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TMI Blog1997 (5) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... r filing new claims or proceeding with a pending claim, although the company has gone into liquidation and has been wound up by the company court. 2. I have heard Mr. Sumant Batra, Mr. A. S. Chandiok, Mr. P. C. Khanna, Mr. Manmohan, Mr. B. M. Nayyar, Mr. Rajiv Datta and other counsel appearing for the various parties and record appreciation of their painstaking efforts in assisting the court. On behalf of the banks and financial institutions, different facets arising out of the aforesaid question were mooted before me. One of the submissions on their behalf was that in terms of the provisions of the Debt Recovery Act, the authority, power and jurisdiction to decide the claims of the banks and financial institutions for recovery of their debts and matters connected therewith or incidental thereto, is vested with the Tribunals constituted under the Debt Recovery Act, and, Therefore, the company court does not have the jurisdiction to decide the suit and/or to grant or refuse leave on any suit or legal proceedings filed by such financial institutions for recovery of debt. The further submission of learned counsel appearing for the financial institutions was that the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xercise special jurisdiction with respect to the companies which had been directed to be wound up and, Therefore, the Companies Act operates as a special Act in the case of a company which is wound up and would prevail over the provisions of the Debt Recovery Act which in such matters would become a general law. 4. In the context of the aforesaid submissions of learned counsel for the parties, it would be relevant to notice and understand the import of the provisions of the two Acts connected with the issue raised before this court. The relevant provisions of section 446 are extracted below : 446. (1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of - (a) any suit or proceeding by or against the company ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to the matters specified in section 17. 31. Transfer of pending cases. - (1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this Act, being a suit or proceeding the cause of action whereon it is based is such that it would have been, if it had arisen after such establishment, within the jurisdiction of such Tribunal, shall stand transferred on that date to such Tribunal : Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court. (2) Where any suit or other proceedings stands transferred from any court to a Tribunal under sub-section (1), - (a) the court shall, as soon as may be after such transfer, forward the records of such suit or other proceedings to the Tribunal; and (b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceedings, so far as may be, in the same manner as in the case of an application made under section 19 from the stage which was reached before such transfer or from any earlier stage or de novo as the Tribunal may deem fit. 34. Act to have overriding effect. - (1) Save ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 446(3) whereunder any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is pending, could be transferred and disposed of by the company court, notwithstanding anything contained in any other law for the time being in force. This provision empowers the winding up court to transfer before it all proceedings pending against the company at different places, because it is convenient for the winding up of the company's affairs expeditiously when all the suits are transferred to the winding up court. 7. In Sudarsan Chits (I.) Ltd. v. G. Sukumaran Pillai: [1985]1SCR511 , and also in Central Bank of India v. Elmot Engineering Co.: [1994]3SCR766 , the Supreme Court has discussed the scope and ambit of the powers to be exercised by a company court under section 446 of the Companies Act. It will be proper at this stage also to notice the provisions of sections 529 and 529A of the Companies Act. Section 529 deals with application of insolvency rules in winding up of insolvent companies whereas section 529A deals with overriding preferential payments. The proviso added to the aforesaid sub-section (1) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a long-felt need, but also will be an important step in the implementation of the report of Narasimham Committee. Whereas on 30th September, 1990, more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than ₹ 5,622 crores in dues of public sector banks and about ₹ 391 crores of dues of the financial institutions. The locking up of such huge amounts of public money in litigation prevents proper utilisation and re-cycling of the funds for the development of the country. 2. The Bill seeks to provide for the establishment of Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. Notes on Clauses explain in detail the provisions of the Bill. 9. The Objects and Reasons imply the following : (a) As the usual procedure for recovery of loans due to banks and financial institutions resulted in blocking of thousands of crores of rupees need was to devise a suitable me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause stating that its provisions would override those of any other law, cases of such conflict have to be decided by reference to the object and purpose of the laws under consideration. It was further held in paragraph 21 of the said judgment that for resolving inter se conflicts, one other test is that the later enactment must prevail over the earlier one. Finally, in paragraph 23, it was held that in view of the language of the two laws, their object and purpose, and the fact that one of them is later in point of time and was enacted with the knowledge of the non obstinate clauses in the earlier one, the provisions of section 14A and Chapter IIIA of the Rent Control Act must prevail over those contained in sections 19 and 30 of the Slum Areas Act. 12. In Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd.: [1993]1SCR340 , the Supreme Court was concerned with two non obstinate clauses appearing in the State Financial Corporations Act, 1951, and the Sick Industrial Companies (Special Provisions) Act, 1985. On consideration of the provisions of the said Act, the Supreme Court held that the Sick Industrial Companies (Special Provisions) Act, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, efforts will have to be made in the present case to find out whether the Debt Recovery Act is a general statute or a special statute when pitted against the provisions of the Companies Act, particularly the provisions of the winding up with which the present case is mostly concerned. 16. Mr. P. C. Khanna and Mr. B. N. Nayar submitted that the provisions of the Debt Recovery Act are general law. According to him, the provisions of the Debt Recovery Act relate to the procedural aspect for recovery of the debt by a financial institution. They submitted that when a different forum is provided for recovery of debt, the same cannot be held to be a special law. The aforesaid submission is, however, disputed by Mr. Sumant Batra and Mr. A. S. Chandiok. According to them, the provisions of the Companies Act have been held to be general law by the Supreme Court in Damji Valji Shah v. Life Insurance Corporation of India: [1965]3SCR665 , whereas the provisions enacted under the Debt Recovery Act is a special Act to be made applicable under special circumstances. The counsel relied upon the observation in Damji Valji Shah v. Life Insurance Corporation of India [1965]3SCR665 , that the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in view of the reason that the Legislature intended that the assets of the company in liquidation should be dealt with at one place by the company judge who would on an over all view of the matter be in the best position to distribute the funds of the companies equitably so that there is no unseemly scramble of various creditors to realise their dues from the company. 18. Reference may also be made to a decision of this court in Micronix India v. Disco Electronics Ltd. (in Liquidation), AIR 1996 4 AD (Delhi) 650; [1999] 96 Comp Case 950. In paragraph 18 of the said decision, it was held that the provisions of sections 29, 46B and 32E of the State Financial Corporations Act do not create a total ouster of jurisdiction of the company court. The court did not accept the contention that the said provisions mean total ouster of the jurisdiction of the company court, that its provisions will always and in all circumstances prevail over the Companies Act, even after the winding up or provisional winding up. It was held that the Legislature in its own wisdom amended the Companies Act and enacted the provisions such as section 529A and provisos to section 529 in order to protect the wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation and both the provisions overlap and are coextensive and at the same time so contrary and repugnant in their terms and make that one most perish at all, then and only then they are inconsistent. 21. When the provisions of the winding up as enacted under the Companies Act are considered, no such similar provision could be found in any other Act laying down such a procedure as to what should be done in the case of winding up of the company. The only procedure that is laid down could be found under the aforesaid provisions of Chapter VII of the Companies Act and more particularly in section 446 thereof. The Debt Recovery Act nowhere lays down as to what should be the procedure to be followed for recovery of the amount due from a company which has gone into liquidation or has been wound up and distribution thereof amongst the various creditors. The said Debt Recovery Act deals only with the procedure for recovery of debts due to a financial institution and the procedure therein as sets out under the said Act. On the other hand, Chapter VII deals with and sets out the entire procedure as to how a company should be wound up by the court and in the case of such winding up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in different fields altogether from that of the Debt Recovery Act but also the provisions relating to the winding up of the company, particularly the provisions of section 446(1) are a special law as it specifically deals with the nature, procedure and the manner of winding up of a company and for distribution of the assets of a company which has been wound up. The said provisions when pitted against the provisions of the Debt Recovery Act could be harmoniously construed in order to give effect to the purpose, intent and object of both the Acts. Under such circumstances, the ratio of the decisions relied upon by Mr. Sumant Batra and Mr. A. S. Chandiok would not be applicable in the facts of the present case. 23. Reference, in this connection, may also be made to a decision of the Supreme Court in Industrial Credit and Investment Corporation v. Srinivas Agencies [1996] 86 Com Case 255; [1996] ISJ 479. In the said decision, the Supreme Court considered the provisions of section 446 of the Companies Act and also the provisions of the Debt Recovery Act. While deciding the aforesaid case, the Supreme Court noticed the provisions of sections 446, 529, 529A and 537 of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case. While exercising this power, we have no doubt that the company court would also bear in mind the rationale behind the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to which reference has been made above. We make the same observation regarding the terms which a company court should like to impose while granting leave. It need not be stated that the terms to be imposed have to be reasonable, which would, of course, vary from case to case. According to us, such an approach would maintain the integrity of that secured creditor who had approached the civil court or desires to do so, and would take care of the interest of other secured creditors as well which the company court is duty bound to do. The company court shall also apprise itself about the fact whether dues of workmen are outstanding; if so, the extent of the same. It would be seen whether after the assets of the company are allowed to be used to satisfy the debt of the secured creditor, it would be possible to satisfy the workmen's dues pari passu. The appeals and transfer cases stand disposed of with these observations, leaving the company court to pass appropriate ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Supreme Court, in paragraph 10, has referred to the submission of learned counsel appearing therein stating that the counsel has referred to the court the provisions of the Debt Recovery Act which was recently enacted because of the considerable difficulty being experienced by financial institutions in recovering loans and enforcement of security charged with them. Therefore, the provisions of the said Act were noticed by the Supreme Court while deciding the said case. Mr. Nayyar's submission that this decision of the Supreme Court should be considered per incuriam is held to be without force, as the decision was given not on concession but on appreciation and notice of the relevant provisions. 27. On a careful perusal of the decision of the said case, I find that the Supreme Court has put a harmonious construction on the provisions of the two Acts with which I am directly concerned in the present case, when it observed that the approach to be adopted by the company court could not be put in a strait jacket formula and that each case is to be judged on its own facts and merits. The court has further observed that the company court has to bear in mind the rationale behind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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