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Medica Hospitals Private Limited v. The State of West Bengal and Others

Citation

Date

Brief

REED 2023 Cal 06021

Court

High Court

Subject 

Commercial transaction – Business agreement - Complaint failed to establish "entrustment" and "dishonest misappropriation", essential elements for an offense under Section 406 IPC

June 22, 2023

Bench

Calcutta

Applicable Law

Sections 200, 202, 250, 482, Code of Criminal Procedure, 1973
Sections 433, 434, Companies Act, 1956
Sections 378, 403, 405, 406, 406, 415, 420, 425, Indian Penal Code, 1860
Section 2(n), SARFAESI Act, 2002

The complaint failed to establish "entrustment" and "dishonest misappropriation", essential elements for an offense under Section 406 IPC, and thus the proceedings were quashed.

In this high court judgment, a revision was filed to quash proceedings related to a complaint filed under Section 406 of the Indian Penal Code, 1860. The complaint alleged that a company, petitioner no.1, had cheated the complainant by not repaying a sum of Rs. 4,13,182 after a business agreement.

The petitioner argued that they had a long-standing business relationship with the complainant and had already made substantial payments, and the remaining amount claimed was unjustified. They claimed that the complaint was filed to harass them and was an abuse of the legal process.

The High Court reviewed the case and relevant legal principles. It cited precedents that emphasized the need for "entrustment" and "dishonest misappropriation" to constitute an offense under Section 406 IPC. The High Court found that there was no evidence of dishonest misappropriation or breach of trust by the petitioner. Instead, the transactions were part of a business agreement, and the essential elements for an offense under Section 406 were not present.

As a result, the High Court allowed the revision, quashed the proceedings, and disposed of all related applications. The interim order was vacated, and the judgment was to be sent to the trial court for compliance.

P. Sekar v. G. Manohar

Citation

Date

Brief

REED 2023 Mad 06011

Court

High Court

Subject 

Criminal Revision Case - Issue was whether an unsigned private complaint, lacking the complainant's and counsel's signatures, could be legally considered a complaint

June 8, 2023

Bench

Madras

Applicable Law

Sections 154, 200, 397, 401, Code of Criminal Procedure, 1973
Sections 138, 142, Negotiable Instruments Act, 1881

The High Court held that an unsigned private complaint can be cured by a subsequent sworn statement and cross-examination during trial, and also highlighted an acknowledgment deed as evidence, thus allowing the Criminal Revision Case for reevaluation by the Trial Court.

In a Criminal Revision Case, the challenge was against the dismissal of a private complaint filed under Section 138 of the Negotiable Instruments Act by lower courts. The main issue was whether an unsigned private complaint, lacking the complainant's and counsel's signatures, could be legally considered a complaint. The complaint was rejected on grounds of missing signatures and inadequate details about the advance amount and issuance of cheques.

The focus of the case was to determine if an unsigned private complaint could be entertained. The Code of Criminal Procedure, 1973 required written complaints to be signed. However, Section 142 of the Negotiable Instruments Act, despite Cr.P.C. provisions, allowed courts to take cognizance of complaints without mandating complainant signatures.

The revision petitioner's counsel argued that the lack of complainant's signature was a curable defect. The High Court found that the Magistrate had taken cognizance based not only on the complaint but also on the sworn statement of the complainant. Section 142's non obstante clause reinforced the court's view that complainant signatures weren't strictly required.

Reviewing the case records, the High Court noted that the complaint was unsigned but verified on a certain date. The Magistrate recorded the complainant's sworn statement, satisfied prima facie, and proceeded with the case. The trial followed with the complainant's cross-examination.

The High Court agreed that the unsigned complaint's defect was cured by the sworn statement and cross-examination during the trial. Regarding the source of money lent and enforceable debt, the High Court highlighted an acknowledgment deed, indicating the borrowed sum and marked as Ex. P1. The Trial Court and Appellate Court had not adequately considered Ex. P1, leading to a flawed order.

Given these factors, the High Court found the lower courts' orders erroneous and allowed the Criminal Revision Case. The matter was remanded to the Trial Court for a fresh evaluation and decisions based on merits.

Bank of India v. Abraham and Another

Citation

Date

Brief

REED 2023 DRAT Chn 06214

Court

DRAT

Subject 

Forged Demand drafts – Presented in the bank, and cleared - Recovery of amount with interest – Appeal - Appellant's negligence in honoring the forged demand drafts contributed to the loss suffered

June 8, 2023

Bench

Chennai

Applicable Law

Sections 131, 131A, Negotiable Instruments Act, 1881

The appeal was dismissed as the DRAT found no evidence to support the appellant's claims against the second respondent and concluded that the appellant's own negligence contributed to the loss suffered.

The appellant filed an appeal against the Order dated 22.07.2015 of the Debts Recovery Tribunal (DRT-II), Chennai, in Original Application (OA) 168/2015 (previously OA 267/2007 on the file of DRT-I, Chennai). The appeal was related to the recovery of Rs. 17,86,882/-, along with future interest, from the first respondent and another party.

The appellant alleged that the first respondent had forged three demand drafts and presented them to the second respondent bank, which cleared the drafts and allowed the first respondent to withdraw the amounts. The appellant further claimed that the second respondent intentionally did not disclose information about the account opened by the first respondent, and that the second respondent had not fulfilled the KYC norms. The DRT allowed the OA in favour of the appellant in an ex parte order dated 24.04.2008, but later set aside the ex parte order against the second respondent and dismissed the OA on 22.07.2015 after hearing both parties. The dismissal of the OA only applied to the second respondent, and the recovery certificate passed against the first respondent remained valid. Both parties filed written arguments and made oral submissions. The appellant argued that the claim against the second respondent fell within the definition of 'debt' and that the second respondent had not followed KYC norms. The second respondent contended that it had followed all statutory regulations, acted in good faith, and was entitled to protection as a collecting banker under the Negotiable Instruments Act, 1881.

After reviewing the materials and the impugned order, the Debts Recovery Appellate Tribunal (DRAT) found no evidence to support the appellant's claims regarding the second respondent's failure to follow KYC norms. The DRAT also noted that the appellant's negligence in honoring the forged demand drafts contributed to the loss suffered. Ultimately, the DRAT concluded that the Tribunal below was justified in dismissing the claim against the second respondent and dismissed the appeal with costs.

Mrs. Rajalakshmi and Others v. M. Balasubramanium and Others

Citation

Date

Brief

REED 2023 Mad 06010

Court

High Court

Subject 

fixed deposits - Legal dispute centered around fixed deposits that belonged to the deceased individual

June 6, 2023

Bench

Madras

Applicable Law

Section 45-ZA(2), Banking Regulation Act, 1949
Order II Rule 2, Code of Civil Procedure, 1908
Sections 19, 88, Indian Trusts Act, 1882
Section 39, Specific Relief Act, 1963
Sections 24, 37(1), 37(2), Tamil Nadu Court Fees and Suits Valuation Act, 1965

The High Court affirmed that nominees of fixed deposits do not possess absolute ownership but rather a fiduciary duty toward other legal heirs, and dismissed the Appeal accordingly.

An Original Side Appeal was lodged against an order dated September 30, 2022, issued by a learned Judge in Application No. 4664 of 2021 within C.S. No. 362 of 2021. This legal dispute centered around fixed deposits that belonged to the deceased individual, P.M. Maruthai Chettiar. The appellants, Maruthai Chettiar's nominated daughter and sons, sought to withdraw these deposits after his passing, leading to a legal conflict.

The respondents, who included Maruthai Chettiar's sons and other legal heirs, contested that the appellants, acting as nominees, held the deposits in trust for all legal heirs and should not be considered absolute owners. As a result, they filed a suit for injunction to halt the deposit withdrawals and subsequently, a suit for the partition of fixed deposits and related reliefs. The matter was presented before the High Court, where the learned Judge meticulously evaluated the Banking Regulation Act, 1949, and various Supreme Court decisions. Ultimately, the Judge ruled that the nominees were not absolute owners and had a fiduciary duty to distribute the deposits among all legal heirs.

Additionally, the Judge declared that the bar under Order II Rule 2 CPC was not applicable, since the causes of action for the prior and current suits were distinct. Furthermore, the High Court fee for the suit was determined in accordance with Section 37(2) of the Tamil Nadu Court Fees and Suits Valuation Act. In response to the respondents' requests, the Judge granted interim injunctions and approved the respective applications. The appellants contested this decision through the filing of an Original Side Appeal.

During the course of the appeal, the appellants argued that the suit was barred under Order II Rule 2 CPC and challenged the calculation of court fees. They asserted that, as nominees, they were rightful owners of the deposits. Conversely, the respondents contended that the suit was not barred and provided relevant precedents to support their stance.

The High Court diligently examined the arguments and reviewed the case materials in depth. It reiterated that the cause of action for the previous and current suits were distinct and examined the nature of the suit, ultimately finding that the court fee had been correctly assessed. Ultimately, the High Court concluded that the nominees were not absolute owners and had a fiduciary duty towards other legal heirs. Consequently, the court upheld the decision of the learned Judge and dismissed the Original Side Appeal.

Dingo Commodeal Private Limited v. AKB and Sons Reality Private Limited and Others

Citation

Date

Brief

REED 2023 Mad 06009

Court

High Court

Subject 

Suit – Filed for recovery of money based on nine promissory notes

June 5, 2023

Bench

Madras

Applicable Law

Order IV Rule 1, Order VII Rule 1, Code of Civil Procedure, 1908
Sections 44-AB, 269-SS, Income Tax Act, 1961
Sections 20, 118, Negotiable Instruments Act, 1881

The High Court found in favour of the plaintiff, concluding that they had proved by preponderance of probabilities the execution of promissory notes, the transaction's legitimacy, and the validity of income tax returns, leading to a decree for recovery of money with interest.

The plaintiff filed a suit seeking recovery of money based on nine promissory notes. The genuineness of the defendants' signatures on the promissory notes was not disputed. The defendants claimed that the notes were executed for Adeshwar Investment and not the plaintiff. They alleged the notes were handed to Adeshwar due to transactions with Naresh Sanchetti. The plaintiff produced the original property documents of the 3rd defendant, which the defendants alleged were with Adeshwar. The defendants failed to explain how the plaintiff obtained these documents.

The High Court rejected the defendants' claims that the plaintiff colluded with Adeshwar and instead found it more probable that the property documents were handed to the plaintiff as collateral. The High Court applied the presumption under Section 118 of the Negotiable Instruments Act and concluded that the plaintiff proved the execution of the promissory notes. The defendants' argument regarding different inks used on the notes was dismissed.

The defendants argued the money was paid in cash, violating Section 269 SS of the Income Tax Act and an RBI circular. The plaintiff contended that the section applies to receivers, not payers. The High Court found that while a violation might lead to tax authority action, it wouldn't invalidate the transaction under the Negotiable Instruments Act. The RBI circular was deemed inapplicable due to the transaction's timing.
The defendants claimed the plaintiff's income tax returns were unproven. However, the plaintiff's director testified and introduced these documents without objection. The High Court held that the objection, raised later, couldn't invalidate the documents' admissibility.

Based on evidence and legal principles, the High Court ruled in favour of the plaintiff on Issue Nos. 1 and 2. The plaintiff proved its case by preponderance of probabilities. The High Court ordered the defendants to pay the principal amount of Rs. 2,49,00,000/- with 12% interest from 19.06.2015 till realization. The plaintiff was awarded costs.

Punjab and Sind Bank v. Frontline Corporation Limited

Citation

Date

Brief

REED 2023 SC 04202

Court

Supreme Court

Subject 

SARFAESI Proceeding - Bar of jurisdiction in respect of a proceeding which matter may be taken to the DRT - Jurisdiction of the civil court barred in respect of matters which a DRT or an Appellate Tribunal is empowered to determine under SARFAESI Act

April 18, 2023

Bench

NA

Applicable Law

Order XXXIX Rule 1, Order XXXXIX Rule 2, Order XLIII Rule 1, Code of Civil Procedure, 1908
Sections 13(2), 13(4), 17, 18, 34, SARFAESI Act, 2002

The jurisdiction of Civil Court is excluded in matters that can be determined by the Debts Recovery Tribunal (DRT) or the Debts Recovery Appellate Tribunal (DRAT) under the SARFAESI Act, except in limited cases of alleged fraud or absurd and untenable claims by the secured creditor.

In the present case, an appeal was filed against the order of the Calcutta High Court. The dispute involves Punjab & Sind Bank (the appellant) and Frontline Corporation Ltd. (the respondent) over a property in Kolkata. The bank was a tenant in the property and had mortgaged it to the respondent. Due to default in loan repayment, the bank classified the loans as Non-Performing Assets (NPA) and issued a possession notice for the property. The respondent filed a securitisation application and a civil suit seeking specific performance of a settlement agreement between the parties.

Initially, the single judge granted an interim order restraining the bank from passing final orders on the sale of the property. However, the single judge later vacated the interim order, stating that as a secured creditor, the bank could take appropriate steps regarding the property. The respondent challenged this order before the division bench, which set aside the single judge's order and revived the interim order, citing the bank's actions based on the settlement agreement and the doctrine of promissory estoppel. The division bench restrained the bank from selling the property until the final determination of the rights of the parties.

In the Supreme Court, the bank argued that the division bench erred in reversing the single judge's order. It contended that the suit was mischievous and the discretionary relief sought by the respondent should be denied. On the other hand, the respondent argued that since the single judge found the suit maintainable, the interim relief should not have been vacated.

The Supreme Court noted that the suit sought a blanket injunction against the bank from dealing with or disposing of any part of the property. It observed that the jurisdiction of a civil court is excluded in matters that can be determined by the Debt Recovery Tribunal (DRT) or the Appellate Tribunal (DRAT) under the SARFAESI Act. The Supreme Court referred to its previous judgment in Mardia Chemicals Limited Etc v. Union of India and Others Etc , REED 2002 SC 04201, which held that the civil court's jurisdiction is barred in such matters.

The Apex Court has further held that, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages. In the present case, it cannot be said that the action of the secured creditor, i.e. the appellant is either fraudulent or that its claim is so absurd or untenable which may not require any probe whatsoever. It is further to be noted that the SARFAESI Act itself provides remedies to an aggrieved party in view of the provisions of Sections 17 and 18.

Based on these principles, the Supreme Court held that the division bench was wrong in reviving the interim order and restraining the bank from selling the property. It set aside the division bench's judgment and restored the single judge's order vacating the interim relief. The Supreme Court clarified that the civil court's jurisdiction is excluded in matters that can be determined by the DRT, and the limited scope for invoking the civil court's jurisdiction does not apply in this case.

Sachin Goyal and Another v. Rajasthan Trading Co. and Another

Citation

Date

Brief

REED 2023 P&H 03581

Court

High Court

Subject 

Dishonour of Cheque – Petition – Filed by the Petitioner to quash the complaint - pendency of proceedings under the Insolvency and Bankruptcy Code did not terminate the criminal proceedings under Section 138 of the Negotiable Instruments Act against the directors of the company

March 29, 2023

Bench

Punjab and Haryana

Applicable Law

Section 482, Code of Criminal Procedure, 1973
Sections 14, 96, Insolvency and Bankruptcy Code, 2016
Sections 138, 141, Negotiable Instruments Act, 1881

The High Court received a petition invoking the inherent jurisdiction of the Court to quash a complaint and summoning order related to a case under Section 138 of the Negotiable Instruments Act. The petitioners argued that they were no longer directors of the respondent company due to an ongoing resolution process before the National Company Law Tribunal (NCLT), and therefore, they could not be summoned in the case. They contended that the interim moratorium applied by the NCLT order prevented independent recovery and criminal proceedings against the directors. The petitioners sought the quashing of the proceedings under Section 138 of the NI Act.
The High Court considered the arguments and referred to a Supreme Court decision of Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Limited, REED 2023 SC 03569, which stated that the nature of proceedings under the Insolvency and Bankruptcy Code (IBC) and the NI Act are different and do not overlap. The High Court noted that the IBC proceedings did not include criminal proceedings, which are involved in cases under Section 138 of the NI Act. Therefore, the High Court rejected the petition and dismissed it.

The Chairman & Managing Director, City Union Bank Limited and Another v. R. Chandramohan

Citation

Date

Brief

REED 2023 SC 03003

Court

Supreme Court

Subject 

Bank Services – Deficiency in service – Burden of Proof - State Commission awarded 1.0 Lakh compensation to be paid by the bank

March 27, 2023

Bench

NA

Applicable Law

Sections 2(g), 2(1)(g), Consumer Protection Act, 1986

In the instant case, it is not disputed that three drafts were issued by an NRI from Malaysia for the purchase of three flats. Out of three, one draft was for the sum of Rs. 5 lakhs dated 28.06.1996 and two drafts were for Rs. 3 lakhs & Rs. 6 lakhs dated 18.11.1996. It is also not disputed that the two drafts in question were issued in the name of “D-Cube Construction” and not in the name of “D-Cube Constructions (P) Ltd.” The Current Account No. 3600 was in the name of “D-Cube Constructions (P) Ltd.”, whereas the Current Account No. 4160 was opened on 15.02.1997 in the name of “D-Cube Construction” by Shri R. Thulasiram, as the proprietor of his proprietary concern, when he was one of the Directors of “D-Cube Constructions (P) Ltd.” It is also not disputed that appellant no. 2- bank had received a letter dated 15.02.1997 from the “D-Cube Constructions (P) Ltd.” giving “no objection” for opening the current account in the name of “D-Cube Construction”. It is also not disputed that there were certain disputes going on between the Directors of the said company- “D-Cube Constructions (P) Ltd.”.
Under the circumstances, when the Current Account No. 4160 was opened by R. Thulasiram as the proprietor of “D-Cube Construction”, relying upon the letter dated 15.02.1997 written on behalf of the “D-Cube Constructions (P) Ltd.”, and when the disputed two drafts in question which were in the name of “D-Cube Construction”, were credited in the account of “D-Cube Construction”, it could not be said that there was any willful default or imperfection or short coming so as to term it as the deficiency in service on the part of the appellant-bank within the meaning of Section 2(g) of the said Act.
So far as the facts of the present case are concerned, even if the allegations made in the complaint are taken on their face value, then also it clearly emerges that there was no wilful fault, imperfection, shortcoming or inadequacy in the discharge of the duty on the part of the employees of the appellants’ bank, which could be termed as “deficiency in service” under Section 2(1)(g) of the said Act. As emerging from the record, some disputes were going on amongst the Directors of the Company and one of the Directors, if allegedly had committed fraud or cheating, the employees of the bank could not be held liable, if they had acted bona fide and followed the due procedure.
The proceedings before the Commission being summary in nature, the complaints involving highly disputed questions of facts or the cases involving tortious acts or criminality like fraud or cheating, could not be decided by the Forum/Commission under the said Act. The “deficiency in service”, as well settled, has to be distinguished from the criminal acts or tortious acts. There could not be any presumption with regard to the wilful fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance in service, as contemplated in Section 2(1)(g) of the Act. The burden of proving the deficiency in service would always be upon the person alleging it.
In the instant case, respondent-complainant having miserably failed to discharge his burden to prove that there was a deficiency in service on the part of the employees of the appellants-bank within the meaning of Section 2(1)(g) of the Act.
The complaint was dismissed. The impugned orders passed by the State Commission and the National Commission were therefore quashed and set aside. The appeal was allowed.

Jagdish Prasad Saboo v. IDBI Bank Limited

Citation

Date

Brief

REED 2023 Guj 03577

Court

High Court

Subject 

Willful defaulter - Petitioner challenged the order by the Wilful Defaulter Identification Committee (WDIC) - Order dated by the Wilful Defaulter Review Committee - Interim moratorium granted under Section 96 of the Insolvency and Bankruptcy Code does not apply to proceedings declaring a borrower as a willful defaulter, and the failure to supply the Forensic Audit Report does not invalidate the orders declaring the petitioner as a willful defaulter

March 27, 2023

Bench

Gujarat

Applicable Law

Sections 14, 95, 96, Insolvency and Bankruptcy Code, 2016
Section 138, Negotiable Instruments Act, 1881

In this writ petition, the petitioner challenged the order dated 12.05.2022 by the Wilful Defaulter Identification Committee (WDIC), the order dated 30.08.2022 by the Wilful Defaulter Review Committee (WDRC), and the communication dated 16.05.2022 declaring the petitioner as a "Wilful Defaulter." The petitioner, who was the director of a company called Surya Exim Ltd. (SEL), was declared a non-performing asset (NPA) by the consortium of banks, including the respondent IDBI Bank, due to inadequate cash flows and non-realization of trade receivables. An internal investigation and forensic audit were carried out, and the petitioner was issued a show-cause notice and given an opportunity of a personal hearing. Despite the petitioner's defence, the WDIC and WDRC upheld the declaration of the petitioner as a Wilful Defaulter. During the proceedings, a further communication was issued to the petitioner declaring him as a Wilful Defaulter and demanding payment.
The main issue in the case was whether the petitioner could seek shelter under the interim moratorium granted under Section 96 of the Insolvency and Bankruptcy Code (IBC). The petitioner argued that no proceedings for the recovery of debt could be initiated during the moratorium period. However, the court held that the moratorium under Section 96 of the IBC did not apply to the proceedings of declaring a borrower as a Wilful Defaulter. The court relied on previous judgments and concluded that the moratorium could not frustrate the action of declaring the petitioner as a Wilful Defaulter.
The petitioner also contended that the failure to supply the Forensic Audit Report (FAR) violated the principles of natural justice. However, the court referred to a previous decision where a similar argument was dismissed, stating that the petitioner's defence would not have been altered even if the audit reports were supplied.
The High Court rejected the petitioner's arguments and upheld the action of declaring the petitioner as a Wilful Defaulter.

State Bank of India and Others v. Rajesh Agarwal and Others

Citation

Date

Brief

REED 2023 SC 03002

Court

Supreme Court

Subject 

Bank Fraud – Borrower’s account declared NPA – Lender banks also declared borrower’s account as fraud – High Court declined to deal with the issues pertaining to the principles of natural justice and fair play - considering the fact that they were pending before High Court - High Court dismissed the writ petitions on the ground that the appellant’s account was rightly classified as fraud because the forensic audit report contained adverse findings against the appellant

March 27, 2023

Bench

NA

Applicable Law

Section 35A, Banking Regulation Act, 1949
Section 314, Bombay Municipal Act, 1888
Articles 14, 19, 19(1)(g), 21, Constitution of India
Sections 142(2A), 269-UD(1), Income Tax Act, 1961
Section 29A, Insolvency and bankruptcy Code, 2016
Section 18AA(1)(a), Industries (Development and Regulation) Act, 1951
Section 3, Reserve Bank of India Act, 1934
Clauses 2.1.1, 2.2.1(g), 3, 3.3, 8.2, 8.3, 8.3.1, 8.3.5, 8.8, 8.9, 8.9.2, 8.9.4, 8.9.5, 8.9.6, 8.11, 8.11.1, 8.12, 8.12.1, 8.12.2, 8.12.3, 8.12.5, Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016

The civil appeals arise out of a challenge to the Reserve Bank of India (Frauds Classification and Reporting by Commercial Banks and Select FIs) Directions 2016.1 Issued by the Reserve Bank of India2, these directions were challenged before different High Courts primarily on the ground that no opportunity of being heard is envisaged to borrowers before classifying their accounts as fraudulent. The High Court of Telangana has held in the impugned judgment3 that the principles of natural justice must be read into the provisions of the Master Directions on Frauds. The decision has been assailed by the RBI and lender banks through these civil appeals. In this background the court has to consider whether the principles of natural justice should be read into the provisions of the Master Directions on Frauds.
The Supreme Court noted that the principles of natural justice, particularly the rule of audi alteram partem, has to be necessarily read into the Master Directions on Frauds to save it from the vice of arbitrariness. Since the classification of an account as fraud entails serious civil consequences for the borrower, the directions must be construed reasonably by reading into them the requirement of observing the principles of natural justice.
The Supreme Court upheld the judgment of the Division Bench of the High Court of Telangana dated 10 December 2020 and set aside the judgments of the High Court of Telangana dated 22 December 2021 and 31 December 2021, and of the High Court of Gujarat dated 23 December 2021.

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