TMI Blog2004 (1) TMI 374X X X X Extracts X X X X X X X X Extracts X X X X ..... re as follows : The appellant is a public limited company. On April 28, 1997, it came out with a public issue of 33,45,000 secured Optionally Fully Convertible Debentures (OFCD) of Rs. 200 each at a discounted price of Rs. 160. These debentures were issued to banks, mutual funds, financial institutions, including respondent No. 1 and individual subscribers herein some time in June, 1997. On October 23, 1997, a debenture trust deed was executed between the appellants and respondent No. 1 appointing respondent No. 1 as the trustee for the debenture holders in respect of the above debentures issued by the appellants. The trust deed recorded the terms and conditions of this trusteeship including the remuneration therefor. Accordingly a trusteeship agreement was executed between the appellants and respondent No. 1 on October 24, 1997. 3. Subsequently, a portion of these debentures of aggregate nominal value of Rs. 4,65,62,600 was converted into equity shares. The balance non-convertible portion aggregating to Rs. 62,24,37,400 was to be redeemed in three instalments, i.e., on June 17, 2000, June 17, 2001, and lastly on June 17, 2002, respectively. Since there was default in honou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of the rights of the debenture trustees as existing under the trust deed in the present case. It was, therefore submitted that the learned single judge had erred in coming to the conclusion that this Court continued to have jurisdiction to try and decide the suit. 5. As against this submission of the appellant, it was submitted on behalf of respondent No. 1 that one will have to look at the provisions of sections 2( g ), 17 and 18 of the RDB Act in their proper context. One will have to keep in mind the purpose for which the Act was passed and the Tribunals thereunder were created. For that purpose, one will have to see the Statement of Objects and Reasons leading to the passing of the enactment as also the reports of the Committees which were constituted by the Government earlier to look into the problems arising out of the pendency of bank suits and large portion of their funds being locked up in unproductive assets. It was submitted that the Tribunals had to first look into the problems of huge arrears of bank suits for which they were constituted. The cause of action leading to the filing of the present suit is arising out of the breach or violation of the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction of the Tribunal : "17. Jurisdiction, powers and authority of Tribunals. (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act." ( v )Lastly, section 18 provides for bar of jurisdiction and it reads as follows : "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." Submissions on behalf of the appellants : 8. Respondent No. 1 - IDBI, which is the plaintiff, is a body corporate constituted under the Industrial Development Bank of India Act, 1964 (hereinafter referred to as "t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) of this debenture trust deed dated October 23, 1997, the repayment in respect of the debentures was secured by mortgage and charge in favour of the trustees on all the company s immovable and movable properties. There was no mortgage in favour of the debenture holders. Clause (2) of the trust deed contains the covenant to pay the principal amount of the debentures and the premium payable on redemption with interest to the debenture holders. However, no right in favour of the debenture holders was recorded authorising them to call upon the appellants to make the payment. That authority has been restricted only in favour of the debenture trustees. This clause (2)( ii ) of the debenture trust deed reads as follows : "2. Amount of debenture and covenant to pay principal and interest ****** ( ii )The company covenants with the trustees that it shall pay to the debenture holders the principal amount of the debenture and premium payable on redemption thereof, if any, on the date mentioned in financial covenant and condition No. 3 and shall also pay interest (including liquidated damages on default amounts where applicable) on the debentures in accordance with the financial co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. He submitted that the definition of "debt" under section 2( g ) was not restricted to merely the claims arising out of banking as defined under section 5( b ) of the Banking Regulation Act, 1949, which section defines "banking" to mean accepting for the purposes of lending or investment, of deposits of money from the public repayable on demand or otherwise and withdrawal by cheque, draft, pay order or otherwise. The definition of "debt" under the RDB Act included claim for any liability arising during the course of any business activity undertaken by banks or financial institutions under the law for the time being in force. As far as various forms of business which a banking company may engage in are concerned, they are laid down in section 6 of the Banking Regulation Act, 1949. Mr. Kotwal submitted that any claim arising out of those business activities would be a claim for the recovery of debts. He emphasised the fact that the definition was not restricting claims for debts to any money, but was encompassing within it any claim arising out of any such liability. 12. Mr. Kotwal then referred to the judgment of the Apex Court in the case of Allahabad Bank v. Canara Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny particular claim of any bank or financial institution would come within the purview of the Tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint have to 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 Tribunal is ousted. . . ." (p. 608) 13. To counter the submission that the money claimed in the present matter belonged to the debenture holders, Mr. Kotwal relied upon a judgment of the Privy Council in the case of Chhatra Kumari Devi v. Mohan Bikram Shah AIR 1931 PC 196, which was a judgment in the context of a will and law of limitation. In that context, the Privy Council observed as noted at page 202 of the report : "The trustee is, in Their Lordships opinion, the owner of the trust property, the right of the beneficiary being in a proper case to call upon the trustee to convey to him." 14. We do not think that there is any similarity between the situation before the Privy Council and the present one. Submissions on behalf of the respondents: 15. Mr. Kada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity; or ( b )a public financial institution within the meaning of section 4A of the Companies Act, 1956; or ( c )an insurance company; or ( d )body corporate." Even under this rule, an insurance company or a body corporate can also be a debenture trustee. 16. Then, it is material to note that a bank can be trustee for any purpose. Thus clauses ( h ) and ( i ) of section 6 of the Banking Regulation Act provide for the following businesses, which a banking company may under- take : "6. Forms of business in which banking companies may engage. (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely, ****** ( h )undertaking and executing trusts; ( i )undertaking the administration of estates as executor, trustee or otherwise," A bank can be a trustee for any purpose, for example to collect rent. In a trust like that, it will be collecting accretions for the property. Similarly when it is an executor under a will, it would be collecting the amounts due to the estate. These amounts cannot be said to be any liability which is claimed by a bank and, in any case, it cannot amount t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Report. 19. The Narasimham Committee s Report and the Tiwari Committee s Report ultimately led to the passing of the RDB Act. The Statement of Objects and Reasons [1993] 78 Comp. Cas. (St.) 97, 112 of this Act reads as follows : " Statement of Objects and Reasons Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realised without delay. In 1981 a Committee under the chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r non-employment or terms of employment or conditions of labour and this has to be of any person. The Court held that where the person was of a category altogether different from the workmen concerned and the workmen and the establishment had no direct or substantial interest in his employment or non-employment, it could not be said that such a person would be a workman within that definition. In that context, the court observed : "The definition clause must be read in the context of the subject-matter and the scheme of the Act and consistently with the objects and other provisions of the Act." 21. The Court quoted from Maxwell on Interpretation of Statutes (ninth edition) and observed : "It is well-settled that the words of a statute, when there is a doubt about their meaning are to be understood in the sense in which they best harmonise with the subject of the enactment and the object which the Legislature has in view. Their meaning is found not so much in a strictly grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used, and the object to be attained." 22. Mr. Kadam therefore submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction and that the exclusion of the jurisdiction of civil court is not to be easily inferred. He, therefore, submitted that the order passed by the learned single Judge was correct one and there is no need to interfere with it. 24. We have considered the rival submissions carefully. In this matter, we are concerned with the points as to whether the suit claim can be said to be one for a "debt" within the meaning of RDB Act and due to a bank or a financial institution. Now, as laid down in the United Bank of India s case ( supra ) in the context of this very RDB Act in ascertaining the question whether any particular claim would come within the purview of the Tribunal, it is imperative that the entire averments made by the plaintiff in the plaint have to be looked into. That the plaintiff in this proceeding ( i.e., respondent No. 1 herein) is a financial institution is an accepted position. It has acted as a trustee for the subscribers to the debentures of the appellant-company. Respondent No. 1 has filed the suit in that capacity to recover an amount of Rs. 79,92,08,074 on the date of filing of the suit with further interest thereon at the contractual rates and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is very clear that though certain rights and responsibilities are given to the debenture trustees, that does not mean that they become the owners of the amounts contributed. They continue to remain trustees and the amounts contributed continue to be the claims of the contributors. There can be no doubt that the suit is not for recovery of any debt due to a financial institution. An emphasis was led on behalf of the appellant on the aspect as to who has lodged the claim in the suit and on a part of the definition of "debt" under section 2( g ) of the RDB Act which states that it is a liability claimed by a bank or a financial institution. It was also emphasised that the transaction has arisen during the course of a business activity which is undertaken under a law for the time being in force. As far as this aspect is concerned, there can be no dispute about this. However, if the phrase "any liability claimed by a bank or a financial institution" is read to mean any claim by such a body even for others, then in that case all sorts of claim by such bodies would get covered under this definition. It was, therefore, rightly emphasised on behalf of respondent No. 1 that under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Reasons emphasise that a separate Tribunal to recover these amounts was required to be set up so that these funds are realised for productive purposes. These documents do not in any way emphasise the role of the banks in discharge of their other activities. Besides, just as banks can be debenture trustees, under the SEBI Regu- lations referred to above, even the insurance companies or body corporate can be debenture trustees. Similarly, just as banks can take the responsibility of administration of estate as executors, trustees or otherwise, other individuals and body corporate can as well take such responsibility. Suits and claims by such other organisations and individuals for administration of estate as executor, trustees or otherwise would go to the normal civil courts. The Legislature has not enacted that it wanted to treat suits by banks and financial institutions for such purpose differently only because the claims were by banks and financial institutions. The intention as seen from all the aforesaid documents in setting up of the Tribunals was only to release the blocked assets of the banks. From this point of view, the phrase "any liability claimed by a bank or a financi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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