2019 (1) TMI 1372 - HC - Indian Laws

Unpaid security deposit not a 'debt' under Recovery of Debts Act. Recovery proceedings not maintainable.

The Court concluded that the unpaid security deposit claimed by the Bank did not qualify as a 'debt' under Section 2(g) of the Recovery of Debts Due to ... Refund of security deposit - whether in view of the facts of the case, claim for refund of security deposit (given against the licensed premises) by the Bank in the proceedings before the Debt Recovery Tribunal under the provisions of the Recovery of the Debts Due to Banks and Financial Institutions Act, 1993, can be said to be a “debt” due and recoverable by the Bank from the respondents, under Section 19 of the said Act? Held that:- It is settled law that the definition clause must be read in the context of subject matter and scheme of the Act and consistently with the objects and other provisions of the Act. It is well settled that, words of a statute when there is a doubt about their meaning, are to be understood in the sense in which they best harmonise with the subject of enactment and the object which the Legislature has in view Their meaning is not much found in strictly grammatical language - the expression “debt” is to be assigned meaning and understood in reference to the object and subject matter of scheme of the Act and further it is to be interpreted consistently with the objects and other provisions of the Act. Undisputedly, the Recovery Act was enacted primarily for the reasons that, the Banks and financial institutions should be able to recover their dues without unnecessary delay, so as to avoid any adverse consequences in relation to the public funds. The Statement of Objects and Reasons of this Act clearly state that Banks and financial institutions were experiencing considerable difficulties in recovering loans and enforcements of securities charged with them. The then existing procedure for recovery of dues of the Bank and the financial institutions blocked significant portion of their funds in un-productive assets, the value of which deteriorated with the passage of time. The Act provided for the establishment of Tribunals and Appellate Tribunals and modes for expeditious recovery of dues to the Banks and financial institutions. The expeditious recovery; Providing provisions for taking such measures which would prevent wastage of securities available with the Bank and enforcement of such securities is the object of the Act. Thus, whole object of the said Act is to recover debts by enforcing available security by a mechanism provided under the Act - If the petitioner’s contention is upheld, it may not attain the object of the said act. This, may also, enlarge the jurisdiction of the Tribunal. The Apex Court in the case of Axis Bank v. SBS Organics (P.) Ltd. [2016 (4) TMI 917 - SUPREME COURT] while dealing with the provisions of the SARFAESI Act has held that the Act was intended to facilitate easy and faster recovery of loans advanced by banks and financial institutions and thus the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was introduced for a special and speedier mechanism for the recovery. The unpaid security deposit is not a “debt” within the meaning of Section 2(g) of the said Act and therefore the proceedings instituted under Section 17 of the said Act by the Bank for recovery of the said amount were not maintainable - Petition dismissed. Issues Involved:1. Whether the refund of the security deposit claimed by the Bank in the proceedings before the DRT under the said Act can be said to be a 'debt' due and recoverable by the Bank within the meaning of Section 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.2. Whether the impugned orders passed by the Learned Presiding Officers of the DRT and the DRAT are legal, valid, and proper.Issue-Wise Detailed Analysis:1. Definition of 'Debt' Under Section 2(g) of the Act:The primary issue was whether the security deposit refund claimed by the Bank constituted a 'debt' under Section 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The petitioner, a Banking Company, argued that the refundable security deposit of Rs. 37,67,731/- paid to the respondents as per the terms of the deposit agreement should be considered a 'debt' due and recoverable under the said Act. The Bank cited the definition of 'debt' as any liability alleged as due from any person by a bank during the course of any business activity, whether secured or unsecured, and legally recoverable on the date of the application.The Bank's counsel, Mr. Tulzapurkar, argued that taking premises on leave and license basis is incidental to the business of banking and thus, the refundable security deposit should be considered a 'debt.' He referred to several judgments, including United Bank of India v. Debt Recovery Tribunal and Eureka Forbes v. Allahabad Bank, to support the argument that the term 'debt' should be interpreted broadly to include any liability arising during the course of banking activities.2. Jurisdiction of DRT and DRAT:The respondents challenged the jurisdiction of the DRT, arguing that the security deposit did not fall within the purview of 'debt' as defined under Section 2(g) of the Act. Both the DRT and the DRAT upheld this view, stating that the security deposit was not a 'debt' within the meaning of the Act. The Bank's appeal to the High Court under Articles 226 and 227 of the Constitution of India was based on the contention that the orders of the DRT and DRAT were not legal, valid, and proper.Court's Analysis:The Court examined the definition of 'debt' in the context of the Act's objectives, which are to facilitate the expeditious recovery of dues by banks and financial institutions. The Court noted that the Act was primarily enacted to help banks recover loans and enforce securities without unnecessary delays, thereby preventing the wastage of public funds.The Court referred to the broader interpretations of 'debt' in previous judgments but distinguished the present case by emphasizing that the security deposit was not related to the core banking activities of lending and accepting deposits. The Court also pointed out that accepting the Bank's contention would unduly expand the jurisdiction of the DRT to include all liabilities arising from any business activity, which was not the Legislature's intent.Conclusion:The Court concluded that the unpaid security deposit did not constitute a 'debt' within the meaning of Section 2(g) of the Act. Consequently, the proceedings instituted under Section 17 of the Act by the Bank for the recovery of the security deposit were not maintainable. The Court upheld the orders of the DRT and DRAT, dismissing the writ petition with no order as to costs.