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An expression from Aristotle translated into Latin: nemo censetur ignorare legem (nobody is thought to be ignorant of the law) or ignorantia iuris nocet (not knowing the law is harmful).

Ignorantia juris non excusat or ignorantia legis neminem excusat (Latin for “ignorance of the law excuses not” and “ignorance of law excuses no one” respectively) is a legal principle holding that a person who is unaware of a law may not escape liability for violating that law merely because one was unaware of its content.

Right to Bail – How Is Bail Determined

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Right to Bail – How Is Bail Determined

Although there is a right to bail  to every accused, the term bail is not defined under CrPC. In this article I shall endeavor to analyze various provisions pertaining to Right to Bail and how is bail determined under the provisions of CrPC. To begin with, bail is a kind of security which is given by the accused to the court that he will attend the proceedings against the accusations made upon him and include personal bond and bail bond. Bail is a mechanism used to ensure that the accused is present before the court.

Right to Bail Laws - How Is Bail Determined

Right to Bail – How Is Bail Determined

The two authorities that can grant bail are police and courts.

The basic and fundamental object of bail is to ensure the attendance of accused at the trial before court. The sections from 436 to section 450 deal with the provisions of bail. The process of bail takes place while the trial of the accused person is still pending. Generally, a person seeks this option in order to get himself released from the police custody. The process of bail is a legitimate process.

Chapter 33 – Provisions As To Bail And Bonds

Section 436 – In what cases bail to be taken

Section 436A – Maximum period for which an under trial prisoner can be detained

Section 437 – When bail may be taken in case of non-bailable offence

Section 437A – Bail to require accused to appear before next appellate Court

Section 438 – Direction for grant of bail to person apprehending arrest

Section 439 – Special powers of High Court or Court of Session regarding bail

Section 440 – Amount of bond and reduction thereof

Section 441 – Bond of accused and sureties

Section 441A – Declaration by sureties

Section 442 – Discharge from custody

Section 443 – Power to order sufficient bail when that first taken is insufficient

Section 444 – Discharge of sureties

Section 445 – Deposit instead of recognizance

Section 446 – Procedure when bond has been forfeited

Section 446A – Cancellation of bond and bail bond

Section 447 – Procedure in case of insolvency or death of surety or when a bond is forfeited

Section 448 – Bond required from minor

Section 449 – Appeal from orders under section 446

Section 450 – Power to direct levy of amount due on certain recognizances

Bail when and when not to be granted:

The code of criminal procedure, 1973 has defined the term bailable offence by stating that an offence which is shown as bailable in the first schedule, or which is made bailable by any other law for the time being in force; and the term non-bailable offence states the meaning that any other offence other than bailable offence. The distinction between bailable and non-bailable offences is based on the gravity of the offence, danger of accused absconding, tampering of evidence, previous conduct, health, age and sex of the accused person. Though the schedule for classification of offences as bailable or non bailable is provided in Crpc; however, it is mostly the offences which are punishable with imprisonment for not less than three years that are classified as non-bailable.

The purpose of bail is to ensure the appearance of the accused before the court whenever required but in certain cases, granting bail is not required. The basic rules of grant or denial of bail may simply be summarized as:

  1. There are only two kinds of offences bailable and non bailable offences
  2. In case of bailable offences section 436 CRPC it is the right of the accused to demand and be granted bail.
  3. The certain basic criteria while exercising his judicial discretion for grant or denial of bail in case of non bailable offences has been laid down in section 437 CrPc in the cases related to non-bailable offences. Some of these criteria include the nature of offence, past criminal records and probability of guilt.
  4. Section 438 CRPC deals with anticipatory bail in cases where there is an apprehension to arrest.
  5. There are other factors also which are to be kept in mind by the hon’ble court before granting of bail like the possibility of threatening a witness, possibility of evidence being tampered etc.

Bail by Police

The Police Officer power, to release a person on bail who has been accused of an offence and is in his custody, is categorized under the two heads:

  1. When without any warrant the arrest is made and;
  2. When with the issuance of warrant the arrest is made .

The Power to grant bail by police has been conferred upon them by the virtue of the following sections:

  1. Sections 42, 43, 56, 59, 169, 170, 436, 437 and Schedule I Column 5 of the Code.
  2. The powers of police to grant bail under head are controlled by directions endorsed under Section 71 of the Code. It is under Section 81 of the Code however, which empowers the police officer to grant bail when the person arrested or produced before him has been accused of the commission of a bailable offence even when no direction to such effect has been given in the warrant. In case of non- bailable offence the endorsement on the warrant has to be strictly followed. Endorsement on warrant however should be by name.

Bail when arrest made without warrant

  1. Bail under section 42 Cr. P.C.: Section 42 Cr. P.C. 1973 can be invoked when the offender refuses to give name and address or gives a name and address which the police officer considers to be false. If those particulars are within the knowledge of the police officer, neither the question of arrest nor the question of bail will arise. As soon as name and address has been ascertained the police officer cannot detain him, if he is willing to execute the necessary bonds. The power to arrest and to release on bail can be exercised by any Police Officer not necessarily by an officer-in-charge of the Police station because this section has been enacted to provide for a particular non cognizable offence does not put any restrictions on the power of a Police Officer to enlarge a person on bail after the correct name and residence have been ascertained.
  2. Bail under section 43 Cr. P.C.: The Code of Criminal Procedure provides for the arrest of a private person also though his powers of arrest are very limited. After the arrest has been made the arrested person should be, without unnecessary delay handed over to a police officer, or in his absence, be brought to the nearest police station. The question of bail will depend upon what opinion the police officer forms about the person brought before him. If there is no sufficient ground to believe that the arrested person has committed any offence, he shall at once be released. If there is reason to believe that such person comes under the provisions of section 41, a police officer shall re-arrest him and then the normal procedure of investigation, determination of the question whether a non-bailable case is made out or not and the desirability of release on bail etc. will arise. If there is reason to believe that he has committed a non-cognizable offence he shall be released as soon as his name and residence have been ascertained as provided under section 42 Criminal Procedure Code. A chowkidar, not being a police officer is not entitled to receive a person arrested under this section. But where a chowkidar is a police officer as under the Chota Nagpur Rural Police Act, (Act I of 1914) he can received a person arrested under section 59, Criminal Procedure Code (old) and detain him in custody.
  3. Bail under sections 56, 57 and 59 Cr. P.C.: Section 56 mandates that a police officer affecting an arrest without warrant must take or send the offender arrested, before a magistrate having jurisdiction in the case of before the officer in charge of a police station. But in section 56, there is an inbuilt provision authorizing police officer to admit the arrested offender to bail, but power of the police officer is subject to the provisions herein contained as to bail. Section 56 of the new Code corresponds to section 60 of the old Code. Section 57 provides that person arrested not to be detained more than twenty four hours. The intention of the legislature is that an accused person should be brought before a Magistrate competent to try or commit with as little delay as possible. Section 57 is pointer to the intendment to uphold liberty and to restrict to the minimum curtailment of liberty. It has been stated in Section 59 of the Code that any person who has been arrested by a police officer shall be discharged only by his own bond, or on bail, or under special order of a magistrate.
  4. Bail under section 169 Cr. P.C.: The section refers to the grant of bail not at the start but only on the making of an investigation under Chapter XII of the Code. Till then bail is not authorized under the provisions of this section. The power to release on bail a person in custody vests in the officer in charge of the police station or the police officer making the investigation. An officer-in-charge of the Police Station or an investigating officer cannot release a person on bail if he has appeared as an accused before the magistrate on the basis of a complaint in respect of the incident which the police is also investigating. If the officer in charge of the police station on the investigating officer takes a bond from the accused for his appearance before the police it is void ab initio. The admission to bail, therefore, is only a provisional arrangement and the magistrate may either discharge the bond in order the re-arrest of the accused. The powers of an officer in charge of the police station on the investigating officer to admit a person to bail are not hampered by the nature of offence of which he is accused.
  5. Bail under section 170 Cr. P.C. : Under this section the authority to grant bail accrues to an officer in charge of the police station, “if the offence is bailable”. It is submitted that a station officer is empowered to grant bail if investigation has disclosed the offence to be bailable and it is immaterial what the initial accusation against him was. Under the imperative provisions of section 170, therefore, an officer in charge of the police station has either to forward the accused in custody or if the offence is bailable or on investigation found to be bailable, to accept bail for his appearance before a magistrate, he cannot entertain an application for the withdrawal of a complaint and, therefore, he cannot be discharged an accused.
  6. Bail under section 437 Cr. P.C.: The power to release on bail a person accused of a non-bailable offence is conferred upon only one class of police officers, namely an officer-in-charge of the Police Station under section 437 sub Section (I). When an officer in charge admits an accused to bail, it is mandatory for him to record the reasons or special reasons in the case diary and preserve the bail bonds until they are discharged either by the appearance of the accused in court or by the order of a competent court. For the purpose of bail in non-bailable offence, the Legislature has classified them under two heads: (1) those which are punishable with death or imprisonment for life; (2) those which are not so punishable. The age or sex or sickness or infirmity of the accused cannot be considered by a police officer for the purpose of granting bail. These matters may be taken in view by a court only. An officer in-charge of the police station may grant bail only when there are no reasonable grounds for believing that the accused has committed a non-bailable offence or when the non-bailable offence complained of is not punishable with death or life imprisonment.

Bail by Police when arrest made in pursuance of warrant

The relevant provisions of Code of Procedure in connection with above heading are confined in section 71 and 81 of Criminal Procedure Code.

  1. Bail under section 71 Cr. P.C.: The relevant provisions of Code of Procedure in connection with above heading are confined in section 71 and 81 of Criminal Procedure Code. It is a matter entirely at the discretion of the court issuing a warrant under this section to give a direction for the release of the arrested person on bail or not. Even in bailable offence, a court may not give such direction. In the case of Lachhmi Narain Vs. Emperor, the above has been stated.  When a person who is to be arrested is not arrested until the date on which he has to attend the court, the direction regarding the taking of bail lapses.
  2. Bail under section 80 & 81 Cr. P.C. : When a warrant of arrest is executed outside the district in which it was issued any police officer who is not a District Superintendent of police or the Commissioner of Police may release an arrested person according to the directions contained in the endorsement. But a District Superintendent of Police, the Commissioner of Police in presidency town with in the local limits of whose jurisdiction the arrest was made shall release on bail the arrested person, if the offence is bailable and such person is ready and willing to give bail to their satisfaction.

A police officer cannot release a person on bail simply because the arrested person is accused of a bailable offence. He has to comply strictly with the contents of the endorsement if any.

Bail to Lunatics :

Section 330, Cr. P.C. Bail cannot be claimed as a matter of right for persons of unsound mind. Courts have been vested with great powers and wide discretion in the matter of grant or refusal of bail. A Magistrate may release a person of unsound mind on bail even though he is charged of an offence of the most heinous type and may refuse bail in bailable case if he is of the opinion that bail should not be allowed.

An accused of unsound mind may be released on security, irrespective of the offence with which he is charged not only on the finding by the court that the accused is of unsound mind, but also prior to such finding, during the pendency of the inquiry into his state of mind [section 328 (2)]

Bail for Contempt in presence of Court under section 346 of Cr. P.C.

When an offence, as is described in section 175, Section 178, 179, 180 or 228 of I.P.C. is committed in the view or presence of a Criminal Court and that court, instead of proceeding under section 345, Cr.P.C., considers that the person accused of any of the offences referred to above should be imprisoned otherwise than in default of fine, or that a fine exceeding two hundred rupees should be imposed upon him, then the court after it has recorded the facts constituting the offence and the statement of the accused, may forward the case to a Magistrate having jurisdiction to try the same, and for the appearance of such accused person may require security to be given before such Magistrate or shall forward such person in custody to such Magistrate in case sufficient security is not given under this section as under the provisions of section 340, the person complained against has not to apply for bail to the court. It is the discretion of the court forwarding the complaint either to ensure the attendance of the accused by demanding a security for his appearance before the transferee Magistrate or it may just inform the accused of the date on which he has to appear before that court. He cannot be taken in custody merely because he has not applied for bail. He can be taken in custody if security is demanded from him and he does not give sufficient security.

Bail to First offender under section 360, Cr. P.C.

Sub-section (1) of section 360, Criminal Procedure Code, deals with the power of a court or a Magistrate of the second class specially empowered by the State Government in this behalf, to release a convicted offender on his entering into a bond, with or without sureties, to appear and receive sentence when called upon during such period (not exceeding three years) as the Magistrate may direct, and in the mean time to keep the peace and be of good behaviour. The Magistrate thus has discretion either to punish the offender with imprisonment or release him on probation of good conduct.

Basic Rule

India is a democratic country and the basic concept of democracy is that every individual must have personal liberty and freedom. It is the basic right of an individual which is protected by the state. Thus the concept of bail and personal liberty goes hand in hand and therefore every individual including the accused person has the right to seek bail in order to get himself released from custody until and unless proven guilty by a court of law. As enshrined under Article 21 of the Indian Constitution that the life and personal liberty of a person can’t be deprived except by the procedures laid down by the law.

Object

The basic goal behind arresting and detaining a person behind the jail is that when the accused is required by the court during the trial he must appear in court for the trial. The process of bail is a complex mechanism, it is considered to be very delicate and conflicting at the same time. The reason it is very delicate is that an accused seeks for bail when the trial is pending in the court and it can’t be said that the accused is innocent or culprit. Sometimes when the bail is not granted to the accused person it may curtail the liberty of the innocent accused or while granting bail may result in giving extra-liberty and freedom to the actual culprit.

It is a comprehensive statement used in general that an accused person may escape his crimes but an innocent shall not pay the price of some other person’s deed. Based on this ideology the code of criminal procedure has bifurcated the offences into two categories.

Cases in which bail to be taken (section 436 of CR.PC)

In this case, if a person who is not guilty of any non-bailable offence and gets arrested without a warrant by the police authority and is prepared to give bail, then it is the duty of the police authorities to release him. The person arrested may be released on the bond without submitting any sureties.

Appealability of the order (section 439 of the code)

Section 439 of the code states that any orders passed under section 436 of the code shall be appealable.

  1.   The order made by the magistrate to the session’s judge is appealable.
  2.   In case when the court of sessions passes an order to the court where an appeal lies from an order made by such court.

Investigation incomplete (section 167 of the code)

Under section 57 of the code states that a person arrested or taken into custody has to be released after 24 hours. Within those 24 hours, he has to be presented before the magistrate with a notice. The period of 24 hours can be extended if the investigation regarding the offence or crime committed has not been completed. Section 167 states that in order to extend the period of 24 hours for the purpose of investigation prior order has to be obtained from the magistrate. If the investigation is not completed the person arrested or detained shall be released. The period of detention shall not exceed 90 days (in case where the offence is punishable with the death penalty or life imprisonment) and 60 days (in case where the offence is punishable for a term less than ten years).

The maximum period for which an under-trial prisoner can be detained (section 436-A of the code)

Under section 436 A of the code states that the detention period for an undertrial prisoner other than the one who is accused of the criminal offences punishable with death or life imprisonment shall be released from detention if the person has been detained for one half of the maximum sentence provided for the offence committed by him.

When may bail be taken in case of non-bailable offences (section 437 of the code)?

It depends upon the discretion of the court or the police officials that they may release the person arrested for non-bailable offences until and unless there exists any reasonable grounds or apprehension that person arrested has committed any crime and is not guilty of any criminal liabilities which is punishable with life imprisonment or the death penalty.

Bail to require accused to appear before the next appellate court (section 437 A of the code)

Under section 437A of the code, it has been stated that in order to appear in the higher court as and when the higher court issues the notice against the judgment of the court it becomes mandatory for the trial court or the appellate court which requires the accused to execute the bail bond with sureties.

What do you mean by the Anticipatory Bail?

Under section 438 of the code, it has been stated that the term anticipatory bail can be understood through the expression anticipatory. Anticipatory bail is the bail granted by the court in anticipation of the arrest. When this bail is granted to a person it ensures that in case if the person is arrested in the near future then such person shall be released on this anticipatory bail. No questions can be raised on the release unless the person executing this bail is arrested and therefore it totally depends upon the arrest that the order granting such bail becomes operative.

The following provision of section 438 of the code was recommended by the law commission. On its 48th report, they expressed their observations regarding the provision of anticipatory bail and stated that such provision is a useful addition to the code but it should be used in extraordinary or exceptional cases only.

Section 438 of the code runs as follows:

When any person having the reasonable apprehension that he may be accused of committing the offence of non-bailable nature then such person can apply for anticipatory bail in the high court or the sessions court. The role of the court having competent jurisdiction shall give him direction under section 438 of the code that during the time when he gets arrested he shall be released on bail after taking into consideration the following conditions shall accept or reject the application filed for anticipatory bail by the person getting arrested.

Following are the factors:

  • The accusation made shall be grave and serious
  • Likelihood of the applicant to flee or abscond from justice
  • When the accusation is made with the intention of humiliating or injuring the person by making him arrested through that accusation.

Conditions under section 438 of the code involve the following things.

  • The applicant filing for the anticipatory bail shall have the reasonable apprehension of getting arrested
  • The arrest of such person shall be in respect of the accusation of him committing non-bailable offence or cognizable offence and the courts having competent jurisdiction shall direct that in the event of the arrest the person shall be released.

Following conditions are imposed on the person seeking the anticipatory bail by the courts having competent jurisdiction

  • It is the duty of the person to appear or make himself available whenever required by the police officials for the investigation.
  • He must not induce or threat for dissuading him from disclosing facts of the case.
  • The applicant shall not go outside the territory of India without taking the prior permission of the court.
  • Or if the following conditions stated in point one and two are fulfilled and such person is ready to give bail, he should be released from custody subject.

Distinction between Bail and the anticipatory bail

Under section 437 of the code, it has been stated that a regular bail is available and granted to a person after the arrest when he is in the judicial or police custody,  however in the case of an anticipatory bail is available to a person before the arrest or if the person has reasonable apprehension of arrest.

Post-Conviction and Pre-Appeal Bail under section 389 Cr. P.C. :

The section contemplates post-conviction and pre-appeal period. Pending an appeal against conviction appellate Court may release the convict on bail and High Court can exercise this power when appeal lies to Sessions Court. So far as the court convicting the accused is concerned, the court is bond to admit the accused to bail pending order passed by appellate court or High Court when (a) the accused was already on bail and has been sentenced to imprisonment for a term not exceeding three years; or (b) when the offence was a bailable one. Even on fulfilment of the condition court on convicting the accused may refuse bail if there exists a special reason. Under this section an intention to present an appeal on the part of the convicted person is sufficient reason to justify the release of a convicted person on bail. It may further be noted that an order of bail under this section is for a limited period only and is applicable only to “convicted” persons and not to those who are bound over.

Bail while making reference under section 395 Cr. P.C. :

When a Magistrate makes a reference under section 395, CrPC, to the High Court for its opinion on the validity or otherwise of any act, Ordinance or Regulation or under any other section of this act, he may then in such case, pending the High Court’s decision, either commit the accused to jail or release him on bail to appear when called upon. The Magistrate will exercise his discretion in favour of the accused or against him according to the seriousness of the charge and severity of punishment provided in that act, Ordinance or Regulation.

Bail During Revision Under Section 397 Cr. P.C. :

The Sessions Court and the High Court in exercise of revisional power can call for records of inferior courts for the purpose of satisfying himself as to the correctness, legality or propriety of any finding, sentence or order recorded or passed and as to the regularity of any proceedings of such inferior court. When such revisional Court calls for the record of an inferior Court, he may direct that the execution of the sentence or order be suspended and, in case the accused is in confinement, then he may be released either on bail or on his own bond pending the examination of the record.

Bail under Section 437 Cr. P. C. Section 437:

It deals with bail in bailable offences. Grant of bail is a rule whereas refusal in this context is an exception. A person accused of bailable offence has the right to be released on bail. Bail in cases of bailable offences is compulsory bail. It is a discretionary option to grant a bail to a person accused of bailable offence. When a person who is suspected of committing a bailable offence is produced before a Magistrate and he is prepared to give bail, Magistrate has to release him on bail without having any other option.

Bail for non-bailable Offence: Under Section 437 Cr. P. C.:

The provisions of section 437 empower two authorities to consider the question of bail, namely-

  1. a “court” which includes a High Court and a Court of Session, and
  2. an officer-in-charge of the police station who has arrested or detained without warrant a person accused or suspected of the commission of a non-bailable offence. Although this section deals with the power or discretion of a court as well as a police officer in charge of police station to grant bail in non- bailable offences it has also laid down certain restrictions on the power of a police officer to grant bail and certain rights of an accused person to obtain bail when he is being tried by a Magistrate.

Section 437, Criminal Procedure Code, deals with the powers of the trial court and of the Magistrate to whom the offender is produced by the police or the accused surrenders or appears, to grant or refuse bail to person accused of, or suspected of the commission of any non-bailable offence.

Criteria for Judicial Discretion to Grant or Refuse Bail

This judicial discretion has to answer one of the most important fundamental rights guaranteed under Article 21 of the Constitution, namely, personal liberty. Grant of bail may he gifting personal liberty to a person who has been arrested or who is anticipating an imminent arrest. On the other hand, refusal of bail implies sending that person to jail, or to police custody, as the case may be, and thereby depriving that person of his personal liberty.

In fact, the question of “bail or jail?” has a bearing not only on the individual concerned but also on the society in general, for, an innocent person sent to jail may not augur well for a just society whereas a dangerous and hardened criminal released on bail can do more harm to the society by way of destroying the evidence, threatening the witnesses, evading the judicial process or may be by committing more offences. The importance of this judicial discretion cannot therefore be understated.

Frequently Asked Questions:

  1. When can a bail be denied?
    1. As per section 436 (2), if a person has violated the conditions of the bail bond earlier, the court may refuse to release him on bail, on a subsequent occasion in the same case. He can also be asked to pay penalty for not appearing before the court in the proceedings against him
    2. It is clear that the provisions related to bail in case of non-bailable offences gives a discretionary power to the police and to the court. However the power is not without any restraint. Section 437 disallows to be given bail under following conditions:
      • If it appears there is a reasonable ground for believing that he has committed an offence punishable with life imprisonment or death.
      • If such offence is cognizable and the person has been previously been convicted of an offence with death or life imprisonment
  2. Is cancellation of bail possible?
    • Although there was no provision for cancellation of bail but in Talib’s case (AIR 1958) it has been held by the hon’able court that the absence of such provision not as a lacuna but as a recognized power of high court for cancellation of bail. According to section 437 (5), any court which has released a person on bail may direct a person to be arrested or put into custody. Section 439 CRPC also grants power to the high court and the courts of session to cancel the bail and put the person into custody.
  3. Can a bail be refused in cases of bailable offences?
    • Section 436 (2) of chapter 38 of Crpc has empowered the court for denial of bail in   cases of bailable offences if the accused fails to comply with the conditions of bail bonds.

Appeals before the High Court

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Appeals before the High Court:

The High Court has appellate jurisdiction over both civil and criminal cases. There is a hierarchy of Civil and Criminal Courts in every state subordinate to their respective High Courts to administer civil and criminal law disputes.  It can hear appeal on civil cases tried by the Courts of Munsifs and District Judges. In criminal cases, the jurisdiction extends to cases tried by the Sessions and Additional Sessions Judges. The Courts in hierarchy below to High Courts are called as Trial Courts. Appeals before the High Court

Appeals before the High Court

In what cases an Appeal lies before the High Court?

Right of appeal is a creature of the statute and it is for the legislature to decide whether the right of appeal should be unconditionally given to an aggrieved party or it should be conditionally given. The right to appeal which is a statutory right can be conditional or qualified.[1] So it is the statutory provision which shall determine where an appeal shall lie and whether it shall lie before High Court or any other forum. Further that, right to appeal is neither an absolute right nor an ingredient of natural justice the principles of which must be followed in all judicial and quasi-judicial adjudications.[2] The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant.[3]

Statutory Appeals that lie before High Court :

  • Section 389 of the Code of Criminal Procedure, 1973
  • First Appeal: Sections 96 to 99A; 107 to 108 & Order 41 of the Code of Civil Procedure, 1908
  • Second Appeal: Section 100 of Code of Civil Procedure
  • Section 260A of the Income-Tax Act, 1961
  • Section 173 of Motor Vehicles Act
  • Section 130 of the Customs Act, 1962.

(List is not exhaustive)

APPEALS BEFORE HIGH COURT IN CRIMINAL MATTERS:

An appeal can be filed against the decision of a Session Judge if the accused has been sentenced for 7 years or more. Capital punishment given by a sessions judge cannot be executed unless it is confirmed by the High Court.

APPEALS BEFORE HIGH COURT IN CIVIL MATTERS:

Appeals arising out of Civil matters are called as Civil Appeals. The Civil Appeals are basically governed by Code of Civil Procedure. Further the High Court may also frame rules and procedures for conducting Civil Appeals. Appeals could be filed either against an order or Judgment.

SECOND APPEAL BEFORE HIGH COURT:

The decree/judgment passed by any appellate Civil Court in the first appeal can be challenged by way of a second appeal before the High Court. If the case involves a substantial question of law, the second appeal can be filed even against an ex parte decree/judgment of the first appellate court.

NO APPEAL:

No appeal can be filed against a decree/judgment which has been passed by the court with the consent of the parties. Again, no appeal can be filed, except on a question of law, from a decree in any suit of the courts of small causes, when the value of the subject matter of the suit is less than Rs. 3000/-.

Furthermore, where a decree/judgment is passed by a single judge of the High Court in second appeal, the said decree/judgment is not appealable.

Further, that 42nd Amendment, 1976 disallowed the High Court to hear appeals against Tribunals and the decisions of various Corporations established under the law of the state. But this restriction on the High Court’s appellate jurisdiction was removed by the 43rd Amendment.

GROUNDS OF APPEAL:

The basis of an appeal must be a reversible error in the application of the law, or appreciation of fact, at the trial court level (i.e., based on the facts, the court clearly misapplied the law). In criminal cases, an appeal can target the conviction itself or just the sentencing portion of the decision without regard to the underlying conviction.  An appeal may be filed only after a final judgment or order has been reached by the trial court.

  1. A judgment/decree can be challenged in the first appeal on varied grounds both on basis of facts of the case and as well the legal interpretation of various legal provisions involved.
  2. For instance a party may raise objections as regards the territorial and pecuniary competence of a court passing the challenged judgment and decree.
  3. If there has been a failure of justice on account of such incompetence.
  4. Equally, in case all the necessary parties were not joined in the original suit, a challenge to the judgment decree of such a court can be maintained.
  5. An appeal may be as well to challenge the interpretation of law as the legal provisions applied by the subordinate court while making the judgment/ decree any error, defect as irregularity in any proceeding before the subordinate court affecting the merits of the case as the jurisdiction of such a court may as well be a sustainable ground while making an appeal.
  6. The second appeal can be filed only if there exists a substantial question of law. In the case the question of law would be substantial if it is of general public importance or which directly and substantially affects rights of the parties.

How are writs and appeals of High Court different?

Writs are extraordinary court orders and only issued when a moving party (the one seeking the writ) has no other options. A writ petition is filed to protect constitutional rights, Legal Rights or fundamental rights. Whereas, an appeal is a motion filed before a judge on which a previous lower court has passed an order or orders as the case may be and the orders are unsatisfactory to the person filing the appeal and so he she files appeal in a higher court. Usually writ petitions are filed first, whereas, appeals are filed after orders or judgment of lower courts. To read more about writs, click here.

I lost my trial because my law made stupid mistakes, can’t I rely on an appeal before High Court to correct them?

Don’t count on appeals to make up for any real or perceived deficiencies at trial. You should put all of your energy into the trial itself, which includes finding the right lawyer to try the case. Successfully appealing a verdict because you had a deficient attorney is an extremely difficult proposition. You can’t appeal because you simply had a bad lawyer. But, we may firstly understand some of the basic concepts pertaining to Appeal.

What is an appeal, when is it filed ?

At the conclusion of a proceeding in a lower court, the party who lost may want to have that decision reviewed by a higher court i.e. District Court, High Court or Supreme Court or concerned Tribunal depending upon the Legislative Scheme, in the hope that it might be reversed or changed.What an appeal is not

An appeal is not:

  • a new trial;
  • a hearing with witnesses or a jury;
  • a chance to present new evidence or new witnesses to a new judge, except in exceptional circumstances; or
  • a way to avoid complying with the trial court’s order.

Does an appeal constitute a new trial?

No. In an appeal there are no new issues presented or witnesses called to testify. The appellate court will only review the Trial Court’s Judgment and evidence presented during the trial to determine whether there were errors in either procedure or application of the law. Even if there were errors, if they’re deemed minor — legally called “harmless error” – the judgment is generally not overturned, nor is a new trial be granted. You must understand that an appeal is not a new trial or a rehearing of your case. The Court of Appeal will not hear an appeal of every case. In some cases, you must ask the permission of the Court to appeal through a process called “leave to appeal”. Even if the Court of Appeal hears your appeal, it will not:

  • re-hear your case from start to finish;
  • change the decision because it seems unfair; or
  • change the decision just because the Court of Appeal disagrees with it. (The decision must be incorrect due to a factual or legal error.)

What is a possible outcome of an Appeal :

  1. Affirm the decision;
  2. Modify the ruling in some way;
  3. Consider new facts or evidence (seldom); or
  4. In extremely rare cases, may throw out the case entirely.

References:

  1. In Anant Mills Co. Ltd. v. State of Gujarat [(1975) 2 SCC 175]
  2. Shri Shyam Kishore and Ors. v. Municipal Corporation of Delhi and Anr. as reported in J.T. 1992 (5) SC 335 at page 351
  3. Gujarat Agro Industries Co. Ltd. v. Municipal Corpn. of the City of Ahmedabad [(1999) 4 SCC 468] and Vijay Prakash D. Mehta v. Collector of Customs [(1988) 4 SCC 402]

 

Writ petition before the Gujarat High Court

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What is writ petition before the Gujarat High Court

As per the Indian Constitution, under Article 226, High Courts can adjudicate on the aspects of Legal as well as Fundamental Rights, whereas Supreme Court can adjudicate on Fundamental Rights, under Article 32. In the context of State of Gujarat, a writ is an order by a Gujarat High Court to a Government authorities, Lower court or courts, directing them to do something or stop them from doing something. However, it shall be the same conceptual framework for all the High Courts. Writ is a form of written command in the name of the court. It directs you to act in a specific way. In this article we may explore the same in the context of Gujarat High Court or in the context of Article 226 of the Constitution of India.

Gujarat High Court

Gujarat High Court

Introduction

Fundamental Rights are contained in Part III of the Indian Constitution including the right to equality, right to life and liberty etc. Whereas, legal rights are rights enshrined under some statute, or they may simply be claimed by way of equity. However, mere provision for Fundamental Rights or Legal Rights may not be sufficient. The remedy to resolve, if your rights are violated is important. To protect Fundamental Rights as well as Legal Rights the Indian Constitution, under Article 226 provides the right to approach the High Court, Gujarat High Court more specifically, to any person/ citizens whose Right has been violated.

What is a writ?

Fundamentally, a writ is a formal written order issued by anybody, executive or judicial, authorized to do so. In modern times, this body is generally judicial. Therefore, a writ can be understood as a formal written order issued by a Court having authority to issue such an order. Orders, warrants, directions, summons etc. are all essentially writs. 

A writ petition is an application filed before the competent Court, i.e. in this context Gujarat High Court, requesting it to issue a specific writ. As per the Indian Constitution, Gujarat High Court holds powers under Article 226,  against the decision of any court/individual lower according to their jurisdiction. A Writ petition for a civil or criminal nature depending on the situation can be filed by an Individual/aggrieved party to a higher level of court against the order/decision of the lower court.

Under What Circumstances you may need to writ petition before High Court of Gujarat?

Writ petition is generally filed in contravention of rights or injustice is served to any individual/aggrieved. In the Context of State of Gujarat, it is a remedial measure provided by the constitution against the authority regulating the law and order in the country for the following reasons:

  1. To help citizens defend their rights against court orders.
  2. To provide an alternative to the aggrieved when impugned order is not objected by the appeals made to the authorized higher authorities in the legal system.
  3. To make sure justice served but not justice denied.

You can file the writ petition in Gujarat High Court under Article 226 of the Indian constitution. You can also file Writ Petitions in India for a civil or a criminal act.

  • You can file a criminal writ petition when the cause of action in relation to the criminal law such as the right of accused, bail, etc.
  • You can file a civil writ petition when someone commits a civil wrong such as IPR, taxes, etc.

Types of Writs before Gujarat High Court

There are about five types of Writs, which one can file before the Gujarat High Court 

  1. Writ of Habeas Corpus:
    • A petition for personal liberty or release from detention can be filed by an Individual through a petition of Habeas Corpus which means ‘to have control of body’. On receipt of the petition against the order of the lower court or the individual under which the person is or being detained, the court can issue a direction of release.
    • It is in the nature of an order calling upon the person who has detained another to produce the latter before the court
      • To know on what ground he has been detained
      • To set him free if there is no legal justification for the
        imprisonment
    • For instance, a writ petition of Habeas Corpus for release of any person can be made if he is to be placed before the magistrate within 24 hours or if he is arrested for no reason or the reason for his arrest is unjustifiable.
    • Increasing Scope of Habeas corpus
      • Kanu Sanyal v. District Magistrate: the court may examine the legality of the detention without requiring the person detained to be produced before it
      • Sheela Barse v. State of Maharashtra: if the detained person is unable to pray for the writ of habeas corpus, someone else may pray for such writ on his behalf.
      • Nilabati Behera v. State of Orissa: The petitioner was awarded compensation of Rs. 1, 50, 000.
  2. Writ of Mandamus:
    • A petition to issue a command is a Writ of Mandamus. To issue a direction to a lower authority or to any Individual to restrain him from doing any activity, which can result in injustice to the general public or any specific group or individual. Such a petition can command any public authority or tribunal to perform an act which it is bound to perform.
    • The Writ can granted against a public authority if
      • Acted against the law
      • Exceeded his limits of power
      • Acted with mala fides
      • Did not apply his mind
      • Abused his discretionary powers
      • Did not take into account relevant consideration
      • Has taken into account irrelevant consideration
    • For instance, It is the duty of the Judge of a Court to make a decision only on the basis of relevant facts presented, if he fails to do so, with the filling of a petition to a Superior Court, he can be made to do an action in a prescribed way.
    • Case Laws
      • Hemendra v Gauhati University : Mandamus was issued to direct a University to announce that the petitioner has passed where, University had refused so to declare though the petitioner had
        obtained the pass marks required by the statutory rules of the University.
      • Barada Kanta v State of West Bengal : Writ of Mandamus cannot be issued against an individual person or any private organization because they are not entrusted with a public duty.
  3. Writ of Prohibition:
    • A petition to issue a direction or command to any local authority or court to restrict it from acting beyond its jurisdictional powers. A writ of prohibition popularly known as ‘stay order’ is usually issued with the consequences for doing any act or taking action against its reserved powers.
    • It means “To be Certified”. Both preventive and curative. Issued by SC and HC’s for quashing the order of any inferior court, tribunal or Quasi Judicial body.
    • Propositions laid in issuing this writ by the High Court in Hari Vishnu Kamath Vs. Ahmad Ishaque 1955-I S 1104 : ((s) AIR 1955 SC 233)
      •  It is issued to correct the errors of Jurisdiction.
      • When court or tribunal acts illegal in its jurisdiction.
      • Order against principles of natural justice.
      • Court acts in exercise of its supervisory and not appellate Jurisdiction.
      • An error in the decision or determination itself may also be amenable to a writ of Certiorari.
    •  For instance, a Writ of Prohibition can be filed with the Supreme Court to restrict any High Court from taking any decision which is not in the authority of the High Court (‘HC’). 
    • Case Laws:
      • Nagendra Nath Bora & Anr. Vs. Commissioner of Hills Division and Appeals, Assam & Ors., (1958) SCR 1240, the parameters for the exercise of jurisdiction.
        • Check whether inferior court has exceeded its jurisdiction.
        • Mere formal and technical errors doesn’t attract this.
  4. Writ of Certiorari:
    • A petition to issue an order or command against the decision or order of the lower authority where it was found that the authority has disregarded the laws and principles of natural justice in taking the decision is a Writ of Certiorari. In short, the petition calls for the records or the facts from the lower authority on the basis of which any summon or order was issued. On the satisfaction of facts /records placed by the lower authority, the decision shall be accepted or restricted.
    • For instance, A Writ of Certiorari can be filed by any aggrieved person against the decision of any District Court (DC) to any High Court through which the is sought to be nulled/ quashed.
    • Propositions laid in issuing this writ by the High Court in Hari Vishnu Kamath Vs. Ahmad Ishaque 1955-I S 1104 : ((s) AIR 1955 SC 233)
      • It is issued to correct the errors of Jurisdiction.
      • When court or tribunal acts illegal in its jurisdiction.
      • Order against principles of natural justice.
      • Court acts in exercise of its supervisory and not appellate Jurisdiction.
      • An error in the decision or determination itself may also be amenable to a writ of Certiorari
  5. Writ of Quo Warranto:
    • A petition to restrict – a person to hold a position in any government office or involvement in any decision relating to the victim is a Writ of Quo Warranto. It is required to prevent the official to exercise any powers of the position as such which he is not entitled to hold and/or to nullify the decision taken by him if any. The writ shall be applicable to all public offices and not on private organizations.
    • Issued to restrain a person from holding a public office subject to following Conditions:
      1. Public office created by a statue
      2. Person to be appointed by a statue or statutory instrument.
    • For instance, to restrict a person incompetent to hold the position of a sub-inspector due to his incapability or low qualification, a Writ of Quo Warranto can be filed with the appropriate court of justice.
    • It means “what is your authority”.
      • Subramanian Swamy petition against Jayalalitha in 2001. Two PIL’s against her
        appointment.
      • Manohar Reddy vs Union of India: two advocates filed a petition quashing the appointment of a Judge of a HC of AP and a writ is in the nature of Mandamus commanding the Bar Council of AP to cancel the enrollment as an advocate N V Ramana.

Judicial Review

  • Over and above forms of writ, Judicial review is the idea, fundamental to the system of government, that the actions of the executive and legislative branches of government are subject to review and possible invalidation by the judicial branch. Judicial review allows the Supreme Court to take an active role in ensuring that the other branches of government abide by the constitution. Judicial review was established in the classic case of Marbury v. Madison, 5 US 137 (1803). Dealt under Article 13, Article 32 and Article 226 of the Constitution of India, Judicial review is one of the checks and balances in the separation of powers. It is the power of the judiciary to supervise the legislative and executive branches when the latter exceed their authority.
  • Judicial review should be understood in the context of both the development of two distinct legal systems (civil law and common law) and two theories of democracy (legislative supremacy and separation of powers) is that some countries with common-law systems do not have judicial review of primary legislation.

To Conclude:

The concept of Writ petition was brought in the Constitution of India to help a victim if he/she is deprived of any right or injustice made to him or to help him fight against any decision taken by the last legal authority. To file a Writ petition before Gujarat High Court the person has to either take the help of a legal adviser or hire a lawyer to file a petition on his behalf.

Please Note:

  • Concept of Writ petition is universal across all the High Courts in the Context of Legal as well as Fundamental rights, within the scope of Article 226 of Indian Constitution and also before the Supreme Court in the context of Fundamental Rights under Article 32. But the present article is written in the context of Gujarat High Court, therefore there is largely reference to Gujarat High Court. 

To know the difference between Write and Appeal, Click here.

NCLT – IBC Amendment Bill : Credit Hierarchy Restored, Resolution Plans And Time Limit Binding

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NCLT IBC Amendment Bill: Credit Hierarchy Restored, Resolution Plans And Time Limit Binding

NCLT IBC Amendment Bill: Credit Hierarchy Restored, Resolution Plans And Time Limit Binding

NCLT IBC Amendment Bill: Credit Hierarchy Restored, Resolution Plans And Time Limit Binding

The government has moved to put to rest several hurdles impeding corporate insolvencies in India via an amendment to the law. The actual text of the Insolvency and Bankruptcy Code (Amendment) Bill, 2019, is finally in the public domain and will soon seek passage in Parliament.

Whilst the salient features of the cabinet approval had been released last week, the Bill, in public domain, removes any fuzziness that commentators had on the interpretation of the eight amendments.

‘Complex’ Plans Can Be Part Of Resolution

The amendment to section 5(26) – which defines a resolution plan- now clarifies that a plan may include provisions for restructuring including by way of merger, amalgamation and merger to be entertained by NCLT. Complex plans can be part of the insolvency process and the plan can deal with one or more companies as transferee companies in the course of insolvency proceedings for reviving the corporate debtor as a going concern.

Addressing Delays In Admission

IBC requires the Adjudicating Authority, mostly the National Company Law Tribunal, to determine the existence of a default within 14 days when an application initiating the insolvency process is made.

The proposed amendment to this provision introduces judicial discipline to say if such a determination hasn’t been made, the NCLT has to pass an order within 14 days from the insolvency commencement date to record the reasons in writing for such delay in determination. This will address the significant delays in listing of insolvency applications by the NCLT. In the past, some applications for initiation of corporate insolvency resolution process have not been listed for admission for periods exceeding four months before some of the appropriate tribunals.

Speedier Disposal

Presently, the insolvency process has be to completed within 180 days, extendable up to 90 days under section 12(3). Through jurisprudence, courts have laid down that the time spent in litigation must be excluded from this 270-day period.

The amendment Bill has proposed that the insolvency process has to be completed mandatory within 330 days from the insolvency commencement date, including an extension of the period granted under section 12(3) and the time taken in legal proceedings in relation to such resolution process of the corporate debtor. If the insolvency process has been pending and has not been completed within 330 days, then as a transitory extension of the resolution process, pending matters shall be completed within 90 days from the date of commencement of the IBC Amendment 2019.

The use of the word “mandatory” and “shall be completed” are a clear indication that the amendments to IBC are not directory in nature but constitute a mandatory compulsory indication to finish the insolvency process in a specified timeline of 330 days, without exception.

Cases where over two years have been taken in dealing with the resolution process should be conclusively determined in the extra time of 90 days from the commencement of the amendments.

Home-buyers’ Vote

In order to set right the impasse for conducting voting for a large number of home buyers that share the status of financial creditors, it is made expressly clear that the authorized representative shall cast his vote on behalf of all financial creditors represented by him, with the decision taken by a vote of more than 50 percent of the voting share of the financial creditors who have cast their vote. This change is notwithstanding the provisions of Section 25A(3).

It is clarified that for withdrawal of the application under section 12A, the authorised representative will, however, cast the vote as originally provided i.e. act in the interest of the home buyers and as per prior instructions.

Credit Hierarchy Restored

Section 30(2)(b) specifies that at the resolution plan stage, payment to operational creditors shall not be less than the amount to be paid to them in the event of liquidation of the corporate debtor. At the liquidation stage, the order of payments is specified in section 53(1) – insolvency process costs, dues of workmen, secured creditors, unsecured creditors, statutory dues and then operational creditors.

The amended section 30(2)(b) is substituted to specify that payments to operational creditors for their debt would be in a manner specified by the IBBI but shall not be less than:

(i) the amount to be paid to such creditors in the event of liquidation of the corporate debtor or
(ii) the amount that would have been paid to such creditors if the distribution was done based on the priority under Section 53(1), whichever is higher.

It is specified that payments made to operational creditors shall be fair and equitable. In my opinion, it would not be permissible for any judicial interpretation to distort the priority different from what’s specified under section 53(1) and the extent and value of such payment shall also be determined based on the hierarchy specified under this section.

Further, the amendment provides that payments to dissenting financial creditors shall be decided as per regulations of the IBBI, but it shall not be less than the amount due to them in accordance with hierarchy specified at the liquidation stage.

As a clarification, it is provided that the amended section 30(2)(b) would be applicable to cases

where the resolution plan has not been approved or rejected by the Adjudicating Authority or
where an appeal has been preferred to the appellate authority or the Supreme Court or where such appeal is not time barred under any provision of law for the time being in force or
where a legal proceeding has been initiated in any court against the decision of the Adjudicatory Authority in respect of a resolution plan.
This clarifies that the amendment to Section 30 is retrospective for pending proceedings in relation to the resolution plan, as above.

Additionally, it is also clarified that the manner of distribution must take into account the order of priority amongst creditors, including the priority and value of the security interest of a secured creditor. This change makes it beyond doubt that it is not open for the Adjudicating Authority or the Appellate Authority or any court to change either the priority or the value of the security interest of a secured creditor contrary to the principles of Section 53(1) of the IBC.

Making Resolution Plans before NCLT Binding

The proposed amendments resolve the issue of the central or state government or a local authority raising demands post approval of the resolution plan by the Adjudicating Authority. It makes clear that the central or state government or a local authority – to whom statutory dues are owed – are also bound by the resolution plan as stakeholders.

If such a resolution plan has provided for cancellation of operational creditors debts or diminished taxes, which qualify as operational debts, or amounts payable to local authorities as royalty or fees are also bound by the resolution plan as approved by the Adjudicating Authority under Section 31(1) of the IBC.

Creditors’ Committee Empowered

The Bill provides that the Committee of Creditors may take the decision to liquidate the corporate debtor any time after the CoC is constituted and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum. Hence, if 66 percent of the CoC decides to liquidate the corporate debtor, it can abort an endless and futile procedure of insolvency when it is no longer justifiable to keep it going.

All in all, these eight amendments shall become effective from the coming into force of the IBC Amending Act from such date, as the Central Government by notification may appoint.

These significant changes are made to ensure that insolvency proceedings are mandatory time bound and are not judicially extendable for more than once for a period of 90 days after the expiry of the 180 days available for resolution. A further time period of 60 days has been given to account for delays as a result of legal proceedings in relation to such resolution process.

The ability of the Appropriate Authority or the Appellate Authority or the courts to interpret and state that these amendments made by the legislature are directory in nature, has been plugged. The legislative intent is that the timelines are mandatory in nature. Even pending proceedings or resolution plan, which have exceeded 330 days by now, have merely 90 days extra from the commencement date of the IBC Amendment 2019 to finalize matters or to proceed to liquidation.

With these amendments and clarifications, the process of speedy adjudication and decision making should now be finally settled. No judicial interpretation or Latin maxim should be further available to postpone the completion of the insolvency process or prevent proceedings to liquidate the corporate debtor (upon failure of the insolvency process) as determined by the requisite majority of the CoC.

Recovery Process & Enforcement Of Security Interest In India

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DEBT RECOVERY – LEGAL FRAMEWORK IN INDIA

Indian Legal system encompasses varied legal provisions for recovery of debts by the Banks and Financial Institutions as follows :-

  • Summary suits under Order XXXVII of the Code of Civil Procedure, 1908.
  • Ordinary suits for recovery, under Civil Law.
  • Original Applications to be filed by Banks and Financial Institutions before Debt Recovery Tribunal for debt not less than Rs. 10 lakhs, under Recovery of Bank Due to Banks & Financial Institutions Act, 1993 (DRT Act).
  • Action under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (Securitisation Act).
  • Arbitration proceedings under Arbitration & Conciliation Act 1996, for recovery of outstanding amount as under Arbitration Agreement / clause in the loan documents, in cases where the Recovery of Debts due to Banks and Financial Institutions Act, 1993 is not applicable.
  • Initiation of criminal action in addition to civil proceedings for prosecution and punishment as per the Indian Penal Code and other laws where debt is also tainted with fraud, cheating, misfeasance etc.
  • Filing of criminal complaint under Section 138 of Negotiable Instruments Act, 1881 for dishonor of any cheque issued by borrower to the bank in discharge of legally enforceable liability.

BROAD CLASSIFICATION OF THE DEBT WORK OUT PROCESS IN INDIA

Amount to be recovered Procedure
Does not exceed Rs. 10,00,000/-
  1. Filing simple suit for recovery before Civil Court.
  2. Filing of summary suit under Order XXXVII of CPC, 1908.
  3. Filing suit for foreclosure of mortgage.
  4. Arbitration proceedings if arbitration agreement exists.
Exceeds Rs. 1,00,000/- In case the “Security Interest” has been created in specific movable / immovable property provisions of the Securitization Act may be invoked to repossess the mortgaged property, without intervention of the court, and sell the same, provided the account has been classified as NPA.
Exceeds Rs. 10,00,000/- Original application is to be filed before the DRT for recovery of dues. Bank can simultaneously initiate proceedings under Securitization Act as well.  Civil court / Arbitrator will not have jurisdiction to entertain such claim.

DEBT RECOVERY TRIBUNALS & PROCESS OF RECOVERY

Debts Recovery Tribunals (DRT) and Debts Recovery Appellate Tribunals (DRAT) have been constituted under the provisions of the DRT Act for establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and Financial Institutions and for matters connected therewith.

DRT has also been given the power to adjudicate  the applications filed by the Borrower/Mortgagor against the action of the Secured Creditor initiated under the Securitization Act

ESTABLISHMENT OF  DRTs

The Central Government by notification has established Tribunals known as Debts Recovery Tribunals (DRT) to exercise the jurisdiction, power and authority confers under the Act at:

Mumbai, Delhi, Kolkata, Chennai,

Bangalore, Allahabad, Ahmedabad, Aurangabad,

Chandigarh, Madurai, Coimbatore, Cuttack,

Orissa, Patna, Bihar, Ernakulam,

Guwahati, Hyderabad, Vishakhapatnam, Jabalpur,

Jaipur, Lucknow, Nagpur, Ranchi

Pune.

Establishment of DRATs

In exercise of powers, the Central Government has established DRAT at places :-

  • Allahabad – Jurisdiction over DRTs functioning at Allahabad, Lucknow and Jabalpur.
  • Chennai – Jurisdiction over DRTs functioning at Bangalore, Chennai, Coimbatore, Hyderabad, Vishakhapatnam and Ernakulam.
  • Delhi – Jurisdiction over DRTs functioning at Delhi, Chandigarh, Jaipur.
  • Kolkata – Jurisdiction over DRTs functioning at Cuttack, Guwahati, Patna, Kolkata and Ranchi.
  • Mumbai – Jurisdiction over DRTs functioning at Ahmedabad, Aurangabad, Mumbai, Nagpur and Pune.

Composition of DRT and DRAT

DRT is presided over by a Presiding Officer, who is qualified to be a District Judge, and is appointed by notification by Central Government.

DRAT is presided over by a Chairperson, who is qualified for appointment or who has been a Judge of a High Court, or has been member of the Indian Legal Services who has held the post of Grade I of such services for at least three years.

The Recovery Of Debts Due To Banks And Financial Institutions Act, 1993

Applicability (DRT  Act)

  • The Act applies to whole of India except State of Jammu & Kashmir.
  • The provisions of Act applies where the amount of debt due is not less than Rs. 10,00,000/-.
  • Original Application for recovery of Debts can be filed only by Banks and Financial Institutions.

Applications to be made to DRT  under DRT  Act

  • Only Banks and Financial Institutions defined under the DRT Act, (which includes Public Financial Institutions within the meaning of Section 4A of the Companies Act, 1956, Securitization company / Reconstruction company under the Securitization Act), can file an application before the DRT. Normal fees, based on amount claimed in O.A., has been fixed as court fee which does not exceed Rs. 1.50 lakhs.
  • Summary procedure is adopted by the DRTs for adjudication of dispute.  Evidence is taken on affidavit and cross examination is not permitted except in few deserving cases.
  • The defendants can file counter claim or claim of set off against the claimed amount.
  • The final order is passed by the Tribunal directing the borrowers to pay the amount.  In case, the borrower does not pay the ordered amount, recovery certificate is ordered to be issued against the borrower which is then executed by Recovery Officer of the DRT.

Powers of DRT

DRT has power to:

  • summoning and enforcing the attendance of any person and examining him on oath;
  • requiring the discovery and production of documents;
  • receiving evidence on affidavits;
  • issuing commissions for the examination of witnesses or documents;
  • reviewing its decisions;
  • dismissing an application for default or deciding it ex-parte.
  • make interim order by way of injunction, stay or attachment against the defendant to debar from transferring, alienating or otherwise dealing with the property or asset without permission of Tribunal.
  • direct the defendants to provide security sufficient to satisfy the debt.

Willful disobedience of powers of Tribunal are punishable under Contempt of Court Act.

Appeal against the order of DRT

Any person aggrieved on account of order passed by DRT may file an appeal before DRAT.

However, the DRAT does not entertain the appeal unless the Appellant deposits with the Appellate Authority, 75% of the amount or such other lesser amount as directed by DRAT.

Overriding Effect

Provisions of the DRT Act has overriding effect over any other law for the time being enforced except :

  1. IFCI Act
  2. State Financial Corporation Act,
  3. Unit Trust of India Act,
  4. Financial Reconstruction Bank of India Act,
  5. Sick Industrial Companies (Special Provisions) Act and
  6. Small Industries Development Bank of India Act.
  7. The Industrial Reconstruction Bank of India Act, 1984

Applicability  of Securitization Act

  • The Act applies to whole of India.
  • The provisions of the Act shall apply to  Security  Interest created in favour of Secured Creditor, except on :-
    1. A lien on any goods, money or security given by or under the Indian Contract Act, 1872 or the State of Goods Act, 1932 or any other law for the time being in force;
    1. A pledge or movables within a meaning of Section 172 of Indian Contract Act.
    1. Creation of any security in any aircraft as defined in clause (1) of Section 2 of Aircraft Act, 1934.
    2. Creation of security interest in any vessel as defined in clause (55) of Section 3 of the Merchant Shipping Act, 1958.
    1. Any conditional sale, hire purchase or lease or any other contract in which no security interest has been created.
    1. Any rights of unpaid seller under Section 47 of the Sale of Goods Act, 1932.
    1. Any property not liable to attachment (excluding the properties specifically charged with the debt recoverable under this Act) or sale under the first proviso to sub section (1) of Section 60 of the Code of Civil Procedure, 1908.
    1. Any security interest for securing repayment of any financial asset not exceeding one lakh rupees.
    1. Any security interest in agricultural land.
    1. Any case in which the amount due is less than twenty per cent of the principal amount and interest thereon.

Compliance under “The Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act 2002” (“Securitization Act”) & “Security Interest (Enforcement) Rules, 2002″(“Rules” )

CHECK LIST FOR ENFORCEMENT OF SECURITY INTEREST IN CASE OF IMMOVABLE ASSETS

SR. NO. COMPLIANCES RELEVANT PROVISIONS
1 Bank/FI to give a Power of Attorney/ Letter authorising its concerned official to take steps under the Act. Sec  13 (12) read with Rule   2(a)
2 Sending of Demand Notice for enforcement of Security Interest. Sec 13(2) read with Rule 2(b) & 3
3 Notice can be sent by Registered Post or Speed Post or Courier or Fax or E-mail Rule  3(1)
4 If Borrower avoids notice, service shall be made by affixing the notice in some conspicuous place of his residence/ business and by publishing the notice in two leading newspapers, one in a vernacular language having sufficient circulation Proviso to Rule 3 (1)
5 If more than one Borrower (which includes guarantor), individual notice to be served on each of them. Rule 3(4)
5A In case any reply/representations are received, the Bank  to suitably adjudicate upon and decide. Section 13(3A)
5B Issue Notice for taking possession of Secured Asset u/s 13(4) of Act . Sec 13(4)
5C Take symbolic possession of the Secured Assets Sec 13(4)
6 File an application before the Chief Metropolitan Magistrate or District Magistrate for taking actual  possession of the property Sec  14(1)
7 Comply with the order of the Chief Metropolitan Magistrate or District Magistrate Sec  14(2)
8. Liaisoning with the Court Receiver, Police authorities, etc.
9. Deposit of fee with Police authorities, if any, in case the police force is to be made available by police station in Utter Pradesh
10 After taking the possession a notice in terms of Appendix IV will be sent to the Borrower, which will also be affixed on the Property. Rule 8(1)
11 The said notice will also be published in two leading newspapers one in vernacular language within 7 days. Rule 8(2)
12 Name of Bank/FI to be displayed on the Property. Rule  8(1)
13 Insurance cover to be arranged Rule 8(4)
14 Take Photographs Not specified
15 Security Guards to be deployed at the site of the Property. Rule 8(4)
16 Valuation of property by an approved valuer before effecting the sale Rule  8(5)
16A Serve on the Borrower a notice of 30 days for sale. Rule 8(6)
17 Obtaining Quotations/Inviting tenders/Holding Public Auctions/ Signing Private Agreement for sale of the property. Rule  8(5)
18 If sale is by way of inviting tenders from public or holding of public auction, a public notice to be published in two leading news papers one in vernacular language, having sufficient circulation, setting out the terms of the sale. Proviso to

Rule  8(6)
19 Notice and Publications to be affixed on conspicuous part of the property and put on the website of the Bank. Rule 8(7)
20 Sale other than public auction/tender to be on terms settled between the parties in writing. Rule 8(8)
21 Sale to be confirmed in favour of highest bidder Rule 9(2)
22 No sale to be confirmed on less than reserve process. However sale at less than Reserve price can be made with the consent of Borrower Proviso to Rule 9(2
23 25% of the sale price to be deposited forthwith and balance within 15 days Rule 9(3) and (4)
24 If balance is not deposited the deposit would be forfeited and the property be resold. Rule 9(5)
25 Sale  of  Property to be made effective from execution of  Sale Deed Not specified
26 If the terms of payment have been complied with, the Bank/FI shall issue a certificate of sale in favour of the purchaser Rule  9(6)
27 The certificate of sale to specify whether the property is free from encumbrances known to the Bank
28 Acknowledgement from buyer of having taken over the physical possession of property to be obtained by the Bank/FI. Not specified
29 In case the dues of the Bank/FI are not fully met with the sale proceeds of the property, Bank/FI may file an application before Debt Recovery Tribunal  or Court having jurisdiction, for recovering the balance amount. Sec  13(10)

Read with

Rule  11

Applications to be made to DRT under said Securitisation Act

  • Any person, aggrieved by any of the measures referred to in sub-section (4) of sector 13 taken by the secured creditor may make an application under section 17 of the Act to the Debts Recovery Tribunal, within forty-five days from the date on which such measures had been taken.
  • Procedure prescribed under the DRT Act is to be adopted by the DRT for disposal of such applications filed un/s 17 of the Act.

Appeal against the order of DRT under Securitisation said Act

Any person aggrieved on account of order passed by DRT may file an appeal before DRAT.

The DRAT does not entertain the appeal unless the Appellant deposits with the Appellate Authority, 50% of the amount or such other lesser amount as directed by DRAT.

  • Powers of DRT  under Securitisation Act
  • In addition to the power of the DRT under DRT Act, a DRT has following additional powers:

a.to restore for ordering restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower.

b.to order payment of cost/compensation to the borrower if it holds that the possession of the secured assets by the secured creditor is not in accordance with the provisions of the Act.

Disposal of Application /Appeal by DRT/DRAT

  • Any application made by the Banks and Financial Institutions is to be dealt with by the Tribunal as expeditiously as possible and endeavor is to be made by Tribunal to dispose off the application finally within a period of 180 days from the date of receipt of application.
  • The appeal filed before the Appellate Tribunal is to be disposed off as expeditiously as possible and endeavor is to be made by Tribunal to dispose off the appeal finally within a period of six months from the date of receipt of appeal.
  • On practical side the proceedings before may take from 1 (one) year to 3 (three) years depending upon the facts and circumstances of the case.

IMPORTANT PRECEDENTS

  • Mardia Chemicals Ltd. Vs Union Of India (AIR 2004 SC 2371)

Ratio:  The constitutionality of the Securitisation Act was upheld except  17(2) of the Act.

  • Transcore Vs Union Of India  (AIR 2007 SC 712)

Ratio:  Withdrawal of suit pending before DRT under DRT Act, 1993 is not a pre-condition for taking recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is an additional remedy, which is not inconsistent with DRT Act, 1993 and, therefore, doctrine of election has no application.

Central Bank of India Vs State of Kerla (JT 2009 (3) SC 216)

Statutory first charge over property under any law will prevail over rights created in favour of secured creditors such as banks and other financial institutions.

United Bank of India Vs Satyawati Tandon and Others (AIR 2010 SC 3413)

Where statutory remedies are available under a fiscal statute then exercise of jurisdiction under Article 226 by High Court for passing orders, which could have serious adverse impact on the right of banks and other financial institutions to recover their dues, is not warranted

OTHER IMPORTANT JUDGMENTS

  • Rajshree Sugar and Chemicals Ltd. Vs Axis Bank

AIR 2011 Madras 144

  • State Bank of India Vs Sharda Spuntex ;

I(2010) BC 562 Rajasthan

Transactions in derivatives, fall within the category of “business activity undertaken by the Bank” as they are covered by Section 6(1) of the Regulation Act . If the transaction in question gives rise to a claim by the Bank, of any liability, on the part of the Company, the Bank may certainly be able to invoke the provisions of  DRT Act. Further held that what is expressly permitted by law, cannot be held to be opposed to public policy

  • BOI Finance Ltd. Vs Custodians and Others;  AIR 1997 SC 1952

The non-compliance of the directions issued by the Reserve Bank may result in prosecution/or levy of penalty under Section 46, but it cannot result in invalidation of any contract by the bank with the third party.

  • ICICI Bank Ltd. Official Liquidator of APS Star Industries Ltd. (2010) 10 SCC 1: 

The Hon’ble Supreme Court held that an outstanding in the account of the borrower is a debt due and payable by the borrower to the bank and the bank is the owner of such debt.   The bank can always transfer its assets and such transfer in no manner affects any right or interest of the borrower.

  • Inderjeet Arya Vs. ICICI Bank Ltd., Writ Petition No. 7253/2011 

The Hon’ble Delhi High Court held that the action against the Borrower in the Debt Recovery Tribunal is not a suit and, therefore, such Guarantor cannot take protection under Section 22 of SICA.

  • Effect of the Act on the Economy / Banking Sector
  • The enactment of the Act has been a major factor in improving the health of Banks and Financial Institutions by enabling the bank to reduce their NPAs to substantially lower level.  On account of availability of dual remedy, i.e. remedy under the Securitization Act and DRT Act, the Banks and Financial Institutions have been able to substantially resolve the NPAs.
  • We have handled close to 600-650 default cases under Securitization Act for various Banks viz., Standard Chartered Bank, HDFC Bank, China Trust Commercial Bank, HSBC, Axis Bank etc. and have successfully recovered the outstanding dues in more than 80% of the cases.

How banks misuse SARFAESI Act provisions for loan recovery

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How banks misuse SARFAESI Act provisions for loan recovery

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002 is a powerful instrument in the hands of the banks and financial institutions (FIs) as secured creditors. This Act helps them enforce securities held as collateral to loans disbursed by them should such loans turn out as non-performing assets (NPAs) during the currency of the loan without interference from the Courts. Section 13 of the Act gives power to the secured creditor even to evict the tenant. It is our observation that the banks have been overenthusiastic in taking recourse to SAFRAESI Act provisions as a first resort of recovering the micro, small and medium enterprises (MSME) loans, mostly violating guidelines of Reserve Bank of India (RBI).

The entire process under the Act involves several factors of fairness and technicalities. During our interactions with the borrowers and banks in the State Level Inter-institutional Sub-committee (SLIIC), we have noticed the banks jumping into coercive actions throwing overboard the due processes.  It is surprising that tech-savvy systems of banks have not put in the measured timelines before pressing the red button to put the credit traffic of the MSMEs on halt.

RBI’s timelines are as follows:

  • If the account does not reflect credits into the account, 90 days preceding the date of balance sheet of the firm. Temporary deficiencies like late/ non-submission of stock statements or balance outstanding exceeding the drawing power, non-renewal of limits should not get categorised as NPA.
  • If the borrower does not pay three instalments continuously after 90 days but up to 12 months the account becomes sub-standard and NPA. Section 13 (2) empowers the Bank/ FI to serve a notice to the borrower for taking possession of the assets held as security for the money lent by it. But there is precursor to this action: the Bank/FI shall serve notice to the borrower to discharge his full liabilities within 60 days from the date of notice that should also detail out the legal consequences and penal provisions.

Going by these two directions under the Act, the borrower should be getting at least 17 months’ time before the Bank could proceed against the defaulting MSMEs.

If the borrower becomes a ‘wilful defaulter’ as defined by the RBI Master Circular on wilful defaulters vide RBI circular (RBI/2014-15/73 DBR.No.CID.BC.57/20.16.003/2014-15 dated July 1, 2015) SARFAESI Act proceeding can be issued even without notice to the borrower.

Who is a wilful defaulter?

  • Deliberate non-payment of the dues despite adequate cash flow and good net worth;
  • Siphoning off of funds to the detriment of the defaulting unit;
  • Assets financed either not been purchased or been sold and proceeds have been misutilised;
  • Misrepresentation / falsification of records;
  • Disposal / removal of securities without bank’s knowledge;
  • Fraudulent transactions by the borrower.

Banks/ FIs throwing overboard these norms, classify all the MSME NPAs as wilful defaulters to apply the SARFAESI lever. As per the Act, valuation of the asset has to be done and notify that valuation to the borrower before issuing public notice for auction of property. Bank has to give 30 days’ notice to the borrower regarding its right to proceed against the mortgaged property if he does not pay up the entire principal and interest.

However, we have noticed that in most cases all the above timelines are followed more in breach with impunity by the banks. For example, a public sector bank (PSB) proceeded with sale of property within 15 days of declaring the asset as NPA. They have also fixed a reserve price without consulting the impugned borrower or without taking into consideration any objections raised by the borrowers as required under section 13 (3) (A) and proceed for auction of the properties. This is the case with most collateralize MSME NPAs. On top of this, almost everywhere the bank has also engaged agents for enforcing coercive recovery measures.

In quite a few other cases, the banks sold off assets to asset restructuring companies (ARCs). Here the process is that the bank bundles a few NPAs and sells them off at a discount, which is not disclosed either to the borrower or to the SLIIC sub-committee. Although it may be in order for the bank to entertain request of the enterprise under one-time settlement (OTS) within the rules of the RBI, its preference is to transfer to ARC at a far lesser price than OTS would have got to the bank.

What is ARC and how does this operate?

All transactions of securitisation, reconstruction and creation of security interest shall be registered with a Central Registry maintained with the Union Government. Within 30 days of securitising the asset, details of securities have to be filed with the central registry by paying the required fees.

RBI has issued guidelines in 2003 on the form of offer and details to be incorporated therein. The most usual form is the Security Receipt (SR) and an agreement with the originator to continue to service the assets of the securitisation. It can also take the form of a debenture at no less than 1.5% above the Bank Rate. The ARC should notify a separate scheme for each financial asset acquired or proposed to be acquired. Scheme-wise the account shall be maintained. Although Security Receipt is a tradable receipt among the investor institutions there is no such evidence thus far.

Realization of the asset is held and applied towards redemption of the investments as assured while issuing the security receipt. It acts like a trustee managing the assets and does not become the owner of the assets. ARC can sell or lease out the assets for realising the value of the assets. The recovered amount of the discounted price of the asset will be shared between the Bank and ARC in 85:15. For example, if a loan of Rs100 lakh is sold for Rs60 lakh to the ARC and the ARC realises only Rs50 lakh on sale or the entire armoury at its command, the Bank will get Rs42.50 lakh for fully wiping out the account from its books. Once the asset is sold off, it ceases to be NPA in its books.

If the intention of the Bank were to recover as much as possible from the stressed asset, it would be wise to explore OTS as first option within the RBI guidelines. We have noticed that in no more than 5% of cases that this option is exercised as the bonafides in OTS transaction is suspect. It would be prudent on the part of the RBI to ensure that the OTS option is exhausted before going for securitisation and sale of the asset.

The other option is to seek the Banking Ombudsman’s intervention as Arbitrator to settle the distressed asset closure in cases where either the borrower or the bank has reason to believe that a mutually agreed price of the loan would be a better option than proceeding against the asset under SAFRAESI Act.

 

SARFAESI ACT, 2002- Applicability, Objectives, Process, Documentation

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The financial sector has been one of the key handlers in India’s efforts to achieve success in rapidly developing its economy. Since our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This ensures the slow pace of recovery of defaulting loans and escalating levels of nonperforming assets of banks and financial institutions.

  • Applicability Of SARFAESI Act, 2002
  • Role of SARFAESI Act, 2002
  • Objectives of SARFAESI Act, 2002
  • Documents Required
  • Formation of SARFAESI Act, 2002

Narasimham Committee I and II and Andhyarujina Committee was 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. Amongst the other committees, these Committees have made suggestions to form new legislation for securitization and empowering banks and financial institutions to gain possession of the securities and to sell them without any intervention of the court here.

Applicability Of SARFAESI Act, 2002

The amendment to this Act is “an act to regulate securitization and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights, and for matters connected therewith or incidental thereto.”

The Act deals with the following:

  • Registration and regulation of Asset Reconstruction Companies (ARCs) by the Reserve Bank of India
  • Facilitating securitization of financial assets of banks and financial institutions with or without the benefit of underlying securities
  • Promotion of seamless transferability of financial assets by the ARC to acquire financial assets of banks and financial institutions through the issuance of debentures or bonds or any other security as a debenture
  • Entrusting the Asset Reconstruction Companies to raise funds by issue of security receipts to qualified buyers
  • Facilitating the reconstruction of financial assets which are acquired while exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions
  • Presentation of any securitization company or asset reconstruction company registered with the Reserve Bank of India as a public financial institution
  • Defining ‘security interest’ to be any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any  bank or financial institution
  • Classification of the borrower’s account as a non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time
  • The officers authorized will exercise the rights of a secured creditor in  this behalf in accordance with the rules made by the Central Government
  • An appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal
  • The Central Government may set up or cause to be set up a Central Registry for the purpose of registration of transactions relating to securitization, asset reconstruction and creation of the security interest
  • Application of the proposed legislation initially to banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation to non-banking financial companies and other entities
  • Non-application of the proposed legislation to security interests in agricultural lands, loans less than rupees one lakh and cases where eighty per cent, of the loans, is repaid by the borrower

Role of SARFAESI Act, 2002

 

Objectives of SARFAESI Act, 2002

  • Efficient or rapid recovery of non-performing assets (NPAs) of the banks and FIs.
  • Allows banks and financial institutions to auction properties (say, commercial/residential) when borrower fail to repay their loans.

 

Documents Required

e-Form CHG-1 or e-Form CHG-9  is required to be filed for application of

  1. Registration of creation
  2. Modification of charge (other than those related to debentures) including particulars of modification of charge by Asset Reconstruction Company in terms of Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 [SARFAESI]

The documents in this context are as follows :

  1. Particulars of charge
  2. Certificate of registration

iii.  An Instrument created for the charge

  1. Copy of the instrument – creating or modifying the charge
  2. Hypothecation Deed
  3. Sanction Letter

In case of any e-Form to be digitally signed, either of the following is required-

  1. DSC of the charge holder
  2. Director Identification Number [DIN]of the Director
  3.  Permanent Account Number [PAN] of the manager, CEO, CFO
  4.   Membership Number of the Company Secretary

Formation of SARFAESI Act, 2002

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) was circulated –

  1. To regulate securitization and reconstruction of financial assets
  2. Enforcement of the security interest for

iii. Matters connected therewith or incidental thereto

It extended to the whole of India.

Amendment in the (SARFAESI) Act, 2002 vide the enforcement of the Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016.

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisional information in the Official Gazette, s (Amendment) Act, 2016 was published

It is an Act further to amend four laws:

  1. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI)
  2. Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI)
  3. Indian Stamp Act, 1899
  4. Depositories Act, 1996, and for matters connected therewith or incidental thereto

Section 138 Of Negotiable Instruments Act: Overview

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A cheque is a widely used method of payment and post-dated cheques are frequently used in various transactions in business life. Post-dated cheques are given to provide a certain accommodation to the drawer of the cheque. Therefore, it becomes necessary to ensure that the drawer of the cheque does not abuse the accommodation given to him. The Negotiable Instruments Act, 1881 (“Act“) deals with negotiable instruments, such as promissory notes, bills of exchange, cheques etc. Chapter XVII containing Sections 138 to 142 was introduced with the aim of inculcating confidence in the efficacy of banking operations and giving credibility to negotiable instruments employed in business transactions. If a party issues a cheque as a mode of deferred payment and the payee of the cheque accepts the sameon the faith that he will get his payment on due date, then he should not suffer on account of non-payment.

The penal provisions contained in Sections 138 to 142 of the Act have been enacted to ensure that obligations undertaken by issuing cheques as a mode of deferred payment are honoured. Section 138 of the Act provides for circumstances under which a case for dishonour of cheques is filed.1 The ingredients required for complying with Section 138 are as follows:

  • a person must have drawn a cheque for payment of money to another for the discharge of any debt or other liability;
  • that cheque has been presented to the bank within a period of three months;
  • that cheque is returned by the bank unpaid, either because insufficient of funds or that it exceeds the amount arranged to be paid from that account by an agreement made with the bank;
  • the payee makes a demand for the payment of the money by giving a notice in writing to the drawer within 15 days of the receipt of information by him from the bank regarding the return of the cheque as unpaid;
  • The drawer fails to make payment to the payee within 15 days of the receipt of the notice.

Procedure that is followed in matters with regard to Section 138 of the Act is as follows:

  1. A legal notice is to be issued to the drawer within 15 days of dishonor of cheque by registered post with all relevant facts. The drawer is given a time of 15 days to make the payment, if the payment is made then the matter is served and the issue is settled. On the other hand if the payment is not made then the complainant is to file a criminal case process under Section 138 of the Act, against the drawer within 30 days from the date of expiry of 15 days specified the notice,with the concerned magistrate court within the jurisdiction.
  2. The complainant or his authorized agent should appear in the witness box and provide relevant details for filing the case. If the court is satisfied and finds substance in the complainant, then summons will be issued to the accused to appear before the Court.
  3. If after being served with the summons the accused abstains himself from appearing then the court may issue a bailable warrant. Even after this if the drawer does not appear a non-bailable warrant may be issued.
  4. On appearance of the drawer/accused, he may furnish a bail bond to ensure his appearance during trial. After which the plea of accused is recorded.In case he pleads guilty, the court will post the matter for punishment. If the accused, denies the charges then he will be served with the copy of complaint.
  5. The Complainant may present his evidence by way of affidavit and produce all documents including the original in support of his complaint. The complainant will be cross examined by the accused or his counsel.
  6. The accused will be given an opportunity to lead his evidence. The accused will also be afforded an opportunity to submit his documents in support of his case, as well as witnesses in his support. Accused and his witnesses will be cross examined by the complainant.
  7. The last stage of the proceeding is that of the arguments after which the court will pass a judgment.If the accused is acquitted then the matter ends, but the complainant can go on further appeal in the High Court, similarly if the accused is convicted he can file an appeal in the Sessions Court.

It must be noted that the offence under Section 138 of the Act, has been made compoundable.

Recent Supreme Court rulings for speedy disposal of cases under Section 138 of the Act:

In 2017, Delhi High Court in Dayawati v. Yogesh Kumar Gosain took into account the question whether an offence under Section 138, which is a criminally compoundable case, could be settled by mediation.2 The Court held that even though an express statutory provision enabling the criminal court to refer the complainant and accused persons to alternate dispute redressal mechanisms has not been specifically provided by the Legislature. The Code of Criminal Procedure (“Cr.P.C.“) does permit and recognize settlement without stipulating or restricting the process by which it may be reached. Thus, there is no bar to utilizing the alternate dispute mechanisms including arbitration, mediation, conciliation (recognized under Section 89 of Civil Procedure Code, 19083) for the purposes of settling disputes which are the subject matter of offences covered under Section 320 of the Cr.P.C. It also stated the proceedings under Section 138 of the Act is distinct from other criminal cases and are really in the nature of a civil wrong which has been given criminal overtones.

In Meters and Instruments (P) Ltd. v. Kanchan Mehta, the Honourable Supreme Court after taking into consideration the object of introducing Section 138 and other provisions of Chapter XVII of the Act, observed as under4:

“18. From the above discussion following aspects emerge:

18.1. Offence under Section 138 of the Act is primarily a civil wrong. Burden of proof is on accused in view presumption under Section 139 but the standard of such proof is “preponderance of probabilities”. The same has to be normally tried summarily as per provisions of summary trial under the Cr.P.C. but with such variation as may be appropriate to proceedings under Chapter XVII of the Act. Thus read, principle of Section 258 Cr.P.C.5 will apply and the Court can close the proceedings and discharge the accused on satisfaction that the cheque amount with assessed costs and interest is paid and if there is no reason to proceed with the punitive aspect.

18.2. The object of the provision being primarily compensatory, punitive element being mainly with the object of enforcing the compensatory element, compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court.

18.3. Procedure for trial of cases under Chapter XVII of the Act has normally to be summary. The discretion of the Magistrate under second proviso to Section 143, to hold that it was undesirable to try the case summarily as sentence of more than one year may have to be passed, is to be exercised after considering the further fact that apart from the sentence of imprisonment, the Court has jurisdiction under Section 357(3) Cr.P.C.6 to award suitable compensation with default sentence under Section 64 IPC and with further powers of recovery under Section 431 Cr.P.C.7 With this approach, prison sentence of more than one year may not be required in all cases.

18.4. Since evidence of the complaint can be given on affidavit, subject to the Court summoning the person giving affidavit and examining him and the bank’s slip being prima facie evidence of the dishonour of cheque, it is unnecessary for the Magistrate to record any further preliminary evidence. Such affidavit evidence can be read as evidence at all stages of trial or other proceedings. The manner of examination of the person giving affidavit can be as per Section 264 Cr.P.C.8 The scheme is to follow summary procedure except where exercise of power under second proviso to Section 143 becomes necessary, where sentence of one year may have to be awarded and compensation under Section 357(3) is considered inadequate, having regard to the amount of the cheque, the financial capacity and the conduct of the accused or any other circumstances.”

Recent amendment:

The Negotiable Instruments (Amendment) Act, 2018 which came into effect from September 1, 2018 allows the Court trying an offence related to cheque bouncing, to direct the drawer to pay interim compensation not exceeding 20% of the cheque amount to the complainant within 60 days of the trial court’s order to pay such compensation. This interim compensation may be paid either in a summary trial or a summons case where the drawer pleads not guilty to the accusation made in the complaint; or upon framing of charge in any other case. Furthermore, the Amendment also empowers the Appellate Court, hearing appeals against conviction under s. 138, to direct the appellant to deposit a minimum 20 % of the fine/compensation awarded, in addition to interim compensation.

Our observations:

The recent steps undertaken by the judiciary and the changes brought by the legislature are steps in the right direction. But there is a need to realise the commercial realities in India and further expedite the process of recovery to discourage delays caused by the accused, unnecessary adjournments and frivolous appeals. Courts in India are overburdened and lack basic infrastructure to deal with dishonoured cheque cases.It is vital that people have faith in the integrity and honesty of the system. However, reliability of cheques in commercial dealings has been eroded to a great extent. Dishonour of cheque causes financial loss, inconvenience and injury to the payee.

We, accordingly, recommend as under:

  1. The number of Magistrates exclusively meant for cheque bounce cases should be doubled. Special Courts can be set up to deal with such cases. The Government mustprovide for funds needed to meet the costs involved in increasing the number of Magistrates, their supporting staff and other infrastructure.
  2. There should be no more than fifty matters before a judge on a particular day. Twenty-five in the morning session and twenty-five in the afternoon session.
  3. In order to address the time concern, the following suggests the following:
    1. Before the Court’s time i.e. before 11 AM. the Court’s Judicial clerk should sit for one hour, take roll call and entertain applications for adjournment by consent, adjourn the cases which appear to him require adjournment. In case where the Magistrate’s judicial attention/time is required, can be put up with remark by the Judicial clerk and those cases should be kept at 11 AM for judicial scrutiny.
    2. Judicial time from 11 AM should be exclusively devoted to taking down the evidence.
    3. The above will save Court’s time of almost 1 to 2 hours a day.
  4. No court fees for victims of cheque-bounce cases as he is not making a fresh monetary claim.
  5. Further, Section 139 of the Act9 mandates that unless the contrary is proved, it is to be presumed that the holder of a cheque received the cheque of the nature referred to in Section 138, for the discharge, in whole or in part, of any debt or other liability. This presumption is rebuttable by the accused by leading cogent evidence that there was no debt or liability. Once such rebuttal evidence is adduced and accepted by the court the evidential burden shifts back to the complainant. In this regard, it has to be noted by the Courts that the accused is given an opportunity twice to prove his innocence, first when the bank informs him about insufficiency of funds, and the second time he can raise his defence at the time of notice served under Section 138 of the Act. If he fails to do so, then the Court should presume that he is guilty and start process forthwith. In case of false cases, heavy costs should be imposed on the complainant.
  6. Since it is a quasi judicial proceeding, the intent is that the Court should take innovative approach and not succumb to technicalities. Technicalities should be found and turned down with firm hand.
  7. Magistrates must take suo moto action and a four hearing procedure should be followed. If the accused does not show up at the first hearing, a non-bailable warrant must be issued. At the second hearing the accused must show cause and file a defence. At the third hearing cross examination should be conducted. At the fourth hearing arguments should take place after which a judgment must follow.

Credit is given on trust and good faith. It is in the interest of the justice system that these reforms are brought as expeditiously as possible to further ease the process of doing business in India. Section 138 of the Act should not be used by person who borrows money on credit to delay his commitment to pay and it is the duty of the Court to ensure that it is not made a party to such dilatory tactics.

Footnotes

1. Dishonor of cheque for insufficiency, etc., of funds in the accounts: Where any cheque drawn by a person on an account maintained by him with a banker for payment of any amount of money to another person from out of that account for the discharge, in whole or in part, of any debt or other liability, is returned by the bank unpaid, either because of the amount of money standing to the credit of that account is insufficient to honour the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with that bank, such person shall be deemed to have committed an offence and shall without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to one year, or with fine which may extend to twice the amount of the cheque, or with both:

PROVIDED that nothing contained in this section shall apply unless-

a) the cheque has been presented to the bank within a period of six months from the date on which it is drawn or within the period of its validity, whichever is earlier.

b) the payee or the holder in due course of the cheque, as the case may be, makes a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque, within fifteen days of the receipt of information by him from the bank regarding the return of the cheque as unpaid, and

c) the drawer of such cheque fails to make the payment of the said amount of money to the payee or, as the case may be, to the holder in due course of the cheque, within fifteen days of the receipt of the said notice.

Explanation: For the purpose of this section, “debt or other liability” means a legally enforceable debt or other liability.

2. Dayawati v. Yogesh Kumar Gosain 2017 SCC Online Del 11032.

3. Settlement of disputes outside the Court: (1) Where it appears to the court that there exist elements of a settlement which may be acceptable to the parties, the court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observation of the parties, the court may reformulate the terms of a possible settlement and refer the same for-

a) arbitration;

b) Conciliation

c) judicial settlement including settlement through Lok Adalat; or

d) mediation.

(2) Where a dispute had been referred-

a) for arbitration or conciliation, the provisions of the Arbitration and Conciliation Act, 1996 shall apply as if the proceedings for arbitration or conciliation were referred for settlement under the provisions of that Act.

b) to Lok Adalat, the court shall refer the same to the Lok Adalat in accordance with the provisions of sub-section (1) of section 20 of the Legal Services Authority Act, 1987 and all other provisions of that Act shall apply in respect of the dispute so referred to the Lok Adalat;

c) for judicial settlement, the court shall refer the same to a suitable institution or person and such institution or person shall be deemed to be a Lok Adalat and all the provisions of the Legal Services Authority Act, 1987 shall apply as if the dispute were referred to a Lok Adalat under the provisions of that Act;

d) for mediation, the court shall effect a compromise between the parties and shall follow such procedure as may be prescribed.

4. Meters and Instruments (P) Ltd. v. Kanchan Mehta (2018) 1 SCC 560.

5. Power to stop proceedings in certain cases: In any summons- case instituted otherwise than upon complaint, a Magistrate of the first class or, with the previous sanction of the Chief Judicial Magistrate, any other Judicial Magistrate, may, for reasons to be recorded by him, stop the proceedings at any stage without pronouncing any judgment and where such stoppage of proceedings is made after the evidence of the principal witnesses has been recorded, pronounce a judgment of acquittal, and in any other case, release the accused, and such release shall have the effect of discharge.

6. Order to pay compensation: (1) When a Court imposes a sentence of fine or a sentence (including a sentence of death) of which fine forms a part, the Court may, when passing judgment, order the whole or any part of the fine recovered to be applied-

a) in defraying the expenses properly incurred in the prosecution;

b) in the payment to any person of compensation for any loss or injury caused by the offence, when compensation is, in the opinion of the Court, recoverable by such person in a Civil Court;

c) when any person is convicted of any offence for having caused the death of another person or of having abetted the commission of such an offence, in paying compensation to the persons who are, under the Fatal Accidents Act, 1855 (13 of 1855 ), entitled to recover damages from the person sentenced for the loss resulting to them from such death;

d) when any person is convicted of any offence which includes theft, criminal misappropriation, criminal breach of trust, or cheating, or of having dishonestly received or retained, or of having voluntarily assisted in disposing of, stolen property knowing or having reason to believe the same to be stolen, in compensating any bona fide purchaser of such property for the loss of the same if such property is restored to the possession of the person entitled thereto,

(2) If the fine is imposed in a case which is subject to appeal, no such payment shall be made before the period allowed for presenting the appeal has elapsed, or, if an appeal be presented, before the decision of the appeal,

(3) When a Court imposes a sentence, of which fine does not form a part, the Court may, when passing judgment, order the accused person to pay, by way of compensation, such amount as may be specified in the order to the person who has suffered any loss or injury by reason of the act for which the accused person has been so sentenced,

(4) An order under this section may also be made by an Appellate Court or by the High Court or Court of Session when exercising its powers of revision,

(5) At the time of awarding compensation in any subsequent civil suit relating to the same matter, the Court shall take into account any sum paid or recovered as compensation under this section.

7. Money ordered to be paid recoverable as a fine: Any money (other than a fine) payable by virtue of any order made under this Code, and the method of recovery of which is not otherwise expressly provided for, shall be recoverable as if it were a fine:

Provided that Section 421 shall, in its application to an order under Section 359, by virtue of this section, be construed as if in the proviso to sub-section (1) of Section 421, after the words and figures ‘under Section 357’, the words and figures ‘or an order for payment of costs under Section 359’ had been inserted.

8. Judgment in cases tried summarily: In every case tried summarily in which the accused does not plead guilty, the Magistrate shall record the substance of the evidence and a judgment containing a brief statement of the reasons for the finding.

9. Presumption in favour of holder: It shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability.

Source credits

CHECKLIST FOR ACTION UNDER SARFAESI ACT

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CHECKLIST FOR ACTION UNDER SARFAESI ACT

 

Authorized Officer who is given the statutory power has to exercise higher degree of caution and care in following the prescription law while taking action under the Act. Taking action in any other manner than the prescription is not permissible in law. This cardinal principle is covered by Latin Maxim “expressio unius est exclusio alterius”. This is followed by Supreme Court and High Courts as can be seen from catena of judgments. The Authorised Officer may follow the check list for initiating the action. That any error or omission on the part of the authorized officer, makes the action of the bank liable to be striked down by DRT under Section 17 of the The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.

 

Sl.N. STAGE WISE ACTION SUGGESTION/ADVISE
1 Sarfaesi Act  poroceeds on the basis that borrower created security interest in favour of bank and his liability stood crystalised on account of his default and his account is classified as NPA Sec.13(2): Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection(4)
1 Initiation of action begins on service of demand notice The opinion Supreme Courtin Mardia Chemicals Ltd. &Anr. Vs. Union of India &Ors.:AIR 2004 (4) SCC 311)that the demand notice is show cause is clarified by Supreme Court in (Transcore Vs. Union of India &Anr. AIR 2007 SC 712) as initiation of action
2 How to calculate the quantum of claim amount in the demand notice Please ensure that, the balance outstanding in the bank’s book and the un-debited portion of interest accrued but not reflected in the bank’s book (on account of status of the loan account as NPA) are added and incorporated in the demand notice. The Authorised Officer (for short “A.O.”) need not approach any Court or Tribunal for determination of the quantum of amount of claim.

 
3 Demand notice and its contents: i). Please ensure that the demand notice covers all the details of the facilities granted to the borrower(s), dues and securities and measures to be taken in the event of default as stated in the guide and all the borrowers are addressed correctly as per the records.

ii). The Act or the Rules have not prescribed any format of demand notice.
4 Whether action under RDDB & Fi Act 1993 or a suit/ claim already filed in civil court/drt/transferred from civil court, saves limitation for initiating action under SARFAESI Act Action under RDDB & FI Act 1993 or a suit/claim already filed in civil court/DRT/transferred from civil court, does not save limitation for taking action under SARFAESI Act.
9 Whether action initiated under SARFAESI Act 2002 saves limitation for filing claim for recovery of the unrealised portion of debt. No.
10 How many demand notices a secured creditor can issue There is no bar. Any number of notices can be issued provided the security interest sought to be enforced is not barred by limitation.

 
11 Res Judicata No application. Action under the Act can be taken any number of times if the secured debt or security interest is not barred by limitation.
12 Service of demand notice: Please note changes in the addresses of the borrowers if any before addressing the demand notice. Change of address of borrower(s) must be obtained in writing. Oral information is not reliable as it is construed as not born out of record. Servedemand notice as contemplated in Rule 3 of Security Interest (enforcement) Rules 2002. 3(1) The service of demand notice shall be made by delivering or transmitting at the place where the borrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower (or his agent empowered to accept the service) or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

 
  ii). Procedure where borrower avoids service of demand notice or for any reason notice could not be served. Proviso to Rule 3(1):Where authorised officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service cannot be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.

Evidence of this exercise is to be reduced to writing (record panchanama).

Preserve full page of the relevant Newspapers as the same are required in evidence.
  iii) Service of notice to wife of borrower is sufficient service If borrower’s marital relationship is not judicially separated or dissolved by order of competent court
  iv). If borrower is abody corporate Rule 3(2): Where the borrower is a body corporate, the demand notice shall be served on the registered office or any of the branches of such body corporate as specified under sub-rule (1).
  v). The manner of service of any notice Rule 3(3) of S.I.(E) Rules Rule 3(3): Any other notice [i.e. Possession notice under 13(4) of SARFAESI Act or Rule 8(6) of S.I.(E) Rules] in writing to be served on the borrower or his agent by authorised officer, shall be served in the same manner as provided in Rule 3.
  See Sec.2 (2) of SARFAESI Act. According to Section 2(1)(f) of SARFAESI Act “borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by

any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance

 

According to Sec.2(2) of the Act the Words and expressions used and not defined in this Act but defined in the Indian Contract Act, 1872 (9 of 1872) or the Transfer of Property Act, 1882 (4 of 1882) or the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall have the same meanings respectively assigned to them in those Acts.
3 Inspection of secured assets It is advisable to inspect the secured asset(s) and find out its/their status / situation.
4 Computation of 60 days The date of service of the demand notice or publication of the demand notice after affixing it (as stated in the proviso to Rule 3(1) of S.I.(E) Rules) and the 60th day to be expired are to be excluded for computing the 60 days.

 

 
5 Representation/Objection: against the demand notice Sec13 (3A).

 

Communication of reply is mandatory in both the events.

 After service of the notice if the borrower makes any representation or objection against the demand notice the A.O. should immediately send it to the secured creditor who in turn should send a reply or advise the A.O. to communicate reply to the borrower within “fifteen days” (recent amendment substituted for one week) of receipt of such representation or objection by registered post with AD or Courier. Evidence of communication is to be preserved for evidence.

 

Representation: seeking for extension of time for payment or OTS.

Objection: Challenging the validity of the demand notice on various grounds.
6 PROCEDURE FOR TAKING POSSESSION OF MOVABLE SECURED ASSETS Taking symbolic possession of movable secured assets is not permissible in law. Procedure for taking possession of movable secured assets is different from the procedure relating to the immovable secured assets.
    i). In case the secured assets are movable, the A.O. has to take possession of them in the presence of two witnesses and draw a  panchanama, as nearly as possible as given in Appendix-I [ See Rule 4(2) of S.I.(E) Rules]

(Evidence to be preserved).
  INVENTORY REPORT ii). After taking possession of the movable secured assets, the A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.
  PRESERVATION To take care to preserve movable secured assets which owner of ordinary prudence would take. In case of factories or stores the secured creditor has to entrust the same for custody of an authorised person or approved re-possessors / security persons.
  INSURANCE COVER A.O. has to take insurance cover if necessary until sale is completed. Comprehensive policy with a clause to pay the sum assured to the company which would discharge the insurance company against adverse claim of borrower if any.
7 CIRCUMSTANCES FOR IMMEDIATE SALE There are two circumstances for immediate sale of movable secured assets.

1.   If movable secured assets are subject to speedy or natural decay

2.   or the expense of keeping such property in custody is likely to exceed its value, the authorised officer may sell them at once.

 

(Issue sale notice but need not wait for expiry of 30 days of the sale notice).

 

AO has to record reasons if necessary by drawing a panchanama in this regard.

 
8

 

 PLANT AND MACHINERY ATTACHED TO EARTH Plant and machinery should be treated as part of the immovable secured asset if they are fastened to the earth with cement and concrete as on the date of taking possession. In the possession notice (Appendix-IV) the same must be mentioned specifically giving brief description of the particulars of the machinery vide separate annexure attached to it.
  PLANT AND MACHINERY IF DETACHED FROM EARTH If Plant and machinery are detachable from earth as on the date of taking possession then A.O. has to record ‘Inventory Report’ as per Appendix–II [See Rule 4(1) of S.I.(E) Rules] and deliver it or caused to be delivered it to the borrower any person entitled to receive on behalf of borrower. In the inventory report the A.O. has to mention the name of the person appointed by him in whose custody the secured assets are preserved.
  VALUATION OF MOVABLE SECURED ASSETS After taking possession under sub-rule (1) of rule 4 and in any case before sale, the authorised officer shall obtain the estimated value of the movable secured assets and thereafter, if considered necessary, fix in consultation with the secured creditor, the reserve price of the assets to he sold in realisation of the dues of the secured creditor.
8 REQUIREMENTS TO MOVE CMM/DMFOR ASSISTANCE 1.   Application making a request to render assistance.

2.   List with copies of documents.

3.   Affidavit disclosing all the particulars.
9 PROCEDURE IN CASE OF IMMOVABLE SECURED ASSETS Take possession of immovable secured asses (whether symbolic or physical), serve possession notice (Appendix-IV) under Sec.13(4) read with Rule 8(1) and(2), obtain acknowledgment of service, affix it to secured asset and publish it in two leading newspapers(one in vernacular) having sufficient circulation in the locality.

 
    If borrower refuses to acknowledge service of the possession notice, then the AO may send it by registered post /courier and preserve evidence and the same may be recorded at the foot of the possession notice and obtain signature of two witnesses.
10 VALUATION OF IMMOVABLE SECURED ASSETS BY APPROVED VALUER

 

 

 

 

 Rule 8(5) of S.I.(E) Rules contemplates valuation of immovable secured assets by approved valuer before effecting sale.
11 APPROVED VALUER: 1.Registered under Sec.34AB

of Wealth Tax Act 1957

2.Approved by the Board of the

company.
12 RESERVE PRICE Valuation minus 15% or 20%

See Swastic Agency Vs. State Bank of India

 
13 SALE NOTICE-PERSONAL Rule 8(6) The Authorised Officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5)

 
14 SERVICE OF SALE NOTICE Sale notice must be served in the same manner as the demand notice and possession notice are served in the same manner as contemplated in the sub rule(1) of Rule 3 of S.I.(E) Rules 2002. See Rule 3(3) demanding the borrowers to pay the debt as demanded in the demand notice and possession notice together with interest
15 PUBLICATION OF SALE NOTICE If the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include, –

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor

(a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;

(b) the secured debt for recovery of which the property is to be sold;

(c) reserve price, below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed;

(e) depositing earnest money as may be stipulated by the secured creditor;

(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value

of the property.
16 AFFIXTURE OF SALE NOTICE Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the website of the secured creditor on the Internet.

 
17 SALE  BY OTHER METHODS Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
18 SALE CANNOT BE EFFECTED BEFORE EXPIRY OF THIRTY DAYS No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.

 
19 IDENTIFICATION OF SUCCESSFUL BIDDER A bidder who has offered highest prize shall be identified as successful bidder and he has to deposit 25% of the bid amount immediately
20 CONFIRMATION OF SALE BY SECURED CREDITOR The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorised officer and shall be subject to confirmation by the secured creditor
21 SALE BELOW RESERVE PRIZE No sale shall be confirmed, if the amount offered is less than the reserve price
22 PAYMENT BY BIDDER IN WHOSE FAVOUR THE BID IS CONFIRMED The balance amount of purchase price payable shall be paid by the purchaser to the authorised officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
23 BIDDER’S NOMINEE Bidder cannot appoint nominee for obtaining sale certificate
24 FORFEITURE AND RESALE OF SECURED ASSET In default of payment within the period mentioned in sub-rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
25 CONSENT OF BORROWER If the authorised officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.

 
26 PARTIPATION OF THE BORROWER IN THE PROCESS OF SALE AS TENDERER/BIDDER Borrower can participate as tenderer / bidder to purchase the secured asset in the process of sale
  PARTIPATION OF THE BORROWER IN THE PROCESS OF SALE AS SPECTATOR OR WITNESS Borrower cannot participate as spectator or witness in the process of sale
27 SALE CRTIFICATE On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules.

(Note: The sale is caused under the Act in “as it is what it is and where it is basis. Hence the S.I.(E) Rules devised the sale certificate. Sale Certificate does not contain any indemnity clause as in case of sale deed and the rule “sans recourse” is not applicable to the sale i.e. the secured creditor is not answerable for any defects in the title to the secured asset sold). The sale certificate shall be the prima facie evidence of title of the purchaser
28 ENCUMBERANCES The purchaser has to deposit the encumbrances if any in respect of the secured asset sold. Where the immovable property sold is subject to any encumbrances, the authorised officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him.
29 NOTICE TO PERSONS INTERESTED IN THE AMOUNT OF (CROWN DEBTS) ENCUMBRANCES On such deposit of money for discharge of the encumbrances, the authorised officer shall issue notices to the persons interested in or entitled to the money deposited with him and take steps to make, the payment accordingly
30 NON PRIORITY DUES The following are not crown debts:

1.Electricity dues

2.Custom & Excise Duty

3.Income Tax dues prior to creation of mortgage

 
31 PAMENT OF SURPLUS TO THE PURCHASER Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen day, from date of finalisation of the sale.

 

What went wrong with Yes Bank?

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In this article we will discuss wrong with Yes Bank? We know the ongoing troubles with Yes Bank but in this article we aim to discuss the reasons behind what went wrong with Yes Bank. Yes Bank’s problems started two years ago, when the regulator forced it to disclose that nonperforming loans were $630 million more than the $113 million reported in the company’s audited accounts for the year ended in March 2016. The divergence widened to almost $1 billion a year later.

Account holders queue up outside Yes Bank to withdraw money, in Mumbai, Saturday, March 7, 2020. (Credit: PTI)

Account holders queue up outside Yes Bank to withdraw money, in Mumbai, Saturday, March 7, 2020.

The Reserve Bank of India (RBI) on March 5 placed Yes Bank under moratorium and restricted withdrawals to a maximum of Rs 50,000, sending its customers into a wave of confusion and panic.

Shares of the lender fell to its lowest on Friday, at Rs 5.65 a share, down by over 84% in intraday trading before paring losses and closing at Rs 16.15 on the NSE. Depositers queued up to withdraw their money and fintech platforms partnered with the bank suffered outages and suspended their services.

Here are some reasons behind the crisis:

1. Bad loans – wrong with Yes Bank

Yes Bank, a medium-sized private sector bank, first ran into trouble following the central’s bank’s asset quality reviews in 2017 and 2018, which led to sharp increases in its impaired loans ratio and uncovered significant governance lapses that resulted in a complete change of management.

Yes Bank, yet to report its third-quarter financials, has struggled to raise the capital that it needs to stay above regulatory requirements as it battles high levels of bad loans. It has been trying to raise more than $1 billion in fresh capital since late last year.

2. Sluggish economic sector

Indian authorities have been struggling to contain a crisis among shadow lenders, less tightly regulated lending and lending for riskier businesses, which has choked credit to consumers and small businesses, slowing economic growth to a 11-year low, according to Fitch Ratings.

“In the absence of a credible revival plan, and in public interest and the interest of the bank’s depositors, it had no alternative” but to seize Yes Bank, the RBI said in the statement.

In its 2020 Outlook for ‘Asia-Pacific Emerging Market Banks’, Fitch maintained a negative outlook on Indian banks, based on its expectations of continued weak performance despite trends showing the trough might have passed, and ongoing capital requirements.

3. Governance issues – wrong with Yes Bank

The bank has experienced serious governance issues and practices in recent years that led to its downfall. According to a Business Today report, the bank under-reported Non-Performing Assets to the tune of Rs 3,277 crore in 2018-19.

4. Deferring regulatory restructuring -wrong with Yes Bank

Two years ago, co-promoter Rana Kapoor was asked to step down by the RBI. Despite continued poor performance, the RBI did not place the bank under the Prompt Corrective Action framework and chose to move directly to a moratorium. According to a report in The Hindu, the central bank had flagged several concerns in recent years, including a distinct divergence between the bank’s reported financials and the RBI’s findings.

5. High withdrawals

Yes Bank’s financial condition dissuaded many depositors from keeping funds in the bank over a longer term. The bank showed a steady withdrawal of deposits, burdening its balance sheet and adding to its woes. The bank had a deposit book of Rs 2.09 lakh crore at the end of September 2019.

Here are some important things to know about the Yes Bank crisis:

  1. Depositors rushed to ATMs for withdrawing funds from their accounts following the RBI’s move last Thursday to cap the withdrawals at Rs 50,000. While many customers claimed that the bank had not given any prior information about the move, some complained that the ATMs were out of cash.
  2. Currently, the RBI has capped Yes Bank withdrawals at Rs 50,000 till April 3 and imposed limits on withdrawals to protect the depositors.
  3. During this period, RBI has not allowed Yes Bank without prior permission of the RBI to make payments in excess of Rs. 50,000 to its savings, current or other account holders.
  4. The government has prodded State Bank of India – the country’s largest bank by assets – to step into the breach and lead the planned rescue of Yes Bank.
  5. SBI chairman Rajnish Kumar told NDTV on Monday that the current cap on withdrawals from Yes Bank accounts could be lifted “within a week”.
  6. “I want to assure Yes Bank customers that once we (SBI) step in, they shouldn’t worry about money… The financial system is sound,” he said.
  7. SBI has agreed to immediately invest Rs 2,450 crore to buy a 49 per cent stake in Yes Bank as part of the RBI-backed rescue deal for the troubled private sector lender.
  8. Yes Bank’s founder and former managing director, Rana Kapoor, is in police custody until March 11 after he was arrested on money-laundering charges.
  9. Yes Bank, weighed down by an increasing pile of bad debt, had struggled for months to raise the capital it needs to stay above regulatory requirements, without any success.
  10. Initially, Yes Bank wanted to raise $2 billion, which was later brought down to $1.2 billion as it could not rope in any investor. In February, the bank delayed the release of its financial results for the October-December period.