T.S. Nazir Ahamed vs. H.D.B. Financial Services LTD.

Facts

The petitioner, T.S. Nazir Ahmed, borrowed Rs. 4,20,00,000/- from H.D.B. Financial Services Ltd. (respondent) in 2015. Due to financial difficulties, including demonetization and the introduction of GST, he failed to repay the loan. The respondent initiated proceedings under the SARFAESI Act, took possession of the collateral property, and initiated auction proceedings. The petitioner claims the property is worth over Rs. 6 crores and the upset price is also over Rs. 6 crores, which should cover the loan. However, the respondent also initiated proceedings under Section 138 of the Negotiable Instruments Act, 1881, based on a cheque for Rs. 24,75,510/- issued by the petitioner, which was returned with the remark 'Account Blocked'. The petitioner sought to quash these criminal proceedings.

Held

The Court held that the proceedings under Section 138 of the Negotiable Instruments Act, 1881, are distinct from the proceedings under the SARFAESI Act. The Court observed that the petitioner's contention that the criminal proceedings cannot be sustained because the respondent has taken possession of the property and initiated auction proceedings is a mixed question of fact and law. Such matters, involving appreciation of evidence and disputed facts, cannot be decided under Section 482 of the Code of Criminal Procedure, 1973. The Court relied on the Supreme Court's decision in Central Bureau of Investigation Vs. Arvind Khanna, which held that a High Court, while exercising inherent jurisdiction under Section 482 Cr.P.C., should not record findings on disputed facts or delve into minute details of allegations and defenses, as these are to be tested during the trial. Therefore, the Court found no grounds to quash the criminal proceedings. The petitioner was granted liberty to produce all materials before the trial court, which was directed to dispose of the case within six months. The petitioner's personal appearance was dispensed with except when insisted upon by the trial judge.

Key Issues

1. Whether the proceedings under Section 138 of the Negotiable Instruments Act, 1881, are maintainable when the respondent has already initiated proceedings under the SARFAESI Act and taken possession of the collateral property. Petitioner's arguments: The petitioner contended that since the respondent initiated proceedings under the SARFAESI Act and has taken possession of the collateral property, which is valued significantly higher than the loan amount, initiating separate proceedings under the Negotiable Instruments Act is not permissible. He argued that the entire amount would be realized from the sale of the property, making the criminal proceedings premature and unsustainable. Respondent's arguments: The respondent argued that the cheque was issued in the first week of September 2018 for repayment of the loan amount, and upon presentation, it was returned as 'Account Blocked'. Statutory notice was issued, and thereafter, the complaint under Section 138 of the Negotiable Instruments Act was filed. The respondent asserted that these proceedings are distinct from the SARFAESI Act proceedings and cannot be construed as preliminary proceedings under SARFAESI.