Category Archives: BANKING

Largest Banks of the World

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  1.  ABN AMRO Group NV Netherlands 
  2.  Agricultural Bank of China China ,
  3.  Agricultural Development Bank of China China 
  4.  Australia & New Zealand Banking Group Australia 
  5.  Banco Bradesco SA Brazil
  6.  Banco do Brasil SA Brazil
  7.  Banco Sabadell Spain
  8.  Banco Santander Spain ,
  9.  Bank of America USA
  10.  Bank of Beijing China
  11.  Bank of China China 
  12.  Bank of Communications China ,
  13.  Bank of Jiangsu China
  14.  Bank of Montreal Canada 
  15.  Bank of New York Mellon Corp USA
  16.  Bank of Nova Scotia Canada 
  17.  Bank of Shanghai China
  18.  Bankia Spain
  19.  Barclays PLC UK ,
  20.  Bayerische Landesbank Germany
  21.  BB&T Corporation USA
  22.  BBVA Spain 
  23.  Belfius Belgium
  24.  BNP Paribas France ,
  25.  Brazilian Development Bank (BNDES) Brazil
  26.  Caixa Economica Federal Brazil
  27.  CaixaBank Spain 
  28.  Canadian Imperial Bank of Commerce Canada 
  29.  Capital One Financial Corporation
  30.  Cassa Depositi e Prestiti (CDP) Italy 
  31.  Cathay Financial Holding Taiwan
  32.  Charles Schwab Corp USA
  33.  China CITIC Bank Corp China 
  34.  China Construction Bank Corp China
  35.  China Development Bank China ,
  36.  China Everbright Bank China 
  37.  China Guangfa Bank (CGB) China
  38.  China Merchants Bank China 
  39.  China Minsheng Banking Corp China 
  40.  China ZheShang Bank (CZBank) China
  41.  Citigroup Inc USA ,
  42.  Commerzbank Germany 
  43.  Commonwealth Bank of Australia Australia 
  44.  Credit Agricole Group France 
  45.  Credit Mutuel France 
  46.  Credit Suisse Group Switzerland 
  47.  Danske Bank Denmark 
  48.  DBS Group Holdings Singapore
  49.  Deutsche Bank Germany 
  50.  Dexia Belgium
  51.  DnB ASA Norway
  52.  DZ Bank AG Germany 
  53.  Erste Group Bank AG Austria
  54.  European Investment Bank Luxembourg 
  55.  Fubon Financial Holding Taiwan
  56.  Goldman Sachs Group USA 
  57.  Groupe BPCE France ,
  58.  Hana Financial Group South Korea
  59.  HSBC Holdings UK ,
  60.  Hua Xia Bank China
  61. Industrial & Commercial Bank of China China
  62.  Industrial Bank Co Ltd China 
  63.  Industrial Bank of Korea South Korea
  64.  ING Groep NV Netherlands ,
  65.  Intesa Sanpaolo Italy 
  66.  Itau Unibanco Holding SA Brazil 
  67.  Japan Post Bank Japan ,
  68.  JPMorgan Chase & Co USA 
  69.  KB Financial Group South Korea
  70.  KBC Group NV Belgium
  71.  KfW Group Germany 
  72.  Korea Development Bank South Korea
  73.  La Banque Postale France
  74.  Landesbank Baden-Wurttemberg Germany
  75.  Lloyds Banking Group UK 
  76.  Mitsubishi UFJ Financial Group Japan 
  77.  Mizuho Financial Group Japan 
  78.  Morgan Stanley USA 
  79.  National Australia Bank Australia 
  80.  National Bank of Canada Canada
  81.  Nationwide Building Society UK
  82.  Nomura Holdings Japan
  83.  NongHyup Financial Group South Korea
  84.  Nordea Sweden 
  85.  Norinchukin Bank Japan
  86.  Nykredit Group Denmark
  87.  Oversea-Chinese Banking Corp (OCBC) Singapore
  88.  Ping An Bank China 
  89.  PNC Financial Services Group USA
  90.  Postal Savings Bank of China China
  91.  Qatar National Bank Qatar
  92.  Rabobank Group Netherlands 
  93.  Raiffeisen Schweiz Switzerland
  94.  Resona Holdings Japan 
  95.  Royal Bank of Canada Canada
  96.  Royal Bank of Scotland Group UK 
  97.  Sberbank of Russia Russia 
  98.  Shanghai Pudong Development Bank China 
  99.  Shinhan Financial Group South Korea
  100.  Shinkin Central Bank (SCB) Japan
  101.  Skandinaviska Enskilda Banken Sweden
  102.  Societe Generale France ,
  103.  Standard Chartered Plc UK 
  104.  State Bank of India  India 
  105.  State Street Corp USA
  106.  Sumitomo Mitsui Financial Group Japan 
  107.  Sumitomo Mitsui Trust Holdings Japan 
  108.  Suntrust Banks USA
  109.  Svenska Handelsbanken Sweden
  110.  Swedbank  Sweden
  111. The Export-Import Bank of China (Eximbank) China 
  112.  Toronto-Dominion Bank Canada 
  113.  UBS Group AG Switzerland 
  114.  UniCredit SpA Italy 
  115.  United Overseas Bank (UOB) Singapore
  116.  US Bancorp USA 
  117.  VTB Bank Russia
  118.  Wells Fargo USA 
  119.  Westpac Banking Corp Australia 
  120.  Woori Bank South Korea

Prevention of Money-laundering (Maintenance of Records) Second Amendment Rules, 2017.

THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(i)]

MINISTRY OF FINANCE
(Department of Revenue)
NOTIFICATION
New Delhi, the 1st June, 2017

G.S.R. 538(E).—

In exercise of the powers conferred by sub-section (1) read with clause (h), clause (i), clause (j) and clause (k) of sub-section (2) of section 73 of the Prevention of Money-laundering Act, 2002 (15 of 2003), the Central Government in consultation with the Reserve Bank of India hereby makes the following further amendments to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, namely:—

1. (1) These rules may be called the Prevention of Money-laundering (Maintenance of Records) Second Amendment Rules, 2017.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Prevention of Money-laundering (Maintenance of Records) Rules, 2005, —

(a) in rule 2, in sub-rule (1),-
(i) after clause (aa), following clauses shall be inserted, namely:—
‘(aaa) “Aadhaar number” means an identification number as defined under sub-section (a) of section 2 of the
Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016;
(aab) “authentication” means the process as defined under sub-section (c) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016;
(aac) “Resident” means an individual as defined under sub-section (v) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016;
(aad) “identity information” means the information as defined in sub-section (n) of section 2 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016;
(aae) “e – KYC authentication facility” means an authentication facility as defined in Aadhaar (Authentication) Regulations, 2016;
(aaf) “Yes/No authentication facility” means an authentication facility as defined in Aadhar (Authentication) Regulations, 2016;’;
(ii) for clause (d), the portion beginning with “the passport, the driving licence” and ending with “in consultation with the Regulator” the following shall be substituted, namely:—
“the passport, the driving licence, the Voter’s Identity Card issued by Election Commission of India, job card issued by NREGA duly signed by an officer of the State Government, the letter issued by the National Population

Register containing details of name, address or any other document as notified by the Central Government in consultation with the Regulator”
(b) in rule 9, for sub-rule (4) to sub-rule (9), the following sub-rules shall be substituted, namely:—
“(4) Where the client is an individual, who is eligible to be enrolled for an Aadhaar number, he shall for the purpose of sub-rule (1) submit to the reporting entity,—
(a) the Aadhaar number issued by the Unique Identification Authority of India; and
(b) the Permanent Account Number or Form No. 60 as defined in Income-tax Rules, 1962,
and such other documents including in respect of the nature of business and financial status of the client as may be required by the reporting entity:
Provided that where an Aadhaar number has not been assigned to a client, the client shall furnish proof of application of enrolment for Aadhaar and in case the Permanent Account Number is not submitted, one certified copy of an ‘officially valid document’ shall be submitted.
Provided further that photograph need not be submitted by a client falling under clause (b) of sub-rule (1).
(4A) Where the client is an individual, who is not eligible to be enrolled for an Aadhaar number, he shall for the purpose of sub-rule (1), submit to the reporting entity, the Permanent Account Number or Form No. 60 as
defined in the Income-tax Rules, 1962:
Provided that if the client does not submit the Permanent Account Number, he shall submit one certified copy of an ‘officially valid document’ containing details of his identity and address, one recent photograph and such other documents including in respect of the nature or business and financial status of the client as may be
required by the reporting entity.
(5) Notwithstanding anything contained in sub-rules (4) and (4A), an individual who desires to open a small account in a banking company may be allowed to open such an account on production of a self-attested photograph and affixation of signature or thumb print, as the case may be, on the form for opening the account:
Provided that-
(i) the designated officer of the banking company, while opening the small account, certifies under his signature that the person opening the account has affixed his signature or thump print, as the case may be, in his presence;
(ii) the small account shall be opened only at Core Banking Solution linked banking company branches or in a branch where it is possible to manually monitor and ensure that foreign remittances are not credited to a small account and that the stipulated limits on monthly and annual aggregate of transactions and balance in such accounts are not breached, before a transaction is allowed to take place;
(iii) the small account shall remain operational initially for a period of twelve months, and thereafter for a further period of twelve months if the holder of such an account provides evidence before the banking company of having applied for any of the officially valid documents within twelve months of the opening of the said account, with the entire relaxation provisions to be reviewed in respect of the said account after twenty-four months;
(iv) the small account shall be monitored and when there is suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of client shall be established through the production of officially valid documents, as referred to in sub-rule (4) and the Aadhaar number of the client or where an Aadhaar number has not been assigned to the client, through the production of proof of application towards enrolment for Aadhaar along with an officially valid document;
Provided further that if the client is not eligible to be enrolled for an Aadhaar number, the identity of client shall be established through the production of an officially valid document;

(v) the foreign remittance shall not be allowed to be credited into the small account unless the identity of the client is fully established through the production of officially valid documents, as referred to in sub rule (4) and the Aadhaar number of the client or where an Aadhaar number has not been assigned to the client, through the production of proof of application towards enrolment for Aadhaar along with an officially valid document:
Provided that if the client is not eligible to be enrolled for the Aadhaar number, the identity of client
shall be established through the production of an officially valid document.
(6) Where the client is a company, it shall for the purposes of sub-rule (1), submit to the reporting entity the
certified copies of the following documents:—
(i) Certificate of incorporation;
(ii) Memorandum and Articles of Association;
(iii) A resolution from the Board of Directors and power of attorney granted to its managers, officers or
employees to transact on its behalf;
(iv) (a) Aadhaar numbers; and
(b) Permanent Account Numbers or Form 60 as defined in the Income-tax Rules, 1962,
issued to managers, officers or employees holding an attorney to transact on the company’s behalf
or where an Aadhaar number has not been assigned, proof of application towards enrolment for
Aadhaar and in case Permanent Account Number is not submitted an officially valid document
shall be submitted:
Provided that for the purpose of this clause if the managers, officers or employees holding an attorney to
transact on the company’s behalf are not eligible to be enrolled for Aadhaar number and do not submit the
Permanent Account Number, certified copy of an officially valid document shall be submitted.

(7) Where the client is a partnership firm, it shall, for the purposes of sub-rule (1), submit to the reporting entity the certified copies of the following documents:—
(i) registration certificate;
(ii) partnership deed; and
(iii) (a) Aadhaar number; and
(b) Permanent Account Number or Form 60 as defined in the Income-tax Rules, 1962,
issued to the person holding an attorney to transact on its behalf or where an Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar and in case Permanent Account Number is not submitted an officially valid document shall be submitted:
Provided that for the purpose of this clause, if the person holding an attorney to transact on the company’s behalf is not eligible to be enrolled for Aadhaar number and does not submit the Permanent Account Number, certified copy of an officially valid document shall be submitted.

(8) Where the client is a trust, it shall, for the purposes of sub-rule (1) submit to the reporting entity the certified
copies of the following documents:—
(i) registration certificate;
(ii) trust deed; and
(iii) (a) Aadhaar number; and
(b) Permanent Account Number or Form 60 as defined in the Income-tax Rules, 1962,

issued to the person holding an attorney to transact on its behalf or where Aadhaar number has not been assigned, proof of application towards enrolment for Aadhaar and in case Permanent Account Number is not submitted an officially valid document shall be submitted:
Provided that for the purpose of this clause if the person holding an attorney to transact on the company’s behalf is not eligible to be enrolled for Aadhaar number and does not submit the Permanent Account Number, certified copy of an officially valid document shall be submitted.

(9) Where the client is an unincorporated association or a body of individuals, it shall submit to the reporting
entity the certified copies of the following documents:—
(i) resolution of the managing body of such association or body of individuals;
(ii) power of attorney granted to him to transact on its behalf;
(iii) (a) the Aadhaar number; and
(b) Permanent Account Number or Form 60 as defined in the Income-tax Rules, 1962,
issued to the person holding, an attorney to transact on its behalf or where Aadhaar number has not
been assigned, proof of application towards enrolment for Aadhaar and in case the Permanent
Account Number is not submitted an officially valid document shall be submitted; and
(iv) such information as may be required by the reporting entity to collectively establish the legal existence of such an association or body of individuals:
Provided that for the purpose of this clause if the person holding an attorney to transact on the company’s behalf is not eligible to be enrolled for Aadhaar number and does not submit the Permanent Account
Number, certified copy of an officially valid document shall be submitted.
(c) after sub-rule (14), the following sub-rules shall be inserted, namely,—
“ (15) Any reporting entity, at the time of receipt of the Aadhaar number under provisions of this rule, shall carry out authentication using either e-KYC authentication facility or Yes/No authentication facility provided by Unique Identification Authority of India.
(16) In case the client referred to in sub-rules (4) to (9) of rule 9 is not a resident or is a resident in the States of Jammu and Kashmir, Assam or Maghalaya and does not submit the Permanent Account Number, the client shall submit to the reporting entity one certified copy of officially valid document containing details of his identity and
address, one recent photograph and such other document including in respect of the nature of business and financial status of the client as may be required by the reporting entity.

(17) (a) In case the client, eligible to be enrolled for Aadhaar and obtain a Permanent Account Number, referred to in sub-rules (4) to (9) of rule 9 does not submit the Aadhaar number or the Permanent Account Number at the time of commencement of an account based relationship with a reporting entity, the client shall submit the same within a period of six months from the date of the commencement of the account based relationship:

Provided that the clients, eligible to be enrolled for Aadhaar and obtain the Permanent Account Number, already having an account based relationship with reporting entities prior to date of this notification, the client shall submit the Aadhaar number and Permanent Account Number by 31st December, 2017.

(b) As per regulation 12 of the Aadhaar (Enrolment and Update) Regulations, 2016, the local authorities in the State Governments or Union-territory Administrations have become or are in the process of becoming UIDAI Registrars for Aadhaar enrolment and are organising special Aadhaar enrolment camps at convenient locations for providing enrolment facilities in consultation with UIDAI and any individual desirous of commencing an account based relationship as provided in this rule, who does not possess the Aadhaar number or has not yet enrolled for Aadhaar, may also visit such special Aadhaar enrolment camps for Aadhaar enrolment or any of the Aadhaar enrolment centres in the vicinity with existing registrars of UIDAI.

(c) In case the client fails to submit the Aadhaar number and Permanent Account Number within the aforesaid six months period, the said account shall cease to be operational till the time the Aadhaar number and Permanent Account Number is submitted by the client:

Provided that in case client already having an account based relationship with reporting entities prior to date of this notification fails to submit the Aadhaar number and Permanent Account Number by 31st December, 2017, the said account shall cease to be operational till the time the Aadhaar number and Permanent Account Number is submitted by the client.

(18) In case the identity information relating to the Aadhaar number or Permanent Account Number submitted by the client referred to in sub-rules (4) to (9) of rule 9 does not have current address of the client, the client shall submit an officially valid document to the reporting entity.”.

[Notification No.2/F .No. P.12011/11/2016-ES Cell-DOR]
MANDEEP KAUR, Dy. Secy.

The Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the .. of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

Note
1. Short title and commencement.—

(1) These rules may be called the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005.
(2) They shall come into force on the date of their publication in the Official Gazette.

2 Definition. —

(1) In these rules, unless the context otherwise requires,—
(a) “Act” means the Prevention of Money-laundering Act, 2002 (15 of 2003);
(b) “client” means a person that engages in a financial transaction or activity with a banking company, or financial institution or intermediary and includes a person on whose behalf the person that engages in the transaction or activity, is acting;
(c) “Director” means the Director appointed under sub-section (1) of section 49 of the Act for the purposes of sections 12 and 13 of the Act;

(ca) “non profit organisation” means any entity or organisation that is registered as a trust or a society under the Societies Registration Act, 1860 (21 of 1860) or any similar State legislation or a company registered under section 25 of the Companies Act, 1956 (1 of 1956);]

(d) “officially valid document” means the passport, the driving licence, the Permanent Account Number (PAN) Card, the Voter’s Identity Card issued by the Election Commission of India or any other document as may be required by the banking company, or financial institution or intermediary;
(e) “prescribed value” means the value of transaction prescribed under these rules;
(f) “Principal Officer” means an officer designated by a banking company, financial institution and intermediary, as the case may be;
[(fa) “Regulator” means a person or an authority or a Government which is vested with the power to license, authorise, register, regulate or supervise the activity of banking companies, financial institutions or intermediaries, as the case may be;]

(g) “suspicious transaction” means a transaction referred to in clause (h), including an attempted transaction, whether or not made in cash, which to a person acting in good faith—

(a) gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence specified in the Schedule to the Act, regardless of the value involved; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona fide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism;

Explanation .—Transaction involving financing of the activities relating to terrorism includes transaction involving funds suspected to be linked or related to, or to be used for terrorism, terrorist acts or by a terrorist, terrorist organisation or those who finance or are attempting to finance terrorism.]
(h) “transaction” includes deposit, withdrawal, exchange or transfer of funds in whatever currency, whether in cash or by cheque, payment order or other instruments or by electronic or other non-physical means.
(2) All other words and expressions used and not defined in these rules but defined in the Act shall have the meaning respectively assigned to them in the Act.
(a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
(b) appears to be made in circumstances of unusual or unjustified complexity; or
(c) appears to have no economic rationale or bona fide purpose; or
(d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities relating to terrorism;”.

3 Maintenance of records of transactions (nature and value). —

(1) Every banking company or financial institution or intermediary, as the case may be, shall maintain a record of,—
(A) all cash transactions of the value of more than rupees ten lakhs or its equivalent in foreign currency;
(B) all series of cash transactions integrally connected to each other which have been valued below rupees ten lakhs or its equivalent in foreign currency where such series of transactions have taken place within a month;
(C) all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions;]
(D) all suspicious transactions whether or not made in cash and by way of—
(i) deposits and credits, withdrawals into or from any accounts in whatsoever name they are referred to in any currency maintained by way of—
(a) cheques including third party cheques, pay orders, demand drafts, cashiers cheques or any other instrument of payment of money including electronic receipts or credits and electronic payments or debits, or
(b) travellers cheques, or
(c) transfer from one account within the same banking company, financial institution and intermediary, as the case may be, including from or to Nostro and Vostro accounts, or
(d) any other mode in whatsoever name it is referred to;
(ii) credits or debits into or from any non-monetary accounts such as d-mat account, security account in any currency maintained by the banking company, financial institution and intermediary, as the case may be;
(iii) money transfer or remittances in favour of own clients or non-clients from India or abroad and to third party beneficiaries in India or abroad including transactions on its own account in any currency by any of the following:—
(a) payment orders, or
(b) cashiers cheques, or
(c) demand drafts, or
(d) telegraphic or wire transfers or electronic remittances or transfers, or
(e) internet transfers, or
(f) Automated Clearing House remittances, or
(g) lock box driven transfers or remittances, or
(h) remittances for credit or loading to electronic cards, or
(i) any other mode of money transfer by whatsoever name it is called;
(iv) loans and advances including credit or loan substitutes, investments and contingent liability by way of—
(a) subscription to debt instruments such as commercial paper, certificate of deposits, preferential shares, debentures, securitised participation, inter bank participation or any other investments in securities or the like in whatever form and name it is referred to, or
(b) purchase and negotiation of bills, cheques and other instruments, or
(c) foreign exchange contracts, currency, interest rate and commodity and any other derivative instrument in whatsoever name it is called, or
(d) letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates and any other instrument for settlement and/or credit support;
(v) collection services in any currency by way of collection of bills, cheques, instruments or any other mode of collection in whatsoever name it is referred to.
the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

4. Records containing information.—

The records referred to in rule 3 shall contain the following information:—
(a) the nature of the transactions;
(b) the amount of the transaction and the currency in which it was denominated;
(c) the date on which the transaction was conducted; and
(d) the parties to the transaction.
the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

5. Procedure and manner of maintaining information.—

(1) Every banking company, financial institution and intermediary, as the case may be, shall maintain information in respect of transactions with its client referred to in rule 3 in hard and soft copies in accordance with the procedure and manner as may be specified by the Reserve Bank of India or the 1[Securities and Exchange Board of India or the Insurance Regulatory and Development Authority], as the case may be, from time to time.
(2) Every banking company, financial institution and intermediary, shall evolve an internal mechanism for maintaining such information in such form and at such intervals as may be specified by the Reserve Bank of India, or the 1[Securities and Exchange Board of India or the Insurance Regulatory and Development Authority], as the case may be, from time to time.
(3) It shall be the duty of every banking company, financial institution and intermediary, as the case may be, to observe the procedure and the manner of maintaining information as specified by the Reserve Bank of India or the 1[Securities and Exchange Board of India or the Insurance Regulatory and Development Authority], as the case may be, under sub-rule (1).
the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

6. Retention of records.—

The records referred to in rule 3 shall be maintained for a period of ten years from the date of cessation of the transactions between the client and the banking company, financial institution or intermediary, as the case may be.
the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

7. Procedure and manner of furnishing information.—

(1) Every banking company, financial institution and intermediary, as the case may be, shall communicate the name, designation and address of the Principal Officer to the Director.
(2) The Principal Officer shall furnish the information referred to in rule 3 to the Director on the basis of information available with the banking company, financial institution and intermediary, as the case may be. A copy of such information shall be retained by the Principal Officer for the purposes of official record.
(3) Every banking company, financial institution and intermediary may evolve an internal mechanism for furnishing information referred to in rule 3 in such form and at such intervals as may be directed by the Reserve Bank of India or the 1[Securities and Exchange Board of India or the Insurance Regulatory and Development Authority], as the case may be.
(4) It shall be the duty of every banking company, financial institution and intermediary to observe the procedure and the manner of furnishing information referred to in rule 3 as specified by the 1[Reserve Bank of India, the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority under sub-rule (3)], as the case may be.

 8 Furnishing of information to the Director. —

(1) The Principal Officer of a banking company, a financial institution and an intermediary, as the case may be, shall furnish the information in respect of transactions referred to in clauses (A) and (B) of sub-in rule (1) of rule 3 every month to the Director by the 15th day of the succeeding month.
(2) The Principal Officer of a banking company, a financial institution and an intermediary, as the case may be, shall furnish the information promptly in writing or by fax or by electronic mail to the Director in respect of transactions referred to in clause (C) of sub-rule (1) of rule 3 not later than seven working days from the date of occurrence of such transaction.
(3) The Principal Officer of a banking company, a financial institution and an intermediary, as the case may be, shall furnish the information promptly in writing or by fax or by electronic mail to the Director in respect of transactions referred to in clause (D) of sub-rule (1) of rule 3 not later than seven working days on being satisfied that the transaction is suspicious.]

9 Verification of the records of the identity of clients. — 

(1) Every banking company, financial institution and intermediary, as the case may be, shall,—
(a) at the time of commencement of an account-based relationship, identify its clients, verify their identity and obtain information on the purpose and intended nature of the business relationship, and
(b) in all other cases, verify identity while carrying out—
(i) transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or
(ii) any international money transfer operations.

(1A) Every banking company, financial institution and intermediary, as the case may be, shall determine whether a client is acting on behalf of a beneficial owner, identify the beneficial owner and take all reasonable steps to verify his identity.]

Explanation .—For the purposes of this sub-rule “beneficial owner” shall mean the natural person who ultimately owns or controls a client and or the person on whose behalf a transaction is being conducted, and includes a person who exercise ultimate effective control over a juridical person.]
(1B) Every banking company, financial institution and intermediary, as the case may be, shall exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the client, his business and risk profile and where necessary, the source of funds.]
(1C) No banking company, financial institution or intermediary, as the case may be, shall allow the opening of or keep any anonymous account or account in fictitious names or account on behalf of other persons whose identity has not been disclosed or cannot be verified.]
(1D) When there are suspicions of money laundering or financing of the activities relating to terrorism or where there are doubts about the adequacy or veracity of previously obtained customer identification data, every banking company, financial institution and intermediary shall review the due diligence measures including verifying again the identity of the client and obtaining information on the purpose and intended nature of the business relationship, as the case may be.]
(2) Where the client is an individual, he shall for the purpose of sub-rule (1), submit to the banking company, financial institution and intermediary, as the case may be, one certified copy of an ‘officially valid document’ containing details of his identity and address, one recent photograph and such other documents including in respect of the nature of business and financial status of the client as may be required by the banking company or the financial institution or the intermediary, as the case may be: Provided that photograph need not be submitted by a client falling under clause (b) of sub-rule (1).]
(3) Where the client is a company, it shall for the purposes of sub-rule (1) submit to the banking company or financial institution or intermediary, as the case may be, 16 [one certified copy] of the following documents:—
(i) Certificate of incorporation;
(ii) Memorandum and Articles of Association;
(iii) a resolution from the Board of Directors and power of attorney granted to its managers, officers or employees to transact on its behalf; and
(iv) an officially valid document in respect of managers, officers or employees holding an attorney to transact on its behalf.
(4) Where the client is a partnership firm, it shall for the purposes of sub-rule (1) submit to the banking company, or the financial institution, or the intermediary 2 [one certified copy] of the following documents:—
(i) registration certificate;
(ii) partnership deed; and
(iii) an officially valid document in respect of the person holding an attorney to transact on its behalf.
(5) Where the client is a trust, it shall, “for the purposes of sub-rule (1) submit to the banking company,” or the financial institution, or the intermediary 16 [one certified copy] of the following documents:—
(i) registration certificate;
(ii) trust deed; and
(iii) an officially valid document in respect of the person holding an attorney to transact on its behalf.
(6) Where the client is an unincorporated association or a body of individuals, it shall submit to the banking company, or the financial institution or the intermediary 16 [one certified copy] of the following documents:—
(i) resolution of the managing body of such association or body of individuals;
(ii) power of attorney granted to him to transact on its behalf;
(iii) an officially valid document in respect of the person holding an attorney to transact on its behalf; and
(iv) such information as may be required by the banking company or the financial institution or the intermediary to collectively establish the legal existence of such an association or body of individuals.
(6A) Where the client is a juridical person, the banking company, financial institution and intermediary, as the case may be, shall verify that any person purporting to act on behalf of such client is so authorised and verify the identity of that person.]
(7) (i) The regulator shall issue guidelines incorporating the requirements of sub-rules (1) to (6A) above and may prescribe enhanced measures to verify the client’s identity taking into consideration type of client, business relationship or nature and value of transactions.
(ii) Every banking company, financial institution and intermediary as the case may be, shall formulate and implement a Client Identification Programme to determine the true identity of its clients, incorporating requirements of sub-rules (1) to (6A) and guidelines issued under clause (i) above.]

10 Maintenance of the records of the identity of clients. —

(1) Every banking company or financial institution or intermediary, as the case may be, shall maintain the records of the identity of its clients.
(2) The records of the identity of clients shall be maintained in hard and soft copies in a manner as may be specified by 20 [its Regulator,] from time to time.
(3) The records of the identity of clients shall be maintained for a period of ten years from the date of cessation of the transactions between the client and the banking company or financial institution or intermediary, as the case may be. 21 [ Explanation .—For the purposes of this rule,—
(i) the expression ‘records of the identity of clients’ shall include records of the identification data, account files and business correspondence.
(ii) the expression ‘cessation of the transactions’ means termination of an account or business relationship.]
the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005

11. Interpretation.—

If any question arises relating to the interpretation of these rules, the matter shall be referred to the Central Government and the decision of the Central Government shall be final.


Prevention of Money-laundering (Maintenance of Records) Second Amendment Rules, 2017.

Syndicate Bank vs Channaveerappa Beleri & Ors [SC 2006 April]

Keywords: Bank Credit-on demand-Bank Loan-period of limitation

Capture

  1. This Court itself had indicated that ‘live account’ means an account that is not settled. The use of the term ‘settled’ gives an indication that a ‘live account’ refers to an account where the balance has not been struck by an “account stated” or “account settled”.
  2. If Article 55 does not apply, then a claim against a Guarantor in such a situation may fall under the residuary Article 113 of the Limitation Act, 1963 corresponding to Article 120 of the old Act.
  3. the period of limitation is the same (three years) both under Articles 55 and 113. Having regard to the fact that the period of limitation is 3 years both under Articles 55 and Article 113, and having regard to the binding decision in Samuel (supra).

AIR 2006 SC 1874 : (2006) 3 SCR 999 : (2006) 11 SCC 506 : JT 2006 (4) SC 579 : (2006) 4 SCALE 368

(SUPREME COURT OF INDIA)

Syndicate Bank Appellant
Versus
Channaveerappa Beleriand OTHERS Respondent

(Before : Arun Kumar And R. V. Raveendran, JJ.)

Civil Appeal No. 6894 of 1997,

Decided on : 10-04-2006.

Contract Act, 1872—Sections 126, 128, 129 and 130—Constitution of India, 1950—Articles 21, 22, 55, 113 and 120.

Counsel for the Parties:

Adarsh B. Dial, Sr. Advocate, Rajiv Nanda, Ms. Sumati Anand and Navneet Mishra, Advocates with him, for Appellant

Bhimrao Naik, Sr. Advocate, S. V. Deshpande, Mrs. Anuradha Rustogi and C. G. Solshe, Advocates, with him for Respondents.

Judgment

Raveendran, J—This appeal by special leave, is by the plaintiff-Bank against the judgment dated 6-3-1997 of the High Court of Karnataka dismissing R.F.A. No. 107 of 1993 filed by it against the judgment and decree dated 29-10-1992 of the Civil Judge, Gadag in O.S. No. 29 of 1990, dismissing its suit on the ground of limitation.

2. The appellant-Bank filed Original Suit No. 29 of 1990 against Respondents 1 to 7 herein for recovery of ` 19,77,478/60 (the liability of Respondents 2 and 3 being restricted to ` 15,75,960 and liability of Respondents 6 and 7 being restricted to 17,56,070.60) together with interest @ 18.5% per annum compounded quarterly from the date of suit till the date of realization. The plaint averments in brief are as under.

The Bank had extended credit facilities by way of overdraft, goods loans, and demand loan against Supply Bills to a company known as Gadag Forge Fits (India) Pvt. Ltd., (‘company’ for short). Respondent 1 was its Managing Director and Respondents 2 to 7 were its DirectOrs. The credit facilities were renewed and enhanced from time to time. Respondents 1 to 7 executed the following guarantee bonds in favour of the Bank, personally agreeing and undertaking to pay and satisfy the Bank on demand all sums which may be due on account of the credit facilities granted to the company subject to the limits mentioned therein:

i) Guarantee Bond dated 17-9-1983/20-8-1983/29-8-1983 executed by Respondents 1, 2 and 3, the limit of liability being ` 10.50 lakhs (a single deed executed by Respondents 1, 2 and 3 on different dates).

ii) Guarantee bond dated 4-4-1984 executed by respondents 4 and 5, the limit of liability being ` 10.50 lakhs.

iii) Guarantee bond dated 10-9-1985 executed by Respondents 1, 4, 5, 6 and 7, the limit of liability being ` 11.70 lakhs.

Thus the limit of total liability undertaken exclusive of interest was ` 22.20 lakhs in the case of Respondents 1, 4 and 5, ` 10.50 lakhs in the case of Respondents 2 and 3 and ` 11.70 lakhs in the case of Respondents 6 and 7. Their liability was joint and several with the company.

On account of the company allegedly incurring losses and stopping its activities, operations in the accounts of the company with the Bank stopped in the middle of 1986. In view of the failure on the part of the company (principal debtor) in paying the amounts due, the Bank sent a letter dated 12-10-1987 to the company and its 7 Directors (Respondents 1 to 7) informing that the following amounts were outstanding in the accounts of the company as on 30-9-1987 and calling upon the company as principal debtor and respondents 1 to 7 as guarantors to pay the said amounts aggregating to ` 13,48,264.79 with interest @ 18.5% per annum from 1-10-87 within 15 days:-

Account No. Date of Advance Limit/Amount Balance as on

Advance 30-9-1987

Over Draft

27/85 10-9-85 2,50,000/- 3,32, 116.04

1/86 7-1-86 2,50,000/- 3,39,719.54

14/86 29-4-86 1,50,000/- 1,99, 105.35

Goods Loan

49/84 23-7-84 1,61,000/- 1,91,654.00

48/85 12-10-85 27,450/- 35,894.85

Demand Loan

against Supply

Bills

229/85 2-12-85 5,000/- 318.60

232/85 6-12-85 5,000/- 6,936.65

233/85 6-12-85 2,500/- 3,469.40

234/85 11-12-85 16,900/- 23,356.15

235/85 20-12-85 1,500/- 2,071.85

237/85 26-12-85 6, 100/- 8,366.90

2/86 1-1-86 2,900/- 3,966.95

3/86 1-1-86 5, 100/- 3,425.75

5/86 13-1-86 32,970/- 44,819.30

8/86 3-2-86 3,700/- 444.05

10/86 10-2-86 31,600/- 26,274.85

12/86 13-2-86 13,700/- 18,424.20

14/86 11-3-86 8,800/- 11,685.45

15/86 20-3-86 10,230/- 13,518.25

16/86 21-3-86 36,000/- 47,534.00

18/86 25-3-86 20,300/- 26,750.10

20/86 26-4-86 6,400/- 8,412.60

TOTAL 13,48,264.79

The company and its Directors (Respondents 1 to 7) sent a reply dated 31-10-1987 through counsel stating that the company was passing through a financial crisis and the Bank had failed to assist the company by making further advances by way of working capital. They further alleged that in view of the failure to advance further funds, the company sustained heavy loss and the company was reserving liberty to file a suit for damages for an amount which would be more than the amount claimed by the Bank. They also alleged that the bank ought to have given a moratorium on interest to rehabilitate the company. They also stated that without prejudice to their rights and contentions, they were willing to discuss the matter with the Bank, to arrive at an amicable solution. A formal notice through counsel was sent by the Bank on 17-12-1987 demanding payment which elicited a reply dated 30-12-1987 denying the demand.

The Bank initiated proceedings for winding-up against the company on account of its liability to pay its dues, on 11-10-1988 and the High Court ordered winding-up of the company on 17-3-1989. Therefore, the suit was filed by the Bank on 16-3-1990 only against the Guarantors (Respondents 1 to 7) for recovery of ` 19,77,478.60 (that is, the amount demanded in the notice dated 12-10-1987 with interest up to date of suit). The Bank restricted the claim to ` 10.50 lakhs with interest at 18.5% P.A. from 17-12-87 to the date of suit against Respondents 2 and 3 and to ` 11.70 lakhs with interest at 18.5% P.A. from 17-12-1987 to date of suit against respondents 6 and 7. The Bank contended that the respondents were jointly and severally liable to pay the amounts due by the company, as aforesaid. It was alleged that the cause of action for the suit against the guarantors (respondents 1 to 7) arose on 17-12-1987 when the demand was made and on 30-12-1987 when they denied the liability by notice. The statements of account showing the particulars of amount due as on 31-12-1989 were annexed to the plaint.

3. Respondents 4 and 7 remained ex parte. Respondents 1, 5 and 6 filed a common written statement which was adopted by 2nd respondent. Respondent No.3 filed a separate written statement. They resisted the suit inter alia on the following grounds:-

a) The suit was not maintainable only against the Guarantors and was liable to be rejected for non-joinder of the principal debtor.

b) The Bank cannot proceed against the guarantors without first exhausting of remedies against the principal debtor.

c) The guarantee bonds were executed in the years 1983, 1984 and 1985. As the suit was not filed within three years from the respective dates of the guarantee bonds, in the absence of renewals or acknowledgment by them, the suit was barred by limitation.

4. The trial court framed as many as 16 issues. We are concerned with the issue No. 4, that is: ‘Is the suit not in time?’. The Bank examined its Manager and respondents 1, 2 and 3 gave evidence on behalf of the defence. Exs. P-1 to P-35 and Exs. D1 to D5 were marked. The trial court by an exhaustive judgment answered all the issues, except the issue regarding limitation in favour of the Bank. It held that the Bank had established the correctness of the amounts claimed and the rate of interest. It, however, held that the suit was barred by time and consequently, dismissed the suit. The appeal filed by the Bank was also dismissed by the High Court. The said dismissal is challenged in this appeal by special leave. The only question that was argued and that arises for consideration in this appeal is whether the decision of the courts below that the suit was barred by limitation is correct in law.

5. To appreciate the rival contentions, it is necessary to refer to the relevant statutory provisions, the terms of the guarantee and the decision of this Court relied on by both parties.

Section 126, 128, 129 and 130 of Contract Act, 1872 are extracted below:

“Section 126. ‘Contract of guarantee’, ‘surety’, ‘principal-debtor’ and ‘creditor’ – A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the ‘surety’, the person in respect of whose default the guarantee is given is called the ‘principal-debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written.”

“Section 128. Surety’s liability – The liability of the surety is co-extensive with that of the principal-debtor, unless it is otherwise provided by the contract.”

“Section 129. ‘Continuing guarantee’ – A guarantee which extends to a series of transactions is called a ‘continuing guarantee’.

“Section 130. Revocation of continuing guarantee – A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.”

The relevant Articles in the Schedule to the Limitation Act, 1963 are extracted below : Article Description of Suit Period of Time from which

No. Limitation period beginstorun

55 For compensation for the Three years When the contract is

breach of any contract, ex- broken or (where

press or implied not herein there are successive

specially provided for. breaches)

when the breach in

respect of which the

suit is instituted oc-

curs or (where the

breach is continu- ing) when it ceases.

113 Any suit for which no period Three years When the right to

of limitation is provided else- sue accrues.

where in this Schedule.

19 For money payable for money Three years When the loan is

lent. made.

21 For money lent under an agree- Three years When the loan is

ment that it shall be payable on made.

demand.

The guarantee bonds have been executed in the standard Form of the Bank. The relevant portions from the Guarantee bond dated 10-8-1985 (the Bonds are similarly worded) are extracted below:

“In consideration of SYNDICATE BANK, hereinafter called the “Syndicate”……….. making, or continuing to make advances or otherwise giving credit or financial accommodation or affording banking facilities for as long as the Syndicate may think fit to M/s. Godrej Forge Fits (I) Pvt. Ltd., Hirakoppa village, Gadag taluk hereafter called the “Borrower”, the undersigned (1) C.M. Beleri, (2) I.M. Beleri, (3) K.M. Chhadda, (4) Mrs. Shailaja Beleri, and (5) T. Parthasarathy (hereinafter referred to as the ‘Guarantor’) hereby agrees to pay and satisfy to the Syndicate on demand all and every sum and sums of money which are now or shall at any time be owing to the Syndicate in any of its offices on any account whatsoever…………”

“PROVIDED ALWAYS that the total liability ultimately enforceable against the Guarantor under this guarantee shall not exceed the sum of ` 11,70,000/- together with interest thereon at the rate stipulated by the bank from date of demand by the Syndicate upon the Guarantor for payment.”

“NOTWITHSTANDING the Borrower’s Account or Accounts with the Syndicate may be brought to credit or the credit given to the Borrower fully exhausted or exceeded or howsoever the said financial accommodation varied or changed from time to time; notwithstanding any payments from time to time or any settlement of Account, this guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Syndicate by the Borrower not exceeding ` 11,70,000/- as aforesaid.”

“NOTWITHSTANDING the discontinuance of this Guarantee as to one or more of the Guarantors or the death of any one of them, the Guarantee is to remain a continuing Guarantee, as to the other or others or the representatives and estates of the deceased and where there is more than one Guarantor, their liability under these presents being construed as joint and several.”

“Any Account Settled or stated by or between the Syndicate and the Borrower or admitted by him or on his behalf may be adduced by the Syndicate and shall in that case be accepted by the guarantors and each of them and their respective representatives as conclusive evidence that the balance or amount thereby appearing is due from to the Syndicate.”[Emphasis supplied]

Margaret Lalita Samuel vs. Indo Commercial Bank Ltd. (AIR 1979 SC 102) relied on both sides dealt with the question of limitation with reference to a continuing guarantee. In that case the guarantor sought to avoid liability by contending that every item of an overdraft account was an independent loan and the limitation would start from the date of each loan, and that with reference to such dates, the suit was barred by limitation. While negativing the said contention, this Court observed:

“In our view it is unnecessary for the purposes of the present case, to go into the question of the nature of an overdraft account. The present suit is in substance and truth one to enforce the guarantee bond executed by the defendant. In order to ascertain the nature of the liability of the defendant, it is necessary to refer to the precise terms of the guarantee bond rather than embark into an enquiry as to the nature of an overdraft account.

After referring to the terms of the guarantee bond, this Court held:

“The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running.Limitation would only run from the date of breach under Art. 115 of the schedule to the Limitation Act, 1908. When the Bombay High Court considered the matter in the first instance and held that the suit was not barred by limitation. J.C. Shah, J. speaking for the Court said:

On the plain words of the letters of guarantee it is clear that the defendant undertook to pay any amount which may be due by the Company at the foot of the general balance of its account or any other account whatever……… We are not concerned in this case with the period of limitation for the amount repayable by the Company to the bank. We are concerned with the period of limitation for enforcing the liability of the defendant under the surety bond. We hold that the suit to enforce the liability is governed by Art. 115 and the cause of action arises when the contract of continuing guarantee is broken, and in the present case we are of the view that so long as the account remained live account, and there was no refusal on the part of defendant to carry out her obligation, the period of limitation did not commence to run.

After expressing agreement with the above view expressed by Shah, J., this Court also agreed with the view expressed by the Privy Council in Wright vs. New Zealand Farmers Co-operative Association of Canterbury Ltd. (1939 AC 439), and the Court of Appeal in Bradford Old Bank Ltd. vs. Sutcliffe (1918 (2) KB 833) that limitation against a guarantor under a continuing guarantee (which specified that the liability of the guarantor is to pay on demand) would not run from the date of each advance, but only run from the time when the balance (payment of which is guaranteed) was constituted and a demand was made for payment thereof. This Court also referred to a passage from Paget’s Law of Banking, with approval, though not extracted. The said passage from Paget reads thus:

“In Bradford Old Bank Ltd. vs. Sutcliffe (1918) 2 KB 833, it was pointed out that the contract of the surety was a collateral, not a direct, one and that in such case demand was necessary to complete a cause of action and set the statute running. Moreover, bank guarantees invariably specify that the liability of the surety is to pay on demand, and in this connection the words are not devoid of meaning or effect, even with reference to this statute, as is the case with a promissory note payable on demand, but make the demand a condition precedent to suing the surety, so that the statute does not begin to run till such demand has been made and not complied with”.

Bradford (supra), in turn, relied on Hartland vs. Juke (1863) 1 H and C 667, wherein in the context of a continuing guarantee, it was contended that the period of limitation would begin to run as soon as the principal debtor becomes indebted to the Bank. The contention was negatived by stating:

“It was contended before us that the statute began to run from the 31st of December, 1855, by reason of the debt of Pound 179:1:11 then due to the bank; but no balance was then struck, and certainly no claim was made by the bank upon the defendant’s testator (the Guarantor) in respect of that debt; and we think the mere existence of the debt, unaccompanied by any claim from the bank, would not have the effect of making the statute run from that date.”

6. The trial court held that the accounts of the company with the Bank became dormant and inoperative from 1986 and, therefore, they ceased to be ‘live accounts’. It held that a ‘live account’ was one which was currently being operated at the relevant time by the borrower / customer. The trial court further held that in view of such cessation of operation of the accounts, it should be deemed that the company and consequently the guarantors had refused to discharge their obligations; that once there was such refusal by stopping operation of the accounts, the limitation would start to run immediately; that time which begins to run, cannot be stopped; and that the mere fact that the demand was made by the bank much later, that is in the year 1987, will not postpone the commencement of running of the period of limitation. The trial court refused to accept the contention that the limitation will start to run only when a notice was issued by the creditor-Bank, demanding payment of the amount from the guarantors and a refusal thereof by the guarantors. The trial court was of the view that if Bank’s contention was to be accepted, then it would mean that the Bank, by postponing issue of a notice making a demand, can postpone the commencement of the running of limitation. The trial court purported to test the validity of the Bank’s contention, by reference to a hypothetical situation, where the Bank, by not making a demand for, say 20 or 30 years, or postponing the demand indefinitely, could postpone the commencement of limitation indefinitely, and held that such a situation was impermissible. It, therefore, held that the period of limitation commenced to run from the middle of 1986 when the operation of the accounts was stopped, and the suit filed in 1990 beyond 3 years from the stoppage of operation of accounts was barred by time.

7.The High Court affirmed the said finding. It held that the words ‘on demand’ had a specific connotation in legal parlance; and that when an amount is payable on demand, it means ‘always payable’ and a ‘demand’ is not a condition precedent for the amount to be paid. The High Court held that when the guarantee stated that the guarantors were liable to pay on demand by the Bank, it meant that the amount was payable from the moment of execution of the guarantee and, consequently, no actual demand is necessary to make the amount due under the guarantees. It was held that the money became payable under the guarantee bond as soon as the guarantee was executed. The High Court also held that when the accounts became dormant in the middle of 1986 by non-operation and non-payment, it should be deemed that there was a refusal to pay the amount under the guarantees and, therefore, the suit filed on 16-3-1990 was barred by limitation, being beyond 3 years. The High Court held that the decision in Samuel (supra) will not apply to the Bank’s suit, as this Court had stated that the limitation will not run only if the account was a ‘live account’ and there was no refusal on the part of the guarantor to carry out the obligations. It held that the word ‘live’ meant that account should be operating and when an account became dormant and inoperative, it was not a live account. The High Court also distinguished the decision in Samuel on facts.

8. The appellant-Bank contended that the guarantees executed by the respondents were continuing guarantees; that the guarantors had agreed to pay the amount/s on demand by the Bank; that such a demand was made by the Bank on the guarantors on 12-10-1987 and 17-12-1987; and that the guarantors’ refusal to pay the amount demanded is contained in their reply-letters dated 31-10-1987 and 30-12-1987; and that, therefore, the suit filed on 16-3-1990, within three years from 31-10-1987 was in time. Reliance is placed on Article 55 of the Limitation Act, 1963 and the decision of the Supreme Court in Samuel (supra).

9. A guarantor’s liability depends upon the terms of his contract. A ‘continuing guarantee’ is different from an ordinary guarantee. There is also a difference between a guarantee which stipulates that the guarantor is liable to pay only on a demand by the creditor, and a guarantee which does not contain such a condition. Further, depending on the terms of guarantee, the liability of a guarantor may be limited to a particular sum, instead of the liability being to the same extent as that of the principal debtor. The liability to pay may arise, on the principal debtor and guarantor, at the same time or at different points of time. A claim may be even time- barred against the principal debtor, but still enforceable against the guarantor. The parties may agree that the liability of a guarantor shall arise at a later point of time than that of the principal debtor. We have referred to these aspects only to underline the fact that the extent of liability under a guarantee as also the question as to when the liability of a guarantor will arise, would depend purely on the terms of the contract.

10. Samuel (supra), no doubt, dealt with a continuing guarantee. But the continuing guarantee considered by it, did not provide that the guarantor shall make payment on demand by the Bank. The continuing guarantee considered by it merely recited that the surety guaranteed to the Bank, the repayment of all money which shall at any time be due to the Bank from the borrower on the general balance of their accounts with the Bank, and that the guarantee shall be a continuing guarantee to an extent of ` 10 lakhs. Interpreting the said continuing guarantee, this Court held that so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, the period of limitation could not be said to have commenced running.

11. But in the case on hand, the guarantee deeds specifically state that the guarantors agree to pay and satisfy the bank on demand and interest will be payable by the guarantors only from the date of demand. In a case where the guarantee is payable on demand, as held in the case of Bradford (supra) and Hartland (supra), the limitation begins to run when the demand is made and the guarantor commits breach by not complying with the demand.

12. We will examine the meaning of the words ‘on demand’. As noticed above, the High Court was of the view that the words ‘on demand’ in law have a special meaning and when an agreement states that an amount is payable on demand, it implies that it is always payable, that is payable forthwith and a demand is not a condition precedent for the amount to become payable. The meaning attached to the expression ‘on demand’ as ‘always payable’ or ‘payable forthwith without demand’ is not one of universal application. The said meaning applies only in certain circumstances. The said meaning is normally applied to promissory notes or bills of exchange payable on demand. We may refer to Articles 21 and 22 in this behalf. Article 21 provides that for money lent under an agreement that it shall be payable on demand, the period of limitation (3 years) begins to run when the loan is made. On the other hand, the very same words ‘payable on demand’ have a different meaning in Article 22 which provides that for money deposited under an agreement that it shall be payable on demand, the period of limitation (3 years) will begin to run when the demand is made. Thus, the words ‘payable on demand’ have been given different meaning when applied with reference to ‘money lent’ and ‘money deposited’. In the context of Article 21, the meaning and effect of those words is ‘always payable’ or payable from the moment when the loan is made, whereas in the context of Article 22, the meaning is ‘payable when actually a demand for payment is made’.

13. What then is the meaning of the said words used in the guarantee bonds in question? The guarantee bond states that the guarantors agree to pay and satisfy the Bank ‘on demand’. It specifically provides that the liability to pay interest would arise upon the guarantor only from the date of demand by the Bank for payment. It also provides that the guarantee shall be a continuing guarantee for payment of the ultimate balance to become due to the Bank by the borrower. The terms of guarantee, thus, make it clear that the liability to pay would arise on the guarantors only when a demand is made. Article 55 provides that the time will begin to run when the contract is ‘broken’. Even if Article 113 is to be applied, the time begins to run only when the right to sue accrues. In this case, the contract was broken and the right to sue accrued only when a demand for payment was made by the Bank and it was refused by the guarantors. When a demand is made requiring payment within a stipulated period, say 15 days, the breach occurs or right to sue accrues, if payment is not made or is refused within 15 days. If while making the demand for payment, no period is stipulated within which the payment should be made, the breach occurs or right to use accrues, when the demand is served on the guarantor.

14. We have to, however, enter a caveat here. When the demand is made by the creditor on the guarantor, under a guarantee which requires a demand as a condition precedent for the liability of the guarantor, such demand should be for payment of a sum which is legally due and recoverable from the principal debtor. If the debt had already become time-barred against the principal debtor, the question of creditor demanding payment thereafter, for the first time, against the guarantor would not arise. When the demand is made against the guarantor, if the claim is a live claim (that is, a claim which is not barred) against the principal debtor, limitation in respect of the guarantor will run from the date of such demand and refusal/non compliance. Where guarantor becomes liable in pursuance of a demand validly made in time the creditor can sue the guarantor within three years, even if the claim against the principal debtor gets subsequently time-barred. To clarify the above, the following illustration may be useful:

“Let us say that a creditor makes some advances to a borrower between 10-4-1991 and 1-6-1991 and the repayment thereof is guaranteed by the guarantor undertaking to pay on demand by the creditor, under a continuing guarantee dated 1-4-1991. Let us further say a demand is made by the creditor against the guarantor for payment on 1-3-1993. Though the limitation against the principal debtor may expire on 1-6-1994, as the demand was made on 1-3-1993 when the claim was ‘live’ against the principal debtor, the limitation as against the guarantor would be 3 years from 1-3-1993. On the other hand, if the creditor does not make a demand at all against the guarantor till 1-6-1994 when the claims against the principal debtor get time-barred, any demand against the guarantor made thereafter say on 15-9-1994 would not be valid or enforceable.

Be that as it may.

15. The respondents have tried to contend that when the operations ceased and the accounts became dormant, the very cessation of operation of accounts should be treated as a refusal to pay by the principal debtor, as also by the guarantors and, therefore the limitation would begin to run, not when there is a refusal to meet the demand, but when the accounts became dormant. By no logical process, we can hold that ceasing of operation of accounts by the borrower for some reason, would amount to a demand by the Bank on the guarantor to pay the amount due in the account or refusal by the principal debtor and guarantor to pay the amount due in the accounts.

16. In view of the above, we hold that the time began to run not when the operations ceased in the accounts in miD/- 986, but on the expiry of 15 days from 12-10-1987 when the demand was made by the Bank and there was refusal to pay by the guarantors.The suit filed within three years therefrom is, therefore, in time.

17.In the view we have taken, it is not necessary to consider the meaning of the words ‘live account’ used and referred to in Samuel (supra). Suffice it to say that the interpretation by the courts below placed on the words ‘live account’, that they refer to an account which is operational and not dormant, may not be sound. This Court itself had indicated that ‘live account’ means an account that is not settled. The use of the term ‘settled’ gives an indication that a ‘live account’ refers to an account where the balance has not been struck by an “account stated” or “account settled”. We may in this behalf, refer to the following observations in Bishun Chand vs. Girdhari Lal and Anr. (AIR 1934 PC 147) :

“The essence of an account stated is not the character of the items on one side or the other but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and, by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable. Such a transaction is in truth bilateral, and creates a new debt and a new cause of action.”

“There can be account stated although the balance of indebtedness is not throughout in favour of one side. It is irrelevant whether the debt in favour of the final creditor is created at the outset by one large payment or consists of several sums of principal and several sums of interest. Nor is it material whether the only payments made on the other side were simply payments in reduction of such indebtedness or were payments made in respect of other dealings. In any event items must be ascertained and agreed on each side before the balance can be struck and settled.”

18.Some arguments were addressed about the Article of limitation that would apply in respect of a suit against the guarantors. Samuel (supra) held that in the case of refusal of a guarantor to pay the amount the matter would be governed by Article 115 of the Schedule to the Limitation Act, 1908, which corresponds to Article 55 of the Limitation Act, 1963. One of the submissions made before us was that the term ‘compensation for breach of contract’ in Article 55 indicates to a claim for unliquidated damages and not to a claim for payment of sum certain (as to what is the difference between a claim for unliquidated damages and a claim for a sum certain or a sum presently due, reference can advantageously be made to the classic statement of law by Chagla, CJ. in Iron And Hardware (India) Ltd. vs. Firm Shamlal And Bros AIR 1954 Bom. 423). If Article 55 does not apply, then a claim against a Guarantor in such a situation may fall under the residuary Article 113 of the Limitation Act, 1963 corresponding to Article 120 of the old Act. The controversy about the appropriate Article applicable, when the claim is found to be not exactly for ‘compensation’ but ascertained sum due has been referred to as long back as 1916 in Tricomdas Cooverji Bhoja vs. Gopinath Jin Thakur (AIR 1916 PC 183). Under the old Limitation Act (Act of 1908), the periods prescribed were different under Articles 115 and 116. The periods prescribed were also different under Articles 115 and 120. But under the 1963 Act, the period of limitation is the same (three years) both under Articles 55 and 113. Having regard to the fact that the period of limitation is 3 years both under Articles 55 and Article 113, and having regard to the binding decision in Samuel (supra), we do not propose to examine the controversy as to whether the appropriate Article is 55 or 113. Suffice it to note that even if the Article applicable is Article 113, the Bank’s suit is in time.

19. In view of our finding that the suit is not barred by time, we allow this appeal and, consequently set aside the judgment and decree of the High Court and that of the trial court. Consequently, the suit is decreed, as prayed for, with costs.

 

The Bankers Books Evidence Act, 1891

Law Library

Note
(18 of 1891)

[1st October, 1891]

An Act to amend the Law of Evidence with respect to Bankers Books.
Whereas it is expedient to amend the Law of Evidence with respect to Bankers Books; It is hereby enacted as follows:

1. Title and extent .(1) This Act may be called The Bankers Books Evidence Act, 1891.
[(2)] It extends to the [whole of India] except the State of Jammu and Kashmir.]

2. Definitions .In this Act, unless there is something repugnant in the subject or context,
[(1) company means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956) and includes a foreign company within the meaning of section 591 of that Act;

(1-A) corporation means any body corporate established by any law for the time being in force in India and includes the Reserve Bank of India, the State Bank of India and any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959;]
(2) bank and banker mean
[(a) any company or corporation carrying on the business of banking],
(b) any partnership or individual to whose books the provisions of this Act shall have been extended as hereinafter provided,
[(c) any post office savings bank or money order office;]

(3) bankers books include ledgers, day-books, cash-books, account-books and all other records used in the ordinary business of a bank, whether these records are kept in written form or stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism, either onsite or at any offsite location including a back-up or disaster recovery site of both;]

(4) legal proceeding means,
(i) any proceeding or inquiry in whichevidence is or may be given;
(ii) an arbitration; and
(iii) any investigation or inquiry under the Code of Criminal Procedure, 1973 (2 of 1974), or under any other law for the time being in force for the collection of evidence, conducted by a police officer or by any other person (not being a magistrate) authorised in this behalf by a magistrate or by any law for the time being in force;]
(5) the Court means the person or persons before whom a legal proceeding is held or taken;
(6) Judge means a Judge of a High Court;
(7) trial means any hearing before the Court at which evidence is taken; and
[(8) certified copy means when the books of a bank,

(a) are maintained in written form, a copy of any entry in such books together with a certificate written at the foot of such copy that it is a true copy of such entry, that such entry is contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book is still in the custody of the bank, and where the copy was obtained by a mechanical or other process which in itself ensured the accuracy of the copy, a further certificate to that effect, but where the book from which such copy was prepared has been destroyed in the usual course of the banks business after the date on which the copy had been so prepared, a further certificate to that effect, each such certificate being dated and subscribed by the principal accountant or manager of the bank with his name and official title; and

(b) consist of printouts of data stored in a floppy, disc, tape or any other electro-magnetic data storage device, a printout of such entry or a copy of such printout together with such statements certified in accordance with the provisions of section 2-A;]

(c) a printout of any entry in the books of a bank stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism obtained by a mechanical or other process which in itself ensures the accuracy of such printout as a copy of such entry and such printout contains the certificate in accordance with the provisions of section 2-A.]

2-A. Conditions in the printout .

A printout of entry or a copy of printout referred to in sub-section (8) of section 2 shall be accompanied by the following, namely:
(a) a certificate to the effect that it is a printout of such entry or a copy of such printout by the principal accountant or branch manager; and
(b) a certificate by a person in-charge of computer system containing a brief description of the computer system and the particulars of
(A) the safeguards adopted by the system to ensure that data is entered or any other operation performed only by authorised persons;
(B) the safeguards adopted to prevent and detect unauthorised change of data;
(C) the safeguards available to retrieve data that is lost due to systemic failure or any other reasons;
(D) the manner in which data is transferred from the system to removable media like floppies, discs, tapes or other electro-magnetic data storage devices;
(E) the mode of verification in order to ensure that data has been accurately transferred to such removable media;
(F) the mode of identification of such data storage devices;
(G) the arrangements for the storage and custody of such storage devices;
(H) the safeguards to prevent and detect any tampering with the system; and
(I) any other factor which will vouch for the integrity and accuracy of the system.
(c) a further certificate from the person in-charge of the computer system to the effect that to the best of his knowledge and belief, such computer system operated properly at the material time, he was provided with all the relevant data and the printout in question represents correctly, or is appropriately derived from, the relevant data. ]

3. Power to extend provisions of Act .

The [State] Government may, from time to time, [by notification ]in the Official Gazette, extend the provisions of this Act to the books of any partnership or individual carrying on business of bankers within the territories under its administration, and keeping a set of not less than three ordinary account-books, namely, a cash-book, a day-book or journal, and a ledger, and may in like manner rescind any such notification.

4. Mode of proof of entries in bankers books .

Subject to the provisions of this Act, a certified copy of any entry in a bankers book shall in all legal proceedings be received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every case where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise.

5. Case in which officer of bank not compellable to produce books .

No officer of a bank shall in any legal proceeding to which the bank is not a party be compellable to produce any bankers book the contents of which can be proved under this Act, or to appear as a witness to prove the matters, transactions and accounts therein recorded, unless by order of the Court or a Judge made for special cause.

6. Inspection of books by order of Court or Judge .

(1)On the application of any party to a legal proceeding, the Court or a Judge may order that such party be at liberty to inspect and take copies of any entries in a bankers book for any of the purposes of such proceeding, or may order the bank to prepare and produce, within a time to be specified in the order, certified copies of all such entries, accompanied by a further certificate that no other entries are to be found in the books of the bank relevant to the matters in issue in such proceeding, and such further certificate shall be dated and subscribed in manner hereinbefore directed in reference to certified copies.
(2) An order under this or the preceding section may be made either with or without summoning the bank and shall be served on the bank three clear days (exclusive of bank holidays) before the same is to be obeyed, unless the Court or Judge shall otherwise direct.
(3) The bank may at any time before the time limited for obedience to any such order as aforesaid either offer to produce their books at the trial or give notice of their intention to show cause against such order, and thereupon the same shall not be enforced without further order.

7. Costs .

(1) The costs of any application to the Court or a Judge under or for the purposes of this Act and the costs of anything done or to be done under an order of the Court or a Judge made under or for the purposes of this Act shall be in the discretion of the Court or Judge, who may further order such costs or any part thereof to be paid to any party by the bank if they have been incurred in consequence of any fault or improper delay on the part of the bank.
(2) Any order made under this section for the payment of costs to or by a bank may be enforced as if the bank were a party to the proceeding.
(3) Any order under this section awarding costs may, on application to any Court of Civil Judicature designated in the order, be executed by such Court as if the order were a decree for money passed by itself:
Provided that nothing in this sub-section shall be construed to derogate from any power which the Court or Judge making the order may possess for the enforcement of its or his directions with respect to the payment of costs.

8. Order of Court to be construed to be order made by specified officer .

In the application of sections 5, 6 and 7 to any investigation or inquiry referred to in sub-clause (iii) of clause (4) of section 2, the order of a Court or a Judge referred to in the said sections shall be construed as referring to an order made by an officer of a rank not lower than the rank of a Superintendent of Police as may be specified in this behalf by the appropriate Government.
Explanation. In this section, appropriate Government means the Government by which the police officer or any other person conducting the investigation or inquiry is employed.]

Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002[SARFAESI]

ParliamentKeywords:

  • Financial assets
  • Reconstruction company
  • Appellate Tribunal
  • Secured creditors
  • Debts Recovery Tribunals
  • Right of borrower

THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
ACT NO. 54 OF 2002
[17th December, 2002.]

An Act to regulate securitisation 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.
BE it enacted by Parliament in the Fifty-third Year of the Republic of India as follows:—

CHAP.I PRELIMINARY 

1. Short title, extent and commencement.
2. Definitions.

CHAP.II REGULATION OF SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS OF BANKS AND FINANCIAL INSTITUTIONS 

3. Registration of asset reconstruction companies.
4. Cancellation of certificate of registration.
5. Acquisition of rights or interest in financial assets.
5A. Transfer of pending applications to any one of Debts Recovery Tribunals in certain cases.
6. Notice to obligor and discharge of obligation of such obligor.
7. Issue of security by raising of receipts or funds by asset reconstruction company.
8. Exemption from registration of security receipt.
9. Measures for assets reconstruction.
10. Other functions of asset reconstruction company.
11. Resolution of disputes.
12. Power of Reserve Bank to determine policy and issue directions.
12A. Power of Reserve Bank to call for statements and information.
12B. Power of Reserve Bank to carry out audit and inspection.

CHAP.III ENFORCEMENT OF SECURITY INTEREST

13. Enforcement of security interest.
14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking
possession of secured asset.
15. Manner and effect of take over of management.
16. No compensation to directors for loss of office.
17. Application against measures to recover secured debts.
17A. Making of application to Court of District Judge in certain cases.
18. Appeal to Appellate Tribunal.
18A. Validation of fees levied.
18B. Appeal to High Court in certain cases.
18C. Right to lodge a caveat.

19. Right of borrower to receive compensation and costs in certain cases.

CHAP.IV  CENTRAL REGISTRY 

20. Central Registry.
20A. Integration of registration systems with Central Registry.
20B. Delegation of powers.
21. Central Registrar.
22. Register of securitisation, reconstruction and security interest transactions.
23. Filing of transactions of securitisation, reconstruction and creation of security interest.
24. Modification of security interest registered under this Act.
25. Asset reconstruction company or secured creditors to report satisfaction of security interest.
26. Right to inspect particulars of securitisation, reconstruction and security interest transactions.
26A.Rectification by Central Government in matters of registration, modification and satisfaction, etc

CHAPTER IVA REGISTRATION BY SECURED CREDITORS AND OTHER CREDITORS
26B. Registration by secured creditors and other creditors.
26C. Effect of the registration of transactions, etc.
26D. Right of enforcement of securities.
26E. Priority to secured creditors

CHAP. V OFFENCES AND PENALTIES

27. Penalties.
28. [Omitted.]
29. Offences.
30. Cognizance of offence.
30A. Power of adjudicating authority to impose penalty.
30B. Appeal against penalties.
30C. Appellate Authority.
30D. Recovery of penalties.

 CHAP. VI MISCELLANEOUS 

31. Provisions of this Act not to apply in certain cases.
31A. Power to exempt a class or classes of banks or financial institutions.
32. Protection of action taken in good faith.
33. Offences by companies.
34. Civil court not to have jurisdiction.
35. The provisions of this Act to override other laws.
36. Limitation.
37. Application of other laws not barred.

38. Power of Central Government to make rules.
39. Certain provisions of this Act to apply after Central Registry is set up or cause to be set up.
40. Power to remove difficulties.
41. Amendments to certain enactments.
42. Repeal and saving.

THE SCHEDULE.

 

VISHAL N. KALSARIA Vs. BANK OF INDIA & ORS [SC 2016 JANUARY]RC

KEYWORDS:- Protected tenant-Lease-Binding Judgment-Precedent-

Supreme Court-min

DATE:- 20-01-2016

The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act.

ACTS:-The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002-The Maharashtra Rent Control Act, 1999

Bench: V. Gopala Gowda, Amitava Roy
IN THE SUPREME COURT OF INDIA CRIMINAL/CIVIL
APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 52 OF 2016
(Arising out of SLP (Crl.) No.8060 of 2015)

VISHAL N. KALSARIA ………APPELLANT
Vs.
BANK OF INDIA & ORS. ………RESPONDENTS
with
CRIMINAL APPEAL NO. 53 OF 2016
(Arising out of SLP(Crl) No. 8064 of 2015)
CRIMINAL APPEAL NO. 54 OF 2016
(Arising out of SLP(Crl) No. 8063 of 2015)
CRIMINAL APPEAL NO. 55 OF 2016
(Arising out of SLP(Crl) No. 8062 of 2015)
CRIMINAL APPEAL NO. 56 OF 2016
(Arising out of SLP(Crl) No. 8066 of 2015)
CRIMINAL APPEAL NO. 57 OF 2016
(Arising out of SLP(Crl) No. 8067 of 2015)
CRIMINAL APPEAL NO. 58 OF 2016 (Arising out of SLP(Crl) No. 8068
of 2015)
CRIMINAL APPEAL NO. 59 OF 2016
(Arising out of SLP(Crl) No. 8069 of 2015)
CIVIL APPEAL NOS. 414-415 OF 2016
(Arising out of SLP(C) Nos.13295-13296 of 2015)

CRIMINAL APPEAL NO. 753 OF 2014

CRIMINAL APPEAL NO. 754 OF 2014
CRIMINAL APPEAL NO. 62 OF 2016
(Arising out of SLP(Crl) No. 6944 of 2015)
CRIMINAL APPEAL NO. 63 OF 2016
(Arising out of SLP (Crl) No. 6945 of 2015)
CIVIL APPEAL NO. 469 OF 2016
(Arising out of SLP(C) No. 25133 of 2015)
CRIMINAL APPEAL NO. 64 OF 2016
(Arising out of SLP(Crl) No. 6941 of 2015)
CIVIL APPEAL NO. 417 OF 2016
(Arising out of SLP(C) No. 28040 of 2015)
CIVIL APPEAL NO. 419 OF 2016
(Arising out of SLP(C) No. 28446 of 2015)

CIVIL APPEAL NO. 420 OF 2016
(Arising out of SLP(C) No. 28300 of 2015)
CIVIL APPEAL NO. 421 OF 2016
(Arising out of SLP(C) No. 12772 of 2015)
and
CIVIL APPEAL NO. 422 OF 2016
(Arising out of SLP(C)No. 31080 of 2015)

J U D G M E N T
V. GOPALA GOWDA, J.

The applications for impleadment are allowed.

Leave granted in all the special leave petitions.

In the present batch of appeals, the broad point which requires our attention and consideration is whether a ‘protected tenant’ under The Maharashtra Rent Control Act, 1999 (in short the ‘Rent Control Act’) can be treated as a lessee, and whether the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short, the ‘SARFAESI Act’) will override the provisions of the Rent Control Act. How can the right of the ‘protected tenant’ be preserved in cases where the debtor-landlord secures a loan by offering the very same property as a security interest either to Banks or Financial Institutions, is also the essential legal question to be decided by us.

In all the appeals, the same question of law would arise for consideration. For the sake of convenience and brevity, we would refer to the relevant facts from the appeal arising out of S.L.P.(Crl.) No.8060 of 2015, which has been filed against the impugned judgment and order dated 29.11.2014 in M.A.No. 123 of 2011 in Case No.237 of 2010 passed by the learned Chief Metropolitan Magistrate, Esplanade, Mumbai, wherein the application of the appellant herein for impleadment as intervenor as well as stay of the order dated 08.04.2011 passed in Case No.237 of 2010 by the learned Magistrate, Esplanade, Mumbai, was dismissed.

Respondent Nos. 4 and 5 had approached the Bank of India (Respondent No.1) (in short “the respondent Bank”) for a financial loan, which was granted against equitable mortgage of several properties belonging to them, including the property in which the appellant is allegedly a tenant. The respondent nos. 4 and 5 failed to pay the dues within the stipulated time and thus, in terms of the SARFAESI Act, their account became a non- performing asset. On 12.03.2010, the respondent-Bank served on them notice under Section 13(2) of SARFAESI Act. On failure of the respondents to clear the dues from the loan amount borrowed by the above respondent nos. 4 and 5 within the stipulated statutory period of 60 days, the respondent-Bank filed an application before the Chief Metropolitan Magistrate, Mumbai under Section 14 of the SARFAESI Act for seeking possession of the mortgaged properties which are in actual possession of the Appellant. The learned Chief Metropolitan Magistrate allowed the application filed by the respondent-Bank vide order dated 08.04.2011 and directed the Assistant Registrar, Borivali Centre of Courts to take possession of the secured assets. On 26.05.2011, the respondent no.4 served a notice on the appellant, asking him to vacate the premises in which he was residing within 12 days from the receipt of the notice. The appellant fearing eviction, filed a Rent Suit R.A.D. Suit No. 913 of 2011 before the Court of Small Causes, Bombay. Vide order dated 08.06.2011, the Small Causes Court allowed the application and passed an ad interim order of injunction in favour of the appellant, restraining respondent no.4 from obstructing the possession of the appellant over the suit premises during the pendency of the suit. In view of the order dated 08.06.2011, the appellant then filed an application as an intervenor to stay the execution of the order dated 08.04.2011 passed by the Chief Metropolitan Magistrate. The learned Chief Metropolitan Magistrate vide order dated 29.11.2014 dismissed the application filed by the appellant by placing reliance on a judgment of this Court rendered in the case of Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. & Ors.[1]. Dismissing the application, the learned judge held as under:

“3. …the Hon’ble Supreme Court has held that the alleged tenant has to produce proof of execution of a registered instrument in his favour by the lessor. Where he does not produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.

4. It is to be highlighted that the intervener did not place on record any registered instrument to fulcrum his contention. So, in view of the ratio laid down in Harshad Sondagar’s case (cited supra), I hold that the intervener is not entitled to any protection under the law.” The learned Chief Metropolitan Magistrate further held that when the secured creditor takes action under Section 13 or 14 of the SARFAESI Act to recover the possession of the secured interest and recover the loan amount by selling the same in public auction, then it is not open for the Court to grant an injunction under Section 33 of the Rent Control Act. The learned Chief Metropolitan Magistrate further held that the order dated 08.06.2011 passed by the Small Causes Court, Mumbai cannot be said to be binding upon the respondent-Bank, especially in the light of the fact that it was not a party to the proceedings. Hence the present appeal filed by the appellant.

We have heard the learned counsel for both the parties.

Before we consider the submissions advanced by the learned counsel appearing on behalf of the parties, it is essential to first appreciate the provisions of law in question.

The Maharashtra Rent Control Act, 1999, which repealed the Bombay Rent Act, 1947 was enacted by the state legislature of Maharashtra under Entry 18 of List II of the Seventh Schedule of the Constitution of India to consolidate and unify the different provisions and legislations in the State which existed pertaining to rent and the landlord-tenant relationship. The Statement of objects and reasons of the Rent Control Act reads, inter alia, as under:

“1……At present, there are three different rent control laws, which are in operation in this State……All these three laws have different provisions and the courts or authorities which have the jurisdiction to decide matters arising out of these laws are also not uniform. The Procedures under all the three laws are also different in many of the material aspect.

2. Many features of the rent control laws have outlived their utility. The task, therefore, of unifying, consolidating and amending the rent control laws in the State and to bring the rent control legislation in tune with the changed circumstances now, had been engaging the attention of the Government……

3. In the meantime, the Central Government announced the national housing policy which recommends, inter alia, to carry out suitable amendments to the existing rent control laws for creating and enabling involvement in housing activity and for guaranteeing access to shelter for the poor. The National Housing Policy further recognized the important role of rental housing in urban areas in different income groups and low-income households in particular who cannot afford ownership house. The existing rent control legislation has resulted in a freeze of rent, very low returns in investment and difficulty in resuming possession and has adversely affected investment in rental housing and cause deterioration of the rental housing stock.” On the other hand, the SARFAESI Act was enacted by the Parliament with a view to regulate the securitisation and reconstruction of financial assets and enforcement of security interests against the debtor by securing the possession of such secured assets and recover the loan amount due to the Banks and Financial Institutions. The statement of objects and reasons of the SARFAESI Act reads as under:

“The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating Securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas.”

(emphasis laid by this Court) The SARFAESI Act enacted under List I of the Constitution of India thus, seeks to regulate asset recovery by the Banks. It becomes clear from a perusal of the Statements of Objects and Reasons of the Rent Control Act and the SARFAESI Act that the two Acts are meant to operate in completely different spheres. So far as residential tenancy rights are concerned, they are governed by the provisions of the Rent Control Act which occupies the field on the subject.

The controversy in the instant case arises squarely out of the interpretation of a decision of this Court in the case of Harshad Govardhan Sondagar (supra). The fact situation facing the court in that case was similar to the one in the instant case. The premises which the appellants therein claimed to be the tenants of had been mortgaged to different banks as collateral security to such borrowed amount by the landlord/debtor. On default of payment of the borrowed amount by the landlords/debtors, the banks made application under Section 14(1) of the SARFAESI Act to the Chief Metropolitan Magistrate, praying that the possession of the premises be handed over to them in accordance with the provisions of the SARFAESI Act. This Court in the case of Harshad Govardhan Sondagar (supra) held as under: “34……In our view, therefore, the High Court has not properly appreciated the judgment of this Court in Transcore (supra) and has lost sight of the opening words of sub-section (1) of Section 13 of the SARFAESI Act which state that notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of the Act. The High Court has failed to appreciate that the provisions of Section 13 of the SARFAESI Act thus override the provisions of Section 69 or Section 69A of the Transfer of Property Act, but does not override the provisions of the Transfer of Property Act relating to the rights of a lessee under a lease created before receipt of a notice under sub-Section (2) of Section 13 of the SARFAESI Act by a borrower. Hence, the view taken by the Bombay High Court in the impugned judgment as well as in M/s Trade Well (supra) so far as the rights of the lessee in possession of the secured asset under a valid lease made by the mortgagor prior to the creation of mortgage or after the creation of mortgage in accordance with Section 65A of the Transfer of Property Act is not correct and the impugned judgment of the High Court insofar it takes this view is set aside.” (emphasis laid by this Court) Mr. Pallav Shishodia, the learned senior counsel appearing on behalf of the appellant in the appeal @ out of S.L.P. (C) No. 8060 of 2015 places reliance on the decision of this Court in Harshad Govardhan Sondagar (supra), to contend that prior tenancy in respect of the mortgaged property to the Bank is protected in terms of the Rent Control Act. The relevant paragraphs of the decision are quoted as under:

“25. The opening words of sub-section (1) of Section 14 of the SARFAESI Act also provides that if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of the Act, the secured creditor may take the assistance of the Chief Metropolitan Magistrate or the District Magistrate. Where, therefore, such a request is made by the secured creditor and the Chief Metropolitan Magistrate or the District Magistrate finds that the secured asset is in possession of a lessee but the lease under which the lessee claims to be in possession of the secured asset stands determined in accordance with 4 Section 111 of the Transfer of Property Act, the Chief Metropolitan Magistrate or the District Magistrate may pass an order for delivery of possession of secured asset in favour of the secured creditor to enable the secured creditor to sell and transfer the same under the provisions of the SARFAESI Act. Sub-section (6) of Section 13 of the SARFAESI Act provides that any transfer of secured asset after taking possession of secured asset by the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. In other words, the transferee of a secured asset will not acquire any right in a secured asset under sub-section (6) of Section 13 of the SARFAESI Act, unless it has been effected after the secured creditor has taken over possession of the secured asset. Thus, for the purpose of transferring the secured asset and for realizing the secured debt, the secured creditor will require the assistance of the Chief Metropolitan Magistrate or the District Magistrate for taking possession of a secured asset from the lessee where the 4 lease stands determined by any of the modes mentioned in Section 111 of the Transfer of Property Act.

32. When we read sub-section (1) of Section 17 of the SARFAESI Act, we find that under the said sub-section “any person (including borrower)”, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorised officer under the Chapter, may apply to the Debts Recovery Tribunal having jurisdiction in the matter within 45 days from the date on which such measures had been taken. We agree with the Mr. Vikas Singh that the words ‘any person’ are wide enough to include a lessee also. It is also possible to take a view that within 45 days from the date on which a possession notice is delivered or affixed or published under sub-rules (1) and (2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002, a lessee may file an application before the Debts Recovery Tribunal having jurisdiction in the matter for restoration of possession in case he is dispossessed of the secured asset. But when we read subsection (3) of Section 17 of the SARFAESI Act, we find that the Debts Recovery Tribunal has powers to restore 5 possession of the secured asset to the borrower only and not to any person such as a lessee. Hence, even if the Debt Recovery Tribunal comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act, it cannot restore possession of the secured asset to the lessee. Where, therefore, the Debts Recovery Tribunal considers the application of the lessee and comes to the conclusion that the lease in favour of the lessee was made prior to the creation of mortgage or the lease though made after the creation of mortgage is in accordance with the requirements of Section 65A of the Transfer of Property Act and the lease was valid and binding on the mortgagee and the lease is yet to be determined, the Debts Recovery Tribunal will not have the power to restore possession of the secured asset to the lessee. In our considered opinion, therefore, there is no remedy available under Section 17 of the SARFAESI Act to the lessee to protect his lawful possession under a valid lease.” The learned senior counsel contends that it is a settled position of law that in the absence of a valid document of lease for more than one year or in case of an invalid lease deed, the relation of tenancy between a landlord and the tenant is still created due to delivery of possession to the tenant and payment of rent to the landlord-owner and such tenancy is deemed to be a tenancy from month to month in respect of such property. The learned senior counsel further places reliance on a three Judge Bench decision of this Court in Anthony v. K.C. Ittoop & Sons & Ors.[2], wherein it was held as under:

“….so far as the instrument of lease is concerned there is no scope for holding that appellant is a lessee by virtue of the said instrument. The court is disabled from using the instrument as evidence…

But this above finding does not exhaust the scope of the issue whether appellant is a lessee of the building. A lease of immovable property is defined in Section 105 of the TP Act. A transfer of a right to enjoy a property in consideration of a price paid or promised to be rendered periodically or on specified occasions is the basic fabric for a valid lease. The provision says that such a transfer can be made expressly or by implication. Once there is such a transfer of right to enjoy the property a lease stands created. What is mentioned in the three paragraphs of the first part of Section 107 of the TP Act are only the different modes of how leases are created…. Thus, de hors the instrument parties can create a lease as envisaged in the second paragraph of Section 107 which reads thus: All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.

When lease is a transfer of a right to enjoy the property and such transfer can be made expressly or by implication, the mere fact that an unregistered instrument came into existence would not stand in the way of the court to determine whether there was in fact a lease otherwise than through such deed.” (emphasis laid by this Court) The learned senior counsel further contends that where a lease deed or document of tenancy in respect of the property in question is for a period exceeding one year, but such document has not been registered, then, by virtue of payment of rent, the relationship of tenancy between a landlord and the tenant comes into existence and in such cases, the tenant must be deemed to be a tenant from month to month and the same would amount to a tenancy from month to month. Thus, in the instant case, the tenancy of the appellants in respect of the property in question which is the secured asset of the Bank being from month to month would also be protected under the provisions of the Rent Control Act.

The learned senior counsel further contends that according to the decision of this Court in the case of Harshad Govardhan Sondagar (supra), if a person claiming to be a tenant or lessee either produces a registered agreement or relies on an oral agreement accompanied by delivery of possession, then such tenancy/possession of the property with the appellant as tenant needs to be protected. It is further contended that the Harshad Govardhan Sondagar (supra) has clearly held that the tenancy claims of the tenants are to be decided by the Chief Metropolitan Magistrate in accordance with any other law that may be relevant after giving an opportunity of hearing to the persons who claim tenancy in respect of such property. The term “any other law that may be relevant” clearly indicates a reference to the State Rent Protection laws, which in the case at hand is the Rent Control Act. Thus, the protection of the State Rent Control legislation is also to be considered by the learned magistrate while deciding an application filed by the Bank under Section 14 of the SARFAESI Act.

On the other hand, Mr. Amarendra Sharan, learned senior counsel appearing on behalf of the respondents in Crl.A. @ S.L.P. (Crl) Nos. 6941, 6944 and 6945 of 2015 contends that the pith and substance of the central enactment in the instant case, which is the SARFAESI Act needs to be appreciated. Proper implementation of the provisions of the SARFAESI Act is in the larger interest of the nation. The learned senior counsel places reliance on a Constitution Bench decision of this Court in the case of Ishwari Khetan Sugar Mills Pvt. Ltd. & Ors. v. State of Uttar Pradesh & Ors.[3], wherein it was held as under:

“13. If in pith and substance a legislation falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid notwithstanding such incidental trenching. This is well established by a catena of decisions [see Union of India v. H.S. Dhillon and Kerala State Electricity Board v. Indian Aluminium Co.] After referring to these decisions in State of Karnataka v. Ranganatha Reddy and Anr. Untwalia, J. speaking for the Constitution Bench has in terms stated that the pith and substance of the Act has to be looked into and an incidental trespass would not invalidate the law. The challenge in that case was to the Nationalisation of contract carriages by the Karnataka State, inter alia, on the ground that the statute was invalid as it was a legislation on the subject of interstate trade and commerce. Repelling this contention the Court unanimously held that in pith and substance the impugned legislation was for acquisition of contract carriages and not an Act which deals with inter-State trade and commerce.” The learned senior counsel further contends that the SARFAESI Act was enacted by the Parliament under Entry 45 of List I of the Constitution of India. It is a special Act with a special purpose and procedure laid down for the recovery of the secured asset of the debtor by the Bank to recover the amount due to it, and thus, any encroachment upon this Act should not be permitted, as it would defeat the laudable object of the Act, which has been enacted keeping in view the larger public interest.

Mr. Vikas Singh, the learned senior counsel appearing on behalf of the respondent State Bank of India in the appeal arising out of S.L.P. (C) No. 28040 of 2015 contends that the SARFAESI Act cannot be allowed to fail at the hands of the present appellants, who have no registered instrument of lease.

The learned senior counsel further contends that in light of the decision of this Court in the case of Harshad Govardhan Sondagar (supra), the present case is barred by res judicata. He places reliance on the three Judge Bench decision of this Court in the case of Bhanu Kumar Jain v. Archana Kumar & Anr.[4], wherein it was held as under: “It is now well-settled that principles of res judicata applies in different stages of the same proceedings.

19. In Y.B. Patil (supra) it was held:

“4… It is well settled that principles of res judicata can be invoked not only in separate subsequent proceedings, they also get attracted in subsequent stage of the same proceedings. Once an order made in the course of a proceeding becomes final, it would be binding at the subsequent state of that proceeding…”

20. In Vijayabai (supra), it was held:

“13. We find in the present case the Tahsildar reopened the very question which finally stood concluded, viz., whether Respondent 1 was or was not the tenant of the suit land. He further erroneously entered into a new premise of reopening the question of validity of the compromise which could have been in issue if at all in appeal or revision by holding that compromise was arrived at under pressure and allurement. How can this question be up for determination when this became final under this very same statute?…”

21. Yet again in Hope Plantations Ltd. (supra), this Court laid down the law in the following terms:

“17… One important consideration of public policy is that the decisions pronounced by courts of competent jurisdiction should be final, unless they are modified or reversed by appellate authorities; and the other principle is that no one should be made to face the same kind of litigation twice over, because such a process would be contrary to considerations of fair play and justice.”

Mr. M.T. George, the learned counsel appearing on behalf of the Bank in the appeal arising out of S.L.P. (C) No. 12772 of 2015 contends that the tenancy has not been determined conclusively, as the documents produced on record to prove the relationship of tenancy are not registered and do not hold much water. Mr. Rajeev Kumar Pandey, the learned counsel appearing on behalf of the respondent Bank in the appeal arising out of S.L.P. (C) No. 31080 of 2015 submits that the property in question was mortgaged before it was leased. Such a lease would thus, not entitle the lessee to stop the bank from taking possession over the property which was mortgaged to it.

The other learned counsel appearing on behalf of other Banks in the connected appeals adopted the arguments advanced by the aforesaid learned senior counsel appearing on behalf of some of the Banks. It was also contended that the appellants in the connected appeals have not been able to produce sufficient documentary evidence to prove that they are tenants in respect of the properties in question in the proceedings under Section 14 of the SARFAESI Act and hence, they have no locus standi to prefer the above appeals questioning the correctness of the Order passed by the learned Magistrate.

We have carefully considered the above rival legal submissions made on behalf of the parties and answer the same as hereunder:

The SARFAESI Act, which came into force from 21.06.2002, was enacted to provide procedures to the Banks to recover their security interest from the debtors and their collateral security assets as provided under the provisions of the Act. The scope of the Act was explained by this Court in the case of Transcore v. Union of India & Anr.[5] as under: “12. The NPA Act, 2002 is enacted to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith. The NPA Act enables the banks and FIs to realize long-term assets, manage problems of liquidity, asset-liability mismatch and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease; assignment or sale. The said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower….

13. Non-performing assets (NPA) are a cost to the economy. When the Act was enacted in 2002, the NPA stood at Rs 1.10 lakh crores. This was a drag on the economy. Basically, NPA is an account which becomes non-viable and non- performing in terms of the guidelines given by RBI. As stated in the Statement of Objects and Reasons, NPA arises on account of mismatch between asset and liability. The NPA account is an asset in the hands of the bank or FI. It represents an amount receivable and realizable by the banks or FIs. In that sense, it is an asset in the hands of the secured creditor. Therefore, the NPA Act, 2002 was primarily enacted to reduce the non- performing assets by adopting measures not only for recovery but also for reconstruction. Therefore, the Act provides for setting up of asset reconstruction companies, special purpose vehicles, asset management companies, etc. which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. It also provides for realization of the secured assets. It also provides for takeover of the management of the borrower company.” Thus, it becomes clear that the SARFAESI Act is meant to operate as a tool for banks and ensures a smooth debt recovery process. The provisions of SARFAESI Act make its purport amply clear, specifically under the provisions of Sections 13(2) and 13(4) of the Act, which read as under:

“13. Enforcement of Security interest.-

(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 sub-section (4).

“(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:–

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset….” Further, the provision under Section 35 of the SARFAESI Act provides that it shall override all other laws, which is quoted as hereunder: “35. The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

Providing a smooth and efficient recovery procedure to enable the banks to recover the Non Performing Assets is a laudable object indeed, which needs to be ensured for the development of the economy of the Country. What has complicated the matters, however, is the clash of this laudable object with another laudable object, namely, to secure the rights of the tenants under the various Rent Control Acts. The history of these Rent Control Acts can be traced to as far back as the Second World War. At that time, due to the massive inflation and shortage of commodities, not only had the cost of living risen exponentially, the tenants were also often left to the mercy of the landlords as far as evictions or prices of rent were concerned. Rent Control Acts have been enacted by the different state legislatures to secure the rights of the weaker sections of the society, viz., the tenants. Justice Krishna Iyer aptly observed in the case of Miss Santosh Mehta v. Om Prakash & Ors.[6]:

“2. Rent Control laws are basically designed to protect tenants because scarcity of accommodation is a nightmare for those who own none and if evicted, will be helpless.” The preamble of the Rent Control Act reads as under:

“An Act to unify, consolidate and amend the law relating to the control of rent and repairs of certain premises and of eviction and for encouraging the construction of new houses by assuring a fair return on the investment by landlords and to provide for the matters connected with the purposes aforesaid……” It becomes clear from a perusal of the preamble of the Act that the ultimate object behind the enactment of this legislation is to control and regulate the rate of rent so that unnecessary hardship is not caused to the tenant, and also to provide protection to the tenants against arbitrary and unreasonable evictions from the possession of the property. The protection of the tenants against unjust evictions becomes even more pronounced when examined in the light of Section 15 of the Rent Control Act, which reads as under:

“15. No ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases.(1) A landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the, standard rent and permitted increases, if any, and observes and performs the other conditions of the tenancy, in so far as they are consistent with the provisions of this Act.” Section 15, thus, restricts the right of a landlord to recover possession of the tenanted premises from a tenant.

When we understand the factual matrix in the backdrop of the objectives of the above two legislations, the controversy in the instant case assumes immense significance. There is an interest of the bank in recovering the Non Performing Asset on the one hand, and protecting the right of the blameless tenant on the other. The Rent Control Act being a social welfare legislation, must be construed as such. A landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations, that is the SARFAESI Act and the Rent Control Act operate in completely different fields. While SARFAESI Act is concerned with Non Performing Assets of the Banks, the Rent Control Act governs the relationship between a tenant and the landlord and specifies the rights and liabilities of each as well as the rules of ejectment with respect to such tenants. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. If the contentions of the learned counsel for the respondent Banks are to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory. Tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently default on it. Conversely, a landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be evicted from the possession of the tenanted property by the Bank under the provisions of the SARFAESI Act. Under no circumstances can this be permitted, more so in view of the statutory protections to the tenants under the Rent Control Act and also in respect of contractual tenants along with the possession of their properties which shall be obtained with due process of law.

The issue of determination of tenancy is also one which is well settled. While Section 106 of the Transfer of Property Act, 1882 does provide for registration of leases which are created on a year to year basis, what needs to be remembered is the effect of non-registration, or the creation of tenancy by way of an oral agreement. According to Section 106 of the Transfer of Property Act, 1882, a monthly tenancy shall be deemed to be a tenancy from month to month and must be registered if it is reduced into writing. The Transfer of Property Act, however, remains silent on the position of law in cases where the agreement is not reduced into writing. If the two parties are executing their rights and liabilities in the nature of a landlord-tenant relationship and if regular rent is being paid and accepted, then the mere factum of non-registration of deed will not make the lease itself nugatory. If no written lease deed exists, then such tenants are required to prove that they have been in occupation of the premises as tenants by producing such evidence in the proceedings under Section 14 of the SARFAESI Act before the learned Magistrate. Further, in terms of Section 55(2) of the special law in the instant case, which is the Rent Control Act, the onus to get such a deed registered is on the landlord. In light of the same, neither the landlord nor the banks can be permitted to exploit the fact of non registration of the tenancy deed against the tenant. Further, the learned counsel for the appellants rightly placed reliance on a three Judge Bench decision of this Court in Anthony (supra). At the cost of repetition, in that case it was held as under: “But the above finding does not exhaust the scope of the issue whether the appellant was a lessee of the building. A lease of immovable property is defined in Section 105 of the TP Act. A transfer of a right to enjoy a property in consideration of a price paid or promised to be rendered periodically or on specified occasions is the basic fabric for a valid lease. The provision says that such a transfer can be made expressly or by implication. Once there is such a transfer of right to enjoy the property a lease stands created. What is mentioned in the three paragraphs of the first part of Section 107 of the TP Act are only the different modes of how leases are created. The first paragraph has been extracted above and it deals with the mode of creating the particular kinds of leases mentioned therein.

The third paragraph can be read along with the above as it contains a condition to be complied with if the parties choose to create a lease as per a registered instrument mentioned therein.

All other leases, if created, necessarily fall within the ambit of the second paragraph. Thus, de hors the instrument parties can create a lease as envisaged in the second paragraph of Section 107 which reads thus: All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession.” It further saddens us to see the manner in which the decision in the case of Harshad Govardhan Sondagar (supra) has been misinterpreted to create this confusion. Random sentences have been picked up from the judgment and used, without any attempt to understand the true purport of the judgment in its entirety.

It is a well settled position of law that a word or sentence cannot be picked up from a judgment to construe that it is the ratio decidendi on the relevant aspect of the case. It is also a well-settled position of law that a judgment cannot be read as a statute and interpreted and applied to fact situations. An eleven Judge Bench of this Court in the case of H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior & Ors. v. Union of India[7] held as under:

“It is difficult to regard a word, a clause or a sentence occurring in a judgment of this Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.” The same view was reiterated by a Division Bench of this Court in the case of Commissioner of Income Tax v. Sun Engineering Works (P.) Ltd.[8] Further, a three Judge Bench of this Court in the case of Union of India v. Dhanawanti Devi & Ors.[9] held as under:

“9. It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a judge’s decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates – (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgment. Every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. It would, therefore, be not profitable to extract a sentence here and there from the judgment and to build upon it because the essence of the decision is its ratio and not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi.

10. Therefore, in order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents……” (emphasis laid by this Court) The decision of this Court rendered in the case of Harshad Govardhan Sondagar (supra) cannot be understood to have held that the provisions of the SARFAESI Act override the provisions of the Rent Control Act, and that the Banks are at liberty to evict the tenants residing in the tenanted premises which have been offered as collateral securities for loans on which default has been done by the debtor/landlord.

As far as granting leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. We have already taken this view in the case of Harshad Govardhan Sondagar (supra). We have not stated anything to the effect that the tenancy created after mortgaging the property must necessarily be registered under the provisions of the Registration Act and the Stamp Act.

It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act. The expression ‘any other law for the time being in force’ as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State legislatures. It can only extend to the laws operating in the same field. Interpreting the non obstante clause of the SARFAESI Act, a three Judge Bench of this Court in the case of Central Bank of India v. State of Kerala & Ors.[10] has held as under:

“18. The DRT Act and Securitisation Act were enacted by Parliament in the backdrop of recommendations made by the Expert Committees appointed by the Central Government for examining the causes for enormous delay in the recovery of dues of banks and financial institutions which were adversely affecting fiscal reforms. The committees headed by Shri T. Tiwari and Shri M. Narasimham suggested that the existing legal regime should be changed and special adjudicatory machinery be created for ensuring speedy recovery of the dues of banks and financial institutions. Narasimham and Andhyarujina Committees also suggested enactment of new legislation for securitisation and empowering the banks etc. to take possession of the securities and sell them without intervention of the Court.

XXX XXX XXX

110. The DRT Act facilitated establishment of two-tier system of Tribunals. The Tribunals established at the first level have been vested with the jurisdiction, powers and authority to summarily adjudicate the claims of banks and financial institutions in the matter of recovery of their dues without being bogged down by the technicalities of the Code of civil Procedure. The Securitisation Act drastically changed the scenario inasmuch as it enabled banks, financial institutions and other secured creditors to recover their dues without intervention of the Courts or Tribunals. The Securitisation Act also made provision for registration and regulation of securitisation/reconstruction companies, securitisation of financial assets of banks and financial institutions and other related provisions.

111. However, what is most significant to be noted is that there is no provision in either of these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower.

112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-à-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that sub-Section, a secured creditor can enforce security interest without intervention of the Court or Tribunal and if the borrower has created any mortgage of the secured asset, the mortgagee or any person acting on his behalf cannot sell the mortgaged property or appoint a receiver of the income of the mortgaged property or any part thereof in a manner which may defeat the right of the secured creditor to enforce security interest. This provision was enacted in the backdrop of Chapter VIII of Narasimham Committee’s 2nd Report in which specific reference was made to the provisions relating to mortgages under the Transfer of Property Act.

113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay Act and Section 26B of the Kerala Act by which first charge has been created in favour of the State over the property of the dealer or any person liable to pay the dues of sales tax, etc. ………………

116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations.” (emphasis laid by this Court) If the interpretation of the provisions of SARFAESI Act as submitted by the learned senior counsel appearing on behalf of the Banks is accepted, it would not only tantamount to violation of rule of law, but would also render a valid Rent Control statute enacted by the State Legislature in exercise of its legislative power under Article 246 (2) of the Constitution of India useless and nugatory. The Constitution of India envisages a federal feature, which has been held to be a basic feature of the Constitution, as has been held by the seven Judge Bench of this Court in the case of S.R. Bommai & Ors. v. Union of India[11], wherein Justice K. Ramaswamy in his concurring opinion elaborated as under: “247. Federalism envisaged in the Constitution of India is a basic feature in which the Union of India is permanent within the territorial limits set in Article 1 of the Constitution and is indestructible. The State is the creature of the Constitution and the law made by Articles 2 to 4 with no territorial integrity, but a permanent entity with its boundaries alterable by a law made by Parliament. Neither the relative importance of the legislative entries in Schedule VII, Lists I and II of the Constitution, nor the fiscal control by the Union per se are decisive to conclude that the Constitution is unitary. The respective legislative powers are traceable to Articles 245 to 254 of the Constitution. The State qua the Constitution is federal in structure and independent in its exercise of legislative and executive power. However, being the creature of the Constitution the State has no right to secede or claim sovereignty. Qua the Union, State is quasi-federal. Both are coordinating institutions and ought to exercise their respective powers with adjustment, understanding and accommodation to render socio-economic and political justice to the people, to preserve and elongate the constitutional goals including secularism.

248. The preamble of the Constitution is an integral part of the Constitution. Democratic form of Government, federal structure, unity and integrity of the nation, secularism, socialism, social justice and judicial review are basic features of the Constitution.” (emphasis laid by this Court) In view of the above legal position, if we accept the legal submissions made on behalf of the Banks to hold that the provisions of SARFAESI Act override the provisions of the various Rent Control Acts to allow a Bank to evict a tenant from the tenanted premise, which has become a secured asset of the Bank after the default on loan by the landlord and dispense with the procedure laid down under the provisions of the various Rent Control Acts and the law laid down by this Court in catena of cases, then the legislative powers of the state legislatures are denuded which would amount to subverting the law enacted by the State Legislature. Surely, such a situation was not contemplated by the Parliament while enacting the SARFAESI Act and therefore the interpretation sought to be made by the learned counsel appearing on behalf of the Banks cannot be accepted by this Court as the same is wholly untenable in law.

We are unable to agree with the contentions advanced by the learned counsel appearing on behalf of the respondent Banks.

In view of the foregoing, the impugned judgments and orders passed by the High Court/ Chief Metropolitan Magistrate are set aside and the appeals are allowed. We further direct that the amounts which are in deposit pursuant to the conditional interim order of this Court towards rent either before the Chief Metropolitan Magistrate/Magistrate Court or with the concerned Banks, shall be adjusted by the concerned Banks towards the debt due from the debtors/landlords in respect of the appellants in these appeals. The enhanced rent by way of conditional interim order shall be continued to be paid to the respective Banks, which amount shall also be adjusted towards debts of the debtors/landlords. All the pending applications are disposed of.

[V. GOPALA GOWDA] ..J

[AMITAVA ROY] …J

New Delhi,

January 20,2016

 


[1] (2014) 6 SCC 1
[2] (2000) 6 SCC 394
[3] (1980) 4 SCC 136
[4] (2005) 1 SCC 787
[5] (2008) 1 SCC 125
[6] (1980) 3 SCC 610
[7] (1971) 1 SCC 85
[8] (1992) 4 SCC 363
[9] (1996) 6 SCC 44
[10] (2009) 4 SCC 94
[11] (1994) 3 SCC 1

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How proceedings for offence under Section 138 of Negotiable Instrument Act can be regulated where accused is willing to deposit cheque amount

SC11kbM/S. METERS AND INSTRUMENTS PRIVATE LIMITED & ANR. VS KANCHAN MEHTA[05-10-2017]

held :

In JIK Industries Ltd. vs Amarlal Jumani — which required consent of the complainant for compounding

Vinay Devanna Nayak v. Ryot Sewa —nature of offence under Section 138 primarily related to a civil wrong and the 2002 amendment specifically made it compoundable.

R. Vijayan v. Baby (2012) 1 SCC 260—Section 357(1)(b) of the Cr. P.C. provides for payment of compensation for the loss caused by the offence out of the fine

  • Rajneesh Aggarwal v. Amit J. Bhalla—(2001) 1 SCC 631Since the concept of compounding involves consent of the complainant, this Court held that compounding could not be permitted merely by unilateral payment, without the consent of both the parties.
  • Mandvi Cooperative Bank Ltd. v. Nimesh B. Thakore(2010) 3 SCC 83, paras 25, 26   The object of Section 145(2) was simpler and swifter trial procedure. Only requirement is that the evidence must be admissible and relevant. The affidavit could also prove documents. Affidavit of the complainant can be read as evidence.Bank’s slip or memo of cheque dishonour can give rise to the presumption of dishonour of the cheque, unless and until that fact was disproved.
  • Mandvi Cooperative Bank and J.V. Baharuni (supra) has brought about a change in law and it needs to be recognised. After 2002 amendment, Section 143 of the Act confers implied power on the Magistrate to discharge the accused if the complainant is compensated to the satisfaction of the Court, where the accused tenders the cheque amount with interest and reasonable cost of litigation as assessed by the Court.
  • Bhaskar Industries Ltd. vs Bhiwani Denim & Apparels Ltd-—this Court considered the issue of hardship caused in personal attendance by an accused particularly where accused is located far away from the jurisdiction of the Court where the complaint is filed. This Court held that even in absence of accused, evidence can be recorded in presence of counsel under Section 273 Cr.P.C. and Section 317 Cr.P.C. permitted trial to be held in absence of accused.
  • Court has jurisdiction under Section 357(3) Cr.P.C. to award suitable compensation withdefault sentence under Section 64 IPC and with further powers of recovery under Section 431Cr.P.C.

We may, however, note that this Court held that general directions ought not to be issued which may deprive the Magistrate to exercise power under Section 205 Cr.P.C.26 We need to clarify that the judgment of this Court is not a bar to issue directions which do not affect the exercise of power under Section 205, to require
personal attendance wherever necessary. Needless to say that the judgment cannot be read as affecting the power of the High Court under Article 225 of the Constitution read with Articles 227 and 235 to issue directions to subordinate courts without affecting the prevailing statutory scheme.

Summary Trial

Once the complaint is filed which is accompanied by the dishonored cheque and the bank’s slip and the affidavit, the Court ought to issue summons. The service of summons can be by post/e-mail/courier and ought to be properly monitored. The summons ought to indicate that the accused could make specified payment by deposit in a particular account before the specified date and inform the court and the complainant by e-mail. In such a situation, he may not be required to appear if the court is satisfied that the payment has not been duly made and if the complainant has no valid objection. If the accused is required to appear, his statement ought to be recorded forthwith and the case
fixed for defence evidence, unless complainant’s witnesses are recalled for examination.

Discharge Order to be issued

we hold that where the cheque amount with interest and cost as assessed by the Court is paid by a specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 Cr.P.C. As already observed, normal rule for trial of cases under Chapter XVII of the Act is to follow the summary procedure and summons trial procedure can be followed where sentence exceeding one year may be necessary taking into account the fact that compensation under Section 357(3) Cr.P.C. with sentence of less than one year will not be adequate, having regard to the amount of cheque, conduct of the accused and other circumstances.