Giving up bank licence doesn't end creditor's liability: HC

Surrendering licence by a bank does not end the creditor’s liability, ruled the Bombay high court last week while dismissing a petition filed by a borrower of Commerzbank AG.

Surrendering licence by a bank does not end the creditor’s liability, ruled the Bombay high court last week while dismissing a petition filed by a borrower of Commerzbank AG.

HT Image

The borrower, Isibars Ltd, a Navi Mumbai-based company, had availed some credit facilities from the German bank. The bank had moved the Debt Recovery Tribunal for recovery of about Rs14.35 crore.

In January 2002, the bank surrendered its banking licence and stopped banking operations in India. Taking advantage of this development, Isibars Ltd had moved an application seeking dismissal of the proceeding pending against it contending Commerzbank AG was no more a bank as defined in the Debts Due to Banks and Financial Institution Act, 1993. The tribunal, however, dismissed the plea in March 2003 after which Isibars Ltd had moved the high court. The high court, too, dismissed the plea stating the litigant can certainly take advantage of a new cause of action.

“No doubt, the court can take into account subsequent events,” the division bench of justice Ranjana Desai and justice RG Ketkar said, adding, “but…that has to be done on equitable considerations with a view to promoting substantial justice.”

There is no dispute that when Commerzbank AG filed the original application, the Debt Recovery Tribunal had jurisdiction to entertain it and the bank had substantive right to claim the amount. “It cannot be denied to it (the bank) because it has surrendered its licence during the pendency of the original plea,” the bench said. “Surrender of the licence does not end the company’s liability.”