Punjab National Bank vs M/s DSC Ltd. And Ors.

This appeal challenges the final order dated 06.11.2017passed by the Tribunal below(DRT) in appellant bank's Original Application No. 126/2015(O.A.) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993('RDDBFI Act,1993'in short).

Erstwhile Oriental Bank of India (OBC), which now stands merged with Punjab National Bank, had granted certain financial facilities to respondent no.1 Company for its EPC Undertaking (Engineering, Procurement &Construction). However, it had defaulted in re-payment of the bank's dues as per the terms and conditions of sanction of loan. Before OBC started litigation to recover its outstanding dues as a secured creditor the defaulting borrower Company, respondent no.1 herein, as a measure of corporate restructuring and with an object to ensure the overall benefits to all stakeholders including creditors approached Hon'ble Delhi High Court for demerger of its EPC Undertaking and its transfer in entirety to a Company by the name of DSC Engineering Pvt. Ltd. Joint petitionNo.464/2011 under Sections 391 to 394 read with Section 100 to 104 of the Companies Act for the Court's sanction of the Scheme of Arrangement was filed and the same was allowed also by the Company Court vide order dated16.12.2011and as per the categorical case of the respondents herein before the DRT that Scheme acquired statutory force and became effective upon it being submitted with the Registrar of Companies.OBC had not challenged that order of the High Court at any stage and had, in fact, recognized the said transferee Company M/s DSC Engineering Company Pvt. Ltd. as its borrower and had transferred the loan accounts of M/s DSC Ltd. In the name of the said transferee Company.

When the new borrower Company also did not clear the bank's dues OBC in the year 2015 filed a recovery case under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993('RDDBFI Act' in short) against the original borrower Company, respondent no.1herein, and the guarantors/mortgagors, before the Tribunal below (DRT) and not against the said transferee Company M/s DSC Engineering Company Pvt. Ltd. which was also a party to the petition before the High Court.

The learned DRT disposed of the O.A. vide its impugned order dated06.11.2017by partly allowing the same and dismissing the same partly. Feeling aggrieved by the dismissal of part of the O.A. OBC had filed the present appeal. During the pendency of the appeal OC got merged with Punjab National Bank(PNB) and accordingly it was permitted to be substituted in place of OBC and an amended Memo of Parties filed by the bank alongwith its application for substitution of PNB in place of OBC was taken on record.

The O.A. of OBC was resisted by the defendants-respondents. The main ground on which it was opposed by the borrower Company and which ground was accepted also by the learned DRT was that the O.A. against DSC Ltd. was not maintainable after demerger of its EPC business, for which loans were granted, under the Scheme of Arrangement which had been approved by the Hon'ble Delhi High Court in a petition under Sections 391 to 394 of the Companies Act and the bank could recover its dues thereafter only from M/s DSC Engineering Company Pvt. Ltd. to which Company assets and liabilities of DSC Ltd. stood transferred.

The learned DRT had dealt with this ground of opposition raised by DSC Ltd. in the following manner in the impugned order and to which observations and particularly to the highlighted portions, only my attention was drawn from both sides during the course of hearing of arguments in the present appeal:-

"3. In their joint Written Statement running into 131 pages, the defendants have resisted the claim of the applicant bank and contended that the present O.A. is neither maintainable in law nor in facts as the applicant bank is guilty of 'SuppersioVari' and `Suggestiofalsi' as it has concealed various important and material facts. However, it is admitted that in order to meet the capital requirements of defendant no.1 Company, the applicant bank sanctioned Credit Facility to the tune of Rs. 120 crores on June 27, 2008 and renewed the same apart from sanctioning fresh Bank Guarantee Facility of Rs.100 crores vide its sanction letter dated April 05, 2011. According to the answering defendants, to ensure the overall benefits to all the stakeholders including the shareholders, creditors and employees, defendant no.1 alongwith DSC Engineering Pvt. Ltd., DSC Hydro Power Pvt. Ltd. had presented a Scheme of arrangement before the Hon'ble High Court of Delhi through a Company Petition No.464/2011 under Sections 391 to 394 read with Section 100 to 104 of the Companies Act, 1956 and therein defendant no.1 had filed a list of its Secured Creditors (including the applicant bank) as on July 31, 2011 and terms of the order of the Hon'ble High Court at Delhi, a meeting of the Secured Creditors was convened on October 24, 2011 which was attended to by seven secured Creditors. However, the Authorised Officer of the applicant bank had reached the venue after the meeting was over. The applicant did not file any opposition to the said Company Petition before the Hon'ble High Court and on approval of the Scheme of Arrangement by the Hon'ble High Court, all the assets defendant no. 1 as on 31stNovember 2011 stood transferred in the name of DSC Engineering Pvt, Ltd. and, as such, defendant no.1 is not entitled for any assets of the demerged Company or liable for any liability. The said Scheme of Arrangement approved by the Hon'ble High Court was never assailed by any shareholder creditor / OBC etc. and has become binding and operative and has attained finality. The answering defendants further contend that immediately after the execution of documents by DSC Engineering Private Limited on June 29, 2013 the applicant bank transferred the entire outstanding amount from the account of answering defendant no.1 to the debit of DSC Engineer Private Limited without any prior information and to utter surprise of defendant no.1, the applicant bank reversed the credit and restored the debit balance and the applicant bank for the reasons best known to it did not allow DSC Engineering Private Limited to operate the limits due to which the working of DSC Engineering Private Limited was hampered and instead of cooperating with DSC Engineering Private Limited the applicant chose to recall the facility from defendant no.1 vide recall notice dated September 10, 2013 in which the date of classification of the account of answering defendant no.1...............................................

Now the points for consideration are (i) whether the present O.A. is not maintainable without impleading M/s DSC Engineering Private Limited as a party in view of the subsequent scheme granted by the Hon'ble High Court at Delhi and (ii) whether the applicant bank is entitled for recovery of the amount from defendants no.1 to 10, jointly and severally, as prayed for?

The contention of the applicant bank is............ that defendant no.1Company though initiated scheme of demerger which was approved by the Hon'ble High Court vide its order dated 16th December, 2011 but did not bring the demerger into effect by filing certified copy of the said order before the Registrar of Companies as per the provisions ofSection 391(3) of the Companies Act, 1956. Further contention of the applicant bank is that there was no demerger, which is valid and binding. The applicant bank issued sanction letter dated January 10,2013 and also letters dated 12th July, 2013 and 19th August, 2013 to M/s DSC Engineering Limited and the same stood revoked as the Companies abandoned the scheme of demerger and the terms and conditions of the sanction letter dated June 27, 2013 were not complied with by the defendants who cannot rely on the demerger pleaded by them. It is further contended by the learned counsel for the applicant bank that M/s DSC Limited acknowledged the debt as on January 09, 2013 and the other guarantors also acknowledged their liability much after passing of the order dated December 16, 2011 by the Hon'ble High Court at Delhi and M/s DSC Pvt. Ltd. had agreed to pay the debt without any objection and in view of the same the borrowers, guarantors and mortgagors now cannot contend that defendant no.1 is not liable for the scheme and, as such, the other defendants are not liable for the claim. It is further the contention of the applicant bank that the borrowers having acknowledged the debt as on January 09, 2013 cannot go back and the defendants played fraud with the applicant bank..........Learned counsel for the applicant bank has further content on that Recovery of Debts Due of Banks and Financial Institutions Act, 1993 (for short, RDDBFI Act) is a special Act whereas the Companies Act, 1956 is a General Act and as such the RDDBFI Act would prevail upon the provisions of the General Act and in support of this contention, he has relied upon an authoritative pronouncement in the matter of Allahabad Bank Vs. Canara Bank, AIR 2000 SC 1535. The next contention of the learned counsel for the applicant bank is that as the recovery has been sought under the provisions of RDDBFI Act, the provisions of Companies Act are not applicable to the facts of the present case. He further contends that the alleged demerger cannot be pleaded by the defendants to evade repayment of the loan amount. Learned counsel for the applicant bank has further contended that the borrowers and the guarantors having admitted their liability are bound to pay the debt owed to the applicant bank and the plea of the defendants that impleadment of M/s DSC Engineering Private Limited is necessary is unsustainable.........................................

As against the same, the contention of the defendants is that the facilities granted by the applicant bank in favour of M/s DSC Private Limited were for Engineering Procurement Construction (for short EPC) undertaking / business of DSC Ltd. and as a measure of corporate restructuring and to develop potential for further growth and diversification to have better synergy and optimization of resources as well as to facilitate development of requisite infrastructure and with an object to ensure the overall benefits to all the stake holders including shareholders, creditors and employees, M/s DSC Pvt. Limited alongwith M/s DSC Engineering Pvt. Ltd., M/s DSC Hydro Power Pvt. Ltd. alongwith its shareholders and creditors had presented a scheme of arrangement under Sections 391 to 394 read with Section 100 to 104 of the Companies Act, 1956 before the Hon'ble High Court of Delhi by filing a Company Petition No.464 of 2011. It is further the contention of the defendants that as per the provisions of the Companies Act, a list of secured creditors of M/s DSC Ltd. as on July 31. 2011 was filed alongwith the Company Petition and notices were sent to all the secured creditors of M/s DSC Ltd including the applicant bank and pursuant to the said order passed by the Hon'ble High Court of Delhi, notice of the meeting was published in the newspapers and after hearing the secured lenders, the Hon'ble High Court of Delhi had sanctioned the scheme. Prior to that at a meeting of the secured creditors was convened on October 24, 2011 as per the directions of the Hon'ble High Court of Delhi in the said Company Petition but the applicant bank did not attend the meeting and also did not file any objection and the scheme was voted upon in the said meeting and was approved by the majority of creditors and as per the orders of the Hon'ble High Court dated 16th December, 2011 the scheme of arrangement was sanctioned and all the properties, rights and powers of the Transferor Company pertaining to EPC Undertaking and Power Undertaking specified inSchedule-II thereto and all other property, rights and Powers of the Transferor Company pertaining to EPC Undertaking and Power undertaking be transferred without further act or deed to the Transferee Company No.1 and the Transferee Company no.2 respectively and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and vest in the Transferee Company No.1 and Transferee Company No.2 respectively for all the estate and interest of the Transferor Company pertaining to EPC Undertaking and power Undertaking therein but subject nevertheless to all charges now attesting the same. Further, all the liabilities and duties of the Transferee Company pertaining to the EPC Undertaking and Power Undertaking be transferred without further act or deed in the Transferee Company No.1 and Transferee Company No.2 respectively and accordingly the same shall pursuant to Section 394(2) of the Companies Act, 1956 be transferred to and become the liabilities and dues of the Transferee Company No.1 and transferee Company No.2 respectively. Learned counsel for the defendants has further contended that as per Clause 4.3 of thesanctioned schemeall the liabilities of M/s DSC Ltd. Pertaining to its EPC Undertaking were transferred to M/s DSC Engineering Pvt. Ltd. from the date of filing of the certified copy of the order of the Court with the Registrar of Companies and in the present case, the certifiedcopy of the order was filed with the Registrar of Companies On December 2, 2012 and December 15, 2012 by M/s DSC Limited and M/s DSC Engineering Private Limited respectively. Thus, according to the learned counsel for the defendants, all the assetsand liabilities with respect to EPC Undertaking of M/s DSC Limited stood transferred in the name of M/s DSC Engineering Private Limited without any further act or deed. It is of utmost significance that nothing further was required to be done by the parties to give effect to the scheme which comes into operation on its own. It is further contended that it is not in dispute that by virtue of sanction of the scheme by the Hon'ble High Court of Delhi, the liabilities of M/s DSC Ltd. pertaining to EPC undertaking / business, which admittedly included the facilities granted by the applicant bank, were transferred to M/s DSC Engineering Pvt. Ltd. and the applicant bank also did not dispute the same in its replication also.

Learned counsel for the defendants has further vehemently contended that the scheme is statutory one affected by the orders of The Hon'ble High of Delhi and the same is binding on both defendant no 1 Transferor Company and M/s DSC Engineer Private Ltd., the transferee Company, all the shareholders and secured creditors and all concerned.

Giving factual matrix, the applicant bank has also relied upon the scheme and obtained registration of charge from M/s DSC Engineering Pvt. Ltd. Which was got registered with Registrar of Companies. Further, once the applicant bank has accepted the registration of charge from M/s DSC Engineering Private Limited, an irresistible conclusion is that the applicant bank has acted with the scheme sanctioned by the Hon'ble High Court of Delhi and once the scheme was accepted by the applicant bank and the registration of the charge was obtained from M/s DSC Engineering Pvt. Ltd., the applicant bank is estopped from contending that the scheme was not effectivated.

Now this Tribunal will see what is the law relating to the provisions of Sections 391 to 394 of the Companies Act, 1956 which has binding force once the scheme is approved / sanctioned by the Hon'ble High Court. The provisions of Sections 391 to 394 of the Companies Act, 1956 provide as under:

Section 391 Power to compromise or make arrangements with creditor and members

(1) Where a compromise or arrangement is proposed-

(a) Between a company and its creditors or any class of them; or

(b) Between a company and its members or any class of them

The Court may on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members as the case may be to be called, held and conducted in such manner as the Court directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or where proxies are allowed (under the rules made under section 643), by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors all the creditors of the class, all the members, or all the members of the class as the case may be, and also on the company or in the case of a company which is being wound up, on the liquidator and contributories of the company:

(Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub- section(1) has disclosed tot eh Court by affidavit or otherwise all material facts relating to the company such as the latest financial position of the company the latest auditor's report on the accounts of the company the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like]

(3) An order made by the Court under sub-section(2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made a complying with sub- section(4), the company and every officer of the company who is in default, shall be punishable with fine which may extend to (one hundred rupees) for each copy in the respect of which default is made.

(6) The court may at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of.

(7) An appeal shall lie from any order made by the Court exercising original jurisdiction under this section to the Court empowered to hear appeals from the decisions of that Court, or of more than one Court is so empowered, to the Court inferior jurisdiction.

The provisions of sub-sections(3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application.

Section 392. Power of High Court to enforce compromises and arrangements.

(1) Where High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company it-

(a) shall have power to supervise the carrying out of the compromise or arrangement; and

(b) may at the time of making such order or at any time thereafter give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

(2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act.

(3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act under section 153 or the Indian Companies Act, 1913 (7 of 1913), sanctioning a compromise or an arrangement.

Section 393. Information as to compromises or arrangements with creditors and members.

(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391.

(a) With every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing director, or manager of the company whether in their capacity as such or as members or creditors of the company or otherwise and the effect on those interests, of the compromise or arrangement if, and in so far as, it is different from the effect on the like interests of the other persons; and

(b) In every notice calling the meeting which is given by advertisement there shall be include either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such of statement as aforesaid

(2) Where the compromise or arrangement affects the rights of debenture holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respect the company's directors.

(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to (fifty thousand rupees) and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company provided that a person shall not be punishable under this sub- section if he shows that the default was due to the refusal of any other person, being a director, managing director, manager or trustee for debenture-holders, to supply the necessary particulars as to his material interest

(5) Every director, managing director or manager of the company and every trustee for debenture-holders of the company shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section and if he fails to do so, he shall be punishable with fine which may extend to (five thousand rupees).

Section 394. Provisions for the facilitating reconstruction and amalgamation of companies.

(1) Where an application is made to the Court under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Court

(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with a scheme for the construction of any company or companies, or the amalgamation of any two or more companies; and

(b) that under the scheme the whole or any part of the undertaking property or liabilities of any company concerned in the scheme (in this section referred to a transfer company) is to be transferred to another company (in this section referred to as "the transferee company")

the Court may either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:-

(i) The transfer to the to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company;

(ii) The allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;

(iii) The continuation by or against the transferee company of any legal proceedings pending by or against any transferor company

(iv) The dissolution without winding up of any transfer or company;

(v) The provision to be made for any person who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and

(vi) Such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out:

(Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.

Provided further that no order for the dissolution of any transfer company under clause (iv) shall be made by the Court unless the Official Liquidator has, or scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest]

(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order that property shall be transferred to an vest in, and those liabilities shall be transferred to an become the liabilities of the transferee company, and in the case of any property if the order so directs, freed from any charge which is by virtue of the compromise or arrangement to ceases to have effect.

(3) Within (thirty) days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

If default is made in complying with this sub- section, the company, and every officer of the company who is in default shall be punishable with fine which may extend to (five hundred rupees)

(4) In this section-

(a) 'property' includes property, rights and powers of every description and 'liabilities includes duties of every description; and

(b) 'Transferee company' does not include any company other than a company within the meaning of this Act, but 'transferor company' includes anybody corporate, whether a company within the meaning of this Act or not

Interpreting the provisions of provisions of Section 391 to 394 of the Companies Act, 1956, the Hon'ble Apex Court in Hindustan Lever and others Vs. State of Maharashtra - 2014 (106) Bom L.R. 557 (SC) at Paras 10 & 11 of the judgment has held as under:-

"10. By virtue of the provisions of Section 391 of the Companies Act a scheme sanctioned by the Court to statutory binding on all its characters and creditors including those who dissented from or were opposed to the scheme being sanctioned. Since by law a procedure has been prescribed by which every shareholder and creditor in the absence of individual agreement, gets bound by the scheme, which would otherwise be necessary to give its validity, the two provisions have been introduced casting a duty on the Court to satisfy itself that the affairs of the company were / are not beinbg conducted in a manner prejudicial to the interest of its members or to the public interest. The basic principle underlying these provisions in none other than the board and general principle inherent in any compromise or settlement entered into between the parties, the same being that it should not be unfair, contrary to the public policy, unconscionable or against the law. There is no adjudication as such. Any modification proposed by the Court in the scheme is also subject to its being accepted by the transferor and the transferee company. If any one of them objects to the modifications suggested by the Court then the scheme would not be sanctioned. The scheme would be sanctioned only if there is an acceptance to the modification proposed by the Court to the scheme by the transferor as well as transferee company. On acceptance of the same it gets incorporated in the compromise or arrangement arrived at between the two companies. Modification in the scheme becomes a part of the compromise or arrangement arrived at between the parties."

"11. While exercising its powers in sanctioning a scheme of agreement, the Court has to examine as to whether the provisions of the statute have been complied with. Once the Court finds that the parameters set out in section 394 of the Companies Act have been met then the Court would have no further jurisdiction to sit in appeal over the commercial wisdom of the class of persons who with their eyes open give their approval, even if. The view of the Court better scheme could have been framed. This aspect was examined in detail by this Court in Mitheer H. Mafalal Vs. Maftlal Industries Ltd. 1997(1) SCC 579"

In Smt. Parmilla Devi Vs Peoples Bank of Northern India Ltd. 1938 Privy Council (Volume XLI) 147, relied upon by the learned counsel for the defendants, it has been held that a scheme sanctioned by the Court under Section 153 of the erstwhile Companies Act, 1993 (Sections 391 to 394 of the Companies Act, 1956) is binding on the shareholders and creditors. It has further been held by the Privy Council in the said judgment that even acquiescence on the part of a shareholder or a creditor cannot validate any departure from or variation of the scheme. In Administrator of the Specified Undertakings of the Unit Trust of India and another Vs. Garware Polyester Ltd. (2005) 10 SCC 682, the Hon'ble Apex Court at Para 32 of the judgement has held "that Section 391 read with Section 393 of the Act postulate that where a compromise or arrangement is proposed between a company and its creditors or any class of them; or between a company and its members or any class of them, the court is required to direct holding of meetings of creditors or class of creditors or members of class of members who are concerned with such a scheme. In the event majority of creditors representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be present or voting either in person or by proxy at such a meeting accord their approval thereto thus put a vote, thereupon the court may consider the question of grant of sanction thereto. Section 391(1)(1) enjoins that requisite information therefore should be placed for consideration before the voters, in terms whereof the creditors or class of creditors can take an informed decision in relation thereto. The court, however, would not grant sanction to such a scheme only because the same reflects the will of majority of the creditors or of a class of them but it must consider all aspects of the matters so as to arrive at a finding that the scheme is fair just and reasonable and does not contravene public policy or any statutory provision."

Learned counsel for the defendants has also relied upon a decision in the matter of J.K. (Bombay)(P) Ltd. Vs. New Kaiser-I-Hind Spg. &Wvg. Co.Ltd. and others (1969) 2 SCR 866 wherein the Hon'ble Apex Court has held that "The principle is that a scheme sanctioned by the court does not operate as mere agreement between the parties. It becomes binding on the Company, the creditors and shareholders and has statutory force and, therefore, the joint debtor could not invoke the principle of accord and satisfaction. By virtue of the provisions of Section 391 of the Act, a scheme is statutorily binding even on creditors and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration." Further, the Hon'ble High Court of Bombay in Re: Europlast India Ltd. 2012 Vol. 112(1) Bom. L.R. 0281, has held that "it is equally well established that the rights which are enshrined in the scheme of the class of creditors cannot be impaired or superseded unless it is by a new scheme approved in the same way as the earlier one. Further, sanction of the Court operates as a judgment in rem". In Standard S. Varde and others Vs. State of Maharashtra and others 2000 Vol.102(2) Bom. L.R. 930, the Hon'ble Division Bench has held that "The transfer and vesting is by operation of law and not an act of the transferor Company, nor an assignment by it but is the result of a statutory instrument." It is further held that "once the scheme is scrutinized by the company court and sanctioned y an order made by it under Section 391 of the Companies Act, it ceases to retain the character of contract and operates by force of the statute." It has also been held that "once a scheme becomes sanctioned by the Court, it ceases to operate as a mere agreement between the parties and becomes binding on the Company, the creditors and the shareholders and has statutory operation by the virtue of the provisions of Section 391 of the Companies Act." More so, the Hon'ble High Court of Delhi in National Ability S.A. Vs. Tina Oil and Chemicals Ltd., reported as 2008 (105) DRJ 446 has held that "In so far as effect of the Scheme is concerned the law on the point is abundantly clear when such a scheme is approved by the Court under Section 391 of the Companies Act binding on all the parties including all the creditors. Therefore, the petitioner shall also be bound by the same." It has further been held that "All the assets and liabilities of this Division have been taken over by the respondent no.2 by operation of law and no further act, deed or things were required to be done for this purpose."

Thus once a scheme is approved under Section 391 to 394 of the Companies Act, 1956 by the Hon'ble High Court, it has got statutory force and binding on all the creditors, shareholders and all concerned Companies.

So far as coming into force of the scheme is concerned, the defendants in their Written Statement have categorically stated that M/s DSC Engineering Private Limited has filed copy of the order of the Hon'ble High Court of Delhi with the Registrar of Companies on February 15, 2012 and in the replication the same is not denied by the applicant bank. Further, the applicant bank in pursuance of the scheme also addressed a letter to M/s DSC Engineering Ltd. As per the Written Statement on August 09, 2013 and the same is also not denied by the applicant bank. The scheme sanctioned by the Hon'ble High Court of Delhi stipulates that all the liabilities in respect of EPC Undertaking of M/s DSC Limited stands transferred to demerged entity i.e. M/s DSC Engineering Private Limited with effect from the appointed date i.e. 30th November 2011.

The contention of the applicant bank that the scheme could not be effectivated is untenable as the scheme, which has been approved / sanctioned by the Hon'ble High Court of Delhi, has statutory force and is binding on all the creditors, including the applicant bank. Once the liabilities to M/s DSC Private Limited stand transferred to M/s DSC Engineering Private Limited with effect from 30th November, 2011, I am of the considered opinion that M/s DSC Engineering private Limited is a proper and necessary party to enforce the liabilities of defendant no.1 Company which stood transferred to M/s DSC Engineering Private Limited by the scheme approved / sanctioned by the Hon'ble High Court of Delhi. The contention of the applicant bank that still defendant no.1 Company is liable amounts to render the provisions of Sections 391 to 394 of the Companies Act and the order of the Hon'ble High Court of Delhi as nugatory. Once the scheme was approved and sanctioned, all the liabilities of M/s DSC Limited including the liability of the applicant bank stood transferred to M/s DSC Engineering private Limited without any further act or deed, it is only M/s DSC Engineering Private Limited liable for the liabilities of M/s DSC Limited by operation of the scheme which has statutory force from the Hon'ble High Court of Delhi and also by the provisions of Sections 391 to 394 of the Companies Act, 1956.

Viewed from any angle, I am of the considered opinion that M/s DSC Engineering Private Limited is also a proper and necessary party for recovery of the transferred liability of defendant no.1 Company under the scheme approved by the Hon'ble High Court of Delhi and non-impleadment of M/s DSC Engineering Private Limited disentitles the applicant bank from recovery of the debt transferred to M/s DSC Engineering Private Limited from defendant no.1.

So far as the Import Letter of credit Facility is concerned, it is seen from the pleadings and the evidence that even after the approval of the scheme by the Hon'ble High Court of Delhi, defendant no.1 Company obtained Import Letter of Credit Facility of Rs.55 crores and the same is not disputed by the defendants and, as such, the defendants are jointly and severally liable for repayment of the outstanding amount in that facility. As per the pleadings at Para 5.38 of the O.A., the applicant bank has pleaded that the on the request of defendant no.1 Company, on 10th January, 2013 it sanctioned Import Letter of Credit Facility of Rs.55 crores vide sanction letter which was duly acknowledged by defendant no.1 Company vide vide its Board Resolution dated January 10, 2013 defendant no.1 Company resolved to avail and secure the same by way of mortgage and to execute necessary documents and further authorized its Directors Mr. M.S. Narula and Mr. N.S. Narula to execute the documents to avail the said financed facility. It is further pleaded that on January 10,2013 itself supplementary agreement was executed for Rs.55 crores and the aforesaid Directors as well as defendants no.6 to 10 had executed guarantees and also created executable mortgage of the following properties:

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Thus, it stands proved that defendants no.1 availed the aforesaid Import Letter of Credit Facility even after the demerger and is liable to pay the same.

On the outstanding amount of the Import Letter of Credit Facility the applicant bank has claimed future interest @17.50% per annum. However, as per the ratio of law laid down by the Hon'ble Apex Court in the case of Central Bank of India Vs. Ravindra and others, AIR 2001 SC 3095 and as per the provisions of Section 19(20) of the RDDBFI Act and also in the interest of justice, future interest is allowed @12% per annum simple.

In the result:

i. The OA is allowed with costs so far as the outstanding of the amount in respect of Import Letter of Credit Facility is concerned. The applicant bank is entitled to recover a sum of Rs.73,85,13,685/- (Rupees seventy three crores eighty five lacs thirteen thousand six hundred eighty five only) alongwith future interest @12% per annum simple from the date of filing of the O.A. till recovery from the defendants no.1 to 3 and 6 to 10 jointly and severally. These defendants are directed to pay the aforesaid decretal amount to the applicant bank filing which the amount shall be recovered by sale of the mortgaged properties............... In case of any shortfall, the same shall be recovered from the personal movable and immovable property of the defendants no.1 to 3 and 6 to 10 jointly and severally. So far as the transferred liability is concerned, the same is declined and the same is dismissed as M/s DSC Engineering Private Limited was not made a party to the present Original Application. However, it is ordered that dismissal of the present Original Application in respect of the transferred liability is concerned does not preclude the applicant bank to claim the same from the concerned Company if so advised to do so."

The respondents-defendants have not challenged the impugned order to the extent ii holds them liable for part of the claim of the bank in the O.A.

Learned counsel for the appellant had pointed out during the course hearing that OBC had filed this appeal in whichthe only prayer was for reversal of the impugned order of DRT without praying further as to what relief should be granted to it by this appellate Tribunal.

From the foregoing narration around which only submissions from both sides centered and the submissions made from both the sides and perusal of records of DRT the undisputed position which emerges is respondent no.1 borrower Company M/s D.S.C.Ltd. had availed of various financial facilities from the erstwhile OBC from time to time and that financial facilities were sanctioned for 'EPC'Undertaking of this Company. D.S.C. Ltd. wanted demerger of(Engineering, Procurement and Construction Undertaking(EPC) Undertakingand Power Undertakings and therefore it had filed before the Company Court of Hon'ble Delhi High Court a petition under Sections 391 to 394 of the Companies Act and the proposed 'Scheme of Arrangement' was approved by the Court vide order dated 16.12.2011 to be effective from30.11.2011 and pursuant to which the assets and liabilities EPC Undertaking of the borrower Company M/s D.S.C. Ltd. stood transferred to the transferee M/s D.S.C. Engineering Pvt. Ltd.while Power Undertaking stood transferred to another Company M/s DSC Hydro Power Pvt. Ltd. The erstwhile lending bank OBC had also accepted the approved Scheme. This fact was admitted by the learned counsel for the appellant, which at some stage was represented by a learned senior advocate and thereafter arguments were advanced/continued and concluded by Mr. S.K.Sharma, learned counsel for the appellant bank who had also accepted the position that OBC had transferred the account of DSC Ltd. to DSC Engineering Pvt. Ltd. However, the submission which alone was pressed into service seriously on behalf of the appellant bank during the course of arguments was that even though as per the 'Scheme of Arrangement' approved by the High Court all liabilities and assets of the borrower Company M/s D.S.C.Ltd. by stood transferred to the transferee Company and at one time OBC had transferred also the outstanding balance amounts in the accounts of D.S.C. Ltd. to the account of transferree Company but then it transpired that the parties to the Scheme of Arrangement i.e. D.S.C. Ltd. and D.S.C. Engineering Pvt. Ltd. had not complied with the further requirement of Section 394(3)of the Companies Act which mandates filing of certified copy of the High Court with the Registrar of Companies for registration of the Sanctioned Scheme of Arrangement within a month. Mr. S.K.Sharma, learned counsel for the appellant kept on emphasizing that because of non-compliance of this formality the Scheme of Arrangement became unenforceable and in fact stood abandoned also by the transferor as well as the transferee Companies and consequently OBC was fully competent in law to sue its original borrower M/s D.S.C.Ltd. for the recovery of its outstanding dues. This point was raised by the bank before the DRT also but the same was rejected for the reason that once a Scheme of Arrangement gets approval of High Court it acquires statutory and binding arrangement between all concerned parties including secured creditors which in the present case included OBC also.Mr. Sharma had also submitted that the Scheme of Arrangement did not take off and both the transferor and transferee themselves had even thereafter been accepting that position in their respective records and in fact DSC Ltd. had availed further financial facility also after the sanction of the Scheme. In its balance sheet also DSC Ltd. continued to show the liabilities towards OBC. Even the transferee Company had noted in its books of account that all the assets of DSC Ltd. were being held by DSC Ltd. in trust for DSC Engineering Pvt. Ltd. because of non implementation of the terms pf arrangement.

The learned DRT has elaborately discussed the legal position in this regard and I am in general agreement with its reasoning and so need not go into the law centering around the consequences of approval of a Scheme of Arrangement, demerger etc. and the scope of Sections 391 to 393 of the Companies Act. For the view that as an appellate forum I need not enter into an elaborate discussion of facts and law once there is a general agreement with the conclusions of the lower forum(DRT) I find support from the judgment of the Hon'ble Supreme Court reported in AIR 1967 SC 1124. The learned DRT has noticed the plea of the respondents taken in its written statement that provisions of Section 394(3) were complied with and that averment was not disputed in the rejoinder. In any case, the learned senior counsel for the respondents Mr. Anil Sapra had rightly contended that DRT under no circumstances could declare the Scheme approved by the High Court to be ineffective, null and void for any reason. The Hon'ble High Court had in the order dated 16.12.2011 mentioned that any party could seek any clarification or modification of its order. OBC never approached the High Court bringing to its notice the alleged non-compliance of its order and the provision of Section 394(3) by any of the parties and so the Scheme should be treated as a non-starter and M/s DSC Ltd. continued to be liable to its secured creditors including OBC. Only the High Court can declare so and any subordinate tribunal like the DRT cannot give any such declaration making the sanction/approval to the Scheme of Arrangement non est for any reason. During the course of hearing it was put to the learned counsel for the appellant as to what stopped it from approaching the High Court for such a declaration. Learned counsel kept on submitting that in view of the conduct of the two Companies there was no need of going to High Court. I am afraid this submission cannot be accepted since under no circumstances any subordinate Tribunal/Court can declare the order of the High Court sanctioning a Scheme of Arrangement under Sections 391 to 394 of Companies Act to be ineffective. That can be declared only by the High Court, as was submitted by the learned senior counsel for the respondents also who kept on highlighting that the DRT had itself made clear in the impugned order that nothing would stop the bank in seeking recovery of its dues from M/s DSC Engineering Pvt. Ltd. even now. Learned senior counsel had also submitted, and rightly so, that the bank ought to have claimed its dues from the said transferee Company which it could do even by impleading M/s D.S.C. Engineering Pvt. Ltd. before the DRT but despite this Tribunal asking the bank counsel repeatedly as to why it was not suing the transferee Company, whom at one time OBC itself had accepted as its borrower pursuant to the sanction of Scheme of Arrangement by the High Court the bank did not take any remedial/corrective steps. This tribunal had also asked counsel for the appellant that why it was not impleading M/s DSC Engineering Pvt. Ltd. even now but the learned counsel had simply been submitting that the Bank had decided to continue its legal fight for the recovery of its dues from its original borrower M/s DSC Ltd. only. This stand being taken by the appellant bank, in the oral as well as written/additional written submissions runs contrary to the Scheme of Arrangement approved by the High Court and which sanction had not been sought to be revoked by OBC. Therefore, even if the transferor and transferee Companies in the present case can be said to have stated in their financial documents, as was also the submission of the learned counsel for the appellant, that the assets of DSC Ltd. continue to be held by it in trust for DSC Engineering Pvt. Ltd. that will still not make the order of the High Court ineffective as all the parties to the Scheme of Arrangement duly approved by the High Court become bound by the same and by force of law and the order of the High Court transfers all liabilities and assets of DSC Ltd. in favour of M/s DSC Engineering Pvt. Ltd. It was rightly submitted by the learned senior counsel for the respondents that the DRT cannot reverse the legal clock and only the High Court can do that but for reasons best known to the Bank it was not keen in approaching the High Court. It was also rightly contended by the learned senior counsel for the respondents that no forum subordinate to the High Court can enter into any kind of enquiry whether the Scheme of Arrangement approved by the High Court had been rendered redundant/ineffective by any subsequent conduct of either the transferor or the transferee or both. If that starts happening no sanctity will remain for the High Court's sanction under the provisions of Companies Act. Therefore, OBC could not derive any benefit from the fact even after sanction of the Scheme of Arrangement/demerger of EPC undertaking of DSC Ltd. these companies have been dealing with the OBC bank and showing the liabilities towards OBC in their financial documents.

It may be appropriate to note here that at one stage of the proceedings in the present appeal this Tribunal itself, suo moto, had vide order dated 22.01.2018 given a notice to the transferree Company M/s DSC Engineering Pvt. Ltd. as to why its assets be not attached. Of course, that order was resisted by the transferee Company but that order was later on withdrawn vide order dated 05.07.2019 because of a decision of a Division Bench of Hon'ble Delhi High Court that this Tribunal has no power to issue directions suo moto. That decision relied upon by the learned senior counsel Mr. Sudhir Makkar appearing for DSC Engineering Ltd. was rendered on 18.09.2018 in W.P.(C) No. 9616/2018.

The learned counsel for the appellant Mr. S.K.Sharma had also placed reliance on one judgment of the Hon'ble Supreme Court in his additional written submissions, rendered in the case of "Motilal Padampat Sugar Mills vs State of Uttar Pradesh &Ors.", AIR 1979 SC 621. That judgment is on the law of estoppel and so of no help to the appellant bank since the issue of estoppel has neither been pleaded in the pleadings nor even otherwise gets attracted in the facts of case. Nobody made any representation to the OBC which could attract doctrine of estoppel. The respondents-defendants have contested the claim of the appellant bank relying upon the legal position that once a Scheme of Arrangement/demerger etc. gets approval of the High Court in proceedings under Sections 391 to 394 of the Companies Act the assets and liabilities of the transferor entity(M/s DSC Ltd.) get transferred to the transferee entity(M/s DSC Engineering Pvt. Ltd. in the present case).

Therefore, the appellant cannot derive any benefit from the aforesaid judgment of the Hon'ble Supreme Court relied upon by the learned counsel for the appellant.

No other submission was made by the learned counsel for the appellant bank in opposition to the rejection of bank's claim in part against all the defendants in the O.A.

In view of the above discussion this appeal filed by the bank being devoid of merits and there being no scope for any interference in the impugned order of the DRT this appeal is liable to be dismissed and so is hereby is dismissed. With the dismissal of the appeal the application filed by the appellant for restraining the directors of its borrower Company from travelling abroad also stands dismissed.