PSB Industries India (P) Ltd. vs HDFC Bank Ltd.

Ranjit Singh, J

The appellant herein filed an I.A. (No. 566/2014) before the Tribunal below under Order 7 Rule 11, CPC read with Sections 17 and 19(25) of the RDDBFI Act for dismissing the O.A. filed by the respondent Bank on the ground that the O.A. did not reveal cause of action and the amount claimed was not a debt and, hence the O.A. filed by the Bank was not maintainable. The Tribunal has rejected the said I.A. filed by the appellant. Aggrieved against the same, the appellant has filed the present appeal to impugn the order passed by the Tribunal below. The respondent Bank has filed an O.A. for recovery of Rs. 67 crore deposited by Bank of Punjab Ltd. with the appellant company as interest-free security in respect of a leased premises situated at Manesar Road, Gurgaon. The case set up by the appellant is that Bank of Punjab Ltd., which is predecessor-in-interest of the respondent Bank, had taken on lease the property measuring an aggregate of 1,23,490 sq. ft. situated at Manesar Road, Gurgaon. As per the memorandum of intent dated 24.3.2001 a security deposit of Rs. 65 crore was paid by Bank of Punjab Ltd. and the balance security deposit of Rs. 2 crore was to become payable upon the commencement of lease. In order to secure the repayment of this Rs. 67 crore, the appellant had created an equitable mortgage of the mortgaged premises by deposit of title deed with Bank of Punjab Ltd.

On 23.12.2013, the Bank issued lease termination notice to the appellant notifying the appellant that month-to-month lease in respect of leased premises was being terminated with effect from 31.1.2014. The Bank called upon the appellant to depute a person to take possession of the leased property while simultaneously asking for refunding the security deposit. It is alleged that the premises was not vacated and was being used for commercial purpose by the respondent Bank, which fact is also noticed from the valuation report dated 1.2.2014 filed with the O.A. It is in this background that the appellant had raised two questions before the Tribunal below while seeking rejection of the O.A. in terms of Order 7 Rule 11, CPC. The appellant would claim that the claim of refund of security given pursuant to the lease would not amount to debt within the meaning assigned to the term 'debt' in Section 2(g) of the RDDBFI Act. As per the appellant, the respondent Bank had no cause of action for claiming refund of security deposit and as such it could not maintain the O.A. while retaining possession of the premises by making only conditional offer of possession.

Both sides have addressed elaborate arguments on this simple looking issue. The Counsel for the appellant would refer to the definition of 'debt' as given in Section 2(g) of the RDDBFI Act. While dissecting the definition of the term 'debt', Counsel would contend that the definition has distinct elements like 'any liability'; 'claimed as due from any person'; 'by a Bank or financial institution'; 'during the course of any business activity undertaken by the Bank'; 'in cash or otherwise'; 'subsisting on and legally recoverable on the date of the application'. The essential element of debt is that amount should be due during the course of any business activities undertaken by the Bank. As to what would constitute a business activity of the Bank, the Counsel would rely upon a decision of the DRAT, Mumbai in the case of Citi Bank N.A. v. Lt. Col Anil Bhat & Ors., II (2008) BC 111. The DRAT, Mumbai in this case has held that when Bank enters into certain activities out of necessity, it could not be said that such activities would amount to 'business activity'. It is further observed that as per the averments in the plaint Court had no jurisdiction to entertain plaint and same has to be returned for presentation to proper Court. The suit filed by the Bank was dismissed as not maintainable for want of jurisdiction under the provisions of the RDDBFI Act.

The plea of the Bank before the Tribunal was that the issue of jurisdiction is to be determined on the basis of averments made in the plaint and if those averments are considered, the suit would be maintainable under the RDDBFI Act. By relying on the wording of the definition of 'debt' given in Section 2(g) of the RDDBFI Act, the Bank had referred to the expression 'business activity undertaken by the Bank' in the said section to contend that the term 'debt' cannot be confined only to the debt arising from Banking activity. As per the Counsel, wide meaning has to be given to the phrase 'business activity' as held by the Bombay High Court in some cases on which reliance was placed. Reference was made to Section 6 of the Banking Regulation Act to hold that taking premises on licence for the purpose of residence or occupation of the officers of the Bank is part of the 'business activity' undertaken by the Bank.

On the other hand, this Tribunal in the case of BOC Properties Pvt. Ltd. v. Punjab National Bank, Miscellaneous Case No. 80/2015 decided on 7.4.2015, has held that the definition of 'debt' cannot be restricted to apply only to the business activity of Banking alone. It is viewed that all the forms of business which the Banking company is entitled to carry out would fall within the purview of 'business activities' undertaken by the Bank and would be a debt being 'any liability'. Reference is made to Section 6(1) of the Banking Regulation Act which provides that the Bank in addition to Banking business may engage in the business of the acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the company. Any amount which becomes due and payable by any person to the Banking company arising out of business activity of construction, maintenance and alteration necessary for the purpose of company would be a 'debt' as defined in Section 2(g) of the Act.

The Counsel for the appellant would submit that the view so formulated by this Tribunal would require a re-consideration as on examination of various elements of definition of debt it can be seen that the words 'during the course of any business activity undertaken by the Bank' have been used to qualify the preceding words 'any liability claimed as due by a Bank'. It is urged that if the business activity is to be interpreted so widely as to include all activities that can be undertaken by the Bank, then it would have sufficed to say 'any liability which is claimed as due from any person by a Bank'. Therefore, it is urged that some qualifying meaning has to be assigned to the words 'during the course of any business activity undertaken by the Bank'.

I have considered the plea raised by the appellant. I do not find any justification to re-consider the view that this Tribunal has formed in the case of BOC Properties (supra). The plea that the section could have worded as stated above by the Counsel, if intention was to include all activities is apparently misplaced. Obviously, business activity is different from Banking activity. Business activities will have to be restricted in terms of Section 6(1) of the Banking Regulation Act and not to all amount dues. Use of words 'business activity' instead of Banking activity' in itself is significant. This aspect has been considered by this Tribunal while making reference to the case United Bank of India v. Debts Recovery Tribunal & Ors., III (1999) SLT 482 : 111 (1999) CLT 47 (SC) : AIR 1999 SC 1381, where the Court has held as under while considering the expression 'debt' as defined in Section 2(g) of the RDDBFI Act:

"15. In the case in hand, there cannot be any dispute that the expression 'debt' has to be given the widest amplitude to mean any liability which is alleged as due 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. In ascertaining the question whether any particular claim of any Bank or financial institution would come within the purview of the Tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint have to be looked into and then find out whether notwithstanding the specially created Tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such Tribunal is ousted. With the aforesaid principle in mind on examining the averments made in the plaint, we have no hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one for recovery of a debt due to it from the defendants and, therefore, it is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary Civil Court. In this view of the matter the High Court was in error to hold that the dispute in question is not entertainable by the Tribunal under Section 17 of the Act. We accordingly set aside the impugned order of the Calcutta High Court and direct the suit in question which stood transferred to the Tribunal, constituted under the Act and was registered as Transferred Application No. 163 of 1996 be disposed of by the Tribunal in accordance with law. These appeals are allowed but in the circumstances, without any order as to costs."

Thus, the expression 'debt' has to be given the widest amplitude to mean any liability which is due from any person by the Bank during the course of any business activity undertaken by the Bank. After referring to the cases cited before it, this Tribunal has held in the case of BOC Properties (supra):

"A reading of Section 2(g) of the RDDBFI Act would reveal that debt is defined to mean 'Any Liability'. Thus liability of a person may be any. This 'Any Liability' is liability which is due from any person during the course of 'business activities' undertaken by the Bank. What then is to be seen is if the activity in the present case can fall within the business activity of the Bank or not. Therefore, what all business activities the Bank can undertake would call for consideration while keeping in mind the distinction between the 'Banking Activities' and the 'Business Activities'. To know and understand this, one may have to look for the business which the Banking companies are permitted to undertake.

Banking companies transacts business of Banking under the Banking Regulation Act. Banking is defined in Section 5(b) of this Act to mean the accepting for the purpose of lending or investment, of deposit of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise. In addition to Banking, the Banking company can undertake those businesses as specified in Section 6 of the Banking Regulation Act. Section 6(1) of the Act has gone on to provide the form of business in which the Banking company may engage. There is no need to make a reference to wide ranging business which the Banking company may engage as per this section but reference may be made to Section 6(1)(k) which is relevant for the purpose of deciding this appeal. Section 6(1) of the Act provides that in addition to the business of Banking, a Banking company may engage in any one or more of the forms of business given therein and one form of business in which the Bank can engage as per Section 6(1)(k) is:

'The acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purposes of the company.'

The Banking Company can even

'do all such other things as are incidental or conducive to the promotion or advancement of the business of the company.'

Section 6(1)(n) of the Banking Regulation Act so provide.

The reading of these provisions would be a pointer that there is a distinction between 'Banking activities' and 'business activities'. The Banks thus are not only permitted to do the business of Banking but can engage in other forms of business as are specified in Section 6(1) of the Banking Regulation Act. [See: Bishop of Kottayam & Ors. v. Union of India (Uol) and Ors., AIR 1986 Ker 126]."

Reference here can be made to the case titled ICICI Bank Limited v. Official Liquidator of APS Star Industries Limited and Ors., I (2011) BC 178 (SC) : IX (2010) SLT 30 : (2010) 10 SCC 1. The Hon'ble Supreme Court, after considering Sections 5, 6, 8 and 9 of Banking Regulation Act has held as under in regard to scope of Banking business:

"37. The point we are trying to make is that apart from the principal business of accepting deposits and lending the said 1949 Act leaves ample scope for the Banking companies to venture into new business subject to such business being subject to the control of the regulator viz. RBI. In other words, the 1949 Act allows Banking companies to undertake activities and business as long as they do not attract prohibitions and restrictions like those contained in Sections 8 and 9, In this connection we need to emphasis that Section 6(1)(n) enables a Banking company to do all things as are incidental or conducive to promotion or advancement of the business of the company. Section 6(1) enables Banking companies to carry on different types of businesses. Under Section 6(1) these different types of businesses are in addition to business of Banking viz. core Banking. The importance of the words 'in addition to' in Section 6(1) is that even if different business under Clauses (a) to (o) are shut down, the company would still be a Banking company as long as it is in the core Banking of accepting deposits and tending so that its main income is from the spread or what is called as 'interest income'. Thus, we may broadly categorise the functions of the Banking company into two parts viz. core Banking of accepting deposits and lending and miscellaneous functions and services. Section 6 of the BR Act, 1949 provides for the form of business in which Banking companies may engage. Thus, RBI is empowered to enact a policy which would enable Banking companies to engage in activities in addition to core Banking and in the process it defines as to what constitutes 'Banking business'."

The Tribunal has accordingly viewed that the definition of 'debt' cannot be read by restricting it to apply only the business activities of Banking alone. All the forms of business which the Banking company is entitled to carry out would fall within the purview of 'business activities' undertaken by the Bank and would be a debt being 'any liability'.

The observation of the Hon'ble Supreme Court in the case of United Bank of India (supra) may need reiteration here that the term 'debt' has to be given widest amplitude. Thus, there cannot be any doubt that any liability which is alleged as due from any person by a Bank during the course of any business activity undertaken by the Bank as given in Section 6 of the Banking Regulation Act would be a debt as given in Section 2(g) of the RDDBFI Act. Thus, I do not consider any necessity or need to revisit the view which this Tribunal has formed after discussing various judgments in support of its view. Accordingly, the view canvassed by the Counsel for the appellant that the present business activity undertaken by the Bank would not be a debt, cannot be accepted and, therefore, is rejected.

Counsel would next contend that there was no cause of action for the Bank to file this O.A. for the recovery of the amount which was advanced only as security for lease. As per the Counsel, even if the lease is terminated, the claim for refund of the security would not give a cause of action to the Bank to claim this amount as the refund of the amount would be dependent upon the handing over the vacant possession of the leased premises. In support of this submission, the Counsel for the appellant has referred to various judgments.

Reference is made to the case of Narender Gupta HUF v. Vigneshwara Developwell Pvt. Ltd. & Ors., , where a shop was let out by the plaintiff to the defendants for a period of 33 months. Registered lease deed was executed between the parties. Notice was sent by the defendants to the plaintiff for handing over possession and refund of security deposit. This, according to the plaintiff, was contrary to the terms and conditions of the lease deed. The plaintiff had claimed the unpaid rent, payment towards enhancement of rent for two and a half months, service tax, etc. The defendants disputed the suit and filed counter-claim. The Court in this case has held that the defendants had called upon the defendants to take back vacant possession of the premises, without immediate effect, 'on refunding the security deposit of Rs. 10 lac'. It was further stated that if the plaintiff failed to refund the deposit of Rs. 10 lac, resulting in delay in handing over of possession of the rented premises, he would be liable for payment of all expenses borne by the defendants in maintaining the premises, along with interest. The Court has observed that defendants had made the refund of the security deposit a condition precedent to their handing over possession of the tenancy premises to the plaintiff. The Court has observed that the defendants were not ready to hand over possession before obtaining refund of the security deposit from the plaintiff. The Court has accordingly held that the defendants are liable to pay service tax on the agreed rent. The ratio of law laid down in this case is that the landlord will be entitled for arrears of rent if tenant is failed to pay the same while in possession of premises.

Similar view is expressed in the other judgments cited by the Counsel for the appellant. In the case of Uberoisons (Machines) Ltd. v. Samtel Color Ltd., 105 (2003) DLT 383 : 2003 (69) DRJ 523, also a suit for possession as well as recovery of arrears of rent, mesne profits and damages was filed. Tenant had paid certain amount as security deposit which the landlord was not willing to refund, as the tenant had damaged the premises. The Court has held that a tenant could not have possession of the premises without paying rent thereof on account of non-refund of security. The Court accordingly has held that the security amount is to be adjusted towards the rent. The ratio in all these cases, therefore, is to the effect that the tenant is required to pay the arrears of rent if he continued to be in possession of the tenanted premises and he cannot decline to pay rent merely on the ground that the security deposit has not been refunded by the landlord.

Even otherwise, the ratio in this case cited by the Counsel for the appellant may not have much applicability to the case in hand. Apart from the lease deed, the appellant had also created a mortgage of the property in question which fact was totally absent in the judgments cited on behalf of the appellant.

The Counsel for the respondent, otherwise, would contend that for deciding the application under Order 7 Rule 11, CPC only averments in the plaint can be looked into and the pleas taken by the appellant in the written statement are not relevant. In this context, reference is made to Baku Ram v. Janak Singh & Ors., (2012) 8 SCC 701. In this regard only reference is made to Sopan Sukhdeo Sable & Ors. v. Assistant Charity Commissioner & Ors., I (2004) SLT 917 : (2004) 3 SCC 137. Talking about the nature and scope of application under Order 7 Rule 11, CPC, it is held that the trial Court can exercise the power at any stage of the suit. For the purpose of deciding an application under Order 7 Rule 11(a) and (d) the averments in the plaint are germane and the plea taken in the written statement would be wholly irrelevant at that stage. It is further observed that a duty cast upon the Court to perform its obligations in rejecting the plaint hit by any of the infirmities under Clauses (a) to (d), even without intervention of the defendant.

There has not been much debate in regard to the sweep of Order 7 Rule 11 between the parties. So, there is not much need to go into this aspect.

Even while deciding the case of A. Arumugam v. P.R. Palanisamy & Anr., S.A. No. 711 of 2009 and M.P. No. 1 of 2009, decided on 8.1.2013, the Court has held that Order 7 Rule 11(d), CPC has limited application. As per the High Court, it must be shown that the suit is barred under any law. Such a condition must be drawn from the averments made in the plaint. It is held that different clauses of Order 7 Rule 11, CPC should not be mixed up. In a given case, an application for rejection of the plaint may be filed on more than one ground specified in various sub-clauses thereof, a clear finding to that effect must be arrived at. It is further observed that what would be relevant for invoking Clause (d) of Order 7 Rule 11 of the Code are the averments made in the plaint. For that purpose, there cannot be any addition or subtraction. Absence of jurisdiction on the part of a Court can be invoked at different stages and under different provisions of the Code. Order 7 Rule 11 of the Code is one, Order 14 Rule 2 is another. The Court has further observed that for invoking Order 7 Rule 11(d) of the Code, no amount of evidence can be looked into. The issues on merit of the matter which may arise between the parties would not be within the realm of the Court at that stage. All issues shall not be the subject-matter of an order under the said provision. The Counsel for the respondent has placed reliance on this judgment to support his plea.

The difference between a lease and a mortgage is also required to be kept in view. As held in the case of Puzhakkal Kuttappu v. C. Bhargavi & Ors., 1976 (SLT Soft) 177 : (1977) 1 SCC 17, there is one most essential feature in a mortgage which is absent in lease, that is, that the property transferred is a security for the repayment of debt in a mortgage whereas in a lease it is a transfer of right to enjoy the property. Thus, cause of auction in this case has to be construed by keeping in view that it was not only a lease which is in issue but recovery of the security amount secured by a mortgage of the property. The property was also mortgaged by the appellant. Once the property is mortgaged, there would be a right to recover the amount if the same is not repaid. This would be a distinctive feature in the present case to determine the cause of action. The Tribunal has considered this aspect and has found no merit in the argument of the appellant. In view of above, no case for interference in the impugned order is made out. The present appeal is accordingly dismissed.