2016 (3) TMI 601 - HC - Indian Laws

Debenture-trustee initiation proceedings before the Debt Recovery Tribunal - Whether a debenture trustee suing on behalf of the debentureholder for recovery of sums payable to the debentureholder can file a suit on the original side of this Court since suit is for recovery of the debt? - Held that - On plain reading of clause (g) of section 2 it appears that the word Debt has been given a very wide meaning. It means any liability which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of their business activity. In the decision of the Apex Court in the case of Eureka Forbes Limited Vs. Allahabad Bank relied upon by the first defendant, it was held that the word debt in the RDB Act cannot be given a restricted meaning and the legislature has not intended to restrict it to the relationship of creditor and debtor. However, subsection 1 of section 17 confers jurisdiction on the DRT to deal with the applications made by the banks and financial institutions for recovery of debts due to such banks and financial institutions . Thus, DRT can entertain an application for recovery provided the application is made by a bank or a financial institution for the recovery of debt due to such bank or financial institution. If recovery is sought of a debt which is not due to a bank or a financial institution, the DRT will not get jurisdiction under section 17. It will be necessary to make a reference to the Regulations framed by the Securities and Exchange Board of India under section 30 of the Security and Exchange Board of India Act,1992. The said Regulations are the Securities and Exchange Board of India (Debenture Trustees) Regulations,1993 (for short the Regulations ). Clause (bb) of the Regulation 2 defines a debenture trustee to mean a trustee of a trust deed for securing any issue of debentures of a body corporate. Clause (ba) of Regulation 2 defines a debenture by giving the same meaning to it which is provided in subsection 12 of section 2 of the Companies Act,1956. It is the obligation of the debenture trustee to enforce the security in the interest of the debenture holders. Moreover, it is the obligation of the debenture trustee to carry out such acts as are necessary for the protection of the debenture holders and to do all the things necessary in order to resolve the grievances of the debenture holders. On plain and simple reading thereof a bank or a financial institution can file applications before the DRT for recovery of debts due to such bank or financial institution . If a bank files an application for recovery of an amount which is not due and payable to itself, the DRT will not get jurisdiction under section 17. For example, a suit filed by a bank acting as an executor of a will seeking to recover amounts due to the estate of the deceased will not come under the purview of section 17. Such proceedings will not be the one to recover the debt due and payable to the bank itself. In such a case, the jurisdiction of a Civil Court is not excluded. After the decision of the Division Bench in the case of Krishna Filaments, section 17 has not undergone any amendments. The definition of financial institution was amended for including therein a securitisation company or a reconstruction company which has obtained a certificate under section 3(4) of the Securitisation Act

Summary

Issues Involved:
1. Jurisdiction of the High Court to entertain a suit filed by a debenture trustee for recovery of sums payable to debenture holders.
2. Whether such proceedings can be initiated before the Debt Recovery Tribunal (DRT).
3. Applicability of the judgment in the case of Krishna Filaments to the present case and whether there is a difference of opinion between two judgments delivered by two Division Benches of the Court.

Issue-wise Detailed Analysis:

1. Jurisdiction of the High Court:
The primary issue was whether a debenture trustee suing on behalf of debenture holders for recovery of sums payable can file a suit on the original side of the High Court. The Division Bench in the case of Krishna Filaments Limited vs. Industrial Development Bank of India (IDBI) held that such suits are maintainable on the original side of the High Court. The court concluded that the suit filed by a bank or financial institution as a debenture trustee is not for recovery of amounts payable to itself but to the debenture holders. Therefore, such suits do not fall under the exclusive jurisdiction of the DRT, as provided under Section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).

2. Proceedings Before the Debt Recovery Tribunal:
The second issue examined was whether proceedings initiated by a debenture trustee could be brought before the DRT. The court referred to the definition of "debt" under Section 2(g) of the RDB Act, which includes any liability claimed by a bank or financial institution. However, it emphasized that Section 17 of the RDB Act confers jurisdiction on the DRT to entertain and decide applications from banks and financial institutions for recovery of debts due to them. The court held that the DRT's jurisdiction is limited to applications made by banks or financial institutions for recovery of debts due to themselves, not on behalf of others. Therefore, the DRT does not have jurisdiction over suits filed by debenture trustees for recovery of sums payable to debenture holders.

3. Applicability of Krishna Filaments Judgment:
The third issue involved the applicability of the Krishna Filaments judgment to the present case and whether there was any difference of opinion between two Division Benches. The court noted that the decision in Krishna Filaments Limited was based on the fact that the suit was filed by IDBI as a debenture trustee, and the amounts claimed were due to the debenture holders, not to IDBI itself. The court distinguished this from the case of Alpha and Omega Diagnostics India Limited, where the Division Bench held that a securitization or reconstruction company could maintain an action before the DRT. The court clarified that the expanded definition of "debt" under the RDB Act, following amendments, includes debts assigned to securitization or reconstruction companies, which can step into the shoes of the original lender. However, it reaffirmed that the jurisdiction of the DRT is confined to recovery of debts due to banks or financial institutions themselves.

The court concluded that the law laid down in Krishna Filaments continues to be good law, and the observations in Alpha and Omega Diagnostics India Limited regarding the inapplicability of Krishna Filaments were incorrect. The court emphasized that a debenture trustee suing on behalf of debenture holders does not fall under the exclusive jurisdiction of the DRT, and such suits can be filed on the original side of the High Court.

Conclusion:
The court answered the first question affirmatively, confirming that a debenture trustee can file a suit on the original side of the High Court. The second question was answered negatively, indicating that such proceedings cannot be initiated before the DRT. The court also clarified that the decision in Krishna Filaments remains valid, and any contrary observations in Alpha and Omega Diagnostics India Limited were incorrect. The appeal was directed to be placed before the appropriate Division Bench for further proceedings.