1998 (10) TMI 500 - HC - Companies Law

Summary

Issues:
1. Recall of order granting leave to secured creditors to prosecute suits before Debt Recovery Tribunal.
2. Consideration of claims of financial institutions and creditors by the court.
3. Jurisdiction of the Debt Recovery Tribunal under the Debts Recovery Act.

Issue 1: Recall of order granting leave to secured creditors:
The judgment involves an application for the recall of an order granting leave to the State Bank of India and the United Bank of India, secured creditors, to prosecute suits before the Debt Recovery Tribunal. The applicant, Sahu Jain Ltd., sought the recall on the grounds that the order was passed without issuing notice as required under rule 117 of the Companies (Court) Rules. The applicant contended that the direction of the Supreme Court in a previous judgment should be binding on the court. However, the State Bank of India argued that the application for recall by a guarantor is not maintainable, as the order under section 446 is directed against the company. The official liquidator also supported this argument, stating that after the establishment of the Debt Recovery Tribunal under the Debts Recovery Act, no leave is required for prosecution of suits by financial institutions.

Issue 2: Consideration of claims of financial institutions and creditors:
The court considered the Supreme Court's directions in a previous judgment regarding the revival of the company and the consideration of claims of financial institutions and creditors. The Supreme Court had directed the court to consider the report of the Claims Committee in the context of the revival proceedings. However, after the court abandoned its efforts to revive the company, it had to proceed in accordance with the Companies Act. The court noted that the establishment of the Debt Recovery Tribunal under the Debts Recovery Act conferred exclusive jurisdiction upon the Tribunal to entertain and decide applications by banks and financial institutions for debt recovery. The court emphasized that the provisions of the Debts Recovery Act override any other conflicting directions or orders.

Issue 3: Jurisdiction of the Debt Recovery Tribunal under the Debts Recovery Act:
The judgment discussed the jurisdiction of the Debt Recovery Tribunal under the Debts Recovery Act and highlighted that after the Act came into force, it was not necessary to apply for leave under section 446 for prosecution of suits by financial institutions. The court cited a previous case where it was held that after the establishment of the Debt Recovery Tribunal, the company court cannot transfer the suit for trial in winding up proceedings. The court emphasized that the provisions of the Debts Recovery Act take precedence over any other directions or orders, including those of the Supreme Court. Consequently, the court rejected the application for recall of the order granting leave to the secured creditors.

In conclusion, the judgment clarifies the jurisdictional aspects under the Companies Act and the Debts Recovery Act, emphasizing the exclusive jurisdiction of the Debt Recovery Tribunal for debt recovery matters involving banks and financial institutions.