SARFESI ACTPredeposit Cannot Be Attached Under SARFESI ACT

In CIVIL APPEAL NO. 4379 OF 2016 (Arising out of SLP (C) No. 13861/2015) of AXIS BANK  Vs SBS ORGANICS PRIVATE LIMITED AND ANOTHER , Supreme Court of India has decided upon as to

what is the fate of predeposit  on the disposal of the appeal against an order  passed by DRT under Section 17 .

Whereas, 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. 

Supreme Court of India held that 

Bank has no lien on the pre-deposit made under Section 18 of the SARFAESI Act  in terms of Section 171 of The Indian Contract Act, 1872.

It is pertinent to refer Section 171 of the Contract Act ,1872 which reads as below ;

Section “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.”

Supreme Court of India held categorically under para 24 as below :

24 .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