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High Court Of Calcutta
D. K. SETH
STATE BANK OF INDIA - Appellant
Versus
MADHUMITA CONSTRUCTION PVT LTD - Respondent
C. S. 445 Of 1998
Decided On : 07/16/2002
Whether the High Court has jurisdiction to entertain a suit where the subject matter of the suit is a debt as defined under Section 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act).
Fact of the Case:
Madhumita Group of Industries (MG1) had been maintaining accounts with the State Bank of India (SBI), particularly, in Bag Bazar Branch. In connivance and collusion with some of the employees of SBI, particularly, of Bag Bazar Branch (Respondents Nos. 45 to 52), MGI got LCs opened in their favour. Those LCs were alleged to have been issued in obsolete forms. The officers, who had issued the LCs, were not authorized to issue those LCs. Those LCs were opened simply by manipulation or jugglery of accounts, in fact, without putting in any fund by those, Madhumita Group of Industries, in connivance with the employees of SBI, amounting to forgery, as spelt out in detail in the application. These LCs were negotiated with the respondents No. 53 to 57, who purported to have obtained confirmation of the LCs from the same officers, who had issued the same, without taking proper care, which they are required to take before negotiating the respective LCs.
Finding of the Court:
The Court held that the High Court does not have jurisdiction to entertain the suit as the subject matter of the suit is a debt as defined under Section 2(g) of the DRT Act. The Court further held that the definition of debt under Section 2(g) of the DRT Act is wide enough to include fraudulent debts. The Court also held that the allegations of fraud and collusion in the present case are not sufficient to take the suit outside the scope of the DRT Act.
Issues: 1. Whether the High Court has jurisdiction to entertain the suit where the subject matter of the suit is a debt as defined under Section 2(g) of the DRT Act? 2. Whether the definition of debt under Section 2(g) of the DRT Act includes fraudulent debts?
Ratio Decidendi: 1. The Court held that the High Court does not have jurisdiction to entertain the suit as the subject matter of the suit is a debt as defined under Section 2(g) of the DRT Act. The Court relied on the following provisions of the DRT Act: - Section 17, which creates exclusive jurisdiction in the Tribunal constituted under the DRT Act for the adjudication of applications for recovery of debts due to banks and financial institutions. - Section 18, which bars the jurisdiction of all other courts, including the High Court, in respect of matters specified in Section 17. - Section 31, which provides for the transfer of suits and other proceedings pending before any Court to the Tribunal constituted under the DRT Act. - Section 34, which gives overriding effect to the provisions of the DRT Act. 2. The Court held that the definition of debt under Section 2(g) of the DRT Act is wide enough to include fraudulent debts. The Court relied on the following authorities: - Athmanathaswami Devasthanam v. K. Gopalaswami Ayyangar, AIR 1965 SC 338, where the Supreme Court held that a fraudulent debt is still a debt. - Allahabad Bank v. Canara Bank, AIR 2000 SC 1535, where the Supreme Court held that the definition of debt under Section 2(g) of the DRT Act includes fraudulent debts.
Final Decision: The Court dismissed the application and held that the High Court does not have jurisdiction to entertain the suit as the subject matter of the suit is a debt as defined under Section 2(g) of the DRT Act.
( 1 ) PLAINTIFF has made this application for : (i) appointment of receiver in respect of the assets and properties, books of accounts and records of the respondents no. 1 to 52 including movable assets with appropriate directions; (ii) injunction restraining the respondents No. 1 to 52 from disposing of or parting with possession", transfer, encumbering or dealing with their assets, profits including those mentioned in annexure "g" to the plaint without making the payments due to the plaintiff/petitioner; (iii) decree on admission against the respective respondents mentioned in prayer (d) and for consequential reliefs; (iv) filing of affidavits, directing disclosure of the amount received by the said respondents from different branches; (v) injunction restraining the respondents No. 53 to 57 from demanding any money from the petitioner in relation to the alleged void Letters of Credits (LCs) purported to have been negotiated by them through unjustified and fraudulent transactions; or (vi) to demand any money or in any way dealing with or to exercise any right, title or interest in respect of any of the LCs issued by the petitioners branches including Bag Bazar Branch; (vii) injunction restraining the respondents No. 53 to 57 from utilizing the money received under any such lcs including those mentioned in Annexure "c-2" of the plaint; (viii) direction upon the respondents No. 53 to 57 to deliverall the invalid LCs including those mentioned in annexure "c-2" of the plaint, (ix) direction to furnish security of Rs. 117 Crore; (x) injunction restraining them from receiving, crediting or withdrawing or dealing with any of their accounts maintained with and/or fund lying to their credit so far as the respondents No. 1 to 52 are concerned with the respondents No. 53 to 57; and (xi) the respondents No. 53 to 57 be directed to refund and pay the petitioner all amounts realized by way of proceeds of the Bills unauthorizedly collected by them. Facts :
( 2 ) THE case made out in the plaint on the basis whereof the above prayers are made are that one Madhumita Group of Industries and their respective Directors (Respondents Nos. 1 to 44) referred to as MG1, who are interrelated with each other, had been maintaining accounts with the State bank of India (SBI), particularly) in Bag bazar Branch. In connivance and collusion with some of the employees of SBI, particularly, of Bag Bazar Branch (Respondents nos. 45 to 52), MGI got LCs opened in their favour. Those LCs were alleged to have been issued in obsolete forms. The officers, who had issued the LCs, were not authorized to issue those LCs. Those LCs were opened simply by manipulation or jugglery of accounts, in fact, without putting in any fund by those, Madhumita Group of Industries, in connivance with the employees of SBI, amounting to forgery, as spelt out in detail in the application. These LCs were negotiated with the respondents No. 53 to 57, who purported to have obtained confirmation of the LCs from the same officers, who had issued the same, without taking proper care, which they are required to take before negotiating the respective LCs. Fraud has been alleged in respect of these transactions. According to SBI, all these LCs are void. These transactions were kept secret and could not be detected by the Bank. It was quite for some time these transactions continued. Some of the LCs were honoured by SBI, particularly, by Bag Bazar Branch. 2. 1. The respondents No. 53 to 57 had approached the Debt Recovery Tribunal (DRT) and had initiated proceedings for recovery of the dues under such LCs as against sbi. By virtue of an interim order granted in this case, the said proceedings before the drt have since been stayed. Receiver has been appointed. 2. 2. On 26th November, 1998 on the present interlocutory application filed by the plaintiff, the learned single Judge passed an interim order directing the respondents No. 53 to 57 to maintain status quo with regard to the impu
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