By TIOL News Service:

NEW DELHI, APR 25, 2016: THE issue is - Whether the pre-deposit made by a borrower before the DRAT u/s 18 of SARFAESI Act for challenging the order passed by the DRT u/s 17 of the Act, can be treated as a secured asset, so as to be claimed by the secured creditor as a matter of right towards realization of its debts, when the borrower has not created any security interest on such pre-deposit in favour of the secured creditor. NO is the answer.

Facts:

The appellant is a private bank. Being a secured creditor in the present case, the appellant intiated recovery proceedings against the default committed by the borrower i.e., first respondent. Aggrieved by the steps taken by the appellant, the first respondent filed Securitisation Application before the DRT. Though, initially an interim relief was granted, the same was vacated later by an order. Aggrieved, the first respondent moved to DRAT after making a deposit of Rs.50 lakhs. During the pendency of the appeal before the DRAT, Securitisation Application itself was finally disposed of by the DRT, setting aside the sale initiated by the appellant. Accordingly, the first respondent sought permission to withdraw the same and also for refund of the deposit of Rs. 50 lakhs. Permission was granted, however, making it subject to the disposal of the appeal. Aggrieved, the first respondent file writ before the High Court, wherein the Single Judge permitting the first respondent to withdraw the amount unconditionally. Aggrieved, the appellant filed an intra-Court appeal, which was dismissed by the Division Bench.

The appellant submitted that the first respondent has no right to get back the deposit made by it as a pre-condition for entertaining the appeal and the said amount has to be set off against the dues of the first respondent, which has actually been quantified and for which, recovery steps have been permitted.

Holding:

1. Section 17 of SARFAESI Act provides for a right to appeal to the DRT in respect of the grievances on the measures taken by the secured creditor u/s 13 of the Act. Though Section 17 is titled as a 'Right to appeal', the liberty granted to the aggrieved person is to make an application to the DRT and the parties are at a liberty to lead evidence before the tribunal. And thus, it is actually a trial before the DRT on the grievances of the aggrieved persons in the respect of the measures taken by the secured creditor for recovery of dues of the borrower in proceeding against the secured assets.

2. The actual appeal is contemplated u/s 18 of SARFAESI Act. Any person aggrieved by the order of the DRT u/s 17 of SARFAESI Act, is entitled to prefer an appeal along with the prescribed fee within the permitted period of 30 days. For 'preferring' an appeal, a fee is prescribed, whereas for the Tribunal to 'entertain' the appeal, the aggrieved person has to make a deposit of 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.

3. It is undisputed that a precondition is present in several statutes while providing for statutory appeals, like Income-Tax Act, Central Excise Act, Consumer Protection Act, etc. However, unlike those statutes, the purpose of SARFAESI Act is meant only for speedy recovery of the dues, and the scheme u/s 13(4) of Act, permits the secured creditor to proceed only against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor.

4. The court is unable to agree with the contention that the Bank has a lien on the pre-deposit made u/s 18 of SARFAESI Act in terms of Section 171 of Indian Contract Act. Section 171 of Indian Contract Act 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 u/s 18 of SARFAESI Act is not with the bank but with the Tribunal. In the present case, the first respondent had in fact sought withdrawal of the appeal, since the appellant had already proceeded against the secured assets by the time the appeal came up for consideration on merits. There is neither any order of appropriation during the pendency of the appeal nor any attachment on the pre-deposit. Therefore, the deposit made by the first respondent is liable to be returned to the first respondent.

(See 2016-TIOL-46-SC-MISC)