Pre-deposit under S. 18 of SARFAESI Act to file an appeal before DRAT not a secured asset

Supreme Court: Deciding the question as to the fate of the deposit on the disposal of the appeal in case of 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(DRAT), the bench of Kurian Joseph and R.F. Nariman, JJ held 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.

It was further held that 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 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.

As per Section 18 of SARFAESI Act, an appeal before the DRAT can be entertained only if the borrower deposits fifty per cent of the amount in terms of the order passed by the 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. The said amount can be reduced to 25% by DRAT. [Axis Bank v. Sbs Organics Pvt. Ltd., 2016 SCC OnLine SC 353decided on 22.04.2016]

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