A landmark Bombay High Court ruling has now made it easier for banks to recover money that is withdrawn fraudulently or through unlawful transactions.
The high court recently held that banks could recover such money as debt under provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
“When a person takes financial benefits for the purpose of business and utilises bank money, even if such benefits were taken in a fraudulent manner, the person can still be said to be a debtor of the bank,” observed the division bench of Justice PB Majmudar and Justice Anoop Mohta.
The bench dismissed a petition filed by Amit Jhaveri of south Mumbai-based M/s Brader Incorporated, which had challenged an order issued by the Debt Recovery Appellate Tribunal in March 2006 that allowed the bank to recover Rs 11.20 crore from the firm.
SU Kamdar, the petitioner’s counsel, strenuously contended that there were no documents executed by the firm while availing financial assistance from the Walkeshwar branch of the public sector bank in question. Kamdar added that the transaction could at the most be called a fraudulent one and so could not be termed as debt. Thus, proceedings before the Debt Recovery Tribunal were without jurisdiction, he contended.
However, Kamdar’s argument failed to impress the bench, which flatly rejected his contentions considering the petitioner firm was admittedly the direct beneficiary of the fraudulent transactions.
The landmark ruling has come as big relief for banks, which will now be able to easily and speedily recover fraudulently withdrawn money through debt recovery proceedings especially considering the extremely time consuming alternative of filing a civil suit in such cases.