When assessment is wrong
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When banks go for an out-of-court settlement, cases against those accused of cheating the bank for incorrect assessment of property can be dropped, writes C.H. Gopinatha Rao
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There are cases when borrowers default and fail to repay the loan. Banks recover the amount by attaching the property given as collateral security. In some of these cases, the banks find out that the value of the property mortgaged or given as a security has been improperly assessed and the banks cheated.
Valuers, who certify the property value, and the bank officials are at times held responsible for such improper assessment and alleged to have connived with the borrower to cheat the bank.
In order to recover the bad debts, banks seek the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and the schemes introduced by RBI.
An out-of-court settlement is at times agreed upon by the bank and the borrower. The settlement may have been reached but the intent to cheat the bank remains.
Vital question
The question now is whether, even after the compromise is reached and the amount paid, the criminal proceedings against the valuers and officials should continue or be dropped.
The answer can be inferred from the judgment (August 20, 2008) by the Supreme Court in a case relating to Nikhil Merchant and Central Bureau of Investigation (CBI) and others.
The Court has ruled that if the amount is settled and both the parties are satisfied, then the charges can be dropped.
Compromise
In the above mentioned case, loan was extended to a company by a bank and there was a default in repayment of loans. On scrutiny, it was found that the documents and records submitted in support of the financial status of the company were incorrect.
The bank filed a suit to recover the loan and also filed a complaint with the CBI. The CBI filed a chargesheet against those found involved.
Meanwhile, on mutual consent, a compromise was agreed upon and the borrower agreed to pay the amount. The accused filed an application for discharge from the criminal complaint and the chargesheet filed by the CBI. The application was rejected by the Special Judge (CBI), Greater Bombay, and subsequently by the Bombay High Court. An appeal was filed against the High Court order. The Supreme Court held that “…In the instant case, the disputes between the company and the bank have been set at rest on the basis of the compromise arrived at by them whereunder the dues of the bank have been cleared and the bank does not appear to have any further claim against the company. What, however, remains is the fact that certain documents were alleged to have been created by the appellant herein in order to avail of credit facilities beyond the limit to which the company was entitled.
“The dispute has overtones of a civil dispute with certain criminal facets. The question is whether the power which independently lies with this court to quash the criminal proceedings pursuant to the compromise arrived at, should at all be exercised?”
The Court ruled that since the compromise has been arrived at between the company and the bank, a technicality should not be allowed to stand in the way in the quashing of the criminal proceedings and quashed them.
(The author is past National President, Institution of Valuers)
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