Supreme Court rejects bank’s plea to invoke contempt action against debt collector



The Supreme Court recently rejected a special leave application filed by the Bank of Baroda challenging the Madhya Pradesh High Court’s decision not to initiate contempt proceedings against a debt collection agent.

The bench of Judges Dinesh Maheshwari and Vikram Nath while rejecting the observed special leave petition,

“We are clearly of the view that in this case the proposal to invoke contempt of the High Court jurisdiction, also by a nationalized bank, was not only baseless but rather absurd.”

The Supreme Court added that the bank’s proper recourse was to challenge the collection officer’s order to the Appeals Authority rather than initiate contempt action.

“We are one with the High Court simply because of the allegations that the conclusion reached by the debt collector was allegedly inconsistent with the High Court ruling in MA No. 1153 of 1999, it does not may be held liable for contempt. The applicant’s recourse was to challenge the collection officer’s order before the appeals authority. “

High Court case

M / s Premier Brass and Metal Works Ltd., had enjoyed various loan facilities from the Applicant as early as 1956 and the cash loans and credit facilities were renewed / increased from time to time. It had also mortgaged equitably with the applicant a leasehold and created other security interests such as the mortgage of tangible personal property and machinery as well as finished and raw materials stored or available in stock or in commerce from time to time. . As the borrower failed to repay the outstanding balance to the Bank, an action for the recovery of contributions in the amount of Rs. 14,03,38,797.30 / – was filed by the appellant in the Bhopal District Court. , which was then transferred to Debts Recovery Tribunal.

While the proceedings before the DRT were pending, Hindustan Copper Limited brought an action in the Delhi High Court to which the bank was not a party and had no knowledge and the action was entered. The lawyer further stated that the decree was transferred to the Bhopal District Judge for its execution and, during the execution of the decree, the property of M / s Premier Brass and Metal Works Ltd, Bhopal was seized.

During the auction, the bank filed a petition under Order 21 Rule 53 of the Civil Procedure Code before the executing court to oppose the seizure and sale.

The same was true on the ground that the applicant was a secured creditor having obtained the pledge or mortgage of all movable and immovable property and that the other creditor had no right to sue machinery and other movable property and buildings mortgaged with the applicant.

Since the same was rejected by the executing court on September 15, 1999, the bank had filed an appeal against the same which was decided on May 16, 2006. In the same, the High Court while setting aside the order of February 15, 1999, stated that section 33-C of the Act did not affect any rights created in favor of the appellant by a mortgage or pledge of the property before March 15, 1976. The High Court furthermore ruled that these rights could not be sold for the recovery of the sales tax the assessment of respondent No. 1 or for the amount owed to the holder of the decree.

Bank of Baroda had filed a contempt petition under the Contempt of Court Act pursuant to Section 215 of the Indian Constitution, complaining that the Debt Collection Officer, Debt Collection Tribunal, Jabalpur had violated the Court’s mandate as contained in an order dated May 16, 2006 was appealed (Bank of Baroda Vs. M / s Premier Brass and Metals Ltd.) and thus made itself liable to a penalty for committing gross contempt of court.

Senior lawyer VSShroti with lawyer APShroti appearing for the applicant (Bank of Baroda) argued that despite the clear instructions given by the High Court, the Collection Officer by the order of November 26, 2020 had all but set aside the order made by the High Court by adjudicating that since the sale had not been set aside, therefore, the property sold to a bona fide buyer could not be returned to its previous position.

By rejecting the petition, Judge GS Ahluwalia observed,

“If the facts of this case are taken into account, it is clear that the purchaser has filed a claim with the recovery agent which was decided by him. If the petitioner is of the opinion that the conclusion reached by the recovery officer is not in accordance with the decision of this Court in Miscellaneous Appeal No 1153/1999, then he has the recourse to challenge the same. before the appellate authority, but in the considered opinion of this Court, the debt collector cannot be held liable for contempt. “

Case title: Bank of Baroda vs. Manish Shrivastava | Special leave to appeal (C) No (s). 19566/2021

Coram: Judges Dinesh Maheshwari and Vikram Nath

Click here to read / download the order

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