Madhya Pradesh State Electricity Board vs Punjab And Sind Bank And Ors.

S.N.H. Zaidi, J

This appeal impugns the order dated 15.2.2010 of DRT-III, Delhi whereby OA No. 92/2008 filed for the recovery of Rs. 64.99,88,764/- by respondent No. 1 Bank against the appellant and respondent Nos. 2 to 4 has been allowed along with contractual rate of interest. The factual matrix of the case, in brief, is that the Madhya Pradesh Electricity Board (MPEB), which was established under Section 5 of the Electricity (Supply) Act, 1948, had issued bonds both secured and unsecured being SLR (Statutory Liquidity Ratio) and non-SLR series in various denominations ranging from Rs. 10,000/- to Rs. 50 lacs with promise to pay the amount of bond with interest on half yearly basis at the rate stated in the bonds. The payment of the amount of bond and interest was guaranteed by the State of Madhya Pradesh. The respondent No. 1 Bank allegedly lent Rs. 34.21 crores to MPEB from time to time by purchasing SLR bonds amounting to Rs. 29.21 cores and non-SLR bonds amounting to Rs. 5 crores, as per the detail given in the O.A.

A new State of Chhattisgarh, carved out of the State of Madhya Pradesh, was formed on 1.11.2000 and the Madhya Pradesh Reorganization Act, 2000 (for short, the Act of 2000) governs the distribution of assets and liabilities of both the States. The State of Chhattisgarh constituted its own Electricity Board known as the Chhattisgarh State Electricity Board (for short, CSEB) with effect from 15.11.2000. The State of Madhya Pradesh also constituted a new Electricity Board, known as the Madhya Pradesh State Electricity Board (for short, MPSEB), with effect from 1.1.2001 and informed the Government of India about its formation and requested it to issue necessary orders under Section 58(4) of the Act of 2000 enabling the successor Boards to take over the assets and liabilities of the MPEB. The Government of India (GOI) issued a notification approving the constitution of the successor Boards with effect from 15.4.2001 and appointed the Central Electricity Authority (CEA) as an independent agency for ascertaining the liabilities of the two States.

Based on the recommendations of the CEA, the GOI, vide notification dated 23.5.2003, issued a provisional order dividing the liabilities of the erstwhile MPEB between the MPSEB and CSEB. Both the MPSEB and CSEB continued the servicing of interest of the bonds purchased by the respondent Bank upto 31.3.2003 in the ratio of 80:20 respectively. On 4.11.2004 the Ministry of Power, GOI issued a notification in regard to apportionment of the assets, rights and liabilities of the erstwhile MPEB between its successor Boards of Madhya Pradesh and Chhattisgarh and the long term liabilities were apportioned between MPSEB and CSEB in the ratio of 90:10 respectively. The said notification and allocation of the liability were challenged by the MPSEB by way of W.P. (C) No. 675/2004 filed before the Supreme Court and the Hon'ble Apex Court upheld the legality and validity of the said notification and dismissed the writ petition, vide order dated 13.9.20006. Review application of that order filed by the MPSEB was also dismissed.

When the successor Boards stopped servicing the interest of the bonds as per its terms and also defaulted to pay the redemption amount of SLR bonds amounting to Rs. 26 lacs, issued on 19.1.1994, and non-SLR bonds amounting to Rs. 5 crores, the respondent Bank charging the interest at the commercial rate of 15% p.a. with monthly rests on the amount of bonds as well interest on the overdue amount of interest at the same rate, filed application (O.A. No. 92/2008) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) for the recovery of Rs. 64,99,88,764/- together with cost and interest @15% p.a. with monthly rests from the date of filing the application, i.e., 4.8.2008, against the appellant and respondent Nos. 2 to 4 jointly and severally, as per the following detail:

The Tribunal below, after hearing the parties, allowed the O.A. for the recovery of the entire claimed amount against all the defendants in the ratio of 80:20 between the MPSEB and State of Madhya Pradesh on the one hand and the CSEB and State of Chhattisgarh on the other along with interest at the existing contractual rate, by the order impugned dated 15.2.2010. Feeling aggrieved with that order, the MPSEB has come up in appeal before this Tribunal.

As the Counsel for the appellant had submitted that the appellant had paid a sum of Rs. 42 crores to the respondent Bank and intended to settle the matter with it, this Tribunal had disposed of the appeal in view thereof by order dated 3.2.2011, with liberty to the parties to approach the Tribunal again in case they face any difficulty. The appeal was later revived, vide order dated 12.7.2011, on the application (M.A. No. 551/2011) filed by the appellant on 7.7.2011 on the ground that despite payment of Rs. 42,33,65,212/- on 28.9.2010 to the Bank towards the entire principal amount and interest till the date of redemption in respect of the SLR bonds and principal amount in respect of non-SLR bonds and having several meetings with the respondent Bank for settlement qua the payment of interest on non-SLR bonds till the date of redemption and interest on overdue principal and interest in SLR bonds, the matter could not be settled.

The contention of Mr. Sakesh Kumar, the learned Counsel appearing for the appellant is that no loan was in fact taken from the respondent Bank which had only purchased certain SLR and non-SLR bonds issued by the erstwhile MPEB from time to time and though the re-payment of the amount of bonds and payment of interest at the rate stated thereon was guaranteed by the unified State of Madhya Pradesh, yet since the amount of bonds, excepting those which had matured for redemption, had not become due for repayment on the date of filing of the O.A., therefore, the amount of bonds was not a 'debt' as per its definition in Clause (g) of Section 2 of the RDDBFI Act and the Tribunal below has erred by allowing the recovery of the principal amounts of those bonds under Section 19 of the said Act. He has further contended that according to that definition, the debt is that liability which has not only become due or payable but is also legally recoverable and since those bonds were redeemable only after the date of its repayment, therefore, the amount of bonds, excepting those which had matured for redemption, had not become due as its repayment date had not arrived, as such it was not a debt. He has also contended that since Section 17 of the RDDBFI Act confers jurisdiction upon the DRT only to adjudicate the debts due to the Banks or financial institutions, therefore, the Tribunal below was having no jurisdiction to either adjudicate or order for the payment of any amount which was not a debt due and had not become payable, as no cause of action qua those bonds had accrued to the respondent Bank. Mr Kumar has pointed out that when on 4.8.2008 the O.A. was filed, only four SLR bonds amounting to Rs. 26 lacs dated 19.1.1994 and non-SLR bonds amounting to Rs. 5 crores had become repayable and the Tribunal below could only order for the payment of the amount of those bonds alongwith interest at the rate stated thereon only.

Mr. Rajinder Wali, the learned Counsel for the respondent Bank, pointing out to Clauses 2, 3 and 14 of the prospectus for the issue of 13.5% MPEB Bonds 2003, 2nd Series filed by the appellant, has submitted that the said clauses say that:

Under Section 65 of the Electricity (Supply) Act, 1948, the Board is empowered to borrow money from time to time with previous sanction of the State Government subject to such conditions as may be prescribed in this behalf. The State Government has given their concurrence to the present issue of Bonds.

Object--The issue is being made with a view to provide necessary resources for financing capital outlay on Schemes of Generation and Transmission (including Sub-transmission) lines.

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Form of Bonds--The Bonds will be issued in the form of promissory notes payable to or to the order of the specified person or persons. They will be in denomination of Rs. 10,000/-, Rs. 25,000/, Rs. 50,000/-, Rs. 1,00,000/-, Rs. 5,00,000/-, Rs. 10,00,000/- and Rs. 50,00,000/- and will be transferable by endorsement without any stamp duty or transfer fees. Stock Certificates (Not transferable by endorsement) in lieu of Bonds will be issued on request.

According to him, since the main object of issuing the bonds, which were in the form of promissory notes, was to borrow money from time-to-time to provide necessary resources for its various schemes of generation, etc. and the State of Madhya Pradesh had provided the necessary security by guaranteeing the payment of principal and interest, it had all the ingredients of a loan and the amount due on the appellant was a debt. He has pointed out that according to the definition of a 'bond' given in online investing glossary, available at investor Words Com. a 'bond' means a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. He has also submitted that generally a bond is a promise to repay the principal along with interest on a specified date (maturity). According to him, the bonds issued by the MPEB were given to the respondent Bank as a security for obtaining the loan but since the appellant did not service the interest after 31.3.2003 as per its terms, which was payable on half-yearly basis and committed default in respect thereof, therefore, the respondent Bank after recalling the loan facility had filed the O.A. for the recovery of the amount of bonds with accrued interest, which was a debt due and payable by the appellant and respondent Nos. 2 to 4 and the O.A. has rightly been allowed by the Tribunal below.

Mr. Vali has further submitted that after the formation of the State of Chhattisgarh by the bifurcation of the State of Madhya Pradesh in 2000, the GOI had issued a notification dated 4.11.2004 regarding the apportionment of assets, rights and liabilities of the erstwhile MPEB between the successor Boards and, as per that notification, the liabilities were apportioned in the ratio of 90:10 between the MPSEB and CSEB respectively and they were liable to pay the amount of bonds and interest accordingly. He has pointed out that the CSEB has already paid its share of dues @10% and the MPSEB has also paid about Rs. 44 crores.

I have given my thoughtful consideration to the submissions of the parties' Counsel. The main object of the issue of bonds was to generate funds for its schemes/projects which were purchasable by anyone. The respondent Bank had also purchased those bonds from time-to-time. No loan documents were admittedly executed between the MPEB and the Bank, as such the liability of the erstwhile MPEB or its successor Boards under the bonds is to be determined in accordance with the terms of the bonds. The said terms do not provide for the redemption of the amount of bond before the date of repayment in the event of default of payment of interest. The amount of bond, therefore, does not become due or payable on failure of servicing the interest. Clause (g) of Section 2 of the RDDBFI Act which defines the 'debt' says that:

(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.

The aforesaid definition makes it clear that the debt is that liability, including the interest, which is claimed as due by a Bank from any person and is legally recoverable on the date of the application (made under Section 19 of the said Act). The facts of this case, as narrated above, would show that except the amount of Rs. 26 lacs pertaining to the SLR bonds issued on 19.1.1994 and Rs. 5 crores of the non-SLR bonds, the principal amount of all other bonds purchased by or transferred to the respondent Bank had not become repayable on 4.8.2008 when the application was filed by the respondent Bank under Section 19 of the RDDBFI Act (O.A. 187/2008), as such the principal amount of those bonds, though claimed as due by the Bank, was not legally recoverable on such date. The amount of bonds, in the absence of any agreement to that effect, cannot be accepted as legally recoverable before the date of repayment. In view of this, I agree with Mr. Kumar that as the principal amount of the bonds, excepting those which had matured for redemption, was not legally recoverable on the date of filing the O.A., it was not a debt The respondent Bank was, therefore, not entitled to recover the principal amount of those bonds which had not become matured for redemption, but it was entitled to claim the amount of interest of those bonds as per its terms and had become overdue because of failure of its payment. The Tribunal below has, therefore, erred in allowing the recovery of the principal amount of bonds before the date of redemption.

It is pertinent to note that though there appears to be some disparity in the total principal sum of the bonds issued to the Bank as detailed in the O.A., which is Rs. 33.41 crores, excluding the amount of Rs. 5 crores of non-SLR bonds, whereas the respondent Bank is alleged to have lent Rs. 34.21 crores to MPEB, including the said amount of Rs. 5 crores, yet since the appellant has admitted in Paragraph 5.14 of the appeal memo that, as on 14.4.2001, the total investment of the respondent Bank in MPEB in SLR bonds was Rs. 29.21 crores and Rs. 5 crores in non-SLR bonds, therefore, total investment of only Rs. 34.21 crores by the respondent Bank is established.

As already stated, the respondent Bank has sought the recovery of Rs. 64,99,88,764/- as per the following details:

The calculation memo of delayed period interest up to the date of payment of normal interest at contractual rate, filed by the respondent Bank as Annexure R-l to the reply, however, shows that the total outstanding amount of interest on overdue interest and interest on redemption amount qua both the SLR and non-SLR bonds relating to the MPSEB and CSEB was Rs. 15,75,49,150/- and Rs. 2,84,75,786/- respectively, as such the total liability of interest qua both the Boards was Rs. 18,60,24,936/-, whereas the Bark had claimed a total sum of Rs. 32,58,88,764/- towards the interest, as per the above details, which has wrongly been allowed in full by the Tribunal below, without adjudicating whether or not the Bank was entitled to the interest at the claimed rate. The respondent Bank has claimed the interest at the commercial rate of 15% p.a. at monthly rests. Indisputably neither the payment of interest at such rate nor its payment with any compounding effect was agreed to between the parties The rate of interest, as per the terms of the SLR bonds was either 11.5% or 13.5% whereas it appears to be 15% only qua the non-SLR bonds. The respondent Bank is, therefore, neither entitled to the interest @ 15% p.a. qua the SLR bonds nor with monthly rest. The award of interest at the claimed rate with compounding effect up to the date of filing the O.A. by the Tribunal below is thus not sustainable.

The Tribunal below has allowed the O.A. qua the recovery of the entire claimed amount, including the amount of interest at the charged rate, without adjudicating whether or not the principal amount of all the bonds had become due for recovery or was legally recoverable at such rate. The order impugned is, therefore, neither in conformity with the facts and circumstances of the case nor in accordance with law, as such it cannot be allowed to sustain.

So far as the liability of the appellant towards the repayment of the amount of the bonds and payment of the interest thereon is concerned, the rights, assets and liabilities of the erstwhile MPEB has been apportioned in the ratio of 90:10 between its successor Boards, namely, the appellant and respondent No. 3 respectively, vide notification dated 4.11.2004 issued by the Ministry of Power, Government of India. The said notification has been upheld by the Hon'ble Supreme Court, vide order dated 13.9.2006. passed in W.P. (C) No. 675/2004. The appellant and respondent Nos. 2 to 4 are, therefore, liable to pay to the respondent Bank the principal amount (Rs. 5.26 crores) of those SLR and non-SLR bonds, which had become due for redemption on the date of filing the O.A. and interest on the amount of all the bonds at the rate stated thereon from the dates of default of payments as well as interest on the overdue amount of interest at such rate, in terms of the said notification.

Since all the SLR bonds issued to the respondent Bank have become redeemable during the pendency of the OA and this appeal, the appellant and respondent No. 3 are now liable to pay the principal amounts and interest qua those bonds in terms of the aforesaid notification of the GOI dated 4.11.2004. The appellant and respondent No. 3 Boards have already paid Rs. 44,02,92,711/- and Rs. 11,01,16,862/- respectively to the Bank as admitted by it in its statement filed qua the amounts received upto Sept. 2010 from the MPSEB and CSEB in the year 2010-11, as Annexure R-l with the reply (page No. 88 of appeal paper book). In view of the above discussion, the appeal succeeds and the order impugned is set aside, leaving the parties to bear their own cost throughout. The O.A. is allowed against the appellant and respondent Nos. 2 to 4 jointly and severally for the recovery of Rs. 5.26 crores along with interest on the total amount of all the bonds amounting to Rs. 34.21 crores at the rate stated on the bonds from the dates of default of payment of interest until realisation as well as interest at such rate on the overdue amount of interest until realisation in the ratio of 90:10 between the appellant and respondent No. 2 on the one side and respondent Nos. 3 and 4 on the other. The R.C. be amended accordingly. The appellant and respondent Nos. 2 to 4 are entitled to the adjustment of the payments already made by them to the respondent Bank.

Copy of this order be furnished to the parties as per law and be also sent to the DRT concerned.