2000 (12) TMI 839 - SC - Companies Law

Supreme Court ruling favors trustees in bond redemption case, corporation ordered to repay.

The Supreme Court held that the ONGC v. CCE judgment did not apply to the case as the dispute was between a mutual fund and a corporation, not government ... As regards 13 per cent bonds whether the register should be rectified to enter the name of 'Canara Bank-Trustee Canbank Mutual Fund' in place of Canara Bank? Whether NTPC should be directed to pay to Canara Bank the redemption amount in respect of these bonds? As regards the 14 per cent bonds whether NTPC should be directed to rectify the register by entering the name of 'Canara Bank - Trustee Canbank Mutual Fund' in place of Bank of Karad and whether it should be directed to pay the redemption amount to Canara Bank? Held that:- Appeal allowed. The High Court was not right in referring the alleged disputes to the High-Powered Committee. It was under an obligation to give a finding with regard to the directions given by the Board to pay the redemption amount to the appellants. The trustees of the trust constituted by the Canara Bank as settlor for the benefit of numerous unitholders cannot be termed and styled as Government company or public sector undertaking. The dispute raised by the respondents with the appellants was imaginary and even prima facie not real. We are further of the opinion that the Board in its order had dealt with all aspects of the matter and rightly concluded that ONGC’s case (1994 (1) TMI 88 - SUPREME COURT OF INDIA) judgment was not applicable in the facts and circumstances of the present case. Issues Involved:1. Applicability of ONGC v. CCE judgment.2. Registration of bonds in the name of Canara Bank as trustee of Canbank Mutual Fund (CBMF).3. Redemption of bonds and payment of proceeds.4. Alleged disputes and counterclaims by the corporation.5. Statutory prohibition under Section 153 of the Companies Act, 1956.Issue-wise Detailed Analysis:1. Applicability of ONGC v. CCE Judgment:The appellants contended that the dictum of the Supreme Court in ONGC v. CCE was not applicable to the facts of the present case, as there was no genuine dispute between the parties that could be referred to the High-Powered Committee. The Supreme Court agreed with this contention, noting that the ONGC judgment was intended to prevent frivolous litigation between government departments and public sector undertakings. In this case, the dispute was between a mutual fund and a corporation, not between two government undertakings. The court concluded that the High Court erred in referring the disputes to the High-Powered Committee based on the ONGC judgment.2. Registration of Bonds in the Name of Canara Bank as Trustee of CBMF:The appellants, trustees of CBMF, sought the registration of 14% NTPC Bonds in the name of Canara Bank as trustee of CBMF. The Company Law Board (CLB) found that Canara Bank was holding the bonds in a trustee capacity for CBMF and that the corporation had recognized the mutual fund's holdings. However, due to the statutory prohibition under Section 153 of the Companies Act, 1956, the CLB could not direct the registration of bonds in the name of 'Canara Bank Trustee - Canbank Mutual Fund.'3. Redemption of Bonds and Payment of Proceeds:The appellants requested the redemption amount for the bonds along with interest. The CLB held that the corporation was bound to pay the redemption amount to Canara Bank as trustee of CBMF. The Supreme Court upheld this finding, noting that the corporation had an unambiguous obligation to repay the value of the bonds to the bondholder. The court emphasized that the corporation could not deny payment based on the liability of the transferor or its subsidiary.4. Alleged Disputes and Counterclaims by the Corporation:The corporation raised various preliminary objections and counterclaims, including a demand for a no-objection certificate from the official liquidator of the Bank of Karad. The CLB rejected these objections, noting that the corporation's actions were dilatory and unjustified. The Supreme Court agreed, stating that the disputes raised by the corporation were imaginative and not genuine. The court found that the corporation's counterclaims were without basis and could not be used to deprive the trustees of the bond value.5. Statutory Prohibition under Section 153 of the Companies Act, 1956:The CLB recognized the relationship between Canara Bank and CBMF but was unable to grant the appellants' prayer due to the statutory prohibition under Section 153, which prevents a company from taking notice of any trust. The Supreme Court acknowledged this limitation but emphasized that the real issue was the corporation's obligation to pay the bond value to the trustee.Conclusion:The Supreme Court allowed the appeals, setting aside the High Court's judgments and restoring the orders of the Company Law Board. The court held that the trustees of CBMF were entitled to the redemption amount of the bonds, and the disputes raised by the corporation were not genuine. The appellants were awarded costs quantified at Rs. 10,000.