Industrial Finance Corporation ... vs Allied International Products ...
1996 Latest Caselaw 69 Del

JUDGMENT

Jaspal Singh, J.

(1) The Industrial Finance Corporation of India is a body corporate established under the Industrial Finance Corporation Act, 1948. On June 12, 1974 it entered into a Loan-cum-Deferred Payment Guarantee Agreement with M/s. Allied International Products Ltd. and consequent thereupon lent it a total sum of Rs.37.50 lacs. In consideration of the loan so advanced the lonee executed and got registered a Mortgage Deed. This was on February 10, 1975. Subsequent thereto, the parties entered into yet another loan agreement and with regard to it an agreement of hypothecation was executed on July 31, 1978. As the lonee allegedly did not honour the agreements and neglected to pay the outstanding amounts, the Industrial Finance Corporation of India filed a petition under section 30 of the Industrial Finance Corporation Act 1948 for sale of properties mortgaged in its favour and for appointment of Receiver in respect of the said properties. This was in December 1979 and the said petition is still pending disposal.

(2) It so happened that in June, 1993 came into force the Act called the Recovery of Debts Due to Banks and Financial Institutions Act 1993. Section 17 of the Act provided for appointment of a Tribunal to exercise 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, and section 18 laid down that 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. As if all this was not enough, section 31 of the Act provided that every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under the 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.

(3) Faced with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, my learned predecessor, with respect, thought of looking into and deciding the question as to whether the present petition too was covered by the Act of 1993 and thus stood transferred to the Tribunal by virtue of section 31 of the Act. It has, however, fallen to my good fortune to pen the opinion.

(4) Before I proceed to refer to the arguments advanced, it needs to be noticed that it was common case of the parties that the petitioner is a financial institution within the meaning of section 2(h) of the Act of 1993. It was also not disputed that the relief claimed in the petition is principally based on the allegation that debt is due from the respondent company and that the claim is of an amount more than rupees ten lacs. It was also not in issue that the petition is not a suit as we understand it under the Code of Civil Procedure.

(5) It was contended by Dr.S.Ghosh who appeared for the petitioner institution that as the petitioner was admittedly a Financial Institution within the meaning of section 2(h) and had filed the petition which in substance was for the recovery of debt due to it, therefore, the proceedings though not in the nature of a civil suit, stood transferred to the Tribunal by virtue of section 31 of the Act of 1993.

(6) Before I proceed further, I may mention, by way of clarification, that section 31 of the Act of 1993 relates not only to the transfer of a suit but to "other proceeding pending before any court" also provided the cause of action on which it is based is such that it would have been, if it had arisen after the establishment of a Tribunal under the Act, within the jurisdiction of such Tribunal.

(7) Going back to Dr.Ghosh, he drew my attention to a judgment of this court in State Bank of lndia v. Sam Engineering Company & Ors 1995 (35) Drj 485 which, I find, was followed in State Bank of India & Others v. Gujarmal Modi Hospital & Research Centre for Medical Sciences 1996 1 Ad (Del.) 608. It was held in the former case: "ITis, therefore, clear that debt is an essential ingredient of a mortgage. There may be a debt without a mortgage but there can be no mortgage without a debt. Properties are offered as security only for securing recovery of debt. If debt is repaid the mortgage ceases to be mortgage. Even if the term debt would not have been defined in Act No.51 of 1993 the mortgage would have been included within the meaning of debt. This is the general law and settled trend of judicial opinion. However, Act 51 of 1993 incorporates the definition of debt in its interpretation clause by way of abundant caution and gives it out a very wide meaning. The quaint essence of the definition is the existence of any liability founded on an allegation as due from any person, the creditor being a bank or a financial institute or a consortium of the two. The liability may be in cash or otherwise. It may be secured or unsecured. A decree or order of any civil Court or otherwise may intervene or not; the only rider being that the liability must be legally recoverable. The definition would cover all the cases where the liability is secured by a mortgage, charge, hypothecation or in any other manner known to law. An effort at carving out a mortgage away and out of the definition of debt is futile."

(8) As would be obvious, reference was made by Dr.Ghosh to the above-noted observations only with a view to show that the present proceedings are essentially for recovery of debt and, based on a cause of action falling essentially within the jurisdiction of the Tribunal.

(9) On the other hand, it was argued that as in answer to the proceedings, the respondent company has preferred a counter-claim and as the question as to whether proceedings can stand transferred even where there is a counter-claim, is pending an answer before the Supreme Court, I should refrain to decide the question, at least for the present.

(10) Though, in the preceding paragraph I have referred to sections 17, 18 and 31 of the Act of 1993, I do feel that for yet clearer picture, I need to reproduce those provisions and so also section 2(g) which defines 'debt'. Here they are:

"2(g)"debt" means any liability (inclusive of interest) which is alleged 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 institutions or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application;"

"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."

"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 proceedings stands transferred from any court to a Tribunal under sub-section (1): (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 or de- novo as the tribunal may deem fit."

True, the present is not a suit but then proceeding surely it is for recovery of debt. And, to my mind, it also cannot be said that the cause of action of the proceeding is such that it is not within the jurisdiction of the Tribunal. Does Section 31 then stand attracted and the proceedings stand transferred to the Tribunal by virtue of that section?

(11) The answer to the question posed above, to my mind, is to be found not in sections 17, 18 and 31 of the Act but in Section 34 and more particularly in its sub-section (2). This is how section 34 runs: "34.Act to have over-riding effect: (1) Save as otherwise provided in 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 provisions 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) and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)." On reading sub-section (1) alongwith sub- section (2) what emerges out is that notwithstanding the overriding effect of the provisions of the Act over any other law to the extent of inconsistency in the latter with the provisions of the former, the Acts enumerated in sub-section (2) remain intact. The words: "The provisions of this Act or the rules made thereunder shall be in addition to and not in derogation of" the Industrial Finance Corporation Act, 1948 are not without significance. The term "in addition to", is synonymous with "also", "moreover", "likewise", or "besides". The term, surely, cannot be construed as meaning "in lieu of" and is rather diametrically opposed to diminution or abatement or abridgment. In other words, what the term "in addition to" signifies is an increase of or accession to, and thus carries out the idea of protecting the reliefs already available under section 30 of the Industrial Finance Corporation Act, 1948. This, I feel, is further fortified by the words "and not in derogation of, the Industrial Finance Corporation Act, 1948." As we all know, the word "derogation" relates to the partial repeal or abolishing of a law, as by a subsequent Act which limits its scope or impairs its utility and force. In other words when we say "in derogation of" we mean, more generally, the act of taking away, or destroying the value or effect of anything, or of limiting its extent, or of restraining its operation. If that be the meaning and purport of the word "derogation", when section 34 uses the words "and not in derogation of the Industrial Finance Corporation Act, 1948", it is clearly conveyed that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 neither limits the scope nor impairs the utility and force of the Industrial Finance Corporation Act, 1948. And, the reason for it is not far to seek. Section 30 of the Industrial Finance Corporation Act, 1948 confers on the Corporation special rights to enable it to recover its dues promptly and effectively, and without the necessity of resorting to long drawn litigation requiring adjudication by judicial authorities and which may harm the interest of the Corporation, frustrate its rights, block its funds and make it difficult for it to freely invest money. In short, thus, section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 keeps intact the Industrial Finance Corporation Act, 1948 and in no way limits, hinders or impairs the play of its provisions. This being the position, the coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 has no effect on the pendency of the present proceedings. I hold accordingly.