STOCK BROKING SERVICES LTD. (Civil Appeal Nos. 8972-8973 of 2014) NOVEMBER 10 & Ors. v. Ranjan Chemicals Ltd. and Another (2007) 1 SCC 97 : [2006] 7 & Ors.

Partly affirmed Para 25 Para 43 Para 25 Para 31 Para 43 Para 43 Para 60 CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8972- 8973 of 2014. From the Judgment and Order dated 19.04.2011 of the High Court at Calcutta in A.P.O. No. 488 and 489 of 2002. V. V. Giri, Sr. Adv., Anand Shankar Jha, Arpit Gupta, Girish Bhardwaj, Srirang Varma, Ms. Meenakshi Devgan, Abhilekh Tiwari, Arjun Garg, O. P. Gaggar, Sachindra Karan, Akshat Gupta, Advs. for the Appellant. Jaideep Gupta, Sr. Adv., Abhinav Mukerji, Mrs. Bihu Sharma, Mrs. Pratishtha Vij, Akshay C. Shrivastava, Niraj Bobby Paonam for S. K. Bhattacharya, Advs. for the Respondent. The Judgment of the Court was delivered by SANJAY KISHAN KAUL, J.

#1. The present reference arises from a question mark over the legal right of the borrower to initiate proceedings before a Civil Court against the bank or financial institution, which seeks to recover a loan amount against it. The Factual History:

#2. The appellant bank, Bank of Rajasthan Ltd. (since amalgamated with ICICI Bank Ltd.), sanctioned a term loan to the respondent company on 28.06.1994 with a limit of Rs.1.50 crores at interest of 19.25% per annum, repayable in twelve quarterly instalments. In order to secure the loan, the guarantors including the respondent, inter alia offered title C D E F G H BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.] 571 deeds of immovable properties as security. By mutual agreement, a further credit overdraft facility was granted on 19.09.1995, up to a limit of Rs.5 crores. This additional credit was secured by the deposit of shares, stocks, and securities of various companies. The respondent did not adhere to financial discipline, resulting in the appellant issuing a notice on 01.07.1997, calling upon the respondent to settle the term loan account and overdraft facility account within three days of the receipt of the notice.

#3. Since the respondent failed to make the payment, the appellant filed an application, being OA No.263 of 1997, for recovery of the amounts due under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as ‘RDB Act’) before the Debts Recovery Tribunal, Kolkata (hereinafter referred to as ‘the DRT’) on 21.11.1997. The appellant sought a recovery certificate against the respondent for Rs.8,62,41,973.36 including interest at the rate of 20.88% per annum.

#4. The respondent entered appearance to defend the proceedings but in addition also filed a Civil Suit No.77 of 1998 before the Kolkata High Court against the appellant on 06.03.1998. The respondent inter alia, claimed a decree for sale of the pledged shares, recovery of sale proceeds, and an inquiry into the losses suffered by the respondent along with a decree for payment of money after the same.

#5. A crucial development took place on 18.03.1998 when the appellant sold the pledged shares of BFL Software Ltd. for a total sum of Rs.5,77,68,000/- to adjust the amounts against the dues in view of the authorisation available with them as a part of the loan transaction. The respondent, as a sequitur, filed Civil Suit no.129 of 1999 before the High Court of Calcutta on 09.03.1999 praying, inter alia, for the following reliefs: A B C D E F “i) A declaration that the sale of shares of BFL Software Ltd. was void; ii) a decree for return of pledged shares in respect of overdraft facility account, and in default to pay Rs. 48.95 crores; and G iii) a declaration that no sum was payable by the Respondent to the Appellant in respect of the term loan dated 27.07.1994 and Overdraft Account dated 19.09.1995 and that the Appellant bank was not entitled to a decree for a sum of Rs. 8,62,41,973.36 from the Respondent.” H 572 SUPREME COURT REPORTS [2022] 17 S.C.R.

#6. The appellant, in those proceedings, filed applications, being GA No.4206 of 2000 in C.S. No.77 of 1998 and GA No.4171 of 2000 in C.S. No.129 of 1999 in November 2000, seeking rejection of the plaint and dismissal of the suits filed by the respondent. It was claimed that the suits were not maintainable and that the High Court lacked jurisdiction as the same exclusively vested with the DRT. The learned Single Judge vide order dated 06.09.2022 allowed both the applications of the appellant and directed the suits to be taken off from the file of the High Court. The respondent filed two appeals, being APOT No.691 of 2002 (later APO No.488 of 2002) and APOT No.692 of 2002 (later APO No.489 of 2002), challenging the order dated 06.09.2022 of the learned Single Judge. The Division Bench vide its order dated 27.09.2022 stayed the operation of the order of the learned Single Judge while admitting the appeal.

#7. Insofar as the DRT proceedings were concerned, OA No.263 of 1997 was disposed of by the DRT vide order dated 19.05.2003 predicated on a reasoning that the appellant bank’s claim of Rs.6,04,17,777.36 was satisfied through sale of pledged shares. It found that the amount actually due under the proceedings stood settled and paid. The appellant was directed to return the title deeds of the pledged shares and other securities to respondent. On the counter claim filed by the respondent, the DRT held that the respondent was entitled to recover Rs.6,88,187.49 from the appellant within four weeks of the order. The respondent was also granted liberty to file appropriate proceedings for recovery of dividends on the pledged shares except the sum of Rs.20,11,337.35 for which set off was allowed in the proceedings.

#8. The appellant, feeling aggrieved, proceeded to file an appeal before the Debts Recovery Appellate Tribunal, Kolkata (hereinafter referred to as ‘the DRAT’) with M.A. No.31 of 2003, which was dismissed vide an order dated 14.11.2003 opining that the appellant should have sold the shares in 1996 and, thus was not entitled to claim interest. The appellant still not being satisfied moved C.O. No.2777 of 2003 under Article 227 of the Constitution of India before the Kolkata High Court on 17.11.2003 which was, however, dismissed in default vide High Court order dated 11.02.2004 but restored later before a Single Judge vide order dated 16.01.2013. We are informed that these proceedings also stand dismissed on 26.08.2019 and, thus, there appears to be a quietus to the extent of claim of the bank. The respondent, in terms of the decree, A B C D E F G H BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.] 573 has also received the amounts due to it and thus nothing survives qua that aspect. A

#9. Now, coming back to the suit instituted by the respondent, which was dismissed by the learned Single Judge on the finding that the Court lacked jurisdiction; the Division Bench allowed the appeals filed by the respondent against the orders of the learned Single Judge in two cases, and it is the decision in the two appeals permitting continuation of suits which have been assailed before this Court. Rationale of the Division Bench in restoring the suits:

#10. The respondent successfully contended before the High Court that there was no provision under the RDB Act for ousting the jurisdiction of the Civil Court and to entertain a suit against banks and financial institutions. There was also no provision to allow for transfer of suits against banks and the financial institutions which were pending before the Civil Court. It was thus submitted that the jurisdiction of the Civil Court would remain intact even after the amendment to the RDB Act effected in the year 2000, whereby the provisions for set-off and counterclaims were included under Section 19 of the RDB Act. The newly inserted sub-Sections (7) and (9) under Section 19 provided that a set-off/counterclaim filed by the borrower would have the same effect as a plaint in a cross-suit to be determined by the DRT.

#11. The case of the appellant was that the proceedings before the DRT were already pending when the suits were filed by the respondent. Thus, the issue ought to have been raised in the statement of defence either by way of set-off or a counterclaim before the DRT. It was pointed out that the respondent had initially not raised such a counterclaim in the proceedings before the DRT, but later this issue (subject matter of subsequent suit, being CS No.129 of 1999) had been added by way of amendment. The respondent pointed out that under the RDB Act, banks and financial institutions were placed in an unequal position as they were barred from raising a counterclaim before the Civil Court.

#12. The Division Bench of the High Court opined that as per the view of this Court in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation,1 a suit filed by a borrower against the bank was not barred before the Civil Court, although a suit filed by the bank against the borrower was barred. This judgment was found to 1 (2009) 8 SCC 646. B C D E F G H 574 SUPREME COURT REPORTS [2022] 17 S.C.R. A be the authority on the point as it came subsequent to the other decisions of the Supreme Court on this issue. Proceedings before this Court:

#13. The reference in the present proceedings arose out of an order dated 17.09.2014 noticing an apparent conflict of views. It was observed that a two-Judges Bench of this Court in United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. And Others2 had taken a view that as per the legislative scheme of the RDB Act, jurisdiction was conferred upon the DRT to try a counterclaim and set-off under Section 19 of the RDB Act and that all such counter-claims and set-offs, including a cross-suit filed independently, should be tried by the DRT.

#14. In a later decision in Indian Bank v. ABS Marine Products (P) Ltd.3 a Division Bench of this Court took the view that the jurisdiction of the Civil Courts was not barred in regard to any suit filed by the borrower against a bank for any relief. Jurisdiction was barred only in regard to applications by a bank or a financial institution for recovery of its debts. It was held that although a counterclaim and set-off may be made under sub-Sections (6) and (11) of Section 19 of the RDB Act, no jurisdiction was conferred on the DRT to try independent suits or proceedings initiated by the borrowers. It was thus held that the borrower had the option to file a separate suit before the Civil Court and the counterclaim before the DRT was not the only remedy. Referring to the earlier judgment in Abhijit Tea Co. Pvt. Ltd. & Others (supra), the Bench in the Indian Bank (supra) observed that an independent suit can be deemed to be a counterclaim and can be transferred to DRT only if the following conditions are satisfied: “a. The subject matter of the bank’s suit, and the suit of the defendant against the bank, should be inextricably connected in the sense that decision in one would affect the decision in the other. b. Both parties (the plaintiff in the suit against the bank and the bank) should agree for the independent suit being considered as a counter-claim in the bank’s application before the Tribunal, so that both can be heard and disposed of by the Tribunal.” B C D E F G