Famous Banking Law Cases in India 2022 

Part I of the compendium on landmark judgments on banking law covered judgments from January to June 2022. In view of the considerable volume of judgments delivered in the year 2022 on the subject, the compendium has been divided into two parts so as to ensure brevity and flow in reading for the reader. Part II of this compendium continues the sojourn into landmark judgments on banking laws and covers judgments delivered from July to December 2022. Around 19 to 20 judgments were covered under Part I from January to June 2022 and the remaining 17 to 18 judgments are being covered hereunder. They are as follows:

(1) Arun Bhatiya v. HDFC Bank1

(Delivered on August 8, 2022)

Coram: 2-Judge Bench of HM Justices D.Y. Chandrachud and A.S. Bopanna

Authored by: HM Justice D.Y. Chandrachud

Statutory appeals were filed against the orders of the National Consumer Disputes Redressal Commission (NCDRC) which dismissed the appeals as also the application for review preferred by the appellant. The original complaint was filed before the State Consumer Disputes Redressal Commission (SCDRC) at Lucknow, alleging deficiency of service on the part of the bank in transferring the FD amount contrary to the written instructions given by the bank account holder to the appellant’s father and, which was subsequently credited by the transferee to his benefit. The SCDRC rejected the complaint holding that this dispute was primarily between the appellant and his father on the issue of FD amount and the civil court was a competent forum to deal with the same. Review petition also came to be dismissed. The primary case set up before SCDRC on behalf of appellant was that the bank was not justified in law, entertaining the unilateral request of his father for crediting the proceeds to his account. Court referred to the condition of the FD relating to a joint account, wherein it was clearly stated that for a premature encashment all signatories to the deposit must sign collectively on the encashment instruction. However, the same was admittedly not done in the present case. Referring to recent judgment of the Supreme Court in Vodafone Idea Cellular Ltd. v. Ajay Kumar Agarwal2, the Court held that service of every description will fall within the ambit definition of “services” under Section 2(1)(o) of the Consumer Protection Act, 1986 (‘1986 Act’). Parliament has confined the exclusion only to two specified categories, accepting which service is defined and deemed to include service of any and every description. A person who avails of any service from a bank also falls under the purview of the definition of a consumer under the 1986 Act, which entitles him to seek recourse to the remedies provided under the 1986 Act. Thus, SCDRC and resultantly NCDRC were held to have erred in incorrectly rejecting the complaint and the statutory appeal of petitioner. The matter was again accordingly remanded back for fresh adjudication and consideration of merits within the ambit of Act of 1986 by the NCDRC by the Supreme Court.

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(2) Bank of Baroda v. Parasaadilal Tursiram Sheetgrah (P) Ltd.3

(Delivered on August 11, 2022)

Coram: 2-Judge Bench of HM Justices B.R. Gavai and P.S. Narasimha

Authored by: HM Justice P.S. Narasimha

The secured creditor had auctioned the property and issued the sale certificate in favour of the successful auction-purchaser. Section 17 application before the Debts Recovery Tribunal (‘DRT’) was filed, challenging the auction proceedings through the borrower company. DRT dismissed the original application holding that it was filed beyond the statutory period of limitation of 45 days. The said order was challenged in review, which review was allowed on the ground that the LRs of one of the borrowers/directors of the company were not issued notice and that the same were not aware when the auction took place. The order passed by DRT in the review was challenged before the Debts Recovery Appellate Tribunal (‘DRAT’) ,which allowed the appeal against the review order on the ground that the review jurisdiction was improperly and illegally exercised. This order of DRAT was challenged before the High Court at the instance of the legal heirs/ representatives of the deceased director, which was stayed by the High Court and the DRT was directed to proceed with the securitisation application on merits. Referring to the judgment of Transcore v. Union of India4, the Court held that SARFAESI Act is enacted for quick enforcement of security interests and in a case where a property has been sold off and third-party rights created under the provisions of the Act, has remained inconclusive even after a decade only because of the interference made by the DRT, the Courts should be loathe to interfere. The interim order of the High Court staying the operation of the order of DRAT (which set aside the review order of DRT), was accordingly set aside by Supreme Court, holding that the order of DRAT on the face of it was correct and the High Court should not have stalled the operation for the same.

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(4) Moonlight Poultry Farm v. Union Bank of India5

(Delivered on August 26, 2022)

Coram: 2-Judge Bench of HM Justices C. Praveen Kumar and Tarlada Rajasekhar Rao

Authored by: HM Justice C. Praveen Kumar

Question arose about the interpretation and extent of applicability of Section 13(8) of the SARFAESI Act, 2002, about the right of the principal borrower to redeem the mortgage property after it was sold in auction by the bank under the provisions of Security Interest (Enforcement) Rules, 2002. The two principal questions which arose for consideration before the High Court were as follows:

A. Whether the respondent Bank was right in issuing the sale certificate in favour of the auction-purchaser though the petitioners have deposited the entire amount prior to the date on which the auction-purchaser has deposited the amount.

B. Till what time or date can the right of redemption of the mortgage be exercised by the mortgagor/borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act.

The court analysed both pre-amended and post-amended provisions of Section 13(8) of the SARFAESI Act, amended through amendment dated 1-9-2016. It was held that amended Section 13(8) was intended only to deal with the date when the secured creditor’s right to transfer the secured assets should start and nothing more. Referring to the judgment of the Supreme Court in Mathew Varghese v. M. Amritha Kumar,6 it was held that, the right to redeem the mortgage does not get extinguished on the date fixed for sale i.e. the date fixed for public auction/e-auction but extends further beyond. The amended provision of Section 13(8) nowhere speaks or extinguishes the equity of redemption available to the mortgagor but merely prohibits the secured creditor from proceeding further with the transfer of the secured assets by way of lease, assignment, or sale, if the entire amount is repaid prior to the notice for auction. The right to redeem the mortgage always comes later than the sale notice and is not lost immediately upon the highest bid made by the purchaser in an auction being accepted. Thus, the sale certificate that was issued to the auction-purchaser was subsequent to deposit of outstanding amount by the petitioners with the current account of the bank and thus, since the right of redemption of the mortgage property was existing and not lost immediately upon the highest bid made by a purchaser in an auction being accepted, the sale certificate was clearly vitiated. The court accordingly held that the petitioner borrower had exercised the right to redeem the property from the bank timely and sale confirmation and sale certificate letters were accordingly quashed by the High Court.

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(5) SEBI v. Rajkumar Nagpal7

(Delivered on August 30, 2022)

Coram: 3-Judge Bench of HM Justices D.Y. Chandrachud, Surya Kant and A.S. Bopanna

Authored by: HM Justice D.Y. Chandrachud

The secured creditors entered into agreement with respect to the resolution plan for the recovery of outstanding dues along with other lenders of Reliance Commercial Finance Limited (‘RCFL’). The said resolution plan was executed amongst varios institutional creditors on the basis of the inter-creditors agreement (ICA) prepared in light of the Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets) Directions, 2019 (hereinafter “RBI Circular”). Security Exchange Board of India also issued a circular on 13-10-2020, titled as “standardisation of procedure to be followed by debenture trustee(s) in case of default by issuers of listed debt securities”. Disputes arose about the interplay of both the RBI as well as SEBI Circular; the rights of debenture trustees vis-à-vis the secured creditors/lenders in case of enforceability of a resolution plan against the distressed defaulting company. Two broad issues were framed by the court which were as follows:

(a) whether the debenture holders and other parties in the present case were required to follow the procedure under the SEBI Circular; and

(b) whether the civil court had the jurisdiction to entertain the lis in this case.

Referring to the history, purposes and objective of RBI Circular of 6-7-2019, Court held that it contemplates a resolution plan inclusive of restructuring of a default account with lender institutions falling within the ambit of Clause 3. It was held to have been issued within the four corners of the provisions of Sections 1(4)(e) and 230(2)(c)(iv) of the Companies Act, 2013. The resolution plan-cum-scheme of corporate debt restructuring must be consented to by not less than 75% of the secured creditors by value and 60% by number. Under the RBI Circular, all lenders must enter an ICA, where a resolution plan is being implemented and it must have a minimum of 75% by value and 60% by number to bind all the lenders, including those who dissent.

The court also traced the background, objective and purpose behind the enactment of SEBI (Debenture Trustees) Regulations, 1993 as a circular meant for and containing provisions for registration of debenture trustees. The court also referred to the SEBI Circular in question involved in the lis. SEBI Circular also specifies conditions for signing of an ICA by any debenture trustee on behalf of the investors and it is the debenture trustee who is vested with the discretion to sign or not to sign the resolution plan on behalf of the investors. Subsequent to the issuance of SEBI Circular, debenture holders can bind the dissenters by taking recourse to it, which facilitates the process of seeking consent for enforcement of security or entering into an ICA. After the advent of a SEBI Circular, debenture holders and investors of debt securities are also enabled and empowered to sign the ICA under the RBI Circular. Thus, the SEBI Circular has essentially facilitated the role of debenture holders in the insolvency proceedings and the ICA which occurs under the umbrella of RBI Circular. The SEBI Circular was held to be possessing a statutory character and colour having been issued under the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the various regulations framed thereunder.

Examining the various clauses of SEBI Circular, Court held that the debenture holders may opt to exercise their rights through the mechanism of resolution plan of ICA provided under RBI Circular, or they may stand out. However, once they opt for the mechanism provided under the SEBI Circular, they cannot opt out of it and the resolution plan provided thereunder is the one which is under the umbrella of RBI Circular. ICA is the only route for entering into a compromise with the issuer company and a root to the resolution plan with the lenders. This procedure cannot be circumvented, once being opted by the debenture holders. Referring to Clause 6 of the SEBI Circular, the Court held that it binds even the dissenting creditors/debenture holders, who do not have the option of exiting the compromise or arrangement arrived at under the RBI Circular in terms of Section 230 of the Companies Act, 2013. The decision of the respective majorities binds the dissenting creditors and thus, the argument that even a single debenture holder will veto of entire resolution plan is an unsustainable one.

On its applicability, the Court held that the SEBI Circular is not retrospective but has a “retroactive” application. Referring to the judgments of Vineeta Sharma v. Rakesh Sharma8 and State Bank’s Staff Union v. Union of India9, court distinguished between the two terms “retrospective” and “retroactive”. Retroactivity of any law arises when it is to an act or transaction which is still underway, not completed and is in the process of completion. Just because a law operates on certain circumstances which are antecedent to its passing does not mean that it is retrospective if certain stages of that transaction are remaining. The test is whether the person affected has been vested with any right or not by the completed chain of transactions and circumstances. Even though the SEBI Circular applied to certain transactions that were completed before its introduction, however it applies to the transaction of framing a resolution plan which is subsequent to its introduction and thus, it is “retroactive” in nature and not strictly “retrospective”. Even otherwise, a contractually vested right can always be taken away by operation of statutory instrument was so held by the court. The SEBI Circular being enacted in exercise of statutory powers conferred by special legislation for protecting the interests of investors; ensuring the stable and orderly growth and development of market for securities, can very well alter, modify, or take away vested rights created by way of any contract being a statutory instrument in itself. It thus takes precedence over and above various contractual clauses.

The court also examined the breadth and width of Article 142 of the Constitution of India which can be used to relax the rigours of law depending upon the peculiar facts and circumstances. Referring to the judgments of State v. Kalyan Singh10 and Laxmidas Morarji v. Behrose Darab Madan11, Court held that Article 142 can be resorted to issue directions for moulding of relief and court to the extent of relaxing the application of law to the parties or exempting altogether the parties from the rigours of law in view of peculiar facts and circumstances of the case. It is a power to be used sparingly in cases for doing complete justice which cannot be effectively and appropriately tackled by existing provisions of law. Accordingly, the court after interpreting the applicability and interplay of the SEBI Circular vis-à-vis RBI Circular on the framing of a resolution plan, issue certain directions protecting the interest of the ICA lenders as also the debenture holders in a just and fair manner exercising powers under Article 142 of the Constitution of India.

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(6) Jalgaon Janta Sahakari v. CST12

(Delivered on August 30, 2022)

Coram: 3-Judge Bench of HM Justices Dipankar Datta, C.J M.S. Karnik and N.J. Jamadar

Authored by: HM Justice Dipankar Dutta

The primary issue before the Bombay High Court was about the interpretation of various provisions introduced vide amendment of 2016 to the provisions of SARFAESI Act, 2002 and the RDDB Act, 1993. Who between a secured creditor as defined in Section 2(1)(zd) of the SARFAESI Act and Section 2(1)(la) of the RDDB Act, and the taxing/revenue departments of the Central/State Governments, can legally claim priority for liquidation of their respective dues qua the borrower/dealer upon enforcement of the “security interest” [as defined in Section 2(1)(zf) of the SARFAESI Act] and consequent sale of the “secured asset” (as defined in Section 2(1)(zc) of the SARFAESI Act], in view of the extant laws, was a broad question that the High Court was tasked to decide. The Full Bench formulated the following substantial questions of law to be answered:

(a) Having regard to the statutory provisions under consideration, does a secured creditor [as defined in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) and the Recovery of Debts and Bankruptcy Act, 1993 (‘RDDB Act’) have a prior right over the relevant department of the Government under the Bombay Sales Tax Act, 1959 (‘BST Act’)/Maharashtra Value Added Tax Act, 2002 (‘MVAT Act’)/Maharashtra Goods and Services Tax Act, 2017 (‘MGST Act’)] to appropriate the amount realised by the sale of a secured asset?

(b) Whether, despite Section 26-E of the SARFAESI Act or Section 31-B of the RDDB Act being attracted in a given case, dues accruing to a department of the Government ought to be repaid first by reason of “first charge” created over any property by operation of law (viz. the legislation in force in Maharashtra) giving such dues precedence over the dues of a secured creditor?

(c) Are the provisions, inter alia, according “priority” in payment of dues to a secured creditor for enforcing its security interest under the provisions of the SARFAESI Act prospective?

(d) Whether Section 31-B of the RDDB Act can be pressed into service for overcoming the disability that visits a secured creditor in enforcing its security interest under the SARFAESI Act upon such creditor’s failure to register the security interest in terms of the amendments introduced in the SARFAESI Act?

(e) Whether the priority of interest contemplated by Section 26-E of the SARFAESI could be claimed by a secured creditor without registration of the security interest with the Central Registry? Depending on the answer to this question, whether correct proposition of law has been laid down in para 21 of the Division Bench decision in ASREC (India) Ltd. v. State of Maharashtra.13 and in para 35 of the Division Bench decision, in SBI v. State of Maharashtra14?

(f) When, and if at all, can it be said that the statutory first charge under the State legislation viz. the BST Act, the MVAT Act and the MGST Act, as the case may be, stands displaced having regard to introduction of Chapter IV-A in the SARFAESI Act from 24-1-2020?

(g) Whether an auction-purchaser of a secured asset would be liable to pay the dues of the department in order to obtain a clear and marketable title to the property having purchased the same on “as is where is and whatever there is basis”?

Answering the first issue and interpreting Section 26-E of the SARFAESI Act and Section 31-B of the RDDB Act, the Court held that there is no difference between “first charge” and “priority” in the payment of debt. They are synonyms and mean the same except for some semantic variation on account of differing phraseology. The “first charge” and “priority” in favour of banks/financial institutions is created for recovery realisation of the dues in priority to the dues of the department of Government and therefore the said priority shall hold good for creation of every interest from lease, mortgage to sale of the said property. Explaining the meaning of the word “encumbrances” in relation towards “immovable property”, relying on the judgment of AI Champdany Industries Ltd. v. Official Liquidator15, the Court held that the provisions of law must always expressly provide for enforcement of a charge against the property in the hands of a transferee for value without notice to the charge and not merely create a charge. If there is no such express statutory provision, then such an encumbrance cannot be enforced against a bona fide purchaser/transferee without notice of a charge.

The court also elaborated on parliamentary intent and objective behind insertion of a fresh Chapter IV-A in the SARFAESI Act adding Sections 26-B to 26-E as to emphasise upon the need to register transactions of securitisation, reconstruction, creation of security interest with the Central Registry, with such registration mandatory for a secured creditor for availing benefits flowing therefrom. CERSAI registration, which has been made mandatory for a secured creditor, failing which he cannot even take recourse to provisions of Chapter III without requisite registration. Referring to various legislations of the State of Maharashtra, providing for first charge, it was held that all of them are subservient/subordinate to the priority created in favour of secured creditor under the SARFAESI or the RDDB Act. The Crown’s debt is below the secured debt and enjoys no priority over the latter. Referring to the judgments of Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.16 and ICICI Bank Ltd. v. SIDCO Leathers Ltd.17, it was held that dues of Central/State Governments were in the specific contemplation of the Parliament whilst the SARFAESI and RDDB Act were amended. Thus, the dues of secured creditor [subject of course to Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) registration] and subject to insolvency proceedings under the IBC Code would rank superior to the dues of relevant department of the State Government.

On the next issue [Question (c)] Court held that Section 26-E of the SARFAESI Act shall apply prospectively, that makes CERSAI registration mandatory, in the absence of which resort to provisions of Chapter III of the Act of 2002 is impermissible for the secured creditor. Chapter IV-A as a whole was held to be applicable prospectively.

Answering Question (d), the Court held that by resorting or invoking Section 31-B of the RDDB Act, a creditor cannot escape the rigours of Sections 26-D and 26-E of the SARFAESI Act. Thus, if under Chapter IV-A, CERSAI registration is not existing, then even the non obstante clause of Section 31-B would not come to the rescue of the creditor, who would thus be disabled to resort to it. The requirement of CERSAI registration is mandatory for the purposes of letting the world know at large that an equitable mortgage over the immovable property in favour of secured creditor has been created, which takes an upper hand over all other debts, dues, and liabilities.

Answering Questions (e) and (f), Court held that the priority under the provisions of SARFAESI Act under SARFAESI Act is applicable prospectively. Meaning thereby if the statutory liability has crystallised prior to advent or introduction of Chapter IV-A or Amendment of 2016, then it shall not disturb the settled priority, right or a better charge of the statutory authority (State or Centre). Thus, amended Sections 31-B and 26-E shall not apply retrospectively to past attachments arising out of liabilities created prior to the Amendment of 2016.

Answering Question (g), it was held that “encumbrance” must be charged on the property. If by reason of statute no such burden on the title which diminishes the value of the land is created, it should not constitute any “encumbrance” so as to supersede the provision of Section 26-C. The priority contemplated under Section 26-C would not get attracted prior to 2016 if the attachment and charge has been created according to law, following all the statutory formalities as required under the applicable local statute by the competent Designated Authority. Accordingly, answering the reference, the bunch of writ petitions were disposed of by the Full Bench of Bombay High Court

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(7) Joy Kali Oil Industries (P) Ltd. v. Union of India18

(Delivered on September 13, 2022)

Coram: 2-Judge Bench of HM Justices Prakash Shrivastava, C.J. and Rajarshi Bharadwaj

Authored by: HM Justice Rajarshi Bharadwaj

The court held that Section 14 of the SARFAESI Act, 2002 is not a provision dealing with the jurisdiction of the court or executive authority as such. It is a remedial measure available to the secured creditor who intends to take the assistance of the authorised officer for taking possession of a secured asset in furtherance of enforcement of security furnished by the borrower. The authorised officer essentially exercises administrative or executive functions, to provide assistance to the secured creditor in terms of State’s coercive power to effectuate the legislative intent of speeding the recovery of the outstanding dues receivable by the secured creditor. It is at best a quasi-judicial function, that can be discharged even by the Executive Magistrate. The power exercisable and the steps taken for passing orders under Section 14 are essentially ministerial steps and can be exercised through any officer assisting him or subordinate to him. There is no obligation on CMM/DM to go personally and take possession of the secured assets which can be delegated and discharged even by Executive Magistrate. Thus, the writ petition questioning the taking over the possession by the Executive Magistrate at the instance of the borrower was dismissed.

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(8) Balkrishna Rama Tarle v. Phoenix ARC (P) Ltd.19

(Delivered on September 26, 2022)

Coram: 2-Judge Bench of HM Justices M.R. Shah and Krishna Murari

Authored by: HM Justice M.R. Shah

Challenge was made to the judgment of the Bombay High Court. The Bombay High Court had set aside the order passed by the Designated Authority under Section 14 of the SARFAESI Act, which had declined to assist the secured creditor in taking possession of the secured assets and kept the application pending, observing that the said application can be decided only after the termination of the tenancy rights of the petitioner by the finance company by following the due process of law. Till then, the issue of granting possession cannot be adjudicated upon. This order of the competent authority under Section 14 was set aside by the Bombay High Court, directing it to decide the said application under Section 14 of the SARFAESI Act afresh. The appellant before the Supreme Court were principal borrowers against whom the ARC was proceeding under SARFAESI. The debts were assigned by the original lender/creditor Religare Finvest Ltd to the ARC by the bank as the secured creditor for its recovery. Section 14 application filed by the ARC before Designated Authority was objected to by the legal heirs of original tenants of the mortgaged property, without instituting any proceedings under Section 17 of the SARFAESI Act challenging the steps taken by the creditor/ARC under Section 13 of the SARFAESI Act before the Debts Recovery Tribunal. It was a case of the LRs of tenant that since the tenancy was subsisting and continuing prior to the mortgage of the property or creation of security interest in the rented premises, therefore their rights take a precedence, deserve to be protected and till and until the proceedings are initiated for eviction of tenant, secured creditor cannot get possession under Section 14 of the SARFAESI Act. The tenant accordingly relied upon the judgment ofHarshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd.20 and Vishal N. Kalsaria v. Bank of India.21

Two fundamental questions were examined by the Supreme Court, which were as follows:

A. Maintainability of the writ petition at the instance of the tenant before the High Court bypassing the statutory remedies under the SARFAESI Act, 2002.

B. Whether while exercising powers under Section 14 of the SARFAESI Act, the District Magistrate/Designated Authority could have passed any order deferring the relief of grant of possession till and until the secured creditor terminates the tenancy rights of the third person (previously existing tenants) by following the due procedure of law and that the application under Section 14 could not have been deferred to be decided till such stage.

The court examined the anatomy of Sections 13 to 17 of the SARFAESI Act, holding that the powers exercisable by DM/CMM under Section 14 are purely “ministerial” and cannot brook any delay. Referring to the judgments of NKGSB Cooperative Bank Ltd. v. Subir Chakravarty,22 and R.D. Jain & Co. v. Capital First Ltd.23, Court held that no adjudicatory powers are vested with the CMM/DM whilst deciding an application under Section 14. Adjudication qua points raised by the borrowers against the secured creditor taking possession of the secured assets cannot be raised between any third party and the secured creditor with respect to the secured assets. The aggrieved party has to necessarily be relegated to the remedy under Section 17 of the SARFAESI Act and nowhere else. Distinguishing the judgment of Harshad Govardhan Sondagar24 and Vishal N. Kalsaria v. Bank of India25, Court held that nowhere in the aforesaid judgment was it held that DM/CMM has to adjudicate the rights between the parties or decide upon the issues pertaining to locus of the secured creditor to take possession. Accordingly, the judgment of the High Court was affirmed.

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(9) Diamond Entertainment Technologies (P) Ltd. v. Religare Finvest Ltd.26

(Delivered on October 14, 2022)

Coram: Single Judge Bench of HM Justice Neena Bansal Krishna

Authored by: HM Justice Neena Bansal Krishna

The question that arose for consideration was whether a second arbitration petition is maintainable in respect to the contract regarding which the petitioner has already invoked arbitration and an award has already been delivered on 9-6-2015. In short, whether there can be multiple arbitration proceedings from the same contract, which was a loan agreement. The bank had initiated SARFAESI proceedings under Section 13 for non-payment of the amount not covered by the award passed in the previous round of arbitration proceedings. Referring to the judgment of Dolphin Drilling Ltd. v. ONGC Ltd.27 the Court held that an invocation of arbitration cannot be treated as a one-time measure and it cannot be held that once the arbitration clause is invoked in any contract, the remedy of arbitration is no longer available in regard to other disputes that may arise in future. At the same time, it is not prudent to consider multiple arbitrations from the same contract except when cause of action arises afresh post invocation of the first arbitration. In the same way in referring to the judgment in Gammon India Ltd. v. National Highways Authority of India,28 the Court held that all claims that have reason on the date of an invocation of arbitration must be referred to arbitration and piecemeal reference to arbitration of only some disputes, whilst leaving out the others through a process of segregation is not permissible. The said liberty is available to the parties only with respect to fresh cause of action.

It was further held that remedy under SARFAESI Act available to the secured creditor bank was only in addition to the provisions of other enactments. Referring to Section 37 of the SARFAESI Act, it was held that provisions of RDDB Act or any other enactment are not inconsistent with the provisions of SARFAESI Act and application of RDDB Act is always complementary to the implementation and application of SARFAESI Act. In other words, a proceeding under the former act does not in any way nullify, annul, modify, or impair the effect of the provisions of the RDDB Act. It was further held that arbitration of disputes never gets per se barred on invocation of proceedings under the SARFAESI Act, referring to the judgment of M.D. Frozen Foods Exports (P) Ltd. v. Hero Fincorp Ltd.,29 accordingly, the High Court appointed an arbitrator for de novo arbitration proceedings between the parties.

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(10) Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd.30

(Delivered on November 10, 2022)

Coram: 3-Judge Bench of HM Justices Sanjay Kishan Kaul, Abhay S. Oka and Vikram Nath

Authored by: HM Justice Sanjay Kishan Kaul

The Supreme Court answered the reference made to it by the two-Judge Bench on the question relating to the legal right of the borrower to initiate civil suit before civil court (under the provisions of CPC, 1908) against the bank/financial institution seeking to recover a loan amount against it. The appellant bank, on the inability of the respondent borrower to pay the outstanding dues, initiated proceedings under Section 19 of the erstwhile Recovery of Debts and Bankruptcy Act, 1993 (for short “RDB Act”) (Prior to change of title in 2016) before the DRT Calcutta. The respondent in turn filed a civil suit before the Calcutta High Court claiming a decree for sale of the pledged shares, recovery of sale proceeds and enquiry into the losses suffered by respondents along with the decree of payment of money after the same. In the course of proceedings, conflict emerged on views taken by the Supreme Court in various judgments of United Bank of India v. Abhijit Tea Co. (P) Ltd.31 and Indian Bank v. ABS Marine Products (P) Ltd.32 and other such judgments. The Court scanned the anatomy of the RDB Act, noting the Statement of Objects and Reasons, the entire statutory framework, especially erstwhile Section 18 (bar of jurisdiction) read with Section 19 (application to the tribunal), RDB Act. Court referred to the judgment in the Indian Bank case33 to hold that the statutory bar under Sections 17 and 18 on the civil court jurisdiction is only regarding the applications by the bank or financial institution for recovery of its debt, and the same is not barred in relation to any suit filed by the borrower or any other person in regard to any relief against the bank. Borrower also has the remedy of filing a counterclaim to the bank’s application before the Tribunals, which is just an option apart from filing of a separate suit or proceeding or any other appropriate forum against the bank, but he can never be compelled to file and institute only a counterclaim. The DRT has not been conferred any jurisdiction especially to try any independent suits or proceedings initiated by the borrower or others against banks/financial institutions, but it is a forum designed for institution of suits, proceedings and applications at the instance of the bank. This view, however, was modified in subsequent judgments.

Referring to the Constitution Bench judgments in Dhulabhai v. State of M.P.34 and Dwarka Prasad Agarwal v. Ramesh Chander Agarwal35 and others, Court held that Section 9 CPC is a power without any restrictions of the civil court to determine and decide all disputes of civil nature unless specifically barred under any statute. Such a bar can also be inferred by necessary implication but cannot be readily inferred and it requires a strict interpretation with courts normally leaning in favour of construction that upholds the jurisdiction of civil court. It is purely the choice of the borrower in which forum he intends to raise his dispute and no provision under the RDB Act ousts the jurisdiction of the civil court. Despite multiple amendments to the RDB Act on various occasions, Section 17 or Section 18 have never been amended, but rather remained untouched. Referring to the judgment of Transcore v. Union of India36, DRT being a tribunal and a creature of statute, cannot possess any inherent powers, as it inheres in civil courts by virtue of Section 151 CPC. Apart from this, DRT or the civil court also does not have any power to transfer any suit or independent proceedings instituted by a defendant to the Tribunal in the absence of any substantive provision from civil court to DRT. Neither the civil court can be presumed to be possessing such a power as neither CPC nor RDB Act provides any such provision enabling the transfer of suit proceedings from civil court to DRT. The consent or absence of consent therefore cannot lend any such power to the civil court and DRT for transferring the proceedings. Accordingly, the reference was answered by the three-Judge Bench of the Supreme Court in the judgment.

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(11) Varimadugu Obi Reddy v. B. Sreenivasulu37

(Delivered on November 16, 2022)

Coram: 2-Judge Bench HM Justices Ajay Rastogi and C.T. Ravikumar

Authored by: HM Justice Ajay Rastogi

The e-auction sale notice was challenged by the borrowers before the DRT, wherein though the auction-sale was allowed to be proceeded with, but, however, the sale certificate was directed not to be issued. It was further directed by DRT that in case borrowers fail to deposit the said outstanding amount, then the respondent Bank shall be at liberty to issue the sale certificate in favour of the highest bidder. On the failure of the borrower to repay the amount within the extended time period, auction-sale was finalised, and sale certificate was issued in favour of auction-purchaser. The auction-sale was objected to on the ground that there was a manifest error in the description of property, especially of khasra/plot number of the same and secondly that the auction price was not deposited by the auction-purchaser within the fifteen days of the auction, but deposited admittedly much thereafter, for which the auction was thus vitiated. The High Court quashed the entire auction proceeding on the aforementioned grounds, which then travelled to the Supreme Court at the behest of the bank. On the aspect of incorrect and wrong description of the property, the Court held that since no palpable prejudice was demonstrated to have been occasioned out of said error in the description of the property, nor such a plea was not taken in response to the notices issued under Sections 13(2), 13(4), etc., or before the DRT at the outset, therefore the plea belatedly after the conclusion of auction proceedings was an afterthought and not sustainable. Relying on the judgment of Sri Siddeshwara Cooperative Bank Ltd. v. Ikbal38, Court held that the period of 15 days under Rule 9 Clause 4 is not that sacrosanct and is extendable if there is written agreement between the parties for such extension for the payment of the balance 75%/50% of the amount of auction-sale. Thus, failure in not depositing the balance 75% of the bid amount of the auction-purchaser would not vitiate the entire sale. In the present case, it was the auctioning bank itself who had sought for time and deferral of payment of the remaining 75% of the bid amount to the auction-purchaser.

Apart from the above, Supreme Court also deprecated the conduct of the borrower in directly approaching the High Court against the order passed by DRT, instead of availing the appellate remedy under Section 18 of the SARFAESI Act. Referring to the judgment of United Bank of India v. Satyawati Tondon39, and a host of other judgments, the Court held that writ petition passed by the DRT was clearly not maintainable and the only forum available for agitating the matter further was DRAT under Section 18 of the SARFAESI Act. It was further held that the auction proceedings should not be toppled merely because of incorrect khasra numbers in the auction-sale notice, unless and until palpable prejudice is demonstrated. Accordingly, the Supreme Court set aside the judgment of the High Court holding no case for interference was made out with the auction-sale.

* * *

(12) Leelamma Mathew v. Indian Overseas Bank40

(Delivered on November 17, 2022)

Coram: 2-Judge Bench of HM Justices M.R. Shah and Krishna Murari

Authored by: HM Justice M.R. Shah

The bank had auctioned the property to the auction-purchaser which was disputed and was possessing multiple encumbrances over it. The trial court eventually decreed the suit and directed the defendant Bank to pay the plaintiff (auction-purchaser) entire amount paid by him along with future interest at the rate of 12% p.a. from the date of suit till realisation. The matter travelled to the Supreme Court on the question of maintainability as also the propriety of the order passed by the Trial Court. On the question of maintainability of the suit being barred by Section 34 of the SARFAESI Act, the Court held that the suit was for “damages and compensation”, with respect to part of the auctioned land which could not have been decided by the DRT or DRAT. Section 34, SARFAESI Act was held to be applicable only where jurisdiction or the subject-matter of the dispute falls within the purview of DRT/DRAT, and not otherwise. The auction-purchaser was not challenging the sale certificate, but only damages/compensation with respect to the lesser area which was granted to him.

Another issue was about the interpretation of “as is where is” and “as is what is” basis clause at the time of sale of the subject property by the secured creditor. Referring to Rules 8 and 9 of the Securities Interest (Enforcement) Rules, 2002, read with Section 54 of the Transfer of Property Act, 1882, Court held that the bank as a seller was bound to disclose to the auction-purchaser (buyer) any material defect in the property which the buyer was not aware or could not have ordinarily discovered. Thus, since the bank had concealed the aforementioned issue of existence of encumbrances and prior charges over the auctioned property, therefore, the “as is where is” or “as is what is” clause/condition was not applicable, and the petitioner was rightly held to be entitled to the damages/amount paid for by him. The judgment of the High Court setting aside the decree was set aside, with the judgment of the trial court being restored and affirmed.

* * *

(13) Ishwarlal Shankarlal Lalwani v. Union of India41

(Delivered on November 17, 2022)

Coram: 2-Judge Bench of HM Justices Ravindra V. Ghuge and Sanjay A. Deshmukh

(Interim Order)

Authored by: HM Justice Sanjay A. Deshmukh

Challenge was made to the Notification dated 4-10-2022 issued by Union of India, through which all disputes and litigations having loan exposures value of more than 100 crores were directed to be transferred to Delhi and Bombay from all other existing DRTs of the country. The notifications were challenged on the ground that the very purpose of establishing DRTs at various locations in every State would be defeated and it would in turn disturb the territorial appellate jurisdiction exercised by DRATs also. The High Court taking a prima facie view of the matter held that determining territorial jurisdiction on the grounds of pecuniary limitations without any amendment to the RDDB Act is unsustainable. If later the impugned notifications are stuck down, then transferring back all the files to the original DRTs and DRATs shall lead to severe prejudice to the parties. In the entirety of the circumstances, therefore the effect and operation of the notification transferring cases dated 4-10-2022 were stayed by the Bombay High Court.

* * *

(14) Punjab National Bank v. Subhash Aggarwal42

(Delivered on November 18, 2022)

Coram: 2-Judge Bench of HM Justices Suresh Kait and Saurabh Banerjee

Authored by: HM Justice Mr. Saurabh Banerjee

The bank had approached the High Court against rejection of Order 7 Rule 11 application under CPC, 1908 in the suit instituted by the borrower. The original suit was filed for declaration challenging interest from them prior to the date of registration of title of the subject property in favour of the auction-purchasers. The moot question before the High Court was with respect to non-maintainability of the civil suit being barred by Section 34 of the SARFAESI Act. The suit was pertaining to the grant of damages for inordinate delay in issuance of the sale certificate and resultant registration of sale deed in their favour.

The appellant Bank had admittedly not initiated any proceedings under Section 13 of the SARFAESI Act, nor had set them into motion. It was thus held that the bar under Section 34 of the SARFAESI Act cannot operate and any relief or suit pertaining to grant of compensation and damages, which could thus be instituted only before the civil court and nowhere else. Court held that the bar under Section 34 applies not only to pending action, but also any action proposed to be undertaken under the SARFAESI Act or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). The prohibition under Section 34 would come into play when the ball starts rolling at the behest of secured creditor by initiation of appropriate steps for realisation of its security interest, and not before. The borrower otherwise in the absence of any such active steps, is completely remediless and Section 34 would not apply. It was further held that, however limitation would apply to the claim of repayment of outstanding security at the instance of a bank and the phrase “to be taken” falling under Section 34 of the SARFAESI Act cannot be given indefeasible meaning dehors the law of limitation. It has to be understood in the context of law of limitation, implying that measures under SARFAESI Act which are proposed to be taken are those which are not barred by limitation and are alive, existing and enforceable. Provisions of Section 34 of the SARFAESI Act have to be read conjunctively with Section 36, wherein the applicability of other laws, including the law of limitation, has not been excluded. If the proceedings of any nature pertaining to repayment of the outstanding claim of the secured creditor are time-barred Section 34, even if initiation at the behest of the bank is imminent, shall not apply. The bank loses its right to enforce any such repayment or be permitted to carry dead remains to flog a dead horse or be perpetually allowed to hunt for something which is non-existent or impermissible under law. The suit before the civil court was thus held to be maintainable and Order 7 Rule 11 application on behalf of the bank was rightly rejected by the trial court.

* * *

(15) Shipra Hotels Ltd. v. State of U.P.43

(Delivered on November 25, 2022)

Coram: 2-Judge Bench of HM Justices Sunita Agarwal and Vipin Chandra Dixit

Authored by: HM Justice Vipin Chandra Dixit

The solitary issue that arose for consideration before the High Court was whether principles and requirements of natural justice can be read into as implied mandatory requirements before passing of any order by the CMM/DM under Section 14 of the SARFAESI Act, 2002. It was contended that the factual disclosure made by secured creditor in the affidavit accompanying Section 14 application would require rebuttal, for which principles of natural justice have to be necessarily complied with. There was a difference of opinion amongst the various judgments of Single Benches, owing to which the necessity arose for the Division Bench to examine the aforesaid issue. The High Court produced various provisions of SARFAESI Act, 2002 and the judgment of the Supreme Court in Mardia Chemicals Ltd. v. Union of India44. Referring to the judgment of Mardia Chemicals45, it was held that if any measures undertaken under Section 13(4) of the Act of 2002 are to be opposed by the borrower, then the only remedy available is to approach the Tribunal by way of application under Section 17 of the Act. The recovery of possession by non-adjudicatory process under Section 13(4) is automatic and statutory and thus it cannot be contended that rights of the borrower stand defeated without adjudication. Referring to the judgment of Bombay High Court in Trade Well v. Indian Bank46, it was held that the requirement of prior to taking symbolic possession under Section 13(4) or direction for taking physical possession under Section 14 of the Act. Sections 13 and 14 were held to be the part of the very same exercise of taking over a physical possession (symbolic or physical mode), against which safeguard of remedy before DRT under Section 17 has been provided. Referring to the judgments of Transcore v. Union of India47 and Standard Chartered Bank v. V. Noble Kumar48, Court held that the necessity of hearing and considering the necessity of borrower stands attended to at the stage of Section 13(3-A) of the SARFAESI Act, when the representation is directed to be considered and speaking order passed on the same by the bank. Thus, prior to Section 13(4) or Section 14 rightly no opportunity of hearing is contemplated statutory or deserved to be provided to the borrower. The scheme of the SARFAESI Act entitles the borrower to resort to the statutory remedy under Section 17 and questions the measures taken under Sections 13(4) and 14 therein on various grounds. Section 13(3-A) is the effective opportunity of the hearing being afforded to the borrower under the scheme of SARFAESI Act, before the secured creditor proceeds to initiate coercive measures against the borrower including taking over of physical possession. However, at the same time, the High Court referred to the judgment of State of U.P. v. Synthetics and Chemicals Ltd.,49 held that any declaration or decision arrived without application of mind, or any reason cannot be deemed to be a declaration of law and that prior decisions of the court on identical facts and laws bind the court on the same point of law in a later case. If any judgment has been passed ignoring a binding precedent or an applicable statutory provision, the same would be treated as “per incuriam” and the judicial court would be duty-bound to set the mistake right by restoring the correct position of law. Thus, the view of Coordinate Benches on the point of providing opportunity of hearing to the borrower before disposing of Section 14 application by CMM/DM was held to be not a good law, “per incuriam” in nature and it was held that no opportunity of hearing on natural justice is contemplated before deciding the Section 14 application by the CMM/DM.

* * *

(16) S.K. Bakshi v. Punjab National Bank50

(Delivered on November 30, 2022)

Coram: Single Judge Bench of HM Justice Sindhu Sharma

Authored by: HM Justice Sindhu Sharma

The issue that arose before the court was about the maintainability of the writ petition at the instance of the auction-purchaser, who was being delayed the issuance of sale certificate and the delivery of physical possession of the property purchased by him in the auction conducted by a bank of a distressed asset. The Court held that Section 17 does not apply in such circumstances as Section 17 can be availed only by a borrower, aggrieved by the action of a bank initiated under Section 13 of the SARFAESI Act. Thus, the writ petition or a civil suit is the remedy available to a successful auction-purchaser. Court further held that in terms of Rule 9 of the Security Interest (Enforcement) Rules, 2002, it was incumbent upon the authorised officer of the bank to deliver the property to the purchaser free from all encumbrances on deposit of money with the bank. The defence of “as is where is basis,” cannot be taken, if the encumbrances and the previously existing charges over the property are not being properly disclosed to the auction-purchaser.

The auctioning bank had suppressed all litigations, encumbrances and charges relating to the auctioned property and auctioned the property without any appropriate disclosures to the auction-purchaser. The auction-purchaser was thus a bona fide purchaser, who is not only entitled to a valid sale certificate, but also to the peaceful physical possession of the property purchased by him. The bank cannot contend that it has no statutory obligation to put the auction-purchaser in possession, but to the contrary, it is their sanguine duty under law to put the auction-purchaser in peaceful possession without any encumbrances, charges or disputes attached to it. Accordingly, the High Court directed the auctioning bank to put the auction-purchaser in physical possession of the subject property purchased by them.

* * *

(17) UV Asset Reconstruction Co. Ltd. v. Union of India51

(Delivered on December 6, 2022)

Coram: Single Judge Bench of HM Justice Rekha Palli

Authored by: HM Justice Rekha Palli

The petitioner was an asset reconstruction company (for short “ARC”) which had approached the High Court being aggrieved by the refusal of the respondents for substituting its name as the new pledgee in place of the original pledgee, the SBI in respect of pledged shares of M/s Burnpur Cement Company Ltd., the debt of which was assigned to the petitioner ARC. As a consequence of execution of the debt assignment agreement, the ARC became the new pledgee in place of SBI under Section 5(3) of the SARFAESI Act, taking over the role of SBI as its “successor in interest” qua the management of BCL. The court referred to Sections 5(2) and (3) providing for acquisition of rights or interest in financial assets qua the pledged shares of the borrower company BCL. It was held that SARFAESI Act envisages the transfer of assets by original lenders including banks and financial institutions to asset reconstruction companies and the latter becomes the lenders for all the purposes. The petitioner thus became the new pledgee, in accordance with law, having acquired the shares by way of a debt assignment deed, its right to deal with these pledged shares became absolute and bound to be recognised by all third parties including statutory authorities like Respondent 2. The petitioner had procured its statutory right to deal with the shares acquired by it under the SARFAESI Act and merely because the Depositories Act, 1996 or SEBI (Depositories and Participants) Regulations, 2018 do not lay down any procedure for making such a substitution or transfer of pledged shares, it does not imply that Respondent 2 can refuse to incorporate changes in the ownership of pledged shares. Accordingly, the writ petition was allowed directing Respondent 2 to carry out the necessary substitution of petitioner’s name as a pledgee in its records of the shares.

* * *

(18) Surendra Kanwar Shekhawat v. Punjab National Bank52

(Delivered on December 22, 2022)

Coram: Single Judge Bench of HM Justice Vijay Bishnoi

Authored by: HM Justice Vijay Bishnoi

The writ petitions were preferred challenging the peaceful possession of secured assets demanded by the bank, who stood as guarantor to the loan provided to the principal borrower, M/s Super Shiv Shakti Chemicals Pvt. Ltd., Bhilwara. The company of the principal borrower went under insolvency and liquidation before the NCLT, and thus the guarantor took the plea that since the insolvency proceedings under the IBC Code had been initiated, therefore considering the statutory moratorium so imposed, the guarantors stood discharged from his liability. Referring to the judgments of SBI v. V. Ramakrishnan53 and Lalit Kumar Jain v. Union of India,54 Court held that a personal unequivocal guarantee is never affected by the involuntary act of the principal debtor leading to loss of security through the operation of a law or statute. The guarantor is not absolved of its liability even if the resolution plan is approved and the resolution plan fails to meet the outstanding liabilities of the secured creditor. Section 238 of the IB Code, 2016 has no applicability in such circumstances and there is no question of inconsistency between the provisions of the IB Code or the SARFAESI Act as such. Release or discharge of the principal borrower from the debt owed by it to its creditor by an involuntary process does not automatically led to the discharge of the guarantor, whose liability subsists and survives till the debt exists. Thus, the action of the bank in demanding possession from the petitioner was not unjustified and was rather affirmed as falling within the four corners of Section 13 of the SARFAESI Act, 2002.

FAQs on Banking Law Cases in India 2022

Q- What are three examples of laws that banks must comply with in India?

A- Although, banking companies must follow various compliance laws, the major ones include Reserve Bank of India Act, 1934, Banking Regulation Act, 1949 and Recovery of Debts Due to Banks and Financial Institutions, 1993.

Q- Can I complain to consumer forum about bank?

A- Yes, as stated in the case of Arun Bhatiya v. HDFC Bank, 2022 SCC OnLine SC 1017, a person availing any banking services also falls under the definition of a ‘Consumer’ under the Consumer Protection Act, which entitles him to seek recourse to the remedies provided under the 1986 Act. Hence, a person can proceed with a Consumer Forum complaint against the bank.

Q- How to find banking law case analysis?

A- This page contains analysis for famous banking law cases in India decided by the Supreme Court and High Courts in the year 2022 to give a glimpse of facts of the case and the rationale behind that decision.

† Partner at SVS Attorneys, Expert in constitutional, civil and financial laws, Practising Advocate at the Supreme Court of India 

†† 4th year student at Dr B.R. Ambedkar National Law University, Sonepat.

1. 2022 SCC OnLine SC 1017.

2. (2022) 6 SCC 496.

3. 2022 SCC OnLine SC 1006.

4. (2008) 1 SCC 125.

5. 2022 SCC OnLine AP 2424.

6. (2014) 5 SCC 610.

7. 2022 SCC OnLine SC 1119.

8. (2020) 9 SCC 1.

9. (2005) 7 SCC 584.

10. (2017) 7 SCC 444.

11. (2009) 10 SCC 425.

12. 2022 SCC OnLine Bom 1767.

13. 2019 SCC OnLine Bom 5480.

14. 2020 SCC OnLine Bom 4190.

15. (2009) 4 SCC 486.

16. (2000) 5 SCC 694.

17. (2006) 10 SCC 452.

18. 2022 SCC OnLine Cal 2719.

19. (2023) 1 SCC 662.

20. (2014) 6 SCC 1.

21. (2016) 3 SCC 762.

22. (2022) 10 SCC 286.

23. (2023) 1 SCC 675.

24. (2014) 6 SCC 1.

25. (2016) 3 SCC 762.

26. 2022 SCC OnLine Del 3357.

27. (2010) 3 SCC 267.

28. 2020 SCC OnLine Del 659.

29. 2017 SCC OnLine Del 9190.

30. (2023) 1 SCC 1.

31. (2000) 7 SCC 357.

32. 2002 SCC OnLine Cal 282.

33. 2002 SCC OnLine Cal 282.

34. AIR 1969 SC 78.

35. (2003) 6 SCC 220.

36. (2008) 1 SCC 125.

37. (2023) 2 SCC 168.

38. (2013) 10 SCC 83.

39. (2010) 8 SCC 110.

40. 2022 SCC OnLine SC 1601.

41. 2022 SCC OnLine Bom 6723.

42. 2022 SCC OnLine Del 3874.

43. 2022 SCC OnLine All 801.

44. (2004) 4 SCC 311.

45. (2004) 4 SCC 311.

46. 2007 SCC OnLine Bom 1232.

47. (2008) 1 SCC 125.

48. (2013) 9 SCC 620.

49. (1991) 4 SCC 139.

50. (20213) 1 RCR (Civ) 343)

51. 2022 SCC OnLine Del 4289.

52. 2022 SCC OnLine Raj 2548.

53. (2018) 17 SCC 394

54. (2021) 9 SCC 321.

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