Maharashtra State Financial ... vs Devidas K. Virkar And Ors. Etc.
2004 Latest Caselaw 530 Bom

ORDER

Anoop V. Mohta, J.

1. Heard advocates for both the parties, on preliminary submissions.

2. Petitioner, Maharashtra State Financial Corporation (for short MSFC) has filed present miscellaneous petition for recovery of its debts, against respondents by invoking provisions of the State Financial Corporations Act, 1951 (for short SFC Act) The modes of recovery of dues are provided under the SFC Act.

3. Parties have confronted with the Judgments delivered by our Court as (Rebello, J.), Maharashtra State Financial Corporation Ltd. v. Naresh Kunjilal Gupta and unreported judgment in Miscellaneous Petition No. 13 of 2000 Maharashtra State Financial Corporation v. Jai Bharat Leather Industrial Co-op Producer Society Ltd. and others (R. J. Kochar, J.) on 12th October, 2000. The preliminary submission revolve around the following issue whether Miscellaneous petition for recovery of dues against defaulting borrowers, by the Finance Corporations, under the SFC Act, need to be transferred to the Debt Recovery Tribunal (DRT) in view of section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short Debt Act 1993). The relevant Sections 31 and 34, are reproduced as under :

"Section 31. Transfer of pending cases.--(1) Every suit or other proceeding pending before any Court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal:

Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any Court.

(2) Where any suit or other proceeding stands transferred from any Court to a Tribunal under Sub-section (i)--

(a) the Court shall, as soon as may be after such transfer, forward the records of such suit or other proceeding to the Tribunal; and

(b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding, so far as may be, in the same manner as in the case of an application made under Section 19 from the stage which was reached before such transfer or from any earlier stage as the Tribunal may deem fit."

Section 34. Act to have overriding effect.---(1) Save as provided under Sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provision of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984) (the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989))"

4. The present Miscellaneous Petition (13 of 2000) has been filed by the MSFC, by invoking the provisions of the MSFC Act. The relevant Section 31 of the SFC Act is reproduced as under:

Section 31. Special Provisions for enforcement of Claims by Financial Corporation --(i) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof (or in meeting its obligations in relation to any guarantee given by the Corporation) or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment, (then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 (4 of 1882)) any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the district judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely :--

(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the (Financial Corporation) as security for the loan or advance; or

((aa) for enforcing the liability of any surety; or)

(b) for transferring the management of the industrial concern to the Financial Corporation; or

(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended.

(2) An application under Sub-section (i) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.

The scheme and purpose of SFC Act is different than Debt Act, 1993.

5. Mr. Mukesh Vashi, advocate appearing for respondents placed on record (supra) and contended that this judgment and the judgment delivered by the Hon'ble R. J. Kochar, J. dated 12th October, 2000 (supra) are in conflict and, therefore, this required to be referred and/ or issue needs to be settled by the Division Bench.

6. In MSFC v. Naresh Kunjilal Gupta, (supra) after considering Sections 34, 31(aa) of the SFC Act and Sections 2(9) , 15, 17 of Debt Act, 1993, in appeal against order, High Court had transferred such proceeding to the Debt Recovery Tribunal (for short DRT) whereas, in MSFC v. Jaibharat (supra), also, proceedings were transferred to DRT, at the instance of petitioner MSFC. In this judgment, however, it is observed as under in para (9).

"The learned counsel for the petitioners have relied on law judgments in support of their case viz. (1) . Industrial Finance Corporation of India v. Allied International Products Ltd.; and (2) , S. R. Bhat v. State of Karnataka. Both the learned single Judges in both the aforesaid judgments have taken a view that the remedy executed under the RDDBFI Act is an additional remedy and the DRT is an additional Forum for the financial institutions as the provisions of the RDDBFI Act is not inconsistent with the statutes under which the financial institutions are created. In this view which I have taken I have not referred to the facts and decisions in both the aforesaid judgments extensively but I am in respectful agreement with the aforesaid judgments of the two learned single Judges of the two High Courts.

7. Learned counsel appearing for petitioners, MSFC and SICOM, however, relied on various judgments as under and submitted that this Court has jurisdiction to decide and such matters need not be transferred to DRT, as they are not applying for such transfer.

a. Maharashtra State Financial Corporation v. Jai Bharat Leather Industrial Coop. Producer society Ltd. and others (unreported judgment of the Bombay High Court (single Judge).

b. Maharashtra State Financial Corporation v. Naresh Kunjilal Gupta, .

c. Unique Butyle Industries (P) Ltd, v. U. P. Financial Corporation, .

d. Maharashtra State Financial Corporation v. Jaycee Drugs and Pharmaceuticals Pvt. Ltd., .

e. Maharashtra State Financial Corporation v. M/s. Swift Industries, 1992 (3) Bom CR 165.

f. A. P. State Financial Corporation v. M/s. Gar Re-Rolling Mills with A. P. State Financial Corporation v. Kota Subba Reddy, .

g. State Bank of India v. M/s. Indexport Registered, .

h. Mrs. Margaret Lalita Samuel v. Indo Commercial Bank Ltd., .

8. The judgment Unique Butyle Industries (P) Ltd. v. U. P. Financial Corporation, in fact, clinches this preliminary issue. It may be noted that judgment of Hon'ble Supreme Court (Unique supra) has not been considered in Naresh and Jai bharat (supra). The Apex Court judgment is of 20th February, 2002; admittedly, after above both decisions (supra).

9. Strikingly, the Apex Court decision in Unique (supra) has settled the issue, specifically in para Nos. 8, 9 and 16 which are reproduced as under :

"8. .................

It is clear from Section 17 of the Act that the Tribunal, is to decide the applications of the Banks and Financial Institutions for recovery of debts due to them. We have already referred to the definition of 'debt' in Section 2(g) as amended by Ordinance 1 of 2000. It includes 'claims' by Banks and Financial Institutions and includes the liability incurred and also liability under a decree or otherwise. In this context, Section 31 of the Act is also relevant. That section deals with transfer of pending suit or proceedings to the Tribunal. In our view, the word 'proceedings' in Section 31 includes 'execution proceedings' pending before a civil Court before the commencement of the Act. The suits and proceedings so pending on the date of Act stand transferred to the Tribunal and have to be disposed of 'in the same manner' as applications under Section 19."

"9. Section 34 of the Act consists of two parts. Sub-section (i) deals with the overriding effect of the Act notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than the Act. Sub-section (1) itself makes an exception as regards matters covered by Sub-section (2). The U.P. Act is not mentioned therein. The mode of recovery' of debt Under the U. P. Act is not saved under the said provision that is subsection (2) which is of considerable importance so far as the present case is concerned. Even a bare reading therein makes it clear that it is intended to be in addition to and not in derogation of certain statutes; one of which is the Financial Act. In other words, a Bank or a Financial Institution has the option or choice to proceed either under the Act or under the modes of recovery permissible under the Financial Act. To that extent, the High Court's conclusions quoted above were correct. Where the High Court went wrong is by holding that the proceedings under the U. P. Act were permissible. The U.P. Act deals with separate modes of recovery and such proceedings are not relatable to proceedings under the Financial Act."

"16, The impugned order is set aside the proceedings under the U. P. Act are quashed. It shall be, however, open to the Corporation to take such action under the Act or the Financial Act, as is legally available to it. The appeal is allowed without any costs."

10. I am of the view that there is no need to refer this matter to the larger Bench, as Hon'ble Supreme Court has interpreted Section 34 of the Debts Act. 1993 and after considering the whole scheme of the Act, including Sections 17, 18, 19 and 13 of the Debt Act, 1993 held that the financial institutions like MSFC have remedies for recovery of their dues, under both the Acts. If these remedies are available under the respective Acts, and which are not prohibited and not disputed by any party, there is no reason not to proceed with these matters', as pending in this High Court. The parties are not seeking any application or moving any application for transfer of these proceedings to the DRT under Debts Act, 1993'. In view of this, the Court cannot compel them to proceed or transfer these applications to any other Forum, suo motu.

11. In view of the Supreme Court judgment in , the issue is concluded and all these proceedings and/or Miscellaneous Petitions which are filed and pending in this Court to continue and would require to be heard on merit.

12. In view of the Apex Court judgment (Unique) (supra), I need not go into the controversy even if any, in the judgments referred to above, i.e., MSFC v. Naresh and others and MSFC v. Jai bharat the facts and circumstances of this case are distinguishable and apart from that the Apex Court in Unique (supra) has settled the issue. There is no reason now to postpone the hearing of these petitions on merit.

13. The Miscellaneous Petition No. 62 of 2001 has been filed by SICOM Ltd. for recovery of their dues, against respondents, by invoking the provisions of the SFC Act. Besides above, further contended that SICOM, is an independent financial institution as notified, pursuant to Section 46 of the SFC Act and for all the purposes like recovery of dues, governed by the provisions of SFC Act and not by any other Act. Its recovery remedies arc basically under the SFC Act. This SFC Act deals with the recovery of clues against 'industrial concern' as defined under the SFC Act. Section 29 and Section 32 and Section 31 of the SFC Act deals with provisions for recovery of the dues against defaulting borrowers, by the Financial Corporation. Purpose and object of such Corporation cannot be equated with the activities of commercial Banks. Section 46 and Section 46-B of SFC Act, make the position more clear, so far as Financial Corporations arc concerned like MSFC and or SICOM.

14. Section 46-B is reproduced as under :

Section 46-B. Effect of Act on other laws.-- The provision of this Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.

15. Considering the Apex Court's decision as relied and cited by Mr. Dhond. the scheme of State Finance Corporation is substantially different and cannot be equated with the Debt Act, 1993. Both the Acts have to apply its respective rules as per the respective intent and object of the Acts.

16. There is no dispute, in view of para 19 of the Maganlal v. M/s. Jaiswal Industries, which says that, an application under Section 31(1) of the SFC Act, cannot be put on par to a suit for enforcement of a mortgage nor the order passed thereon under Section 32 of the SFC Act be put on par, as if it was an order in a suit between a mortgagee and the mortgagor for sale of mortgaged property. On the other hand the substantive relief in an application under Section 31(1) is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree.

17. The other relevant para is from

"We are unable to appreciate the view taken by the High Court that the proceedings is not in the nature of execution of a decree because the question of enforcement of the order of attachment or sale would only arise after the same is made absolute under Sub-section (7)."

"If as held by this Court the proceedings instituted under Section 31(1) of the Act is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree no question of passing any order under Section 34 of the Code would arise since Section 34 of the Code would be applicable only at the stage of the passing of the decree and not to any stage posterior to the decree."

18. Therefore, proceedings as initiated by SICOM and/or by MSFC in this Forum for recovery can also be heard on merit by this Court. In view of this, all these petitions are posted for final hearing beyond vacations.

19. The other points are kept open including the maintainabilily of the Miscellaneous petition, in this Court, in view of the fact that industrial concern in Petition No. 13 of 2000 is at Taluka Chiplun, District---Ratnagiri. (Maharashtra).