TMI Blog2000 (4) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... eady sold, it will be open to the Canara Bank to move the Tribunal/Recovery Officer for their removal and for an inventory. - CIVIL APPEAL NO. 2536 OF 2000 - - - Dated:- 10-4-2000 - M., JAGANNADHA RAO AND N. SANTOSH HEGDE, JJ. Soli J. Sorabjee, Kapil Sibal, Indveer Singh Alag, Pradeep K. Bhahshi, Y.P. Narula, Abhijeet Chatterjee, Mrs. Sarla Chandra, Suresh A. Shroff, Manish Singhvi, Ms. Rashmi Varma, Sunil Dogra, Ms. Monica Sharma, Ms. Suyali Pathak. A.S. Chandok, Siboney Sagar and V. Sibal for the Appearing Parties. JUDGMENT M. Jagannadha Rao, J. leave granted. The case raises issues relating to the impact of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter called "the RDB Act"), on the provisions of the Companies Act, 1956. The immediate dispute before us is between two nationalised banks, the Allahabad Bank (appellant) on the one hand which has obtained a simple money decree against the debtor-company (M.S. Shoes (East) Co. Ltd.) from the Debt Recovery Tribunal at Delhi, under the RDB Act and the Canara Bank on the other, whose claim as a secured creditor is still pending before the same Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 270 of 1998 before the Appellate Tribunal and there was no stay inasmuch as there was default in deposit of the money directed to be deposited. O.A. No. 784 of 1996 was filed by the Canara Bank also under the RDB Act in the Debt Recovery Tribunal, Delhi, for decree for Rs. 14,40,05,982.98 plus interest and it was said that a sum of about Rs. 25 crores was due from the same company. The said O.A. of the Canara Bank is pending in the Delhi Tribunal under the RDB Act. The Canara Bank filed an interlocutory application before the Recovery Officer for impleadment in the said recovery case of the appellant, viz., R.C. No. 9 of 1998 seeking pro rata distribution of sale proceeds from auctions of the debtor company's properties. The appellant-bank resisted the same contending that inasmuch as no orders have been passed in favour of the Canara Bank in its claim filed before the Delhi Tribunal against the same company, there was no question of impleading the Canara Bank. As regards proportionate disbursement of sale proceeds, it was observed that that question was premature and that the said issue could be considered after the sale proceeds were received by the Tribunal. These appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pendency of this appeal. On May 14, 1999, this court passed an order in favour of the Allahabad Bank directing that the sale of the debtor company's property in Shed No. 15 to go on but that the sale proceeds be not distributed. Unfortunately, the sale was not held for quite some time due to an omnibus stay order dated June 29, 1999, passed by the Tribunal at Delhi. That order was stayed by the Appellate Tribunal, Bombay, on June 29, 1999. The sale did not take place even by January 7, 2000. This court then issued further orders on January 7, 2000, for sale of the company's property in Shed No. 15. Thereafter, sale of Industrial Shed No. 15/Cate-gory-II under SFS at Rohtak Road, Industrial Complex, New Delhi-110 005 was held on January 28, 2000. (The raw material and machinery in the shed which were said to have been mortgaged to Canara Bank were removed and segregated. An order was passed that an inventory be prepared and to remove the pledged property). It appears the sale proceeds of about Rs. 20 lakhs are in deposit in this court. Now, the position is that some sale proceeds are in deposit in the Tribunal and some in this court, all such sales having been held at the insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Canara Bank. It is urged that courts must interpret the RDB Act of 1993 so as to subserve the purpose of realisation of thousands of crores of bank funds which are due. The Legislature intended to avoid the long drawn proceeding's in the civil court as well as under sections 442, 446 and 537 of the Companies Act and this is now clear from section 19(19) as re-enacted by Ordinance No. 1 of 2000 which permits even the working out of priorities by the Tribunal. Several ruling's of this court and of High Courts under various other statutes have been cited before us and we shall refer to them at the appropriate stage. It is submitted that the appellant-bank having got a decree and having got the properties sold is solely entitled to the entirety of these proceeds and there is no question of the appellant sharing the sale proceeds with others nor is it necessary to wait till the Canara Bank gets a decree in its O.A. pending before the Delhi Tribunal. Important submissions have been made by the learned Attorney-General as to the effect of section 19(19) introduced by Ordinance No. 1 of 2000. It is contended by the learned Attorney-General that only section 529A of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29A and 530, etc. The Canara Bank is also a nationalised bank and merely because the Allahabad Bank has been able to get a decree from the Debt Recovery Tribunal earlier than the Canara Bank, under the RDB Act, the Allahabad Bank cannot be allowed to appropriate the entire sale proceeds recovered by it. Even if the Canara Bank has only a "claim" and not a decree in view of section 2( g ), its security has preference. Unlike section 73 of the Civil Procedure Code, section 446 does not require a decree and it is sufficient to prove a debt before the liquidator. Alternatively, it is submitted that even before the Tribunal section 73 of the Civil Procedure Code and also section 529(1) and (2) of the Companies Act read with sections 529A and 530, etc., are attracted for purposes of distribution of the sale proceeds and working out priorities, assuming that jurisdiction of the company court is excluded in so far as recovery of debts due to banks and financial institutions are concerned. From the aforesaid contentions, the following points arise for consideration: (1)Whether in respect of proceedings under the RDB Act at the stage of adjudication for the money due to the banks or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. The said Act is the result of two reports, one of 1981 of a committee headed by T. Tiwari and the other by a committee headed by M. Narasimham in 1991. As on September 30, 1990, more than 15 lakh cases filed by public sector banks and about 304 cases filed by financial institutions were pending in various civil courts, and recovery of debts to banks in a sum of Rs. 5,622 crores and to financial institutions in a sum of Rs.391 crores, was held up. That was the immediate cause for the passing of the Act. Under sub-clause (4) of section 1 of the RDB Act, it is stated that the Act will not apply if the debt due is less than Rs. 10 lakhs or such other amount as may be notified. Section 2( d ) defines "banks" as including ( i ) banking companies, ( ii ) corresponding new banks, ( iii ) State Bank of India, ( iv ) subsidiary banks and ( v ) regional rural banks".Banking company" is defined in section 2( e ) and corresponding" new bank is defined in section 2( f ) and it refers to section 5( da ) of the Banking Regulation Act, 1949. Clause ( da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals against any order made, or deemed to have been made, by a Tribunal under this Act. 18. Bar of jurisdiction. On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17". It is clear from section 17 of the Act, that the Tribunal is to decide the applications of banks and financial institutions for recovery of debts due to them. We have already referred to the definition of "debt" in section 2( g ) as amended by Ordinance No. 1 of 2000. It includes "claims" by banks and financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context section 31 of the Act is also relevant. That section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word "proceeding's" in section 31 includes "execution proceedings" pending before a civil court before the commencement of the Act. The suits and proceedings so pending" on the date of the Act stand transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on reads as follows: "34. Act to have overriding effect-- (1) Save as otherwise provided in sub-section (2), the provisions of this Act shall have effect notwithstanding" anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), and the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)". The provisions of section 34(1) clearly state that the RDB Act overrides other laws to the extent of "inconsistency". In our opinion, the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. There is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those proceedings and the said courts where applications are filed can stay the suits or proceedings. Under section 537, where any company is being wound up by or subject to the supervision of the court, any attachment, distress or execution put in force, without leave of the company court, against the estate or effects of the company, after the commencement of the winding up, or any sale held without the leave of the court, if any of the properties or effects of the company, after such commencement, shall be void. Nothing in this section applies to any proceedings for the recovery of any tax or imports or any dues payable to the Government. After a winding up order is passed, the provisions of section 446 become applicable. Under sub-clause (1) of section 446, when a winding up order is passed or the official liquidator is appointed as a provisional liquidator, no .suit or other legal proceeding shall be commenced, or if pending on the date of the 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. Under sub-clause (2), the company court shall, notwithstanding anything containe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993. There the company was ordered to be wound up by an order of the company court passed under section 446(1) on January 9, 1959. The claim was filed by the Life Insurance Corporation against the company before the Tribunal and its directors an 1962. The respondents before the Tribunal contended that the claim could not have been filed in the Tribunal without the leave of the company court under section 446(1). This court rejected the said contention and held that though the purpose of section 446 was to enable the company court to transfer proceedings to itself and to dispose of the suit or proceedings so transferred, unless the company court had jurisdiction to decide the questions which were raised before the Life Insurance Corporation Tribunal, there was no purpose of requiring leave of the company court or permitting transfer. It was held by this court (page 763 of 35 Comp. Cas.): "In view of section 41 of the Life Insurance Corporation Act, the company court has no jurisdiction to entertain and adjudicate upon any matter which the Tribunal is empowered to decide or determine under that Act. It is not. disputed that the Tribunal has jurisdiction under the Act to entertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a special purpose behind the provisions in sections 442, 446 and 537 of the Companies Act, 1956. It has been, in fact, so stated by the Federal Court in Governor-General in Council v. Shiromani Sugar Mills Ltd. ( In Liquidation ) [1946] 16 Comp. Cas. 71; AIR 1946 FC 16, under the old Companies Act, 1913. Similarly, this court in Sudarsan Chits ( India ) Ltd. v. Sukumaran Pillai [1984] 4 SCC 657 ; [1985] 57 Comp. Cas. 85 (Ker) observed that not satisfied with sections 442 and 537 and also with sections 446(1) (which was similar to section 171 of the old Companies Act, 1913,) Parliament enacted the Companies (Amendment) Act, 1960, and brought in the present sub-sections (2) and (3) into section 446. This court pointed out that instead of allowing' claims to be proceeded with against these companies in various civil courts, Parliament declared that wherever winding up proceedings were pending or when an order of winding up was passed, it was necessary to save the company "from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings", and "a cheap and summary remedy " was devised by conferring jurisdiction on the company c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... simple and summary procedure in accordance with the principles of natural justice". The Tiwari Committee also prepared a draft of the proposed legislation, in Annexure XI to its report. It recommended disposal of cases in three months. It stated in Annexure XI to the report that all " execution proceedings " were to be initiated only before the Adjudication Officer so that such execution proceeding's could be completed speedily. The above report of 1981 was followed ten years later by the M. Narasimham Committee Report which in Chapter V stated that the "special legislation" recommended by the Tiwari Committee in 1981 should be immediately enacted. The latter Committee too observed: "We regard setting up the Special Tribunals as critical to the successful implementation of the financial sector reforms", to ensure speedy remedy of adjudication and execution against defaulters. Even in regard to " priorities " among creditors, the said Committee stated in Annexure I as follows: "The Adjudication Officer will have such power to distribute the sale proceeds to the banks and financial institutions being secured creditors, in accordance with inter se agreement/arrangem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 1956, can be treated as a general statute. This is clear from para. 19 of that judgment. It was observed (page 763): "Further, the provisions of the special Act, i.e , Life Insurance Corporation Act, will override the provisions of the general Act, viz. ; the Companies Act which is an Act relating to companies in general". Thus, some High Courts rightly treated the Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. Special law v. special law: Alternatively, the Companies Act, 1956, and the RDB Act can both be treated as special laws, and the principle that when there are two special laws, the latter will normally prevail over the former if there is a provision in the latter special Act giving it overriding effect, can also be applied. Such a provision is there in the RDB Act, namely, section 34. A similar situation arose in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp. Cas. 803 ; [1993] 2 SCC 144, where there was inconsistency between two special laws, the State Financial Corporations Act, 1951, and the Sick Industrial Companies (Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 34 gives overriding effect to the provisions of the RDB Act. No provision similar to section 34 was available in the above case before the Federal Court. The decision of this court in M.K. Ranganathan v. Government of Madras [1955] 25 Comp. Cas. 344 ; AIR 1955 SC 604, cannot also help the respondent. That was a case in which a secured creditor standing outside the winding up sold the property of the company, pending a winding up petition, by private sale. It was pointed out by this court (see para. 15, page 351) that such a sale by a secured creditor, who opted to stand outside the winding up proceedings, would be permissible without the leave of the company court. It might be different if the secured creditor tried to sell the property through a court by filing a suit or other proceeding. It was argued there that the 1936 amendment to the Companies Act in section 232(1) (corresponding to section 537 of the new Act) introduced the words "or any sale held without leave of the court of any of the properties", and those words were introduced for the purpose of staying even private sales by the secured creditor unless leave was obtained for such sales. This contention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition under the RDB Act is different. Sections 442, 446 and 537 are not saved by the RDB Act. Even section 34(2) of the RDB Act does not save the provisions of the Companies Act. Learned counsel for the respondent then relied upon certain observations in a recent case in Industrial Credit and Investment Corporation of India v. Srinivas Agencies [1996] 86 Comp. Cas. 255 ; 4 SCC 165 made in relation to the RDB Act, 1993, and to sections 529 and 529A of the Companies Act. That judgment related to a batch of appeals against the judgment of the Andhra Pradesh High Court dated August 23, 1989, and certain SLPs. ( c ) 10101 of 1991 and 11055 of 1991 (from Kerala) (the Kerala SLPs were registered as C. As. of 1196). (see here facts in Industrial Credit and Investment Corporation of India v. Vanjinad Leathers Ltd. ( In Liquidation ) , AIR 1997 Ker 273 ; [1998] 91 Comp. Cas. 625 . It has to be noticed that when the Andhra Pradesh High Court decided the matter and when the special leave petitions from Kerala were filed in 1991, the RDB Act, 1993, had not yet been enacted. But much later by the time the civil appeals came up for disposal on February 22, 1996, the RDB Act of 1993 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatute can also be a special one, vis-a-vis yet another statute. But the court, in our view, was not correct in its conclusion that, in this context, the Companies Act, 1956, was not a general statute. Further in the said judgment it was stated that the "non obstante clause in section 34 of the RDB Act cannot apply because the Acts did not overlap". According to the High Court, there was no provision like section 446 in the RDB Act laying down the procedure as to what should be done in case of the passing of a winding up order by the company court nor a provision for recovery of amounts due from a company against which a winding up petition was pending or was ordered or for distribution from a common pool. But, now section 19(19) introduced by Ordinance No. 1 of 2000 clarifies and removes any such doubts inasmuch as it refers to execution and distribution of sale proceeds by the Tribunal/Recovery Officer. The observation that the RDB Act does not operate in the same field and hence, leave of the company court is necessary under section 446(1), cannot, therefore, be accepted. We hold that the Delhi High Court's decision is not correctly decided. We are also unable to agree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Financial Corporations Act, 1951. Section 537 of the Companies Act was applied and it was held that the Companies Act did not yield to the provisions of the State Financial Corporations Act, 1951. There was no provision in the State Financial Corporations Act, 1951, like section 34 Which gave overriding effect to its provisions. For the aforesaid reasons, we hold that at the stage of adjudication under section 17 and execution of the certificate under section 25 etc. the provisions of the RDB Act, 1993, confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to banks and financial institutions and there can be no interference by the company court under section 442 read with section 537 or under section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993, are to the above extent inconsistent with the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises before the Tribunal, in respect of any monies realised under the RDB Act, as between the bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind the principles underlying section 73 of the Civil Procedure Code. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This court has explained that the powers under section 22 are wider than those of civil courts and the only restriction on its powers is that the principles of natural justice have to be followed. See Industrial Credit and Investment Corporation of India Ltd. v. Grapco Industries Ltd. [1999] 97 Comp. Cas. 117 ; [1999] 4 SCC 710 and Allahabad Bank v. Radha Krishna Maity [1999] 98 Comp. Cas. 264 (SC) ; [1999] 6 SCC 755. But under section 73 of the Civil Procedure Code, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor like the respondent-bank has only a limited claim of priority to the extent stated in section 529A and that too in case the said secured creditor has opted to stand outside the winding up proceedings and realised his dues on the security as per the terms of contract or by private sale as might have been permissible in law. It is argued that in that event, the secured creditor has only the benefit given by sub-clause ( b ) of section 529A(1), namely, to the extent permitted by clause ( c ) of the proviso to section 529(1). Reading the definition of "workmen's portion" in section 529(3)( c ) read with the illustration given in that clause, a secured creditor who stands outside the winding up, in case he loses any part of that security towards "workmen's dues" at the instance of the liquidator under clauses ( a ), ( b ) of the proviso to section 529(1), then to that extent only he has priority over all other creditors under section 529A(1)( b ). His priority is confined again to amounts not realised by him or the "workmen's portion" above referred to, whichever is less. In reply to this submission, learned counsel for the respondent has submitted that the words in the first p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section. (3)...( c ) ' workmen's portion', in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of, ( i )the amount of workmen's dues; and ( ii )the amounts of the debts due to the secured creditors. Illustration. The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen's dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs. 3,00,000. The aggregate of the amount of workmen's dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen's portion of the security is, therefore, one-fourth of the value of the security, that is Rs. 25,000". The respondent's contention that section 19(19) gives priority to all "secured creditors" to share in the sale proceeds bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the amount which bears to the value of the security, the same proportion which the amount of the workmen's dues bears to the aggregate of ( a ) workmen's dues and ( b ) the amounts of the debts due to all the creditors. This is explained in the illustration under the said provision. If the workmen's dues in all are (say) Rs. 1 lakh and the debt due to all secured creditors is Rs. 3 lakhs, the total amount due to all of them comes to Rs. 4 lakhs. Therefore, the workmen's share comes to 25 per cent. (Rs. 1 lakh out of Rs. 4 lakhs). Now if the value of the security of a secured creditor (like Canara Bank) is Rs. 1 lakh, the "workmen's portion" will be Rs. 25,000 which is the pro rata amount to be shared by the said secured creditor. By virtue of section 529A(1)( b ) his priority over all others out of other monies available in the Tribunal is restricted to Rs. 25,000 only. Reliance is placed by learned counsel for the respondent on the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing' provisions of this proviso" occurring' in the first part of the said proviso ( c ) to section 529(1). The learned Attorney Genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lustration given under section 529A(3). This creditor can be made to part pro rata with up to Rs. 25,000 out of his security of one lakh towards the workmen's dues. This is the "workmen's portion". That still leaves with him Rs. 75,000 of his security but that is not sufficient to meet his total dues of Rs. 90,000. Still Rs. 15,000 of his dues have to be cleared. By virtue of section 529A(1)( b ), he can claim this sum of Rs. 15,000 from monies realised by other creditors in the Tribunal on the basis of section 529A(1)( b ) claiming overriding priority as against all other creditors. This is because the above amount is less than the workmen's dues of Rs. 25,000 taken away from the realisation out of his security, as prescribed in clause ( c ) of the proviso to section 529( i ). That is what is meant by the words "whichever is less". ( ii ) Take a case where the total dues of a secured creditor are only Rs. 65,000 and his security is Rs. 1 lakh in value. The other facts being the same as in the illustration to section 529(3), the secured creditor loses his security rateably in a sum of Rs. 25,000. The balance of the available security is Rs. 75,000 and that is sufficient to meet h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a ) and ( b ) of the proviso to section 529(1). It is only then that it can claim that it is to be reimbursed at the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by the Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by section 529A(1)( b ). Therefore, the result is that the Canara Bank cannot rely on the words in section 19(19) viz , "to be distributed among its secured creditors" for claiming any amount lying in the Tribunal towards its security nor can it claim priority as against the Allahabad Bank. If none of the conditions required for applying section 19(19) and section 529A is, therefore, satisfied, then the claim of Canara Bank before the Tribunal can only be on the basis of principles underlying section 73 of the Civil Procedure Code. There being no decree in its favour from any court or from any Tribunal, and the other conditions of section 73 not having been satisfied, no dividend can be claimed out of monies realised at the instance of the Allahabad Bank, even if the Allahabad Bank is an unsecured creditor. We hold ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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