IMPORTANT POINTS
1. A defendant in an application, having an independent claim against the Bank, cannot be compelled to make his claim against the Bank only by way of a counter claim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a Tribunal against his wishes.
2. The courts should be careful to ascertain and follow the ratio decidendi, and not the relief given on the special facts, exercising power under Article 142 of the Constitution. This Court should also clarify that a particular direction or portion of the order is in exercise of power under Article 142 of the Constitution.

Headnote:(i) Recovery of Debts Due to Banks and financial Institutions Act, 1993—Section 19—Debt recovery suit filed by Bank—Borrower filed civil suit against Bank for recovery of damages for non-disbursal of loans—Bank’s prayer that as civil suit could not be tried by the High Court, it should be transferred to the Tribunal—Bank’s case that civil suit filed by the borrower was broadly in the nature of a counter claim to Bank’s suit and was integrally connected with its application—Whether subject matter of borrower’s suit before the High Court and Bank’s application before the Tribunal were inextricably connected—(No).
       Held : The Bank sanctioned an ad hoc packing credit limit of Rs. 20 lacs on 12.7.1991 and an additional ad hoc packing credit limit of Rs. 5 lacs on 6.12.1991, subject to the terms contained in the Sanction Advice dated 12.7.1991. In regard to the initial limit of Rs. 20 lacs, the company executed an agreement dated 15.7.1991 and its 4 Directors executed a guarantee dated 15.7.1991. In regard to the additional amount of Rs. 5 lacs, a promissory note and an agreement were executed on 20.11.1991. Claiming that the company failed to pay the amounts advanced, the Bank filed an application before the Tribunal for recovery of Rs. 30,67,820.04. The cause of action for the Bank’s application is the alleged non-payment of the amounts advanced to the borrower, in pursuance of ad-hoc limits sanctioned on 12.7.1991 and 6.12.1991. On the other hand, the subject matter of the suit filed by the borrower against the Bank and the cause of action therefor, are totally unconnected with and different from the subject matter of and cause of action for the Bank’s application. On the request of the borrower, the Bank by letter dated 19.12.1991 sanctioned several credit facilities to the borrower, namely, (i) a Medium Term Loan of Rs. 90 lacs; (ii) packing credit loan facilities to a limit of Rs. 50 lacs; (iii) bridge loan of Rs. 15 lacs; and (iv) guarantee facility to an extent of Rs. 85.42 lacs. The Bank also agreed to absorb the ad hoc packing credit facilities of Rs. 25 lacs already sanctioned within the fresh limits sanctioned. The borrower alleged that it proceeded to a arrange its affairs and activities on the assumption that the Bank will be releasing the loans; and that the Bank failed to release the credit facilities, thereby putting it (the borrower) to huge losses, apart from denying the profits from the business. Consequently, it filed C.S. No. 7/1995 for recovery of Rs. 25,38,58,000/- made up of Rs. 11,33,22,000/- towards loss of profits, Rs. 10 crores as compensation for loss of goodwill and reputation, Rs. 3.50 crores as damages on account of the impact of inflation and difference in foreign exchange rates, Rs.31,36,000/- towards expenditure which became infructuous on account of the Bank’s failure to release the loans, and Rs. 24 lacs towards interest up to the date of the suit. The cause of action for the borrower’s suit is the alleged breach by the Bank, in not releasing the sanctioned loans. The issues that arose in the Bank’s application was whether the borrower failed to repay the sums borrowed and whether the Bank was entitled to the amounts claimed. On the other hand, the issues that arose in the borrower’s suit were whether the Bank had promised/agreed to advance certain monies; whether the Bank committed breach in refusing to release such loans in terms of the sanction letter; whether the borrower failed to fulfil the terms and conditions of sanction and therefore the Bank’s refusal to advance, was justified; and even if there was breach, whether the borrower suffered any loss on account of such non-disbursement and if so whether the borrower was entitled to the amounts claimed. While the claim of the Bank was for an ascertained sum due from the borrower, the claim of the borrower was for damages which required firstly a determination by the court as to whether the Bank was liable to pay damages and thereafter assessment of quantum of such damages. Thus there is absolutely no connection between the subject matter of the two suits and they are no way connected. A decision in one does not depend on the other. Nor could there be any apprehension of different and inconsistent results if the suit and the application are tried and decided separately by different forums. In the circumstances, it cannot be said that the borrower’s suit and the Bank’s application were inextricably connected.(Paras 8 and 9)
       (ii) Civil Procedure Code, 1908—Section 9—Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Sections 17, 18, 19—Jurisdiction of Civil Court—Application by a bank or a financial institution for recovery of its debts—Civil Court’s jurisdiction is barred only in regard to such applications—Jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief—Whether provisions of the Debt Recovery Act mandate or require transfer of an independent suit filed before a civil court to the Tribunal, to be tried as a counter claim in Bank’s application—(No)—There is no provision in the Act for transfer of such suits and proceedings.
       Held : Section 31 of the Debts Recovery Act provides that every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under the said Act, being a suit or proceeding the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal. Section 9 of the Code of Civil Procedure provides that the courts shall have jurisdiction to try all suits of a civil nature, excepting suits of which their cognizance is either expressly or impliedly barred.(Paras 12 and 13)
       It is evident from Sections 17 and 18 of the Debts Recovery Act that civil court’s jurisdiction is barred only in regard to applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief. It is not disputed that the Calcutta High Court had jurisdiction to entertain and dispose of C.S.No. 7/1995 filed by the borrower when it was filed and continues to have jurisdiction to entertain and dispose of the said suit. There is no provision in the Act for transfer of suits and proceedings, except section 31 which relates to suit/proceeding by a Bank or financial institution for recovery of a debt. It is evident from Section 31 that only those cases and proceedings (for recovery of debts due to banks and financial institutions) which were pending before any court immediately before the date of establishment of a tribunal under the Debts Recovery Act stood transferred, to the Tribunal. In this case, there is no dispute that the Debt Recovery Tribunal, Calcutta, was established long prior to the company filing C.S.No. 7/1995 against the bank. The said suit having been filed long after the date when the tribunal was established and not being a suit or proceeding instituted by a bank or financial institution for recovery of a debt, did not attract section 31.(Para 14)
       The effect of sub-sections (6) to (11) of Section 19 of the amended Act is that any defendant in a suit or proceeding initiated by a bank or financial institution can : (a) claim set off against the demand of a Bank/financial institution, any ascertained sum of money legally recoverable by him from such bank/financial institution; and (b) set-up by way of counter-claim against the claim of a Bank/financial institution, any right or claim in respect of a cause of action accruing to such defendant against the bank/financial institution, either before or after filing of the application, but before the defendant has delivered his defence or before the time for delivering the defence has expired, whether such a counter claim is in the nature of a claim for damages or not. What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. The only change that has been made is to enable defendants to claim set off or make a counter-claim as provided in sub-sections (6) to (8) of Section 19 in applications already filed by the bank or financial institutions for recovery of the amounts due to them. In other words, what is provided and permitted is a cross-action by a defendant in a pending application by the bank/financial institution, the intention being to have the claim of the bank/financial institution made in its application and the counter-claim or claim for set off of the defendant, as a single unified proceeding, to be disposed of by a common order.(Para 15)
       (iii) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19—Bank’s application for recovery of debt—Making a counter claim in the Bank’s application is not the only remedy, but an option available to the borrower/defendant—He can also file a separate suit or proceeding before a civil court or other appropriate forum—Whether such a claim filed by way of independent suit can be transferred to a Tribunal against his wishes—(No).
       Held : Making a counter claim in the Bank’s application before the Tribunal is not the only remedy, but an option available to the borrower/defendant. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the Bank and pursue the same. Even the Bank, in whose application the counter-claim is made, has the option to apply to the tribunal to exclude the counter-claim of the defendant while considering its application. When such application is made by the Bank, the Tribunal may either refuse to exclude the counter-claim and proceed to consider the Bank’s application and the counter-claim together; or exclude the counter-claim as prayed, and proceed only with the Bank’s application, in which event the counter-claim becomes an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counter claim as the Tribunal does not have jurisdiction to try any independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the Bank, cannot be compelled to make his claim against the Bank only by way of a counter-claim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a Tribunal against his wishes. In this case, the first respondent does not wish his case to be transferred to the Tribunal. It is, therefore, clear that the suit filed by the first respondent against the Bank in the High Court for recovery of damages, being an independent suit, and not a counter-claim made in the application filed by the bank, the Bank’s application for transfer of the said suit to the Tribunal was misconceived and not maintainable. The High Court, where the suit for damages was filed by the company against the bank, long prior to the bank filing an application before the tribunal against the company, continues to have jurisdiction in regard to the suit and its jurisdiction is not excluded or barred under Section 18 or any other provision of Debts Recovery Act.(Paras 16 & 17)
       (iv) Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19—Bank’s application for recovery of debt—Borrower’s suit for damages for non disbursal of loans—Bank’s prayer for transfer of suit to the Tribunal—Whether observation in Abhijit case, 2000 (7) SCC 357, that the suit filed by the borrower against the Bank has to be transferred to the Tribunal for being tried as a counter claim, is to be construed as a principle laid down by the Supreme Court or as an observation made in exercise of power under Article 142 of the Constitution.
       Held : The observations in Abhijit that an independent suit of a defendant (in Bank’s application) can be deemed to be a counter claim and can be transferred to the Tribunal, will apply only if the following conditions were satisfied:-
       (i)The subject matter of Bank’s suit, and the suit of the defendant against the Bank, should be inextricably connected in the sense that decision in one would affect the decision in the other.
       (ii)Both parties (the plaintiffs in the suit against the Bank and the Bank) should agree for the independent suit being considered as a counter-claim in Bank’s application before the Tribunal, so that both can be heard and disposed of by the Tribunal.
       In short the decision in Abhijit is distinguishable both on facts and law.(Para 23)
       (v) Constitution of India—Article 142—Directions made by the Supreme Court in exercise of powers under—Whether binding on lower courts—(No)—Courts should be careful to ascertain and follow the ratio decidendi, and not the relief given on special facts, exercising power under Article 142.
       Held : Many a time, after declaring the law, this Court in the operative part of the judgment, gives some directions which may either relax the application of law or exempt the case on hand from the rigour of the law in view of the peculiar facts or in view of the uncertainty of law till then, to do complete justice. While doing so, normally, it is not stated that such direction/order is in exercise of power under Article 142. It is not uncommon to find that courts have followed not the law declared, but the exemption/relaxation made while moulding the relief in exercise of power under Article 142. When the High Courts repeatedly follow a direction issued under Article 142, by treating it as the law declared by this Court, incongruously the exemption/relaxation granted under Article 142 becomes the law, though at variance with the law declared by this Court. The courts should therefore be careful to ascertain and follow the ratio decidendi, and not the relief given on the special facts, exercising power under Art. 142. One solution to avoid such a situation is for this Court to clarify that a particular direction or portion of the order is in exercise of power under Art. 142. Be that as it may.(Para 23)

Judgement Key Points

Based on the document, there is no explicit finding that the consumer court has no jurisdiction. The document discusses the scope of jurisdiction and the exercise of powers by courts, including the principles guiding such decisions. It emphasizes that courts should adhere to the established jurisdictional limits and follow the proper procedural and legal standards. However, it does not explicitly state that consumer courts lack jurisdiction in any particular context or case.

JUDGMENT

Raveendran, J.—These appeals by special leave are filed against the judgment dated 10.5.2002 of the Calcutta High Court, dismissing A.P.O. Nos. 57-58 of 2001 filed by the appellant-Bank against orders dated 24.1.2001 and 13.3.2001 passed by a learned Single Judge of that court, rejecting an oral application and a written application respectively, filed by the appellant-Bank for transfer of Civil Suit No. 7/1995 (filed by first respondent herein against the appellant and others and pending on the file of the Calcutta High Court) to the Debt Recovery Tribunal, Calcutta, for being tried with O.A.No. 170/1995 (filed by the appellant against the first respondent and its guarantors).

2. The first respondent (also referred to as the ‘borrower’ or ‘company’) approached the appellant-Bank (for short ‘the Bank’) for certain credit facilities. By Sanction Advices dated 12.7.1991 and 6.12.1991, the Bank sanctioned ad hoc packing credit facilities to a limit of Rs. 20 lakhs and Rs. 5 lakhs respectively. According to the Bank, the company utilized the said credit facilities, but committed default in repaying the amounts advanced. Therefore, the Bank filed O.A. No. 170/1995 on 21.8.1995 before the Debt Recovery Tribunal (for short ‘the Tribunal’) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short ‘Debt Recovery Act’) seeking a certificate to recover Rs. 30,67,820/04 with interest from the company and its four guarantors (Directors), jointly and severally. The said application is pending and trial therein is yet to commence.

3. On 19.12.1991, the Bank sanctioned a Middle Term Loan of Rs. 90 lakhs and certain other credit facilities to the company. The sanctioned loans were not released. The company filed C.S.No. 7/1995 against the Bank in the Calcutta High Court in January, 1995, for recovery of Rs. 25,38,58,000/- as damages (for non-disbursal of the loans) with interest. By the end of 2000, recording of evidence in the suit was completed and the suit was ripe for arguments.

4. On 24.1.2001, the Bank made an oral submission that the suit could not be tried by the High Court and it should be transferred to the Tribunal. A learned Single Judge rejected the said request by the following order:-

“Though not pleaded in the written statement specifically, the learned counsel for the defendant contends that in view of the amendment of section 19 of the Recovery of the debts due to Banks and Financial Institutions Act, 1993, this suit cannot be tried by this court. I have gone through section 19 of the said act as amended up to date. It appears from the said amendment that the debtor/respondent will be entitled to make counter claims in the same proceeding initiated by the bank. Before amendment there was no such specific provision. But in this case, the plaintiff/debtor had filed the suit before the bank could file appropriate proceeding. It is a separate suit. It is neither a cross suit nor can be termed as counter-claim. So the suit is perfectly entertainable by this court. Therefore, the preliminary objection raised by the Bank is hereby overruled.”

5. Thereafter, the Bank filed an application in writing, praying for transfer of C.S.No. 7/1995 filed by the borrower to the Tribunal on the ground that the said suit was broadly in the nature of a counter-claim to Bank’s O.A.No. 170/1995 and was integrally connected with its application. The learned Single Judge rejected the said application by order dated 13.3.2001, as barred by res judicata, in view of the fact the same prayer made orally earlier had been rejected on 24.1.2001. The said two orders dated 24.1.2001 and 13.3.2001 were challenged by the Bank in two appeals (APO Nos. 57-58/2001) before a Division Bench of the High Court. In support of its contention that C.S.No. 7/1995 should be transferred from the High Court to the Tribunal for being tried with OA No. 170/1995, the Bank relied on Sections 19(6) to (11) of the Debts Recovery Act an

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2006 Supreme(SC) 359

Cases Referred (2)