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TMI Blog2016 (3) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Acting Chief Justice by order dated 6th October 2015 directed that the present Full Bench be constituted to decide the aforesaid questions. 3 Though Larger Bench cannot decide the factual controversy, for the sake of convenience, a brief reference to the facts of the case will be necessary. 4 The appellant is a banking company incorporated under the provisions of the Companies Act,1956. It is a scheduled bank within the meaning of the Reserve Bank of India Act,1934. The appellant is the original plaintiff. For the sake of convenience, the parties are hereafter referred by their status before the learned Single Judge. The first defendant is a company carrying on business of manufacturing, producing, distributing, importing, exporting, buying, selling and dealing with all types of goods based on rubber or plastics whether for domestic or industrial use and ancillary products. The second to tenth defendants have been impleaded in the suit as they may have an interest in the properties of the first defendant that are charged to the plaintiff. 5 By an agreement 7th October 1992 executed by the first defendant in favour of the plaintiff, it was agreed that the plaintiff s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench of this Court in the case of Alpha and Omega Diagnostics India Limited Vs. Asset Reconstruction Company (P) Limited 2010 (5) All M.R. 553 by contending that in paragraphs 28 to 30 of the decision,it is held that the decision in the case of Krishna Filaments Limited cannot be said to be laying down a good law. 7 When the present appeal came up before a Division Bench, it was observed in the order dated 25th August 2015 that it would be advisable if the aforesaid three questions will be decided by a larger Bench. 8 The learned senior counsel appearing for the plaintiff invited our attention to the decision of the Division Bench in the case of Krishna Filaments Limited. He pointed out that in paragraph 6, a specific point for determination was framed on the issue of jurisdiction. He pointed out that the appeal before the Division Bench arose out of suit a filed by the Industrial Development Bank of India (for short `IDBI') as a debenture trustee. There was an agreement between Krishna Filaments Limited and IDBI. The suit was filed by the IDBI for recovery of the amounts due and payable under the debentures which were subject matter of the agreement between Krishna Fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers/third party in the context of maintainability of action before the DRT. He urged that in the present case, the plaintiff is acting as a debenture trustee in relation to the debentures issued by a limited company (the first defendant). He urged that the plaintiffbank is not suing to recover its own dues. 10 The learned counsel for the first defendant invited our attention to the averments made in the plaint in the present case. His basic submission is that the averments made in the plaint are completely contrary to the stand taken by the plaintiff before this Court. His submission is that the suit filed by the plaintiff in the present case is not of the category which is sought to be pleaded by the plaintiffs before the Division Bench as well as this Bench. We must note here that the submissions of the first defendant are really on the facts of the case and not on the questions framed for the determination of the larger Bench. The learned counsel for the first defendant has taken us through the assertions made in the plaint. He pointed out that there are no averments made in the plaint to show that the plaintiff is not trying to recover the debt due to itself. His submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Act has been enacted to provide for establishment of a Tribunal for expeditious adjudication and for recovery of debts due to banks and financial institutions and for the matters connected therewith or incidental thereto. Subsection 4 of section 1 is also relevant which reads thus: (4) The provisions of this Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ten lakh rupees or such other amount being not less than one lakh rupees, as the Central Government may, by notification, specify. (emphasis added) 14 The debt is defined in clause (g) of section 2 which reads thus: (g) 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 awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18 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. Regulation 15 of the said Regulations provides for the duties of the debenture trustees which reads thus: Duties of the debenture trustees. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI bank was essentially to recover a debt falling within the definition provided under clause (g) of section 2 of the of the RDB Act and, therefore, DRT will have the exclusive jurisdiction to entertain and try the suit filed by IDBI. The suit was filed by the IDBI in its capacity as the trustee of debentures against the Krishna Filaments Limited for recovery of the amounts payable under the debentures. The point for determination is set out in paragraph 6 of the decision which reads thus: 6. Thus the main point for determination arising in this appeal is whether the suit claim is for recovery of a debt due to a bank or a financial institution. An answer on this point will decide whether this Court has jurisdiction to try and entertain this suit. (emphasis added) 21 The Division Bench considered the statements of objects and reasons of the RDB Act. Paragraph 24 and 25 of the said decision read thus: 24. On the other hand, it was pointed out that the fact remains that the amount contributed to the debentures was that of the subscribers and the debenture trustees had an obligation to act faithfully. It was submitted that this arrangement was made principally to secure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or all sorts of claims by banks and financial institutions or whether it was meant for claims where the recovery was due to the bank or financial institution or whether it was meant for claims where the recovery was due to the bank or financial institutions? The reference to Maxwell on interpretation in the judgment of the Apex Court in the case of Workmen of Dimakuchi Tea Estate (supra) is quite apt in this behalf. There the Apex Court has emphasised that the words of a statute are to be understood in the sense in which they best harmonise with the subject or the Act and the object which the legislature had in its mind. It is not the grammatical or the popular sense of the words which is material, but the subject of the occasion for which they are used and the object which is sought to be achieved. If we look at the Act, the preamble thereof itself declares that it is enacted to establish the Tribunals for expeditious adjudication and recovery of debts due to the banks and financial institutions. The phrase debts due to banks and financial institutions also occurs in section 17 of the RDB Act. Therefore, when section 2(g) uses the phrase any liability claimed by a bank or a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted for recovery of debts due to banks and financial institutions. (emphasis added) 23 Thus, there is a categorical finding recorded by the Division Bench holding that the jurisdiction of the Tribunal under section 17 of the RDB Act is restricted to the applications made for the recovery of debts due to banks and financial institutions. Therefore, the Division Bench came to the conclusion that the suit filed by the IDBI cannot be said to be a suit for recovery of debt due to itself, and therefore, section 17 of the RDB Act was not attracted. On plain reading of section 17, the view of the Division Bench seems to be correct. The DRT will get exclusive jurisdiction only when a bank/financial institution claims recovery of a debt due to it. The law is well settled. The exclusion of jurisdiction of the Civil Court cannot be easily inferred. 24 Now we turn to the decision of the Division Bench in the case of Alpha and Omega Diagnostics India Limited. In the said case, the challenge was to the order in appeal passed by the Debt Recovery Appellate Tribunal (for short DRAT ). Original application was filed by Oriental Bank of Commerce before the DRT at Mumbai for recovery of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring jurisdiction on a Tribunal which it does not possess in law. Mr. Samdani submits that jurisdiction cannot be conferred by consent of parties. (emphasis added) 25 The issue which arose before the Division Bench has been summarized in paragraph 15 which reads thus: 15. We are concerned only with the legal issue as to whether a Reconstruction company as contemplated by section 2(v) of the Securitisation Act can apply for substitution as applicant in place of the original lender bank by amending the pending Original Application No. 89 of 2005. Further, whether the substitution or impleadment of the reconstruction company in its capacity as a trustee is permissible under the RDB Act or not? 26 The Division Bench thereafter considered the amendment made to the definition of financial institution in clause (h) of section 2 the RDB Act by adding clause (ia) to it. The clause (ia) provided that even a securitisation company or a reconstruction company which had obtained a certificate of registration under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the Securitisation Act ) will be included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance. 27 Thereafter, the Division Bench considered the provisions of Securitisation Act. In paragraph 27, the the Division Bench dealt with an argument of the petitioners based on the decision in the case of Krishna Filaments Limited. Paragraph 27 and 28 of the decision reads thus : 27 If these provisions, bearing in mind the object of the RDB Act are perused together with the relevant provisions of the Securitisation Act, then, it will not be possible to agree with Mr. Samdani that the restricted view as taken in the case of Krishna Filaments (supra) continues to hold the field. In our view, the amendment to the definition of the term Financial Institution as appearing in section 2(h) of the RDB Act and bringing into force of the Securitisation Act is a development post judgment of this Court in Krishna Filaments (supra). In fact, it is precisely to get over the narrow interpretation placed on the term debt by this Court that the Legislature has stepped in and amended the RDB Act 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany as the case may be. Therefore, the acquisition of rights or interest in financial assets with their legal effect and consequences is provided by section 5 of the Securitisation Act. It is with the object of giving effect to section 5 and particularly subsections (3) and (4) thereof that the definition of the term financial institution in section 2(h) of the RDB Act has been amended. Therefore, while enacting Securitisation Act the Legislature made amendment to the RDB Act simultaneously as is clear from the statements of objects and reasons and the relevant provisions of the RDB Amendment Act 30 of 2004 reproduced above. It is not as if the provisions are one sided. While it is permissible for the Securitisation or Reconstruction Company to acquire rights or interest in financial assets, the Legislature has taken care that the suits or proceedings instituted by the Bank or Financial institutions would not abate. At the same time, proceedings against the bank or financial institutions will not abate and can be continued against the securitisation or reconstruction company, as the case may be. If we do not give full effect to the legal provisions as noticed, then, we would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory provisions that the further issue, about correctness of the conclusions recorded by Division Bench in paras 25 and 26 and the interpretation placed on the definition of the word debt , need not be considered. Now, the bank or financial institution as an assignee can proceed under the Securitisation Act, so also under the RDB Act. The term debt as appearing in section 2(g) would have to be considered in the light of the broad interpretation that we have placed on the provisions of the Securitisation Act. The distinction that is drawn by Mr. Samdani is no longer valid. Even if the bank or financial institution is acting as a Trustee as suggested, it can take recourse to the RDB Act. That is clear from a reading of the definition of the term secured creditor as defined in section 2(zd) of the Securitisation Act. That term includes debenture trustee appointed by the Bank or financial institution or securitisation company or reconstruction company, where acting as such or managing a trust set up by such securitisation company or reconstruction company for securitisation or reconstruction company as the case may be or any other trustee as contemplated by section 2(zd) (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution,- (a) by issuing a debenture or bond or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or (b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them. (2) If the bank or financial institution is a lender in relation to any financial assets acquired under subsection (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets. (3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation, permissions, approvals, consents or noobject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f subsection 2 of section 5, it steps into the shoes of the bank or the financial institution,as the case may be and becomes a lender for all purposes. Therefore, when such securitisation company or reconstruction company files an application for recovery of an amount advanced by a bank or a financial institution whose assets have been acquired by it by assignment or otherwise in a manner provided under section 5 of the Securitisation Act, such a securitisation company or a reconstruction company sues for the debt due to it. The reason is that such a company on the basis of the assignment becomes a lender and steps in the shoes of the assignor bank. Sub section (5) of section 5 therefore provides that a securitisation company or a reconstruction company can apply for substitution in pending proceedings before the DRT on the basis of such assignment. That is the reason why in the case of Alpha and Omega, the Division Bench rejected the argument of the borrower which is noted in paragraph 10 of the said decision. It is in this context that the following observations in paragraph 27 have been made. In our view, the amendment to the definition of the term Financial Institution as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2 (zd) of the Securitization Act which reads thus: (zd) secured creditor means any bank or financial institution or any consortium or group of banks or financial institutions and includes( i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance. 33 With greatest respect to the Division Bench, we must mention that the definition of the secured creditor does not include a debenture trustee appointed by a company in terms of the said Regulations. It includes debenture trustees appointed only by a bank or financial institution. Moreover, the said definition in clause (zd) of section 2 is a part of the Securitisation Act. The definition of financial institution in RDB Act has not been amended to include therein secured creditors within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erments made by the plaintiff in the plaint be looked into and then find out whether notwithstanding the speciallycreated 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, it is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary civil court. In this view of the matter the High Court was in error to hold that the dispute in question is not entertainable by the Tribunal under Section 17 of the Act. (emphasis added) Thus, the test applied by the Apex Court is whether the plaintiff is seeking recovery of the debt due to it from the defendant. The paragraph 49 of the decision in the case of Eureka Forbes Limited records that the DRT and DRAT have been established with a view to provide expeditious mode of recovery of dues to banks and financial institutions . Hence, both the decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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