Judgments (Banking & Finance) Anita Malhotra vs Apparel Export Promotion Council another [SUPREME COURT OF INDIA,

08 Nov 2011] Criminal - Banking & Finance - Practice & Procedure - Negotiable Instruments Act, 1881, s. 138 Code of Criminal Procedure, 1973, s. 482 - Dishonour of cheque - Criminal complaint - Quashing of Appellant, non-executive Director of the accused Company, resigned from Directorship on 31-8-1998 and filed statutory Form 32 with the Registrar of Companies on 20-11-1998 - 1st respondent company issued legal notice to appellant regarding dishonour of cheques u/s. 138 of the Act - Appellant replied that she had resigned from the Directorship of the accused Company long back in 1998 - 1st respondent filed criminal complaint against appellant in Magistrate Court - Appellant filed petition before the HC for quashing the criminal complaint - HC dismissed appellant's petition - Whether the appellant had made out a case for quashing the criminal complaint filed by the respondents u/s. 138 of the Act - Held, certified copy of the annual return of the accused Company was a public document, more particularly, in view of the provisions of the Companies Act, 1956 r/w s. 74(2) of the Indian Evidence Act, 1872, which showed that the appellant had validly resigned from the Directorship of the Company even in the year 1998 and thus, she should not be held responsible for the dishonour of the cheques issued in the year 2004 - Further, in para 4 of the complaint, except the mere bald and cursory statement with regard to the appellant, the complainant had not specified her role in the day to day affairs of the accused Company - Appellant established that she had resigned from the accused Company as a Director in 1998, well before the relevant date, namely, in the year 2004, when the cheques were issued, the HC, in the light of the acceptable materials such as certified copy of annual return and Form 32 ought to have exercised its jurisdiction u/s. 482 of CrPC and quashed the criminal proceedings - Appellant had made out a case for quashing the criminal proceedings, hence, impugned criminal complaint was quashed - Appeal allowed.

Kanaiyalal Lalchand Sachdev and others vs State of Maharashtra and others [SUPREME
COURT OF INDIA, 07 Feb 2011] Banking & Finance - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, ss. 13(2), 14 and 17 - Recovery of loan amount - Respondent no. 3 (Bank) had advanced a loan of Rs. 4,50,00,000/- to appellant no. 6 on an equitable mortgage by deposit of the title deeds of certain properties - Appellant Nos.1 to 5 and 'X' stood as personal guarantors to the said loan On default of re-payment of loan amount, respondent no. 3 filed petition before the Chief Metropolitan Magistrate u/s. 14 of the Act for taking possession of the secured assets - The Magistrate allowed the said application and directed the Assistant Registrar, to take possession of the mortgaged properties after issuing notice to the appellants - Being aggrieved by the said order, the appellants filed writ petition before HC - The HC dismissed said writ petition on the ground that an alternative remedy was available to the appellants u/s. 17 of the Act - The HC directed the respondents to maintain status quo in the matter for a period of 10 weeks from the date of its order, so as to enable the appellants to approach the Debts Recovery Tribunal u/s. 17 of the Act - Hence, the instant appeals - Whether HC rightly dismissed writ petition filed by the appellants on the ground that an alternative remedy was available to the appellants? Held, an action u/s. 14 of the Act constitutes an action taken after the stage of s. 13(4) of the Act, and therefore, the same would fall within the ambit of s. 17(1) of the Act - Thus, the Act itself contemplates an efficacious remedy for the borrower or any person affected by an action u/s. 13(4) of the Act, by providing for an appeal before the DRT - Therefore, the HC rightly dismissed the petition on the ground that an efficacious remedy was available to the appellants u/s. 17 of the Act - Impugned order was upheld Appeals dismissed.

Bharat Steel Tubes Limited etc. vs IFCI Limited and others [SUPREME COURT OF INDIA, 04
Apr 2011] Corporate - Banking & Finance - Companies Act, 1956, s. 4A(2) - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, s. 2(1)(m) - Public Financial Institution HC held that the respondent (IFCI Ltd.) was a 'Financial Institution' u/s. 4A(2) of 1956 Act r/w. s. 2(1)(m) of SARFAESI Act and as a consequence, the respondent would be entitled to take recourse to the provisions of the SARFAESI Act in order to enforce a 'security interest' which had accrued in its favour - Petitioner challenged said order contending that the proviso to sub-section (2) of s. 4A of the 1956 Act was not

attracted to the facts of instant case as respondent converted itself into a company - Whether contention of the petitioner could be accepted and s. 4A(2) of the Act could not be applied to the respondent case? Held, the conversion of the respondent into a Company did not alter its position and status as a financial institution - Hence, contentions of the petitioner could not be accepted - Impugned order upheld - Petition dismissed.

State of Maharashtra and others vs Sarangdharsingh Shivdassingh Chavan and another [SUPREME COURT OF INDIA, 14 Dec 2010]
Parliament & Legislature - Constitution - Banking & Finance - Bombay Money Lenders Act, 1946 - Illegal money lending business - Propriety of directions given by the then Chief Minister of Maharashtra Complaints were filed against the second respondent alleging that second respondent and his family members, engaged in illegal money lending business, were harassing him and other farmers - It was also alleged nearly 300 farmers have committed suicide in Vidarbha region of Maharashtra as victims of such illegal money lending business and the torture perpetrated in the recovery of such money - However, Collector issued direction as to not to register any crime against second respondent, without obtaining clearance from the District Anti Money Lending Committee and also without obtaining legal opinion of the District Government Pleader - Said order was passed by the Collector in view of the instructions given to him by the then Chief Minister of Maharashtra - Therefore, it was alleged in the petition that despite there being several complaints against second respondent and his family members, cases were not registered against them in view of the instructions given by the then Chief Minister - HC held that the instruction of the Chief Minister to the Collector was unconstitutional - Hence, present appeal - Held, police officer in charge of a police station, on the basis of information received or otherwise, can start investigation if he has reasons to suspect the commission of any cognizable offence - This legal framework is a very vital component of the Rule of Law in order to ensure prompt investigation in cognizable cases and to maintain law and order - Law does not accord any special treatment to any person in respect of any complaint having been filed against him when it discloses the commission of any cognizable offence - In the present case, the direction of the then Chief Minister to give a special treatment to a particular family about registering of complaint filed against them was totally unwarranted in law - As the Chief Minister of State of Maharashtra he was expected to know that the farmers of the State specially those in the Vidarbha region were going through a great deal of suffering and hardship in the hands of money lenders - This being the ground reality, as the Chief Minister of the State and as holding a position of great responsibility as a high constitutional functionary, he acted beyond all legal norms by giving the impugned directions to the Collector to protect members of a particular family who are dealing in money lending business from the normal process of law - Action of the Chief Minister was completely contrary to and inconsistent with the constitutional promise of equality and also the preambular resolve of social and economic justice Therefore, the instructions of the Chief Minister have completely subverted the Rule of Law - Order of the HC affirmed and direction issued that the instruction of the Chief Minister to the Collector had no warrant in law and was unconstitutional and therefore quashed - Appeal dismissed.

S. N. Prasad vs Monnet Finance Limited and others [SUPREME COURT OF INDIA, 22 Oct
2010] Arbitration & ADR - Banking & Finance - Arbitration and Conciliation Act, 1996 - Arbitration agreement - Existence of - (A) Whether a guarantor for a loan, who is not a party to the loan agreement containing the arbitration agreement executed between the lender and borrower, can be made a party to a reference to arbitration in regard to a dispute relating to repayment of such loan and subjected to the arbitration award? - Held, if there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non-parties - Further, to constitute an arbitration agreement u/s. 7(4)(c) of the Act, a statement of claim containing a specific allegation about the existence of an arbitration agreement by the applicant and 'nondenial' thereof by the other party is required - Thus, an arbitration agreement between the lender on the one hand and the borrower and one of the guarantors on the other, cannot be deemed or construed to be an arbitration agreement in respect of another guarantor who was not a party to the arbitration agreement (B) Words, 'statements of claim and defence' occurring in s. 7(4)(c) of the Act - Meaning of - Held, these words are not restricted to the statement of claim and defence filed before the arbitrator - An 'allegation' is an assertion or declaration about a fact and also refers to the narration of a transaction - If there is an assertion of existence of an arbitration agreement in any suit, petition or application filed before any court, and if there is no denial thereof in the defence/counter/written statement thereto filed by the other party to such suit, petition or application, then it can be said that there is an "exchange of statements of claim and defence" for the purposes of s. 7(4)(c) of the Act - Further, if in the application filed u/s. 11 of the Act, the applicant asserts the existence of an arbitration agreement with each of the respondents and if the

respondents do not deny the said assertion, in their statement of defence, the court can proceed on the basis that there is an arbitration agreement in writing between the parties - Appeals allowed.

ICICI Bank Limited vs Official Liquidator of APS Star Industries Limited and others [SUPREME COURT OF INDIA, 30 Sep 2010]
Banking & Finance - Banking Regulation Act, 1949, ss. 6(1)(a), 6(1)(n), 21 and 35A - Assignment of debts by bank inter se - Whether inter se transfer of Non Performing Assets (NPA) by banks is illegal under 1949 Act? - HC held that assignment of debts by banks inter se is not an activity which is permissible under the 1949 Act and consequently all executed contracts of assignment of debts were illegal - HC also held that the assignee banks were not entitled to substitution in place of original lender (assignor) in proceedings relatable to companies in liquidation pending in the Company Court - Held, 1949 Act basically seeks to regulate banking business - 1949 Act empowers RBI (regulator and policy farmer in mailer of advances and capital adequacy norms) to develop a healthy secondary market, by allowing banks inter se to deal in NPAs in order to clean the balance sheets of the banks which guideline/policy falls u/s. 6(1)(a) r/w s. 6(1)(n) - Therefore, it cannot be said that assignment of debts/NPAs is not an activity permissible under the 1949 Act - Further, when a delegate is empowered by the Parliament to enact a Policy and to issue directions which have a statutory force and when the delegatee (RBI) issues such guidelines (Policy) having statutory force, such guidelines have got to be read as supplement to the provisions of the 1949 Act - Hence, "Banking policy" enunciated by RBI cannot be said to be ultra vires the 1949 Act - Furthermore, test to be applied is whether trading NPAs has the characteristics of a bona fide banking business Guidelines issued by RBI dated 13.7.2005 itself authorizes banks to deal inter se in NPAs - Impugned guidelines show that RBI considers inter se NPA assignment between banks to be a tool for resolving the issue of NPAs and in the interest of banking policy u/s. 21 of the 1949 Act - Object is to minimize the problem of credit risk - Dealing in NPAs as part of the Credit Appraisal Mechanism and as a part of Restructuring Mechanism falls within s. 21 r/w s. 35A of the 1949 Act - Hence, it cannot be said that "transfer of debts/NPAs" inter se between banks is an activity which is impermissible under the 1949 Act Impugned judgment set aside on the question of assignment of debts as an activity permissible under the 1949 Act - However, matter remitted back to the HC for consideration of other issues - Appeals allowed.

(1) Punjab and Sind Bank; (2) Allied Beverage Company Private Limited and others vs (1) Allied Beverage Company Private Limited and others; (2) Punjab and Sind Bank and others [SUPREME COURT OF INDIA, 01 Oct 2010]
Banking & Finance - Code of Civil Procedure, 1908, s. 34 - Recovery of Debts due to Banks and Financial Institutions Act, 1993, s. 19(20) - Banking Regulation Act, 1949, s. 21A Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Rate of interest - Company approached the Bank and requested for grant of financial facilities in its name - Bank acceded to the request of the company and granted the loan/credit facilities to the Company - Thereafter, the business of the Company suffered a set back and its account with the Bank was declared as Non- performing Assets (NPA) on 31.03.1999 - Bank sent a legal notice to the Directors of the Company, calling them to regularize the account by paying the outstanding dues payable to the Bank along with interest due thereon - Company approached the bank for settlement of accounts, however, the settlement did not materialized - Bank filed an application before the Debt Recovery Tribunal (DRT) for recovery of Rs.1,47,42,616.77 along with pendente lite and future interest - Presiding Officer allowed said application and directed the Company to pay the outstanding amount with pendente lite and future interest @ 18% p.a. with monthly rests - Debt Recovery Appellate Tribunal (DRAT) dismissed appeal filed against said order - Company filed writ petition against said order before HC - HC disposed said writ petition modifying the order in respect of interest to the extent by reducing the pendente lite and future interest to 14% p.a. with annual rests, which would be the simple interest, against the rate of interest @ 18% p.a. with monthly rests, awarded by the DRT - Bank filed appeal against said order submitting that in view of proviso to s. 34(1) CPC, if the liability in relation to the sum adjudged had arisen out of commercial transaction, the rate of such further interest may exceed 6% p.a. but shall not exceed the contractual rate of interest and the bank is entitled to claim interest as per the contract - Whether the HC is justified in reducing the interest @ 18% p.a. with monthly rests to 14% p.a. with 12 monthly rests without appreciating the contractual rate of interest? - Held, In the present case, even the Company agreed for settlement but it was not successful due to financial difficulties and all other circumstances, hence, HC has fairly neutralized the claim of the Bank as well as the sufferings of the Company and passed a workable order by reducing the rate of interest to 14% p.a., which would be simple interest, in respect of period pendente lite and future interest w.e.f. 04.07.2003, the day on which the Bank filed an application

before the DRT - Though request was made by the Company for further reduction upto 12% p.a., since it was a commercial transaction and the Bank being a nationalized bank, Court not inclined to accede to their request - Impugned order of the HC upheld - Appeals dismissed.

Managing Director, Maharashtra State Financial Corporation and others vs Sanjay Shankarsa Mamarde [SUPREME COURT OF INDIA, 09 Jul 2010]
Consumer Protection - Banking & Finance - Consumer Protection Act, 1986, s. 2 and 23 - Deficiency of service - Complainant approached the Corporation for sanction of loan for his hotel project - Loan proposal was approved and accordingly, a sanction letter along with terms and conditions of the loan was issued to the complainant - It was also agreed that Corporation would disburse to the complainant a loan of Rs.30 lakhs in instalments on complainant's furnishing the progress report of the project - First instalment of the loan was released by the Corporation to the complainant - Complainant issued a cheque towards up-front fees to the Corporation which was dishonoured - Despite the fact that the complainant had failed to submit complete documents, second instalment was released to him - However, as complainant failed to furnish the progress report and also failed to discharge his liability towards interest, as demanded from him from time to time, the corporation did not release further instalments of the loan sanctioned to the complainant and informed the complainant that the entire balance unavailed term loan had been treated as cancelled Complainant approached National Consumer Disputes Redressal Commission (Commission) Commission accepted the complaint and concluded that there was no justifiable ground for the Corporation to deny disbursement of loan to the complainant - According to the Commission, having sanctioned the loan and then stopping its disbursement without any cause amounted to deficiency in service on the part of the Corporation - Being aggrieved by the award of compensation, present appeal - Whether the Commission was correct in holding that there has been deficiency in service provided by the Corporation to the complainant on account of their failure to release the balance loan amount? - Held Corporation was constrained not to release the balance instalments and recall the loan on account of stated defaults on the part of the complainant himself - Non release of loan amount was not because of any deficiency on the part of the Corporation but due to complainant's conduct and therefore, the failure of the Corporation to render 'service' could not be held to give rise to claim for recovery of any amount under the Act - There was no deficiency in the service the Corporation was required to provide to the complainant - Order passed by the Commission set aside - Appeal allowed.