2025 (9) TMI 54 - HC - Indian Laws

Sects 17, 18 and 31 RDB Act give jurisdiction to recovery forum over assigned debts; Sec 18 bars other forums

M/s Ashwini Trading Co. Versus Housing Bank Limited, Krishna Constructions, Shri Sanjay Manoharrao Dashetwar, Shri Venkatesh Manoharrao Dashetwar, Shri Ravindra Rangnathrao Dikshit Mrs. Anupama Ravindra Dashetwar, Mrs. Nilima Venkatesh Dashetwar, Shri Batiah Manoharrao Dashetwar, Mrs. Renu Ravindra Dikshit, Ms. Bhargavi Rangnathrao Dikshit and Shri Ravindra Manoharrao Dashetwar, Aurangabad.

M/s Ashwini Trading Co. Versus Housing Bank Limited, Krishna Constructions, Shri Sanjay Manoharrao Dashetwar, Shri Venkatesh Manoharrao Dashetwar, Shri ... 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a suit filed by a non-banking entity prior to or after establishment of Debts Recovery Tribunal (DRT) can be transferred to and adjudicated by DRT where the original lender is subsequently amalgamated with a banking company. 2. Whether the term 'debt' under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) requires that the amount claimed must have been originally advanced by a bank during the course of its banking business, or whether a bank may claim an amount as 'debt' that was advanced earlier by a non-banking entity and later devolved on or assigned to the bank. 3. The proper interpretative approach to Sections 17, 18 and 31 of the RDB Act and the effect of their interaction on the jurisdiction of civil/Commercial Courts vis-à-vis DRT, including whether Section 31 is to be given a literal or purposive construction in cases of subsequent amalgamation/assignment. 4. Whether principles applicable to assignment of rights (continuance of suit by assignee) apply equally to amalgamation (where transferor company ceases to exist), for the purpose of determining forum jurisdiction. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Transfer to DRT following amalgamation with a banking company Legal framework: Sections 17 and 18 vest jurisdiction in DRT to 'entertain and decide' applications by banks/financial institutions for recovery of debt and bar jurisdiction of any court in relation to matters so specified. Section 31 provides for transfer of suits pending before courts to the Tribunal where the cause of action would fall within the Tribunal's jurisdiction if the Tribunal had been established when the suit was instituted. Precedent treatment: The Court considered Supreme Court authority holding the Tribunal's jurisdiction to be exclusive and that Section 31 must be construed so that, after the Act, no suit by a bank is decided by civil courts. The Division Bench decision holding that assigned debts vested jurisdiction in DRT was treated as directly applicable; other High Court decisions on different facts (involving employee fraud/forgery) were distinguished. Interpretation and reasoning: The Court held that on amalgamation the banking company succeeds to the assets and liabilities and is entitled to prosecute pre-existing litigation. The proceeding, post-amalgamation, falls within the definition of an 'application' and the jurisdictional ambit of Sections 17-19 because the bank now 'claims as due' the outstanding amount in the course of its business activity. Section 31 must be read purposively with Sections 17 and 18 so as to give effect to the substantive bar in Section 18; Section 31 is procedural and should yield to the substantive mandate that matters within DRT jurisdiction be adjudicated by the Tribunal. A literal, narrow reading of Section 31 to preclude transfer where the claim originally would not have lain before the DRT was rejected in favour of harmonisation and purposive interpretation to effect the Act's dominant purpose. Ratio vs. Obiter: Ratio - Where a non-banking lender is amalgamated into a banking company, the successor banking company may claim the outstanding amount as 'debt' and the matter may be transferred to DRT; Sections 17 and 18 bar other courts from adjudicating such matters and Section 31 must be read purposively to effect that bar. Distinguishing commentary on assignment jurisprudence and factual distinctions from fraud/forgery cases is obiter insofar as it supports the main ratio. Conclusions: The suit was rightly transferred to DRT following amalgamation; the DRT has jurisdiction and civil/Commercial Court jurisdiction is barred by Section 18 read with Sections 17 and 19. Section 31 reinforces the mandatory nature of the bar and may be purposively applied in amalgamation/assignment situations. Issue 2 - Meaning of 'debt' under Section 2(g) and applicability to amounts not originally advanced by a bank Legal framework: Section 2(g) defines 'debt' as any liability claimed as due from any person by a bank during the course of any business activity undertaken by the bank, 'whether secured or unsecured or assigned'. Sections 17-19 govern recovery applications by banks before the Tribunal. Precedent treatment: The Court reviewed authorities where courts declined DRT jurisdiction in cases of internal fraud/forgery (where the claimed amount did not qualify as debt under the Act), and authorities where assignment/amalgamation resulted in DRT jurisdiction. The latter line was followed as more factually analogous. Interpretation and reasoning: The Court rejected the narrow construction urged by the defendant that 'debt' must mean only amounts originally advanced by the bank. The statutory text focuses on amounts 'claimed as due' by a bank in the course of its business; it expressly contemplates assigned claims. To import an additional requirement that the bank must have advanced the amount would read words into the statute ('advanced and claimed as due') and negate the explicit reference to assigned liabilities. Consequently, a bank claiming an amount that devolved upon it by amalgamation or assignment is claiming a 'debt' within Section 2(g). Ratio vs. Obiter: Ratio - 'Debt' under Section 2(g) includes liabilities claimed as due by a bank even if the amount was not originally advanced by the bank, provided it is claimed in the course of the bank's business activity; the statutory inclusion of 'assigned' contemplates this situation. Obiter - Distinctions drawn with fraud/forgery cases are explanatory but not contrary to the ratio. Conclusions: The contention that DRT lacks jurisdiction because the original lender was a non-bank fails; post-amalgamation the bank's claim qualifies as 'debt' under Section 2(g), attracting DRT jurisdiction. Issue 3 - Interplay of Sections 17, 18 and 31: literal v. purposive construction Legal framework: Section 17 confers jurisdiction on DRT; Section 18 bars other courts from exercising jurisdiction over matters within Section 17; Section 31 provides for transfer of pending suits when the cause of action would have fallen within DRT jurisdiction had the Tribunal existed when the suit was instituted. Precedent treatment: The Court relied on Supreme Court dicta that the Tribunal's jurisdiction is exclusive and that provisions like Section 31 should be construed to prevent civil courts from adjudicating bank recovery suits after the Act. Interpretation and reasoning: The Court held that Sections 17 and 18 are substantive and create an absolute bar on court jurisdiction over matters within DRT competence. Section 31 is procedural and must be harmonised with the substantive bar; purposive interpretation is required where literal reading of Section 31 would frustrate the object of Sections 17-18. Where harmonisation is impossible, the dominant purpose (exclusive Tribunal jurisdiction) prevails and mandates transfer; hence Section 31 should be read to effect transfers in cases where, post-amalgamation/assignment, the matter falls within DRT jurisdiction. Ratio vs. Obiter: Ratio - Sections 17 and 18 take precedence over a literal reading of Section 31; Section 31 must be interpreted purposively to give effect to the exclusive jurisdiction of DRT. Obiter - General statements on principles of statutory interpretation are illustrative. Conclusions: The Court adopts a purposive approach; Section 31 does not prevent transfer where substantive provisions (Sections 17-18) require DRT adjudication post-amalgamation or assignment. Issue 4 - Assignment v. Amalgamation: effect on continuation of suit and forum Legal framework: Principles distinguishing assignment (transfer of a claim/benefit to another party who steps into assignor's shoes) and amalgamation/merger (transferor company ceases to exist and assets/liabilities vest in transferee pursuant to scheme and statutory sanction). Precedent treatment: The Court distinguished Dhurandhar Prasad Singh (on continuance post-assignment) from cases of amalgamation and relied on authoritative exposition that amalgamation results in cessation of transferor's corporate entity and transfer of rights/liabilities as per the scheme. Interpretation and reasoning: The Court found the present matter to be one of amalgamation, not mere assignment; the original lender ceased to exist and the banking company acquired assets/liabilities by operation of the scheme. Therefore, assignment jurisprudence regarding leave to continue the suit as an assignee does not control; the transferee-bank's prosecution of the claim is by reason of succession on amalgamation and draws the claim within DRT jurisdiction. Ratio vs. Obiter: Ratio - Amalgamation resulting in vesting of assets and liabilities in a banking company brings the claim within the bank's capacity to claim 'debt' and invites DRT jurisdiction; assignment precedents are not determinative where amalgamation effects complete succession. Obiter - Observations on nuances between assignment and amalgamation. Conclusions: Principles applicable to assignment do not preclude transfer to DRT where the original creditor has amalgamated into a bank; amalgamation leads to DRT jurisdiction when the successor bank claims the amount as due.