2000 Supreme(SC) 749

2000(3) Supreme 205
Supreme Court of India
(From Delhi High Court)
M. Jagannadha Rao and N. Santosh Hegde, JJ.
Allahabad Bank —Appellant
versus
Canara Bank & Anr. —Respondents
Civil Appeal No. 2536 of 2000
(Arising out of SLP (C) No. 5214 of 1999)
Decided on 10-4-2000
Counsel for the Parties :
For the Appearing Parties : Soli J. Sorabjee, Attorney General, Kapil Sibal, Sr. Advocate, Indveer Singh Alag, Pradeep K. Bhakshi, Y.P. Narula, Abhijeet Chatterjee, Mrs. Sarla Chandra, Suresh A. Shroff, Manish Singhvi, Ms. Rashmi Varma, Sunil Dogra, Ms. Monica Sharma, Ms. Sayali Pathak, A.S. Chandok, Siboney Sagar and V. Sibal, Advocates.

Very important points
1. The adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act.
2. For initiation of various proceedings by the Banks and financial institutions under the RDB Act, leave of the Company Court is not necessary under Sections 537 before a winding up order is passed against the Company or before provisional liquidator is appointed under Section 445(1) and Company Court cannot pass orders of stay of proceedings before the Tribunal, in exercise of powers under Section 422.
3. The Company Court cannot stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under Section 446(2) and (3) read with Sections 529, 529A and 530 etc. of the Companies Act since these questions are all within the exclusive jurisdiction of the Tribunal.

Headnote:(i) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Sections 17 and 18 r/w Section 31—Adjudication by Tribunal—Scope of jurisdiction—Jurisdiction of Tribunal in regard to adjudication is exclusive—Word ‘proceedings’ in Section 31 includes an ‘execution proceeding’ pending before a Civil Court—Jurisdiction of any other Court or authority is ousted—Execution of certificate is also within exclusive jurisdiction of Tribunal.

       It is clear from Section 17 of the Act that the Tribunal is to decide the applications of the Banks and Financial Institutions for recovery of debts due to them. We have already referred to the definition of ‘debt’ in Section 2(g) as amended by Ordinance 1/2000. It includes "claims" by Banks and financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context Section 31 of the Act is also relevant. That section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word ‘proceedings’ in Section 31 includes an ‘execution proceedings’ pending before a Civil Court before the commencement of the Act. The suits and proceedings so pending on the date of the Act stand transferred to the Tribunal and have to be disposed of "in the same manner" as applications under Section 19. (Para 20)

       The jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications for recovery of debts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) (formerly under Section 19(7)) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as to the meaning of the word ‘recovery’ in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act. Therefore, the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Bank is concerned. (Paras 21 & 22)

       Even in regard to ‘execution’, the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Act for recovery of the debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the Banks/Financial institutions should go to the Civil Court or the Company court or some other authority outside the Act for the actual realisation of the amount. The certificate granted under Section 19(22) has, in our opinion, to be executed only by the Recovery Officer. No dual jurisdictions at different stages are contemplated. Further, Section 34 of the Act gives overriding effect to the provisions of the RDB Act. The provisions of Section 34(1) clearly state that the RDB Act overrides other laws to the extent of ‘inconsistency’. In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. The special procedure for recovery prescribed in Chapter V of the Act, and Section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer. (Paras 23 & 24)

       Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the execlusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. (Para 24A)

       (ii) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 34—Companies Act, 1956—Sections 442, 537 and 446 — Overriding effect of provisions of RDB Act—Company Court is incompetent to stay proceedings before Debt Recovery Tribunal—Jurisdiction of Tribunal/Recovery Officer is exclusive—Sections 442, 446 and 537 cannot be applied against Tribunal.

       Just as the Company Court was held incompetent to stay or transfer and decide the claims made before the LIC Tribunal because the Company Court could not decide the claims before the LIC Tribunal, the said Court cannot, in our view, decide the claims of Banks and financial institutions. On the same parity of reasoning as in Damji Valji Shah’s case, there is no need for the appellant to seek leave of the Company Court to proceed with claim before the Debt Recovery Tribunal or in respect of the execution proceedings before the Recovery Officer. Nor can they be transferred to the Company Court. The case under the RDB Act - with an additional section like section 34 - is on a stronger footing for holding that leave of the Company Court is not necessary under Section 537 or under Section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court cannot also use its powers under Section 442 against the Tribunal/Recovery Officer. Thus, sections 442, 446 and 537 cannot be applied against the Tribunal. (Paras 29 & 30)

       The principle of purposive interpretation of Sections 442, 446 and 537 of the Companies Act cannot cannot be invoked in the present case against the Debt Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of Sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the Banks and to financial institutions, so that the delays occurring in winding up proceedings could be avoided. (Para 33)

       (iii) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19(19) r/w Section 34—Companies Act, 1956—Sections 446 and 529A—Determination of priorities among creditors—Overriding jurisdiction of Tribunal—Tribunal alone has jurisdiction—Section 446 not applicable—Section 529 alone is attracted—Leave of Company Court is not required.

       The recommendation of the Narashimam Committee as to working out ‘priorities’ have now been brought into the Act with greater clarity under Section 19(19) of Ordinance 1/2000. Priorities, so far as the amounts realised under the RDB Act are concerned, are to be worked out only by the Tribunal under the RDB Act. Section 19(19) is clearly inconsistent with Section 446 and other provisions of the Companies Act. Only section 529A is attracted to proceedings before the Tribunal. Thus, on questions of adjudication, execution and working out priorities, the special provisions made in the RDB Act have to be applied. The Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. (Paras 36 and 38)

       Alternatively, the Companies Act, 1956 and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, Section 34. Sections 442, 446 and 537 are not saved by the RDB Act. Even Section 34(2) of the RDB Act does not save the provisions of the Companies Act. Therefore, in view of Section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts. (Paras 39 and 42)

       At the stage of adjudication under Section 17 and execution of the certificate under Section 25 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to Banks and financial institutions and there can be no interference by the Company Court under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the Banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with Section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor-company and also after a winding up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. (Para 49)

       (iv) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19(2)—Impleadment of other financial Institution—Impleadment permissible before final order under Section 19(1) is passed—After final order under Section 19(1) impleadment is not permissible.

       Held : Section 19(2) permits other banks or financial institutions to be impleaded in the main application filed under Section 19(1) by a Bank or a financial institution. Question is whether Canara Bank can be impleaded in the main application under Section 19 at this stage. We may point out that section 19(2) permits such impleadment "at any stage of the proceedings before a final order is passed". The final order here is the order of adjudication under Section 19(1) as to whether the debt is due or not. In the present case, the adjudication order in respect of the debt has already been made long back and therefore Section 19(2) does not permit any impleadment in the main application under Section 19(1) at this stage. Hence, this relied for impleadment cannot be granted. (Para 51)

       (v) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19(19) as introduced by Ordinance 1/2000—Scope and effect of section—If defendant Company is not ordered to be wound up when question of parity, in respect of amount realised under RDB Act, arises between Bank and of the Financial Institutions Tribunal has to decide question of priority—Principles underlying in Section 73 of CPC have to be borne in mind—Sharing of sale proceeds permissible invoking Section 73 CPC only when any decree or adjudication of debt from Tribunal is obtained.

       Where the defendant company is a company against which no winding up order is passed, the Company, in our view, is like any other defendant and if in such a situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the Bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying Section 73 of the Code of Civil Procedure. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under Section 22 are wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice have to be followed. (Para 52)

       But under Section 73 CPC, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has not complied with other conditions laid down under Section 73. In the present case, the Canara Bank is not in a position to invoke the principles underlying Section 73 CPC because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying Section 73 CPC. Hence no relief can be granted on the basis of the said principles. (Para 53)

       (vi) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19(19) r/w Section 529A of the Companies Act—Distribution of sale proceeds among creditors—Bank ‘A’ obtaining final adjudication order under Section 19(1)—Sale of assets and realisation of sale proceeds of defendant Company—Bank ‘C’ filing application for prorata distribution of sale proceeds realised—Bank ‘C’ had not secured adjudication order nor opted to stand outside winding up proceedings and realised amounts—Bank ‘C’ not belong to class of secured creditors covered by Section 529A(1)(b)—Bank ‘C’ cannot claim any amount lying in Tribunal nor can claim priority as against Bank ‘A’.

       The argument that Section 19(19) gives priority to all "secured creditors" to share in the sale proceeds before the Tribunal/Recovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words "in accordance with the provision of Section 529A". Hence, it is necessary to identify the above limited class of secured creditors who have priority over all others in accordance with section 529A. (Para 59)

       Inasmuch as Section 19(19) permits distribution to secured creditors only in accordance with Section 529A, the said category is the one consisting of creditors who stand outside the winding up. These secured creditors in certain circumstances can come before the Company Court (here the Tribunal) and claim priority over all other creditors for release of amounts out of the other monies lying in the Company Court (here, the Tribunal). This limited priority is declared in Section 529A(1) but it is restricted only to the extent specified in clause (b) of section 529A(1). The said provision refers to sub-clause (c) of the proviso to Section 529(1) . (Para 62)

       The words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of the proviso in Section 529(1) proviso (c)" obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmen’s dues under clause (c) of the proviso to Section 529(1) "rateably" against each secured creditor. To that extent, the secured creditor - who has stood outside the winding up and who has lost a part of the monies otherwise covered by security - can come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over all creditors, by virtue of Section 529A(1)(b). (Para 66)

       But the point here is that the occasion for such a claim by a secured creditor (here the Canara Bank) against realisations by other creditors (like the Allahabad Bank) under Section 529A read with proviso (c) to Section 529(1) can arise before the Tribunal only if the Canara Bank has stood outside winding up and realised amounts and if it shows that out of the amounts privately realised by it, some portion has been rateably taken away by the liquidator under sub-clauses (a) and (b) of the proviso to section 529(1). It is only then that it can claim that it is to be re-imbursed at the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section 529A(1)(b). Therefore, the result is that the Canara Bank cannot rely on the words in Section 19(19) vis, "to be distributed among its secured creditors" for claiming any amount lying in the Tribunal towards its security nor can it claim priority as against the Allahabad Bank. (Paras 69 & 70)

       (vii) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19(19)—Section 529A of the Companies Act, 1956—Distribution of sale proceeds realised by Tribunal—Amount realised out of sale proceeds of defendant Company cannot be straightway released in favour of plaintiff Bank—Tribunal has to find out first if of workmen are settled—Workmen’s dues must be released first. (Paras 74 and 75)