Bombay High Court
Case BriefsHigh Courts

Bombay High Court: In a commercial division summary suit instituted by Aziz Amir Ali (‘plaintiff’) who is former employee of a registered partnership firm (‘defendant 1’) which is engaged in the business of selling umbrellas for more than a century and has acquired goodwill in the market., for recovery of a sum of Rs. 1,20,00,000/- along with interest at the rate of 24% p.a. on the principal sum of Rs. 1 Crore, N.J. Jamdar, J. held the summary suit to be maintainable on confirmation of accounts through deposit receipt presented before Court.

The plaintiffs invested their lifetime savings with the defendants under the Collective Investment Scheme and invested a total sum of Rs. 1 Crore by cross payee cheques drawn in favor of defendant 1. In turn, the defendants issued credit notes and kept paying the money until January 2020 however stopped payment of interest from the month of February 2020. Thus, letters and legal notices were sent but to no response, present summary suit was filed.

Defendant 2 assailed the tenability of the suit under Order XXXVII Civil Procedure Code, contending that there is no contract between the plaintiffs and the defendants as alleged credit notes/deposit receipts do not constitute written contract.

The Court noted that the claim of the plaintiff is substantiated by the statements of bank accounts which evidence the transfer of amount to the account of defendant 1 through cheques. Particulars of the cheques are mentioned in the credit notes/deposit receipts, thus giving credence to the receipt of the amount of Rs. 1 Crore.

On the contention raised by the counsel for defendant that the transaction allegedly evidenced by credit notes does not partake the character of ‘deposit’, the Court placed reliance on Basant Lal Agarwal v. Lloyds Finance Ltd., 2003 SCC OnLine Bom 1129, to explain the distinction between ‘loan’ and ‘deposit’.

The Court observed that the credit note/receipt clearly acknowledges the receipt of the amount thereunder and the legal notices sent constitute a specific and unequivocal demand of the said amount.

On the thrust of the defense regarding absence of stipulation as to the ‘term of deposit’ implying no contract to repay the amount, the Court opined that the very acknowledgment of the receipt of the amount evidenced by the credit note/receipt gives rise to a contract to repay the said amount and the obligation becomes enforceable upon demand, e-ven in the absence of stipulation as to period of payment.

Placing reliance on Jyotsna K. Valia v. TS Parekh and Co., 2007 SCC OnLine Bom 413, wherein it was observed that a summary suit on the accounts duly confirmed by the defendants would be maintainable, thus, the Court did not accede to the challenge to the tenability of the suit on the ground that it is not based on a written contract.

The Court held that the defendants cannot be granted an unconditional leave to defend the suit when there is material to show that the receipt of the principal amount of Rs. 1 Crore is incontestable and borders on an admitted liability.

The Court directed defendants to repay a sum of Rs. 1 Crore within a period of six weeks from the date of this order, failing which the plaintiffs shall be entitled to apply for an ex-parte decree against the defendants after obtaining a non-deposit certificate from the Prothonotary and Senior Master of this Court.

[Aziz Amirali Ghesani v. Ibrabim Currim, 2022 SCC OnLine Bom 2300, decided on 14-09-2022]


Advocates who appeared in this case:

Mr. Rashmin Khandekar, a/w Ms. Karishni Khanna, i/b Amit Tungare, Ms. Jill Rodricks, Vinit Jain and Deep Dighe, Advocates, for the Plaintiffs;

Mr. Zain Mookhi, a/w Janhavi Doshi, i/b Maniar Srivastava Asso., Advocates, for the Defendant no. 2;

Mr. Jamshed Master, i/b Natasha Bhot, Advocates, for the Defendant no. 3;

Mr. Siddha Pamesha, a/w Declan Fernandes, i/b Purazar Fouzdar, Advocates, for the Defendant no. 4.


*Arunima Bose, Editorial Assistant has put this report together.

Case BriefsHigh Courts

Kerala High Court: In a case wherein, due to low CIBIL Score education loan was denied, N. Nagaresh, J., directed for reconsideration of loan applications, disregarding the low Credit Score of the co-obligants.

Petitioners were aggrieved by the denial of the education loan in the present case. The 2nd respondent had rejected the application for an education loan for the reason that the CIBIL Score of the co-applicant was not up to the mark.

On being aggrieved with the above, the petitioner approached the Court.

Petitioner cited the decision of this Court in Pranav S.R. v. SBI, [2020 KHC 4695], wherein it was held that unsatisfactory credit scores of the parents of the petitioner cannot be a ground to reject an educational loan application because the repayment capacity of the petitioner after his education should be the deciding factor. Therefore, the respondents are compellable to sanction and disburse the educational loan applied for by the petitioners.

Analysis and Decision

High Court expressed that, in the exercise of the powers conferred by Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949, the Reserve Bank of India, in public interest, has issued Reserve Bank of India (Priority Sector Lending- Targets and Classification) Directions, 2020. Direction 4 contained therein categorises Education as a priority sector. Direction 11 states that Loans to individuals for educational purposes, including vocational courses, not exceeding ₹20 lakhs will be considered as eligible for priority sector classification.

Bench stated that, this Court in the decision of Pranav S.R. v. SBI, [2020 KHC 4695], has held that for educational loans, the repayment possibilities are to be decided not on the financial position of the parents but solely on the projected future earnings of the students on employment after education.

Hence, in the present matter, Court found no reason to take any different view and allowed the petitions.

Lastly, the High Court directed the respondents to reconsider the loan applications, disregarding the low Credit Score of the co-obligants, if any, and sanction and disburse the eligible loan amount.[Kiran David v. SBI, 2022 SCC OnLine Ker 1193, decided on 2-3-2022]


Advocates before the Court:

For the Petitioner:

MANOJ RAMASWAMY

         JOLIMA GEORGE

         JISHA SASI

         C.B. SABEELA

         APARNA G.

         CHINNU ROSE MARY THOMAS

For the Respondents:

JAWAHAR JOSE

         CISSY MATHEWS

         EDWIN JOSEPH

Case BriefsHigh Courts

Andhra Pradesh High Court: C Praveen Kumar, J. allowed the petition and quashed the FIR in Crime No.294 of 2013 of II Town Police Station, Eluru.

The facts of the case are such that the informant was working as Manager in Central Bank of India wherein he availed a housing loan of Rs.5,00,000/- for constructing a house. The said house was mortgaged with the bank as security for the loan. In some sudden turn of events the Bank dismissed the informant from the service because of a conviction in a C.B.I. case. Later on, the Bank settled his benefits and paid Provident Fund after recovering the housing loan. The informant requested the Bank to release the title deeds and documents due to repayment and no outstanding dues but to no avail.

The informant claims to have been harassed because he belongs to Scheduled Caste. The informant thus approached the National Commission for Scheduled Castes for release of the title deeds and house documents and settlement of issues like Gratuity etc which was thereby settled. On 16-08-2013, the Bank Manager informed the informant that they have misplaced the documents and title deeds of his house and further the General Manager informed the National Commission for Scheduled Castes about the same and also informed them about the steps being taken against the local branch. Non-delivery of house documents lead to filing of the present report alleging the offences constitutes punishable under Section 3(1)(v) and 3(2)(vii) and Section 4 of POA, Act.

The present Criminal Petition was filed, under Section 482 Cr.P.C., seeking quashing of investigation in the crime of II Town Police Station, Eluru, registered for the offences under Section 3(1)(v), 3(2)(vii) and 4 of Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989 [for short, “POA, Act”].

The Court after perusing Section 3(1) (v) and 3(2) (vii) and Section 4 of POA, Act, which deals with punishment for neglect of duties it is clear that these cannot be made applicable to the facts in issue. Section 3(2)(vii) postulates a situation where a person being a public servant commits any offence under this section i.e., Section 3(2) shall be punishable with imprisonment for a term which shall be less than one year but which may extend to the punishment provided for that offence. A reading of the above section makes it clear that it is only a punishment section and would get attracted, if an offence under Section 3(2) has been committed by a Public Servant.

The Court further observed that Section 4 of the POA, Act deals with punishment for neglect of duties, which defines that whoever, being a public servant but not being a member of a Scheduled Caste or Scheduled Tribe, willfully neglects his duties requires to be performed by him under this Act, shall be punishable with imprisonment for a term which shall not be less than six months but may extend to one year.

The Court concluded that it is no doubt true that the petitioners are Public Servants, working in a Bank where the informant has also worked and where he has taken loan. However, the averments in the First Information Report does not anywhere indicate any willful negligence of duties which were required to be performed under the POA, Act. On the other hand, the averments show misplacing of some documents, for which, the Head Office informed the National Commission for Scheduled Castes about the action which they intended to take.

The Court held “it is very clear that even accepting the allegations in the report to be true, no offence under the Scheduled Castes and Scheduled Tribes (POA) Act, is made out and as such, I am of the view that continuation of the proceedings against the petitioners, who are the Branch Manager, General Manager and Regional Manager of the Bank would be an abuse of process of law.” [N. Appa Rao v. State of AP, Criminal Petition No. 13548 of 2013, decided on 01-04-2022]


Arunima Bose, Editorial Assistant has reported this brief.

Case BriefsDistrict Court

Rohini Court, North-West, Delhi: Ritika Kansal, MM(NI) reiterated the settled position of law that,

“…an accused has to prove his defence by preponderance of probabilities, but a defence would be considered probable only if it appeals to the Court as probable and reasonable keeping in mind the natural course of conduct of a prudent human being of reasonable intelligence.”

Present complaint was filed against the accused under Section 138 of the Negotiable Instruments Act, 1881 (NI Act).

Complainant on account of good friendly relations advanced a loan of Rs 80,000 to the accused as the latter was in dire need of the money for her parlour with a promise by the latter to repay the same within 6 months.

It was alleged by the complainant that after much insistence in the month of August 2020, the accused sought some time “due to financial crisis” and “lockdown” but thereafter issued two cheques each of Rs 40,000 in the complainant’s favour which were dishonoured due to insufficiency of the funds in her bank account, leading to the complainant issuing a legal demand notice and eventually the present complaint.

Analysis, Law and Discussion

High Court observed the following significant points:

(a) Initially, it is upon the complainant to prove foundational facts.

(b) Once foundational facts are proved, it is mandatory upon the court to raise presumption under Section 118 r/w Section 139 of NI Act i.e., cheque has been issued/drawn for consideration by the accused to discharge a debt or a liability in favour of the holder of cheque. In other words, it shall be presumed that the accused/drawer of the cheques owes any legal liability or debt to the holder of the cheque/complainant.

(c) Accused can rebut the presumption.

(d) The burden of proof upon accused is not to prove his defence beyond all reasonable doubts but raise a probable defence

(e) Accused needn’t examine himself to prove his defence. He can do so with help of material already on record i.e. by cross-examining the complainant and/or his witnesses.

(f) Though, rebuttal does not have to be conclusively established, nevertheless, the evidence must be such that the court either believes the defence to exist or consider its existence to be reasonably probable, the standard of reasonability being that of the prudent man.

In the present matter, the complainant had established by virtue of Sections 118(a) and 139 NI Act, that a presumption arises in his favour and against the accused.

While adjudging whether in a case the presumption of consideration has been rebutted, it becomes important to underscore that a mere denial of liability or vague defence of blank cheque as security, cannot be taken at the mere ipse dixit of the accused. 

In the instant case, the whole defence of the accused was based upon the existence of a document marked as “A” and “B”. She had deposed that the same had been signed by the complainant in her presence. It was on the basis of said document, that the accused claimed that she has made payment in monthly instalments. Thus, clearly the initial burden to prove the alleged factum of issuance of the said documents lied upon the accused.

Cheques Issued as Security cheques

The question of maintainability of complainant under Section 138 in case of security cheque was examined by Delhi High Cout in judgement of Suresh Chandra Goyal v. Amit Singhal Crl.L.P. No. 607.2014.

It was observed: “There is no magic in the word “security cheque”, such that, the moment the accused claims that the dishonoured cheque (in respect whereof a complaint under Section 138 of the Act is preferred) was given as a “security cheque”, the Magistrate would acquit the accused. The expression “security cheque” is not a statutorily defined expression in the NI Act. The NI Act does not per se carve out an exception in respect of a ‘security cheque’ to say that a complaint in respect of such a cheque would not be maintainable…”

The Court opined that, merely because cheques in question were security cheques, would not save accused from clutches of law, latter having admitted taking loan against the cheques.

Decision

The Bench held that the accused failed miserably to prove the alleged factum of repayment.

Accused failed to prove that the documents “A” & “B” purportedly the money lending cards, bear the signature of the complainant/appellant, also no witness was examined by her who may have seen the accused’s husband making payment in installments.

Further, the accused testified in her evidence that she made repayments in monthly instalments in cash. However, to substantiate the same, neither she has placed on record any bank account statement reflecting withdrawals nor examined any witness

With regard to the contention that the complainant was engaged in money lending business without a licence, the accused did not place on record any material to substantiate the same and it is well settled that for an activity to be called money lending, there should be a systematic business of money lending which should be repetitive and continuous, and the loans are granted to a large number of persons. Even if the said contention was accepted, the accused’s sinking ship could not be saved in light of the settled position of law.

Accused in response to the legal notice did not even insist on taking back the cheques in question, rather stated therein that she had returned 80% of the amount and expressed anguish over the cheques being presented without her knowledge.

Bench also noted that,

“…the accused didn’t issue any “stop payment” instructions to the bank. Despite opportunity, she didn’t place on record any police complaint as referred to by her during her evidence. Even if everything is taken out of the purview, I fail to understand how a reasonably prudent person who has paid a sum of money more than she borrowed would wait in silence, and not protest over her cheques not being returned.”

Noting the sheer lack of even an iota of material on the record, lead to the irresistible conclusion that the defence of the accused was a sham and nothing but an implausible story.

Accused had miserably failed to probablise lack of legal liability with respect to the cheques in question. The presumption of legal liability, therefore, has gone unrebutted.

Therefore, accused was convicted of an offence under Section 138 of the NI Act. [Manmohan Bansal v. Saroj Sharma, CC NI Act No. 119 of 2021, decided on 7-2-2022]

Case BriefsHigh Courts

Karnataka High Court: Rajendra Badamikar, J., reversed an order of the Magistrate which had directed the petitioner accused to deposit 20% of the cheque amount before the court. The High Court said that Section 143-A of the Negotiable Instruments Act, 1881 is not a mandatory provision.

Factual Matrix

The respondent herein had filed a private complaint before the Trial Court against the present petition for the offence punishable under Section 138 of the Negotiable Instruments Act, 1881.

As per the Respondent-Complainant, the petitioner accused had taken a hand loan of Rs 9 lakhs from the complainant in order to purchase a plot. But the sale deed was not executed and when complainant requested the accused-petitioner for repayment of the amount or else to execute the sale deed he issued a cheque and when the said cheque was presented through the banker of the complainant it was returned for insufficient funds.

Further, it was alleged that the complainant issued a legal notice calling upon the petitioner for payment within 15 days, but he failed to make any payment as such he filed a private complaint under Section 138 of NI Act.

Magistrate passed the impugned order directing the accused-petitioner to deposit 20% of the cheque amount before the Court.

Analysis, Law and Decision

High Court noted that the complaint was filed under Section 138 of NI Act in respect of bouncing of cheque issued by present accused of a sum of Rs 9 lakhs. After recording the sworn statement, the Magistrate took cognizance and issued the process against the accused/petitioner who appeared and enlarged on bail.

Present petitioner appeared before the Trial Court and was enlarged on bail and the matter was adjourned to 28-11-2019 for recording the plea. On that date, the counsel for the complainant/respondent herein filed an application under Section 143A of NI Act.

Magistrate’s order disclosed that as per the mandatory provisions of Section 143A he passed the impugned order for deposit of 20% of the cheque amount. It was noted that he did not hear the counsel for the accused and no opportunity of being heard was given to him.

Bench expressed that,

Section 143A (1) is not a mandatory provision and it says that Court may order the drawer of the cheque to pay the interim compensation as per conditions stipulated there under.

It was evident that the power under Section 143A was vested with the magistrate to be exercised judiciously after recording the plea and it was not mandatory, but the Magistrate was required to exercise his judicious discretion under Section 143A of the Act.

But in the instant case, the impugned order disclosed that the Magistrate had not even applied his mind and in a mechanical way as per the mandatory provisions of Section 143A he has directed the accused to deposit 20% of the cheque amount. The provisions of Section 143A are not mandatory but the discretion was given to the magistrate to be exercised judiciously.

In Court’s opinion, the entire approach of the Magistrate was against the settled principles of natural justice and he did not even pass a summary speaking order giving reasons for passing such an order.

The order itself disclose that he carried on impression that Section 143(A) of the Act is a

mandatory provision of law but ignored the fact that the word used in the Section is ‘may’ and not ‘shall’ which gives a discretion to the Court to be exercised in a judicious way.

 Therefore, the entire approach of magistrate was against the settled principles and the impugned order called for interference. [Jahangir v. Farooq Ahmed Abdul Razak, Criminal Petition No. 201213 of 2020, decided on 6-7-2021]


Advocates before the Court:

For the Petitioner: Sanjay A. Patil, Advocate

For the Respondent: S.S. Mamadapur, Advocate

Case BriefsDistrict Court

Dwarka Courts, New Delhi: Medha Arya, MM (NI Act-03), resolved the dispute pertaining to Section 138 of Negotiable Instruments Act, 1881 in light of the 4 conditions laid down under the said Section.

Complainant was friends with one Lata Bhola for a number of years and the accused, son of Lata Bhola alongwith his mother told the complainant that they want to purchase a house but they were facing paucity of funds and requested the complainant to advance to them a friendly loan of Rs 6,30,000. Both son and mother agreed to repay the loan of complainant within 15 days, however, they avoided the repayment of the loan even after the expiry of the 15 days period.

Later, the cheque in question was issued by the accused with the assurance that it shall be duly honoured upon presentation. However, to the utter shock and dismay of the complainant, the said cheque in question was dishonoured vide cheque returning memo with remarks ‘payment stopped by drawer’.

When the accused failed to repay the cheque amount even after expiry of the 15 days from the date of service of legal notice, the complaint was filed by the complainant seeking the summoning, trial and conviction of the accused of the offence punishable under Section 138 NI Act.

Complainant’s case was that the period of limitation as per Section 142 of the N.I. Act, and the territorial jurisdiction to try the present complaint vests with this Court.

By virtue of Section 146 of NI Act, this Court is bound to presume the fact that the cheque was dishonoured for the reason mentioned in the returning memo, and this presumption has also not been dislodged by the accused.

Analysis, Law and Decision

Section 138 NI Act:

Before finding of conviction with the offence punishable under Section 138 N.I. Act can be returned against the accused, it has to be established, cumulatively-

(i) that the cheque in question was issued by the accused in favour of the complainant for the discharge of legally enforceable liability.

(ii) presentation of the cheque to the bank within three months from the date on which it is drawn or within the period of its validity, whichever is earlier;

(iii) a demand being made in writing by the payee or holder in due course by the issuance of a notice in writing to the drawer of the cheque within thirty days of the receipt of information from the bank of the return of the cheques; and

(iv) the failure of the drawer to make payment of the amount of money to the payee or the holder in due course within fifteen days of the receipt of the notice.

In the opinion of this Court, the complainant proved on record that the cheque in question was presented by the complainant with her bank for encashment within the period of its validity. Accordingly, condition no. (ii) of Section 138 NI Act was satisfied.

Accused did not dispute that the legal notice was served upon him within the statutory period of limitation, hence condition (iii) was satisfied.

Further, the accused axiomatically admitted that he did not pay the amount of cheque in question to the complainant even after the expiry of 15 days from the date of receipt of legal notice. Therefore condition no. (iv) was satisfied.

Whether the cheque in question was issued by the accused to the complainant in discharge of legally enforceable liability?

Section 139 of the NI Act, 1881 carves out a presumption in favour of the drawee that the cheque was issued to him in discharge of a debt or other liability of a legally enforceable nature. Also, the said provision must be read along with Section 118 of the same enactment which spells out another presumption in favour of the drawee that every negotiable instrument was drawn for consideration, and that every such instrument, when it has been accepted, indorsed, negotiated or transferred, was accepted, indorsed, negotiated or transferred for consideration.

Whether presumption under Section 139 N.I. Act read with Section 118 N.I. Act can be raised against the accused?

Court opined that such presumption can be duly raised against the accused as he has admitted his signatures on the cheque in question and has also admitted that the particulars on the same were filled by him.

Whether the accused has been able to discharge the onus of proof placed upon him?

Court stated that the journey of trial qua a complaint under Section 138 NI Act commences after a determination is made that the presumption as per Sections 139/118 NI Act can be raised against the accused, from the point of the accused who is required to prove that the cheque in question was not given for consideration or for the discharge of any legally enforceable debt.

The accused took the stand all along that he had obtained a loan of Rs 2,50,000/- from the brother of the complainant, Sanjeev Nagpal, but he was not examined as a witness by the accused. The evaluation of the testimonies of the above witnesses as well as the aforementioned circumstance clearly establishes that the accused has not been successful in proving his defense in the affirmative.

Whether the accused has been able to dislodge the presumption against him under Section 139 of the NI Act, by perforating the case of the complainant?

Even if it is so conceded, the fact that the cheque in question was given to the complainant as a security cheque, in postdated condition or otherwise, does not dent the case of the complainant sufficiently.

Further, even if it is conceded that the loan was advanced by the complainant only to the mother of the accused and not to the accused and his mother together, the cheque issued by the accused can still be construed to be issued in discharge of “any other liability”, and the accused cannot avoid penal consequences of the dishonour of the cheque merely because the loan amount was not advanced to him by the complainant.

Elaborating further, the Court stated that the offence punishable under Section 138 NI Act is premised on theory of reverse onus of proof, and the complainant was not required, as she would have been required in a civil trial of recovery perhaps, to prove a loan transaction, as she had a valid cheque in question made in her favour by the accused. With the presumptions stacked against him, the first order of business required the accused to plug loopholes in the case of the complainant, and only thereafter would the requirement for the complainant to prove her case beyond reasonable doubt have arisen.

Concluding the matter, Court held that the accused failed to establish the version that he set forth in the affirmative, and in perforating the case of the complainant and dislodging the presumption of Sections 139/118 NI Act stacked against him.

Therefore, accused was convicted for the offence punishable under Section 138 NI Act. [Geetika Mehra v. Satyam Bhola, Ct. Case No. 28164 of 2018, decided on 18-11-2021]

Tis-hazari
Case BriefsDistrict Court

Tis Hazari Courts, New Delhi: Devanshu Sajlan, MM NI Act-05, while noting the ingredients of Section 138 of the Negotiable Instruments Act, 1881 acquitted a person charged for offence punishable under Section 138 NI Act.

Factual Matrix

Present complaint was filed under Section 138 of the Negotiable Instruments Act, 1881.

Complainant had granted a friendly loan of Rs 21,00,000 to the accused for two months for some urgent need of the accused.

To discharge the legal liability, the accused issued two cheques in favour of the complainant firm, but the same were returned by the bank as no balance was available in the account. Thereafter, Complainant sent a legal notice but the accused allegedly failed to pay the cheque amount and hence, the complainant filed the present complaint.

Accused denied having taken a loan of Rs 21,00,000 from the complainant and instead stated that he took a loan of Rs 5,00,000 and had already paid the same. He added that he had given three blank signed cheques as security cheques which were misused by the complainant.

Discussion

In the present matter, the complainant proved the original cheques that the accused had not disputed as being drawn on the account of the accused.

Court stated that giving a blank signed cheque does not erase the liability under the NI Act. If a signed blank cheque is voluntarily presented to a payee, towards some payment, the payee may subsequently fill up the amount and other particulars (Bir Singh v. Mukesh Kumar, (2019) 4 SCC 197, ¶ 34).). The onus would still be on the accused to prove that the cheque was not in discharge of a debt or liability.

Legal Notice

It is settled law that an accused who claims that she/he did not receive the legal notice, can, within 15 days of receipt of summons from the court, make payment of the cheque amount, and an accused who does not make such payment cannot contend that there was no proper service of notice as required under Section 138, by ignoring statutory presumption to the contrary under Section 27 of the General Clauses Act and Section 114 of the Evidence Act [C.C. Alavi Haji v. Palapetty Muhammed, (2007) 6 SCC 555).

Maintainability | Complainant is an unregistered partnership firm

It was contended that the present complaint was barred under Section 69(2) of the Indian Partnership Act. The firm was unregistered and hence the complaint was barred under the stated section.

A simpliciter reading of Section 69(2) would show that it is intended to apply to only suits, and that it would have no application to a criminal complaint.

Hence, the bar imposed on unregistered firms under Section 69(2) of the Indian Partnership Act does not apply to a criminal complaint under Section 138 NI Act.

Non-Existence of Debt

Complainant is required to prove that the cheque in question was drawn by the drawer for discharging a legally enforceable debt.

Court stated that as per the NI Act, once the accused admits signature in the cheque in question, certain presumptions are drawn, which result in shifting of onus on the accused and in the present matter, the issuance of cheques was not denied.

The combined effect of Section 118(a) NI Act and Section 139 of the NI Act is that a presumption exists that the cheque was drawn for consideration and given by the accused of the discharge of debt or other liability.

Rebuttal

  • Misuse of the security cheque

Bench stated that it is immaterial whether the cheque had been filled by the complainant once the cheque has been admitted being duly signed by the drawer-accused.

  • Complainant did not have the financial capacity to grant the alleged loan

It is a settled position of law that in case of cash transaction, showcasing that complainant did not have the adequate financial capacity to lend money to the accused amounts to a probable defense and can help in rebutting the presumption that is accrued to the benefit of the complainant in cheque dishonor cases.

In Basalingappa v. Mudibasappa, (2019) 5 SCC 418, the Supreme Court has observed as follows:

During his cross-examination, when financial capacity to pay Rs. 6 lakhs to the accused was questioned, there was no satisfactory reply given by the complainant. The evidence on record, thus, is a probable defence on behalf of the accused, which shifted the burden on the complainant to prove his financial capacity and other facts.

(emphasis added)

Hence, the Court stated that in cases in which the underlying debt transaction is a cash transaction, the accused can raise a probable defense by questioning the financial capacity of the complainant, and once the said question is raised, the onus shifts on the complainant to prove his financial capacity.

Bench on perusal of the record of the present case, agreed with the submission of the counsel of the accused, since the record created adequate doubts over the financial capacity of the complainant to advance the loan in question.

Conclusion

Hence, Court opined that the complainant failed to establish that it had the financial capacity to advance a loan of Rs 21,00,000 to the accused.

Therefore, accused successfully rebutted the presumption under Section 139 NI Act and the complainant failed to discharge the shifted onus.

“…even if the cheque presented by the complainant was returned unpaid by the bank, the complainant cannot prosecute the accused, as the requirement of the existence of legal liability has not been satisfied in the present case, since the accused has been able to establish a probable defence by creating a credible doubt over the existence of the alleged loan transaction.”

Concluding the matter, Bench held that complainant failed to prove the case beyond a reasonable doubt, hence the accused was acquitted from the charge of offence punishable under Section 138 of the NI Act. [S.S. Auto Gallery v. Vaneet Singh, 21636 of 2016, decided on 9-10-2021]


Advocates before the Court:

Manjeet Singh, counsel for the complainant.

D.K Ahuja, for the accused.

Case BriefsHigh Courts

Sikkim High Court: If a father keeps his self-acquired property for the purpose of mortgage, can his sons interfere in the same? Bhaskar Raj Pradhan, J. answered in the negative and stated that the sons did not have a right to stop the father in dealing with his self-acquired property in the manner he chose to.

Background

Petitioners in the instant matter were the adult sons of respondent 4 who was proceeded against before the Tribunal having stood as guarantor for the loan taken by respondent 2 from respondent 1.

Respondent 4 had mortgaged the landed property in dispute to respondent 1 as a guarantor. Respondent 3 wife of respondent 2 was also a guarantor. Respondent 1 was the Certificate Debtor 2 and respondent 4 was Certificate Debtor 3.

With this Court, a declaration was sought that the property involved in the auction sale shall not be sold in auction to realize the dues of respondent 1. Further, it was added that a declaration that the other landed properties of respondent 2 first be proceeded against to realize the dues of respondent 1 and a direction that the loan shall be realized from respondent 3 from her employer duly adjusting the considerable amount towards recovery loan.

Petitioners stated that the property was originally acquired by the father of respondent 4 and he got his property from his father on partition, hence the same was an ancestral property of the petitioners.

Further, it was stated that the petitioners, as well as the respondent, were Hindus governed by Mitakshara School of Hindu Law and that by virtue of their birth, they became owners of the property along with respondent 4 as coparceners.

Analysis

Whether the property was an ancestral property of the petitioners or if they had any enforceable right on the property mortgaged by respondent 4 in favour of respondent 1 as a guarantor?

According to Hindu Law by Sir Dinshaw Fardunji Mulla 23rd Edition “all property inherited by a male Hindu from his father, father’s father or father’s father father, is ancestral property.”

Supreme Court reiterated in Shyam Narayan Prasad v. Krishna Prasad, (2018) 7 SCC 646, “A property of a Hindu male devolves on his death.”

A 3-Judge Bench of the Supreme Court in C.N. Arunachala Mudaliar v. C.A. Muruganatha Mudaliar, AIR 1953 SC 495, held that

“father of a Joint Hindu Family governed by Mitakshara law has full and uncontrolled powers of disposition over his self-acquired immovable property and his male issue could not interfere with these rights in any way. The Supreme Court while examining the question as to what kind of interest a son would take in the self- acquired property of his father which he receives by gift or testamentary bequest from him, it was held that Mitakshara father has absolute right of disposition over his self-acquired property to which no exception can be taken by his male descendants. It was held that it was not possible to hold that such property bequeathed or gifted to a son must necessarily rank as ancestral property.

 “…a property gifted by a father to his son could not become ancestral property in the hands of the donee simply by reason of the fact that the donee got it from his father or ancestor.”

 In the instant case, it was evident that respondent 4 did not get the disputed property as his share on the partition as claimed by petitioners. The property was acquired on transfer by his father who had originally acquired it.

The above facts make the property self-acquired of late Hari Prasad Sharma and thereafter, of respondent 4 consequently not ancestral property of petitioners.

Hence, respondent 4 has the right to deal and dispose of the property as he desires.

Section 58 (a) of the Transfer of Property Act, 1882 states that a mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.

Concluding the matter, Bench held that petitioners, sons of respondent 4 could not have any right to stop him in dealing with his self-acquired property in the manner he chose. Mortgage on the property does not create rights in favour of respondent 1.

In view of the above petition was dismissed. [Umesh Prasad Sharma v. Allahabad Bank, 2021 SCC OnLine Sikk 149, decided on 30-9-2021]


Advocates before the Court:

Mr A. Moulik, Senior Advocate with Ms K. D. Bhutia, Advocate for the petitioners.

Mr Sudesh Joshi, Advocate for Respondent 1,

Mr Pratap Khati, Advocate for Respondents 2 & 3.

None appears for respondents 4 and 5.

Legislation UpdatesNotifications

On September 24, 2021, the Reserve Bank of India (RBI) has issued the Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021. These directions come into immediate effect replacing the existing instructions on the matter of sale / transfer of loan exposures.

Applicability

The provisions of these directions shall apply to the following entities (collectively referred to as lenders in these directions), unless specified otherwise:

(a) Scheduled Commercial Banks;

(b) Regional Rural Banks;

(c) Primary (Urban) Co-operative Banks/State Co-operative Banks/District Central Co-operative Banks;

(d) All India Financial Institutions (NABARD, NHB, EXIM Bank, and SIDBI);

(e) Small Finance Banks; and

(f) All Non Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs).

General Requirements:

  • Lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures under these guidelines. Further, the policy must also ensure independence of functioning and reporting responsibilities of the units and personnel involved in transfer / acquisition of loans from that of personnel involved in originating the loans. All transactions must meet the requirements as detailed in the policy.
  • Loan transfers should result in transfer of economic interest without being accompanied by any change in underlying terms and conditions of the loan contract usually.

Minimum Holding Period

The transferor can transfer loans only after a minimum holding period (MHP), as prescribed below, which is counted from the date of registration of the underlying security interest:

  1. Three months in case of loans with tenor of up to 2 years;
  2. Six months in case of loans with tenor of more than 2 years.

Disclosures and Reporting

  • The lenders should make appropriate disclosures in their financial statements, under ‘Notes to Accounts’, relating to the total amount of loans not in default / stressed loans transferred and acquired to / from other entities as prescribed in the Directions, on a quarterly basis starting from the quarter ending on December 31, 2021.

For more details, refer HERE

Case BriefsHigh Courts

Delhi High Court: Asha Menon, J., expressed that,

The Banks seek collaterals and security to prevent losses to themselves. It is, but reasonable, to expect the Banks such as the respondent, to also respect the right of the borrowers to maximize their profits from the sale of collaterals/securities by the banks.

In the instant matter, the petitioner had secured a loan of Rs 20 lakhs from the respondent against the mortgage of a plot. Since the petitioner defaulted in the repayment of the loan, a suit was filed by the respondent along with the sale of the mortgaged property in case of non-payment.

Petitioner claims that the interest upon the decretal amount was simple and subject to RBI Guidelines. In 1994, the petitioner went into liquidation and defaulted in making payments. This resulted in a final decree being passed on 20-08-1996 directing the sale of the mortgaged property.

Petitioners grievance was two fold: One was that the respondent had wrongly calculated the interest liability of the petitioner by taking a compound rate and thus exceeding 18% which was the upper limit fixed by the RBI.

Secondly, despite the respondent’s valuer fixing the valuation of the property at more than Rs 24 crores, when the property was to be put for auction, it reduced the reserve price to Rs 16,00,00,000/- from Rs 18,13,00,000/- and thereafter, during Covid-19 pandemic times when real estate prices were depressed, chose to seek court directions to reduce the price further to Rs 13,75,00,000/-.

Analysis, Law and Decision

With respect to the grievance of the petitioner that the value of the property had been arbitrarily depressed causing immense loss to the petitioner, Bench stated that

Though it cannot be overlooked that the petitioner is singularly responsible for the amount repayable to the respondent increasing exponentially over decades, by not adhering to its undertakings for making payments on time, even when the respondent has been open to some accommodation, the petitioner cannot be so penalized that it should be made to suffer grave prejudice on account of any arbitrary action taken by the respondent.

Court added that, while it does make business sense for the respondent to minimize its losses, the said objective cannot authorize the respondent or any other similarly placed institutional decree holders, to force penury on its erstwhile customer.

On query by this Court, the respondent’s counsel submitted that by 30-09-2020, the loan which was originally for a sum of Rs 20 lakhs, taken on 4-11-1987, had become Rs 15,12,36,049.45 and further submitted that Rs 13,75,00,000/- which was the consideration for the mortgaged property would still leave a balance of about Rs 2 crores as due and payable on the loan, which the respondent would be recovering from the petitioner against other assets.

In view of the above background, the question for consideration was: Whether borrowers would have no protection against arbitrary disposal of the properties mortgaged to banks and financial institutions at low prices?

Bench emphasised that, while the attempt of the banks and financial institutions such as the respondent to minimize their losses makes good business sense, there cannot be a free run for them at the cost of the borrowers who have mortgaged to them or furnished valuable property as security to assure repayment, which are worth multiple times the value of the loan.

Non-Payment of loans 

Court expressed that non-payment of loan cannot be countenanced but where the Banks seek to sell the immovable properties that are provided as security including through mortgage, it is incumbent on them to be earnest in their efforts so that the valuable security is not disposed of to the prejudice of the borrower.

It was noted that the value of the property in the year 2018 as assessed by the respondent’s valuer far exceeded the outstanding amount.

Adding to the analysis, Court pointed that though when the respondent had come into the possession of the mortgaged property on 13-04-2018, and as on 18-05-2018, the property was worth more than Rs 24 crores, while it remained in the hands of the respondent, the value of the same property had plummeted by about half. It may be that in the Covid-19 pandemic period, the Real Estate sector has seen some diminished activities, but it cannot be overlooked, that it was in the year 2019 itself, that the respondent had sought to revise downwards the value of the mortgaged property from Rs 24,16,78,125/-, to Rs 18,13,00,000/- to Rs 16 crores and thereafter to Rs 13,75,00,000/-.

In the present case, the prime commercial property originally worth more than Rs 24 crores has been purportedly sold for almost half the price with no one responsible. This kind of situation has to be avoided for which the Executing Court will have to maintain a vigilant eye on the auction proceedings.

Lastly, the High Court opted the option of directing the Executing Court to record a satisfaction of the Preliminary Decree dated 21-02-1992 and the Final Decree dated 20-08-1996 while issuing the Sale Certificate to the auction purchaser recording that no further dues against this loan remain outstanding and payable by the petitioner to the respondent.

Therefore, the parties have been directed to appear before the Executing Court on 6-09-2021. [Pushpa Builder Ltd. v. Vaish Cooperative Adarsh Bank Ltd.,  2021 SCC OnLine Del 4256, decided on 2-09-2021]


Advocates before the Court:

For the Petitioner: Anant Aggarwal, Advocate

For the Respondent: Surender Chauhan, Advocate with Sunil Jain, DGM and Sunil Dogra, Manager (Legal)

Case BriefsTribunals/Commissions/Regulatory Bodies

Delhi State Consumer Disputes Redressal Commission (DSCDRC): Coram of Dr Justice Sangita Dhingra Sehgal (President) and Anil Srivastava (Member)ordered the builder to refund the money deposited by the complainant, as a consequence of not being able to deliver the possession of flat on time. However, it was held that the builder was not liable to refund the EMI amount paid by the complainant towards loan sanctioned in favour of the complainant.

 Present consumer complaint was filed under Section 17 of the Consumer Protection Act, 1986 against OP 1 and OP 2.

Complainant had applied for booking of a flat in the OP 1’s project and was allotted a flat for the total sale consideration which was agreed at Rs 44,99,387.

Complainant and OP 1 entered into a Flat Buyers Agreement. It was stated in the agreement that the possession of the flat was to be delivered within 18 months from execution of the agreement along with a grace period of 6 months. Though, OP 1 failed to adhere to the stipulated time for delivery of possession and hence the complainant had to withdraw from the project.

Further, OP 1 informed the complainant regarding the deduction. Adding to this, it was submitted that the service tax paid on the entire transaction would also be forfeited.

Complainant got served a legal notice dated 03-10-2015, upon the OP 1 and sought refund of the amount deducted along with compensation for mental agony and harassment.

Alleging deficiency of service and unfair trade practice on the part of OP 1, the complainant approached this commission.

Analysis, Law and Decision

Territorial and Pecuniary Jurisdiction

Whether this commission has the jurisdiction to adjudicate the present complaint?

Coram on perusal of Section 17 of the Consumer Protection Act lead the Commission to the conclusion that it shall have the pecuniary jurisdiction in cases where the total claim including the compensation is more than twenty lakhs and less than One Crore. Moreover, clause 17(2) of the Act provides the extent of territorial jurisdiction, wherein it has been provided that the state commission shall have the jurisdiction to entertain cases where OP 1 at the time of the institution of the complaint, actually and voluntarily resides or carries on business or has a branch office or personally works for gain or the cause of action arose.

Hence, the commission has pecuniary jurisdiction in the present matter.

To strengthen the above finding, Coram relied on the Rohit Srivastava v. Paramount Villas (P) Ltd., 2017 SCC OnLine NCDRC 1198.

Further, the Coram stated that relying on the above case, this Commission has both territorial and pecuniary jurisdiction.

Deficiency of Service 

The stated expression of Deficiency of Service was dealt with by the Supreme Court in Arifur Rahman Khan v. DLF Southern Homes (P) Ltd., (2020) 16 SCC 512.

In Commission’s opinion, OP 1 was deficient in providing its services to the complainant since it had failed to handover the possession of the flat within the stipulated time period and the complainant was entitled to the refund of the money deposited to OP1.

OP 1’s deduction was not justified as the complainant had sought cancellation of the booking of the flat on account of deficient services provided by OP 1, hence the complainant was entitled to refund of the amount forfeited.

However, the Complainant was not entitled to receive an amount of Rs 6,33,289/- since this amount was paid as EMIs towards the loan sanctioned in favour of the Complainant. The OP 1 has no obligation to pay the EMI amount, since there exists no express agreement pertaining to the payment of EMIs to be done by the OP 1. [Kapila Narula v. Logix City Developers (P) Ltd., Complaint No. 149 of 2016, decided on 16-08-2021]


Advocates before the Court:

Ms. Suchita Sharma, Counsel for the Complainant.

Ms. Arushi Pathak, Counsel for the Opposite Party.

Case BriefsHigh Courts

Madras High Court: Dr G. Jayachandran, J., refused to pass a decree in favour of the plaintiff who relied on general admission of facts made by the defendant.

In the instant matter, it was stated that the plaintiff was engaged in the business of providing and arranging finance to various borrowers and had lent a loan to the first defendant company, which is an NBFC.

On the date of filing the suit, a sum of Rs 38,16,45,711/- was due and payable to the plaintiff. While advancing the loan, the second defendant provided personal guarantees for each of the facility agreements entered by the first defendant.

The second and third defendants were jointly and severally liable to pay the suit claim.

According to the plaintiff, since 2014, the transaction between the plaintiff and the first defendant company was regular without any default till the month of September 2020.

Further, it was submitted that the misappropriation of the fund by the Management of the Company came to light, when there was a default and when the Chief Financial Officer of the first defendant issued a Circular on 07-10-2020 disclosing diversion of the fund of the first defendant company by the second defendant as a consequence, criminal proceedings had been initiated by the plaintiff and the matter had been seized by the Directorate of Enforcement Wing.

Extracting a certain portion of the pleadings in the written statement, the plaintiff sought passing of a decree and judgment upon the said statement as admission.

Bench stated that the three admissions which were relied upon by the applicant were all general admissions and did not admit the suit claim.

Further, the Court added that the admission that fraud was committed per se will not entail the plaintiff for a decree as claimed in the suit. Whatever claimed in the suit has to be proved through evidence in the manner known to law and the portions of the admission relied upon by the plaintiff/applicant is a general admission of fact regarding the liability of the first defendant company and its inability to pay his creditors. The general admissions of fact cannot be construed as an admission of suit claim to pass a judgment and decree.

In view of the above application was dismissed. [Northern Arc Capital (P) Ltd. v. Sambandh Finserve (P) Ltd., 2021 SCC OnLine Mad 2577, decided on 5-07-2021]


Advocates before the Court:

For Applicant: Mr Anirudh Krishnan

For 1st Respondent: Mr. Supriyo Ranjan Mahaptra

For 2nd respondent: Mr Prashant Rajapogal

Case BriefsSupreme Court

Supreme Court: The bench of Ashok Bhushan and MR Shah, JJ has refused to pass any direction in the petition seeking effective and remedial measures to redress and overcome the financial stress and hardship faced by the borrowers of the country during the second wave of Covid 19 and lockdown.

The Circular of the Reserve Bank of India (RBI) dated 05.05.2021, by which the Reserve Bank of India has issued Resolution of Covid 19 related stress of Micro, Small and Medium Enterprises (MSMEs), was put before the Court in support of the petition. It was argued that the Circular does not sufficiently address the hardship of the borrowers.

The Court, however, said,

“Be that as it may, the financial relief and other measures are in the domain of the Government and essentially related to policy matter.”

It is pertinent to note that the 3-judge consisting of both the judges of the present bench, along with R. Subhash Reddy, J had, in a breather to customers in the case relating to waiver of interest on loan during the moratorium period, directed that all steps to implement the decision dated 23.10.2020 of the Government of India, Ministry of Finance be taken so that benefit to the eight categories contemplated in the affidavit can be extended.

Read the full report on the said order here:

COVID-19| Seeking waiver of interest on interest for loan during the moratorium period? SC asks Govt to implement decision to forego compound interest on these 8 categories

The Court, hence, left it to the Union of India and the Reserve Bank of India to consider and take appropriate decision in the matter.

[Vishal Tiwari v. Union of India, 2021 SCC OnLine SC 423, order dated 11.06.2021]


For Petitioner: Petitioner-in-person

For Respondent: Mr. Tushar Mehta, SG

Ms. Aishwarya Bhati, ASG

Mr. Rajat Nair, Adv.

Mr. Kanu Agrawal, Adv.

Mr. B.V. Balramdas, AOR

Case BriefsCOVID 19Supreme Court

Supreme Court: In an important verdict concerning the Small Scale Industries, particularly the MSMEs, facing the financial strain due to the Corona Virus Pandemic, the 3-judge bench of Ashok Bhushan, R. Subhash Reddy and MR Shah*, JJ has held that there shall not be any charge of interest on interest/compound interest/penal interest from any of the borrowers who availed RBI’s loan moratorium scheme for the period between March 1, 2020 till August 31, 2020 during the COVID-19 lockdown.

The Court held that whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded and be adjusted/given credit in the next instalment of the loan account.

The Court, however, refused to extend the moratorium period and also refused to grant the relief of total waiver of interest. 

Background

The Court was hearing a batch of petitions challenging the Covid-19 Regulatory Package notified by the RBI vide notification dated 27.03.2020 seeking total waiver of interest being charged on the loan amount during the moratorium period and also further extension of the moratorium period. It was also prayed before the Court that the relief packages which are offered by the UOI/RBI/Bankers/Lenders were not sufficient and some better and/or more reliefs should be offered.

However, on 23.10.2020 , the Central Government came out with a policy decision by which it is decided not to charge the interest on interest on the loans up to Rs. 2 crores.  However, such relief was restricted to these 8 categories.

It was Central Government’s case that if the Government were to consider waiver of interest on all the loans and advances to all classes and categories of borrowers corresponding to the six-month period for which the moratorium was made available under the relevant RBI circulars, the estimated amount is more than Rs. 6 lakh crores. “If the banks were to bear this burden, it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the banks unviable and raising a very serious question mark over their very survival.” This was one of the main reasons why waiver of interest   was   not   even   contemplated and only payment of instalments was deferred.

After careful consideration and weighing all possible options, the Central Government decided to continue the tradition of handholding the small borrowers and, therefore, granted the relief of waiver of compound interest during the moratorium period, limited to the most vulnerable categories of borrowers.

Ruling 

Total Waiver of interest during moratorium period

The bankers/lenders have to pay the interest to the depositors and their liability to pay the interest on the deposits continue even during the moratorium period. They also have to bear the administrative expenses. Continue payment of interest to depositors is not only one of the most essential banking activities but it shall be a huge responsibility owed by the banks to crores and crores of small depositors, pensioners etc. surviving on the interest from their deposits. There may be several welfare funds schemes, category specific and sector specific which might be surviving and are implemented on the strength of the interest generated from their deposits. All such welfare funds would depend on the income generated from their deposits for the survival of their members.

“Therefore, to grant such a relief of total waiver of interest during the moratorium period would have a far-reaching financial implication in the economy of the country as well as the lenders/banks.”

Hence, when a conscious decision has been taken not to waive the interest during the moratorium period and a policy decision has been taken to give relief to the borrowers by deferring the payment of installments and so many other reliefs are offered by the RBI and thereafter by the bankers independently considering the Report submitted by Kamath Committee consisting of experts, the interference of the court is not called for.

Insufficient Relief packages

No   mandamus   can   be   issued   to   grant   some   more reliefs/packages. The court cannot interfere with the economic policy decisions on the ground that either they are not sufficient or efficacious and/or some more reliefs should have been granted. The Government might have their own priorities and the Government has to spend in various fields and in the present case like health, medicine, providing food etc.

Economic decisions are required to be taken keeping the larger economic scenario in mind and as such the Central Government has already given various reliefs and by providing various reliefs, they have already expanded huge financial burden. Further, the pandemic has caused stress to large and small businesses and the individuals who have lost jobs and livelihoods. By and large, everybody has suffered due to lockdown due to Covid-19 pandemic.

“No State or country can have unlimited resources to spend on any of its projects. That is why it only announces the financial reliefs/packages to the extent it is feasible.”

Extension of moratorium period

Extension of moratorium period is a policy decision.  Even otherwise, almost five months were available to eligible borrowers when circular dated 6.8.2020 was notified providing for a separate resolution mechanism for Covid19 related stressed assets.  Therefore, sufficient time was given to invoke the resolution mechanism.

Restriction of not charging interest on interest with respect to the loans up to Rs. 2 crores only for a few categories

In absence of any justification shown by the Government to restrict the relief of not charging interest on interest with respect to the loans up to Rs. 2 crores only and that too restricted to the aforesaid categories, the Court found such decision to be irrational.

It was also noted that the scheme dated 23.10.2020 granting relief/benefit of waiver of compound interest/interest on interest contains eligibility criteria and it provides that any borrower whose aggregate of all facilities with lending institution is more than Rs. 2 crores (sanctioned limit or outstanding amount) will not be eligible for ex-gratia payment under the said scheme.  Therefore, if the total exposure of the loan at the grant of the sanction is more than Rs. 2 crores, the borrower will be ineligible irrespective of the actual outstanding.

Giving an example, the Court explained

“if the borrower has been sanctioned a loan of Rs. 5 crores and has availed of the same, even though he might have repaid substantially bringing down the principal amount of less than Rs. 2 crores as on 29.02.2020, but because of the sanction of the loan amount of more than Rs. 2 crores, he will be ineligible. It also further provides that the outstanding amount should not be exceeded to Rs. 2 crores and for this purpose aggregate of all facilities with the lending institution will be reckoned.   Therefore, if a borrower, for example, MSME Category has availed and has outstanding of business loan of Rs. 1.99 crores and also has dues of its credit card of Rs. 1.10 lakhs, thereby making the aggregate to Rs. 2.10 crores, it stands ineligible. Therefore, the aforesaid conditions would be arbitrary and discriminatory.”

Further, the compound interest/interest on interest shall be chargeable on deliberate/willful default by the borrower to pay the installments due and payable. Therefore, it is in the nature of a penal interest.

By notification dated 27.03.2020, the Government has provided the deferment of the installments due and payable during the moratorium period.

“Once the payment of installment is deferred as per circular dated 27.03.2020, non-payment of the installment during the moratorium period cannot be said to be willful and therefore there is no justification to charge the interest on interest/compound interest/penal interest for the period during the moratorium.”

Therefore, there shall not be any charge of interest on interest/compound interest/penal interest for the period during the moratorium from any of the borrowers and whatever the amount is recovered by way of interest on interest/compound interest/penal interest for the period during the moratorium, the same shall be refunded and to be adjusted/given credit in the next instalment of the loan account.

[Small Scale Industries Manufacturers Association v. Union of India, 2021 SCC OnLine SC 246, decided on 23.03.2021]


*Judgment by: Justice MR Shah

Appearances before the Court by:

For Petitioners: Senior Advocate Ravindra Shrivastava, Dr. Abhishek Manu Singhvi, Kapil Sibbal

For Union of India: Solicitor General of India Tushar Mehta

For RBI: Senior Advocate V. Giri

For Indian Bank Association: Senior Advocate Harish Salve

For SBI: Senior Advocate Mukul Rohatgi

ALSO READ

COVID-19| Seeking waiver of interest on interest for loan during the moratorium period? SC asks Govt to implement decision to forego compound interest on these 8 categories

Case BriefsTribunals/Commissions/Regulatory Bodies

Special Court, CBI, Ghaziabad: The Court of Shivank Singh, Special Judicial Magistrate (CBI), issued summons against the builder for the alleged unapproved imaginary construction and the fraud thereafter, the two bogus allottees for cheating the bank, and the two Punjab National Bank (Bank) officials for turning a blind eye, under relevant sections.

In the pertinent ‘infamous case’, the construction company, Shri Balaji Hi-Tech Constructions Pvt. Ltd., had constructed multi-storey residential flats in Ghaziabad. The builder (also the Director) with the allottees cheated the bank, by issuing more than one allotment letter for the same flat to different individuals and issued allotment letters for the non-existent flats on the 16th floor of the building. The housing loan was secured in name of the purported allottees. The bogus allottees, then secured a housing loan for the same ‘imaginary house’.  Interestingly, this was an alleged criminal conspiracy where not only the builder, the allottees but very clearly the Bank officials were also involved.

The Court very categorically acknowledged and took cognizance of each of the issues and individuals involved at various stages of the fraud. Primarily, the Court took note of the fact that the Ghaziabad Development Authority (GDA) approved only one ground floor and 14 upper floors, indicating that the imaginary house was not even approved. Further, the role of the ‘sanctioners’ (Bank Officials) was very prominently highlighted, as the two housing loan proposals of the bogus allottees were processed and recommended by the then Manager and Senior Manager of the Bank. What is captivating is that, “…sanction for prosecution u/s 19 of Prevention of Corruption Act, 1988 was sought from the competent authority in PNB but the same was declined…”. Moving in the same direction, the Court further made a remark, “…The act of processing, recommending and sanctioning the housing loans by the bank officials on non-existent flats is an act which is without any imprimatur…”. While taking cognizance, the Court in the operative part of the order opined that, “no sanction under section 197 CrPC is required for the offences of IPC against them as both of them are not the officials which are removable by the sanction of Government as required by the provision of Section 197 CrPC. K. Ch. Prasad v. J. Vanalatha Devi, (1987) 2 SCC 52 and S.K. Miglani v. NCT of Delhi in Criminal Appeal No. 744 of 2019 were relied on.

The Court took note of the “lapses shown by the Bank Officials” and refused to believe that the fraud could otherwise be committed successfully, had they not turned a blind eye to the verification process while sanctioning.  Therefore, the Builder and the two bogus allottees were summoned for the offences under Sections 120B read with  420,467,468,471 of the Penal Code as well as substantive offences under Sections 420, 467, 468, 471 of the Penal Code. And the ‘sanctioners’ or the Bank officials under Section 120B read with 420, 467, 468, 471 Penal Code and for offences under Section 409 of the Penal Code.[CBI v. Harpreet Singh Saigal, Cri. Misc. Cases/0000352/2021, decided on 15-03-2021]

Case BriefsHigh Courts

Madras High Court: P.N. Prakash, J., decided a criminal original petition addressing an issue with regard to an offence under Section 138 of Negotiable Instruments Act, 1881.

Sree Gokulam Chits and Finance Corporation Private Limited initiated prosecution in the Court of Judicial Magistrate for the offence under Section 138 of the Negotiable Instruments Act, 1881 against Jaishankar (A1) and Nagalakshmi (A2).

Gokulam’s case was that Jaishankar (A1) joined some chit groups floated by them and became a subscriber. Jaishankar was given chit amounts towards which, he issued some cheques as security while so, Jaishankar defaulted on the repayment of the chits and when Jaishankar was informed that legal action would be taken against him, he and his wife came for settlement. His wife issued cheque, which on presentation at the bank was returned unpaid with endorsement “payment stopped by the drawer”.

Gokulam after the above incident issued a statutory demand notice and on non-completion of the said demand, Gokulam initiated a prosecution under Section 138 of the NI Act against them.

Decision

Bench noted that the impugned cheque in the present case was issued by the accused 2, i.e. Nagalakshmi from her personal bank account in discharge of the debt of her husband Jaishankar (A1).

Court added that the said cheque was not issued from the bank account of any juristic entity for invoking vicarious liability provisions viz. Section 141 of the NI Act.

If a cheque is issued by a person in discharge of the liability of another person and if the cheque is dishonored, the person, who issued the cheque can be prosecuted under Section 138 NI Act.

 High Court stated that just because Jaishankar (A1) was the beneficiary of the loan, he could not be prosecuted under Section 138 of the NI Act for the dishonour of the cheque issued by his wife Nagalakshmi (A2).

Hence, in view of the above discussion, Court while partly allowing the petition issued the following directions:

  • Prosecution against Jaishankar (A1) quashed.
  • Nagalakshmi was asked to appear before the Judicial Magistrate.
  • Nagalakshmi shall file a bail petition and cooperate in the expeditious disposal of the case without adopting any dilatory tactics.
  • If Nagalakshmi absconds, a fresh FIR can be registered under Section 229 A.

[M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad 5550, decided n 04-12-2020]

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: P.V. Asha, J. allowed the writ petition questioning status of IDBI Bank as “State” under Article 12 of the Constitution and further stated that the acts of public sector undertakings arising out of contractual transactions between the parties will not fall under the term “public duty” to attract the Court’s jurisdiction.

Brief facts of the case are such that the petitioner challenged the demand of Rs 11,00,000 as a processing fee of a credit facility and retaining of original property documents as security against such facility as arbitrary and illegal, hence, being violative of his fundamental rights. The petitioner, while relying on R.D.Shetty v. International Airport Authority, (1979) 3 SCC 489, contended that as per the order passed by the RBI, IDBI would be treated as a private bank only for regulatory purposes and it would continue to be a public sector bank for all other purposes. It was further argued that IDBI is controlled by the Central Government and it is always under the watch of Central Vigilance Commission.

Counsel for the respondent challenged the maintainability of Petition stating that respondent bank does not perform any public or statutory or sovereign function and it does not enjoy any monopoly in the banking. It was argued that its function is confined to commercial activities and the Central Government does not have any deep or pervasive control over its functioning.

The court dismissed the petition, holding that providing of credit facility or loan on the strength of title deeds given against security cannot be said to be done in discharge of any public function. Hence, even when the bank is a public sector bank, demand for a processing fee or withholding of title deeds towards security cannot be said to be one involving any element of public duty. Therefore, IDBI is not amenable to writ jurisdiction. [Unimoni Financial Services Ltd. v. IDBI Bank Ltd., 2020 SCC OnLine Ker 7347, decided on 16-12-2020]

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: A.M. Badar J., allowing the present petition, quashes the attachment made by the State authorities to recover tax dues.

Background

Counsel appearing for the petitioner argued that for repayment of loan availed by its borrower, the property comprised in Mannanchery village was mortgaged by the borrower. As the loan account became irregular, by following due process of law, it was declared as Non-Performing Asset and demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’) came to be issued on 02-07-2015. Standing Counsel further submitted that as the borrower failed to settle the loan amount by repayment, physical possession of the mortgaged property was taken by the petitioner bank on 30-11-2019. It is to be further noted that, on 22-02-2019, the respondents had attached the said property alleging to have the ‘First Charge’ over the secured assets for recovery of sales tax dues. This act of the State, as per the Standing Counsel, is grossly illegal, arbitrary and misconstrued. Prayer sought by the petitioner, therefore, seeks to quash the aforementioned attachment made by the respondent authorities and further set aside the related communication letters.

Decision

Allowing the present petition, the Court relied on Travancore Devaswom Board v. Local Fund Audit, 2020 (3) KLT 296 and State Bank of India v. State of Kerala, 2019 (4) KLT 521, both of which, make it clear that, Section 26E of the SARFAESI Act and Section 31B of the RDB Act create a ‘First Charge’ by way of a priority to the Banks/Financial Institutions to recover and satisfy their debts, notwithstanding any statutory ‘First Charge’ in favour of the Revenue.

[Bank of Baroda v. State of Kerala, 2020 SCC OnLine Ker 7152, decided on 15-12-2020]


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Case BriefsSupreme Court

Supreme Court: In a breather to customers in the case relating to waiver of interest on loan during the moratorium period, the 3-judge bench of Ashok Bhushan*, R. Subhash Reddy and MR Shah, JJ has directed that all steps to implement the decision dated 23.10.2020 of the Government of India, Ministry of Finance be taken so that benefit to the eight categories contemplated in the affidavit can be extended.

The affidavit dated 23.10.2020, states that

“ (…) the decision taken by the Central Government for granting various reliefs for the COVID-19 pandemic for benefit of waiver of interest upto Rs.2 Crores in eight categories has been approved by the Union Cabinet in its meeting dated 21.10.2020 and Ministry of Finance has issued directions dated 23.10.2020 on the subject, which has been brought on record alongwith the affidavit.”

The eight categories are:

(i) MSME loans

(ii) Education loans

(iii) Housing loans

(iv) Consumer durable loans

(v) Credit card dues

(vi) Automobile loans

(vii) Personal loans to professionals

(viii) Consumption loans up

Solicitor General Tushar Mehta submitted before the Court that the Central Government is fully conscious of the difficulties faced by the various sectors and the stakeholders of various sectors and the Finance Ministry, after the outbreak of COVID-19, has taken several measures of reliefs dealing with the potential problems faced by several sectors and in several spheres of all financial worlds.

It was further highlighted that in pursuance of circular dated 23.10.2020,

“… the State Bank of India has informed that as on 13.11.2020, as per provisional, unaudited information received so far from various lending institutions, such lending institutions have released ex-gratia amount of an aggregate exceeding Rs.4,300 Crores in over 13.12 Crore accounts of borrowers covered under the Scheme.”

The Court will continue to hear the matter on 02.12.2020.

[Gajendra Sharma v. Union of India, 2020 SCC OnLine SC 963, decided on 27.11.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Rajiv Dutta

For RBI: Solicitor General Tushar Mehta, Senior Advocate V. Giri and Advocate Ramesh Babu M.R.

Jharkhand High Court
Case BriefsHigh Courts

Jharkhand High Court: Rajesh Shankar, J. dismissed the petition on grounds of non-maintainability.

The facts of the case are such that the petitioner took a loan to the tune of Rs 4, 25,000 from the respondent bank namely Allahabad Bank. Due to default in payment of money, a notice was issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 [“SARFAESI Act”] to pay the outstanding amount of Rs 7, 89, 420 within 60 days from the date of the notice, failing which, the respondent-Bank will exercise the power conferred under Section 13(4) of the SARFAESI Act. There has been another notice dated 28-11-2019 issued for possession of her property by the Respondent Bank and cautioned the public in general to not deal with the property under Rule 8(1) of the Security Interest (Enforcement) Rules, 2002 (“Rules, 2002”) by the respondent 2. Aggrieved by the same, instant petition in the nature of certiorari has been filed to quash both the notices.

Counsel for the petitioner Rajiv Nandan Prasad submitted that the petitioner is a disabled lady and also the owner of the property in question in one of the impugned notice, she took a loan and has already paid Rs 8, 00,000 inclusive of the interest but later a huge amount was spent on her treatment at Vellore and as such, she was not able to pay EMI of the said home loan due to which her loan account became irregular and was subsequently declared as N.P.A.

Counsel for the respondent P.A.S. Pati raised an objection on grounds of maintainability as an alternative remedy under Section 17 of the SARFAESI Act is available.

 ISSUE 1: Availability of Alternative Remedy

  The Court relied on the judgment titled United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110 which held:

“The expression “any person” used in Section 17(1) is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under Section 13(4) or Section 14. Both, the Tribunal and the Appellate Tribunal are empowered to pass interim orders under Sections 17 and 18 and are required to decide the matters within a fixed time schedule. It is thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective.”

 The Court also relied on the judgment titled Standard Chartered Bank v. Noble Kumar, (2013) 9 SCC 620 which held:

“The “appeal” under Section 17 is available to the borrower against any measure taken under Section 13(4).”

“We are of the opinion that by whatever manner the secured creditor obtains possession either through the process contemplated under Section 14 or without resorting to such a process obtaining of the possession of a secured asset is always a measure against which a remedy under Section 17 is available.”

 ISSUE 2: Invoking Writ Jurisdiction in Matters relating to Realization of Loans

The Court relied on the judgment titled Authorized Officer, State Bank of Travancore v. Mathew K.C. (2018) 3 SCC 85 which held :

“Loans by financial institutions are granted from public money generated at the tax payers expense. Such loan does not become the property of the person taking the loan, but retains its character of public money given in a fiduciary capacity as entrustment by the public. Timely repayment also ensures liquidity to facilitate loan to another in need, by circulation of the money and cannot be permitted to be blocked by frivolous litigation by those who can afford the luxury of the same.”

Taking into account the provisions of the SARFAESI Act and judicial pronouncements, the Court held the petition to be non-maintainable directing liberty to the petitioner to take recourse before the appropriate forum.

In view of the above, petition stands dismissed. [Uma Pandey v. Allahabad Bank, 2020 SCC OnLine Jhar 819, decided on 18-06-2020]


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