2004 (1) TMI 374 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the High Court to try the suit.
2. Definition and scope of "debt" under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).
3. Role and rights of the debenture trustee versus debenture holders.
4. Applicability of the RDB Act to the present suit.

Issue-wise Detailed Analysis:

1. Jurisdiction of the High Court to Try the Suit:
The primary issue was whether the High Court had jurisdiction to entertain the suit filed by respondent No. 1, given the provisions of the RDB Act. The appellant contended that the suit was barred under the RDB Act, which confers exclusive jurisdiction to the Debt Recovery Tribunal (DRT) for recovery of debts due to banks and financial institutions. The High Court held that the suit did not fall within the exclusive jurisdiction of the DRT, as the claim was not for a debt due to a financial institution but was essentially for the benefit of debenture holders. The court emphasized that the exclusion of the jurisdiction of civil courts is not to be easily inferred, and the RDB Act's jurisdiction is restricted to recovery of debts due to banks and financial institutions.

2. Definition and Scope of "Debt" under the RDB Act:
The definition of "debt" under section 2(g) of the RDB Act was scrutinized. The appellant argued that the suit claim was a "debt" as it was a liability claimed by a financial institution during the course of its business activities. However, the court concluded that the claim in the suit was not for a debt due to the financial institution (respondent No. 1) but was on behalf of the debenture holders. The court held that the definition of "debt" must be read in the context of the statute and the purpose for which it was enacted, which is to recover debts due to banks and financial institutions themselves, not on behalf of third parties.

3. Role and Rights of the Debenture Trustee versus Debenture Holders:
The court examined the role of respondent No. 1 as a debenture trustee. The appellant argued that the debenture holders had no independent right to claim the amount, and the suit was essentially by the financial institution for recovery of a debt. The court found that the debenture trustee (respondent No. 1) acted as a facilitator for the debenture holders and that the principal amount claimed was due to the debenture holders, not the trustee. The court emphasized that the trustee's role was to enforce the rights of the debenture holders and that the money at stake belonged to the debenture holders, not the financial institution.

4. Applicability of the RDB Act to the Present Suit:
The court considered whether the suit fell within the ambit of the RDB Act. The appellant relied on the broad definition of "debt" and the exclusive jurisdiction of the DRT under sections 17 and 18 of the RDB Act. The court, however, held that the suit was not for recovery of a debt due to a financial institution but for enforcing the rights of debenture holders. The court also referred to the legislative intent behind the RDB Act, which was to expedite recovery of debts due to banks and financial institutions themselves, not to cover claims where such institutions act as trustees for others.

Conclusion:
The High Court concluded that the suit filed by respondent No. 1 was not barred by the RDB Act and that the High Court had jurisdiction to entertain the suit. The court dismissed the appeal, affirming the decision of the single judge, and held that the suit was for the benefit of the debenture holders and not for recovery of a debt due to the financial institution. The appeal was dismissed with costs.