2024 (5) TMI 1654 - HC - Companies Law

DRT recovery action against settled secured-loan properties upheld; writ maintainable but dismissed after compromise dues payment confirmed

A writ challenging DRT recovery proceedings affecting properties within the HC's territorial limits was held maintainable despite objections of absence of ... Challenge to illegal actions of Respondents No. 3 to 5 affecting the valuable rights of Petitioner concerning certain properties situated at Guna and other places - release of encumbrance over the subjected properties and extinguishment of the debt owned by predecessor in title towards the subjected properties, while sanctioning the scheme of compromise moved by Respondent no.5 - challenge to the consequent action/proceedings/coercive measures threatened to be taken by Ld. Recovery Officer, DRT, Jaipur - HELD THAT:- The first and foremost objection taken by Respondent N.5 which needs to be addressed is with regard to the writ being not maintainable as no relief had been claimed against the State and Respondents No. 4 & 5 do not fall under the definition of State as envisaged u/a 12 of the Constitution and further due to lack of territorial jurisdiction of this Court to hear this Writ, as the order challenged herein is passed by DRT, Jaipur, which in wake of availability of alternative remedy also is not maintianable. In light of the principal of Law laid down in Radha Krishan Industries v. State of H.P. [2021 (4) TMI 837 - SUPREME COURT] the present Writ appears to be very well maintainable against both the objections firstly the proceedings of DRT, Jaipur, challenged before this Court are directly affecting its fundamental and legal property rights concerning certain properties situated within the territorial jurisdiction of this Court due to alleged contravention of the final order dated 20/04/2005 passed in Company Petition No. 2/2004, whereby it is stated to had released the encumbrance over the said properties and had extinguished the debt owned by predecessor owner towards the property, while sanctioning the scheme of compromise. Since said action/proceedings of DRT, Jaipur, against the subjected property is challenged alleging it to be sub-silentio and per incuriam to the orders passed by this Court and the Apex Court, no bar as such of alternative remedy arises. The question whether in terms of compromise/arrangement vide order dated 20/04/2005 in C.P. 2 /2004, the settlement amount was ever paid to the Bank of Rajasthan, assumes importance. In compliance of the order dated 20/04/2005, on 02/05/2005, present Respondent No.6 submitted an affidavit, indicating compliance in relation to the payments made to the secured creditors, including the Bank of Rajasthan, wherein it was categorically disclosed that on 29/04/2005, Respondent No.5 was tendered demand drafts No.686933 and 406576 for an amount of Rs.43.53 Lakhs, the total due of Bank of Rajasthan, who was in proper receipt of the amount as stipulated in the scheme. Since Respondent No.3/RBI vide order dated 12/08/2010 had allowed amalgamation of Bank of Rajasthan with ICICI Bank, thus, ICICI Bank Ltd. subsequently became the sole applicant of the OA and thereafter vide deed of assignment dated 20/05/2014 the debt had been assigned to Respondent No.5, thus, at the instance of Respondent No.5 the Original application No. 205/1998 is maintainable and the proceedings conducted therein cannot be said to become nugatory in the light of the order’s dated 20/04/2005, 27/04/2005 and 06/09/2005 and cannot be said to be arbitrary, illegal, unjust, contrary to the law and in violation of the fundamental rights under articles 14, 19, 21 and in violation of the constitutional guarantee envisaged under article 300A of the Constitution. The petition being sans merits is hereby dismissed - Admission is declined. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the writ petition under Article 226 was maintainable despite the availability of a statutory appellate remedy under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, and despite objections that the principal contesting respondents were not 'State' under Article 12. (ii) Whether the High Court had territorial jurisdiction to entertain the writ petition when recovery proceedings were before a tribunal outside the State, but the immovable properties sought to be proceeded against were situated within the Court's territorial limits. (iii) Whether, on the material placed, the earlier order sanctioning a compromise/arrangement under Section 391 of the Companies Act had the effect of extinguishing the debt and releasing the mortgage/encumbrance so as to render the pending debt recovery application and consequent recovery proceedings non-maintainable or illegal. 2. ISSUE-WISE DETAILED ANALYSIS (i) Maintainability of writ petition despite alternate remedy and 'State' objection Legal framework: The Court considered the discretionary rule regarding alternate remedies in writ jurisdiction, as applied through the principles extracted and applied in the judgment (including the recognized exceptions where writ jurisdiction may still be exercised). Interpretation and reasoning: The Court held that the writ could be entertained because the challenge was framed as one alleging that tribunal recovery proceedings were being pursued in alleged contravention of a final order of the High Court affecting the petitioner's property rights, and because the alleged action was asserted to be sub-silentio and per incuriam to binding orders. On that basis, the Court concluded that the existence of an appellate remedy did not bar entertaining the writ. The Court also rejected the objection that no relief lay because private banks were involved, treating the challenge as directed to the impugned recovery proceedings affecting asserted constitutional/property rights. Conclusion: The writ petition was held maintainable notwithstanding alternate remedy objections and the contention that certain respondents were not 'State'. (ii) Territorial jurisdiction Legal framework: The Court evaluated territorial jurisdiction on the basis of where the subject-matter and a substantial part of the cause of action arose. Interpretation and reasoning: The Court accepted that the immovable properties against which coercive recovery steps were being pursued were situated within its territorial jurisdiction and that a substantial and meaningful part of the cause of action operated within the State because the impugned actions' impact was over properties located there. The Court also noted that relevant conveyance instruments concerning the properties were executed within the Court's territorial limits. Conclusion: The Court held that it had territorial jurisdiction to entertain the petition. (iii) Effect of the sanctioned compromise/arrangement on continuation of debt recovery proceedings and mortgage enforcement Legal framework: The Court examined the impact of its earlier sanction of a compromise/arrangement under Section 391 of the Companies Act, as pleaded to have released encumbrances and extinguished the underlying debt, and contrasted this with the continuing maintainability of the pending debt recovery application and subsequent recovery certificate. Interpretation and reasoning: The Court treated the decisive factual/legal pivot as whether the compromise amount attributable to the concerned bank had in fact been paid in terms of the sanctioned scheme. While an affidavit of compliance asserted tender of demand drafts, the Court found that, beyond the statement, there was no documentary material showing delivery of the drafts by any mode or credit of the amount to the bank's account, and the alleged payment was denied by the contesting respondents. The Court placed reliance on recitals in a later conveyance instrument indicating that the dues remained outstanding and that the seller undertook to indemnify the purchaser for liabilities relating to those dues, which the Court considered inconsistent with the case of full discharge. The Court further reasoned that the Supreme Court's dismissal of the appeals did not decide the validity of the pending debt recovery application; according to the Court, the issue of continuation of the original application was not adjudicated there. On these premises, the Court concluded that the pending recovery application did not become nugatory due to the earlier compromise order, and that the proceedings at the instance of the successor/assignee bank were maintainable. Conclusion: The Court held that the debt recovery application and ensuing recovery proceedings could continue; they were not rendered illegal or void by the earlier compromise order on the record before the Court. Consequently, the petition was dismissed on merits.