2014 (1) TMI 1962 - HC - Companies Law

Company Court lacks jurisdiction to transfer DRT appeals under RDB Act Section 17 despite concurrent winding up proceedings

B. Raju and R. Kamala Versus The Official Liquidator High Court, Madras, M/s. State Bank of India, M/s. Kaushik Switch Gears Pvt. Ltd., K. Viswanathan (Deceased) and K.V. Banumathy

The HC ruled that the Company Court lacked jurisdiction to transfer appeals from the Debt Recovery Tribunal (DRT) to itself under the Companies Act, 1956, ... Proceedings initiated to by the Bank under RDB Act to recover its dues - Jurisdiction of the Tribunals constituted under the Recovery of Debts Due to Banks and Financial Institutions Act,1993 and the Company Court (High Court) exercising jurisdiction under the Companies Act, 1956 - RDB Act,1993 Vs. Companies Act,1956 - sale agreements constituted a fraudulent preference under Section 531 of the Companies Act, 1956 or not - HELD THAT:- The Company is being wound up under the orders of the Company Court in C.P.No.23 of 2003. The appellants are third party agreement holders with respect to three grounds of property situate in Mugappair belonging to the Directors of the company in winding up. A creditor of the Company viz., State Bank of India, Ambattur Industrial Estate Branch, in O.A.No.269 of 2007 initiated recovery proceedings before D.R.T.-III, Chennai and attached the property to realise its dues. In JAGADISH SINGH Vs. HEERALAL AND OTHERS [2014 (3) TMI 73 - SUPREME COUR] the Hon'ble Apex Court referring to Section 17 of the SARFAESI Act held that any person, whether a borrower, guarantor or person affected by auction sale has to approach the Debts Recovery Tribunal and not a Civil Court. The said decision also brings out the exclusive jurisdiction of the Debts Recovery Tribunal to exercise jurisdiction over matters covered under section 17 of RDB Act. Considering the exclusive jurisdiction of the Debts Recovery Tribunal constituted under the RDB Act, the order passed by the Company Court transferring Appeal Nos.1 and 2 of 2013 from D.R.T-III to itself under the provisions of the Companies Act,1956 is without jurisdiction is clear from the provisions of the RDB Act, 1993 and the General enactment, namely, Companies Act, 1956. Thus, the consequential orders passed in the impugned order, dated 5.11.2013 permitting the Official Liquidator to take steps for selling the property is also without jurisdiction. The orders of the Company Court in C.A.No.160 2013 in C.P.No.23 of 2003 and in Transfer C.A.Nos.1108 and 1109 of 2013 permitting the Official Liquidator to proceed further with the sale of the property are set aside - Appeal disposed off. Issues Involved:1. Jurisdiction of Tribunals under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) vs. Company Court under the Companies Act, 1956.2. Validity of transferring proceedings from Debt Recovery Tribunal (DRT) to Company Court.3. Determination of whether the sale agreements constituted a fraudulent preference under Section 531 of the Companies Act, 1956.4. Exclusive jurisdiction of the Debt Recovery Tribunal in matters of adjudication and execution under the RDB Act.Issue-wise Detailed Analysis:1. Jurisdiction of Tribunals under RDB Act vs. Company Court under Companies Act, 1956:The core issue was whether the Company Court could assume jurisdiction over matters that fall under the RDB Act. The judgment emphasized that the RDB Act is a special enactment designed to provide a speedy and summary remedy for the recovery of debts due to banks and financial institutions, and it contains provisions that override other laws, including the Companies Act, to the extent of inconsistency. The court highlighted that the jurisdiction of the Tribunal in adjudicating and executing recovery certificates is exclusive under Sections 17 and 18 of the RDB Act. The Tribunal's jurisdiction is not subject to the Company Court's authority under Sections 442, 446, and 537 of the Companies Act.2. Validity of Transferring Proceedings from DRT to Company Court:The Company Court's order to transfer appeals from DRT-III to itself was challenged. The judgment concluded that such a transfer was without jurisdiction since the RDB Act mandates that recovery proceedings should be exclusively handled by the DRT. The court referenced the precedent set by the Supreme Court in the ALLAHABAD BANK case, which reinforced the exclusive jurisdiction of the DRT in matters of debt recovery, thereby invalidating the Company Court's transfer order.3. Determination of Fraudulent Preference:The Official Liquidator sought a declaration that the sale agreements in favor of the appellants were a fraudulent preference under Section 531 of the Companies Act. However, the judgment did not delve into the merits of this issue, as it focused primarily on jurisdictional aspects. The court noted that such matters should be adjudicated by the DRT, which has the exclusive authority to handle disputes related to the recovery of debts and related transactions.4. Exclusive Jurisdiction of the Debt Recovery Tribunal:The judgment reiterated the exclusive jurisdiction of the DRT in both adjudication and execution of recovery proceedings. It emphasized that the RDB Act's provisions, particularly Section 34, provide it with an overriding effect over other laws, including the Companies Act. The court cited various precedents, including the ALLAHABAD BANK and INTERNATIONAL COACH BUILDERS cases, to affirm that the DRT's jurisdiction is comprehensive and exclusive, covering all aspects of debt recovery, including execution and adjudication of priorities among creditors.Conclusion:The court set aside the orders of the Company Court that permitted the Official Liquidator to proceed with the sale of the property, as these orders were made without jurisdiction. The appeals were directed to be sent back to DRT-III, Chennai, where the parties could raise their contentions. The judgment underscored the principle that the RDB Act, as a special and later enactment, prevails over the Companies Act in matters of debt recovery, thus reinforcing the exclusive jurisdiction of the DRT.