D.Parlikar v. The Debt Recovery Tribunal, Bangalore & Ors.

Order

: Counsel for the Petitioner: Sri K. Ramakrishna Reddy Counsel for Respondents No.3: Sri K.Anoop Kumar Counsel for Respondents No.1 & 2: None. March 16, 2006 Per G.S. Singhvi, CJ Whether the civil suits filed by the State Bank of Hyderabad (for short ‘the Bank’) in the Court of I Additional Judge, City Civil Court, Hyderabad (respondent No.2) for recovery of its dues, in which the officers and employees of the Bank were also impleaded as defendants with the allegation they had colluded with the account holder for enabling the latter to withdraw huge amount by presenting bogus cheques, could be transferred to the Debts Recovery Tribunal (hereinafter described as ‘the Tribunal’) is the question which arises for determination in this petition filed under Article 226 of the Constitution of India. For deciding the aforementioned question, we may briefly notice the facts. While petitioner was posed as Head Clerk in Darus-salam Branch of the Bank at Hyderabad, one Jayanthilal Goyal opened Account No.331 on 27-8-1982 by depositing a sum of Rs.2,000/-. Thereafter, he and his son Kedarnath Goel withdrew large sums of money resulting in overdrawn balances amounting to Rs.9,81,035/-. As against this, Jayanthilal Goyal credited by way of cash and transfer of vouchers a sum of Rs.83,000/-. On

6.9.1983, Jayanthilal Gopyal purchased two demand drafts for Rs.50,000/- each in favour of Excise Commissioner, Hyderabad by giving a debit voucher for Rs.1,00,000/-. A similar excise was undertaken by Jayanthilal on 16.9.1983. After ten days, Kedarnath Goyal made a written request to the Branch Manager for cancellation of the demand drafts. Officers and employees of the Bank obliged him by cancelling the demand drafts and facilitating withdrawal of Rs.1,50,000/-. From

10.1.1983 to 19.9.1983 Jayanthilal presented and encashed eight different cheques representing a total amount of Rs.6,80,000/-. These cheques were not posted in the concerned Ledger Folio of the account holder. When the aforesaid fraudulent transactions came to the notice of higher authorities, the Bank filed two suits in respondent No.2 court for recovery of more than Rs.10 lakhs in each case. The

petitioner and four other officers / employees of the Bank namely, Sri Syed Taher Shaik Abdul Rashid, Mohammed Ayub Ali Khan, Rehmat Ali and Smt.Yasmin were also impleaded as defendants in the suits. According to the plaintiff (Bank), the first two defendants had been able to withdraw huge amount in collusion, connivance and with the assistance of the officers and employees of the Bank. The suits filed by the Bank were registered as O.S.Nos.1198 of 1986 and 327 of 1987 respectively The petitioner filed written statements to contest the suits. He admitted that during 1982-83 he was posted as Head Clerk at Darus-salam Branch of the Bank, but denied the allegation that he was a party to the alleged fraudulent withdrawal of the amount by defendant Nos.1 and 2. During the pendency of the suits, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short ‘the Act’) to provide for establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto. Section 31 of the Act provided for transfer of suits and other proceedings pending before any Court relating to recovery of debts etc., to the Tribunal established under the Act. In pursuance of that provision, the suits pending in respondent No.2 Court were transferred to Bangalore Bench of the Tribunal and were registered as O.A.Nos.1064 and 1042 of 1996 respectively. On receipt of the notice issued by the Tribunal, the petitioner filed this petition for grant of a declaration that transfer of the suits pending before respondent No.2 Court is illegal and without jurisdiction. He has pleaded that the jurisdiction of the Tribunal is confined to the recovery of debts due and, as no debt is due from him, the Tribunal cannot entertain and adjudicate the Bank’s claim, insofar as he is concerned. It is also the petitioner’s case that the allegations of fraud and collusion attributed to him cannot be made subject matter of adjudication by the Tribunal and the same can be decided only by a Civil Court. In the counter filed by the Bank in the form of affidavit of its Branch Manager Sri M.S.B.B.K. Durga Prasad, it has been averred that the suits were filed against the borrowers and other parties, including guarantors, Branch Manager and other staff because the amounts were released in favour of the account holders with the latter’s active connivance, collusion and assistance. Sri Durga Prasad has further averred that the officers and employees of the Branch knew that the borrowers were not having any sanction letter for drawing such of the huge amount, but they facilitated withdrawal of over Rs.10 lakhs and, therefore, all of them are jointly and severally liable to pay the amount due to the Bank. Sri K. Ramakrishna Reddy, learned counsel for the petitioner, referred to the definition of ‘debt’ under Section 2 (g) of the Act and Section 17 which relates to jurisdiction, powers and authority of the Tribunals and argued that the so-called fraudulent or collusive act of his client cannot be made subject matter of adjudication by the Tribunal because the same does not constitute ‘debt’ within the meaning of Section 2(g). He further argued that the Tribunal can entertain and decide applications including the transferred cases filed by the banks and financial institutions only for recovery of debts and not any other amount and, in any case, the Tribunal cannot adjudicate on the liability of the officers and employees of the Bank in regard to the alleged fraud, collusion etc. In support of his argument, Sri Ramakrishna Reddy relied on the judgment of the learned Single Judge of the Gujarat High Court in Bank of India v. Vijay Ramniklal Kapadia. Sri Anoop Kumar, learned counsel for the Bank invited our attention to the contents of O.S.No.1198 of 1986 to show that in the suit filed by it, the Bank has prayed for passing a decree against defendants No.1 to 8 (including the petitioner) jointly and severally for a sum of Rs.15,32,910/- on the ground that defendants No.1 and 2 have been able to withdraw huge amounts from the Bank in connivance with the other defendants and argued that the transfer of the suits does not suffer from any legal infirmity because, after establishment of the Tribunal, the Civil Court cannot adjudicate on the subject matter of the suits. Sri Anoop Kumar emphasized that in view of the non-abatante clause contained in Section 34 of the Act read with Sections 17 and 18 thereof, no Court, except the Tribunal, has got the jurisdiction, power and authority to entertain and decide applications filed by the banks and financial institutions for recovery of debts due to them. Learned counsel emphasized that the bar contained in Section 18 to the jurisdiction of all other courts, except the Supreme Court, and the High Court exercising jurisdiction under Articles 226 and 227 is absolute and, therefore, after establishment of the Tribunal, respondent No.2 could not have continued the proceedings of the civil suits filed by the Bank. In support of his arguments, Sri Anoop Kumar relied on the judgment of the Calcutta High Court in State Bank of India v. Madhumita Construction Pvt. Ltd.. We have thoughtfully considered the respective arguments and carefully perused the plaint, which was registered as O.S.No.1198 of 1986 (O.A.No.1064 of 1996). The Act of 1993 is an outcome of the recommendations made by several Committees constituted by the Government of India to go into the issues relating to difficulties faced by the banks and financial institutions for recovery of their dues. The Committees noted that a significant portion of the funds of the banks and financial institutions is blocked as unproductive assets because of considerable delays in the legal processes adopted for the purpose of recoveries from the clients and the value of such assets keep on deteriorating with the passage of time. It was also noted that the banks and financial institutions incur substantial expenditure by way of legal charges, which add to their overheads. Therefore, it was suggested that special Tribunals be established for recovery of debts due to them. This is very much reflected in the preamble of the Act, which reads thus: “… An act to provide for establishment of the Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto.” Sections 2 (g), 17, 18, 31 and 34 of the Act, which have bearing on the decision of this petition, read as under: “2(g) "debt" means any liability (inclusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application;"

17. Jurisdiction, powers and authority of Tribunals: (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act.

18. Bar of jurisdiction On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17.

31. Transfer of pending cases: (1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal: Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court. (2) Where any suit or other proceeding stands transferred from any court to a Tribunal under sub-section (1),- (a) the court shall, as soon as may be after such transfer, forward the records of such suit or other proceeding to the Tribunal; and (b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding, so far as may be, in the same manner as in the case of an application made under S.19 from the stage which was reached before such transfer or from any earlier stage which was reached before such transfer or from any earlier stage or de novo as the Tribunal may deem fit.

34. Act to have overriding effect: (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951, the Unit Trust of India Act, 1963 (63of 1951), the Industrial Reconstruction Bank of India Act, 1984 (62 o 1984) and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).” By Act No.1 of 2000, the definition of ‘debt’ contained in Section 2 (g) was amended so as to bring within its fold any liability claimed as due by the Bank from any person under any arbitration award or under a mortgage. However, the amended definition is not relevant for our purposes. An analysis of the definition of the term “debt” show that it is very widely worded. It comprehends all types of liabilities claimed by the Bank as due from any person during the course of any business activity undertaken by the bank or financial institutions, in cash or otherwise, whether it is secured or unsecured or assigned or payable under a decree or order of any Civil Court. The purpose of incorporating the definition of the ‘debt’ in the Act with such wide amplitude is to ensure that the dues of the Bank are recovered through an adjudicatory mechanism, which does not have the trappings of the ordinary courts. The wide amplitude of the definition was noted i n United Bank of India v. Debts Recovery Tribunal and Athmanathaswamy Devasthanam v. K. Gopalaswami Ayyangar. Section 17 (1) confers jurisdiction, power and authority upon the Tribunal to entertain and decide applications from the banks and financial institutions for recovery of debts due to them. Section 18 bars the jurisdiction of all courts (except the Supreme Court, and High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17. Section 31 (1) which provides for transfer of pending cases lays down that every suit or other proceeding pending before any Court immediately before the date of establishment of a Tribunal under the Act shall stand transferred to such Tribunal if the cause of action of the suit or proceeding is such that it would have been within the jurisdiction of the Tribunal if the same had arisen before its establishment. Proviso to this section excludes its applicability to any appeal pending before any Court. Section 34 declares that subject to sub-section (2), the provisions of the Act shall have the effect notwithstanding anything inconsistent contained in other law for the time being in force or in any instrument having the force of law. If the above noted provisions are interpreted keeping in view the preamble, then it becomes clear that the Tribunal established under the Act is the sole adjudicating body entrusted with the jurisdiction, power and authority to entertain and decide applications made by the banks and financial institutions for recovery of debts due to them. The adjudication of such application may also involve adjudication of matters connected with or incidental to the recovery of debts due to the banks and financial institutions. The exclusion of the jurisdiction of all other courts in relation to the matters specified in Section 17 is clearly indicative of the legislative intendment to ensure that the action initiated by the banks and financial institutions for recovery of debts is not impeded by any proceeding, which the defendant may institute in any other Court. Therefore, by adopting the rule of purposive construction, we hold that the Civil Courts and other adjudicating authorities do not have the jurisdiction to entertain and adjudicate cases relating to recovery of debts of the banks and financial institutions and all other matters which are connected with or incidental to the recovery of debts. The expression ‘incidental thereto’ used in the preamble shows that all issues which have bearing on the adjudication of an application made by bank or financial institution for recovery of debts would fall within the jurisdiction of the Tribunal. Any other interpretation of the scheme of the Act would defeat the objects sought to be achieved by the legislature by creating a special machinery for recovery of debts due to banks and financial institutions. If the issue raised in the present case is considered in the light of what we have observed above, then there is no escape from the conclusion that after establishment of the Tribunal, respondent No.2 could not have continued with the proceedings of the suits filed by the Bank for recovery of its dues from defendants No.1 and 2. The question whether defendants No.1 and 2 had fraudulently drawn lakhs of rupees from the Bank in connivance, collusion and with the assistance of its officers and employees, who were impleaded as defendant Nos.3 to 8, is certainly incidental to the adjudication of the main issue relating to recovery of the dues of the Bank. For proving its cause, as set out in the plaint, the Bank will have to adduce evidence to show that defendants No.1 and 2 had opened the account with a meager sum of Rs.2,000/- and then withdrawn lakhs of rupees by producing bogus cheques etc., and this became possible due to active connivance of the officers and employees of the Bank. If the Bank is able to prove its case, then the liability of all the defendants would be joint and several. Therefore, it is not possible to agree with the learned counsel for the petitioner that the transfer of the suits filed by the Bank is ultra vires the provisions of the Act and the Tribunal does not have the jurisdiction to adjudicate his liability. In our considered view, the liability of the petitioner is directly connected with the main cause of the Bank, which clearly falls within the jurisdiction of the Tribunal. Therefore, in view of the bar contained in Sec. 18, Respondent No.2 cannot be called upon to decide the issue relating to the petitioner’s liability. The matter deserves to be examined from another angle. A reading of the plaint which was registered as O.S.No.1198 of 1986 shows that the Bank has specifically pleaded that fraud by its officers and employees facilitated withdrawal of huge sums by defendants No.1and 2. Without proving fraud or collusion and connivance between defendants No.1 and 2 and its officers and employees, the Bank may perhaps not be able to establish the liability of defendants No.1 and 2. Therefore, it was quite reasonable and logical for the Bank to implead the officers and employees as party defendants and make a prayer for grant of decree jointly and severally against all the defendants, and, as the principle debtors are defendants No.1 and 2 and subject matter of the suit clearly falls within the jurisdiction of the Tribunal, the Civil Court could not continue with the proceedings pending before it merely because other defendants may not fall within the definition of ‘debtor’ or they may not be directly responsible for paying the dues of the Bank. It is not possible to countenance that the Bank would pursue main cause before the Tribunal and, at the same time, continue the proceedings before the Civil Court for adjudication of directly related issues namely, collusion and connivance of its officers and employees, which, as mentioned above, facilitated withdrawal of huge amount by defendants No.1 and 2. Before concluding, we may advert to the judgment of the Single Bench of the Gujarat High Court on which reliance was placed by Sri Ramakrishna Reddy. The facts of that case show that the appellant Bank had instituted suit for recovery of Rs.13,86,000/- from respondent No.1 who was an employee. It was alleged that the bank had been defrauded by respondent No.1 in collusion with respondents No.2 and 3. At one stage, the suit was transferred to Ahmedabad Bench of the Tribunal under Section 31 (2) of the Act, but the latter returned it by observing that the plaint of the suit seeking recovery of the debt could not have been accepted by the Civil Court. Thereafter, the bank filed an application and pleaded that the suit can be entertained by the Civil Court and not by the Tribunal because the amount sought to be recovered is not ‘debt’ as defined in Section 2 (g) of the Act. The application was rejected by the trial judge. On appeal, the learned Single Judge held that the definition of ‘debt’ under Section 2 (g) does not take within its fold the amount misappropriated by an employee of the bank and, therefore, the remedy of the bank was to approach the Civil Court. Some of the observations made by the learned Single Judge are extracted below: “5. … Therefore, a fraud committed by an employee of the bank cannot or should not be construed a "debt". In the instant case, it is the allegation of the appellant-bank in the plaint that respondent No. 1 being an employee of the appellant-bank has committed fraud with the bank to the extent of Rs.13,86,000/- and the suit is filed to recover the said amount. By no stretch of imagination the said misappropriation of the amount of the bank by its employee can be construed as a "debt", the learned trial Judge, in the instant case, unfortunately has referred to and reproduced only a limited part of the definition of the word "debt" and has committed an error in holding that the debt is a liability which is alleged as due from any person by a bank. The later part of the definition of the word "debt" is clear which states that it is the liability due from any person during the course of any business activity undertaken by the bank which can be said to be a "debt", meaning thereby that any transaction between a bank and its customer with respect to the business activity undertaken by the bank, i.e., granting of loan etc. Misappropriation of the amount of the bank by its employee and recovery thereof by way of suit can never be construed as a "debt". In view of this, the appeal is required to be allowed.” In our opinion, the ratio of the aforementioned judgment does not have any bearing on the present case because the main claim of the Bank is against Jayanthilal Goyal and his son and the officers and employees have been impleaded as parties because the account holder is said to have withdrawn huge amounts with their connivance and collusion. We may also refer to the judgment of the learned Single Judge of Calcutta High Court in State Bank of India v. Madhumita Construction Pvt. Ltd. (supra). One of the issues considered in that case was whether the case relating to recovery of fraudulent debt falls within the jurisdiction of the Tribunal. The learned Judge referred to the definition of ‘debt’ in Black’s Law Dictionary, Section 2 (g) of the Act and held: “15.5. Fraudulent debt in Black’s Law Dictionary has been defined as “a debt created by fraud. Such a debt implies confidence and deception. It implies that it arose out of a contract, express or implied, and that fraudulent practices were implied by the debtor by which the creditor was defrauded. It had also defined debt as a sum of money due by certain and express agreement. A specific sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment. (State v. Ducey, 25 Ohio App 2d 266 NE 2d 233, 255): A fixed and certain obligation to pay money or some other valuable thing or things, either in the present or in the future. In a still more general sense, that which is due from one person to another, whether money, goods or services. Also, sometimes an aggregate of separate debts, or the total sum of the existing claims against a person or company.”

15.6. The definition of debt as defined in Section 2 (g) means, “debt means any liability (inclusive of interest) which is alleged as due from any person by a Bank or a financial institution or by a consortium of Banks or financial institution during the course of any business activity undertaken by the Bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any Civil Court or otherwise and subsisting on and legally recoverable on the date of the application.” This definition has undergone a change by virtue of an amendment by Act 1 of 2000, which reads as follows: "(g) "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the banks or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application;"

15.7 The change that has been brought about is highlighted above. Having regard to bring a claim within the definition of debt; (i) it is to be a liability (including interest) due from any person; (ii) claimed by a Bank or financial institution or consortium of Banks or financial institutions, (iii) during the course of any business activity undertaken by such Bank or financial institution or consortium under any law for the time being in force; (iv) in cash or otherwise whether secured or unsecured, or assigned or whether payable under a decree or order of any Civil Court or any arbitration award or otherwise or under a mortgage; and (v) subsisting on and legally recoverable on the date of application.

15.8. As we have seen that debt includes fraudulent debts. Whether the debt is fraudulent or not can very well be ascertained before the Debts Recovery Tribunal. Even if, it is alleged that the debt is fraudulent, it does not take away the jurisdiction of the Debts Recovery Tribunal. Neither it creates a jurisdiction to a Court, the jurisdiction whereof is otherwise barred by reason of Section 18. Admittedly, it is a liability as in this case of defendant Nos.53 to 57 towards S.B.I. At the same time, it is a liability of S.B.I. towards the respondent Nos.53 to 57 respectively the proceedings before Debts Recovery Tribunal. Admittedly, each of these respondent Nos.53to 57 and S.B.I. are either Banks or financial institutions. The LCs were issued fraudulently and S.B.I.may not have undertaken this exercise during the course of its business, but it cannot be denied that the respondentsNos.53 to 57 had undertaken this exercise during the course of its business activities. Admittedly, such business activities are permissible by virtue of the respective law in force, governing the respective business activities of the respective Banks and financial institutions. Therefore, the ground that the LCs were fraudulent and were not issued during the course of business activities of S.B.I. cannot be sustained to oust the jurisdiction of Debts Recovery Tribunal and create jurisdiction of this Court when it had none by reason of Section18. The dues or liabilities is definitely payable in cash. The decree is also asked for in terms of money either liquidated or unliquidated as the case may be, the debt includes cash or otherwise. Expression “cash” includes both liquidated or unliquidated cash. The expression ‘cash or otherwise’ is of wide amplitude. It is immaterial whether it is secured or unsecured. The liability is legally recoverable when it is not barred by limitation. Nowhere limitation is being pleaded. Even I it is to be pleaded, it is to be pleaded before the Debts Recovery Tribunal, since this Court is not supposed to enter into the merits of the case, until it comes to a finding that it has jurisdiction. A finding with regard to limitation is also a finding with regard to merits of the case, which cannot be undertaken, unless the Court has jurisdiction over the subject- matter.” As an offshoot of the above discussion, we hold that the transfer of suit numbers 1198 of 1986 and 327 of 1987 from respondent No.2 Court to the Tribunal was legally correct and declaration in terms of the prayer made by the petitioner cannot be granted. Consequently, the writ petition is dismissed. The petitioner shall pay costs of Rs.50,000/- to the Bank because for the last more than nine years he successfully avoided adjudication of the claim made by the Bank. A copy of this order be sent to the President of the Tribunal for his information and necessary action. G.S. SINGHVI, CJ BILAL NAZKI, J March 16, 2006 Svs/vtv