IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 1360 of 2001 For Approval and Signature: Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- NIMISH KESHAVLAL PATEL Versus DENA BANK -------------------------------------------------------------- Appearance: NANAVATI ASSOCIATES for Petitioner DR SONIA HURRA for Respondent No. 1 NOTICE SERVED BY DS for Respondent No. 2 -------------------------------------------------------------- CORAM : MR.JUSTICE K.M.MEHTA Date of decision: 4/09/2001 C.A.V. JUDGEMENT 1. Nimish Keshavlal Patel, petitioner, has filed this petition under Articles 226/227 of the Constitution of India challenging the order and directions dated 15.1.2001 issued by the Debt Recovery Tribunal (hereinafter referred to as `DRT') directing the petitioner not to leave India without permission of the DRT and further to deposit his passport with respondent No. 2, DRT. The petitioner has prayed for this direction in a proceeding initiated by Dena Bank, respondent No. 1, in proceedings O.A. No. 371 of 2000. 2. The facts of the case are as under: 2.1 The petitioner is the Chairman and Managing Director of M/s. N.K. Industries Limited (hereinafter referred to as `the Company'). The said Company was incorporated on 19.8.1987 as a Private Limited Company, under the provisions of the Companies Act, 1956 and thereafter converted into a Public Limited Company. The said Company is engaged in the business of manufacturing and marketing of castor oil and its derivatives and is employing about 200 employees. BACKGROUND OF THE MATTER: 2.2 It has been stated that due to reasons beyond control, the Company suffered huge losses in the year 1998-99 and consequently its networth has been eroded. The Company therefore made a Reference to BIFR (Board for Industrial and Financial Reconstruction) in terms of Section 15(1) of SICA (Sick Industrial Companies (Special Provision) Act, 1985) in 1999. Vide its order dated 9.7.1999, the Company was declared as Sick Industrial Company under Section 3(1)(o) of SICA by BIFR. 2.3 Being aggrieved and dissatisfied with the aforesaid order of BIFR, State Bank of India filed appeal by way of appeal to AAIFR (Appellate Authority of Institution of Finance Restructure) (hereinafter referred to the `Appellate Authority'). The appellate authority vide its order dated 15.2.2000/23.5.2000 allowed the appeal and dismissed the Reference made by the Company to be BIFR. Learned counsel for the Bank has also invited my attention to the order of the appellate authority in which the appellate authority has severely criticised the conduct of the petitioner in this behalf. 2.4 Being aggrieved and dissatisfied with the order of the appellate authority, the Company filed writ petition before this court under Articles 226/227 of the Constitution of India being Special Civil Application No. 8689 of 2000. The said matter was argued by the concerned parties before this court and the decision of this court is awaited by the parties concerned. PRESENT CONTROVERSY: 2.5 It has been stated in the petition that after finalisation of the duly audited accounts of the Company for the financial year 1999-2000 the petitioner by his letter dated 15.5.2000 made a fresh Reference to BIFR under Section 15(1) of the SICA. BIFR vide its letter dated 16.11.2000 informed the Company that the said Reference is registered as Case No. 357 of 2000 with BIFR. 2.6 It has been stated that the respondent Bank was aware about the said proceedings. The Company also informed the Bank about the said proceedings. 2.7 It has been stated in the petition that in the meanwhile the respondent Bank filed recovery proceedings on 10.8.2000 for recovery of dues against the Company as well as guarantors including the present petitioner before the DRT, under the provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as `the DRT Act'). The said proceedings are numbered as O.A. 371 of 2000 before the DRT, Ahmedabad. 2.8 The Tribunal by its order dated 28.8.2000 by way of ex-parte injunction restrained the respondents from transferring or alienating their immovable properties described in Part A of Schedule I subject to first charge of IDB. DRT also issued directions to the respondents to maintain status quo with regard to their personal properties described B and Part C of Schedule I, page nos. 22 and 23. The Company was also directed to maintain status quo with regard to the hypothecated goods mentioned in Schedule II at page no. 23 and also directed the respondent (petitioner herein) from leaving India without prior permission of the DRT. DRT appointed Court Commissioners to make inventory of the assets, stocks, machineries, hypothecated and mortgaged securities and also inspect books of accounts. 2.9 Thereafter, on 15.1.2001 the applicant bank had filed an application before the DRT. The DRT vide its order dated 15.1.2001 observed that though it had passed order and directed the petitioner not to leave India without permission of it, petitioner had gone to Switzerland in the month of November, 2000 violating the order of DRT amounting to deliberate disobedience of the order of DRT and therefore directed the petitioner to deposit his passport with the DRT and DRT may initiate action and punish the petitioner for deliberately disobeying order of the DRT under contempt of Courts Act, 1971. The DRT also perused the order of the appellate authority and ordered that the Manager of the applicant bank along with Shri N.K. Shah, advocate, are appointed as Jt. Commissioners to carry out the inventory of the assets, stocks, machineries, hypothecation and mortgaged securities. Report of the Court Commissioners be submitted within three weeks from the date of receipt of the warrant. The petitioner was also directed to deposit his passport before the DRT. 2.10 It appears that thereafter on 19.1.2001 the respondent bank moved another application at Exh. A/15 for posting of security guards at the factory premises of the company and the DRT passed order on 19.1.2001 permitting the respondent Bank to deploy its own security guards at the factory premises of the Company. 2.11 Thereafter, a notice for Court Commission work was served upon the petitioner on 19.1.2001. On 20.1.2001 the said Court Commissioner came to the factory premises of the Company and has taken the inventory and has performed other commission work, pursuant to the aforesaid orders dated 15.1.2001 and 19.1.2001. 2.12 On 25.1.2001 the Company filed its reply before the DRT objecting to the appointment of receiver. 2.13 The petitioner has also amended the petition and also challenged the order dated 28.8.2000 and also order dated 15.1.2001 on other grounds and prayed stay of the order dated 28.8.2000. The learned counsel has relied on various provisions of DRT Act and pointed out that under the provisions of the DRT Act, the Tribunal has no power and jurisdiction to direct the petitioner not to leave India without prior permission of the DRT and in any view of the matter DRT cannot pass order directing the petitioner not to leave India without its prior permission and to surrender the passport to DRT. The said action is de hors the provisions of the Act and no such power is not conferred on the Tribunal and therefore the said order of the Tribunal is without jurisdiction. 3. It has been stated in the petition that on 25.1.2001 the Company had filed a writ petition being Special Civil Application No. 749 of 2001 before this Court challenging the orders dated 15.1.2001 and 19.1.2001 passed by DRT. This court (Coram: D.A. Mehta, J) had on 1.2.2001 issued notice to the respondents making it returnable on 7.2.2001. On 7.2.2001, this court, after hearing the parties, passed an order whereby DRT was directed to decide the issue regarding jurisdiction first in view of Section 22 of SICA. 4. Thereafter, the Company filed an affidavit on 9.2.2001 before DRT and prayed for recall of the orders dated 15.1.2001 passed below Exh. A/13 and and 19.1.2001 below Exh. A/15 and also for stay of the further proceedings on the ground that the Reference of the Company was registered by BIFR on 16.11.2000. 5. It is also stated that on 9.2.2001 after the aforesaid affidavit was filed before DRT and arguments of the advocate of the company in support of its prayers for recalling the orders dated 15.1.2001 and 19.1.2001 were completed, advocate for the respondent Bank prayed for time to file a reply to the aforesaid affidavit. Thereafter, DRT accepted the request of the respondent Bank and adjourned the matter to 8.3.2001 to enable the bank to file its reply. 6. It appears that thereafter the Bank filed Misc. Civil Application No. 214 of 2001 on 9.2.2001 under the provisions of Contempt of Courts Act before this Court, seeking a prayer for punishing the petitioner for an alleged wilful and deliberate breach of order dated 15.1.2001 passed by DRT. The Division Bench of this court issued notice in the petition on 13.2.2001. The said proceedings are pending before this court. 7. The present petition was also filed on 22.2.2001 and this court issued notice. Ultimately this court on 12.4.2001 after relying on the judgment of the Supreme Court in the case of M/s. PATHEJA BROS FORGINGS & STAMPING AND ANOTHER VS. I.C.I.C.I. Ltd. reported in JT 2000 (8) SC 252, stayed operation of the order dated 15.1.2001 stayed operation of the order dated 15.1.2001 regarding direction to the petitioner to deposit his passport. PETITIONER'S CONTENTIONS: I. Contentions regarding Section 22 of SICA: 8. Mr. K.S. Nanavati, learned senior counsel, appeared on behalf of the petitioner. He stated that in view of provisions of Section 22 of the SICA proceedings before DRT are suspended and therefore DRT ought not to have continued proceedings after November 2000 when Reference before the BIFR was registered. 8.1 Learned counsel for the petitioner further relied on Section 22 of SICA which reads thus: "Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956(1) (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a Receiver in respect thereof (and no suit for the recovery of money or for the enforcement of any security against the industrial company or any guarantee in respect of any loans or advance granted to the industrial company) shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." 8.2 Relying on these provisions of the Act, he submitted that in this case in August 2000 the Bank has initiated proceedings before the DRT and thereafter the DRT has passed order on 28.8.2000. He further submitted that in November, 2000 the Company has made a Reference before the BIFR and therefore in view of Section 22 of the Act, DRT has no jurisdiction to proceed further and the proceedings may be suspended. In support of the same the learned counsel has relied on the judgement of the Hon'ble Supreme Court in the case of REAL VALUE APPLIANCES LTD. VS. CANARA BANK reported in AIR 1998 SC 2064 in which at para 23 the Hon'ble Court has observed thus:- "In our view, when Section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after security, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and rehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or more other body seeks to have it declared as a sick company, it is, in our opinion, necessary that the Company be heard before any final decision is taken under the Act." 8.3 He has also relied on the judgement of the Hon'ble Supreme Court in the case of M/S. PATHEJA BROS. FORGINGS & STAMPING AND ANR. VS. I.C.I.C.I. LTD. AND ORS. reported in JT 2000(8) SC 252 in which at paras 7, 8 and 9 on pages 256-257 the Hon'ble Supreme Court has observed thus: "Para 7 - The words in the square brackets above were inserted into Section 22 by Article 12 of 1994 and it is these words which are relevant for our purposes. As we read them, they provide that no suit (a) for the recovery of money, or (b) for the enforcement (i) of any security against the industrial company, or (ii) of any guarantee in respect of any loans or advance granted to the industrial company. shall lie or be proceeded with except with the consent of the Board or the Appellate Authority under the said Act. Four our purposes, therefore, the relevant words are "no suit..... for the enforcement.... of any guarantee in respect of any loans or advance granted to the industrial company" shall lie without the consent of the Board or the Appellate Authority. The words are crystal clear. There is no ambiguity therein. It must, therefore, be held that no suit for the enforcement of a guarantee in respect of a loan or advance granted to the concerned industrial company will lie or can be proceeded with or without the sanction of the Board or the Appellate Authority under the said Act. Para 8 - It is not possible to read the relevant words in Section 22 as meaning that only a suit against the industrial company will not lie without such consent. There is no requirement in Section 22, as analysed above, that, to be covered thereby, a suit for the enforcement of a guarantee in respect of a loan or advance to the industrial company should be against the industrial company. Para 9 - Section 17(3) empowers the Board to direct the preparation of a scheme adopting all or any of the measures specified in Section 18. Section 18(2) states that the scheme may provide, inter alia, for "the continuation by, or against, the sick industrial company or as the case may be, the transferee company or any action or any other legal proceedings pending against the sick industrial company immediately before the date of the order made under Sub-section (3) of Section 17". The argument on behalf of the first respondent is that while this provision provides for the continuation of proceedings against the industrial company, there is no provision in the said Act which provides for the continuation of any held up proceeding against the guarantor of a loan or advance to such company and that, therefore, Section 22 should be read as applying only to a suit against the industrial company and not a guarantor. Apart from the fact that, as indicated above, the language of Section 22 is explicit, the scheme would provide for the repayment of the loan or advance and, therefore, would take within its ambit the claim on the guarantee, the question of proceeding with the suit against the guarantor would not arise. On the other hand, if the industrial company cannot be revived by a scheme, the embargo under Section 22 would cease to operate." 8.4 He has also relied on the decision of a Division Bench of this court (Coram: B.C. Patel and K.M. Mehta, JJ) in Company Petition No. 30 of 1993 decided on 17.12.1999 where provisions of Section 22 of SICA have been interpreted and the court has held on page No. 52 (concurring judgement of K.M. Mehta, J) as under: "Answer to question No. 2(a): When an application before the BIFR is pending and subsequently winding up petition is filed in the High Court, the same is not maintainable at law. 2(b) When winding up petition is filed prior to the time to reference of the respondent company before the BIFR, the winding up petition shall remain suspended before the High Court. 2(c) If winding up petition is already filed and thereafter reference is made before the BIFR and thereafter if petitioner desired to continue winding up proceedings then he has to obtain permission from BIFR." 8.5 He therefore submitted in view of Section 22 of SICA and other decisions cited, the proceeding initiated by the bank must be suspended as the proceeding before the BIFR has been registered after the suit filed by the Bank. He further submitted that bank has not obtained permission from the BIFR for proceeding further. II. Contentions regarding Provisions of the Debts Recovery Act: 8.6 The learned counsel for the petitioner has relied on certain provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 2 provides for definition. Section 2(g) provides for definition of debt. Section 17 provides for jurisdiction, power and authority of Tribunals. Section 17 reads thus:- "(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 institution 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." 8.7 Section 19 provides for application to the Tribunal. Sub-section (12) of Section 19 provides power of making interim order by the Tribunal. Sub-section (13)(A) provides power to furnish security, if the Tribunal is satisfied that the defendant, with intent to obstruct or delay or frustrate the execution of any order for the recovery of debt that may be passed against him in connection with disposal of the property. Sub-section (13)(B) of Section 19 provides power of attachment in certain contingencies. Sub-sections (14), (15), (16) also provide power for attachment. Sub-section (17) provides that if there is disobedience of an order made by the Tribunal under sub-sections (12), (13) and (18) or breach of any of the terms on which the order was made, the Tribunal may order the properties of the person guilty of such disobedience or breach to be attached and may also order such person to be detained in the civil prison for a term not exceeding three months, unless in the meantime the Tribunal directs his release. Sub-section (18) provides for power of receiver. Sub-section (19) provides certificate of recovery be issued. The relevant Sub-sections (12), (13A), 13(B), (17) and (18) of Section 19 are reproduced as under:- "Sub-sec. 12 - The Tribunal may make an interim order (whether by way of injunction or stay or attachment) against the defendant to debar him from transferring, alienating or otherwise dealing with, or disposing of, any property and assets belonging to him without the prior permission of the Tribunal. Sub-sec. 13(A) - Where, at any stage of the proceedings, the Tribunal is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay or frustrate the execution of any order for the recovery of debt that may be passed against him (i) is about to dispose of the whole or any part of the property; or (ii) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Tribunal; or (iii) is likely to cause any damage or mischief to the property or affect its value by misuse or creating third party interest, the Tribunal may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Tribunal, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the certificate for the recovery of debt, or to appear and show cause why he should not furnish security. Sub-sec. 13(B) - Where the defendant fails to show cause why he should not furnish security, or fails to furnish the security required, within the time fixed by the Tribunal, the Tribunal may order the attachment of the whole or such portion of the properties claimed by the applicant as the properties secured in his favour or otherwise owned by the defendant as appears sufficient to satisfy any certificate for the recovery of debt. Sub-sec. (17) - In the case of disobedience of an order made by the Tribunal under sub-section (12), (13) and (18), or breach of any of the terms on which the order was made, the Tribunal may order the properties of the person guilty of such disobedience or breach to be attached and may also order such person to be detained in the civil prison for a term not exceeding three months, unless in the meantime the Tribunal directs his release. Sub-sec. (18) - Where it appears to the Tribunal to be just and convenient, the Tribunal may, by order, - (a) appoint a receiver of any property, whether before or after grant of certificate for recovery of debt; (b) remove any person from the possession or custody of the property; (c) commit the same to the possession, custody or management of the receiver; (d) confer upon the receiver all such powers, as to bringing and defending suits in the courts or filing and defending applications before the Tribunal and for the realization, management, protection, preservation and improvement of the property, the collection of the rents and profits thereof, the application and disposal of such rents and profits, and the execution of documents as the owner himself has, or such of those powers as the Tribunal thinks fit; and, (e) appoint a Commissioner for preparation of an inventory of the properties of the defendant or for the sale thereof." 8.7(a) Section 20 provides for appeal to the Appellate Tribunal. The said section reads thus:- "(1) - Save as provided in sub-section (2), any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to an Appellate Tribunal having jurisdiction in the matter. (2) - No appeal shall lie to the Appellate Tribunal from an order made by a Tribunal with the consent of the parties. (3) - Every appeal under sub-section (1) shall be filed within a period of forty five days from the date on which a copy of the order made, or deemed to have been made by the Tribunal, is received by him and it shall be in such form and be accompanied by such fee as may be prescribed. Provided that the Appellate Tribunal may entertain an appeal after the expiry of