2020 (3) TMI 379 - SC - Money Laundering

Restraint on Arbitral Tribunal from proceeding with the arbitral claim made by appellant - liabilities pertaining to prenationalisation period - recovery proceedings - sick company - HELD TAHT - Since the present examination herein is limited to the aspect relating to forum and when it is seen that the claim initially made by the appellant is against the Shree Sitaram Mills Ltd. and the Respondent No.1 herein is disputing the liability for the same by bringing about a distinction since the takeover was only of Shree Sitaram Mills and not of Shree Sitaram Mills Ltd., an adjudication on that aspect to be made cannot be considered as a dispute as involving only the two public sector establishments as contemplated under the Official Memorandum. Upon consideration of evidence adduced by the parties it has to be determined in that light as to whether the Respondent No.1 Corporation has in fact inherited such liability making themselves liable for the decree in existence or on the other hand if such liability has remained and subsisted with Shree Sitaram Mills Ltd. It is a matter to be examined in such recovery proceedings by providing opportunity to the parties to adduce evidence. Further in respect of post take over period a Suit No.4489/96 was filed which was transferred to DRT and registered as O.A.No.1114/2000 which has remained pending as respondent No.2 had proceeded to BIFR. No doubt in that circumstance if the appellant herein had chosen to initiate the proceedings before the PMA, keeping in view that the COD which was subsequently constituted is a mechanism in the nature of prelitigation mediation, it cannot be said that the step adopted by the appellant is wholly without basis. In the instant case, the claim is by the lender Bank towards which a decree had already been granted in respect of one claim and the other claim is pending consideration. The fact as to whether in the matter of take over, the liabilities were also included is one aspect of the matter. Further, the aspect which may also require examination by the Court undertaking the recovery proceedings is as to whether in the process of takeover of Shree Sitaram Mills the secured assets for the loan transaction has been taken over by the Respondent No.1 or was it available with Shree Sitaram Mills Ltd. if it had retained its existence and identity after takeover of the Textile Mills and in that circumstance whether the recovery proceedings could still be resorted to against the Respondent No.1 in respect of the liability of Shree Sitaram Mills Ltd., and would the Union of India be liable as Guarantor. This is an aspect which is to be examined after providing opportunity to the parties, if need be, after tendering evidence in that regard. The question of liability could neither have been decided in the writ proceedings before the High Court nor in this appeal. If this aspect is kept in view, the conclusion reached by the Division Bench to hold that the respondent herein is not liable for the dues of Shree Sitaram Mills Ltd. and the proceedings is misconceived for such claim is an erroneous conclusion reached in a proceedings where such conclusion ought not to have been recorded. Hence the decision to that effect is liable to be set aside. The conclusion reached by the Division Bench that the respondents are not liable for the amount claimed by the appellant herein is set aside. The question of liability and the manner of recovery is left open to be considered by the appropriate forum - Appeal allowed in part.

Issues Involved:
1. Jurisdiction of the Arbitral Tribunal under the Permanent Machinery of Arbitrators (PMA).
2. Liability of National Textile Corporation Ltd. (NTC) for pre-nationalisation dues of Shree Sitaram Mills Ltd.
3. Applicability of Office Memorandum dated 22.01.2004.
4. Appropriate forum for adjudication of claims.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Arbitral Tribunal under the Permanent Machinery of Arbitrators (PMA):
The appeal challenges the High Court's decision to restrain the Arbitral Tribunal from proceeding with the appellant's claim. The appellant initiated arbitration under the PMA, claiming it was entitled to the balance amount from NTC and Shree Sitaram Mills Ltd. The High Court quashed the arbitration proceedings, citing the Supreme Court's decision in Electronics Corporation of India Ltd. vs. Union of India, which recalled the orders constituting the PMA. The Supreme Court upheld the High Court's decision to quash the arbitration notice, noting that the PMA mechanism was not applicable as the dispute involved the liability of NTC, which was not a straightforward inter-public sector enterprise dispute.

2. Liability of National Textile Corporation Ltd. (NTC) for Pre-nationalisation Dues of Shree Sitaram Mills Ltd.:
The appellant argued that after the nationalisation of Shree Sitaram Mills Ltd., all its liabilities, including the dues to the appellant, were transferred to NTC. The Division Bench of the High Court held that the liability for pre-nationalisation dues remained with the original owner company and did not transfer to NTC. The Supreme Court agreed that the liability issue could not be decided in the writ proceedings and should be determined by the appropriate forum, considering the evidence and the nature of the takeover.

3. Applicability of Office Memorandum dated 22.01.2004:
The appellant contended that the Office Memorandum dated 22.01.2004, which provides for the PMA mechanism, was still valid and applicable. The High Court and the Supreme Court noted that the PMA mechanism was diluted by the Supreme Court's decision in Electronics Corporation of India Ltd. vs. Union of India, and the current mechanism is the Administrative Mechanism for Resolution of CPSEs Disputes (AMRCD). The Supreme Court concluded that the PMA mechanism was not applicable in this case as the dispute involved the liability of NTC, which required a different adjudication process.

4. Appropriate Forum for Adjudication of Claims:
The Supreme Court emphasized that the appropriate forum for determining the liability and recovery of dues was the recovery proceedings before the Debts Recovery Tribunal (DRT). The Court noted that the appellant had already initiated recovery proceedings before the DRT, which had issued a recovery certificate. The Court directed that the pending proceedings in O.A. No.2526/1999 and O.A. No.1114/2000 before the DRT should be revived and taken to their logical conclusion. The appellant was permitted to bring NTC on record as judgment debtors/defendants in the recovery proceedings, and the DRT was instructed to independently determine the liability based on the evidence.

Conclusion:
The Supreme Court allowed the appeal in part, upholding the High Court's decision to quash the arbitration notice but setting aside the High Court's conclusion that NTC was not liable for the dues. The Court directed that the recovery proceedings before the DRT should continue, and the question of liability should be determined by the DRT based on the evidence presented. All contentions of the parties were left open for adjudication by the DRT.

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