2022 (1) TMI 170 - SC - Companies Law

Seeking interest on the alleged belated payment of principal sum and accrued interest to the plaintiff for the Bonds issued by SIDBI - Bond Holder undergone liquidation - central case projected by the plaintiff was that the amount both principal and interest were paid beyond the maturity period and therefore the defendant is liable to pay the interest for delayed payment - HELD THAT - A conjoint reading of the statutory provisions makes it abundantly clear that for public interest the RBI is empowered to issue any directive to any banking institution and to prohibit alienation of an NBFC s property. The term Public interest has no rigid definition. It has to be understood and interpreted in reference to the context in which it is used. The concept derives its meaning from the statute where it occurs the transaction involved the state of society and its needs - it is not necessary for RBI to mention a specific provision before issuing directions for it to have statutory consequences. All that is required is the authority under the law to issue such direction. The RBI under Section 45-MB of the RBI Act 1934 and 35-A of the Banking Regulation Act 1949 has the requisite authority to issue the communication dated 09th June 1997. The omission by the RBI to mention any enabling provision doesn t change the nature and status of the direction. The statutory arrangement and interpretation persuades to hold that actions in furtherance of grounds of public policy by the RBI was justified for issuing the Notification dated 10.04.1997. The notification itself clearly mentioned that it is issued for the benefit of depositors and creditors of CRB Capital. The actual status of the RBI Notification would have a bearing on the claim against the defendant in the suit and the later proceeding. The plaintiff as can be noted always had the option of challenging its legality but they have never specifically challenged those in the Suit. Therefore when the legality of the RBI Notification is not under challenge relief can t be granted in the Suit without determining its legality. This in our perception can by itself put a quietus on the issue at hand - the plaintiff cannot be granted parity with its predecessor-in-interest Shankar Lal Saraf who was paid interest which accrued in July 1997 despite the RBI directive of 09.06.1997. The defendant has explained this aberration by clarifying that the payment to Shankar Lal Saraf was made before the defendant was in receipt of the RBI directive. Hence the plaintiff cannot claim any advantage for themselves or parity with its predecessor-in-interest on this cause. Shadow over Shankar Lal Saraf s transaction - HELD THAT - Section 441(2) of the Companies Act 1956 reveals that winding-up proceedings other than voluntary winding-up are said to have commenced from the date of presentation of petition - A conjoint reading of Section 531 and 441(2) of the Companies Act 1956 prima facie reveals that any transfer of property by or against a company in involuntary winding up the suspect spell for deemed fraudulent transaction is six months before presentation of the winding up petition. In the present case the petition for winding-up was submitted by RBI on 22.05.1997 and admittedly the transfer in Shankar Lal Saraf s favor was executed in February 1997. Hence the defendant s prima facie suspicion that the transfer during the suspect spell may be deemed fraudulent is not misplaced. Thus the defendant s impression that the transfer in favour of Shankar Lal Saraf was not legitimate was a reasonable opinion shared by many including the RBI and the Official Liquidator. The defendant was in receipt of the RBI s directions not to part with payment as the Official Liquidator had treated the transaction as fraudulent. This had clearly placed a shadow over the plaintiff s title to the Bonds and consequences must flow therefrom. Whether withholding payment bonafide? - HELD THAT? - The Learned Counsel for the plaintiff has failed to show how the defendant derived any undue benefit by withholding the payment accrued on the Bonds. The amount due on the Bonds was immediately transferred to the Accrued Interest head and was not used by the defendant for their business. Hence the plaintiff s contention that the defendant s actions of withholding payment were mala fide is not acceptable - the defendant is barred by res judicata from raising the issue of fraudulent preference. The issue of fraudulent preference is no longer res integra and none sought to challenge the Company Court s judgment and re-agitate the issue. Hence this contention will be of no advantage for the plaintiff. Bond status and obligation Holder in due course - HELD THAT - An obligation has been imposed on the transferee of the promissory notes to be deemed to be a Holder in due course that the notes should have been acquired in good faith; after exercising reasonable care and caution about the holder s title. In the present case while the Shankar Lal Saraf s (holder) title over the Bonds/Promissory Notes is not in dispute but as discussed earlier Shankar Lal Saraf s holding stood cleared by the Company Court only on 17.12.2004 but before the said judgment there was a cloud over his title. Consequently the plaintiff s status as holder in due course was suspect at the relevant point of time - defendant bank was therefore justified in withholding payment till conclusion of dispute in Company Court even though the relief claimed was in respect of an unconditional undertaking as there were reasonable legal concerns for the transaction during the suspect spell for making such payments. Entitlement for Interest on delayed payment - pendente lite interest - HELD THAT - The defendant acted bona fide and there was no undue delay on their part to remit the dues. - The plaintiff did pray for pendente lite interest in the Trial Court but neither did the trial court frame any issue in this regard nor were any arguments recorded. This shows that such claim was not pressed by the plaintiff. Further no ground is urged in the appeal memo that such an issue ought to have been framed. Hence it is clear that the plaintiff is not serious on its claim for pendente lite interest. Was plaintiff s demand barred by waiver/ acquiescence? - HELD THAT - It is clear that the plaintiff accepted the payment from the defendant as due settlement of its claims. SIBCO s failure to raise protest and demand for interest at the earliest possible stage amounted to sub-silencio acceptance. Accordingly the plaintiff is barred from raising this demand after several months applying the principle of waiver/acquiescence. Whether present suit barred by Constructive res judicata? - HELD THAT - The cause of action for the plaintiff accrued the first time when the defendant allegedly failed to pay timely interest. Since such a claim was not raised in the writ court the subsequent Suit of SIBCO is barred by the principle of Constructive Res Judicata. The RBI has wide supervisory powers over financial institutions like SIDBI in furtherance of which any direction issued by the RBI deriving power from the RBI Act or the Banking Regulation Act is statutorily binding on the defendant. Admittedly the RBI issued Notification dated 10.04.1997 deriving power from S. 45-MB(2) of the RBI Act. Thereby the RBI froze the assets of CRB Capital on the grounds of public policy for the purpose of protecting interests of creditors and depositors of CRB Capital - in absence of the Official Liquidator s consent and guidance the defendant could not have made the payment without inviting onerous consequences for itself. Hence it can be said that the defendant acted prudently being conscious of the legal obligation to withhold such payment to the plaintiff. The defendant s appeal against the impugned judgment is allowed by restoring the judgment of the Trial Court. The plaintiff s cross-appeal is however rejected.

Summary

Issues Involved:
1. Legality of withholding payment by SIDBI under RBI directives.
2. Bona fide nature of SIDBI's actions.
3. Plaintiff's entitlement to interest on delayed payment.
4. Validity of the plaintiff's title to the Bonds.
5. Applicability of constructive res judicata.
6. Plaintiff's claim for pendente lite interest.
7. Whether the plaintiff's demand was barred by waiver/acquiescence.

Detailed Analysis:

I. Legality of Withholding Payment by SIDBI under RBI Directives:
The central issue was whether SIDBI's withholding of payment was justified under the RBI's communication dated 09.06.1997. The RBI had issued a directive to SIDBI not to transfer or part with any payment related to the securities of CRB Capital without the Official Liquidator's permission. This directive was issued under the statutory powers granted to the RBI by the RBI Act, 1934, and the Banking Regulation Act, 1949. The court held that the RBI's communication was a binding directive with statutory backing, and SIDBI was compelled to comply with it. The RBI's directive was aimed at protecting the interests of the creditors and depositors of CRB Capital, and SIDBI's compliance was deemed justified.

II. Bona Fide Nature of SIDBI's Actions:
The court found that SIDBI acted bona fide in withholding the payment. SIDBI proactively sought advice from the Official Liquidator and the RBI but did not receive any response. The defendant did not derive any undue benefit from withholding the payment, as the amount due was transferred to the 'Accrued Interest' head and not used for business purposes. SIDBI promptly made the payment to the plaintiff once the Company Court clarified the legitimacy of the transactions.

III. Plaintiff's Entitlement to Interest on Delayed Payment:
The court held that the plaintiff was not entitled to interest on delayed payment. SIDBI's actions were justified under the RBI directives, and the defendant acted in good faith. The court emphasized that interest is awarded based on equitable considerations, and in this case, SIDBI's actions were not wrongful. The defendant complied with the Company Court's order promptly, and there was no undue delay on their part.

IV. Validity of the Plaintiff's Title to the Bonds:
The court examined the validity of the plaintiff's title to the Bonds, which were purchased during the "suspect spell" before the winding-up petition against CRB Capital. The court noted that there was a reasonable suspicion over the legitimacy of the transfer to Shankar Lal Saraf, the plaintiff's predecessor-in-interest. This suspicion was shared by the RBI and the Official Liquidator. The Company Court eventually clarified the legitimacy of the transactions, and SIDBI complied with the order. However, the court held that the plaintiff's title was under a cloud during the relevant period, justifying SIDBI's withholding of payment.

V. Applicability of Constructive Res Judicata:
The court held that the plaintiff's claim was barred by constructive res judicata. The plaintiff could have raised the claim for interest on delayed payment in the writ court but failed to do so. The cause of action accrued when SIDBI allegedly failed to pay timely interest, and the subsequent suit was barred as the issue could have been raised earlier.

VI. Plaintiff's Claim for Pendente Lite Interest:
The court noted that the plaintiff did pray for pendente lite interest in the Trial Court, but no issue was framed, and no arguments were recorded on this point. The plaintiff did not press this claim seriously, and the court did not find any grounds to award pendente lite interest.

VII. Whether the Plaintiff's Demand was Barred by Waiver/Acquiescence:
The court found that the plaintiff accepted the payment from SIDBI without protest and only raised the demand for interest on delayed payment after seven months. This conduct amounted to sub-silencio acceptance, barring the plaintiff from raising the demand later based on the principle of waiver/acquiescence.

Conclusion:
The Supreme Court allowed SIDBI's appeal, restoring the judgment of the Trial Court, and rejected the plaintiff's cross-appeal. The plaintiff's demand for additional interest was deemed unjustified, and the court emphasized that SIDBI acted in compliance with statutory directives and in good faith. The appeals were disposed of without any order on costs.