Case Note & Summary
The writ petitioner, M/s Chithra Agencies Private Limited, an authorized dealer of Castrol India Ltd., availed cash credit facility from Canara Bank, Madurai, which was enhanced from Rs.13 crores to Rs.28.64 crores. The petitioner also availed a bank guarantee facility of Rs.65 lakhs for supplies made by Castrol India Ltd., for which the bank required 100% margin money in the form of fixed deposits. The petitioner defaulted on the loan, and the bank issued a notice under Section 13(2) of the SARFAESI Act on 22.09.2025 demanding repayment of Rs.26,01,44,933.02. Subsequently, the bank credited the maturity amount of fixed deposits (totaling Rs.76,71,031) into the loan account. The petitioner filed a writ petition seeking to quash the bank's notice dated 26.11.2025 and to direct the bank to reverse the credited amount. The court examined the nature of the fixed deposits, which were created as margin money for the bank guarantee, and held that the bank had a general lien and right of set-off under Section 171 of the Contract Act. The court also noted that the petitioner had an alternative remedy under the SARFAESI Act and dismissed the writ petition as not maintainable. The court directed the bank to consider the petitioner's representation for release of the fixed deposit amount if the bank guarantee is discharged, but upheld the bank's right to set-off.
Headnote
A) Banking Law - Right of Set-off - Bank's Lien - Section 171 of the Contract Act, 1872 - The bank has a general lien and right to set-off the fixed deposit proceeds against the outstanding loan amount, as the fixed deposit was created as margin money for bank guarantee and the loan account was in default. The court held that the bank's action of crediting the FD maturity amount to the loan account was lawful and within its contractual and statutory rights. (Paras 5-8) B) SARFAESI Act - Alternative Remedy - Maintainability of Writ Petition - Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The writ petition challenging the bank's notice under Section 13(2) is not maintainable as the petitioner has an efficacious alternative remedy under the SARFAESI Act. The court held that the writ petition is premature and the petitioner should approach the appropriate forum under the SARFAESI Act. (Paras 9-10)
Issue of Consideration
Whether the bank is entitled to set off the fixed deposit proceeds (margin money for bank guarantee) against the outstanding loan amount of the petitioner, and whether the writ petition is maintainable in view of alternative remedy under SARFAESI Act.
Final Decision
The writ petition is dismissed. The bank is directed to consider the petitioner's representation for release of the fixed deposit amount if the bank guarantee is discharged, but the bank's right to set-off is upheld.
Law Points
- Right of set-off
- Bank's lien
- Margin money fixed deposit
- SARFAESI Act Section 13(2)
- Contract Act Section 171
- Writ jurisdiction against bank
- Alternative remedy
