2000 (3) TMI 1026 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Debts Recovery Tribunal (DRT) vs. Company Court.
2. Locus standi of the appellant to challenge the leave granted.
3. Compliance with principles of natural justice.
4. Interpretation and application of the Companies Act, 1956, and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDBFI Act).
5. Binding nature of the Supreme Court's directions on the Company Court.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Debts Recovery Tribunal (DRT) vs. Company Court:
The core issue was whether the jurisdiction of the Company Court under Section 446 of the Companies Act, 1956, was ousted by the provisions of the RDBFI Act. The learned Company Judge initially held that the RDBFI Act, being a later statute, had an overriding effect, thereby excluding the jurisdiction of the Company Court. However, the High Court disagreed, referencing the Supreme Court's decision in Industrial Credit & Investment Corpn. of India Ltd. v. Srinivas Agencies, which emphasized that the Company Court's jurisdiction under Section 446(2) was not automatically ousted by the RDBFI Act. The Court concluded that the Company Court must exercise its jurisdiction based on the specific facts and circumstances of each case.

2. Locus standi of the appellant to challenge the leave granted:
The appellant, being a guarantor and a defendant in the suits filed by the banks, argued that it had the right to be heard when leave was granted to the banks to proceed with their suits before the DRT. The High Court upheld this contention, stating that the appellant had a statutory right to notice under Rule 117 of the Companies (Court) Rules, 1959, which mandates notice to all parties to the suit when leave is sought under Section 446 of the Companies Act. The Court emphasized that the appellant's right to defend the suit included the right to be heard on the issue of the appropriate forum for adjudicating the bank's claims.

3. Compliance with principles of natural justice:
The High Court found that the principles of natural justice were violated as the appellant was not given notice or heard when leave was granted by the Company Judge. The Court highlighted that the statutory requirement of notice under Rule 117 was not followed, and the appellant's right to a fair hearing was infringed. The Court referenced judicial precedents that expanded the principles of natural justice, asserting that the requirement of hearing is an inherent part of fair judicial and administrative decision-making.

4. Interpretation and application of the Companies Act, 1956, and the RDBFI Act:
The High Court analyzed the interplay between Section 446 of the Companies Act and Sections 17, 18, and 34 of the RDBFI Act. The Court noted that while the RDBFI Act confers exclusive jurisdiction on the DRT for recovery of debts, it does not automatically oust the jurisdiction of the Company Court under Section 446(2). The Court emphasized that the Company Court must consider various factors, including the interests of other secured creditors and the dues of workmen, before granting leave to proceed with suits in other forums.

5. Binding nature of the Supreme Court's directions on the Company Court:
The High Court addressed the directions issued by the Supreme Court in the case of Workmen of Rohtas Industries v. Rohtas Industries, which mandated the Company Court to consider the report of the Claims Committee. The learned Company Judge had assumed that these directions did not account for the provisions of the RDBFI Act. However, the High Court clarified that the Supreme Court's directions were binding and must be followed by the Company Court. The Court noted that the RDBFI Act, being an Act of 1993, was already in force when the Supreme Court issued its directions, and there was no basis for the assumption that the Supreme Court was unaware of the RDBFI Act.

Conclusion:
The High Court set aside the impugned order of the learned Company Judge dated 30-10-1998, which had refused to recall the earlier order granting leave to the banks. The matter was remitted to the learned Company Judge for a fresh hearing on the appellant's application for revocation of leave, in light of the observations made in the judgment and the principles laid down in Industrial Credit & Investment Corpn. of India Ltd.'s case. The appeal was allowed, and the order was set aside, with no order as to costs.