Dismissed

Union Bank of India v. M/s.Paramount Airways Pvt. Ltd. & Ors.

DRAT27 Apr 2023REGULAR APPEAL/9/2017

Case brief

AI extract

What is this about?

This judgment dismisses appeals by Oriental Insurance Co. Ltd. and Union Bank of India against an order of the Debt Recovery Tribunal. The court upheld the Tribunal's finding that the insurer was liable for a special trade credit policy but rejected the claim against individual directors lacking personal security.

What did the court decide?

All appeals were dismissed with no order as to costs; pending interlocutory applications stand closed.

Union Bank of India versus M/s.Paramount Airways Pvt. Ltd. & Ors. — Insurance | DRAT (2023)

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RA 131/2014, MA 134/2014 & RA 9/2017

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IN THE DEBTS RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 27^th of April, 2023

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PRESENT: Hon’ble Mr. Justice S. Ravi Kumar CHAIRPERSON

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RA 131/2014

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[OA 150/2011 on the file of DRT-II, Chennai]

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MA 134/2014

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[IA 231/2012 in OA 150/2011 on the file of DRT-II, Chennai]

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and

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RA 9/2017

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[OA 150/2011 on the file of DRT-II, Chennai]

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RA 131/2014 & MA 134/2014

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Between

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The Oriental Insurance Co. Ltd.

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Head Office:

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Oriental House, P.B. No. 7037, A 25/27, Asaf Ali Road, New Delhi – 110 001.

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Division:

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Division No.10, Oriental House, 3^rd Floor, No. 7, J. Tata Road, Churchgate, Mumbai – 400 020.

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Represented by its Authorised Signatory, J. Gopalan.

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……Appellant

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RA 131/2014, MA 134/2014 & RA 9/2017

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AND

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Union Bank of India, Chennai Main Branch, 139 Broadway, P.B. No. 1931, Chennai – 600 108. In place of Andhra Bank, Chennai Main Branch, Wavoo Mansion, No.48/39, Rajaji Salai, Chennai – 600 001.

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M/s. Paramount Airways Private Ltd., Alexander Square, C Wing, II Floor, No. 35, Sardar Patel Road, Guindy, Chennai – 600 032.

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M. Thiagarajan, Managing Director, Paramount Airways Private Ltd., Alexander Square, C Wing, II Floor, No. 35, Sardar Patel Road, Guindy, Chennai – 600 032.

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Ms. Lakshmi Murugesan, Director, Paramount Airways Private Ltd., Alexander Square, C Wing, II Floor, No. 35, Sardar Patel Road, Guindy, Chennai – 600 032.

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Official Liquidator, High Court of Madras, Chennai .

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Respondents

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[Respondents 3 and 4 are given up]

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RA 131/2014, MA 134/2014 & RA 9/2017

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RA 9/2017

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Between

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Union Bank of India, SAM Branch, No. 38 & 39, Whites Road, Chennai – 600 014.

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Appellant

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And

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M/s. Paramount Airways Pvt. Ltd. Alexander Square, C-Wing, II Floor, No.35, Sardar Patel Road, Gundy. Chennai – 600 032.

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M. Thiagarajan,

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Managing Director , M/s. Paramount Airways Pvt. Ltd. , Alexander Square, C-Wing, II Floor, No. 35, Sardar Patel Road, Guindy. Chennai – 600 032.

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Residence:

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A-21, Lankaram Street, Thirunagar, Madurai – 625 006.

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RA 131/2014, MA 134/2014 & RA 9/2017

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Ms. Lakshmi Murugesan, W/o T. Murugesan, Director, M/s. Paramount Airways Pvt. Ltd. , Alexander Square, C-Wing, II Floor, No. 35, Sardar Patel Road, Guindy. Chennai – 600 032.

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Residence:

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A-21, Lankaram Street, Thirunagar, Madurai – 625 006.

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The Oriental Insurance Co. Ltd. , Oriental House, P.B. No. 7037, A25/27, Asaf Ali Road, New Delhi – 110 002.

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Division:

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Division No.10, Oriental House, 3^rd Floor, No. 7, J. Tata Road, Churchgate Mumbai – 400 020.

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Official Liquidator, High Court of Madras,

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Respondents Counsel for Insurance Company : M/s. M.V. Swaroop Counsel for Bank : Mr. Anand Samy & Dhruva Counsel for R2 & R3 in RA 9/2017 : M/s. Waraon & Rams

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RA 131/2014, MA 134/2014 & RA 9/2017

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COMMON ORDER

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1. These Appeals arises out of a Common Order dated 08.08.2014 of DRT-II, Chennai, in OA 150/2011. Parties

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are hereinafter referred to as arrayed in RA 131/2014 for better understanding.

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2. Brief facts leading to these Appeals are as follows:-

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Bank (1^st Respondent herein) filed OA-150/2011 for recovery of Rs.52,77,42,564/- from Defendants 1 to 3 (Respondents 2 to 4 herein) and Rs.51,37,10,475/- from 4^th Defendant (Appellant herein), contending that 2^nd Respondent Company represented by Respondents 3 and 4 herein, availed loan facilities from 1^st Respondent Bank, for which Appellant herein issued Trade Credit Single Debtor Insurance Policy with a limit of Rs.29 Crores with insured percentage of 95% of credit limit. As Respondents 2 to 4

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and Appellant herein, failed to repay outstanding, 1^st

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RA 131/2014, MA 134/2014 & RA 9/2017

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Respondent Bank prayed for issuance of Recovery

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Certificate.

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Said claim is resisted by Defendants 1 and 4 (i.e., 2^nd Respondent Company and Appellant herein) by filing Written Statement. According to 2^nd Respondent Company, Appellant is liable to pay 95% of outstanding, and 2^nd Respondent Company is only liable for 5%; whereas, Appellant contended that relationship between Bank and Appellant is that of an insured and insurer, and OA filed against Appellant is not maintainable, and DRT has no jurisdiction.

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On a consideration of contentions and rival contentions

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of both parties, Tribunal below allowed claim against 2^nd Respondent Company herein and granted Recovery Certificate for Rs.52,77,42,564/- and for legally enforceable insurance claim amount from Appellant herein; but dismissed claim against Respondents 3 and 4 herein.

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RA 131/2014, MA 134/2014 & RA 9/2017

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In said OA, Appellant herein filed an Interlocutory Application IA 231/2012 contending that it is not a necessary or proper party to proceedings, and no liability can be fastened on it. It also contended, DRT has no jurisdiction since the claim against it, does not fall under the category of ‘debt’ and to discharge 4^th Defendant (Appellant herein) from OA.

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First Respondent Bank herein resisted said Application contending that Application as filed is not maintainable, and Policy issued is a Special Policy undertaking to indemnify business losses of 1^st Defendant (2^nd Respondent Company).

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Said IA is disposed of along with OA rejecting request of Appellant (4^th Defendant). Aggrieved by Orders in OA, RA 131/2014 is preferred and against Orders in IA 231/2012, MA 134/2014 is filed. Aggrieved by rejection of claim against Defendants 2 and 3, Bank preferred Appeal in RA 9/2017.

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RA 131/2014, MA 134/2014 & RA 9/2017

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3. During pedency of Appeal, Andhra Bank is merged with

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Union Bank of India and on Applications by Appellant herein, Union Bank of India is permitted to come on record in place of Andhra Bank in both Appeals RA 131/2014 and MA 134/2014, and necessary amendments are carried out,

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and Appellant has given up Appeal against Respondents 3 and 4 herein. In RA 9/2017, similar Application is filed to permit Union Bank of India to come on record in place of Andhra Bank and that Application is also allowed.

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4. Appellant and 1^st Respondent Bank filed Written Arguments and also submitted oral arguments reiterating the contentions of their respective parties.

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5. Advocate for Appellant submitted that Appellant gave various credit insurance policies, by which it undertook to insure the risk of credit of 2^nd Respondent Company herein,

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and claim of Bank which was rejected by Insurance Company, cannot be adjudicated before Tribunal as there is

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RA 131/2014, MA 134/2014 & RA 9/2017

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no legally enforceable debt. It is further submitted that

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without ascertaining amount payable, Tribunal below cannot grant Decree against Appellant herein. It is submitted that relationship between Appellant and 1^st Respondent herein, is that of insured and insurer, and DRT has no jurisdiction, since Policy claim do not fall within the meaning of ‘debt’ defined under Recovery of Debts and Bankruptcy Act, 1993 (hereinafter called RDB, Act). It is further submitted that in view of recent Act of 2015, adjudicating an Insurance Claim by Tribunal is barred, as

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that remedy is provided under Commercial Courts Act, 2015. It is submitted, Tribunal below erred in completely ignoring plea of Appellant that 1^st Respondent Bank had provided various credit facilities despite defaults of 2^nd Respondent Company herein, and in breach of Agreement between them, which was also a violation of terms of insurance Policies that exonerates Appellant. It is submitted, Order of Tribunal below is patently without jurisdiction and is liable to be set aside against Appellant.

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RA 131/2014, MA 134/2014 & RA 9/2017

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6. On the other hand, Advocate for 1^st Respondent Bank submitted that DRT is vested with jurisdiction connected with debt related matters, and as Policy is Trade Credit Single Debtor Insurance Policy, agreeing to indemnify losses of 2^nd Respondent Company herein, claim squarely falls within the jurisdiction of DRT. It is further submitted that in cases of General Insurance claim, DRT may not have jurisdiction, but this being a Special Insurance Policy, particularly, undertaking to indemnify liability of 2^nd Respondent Company herein, upto 95%, Tribunal below is right in allowing legally enforceable claim against Appellant herein. It is submitted that terms and conditions of Special Policy is very clear, and it puts Insurance Company under liability to indemnify the loan amount granted to 2^nd Respondent Company herein. It is submitted that Order of Tribunal below is a well reasoned Order, and Appeals of Insurance Company are liable to be dismissed.

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RA 131/2014, MA 134/2014 & RA 9/2017

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7. Advocate for 1^st Respondent Bank further submitted

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that Respondents 3 and 4 are Promoters of 2^nd Respondent Company, 3^rd Respondent is Managing Director and 4^th Respondent is Director and mother of 3^rd Respondent. It is submitted that 2^nd Respondent Company, which is run by two Directors i.e., Respondents 3 and 4 herein, have major shares of 2^nd Respondent Company. It is submitted that there is a breach of fiduciary duty by Respondents 3 and 4 herein, and there was deliberate negligence on their part, which resulted in wounding up of 2^nd Respondent Company. It is submitted, Tribunal below failed to appreciate that due to mistakes of Respondents 3 and 4, 2^nd Respondent Company went into losses. It is submitted, Tribunal below, instead of protecting interest of Bank, dismissed claim against Respondents 3 and 4, therefore, Order of Tribunal below is liable to be set aside, and Appeal of Bank is to be allowed.

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RA 131/2014, MA 134/2014 & RA 9/2017

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8. I have perused material papers and impugned common Order dated 08.08.2014.

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9. Main grievance of Appellant is that the relationship

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between Appellant and 2^nd Respondent herein, are that of insured and insurer, and DRT has no jurisdiction, since Policy claim do not fall within the meaning of ‘debt’ defined under RDB Act, 1993. Same contention is raised before Tribunal below, but Tribunal below rejected the objection of Insurance Company. As seen from terms and conditions of Insurance Policy, Appellant herein, undertook to indemnify liability of 2^nd Respondent Company herein, to the extent of 95% of credit limit. A bare reading of Policy document, it is very clear that, it is not a General Policy and it is a Special Policy. In other words, undertaking given by Appellant herein, is nothing but securing the debt availed by 2^nd Respondent Company herein, to an extent of 95%. So, as rightly pointed out by Advocate for 1^st Respondent Bank herein, Tribunal below rightly fastened liability on Appellant

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RA 131/2014, MA 134/2014 & RA 9/2017

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herein also, as per Policy limit, and there is nothing wrong in

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the Order of Tribunal below.

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10. Other contention of Advocate for Appellant is that relationship between Bank and Insurance Company is not that of lender and borrower, therefore, DRT has no jurisdiction. Prayer made in IA is to reject OA against Insurance Company i.e. 4^th Defendant in OA, and second prayer is to delete the name of Insurance Company i.e. 4^th Defendant in OA from array of party, and to pass such other Order that may deemed fit and proper. As seen from Order, Learned Presiding Officer elaborately dealt with the issue and gave a finding that 1^st Respondent Bank is entitled to recover legally enforceable insurance claim from 4^th Defendant (Appellant herein) towards the dues of 2^nd Respondent Company herein, I do not find any wrong in the Order of Tribunal below.

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RA 131/2014, MA 134/2014 & RA 9/2017

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11. Advocate for Appellant relied on the judgement of this Tribunal in RA 21/2001 to support his arguments that DRT has no jurisdiction to adjudicate the Insurance claim, but that decision do not have binding nature. Even otherwise, in that case, claim made against Insurance Company by Bank is disallowed, as claim was for non-delivery of goods insured, here, it is not a case of loss of goods, whereas Appellant undertook to indemnify the debt contracted by 2^nd Respondent Company herein. He also relied on the judgement of this Tribunal in RA 17/2001, and this decision also, does not have binding nature. Even otherwise, this decision is in respect of Policy covering stock and building, therefore, this decision is also not in Appellant’s favour. Appellant also placed reliance on judgement of Hon’ble High Court of Madras in WP 7812/2019 dated 07.06.2019 and batch of cases decided on 11.04.2019. These two decisions are in respect of statutory deposit and issue before me is not on the point of making deposit under Section 21 of RDB Act,

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1993, but point for consideration is on final Order of DRT

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RA 131/2014, MA 134/2014 & RA 9/2017

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making Insurance Company liable along with borrower, Respondent No.2 herein.

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12. Main grievance of 1^st Respondent Bank is that Respondents 3 and 4, who are Managing Director and Director of 2^nd Respondent Company, are discharged from their liability, and Tribunal below committed error in dismissing claim against Respondents 3 and 4 herein. It is not in dispute that 2^nd Respondent Company went into liquidation, and Hon’ble High Court of Madras appointed Official Liquidator, who is impleaded as Respondent No.5 herein. As seen from record, Respondents 3 and 4 are impleaded in their capacity as Managing Director and Director of 2^nd Respondent Company, they have not given any personal security to Appellant Bank for the loan availed by 2^nd Respondent Company herein. When Respondents 3 and 4 have not given any security in their personal capacity, and when 2^nd Respondent Company went into liquidation and Official Liquidator is appointed, Tribunal below is

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RA 131/2014, MA 134/2014 & RA 9/2017

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perfectly right in dismissing claim against Respondents 3 and 4 herein. Tribunal below gave cogent and convincing reasons for not granting Recovery Certificate against Respondents 3 and 4 herein, and I do not find any wrong in the findings of Tribunal below, in disallowing claim against Respondents 3 and 4.

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13. On a scrutiny of entire material, I am of the considered view that Tribunal below is perfectly justified in fastening liability on Respondent No.2 Company and Appellant Insurance Company herein, and in dismissing claim against Respondents 3 and 4, therefore, there are absolutely no grounds to interfere with the Order of Tribunal below. For these reasons, all the Appeals are liable to be dismissed.

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RA 131/2014, MA 134/2014 & RA 9/2017

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14. In the result; Appeals R A 131/2014, MA 134/2014 and

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RA 9/2017 are dismissed with no order as to costs. All

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pending IAs, if any, stand closed.

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[Dictated to Athistamani, PS transcribed by her, corrected, signed and pronounced by me in open court, this 27^th of April, 2023]

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[ Justice S. Ravi Kumar] CHAIRPERSON

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Union Bank of India v. M/s.Paramount Airways Pvt. Ltd. & Ors.

Case brief

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Union Bank of India v. M/s.Paramount Airways Pvt. Ltd. & Ors.

Case brief

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