05 March 2024 Securities and Banking Law >> Corporate Law  

Have you repaid a loan, but are still being chased for repayment? A recent Supreme Court of India decision offers crucial protection for borrowers caught in such situations. The case involved the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, which tackles irregularities by stockbrokers dealing with government securities. This article delves into the legal battle and the court's ruling that safeguards borrowers from unfounded claims by the Act's designated Custodian.

Facts:

• FFSL was a company involved in illegal securities transactions.
• A court-appointed custodian sought to recover funds from the defendants.
• The custodian claimed the defendants owed money to benami companies controlled by a person who owed money to FFSL.
• The defendants borrowed money from the benami companies in 1996-1997 and claimed they repaid the loans.
• The custodian relied on a communication from the Income Tax Department to prove the debt. No witness from the Income Tax Department was called to testify and the communication from the Income Tax Department was not properly proven as evidence.
• Due to the elapsed time (over 13 years), the defendants' financial records were unavailable

Conclusion:

• The court ruled in favor of the defendants and found the custodian did not have enough evidence to prove the defendants owed money.