Supreme Court Addresses Trend of Malicious Criminal Proceedings Against Financial Institutions in Landmark Judgment

In a significant development, the Supreme Court of India has issued a noteworthy judgment addressing the disturbing trend of initiating malicious criminal proceedings against financial institutions and their officers. The verdict, delivered by Hon'ble Mr. Justice Krishna Murari and Hon'ble Mr. Justice Sanjay Kumar, aims to curb the misuse of the criminal process to obstruct debt recovery or coerce settlements.

The judgment, which pertains to Contempt Petition (Civil) No. 774 of 2023 in Criminal Appeal No. 463 of 2022, highlights the increasing practice of targeting lenders and financial institutions through mala fide criminal complaints. The court expressed its concern over the potential detrimental impact of bypassing statutory remedies and resorting to criminal law tactics.

The petitioner, Gagan Banga, alleged that the spate of such criminal proceedings aims to restrain financial institutions from pursuing recovery of their legally enforceable debts. Moreover, they seek to subvert the statutory regime of the SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest). The court took cognizance of the petitioner's contention and observed that these actions could undermine the economic health of the nation.

The Supreme Court cited two previous judgments to support its stance. In the case of "Priyanka Srivastava vs. State of U.P." (2015) 6 SCC 287, the court had already highlighted the potential harm posed by resorting to criminal law to bring financial institutions to their knees. Additionally, the court referred to the case of "Vijay Kumar Ghai & Anr. vs. State of W.B. & Ors." (2022) 7 SCC 124, where it had quashed criminal proceedings in a purely civil financial dispute, emphasizing the abuse of law and forum shopping.

To address the concerns raised by the petitioner, the Supreme Court passed a series of significant directives. The court allowed the petitioners to approach the respective jurisdictional High Courts within two weeks to challenge the multiple FIRs (First Information Reports) and the ECIR (Enforcement Case Information Report) registered against them. The High Courts were urged to expedite the disposal of these petitions, ensuring a timeframe of no more than six months from their presentation.

The Supreme Court also instructed the Directors General of Police (DGPs) of the respective states to thoroughly examine the contentions of the petitioners regarding the contents of the FIRs. The DGPs were further directed to take appropriate measures within one month in accordance with the law.

The court maintained the interim order issued on April 28, 2023, in W.P. (Crl.) No. 166/2023, which stayed the proceedings in three of the mentioned FIRs. It provided interim protection to the petitioner financial institution and its officers, representatives, and managers. This protection extends to FIR No. 197/2023 and the ECIR, ensuring no coercive actions are taken against them until the High Courts dispose of the respective petitions. The court clarified that this protection is specific to the petitioner financial institution and its officials.

Emphasizing the importance of legal contentions, the Supreme Court preserved all available arguments to be raised before the High Courts. The High Courts were directed to decide the petitions strictly based on their merits and in accordance with the law.

The judgment concluded with the disposal of all the petitions, including the contempt petition and pending applications, by the Supreme Court.

This landmark judgment by the Supreme Court addresses the pressing issue of malicious criminal proceedings against financial institutions, aiming to protect their interests while safeguarding the integrity of the legal process.

Date of Decision: 4th July 2023

GAGAN BANGA    vs SAMIT MANDAL & ANR.