Bank Cannot Be Held Responsible For Illegal Activities Conducted By Borrower In Mortgaged Premises: Supreme Court

Chambers of Ishaan Garg

Ch. No. 217, Western Wing, District & Sessions Court, Tis Hazari, New Delhi, Delhi 110054

+91 8851742417, +91 8800386163

The Supreme Court (on February 09), while setting aside the impugned order passed by the NGT, Delhi, held that a Bank cannot be held responsible for illegal activities carried out by the borrower in mortgaged premises. The Division bench of Justices Sanjiv Khanna and Dipankar Datta said that this position is not only unacceptable but also not maintainable in law.

“…we are unable to subscribe to the reasoning and view of the National Green Tribunal, Principal Bench, New Delhi in the impugned judgment, which holds that the financing bank is responsible for the illegal activities in the premises, in which the borrower was conducting its business. The proposition is unacceptable, and not supportable in law.”

In the instant case, Punjab National Bank had sanctioned a loan to a borrower. A property (property No. 33 Block A3, Chanakya Place) was kept as a mortgage to secure the recovery. However, the Chanakya Place Residents Welfare Association filed an application complaining that several factories around this place were working without environmental clearance. In this regard, the association also sought the closure of such illegally operating units.

In view of this, the Green Tribunal passed several directions, including:

“(a) The units carrying out illegal activities and creating pollution, including unauthorized workshops, carrying out servicing, repairing, denting, painting, and junk dealing etc. in violation of law may be stopped forthwith. Report of action taken may be submitted before this Tribunal within one month.”

Pursuant to this, the mortgaged premises were sealed. Aggrieved by this, the bank filed a miscellaneous application stating that the premises had been auctioned to another purchaser who had ensured that he would not carry out any illegal activity. Based on this, the bank prayed for the de-sealing of premises.

However, the Tribunal denied the plea, noting that the loan was granted to carry out illegal commercial activity in the Chanakya Place area in New Delhi.

“In fact, the bank without making any proper enquiry into this aspect as to whether the activity being carried out by proponent, was permissible activity in the area and premises in which the same was carried out, advanced loan and therefore, in fact provided finance to the person who was carrying out commercial/industrial activities in residential premises which was not permissible in law.”

Taking a cue from this, the Tribunal further noted that the bank, by providing the loan, has encouraged such a person to carry out illegal activities.

“Hence, per se, it is also on abettor of a crime in question, responsible for continuance of illegal activities in premises in question. In fact, the Bank also ought to have been proceeded by concerned authority for such illegal activity.,” the Tribunal concluded.

Against this backdrop, the bank approached the Top Court.