Verma and Mr. Sanjay Verma, Advocates and Mr. Shekhar Gupta, Law Officer, BPCL v. SYNDICATE BANK ORS

Judgment

1. 26.08.20151, passed by Tribunal2 dismissing the Appeal against the Judgement dated 10.01.2014 of the learned Debts Recovery Tribunal-III3 and affirming learned Debts Recovery Appellate the Judgement dated that the goods hypothecated with Respondent No. 1-Bank were those for 1 Impugned Order 2 DRAT 3 DRT W.P.(C) 2105/2017

which Respondent No. 1-Bank had a lien and, resultantly having first charge of the same, were entitled to the said goods. The Petitioner, by way of the present petition, seeks the following reliefs: “i) issue a writ in the nature of certiorari or any other appropriate writ/order/directions/relief and setting aside/quashing the impugned Order/Judgment dated 26.08.2015 passed by the Hon'ble Mr. Justice Ranjit Singh, Learned Chairman, DRAT, Delhi, in Appeal No. 234/2015 titled as "M/s Bharat Petroleum Corporation Ltd. Vs. Syndicate Bank & Ors.; and ii) any other or further order/relief(s), which this Hon'ble Court may deem fit and proper under the facts and circumstances of the case, may also be passed favour of the petitioners and against the respondents.”

2. The learned DRAT, while affirming the Order dated 10.01.2014 of the learned DRT, Delhi, has held the following: “The sole submission made before me in support of the appeal is that the possession of the stock, etc. lying was taken over as the dealer was selling the same in contravention of the guidelines. In order to succeed, the appellant was required to show if this, stock which had been hypothecated to secure the facilities was in any manner owned by the appellant to take the same away. If this stock was of the borrower and had been hypothecated to secure the facilities granted by the bank, there was no reason or justification for the appellant to take possession of such stock even if it was being sold against the guidelines. If the stock was the property of the Barrower then they had right to hypothecate it with the Bank. It has clearly come on record that the value of this stock was over Rs.17 lac. It is not disputed that this stock had been taken in possession by the appellant. The Tribunal below has rightly held that the bank had first charge over the stock which had been hypothecated. Despite opportunity given to the counsel for the appellant, he has not been able to show any document to claim right of ownership over this stock. Rather, the counsel could not dispute that the stock lying with borrower was their property as they had received the same after making payment. In this background, the grievance made in the appeal is not justified. The Order passed by the Tribunal below is well-reasoned and supported by evidence and material on record and it does not call for any interference in this appeal. The appeal is without any merit, and, therefore, is dismissed.” W.P.(C) 2105/2017

3. The learned counsel for the Petitioner would contend that it had a Licence Agreement with Respondent Nos. 2 & 3 and certain others, who were the former partners in Respondent No. 2. It is stated that the original agreement by which Respondent No. 2 was given the dealership had a different constitution as respects the partnership and the same was reconstituted without the knowledge and permission of the Petitioner. Resultantly, it is argued that the said reconstitution is bad in law, and no hypothecation of the goods of the said firm could have been effected. 4. The Petitioner’s counsel would contend that as the said partnership was reconstituted against the terms of the agreement entered into with Respondent No. 2, the hypothecation by Respondent No. 4, who is not a partner in the records of the Petitioner, is not legally binding on it. The learned counsel for the Petitioner, therefore, would contend that the hypothecation agreement in favour of Respondent No. 1, by Respondent No. 4, without informing the Petitioner, is unauthorized, illegal and not binding. 5. The Petitioner would further contend that there was a failure in the exercise of due diligence by the Bank insofar as they failed to ascertain that the person signing the hypothecation agreement was not competent to do so, as he was not a partner as per the original license agreement as between the Petitioner and Respondent No.2. 6. In support of his arguments in respect of the unauthorized change of partnership, the learned counsel for the Petitioner would rely upon W.P.(C) 2105/2017 Clause 10(s) of the Dispensing Pump and Selling License Agreement4, which reads as under: “(s) Not to change the constitution of the Licensees firm nor to dissolve the partnership nor admit new member as partner nor allow any partner to withdraw from the partnership without obtaining the previous consent in writing of the Company.”

7. The learned counsel for the Petitioner would also argue that the Petroleum products which were seized by the Petitioner were done so in light of the inter se Dealership Agreement as between Petitioner No. 1 and Respondent No. 2, read with the MS HSD Control Order, 20055, as no hypothecation was permissible under sub-item (iii) of Clause 1.5 of the Marketing Discipline Guidelines6, which states as follows: “1.5 OBSERVANCE OF REGULATIONS **** STATUTORY AND OTHER (iii) Dealer will not buy, sell or exchange petroleum products with any other dealer other than the principal Oil Company. ***** ”

8. The learned counsel for the Petitioner, while relying upon Clause

1.5(iii) of the MDG, would state that the act of hypothecation is in contravention of the said clause, insofar as the hypothecation of the said Petroleum products is in effect, an “exchange” of the Petroleum products and hence, is expressly barred by the provisions of the said clause. 9. The further point sought to be canvassed by the Petitioner would be that since Respondent No. 2 was found to be selling spurious/ 4 DPSL 5 MS HSD Control Order 6 MDG W.P.(C) 2105/2017 adulterated products, as per provisions of the MDG, and more particularly, Clause 6.1.2 thereof, the said products, appropriated by the Petitioner, were to be sent to the nearest refinery. Clause 6.1.2 of the MDG states as follows: “6.1.2. HANDLING OF ADULTERATED PRODUCT In case of proven adulteration, the product (MS/HSD) will be sent to the nearest refinery as per the directive of MOP & NG’s letter (P- 21027/29/2001-Dist dated 21-12-2002).. In case of proven adulteration at the RO, the entire expenses towards transportation, pumping of product, tank cleaning, incidental charges, local levies, etc. will be recovered from the dealer. The dealer will be paid and amount equivalent to the cost of Furnace Oil and for the actual quantity received at the Refinery end. In case of proven adulteration by the transport contractor/crew, the expenses would be recovered from the transport contractor. The loss on account of product downgradation and transit loss, if any would also be recovered from the transport contractor. The dealer will receive full value of the product. In case it is established that the sample of the supply point has also failed w.r.t. BIS Specification, the product will be disposed of in consultation with QC Department of the Region. The dealer will receive full value of the product.”

10. In response to the Petitioner’s contentions and arguments, the learned counsel for Respondent No. 1-Bank would state that the Bank, for years, had been lending money to Respondent No. 2-Partnership firm and to secure the said advances, was hypothecating the Petroleum products of Respondent No. 2. 11. The learned counsel for Respondent No. 1 would also contend that, being a secured creditor, they are entitled to have preference over the secured/hypothecated goods, and these goods have been illegally taken away by the Petitioner. W.P.(C) 2105/2017

12. The learned Counsel for Respondent No. 1-Bank would also rely upon the Judgments of the Hon’ble Supreme Court to contend that, being a secured creditor, it has a preferential claim over all other classes of creditors. The Judgments relied upon by Respondent No. 1-Bank and their relevant extracts are reproduced herein below: (A) Union of India v. SICOM Ltd7: “10. It is trite that when Parliament or a State Legislature makes an enactment, the same would prevail over the common law. Thus, the common law principle which was existing on the date of coming into force of the Constitution of India must yield to a statutory provision. To achieve the same purpose, Parliament as also the State Legislatures inserted provisions in various statutes, some of which have been referred to hereinbefore providing that the statutory dues shall be the first charge over the properties of the taxpayer. This aspect of the matter has been considered by this Court in a series of judgments.” (B) Ltd8: Central Bank of India v. Siriguppa Sugars & Chemicals the principles governing “17. Thus, going by the matter propounded by this Court, there cannot be any doubt that the rights of the appellant Bank over the pawned sugar had precedence over the claims of the Cane Commissioner and that of the workmen. The High Court was, therefore, in error in passing an interim order to pay parts of the proceeds to the Cane Commissioner and to the Labour Commissioner for disbursal to the cane growers and to the employees. There is no dispute that the sugar was pledged with the appellant Bank for securing a loan of the first respondent and the loan had not been repaid. The goods were forcibly taken possession of at the instance of the revenue recovery authority from the custody of the pawnee, the appellant Bank. In view of the fact that the goods were validly pawned to the appellant Bank, the rights of the appellant Bank as pawnee cannot be affected by the Cane Commissioner or the demands made by him or the demands made on behalf of the workmen. Both the Cane Commissioner and the the orders of