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of <h1>Court rules pre-deposit not secured asset, must be returned upon appeal withdrawal.</h1> <h3>Axis Bank Versus SBS Organics Private Limited And Another</h3> Axis Bank Versus SBS Organics Private Limited And Another - TMI 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 Rs. 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 If the appeal is withdrawn or disposed of, the pre-deposit must be returned to the appellant unless appropriated with the consent of the depositor or attached under Section 13(10) read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.
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