Rajasthan High Court
Case BriefsHigh Courts

Rajasthan High Court: In a case where the secured creditors like Unit Trust of India (‘UTI’) and a workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up, Pushpendra Bhati, J. held that they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to Kotak Mahindra Bank which is a late entrant to the dispute.

Factual Background

A company named Derby Textiles Limited (‘respondent company’) was incorporated on 22-05-1980 as a Public Limited Company, limited by shares. It requested the UTI (petitioner in Company Petition 07 of 2000) to subscribe for Secured Redeemable Non-Convertible Debentures (‘SRNCD’) of the face value of Rs.4.00 crores, which was thereby agreed and disbursed. On deviation from payments agreed recall notices were issued for payment of outstanding debt along with interest.

Company Petition 07/ 2000

A winding up petition was preferred under Sections 433, 434 and 439, Companies Act, 1956, seeking winding up of the company and appointment of an official liquidator regarding all the assets and properties of the respondent-Company, since the respondent-Company was unable to pay the outstanding debt amount. As the proceedings were pending, the respondent-Company meanwhile made an application that it has been registered as sick company with Board of Industrial and Financial Reconstruction. The company kept dilly-dallying on some or the other issues thereafter in the Court and the matter kept on getting adjourned, even when the Court cautioned the parties that no further adjournments would be given.

Application No.2 of 15 in Company Petition No.9 of 2014

The Company petition was filed for liquidation proceedings to begin and while such adjudication was going on, an application was filed by a workman, i.e. Application No. 2 of 2015 in company petition No. 9 of 2014, contending, as the auction proceedings had already taken place, and unless an official liquidator is appointed to secure the debts of the petitioner, the petitioner’s rights shall be permanently prejudiced being a prioritized creditor.

As no one appeared for the respondent company an interim order was passed by the Court on 28-03-2022, “Despite service, none appears for the respondent-Company. In the interest of justice, further proceedings in case No.144/2004 before the Debt Recovery Tribunal, Jaipur shall remain stayed.”

Challenging the aforesaid order, an SLP was filed before Supreme Court which upheld the stay order. Consequently, vide another application Kotak Mahindra Bank Limited was impleaded as party respondent. Thus, application No.01 of 2022 (in company petition No.7 of 2000) was filed on behalf of Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and one another application No. 4 of 2022 (in company petition No.9 of 2014) was filed by Mr. Anil Vyas, Advocate (on behalf of the auction purchaser- M/s. Noble Art & Craft House, Jodhpur) seeking modification of the aforementioned interim order dated 28-03-2022.

It was contended by Kotak Mahindra Bank Limited as well as the auction purchaser, that their proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (‘RDDB Act’) is on a stronger footing, and that, leave of the Company Court is not necessary under Sections 537 or 446 of the Companies Act, 1956 is a settled proposition and there cannot be any second thought in the mind of the Court.

The Court noted that the jurisdiction of the Tribunal and the Recovery Officer, in terms of the RDDB Act, is exclusive, in respect of the debts payable to Banks and Financial Institutions, and the Company Court cannot use its powers under Section 442 read with Section 537 or under Section 446 of the Companies Act, 1956, against the Tribunal/recovery officer, and thus, Sections 442, 446 and 537 cannot be applied against the Tribunal, is a settled proposition.

The Court further observed that merely because the company was not cooperating and the adjudication of the matter took a long time, the company petitioner cannot be rendered remediless by this Court on account of the complete assets being disbursed by the DRT in a separate proceeding under the RDDB Act. Thus, in the present case, one of the secured creditors UTI and workman have preferred their petitions way back in the year 2000 and 2014 respectively, and are awaiting result of the winding up and the protection of their respective interests, and thus, they cannot be allowed to suffer merely because some subsequent proceedings in the DRT would consume all the assets of the company and give away the auction proceeds to the Kotak Mahindra Bank Limited and the auction purchaser, who are subsequent entrants in the dispute.

Placing heavy reliance on Bank of Nova Scotia v. RPG Transmission Limited, 2004 SCC OnLine Del 1048, the Court did not allow application No.1 of 2022 in company petition No.7 of 2000 filed on behalf of the Kotak Mahindra Bank Limited seeking vacation of the interim order dated 28-03-2022 and application No. 4 of 2022 in company petition No.9 of 2014 filed on behalf of the auction purchaser seeking modification of the said interim order.

[The Specified Undertaking Of the UTI v. Derby Textiles Limited, SB Company Petition 7 of 2000, decided on 27-07-2022]


Advocates who appeared in this case :

Mr. Manoj Bhandari Sr. Advocate assisted by Mr. Aniket Tater. Mr. Siddarth Tatiya and Mr. Shailendra Gwala, Advocates, for the Petitioner(s);

Mr. Sanjay Jhanwar Sr. Advocate assisted by Mr. Rajat Sharma & Mr. Pranav Bafna. Mr. Sanjay Nahar Mr. Anil Vyas Mr. Sanjeet Purohit with Mr. Surendra Thanvi Mr. Naman Mohnot Mr. Pushkar Taimini, Advocates, for the Respondent(s).


*Arunima Bose, Editorial Assistant has reported this brief.

Gujarat High Court
Case BriefsHigh Courts

Gujarat High Court: The Division Bench of Aravind Kumar, CJ. and Ashutosh J. Shastri, J. allowed a writ petition which was filed seeking for a direction to fill up the post of Presiding Officer in Debt Recovery Tribunal-I, Ahmedabad contending inter-alia such vacancy violates the legal rights of the petitioner, bankers/lenders, borrowers, guarantors and other stake holders.

Petitioner, an advocate contended that he is a certified Chartered Accountant, Company Secretary and has also undertaken many specialized courses such as Certified Fraud Detection and Forensic Accountant, International Financial Reporting Standards, Concurrent Bank Audit etc. As there was no Presiding Officer posted to DRT-I, petitioner herein had filed a writ petition contending that not only the litigant public but also the advocates are facing utmost difficulty.

The Court noted that Ministry of Personnel, Public Grievances and Pensions, Department of Personnel and Training Secretariat of the Appointments Committee of the Cabinet had issued a notification whereby decision in respect of appointments approved by the Committee of Cabinet for filling up the posts of Presiding Officers in various Debt Recovery Tribunals including DRT-I at Ahmedabad came to be circulated but said notification has not crystallized by way of appointment being made to DRT-I.

The Court relying on Supreme Court Advocates-on-Record Assn. v. Union of India, (1993) 4 SCC 441 reiterated that Right to speedy justice is enshrined under Article 21 of the Constitution of India. The Court explained that litigants whose matters are before DRT-II would be able to get the relief at the hands of DRT-II, whereas litigants who are similarly placed and seeking reliefs by filing the petition, which is pending before DRT-I, are not able to get the relief namely, their applications or petitions are getting adjourned from time to time for want of Presiding Officer and thereby depriving them of their legitimate right to speedy justice.

The Court pointed out that Additional Solicitor General of India had made statement before this Court on 13-06-2022 that process for filling up the vacancy of the Presiding Officer, DRT-I is under way and shortly it is coming to an end and if necessary, steps would be taken to issue office orders for making in-charge arrangement but the assurance given to this Court has not crystallized by way of any such steps having been taken or order having been issued.

The Court consequently allowed the petition directing the respondent to conclude the process for appointment of the Presiding Officer in DRT-I, Ahmedabad, expeditiously and at any rate within an outer limit of two months. Till such time, the respondent was directed to issue appropriate notification for placing Presiding Officer, DRT-II, Ahmedabad, with additional charge of Presiding Officer, DRT-I, Ahmedabad, forthwith.

[Nipun Praveen Singhvi v. Union of India, 2022 SCC OnLine Guj 828, decided on 21-06-2022]


Advocates who appeared in this case :

Mr Vishal J Dave and Ms Hiralu Mehta, Advocates, for the Applicant; 1

Mr Siddharth Dave, Advocates, for the Opponent 1.


*Suchita Shukla, Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Bombay High Court: Expressing that the right to travel abroad has been spelt out from the expression “personal liberty” in Article 21 of the Constitution, A.S. Chandurkar and Amit Borkar, JJ., observed that, the provisions under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, do not impliedly confer such powers on the Debt Recovery Tribunal to restrain a person from travelling abroad.

Issue


The instant petition raised an important question with regard to the interpretation of Article 21 of the Constitution of India as to whether the expression “personal liberty” occurring in the said Article includes the right to travel abroad?

Whether refusal to grant permission to travel abroad results in the infringement of Article 21 of the Constitution of India? 

Background 


The petitioner had challenged the order passed by the Debt Recovery Tribunal refusing to grant permission to travel abroad for a limited time to attend the marriage of the petitioner’s sister-in-law.

Analysis, Law and Decision


Article 21 of the Constitution of India

“21. No person shall be deprived of his life or personal liberty except according to procedure established by law.”

While stating that it is a well settled that the expression “personal liberty” includes right of a citizen to travel abroad and return to the home country without any impediment, direct or indirect. The expression “personal liberty” has not been used in the restricted sense of freedom from arrest and detention but had been used in a much wider sense.

The above-said right emanates from the freedom of a person and the right to travel abroad and return to the country without impediment, direct or indirect, is contained in the expression “personal liberty” occurring in Article 21 of the Constitution.

“…Law in this Article means the law enacted by a competent Legislature.”

 Further, the Bench added that, the mandate of Article 21 is that the deprivation of “personal liberty” has to be “according to procedure established by law.”

Elaborating further, the High Court observed that,

The right to travel abroad is right distinct and separate from the right of freedom of movement in a foreign country.

The right to travel abroad of a citizen of India was considered in the Supreme Court in Maneka Gandhi v. Union of India, (1978) 1 SCC 248.

Additionally, the Court referred to Sub-Section 12, 13(A), 17 and 18 of Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and stated that the Tribunal is not conferred with specific power to restrain a person from leaving the country.

In Court’s opinion, Section 22 confers the procedural right to regulate proceedings before it.

“In the absence of a specific provision conferred on the Debt Recovery Tribunal by statute, the Debt Recovery Tribunal has no power to restrain a citizen from travelling abroad, particularly when the said right has been recognised as a facet of Article 21 of the Constitution of India.”

High Court added that the rights of respondent 1 will sufficiently protect the rights of respondent 1 to recover the amount of dues from the petitioner.

While concluding the matter, the Bench held that the order refusing permission to travel abroad has been made in contravention of the provisions of Article 21 of the Constitution and is violative of the right guaranteed to the petitioner under Article 21.

Further, the State had not made any law or provision in the said Act seeking to deprive or regulate the right of a person to travel abroad.

Hence, the order was set aside.

“…the purpose of depriving or regulating the right of a person to travel abroad, it is necessary to have a procedure established by law enacted by a competent Legislature in the said act or by way of independent legislation which is absent herein.”

In view of the above, the Debt Recovery Tribunal had no power to restrain a person from travelling abroad in the absence of specific powers to that effect. [Anurag v. Bank of India, 2022 SCC OnLine Bom 1160, decided on 7-6-2022]


Advocates before the Court:

Mr Akshay Naik a/w Mr D.V. Chauhan and Mr C.J. Dhruv, Advocates for Petitioner.

Mr A. T. Purohit, Advocate for Respondent No.1.

Mr D. Gupta, Advocate for Respondent No.2(Official Liquidator).

Case BriefsSupreme Court

Supreme Court: In a case dealing with companies defaulting a loan of Rs. 48 Crores including interest from Kotak Mahindra Bank, the question relating to the right of a secured creditor to file a winding up petition after such secured creditor has obtained a decree from the Debts Recovery Tribunal [DRT] and a recovery certificate based thereon arose before the bench of RF Nariman and Navin Sinha, JJ. On the issue, the bench said:

“cases like the present one have to be decided by balancing the interest of creditors to whom money is owing, with a debtor company which will now go in the red since a winding up petition is admitted against it. It is not open for persons like the appellant to resist a winding up petition which is otherwise maintainable without there being any bona fide defence to the same.”

The Court said that when it comes to a winding up proceeding under the Companies Act, 1956, since such a proceeding is not “for recovery of debts” due to banks, the bar to jurisdiction contained in Section 18 read with Section 34 of the Recovery of Debts Act would not apply to winding up proceedings under the Companies Act, 1956. It further added:

“As a matter of fact, sub-paragraphs (i) and (iv) of paragraph 18 would show that proceedings before the DRT, and winding up proceedings under the Companies Act, 1956, can carry on in parallel streams. That is why paragraph 18(i) states that a Debts Recovery Tribunal, acting under the Recovery of Debts Act, would be entitled to order sale, and sell the properties of the debtor, even of a company in liquidation, but only after giving notice to the Official Liquidator, or to the Liquidator appointed by the Company Court, and after hearing him.”

Citing Lord Atkin’s judgment in Lissenden v. C.A.V. Bosch, Ltd., [1940] 1 All E.R. 425 at 436-437, where he said that one has not lost one’s right to a second helping because one has taken the first, the Court said that the Bank cannot be said to be blowing hot and cold in pursuing a remedy under the Recovery of Debts Act and a winding up proceeding under the Companies Act, 1956 simultaneously, in fact:

“When secured creditors like the respondent are driven from pillar to post to recover what is legitimately due to them, in attempting to avail of more than one remedy at the same time, they do not “blow hot and cold”, but they blow hot and hotter.”

[Swaraj Infrastructure Pvt. Ltd. v. Kotak Mahindra Bank Ltd., 2019 SCC OnLine SC 92, decided on 29.01.2019]

Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Sanjiv Khanna and Chander Shekhar, JJ. allowed a writ petition filed challenging the order of the Debt Recovery Appellate Tribunal, and remanded the matter back to be heard on merits.

The petitioner filed an application under Section 17(1) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest  Act, 2002 questioning the initiation of action by the respondent bank under Section 13(4). The petitioner had bought the land concerned, the original owner of which was one Vipin Chopra. Subsequently, the petitioner executed a registered sale deed of the said land, in the name of her husband. The respondent bank claimed that the said Vipin Chopra had mortgaged the land with State Bank of Bikaner and Jaipur, and the right over the same was transferred to the respondent bank. The Debt Recovery Tribunal held that the respondent bank had a right over the land and not the petitioner. The petitioner preferred an appeal before the Debt Recovery Appellate Tribunal which rejected the appeal in limine holding that the petitioner had no locus to proceed with the matter as she was no more the owner of the land in question and her husband who was a necessary party was not impleaded. Aggrieved thus, the petitioner filed the present petition.

The High Court observed that the petitioner was not properly guided and informed that her husband should have been impleaded as a party. Moreover, the petitioner being a power of attorney holder, who had executed the sale deed, had interest in contending the proceedings. She was also residing in the property. The Court felt that the petitioner and her husband should not be denied a hearing on merits on account of technical lapse and failure to understand the impact and legal effect of executing the sale deed. The petitioner was misguided and did not have benefit of proper legal advice. Accordingly, the order impugned was set aside and the matter was remanded back to the Appellate Tribunal for hearing in merits. [Devender Kaur v. Punjab and Sind Bank,2018 SCC OnLine Del 10441, dated 02-08-2018]

Case BriefsSupreme Court

Supreme Court: Taking note of the fact that at present, thirty four Debt Recovery Tribunals and five Appellate Tribunals are functioning in the country which suffer from a lack of adequate infrastructure, manpower and resources, the Court said that the legislative changes to provide for expeditious disposal of proceedings before the Debt Recovery Tribunals may not by themselves achieve the intended object so long as the infrastructure provided to the Tribunals is not commensurate with the burden of the work and nature of judicial duties.

The Court noticed that though the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides for the disposal of recovery applications within one hundred and eighty days, cases have remained pending for years together. In order to deal with the large pendency of cases, the Enforcement of Security Interest and Recovery of Debt Laws and Miscellaneous Provisions (Amendment) Bill, 2016 was introduced in the Lok Sabha on 11.05. 2016. The Bill has eventually been passed by both the houses of Parliament on 16.08.2016. The Court, however, that having due regard to the important adjudicatory function which is entrusted to these Tribunals, the efficacy of parliamentary legislation will depend in a large measure on the efficiency with which the Tribunals discharge their duties. Hence, the Court directed the Union of India to file affidavit dealing with the following issues:

  • Whether the timelines set down in the amended legislation are capable of being achieved with the existing infrastructure including judicial personnel and staffing pattern of the Debt Recovery Tribunals and Debt Recovery Appellate Tribunals;
  • The underlying basis, if any, upon which the revised timelines have been stipulated and whether any scientific study has been conducted on the availability of infrastructure;
  • What steps the Union government intends to adopt to enhance the infrastructure of Debt Recovery Tribunals and the Appellate Tribunals in terms of physical infrastructure, judicial manpower and non-judicial personnel required for the efficacious functioning of the Tribunals;
  • The specific plan of action including time-schedules within which the existing infrastructure would be upgraded so as to achieve the time frame for disposal indicated in the amended legislation; and
  • Empirical data on the pendency of cases for more than ten years and the list of corporate entities where the amount outstanding is in excess of Rs.500 crore.

The 3-judge bench of T.S. Thakur, CJ and Dr. D.Y. Chandrachud and A.M. Khanwilkar, JJ has directed the Union Government to file affidavit within 4 weeks from the date of this order. [Centre for Public Interest Litigation v. Housing & Urban Development Corporation Ltd., 2017 SCC OnLine SC 13, decided on 03.01.2017]