Case at a Glance
A former company director said State Bank of India published a SARFAESI possession notice in newspapers naming him as a defaulter, although he had resigned and was never a guarantor or mortgagor. He filed a private defamation complaint, and the magistrate issued process against the bank, its Chairman, a Deputy General Manager and the authorised officer. The Karnataka High Court quashed the case only against the Chairman and the DGM for want of a specific role, but refused to quash it against the bank and its authorised officer, holding that good faith under Section 32 of the SARFAESI Act and the authenticity of the guarantee deeds are matters for trial.
The complainant, Bharath Dayananda, stated that he resigned as a director of Bharath Infra Exports and Imports Ltd. in October 2016 and was never a guarantor or mortgagor to SBI. On 04.11.2018 a SARFAESI ‘Possession Notice’ naming him as a defaulter was allegedly published in newspapers. His legal notice dated 22.11.2018 seeking withdrawal was not complied with, and on 13.12.2018 he filed a private complaint for defamation under Sections 499 and 500 IPC.
The magistrate (V Additional Chief Metropolitan Magistrate, Bengaluru) recorded his sworn statement, marked 23 documents, examined two witnesses and, on 16.01.2019, took cognizance and issued process against SBI (accused 1), its Chairman (accused 2), a Deputy General Manager (accused 3) and B. Narasimham, an Assistant General Manager and authorised officer of the Stressed Assets Management Branch (accused 4). The bank and its officers argued that the dispute was civil, that the complaint was a counterblast to SBI’s recovery application before the DRT, that Section 32 of the SARFAESI Act protected them, and that guarantee deeds of 2009 and 2015 showed he was a guarantor. The complainant said the deeds were fabricated and were under challenge in a civil suit at Anekal, where an injunction had been granted against SBI.
The Key Question Before the Court
Can a defamation complaint over a SARFAESI possession notice proceed against the bank and its officers, and does the good-faith protection in Section 32 of the SARFAESI Act bar the prosecution at the threshold?
How the Court Separated the Bank and Its Authorised Officer From Senior Officials
The Court held that “there is no prohibition against initiation/continuation of civil as well as criminal proceedings” on the same facts, and that since the guarantee documents relied on by the bank were under challenge in a civil suit, “Question of reliability of documents would be matter for investigation/trial.” On Section 202 CrPC, it accepted that the inquiry is mandatory where an accused resides outside the court’s jurisdiction (Jaideep Bose v. Bid and Hammer Auctioneers, (2025) 02 SC CK 0728), but held it was satisfied because witnesses were examined (Vijay Dhanuka v. Najima Mamtaj, (2014) 03 SC CK 0099, (2014) 14 SCC 638); the impugned order “prima facie indicates application of mind.” The Eighth Exception to Section 499 was rejected for want of a proper basis, and the burden of the Ninth Exception lay on the accused (Subramanian Swamy v. Union of India, (2016) 7 SCC 221).
Section 32 of the SARFAESI Act protects only “anything done in good faith”; since the complaint alleged that the authorised officer acted deliberately and with malicious intention despite being told the complainant was not a guarantor, good faith was a disputed fact for trial. Relying on Google India Pvt. Ltd. v. Visaka Industries, (2019) 12 SC CK 0040, (2020) 4 SCC 162, the Court noted that failure to withdraw a publication after notice can itself give a cause of action. However, the Chairman was named only by designation and the DGM’s demand notice did not even name the complainant, so “continuation of proceedings against accused no.2 and 3 would be impermissible” — though “It would however be open to prosecution to arraign them as accused at later stage”. The bank’s prosecution would sustain so long as that of any of its officials did.
What the Court Actually Held
- Civil recovery proceedings and a criminal defamation complaint on the same facts can run together.
- Section 32 SARFAESI Act protects only acts done in good faith; where malice is alleged, good faith is a question for trial.
- The case against SBI’s Chairman and DGM was quashed for want of a specific role, without prejudice to their being arraigned later.
- The case against SBI and its authorised officer, who caused the complainant’s name to be published as a defaulter, will proceed (Crl.P. 1573/2019 allowed in part; Crl.P. 852/2019 dismissed).
Why This Judgment Matters
- It shows that a bank’s public possession notice naming the wrong person can expose the bank and the officer responsible to criminal defamation proceedings.
- It confirms that senior bank officials cannot be prosecuted merely because of their designation.
- It treats the refusal to withdraw a defamatory publication after notice as relevant to liability.
What Should Advocates Take Away From the Judgment?
For Borrowers & Ex-Directors
- If a bank wrongly names you as a defaulter or guarantor in a published notice, send a legal notice seeking withdrawal promptly.
- A civil suit challenging guarantee documents does not prevent a criminal complaint.
- Examine witnesses at the pre-summoning stage to satisfy Section 202 CrPC where accused live outside jurisdiction.
For Bank Counsel
- Section 32 SARFAESI good-faith protection is fact-dependent and may not end a case at the quashing stage.
- Plead and prove the specific role of each officer; designation-based arraignment of top officials is vulnerable.
- Verify the status of guarantors and directors before publishing possession notices.
Key Takeaways
- Publishing a person’s name as a defaulter in a SARFAESI notice can found a defamation complaint.
- Good faith under Section 32 SARFAESI Act is a matter of evidence when malice is alleged.
- Top officials named only by designation can get the case quashed against them.
- Examination of witnesses can satisfy the Section 202 CrPC inquiry requirement.
Frequently Asked Questions
Did the Karnataka High Court quash the defamation case against SBI?
No. It quashed it only against the Chairman and the Deputy General Manager. The case continues against SBI and its authorised officer.
Does Section 32 of the SARFAESI Act protect bank officers from prosecution?
Only for acts done in good faith. Because the complaint alleged deliberate and malicious conduct, the Court held good faith had to be decided at trial.
Can the Chairman and DGM be brought back into the case?
Yes. The Court said it would be open to the prosecution to arraign them as accused at a later stage.
Conclusion
The ruling balances two concerns: protecting senior bank officials from being dragged into prosecutions on designation alone, and ensuring that the officer who actually caused a person to be publicly branded a defaulter answers for it at trial.
Practical takeaway: Banks should verify who is actually liable before naming anyone in a SARFAESI publication — and must act on a withdrawal notice; those wrongly named can pursue both civil and criminal remedies.
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