TaxTMI 
TaxTMI 
2014 (1) TMI 1969
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....ondent No.2 and/or respondent No.3 to re-transfer the shares in favour of Applicants with all rights attached thereto; (E) YOUR LORDSHIPS may be pleased to direct the respondent no.3 to give effect to the transfer of the shares that may be executed by Respondent No.2 and/or respondent No.3 in favour of Applicants as stated above; (F) YOUR LORDSHIPS may be pleased to award the cost of this application; (G) YOUR LORDSHIPS may be pleased to condone the delay of 1484 days if any in making this application; (H) YOUR LORDSHIPS may be pleased to grant such other and further reliefs as may be thought fit in the circumstances;" 2. Subsequently, as per the affidavit filed on behalf of applicant No.1, the applicants sought permission to omit word "review" wherever mentioned in the application and also to delete prayer for condonation of delay. 3. The above-said request was accepted by the Court vide order dated 21.2.2013 after recording no objection of the learned advocate appearing for respondent No.2 without prejudice to its right to raise contention as regards limitation. 4. Learned advocate Mr. A.L. Shah appearing with Mr. Pavan S. Godiawala and Ms. Sangeeta Pahwa for the appli....
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....e;" 6. The applicants have averred that though the applicants were directly concerned with the subject matter of the deed of assignment, more particularly 1344 equity shares, the applicants were not made parties to the above-said application. It is also pointed out that subsequently, the recovery officer closed the recovery proceedings by recording that the amount to be recovered was to be treated as NIL. The applicants have further averred that since no amount remained to be recovered on account of closure of the recovery proceedings, the applicants were entitled to return of the equity shares. However, instead of returning the equity shares, the above-said application was preferred by IDBI. It is further stated that since the applicants were not parties to the above-said application, they were not aware about the proceedings of the said application and disposal thereof. However, when they came to know about the proceedings and order for transfer of the shares in favour of respondent No.2 in February 2012, they asked for return of the shares. On the above and other averments, the applicants have prayed to recall the order dated 25.8.2008 made by this Court in the above-said appli....
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....nd interest in the shares in favour of respondent No.2. Mr. Shah submitted that as per Section 176 of the Contract Act, pawnee gets right to sell or assign rights in the pledged goods only after giving notice of recovery of the loan amount to the pawnor and his failure to comply with the notice. Mr. Shah submitted that when such is the requirement of law, the applicants were vitally concerned by the Company Application No.414 of 2007 and therefore, they were required to be joined as parties and required to be heard before passing order dated 25.8.2008 by this Court. 12. Learned advocate Mr. Shah submitted that the IDBI was otherwise not entitled to move Application No.414 of 2007 seeking ratification of the action of assignment and for transfer of the shares in favour of respondent No.2 as after executing deed of assignment dated 25.8.2007, it lost all its rights to take any action in respect of the debts, assets of the company or pledged shares. Mr. Shah submitted that when the IDBI lost such rights after the deed of assignment, it could not have filed above application. Mr. Shah submitted that respondent No.2 got the rights assigned in its favour in the pledged goods (equity sha....
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....ht adopted a clever and mischievous idea of deleting word review and the prayer for condonation of delay. Mr. Soparkar submitted that under the guise of prayer for recall, the applicants want review of the order which is not permissible as held by the Hon'ble Supreme Court in the case of Cine Exhibition (P.) Ltd. v. Collector, District Gwalior [2013] 2 SCC 698. Mr. Soparkar submitted that unless the Court first review its order, recall of order is not possible and therefore, even if recall of the order is prayed, the law of limitation would apply. Mr. Soparkar submitted that as per the Limitation Act, application for review is to be filed within three months. Mr. Soparkar submitted that even application for recall would fall within residuary Article 137 which provides for three years time limit. Mr. Soparkar submitted that since there is no application or explanation for delay in the present application, this Court may not entertain the application even though the same is now restricted only for the prayer of recall. Mr. Soparkar submitted that since deed of assignment is a registered document, the applicants could be said to have deemed knowledge of assignment and therefore, a....
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....Mr. Soparkar submitted that the applicants since have not come with clean hands, this Court may not exercise the discretionary jurisdiction in their favour . 19. Nobody has appeared for IDBI- respondent No.1. 20. Learned advocate Mr. R.N. Desai appearing for the Liquidator drew the attention of the Court to the Official Liquidator report at page 215 to point out that after the Court passed order in Company Application No.414 of 2007, neither the IDBI nor respondent No.2 approached the Liquidator for transfer of the shares in terms of the order dated 25.8.2008 and therefore, the Liquidator has not effected transfer of the shares in favour of respondent No.2. Though learned advocate Mr. Desai wanted to argue on merits of the Scheme, since the Court was of the view that Mr. Desai can canvass such arguments at appropriate time, if so required, learned advocate Mr. Desai has reserved his arguments to be canvassed later on. 21. Learned advocate Mr. A.L. Shah however in rejoinder submitted that even as per the judgment in the case of ICICI Bank Ltd. (supra), relied on by learned senior advocate Mr. Soparkar, the creditor can assign debt but not obligation. Mr. Shah submitted that while....
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....d, Ahmedabad and having been under the winding up pursuant to the order/s of the Hon'ble High Court of Gujarat being represented by the Official Liquidator attached to the High Court of Gujarat. (c) Financial Assets means the loan/financial facility originally availed of by the Borrower, from the Assignor under or pursuant to the Loan Agreement(s), deeds and/or documents executed therefore and underlying security which are more particularly listed out in 'Schedule-A' hereto (hereinafter referred to as "Loan Documents) , all the amounts due by the Borrower in respect thereof, including principal, interest, compound interest and all other monies whatsoever stipulated in, or payable by the Borrower in respect thereof, together with any security interest created to secure the repayment of the same. (d) Guarantors means the persons who have undertaken obligation to make payments to the Assignor IDBI in the event of default by the borrower to discharge its financial obligations pursuant to the Loan Documents. (e) Purchase Consideration means an amount of Rs. 15,00,000/- (Rupees fifteen lacs), being the aggregate purchase consideration for the assignment of the Financial....
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....fect, retain the goods pledged for any debt or promise other than the debt or promise for which they are pledged; but such contract, in the absence of anything to the contrary, shall be presumed in regard to subsequent advances made by the pawnee. 175. Pawnee's right as to extraordinary expenses incurred.- The pawnee is entitled to receive from the pawnor extraordinary expenses incurred by him for the preservation of the goods pledged. 176. Pawnee's right where pawnor makes default.- If pawnor makes default in payment of the debt, or performance; at the stipulated time or the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged, on giving the pawnor reasonable notice of the sale. If the proceeds of such sale are less than the amount due in respect of the debt or promise, the pawnor is still liable to pay the balance. If the proceeds of the sale are greater than the amount so due, the pawnee shall pay over the surplus to the pawnor." 28. As per the provisions of Sections 173 to 176 of the Indian Contract Act, ....
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....unt of a borrower(s) (customer) is a debt due and payable by the borrower(s) to the bank. Secondly, the bank is the owner of such debt. Such debt is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecatee. The bank can always transfer its asset. Such transfer in no manner affects any right or interest of the borrower(s) (customer).Further, there is no prohibition in the BR Act, 1949 in the bank transferring its assets inter se. Even in the matter of assigning debts, it cannot be said that the banks are trading in debts, as held by the High Court(s). The assignor bank has never purchased the debt(s). It has advanced loans against security as part of its banking business. The account of a client in the books of the bank becomes Non Performing Asset when the client fails to repay. In assigning the debts with underlying security, the bank is only transferring its asset and is not acquiring any rights of its client(s).The bank transfers its asset for a particular agreed price and is no longer entitled to recover anything from the borrower(s). The moment ICICI Bank Ltd. transfers the debt with underlying security, the borrower(s) ceases to be the borrower(s) ....
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.... debts." 50. Similarly, the following proposition in Chitty on Contracts, 27th edn. (1994) at para 19.027 is relevant to be noted. "It is also well established that a claim to a simple debt is assignable even if the debtor has refused to pay. The practice of assigning or 'selling' debts to debt collecting agencies and credit factors could hardly be carried on if the law were otherwise."' 32. The pledged goods are not debt but are security and creditor is under obligation to preserve such security till his dues are repaid by the borrower. As held by the Hon'ble Supreme Court, the debt is an asset in the hands of the bank as a secured creditor and the bank can always transfer its assets and such transfer in no way affects any rights or interest of the borrower. However, Hon'ble supreme Court has clearly distinguished between the rights to transfer debt and the assignment of obligation for promisor and held that assignment of the obligation for the promisor owed to the promisee is not possible without novation of the contract with the promisor. 33. As regards the right of pawnor and pawnee under the Contract Act, following decisions need to be referred:- (1....
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....e i.e. the Government of Uttar Pradesh could not be treated as the holder of the shares pledged in its favour. The Cotton Mills Company continued to be the member of the Polytex Company in respect of the said shares and could exercise its rights under section 169 of the Act.' (2) In the case of Standard Chartered Bank v. Custodian [2000] 25 SCL 221, the Hon'ble Supreme Court has held and observed in para 41, 44, 45 and 46 as under:- 41. Before we deal with the main contention it will be pertinent to note that in so far as the right shares were concerned, it was accepted by all the parties that as the appellant bank had paid for these right shares the same belong to it and they were entitled to keep them irrespective of the question whether they formed part of the pledge or not. The question of return of right shares does not, therefore, arise in these appeals. 44. On the other hand the Privy Council in Motilal Hirabhai v. Bai Mani, AIR 1925 PC 86 had to consider as to whether the pledgee was required to return to the pledgor, on redemption, bonus shares which had been issued. The plea taken by the pledgee in that case was that the pledgee was only required to return t....
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....ain the goods pledged as collateral security but also entitles the pawnee to sell the pledged goods after giving pawnor reasonable notice of the same. If the proceeds of the sale are less than the amount due, the pawnor continues liable to pay the balance. On the other hand if the proceeds realised on the sale being made are greater than the amount due the pawnee is under obligation to pay over the surplus to the pawnor.' (3) In the case of Bank of Rajasthan Ltd. v. Hajarimal Milap C. Surana [2005] 10 SCC 238, the Hon'ble supreme Court has held and observed in para 5 and 6 as under:- '5. A plain reading of this agreement shows that the respondents have admitted that a sum of Rs. 58.07 lakhs was due and payable to the appellant Bank on the date of the agreement. It shows that some precious stones have been handed over. It then recites that the appellant Bank has allowed a lump sum remission of Rs. 5 lakhs towards interest. It then recites (in clause 2) that the appellant Bank shall not charge any further interest. Clause 3 states that the precious stones have been delivered as "security towards the outstanding dues amounting to Rs. 53.07 lakhs". Thus, it is clear tha....
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....provisions of S. 176 of the Contract Act. Secondly, it was urged that the letter sent by the bank on 5- 8-1948 asking the respondent to pay up the money due to the appellant, and the reply of the defendant, dated 13-8- 1948 asking for time up to the 15th September, 1948 and requesting the postponement of the sale of securities clearly indicated that the respondent had notice of the intended sale of the securities pledged with the Bank. Consequently, so it was urged, the sale of the securities by the appellant Bank was legal and the suit for recovery of the balance was maintainable. 6. Section 176 of the Contract Act provides that if the pawner makes a default in payment of the debt in respect of which the goods were pledged, the pawnee may bring a suit against the pawner upon the debt, or he may sell the thing pledged on giving the pawner reasonable notice or the same. The contention that notice of the contemplated sale to the pawner should be inferred from his letter dated 13-8-1948, cannot hold water inasmuch as the said letter does not disclose that a reasonable notice had been given by the pawnee to the pawner to sell the securities.A notice of the character contemplated by S....
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....nable notice of the sale. In order that that provision should not be made nugatory, the proper interpretation to put on S.176 is to hold notwithstanding any contract to the contrary notice has to be given. At the time of entering into a contract of pledge the pawner cannot agree to waive notice as it would be inconsistent with the provisions of S.176. In Haridas Mundra v. National and Grindlays Bank Ltd., AIR 1966 Cal 132, it was held that the pawner is entitled to reasonable notice under S.176. In Prabhat Bank Ltd. v. Babu Ram AIR 1966 All 134. It was held that a notice of the character contemplated by S.176 cannot be implied. Such notice must be clear and specific in its language and must indicate the intention of the pawnee to dispose of the. security. On consideration of the above principles and the provision of S.176 of the Indian Contract Act, it is clear that the pawner is entitled to reasonable notice before sale of the pawned goods and the provisions are mandatory in character.' 36. Learned senior advocate Mr. Soparkar, however, submitted that the applicants had given special authority by power of attorney to deal with and dispose of the pledged shares and therefore, ....
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....24,26,27 and 28 as under:- '24. First the scope of Section 155 and Section 446 to be understood to be entirely in different fields. Section 155 deals with power of the Court to rectify Register of Members maintained by a Company. Section 441 deals with commencement of winding-up by the Court. Section 442 deals with the power of the Court to stay or restrain proceedings against the company, at any stage after the petition for winding-up is filed but before a winding-up order is made. A creditor or a company may apply to the Court having jurisdiction to wind-up the company to restrain all further proceedings in any suits or proceedings against the Company. Section 443 deals with powers of Court to hear such petition, Section 444 entrusts the Court after the winding-up order to communicate the same to the Official Liquidator. Section 445 directs that a copy of the winding-up order to be filed with the Registrar. Then comes Section 446. Sub-section (1) is after winding-up order has been passed or the Official Liquidator has been appointed, it puts an embargo on any suit to be instituted or if pending against the company on that date to be proceeded with except with the leave of t....
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....er of the Company. In T. P. Mukherjee's Law Lexicon, fifth revised edn.; "The expression rectification of the register used in Sec. 155 is significant and purposeful. 'Rectification' implies the correctness of an error or removal of defects or imperfections. It implies prior existence of error, mistake or defect.... the register kept by the Company has to be shown to be wrong or defective." Strouds Judicial Dictionary : "Rectify - Altering the register of a company so as to make it conformable with a lawful transfer." In Venkataramaiya's Law Lexicon, 2nd Edn. : "The act to be done under the powers of that Section is the 'rectification of the register, a term which itself implies that the register, either in what is, or what is not upon it, is wrong; but the register cannot be wrong unless there has been a failure on the part of the company to comply with the directions in the Act as to the kind of register to be kept; for if the Act has been complied with, the register must be right and not wrong." 27. In other words, in order to qualify for rectification, every procedure as prescribed under the Companies Act before recording the name in the register o....
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....ed to be joined and heard in the application preferred by IDBI. No order affecting the applicants could have been passed without hearing the applicants. Learned advocate Mr. Shah was right when he submitted that if the applicants were joined as parties, they could have pointed out that the IDBI having assigned its rights against borrower and in security, the application at its instance was not maintainable and the Court would have no jurisdiction to grant prayers made therein. 42. Learned senior advocate Mr. Soparkar however strenuously contended that the applicants are in fact seeking review of the order dated 25.8.2008 by pressing application only for recall of the said order. Mr. Soparkar while relying on the decision in the case of Cine Exhibition (P.) Ltd. (supra) submitted that such practice of seeking indirect review by filing application for clarification/ modification/ recall/ rehearing is deprecated by the Hon'ble Supreme Court on the ground that what cannot be done directly cannot be permitted to be done indirectly. In my view, the judgment in the case of Cine Exhibition (P.) Ltd. (supra) will have no application to the facts of the case. In the said case, the Regis....
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....contested only by the said respondent. If a decision rendered in a writ petition adversely affects the interest of a third person who was not impleaded as party in the writ petition, it is always open to him to ask for recall of the judgment which has been rendered without affording any opportunity of hearing to him. An identical question has been examined by a Constitution Bench in Shivdeo Singh v. State of Punjab, AIR 1963 SC 1909. Here in a writ petition filed by A for cancellation of the order of allotment passed by the Director of Rehabilitation in favour of B, the High Court cancelled the order in favour of B though he was not a party to the writ proceedings. Subsequently, B filed a petition under Article 226 of the Constitution for impleading him as a party to A's writ petition and rehearing the whole matter. The High Court allowed the writ petition. It was held by this Court that the second writ petition filed by B was maintainable and the High Court had not acted without jurisdiction in reviewing its previous order at the instance of B, who was not a party to the previous proceedings. It was further held that there is nothing in Article 226 of the Constitution to precl....
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.... of the Letter of Intent but since no response was coming from the Housing Department of Government of Maharashtra on 10.06.1995. In our view after the dismissal of the special leave petition No. 19848 of 2005, the order of the High Court dated 11.03.2005 attained finality and there was no proposal of M/s. Keya Developers before the SRA on 13.04.2006 and, therefore, there was no question of SRA considering the proposal made by the new developer. In our view, Sigtia was a necessary party to the writ petition and to the special leave petition No. 10281 of 2006 as it directly affected by any order appointing Keya as developer. The society has also entered into an agreement and also executed an irrevocable general Power of Attorney dated 19.03.2004 wherein expressed its satisfaction with the progress in the work made by the Sigtia and also by the undertaking dated 26.02.2004 where the society undertook to continue with Sigtia as developer till the completion of the SRA project. Though it is contended by Sigtia that the termination by the society on 29.04.2005 was illegal and without authority, the Sigtia has not so far challenged the order of termination by the society. This important ....
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....f the agreement of applicant Sigtia with the society and replacement of Sigtia a new developer is a subject-matter, Sigtia is a proper and necessary party to it. We see much force and substance in the said argument. In our view, the applicant Sigtia has also the right to have a hearing before the SRA along with Keya Developers, the new appointee.It must also be seen that the relief sought in the special leave petition No. 10281 of 2006 though only against SRA but in effect against the applicant Sigtia and, therefore, Sigtia is the necessary party to any proceedings wherein the replacement of the Sigtia with a new developer and the termination of the agreement with the Sigtia is in issue and, therefore, Sigtia should have been made a party respondent in the writ petition No. 1277 of 2004 as well as special leave petition No. 10281 of 2006. It is also not in dispute that Sigtia was impleaded as party respondent No. 7 in the special leave petition which came to be withdrawn by the petitioner therein on 26.09.2005 on which date Sigtia appeared through their advocate in this Court. As rightly submitted by the learned Solicitor General after the withdrawal of special leave petition No. 1....
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....in two weeks from 27.06.2006. The said direction is also not correct. This Court ought to have directed the SRA, if at all, to consider issuing of the Letter of Intent in favour of Keya Developers in view of the replacement of previous Developers M/s. Sigtia. 41. We, therefore, allow the application I.A. No. 3 of 2006 filed by the applicant Sigtia and recall our order dated 27.06.2006 passed in special leave petition No. 10281 of 2006 and pass the following order :- As directed by the order in writ petition No. 988 of 2004 dated 11.03.2005 and order dated 04.05.2006 in writ petition No. 1277 of 2006 the SRA is directed to call the two developers, namely, M/s. Keya and M/s. Sigtia and dispose of their application for issuing the Letter of Intent and to pass appropriate orders and in accordance with the Maharashtra Slum Areas Improvement, Clearance and Re-development Act, 1971 and also strictly following the procedure for submission, processing and approval of Slum Rehabilitation Scheme and to Award the Letter of Intent to the developer who satisfies the required qualifications and conditions and regulations and the provision of the Act, 1971." (3) In the case of Asit Kumar Kar....
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....ct facts or correct position of law by party in whose favour the order is passed. Present is not the case where the applicants are seeking review under the guise of seeking modification/ clarification or recalling of the order. The applicants have come with clear case that they are equity shareholders of the company under liquidation which were pledged by them with IDBI by way of security for the loan advanced by the IDBI to the company. In respect of such shares, if the IDBI wanted to get its action of assigning the rights, title and interest therein ratified with the help of the Court, the applicants were the first affected persons in whose absence no order affecting their rights could have been passed. 45. Learned senior advocate Mr. Soparkar, however, submitted that even if the application is treated only for recalling of the order dated 25.8.2008 passed by this Court, the law of limitation would apply to such application. Mr. Soparkar submitted that for such kind of application, limitation would be as per Article 137 of the Limitation Act which provides for three years time limit to prefer such application. Mr. Soparkar submitted that the present application is hopelessly tim....