Balkrishna Rama Tarle Dead thr LRs and Ors vs Phoenix ARC Private Limited and

Ors AIR 2022 SC 4756

FACTS
The Religare Finvest Ltd. sanctioned a loan of Rs. 6 crores in favour of the borrowers. The
said loan was secured by a registered mortgage created by borrowers in favour of Religare in
respect of the property − secured assets. The borrowers committed defaults in repayment of
the said loan which led to Religare classifying borrowers’ account as a Non− Performing
Asset (NPA). The Religare thereafter, issued a notice under Section 13(2) of the SARFAESI
Act calling upon borrowers to pay the amount then outstanding under the said facility. That
thereafter, by a Deed of Assignment, Religare assigned all its right, title, interest, and benefit
under the said loan agreement to respondent No. 1 herein – original petitioner No. 1 before
the High Court. Thus, respondent No. 1 – original petitioner No. 1 stepped into the shoes of
Religare and became the secured creditor and in that capacity issued a under Section 13(2) of
the SARFAESI Act to borrowers calling upon borrowers to make payment That thereafter,
the secured creditor took symbolic possession of the secured assets under Section 13(4) of the
SARFAESI Act., the same was intimated to the borrowers. A public notice was also issued
by the secured creditor in two newspapers in compliance with the provisions of the Security
Interest (Enforcement) Rules, 2002. That thereafter, the secured creditor filed an application
under Section 14 of the SARFAESI Act seeking assistance of designated authority –
respondent No. 3 herein – District Magistrate, Nashik, for taking physical possession of the
secured assets. The petitioner herein – original respondent No. 2 claiming to be a tenant in
respect of the ground floor plus first floor showroom along with service station on a part of
the secured assets bearing Nos. 465 and 463 sought to intervene in the said proceedings filed
under Section 14 of the SARFAESI Act.
At this stage, it is required to be noted that neither the borrower(s) nor the petitioner(s)
instituted any proceedings before the Debt Recovery Tribunal (DRT) under Section 17 of the
SARFAESI Act against the steps taken under Section 13 of the SARFAESI Act.

ISSUE
whether while exercising the powers under Section 14 of the SARFAESI Act, the District
Magistrate/designated authority could have passed such an order that unless and until the
secured creditor terminates the tenancy rights of the third person by following due procedure
of law and further orders regarding possession of the mortgaged property then and then only
an application under Section 14 of the SARFAESI Act will be decided?
ARGUMENT
petitioners has vehemently submitted that in the facts and circumstances of the case and when
the petitioners claimed to be the tenant of the original landlord with respect to some of the
secured assets of which the possession was sought and when the original writ petitioner
stepped into the shoes of the original landlord as rightly observed by the designated authority
– Additional District Magistrate unless the secured creditor who stepped into the shoes of the
original landlord initiates the legal proceedings for eviction of the tenant cannot get the
possession in an application under Section 14 of the SARFAESI Act. High Court ought to
have appreciated that the tenancy was subsisting and continuing since prior to the mortgage
of the property and therefore, their rights are to be protected and unless and until the
proceedings are initiated for eviction of the tenant, the secured creditor who will be in the
shoes of the original landlord, cannot get the possession in an application under Section 14 of
the SARFAESI Act.

JUDGEMENT
Thus, in view of the scheme of the SARFAESI Act, more particularly, Section 14 of the
SARFAESI Act and the nature of the powers to be exercised by learned Chief Metropolitan
Magistrate/learned District Magistrate, the High Court in the impugned judgment and order
has rightly observed and held that the power vested in the learned Chief Metropolitan
Magistrate/learned District Magistrate is not by way of persona designata.” Thus, the powers
exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and
Section 14 does not involve any adjudicatory process qua points raised by the borrowers
against the secured creditor taking possession of the secured assets. In that view of the matter
once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied
by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in
obtaining the possession as well as the documents related to the secured assets even with the
help of any officer subordinate to him and/or with the help of an advocate appointed as
Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the
dispute between the borrower and the secured creditor and/or between any other third party
and the secured creditor with respect to the secured assets and the aggrieved party to be
relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act,
before Debts Recovery Tribunal.

ANALYSIS
On a fair reading of Section 14 of the SARFAESI Act, it appears that for taking possession of
the secured assets in terms of Section 14(1) of the SARFAESI Act, the secured creditor is
obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a
written application requesting for taking possession of the secured assets and documents
relating thereto and for being forwarded to it (secured creditor) for further action. The
statutory obligation enjoined upon the CMM/DM is to immediately move into action after
receipt of a written application under Section 14(1) of the SARFAESI Act from the secured
creditor for that purpose. As soon as such an application is received, the CMM/DM is
expected to pass an order after verification of compliance of all formalities by the secured
creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being
satisfied in that regard, to take possession of the secured assets and documents relating
thereto and to forward the same to the secured creditor at the earliest opportunity.
Thus, considering the scheme of the SARFAESI Act, it is explicit and crystal clear that
possession of the secured assets can be taken by the secured creditor before confirmation of
sale of the secured assets as well as post− confirmation of sale. For taking possession of the
secured assets, it could be done by the “authorised officer” of the Bank as noted in Rule 8 of
the Security Interest (Enforcement) Rules, 2002.
As mandated by Section 14 of the SARFAESI Act, the CMM/DM has to act within the
stipulated time limit and pass a suitable order for the purpose of taking possession of the
secured assets within a period of 30 days from the date of application which can be extended
for such further period but not exceeding in the aggregate, sixty days. Thus, the powers
exercised by the CMM/DM is a ministerial act. He cannot brook delay. Time is of the
essence. This is the spirit of the special enactment. Section 14 does not oblige the CMM/DM
to go personally and take possession of the secured assets and documents relating thereto.
Thus, we reiterate that the step to be taken by the CMM/DM under Section 14 of the
SARFAESI Act, is a ministerial step.

SARFAESI ACT PURPOSE

“STATEMENT OF OBJECTS AND REASONS The financial sector has been one of the key
drivers in India's efforts to achieve success in rapidly developing its economy. While the
banking industry in India is progressively complying with the international prudential norms
and accounting practices there are certain areas in which the banking and financial sector do
not have a level playing field as compared to other participants in the financial markets in the
world. There is no legal provision for facilitating securitisation of financial assets of banks
and financial institutions. Further, unlike international banks, the banks and financial
institutions in India do not have power to take possession of securities and sell them. Our
existing legal framework relating to commercial transactions has not kept pace with the
changing commercial practices and financial sector reforms. This has resulted in slow pace of
recovery of defaulting loans and mounting levels of non−performing assets of banks and
financial institutions. Narasimham Committee I and II and Andhyarujina Committee
constituted by the Central Government for the purpose of examining banking sector reforms
have considered the need for changes in the legal system in respect of these areas. These
Committees, inter alia, have suggested enactment of a new legislation for securitisation and
empowering banks and financial institutions to take possession of the securities and to sell
them without the intervention of the court. Acting on these suggestions, the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002
was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of
financial assets and enforcement of security interest and for matters connected therewith or
incidental thereto. The provisions of the Ordinance would enable banks and financial
institutions to realise long−term assets, manage problem of liquidity, asset liability
mismatches and improve recovery by exercising powers to take possession of securities, sell
them and reduce nonperforming assets by adopting measures for recovery or reconstruction.”
Thus, the underlying purpose of the SARFAESI Act is to empower the financial institutions
in India to have similar powers as enjoyed by their counterparts, namely, international banks
in other countries. One such feature is to empower the financial institutions to take possession
of securities and sell them. The same has been translated into provisions falling under
Chapter III of the SARFAESI Act.

Axis Bank v. SBS Organics (P.) Ltd. [2016] 68 taxmann.com 290 (SC)

An appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘SARFAESI Act’)
before the Debt Recovery Appellate Tribunal can be entertained only if the borrower deposits
fifty per cent of the amount in terms of the order passed by the Debt Recovery Tribunal
(under Section 17 of the Act or fifty per cent of the amount due from the borrower as claimed
by the secured creditor, whichever is less. The Appellate Tribunal may reduce the amount to
twenty five per cent. What is the fate of such deposit on the disposal of the appeal is the
question arising for consideration in this case.

FACTS
The first respondent, being a borrower and aggrieved by the steps taken by the secured
creditor, filed Securitisation Application before the Debt Recovery Tribunal. Though,
initially an interim relief was granted, the same was vacated. Therefore, the first respondent
moved the Debt Recovery Appellate Tribunal, Mumbai under Section 18 of the SARFAESI
Act. In terms of the proviso under Section 18, the first respondent made a deposit of Rs.50
lakhs before the Appellate Tribunal. During the pendency of the appeal before the DRAT,
Securitisation Application itself came to be finally disposed of before the Debt Recovery
Tribunal setting aside the sale. Realising that the appeal did not survive thereafter, the first
respondent sought permission to withdraw the same and also for refund of the deposit of Rs.
50 lakhs. Permission was granted, however, making it subject to the disposal of the appeal.
As the appeal itself was being withdrawn, the first respondent moved the High Court of
Gujarat aggrieved by the observation that the withdrawal would be subject to the result of the
appeal. The same was disposed of by the learned Single Judge, setting aside the said
condition and permitting the first respondent herein to withdraw the amount unconditionally.
Aggrieved, the appellant-Bank filed an intra-Court appeal. That appeal was dismissed by a
Division Bench, and thus aggrieved, the Bank has come up in appeal before this Court.

ARGUMENT
appellant-Bank submits that the first respondent has no right to get back the deposit made by
it as a pre-condition for entertaining the appeal. The said amount has to be set off against the
dues of the first respondent, which has actually been quantified and for which, Section 13
recovery steps have been permitted. It is submitted that the appellant-Bank has to secure the
entire debt by proceeding against the secured assets, and therefore, the deposit is liable to be
appropriated by the Bank.
JUDGEMENT
the deposit made by the first respondent is liable to be returned to the first respondent.

ANALYSIS
Babu Ganesh (supra) was a case involving a challenge on the vires of the second proviso
under Section 18 of the SARFAESI Act, on the mandatory pre- deposit. While upholding the
provision, at paragraphs-5 and 6, it was observed that, in case the appeal is dismissed, the
amounts deposited for entertaining the appeal would be refunded. We are not prepared to
accept the contention that conditions imposed in the second and third proviso to Section 18(1)
of the Securitization Act are onerous in nature so as to make the right of appeal illusory. We
have also not come across any provision in the Statute, enabling the secured creditor to adjust
or appropriate the amount deposited by the borrower to prefer an appeal under Section 18(1)
of the Act.
The Act was intended to facilitate easy and faster recovery of loans advanced by banks and
financial institutions. The ordinary recovery mechanism contemplated in The Code of Civil
Procedure, 1908 was not considered sufficient. Thus, the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 was introduced for a special and speedier mechanism for
the recovery. Almost a decade of experience proved that the recovery process was not
achieving the intended objects and hence, the SARFAESI Act to regulate securitisation and
reconstruction of financial assets and enforcement of security interest was enacted. The Act
incorporates a system whereby direct action for recovery of secured debt may be initiated
against the secured assets of a borrower after the debt is declared to be a non performing asset
(NPA).
A conspectus of the aforesaid provisions shows that under the scheme of the SARFAESI Act,
a secured creditor is entitled to proceed against the borrower for the purpose of recovering his
secured debt by taking action against the secured assets, in case the borrower fails to
discharge his liability in full within the period specified in the notice issued under Section
13(2) of the Act. It is the mandate of Section 13(3) of the Act that the notice issued under
Section 13(2) should contain details of the amount payable by the borrower and also the
secured assets intended to be enforced by the secured creditor in the event of non-payment of
the dues as per Section 13(2) notice. Thus, the secured creditor is entitled to proceed only
against the secured assets mentioned in the notice under Section 13(2). However, in terms of
Section 13(11) of the Act, the secured creditor is also free to proceed first against the
guarantors or sell the pledged assets.
The Appeal under Section 18 of the Act is permissible only against the order passed by the
DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the
steps taken under Section 13(4) against the secured assets. The partial deposit before the
DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the
Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved
person has not created any security interest on such pre- deposit in favour of the secured
creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on
being rendered infructuous, in case, the appellant makes a prayer for refund of the pre-
deposit, the same has to be allowed and the pre-deposit has to be returned to the appellant,
unless the Appellate Tribunal, on the request of the secured creditor but with the consent of
the depositors, had already appropriated the pre-deposit towards the liability of the borrower,
or with the consent, had adjusted the amount towards the dues, or if there be any attachment
on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of
The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other
proceedings known to law. We are also unable to agree with the contention that the Bank has
a lien on the pre-deposit made under Section 18 of the SARFAESI Act in terms of Section
171 of The Indian Contract Act, 1872.

Kingfisher Airlines Ltd. v. Union of India [2015] 60 taxmann.com 36 (Bombay)

FACTS
Petitioner-Kingfisher Airlines Ltd. is a Company incorporated and registered under the
provisions of the Companies Act, 1956. Respondent No. 2 is a statutory body constituted
under the State Bank of India Act, 1955 and also a Government Company and “State” within
the meaning of Article 12 of the Constitution of India. Reserve Bank of India (“RBI”) issued
a Circular on 1-7-2014 giving instructions and guidelines on matters relating to Wilful
Defaulters. The Master Circular was addressed to all Scheduled Commercial Banks and All
India Notified Financial Institutions. Grievance redressal mechanism was established and the
Committee of higher Officers headed by Executive Director and consisting of two other
Senior Officers of the rank of GM/DGM was to be constituted. The Grievance Redressal
Committee was to give a hearing to the borrower if a representation had been made that he
was wrongly classified as Wilful Defaulter and thereafter decision would be taken by the
Committee. Perusal of the said Master Circular dated 1-7-2014 reveals that it does not
provide a clause for giving an opportunity to the borrower to be represented by a legal
representative. This Circular was amended on 7-1-2015 and in para 3 on grievances redressal
mechanism, it now provided that the Committee headed by Executive Director and consisting
of two other Senior Officers of the rank of GM/DGM would scrutinize the evidence of wilful
default on the part of the borrower company and if a Committee came to the conclusion that
the borrower had committed wilful default, it would then issue a show cause notice to the
concerned borrower and call for other submissions and thereafter pass an order whether the
borrower was a Wilful Defaulter or not. Para 3(b) which has amended the mechanism as laid
down in para 3 of the original circular mentioned that an opportunity would be given to the
borrower for personal hearing, if the Committee felt that such an opportunity was necessary
to be given.
In the present case, Petitioner received notice dated 19-8-2014 under the Master Circular
dated 1-7-2014 informing the Petitioner that the appropriate Committee of Respondent No. 2
had approved a purported proposal of Respondent No. 2 Bank to include the names of the
Petitioner and the proforma Respondents in the list of wilful defaulters as per the guidelines
of RBI. On 22-10-2014, Petitioner submitted their representation, requesting Respondent No.
2 to permit the Petitioner to appoint an advocate of its choice to represent the Petitioner at the
hearing before the Grievance Redressal Committee. This request was turned down by
Respondent No. 2

ISSUE
whether denial of legal representation of the Petitioner-Company through its advocate to
appear before the Redressal Grievance Committee, amounts to denial of reasonable
opportunity of defending itself and violation of principles of natural justice?

ARGUMENT
PETITIONER
where complex legal issues were involved and which would result in civil and penal
consequences to the party on adjudication by an authority, the petitioner would be entitled to
get legal assistance. He submitted that, in the present case, the Committee was supposed to
decide whether the Petitioner was guilty of wilful default. He submitted that the said
determination of the issue was not a mere fact finding exercise but also involved crucial legal
issues including the question of mens rea. He submitted that hearing before the appropriate
Committee was not merely to ascertain the facts but also to determine various legal issues.
denial of legal representation through a legal practitioner would be violative of the principles
of natural justice. He submitted that where legal representation was not expressly excluded by
necessary implication, it was open to such person to seek representation on cogent grounds.
legal representation ought to be allowed even in the absence of a person being pitted against a
legal practitioner, if a case is being handled by a trained prosecutor. section 30 of the
Advocates Act, 1961 gave a right to the advocate to appear at the hearing before GRC and
that such right was recognized under Article 19(1)(g) of the Constitution. Respondent No. 3
Committee is a quasijudicial body and had a duty to act judicially. RBI Master Circular does
not contain any prohibition clause in relation to engagement of an advocate.
amended RBI Circular was inapplicable to the notice dated 29-5-2015 since the said notice
dated 29-5-2015 issued by Respondent No. 2 was based on Master Circular of RBI dated 1-7-
2014 which did not contain express prohibition for being represented by a lawyer as provided
in amended circular which was issued on 7-1-2015. It was submitted that since initial letter
was issued on 19-8 -2014, procedure under the old Circular had to be followed.
RESPONDENT
parameters for declaration of Wilful Defaulters are fixed under the Master Circular in terms
of para 2.1. He submitted that the Identification Committee was to form an opinion on the
basis of documents and the Committee does not consist of any legal practitioner or legally
trained person. He submitted that the details set out in the show cause notice are all based on
facts and there are no legal or complex legal questions of law involved. He then submitted
that under the amended RBI Circular, only written reply was required to be given to the
Identification Committee and the personal hearing was only a matter of discretion. He further
submitted that no personal hearing as a matter of right was available to the Petitioner before
the Review Committee. He submitted that the Committee did not decide any lis between the
parties nor was it called upon to adjudicate any legal dispute involving complicated questions
of facts. He, therefore, submitted that there is no breach of principles of natural justice. He
further submitted that Committee does not determine any penalty or any offence.
He submitted that it is now well settled that in a disciplinary proceedings, employee does not
have right as such to be represented by a lawyer, unless the Presenting Officer is also a
lawyer or a person possessing special training in that connection.
JUDGEMENT
we are of the view that the Petitioner is not entitled to be represented by a lawyer and
therefore principles of natural justice will not be violated if the Petitioner is heard without
being represented by a lawyer. However, in the peculiar facts and circumstances of the case
and to avoid further delay, we permit the Petitioner to appoint an Advocate to represent the
Petitioner provided the Petitioner gives an undertaking that hearing of the matter would be
concluded in one day.

ANALYSIS
The said para 3 of the circular does not expressly exclude the representation being made by
the advocate on behalf of the borrower. The consequences of a borrower being declared as a
Wilful Defaulter are definitely adverse and the borrower would then not qualify to obtain
loan facility from the Financial Institutions. Penal action could also be taken thereafter in
accordance with the procedure laid down in Criminal Procedure Code. Under the old circular,
Grievance Redressal Committee has to arrive at a decision after giving reasons that the
borrower is a Wilful Defaulter and thereafter an opportunity is given to the borrower to make
representation against such decision. The amended RBI Circular dated 7-1-2015 makes a
slight departure in the said mechanism for identification of Wilful Defaulters. The grievance
redressal mechanism which consists of a Committee headed by the Executive Officer and two
other Senior Officers of the rank of GM/DGM has to examine the material and if it concludes
that the event of wilful default has occurred, has to issue show cause notice to the concerned
borrower to make his submissions and thereafter an opportunity of hearing has to be given to
the borrower for personal hearing, if the Committee feels that such an opportunity is
necessary. The amended Circular of 7-1-2015 therefore gives a discretion to the Committee
to decide whether personal hearing should be given or not. In the present case, relying on the
amended circular dated 7-1-2015, the Bank has now informed the Petitioner that it would not
be entitled to be represented by an advocate.
From the conspectus of cases which have been cited before us, we are of the view that there
cannot be any straight jacket formula which can decide whether a person is entitled to be
represented by an advocate and ultimately it would all depend on facts and circumstances of
each case. In the present case, both the Circulars namely Circular dated 1-7-2014 and 7-1-
2015 do not expressly provide that the borrower can be represented by a lawyer. The second
amended Circular gives a discretion to the Redressal Grievance Committee to decide whether
personal hearing should be given or not. There is no express prohibition of the borrower to be
represented by a lawyer. The purpose of the Master Circular issued by Reserve Bank of India
is to find out whether the defaulter is siphoning of funds or diverting funds and if the Bank
comes to that conclusion then it can put further restrictions on the borrowing ability of the
borrower. In that sense, there is no adjudication made by the Grievance Redressal Committee
but it makes only the assessment of facts and the conclusion is arrived at thereafter on the
basis of these facts. In the present case, Petitioner-Company owes an amount of Rs. 6,900
crores from consortium of banks. Repayment of this public money is nowhere in sight. If the
allegations in the show-cause notice issued by the Grievance Redressal Committee are correct
then it would lead to further depletion of the funds of the Petitioner-Company which would
make it impossible for consortium of Banks including Respondent No. 2-Bank to recover the
public money which has been given to the Petitioner. Taking into consideration the urgency
in the matter, in our view, therefore, the Petitioner is not entitled to be represented by a
lawyer.
Fortune Marketing (P.) Ltd. v. United Bank of India [2019] 112 taxmann.com 48 (Delhi)
TWO PETITIONS COMBINED
FACTS 1
One Virender Pratap Singh sole proprietor of Computech Orbit and Graphics Computer, \
purchased computer parts/accessories from FMPL, for which he made payment by way of
Demand Draft (‘DD’) for a sum of Rs. 8.50 lakhs drawn on United Bank of India (‘UBI’).
According to FMPL, since no dealer/business man in Delhi could have sold computer parts to
a purchaser from Bihar on the basis of a cheque, Virender Pratap Singh got the
aforementioned DD prepared in the name of FMPL directly. FMPL deposited the DD with its
bank i.e. State Bank of Saurashtra (‘SBS’), which by the time of the consideration of the
matter by the DRT had merged into State Bank of India (‘SBI’). The said DD was cleared by
UBI and credit was given in the account of the FMPL, without any doubt being raised at that
stage as to the genuineness of the DD. The goods were supplied to Virender Pratap Singh in
the name of the aforementioned two proprietors. FMPL claimed that it was surprised to
receive a telephonic call from SBS that the DD was a forged one and that it had lodged a
complaint. UBI filed OA in the DRT under Section 19 of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (‘RDDBFI Act’) praying for recovery of a sum
Rs. 14,24,640/- along with pendente lite and future interest at 18% per annum from the date
of filing of the OA till its realisation.

FACTS 2
VIL is a manufacturer and dealer of personal computers, mother boards and other computer
accessories. One of its dealers M/s Shri Sati Systems (‘SSS’) at was approached by Mr. Vijay
Pratap Singh of M/s. Computech Orbit for purchasing computers for onward sale to Pusa
Engineering College. Based on the discussions between SSS and VIL, the SSS received DD
of Rs. 7.50 lacs. SSS forwarded the said DD to VIL against the purchase order of Pusa
Engineering College received through M/s. Computech Orbit. On receiving the DD, VIL
deposited it with its bank i.e. Oriental Bank of Commerce (‘OBC’). The said DD was in turn
presented by OBC for collection to UBI and it was honoured. The proceeds upon encashment
were credited to the account of VIL. 14. 9 months after the despatch of the goods, VIL
received a call from OBC that the DD was purportedly fraudulently encashed. The claim of
VIL is that it is not a real beneficiary and even SSS is not the real beneficiary and that both
had acted diligently at every stage and that SSS had even got an FIR registered with the local
police station. OA was filed by UBI in the DRT-2 against VIL and OBC. DRT negatived the
claim on the ground that UBI had not taken steps to implead Virender Pratap Singh who had
actually done the forgery. Against the dismissal of its claim by the DRT-2, UBI filed Appeal
before the DRAT. DRAT allowed the appeal noting that the DRAT itself had upheld UBI's
claim in an identical set of circumstances.

ARGUMENT
Counsel for the Petitioners have placed extensive reliance on the judgment of learned Single
Judge of this Court in Rajesh Gupta v. Central Bank of India, (2013) 205 DLT 713, which
interpreted Section 72 of the Contract Act, 1872 and held that once the Appellant in that case
had proved receipt of the bank draft towards sale consideration and the bank had been unable
to show irregularity in the same, there was no need for the Appellant to prove that the bank
draft was genuine since its banker had made the payment thereunder. In such circumstances,
it was held that on the rule of equity enshrined in Section 72 of the Indian Contract Act, 1872
the sale could not be held to be suspect and there was no liability on the Appellant to refund
the amount to the bank.
JUDGEMENT
Consequently, the Court finds that in both cases, the DRT and the DRAT were right in
finding that UBI was entitled to recover the aforementioned sums claimed against the two
Petitioners.

ANALYSIS
The Court is unable to accept the line of reasoning adopted by the learned Single Judge in
Rajesh Gupta (supra). The facts set out in the said judgment do not clearly state what was
done with the stolen/lost bank draft leaf, which was used to prepare the draft that was
ultimately presented for payment. In any event, if it indeed was a stolen leaf on which
signatures of bank officials were forged to prepare the DD, then that clearly was not a valid
instrument and could not have been honoured. The judgment makes no reference to Section
118 of the Negotiable Instruments Act, 1881, which in the circumstances shifts the burden of
proof to the person who has accepted such instrument in due course and acting upon it.
Consequently, this Court is not persuaded that Section 72 of the Contract Act, 1872 or the
priciples of equity can be invoked in such circumstances.
The fact of the matter is that in both FMPL and VIL had acted on demand drafts which were
prepared on stolen draft leaves, and in respect of which, an FIR was lodged by UBI and on
the basis of which a charge-sheet has also been prepared by the police and filed in the
concerned Court. It shows that in both instances the bank drafts were fraudulently prepared
on stolen bank draft leaves. These were not valid instruments and could not have resulted in
any valid credit being made in the accounts of either VIL or FMPL. The Bank i.e. UBI was
simply not liable to honour such DDs. It transpires from the charge-sheet that this was an
inter-state fraud committed by an organised gang and not in respect of just the two DDs in
question, but several others which were fraudulently used for making payments.
Counsel for the Petitioners have no answer to the query posed by Court as to whether if the
payment had been made by using fake currency, which both Petitioners accepted bonafide,
any valid credit could have been given in their accounts by the respective bankers, who may
have accepted such currency without checking them first. The answer had to be in the
negative. A fake currency, even if acted upon bonafide and given credit, could not have
resulted in such credit being continued once the fraud was discovered. The principle can be
no different in the instant case.

Noor Mohammad v. Khurram Pasha

FACTS
A cheque in the sum of Rs.7,00,000/- was drawn by the Appellant in favour of the
Respondent towards repayment of hand loan received by the Appellant from the Respondent.
Said cheque was presented for encashment but was dishonoured on account of “insufficient
funds”. Statutory notice was issued by the Respondent to the Appellant. However, the
Appellant failed to repay the amount to the Respondent. Consequently, the Appellant was
guilty of offence punishable under Section 138 of the Act. An order was passed by the Trial
Court directing the Appellant to deposit 20% of the cheque amount as interim compensation
in terms of Section 143(A) of the Act within 60 days. The period so granted, got over and on
the request of the Appellant further extension of 30 days was granted; but no deposit was
made by the Appellant. When the matter was taken-up for examination of witnesses, an
application was made on behalf of the Appellant under Section 145(2) of the Act seeking
permission to cross-examine the Respondent. In view of his failure to deposit the interim
compensation as directed, the application preferred by the Appellant was found to be not
maintainable and was dismissed by the Trial Court which found him guilty of the offence.

ISSUE
Whether appellant can be granted the right to cross-examine?

ARGUMENT
APPELLANT
in case the order of interim compensation as directed in terms of Section 143A of the Act is
not complied with, the amount can be recovered in terms of Sub-Section 5 of said Section
143A as if it were a fine under Section 421 of the Code, but it would not be within the
competence of the court to deprive an accused of his right to cross- examine a witness; the
denial of such right resulted in great prejudice to the Appellant and as such, the judgments
and orders passed by the courts below suffered from illegality and are required to be set
aside.
RESPONDENT
the orders passed by the courts below were consistent with the mandate of Section 143A and
the right to cross- examine was rightly closed by the courts below.
JUDGEMENT
Since the right to cross-examine the respondent was denied to the Appellant, the decisions
rendered by the courts below suffer from an inherent infirmity and illegality.

ANALYSIS
After empowering the court to pass an order directing the accused to pay interim
compensation under Sub-Section 1 of Section 143A, Sub-Section 2 then mandates that such
interim compensation should not exceed 20 per cent of the amount of the cheque. The period
within which the interim compensation must be paid is stipulated in Sub-Section 3, while
Sub-Section 4 deals with situations where the drawer of the cheque is acquitted. Said Sub-
Section 4 contemplates repayment of interim compensation along with interest as stipulated.
Sub-Section 5 of said Section 143A then states “the interim compensation payable under this
Section can be recovered as if it were a fine”. The expression interim compensation is one
which is “payable under this Section” and would thus take within its sweep the interim
compensation directed to be paid under Sub-Section 1 of said Section 143A.
It is well known principle that if a statute prescribes a method or modality for exercise of
power, by necessary implication, the other methods of performance are not acceptable.
The concerned provision nowhere contemplates that an accused who had failed to deposit
interim compensation could be fastened with any other disability including denial of right to
cross-examine the witnesses examined on behalf of the complainant. Any such order
foreclosing the right would not be within the powers conferred upon the court and would, as a
matter of fact, go well beyond the permissible exercise of power