DRAT Appeals & Pre-Deposit Waiver (Section 18): Navigating 50% vs. 25% Deposit Thresholds, Hardship Applications & Appellate Advocacy

Appeals Before the Debts Recovery Appellate Tribunal (DRAT) under Section 18 SARFAESI & Section 20 RDB Act: Pre-Deposit Mandate, Waiver Applications & Navigating the 50% / 25% Threshold

Published by: Sumanjari & Co. Advocates

Section 1: Executive Overview & Practical Reality

When an aggrieved borrower, mortgagor, or personal guarantor suffers an adverse final judgment or an injurious interlocutory refusal from the Debt Recovery Tribunal (DRT), the statutory ladder of justice points squarely toward the Debts Recovery Appellate Tribunal (DRAT). For litigants in Uttar Pradesh, Uttarakhand, and Madhya Pradesh, appellate authority is centralized before the DRAT at Allahabad (Prayagraj). Instituting an appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) or Section 20 of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) is the exclusive statutory remedy to overturn illegal DRT orders, arrest impending e-auctions, and secure restitution of dispossessed properties.

However, the appellate corridor of the DRAT is guarded by what is arguably the most stringent financial gateway in Indian procedural jurisprudence: the mandatory statutory "pre-deposit." Under the second proviso to Section 18(1) of the SARFAESI Act, no appeal preferred by a borrower can be entertained by the Appellate Tribunal unless the appellant deposits fifty percent (50%) of the debt claimed by the secured creditor or determined by the DRT. While the third proviso allows the DRAT to reduce this pre-deposit, it imposes an ironclad statutory floor: the pre-deposit cannot be reduced to less than twenty-five percent (25%) under any circumstances. In commercial recovery reality, where a borrower's factory is shuttered, bank accounts frozen under Section 13(4), and working capital obliterated, mobilizing 25% to 50% of an inflated multi-crore bank claim within thirty (30) days presents a near-insurmountable barrier.

Lenders routinely weaponize this statutory threshold to suffocate meritorious appeals at the threshold. Bank panel advocates vigorously press the Supreme Court mandates in Narayan Chandra Ghosh v. UCO Bank and Kotak Mahindra Bank v. Ambuj Kasliwal, asserting that the DRAT lacks jurisdiction to grant even a single day's stay without immediate liquid deposit. Navigating this treacherous terrain requires masterclass strategic litigation: challenging the bank's base calculation of "debt due," segregating unadjudicated penal charges, structuring persuasive waiver applications to secure the 25% statutory floor, utilizing fixed deposit receipts (FDR) under the protective refund shield of Axis Bank v. SBS Organics, and, in rare instances of patent nullity, invoking the extraordinary constitutional oversight of the Allahabad High Court under Article 226.

Section 2: Statutory & Regulatory Framework

The jurisdiction, procedure, and financial thresholds governing DRAT appeals are strictly codified under the SARFAESI Act, the RDB Act, and their corresponding statutory rules:

• Section 18 of the SARFAESI Act, 2002 (Appeals to Appellate Tribunal):"(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal:Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:Provided further 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 Debts Recovery Tribunal, whichever is less:Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso."
• Section 20 of the RDB Act, 1993 (Appeal to the Appellate Tribunal):
• Section 20(1): Any person aggrieved by an order made, or deemed to have been made, by a Tribunal may prefer an appeal to an Appellate Tribunal within thirty (30) days from the date on which a copy of the order is made.
• Section 21 (Deposit of Amount of Debt Due): Where an appeal is preferred by any person from whom the amount of debt is due to a bank, the appeal shall not be entertained unless such person has deposited seventy-five percent (75%) of the amount of debt so due, provided that the Appellate Tribunal may waive or reduce the amount to be deposited for reasons to be recorded in writing.
• The Debts Recovery Appellate Tribunal (Procedure) Rules, 1994:
• Rule 8 (Fee Structure): Prescribes the ad-valorem and slab-based court fees payable upon the memorandum of appeal, calculated on the quantum of debt under challenge.
• Rule 9 (Deposit of Debt Due): Governs the physical compliance of the pre-deposit, requiring deposits to be tendered by way of Demand Draft, Banker's Cheque, or FDR drawn in favor of the Registrar, DRAT Allahabad.
• Statutory Limitation: Thirty (30) days from the date of receipt of the DRT order. Section 5 of the Limitation Act, 1963 applies to Section 18 SARFAESI appeals before the DRAT, enabling the Appellate Tribunal to condone delay upon demonstration of sufficient cause (as affirmed by the Supreme Court in Baleshwar Dayal Jaiswal, distinguishing DRAT appeals from Section 17 DRT applications).

Section 3: Landmark Judicial Precedents

The legal contours of the pre-deposit requirement and the jurisdictional boundaries of the DRAT have been firmly established by the Supreme Court of India:

• Narayan Chandra Ghosh v. UCO Bank & Ors. (2011) 4 SCC 548: The foundational Supreme Court ruling on the mandatory nature of Section 18 pre-deposit. The Court held:"The condition of pre-deposit is mandatory. There is an absolute bar on the Appellate Tribunal to entertain an appeal preferred by a borrower without such deposit... The Appellate Tribunal has the jurisdiction to reduce the amount of deposit from 50% to not less than 25%, but it has no power whatsoever to completely waive the pre-deposit or reduce it below twenty-five percent. An appeal entertained without the requisite statutory deposit is null and void."
• Kotak Mahindra Bank Pvt. Ltd. v. Ambuj A. Kasliwal & Ors. (2021) 3 SCC 549: The Supreme Court authoritatively reigned in High Courts attempting to dilute the pre-deposit through writ jurisdiction. The Court held that when the legislature has explicitly enacted a mandatory pre-deposit with a strict 25% floor, High Courts exercising jurisdiction under Article 226 cannot grant waiver or reduce the deposit below 25%, as judicial discretion cannot bypass express statutory prohibitions.
• Axis Bank v. SBS Organics Pvt. Ltd. & Anr. (2016) 12 SCC 18: A monumental victory for borrower protection. The Supreme Court resolved the legal nature of the pre-deposit:"The deposit under Section 18 of the SARFAESI Act is not a secured asset of the bank. It is merely a procedural condition precedent for entertaining the appeal. In the event the borrower succeeds in the appeal, the amount deposited must be refunded to the borrower. The secured creditor cannot claim an automatic lien or right of appropriation over the pre-deposit amount during the pendency of the appeal."
• Baleshwar Dayal Jaiswal v. Bank of India & Ors. (2016) 1 SCC 444: The Supreme Court held that the Appellate Tribunal under Section 18 of the SARFAESI Act has the power to condone delay under Section 5 of the Limitation Act, 1963, because the DRAT is an established judicial tribunal governed by the RDB Act procedural framework.
• Sivakumar v. Authorized Officer, Indian Overseas Bank (2011 SCC OnLine Mad 1988): The Madras High Court clarified the meaning of "amount of debt due" for the purposes of calculating the 50% or 25% pre-deposit. The Court held that "debt due" means the debt claimed in the Section 13(2) demand notice or adjudicated by the DRT, excluding unadjudicated post-notice compound penal interest, arbitrary recovery charges, and disputed penal levies.
• K.B. Saha & Sons Pvt. Ltd. v. State Bank of India: Affirmed that a third-party appellant (such as a bona fide tenant or an independent co-owner who is not a "borrower" or "guarantor") is not subject to the mandatory pre-deposit under the second proviso to Section 18(1), as the statute explicitly restricts the pre-deposit condition to appeals preferred by "the borrower."

Section 4: Stage-by-Stage Procedural Roadmap

Litigating an appeal before the DRAT Allahabad demands meticulous procedural compliance and tactical timing:

• Step 1: Certified Copy & Limitation Tracking (Days 1 to 10):
• Immediately upon pronouncement of an adverse order by DRT Lucknow or DRT Allahabad, apply for an urgent certified copy.
• Calculate the 30-day limitation period under Section 18(1) from the date of receipt of the certified copy. If certified copy application was filed promptly, the period spent obtaining the copy is excluded under Section 12 of the Limitation Act.
• Step 2: Drafting the Memorandum of Appeal & Waiver Application (Days 10 to 20):
• Draft the Memorandum of Appeal setting out specific grounds of error in the DRT's judgment: patent violation of Security Interest Rules, non-service of mandatory notices, arbitrary rejection of Section 13(3A) representations, or refusal to grant interim protection against illegal auctions.
• Concurrently draft a comprehensive Interlocutory Application (IA) for Waiver / Reduction of Pre-Deposit under the third proviso to Section 18(1).
• Plead specific grounds of extreme financial hardship: operational closure of factory, freezing of bank accounts by lender, seizure of raw materials, and pending insurance or MSME receivables. Pray for reduction of pre-deposit to the absolute statutory minimum of 25%.
• Step 3: Forensic Segregation of the Base Claim Amount (Days 15 to 22):
• Conduct a forensic audit of the bank's claim figure. Where the bank demands Rs. 10 Crores based on compounded penal interest, but the Section 13(2) notice was for Rs. 6 Crores, aggressively argue before DRAT that the 25% pre-deposit must be computed strictly on the Section 13(2) figure (Rs. 1.5 Crores, not Rs. 2.5 Crores).
• Highlight any partial recoveries already made by the bank through prior auction of plant or stock, demanding their deduction from the base debt before calculating the 25% threshold.
• Step 4: Filing & Urgent Mentioning before DRAT Allahabad (Days 20 to 28):
• E-file the appeal dossier on the e-DRT portal and submit hard copies before the Registrar, DRAT Allahabad at Prayagraj.
• Move an urgent application for listing and interim stay of coercive steps (such as scheduled physical possession or e-auction).
• Argue the Waiver Application on the first date of hearing. Seek permission to deposit the 25% amount in two or three structured installments (e.g., 10% within one week, and the remaining 15% within three weeks).
• Step 5: Compliance by Interest-Bearing Fixed Deposit Receipt (FDR):
• Once the DRAT passes an order determining the 25% pre-deposit, tender the compliance strictly within the stipulated timeframe by way of a Fixed Deposit Receipt (FDR) in a nationalized bank pledged to the Registrar, DRAT Allahabad.
• Explicitly pray in the compliance memo that the deposit be held under the doctrine of Axis Bank v. SBS Organics (2016) 12 SCC 18, with accrued interest earmarked for the appellant upon final success in appeal.

Section 5: Tactical Offenses, Defenses & Critical Pitfalls to Avoid

Successfully navigating DRAT appeals requires turning procedural technicalities into shields against creditor enforcement:

• Tactical Offenses:
• The Third-Party Exemption Shield: If the appeal is instituted by a lawful commercial tenant, a lesee under registered lease, or an un-encumbered family co-owner whose property was wrongfully dragged into the mortgage, establish that the appellant is a "third party" and NOT a "borrower". Under the clear language of the second proviso to Section 18(1), the pre-deposit applies exclusively to appeals by the borrower. Third-party appellants are entitled to have their appeals heard on merits with zero pre-deposit.
• The Staged Installment Maneuver: When liquid funds are restricted, pray before the Appellate Tribunal for permission to deposit the 25% pre-deposit in installments (e.g., 50% of the 25% upfront, balance in 30 days) while securing an interim stay on e-auction. DRATs frequently grant staggered deposit timelines upon demonstrated bona fides.
• Segregating Unadjudicated Penal Interest: Argue that under the Constitution Bench doctrine in Central Bank of India v. Ravindra, penal interest cannot be capitalized. Therefore, the "debt due" for Section 18 pre-deposit purposes must be stripped of all post-NPA penal charges, substantially lowering the mathematical cash requirement for the 25% deposit.
• Creditor Defenses to Anticipate: Bank counsel will cite Kotak Mahindra Bank v. Ambuj Kasliwal to demand the full 50% pre-deposit upfront, arguing that 25% is an exception and cannot be granted routinely. Defeat this by filing audited balance sheets, proof of account attachment, and medical records demonstrating that demanding 50% would make appellate access illusory and destroy the appellant's business permanently.
• Critical Pitfalls to Avoid:
• Failing to File a Formal Application for Reduction: The DRAT cannot reduce the pre-deposit from 50% to 25% on oral mention; the third proviso explicitly requires "reasons to be recorded in writing." Always file a sworn Interlocutory Application supported by documentary evidence of financial distress.
• Missing the Strict Deposit Deadline: If the DRAT grants 4 weeks to deposit 25% and the appellant defaults by even a single day without moving an extension application prior to expiry, the appeal stands dismissed automatically without further hearing.
• Approaching the High Court for Complete Waiver: Filing a writ petition under Article 226 seeking a blanket waiver of the 25% pre-deposit is a fatal error. The Supreme Court in Ambuj Kasliwal has barred High Courts from waiving pre-deposit; such writs are dismissed with costs, wasting precious days while the bank completes the auction.

Section 6: Ready-to-Use Court Drafting Template

Below is an unabridged, practical model legal pleading specifically drafted as an Interlocutory Application for Waiver and Reduction of Pre-Deposit to 25% under the Third Proviso to Section 18(1) of the SARFAESI Act, 2002, filed before the Hon'ble Debts Recovery Appellate Tribunal at Allahabad, defending a multi-crore industrial property against an impending e-auction.

IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT ALLAHABAD

MEMORANDUM OF APPEAL NO. _______ OF 2026

IN

(Arising out of S.A. No. 412 of 2024 before DRT Lucknow)

IN THE MATTER OF:

M/s Awadh Power Transmission Private Limited

Having its Registered Office at: Plot No. B-14, UPSIDC Industrial Area, Sarojini Nagar, Lucknow - 226008

Through its Director, Shri Alok Nath Mishra ... APPELLANT

VERSUS

Bank of Baroda

Stressed Assets Recovery Branch (SARB), 4th Floor, V-Bazaar Building, Hazratganj, Lucknow - 226001

Through its Authorized Officer ... RESPONDENT / SECURED CREDITOR

APPLICATION UNDER THE THIRD PROVISO TO SECTION 18(1) OF THE SARFAESI ACT, 2002 FOR REDUCTION OF STATUTORY PRE-DEPOSIT TO THE STATUTORY MINIMUM OF 25% OF THE DEBT DUE.

MOST RESPECTFULLY SHOWETH:

1. That the Appellant has preferred the accompanying Memorandum of Appeal under Section 18(1) of the SARFAESI Act, 2002 challenging the arbitrary, illegal, and perverse Final Order dated 18th August 2026 passed by the Learned Presiding Officer, Debts Recovery Tribunal, Lucknow in Securitisation Application No. 412 of 2024, whereby the Learned DRT dismissed the Appellant's challenge to the illegal E-Auction Notice dated 25th July 2026 scheduled for 28th September 2026.

2. That the Respondent Bank has claimed an exorbitant, inflated, and unsubstantiated sum of Rs. 12,45,80,915/- (Rupees Twelve Crores Forty-Five Lakhs Eighty Thousand Nine Hundred Fifteen Only) in its Section 13(2) demand notice.

3. SEVERE FINANCIAL HARDSHIP & BONA FIDE GROUNDS FOR REDUCTION:

(a) That the Appellant is an active MSME manufacturing high-voltage power transmission components for state electricity distribution utilities. The default in servicing the term loan occurred solely due to an unprecedented delay of eighteen (18) months by the Uttar Pradesh Power Transmission Corporation Limited (UPPTCL) in releasing admitted bills amounting to Rs. 8.20 Crores.

(b) That on 10th February 2025, the Respondent Bank took symbolic possession of the operational factory premises of the Appellant at Sarojini Nagar, Lucknow, and froze all operational bank accounts under Section 13(4). Consequently, the manufacturing operations of the Appellant were brought to an immediate standstill, depriving the Appellant of all revenue generation.

(c) That the audited financial balance sheets of the Appellant company for the Financial Years 2024-25 and 2025-26 (annexed hereto as ANNEXURE A-1) demonstrate that the Appellant has suffered continuous operating losses and possesses zero liquid reserves.

(d) That demanding a 50% pre-deposit (amounting to Rs. 6.22 Crores) from an enterprise whose manufacturing plant is shut and bank accounts are frozen would render the statutory right of appeal completely illusory, defeating the ends of justice.

4. LEGAL JUSTIFICATION FOR REDUCTION UNDER THIRD PROVISO:

(a) That the third proviso to Section 18(1) of the SARFAESI Act explicitly clothes this Hon'ble Appellate Tribunal with discretionary jurisdiction, for reasons to be recorded in writing, to reduce the pre-deposit from 50% to twenty-five percent (25%) of the debt due.

(b) That the Hon'ble Supreme Court in Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC 548 has affirmed that the Appellate Tribunal possesses full statutory jurisdiction to reduce the pre-deposit to 25% upon demonstration of genuine financial distress.

(c) That 25% of the claimed debt of Rs. 12,45,80,915/- computes to Rs. 3,11,45,228/-. The Appellant, by liquidating personal family gold assets and borrowing from extended relations, has mobilized a sum of Rs. 1,55,72,614/- (being 50% of the 25% threshold) ready for immediate tender by way of Demand Draft.

5. PRIMA FACIE CASE & BALANCE OF CONVENIENCE:

(a) That the Appellant has an unassailable prima facie case on merits in the main appeal. The Respondent Bank published the impugned E-Auction Sale Notice in clear violation of Rule 8(6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002, granting only 12 days' notice instead of the mandatory thirty (30) clear days.

(b) That the reserve price of the industrial land has been fixed at a throwaway price of Rs. 7.50 Crores, whereas the official Circle Rate valuation fixed by the District Magistrate, Lucknow exceeds Rs. 14.80 Crores.

(c) That if the auction scheduled for 28th September 2026 is allowed to proceed, the industrial property will be alienated to speculative third parties, causing irreparable injury that cannot be compensated in money.

6. PRAYER:

Wherefore, in light of the aforesaid facts, statutory provisions, and settled law, the Appellant most respectfully prays that this Hon'ble Appellate Tribunal may graciously be pleased to:

(a) Exercise its statutory powers under the third proviso to Section 18(1) of the SARFAESI Act, 2002 and reduce the mandatory pre-deposit from 50% to the statutory minimum of twenty-five percent (25%) of the debt due;

(b) Permit the Appellant to deposit the said 25% amount (Rs. 3,11,45,228/-) in two equal installments: Rs. 1,55,72,614/- within one week from today, and the balance Rs. 1,55,72,614/- within four (4) weeks thereafter, in the form of an interest-bearing Fixed Deposit Receipt (FDR) pledged to the Registrar, DRAT Allahabad;

(c) Direct that the FDR so deposited shall remain subject to the refund doctrine laid down by the Hon'ble Supreme Court in Axis Bank v. SBS Organics (2016) 12 SCC 18;

(d) Grant an interim stay of the E-Auction Notice dated 25th July 2026 scheduled for 28th September 2026, and restrain the Respondent Bank from taking any coercive possession steps pending final adjudication of the Appeal; and

(e) Pass such other and further orders as this Hon'ble Appellate Tribunal may deem fit and proper in the interest of justice.

Dated: 24th September 2026

Place: Prayagraj (Allahabad)

APPELLANT

THROUGH

SUMANJARI & CO. ADVOCATES

Counsel for the Appellant

Chambers at Allahabad High Court, Lucknow Bench & Prayagraj

Section 7: Practical FAQs

• Can the DRAT completely waive the pre-deposit in cases of extreme poverty, medical crisis, or MSME sickness?Answer: No. The Supreme Court in Narayan Chandra Ghosh v. UCO Bank (2011) 4 SCC 548 and reiterated in Kotak Mahindra Bank v. Ambuj Kasliwal (2021) 3 SCC 549 has authoritatively ruled that the condition of pre-deposit under the second and third provisos to Section 18(1) is an absolute, non-negotiable statutory mandate. While the DRAT has the discretion to reduce the pre-deposit from 50% to 25% on recorded reasons of financial hardship, it has zero legal power to waive the pre-deposit completely or reduce it below the 25% statutory floor. Any appeal entertained without depositing at least 25% is legally void.
• Is a third-party tenant or non-borrower co-owner required to deposit 50% or 25% to file an appeal before the DRAT?Answer: No. The language of the second proviso to Section 18(1) of the SARFAESI Act explicitly states: "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 held by various High Courts including Madras and Delhi, this pre-deposit condition is strictly limited to appeals preferred by the borrower or personal guarantor. An independent bona fide tenant, lawful lessee, or third-party co-owner whose property was unlawfully attached without their consent is not a "borrower" and can maintain an appeal under Section 18 without making any pre-deposit.
• If the borrower wins the appeal before the DRAT, does the bank keep the pre-deposit, or is it refunded?Answer: It must be fully refunded to the borrower with accrued interest. The Supreme Court in Axis Bank v. SBS Organics Pvt. Ltd. (2016) 12 SCC 18 established that the pre-deposit under Section 18 is not a secured asset of the bank, nor is it a part-payment of the debt. It is merely a procedural security deposit required to entertain the appeal. If the borrower succeeds in setting aside the DRT order or the bank's SARFAESI actions, the pre-deposit must be immediately refunded to the appellant. The bank cannot claim an automatic lien or right of set-off over the pre-deposit amount.
• How is the "amount of debt due" calculated for the pre-deposit if the DRT dismissed the Section 17 SA without determining the final liability?Answer: Under the second proviso to Section 18(1), the pre-deposit is calculated as fifty percent (or 25% as reduced) of the amount of debt due "as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less." Where the DRT has not adjudicated or determined the debt (such as when an SA is dismissed at the threshold), the base figure is the amount claimed by the bank in its Section 13(2) demand notice. However, borrowers can legitimately contest the inclusion of post-notice compound penal interest, unliquidated damages, and arbitrary legal fees to ensure the 25% is computed purely on the legitimate principal and simple contractual interest.
• Can a borrower approach the Allahabad High Court under Article 226 to seek a reduction of pre-deposit below 25%?Answer: No. Following the binding Supreme Court mandate in Kotak Mahindra Bank v. Ambuj Kasliwal (2021) 3 SCC 549, High Courts cannot exercise writ jurisdiction under Article 226 of the Constitution to override the express statutory command of Parliament. The High Court cannot direct the DRAT to hear an appeal on a pre-deposit of less than 25%. Approaching the High Court for this relief is routinely rejected, resulting in dismissal of the writ petition. The proper legal strategy is to seek the 25% floor before DRAT and request payment in structured installments.

Sumanjari & Co. Advocates

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