Southern Petrochemicals ... vs Administrator Of Specified ...
2004 Latest Caselaw 894 Bom

JUDGMENT

S.U. Kamdar, J.

1. By the present petition, the petitioner is challenging the order passed by the Chairperson of the Debt Recovery Appellate Tribunal in Misc. Appeal No. 132 of 2004. Briefly speaking the facts in the present case are as under :-

2. The petitioner is a public limited company incorporated and registered under the Companies Act 1 of 1956 and is inter alia engaged in the manufacture and distribution of fertilizers, pharmaceuticals products, etc. The Unit Trust of India (UTI) was a body corporate under the provision of the Unit Trust of India Act, 1963 which is since repealed by the provisions of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (hereinafter referred to as 'the said UTI Act of 2002'). Under a common loan agreement dated 1.10.1992 which was executed between the petitioner, the said Unit Trust of India and IDBI as the lead institution a sum of Rs. 1000 lacs were advanced to the petitioner herein. An additional loan of around Rs. 2500 lacs was also advanced by UTI to the petitioner herein against privately placed debentures.

3. By virtue of the said UTI Act of 2002, the said entity Unit Trust of India stood dissolved and bifurcated in two separate entities viz., Administrator of the specified undertaking of the Unit Trust of India and UTI Trustee Company. Section 18 of the said Act is the subject matter of interpretation in the present proceedings.

4. Pursuant to the said UTI Act, 2002 coming into force the newly constituted entities being respondent No. 1 and 2 herein, filed an Original Application before the Debt Recovery Tribunal for the recoveries of the dues which were lent in advance by the erstwhile entity UTI.

5. In the said application it has been contended that the petitioner herein committed defaults of the common loan agreement particularly the terms of Schedule V thereto under which the said amount was repayable in 32 quarterly instalments by the petitioner to the erstwhile entity UTI and now to respondent Nos. 1 and 2 as successor in title thereto. According to respondent Nos. 1 and 2 in the said original application, a sum of Rs. 31,97,66,221 is due and payable by the petitioner to them.

6. In the said original application, the present petitioner took out a Misc. Application on 12.12.2003 seeking that the original application No. 237 of 2003 should be dismissed for want of jurisdiction inter alia on the ground that the respondent Nos. 1 and 2 herein are not the 'Financial Institutions' as prescribed under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the said DRT Act). It was thus contended that the respondent Nos. 1 and 2 cannot approach the said Debt Recovery Tribunal under Section 19 of the DRT Act and, therefore, the Tribunal has no jurisdiction to adjudicate the said claim of the respondent Nos. 1 and 2 and the said application is liable to be dismissed.

7. By an order and judgment dated 12.2.2004, the said application was dismissed by the learned member of the Debt Recovery Tribunal. Being aggrieved by the said judgment and order, the petitioner preferred an appeal being Appeal No. 132 of 2004 before the Debt Recovery Appellate Tribunal at Bombay. By an order and judgment dated 5.5.2004, the Debt Recovery Appellate Tribunal has also dismissed the appeal preferred by the petitioner inter alia rejecting the contention of the petitioner that the original application is not maintainable and/or that it has no jurisdiction to entertain the application under the provisions of DRT Act.

8. By the said order the learned Chairperson of the Appellate Tribunal has inter alia held that the respondent Nos. 1 and 2 are financial institution within the meaning of the word "financial institution" as defined under Section 2(h)(i) of the said DRT Act and thus, an application by the respondent Nos. 1 and 2 for recovery of their dues is maintainable under Section 19 of the DRT Act. It is this order of the Tribunal is under challenge in the present writ petition.

9. Before dealing with the rival submissions of the parties, it is necessary to set out briefly the legal provisions which are required to be considered in the present case particularly Section 18 of the said UTI Act, 2002.

Section 18 of the said UTI Act, 2002 reads as under :-

"18. Substitution in every Act, rule, regulation or notification by specified company or Administrator in place of Trust ---- In every Act, rule, regulation or notification in force on the appointed day for the words "Unit Trust of India", wherever they occur, the words, brackets and figures "specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 or "Administrator of the specified undertaking of the Unit Trust of India referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002", as the case may, shall be substituted."

Section 2(h)(i) and (ii) of the said DRT Act reads as under:-

"2(h) "financial institution" means--

(i) a public financial institution within the meaning of Section 4A of Companies Act, 1956 (1 of 1956);

(ii) such other institution as the Central Government may, having regard to its business activity and the area of its operation in India by notification specify;"

Section 19(1) of the DRT Act reads as under:

"19. Application to the Tribunal.-(1) Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction --

(a) the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(c) the cause of action, wholly or in part, arises.

Section 4A(1) and (2) of the Companies Act I of 1956 reads as under :-

"4A.(1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution, namely :-

(i) the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913);

(ii) the Industrial Finance Corporation of India, established under Section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);

(iii) the Industrial Development Bank of India, established under Section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);

(iv) the Life Insurance Corporation of India, established under Section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

(v) the Unit Trust of India, established under Section 3 of the Unit Trust of India Act, 1963 (52 of 1963);

(vi) the Infrastructure Development Finance Company Limited, a company formed and registered under this Act;

(vii) the securitisation company or the reconstruction company which has obtained a certificate of registration under Sub-section (4) of Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(2) Subject to the provisions of Sub-section (1), the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a a public financial institution;

Provided that no institution shall be so specified unless--

(i) it has been established or constituted by or under any Central Act, or

(ii) not less than fifty-one per cent of the paid-up share capital of such institution is held or controlled by the central Government."

10. Shri Aney, the learned counsel appearing for the petitioner raised before us basically three fold submissions. Firstly, he has contended that the respondent Nos. 1 and 2 are not the financial institutions within the meaning of provisions of Section 19 of the DRT Act and, therefore, the application by respondent Nos. 1 and 2 for recovery of their dues even if they are entitled to as successor in title and interest of the original entity UTI, cannot be maintained before the Debt Recovery Tribunal but ought to be recovered by filing a civil suit in a civil court. Secondly, he submitted that in any event no notification has been issued by the Central Government notifying the respondent Nos. 1 and 2 as financial institutions and, therefore, also it cannot be treated as a financial institution for the purpose of Section 19 of the said DRT Act. The third contention raised by the learned counsel for the petitioner is to be effect that the provisions of Section 18 of the UTI Act, 2002 do not automatically alter the provisions of other Act unless there is a separate amendment to the said separate statute or a notification is issued giving effect to such amendment in the said separate statute. Mr. Tulzapurkar, learned counsel for respondent Nos. 1 and 2 has strongly relied upon the provisions of Section 18 of the said UTI Act, 2002. According to the learned counsel for respondent Nos. 1 and 2, the provision of Section 18 by itself operates as an amendment to every Act or rules which are enacted by the Parliament automatically. It is also contended that identical effect is given also to the notifications issued under various Acts of the Central Government which pertain to erstwhile entity of 'UTI'.

11. Mr. Tulzapurkar, learned counsel for the respondent has, thus, contended that by virtue of the said Section 18 of the UTI Act, 2002 the provisions of Section 4A of the companies Act, 1956 stand amended and, therefore, the respondent Nos. 1 and 2 both are required to be treated as financial institutions in place and in stead of erstwhile entity of UTI under the repealed UTI Act, 1963.

12. After hearing the parties at length, we are of the opinion that the provisions of Section 18 of the UTI Act, 2002 which incorporates the respondent Nos. 1 and 2 as the two separate institutions as the successor in interest of the erstwhile entity UTI substitutes the names of respondent No. 1 and 2 wherever the name of UTI appears. The provisions of Section 18 are in the nature of omnipotent amendment because the provisions of Section 18 is wide enough to cover all the Acts, Rules and notifications and other regulations enacted by Parliament and wherever the name Unit Trust of India appears therein stands substituted by the respondent Nos. 1 and 2. The true and correct effect of Section 18 in our opinion is that every Act, Rule, Regulation enacted by the Parliament and/or notification issued thereunder by the Central Government and if in any such Act, Rule, regulation or notification contains the words 'Unit Trust of India' then such words shall stands substituted simultaneously by insertion of both the names of respondent Nos. 1 and 2. According to us, the provisions of Section 18 does not require further amendment to every Act, rule, regulation enacted by the Parliament separately and independently. According to us, Mr. Aaney is not right in his submission that inspite of Section 18 of the said UTI Act, 2002 the Parliament must further carry out an amendment in each and every legislation separately to delete the Unit Trust therefrom and substitute the respondent No. 1 and 2 as duly constituted new undertaking as successor-in-title. In our view, such an interpretation would make the said Section 18 totally nugatory. It is because it was open for the Parliament to enact a separate legislation by way of an amendment under every Act and substitute the name of the Unit Trust of India with that of the respondent Nos. 1 and 2. However, the Parliament has chosen to provide a sweeping amendment to every Act by incorporating Section 18 under the said UTI Act, 2002. It is not for us to determine in writ jurisdiction under Article 226 of the Constitution of India the manner and mode in which the Parliament must exercise its law making power while enacting a statute or amendment thereto. According to us, the true and correct interpretation and effect of the said Section 18 is that it amends every legislation, rule, regulation and notification enacted either by the Parliament or issued by the Central Government in the exercise of the powers conferred under the respective Act.

13. The Companies Act 1 of 1956 is one of such statute which is also enacted by the Parliament. By virtue of provisions of Section 18 of the said UTI Act of 2002, the provisions of Section 4A of the said Companies Act also stood amended. The provision of Clause (v) of Sub-section (1) of Section 4A of the said Companies Act prior to its amendment provided for the erstwhile Unit Trust of India as a financial institution. On amendment of the said UTI Act, 2002 the said provision has to be read as substituted with that of the respondent Nos. 1 and 2. Once it is so read, then the respondent Nos. 1 and 2 would be public financial institution under Section 4A of the Companies Act 1 of 1956. Now turning to the provisions of the DRT Act. Section 2(h)(i) in terms provides that every public financial institution within the meaning of Section 4A of the Companies Act 1 of 1956 would be deemed to be a financial institution under Section 2(h)(i) of the said DRT Act.

14. In our view, therefore, the respondent Nos. 1 and 2 virtue of Section 18 of the said UTI Act of 2002 would become a public financial institution as defined under Section 2(h)(i) of the said DRT Act and consequently the application by the respondent Nos. 1 and 2 under Section 19 of the DRT Act for recovery of their dues is maintainable. In the present case, the respondent Nos. 1 and 2 are admittedly successor-in-title of the erstwhile entity UTI and, therefore, recoveries of the dues of the erstwhile entity UTI, has to be effected by respondent Nos. 1 and 2. In the light of the interpretation of Section 18 of the said UTI Act of 2002, we are of the view that for recoveries of the dues of erstwhile entity UTI the present respondent Nos. 1 and 2 can maintain an application under the DRT Act, 1993. Thus, we hold that the application made by respondent Nos. 1 and 2 being Original Application No. 237 of 2003 is maintainable and the Debt Recovery Tribunal has jurisdiction to determine the same.

15. Now, turning to the next argument advanced by the learned counsel for the petitioner that there has to be an issuance of the notification under Sub-section 2 of Section 4A of Companies Act, 1956 so as to declare the respondent Nos. 1 and 2 as financial institution by the Central Government is without any substance and has no merit. The provisions of Section (2) of Section 4A can only be invoked in cases where a financial institution is not specifically specified under Sub-section (1) of Section 4A of the Companies Act 1 of 1956. In the light of the view we have taken that Sub-clause (1) of Sub-section (1) of Section 4A of the Companies Act 1 of 1956 stood amended by substituting the name of Unit Trust of India with that of Respondent Nos. 1 and 2 herein, we are of the opinion that the said respondent being specifically specified as a financial institution under the said Sub-section (1), the question of issuing notification under Sub-section (2) of Section 4A cannot and does not arise. Sub-section (2) gives a power to the Central Government to declare any entity as financial institutions which are not specified under Sub-section (1) of Section 4A of the Companies Act 1 of 1956, and therefore, in the present case, the Sub-section (2) of Section 4A has no application whatsoever. We thus reject the submission of the learned counsel for the petitioner in that behalf.

16. Mr. Aney, the learned counsel for the petitioner has thereafter relied upon a judgment of the Division Bench of this Court in the case of Krishna Eilament Ltd. v. Industrial Development Bank of India and Ors. reported in 2004 (2) Bombay Cases Reporter, 16, particularly paragraph 24 of the said judgment and contended that the respondent Nos. 1 and 2 even if they are financial institution they are not entitled to maintain the original application before the Debt Recovery Tribunal. Before we consider the aforesaid submission, it would be proper to reproduce paragraph 24 of the said judgment of the Division Bench of this Court in the case of Krishna Filaments Ltd. v. Industrial Development Bank of India and Ors., (supra) which reads as under :-

"24. On the other hand, it was pointed out that the fact remains that the amount contributed to the debentures was that of the subscribers and the debenture trustee had an obligation to act faithfully. It was submitted that this arrangement was made principally to secure the capital required by the company. At the same time, it was not required to face a litigation by each and every debentureholders. On the other hand, the debentureholders were given a protective mechanism by mortgaging the property of the company to the financial institutions and giving them the power, impliedly coupled therewith a duty to act in the interest of the debentureholders. In the present case, the predominant debentureholders were either banks or financial institutions or mutual funds or insurance companies. The respondent No. 1 was acting on their behalf. Having considered the kind of arrangement that is created, it is very clear that though certain rights and responsibilities are given to the debenture trustees, that does not mean that they become the owners of the amounts contributed. They continue to remain trustees and the amounts contributed continue to be the claims of the contributors. There can be no doubt that the suit is not for recovery of any debt due to a financial institutions. An emphasis was led on behalf of the appellant on the aspect as to who has lodged the claim in the suit and on a part of the definition of "debt" under Section 2(g) of the RDB Act which states that it is liability claimed by a bank or a financial institution. It was also emphasised that the transaction has arisen during the course of a business activity which is undertaken under a law for the time being in force. As far as this aspect is concerned, there can be no dispute about this. However, if the phrase "any liability claimed by a bank or a financial institution" is read to mean' any claim by such a body even for others, then in that case all sorts of claim by such bodies would get covered under this definition. It was therefore rightly emphasised on behalf of the respondent No. 1 that under Section 6(h) of Banking Regulation Act undertaking and executing trusts and Section 6(1) thereof undertaking and administration of estates as executor, trustees or otherwise is a permissible business for the banking companies. Thus if a bank is collecting rents as a trustee of if it is an executor under a Will and it would be collecting the amount due to the estate, such claims would also come under the definition of a "debt".

17. In our view the said judgment has no application to the facts of the present case. In the said judgment Industrial Development Bank of India was admittedly a public financial institution and thee was no dispute as to the status of the IDBI as the financial institution. The dispute in the said case was that when the IDBI is performing a mere role of the debenture trustee holders whether it will be right to assign a role of financial institution when the application is made by it only as debenture trustees and whether such an application would lie under the provisions of Section 19 of the said DRT Act 1993. The claim by the Debenture Trustee holders is not of recovery of dues payable to the financial institution in their capacity as a financial institution and therefore Division Bench has in the aforesaid judgment held that an application by debenture trustees even if it is a financial institution would not lie in Debt Recovery Tribunal but they have to file a Civil suit in Civil Court. In the present case, the respondent Nos. 1 and 2 are not suing the petitioner in their capacity as the debenture trustee holders but they are claiming their amount towards the dues payable under the loan agreement and, therefore, the present application under Section 19 of the DRT Act, 1993 is legal and maintainable.

18. In the aforesaid view that we have taken, we do not find any merit in the present writ petition. Thus, we dismiss the same and uphold the order passed by the learned Chairperson of the Debt Recovery Tribunal dated 5.5.2004 in Misc. Appeal No. 132 of 2004. However, there shall be no order as to costs.

Parties to act on an ordinary copy of this order duly authenticated by the Private Secretary of this Court.