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Banking

1.              Bank – Insurance  - Non forwarding of premium in time to the Insurer - ‘Group individual accident policy’ for the account holders of the Bank - Account holder was required to submit a form to the Bank to avail of insurance cover of Rs 5 lacs - Bank would deduct an amount of Rs. 100 as premium from the account holder and forward it to the insurer - insurer repudiated the claim on the ground that the premium had not been forwarded by the Bank together with the form – There was a deficiency of service on the part of the Bank in failing to forward the application form to the insurer and in deducting the insurance premium on time -  Bank held liable to pay the full amount of Insurance coverage - Had the Bank not been deficient in the performance of its services, the deceased would have been entitled to an insurance cover - Consumer Protection Act, 1986 (68 of 1986). 2020 SCeJ 416

2.              Bank – Insurance – Loanee - Deficiency of service -  The duty to effect insurance was with the borrower, and the bank could not be held responsible if there was any loss or damage to the hypothecated assets which was not adequately covered by insurance taken by the borrower- Question that arises for adjudication in this appeal is that if the  Bank effected the insurance and left significant part of hypothecated assets out of it without any intimation to that effect to the borrower -  The clause under which liberty is given to the bank to effect insurance starts with the phrase – “The bank is at liberty and is not bound to effect such insurance……” - The employment of the adjective “such” in this clause demonstrates that if the bank effected insurance, that policy would have to carry the features which a borrower’s policy would have covered as per the terms of the deeds or agreements -  The borrower’s liability in such a situation to repay to the bank could arise in the event of rejection of the claim or part thereof, such claim arising on account of loss/damage to the hypothecated assets -  But where a part of the hypothecated securities was left out from the coverage,   it was a case of underinsurance – Bank liable for deficiency of service and make good the loss – Consumer Protection Act, 1986. #2020 SCeJ 739  

3.              Bank – Insurance – Loanee - Deficiency of service - Bank not taking out policy covering the whole set hypothecated assets under the insurance policy -  Loss - Reduced claim given by the insurance company - Copies of the policies demanded but not provided by the bank to the loanee - The premium for the same was deducted by the bank from the account of the loanee - If the bank had exercised liberty to effect insurance, it was their duty to take out policies covering the entire set of hypothecated assets - That would constitute part of services the bank were rendering to the borrower -  Effecting insurance was not their absolute obligation -  But such obligation they had taken it upon themselves - The contractual terms also envisaged bank’s option or liberty to take up such obligation – National Commission was right in holding that the complainant had suffered loss because of inaction and negligence on the part of the Bank - The position could have been different in the event the Bank had alerted borrower at the time of effecting the policy that the entire set of assets was not being covered by the policies being effected by them - Order allowing compensation against the bank upheld - Consumer Protection Act, 1986. #2020 SCeJ 739

4.              Bank - Insurance Policy  - Agreed Bank Clause - Insurance policy is a contract and the amount has to be paid as per the terms of the contract - National Commission could not have ordered that the interest on the amount payable to the farmers should not be paid to the Bank till the liabilities of the Bank are paid out - The dues of the Bank till the date of fire will have to be first determined and, thereafter, the excess will be payable to the farmer along with the interest - Consumer Protection Act, 1986 (68 of 1986). #2020 SCeJ 385 [Para 47, 56]

5.              Banking - Insurance  -  Bank - Deficiency of - Tripartite agreement  - Tripartite agreement between the Bank, the farmer and the cold store - Farmers who were loanees of the bank had placed the goods in the Cold store  - Bank  insisted that the stock be insured and that the farmers were told that they would pay the premium -  Plea that Bank connived with the farmers because it did not get the valuation of the products done properly and further, it took no steps to sell the agricultural produce after one year which liberty it had in terms of the tripartite agreement -  Value of Byadgi chillies which was the major agricultural produce stored in the cold store rises the longer it is kept in the cold store -  Therefore, the Bank could have taken a commercial decision not to sell the produce because the product was not deteriorating in any manner and its value was not diminishing – No defiecny in selling the goods by the bank - Consumer Protection Act, 1986 (68 of 1986). #2020 SCeJ 385

6.              Banking - Insurance  -  Bank – Hypothecation – Non disclosure of  - Interest  - Bank not entitled to claim interest at contractual rate  - Deficiency of - Tripartite agreement  - Tripartite agreement between the Bank, the farmer and the cold store - Farmers who were loanees of the bank had placed the goods in the Cold store  - Bank  insisted that the stock be insured and that the farmers were told that they would pay the premium - When the Bank issues loans against the hypothecation of goods, as in the present case, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy -  If both the Bank and the insurance company had done what would be expected of good financial institutions, there would have been no needless litigation -  Bank, as a prudent financial institution, should have insisted that the tripartite agreement should also be handed over to the insurance company -  Therefore, we feel that there is some level of deficiency on behalf of the Bank - Bank cannot claim interest at the contractual rate and is not entitled to claim interest at the contractual rate because the farmers have been driven through a long drawn litigation which could have been easily avoided if the Bank had itself sent the copy of the tripartite agreement to the insurance company or insisted that the insured should send the same to the insurance company -  We accordingly hold that the Bank cannot claim interest at the contractual rate -  Bank would be entitled to charge simple interest right from the date of grant of loan at the rate of 12% per annum - Consumer Protection Act, 1986 (68 of 1986). #2020 SCeJ 385

7.              Banking - Mortgage – Sale of Mortgaged property -  Attachment by Tax Authorities  - Charge over the property was created in favour of the bank much prior to the issuance of notice under Rule 2 of Schedule II to the Act by Tax Recovery Officer and Attachment under Rule 48 -  Property sold in auction by Recovery Officer, DRT after decree passed under the RDDB Act, 1993 by the DRT - Sale of the property was pursuant to the order passed by the DRT with regard to the property over which a charge was already created prior to the issuance of notice under Rule 2 of Schedule II of Income Tax Act, 1961 - Tax Recovery Officer restrained from enforcing the attachment order - Income Tax Act, 1961, R. 2 of Schedule II (notice), R 16(2)  and R. 48 (Attachment) - Recovery Of Debts Due To Banks And Financial Institution Act,1993  . 2020 SCeJ 151

8.              Banking - OTS – Limitation - OTS not accepted by financial creditor shall not extend period of limitation – Banking – IBC - Insolvency and Bankruptcy Code, 2016, Section 7.  Held, OTS was not accepted by the Financial Creditor, therefore, the same cannot be treated as an acknowledgement in view of Section 18 of the Limitation Act, 1963 – OTS Proposal on 28.04.2016 prior to the OTS Proposal i.e., 01.06.2016 - Application filed before the Adjudicating Authority on 30.08.2018 - First OTS offer was given by using the words as “without prejudice” in Second OTS Proposal dated 01.06.2016 there is no use of word “without Prejudice”-  Plea that second OTS Proposal dated 01.06.2016 can be treated as an acknowledge for the purpose of limitation - we are not inclined to accept such submission – Application barred by limitation. . #2020 SCeJ 774  (NCLAT)   

9.              Banking - Statement of Development Regulatory Policy dated 27.03.2020 - COVID -19 Regulatory Package issued by Reserve Bank of India on 27.03.2020 - Clause 2, 5 - Re-scheduling of the payments-term loans and working capital facilities - Moratorium of three months between March 1, 2020 and May 31, 2020 – Classification  as  Special  Mention  Account  (SMA) and Non-Performing Asset(NPA) – Reading of the Statement on Development and Regulatory Policies issued by RBI on 27th March, 2020 along with Regulatory Package issued on March 27, 2020 prima facie shows that the intention of the RBI is to maintain status quo as on 01.03.2020 with regard to the all the instalments payment for which had to be made post 01.03.2020 till 31.05.2020 - If a borrower was duly servicing the account until 01.03.2020 and no instalment was overdue, the borrower’s account would have been classified as a Standard Asset, i.e., there being no default, which means that the account would not be classified as a SMA – 1 or SMA– 2 - If an account is a standard account and not classified as SMA –1- or SMA – 2, it would have to go through the process of SMA-1 and SMA-2 prior to being declared as a non-performing asset - The restriction on change in classification as mentioned in the Regulatory Package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020 and status quo qua the classification as SMA-2 shall have to be maintained -  The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment -  Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India, paragraph 4.2.2 –  Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated, June 7, 2019 -  Clarification issued by letter dated 31.03.2020 by the Chief General Manager–in – charge Department of Regulation of the Reserve Bank of India to the Chairman, Indian Banks Association.  Held, contention of bank  that RBI guidelines and package are not applicable to the case of the petitioner, in as much as, the petitioner was already in default as on 01.03.2020 and the package is applicable only to those instalments which fall due on 01.03.2020 and also only to those borrowers who were properly servicing their account till 01.02.2020 and were not in default. Held further, If the Regulatory Package is applicable only to Standard Asset accounts, there was no necessity for the RBI to refer to Classification of an account as a Non-Performing Asset (NPA) in its Regulatory Package and RBI could have only referred to the change of classification as a SMA.  Held further, The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment. However, stipulated interest and penal charges shall continue to accrue on the outstanding payment even during the moratorium period. If post the moratorium period borrower fails to pay the said instalment, classification would then automatically change as per the IRAC guidelines. #2020 SCeJ 809 (Del.) 

10.          Banking - Statement of Development Regulatory Policy dated 27.03.2020 - COVID -19 Regulatory Package issued by Reserve Bank of India on 27.03.2020 - Clause 2, 5 - Re-scheduling of the payments-term loans and working capital facilities - Moratorium of three months between March 1, 2020 and May 31, 2020 – Classification  as  Special  Mention  Account  (SMA) and Non-Performing Asset(NPA) – Reading of the Statement on Development and Regulatory Policies issued by RBI on 27th March, 2020 along with Regulatory Package issued on March 27, 2020 prima facie shows that the intention of the RBI is to maintain status quo as on 01.03.2020 with regard to the all the instalments payment for which had to be made post 01.03.2020 till 31.05.2020 - If a borrower was duly servicing the account until 01.03.2020 and no instalment was overdue, the borrower’s account would have been classified as a Standard Asset, i.e., there being no default, which means that the account would not be classified as a SMA – 1 or SMA– 2 - If an account is a standard account and not classified as SMA –1- or SMA – 2, it would have to go through the process of SMA-1 and SMA-2 prior to being declared as a non-performing asset - The restriction on change in classification as mentioned in the Regulatory Package shows that RBI has stipulated that the account which has been classified as SMA-2 cannot further be classified as a non-performing asset in case the instalment is not paid during the moratorium period i.e. between 01.03.2020 and 31.05.2020 and status quo qua the classification as SMA-2 shall have to be maintained -  The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment -  Income Recognition and Asset Classification Guidelines (IRAC Guidelines) of the Reserve Bank of India, paragraph 4.2.2 –  Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated, June 7, 2019 -  Clarification issued by letter dated 31.03.2020 by the Chief General Manager–in – charge Department of Regulation of the Reserve Bank of India to the Chairman, Indian Banks Association.  Held, contention of bank  that RBI guidelines and package are not applicable to the case of the petitioner, in as much as, the petitioner was already in default as on 01.03.2020 and the package is applicable only to those instalments which fall due on 01.03.2020 and also only to those borrowers who were properly servicing their account till 01.02.2020 and were not in default. Held further, If the Regulatory Package is applicable only to Standard Asset accounts, there was no necessity for the RBI to refer to Classification of an account as a Non-Performing Asset (NPA) in its Regulatory Package and RBI could have only referred to the change of classification as a SMA.  Held further, The effect of the same would be that for a period of three months there will be a moratorium from payment of that instalment. However, stipulated interest and penal charges shall continue to accrue on the outstanding payment even during the moratorium period. If post the moratorium period borrower fails to pay the said instalment, classification would then automatically change as per the IRAC guidelines. #2020 SCeJ 809 (Del.) 

 

11.          Criminal Procedure Code,  1973 (2 of 1974) - Section 482 – Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI) – Section 13(2)  - Petitioner-Loanee after dismissal of the application under section 17 of the Sarfaesi Act, before the DRT filed the impugned criminal complaint against the bank and its officers and the auction purchaser alleging that the sale of the mortgaged property has been carried out fraudulently for a much lower value in connivance with each other – The criminal complaint appears to be an intimidatory tactic and an afterthought which is an abuse of the process of law - Quashed. 2020 SCeJ 142

 

12.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Auction purchaser - Liability towards previous electricity dues of the last owner - Under Clause 24, Property sold on "AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS" in all respects and subject to statutory dues if any – Under Clause 26, Authorised Officer carrying out the auction absolved himself of the liability for any charge, lien, encumbrance, property tax dues, electricity dues, etc.- a holistic reading of all these clauses left little in doubt that the auction notice provided for a reserve price, with a bid being made about Rs.10 lakh over and above that, and certain nature of charges, lien, encumbrances, including electricity dues were clearly beyond the sale consideration paid - Security Interest (Enforcement) Rules, Rule 8 & 9. Held, an auction purchaser bidding in an "as is where is, whatever there is and without recourse basis", the respondent would have inspected the premises and made inquiries about the dues in all respects. The facts of the present case, as in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Paramount Polymers (P) Ltd., (2006) 13 SCC 101, are more explicit in character as there is a specific mention of the quantification of dues of various accounts including electricity dues. The respondent was, thus, clearly put to notice in this behalf. Held further , Where, as in cases of the E-auction notice in question, the existence of electricity dues, whether quantified or not, has been specifically mentioned as a liability of the purchaser and the sale is on "AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS", there can be no doubt that the liability to pay electricity dues exists on the respondent (purchaser). Facts: Property sold under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Auction purchaser applied to electricity board for connection. Request denied on the ground that there were previous electricity dues. Board asserted its right to recover this amount even from the new purchaser (auction purchaser), based on a reading of Clauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply of Distribution & Retail Supply Licensees in AP (for short 'General Terms & Conditions of Supply'). #2020 SCeJ 727

13.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Security Interest (Enforcement) Rules, Rule 8 & 9 - Auction purchaser - Sale deed executed in pursuance of auction - Provided for the sale "made free from all encumbrances known to the Secured Creditor." - An indemnity was provided by the vendor to the respondent against "any loss arising out of any defect in the title, including recovery of statutory liabilities taxes, as also litigation expenses arising out of such defects in title." - This indemnity was, confined to aspects mentioned in this clause, but relatable to defects in title, and not to other liabilities like electricity dues. #2020 SCeJ 727

14.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) – Section 13(2) - Criminal Procedure Code, 1973 (2 of 1974) - Section 482 –Petitioner-Loanee after dismissal of the application under section 17 of the Sarfaesi Act, before the DRT filed the impugned criminal complaint against the bank and its officers and the auction purchaser alleging that the sale of the mortgaged property has been carried out fraudulently for a much lower value in connivance with each other – The criminal complaint appears to be an intimidatory tactic and an afterthought which is an abuse of the process of law - Quashed. 2020 SCeJ 142

15.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - SARFAESI Act is a complete code in itself which provides the procedure to be followed by the secured creditor and also the remedy to the aggrieved parties including the borrower - In such circumstance if there is any discrepancy in the manner of classifying the account of the appellants as NPA or in the manner in which the property was valued or was auctioned, the DRT is vested with the power to set aside such auction at the stage after the secured creditor invokes the power under Section 13 of SARFAESI Act. Authorised Officer, Indian Overseas Bank & Anr. v. Ashok Saw Mill (2009) 8 SCC 366, followed. 2020 SCeJ 142

16.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - Action taken by the Banks under the SARFAESI Act is neither unquestionable nor treated as sacrosanct under all circumstances but if there is discrepancy in the manner the Bank has proceeded it will always be open to assail it in the forum provided. 2020 SCeJ 142

17.          Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 32 - Immunity from prosecution for action taken in good faith - That aspect of the matter is also an aspect which can be examined in the proceedings provided under the SARFAESI Act - Criminal proceeding would not be sustainable - Exposing the appellants even on that count to the proceedings before the Investigating Officer or the criminal court would not be justified. 2020 SCeJ 142

18.          Security Interest (Enforcement) Rules, Rule 8 & 9 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Auction purchaser - Liability towards previous electricity dues of the last owner - Under Clause 24, Property sold on "AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS" in all respects and subject to statutory dues if any – Under Clause 26, Authorised Officer carrying out the auction absolved himself of the liability for any charge, lien, encumbrance, property tax dues, electricity dues, etc.- a holistic reading of all these clauses left little in doubt that the auction notice provided for a reserve price, with a bid being made about Rs.10 lakh over and above that, and certain nature of charges, lien, encumbrances, including electricity dues were clearly beyond the sale consideration paid. Held, an auction purchaser bidding in an "as is where is, whatever there is and without recourse basis", the respondent would have inspected the premises and made inquiries about the dues in all respects. The facts of the present case, as in Dakshin Haryana Bijli Vitran Nigam Ltd. v. Paramount Polymers (P) Ltd., (2006) 13 SCC 101, are more explicit in character as there is a specific mention of the quantification of dues of various accounts including electricity dues. The respondent was, thus, clearly put to notice in this behalf. Held further , Where, as in cases of the E-auction notice in question, the existence of electricity dues, whether quantified or not, has been specifically mentioned as a liability of the purchaser and the sale is on "AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS", there can be no doubt that the liability to pay electricity dues exists on the respondent (purchaser). Facts: Property sold under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Auction purchaser applied to electricity board for connection. Request denied on the ground that there were previous electricity dues. Board asserted its right to recover this amount even from the new purchaser (auction purchaser), based on a reading of Clauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply of Distribution & Retail Supply Licensees in AP (for short 'General Terms & Conditions of Supply'). #2020 SCeJ 727

 

19.          Security Interest (Enforcement) Rules, Rule 8 & 9 - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Auction purchaser - Sale deed executed in pursuance of auction - Provided for the sale "made free from all encumbrances known to the Secured Creditor." - An indemnity was provided by the vendor to the respondent against "any loss arising out of any defect in the title, including recovery of statutory liabilities taxes, as also litigation expenses arising out of such defects in title." - This indemnity was, confined to aspects mentioned in this clause, but relatable to defects in title, and not to other liabilities like electricity dues. #2020 SCeJ 727