Employment misconduct by a bank employee does not constitute a 'debt' under the Recovery of Debts and Bankruptcy Act, thus the Debt Recovery Tribunal lacks jurisdiction to hear such claims.

Headnote:(A) Recovery of Debts and Bankruptcy Act, 1993 - Sections 2(g) and 19 - Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Jurisdiction of Debts Recovery Tribunal - Petitioner, a bank employee, challenged the tribunal's jurisdiction to recover alleged losses from him arising from misconduct during service. Held, the equation of misconduct to a 'debt' under the Act is erroneous. The employment misconduct cannot be classified as debt under Section 2(g), as no loan was sanctioned to the petitioner, nor was there a binding agreement regarding the claimed losses. Consequently, the tribunal lacked jurisdiction to entertain such an application, resulting in a quashment of its proceedings. (Paras 8-16)

Facts of the case:
The petitioner was a Branch Manager of the respondent bank who faced disciplinary action and compulsory retirement due to alleged financial misconduct. The bank filed a recovery application against him for alleged losses amounting to ₹2,36,24,032. The petitioner contended that he was not a borrower and challenged the tribunal’s jurisdiction.

Findings of Court:
The tribunal's proceedings against the petitioner were quashed due to lack of jurisdiction; employment misconduct does not constitute a debt under the Act.

Issues: The core issue was whether actions taken during the discharge of official duties that led to losses for the Bank can be classified as a ‘debt’ under the applicable statutes, which the court found they could not be.

Ratio Decidendi: The court ruled the tribunal could not assert jurisdiction over the alleged debt, as no lending relationship existed based on the 'debt' definition in the Act, reinforcing that employees cannot be construed as borrowers in such contexts.

Result: Writ petition allowed; proceedings quashed, and the bank was ordered to return the petitioner’s original documents.

ORDER

The petitioner is before this Court calling in question proceedings before the Debts Recovery Tribunal-I at Bengaluru (‘the Tribunal’ for short) in O.A.No.487 of 2014 initiated by the respondent/Indian Bank (‘the Bank’ for short) invoking the provisions of The Recovery of Debts and Bankruptcy Act, 1993 (‘the Act’ for short) and Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’ for short).

2. Brief facts that leads the petitioner to this Court in the subject petition, as borne out from the pleadings, are as follows:-

The petitioner joined the service of the respondent/Bank as a Clerk in the 1980 and was from time to time promoted to higher echelons of office, first, in the year 1985 as Junior Management Grade Scale-I; later in the years 1996 as Middle Management Grade Scale-II, and in the year 2005 as Middle Management Grade Scale-III. After his promotion to Scale-III, the petitioner was posted as Branch Manager of the respondent/Bank at Shivajinagar Branch, Bengaluru. Long after his entry to the Shivajinagar Branch, on allegations of omissions and commissions, disciplinary proceedings come to be initiated against the petitioner alleging gross irregularities committed by the petitioner in disbursement of loans during the tenure when he was the Branch Manager in Shivajinagar Branch. The result of the departmental inquiry was that the petitioner was imposed a penalty of compulsory retirement in terms of the order of the Disciplinary Authority dated 02-04-2011. The petitioner files an appeal against the order of compulsory retirement which also comes to be affirmed by the Appellate Authority. The respondent /Bank on the ground that acts of the petitioner have resulted in financial loss to the Bank to the tune of ` 156.06 lakhs, forfeits his gratuity. A review petition filed against the order of compulsory retirement, also did not yield any order in favour of the petitioner. Challenging the orders passed by the Disciplinary Authority, the Appellate Authority and the Reviewing Authority, the petitioner preferred Writ Petition No. 28289 of 2013 before this Court and the same is pending consideration.

3. During the service of the petitioner, he had availed a loan to construct a residential house in a site purchased by him and his wife in Bengaluru City. The site was purchased on 19.05.1999 and an application was made for sanction of housing loan on 05-10-1999. An amount of ` 4,72,348/- was sanctioned in favour of the petitioner by creating an equitable mortgage of the property purchased by him as aforesaid. The petitioner appears to have approached the Bank again for additional housing loan and was granted such loan on 31-10-2001 in a sum of ` 2,50,000/- by extending the already created equitable mortgage. The petitioner cleared entire dues of the housing loan on 22-12-2011. The Bank did not return original documents of the property that was mortgaged with the Bank against the said loan.

4. Thereafter what the Bank would do is invoke the jurisdiction of the Tribunal by filing an original application in O.A.No.487 of 2014 under Section 19 of the Act before the Tribunal seeking issuance of a recovery certificate against the petitioner and a direction to pay a sum of ` 2,36,24,032/- together with interest which was the alleged financial loss suffered by the respondent/Bank on account of alleged acts of the petitioner in disbursement of loans in his official capacity. The Tribunal admits the application, issues notice/summons to the petitioner and grants an order in favour of the respondent/Bank attaching the schedule property therein i.e., the property in respect of which the petitioner had cleared all the dues to its last pie. The petitioner files detailed objections before the Tribunal clearly bringing out that the proceedings before the Tribunal is without jurisdiction. The Tribunal proceeds further without answering the issue of jurisdiction. It is then, the pet

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