Karnataka High Court Rules Non Borrowers Exempt From Pre Deposit Payments

The Karnataka High Court in Bengaluru has issued a significant ruling, declaring that a person who is not a borrower cannot be forced to make a pre-deposit payment to file an appeal under the SARFAESI Act against an order affecting their rights.

The decision was delivered on May 30, 2026, by a division bench consisting of Justice Suraj Govindaraj and Justice K Manmadha Rao.

The bench provided a crucial clarification on the application of Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act. The court held that the mandatory pre-deposit requirement outlined in Section 18 of the Act applies strictly to borrowers. It does not apply to third parties who are aggrieved by an order and wish to appeal.

The ruling was prompted by a petition filed by Ittiam Systems Pvt Ltd, an enterprise based in Bengaluru. In its petition, Ittiam Systems Pvt Ltd stated that it is a long-standing tenant occupying three office units and five car parking spaces in Consula. The petitioner sought relief as an affected non-borrower facing legal disputes under the Act.

By ruling in favor of the petitioner, the High Court established a legal precedent protecting non-borrowers from being compelled to make mandatory pre-deposit payments during debt recovery or related legal disputes. The decision clarifies that third parties whose rights are affected by such orders can appeal without the financial burden of a pre-deposit.

This legal precedent ensures that individuals and entities who are not the primary borrowers, but whose tenancy or property rights are impacted by debt recovery actions, have a clear path to appeal. Under Section 18 of the SARFAESI Act, they will no longer face the mandatory pre-deposit hurdle, which the court has ruled is legally reserved only for actual borrowers.