The court ruled that a lender cannot appropriate a no-lien account deposit in loan settlement without prior court approval, emphasizing adherence to interim orders.

JUDGMENT :

S. MANU, J.

Petitioner was a guarantor to a loan obtained by the 3^rd respondent from the 1^st respondent Kerala Financial Corporation (KFC). The 3^rd respondent defaulted repayment. The 1^st respondent proceeded against the petitioner and notified sale of residential property of the petitioner. The petitioner approached this Court stating that the 3^rd respondent company had sufficient properties to meet the entire liability and hence it is unjust to proceed against the residential property of the petitioner.

2. On 24.09.2014, this Court passed an interim order in favour of the petitioner on condition that she should deposit a sum of Rs.20,00,000/- (Rupees Twenty lakhs only) with the KFC in a no-lien account. The petitioner complied with the order and deposited Rs.20,00,000/- in a no-lien account.

3. During the pendency of this writ petition, the original writ petitioner passed away and her daughter got impleaded as additional petitioner vide order dated 16.9.2015 in I.A.No.13301/2015 to prosecute the writ petition further. Later, the additional petitioner made efforts to settle the matter with KFC. Finally, it was agreed that the loan transaction can be settled under a compromise settlement scheme. The communication issued by the KFC in this regard was produced as Ext.P8 along with I.A.No.4/2025. The petitioner filed I.A.No.2/2025 for permitting the 1^st respondent to appropriate the amount of Rs.20,00,000/- lying in the no-lien account towards the amount agreed to be paid under the compromise settlement scheme.

4. On 25.03.2025, I.A.No.4 of 2025 was considered by this Court. This Court directed the 1^st respondent to appropriate the amount of Rs.20,00,000/- deposited in no-lien account, as directed on 24.09.2014, towards the amount agreed for settlement. Thereafter, I.A.No.5/2025 was filed by the KFC seeking to modify the interim order dated 25.3.2025. In the affidavit filed in support of the petition, KFC contended that it approved the settlement of the loan taking into account the amount of Rs.20,00,000/- deposited in the no-lien account with the Corporation also as remitted by the borrower towards discharge of the liability. The KFC further stated that while passing the order dated 25.3.2025 a mistake crept in the order as the amount of Rs.20,00,000/- remaining in the no-lien account was considered as the compromise settlement advance. Further it was stated while determining the final settlement amount of Rs.76.50 lakhs Corporation had considered all previous remittances. Petitioner filed counter affidavit in I.A.No.5/2025. Petitioner stated in the counter affidavit that the KFC authorities demanded that the full OTS amount of Rs.76.50 lakhs be paid by the petitioner as the amount of Rs.20,00,000/- was remaining in the no-lien account. Accordingly, the petitioner remitted entire Rs.76.50 lakhs and requested the KFC to refund the amount remaining in the no-lien account. Petitioner produced copy of a letter dated 29.3.2025 submitted to the KFC seeking to return the amount retained in the no-lien account. On 10.4.2025, considering the prayer in I.A.No.6/2025, the interim order dated 25.3.2025 was recalled.

5. Thus, though the transaction was settled by the petitioner by remitting an amount of Rs.76.50 lakhs as per the OTS offer, a further dispute arose regarding appropriating the amount of Rs.20,00,000/- lying in the no-lien account. I.A.No.9/2025 was filed by the petitioner for a direction to the KFC to refund the amount of Rs.20,00,000/- remaining in the no-lien account.

6. Learned counsel for the petitioner Sri.C.K.Karunakaran argued that the KFC is now making an attempt to appropriate t