PROJECT 1: INTERNAL ASSEMENT

BANKING LAW: CASE ANALYSIS

STANDARD CHARTERED BANK VS. D DHARMINDER BHOHI & ORS,

[2013]9SCR410

SUBMITTED TO: Mrs. Trupti Rathi

SUBMITTED BY: Raghav Dhoot

ROLL NUMBER: 66

SUBMITTED ON: 31st July 2017

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 CONTENTS
CASE DETAILS...3
INTRODUCTION........4
STATAMENT OF FACTS...5
ISSUES INVLOVED...6
RULES APPLIED....6
DECISION OF THE COURT..6
CASES REFFRED BY THE COURT.....7
ANALYSIS....8
CRITICAL ANALYSIS..........11
CONCLUSION & SUGGESTIONS..13
BIBLOGRAPHY14

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 CASE DETAILS

NAME OF THE PARTIES: APPELLANT: STANDARD CHARTERED

BANK
VS.
RESPONDENT: DHARMINDER BHOHI & ORS.

CITATION: [2013]9SCR410,

EQUIVALENT CITATIONS:

MANU/SC/1004/2013; 2013
2013 (101) ALR 465
4IV(2013)BC407
[2013]117CLA589(SC),
2014(1)J.L.J.R.522,
JT2013(13)SC69,
2013(4)KLJ352,
(2013)7MLJ171,
2014(2)PLJR141,
2013 121 RD732,
2013(12)SCALE124,
[2013]122SCL155(SC),
[2013]9SCR410,
(2014)2WBLR(SC)723

DATE OF JUDGMENT: SEPTEMBER-13-2013

HON'BLE JUDGES: ANIL R. DAVE AND DIPAK MISRA, JJ.

COUNSEL(S): FOR APPELLANT:

SR. ADV. SANJAY JAIN
FOR RESPONDENTS:
KRISHAN KUMAR

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 INTRODUCTION:
The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly
developing its economy. While the banking industry in India is progressively complying with
international prudential norms and accounting practices there are certain areas in which the
banking and financial sector did not had a level playing field as compared to other participants in
the financial markets in the world. There were no legal provisions for facilitating securitisation of
financial assets of banks and financial institutions. Further, unlike international banks, the banks
and financial institutions in India did not have power to take possession of securities and sell them.
This resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing
assets of banks and financial institutions. And to resolve these issues the legislature enacted the
SARFAESI Act and the DRB Act. But still the empowered DRTs have been very inefficient, the
tribunals have overstepped their jurisdiction many times and took too much time in resolving the
disputes and the present case is an example of the same. This present appeal portrays a factual
score which depicts that delay in disposal of the application by the Debts Recovery Tribunal and
the appeal by Debt Recovery Appellate Tribunal have the effect potentiality of creating a corrosion
in the economic spine of the country. It exposits a factual expose' which is not only perplexing but
usher in a sense of puzzlement which in the ultimate eventuate compels one to ask: "How long can
the financial institutions would suffer such procrastination? Even assuming there are legal lapses
and abuses, how long the statutory tribunals take to put the controversy to rest being oblivious of
the fact that the concept of flexibility is insegragably associated with valuation of any asset?

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 STATEMENT OF FACTS:
The Appellant bank (Standard Chartered Bank) sanctioned home loan of Rs. 12.00 lacs to the
Respondent No. 1(Dharminder Bhohi) and in lieu of that the borrower mortgaged the property
which was purchased from the developer (Respondent No. 2). Respondent no.1 failed to pay the
instalments, and so the loan account was declared as "non-performing asset", then the Appellant-
bank issued a notice Under Section 13(2) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 ("the SARFAESI Act)
As no payment was received even pursuant to notice under Section 13(2) of the SARFAESI Act
issued, so the possession was taken over by the Appellant bank and the property was put to
auction and notice for the same was published. And in response to the said notice the Respondent
No. 3 submitted its bid for purchasing the said property by way of auction
The auction was challenged under Section 17(1) read with Section 19 of the SARFAESI Act
before the Debt Recovery Tribunal (DRT). The concerned Presiding Officer of DRT declined to
pass any order and sought appropriate directions from the Debt Recovery Appellate Tribunal
(DRAT) for transfer of the said application to some other DRT. As no order was passed by the
DRAT the borrower preferred a writ petition before the High Court
High Court directed borrower to deposit certain amount and directed status quo with respect to
the property and early disposal of matter by Debt Recovery Tribunal (DRT), Auction purchaser
in the meanwhile sought impleadment in the proceedings and the same was granted by DRT.
DRT gave 15 days of time for repayment to borrower failing which Appellant bank was permitted
to confirm sale in favour of auction purchaser.
Instead of complying with the order, the borrower preferred an appeal before the DRAT wherein
time was given to borrower to make the payment and order of the DRT was stayed. Auction
purchaser moved an application under Section 151 of the Code of Civil Procedure, 1908 on which
DRAT observed that since Purchaser had already been impleaded, she would have the right to
address the Court and further liberty was given to file action against the Bank for any omission
committed by it.
The appellant bank filed writ petition before the High Court to challenge the order passed by
DRAT on the ground of it modifying reasonable and detailed order of DRT and granting liberty
to the Auction purchaser. The High Court termed the grievance of bank as baseless, and so the
appellant bank preferred an appeal by way of Special Leave Petition before the Supreme Court
in the present case.

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 ISSUES INVOLVED:

Whether the DRAT had the jurisdiction to grant liberty to the auction purchaser to file action
against the Bank?

PROVISIONS APPLICABLE:

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 (SARFAESI Act)

Section 13

Section 17

Section 19

Code of Civil Procedure, 1908

Section 151

The Constitution of India

Article 226

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act)
Section 19

DECISION OF THE COURT:

The court stated that the Tribunals (DRT and DRAT) do not have any inherent powers, it
only has limited powers and so it was held that grant of liberty to auction purchaser to proceed
against the Bank was not within the domain of the tribunal regard being had to its limited
jurisdiction under such special legislation

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 CASES REFERRED BY COURT:

I. Mardia Chemicals Ltd. and Ors. v. Union of India and Ors.1: It was held in this judgement
that object of the SARFAESI Act is to achieve speedier recovery of the dues declared as NPAs
and better availability of capital liquidity and resources.
II. United Bank of India v. Satyawati Tondon and Ors.2: In this case it was observed that the
that primary object of RDB Act was to facilitate creation of special machinery for speedy
recovery of the dues of banks and financial institutions.
III. Transcore v. Union of India and another3: This judgement provided that Section 17 of RDB
Act and the resolving of dispute in expedite manner is fundamental because value of an asset
in an inflationary economy is discounted by "time" factor, and thus "time factor" has
inextricable nexus with the sustenance of economy.
IV. Official Liquidator, Uttar Pradesh and Uttarakhand v. Allahabad Bank and Ors.4: it
was stated in this decision that that the purpose of RDB act was to provide for expeditious
adjudication and recovery of debts due to banks and financial institutions and for matters
connected therewith or incidental thereto
V. Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd.5: It
was held in this decision that when the tribunal has not been conferred with the jurisdiction to
direct for refund, it cannot do so.
VI. Union of India v. R. Gandhi, President, Madras Bar Association6: This constitutional
bench judgement provided for the difference between the functioning of court and tribunal
that while the courts are governed by statutory procedural rules on the other hand tribunals
generally regulate their own procedure applying the provisions of the Code of Civil Procedure
only where it is required, and without being restricted by the strict rules of the Evidence Act.

1
Mardia Chemicals Ltd. and Ors. v. Union of India and Ors. (2004) 4 SCC 311
2
United Bank of India v. Satyawati Tondon and Ors. (2010) 8 SCC 110
3
Transcore v. Union of India and another, (2008) 1 SCC 125
4
Uttar Pradesh and Uttarakhand v. Allahabad Bank and Ors. (2013) 4 SCC 381
5
Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd., AIR 1963 SC 217
6
Union of India v. R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1

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 ANALYSIS:

This Special Leave Petition (SLP) by Standard Chartered Bank raises an objection as to the
jurisdiction of the Debt Recovery Appellate Tribunal (DRAT) in granting liberty to the auction
purchaser to proceed against the Bank.

The court on the issue of jurisdiction of DRAT opined that the appellate tribunal has no such
jurisdiction as to grant liberty to auction purchaser to proceed against the Bank. The judges relied
on several provisions of SARFAESI Act and Recovery of Debts Due to Banks and Financial
Institutions Act, (RDB Act) to infer that the tribunals do not have any inherent powers and the
aforementioned legislations confers only limited powers.

To examine the jurisdiction conferred by the legislature to DRT and DRAT Section 17 and 19 of
the SARFAESI Act needs to be analysed. While, Section 17 provides jurisdiction to DRT to
entertain plea by borrower or any other person who is aggrieved by the actions taken by secured
creditor pursuant to section 13(4) of the SARFAESI Act. Section 19 confers jurisdiction on the
DRT and DRAT to entertain a plea of the borrower for grant of compensation and costs.

To further evaluate the nature of power conferred by Section 17 and 19, it is imperative to refer to
Section 19(25) of RDB Act. The aforementioned section deals with procedures of tribunals and it
provides that tribunal has been given power under the statute to pass such other orders and give
such directions as to give effect to its orders or to prevent abuse of its process or to secure the ends
of justice. What can be inferred from this section is that the DRT and DRAT are required to
function within the statutory parameters and that the tribunal does not have any inherent powers
as it is limpid from the section that it only confers limited powers. The aforementioned
interpretation of this section can also be supported by referring to Supreme Courts decision in
case of Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd. 7 wherein
it was held that when the tribunal has not been conferred with the jurisdiction to direct for refund,
it cannot do so, and the same principle was also reiterated in Union of India v. Orient Paper and
Industries Limited8. The functioning of tribunals is kept free from shackles of procedural laws and
technicalities to foster faster disposal of disputes, and so it is imperative for tribunals to bestow
their attention towards and give priority to the real controversy arising out of the special
legislations.

7
Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd. MANU/SC/0031/1962 :

AIR 1963 SC 217

8
Union of India v. Orient Paper and Industries Limited (2009) 16 SCC 286

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It can be inferred from the aforementioned provisions and analysis that the tribunals under RDB
Act has been established with a specific purpose and its duty is to ensure that disputes are disposed
of quickly, keeping in mind larger public interest. The sacrosanct purpose with which the tribunals
have been established is to put the controversy to rest between the banks and the borrowers and
any third party who has acquired any interest. The DRT and DRAT have been conferred
jurisdiction by special legislations (RDB and SARFAESI Act) to exercise their particular power
in a particular manner as provided under RDB Act (particularly under section 19). The tribunals
cannot assume the role of court of a different nature which actually have the jurisdiction to grant
"liberty to initiate any action against the bank. The tribunals are only required to decide the lis
that comes within their own domain. If it does not fall within its sphere of jurisdiction they are
required to say so. As stated above that section 19(25) grants only limited power to the DRT and
so allowing the auction purchaser to proceed against Bank is an issue which is outside the domain
of DRT as its not provided for under RDB and SARFAESI Act.

In the light of aforementioned provisions and cases, the court observed that the submission made
at the behest of the auction purchaser and that he is at liberty to file any action against the bank for
any omission committed by it has no sanction of law and the said argument is wholly bereft of
jurisdiction, and indubitably is totally unwarranted in the obtaining factual matrix. The judges held
that such grant of liberty was not within the domain of the tribunal regard being had to its limited
jurisdiction under such special legislation and further, especially, when the bank was not a party
to the compromise.

Though the only issue raised and the only relief sought was pertaining to the jurisdiction of the
DRAT, but the court also took notice of problem which the Bank faced due to pendency of matter
for four and half years. The apex court took this opportunity to remind the DRT and DRAT of
their statutory obligation cast on them by RDB Act to resolve disputes in an expedite manner.

The court opined that such delays in resolving of disputes frustrate the very purpose of having
such tribunals. The court referred to the object and reasons of SARFAESI and RDB act to explain
the nature of statutory obligation of DRT to solve the matters quickly and court also commented
as to the effect on countrys economy due to such delays in dispute resolution.

The objects and reasons of SARFAESI could be inferred from the Supreme Courts decision in
case of Mardia Chemicals Ltd. and Ors. v. Union of India and Ors., the court while referring to
objects of SARFAESI act opined that though some provisions of the said act are harsh on
borrowers but still the act cannot be said to be unconstitutional as the purpose of the act is to
achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity

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 and resources. Sub-section (5) of Section 17 of SARFAESI Act also needs to be analysed in this
regard, this section cast a statutory duty on DRT to dispose of application submitted under Section
17 in 60 days time limit, which can only be extended to maximum of 4 months.

It is clear from the above analysis that speedy disposal of cases and speedy recovery of dues to the
bank are fundament objects of the enactment. In this backdrop, the tribunals are expected to act in
quite promptitude regard being had to the nature of the lis. Neither the DRT nor the appellate
tribunal can afford to sit over matters as that would fundamentally frustrate the purpose of the
legislation.9 With reference to the instant case the Court criticised the DRAT for constantly
adjourning the matter and finally disposing it of by passing an extremely laconic order. Finally,
the court stated that such a delineation by the DRAT in the current case only reflects the apathy
and indifference to the role ascribed to it under the enactment and the trust bestowed on it by the
legislature.

9
Mukesh Dwivedi & Aqa Raza, DEBT RECOVERY TRIBUNALS IN INDIA: THE LEGAL FRAMEWORK, IJLPR vol. 1, August
2016

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 CRITICAL ANALYSIS:

This judgement of Supreme Court needs to be appreciated to the fullest extent, in this decision the
court has relied on the purpose and objective of RDB and SARFAESI Act to remind the DRT of
their statutory obligation to dispose of appeals in an expedite manner. The judgment reflects the
constraint the Banks are facing in recovery of their loans, and it has effectively elaborated the
nexus between slow recovery of loans and how it affects the economic health of the nation. Though
the issue raised was not completely pertaining to delay in resolving case, but it is to be appreciated
that court took this opportunity to point out the inefficiency in working of the DRTs. The court
also gave a wakeup call to overhaul the system and asked DRTs to live up to their statutory
obligation, the first para of the judgement in this regard is very significant and the court in a very
fascinating manner have asked the DRTs to fulfil their obligation by stating that One is bound
to give a wakeup call and we so do by saying "Tasmat Uttistha Kaunteya"; "Awake, Arise, 'O'
Partha".

This judgement has also rightly asked the DRTs to adjudicate in their statutory sphere, the court
also mentioned that DRTs need to restrict themselves and should only adhere to the role ascribed
to it under the enactment and the trust bestowed on it by the legislature. But the fact in reality
remains that DRTs and DRATs often overstepped this line to go on to adjudicate the substance
of the claim itself. For example, in Lakshmi Sankar Mills v. Indian Bank and Ors. 10, the DRT did
not allow the debtors application to stay SARFAESI enforcement, but imposed a condition. The
DRT held that the asset sale under SARFAESI could proceed only if the debtor did not deposit a
fixed amount by a specified date. The debtor appealed this condition to the DRAT which went on
to lower the amount of the deposit. Ultimately, the Madras High Court remanded the decision back
to the DRT to consider only the narrow question of whether the secured creditors had complied
with the provisions of SARFAESI, but this was three years after the banks had initiated
enforcement action. In another similar case11, the DRT granted the debtor additional time to pay
the deposit before the bank could initiate the sale while the narrow question it was supposed to
have considered was whether the bank had adhered to the enforcement of security rules under
SARFAESI. These cases again depict the flaws in legal system pertaining to debt recovery due to
which the Banks have to suffer.

The factual data of pending cases in DRTs and the amount of money blocked in such cases can
be used to put the argument in perspective, the number of cases pending before DRT have

10
Lakshmi Sankar Mills v. Indian Bank and Ors., W.P. Nos. 37148 and 37534 of 2007, (Madras High Court)
11
Satwanti Automobiles v. State Bank of India, WP (C ) No. 4252 of 2014, (Jharkhand High Court)

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 increased from 36,865 in 2011-12 to 61,784 in 2014-15, the amount of money which is blocked in
such cases presents a more worrisome picture as the money involved in such cases have increased
from Rs. 1.1 trillion in 2011-12 to Rs. 3.76 trillion in 2014-15.12 So even though the Supreme
Court has taken cognizance of such problem, but it should have also directed or suggested the
Govt. or the DRT to formulate effective legal framework and system to clear pendency of such
cases.

The provisions of SARFAESI are aimed at enabling the efficient and timely enforcement of
security without much scope for delays. But review of cases and number of pending cases,
however, suggests that the enforcement of security pursuant to SARFAESI has, in practice, not
been immune from the judicial delays and uncertainties that arise in other insolvency proceedings.
These delays and inefficiencies arise out of a combination of factors, including the existence of
multiple fora and parallel proceedings, a lack of understanding of SARFAESI by many courts and
tribunals (particularly the lower courts) and a tendency of courts to expand the scope of their
review in the context of SARFAESI enforcement actions.13

12
Remya Nair, Debt recovery tribunals overhaul on the cards to tackle pendency, livemint, (2015), available from
http://www.livemint.com/Politics/3Cwh9A9dXm1AbJgvWY7VYI/Debt-recovery-tribunals-overhaul-on-the-cards-to-
tackle-pen.html
13
Aparna Devi, The Indian Insolvency Regime in Practice-An Analysis of Insolvency and Debt Recovery Proceedings,
IGIDR, (2015)

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 CONCLUSION & SUGGESTION:

The issue of jurisdiction of DRAT which was raised before the court was rightly settled by the
judges by holding that the grant of liberty was not within the domain of the tribunal regard being
had to its limited jurisdiction under such special legislation, the court further stated that the tribunal
does not have any inherent powers as it is limpid from the section that it only confers limited
powers. DRT and DRAT are established with purpose of resolving the cases in an expedite manner,
but when such tribunals assumes the power of court and step outside of their statutory sphere it
frustrate the very purpose of having such specialised tribunal under specialised statues. By this
judgement the court has effectively asked the tribunals to restrict themselves to resolving the issue
which arises out of special legislation under which they have been conferred jurisdiction.14

The court has also criticised the delay by the DRT and DRAT in resolving the current case. The
persistent inefficiency of DRT is worrisome and so it is imperative that the functioning of DRTs
needs to improve to ensure banks are able to recover their existing loans efficiently, but there is no
mechanism in place to ensure that the tribunal disposes the case in a timely manner and so there is
a strong need to bring in more accountability for the DRT15. Additionally, there are huge number
of cases pending before the DRT (around 96,000 cases as of October 2016 16), but the number of
DRT and DRAT is very small there are only 38 DRT and 5 DRAT. There is certainly a need for
more number of DRTs. The biggest challenge, it appears, is their ability to deal with a subject with
speed. The system that was designed is clearly not working. Probably, there should be a feedback
mechanism and people involved with DRTs should be encouraged to point out the areas of pain. 17

Banking industry forms a very crucial part of the economy, the effectiveness and ability of banks
to grant and recover loans is linked with the growth of the economy. At this juncture when India is
trying to achieve higher growth, the Banks suffer from rising NPAs though new reforms have been
pushed through new insolvency code but until the legal structure and effectiveness of DRT and
DRAT is not improved it will pull economy back from its potential, so the appropriate laws and
reforms for improvement of DRT and DRAT are imperative for India to achieve high growth.

14
Manasi Phadnis and N. Prabhala, Debt Recovery Tribunals in India: A Short Note, (2015), CAFRAL
15
Jitin Asudani, Evaluation of Debt Recovery Laws in India, Centre for Competition, Investment and Economic
Regulations (CUTS CCIER), 2014
16
Sheerja Sen, Nearly 1 lakh pending cases in DRTs, data shows, livemint, (2016), available from
http://www.livemint.com/Industry/kljsixs5Uor7G4MBSWLVMN/Nearly-1-lakh-pending-cases-in-DRTs-data-
shows.html
17
Nidhi Singh & Ritika Rishi, DEBT RECOVERY TRIBUNAL: AN ANALYSIS, Journal of Legal Studies and Research [Vol 2
Issue 3], ISSN 2455-2437

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 BIBLIOGRAPHY
Books Referred
Mohan Lal Tannan, Tannan's Banking Law & Practice in India, Lexis Nexis Butterworths
Wadhwa Nagpur, 2010
Vinod Kothari, Securitization: The Financial Instrument of the Future, John Wiley & Sons,
16-Jun-2006

Articles Referred
Aparna Devi, The Indian Insolvency Regime in Practice-An Analysis of Insolvency and Debt
Recovery Proceedings, IGIDR, (2015)
Jitin Asudani, Evaluation of Debt Recovery Laws in India, Centre for Competition,
Investment and Economic Regulations (CUTS CCIER), 2014
Manasi Phadnis and N. Prabhala, Debt Recovery Tribunals in India: A Short Note, (2015),
CAFRAL
Mardia Chemicals Ltd. and Ors. v. Union of India and Ors. (2004) 4 SCC 311
Mukesh Dwivedi & Aqa Raza, DEBT RECOVERY TRIBUNALS IN INDIA: THE LEGAL
FRAMEWORK, IJLPR vol. 1, August 2016
Nidhi Singh & Ritika Rishi, DEBT RECOVERY TRIBUNAL: AN ANALYSIS, Journal of
Legal Studies and Research [Vol 2 Issue 3], ISSN 2455-2437
Remya Nair, Debt recovery tribunals overhaul on the cards to tackle pendency, livemint,
(2015), available from
http://www.livemint.com/Politics/3Cwh9A9dXm1AbJgvWY7VYI/Debt-recovery-tribunals-
overhaul-on-the-cards-to-tackle-pen.html [accessed on 30th July 2017]
Sheerja Sen, Nearly 1 lakh pending cases in DRTs, data shows, livemint, (2016), available
from http://www.livemint.com/Industry/kljsixs5Uor7G4MBSWLVMN/Nearly-1-lakh-
pending-cases-in-DRTs-data-shows.html

Cases cited
Lakshmi Sankar Mills v. Indian Bank and Ors., W.P. Nos. 37148 and 37534 of 2007, (Madras
High Court)
Satwanti Automobiles v. State Bank of India, WP (C) No. 4252 of 2014, (Jharkhand High
Court)
Transcore v. Union of India and another, (2008) 1 SCC 125
Union of India v. Orient Paper and Industries Limited (2009) 16 SCC 286
Union of India v. R. Gandhi, President, Madras Bar Association (2010) 11 SCC 1
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 United Bank of India v. Satyawati Tondon and Ors. (2010) 8 SCC 110
Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd., AIR 1963
SC 217
Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd., AIR 1963
SC 217
Uttar Pradesh and Uttarakhand v. Allahabad Bank and Ors. (2013) 4 SCC 381

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