Debt Recovery Appellate Tribunal - Madras
State Bank Of India vs Indusind Bank Ltd. And Ors. on 20 March, 2006
Equivalent citations: 3(2006)BC153
ORDER
K. Gnanaprakasam, J. (Chairperson)
1. The 2nd respondent, which is a company, had availed loan facilities from the appellant Bank against movable securities by way of hypothecation of current assets on the guarantee given by the respondents 3 and 4. As the respondents 2 to 4 committed default in repayment, the appellant Bank filed OA-392/2000 and also obtained a Recovery Certificate on 20.1.2004 and filed Recovery Proceedings RP-32/2004. Other consortium of Banks have also taken legal proceedings against the respondents 2 to 4 among whom the 1st respondent viz., Indusind Bank Ltd. filed OA-455/2000 and recovery certificate was. issued on 1.10.2003 and pursuant to the same, it had also filed RP-512/2003 praying for attachment of the properties also appears that the 1st respondent Bank filed another OA-407/2000 against M/s. Somkan Marine Foods Ltd. in which account also, the 4th respondent was a guarantor, and obtained recovery certificate in RP-10672003 dated 7, 2.2003. The properties were attached on 14.6.2005 and it was noted that the said properties were the properties involved in M.P. No. 2672005 in. RP-106/2003. There is an observation by the Recovery Officer on 14.6.2005 in RP-512/2003 proceedings that, "Property attached on 14.6.2005. Inspected the same. It relates to R.P. 106/2003 (Relatable to Indusind Bank) and R.P. 32/2004 (Relatable to State Bank of India)." The properties were brought to sale and it was sold in the auction held on 18.10.2005. In the said RP-512/2003, the appellant-Bank filed a claim petition dated 20.10.2005, claiming that the OA-398/2000 filed by them against the respondents was decreed in their favour and recovery certificate was also issued and recovery proceedings were also taken and at that time they came to know that these properties were put up for auction in RP-512/2003. The appellant Bank also claimed that they are entitled to ratable distribution of the amount as slated in Section 73 of the CPC. The said claim petition came to be dismissed by the Recovery Officer and the same was challenged by the appellant before the PO in RA-14/2005 and the said RA was also dismissed and thereby affirming the order passed by the Recovery Officer. As against the same, this appeal has been filed.
I have the learned Advocate for the appellant and the 1st respondent.
2. On the face of the records, it is made out that the appellant Bank and the 1st respondent Bank were having parallel claim against the properties, which were attached and brought to sale by the 1st respondent. The appellant also filed OA 398/ 2000 and got a decree on 9.12.2003 and pursuant to the same, recovery certificate was issued on 20.1.2004, proceedings were taken in RP-32/2004, and the same is pending. The very same properties have already been attached by the 1st respondent Bank viz. Indusind Bank in RP-10672003 in OA-407/2000 apart from their claim in RP-512/2003 in OA-455/2000. As the 1st respondent Bank got an order of attachment and also brought the property for sale and it was also sold, the Recovery Officer was of the view that though the appellant Bank had attached the property in RP-32/2004, which property had already been attached by the Indusind Bank, the State Bank of India having attached the properties, had kept quite without taking further steps and, therefore, the claim of the appellant Bank is not sustainable. The claim of the appellant that they are entitled to ratable distribution as provided under Section 73, CPC is not maintainable on the ground that as far as recovery in DRT is concerned, the CPC is not applicable and the execution of the recovery certificate is done as provided under Sections 25, 28 and 29 of the Act 51 of 1993 and also under the rules of the second schedule to the Income-tax Act, 1961, and ITCP Rules, 1962. The Recovery Officer relied upon Rule 8(1) of the Second Schedule to the Income-tax Act, which states--
(a) the sale proceeds shall first be adjusted towards the amount due under the certificate in execution of which the assets were realised and the costs incurred in the course of such execution;
(b) if there remains a balance after the adjustment referred to in Clause (a), the same shall be utilised for satisfaction of any other amount recoverable from the assessee under this Act which may be due on the date on which the assets were released; and
(c) the balance, if any, remaining after the adjustments under Clauses (a) and
(b) shall be paid to the defaulter.
Sub-clauses (b) and (c) are not relevant for this case.
By placing reliance upon Rule 8(1 )(a) referred to above, the Recovery Officer was of the view that the 1st respondent Bank alone had identified the property and had taken action to attach the properties and also to bring the same for sale and it was sold and, therefore, the sale proceeds shall first be adjusted only towards the amount due to the 1st respondent and the appellant has no right to claim ratable distribution. If at all there is any balance, after making adjustment as provided under Clause (b), the balance, if any, alone shall be paid to the defaulter. As there is no balance or surplus amount, the appellant is not entitled to claim any amount from the sale proceeds of the properties, which were brought to sale by the 1st respondent.
3. The learned Presiding Officer was also of the view that the appellant Bank after having obtained recovery certificate in their favour in RP 32/2004, the appellant has not taken out any attachment of the property and Section 73 of the CPC would be applicable only when the property got attached by the appellant and here it has not been done so and, therefore, the appellant is not entitled to the benefit of Section 73, CPC and justified the order passed by the Recovery Officer.
4. Now the question is whether the appellant is entitled to ratable distribution as provided under Section 73 of the CPC or under any other Act.
5. OA 398/2000 filed by the appellant having been decreed, recovery certificate was issued on 20.1.2004 and the appellant also filed RP 32/2004 on 29.1.2004, and after following the procedures it was observed by the Recovery Officer on 6.7.2005 that, "Same property attached on 14.6.2005 in RP 512/2003". On 11.10.2005 it was noted, "Put up for auction sale in RP 512/2003 on 18.10.2005 of the same property". As the properties were sold on 18.10.2005, the appellant filed claim petition in RP 512/2003 and the same is recorded by the Recovery Officer in his proceedings dated 8.11.2005. Appellant's OA was decreed on 9.12.2003 and recovery certificate was issued on 20.1.2004 and there was absolutely no loss of time and recovery proceedings were taken in the month of January, 2004 itself. During the course of the proceedings, it is made out that the properties sought to be attached by the appellant and the properties already attached by the 1st respondent are one and the same and the said properties were brought to sale on 14.6.2005. The Recovery Officer in his proceedings dated 7.6.2005 has stated, "Issue Forms 16 and 17. Call on 6.7.2005". Form No. 16 deals with order of attachment of immovable property and Form No. 17 deals with settling of the said proclamation. On 6.7.2005 the Recovery Officer has observed, "Same property attached on 14.6.2005 in R.P. 512/ 2003". Thereafter, the proceedings were adjourned to 11.10.2005 and on that day the properties were put up for auction on 18.10.2005. It is not clear from the records whether the properties were attached by the appellant by issuance of Forms 16 and 17. But one thing is certain that soon after the OA was decreed, Recovery Certificate was issued and recovery proceedings were taken in 2004 itself and absolutely there is no loss of time in these proceedings. In fact, only after the initiation of recovery proceedings in RP 32/2004, the properties were brought to sale on 18.10.2005. As such the observations of both the Recovery Officer and learned Presiding Officer are quite contrary to the real facts of the case. The appellant had taken necessary steps to attach the property and bring them for sale and by that time the 1st respondent had already attached the property and brought the same for sale and only in the said circumstances, the appellant filed a claim petition and requested that their case may also be considered for the payment in and out of the sale proceeds ratable distribution as provided in Section 73 of the CPC.
6. It is the contention of the Recovery Officer that CPC is not applicable to the proceedings taken under the RDDB&FI Act, 1993 and therefore, applied Rule 8(1)(a) of the Second Schedule to the Income-tax Act, 1961 and held that the 1st respondent alone is entitled to the sale proceeds. The learned Presiding Officer was not clear in his view whether Section 73, CPC could be applicable or not. In the said backdrop, let us analyse the case.
7. Chapter V of the RDDB&FI Act, 1993 deals with recovery of debt determined by the Tribunal. Section 25 of the Act speaks about the modes of recovery of debts, which reads as under:
The Recovery Officer shall, on receipt of the copy of the certificate under Sub-section (7) of Section 19, proceed to recover the amount of debt specified in the certificate by one or more of the following modes, namely:
(a) attachment and sale of the movable or immovable property of the defendant;
(b) arrest of the defendant and his detention in prison;
(c) appointing a Receiver for the management of the movable or immovable properties of the defendant.
The recovery of debt is by the attachment and sale of movable or immovable property of the defendant or by arresting him, putting him in detention and for the appointment of a Receiver for the management of movable or immovable properties of the defendant. Chapter IV of the Act deals with the procedure of the Tribunals. Section 19 enumerates the various procedure for recovery of the amount due including the powers of the Tribunal to make an interim order for attachment of the property also. Sub-section (19) of Section 19 states, "Where a certificate of recovery is issued against a company registered under the Companies Act, 1956 (1 of 1956) the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with the provisions of Section 529-A of the Companies Act, 1956 (Emphasis supplied), and to pay the surplus, if any, to the company". This shows that after the issuance of the certificate of recovery, the Tribunal may cause the property to be attached and bring the same for sale and the sale proceeds of the company to be distributed among its secured creditors in accordance with the provisions of Section 529 of the Companies Act, This spells out that the sale proceeds of the company is to be distributed among all the secured creditors. Let us also see what Section 529 of the Companies Act states.
8. Chapter V of the Companies Act, 1956, deals with the provisions applicable to other modes of winding up. Section 529 deals with application of insolvency rules in winding up of insolvent companies. Section 529(1) in the winding up of an insolvent company, the same rules shall prevail and shall be observed with regard to--
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities; and
(c) the respective rights of secured and unsecured creditors.
as are in force for the time being under the law of insolvency with respect to the estates persons adjudged insolvent provided that the security of every secured creditor shall be deemed to be subject to pari passu charge in favour of the workmen to the extent of the workmen's portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security...." Section 529-A deals with overriding preferential payments which states, "(1) Notwithstanding anything contained in any other provisions of this Act or any other law for the time being in force, in the winding up of a company:
(a) workmen's dues; and
(b) debts due to secured creditors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529-A pari passu with such dues;
shall be paid in priority to all other debts.
(2) The debts payable under Clause (a) and Clause (b) of Sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.
This section is an enabling section for the workers to have their claim in pari passu with other dues. The combined and harmonious reading of Sub-section (19) of Section 19 of the RDDB & FI Act, 1993 and Sections 529 and 529-A of the Companies Act, would make it clear that after the issuance of the certificate of recovery, the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors on pari passu basis. The word pari passu means, "Equality or ratably without any preference, used especially of creditors who, in marshalling assests, are entitled to receive one of the some fund without any precedence over each other". Therefore, the rights of the appellant and the 1st respondent are pari passu and the 1st respondent merely on the ground that it had attached the properties cannot claim any supremacy than the claim of the appellant. In the given case, both the appellant and the 1st respondent are in the same footing and both having obtained decree, recovery certificate was also issued and the recovery proceedings were taken and the same property was sought to be attached by both the parties. That in the said circumstances, it is needless to say that their claim is on par with each other and they are entitled to their claim in pari passu. In this connection, it would be useful to refer to the case of Smt. Rajalakshmi Dassi v. Bonomal Sen and Ors. , wherein it was held:
The statute does not, in my opinion, require that an application for rateable distribution as distinct from an application for execution should be filed before the assets were received. Indeed, it is not necessary at all that any specific application asking for rateable distribution should be filed. If there are more than one application for execution pending, it becomes the duty of the Court to make an order for rateable distribution as soon as it becomes aware of the fact that there are assets in its custody of the same judgment debtor in different execution cases. What is necessary is that the applications for execution must be filed before the receipt of assets.
In our case, even before the sale was made, the appellant has filed the application and only thereafter, the sale was ordered and, therefore, the DRT was aware of the claim of the appellant.
9. In V.T. VeerappaChettiarv. P.S. Palaniappa Chettiar , wherein Section 73, CPC, came up for consideration and it was observed, "Section 73, Civil P.C. provides that, where assets are sold by a Court and more persons than one have, before the receipt of such assets, made application to the Court for the execution of the decrees for the payment of money passed against the same judgment debtor and have not obtained satisfaction thereof, the assets, after deducting the costs of realisation shall be rateably distributed among all such persons. The following conditions have to be satisfied before Section 73, Civil P.C. can be applied; (1) The decree holder claiming rateable distribution should have applied for execution of his decree to the appropriate Court; (2) Such application should have been made prior to the receipt of the assets by the Court; (3) The assets of which a rateable distribution is claimed must be assets held by the Court; (4) The decree holder should be holder of a decree for the payment of money; (5) Such a decree should have been obtained against the same judgment debtor".
10. In the instant case, the application filed by the appellant for recovery of the amount by way of attachment was pending prior to the sale itself and it was in respect of one and the same property against the same judgment debtor and hence all the requisite conditions are fulfilled. In Allahabad Bank v. Canara Bank and Ors. I (2000) BC 627 (SC) : III (2000) CLT 129 (SC) : AIR 2000 SC 1535, the recovery proceedings under the RDDB&FI Act (51 of 1993). Sections 17, 18, 25 and Sections 537, 446 and 442 of the Companies Act., came up for consideration. The Supreme Court after referring to Sections 17, 18 and 19 of the Act, was of the opinion, "In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) [formerly under Section 19(7)] to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word 'recovery' in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other Court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal (this exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Article 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act". It was further observed, "Even in regard to 'execution', the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the Banks Financial Institutions should go to the Civil Court or the Company Court or some other authority outside the Act for the actual realisation of the amount. The certificates granted under Section 19(22) has, in our opinion, to be executed only by the Recovery Officer" thereby meaning that the Recovery Officer is entitled to execute the decree passed by the Tribunal and there cannot be a dual jurisdiction at different stages as it is not contemplated under the Act.
11. Even with regard to the properties among the creditors, the Hon'ble Supreme Court took note of the provisions laid down in the Companies Act and the RDDB&F1 Act and on principle accepted that the Companies Act has a general statute and the RDDB&FI Act has a special statute, which has got an overriding effect. It was also observed that in the alterative, the Companies Act, 1956 and the RDDB&FI Act, can both be treated as special laws and the principle that when there are two special laws, the latter will normally prevail over the former if there is any provision giving it an overriding effect. As such, the provision is there in the RDB Act namely, Section 34 and in view of the same, the said Act overrides the Companies Act to the extent there is anything inconsistent between the Acts.
12. The Supreme Court also dealt with a situation where the defendant company was not ordered to be wound up and held, "Where the defendant company is a company against which no winding up order is passed, the company, in our view, is like any other defendant and if in such a situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the Bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying Section 73, CPC. Section 22 of the RDB Act in our view, gives sufficiently wide powers to the Tribunal and the appellate Tribunal to decide such question of priorities subject only to the principles of natural justice. This Court has complained that the powers under Section 22 are wider than those of civil Court and the only restriction powers is that principles of natural justice have to be followed Considering the requirements of Section 73, CPC, sharing of the sale proceeds would arise only when a person secking such a share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under Section 73. In that case, Canara Bank was not in a position to have the benefit of Section 73, CPC, as it had not obtained any decree or adjudication from the Tribunal. But in our case, the appellant Bank had obtained a decree and also obtained a recovery certificate and also taken out execution proceedings and only at that time, it came to know that the respondent Bank had also taken out execution proceedings and got the property attached. As such, the appellant is well within its right to put forward its claim for ratable distribution as provided under Sub-section (19) of Section 19, where it has been clearly made out that the Tribunal may order the sale proceeds of such company to be distributed among its secured creditors in accordance with Section 529-A of the Companies Act and 529-A deals with workmen's dues and also debts due to secured creditors and they should rank under Clause (e) of proviso to Sub-section (1) of Section 529 pari passu with such dues. In my considered opinion, the appellant is entitled to have a claim of part passu along with the 1st respondent as it satisfies Sub-section (19) of Section 19 and also Section 73 of the CPC, and the same is also the natural justice demands. The view of the Recovery Officer that Section 73, CPC is not applicable to proceedings under RDDB&F1 Act, is not correct. Though Section 22 of the RDDB&FI Act says that the Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down by the CPC, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act, that does not mean that the Act prohibits, even taking guidance from CPC. In fact, the Supreme Court had already ruled in Allahabad Bank, Calcutta v. Radha Krishna Maity and Ors. , that the Tribunal can travel beyond the Code of Civil Procedure and they only fetter that is put on its powers is to observe the principles of natural justice". Hence, the principles laid down under Section 73, CPC could be taken as guidance. Even in the case of insolvency proceedings and company winding up proceedings, if there are more than one claimant, the amount recovered/assets of the company, would be distributed among the creditors rateably applying the very same principle here also, I hold that the appellant and respondent Banks are entitled to share the amount realised from the debtor in pari passu. Both the Banks filed the petition for the recovery of amounts and got a decrees, taken but recovery proceedings and in the said circumstances and in the fitness of things also, it is not fairly and reasonable on the part of the respondent Bank alone to appropriate the entire sale proceeds and that, therefore, I hold that the appellant and the respondent Bank are entitled to share the amount equally and in pari passu.
13. In the result, the appeal is allowed and I hold that the appellant is entitled to have its claim in pari passu with the 1st respondent Bank. No costs.