Tag: Debt Recovery

Supreme Court Revives Cheque Bounce Cases, Says ‘Sick Company’ Status is Not a Get-Out-of-Jail Card
9Oct By The Legal ChamberNo Comments
Supreme Court

Supreme Court Revives Cheque Bounce Cases, Says ‘Sick Company’ Status is Not a Get-Out-of-Jail Card

The Supreme Court held that proceedings under Section 138 of the Negotiable Instruments Act are not automatically barred against a company declared sick under SICA, even if a restraint order under Section 22A exists. The nature of the restraint and the purpose of the cheque issuance are mixed questions of law and fact to be decided during trial based on evidence. Furthermore, a Magistrate lacks the inherent power to review or recall the issuance of summons. Facts Of The Case: The appellant, Shree Nagani Silk Mills Pvt. Ltd., supplied goods to the first respondent, L.D. Industries Ltd., which was declared a sick company by the BIFR. Towards the payment for these supplies, the accused company issued several cheques in 2001, which were subsequently dishonoured due to "insufficient funds"....
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Landmark Ruling: Supreme Court Bars Prosecution of Company Directors Without Suing the Company First
30Sep By The Legal ChamberNo Comments
Supreme Court

Landmark Ruling: Supreme Court Bars Prosecution of Company Directors Without Suing the Company First

The Supreme Court quashed the criminal defamation proceedings against the bank officials. It held that for offences under the Indian Penal Code, there is no concept of vicarious liability. Prosecuting officers without arraigning the company as an accused and without specific allegations of their culpable role is impermissible and an abuse of process. Facts Of The Case: The case originated from a loan default by Phoenix India, which had secured credit facilities from the Bank of Baroda. After the firm's account was classified as a non-performing asset, the Bank initiated recovery under the SARFAESI Act. A critical error occurred when the Bank issued a symbolic possession notice under Section 13(4) of the Act, which inadvertently quoted the outstanding dues as approximately Rs. 56.15 cro...
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Who Gets Paid First? Supreme Court Reopens Case on Priority Between Employee Provident Fund and Secured Lenders
30Sep By The Legal ChamberNo Comments
Supreme Court

Who Gets Paid First? Supreme Court Reopens Case on Priority Between Employee Provident Fund and Secured Lenders

The Supreme Court remanded the matter to the High Court to determine the priority of charges between the EPFO, under Section 11(2) of the Employees' Provident Fund Act, 1952, and secured creditors, including Axis Bank, under Section 35 of the SARFAESI Act, 2002. The core legal issue for fresh adjudication is the conflict between the statutory first charge of EPFO dues and the primacy claimed by secured creditors. Facts Of The Case: M/s Acropetal Technologies Pvt. Ltd. defaulted on its Employees' Provident Fund (EPF) dues from July 2013. The EPFO determined a liability and, upon learning the company's properties were to be auctioned by various banks, invoked its priority under the EPF Act. The EPFO specifically asserted a first charge over the 'Attibele property' being auctioned by Axis B...
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Conduct Matters: Supreme Court Confirms Auction Sale but Orders Buyer to Pay Extra ₹25 Lakh/Acre
29Sep By The Legal ChamberNo Comments
Supreme Court

Conduct Matters: Supreme Court Confirms Auction Sale but Orders Buyer to Pay Extra ₹25 Lakh/Acre

The Supreme Court upheld the High Court's decision confirming the validity of a court-auctioned property sale. It endorsed the directions for a fresh survey to demarcate the exact purchased area and for the auction purchaser to pay additional consideration, citing his conduct, while ruling that subsequent challenges to the sale were barred by law. Facts Of The Case: The dispute originated from a debt recovery proceeding initiated by the Karnataka State Financial Corporation (KSFC) against a company, for which the respondent, G.M. Krishna, was a guarantor. Following a decree, KSFC attached the respondent's agricultural land for auction. The appellant, R. Raghu, emerged as the highest bidder in a court auction in 2003, and a sale certificate was subsequently issued. The responden...
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Supreme Court Rules on Loan Disguised as Property Deal, Protects Homeowner from Forced Sale
6Sep By The Legal ChamberNo Comments
Supreme Court

Supreme Court Rules on Loan Disguised as Property Deal, Protects Homeowner from Forced Sale

The Supreme Court held that the plaintiff failed to prove the existence of a valid sale agreement, a prerequisite for specific performance under Man Kaur v. Hartar Singh Sangha. The burden of proof was not discharged as the sole evidence was self-serving and key witnesses were not examined. The High Court's reversal of concurrent factual findings was erroneous. Facts Of The Case: The respondents (original plaintiffs) filed a suit for specific performance of an alleged sale agreement dated 12.02.1999, claiming the appellant (defendant) had agreed to sell his house for Rs. 70,000. They asserted having paid Rs. 55,000 as advance and taken possession, subsequently renting the property back to the appellant. The appellant contested the suit, denying any agreement to sell. His defense was that...
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Supreme Court: Company Balance Sheets Can Reset Limitation Clock for Creditors Under IBC
26Aug By The Legal ChamberNo Comments
Supreme Court

Supreme Court: Company Balance Sheets Can Reset Limitation Clock for Creditors Under IBC

The Supreme Court held that entries in a company’s balance sheet, when read in the context of surrounding circumstances and previous financial statements, can constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the limitation period for filing an application under Section 7 of the IBC. The Court clarified that the exclusion period under its COVID-19 limitation order applied from 15.03.2020 to 28.02.2022, making the application timely. Facts Of The Case: The appellant, IL & FS Financial Services Ltd., extended a term loan of ₹30 crores to the respondent, Adhunik Meghalaya Steels Pvt. Ltd., on 27.02.2015, secured by a pledge of shares. The respondent's account was declared a Non-Performing Asset (NPA) on 01.03.2018. The appellant fi...
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Supreme Court Judgment: Banks Can Classify MSME Loans as NPA Without Prior “Stress Identification”
25Aug By The Legal ChamberNo Comments
Supreme Court

Supreme Court Judgment: Banks Can Classify MSME Loans as NPA Without Prior “Stress Identification”

The Supreme Court held that the obligation to identify incipient stress under the MSME Rehabilitation Framework is not a mandatory precondition for a bank to classify an account as an NPA or issue a demand notice under the SARFAESI Act. The benefit of the Framework must be actively claimed by the MSME borrower in response to a notice under Section 13(2), supported by an affidavit, which then obligates the bank to consider the claim and pause recovery actions. Facts Of The Case: An MSME-registered enterprise, Shri Swami Samarth Construction & Finance Solution, had availed a loan from NKGSB Co-operative Bank. Upon defaulting on repayments, its account was classified as a Non-Performing Asset (NPA). The bank's authorized officer subsequently issued a demand notice under Section 13(2) of...
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Supreme Court Rules on Tenant Rights vs. Bank’s SARFAESI Powers
8Aug By The Legal ChamberNo Comments
Supreme Court

Supreme Court Rules on Tenant Rights vs. Bank’s SARFAESI Powers

The Supreme Court held that tenants claiming rights under unregistered agreements cannot override SARFAESI proceedings. Relying on Bajarang Shyamsunder Agarwal, it ruled that oral/unregistered tenancies cannot extend beyond one year post-Section 13(2) notice. The Court emphasized that tenants must prove prior lawful possession with documentary evidence and barred High Courts from interfering under Article 227 when statutory remedies under SARFAESI exist. The judgment reaffirms the primacy of secured creditors' rights over unsubstantiated tenancy claims. Facts Of The Case: The case involved a dispute between PNB Housing Finance Limited (Appellant) and Sh. Manoj Saha (1st Respondent) over the possession of a secured asset—a 450 sq. ft. space in Kolkata. The 1st Respondent claimed to be a t...
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SARFAESI Act’s Section 11: Supreme Court Affirms Mandatory Arbitration for Financial Institutions
11Jun By The Legal ChamberNo Comments
Supreme Court

SARFAESI Act’s Section 11: Supreme Court Affirms Mandatory Arbitration for Financial Institutions

The Supreme Court, in Bank of India vs. M/s Sri Nangli Rice Mills Pvt. Ltd., ruled that Section 11 of the SARFAESI Act is mandatory, requiring inter-se disputes between banks and financial institutions concerning secured assets to be resolved through arbitration. No explicit arbitration agreement is needed; the provision legally mandates it, thereby divesting DRT of jurisdiction in such matters. Facts Of The Case: In the case of Bank of India vs. M/s Sri Nangli Rice Mills Pvt. Ltd. & Ors., the core dispute involved the priority of charge over secured assets (stocks of paddy and rice) belonging to a common borrower, M/s Sri Nangli Rice Mills Pvt. Ltd., between two public sector banks: Bank of India (appellant) and Punjab National Bank (respondent). Both banks had extended credit facil...
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Supreme Court Says Depositors First, Banks Later in NSEL Scam Case: MPID Act Overrides SARFAESI
24May By The Legal ChamberNo Comments
Supreme Court

Supreme Court Says Depositors First, Banks Later in NSEL Scam Case: MPID Act Overrides SARFAESI

The Supreme Court ruled that the Maharashtra Protection of Investors and Depositors (MPID) Act 1999 prevails over the SARFAESI Act, 2002 and Recovery of Debts Act 1993, denying secured creditors priority over assets attached under MPID. It also held that properties attached under MPID remain outside IBC moratorium, ensuring depositor claims take precedence over insolvency proceedings. The judgment reaffirms state legislative competence under List-II (State List) and upholds federalism by preventing central laws from overriding state-enacted investor protection measures. Facts Of The Case: The case arose from the 2013 National Spot Exchange Limited (NSEL) scam, where around 13,000 investors lost approximately ₹5,600 crores due to payment defaults by trading members. NSEL, a commodit...
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