Tuesday, April 26, 2016

Bank has no lien on security deposited with DRAT by borrower for consideration of his appeal on merits

Bank has no lien in terms of Section 171 of The Indian Contract Act, 1872 on the pre-deposit made by the borrower under Section 18 of the SARFAESI Act as pre-condition for hearing his appeal on merits

Facts:
a) The respondent-borrower filed Securitisation Application before the DRT against the steps taken by the secured creditor, a bank, for enforcing his security. However, DRT rejected the same.
b) The respondent-borrower moved to DRAT u/s 18 of the SARFAESI Act and deposited sum of Rs.50 lakhs before the Appellate Tribunal in terms of the proviso to section 18 of the said Act.
c) Realising that the appeal would not survive thereafter, the respondent sought permission from DRAT to withdraw the same and also for refund of the deposited amount. DRAT granted permission to withdraw deposits subject to the disposal of the appeal.
d) As the appeal itself was being withdrawn, the respondent filed writ before High Court.
e) The High Court set aside the said condition and permitted the respondent to withdraw the amount unconditionally.Aggrieved by the order, the appellant-Bank filed an intra-Court appeal which was dismissed by Division bench

On further appeal, the Supreme Court held as under:

1) Bank has no lien in terms of Section 171 of The Indian Contract Act, 1872 on the pre-deposit made by the borrower under Section 18 of the SARFAESI Act as pre-condition for hearing his appeal on merits.
2) Section 171 of The Indian Contract Act, 1872 provides for retention of the goods bailed to the bank by way of security for the general balance of account. The pre-deposit made by a borrower for the purpose of entertaining the appeal under Section 18 of the Act was not with the bank but with the Tribunal.
3) The partial deposit made before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, was not a secured asset. It was not a secured debt either, since the borrower or the aggrieved person had not created any security interest on such pre-deposit in favour of the secured creditor.
Post a Comment