The Supreme Court overturned an NGT order, absolving banks from liability for illegal activities carried out by borrowers on mortgaged premises. The case involved Punjab National Bank, whose property had been sealed by the NGT, alleging the bank’s loan facilitated unlawful activities. The Supreme Court clarified that the onus for such misconduct lies with the borrower, granting the bank permission to transfer the property.
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On February 9, the Supreme Court of India changed the rules about banks and illegal activities on mortgaged properties. Justices Sanjiv Khanna and Dipankar Datta disagreed with an earlier decision by the National Green Tribunal, which said banks were responsible for their borrowers’ wrongdoings on the mortgaged properties.
This case in question involved Punjab National Bank (PNB) and a property mortgaged to it, located at property No. 33 Block A3, Chanakya Place. The Chanakya Place Residents Welfare Association had raised concerns about environmental violations by factories in the vicinity, leading to the NGT’s intervention and subsequent sealing of the premises in question.
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The Supreme Court, in its deliberation, expressed strong disagreement with the NGT’s rationale, stating-
“…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.”
This statement emphasize the Court’s stance that holding banks liable for the illegal activities of borrowers is both untenable and unsupported by legal precedent.
The NGT had initially directed the cessation of unauthorized industrial activities in the area, citing pollution and law violations. It specifically ordered-
“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.”
Following the sealing of the mortgaged property, PNB sought relief, arguing that the property had been auctioned off and the new owner had committed to abstaining from illegal activities. Despite this, the NGT rejected the bank’s plea, criticizing it for not adequately investigating the legality of the borrower’s activities before granting the loan.
The Tribunal went as far as to label the bank an abettor of the crime, stating-
“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 Supreme Court emphasized that the purchaser at the auction had willingly committed to adhering to legal standards, enabling the bank to proceed with property transfer and seal removal. The Court further directed the purchaser to furnish an undertaking to the Tribunal’s Registrar within six weeks, pledging adherence to lawful conduct.
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Furthermore, The Supreme Court advised the National Green Tribunal (NGT) to exercise prudence in future cases, stressing the necessity for explicit reasoning before attributing accountability to financial institutions for the actions of borrowers. The Court’s directive, urging the NGT to refrain from issuing similar orders without a clear rationale, serves as a cautionary reminder regarding the significance of well-founded judgments in legal proceedings.
