DELHI HIGH COURT
Ved Prakash Vaish, J.
Man Singh Tusaria —Petitioner
versus
J.M. Financial Asset Reconstruction Co. Pvt. Ltd. & Anr. —Respondents
Crl. M.C. No.651 of 2012
Decided on 4.7.2014

IMPORTANT POINT:
When the complete, loan account of borrower is taken over by the securitization/reconstruction company, there can be no reason why the liabilities arising out of such a loan amount and so also the proceedings arising therefrom, cannot be transferred and why respondent No.1 cannot be substituted as a complainant in place of the bank, whose financial interests it has acquired, even in complaint under section 138 of the NI Act, filed before agreement of assignment is entered.

Headnote:Negotiable Instruments Act, 1881 — Section 138 — Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Section 5(2) and 35 — Petitioner took a loan from UCO Bank, respondent No.2 — Cheque issued by petitioner towards repayment of loan drawn in favour of bank was dishonoured and Bank launched prosecution u/s 138 of the N.I. Act — Loan account of petitioner came to be assigned by Complainant bank in favour of respondent No.1, a reconstruction Company and application was moved before Magistrate for substituting respondent No.1 as complainant in place of Respondent No.2 Bank — Whether defendant No.1 was entitled to Continue with prosecution of Complaint? Yes.

       Held: From perusal of section 5 of the SARFAESI Act it is clear that this section empowers a securitization company or reconstruction company to acquire. the financial assets of any bank or financial institutions notwithstanding anything contained in other laws. On such acquisition, such securitization company is deemed to be the lender and all the rights of such bank or financial institutions gets vested in the company. Section 5(3) of the SARFAESI Act further provides that all contracts, deeds etc. relating to the said financial asset which were subsisting would get transferred in the transferee company who would step into the shoes of assignee and would acquire all rights with full force and effect against the defaulter. Lastly, as per sub-section (4) of section 5 of the SARFAESI Act, any suit, appeal or proceedings of whatever nature relating to the said financial asset pending by or against the bank or financial institution shall not abate or be discontinued rather, shall be continued, prosecuted and enforced by or against the securitization company/assignee, as the case may be.

       In the instant case, respondent No.2, UCO Bank has assigned all its rights, title and interest, including the financial assistance granted to the petitioner, to the respondent No.1 by virtue of the assignment deed dated 29.3.2011 which was duly registered before the Sub-Registrar, Delhi. Thus by virtue of this agreement the respondent No.1 had acquired all claims and interests in the loan recoverable from the petitioner. Further, the respondent No.1 steps into the shoes of respondent No.2 and becomes a lender of the financial assets in place of UCO Bank and has all rights of respondent No.2 in relation to financial assets which were acquired by it. The dishonoured cheque was issued against the liabilities of the loan amount and once the said right to ,deal with the financial asset gets transferred to respondent No.1, it would be highly inappropriate to state that any liability against the said amount would continue to vest with respondent No.2. UCO Bank had advanced loan to the petitioner, who in discharge of their liability had issued the cheque in question, which was dishonoured. By virtue of assignment deed, the financial interest including the recovery of the loan would fall within the ambit of Section 5(2) of the SARFAESI Act. Consequently, any cheque given by the petitioner to respondent No.2 towards its discharge of liabilities would create a financial interest of respondent No.1 in such instrument, clearly falling under Section 5(2) of the SARFAESI Act.

       The proceedings for dishonour of cheques under NI Act are quasi criminal in nature giving option to the complainant to compound the offence subject to the payment of the said amount, when the complete, loan account of borrower is taken over by the securitization/reconstruction company, there can be no reason why the liabilities arising out of such a loan amount and so also the proceedings arising therefrom, cannot be transferred and why respondent No.1 cannot be substituted as a complainant in place of the bank, whose financial interests it has acquired, even in complaint under section 138 of the NI Act, filed before agreement of assignment is entered. Once the interest in itself stands transferred, the bank would have no interest in prosecuting the complaint any further and if, respondent No.1 is not allowed to be substituted in place of respondent No.2, it would have an effect of giving an undue advantage to the scrupulous borrower. Section 5(4) of the SARFAESI Act is wide in its ambits and the words ‘other proceedings of whatever nature’ would be wide enough to cover the complaint proceedings under section 138 of the NI Act.

       Looking at the purpose of the SARFAESI Act and reading of section 5(4) of the Act in the light of section 35 of the said Act, it would not be improper to hold that respondent No.1 steps slowly and completely in the shoes of respondent No.2 and once respondent No.2 is no longer interested in the loan amount, respondent No.1 can be substituted in their place with regard to any proceedings that arise out of such financial assets. The view of the learned Addl. Sessions Judge, New Delhi that the LR’S of the complainant can pursue the complaint. on death of the complainant despite the fact that the LR’S of the complainant are not the payee or holder in due course. Likewise, the respondent No.1 stands on a much better footing having an interest in the loan amount on which the said cheque was issued and should be allowed to substitute in place of respondent No.2, finds favour with this Court. Otherwise also section 35 of the SARFAESI Act gives an overriding effect over other enactments. (Paras 14, 15, 18 & 19)

       Result: Petition dismissed.