Central Bank Of India vs Rita Machines (India) Pvt. Ltd.

S.N.H. Zaidi, J

This appeal has been directed against the order dated 22.7.2011 of DRT-I, Chandigarh passed on application (I.A. No. 346/2011) filed by the defendants/respondents in O.A. No. 71/2011, whereby the O.A. has been dismissed. A resume of the factual matrix of the matter is that in the O.A. filed by appellant No. 1 for the recovery of Rs. 4,62,68,716.97 the defendants/respondents besides filing the written statement also set up a counter-claim against the applicant Bank. During the pendency of the O.A. appellant No. 1 Bank had assigned all its rights and interest with underlying security interest qua the debt in question, on 29.3.2011. International Asset Reconstruction Company Pvt. Ltd. (IARC), an asset reconstruction company, as per the provisions of Section 5 of the securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). Appellant No. 1, thereafter, wrote a letter to the defendants, who were the guarantors/mortgagors, informing them about the assignment of the debt. Appellant No. 2, IARC, also wrote a letter to the defendant/respondents about the said assignment. On 3.5.2011, the defendant/respondents filed an application (I.A. No. 346/2011) for dismissal of the O.A. as well as for issuing certificate of recovery (RC) in their favour for the amount claimed in the counter-claim on the ground that since by assigning the debt the Bank had transferred its rights, title and interest in the amount claimed in the O.A., it had thereby ceased to be an applicant in the O.A. or a respondent in the counter-claim and had also ceased to be a party to the proceedings by its own act. The applicant/appellant Bank averred in its reply that the application was not maintainable as the O.A. was still pending and necessary application for the substitution of assignee company would be moved after the registration of the assignment deed, which could not be done due to strike in the Registration Department in Ludhiana. The learned Tribunal has allowed that I.A. and dismissed the O.A. by the following order:

"12. In I.A. 346/2011 in OA 71/2011, since the IARC Ltd. has neither been substituted in OA, nor it has moved any application for substitution in place of Central Bank of India who has stated that it has ceased to be a party in OA, there is no applicant in OA at this stage, hence the OA deserves to be dismissed, however counter claim will be adjudicated as counter claimant cannot be made to suffer for lapse of the applicant Bank."

Feeling aggrieved with the above order, both the assignor Bank and the Assignee company have challenged the same in this appeal.

Mr. S.L. Gupta, the learned Counsel appearing for the appellants, has submitted that after the assignment of the debt by appellant No. 1 under Section 5 of the RDDBFI Act in favour of appellant No. 2 on 29.3.2011, the application for substitution of appellant No. 2 could not be immediately filed as the deed of assignment was not registered, which was ultimately registered on 21.7.2011. He has further submitted that appellant No. 2, which is a duly registered asset reconstruction company, had acquired the rights and interest of the financial assets of appellant No. 1. He has contended that on assignment of interest during the pendency of the suit, the suit cannot be dismissed and it may continue under Rule 10 of Order 22, CPC with the leave of the Court and the Tribunal below has committed error by dismissing the O.A. merely on the ground that the appellant No. 1 had ceased to have any right or interest qua the debt in question after the assignment of debt.

Mr. Gupta has also contended that though leave of the Tribunal was not sought by the applicant for the continuance of the O.A., yet the Tribunal below could not have dismissed the O.A. on assignment of the debt in view of the law laid down by the Supreme Court in Dhurandhar Prasad Singh v. Jai Prakash University & Ors. V (2001) SLT 386 : III (2001) CLT 268 (SC) : (2001) 6 SCC 534.

The crux of the submissions of Mr. Gupta is that on assignment of the debt during the pendency of the O.A., it cannot be dismissed even though the Bank may have ceased to have any interest in the matter and it may still pursue its remedy against the borrower/defendants even without seeking the leave of the Tribunal to continue the matter.

Mr. Mahesh Chhibber, the learned Counsel for the defendant/respondents has, on the other hand, contended that the interest of the appellant Bank in the O.A. had come to an end after the debt was assigned during its pendency and the Bank ceased to be a party to the O.A. by its own conduct. According to him, after the assignment of debt, the O.A. could not continue without obtaining the leave of the Tribunal in terms of Rule 10 of Order 22, CPC. He has further contended that as there was a counter-claim against appellant No. 1 Bank, it could not have been substituted by the assignee company and the assignee company could at the most be added as a party on the basis of the alleged assignment. He has pointed out to Clause 8 of the deed of assignment, which provided that the assignee company would not be liable for any financial or pecuniary obligation of the assignor Bank and it would be the sole responsibility of the assignor. He has also pointed out that the appellant Bank had admitted the pendency of counter-claim against it even after the assignment of the debt in Paragraph 2 of its reply to the application (I.A. No. 346/2011) and in Paragraph 7 thereof it had also admitted that after the assignment of debt it had ceased to have any interest in the proceedings and till the registration of the assignment deed it had only academic interest in it.

Mr. Chhibber, relying upon the judgment of the Supreme Court in Sanjay Verma v. Manik Roy & Ors., IX (2006) SLT 363 : (2006) 13 SCC 608, has also contended that transfer of the interest of appellant No. 1 in respect of the debt in question during the pendency of the OA without the order/authority of the Tribunal is hit by the doctrine of lis pendens as per Section 52 of the Transfer of Property Act.

I have given my considered thoughts to the submissions of the parties learned Counsel and perused the record. Looking to the facts and circumstances of the matter, I am of the view that Section 52 of the Transfer of Property Act does not have any application to this case, firstly because the said section relates to the transfer of an immovable property during the pendency of the suit whereas in this matter the right and interest of the lender Bank qua a debt have been assigned to the assignee company and, secondly such assignment has been permitted under Section 5 of the SARFAESI Act. The registration of the deed of assignment is a mandatory requirement of law and unless the deed is registered, the assignment of title and interest of the creditor Bank qua the debt in question cannot be lawfully assigned to the assignee company even after the execution of the deed of assignment. The Tribunal below has, however, failed to see before making the order impugned that whether or not right, title and interest of the Bank qua the debt in question, involving its financial assets, had been legally transferred by way of assignment to the assignee company, in the absence of a registered deed of assignment. The order impugned is not sustainable on this ground alone. I am also in agreement with the contention of Mr. Gupta that until the registration of the deed of assignment, the application for substitution or impleadment of the assignee company could not have been moved. It was pointed out by the appellant Bank in its reply to the application (I.A. No. 346/2011) that the registration of the deed could not take place due to a strike in the Registration Department in Ludhiana. Though the defendant/respondents had disputed this fact in their rejoinder to the said reply, yet this circumstance does not appear to have any relevance as it was a matter of fact that the deed of assignment was not registered, which could be due to any reason, when the application for dismissal of O.A. was made. The order impugned is also not sustainable because when it was brought to the notice of the Tribunal below that the substitution application could be filed only after the registration of the assignment deed, it should have allowed a reasonable opportunity to the assignor Bank for the same.

Moreover, the circumstances of the case reveal that the defendant/respondents has set up a counter claim against the appellant Bank and in view of this it cannot be said that the Bank, on assignment, has lost all its right and interest in the matter or it ceased to be a party to the O.A. I am also of the view that even on lawful assignment of the debt the O.A. cannot be dismissed as the assignee company has every right to pursue the matter against the borrower. In fact, the Tribunal has also not fully disposed of the matter as the counter-claim set up by the defendants was allowed to survive against the Bank. This Tribunal has observed in Auric Overseas (P.) Ltd. & Ors. v. I.C.I.C.I. Bank Ltd. & Anr., III (2009) BC 76 : 2009 (3) Bankers' Journal 562 (DRAT, Delhi) that:

"7....It is apt to say that assignment of a debt by a creditor is legally permissible. It is within the domain of the assignor and the assignee. The incident of assignment is affected by them and legal consequences of the same follow. The borrower has no place to meddle therewith. Broadly speaking, the only limitation is that the assignment cannot go beyond the original claim of the assignor. Further, the assignee cannot reap benefit of more than what has been assigned to him. And if the borrower can prove on factual or legal matrix the accrual of some right or benefit to him on the construction and interpretation of the document of assignment, he may legitimately claim the same Within this restricted sphere, the borrower is concerned with the assignment. There can also not be the slightest doubt that the factum of assignment can be brought to the notice of the Court either by the assignor or by the assignee. The assignee steps into the shoes of the assignor to pursue the cause in the legal way..."

The Hon'ble Supreme Court in Dhurandhar Prasad Singh v. Jai Prakash University & Ors. (supra) while observing that under Rule 10 of Order 22, CPC even on failure to obtain leave of the Court to continue with the suit, the proceedings would continue by or against the original party upon whom the interest has been devolved during the pendency of the suit, has held that:

"6. ...In cases covered by Pule 10, the Legislature has not prescribed any such procedure in the event of failure to apply for leave of the Court to continue for proceeding by or against the person upon whom interest has devolved during the pendency of a suit, which shows that the Legislature was conscious of this eventuality and yet has not prescribed that failure would entail dismissal of the suit as it was intended that the proceedings would continue by or against the original party although he ceased to have any interest in the subject of dispute in the event of failure to apply for leave to continue by or against the person upon whom the interest is devolved for bringing him on record.

Under Rule 10 Order 22 of the Code, when there has been a devolution of interest during the pendency of a suit, the suit may, by leave of the Court, be continued by or against persons upon whom such interest has devolved and this entitles the person who has acquired an interest in the subject-matter of the litigation by an assignment or creation or devolution of interest pendente lite or suitor or any other person interested, to apply to the Court for leave to continue the suit. But it does not follow that it is obligatory upon them to do so. If a party does not ask for leave, he takes the obvious risk that the suit may not be properly conducted by the plaintiff on record, and yet as pointed out by Their Lordships of the Judicial Committee in Moti Lal v. Karrabuldin he will be bound by the result of the litigation even though he is not represented at the hearing unless it is shown that the litigation was not properly conducted by the original party or he colluded with the adversary...."

"8. The effect of failure to seek leave or bring on record the person upon whom the interest has devolved during the pendency of the suit was the subject-matter of consideration before this Court in various decisions. In the case of Saila Bala Dassi v. Nirmala Sundari Dassi. T.L. Venkatarama Aiyar, J., speaking for himself and on behalf of S.R. Das, C.J. and A.K. Sarkar and Vivian Bose, JJ. laid down the law that if a suit is pending when the transfer in favour of a party was made that would not affect the result when no application had made to be brought on the record in the original Court during the pendency of the suit."

In my opinion, in the light of the aforesaid proposition of law, the O.A. should be continued and could not have been dismissed.

In view of the discussion made above, the order impugned cannot be allowed to sustain and is liable to be set aside. Consequently, the appeal is allowed and the order impugned is set aside. The Tribunal below is directed to dispose of the O.A. on merit in accordance with law.

Copy of this order be furnished to the parties as per law and be also sent to the Tribunal below forthwith.