2011 (3) TMI 1475 - HC - Companies Law

Court upholds jurisdiction of Debts Recovery Tribunal despite banking license surrender, emphasizing equitable considerations.

ISIBARS Ltd. Versus Commerzbank AG

The High Court of Bombay dismissed the petition, affirming the jurisdiction of the Debts Recovery Tribunal to hear and decide the application despite the ... Surrender of banking license – right to claim outstanding amount from customer - credit facilities from respondent 1. The petitioners did not clear the outstanding dues - respondent 1 had surrendered its banking licence in India and had stopped its banking operation in India. The petitioners therefore filed a miscellaneous application and called upon respondent 1 to produce the banking licence. Respondent 1 in its reply admitted that it had surrendered its banking licence. The petitioners, therefore, filed a miscellaneous application seeking dismissal of the original application on the ground that respondent 1 was no longer a bank as defined under the Recovery of Debts Due to Banks and Financial Institution Act – Held that:- respondent 1 filed the original application, the DRT had jurisdiction to entertain it. Respondent 1 had substantive right to claim the amount. It cannot be denied to it because it has surrendered it’s licence during the pendency of the original application. Surrender of the banking licence does not extinguish the petitioners’ liability. Respondent 1 cannot be denied relief because of the subsequent event since at the date of the institution of the suit, it had a substantive right to claim the relief. petition is, therefore, dismissed Issues:1. Jurisdiction of the Debts Recovery Tribunal to entertain and decide the application after the respondent bank surrendered its banking license.2. Impact of subsequent events on the jurisdiction of the tribunal based on legal precedents.3. Interpretation of jurisdictional facts in relation to the Recovery of Debts Due to Banks and Financial Institution Act, 1993.4. Application of equitable considerations and substantial justice in determining jurisdiction.Issue 1: Jurisdiction of the Debts Recovery TribunalThe case involved a dispute where the petitioner-company failed to clear outstanding dues to a banking corporation, the respondent. The respondent filed for recovery in the Debts Recovery Tribunal. The petitioner argued that the respondent surrendered its banking license, thus losing its status as a bank under the Recovery of Debts Due to Banks and Financial Institution Act, 1993 (RDDB Act). The petitioner contended that this event ousted the jurisdiction of the tribunal to decide the application. The court analyzed the definition of a banking company under the RDDB Act and the significance of the term 'entertain and decide' in relation to the tribunal's jurisdiction. The court noted that the respondent had a banking license when filing the application, and the subsequent surrender did not extinguish the petitioner's liability. The court emphasized that denying relief based on the surrender of the license would not promote substantial justice.Issue 2: Impact of Subsequent Events on JurisdictionThe judgment referenced legal precedents to discuss the impact of subsequent events on jurisdiction. Citing the Supreme Court's decision in Carona Ltd.'s case, the court highlighted that rights should be determined based on the date of institution of the suit. The court emphasized that the respondent had a substantive right to claim relief when filing the application, even though it surrendered its banking license later. The court stressed that considering subsequent events should be based on equitable considerations to promote substantial justice. The court rejected the argument that surrendering the license affected the tribunal's jurisdiction, as the respondent had a valid claim at the time of filing.Issue 3: Interpretation of Jurisdictional FactsThe court delved into the interpretation of jurisdictional facts in relation to the RDDB Act. It examined the definition of a banking company and the implications of surrendering a banking license. The court emphasized that the tribunal's jurisdiction should be determined based on the status of the parties at the time of filing the application. The court clarified that surrendering the license did not negate the respondent's right to claim the outstanding dues, as it had a valid claim when initiating the legal proceedings.Issue 4: Equitable Considerations and Substantial JusticeThe judgment underscored the importance of equitable considerations and substantial justice in deciding jurisdictional matters. Referring to legal precedents, the court highlighted that subsequent events should be considered to promote fairness and justice. The court rejected the petitioner's argument that surrendering the banking license affected the tribunal's jurisdiction, emphasizing that denying relief based on this event would not align with principles of substantial justice. The court dismissed the petition, emphasizing that jurisdiction is determined at the commencement of the inquiry and not altered by subsequent events.In conclusion, the High Court of Bombay dismissed the petition, upholding the jurisdiction of the Debts Recovery Tribunal to entertain and decide the application despite the respondent surrendering its banking license. The court emphasized the importance of considering equitable considerations and promoting substantial justice in determining jurisdictional matters, citing legal precedents to support its decision.