Gujarat High Court
Gujarat Industrial Cooperative Bank ... vs The Gujarat Industrial Investment ... on 6 October, 2016
Author: Anant S.Dave
Bench: Anant S. Dave, R.P.Dholaria
C/LPA/834/2013 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
LETTERS PATENT APPEAL NO. 834 of 2013
In SPECIAL CIVIL APPLICATION NO. 20962 of 2006
With
LETTERS PATENT APPEAL NO. 1031 of 2013
In
CIVIL APPLICATION NO. 9630 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE ANANT S. DAVE
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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GUJARAT INDUSTRIAL COOPERATIVE BANK LTD(PRESENTLY IN
LIQUIDATION)....Appellant(s)
Versus
THE GUJARAT INDUSTRIAL INVESTMENT CORPORATION LTD, &
5....Respondent(s)
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Appearance:
MR MIHIR JOSHI SR. ADV. for MR S N THAKKAR, ADVOCATE for the
Appellant(s) No. 1
MR PRAVIN P PANCHAL, ADVOCATE for the Respondent(s) No. 6
MR SN SHELAT SR. ADV. for MR RD DAVE, ADVOCATE for the
Respondent(s) No. 1, 2 & 3
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MR US BRAHMBHATT, ADVOCATE for the Respondent(s) No. 4
MS NITA M JOSHI, ADVOCATE for the Respondent(s) No. 4
RULE SERVED for the Respondent(s) No. 3
UNSERVED-EXPIRED (R) for the Respondent(s) No. 5
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CORAM: HONOURABLE MR.JUSTICE ANANT S. DAVE
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
Date : 06/10/2016
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE ANANT S. DAVE)
1. Both these Letters Patent Appeals arise under Clause 15 of Letters Patent, whereby, judgement dated 10.5.2013 rendered in the writ petition and five civil applications filed therein is under challenge.
2. The appellant in both these appeals is original respondent No.1 and respondent Nos. 1 to 3 are original petitioners and respondent No.5 is the learned Arbitrator.
3. Before considering the contentions of learned advocates appearing for the parties in both these appeals, it is necessary to mention brief facts, so as to determine issues involved in these appeals.
4. The name of the parties is referred to as it appears in the writ petitions filed by the petitioners Gujarat Industrial Investment Corporation Ltd., (in short "GIIC") is petitioner No.1 in Special Civil Application NO.20962 of 2006, a Company registered under the Companies Act 1956 set up Page 2 of 48 HC-NIC Page 2 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT by Government of Gujarat for Industrial Investment and overall growth of industries in the State of Gujarat and Government of Gujarat Enterprises. Petitioner No.2 is Gujarat State Financial Corporation established under the provisions of State Financial Corporation Act, 1951 (in short 'GSFC') whereas petitioner No.3 is a trust established and created for a special purpose by the Central Government vide trust deed dated 24.9.2004 for acquiring non-performing assets (NPA) from Industrial Development Bank of India(for short "IDBI"). Respondent No.1 and appellant in both these appeals, is a co-operative bank (in short "GICB), which was earlier governed by Gujarat Co-operative Societies Act, 1961 and now a Multi- State Co-operative bank and hence governed by Multi- State Co-operative Societies Act, 2002 (for short "Societies Act 2002") and mainly dispute has arisen in the context of financial facilities given by petitioner Nos. 1, 2, 3 and respondent No.1, appellant in both these appeals.
5. M/s. Jaiswal Pharma Chem Limited is original respondent No.2 and previously known as M/s. /Shri NICOSET Limited and the name of the borrower NICOSET limited was changed on 4.9.2000 to M/s. Jaiswal Pharma Chem Limited (in short "JPCL"). The petitioner No.1 GIIC sanctioned term loan of Rs.325 lacs in favour of JPCL on 4.7.2001. The petitioner NO.2 GSFC sanctioned term loan of Rs.240 lacs vide letter of sanction dated 11.10.1999, for which, equitable mortgage by depositing tittle deeds was Page 3 of 48 HC-NIC Page 3 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT executed on 27.11.1999 by a Director of erstwhile M/s. NICOSET Limited in favour of GSFC. Thereafter IDBI sanctioned term loan of Rs.1200 lacs in favour of M/s. NICOSET, for which, security documents like loan agreement and deed of hypothecation dated 1.8.2000 were executed and also indenture of mortgage dated 5.12.2000 by JPCL confirming the same in favour of IDBI etc. The above indenture of mortgage referred to term loan of Rs.1200 lacs by IDBI as 'the first loan' and term loan of Rs.240 lacs of GSFC as 'the second loan'. JPCL ratified all above borrowings by erstwhile NICOSET Limited and including mortgage deed and even charge was registered under Companies Act,1956 with Registrar of Companies. Later on IDBI had assigned its debts to petitioner No.3-trust Stressed Assessment Stipulation Fund ( in short "SASF") as per transfer deed dated 29.9.2004.
5.1. The change in the name of erstwhile M/s./Shri NICOSET limited as M/s. Jaiswal Pharma Chem Limited was approved by the petitioners pursuant to letter dated 21.5.2001. JPCL committed defaults in re-payment of loans to GIIC, GSFC and IDBI and, therefore, all three institutions permitted petitioner No.1 to take action under Section 29 of the State Financial Corporations Act, 1951 (For short "SFC Act, 1951"). The statutory notice to JPCL was given after providing reasonable opportunity etc. possession of the industrial unit at Ankleshwar was taken over by Page 4 of 48 HC-NIC Page 4 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT petitioner NO.1 on 3.2.2003 in exercise of powers conferred under Section 29 of SFC Act 1951. Even thereafter, JPCL failed to re-pay outstanding dues of GIIC, advertisement was issued inviting offer by way of tender from public at large in respect of possession situated at Ankleshwar unit and accordingly, auction was to be held on 26.5.2003. However, a writ petition was filed by respondent No.1 and appellants herein before this Court being Special Civil Application No.5550 of 2003 against petitioner No.1 restraining from holding auction of assets in question, which came to be rejected by order dated 2.5.2003 as no charge over machineries of company was found on the basis of material on record. After rejection of the petition, respondent No.1-Bank filed recovery application on 21.5.2003 before the Board of Nominee, Arbitrary Tribunal and the case was registered as Arbitration Case NO.841 of 2003 which was re-numbered later on as Arbitration Case No.20 of 2005. The arbitrator initially granted ad-interim injunction restraining the defendants/petitioners in the writ petition from dealing with the properties in question. The above order was challenged by petitioner NO.1 before this Court in writ petition being Special Civil Application NO.8063 of 2003 which came to be dismissed on 26.9.2003 and Letters Patent Appeal No.1071 of 2003 preferred against was also not entertained and dismissed on 18.11.2003 on the ground that it was an ex-parte order passed by the Tribunal and stay application was pending and, therefore, Page 5 of 48 HC-NIC Page 5 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT the petitioner could appear and raise issue about the jurisdiction of arbitrator and other permissible legal grounds. After hearing the parties, the arbitrator decided that any proceedings with the arbitration case, the arbitrator has jurisdiction and the above order was passed on 31.12.2005 which was subject matter of writ petition being Special Civil Application No. 20962 of 2006.
6. As per appellants and original respondent No.1 events narrated as above as such not in dispute but in 1994 NICOSET Limited had sought credit facilities to the tune of Rs.450 lacs from the respondent No.1/appellant- Bank (GICB) and the equitable mortgage of the land of the factory premise of the Company was created on 11.6.1999. That the above financial assistance was granted between period from 5.1.1999 to 6.11.1999 and it was secured by way of hypothecation of stock, plant and machineries and equitable mortgage of immovable properties etc. Thereafter appellant-Bank granted further financial assistance to JPCL by way of temporary overdraft facility aggregating to Rs.8883 lacs which was secured by way of hypothecation of stocks and machineries in favour of the appellant. It is also on record that company secretary indicated that the appellant-Bank had a charge by way of equitable mortgage of loan and building of the respondent-JPCL Company situated at Block No.291 old survey No.109 at Village Dantali of District: Kheda as per opinion dated 15.6.2000. However according to GIIC, Page 6 of 48 HC-NIC Page 6 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT GSFC and the SASF nowhere it was mentioned that charge over any of the assets of industrial unit of JPCL at GIDC, Ankleshwar was created in favour of appellant-Bank. That possession of the unit of the respondent-JPCL at Ankleshwar by GIIC on 5.2.2003 in purported exercise of power under Section 29 of the State Financial Corporation Act and other aspects subsequent thereto are recorded in earlier paragraph leading to the filing of writ petitions etc. but case of the appellant being a Multi-State Cooperative Society under the Multi-State Co-operative Societies Act, 2002 is that for recovery of an amount of Rs.15,20,97,041/-, under Section 84 of the above Act, arbitration case was filed in which Registrar's Nominee by order dated 22.5.2003 granted ad-interim relief, namely stay of the auction proceedings under Section 29 of the SFC Act. On 1.3.2005 Registrar of Co-operative Societies in exercise of powers conferred under Section 84(4) of the Multi State Cooperative Societies Act read with notification dated 24.2.2003 of the Ministry of Agriculture, Union of India appointed Shri M.M.Vakil as an arbitrator to settle the money suits filed by the appellant so far as the borrowers located in district of Surat, Navsari and Valsad and formal order was passed to the above fact on 17.8.2005. In the above proceedings of arbitration respondent No.1 original writ petitioner raised preliminary issues of jurisdiction of arbitration under Section 84 of the Multi-State Co-operative Societies Act which came to be rejected by learned Arbitrator on 31.12.2005, which was Page 7 of 48 HC-NIC Page 7 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT the subject matter of Special Civil Application No.20962 of 2006.
7. A joint meeting was held between the representatives of the respondent Nos.1 to 3 and the appellant on 12.4.2007 for the purpose of disposal of the assets of the respondent NO.4. On the basis of the consensus recorded in the said joint meeting, the minutes whereof were placed on record, wherein the Court ordered on 30.7.2007 for appointment of a Sale Committee consisting of one representative each of the respondent Nos.1 to 3 and of the appellant for the purpose of sale of the assets of the respondent No.4 Company and to take necessary steps in that regard as per the directions contained in the order and the final offer along with report for confirmation of sale. On 14.9.2007 an advertisement was issued by respondent No.1 in the newspapers inviting offers for sale of the assets of the respondent No.4 Company.
8. In view of the report dated 23.2.2007 submitted in compliance with the order dated 30.7.2007 of receiving the highest offer from Unimark Remedies Ltd. The applicant of Civil Application NO.9630 of 2008 for Rs.17 crores which was thereafter enhanced to Rs.17,05,00,000/-, this Court passed an order permitting the Sale Committee to confirm the sale at the said figure of Rs.17,05,00,000/- and to complete the remaining Page 8 of 48 HC-NIC Page 8 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT formalities for completion of the sale in accordance with law within the schedule provided in the terms and conditions of sale and that the said amount of sale proceeds shall be deposited in the escrow account maintained by the IDBI, Ahmedabad as per the minutes of the Sale Committee held on 24.8.2007. It was also directed that the said account to be opened by the IDBI an interest bearing account.
9. On 1.11.2007 Civil Application No.12798 of 2006 was filed by respondent No.6-Industrial Engineering Company seeking impleadment in the said petition on the ground of the said Company holding a decree against the respondent NO.4 and the said application was rejected and on 1.2.2008 possession of assets of respondent No.4 Company was handed over to the purchaser Unimark Remedies Ltd. On 16.6.2008 Civil Application No.7370 of 2008 was filed by respondent No.3 to 8 in the said main petition seeking a relief for authorising the Chairman of the Sale Committee to execute the deed of assignment- cum-sale etc. in favour of the highest bidder for a value of Rs.4,68,02,000/- for immovable property as well as memo of possession receipt in respect of sale of movable plant and machinery at a value of Rs.12,36,98,000/- in favour of M/s. Unimark Remedies Ltd., and for a further declaration that upon execution of the said documents and deeds in favour of the said purchaser, M/s. Unimark Remedies Ltd., the charge of the appellant and the said applicants, if any, Page 9 of 48 HC-NIC Page 9 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT shall stand discharged in respect of the assets, plant and machinery and all the secured creditors may be directed to release papers/securities titles related to property which may be handed over to the purchaser. A detailed reply was filed by the appellant contending inter alia that the respondent Nos. 1 to 3/original writ petitioners cannot be permitted to be the sole vendors in view of the charge of the appellant over the assets of the respondent No.4 Company and that the authorization thereof would tantamount to travelling beyond the consensus in that regard as recorded earlier. On 20.10.2008, Letters Patent Appeal No.295 of 2008 was allowed wherein respondent No.6 challenged the order dated 1.11.2007 rejecting the application for joining party. Respondent No.6 was permitted to be impleaded as a party respondent.
10. Civil Application No.9630 of 2008 was filed by M/s. Unimark Remedies Ltd, (purchaser) for refund of Rs.17,05,00,000/- paid towards the sale price as per the order dated 1.11.2007 passed in the main petition, on the ground that in absence of a clear marketable title, though the possession was given on 1.2.2008, the said purchaser is not in a position to obtain the necessary permission for setting up the manufacturing unit and commencement of production. A further Civil Application for amendment being Civil Application No.10829 of 2008 was also filed by the said applicant which was allowed. The Court ordered Civil Application NO.9630 of 2008 to be heard with the Page 10 of 48 HC-NIC Page 10 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT main petition on 2.3.2009. Civil Application No.13513 of 2010 filed by the purchaser for review of the order dated 1.11.2007 was rejected and Letters Patent Appeal No.57 of 2011 filed by the purchaser against the said order was disposed of vide order dated 11.4.2012 with a direction that the main petition along with all Civil Applications be listed for final hearing before the appropriate Court.
11. Civil Application No.13555 of 2012 was filed in the main petition by the respondent Nos. 1 to 3/original writ petitioners seeking amendment on the ground that the State Financial Corporation Act being a special Act would prevail over Multi State Cooperative Societies Act, being a general Act which was allowed.
12. The learned Single Judge allowed the Special Civil Application No.20962 of 2006 on 10.5.2013 and the impugned order dated 31.12.2005 passed in Arbitration Case No.20 of 2005 was quashed and set aside. The learned Single Judge allowed the said petition essentially on the following grounds:-
(1) That the impugned order of the arbitrator was not a properly reasoned order.
(2) That the Act of 1951 (State Financial Corporation Act) is a special Act and the Act of 2002 (Multi State Cooperative Societies Act) is not a special Act and therefore, the special Act would Page 11 of 48 HC-NIC Page 11 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT prevail.
(3) None of the Sections of the Act of 2002 would govern the transaction between the financial institution and the borrower Company. (4) The financial institutions claim a statutory charge over the property, there is no question of the financial institutions claiming through any member of the society.
(5) Hence, it was held that the arbitrator did not have any jurisdiction "to entertain the suit instituted by the Gujarat Industrial Cooperative Bank" (the appellant herein)
13. Being aggrieved by and feeling dissatisfied with the said judgement and order dated 10.5.2013 passed in Special Civil Application No.20962 of 2006, the appellant has challenged the same by filing Letters Patent Appeal No.834 of 2013
14. In the backdrop of various contentions raised by learned advocates appearing for the parties including that of jurisdiction of learned Arbitrator in proceedings with arbitration case and provision of the State Financial Corporation Act, 1951 (SFC Act, 1951) being Special Act and Multi-State Co-operative Societies Act, 2002 is General Act, it was held that provisions of Special Act namely, SFC 1951 would prevail over Act, 2002.
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15. For the sake of convenience the above finding and declaration of law by learned Single Judge in para 5.2 of the judgement under challenge is reproduced herein above.
"5.2 In my view, the contentions of learned advocate for the petitioners Mr.Shelat is well founded on both the counts. Firstly, in view of the judgments relied on by the advocate for the petitioners which are referred herein above, it is clear that the Act of 1951 is the Special Act and the Act of 2002 is not the Special Act, and there can not be any dispute on the proposition of law that, when there is conflict between the provisions of a Special Act and that of a Non- Special Act, the one which flows from the Special Act would prevail. In view of this, the Act of 2002 could not have been invoked in the facts of this case, and thus the Arbitrator would not assume the jurisdiction. Additionally, I also find that none of the sections of the Act of 2002 would govern the transactions between the petitioners Financial Institutions and M/s.Jaiswal Pharma Chem Limited. Learned advocate for the petitioners has rightly pointed out Page 13 of 48 HC-NIC Page 13 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT that, in Section 84(1) of the Act of 2002, it has been provided that, notwithstanding anything contained in any other law for the time being in force, if any dispute (other than a dispute regarding disciplinary action taken by a Multi State Cooperative Society against its paid employee or an an industrial dispute as defined in Clause (k) of Section 2 of the Industrial Disputes Act, 1947) touching the constitution, management or business of a Multi-State Cooperative Society arises, among members, past members and persons claiming through members, past members and deceased members, and other categories which are enumerated in clauses (a) to (d) of Section 84(1), such dispute shall be referred to arbitration, but since the petitioners claim a statutory charge over the property, there is no question of the petitioners claiming through any member of the society. Under these circumstances, I hold that the Arbitrator did not have jurisdiction to entertain the suit instituted by respondent no.1 before it. The judgment relied on by learned advocate for Respondent No.1 which is Page 14 of 48 HC-NIC Page 14 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT referred above, will not take the case of the Respondent No.1 any further in the facts of this case. The impugned order, therefore, needs to be quashed and set aside."
16. Thus, learned Single Judge held that the arbitrator had no jurisdiction and, therefore, the order under challenge in the writ petition required to be quashed and set aside. However, with regard to possession of the property in question which was taken from M/s. Jaiswal Pharma Limited in the proceedings under Section 29(1) of SFC Act 1951, learned Single Judge relied and reproduced orders passed in various Civil applications and order was passed as under.
"10. For the reasons recorded above, the following order is passed.
10.1 Special Civil Application No.20962 of 2006 is allowed. Impugned order dated 31.12.2005 passed by the Arbitral Tribunal is quashed and set aside. Rule made absolute with no order as to costs.
10.2 It would be open to the petitioners to proceed further with the proceedings under Section 29 of the State Financial Corporations Act, 1951 in accordance with Page 15 of 48 HC-NIC Page 15 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT law.
10.3 Civil Application No.9630 of 2008 is allowed. The transaction of sale of properties in question to this applicant i.e. M/s.Unimark Remedies Limited, pursuant to the so called consensus projected before this Court, as reflected in the order dated 30.07.2007, and consequential advertisement dated 14.09.2007, stands cancelled. The amount of Rs.17,05,00,000/- (Rupees Seventeen Crores and Five Lacs Only) lying with the Industrial Development Bank of India in interest bearing escrow account under the orders of this Court dated 01.11.2007, recorded on Special Civil Application No.20962 of 2006, is directed to be refunded to the applicant - M/s.Unimark Remedies Limited, along with the interest accrued thereon, within a period of two months from today. M/s.Unimark Remedies Limited shall hand over the properties in question back to the petitioners within the said period two months from today. Petitioner No.1 i.e. Gujarat Industrial Investment Corporation shall act on behalf of all the petitioners in this regard. M/s. Unimark Remedies Limited is directed to abide by the concession given by it, through learned Senior Advocate Mr.Percy Kavina, Page 16 of 48 HC-NIC Page 16 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT with regard to giving up claim over interest, as recorded in para 8.7 above. In the eventuality of interest not payable to this applicant, the said amount earned, shall be distributed by the petitioners and original Respondent No.1, as per the arrangement that may be worked out by the Gujarat Industrial Investment Corporation.
10.4 In view of Civil Application No.9630 of 2008 having been allowed, Civil Application No.1570 of 2009 filed in Civil Application No.9630 of 2008, by the same applicant, would not survive. In view of that, Civil Applications No.7370 of 2008 filed by original petitioner No.1 and Civil Application No.6583 of 2008 filed by original petitioner No.3 praying for the orders of this Court, to give them direction to execute sale deed in favour of the applicant of Civil Application No.9630 of 2008 would not survive. These three applications stand disposed of accordingly."
17. Thus, in the Letters Patent Appeal No.834 of 2013 in Special Civil Application NO. 20962 of 2006 Mr.Mihir Joshi, learned senior counsel appearing for the appellant would contend that impugned judgement and order dated Page 17 of 48 HC-NIC Page 17 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT 10.5.2013 runs counter to the settled position of law. That even the person claiming his rights in respect of properties of the principal borrower, a member of the bank can be amenable to the jurisdiction of the arbitrator in recovery proceedings filed by the Bank and learned Single Judge committed an error by passing non-reasoned order and contentions raised by the appellant were not dealt with. Further, according to learned senior counsel, a gross error in exercise of jurisdiction is committed by learned Single Judge while holding that the SFC Act, 1951 being a special Act and, therefore, it would prevail over Multi-State Co-operative Societies Act, 2002, which is not a special Act. Infact learned Single Judge failed to consider the over riding effect of the provisions so contained in Section 84 of the Act, 2002 which begins with non-obstant clause "notwithstanding anything contained in any other law for the time being in force" and, therefore when the appellant had filed the suit for recovery of its outstanding dues in respect of disbursement made against hypothecation of stocks, plant and machineries of the principal borrower, learned Single Judge ought to have given due consideration to the provisions of Section 84 of the above Act and exercise of powers conferred upon financial institution under Section 29 of the SFC Act, 1951 would be subject to the above over riding effect of Section 84 of the Multi-State Co-operative Societies Act, 2002, admittedly enacted later in the year 2002.
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18. It is next contended that respondent No.1 and respondent No.3 being a Government Company and a trust created for the purpose of clearing non-performing assets of IDBI and they are not in financial business within the meaning of Section 2 (b) of the SFC Act 1951 and therefore, such respondents could not have invoked provisions of Section 29 of the Act, 1951 for recovery of their dues in respect of assets of Respondent No.4 Company which was charged to the appellant prior in point of time. Inter alia, it is submitted that learned Judge further committed error by holding that respondent Nos.1 to 3 are claiming the statutory charge over the property of respondent No.4 Company, therefore, no question arose of respondent Nos.1 to 3 claiming through any member of the society and thus, the arbitrator had no jurisdiction to entertain the suit filed by the appellant. It is further contended that the appellant Bank has filed arbitration proceedings in view of the fact that a statutory remedy is available for recovering advances and loss which is part of the business of the appellant and such proceedings are governed by Section 84(1) of the Act. Under Section 84 (1) (b) of the Act, 2002, a dispute between a member, past member and persons claiming through a member, past member or deceased member and the Multi-State Cooperative Society, it is board or any officer, agent or employee of the Multi-State Co-operative , or liquidator , past or present, is covered and such dispute shall be referred to arbitration. The appellant-Bank being a Co-
Page 19 of 48HC-NIC Page 19 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT operative Bank and registered under Act, 2002 and M/s. Jaiswal Pharma Chem Limited is the member of the Bank. The above Company was earlier known as NICOSET Limited to which, initially loans were advanced. According to learned senior advocate, all the defendants in arbitration proceedings including original writ petitioners before this Court are members of the appellant-Bank which claims under its original transactions with respondents of hypothecation of machinery to the bank over the period of time from 2000 to 2002. The claim of GIIC is under a letter committee of hypothecation dated 19.6.2001 which was registered indenture of mortgage dated 4.7.2001. That claim of banks against GIIC arise from the transactions of the Bank with its member M/s.Jaiswal Pharma Chem Limited, which were made by the member as a member of the Bank. GIIC also claims through or under M/s. Jaiswal Pharma Chem Limited, a member of the Bank. In view of such type of transactions or dealing with arbitral case against GIIC is competent and maintainable and arbitrator as the jurisdiction to entertain the dispute under Section 84 of the Act, 2002.
19. Learned senior counsel has drawn our attention to various documents revealing stocks, plant and machineries of principal borrower namely, respondent No.4 were hypothecated in favour of the appellant, registered as a cooperative society when initially loan was advanced to the company the appellant was registered Page 20 of 48 HC-NIC Page 20 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT under Gujarat Co-operative Societies Act but now governed under Multi-State Co-operative Societies Act, 2002 and, therefore, the appellant was a secured creditor entitled to recover its dues from said assets. By referring Section 48(1) of the Gujarat Cooperative Societies Act, it is submitted that the appellant has an edge over and primacy having 1st charge so far as hypothecated stocks, plant and machinery are concerned and in view of sub- section (2) of Section 48 the first charge was created in favour of the appellant-Bank and no transfer of such assets could have been made by the respondent No.4 Company in favour of respondents Nos. 1 to 3. It is therefore submitted that the issue of jurisdiction of the learned Arbitrator in the facts of this case being a mixed question of law and fact and therefore, also same could have been finally pronounced only after leading of evidence in that regard and, therefore, learned Judge committed an error in allowing respondent Nos.1 to 3 to proceed under Section 29 of SFC Act, 1951.
20. Mr. S.N.Shelat, learned senior counsel with Mr. Rajesh Dave, learned advocate for the original petitioners and Financial Corporations who have acted under Section 29 of SFC Act, 1951 would contend that no error is committed by learned Single Judge in view of plain reading of provisions of Section 29 read with Section 46B of the Act 1951 which confers extraordinary powers upon Financial Corporation and even auction under the above provision was held of the assets etc. of defaulter Company Page 21 of 48 HC-NIC Page 21 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT and the sale amount is also realised, learned Arbitrator has no jurisdiction to deal with the dispute with regard to subject matter and the order under challenge deserves to be upheld accordingly. Mr. Shelat, learned senior counsel has drawn our attention to inter-say transaction, agreement and security documents executed between GSFC and IDBI with regard to immovable assets, land, buildings, plant and machinery of the Company M/s. Jaiswal Pharma Chem Limited by way of first charge ranking pari-pasu with GSFC and IDBI and respondent No.2 executing various security documents like indenture of mortgage deed of hypothecation, personal guarantee in favour of GIIC. The charge of GIIC has been registered by respondent No.2 Company with Registrar of Companies. Thus, there is no charge of any bank or financial institutions over the movable or immovable assets of M/s. Jaiswal Pharma Chem Limited. Even search report carried out by a Company Secretary in the report dated 15.6.2001 clearly mention that respondent No.1 Co-operative Bank had charge by way of equitable mortgage on Block No.291, Old Survey No.109 at Village Dantali, District:
Kheda where respondent No.2 had its tobacco factory in the name of NICOSET Limited, which was closed down and there is no charge created by respondent No.2 Company in respect of any of the assets situated at Plot No.6002/6003, Phase V at GID Estate, Ankeleshwar in favour of the Cooperative Bank.Page 22 of 48
HC-NIC Page 22 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT 20.1. That original petitioner No.1-GIIC is empowered to exercise powers under Section 29 of SFC Act and petitioners inter-say decided to authorise GIIC to take action for recovery under Section 29 of SFC Act, it cannot be said that other co-petitioners had no authority to take shelter under Section 29 of the act by authorising GIIC to take action accordingly. It is submitted that in absence of merit, appeal deserves to be rejected.
21. In Letters Patent Appeal No.1031 of 2013, the challenge is to orders passed in Civil Application NO. 9630 of 2008, by which, the amount of Rs.17,05,00,000/- lying with the Industrial Bank of India in interest bearing escrow again under the orders of the Court dated 1.11.2007 was directed to be refunded to the applicant namely M/s.
Unimark Remedies Ltd., an auction purchaser and it is contended that the above consequential direction by learned Judge is contrary to law inasmuch as none of the respondent Nos.1 to 3 had any legal right to invoke provisions of Section 29 of SFC Act, 1951.
22. It is therefore, submitted that both the Letters Patent Appeal deserves to be allowed by setting aside the orders impugned.
23. We have perused and considered following financial assistance/term loans advanced by GIIC, GSFC, IDBI, original petitioner and GICB-appellant Bank, original Page 23 of 48 HC-NIC Page 23 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT respondent No.1 to NICOSET and JPCL as under:
23.1. M/s. NICOSET Ltd. was incorporated on 22.5.1992 under the provisions of the Companies Act, 1956 executed Memorandum of Entry for creating of charge by deposit of title deeds with GSFC on 27.11.1999 for term loan of Rs.240 lakhs advanced to the company.
Deed of hypothecation dated 27.11.1999 was executed by M/s. NICOSET Ltd. in favour of GSFC for the above loan amount. Under Companies Act, 1956 in from No.8. Particulars of charge created by company was registered under Section 125 on 9.2.2001 for the deed of hypothecation dated 27.11.1999 between M/s. NICOSET Ltd. and GSFC.
On 1.8.2000 loan agreement was executed between M/s. NICOSET Ltd., and IDBI for the financial assistance/loan for the amount of Rs.1200 lakhs.
Deed of hypothecation dated 1.8.2000 was executed by M/s. NICOSET Ltd., in favour of IDBI for the amount of Rs.1200 lakhs, as above. The charge came to be registered in form Nos. 8 and 13 between M/s. NICOSET Ltd. and IDBI for deed of hypothecation dated 1.8.2000 for the amount of Rs.1200 lakhs.
On 4.9.2000 certificate of incorporation was issued Page 24 of 48 HC-NIC Page 24 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT and name of M/s. NICOSET Ltd. was changed as M/s. Jaiswal Pharma Chem Ltd.
On 5.12.2000 declaration and undertaking was filed by the directors of M/s. Jaiswal Pharma Chem Ltd. [formerly known as M.s, NICOSET Ltd.,] for joint mortgage in favour of IDBI and GSFC for the term loan of Rs.1200 lakhs and Rs.240 lakhs respectively. The schedule to the above undertaking includes plot Nos. 6002 and 6003 admeasuring 20,100 square meters at GIDC, Ankleshwar in the village limits of Saranpur.
The particulars of charge created under Section 125 by M/s. Jaiswal Pharma Chem Ltd., formerly known as M/s. NICOSET Ltd.) in favour of IDBI for the amount of Rs.1200 lakhs, came to be registered in form No.8 on 22.12.2000.
Again, deed of hypothecation dated 1.8.2000 executed by M/s. NICOSET Ltd. in favour of IDBI came to be modified on 5.12.2000 by indenture of mortgage with regard to plot Nos. 6002 and 6003 at GIDC, Ankleshwar and so signed by M/s. Jaiswal Pharma Chem Ltd., in favour of SASF, as per deed of assignment by IDBI on 29.9.2004, came to be registered in form No.8 under companies Act on 25.1-.2004 for the amount of Rs.1200 lakhs.
That indenture of mortgage dated 5.12.2000 executed by M/s. Jaiswal Pharma Chem Ltd., is in favour of Page 25 of 48 HC-NIC Page 25 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT two lenders viz. IDBI and GSFC which referred to an amount of Rs.1200 lakhs as term loan advanced by IDBI as 'the first loan' and terms loan of Rs.240 lakhs advanced by GSFC as 'the second loan'.
Indenture of mortgage dated 4.7.2001 by M/s. Jaiswal Pharma Chem Ltd., [formerly known as M/s. NICOSET Ltd.] in favour of GIIC Ltd., creating charge over same plot No.s 6002 and 6003 by GIDC, Ankleshwar with the consent of GSFC and IDBI and the above charge was registered in form No.8 referring to deed of hypothecation dated 19.6.2001 between M/s. Jaiswal Pharma Chem Ltd., and GIIC for the term loan of Rs.325 lakhs. The above registration took place on 5.7.2001. Even the above charge is also reflected as per document prepared by office of the Joint Sub-Registrar, Ankleshwar for the same plot Nos. 6002 and 6003, GIDC, Ankleshwar.
24. As against claim of petitioners GIIC, GSFC and SASF, claim of appellant (GICB) is about a sum of Rs. 225 lakhs advanced to M/s. NICOSET Ltd., against factory premise and machinery of the said company at village Dantali. The machinery at Dantali as later on shifted to Ankleshwar and is the subject matter of charge of bank. Further advances to the above company was made by GICB to a total of Rs.883 lakhs and with interest come to more than 1528 lakhs. It is the case of GICB that 2/3 rd of machinery of the company was purchased from the funds advanced Page 26 of 48 HC-NIC Page 26 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT by GICB from time to time and such machinery was hypothecated by the company with GICB. The balance sheet of the company as on 31.3.2000 reveals the machinery worth Rs.48 crores has already been erected. The company also signed hypothecation documents, demand promissory notes and loan agreements with GICB for the advances taken from GICB.
That consortium was formed of GIIC, GSFC and SASF to realise dues from defaulters JPCL by invoking powers under Section 29 of SFC Act, 1951.
25. Mr. S.N.Shelat, learned senior counsel for GIIC /original writ petitioners and Mr. Mihir Joshi, for the appellant GICB placed reliance on following decisions and we propose to consider them in the context of submissions canvassed before us and law laid down therein as under:
(1) AIR 1967 SC 389 in the case of Bihta Co-
operative Development and Cane Marketing Union Ltd., v. Bank of Bihar, in the context of provisions of Section 48(1) and Explanation (1) and Section 57 of the Bihar Act, 1948 aspect of jurisdiction is to be considered in the facts of this case in the backdrop of law declared in the above case, where, Section 48(1) of Bihar Act was almost parimateria and the Apex Court held that Section 48(1) read with explanation therein would not cover non- members other than officers, agents or servants of the Page 27 of 48 HC-NIC Page 27 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT society. Even, explanation to the section was to include non-members after the insertion of category (e) in sub- Section (1) of Section 48 and the purpose of the explanation was enough to enlarge the scope of sub- Section (1) of Section 48 and the addition of category (e) to that sub-section and the inclusion of non-members in the explanation cannot have that effect.
Thus, even after insertion of category (e) the explanation was to be read so as to harmonize with and clear up any ambiguity in the main section and not to be construed as to widen ambit of section.
(2) AIR 1969 Deccan Merchants Co-operative Bank Ltd., v. M/s. Dalichand Jugraj Jain and Ors., in which section 91(1) of Maharashtra Co-operative Societies Act, 1961 having parimateria provision to Section 84 of Act 2002 was considered and dispute touching the society was interpreted in para 17 and held that word "business" is used in narrower sense and it means the actual trading or commercial or similar business activity of the society and further dispute between a society and a member or a person claiming through a member. It was held that the claims would arise through a transaction or dealing with the member entered into with the society as a member. If a member entered into a transaction with the society not as a member but as a stranger then he must be covered, if at all, by the provisions of sub-section (1) of Section 91 Page 28 of 48 HC-NIC Page 28 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT and clause (A) or clause (C) of the Act. But once it is held that the original transaction was entered into by the member with the society as a member then any person who claims right or title through that member must come within provisions of Section 91 (1) (b) of the Act.
(3) AIR 1972 SC 2161 I.R. Hingorani v.
Pravinchndra Kantilal Shah, in which again Section 91(1) (b) of Maharashtra Co-operative Societies Act, 1961 was considered in which it was held that 'person claiming through a member' claim should arise through a transaction or dealing which the member entered into with the society as a 'member'.
(4) AIR 2004 Bombay 166 (Full Bench) in the case of Narendra Kantilal Shah v. Joint Registrar, Co- operative Societies, Bombay and Ors. in which full bench of Bombay High Court considered Multi-State Co- operative Societies Act, 2002 and Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and held that with regard to recovery of dues of Co-operative Act of 2002 is a general statute while Recovery of Debts Due to Banks and Financial Institution Act, 1993 is a special legislation and in absence of any exceptions made under 2002 Act provisions of Section 84 would not operate to oust the 1993 Act from the field occupied by it. In para 31 held as under:
Page 29 of 48HC-NIC Page 29 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT "31. Now, so far as the provisions of Section 84 of the 2002 Act are concerned, it is clear from what has been observed above that when the 1993 Act was enacted as also in 1999 when that Act became operative in the region with which we are concerned, though 1984 Multi-State Co-operative Societies Act was in force, Section 74 of that Act which provided remedy was inoperative having been stayed by this Court, therefore the provisions of the 1993 Act will occupy the field and therefore when the 2002 Act was enacted by the Parliament, the 2002 Act being essentially a general statute as compared to the 1993 Act, unless the 2002 Act makes a special exception, the provisions of Section 84 of the 2002 Act will not operate to oust the 1993 Act from the field which is occupied by it. It may be, incidentally, mentioned here that so far sub-section (1) of Section 84 of the 2002 Act is concerned, it is identical to sub-
section (1) of Section 74 of the 1984 Act.
Had section 74 of the 1984 Act been in force in 1999, it is 1993 Act which would have operated being a special law. In our Page 30 of 48 HC-NIC Page 30 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT opinion, therefore, the enactment of Section 84 in the 2002 Act will not make any material difference. When the field is occupied by a special legislation enacted by a competent legislature and the same legislature subsequently enacts another law which is of general nature, the general legislation cannot be taken to have displaced the special law which is in operation unless there is a specific provisions made in the subsequent general law to that effect. In such a situation, the special law which occupies the filed does not get displaced merely by implication. The legislature being the same would be aware, while enacting the subsequent general legislation that it has already enacted a special law and it is that law which occupies the field, therefore, if it is its intention to displace that special law it would specifically say so. In these circumstances, therefore, in our opinion, in the absence of any specific provision in the 2002 Act, excluding the operation of the 1993 Act which was in operation, in relation to Bank registered Page 31 of 48 HC-NIC Page 31 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT under the 2002 Act, it is the 1993 Act and not the 2002 Act which would operate."
(emphasis supplied)
(5) AIR 2007 SC 1584 Greater Bombay Co-
operative Bank Ltd. vs. M/s. United Yarn Pvt. Ltd. & Ors., the Apex Court was considering two central legislations namely Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Multi-State Co-operative Act, 2002 with Maharashtra Co- operative Societies Act, 1961, a State legislation and it was held that the Co-operative Societies Act on the one hand and RDDB Act on the other hand cannot be regarded as supplemented to each other since provisions of the said acts cannot be said to be pari materia and their powers to be a conscious exclusion and deliberate omission of Co-operative Bank from the provisions of RDDB Act.
(6) AIR 2008 SC 1797 (1) in the case of Karnataka State Financial Corporation v. N.Narasimahaiah and Ors., in which Section 29 of State Financial Corporation Act, 1951 was considered, in which, rights of Corporation to make recovery was construed and it was held that Section 29 confers extraordinary power on Corporation.
(7) 2009 AIR SCW 635 (1) in the case of Union of India & Ors. v. SICOM Ltd. And Anr., while considering Section 29 and Section 46B of State Financial Corporation Page 32 of 48 HC-NIC Page 32 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT Act, 1951 it was held that with regard to recovery of debt, common law principle must yield to statutory provision and debt which is secured or by virtue of statutory provisions becoming first charge over property even would prevail over crown debt. Under Section 46B read with Section 29 the right of a State Financial Corporation to recover dues being statutory one and it contains non-obstante clause, which shall not only prevail over the contract but also other laws and even dues of financial Corporation will have priority over the Central Excise dues recoverable as land revenue.
(emphasis supplied) (8) 2003 (4) GLR 3547 in the case of Citizens Co operative Bank Limited vs. Harshadkumar M.Mashru, in the context of Lavad Suit filed under Section Gujarat Co-operative Societies Act, 1961 when conditional order of attachment before judgement was passed in which respondent No.1 impleaded as respondent No.5, who stood as surety but was not even a member of Bank on the date when suit was filed decision of the Tribunal was upheld and writ petition was dismissed.
25.1. Mr.Mihir Joshi, learned senior counsel for the appellant GICB has placed reliance on decision in the case of Navjivan Paper Mart vs. Rajkot Vibhagiya Nagrik Sahkari Bank Ltd. reported in 1975 GLR 80 rendered Page 33 of 48 HC-NIC Page 33 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT in the context of Section 96(1) of Gujarat Co-operative Societies Act, 1961 having substantially pari materia provision of Section 84 of Multi-State Cooperative Societies Act, 2002. In the above case, the petitioner had purchased a cutting machine from respondent No.2 who had secured a loan from respondent No.1 Co-operative Bank for purchasing the said machine and had created a charge on the machine in favour of respondent No.1-Bank. As a result of this transaction of loan by respondent No.2 with respondent No.1, Co-operative Bank on which respondent No.2 was a member at the relevant point time and arbitration proceedings were initiated under Gujarat Co-operative Societies Act 1961 by respondent No.1-Bank against petitioner, respondent NO.2 and another person who was the surety of respondent NO.2. The above proceedings started for the recovery of its due by respondent No.1-Bank for the loan advanced to respondent No.2.
26. In the above case it was held that in the instant case as regard the enforcement of the hypothecation incurred to the machine purchased by the member with the financial aid provided by Co-operative Bank, a person claiming through that member can be made a party to the dispute under Section 96(1)(b) of the Act 1961 and the nominee of the Registrar had jurisdiction to proceed against him. Thus, non-member can be proceeded against under Section 96 provided the non-member is a Page 34 of 48 HC-NIC Page 34 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT person who claims his rights or title through that member.
27. Section 29 and 46B of the State Financial Corporations Act, 1951 reads as under:
"29. Rights of Financial Corporation in case of default.-(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any installment thereof [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the [right to take over the management or possession or both of the industrial concerns], as well as the [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers[***] under Sub-section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) [Where any action has been taken Page 35 of 48 HC-NIC Page 35 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT
against an industrial concern] under the provisions of sub-section (1), all costs, [charges and expenses which in the opinion of the Financial Corporation have been properly incurred] by it [as incidental thereto] shall be recoverable from the industrial concern and the money which is received by it[***] shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.] (5) [Where the Financial Corporation has taken any action against an industrial concern] under the provisions of sub-
section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of [the concern].
46B. Effect of Act on other laws.-The provision of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.] Section 84 of The Multi-State Co-operative Page 36 of 48 HC-NIC Page 36 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT Societies Act, 2002 reads as under:
"84.Reference of disputes.-(1) Notwithstanding anything contained in any other law for the time being in force, if any dispute[other than a dispute regarding disciplinary action taken by a multi-STate co-operative society against its paid employee or an industrial dispute as defined in clause (k) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947) touching the constitution, managements or business of a multi-State co-operative society arises-
(a) among members, past members and persons claiming through members, past members and deceased members, or
(b) between a member, past member and persons claiming through a member, past member or deceased member and the mutli-State co-operative society, its board or any officer, agent or employee of the multi-State co-operative society or liquidator, past or present, or
(c) between the multi-State Co-
operative society or its board and any past board, any officer, agent or employee, or any past officer, past agent or past employee, heirs or legal representatives of any deceased officer, deceased agent or deceased employee of the multi-State co-operative society, or
(d) between the multi-State co-
operative society and any other multi-
State co-operative society, between a multi-State co-operative society and liquidator of another multi-State co-
Page 37 of 48 HC-NIC Page 37 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT operative society or between the
liquidator of one multi-State co-operative society and the liquidator of another multi-State co-operative society.
Such dispute shall be referred to
arbitration.
(2) For the purposes of sub-section
(1), the following shall be deemed to be disputes touching the constitution, management or business of a multi-State co-operative society, namely;-
(a) a claim by the multi-State co-
operative society for any debt or demand due to it from a member or the nominee, heirs or legal representatives of a deceased member, whether such debt or demand be admitted or not;
(b) a claim by a surety against the principal debtor where the multi-State co- operative society has recovered from the surety any amount in respect of any debt or demand due to it from the principal debtor as a result of the default of the principal debtor, whether such debt or demand is admitted or not;
(c) any dispute arising in connection with the election of any officer of a multi- State co-operative society.
(3) If any question arise whether a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a multi-State co-operative society, the decision thereon of the arbitrator shall be final and shall not be called in question in Page 38 of 48 HC-NIC Page 38 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT any court.
(4) Where a dispute has been referred to arbitration under sub-section (1), the same shall be settled or decided by the arbitrator to be appointed by the Central Registrar.
(5) Save as otherwise provided under this Act, the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to all arbitration under this Act as if the proceedings for arbitration were referred for settlement or decision under the provisions of the Arbitration and Conciliation Act, 1996."
Section 48 of the Gujarat Co-operative Societies Act, 1961 reads as under:
48. Prior claim of society:-(1) Notwithstanding anything contained in any other law fro the time being in force, but subject to any prior claim of government in respect of of land revenue or any money recoverable as land revenue and to the provisions of Section 60 and 61 of the Code of Civil Procedure, 1908 (V of 1908),-
(a) any debt or outstanding demand, owing to a society by any member or a person who has ceased to be a member shall be a first charge upon-
(i) the crops or other agricultural produce raised in whole or in part whether with or without a loan taken from the society by him.
(ii) cattle, fodder for cattle, agricultural or industrial implements or machinery, or raw materials for manufacture, or workshop, godown or place of business, supplied to, or purchased by him in whole or in part, from any loan whether in money or goods made to him by the society, and
(iii) any movable property which may have been Page 39 of 48 HC-NIC Page 39 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT hyothecated , pledged or otherwise mortgaged by him with the society, and remaining in his custody:
(b) any outstanding demands or dues payable to a society by any member or a person who has ceased to be a member, in respect of rent, shares loans or purchase money or any other rights or amounts payable to such society, shall be first charge upon his interest in the immovable property of the society:
Provided that the prior claim of Government in respect of dues other than land revenue, shall be restricted for the purpose of this sub-section to the assets created by member out of the funds in respect of which the government has a claim.
(2) No property or interest in property, which is subject to a charge under sub-section (1) shall be transferred in any manner without the previous permission of the society: and such transfer shall be subject to such conditions, if any, as the society may impose.
(3) Any transfer made in contravention of sub-
section (2) shall be void.
(4) Notwithstanding anything contained in sub- sections (2) and (3), a society which has as one of its objects the disposal of the produce of its members, may provide in its bye-laws, or may otherwise contract with its members,-
(a) that every such member shall dispose of his produce through the society, and
(b) that any member, who is found guilty of a breach of the bye-law or of any such contract, shall reimburse the society for any resultant loss, determined in such manner as may be specified in the bye-laws.
28. If Section 29 is considered of SFC Act, 1951 is about Page 40 of 48 HC-NIC Page 40 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT rights of financial corporation in case of default, where any industrial concern is under a liability arising out of an agreement that financial corporation makes any default in repayment of any loan or advance or any installment thereto or in any other manner fails to comply with the terms of such agreement with financial corporation, right to take over the management or possession or both of such industrial concern is conferred upon State Financial Corporation and also right to transfer by way of lease or sale and realize the property either pledged, mortgaged, hypothecated or assigned to the Financial Corporation in any manner. Sub-Section (2) provide that any transfer of property made by the Financial Corporation in exercise of its powers under sub-section (1) as above shall vest in the transferee all rights in or to the property transferred had been made by the owner of the property. Likewise, Financial Corporation shall have the same rights and powers also with respect to goods manufactured or purchased wholly or partly from goods which formed part of the security held by it as it had with respect to original goods, so provided under Sub Section (3) of Section 29. The sub-Section (4) of section 29 confers power to recover expenses incurred by Financial Corporation from the industrial concern and how the amount recovered is to be appropriated first towards payment of costs, charges and other expenses and secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled. Sub-
Page 41 of 48HC-NIC Page 41 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT Section (5) of Section 29 while undertaking legal proceedings Financial Corporation shall be deemed to be owner of such concern, for the purpose of suits by or against the concern, and shall sued in the name of the concerned.
29. In the above context under Section 46(B) of SFC Act 1951 Act having head note on 'Effect of Act on other laws' is given overriding effect as having non-obstant clause therein that the provisions of SFC Act1951 and any rule or order made therein shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or any other instrument having effect by virtue of any law other than Act 1951 and, therefore, anything inconsistent contained in Multi-State Co-operative Societies Act, 2002 therewith Act, 1951 shall have to give way to Act, 1951 and barring the above other provisions of Act 1951 shall be in addition to and not in derogation of any other law for the time being applicable to the industrial concern.
30. The following decisions (1) Karnataka State Finanaciall Corporation v. N.Narasimahaiah & Ors. & (2) Union of India & Ors. SICOM Ltd. and Anr. (supra) reveal that Section 29 of the Act, 1951 read with Section 46B of the Act, 1951 confer extraordinary statutory powers upon Financial Corporation.
Page 42 of 48HC-NIC Page 42 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT
31. However, Section 84 will come into play for a limited purpose when reference of a dispute is under Multi-State Co-operative Act, 2002, though begin with non-obstant clause but restricted to any dispute touching the Constitution, management or business by a Multi-State Co-operative Societies arises among members, past members and persons claiming through members, past members and deceased members or between a member or between the Multi-State Co-operative Societies or any other Multi-State Cooperative Societies and liquidator etc. so stated in clause (a), (b), (c) and (d) of sub-Section (1) of Section 84. The above nature of dispute shall be referred to arbitration. Further, sub-section (2) of Section 84 elaborates types of disputes touching the constitution, management or business of a Multi-State Co-operative Societies in Clause (a), (b), (c) and finality of decision by arbitrator is only with regard to a contention if raised about a dispute referred to arbitration under this section is or is not a dispute touching the constitution, management or business of a Multi-State Co-operative Society. That sub-section (5) of Section 84 is about applicability of provisions of Arbitration and Conciliation Act, 1996.
32. With regard to submissions made by Mr.Mihir Joshi, based on section 48 of Gujarat Co-operative Societies Act, 1961 about prior claim of a society, it is suffice to say that the above State Act is enacted with a view to consolidate amend the law relating to co-operative societies in the Page 43 of 48 HC-NIC Page 43 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT State of Gujarat and Section 48 provides prior claim of society in case of debt or outstanding demand owing to a society by any member or a person who has ceased to be a member shall be first charged upon crops or any other agricultural produce either whole or in part and fodder for cattle, agricultural and industrial implements, machinery, raw materials, works of cut down, place of business, etc. and on any immovable property either hypothecated pledged or otherwise mortgaged by such person with a society. Thus, the first charge is carved out under this provision will have a restrictive meaning for what is contained in clause (a) of sub-section (1) of Section 48 of the Act, 1961. The petitioners are not members of appellant-GICB Bank. Further they have exercised their independent statutory powers under Section 29 read with Section 46B of SFC Act, 1951 against borrowers for non- payment of financial advances and it cannot be said that they are claiming their dues through a member of the appellant-Bank. Conclusively, reasonings assigned by learned Single Judge while holding learned arbitrator has no jurisdiction cannot be said to be contrary to law warranting any interference by this Court.
33. Financial Corporations, in the present case original petitioners having decided to recover financial dues of original debtor company by invoking of provisions of Section 29 of SFC Act 1951 will have an edge over recovery of dues by appellant-Cooperative Bank by Page 44 of 48 HC-NIC Page 44 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT invoking powers under Section 84 of Act, 2002. Likewise, even judgement creditor like original respondent No.6 also shall have to given way to powers exercised under Section 29 of SFC Act, 1951.
34. As it is borne out from the judgement reported in the case of Narendra Kantilal Shah v. Joint Registrar, Co-operative Societies, Bombay and Ors (supra) of Full Bench of High Court of Bombay Multi-State Co- operative Societies Act, 2002 being essentially a general statute and when the field is occupied by special legislation in which provisions of general statute are not excluded by specific mention or recital, a special law will prevail. In this case admittedly, Multi-State Co-operative Societies Act, 2002 is the enactment at a later stage but no provision is made giving overriding effect to the Act of 2002 over other statutes. non-obstant clause contained in Section 84 is only with regard to specified nature of dispute in clauses (a), (b) and (c) of sub-section (2) of Section 84. SFC Act, 1951 is a special Act by which, State Financial Corporations are having exclusive powers to recover financial dues and common law principles will have to yield to statutory provisions and also provisions of other statute like Act, 2002 having main object is to consolidate and amend the law relating to co-cooperative societies in the State of Gujarat.
35. To the extent as above, inconsistencies there with Page 45 of 48 HC-NIC Page 45 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT contained in any other law for the time being in force namely Multi-State Co-operative Act, 2002 and nature of dispute referred therein may be in conflict with or in- consistent with SFC Act, 1951 will have to give a way and, therefore, arbitrator exercising powers under Section 84 will have no jurisdiction.
36. Under SFC Act, 1951, statutory right, independent of and to the extent of inconsistency contained in any of provisions of Multi-State Co-operative Societies Act, 2002, including Section 84 therein, though containing restrictive non-obstant clause without any specific provision of overriding effect over other clause, unlike SFC Act, exercise of powers under Section 29 of SFC Act, for recovery of financial dues by petitioners namely, GIIC, GSFC, SFSC shall prevail over proceedings undertaken by GICB, the appellant Bank under Section 84 of Multi-State Co-operative Societies Act and, therefore, order passed by learned Single Judge having given findings and declaration that SFC Act being a special Act would prevail either Multi-State Co-operative Societies Act, 2002 general Act cannot be said to be in any manner contrary to law requiring no interference.
37. The consortium formed by petitioners permitting one of the petitioners to proceed under Section 29 of SFC Act, 1951 cannot be said to be impermissible and, therefore, illegal. For recovery of dues collectively and so agreed by Page 46 of 48 HC-NIC Page 46 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT other State Government Corporations is also in consonance with concept of a joint association of Financial Corporations or banks recovering dues under a lead financial institution or a bank in other statues namely Companies Act, 1956, SICK Industrial Corporation Act, 1985 and even SARFASI Act, 2002 and RDDB Act. Having lost the challenge upto this Court appellant bank has taken a recourse under Section 84 of Act, 2002 reveal that under one or other pretext process of recovery of financial dues of Corporations in exercise of powers under Section 29 of SFC Act, 1951 is thwarted for no reason. Having agreed before this Court and constitution sale committee pursuant to which, auction had taken place and the offer is received of the highest bidder for more than 17,05,00,000/- reveal that learned Single Judge has acted within four corners of law by passing the order to return the amount deposited in eschrow account to the highest bidder in view of uncertainty and prolonged litigation including conduct of the parties resulting into huge loss to the bidder viz. M/s. Unimark remedies.
38. By referring to various orders passed in Civil Applications, on which, reliance was placed by learned Single Judge cannot be said to be non-application of mind or order without any reason since a primary issue in writ petitions was about deciding jurisdiction of the arbitrator under Section 84 of Multi-State Co-operative Societies Act, 2002 vis-a-vis powers available to Financial Corporation Page 47 of 48 HC-NIC Page 47 of 48 Created On Fri Oct 07 00:08:42 IST 2016 C/LPA/834/2013 CAV JUDGMENT under Section 29 read with Section 46B of SFC Act, 1951.
39. Consequently, in absence of merit both these appeals fail and stand dismissed accordingly.
(ANANT S.DAVE, J.) (R.P.DHOLARIA,J.) SMITA Page 48 of 48 HC-NIC Page 48 of 48 Created On Fri Oct 07 00:08:42 IST 2016