Vinay Rai vs Ifci Ltd. And Ors.
2007 Latest Caselaw 2068 Del

JUDGMENT

A.K. Sikri, J.

1. Since we are concerned with the legality and propriety of the interim order dated 18.9.2006 passed by the Debts Recovery Appellate Tribunal (for short, the 'Appellate Tribunal') under Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the 'Act') whereby the learned Appellate Tribunal has refused to grant waiver of principal deposit of the amount and has directed the petitioner herein to deposit 75% of the amount shown in the Recovery Certificate with the respondent bank as a pre-condition for hearing the appeal, we are not taking note of the facts of the case in greater detail. However, those facts, which are absolutely necessary for disposal of this petition, would be taken note of hereafter.

2. The respondent No. 2, M/s. Malvika Steel Ltd. (hereinafter referred to as the 'company') was given financial assistance by the IFCI Limited (respondent No. 1 herein and referred to as 'IFCI') for its steel project. The company had envisaged a modern integrated steel plant to cater to the growing needs of the infrastructural projects which were proposed to be set up at Jagdish Pur, District Sultan Pur, Uttar Pradesh. The said unit was to manufacture 5.75 lac tons per annum of finished rolled steel products and 57000 tons per annum of Pig Iron and total cost of the project was Rs.1365 crores. Vide its letter dated 6.5.1993, the company approached IFCI for sanction of Rupee Term Loan, Foreign Currency Loan and investment in partly convertible debentures for the said project. These facilities were sanctioned by the IFCI and various agreements to facilitate grant of the aforesaid Term Loans were entered into.

3. M/s. Usha (India) Ltd. (respondent No. 4 herein) was the promoter company of the respondent No. 2 company. The petitioner is the Director of the respondent No. 2 as well as the respondent No. 4. In the said capacity, he executed guarantees to guarantee the repayment of the aforesaid Term Loan transactions on 23.9.1994, 20.11.1995, 6.11.1996, 29.9.1997 and 1.9.2000. Financial assistance was provided by the IFCI on the execution of these documents. The project of integrated steel plant, as envisaged, was commenced. The first blast furnace was commissioned in October 1995 and the second blast furnace was commissioned in 1996. The company, however, went into losses and it attributes the same to the recession in the domestic as well as international steel markets and inadvertent delay in completion of the project. Negligence and unprofessional conduct on the part of the officials of IFCI is also alleged.

4. Be that as it may, the company became irregular in repaying the loans given by the IFCI. As the money payable to IFCI kept mounting and assumed serious proportions, meeting of the company was convened on 27.7.2001, which was attended by the Chairman of the IFCI as well. Along with him the General Manager and other senior officials were also present. This meeting was chaired by Dr. S.K. Gupta, Nominee Director of IFCI on the Board of Directors of the company. Certain decisions were taken in the said meeting, effect whereof would be considered at the relevant stage of this judgment. Suffice it to point out at this stage that financial restructuring of the company was taken up thereafter, which attempt also failed. IFCI, under these circumstances, approached the Debts Recovery Tribunal and filed OA for recovery of the amount. In the said OA, apart from the company, it also imp leaded the petitioner as defendant No. 2, another director Mr. Anil Rai as defendant No. 3, M/s. Usha (India) Ltd. as defendant No. 4. Other financial institutions and insurance companies were also imp leaded as the respondent Nos. 5 to 11. The said application for recovery was registered as OA No. 145/2002 in which final order dated 25.7.2005 was passed by the Debts Recovery Tribunal-I, Delhi deciding the said OA in favor of IFCI and against the defendant Nos. 1 to 3, jointly and severally, for the amount of Rs.1037,58,70,993/- (Rupees One Thousand Thirty Seven Crores Fifty Eight Lacs Seventy Thousand Nine Hundred And Ninty Three Only) along with pendente lite and future interest @ 10% p.a. from the date of filing of the OA. Cost of litigation was also awarded in favor of the IFCI and against the defendant Nos. 1 to 3 and they were directed to bear the same. Three months' time was given to defendant Nos. 1 to 3 to pay the said amount, failing which, it was directed that the amount be recovered from sale of hypothecated assets, mortgaged immovable properties comprising land admeasuring 345.08 acres and 265.01 acres situated at Usha Puram, UPSIDC Industrial Area, Jagdishpur, Dist. Sultanpur, U.P. and other personal properties of defendant Nos. 1 to 3 or as per the provisions of the Act. A sum of Rs.63 crores was attached during the pendency of the proceedings, which was directed to be appropriated. The amount to be received from the sale of hypothecated assets, mortgaged immovable properties, etc. was directed to be distributed amongst the financial institutions as well as defendant Nos. 5 to 11 as per their respective charge/pari passu charge.

It may be mentioned here that the aforesaid OA was filed on 16.7.2002 and on an injunction application preferred by the IFCI ex-parte interim injunction order dated 17.7.2002 was passed and a Receiver was also appointed. On 3.10.2002, on an application filed by the IFCI, orders for the sale of assets, movable and immovable, of the company were passed.

5. The petitioner herein (defendant No. 2 in the said OA) filed appeal against the said order on 20.10.2005 before the Appellate Tribunal, which was registered as Miscellaneous Application No. 377/2005. The petitioner also filed another application, along with the said appeal, under Section 21 of the Act for waiver of pre-deposit of 75% of the decree passed in the OA. This application was dismissed by the Appellate Tribunal on 30.3.2006. The petitioner preferred Civil Writ No. 7141/2006 against the said order and this Court disposed of the said writ petition vide order dated 5.5.2006 remanding the case back to the Appellate Tribunal with directions to pass an appropriate order in accordance with law. The said order reads as under:

Our attention has been drawn to the written submissions filed by the appellant before the DRT in which it is stated that the affidavit of evidence was filed on behalf of the respondent by one Shri S. Lahiri, General Manager of IFCI Ltd. who claimed to be duly authorised by the respondent to institute, sign and verify the OA vide Ex.A-1 authorisation letter. However, the affidavit has been signed and deposed by one Shri Shivram. The learned appellate tribunal has not addressed that argument which goes to the root of the controversy and has skirted the issue in paragraph 12 of the impugned judgment. As we have the benefit of Mr. Sandeep Sethi, learned Counsel for the respondent, without saying anything on the merit of the case we remand the case back to the appellate tribunal and set aside the impugned order with the direction to the appellate tribunal to pass an appropriate order in accordance with law.

After the remand of the case the Tribunal heard the matter again and has passed the impugned order dated 18.9.2006 rejecting the plea of the petitioner with a direction to deposit 75% of the amount shown in the Recovery Certificate.

6. It is clear from the reading of the earlier order of this Court dated 5.5.2006 passed in Civil Writ No. 7141/2006 that one of the contentions of the petitioner herein was that the affidavit of evidence filed on behalf of the IFCI by one Shri S. Lahiri was, in fact, signed and deposed by one Shri Shivram. Thus, as per the petitioner, it was no evidence in the yes of law and could not have been even looked into and once this affidavit was to be excluded, there was insufficient evidence given by the IFCI on the basis of which the OA could have been allowed by the DRT. Since this contention was not dealt with by the Appellate Tribunal while rejecting the plea of waiver preferred by the petitioner, the Appellate Tribunal was directed to go into this question. However, this Court specifically made it clear that it was not making any observations on the merit of the case and was leaving it to the Appellate Tribunal to pass an appropriate order in accordance with law.

7. Insofar as the purported discrepancy, as pointed out by the petitioner, about the affidavit of evidence filed by IFCI is concerned, there is no dispute about the facts. The affidavit is in the name of Shri S. Lahiri, but is signed by Shri Shivram. Before the Appellate Tribunal, when there was an argument advanced on the basis of the said discrepancy, learned Counsel for the IFCI admitted that though the affidavit by way of evidence was filed in the name of Shri S. Lahiri, the same was signed by Shri Shivram. It was explained that signatures of Shri Shivram had been obtained inadvertently on the affidavit prepared in the name of Shri S. Lahiri and it was argued that since it was an inadvertent mistake, it was not fatal to the case of the IFCI and this position was clarified by the DRT also in its detailed final order. It was also pointed out that both Shri S. Lahiri and Shri Shivram were authorised to file the evidence by way of affidavit on behalf of IFCI; the disbursal of the amounts by the IFCI to the company were not disputed; execution of the documents was also not questioned by the petitioner and so much so the petitioner or other defendants against whom the orders were passed did not even lead any evidence and the case of IFCI stood proved on the basis of the petitioner's own admissions about these two factors. Taking note of the respective submissions, the Appellate Tribunal dealt with this argument in the following manner:

9. On the basis of submissions made by both the counsels, the point for consideration is whether the applicant has shown sufficient cause for ordering waiver of pre-deposit as envisaged under Section 21 of the Act. As discussed, with regard to the discrepancy in the signatures arising out of Mr. Sivaram in place of Mr. Lahiri, the Tribunal below has clarified the position. Even otherwise, when the applicant has not denied disbursal of the loan amounts by the respondent financial institution and execution of documents in its written statement, the claim of the respondent financial institution is liable to be accepted even without there being supporting evidence. The applicant cannot now make a hue and cry and contend that this discrepancy in the signatures is fatal to the claim of the respondent financial institution.

8. We are of the opinion that the approach of the Appellate Tribunal cannot be validly questioned. The Tribunal is right that this issue was to be determined on the touchstone of Section 21 of the Act and the question to be considered was as to whether there was sufficient reason for ordering waiver of pre-deposit. When there was no denial of the disbursal of loan amounts to the company and execution of the documents by the company as well as others including the petitioner, who signed the guarantees, the petitioner could not have been exempted from total waiver on the basis of the plea regarding discrepancy in the affidavit by way of evidence. Final view in this behalf is yet to be taken by the Tribunal, which stage would arise when the appeal is argued. Since this is the matter in which it is the Tribunal who is to advert to in the first instance, it would not be proper for us also to give our conclusive opinion. We may only note that the DRT in its final order, which is impugned before the Appellate Tribunal, had found that Shri S. Lahiri was the person who had instituted, signed and verified the OA and was authorised to do so. It is plausible to argue that he had tendered the affidavit, and thereby adopted the same as his own, even if inadvertently signed by Shri Shivram. This would be for the DRAT to consider when it is hearing the appeal on its merits, without being influenced by any observation made by this Court.

9. We may take note of two other submissions which were advanced before the Appellate Tribunal and also before us by learned Counsel for the petitioner. One submission was that the Management of the company was taken over by IFCI through Board Resolution dated 27.7.2001. As on that date, the company was having assets worth Rs.2800 crores, which is reflected in the balance sheet for the year 2000-01. Therefore, at the time of the 'take over' of the company there were enough assets under the control of IFCI to satisfy its complete purported debts. The steps for financial reconstruction of the company were also taken by the IFCI and other financial institutions and the petitioner or the company could not be blamed for its failure. This contention was taken before the DRT also, which was rejected taking note of the fact that the petitioner was re-inducted into the Board of Directors after some time and also that he was not absolved from the liability. The learned Appellate Tribunal in the impugned order has also not accepted this submission, which is clear from the following discussion:

9...As regards the principal contention raised before this Tribunal about the taking over of management of M/s. Malvika Steel Limited by the IFCI, this aspect has also been considered by the Tribunal below holding there is no change of management. Minutes recorded on 27.7.2001, do not give us an inference that management of the company has been taken over by the respondent financial institution. In fact, the Board was reconstituted by inducting some more Directors who are drawn from different financial institutions, who came forward to finance the company. Nevertheless, if it is to be accepted that there is change in the management, no document has been produced by the applicant evidencing taking over of the company by the respondent financial institution. If at all there is a take over of management, it is reflected through a document which would also speak about the assets and liabilities position.

10. Again, we find that the aforesaid prima facie view taken, when the matter is discussed in the light of Section 21 of the Act, is not to be interfered with. The last contention which was raised by learned senior counsel appearing for the petitioner and which merits some consideration is about the inability to make the payment. It was submitted that it is a statutory appeal provided and the Recovery Certificate on the basis of orders passed in OA by the DRT mentions the amount of more than Rs.1000 crores. It is not possible for the petitioner to pay amount of this magnitude and because of his inability to pay, the petitioner should not be denied his right to appeal. His submission was that while considering the application for waiver, this was the relevant consideration. He referred to two Division Bench judgments of this Court, namely, in Mohammad Abullas @ Abdul and Anr. v. Mussadi Lal and Ors. and Jagannath Dudadhar and Ors. v. Commissioner of Sales Tax and Ors. 2004 (136) STC 235 and emphasized the following observations made in the latter decision:

Having heard learned Counsel for the parties and carefully perused the reasoning of the Tribunal, we are of the view that a case for total waiver of pre-deposit is not made out. The statute confers on the person aggrieved a right to appeal. But, while granting such a right, the Legislature is competent to circumscribe it by imposing certain conditions. Section 43(5) of the Act provides that no appeal against an order of assessment, etc., shall be entertained by an appellate authority unless such appeal is accompanied by a satisfactory proof of the payment of tax, etc. However, under proviso to the Sub-section (5), a discretion is conferred on the appellate authority to entertain the appeal without payment of tax, etc., if it thinks fit, for the reasons to be recorded in writing, on appellants' furnishing security or proof of payment of a smaller amount as the appellate authority may direct. It is trite that while dealing with application for waiver of the condition of pre-deposit, the authority concerned is not required to embark upon a detailed enquiry to find out whether the stand of the appellant is correct or not. What is required to be seen is whether: (a) there is a prima facie case in favor of the appellant for grant of full stay; (b) the balance of convenience qua deposit or otherwise; and (c) irreparable loss, if any, would be caused to the appellant in case stay is not granted. While imposing any condition for pre-deposit, it is also to be borne in mind that the condition is not so stringent that it is incapable of being complied with, so as to render the right of appeal illusory.

11. When we consider the present case keeping in view the aforesaid principle, we would find that 75% of the amount in the Recovery Certificate would come to Rs.750 crores. We may also note at this stage that all the assets of the principal debtor, i.e. the company, were taken over and have also been sold and a sum of Rs.207 crores is realized by IFCI by the sale of those assets. The petitioner is fastened with the liability as a guarantor. Asking him to make the pre-deposit of Rs.750 crores would render the right of appeal illusory. We are also conscious of the fact that when provision for appeal is provided, subject to pre-deposit, it is not that every person gets automatic right to file the appeal unless he makes pre-deposit as per the statutory provision.

This was so held in para 7 of the judgment of this Court in Usha Udyog v. Customs, Excise and Gold (Control) Appellate Tribunal 2000 (6) AD 632:

7. Right of Appeal is a creation of statute. But in exercise of such right, there is no inherent or constitutional right to file an appeal. While granting such right, legislature can impose any condition. It was observed in Anand Mills Co. Ltd. v. State of Gujarat AIR 1976 SC 1234 and State of Bombay v. Supreme General Films Exchange Ltd. AIR 1960 SC 980, that legislature can, while granting right of appeal, lay down a condition for deposit of tax as it is creation of statute. Legislature can also put restriction on it so as to curtail it. There is nothing wrong if under same statute, a right of Appeal is given and then some restrictions are put over it. Right to appeal is a substantive right and not a mere matter of procedure. But such right is neither an absolute right nor an ingredient of natural justice. It must be conferred by statute and can be exercised only as permitted by statute. There is no fetter in imposing conditions about deposit of fees etc. There are many fiscal statutes like Central Excise and Salt Act, Customs Act, Sales Tax Acts of various States and many other similar statutes, which mandate deposit of disputed amount as a condition precedent for entertaining appeal. Condition of deposit of court fee in many cases merely regulates exercise of right of appeal. It is open to legislature to impose an accompanying liability upon a party upon whom legal right is conferred or to prescribe conditions for exercise of right. Any requirement for discharge of that liability or fulfilllment of that condition, in case the party concerned seeks to avail the said right, is a valid piece of legislation and Article 14 has no application. Observations in the case of Hannah Cohen v. Beneficial Industrial (1949) 337 US 541 lend some support to the view we have taken. Headnote 10 which is based upon the observations in the body of the judgment reads as follows:

10. A state statute which requires that in a stock-holder's derivative action a Plaintiff who owns less than 5 per cent of the Defendant corporation's outstanding share or shares having market value not exceeding $50,000 give security for the reasonable expenses including counsel fee, incurred by the corporation and by other parties Defendant and which makes the Plaintiff liable for such expenses if he does not make good his claims, and subjects the amount of security to increase if the progress of the litigation reveals that it is inadequate or to decrease if it is proved to be excessive, does not violate the contract clause or the due process clause or the equal protection clause of the Federal Constitution.

12. Therefore, keeping in view the aforesaid principles in law and the facts of this case, we are of the opinion that it is not a case where there can be total waiver of the pre-deposit, but, at the same time, it is also not equitable to direct the petitioner to give a deposit of Rs.750 crores in order to enable him to argue his appeal. Therefore, balancing the equities and sine question of hearing of appeal only is involved at this stage, we are of the opinion that interest of justice would be subserved if the petitioner deposits a sum of Rs.75 crores. As far as the petitioner is concerned, he is required to deposit only 10% as against 75% of the amount of the Recovery Certificate. Insofar as IFCI is concerned, only as a condition of hearing of the appeal filed by the petitioner it would be able to recover Rs.75 crores, which would be a substantial amount from its point of view. The aforesaid amount shall be deposited within two months, failing which the appeal of the petitioner before the Appellate Tribunal would be liable to be dismissed.

13. This writ petition is disposed of in the aforesaid terms. The accompanying application also stands disposed of.