Gujarat High Court
Prime Cottex Pvt Ltd vs Bank Of Baroda on 18 December, 2019
Author: J. B. Pardiwala
Bench: J.B.Pardiwala
C/FA/5349/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 5349 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI
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1 Whether Reporters of Local Papers may be allowed to YES
see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy of the NO
judgment ?
4 Whether this case involves a substantial question of law NO
as to the interpretation of the Constitution of India or any
order made thereunder ?
5 Circulate this judgment in the subordinate judiciary.
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PRIME COTTEX PVT LTD
Versus
BANK OF BARODA
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Appearance:
ADITYA A GUPTA(7875) for the Appellant(s) No. 1
MOHIT A GUPTA(8967) for the Appellant(s) No. 1
BHASKAR SHARMA(9209) for the Defendant(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
and
HONOURABLE MR.JUSTICE VIRESHKUMAR B. MAYANI
Date : 18/12/2019
ORAL JUDGMENT
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C/FA/5349/2019 JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA)
1. This First Appeal under Section13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 [For short "The Act, 2015"] is at the instance of the original plaintiff and is directed against the judgment and decree passed by the Commercial Court, Ahmedabad dated 04/07/2018 below Exh.22, in the Commercial Suit No.10 of 2018 instituted by the appellant herein.
2. The application Exh.22 came to be filed by the respondent - Bank under the provisions of Order VII Rule 11 of the Code of Civil Procedure, 1908 [for short "The CPC"] for rejection of the plaint on the ground that the suit is barred by the provisions of the Recovery and Debts and Bankruptcy Act, 1993 [for short "The Act, 1993"]. The application Exh.22 came to be allowed by the Commercial Court and the plaint has been ordered to be rejected.
3. Being dissatisfied with the order passed by the Commercial Court rejecting the plaint, the appellant - original plaintiff is here before the Court with the present appeal.
4. As this litigation has something to do with the issue whether the Commercial Court could have rejected the plaint on the ground that the suit is not maintainable, we must first look into the Civil Suit instituted by the appellant herein against the bank. The appellant herein instituted Commercial Suit No.10 of 2018 before the Commercial Court, City Civil Court at Ahmedabad praying for the following reliefs: 29(A) be pleased to hold that the plaintiff stands discharged as a corporate guarantor as per the terms of the sanction letter dated 13.03.2015 and in view of the performance of the contract by the Page 2 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT plaintiff.
(B) Be pleased to direct the defendant to perform its part of the contract as the plaintiff already performed its part of the contract and accordingly, the defendant must take or cause to take all necessary actions, deeds and signatures in this regard in the interest of justice.
(C) Be pleased to issue a mandatory injunction directing the defendant to take all necessary steps to remove its charge from the Registrar of Companies and issue necessary NoDue/No Claim Certificate to the plaintiff and appoint court commissioner, if found necessary for the purpose of removing the charge of the defendant bank from the record of the Registrar of Companies, Ahmedabad in the interest of justice.
(D) Be pleased to award damages of Rs.20,00,00,000/ along with interest of 12% per annum from the date of passing of the decree till final realization in favour of the plaintiff for breach of the terms of sanction letter dated 13.03.2015 committed by the defendant in the interest of justice.
(E) Be pleased to pass such other and further orders as deemed fit in the interest of justice.
5. The other averments made in the plaint are as under: 5.1 The plaintiff is a company registered under the Indian Companies Act, 1956 having its registered office address at the address mentioned in the cause title hereinabove. The respondent is a banking company under the Banking Regulation Act, 1949 having one of its branch offices at the address provided in the cause title of the present suit.
5.2 The plaintiff states that it is engaged in the business of the Cotton Ginning and Pressing and presently employs close to 50 employees.
5.3 The defendant is a nationalized bank and is engaged in the business of banking as per the provisions of the Banking Regulation Act, 1949.
5.4 The plaintiff is constrained to file the present suit against the Page 3 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT defendant as the defendant inspite of agreeing to discharge the plaintiff as per the sanction letter dated 13/03/2015 invoked the corporate guarantee and is enforcing the same. The brief facts giving rise to cause of action arising to file the present suit is that the bank agreed to discharge the plaintiff from the corporate guarantee on the condition that the plaintiff give in security two additional properties which were agreed to. The plaintiff performed its part of the agreement and once the plaintiff performed its part of the contract, the defendant failed to perform its part of the contract.
5.5 The plaintiff states that a company by the name of M/s ABC Cotspin Pvt. Ltd (hereinafter referred to as "ABC Cotspin") was desirous of availing loan from the defendant bank for the business purposes and therefore, approached by the defendant bank for the purpose of availing the credit facilities. That it appears that the following credit facilities were sanctioned by the defendant bank in favour of ABC Cotspin vide sanction letter dated 19.11.2012 and additional sanction letter dated 14.03.2013:
Credit Facilities Amount Packing Credit cum FBP/FBD under L/C Sub 34,00,00,000/ limit Packing Credit (15,00,000/) BP/BD/FBD (under L/C outside MPBF) Rs.25,00,00,000/ Notional CEL (being 5% of credit exposure Rs.3,00,00,000/ limit of Rs.59 crores) FBP/FBD under L/C [sight/usance upto 90 75,00,00,000/ days] (outside MPBF) Total Rs.137,00,00,000/ 5.6 The plaintiff states that a corporate guarantee dated 16.08.2013 of Rs.75 Crores was executed by the plaintiff in favour of the defendant bank Page 4 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT in order to guarantee the loan amount sanctioned to M/s ABC Cotspin.
5.7 That further, it appears that since the aggregate credit facilities were amounting to Rs.137 Crores, a corporate guarantee dated 07.11.2013 was executed by the plaintiff in favour of the defendant bank.
5.8 It appears that subsequently credit facilities of Rs.137 Crores were reveiwed and increased to aggregate credit limit of Rs.487 Crores vide sanction letter dated 25.02.2014 as stated herein under: Credit Facilities Amount Packing Credit cum FBP/FBD under L/C Sub 34,00,00,000/ limit Packing Credit (15,00,000/) BP/BD/FBD (under L/C outside MPBF) Rs.25,00,00,000/ Notional CEL (being 5% of credit exposure Rs.3,00,00,000/ limit of Rs.59 crores) FBP/FBD under L/C [sight/usance upto 90 Rs.425,00,00,000/ days] (outside MPBF) Total Rs.487,00,00,000/ 5.9 The plaintiff states that in order to secure the aforesaid facilities, a corporate guarantee dated 28.02.2014 of Rs.350 Crores was executed in favour of the defendant bank by the plaintiff.
5.10 The plaintiff states that it wanted to get discharged from the aforesaid liability and therefore, approached the defendant bank to release it from its liability in respect of the amount of M/s. ABC Cotspin. That therefore, vide sanction letter dated 13.03.2015 which recorded the terms agreed between the parties, it was stated that on mortgage of two fresh properties and release of two mortgage properties described therein, the corporate guarantee of the plaintiff will be released.
Page 5 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020C/FA/5349/2019 JUDGMENT 5.11 That the following mortgages were proposed to be released and the following mortgages were to be done under the sanction letter dated 13.03.2015 as under: Properties proposed to be released:
A. Land and building of Ginning Factory located at Gut No.1, Survey No.102, Village Badnapur, JalnaAurangabad Highway, Maharashtra in the name of Plaintiff.
B. Factory land and building and plant and machinery located survey No.18/2, village Lathidad, Tal. Botad,Dist. Bhavnagar in the name of ABC Cotspin.
New Collateral Securities Added:
A. Office situated at 13th floor, Regent Chambers, Nariman Point, Mumbai in the name of ABC Cotspin.
B. Flat situated at C404, Prathna Residency, Nr. Vandematra Cross Road, Gota, Ahmedabad in the name of Mr. Ashish S. Jobanputra.
5.12 That upon release of mortgage of the two properties described herein above and the mortgage of new collateral securities as described herein above, the corporate guarantee of the plaintiff would stand to be released as quoted herein below:
"2. The Corporate Guarantee of M/s. Prime Cotex Pvt. Ltd. will be released after release of land and building of Ginning Factory located at Gut No.1 Survey No.102, Village Badnapur, Jalna Aurangabad Highway, Maharashtra in the name of Prime Cottex Pvt. Ltd. and creation of charge by way of Equitable Mortgage on fresh properties."
5.13 That the mortgage of new collateral properties as described herein Page 6 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT above was executed and done in favour of the defendant on 05/06.05.2015.
5.14 That on 07.05.2015 and 08.05.2015, the mortgages of the two properties including the property of the plaintiff was released and all title documents in respect thereof were returned to the plaintiff.
5.15 That, it is extremely clear that all the relevant terms and conditions precedent to discharge of corporate guarantee as per sanction letter dated 13.03.2015 were performed and therefore, the defendant No.5 M/s. Prime Cottex Pvt. Ltd was discharged as per the terms and conditions of the sanction letter dated 13.03.2015.
5.16 However, in breach of the terms of sanction, the defendant bank filed an Original Application for recovery against the present plaintiff before the Debts Recovery Tribunal. The plaintiff states that it was wrongly made a party to the Original Application before the Debts Recovery Tribunal1 at Ahmedabad. That the plaintiff has claimed to be discharged before the Hon'ble tribunal in its written statement.
5.17 The plaintiff states that in breach of the terms of the sanction letter dated 13.03.2015, the defendant has even failed to remove its charge from the ROC which is still reflecting in the record of the Registrar of Companies.
That the plaintiff states that it has suffered huge damages due to such neglect and breach of contract by the defendant. The plaintiff has also suffered huge losses and loss of reputation in as much as the plaintiff has been rendered incapacitated in taking any financial assistance from any other bank or financial institution because nonrelease of charge in ROC records has created a situation where the plaintiff cannot charge the released properties in favour of any other bank or financial institution. Such inability has caused huge losses as the plaintiff has lost all business Page 7 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT opportunities to make substantial profits on account of business which could have been increased. Similarly, it has also suffered huge loss of reputation for its inability to stay in the market for want of finance.
5.18 The plaintiff states that the defendant malafidely and in order to harass the plaintiff has implicated in the case filed by it against M/s. ABC Cotspin. Such false implication in the case and looking at the huge liability of ABC Cotspin, many customers have shied away in dealing with the plaintiff which has resultantly caused further loss of business and as well as loss reputation.
5.19 That further due to nonremoval of charge from the ROC, no other bank was ready and willing to provide loan to the plaintiff for expansion of operations and therefore, the plaintiff has not been able to expand his business due to the breach of contract by the defendant. On the contrary, the plaintiff has lost a lot of business due to the defaults of the defendant bank and therefore, the defendant is liable to compensate the plaintiff for the loss caused to it.
5.20 The plaintiff has quantified the damages at Rs.20 Crores on account of loss of business as well as loss of reputation. It may be stated that there is no formula to calculate damages by any exactitude, however, looking at the turnover of the plaintiff and capital invested by it, it can safely be concluded that it has suffered loss of minimum of Rs.20 Crores.
5.21 That after performing the conditions precedent to the release of corporate guarantee, the defendant was requested several times by the plaintiff to clear its charge from the ROC but to no avail.
5.22 The plaintiff states that in view of the above facts and circumstances, and material on record, the plaintiff is entitled to the damages as claimed Page 8 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT by it and further the defendant bank is required to be directed by permanent injunction to forthwith cause removal of charge from ROC records. The plaintiff is also entitled to receive confirmation from defendant as to discharge of its corporate guarantee.
5.23 The plaintiff states that it has an exfacie case and balance of convenience is in favour of the plaintiff and hence, the plaintiff is entitled to the reliefs as prayed for by it.
5.24 The plaintiff states that the cause of action has arisen within the jurisdiction of this Hon'ble Court in as much as the sanction letter was issued, signed and received by the plaintiff in Ahmedabad, the loan agreement was executed in Ahmedabad, the loan amount was disturbed within the district of Ahmedabad and the defendant resides and carry out business for gain within the territory of Ahmedabad. That the cause of action arose when the sanction letter dated 13.03.2015 was issued by the defendant bank, when as per the terms of the sanction letter, the mortgage of new collateral properties was done on 05/06.05.2015 and thereafter, the two mortgage properties were released on 07/08.05.2015. That therefore, the present suit is filed within the period of limitation of three years.
6. Thus, it appears that the appellant herein prayed for a declaration relying upon the sanction letter dated 13th March, 2015. In other words, the appellant is trying to enforce the performance of the contract in terms of the sanction letter dated 13th March, 2015. The above takes us to the sanction letter dated 13th March, 2015. The same reads thus: Bank OF Baroda BOB/MIDAHM/2015/59 13.03.2015 M/s. ABC COTSPIN PRIVATE LIMITED C/4, Nikumbh Complex, Nr. Reliance House, Page 9 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT Off: C.G. Road, Ellisbridge, Ahmedabad380 006 Dear Sir, Re: Sanction/ review of Credit Facilities We are pleased to inform you that the following credit facilities have been sanctioned/ reviewed by the Bank for a period of 12months i.e. upto 22.02.2016 on the term and conditions stated in AnnexureD. (Rs. in crores) Facilities Existing Propose Limits d limits Packing Credit Cum FBP/FBD (usance upto 90days 34 34 under L/C BP/BD/FBP/FBD (Usance upto 90days) (Under 25 25 L/C & Outside MPBF) FBP/FBD under LC [usance upto 90 days - outside 425 425 MPBF] Total 484 484 Notional CEL (being 5% of credit exposure limit of 3 3 Rs.59 crores) NFB - Total 3 3 Total 487 487 Additional Terms and Conditions:
1. To permit substitution of 2 existing collateral security (valued at Rs.14.72 Crores as accepted in last sanction) charged to us with fresh collaterals having equivilen market value as under.
Properties proposed to release:
Land and building of Ginning factory located at Gut No.1, Survey No.102, Village Badnapur, JalnaAurangabad Highway, Maharashtra in the name of Prime Cottex Pvt. Ltd.
Factory land and building & plant and machinery located Survey No.18/2, Village: Lathidad, Tal. Botad, Dist. Bhavnagar in the name of company.
New collateral securities proposed:
Office situated at 13th floor, Regent Chambers, Nariman Point, Mumbai in the name of Company.
Flat situated at C404, Prathna Residency, Nr. Vandematram Cross Road, Gota, Ahmedabad in the name of Mr. Ashish S Jobanputra.
Please note that fresh valuation of proposed/ new security to be done Page 10 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT through bank's approved valuer and any shortfall in value of proposed securities compared to the value of existing securities to be provided by way of additional collateral security or 100% cash margin. Total value of collateral securities should not be less than Rs.21.72 Crores (value of existing collateral security accepted in last sanction). Further, security will be released only after creation of charge on fresh properties.
2. The Corporate guarantee of M/s. Prime Cotex Pvt. Ltd will be released after release of Land and building of Ginning factory located at Gut No.1, Survey No.102, Village Badnapur, JalnaAurangabad Highway, Maharashtra in the name of Prime Cottex Pvt. Ltd. and creation of charge by way of Equitable Mortgage on fresh properties.
You are requested to confirm to us that the term and conditions mentioned in the Annexure "D" enclosed and terms and conditions mentioned above are acceptable to you.
Please note that the said terms and conditions are subject to change at any time at the Bank's discretion.
The Bank reserves the right to discontinue the facilities/advance/loans and to withhold any disbursement without giving any notice in case of non compliance/ breach of any of the terms and conditions stipulated herein and from time to time as also in the relevant documents or any particulars/ information furnished to us/ Bank found to be incorrect or in case of any developments or situations wherein, in the opinion of the Bank, its interest will be/is likely to be prejudicially affected by such conditions or disbursements.
Kindly note that processing charges & TEV study charges as per sanction terms will be recovered to the debit of your account separately and will be advised to you.
Please return the enclosed copy of the letter duly signed in token of having accepted the above terms and conditions.
Yours faithfully, sd/ (Ashutosh Mehta) Deputy General Manager We accept the terms and conditions stated in this letter and annexure to this letter.
ABC Cotspin Pvt. Ltd.
For ABC COTSPIN PVT. LTD.
Sd/ sd/ Directors Guarantors. Page 11 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT
7. We also take notice of the fact that the bank instituted Original Application No.605 of 2015 before the Debt Recovery TribunalI, Ahmedabad against the principal borrower and the guarantor, which includes the appellant herein for recovery of Rs.394,15,72611=29ps. only with interest at the rate of 19% per annum. The original application instituted by the bank came to be allowed. The final order passed by the Debt Recovery Tribunal reads thus:
(i) That the Original Application No.605 of 2015 initiated by the Applicant Bank for issuance of Recovery Certificate to the tune of Rs.394,15,72,611.29ps (Rupees Three Hundred Ninety Four Crores Fifteen Lakhs Seventy Two Thousand Six Hundred Eleven and Twenty Nine Paise Only) together with interest and costs hereby succeeds and is allowed against the defendant no.1 to 6 jointly and severally. The defendants are directed to pay the dues within a period of two months from the date of judgment, failing which the Applicant Bank will be entitled to sell the hypothecated movables, mortgaged properties personal movables and immovable properties of the defendants. The Applicant Bank is further entitled to pendentelite and future interest on the amount due @16.65% per annum with monthly rests from date of filing of O.A. Till the full recovery is made from the defendants and 2% penal interest simple from the date of Original Application till realization.
(ii) The liabilities of defendant no.1 to 6 are joint and several, as defendant no.1 as borrower and defendant no.2, 4 & 5 stood as guarantors for due repayment of loan and they are bound by the guarantee agreements executed by them and defendant no.3 & 6 are liable to pay the dues of the bank being director and additional director of defendant no.1 due to reasons stated in the body of the judgment and all the defendants are jointly and severally liable and their personal assets/ properties can also be attached and can be put to sale for recovery of the dues. This order would not have any bearings on the merits of the pending investigation before CBI and that Agency would proceed against the culprits/ accused persons in accordance with law.
(iii) However, if sale under SARFAESI Act remains intact, the borrowers will be entitled to the benefit of Rs.13,45,00,000/ on reducing balance system and if sale of the properties or any property Page 12 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT are/is set aside by any competent court, in accordance with law, in that event, borrowers will not be entitled to the amount of auction qua so quashed auction and bank would be entitled to proceed against the said mortgaged/ hypothecated assets afresh in accordance with law to recover its dues. However, bank would be able to proceed against other mortgaged properties in accordance with law.
(iv) Let a Recovery Certificate be issued with memo of cost immediately u/s.19(22) of The Recovery of Debts and Bankruptcy Act, 1993 together with the details of the properties, if any, by fixing on 02.08.2018 before learned R.O., DRT1, Ahmedabad.
(v) The defendant no.5 is hereby restrained by means of injunction from depleting, transferring, encumbering, alienating or in any way dealing with its properties/ assets without first paying the claim of the Applicant Bank and the bank is/will be at liberty to file an appropriate application before the Ld. Recovery Officer for attachment of movable and immovable personal properties of the defendant no.5 for recovery of the dues of the bank, even if the same was released. This injunction would not be observed against third party having bonafide transferee rights in their favour.
(vi) The defendants are hereby restrained by means of injunction from depleting, transferring, encumbering, alienating or in any way dealing with their properties/assets without first paying the claim of the Applicant Bank.
8. We would like to reproduce the relevant observations made by the Debt Recovery Tribunal, which are relevant for our purpose. The observations are as under:
24. I am of the opinion that the facts and circumstances of the present case are quite different, because in this case, the sanction dtd.13.03.2015 vide which Applicant Bank agreed to release properties and personal guarantee of defendant no.5 was conditional, whereas in the judgments quoted on behalf of defendant no.5, there was no such condition and further in this case, the bank although agreed to release the personal guarantee of defendant no.5, but till date bank has not released personal guarantee of defendant no.5 and owing to conditions put forth in the sanction itself, bank cannot be compelled to release personal guarantee of defendant no.5, as subsequently it has come out that defendant no.1 acted against the terms of sanction of loan. Further restructuring and sanction letter dtd:13.03.2015 has no Page 13 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT independent existence. In fact that was a rehabilitation of default already committed and cannot be treated as denote contract or fresh arrangement at the back of guarantor. It was only a sanction to the proposal of defendants which was not fully acted upon. No fresh facilities were actually disbursed on sanction dtd.13.03.2015, Further being guarantor, defendant no.5 cannot be absolved from the liabilities in respect of loan transactions/ availment made during continuance and subsistence of its corporate guarantee.
9. Thus, the aforesaid observations of the Debt Recovery Tribunal would indicate that the bank agreed to release the personal guarantee of the appellant herein, but the same has not been released as the original defendant no.1 [principal borrower] acted against the terms of sanction of loan.
10. It is the case of the appellant herein that he has discharged all his liabilities and therefore, the bank was obliged to discharge him of all the liabilities incurred in the loan transaction. The appellant is seeking to enforce the contract in the form of sanction letter and for that purpose, the appellant instituted the Commercial Suit No.10 of 2018. Upon such suit being instituted by the appellant, the bank preferred an application Exh.22 and that the plaint be rejected. In the application preferred by the Bank, Exh.22, the following averments have been made.
6. The provisions under Recovery of Debts and Bankruptcy Act (DRT) are so clear and categorical that there is no scope for the borrower to file a suit independently in a situation when the recovery application at the DRT has already been filed by the Banks or Financial Institutions against the said defendant/borrower. The Defendant herein (Bank of Baroda) reproduces Order VII Rule 11(d) of CPC and Sec.17(1), Sec.18 and Sec.19 (6 to 11) of the Recovery of Debts and Bankruptcy Act which are of direct relevance to the present proceedings: Quote:
Order 7, Rule 11 of CPC
11. Rejection of plaint - The plaint shall be rejected in the Page 14 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT following cases : [d] Where the suit appears from the statement in the plaint to be barred by any law;
Sec.17[1], Sec.18 and Sec.19[6 to 11] of the Recovery of Debts and Bankruptcy Act.
17. Jurisdiction, powers and authority of Tribunal - [1] A tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
18. Bar of jurisdiction - On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority [except the Supreme Court, and a High Court exercising Jurisdiction under Articles 226 and 227 of the Constitution] in relation to the matters specified in Section 17.
19. Application to the Tribunal -
[6] Where the defendant claims to setoff against the applicant's demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement containing the particulars of the debt sought to be setoff.
[7] The written statement shall have the same effect as a plaint in a cross suit so as to enable the Tribunal to pass a final order in respect both of the original claim and of the setoff.
[8] A defendant in an application may, in addition to his right of pleading a setoff under subsection(6), set up, by way of counter claim against the claim of the applicant, any right or claim in respect of a cause of action accruing to the defendant against the applicant either before or after the filing of the application but before the defendant has delivered his defense or before the time limited for delivering his defense has expired, whether such counter claim is in the nature of a claim for damages or not.
[9] a counter claim under subsection (8) shall have the same effect as a crosssuit so as to enable the tribunal to pass a final order on the same application, both on the original claim and on the counterclaim.
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7. The defendant further submits that this defendant herein had granted financial assistance to M/s. ABC Cotspin Pvt. Ltd. of Rs.487.00 Crores and the documents to that effect were executed in the year 2013.
8. In view of the fact that O.A. No.605 of 2015 has already been filed by Defendant dated 01/12/2015, the plaintiffs are not legally entitled to file independent suit against Defendant Bank after filing of the above referred Original Application. It is only by way of counter claim against the claim of Defendant as applicant before DRT that the plaintiffs could have approached Hon'ble DRT in the above referred proceedings in case they felt genuinely aggrieved by against the Original Application filed by the Bank for recovery of its dues.
11. The application Exh.22 came to be adjudicated by the Presiding Officer of the Commercial Court and vide judgment and decree dated 04/07/2018, the same came to be allowed. While allowing the application Exh.22, the Commercial Court observed as under:
9. It is further the case of the plaintiff that upon release of mortgage of above two properties and mortgage of new collateral securities, the corporate guarantee of M/s. Prime Cotex Pvt. Limited would be released. Thereafter on 7.5.2015 and 8.5.2015, the mortgage of the two properties including the properties of plaintiff was released and all title documents in respect thereof were returned to the plaintiff. The plaintiff has further submitted that it had performed its part regarding discharge of corporate guarantee as per sanction letter dated 13.3.2015 and plaintiff was discharged as per the terms and conditions of the sanction letter. The plaintiff has further submitted that however, in breach of terms of the condition, the defendant bank had filed Original Application before Debt Recovery Tribunal for recovery against the present plaintiff and wrongly made him party. The plaintiff has further submitted that the defendant even failed to remove its charge from the ROC which is still reflecting in the record of the ROC and plaintiff suffered huge losses and loss of reputation and plaintiff has lost all business opportunities to make substantial profit. The plaintiff has further submitted that it requested the defendant several times to release corporate guarantee but the defendant had not cared to do that. The plaintiff has submitted that in view of the above facts and circumstances and material on record, the plaintiff is constrained to file present suit.
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10. In light of the aforesaid facts of the case of the plaintiff, as far as the first submission made by the defendant that the suit is barred by section 19(6) and 19(11) of Debts and Bankruptcy Act, 1993 is concerned, Section 17 of the Act bar the jurisdiction of the Civil Court in respect of the matters in which Debt Recovery Tribunal is competent to take cognizance. In the present case, it is not in dispute that the defendant herein has instituted the Original Application before Debt Recovery Tribunal and the same was numbered as Original Application No.605/2015. In the said application, the present plaintiff was impleaded as defendant no.5. In the said application, the defendant No.5 has filed the counter affidavit at Exh.41 before Debt Recovery Tribunal wherein the plea regarding the bank guarantee was taken. The plea regarding the guarantee was dealt by the Ld. Tribunal at page Nos.41, 42 and 43 of the order and finally the Debt Recovery Tribunal came to the conclusion that defendant No.5 has stood as the guarantor. In the operative portion of the order, the Debt Recovery Tribunal has passed the order against defendant No.5 for recovery of the dues by sale of the properties. The fact is not in dispute that in the present suit, the entire controversy revolves around the issue of bank guarantee. Therefore, the issue of guarantee has already been decided by the Debt Recovery Tribunal and same cannot be permitted again to be agitated before this Court. Since, Debt Recovery Tribunal has taken cognizance, therefore, the jurisdiction of this court is barred under Section 17 of the Debts and Bankruptcy Act, 1993. Thus, in my considered view, the jurisdiction of civil court is barred.
11. As far as submission of the Ld. Counsel for the plaintiff that the issue is pending before the Hon'ble Supreme Court for adjudication is concerned, as on today the civil court has no jurisdiction in respect of the matter in which the Debt Recovery Tribunal has jurisdiction by virtue of the section 17 of the Act. In the case of Jagdishsing V/s/ Heeralal and others in C.A. No.9771/2013, decided on 30.10.2013, the Hon'ble Supreme Court has held that civil court has not jurisdiction to entertain the suit in view of section 34 of Act.
12. I have considered the judgments of Hon'ble Supreme Court in the case of Bank of Rajashthan Limited v/s. VCK Share & Stock Broking Services Limited (supra) in which the Hon'ble Supreme Court has held that the borrower has two options i.e. either to raise counter claim before Debt Recovery Tribunal or institute the suit before Civil Court but it does not say that the borrower can exercise both the options simultaneously. In the present case, the issues of guarantee has already been agitated and the main controversy is regarding the bank guarantee has already been decided by Debt Recovery Tribunal. Therefore, once the issue has been decided by the Debt Recovery Tribunal, plaintiff cannot be permitted to raise issue of bank guarantee Page 17 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT before Civil Court. Therefore, ratio of judgment is not applicable in the facts and circumstances of the present case.
13. I have also considered the ration of judgment, in the case of Cofex Exports Limited V/s. Canara Bank (supra). In para 38 of the judgment, the Hon'ble Delhi High Court has categorically held that issue heard and decided by the Tribunal shall cooperate as res judicata and shall bind the parties in the suit before the civil court by virtue of explanation VIII to S.11 of Civil Procedure Code. In the present case, the issue regarding bank guarantee has already been decided by the Debt Recovery Tribunal and if the plaintiff is aggrieved of the findings of the Debt Recovery Tribunal, the remedy is available in the law. This Court can not sit in appeal on the findings returned by the Tribunal on the issue of bank guarantee. Therefore, in my considered view, the present application preferred by the applicant deserves to be allowed. Accordingly, I pass following order.
ORDER Application below Exh.22 is hereby allowed. The plaint stands rejected under Order VII Rule 11 of Civil Procedure Code, 1908.
No order as to costs.
Pronounced in the open court today on 4th Day of July, 2018.
12. The plain reading of the impugned order passed by the Commercial Court rejecting the plaint would indicate that the plaint has been rejected substantially on the two grounds; (i) the suit instituted by the appellant is barred by virtue of Section17 of the Act, 1993 and (ii) the same is also barred by the principles of resjudicata.
SUBMISSIONS ON BEHALF OF THE APPELLANT:
13. Mr. Aditya Gupta, the learned counsel appearing for the appellant [original plaintiff] vehemently submitted that the Commercial Court committed a serious error in passing the impugned order rejecting the plaint. According to Mr. Gupta, the plaint could not have been rejected by applying the principles of resjudicata. He would submit that the Commercial Court committed an error in taking the view that the suit preferred by his client is barred by the provisions of Sections17 and 18 Page 18 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT respectively of the Act, 1993. He would submit that his client is a guarantor under the common law of contract as also in terms of the loan agreement, and has an independent right. He would submit that no form has been created in endorsement or enforcement of such right. According to him, the jurisdiction of a Civil Court is barred only in respect of the matters, which strictly come within the purview of the Section17 thereof and not beyond the same. He would submit that the Commercial Court definitely has the jurisdiction to adjudicate the suit preferred by his client. Mr. Gupta in support of his submission has placed strong reliance on the decision of the Supreme Court in the case of Nahar Industrial Enterprises Ltd. Vs. Hong Kong & Shanghai Banking Corporation reported in (2009) 8 SCC 646.
14. Mr. Gupta further submitted that Section9 of the Code of Civil Procedure provides that the Courts have the jurisdiction to try all suits of a civil nature except the suits of which their cognizance is either expressly or impliedly barred. He would submit that the plain reading of Sections17 and 18 respectively of the Act, 1993 would indicate that the Civil Court's jurisdiction is barred only in regard to the applications by a bank or financial institution for recovery of its debts. The jurisdiction of the Civil Court is not barred in regard to any suit filed by a borrower or guarantor or any other provisions of the bank in any relief. In support of such submission, the learned counsel has placed reliance on a decision of the Supreme Court in the case of Indian Bank Vs. ABS Marine Products (P) Ltd reported in (2006) 5 SCC 72.
15. Mr. Gupta vehemently submitted that the Commercial Court committed a serious error in applying the principles of resjudicata as embodied under Section11 of the CPC for the purpose of rejecting the plaint. He would submit by placing strong reliance on the decision of the Page 19 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT Supreme Court in the case of Kamala & Others Vs. K.T. Eshwara Sa and Others reported in (2008) 12 SCC 661 that the principles of res judicata, when attracted, would bar another suit in view of Section12 of the CPC. The question involving a mixed question of law and fact which may require not only examination of the plaint, but also, other evidence and the order passed in the earlier suit may be taken up either as a preliminary issue or at the final hearing, but, the said question cannot be determined at the stage of proceedings under Order VII Rule 11(d) of the CPC.
16. In the last, Mr. Gupta submitted that the Court committed a serious error in placing reliance on the decision of the Delhi High Court in the case of Cofex Exports Ltd. Vs. Canara Bank reported in AIR 1997 Delhi 355. According to Mr. Gupta, the ratio of this decision of the Delhi High Court is not applicable to the facts of the present case. In such circumstances referred to above, Mr. Gupta prays that there being merit in this appeal, the same be allowed and the impugned judgment and decree be quashed and set aside.
SUBMISSIONS ON BEHALF OF THE BANK:
17. Mr. Bhaskar Sharma, the learned counsel appearing for the bank has vehemently opposed this appeal. Mr. Sharma would submit that no error not to speak of any error of law could be said to have been committed by the Commercial Court in rejecting the plaint. According to Mr. Sharma, the Commercial Court is justified in rejecting the plaint on both the grounds i.e. the suit being barred by the provisions of the Act 1993 and also by applying the principles of resjudicata keeping in mind the adjudication at the end of the DRT in the original application filed by the bank. Mr. Sharma vehemently submitted that the suit instituted by the appellant herein is frivolous. Mr. Sharma would submit that the Page 20 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT attempt on the part of the appellant as a guarantor is to wriggle out of his liabilities as a guarantor and for such reason, unnecessarily the appellant is creating trouble for the bank by instituting frivolous proceedings. In such circumstances referred to above, Mr. Sharma prays that there being no merit in this appeal, the same be dismissed.
ANALYSIS:
18. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the Commercial Court committed any error in rejecting the plaint.
19. It is a settled position of law that an Order VII Rule 11(d) of the Code has limited application. It must be shown that the suit is barred under any law. Such a conclusion must be drawn from the averments made in the plaint. As observed by the Supreme Court in the case of Kamala & Others (Supra), the different clauses in Order VII Rule 11 should not be mixed up. Whereas, in a given case, an application for rejection of the plaint may be filed on more than one ground specified in various subclauses thereof, a clear finding to that effect may be arrived at. What would be relevant for invoking clause (d) of Order VII, Rule 11 of the Code is the averments made in the plaint. For that purpose, there cannot be any addition or subtraction. For the purpose of invoking Order VII, Rule 11(d) of the Code, no amount of evidence can be looked into. The defence of the defendant is of no significance. The issues on merit of the matter which may arise between the parties would not be within the realm of the court at that stage.
20. We are of the view that the entire approach of the Commercial Court in this regard could be termed as incorrect. The Commercial Court Page 21 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT has not taken the necessary pains to read the averments in the plaint. The Commercial Court has only gone by what the defendant - bank submitted. If the Court is of the view that the plaint is liable to be rejected being barred by any law, then it owes a duty to state in somany words in the order as regards the averments made in the plaint making the suit barred by any provisions of law. From the tenor of the impugned order, it appears that the Court below is of the view that it is not necessary to look into the averments made in the plaint because the cognizance of the factum of Original Application before the DRT was sufficient to hold that suit is barred.
PRINCIPLES OF RESJUDICATA:
21. Before proceeding to deal with the issue of resjudicata, it would be profitable to quote the provisions of Section11 of the CPC, which reads thus: Section 11. Res Judicata: No Court shall try any suit or issue in which the matter directly and, substantially, in issue has been directly and, substantially, in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been, subsequently, raised, and has been heard and finally decided by such Court.
Explanation I The expression "former suit" shall denote a suit which has been decided prior to the suit in question whether or not it was instituted prior thereto.
Explanation II For the purposes of this section, the competence of a Court shall be determined irrespective of any provisions as to a right of appeal from the decision of such Court.
Explanation III The matter above referred to must in the former suit have been alleged by one party and either denied or admitted, expressly or impliedly, by the other.
Explanation IV Any matter which might and ought to have been Page 22 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit.
Explanation V Any relief claimed in the plaint, which is not expressly granted by the decree, shall, for the purposes of this section, be deemed to have been refused.
Explanation VI Where persons litigate bona fide in respect of a public right or of a private right claimed in common for themselves and others, all persons interested in such right shall, for the purposes of this section, be deemed to claim under the persons so litigating.
[Explanation VII The provisions of this section shall apply to a proceeding for the execution of a decree and references in this section to any suit, issue or former suit shall be construed as references, respectively, to a proceeding for the execution of the decree, question arising in such proceeding and a former proceeding for the execution of that decree.
Explanation VIII An issue heard and finally decided by a Court of limited jurisdiction, competent to decide such issue, shall operate as res judicata in a subsequent suit, notwithstanding that such Court of limited jurisdiction was not competent to try such subsequent suit or the suit in which such issue has been subsequently raised.]
22. The principle of res judicata, as enshrined in the above provision, is based on the principle of equity, good conscience and justice. It would be inequitable, unfair and opposed to the principles of natural justice to adjudicate an issue raised in the later proceeding if such issue has been concluded in a former proceeding. It augments the principle of finality of the litigation.
23. In order to attract the provision of res judicata, there should not only be a sufficient pleading to that effect, but the plaint, the written statement, the issues involved in the earlier proceeding and the judgment of the earlier proceeding should be brought on record in accordance with the provision governing the field. (See: Md. Salie versus Md. Hanifa reported in MANU/SC/0510/1976 : AIR 1976 SC Page 23 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT 1569 and V. Rajeshwari versus T.C. Saravanabava reported in MANU/SC/1057/2003 : (2004) 1 SCC 551.)
24. In case of Ishwar Dutta Vs. Land Acquisition Collector reported in AIR 2005 SC 3156, it is held that the principle of res judicata was based on the principle of estoppels.
25. When a proceeding based on particular cause of action has attained finality, the principle of res judicata applies. There is no hesitation in our mind to hold that the principle of res judicata is a mixed question of fact and law. (See: Kamala versus K.T. Eshwara Sa reported in MANU/SC/7542/2008 : (2008) 12 SCC 661.)
26. In K.T. Eshwara Sa and Others [Supra] the Supreme Court observed as under:
21. Order VII, Rule 11(d) of the Code has limited application. It must be shown that the suit is barred under any law. Such a conclusion must be drawn from the averments made in the plaint. Different clauses in Order VII, Rule 11, in our opinion, should not be mixed up. Whereas in a given case, an application for rejection of the plaint may be filed on more than one ground specified in various sub clauses thereof, a clear finding to that effect must be arrived at. What would be relevant for invoking clause (d) of Order VII, Rule 11 of the Code is the averments made in the plaint. For that purpose, there cannot be any addition or subtraction. Absence of jurisdiction on the part of a court can be invoked at different stages and under different provisions of the Code. Order VII, Rule 11 of the Code is one, Order XIV, Rule 2 is another.
22. For the purpose of invoking Order VII, Rule 11(d) of the Code, no amount of evidence can be looked into. The issues on merit of the matter which may arise between the parties would not be within the realm of the court at that stage. All issues shall not be the subject matter of an order under the said provision.
23. The principles of res judicata, when attracted, would bar Page 24 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT another suit in view of Section 12 of the Code. The question involving a mixed question of law and fact which may require not only examination of the plaint but also other evidence and the order passed in the earlier suit may be taken up either as a preliminary issue or at the final hearing, but, the said question cannot be determined at that stage.
27. In the case of M/s. Kaushik Coop. Building Society Vs. N. Parvathamma reported in AIR 2017 SC 1962, the Apex Court has held and observed in paras6, 7 and 8 as under:
6. The main point revolves around the principles of resjudicata which is neither against public policy nor resintegra to civil procedure prevailing in our country. The doctrine of res judicata is a wholesome one which is applicable not merely to matters governed by the provisions of the Code of Civil Procedure but to all litigations, as was observed by A. Alagiriswami, J. in Bombay Gas Co. Vs. Jagannath Pandurang, (1975) 4 SCC 690 (para 11).
7. The question of resjudicata is not res integra to our judicial system. The rule of res judicata while founded on ancient precedent is dictated by a wisdom which is for all time and that the application of the rule by the Courts should be influenced by no technical considerations of form, but by matter of substance within the limits allowed by law:
Sheoparsan Singh Vs. Ramanandan Prasad Narayan Singh, AIR 1916 PC 78. Furthermore, it is well settled that the principle of res judicata is applied for the purpose of achieving finality in litigation as laid down by this Court in the case of Sri Bhavanarayanaswamivari Temple Vs. Vadapalli Venkata Bhavanarayana Charyulu, (1970) 1 SCC 673, relevant paragraph of which is quoted below:
"8. ... It was observed that the doctrine of res judicata is not confined to a decision in a suit but it applies to decisions in other proceedings as well. But how far a decision which is rendered in other proceedings will bind the parties depends upon other considerations one of which is whether that decision determines substantial rights of parties and the other is whether the parties are given adequate opportunities to establish the rights pleaded by them. The doctrine of res judicata is not confined to the limits prescribed in Section 11, Civil Procedure Code. The underlying principle of that doctrine is that there should be finality in litigation and that a person should not be vexed twice over in respect of the same matter.". (emphasis supplied)
8. To constitute a matter res judicata, as observed by this Court in Page 25 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT Syed Mohd. Salie Labbai Vs. Mohd. Hanifa, AIR 1976 SC 1569 :
(1976) 4 SCC 780, the following conditions must be proved: (1) that the litigating parties must be the same; (2) that the subjectmatter of the suit also must be identical; (3) that the matter must be finally decided between the parties; and (4) that the suit must be decided by a court of competent jurisdiction. In the case of Narayana Prabhu Venkateswara Prabhu Vs. Narayana Prabhu Krishna Prabhu, AIR 1977 SC 1268 : (1977) 2 SCC 181, it was observed by this Court:
"One of the tests in deciding whether the doctrine of res judicata applies to a particular case or not is to determine whether two inconsistent decrees will come into existence if it is not applied."
27.1 In the aforesaid decision, the Apex Court has held and observed in para18 as under:
18.........We are of the considered opinion that it may be true that the Court at initial stage may not enter into the merit of the matter. Its opinion in the nature of things would be a prima facie one. But the Court must also consider that the analogy of resjudicata or of the technical rules of civil procedure is, in cases like the present one, appropriate and the Courts are expected to administer the law so as to effectuate its underlying object. Court shall also bear in mind that the basic character of this principle is public policy and preventive as to give finality to the decision of the Court of competent jurisdiction and prevent further litigation.
28. Kamala & Others (Supra) later came to be referred to and relied upon in the case of Vaish Aggarwal Panchayat Vs. Inder Kumar & Others; Civil Appeal No.2089 of 2015; decided on 25/08/2015, wherein the Supreme Court observed as under:
12. The plea of res judicata is founded on proof of certain facts and then by applying the law to the facts so found. It is, therefore, necessary that the foundation for the plea must be laid in the pleadings and then an issue must be framed and tried. A plea not properly raised in the pleadings or in issues at the stage of the trial, would not be permitted to be raised for the first time at the stage of appeal [see (Raja) Jagadish Chandra Deo Dhabal Deb v. Gour Hari Mahato[2], Medapati Surayya v. Tondapu Bala Gangadhara Ramakrishna Reddi[3] and Katragadda China Anjaneyulu v. Kattaragadda China Ramayya[4]]." After so stating, the Court further observed that: "Not only the plea has to be taken, it has to be substantiated by producing Page 26 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT the copies of the pleadings, issues and judgment in the previous case. Maybe, in a given case only copy of judgment in previous suit is filed in proof of plea of res judicata and the judgment contains exhaustive or in requisite details the statement of pleadings and the issues which may be taken as enough proof. But as pointed out in Syed Mohd. Salie Labbai v. Mohd. Hanifa[5] the basic method to decide the question of res judicata is first to determine the case of the parties as put forward in their respective pleadings of their previous suit and then to find out as to what had been decided by the judgment which operates as res judicata."
13. In this regard the pronouncement in Kamala and others v. K.T. Eshwara SA and others[6] would be seemly. In the said case while dealing with the principle engrafted under Order VII Rule 11(d) C.P.C., the Court has held thus: "21. Order 7 Rule 11(d) of the Code has limited application. It must be shown that the suit is barred under any law. Such a conclusion must be drawn from the averments made in the plaint. Different clauses in Order 7 Rule 11, in our opinion, should not be mixed up. Whereas in a given case, an application for rejection of the plaint may be filed on more than one ground specified in various subclauses thereof, a clear finding to that effect must be arrived at. What would be relevant for invoking clause (d) of Order 7 Rule 11 of the Code are the averments made in the plaint. For that purpose, there cannot be any addition or subtraction. Absence of jurisdiction on the part of a court can be invoked at different stages and under different provisions of the Code. Order 7 Rule 11 of the Code is one, Order 14 Rule 2 is another.
22. For the purpose of invoking Order 7 Rule 11(d) of the Code, no amount of evidence can be looked into. The issues on merit of the matter which may arise between the parties would not be within the realm of the court at that stage. All issues shall not be the subjectmatter of an order under the said provision."
14. After so stating, while proceeding to deal with the concept of resjudicata, the Court opined: "23. The principles of res judicata, when attracted, would bar another suit in view of Section 12 of the Code. The question involving a mixed question of law and fact which may require not only examination of the plaint but also other evidence and the order passed in the earlier suit may be taken up either as a preliminary issue or at the final hearing, but, the said question cannot be determined at that stage.
24. It is one thing to say that the averments made in the plaint on their face discloses no cause of action, but it is another thing to say Page 27 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT that although the same discloses a cause of action, the same is barred by a law.
25. The decisions rendered by this Court as also by various High Courts are not uniform in this behalf. But, then the broad principle which can be culled out therefrom is that the court at that stage would not consider any evidence or enter into a disputed question of fact or law. In the event, the jurisdiction of the court is found to be barred by any law, meaning thereby, the subject matter thereof, the application for rejection of plaint should be entertained."
15. In this regard a reference to a threeJudge Bench decision in Balasaria Construction (P) Ltd. v. Hanuman Seva Trust[7] and others would be fruitful. Be it noted the said case was referred to a larger Bench vide Balasaria Construction (P) Ltd. v. Hanuman Seva Trust[8]. The order of reference reads as follows: "4. This case was argued at length on 3082005. Counsel appearing for the appellant had relied upon a judgment of this Court in N.V. Srinivasa Murthy v. Mariyamma[9] for the proposition that a plaint could be rejected if the suit is ex facie barred by limitation. As against this, counsel for the respondents relied upon a later judgment of this Court in Popat and Kotecha Property v. State Bank of India Staff Assn.[10] in respect of the proposition that Order 7 Rule 11(d) was not applicable in a case where a question has to be decided on the basis of fact that the suit was barred by limitation. The point as to whether the words "barred by law" occurring in Order 7 Rule 11(d) CPC would include the suit being "barred by limitation" was not specifically dealt with in either of these two judgments, cited above. But this point has been specifically dealt with by the different High Courts in Mohan Lal Sukhadia University v. Priya Soloman[11], Khaja Quthubullah v. Govt. of A.P.[12], Vedapalli Suryanarayana v. Poosarla Venkata Sanker Suryanarayana[13], Arjan Singh v. Union of India[14] wherein it has been held that the plaint under Order 7 Rule 11(d) cannot be rejected on the ground that it is barred by limitation. According to these judgments the suit has to be barred by a provision of law to come within the meaning of Order 7 Rule 11 CPC. A contrary view has been taken in Jugolinija Rajia Jugoslavija v. Fab Leathers Ltd.[15], National Insurance Co. Ltd. v. Navrom Constantza[16], J. Patel & Co. v. National Federation of Industrial Coop. Ltd.[17] and State Bank of India Staff Assn. v. Popat & Kotecha Property. The last judgment was the subjectmatter of challenge in Popat and Kotecha Property v. State Bank of India Staff Assn. This Court set aside the judgment and held in para 25 as under:
"25. When the averments in the plaint are considered in the Page 28 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT background of the principles set out in Sopan Sukhdeo case[18] the inevitable conclusion is that the Division Bench was not right in holding that Order 7 Rule 11 CPC was applicable to the facts of the case. Diverse claims were made and the Division Bench was wrong in proceeding with the assumption that only the non execution of lease deed was the basic issue. Even if it is accepted that the other claims were relatable to it they have independent existence. Whether the collection of amounts by the respondent was for a period beyond 51 years needs evidence to be adduced. It is not a case where the suit from statement in the plaint can be said to be barred by law. The statement in the plaint without addition or subtraction must show that it is barred by any law to attract application of Order 7 Rule 11. This is not so in the present case."
5. Noticing the conflict between the various High Courts and the apparent conflict of opinion expressed by this Court in N.V. Srinivasa Murthy v. Mariyamma and Popat and Kotecha Property v. State Bank of India Staff Assn. the Bench referred† the following question of law for consideration to a larger Bench:
"Whether the words 'barred by law' under Order 7 Rule 11(d) would also include the ground that it is barred by the law of limitation."
15. The threeJudge Bench opined that there was no conflict of opinion and thereafter the matter came back to the Division Bench for adjudication. The Division Bench reproduced what has been stated by the threeJudge Bench. It is as under: "Before the threeJudge Bench, counsel for both the parties stated as follows:
"...It is not the case of either side that as an absolute proposition an application under Order 7 and Rule 11(d) can never be based on the law of limitation. Both sides state that the impugned judgment is based on the facts of this particular case and the question whether or not an application under Order 7 Rule 11(d) could be based on law of limitation was not raised and has not been dealt with. Both sides further state that the decision in this case will depend upon the facts of this case."
16. After so stating, the Division Bench opined that in the facts of the said case, the suit could not be dismissed as barred by limitation without proper pleadings, framing of issue on limitation and taking evidence, for question of limitation is a mixed question of fact and law and on exfacie reading of the plaint it could not be held that the suit was barred by time.
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17. Coming to the case at hand we find that the allegations in the plaint are absolutely different. There is an asseveration of fraud and collusion. There is an assertion that in the earlier suit a decree came to be passed because of fraud and collusion. In such a fact situation, in our considered opinion, the High Court has fallen into error by expressing the view that the plea of resjudicata was obvious from the plaint. In fact, a finding has been recorded by the High Court accepting the plea taken in the written statement. In our view, in the obtaining factual matrix there should have been a trial with regard to all the issues framed.
29. Thus, the dictum discernible as laid by the Supreme Court is that the Court should be very slow in rejecting the plaint on the ground of resjudicata as the issue with regard to resjudicata would be a mixed question of law and fact and, it may be necessary for the Court to ask the party to lead evidence on such issue.
30. It is a settled proposition of law that the Court, at the time of considering an application under Order 7, rule 11 of the Code, shall confine itself to the averments made in the plaint and the documents annexed thereto. It shall not look into the defence of the defendants in order to find out as to whether the suit is barred by law. Therefore, the plaint cannot be rejected on the plea of being barred by principle of res judicata upon invocation of the provision contained under Order 7, rule 11 (d) of the Code.
31. The Madras High Court in the case of G. Subramani Vs. V.Rajasekaran reported in 2013 (4) CTC 468, considered the applicability of the principle of resjudicata while considering the application under Order 7 Rule 11 CPC and found that the plaint cannot be rejected on the basis of defence made in the written statement and the bar of resjudicata is an issue to be raised and decided, but not as a ground to reject the plaint. Paragraph 11 of the said decision reads as Page 30 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT follows:
"11. The other contention that the decision of the Registrar of Firms that the retirement date was genuine and valid would operate as res judicata and hence, the same shall be a statutory bar for the present Suit is also bound to be rejected, because the learned Counsel is not in a position to show any provision which says that the decision of the Registrar of Firms shall be final and that Civil Court's jurisdiction to go into the question stands barred. Even otherwise, the question of bar of res judicata shall not be the ground on which a Plaint can be rejected. What Section 11 of the Code of Civil Procedure says is that a question, which has been substantially and directly raised as an issue in a previously decided Suit, shall not be tried by the Court dealing with the subsequent suit. So, the said provision can be interpreted to mean that such a Suit can be dismissed on the ground of bar of res judiciata and it cannot be stretched too much to say that the bar of res judicata shall be the ground for rejection of the Plaint. The question of res judicata shall be a mixed question of law and fact. It has got to be raised and decided. A Plaint can be rejected based on the pleadings made in the Plaint and the documents produced along with the Plaint. A Plaint cannot be rejected based on the defence statement of the Defendant made in the Written Statement or any averment made in the Affidavit filed in support of the Application filed under Order 7, Rule 11 of the Code of Civil Procedure."
32. In the case on hand examining the plaint, it is not possible to come to the conclusion that the suit is barred by resjudicata inasmuch as although there is a reference to the Original Application filed by the bank before the DRT yet there is nothingelse in the form of the avements in the plaint, on the basis of which this Court can come on definite conclusion that the suit is barred by the principles of res judicata. This principles can be made applicable only by examining the plaint and the evidence in the earlier suit or any other proceedings so as to establish that the matter in issue is substantially the same.
33. We shall now look into the second question whether the suit could be said to be barred by the provisions of Sections17 and 18 of the Act, 1993.
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34. Section17 of the Act, 1993 reads thus:
17. Jurisdiction, powers and authority of Tribunal - [1] A tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
5[(1A) Without prejudice to subsection (1), -
(a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain and decide applications under Part II of Insolvency and Bankruptcy Code, 2016.
(b) the Tribunal shall have circuit sittings in all district headquarters] (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act.
35. Section18 of the Act, 1993 reads thus:
18. Bar of jurisdiction - On and from the appointed day, no Court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority [except the Supreme Court, and a High Court exercising Jurisdiction under Articles 226 and 227 of the Constitution] in relation to the matters specified in Section 17.
36. As the bank has also invoked Sections19(6) and 19(11) of the Act, 1993, we shall look into the two provisions.
19. Application to the Tribunal -
[6] Where the defendant claims to setoff against the applicant's demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement containing the particulars of 1[the debt sought to be setoff along with original documents and other evidence relied on in support of claim of setoff in relation to any ascertained sum of money, against the applicant.] Page 32 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT 4 [11] Where a defendant sets up a counterclaim in the written statement and in reply to such claim the applicant contends that the claim thereby raised ought not to be disposed of by way of counterclaim but in an independent action, the Tribunal shall decide such issue along with the claim of the applicant for recovery of the debt.]
37. In Nahar Industrial Enterprises Ltd. [Supra], the Hon'ble Supreme has held that Section 34 of the SARFAESI Act does not oust the jurisdiction of the Civil Court altogether to entertain a suit under Section9 of the Civil Procedure Code. It was held therein that the jurisdiction of the Civil Court is plenary in nature and the Civil Court is entitled to decide the respective claims of the parties in a suit unless the jurisdiction of the Civil Court to entertain such suit under Section 9 of the Civil Procedure Code is ousted expressly by a statute or by necessary implication therefrom. After examining the scope and/or ambit of the Debt Recovery Act and the SARFAESI Act, the Hon'ble Supreme Court held therein that the Debt Recovery Tribunal cannot be treated as a Civil Court, as the said Debt Recovery Tribunal was constituted with a specific purpose and has a limited jurisdiction; it can neither pass a decree nor can debtor seek declaratory relief from the Debt Recovery Tribunal. The Debt Recovery Tribunal can only issue recovery certificate. Some instances were also mentioned in the said judgment. It was further held therein that notwithstanding the provision contained in Section 34 of the SARFAESI Act, the Civil Court's jurisdiction is not ousted in certain circumstances; say for example, (i) the banks and the financial institution for the purpose of enforcement of their claim for a sum below rupees ten lakh is required to file civil suit before the Civil Court; (ii) even the debtors can file their claims or set off or counterclaim before the Civil Court; (iii) even before filing any proceeding or recovery of debt by the bank or the financial institution, the debtor may file Page 33 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT preemptive suits and obtain order of injunction; (iv) civil suit is also maintainable in a case where allegation of fraud and misrepresentation is involved; (v) Civil Court's jurisdiction can also be invoked when several other issues of complicated nature may arise between the parties etc. We quote the relevant paragraphs:
97. A debtor under the common law of contract as also in terms of the loan agreement may have an independent right. No forum has been created for endorsement of that right. Jurisdiction of a civil court as noticed hereinbefore is barred only in respect of the matters which strictly come within the purview of Section 17 thereof and not beyond the same. The Civil Court, therefore, will continue to have jurisdiction.
98. Even in respect of set off or counterclaim, having regard to the provisions of subsections (6) to (11) of Section 19 of the Act, it is evident :
a) That the proceedings must be initiated by the bank
b) Some species of the remedy as provided therein would be available therefor.
c) In terms of subsection (11) of Section 19, the bank or the financial institution is at liberty to send a borrower out of the forum.
d) In terms of the provisions of the Act, thus, the claim of the borrower is excluded and not included.
e) In the event the bank withdraws his claim the counterclaim would not survive which may be contrasted with Rule 6 of Order VIII of the Code.
f) Subsection (9) of Section 19 of the Act in relation thereto has a limited application.
g) The claim petition by the bank or the financial institution must relate to a lending/borrowing transaction between a bank or the financial institution and the borrower.
h) The banks or the financial institutions, thus, have a primacy in respect of the proceedings before the Tribunal.
i) An order of injunction, attachment or appointment of a receiver can be initiated only at the instance of the bank or the financial institution. We, however, do not mean to suggest that a Tribunal having a plenary power, even otherwise would not be entitled to pass an order of injunction or an interim order, although ordinarily expressly it had no statutory power in relation the As the bank Page 34 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT reto.
j) It can issue a certificate only for recovery of its dues. It cannot pass a decree.
k) Although an appeal can be filed against the judgment of the Tribunal, predeposit to the extent of 75 % of the demand is imperative in character.
l) Even crossexamination of the witnesses need not be found to be necessary.
m) Subject to compliance of the principle of natural justice it may evolve its own procedure.
n) It is not bound by the procedure laid down under the Code. It may however be noticed in this regard that just because the Tribunal is not bound by the Code, it does not mean that it would not have jurisdiction to exercise powers of a court as contained in the Code. `Rather, the Tribunal can travel beyond the Code of Civil Procedure and the only fetter that is put on its powers is to observe the principles of natural justice.'[See Industrial Credit and Investment Corpn. of India Ltd. v. Grapco Industries Ltd., (1999) 4 SCC 710] The Tribunal, therefore, would not be a Civil Court.
EXCLUSION OF JURISDICTION MUST BE EXPRESS
105. The Civil Court indisputably has the jurisdiction to try a suit. If the suit is vexatious or otherwise not maintainable action can be taken in respect thereof in terms of the Code. But if all suits filed in the Civil Courts,whether inextricably connected with the application filed before the DRT by the banks and financial institutions are transferred, the same would amount to ousting the jurisdiction of the Civil Courts indirectly. Suits filed by the debtor may or may not be counter claims to the claims filed by banks or financial institutions but for that purpose consent of the plaintiff is necessary.
106. It is furthermore difficult to accept the contentions of the respondents that the statutory provisions contained in section 17 and 18 of the DRT Act have ousted the jurisdiction of the civil court as the said provisions clearly state that the jurisdiction of the civil court is barred in relation only to applications from banks and financial institutions for recovery of debts due to such banks and financial institutions.
107. A civil court is entitled to decide the respective claims of the parties in a suit. It must come within the purview of the hierarchy of courts as indicated in Section 3 of the Code. It will have jurisdiction to determine all disputes of civil nature unless the same is barred Page 35 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT expressly by a statute or by necessary implication.
108. Although some arguments have been advanced before us whether having regard to the provisions of Sections 17 and 18 of the Act the civil court jurisdiction is completely ousted, we are of the view that the jurisdiction of the civil court would be ousted only in respect of the matters contained in Section 18 which has a direct corelation with Section 17 thereof, that is to say that the matter must relate to a debt payable to a bank or a financial institution. The application before the Tribunal would lie only at the instance of the bank or the financial institution for the recovery of its debt. It must further be noted in this respect that had the jurisdiction of the civil courts been barred in respect of counterclaim also, the statute would have said so and Sections 17 and 18 would have been amended to introduce the provision of counterclaim.
109. We may in this context place on record the following observations from Indian Bank (supra):
"14. Section 9 of the Code of Civil Procedure provides that the courts shall have jurisdiction to try all suits of a civil nature, excepting suits of which their cognizance is either expressly or impliedly barred.
15. It is evident from Sections 17 and 18 of the Debts Recovery Act that civil court's jurisdiction is barred only in regard to applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief....
16. ...What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings.
110. It must be remembered that the jurisdiction of a civil court is plenary in nature. Unless the same is ousted, expressly or by necessary implication, it will have jurisdiction to try all types of suits.
111. In Dhulabhai v. State of M.P.,[ (1968) 3 SCR 662 ], this Court opined: "32. .... The result of this inquiry into the diverse views expressed in this Court may be stated as follows:
(2) Where there is an express bar of the jurisdiction of the Page 36 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the civil court.
Where there is no express exclusion the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case it is necessary to see if the statute creates a special right or a liability and provides for the determination of the right or liability and further lays down that all questions about the said right and liability shall be determined by the Tribunals so constituted, and whether remedies normally associated with actions in civil courts are prescribed by the said statute or not. (7) An exclusion of the jurisdiction of the civil court is not readily to be inferred unless the conditions above set down apply."
112. In Dwarka Prasad Agarwal v. Ramesh Chander Agarwal, [(2003) 6 SCC 220] "19. A bare perusal of the aforementioned provisions leaves no manner of doubt that thereby the jurisdiction of the civil court has not been ousted. The civil court, in the instant case, was concerned with the rival claims of the parties as to whether one party has illegally been dispossessed by the other or not. Such a suit, apart from the general law, would also be maintainable in terms of Section 6 of the Specific Relief Act, 1963. In such matters the court would not be concerned even with the question as to the title/ownership of the property."
Therein five principles were laid down stating : "22. The dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil courts to determine all disputes of civil nature unless the same is barred under a statute either expressly or by necessary implication. Bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of a civil court requires strict interpretation. The court, it is well settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil court. The burden of proof in this behalf shall be on the party who asserts that the civil court's jurisdiction is ousted. (See Sahebgouda v. Ogeppa, (2003) 6 SCC 151.) Even otherwise, the civil court's jurisdiction is not completely ousted under the Companies Act, 1956."
113. In Nagri Pracharini Sabha v. Vth Addl. Distt. and Sessions Page 37 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT Judge, [1991 Supp (2) SCC 36] "2. A litigant having a grievance of a civil nature has, independently of any statute, a right to institute a suit in the civil court unless its cognizance is either expressly or impliedly barred. The position is wellsettled that exclusion of jurisdiction of the civil court is not to be readily inferred and such exclusion must be either expressly or implied."
114. In Ramesh Chand Ardawatiya v. Anil Panjwani, [(2003) 7 SCC 350] this Court opined : "19. ... Where there is a special tribunal conferred with jurisdiction or exclusive jurisdiction to try a particular class of cases even then the civil court can entertain a civil suit of that class on availability of a few grounds. An exclusion of jurisdiction of the civil court is not to be readily inferred. (See Dhulabhai v. State of M.P.)"
115. Power to create or enlarge jurisdiction is legislative in character. Similarly, right of revision or appeal is normally a creature of statute.
16. In Rajasthan SRTC v. Zakir Hussain, [(2005) 7 SCC 447] this Court has held: "21. It is a wellsettled principle of law as laid down by this Court that if the court has no jurisdiction, the jurisdiction cannot be conferred by any order of court. This Court in the case of A.R. Antulay v. R.S. Nayak, AIR paras 40 to 42 wherein it is, inter alia, held and observed as under: (SCC pp. 65051, paras 3840) ... ...
39.... ... The power to create or enlarge jurisdiction is legislative in character.... Parliament alone can do it by law and no court, whether superior or inferior or both combined can enlarge the jurisdiction of a court or divest a person of his rights of revision and appeal. .. ..."
117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their Page 38 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counterclaims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of setoff or the counter claims, determined by a civil court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court.
38. We have to our advantage a decision of a coordinate bench of this Court in the case of Vishal Exports Overseas Limited & Others Vs. State Bank of Indian & Others rendered in the First Appeal No.1956 of 2018; decided on 10/07/2018, wherein, Mr. M.R. Shah, J. speaking for the Bench [As his Lordship then was] observed as under: 7.2 At this stage, it is required to be noted that as such, while passing the impugned order and rejecting the Plaint under Order VII Rule 11 of the CPC, as such, there is no specific finding recorded by the learned Commercial Court that the independent suit preferred by the plaintiffs filed against the respective Banks shall not be maintainable and/or shall be barred by any law. It cannot be disputed that the Plaint under Order VII Rule 11(d) of the CPC can be rejected if it is found that the suit is barred by any law. At this stage, it is also required to be noted that as such, the learned Judge has not exercised the power under Order VII Rule 11(a) of the CPC. Therefore, the short question which is posed for the consideration of this Court is whether in the facts and circumstances of the case, the learned Commercial Court is justified in rejecting the Plaint under Order VII Rule 11 of the CPC on the grounds stated in the impugned order?
7.3 From the Plaint, it appears that the plaintiffs, in the year 2010, instituted the civil suit against the respondents herein - original defendants - Banks/ lenders for recovery of Rs.7,86,61,71,301/ with interest at the rate of 12% p.a. as and by way of damages/ compensation from the defendants for their various wrongful actions, including breach of contract, actions in bad faith and acts of misfeasance and/or nonfeasance and tortuous liability. The relief is sought against all the defendants jointly and severally by way of damages/compensation. It emerges from the record that prior thereto, the Banks/ consortium of Banks and Banks independently and/or jointly filed different Original Applications in the year 2007/ 2008/ 2009, before the DRT for recovery of approximately Rs.800 crores from Page 39 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT the plaintiffs - borrowers. It is true that the plaintiff/ plaintiffs did not file/ lodge any counterclaim against the consortium Bank and other Banks and instead filed a civil suit against the consortium Banks seeking a decree referred to hereinabove. Immediately on being served with the summonses of the suit, the Banks/consortium Banks filed the application seeking rejection of the Plaint on the ground that the suit is barred by Sections 18 and 19 of the Finance Act, 1993.
7.4 Learned counsel appearing on behalf of the respective parties have relied upon the decisions of the Hon'ble Supreme Court in the case of United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. And Others (supra), Indian Bank v. ABS Marine Products (P) Ltd. (supra), State Bank of India v. Ranjan Chemicals Ltd. And Another (supra), and Nahar Industrial Enterprises Limited v. Hong Kong And Shanghai Banking Corporation (supra) and Bank of Rajasthan Limited v. VCK Shares and Stock Broking Services Limited (supra). However, considering the controversy and the issues before the Hon'ble Supreme Court in the aforesaid decisions and the questions which are now referred to the Larger Bench by the Hon'ble Supreme Court in the case of Bank of Rajasthan Limited v. VCK Shares and Stock Broking Services Limited (supra), it appears that the issue before the Hon'ble Supreme Court in the aforesaid decisions was 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 Finance Act, is liable to be transferred and tried along with the application under the Finance Act by DRT? In none of the decisions referred to hereinabove, the Hon'ble Supreme Court has observed and held that independent suit by the borrower in the Civil Court shall be maintainable or not maintainable. Considering the decisions of the Hon'ble Supreme Court referred to above, it appears that the Hon'ble Supreme Court was considering the necessity for joint trial by treating the suit before the Civil Court as counterclaim for number of reasons, namely, to save the expenses of two attendances by the counsel and witnesses and the trial Judge will be able to try the two actions at the same time and take common evidence in respect of both the claims. Therefore, the desirability to consider the suit as a counterclaim and/ or desirability to have a joint trial for convenience and to avoid the duplication to save expenses as observed hereinabove is a different thing than to say that independent suit shall not be maintainable under the law, more particularly, under the Finance Act, 1993, and therefore the Plaint is liable to be rejected under Order VII Rule 11 of the CPC. From the impugned order passed by the learned Judge, it appears that while rejecting the Plaint under Order VII Rule 11 of the CPC, the learned Judge has heavily relied upon a few observations of the Division Bench in the earlier round of litigation in Special Civil Application No.7434/2014 and other allied Special Civil Applications, more particularly, Paragraphs15 and 16 of the said order, reproduced Page 40 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT by the learned Commercial Court in Paragraph32 of its order. However, considering the observations made in Paragraphs15 and 16, it cannot be culled out that the Division Bench in the aforesaid order has observed that the suit filed by the plaintiffs was not at all maintainable. The observations made in Paragraphs15 and 16 which have been heavily relied upon by the learned Judge are required to be considered in light of the issues/controversy before the Court. On considering the entire judgment and order passed in Special Civil Application No.7434/2014 and other allied Special Civil Applications, it transpires that one of the prayer by the plaintiffs was that till the application filed by the Banks under Order V As the bank II Rule 11 of the CPC in the present suit is decided and disposed of, the proceedings of the Original Applications before the DRT be stayed. One another main prayer before the Division Bench was consolidation of all the Original Applications filed by various Banks and consortium of Banks which was rejected by the learned DRT. To the prayer of the plaintiffs to stay further proceedings of the Original Applications till the application under Order VII Rule 11 of the CPC in the present proceedings is decided and disposed of, the Division Bench made observations in Paragraphs15 and 16, as under:
"15. In spite of express provision of law, the present petitioners have exercised and opted for filing a suit before the City Civil Court instead of filing counter claim and thereafter, insisting that very suit be heard and decided first and thereafter the present applications preferred by the consortium of banks may be decided. If that request may be accepted, then the whole purpose of special enactment for the recovery of public debts would be frustrated.
16. The aforesaid two distinctive proceedings preferred before the Tribunal as well as the Civil Court have been selected by the parties to the proceedings at their own volition whereas the petitioners have selected the forum of Civil Court. Thereafter, they cannot insist that unless the proceedings before the City Civil Court is concluded, the aforesaid proceedings before the Tribunal should be stayed. Even otherwise also, records and proceedings clearly indicate that the aforesaid six applications were preferred first in the point of time. Thereafter, there was an option for the present petitioners to prefer the counter claim in the aforesaid Original Applications instead of preferring a regular suit for recovery of damages. Still however, they have opted for preferring the suit and thereafter by way of urging to stay the proceedings before the Tribunal clearly indicate the intention of stalling the proceedings before the Debts Recovery Tribunal."
From the aforesaid observations, it cannot be said that the Division Page 41 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT Bench, in the aforesaid order, specifically observed that the independent suit filed by the plaintiffs before the Civil Court was not maintainable at all. From the impugned order, it appears that the learned Judge, Commercial Court, has rejected the Plaint by observing in Paragraphs32 and 33 as under:
"32. In view of the aforesaid facts and considering the very conduct on the part of the plaintiffs which indicates that without agitating a counterclaim before DRT and pressing for continuing with the suit which, as held herein above, the relief thereof could have been claimed by way of lodging a counterclaim which, in fact, despite several opportunities available to the plaintiffs, has not chosen the same and therefore, the plaintiffs cannot take the benefit of their own wrong by keeping the proceedings of the present suit pending on one side and challenging several miscellaneous and final orders passed by the DRT on the other side, despite there being clear findings of the Hon'ble Court as to the remedies available to the plaintiffs under Sections 18 and 19 of the RDDB Act.
33. Hence, the possibility of plaintiffs having not acquainted with the remedies available to them and the knowledge thereof, cannot be ruled out and the said fact seems to have been substantiated from several orders passed by the DRT, DRAT and also by the Hon'ble High Court of Gujarat and therefore, the very conduct on the part of the plaintiffs disentitle the plaintiffs even to continue with the proceedings of the present suit in the light of the detailed discussion made herein above."
However, as observed hereinabove, it is not at all observed that independent suit shall not be maintainable at all in view of the Scheme of the Finance Act, 1993. Merely because some remedy might have been available, in the present case, may be by way of counterclaim, which the plaintiff did not avail and instead, filed an independent suit, cannot be a ground to reject the Plaint under Order VII Rule 11 of the CPC, unless it is observed and found that the suit is clearly barred by any law.
7.5 At this stage, it is required to be noted that in the present case, now no fruitful purpose would be served in relegating the plaintiffs to lodge the counterclaim and/or to transfer the suit to the DRT (the issue which is now at large before the Hon'ble Supreme Court) as the Original Applications filed by the Bank have already been disposed of long back much before even the application under Order VII Rule 11 of the CPC is decided and disposed of and no applications are pending before the learned DRT. It is also required to be noted that different Original Applications were filed by different Banks against the Page 42 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT plaintiffs - borrowers and their application for consolidation of the Original Applications were rejected which came to be confirmed by the Division Bench of this Court. The present suit is filed by the plaintiffs jointly against the consortium of Bank/ Banks and therefore even if the plaintiffs could have filed the counterclaim, it was not possible as decree is sought against all the Banks jointly and severally and as such, a counterclaim in different Original Applications would be possible or not is also a very serious question. One can understand if only one Original Application was pending of the consortium Banks and the suit is either transferred and/or one counterclaim is filed in only one Original Application, which is not so in the present case.
8. In any case, in absence of any specific finding given by the learned Judge, Commercial Court, that independent suit shall not be maintainable and/or the same is specifically barred under the provisions of the Finance Act, 1993, the learned Judge is not justified in rejecting the Plaint under Order VII Rule 11 of the CPC. There can be a very serious dispute whether the reliefs which are sought in the Plaint by way of damages/ compensation from the defendants for their various wrongful actions, including breach of contract, actions in bad faith and acts of misfeasance and/or nonfeasance and tortuous liability can be treated as counterclaim in an application under Section 19 of the Finance Act, 1993. Be that as it may, as observed hereinabove, there is no specific finding recorded by the learned trial curt that the independent suit filed by the plaintiffs is specifically barred by any law, more particularly, by the provisions of the Finance Act, 1993 and therefore, the Plaint cannot be rejected under Order VII Rule 11 of the CPC. Therefore, without touching the questions which are referred to the Larger Bench of the Hon'ble Supreme Court in Bank of Rajasthan Limited v. VCK Shares and Stock Broking Services Limited(supra), on the aforesaid ground alone, the impugned order passed by the learned Judge, Commercial Court, rejecting the Plaint under Order VII Rule 11 of the CPC deserves to be quashed and set aside.
39. The law appears to be well settled. As regards Sections18 and 19 respectively of the Act, 1993, the cause of action for the bank to institute the original application before the DRT was the alleged non payment of the amounts advanced to the borrower. The cause of action as pleaded by the appellant in his capacity as a guarantor in his suit was the alleged breach by the bank of the contract in the form of sanction letter dated 13/03/2015. Whatever may be the worth of the claim, in Page 43 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT other words, we cannot go into the issue at this stage whether the claim of the appellant herein is sustainable in law or not Or whether he is justified in asking the bank to discharge him of all his liabilities in view of the sanction letter and the conditions contained thereof.
We are only concerned with the limited issue whether the appellant as the original plaintiff could have been nonsuited at the threshold by rejecting the plaint. It is evident that the issues that arose in the application preferred by the bank before the DRT were different from the issues that arose in the suit instituted by the appellant herein as a guarantor. It is evident from the Sections17 and 18 of the Act, 1993 that the Civil Court's jurisdiction is barred only in regard to the applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief. Section 19(6) and 19(11) on which much emphasis has been laid upon by the bank for the purpose of getting plaint rejected are merely enabling provisions as held by the Supreme Court in the case of Indian Bank (supra). In this regard, we quote the relevant observations of the Supreme Court in the case of Indian Bank vs Abs Marine Products Pvt. Ltd. reported in 2006 (5) SCC 72.
15. It is evident from Sections 17 and 18 of the Debts Recovery Act that civil court's jurisdiction is barred only in regard to applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief. It is not disputed that the Calcutta High Court had jurisdiction to entertain and dispose of C.S. No.7/1995 filed by the borrower when it was filed and continues to have jurisdiction to entertain and dispose of the said suit. There is no provision in the Act for transfer of suits and proceedings, except section 31 which relates to suit/proceeding by a Bank or financial institution for recovery of a debt. It is evident from Section 31 that only those cases and proceedings (for recovery of debts due to banks and financial institutions) which were pending before Page 44 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT any court immediately before the date of establishment of a tribunal under the Debts Recovery Act stood transferred, to the Tribunal. In this case, there is no dispute that the Debt Recovery Tribunal, Calcutta, was established long prior to the company filing C.S. No.7/1995 against the bank. The said suit having been filed long after the date when the tribunal was established and not being a suit or proceeding instituted by a bank or financial institution for recovery of a debt, did not attract section 31.
16. As far as subsections (6) to (11) of section 19 are concerned, they are merely enabling provisions. The Debts Recovery Act, as it originally stood, did not contain any provision enabling a defendant in an application filed by the bank/financial institution to claim any set off or make any counter claim against the bank/financial institution. On that among other grounds, the Act was held to be unconstitutional (see Delhi High Court Bar Association vs. Union of India AIR 1995 Delhi 323). During the pendency of appeal against the said decision, before this Court, the Act was amended by Act 1 of 2000 to remove the lacuna by providing for set off and counterclaims by defendants in the applications filed by Banks/financial institution before the Tribunal. The provisions of the Act as amended were upheld by this Court in Union of India vs. Delhi High Court Bar Association [2002 (4) SCC 275]. The effect of subsections (6) to (11) of Section 19 of the amended Act is that any defendant in a suit or proceeding initiated by a bank or financial institution can : (a) claim set off against the demand of a Bank/financial institution, any ascertained sum of money legally recoverable by him from such bank/financial institution; and
(b) setup by way of counterclaim against the claim of a Bank/financial institution, any right or claim in respect of a cause of action accruing to such defendant against the bank/financial institution, either before or after filing of the application, but before the defendant has delivered his defence or before the time for delivering the defence has expired, whether such a counter claim is in the nature of a claim for damages or not. What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. The only change that has been made is to enable defendants to claim set off or make a counterclaim as provided in subsections (6) to (8) of Section 19 in applications already filed by the bank or financial institutions for recovery of the amounts due to them. In other words, what is provided and permitted is a crossaction by a defendant in a pending application by the bank/financial institution, the intention being to have the claim of the bank/financial institution made in its application and the Page 45 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT counterclaim or claim for set off of the defendant, as a single unified proceeding, to be disposed of by a common order.
17. Making a counter claim in the Bank's application before the Tribunal is not the only remedy, but an option available to the borrower/defendant. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the Bank and pursue the same. Even the Bank, in whose application the counterclaim is made, has the option to apply to the tribunal to exclude the counterclaim of the defendant while considering its application. When such application is made by the Bank, the Tribunal may either refuse to exclude the counterclaim and proceed to consider the Bank's application and the counterclaim together; or exclude the counter claim as prayed, and proceed only with the Bank's application, in which event the counterclaim becomes an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counter claim as the Tribunal does not have jurisdiction to try any independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the Bank, cannot be compelled to make his claim against the Bank only by way of a counterclaim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a Tribunal against his wishes.
18. In this case, the first respondent does not wish his case to be transferred to the Tribunal. It is, therefore, clear that the suit filed by the first respondent against the Bank in the High Court for recovery of damages, being an independent suit, and not a counterclaim made in the application filed by the bank, the Bank's application for transfer of the said suit to the Tribunal was misconceived and not maintainable. The High Court, where the suit for damages was filed by the company against the bank, long prior to the bank filing an application before the tribunal against the company, continues to have jurisdiction in regard to the suit and its jurisdiction is not excluded or barred under Section 18 or any other provision of Debts Recovery Act.
40. In the aforesaid context, we may also refer to and rely upon the observations made by the Supreme Court in Paragraph51 of Nahar Industrial Enterprises [Supra]. Indian Bank [Supra] has been referred to in Paragraph51 of Nahar Industrial Enterprises Ltd. Paragraph51 reads thus:
51. Purporting to distinguish the decision in Indian Bank (supra), Page 46 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT it was held that as the claim of the company in the suit could have been maintained as a counter claim in the application of the bank, there was no warrant for curtailing the power of the court to order joint trial by introducing a restriction to the effect that it could be ordered only if there was consent by both the parties, holding:
"8. Their Lordships have held that the subject matter of the suit and the proceeding before the Tribunal were in no way connected, but it appears to us that the two litigations arise out of the same transaction or series of transactions between the Bank and the Company. Even if, as observed by their Lordships, a counter claim in the application by the Bank before the Tribunal was not the only remedy available to the Company but an option was available to the Company to sue, and the Company has exercised that option by filing a suit, it does not in any manner affect the power of the Court to order a joint trial of the application and the suit in the Debt Recovery Tribunal provided the Debt Recovery Tribunal has jurisdiction to entertain the action of the Company. What is relevant to note is that the claim of the Company in the suit could have been maintained as a counterclaim in the application of the bank, even if it did not arise out of the same cause of action. There is no warrant for curtailing the power of the Court to order joint trial by introducing a restriction to the effect that a joint trial can be ordered only if there was consent by both sides. The power inherent in the Court on well accepted principles to order a joint trial, does not depend upon the volition of the parties but it depends upon the convenience of trial, saving of time and expenses and the avoidance of duplicating at least a part of the evidence leading to saving of time and money."
41. It appears from the impugned order that the Commercial Court has placed reliance on the observations made by the Delhi High Court in Paragraph38 of Cofex Exports Ltd. Paragraph38 reads thus:
38. There is a remedy for every wrong. Every legal claim or right must be enforced. However, nobody has a right to have his claim being tried by a particular forum There is nothing wrong if the claims and cross claims whether by way of setoff or by way of counter claim allegedly existing between a person and a bank or financial institution are left to be enforced before two different for a before Debt Recovery Tribunal by bank or financial institution and before civil court by any person other than the two. The person at whose instance the cross suit was filed or the cross claim, counterclaim or plea of setoff was preferred cannot complain of prejudice inasmuch as he can always approach the civil court for decree in respect of the claims forming Page 47 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT subject matter of setoff or counter claims. The law has provided separate forums for the adjudication of claims by banks and financial institutions and by persons other than these. Each has a right to invoke the jurisdiction of the forum meant for it and each forum shall try the claim within its jurisdictional competence. Finality shall attach to the findings arrived at and reached by each of the two within its respective jurisdictional competence.Issues heard and decided by the Tribunal shall operate as res judicata and shall bind the parties in the suit before the civil court by virtue of explanation Viii to S. 11 Civil Procedure Code . However, the civil court shall be free to decide such issues as lie within its jurisdictional competence. If the civil court must decide an issue seized by it and within its competence and if there be an unavoidable conflict between the findings recorded by the civil court and by the Tribunal, the finding of Civil Court would obviously override and supersede the findings recorded by the Tribunal for a court is a court and tribunal is a tribunal; the former adjudicates on trial, the later holds only a summary inquiry guided by principles of natural justice as the Act provides.
42. We fail to understand on what basis the plaint could have been rejected by relying on the observations referred to above. It is an error apparent on the part of the Commercial Court to have relied upon such observations without understanding the true purport of the same.
43. We sum up our final conclusion on the aforesaid issues as under:
(i) Civil Court's jurisdiction to entertain a declaratory suit is not barred as the DRT is not authorized to issue any declaration relating to title of the parties etc. DRT' s jurisdiction is restricted only to issuance of certificate.
(ii) Civil Court's jurisdiction to entertain a civil suit is not barred when complicated questions or disputed facts are involved in the lis which is required to be resolved by elaborate trial on evidence.
(iii) Civil Court's jurisdiction to entertain a suit is not barred when ultimate decision is to be taken on the allegations of fraud and Page 48 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT misrepresentation.
(iv) Civil Court's jurisdiction to entertain any suit filed before the Bank takes any step for recovery of its dues by following the provisions of the Debt Recovery Act or the SARFAESI Act, is not barred.
(v) Civil Court's jurisdiction to entertain any suit in the nature of set off or counterclaim is also not barred, particularly when any of the actions of the bank to recover its dues as per the SARFAESI Act is not challenged in the suit.
(vi) It is well settled that plaint should be rejected only when the requirement as contemplated under Order 7 Rule 11 CPC is pleaded and proved. Such pleading in support of the application filed under Order 7 Rule 11 CPC raising any of the grounds set out therein, should straightaway pinpoint to the relevant averments made in the plaint supporting the claim of the defendant made in his application under Order 7 Rule 11 CPC. In other words, the plaint averments on the face of it, must show that the case of the party who files an application under Order 7 Rule 11 CPC is made out. On the other hand, if the grounds raised by the party in his application under Order 7 Rule 11 CPC require further enquiry or probing of the matter, which otherwise is not possible without conducting a trial, the plaint cannot be rejected simply based on the allegation made by the party who filed the said application. It is needless to say that rejection of the plaint is an extreme step in a suit proceedings, since such rejection amounts to dismissal of the suit even before considering the claim of the plaintiff by conducting trial. It is also to be noted that such application can be filed by the defendant even before filing the written statement or at any time thereafter. Therefore, such exercise of considering the application under Order 7 Rule 11 CPC should be done by the trial Court with Page 49 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020 C/FA/5349/2019 JUDGMENT utmost care and caution, since the right of a party to have a full fledged trial cannot be denied at the threshold by rejecting the plaint based on the averments contained in the application alone, unless the grounds raised in such application are also justified through a plain reading of the plaint itself.
44. In the overall view of the matter, we are convinced that the plaint could not have been rejected either on the ground of resjudicata or on the ground of suit being barred by the provisions of Sections17 and 18 respectively of the Act, 1993.
45. In the result, this appeal succeeds and is hereby allowed. The impugned judgment and decree passed by the Commercial Court dated dated 04/07/2018 below Exh.22 in the Commercial Suit No.10 of 2018 is hereby quashed and set aside. The Commercial Suit No.10 of 2018 is ordered to be restored to the Commercial Court, City Civil Court, Ahmedabad. Decree shall be drawn accordingly.
(J. B. PARDIWALA, J) (VIRESHKUMAR B. MAYANI, J) aruna Page 50 of 50 Downloaded on : Sun Feb 16 18:35:08 IST 2020