Bombay High Court
Bank Of India vs Shree Satya Corpn. on 15 September, 2000
Author: B.N. Srikrishna
Bench: B.N. Srikrishna, Ranjana Desai
JUDGMENT B.N. Srikrishna, J.
1. This reference has been made to this Bench for resolving a conflict of opinion between different learned Single Judges of this court on the issue as to whether the execution proceedings pending before this court are required to be transferred to the Debt Recovery Tribunal ('DRT') under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the 'Act').
2. Since the issue that is raised is a conflict of opinion as to a legal provision, the facts arc not very material. Nonetheless, this may be pointed out: the plaintiff (Bank of India) obtained a decree in the sum of Rs. 10 lakhs against the defendants. The decree was made pursuant to the judgment of this court dated 17-11-1986 (per Mrs. Justice Sujata Manohar). The plaintiff took out execution application No. 20 of 1991 for recovery of the amount due under the decree. When the execution application was taken out, the prothonotary and senior master had some difficulty in dealing with the matter. There was some doubt raised as to whether such an execution application could be taken out in this court at all. The reason for the doubt is that by an order dated 3-9-1999 made by Rebello, J., in Chamber Summons No. 963 of 1998 in Execution Application No. 2 of 1993 in Hyderabad Civil Suit No. 149 of 1986 [Bank of India v. Tin Pack Corporation,], it has been held that the execution proceedings pending before the High Court were not required to be transferred to DRT, as execution would not fall within the definition of 'other proceedings' used in Section 31(1) of the Act. However, by an order dated 25-10-1999, Chandrashekhara Das, J., in Bank of Maharashtra v. Konkan Chemicals (P.) Ltd. [2000] 3 Comp. LJ 344 (Bom.) had held that the execution proceedings which were pending before this court prior to the establishment of the DRT need not be transferred to the DRT. Finally, there is also an order of Kapadia, J., dated 3-3-2000 in Suit No. 2784 of 1999 - ICICI Ltd v. Patheja Bros. Forgings & Stampings Ltd [2000] 4 Comp. LJ 230 (Bom.) taking the view that all suits, execution proceedings and interim applications are required to be transferred to the DRT under the provisions of the Act. In view of the diverse views of three different learned Judges of this court, the Hon'ble Chief Justice has been pleased to refer the following issue for the decision of this Division Bench :
"Whether the execution applications which are filed and pending before this court be transferred to the Debt Recovery Tribunal?"
3. Prior to the coming into force of the Act, this court on its original side entertained suits and also execution proceedings arising out of decrees made in suits. With effect from 24-6-1993, Parliament brought the Act into force. The main reason for bringing this statute into force is to ensure that debts due to financial institutions, which were pending in litigation for years together, were recovered speedily. Parliament, therefore, set up a special Tribunal under the Act which elaborate machinery for speedy recovery of debts due to financial institutions.
4. Section 19 of the Act provides that where a bank or a financial institution has to recover any debt from any person, it may make an application to the DRT within the local limits of whose jurisdiction the defendant actually and voluntarily resides or carries on business, or personally works for gain. Certain procedure is prescribed for making applications to the DRT, with which we are not concerned. The expression 'debt' in Section 2(g) was originally defined as under :
"2(g) 'debt' means any liability (inclusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application;".
4.1 This was amended by Ordinance No. 1 of 2000 which has come into effect from 17-1-2000. The amended definition in clause (g) now reads as under :
"2(g) 'debt' means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on; and legally recoverable on, the date of the application."
4.2 This amendment became necessary as judicial opinion was divided as to whether an amount due from any person to a bank or financial institution could be called a debt if it was legally not payable in the sense that it was a time barred debt or, for other reasons, it was not recoverable. The Supreme Court in its judgment in State Bank of Bikaner & Jaipur v. Ballabh Das & Co. [2000] 2 Comp. LJ 30 emphasised the definition as originally contained in Section 2(g) and overruled the view that unless the amounts claimed by the banks are determined or adjudicated by a competent forum, they cannot be said to be due. It was pointed out by the Supreme Court that as long as a bank has alleged in the suit that certain amounts were due to the bank from the respondents, that the liability of the respondent has arisen during the course of its business activity and further that the said liability is still subsisting and legally recoverable, the amount claimed would be a 'debt' within the meaning of the definition under the Act, and the provisions of the Act would be applicable.
5. Section 18 of the Act provides that on and from the appointed date e.g., 24-6-1993, the jurisdiction of all other courts and authorities in relation to matters specified in Section 17 is barred. Section 17 invests exclusive jurisdiction in the DRT to entertain and decide applications from banks and financial institutions for recovery of debts due to the banks and financial institutions. Section 31 of the Act, as originally enacted, read as under:
"31. Transfer of pending cases.--(1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal:
Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court.
(2) Where any suit or other proceeding stands transferred from any court to a Tribunal under Sub-section (1),--
(a) the court shall, as soon as may be after such transfer, forward the records of such suit or other proceeding to the Tribunal; and
(b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding, so far as may be, in the same manner as in the case of an application made under Section 19 from the stage which was reached before such transfer or from any earlier stage or de novo as the Tribunal may deem fit."
6. Ordinance No. 1 of 2000 has amended Section 31 by deleting the words 'or de novo' from the section. As a result of operation of Section 31, every suit or other proceedings before the court, if it was a suit or proceedings based on a cause of action which would have arisen within the exclusive jurisdiction of the DRT as on the date of the Act, shall stand transferred from the date of the coming into force of the Act to the DRT. The only saving is in respect of appeals which need not be transferred. Upon the Act coming into force, the court is required to transfer all records of the suit or other proceedings to the DRT and the DRT after receiving such records is entitled to proceed with the suit or other proceedings in the same manner as an application under Section 19, from the stage which was reached before the transfer or from any other earlier stage as the DRT deems fit.
7. The Amending Ordinance has also made some changes in Section 19 itself. Section 19, as now amended by Ordinance No. 1 of 2000, has an inbuilt provision for the defendants to claim set off, counter claims and make detailed provisions for interim orders, whether by way of injunction, stay or attachment, by way of appointment of receivers or entrusting property to the custody or management of the receiver or for removing it therefrom. There is also provision for appointment of commissioners. We are not really concerned with the various powers of the DRT under Section 19 except that we may notice that upon an application being made under Section 19(1), the DRT is required to give a notice to the defendants and after giving opportunity to both sides, make a determination by an interim or final order, including the order for payment of interest from the date on or before which the payment of the amount is found due upto the date of realisation or actual payment, as it deems fit in the interest of justice. Under Sub-section (5) of Section 19, the DRT is required to send copy of this order to the parties. Under Sub-section (7) of Section 19, the Presiding Officer of DRT is required to issue a certificate on the basis of the order to the Recovery Officer for recovery of the amount of debt specified in the certificate.
8. An officer known as Recovery Officer is appointed under section 7 of the Act as part of the staff of the Tribunal. Sections 27 to 30 provide for recovery of debts determined by the Tribunal These sections invest the Recovery Officer with wide powers of an executing court as also the powers similar to the power for recovery of tax dues under the 2nd and 3rd Schedules to the Income-tax Act, 1961, and the Income-tax (Certificate Proceedings) Rules, 1962. Section 26 of the Act is of importance, for it gives finality to the validity of the certificate issued by the DRT. Once a certificate of recovery has been issued under Sub-section (7) of Section 19, the Recovery Officer must proceed to recover the debt certified therein, and it is not open to the debtor to dispute the correctness of the amount certified in the certificate or to object to the recovery certificate on any other ground before the Recovery Officer. By the Amending Ordinance, Section 30 of the Act has been substituted and now a person aggrieved by the order of the Recovery Officer is given a right of appeal to the DRT.
9. Originally, there was no provision in the Act to deal with the situation of an unexecuted decree. What was recoverable by the Recovery Officer was only the debt certified due by the DRT. The Act, as it originally stood, contained no provision that the DRT was required to issue a certificate on the basis of an existing unexecuted decree. This lacuna was removed by the insertion of Section 31A in the Act by the Amending Ordinance No. 1 of 2000. The new Section 31A reads as under :
"31 A. (1) Where a decree or order has been passed by any court before the commencement of the Recovery of Debts Due to Banks and Financial Institutions (Amendment) Ordinance, 2000, and has not yet been executed, then, the decree holder may apply to the Tribunal to pass an order for recovery of the amount.
(2) On receipt of an application under Sub-section (1), the Tribunal may issue a certificate of recovery to a Recovery Officer.
(3) On receipt of a certificate under Sub-section (2), the Recovery Officer shall proceed to recover the amount as if it was a certificate in respect of a debt recoverable under this Act."
10. These are some of the salient sections of the Act which are to be considered for answering the reference made to us and for a resolution of what bas been perceived as a conflict in the judgment of the learned Single Judge referred to hereinbefore.
11. We may notice some of the judgments cited at the Bar. In Ballabh Das & Co. 's case (supra) the issue before the Supreme Court was whether the expression 'debt' used in the Act could include within its purview a disputed amount which had not yet been adjudicated as due. By emphasising the definition of the expression 'debt' in Section 2(g), the Supreme Court held that as long as there is an allegation of some dues from the respondents which arose in the course of the bank's business activity and those dues still subsisted, they would come within the meaning of 'debt' in Section 2(g) capable of being recovered by recourse to the provisions of the Act.
12. A learned Single Judge of this court, Rebello, J., considered the provisions of the Act and came to the conclusion that there is no provision in the Act which could convert an existing decree into a certificate, that the only method for recovery under the Act was by a certificate being issued by the DRT to the Recovery Officer. He further concluded that the language of Section 31 does not contemplate transfer of the decree to the Recovery Officer for execution thereof and that the DRT Act contemplates two things, namely, culmination of the dispute by the DRT and recovery of the debts by the Recovery Officer. While Recovery Officer was the body to execute the certificate issued by the DRT, the DRT was the body empowered to try and adjudicate the dispute. The learned Judge was of the view that Section 31 provides for transfer of 'suits or proceedings' to the DRT which would make it clear that the suit is not disposed of. The words 'other proceedings' must take within its ambit any other proceedings which are pending in the civil court and also other miscellaneous applications which arc pending in the suit or other proceedings. In his view, the words 'other proceedings' would have to be read ejusdem generis with the word 'suits' therein and, so read, they mean proceedings for the recovery of a debt. The learned Judge pointed out that the proviso to Section 31(1) refers to a pending appeal and saves it from being transferred to the DRT. Appeals and execution proceedings fall in different categories and the Legislature intended to transfer only the pending suits to DRT. It did not intend to transfer pending appeals or execution proceedings to the DRT. Reliance was placed on the Division Bench judgment of this court in Madalsa International Ltd, v. Central Bank of India [2000] 4 Comp. LJ 13 (Bom.) [since overruled by the Supreme Court in Patheja Bros. Forgings & Stampings Ltd. v. ICICI [2000] 4 Comp. LJ 9 (SC)] interpreting the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. In Madalsa--the Division Bench held that the expression 'suit' used in Section 22 of the said Act would not include proceedings in execution. For all these reasons, Rebello, J., took the view that proceedings in execution would not fall within the definition of 'other proceedings' used in Section 31 and as such, this court would have jurisdiction to try and decide the proceedings in execution already filed before the Act came into force.
13. Another learned Single Judge of this court, Das, J. in the judgment delivered on 25-10-1999, in Konkan Chemicals (P.) Ltd. 's case (supra) took somewhat different views. Das, J. disagreed with the view of Rebello, J. by pointing out that the expression 'debt' has been defined in Section 2(g) so as to apply to any liability allegedly due from any persons, even if payable under a decree or order of a civil court or otherwise and subsisting on and legally recoverable on the date of the application. After examining the provisions of the Act, the learned Judge was of the opinion that a decree holder, in order to execute a decree of the civil court, should first move the DRT by making an application under Section 19 and obtain an order for issue of a certificate under Sub-section (7) of Section 19 to the Recovery Officer. But, the procedure laid down in Section 19 did not indicate that a certificate under Section 19(7) could straightaway be issued by the Tribunal to the Recovery Officer for recovery of the amount if the debt recoverable was under a decree. Das, J., took the view that Section 19 does not cover expressly, or by implication, an execution application pending on the date on which the Act came into force, and it was difficult to hold that 'other proceedings' referred to in Section 31 would take into its ambit execution proceedings pending in an executing court. The learned Judge pointed out that if the view was taken that all execution proceedings pending at any stage, on the date of passing of the Act, were to be transferred to the DRT, and the DRT were to treat such proceedings de novo, as an application filed under Section 19 and thereafter proceed further, the result would be utter confusion and undue delay. Consequently, the learned Judge was of the view that the expression 'other proceedings' used in Section 31 did not include execution proceedings and that the pending execution proceedings could be continued before this court.
14. We notice that both judgments of Rebello, J., and Das, J. were delivered before the Amending Ordinance No. 4 came into force, i.e., before 17-1-2000. This Ordinance, perhaps, noticed the lacunae already found in the Act and tried to fill them up. Section 31A introduced by the Amending Ordinance specially deals with the situation where the 'debt' recoverable is one under the decree of a court. The import of this Ordinance was considered by a judgment decided on 3-3-2000, by another learned Single Judge, Kapadia, J. The learned Judge specifically referred to the provisions of the Ordinance, the amendments introduced by the Ordinance and their impact, and held that the difficulties pointed out in the earlier judgments stood resolved by the Amending Ordinance. It was pointed out that while under the old Section 31, the DRT was bound to continue with the transferred proceedings 'de novo', these words were omitted by the Amending Ordinance and now the Amending Ordinance makes it clear that the transferred proceedings would continue from the stage at which they were. He also pointed out that under the amended Section 19(6), the defendant's right to set-off and counter-claim have been recognised and the appropriate procedure revised. Amended Section 19(8) empowers the DRT in appropriate cases to appoint a receiver at the interim stage even before grant of certificate for recovery of debts. The learned Judge opined 'in the light of this amendment, the earlier lacuna in the Act is filled in'. The learned Judge emphasised the words 'other proceedings' had to be given due weight and, despite the unhappy phraseology used in Section 31, after the amendment, what is really conveyed is that every suit or proceedings pending before any court before the date of establishment of DRT, which was based on a cause of action cognisable by the DRT after its establishment, shall stand transferred to the DRT automatically. Section 31(2)(b) empowers the DRT to proceed with such suit or other proceeding from the stage which was reached before such transfer or from any earlier stage as the DRT may deem fit. The deletion of the words de novo by Section 31 of the Amending Ordinance makes it clear that the Legislature has taken the step to avoid further delay by the proceedings starting de novo before the DRT on transfer and the DRT is required to continue from the stage reached before the civil court before the transfer or from any other stage as deemed fit. In the circumstances, the learned Judge was of the opinion that execution proceedings and interim applications shall stand transferred to the DRT. The apparent divergence in the views taken by Rebello, J., and Chandrashekhara Das., J., was also noticed by Kapadia, J, He held that, in view of the Ordinance introducing Section 31A, the controversy stands resolved. Kapadia, J., pointed out that Section 31A clearly lays down that where a decree or order has been passed by any court before the commencement of the Ordinance, and which has not yet been executed, the decree holder may apply to the DRT to pass an order for recovery of the amount due under the decree, and that on receipt of such application, the DRT may issue a certificate of recovery to the Recovery Officer. The learned Judge had no doubt that all suits and other proceedings pending before this court before the cut off date, shall stand transferred to the DRT and that such proceedings would include even execution applications in which the court receiver was appointed prior to the cut off date. Though in regard to the execution proceedings, the decree holder may have to move the DRT for issue of a recovery certificate, the DRT shall issue a recovery certificate after quantifying the decretal amount and, on such certificate being issued, the Recovery Officer should act and proceed to recover the decretal dues. The Act, according to Kapadia, J., is a complete code by itself.
15. We may straightaway point out that different views were expressed by two learned Single Judges (Rebello, J. and Das, J.) based on the provisions of the parent Act, and the several lacunae noticed therein. The situation underwent a qualitative change in view of the amendments carried out in the parent Act by the Amending Ordinance 1 of 2000. We agree with the view expressed by Kapadia, J., that the expression 'other proceedings' would include within its sweep all pending proceedings including execution proceedings. It is true that earlier there was no provision that the DRT could issue a certificate based on the existing decree of the civil court. This shortcoming was noticed by the Legislature and Section 31A is specifically amended to cover such cases.
16. It is urged by Mrs. Kamdin and Mr. Suvarna, who appeared for the financial institutions, that even the Amending Ordinance leaves several areas uncovered which are likely to create difficulties. Referring to Subsection (1) of Section 31A, they submit that it would operate only when a decree or order has been passed by any court before commencement of the Ordinance No. 1 of 2000 which has not yet been executed. In such a case, the decree holder may apply to the Tribunal to pass an order for recovery of the amount. It is submitted that the expression 'not yet been executed' could mean either that no step at all [has] been taken for execution, or that several steps have been taken, but the decretal amount has not yet been recovered. Consequently, it is urged that Section 31A would apply only in a situation where the decree holder has not taken any steps at all. In other words, they contend that Section 31A is enacted to take within its sweep a case where, after obtaining a decree the decree holder has not filed an execution application at all. Conversely, it is contended that once an application for execution has been filed, the situation would not be covered by Sub-section (3) of Section 31A. In our view, this contention is not sound. The execution of a decree means the culmination of the act of execution, namely, actual recovery of the decretal debt from the defendant. A decree can be said to be 'not yet been executed' if the decretal amount has not been recovered and paid over to the decree holder. In our judgment, Section 31A is enacted to apply to all situations except the one where the decree is fully executed meaning that the decretal debt has been recovered and paid over to the decree holder.
17. It is pointed out by Ms. Kamdin that Sub-section (2) of Section 31A provides that on receipt of an application under Sub-section (1), the Tribunal 'may' issue a certificate to a Recovery Officer. She contends that while the decree of a civil court is not open to challenge in the execution proceedings, Sub-section (2) of Section 31A, which is the parallel execution proceedings before the machinery under the Act, makes the decree vulnerable during the execution proceedings as the DRT has been granted a discretion of issuing or not issuing a certificate of recovery to the Recovery Officer. We notice that even under the Act, once a certificate has been issued by the Tribunal, the certificate is not open to challenge before the Recovery Officer. Secondly, we are unable to accept the contention that a decree in no circumstances can be challenged during the execution proceedings, even though the scope for such challenge is extremely limited like on the ground of nullity of the decree or fraud. We see no reason why the DRT should be denied this discretion, albeit narrow, to examine the decree. We are of the view that when an application is made for issue of a recovery certificate under Sub-section (1) of Section 31A, the DRT's discretion under Sub-section (2) of the said section is extremely narrow, and the DRT can only examine the validity of the decree on the very limited grounds on which an executing court can scrutinise the decree. Barring the said limited and narrow jurisdiction, the DRT is required to issue a certificate of recovery to the Recovery Officer. Once such a certificate of recovery is issued to the Recovery Officer, subsection (3) provides that the Recovery Officer, shall proceed to recover the amount as if it was a certificate in respect of a debt recoverable under the Act. In other words, if an application is made under Section 19, it is adjudicated by the Tribunal and a certificate issued to the Recovery Officer if the debt is proved as due and payable. If the debt is already adjudicated by a decree of the civil court, then an application is to be made under Section 31A and the DRT shall issue a certificate of recovery upon such a decree as if it was the claim adjudicated by it under Section 19. The validity of the decree can be challenged at this stage only on the limited grounds of nullity or fraud. In this view of the matter which we take, there is no scope for the argument that the DRT would be sitting in appeal over the decree granted by this court when an application for a recovery certificate is made under Section 31A.
18. In the circumstances, we are of the view that the judgment of Kapadia, J., in Suit No. 2784 of 1999 delivered on 3-3-2000, correctly lays down the position in law that after the coming into force of the Act, all proceedings, whether by way of suit; miscellaneous proceedings or execution proceedings, stand transferred to the DRT. We are also of the view that the amendments introduced in the parent Act by the Amending Ordinance 1 of 2000, take care of almost all objections against transfer of execution proceedings. Finally, Section 31A which is now introduced by Amending Ordinance 1 of 2000, enables a decree holder where a claim has been adjudicated and a decree is made, to apply under Sub-section (1) and seek a certificate of recovery. Such a certificate is final and the Recovery Officer has to recover the dues thereunder in accordance with the provisions of sections 28 and 30.
19. The reference is answered in the affirmative. The prothonotary to transfer all execution proceedings pending on the date of the coming into force of the Act to DRT for being dealt with in accordance with provisions of the Act as amended upto date.