Loan Default After SARFAESI Notice Cannot Be Turned Into Criminal Case: Patna High Court Quashes Cheating, Breach Of Trust Proceedings

The Patna High Court has quashed criminal proceedings arising out of a housing loan dispute, holding that the complainant's remedy lay before the Debt Recovery Tribunal and not through criminal prosecution. The Court observed that the complaint was filed only after a SARFAESI demand notice was issued and described it as a “classical case of conversion of civil dispute into criminal cases.”Justice Ansul allowed a petition challenging a Magistrate's order taking cognizance under Sections 406 and 34 IPC in a complaint alleging misuse of loan documents and diversion of housing loan funds.According to the complaint, agents of LIC Housing Finance Ltd. induced the complainant and her husband to avail a housing loan, obtained 14 signed cheques as mortgage security, and allegedly misused them. It was further alleged that instead of opening a fresh loan account, the loan amount of ₹14 lakh was deposited into the husband's existing bank account and that part of the money was diverted elsewhere. The complainant claimed that when she questioned the transaction, the accused harassed her and demanded over ₹18 lakh.The petitioners contended that the dispute arose out of a loan transaction and that the complaint had been lodged only after recovery proceedings were initiated under the SARFAESI Act.Accepting the contention, the High Court noted that the complainant and her husband had admittedly obtained the loan and later defaulted in repayment. It further noted that the criminal complaint was instituted only after a SARFAESI demand notice was issued in December 2022. The Court observed:“The undisputed facts are that a loan was secured by complainant and her husband and they defaulted in payment and the complaint was filed only after SARFAESI Notice of Demand in December, 2022. The remedy of the complainant is to contest the matter before the Debt Recovery Tribunal and other appropriate forums. This is a classical case of conversion of civil dispute into criminal cases...”The Court also found that the complaint was prima facie barred by limitation. It noted that the alleged acts related to 2017, whereas the complaint was instituted more than five years later despite Section 406 IPC carrying a maximum punishment of three years.Additionally, the Court held that the cognizance order was a non-speaking one, as it disclosed no application of mind regarding the petitioner's individual role. Accordingly, the High Court quashed the order taking cognizance as well as the criminal proceedings against all the accused.Case Title: Y Vishwanath Gowd v. State of Bihar and Anr.Case Number: Criminal Miscellaneous No. 54471 of 2023Appearance: Mr. Puneet Siddharth, Mr. Chandra Mohan, and Mr. Aryan Sinha for the Petitioner; Mr. Md. Mushtaque Alam for the State.Click Here To Read/Download Order

Loan Default After SARFAESI Notice Cannot Be Turned Into Criminal Case: Patna High Court Quashes Cheating, Breach Of Trust Proceedings

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Loan Default After SARFAESI Notice Cannot Be Turned Into Criminal Case: Patna High Court Quashes Cheating, Breach Of Trust Proceedings

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