ARCs Can Replace Banks As Complainants In Pending Cheque Bounce Cases: Supreme Court Upholds Bombay HC Ruling
The Supreme Court on Wednesday refused to interfere with the Bombay High Court's ruling that an Asset Reconstruction Company (ARC), which acquires a bank's financial assets along with the related securities and pending legal proceedings, can substitute the original bank as complainant in a prosecution under Section 138 of the Negotiable Instruments Act, 1881.
The High Court had held that Sections 5(4) and 5(5) of the SARFAESI Act use wide language permitting an ARC to continue and prosecute proceedings relating to an acquired financial asset, including proceedings under Section 138 of the NI Act.
A Bench of Justices Dipankar Datta and Sheel Nagu declined to interfere with the High Court's order.
Appearing for the petitioner, Senior Advocate Siddharth Dave argued that the case raised a pure question of law i.e. whether an ARC could be substituted as complainant in a pending criminal prosecution merely by operation of law following the assignment of a financial asset.
"In my respectful submission, a pure question of law arises, whether there can be a substitution of a complainant by an operation of law. Why can't there be in a criminal case?" Dave submitted.
He argued that Sections 5(4) and 5(5) of the SARFAESI Act should not be interpreted as automatically permitting substitution in criminal proceedings. According to him, the expression "suit, appeal or other proceedings" had to be considered in the context of the nature of the proceedings and the legal framework governing criminal prosecutions.
The Bench however, pointed out that Section 5(4) uses the expression "other proceedings of whatever nature" and questioned why the provision should not be given its widest amplitude.
Dave also referred to judicial decisions dealing with the interpretation of the SARFAESI Act, including judgments of the Delhi and Bombay High Courts. He submitted that the issue of substitution in a criminal complaint required separate consideration, as criminal proceedings involve considerations distinct from those applicable to civil suits and appeals.
The Court then referred to Section 5(5), which provides the procedural mechanism for substitution, and observed that it expressly contemplates an application before the court or authority concerned for substitution of the ARC's name in pending proceedings.
Dave nevertheless maintained that substitution in a criminal case raised a distinct legal issue. He also referred to Section 302 of the Code of Criminal Procedure, which deals with permission to conduct prosecution, in support of his submission that criminal proceedings cannot be treated in the same manner as civil proceedings.
The court, however, was not inclined to interfere with the order and dismissed the special leave petition.
The dispute concerns whether an Asset Reconstruction Company which acquires a bank's financial assets along with cheques taken as security, can replace the original bank as complainant in a pending prosecution under Section 138 of the Negotiable Instruments Act.
Avarsekar & Sons Pvt Ltd. had availed an overdraft facility of ₹75 crore from Axis Bank in December 2013 and issued three post dated cheques of ₹25 crore each as security. After the cheques were dishonoured for insufficient funds, Axis Bank initiated proceedings under Section 138 of the NI Act in January 2017.
During the pendency of the complaint, Axis Bank assigned the loan facilities, securities, three cheques and pending legal proceedings to Assets Care and Reconstruction Enterprises Ltd. (ACRE) through an Assignment Agreement dated March 27, 2017. ACRE sought substitution as the complainant, which the Magistrate allowed on September 5, 2018. The Sessions Court dismissed the borrowers' revision against this order on February 11, 2021.