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Friday, October 3, 2014

DRT - Recovery of Debts due to Banks and Financial Institutions Act, 1993 -whether a suit containing a “counter-claim” or claiming a “set-off” filed by a debtor can be heard and tried before the Debt Recovery Tribunal (hereinafter referred to as ‘DRT’) under the RDB Act or must be tried by a Civil Court alone. - Apex court held that there is a difference opinion between several Benches of this court - directed the registry to place the case before CJ = CIVIL APPEAL Nos.8973-8973 OF 2014 (Arising out of Special Leave Petition (C) Nos. 975-976 of 2012) Bank of Rajasthan Ltd. …. Appellant Versus VCK Shares & Stock Broking Services Ltd. …. Respondent = 2014 - Sept.Month - http://judis.nic.in/supremecourt/filename=41930

DRT - Recovery of  Debts  due  to  Banks  and  Financial  Institutions  Act,  1993 -whether a suit containing a  “counter-claim” or claiming a “set-off” filed by a debtor can be heard and tried before  the Debt Recovery Tribunal (hereinafter referred to as ‘DRT’) under the RDB  Act or must be tried by a Civil Court alone. - Apex court held that there is a difference opinion between several Benches of this court - directed the registry to place the case before CJ =
whether  having  regard  to  the
Recovery of  Debts  due  to  Banks  and  Financial  Institutions  Act,  1993
[hereinafter referred to as ‘RDB Act’], a suit containing a  “counter-claim”
or claiming a “set-off” filed by a debtor can be heard and tried before  the
Debt Recovery Tribunal (hereinafter referred to as ‘DRT’) under the RDB  Act
or must be tried by a Civil Court alone. =
There is a difference of  opinion  between
several Benches of this Court on the issue.  This  is  likely  to  create  a
doubt as to the true position in law, hence we consider  it  appropriate  to
refer the following questions of law to a larger Bench:
Whether an independent suit filed by a borrower against a Bank or  Financial
Institution, which  has  applied  for  recovery  of  its  loan  against  the
plaintiff under the DRB Act, is liable to be  transferred  and  tried  along
with the application under the RDB Act by the DRT?
If the answer is in the affirmative, can  such  transfer  be  ordered  by  a
court only with the consent of the plaintiff?
Is the jurisdiction of a Civil Court to try  a  suit  filed  by  a  borrower
against a Bank or Financial Institution ousted by virtue of  the  scheme  of
the RDB Act in relation to proceedings for recovery of debt  by  a  Bank  or
Financial Institution? =
In view of above, the Registry is directed to place the  papers  before  the
Hon'ble Chief Justice of India for taking appropriate action  in  accordance
with law.
2014 - Sept.Month - http://judis.nic.in/supremecourt/filename=41930          
                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL Nos.8973-8973 OF 2014
      (Arising out of Special Leave Petition (C) Nos. 975-976 of 2012)




            Bank of Rajasthan Ltd.                                   ….
Appellant


                                   Versus

VCK Shares & Stock Broking Services Ltd.                …. Respondent







                                 1 JUDGMENT



S. A. BOBDE, J.


 Leave granted.
In these appeals, the question before us is whether  having  regard  to  the
Recovery of  Debts  due  to  Banks  and  Financial  Institutions  Act,  1993
[hereinafter referred to as ‘RDB Act’], a suit containing a  “counter-claim”
or claiming a “set-off” filed by a debtor can be heard and tried before  the
Debt Recovery Tribunal (hereinafter referred to as ‘DRT’) under the RDB  Act
or must be tried by a Civil Court alone.
The appellant – Bank filed an application for recovery under Section  19  of
the  RDB  Act  before  the  DRT  for  a  recovery  certificate  against  the
respondent  for  Rs.  8,62,41,973.36/-.   Though  the   respondent   entered
appearance before the DRT, it filed Civil Suit No. 77  of  1998  before  the
Calcutta High Court against the appellant claiming  a  decree  for  sale  of
pledged shares and payment of sale proceeds to the  respondent.   After  the
appellant sold pledged shares for a total  sum  of  Rs.  5,77,68,000/-,  the
respondent filed  Civil  Suit  No.  129  of  1999  praying  inter  alia  for
following reliefs:
A declaration that sale of shares of BFL Software Ltd. was void;

A decree for return of pledged  shares  in  respect  of  overdraft  facility
account and in default to pay Rs. 48.95 crores; and

A declaration that no sum was payable by the respondent to the appellant  in
respect  of  Term  Loan  dated  27.07.1994  and  overdraft   Account   dated
19.09.1995 and that the appellant is not entitled to a decree for a  sum  of
Rs. 8,62,41,973.36 from the respondent.

The appellant filed an application in C.S. No. 129  of  1999  for  rejecting
the suit on the ground that the High Court did not have  jurisdiction  since
the subject matter was within the exclusive jurisdiction of  the  DRT.   The
Single Judge allowed that application and directed that the suits  be  taken
off from the file of the High Court.  The Division  Bench  stayed  operation
of the Order of the Single Judge.
Since  the  DRT  held  that  the  appellant’s  claim  for  Rs.
6,04,17,777.36 was satisfied, it directed inter alia  to  return  the  title
deeds of the pledged shares.  On the counter claim, the DRT  held  that  the
respondent was entitled to  recover  Rs.  6,88,187.49
from the appellant within 4 weeks.
The appellant’s petition under Article 227 of the  Constitution  before  the
High Court of Calcutta challenging the DRT order dismissing the  appellant’s
appeal against the DRT order was dismissed in default.   The Division  Bench
allowed the appeal filed by the respondent against the order of  the  Single
Judge taking off the suits from the file of the High Court.   This  Judgment
of the High Court is questioned in these appeals.
In United Bank of  India,  Calcutta  vs.  Abhijit  Tea  Co.  Pvt.  Ltd.  and
Others[1], a two-Judge Bench of this Court took the view  that  as  per  the
legislative scheme of the RDB Act, jurisdiction was  indeed  conferred  upon
the Tribunal to try “counter-claim” and “set-off” by Section 19 of  the  RDB
Act and that all such counter-claims and set-offs, including  a  cross  suit
filed independently should be tried by a Debt Recovery Tribunal.  The  Court
was considering a case where the borrower-company had filed  an  application
that suit filed by the Bank should  remain  on  the  Original  Side  of  the
Calcutta High Court.  That application was  allowed  by  the  Single  Judge.
Against this order the  Bank  had  preferred  the  Special  Leave  Petition.
Though the RDB Act had not come into force when the suit was  filed  by  the
Bank,  the  debtor-company  had  filed  the  application  and  resisted  the
transfer of the suit.  This Court took the view that the above pleas  raised
by the respondent-company are all inextricably  connected  with  the  amount
claimed by the Bank and therefore directed transfer of the suit.
In a later decision in Indian Bank vs. ABS Marine Products  (P)  Ltd.[2],  a
Bench of two Judges of this Court took the view  that  the  jurisdiction  of
the Civil Courts is not barred in regard to any suit  filed  by  a  borrower
against a bank for any relief.  That jurisdiction is barred only  in  regard
to applications by a bank or a financial institution  for  recovery  of  its
debt.  The Bench also held that though a ‘counter-claim’ and ‘set  off’  may
be made under sub-sections (6) and (11) of Section 19 of  the  DRB  Act,  no
jurisdiction is conferred on  the  Tribunal  to  try  independent  suits  or
proceedings initiated by borrowers.
It held that what is  provided  and  permitted  is  a  cross-action  by  the
respondent in a pending application filed by a bank.  It was held  that  the
borrower had the option to file a separate suit before the Civil  Court  and
the counter-claim before the Tribunal was not the  only  remedy.   Referring
to the earlier Judgment in Abhijit’s[3] case  (supra),  the  Bench  observed
that an independent suit can be deemed to be  a  counter-claim  and  can  be
transferred to the Tribunal only if the following conditions are satisfied:
The subject-matter of the  bank’s  suit,  and  the  suit  of  the  defendant
against the bank, is inextricably connected in the sense that  the  decision
in one would affect the decision in the other.

Both parties (the plaintiff in the suit  against  the  bank  and  the  bank)
should agree for the independent suit being considered  as  a  counter-claim
in the bank’s application before the Tribunal, so that  both  can  be  heard
and disposed of by the Tribunal.

In State Bank of India vs. Ranjan Chemicals  Ltd.  and  Another[4],  a  two-
Judge Bench considered the matter from the perspective  of  whether  it  was
just and proper to order a joint trial of two cases i.e. one before the  DRT
and another  before  the  Civil  Court.  The  two-Judge  Bench  referred  to
Abhijit’s[5] case  (supra)  and  observed  that  though  a  borrower-company
always had an option to sue the bank in a civil court, it does  not  in  any
manner affect the power  of  the  Court  to  order  a  joint  trial  of  the
applications.  There was no warrant of curtailing the power of the Court  to
order a joint trial by introducing a restriction that it can  be  done  only
if there was consent by both sides, though a claim in  an  independent  suit
could be considered as a claim for set-off and a  counter-claim  within  the
meaning of Section 19 of the RDB  Act.  In  such  an  eventuality  the  only
question was whether in the interest of justice, convenience of parties  and
avoidance of multiplicity, the suit should be transferred to the DRT  to  be
tried as a cross-suit. Thus the Bench leaving Ranjan Chemicals Case held  in
effect that the consent of the parties for transfer of the suit to  the  DRT
was not necessary, as held in the Indian Bank Case (supra).
In a subsequent decision of this Court by another two-Judge Bench  in  Nahar
Industrial  Enterprises  Limited  vs.  Hong  Kong   and   Shanghai   Banking
Corporation[6], the issue cropped up again.  The Court considered the  three
authorities referred to above  i.e.  United  Bank  of  India,  Calcutta  vs.
Abhijit Tea Co.  Pvt.  Ltd.  and  Others[7];  Indian  Bank  vs.  ABS  Marine
Products (P) Ltd.[8] and State Bank of India vs. Ranjan Chemicals  Ltd.  and
Another[9]. The two-Judge Bench in  this  case  i.e.  Nahar’s  case  (supra)
observed that in  the  Indian  Bank’s  case,  the  Court  had  come  to  the
conclusion that the respective claims of the parties were  not  inextricably
connected and therefore the transfer of a suit to the Tribunal can  only  be
on the basis of the consent of the parties.   The Bench in Indian Bank  case
had held that the claims can  be  transferred  only  if  the  following  two
conditions exists:
Inextricable connection of the subject matter of the two proceedings; and
The agreement of both parties that the suit should  be  transferred  to  the
Tribunal.
It further directed that the Bench in Ranjan Chemicals[10]  case  was  bound
by the decision in the Indian Bank Case[11] being a co-ordinate  Bench,  and
therefore, could not have taken a contrary view by holding  that  the  Court
can consider a suit to be a  claim  of  ‘set-off’  and  transferred  to  the
Tribunal for being tried jointly with the application filed by the  bank  as
a cross-suit and that too without the consent of parties.  The  Bench,  vide
para 60, held as under:
“We are in agreement with all the above observations of this Court.   Ranjan
Chemicals[12] was bound by the decision rendered in Indian Bank[13] being  a
coordinate Bench.  It could not have taken a contrary view.”
Though having  so  observed,  the  Bench  apparently  did  not  consider  it
appropriate to have the matter decided by a larger Bench.  It was held  that
if all suits whether  inextricably  connected  with  the  application  filed
before the DRT by the  Bank  are  transferred,  the  same  would  amount  to
ousting the jurisdiction of the civil court indirectly and  consent  of  the
plaintiff is necessary for transferring  the  suits.   This  finding  is  in
consonance with the observation of the Court in the Indian  Bank’s  Case[14]
but  is  at  variance  with  the  Judgment  in  Ranjan  Chemicals[15]  case.
According to the last judgment i.e. Nahar’s  case[16],  the  Bench  deciding
Ranjan Chemicals case could not have taken a contrary view but was bound  by
the decision rendered in the  Indian  Bank  case.   Many  other  aspects  of
variance and consonance have been pointed out to us but we  have  not  dealt
with them in view of the one aspect alone, which has been highlighted.
Mr. Shyam Divan, learned senior counsel  appearing for the appellant  relied
upon the decision of this Court in Jit  Ram  v.  State  of  Haryana[17]  and
Union of India v. Godfrey Philips India Ltd.[18],  where  in  paragraph  12,
this Court observed as follows:
“………..We find it difficult to understand how a Bench of two  Judges  in  Jit
Ram case could possibly overturn or disagree with what was said  by  another
Bench of two Judges in Motilal Sugar Mills case[19]. If  the  Bench  of  two
Judges in Jit Ram case found themselves unable to agree with  the  law  laid
down in Motilal Sugar Mills case, they could have referred Jit Ram  case  to
a larger Bench, but we do not think it was right on their  part  to  express
their disagreement with the enunciation of the law by a coordinate Bench  of
the same Court in Motilal Sugar Mills. We  have  carefully  considered  both
the decisions in Motilal Sugar Mills case  and  Jit  Ram  case  and  we  are
clearly of the view that what has been laid  down  in  Motilal  Sugar  Mills
case represents the correct law in regard  to  the  doctrine  of  promissory
estoppel and we express our disagreement with the observations  in  Jit  Ram
case to the extent that they conflict with  the  statement  of  the  law  in
Motilal Sugar Mills case and introduce reservations cutting  down  the  full
width and amplitude of the propositions of law laid down in that case.”

Shri Divan submitted that the Bench deciding Ranjan Chemical’s Case[20]  had
decided at variance with the Judgment in Indian Bank  case[21].   They  were
Benches of coordinate strength and the latter ought  to  have  referred  the
matter to a larger Bench instead of taking a  contrary  view.   The  learned
senior counsel also pointed out that this, in fact is the exact  observation
of the Bench in Nahar’s case[22] which did not also consider it  appropriate
to refer the issues to a larger Bench.
Mr. Jaideep Gupta, learned  senior  counsel  appearing  for  the  respondent
submitted that the matter  does  not  call  for  a  reference  as  there  is
complete consistency in the views of the Court in Indian Bank  case  (supra)
and Nahar case (supra) since both the judgments have  taken  the  view  that
the jurisdiction of the civil courts has not been ousted and  a  suit  filed
before the civil court can be transferred to the DRT only with  the  consent
of both parties.  According to the learned counsel, Nahar’s case (supra)  is
the last word on the point and it must be taken  to  lay  down  the  correct
law, and in any case the law which is binding.
It is not possible to accede to  the  submissions  made  on  behalf  of  the
respondent as pointed out above.  There is a difference of  opinion  between
several Benches of this Court on the issue.  This  is  likely  to  create  a
doubt as to the true position in law, hence we consider  it  appropriate  to
refer the following questions of law to a larger Bench:
Whether an independent suit filed by a borrower against a Bank or  Financial
Institution, which  has  applied  for  recovery  of  its  loan  against  the
plaintiff under the DRB Act, is liable to be  transferred  and  tried  along
with the application under the RDB Act by the DRT?
If the answer is in the affirmative, can  such  transfer  be  ordered  by  a
court only with the consent of the plaintiff?
Is the jurisdiction of a Civil Court to try  a  suit  filed  by  a  borrower
against a Bank or Financial Institution ousted by virtue of  the  scheme  of
the RDB Act in relation to proceedings for recovery of debt  by  a  Bank  or
Financial Institution?
At this stage, Shri Diwan, learned senior counsel for the  appellant  prayed
for stay of further proceedings in the two suits being Civil Suit No. 77  of
1998 and Civil Suit No. 129  of  1999,  both  titled  “VCK  Shares  &  Stock
Broking Services Ltd.  Vs. Bank of Rajasthan” pending before the High  Court
of Calcutta.  The suits are apparently pending since the years 1998  &  1999
and due to various proceedings, which have been taken out  by  the  parties,
have virtually remained stationary.  We are informed that the suits  are  at
the stage of amendment of the pleadings, which have not  been  carried  out.
Suffice it to say that there is virtually no progress in the suits and  much
progress is not likely to  take  place  for  a  long  time.   Moreover,  the
respondent – plaintiff has made a monetary claim, the satisfaction of  which
can be appropriately ensured by  any  order  which  may  be  passed  in  the
proceedings.  We thus see no reason  to  direct  stay  of  the  suits.   The
interim relief prayed for the same is rejected.
In view of above, the Registry is directed to place the  papers  before  the
Hon'ble Chief Justice of India for taking appropriate action  in  accordance
with law.


                                                   ................……………….J.
                                                                     [RANJAN
GOGOI]


                                                          ……....……….………………J.
                                                             [S.A. BOBDE]

New Delhi,
September 17, 2014

-----------------------
[1]
      [2] (2000) 7 SCC 357
[3]
      [4] (2006) 5 SCC 72
[5]
      [6] (2000) 7 SCC 357
[7]
      [8] (2007) 1 SCC 97
[9]
      [10] (2000) 7 SCC 357
[11]
      [12]  (2009) 8 SCC 646
[13]
      [14] (2000) 7 SCC 357
[15]
      [16] (2006) 5 SCC 72
[17]
      [18] (2007) 1 SCC 97
[19]
      [20] (2007) 1 SCC 97
[21]
      [22] (2006) 5 SCC 72
[23]
      [24] (2007) 1 SCC 97
[25]
      [26] (2006) 5 SCC 72
[27]
      [28] (2006) 5 SCC 72
[29]
      [30] (2007) 1 SCC 97
[31]
      [32] (2009) 8 SCC 646
[33]
      [34]  (1981) 1 SCC 11
[35]
      [36] (1985) 4 SCC 369
[37]
      [38] (1979) 2 SCC 409
[39]
      [40] (2007) 1 SCC 97
[41]
      [42] (2006) 5 SCC 72
[43]
      [44] (2009) 8 SCC 646

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