TaxTMI 
TaxTMI 
2022 (1) TMI 170
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....se is whether plaintiff has set forth a just claim, based on the Bonds issued by the defendant or is it a case of that trial in Shakespeare's The Merchant of Venice where Shylock is claiming the promised pound of flesh in the form of interest on delayed payment on the Bonds purchased by the plaintiff. The 41 Bonds related to this case were initially issued by SIDBI to M/s. CRB Capital Markets Ltd. (Hereinafter referred to as "CRB Capital") in 1993. Those Bonds were then sold by CRB Capital to one Shankar Lal Saraf in February, 1997 and those in turn were then sold on 1.7.1998 to SIBCO - the plaintiff and the respondent herein. In the meantime, CRB Capital faced winding up proceedings at the instance of the RBI in the Delhi High Court. The said proceeding will have a bearing on this case. 4. The following relevant facts necessary for consideration of this appeal are broadly culled out from the judgment of the Calcutta High Court:- 4.1 The Plaintiff SIBCO purchased the Bonds in the form of promissory notes issued by the defendant SIDBI. These are termed as SIDBI Bonds 2003 (4th Series) carrying 13.50% interest and SIDBI Bonds 2004 (5th Series) generating interest at the rate of....
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....th TDS deduction at around 20%. By a letter dated 24th February, 2005, the Plaintiff raised an objection over the rate on which the TDS was deducted, which was accepted by the defendant as it issued a further warrant covering a sum of Rs. 58,86,833/- on account of excess TDS deductions. 4.4 The case projected in the plaint in the CS No.79/2006, was that the defendant during their audit detected that the interest was calculated up to 31st October, 2005 and demand was raised on account of interest on delayed payment of the principal amount and the interest on Bonds through a letter dated November 10, 2005. The defendant refused to accede to the demand made by the plaintiff in its reply letter dated November 23, 2005. Aggrieved by the refusal, M/s SIBCO filed the CS No. 79/2006 for a sum of Rs. 3,25,54,483/from M/s SIDBI. 4.5 The defendant disputed the claim on account ofdelayed payment or in other words, delayed redemption of the aforesaid Bonds. It was categorically pleaded that a liquidation proceeding was initiated against CRB Capital, who at one point of time was the holder of the aforesaid Bonds and sold it to the said Shankar Lal Saraf on February 20, 1997 and on April 7,....
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....ipal without the permission of the Official Liquidator. Additionally it appears from the order passed by the Company Court that there was a notification issued on 10th April 1997 under Section 45MB of the RBI (Amendment) Act, 1997 directing the said Company not to sell, transfer, create charge or mortgage or deal in any manner with any of its profits and assets without the permission of the RBI for a period of six months from the date of the said notification. The Official Liquidator was appointed on 22nd May, 1997 who subsequently treated the subject Bonds as fraudulent preference under Section 531 of the Companies Act, 1956. Though it was held by the Company Court vide its judgment dated 17.12.2004, that the transactions are genuine and cannot be declared as fraudulent preference at the instance of the Official Liquidator, the fact remains that there was some claim over the subject Bonds. 5.1 The RBI is found to be empowered to control the management of the Banking Company in certain situations and can lay down the parameters enabling Banking Companies to expand business and regulate the paid up capital, reserve funds, cash funds and above all policies in the matter of advance....
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....r appropriate orders were passed by the Delhi High Court where winding up proceedings were going on. Hence, the defendant could not be held liable for the delayed payment. (B) The learned Trial Judge also noted the conduct of the plaintiff, in accepting the payment under the Bonds, including interest, without any protest in February, 2005. The plaintiff thereafter slept over this issue for almost 8 months, and for the first time claimed interest for the delayed payment in October 2005. The court therefore found that since the plaintiff had accepted the encashment without protest the law laid down by this Court in Bhagwati Prasad Pawan Kumar v. Union of India (2006) 5 SCC 311 would apply, since there was acceptance by conduct. In Bhagwati Prasad (supra), the Court has held: - "19. It is well settled that an offer may accepted by conduct. But conduct would only amount to acceptance if it is clear that the offeree did the act with the intention (actual or apparent) of accepting the offer. The decision which we have noticed above also proceed on this principle. Each case must rest on its own facts. The courts examine the evidence to find out whether in the fact and ci....
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....the Calcutta High Court. The defendant seeks relief of setting aside the judgment of the Division Bench in toto. Whereas, the plaintiff seeks pendente lite interest over and above the interest already awarded, and is disputing the rate of interest awarded by the Learned Division bench on interest and Principal amount. 7.1 Assailing the legality of the judgment of the appellate Bench of the Calcutta High Court, Mr K V Viswanathan, learned Senior Counsel for the defendant makes the following arguments:- (i) SIDBI acted entirely in accordance with the directives issued by the RBI, as any prudent financial institution would; (ii) Withholding of payment under the Bonds in question, was justified in light of possibility of transfer of the Bonds by CRB Capital being a Fraudulent Preference under S. 531 of the Companies Act, 1956; (iii) SIBCO bought the bonds in question in 'suspect spell' with the knowledge that two installments of interest had accrued and not been paid; not established that he is a "holder in due course"; there is a cloud on its title; (iv) Petitioner acted proactively by preferring numerous letters to RBI/Official Liquidator; amoun....
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....the Banking Regulation Act, 1949, the above argument appears only to belittle the role of RBI. RBI is not just like any other statutory body created by an Act of legislature. It is a creature, created with a mandate to get liberated even from its creator...Therefore, RBI cannot be equated to any other statutory body that merely serves its master. It is specifically empowered to do certain things to the exclusion of even the Central Government. Therefore, to place its decisions at a pedestal lower than that of even an executive decision, would do violence to the scheme of the Act. " 8.1 Through Chapter IIIB of The RBI Act, 1934, the RBI is empowered to regulate and also monitor the conduct of every Non-Banking Financial Institutions (NBFC) in India. Under S. 45-JA of the RBI Act, 1934, the RBI is empowered, in public interest or to protect the interests of the depositors or to regulate the financial system of the country, to determine the policy and issue directions to NBFCs. S. 45-K grants authority to the RBI to collect information pertaining to the NBFCs and to give directions pertaining to deposits to them. Whereas, under S. 45-L, general powers are conferred on the RBI to ca....
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....er prohibiting from accepting deposit has been issued, not to sell, transfer, create charge or mortgage or deal in any manner with its property and assets without prior written permission of the Bank for such period not exceeding six months from the date of the order." 8.4 At this juncture, it is pertinent to extract the exact wordings of the RBI communication dated 09.06.1997 addressed to the defendant: "We understand that M/s. CRB Capital Markets Ltd. and its associates have invested in the shares/bonds/other securities of your institution. As you are aware, RBI has filed a petition for the winding up of the said company in the High Court, Delhi. We, therefore, advise you not to effect any transfer, register any lien, or otherwise deal with such securities and also not to part with the interest/dividends or principal without the permission of the Official Liquidator, appointed by the High Court of Delhi. Please confirm and advise the amount of investments so held by the company/companies with your institution." 8.5 As is apparent from above, the RBI in its communication has informed SIBCO of the winding up proceedings initiated against CRB Capital and categorically....
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.... to the statutory provisions on the basis of which the RBI acted, we can seek guidance from the ratio in Peerless General Finance and Investment Co. Ltd. Vs. RBI (1992)2 SCC 343 where this court, speaking through Justice N. M. Kasliwal, held that: "71. It is settled law that so long as the power is traceable to the statute, mere omission to recite the provision does not denude the power of the legislature or rule making authority to make the regulations, nor considered without authority of law. Section 114(e) of the Evidence Act draws a statutory presumption that official acts are regularly performed and reached satisfactorily on consideration of relevant facts. The absence of reiteration of objective satisfaction in the preamble as of one under Section 45-L does not denude the powers, the RBI admittedly has under Section 45-L, to justify the actions. Though Section 45-L was neither expressly stated nor mentioned in the preamble of the Directions of the required recitation of satisfaction of objective facts to issue the directions from the facts and circumstances it is demonstrated that the RBI had such satisfaction in its consideration of its power under Section 45-L, whe....
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....exercised control over the banking companies, we are of the opinion that the said circular letter was binding on the banking companies. The officials of UCO Bank were, therefore, bound by the said circular letter." (Emphasis added) 8.12 Justice S. C. Agarwal, speaking for this Court in RBI vs. Peerless General Finance and Investment Co. Ltd. (II) (1996) 1 SCC 642. held in the context of S. 45-K of the RBI Act, 1934, that RBI has the authority to issue any directions for ensuring effective implementation of its orders, and to achieve the object of the Act: "27. ...In the matter of construction of enabling statutes the principle applicable is that if the Legislature enables something to be done, it gives power at the same time, by necessary implication, to do everything which is indispensable for the purpose of carrying out the purpose in view. (See Craies on Statutes, 7th Edn. p. 258.) It has been held that the power to make a law with respect to any subject carries with it all the ancillary and incidental powers to make the law effective and workable and to prevent evasion." 8.13 For ensuring effective implementation of relevant directions, RBI as was declared is not only ....
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.... to observe that the plaintiff is dominus litus, and they cannot be compelled to seek relief against anyone. 8.17 According to us, the plaintiff cannot be granted parity with its predecessor-in-interest, Shankar Lal Saraf, who was paid interest which accrued in July, 1997 despite the RBI directive of 09.06.1997. The defendant has explained this aberration by clarifying that the payment to Shankar Lal Saraf was made before the defendant was in receipt of the RBI directive. Hence, the plaintiff cannot claim any advantage for themselves or parity with its predecessor-in-interest, on this cause. V. SHADOW OVER SHANKAR LAL SARAF'S TRANSACTION: 9. The S. 531 of the Companies Act, 1956 (Corresponding Ss. 328 and 329 of the Companies Act, 2013) being relevant for the question, is extracted: "531. Fraudulent Preference: (1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by or against a company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insol....
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....picion harboured by the defendant is during the suspect spell as supported by the Calcutta High Court in its order dated 09.01.2001, where the Writ Court refused to interfere on the grounds that the issue was in the teeth of the litigation pending in the Delhi Company Court. 9.4 Significantly it has been admitted by Shankar Lal Saraf in his Application (CA 1380/1998) to the Delhi Company Court that the defendant was acting under the advice of RBI, which treated the transfer of Bonds as fraudulent. Additionally, the Learned Single Judge of the Calcutta High Court, in his judgment dated 13.03.2015 recorded a finding that initially both, RBI and the Official Liquidator, treated the transfer in Shankar Lal Saraf's favor, as fraudulent in the following words:- "...On a winding up petition having moved on 22nd May, 1997, the Company Court appointed a Professional Liquidator. The RBI issued a letter to the bank not to deal with the subject bonds as the liquidator has treated the same as fraudulent preference under S. 531 of the Act... Though it was held that the transactions are genuine and cannot be declared as fraudulent preference at the instance of the Official ....
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....y transferred to the 'Accrued Interest' head and was not used by the defendant for their business. Hence, the plaintiff's contention that the defendant's actions of withholding payment were mala fide, is not acceptable to us. 10.2 The plaintiff also argues that the Company Court judgment (17.12.2004) has attained finality and the defendant is barred by res judicata from raising the issue of fraudulent preference. The issue of fraudulent preference is no longer res integra and none sought to challenge the Company Court's judgment and re-agitate the issue. Hence, this contention will be of no advantage for the plaintiff. VII. BOND STATUS AND OBLIGATION: "HOLDER IN DUE COURSE": 11. S. 8 of the Negotiable Instruments Act defines a 'Holder' of promissory note as any person who in his own name is entitled to the possession of the note and to recovery of due amount, pursuant to the said note. For ready reference, the relevant S. 9 of the Negotiable Instruments Act, 1881 which defines a 'holder in due course' is extracted as under: "9. "Holder in due course"- "Holder in due course" means any person who for consideration became the possessor of a promissory note, ....
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....ng such payments. VIII. ENTITLEMENT FOR INTEREST ON DELAYED PAYMENT AND PENDENTE LITE INTEREST: 12. It flows from the above discussion, that the defendant was justified in withholding the accrued dues. The actions of SIDBI were bona fides, in furtherance of RBI directives, which were issued in public interest. In the case of Clariant International Ltd. Vs. SEBI (2004) 8 SCC 524., this court speaking through Justice S B Sinha held that two conditions need to be satisfied before awarding interest. First, that money should be wrongfully withheld from the rightful owners; Second, that there should be equitable considerations for awarding said interest. In the case at hand, neither of these conditions are found to be satisfied. 12.1 As per S. 34 of the Code of Civil Procedure (CPC), award of interest is a discretionary exercise, steeped in equitable considerations. Interest is payable for different purposes such as compensatory, penal, etc. but these are not the situations in the case before us. Here firstly, the defendant was justified in withholding payment, as they were under RBI's direction to do so; secondly, the defendant hasn't derived any undue benefit by their act and;....
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....oceedings, against CRB Capital. But, the successor Bond holder i.e. the plaintiff could have claimed interest on delayed payment from the writ court. SIBCO's submission is not acceptable that the cause of action arose only on 23.11.2005, when the defendant refused to heed to the demand of interest on delayed payment. The cause of action for the plaintiff accrued the first time, when the defendant allegedly failed to pay timely interest. Since such a claim was not raised in the writ court, the subsequent Suit of SIBCO in our view, is barred by the principle of Constructive Res Judicata. XI. CONCLUSION: 15. It is clear from the discussion above, that the RBI has wide supervisory powers over financial institutions like SIDBI, in furtherance of which, any direction issued by the RBI, deriving power from the RBI Act or the Banking Regulation Act is statutorily binding on the defendant. Admittedly, the RBI issued Notification dated 10.04.1997, deriving power from S. 45-MB(2) of the RBI Act. Thereby, the RBI froze the assets of CRB Capital on the grounds of public policy, for the purpose of protecting interests of creditors and depositors of CRB Capital. 15.1 The RBI did not cite....