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; Section 11 - Bank of India (BOI) and Punjab National Bank (PNB) claimed rights over the same hypothecated stock of M/s Sri Nangli Rice Mills Pvt. Ltd., which defaulted in 2015. BOI approached the DRT, which ruled in its favor in 2017. The DRAT overturned this in 2019, citing lack of DRT jurisdiction and directing arbitration. The Delhi High Court upheld DRAT's view in 2020. The Supreme Court dismissed BOI's appeal, affirming arbitration as the appropriate recourse. Bank of India v. Sri Nangli Rice Mills Pvt. Ltd., 2025 LiveLaw (SC) 616 : 2025 INSC 765 : AIR 2025 SC (CIVIL) 1911
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Section 18 - Pre-Deposit - Appeals against procedural orders of the Debts Recovery Tribunal (DRT) under the SARFAESI Act, 2002, do not mandate a pre-deposit as required under Section 18 for appeals to the Debts Recovery Appellate Tribunal (DRAT). The Court set aside High Court order affirming a DRAT directive requiring a Rs. 125 crore pre-deposit for an appeal against a DRT's procedural order rejecting an application by auction purchasers to be impleaded in a securitization application. Emphasizing that the phrase "any order" in Section 18 should be interpreted meaningfully, the Court clarified that pre-deposit obligations typically apply to final orders determining liability, not procedural orders like the one in question. The matter was remanded to the High Court for reconsideration. (Para 14 - 16) Sunshine Builders and Developers v. HDFC Bank, 2025 LiveLaw (SC) 459
Constitution of India - Article 12 and 226 - Regulatory Compliance and Writ Jurisdiction - The petitioner argued that Muthoot Finance Ltd., being a non-banking financial institution regulated by the Reserve Bank of India (RBI), could be subject to writ jurisdiction if it breached statutory regulations. The Court rejected this argument, stating that regulatory compliance does not transform a private entity into a "State" or imbue it with public functions. The Court clarified that the petitioner's appropriate remedy lies in civil litigation or arbitration, as per the arbitration clause in the loan agreement. The High Court had also protected the petitioner's interests by directing the deposit of Rs. 24,39,085/- (from the sale of pledged gold) in a fixed deposit, with interest accruing to the petitioner. S. Shobha v. Muthoot Finance Ltd., 2025 LiveLaw (SC) 125 : 2025 INSC 117
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Jurisdiction of Civil Courts vs. Debts Recovery Tribunal (DRT) - Whether the civil court has jurisdiction to entertain a suit challenging the validity of a sale deed and mortgage deed, or whether such matters fall exclusively within the jurisdiction of the DRT under the SARFAESI Act. Held, Civil Court has jurisdiction to decide the validity of the sale deed and mortgage deed, as these matters do not fall within the scope of the DRT's powers under Section 17 of the SARFAESI Act. The DRT is only empowered to examine whether the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act are in accordance with the law, and it cannot adjudicate on title disputes or the validity of documents executed prior to the invocation of the SARFAESI Act. The DRT's powers are limited to restoring possession to the borrower or someone claiming through the borrower. It cannot hand over possession to a third party who was never in possession. The DRT also lacks jurisdiction to decide on the validity of sale deeds or mortgage deeds, which are matters for the civil court. Central Bank of India v. Prabha Jain, 2025 LiveLaw (SC) 96 : 2025 INSC 95 : (2025) 4 SCC 38
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 34 - The respondent filed a civil suit seeking a declaration that a sale deed and mortgage deed were null and void, and for possession of the suit property. The property was allegedly sold by her brother-in-law without her consent, and the buyer mortgaged it to the Central Bank of India. The Bank filed an application under Order VII Rule 11 CPC, arguing that the civil court had no jurisdiction due to Section 34 of the SARFAESI Act, which bars civil courts from entertaining matters that the DRT is empowered to decide. The trial court rejected the plaint, but the High Court reversed this decision, holding that the civil court had jurisdiction to decide the validity of the sale and mortgage deeds, as these matters were outside the scope of the DRT's powers. The Supreme Court dismissed the appeals, upholding the High Court's decision that the civil court has jurisdiction to entertain the suit. The Court emphasized that the DRT's powers are limited and do not extend to adjudicating on title disputes or the validity of documents. The civil suits were allowed to proceed, and the interim orders were vacated. Central Bank of India v. Prabha Jain, 2025 LiveLaw (SC) 96 : 2025 INSC 95 : (2025) 4 SCC 38
Unauthorized Transactions - The fraudulent transactions were deemed unauthorized, and no negligence was attributed to the account holder. The bank is responsible for preventing and detecting fraudulent transactions using available technology. Account holders must exercise caution and avoid sharing OTPs to prevent potential liability. The RBI Circular dated 06.07.2017 (Clauses 8 and 9) was held applicable. The Supreme Court upheld the High Court's decision, dismissing the SLP. State Bank of India v. Pallabh Bhowmick, 2025 LiveLaw (SC) 22