Partial Deposit before DRAT is neither a secured asset, nor a secured debt

The Supreme Court in Axis bank vs. SBS Organics Private Limited has held that the partial deposit before the Debt Recovery Appellate Tribunal (DRAT) as a pre-condition for considering the appeal on merits in terms of Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), is neither a secured asset, nor a secured debt, and hence refundable to the appellant on disposal of appeal. Apex Court Bench comprising of Justices Kurian Joseph and R.F. Nariman made this observation while dismissing an appeal filed by Axis Bank against the Gujarat High Court Judgment wherein it was held that the deposit made before DRAT is refundable to the appellant therein. Section 18 of the SARFAESI Act states that, for the Tribunal to ‘entertain’ the appeal, the aggrieved person has to make a deposit of fifty per cent of the amount of debt due from him as claimed by the secured creditors or determined by the DRT, whichever is less. This amount can, at the discretion of the Tribunal, in appropriate cases, for recorded reasons, be reduced to twenty- five per cent of the debt. The question before Apex Court was whether this deposited amount can be returned to the appellant if and when the appeal is disposed of. The Court observed that the partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset or a secured debt, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor. The bench further observed “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 the 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.“

Article referred: http://www.livelaw.in/partial-deposit-drat-neither-secured-asset-secured-debt-refundable-appellant-disposal-appeal-sc/