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Is Limitation Act, 1963 Applicable to Condone Delay for an Application Filed Under 17(1) of the SARFAESI 2002?

[By Aryaditya Chatterjee] The author is a student of School of Law (Christ Deemed to be University). INTRODUCTION On 3rd of January, 2024 the High Court of Madhya Pradesh (HC) in the case of Aniruddh Singh v Authorized Officer ICICI BANK LTD[1], held that Debt Recovery Tribunal has the power to condone delay for an application filed under Section 17(1) of the SARFAESI Act2002 through the application of Section 5 of the Limitation Act 1963 (Limitation Act). It is pertinent to mention that this particular judgment is not binding on all high courts as several high courts have passed judgments contrary to the same. This article will attempt to provide an answer to whether the DRT has the power to condone the delay for an application filed under Section 17 of SARFAESI Act 2002 by analysing various judgments pronounced by the High Courts and the Supreme Court. The first step towards answering the above question, is to decode the judgment given by the Madhya Pradesh High Court (HC). DECODING THE JUDGMENT The Madhya Pradesh High Court (HC) in its judgment held that Section 5 of the Limitation Act 1963 (Limitation Act) will be applicable to condone the delay for an application filed under section 17(1) SARFAESI Act 2002. The court relied on the decision of the Supreme court (SC) in the case of Baleshwar Dayal Jaiswal vs. Bank of India and others[2]wherein an ‘appeal’ under section 18(1) can be condoned by the Appellate Tribunal through the application of the Limitation Act 1963 (Limitation Act). However, when the judgments of other High courts (HC) are taken into consideration then they are on a different pedestal than that of the Madhya Pradesh High Court (HC). The Calcutta High Court (HC) in the judgment of the Akshat Commercials Pvt. Ltd v Kalpana Chakraborty[3] held that Section 5 of the Limitation Act 1963 (Limitation Act) will not be applicable to condone the delay for an application filed under section 17(1) of the SARFAESI Act 2002 because an application filed under this section is that of a civil suit in nature. The Orissa High Court (HC) in the Judgment of Bm, Urban Co-operative Bank Ltd v Debt Recovery Tribunal[4] held that delay in filing of an application under section 17(1) of the SARFAESI Act 2002 cannot be condoned by the DRT by applying Section 5 of the Limitation Act since an application may be disposed in accordance with the Recovery of Debts Due to Banks and Financial Institutions Act 1993 (RDB) as per section 17(7) of the SARFAESI Act 2002 and RDB has not given any special power to the DRT to dispose an application filed under Section 17(1) .The Orissa High court also placed a special reliance on the judgment of the Supreme Court (SC) in International Asset Reconstruction Company of India Ld. v. Official Liquidator of Aldrich Pharmaceuticals Ltd[5]wherein it was held that Section 5 of the Limitation Act 1963 (Limitation Act) is only applicable to an original proceeding filed under Section 19 of the RDB Act. After a detailed analysis of the three High Court judgments, it is clear that there is a Question of Law as to whether Section 5 of the Limitation Act 1963 (Limitation Act) is applicable to an application filed under Section 17(1) of the SARFAESI Act 2002. The first step towards answering the above question, is to understand the nature of an application filed under section 17 of the SARFAESI Act 2002. NATURE OF AN APPLICATION FILED UNDER SECTION 17 OF SARFAESI ACT 2002 A remedial application under section 17 of the SARFAESI Act 2002 is filed in the DRT by an aggrieved borrower against any measures taken by the Secured Creditor under Section 13(4) of the SARFAESI Act 2002 and such an application shall be filed within 45 days of such measure taken against the borrower. Even though the statute considers an application under section 17 of SARFAESI Act 2002 to be an “Application” in nature, the Supreme Court (SC) has taken a contrary view in this regard through various judgments. In the case of Mardia Chemicals v Union of India[6], the Supreme Court (SC) observed that proceedings under an application filed under section 17 of SARFAESI Act 2002 are not an appellate-proceeding but a misnomer. The proceeding is an initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. The Supreme Court in this case decided that an application under Section 17 of the SARFAESI Act 2002 falls within the lieu of a civil suit. Later in the judgment of M/s Transcore v Union of India[7],the Supreme Court relied on Mardia Chemicals[8] and were of the opinion that an application filed under section 17 of the SARFAESI is that of a “civil suit” in nature. It is clear from both the judgments of the Supreme Court (SC) that an Application filed under section 17 of the SARFAESI is a ‘civil suit’ in nature. APPLICABILITY OF LIMITATION ACT FOR AN APPLICATION FILED UNDER SECTION 17 OF THE SARFEASI The Supreme court (SC) in the case of Baleshwar Dayal Jaiswal vs. Bank of India[9] held that delay in filing an ‘appeal’ under section 18(1) of the SARFAESI Act 2002 can be condoned by the Appellate Tribunal by applying the Limitation Act 1963 (Limitation Act). However, it is pertinent to mention that the nature of an appeal under section 18(1) of the SARFAESI Act 2002 is that of an “Appeal” to an Appellate Tribunal. In such a scenario, delay in filing an ‘appeal’ can be condoned by the limitation act because it is an appeal in nature. It is pertinent to mention that an application under section 17(1) of the SARFAESI Act 2002 is that of a “Civil Suit” in nature as decided by the Hon’ble Supreme Court (SC) in the various of its judgments. The Limitation Act 1963 (Limitation Act) has defined both suit and an

The Fall of Wirecard: Lessons For India’s Fintechs

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[By Manvi Khanna] The author is a student at National Law University Odisha, Cuttack. Introduction Technological innovation in the financial sector is transforming the way financial services are provided across the globe. The Indian financial sector is similarly on the cusp of change, as evidenced by the runaway success of the National Payments Corporation of India’s United Payments Interface (UPI) which recently crossed the hundred million user threshold to become the fastest adopted payments system in the world. It is important that this change, which comes with attendant risks, is accompanied by meaningful regulatory intervention, particularly for financial technology companies (fintechs) operating in the payments sphere. Against this backdrop, the recent fall of the once-successful payment processing German fintech, Wirecard AG (Wirecard), has some important lessons for India’s payments regulation. Fall of Wirecard: Factual Background Precipitated by an accounting report, Wirecard’s meteoric collapse saw the firm acknowledge balance sheet fiction and file for insolvency within a short span of two weeks. The multilayered scandal has sent shockwaves through the industry, with implications for all stakeholders. In particular, the German financial regulator, the BaFin, has faced heavy criticism in the aftermath of the scandal for failing to perform its supervisory duties, by ignoring multiple red flags raised against the company. The first raised in 2016 by short-sellers and the second in 2019 through investigative reports by the Financial Times. Wirecard was one of the world’s leading providers of outsourcing solutions in relation to electronic payments and had a customer base of more than 25,000 across various industries. However, as a fintech that owned a bank, it was not always clear which regulator Wirecard fell under and who was responsible for its supervision– for instance, the BaFin insisted that it was responsible for the oversight of Wirecard’s banking arm and not its payment processing business. Illustrative of the harms of failed regulatory oversight and legal uncertainties, this loophole is being used to pass the blame amongst regulators in an effort to avoid accountability. Complexities in the Current Arrangement The scandal has also highlighted the complexities in regulating hybrid business models or “outsourcing arrangements” that are mushrooming at a pace quicker than the law. Outsourcing is an umbrella term that broadly denotes the practice of regulated financial entities outsourcing some of their functions to third parties, which may or may not be regulated. The frailty of these agreements, caused by interdependence and the severity of repercussions that arise from contractual breach, lead to more worrying issues of effective regulatory scrutiny. It is still unclear where these arrangements fit within the regulatory framework. These regulatory blind spots may pose a challenge to a sound fintech ecosystem. For instance, smaller fintechs outsourced functions such as card issuance to Wirecard, as they lacked the capacity to issue these products on their own. However, the negative experience with Wirecard could be the driving force behind business entities – both fintech and banks–becoming critical of outsourcing their core functions to payment processing fintechs due to the accompanying operational risks, causing great inconvenience as well as damage to the reputation of fintechs in general. There is a lesson here for Indian fintechs: interdependency between entities in a payments value chain as well as outsourced information technology functions are potential sources of vulnerability. It is therefore essential that these interlinked entities adopt resilient operational models, with viable business continuity and contingency plans in place. Indian Fintech Regulatory Framework Unlike traditional banks that have a defined set of regulators and are working directly under the supervision of the Reserve Bank of India, Fintechs are still functioning under a fragmented regulatory regime. The Payment System Participants are regulated by the Payment and Settlement Systems Act, 2007 and the Reserve Bank of India’s Prepaid Payment Instruments (PPIs) – Guidelines for Interoperability, 2018; NPCI Guidelines govern UPI Payments; Payment Banks function under RBI’s Guidelines for licensing of Payment Banks, 2014 and Operating Guidelines for Payment Banks, 2016 and Payment Intermediaries are regulated by RBI Guidelines on Regulation of Payment Aggregators and Payment Getaways, 2020. Additionally, the Anti Money Laundering Regulations and Data Privacy Laws are also applicable to them. In cases where a digital lender in India is licensed as an NBFC, key regulations governing NBFCs in turn become applicable to them. A lot of work is required to be done for providing requisite clarity and assistance to the fintechs in relation to regulatory compliance, which is otherwise complex and unclear. With regard to outsourcing, there is a compliance requirement in form of Guidelines on Outsourcing of Financial Services by Banks, 2006 and RBI Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Non-Banking Financial Companies, 2017 when they outsource their noncore activities and it provides for flexibility so that intervention can be made, however, the law for fintech, licensed neither as banks nor NBFCs is unclear, when they outsource any of their functions The Wirecard collapse demonstrates the dangers firms face that fall between regulatory cracks. It is important for us to tight seal the new laws we are coming up within a way such that the defaulters cannot bypass it. The Way Forward In the wake of the scandal, the UK has revamped rules governing its international payment sector and now requires careful scrutiny before third party providers are selected, in addition to requiring periodic reviews. Moreover, payments providers and e-money issuers in the UK, besides maintaining a record of funds received are also now required to maintain a “safeguarding account” for the customer money. The rapid advancement of diverse fintech products offered along with the government’s support for digital payments has caused the Indian fintech space to flourish in the last few years. Insofar as regulation is concerned, it is necessary for the law to balance the risks arising from these new fintech entrants, alongside the need for innovation and competition. India does not have a consolidated set of guidelines tailored to fintechs but follows a more generic approach, making it a challenge for companies

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