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2009 Supreme(Mad) 3620
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE G. RAJASURIA
R. Swarup Reddy
Versus
M/s. Kotak Mahindra Bank Ltd. & Another
Application No.216 of 2009 in Insolvency Notice No.35 of 2009
Decided On : 10-09-2009
For the Applicant :Ms. S.R. Rajagopal, Advocate.
For the Respondents:R. Yashod Vardhan, Senior Counsel for M/s. Ramalingam, Advocate.
Headnote:
Insolvency Notice - Recovery of Debt - Presidency Towns Insolvency Act, 1909 - Section 9(2) - Summary of Acts and Sections: The court discussed the interpretation of Section 9(2) of the Presidency Towns Insolvency Act, 1909 and its applicability to the recovery certificate issued by the Debts Recovery Tribunal. The court also considered the provisions of the Companies Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Fact of the Case:
The Kotak Mahindra Bank Limited sought to recover a debt from R. Swarup Reddy, who contested the insolvency notice issued by the bank. The court was tasked with determining whether the recovery certificate issued by the Debts Recovery Tribunal could be equated to a decree or order under Section 9(2) of the Presidency Towns Insolvency Act, and whether permission from the Company Board under Section 446 of the Companies Act was required for debt recovery. The court also considered whether the assignment of debt from the State Bank of India to Kotak Mahindra Bank Limited constituted a banking activity under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Finding of the Court:
The court held that the recovery certificate issued by the Debts Recovery Tribunal could not be equated to a decree or order under Section 9(2) of the Presidency Towns Insolvency Act. It also ruled that the Kotak Mahindra Bank Limited was not required to obtain permission from the Company Board under Section 446 of the Companies Act for debt recovery. Additionally, the court found that the assignment of debt from the State Bank of India to Kotak Mahindra Bank Limited did not constitute a banking activity under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Issues: The court considered whether the recovery certificate issued by the Debts Recovery Tribunal could be equated to a decree or order under Section 9(2) of the Presidency Towns Insolvency Act, whether permission from the Company Board under Section 446 of the Companies Act was required for debt recovery, and whether the assignment of debt from the State Bank of India to Kotak Mahindra Bank Limited constituted a banking activity under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Ratio Decidendi: The court determined that the recovery certificate issued by the Debts Recovery Tribunal did not qualify as a decree or order under Section 9(2) of the Presidency Towns Insolvency Act. It also concluded that the Kotak Mahindra Bank Limited was not required to obtain permission from the Company Board under Section 446 of the Companies Act for debt recovery. Furthermore, the court found that the assignment of debt from the State Bank of India to Kotak Mahindra Bank Limited did not constitute a banking activity under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Final Decision: The court dismissed the insolvency notice and allowed the application filed by R. Swarup Reddy, ruling in favor of the respondent and against the creditor, Kotak Mahindra Bank Limited.
Subsequently, the State Bank of India, the original creditor transferred the said debt in favour of the Kotak Mahindra Bank Limited as per the assignment deed dated 23.03.2006. Wherefore, the Debts Recovery Tribunal was approached, which also effected muttadis muttandis changes/amendments to the recovery Certificate indicating that the Kotak Mahindra Bank Limited stepped into the shoes of the State Bank of India. Thereafter, the Kotak Mahindra Bank Limited, on understanding that the debt due was not discharged by R. Swarup Reddy, resorted to issuance of Insolvency Notice dated 23.04.2009 by invoking Section 9(2) of the Presidency Towns Insolvency Act, 1909.
2. Whereupon the respondent in Insolvency Notice No.35 of 2009 filed this application with the following prayer:
“to pass an order setting aside the insolvency notice”
The whole kit and caboodle of facts and the gist and kernel of the grounds on which the said prayer was made by Swarup Reddy, could be portrayed thus:
a) Section 9 (2) of the presidency Towns Insolvency Act, 1909 (hereinafter called as “the Act”) cannot be invoked for the reason that the recovery certificate issued by the Debts Recovery Tribunal, Bangalore under DCP No.3489 of 2004 in O.A.No.436 of 2001 cannot be equated to that of an order or decree contemplated in Section 9(2) of the Act. Even though the State Bank of India might have assigned the debt in favour of the Kotak Mahindra Bank Limited, nonetheless it would not constitute a Banking transaction and accordingly Debts Recovery Tribunal itself had no jurisdiction to effect such amendment/corrections in the recovery certificate; wherefore, the Kotak Mahindra Bank Limited, being a Bank, cannot resort to recovery proceedings as against the applicant/respondent Swarup Reddy.
b) The leave of the Company Board under Section 446(1) of the Companies Act for resorting to recovery proceedings was not obtained by the Kotak Mahindra Bank Limited in the wake of the fact that already principal borrower company viz., Trans India Lamps Limited, went into liquidation.
3. Refuting and remonstrating, challenging and impugning, the averments/allegations in the petition filed by Swarup Reddy, the Kotak Mahindra Bank Limited filed its counter justifying the action taken by them.
4. Heard both sides.
5. The points for consideration are as to:-
1. Whether the decision rendered by the Debts Recovery Tribunal and the consequent issuance of recovery certificate can be equated to that of a decree or order as contemplated under Section 9(2) of the Act?
2. Whether permission from the Company Board under Section 446 of the Companies Act was a sine qua non for the State Bank of India or Kotak Mahindra Bank Limited to proceed further in this matter by way of recovering the debt? and
3. Whether the assignment of debt effected by the State Bank of India in favour of the Kotak Mahindra Bank Limited could be termed as a Banking activity within the meaning of Banking Regulation Act and consequently attracting the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 for resorting to recovery proceedings?
6. the tour d’ horizon of the arguments as put forth by the learned counsel for the applicant/respondent would run thus:
a) The term decree and order as contemplated under Section 9(2) of the Act should be interpreted in accordance with the definitions as contemplated in the Code of Civil Procedure under sub-sections (2) and (14) of Section 2 of the Code of Civil Procedure.
b) Insolvency Act, being punitive in nature, no liberal interpretation can be resorted to and it should be strictly construed. Accordingly, the decision rendered by the Debts Recovery Tribunal and the consequent issuance of the Recovery Certificate cannot be taken as either a decree or an order of a civil court within the meaning of Section 9(2) of the Act.
c) After the issuance of the recovery certificate by the Tribunal it had become functus officio and it had no power subse
