Allowed

The Prudential Cooperative Bank Shareholders and Depositors v. Deposit Insurance and Credit Guaranctee Corporation

Telangana HC26 Oct 2009WA/1463/2008

Case brief

AI extract

What is this about?

The Court held that a settlement between two banks recorded in a writ petition without notice to the Deposit Insurance and Credit Guarantee Corporation and competing creditors is without jurisdiction and violates principles of natural justice. The compromise was set aside under Article 226.

What did the court decide?

The orders recording the compromise in W.P.Nos. 13472, 13468, and 13473 of 2005 were set aside. The main writ petition W.P.No.12612 of 2008 was also set aside and remanded.

The Prudential Cooperative Bank Shareholders and… — Banking and Recovery | Telangana HC (2009)

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THE HONOURABLE SRI JUSTICE B.PRAKASH RAO

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AND

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THE HONOURABLE SRI JUSTICE B.CHANDRA KUMAR

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W A No. 1463 of 2008, W.A.No.65, 90 and 99 of 2009

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JUDGMENT: (Per the Hon’ble Sri Justice B.Prakash Rao )

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The appellant herein in all these appeals in W.A.Nos.65, 90 and 99 of 2009 is the Deposit Insurance and Credit Guarantee Corporation of India

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Limited, Mumbai which was added as respondent No.1 in the Writ Petition No.13472 of 2005, which was disposed of by recording the settlement along with the other writ petitions in W.P.Nos.7746, 9919, 9920, 10964, 13468 and 13473 of 2005 by the learned Single Judge as per orders dated 30-09-

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2008. Aggrieved thereby, the appellant filed these appeals. Whereas, the appellant in W.A.No.1463 of 2008, is the unsuccessful writ petitioner, which is a Shareholders and Depositors Association, where they sought a

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direction to pay the amounts due to the depositors.

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Briefly, the facts, giving rise to these proceedings are that the respondent No.1, which is the Prudential Co-op Bank Limited filed the said W.P.13472 of 2005, inter alia, seeking for Certiorari assailing the Judgment and decree in O.P.No.535/2004 dated 5-5-2005, on the file of the A.P. Cooperative Tribunal, Visakhapatnam, which is added as respondent No.2 in

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the writ petition and as well in these appeals. The case of the said petitioner-bank was that it was established in the year 1921 and registered under the A.P. Cooperative Societies Act, 1964 and later converted as society and got registered under the A.P.M.A.C.S Act, 1995 and doing the banking business. However, as per the orders of the Reserve Bank of India the license of the bank was cancelled and directed for a winding up by the Registrar of

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Co-operative Tribunal and a liquidator was appointed on 8-12-2004. Though the said proceedings were challenged successfully in a writ petition, however in further appeal, the Division Bench of this Court set aside the orders allowing the writ petition and confirmed the orders of winding up.

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Apart from various other checkered events mentioned in the above mentioned writ petition the challenge was against the decree obtained at the instance of the respondent No.2 viz., The Vizakhapatnam Cooperative Bank Limited, Visakhapatnam for repayment of Rs.2,95,00,000/- with costs and interest. In the said proceedings the bank sought for attachment, hence it necessitated the respondent No.1 herein to file the writ petition.

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When the matter came up for hearing, it was taken up along with other writ petitions filed by the same petitioner bank viz., Prudential Co-op Bank

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Limited, which was also filed assailing the various other decrees obtained

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by the very same Visakhapatnam Cooperative Bank Limited for different

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amounts.

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However, ultimately on reporting a settlement between these two banks viz., Prudential Co-op Bank Limited and Visakhapatnam Cooperative Bank Limited, the memorandum of compromise, which has been arrived at

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has been filed with the following terms:

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1. The petitioner agrees to pay an amount of Rs.7 crores immediately through cheque dated 01.10.2008 to be drawn on Axis Bank, Secunderbad to respondent No.1 in partial discharge of the amount due to it under the pending E.Ps., before respondent No.2.

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2. The balance amount payable under the pending E.Ps., would be paid in six (6) quarterly instalments on prorata basis to respondent No.1 and also DICGCI (Deposit Insurance and Credit Guarantee Corporation of India) in six (6) quarterly instalments commencing from 01.10.2008 with available liquidity, and;

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3. Both the parties agreed that the writ petitions may be disposed of on the abovementioned settlement terms.

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Accordingly, the learned Single Judge disposed of the writ petitions in

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terms of the settlement arrived at between the parties. Hence, these appeals.

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However, the other writ filed by the shareholders and depositors was

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dismissed holding that their apprehension of denial of their amount, in the

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event of repayment to the Corporation, was not well founded.

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The main contention urged on behalf of the appellant in these appeals is, firstly, that the recording of such compromise is wholly outside the purview of the Article 226 of the Constitution of India; secondly, the appellant is not a party to the said compromise nor there is any notice and thus the orders recording such compromise is without notice and against the principles of natural justice; and thirdly, having regard to the preferential priority for the claims of the appellant as provided under Section 21 (2) (a) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 read with regulation there under and Section 22 (a) of the Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961 and Section 115B (v) of the A.P. Cooperative Societies Act, 1964, and therefore, the question of any payment or arrangement for such payment in between these two banks dehorse the claim that of the appellant is wholly illegal and without jurisdiction. Further, it is contended that the orders between the parties in W.p.No.12612 of 2008 dated 13-09-2008 were not brought to the notice of the learned Single Judge. That apart it is also the contention of the appellant that since Visakhapatnam Cooperative Bank has absolutely no priority over its claims, it cannot seek for very payment or come to such an arrangement. Even other wise, it is the case of the appellant that even though the appellant was added as respondent No.3 during the pendency of

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the writ petition wherein several objections and pleas in the counter were raised, the same were not considered and no finding is given by the learned Single Judge, hence, the orders under appeal are liable to be set aside.

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Supporting the orders of the learned Single Judge, it has been contended on behalf of the respondents that the claim of the appellant is quite premature and therefore they cannot set up any objection to the compromise arrived at between these two banks apart from denying the aforesaid contentions on behalf of the appellants herein. Further, it was pointed out that there can always be a settlement between the parties and the same can be recorded by the Court.

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Of these and other submissions made across the Bar and on perusal of the material, the only short point which arises for consideration is whether on the facts and circumstances the recording of any such settlement by this Court in exercise of the jurisdiction under Section 226 of the Constitution of India is permissible; and secondly, whether any such settlement would in any way come against or affect the rights, claims or interest of the appellant?

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Before following the aforesaid question to be taken up for answer, the glaring situation which emerges is that, admittedly, the appellants are not parties to the said proceedings, where the compromise is recorded nor they

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are parties to the compromise as well, they had thus no notice of whatsoever nature in regard to the said lis or settlement as arrived at. There was no parlance had with the appellants before the said settlement is arrived at. Having regard to the nature of the transactions vis-à-vis with the liabilities with the appellants and the respondents herein in the by-partiate agreement under the law and also the facts, it cannot be said that the appellant could have been avoided in reaching any final settlement in regard to the discharge of the respective liabilities. There cannot be any such settlement without the participation of the appellants or the appellants being a party to the same. The law is very much clear, especially in view of the scope and parameters as laid down under The Deposit Insurance and Credit Guarantee Corporation Act, 1961 and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961. For convenience sake, the necessary provisions which requires to be paid attention i.e., Section 17 and 21, reads as follows;

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Section 17 : Manner of payment by Corporation in case of winding up of insured banks:-

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(1).. Where an insured bank has been ordered to be wound up or to be taken into liquidation and a liquidator, by whatever name called, has been appointed in respect thereof, the liquidator shall, with the least possible delay and in any case not later than three months from the date of his assuming charge of office, furnish to the Corporation a list in such form and manner as may be specified by the

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Corporation showing separately the deposits in respect of each depositor and the amounts of set off referred to in sub section (3) of section 16. (2).. Before the expiry of two months from the receipt of such list from the liquidator, the Corporation shall pay the amount payable under Section 16 in respect of the deposit of each depositor:(a).. directly to the depositor, or (b).. to the depositor or through such agency as the corporation may determine, or ( c ).. to the liquidator.

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…… Section 21:- Repayment of the amount to Corporation :- (1).. Where any amount has been paid under Section 17 or section 18 or any provision therefor has been made under Section 20, the Corporation shall furnish to the liquidator or to the insured bank or to the transferee bank, as the case may be, information as regards the amount so paid or provided for.

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(2).. On receipt of the information under Sub section (1), notwithstanding anything to the contrary contained in any other law for the time being in force,-

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(a).. the liquidator shall, within such time and in such manner as may be prescribed, repay to the Corporation out of the amount, if any payable by him in respect of any deposit such sum or sums as make up the amount paid or provided for by the Corporation in respect of that deposit;

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(b).. the insured bank or, as the case may be, the transferee bank, shall, within such time and in such manner as may be prescribed, repay to the Corporation out of the amount, if any, to be paid or credited in respect of any deposit after the date of the coming into force of the scheme referred to in section 18, such sum as make up the amount paid or provided for by the Corporation in respect of that deposit”.

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Therefore on a bare reading thereof, there is a comprehensive

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machinery and well laid procedure and also the safeguards provided for both the sides in discharging the respective liabilities, therefore, none of the said parties could have avoided to be a party to any settlement between the

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remaining two, therefore, prima facie, we are of the view that apart from the aspect as to no safeguards have been taken nor any hearing or notice being given to the appellants, it can safely be said that the appellants are not bound by any settlement or compromise arrived between them and as recorded by this Court while disposing the writ petition. Therefore, even if any mutual applications are arising in said settlement in those who are parties, it can have safely worked out between themselves or thrust or used against the appellants herein. It is thus always open for the appellants herein to follow the law and avail all such remedies and take steps as contemplated under the law not only to safeguard their interest and also to see that the liabilities are discharged in a proper manner as contemplated under the law. Thus, we hold that the said compromise is not binding and cannot be enforced against the appellant herein.

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Coming to the second aspect as to the scope and jurisdiction of this Court under Article 226 of the Constitution of India to settle any dispute and recording compromise or settlement between the parties, this aspect has come up for consideration before the Supreme Court in Sri Dwarka Prasad Agarwal Vs B D Agarwal and others^[1] , wherein it was held as under;

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“A writ petition is filed in public law remedy. The High Court while exercising a power of judicial review is concerned with illegality, irrationality and procedural impropriety of an order

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passed by the State or a statutory authority. Remedy under Article 226 of the Constitution of India cannot be invoked for resolution of a private law dispute as contra distinguished from a dispute involving public law character. It is also well settled that a writ remedy is not available for resolution of a property or a title dispute. Indisputably, a large number of private disputes between the parties and in particular the question as to whether any deed of transfer was effected in favour of M/s. Writer & Publishers Pvt Ltd as also whether a partition or a family settlement was arrived or not, were pending adjudication before the Civil Courts of competent jurisdiction. The reliefs sought for in the writ petition primarily revolved round the order of authentication of the declaration made by one of the respondents in terms of the provisions of the said Act. The writ petition, in the factual matrix involved in the matter, could have held to be maintainable only for that purpose and no other.

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In the aforementioned premise, the High Court was furthermore required to apply its own mind for the purpose of arriving at a finding as to whether it, in public law remedy, could record the compromise and dispose of the said writ petition in terms thereof. The order dated 29.6.1992 passed in M P No.280 of 1992 was purported to have been clarified by the High Court in its order dated 13.11.1992 in the review petition being MCC No. 477 of 1977. The said order clearly demonstrates a total non-application of mind on the part of the High Court.”

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As can be evident from afore reading, a situation is one similar to the one which has arisen in the present case. As held above, the appellants being not a party could not have any obligation under said compromise, therefore, it can be safely said that the said compromise could only reach to

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a situation where we could not have a binding effect but also the correctness, validity of the very nature of the compromise and the orders

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passed thereon. As held above, the private disputes could not have been part of the consideration or fall well within Article 226 of the Constitution of India of this Court to record any settlement, especially where the parties have got ample remedies under common law to approach the regular Courts for any relief or even for recording of such a compromise or settlement. Even otherwise, Article 226 of the Constitution of India being ranked with public law remedy, it could not have been said that leaving aside the authorities concerned or any State as such being party, there could not have been a settlement between the parties aggrieved, leaving aside such authorities. Even the parties also could not have entered into any such compromise or settlement under such extraordinary jurisdiction. Necessarily, if any question or a lis arises it should have its own logical end to answer “Yes or No” but not a settlement, it may or may not run contrary to the law of the land. Therefore entertaining any compromise or settlement in Writ petition under Article 226 of the Constitution of India would not have been proper nor parties could have opted for such an exercise.

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Therefore, following the aforesaid principle, we hold that the afore said compromise has no force in law nor it is enforceable. The orders passed in the writ petition Nos. 13472, 13468 and 13473 of 2005 dated 13.9.2008 recording the said compromise are hereby set aside and

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accordingly the appeals are allowed. The matter is left between the parties

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for a decision after contest.

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Having regard to the aforesaid reasons, we deem it appropriate that the writ in W.P.No.12612 of 2008 can as well be taken up for consideration afresh on merits along with the other writ petitions together. Hence, we set aside the said judgment in W.P.No.12612 of 2008 dated 13.9.2008 and

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remit back.

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Accordingly the appeals are allowed. However, in the circumstances

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there shall be no orders as to costs.

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The Registry is directed to post the main writ petitions before the regular Court for hearing in usual course.

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B.PRAKASH RAO,J

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__________________ B.CHANDRA KUMAR ,J