Allowed

The Federal Bank Limited v. M/S Repl Engineering Ltd.

DRAT29 Jul 2022REGULAR APPEAL/53/2019

Case brief

AI extract

What is this about?

The Appellant Bank appealed an order dismissing its application for want of jurisdiction, arguing that unpaid share redemption and dividends constitute 'debt' under the RDDB&FI Act. The bench held that such liabilities arise during business activities, fitting the statutory definition of debt, and remanded the matter for fresh consideration.

What did the court decide?

Impugned order dated 25.10.2017 in O.A. No. 37/2016 set aside and matter remanded to D.R.T.-I, Mumbai for fresh consideration.

The Federal Bank Limited versus M/S Repl Engineering Ltd. — Banking and Recovery | DRAT (2022)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr. Justice Ashok Menon, Chairperson

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Appeal No. 53/2019

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Between

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The Federal Bank Ltd. … Appellant/s V/s. M/s. REPL Engineering Ltd …Respondent/s Mr O. A. Das along with Ms Pallavi Chari, Advocate for Appellant.

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-: Order dated: 29/07/2022:-

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Appellant, The Federal Bank Ltd. (hereinafter referred to as ‘the Bank’) is the Applicant/Plaintiff in the Original Application (O.A.) No. 37/2016 on the files of Debts Recovery Tribunal-I, Mumbai (D.R.T. for short), and impugns the order dated 25.10.2017 dismissing the O.A. for want of jurisdiction. The Respondent is M/s. REPL Engineering Ltd., a company situated in Mumbai. The Appellant Bank has its Funds & Investment Branch in Mumbai and as a part of their business activities, they subscribed to 18% Cumulative Redeemable Preference Shares on private placement of the Defendant Company pursuant to an offer dated 08.02.1996 which was accepted by the Bank. These shares have a face value of Rs.10 each and the Bank paid a total sum of Rs.5 Crores on or about 26.03.1996. A time of eighteen months was fixed for redemption of the said shares besides the payment of dividend @ 18%. The date of redemption was 26.09.1997. The Defendant Company paid an amount of Rs.1,47,945/- towards dividend for the period from 26.03.1996 to 13.03.1996 and also informed the Bank vide letter dated 31.03.1999 that the company has declared a dividend of 18% for the period 01.04.1996 to 31.03.1997

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and that a cheque for the same would be issued shortly. The cheque for Rs.90 Lac was delivered to the Bank as a dividend for the aforesaid period. However, there was a request that the cheque be presented only in the first week of May 1997. Before presenting the cheque the company informed the Bank that the dividends could be paid in installments, and requested the Plaintiff Bank to accept the same. This offer was declined by the Bank vide letter dated 28.07.1997 and the Bank demanded that the cheque be issued be honoured. There was no response from the Defendant Company and hence, Plaintiff Bank presented the cheque on 16.08.1997, which was dishonoured for reasons of insufficiency of funds. Proceeding under Section 138 of the Negotiable Instruments Act, 1881. In the meanwhile, the Bank returned the original Share Certificates of Rs.50 Lacs duly discharged on or about 22.09.1997 and the Defendant Company acknowledged the same. Despite the redemption of the shares, the Defendant Company failed/neglected to pay the value of the shares or dividend accruing thereon. As on 25.09.1997 a total sum of Rs.6,33,89,041/- was due and payable to the Plaintiff Bank by the Defendant Company. Despite the reminder, the company did not pay the amount. A notice was issued demanding payment of the amount due together with interest @ 20% which totals up to Rs.10,99,18,116/-. The Plaintiff Bank claims that after redemption on 26.09.1997, the principal amount and the interest accrued are to be considered as money due and has crystallized into a money claim and would, therefore, fall within the definition of ‘debt’ under section 2 (g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the RDDB&FI Act). It is also stated that the Defendant Company had filed a reference before the

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Board of Industrial Finance Rehabilitation in 1998 and by virtue of the operation of Section 22 of the Sick Industrial Companies (Special Provisions Act, 1985), and all proceedings against the company stood suspended. The Plaintiff Bank had originally filed a Summary Suit No.4550/2000 before Hon’ble High Court of Judicature at Bombay, which was subsequently transferred to D.R.T., Mumbai, considering the application of the RDDB&FI Act.

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The Defendants did not appear despite the service of Summons and remained ex-parte. After hearing the learned counsel appearing for the Bank and after perusal of the documents which were relied upon, the Ld. P.O. vide the impugned order dated 25.10.2017 found that the Bank has to look for relief elsewhere and that claim of the Bank does not come within the purview of the RDDB&FI Act. Since the amount claimed is not a ‘debt’ as defined under section 2 (g) of the said Act.

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The Ld. P.O. relied upon the order passed by the Hon’ble High Court of Judicature at Bombay in this matter wherein it was observed that thus:

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“As I am only at the stage of granting leave under Clause 12 of the Letters Patent, I am not deciding the question of maintainability of the suit. Prima facie, however, the suit will be maintainable as a summary suit, as what is claimed by way of decree is not a debt as defined under section 2(g) of the said Act. The transaction cannot be said to have arisen during the course of any business activity undertaken by the plaintiffs-Bank. Obviously, investment by the bank in shares is not its usual course of business activities. Prima facie, therefore, I am not of the view that what is being tried to be recovered from the defendants is debt as defined under section 2(g) of the said Act. At this stage, I am prima facie of the view that the suit would be maintainable as a summary suit.”

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On the basis of the aforesaid observations made by the Hon’ble Bombay High Court, the Ld. P.O. came to the conclusion that it is very clear that the amount claimed by the Bank is not a ‘debt’, and therefore, the O.A. was rejected for want of jurisdiction.

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Aggrieved by this rejection of the plaint, the Appellant Bank has come on appeal reiterating the averments in the plaint. The Appellant further states that it is after consideration of the facts in the case that the Hon’ble High Court had ultimately transferred the matter to the D.R.T. for consideration. The Appellant states that the claim had arisen out of the business activities of the Bank and, therefore, would clearly come within the definition of ‘debt’ under section 2 (g) of the said act and, therefore, the finding of the Ld. P.O. relying solely upon the observations made earlier in the Summary Suit is erroneous. Even the extracted portion of the observation made by the Hon’ble High Court indicates that it could be filed as a Summary Suit and, therefore, after taking it on file, the matter was transferred to D.R.T. for its consideration. Under the circumstances the observations made by the Hon’ble High Court are not final and binding on the D.R.T. Therefore, the Appellant submits that the impugned order may be set aside and the claim of the Appellant and the O.A. may be heard on merits. It is also prayed that in case the Tribunal comes to the conclusion that the D.R.T. has no jurisdiction, the Plaint may be returned for filing before the Hon’ble High Court.

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The Respondent Company which had remained ex-parte in the O.A. is also ex-parte in the Appeal. The Ld. Counsel appearing for the appellant Bank, Mr O.A. Das was heard. Records perused. Section 2(g) of the RDDB&FI Act has been amended a number of times and

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now as per the Recovery of Debts & Bankruptcy Act, 1993, it reads thus:

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“2(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 activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application and includes any liability towards debt securities which remains unpaid in full or part after notice of 90 days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or.”

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Mr O. A. Das has relied upon a decision of the Hon’ble Supreme Court in United Bank of India Vs. The Debts Recovery Tribunal AIR1999 (SC) 1381 in support of his argument that the claim of the Appellant would come squarely within the definition of section 2(g). The Hon’ble Supreme Court held thus:

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“In the case in hand, there cannot be any dispute that the expression ‘debt’ has to be given the widest amplitude 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 have to be looked into and then find out whether notwithstanding the specially created tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such 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

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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 Court was in error to hold that the dispute in question is not entertainable by the tribunal under section 17 of the Act.”

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The general meaning of the word ‘debt’ may be of persuasive value in interpreting the expression ‘debt’ in the RDDB&FI Act as well. At the same time, it is also a settled position that where an expression in any Act has been defined, the said expression will have the same meaning and it is not necessary to find out what is the general meaning of the expression. The amendment to the word ‘debt’ in Section 2 (g) points out the intention of the Legislature to make its scope wider. The Hon’ble Supreme Court noticed how the word ‘debt’ was interpreted in Webb V. Stenton 1883 (11) Q.B.D. 518, 527 , wherein it was held that the ‘debt’ is a sum of money that is not payable or will become payable in the future by reason of a present obligation, debitum in praesenti, solvendum in futuro . The word ‘liability’ used in the second proviso means an obligation in the instant case, the shares purchased by the Appellant were redeemable after a specific period of 18 months, and the dividend was also due. As and when the shares become redeemable, it is an obligation or a liability due from the Respondent Company to the Appellant Bank. The dues are an ascertainable sum of money that could be calculated and is not an unliquidated sum. The Bank had purchased the shares as part of its business activities and, therefore, the definition of Section 2 (g) which uses the expression ‘any liability’ or ‘any person’ and otherwise throughout the section shows the legislative intent to provide the word ‘debt’ with widest possible meaning. It would definitely include

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any liability which has arisen during the course of business activities of the Bank. Since there can be no quarrel that the liability in the instant case has arisen during the course of the business activities of the Bank, it falls squarely within the definition of ‘debt’ under 2(g) of the RDDB&FI Act which now stands amended with a much wider amplitude.. Under the circumstances, it has to be concluded that the Ld. P.O. had committed an error in finding that the amount claimed by the Bank does not fall within the definition of ‘debt’ u/s 2 (g) of the RDB Act, relying solely upon the observation of the Hon’ble High Court, which was by no means the ultimate finding of the Court. And therefore, the impugned order needs to be set aside, and I do so.

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Resultantly, the Appeal is allowed and the impugned order dated 25.10.2017 in O.A. No. 37 of 2016 on the files of D.R.T.-I, Mumbai, stands set aside. Since the claim will have to be adjudicated and decided by the D.R.T., the matter is remanded to the D.R.T.-I, Mumbai, for fresh consideration in accordance with the law.

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All Miscellaneous Applications, if any, are dismissed as infructuous.

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Sd/Chairperson

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dpj-1

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The Federal Bank Limited v. M/S Repl Engineering Ltd.

Case brief

What is this about?

What did the court decide?

The Federal Bank Limited v. M/S Repl Engineering Ltd.

Case brief

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