Deposit under Section 18 of SARFAESI Act

This SC in Lakshmi Rattan Engineering Works Ltd. v. Assistant Commissioner Sales Tax, Kanpur, AIR 1968 SC 488 had the occasion to consider the meaning of the expression ‘entertain‘ in the context of The Uttar Pradesh Sales Tax Act, 1948 where it was held that in such context, the expression has the meaning of ‘admitting to consideration’.

An appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) before the Debt Recovery Appellate Tribunal 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 under Section 17 of SARFAESI 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.

My Lord, What is the fate of such deposit on disposal of the appeal?

The appeal under Section 18 of SARFAESI 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 SARFAESI 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  SARFAESI 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.”

Hon’ble Justice Kurian Joseph, Axis Bank v. SBS Organics Pvt. Ltd., [Civil Appeal No. 4379 of 2016].

Advertisements