The Supreme Court has recently ruled that banks and financial institutions can recover debt that has accrued against any person during the course of its business activities, and in doing so they do not have to establish a creditor-debtor relationship with the person. Delivering its judgment on 3 May in Eureka Forbes Ltd v Allahabad Bank the court said that the term “debt”, as used in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, has to be given “general and wider meaning”.
Eureka Forbes appealed to the Supreme Court after several rounds of litigation against Allahabad Bank before the civil courts and the Debt Recovery Tribunal.
The bank was attempting to recover a loan made to two companies against their stock. The companies, in turn, had a leave and licence agreement with Eureka Forbes, but had defaulted on the licence fees and handed over their unsold stock to Eureka Forbes in lieu of the outstanding fees. Eureka Forbes had then sold the stock claiming it did not know that it was hypothecated to the bank and was being pursued by the bank for repayment of the loan.
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The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@vsnl.com. Readers should not act on the basis of this information without seeking professional legal advice.
