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TMI Blog2010 (5) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 3-5-2010 - SWATANTER KUMAR AND B. SUDERSHAN REDDY, JJ. R.F. Nariman for the Appellant. Jaideep Gupta for the Respondent. JUDGMENT Swatanter Kumar, J. - Leave granted. 2. While pressing into service the definition of the word debt appearing in section 2( g ) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short as the Recovery Act ), it is vehemently contended before us that the Debt Recovery Tribunal (for short the Tribunal ) lacks inherent jurisdiction to entertain and decide the claim of the Bank against the appellant. The appellant was neither a borrower nor was there any kind of privity of contract between the two. As such, money claimed from them was not a debt and, therefore, rigours of the recovery procedure under the provisions of the Recovery Act could not be enforced against the appellant. This is a submission which, at the first blush, appears to be sound and acceptable. But, once it is examined in some depth and following the settled canons of law, one has to arrive only at a conclusion that the contention is without any substance and merit. At the very outset, as a guiding principle we may r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was done in response to the letter of respondent Nos. 2 and 3 dated 18-8-1987 and copy thereof was sent to the appellant while referring to the letter dated 7-8-1987 addressed by the appellants to the other respondents. It will be useful to reproduce the relevant extract of the letter dated 21-8-1987 which reads as under : "We acknowledge receipt of your letter dated 18-8-1987 along with enclosures. In this regard we fail to understand as to how you have permitted M/s. Eureka Forbes Limited to take possession of your factory at 1, Goragachha Road, Kolkata - 700 043, the stocks and machineries of which are already hypothecated to us. And again you are advising us not to visit the factory at the moment which we are requesting you to do the same reputedly. Since April, 1986, you are also not submitting the stock statement and you have virtually stopped all your banking operations through us. Now we observe from the stock statement forwarded to us as enclosure that there are good amount of stock still lying at the factory." 4. To the above letter, the appellant responded vide its reply dated 23-9-1987 saying that the factory belongs to them and they had given the same on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment, a Recovery Certificate No. 48 of 1995 was issued by the competent authority under the provisions of the Act on 30-6-1995. The appellant claims to have taken steps for setting aside the ex parte judgment. They filed a writ petition before the High Court of Kolkata, (being Writ Petition No. 1804 of 1995), challenging the constitutional validity of the provisions of the Recovery Act and also prayed for stay of execution of the ex parte judgment dated 15-6-1995. An interim order dated 3-11-1995 was passed in favour of the appellant directing that the execution proceedings should go on, however, no final order be passed without the leave of the Court. The Tribunal vide its Order dated 4-3-1996, appointed a receiver to prepare an inventory of hypothecated goods and a warrant of attachment was also issued. The High Court of Kolkata, again on application filed by the appellant directed the receiver only to make inventory of the goods and not to take any further action. During the pendency of these proceedings, the Recovery Officer upon further application by the respondent Bank, directed the receiver to make inventory of all the properties vide its Order dated 17-8-1996. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osit a sum of Rs. 5,00,000 as condition precedent for entertaining the said appeal. This sum was deposited and a reply affidavit to this application was filed on behalf of the Bank. Vide Order dated 16-4-2004, the Appellate Tribunal dismissed the application for condonation of delay in filing the appeal. The order dated 16-4-2004 of the Appellate Tribunal was challenged in a Civil Revision Application before the High Court of Kolkata. The High Court vide its interim Order dated 11-6-2004 directed the appellant to deposit a sum of Rs. 15,54,118.62 as a condition for hearing the appeal and the same was deposited. This application was against the Interim Order and the appeal remained pending before the Chairperson of the Appellate Tribunal. Finally the appeal was allowed vide Order dated 28-12-2006 by the Appellate Tribunal. While setting aside the ex parte decree the Appellate Tribunal held as under : "Having said all that, to my mind, the net result is, the ex parte decree in question passed against the appellant, Eureka Forbes Ltd. by the Debts Recovery Tribunal, Calcutta, is without jurisdiction and, therefore, the appeal must succeed. Consequently, the entire sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, the appellant has misguided the Bank while informing vide their letter dated 18-8-1987, that the workers had forcibly occupied the factory. Reference was also made to the fact that some stocks, plant and machine belonging to respondents had been given to the appellant for sale etc. as per the agreement between the parties. The goods, stocks were hypothe-cated to the Bank and according to the Bank, all the defendants in the suit were liable to pay the dues of the Bank. On this premise, the Bank prayed for decree for the entire amount and also interest at the rate of 18.05 per cent per annum. A specific prayer was made that the Bank has a valid and subsisting charge over the properties of defendant Nos. 1 and 2 for the due repayment to it. A decree for realization of hypothecated goods by and under the direction of the Court was also prayed for. We have already noticed above that there was denial of the allegations made in the plaint. Merits of the case relatable to the factual matrix 10. The main stand of the appellant was in relation to the jurisdiction and lack of knowledge of the fact that the goods in stock were hypothecated to the Bank along with the plant and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nents, AC IMCA machinery etc. It is interesting to note that all these correspondences and conversations between the parties had been without any intimation to the respondent Bank. In fact, all this had been done behind the back of the Bank. Besides this, the Bank had led oral and documentary evidence in support of its claim. The Bank had written the letter dated 21-8-1987 in response to the letter of respondent Nos. 2 and 3 dated 18-8-1987, but the letter dated 18-8-1987 has not been placed on record. However, vide letter dated 21-8-1987 copy whereof was sent to the appellant as well, the bank had informed them that it had given the financial assistance to respondent Nos. 2 and 3 and the Bank was having charge over the stocks and machinery which had been hypothecated to the Bank. The Bank further expressed surprise as to how the appellant had taken possession of the unit. Another relevant aspect of the matter would be the conduct of the present appellant. We have serious issues that the appellant, after taking possession of the premises, had not come to know about the goods being hypothecated to the Bank. Advertisement for the sale of machinery was issued as late as on 12-8-1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lawyer has confined itself to the present proceedings. It appears that although those matters are still pending, the petitioner by filing instant proceedings has tried to find out an additional avenue for stalling the execution proceedings." 12. After having lost up to this Court, another round of litigation started, claiming it to be in furtherance to the Order of Kolkata High Court, granting them liberty to take steps in accordance with law. It is in furtherance of this observation of the High Court that, the proceedings again started from the Appellate Tribunal and now the present petition has been filed before this Court. We have already noticed that owing to the sale of goods, complete knowledge, that the goods were hypothecated to the Bank is attributable to the appellant and hence, they could not have sold the said goods without permission of the Bank. Admittedly nothing of this kind was done and the Bank was kept in dark. 13. The application for setting aside the ex parte decree had been filed by the appellant along with an application for condonation of delay in filing the said application. However, the application for condonation of delay was rejected and, subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited to the hypothecated stock and goods, as beyond that, there is no averment in the plaint which would justify grant of any larger relief in their favour. We would shortly discuss the legal aspects as well as the reasoning in law, in this regard. The Bank has examined merely four witnesses in support of its case. There is no statement or note of any of these witnesses for imposition of any liability upon the appellant, except to the extent of goods hypothecated; such a conclusion can even be drawn from the letters dated 28-2-1987, 23-7-1987, 7-8-1987 and 21-8-1987. The correctness of these letters has never been disputed by any of the parties and it was admitted by the appellant that the advertisement for sale of goods was issued on 12-3-1988. Certainly and apparently, the appellant had complete knowledge, that the entire stock, goods, machinery etc. had been hypothecated to the Bank. Certainly, there has been a definite lapse on the part of the Bank, as the loan facility was granted in the year 1984, i.e., subsequent to the execution of the leave and licence agreement dated 16-8-1983. It is obvious from the facts appearing on record that the loan has been sanctioned in a mos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d these machines in furtherance to the advertisement dated 12-3-1988. In short, an amount which cannot be disputed, as is evident from the documentary and oral evidence on record is, Stock A, Stock lying in the premises, 7 lakhs lathe machine, Rs. 1,15,000 CTC machine, as sold by the appellant as per their own version, the CTC machine which was sold by the appellant for a sum of Rs. 1,48,975, thus, totalling up to Rs. 9,63,975. The respondent Bank would be entitled to receive the interest at the rate of 6 per cent per annum from 14-3-1988 till the date of payment of the amount. We are awarding the same rate of interest which has been awarded by the Tribunal and was accepted by the Bank. 15. It appears that the Bank is acting in a manner which is ex facie not in consonance with the commercial principles and in a most casual and irresponsible manner. The method in which the financial limits have been sanctioned to respondent Nos. 2 and 3 does not stand to reasoning. Admittedly, respondent Nos. 2 and 3 had no title to the property. What verification was done to the appraisal report has been left to imagination. The conduct of the appellant further creates some suspicion in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they raised a specific claim against it. 17. From the above stated documentary evidence, it is clear that the parties had the knowledge of the fact that respondent Nos. 2 and 3 enjoyed the financial assistance from the Bank and the goods were hypothecated to it. Even as per the statement of respondent Nos. 2 and 3, the appellant sold the hypothecated goods with complete knowledge. This included hypothecated stock worth Rs. 7,00,000, lathe machine of value of Rs. 1,15,000, in addition to CTC machine and other spares. 18. The goods in question, therefore, have been disposed of by the appellant either in collusion with respondent Nos. 2 and 3 or at its own but with the knowledge that the goods were hypothecated to the Bank. Thus, to that extent, the liability of the appellant cannot be disputed. Legal aspects of the case 19. In continuation of the above factual matrix, now let us examine the principles of law which would be applicable to the facts and circumstances of the case and result thereof. There is, in fact, hardly any dispute before us that the goods in question had been hypothecated to the Bank. The appellant had complete knowledge of this fact, still it went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th great vehemence that, there was no privity of contract and they were not covered under the definition of debt , and as such, recovery proceedings could not be initiated, much less, recovery could be effected from them under the provisions of the Act. Section 2( g ) of the Recovery Act reads as under : " debt means any liability (inclusive of interest) 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 any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable, on the date of the application;" 22. The Recovery Act of 1993, was enacted primarily for the reasons that, the Banks and financial institutions should be able to recover their dues without unnecessary delay, so as to avoid any adverse consequences in relation to the public funds. The Statement of Objects and Reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or restricted meaning. What will be more in consonance with the purpose and object of the Act is to give this expression a general meaning on its plain language rather than apply unnecessary emphasis or narrow the scope and interpretation of these provisions, as they are likely to frustrate the very object of the Act. 26. In the case of State of Gujarat v. Akhil Gujarat Pravasi V.S. Mahamandal [2004] 5 SCC 155, this Court was concerned with the question of payment of taxes in relation to the provisions of the Bombay Motor Vehicle Tax Act, 1958. The Court while interpreting the scope of the entries in the legislative lists held that, they should be construed widely and general words used therein must comprehend ancillary or subsidiary matters relating to Schedule VII, Articles 245 and 246. The Court held as under: "In interpreting the scope of various entries in the legislative lists in the Seventh Schedule, widest-possible amplitude must be given to the words used and each general word must be held to extend to ancillary or subsidiary matters which can fairly be said to be comprehended in it. The entries should, thus be given a broad and comprehensive interpretation. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess, recoveries effected under the provisions of the Recovery Act. We shall shortly discuss the merit of this contention. 30. Before we advert to the discussion while applying these principles of interpretation to the provisions of section 2( g ) of the Recovery Act, and also examine the merit of the contention raised on behalf of the respondent, it may be interesting to know as to how the word debt has been defined and explained by this Court in different judgments, with different context and under different laws. 31. Years back this Court in the case of P.S.L. Ramanathan Chettiar v. O.Rm.P.Rm. Ramanathan Chettiar AIR 1968 SC 1047, explained the expression debt as defined in the Madras Agriculturists Relief Act, 1938. The Court held that the definition appearing in section 3( iii ) of the Act, despite the fact that it specifically states that debt would not include rent as defined in clause ( iv ), or Kanartham , as defined in section 3(1)(1) of the Malabar Tenancy Act, 1929, held that the definition is still of a very wide magnitude and would include any liability due from an agriculturist with the specified expressions. The Court held as under : " Debt ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents, that the liability of the respondents has arisen during the course of their business activity, that the said liability is still subsisting and legally recoverable." 33. As already noticed, this judgment was pronounced by the Court while dealing with the un-amended provisions of section 2( g ) of the Recovery Act. This section was amended by Act 1 of 2000 and the words alleged as due stood substituted by the expression claimed as due with effect from 17-1-2000. This shows the intention of the Legislature to significantly introduce definite expression and give emphasis to the claim of the Bank rather than, what is allegedly due or determinatively due to the Bank from its borrowers. In this case, the application of the Bank had been dismissed by the High Court on the ground that it was not maintainable as it was not covered under the definition of the word debt . While setting aside the Order of the High Court, this Court held that, the High Court had gone wrong in holding that the application by the Bank was premature and till the Court determines the amount, such application could not be filed by the Bank. This Court clearly stated the dictum that, such appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me within the purview of the Tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint be looked into and then find out whether notwithstanding the specially-created Tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such a Tribunal is ousted. With the aforesaid principle in mind, on examining the averments made in the plaint, we have no hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one for recovery of a debt due to it from the defendants and, therefore, is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary Civil Court." 35. As is obvious from the above recorded findings, the Court while referring to sections 2( g ), 17(1) and 31(1) of the Recovery Act, observed that jurisdiction of the Civil Court was barred under the provisions of the Act and the suits or proceedings shall transfer to the Tribunal upon coming into force of the Recovery Act. The Court was primarily concerned with the matters being transferred from Civil Courts to Tribunal, still while referring to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court is, what was intended to be suppressed by the Legislature by enacting the Recovery Act, 1993 and thereafter, by amending various provisions, including section 2( g ) in the year 2000. Obviously, the mischief which was intended to be controlled and/or prevention of wastage of securities provided to the Bank, was the main consideration for such enactment. The purpose was also to prevent wrong doers from taking advantage of their wrong/mistakes, whether permissible in law or otherwise. These preventive measures are required to be applied with care and purposefully in accordance with law to ensure that the mischief, if not entirely extinguished, is curbed. 37. Maxim Nullus commodum capere potest de injuria sua propria, has a clear mandate of law that, a person who by manipulation of a process frustrates the legal rights of others, should not be permitted to take advantage of his wrong or manipulations. In the present case respondent Nos. 2 and 3 and the appellant have acted together while disposing of the hypothecated goods, and now, they cannot be permitted to turn back to argue, that since the goods have been sold, liability cannot be fastened upon respondent Nos. 2 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain and decide an application for recovery of money or value of goods in terms of section 17 of the Recovery Act. That is neither the case here nor in any of the judgments which have been relied upon by the parties before us, except in the case of Gujarat High Court. In the case in hand, the goods were hypothecated to the Bank and the appellant admittedly had knowledge prior to the sale of the goods, that they were hypothecated to the Bank. If the contention of the appellant is accepted, it will amount to giving advantage or premium to the wrong doers. It would also further perpetuate the mischief intended to be suppressed by the enactment. This could completely defeat the very object and purpose of the Act. A party which had pledged or mortgaged properties in favour of the Bank, then would transfer such properties in favour of a third party. In the event, the Bank takes action under the provisions of the Recovery Act, they would take the objection like the present appellant. This would tantamount to travesty of justice and would frustrate the very legislative object and intent behind the provisions of the Recovery Act. Therefore, such an approach or interpretation would be impermi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticed only for being rejected. In our detailed discussion above, we have clearly held that, the claim raised by the Bank falls well within the ambit and scope of section 2( g ) of the Recovery Act and the jurisdiction of the Tribunal cannot be ousted on this ground. 41. Thus, in our opinion, the provisions of section 2( g ) have to be construed, so as to give it liberal meaning. The general expressions used in this provision will have to be understood generally. Neither there is scope to hold nor is the legislative intent that these provisions should be given a narrower or a restricted meaning. In our considered view, the claim of the Bank relatable to the hypothecated goods was well within the jurisdiction of the Tribunal exercising its power under section 17 of the Recovery Act. Applicability of the principles of public accountability on the facts of the present case 42. Having answered both the questions of fact partially and law against the present appellant, still there is another important facet of this case which cannot be ignored by the Court. It relates to the conduct of the respondent Bank and its officers/officials. The witnesses appearing on behalf of the Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h officers/officials to act fairly, transparently and with sense of responsibility to ensure recovery of public dues. Even, an inaction on the part of the public servant can lead to a failure of public duty and can jeopardize the interest of the State or its instrumentality. 43. In our considered opinion, the scheme of the Recovery Act and language of its various provisions imposes an obligation upon the Banks to ensure a proper and expeditious recovery of its dues. In the present case, there is certainly ex facie failure of statutory obligation on the part of the Bank and its officers/officials. In the entire record before us, there is no explanation much less any reasonable explanation as to why effective steps were not taken and why the interest of the Bank was permitted to be jeopardized. The concept of public accountability and performance is applicable to the present case as well. These are instrumentalities of the State and thus all administrative norms and principles of fair performance are applicable to them with equal force as they are to the Government department, if not with a greater rigour. The well established precepts of public trust and public accountability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be in accordance with the procedure prescribed. It is known fact that, in transactions of the Government business, none would own personal responsibility and decisions are leisurely taken at various levels (Refer : State of Andhra Pradesh v. Food Corpn. of India [2004] 13 SCC 53. Principle of public accountability is applicable to such officers/officials with all its vigour. Greater the power to decide, higher is the responsibility to be just and fair. The dimensions of administrative law permit judicial intervention in decisions, though of administrative nature, but are ex facie discriminatory. The adverse impact of lack of probity in discharge of public duties can result in varied defects not only in the decision making process but in the decision as well. Every public officer is accountable for its decision and actions to the public in the larger interest and to the State administration in its governance. It needs to be seen in the facts and circumstances of the present case, why and how the interest of the Bank has been jeopardized, in what circumstances the loan was sanctioned and disbursed despite some glaring defects having been exposed in the appraisal report. Signi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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