tribunal's only discretion is to reduce it to twenty-five per cent, and no lower, on recorded reasons.

What is the time limit to file the Section 18 appeal?

Section 18(1) fixes thirty days from the date of receipt of the DRT's Section 17 order. This is distinct from the forty-five-day limit that applies one rung below, at the Section 17 application to the DRT itself.

Is any deposit required at the Section 17 stage before the DRT?

No mandatory pre-deposit applies to a Section 17 application; the pre-deposit is a Section 18 feature only. The DRT may make interim directions, but the fifty per cent rule attaches only when you appeal upward to the DRAT under Section 18.

Which debts are too small for SARFAESI enforcement?

Section 31(j) of the 2002 Act excludes any security interest created for the repayment of financial assets not exceeding one lakh rupees. Debts at or below that threshold fall outside SARFAESI, and enforcement would have to proceed by other means.

Does a one-time settlement stop the appeal?

An OTS negotiated under the lender's board-approved policy, within the RBI's 8 June 2023 compromise-settlement framework, can render the Section 18 appeal infructuous once paid. Do not withdraw a pending appeal until the settlement is documented in writing, because the 2002 Act gives no protection to an unrecorded arrangement.

Can I still save the property while the appeal is pending?

Yes, through the redemption right under Section 13(8) of the 2002 Act, which lets you tender all dues with costs before the date of publication of the auction or sale notice. This runs on its own deadline, independent of the thirty-day Section 18 clock, so a borrower able to clear the dues can redeem rather than litigate.