No Special Treatment For Lawyers And Judges In Loan Recovery: Karnataka HC Dismisses Senior Advocate's Plea Against 'Coerced Proceedings'

The Karnataka High Court recently dismissed a petition filed by Senior Advocate N Ravindranath Kamath, challenging the 'coercive' loan recovery proceedings instituted against him under the SARFAESI Act by the Sri Subramanyeshwara Cooperative Bank Limited for being a chronic loan defaulter.

Justice Krishna S Dixit said,

“A borrower is a borrower, whether he is a practising lawyer or a sitting Judge. Loan laws do not provide for favourable treatment to them differential qua other borrowers, when they become chronic defaulters. An argument to the contrary offends equality/parity in matters of loan recovery and therefore, cannot be countenanced.”

The petitioner had borrowed a sum of Rs.1.50 Crore in February 2017 agreeing to repay the same in 120 equivalised monthly instalments each of Rs.2,37,431. However, the petitioner defaulted within five months of availing the loan, leading to the classification of his loan account as a Non-Performing Asset (NPA).

The petitioner argued that he was not given the reprieve admissible on account of Covid -19 Pandemic and that he had no fair deal at the hands of the lender – the Bank. Further, it said that the entire loan amount could be cleared by recourse to ‘taking over’ or the like within three months if more time could be granted.

The respondent bank vehemently justified the coercive loan recovery proceedings, underscoring that the petitioner borrowed a substantial sum. The bank also emphasised the seriousness of cooperative banks' role in the Indian banking system and the necessity of timely recovery to ensure their continued functioning.

The court, after careful consideration of the arguments, declined to grant indulgence to the petitioner for several reasons.

Firstly, the Bench acknowledged the crucial role of cooperative banks and the financial risks they face due to defaults. The Court noted the Banks deal with public money and therefore, they are subject to the doctrine of public trust and that banks and financial institutions are bound to take coercive action for the speedy recovery of outstanding loans. Even judicial intervention for such recovery is now statutorily minimised and banks themselves do it on their own and the 2002 Act (SARFAESI) was made inter alia with that object in mind. It cited instances of other cooperative banks facing insolvency due to unchecked lending practices and overdue loans. 

Then it highlighted the petitioner's non-compliance with repeated orders and undertakings to repay his outstanding debt. The court noted that despite the petitioner's promises to repay, he has failed to honour his commitments, even when granted ample opportunities.

“Cooperative Banks are brought within the beneficial fold of this Act vide Apex Court decision in Panduranga Ganapati Chaugule vs. Vishwsarao Patil Murugud Sahakari Bank Ltd, (2020) 9 SCC 215. Therefore, the coercive proceedings of loan recovery inevitably taken up by the Respondent-Bank under the provisions of the Act, cannot be faltered, no breach therein having been demonstrated.”

It was noted that the petitioner’s Law Chamber had been established in the subject property, which is mortgaged for repayment of the loan. The Court found that the petitioner owns properties in Kodagu and despite that, no concrete steps had been taken to dispose of the same within a reasonable period so that the subject loan could be repaid.

Hence, it pointed out that the petitioner's efforts have not been substantial, leading to scepticism about his intentions. The court also referred to the petitioner's multiple money suits and disputes over his loan obligations, highlighting his habitual pattern of non-compliance. The court thus acknowledged the cooperative bank's need to take coercive action for loan recovery and its compliance with the SARFAESI Act's provisions.

The Bench referred to the coordinate bench order granting time to the petitioner to pay the outstanding amount which was not complied with. It said,

“Learned Sr. Advocate appearing for the respondent bank is justified in contending that the credentials of the petitioner as reflected from the record of these proceedings, demonstrate his untrustworthiness.”

Furthermore, the Court discussed the petitioner's claims of financial difficulty due to the pandemic and his attempts to sell properties for loan repayment.

“Petitioner has been playing all tactics to delay, if not defeat, the claim of Bank. It is not that this is the only property which the petitioner owns; as already mentioned above. Admittedly, he owns properties in Coorg too. He had told the Bank way back in 2019-2020 that he would sell these properties and pay off the outstanding debts. These words, he did not keep up with the excuse of intervening COVID-19 pandemic. Gone are those days now and still he has not prima facie demonstrated the endeavours made for disposing off the said properties. A lender cannot lend his ears for cock & bull stories of the borrower, endlessly.”

Observing that a writ court cannot grant indulgence to an unscrupulous litigant who does not keep up his words given repeatedly, the bench said, “Showing any more indulgence in favour of the Petitioner would give scope for public criticism that courts are favouring the unscrupulous borrowers only because they happen to be in the legal fraternity.”

Accordingly, it dismissed the petition and said it is open to the respondent to proceed with the coercive recovery process in accordance with law without brooking any more delay.

Case Title: N Ravindranath Kamath And Sri Subramanyeshwara Cooperative Bank Limited & others

Case No: WRIT PETITION NO. 3791 OF 2021 (GM-RES) C/W WRIT PETITION NO. 1 OF 2023.

Citation: 2023 LiveLaw (Kar) 307

Date of Order: 07-08-2023

Appearance: Diwakar K, Senior counsel A/W N Ravindranath Kamath, party in person.

Senior Advocate Lakshmy Iyengar, a/w Advocate K S Venkataramana, For R3.

AGA Shweta Krishnappa, for R6.

Click Here To Read/Download Order