Supreme Court Half Yearly Digest 2025 : Banking Law

Bank Fraud – One-Time Settlement (OTS) – Supreme Court quashed criminal proceedings against appellants involving allegations of ₹25.89 lakh bank fraud under Sections 120B, 420, 468, and 471 of IPC and Sections 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988, following a full settlement of dues with the Bank via OTS of ₹52,79,000. Held, where dispute is purely commercial, fully settled post-offence, and no continuing public interest exists, criminal proceedings may be quashed. High Court's dismissal of quashing petition reversed, parity granted with coaccused whose charges were quashed earlier. Appeals allowed, proceedings quashed. [Para 9] N.S. Gnaneshwaran v. Inspector of Police, 2025 LiveLaw (SC) 654 : 2025 INSC 787 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 11 - Statutory Arbitration - Whether the Debt Recovery Tribunal (DRT) has jurisdiction to adjudicate inter-creditor disputes under the SARFAESI Act, 2002, or whether such disputes must be resolved through arbitration under Section 11 of the Act read with the Arbitration and Conciliation Act, 1996. Held, Section 11 of the SARFAESI Act mandates arbitration for disputes between banks, financial institutions, asset reconstruction companies, or qualified buyers concerning securitization, reconstruction, or non-payment of dues, including interest. No explicit written arbitration agreement is required, as the provision creates a legal fiction of deemed consent for arbitration. (Para 124 (v)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 11 of the SARFAESI Act creates a legal fiction by using the word 'as if,' which presumes the existence of an arbitration agreement among the designated parties. This provision negates the requirement for a formal written arbitration agreement. Appeal dismissed; dispute to be resolved through arbitration under Section 11 of the SARFAESI Act read with the Arbitration and Conciliation Act, 1996. (Para 106) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 11 - Twin Conditions for Arbitration: For Section 11 to apply, (i) the dispute must involve banks, financial institutions, asset reconstruction companies, or qualified buyers, and (ii) it must relate to securitization, reconstruction, or non-payment of dues. If these conditions are prima facie satisfied, DRT lacks jurisdiction, and arbitration is the sole recourse. (Para 124 (ii)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 11 - Scope of Non-Payment - The phrase “non-payment of any amount due, including interest” in Section 11 is broad, encompassing disputes arising from borrower defaults, including conflicts over priority of charges over secured assets. (Para 124 (iii)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 2 (f), 11 - Exclusion of Lender-Borrower Disputes - Section 11 does not apply to disputes where one bank or financial institution is a borrower, as defined under Section 2(f) of the SARFAESI Act, which includes entities receiving financial assistance by creating a security interest. (Para 124 (iv)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 11 - Mandatory Nature - The use of “shall” in Section 11 makes arbitration mandatory, and parties cannot bypass this by seeking recourse elsewhere. (Para 124 (vi)) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 11 - Overruling Prior Precedent - The Court clarified that earlier decisions requiring express consent for arbitration (e.g., Federal Bank Ltd. 2 v. LIC Housing Finance Ltd., 2010 SCC OnLine DRAT 138) are overridden by the statutory fiction under Section 11. (Para 107) Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;...

Supreme Court Half Yearly Digest 2025 : Banking Law

LIVELAW NEWS NETWORK

Tags