Looking at the purpose of the SARFAESI Act and reading of
section 5(4) of the Act in the light of section 35 of the said Act, it
would not be improper to hold that respondent No.1 steps slowly and
completely in the shoes of respondent No.2 and once respondent No.2
is no longer interested in the loan amount, respondent No.1 can be
substituted in their place with regard to any proceedings that arise out
of such financial assets. The view of the learned Addl. Sessions Judge,
New Delhi that the LR‟s of the complainant can pursue the complaint
on death of the complainant despite the fact that the LR‟s of the
complainant are not the payee or holder in due course. Likewise, the
respondent No.1 stands on a much better footing having an interest in
the loan amount on which the said cheque was issued and should be
allowed to substitute in place of respondent No.2, finds favour with
this Court. Otherwise also section 35 of the SARFAESI Act gives an
overriding effect over other enactments.
In the light of the aforesaid decision, I do not find any legality or
infirmity in the impugned order passed by learned Sessions Judge,
Dwarka courts, New Delhi.
IN THE HIGH COURT OF DELHI AT NEW DELHI
CRL. M.C. No.651/2012
Date of Decision: 4th July, 2014
MAN SINGH TUSARIA
versus
J M FINANCIAL ASSET RECONSTRUCTION CO.PVT. LTD.
& ANR
CORAM:
HON'BLE MR. JUSTICE VED PRAKASH VAISH
Citation; 2015ALLMR(CRI)JOURNAL 120
By way of this petition under Section 482 of the Code of
Criminal Procedure (hereinafter referred to as „Cr. P.C.‟), the petitioner
seeks setting aside of order dated 10.01.2012 passed by learned
Additional Sessions Judge, Dwarka Courts, New Delhi whereby the
criminal revision filed by the respondent herein was allowed and it was
ordered that the respondent No.1 be substituted in place of the
complainant-UCO Bank (respondent No.2) before the Trial Court and
further that respondent No.1 shall continue the proceedings of the
complaint.
2.
Briefly stated, the facts of the case as borne out from the petition
are that on 14.07.2005 the petitioner took a loan of Rs.61.15 lakhs
under UCO Rent Scheme and a tripartite agreement was signed
between the bank, petitioner and the tenant namely M/s Live Wire Call
Center Services Pvt. Ltd. under which the tenant made the repayment
directly to the bank by way of cheque. On 26.9.2005, second tripartite
agreement was signed between the respondent No.2, petitioner and the
tenant namely M/s Hindustan Auto Finance pursuant to which a loan of
Rs.1.11 crore was sanctioned to the petitioner.
After about four
months, M/s Hindustan Auto Finance vacated the premises and the
premises were occupied by M/s ICI Paint (India) Ltd. who were
making the payment of rent to respondent No.2.
Under both the
agreements, tenants directly paid the rent to the respondent No.2 upto
October, 2006. In November, 2006 the building was sealed by MCD.
In February, 2008 respondent No.2 took the symbolic possession of the
building towards the end of 2008 and the building was de-sealed by
MCD. Thereafter on 8.5.2009 the respondent No.2 took the physical
possession of the presmises. A cheque bearing No.277809 dated
10.7.2007 for Rs.3,50,625/- was obtained by the bank despite complete
knowledge of the fact that the petitioner did not have sufficient funds
in his account. The manager assured the petitioner that the cheque has
been obtained to complete the loan account formalities. Attempts were
made for the sale of the property by publication of notices in
newspapers by the bank (respondent No.2). The petitioner offered
much below the market price due to which the sale could not be
effected. Despite assurances, the cheque No.277809 dated 10.7.2007
for Rs.3,50,625/- was presented by respondent No.2, the same was
dishonoured with the remarks `insufficient funds‟. On 11.9.2007, the
respondent No.2 filed a complaint under sections 138/142 of the
Negotiable Instruments Act, 1881 (hereinafter referred to as „NI Act‟).
On 16.7.2011, the matter was adjourned to 16.8.2011 for cross-
examination of the petitioner. On 16.8.2011 adjournment was once
again allowed, subject to payment of cost of Rs.2,000/- to be deposited
by respondent no.2 and matter was renotified to 21.9.2011.
3.
On 21.9.2011, nobody appeared on behalf of respondent No.2
and an application for substitution was filed on behalf of
the
respondent No.1 alleging that the loan account of the petitioner has
been assigned by the complainant/respondent No.2 bank in favour of
respondent No.1 vide Assignment Deed dated 29.3.2011. Vide order
dated 1.11.2011, the learned Metropolitan Magistrate dismissed the
said application of respondent No.1 as not maintainable.
4.
Respondent No.1 challenged the order dated 1.11.2011 by filing
Crl. Revision 105/2011. The said appeal, however, was allowed by
learned Additional Sessions Judge, Dwarka courts, New Delhi vide
order dated 10.1.2012, which is the impugned order in the present
petition.
5.
Learned counsel for the petitioner urged that a Negotiable
Instrument cannot be transferred by assignment and only those
documents recognized by custom of trade to be transferable by
delivery or endorsement are negotiable. An assignment is a transfer or
setting over of property or of some right or interest from one person to
another. A complaint under section 138 read with 142 of the NI Act
can be filed either by a payee or holder in due course and respondent
No.1 is neither the payee nor a holder in due course. A person can
become a holder in due course in respect of a cheque only before it
becomes payable. The cheque dated 10.7.2007 was valid only for a
period of 6 months and ceased to be payable prior to the execution of
the assignment deed.
6.
Learned counsel for the petitioner further contends that the
action under the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (hereinafter referred to
as “SARFAESI Act”) is a civil action while the proceedings under the
NI Act is a criminal remedy.
The words “other proceedings of
whatever nature” under section 5 of the SARFAESI Act, 2002 would
thus cover only civil proceedings and not the proceedings under the NI
Act.
7.
It was lastly contended by learned counsel for the petitioner that
the value of the assets of the petitioner for which physical possession
was taken over on 8.5.2009 is about thrice the loan amount of Rs.1.65
crores as was standing on 24.10.2009. Thus, the petitioner cannot be
fastened with double liability.
8.
Per contra, learned counsel for the respondent No.1 urged that
the entire loan amount of the petitioner, including the liability of the
dishonored cheque has been acquired by the respondent No.1 and
therefore, as per section 5 of the SARFAESI Act, the proceedings
initiated by respondent No.2 against the petitioner can be continued by
the respondent No.1. A „holder in due course‟ is any person, who for
consideration, becomes the possessor of the promissory note/cheque.
If the bank gives debt to a company, it would be considered as a
„holder in due course‟. Thus, the respondent No.1, on transfer of all
debts against the petitioner by respondent No.2 to them become holder
in due course and are rightly entitled to pursue the complaint filed by
respondent No.2.
9.
It was further contended by the counsel for respondent No.1 that
as per section 5(4) of the SARFAESI Act, if any suit, appeal or other
proceedings of whatever nature relating to the acquired financial asset
is pending by or against the bank the same shall not abate and may be
continued, prosecuted and enforced by or against the Securitization or
Reconstruction company.
Section 5 of this Act was framed to
strengthen the principle of the lawful rights of the bank cannot be
dissipated, diminished or decimated when the assignment of rights
takes place.
10.
It was lastly contended by learned counsel for the respondent
No.1 that section 35 of the SARFAESI Act provides for the overriding
effect of this Act over other Acts and Section 31 of this Act carves out
exhaustive exceptions does not mention Negotiable Instruments Act or
the proceedings therein, as an exception to Section 35 of the
SARFAESI Act.
11.
I have given my thoughtful consideration to the submission
made by the learned counsel for the parties.
12.
The SARFAESI Act was enacted to provide a speedy and
summary remedy for recovery of thousands of crores which are due to
the bank. The Act enables the banks and the financial institutions to
realize long term assets, manage problems of liquidity, assets liability
mismatch and to improve recovery of debt by exercising powers to
take possession of securities, sell them and thereby reducing non-
performing assets by reconstruction. The SARFAESI Act empowers
banks and financial institutions to recover their non-performing assets
without the intervention of the Court by three main alternative
recovery methods namely, securitization, assets reconstruction and
enforcement of security without intervention of the court. The Act also
provides for setting up of securitization companies/reconstruction
companies which acquires the non-performing assets (NPA) from the
banks and financial institutions by raising funds from qualified
institutional buyers (as defined by the Act) by issue of security
receipts.
The Act enables securitization companies/reconstruction
company to take possession of the secured assets of the borrowers
including right to transfer and realize the secured assets.
These
companies act as a debt aggregator or agents of the banks or financial
institutions focussed in the resolution of the NPA‟s. These companies
by the imparted assets from banks and financial institutions, thereby
cleaning the balance sheets of the banks and permitting them to focus
on their normal banking business.
13.
At this juncture it is necessary to reproduce the relevant
provisions of section 5 of the SARFAESI Act, which reads as follows:-
“5. Acquisition of rights or interest in financial assets.-(1)
Notwithstanding anything contained in any agreement or any
other law for the time being in force, any securitisation
company or reconstruction company may acquire financial
assets of any bank or financial institution,—
(a) by issuing a debenture or bond or any other security in
the nature of debenture, for consideration agreed upon
between such company and the bank or financial institution,
incorporating therein such terms and conditions as may be
agreed upon between them; or
(b) by entering into an agreement with such bank or
financial institution for the transfer of such financial assets
to such company on such terms and conditions as may be
agreed upon between them.
(2) If the bank or financial institution is a lender in relation
to any financial assets acquired under sub-section (1) by the
securitisation company or the reconstruction company, such
securitisation company or reconstruction company shall, on
such acquisition, be deemed to be the lender and all the
rights of such bank or financial institution shall vest in such
company in relation to such financial assets.
(3) Unless otherwise expressly provided by this Act, all
contracts, deeds, bonds, agreements, powers-of-attorney,
grants of legal representation, permissions, approvals,
consents or no-objections under any law or otherwise and
other instruments of whatever nature which relate to the said
financial asset and which are subsisting or having effect
immediately before the acquisition of financial asset under
sub-section (1) and to which the concerned bank or financial
institution is a party or which are in favour of such bank or
financial institution shall, after the acquisition of the
financial assets, be of as full force and effect against or in
favour of the securitisation company or reconstruction
company, as the case may be, and may be enforced or acted
upon as fully and effectually as if, in the place of the said
bank or financial institution, securitisation company or
reconstruction company, as the case may be, had been a
party thereto or as if they had been issued in favour of
securitisation company or reconstruction company, as the
case may be.
(4) If, on the date of acquisition of financial asset under sub-
section (1), any suit, appeal or other proceeding of whatever
nature relating to the said financial asset is pending by or
against the bank or financial institution, save as provided in
the third proviso to sub-section (1) of section 15 of the Sick
Industrial Companies (Special Provisions) Act, 1985 (1 of
1986) the same shall not abate, or be discontinued or be, in
any way, prejudicially affected by reason of the acquisition
of financial asset by the securitisation company or
reconstruction company, as the case may be, but the suit,
appeal or other proceeding may be continued, prosecuted
and enforced by or against the securitisation company or
reconstruction company, as the case may be.
Crl.M.C. No.651/2012
Page 7 of 11
[(5) On acquisition of financial assets under sub-section (1),
the securitization company or reconstruction company, may
with the consent of the originator, file an application before
the Debts Recovery Tribunal or the Appellate Tribunal or
any court or other authority for the purpose of substitution of
its name in any pending suit, appeal or other proceedings
and on receipt of such application, such Debts Recovery
Tribunal or the Appellate Tribunal or Court or Authority
shall pass an orders for the substitution of the securitization
company or reconstruction company in such pending suit,
appeal or other proceedings.”
14. From perusal of section 5 of the SARFAESI Act it is clear that
this section empowers a securitization company or reconstruction
company to acquire the financial assets of any bank or financial
institutions notwithstanding anything contained in other laws. On
such acquisition, such securitization company is deemed to be the
lender and all the rights of such bank or financial institutions gets
vested in the company. Section 5(3) of the SARFAESI Act further
provides that all contracts, deeds etc. relating to the said financial asset
which were subsisting would get transferred in the transferee company
who would step into the shoes of assignee and would acquire all rights
with full force and effect against the defaulter. Lastly, as per sub-
section (4) of section 5 of the SARFAESI Act, any suit, appeal or
proceedings of whatever nature relating to the said financial asset
pending by or against the bank or financial institution shall not abate or
be discontinued rather, shall be continued, prosecuted and enforced by
or against the securitization company/assignee, as the case may be.
15.
In the instant case, respondent No.2, UCO Bank has assigned all
its rights, title and interest, including the financial assistance granted
to the petitioner, to the respondent No.1 by virtue of the assignment
deed dated 29.3.2011 which was duly registered before the Sub-
Registrar, Delhi. Thus by virtue of this agreement the respondent No.1
had acquired all claims and interests in the loan recoverable from the
petitioner.
Further, the respondent No.1 steps into the shoes of
respondent No.2 and becomes a lender of the financial assets in place
of UCO Bank and has all rights of respondent No.2 in relation to
financial assets which were acquired by it. The dishonoured cheque
was issued against the liabilities of the loan amount and once the said
right to deal with the financial asset gets transferred to respondent
No.1, it would be highly inappropriate to state that any liability against
the said amount would continue to vest with respondent No.2. UCO
Bank had advanced loan to the petitioner, who in discharge of their
liability had issued the cheque in question which was dishonoured. By
virtue of assignment deed, the financial interest including the recovery
of the loan would fall within the ambit of Section 5(2) of the
SARFAESI Act. Consequently, any cheque given by the petitioner to
respondent No.2 towards its discharge of liabilities would create a
financial interest of respondent No.1 in such instrument, clearly falling
under Section 5(2) of the SARFAESI Act.
16.
Further Section 35 of the SARFAESI Act provides as under :
“The provisions of this Act to override other laws.-The
provisions of this Act shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by
virtue of any such law.”
17.
A perusal of this section clearly shows that provisions of this
Act have an overriding effect with any other law. Section 5(4) of the
SARFAESI Act also provides that any suit, appeal or proceedings of
whatever nature relating to the said financial asset pending by or
against the bank or financial instrument shall not abate or discontinued
but shall be continued, prosecuted and enforced by or against the
securitization company. The contention that sub-section (4) does not
apply to criminal proceedings is apparently misconceived. Such an
interpretation would amount to addition to something not provided in
this sub-section. Further section 31 of the said Act does not include
the proceedings under the NI Act from the provisions of the
SARFAESI Act.
18.
The proceedings for dishonour of cheques under NI Act are
quasi criminal in nature giving option to the complainant to compound
the offence subject to the payment of the said amount. When the
complete loan account of borrower is taken over by the
securitization/reconstruction company, there can be no reason why the
liabilities arising out of such a loan amount and so also the proceedings
arising therefrom, cannot be transferred and why respondent No.1
cannot be substituted as a complainant in place of the bank, whose
financial interests it has acquired, even in complaint under section 138
of the NI Act, filed before agreement of assignment is entered. Once
the interest in itself stands transferred, the bank would have no interest
in prosecuting the complaint any further and if, respondent No.1 is not
allowed to be substituted in place of respondent No.2, it would have an
effect of giving an undue advantage to the scrupulous borrower.
Section 5(4) of the SARFAESI Act is wide in its ambits and the words
„other proceedings of whatever nature‟ would be wide enough to cover
the complaint proceedings under section 138 of the NI Act.
19.
Looking at the purpose of the SARFAESI Act and reading of
section 5(4) of the Act in the light of section 35 of the said Act, it
would not be improper to hold that respondent No.1 steps slowly and
completely in the shoes of respondent No.2 and once respondent No.2
is no longer interested in the loan amount, respondent No.1 can be
substituted in their place with regard to any proceedings that arise out
of such financial assets. The view of the learned Addl. Sessions Judge,
New Delhi that the LR‟s of the complainant can pursue the complaint
on death of the complainant despite the fact that the LR‟s of the
complainant are not the payee or holder in due course. Likewise, the
respondent No.1 stands on a much better footing having an interest in
the loan amount on which the said cheque was issued and should be
allowed to substitute in place of respondent No.2, finds favour with
this Court. Otherwise also section 35 of the SARFAESI Act gives an
overriding effect over other enactments.
20.
In the light of the aforesaid decision, I do not find any legality or
infirmity in the impugned order passed by learned Sessions Judge,
Dwarka courts, New Delhi.
21.
The present petition is, therefore, dismissed.
(VED PRAKASH VAISH)
JUDGE
July 4th , 2014
vld
Crl.M.C. No.651/2012
Page 11 of 11
No comments:
Post a Comment