TMI Blog2022 (1) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... hority under the law, to issue such direction. The RBI under Section 45-MB of the RBI Act, 1934 and 35-A of the Banking Regulation Act, 1949 has the requisite authority to issue the communication dated 09th June, 1997. The omission by the RBI to mention any enabling provision, doesn t change the nature and status of the direction. The statutory arrangement and interpretation persuades to hold that actions in furtherance of grounds of public policy by the RBI was justified, for issuing the Notification dated 10.04.1997. The notification itself clearly mentioned that it is issued for the benefit of depositors and creditors of CRB Capital. The actual status of the RBI Notification would have a bearing on the claim against the defendant in the suit and the later proceeding. The plaintiff, as can be noted, always had the option of challenging its legality but they have never specifically challenged those in the Suit. Therefore, when the legality of the RBI Notification is not under challenge, relief can t be granted in the Suit without determining its legality. This in our perception can by itself, put a quietus on the issue at hand - the plaintiff cannot be granted parity with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd re-agitate the issue. Hence, this contention will be of no advantage for the plaintiff. Bond status and obligation: Holder in due course - HELD THAT:- An obligation has been imposed on the transferee of the promissory notes, to be deemed to be a Holder in due course , that the notes should have been acquired in good faith; after exercising reasonable care and caution about the holder s title. In the present case, while the Shankar Lal Saraf s (holder) title over the Bonds/Promissory Notes is not in dispute but as discussed earlier, Shankar Lal Saraf s holding stood cleared by the Company Court only on 17.12.2004 but before the said judgment, there was a cloud over his title. Consequently, the plaintiff s status as holder in due course was suspect at the relevant point of time - defendant bank was therefore justified in withholding payment till conclusion of dispute in Company Court, even though the relief claimed was in respect of an unconditional undertaking , as there were reasonable legal concerns for the transaction during the suspect spell, for making such payments. Entitlement for Interest on delayed payment - pendente lite interest - HELD THAT:- The defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 3-1-2022 - HON'BLE MR. JUSTICE R. SUBHASH REDDY AND HON'BLE MR. JUSTICE HRISHIKESH ROY For Petitioner(s) Mr. Rauf Rahim, AOR Ms. Uttara Babbar, AOR For Respondent(s) Ms. Uttara Babbar, AOR Mr. Rauf Rahim, AOR J U D G M E N T Hrishikesh Roy, J. Leave granted. 2. The challenge in these appeals is to the judgment and order dated 25.11.2019 of the Division Bench of the High Court of Calcutta, whereby the decision of the Single Judge dismissing the suit i.e. CS No. 79/2006 of M/s. SIBCO Investment Pvt Ltd (for short SIBCO) was reversed. The suit was filed against Small Industries Development Bank of India (SIDBI) seeking interest on the alleged belated payment of principal sum and accrued interest to the plaintiff for the Bonds issued by SIDBI. 3. The question to be answered in this case is whether plaintiff has set forth a just claim, based on the Bonds issued by the defendant or is it a case of that trial in Shakespeare s The Merchant of Venice where Shylock is claiming the promised pound of flesh in the form of interest on delayed payment on the Bonds purchased by the plaintiff. The 41 Bonds related to this case were initially iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiff, the Shankar Lal Saraf (the plaintiff s predecessor-in-interest) filed an interlocutory application in the pending liquidation proceeding before the Company-Court, claiming that the aforesaid transactions should be treated as outside the purview of the liquidation proceeding, under the Companies Act, 1956. 4.3 By a judgment dated 17th December, 2004, the Learned Company Court held that the subject Bonds are beyond the purview of the liquidation proceeding and directed Shankar Lal Saraf to put up the matter before the defendant. On 17th February, 2005 the above judgment of the Company Court was communicated and the Bonds were presented to the defendant. Then on 21st February, 2005 the defendant made the payment of the principal amount together with the interest calculated up to the date, as promised in the said Bond to M/s. SIBCO with TDS deduction at around 20%. By a letter dated 24th February, 2005, the Plaintiff raised an objection over the rate on which the TDS was deducted, which was accepted by the defendant as it issued a further warrant covering a sum of ₹ 58,86,833/- on account of excess TDS deductions. 4.4 The case projected in the plaint in the CS No.79/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the plaintiff was that the amount, both principal and interest, were paid beyond the maturity period and, therefore, the defendant is liable to pay the interest for delayed payment. According to the plaintiff, the defendant has unreasonably withheld the said amount, whereas, the defendant says that because of the embargo and restriction by the RBI and the pending proceedings, the maturity amount was not paid on the date of maturity. The reliance appeared to have been placed by both the sides on the facsimile dated 9th June, 1997 issued by the RBI. I. TRIAL COURT FINDINGS 5. The learned Trial Judge in his judgment noted that there is a clear stipulation against affecting any transfer, register any lien or otherwise deal with, the securities of CRB Capital with further stipulation that it should not part with the interest, dividend or principal without the permission of the Official Liquidator. Additionally it appears from the order passed by the Company Court that there was a notification issued on 10th April 1997 under Section 45MB of the RBI (Amendment) Act, 1997 directing the said Company not to sell, transfer, create charge or mortgage or deal in any manner with any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the accrued interest head and, therefore, it was not utilized nor any benefit was taken therefrom. 5.3 As can be seen, the Suit was dismissed primarily on two grounds: - (A) The bonds in question could not be transferred by the petitioner since the RBI had initiated winding up proceedings against CRB Capital before the Delhi High Court, whereafter the RBI has issued a directive dated 9.6.1997 to the petitioner herein directing not to register transfer of CRB Capital s Bonds in question, or to part with any payment pertaining to the said Bonds, without consent of the Official Liquidator. The learned Judge therefore found that the petitioner had acted entirely in accordance with the directive of the RBI, by requesting permission from the Official Liquidator, and thereby promptly making the payment of the amounts due under the Bonds after appropriate orders were passed by the Delhi High Court where winding up proceedings were going on. Hence, the defendant could not be held liable for the delayed payment. (B) The learned Trial Judge also noted the conduct of the plaintiff, in accepting the payment under the Bonds, including interest, without any protest in February, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arred either by accord or satisfaction as the plaintiff gave no acknowledgment that all claims stood satisfied at the time of receiving the payment warrants on 21st February 2005. Hence, the plaintiff was at liberty to raise further demands including demand for interest on delayed payment. The Learned Division Bench further held that reliance on Bhagwati Prasad (Supra) by the trial judge was misplaced as it was not cited by either parties and was relied on without giving the parties a chance to rebut it. The defendant was accordingly directed to pay simple interest @ 6% per annum on interest, from date of accrual and 8% simple interest per annum on principal amount from date of maturity of respective Bonds by 29.02.2020. III. DISCUSSION AND DECISION: 7. The present appeals are filed impugning the above judgment of the Division Bench of the Calcutta High Court. The defendant seeks relief of setting aside the judgment of the Division Bench in toto. Whereas, the plaintiff seeks pendente lite interest over and above the interest already awarded, and is disputing the rate of interest awarded by the Learned Division bench on interest and Principal amount. 7.1 Assailing the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unication on the Bonds in question, it will be beneficial to examine the statutory provisions which empower the RBI. For efficient discharge of its functions, the RBI has been granted special powers for controlling and regulating various financial institutions, as is clear from different provisions of The RBI Act, 1934 and The Banking Regulation Act, 1949. As per the RBI Act, 1934, we find that the RBI has wide supervisory jurisdiction over all Banking Institutions in the country. This court speaking through Justice V. Ramasubramaniyan, in the case of Internet and Mobile Association of India vs. RBI (2020) 10 SCC 274., elucidated on the position of the RBI as a statutory body, with immense power in financial/ monetary field: 190. But given the scheme of the RBI Act, 1934 and the Banking Regulation Act, 1949, the above argument appears only to belittle the role of RBI. RBI is not just like any other statutory body created by an Act of legislature. It is a creature, created with a mandate to get liberated even from its creator Therefore, RBI cannot be equated to any other statutory body that merely serves its master. It is specifically empowered to do certain things to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... infringe any statutory provisions, is extracted for ready reference as under: 45MB. Power of Bank to prohibit acceptance of deposit and alienation of assets: (1) If any non-banking financial company violates the provisions of any section or fails to comply with any direction or order given by the Bank under any of the provisions of this Chapter, the Bank may prohibit the non-banking financial company from accepting any deposit. (2) Notwithstanding anything to the contrary contained in any agreement or instrument or any law for the time being in force, the Bank, on being satisfied that it is necessary so to do in the public interest or in the interest of the depositors, may direct, the non-banking financial company against which an order prohibiting from accepting deposit has been issued, not to sell, transfer, create charge or mortgage or deal in any manner with its property and assets without prior written permission of the Bank for such period not exceeding six months from the date of the order. 8.4 At this juncture, it is pertinent to extract the exact wordings of the RBI communication dated 09.06.1997 addressed to the defendant: We understand that M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng for a three judges Bench in Internet and Mobile Association of India, (Supra), gave a wide meaning to public interest , in context of S. 35-A of the Banking Regulation Act, 1949: 176. As we have indicated elsewhere, the power under Section 35A to issue directions is to be exercised under four contingencies, namely, (i) public interest, (ii) interest of banking policy, (iii) interest of the depositors and (iv) interest of the banking company. The expression banking policy is defined in Section 5(ca) to mean any policy specified by RBI (i) in the interest of the banking system, (ii) in the interest of monetary stability and (iii) sound economic growth. Public interest permeates all these areas 8.8 On the omission to advert to the statutory provisions on the basis of which the RBI acted, we can seek guidance from the ratio in Peerless General Finance and Investment Co. Ltd. Vs. RBI (1992)2 SCC 343 where this court, speaking through Justice N. M. Kasliwal, held that: 71. It is settled law that so long as the power is traceable to the statute, mere omission to recite the provision does not denude the power of the legislature or rule making authority to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercise of jurisdiction under the enabling provisions contained in Section 36(1) and the ones under Sections 21 and 35A of the Banking Regulation Act and the provisions contained in Section 45-L of the Reserve Bank of India, 1934 is absolutely clear and unambiguous. In terms of Section 36, Reserve Bank of India may caution or prohibit the banking companies but in terms of Sections 21 and 35-A of the 1949 Act it can issue binding directions 58. Whether a circular letter issued by a statutory authority would be binding or not or whether the same has a statutory force, would depend upon the nature of the statute. For the said purpose, the intention of the legislature must be considered. Having regard to the fact the Reserve Bank of India exercised control over the banking companies, we are of the opinion that the said circular letter was binding on the banking companies. The officials of UCO Bank were, therefore, bound by the said circular letter. (Emphasis added) 8.12 Justice S. C. Agarwal, speaking for this Court in RBI vs. Peerless General Finance and Investment Co. Ltd. (II) (1996) 1 SCC 642. held in the context of S. 45-K of the RBI Act, 1934, that RBI has the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he RBI Notification would have a bearing on the claim against the defendant in the suit and the later proceeding. The plaintiff, as can be noted, always had the option of challenging its legality but they have never specifically challenged those in the Suit. Therefore, when the legality of the RBI Notification is not under challenge, relief can t be granted in the Suit without determining its legality. This in our perception can by itself, put a quietus on the issue at hand. 8.16 That apart, when the claim in the Suit is relatable to the embargo by the RBI, it was necessary to implead RBI in the litigation, for getting more clarity on the issue. The plaintiff omitted to do so at their own peril despite the defense set out on this basis. Here we need to observe that the plaintiff is dominus litus, and they cannot be compelled to seek relief against anyone. 8.17 According to us, the plaintiff cannot be granted parity with its predecessor-in-interest, Shankar Lal Saraf, who was paid interest which accrued in July, 1997 despite the RBI directive of 09.06.1997. The defendant has explained this aberration by clarifying that the payment to Shankar Lal Saraf was made before the defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in February, 1997. Hence, the defendant s prima facie suspicion that the transfer during the suspect spell, may be deemed fraudulent, is not misplaced. Relevant here would be to note that in 2019, a Division bench of this court speaking through Justice Mohan Shantanagoudar in the case of IDBI vs. Official Liquidator (2020) 15 SCC 517. clarified that two conditions need to be satisfied for a transaction to be qualified as fraudulent preference: First, Company s dominant motive to prefer a particular creditor; Second, transfer executed within six month, preceding filing of winding-up petition. The issue of fraudulent preference is therefore no longer res integra, and it is unnecessary to labour on the issue any further. 9.3 The suspicion harboured by the defendant is during the suspect spell as supported by the Calcutta High Court in its order dated 09.01.2001, where the Writ Court refused to interfere on the grounds that the issue was in the teeth of the litigation pending in the Delhi Company Court. 9.4 Significantly it has been admitted by Shankar Lal Saraf in his Application (CA 1380/1998) to the Delhi Company Court that the defendant was acting under the advice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pending in the Company Court. The defendant proactively applied to the Official Liquidator on multiple occasions seeking clarification on interest payment. But, the Official Liquidator did not respond. Hence, it is clear that despite the defendant s best intentions and proactive efforts, it would be imprudent for the defendant to release the payment accrued on the suspect Bonds. When the Bonds were released from dispute pending before the Company Court, the defendant promptly complied with the order of the Learned Company Court. 10.1 The Learned Counsel for the plaintiff has failed to show how the defendant derived any undue benefit by withholding the payment accrued on the Bonds. The amount due on the Bonds was immediately transferred to the Accrued Interest head and was not used by the defendant for their business. Hence, the plaintiff s contention that the defendant s actions of withholding payment were mala fide, is not acceptable to us. 10.2 The plaintiff also argues that the Company Court judgment (17.12.2004) has attained finality and the defendant is barred by res judicata from raising the issue of fraudulent preference. The issue of fraudulent preference is no lon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care and caution about the holder s title. In the present case, while the Shankar Lal Saraf s (holder) title over the Bonds/Promissory Notes is not in dispute but as discussed earlier, Shankar Lal Saraf s holding stood cleared by the Company Court only on 17.12.2004 but before the said judgment, there was a cloud over his title. Consequently, the plaintiff s status as holder in due course was suspect at the relevant point of time. 11.3 The defendant bank was therefore justified in withholding payment till conclusion of dispute in Company Court, even though the relief claimed was in respect of an unconditional undertaking , as there were reasonable legal concerns for the transaction during the suspect spell, for making such payments. VIII. ENTITLEMENT FOR INTEREST ON DELAYED PAYMENT AND PENDENTE LITE INTEREST: 12. It flows from the above discussion, that the defendant was justified in withholding the accrued dues. The actions of SIDBI were bona fides, in furtherance of RBI directives, which were issued in public interest. In the case of Clariant International Ltd. Vs. SEBI (2004) 8 SCC 524., this court speaking through Justice S B Sinha held that two conditions ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the payment from the defendant as due settlement of its claims. SIBCO s failure to raise protest and demand for interest at the earliest possible stage, amounted to sub-silencio acceptance. Accordingly, the plaintiff is barred from raising this demand after several months applying the principle of waiver/acquiescence. X. WHETHER PRESENT SUIT BARRED BY CONSTRUCTIVE RES JUDICATA ?: 14. The defendant has argued that the principle of constructive res judicata would also offset the plaintiff s claim. Pertinently, the previous Bond holder Shankar Lal Saraf could not possibly have claimed interest on delayed payment before the Company Court for it lacked the jurisdiction to adjudicate claims unrelated to the liquidation proceedings, against CRB Capital. But, the successor Bond holder i.e. the plaintiff could have claimed interest on delayed payment from the writ court. SIBCO s submission is not acceptable that the cause of action arose only on 23.11.2005, when the defendant refused to heed to the demand of interest on delayed payment. The cause of action for the plaintiff accrued the first time, when the defendant allegedly failed to pay timely interest. Since such a claim was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. Hence, it is clear that the defendant acted bona fide in withholding the payment. 15.3 The elements that could have weighed on the defendant for not making timely payments are: I) Contravention of the RBI Directives; II) Issue being related to the ongoing litigation in the Delhi Company Court; III) Concerns with the defendant s title over the Bonds/promissory notes transacted during the suspect spell and these perturbing elements can t be brushed aside as not relevant. We are therefore of the view that even though the payment was demanded in furtherance of an unconditional undertaking in the Bonds, the defendant was not entitled to it till the Company Court s order dated 17.12.2004. 15.4 The plaintiff s transaction of Bonds with Shankar Lal Saraf does not sound right in this court s estimation, with purchase being made during the suspect spell and concurrent alarm bells rung by the RBI, and the Court in that duration. When SIBCO approached the Writ Court to validate their transaction, they failed to put forth any claim for interest on delayed payment. Curiously, the plaintiff chose not to approach the Company Court directly and instead relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
