Thursday, January 29, 2015

Supreme Court Order On NPA Definition

Supreme Court upholds existing definition of non-performing assets-By Sreeeja Sen- LiveMint-29.01.2015

A bench dismissed several petitions challenging the constitutionality of Section 2(1)(o) of the Sarfaesi Act New Delhi: The Supreme Court on Wednesday upheld the definition of bad loans as amended in 2004 under the securitization Act, handing a victory to creditor banks and a setback to borrowers who had challenged the definition.
 
A bench comprising justices J. Chelameswar and S.A. Bobde dismissed several petitions challenging the validity of Section 2(1)(o) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002.
 
They also directed the borrower companies that had challenged the definition of non-performing loans (NPAs) amended in 2004 under the Act to pay 1% of their outstanding amounts as costs to the creditor banks and other non-banking financial institutions.
The Sarfaesi Act enabled borrowers to seize and sell the assets of defaulting borrowers to recover their loans among other measures.
 
The amended definition was challenged by borrowers because by the amendment it was possible that different sets of guidelines made by different bodies could be followed by different creditors depending upon who is the administering or regulating authority of creditors while determining what was an NPA.
The order comes at a time when banks’ profitability has been under pressure from a rising tide of bad loans after two years of sub-5% economic growth, delayed project approvals that stalled investments and crimped corporate cash flows, making it difficult for borrowers to pay back debts.
“Recovery of money from a debto
r by resorting to the filing of a suit takes painfully long time in this country, for various reasons,” the apex court observed in its judgement.
“Huge amounts of money are lent by various banks and other financial institutions. Speedy recovery of the monies due to such institutions is an important element determining the efficiency not only of such institutions, but also becomes an important factor for the financial health of the country”.
 
Bankers, while finding the ruling a positive one, spoke of loan recovery in a similar strain.
“The recovery process is very lengthy. What we really want is that the defaulting companies should be given less loopholes to exploit so that we can quickly enforce the proceedings,” said Ranjan Dhawan, executive director of Bank of Baroda.
He said the judgement acts as a morale booster, but did not want to comment on the nitty-gritties of the judgment because he hadn’t seen the order yet.
In its 52-page ruling, the apex court analysed decisions from two high courts that had opposing views in relation to the definition of NPAs.
 
Last year, the Gujarat high court and Madras high court had given contradictory decisions regarding the validity of the amendments to the Section 2(1)(o) of the Sarfaesi Act.
The Gujarat high court had on 24 April found the amendment to this provision gave banking and non-banking financial institutions arbitrary powers to declare what could be termed an NPA.
 
It struck down the amendment and restored it to its original form. However, the Madras high court, in a decision dated 18 May, upheld its validity
The apex court held that “Parliament is only stipulating that the expression ‘NPA’ must be understood by all the creditors in the same sense in which such expression is understood by the expert body i.e., the RBI or other regulators which are in turn subject to the supervision of the RBI”.
 
It also stated that “all the creditors do not form a uniform/homogenous class” as “there is nothing uniform about these creditors or their activities”.
It noted that it would be “impracticable” to define NPAs in a way which would be applicable to “the millions of cases of loan transactions of various categories of loans and advances, lent or made by different categories of creditors for all time to come”.
The petition challenging the definition was initiated by companies including Hyderabad-based publisher Deccan Chronicle Holdings Ltd.
T. Venkattram Reddy, chairman of Deccan Chronicle Holdings, could not be contacted after office hours. His office said he had left for the day
 

Court dismisses petition challenging SARFAESI Act-Business Standard-23.05.15

Petitioners include Deccan Chronicle Holdings & Marg Ltd
 
The Madras high court has dismissed the writ petitions filed by various companies and individuals, including Deccan Chronicle Holdings and Marg Ltd, questioning the constitutionality of Section 2(1)(o) of the SARFAESI Act and the guidelines issued by the Reserve Bank of India (RBI) on the classification of assets as non-performing assets (NPAs).

The petitioners, who are debtors to various banks, sought the HC to declare the provisions of the Section as arbitrary, unconstitutional and opposed to public policy, null and void and the same being ultra vires the Constitution of India. They argued that issuing directions or guidelines relating to asset classification is essential legislative function and therefore it cannot be delegated.

They argued the guidelines issued by the RBI cannot be used for defining a “non performing asset” under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). There has to be a separate legislation, as provided under Section 38 of the Act. They also argued the circular under challenge, which defines NPA, is very vague.

However, in a Common Order issued on May 8, 2014, on more than 50 writ petitions, the court said in all the cases, the petitioners have borrowed money from the respective respondent banks and had not repaid the amounts borrowed.

“In the light of the discussion made we do not find any merit in these writ petitions. Accordingly, the writ petitions are dismissed. However, there is no order as to costs,” said the bench. It also refused to use its power of Judicial review, stating, “While dealing with a legislation pertaining to a specialised field, that too, a one like economy, the court should adopt a “dignified reluctance”.”

As per the guidelines issued by the Supreme Court of India, when an asset is treated as a NPA by the respective banks, a rigorous recovery machinery is put into action. It is this provision, which adopts the directions or guidelines relating to asset classification issued by the RBI was put to challenge before the court as unconstitutional, said the order issued by the division bench comprising of Justice N Paul Vasantha kumar and Justice M M Sundresh.

The bench added the court should be aware of the fact that the Legislature is dealing with complex problems and the economic mechanism is highly sensitive “and therefore we should constantly remind ourselves of our own limit.” “We do not like to take the role of a higher authority to review a decision made by an expert body on the materials placed before it. The said attempt is to be avoided, as neither the counsels nor the court can claim a better expertise. Such an attempt would be akin to a search by a visually impaired person to find a black cat during night time in a dark room when the cat itself is not there,” added the court.

Tuesday, January 27, 2015

Acquisition Is Invalid If Land Acquired But Not Used


Governments acquiring land but not using it; Acquisition is invalid : Supreme Court [Read the Judgment]

The Supreme Court of India delivered a judgment that is going to bring in relief to persons whose land has been acquired by the government and the government has not even started using the same despite years having gone by.
 
Addressing a bunch of petitions involving a common question of law, the Bench comprising of Justice V. Gopala Gowda and Justice C. Nagappan said, “we are of the view that physical possession of the land belonging to the appellants have neither been taken by the respondents nor compensation paid to them even though the award was passed on  06.08.2007, and more than five years have lapsed prior to date on which the Act of 2013 came into force. Therefore, the conditions mentioned in Section 24(2) of the Act of 2013 are satisfied in this case for allowing the plea of  the  appellants  that  the  land  acquisition proceedings  are  deemed  to  have  lapsed  in  terms  of Section  24(2)  of  the  Act  of  2013.”
The appeals in the Apex Court were filed by persons who continued to have possession of the land despite a notification was issued by the government regarding its acquisition. Importantly, the persons whose land was ‘acquired’ were not paid any compensation till date.
 
In a similar instance, the Government of Maharashtra had acquired land which belonged to Godrej & Boyce Manufacturing Co, for laying of railway tracks in Vikhroli, Mumbai. However, even after ten years, the government took no steps to use the land but it changed the land use and made it to build a road. The change in land-use was challenged by Godrej, which claimed that the Government did not have the power to do so. However, the submission failed to find favour with the Bombay High Court and the petition was dismissed.
This judgment will surely bring a sigh of relief to litigants who are battling it out against the Government in courts regarding the same issue.
You may read more of Live Law’s coverage on Land Acquisition here.

Sunday, January 25, 2015

High Court Says Bank Cannot Brek Open Flat

Bank cannot break into a flat in case of loan default, rules HC-Times of India-26.01.2015

MUMBAI: The Bombay high court has allowed proceedings against HDFC Bank over allegations that it seized a flat in Pune by breaking open the locks after its owners defaulted on a loan. Justice Abhay Thipsay questioned whether the bank could have forcibly taken possession of the flat without a court order and directed a magistrate-ordered investigation into the case. The HC directive comes on a private complaint by the flat's owners, Milind Mahadik and his wife Aarti.

The bank said the couple were wilful defaulters and under law—Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFEASI) Act—it had powers to seize the flat. The judge held that while the law does not bar a bank from taking possession of a secured asset without court orders, when force is to be used, the district magistrate's orders are necessary.

"If breaking open the lock put on a flat and taking forcible possession... is held to be permissible on the grounds that the SARFEASI Act empowers a secured creditor to do so without the intervention of the district magistrate, then it would be extremely dangerous. The problems arising from holding such a course to be legal will be more serious in cases where such a flat is residential," said Justice Thipsay, pointing out that the bank had not taken police assistance.

He said things can be complicated if the flat contains movable property and possession is taken "by a secured creditor on his own, and without involving the state machinery" by use of force. The Mahadiks had alleged that household articles like a refrigerator, washing machine, and computer, and gold and silver ornaments worth over Rs 22 lakh were in the flat. The HC said the possibility of the articles being stolen or the persons who took physical possession of the flat being falsely accused of theft could not be ruled out and so it was in the interest of the bank to take the state machinery's help in such cases.

In 2003, the Mahadiks had taken a loan of Rs 8.5 lakh to buy the flat. They claimed that they initially paid the EMIs regularly, but stopped after suffering losses in their business and also due to ill health. They said they asked the bank to restructure the payments, but received no reply. In 2008, the bank pasted a notice on the flat under the SARFEASI Act.

The couple alleged that some persons also used threatening language and abused them while asking them to repay the loan. On December 24, 2010, when the couple, who were staying elsewhere, visited the flat, they found that the bank had broken open the locks and sealed the property. They lodged a complaint before the magistrate, who dismissed it saying the couple were "defaulters". Their appeal in the sessions court too was dismissed. Then they approached the HC.

The bank said it was empowered under law to take possession of the flat, and as such it had not committed any criminal offence. The HC did not agree. "Whether offences have been committed in the process of taking possession of the said flat, and if so, by whom, can be properly decided only after an investigation is carried out," the judge said.


Link Times of India

Thursday, January 22, 2015

Chequ Bounce Case May Be Filed At Drawee Location

Cheque bounce case can be filed in jurisdiction of 'drawee bank', says Bombay High Court-DNA
 
In a significant judgment, the Bombay high court has ruled that in cheque bounce cases, only the drawee bank's jurisdiction could be considered during criminal proceedings under Section 138 of Negotiable Instruments (NI) Act, 1881, even as the Real Time Gross Settlement (RTGS) system facility enabled citizens to draw/pay cheques at any branches all over the country.

Justice SB Shukre of the Nagpur bench of the HC observed: "There can be only one drawee bank and not several. When the RTGS cheques bear an endorsement payable at all our branches', it only means 'payment instructions expedited' enabling receipt thereof immediately."

The HC was hearing a petition filed by one Sangita Shah against one Sukrant Shah. The judicial magistrate first class, Nagpur, had returned her complaint against Sukrant on November 3, 2014. Following this, she had filed a writ petition in the HC.

While dismissing Shah's petition, the judge made it clear that there is a difference between 'processing of cheque for payment', and 'giving approval to the processing branch' for the payment. "The branch which processes the cheque and obtains approval for payment from the original branch where funds are actually parked, can only be called as the facilitator. It can't be termed as the 'drawee' under Section 7 of the NI Act," observed the HC.

Nagpur-based Sangita had lodged a complaint against her father-in-law, who is based in Jamshedpur, for dishonouring a Rs2.25 crore cheque. She filed a complaint with the Nagpur magistrate under the NI Act stating that since RTGS system is in existence, the criminal proceedings should be conducted in Nagpur. However, the JMFC rejected the complaint and returned the same saying that she should file it in Jamshedpur where the bank, which had bounced the cheque, was located.

She challenged this before the HC through advocate AP Raghute contending that the concept of the 'drawee bank' was enlarged after RTGS wherein payments are made at any of the branches of the same bank, across the country. Therefore, all bank branches, for offences under the NI Act, can act as the 'drawee bank'.


He said: "In conventional processing, considerable time is spent on obtaining instructions from the branch on which cheque is drawn. RTGS saves this by resorting to the modern technology which has, through web-world or Internet, made it possible to quickly access information including those contained in accounts."

The judge said the RBI has made it clear that 'Real Time' is the time taken for processing of instructions after they are received while 'Gross Settlement' means the settlement of funds transfer instructions which occurs individually.

"The cheques are immediately processed by the branch to which they are presented because of the fact that funds are to be settled only in the RBI books. What is contemplated under RTGS is only transfer of funds by the 'drawee bank' to other branches which received the cheques. It means that dishonouring of cheque takes place because of failure or refusal to transfer funds which takes place at the place where the 'drawee bank' is situated," added justice Shukre while dismissing the petition 
Link DNA giving above news

Thursday, January 15, 2015

PIL Filed Against Banks

Central Bank employees union files PIL seeking direction to recover bad loans-Hindu Business Line

Mumbai, December 15:  
Burgeoning bad debts in public sector banks has prompted an employees union to file a public interest litigation (PIL) seeking the Bombay High Court’s ‘interference and directions’ for effecting loan recoveries.
 
Subhash S Sawant, General Secretary, Central Bank Employees Union, has filed the PIL to get four of the eight respondents — Union of India, Finance Ministry, Reserve Bank of India and Central Vigilance Commission (respondents 1 to 4) — “to immediately and forthwith intervene”. The petition, which names Central Bank of India, All India Central Bank Employees’ Federation, Central Bank Employees Federation of India, and Indian Banks’ Association as the other respondents, seeks adjudication on a host of points of law of grave public importance.
 
Sawant has petitioned that the respondent authorities, to take legal action against various public sector banks so that they recover the loans that their clients have defaulted.
The PIL has also sought legal action against various public sector banks for not prosecuting and punishing their clients, who are highly influential and powerful persons/ entities, who have defaulted in repayment of their loans running into thousands of crores of rupees.
 
“…admittedly, if the prosecution and punishment was initiated and pursued, names of senior officials of the management of various public sector banks would be unearthed, making them vulnerable also for prosecution and punishment along with the defaulting clientele,” says the petition.
 
The petitioners – Sawant and Central Bank Employees Union – said a ruling be issued for a writ or an order in the nature of a writ directing respondents 1 to 4 to individually and/ or collectively take legal action against various public sector banks for their actions and inactions (vis-à-vis bad loans) within a fixed time schedule that the court may deem fit and proper. Pending hearing and final disposal of the present petition, the PIL has sought a directive to respondents 1 to 4 to file and affidavit and inform the legal action taken, if any, against various public sector banks, including respondent 5 (Central Bank of India).
 
Bad loans of public sector banks rose sharply to 5.33 per cent of total advances in September 2014 mainly due to sluggishness in the economy and other factors, including delay in environmental clearances. Bad loans of these banks stood at 4.72 per cent of total advances at the end of March 2014
 
PIL Sought To Allow Customers Unlimited Transactions on Own Bank ATMs
 
A Public Interest Litigation (PIL) was filed in the Delhi High Court seeking directions from the High Court to pass a resolution to allow the banking customers to use their ATMs for unlimited number of transactions without charging any fee on the customer. The PIL was filed by advocate Swati Aggrawal in the court seeking to quash the RBI direction to limit the number of transactions in ATM from one’s bank. This RBI direction came to the fore on August 14 this year. The PIL was filed by advocate Swati through advocate Vivek Kumar Tandon.
 
The Delhi High Court had just a day ago issued notice to RBI on its decision to limit five transactions a month from the own bank ATM of the customer and also or charging Rs. 20 for every transaction beyond the five allowed transactions. The division bench comprising of Justice P.S. Teji and Chief Justice G. Rohini has issued a statement on the same to State Bank of India, the Indian Banks Association as well as the RBI and they will have to revert back to the court by February 18, 2015.

The Court said that the banks are unnecessarily taxing the account holders. The PIL had further said that the directive to this RBI order came into effect on November 1st, 2014 and is implemented by many of the banks, including the State Bank of India. There is also a limit for  ATM users in six metro centers like Chennai, New Delhi, Mumbai, Kolkata, Hyderabad and Bengaluru to use ATMS of other banks for free for just three transactions a month, beyond which they have to pay Rs. 20/- per transaction.

The PIL has said that the direction from the RBI to charge ATM on own banks has come into force after a few banks and the Indian Banks Association called on the RBI to make changes in the free transactions at other bank ATMs. Advocate Tandon for the petitioner said that the RBI’s decision is against international practices that are prevalent across the world for use of own bank ATMs. There is no cap on the number of transactions that one can carry out on own bank ATM in the modern countries of the world and the transactions in own bank ATMs are free of charge despite the number of transactions.

The plea also said that the RBI’s current decision is in complete contrast to their earlier circular dated March 10, 2008 wherein the RBI as per the international practices of usage of ATMs had “justified and given directions allowing the free usage of ATMs for unlimited number of transactions on own bank ATMs”.

PIL seeks revamp of norms on legal professionals to help curb NPAs-Economic Times 15.01.2014

MUMBAI: Norms for the empanelment of legal professionals and company
secretaries by banks need to be revamped to help curb the growth of bad loans,
according to a review petition filed by a lawyer in the Bombay High Court.


The Reserve Bank  of India (RBI) and the Indian Banks Association (IBA) must formulate guidelines and  eligibility criteria for these professionals, Sanjay Lalit, a partner of
Mumbai-based law firm Jupiter Legal, said in the petition, also urging the court to reconsider its decision to reject his earlier application on the  matter.

"If these guidelines are followed, the banks' NPAs can come  down by at least 10%," Lalit told ET. The petition also sought a direction by the  court for banks to upload the eligibility criteria on their websites. The  appeal, which was filed in November, is yet to come up for hearing.

RBI  Governor Raghuram Rajan has stressed the importance of restructuring some of the
bad loans to improve economic growth. The combined NPAs of public sector banks stand at about  Rs 2.5 lakh crore, excluding restructured loans, according to data from the
central bank. Currently, there are no uniform guidelines for public sector banks  that hire lawyers.


The empanelment of advocates should be on the basis  of execution capabilities, experience, skills and competence, according to the  petition, a copy of which was reviewed by ET.

The court had rejected  the first application  in September on grounds that it would not be justified in entertaining the  petition.

"It is for the banks to consider what eligibility criteria  should be adopted for engaging legal professionals," a division bench comprising  Chief Justice Mohit Shah and Justice MS Sonak said while dismissing the  petition.

Girish Dave, a senior advocate representing the IBA, said he is not aware of a fresh appeal
being filed after the first PIL was dismissed by the court