Amit H. Jhaveri Of Mumbai vs Bank Of Baroda
2010 Latest Caselaw 6 Bom

                                           1                           WP 983 of 2010

              IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                                          
                     CIVIL APPELLATE JURISDICTION 

                       WRIT PETITION NO.983 OF 2010




                                                  
                                    WITH
                     CIVIL APPLICATION NO.2380 OF 2010
                                     IN
                       WRIT PETITION NO.983 OF 2010




                                                 
    1.   Amit H. Jhaveri of Mumbai,
         Indian Inhabitant, 
         Presently residing at




                                          
         A Wing 1101, Vinni Tower, 
         1221, Ahimsa Marg, 
                          
         Chincholi Bunder, Malad (W),
         Mumbai - 400 064.
    2.   M/s.Brader Incorporated 
                         
         73, Atlanta, Nariman Point, 
         Mumbai - 400 021.                                .....Petitioners

              V/s.
          


    1.   Bank of Baroda, 
         a Banking Company constituted under
       



         the Banking Companies (Acquisition
         and Transfer of Undertakings) Act, 
         1970, having its Branch Office 
         mentioned at other places Walkeshwar, 





         Mumbai - 400 006. 

    2.   Income Tax Department, 
         through TRO 16(1) Mumbai, 
         having Office at 2nd Matru Mandir, 





         Tardeo Road, 
         Mumbai - 400 007. 

    3.   The Chair Person, 
         Debt Recovery Tribunal, 
         Mumbai, having office at 
         Scindia House, Ballard Estate, 
         Mumbai - 400 038.




                                                  ::: Downloaded on - 09/06/2013 16:31:42 :::
                                                 2                                   WP 983 of 2010

    4.    Union of India                                               ..... Respondents




                                                                                       
    Mr.S.U.Kamdar,   Senior   Advocate   i/by   Mr.Devanshu   P.   Desai,   for   the 
    petitioners.




                                                               
    Mr.D.D.Madon, Senior Advocate with Mr.Simil Purohit i/by Juris Parmar 
    Chambers, for respondent No.1. 
    Mr.K.R.Chaudhari, for respondent No.2. 
    Mr.A.I.Patel, AGP, for respondent No.5 in CA No.2380 of 2010 




                                                              
                            CORAM : P.B.MAJMUDAR &
                                    ANOOP V. MOHTA, JJ.  

                            DATE :      12th OCTOBER, 2010
                               
    ORAL JUDGMENT : ( PER P.B.MAJMUDAR, J.) :-

    1.                Rule. 
                              

2. Mr.Madon, learned Senior Counsel waives service on behalf

of respondent No.1 and Mr.Chaudhari, waives service for respondent No.2.

Leave to delete respondent No.3 from the array of parties. With the

consent of both the sides, the matter is heard finally and is disposed of by

this judgment.

3. By way of this petition, the petitioner has challenged the

order passed by the Debts Recovery Appellate Tribunal, Mumbai, in Appeal

No.336 of 2006 with M.A. No.1072 of 2009. The Appellate Tribunal by

its judgment and order dated 12-01-2010 dismissed the appeal filed by the

petitioners and confirmed the order passed by the Debt Recovery Tribunal,

Mumbai.

4. The respondent No.1 Bank instituted a Suit bearing No.194

3 WP 983 of 2010

of 1997 against the petitioners for recovery of the amount before the

Original Side of this Court. In view of the enactment of the Recovery of

Debts Due to Banks and Financial Institutions Act, 1993 (for the sake of

brevity, hereinafter referred to as the Act), the said suit was subsequently

transferred to Debts Recovery Tribunal, Mumbai. The Debts Recovery

Tribunal, II, Mumbai, by its order dated 27-03-2006, allowed the Original

Application filed by respondent No.1 Bank and passed an order of recovery

of Rs.8,09,58,000/- with interest @ 18% p.a. from 27-12-1993 till full

realization. Subsequently, the said order was reviewed by Debts Recovery

Tribunal, II, Mumbai, in Review Application No.14 of 2006 and the

amount of recovery was modified to Rs.11,20,14,000/- with interest @

18% p.a. from 27-12-1993 till full realization. The original order as well

as the order passed in review application, both were challenged by the

petitioners by preferring an appeal bearing No.336 of 2006 before the

Appellate Tribunal. The contention of the petitioners before the Appellate

Tribunal was that since the petitioners has not signed any documents and

no documents were executed between the petitioners and respondent

Bank, the proceedings before the Tribunal were not maintainable. The

Appellate Tribunal rejected the said contention and dismissed the appeal

filed by the petitioners, which order is challenged in the present petition.

5. Mr.Kamdar, learned Senior Counsel appearing for the

4 WP 983 of 2010

petitioners strenuously submitted that since no documents were executed

by the petitioners, the transaction at the most, can be said to be fraudulent

business transaction and in that view of the matter, the proceedings before

the Debts Recovery Tribunal, were not maintainable. He further

contended that the respondent-Bank should have filed appropriate suit for

recovery of the amount, but the proceedings before the Debts Recovery

Tribunal, were surely not maintainable, as this was not a routine business

transaction by which the amount is borrowed by the petitioners.

According to him, fraudulent business transaction resorted to by the

petitioners, cannot be equated with a genuine business transaction and

therefore, the provisions of the said Act, cannot be made applicable so far

as facts of the present case are concerned. In order to lend credence to his

submissions, he has relied upon certain judgments.

6. Per contra, Mr.Madon, learned Senior Counsel appearing

for respondent No.1 Bank, submitted that the petitioners in connivance

with the bank employees, fraudulently took financial benefits for the

purpose of its business, by committing a fraud with the Bank. He further

submitted that so far as bank employees are concerned, the respondent

Bank cannot resort to any proceedings under the said Act, as the

proceedings are required to be initiated for misappropriation of funds of

the bank as per Service Rules. But since, the petitioners are the direct

5 WP 983 of 2010

beneficiaries of the alleged fraudulent transaction and have utilized the

money for its business, the proceedings before the Debts Recovery

Tribunal, is maintainable.

7. We have heard the learned counsel at length and have

considered the rival submissions made on behalf of both the sides. It is

required to be noted that the present petitioners operated Current Account

No.30124 with the respondent Bank at its Walkeshwar Branch, Mumbai.

The appellant No.2/defendant No.2 was the sole proprietorship firm of

appellant No.1, which operated Overdraft Account No.50070 with the

same Branch of respondent No.1 Bank. In para No.4 of the plaint, it is

averred as under : -

"4. The 1st defendant used to procure deposits from various third parties for investment as short term deposits

with the plaintiffs Walkeshwar Branch. The 1st defendant representing himself and as Sole Proprietor of defendant No.2 herein would request the plaintiffs to prepay the amount of deposit without depositing duly discharged

receipts with the plaintiffs and would have the amounts of deposit receipts credited to his account. The 1st defendants was given unauthorized Overdraft or Credit Balance to his account, which the 1st defendant would clear by ostensible premature repayment of some Time Deposits belonging to

some Third Parties. The original time deposit receipts would remain with the parties whose funds were placed in the accounts of Defendant Nos.1 and 2. On the due dates of time deposit receipts, the 1st defendant would provide funds in his current accounts and to the debit of such current account. Bankers' cheques were issued to the original beneficiaries of the deposits. The 1st defendant would take the original bankers' cheques and bring back

6 WP 983 of 2010

the original deposit receipt duly discharged by the

concerned beneficiary."

8. It is the case of the bank that on 10-11-1993, respondent

No.1 Bank issued several Demand Drafts aggregating to Rs.277.75 Lacs by

debiting General Ledger (GL)/ Short term Deposit Receipts (SDR)/ Fixed

Deposit Receipts (FDR). The said demand drafts were issued without any

fund provided by petitioner hereinabove and for issuing such demand

drafts, no application was made by the petitioners. It is the case of the

respondent Bank that on 06-12-1993 when all the deposit receipts of Rs.

8.30 crores were prematurely retired for payment, the amounts were

credited to the overdraft account No.50070 of petitioner No.2 and on

credit of the said amount, the debit entries dated 10-11-1993 and

24-11-1993 in petitioner No.1's account were reversed by debiting

overdraft account No.50070 of petitioner No.2. The nature of the

transaction has already been incorporated by the Appellate Tribunal in

Para No.3 of its judgment.

9. On noticing of fraud, the respondent Bank conducted

preliminary investigation. A complaint was lodged with the Central

Bureau of Investigation, Mumbai, by the respondent Bank. The petitioner

No.1 was arrested by the C.B.I., Mumbai. The petitioner No.1 thereafter,

7 WP 983 of 2010

preferred an application before the Additional Chief Metropolitan

Magistrate, Mumbai, for selling certain shares with a view to give sale

proceeds to the respondent No.1 Bank. The said sale was permitted by the

learned Magistrate with a view to discharge civil liability towards

respondent No.1 Bank. The said order was ultimately upheld by this Court

with certain modifications.

10. The respondent No.1 Bank thereafter, called upon the

petitioners to make the payment. But they have failed to make any

payment. Ultimately, a suit was filed by the respondent Bank, which was

transferred to Debts Recovery Tribunal, Mumbai, for adjudication. The

present petitioners filed a written statement and contested the claim. In

the written statement, it is admitted by the petitioners that they have

operated two accounts with the respondent Bank at its Walkeshwar

Branch, Mumbai. They mobilized the funds. It is the case of the

petitioners that petitioner No.1 had deposited many FDRs duly discharged,

with respondent No.1 Bank. All this was done with the help of Officers of

the Bank. The deposit of FDRs aggregating to Rs.15.20 crores between

04-12-1993 and 27-12-1993 including FDR of Rs.5 crores, is admitted.

The Debt Recovery Tribunal, after considering the evidence on record,

allowed the Original Application filed by the respondent Bank, which

order was subsequently reviewed, as pointed out earlier.

8 WP 983 of 2010

11. The learned counsel appearing for the petitioners submits

that it is true that the petitioners have availed monetary benefits out of the

alleged transaction, but since the said transaction cannot be said to be a

lawful transaction as no documents were executed by the petitioners, the

proceedings before the DRT is not maintainable under the said Act in case

of a fraudulent business transaction. The learned counsel for the

petitioners further submitted that the transaction in question cannot be

said to be a business transaction and therefore, it cannot be said that the

present case falls within the ambit of definition of 'Debt' as prescribed

under Section 2(g) of the Act. He further submitted that since it cannot

be said that the petitioners are the debtors of the respondent Bank, the

Debts Recovery Tribunal has no jurisdiction to entertain the claim of the

respondent Bank and the efficacious remedy available with the respondent

Bank to file appropriate civil suit to recover the amount. The learned

counsel for the petitioners vehemently submitted that the Tribunal has

committed grave error in awarding interest @ 18% p.a. as per the

provisions of the Negotiable Instruments Act, especially when no

documents were executed between the parties and there was no question

of applying the provisions of the Negotiable Instruments Act, in connection

with charging of interest @ 18% p.a.

12. In order to appreciate the aforesaid arguments, it is

9 WP 983 of 2010

required to be noted that initially a suit was filed on the Original Side of

this Court to recover the amount. Subsequently, the suit was transferred

to the Tribunal in view of the enactment of the DRT Act, 1993. At the

relevant time, no objection was taken on behalf of the petitioners

regarding such transfer. The learned counsel for the petitioners submitted

that even if no objection was taken at the time when the suit was

transferred from the High Court to DRT, but since it is the question of

inherent jurisdiction, the same can be raised for the first time even before

this Court, as according to him, such transfer order can be said to be an

administrative order. We agree with the submission of the learned counsel

for the petitioners that the point of inherent jurisdiction can be raised at

any point of time. However, as pointed out earlier, it is not in dispute that

the petitioners got the financial benefits out of the aforesaid fraudulent

transaction. At this stage, it would be expedient to reproduce the text of

Section 2(g) of the Act, which reads as under : -

"2(g) : "debt" means any liability (inclusive of interest) which is claims as due from any person by a bank or a financial institution or by a consortium of banks of 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;

10 WP 983 of 2010

13. On a plain reading of the aforesaid definition, in our view,

it can be said that the petitioners are the debtors of the respondent Bank

and the transaction in question can be said to be falling within the

definition of debt under the said Act. So far as the employees of the Bank

are concerned, they stand on a different footing, as ultimately they are

subjected to service regulation of the bank and the bank is required to take

disciplinary proceedings against them as per the rules. At the most, it can

be said that the employees are guilty of malpractices and has acted in a

particular manner illegally by taking some monetary benefits out of the

said transaction and guilty of taking illegal gratification. However, in our

view, so far as the petitioners are concerned, it cannot be disputed that by

virtue of alleged illegal and fraudulent transaction, they got financial

benefits in the matter of business, the case of the petitioners squarely falls

within the purview of the said Act. It is not in dispute that the amount in

question is due and payable by the petitioners to the respondent bank.

The petitioners took the advantage of the alleged financial assistance, may

be in a wrongful manner by not executing the documents, in connivance

with the bank officers. However, when it is not in dispute that the said

financial benefit was taken by the petitioners, it cannot be said that the

petitioners are not liable to pay back the amount to the respondent Bank

and it cannot be said that the said amount is not due and payable by the

11 WP 983 of 2010

petitioners. Therefore, it is not possible to accept the submissions of the

learned counsel for the petitioners that unless there is a genuine banking

transaction, the amount payable to the bank by virtue of fraudulent

transaction, cannot be given effect to under the said Act.

14. In order to substantiate his say, Mr.Kamdar, learned counsel

appearing for the petitioners, has relied upon a judgment of the Single

Judge of the Gujarat High Court in the case of Bank of India V/s.

Ramniklal Kapadia, II(1997) BC 543, wherein it has been observed that

"if any amount is misappropriated by the employee of a Bank, such

recovery cannot be said to be recovery under the Act and the DRT has no

jurisdiction and the remedy is available to file a civil suit.

15. However, as pointed out earlier, misappropriation or theft

by a bank employee, stands on a different footing, as the employees can be

subjected to disciplinary proceedings, but the principle laid down in the

above referred case, cannot be made applicable so far as the person who

has taken benefits of financial assistance, may be in a fraudulent manner

for the purpose of his business is concerned. He can surely said to be a

debtor of the bank so far as the amount payable to the bank is concerned.

16. So far as the employees of the bank are concerned, they

might have assisted the petitioners for giving financial assistance in an

improper and illegal manner. But, as pointed out earlier, they are not the

12 WP 983 of 2010

direct beneficiaries of receiving the amount from the bank. There is

nothing on record to show that they had taken financial benefits and

assistance from the transaction in question. At the most, they can be said

to be guilty of fraudulent conduct under the Service Rules and acted in a

dishonest manner. However, so far as the petitioners are concerned, their

case stands on a different footing.

17. The learned counsel for the petitioner placed reliance on a

judgment of a Single Judge of the Delhi High Court in the case of State

Bank of India V/s. Vijay KR. Tayal and Ors., II(1996) BC 589, In this

case, it was held that suit for recovery of mis-appropriated or embezzled

amounts by the Banks or Financial Institutions against the employee,

would not be one which would come within the definition of a "debt

arising during the course of business" as contemplated under the Act.

Hence, the said suits would not be liable to be transferred to the Debt

Recovery Tribunal.

18. As pointed out above, in the present case, the suit was

transferred long back from this Court to the Tribunal. The petitioners

were the direct beneficiaries of the aforesaid so-called fraudulent

transaction and the money was utilized by the petitioners for their

business. It is required to be noted that the petitioners have categorically

admitted the aspect about taking benefits arising out of the said

13 WP 983 of 2010

transaction at the time when the proceedings are pending before the

Magistrate. Considering the facts and circumstances of the case, we are

not in a position to accept the submission of the learned counsel for the

petitioners that the debt which arises only out of a transaction carried out

in a lawful manner and by executing appropriate documents, that the

same should be construed as debt. In our view, when a person takes

financial benefits for the purpose of business and by utilizing the bank

money for the business, even if such benefits were taken in a fraudulent

manner, still such a person can be said to be a debtor of the bank and even

so called alleged fraudulent transaction can also be covered under the

definition of debt. It is not mandatory that in every case, unless and until

all necessary documents are executed at the time of taking financial help

or benefits or assistance, in whatever manner one may get, yet such a

transaction cannot be treated as a debt. In the instant case, the petitioners

have utilized considerable money of the bank for the purpose of business

and the said benefit had taken with the help of the officers of the bank.

The amount was utilized for the purpose of business of the petitioners.

Considering the said aspect, the petitioners can always be said to be a

debtor of the bank and the bank is a creditor so far as the amount of the

bank is concerned.

19. Mr.Madon, learned counsel appearing for respondent No.1

14 WP 983 of 2010

Bank, on the other hand, has relied upon a decision of the Supreme Court

in the case of United Bank of India V/s. Debts Recovery Tribunal and

Ors., (1999) 4 SCC 69, wherein it was held that

15. In the case in hand, there cannot be any dispute that the expression 'debt' has to be given the widest amplitude

to mean any liability which is alleged as due from any person by a bank during the course of any business activity undertaken by the bank either in cash or otherwise, whether secured or unsecured, whether payable under a

decree or order of any court or otherwise and legally recoverable on the date of the application. In ascertaining

the question whether any particular claim of any bank or financial institution would come within the purview of the tribunal created under the Act, it is imperative that the

entire averments made by the plaintiff in the plaint be looked into and then find out whether notwithstanding the specially-created tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such a tribunal is ousted. With the aforesaid

principle in mind, on examining the averments made in the plaint, we have no hesitation to come to the conclusion that

the claim in question made by the plaintiff is essentially one for recovery of a debt due to it from the defendants and, therefore, it is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary civil

court. In this view of the matter, the High Court was in error to hold that the dispute in question is not entertainable by the Tribunal under Section 17 of the Act. We accordingly set aside the impugned order of the Calcutta High Court and direct that the suit in question

which stood transferred to the Tribunal constituted under the Act, and was registered as Transferred Application No. 163 of 1996 be disposed of by the Tribunal in accordance with law. These appeals are allowed but in the circumstances, without any order as to costs.

15 WP 983 of 2010

20. Reliance is also sought to be placed on behalf of the

respondents on a ruling of the Supreme Court in the case of Allahabad

Bank V/s. Canara Bank and Anr., (2000) 4 SCC 406. Para 20 of the

said judgment, reads as under : -

"We shall refer to Sections 17 and 18 in Chapter III of the RDB Act, which deal with adjudication of the debt.

17.Jurisdiction, powers and authority of Tribunals (1) A tribunal shall exercise, on and from the appointed day,

the jurisdiction, powers and authority to entertain and decide applications from the banks and financial

institutions for recovery of debts due to such banks and financial institutions. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction,

powers and authority, to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act.

18. Bar of Jurisdiction - On and from the appointed day, no court or other authority shall have, or be entitled to

exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction

under Article 226 and 227 of the Constitution) in relation to the matters specified in Section 17.

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. Se 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 suits 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 the Act stand transferred to the Tribunal and have to be disposed of

16 WP 983 of 2010

"in the same manner" as applications under Section 19.

21. Considering the aforesaid judgments of the Supreme Court,

in our view, it cannot be said that the petitioners are not liable to pay back

the amount, which they have received may be in a fraudulent manner. It

cannot be disputed that the amount in question can be said to be a

genuine claim of the Bank against the present petitioners. Considering

the matter from the aforesaid angle, in our view, the Appellate Tribunal

has rightly taken a view that the alleged transaction in question is covered

under the provisions of the DRT Act, and the proceedings were held to be

maintainable before the Tribunal, which proceedings as stated earlier,

were transferred long back by transferring the suit from the Original Side

of this Court to the Debts Recovery Tribunal.

22. Mr.Kamdar, learned counsel for the petitioners has attacked

the order of the Tribunal on the ground that at least there is no

justification in awarding interest @ 18% p.a. and the provisions of the

Negotiable Instruments Act, cannot be said to be applicable, especially

when in this case, no document was executed by the petitioners in favour

of the respondent Bank. The learned counsel for the respondent No.1

Bank submitted that if appropriate documents were executed at the time

of giving financial assistance to the petitioners, the bank was entitled to

17 WP 983 of 2010

charge interest @ 20.75% p.a. and in fact, the bank had lodged claim on

that basis. However, the Tribunal took a liberal view of the matter and

awarded interest @ 18% p.a. by resorting to the provisions of the

Negotiable Instruments Act. The Tribunal has given cogent reasons in

this behalf by holding that it is not in dispute that the entire transaction

was not a normal one. The petitioners were drawing money from the

respondent Bank and there was no question of any stipulation to be

provided in documents regarding interest in connection with the

transaction in question. In such circumstances, the Presiding Officer was

perfectly justified in applying the principle of Section 80 of the N.I.Act, by

awarding interest @ 18% p.a.

23. Considering the said aspect, we do not find any

justification in the arguments of Mr.Kamdar. It is an unfortunate case

that the officers of the Bank fraudulently helped the petitioner in securing

the considerable loan amount which is a public money. Ultimately, on the

basis of a complaint lodged with C.B.I., Mumbai, the things came to light.

In our view, considering the facts and circumstances of the case and the

fact that the petitioners were the ultimate beneficiaries in getting the

financial assistance for their business, may be in a wrongful manner,

cannot escape of repaying the amount to the respondent Bank. It is not

possible for us to construe the definition of debt in a narrow manner, as

18 WP 983 of 2010

suggested by Mr.Kamdar. Since the Appellate Tribunal has given cogent

reasons, to which we are totally agreeable, we see no infirmity in the

order passed by the Appellate Tribunal and this is not a case in which we

would like to interfere with the order passed Appellate Tribunal in our

extra-ordinary jurisdiction under Article 226 of the Constitution of India,

which interference is otherwise, also not called for in view of what is

stated above. The writ petition is accordingly dismissed with no order as

to costs. Rule discharged.

24. At the oral request of Mr.Kamdar, interim relief granted

earlier by this Court at the time of issuing notice, is ordered to be

extended upto 10-11-2010.

25. In view of the dismissal of the writ petition, the civil

application No.2380 of 2010 does not survive and it is accordingly

disposed of.

          ( ANOOP V. MOHTA, J. )                                   ( P.B.MAJMUDAR, J. )