2006 (4) TMI 472 - SC - Indian Laws

Whether the subject-matter of the borrower's suit before the High Court and Bank's application before the Tribunal were inextricably connected? - Held that - While the claim of the Bank was for an ascertained sum due from the borrower, the claim of the borrower was for damages which required firstly a determination by the court as to whether the Bank was liable to pay damages and thereafter assessment of quantum of such damages. Thus there is absolutely no connection between the subject matter of the two suits and they are no way connected. A decision in one does not depend on the other. Nor could there be any apprehension of different and inconsistent results if the suit and the application are tried and decided separately by different forums. In the circumstances, it cannot be said that the borrower's suit and the Bank's application were inextricably connected. Whether the provisions of Debts Recovery Act mandate or require the transfer of an independent suit filed by a borrower against a Bank before a civil court to the Tribunal, in the event of the Bank filing a recovery application against the borrower before the Tribunal, to be tried as a counter-claim in the Bank's application? - Held that - In this case, the first respondent does not wish his case to be transferred to the Tribunal. It is, therefore, clear that the suit filed by the first respondent against the Bank in the High Court for recovery of damages, being an independent suit, and not a counter-claim made in the application filed by the bank, the Bank's application for transfer of the said suit to the Tribunal was misconceived and not maintainable. The High Court, where the suit for damages was filed by the company against the bank, long prior to the bank filing an application before the tribunal against the company, continues to have jurisdiction in regard to the suit and its jurisdiction is not excluded or barred under Section 18 or any other provision of Debts Recovery Act. Whether the observation in Abhijit (supra) that the suit filed by the borrower against the Bank has to be transferred to the Tribunal for being tried as a counter- claim in the applications of the Bank, is to be construed as a principle laid down by this Court, or as an observation in exercise of power under Article 142 in order to do complete justice between the parties? -Held that - Decision in Abhijit is distinguishable both on facts and law. Thus the order of the High Court does call for any interference. These appeals are accordingly dismissed.

Issues Involved:
1. Whether the subject matter of the borrower's suit before the High Court and Bank's application before the Tribunal were inextricably connected.
2. Whether the provisions of the Debts Recovery Act mandate or require the transfer of an independent suit filed by a borrower against a Bank before a civil court to the Tribunal, to be tried as a counter-claim in the Bank's application.
3. Whether the observation in United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. that the suit filed by the borrower against the Bank has to be transferred to the Tribunal for being tried as a counter-claim in the applications of the Bank, is to be construed as a principle laid down by this Court, or as an observation in exercise of power under Article 142 in order to do complete justice between the parties.

Detailed Analysis:

Re: Issue No. (i):
The Supreme Court analyzed whether the subject matter of the borrower's suit and the Bank's application were inextricably connected. The Bank's application was for recovery of Rs. 30,67,820.04 due to non-payment of amounts advanced under ad hoc packing credit limits sanctioned on 12.7.1991 and 6.12.1991. Conversely, the borrower's suit was for recovery of Rs. 25,38,58,000/- as damages due to the Bank's alleged failure to release sanctioned loans, including a Medium Term Loan of Rs. 90 lakhs and other credit facilities sanctioned on 19.12.1991. The Court concluded that the issues in the Bank's application and the borrower's suit were distinct and unrelated. The Bank's claim was for an ascertained sum due from the borrower, while the borrower's claim involved determining liability for damages and assessing quantum. Thus, the Court held there was no inextricable connection between the two matters.

Re: Issue No. (ii):
The Court examined whether the Debts Recovery Act required the transfer of an independent suit by a borrower to the Tribunal. Sections 17 and 18 of the Debts Recovery Act confer jurisdiction on the Tribunal to entertain applications from banks for recovery of debts and bar civil courts from such matters. However, the jurisdiction of civil courts is not barred for suits filed by borrowers against banks. Section 31 provides for the transfer of pending suits from courts to tribunals, but only for suits pending before the establishment of a Tribunal. The Court noted that sub-sections (6) to (11) of Section 19 are enabling provisions allowing defendants to claim set-off or make counter-claims in applications filed by banks. The Court emphasized that the Tribunal does not have jurisdiction to try independent suits initiated by borrowers against banks. Therefore, the Court held that the borrower's suit, being an independent suit and not a counter-claim, could not be transferred to the Tribunal. The High Court's jurisdiction over the borrower's suit was not excluded or barred under the Debts Recovery Act.

Re: Issue No. (iii):
The Court considered whether the observation in Abhijit Tea Co. Pvt. Ltd. should be construed as a principle of law or an exercise of power under Article 142. In Abhijit, the Court had transferred a borrower's suit to the Tribunal by treating it as a counter-claim in the Bank's application, but this was done under special circumstances where both parties agreed, and the suits were inextricably connected. The Court clarified that the observations in Abhijit were made in exercise of power under Article 142 and were not a general principle of law. The Court emphasized that the decision in Abhijit would apply only if the subject matter of both suits was inextricably connected and both parties agreed to treat the borrower's suit as a counter-claim.

Conclusion:
The Supreme Court upheld the decision of the Calcutta High Court, dismissing the Bank's appeals. The Court found that the borrower's suit and the Bank's application were not inextricably connected, and the Debts Recovery Act did not mandate the transfer of the borrower's independent suit to the Tribunal. The Court also clarified that the observations in Abhijit were made under Article 142 and were not a general principle of law. The appeals were dismissed, and parties were to bear their respective costs.

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