IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4379 OF 2016
(Arising out of SLP (C) No. 13861/2015)
AXIS BANK ... APPELLANT (S)
VERSUS
SBS ORGANICS PRIVATE LIMITED AND
ANOTHER ... RESPONDENT (S)
J U D G M E N T
KURIAN, J.:
Leave granted.
An appeal under Section 18 of The Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as ‘SARFAESI Act’) before the Debt Recovery
Appellate Tribunal (hereinafter referred to as ‘DRAT’) can be entertained
only if the borrower deposits fifty per cent of the amount in terms of the
order passed by the Debt Recovery Tribunal (hereinafter referred to as
‘DRT’) under Section 17 of the Act or fifty per cent of the amount due from
the borrower as claimed by the secured creditor, whichever is less. The
Appellate Tribunal may reduce the amount to twenty five per cent. What is
the fate of such deposit on the disposal of the appeal is the question
arising for consideration in this case.
Being a pure legal issue, it may not be necessary for us to refer to the
factual position in detail. The first respondent, being a borrower and
aggrieved by the steps taken by the secured creditor, filed Securitisation
Application No. 152 of 2010 before the Debt Recovery Tribunal, Ahmedabad.
Though, initially an interim relief was granted, the same was vacated by
order dated 20.01.2011. Therefore, the first respondent moved the Debt
Recovery Appellate Tribunal, Mumbai under Section 18 of the SARFAESI Act.
In terms of the proviso under Section 18, the first respondent made a
deposit of Rs.50 lakhs before the Appellate Tribunal. During the pendency
of the appeal before the DRAT, Securitisation Application itself came to be
finally disposed of before the Debt Recovery Tribunal at Ahmedabad, setting
aside the sale. Realising that the appeal did not survive thereafter, 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. As the appeal itself was being
withdrawn, the first respondent moved the High Court of Gujarat at
Ahmedabad by way of Writ Petition (Special Civil Application), aggrieved by
the observation that the withdrawal would be subject to the result of the
appeal. The same was disposed of by order dated 05.03.2015 by the learned
Single Judge, setting aside the said condition and permitting the first
respondent herein to withdraw the amount unconditionally. Aggrieved, the
appellant-Bank filed an intra-Court appeal. That appeal was dismissed by
order dated 01.04.2015 by a Division Bench, and thus aggrieved, the Bank
has come up in appeal before this Court.
Heard learned Senior Counsel Shri C. U. Singh appearing for the appellant-
Bank and learned Counsel Vipul Jai appearing for the respondents.
The learned Senior Counsel appearing for the appellant-Bank submits that
the first respondent has no right to get back the deposit made by it as a
pre-condition for entertaining the appeal. The said amount has to be set
off against the dues of the first respondent, which has actually been
quantified and for which, Section 13 recovery steps have been permitted. It
is submitted that the appellant-Bank has to secure the entire debt by
proceeding against the secured assets, and therefore, the deposit is liable
to be appropriated by the Bank. Reference is also made to Section 13(10) of
the SARFAESI Act and Rule 11 of The Security Interest (Enforcement) Rules,
2002, which read as follows:
“13(10) Where dues of the secured creditor are not fully satisfied with the
sale proceeds of the secured assets, the secured creditor may file an
application in the form and manner as may be prescribed to the Debts
Recovery Tribunal having jurisdiction or a competent court, as the case may
be, for recovery of the balance amount from the borrower.”
“11. Procedure for Recovery of shortfall of secured debt.- (1) An
application for recovery of balance amount by any secured creditor pursuant
to sub-section (10) of section 13 of the Act shall be presented to the
Debts Recovery Tribunal in the form annexed as Appendix VI to these rules
by the authorised officer or his agent or by a duly authorised legal
practitioner, to the Registrar of the Bench within whose jurisdiction his
case falls or shall be sent by registered post addressed to the Registrar
of Debts Recovery Tribunal.
(2) The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993
made under Recovery of Debts Due to Banks and Financial Institutions Act,
1993 (51 of 1993), shall mutatis mutandis apply to any application filed by
under sub-rule (1).
(3) An application under sub-rule (1) shall be accompanied with fee as
provided in rule 7 of the Debts Recovery Tribunal (Procedure) Rules, 1993.”
Learned Senior Counsel further submits that the Bank has a lien on the
amount under Section 171 of The Indian Contract Act, 1872. The decision of
the High Court of Gujarat in Babu Ganesh Singh Deepnarayan v. Union of
India and another[1], which has been followed by the Division Bench in the
impugned judgment, does not reflect the true legal position, it is further
submitted.
Babu Ganesh (supra) was a case involving a challenge on the vires of the
second proviso under Section 18 of the SARFAESI Act, on the mandatory pre-
deposit. While upholding the provision, at paragraphs-5 and 6, it was
observed that, in case the appeal is dismissed, the amounts deposited for
entertaining the appeal would be refunded. To quote:
“5. Right of appeal is a creature of the statute. Legislature can impose
conditions under which it is to be exercised. Without a statutory provision
creating such a right, a person aggrieved is not entitled to prefer an
appeal. Legislature while granting right of appeal can impose conditions
which it thinks reasonable. Such conditions merely regulate the exercise of
right of appeal so that the same is not abused by a recalcitrant party, and
there is no difficulty in the enforcement of the order appealed against in
case the appeal is ultimately dismissed. Imposition of such a condition is
essential, so that frivolous appeals would not be filed. Ultimately if the
appeal is dismissed, the aggrieved party can always seek refund of the
amount deposited and therefore, he is not in any way aggrieved. Further the
Third Proviso to Section 18 (1) of the Securitization Act also enables the
Appellate Tribunal, for the reasons to be recorded in writing, reduce the
amount to not less than 25% of the debt referred to in the Second Proviso.
We are not prepared to accept the contention that conditions imposed in the
second and third proviso to Section 18(1) of the Securitization Act are
onerous in nature so as to make the right of appeal illusory. Delhi High
Court in R.V. Saxena's case (supra) also upheld the validity of Second
Proviso to Section 18(1) of the Securitization Act with which we fully
concur.
6. We have also not come across any provision in the Statute, enabling the
secured creditor to adjust or appropriate the amount deposited by the
borrower to prefer an appeal under Section 18(1) of the Act. On dismissal
of the appeal the amount deposited as a pre-condition for filing the appeal
will be refunded to the appellant and therefore, he is no way prejudiced.
We therefore, find no merit in the contention raised by the petitioner that
the second proviso to Section 18(1) of the Act is discriminatory or
violative of Article 14 of the Constitution of India. Petitions lack merit
and the same are dismissed.”
At this juncture, it may be necessary to refer to the scheme of the
SARFAESI Act. The Act was intended to facilitate easy and faster recovery
of loans advanced by banks and financial institutions. The ordinary
recovery mechanism contemplated in The Code of Civil Procedure, 1908 was
not considered sufficient. Thus, the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 was introduced for a special and speedier
mechanism for the recovery. Almost a decade of experience proved that the
recovery process was not achieving the intended objects and hence, the
SARFAESI Act to regulate securitisation and reconstruction of financial
assets and enforcement of security interest was enacted. The Act
incorporates a system whereby direct action for recovery of secured debt
may be initiated against the secured assets of a borrower after the debt is
declared to be a non performing asset (NPA).
“Borrower” is defined under Section 2(1)(f), which reads as follows:
“2(1)(f) "borrower" means any person who has been granted financial
assistance by any bank or financial institution or who has given any
guarantee or created any mortgage or pledge as security for the financial
assistance granted by any bank or financial institution and includes a
person who becomes borrower of a securitisation company or reconstruction
company consequent upon acquisition by it of any rights or interest of any
bank or financial institution in relation to such financial assistance;”
“Secured Asset”, under Section 2(1)(zc), is defined as:
“2(1)(zc) “secured asset” means the property on which the security
interest is created”
“Section 2(1)(zd) provides for definition of “secured creditor”, which
reads as follows:
“2(1)(zd) "secured creditor" means any bank or financial institution or
any consortium or group of banks or financial institutions and includes—
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as
such or managing a trust set up by such securitisation company or
reconstruction company for the securitisation or reconstruction, as the
case may be; or any other trustee holding securities on behalf of a bank or
financial institution, in whose favour security interest is created for due
repayment by any borrower of any financial assistance;”
Section 2(1)(ze) defines “secured debt” to mean “a debt which is secured by
any security interest”.
“Security interest” is defined under Section 2(1)(zf):
“(zf) "security interest" means right, title and interest of any kind
whatsoever upon property, created in favour of any secured creditor and
includes any mortgage, charge, hypothecation, assignment other than those
specified in section 31;”
The mechanism for enforcement of security interest is contemplated
under Section 13 of the Act. Sub- Sections (1), (2),(3),(3A) and (4) of
Section 13 are relevant for the purposes of the present case and they are
extracted below:
“13. Enforcement of security interest
(1) Notwithstanding anything contained in section 69 or section 69A of the
Transfer of Property Act, 1882 (4 of 1882), any security interest created
in favour of any secured creditor may be enforced, without the intervention
of court or tribunal, by such creditor in accordance with the provisions of
this Act.
(2) Where any borrower, who is under a liability to a secured creditor
under a security agreement, makes any default in repayment of secured debt
or any installment thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing asset, then, the
secured creditor may require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor within sixty days from the
date of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the
amount payable by the borrower and the secured assets intended to be
enforced by the secured creditor in the event of non-payment of secured
debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes
any representation or raises any objection, the secured creditor shall
consider such representation or objection and if the secured creditor comes
to the conclusion that such representation or objection is not acceptable
or tenable, he shall communicate within one week of receipt of such
representation or objection the reasons for non-acceptance of the
representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the
secured creditor at the stage of communication of reasons shall not confer
any right upon the borrower to prefer an application to the Debts Recovery
Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within
the period specified in sub-section (2), the secured creditor may take
recourse to one or more of the following measures to recover his secured
debt, namely:--
(a) take possession of the secured assets of the borrower including the
right to transfer by way of lease, assignment or sale for realising the
secured asset;
(b) take over the management of the business of the borrower including
the right to transfer by way of lease, assignment or sale for realising the
secured asset:
Provided that the right to transfer by way of lease, assignment or sale
shall be exercised only where the substantial part of the business of the
borrower is held as security for the debt.
Provided further that where the management of whole of the business or part
of the business is severable, the secured creditor shall take over the
management of such business of the borrower which is relatable to the
security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage
the secured assets the possession of which has been taken over by the
secured creditor;
(d) require at any time by notice in writing, any person who has acquired
any of the secured assets from the borrower and from whom any money is due
or may become due to the borrower, to pay the secured creditor, so much of
the money as is sufficient to pay the secured debt.”
A conspectus of the aforesaid provisions shows that under the scheme of the
SARFAESI Act, a secured creditor is entitled to proceed against the
borrower for the purpose of recovering his secured debt by taking action
against the secured assets, in case the borrower fails to discharge his
liability in full within the period specified in the notice issued under
Section 13(2) of the Act. It is the mandate of Section 13(3) of the Act
that the notice issued under Section 13(2) should contain details of the
amount payable by the borrower and also the secured assets intended to be
enforced by the secured creditor in the event of non-payment of the dues as
per Section 13(2) notice. Thus, the secured creditor is entitled to proceed
only against the secured assets mentioned in the notice under Section
13(2). However, in terms of Section 13(11) of the Act, the secured creditor
is also free to proceed first against the guarantors or sell the pledged
assets. To quote:
“13(11) Without prejudice to the rights conferred on the secured creditor
under or by this section, the secured creditor shall be entitled to proceed
against the guarantors or sell the pledged assets without first taking any
of the measures specified in clauses(a) to (d) of sub-section (4) in
relation to the secured assets under this Act.”
Section 17 of the Act provides for a right to appeal to the DRT in respect
of the grievances on the measures taken by the secured creditor under
Section 13 of the Act. To quote for easy reference, Section 17 of the Act:
“17. Right to appeal.-(1) Any person (including borrower), aggrieved by any
of the measures referred to in sub-section (4) of section 13 taken by the
secured creditor or his authorised officer under this Chapter, may make an
application alongwith such fee, as may be prescribed to the Debts Recovery
Tribunal having jurisdiction in the matter within forty-five days from the
date on which such measure had been taken:
Provided that different fees may be prescribed for making the application
by the borrower and the person other than the borrower.
Explanation: For the removal of doubts, it is hereby declared that the
communication of the reasons to the borrower by the secured creditor for
not having accepted his representation or objection or the likely action of
the secured creditor at the stage of communication of reasons to the
borrower shall not entitle the person (including borrower) to make an
application to the Debts Recovery Tribunal under sub-section (1).
(2) The Debts Recovery Tribunal shall consider whether any of the measures
referred to in sub-section (4) of section 13 taken by the secured creditor
for enforcement of security are in accordance with the provisions of this
Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and
circumstances of the case and evidence produced by the parties, comes to
the conclusion that any of the measures referred to in sub-section (4) of
section 13, taken by the secured creditor are not in accordance with the
provisions of this Act and the rules made thereunder, and require
restoration of the management of the business to the borrower or
restoration of possession of the secured assets to the borrower, it may by
order, declare the recourse to any one or more measures referred to in sub-
section (4) of section 13 taken by the secured creditors as invalid and
restore the possession of the secured assets to the borrower or restore the
management of the business to the borrower, as the case may be, and pass
such order as it may consider appropriate and necessary in relation to any
of the recourse taken by the secured creditor under sub-section (4) of
section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a
secured creditor under sub-section (4) of section 13, is in accordance with
the provisions of this Act and the rules made thereunder, then,
notwithstanding anything contained in any other law for the time being in
force, the secured creditor shall be entitled to take recourse to one or
more of the measures specified under sub-section (4) of section 13 to
recover his secured debt.
(5) Any application made under sub-section (1) shall be dealt with by the
Debts Recovery Tribunal as expeditiously as possible and disposed of within
sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time, extend
the said period for reasons to be recorded in writing, so, however, that
the total period of pendency of the application with the
Debts Recovery Tribunal, shall not exceed four months from the date of
making of such application made under sub-section (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal
within the period of four months as specified in sub-section (5), any party
to the application may make an application, in such form as may be
prescribed, to the Appellate Tribunal for directing the Debts Recovery
Tribunal for expeditious disposal of the application pending before the
Debts Recovery Tribunal and the Appellate Tribunal may, on such
application, make an order for expeditious disposal of the pending
application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal
shall, as far as may be, dispose of the application in accordance with the
provisions of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 and the rules made thereunder.”
Though Section 17 of the Act 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.(See Mardia Chemicals v. Union of India[2])
The actual appeal is contemplated under Section 18 of the SARFAESI Act. The
provision reads as follows:
“18. Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order
made by the Debts Recovery Tribunal under section 17, may prefer an appeal
alongwith such fee, as may be prescribed to the Appellate Tribunal within
thirty days from the date of receipt of the order of Debts Recovery
Tribunal:
Provided that different fees may be prescribed for filing an appeal by the
borrower or by the person other than the borrower:
Provided further that no appeal shall be entertained unless the borrower
has deposited with the Appellate Tribunal fifty per cent of the amount of
debt due from him, as claimed by the secured creditors or determined by the
Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be
recorded in writing, reduce the amount to not less than twenty-five per
cent. of debt referred to in the second proviso.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall,
as far as may be, dispose of the appeal in accordance with the provisions
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) and rules made thereunder.”
Any person aggrieved by the order of the DRT under Section 17 of the
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. This amount can, at the discretion of the Tribunal,
in appropriate cases, for recorded reasons, be reduced to twenty- five per
cent of the debt.
This Court, in Lakshmi Rattan Enginerring Works Limited v. Assistant
Commissioner Sales Tax, Kanpur and Another[3], had the occasion to consider
the meaning of the expression ‘entertain’ in the context of a similar
provision in the Uttar Pradesh Sales Tax Act,1948 where it was held that in
such context, the expression has the meaning of “admitting to
consideration”. The relevant discussion is available at paragraphs - 9 and
10:
“9. The word 'entertain' is explained by a Divisional Bench of the
Allahabad High Court as denoting the point of time at which an application
to set aside the sale is heard by the court. The expression 'entertain', it
is stated, does not mean the same thing as the filing of the application or
admission of the application by the court. A similar view was again taken
in Dhoom Chand Jain v. Chamanlal Gupta & Anr. AIR 1962 All. 543, in which
the learned Chief Justice Desai and Mr. Justice Dwivedi gave the same
meaning to the expression 'entertain'. It is observed by Dwivedi J. that
the word 'entertain' in its application bears the meaning 'admitting to
consideration'. and therefore when the court cannot refuse to take an
application which is backed by deposit or security, it cannot refuse
judicially to consider it. In a single bench decision of the same court
reported in Bawan Ram & Anr. v. Kuni Beharilal A.I.R. 1961 All. 42, one of
us (Bhargava, J.) had to consider the same rule. There the deposit had not
been made within the period of limitation and the question had arisen
whether the court could entertain the application or not. It was decided
that the application could not be entertained because proviso (b) debarred
the court from entertaining an objection unless the requirement of
depositing the amount or furnishing security was complied with within the
time prescribed. In that case of the word 'entertain' is not interpreted
but it is held that the court cannot proceed to consider the application in
the absence of deposit made within the time allowed by law. This case
turned on the fact that the deposit was made out of time. In yet another
case of the Allahabad High Court reported in Haji Rahim Bux & Sons and Ors.
v. Firm Samiullah & Sons A.I.R. 1963 All. 326, a division bench consisting
of Chief Justice Desai and Mr. Justice S. D. Singh interpreted the words of
O. 21, r. 90, by saying that the word 'entertain' meant not 'receive' or
'accept' but proceed to consider on merits' or 'adjudicate upon'.
10. In our opinion these cases have taken a correct view of the word
'entertain' which according to dictionary also means 'admit to
consideration'. It would therefore appear that the direction to the court
in the proviso to s. 9 is that the court shall not proceed to admit to
consideration an appeal which is not accompanied by satisfactory proof of
the payment of the admitted tax. This will be when the case is taken up by
the court for the first time. In the decision on which the Assistant
Commissioner relied, the learned Chief Justice (Desai C.J.) holds that the
words 'accompanied by' showed that something tangible had to accompany the
memorandum of appeal. If the memorandum of appeal had to be accompanied by
satisfactory proof, it had to be in the shape of something tangible,
because no intangible thing can accompany a document like the memorandum of
appeal. In our opinion, making 'an appeal' the equivalent of the memorandum
of appeal is not sound. Even under O. 41 of the Code of Civil Procedure,
the expression "appeal" and "memorandum of appeal" are used to distinct two
distinct things. In Wharton's Law Lexicon, the word "appeal" is defined as
the judicial examination of the decision by a higher Court of the decision
of an inferior court. The appeal is the judicial examination; the
memorandum of appeal contains the grounds on which the judicial examination
is invited. For purposes of limitation and for purposes of the rules of the
Court it is required that a written memorandum of appeal shall be filed.
When the proviso speaks of the entertainment of the appeal, it means that
the appeal such as was filed will not be admitted to consideration unless
there is satisfactory proof available of the making of the deposit of
admitted tax.”
We are also conscious of the fact that such a pre-condition is present in
several statutes while providing for statutory appeals, like The Income-Tax
Act, 1961, 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 pre-
deposit, 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 on general lien, is in a different context:
“171. General lien of bankers, factors, wharfingers, attorneys and policy-
brokers.—Bankers, factors, wharfingers, attorneys of a High Court and
policy-brokers may, in the absence of a contract to the contrary, retain as
a security for a general balance of account, any goods bailed to them; but
no other persons have a right to retain, as a security for such balance,
goods bailed to them, unless there is an express contract to that effect.”
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.
There shall be no order as to costs.
........................................J.
(KURIAN JOSEPH)
......………………………………J.
(ROHINTON FALI NARIMAN)
New Delhi;
April 22, 2016.
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[1] AIR 2009 Guj. 98
[2] (2004) 4 SCC 311
[3] AIR 1968 SC 488
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REPORTABLE
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22
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4379 OF 2016
(Arising out of SLP (C) No. 13861/2015)
AXIS BANK ... APPELLANT (S)
VERSUS
SBS ORGANICS PRIVATE LIMITED AND
ANOTHER ... RESPONDENT (S)
J U D G M E N T
KURIAN, J.:
Leave granted.
An appeal under Section 18 of The Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as ‘SARFAESI Act’) before the Debt Recovery
Appellate Tribunal (hereinafter referred to as ‘DRAT’) can be entertained
only if the borrower deposits fifty per cent of the amount in terms of the
order passed by the Debt Recovery Tribunal (hereinafter referred to as
‘DRT’) under Section 17 of the Act or fifty per cent of the amount due from
the borrower as claimed by the secured creditor, whichever is less. The
Appellate Tribunal may reduce the amount to twenty five per cent. What is
the fate of such deposit on the disposal of the appeal is the question
arising for consideration in this case.
Being a pure legal issue, it may not be necessary for us to refer to the
factual position in detail. The first respondent, being a borrower and
aggrieved by the steps taken by the secured creditor, filed Securitisation
Application No. 152 of 2010 before the Debt Recovery Tribunal, Ahmedabad.
Though, initially an interim relief was granted, the same was vacated by
order dated 20.01.2011. Therefore, the first respondent moved the Debt
Recovery Appellate Tribunal, Mumbai under Section 18 of the SARFAESI Act.
In terms of the proviso under Section 18, the first respondent made a
deposit of Rs.50 lakhs before the Appellate Tribunal. During the pendency
of the appeal before the DRAT, Securitisation Application itself came to be
finally disposed of before the Debt Recovery Tribunal at Ahmedabad, setting
aside the sale. Realising that the appeal did not survive thereafter, 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. As the appeal itself was being
withdrawn, the first respondent moved the High Court of Gujarat at
Ahmedabad by way of Writ Petition (Special Civil Application), aggrieved by
the observation that the withdrawal would be subject to the result of the
appeal. The same was disposed of by order dated 05.03.2015 by the learned
Single Judge, setting aside the said condition and permitting the first
respondent herein to withdraw the amount unconditionally. Aggrieved, the
appellant-Bank filed an intra-Court appeal. That appeal was dismissed by
order dated 01.04.2015 by a Division Bench, and thus aggrieved, the Bank
has come up in appeal before this Court.
Heard learned Senior Counsel Shri C. U. Singh appearing for the appellant-
Bank and learned Counsel Vipul Jai appearing for the respondents.
The learned Senior Counsel appearing for the appellant-Bank submits that
the first respondent has no right to get back the deposit made by it as a
pre-condition for entertaining the appeal. The said amount has to be set
off against the dues of the first respondent, which has actually been
quantified and for which, Section 13 recovery steps have been permitted. It
is submitted that the appellant-Bank has to secure the entire debt by
proceeding against the secured assets, and therefore, the deposit is liable
to be appropriated by the Bank. Reference is also made to Section 13(10) of
the SARFAESI Act and Rule 11 of The Security Interest (Enforcement) Rules,
2002, which read as follows:
“13(10) Where dues of the secured creditor are not fully satisfied with the
sale proceeds of the secured assets, the secured creditor may file an
application in the form and manner as may be prescribed to the Debts
Recovery Tribunal having jurisdiction or a competent court, as the case may
be, for recovery of the balance amount from the borrower.”
“11. Procedure for Recovery of shortfall of secured debt.- (1) An
application for recovery of balance amount by any secured creditor pursuant
to sub-section (10) of section 13 of the Act shall be presented to the
Debts Recovery Tribunal in the form annexed as Appendix VI to these rules
by the authorised officer or his agent or by a duly authorised legal
practitioner, to the Registrar of the Bench within whose jurisdiction his
case falls or shall be sent by registered post addressed to the Registrar
of Debts Recovery Tribunal.
(2) The provisions of the Debts Recovery Tribunal (Procedure) Rules, 1993
made under Recovery of Debts Due to Banks and Financial Institutions Act,
1993 (51 of 1993), shall mutatis mutandis apply to any application filed by
under sub-rule (1).
(3) An application under sub-rule (1) shall be accompanied with fee as
provided in rule 7 of the Debts Recovery Tribunal (Procedure) Rules, 1993.”
Learned Senior Counsel further submits that the Bank has a lien on the
amount under Section 171 of The Indian Contract Act, 1872. The decision of
the High Court of Gujarat in Babu Ganesh Singh Deepnarayan v. Union of
India and another[1], which has been followed by the Division Bench in the
impugned judgment, does not reflect the true legal position, it is further
submitted.
Babu Ganesh (supra) was a case involving a challenge on the vires of the
second proviso under Section 18 of the SARFAESI Act, on the mandatory pre-
deposit. While upholding the provision, at paragraphs-5 and 6, it was
observed that, in case the appeal is dismissed, the amounts deposited for
entertaining the appeal would be refunded. To quote:
“5. Right of appeal is a creature of the statute. Legislature can impose
conditions under which it is to be exercised. Without a statutory provision
creating such a right, a person aggrieved is not entitled to prefer an
appeal. Legislature while granting right of appeal can impose conditions
which it thinks reasonable. Such conditions merely regulate the exercise of
right of appeal so that the same is not abused by a recalcitrant party, and
there is no difficulty in the enforcement of the order appealed against in
case the appeal is ultimately dismissed. Imposition of such a condition is
essential, so that frivolous appeals would not be filed. Ultimately if the
appeal is dismissed, the aggrieved party can always seek refund of the
amount deposited and therefore, he is not in any way aggrieved. Further the
Third Proviso to Section 18 (1) of the Securitization Act also enables the
Appellate Tribunal, for the reasons to be recorded in writing, reduce the
amount to not less than 25% of the debt referred to in the Second Proviso.
We are not prepared to accept the contention that conditions imposed in the
second and third proviso to Section 18(1) of the Securitization Act are
onerous in nature so as to make the right of appeal illusory. Delhi High
Court in R.V. Saxena's case (supra) also upheld the validity of Second
Proviso to Section 18(1) of the Securitization Act with which we fully
concur.
6. We have also not come across any provision in the Statute, enabling the
secured creditor to adjust or appropriate the amount deposited by the
borrower to prefer an appeal under Section 18(1) of the Act. On dismissal
of the appeal the amount deposited as a pre-condition for filing the appeal
will be refunded to the appellant and therefore, he is no way prejudiced.
We therefore, find no merit in the contention raised by the petitioner that
the second proviso to Section 18(1) of the Act is discriminatory or
violative of Article 14 of the Constitution of India. Petitions lack merit
and the same are dismissed.”
At this juncture, it may be necessary to refer to the scheme of the
SARFAESI Act. The Act was intended to facilitate easy and faster recovery
of loans advanced by banks and financial institutions. The ordinary
recovery mechanism contemplated in The Code of Civil Procedure, 1908 was
not considered sufficient. Thus, the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 was introduced for a special and speedier
mechanism for the recovery. Almost a decade of experience proved that the
recovery process was not achieving the intended objects and hence, the
SARFAESI Act to regulate securitisation and reconstruction of financial
assets and enforcement of security interest was enacted. The Act
incorporates a system whereby direct action for recovery of secured debt
may be initiated against the secured assets of a borrower after the debt is
declared to be a non performing asset (NPA).
“Borrower” is defined under Section 2(1)(f), which reads as follows:
“2(1)(f) "borrower" means any person who has been granted financial
assistance by any bank or financial institution or who has given any
guarantee or created any mortgage or pledge as security for the financial
assistance granted by any bank or financial institution and includes a
person who becomes borrower of a securitisation company or reconstruction
company consequent upon acquisition by it of any rights or interest of any
bank or financial institution in relation to such financial assistance;”
“Secured Asset”, under Section 2(1)(zc), is defined as:
“2(1)(zc) “secured asset” means the property on which the security
interest is created”
“Section 2(1)(zd) provides for definition of “secured creditor”, which
reads as follows:
“2(1)(zd) "secured creditor" means any bank or financial institution or
any consortium or group of banks or financial institutions and includes—
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as
such or managing a trust set up by such securitisation company or
reconstruction company for the securitisation or reconstruction, as the
case may be; or any other trustee holding securities on behalf of a bank or
financial institution, in whose favour security interest is created for due
repayment by any borrower of any financial assistance;”
Section 2(1)(ze) defines “secured debt” to mean “a debt which is secured by
any security interest”.
“Security interest” is defined under Section 2(1)(zf):
“(zf) "security interest" means right, title and interest of any kind
whatsoever upon property, created in favour of any secured creditor and
includes any mortgage, charge, hypothecation, assignment other than those
specified in section 31;”
The mechanism for enforcement of security interest is contemplated
under Section 13 of the Act. Sub- Sections (1), (2),(3),(3A) and (4) of
Section 13 are relevant for the purposes of the present case and they are
extracted below:
“13. Enforcement of security interest
(1) Notwithstanding anything contained in section 69 or section 69A of the
Transfer of Property Act, 1882 (4 of 1882), any security interest created
in favour of any secured creditor may be enforced, without the intervention
of court or tribunal, by such creditor in accordance with the provisions of
this Act.
(2) Where any borrower, who is under a liability to a secured creditor
under a security agreement, makes any default in repayment of secured debt
or any installment thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing asset, then, the
secured creditor may require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor within sixty days from the
date of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the
amount payable by the borrower and the secured assets intended to be
enforced by the secured creditor in the event of non-payment of secured
debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes
any representation or raises any objection, the secured creditor shall
consider such representation or objection and if the secured creditor comes
to the conclusion that such representation or objection is not acceptable
or tenable, he shall communicate within one week of receipt of such
representation or objection the reasons for non-acceptance of the
representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the
secured creditor at the stage of communication of reasons shall not confer
any right upon the borrower to prefer an application to the Debts Recovery
Tribunal under section 17 or the Court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within
the period specified in sub-section (2), the secured creditor may take
recourse to one or more of the following measures to recover his secured
debt, namely:--
(a) take possession of the secured assets of the borrower including the
right to transfer by way of lease, assignment or sale for realising the
secured asset;
(b) take over the management of the business of the borrower including
the right to transfer by way of lease, assignment or sale for realising the
secured asset:
Provided that the right to transfer by way of lease, assignment or sale
shall be exercised only where the substantial part of the business of the
borrower is held as security for the debt.
Provided further that where the management of whole of the business or part
of the business is severable, the secured creditor shall take over the
management of such business of the borrower which is relatable to the
security for the debt.
(c) appoint any person (hereafter referred to as the manager), to manage
the secured assets the possession of which has been taken over by the
secured creditor;
(d) require at any time by notice in writing, any person who has acquired
any of the secured assets from the borrower and from whom any money is due
or may become due to the borrower, to pay the secured creditor, so much of
the money as is sufficient to pay the secured debt.”
A conspectus of the aforesaid provisions shows that under the scheme of the
SARFAESI Act, a secured creditor is entitled to proceed against the
borrower for the purpose of recovering his secured debt by taking action
against the secured assets, in case the borrower fails to discharge his
liability in full within the period specified in the notice issued under
Section 13(2) of the Act. It is the mandate of Section 13(3) of the Act
that the notice issued under Section 13(2) should contain details of the
amount payable by the borrower and also the secured assets intended to be
enforced by the secured creditor in the event of non-payment of the dues as
per Section 13(2) notice. Thus, the secured creditor is entitled to proceed
only against the secured assets mentioned in the notice under Section
13(2). However, in terms of Section 13(11) of the Act, the secured creditor
is also free to proceed first against the guarantors or sell the pledged
assets. To quote:
“13(11) Without prejudice to the rights conferred on the secured creditor
under or by this section, the secured creditor shall be entitled to proceed
against the guarantors or sell the pledged assets without first taking any
of the measures specified in clauses(a) to (d) of sub-section (4) in
relation to the secured assets under this Act.”
Section 17 of the Act provides for a right to appeal to the DRT in respect
of the grievances on the measures taken by the secured creditor under
Section 13 of the Act. To quote for easy reference, Section 17 of the Act:
“17. Right to appeal.-(1) Any person (including borrower), aggrieved by any
of the measures referred to in sub-section (4) of section 13 taken by the
secured creditor or his authorised officer under this Chapter, may make an
application alongwith such fee, as may be prescribed to the Debts Recovery
Tribunal having jurisdiction in the matter within forty-five days from the
date on which such measure had been taken:
Provided that different fees may be prescribed for making the application
by the borrower and the person other than the borrower.
Explanation: For the removal of doubts, it is hereby declared that the
communication of the reasons to the borrower by the secured creditor for
not having accepted his representation or objection or the likely action of
the secured creditor at the stage of communication of reasons to the
borrower shall not entitle the person (including borrower) to make an
application to the Debts Recovery Tribunal under sub-section (1).
(2) The Debts Recovery Tribunal shall consider whether any of the measures
referred to in sub-section (4) of section 13 taken by the secured creditor
for enforcement of security are in accordance with the provisions of this
Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and
circumstances of the case and evidence produced by the parties, comes to
the conclusion that any of the measures referred to in sub-section (4) of
section 13, taken by the secured creditor are not in accordance with the
provisions of this Act and the rules made thereunder, and require
restoration of the management of the business to the borrower or
restoration of possession of the secured assets to the borrower, it may by
order, declare the recourse to any one or more measures referred to in sub-
section (4) of section 13 taken by the secured creditors as invalid and
restore the possession of the secured assets to the borrower or restore the
management of the business to the borrower, as the case may be, and pass
such order as it may consider appropriate and necessary in relation to any
of the recourse taken by the secured creditor under sub-section (4) of
section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a
secured creditor under sub-section (4) of section 13, is in accordance with
the provisions of this Act and the rules made thereunder, then,
notwithstanding anything contained in any other law for the time being in
force, the secured creditor shall be entitled to take recourse to one or
more of the measures specified under sub-section (4) of section 13 to
recover his secured debt.
(5) Any application made under sub-section (1) shall be dealt with by the
Debts Recovery Tribunal as expeditiously as possible and disposed of within
sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time, extend
the said period for reasons to be recorded in writing, so, however, that
the total period of pendency of the application with the
Debts Recovery Tribunal, shall not exceed four months from the date of
making of such application made under sub-section (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal
within the period of four months as specified in sub-section (5), any party
to the application may make an application, in such form as may be
prescribed, to the Appellate Tribunal for directing the Debts Recovery
Tribunal for expeditious disposal of the application pending before the
Debts Recovery Tribunal and the Appellate Tribunal may, on such
application, make an order for expeditious disposal of the pending
application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal
shall, as far as may be, dispose of the application in accordance with the
provisions of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 and the rules made thereunder.”
Though Section 17 of the Act 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.(See Mardia Chemicals v. Union of India[2])
The actual appeal is contemplated under Section 18 of the SARFAESI Act. The
provision reads as follows:
“18. Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order
made by the Debts Recovery Tribunal under section 17, may prefer an appeal
alongwith such fee, as may be prescribed to the Appellate Tribunal within
thirty days from the date of receipt of the order of Debts Recovery
Tribunal:
Provided that different fees may be prescribed for filing an appeal by the
borrower or by the person other than the borrower:
Provided further that no appeal shall be entertained unless the borrower
has deposited with the Appellate Tribunal fifty per cent of the amount of
debt due from him, as claimed by the secured creditors or determined by the
Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be
recorded in writing, reduce the amount to not less than twenty-five per
cent. of debt referred to in the second proviso.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall,
as far as may be, dispose of the appeal in accordance with the provisions
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993) and rules made thereunder.”
Any person aggrieved by the order of the DRT under Section 17 of the
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. This amount can, at the discretion of the Tribunal,
in appropriate cases, for recorded reasons, be reduced to twenty- five per
cent of the debt.
This Court, in Lakshmi Rattan Enginerring Works Limited v. Assistant
Commissioner Sales Tax, Kanpur and Another[3], had the occasion to consider
the meaning of the expression ‘entertain’ in the context of a similar
provision in the Uttar Pradesh Sales Tax Act,1948 where it was held that in
such context, the expression has the meaning of “admitting to
consideration”. The relevant discussion is available at paragraphs - 9 and
10:
“9. The word 'entertain' is explained by a Divisional Bench of the
Allahabad High Court as denoting the point of time at which an application
to set aside the sale is heard by the court. The expression 'entertain', it
is stated, does not mean the same thing as the filing of the application or
admission of the application by the court. A similar view was again taken
in Dhoom Chand Jain v. Chamanlal Gupta & Anr. AIR 1962 All. 543, in which
the learned Chief Justice Desai and Mr. Justice Dwivedi gave the same
meaning to the expression 'entertain'. It is observed by Dwivedi J. that
the word 'entertain' in its application bears the meaning 'admitting to
consideration'. and therefore when the court cannot refuse to take an
application which is backed by deposit or security, it cannot refuse
judicially to consider it. In a single bench decision of the same court
reported in Bawan Ram & Anr. v. Kuni Beharilal A.I.R. 1961 All. 42, one of
us (Bhargava, J.) had to consider the same rule. There the deposit had not
been made within the period of limitation and the question had arisen
whether the court could entertain the application or not. It was decided
that the application could not be entertained because proviso (b) debarred
the court from entertaining an objection unless the requirement of
depositing the amount or furnishing security was complied with within the
time prescribed. In that case of the word 'entertain' is not interpreted
but it is held that the court cannot proceed to consider the application in
the absence of deposit made within the time allowed by law. This case
turned on the fact that the deposit was made out of time. In yet another
case of the Allahabad High Court reported in Haji Rahim Bux & Sons and Ors.
v. Firm Samiullah & Sons A.I.R. 1963 All. 326, a division bench consisting
of Chief Justice Desai and Mr. Justice S. D. Singh interpreted the words of
O. 21, r. 90, by saying that the word 'entertain' meant not 'receive' or
'accept' but proceed to consider on merits' or 'adjudicate upon'.
10. In our opinion these cases have taken a correct view of the word
'entertain' which according to dictionary also means 'admit to
consideration'. It would therefore appear that the direction to the court
in the proviso to s. 9 is that the court shall not proceed to admit to
consideration an appeal which is not accompanied by satisfactory proof of
the payment of the admitted tax. This will be when the case is taken up by
the court for the first time. In the decision on which the Assistant
Commissioner relied, the learned Chief Justice (Desai C.J.) holds that the
words 'accompanied by' showed that something tangible had to accompany the
memorandum of appeal. If the memorandum of appeal had to be accompanied by
satisfactory proof, it had to be in the shape of something tangible,
because no intangible thing can accompany a document like the memorandum of
appeal. In our opinion, making 'an appeal' the equivalent of the memorandum
of appeal is not sound. Even under O. 41 of the Code of Civil Procedure,
the expression "appeal" and "memorandum of appeal" are used to distinct two
distinct things. In Wharton's Law Lexicon, the word "appeal" is defined as
the judicial examination of the decision by a higher Court of the decision
of an inferior court. The appeal is the judicial examination; the
memorandum of appeal contains the grounds on which the judicial examination
is invited. For purposes of limitation and for purposes of the rules of the
Court it is required that a written memorandum of appeal shall be filed.
When the proviso speaks of the entertainment of the appeal, it means that
the appeal such as was filed will not be admitted to consideration unless
there is satisfactory proof available of the making of the deposit of
admitted tax.”
We are also conscious of the fact that such a pre-condition is present in
several statutes while providing for statutory appeals, like The Income-Tax
Act, 1961, 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 pre-
deposit, 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 on general lien, is in a different context:
“171. General lien of bankers, factors, wharfingers, attorneys and policy-
brokers.—Bankers, factors, wharfingers, attorneys of a High Court and
policy-brokers may, in the absence of a contract to the contrary, retain as
a security for a general balance of account, any goods bailed to them; but
no other persons have a right to retain, as a security for such balance,
goods bailed to them, unless there is an express contract to that effect.”
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.
There shall be no order as to costs.
........................................J.
(KURIAN JOSEPH)
......………………………………J.
(ROHINTON FALI NARIMAN)
New Delhi;
April 22, 2016.
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[1] AIR 2009 Guj. 98
[2] (2004) 4 SCC 311
[3] AIR 1968 SC 488
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REPORTABLE
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22
