2012 Supreme(Kar) 546

High Court of Karnataka
VIKRAMAJIT SEN & B.V. NAGARATHNA, JJ.
M/s Super Sales Corporation & Others
Versus
The Debt Recovery Tribunal & Others
W.P.No.14711 of 2003 (GM-DRT)
Decided on : 08-10-2012

Headnote:RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT [51/1993] - Sections 27, 18, 17, 19, 22, 28, 26 & 29 & Debts Recovery Tribunal (Procedure) Rules, 1993, Rule 16 & Debts Recovery Appellate Tribunal (Procedure) Rules, 1994, Rule 22: [Vikramajit Sen C.J. & B.V. Nagarathna, J] Order directing withdrawal of recovery certificate -Validity - Held, Having regard to the fact that the Recovery Officer of the Debt Recovery Tribunal (DRT) is empowered to issue a notice to any person from whom money is due or may become due to the debtor, for the purpose of recovering the said amount and the person to whom the notice is issued has to satisfy the debt amount or any person who voluntarily offers to satisfy the outstanding debt of the debtor would also be entitled to seek relief in relation to the recovery of debts to banks and financial institutions as stipulated in Section 18 of the Act. The expression recovery of debts due to banks and financial institutions must be interpreted in a broad sense to include all steps taken from the time of making an application by the bank or financial institution for the recovery of the debt till the actual recovery thereof through various modes stipulated in Chapter V of the Act and to entertain and decide all matters in relation to recovery of debts due to banks and financial institutions.

        Where MOU was entered into between petitioner and respondent in respect of schedule property and respondent in respect of schedule property and respondent was put in possession of schedule property on basis on MOU and respondent made payment of some amount to bank which was accepted and appropriated by bank towards outstanding loan of petitioners, and respondent was also ready and willing to pay balance amount, the order directing withdrawal of recovery certificate and return of documents of schedule property to respondent would not be liable to be set aside on ground that respondent was third party.

        A garnishee order is an order passed by a Court and in the instant case the Recovery Officer by way of a notice ordering a person in the position of a garnishee respondent who is the person due of the debtor of the bank or the financial institution petitioners not to pay the money to the debtor of the bank but directly to the garnishor who is the creditor. The payment made by the garnishee pursuant to the notice issued by the Recovery Officer is a valid discharge to him against the debtor to the bank to the extent of the amount paid, even though the proceedings may be set aside, or the judgment or order from which they arose is reversed.

        In such a case, it cannot be held that apart from the bank and the financial institution on one hand and its debtor one the other hand, the Tribunal has no jurisdiction to deal with any other third party in the matter of recovery of debt on the issuance of the Certificate of Recovery.

        Similarly, the plea that there is no relationship between a Bank and a third party in the position of a garnishee cannot be accepted. Having regard to the object of the Act and its sweeping provisions, the DRT would have the jurisdiction to deal with all matters pertaining to "third party debt orders" or garnishee proceedings as contemplated in Section 28 of the Act. Thus, a third party would have the right to seek a remedy in the matter of recovery of a debt under Section 28 of the Act by invoking an appropriate provision of the Act. Any denial of a remedy to a third party before a civil Court or any other forum, the Recovery Officer of the DRT apart from the bank or financial institution would have to be arraigned as respondents by the third party and matters relating to recovery of debts by banks and financial institutions would be adjudicated upon thereby demanding the authority of the DRT to exclusively deal with such matters such an intendment of the Parliament is not envisaged under the Act. The Act being a self contained code for the recovery of debts to banks and financial institutions all matters relating to the recovery of debts have to be dealt with by the DRT of DRAT in appeal otherwise there would be vesting of jurisdiction in an authority not contemplated under the Act. The same would also be contrary to the intention of Section 18 of the Act which divests or bars jurisdiction of all Courts or authorities in the matter of recovery of debt to banks or financial institutions. Hence, the contention that because there is no privity of contact between a bank or financial institution on the one hand and the third party on the other hand, the DRT would have no jurisdiction to entertain an application filed by a third party seeking relief in the matter of recovery of debt after the issuance of a Recovery Certificate is incorrect.

        However, third party has a right to seek a remedy before the DRT only after the issuance of a Recovery Certificate against a debtor to a bank or financial institution when the third party is directed to deposit monies it owes to the debtor of the bank of financial institution or when on an understanding /agreement with such a debtor, the third party deposits the monies or discharges the debt of the debtor to the bank or financial institutions. Any other third party having any claim over the bank or financial institution or any dispute with the debtor to the bank or financial institution cannot seek any remedy before the DRT.

        In such a case, on a first impression the directions of the DRAT may be in the nature of granting the relief of specific performance of the MOU in favour of the respondent. But in fact, the exercise of jurisdiction by the DRAT is one under Section 26 read with Section 27 of the Act., The said jurisdiction has been exercised keeping in mind sub-section (1) of Section 22 of the Act read with sub-section (25) of Section 19 of the Act in order to secure the ends of justice in the matter. Therefore, the exercise of the jurisdiction the DRAT was not outside the scope of its authority or dehors the provisions of the Act.

        Rule 6 of second schedule of Income Tax Act could not be held to have been violated in such a case, firstly, because under Section 29 of the Act the provisions of the Second Schedule of the Income-tax Act, 1961 would "as far as possible, apply with necessary modifications" to any proceeding under the Act and not verbatim. Secondly, it has not been stated that any notice was issued to the petitioners pursuant to the issuance of the Certificate of Recovery in the proceeding initiated by Financial Corporations Thirdly, Rule 66 of the Second Schedule of the Income-tax Act, 1961 itself provides for postponement of sale to enable a defaulter to raise amounts due under the certificate, where the Recovery Officer has reason to believe that the amount of the Certificate may be raised by the mortgage or lease or private sale of the property of the defaulter in which event the sale of the property comprised in the property for sale can be postponed. More, significantly, the lis in the present case is between the petitioners and the respondent based on the MOU. Merely because the financial institution had sought to recover its dues from the petitioners it cannot seek any reliefs in these proceedings. Also the Finance Corporation did not independently assail the order of the DRAT.