Bank Cannot Attach Deposits Pending Recovery Proceedings Without Show Cause Notice Under RDB Act: DRAT Chennai

The Debts Recovery Appellate Tribunal (DRAT), Chennai has held that a bank cannot attach or exercise lien over deposits during the pendency of recovery proceedings unless the procedure prescribed under the Recovery of Debts and Bankruptcy Act is followed.

It also ruled that such relief cannot be granted when the original application does not contain a specific prayer seeking recovery against the concerned party. Interim directions, the tribunal said, cannot travel beyond the scope of the main relief.

The observations were made by Chairperson Justice G. Chandrasekharan in an order dated February 13, 2026. The tribunal was dealing with an appeal filed by HDFC Bank. The appeal challenged an order of the Debts Recovery Tribunal (DRT), Chennai, which had refused to allow the bank to exercise lien over the fixed deposits and account funds of Zetwerk Manufacturing Businesses Pvt Ltd.

The DRT had earlier passed a status-quo order during the proceedings but later recalled it.

“Attachment cannot be ordered under Section 19(13) of the RDB Act, 1993, directly without issuance of show cause notice to the Defendant to show cause as to why he should not be asked to furnish security and only in the absence of furnishing security, the attachment can be effected,” the tribunal observed.

The dispute arose out of financial facilities extended by HDFC Bank to Right Health Platter Pvt Ltd from June 2021. On July 1, 2022, the borrower entered into a Memorandum of Understanding with Zetwerk Manufacturing SG Pte Ltd for supply of organic dairy products. Based on invoices raised against Zetwerk, the bank extended a foreign bill discounting facility.

The bank claimed that 19 invoices, totaling USD 44,06,616, remained unpaid. It filed a recovery application seeking Rs 52.08 crore from the borrower and other defendants. While the application was pending, the bank sought permission to exercise lien over the fixed deposits and cash flows of Zetwerk Manufacturing Businesses Pvt Ltd. It argued that the Indian entity was closely connected with Zetwerk Singapore and that the corporate veil could be lifted.

The appellate tribunal noted that the recovery application sought relief only against some of the defendants. As far as the Zetwerk entities were concerned, the only prayer was for lifting the corporate veil.

Without a consequential prayer seeking recovery from them, the tribunal held, no interim order permitting lien or attachment over their deposits could be granted.

The tribunal also clarified that attachment before judgment under Section 19(13) of the Act is not automatic. A show cause notice must first be issued directing the defendant to furnish security. Attachment can follow only if the defendant fails to do so.

It further recorded that the claim itself, based on the disputed invoices, was yet to be adjudicated. The interlocutory application, the tribunal noted, did not seek attachment in the manner required under the Act.

In view of these factors, the appellate tribunal upheld the DRT's decision recalling the earlier status-quo order. It declined to interfere with the refusal to allow the bank to exercise a lien over the deposits.