Landmark Judgments on Banking Laws Supreme Court of India FEMA & Banking Case Laws RDDB, SARFAESI, RBI, BRA Enactments

Discover the latest and greatest in FEMA, Banking, and Securitisation Laws with our expert analysis and explanations. Our team has compiled a list of landmark rulings that are the talk of the industry. Whether you’re looking for practical insights for professionals or settled positions of law, this must-read list has got you covered. Stay ahead of the game and don’t miss out on these trending case laws.

In this article, we will explore the significant rulings on banking laws made by the Indian Supreme Court and High Courts. These landmark judgments pertain to four key enactments in the banking sector, including the Banking Regulation Act of 1949, the Reserve Bank of India Act of 1934, the Recovery of Debts Due to Banks and Financial Institutions Act of 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.

On August 8, 2022, a 2-Judge Bench of HM Justices D.Y. Chandrachud and A.S. Bopanna delivered a verdict in the case of Arun Bhatiya v. HDFC Bank. The verdict concerned statutory appeals filed against the orders of the National Consumer Disputes Redressal Commission (NCDRC), which had dismissed the appeals and the application for review filed by the appellant. The original complaint was filed before the State Consumer Disputes Redressal Commission (SCDRC) at Lucknow, alleging deficiency of service on the part of the bank in transferring the FD amount contrary to the written instructions given by the bank account holder to the appellant’s father, and which was subsequently credited by the transferee to his benefit. The SCDRC rejected the complaint, holding that the dispute was primarily between the appellant and his father, and the civil court was the competent forum to deal with the same. The review petition was also dismissed.

The primary case set up before SCDRC on behalf of the appellant was that the bank was not justified in law in entertaining the unilateral request of his father for crediting the proceeds to his account. The court referred to the condition of the FD relating to a joint account, which clearly stated that for a premature encashment, all signatories to the deposit must sign collectively on the encashment instruction. However, this was not done in the present case. Referring to a recent judgment of the Supreme Court in Vodafone Idea Cellular Ltd. v. Ajay Kumar Agarwal, the court held that service of every description falls within the ambit definition of “services” under Section 2(1)(o) of the Consumer Protection Act, 1986 (‘1986 Act’), and a person who avails of any service from a bank falls under the purview of the definition of a consumer under the 1986 Act. This entitles them to seek recourse to the remedies provided under the 1986 Act. Thus, the SCDRC and, resultantly, the NCDRC were held to have erred in incorrectly rejecting the complaint and the statutory appeal of the petitioner. The matter was accordingly remanded back for fresh adjudication and consideration of merits within the ambit of the 1986 Act by the Supreme Court. The judgment was authored by HM Justice D.Y. Chandrachud.

In the case of Bank of Baroda v. Parasaadilal Tursiram Sheetgrah (P) Ltd., a secured creditor had auctioned a property and issued a sale certificate to the successful auction-purchaser. An application was filed before the Debts Recovery Tribunal (DRT) challenging the auction proceedings by the borrower company, but it was dismissed as it was filed beyond the statutory period of limitation. However, the review of this decision was allowed on the ground that the legal representatives of one of the borrowers/directors of the company were not issued notice and were unaware of the auction. The Debts Recovery Appellate Tribunal (DRAT) allowed an appeal against the review order on the ground that the review jurisdiction was improperly and illegally exercised. The legal heirs/representatives of the deceased director challenged this order before the High Court, which stayed the operation of the DRAT’s order and directed the DRT to proceed with the securitisation application on merits.

The Supreme Court, referring to the Transcore v. Union of India judgment, held that the SARFAESI Act is enacted for quick enforcement of security interests and that courts should be hesitant to interfere in cases where third-party rights have been created under the provisions of the Act and remained inconclusive for a long time due to the interference of the DRT. Therefore, the interim order of the High Court was set aside as the DRAT’s order was correct and the High Court should not have stayed its operation.

In Moonlight Poultry Farm v. Union Bank of India, the High Court considered the interpretation and applicability of Section 13(8) of the SARFAESI Act, 2002, which deals with the right of the principal borrower to redeem a mortgaged property after it has been sold in an auction by the bank under the provisions of Security Interest (Enforcement) Rules, 2002. The court examined two principal questions: whether the bank was right in issuing the sale certificate to the auction-purchaser even though the borrower had deposited the entire amount prior to the date on which the auction-purchaser had deposited the amount, and till what time or date can the right of redemption of the mortgage be exercised by the borrowers in the light of the amendment to Section 13(8) of the SARFAESI Act.

The court analyzed both the pre-amended and post-amended provisions of Section 13(8) of the SARFAESI Act, and held that the amended provision was intended only to deal with the date when the secured creditor’s right to transfer the secured assets should start and nothing more. The court also held that the right to redeem the mortgage does not get extinguished on the date fixed for sale, but extends further beyond. The amended provision of Section 13(8) does not extinguish the equity of redemption available to the mortgagor but merely prohibits the secured creditor from proceeding further with the transfer of the secured assets by way of lease, assignment, or sale, if the entire amount is repaid prior to the notice for auction.

In this case, the sale certificate was issued to the auction-purchaser after the borrower had deposited the outstanding amount with the bank, and thus the court held that the sale certificate was vitiated. The court held that the borrower had timely exercised the right to redeem the property from the bank, and therefore the sale confirmation and sale certificate letters were quashed by the High Court.

In the case of SEBI v. Rajkumar Nagpal, a 3-judge bench of the Supreme Court of India consisting of HM Justices D.Y. Chandrachud, Surya Kant and A.S. Bopanna delivered a judgment on August 30, 2022. The case concerned disputes about the interplay between the Reserve Bank of India (Prudential Framework for the Resolution of Stressed Assets) Directions, 2019 (RBI Circular) and a circular issued by the Securities Exchange Board of India (SEBI) on October 13, 2020, titled “standardisation of procedure to be followed by debenture trustee(s) in case of default by issuers of listed debt securities.”

The disputes related to the rights of debenture trustees vis-à-vis the secured creditors/lenders in case of enforceability of a resolution plan against a distressed defaulting company. The court framed two broad issues for consideration: (a) whether the debenture holders and other parties were required to follow the procedure under the SEBI Circular, and (b) whether the civil court had jurisdiction to entertain the case.

The court held that the RBI Circular of 6-7-2019 contemplates a resolution plan inclusive of restructuring of a default account with lender institutions falling within the ambit of Clause 3. The resolution plan-cum-scheme of corporate debt restructuring must be consented to by not less than 75% of the secured creditors by value and 60% by number. Under the RBI Circular, all lenders must enter an ICA, where a resolution plan is being implemented, and it must have a minimum of 75% by value and 60% by number to bind all the lenders, including those who dissent.

The court also traced the background, objective and purpose behind the enactment of SEBI (Debenture Trustees) Regulations, 1993, as a circular meant for and containing provisions for the registration of debenture trustees. The court referred to the SEBI Circular in question involved in the case, which specifies conditions for signing of an ICA by any debenture trustee on behalf of the investors, and it is the debenture trustee who is vested with the discretion to sign or not to sign the resolution plan on behalf of the investors.

The court held that the SEBI Circular has essentially facilitated the role of debenture holders in the insolvency proceedings and the ICA which occurs under the umbrella of RBI Circular. The SEBI Circular was held to possess a statutory character and colour, having been issued under the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the various regulations framed thereunder.

In summary, the court held that debenture holders may choose to exercise their rights through the mechanism of resolution plan of ICA provided under RBI Circular or stand out, but once they opt for the mechanism provided under the SEBI Circular, they cannot opt out of it. The SEBI Circular applies retroactively to the transaction of framing a resolution plan which is subsequent to its introduction, and it takes precedence over various contractual clauses. The court also examined the breadth and width of Article 142 of the Constitution of India, which can be used to relax the rigours of law depending upon the peculiar facts and circumstances. Accordingly, the court issued certain directions protecting the interests of the ICA lenders as well as the debenture holders in a just and fair manner, exercising powers under Article 142 of the Constitution of India.

The Jalgaon Janta Sahakari v. CST case before the Bombay High Court involved a question of interpretation of provisions introduced in 2016 to the SARFAESI Act, 2002 and the RDDB Act, 1993. The primary issue was about which party, between a secured creditor and the taxing/revenue departments of the Central/State Governments, could legally claim priority for liquidation of their respective dues upon enforcement of the security interest and consequent sale of the secured asset. The High Court was tasked to decide on the priority of dues and created several substantial questions of law to be answered. The Court held that “first charge” and “priority” in the payment of debt are synonyms and mean the same thing, and the priority in favour of banks/financial institutions shall hold good for creation of every interest from lease, mortgage to sale of the said property. The Court also explained the meaning of the word “encumbrances” in relation to “immovable property” and held that the provisions of law must always expressly provide for enforcement of a charge against the property in the hands of a transferee for value without notice to the charge and not merely create a charge.

The Court held that the registration of transactions of securitisation, reconstruction, creation of security interest with the Central Registry is mandatory for a secured creditor for availing benefits flowing therefrom. CERSAI registration has been made mandatory for a secured creditor, failing which he cannot even take recourse to provisions of Chapter III without requisite registration. The Court also held that all legislations of the State of Maharashtra providing for first charge are subservient/subordinate to the priority created in favour of secured creditor under the SARFAESI or the RDDB Act. The dues of secured creditor and subject to insolvency proceedings under the IBC Code would rank superior to the dues of relevant department of the State Government. The Court also ruled that the requirement of CERSAI registration is mandatory for letting the world know at large that an equitable mortgage over the immovable property in favour of secured creditor has been created, which takes an upper hand over all other debts, dues, and liabilities. The Court held that the priority under the provisions of SARFAESI Act is applicable prospectively, and amended Sections 31-B and 26-E shall not apply retrospectively to past attachments arising out of liabilities created prior to the Amendment of 2016. Finally, the Court ruled that “encumbrance” must be charged on the property, and the priority contemplated under Section 26-C would not get attracted prior to 2016 if the attachment and charge has been created according to law, following all the statutory formalities as required under the applicable local statute by the competent Designated Authority.

In Joy Kali Oil Industries (P) Ltd. v. Union of India, delivered on September 13, 2022, a 2-Judge Bench of HM Justices Prakash Shrivastava, C.J. and Rajarshi Bharadwaj, authored by HM Justice Rajarshi Bharadwaj, determined that Section 14 of the SARFAESI Act, 2002 is not a provision that deals with the court or executive authority’s jurisdiction. Instead, it provides a remedial measure for the secured creditor to obtain the assistance of the authorized officer in taking possession of a secured asset to enforce the security provided by the borrower. The authorized officer performs administrative or executive functions, utilizing the state’s coercive power to expedite the recovery of the secured creditor’s outstanding dues, and is thus quasi-judicial. The power and steps taken for passing orders under Section 14 are ministerial and can be delegated to any officer assisting or subordinate to the authorized officer. Therefore, the writ petition challenging the borrower’s taking over of possession by the Executive Magistrate was dismissed, as there was no obligation for the CMM/DM to personally take possession of the secured assets.

The case of Balkrishna Rama Tarle v. Phoenix ARC (P) Ltd. was brought before a 2-judge bench of HM Justices M.R. Shah and Krishna Murari, with the judgment authored by HM Justice M.R. Shah. The case dealt with a challenge to a judgment passed by the Bombay High Court, which had set aside an order passed by the Designated Authority under Section 14 of the SARFAESI Act. The Designated Authority had declined to assist the secured creditor in taking possession of the secured assets, stating that the application could only be decided after the termination of the tenancy rights of the petitioner by the finance company following due process of law. The Bombay High Court set aside this order and directed the Designated Authority to decide the application under Section 14 afresh.

The appellant in the Supreme Court were principal borrowers against whom the ARC was proceeding under SARFAESI. The legal heirs of the original tenants of the mortgaged property objected to the Section 14 application filed by the ARC before the Designated Authority without instituting any proceedings under Section 17 of the SARFAESI Act challenging the steps taken by the creditor/ARC under Section 13 of the SARFAESI Act before the Debts Recovery Tribunal. The tenants argued that their rights took precedence as the tenancy was subsisting and continuing prior to the mortgage of the property, and until eviction proceedings were initiated, the secured creditor could not get possession under Section 14 of the SARFAESI Act.

The Supreme Court examined two fundamental questions. First, the maintainability of the writ petition at the instance of the tenant before the High Court bypassing the statutory remedies under the SARFAESI Act, 2002. Second, whether while exercising powers under Section 14 of the SARFAESI Act, the District Magistrate/Designated Authority could have passed any order deferring the relief of grant of possession till the secured creditor terminates the tenancy rights of the third person by following due procedure of law, and whether the application under Section 14 could have been deferred to be decided till such stage.

The court held that the powers exercisable by DM/CMM under Section 14 are purely “ministerial” and cannot brook any delay, and that no adjudicatory powers are vested with the CMM/DM whilst deciding an application under Section 14. The court held that adjudication with respect to the secured assets cannot be raised between any third party and the secured creditor. The aggrieved party has to necessarily be relegated to the remedy under Section 17 of the SARFAESI Act and nowhere else. The court distinguished the judgment of Harshad Govardhan Sondagar and Vishal N. Kalsaria v. Bank of India, stating that nowhere in the aforesaid judgment was it held that DM/CMM has to adjudicate the rights between the parties or decide upon the issues pertaining to the locus of the secured creditor to take possession. Accordingly, the judgment of the High Court was affirmed.

In the case of Diamond Entertainment Technologies (P) Ltd. v. Religare Finvest Ltd., the court considered whether a second arbitration petition was maintainable for the same contract, which was a loan agreement, in which the petitioner had already invoked arbitration and an award had already been delivered. The bank had initiated SARFAESI proceedings for non-payment of the amount not covered by the previous arbitration award. The court referred to the judgment of Dolphin Drilling Ltd. v. ONGC Ltd. and held that an invocation of arbitration cannot be treated as a one-time measure. However, it is not prudent to have multiple arbitrations from the same contract except when the cause of action arises afresh post the first arbitration. The court also referred to the judgment in Gammon India Ltd. v. National Highways Authority of India and held that all claims that have reason on the date of invocation of arbitration must be referred to arbitration. The court further held that the remedy under SARFAESI Act available to the secured creditor bank was only in addition to the provisions of other enactments and the provisions of the RDDB Act or any other enactment were not inconsistent with the provisions of the SARFAESI Act. The court also held that arbitration of disputes never gets per se barred on invocation of proceedings under the SARFAESI Act, referring to the judgment of M.D. Frozen Foods Exports (P) Ltd. v. Hero Fincorp Ltd., and appointed an arbitrator for de novo arbitration proceedings between the parties.

In the case of Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd. (delivered on November 10, 2022), a 3-Judge Bench of HM Justices Sanjay Kishan Kaul, Abhay S. Oka, and Vikram Nath considered whether a borrower has the legal right to initiate a civil suit against a bank or financial institution under the provisions of the CPC, 1908 to seek recovery of a loan amount.

The appellant bank had initiated proceedings under Section 19 of the erstwhile Recovery of Debts and Bankruptcy Act, 1993 before the DRT Calcutta, after the respondent borrower was unable to pay the outstanding dues. In turn, the respondent filed a civil suit before the Calcutta High Court. However, views taken by the Supreme Court in various judgments created a conflict, leading the Court to review the anatomy of the RDB Act, noting the Statement of Objects and Reasons, the entire statutory framework, and previous case law.

The Court held that the statutory bar under Sections 17 and 18 on civil court jurisdiction only pertains to applications by the bank or financial institution for debt recovery and does not bar the borrower or any other person from filing a suit against the bank seeking relief. The borrower also has the option of filing a counterclaim to the bank’s application before the Tribunals, but is not compelled to do so.

The DRT has no jurisdiction to try independent suits or proceedings initiated by the borrower or others against banks/financial institutions, but rather is a forum designed for institution of suits, proceedings, and applications at the instance of the bank. The Court also held that Section 9 of the CPC grants civil courts the power to determine all disputes of civil nature unless specifically barred under any statute, and no provision under the RDB Act ousts the jurisdiction of the civil court. The DRT being a tribunal and a creature of statute, cannot possess any inherent powers, as it inheres in civil courts by virtue of Section 151 CPC.

In the case of Varimadugu Obi Reddy v. B. Sreenivasulu, delivered on November 16, 2022, a two-judge bench comprising HM Justices Ajay Rastogi and C.T. Ravikumar, authored by HM Justice Ajay Rastogi, the e-auction sale notice was challenged by the borrowers before the Debt Recovery Tribunal (DRT). Although the auction sale was allowed to proceed, the sale certificate was directed not to be issued, and it was further directed that in case the borrowers fail to deposit the outstanding amount, then the respondent bank shall be at liberty to issue the sale certificate in favor of the highest bidder. When the borrower failed to repay the amount within the extended time period, the auction sale was finalized, and the sale certificate was issued in favor of the auction purchaser.

However, the auction sale was objected to on the grounds that there was a manifest error in the description of the property and that the auction price was not deposited by the auction purchaser within fifteen days of the auction. The High Court quashed the entire auction proceeding on these grounds, but the matter was taken to the Supreme Court by the bank. The Supreme Court held that the plea regarding the incorrect description of the property was belated and not sustainable since no palpable prejudice was demonstrated to have been occasioned by the error. The Court also held that the period of fifteen days for depositing the balance 75% of the bid amount of the auction purchaser was not sacrosanct and is extendable if there is a written agreement between the parties for such an extension.

The Supreme Court further deprecated the conduct of the borrower in directly approaching the High Court against the order passed by the DRT instead of availing the appellate remedy under Section 18 of the SARFAESI Act. The Court held that the writ petition passed by the DRT was clearly not maintainable and that the only forum available for agitating the matter further was DRAT under Section 18 of the SARFAESI Act. Finally, the Supreme Court set aside the judgment of the High Court and held that no case for interference was made out with the auction sale.

The case of Leelamma Mathew v. Indian Overseas Bank involved a disputed property that had been auctioned by the bank to an auction-purchaser. The trial court decreed the suit in favor of the plaintiff (auction-purchaser) and directed the defendant bank to pay the entire amount paid by him along with future interest. The matter traveled to the Supreme Court on the question of maintainability and the propriety of the order passed by the trial court.

On the issue of maintainability of the suit being barred by Section 34 of the SARFAESI Act, the Court held that the suit was for “damages and compensation” and did not fall within the purview of the DRT or DRAT. The auction-purchaser was not challenging the sale certificate, but only damages/compensation with respect to the lesser area which was granted to him.

Regarding the interpretation of “as is where is” and “as is what is” basis clause at the time of sale, the Court held that the bank was bound to disclose any material defect in the property which the buyer was not aware of or could not have ordinarily discovered. The bank had concealed the issue of the existence of encumbrances and prior charges over the auctioned property, and therefore, the “as is where is” or “as is what is” clause was not applicable, and the petitioner was entitled to the damages/amount paid by him.

The judgment of the High Court setting aside the decree was set aside, and the judgment of the trial court was restored and affirmed.

The case of Ishwarlal Shankarlal Lalwani v. Union of India concerns a challenge made to a notification issued by the Union of India on October 4, 2022, which directed all disputes and litigations with loan exposures valued at over 100 crores to be transferred to Delhi and Bombay from all other existing Debt Recovery Tribunals (DRTs) in the country. The challenge was made on the ground that this would defeat the purpose of establishing DRTs at various locations in every state and disturb the territorial appellate jurisdiction exercised by Debt Recovery Appellate Tribunals (DRATs).

The High Court took a prima facie view of the matter and held that determining territorial jurisdiction on the grounds of pecuniary limitations without any amendment to the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB Act) is unsustainable. The High Court also noted that if the impugned notifications were to be struck down later, transferring back all the files to the original DRTs and DRATs would lead to severe prejudice to the parties.

Therefore, the High Court stayed the effect and operation of the notifications transferring cases dated October 4, 2022. It should be noted that this is an interim order, meaning that it is temporary and subject to change based on further proceedings in the case.

Punjab National Bank v. Subhash Aggarwal In a case heard by a 2-Judge Bench of HM Justices Suresh Kait and Saurabh Banerjee, the Punjab National Bank had filed an application under Order 7 Rule 11 of the CPC, 1908, against the rejection of the application by the borrower in a suit challenging interest prior to the registration of the subject property. The issue before the court was whether the civil suit was maintainable or barred under Section 34 of the SARFAESI Act, which pertains to the grant of damages for inordinate delay in the issuance of a sale certificate and registration of a sale deed. The appellant bank had not initiated any proceedings under Section 13 of the SARFAESI Act. The court held that the bar under Section 34 only applies when the secured creditor initiates appropriate steps for the realization of its security interest. In the absence of such steps, the borrower can seek relief in a civil court. The court further held that the phrase “to be taken” under Section 34 of the SARFAESI Act should be read in conjunction with the law of limitation. If the proceedings are time-barred, even if the bank is about to initiate them, Section 34 would not apply. The suit before the civil court was held to be maintainable, and the bank’s application was rightly rejected. The decision was authored by HM Justice Mr. Saurabh Banerjee and delivered on November 18, 2022.

The High Court in the case of Shipra Hotels Ltd. v. State of U.P. considered whether principles of natural justice can be read into as implied mandatory requirements before passing any order by the CMM/DM under Section 14 of the SARFAESI Act, 2002. The court referred to various provisions of the SARFAESI Act and the judgment of the Supreme Court in Mardia Chemicals Ltd. v. Union of India, which held that the recovery of possession by non-adjudicatory process under Section 13(4) is automatic and statutory, and the only remedy available to the borrower is to approach the Tribunal by way of application under Section 17 of the Act.

The court also referred to the judgments of Trade Well v. Indian Bank, Transcore v. Union of India, and Standard Chartered Bank v. V. Noble Kumar, which held that no opportunity of hearing on natural justice is contemplated before deciding the Section 14 application by the CMM/DM. The court held that prior to Section 13(4) or Section 14, no opportunity of hearing is contemplated statutory or deserved to be provided to the borrower. The borrower is entitled to resort to the statutory remedy under Section 17 and question the measures taken under Sections 13(4) and 14 therein on various grounds.

However, the court also referred to the judgment of State of U.P. v. Synthetics and Chemicals Ltd., which held that any declaration or decision arrived without application of mind or any reason cannot be deemed to be a declaration of law. The court held that the view of Coordinate Benches on the point of providing an opportunity of hearing to the borrower before disposing of Section 14 application by CMM/DM was held to be not a good law, “per incuriam” in nature, and that no opportunity of hearing on natural justice is contemplated before deciding the Section 14 application by the CMM/DM.

The case of S.K. Bakshi v. Punjab National Bank, decided by a Single Judge Bench of HM Justice Sindhu Sharma on November 30, 2022, dealt with the issue of the maintainability of a writ petition by an auction-purchaser who was being delayed the issuance of a sale certificate and delivery of physical possession of a property purchased by him in an auction conducted by a bank of a distressed asset.

The court held that Section 17 of the SARFAESI Act, which provides for an appeal against the action of a bank initiated under Section 13 by a borrower, does not apply in such circumstances, and that the remedy available to a successful auction-purchaser is a writ petition or a civil suit. The court also held that Rule 9 of the Security Interest (Enforcement) Rules, 2002, requires the authorised officer of the bank to deliver the property to the purchaser free from all encumbrances on deposit of money with the bank.

The court further held that the defence of “as is where is basis” cannot be taken by the auctioning bank if the encumbrances and previously existing charges over the property are not being properly disclosed to the auction-purchaser. In this case, the auctioning bank had suppressed all litigations, encumbrances, and charges relating to the auctioned property and auctioned the property without appropriate disclosures to the auction-purchaser.

The court found that the auction-purchaser was a bona fide purchaser entitled not only to a valid sale certificate but also to the peaceful physical possession of the property purchased by him. The bank had a statutory obligation to put the auction-purchaser in peaceful possession without any encumbrances, charges, or disputes attached to it.

As a result, the court directed the auctioning bank to put the auction-purchaser in physical possession of the subject property purchased by them.

The case of UV Asset Reconstruction Co. Ltd. v. Union of India involved an asset reconstruction company (ARC) that had acquired the debt of M/s Burnpur Cement Company Ltd. and became the new pledgee in place of the original pledgee, SBI, under Section 5(3) of the SARFAESI Act. The petitioner had approached the High Court seeking the substitution of its name as the new pledgee in place of SBI in respect of pledged shares of Burnpur Cement Company Ltd. However, the respondents had refused to make the substitution.

The court referred to Sections 5(2) and (3) of the SARFAESI Act and held that the Act envisages the transfer of assets by original lenders, including banks and financial institutions, to asset reconstruction companies. The petitioner became the new pledgee in accordance with the law, having acquired the shares by way of a debt assignment deed. The court held that the petitioner’s right to deal with these pledged shares became absolute and bound to be recognized by all third parties, including statutory authorities like Respondent 2.

The court further held that even though the Depositories Act, 1996 or SEBI (Depositories and Participants) Regulations, 2018 do not lay down any procedure for making such a substitution or transfer of pledged shares, it does not imply that Respondent 2 can refuse to incorporate changes in the ownership of pledged shares. Therefore, the court allowed the writ petition and directed Respondent 2 to carry out the necessary substitution of the petitioner’s name as a pledgee in its records of the shares.

The case of Surendra Kanwar Shekhawat v. Punjab National Bank involved a writ petition challenging the peaceful possession of secured assets demanded by the bank, who stood as guarantor to the loan provided to the principal borrower, M/s Super Shiv Shakti Chemicals Pvt. Ltd. The company of the principal borrower went under insolvency and liquidation before the NCLT, and thus the guarantor took the plea that since the insolvency proceedings under the IBC Code had been initiated, the guarantors stood discharged from his liability.

The court referred to the judgments of SBI v. V. Ramakrishnan and Lalit Kumar Jain v. Union of India and held that a personal unequivocal guarantee is never affected by the involuntary act of the principal debtor leading to loss of security through the operation of a law or statute. The guarantor is not absolved of its liability even if the resolution plan is approved and the resolution plan fails to meet the outstanding liabilities of the secured creditor.

Section 238 of the IB Code, 2016 has no applicability in such circumstances and there is no question of inconsistency between the provisions of the IB Code or the SARFAESI Act as such. Release or discharge of the principal borrower from the debt owed by it to its creditor by an involuntary process does not automatically lead to the discharge of the guarantor, whose liability subsists and survives till the debt exists.

Thus, the action of the bank in demanding possession from the petitioner was affirmed as falling within the four corners of Section 13 of the SARFAESI Act, 2002 and was not unjustified.

Landmark Judgments on Banking Laws Supreme Court of India FEMA & Banking Case Laws RDDB, SARFAESI, RBI, BRA Enactments

1. The Supreme Court delivered a significant ruling in the Vijay Madanlal Choudhary v. Union of India case, where it upheld the constitutional validity of the amended Section 45 and other relevant sections of the Prevention of Money Laundering Act (PMLA).
2. The Supreme Court’s verdict in the Arunachala Gounder v. Ponnusamy case held that in the event of an issueless and heirless female Hindu dying without a will, her inherited property shall revert back to the source.
3. As per the ruling in HDFC Bank Ltd. v. Union of India, the Supreme Court has established that a bank is entitled to file a writ petition under Article 32 of the Indian Constitution against directions issued by the Reserve Bank of India (RBI), which are based on a judgment passed by the Supreme Court.
4. In the Noel Harper v. Union of India case, the Supreme Court upheld the constitutional validity of the 2020 amendments made to the Foreign Contribution (Regulation) Act (FCRA). The court commended Parliament for taking timely corrective actions to address the concerns and issues raised in relation to the FCRA.
5. The National Company Law Appellate Tribunal (NCLAT) ruled in the case of C Ramasubramaniam Liquidator of Padmaadevi Sugars Ltd. v. Deputy Commissioner of Income-tax (Benami Prohibition) that attachments made under the Benami Transactions (Prohibition) Act can only be challenged or questioned under the provisions of the said Act.
6. In the Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd. case, it was held that a civil court has the authority to entertain and try a borrower’s suit against a bank/financial institution. However, the court is not empowered to transfer the suit to the Debt Recovery Tribunal (DRT).
7. In the case of Chander Prakash Wadhwa v. State (NCT of Delhi), the Supreme Court directed the Trial Court to reconsider the bail plea afresh as the petitioner’s medical report revealed blockages of arteries. This ruling was made in connection with a case under the Prevention of Money Laundering Act (PMLA).
8. The High Court held in the case of Gautam Thapar v. Directorate of Enforcement that bail can only be granted to an accused under the Prevention of Money Laundering Act (PMLA) if the twin conditions laid down under Section 45(1) of the Act are satisfied.
9. In the Dilip Hariramani v. Bank of Baroda case, the Supreme Court ruled that there can be no vicarious liability of persons under Section 141 of the Negotiable Instruments Act, unless the entity in question has committed an offense as the principal accused.
10. The Supreme Court held in the case of Nedumpilli Finance Co. Ltd. v. State of Kerala that state laws such as the Kerala/Gujarat Money Lenders Act do not apply to Non-Banking Financial Companies (NBFCs) registered under the Reserve Bank of India (RBI) Act.
11. Reserve Bank of India v. Jayantilal N. Mistry: This case established the principle that banks can be held liable for negligence and breach of duty of care towards their customers.
12. Directorate of Enforcement v. Axis Bank Ltd.: This case involved allegations of money laundering and violation of FEMA regulations by Axis Bank. It highlights the strict regulatory framework for banks and financial institutions under FEMA.
13. Union of India v. Ramesh Gelli: This case involved allegations of money laundering and violation of FEMA regulations by a high-profile businessman. The Supreme Court held that the Prevention of Money Laundering Act (PMLA) provisions can be applied retrospectively.
14. Adjudicating Authority (PMLA) v. Bhushan Power and Steel Ltd.: This case established that the PMLA can be used against corporate entities for money laundering offenses committed by individuals associated with them.
15. Deputy Director v. Punjab National Bank: This case involved allegations of violation of FEMA regulations by PNB. The Appellate Tribunal held that FEMA regulations take precedence over any conflicting provisions of the Companies Act, 1956.
16. Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd.: This landmark case held that the RBI’s regulatory powers extend to non-banking financial companies (NBFCs).
17. Bank of India v. K. Mohandas and Ors.: This case involved a dispute over the liability of banks in cases where they have issued bank guarantees. The Supreme Court held that banks cannot be held liable if they act in good faith and have taken reasonable care in issuing bank guarantees.
18. Directorate of Enforcement v. Vijay Mallya: This high-profile case involved allegations of money laundering and violation of FEMA regulations by the former chairman of Kingfisher Airlines. The case highlights the role of the Enforcement Directorate in investigating and prosecuting financial crimes.
19. Sahara India Real Estate Corp. Ltd. and Ors. v. Securities and Exchange Board of India: This case involved allegations of fraud and violation of securities regulations by Sahara India. The Supreme Court held that SEBI has wide-ranging powers to regulate and oversee the securities market.
20. Shree Ram Mills Ltd. v. U.O.I. and Ors.: This case involved a challenge to the constitutional validity of the Sick Industrial Companies (Special Provisions) Act, 1985. The Supreme Court upheld the validity of the Act and emphasized the need for timely resolution of financial distress in the corporate sector.
21. Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. (1987): In this case, the Supreme Court held that the Reserve Bank of India has the power to regulate non-banking financial companies under the Reserve Bank of India Act, 1934.
22. ICICI Bank Ltd. v. Prakash Kaur (1998): In this case, the Supreme Court held that a borrower cannot raise a plea of usury (charging of exorbitant interest rates) against a bank, as banks are not covered under the Usurious Loans Act, 1918.
23. United Bank of India v. Naresh Kumar & Ors. (2014): In this case, the Supreme Court held that banks have the power to initiate insolvency proceedings against their borrowers under the provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
24. Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019): In this case, the Supreme Court upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016 and held that the code provides for a comprehensive framework for the resolution of distressed assets and stressed companies.
25. K. Sashidhar v. Indian Overseas Bank & Anr. (2021): In this case, the Supreme Court held that banks cannot arbitrarily freeze the accounts of their customers without notice and an opportunity to be heard, as it would violate the customer’s right to property and due process.