Thursday, June 16, 2016

Return of pre-deposit in Sarfaesi suits

A borrower can file an appeal against the Debt Recovery Tribunal (DRT) before the appellate tribunal only if he deposits 50 per cent of the due amount or 50 per cent ordered by the DRT, whichever is less. That is the rule under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act. The appellate tribunal may reduce the amount to 25 per cent. What is the fate of such deposit on the disposal of the appeal? The Supreme Court ruled that the amount is deposited by the borrower with the tribunal and not the creditor and it is not bailment. In the Axis Bank versus SBS Organic case, the borrower sought the return of the pre-deposit after the disposal of the suit. But the bank opposed it and claimed it on the ground that the amount had to be set off against the dues of the borrower. The bank contended that it has to secure the entire debt by proceeding against the secured assets, and therefore, the deposit is liable to be appropriated by the bank. Rejecting the arguments of the bank, the judgment stated that the Act permitted the secured creditor to proceed only against the secured assets. The pre-deposit as a condition is neither a secured asset nor a secured debt, since the borrower has not created any security interest on such pre-deposit in favour of the secured creditor. The bank has no lien on the amount either, the judgment said, ordering the return of the pre-deposit.


Post a Comment