Dismissed

Govindraj Rao H v. Karnataka Bank Limited

DRAT19 Mar 2025REGULAR APPEAL/37/2021

Case brief

AI extract

What is this about?

This appeal challenged a Recovery Certificate issued under an arbitral award converted into a decree. The court addressed pecuniary jurisdiction under the RDDBFI Act, the validity of the decree despite the arbitration delay, and the appellant's estoppel for remaining inactive in prior proceedings, ultimately dismissing the appeal.

What did the court decide?

Order of the Learned Presiding Officer in OA 209/2003 is confirmed; appeal dismissed with costs to the Bank.

Govindraj Rao H versus Karnataka Bank Limited — Arbitration | DRAT (2025)

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IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

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Dated the 19^th day of March, 2025

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PRESENT: HON’BLE MR. JUSTICE G. CHANDRASEKHARAN

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CHAIRPERSON

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RA 37/2021

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(a rising out of OA 209/2003 on the file of DRT, Bangalore)

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Between

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H. Govindraj Rao, Director, Navagiri Finance & Investments Pvt. Ltd. No.62, Amarajyothi Housing Colony, Sanjaya nagar, Bangalore 560 094.

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Presently at:

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R/o No.4203, Anriya Dwellington Flats, L.G. Halli, 1^st Cross, Dollars Colony, RMV 2^nd Stage, Bengaluru 560 094.

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…..Appellant

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And

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1. Karnataka Bank Ltd. Branch at Iddya, Surathkal, Mangalore Taluk.

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2. M/s Navagiri Finance & Investments Pvt. Ltd. Having Reg. Office at “Gautami”, No.62, Amarajyothi Housing colony, Sanjaya Nagar, Bangalore 560 094.

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3. Sri A. Pradeep, Major, Director, Navagiri Finance & Investments Pvt. Ltd. Reg. Office at “Gautami”, No.62, Amarajyothi Housing colony, Sanjaya Nagar, Bangalore 560 094.

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4. Sri S.V. Sachidananda, Major, Director, Navagiri Finance & Investments Pvt. Ltd. Reg. Office at “Gautami”, No.62, Amarajyothi Housing colony, Sanjaya Nagar, Bangalore 560 094.

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5. Prof. A. Prabhu, S/o P. Shastry, Department of Aerospace Engineering, Indian Institute of Science, Bangalore.

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6. Sri H. Ramachandra Rao, Since deceased – by LRs (i) Smt. Shantha Rao, W/o Late H. Ramachandra Rao, Kulai, Hosabettu, Mangalore Taluk.

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(ii) Sir Govind Raj Rao (iii) Smt. Yashoda R. Bairy W/o G.R. Bairy, R/A, “Madhura” MIG House, HUDCO Colony, Manipal, Udupi Taluk.

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(iv) Smt. Padmini R. Rao, W/o Sri A. Ramesh Rao, B.D. Madhava Baliiga Compound, Bejai New Road, Mangalore 575 004.

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…..Respondents

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Counsel for Appellant : Shri V. Mohan Counsel for first respondent bank : M/s Ramalingam & Associates

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R2 to R6 (i) to (iv) are given up.

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ORDER

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This appeal is filed under Section 20 of RDDB & FI Act 2003, challenging the order dated 15.11.2007 passed in OA No.209/2003 by the Learned Presiding Officer, DRT, Bangalore.

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First respondent bank in this appeal filed OA 209/2003 seeking relief of issuing Recovery Certificate against the judgment debtors 1 to 6 jointly and severally for recovery of a sum of Rs.12,45,110/-. After considering materials on record and hearing the submissions of Learned Counsel appearing before him, Learned Presiding Officer, DRT, Bangalore allowed the application directing defendants 1 to 3 therein to pay a sum of Rs.12,45,110/- with interest at 23.50% p.a. on Rs.3,99,317.50p from the date of filing the application till the date of realisation and bank was given liberty to recover this amount from D1 to D3 and from their properties. OA was dismissed against D4, D5 and D6(i) to D6(iv). Aggrieved against the dismissal order of OA against D4, D5 and D6(i) to D6(iv), bank filed RA 134/2008 before this Tribunal. This Tribunal on reconsideration of the issue, set aside the order of Learned Presiding Officer, DRT, Bangalore insofar as dismissal of OA as against D4, D5 and D6(i) to D6(iv) and held that all the defendants in the OA are jointly and severally liable to pay the claim in the OA. Challenging the order passed in OA No.209/2003 on 15.11.2007, the second defendant before Tribunal below namely Shri H. Govindaraj Rao filed this appeal. Apart from making oral submissions, Learned Counsel for appellant filed written submissions.

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It is the submission of Learned Counsel for appellant that loan account OD No.7/90-91 was not in existence on 20.3.1991 because as per the bank’s statement, loan account was renewed and new account No. 7/90-

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91 was assigned on 21.3.2021. Thus, there cannot be any loan document on 21.3.1991 or arbitration agreement. It is submitted that arbitration agreement was not counter signed by the bank. There were two loans, one from Iddya branch for Rs.2.00 lakhs and the other for Rs.1.00 lakhs from K.G. Road Branch. The Arbitration referral letter dated 2.3.1994 informs about the commencement of arbitration proceedings for Iddya Branch Account. Without referral and without jurisdiction, Arbitral proceedings was conducted for K.G. Road Branch.

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It is further submitted that on the basis of Arbitral reference on 2.3.1994, Arbitral Award was passed on 16.11.1998 after a period of four and half years, which is beyond the stipulated period of six months and without the consent of the Civil Court. Therefore, Arbitral Award is non-est in the eye of law and invalid.

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It is further submitted that Recovery Certificate should not have been granted on the basis of an invalid Arbitral Award dated 16.11.1998, which was converted as a decree in AC No.1/99 by the Civil Court. On the basis of the impugned order, execution proceedings commenced in the year 2017. It is submitted that Civil Court instead of transferring Arbitration Case AC No.1/1999 to the DRT, adjudicated the same. DRT issued recovery certificate based on the Civil Decree dated 25.1.2022. This is in violation of Section 31(A) of RDDB & FI Act, 2000. On the basis of illegal Arbitral Award and decree passed by the Civil Court in Arbitration Case No.1/1999, the property was sold in the auction sale. It was challenged under AOR 7/2017 and Writ Petition No.40099/2017. Appellant was granted permission to approach the Tribunal. On the basis of decree passed by the Civil Court, the bank should have filed Execution Petition before the Civil Court instead of approaching the DRT for a recovery certificate. After coming into force Section 31(A) of RDB Act on

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17.1.2000, Civil Court ceases to have jurisdiction to pass any order or decree for a claim over and above Rs.10.00 lakhs and it should be tried only by DRTs. Therefore, Civil Court should have transferred the Arbitration Case No1/1999 to the Tribunal. Without doing it, it proceeded to pass an order, which is illegal.

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It is submitted that appellant made a pre-deposit of Rs.15,00,000/- at the time of entertaining this appeal. He also made a deposit of Rs.14,58,000/- before DRT, Bangalore on 13.7.2017 as per the orders passed by the Tribunal. Thus, in all, a sum of Rs.29,58,000/- was paid by the appellant. None of these facts canvassed by the appellant were considered by the Tribunal and Tribunal wrongly issued Recovery Certificate, therefore, this appeal is preferred.

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7. Learned Counsel for appellant relied on the judgment in re Chief Engineer, Hydel Project and others Vs. Ravinder Nath and others reported in 2008 2 SCC 350 for the proposition that “ a decree passed by the Court without jurisdiction is coram non judice”.

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“that neither consent nor waiver nor acquiescence can confer jurisdiction upon a court, otherwise incompetent to try the suit. Where aCourt takes upon itself to exercise a jurisdiction it does not possession, its decision amounts to nothing. A decree passed by a court having no jurisdiction is non est and its non validity can be set up whenever it is sought to be enforced as a foundation for a right, even at the stage of execution or in collateral proceedings. A decree passed by the court without jurisdiction is coram non judice”.

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Relying on the above judgment, Learned Counsel for appellant submitted that decree passed by City Civil Court on the basis of Arbitral Award, when the amount exceeded Rs.10.00 lakhs, is a decree passed without jurisdiction and non-est in the eyes of law.

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Learned Counsel for the appellant also relied on the order passed by Civil Writ Jurisdiction Case No. 414/2020 in re Maha Laxmi General Store Vs. The Union of India and others reported in 2019 (196) AIC 361 for the proposition that original application filed after commencement of Amendment Act, Section 31A of RDDB Act is not maintainable. Order passed if any is without jurisdiction and is liable to be quashed.

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For the same proposition, Learned Counsel relied on the order passed in Lakshmi Travels Vs. Indian Bank reported in 2014-3-LW322.

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In reply, Learned Counsel for respondent bank and Learned Counsel for auction purchaser submitted that appellant had not challenged the Arbitral Award and the decree passed by the Prl. Civil Judge (Sr. Dn.), Mangalore in Arbitration Case No.1/99 for converting the Arbitral Award into a Decree. When Arbitral Award and the Decree passed by the Civil Court have not been challenged, the appellant cannot challenge the same now. Even in OA No.209/2003, appellant remained ex parte . He did not contest the OA claim. Therefore, it is not open to him to agitate these grounds now. Despite having sufficient time, neither the appellant nor other borrowers had taken any steps to discharge the loan of the bank. Therefore, property was sold in auction.

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I have considered the rival submissions and perused the record.

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It is seen from the records produced that respondent bank sent a referral letter to the Arbitrator viz advocate Shri M.V. Shanker Bhat regarding the dispute between Idaya – Surathkal Branch of the bank and the defendant M/s Navagiri Finance & Investments (P) Ltd. and six others. Arbitration was conducted and Arbitral Award was passed on 16.11.1998.

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A reading of Arbitral Award shows that arbitration was conducted in pursuance of Arbitration Agreement dated 20.3.1991 entered into between the bank and the defendants. The Arbitrator sent copies of claim statement to all the defendants with a request to submit their written answers to the claim. Despite receipt of the letter from the Arbitrator, only opponents 1 and 2 submitted their written objections. Thereafter the matter was posted before him for enquiry. Opponents 1 and 2 informed the Arbitrator that in view of OS No.30/95 filed before Principal Munsif of Mangalore arbitration cannot be proceeded. Arbitrator was summoned by Principal Munsif of Mangalore in this connection for production of original Arbitration Agreement to the Court. It appears opponents 1 and 2 sought time repeatedly for participating in the enquiry. Despite giving several opportunities, opponents 1 and 2 were reluctant to participate in the enquiry. They have not made any substantial points to be considered in their favour. In the said circumstances, Arbitral Award was passed for a sum of Rs.3,99,370.50p with interest at 23% p.a. on 19.5.1994.

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Subsequently, bank filed Arbitration Case AC No.1/99 before the Prl. Civil Judge (Sr. Dn.), Mangalore seeking decree in pursuance of Arbitral Award. Accordingly, Learned Judge passed an order and decree on 251.2002. Thereafter, the bank filed OA No.209/2003 seeking a recovery certificate and recovery certificate was issued as narrated above, first against D1 to D3 and then against all the defendants as per the order passed by this Tribunal in RA No.134/2008. It is relevant to note that though this appellant is a party to the arbitration proceedings and in Arbitration Case AC No.1/1999, he has not chosen to contest these proceedings. As rightly pointed out by Learned Counsel for respondents, this appellant remained

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ex parte in OA 209/2003. Therefore, it is not known how the appellant can challenge the Arbitral Award passed by Arbitrator, decree passed by the Prl. Civil Judge (Sr. Dn.), Mangalore and the order passed by the Tribunal below.

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Learned Counsel for respondent relied on the judgment in Punjab National Bank Vs. Chajju Ram & others reported in (2006) SCC 655 for the proposition that when the decree was passed by the court before the commencement of the Amendment Act and the same has not been executed, it is the Tribunal which would have jurisdiction for entertaining the application for execution.

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It is true that Rule (3) of Schedule 1 of Arbitration Act, 1940 provides that the Arbitrators appointed under the said Act shall make their award within four months after “entering on the reference” or after having been called upon to act by a notice in writing from any party to the arbitration agreement or within such extended time as court may allow. It is seen from the Arbitral Award that opponent in the Arbitration proceedings had not been cooperative at all in the conduct of arbitral proceedings before the Arbitrator. That was the main reason for the delay in submission of the Award. If the appellant wants to set aside the arbitration award on the ground of delay, appellant ought to have challenged the award before competent forum. That has not been done in this case.

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As per Section 37 of Arbitration Act, 1940, Limitation Act 1908 (9 of 1908) is made applicable to Arbitrations. Article 119(b) of the First Schedule to the Limitation Act, 1963, prescribes a 30-day limitation period for filing objections to an arbitral award, starting from the date of service of notice of the filing of the award. As said earlier, no such application was filed

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challenging the Arbitral Award on the ground of delay in passing Arbitration Award or on any other ground. Therefore, it is now not open to the appellant to challenge the Arbitration Award after a long delay.

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The pivotal submission made by the Learned Counsel for appellant is that Arbitration Award was passed on 16.11.1998 for a sum of Rs.3,39,317.50p with interest at 23% p.a. As required under Arbitration Act, Arbitrator filed Arbitration Case AC No.1/1999 before Prl. Civil Judge (Sr.Dn.) Mangalore to pass a decree on the basis of Arbitral Award. The decree was passed on 25.1.2002. On 25.1.2002, Arbitral Award for a sum of Rs.3,39,317.50 with interest at 23% p.a. from 19.3.1984 would have exceeded more than Rs.10.00 lakhs. On 17.1.2000, there was an amendment whereby Section 31A was introduced. It reads as follows:

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31A. (1) Where a decree or order was passed by any court before the commencement of the Recovery of Debts Due to Banks and Financial Institutions (Amendment) Act, 2000 (1 of 2000) and has not yet been executed, then, the decree-holder may apply to the Tribunal to pass an order for recovery of the amount.

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(2) On receipt of an application under sub-section (1), the Tribunal may issue a certificate for recovery to a Recovery Officer.

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(3) On receipt of a certificate under sub-section (2), the Recovery Officer shall proceed to recover the amount as if it was a certificate in respect of a debt recoverable under this Act.

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It is the submission of the Learned Counsel for the appellant that as per Section 31A, only when a decree or order was passed by a Court before commencement of the Amendment Act, 2000 and not executed, then, decree holder shall apply to the Tribunal to order for recovery of the amount. Pecuniary jurisdiction of DRT was Rs.10.00 lakhs at that point of time. In the said situation, Learned Prl. Civil Judge (Sr.Dn.) Mangalore ought not to have proceeded to pass a decree. He should have

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transferred the Arbitration Case AC No.1/1999 to the concerned DRT for it to pass appropriate order. Therefore, it is submitted that a decree passed by the City Civil Court is not correct and recovery certificate issued on the basis of this decree in OA 209/2003 is also not correct and legal.

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As per the submissions of Learned Counsel for appellant, Arbitration award with interest has to be taken into consideration for ascertaining the pecuniary jurisdiction in the matter for transferring of pending proceeding from the Civil Court to the Tribunal. A similar issue arose before the Hon’ble High Court of Mumbai in re Rabo Bank Vs.State Bank of India on the transfer of case from High Court to City Civil Court on the point of change in pecuniary jurisdiction as to whether the amount claimed in the suit is the basis for transfer or the amount claimed with interest is to be reckoned for deciding the point of pecuniary jurisdiction, for transfer. This was answered in paragraph 30.4, as follows”.

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“In the facts of the case as noted above, that computation of interest has not been made either in the pleadings or in the prayers or in the particulars of claim (annexed at Exhibit-N to the Plaint). Failing such computation of interest @ 9.75% or any other rate as claimed in the Plaint, up to the date of filing of the Suit, at the time of filing the suit, it is the Bombay City Civil Court that would have jurisdiction to receive, try and entertain the said Suit valued at Rs.9,00,33,175.95/-, as on the date of filing of the said Suit and such value cannot be taken to above Rs.10 crores merely on the basis of a praecipe dated 29 th and 30th January, 2024 taking refuge under Section 12 (1)(a) read with Section 2(1)(i) of the Commercial Courts Act, 2015, at the time of consideration of the jurisdiction of the Court, to try the Suit pursuant to the notification dated 20th November, 2023 read with notification dated 16 th January, 2024, enhancing the pecuniary jurisdiction of the Bombay City Civil Court upto Rs.10 crores with effect from 28th January, 2024.”

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It is made clear in this judgment that what is to be considered for deciding the pecuniary jurisdiction in the pending case for the purpose of transfer, is the amount claimed and not the amount claimed with interest. In the

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said circumstances, this Tribunal finds that decree passed by the Learned Judge in the Arbitration case AC No.1/199 on the basis of Arbitral Award is correct and in tune with law and it cannot be found fault with.

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Earlier, the Hon’ble High Court of Madras in re N.M. Ahmed Ali Vs. Union Bank of India by Branch Manager, Town Hall Road, Madurai reported in 1998-2-L.W.-107 held that valuation given in the plaint has to be taken as the determining factor for the purpose of pecuniary jurisdiction and it is not the valuation plus interest accrued during the pendency of the proceedings. Relevant portion of the judgment is extracted as follows:

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“5. There is no dispute that the Tribunal had been constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. SubSection(4) of Section 1 of the said Act deals with the jurisdiction of the Tribunal as follows:-

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‘(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 lakhs rupees or such other amount, being not less than one lakh rupees, as the Central Government may by, notification, specify’

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Hence, it is clear that the provisions of the Act will not be applicable where the amount of debt due to any Bank less than Rs.10 lakhs. Section 18 bars the jurisdiction of the Civil Court to entertain any claim from the Bank or the Financial Institution. The limitation on the pecuniary jurisdiction specified under sub-section (4) of Section 1 would refer to the claim of the Bank on the date of filing of the suit and not subsequent dates.

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In fact, I asked the learned counsel to clarify about the pendency of the suit before this Court. It is well known fact that where the suit is filed for less than Rs.10.00 lakhs suits have not been transferred to the Tribunal. The learned counsel for the petitioner also concedes the same. I also asked the learned counsel for the petitioner, that if the suit is taken for final disposal after 3 or 4 years and by virtue of the accrued interest, if the claim of the Bank on the date exceeds Rs.10 lakhs, whether this Court has jurisdiction or not to try the suit, the learned counsel for the petitioner fairly conceded that this court has got jurisdiction to try the suit. When the learned counsel is very much clear about the jurisdiction of the Tribunal when the amount exceeds Rs.10.00 lakhs and the jurisdiction of the Civil Court when

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the amount is less than Rs.10.00 lakhs, I am of the view that the preliminary objection has been raised before the lower court only to delay the proceedings and nothing else.

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There is no gainsaying the fact that the plaint as framed by the plaintiff was triable by the Sub-Court, Trichy. The valuation as the plaintiff has fixed in the plaint was within the pecuniary jurisdiction of the Sub-Court, Trichy. It is well established that the ‘value of the suit’ for the purposes of jurisdiction is to be determined by the valuation in the plaint. The valuation which the plaintiff has given in the present case is only a sum of Rs.9,93,461.89, and therefore the suit was clearly within the jurisdiction of Sub Court, Trichy. The formation of the Tribunal does not take away the jurisdiction of the Court where the value of the suit, as stated in the plain, is less than Rs.10.00 lakhs. In view of the principles, I am of the view that the objection raised by the petitioner cannot be countenanced”

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It is also relevant to refer to judgment of Hon’ble High Court of Madras in re Lakshmi Travels Vs. Indian bank reported in 2014-3-LW322 to show that application can be filed under Section 19 of the RDDB and FI Act. Relevant part of the order is extracted herein for better appreciation.

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“8. What is under challenge is the OA which was filed seeking recovery certificate, based on the decree passed in O.S.No.199/2000 on the file of sub Court Sankarankoil. As per the wordings under Section 31A of the said Act, the Financial Institutions can apply for the issue of recovery certificate before the Tribunal. But, as rightly pointed out by the learned counsel for the petitioner, here is a case where the decree was passed long after the establishment of the Tribunal. i.e., 15 years after the establishment of the Tribunal. Since the date of the decree is 31.10.2008 consequently section 31A of the Act will not have an application apart from this as rightly pointed out Mr. Benjamin George, bar or jurisdiction has been dealt with under Section 18 of the Act and as per the same no court or authority shall have jurisdiction to deal with the matters specified in Section 17. As far as Section 17 of the Act is concerned as per the wording of the same action can be initiated by the Financial Institutions or the Bank for the recovery of the debts. However, when a bar has been imposed under Section 18, we are of the opinion that the stand of the learned counsel for the petitioner that for the execution of the decree, the respondent Bank should go only before the Civil Court cannot be allowed to stand.

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Apart from this, in Section 2(g) the definition of the term ‘debt’ has been dealt with, which has been extracted above. As per the same also,

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any amount payable under the decree or order of a Civil Court is also defined as a debt. Further, where the bank or a financial institution has to recover any debt from any person, power has been given to them to move an application before the Tribunal under Section 19 of the Act, since the term ‘debt’ also includes any decree passed by a ‘Court of law’, we are of the opinion that to recover the decree amount, the Bank or a Financial Institution, if a decree was passed subsequent to the commencement of the Act, can approach the Tribunal under Section 19 of the Act, and file a OA and since the value of the decree as far as the case in hand is concerned is more than Rs.10 lakhs, such application is also maintainable even as per Section 1(4) of the said Act. Consequently, the Debt Recovery Tribunal-I, Chennai is directed to convert the application filed by the respondent bank in OA No.221/2011 as an application filed under Section 19 of the RDDBFI Act and to proceed in accordance with the rules and regulations.”

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It is seen from this order that for the decree passed after Section 31A came into force under Amendment Act, application can be filed under Section 31A. It was also held that bank cannot be directed to go to Civil Court for recovery. Even pending application under Section 31A can be converted as application under Section 19 of the RDDB & FI Act and orders be passed.

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In the case before hand, the amount claimed in the relief without interest has to be reckoned for ascertaining the pecuniary jurisdiction of City Civil Court. The decree passed by Learned Prl. Civil Judge (Sr.Dn.) Mangalore on the Arbitral amount with interest is within his jurisdiction. Therefore, respondent can rightly approach the Tribunal for issuance of recovery certificate in terms of the decree passed by the Civil Court.

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In this view of the matter, this Tribunal finds the order passed by Learned Presiding Officer, DRT, Bangalore dated 15.11.2007 passed in OA 209/2003 is in tune with the scheme of RDDB & FI Act and there is no cause made out for interference.

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In the result, order of Learned Presiding Officer DRT, Bangalore dated 15.11.2007 passed in OA 209/2003 is confirmed and appeal is dismissed with the costs of first respondent bank.

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Pending IAs, if any, stand closed.

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[Dictated to Steno(SN), transcribed by him, corrected, signed and pronounced by me in open court, this 19^th March , 2025)

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Sd/- JUSTICE G. CHANDRASEKHARAN) CHAIRPERSON

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Govindraj Rao H v. Karnataka Bank Limited

Case brief

What is this about?

What did the court decide?

Govindraj Rao H v. Karnataka Bank Limited

Case brief

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