2010 (10) TMI 1240 - HC - Companies Law

Summary

Issues Involved:
1. Maintainability of proceedings before the Debts Recovery Tribunal (DRT).
2. Definition of "Debt" u/s 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
3. Awarding of interest @ 18% p.a. by the Tribunal.

Summary:

1. Maintainability of proceedings before the Debts Recovery Tribunal (DRT):
The petitioner challenged the order of the Debts Recovery Appellate Tribunal, which confirmed the order of the Debt Recovery Tribunal, Mumbai, directing recovery of Rs. 11,20,14,000/- with interest @ 18% p.a. The petitioners contended that since no documents were executed, the transaction was fraudulent and not maintainable before the DRT. The court, however, held that the petitioners, having availed financial benefits fraudulently, were liable to repay the amount, and the proceedings before the DRT were maintainable.

2. Definition of "Debt" u/s 2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993:
The petitioners argued that the transaction did not fall within the definition of "debt" u/s 2(g) of the Act as it was not a genuine business transaction. The court disagreed, stating that the definition of "debt" includes any liability claimed by a bank during the course of business activity, whether secured or unsecured. The court emphasized that even fraudulent transactions where financial benefits were utilized for business purposes fall within this definition.

3. Awarding of interest @ 18% p.a. by the Tribunal:
The petitioners contested the Tribunal's decision to award interest @ 18% p.a., arguing that the provisions of the Negotiable Instruments Act were not applicable as no documents were executed. The court upheld the Tribunal's decision, noting that the bank was entitled to charge interest as per the usual banking practice, and the Tribunal had taken a liberal view by awarding interest @ 18% p.a.

Conclusion:
The court dismissed the writ petition, upholding the Appellate Tribunal's order and confirming the maintainability of the proceedings before the DRT. The court also validated the awarding of interest @ 18% p.a., emphasizing the broad definition of "debt" under the Act and the petitioners' liability to repay the amount. The interim relief granted earlier was extended until 10-11-2010, and the civil application was disposed of accordingly.