Bombay High Court prohibits Canara Bank from acquiring Worli Bungalow.

The Bombay High Court has restricted the Canara Bank from taking over the Bungalow in Worli area, Mumbai, from one of its borrowers and the Guarantor of a loan under the SARFAESI Act, 2002.

The bungalow, which has been mortgaged to use a credit line, extends over almost one-third of an acre and is priced at Rs 150 crore based upon the current market price.

The guarantor had brought the case launched by the bank to the court alleging that the loan had been obtained by the Hong Kong-based company through a branch of the bank there, and thus the agreements were regulated by Hong Kong laws and not India.

Grace On, a company incorporated under the laws of Hong Kong Special Administrative Region, paid for the loan to the petitioner Sapna Agarwal who was the guarantor of the loan.

The securities under which the loan is approved included Agarwal’s personal guarantee and its mortgage of the said property in Worli. Sapna Agarwal and her husband are the owners of the Grace On.

The Canara Bank’s Hong Kong branch had given $5 million for this business and the company failed to repay the amount. The counsel for Agarwal observed that the loan had been approved by Canara Bank, Hong Kong branch, and therefore the Indian office of Canara Bank had no jurisdiction to invoke restrictions on the SARFAESI Act.

On 24 and 28 June, two notices to Agarwal were provided for the possession of the bungalow by the Canara Bank overseas branch. The petitioner argued that she is an Indian, not a foreign exchange dealer. Agarwal claimed in the petition that “Grace On is a foreign incorporated company and for the purpose of Foreign Exchange Management Act (FEMA) 1999 is a non-resident entity. The bank can’t obtain or establish any security in its favour without RBI’s permission.”