2016 (4) TMI 917 - SC - Indian Laws

Eligibility of appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Held that - The Central Excise Act, 1944, The Consumer Protection Act, 1986, The Motor Vehicles Act, 1988, etc. However, unlike those statutes, the purpose of the SARFAESI Act is different, it is meant only for speedy recovery of the dues, and the scheme under Section 13(4) of the Act, permits the secured creditor to proceed only against the secured assets. Of course, the secured creditor is free to proceed against the guarantors and the pledged assets, notwithstanding the steps under Section 13(4) and without first exhausting the recovery as against secured assets referred to in the notice under Section 13(2). But such guarantor, if aggrieved, is not entitled to approach DRT under Section 17. That right is restricted only to persons aggrieved by steps under Section 13(4) proceeding for recovery against the secured assets. The Appeal under Section 18 of the Act is permissible only against the order passed by the DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) 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 of the Act, 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. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in case, the appellant makes a prayer for refund of the predeposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. We are also unable to agree with the contention that the Bank has a lien on the pre-deposit made under Section 18 of the SARFAESI Act in terms of Section 171 of The Indian Contract Act, 1872. 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 is not with the bank but with the Tribunal. It is not a bailment with the bank as provided under Section 148 of The Indian Contract Act, 1872. Conceptually, it should be an argument available to the depositor, since the goods bailed are to be returned or otherwise disposed of, after the purpose is accomplished as per the directions of the bailor. In the case before us, 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. Though for different reasons as well, we endorse the view taken by the High Court. Thus, there is no merit in the appeal. It is accordingly dismissed. We make it clear that the dismissal of the appeal is without prejudice to the liberty available to the appellant to take appropriate steps under Section 13(10) of the SARFAESI Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002.

Summary

Issues Involved:
1. Deposit requirement under Section 18 of the SARFAESI Act.
2. Fate of the deposit on disposal of the appeal.
3. Bank's right to lien on the deposit.
4. Applicability of Section 171 of the Indian Contract Act, 1872.

Issue-wise Detailed Analysis:

1. Deposit Requirement under Section 18 of the SARFAESI Act:
An appeal under Section 18 of the SARFAESI Act before the Debt Recovery Appellate Tribunal (DRAT) can only be entertained if the borrower deposits fifty percent of the amount as per the order passed by the Debt Recovery Tribunal (DRT) under Section 17 or fifty percent of the amount due from the borrower as claimed by the secured creditor, whichever is less. The Appellate Tribunal may reduce this amount to twenty-five percent.

2. Fate of the Deposit on Disposal of the Appeal:
The primary legal issue is the fate of such a deposit upon the disposal of the appeal. The borrower made a deposit of ?50 lakhs before the DRAT. When the Securitisation Application was finally disposed of by the DRT, setting aside the sale, the borrower sought to withdraw the appeal and refund the deposit. The High Court of Gujarat permitted the borrower to withdraw the amount unconditionally, which was challenged by the appellant-Bank. The Supreme Court held that the deposit made under Section 18 is not a secured asset or secured debt since no security interest was created on such pre-deposit. If the appeal is withdrawn or disposed of, the pre-deposit must be returned to the appellant unless appropriated with the consent of the depositor or attached under Section 13(10) read with Rule 11 of the Security Interest (Enforcement) Rules, 2002.

3. Bank's Right to Lien on the Deposit:
The appellant-Bank argued that it had a right to set off the deposit against the borrower's dues, citing Section 13(10) of the SARFAESI Act and Rule 11 of the Security Interest (Enforcement) Rules, 2002. However, the Supreme Court found no merit in this argument, emphasizing that the pre-deposit is not a secured asset or debt, and the bank cannot appropriate it without the depositor's consent or a legal attachment.

4. Applicability of Section 171 of the Indian Contract Act, 1872:
The Bank also claimed a lien on the deposit under Section 171 of the Indian Contract Act, 1872, which allows bankers to retain goods bailed to them as security for a general balance of account. The Supreme Court rejected this argument, clarifying that the pre-deposit with the Tribunal is not a bailment with the bank and thus does not fall under Section 171.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's decision to allow the borrower to withdraw the deposit. The Court clarified that the dismissal of the appeal does not affect the Bank's right to take steps under Section 13(10) of the SARFAESI Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002. There was no order as to costs.