National Thermal Power ... vs Canara Bank & Ors.
1999 Latest Caselaw 505 Del

ORDER

D.K. Jain, J.

1. Admit.

2. With the consent of counsel for the parties, the appeals are taken up for final disposal at this stage itself.

3. These three appeals under section 10F of the Companies Act, 1956 (for short the Act); two by the National Thermal Power Corporation (hereinafter referred to as the NTPC) and one by the Power Grid Corporation of India (hereinafter referred to as the PGCI), have been preferred against the orders passed by the Company Law Board (for short the Board) under section 111(7) of the Act, directing the appellants to redeem certain bonds issued by them and pay the redemtion amount along with arrears of interest directly to Bank Mutual Fund (for short the Mutual Fund), a Trust constituted under the Indian Trusts Act, 1882, without making any adjustment for the redemption amount, if any, due to them from Canara Bank, the settlor and the principal trustee of the said Trust.

4. Since the issues arising for consideration in all the three appeals are common, it would be expedient and convenient to dispose them of by this common order.

5. Briefly stated the facts giving rise to the appeal by PGCI (appeal No. 17/96) are that on or around 20 March, 1992 the Mutual Fund purchased 17 % bonds of the appellant company of the face value of Rs. 80 crores from Canara Bank Financial Services Limited (hereinafter referred to as the Canfina), subsidiary of the Canara Bank. Out of the bonds purchased, the Mutual Fund sold bonds of the face value of Rs. 20 crores. Canfina delivered to the Mutual Fund letters of allotment in relation to the bonds of the face value of Rs. 48 crores with transfer deed endorsed in favour of "Canara Bank-Trustee Can Bank Mutual Fund". The custodian of the Mutual Fund lodged the said bonds on or about 7 December, 1992 with the appellant for registration in the name of Mutual Fund through Canara Bank as its Principal trustee. However, despite various requests, the appellant neither registered the transfer nor paid the interest due thereon. Being arrived, the respondent filed a petition for rectification of the register under section 111(4) of the Act before the Board.

6. In the case of NTPC (Appeal Nos. 22 and 23/96 the Mutual Fund purchased 13 % secured redeemable NTPC bonds of the face value of Rs. 57.5 crores before 30 June 1989 (subject matter of appeal No. 22/96) and 14% NTPC bonds of the face value of Rs. 2.17 crores on 5 August 1988 (subject matter of appeal No. 23/96). Letters of allotments were lodged with the NTPC on different dates for registration. The NTPC called for certain information, relating to the registration of the Mutual Fund as a Trust, the registration granting authority to persons concerned as well as the authority to register in the name of Canara Bank-Trustee Can Bank Mutual Fund. On receipt of the information, the NTPC, however, registered the transfer in the name of Canara Bank and sent all the bonds and certificates along with interest warrants to Canara Bank. Out of the said bonds of Rs. 57.5 crores, the Mutual Fund sold bonds worth Rs. 37.5 crores to third parties and the balance bonds of his face value of Rs. 20 crores were sent to NTPC for splitting into smaller denominations. Despite various demands the NTPC did not register the bonds in the name of "Canara Bank - Trustee Can Bank Mutual Fund", though the bonds sold by the Mutual Fund to other parties had been registered in their respective names after obtaining no objection from Canara Bank. Aggrieved by the delay on the part of the appellant in entertaining the name of "Canara Bank - Trustee Can Bank Fund" in the register of bond holders the NTPC filed petitions before the Board.

7. The petitions were resisted by the appellants, inter alia, on the ground : (i) the Board had no jurisdiction to proceed with the matter as the petitioner Canara Bank was a public sector corporation as was the respondent and, therefore, inter-se disputes were required to be referred to the Committee of Secretaries in accordance with the judgment of the Supreme Court in the case of Oil and Natural Gas Commission & Anr. Vs. Collector of Central Excise 1995 Suppl. (4) SCC 541 : JT 1991 (4) SC 158, (ii) in view of the specific prohibition under section 153 of the Act, mutual fund, being a Trust, could not be registered as a member in the register of members maintained by the NTPC/PGCI and (iii) as the bonds were held in the name of Canara Bank, NTPC/PGCI were entitled to adjust the amounts due against the bonds towards its dues from the Canara Bank.

8. On the first objection, the Board took the view that Canara Bank had filed these petitions in a representative capacity as trustee of the mutual fund and not in its individual capacity and, therefore, the real litigation was not between two public sector undertakings and thus, the same being between the mutual fund and the NTPC/PGCI, directions contained in the ONGC's case (supra) did not apply in these cases. Consequently, in the case of PGCI, the Board fixed the petition for regular hearing. However in the case of NTPC the Board proceeded to decide the petitions on merits. The Board came to the conclusion that the real owner of the bonds was the mutual fund and the Canara Bank was holding the same in the capacity of a trustee. However, in view of the prohibition contained in Section 153 of the Act, to take cognizance of any relationship of the trustee and beneficiary in the register of members, it felt handicapped in directing the appellants to register the bonds in the name of "Canara Bank - Trustee Can Bank Mutual Fund". Notwithstanding the said statutory prohibition, while observing that non entry of the name of mutual fund does not deafest their title to the bonds in question, the Board in exercise of its powers under section 111(7) of the Act and applying the principles of equity, without ordering rectification of register in respect of 13 % bonds, directed the NTPC to pay the redemtion amount along with interest directly to the mutual fund. As regards 14 % bonds, it ordered that the same be registered in the name of Canara Bank and recognising the title of the Mutual fund to these bonds, directed the NTPC to pay redemption amount to the mutual fund directly after the rectification was effected. It was also ordered that while making payments of redemtion amount, the interest amount due shall also be remitted and if required, the NTPC may obtain necessary letters of release from Canara Bank as it was the registered owner . The Board further ordered that the NTPC will have no right to adjust the proceeds of redemption against their dues. If any, from Canara Bank as this would result in a breach of trust, the bonds being secured. Hence these appeals.

9. I have heard Dr. A.M. Singhvi and Mr. J.C. Seth on behalf of the applicants and Mr. A.N. Haksar and Mr. Arun Jaitley, learned senior counsel on behalf of the respondent at considerable length.

10. It is submitted by learned counsel for the appellants that : (a) the petitions under Section 111 of the Act having been filed by the Canara Bank, a public sector corporation, the disputes raised by it in connection with the bonds issued by the appellants were mandatorily required to be referred to the High Powered Committee of Secretaries in terms of the decision of the Supreme Court in ONGC's case (supra) (b) in view of the admitted stand of the respondent that the mutual fund is a trust, constituted under the Trusts Act, on account of the Statutory Prohibition contained in Section 153 of the Act, against registering or recognising the mutual fund as the owner of the bonds, in the register of members or debenture holders, the Board could not order rectification of the register of members in favour of the mutual fund and the payment of the maturity value of the bonds directly to the Mutual Fund by applying the principle of equity and (c) since substantial amounts are due to the NTPC and PGCI from CanFina, admittedly wholly owned subsidiary of Canara Bank, the appellants are entitled to set off the amounts due to them against the bonds in question. Elaborating the first ground, learned counsel for the appellants submit that even otherwise if the veil of the mutual fund is lifted and the provisions of the trust deed are examined, it will be found that the Canara Bank has all pervasive control on the Trust. It is pointed out that not only the Canara Bank is the principal trustee of the Trust, other trustees are also those who are on the Board of Directors of the said Bank or its employees; as per clause 7(2) of the trust deed, governing the mutual fund, the Canara Bank "as the principal trustee is the legal owner in whom all the assets of the existing fund and of the fund which may be set up in future shall vest" and, therefore, in reality the Bank, the mutual fund and Canfina are all one entity entirely controlled by the Canara Bank. It is thus, pleaded it is not open to the respondent to take the stand that the mutual fund is an Independent trust, not covered by the said judgment.

11. Reliance is placed on a decision of the Bombay High Court in Stock Holding Corporation of India Limited and Another Vs. Bharat Petroleum Corporation Limited 1997 (3) CLJ 112 in support of the second proposition.

12. On the other hand, while supporting the impugned orders, it is submitted on behalf of the respondents that the mutual fund being a trust, duly registered under the Indian Trusts Act, with Canara Bank only as a settlor and principal trustee, there is no pervasive control of the Central Government on the mutual fund and, therefore, the principle of the public enterprises cannot be extended to the mutual fund so as to bring it within the ambit of ONGC's case (supra); the respondent had not made any request to the appellants to enter any notice of trust on its register of members or of the debenture holders and it had only requested the appellants for registration of the bonds in the name of the respondent and, therefore, Section 153 of the Act was not attracted; (c) the bar under Section 153 of the Act was never taken as a ground for refusing to register the bonds in the name of the respondents and (d) in view of the provisions of Section 65 of the Contract Act, the appellants cannot retain the amounts due to the respondent.

13. Thus, the first and the foremost question which falls for consideration is whether in the light of the decision of the Supreme Court in ONGC's case (supra), it was incumbent upon the respondent to obtain the clearance from the High Powered Committee of Secretaries before filing the said petitions before the Board.

14. Pursuant to the orders passed by the Supreme Court on 11 September, 1991 in the matter of setting up of the High Powered Committee of Secretaries for resolving disputes between the Union of India on the one hand and its public sector undertakings on the other, the Cabinet Secretary submitted his repot to the court. The relevant portion of the report, extracted in the order passed by the Supreme Court on 11 October, 1991 reported as 1995 Suppl. 4 SCC 541; JT 1991 (4) SC 158 (supra), reads as follows:-

"I would also like to state that the Government respects the views expressed by this Hon'ble Court and has accepted them that public undertakings of Central Government and the Union of India should not fight their litigation in court by spending money on fees on counsel, court fees, procedural expenses and wasting public time. It is in this context that the Cabinet Secretariat has issued instructions from time to time to all Departments of the Government of India as well as to public undertakings of the Central Government to the effect that all disputes, regardless of the type, should be resolved amicably by mutual consultation or through the good offices of empowered agencies of the Government or through arbitration and recourses to litigation should be eliminated".

15. While commending the initiative taken by the Cabinet Secretary in this behalf, in the said order, the Supreme Court further directed the Governments of India to set up a Committee consisting of representatives from the Ministry of Industry, the Bureau of Public Enterprises and the Ministry of law, to monitor disputes between various Ministries, the Ministry and public sector undertakings of the Governments of India and public sector undertakings in between themselves, to ensure that no litigation comes to court or to a Tribunal without the matter having been first examined by the Committee and its giving clearance for litigation. The court also observed that it shall be the obligation of every court and every Tribunal where such a dispute is raised to demand a clearance from the said committee in case it has not been so pleaded and in the absence of the clearance the proceedings would not be proceeded with.

16. It is evident that the underlying purpose and the object of setting up of a High Powered Committee was to ensure that as far as possible the disputes inter-se the Ministries, the Ministry and public sector undertaking and between public sector undertakings themselves are resolved through the good offices of the High powered Committee and the valuable time of the courts/tribunals and high litigation expenses, at the cost of the public funds is saved. Again, while clarifying certain misconceptions arising out of the aforenoted memo issued by the Cabinet Secretariat, the Supreme Court, vide its order dated 7 January, 1994 (see : 1994 (1) Scale 324), directed that if the High Powered Committee was unable to resolve the matter, for the reasons to be recorded by it shall grant clearance for litigation

17. As noted above, the question requiring consideration is whether the disputes arising between the parties herein could be said to be disputes between the two public sector undertakings, so as to fall within the ambit of the aforenoted directions issued by the Apex Court. Admittedly, the appellants, namely, NTPC and PGCI are public sector undertakings but the dispute is with regard the status of the respondent. The stand of the appellants is that the mutual fund is nothing but another wing of Canara Bank, a public sector undertaking, as it has all pervasive control over it, whereas the Canara Bank says that it is merely acting in a representative capacity as a settlor and principal trustee of the mutual fund registered under the Trusts Act and, therefore, cannot be said to be a public sector undertaking.

18. From the deed of trust dated 31 January, 1990 it appears that the Canara Bank as a settlor, constituted a trust under the aforenoted name "Can Bank Mutual Fund", with itself as the principal trustee of the fund for doing mutual fund business. The Trust Deed declares that the settlor has decided that the Can Bank Mutual Fund shall be vested in the Canara Bank as trustees for the benefit of the persons participating in the scheme to be framed by the Canara Bank as trustee of the Can Bank Mutual Fund (Preamble (iii) ; the Canara Bank declared to hold as trustees in trust for the subscribers to such schemes, the moneys, contributed by the settlor and the persons participating in such schemes for the Can Bank Mutual Fund [preamble (iv)]; for managing and administering the trust, the deed provides that the settlor shall constitute a Board of trustee [Article 7(1)] : the Canara Bank as trustee of the existing mutual fund and acting thereunder as the principal trustee shall be the legal owner in whom all the assets of the existing funds and all the funds which may be set up in future shall vest and the management and administration of all such funds shall vast in the Board [Article 7(2)]; the Board is to consist of the Chairman and the Managing Director for the time being of the Canara Bank, the Executive Director of Canara Bank, an officer of the settlor shall be the Executive trustee and two more other individuals are to be appointed by the settlor in its discretion [Article 7(3)].

19. It is true that a trust registered under the Trusts Act not being a separate legal entity, has to act through its trustees and to that extent the Canara Bank may be justified in contending that it is acting on behalf of the mutual fund in that capacity, and, strictly speaking the Trust by itself may not be a public sector enterprise but in the present case, having persued some of the Articles of the Deed of trust, in particular the one noticed above, I feel that Canara Bank has a pervasive control on the mutual fund. It is the Canara Bank as settlor and principal trustee and its other functionaries who are in effective control of the mutual fund and that being so the Canara Bank cannot be heard to say that affairs of the trust may not fall within the domain of the High Powered Committee and further its transactions with the appellants have no connection whatsoever with transactions between the appellants and Canfina, a subsidiary of Canara Bank.

20. It is also significant to note at this stage that in a reference to the High Powered Committee by the PGCI for settlement of their disputes with Can fine with regard to the recovery of bond amount of approximately Rs. 94 crores along with interest due from them and cancellation of bonds purchased by the Canara Bank from PGCI the High Powered Committee has refused to grant permission for litigation.

21. Keeping in view the spirit and the ultimate object sought to be achieved by the directions contained in the ONGC's case (supra) and having regard to the peculiar nature of the controversy involved, which may only require adjustments of the amounts due to each other, namely the appellants, Canara Bank's subsidiary Canfina and the mutual fund, I feel that it will be proper, expedient and in the interests of justice to refer the disputes, subject matter of these appeals, to the High Powered Committee in terms of the decision in ONGC's case (supra). I order accordingly.

22. I am confident that the High Powered Committee would deal with these matters expeditiously and endeavor to resolve them in order to avoid further deck-by-deck litigation between the parties concerned. However, if the Committee is under to resolve the matters, it shall, for the reasons, to be recorded by it, grant clearance for litigation to enable the parties to take recourse to the proceedings as may be available to them in law.

23. For the view I have taken above, I deem it unnecessary to consider and deal with the issue with regard to the directions given by the Board to the appellants in the case of NTPC to pay the redemption amount due against the bonds presently registered in the name of the Canara Bank, directly to the mutual fund, without making any adjustment for the redemption amount, claimed by the appellants from Canfina though, prima facie, the said directions do not appear to be legally sound, particularly when the Board has itself in express terms held that the provisions of Section 153 of the Act are mandatory and still continuous to be on the statute.

24. The appeals are disposed of in the above terms, with no order as to costs.