Bombay High Court
Case BriefsHigh Courts

Bombay High Court: Bharati Dangre, J. directed to release a Nigerian National on bail who was arrested in 2020 under the Narcotic Drugs and Psychotropic Substances Act, 1985 after discovering that there was a typing error in the forensic analysis report of the seized substances.

On specific information received that a Nigerian National (the applicant) would be coming on the given spot at the given time to sell cocaine, a team was formed by the ATS and raid was conducted. On personal search the alleged contraband purported to be cocaine concealed in blue coloured plastic bag weighing around 116.19 gms and a transparent plastic pouch containing Saffron coloured heart shape pills weighing around 40.73 gms and some pink coloured Ecstasy tablets weighing around 4.41 gms were recovered. He was arrested and FIR was lodged on 23-10-2020.

Directorate of Forensic Science Laboratory’s report regarding the materials seized was held to be sufficient to charge the applicant under section 8C, 20, 22 of Narcotic Drugs and Psychotropic Substances Act (the Act). After the expiry of more than one year, the Assistant Director realized the mistake committed by him while issuing his report and he addressed a communication to the Sr. PI, ATS clarifying that there was a typing mistake and he expressed his apology while issuing a corrigendum.

The Court in the wake of the corrigendum noted that the substance which was alleged to be contraband and recovered from the applicant at the time when the raid was conducted, does not fall within the purview of the Act.

The Court observed that the error, which is sought to be explained and projected as a typing error, is a blatant mistake, which is admitted by the Assistant Director after more than a year, of incarceration of the applicant. It deserves to be looked at seriously, but for the said report, the applicant could not have been detained.

“Liberty of an individual is of paramount importance and it is the fulcrum of the Indian democracy. Recognized as a fundamental right, enshrined in Article 2, it is available to every person, citizens and foreigners alike. The State Authorities, though supreme and in-charge of the law and order situation, which includes implementation of various statutes intended to achieve specific purpose and particularly a special statute like NDPS are expected to behave in a responsible manner.”

The Court asked the State to come up with a proposal as to how it wants to compensate the applicant for realizing that his incarceration was unnecessary as the raid did not lead to recovery of any contraband/psychotropic substance covered under the NDPS Act. The applicant was granted bail.

[Novafor Samuel Inoamaobi v. State of Maharashtra, Bail Application NO. 2816 of 2021, decided on 10-08-2022]


Ashwini Achari with Taraq Sayed i/b Advait Tamhankar for the applicant.

A.A. Takalkar, APP for the State.


*Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsSupreme Court

Supreme Court: Reversing the concurrent findings of the Single Judge and Division Bench of Kerala High Court, the Bench of S. Abdul Nazeer* and Vikram Nath, JJ., held that the State cannot recover excess amount paid to the ex-employee after the delay of 10 years.

The Court held that if the amount was not paid on account of any misrepresentation or fraud of the employee but it was the employer who applied wrong principle for calculating allowance or misinterpreted a, such excess payment of emoluments or allowances are not recoverable. The Court clarified,

“This relief against the recovery is granted not because of any right of the employees but in equity, exercising judicial discretion to provide relief to the employees from the hardship that will be caused if the recovery is ordered.”

Question of Law

The issue before the Court was whether increments granted to the appellant, while he was in service, can be recovered from him almost 10 years after his retirement on the ground that the said increments were granted on account of an error?

Backdrop of Events

The brief facts of the case were such that the appellant was a High School Assistant/Teacher in an aided school. During his tenure, he availed leave without allowance first from 20-10-1972 to 31-03-1973 and again from 02-07-1973 to 28-03-1974, for pursuing post-graduation i.e., M.Sc. (Chemistry) Course.

Later on, the appellant was promoted as Headmaster of the school and was granted senior grade promotion and his pay scale was revised accordingly. Consequently, a notice was served to the appellant by District Educational Officer with an objection that the period of leave obtained for undergoing higher education should not be included while determining total qualifying service. Therefore, the Educational Officer recommended that pay and subsequent increments granted to the appellant should be recovered from him.

The proposal to initiate recovery proceedings was challenged by the appellant before the Public Redressal Complaint Cell which rejected the said complaint stating that post-graduation degree M. Sc. (Chemistry) was not useful as per the Rule 91A Part I of the Kerala Service Rules in any manner to the public service, therefore, leave without allowance could not be counted for service benefits.

Impugned Findings of the High Court

Meanwhile, the appellant retired from service. Pursuant to the order of Educational Officer the Deputy Director Education sanctioned the release of 90% of the death-cum-retirement gratuity (D.C.R.G.) amount after withholding 10% of the said amount. Aggrieved, the appellant approached the High Court which upheld the reasoning given by the State and dismissed the writ petition holding that the mistake committed by the department while granting the service benefits can be rectified subsequently by way of proposed recovery to be effected from appellant’s D.C.R.G. amount.

The appellant contended that the excess payment made to the appellant was not on account of any misrepresentation or fraud on his part; rather the excess payment was made due to a mistake in interpreting the Kerala Service Rules.

Analysis and Findings

The Court opined that if the excess amount was not paid on account of any misrepresentation or fraud of the employee or if such excess payment was made by the employer by applying a wrong principle for calculating the pay/allowance or on the basis of a particular interpretation of rule/order which is subsequently found to be erroneous, such excess payment of emoluments or allowances are not recoverable.

However, the Court clarified that if in a given case, it is proved that an employee had knowledge that the payment received was in excess of what was due or wrongly paid, or in cases where error is detected or corrected within a short time of wrong payment, the matter being in the realm of judicial discretion, the courts may on the facts and circumstances of any particular case order for recovery of amount paid in excess.

Conclusion

Hence, considering that the access amount was not paid on account of misrepresentation or fraud played by the appellant, the Court held that an attempt to recover the said increments after passage of ten years of retirement was unjustified. Consequently, the impugned judgment and order was set aside and quashed.

[Thomas Daniel v. State of Kerala, 2022 SCC OnLine SC 536, decided on 02-05-2022]


*Judgment by: Justice S. Abdul Nazeer


Kamini Sharma, Editorial Assistant has put this report together 

Case BriefsHigh Courts

Madhya Pradesh High Court: Sushrut Arvind Dharmadhikari, J. allowed a writ petition which was filed assailing the legality, validity and propriety of the order dated 1-8-2018 whereby the excess amount of Rs.81,239/- has been sought to be recovered from the gratuity payable to him.

Petitioner was aggrieved by the order of recovery after retirement, his grievance was that neither he was afforded any opportunity of hearing nor he was given any show cause notice before deducting the amount from the retiral dues i.e. gratuity of the petitioner. The petitioner was neither found guilty of any misconduct nor held guilty of any offence in the criminal proceedings. The inaction on the part of the respondents was in flagrant violation of principles of natural justice.

Counsel for the petitioner contended that the recovery cannot be made from the retiral dues of the petitioner because there was no misrepresentation or fault on the part of the petitioner. The said recovery had been done without prior approval of the Governor, which was in violation of Rule 9 of the Pension Rules, 1976.

The Court on the perusal of record noticed that it is not the case of the respondents that any undertaking was given by the petitioner for refund of the amount, if any excess payment is made. The Court relied on State of Punjab v. Rafiq Masih (White Washer), (2015) 4 SCC 334 wherein the Supreme Court had laid down the following few situations wherein recoveries by the employee would be impermissible in law:

(i) Recovery from employees belonging to Class III and Class IV service (or Group C and Group D service).

(ii) Recovery from the retired employees, or the employees who are due to retire within one year, of the order of recovery.

(iii) Recovery from the employees, when the excess payment has been made for a period in excess of five years, before the order of recovery is issued.

(iv) Recovery in cases where an employee has wrongfully been required to discharge duties of a higher post, and has been paid accordingly, even though he should have rightfully been required to work against an inferior post.

(v) In any other case, where the Court arrives at the conclusion, that recovery if made from the employee, would be iniquitous or harsh or arbitrary to such an extent, as would far outweigh the equitable balance of the employer’™s right to recover.

The Court held that the case falls under category 3 as the respondents 4 had wrongly issued the impugned order directing recovery of the amount of Rs.81,239/- and thus allowed the petition directing to refund the aforesaid amount, if already recovered, to the petitioner within a period of 3 months.[Rammani Patel v. State of Madhya Pradesh, 2022 SCC OnLine MP 879, decided on 22-04-2022]


For the petitioner: Mr C.L.Patel

For the respondents: Mr Dhiraj Tiwari


Suchita Shukla, Editorial Assistant has reported this brief.

Experts CornerKhaitan & Co

Introduction

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) is an act “to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights, and for matters connected herewith or incidental thereto”. As per Section 13(2) of the SARFAESI Act, where any borrower, who is under a liability to a secured creditor makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as a non-performing asset, then the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within 60 (sixty) days from the date of the notice, failing which, the secured creditor shall be entitled to exercise all or any of the rights to take possession of the secured assets under Section 13(4) of the SARFAESI Act and sell the same without the intervention of the court.

 

With that background, we aim to analyse whether the auction-purchasers can purchase the secured asset from the secured creditors under SARFAESI Act and the Security Interest (Enforcement) Rules, 2002 (SARFAESI Rules) (collectively “SARFAESI”) free from encumbrance including those arising out of pending statutory dues.

 

Priority of dues: An analysis

 

With the introduction of the SARFAESI Act, several banks contended that given the non obstante clause in Section 35, the banks being the secured creditors will have priority over the State’s first charge. However, the Supreme Court in Central Bank of India v. State of Kerala[1] clarified that SARFAESI Act does not provide for first charge to the secured debts due to banks and State sales tax law which are creating first charge in favour of the State shall prevail. Further, the Supreme Court in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.[2] has held that the crown debts have priority over secured debts only if a statute gives such priority to its dues. Above stated, we understand that the position of law was that if State law provides for priority to statutory dues that shall prevail over secured debts of the banks.

 

However, with the insertion of Section 26-E via the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (amending Act), the above discussed position underwent a change and now any security created and recorded with the Central Registry3 is accorded statutory priority in accordance with Section 26-E of the SARFAESI Act. The text of Section 26-E of the SARFAESI Act (Section 26-E) reads as under:

 

26-E. Priority to secured creditors.— Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.

Explanation.— For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.[3]

Various litigations came before different courts on the interpretation of Section 26-E and brought forth certain pressing common questions. To understand the current position, we shall be discussing certain important judgments below and presenting our analysis:

(i) If a State tax act also has a non -obstante clause, will Section 26-E prevail over it?

a) The Gujarat High Court in Kalupur Commercial Cooperative Bank Ltd State of Gujarat[4] (Kalupur) has dealt with the non obstante clause in detail while analysing whether Section 26-E which is a part of the central legislation would prevail over Section 48 of the Gujarat Value Added Tax Act, 2003 (GVAT), a State Act. It referred to the decisions of the Supreme Court in Kumaon Motor Owners’ Union Ltd v. State of U.P.[5] (Kumaon Motor) and Solidaire India Ltd. v. Fairgrowth Financial Services Ltd.[6] (Solidare).

 

The Supreme Court in Kumaon Motor[7] had discerned three principles in case of conflict between the provisions of two statutes viz:

  • If there is a conflict between the provisions of two statutes and nothing is repugnant, the provisions in the later statute would prevail;.
  • While resolving such conflict, the court must look into the object behind the two statutes. In other words, what is to be looked at is what necessitated the legislature to enact a particular provision later in point in time, which may be in conflict with the provisions of earlier statute.
  • The court must look into the language of the provisions. If the language of a particular provision is found to be more emphatic, the same would be indicative of the intention of the legislature that the same shall prevail over other statutes.

 

The Supreme Court in Solidare[8] stated that the principles of law discernible are that, if there is a conflict between two special legislations, the later must prevail. The simple reasoning is that at the time of enactment of the later statute, the legislature could be said to be aware of the earlier legislation and its non obstante clause. If the legislature still confers the later enactment with a non obstante clause, it means that the legislature wanted that enactment to prevail.

 

Having discussed the above, the Gujarat High Court, in Kalupur[9], noted that Section 48 of GVAT “would come into play only when the liability is finally assessed and the amount becomes due and payable”. Basis the above, it came to the conclusion that priority shall be that of the bank under Section 26-E and not of the State.

(b) The Nagpur Bench of the Bombay High Court in Union Bank of India v. State of Maharashtra[10] analysed the language of Section 37(1) of the Maharashtra Value Added Tax Act, 2002 (reproduced below) and ruled that though it begins with a non obstante clause, it is made subject to any provisions of the central legislation dealing with the issue in question. Hence, Section 26-E shall prevail.

    1. Notwithstanding anything contained in any contract to the contrary, but subject to any provision regarding creation of first charge in any Central Act for the time being in force, any amount of tax, penalty, interest, sum forfeited, fine or any other sum payable by a dealer or any other person under this Act, shall be the first charge on the property of the dealer or, as the case may be, person.

 

Similar view was also recently taken by the Division Bench of the Bombay High Court in SBI v. State of Maharashtra[11] (SBI judgment).

 

We further note that recently in Punjab National Bank v. Union of India[12], Supreme Court while dealing with the issue of whether the dues of the Excise Department would have priority over the dues of the secured creditors under Section 11-E to the Central Excise Act (which provides for first charge on the property of the defaulter for recovery), held that since Section 35 of the SARFAESI Act gives it an overriding effect on all other laws, the property shall be subject to the SARFAESI Act. Thus, the right of a secured creditor cannot be hampered and the State’s right to recover debts would prevail over other creditors only in cases where such creditors are unsecured.

 

(ii) Is the auction-purchaser liable to pay off the statutory dues?

(a) The Andhra Pradesh High Court in SBI v. CTO[13] (CTO case) held that the debts advanced by banks/financial institutions have precedence over the statutory dues of the government authorities. Accordingly, any secured asset sold by such bank or financial institution to any purchaser cannot be denied registration due to pending statutory dues and the banks are not entitled to withhold the sale certificate pursuant to the auction held. Further, it was clarified that if any balance of sale consideration amount is available post satisfaction of dues towards the banks, it shall be adjusted towards the dues, if any, of the department concerned.

(b) Similarly, the Gujarat High Court in Kalupur[14] set aside the attachment orders passed under the Section 48 of GVAT and held that as per Section 26-E, the bank/financial institutions had first charge over the mortgaged property. It is pertinent to note that despite the existence of the attachment orders, the Gujarat High Court validated sale of the mortgaged properties conducted by the bank and categorically stated that:

 

  1. 78. It is further clarified that the excess, if any, shall be adjusted towards the dues of the State under the Value Added Tax, 2005 Act. It is further declared that the respondents cannot proceed against the purchasers of the properties sold under the SARFAESI Act.

 

Further, in CTO case[15], as discussed above, the Andhra Pradesh High Court has held that the secured asset sold to any purchaser cannot be denied registration due to pending statutory dues and the banks are not entitled to withhold the sale certificate pursuant to the auction held. In SBI v. State of A.P.[16] and Pridhvi Asset Reconstruction and Securitisation Co. Ltd. v. State of A.P.[17], orders similar to the CTO case[18] were passed.

 

In SBI v. State of Maharashtra[19], the Bombay High Court have taken a similar view with regard to the registration of the sale certificate as upheld in the CTO case[20] i.e. the registration of sale certificate cannot be denied on account of pending statutory dues. This case has also highlighted that a Registrar does not have a quasi-judicial power and is only expected to ensure that the documents to be registered is accompanied by supporting documents.

 

However, having discussed the above position, it is pertinent to look at the judgment recently passed by the Supreme Court of India in Kotak Mahindra Bank Ltd. v. District Industries Centre[21] (Kotak case), disposing of the special leave petition that arose out of the order passed by the Bombay High Court in Medineutrina (P) Ltd. v. District Industries Centre[22] (Medineutrina case). The position taken by the Supreme Court in this case goes contrary to what has been established till now and hence needs a detailed mention.

 

In Medineutrina case[23], the petitioner was the auction-purchaser of the immovable property which was attached and auctioned by Punjab National Bank (PNB), under the SARFAESI Act. However, as certain statutory dues were due to the Sales Tax Department, PNB was not transferring the property in favour of the petitioner until such payment.  The petitioner thus came before the Bombay High Court challenging such non-transfer and additionally, relief was claimed against PNB to issue a no-objection certificate and to issue a fresh sale certificate, free from all encumbrances in favour of the petitioner. The petitioner also contended that there was the absence of notice, and it had no prior knowledge of such an encumbrance.

 

The Bombay High Court on the above set of facts dismissed the reliefs claimed by the petitioner and held that the petitioner was liable to pay the pending sale tax dues on the secured asset even if there was absence of any notice or prior knowledge of such encumbrance. It further ruled contrary to the principle established by the Supreme Court in the case of Ahmedabad Municipal Corpn. of the City of Ahmedabad v. Haji Abdulgafur Haji Hussenbhai[24] that a charge may not be enforced against a transferee if it had no notice of the same unless the requirement of such notice has been waived by law. This was held by following the reasoning that the above position would hold only when a charge is created under Section 100 of the Transfer of Property Act, 1882 in terms of which charge is not on the property. It further referred to AI Champdany Industries Ltd. v. Official Liquidator[25], wherein the Supreme Court had differentiated between an encumbrance as understood in the general parlance and an encumbrance which is a charge on the property and runs with the property.

 

In this regard, Bombay High Court observed that[26]:

  1. 34. … It goes without saying that when a statutory charge is created on the property, the same would go with the property and would follow the property, in whosoever’s hands the property goes.
  1. Thus the notice of such a statutory charge on the property, is always presumed in law, to one and all and none can claim ignorance of the same.
  1. As Section 37(1) of the Maharashtra Value Added Tax Act, 2002, creates a charge on the property, a successful auction-purchaser, thus would hold the property, upon which a statutory charge has been created, subject to such charge and the property would thus continue to be liable for any statutory charges created upon it, even in the hands of such auction-purchaser, though for non-disclosure of such charge by the secured creditor, the auction-purchaser may sue the secured creditor and have such redress, as may be permissible in law. This is more so for the reason that the priority given in Section 26-E of the SARFAESI Act, to the banks, which is a secured creditor, would only mean that it is first in que for recovery of its debts by sale of the property, which is a security interest, the other creditors being relegated to second place and so on, in the order of their preference as per law and contract, if any, as the case may be. Thus the dues under Section 37(1) of the MVAT Act, 2002, being a statutory charge on the property, would also be recoverable by sale of the property, and that puts a liability upon the auction-purchaser, who, in case he wants an encumbrance free title, will have to clear such dues.

 

Aggrieved by the same, the above decision in the Medineutrina case[27] was challenged before the Supreme Court of India.

 

The Supreme Court vide its order[28] dated 18-11-2021, disposed of the special leave petition, and upheld the decision of the Bombay High Court by noting that the agreement pursuant to which the auction-purchaser purchased the immovable property specifically stated that the auction-purchaser shall bear all statutory dues inter alia other dues and having agreed to these stipulations, auction-purchaser cannot shy away from the obligation. The specific portion of the agreement is reproduced below:

“It is not necessary for us to examine the other aspects dealt with by the High Court in the impugned judgment. For, the agreement executed by the petitioner pursuant to which the auction was concluded in favour of the petitioner reads thus:

  1. All statutory dues/attendant charges/other dues, including registration charges, stamp duty, taxes, any other known, unknown liability, expenses, property tax, any other dues of the Government or anybody in respect of properties/assets sold, shall have to be borne by the purchaser…. ”

 

Further, the fact that the State has the first charge on the property concerning statutory dues, the auction-purchaser cannot resile from the liability to discharge the same. Additionally, the Supreme Court acceded to the request that once such statutory dues have been paid, a fresh sale certificate shall be issued which shall note that the immovable property has been transferred free from all known encumbrances.

 

Conundrum around enforcement of Section 26-E

 

We further deem it necessary to discuss the conundrum around the enforcement of Section 26-E. We note that the amending Act did not come into force all at once but in parts. While certain sections including Section 31-B, Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) (Section 31-B) came into force on 1-9-2016; Section 26-E was brought into force much later, from 24-1-2020 vide Notification No. 4133 dated 26-12-2019. However, we observe that various judgments viz, Union Bank of India v. State of Maharashtra[29] and Medineutrina case[30] have been ruled on the premise that Section 26-E came into force on 1-9-2016.

 

However, the Gujarat High Court in Kalupur[31] which was decided on 23-9-2019, took into consideration the fact that Section 26-E was not yet enforced and had observed the below:

  1. While it is true that the bank has taken over the possession of the assets of the defaulter under the SARFAESI Act and not under the RDB Act, Section 31-B of the RDB Act, being a substantive provision giving priority to the “secured creditors”, the same will be applicable irrespective of the procedure through which the recovery is sought to be made. This is particularly because Section 2(l-a) of the RDB Act defines the phrase “secured creditors” to have the same meaning as assigned to it under the SARFAESI Act. Moreover, Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to and not in derogation of inter alia the RDB Act. As such, the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to the secured credits without intervention of the court. This is apparent from the Statement of Objects and Reasons of the SARFAESI Act. Thus, an interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors.

 

58 . The insertion of Section 31-B of the RDB Act will give priority to the secured creditors even over the subsisting charges under other laws on the date of the implementation of the new provision i.e. 1-9-2016. The Supreme Court, in State of M.P. v. State Bank of Indore[32], has held that a provision creating first charge over the property would operate over all charges that may be in force.

 

The text of Section 31-B is reproduced below for ease of reference:

31-B. Priority to secured creditors.— Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes, cesses and rates due to the Central Government, State Government or local authority.

 

Following this reasoning given in Kalupur[33], Bombay High Court in SBI judgment[34] has recently ordered that even if Section 26-E was effective only prospectively from 24-1-2020 and thus not applicable to the facts at hand as they were prior in time, that would not make any difference; as Section 31-B itself would be sufficient to give priority to a secured creditor over the statutory dues.

 

Similarly, the Division Bench of the Bombay High Court in Axis Bank Ltd. v. State of Maharashtra[35] quashed and set aside the impugned notices issued by the Assistant Commissioner of Sales Tax after taking into consideration Section 529-A of the Companies Act, 1956 while also noting the statutory recognition of priority claim of the secured creditor in view of the amendment brought into effect by virtue of introduction of Section 26-E providing for priority to secured creditor over all other debts and all taxes, cess and other rates payable to Central Government or the State Government or the local authority while stating that the applicability of provisions of Section 31-B is pari materia to Section 26-E.

A similar view has been upheld by various High Courts in ASREC (India) Ltd. v. State of Maharashtra[36], GMG Engineers & Contractor (P) Ltd. v. State of Rajasthan[37], Bank of Baroda v. CST[38], and Commr. v. Indian Overseas Bank[39].

 

Analysis and conclusion

We understand from the above discussion that there is plethora of judgments that have dealt with subject-matter regarding priority of claims of secured creditor over the statutory dues. Post introduction of Section 26-E, it is now a settled position that the dues of the secured creditor will stand in priority.

 

We however note that, in terms of liability to pay statutory dues, the decision of the Supreme Court in the Kotak case[40] has caused ripples to an otherwise settled position that the statutory dues are to be paid from the excess of auction amount and that the sale certificate cannot be withheld on such statutory dues being pending. The Supreme Court in Kotak case[41] held that the auction-purchaser cannot resile from the liability to pay statutory dues and a sale certificate free from all encumbrances can be issued only once such dues have been cleared.

 

We, however, would like to point to the fact that the above decision seems to be very case specific as the auction-purchaser had specifically agreed to such payment liability under the auction agreement and cannot be seen as laying down the law that an auction-purchaser is liable to pay statutory dues in the absence of a contractual arrangement specifically stating so.

 

Further, we note that many judgments have been passed considering that Section 26-E came into force on 1-9-2016, which as discussed above is not the correct factual position. However, certain courts have rightly acknowledged the correct position and have reasoned priority of secured creditors in line with Kalupur[42] judgment, that is:

  • Section 31-B came into force on 1-9-2016;
  • Section 37 of the SARFAESI Act clearly provides that the provisions of the SARFAESI Act shall be in addition to, and not in derogation of inter alia the RDB Act and as such the SARFAESI Act was enacted only with the intention of allowing faster recovery of debts to secured creditors without the intervention of the court;
  • The definition of secured creditors is the same in both RDB Act and SARFAESI Act; and
  • An interpretation that, while the secured creditors will have priority in case they proceed under the RDB Act and that they will not have such priority if they proceed under the SARFAESI Act, will lead to an absurd situation and, in fact, would frustrate the object of the SARFAESI Act which is to enable fast recovery to the secured creditors.

 

Taking into consideration the above and ruling of Supreme Court in State of M.P. v. State Bank of Indore[43], we understand that the priority of secured creditors can be said to have been established from coming into force of Section 31-B.


† Partner, Khaitan & Co.

††  Associate, Khaitan & Co.

††† Associate, Khaitan & Co.

[1] (2009) 4 SCC 94.

[2] (2000) 5 SCC 694.

[3] Central Registry means the registry set up or cause to be set up under S. 20(1) of the SARFAESI Act.

[4] 2019 SCC OnLine Guj 1892

[5] AIR 1966 SC 785.

[6] (2001) 3 SCC 71.

[7] AIR 1966 SC 785.

[8] (2001) 3 SCC 71.

[9] 2019 SCC OnLine Guj 1892

[10] 2021 SCC OnLine Bom 6070.

[11] 2020 SCC OnLine Bom 4190.

[12] 2022 SCC OnLine SC 227.

[13] 2021 SCC OnLine AP 343 : AIR 2021 AP 87.

[14] 2019 SCC OnLine Guj 1892

[15] 2022 SCC OnLine SC 227.

[16] 2021 SCC OnLine AP 168 : AIR 2021 AP 108.

[17] 2020 SCC OnLine AP 1936 : (2021) 3 ALT 104.

[18] 2022 SCC OnLine SC 227.

[19] 2021 SCC OnLine Bom 2568.

[20] 2022 SCC OnLine SC 227.

[21] SLP (C) Diary No. 8269 of 2021, order dated 18-11-2021 (SC).

[22] 2021 SCC OnLine Bom 222 : (2021) 5 Mah LJ 402.

[23] 2021 SCC OnLine Bom 222 : (2021) 5 Mah LJ 402.

[24] (1971) 1 SCC 757.

[25] (2009) 4 SCC 486.

[26] 2021 SCC OnLine Bom 222 : (2021) 5 Mah LJ 402.)

[27] 2021 SCC OnLine Bom 222 : (2021) 5 Mah LJ 402.

[28] SLP (C) Diary No. 8269 of 2021, order dated 18-11-2021 (SC).

[29] 2021 SCC OnLine Bom 6070.

[30] 2021 SCC OnLine Bom 222 : (2021) 5 Mah LJ 402.

[31] 2019 SCC OnLine Guj 1892 : (2019) 156 SCL 668.

[32] (2002) 10 SCC 441

[33] 2019 SCC OnLine Guj 1892 : (2019) 156 SCL 668.

[34] 2020 SCC OnLine Bom 4190.

[35] 2017 SCC OnLine Bom 274 : (2017) 3 AIR Bom R 305.

[36] 2019 SCC OnLine Bom 5480 : (2020) 6 AIR Bom R 561.

[37] S.B. Civil Writ Petition No. 6872 of 2017, decided on 5-7-2017.

[38] 2018 SCC OnLine MP 1667 : (2018) 55 GSTR 210.

[39] 2016 SCC OnLine Mad 10030 : (2017) 1 Mad LJ 769.

[40] SLP (C) Diary No. 8269 of 2021, order dated 18-11-2021.

[41] SLP (C) Diary No. 8269 of 2021, order dated 18-11-2021.

[42] 2019 SCC OnLine Guj 1892 : (2019) 156 SCL 668 .

[43] (2002) 10 SCC 441.

Case BriefsSupreme Court

Supreme Court: In an interesting case relating to corruption, the Division Bench of Ajay Rastogi and Abhay S. Oka*, JJ., acquitted a Commercial Tax Officer in spite of proved recovery of tainted currency notes from her. The Bench observed that though the recovery was proved in the absence of demand being conclusively proved conviction cannot be made under Sections 7 and 13(1)(d) read with Section 13(2) of the PC Act.

The prosecution case, in brief, was that the appellant, Commercial Tax Officer demanded a bribe of Rs.3,000 for issuing an assessment order of the Farmers’ Service Co-operative Society for the year 1996-97, where the complainant was acting as a supervisor. Though the complainant showed unwillingness to pay the amount, the demand was reiterated by the appellant for consecutive three days which was later scaled down to Rs. 2000. Consequently, a complaint was filed in the Anti-Corruption Bureau (ACB) and accordingly, a trap was laid.

The allegation of the prosecution was that when the complainant tendered the tainted currency notes of Rs.2,000 to the appellant, instead of taking the amount directly, she took out a diary from her table drawer and asked to keep the currency notes in the diary thereafter she locked the diary in the table drawer and kept the key in her handbag. After that, she called ACTO along with the record, signed on the last page of the ledger and cash book by putting the date as 26-02-2000.

Notably, when the trap party entered the office of the appellant, they found a wad of currency notes in the diary, numbers on which tallied with the serial numbers of currency notes described in pre-trap proceedings. The Special Court found that the demand of bribe and acceptance of bribe was proved by the prosecution and convicted the appellant under Sections 7 and 13 (1)(d) read with Section 13(2) of the Prevention of Corruption Act, 1988. The High Court of Telangana had affirmed the said finding.

The appellant had challenged the concurrent findings of the Special Court and High Court contending that the recovery had not been proved and the complainant had deliberately kept the currency notes in the diary lying on her table when she went to the washroom before leaving her office.

Observing that the proof of demand of bribe by a public servant and its acceptance by him is sine quo non for establishing the offence under Section 7 of the PC Act, the Bench opined that as a corollary, failure of the prosecution to prove the demand for illegal gratification would be fatal and mere recovery of the amount from the person accused of the offence under Section 7 or 13 of the Act would not entail his conviction thereunder.

The Bench noted following discrepancies in the evidences submitted by the prosecution:

  1. The society been served with a notice on 15-03-2002 that an exemption had been granted from payment of commercial tax and it was not liable to pay any tax for the year 1996-97 which made the issue of the final assessment order a mere procedural formality and demand of bribe on 23-03-2002 highly doubtful.
  2. The LW8, R.Hari Kishan, was to accompany the complainant at the time of offering the bribe. However, in spite of being instructed only complainant entered the chamber and LW8 waited outside. The prosecution offered no explanation why LW8 did not accompany the complainant inside the chamber of the appellant at the time of the trap.
  3. The complainant’s version was that on his own, he told the appellant that he had brought the amount; further he had himself admitted that his version regarding the demand on various dates was an improvement. There being no other evidence of the alleged demand, the appellant’s version was not reliable.
  4. On 22-03-2000, the appellant had served a memo on PW 4, ACTO pointing out the defaults committed by him in the discharge of his duties, which indicated high probability of him holding grudge against her.

Hence, the Bench concluded that the demand of illegal gratification by the appellant was not conclusively proved by the prosecution. Thus, the demand which is sine quo non for establishing the offence under Section 7 was not established.

Consequently, the appeal was allowed and the conviction of the appellant for the offences punishable under Sections 7 and 13(1)(d) read with Section 13(2) of the PC Act was set aside and the appellant was acquitted of the charges framed against her.

[K. Shanthamma v. State of Telangana, 2022 SCC OnLine SC 213, decided on 21-02-2022]


*Judgment by: Justice Abhay S. Oka


Appearance by:

For the Appellant: V. Mohana, Senior Advocate

For the Respondent: Bina Madhavan, Advocate


Kamini Sharma, Editorial Assistant has put this report together 

Experts CornerKapil Madan


Introduction


 

India has been a signatory to the UN Single Convention on Narcotics Drugs 1961, the Convention on Psychotropic Substances, 1971 and the Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 which prescribe various forms of control aimed to achieve the dual objective of limiting the use of narcotics drugs and psychotropic substances for medical and scientific purposes as well as preventing the abuse of the same.

The administrative and legislative set-up in the field of narcotics has been put in place in India in accordance with the aforesaid spirit of the UN Conventions. The basic legislative instrument of the Government of India in this regard is the Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985.

The scheme of the Narcotic Drugs and Psychotropic Substances Act, 1985 trifurcates the substances into three kinds which are as follows:

(i) narcotic drugs;

(ii) psychotropic substances; and

(iii) controlled substances.

The Supreme Court and various High Courts in plethora of judgments have observed that such offences are of extremely heinous nature, as such substances can affect an entire generation of youth.[1] Thus, the Act is framed and interpreted as one of the strictest legislations in the sphere of criminal law as far as grant of bail to the accused is concerned.


Importance of recovery in investigation of offences under NDPS Act


 

It is submitted that “recovery” and “possession” is a vital aspect of investigation under the NDPS Act. This is because the accused is “found” to be in possession of the prohibited substance, Section 54 of the Act gives rise to a presumption of commission of offence and Section 35 of the Act  gives rise to a presumption of culpable mental state.

Therefore, the officer or the raiding party which effects recovery are witnesses to the said fact which would constitute an offence and therefore investigation of the said aspect has to be carried out by an independent agency. Investigation being a systemic process and not a forgone conclusion making the FIR itself lodged by the informant who himself affects recoveries to be treated as a gospel truth.[2]

Such presumptions against the accused may be necessary however, they also cause grave prejudice to the accused. Moreover, firm belief on the FIR and the information provided by the informant does not rule out the possibility of a person being falsely implicated for commission of offence under the Act.

For instance, in a hypothetical situation, if an accused was never in possession of the alleged contraband, and the same has been planted upon him by the investigation agency, the accused would never be able to prove his innocence at the time when such search, seizure and arrest is being conducted; owing to above-stated presumption which the act itself draws against the accused.


Stringent conditions on bail under the NDPS Act


 

The conditions for bail also differ from the general rule of bail in criminal jurisprudence. Section 37 of the Act (in commercial quantity), two additional preconditions are imposed upon the accused in addition to the ones  prescribed under Code of Criminal Procedure, which are to be satisfied before an accused can be enlarged on bail. Section 37 is reproduced hereinbelow for ease of reference:

 

  1. Offences to be cognizable and non-bailable.— (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974),—

* * *

(b) no person accused of an offence punishable for 3 offences under Section 19 or Section 24 or Section 27-A and also for offences involving commercial quantity shall be released on bail or on his own bond unless—

(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and

(ii) where the Public Prosecutor oppose the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

It is submitted that such a provision has been inculcated in the Act as there is compelling State interest which is involved in the implementation of the aforementioned Act owing to the very serious  nature of the offences.[3]

 


Safeguards available to the accused under the NDPS Act


It is a settled position in law, that no matter how strict a legislation is intended to be, it is necessary that it envisages some protections, compliances and procedures to be conducted during the implementation of the provisions of the Act, in order to prevent the misuse/abuse  of the penal provisions of any legislation.

The NDPS Act, 1985 being no different, vide Chapter V prescribes certain mandatory procedural compliances which are to be conducted while conducting a search, seizure or arrest of an accused person.

Such provisions which deal with procedural compliances shall be discussed and deliberated upon in detail hereinbelow:

  1. Section 41 of the NDPS Act, 1985

 

Section 41 of the Act deals in detail with the power to issue a warrant for a search and seizure. Section 41 is reproduced hereinbelow for ready reference:

  1. Power to issue warrant and authorisation.— (1) A Metropolitan Magistrate or a Magistrate of the First Class or any Magistrate of the Second Class specially empowered by the State Government in this behalf, may issue a warrant for the arrest of any person whom he has reason to believe to have committed any offence punishable under this Act, or for the search, whether by day or by night, of any building, conveyance or place in which he has reason to believe any narcotic drug or psychotropic substance or controlled substance in respect of which an offence punishable under this Act has been committed or any document or other article which may furnish evidence of the commission of such offence or any illegally acquired property or any document or other article which may furnish evidence of holding any illegally acquired property which is liable for seizure or freezing or forfeiture under Chapter V-A of this Act is kept or concealed.

(2) Any such officer of gazetted rank of the department of central excise, narcotics, customs, revenue intelligence or any other department of the Central Government including the para-military forces or the armed forces to be empowered in this behalf by general or special order by the Central Government, or any such officer of the revenue, drugs control, excise, police or any other department of a State Government as is empowered in this behalf by general or special order of the State Government if he has reason to believe from personal knowledge or information given by any person and taken in writing that any person has committed an offence punishable under this Act or that any narcotic drug or psychotropic substance or controlled substance in respect of which any offence under this Act has been committed or any document or other article which may furnish evidence of the commission of such offence or any illegally acquired property or any document or other article which may furnish evidence of holding any illegally acquired property which is liable for seizure or freezing or forfeiture under Chapter V-A of this Act is kept or concealed in any building, conveyance or place, may authorise any officer subordinate to him but superior in rank to a peon, sepoy or a constable to arrest such a person or search a building, conveyance or place whether by day or by night or himself arrest such a person or search a building, conveyance or place.

(3) The officer to whom a warrant under sub-section (1) is addressed and the officer who authorised the arrest or search or the officer who is so authorised under sub-section (2) shall have all the powers of an officer acting under Section 42.

A bare perusal of the abovementioned provision shall make it clear that:

(a) Section 41(1) deals with the power of the Magistrate to issue the warrant, to conduct a search.

(b) Section 41(2) enshrines similar power to a gazetted officer of the departments mentioned therein or any other officer with the authorisation of such gazetted officer to conduct a search.

(c) The Magistrate or the gazetted officer as the case may be  prior to taking any action under the captioned provision of the Act must ensure that they have a reason to believe that an offence under this Act has been committed.

Further with regard to the authorisation of the gazetted officer which finds mention in Section 41(2), the Supreme Court in T. Thomson v. State of Kerala[4] has held that such  authorisation under Section 41(2) is not required when the gazetted officer is himself conducting the search and is only required in case where the search is to be conducted by a subordinate  to conduct the search on his behalf.

 

2. Section 42 of the NDPS Act, 1985

 

Section 42 of the Act empowers a gazetted officer or his subordinate mentioned under Section 41(2) to conduct search, seizure and arrest without warrant or authorisation. The captioned section is reproduced hereinbelow for ready reference:

 

  1. Power of entry, search, seizure and arrest without warrant or authorisation.— (1) Any such officer (being an officer superior in rank to a peon, sepoy or constable) of the departments of central excise, narcotics, customs, revenue intelligence or any other department of the Central Government including para-military forces or armed forces as is empowered in this behalf by general or special order by the Central Government, or any such officer (being an officer superior in rank to a peon, sepoy or constable) of the revenue, drugs control, excise, police or any other department of a State Government as is empowered in this behalf by general or special order of the State Government, if he has reason to believe from personal knowledge or information given by any person and taken down in writing that any narcotic drug, or psychotropic substance, or controlled substance in respect of which an offence punishable under this Act has been committed or any document or other article which may furnish evidence of the commission of such offence or any illegally acquired property or any document or other article which may furnish evidence of holding any illegally acquired property which is liable for seizure or freezing or forfeiture under Chapter V-A of this Act is kept or concealed in any building, conveyance or enclosed place, may, between sunrise and sunset,—

(a) enter into and search any such building, conveyance or place;

(b) in case of resistance, break open any door and remove any obstacle to such entry;

(c) seize such drug or substance and all materials used in the manufacture thereof and any other article and any animal or conveyance which he has reason to believe to be liable to confiscation under this Act and any document or other article which he has reason to believe may furnish evidence of the commission of any offence punishable under this Act or furnish evidence of holding any illegally acquired property which is liable for seizure or freezing or forfeiture under Chapter V-A of this Act; and

(d) detain and search, and, if he thinks proper, arrest any person whom he has reason to believe to have committed any offence punishable under this Act:

Provided that in respect of holder of a licence for manufacture of manufactured drugs or psychotropic substances or controlled substances granted under this Act or any rule or order made thereunder, such power shall be exercised by an officer not below the rank of Sub-Inspector:

Provided further that if such officer has reason to believe that a search warrant or authorisation cannot be obtained without affording opportunity for the concealment of evidence or facility for the escape of an offender, he may enter and search such building, conveyance or enclosed place at any time between sunset and sunrise after recording the grounds of his belief.

(2) Where an officer takes down any information in writing under sub-section (1) or records grounds for his belief under the proviso thereto, he shall within seventy-two hours send a copy thereof to his immediate official superior.

The provision reproduced above may be understood in following manner:

(a) The above provision pertains only to the search of buildings conveyances and enclosed places.[5]

(b) Officer empowered under Section 41(2)  having reasonable belief owing  receipt of an information or from his personal knowledge regarding commission of an offence under the Act has a right to conduct search in the manner prescribed in the provision after recording the information received in writing and obtaining  authorisation in the manner prescribed under the Act.

(c) If the officer has reason to believe that an authorisation cannot be obtained as same would lead to affording of an opportunity to accused to conceal material evidences, the officer may conduct search without authorisation after duly recording such reasons to believe.

(d) Information received or reasons to believe for not obtaining an authorisation must be sent to a designated senior officer within 72 hours of recording the same.

The Supreme Court at numerous occasions has held the following with regard to Section 42 of the Act:

(a) Compliances under Section 42 of the Act  are mandatory in nature.[6]

(b) Non-compliance with the conditions contained therein can lead to serious repercussions such as vitiation of the search conducted and the trial held. [7]

(c) The purpose of this provision is to provide due protection to a suspect against false implication.[8]

 

3. Section 43 of the NDPS Act, 1985

 

Section 43 of the Act prescribes the procedure which shall be followed while conducting a search in a public place. The provision is reproduced hereinbelow for ready reference:

 

  1. Power of seizure and arrest in public place.—Any officer of any of the departments mentioned in Section 42 may

(a) seize in any public place or in transit, any narcotic drug or psychotropic substance or controlled substance in respect of which he has reason to believe an offence punishable under this Act has been committed, and, along with such drug or substance, any animal or conveyance or article liable to confiscation under this Act, any document or other article which he has reason to believe may furnish evidence of the commission of an offence punishable under this Act or any document or other article which may furnish evidence of holding any illegally acquired property which is liable for seizure or freezing or forfeiture under Chapter V-A of this Act;

(b) detain and search any person whom he has reason to believe to have committed an offence punishable under this Act, and if such person has any narcotic drug or psychotropic substance or controlled substance in his possession and such possession appears to him to be unlawful, arrest him and any other person in his company.

Explanation.— For the purposes of this section, the expression “public place” includes any public conveyance, hotel, shop, or other place intended for use by, or accessible to, the public.

With regards to the provision reproduced above it is pertinent to note the following:

(a)  The above provision pertains only to the search of “public place” which are defined under the provision.[9]

(b) Unlike Section 42, under the captioned provision does not make it mandatory for the officer conducting the search in “public place”  to record the satisfaction or reasons to believe prior to conduct of search of a public place.[10]

 

4. Section 50 of the NDPS Act

 

Section 50 of the Act specifies the conditions under which the search of a person may be conducted. The provision is reproduced hereinbelow for ease of reference:

  1. Conditions under which search of persons shall be conducted.— (1) When any officer duly authorised under Section 42 is about to search any person under the provisions of Section 41, Section 42 or Section 43, he shall, if such person so requires, take such person without unnecessary delay to the nearest gazetted officer of any of the departments mentioned in Section 42 or to the nearest Magistrate.

(2) If such requisition is made, the officer may detain the person until he can bring him before the gazetted officer or the Magistrate referred to in sub-section (1).

 

(3) The gazetted officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge the person but otherwise shall direct that search be made.

 

(4) No female shall be searched by anyone excepting a female.

 

(5) When an officer duly authorised under Section 42 has reason to believe that it is not possible to take the person to be searched to the nearest gazetted officer or Magistrate without the possibility of the person to be searched parting with possession of any narcotic drug or psychotropic substance, or controlled substance or article or document, he may, instead of taking such person to the nearest gazetted officer or Magistrate, proceed to search the person as provided under Section 100 of the Code of Criminal Procedure, 1973.

 

(6) After a search is conducted under sub-section (5), the officer shall record the reasons for such belief which necessitated such search and within seventy-two hours send a copy thereof to his immediate official superior.

 

 

It is submitted that scope of the provision reproduced above is limited  and it is only applicable in the instances wherein recovery of contraband has been effected as a consequence of body search and thus such a provision shall not be applicable if the recovery has been affected from a bag or any other belonging which the person was separately carrying.[11]


Non-compliance and its impact on bail


All the statutory compliances which have been discussed above are mandatory in nature. Purpose of these compliances is to ensure that a person is not falsely implicated and he has a fair opportunity in order to defend himself. Further recently Kerala High Court in Sarath v. State of Kerala[12] have held that non-compliance with the mandatory procedure for search, seizure and arrest in the manner as  envisaged in the Act results in  vitiation of such search and such factor can be considered at the stage of investigation in order to grant bail. So, if an accused can prove that the search and seizure conducted upon him was not in consonance or compliance with the procedure prescribed under the Act, the accused shall be eligible for grant of bail.

Thus, if a search, seizure or arrest of a person is conducted in neglect of the compliances as prescribed under the Act, and a person can show sufficient proof of the same, then such non-compliance can act as a mitigating factor against the stringent conditions of bail as imposed under the Act.

However, the onus to prove that there was grave negligence on the part of authorities in observing the compliances under the Act also lies on the accused and the court shall always presume that the authorities have complied.  It is also pertinent to note that till date the courts have failed to define the extent or manner in which the non-compliance on the part of authorities need to be proven in order to make a case for grant of bail and this is an issue on which further clarity is warranted.


Conclusion


In the view above, it is safe to say that under NDPS Act, 1985, the State has compelling interest to safeguard the society from the drug menace and as such the Act provides for stringent bail conditions and reverse presumption against the accused. At the same time, the Act also provides for procedural safeguards qua the search, seizure and arrest non-compliance of which seriously impinges the case of the prosecution and vitiates the prosecution initiated under the NDPS Act.


† Partner, KMA Attorneys.The author can be contacted at kmadan@kmalawoffice.com or +91-9971305252.

††  Senior Associate, KMA Attorneys.

†††  Senior Associate, KMA Attorneys.

[1] Raj Kumar Karwal v. Union of India, (1990) 2 SCC 409.

[2] Mukesh Singh v. State (NCT of Delhi), (2020) 10 SCC 120.

[3] Nikesh Tarachand Shah v. Union of India, (2018) 11 SCC 1, 40.

[4] (2002) 9 SCC 618.

[5] Krishna Kanwar v. State of Rajasthan, (2004) 2 SCC 608.

[6] M. Prabhulal v. Directorate of Revenue Intelligence, (2003) 8 SCC 449.

[7] Chhunna v. State of M.P., (2002) 9 SCC 363.

[8] Kishan Chand v. State of Haryana, (2013) 2 SCC 502.

[9] M. Prabhulal case, (2003) 8 SCC 449.

[10] State of Haryana v. Jarnail Singh, (2004) 5 SCC 188.

[11] Jarnail Singh v. State of Punjab, (2011) 3 SCC 521.

[12] 2021 SCC OnLine Ker 2840.

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): The Coram comprising of Justice S.J. Mukhopadhaya, Chairperson and Alok Srivastava, Member (Technical), while deciding an appeal filed against Bank of India, stated that,

“Bank of India once accepted amount is expected to reach a settlement, failing which the question, whether application under Section 7 was filed under malicious intent for recovery and not for resolution will be considered.”

Bank of India (Financial Creditor) had moved an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 that had been admitted by impugned order passed by the National Company Law Tribunal.

Further, it is to be noted that, in the meantime, appellant (Corporate Debtor) tried to reach settlement with Bank of India who had already received a sum of Rs 80,00,000 but was not reaching any settlement.

Adding to the above, it was submitted that the money was accepted by Bank of India during the ‘Corporate Insolvency Resolution Process’, which is otherwise not permissible, on the ground that it wants settlement and then refusing to settle.

It was also stated that the application under Section 7 was filed by Bank of India with malicious intent and not for resolution or liquidation and calls for penal action under Section 65 of IBC.

Appellate Tribunal while posting the case for orders on 12-03-2020, gave a direction that in the meantime, Interim Resolution Professional will not constitute the ‘Committee of Creditors’, if not yet constituted, to enable the parties to reach settlement. Further, the Interim Resolution Professional will also ensure that company remains a going concern and will take assistance from the (suspended) Board of Directors and the officers/directors/employees.

Further, adding to the above, Appellate Tribunal also stated that the bank account of the ‘Corporate Debtor’ be allowed to be operated for the day-to-day functioning of the company. [Akshay Arun Shetty v. Bank of India, 2020 SCC OnLine NCLAT 96, decided on 14-02-2020]

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: A Bench comprising of K. Abraham Mathew, J. allowed further investigation to the petitioner as the prior investigation was not sufficient.

The accused was charged for offences under Sections 406 and 420 IPC. It was stated that he was entrusted with the responsibility for the manufacture of ornaments for which gold was given to him which allegedly was misappropriated by him. The petitioner through his counsels N.M. Madhu, P.P. Harris and C.S. Rajani claimed that he was not satisfied with the investigation and wanted a further investigation into the matter. He has also brought to the Court’s notice that as per the statements of the witnesses on record, the accused sold them gold ornaments for which even attempts were not made by the investigating officer as to their recovery.

The Court agreed with the petitioner, allowed the writ petition and granted further investigation in the case. [Biju v. State of Kerala, 2018 SCC OnLine Ker 7430, decided on 05-07-2018]

Case BriefsHigh Courts

Meghalaya High Court: A Division Bench comprising of Mohammad Yaqoob Mir, CJ and S.R. Sen, J. dismissed a petition on being infructuous.

The Advocate General A. Kumar has submitted that the Meghalaya Clinker Cess Act, 2015 has been repealed by the Meghalaya Goods and Services Tax Act, 2017; consequently, there was no recovery and no question of refund. He contended that the petition cannot hold shall be dismissed as infructuous. The counsel for the petitioner, A. Saraf has prayed for declaring the Meghalaya Clinker Cess Act, 2015 to be ultra vires and further levy of cess on the manufactured clinker produced in the State shall be beyond the legislative competence of the respondent who shall then be restrained from realizing cess on the manufactured clinker under the above said Act.

The Court considering the status of the Act dismissed the petition on being infructuous. [Star Cement Meghalaya Ltd. v. State of Meghalaya, 2018 SCC OnLine Megh 268, decided on 07-12-2018]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Pratibha M. Singh, J. dismissed a criminal appeal while upholding the conviction and sentence of the appellant (accused) inter alia for the offence punishable under Section 397 IPC.

The appellant was accused of robbery by the use of a deadly weapon- a knife. It was alleged that the appellant along with other co-accused entered the house of the victims, threatened them with a knife and robbed their house. On victim’s information, FIR was registered, the appellant was apprehended, arrested, charged, tried, convicted and sentenced by the trial court inter alia under Section 397 IPC. The appellant approached the High Court challenging the decision of the trial court contending that since the deadly weapon (a knife in this case) was not recovered, the appellant could not have been convicted under the section.

The High Court referred to a long catena of decisions to reach a conclusion that recovery of the weapon was not essential to convict the appellant under Section 397. The Court relied on Ashfaq v. State (NCT of Delhi), (2004) 3 SCC 116 wherein the Supreme Court referred to Phool Kumar v. State (UT of Delhi), (1975) 1 SCC 797 wherein it was held, “… what is essential to satisfy the word ‘use’ for the purpose of Section 397 is the robbery being committed by an offender who was armed with deadly weapon which was within the vision of the victim so as to be capable of creating a terror in the mind of the victim… knife is equally a deadly weapon, for purposes of Section 397”. The High Court referring to its earlier decisions held, the fact that the knife was not recovered would not matter as long as eye-witnesses to the crime are able to convincingly and consistently recount the fact that they were threatened by the sight of the accused wielding the knife while parting with their belongings. Placing reliance on the precedents and discussions held therein, the Court held, recovery of the weapon is not essential for conviction for an offence under Section 397 IPC. The Court, while holding that ingredients required for conviction under Section 397 were satisfied by the testimonies of prosecution witnesses, upheld the conviction and sentence awarded by the trial court and dismissed the appeal. [Murlidhar v.  State,2018 SCC OnLine Del 9401, dated 01-06-2018]

Case BriefsHigh Courts

Calcutta High Court: The writ petition was preferred by a primary school teacher, aggrieved that an amount of Rs. 68, 556 was deducted from the pension payment order by the authorities, due to alleged over-drawl.

Learned counsel on behalf of the petitioner, by relying on the Supreme Court’s decision of Shyam Babu Verma v. Union of India, (1994) 2 SCC 521 contends that the excess amount can’t be recovered from the retiral benefit of an employee unless it is due to some fraud or misrepresentation. In the case of Syed Abdul Qadir v. State of Bihar, (2009) 3 SCC 475 the Supreme Court observed that “the relief against recovery is granted by courts not because of any right in the employees, but in equity, exercising judicial discretion to relieve the employees from the hardship that will be caused if recovery is ordered.”

Therefore,  Arijit Banerjee, J. quoted the observation of another learned Judge, “the choice is like choosing between the devil and deep sea” and ordered that, by considering the decisions of the Hon’ble Division Bench in the cases of Shyam Babu Verma, Syed Abdul Qadir, Chandi Prasad Uniyal v. State of Uttarakhand, (2012) 8 SCC 417 and State of Punjab v. Rafiq Masih, (2014) 8 SCC 883 held that no recovery can be made from a retired employee who is due to retire within one year from the order of recovery. Further, no recovery could be made in the present case from the retrial benefits of the petitioner even after a delay of 15 years by considering the decision of the case of Union of India v. Tarsem Singh, (2008) 3 SCC 648, as it did not affect the third party rights. [Jaynal Alam v. State of West Bengal, 2017 SCC OnLine Cal 10406, decided on 12.07.2017]

 

High Courts

Himachal Pradesh High Court: In an interesting case where petitioner has filed a writ petition seeking quashing of order for recovery of vacation salary granted to the petitioner by the respondents, the division bench of Mansoor Ahmad Mir, C.J and Tarlok Singh Chauhan, J accordingly quashed the said order and directed the respondents not to effect the recovery of the said amount from the petitioner and if the recovery is already made, must be refunded to the petitioner. In the instant case the petitioner has not played any role, played fraud or misrepresentation in release of the vacation salary.

The Court while deciding the petition extensively relied on the judgment of the Supreme Court in State of Punjab v. Rafiq Masih (2015) 4 SCC 334, wherein the Court laid down the parameters of fact situations such that employees, who are beneficiaries of wrongful monetary gains at the hands of the employer, may not be compelled to refund the same. The Court further observed in the abovestated case that an action of the State, ordering a recovery from an employee would be fair, so long as it is not rendered iniquitous to the extent, that the action of recovery would be more wrongful, improper and more unwarranted, than the corresponding right of the employer, to recover the amount. The Court also noted that the recovery would be permissible till such time as it would not have a harsh and arbitrary effect on the employee.

Court also delved into explaining the doctrine of equality found in Articles 14 to 18 of the Constitution and stated that such an action would breach the obligations of the State, to citizens of this country, and renders the action arbitrary, and therefore, violative of the mandate contained in Article 14 of the Constitution of India. Seema Sharma v. State of Himachal Pradesh, 2015 SCC OnLine HP 918, decided on 20.04.2015

 

Tribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): “It is the choice of the bank to recover the money either from the guarantor or the borrower.  It is abhorrent from the principles of law to say that the Bank must first of all recover the money from the borrower and thereafter it can proceed against the guarantor,” held NCDRC while allowing a petition filed by Canara Bank challenging the order of Kerala State Consumer Disputes Redressal Commission which decided against the recovery made by the bank from the complainant against the dues payable by a person who was introduced by the complainant. The dispute arose when after the demise of borrower; his dues were adjusted against the term deposit of the complainant. The complainant denied the intention to be a guarantor or a surety for the borrower and alleged that he was made to sign on some blank papers. He also contended that the bank should have first approached the family of the borrower who had died. The District Forum as well as the State Commission both decided in favor of the petitioner. After perusing the records, NCDRC set aside the orders of District Forum and State Commission and held that bank is entitled to choose between the guarantor and the borrower for recovery of dues. NCDRC also upheld the recovery made by the bank on the ground that “the complainant signed the blank papers, if any, with his open eyes and on his own volition. Even if he has signed the blank papers, he did it at his own peril.”(Canara Bank v. R.S.Vasan, Revision Petition No. 914 of 2014, decided on September 3, 2014)

To read the full judgment, refer SCCOnLine