Maharashtra State Financial ... vs Naresh Kunjilal Gupta And Ors.
2002 Latest Caselaw 1145 Bom

JUDGMENT

F.I. Rebello, J.

1. This appeal is directed against the order dated 4.7.2002 whereby the District Court in proceedings initiated under Section 31 of the State Financial Corporation Act, 1951 hereinafter referred to as the State Act has refused to transfer the proceedings to the Tribunal constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It may be pointed out that by Notification dated 23.7.1999 in exercise of powers conferred on Section 3, Debt Recovery Tribunal has been constituted for the States of Maharashtra and Goa.

2. On behalf of the appellants, it is contended firstly that the appeal as instituted falls within the jurisdiction of the Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 hereinafter referred to as the Debt Recovery Act. It is contended that they had applied under Section 31 of the State Financial Corporation Act, 1951 of the District Court. Their application was maintainable considering Section 31(AA) of the Act. It being a debt within the meaning of Section 2(g) of the Debt Recovery Act, by operation of law and considering Section 31 the suit or other proceedings pending before any Court immediately before the date of establishment of the Tribunal and in respect of which cause of action would fall within the jurisdiction of the Tribunal has to be transferred to the Tribunal. It is contended that this aspect of the matter is covered by the judgment of the Apex Court in the case of Hara Parbati Cold Storage Pvt. Ltd. and Anr. v. UCO Bank and Ors., VIII . It is further contended that the issue was in issue before the learned Judge of this Court in Misc. Petition No. 32 of 1997 which was disposed of on 12.10.2000 by Kochar, J. In these circumstances, it is contended that the order of the District Court refusing to transfer the petition amounts to failure to exercise jurisdiction and the order passed is without jurisdiction and consequently is liable to be set aside.

On the other hand, on behalf of the respondents, it is contended that the scheme of Section 31 of the State Financial Corporation Act has been considered by the learned Judge of this Court in the case of Kiril Fine Art and Anr. v. Maharashtra State Financial Corporation, II (1997) BC 519=1997(2) Mh.L.J. 348. It is contended that the Court exercising jurisdiction under Section 31 of the State Act cannot direct payment of money and if that be the case, as there is no doubt, D.R.T. would have no jurisdiction. It is further contended that the issue raised herein was in issue in the case of Kiril Fine Arts and Another (supra) and considering that order of the District Court ought not to be interfered with.

3. Having heard learned Counsel, I am of the opinion that the order of the District Court suffers from an error of jurisdiction and consequently the order is liable to be interfered with. In the first instance by an application under Section 31 of the State Financial Corporation Act. petitioners amongst others had approached for reliefs which includes direction that the opponents be directed to pay the amount of Rs. 1,00,71,285.50 and on failure to pay i'or sale of the properties mortgaged. It is the mortgaged property which is sought to be sold. It is in that background that the issue will have to be considered. It is no doubt true that under Section 31, the State Financial Corporation which has granted loan to as industrial concern, may apply to the District Judge within the limits of its jurisdiction amongst others for enforcing the liability of any surety, in other words, enforcement of liability of surety is within the jurisdiction of Section 31 of the Financial Corporation Act i.e. Stale Act. In enforcing the security incidentally it must be held that there is a debt due and payable. Once there is debt due and payable, the Court can direct under Section 31 sale of the mortgaged properly. A look at Section 31 of the State Act would so indicate otherwise the direction cannot be given. The prayer of the appellant, therefore, may be a widely worded prayer. That however, docs not mean that the District Court before directing sale of the property cannot determine chat there is a debt due and the debt payable as that would be an incidental power in the Court for the purpose of exercising jurisdiction for sale of property. If there is no debt, there can be no sale. It would, therefore, be within the jurisdiction of the Court under the State Act to answer incidental issues arising before granting main relief of sale of mortgaged properly. Once there is such power then the question that remains is whether it a debt within the meaning of Section 2(g) of the Debt Recovery Act, Section 2(g) reads as under:

"Debt" means any liability (inclusive of interest) which is claimed as due from any person by a Bank or a financial institution or by a consortium of Banks or financial institutions during the course of any business activity undertaken by the Bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any Civil Court or any arbitration award or otherwise or under a mortgage and subsisting on and legally recoverable on, the date of the application."

4. It is, therefore, clear that the debt would include any liability from any person claimed by the Bank. In the instant case, the respondent is a guarantor. The law is now well-settled that the Financial Institution can proceed independently against the guarantor, independent of the principal debtor. The liability of the guarantor is co-extensive with that of the principal debtor. That being the position under law, the amount due from the guarantor would be a debt within the meaning of Section 2(g). Once it is debt, it would fall within the exclusive jurisdiction of the Tribunal constituted under the Debt Recovery Act under Section 17. Once it falls within the exclusive jurisdiction, by virtue of Section 15, the Court would have no jurisdiction. There is further provision namely Section 31 under the Debt Recovery Act under which pending proceedings have to be transferred. As pointed out earlier, that is the subject matter of the judgment of the Apex Court in Hara Parbati Cold Storage Pvt. Ltd. (supra). In other words, therefore, the order of the District Court refusing the transfer the proceedings was clearly erroneous in law apart from the fact that he was bound under the law to transfer the proceedings. The interpretation taken would be inconsonance with the view expressed by the Apex Court in the case of Allahabad Bank v. Canara Bank and Ors., IV (2000) SLT 325=I (2000) BC 627=III (2000) CLT 129 (SC)=JT 2004 SC 411, wherein the Apex Court has taken a view that Tribunal constituted under the Debt Recovery Act is a special Act and correspondingly Financial Corporation Act would be a General Act. Once remedy is provided under the special enactment there will be also ouster of jurisdiction under the general enactment.

5. Having said so, the impugned order dated 4.7.2002 is quashed and set aside. The Civil Misc. Application No. 328 of 1997 pending before the Additional District Judge, Nashik is directed to be transferred to the competent Debt Recovery Tribunal within four weeks from today.

With above directions, Appeal from order is allowed. No order as to costs.