Case BriefsSupreme Court

Supreme Court: The Division Bench of S. Abdul Nazeer and Krishna Murari, JJ., addressed a pertinent issue of whether the rent act would come to the aid of a “tenant in sufferance”.

Instant appeals were directed against the Orders passed by the Chief Metropolitan Magistrate, Esplanade, Mumbai rejecting the application filed by the appellant for restraining HDFC Bank, the first respondent from taking possession of the property in the appellant’s possession.

Financial Facility of Rs 5,50,00,000 was granted by HDFC Bank Limited to respondents 2 and 3 (the borrowers). Borrowers had mortgaged a property (Secured Asset) in favour of the Bank with an intention to secure the said credit facility.

Later, the Borrowers accounts were declared at non-performing assets, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to the Borrowers.

Appellant submitted that he is the tenant of the Secured Asset and has been paying rent regularly to his landlord since inception of his tenancy.

Appellant approached the Magistrate seeking protection of his possession of the Secured Asset as the Magistrate was ceased with the petition under Section 14 of SARFAESI Act filed by the respondent 1 – Bank. Though the magistrate had dismissed the registered tenancy placed on record by the appellant.

Analysis, Law and Decision

Bench noted that the appellant’s case was that he is a tenant of the Secured Asset and has paid the rent in advance.

However, in the detailed representation sent in response to the notice issued under Section 13(2) of the SARFAESI Act, the Borrowers did not claim that any tenant was staying at the Secured Asset.

The appellant provided a rent receipt claiming tenancy after the date of creation of mortgage.

Procedural mechanism for taking possession of the Secured Asset was provided under Section 14 of the SARFAESI Act.

Section 17 of the SARFAESI Act provides for the right of appeal to any person including the borrower to approach Debt Recovery Tribunal (DRT). Section 17 has been amended by Act No. 44 of 2016 providing for challenging the measures to recover secured debts. Under the Amendment, possession can be restored to the borrower or such other aggrieved person.

 In the Supreme Court decision of Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd., (2014) 6 SCC 1, it was held that the right of appeal is available to the tenant claiming under the borrower.

In Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, this Court has held that DRT can not only set aside the action of the secured creditor but even restore the status quo ante.

Court stated that in view of the appeal being in pendency from 2016, this Court proposes to examine the case on merits without directing the appellant to avail the alternative remedy.

A Three­ Judge Bench of this Court in Bajarang Shyamsunder Agarwal v. Central Bank of India, (2019) 9 SCC 94, after considering almost all decisions of this Court, in relation to the right of a tenant in possession of the secured asset, has held that if a valid tenancy under law is in existence even prior to the creation of the mortgage, such tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. If a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65­A of the Transfer of Property Act, 1882. If a tenant claims that he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the said decision of this Court, it was clarified that in the absence of a registered instrument, if the tenant only relies upon an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act.

While noting the above discussion, Bench held that,

“…Rent Act would not come to the aid of a “tenant­-in-­sufferance” vis­à­vis SARFAESI Act due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act.”

In the present matter, there was doubt as to the bona fide of the tenant, as there was no good or sufficient evidence to establish the tenancy of the appellant.

The pleading of tenancy was not supported by any registered document, and adding to this, the appellant himself stated that he was a “tenant-in-sufferance”, therefore, he is not entitled to any protection of the Rent Act.

Another point expressed by the Court, was that even if the tenancy had been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek the consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after issuance of the notice under Section 13(2) of the SARFAESI Act and, admittedly, no such consent has been sought by the Borrower.

In view of the above, appeal were dismissed. [Hemraj Ratnakar Salian v. HDFC Bank Limited, 2021 SCC OnLine SC 611, decided on 17-08-2021]

Case BriefsHigh Courts

Bombay High Court: The Division Bench of A.S. Chandurkar and Amit B. Borkar, JJ., addressees the present matter while explaining the existence or non-existence of the provisions for registration under Registration Act, 1908.

Petitioner sought a direction against respondent 5 – Sub-Registrar (Class-I) to register sale certificate on receipt of stamp duty and registration charges.

Further, the petitioner also sought a direction against respondent 7 – Government of Maharashtra, through Sales Tax Department to take action against the defaulters for evading taxes and attaching their movable properties and not to obstruct the sale of the properties by the petitioner – Bank for recovery of its dues.

Adding to the above, petitioner sought a declaration that respondents 1 and 2 are not entitled to recover the dues in view of the mandate of Section 26-E of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Petitioner—Bank had initiated proceedings under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Certificate of sale was issued in favour of the proprietor in the exercise of power under the Security Interest (Enforcement) Rules, 2002.

Main Grievance

The refusal to register the above-stated sale certificate by respondent 5 was the main grievance in the instant petition.

Analysis, Law and Decision

Bench noted that Sub-Section (1) of Section 22-A clearly provided that only if notification is published in the Official Gazette declaring that registration of any document or class of document is opposed to any public policy, only then the question of refusal of registration of the document will arise.

Court added that, even otherwise, since Section 22-A is no longer on the statute book, registration of the sale certificate could not have been refused on the ground of the same being in contravention of Section 22-A of the Act of 1908.

The ground of encumbrance to refuse registration of a document is in relation to marketable title of the property.

Bench referred to the decision of Supreme Court in Satyapal Anand v. State of Madhya Pradesh, (2016) 10 SCC 767, wherein it was held that:

“41. Section 35 of the Act does not confer a quasi-judicial power on the Registering Authority. The Registering Officer is expected to reassure that the document to be registered is accompanied by supporting documents. He is not expected to evaluate the title or irregularity in the document as such. The examination to be done by him is incidental, to ascertain that there is no violation of provisions of the 1908 Act. In the case of Park View Enterprises, it has been observed that the function of the Registering Officer is purely administrative and not quasi-judicial. He cannot decide as to whether a document presented for registration is executed by person having title, as mentioned in the instrument. We agree with that exposition.”

Purported source of power for rejection of sale certificate id under Clause (i) of Rule 44 of the Rules of 1961, which reads as follows:

“44(1). Before accepting any document for registration, a registering officer may not concern himself with its validity, but shall ascertain –
(a) …..

(b)…..
(c)…..
(d)…..
(e)…..
(f)…..
(g)…..
(h)…..
(i) that, if the transaction which is intended by the document, is prohibited by any existing act of Central or State Government, then the true copy of requisite permission or No Objection Certificate from the Competent Authority under the said act, has been attached along with the document, and that, the document  is not written in contradiction with any vital term or condition mentioned in that permission or No Objection Certificate.”

Bench opined that respondent 5 could not have purportedly invoked Clause (i).  Sub-Rule (1) of Rule 44 of the Rules of 1961 provides that before accepting any document for registration, the Registering Officer is concerned with its validity, but he should ascertain the various factors set out in Clauses (a) to (i).

Further, it was stated that Clause (i) of Rule 44 of the Rules of 1961 will apply only when the transaction is covered by the document which is prohibited by a Central or State Statute. There is an encumbrance of the Department of Sales Tax.

In view of the Supreme Court decision in Satyapal Anand v. State of Madhya Pradesh, (2016) 10 SCC 767, the Registering Officer under the Act of 1908 has no power to adjudicate upon the issue of marketable title to the property.

The power of the Registering Officer is purely administrative and is not quasi-judicial power. The Registering Officer has no right to decide whether a person who has presented the document for registration has marketable title or not.

 Non-Testamentary Document?

 Section 17(2)(xii) of the Act of 1908 specifically provides that a certificate of sale granted to any purchaser of any property sold by public auction by a Civil or Revenue Officer does not fall under the category of non-testamentary document which requires registration under Sub-Sections (b) & (c) of Section 17(1) of the Act of 1908.

It is well settled that when a property is sold by public auction, in pursuance of an order of the Court and the sale is confirmed by the Court in favour of the purchaser, the said becomes absolute and the title vests in the purchaser. A sale certificate is issued to the purchaser only when the sale becomes absolute.

“…when an auction purchaser derives title on confirmation of sale in his favour, no further deed of transfer from the Court is required.”

Hence, High Court held that respondent 5 ought to have taken into consideration the above-stated position of law before refusing the sale certificate issued by the Authorized Officer.

Priority of the secured creditor to recover its debt over liability to pay tax under MVAT Act

Court while stating that the issue was no longer res-integra, expressed that, if any Central Statute creates priority of a charge in favour of the secured creditor, the same will rank above the charge in favour of the State for a tax due under the Value Added Tax of the State. 

Therefore, it is the duty of respondent 5 to register the sale certificate issued in favour of the auction purchaser by the Authorized Officer under the provisions of the Rules of 2002.

Adding to the above, Bench stated that respondent 7 is duty-bound to take action against the defaulter for evading taxes and recovering its dues by attaching their movable properties.

“…the priority of charge created under Section 26-E of the Act of 2002 in favour of the secured creditor will rank above the charge in favour of a State for a tax due under Value Added Tax of the State.”

In view of the above, the Rule was made partly absolute and pending applications if any disposed of. [State Bank of India v. State of Maharashtra, 2021 SCC OnLine Bom 1544, decided on 4-08-2021]


Advocates before the Court:

 Shri M. Anilkumar, Advocate for the petitioner

Ms. S.S. Jachak, AGP for the respondents 1 to 4 & 6

Case BriefsHigh Courts

Delhi High Court: The Division Bench of Rajiv Sahai Endlaw and Asha Menon, JJ., held that the pawnor, merely by his act of delivering his own goods to a creditor in consideration of a credit facility granted to the debtor/borrower, by legal fiction becomes liable for the entire debt, would be detrimental to trade and commerce, with borrowings becoming difficult to obtain owing to persons not agreeing to make a pledge of their goods for credit to another, for the fear of becoming liable for more than the value of goods.

Legal Question for Consideration

Whether by virtue of Section 176 of the Indian Contract Act, 1872, the pawnor, even if different from borrower or the principal debtor, becomes liable for payment of the entire debt, even if has not furnished any guarantee for repayment of the entire debt i.e. over and above the value of the pawned goods?

Facts pertinent to the matter

Respondent 1 had filed the original application before the Debt Recovery Tribunal, Delhi under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 along with pendente lite and future interest, jointly and severally from respondent 2 and petitioner.

Aggrieved from the order of DRAT, of dismissal of his appeal, the petitioner filed the instant petition.

Analysis, Law, Decision

It was noted that the counsel for respondent 1 Bank had fairly admitted that there was no document whereunder the petitioner had undertaken liability as a borrower, in his personal capacity or as a guarantor for repayment of the dues of respondent 2 Company to the respondent 1 Bank.

Bench on an interpretation of Clause 2.1 of the Share Pledge Agreement was unable to agree with the contention of respondent 1 Bank that the petitioner became liable for the entire debt.

Further, it was stated that,

In the Share Pledge Agreement,

  • while the respondent 1 Bank is described as the Bank, the respondent 2 Company is described as the Borrower and the petitioner is described as the Pledgor; the same is indicative of the role of the petitioner in the agreement being confined to that of a pledgor/pawnor, as distinct from a borrower; had the intent been, of the petitioner along with the respondent 2 Company borrowing the monies and being liable for repayment thereof, the petitioner, besides as a pledgor, would also have been described as a borrower;
  • Clause 2.1 merely notes the agreement to be for the benefit of the respondent 1 Bank; merely by stating so, the petitioner did not and could not in law have become liable for more than that for which he expressly became liable under the Share Pledge Agreement; the pledge made by the petitioner under the agreement was also for the benefit of the respondent 1 Bank and thus merely from the statement that the agreement was for the benefit of the respondent 1 Bank, it does not follow that the benefit to the respondent 1 Bank flowing from the petitioner was more than that undertaken by the petitioner or provided in the agreement;
  • the petitioner pledged his shares as security for due discharge and repayment of Obligations under the Finance Documents; it is not the case that under the Finance Documents the petitioner is personally liable; and,
  • the parties expressly agreed that in the event of any default by the borrower, the respondent 1 Bank would be entitled to transfer or register in its name the pledged shares and to receive all amounts payable with respect thereto and to sell the same; there is no clause, that on any default or breach by the respondent 2 Company as borrower, the petitioner would become personally liable for the borrowings of respondent 2 Company.

Supreme Court, in State of Maharashtra v. M.N. Kaul, AIR 1967 SC 1634, while answering the question of whether the guarantee subject matter thereof was enforceable, held, “That depends upon the terms under which the guarantor bound himself. Under the law he cannot be made liable for more than he has undertaken”

In Central Bank of India v. Virudhunagar Steel Rolling Mills Ltd., (2015) 16 SCC 207, held that,

“…had the intent been to make the directors personally liable for the outstanding liabilities of the company also, it could have been so provided in the letter of guarantee and the directors were thus not personally liable for the dues of prior to the date they signed the letter of guarantee. It was further held that since the deed of guarantee was drafted by the bank, in case of doubt, had to be read against the bank.”

In the instant matter, High Court dismissed the contention of the respondent 1 Bank that the petitioner admitted his liability before the Recovery Officer.

Court stated that banks are also known to, besides the borrower, make others also on whose surety/guarantee the said credit facilities are extended to the borrower, sign a plethora of documents, again in their standard form. From the conduct of the respondent 1 Bank not making the petitioner sign any such documents, the only inference is that the petitioner was not intended to be liable for dues of respondent 2 Company save to the extent of the value of the shares pledged by the respondent 2 Company.

Moving, further, with the analysis, Bench elaborated that Section 172 provides bailment of goods as security for payment of a debt is called a “pledge” and the bailor is called the “pawnor” and the bailee, the “pawnee”.

In Court’s opinion, none of the provisions preceding or following Section 176 provide for the pawnor, by virtue of the pledge, even if not otherwise liable for the payment of debt, by a legal fiction becoming so liable for payment for debt, even beyond the value of the pawned goods.

“…we hesitate to, merely on the basis of Section 176 hold that a pawnee can recover from the pawnor anything beyond the value of the goods which the pawnor has pledged, unless the pawnor has separately from the pledge also made himself liable for the debt.”

Therefore, Bench decided that under Section 176 of the Contract Act, the pawnor, if not otherwise liable for the debt as a borrower or as a guarantor or otherwise, does not merely from the act of making a pledge, become liable to the creditor/pawnee, for anything more than the value of the goods pledged.

Hence, DRAT erred in holding the petitioner as a pawnor become liable for the entire debt for which pledge was made even without being a borrower and even in the absence of having promised so.

In view of the above discussion, a petition was disposed of. [Ajoy Khanderia v. Barclays Bank, 2021 SCC OnLine Del 3740, decided on 20-07-2021]


Advocates before the Court:

For the Petitioner:

Mr Rajeeve Mehra, Sr. Adv. with Mr Kanishk Ahuja and Ms Neha Bhatia, Advs

For the Respondent:

Mr R.P. Aggarwal and Ms Manisha Agrawal, Advs.


Additional Read:

Section 176 – Pawnee’s right where pawnor makes default. – If the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale.

If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor.”

Case BriefsHigh Courts

Delhi High Court: Prateek Jalan, J., reiterated the position of law laid down in the decision of Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020.

Petitioner sought direction upon the respondent/State Bank of India [Bank] to release an amount of Rs 30,000 per month to him from the bank account of his incapacitated nephew, Mr Ajit Kumar Singh [AKS].

Petitioner submitted that AKS had been bedridden and incapacitated as he was suffering from acute ischemic strokes since 2018 and his health worsened in November 2020. It was also stated that an amount of ₹30,000 per month would be required so as to meet AKS’s daily and medical expenditure, including doctor’s fees, medicines, food, therapist, nurse etc.

Petitioner being the paternal uncle of AKS stated that he had been taking care of his nephew and had been acting as his guardian, in addition to maintaining his own family, but was not in a position to financially sustain his nephew indefinitely, and meet his medical expenditure as well.

Bank denied the request for withdrawal of the said amount from the bank account of AKS on the ground that there was no policy that allowed such withdrawals, even by family members in cases of medical emergencies.

Instant petition was filed in view of the above circumstances.

Mr Ramesh Singh, Standing Counsel for GNCTD drew the Court’s attention to Clause 5.7 of the Master Circular on Maintenance of Deposit Accounts – UCB dated 01-07-2009 [Master Circular] issued by RBI which was in respect to  “Operation of Bank Accounts by Old/Sick/Incapacitated Customers”

On examination by the medical board it was found that AKS was virtually in a comatose state and would not be able to indicate the person who would be entitled to operate his bank account in terms of Clause 5.7.3 of the Master Circular.

In view of the above stated circumstances and facts, reliance was placed on the decision of Delhi High Court in Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020] which laid down guidelines that may be used to deal with situation such as the present one where a person is unable to discharge his/her functions with respect to his/her assets.

On 04-03-2021, this Court prima facie had opined that the aforesaid decision was applicable to the present matter.

In view of the facts and circumstances of the present case, Bench held that the guidelines issued in Delhi High Court’s decision of Vandana Tyagi v. GNCTD, [WP (C) 1103 of 2019, decided on 07-01-2020] will be applicable to the present case.

Bench was satisfied with the report from the Medical Board that AKS was in a comatose state and incapable of operating his bank account himself or giving necessary directions for this purpose. Tehsildar’s report corroborated the information placed on record.

AKS and his wife had discord in their marital relations and the same was a subject matter of legal proceedings wherein they mutually agreed to divorce upon certain terms and conditions. His adult son stated vide an affidavit that he had no objection to the petitioner being appointed as legal guardian of AKS.

In Court’s opinion, neither AKS’s spouse nor his children were in a position to take care of him and also they had no objection to petitioner taking on the role of guardian to AKS.

High Court held that petitioner shall be appointed at the guardian of AKS for the purpose of withdrawal of a fixed monthly amount from the savings account of AKS, subject to safeguards contained in the guidelines incorporated in Vandana Tyagi case.

Court directed that the petitioner may be permitted to withdraw Rs 20,000 per month from AKS’s account.

  • Bank will file the statement of accounts of the aforesaid account before the Registrar General of this Court every three months to monitor the aforesaid aspect.
  • Petitioner will also file a statement of accounts before the Registrar General every three months stating the items of expenditure with regard to the aforesaid amount of ₹20,000
  • In the event, the petitioner misuses his power or misappropriates, siphons or misutilizes the assets of AKS or fails to utilize the assets in AKS’s best interests, the Court would have the power to remove him as the guardian and appoint another person in his place.
  • Petitioner shall intimate his appointment to the Director, Department of Social Welfare, GNCTD
  • A representative of the Department of Social Welfare, GNCTD, shall visit the residence of the petitioner at least once every quarter, and make a report regarding the condition of AKS, which will be placed before the Director, Department of Social Welfare, GNCTD
  • In case any other relative or a next friend of AKS finds that the petitioner is not acting in the best interests of AKS, such person will also have the locus to approach the Court for issuance of appropriate directions and/or for removal of the petitioner as the guardian.
  • In case, the petitioner wishes to move AKS to another state or even to another country for the purposes of securing better medical treatment for him, he would approach the Court for necessary permission before undertaking such an exercise.

In view of the above terms, petition was disposed of.[Bhim Singh v. AGM State Bank of India, 2021 SCC OnLine Del 1552, decided on 08-04-2021]


Advocates before the Court:

For the Petitioner: Dhruv Dwivedi, Advocate

For the Respondents: Rajiv Kapur and Akshit Kapur, Advocates for R-1 and R-2.

Ramesh Singh, Senior Advocate, Amicus Curiae with Tara Narula, Advocate

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): C. Vishwanath (Presiding Member) upheld the State Commission’s Order.

Petitioner/Complainant who was an account holder of HDFC Bank and was working as an officer with Qatar National Bank had deposited an amount of Rs 4,60,000. He found to his surprise that the entire balance was transferred from his account to another account as per the Bank Statement.

Later on filing a complaint in view of the above, the culprit was found by the police but only an amount of Rs 70,500 could be recovered.

Alleging deficiency in service and seeking recovery of the balance amount the consumer complaint was filed.

OPs denied that any of their employees were involved in any fraudulent act. Funds were transferred as per the instructions received from the Complainant through net banking and since the respondent did not respond to the verification email and messages about the transfer request, the said was affected.

Further, the OPs contended that the complainant was informed after the transaction was completed. Adding to this, it was stated that:

Only a Complainant could know about Net Banking Password ‘IPIN’ and nobody else could operate the account. They also took the plea that the alleged fraudulent transaction was reported to the Bank only on 31.12.2008, i.e., 47 days after the transaction date.

District Forum allowed the complaint, whereas the State Commission held that the complainant failed to establish negligence against the Bank.

State Commission also added that the Bank after following the due procedure, transferred the funds.

Being aggrieved with the State Commission’s Order, the present revision petition was filed.

Analysis and Decision

Bench noted that the petitioner availed of the Net Banking facility and signed the TPT Form agreeing to the terms and conditions. He being a Banker himself was aware of the nature of transactions. He was provided with a customer ID and Net Banking Password (IPIN), which he should have kept with himself. Before the transfer of funds, a customer was to add the name of beneficiaries. On any request for transfer of funds, the Bank sends a mail and SMS alert, which the Bank has done so in the present case.

The Bank waited for 24 hours and not receiving any adverse feed-back, effected the transfer. Once the transfer of funds was made, again the Petitioner was informed of the same by the Respondent/ Bank. Only after 47 days of transaction did the Petitioner choose to complain.

Hence, no deficiency in service on the part of the respondents was found.

Therefore, complainant failed to establish that the Bank had acted mala fidely, fraudulently and in violation of the security procedure. No illegality, jurisdictional error or material irregularity was found in the State Commission’s order.[Nikhil Phutane v. HDFC Bank Ltd., 2021 SCC OnLine NCDRC 51, decided on 09-03-2021]


Advocates before the Commission:

For the Petitioner: Mr Nikhil Jain, Advocate
For the Respondent: Mr Sharique Hussain, Advocate

Case BriefsHigh Courts

Telangana High Court: The Division Bench of A. Rajasheker Reddy and T. Vinod Kumar, JJ., dismissed a petition challenging the sale notice issued by the respondent Bank pursuant to proceedings under the SARFAESI Act.

In the present matter, respondent 2 — Company had borrowed a term loan from respondent 1 – Bank.

Petitioners are the guarantors. Respondent defaulted in payment of loan instalments and hence the loan account was declared as NPA due to which the recovery proceedings initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (SARFAESI Act).

Demand notice was issued to the petitioners and 2nd respondent under Section 13(2) of the SARFAESI Act and thereafter since the amount still remained unpaid, possession notice was issued under Section 13(4) of the SARFAESI Act.

Petitioners submitted that the bank did not follow the procedure prescribed under sub-rules 1 and 2 of Rule 8 of the Security Interest (Enforcement) Rules, 2002.

Further, during the course of recovery proceedings, respondent 1 – Bank issued a sale notice dated under Rule 8(6) of the Rules of 2002. The said notice has been challenged by the petitioners by the present petition.

Petitioner’s main grievance was that they were not served with sale notice under Rule 8(6) of the Rules of 2002, and the period of 30 days under the said provision was not given to them to exercise the right of redemption under Section 13(8) of the SARFAESI Act, and there was also no separate gap of 30 days between the sale notice, and the publication of sale notice, as envisaged under Rule 9(1) of the Rules of 2002, hence the sale notice was illegal and arbitrary to the law laid down in the Supreme Court decision of Mathew Varghese v. M. Amritha, (2014) 5 SCC 610.

Analysis, Law and Decision

Bench on perusal of Rule 8(6) of Security Interest (Enforcement) Rules, 2002 noted that:

the authorized officer of the Bank shall serve on the borrower a notice of 30 days for sale of immovable property and that if the sale of such secured assets is by way of public auction, the Bank / secured creditor, shall cause publication of such notice in two leading newspapers, one in vernacular, language having sufficient circulation in the locality by setting the out the terms of sale, mentioned in the said provision; and under sub-rule (1) of Rule 9, such sale of immovable of property under these Rules shall not take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6), or notice of sale has been served to the borrower.

Under Section 13(8) of SARFAESI Act, If the amounts due by secured creditor is paid by the borrower before the date of publication of notice for public auction, the secured asset shall be sold or transferred by the modes mentioned in the said provision.

Hence, petitioners are entitled to a 30 day notice period enabling them to clear the loan and redeem the property as envisaged under Section 13(8) of the SARFAESI Act and if they fail to repay the amount within a stipulated period, the secured creditor is entitled to issue publication of sale notice under Rule 9(1), and that on publication of such notice, the right of the borrower to redeem the property stands extinguished.

Adding to the above, Court also observed that since the respondent – Bank sent notices to the correct addresses of the petitioners as mentioned in the loan agreement, it has to be presumed to have been served, unless the petitioners prove that they were not really served and that they were not responsible for such non-service.

In view of the facts and circumstances, and the law laid down by the Supreme Court in T.N. Parameswaran Unni v. G. Kannan, (2017) 5 SCC 737, Court held that there was clear compliance with Rule 8(6) of the Rules of 2002.

Petitioners camouflaged the grievance by merely stating that they were not served with sale notice under Rule 8(6) of the Rules of 2002 and that they were not provided with 30 days time fixed under the said provision to clear the loan and to redeem the property, to give an impression to this Court, the action of the respondent –bank being in violation of principles of natural justice.

Thus there was clear suppression of material facts with regard to filing of securitization applications.

In Court’s opinion, Bank did follow the procedure as envisaged under provisions of SARFAESI Act and the Rules of 2002 and further, the petitioners suppressed the material facts with regard to filing of securitization applications before the Debts Recovery Tribunal and the facts and circumstances manifestly disclosed that they were resorting to dilatory and subterfuge tactics, to see that the recovery proceedings initiated by the Bank, were defeated in view of the Supreme Court decision in KD. Sharma v. SAIL, (2008) 12 SCC 481.

Hence, in view of the above discussion, the petition was dismissed.[K V V Prasad Rao Gupta v. SBI, 2021 SCC OnLine TS 328, decided on 12-02-2021]

Case BriefsSupreme Court

Supreme Court: In a case where a bank manager had sanctioned and disbursed loans without following the due procedure contemplated under law, the 3-judge bench of Ashok Bhushan, R. Subhash Reddy* and MR Shah, JJ has held that

“When the procedural guidelines are issued for grant of loans, officers/employees are required to follow the same meticulously and any deviation will lead to erosion of public trust on the banks.”

Background

In the present case, there were allegations against a manager of Lakhimi Gaolia Bank of misappropriation, disbursing loans irregularly in some instances to (a) units without any shop/business; (b) more than one loan to members of same family etc.

Based on the findings recorded by Enquiry Officer, the disciplinary authority had tentatively decided to impose punishment of compulsory retirement and had issued a show cause notice to the manager to which he responded that “due to work pressure some operational lapses have occurred”.  Further, if the bank has sustained any loss due to his fault, he is ready to bear such loss from his own source.

Thereafter, the disciplinary authority imposed the punishment of compulsory retirement.

The decision of the disciplinary authority was challenged on the ground that even before tentative conclusion is arrived at by the disciplinary authority, the enquiry report has to be served upon him.

Analysis

After Enquiry Officer records his findings, it is always open for the disciplinary authority to arrive at tentative conclusion of proposed punishment and it can indicate to the delinquent employee by enclosing a copy of the enquiry report.

The argument that even before tentative conclusion is arrived at by the disciplinary authority, the enquiry report has to be served upon him, was not accepted by the Court as there is no such proposition laid down in the judgment of this Court in the case of Managing Director, ECIL,   Hyderabad (supra).  In the aforesaid judgment of this Court it is held that

“delinquent employee is entitled to a copy of the enquiry report of the enquiry officer before the disciplinary authority takes a decision on the question of guilt of the delinquent. Merely because a show cause notice is issued by indicating the proposed punishment it cannot be said that disciplinary authority has taken a decision.”

In the present case, along with the show cause notice itself enquiry report was also enclosed.  Hence, it cannot be said that the procedure prescribed under the rules was not followed by the bank.

Further, it is well settled that if the disciplinary authority accepts the findings recorded by the Enquiry Officer and passes an order, no detailed reasons are required to be recorded in the order imposing punishment.  The punishment is imposed based on the findings recorded in the enquiry report, as such, no further elaborate reasons are required to be given by the disciplinary authority.

The Court also refused to accept the argument that the punishment imposed is disproportionate to the gravity of charges. The charges framed against the appellant in the departmental enquiry are serious and grave.

“If we look at the response, in his letter dated 16.08.2005, to the show cause notice issued by the disciplinary authority, it is clear that he has virtually admitted the charges, however, tried to explain that such lapses occurred due to work pressure. Further he went to the extent of saying – he is ready to bear the loss suffered by the bank on account of his lapses.”

If the manager of a bank indulges in such misconduct, as is evident in the present case and the findings of the enquiry officer, it indicates that such charges are grave and serious.

“The manager of a bank plays a vital role in managing the affairs of the bank. A bank officer/employee deals with the public money. The nature of his work demands vigilance with the in¬built requirement to act carefully. If an officer/employee of the bank is allowed to act beyond his authority, the discipline of the bank will disappear. When the procedural guidelines are issued for grant of loans, officers/employees are required to follow the same meticulously and any deviation will lead to erosion of public trust on the banks.”

Inspite of proved misconduct on such serious charges, disciplinary authority itself was liberal in imposing the punishment of compulsory retirement and hence, the Court refused to hold that the punishment imposed in the disciplinary proceedings on the appellant, is disproportionate to the gravity of charges.

[Boloram Bordoloi v. Lakhimi Gaolia Bank, 2021 SCC OnLine SC 65, decided on 08.02.2021]


*Judgment by: Justice R. Subhash Reddy

Know Thy Judge| Justice R. Subhash Reddy

Appearances before the Court by

For appellant: Advocate Parthiv Goswami, 

For Bank: Rajesh Kumar

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): C. Viswanath (Presiding Member) expressed that:

Law is settled that illegal and forceful means cannot be adopted by Banks to seize any property.

The present revision petition was filed by the petitioners against the order dated 31-10-2011 of the West Bengal State Consumer Disputes Redressal Commission wherein the appeal filed by the petitioners was dismissed.

Complainant had purchased a ten-wheeler truck financed by OP 1 and accordingly OP 1 through OP 2. Further, the complainant entered into an agreement with OP 1and accordingly both OP 1and 2 sanctioned a loan of Rs 9,15,000.  The Complainant was supposed to repay a sum of Rs 11,57,700 in 47 instalments.

Thereafter, when it came to the notice of the Complainant that the Registration Certificate bore the name of Opposite Party 3 as a joint registered owner, on enquiry, Opposite Party 3 informed him that he had incurred an expenditure of Rs 45,000 from his own pocket in order to get the loan sanctioned in favour of the Complainant and as and when the Complainant would repay the same, he would take necessary steps to remove his name from the Registration Certificate.

Later, although the Complainant paid Rs 45,000 to Opposite Party 3 in two instalments, Opposite Party 3 took no steps to delete his name from the Registration Certificate. Further, Opposite Party 3 detained the vehicle by force and removed its tyres to render it defunct. According to the Complainant, Opposite Parties, in collusion with each other, seized the vehicle.

Decision

Bench stated that it is not understood as to why respondent 2/OP 3 took possession of the vehicle and removed its tyres and later on said to have voluntarily handed over the possession of the vehicle to the petitioners.

The Petitioners could not place any evidence as to any notice having been given to the Complainant for seizure of the vehicle nor any notice of auction of the vehicle.

Commission expressed that District Forum rightly held “we do not see any reason to accept the contention of Opposite Party 2 that they did not take possession of the vehicle in question by force.”

State Commission observed that the vehicle was auctioned without issuing any prior notice to the Complainant.

Law is settled that illegal and forceful means cannot be adopted by Banks to seize any property. Due notice had to be given for seizure of the vehicle and following the established procedure the vehicle could be seized and later auctioned.

 While concluding the bench decided that the petitioners in collusion with respondent 2/OP 3 adopted illegal and unfair means in seizure of the vehicle which amounted to unfair trade practice.

Jurisdiction of this Commission under Section 21 (b) is very limited. This Commission is not required to re-appreciate and reassess the evidences and reach its own conclusion. The Court can intervene only when the petitioner succeeds in showing that the Fora below has wrongly exercised its jurisdiction or there is a miscarriage of justice.

 Referring to the decision of Supreme Court in Rubi (Chandra) Dutta v. United India Insurance Co. Ltd. (2011) 11 SCC 269 and Lourdes Society Snehanjali Girls Hostel v. H&R Johnson (India) Ltd., (2016) 8 SCC 286, Commission did not find any infirmity or illegality in the impugned order. [Manager, IndusInd Bank Ltd. v. Abani Kanta Das,  2021 SCC OnLine NCDRC 14, decided on 11-01-2021]


Advocates for the parties:

For the Petitioner: Rana Ranjit, Advocate
For the Respondent 1: Somraj Gangopadhyay, Advocate

Case BriefsHigh Courts

Punjab and Haryana High Court: The Division Bench of Rajan Gupta and Karamjit Singh, JJ., allowed the petition seeking writ of mandamus against the impugned order of District Magistrate whereby the Magistrate refused to restrain the respondent from taking physical possession of the mortgaged property of the petitioner on breach of the terms and conditions of the One Time Settlement (“OTS”).

In the instant petition, the petitioner was a partnership firm which availed a loan of Rs 1.55 crore from the respondent Bank. The petitioner defaulted in repaying the same and it was declared as Non-Performing Asset (NPA) by the Bank on 06-10-2018. The proceedings under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“the Act”), were initiated against it. The Bank also filed an application before the District Magistrate to take possession of the secured assets.

Subsequently, the petitioner effected OTS dated 31-05-2019 with the Bank, as per which, he was to pay Rs 1.29 crore by 30-11-2019. Pursuant to the said settlement, the petitioner deposited an amount of Rs 51,00,000. For the payment of the remaining amount, the petitioner was banking upon the assurance given by his son, Vikas Goel and his brother-in-law, Prem Nath Garg, who were running separate business of Commission Agent Firm. Prem Nath Garg handed over the keys to his Accountant. In the absence of both the partners, the said accountant had stolen the cheques and other important documents lying in the locker. Due to aforesaid unforeseen circumstances, the petitioner was unable to deposit the balance amount of Rs 78 lakhs as per OTS. Consequently, the petitioner made a request to the Magistrate for extension of time to make the payment of balance amount. However, the Magistrate rejected the said request.

It is contended by counsel for the petitioner, Aalok Jagga that the petitioner was ready to make payment of the balance amount within next six months alongwith reasonable interest for the period of delay. It was further argued that, the petitioner being a deserving borrower who is willing to clear his loan account should be given one opportunity to do so, by extending the time.

The Bank contended that the petitioner paid an amount of Rs 51 lakhs upto 31-10-2019 but failed to pay the balance amount of Rs 78 lakhs as per OTS. It was prayed by the Bank that the writ petition be dismissed.

The Court observed that in the present case, the amount paid was just 40% of the settled amount and reasons put forth by the petitioner for failure to pay the balance amount, were not plausible. The Court relied on Union Bank of India v. Anil Kumar Wadhera, 2017 SCC OnLine All 2942, where it was held that, no separate orders are required to be passed in the matter of the OTS having become defunct for non-compliance of its conditions by the borrowers and the logical consequence in case of breach of the terms and conditions of the OTS is that the Bank becomes free to recover the money outstanding in accordance with law irrespective of the OTS.

In light of the above, the Court observed that the petitioner itself affected OTS and agreed to pay the entire amount within a period of six months. The petitioner had failed to convince this Court that he failed to pay the balance amount within the stipulated period due to the reasons beyond his control and to show his bonafide intent to make the payment of balance amount. Therefore, it was held that no ground is made out for this Court to interfere in this case. Accordingly, the instant petition was dismissed, being devoid of merits. However, the Court stated that the petitioner is at liberty to avail the appropriate remedy available to under the law and to approach the Bank under the new OTS scheme. [Milkhi Ram Bhagwan Dass v. District Magistrate, 2020 SCC OnLine P&H 2293, decided on 23-12-2020]

Case BriefsHigh Courts

Jharkhand High Court: Deepak Roshan, J., while allowing the present writ application, said, “This court is having no hesitation to hold that there is a procedural irregularity in passing the impugned order of punishment. As such, the impugned order of punishment and all subsequent orders deserve to be quashed and set aside.”

Background

The facts of the instant writ application are briefly mentioned hereunder;

  1. That while the petitioner was posted as Manager at Jamshedpur Branch of the respondent Bank, a memorandum of charge was issued on 19-07-1999 and delivered to him on 30-07-1999 whereby, it was proposed to hold a departmental enquiry against him with regard to imputation of misconduct.
  2. Thereafter, in terms of the aforesaid charge-sheet, departmental enquiry has been conducted in which the petitioner filed a detailed written brief denying all allegations leveled against him.
  3. Thereafter, the Inquiry officer submitted his enquiry report on 18-02-2002, which was delivered to the petitioner on 28-02-2002.
  4. Pursuant to that, petitioner filed a detailed reply against the finding of the Inquiry Officer and finally the order for removal from service was passed against the petitioner by the Disciplinary authority.
  5. Being aggrieved, the petitioner filed an appeal on 16-01-2003, which was also dismissed vide order dated 02-01-2004.
  6. Thereafter, the petitioner filed a writ application; W.P.(S) No. 444 of 2005 before the present Court and the said writ application was disposed of by order dated 1st March, 2012, whereby the petitioner was directed to prefer a review application and the reviewing authority was directed to consider the case of the petitioner.
  7. Pursuant to the aforesaid order of this court, the petitioner filed a review application which was also dismissed.

 Contentions

Krishna Murari, Counsel for the petitioner, submitted that the impugned order of punishment, as well as the appellate and review order, are bad in law, inasmuch as, the issue raised by the petitioner, right from the stage of enquiry proceedings, has not been considered by either of the authorities. He further referred to Rule 6(5) and 6(10) of the Central Bank of India Officer Employees (Conduct) Regulations, 1976 and contended that it is a mandatory requirement that the Inquiry Authority, where the Officer/Employee does not admit all or any of the article of charge, furnish to such officer a list of documents and list of witnesses along with the article of charge. However, in the instant case, the mandatory requirement as enshrined in the aforesaid Regulation has not been complied with. It was further submitted that the stand taken by the petitioner, wherein it has been specifically stated that the “list of witnesses proposed and the documents relied upon by the Bank were never supplied to the petitioner and the witnesses were produced on a particular date without the knowledge of the petitioner, thus, depriving him of the opportunity to prepare himself for the cross-examination of the witnesses as per rule,” has been replied evasively by the respondent Bank. In this regard, the Counsel emphasized on Order VIII Rule 4 and 5 of the Code of Civil Procedure which clearly says that denial must be specific and not evasive, and further placed reliance on State of U.P. v. Saroj Kumar Sinha, (2010) 2 SCC 772 and G.V. Aswathanarayana v. Central Bank of India, (2004) 1 LLJ 36.

P.A.S. Pati, Counsel for the respondent Bank, supports the impugned order, however, could not demonstrate that the mandatory requirement as envisaged in Rule 6(5) and 6(10) of the Regulation was complied with. He cannot dispute the averment made in the counter affidavit while replying to the categorical statement made in the writ application, however, he reiterated that principle of natural justice has been complied with.

 Observations

Court reproduced the allegation as well as the reply made by the respondent bank and further reproduced the language of Order VIII Rule 4 and 5(1) of the CPC, 1908.

Rule 4. Evasive denial – Where a defendant denies an allegation of fact in the plaint, he must not do so evasively, but answer the point of substance. Thus, if it is alleged that he received a certain sum of money, it shall not be sufficient to deny that he received that particular amount, but he must deny that he received that sum or any part thereof, or else set out how much he received. And if an allegation is made with diverse circumstances, it shall not be sufficient to deny it along with those circumstances.

Rule 5. Specific denial – (1) Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading of the defendant, shall be taken to be admitted except as against a person under disability: Provided that the Court may in its discretion require any fact so admitted to be proved otherwise than by such admission.”

It went on to conclude, “After going through the specific provision under Code of Civil Procedure and in the background of the statement given in the counter affidavit it can be easily inferred that the statement made in Paragraph 38 of the writ application regarding non-supply of documents and list of witnesses, are not denied specifically by the respondents.

 Decision

Allowing the present writ application, the Court held, “Normally, in such type of cases, the matter should have been remitted back to the competent authority to start the proceeding from the stage of the irregularity commenced, by following principles of natural justice. However, in the instant case, the petitioner has already retired on 31-03-2010 and at present he is about 74 years. Further, the case relates to the year 1999 and calling the management witness now will be a futile exercise, as such, no fruitful purpose would be served to remit the case back to the Disciplinary authority for compliance of mandatory requirements of the Regulation. Consequently, the Impugned Order and all subsequent orders are hereby quashed and set aside. The Respondents are directed to give consequential benefits to the petitioner.”[Rama Shankar v. Central Bank of India, 2020 SCC OnLine Jhar 1039, decided on 15-12-2020]


Sakshi Shukla, Editorial Assistant has put this story together

Case BriefsHigh Courts

Punjab and Haryana High Court: Rajbir Sehrawat, J., allowed the instant second appeal challenging the concurrent judgments and decrees passed by the trial Court and district judge for recovery of arrears of rent and the electricity charges for the premises which had been leased out to the appellant bank.

Brief facts of the case follows as, the plaintiff was the owner in possession of SCO No.147-148, Sector 17-C, Chandigarh which was leased out to the appellant. When the said lease came to end the appellant issued a notice intimating the plaintiff to take possession of the premises. However, the plaintiff insisted upon the bank to first clear the water and electricity dues; and further vaguely insisted to ensure the handing over of the said property in the same condition in which it was handed over to the appellant.

Appellant contended that the plaintiff never approached the appellant formally, instead filed a police complaint stating that the appellant is restraining them from committing civil work in their premises, which was sought only to create proofs of appellant’s possession as the complaint was withdrawn when the bank admitted its possession over the premises as the plaintiff has not formally accepted the possession. Later on, the plaintiff preferred a rent petition before the Rent Controller, Chandigarh for eviction of the appellant on the ground of non-payment of rent, that too, when the appellant was already willing to hand over the possession. Hence, it is clear that the plaintiff was avoiding taking possession of the property only to prolong the matter so as to raise the claim of rent at a very hefty amount of about 12 lakhs per month.

The plaintiff preferred the present suit before the Civil Court on 18-02-2014 seeking recovery of amount of 1,27,96,137 rupees on account of arrears of rent which was decreed in his favour. The contentions of the petitioner were that he could not take possession of the premises since the appellant had not removed the construction of RCC. It was further stated that since, the appellant had paid complete rent; therefore, the security deposits, which were lying with the plaintiff, are to be adjusted towards the outstanding rent. The counsel further argued that both the courts below have recorded concurrent findings of facts against the appellant. Therefore, in second appeal the appellant cannot be permitted to raise the same issue once again.

The Court while reversing the decrees of lower Courts held that lease deed specifically shows that it was the sole responsibility of the plaintiff to raise the RCC construction. Therefore, the appellant could not be fastened with any liability to remove the same. It was observed that the plaintiff had no right to refuse taking over of possession of the premises in question for any reason whatsoever. Also, the delay in transfer of possession was only creation of the plaintiff themselves. Therefore, they are not entitled to claim any compensation or arrears.

The Court further established that there could not be any blanket rule that the concurrent findings cannot be interfered with in second appeal. It would depend upon the facts of the case, if the courts below record a finding in ignorance or against the evidence on the file, then the Court in second appeal should not only interfere with such findings, rather, it is the legal duty cast upon such a court to bring the same in consonance with the evidence led on file. [HDFC Bank Ltd. v. Sanjiv Kumar Jain, 2020 SCC OnLine P&H 2253, decided on 02-12-2020]

Case BriefsHigh Courts

Delhi High Court: Pratibha M. Singh, J., observed that:

Complaints of sexual harassment are initially filed with enormous reluctance. The power of the ICC to hold the enquiry and give a report ought to be within the scheme and the four corners of the statute itself.

In the instant petition, recommendations of the Internal Complaints Committee have been challenged as given in the report as well as further action taken by the Punjab National Bank on the basis of ICC’s report.

A complaint was filed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 against respondent 3 who was working as the General Manager of respondent 1 Bank, in Mumbai.

The above-stated complaint was referred to the ICC, which was constituted by the Bank, consisting of four members.

What was the analysis of ICC?

ICC came to the conclusion that the relationship between the petitioner and respondent 3 was based on personal grounds with mutual consent, and that the allegations of sexual, emotional and mental harassment were not substantiated by the petitioner.

Hence, the complaint against respondent 3 was rejected.

ICC made additional observations that the behaviour of the parties had been inappropriate and unbecoming of officers/employees of the Bank and accordingly recommended the Competent Authority to take suitable action against the petitioner and the respondent 3.

Based on the above report, a charge sheet was issued against the petitioner under Regulation 6 of the Punjab National bank Officer Employees’ (Discipline & Appeal) Regulations, 1977, hence in view of the same, petitioner has filed the instant petition.

Single Judge in his order had stayed the ICC’s recommendation and the consequent charge-sheet.

Later during the pendency of the petition, the petitioner became eligible to be considered for promotion. Petitioner stated that her promotion was being held up in view of the pendency of the present petition.

Thereafter, the Bank was directed to independently consider the petitioner’s candidature for promotion, however, it was directed that the same shall not be given effect to and kept in a sealed cover. Due to the lockdown, the matter could not be heard.

Analysis and Decision

Bench on perusal of the facts and circumstances of the matter raised the question as to whether the ICC could have, in the first place, made a recommendation directing the competent authority to take action?

ICC in its report had concluded that the allegations were not substantiated and the complaint was not made out. and further added remarks in regard to the conduct of the petitioner and respondent.

High Court made an observation in light of Section 13 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, that is the allegations of sexual harassment or any other form of harassment, as contemplated under the Act, are not proved before the ICC, the ICC can only recommend the employer to not take any action in the particular matter.

In the instant case, ICC has gone beyond its statutory mandate and has made observations that both the parties indulged in inappropriate/unbecoming conduct and indiscipline action against them.

Bench held that the above-stated recommendation by the ICC was beyond jurisdiction.

Moral Policing

‘Moral Policing’ is not the job of the Management or of the ICC.

With regard to Moral Policing, Court expressed that, any consensual relationship among adults would not be the concern of the Management or of the ICC, so long as the said relationship does not affect the working and the discipline of the organisation and is not contrary to the Rules or code of conduct binding on the said employees. It is only if a complaint is made of sexual harassment under the Act that the Management can constitute the ICC to enquire into the same.

Bench in view of the above discussion found the last paragraph of ICC’s report in the instant case to be commenting on the conduct of the parties which is against the statute and hence the same was not tenable and liable to be set aside.

In view of the above position, the fact that the Petitioner has become eligible for promotion means that the Bank would accordingly offer her promotion in accordance with her seniority, performance and merit, as per the applicable service rules. [Bibha Pandey  v. Punjab National Bank,  2020 SCC OnLine Del 1639, decided on 16-12-2020]

Case BriefsHigh Courts

Bombay High Court: A Division Bench of Ujjal Bhuyan and Abhay Ahuja, JJ., while addressing an issue with regard to the Cooperative Societies, made an observation that,

We find it a bit perplexing that for a dispute having its genesis in charging or billing of an individual shareholder member, drastic steps, such as, dissolution of the managing committee and appointment of Administrator have been resorted to.

Petition challenges the Order passed by the Dy. Registrar i.e. respondent 2 directing the Shyamrao Vitthal Co-operative Bank — respondent 4 not to allow the petitioner to operate the Society bank account and challenging the order passed by respondent 2 also directing respondent 4 Bank to permit the administrator appointed by respondent 2 to operate the bank account of Viddhisha Shantiniketan CHS Ltd. i.e. Respondent 7 Society.

Bench on perusal of the facts and circumstances of the present case noted that the present matter is a very hotly contested dispute between the office bearers of the Society on the one hand and an individual of the Society on the other hand.

High Court declined to entertain the present petition as the appeal is still pending for the present matter.

Court directed respondent 3 to decide the pending appeal so that the day-to-day functioning of the Society is not hampered due to the dispute.

Till the disposal of the appeal is done Society shall be jointly managed under the Chairmanship of the petitioner and the Respondent 6 only for day to day affairs including payment of municipal taxes, light bills and other outgoings of Respondent 7 Society.

Bench added to its direction that respondent 4 shall unfreeze the account to allow the operation of the respondent 7 account.

Co-operative societies are now a part of the constitutional scheme as cooperative societies have been inserted in the Constitution of India as Part IX B by way of the Constitution (Ninety-seventh Amendment) Act, 2011 w.e.f 15-02-2012.

Therefore, in view of the above-stated position, co-operative societies should have the necessary space and autonomy to function and develop to its full potential. Also, interference in their matter should be avoided unless there is a serious statutory breach.

Court disposed of the present petition in view of the above terms. [Rambujarat Ramraj Chaurasia v. State of Maharashtra, 2020 SCC OnLine Bom 901, decided on 02-09-2020]

Case BriefsForeign Courts

Supreme Court of the United Kingdom: A Full Bench of Lady Hale (President), Lord Reed (Deputy President), Lord Lloyd Jones, Lord Sales, and Lord Thomas, dismissed the appeal filed by a bank.

In the present case, the respondent company, “Singularis”, is registered in the Cayman Islands, which was set up to manage the personal assets of Mr Maan Al Sanea. He was the company’s sole shareholder and also one of the directors. The other 6 directors did not have any influence over the company’s management. A loan financing for the purchase of shares was provided to Singularis in 2007, by the appellant investment bank i.e., Diawa. This loan was also the security for the repayment of the loan. In the year 2009, after the shares were sold and the loans were repaid, a surplus amount of money (US$204m) was held by the bank for the account of the respondent company. As per the instruction given by Al Sanea, Daiwa paid out the surplus funds to third parties. The payments were misappropriation of Singularis’ fund and as a result of that Singularis was unable to meet the demands of the creditors. Singularis consequently entered into liquidation. On 18.09.2009, the Cayman Islands made a winding-up order and a joint liquidator were appointed for the same.

Respondent company herein (Singularis) held a certain sum of money as a deposit with the appellant bank (Daiwa). In 2009, the bank Daiwa was instructed by an authorised signatory of Singularis (Mr. Al Sanea) to make payments out of Singularis’ account. The Bank approved and completed the transfers notwithstanding many obvious and glaring signs that Mr. Al Sanea was perpetrating a fraud on the company. In 2014, Singularis issued a claim against the bank for USD 204 million (the total amount transferred in 2009). There were two bases for the claim: (i) dishonest assistance in Al Sanea’s breach of fiduciary duty in misapplying Singularis’ funds; and (ii) breach of the Quincecare duty of care owed by the Bank to Singularis by giving effect to the payment instructions.

The Quincecare duty arises when bankers are asked to make payments in circumstances where there are reasonable grounds to suspect possible fraud. In such a situation, banks owe a duty of care to their customers to refrain from making payments. When “on inquiry” in this way, banks have a positive duty to investigate the potential fraud, they have to be satisfied, by enquiring as far a reasonable banker could be expected to do so, that the payment is not fraudulent before they can be “off inquiry” and go on to comply with their contractual obligations and make the payment.

The claim allowed by the High court was the breach of the Quincecare duty of care. Since Daiwa’s appeal against the finding of liability on the negligence was dismissed, it appealed to the Supreme Court.

The main issue which arose in this matter was, whether the appellant bank was in the breach of its duty towards their customers by transferring the money regardless of circumstances which were suspicious. Also, whether the customer’s claim against the bank was precluded by the fact that the fraudulent acts of the director should be attributed to the customer so as to bar the claim of the customer against the bank.

According to the findings of the case, the judge held that there was a clear breach of Quincecare duty of care by the appellant bank towards the respondent company. The possible defences raised by Daiwa were: illegality, causation, countervailing claim in deceit and attribution. The Court opined that whether or not Mr. Al Sanea’s fraud was attributed to the company, the said defences would fail in any circumstance. It was held that Daiwa was liable to Singularis for its breach of Quincecare duty. It was the appellant bank’s duty to realise something suspicious was going on and a reasonable inquiry should have been done for the same. Due to Daiwa’s negligence, the company (and through the company, its creditors) had to suffer and be victims of fraudulent incidents.

Thus, the claims of Daiwa were dismissed and the judgment of the trial court was upheld. [Singularis Holdings Ltd. v. Daiwa Capital Markets Europe Ltd., [2019] 3 WLR 997, decided on 30-10-2019]

Case BriefsHigh Courts

Gujarat High Court: The Bench of N.V. Anjaria, J. dismissed a petition challenging the eligibility criteria in Advertisement No. RC-0719/2019 published by the respondents, for the position of Civil Judge, holding that a Deputy Manager working in the legal branch of a bank could not be treated as an employee working in the ‘department allied to Court’.

Rule 7(2)(b) of the Gujarat State Judicial Services Rules, 2005 states that the eligibility required for selection to the position of a Civil Judge. is that a candidate “must be practicing as an Advocate in Courts of Civil and/or Criminal Jurisdiction on the last date fixed for receipt of application; or must be working in the Courts or other allied Departments on the last date fixed for receipt of application.” 

Petitioner herein who was working as a Deputy Manager (Law) in the real estate department of a bank, was determined as ineligible for the post of Civil Judge and his application was rejected on the ground that it did not fall within the aforestated eligibility criterion. The petition questioned the ambit of “other allied Departments” in Rule 7(2)(b) and whether it included a candidate working as a Deputy Manager (Law) in a Government Bank.

Learned counsel on behalf of the petitioner, Jenil M. Shah submitted that the petitioner had cleared the All India Bar Examination and had the license to practice as an Advocate in the courts of India. Thereafter, he was appointed as the Deputy Manager (Legal) of State Bank of India. His work description indicated that he had been dealing with all kinds of legal work, including consultation and drafting. Hence, there was no reason to exclude the bank from “other allied Departments” and exclusion of bank from the ‘list of allied departments’ as stated under Instruction 10 of the Advertisement, was unjust and arbitrary.

Learned Advocate on behalf of the respondent, Shalin Mehta, submitted that the word ‘other allied departments’ in Rule 7(2)(b) has been used in conjunction with the word ‘courts’. The categories enumerated under the head of ‘other allied departments’ in Instruction 10 were those by which only the employees associated with courts or those familiar with court work are able to apply for the post of Civil Judges.

The Court noted that the impugned instruction categorized four departments as ‘allied to Court’: (i) High Courts or any courts subordinate; (ii) Office of the Government Pleader, Gujarat High Court; (iii) Office of the Government Pleader, City Civil Court Ahmedabad; and (iv) Legal Section or Legal Department, Government of Gujarat.

It was opined that selection of eligibility conditions is within the domain of the employer or the appointing authority; and judicial review thereof may extend only to see that the norms prescribed and the eligibility contemplated are relevant and have a rational nexus with the post concerned. Reliance in this regard was placed on Chandigarh Admn. v. Usha Kheterapal Waie, (2011) 9 SCC 645.

Further, the Court relied on K.C. Vasanth Kumar v. State of Karnataka, 1985 Supp SCC 714 and applied the interpretation rule of noscitur a sociis which states that where general words follow a specific word, the general words must be confined to things of the same kind as those specified. It was opined that the categorization of ‘allied departments’ in the advertisement was aimed at inviting candidates having proficiency and experience in relation to Court. Thus, there was a balance and blend between the context and purpose of the impugned condition.

In view of the above, it was held that the petitioner was not eligible for participating in the recruitment process for appointment to the post of Civil Judge. [Avinash Detha v. Registrar (Recruitment), 2019 SCC OnLine Guj 804, Order dated 25-04-2019]

Case BriefsHigh Courts

Bombay High Court: Sunil K. Kotwal, J., allowed SBI Insurance Co. (insurer) to recover, from the owner of the offending bus (insurer), the amount paid to a third party claimant) under a policy which was cancelled by the insurer on account of non-payment of the premium amount by the insured.

An accident occurred between a motorcycle and the offending bus, as a result of which the driver of the motorcycle passed away. A claim petition was filed by the claimants under which an award was passed by the Motor Accident Claims Tribunal. The insurer paid the claim amount in the discharge of its liability towards the claimant. It, however, claimed to recover the said amount from the insured. Insurer’s case was that the insured issued a cheque in his favour towards payment of the insurance premium for the policy taken on 10-11-2015. The accident occurred on 19-11-2015. Pertinently, the cheque issued by the insured towards payment of premium got dishonoured by the bank and, therefore, the insurer cancelled the policy on 14-12-2015. As such, the insurer claimed recovery of the amount paid to the third party.

After perusing the authorities cited, the High Court was of the opinion that in such type of cases, if the policy is cancelled before the accident occurs, then the insurer is not liable to pay compensation to the claimant. However, if the policy is cancelled after the accident happens, then he is so liable. But, in the latter category of cases, the insurer is entitled to recover the amount so paid to the claimant from the insured. It was observed that a contract of insurance between an insurer and an owner of the offending vehicle includes reciprocal promised by both the parties. In such view of the matter, the owner of the offending bus (insured) was directed to pay back the amount of the award to the insurer along with interest thereon. [SBI Insurance Co. v. Madhubala, 2019 SCC OnLine Bom 639, decided on 15-04-2019]

Case BriefsHigh Courts

Kerala High Court: The Bench of R. Narayana Pisharadi, J. quashed criminal proceedings against a person accused of cheating a bank holding that the case against him would be an abuse of process of the Court.

Petitioner herein was a customer of Bank of Baroda for many years. He introduced accused’s 1 to 3 to the said bank to enable them to open an account therein. Subsequently, the accused used credit/purchase facility given to them by the bank and obtained approximately Rs 1 crore from it. It was alleged that the accused had hatched a conspiracy to cheat the bank and cause loss to it. A case was registered against the accused and the petitioner under Section 120B, and Sections 420 and 406 read with Section 34 of the Penal Code, 1860. The instant petition was filed under Section 482 of the Code of Criminal Procedure, 1973 requesting quashing of proceedings against petitioner.

The Court noted that the only allegation against the petitioner was that he introduced accused to the bank to enable them to open an account. He did not falsely misrepresent the bank; there was no material indicating any transaction between the petitioner and other accused. No material was produced by the prosecution to prove that the introduction of accused to the bank, by the petitioner, was part of a conspiracy to cheat the bank. Therefore, no question of dishonest misappropriation of any amount by him arose.

It was held that it is a normal banking practice that a person who wants to open an account in a bank will have to get himself introduced by another account holder in the same bank. The mere act of introducing a person to a bank to enable such person to open an account in the bank, without anything more, does not attract the offence of cheating punishable under Section 420 IPC against the person who makes the introduction, even when the person introduced by him subsequently commits an act of cheating against the bank. Reliance in this regard was placed on Manoranjan Das v. State of Jharkhand, (2004) 12 SCC 90.

In view of the above, the petition was allowed. [K.J. Hubert v. Sub Inspector of Police, 2019 SCC OnLine Ker 1122, Order dated 04-04-2019]

Case BriefsHigh Courts

Kerala High Court: The Division Bench of K. Surendra Mohan and A.M. Babu, JJ. dismissed an appeal filed by a bank and concluded that deposit collectors, who act as agents of the bank, are ‘employees’ for the purpose of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act).

The instant appeal was filed assailing dismissal of a petition challenging order of Regional Provident Fund Commissioner whereby deposit collectors of the appellant bank were held to be persons to whom the EPF Act would apply, and accordingly, contributions were directed to be paid in respect of such employees.

The question herein was that whether contributions under the EPF Act is due or payable in respect of the commission that is paid to deposit collectors.

Mr M.R. Anison, learned counsel on behalf of the appellant submitted that deposit collectors are not ‘employees’ under the EPF Act. Therefore, no contributions under the EPF Act were either due or payable in respect of such employees.

The Court relied on Indian Banks Assn. v. Workmen of Syndicate Bank, (2001) 3 SCC 36 where it was held that deposit collectors are covered under the definition of ‘workmen’ in the Industrial Disputes Act, 1947. It was opined that commission paid to deposit collectors depends upon the terms of the agreement entered into between the bank and deposit collectors. An agent is paid commission at the rate or rates determined by the Board of Directors of the bank from time to time. Therefore, commission so paid to the deposit collectors constitutes their wages.

In view of the above, it was held that there was no infirmity in the impugned order.[South Malabar Gramin Bank v. Regional Provident Fund Commr., 2019 SCC OnLine Ker 843, Order dated 27-02-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): Justice V.K. Jain (Presiding Member) set aside the order of District Forum and State Commission and set aside their orders holding a national bank liable for returning educational certificates of the complainant.

Respondent herein had taken a loan from the petitioner bank under Pradhan Mantri Rozgar Yojana (PMRY) Scheme in 1984. He stated that he had deposited his educational certificates with the bank on the assurance that after repayment of the loan, the said documents would be returned to him. After repayment of the loan, respondent approached the bank for return of his original documents; but the same were not returned to him. Being aggrieved, he approached District Forum by way of a consumer complaint. District Forum allowed the complaint, and the bank’s appeal against the said order was dismissed. Thus, the bank approached filed the instant revision petition.

The Commission noted that no documentary proof of the alleged deposit had been filed by the respondent. Petitioner, being a nationalized bank and respondent being an educated person, it was difficult to accept that he deposited such important documents with the bank, without even taking an acknowledgment from it. Moreover, no evidence had been led by the respondent to prove that the submission of such documents was necessary under rules of the bank or PMRY Scheme.

In the absence of any evidence, it was opined that the view taken by the fora was perverse, and therefore the impugned orders could not be sustained.[Allahabad Bank v. Subhash Kumar Mittal, 2019 SCC OnLine NCDRC 25, Order dated 01-03-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): The Bench comprising of R.K. Agarwal, J., M. Shreesha, Member, dismissed the revision petition filed against the order of Haryana State Consumer Disputes Redressal Commission.

The respondent had purchased an insurance policy from Oriental Insurance Company which was valid till 28-12-2015, however, the respondent had requested for renewal of the said policy and subsequently, the petitioner-bank had deducted a sum of Rs. 4,726/- from respondent’s account for preparing a draft in favour of the insurance company. The draft was not submitted to the insurance company and hence the policy expired. Thereafter, petitioner’s wife met with an accident and the petitioner had to spend Rs. 3,50,000/- for his wife’s treatment.

The Commission, in this case, observed that the fact about the existence of the demand draft was not contested by the petitioner-bank, neither it was denied that they had deducted Rs. 4,726/- from respondent’s account. Had the draft been deposited in time, the policy would have been renewed and the expenses incurred by petitioner would have been covered by the policy.

The Commission held that since the petitioner-bank had deducted the amount and also prepared the draft but did not give it to the insurance company, this amounted to deficiency in services on the part of the petitioner bank. The Commission upheld the order of the state commission, directing petitioner to pay Rs. 3,10,000/- to the respondent as compensation on account of deficiency of services. [Oriental Bank of Commerce v. Rajesh Kumar,2018 SCC OnLine NCDRC 307, order dated 30-07-2018]