Wife's Failure To Disclose Husband As Home Loan Co-Borrower Not Material Suppression: Bombay High Court

The Bombay High Court on 21 July held that a borrower's failure to disclose that her husband was a co-borrower in a housing loan could not, in the facts of the case, be treated as material suppression so as to deny her release of a property attached under the Maharashtra Protection of Interest of Depositors (MPID) Act.

A Division Bench of Justices A.S. Gadkari and Kamal Khata quashed the order dated 25 November 2021 passed by the Special Judge under the MPID Act, which had refused to release the appellant's residential property attached in connection with the National Spot Exchange Ltd. (NSEL) scam. The judges observed:

“It was within the banks commercial discretion to grant the loan against the security of the subject property and to join the Appellant's husband as a co-borrower so as to additionally secure repayment and enable the Bank to proceed against both borrowers in the event of default. The Appellant's failure to disclose that her husband was a co-borrower cannot, in the facts of the present case, be regarded as suppression of such a material fact as would disentitle her to any relief.”

Seema Sharma, the appellant, had challenged the attachment of her residential property in Chandigarh, contending that she was neither an accused in the NSEL case nor connected with Lotus Refineries Pvt Ltd, the borrower company allegedly involved in the fraud. She submitted that the property was purchased through a housing loan of Rs.3.63 crore sanctioned by Punjab National Bank, comprising Rs.2.43 crore towards purchase of the property and Rs.1.20 crore towards construction. She argued that the property was not acquired using investors' funds.

The bank supported her plea, stating that it had already initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) and obtained a Recovery Certificate for the outstanding dues.

Accepting the appellant's submissions, the Court held that a substantial portion of the property's consideration was financed by the nationalised bank and that there was no material establishing any connection between the property and investors' funds.

It also rejected NSEL's contention that the appeal was barred due to the dismissal of the appellant's earlier miscellaneous application. It held that the earlier application was dismissed only because it was filed under Section 457 of the Code of Criminal Procedure instead of Section 7(1) of the MPID Act (which empowers the Special Court to release attached property), and therefore did not affect the present proceedings.

On the issue of funds allegedly traced to the appellant, the Bench noted that the Forensic Audit Report showed a transfer of Rs.55 lakh from her husband, Arun Kumar Sharma, and that such amount was liable to be secured for investors. However, it also noted that Rs.68.80 lakh had already been recovered from the appellant and deposited with the Economic Offences Wing. It recorded:

“The Forensic Audit Report indicates that an amount of Rs.55,00,000/- was transferred to the Appellant by her husband, accused-Arun Kumar Sharma. To that extent, the amount was liable to be secured for the benefit of the investors. The record further indicates that, an amount of Rs.68,80,995/- has already been recovered from the Appellant and deposited in the account of EOW.”

Accordingly, the High Court set aside the Special Judge's order dated 25 November 2021 and quashed the MPID Act attachment notifications insofar as they related to Seema Sharma's Chandigarh residence.

For Petitioner: Advocate Vinay Bhanushali

For State: Leena Patil, SPP a/w P. P. Shinde, APP

For Respondent No. 3: Anjali Kondvilkar i/by. Payal Upadhyay, ANP Chamber

For Intervener: Arvind Lakhawat a/w Jalpa Shah i/by MZM Legal LLP