CRP(MD)/2576/2026 of B.Sivakumar Vs THE SOUTH INDIAN BANK LIMITE on 22 September 2026

ORDER

(By G.R.Swaminathan, J.) The revision petitioner herein availed financial assistance from the South Indian Bank Limited. The bank had granted term loans in favour of the revision petitioner under five heads. The revision petitioner was a hulling agent with Tamil Nadu Civil Supplies Corporation Limited. At the request of the revision petitioner, the first respondent/bank had given bank guarantee in favour of TNCSC. On account of some disputes between the revision petitioner and TNCSC, the bank guarantee came to be invoked on 03.10.2024.

2. Since the revision petitioner's accounts became non-performing assets, notice under Section 13(2) of SARFAESI Act was issued on

01.02.2025. The said demand notice encompassed all the accounts of the revision petitioner including the BG account. Since the demand was not complied with, possession notice was issued under Section 13(4) of the Act. Thereafter, the bank moved the Chief Judicial Magistrate, Madurai and obtained an order under Section 14 of the Act on 08.09.2025 for taking physical possession. Challenging the said order, the revision petitioner filed S.A.No.814 of 2025 before the Debt Recovery Tribunal, Madurai. The Tribunal granted interim order on 17.10.2025 by putting the revision petitioner on terms. The petitioner was called upon to deposit 30% of the due amount in four installments. The revision petitioner was in a position to pay only the first installment. For the remaining installments, the revision petitioner sought extension of time. The said IA was also allowed. However, the revision petitioner was not in a position to pay the remaining installments. 17.02.2026 was the date date for paying the last installment. In the meanwhile, the petitioner filed an IA for keeping SARFAESI proceedings in abeyance. According to the petitioner, the SARFAESI Act provisions could not have been invoked in the case of a bank guarantee. Another IA was filed seeking interim relief till the disposal of the said IA. The said IA was disposed of by the

Tribunal with a direction to pay the remaining installments. Challenging the said order dated 23.07.2026 in I.A.No.3166 of 2026, this civil revision petition came to be filed.

3. We heard the learned counsel for the revision petitioner and the learned standing counsel for the bank.

4. The learned consel for the petitioner relies on Section 31(a) of the SARFAESI Act. The said provision reads as follows:- “31.The provisions of this Act shall not apply to—

(a) a lien on any goods, money or security given by or under the Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;” As already mentioned, the bank had given financial assistance to the petitioner in the form of loans. It had also furnished bank guarantee favoring TNCSC at the instance of the petitioner. This bank guarantee had been invoked and encashed. Therefore, the petitioner is obliged to pay the said amount to the bank in terms of the agreement between them. Section 126 of the Indian Contract Act, 1872 is as follows : “126. 'Contract of guarantee', 'surety', 'principal debtor' and

'creditor'— A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety'; the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.” A contract of gurantee is covered by the provisions of the Indian Contract Act, 1872. Section 140 of the said Act reads as follows “ “140. Rights of surety on payment or performance.— Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.” Since the guarantee has been encashed by TNCSC, the bank is entitled to proceed against the revision petitioner for the guarantee amount with interest. The petitioner has given his property as security as consideration for taking the bank guarantee. The bank has proceeded against this security under the SARFAESI Act.

5. The case of the petitioner's counsel is that transactions involving bank guarantee fall outside the purview of the SARFAESI Act. She invokes Section 31(a) of the said Act. The provision has already been extracted. Some commentators have remarked that this particular provision is not happily worded. Section 31 of the Act exempts certain categories of securities from the application of the Act. For instance, it an agricultural land had been offered as security, it cannot be proceeded against under the SARFAESI Act. If movables had been pledged, it cannot also be the subject matter of SARFAESI auction. Likewise, any lien on any goods, money or security given by or under the Contract Act, 1872, Sale of Goods Act, 1930 or any other law for the time being in force cannot also be targetted under the SARFAESI Act. Section 31(a) should be understood in the following manner : “lien on any goods, lien on any money, lien on any security”. Section 171 of the Contract Act is as follows : “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.”

Let us consider an illustration. A customer has two accounts with the bank. Security is available to cover one account. He clears the said liability. The other account remains. The customer wants to take back the security. Since liability under the second account remains uncleared, the bank can refuse to part with the security given for the first account. This is called as banker's lien. Section 31(a) of the SARFAESI Act provides that the bank cannot enforce such a lien by invoking the SARFAESI Act provisions. The expression “lien” is significant. The bank can only hold the security. That is what Section 171 of the Contract Act enables the bank. The right to hold cannot metamorphose into a right to sell. Whatever rights which the bank may have will have to be worked out in terms of the provisions of the Contract Act, 1872. The provisions of SARFAESI Act cannot be used to target securities over which the bank has lien under Section 171 of the Contract Act.

6. In the case on hand, the bank is not intending to do so. It is only proceeding against the security interest created independently. That is why, commentators have stated that the expression “lien” occurring in Section 31(a) refers to statutory lien and not contractual lien. In other words, the lien which the bank has over security by virtue of Section 171 of the Contract Act alone is exempt from the purview of the SARFAESI Act, 1872.

7. The expression “debt” has been defined in Section 2(ha) of the SARFAESI Act in the following terms:- “(ha) “debt” shall have the meaning assigned to it in clause (g) of Section 2 the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and includes—

(i) unpaid portion of the purchase price of any tangible asset given on hire or financial lease or conditional sale or under any other contract;

(ii) any right, title or interest on any intangible asset or licence or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable any borrower to acquire the intangible asset or obtain licence of such asset;” Since the above defintion refers to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, we need to go to the said Act also. As per Section 2(g) of the said Act, “debt” means “any liability”. The expressions found in DRT Act as well as the SARFAESI Act will have to be appropriately interpreted keeping in mind the larger object with which the statutes were enacted. Since the expression “debt” includes “any liability”, it would obviously include the liability arising under a bank guarantee arrangement also. Therefore, we have no hesitation to negative the contention of the learned counsel for the petitioner that SARFAESI Act cannot be invoked in the case of bank guarantees.

8. The expression “security interest” has been defined in Section 2(zf) of the SARFAESI Act as follows : "security interest" means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes-

(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset;” While taking bank guarantee, the petitioner had created security interest in favour of the bank. It is this interest that is now sought to be enforced. No exception can be taken by the borrower.

9. However, taking into account the fact that the SARFAESI application filed against an order passed under Section 14 of the Act is still pending, we call upon the first respondent/bank not to bring the property to sale till the disposal of S.A.No.814 of 2025. To balance the bank's interests, we direct Debts Recovery Tribunal, Madurai to dispose of S.A.No.814 of 2025 on merits and in accordance with the law within a period of four weeks from the date of receipt of a copy of this order.

10. This civil revision petition is disposed of accordingly. No costs. Consequently, connected miscellaneous petition is closed. (G.R.S. J.,) & (M.D.S. J.,) 22.09.2026 NCC : Yes/No Index : Yes / No Internet : Yes/ No ias Issue order copy on 24.09.2026. To:

1. The Chief Judicial Magistrate, Madurai.

2. The Debt Recovery Tribunal, Madurai.

G.R.SWAMINATHAN, J. and M.D.SUMATHI

, J.

ias/skm C.R.P.(MD)No.2576 of 2026

22.09.2026