TaxTMI 
TaxTMI 
2016 (3) TMI 601
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....(iii) Whether the judgment in the case of Krishna Filaments (supra) would be applicable to the facts of the present case and whether there is any difference of opinion between two judgments which are delivered by two Division Benches of this Court?" 2 The Hon'ble Acting Chief Justice by order dated 6th October 2015 directed that the present Full Bench be constituted to decide the aforesaid questions. 3 Though Larger Bench cannot decide the factual controversy, for the sake of convenience, a brief reference to the facts of the case will be necessary. 4 The appellant is a banking company incorporated under the provisions of the Companies Act,1956. It is a scheduled bank within the meaning of the Reserve Bank of India Act,1934. The appellant is the original plaintiff. For the sake of convenience, the parties are hereafter referred by their status before the learned Single Judge. The first defendant is a company carrying on business of manufacturing, producing, distributing, importing, exporting, buying, selling and dealing with all types of goods based on rubber or plastics whether for domestic or industrial use and ancillary products. The second to tenth defendants have ....
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....Act, 1993 (for short "RDB Act"), the suit before the Civil Court was barred and only the DRT shall have exclusive jurisdiction to entertain and try the suit. The first defendant before the learned Single Judge relied upon another decision of a Division Bench of this Court in the case of Alpha and Omega Diagnostics India Limited Vs. Asset Reconstruction Company (P) Limited 2010 (5) All M.R. 553 by contending that in paragraphs 28 to 30 of the decision,it is held that the decision in the case of Krishna Filaments Limited cannot be said to be laying down a good law. 7 When the present appeal came up before a Division Bench, it was observed in the order dated 25th August 2015 that it would be advisable if the aforesaid three questions will be decided by a larger Bench. 8 The learned senior counsel appearing for the plaintiff invited our attention to the decision of the Division Bench in the case of Krishna Filaments Limited. He pointed out that in paragraph 6, a specific point for determination was framed on the issue of jurisdiction. He pointed out that the appeal before the Division Bench arose out of suit a filed by the Industrial Development Bank of India (for short `IDBI'....
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....thers(2007) 2 SCC 282. He urged that in the said decision, the Apex Court accepted the distinction between the financial institutions suing for the recovery of the debts due to it and the financial institutions suing to recover amounts on behalf of others/third party in the context of maintainability of action before the DRT. He urged that in the present case, the plaintiff is acting as a debenture trustee in relation to the debentures issued by a limited company (the first defendant). He urged that the plaintiffbank is not suing to recover its own dues. 10 The learned counsel for the first defendant invited our attention to the averments made in the plaint in the present case. His basic submission is that the averments made in the plaint are completely contrary to the stand taken by the plaintiff before this Court. His submission is that the suit filed by the plaintiff in the present case is not of the category which is sought to be pleaded by the plaintiffs before the Division Bench as well as this Bench. We must note here that the submissions of the first defendant are really on the facts of the case and not on the questions framed for the determination of the larger Bench. T....
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....it can be filed on the Original Side of this Court or whether only the DRT will have exclusive jurisdiction to entertain such a suit. 13 It is, therefore, necessary to consider the material provisions of the RDB Act. The preamble of the Act provides that the Act has been enacted to provide for establishment of a Tribunal for expeditious adjudication and for recovery of "debts due to banks and financial institutions" and for the matters connected therewith or incidental thereto. Subsection 4 of section 1 is also relevant which reads thus: "(4) The provisions of this Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ten lakh rupees or such other amount being not less than one lakh rupees, as the Central Government may, by notification, specify." (emphasis added) 14 The debt is defined in clause (g) of section 2 which reads thus: "(g) "debt" means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activit....
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....e word debt in the RDB Act cannot be given a restricted meaning and the legislature has not intended to restrict it to the relationship of creditor and debtor. However, subsection 1 of section 17 confers jurisdiction on the DRT to deal with the applications made by the banks and financial institutions for recovery of debts "due to such banks and financial institutions". Thus, DRT can entertain an application for recovery provided the application is made by a bank or a financial institution for the recovery of debt due to such bank or financial institution. If recovery is sought of a debt which is not due to a bank or a financial institution, the DRT will not get jurisdiction under section 17. 18 It will be necessary to make a reference to the Regulations framed by the Securities and Exchange Board of India under section 30 of the Security and Exchange Board of India Act,1992. The said Regulations are the Securities and Exchange Board of India (Debenture Trustees) Regulations,1993 (for short "the Regulations"). Clause (bb) of the Regulation 2 defines a debenture trustee to mean a trustee of a trust deed for securing any issue of debentures of a body corporate. Clause (ba) of Regu....
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....the order passed by the learned Single Judge of this Court on a Notice of Motion filed by the first defendant in a suit in which IDBI was the plaintiff for raising an issue of jurisdiction. The Notice of Motion was dismissed. Against the said order, an appeal was preferred. A specific contention was raised before the Division Bench that the claim made by IDBI bank was essentially to recover a debt falling within the definition provided under clause (g) of section 2 of the of the RDB Act and, therefore, DRT will have the exclusive jurisdiction to entertain and try the suit filed by IDBI. The suit was filed by the IDBI in its capacity as the trustee of debentures against the Krishna Filaments Limited for recovery of the amounts payable under the debentures. The point for determination is set out in paragraph 6 of the decision which reads thus: "6. Thus the main point for determination arising in this appeal is whether the suit claim is for recovery of a debt due to a bank or a financial institution. An answer on this point will decide whether this Court has jurisdiction to try and entertain this suit." (emphasis added) 21 The Division Bench considered the statements of....
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.... for the banking companies. Thus if a bank is collecting rents as a trustee or if it is an executor under a will and it would be collecting the amount due to the estate, such claims would also come under the definition of a "debt". 24. Therefore, it would become relevant to examine as to what was the intention in creating the Tribunal. Was it created as a forum for all sorts of claims by banks and financial institutions or whether it was meant for claims where the recovery was due to the bank or financial institution or whether it was meant for claims where the recovery was due to the bank or financial institutions? The reference to Maxwell on interpretation in the judgment of the Apex Court in the case of Workmen of Dimakuchi Tea Estate (supra) is quite apt in this behalf. There the Apex Court has emphasised that the words of a statute are to be understood in the sense in which they best harmonise with the subject or the Act and the object which the legislature had in its mind. It is not the grammatical or the popular sense of the words which is material, but the subject of the occasion for which they are used and the object which is sought to be achieved. If we look at t....
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.... banks. From this point of view, the phrase "any liability claimed by a bank or a financial institution" occurring under the definition of a "debt" under section 2(g) will have to be read down to mean any liability due to a bank or a financial institution. That is also clear when we read section 17 of the RDB Act and the jurisdiction thereunder is clearly restricted for recovery of debts due to banks and financial institutions." (emphasis added) 23 Thus, there is a categorical finding recorded by the Division Bench holding that the jurisdiction of the Tribunal under section 17 of the RDB Act is restricted to the applications made for the recovery of debts due to banks and financial institutions. Therefore, the Division Bench came to the conclusion that the suit filed by the IDBI cannot be said to be a suit for recovery of debt due to itself, and therefore, section 17 of the RDB Act was not attracted. On plain reading of section 17, the view of the Division Bench seems to be correct. The DRT will get exclusive jurisdiction only when a bank/financial institution claims recovery of a debt due to it. The law is well settled. The exclusion of jurisdiction of the Civil Court cannot....
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....inistering the affairs as a Trustee and there being no debt due to it, which it could recover, then, the application for amendment, could not have been allowed in law. In other words, when the jurisdiction of the Tribunal could not have been exercised nor had the Tribunal any power or authority in this case, then, allowing the application for amendment would mean conferring jurisdiction on a Tribunal which it does not possess in law. Mr. Samdani submits that jurisdiction cannot be conferred by consent of parties." (emphasis added) 25 The issue which arose before the Division Bench has been summarized in paragraph 15 which reads thus: "15. We are concerned only with the legal issue as to whether a "Reconstruction company" as contemplated by section 2(v) of the Securitisation Act can apply for substitution as applicant in place of the original lender bank by amending the pending Original Application No. 89 of 2005. Further, whether the substitution or impleadment of the reconstruction company in its capacity as a trustee is permissible under the RDB Act or not? " 26 The Division Bench thereafter considered the amendment made to the definition of "financial instituti....
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....inancial institution or any consortium or group of banks or financial institutions and includes:- (i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company, whether acting as such or mortgaging a trust set up by such securitisation company or reconstruction company for the securitisation, reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance." 27 Thereafter, the Division Bench considered the provisions of Securitisation Act. In paragraph 27, the the Division Bench dealt with an argument of the petitioners based on the decision in the case of Krishna Filaments Limited. Paragraph 27 and 28 of the decision reads thus : "27 If these provisions, bearing in mind the object of the RDB Act are perused together with the relevant provisions of the Securitisation Act, then, it will not be possible to agree with Mr. Samdani that the restricted view as taken in the case of Krishna Filaments (supra) continues to....
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....r other proceedings of whatever nature relating to the financial assets, if pending by or against the bank or financial institution, the same does not abate nor is discontinued. It is in no way prejudicially affected, by reason of acquisition of financial assets by securitisation or reconstruction company, as the case may be, but it shall continue and can be prosecuted and enforced by or against securitisation company or reconstruction company as the case may be. Therefore, the acquisition of rights or interest in financial assets with their legal effect and consequences is provided by section 5 of the Securitisation Act. It is with the object of giving effect to section 5 and particularly subsections (3) and (4) thereof that the definition of the term "financial institution" in section 2(h) of the RDB Act has been amended. Therefore, while enacting Securitisation Act the Legislature made amendment to the RDB Act simultaneously as is clear from the statements of objects and reasons and the relevant provisions of the RDB Amendment Act 30 of 2004 reproduced above. It is not as if the provisions are one sided. While it is permissible for the Securitisation or Reconstruction Company to....
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.... (emphasis added) 29 The Division Bench relied upon the definition of the secured creditor under section 2 (zd) of the Securitisation Act which included debenture trustee appointed by any bank or financial institution. In paragraph 30, the Division Bench observed thus: "30. In the view that we have taken and finding that the law laid down in Krishna Filaments cannot be said to be any longer valid and good in the light of the statutory provisions that the further issue, about correctness of the conclusions recorded by Division Bench in paras 25 and 26 and the interpretation placed on the definition of the word "debt", need not be considered. Now, the bank or financial institution as an assignee can proceed under the Securitisation Act, so also under the RDB Act. The term "debt" as appearing in section 2(g) would have to be considered in the light of the broad interpretation that we have placed on the provisions of the Securitisation Act. The distinction that is drawn by Mr. Samdani is no longer valid. Even if the bank or financial institution is acting as a Trustee as suggested, it can take recourse to the RDB Act. That is clear from a reading of the definition of the ....
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....finition of financial institution was amended for including therein a securitisation company or a reconstruction company which has obtained a certificate under section 3(4) of the Securitisation Act. It will be necessary to note section 5 of the Securitisation Act which read thus: "5. Acquisition of rights or interest in financial assets.-(1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution,- (a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or (b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them. (2) If the bank or financial institution is a lender in relation to any financial assets acquired under subsection (1) by the securitisation ....
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....ose of substitution of its name in any pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the securitisation company or reconstruction company in such pending suit, appeal or other proceedings.]" 31 When a securitisation company or a reconstruction company acquires financial assets of a bank or a financial institution, by virtue of subsection 2 of section 5, it steps into the shoes of the bank or the financial institution,as the case may be and becomes a lender for all purposes. Therefore, when such securitisation company or reconstruction company files an application for recovery of an amount advanced by a bank or a financial institution whose assets have been acquired by it by assignment or otherwise in a manner provided under section 5 of the Securitisation Act, such a securitisation company or a reconstruction company sues for the debt due to it. The reason is that such a company on the basis of the assignment becomes a lender and steps in the shoes of the assignor bank. Sub section (5) of section 5 therefore provides that a securi....
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.... prosecute the application for recovery before the DRT by virtue of assignment by the said bank. The reason is that the said reconstruction company becomes a financial institution due to inclusion of clause (ia) in clause (h) of section 2 of the RDB Act. In the facts of the case before it, the Division Bench rightly dismissed the Writ Petition. 32 In paragraph 30 in the case of Alpha and Omega, the Division Bench referred to definition of "secured creditors" appearing in section 2 (zd) of the Securitization Act which reads thus: "(zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes( i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assi....
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....de to mean any liability which is alleged as due from any person by a bank during the course of any business activity undertaken by the bank either in cash or otherwise, whether secured or unsecured, whether payable under a decree or order of any court or otherwise and legally recoverable on the date of the application. In ascertaining the question whether any particular claim of any bank or financial institution would come within the purview of the tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint be looked into and then find out whether notwithstanding the speciallycreated tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such a tribunal is ousted. With the aforesaid principle in mind, on examining the averments made in the plaint, we have no hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one for recovery of a debt due to it from the defendants and, therefore, it is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary civil court. In this view of the matter the High Co....