2006 (12) TMI 232 - SC - Companies Law

Whether respondents 1 and 2, namely, Administrator of Specified Undertaking of Unit Trust of India and UTI Trustee Company Private Limited are financial institutions within the meaning of that term in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993? If the answer is in the affirmative, whether the action brought by them before the Debts Recovery Tribunal is for recovery of debts due to them from the appellant herein, and not due to any other person on whose behalf the aforesaid respondents are suing? Held that - Appeal dismissed. Having examined the provisions of the UTI Act, 2002 no doubt that vesting in the Administrator or the Specified Company is complete. The concept of mere vesting of management cannot be imported into the scheme of the Act. The Administrator and the Specified Company were therefore, fully authorized in law to recover the dues from the appellants as financial institutions . The Debts Recovery Tribunal had therefore undoubted jurisdiction to entertain their claims. On the basis of the materials placed before us there is nothing to suggest that they were acting either as agents of the Central Government or as trustees. Therefore, hold that they have acted in the exercise of power vested in them by the UTI Act, 2002 and in their own right. The High Court was, therefore, right in dismissing the writ petition preferred by the appellants challenging the jurisdiction of the Debts Recovery Tribunal

Issues Involved:
1. Whether respondents 1 and 2 are "financial institutions" within the meaning of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT Act).
2. Whether the action brought by respondents 1 and 2 before the Debts Recovery Tribunal is for recovery of debts due to them and not on behalf of another entity.
3. The legal effect of section 18 of the UTI (Transfer of Undertaking and Repeal) Act, 2002 (UTI Act, 2002) and its implications on the status of respondents 1 and 2.
4. The jurisdiction of the Debts Recovery Tribunal to entertain the claims of respondents 1 and 2.

Detailed Analysis:

1. Whether respondents 1 and 2 are "financial institutions" within the meaning of the DRT Act:
The Supreme Court examined whether the Administrator of Specified Undertaking of Unit Trust of India and UTI Trustee Company Private Limited qualify as "financial institutions" under the DRT Act. Section 2(h) of the DRT Act defines "financial institution" to include public financial institutions within the meaning of section 4A of the Companies Act, 1956. The Court noted that section 18 of the UTI Act, 2002 substitutes the names of respondents 1 and 2 in place of "Unit Trust of India" in all Acts, rules, and regulations. This substitution implies that respondents 1 and 2 are deemed to be financial institutions under section 4A of the Companies Act, and consequently under the DRT Act.

2. Whether the action brought by respondents 1 and 2 before the Debts Recovery Tribunal is for recovery of debts due to them:
The Court analyzed whether respondents 1 and 2 were acting on their own behalf or as agents/trustees for another entity. It was established that the UTI Act, 2002 resulted in the complete vesting of assets, rights, and liabilities of the erstwhile Unit Trust of India in the Specified Company and the Administrator. The Court emphasized that the Administrator and the Specified Company have the authority to manage and recover debts in their own right, as vested by the statute. Therefore, the actions for debt recovery were deemed to be on their behalf and not as agents or trustees for another entity.

3. The legal effect of section 18 of the UTI Act, 2002:
Section 18 of the UTI Act, 2002, provides that the names of respondents 1 and 2 replace "Unit Trust of India" in all relevant legal texts. The Court upheld the legislative competence of the Parliament to enact such a provision, which effectively amended other statutes without the need for separate amending acts. This substitution ensures that respondents 1 and 2 are recognized as financial institutions under various laws, including the DRT Act.

4. The jurisdiction of the Debts Recovery Tribunal to entertain the claims of respondents 1 and 2:
The Court affirmed the jurisdiction of the Debts Recovery Tribunal to entertain claims made by respondents 1 and 2. It was concluded that respondents 1 and 2, being financial institutions as defined under the DRT Act, have the right to invoke the provisions of the DRT Act for debt recovery. The Court dismissed the appellant's argument that respondents 1 and 2 were acting as agents or trustees, reiterating that they were exercising their statutory powers in their own right.

Conclusion:
The Supreme Court dismissed the appeal, upholding the High Court's decision that respondents 1 and 2 are financial institutions under the DRT Act and are entitled to recover debts due to them through the Debts Recovery Tribunal. The Court found no merit in the appellant's contentions and confirmed the jurisdiction of the Debts Recovery Tribunal to entertain the claims of respondents 1 and 2.

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