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]

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]

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]


Sakshi Shukla, Editorial Assistant has put this story together

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.

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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Case BriefsHigh Courts

Bombay High Court: A Division Bench of V.M. Deshpande and Anil S. Kilor, JJ., held that if the prosecution fails prima facie to show that that accused had an intention to aid or instigate or abet deceased to commit suicide caused cannot be compelled to face trial for the offence punishable under Section 306 of the Penal Code, 1860.

The instant application was filed for quashing the FIR registered for offence punishable under Section 306 of Penal Code, 1860 along with a prayer to stay the investigation in the said matter.

The complainant had a Loan Account with the Bank of Maharashtra wherein the applicant was discharging his duties as Branch Manager, Bank of Maharashtra.

In the present matter, complainant’s real brother is the deceased who committed suicide in 2015 by hanging himself.

Complainant lodged his report against the present applicant a day after his brother committed suicide.

Though the applicant was granted pre-arrest bail, he filed for the present proceedings to quash the FIR.

Section 306 of the Penal Code, 1860

“If any person commits suicide, whoever abets the commission of such suicide, shall be punished with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.”

Section 107 of Penal Code, 1860: 

As per the First clause, “if a person instigates any person to do a particular thing, it can be said that he has abetted”.

High Court referred to the decision of Dilip v. State of Maharashtra, (2004) 11 SCC 401.

Ratio: It is incumbent upon the prosecution to at least show prima facie case that accused had an intention to aid or instigate or abet deceased to commit suicide. In the absence of availability of such material, the accused cannot be compelled to face trial for the offence punishable under Section 306 of the Penal Code.

In the present matter, it has been noted that the deceased was not having any loan outstanding in his name. According to the prosecution, the deceased went to the Bank of Maharashtra for a loan.

If previous loan amount is outstanding and if the applicant, who is Branch Manager of the said Bank, is refusing to grant any further loan, can be said as act of a vigilant and prudent banker and if he is not granting any further loan, it cannot be termed that by such act he instigated and/or abetted the person to commit suicide.

Hence, in view of the above, Court terminated the proceedings against the applicant. [Santoshkumar v. State of Maharashtra,  2020 SCC OnLine Bom 914, decided on 09-09-2020]

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

Delhi High Court: Mukta Gupta, J. allowed a petition filed against the order of the trial Judge whereby the petitioner’s complaint filed for the commission of offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881, was dismissed for non-prosecution.

The petitioner had advanced a loan to the respondent who defaulted in repaying the same. The cheque given by the respondent for the discharge of the said liability was also dishonoured. After fulfilling the codal formalities, the petitioner filed a complaint under Section 138.

The petitioner along with his counsel was present when the Metropolitan Magistrate issued summons against the respondent. Thereafter, on the next date, counsel for the petitioner was present but Metropolitan Magistrate was not available on account of training, Thereafter, counsel for the petitioner was present and bailable warrants were issued against the respondent. When notice was required to be framed, the case was transferred to another Metropolitan Magistrate. On the subsequent date, none appeared before the Metropolitan Magistrate as the advocates were on strike. On the date of the impugned order, the complaint was dismissed on account of non-appearance on behalf of the petitioner.

The High Court was of the view that the petition ought to be allowed. It was considered that neither the complainant nor his counsel could appear due to strike as mentioned above and that the clerk of the counsel wrongly noted the next date, and therefore the complainant or his counsel could not again appear on the date of the impugned order. In such circumstances of the case, the Court thought it fit to restore petitioner’s complaint on the file of the Metropolitan Magistrate. The petition was accordingly allowed. [Rajeev Kumar v. Gagan Makhija, 2019 SCC OnLine Del 9708, decided on 07-08-2019]

Case BriefsHigh Courts

Delhi High Court: Sanjeev Sachdeva, J., dismissed a petition assailing the Appellate Court’s order whereby it had set aside the judgment of conviction passed against the accused (respondent) by the trial court for an offence under Section 138 of the Negotiable Instruments Act, 1881 (dishonour of cheque).

The complainant (petitioner) alleged that he gave a friendly loan of Rs 4.90 lakhs to the accused and in discharge of such liability, the accused issued a cheque. However, when the cheque was presented to the bank for encashment, it was returned unpaid with the endorsement “insufficient funds”. Subsequently, a complaint under Section 138 was filed and the matter went to trial. The trial court convicted the accused but on appeal, the Appellate Court acquitted him. Aggrieved thereby, the complainant filed the present petition.

The accused was represented by H.G.R. Khattar, Advocate. His defence was that the complainant was employed in the shop of one Subhash Aggarwal. He alleged that the subject cheque was issued in blank to Subhash Aggarwal and the same had been misused. Further, the complainant and his wife earned a monthly income of Rs 15,000 each and they could not have extended a loan of Rs 4.90 lakhs to him.

The High Court was of the view that no error could be found with the Appellate Court’s order. It was observed, “it is very surprising that a person who earns only Rs 15,000 per month would make an arrangement of Rs 4,90,000/- and give the same as a friendly loan. No date of extending the loan or rate of interest at which such loan was extended, has been mentioned. Neither there is any document executed nor the date when the loan was and of its repayment is mentioned.” In the Court’s opinion, the defence raised by the accused was probable and rightly rebutted the statutory presumption. In such view of the matter, the petition was dismissed and the impugned order was upheld. [Sanjay Verma v. Gopal Halwai, 2019 SCC OnLine Del 7572, decided on 15-03-2019]

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 BriefsHigh Courts

Karnataka High Court: The Single Judge Bench of S. Sujatha, J. dismissed a petition challenging the decision of  Returning Officer of Kadaragundi Milk Producers Co-operative Society whereby petitioner’s nomination for contesting elections to Board of Directors of the said society, was rejected.

The ground for Returning Officer’s decision was that petitioner was in default of loan taken from the bank. Aggrieved thereby, petitioner filed the instant petition submitting that he was required to pay the loan taken from bank by March 2019 but he had already paid the said loan by January, 2019. Hence, rejection on the said ground was unsustainable. He further contended that his nomination paper had been scrutinized and accepted by the respondent Returning Officer in his presence, but was rejected behind his back later on without providing him an opportunity of hearing.

The Court observed that rejection of petitioner’s nomination behind his back was a disputed question of fact which could not be determined in writ jurisdiction. Relying on the judgment in Umesh Shivappa Ambi v. Angadi Shekara Basappa, (1998) 4 SCC 529 it was opined that the Court will not ordinarily interfere in matters where an equally efficacious remedy is available under the Karnataka Cooperative Societies Act, 1959.

In view of the above, the petition was dismissed granting liberty to the petitioner to resort to appropriate proceedings in accordance with law.[Jayaram K.P. v. State of Karnataka, 2019 SCC OnLine Kar 91, Order dated 01-02-2019]

Case BriefsHigh Courts

Delhi High Court: R.K. Gauba, J. allowed a petition filed against the order of Sessions Court whereby proceedings in a case filed under Section 138 of Negotiable Instruments Act, 1881 were stayed.

Petitioner had filed a case against respondents alleging commission of an offence under Section 138. It was alleged that he had advanced a loan to the respondents, for the repayment of which, the respondents had issued a cheque in his favour drawn on Axis Bank Ltd. However, on presenting the cheque, it was returned unpaid with remarks “payment stopped by drawer.” After a preliminary enquiry, Metropolitan Magistrate issued summons to respondents. Thereafter the respondents reached the Sessions Court which granted a stay on summons order till final decision in another case arising out of an FIR filed by respondents against the petitioner. Aggrieved thereby, petitioner filed the present petition under Section 482 CrPC.

The High Court noted that in the FIR filed, respondents alleged that the cheque in question was stolen and misappropriated by the petitioner. It was also noted that revisional court stayed the proceedings under Section 138 on the ground that the same would unnecessarily prejudice the trial in the case arising out of the FIR. The High Court held this to be totally unjust and unfair. It was stated “Though questions would arise in the criminal case under Section 138 NI Act as to whether cheque in question had come in the hands of the petitioner legitimately or not, the contentions of the respondents are a matter of defence which will have to be raised by them, the burden of proof of the requisite facts in such regard being placed on them. There is no reason why the case arising out of above-mentioned FIR should have primacy or priority over the case of the petitioner against the opposite party.” The petition was thus allowed and the impugned stay order was allowed. [Mukesh Aggarwal v. State (NCT of Delhi), 2019 SCC OnLine Del 6843, decided on 28-01-2019]

Case BriefsHigh Courts

Madras High Court: The Bench of M. Nimal Kumar, J. refused to quash proceedings pending on the file of Judicial Magistrate (III), Coimbatore.

The complainant filed a case against the petitioner for an offence punishable under Section 138 NI Act, 1881 (dishonour of cheque). Petitioner took a hand loan of Rs 6 lakhs from the complainant. The amount was agreed to be repaid within 6 months along with an interest at 18% per annum for which petitioner issued a cheque. However, petitioner defaulted in paying either the amount or the interest. Consequently, complainant presented the cheque on the bank but it was dishonoured. Hence, he instituted the case.

M. Prabhakaran, counsel for the petitioner submitted that the subject cheque was issued for collateral security for the loan secured by Sri Venkateswara Educational and Charitable Trust. It was contended that the case which was preferred against the petitioner in his individual capacity was not maintainable.

However, the High Court held the said contention to be not acceptable for the reason that the cheque was issued in the name of the petitioner for the loan availed. Further, the petitioner neither repaid the money nor replied to the statutory notice sent by the complainant. It was also held that the claim of “security cheque” was a matter of fact which had to be decided only in the trial. Resultantly, the present petition was dismissed.[K. Velu v. P. Damodharan, 2019 SCC OnLine Mad 315, dated 07-01-2019]