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M/s Kut Energy Pvt. Ltd. & Ors. v. The Authorized Officer, Punjab National Bank & Ors.

Civil Appeal · 2019 INSC 928Decided 20 Aug 2019
Civil Appeal Nos. 6016-6017 of 2019
Justice Uday Umesh Lalit · Justice Vineet Saran

Background

A hydro-power company defaulted on a bank loan, and after its account was declared a non-performing asset, Punjab National Bank issued recovery notices and auctioned the mortgaged project. The company offered a one-time settlement of Rs.140 crores and, to show good faith, deposited Rs.40 crores with the High Court Registry while its writ petition was pending. After the Supreme Court later held the writ petition itself was not maintainable, a dispute arose over whether the company could get the Rs.40 crores back or whether the bank could appropriate it towards the outstanding dues. The High Court had ordered the money transferred to the Debt Recovery Tribunal to be held in interest-bearing deposit pending the outcome of the bank's separate recovery suit.

Decision Breakdown

The Supreme Court held that the Rs.40 crore deposit was made only to demonstrate the company's bona fides in support of its settlement offer, not as payment towards the debt itself, and was expressly treated as a deposit with the High Court Registry rather than with the bank. Relying on its earlier decision in Axis Bank vs. SBS Organics (P) Ltd., the Court reasoned that such a deposit is neither a "secured asset" nor a "secured debt" that the bank could claim, and that the bank had no general lien over money that was never in the bank's custody. Accordingly, the Court set aside the High Court's order, allowed the company's application for refund, and directed that the deposited amount be returned to the company within two weeks along with any accrued interest.

Lesson Learnt

Money deposited in court merely to show good faith during settlement talks, and not as actual repayment of a debt, belongs to the depositor and cannot be treated as the creditor's security; a bank or other creditor cannot claim a lien over funds it never actually held in its own custody.

Official source (sci.gov.in)View Judgment (PDF)

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