Small Industries Development Bank of India vs Sibco Investment Pvt. Ltd.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2022 Supreme(SC) 85

SUPREME COURT OF INDIA
(From the High Court of Calcutta)
R. SUBHASH REDDY, HRISHIKESH ROY, JJ.
Small Industries Development Bank of India – Appellant
Versus
M/s. Sibco Investment Pvt. Ltd. – Respondent
Civil Appeal Nos. 8, 9 of 2022, S.L.P. (C) Nos. 6533 of 2020, 2876 of 2021
Decided On : 03-01-2022

Advocates appeared:
For the Petitioner(s): Mr. Rauf Rahim, AOR Ms. Uttara Babbar, AOR
For the Respondent(s): Ms. Uttara Babbar, AOR Mr. Rauf Rahim, AOR

Headnote:
RBI Directives - SIDBI Bonds - 45-MB of the RBI Act, 1934, 35-A of the Banking Regulation Act, 1949 - The defendant acted in accordance with the RBI directives, which were statutorily binding. The plaintiff's title was under a cloud during the suspect spell, and the defendant acted prudently in withholding payment. The plaintiff's demand for interest on delayed payment was barred by waiver/acquiescence and constructive res-judicata. The defendant's appeal is allowed, and the plaintiff's cross-appeal is rejected.
Fact of the Case:

The plaintiff filed a suit against the defendant seeking interest on belated payment of principal sum and accrued interest for Bonds issued by the defendant. The defendant withheld payment in accordance with RBI directives and due to suspicion over the plaintiff's title during the suspect spell. The plaintiff's demand for interest was barred by waiver/acquiescence and constructive res-judicata.
Finding of the Court:

The defendant acted prudently in withholding payment, and the plaintiff's demand for interest was barred by waiver/acquiescence and constructive res-judicata. The defendant's appeal is allowed, and the plaintiff's cross-appeal is rejected.
Issues: The main issue was whether the plaintiff's demand for interest on delayed payment was justified, and whether the defendant acted prudently in withholding payment.
Ratio Decidendi: The defendant acted in accordance with RBI directives, and the plaintiff's demand for interest was barred by waiver/acquiescence and constructive res-judicata.
Final Decision: The defendant's appeal is allowed, and the plaintiff's cross-appeal is rejected.

Judgement Key Points

Certainly. Based on the provided legal document, the key points are as follows:

The court held that the defendant, SIDBI, acted in accordance with directives issued by the RBI, which are statutorily binding. The directives prohibited the defendant from transferring, registering, or dealing with securities without prior permission from the Official Liquidator, especially during the ongoing liquidation proceedings of CRB Capital. The defendant’s compliance with these directives was deemed prudent and justified (!) (!) .
The RBI communication of June 9, 1997, was interpreted as an advisory rather than an enforceable order. However, the court emphasized that directives issued by the RBI under its statutory powers carry binding force, even if not explicitly labeled as such, as they derive their authority from specific provisions of the RBI Act and Banking Regulation Act (!) (!) (!) (!) .
The court recognized that the RBI’s directives and notifications were issued for the purpose of protecting the interests of creditors and depositors, and in the public interest, thereby making them legally binding on financial institutions like SIDBI (!) (!) .
The plaintiff’s claim for interest on delayed payment was found to be unjustified because the defendant acted in good faith, following RBI directives, and the claim was further barred by waiver and acquiescence due to the plaintiff’s acceptance of payments without protest over an extended period (!) (!) .
The issue of whether the plaintiff’s title to the bonds was clouded during the suspect period was acknowledged. The suspicion over the title, shared by the RBI and the Official Liquidator, justified SIDBI’s withholding of payment until the resolution of the liquidation proceedings and the final court judgment cleared the title (!) (!) .
The court highlighted that the plaintiff’s transaction during the suspect spell, when there was a cloud over the title, was questionable. The plaintiff was not a holder in due course at the relevant time, and their claim for interest was considered an afterthought, not supported by the circumstances (!) (!) .
The court concluded that SIDBI acted bona fide and prudently in withholding payment, given the legal and procedural uncertainties, including ongoing liquidation proceedings and the shadow cast over the plaintiff’s title. The defendant’s actions were deemed justified and in compliance with statutory directives (!) (!) .
The court ultimately allowed the defendant’s appeal, restoring the original trial court judgment, and rejected the plaintiff’s cross-appeal for additional interest, emphasizing that the defendant’s actions were legally justified and that the plaintiff’s claims were barred by principles of waiver, acquiescence, and the suspect status of the bonds during the dispute period (!) .

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JUDGMENT :

HRISHIKESH ROY, J.

1. Leave granted.

2. The challenge in these appeals is to the judgment and order dated 25.11.2019 of the Division Bench of the High Court of Calcutta, whereby the decision of the Single Judge dismissing the suit i.e. C.S. No. 79/2006 of M/s. SIBCO Investment Pvt. Ltd. (for short SIBCO) was reversed. The suit was filed against Small Industries Development Bank of India (SIDBI) seeking interest on the alleged belated payment of principal sum and accrued interest to the plaintiff for the Bonds issued by SIDBI.

3. The question to be answered in this case is whether plaintiff has set forth a just claim, based on the Bonds issued by the defendant or is it a case of that trial in Shakespeare’s The Merchant of Venice where Shylock is claiming the promised pound of flesh in the form of interest on delayed payment on the Bonds purchased by the plaintiff. The 41 Bonds related to this case were initially issued by SIDBI to M/s. CRB Capital Markets Ltd. (Hereinafter referred to as “CRB Capital”) in 1993. Those Bonds were then sold by CRB Capital to one Shankar Lal Saraf in February, 1997 and those in turn were then sold on 1.7.1998 to SIBCO - the plaintiff and the respondent herein. In the meantime, CRB Capital faced winding up proceedings at the instance of the RBI in the Delhi High Court. The said proceeding will have a bearing on this case.

4. The following relevant facts necessary for consideration of this appeal are broadly culled out from the judgment of the Calcutta High Court:

4.2 The Calcutta High Court on 09.01.2001 held that writ court is not the proper forum and permitted the petitioner to approach the Company Court, being the High Court at Delhi, seeking intervention in the liquidation proceeding initiated against CRB Capital. Though an intra-court appeal was preferred against the said order but it was not proceeded with. On the request of the plaintiff, the Shankar Lal Saraf (the plaintiff’s predecessor-in-interest) filed an interlocutory application in the pending liquidation proceeding before the Company-Court, claiming that the aforesaid transactions should be treated as outside the purview of the liquidation proceeding, under the Companies Act, 1956.

4.3 By a judgment dated 17th December, 2004, the Learned Company Court held that the subject Bonds are beyond the purview of the liquidation proceeding and directed Shankar Lal Saraf to put up the matter before the defendant. On 17th February, 2005 the above judgment of the Company Court was communicated and the Bonds were presented to the defendant. Then on 21st Februar

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2022 Supreme(SC) 85

SUPREME COURT OF INDIA(From the High Court of Calcutta)R. SUBHASH REDDY, HRISHIKESH ROY, JJ.Small Industries Development Bank of India – AppellantVersusM/s. Sibco Investment Pvt. Ltd. – RespondentCivil Appeal Nos. 8, 9 of 2022, S.L.P. (C) Nos. 6533 of 2020, 2876 of 2021Decided On : 03-01-2022