Murablack (India) Limited vs Fairgrowth Financial Services ...
2002 Latest Caselaw 856 Bom

JUDGMENT

FACTS :--

1. Murablack (India) Limited, filed in this Court, Misc. Petition No. 9 of 1992 for recovery of an amount of Rs 2 crores with interest at 24% p.a. from 16-4-1992 and 19-5-1992 till payment from Fairgrowth Financial Services Limited (FFSL).

2. FFSL was notified around 2-7-1992. On 26-7-1993, Miscellaneous Petition No. 9 of 1992 came before Variava, J. (as he then was) when the Petition was adjourned sine-die. The Office was directed to place the matter before the Special Court at the time of final distribution under Section 11 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992. The learned Judge further directed that the exact amount to be paid was to be decided after taking into consideration the available assets and liabilities of FFSL. Ultimately, this Court, on 2-5-1992, heard and disposed of Miscellaneous Application No. 222 of 1996 made by the Custodian for distribution of the assets of FFSL under Section 11(2). Consequently, on 2-5-1992, Misc. Petition No. 9 of 1992 came to be disposed of by this Court directing 25% of the claim amount, amounting to Rs. 50 lakhs, to be paid on behalf of FFSL to Murablack (India) Limited - Petitioners in Misc. Petition No. 9 of 1992. This Order came to be passed on 2-5-1992 in view of the fact that the Chartered Accountants appointed by the Court gave their Report pursuant to which, interim dividend came to be declared by this Court. No sooner the interim dividend came to be declared, the applicant moved before this Court, Misc. Application No. 453 of 2002, inter alia, stating that they were the assignees of Murablack (India) Limited (the Petitioner in Misc. Petition No. 9 of 1992). In other words, Murablack (India) Limited were the decree holders in whose favour the interim dividend came to be declared under the provisions of Section 11(2)(c) of the Special Courts Act, 1992. By this application, Growth Techno Projects Limited of which Acharya Arun Dev is a director, applied to this Court for substitution of their name in place of Murablack (India) Limited under Order XXII, Rule 10 of the Civil Procedure Code (CPC). Accordingly, Misc. Application No. 453 of 2002 has come before this Court. According to this Application under Order XXI, Rule 10 Civil Procedure Code, Growth Techno Projects Limited had entered into an agreement of assignment dated 27-6-1995 under which Murablack (India) Limited assigned the monies due and payable by FFSL to Murablack (India) Limited in favour of Growth Techno Projects Limited. Therefore, by the present application, Growth Techno Projects Limited has submitted that they be brought on record and monies payable by FFSL to Murablack (India) Limited be paid to Growth Techno Projects Limited as assignees. This application, for being brought on record, was made on 26-7-2002 i.e. after this Court distributed 25% dividend in favour of Murablack (India) Limited. It is the case of Growth Techno Projects Limited that at the time of execution of the Agreement of Assignment on 27-6-1995, Murablack (India) Limited took three post-dated cheques on the understanding that Murablack (India) Limited will deposit the same only on instructions from Growth Techno Projects Limited. That, however, Murablack (India) Limited demanded security for instalments in the form of shares valued at Rs. 2.83 crores and further recorded that in case of default, Murablack (India) shall dispose of the shares and adjust the sale proceeds against the outstandings of Growth Techno Projects Limited. That, accordingly, Acharya Arun Dev the Director of Growth Techno Projects Limited, delivered to Murablack (India) Limited, 263000 shares in Growth Techno Projects Limited valued at Rs. 3.47 crores. However, the post dated cheques given to Murablack (India) Limited were replaced by Pay Orders on the account of Acharya Arun Dev. In short, an amount of Rs. 2 crores was paid by Growth Techno Projects Limited on the date of execution of the Agreement of Assignment dated 27-6-1995 to Murablack (India) Limited and further credit was given by Murablack (India) Limited to Growth Techno Projects Limited for an amount of Rs. 1.76 crores. In short, an amount of Rs. 3.76 crores were paid to Murablack (India) Limited out of Rs. 4.63 crores by Growth Techno Projects Limited leaving a balance of Rs. 87.89 lakhs. In short, this is the case of Growth Techno Projects Limited who seek to substitute it's name in place of Murablack (India) Limited under Order XXII, Rule 10 Civil Procedure Code.

ARGUMENTS :

3. When the present application No. 453 of 2002 came before this Court, the Custodian raised a preliminary objection. He submitted that under Section 9-A of the Special Court (TORTS) Act 1992, this Court has been set up to entertain claims relating to any property standing attached under Section 3(3) and that such claims shall arise out of transactions in securities entered into after 1-4-1991 and upto 6-6-1992. It was further submitted that in view of Section 9-A(4), the procedure laid down under the Civil Procedure Code is not applicable and that the Special Court was guided by the principles of natural justice and that the Special Court is empowered to regulate it's own procedure. It was pointed out by the Custodian that in the present case, there is a dispute between Growth Techno Projects Limited and Murablack (India) Limited as to the validity of the Agreement to Assign dated 27-6-1995. He invited my attention to a pending Suit on the Original Side of the High Court, being Suit No. 50 of 1999 for specific performance of the Agreement of Assignment dated 27-6-1995 filed by Murablack (India) Limited against Growth Techno Projects Limited. It was further submitted on behalf of the Custodian that the present application has been moved by the alleged assignee only after the decree came to be passed on 2-5-2002. That, under the Orders passed by Variava, J. on 28-10-1999, it was recorded that the amount of Rs. 2 crores shall be treated as a simple loan to the decree holder Murablack (India) Limited and that the amount shall be determined and paid only at the time of distribution. It was pointed out by the Custodian that on 2-5-2002, this Court has declared dividend of Rs. 50 lakhs to be paid to Murablack (India) Limited as and by way of interim dividend under Section 11(2)(c). That, from 27-6-1995 upto 25-7-2002, the alleged assignee has not moved the Special Court. That, the present application is made only after distribution of dividend on 2-5-2002 and after the decree came to be passed on 2-5-2002 and, therefore, the provisions of Order XXII, Rule 10 had no application. This was the preliminary objection raised by the Custodian.

4. In reply, Mr. Saxeria, learned counsel appearing on behalf of the alleged assignee Growth Techno Projects Limited submitted that even if this application does not fall under Order XXII, Rule 10 it can fall under Order XXI, Rule 16. He submitted that under Order XXI, Rule 16 Civil Procedure Code, Growth Techno Projects Limited was a transferee of a decree and, as a transferee of a decree, Growth Techno Projects Limited was entitled to maintain this Application under Order XXI, Rule 16. He relied upon the judgment of the Supreme Court in the case of Jugalkishore Saraf v. Raw Cotton Co. Ltd., reported in AIR 1955 SC Page 376. He contended, relying on the said judgment, that the validity of the assignment can be decided by the Executing Court under Section 47 Civil Procedure Code. He further contended, relying on the above judgment, that although under strict rule of interpretation, under Order XXI, Rule 16 an agreement to assign the debt was different from assignment of a decree. The Courts have, on the ground of equity, permitted assignees of debts to execute decrees under Order XXI, Rule 16. He, therefore, contended that even if the Agreement of 27-6-1995 be treated as an assignment of debt and not as an assignment of a decree, even then on grounds of equity, Growth Techno Projects Limited were entitled to seek execution of the decree under Order XXI, Rule 16. Mr. Saxeria further submitted that under Section 9-A(4), this Court has not evolved the procedure for execution, excluding Section 47, Civil Procedure Code. He, therefore, submitted that Section 47 was applicable to the facts to this case. He, therefore, submitted that the present Application No. 453 of 2002 was an application for execution. That, Growth Techno Projects Limited was entitled to execute the decree as a transferee under Order XXI, Rule 16. He further submitted that this Court has passed a decree in favour of Murablack (India) Limited. That, the decree was passed against the notified party. That, Section 9-A(1) was required to be construed in the widest possible terms and if so read, this Court shall decide all disputes regarding validity of assignment and the status of the applicant - Growth Techno Projects Limited to maintain Execution Application under Order XXI, Rule 16. He contended that when a debt is assigned, the assignee has to apply under Order XXI, Rule 10 to be brought on record. That, even if such application was not made during the pendency of the Suit, nothing prevented the assignee from moving the Executing Court under Order XXI, Rule 16 claiming beneficial interest in the after-acquired decree. He, therefore, submits that this application was maintainable before this Court. He therefore, submits that the Court should pronounce on the validity of the assignment as an Executing Court under Section 47, Civil Procedure Code.

Mr. Same, learned counsel appearing on behalf of Murablack (India) Limited submitted that he supported the Custodian on the preliminary ground that Civil Procedure Code was not applicable to the Special Court; that the assignment was made in 1995. That, the claim of Growth Techno Projects Limited was under dispute. He pointed out that Growth Techno Projects Limited had cancelled the Agreement dated 27-6-1995 vide letter dated 15-3-1997. That Murablack (India) Limited has instituted a Suit for specific performance of the Agreement being Suit No. 50 of 1999. That, the Suit is pending on the Original Side of the High Court. It was contended that Growth Techno Projects Limited had cancelled the Agreement dated 27-6-1995 and having cancelled that Agreement, it was not open to Growth Techno Projects Limited now to claim that they were the transferee of the debt. It was submitted that the judgment of the Supreme Court did not apply to the facts of the present case. It was submitted that if one looks at the prayers in the present application made by Growth Techno Projects Limited, it is clear that the assignee wants a declaration from the Executing Court that Clause 3 of the Agreement to assign be declared as null and void; that in the present application the assignee also seeks a declaration that the adjustment of Rs. 1.75 crores made by Murablack (India) Limited be declared illegal. He accordingly, submitted that such an application cannot fail within the purview of Section 47 of Civil Procedure Code. He further submitted that the Present application should be dismissed with costs as the applicant - assignee has suppressed the letter of cancellation of the Agreement dated 15-3-1997. It was further submitted that there was no assignment in favour of Growth Techno Projects Limited. That, the Agreement dated 27-6-1995 was an agreement to assign on Rs. 10/- stamp paper. That, the said agreement was not an assignment. It was merely an agreement to assign. Therefore, it was contended that Order XXI, Rule 16 also did not apply to the facts of the present case.

FINDINGS :

5. From June 1992, the Special Court has been functioning under Special Court (TORTS) Act, 1992. The Special Court was set up for speedy trial of offences relating to transactions in securities. Under Section 3(3) of the Act, properties belonging to the notified person stood attached with the issue of the Notification and such properties could be dealt with by the Custodian in such manner as the Special Court may direct. Section 9-A was introduced by Amending Act No. 24 of 1994. Section 9-A deals with jurisdiction, power, authority and procedure of Special Court in civil matters. Under Section 9-A, the jurisdiction of this Court in civil matters is in respect of transactions during the statutory period 1st April, 1991 to 6th June, 1992 and in relating to the properties attached. Therefore, the entire operation of the Act revolves around the transaction in securities during the statutory period (see para 9 of the Judgment of the Supreme Court in Harshad Shantilal Mehta v. Custodian and Ors. ). Further, under Section 9-A(4) it is laid down that while dealing with cases under the Act, the Special Court shall not be bound by the Code of Civil Procedure but shall be guided by the principles of natural justice. Section 11, therefore, deals with disbursement of property attached under Section 3(3) and since the property attached belongs to the person notified, the liabilities which are to be discharged under Section 11(2) are also the liabilities of the person notified. For the purposes of this case, the most important aspect to be considered is that the agreement to assign is dated 27th June 1995. Therefore, the agreement does not fall within the statutory period. In the circumstances, the present dispute relating to validity of the agreement to assign dated 27th June, 1995 cannot be gone into by the Special Court. The Scheme of the Act, 1992 shows that the Custodian has the power to notify any person involved in any offence relating to security transactions between 1st April, 1991 and 6th June, 1992 and on and from the date of Notification under Section 3(3), any property belonging to the notified party shall stand attached simultaneously with the issue of the Notification. Therefore, the Special Court can exercise its authority only with regard to the attached property under Section 11. The power to order payment of amounts due from a notified person to any Bank, Financial Institution or Mutual Fund or to a creditor proceeds on the existence of obligations inter se between the parties based on contractual, statutory or other legally recognized rights. Therefore, a stranger to the consideration respecting transactions between a notified party and the Bank or Financial Institution cannot seek to enforce the obligations thereunder and the remedy of that stranger against the notified party - debtor lies in the ordinary Court. There is a reason why the Legislature has excluded applicability of Code of Civil Procedure to the trials before the Special Court. The Statement of objects and reasons shows that large scale irregularities and malpractices were noticed in transactions in securities which led to diversion of funds from Banks and Financial Institutions to the individual accounts of certain brokers. Therefore, under the scheme of the Act, the Special Court is set up to discharge those liabilities at the earliest possible time to the Revenue, Banks and Financial Institutions and other creditors. But those liabilities should accrue out of security transactions during the statutory period and in relation to the attached properties. The Court is not empowered, therefore, to decide on transactions falling outside the statutory period. Therefore, the Court can adjudicate on claims arising out of security transactions taking place during the statutory period only. This Court cannot adjudicate claims in respect of transactions falling during the post notification period. Otherwise, this Court would be flooded with adjudication of disputes which would stall early discharge of liabilities to the Revenue and to Banks and Financial Institutions under Section 11(2). Therefore, in the present case, this Court has no jurisdiction to go into validity of the agreement to assign dated 27th June, 1995. In the case of Kudremukh Iron Ore Co. Ltd. v. Fairgrowth Financial Services Ltd. and Anr. reported in 14 Corporate Law Adviser, page 249, the Supreme Court has laid down that the notified person has no legal liability to the creditor of his creditor. In that matter Kudremukh Iron Ore Company was a Government Company which invested Rs 55 crores with Andhra Bank Financial Services Ltd. who, in turn, invested Rs 240 crores in FFSL, a person notified under subsection (2) of Section 3. Andhra Bank Financial Services Limited expressed its inability to repay Rs. 55 crores to the Government Company on the ground that its own funds were locked up with the notified person - FFSL. The Government Company moved the Special Court for direct repayment of Rs. 55 crores from the notified person - FFSL under Section 11 on the ground that the Government Company was the creditor of the creditor of the notified person. The Special Court dismissed the application of the Government Company on the ground that the claim of the Government Company did not fall within the purview of the jurisdiction of the Special Court. Being aggrieved, the Government Company went in appeal to the Supreme Court. The Supreme Court confirmed the Order of the Special Court. The Special Court held that the notified person was Fairgrowth Financial Services Ltd. and since there was no privity of contract between the notified person and the Government Company, the Special Court had no jurisdiction to adjudicate the claim of the creditor of the creditor of the notified person. The Supreme Court further observed that the Government Company was a stranger to the consideration respecting transactions between Andhra Bank Financial Services Ltd. and the notified person and, therefore, the Government Company cannot seek to enforce the obligations. That, the remedy of the Government Company against its debtor, who is not a notified person, lies in the ordinary Court of the land. To my mind, this Judgment applies to the facts of the present case. Before me, it was argued on behalf of the alleged assignee that under Section 47 of the Code of Civil Procedure, Growth Techno Projects Ltd. -Applicant was the representative of the assignors. That, this Court having passed a decree on 2nd May, 2002 in Misc. Petition No. 9 of 1992 was an Executing Court. That, the special Court had declared dividend at 25% on 2nd May, 2002 amounting to Rs. 50 lakhs in favour of the assignor. That, in view of the agreement dated 27th June, 1995, Rs. 50 lakhs should be paid over to the alleged assignee after adjudicating the validity of the agreement. That, the Special Court was an Executing Court and, therefore, it had the authority to adjudicate upon all questions including the validity of the assignment. It was argued that the alleged assignee was entitled to maintain application under Order 22, Rule 10. That, the assignee, under Order 22, Rule 10, could have come on record even in the pending suit/Misc. Petition No. 9 of 1992. That, as a representative of the assignor, therefore, this Court ought to decide on the validity of the agreement to assign dated 27th June, 1995. However, I do not find any merit in this argument. Firstly, as stated hereinabove, the agreement to assign is dated 27th June, 1995. Therefore, that agreement is not within the statutory period. Secondly, as laid down by the Supreme Court, the alleged assignee was a stranger to the consideration respecting transactions between the notified person, in this case -FFSL and Murablack (India) Ltd. Therefore, on both the grounds, Order 22, Rule 10 had no application and the alleged assignee could not have claimed a right to prosecute the suit as an assignee. That, enforcement of the agreement dated 27th June 1995 by the alleged assignee could be done only by the ordinary Court and not by the Special Court. In the circumstances, it is not necessary for this Court to consider various judgments cited on behalf of the alleged assignee. None of those cases are applicable to the present case. It is not in dispute that before the Civil Court questions regarding validity of the assignee could be gone into under Section 47. However, in the present case, we are not concerned with the powers of the Executing Civil Court under the Code of Civil Procedure. We are concerned with the powers of the Special Court under Section 9-A. Therefore, those Judgments have no applications to the facts of this present case.

Applying the above test to the facts of the case before us, Misc. Petition No. 9 of 1992 was filed by Murablack (India) Limited against the notified party FFSL for recovery of an amount of Rs 2 crores. By an order passed on 26-7-1993 by Variava, J. (as he then was), it was made clear that Murablack (India) Limited and the notified party had agreed to treat Rs 2 crores as simple loan advanced to FFSL and, therefore, it was ordered that Misc. Petition No. 9 of 1992 should be placed before the Court at the time of distribution under Section 11(2)(c) of the attached assets of FFSL - notified party. After that order, the Chartered Accountant appointed by the Court for FFSL submitted a realistic estimate of the financial position of the Company on 31-3-2002 in which the claim of Murablack (India) Limited came to be admitted and pursuant to that admission, this Court passed a decree on 2-5-2002 and also declared 25% dividend in favour of Murablack (India) Limited. That was on the footing that FFSL had received the loan during the statutory period. That was on the footing that Murablack (India) Limited had a right in distribution of the attached assets of FFSL. However, the so called assignment is dated 26-6-1995 from Murablack (India) Limited to Growth Techno projects Limited. The present application is made by Growth Techno Projects Limited. Therefore, the rights, if any, in favour of the assignee accrued on 27-6-1995. The present application is in respect of the claim which arose on 27-6-1995. The debt has been assigned on 27-6-1995. It is not coming within the statutory period. In the circumstances, I find merit in the argument advanced on behalf of the Custodian that the claim made by the alleged assignee cannot be tried by the Special Court. The Special Court has been set up for a specific purpose. The Special Court can entertain claims relating to property attached under Section 3(2) or claims arising out of transactions entered into during the statutory period. Under the above circumstances, it is not open for this Court to decide claims arising out of transactions falling outside the statutory period. Moreover, under Sub-section (4) of Section 9A of the Act, it is laid down that the Special Court is not bound by Civil Procedure Code. That the Special Court shall be guided by the principles of natural justice. The Act is passed as large scaled irregularities and malpractices were noticed in security transactions entered into by brokers in collusion with Banks and Financial Institutions, leading to diversion of funds from Banks and Financial Institutions into the accounts of the brokers. The Act is enacted to ensure speedy recovery of huge amounts involved in transactions in securities and for distribution of properties attached. If these objects are kept in mind along with the scheme of the Act, it is clear that unless the claim falls within the statutory period and that it relates to properties which are attached under Section 3(2), the Special Court will have no jurisdiction to adjudicate. In the present case, therefore, the Court has no jurisdiction to go into the question of recording the assignment. There are serious disputes between the assignor and the assignee. Prima Facie, there is no assignee. There is only an agreement to assign. That agreement has been cancelled by the alleged assignee - Growth Techno Projects Limited. There is a Suit filed for specific performance of the agreement by Murablack (India) Limited against the alleged assigned Growth Techno Projects Limited. That Suit is pending on the Original Side of the High Court. Even in the present application, the assignee claims that part of the agreement be declared as null and void as being against public policy. Even in the present application, the alleged assignee claims that the adjustment made by the assignor be declared illegal. All these disputes have arisen in 1995. All these disputes revolve around agreement of assignment dated 27-6-1995 i.e. during the post-statutory period. In the circumstances, this Court has no jurisdiction to record the assignment.

6. As stated above, this Court has already commenced the work of distribution of attached assets from 2nd May, 2002. Further this Court is discharging the liabilities of the Revenue, Banks and Financial Institutions and also of the residuary creditors who have obtained decrees from the Competent Civil Court. The alleged assignee, in the present case, has not instituted any legal proceedings till today in respect of the agreement dated 27th June 1995. On the contrary, they have cancelled the said agreement vide letter dated 15th March, 1997. Further, the assignor has instituted a suit for specific performance of the agreement on the original side of the High Court being Suit No. 50 of 1999. That suit is pending. There is no declaratory decree obtained by the alleged assignee. No decree has been produced by the alleged assignee before the Special Court on 2nd May, 2002 when it passed the Order of distribution. On 2nd May 2002, the Special Court declared interim dividend of 25% to various decree holders in Misc. Application No. 222 of 1996. On 2nd May, 1992 Murablack (India) Ltd. had decree in its favour. Therefore, the interim dividend was awarded to Murablack (India) Ltd. The decree in favour of Murablack (India) Ltd. was passed because the loan was advanced during the statutory period and the Chartered Accountant appointed by the Court had certified the claim of Murablack (India) Ltd. Prima facie, even the claim of the alleged assignee appears to be time barred. The present application is moved only because the interim dividend has been declared in favour of Murablack (India) Ltd. At the stage of distribution under Section 11(2)(c), this Court goes by the valid decree of the Competent Courts against the notified person for the liabilities arising on contracts taking place during the statutory period. The narrow point at issue is whether this court should go into validity of the agreement of assignment dated 27th June, 1995. This issue is answered in the negative i.e. against the alleged assignee - Growth Techno Projects Ltd. as this Court has no jurisdiction to entertain try and decide the claims filed on contracts falling outside the statutory period. Therefore, in such cases, the assignee should get their rights adjudicated upon by the Competent Civil Court and they should produce decrees of the Competent Civil Court at the time of distribution under Section 11(2)(c) before the Special Court. This has not been done.

7. Subject to above, Misc. Application No. 453 of 2002 stands dismissed. No order as to costs.

8. Mr. Saxeria learned counsel for the applicant applies for stay of this judgment for 4 weeks to enable him to approach the Supreme Court. Mr. Rustomjee learned counsel for the Custodian states that the Custodian will not distribute the amount in favour of Murablack (India) Limited for four (4) weeks from the date of the receipt of the certified copy of this Order by the Custodian.