AI Structured Summary
Not yet generated for this judgment
Judgment
Ranjit Singh, J
The appellant company has impugned the order passed by the DRT, Jaipur dismissing the I.A. filed by the appellant herein challenging the jurisdiction of the Tribunal to try and decide the O.A., which was prayed to be treated as preliminary issue. The plea by the appellant is that the respondent is a Debenture Trustee in respect of certain privately placed debentures by Banks and financial institutions which cannot be termed as a debt entitling the Bank to invoke the jurisdiction of a Tribunal constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act).
The respondent Bank being successor of ICICI Ltd. has filed the O.A. before the Tribunal below on the ground that it is acting as Debenture Trustee in respect of certain convertible and non-convertible debentures as set out, more particularly, in Para 5(a)(i) to (v) of the O.A. The Bank has accordingly prayed for issuance of a certificate in favour of the Bank as Trustee of the debenture-holder directing the company to pay a sum of Rs. 216,85,51,020.84 being the amount due to debenture-holders in respect of a series of debentures and remuneration due to the Trustee together with interest, penalty, liquidated damages as on 14.3.2010 till recovery of the said amount by sale of movable and immovable properties described in Schedules I, II, III and IV to the O.A.
The appellant contesting the claim of the Bank would submit that debenture is not a debt within the meaning of term 'debt' as defined in Section 2(g) of the RDDBFI Act. Accordingly, the appellant would plead that the Tribunal has no jurisdiction to adjudicate the above O.A. as the amount claimed by the Bank does not fall within the definition of the term 'debt'. Elaborating further, the appellant would submit that the respondent Bank or its purchaser ICICI Ltd. had never granted any loan or advanced in cash or otherwise any money to the appellant during the course of its business activity. No amount, 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 is there and, therefore, the Bank has no locus to file or institute the O.A. as Debenture Trustee to seek issuance of certificate of recovery of an amount of Rs. 216.85 crores. The appellant had filed an I.A. with the prayer that the issue of jurisdiction be adjudicated upon first as it would go to the root of the matter and the interest of justice demand that this issue be decided before any further proceedings take place. The appellant, therefore, pleaded that this be treated as preliminary issue and decided first.
The Bank chose not to file any reply it being a legal issue and straightaway made submissions before the Tribunal below.
The Counsel for the Bank placed reliance on a Division Bench judgment of the Bombay High Court in the case of Alfa and Omega Diagnostic India Ltd. v. Asset Reconstruction Company (I) Ltd. & Ors., II (2011)BC 34. On the basis of law laid dow n in this case, the Counsel for the Bank had submitted before the Tribunal below that a Bank or financial institution even when abating as a Trustee can have recourse to the provisions under the RDDBFI Act.
The Tribunal below, accordingly, has held that the plea of jurisdiction as raised by the appellant was devoid of any merit and accordingly dismissed the said I.A. holding that the Tribunal has jurisdiction to adjudicate the O.A. Aggrieved against this order, the appellant has filed the present appeal.
The Counsel for the appellant would submit that the debenture is not a debt as defined under the RDDBFI Act and in this regard would make reference to the definition of the term 'debt' as given in Section 2(g) of the said Act. Section 2(g) of the Act defines 'debt' as under:
"(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 Counsel would then submit that the Bank being Debenture Trustee cannot claim the amount as claimed in the O.A. to be a debt on the appellant company, which is due to a Bank or financial institution, and in support of his submission has made reference to Section 117B of the Companies Act, 1956. This section talks of appointment of Debenture Trustees and duties of Debenture Trustees. This section reads as under:
"177B. Appointment of Debenture Trustees and Duties of Debenture Trustees:
(1). No company shall issue a prospectus ora letter of offer to the public for subscription of its debentures, unless the company has, before such issue, appointed one or more debenture trustees for such debentures and the company has, on the face of the prospectus or the letter of offer, stated that the debenture trustee or trustees have given their consent to the company to be so appointed.
Provided that no person shall be appointed as a debenture trustee, if he
(a) beneficially holds shares in the company;
(b) is beneficially entitled to moneys which are to be paid by the company to the debenture trustee;
(c) has entered into any guarantee in respect of principal debts secured by the debentures or interest thereon.
(2). Subject to the provisions of this Act, the functions of the debenture trustees shall generally be to protect the interest of holders of debentures (including the creation of securities within the stipulated time) and to redress the grievances of holders of debentures effectively.
(3). In particular, and without prejudice to the generality of the foregoing functions, a debenture trustee may take such other steps as he may deem fit.
(a) to ensure that the assets of the company issuing debentures and each of the guarantors are sufficient to discharge the principal amount at all times;
(b) to satisfy himself that the prospectus or the letter of offer does not contain any matter which is inconsistent with the terms of the debentures or with the trust deed;
(c) to ensure that the company does not commit any breach of covenants and provisions of the trust deed;
(d) to take such reasonable steps to remedy any breach of the covenants of the trust deed or the terms of issue of debentures;
(e) to take steps to call a meeting of holders of debentures as and when such meeting is required to be held.
(4). Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee may file a petition before the Central Government and the Central Government may, after hearing the company and any other person interested in the matter, by an order, impose such restrictions on the incurring of any further liabilities as the Central Government thinks necessary in the interests of holders of the debentures.
Provided that in the case of revival and rehabilitation of a sick industrial company under Part VIA, the provisions of this section shall have effect as if for the words "Central Government"."
The Counsel would emphasise on Section 117B (2) reproduced above which states that subject to the provisions of the Act, the functions of the Debenture Trustee shall generally be to protect the interest of holders of debentures (including the creation of securities within the stipulated time) and to redress the grievances of holders of debentures effectively. Reference is also made to Section 117B(4) as per which right has given to the Debenture Trustee to file a petition before the Central Government where it comes to the conclusion that the assets of the company are insufficient or are likely to become insufficient to discharge the principal amount as and when it becomes due. In that event, the Central Government may, after hearing the company or any other person interested in the matter, impose such restrictions on the incurring of any further liabilities as the Central Government may think necessary in the interest of holders of debentures by passing an order. Counsel would submit that duties and responsibilities of a Trustee is regulated by Section 117B of the Companies Act and as a Trustee the Bank could only take action in the manner as provided under Section 1178 it is in this background, the Counsel would contend that the Tribunal below while deciding the issue of jurisdiction to decide the O.A. has given a complete go-by to the provisions of Section 117B and has completely ignored the said provision. The Counsel would further contend that no amount had been released to the debenture holders till the date the Bank had filed this O.A.
Counsel has challenged the view formed by the Tribunal below on the basis of judgment in case of Alfa and Omega Diagnostic (supra) which according to the Counsel had different facts as compared to the present case and thus could not be made applicable to the present case. Instead, the Counsel would rely upon two other judgments of the Bombay High Court in the cases of ICICI Limited v. Veena Textiles Ltd. & Ors., I (2003) BC 98, and Industrial Development Bank of India v. Krishna Filaments Ltd. & Ors., 2001 (1) Bom. CR 426. In Veena Textiles' case (supra), the plaintiff financial institution in its capacity as Trustee had filed a suit for recovery of the amount due to the debenture holders. The High Court was of the view that the Tribunal will not have jurisdiction to entertain the suit and the jurisdiction of the civil Court was not ousted. The financial institution in this case had approached the High Court for seeking appointment of a. Court Receiver in relation to the security. The respondent appeared and raised an objection in regard to the maintainability of the suit by the financial institution before the High Court in view of provisions of Section 18 of the RDDBFI Act, The Court, in this background, rejected the contention of the respondent and held that the civil suit would be maintainable and is not barred. As held in this case prima facie the Civil Court will have jurisdiction to entertain the case.
In Krishna Filaments' case (supra), the Industrial Development Bank had filed a suit to claim certain amounts from the defendants due to them as Debenture Trustee. The complaint made in the plaint was that the amount due to the debenture holders had not been paid by the defendant Krishna Filaments. The plea by the Bank by invoking relevant provisions of the debenture deed was to recall the entire amount from the first defendant and pay to the debenture holders. A preliminary objection was raised by the defendant pleading that the Court had no jurisdiction in the light of the provisions of the RDDBFI Act. This issue being a preliminary issue was decided first. The Counsel for the respondent Krishna Filament very strenuously submitted before the Court that the suit claim is a debt coming under Section 2(g) of the RDDBFI Act as the amount became payable to the plaintiff Bank during the course of its business activity. Accordingly it was pleaded that the Court had no jurisdiction. The plea further was that wider meaning should be given to the word 'debt' as held by the Supreme Court in the case of United Bank of India v. The Debts Recovery Tribunal & Ors., III(1999) SLT 482 = III(1999) CLT 47 (SC) = AIR 1999 SC 1381, In this case, the Supreme Court has viewed that the expression 'debt' has to be given the widest amplitude to mean any liability which is alleged as dues from any person by a Bank during the course of any business activity undertaken by the Bank either in cash or otherwise, whether secured or unsecured, whether payable under a decree or order of any Court or otherwise and legally recoverable on the date of the application. Reference was also made to a decision in the case of Allahabad Bank v. Canara Bank & Anr., I(2000) BC 627 = III (2000) CLT 129 (SC) = IV (2000) SLT 325 = AIR 2000 SC 1535, where the issue considered was whether the Bank should seek leave of the Company Court before approaching the Tribunal or whether the Company Court can stay the proceedings before the Tribunal under Sections 442,446 and 537 of the Companies Act. The Hon'ble Supreme Court has held in this case that the principle of purposive interpretation was applied by considering the provisions of the Act and such interpretation should have helped to have jurisdiction and powers in a Company Court and the said principle has to be excluded in view of the superior power of the RDDBFI Act and special power contained therein. This decision was held to be of no help to the defendant Krishna Filaments. The Court in this case referred to the provisions of Section 5(c) of the Banking Regulation Act where the 'Banking Company and the meaning of the 'Banking' has been defined. Thereafter, the Court has held:
If we read definition of "debt" contained in Debt Recovery Act in conjunction with Section 5(b) and (c) of the Banking Regulation Act, the words "business activities" that is appearing in the definition clause of "debt" must be the business activities which is undertaken under Section 5(b) and (c) of the Banking Regulation Act. In other words, in order to attract the provision of the Debt Recovery Act, it must be a debt owing to a Bank or financial institution during its business activities as shown under Section 5(b) and (c) of the Banking Regulation Act. So a person who approaches the Court to challenge the jurisdiction of this Court from entertaining the suit of a Bank, not only he must show that the debt is due from any person to a Bank but also it must show that the debts was incurred during the course of business activities of the Bank which is defined under Section 5(b) and (c) of the Banking Regulation Act. As I indicated earlier, the claim in the suit, is not the amount due or debt created during the business activities of the plaintiff as a Bank. The plaintiff is constituted under I.D.B.I. Act which has undertaken the business under Banking Regulation Act, as well. The activities undertaken under the Trust Deed is not prohibited by I.D.B.I. Act or any other law. Plaintiffs Bank is one which is therefore, entitled to maintain the suit against the defendant even if the amount exceeds Rs. 10 lakh. In such a situation the debt due to the plaintiff, cannot be treated as "debt" falling under Section 2(g) of the Debt Recovery Act. Here admittedly the debt was cropped up out of agreement executed between first defendant and the plaintiff which is out side the business activities of a Bank as defined under Section 5(b) and (c) of the Banking Regulation Act read with Section 2(g) of the Debt Recovery Act."
Accordingly, it was held that the Court has jurisdiction to entertain the suit.
Though the Counsel for the appellant has made reference to the judgment in the case of Alfa and Omega Diagnostic (supra), but he failed to point out that the judgment relied upon by him in the case of Krishna Filament (supra) has been held to be not a good law by the Division Bench in the case of Alpha and Omega Diagnostic. This fact is pointed out by the Counsel for the respondent Bank who in this regard has made reference to Paras 29 and 30 of the judgment, where Court has held as under
"29. Reliance placed by the petitioners on the decision of Krishna Filaments (supra) and particularly Paras 23 to 26 thereof is misconceived. Therein, the Division Bench held that the Bank IDBI acted as a Trustee for the subscribers to the debentures of the appellant company. The entire claim was on behalf of the debenture holders for the amounts that they have subscribed to the debentures. The Amount claimed was not of IDBI but the dues was of the subscribers of the debentures. It is only in the light of this factual position that the Division Bench concluded that the debt is not that of IDBI but was due and payable to the subscribers of the debentures. It is only in the light of this factual position that the Division Bench concluded that the debt is not that of IDBI but it has recovered it in Trust for the debenture holders. Therefore, the suit is maintainable on the original side of this Court. In other words, the Civil Court's jurisdiction is not ousted by the RDB Act, is the conclusion based on this unassailable and undisputed factual position.
In the view that we have taken and finding that the law laid down in Krishna Filaments cannot be said to be any longer valid and good in the light of the statutory provisions that the further issue, abut correctness of the conclusions recorded by Division Bench in Paras 25 and 26 and the interpretation placed on the definition of the word "debt", need not be considered. Now, the Bank or financial institution as an assignee can proceed under the Securitisation Act, so also under the RDB Act. The term "debt' as appearing in Section 2(g) would have to be considered in the light of the broad interpretation that we have placed on the provisions of the Securitisation Act. The distinction that is drawn by Mr. Samdani is no longer valid. Even if the Bank or financial institution is acting as a Trustee as suggested, it can take recourse to the RDB Act. That is clear from a reading of the definition of the term "secured creditor: as defined in Section 2(zd) of the Securitisation Act. That term includes debenture trustee appointed by the Bank or financial institution or securitization company or reconstruction company, where acting as such or managing a trust set up by such securitization company or reconstruction company for securitization or reconstruction company as the case may be or any other trustee as contemplated by Section 2(zd)(iii). The term security interest is defined in Section 2(zf) of the Securitisation Act and it means right, title and interest of any kind whatsoever of property created in favour of any secured creditor and includes any mortgage, charge, hypothecation and assignment. Therefore, when the Bank or financial institution as in the case of Krishna Filaments is acting as a debenture Trustee, then, it will not be required to approach the ordinary Civil Court but can take recourse to the Securitsation Act and consequently, as permissible therein, the RDB Act as well. If the arguments to the contrary are accepted that would mean ignoring and brushing aside the inclusive definitions as noticed by us. Therefore, we are of the view that in the present case, considering the definition of the term "debt" and "financial institution" appearing in the RDB Act, 1993 and the relevant provisions of Securitisation Act so also to give full effect to the same, it will have to be held that it was permissible for parties such as Arcil to apply for amendments to the Original Application No. 89 of 2005."
Thus, the Division Bench of the Bombay High Court, while holding that the law laid down in Krishna Filaments (supra) is no more a good law, has relied upon the term 'secured creditor' as defined in Section 2(zd) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). This term is held to include debenture trustee appointed by the Bank or financial institution or securitization company or reconstruction company, where acting as such or managing a trust set up by such securitization company or reconstruction company for securitization or reconstruction company as the case may be or any other trustee as contemplated by Section 2(zd)(iii). The Counsel for the respondent has also referred to the definition of "secured creditor" which is as under:
"(zd) "secured creditor" means any Bank or financial institution or any consortium or group of Banks or financial institutions and includes
(i) debenture trustee appointed by any Bank or financial institution: or
(ii) securitization company or reconstruction company, whether acting as such or managing a trust set up by such securitization company or reconstruction company for the securitization or reconstruction, as the case may be; or
(iii) any other trustee holding securities on behalf of a Bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance."
Thus, a secured creditor means any Bank or financial institution or any consortium or group of Banks or financial institutions and also include debenture trustee appointed by the Bank or financial institution. Thus, the respondent Bank admittedly being debenture trustee would become a secured creditor. Even the term 'financial institution' has been defined under Section 2(m) of the SARFAESI Act. The Court accordingly held that in view of the provisions of the SARFAESI Act it will not be possible to agree that the restricted view as taken in the case of Krishna Filaments (supra) will continue to hold the field. It is noticed that the amendment to the defined term 'financial institution' as appearing in Section 2(h) of the RDDBFI Act and enactment of the SARFAESI Act are the development post judgment in the case Krishna Filaments (supra). It is also noticed that it as to get over the narrow interpretation placed on the term "debt" that the Legislature has stepped in and amended the RDDBFI Act. Doubt, if any, about a debt which is assigned by a Bank or financial institution, being recovered by filing an application before DRT established under Section 3 of the RDDBFI Act, that is cleared by insertion of Subsection (ia) in Section 2(h) of the RDDBFI Act. In this view of the matter, the reliance by the Counsel for the appellant on the case of Krishna Filaments (supra) is wholly misconceived and misplaced. He ought to have placed before this Tribunal the fact that this judgment has been held to be no more a good law in the case of Alfa and Omega Diagnostic (supra) in order to provide proper and meaningful assistance to the Tribunal. Rather, the Counsel for the appellant is seen making efforts to show that the facts in the case of Alfa and Omega Diagnostic (supra) were different and would not be attracted to the present case. Even if that was the position, he was fairly required to disclose that Krishna Filaments judgment is held to be no more a good law. Reference by the Counsel to the issue under consideration in Alfa and Omega Diagnostic (supra) is to the effect that where a reconstruction company contemplated under Section 2(v) of the SARFAESI Act can apply for substitution as applicant in place of the original lender Bank by amending the pending O.A. would not help the line of submission pursued by the Counsel. Court in this case was also considering whether the substitution or impleadment of reconstruction company in its capacity as Trustee is permissible under the RDDBFI Act or not. The issue of financial institution being Trustee thus was under consideration. In any case, the judgment made as a base for creating edifice by the Counsel for the appellant stands knocked off and thus his submissions clearly are misconceived and misplaced.
I find no infirmity in the view taken by the Tribunal below and would dismiss the appeal.