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The Bombay High Court (BHC) has delivered a significant ruling in favour of a flat-seller in Navi Mumbai — declaring that persons who are not borrowers, guarantors or mortgagors under a home loan cannot be compelled to pre-deposit debt dues under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) in order to challenge a recovery action.

The case — Sanjeev Divekar vs. Pegasus Assets & Ors. (WP 16679/2025) — involved a flat in a project in Navi Mumbai (flat No. 701 at “Sea Palace”, as per the order), originally sold by the petitioner to homebuyers in 2014.

🔁 Background & What Happened

  • The original buyers had taken a housing loan (sanctioned by a bank) and later defaulted. The loan account was assigned to Pegasus Assets Reconstruction Company Ltd. (the secured creditor). The creditor initiated recovery proceedings under SARFAESI, seeking to auction the flat in question.
  • The flat-seller (the petitioner) claimed that he was not a borrower, guarantor or mortgagor, and that he had refunded the entire amount received from the buyers (plus financing cost) between February and June 2018, when it became clear that the flat did not have approved residential-unit status.
  • Despite the refund, the secured creditor continued with recovery proceedings and moved to take possession of the flat. The debtor-recovery case passed through the Debts Recovery Tribunal (DRT) and later the Debt Recovery Appellate Tribunal (DRAT), which had directed the petitioner — despite being a non-borrower — to deposit 25% (part of pre-deposit requirement) of the amount claimed by the creditor. The DRAT later dismissed the appeal for non-compliance with the deposit directive.

⚖️ High Court’s Decision & Legal Findings

  • The High Court observed that under Section 18(1) of SARFAESI read with Section 2(1)(f), the pre-deposit requirement applies only to “borrower” (or guarantor/mortgagor) defined under the Act — and not to an unrelated third-party such as a former seller or flat-seller who had refunded the full sale amount.
  • Since the petitioner was neither borrower nor guarantor, the court held that the requirement of 25% (or 50%) pre-deposit for entertaining an appeal was not applicable. The earlier DRAT orders mandating pre-deposit were therefore unconstitutional in his case.
  • The court quashed those DRAT orders and restored the appellant’s appeal — directing the DRAT to hear the matter on merits by 15 February 2026. All contentions of the parties remain open.

✅ What This Means for Home-buyers, Sellers and Real-Estate Stakeholders

  • The ruling offers protection to sellers / developers / flat-sellers who have refunded amounts to buyers in cases where the sale agreement was cancelled or the flat lacked valid approval — shielding them from being dragged under SARFAESI loan-recovery actions.
  • It draws a clear distinction between actual borrowers (who took loan) and unrelated third-parties, asserting that recovery mechanisms under SARFAESI cannot be expanded indiscriminately.
  • Lenders and asset-reconstruction firms must now exercise caution before issuing recovery notices or demanding pre-deposits from persons who are not loan parties.

⚠️ What Remains Unclear / Pending

  • The public order does not name the flat-buyers. The project name appears only as “Sea Palace, Navi Mumbai” (flat No. 701), but the builder / developer’s name is not specified.
  • The exact amount claimed by the secured creditor — which triggered the 25% pre-deposit demand — is also not stated in the order summary.
  • The case is back before the DRAT for adjudication on merits; hence, the ultimate outcome (possession, sale, refund, etc.) is still pending.

📌 Why It Matters

For everyday home-buyers: this judgment underscores that only those who took the loan are liable under recovery laws — not sellers or third-parties.
For developers/sellers: a cautionary note to ensure that if they refund sale consideration (or cancel deals) they maintain records — to avoid being wrongly dragged into recovery suits.
For lenders / ARCs: — to practice due diligence before sending notices; broad-brush recovery against all associated parties may no longer hold.

Also Read: Bombay High Court: Borrowers Can’t Force Banks to Settle Defaulted Loans

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