2010 (5) TMI 379 - SC - Indian Laws

Whether the Bank has alleged in the suits that the amounts are due to the Bank from the respondents, that the liability of the respondents has arisen during the course of their business activity, that the said liability is still subsisting and legally recoverable? Held that - Partially allow this appeal and while modifying the order of the High Court to the extent that, the appellants would be liable to pay to the respondent Bank a sum of ₹ 9,63,975. (approximate value of the hypothecated stock sold by the appellants) with interest at the rate of 6 per cent per annum on the above sum during the period from 14-3-1988, the date of filing of the plaint, to the date of actual realization as originally allowed by the Tribunal. Further direct the Chairman of the Allahabad Bank to examine this case in light of our discussion supra and take appropriate action against erring officers/officials in accordance with law.

Issues Involved:
1. Jurisdiction of the Debt Recovery Tribunal (DRT).
2. Privity of contract between the appellant and the bank.
3. Knowledge of hypothecation and sale of hypothecated goods.
4. Setting aside the ex parte decree.
5. Definition and scope of "debt" under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
6. Public accountability of the bank and its officials.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Debt Recovery Tribunal (DRT):
The appellant contended that the DRT lacked inherent jurisdiction to entertain and decide the bank's claim against them, arguing that the appellant was neither a borrower nor had any privity of contract with the bank. The Supreme Court examined the definition of "debt" under section 2(g) of the Recovery Act and concluded that the Tribunal had jurisdiction. The Court emphasized the broad and inclusive language of section 2(g), which covers "any liability" claimed as due from "any person" by a bank, whether secured or unsecured. The Court held that the legislative intent was to give a wide meaning to the term "debt" to ensure expeditious recovery of dues by banks and financial institutions.

2. Privity of Contract between the Appellant and the Bank:
The appellant argued that there was no privity of contract between them and the bank, and thus, no liability could be fastened upon them. The Court noted that the appellant had taken possession of the hypothecated goods and sold them without the bank's consent, despite having knowledge of the hypothecation. The Court held that the appellant's actions made them liable to the bank for the value of the hypothecated goods sold.

3. Knowledge of Hypothecation and Sale of Hypothecated Goods:
The appellant claimed they had no knowledge that the goods were hypothecated to the bank. However, the Court found that the appellant had complete knowledge of the hypothecation, as evidenced by correspondence and the sale of the goods. The Court held that the appellant's sale of the hypothecated goods without the bank's consent constituted a breach of the bank's rights, making the appellant liable for the value of the sold goods.

4. Setting Aside the Ex Parte Decree:
The appellant sought to set aside the ex parte decree passed by the Tribunal. The application for setting aside the decree was filed along with an application for condonation of delay, which was rejected by the Tribunal, the High Court, and the Supreme Court. The Court noted that the appellant had raised all their pleas in their application for setting aside the decree, which had been consistently rejected. The Court held that the ex parte decree could not be set aside and that the appellant's liability was limited to the value of the hypothecated goods sold.

5. Definition and Scope of "Debt" under the Recovery Act:
The Court extensively analyzed the definition of "debt" under section 2(g) of the Recovery Act. The Court emphasized that the term "debt" includes "any liability" claimed as due from "any person" by a bank, whether secured or unsecured. The Court referred to various judgments to support its interpretation that the term "debt" should be given a broad and inclusive meaning to fulfill the legislative intent of expeditious recovery of dues by banks and financial institutions.

6. Public Accountability of the Bank and its Officials:
The Court criticized the bank and its officials for their negligence and callousness in handling the loan and recovery process. The Court noted that the bank had failed to take timely and effective steps to protect its interest and ensure recovery of the hypothecated goods. The Court directed the Chairman of the Allahabad Bank to examine the case and take appropriate action against the erring officers/officials in accordance with law.

Conclusion:
The Supreme Court partially allowed the appeal, modifying the order of the High Court to the extent that the appellant was liable to pay the bank a sum of Rs. 9,63,975 with interest at the rate of 6% per annum from 14-3-1988 to the date of actual realization. The Court also directed the Chairman of the Allahabad Bank to take appropriate action against the erring officers/officials. The parties were left to bear their own costs.

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