Page 21 - Banking Finance October 2019

LEGAL UPDATE

LEGAL

CASES
CASES
CASES
CASES
CASES

Every accused has a right Bank can reject cheque for repayment
A bank need not accept cheques/drafts in repayment of a loan if it decides to
to be defended in court:
do so, the Supreme Court observed last week in its
HC judgment, Shakeena vs Bank of India. In this case,
The Uttarakhand High Court restrained the borrower defaulted on repayment of a loan and
all bar associations of the state from the bank invoked the Securitisation Act to sell the
passing resolutions to prevent advo- mortgaged property. This was challenged by the
cates from representing a person or borrower in the debt recovery tribunal and later in
persons in a particular criminal case the Madras High Court. The borrower was given severl options and Opportuni-
saying all accused have a constitutional ties to pay the amount before the sale of the property was registered. In one
right to be defended in court. last-ditch effort, the borrower offered cheques for the loan amount, which were
The High Court's order came on a PIL rejected by the bank maintaining that they were not a valid tender. The Su-
challenging the legality of a resolu- preme Court rejected the appeal of the borrower on several counts and asserted
tion passed by the Kotdwar Bar As- that the bank could not be faulted for rejecting the cheques.
sociation few months ago asking its
members not to defend a man ac- Defaulter’s pre-deposit is not secured asset
cused of murdering an advocate. The debt recovery tribunal or a high court often asks a defaulting borrower to
Asserting that all accused have a con- make pre-deposit with it to show its bona fides in returning the loan. But the
stitutional right to be defended in creditor cannot claim that amount arguing that it is a secured asset. The de-
court by the counsel of their choice, posit is not towards the satisfaction of the debt and is free from the claims under
Chief Justice Ramesh Ranganathan the Securitisation (SARFAESI) Act. The Supreme Court clarified this point last
and Justice Alok Kumar Verma of the week in its judgment in Kut Energy Ltd vs Punjab National Bank. A consortium
high court directed the Kotdwar Bar of nationalised banks had granted loans to the company for a hudro-electric
Association to pay Rs 25,000 to the pe- project in Himachal Pradesh.
titioner Kuldeep Agarwal, the lawyer
who had been engaged by murder ac- The Company defaulted and the banks proposed e-auction of assets. The com-
cused Vinod Kumar to fight his case. pany moved the debt recovery tribunal, which denied a stay. Then it moved the
himachal Pradesh High Court. It allowed the company to pre-deposit Rs. 140
The division bench also said that the
crore before deciding the matter. The Banks claimed that amount as a secured
Uttarakhand Bar council has the power asset. The high court allowed the banks to get the amount for adjustment to-
to take action against any bar associa- wards loan liability. The Company appealed to the Supreme Court against the
tion of the state which issues such "ille- order. Setting aside the high court order, the apex court explained that the
gal" resolutions preventing advocates deposit was neither a ‘secured asset’ nor a ‘secured debt’ and the company
from appearing for their clients.
was entitld to refund of the amount.

BANKING FINANCE | OCTOBER | 2019 | 21