IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 07.01.2009 CORAM: THE HONOURABLE MR.S.J.MUKHOPADHAYA, THE ACTING CHIEF JUSTICE AND THE HONOURABLE MR.JUSTICE R.SUBBIAH Writ Petition Nos.6579 and 6590 of 2008 and Civil Revision Petition (NPD) No.1130 of 2008 and M.P.No.1 of 2008 in W.P.No.6579 of 2008, M.P.Nos.1, 2 and 3 of 2008 in W.P.No.6590 of 2008 and M.P.No.1 of 2008 in C.R.P.(PD).No.1130 of 2008 State Bank of India, Stressed Assets Management Branch, No.157-A, 8th Floor, Anna Salai, Chennai-600 002. .. Petitioner in W.P.No.6579 of 2008 vs. M/s.Southern Petrochemical Industries Corporation Limited, (SPIC), Represented by its Assistant General Manager Mr.R.Suresh, No.88, Mount Road, Guindy, Chennai-600 032. .. Respondent in W.P.No.6579 of 2008 1. Indian Bank, Thousand Lights Branch, No.611, Anna Salai, Chennai-600 006. 2. Syndicate Bank, No.69, Armenian Street, Chennai-600 001. 3. Punjab National Bank, No.17, Rajaji Salai, Chennai-600 001. https://hcservices.ecourts.gov.in/hcservices/ 4. Dena Bank, No.35, Anna Salai, Chennai-600 002. 5. Andhra Bank, No.48/39, Vavoo Mansion, Linghi Chetty Street, Chennai-600 108. 6. State Bank of Travancore, United India Building, Esplanade, Chennai-600 108. 7. State Bank of Patiala, No.30, Whites Road, Chennai-600 014. 8. Bank of Rajasthan Ltd., Wavoo Complex, No.191, N.S.C.Bose Road, Chennai-600 001. 9. Oriental Bank of Commerce, Spencer Plaza, No.769, Mount Road, Chennai-600 002. .. Petitioners in W.P.No.6590 of 2008 vs. 1. Southern Petrochemical Industries Corporation Limited, Represented by its Asst. General Manager, Mr.R.Suresh, No.88, Mount Road, Guindy, Chennai-600 032. 2. Punjay & Sind Bank, No.165, Thambu Chetty Street, Chennai-600 001. 3. Bank of Baroda, No.28, Rajaji Salai, Chennai-600 001. 4. Bank of India, No.826/6, Anna Salai, Chennai-600 002. 5. Indian Overseas Bank, 98A, Dr.Radhakrishnan Salai, Chennai-600 004. https://hcservices.ecourts.gov.in/hcservices/ 6. Allahabad Bank, No.41, Mount Road, Chennai-600 002. 7. IDBI Trusteeship Services Ltd., 10th Floor, Nariman Bhavan, 227, Vinay K Shah Marg, Nariman Point, Mumbai-400 021. 8. The Chairperson, Debts Recovery Appellate Tribunal, No.55, Ethiraj Salai, Chennai-600 006. 9. Tamilnad Mercantile Bank, No.688, Mount Road, Chennai-600 006. 10. Asset Recovery Company (India) Ltd., 17th Floor, Express Towers, Nariman Point, Mumbai-400 021. 11. State Bank of India, CAG Branch, Greams Road, Chennai-600 006. 12. Central Bank of India, IFB Egmore, Chennai-600 008. 13. Union Bank of India, Industrial Finance Branch, No.9, K.H. Road, Chennai-600 034. 14. Canara Bank, No.5, Greams Road, Chennai-600 006. 15. State Bank of Bikaner & Jaipur, UTI Building, No.29, Rajaji Salai, Chennai-600 001. 16. The South Indian Bank Ltd., No.64, Armenian Street, Chennai-600 001. 17. The Industrial Finance Corporation of India Ltd., Continental Chambers, No.142, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. https://hcservices.ecourts.gov.in/hcservices/ 18. Industrial Investment Bank of India, Spencer Plaza, 7th Floor, No.769, Anna Salai, Chennai-600 002. 19. Export Import Bank of India, World Trade Centre, 21st Floor, Cuffe Parade, Mumbai-400 005. .. Respondents in W.P.No.6590 of 2008 Central Bank of India, A Body Corporate established under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, having its Central Office, at "Chandermukhi", Nariman Point, Mumbai and having an Industrial Finance Branch at 48-49, Montieth Road, Egmore,Chennai-600 008, represented herein by its Senior Manager. .. Petitioner in CRP(NPD).1130 of 2008/ 6th Respondent vs. 1. Southern Petrochemical Industries Corporation Ltd., rep. by its Asst. General Manager R.Suresh, No.88, Mount Road, Guindy, Chennai-600 032. 2. Punjab & Sind Bank, 165, Thambu Chetty Street, Chennai-600 001. 3. Indian Bank, Thousand Lights Branch, Kannammai Buildings, No.611, Anna Salai, Chennai-600 006. 4. Bank of Baroda, 28, Rajaji Salai, Chennai-600 001. 5. State Bank of India, CAG Branch, Greames Road, Chennai-600 006. https://hcservices.ecourts.gov.in/hcservices/ 6. Syndicate Bank, 69, Armenian Street, Chennai-600 001. 7. Bank of India, No.826/6, Anna Salai, Chennai-600 002. 8. Punjab National Bank, 17, Rajaji Salai, Chennai-600 001. 9. Dena Bank, No.35, Anna Salai, Chennai-600 002. 10. Indian Overseas Bank, 98-A, Dr.Radhakrishnan Salai, Chennai-600 034. 11. Union Bank of India, Industrial Finance Branch, No.9, K.H.Road, Chennai-600 034. 12. Canara Bank, No.5, Greams Road, Chennai-600 006. 13. Allahabad Bank, No.41, Mount Road, Chennai-600 002. 14. Andhra Bank, 48/39, Vavoo Mansion, Linghi Chetty Street, Chennai-600 108. 15. State Bank of Travancore, United India Buildings, Esplanade, Chennai-600 108. 16. State Bank of Patiala, No.30, Whites Road, Chennai-600 014. 17. State Bank of Bikaner & Jaipur, UTI Buildings, 29, Rajaji Road, Chennai-600 001. https://hcservices.ecourts.gov.in/hcservices/ 18. Tamilnad Mercantile Bank Ltd., No.688, Mount Road, Chennai-600 006. 19. Bank of Rajasthan Ltd., Wavoo Complex, No.191, N.S.C. Bose Road, Chennai-600 001. 20. Oriental Bank of Commerce, Spencer Plaza, No.769, Mount Road, Chennai-600 002. 21. The South Indian Bank Ltd., 64, Armenian Street, Chennai-600 001. 22. Asset Reconstruction Company (India) Ltd., 17th Floor, Express Towers, Nariman Point, Mumbai-400 021. 23. The Industrial Finance Corporation of India Ltd., Continental Chambers, 142, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034. 24. Industrial Investment Bank of India, Spencer Plaza, 7th Floor, 769, Anna Salai, Chennai-600 002. 25. Export Import Bank of India, World Trade Centre, 21st Floor, Cuffe Parade, Mumbai-400 005. 26. IDBI Trusteeship Services Ltd., 10th Floor, Narima Bhavan, 327, Vinay K.Shah Marg, Nariman Point, Mumbai-400 021. .. Respondents in CRP(NPD).1130 of 2008/ Petitioner/ Respondent 1 to 5 and 7 to 26 Writ Petition No.6579 of 2008 filed under Article 226 of the Constitution of India, praying for issuance of a Writ of Certiorari, calling for the issue pertaining to order dated 5.3.2008 in I.A.No.165 of 2008 in M.A.No.35 of 2008 and quash the same. Writ Petition No.6590 of 2008 filed under Article 226 of the Constitution of India, praying for issuance of a Writ of Certiorarified Mandamus, calling for the records relating to the https://hcservices.ecourts.gov.in/hcservices/ order dated 5.3.2008 made in I.A.No.165 of 2008 in M.A.No.35 of 2008 on the file of the 8th respondent and quash the same and consequently permit the petitioners to appropriate the amount lying in the Trust and Retention Account towards payment of the devolved LCs which have not been honoured by the first respondent on the due dates. Civil Revision Petition against the order dated 5.3.2008 in I.A.No.165 of 2008 in M.A.No.35 of 2008 on the file of the Debts Recovery Appellate Tribunal, Chennai. W.P.No.6579 of 2008: For petitioner : Mr.S.Sethuraman For respondent : Mr.AR.L.Sundaresan, Senior Counsel for M/s.AL.Gandhimathi W.P.No.6590 of 2008: For petitioners : Mr.Jayesh B.Dolia for M/s.Aiyar & Dolia For respondents : Mr.G.Masilamani, Senior Counsel for M/s.Shivakumar for R-1 Mr.R.Krishnamurthy, Senior Counsel for M/s.Surana & Surana for R-10 Mr.S.Sethuraman for RR-9 and 11 C.R.P(NPD).No.1130 of 2008: For petitioner : Mr.T.M.Hariharan C O M M O N O R D E R THE HONOURABLE THE ACTING CHIEF JUSTICE These petitions have been preferred by the State Bank of India (for short, 'the SBI'), the Indian Bank (for short, 'the IB'), the Central Bank of India (for short, 'the Central Bank') and the other Banks, challenging the interim order, dated 5.3.2008 passed by the Debts Recovery Appellate Tribunal (for short, 'the DRAT'), Chennai in I.A.No.165 of 2008 in M.A.No.35 of 2008, whereby and whereunder, the DRAT directed that out of Rs.180 crores lying with the IB, a sum of Rs.8 crores be disbursed to the Southern Petrochemical Industries Corporation Limited (for short, 'SPIC') until further orders, pending disposal of the appeal, to meet the urgent needs of SPIC towards electrical consumption charges, salary of the https://hcservices.ecourts.gov.in/hcservices/ employees, provident fund, payment of superannuation amount, gratuity amount, tax and duties and minimum plant maintenance charges. 2. Since the issue involved is common, these cases are being disposed of by this common order. 3. The main plea taken by the petitioners-Banks is that the Original Applications have been filed by the two Banks and other Banks being the respondents, for recovery of its duties, at the instance of the borrower, one of the corresponding Banks, cannot be directed to disburse the funds for meeting the physical expenses of the borrower, particularly when the assets are declared as non- performing assets (for short, 'the NPA'). The SPIC cannot seek for such a direction in an Original Application for recovery of money from its Banker, when the assets available as on the date are not sufficient to meet the existing liability. 3(a). The SPIC, which is a fertiliser and petroleum company of South India, is in existence since 1969. Its production capacity is of one million tonnes of fertilisers per annum and the plant is spread over 1000 acres of lands in Tuticorin (Tamil Nadu). It is engaged in manufacture of urea, ammonia, complex fertilisers, phosphoric and sulphuric acid and aluminium fluoride. According to SPIC, as per the last audited balance sheet as on 30.9.2006, the asset of SPIC stood at gross value of RS.3,329 crores. SPIC has been availing of the working capital facilities from a consortium of Bank, approximately 21 in number, for which Indian Bank is the lead Bank. There are fixed assets and current assets, which have been charged to all the secured lenders, 36 in number, there are 21 Banks, and 15 financial institutions, on a pari-passu inter-se basis without any preference or priority of one over the other. The Reserve Bank of India (for short, 'RBI') in 2001 introduced Corporate Debt Restructuring Scheme (for short, 'the CDR') to make a timely and transparent mechanism for restructuring of corporate debts of viable entities facing problems. As per the CDR scheme, SPIC's financial re-construction application was approved on 19.3.2003 and confirmation of pari- passu agreement was made on 29.12.2004 between participating financial institutions and the Banks. In terms of the CDR package, a Trust and Retention Account (for short, 'the TRA') was opened with the lead Bank i.e. Indian Bank, to facilitate the nodal monitoring of the Company's business receivables. The consortium of banks also appointed a concurrent auditor of SPIC to report to the lead Bank by giving a monthly report. https://hcservices.ecourts.gov.in/hcservices/ As per SPIC, the cost of production per tonne of urea of fertiliser is Rs.21,500/-, but in view of the Fertiliser (Control) Order, the SPIC can sell it only at the levy price of Rs.4,830/- and the balance of about RS.16,700/- is to be reimbursed by the Government of India, subject to the norms under the Fertiliser Retention Price Scheme. This reimbursement takes about 3 to 9 months. The receipt of subsidy amount takes about 75 days. In respect of phosphatics (Di-ammonium phosphaste), the percentage of market collection is 50% and the balance 50% is receivable by way of subsidy from the Government of India. Of this 50% subsidy, 85% is received after 2 to 3 months and the remaining 15% after certification from the State Government, which takes about 9-12 months. Most of the raw materials required for the manufacture of phosphatics were to be imported with a minimum lead time of 20 to 45 days. The other details relating to the subsidy scheme have been highlighted by the petitioners-Banks. So far as the proceedings before the DRT/DRAT are concerned, on 17.8.2006, the Punjab and Sind Bank recalled credit facilities extended to SPIC. According to SPIC, it is in contravention of the consortium arrangement. In August 2006, as per SPIC, there was proposal for 'One Time Settlement' (for short, 'the OTS') of the Bank dues, which was confirmed in the minutes of the Monitoring Committee of all Banks in their meeting held on 10.10.2006, and SPIC deposited a sum of Rs.12 crores with Punjab and Sind Bank for the purpose of opening a letter of credit for purchase of raw materials. The allegation by SPIC is that the Punjab and Sind Bank unilaterally adjusted the amount for certain alleged amounts due to it by SPIC without opening the letter of credit, which is contrary to the terms of TRA. In March 2007, the Punjab and Sind Bank filed Original Application No.25 of 2007 against SPIC for recovery of Rs.66.70 crores along with Interlocutory Application in I.A.No.154 of 2007. Another Original Application in O.A.No.89 of 2007 was filed by the Tamil Nadu Mercantile Bank for recovery of a sum of Rs.3.92 crores along with I.A.No.216 of 2007. On 5.3.2007, DRT-II, Chennai passed an ex-parte order in I.A.No.154 of 2007 directing the Government of India not to disburse a sum of Rs.66 crores as claimed by the Punjab and Sind Bank in its Original Application, from and out of the subsidy amount of Rs.409 crores. Subsequently, SPIC sought vacation of the said ex-parte order dated 5.3.2007. On 27.3.2007, the DRT-II, Chennai, passed an order in both the I.As., vacating the ex-parte order of prohibition, recording the submission of the counsel appearing on behalf of the Indian Bank that the amounts received through subsidy is in the credit of TRA account and that the amount is disbursed only https://hcservices.ecourts.gov.in/hcservices/ according to the consortium inter-se agreement. The DRT-II also observed that several members of the consortium were recovering the amounts due from SPIC without following the consortium agreement and therefore, the DRT-II was of the opinion that each disbursement of the subsidy given by the Government of India should be monitored by the DRT. The Indian Bank as consortium leader, was directed by the DRT to file a report regarding the fertiliser subsidy received from the Government of India in TRA account and the State Bank of Patiala which received subsidy amount from the Government of India, was also directed to inform the DRT regarding the amount received by it, since 1st January 2007 towards the subsidy. The DRT also directed that no subsidy received from the Government of India, should be disbursed without the permission of the DRT and the Indian Bank was directed to file a monthly report of the subsidy received from the Department of Fertilisers through the State Bank of Patiala. Against the aforesaid order, none of the secured lenders including the Indian Bank, State Bank of India and the Central Bank of India, preferred any appeal before the DRAT or any Writ Petition or Civil Revision Petition before this Court. On 20.4.2007, the DRT-II, Chennai passed an order on the basis of the reports filed by the State Bank of Patiala and the Indian Bank. It recorded the submission made by the learned counsel for SPIC that the daily monitoring by the DRT would be difficult and SPIC cannot run on its day-to-day affairs and therefore, the DRT held that the system of disbursement of the subsidy amount as per the order of the DRT should continue and refused to modify the order passed by the DRT. However, the leader of consortium was given liberty to approach the DRT once a month for permission regarding the disbursement of the subsidy received. The Indian Bank was also directed to ensure that at least one meeting of members be held per month with proper notice to all, against which, no appeal was preferred by any of the secured lenders including the Indian Bank, State Bank of India and the Central Bank of India, who have moved before this Court by filing the present Writ Petition(s)/ Civil Revision Petition. On 8.5.2007, SPIC filed I.A.No.403 of 2007 in I.A.No.154 of 2007, for a direction to the Indian Bank to pay a sum of Rs.20.77 crores out of the subsidy amount of RS.60.80 crores to meet its statutory liability and critical expenses (operational expenses) and to disburse the balance available, namely Rs.40.03 crores, only to those members of the consortium, who are agreeable to open fresh letter of credits, proportionate to the amount receivable by them. The following details of statutory and critical expenses were cited by the SPIC: https://hcservices.ecourts.gov.in/hcservices/ (Rs. in corres) a) Tamil Nadu Electricity Board/ Tamil Nadu Water Supply and Drainage Board 3.37 b) Railway Freight 1.50 c) Statutory dues to Port Trust, Excise Duty, PF, ESI, Gratuity etc. 2.00 d) Salaries and wages to employees 3.25 e) Freight, Transportation, Warehousing, Regional Office expenses 1.00 f) Turnaround expenses at Petitioner Plant, Catalysts, Spares, Contract related payments, Consumables etc. 5.65 g) Banking charges mainly pertaining to LC opening/discounting charges to ensure further supplies to carry on production activities 4.00 ------- Total 20.77 ------- On 19.6.2007, the DRT-II, Chennai, disposed of I.A.No.403 of 2007, against which appeal has been preferred before the DRAT by the Punjab and Sind Bank in M.A.No.15 of 2007 regarding its share of Rs.2.68 crores and the Bank of Baroda (IN.500/07) and Indian Bank (IN.495/07). The Punjab and Sind Bank has not preferred any appeal against the disbursement of statutory and critical expenses and no direct appeal has been filed by the Bank of Baroda against the disbursement of statutory and critical expenses. The Indian Bank has also not filed any appeal against the disbursement of statutory and critical expenses, but only against the production of TRA account. In fact, the Indian Bank, State Bank of India and Central Bank of India have accepted the DRT's order and opened the letters of credit for Rs.36.84 crores, Rs.16.78 crores and Rs.15.78 crores respectively. No appeal has been filed by any secured lender against the order regarding the disbursal of Rs.20.77 crores, i.e. Rs.16.77 crores for meeting statutory and critical expenses and Rs.4 crores for Bank's charges including the charges payable to the Indian Bank, State Bank of India and Central Bank of India, who have preferred the present Writ Petition(s)/Civil Revision Petition before this Court. https://hcservices.ecourts.gov.in/hcservices/ On 3.10.2007, the DRT-II, Chennai passed orders in the I.A. filed by the Punjab and Sind Bank (I.A.No.217 of 2007) and closed the same with the observation that the points raised in the I.A. can be taken along with the main Original Application at the time of arguments. The other I.A.No.303 of 2007 seeking cash security for the claim amount of the Original Application, or otherwise, for attachment and sale of SPIC's Division's and investments, filed by the Punjab and Sind Bank, was also disposed of, directing SPIC to furnish security to the tune of Rs.30 crores, failing which its assets were to be attached. SPIC has preferred an appeal before the DRAT in M.A.No.250 of 2007, wherein interim stay has been granted in I.A.No.1550 of 2007. 4. Learned counsel appearing on behalf of the petitioner-SBI, while raising the jurisdiction of the DRAT to direct the Banks, which are formal parties in the Original Application to release the funds to the borrower, referred to the following provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993: "Section 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." He also placed reliance on Section 19 (Chapter IV) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which deals with the "Procedure of Tribunals", particularly Section 19(8), which is quoted hereunder: "Chapter IV: Procedure of Tribunals: 19. Application to the Tribunal: (1).... .... (8) A defendant in an application may, in addition to his right of pleading a set-off under sub-section (6), set up, by way of counter-claim against the claim of the applicant, any right or claim in respect of a cause of action accruing to the defendant against the applicant either before or after https://hcservices.ecourts.gov.in/hcservices/ the filing of the application but before the defendant has delivered his defence or before the time limited for delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages or not. ..." According to the learned counsel appearing for the State Bank of India, in the light of the above provisions, the defendant can make an application claiming set-off of the account, but no application can be filed for a direction to the lead Bank or any other Bank, particularly those who are formal/proforma parties to disburse any amount in favour of the Bank. Reliance has also been placed on the decision of the Supreme Court in the case of "Indian Bank vs. ABS Marine Products (P) Ltd.,", reported in 2006 (5) SCC 72. It was further submitted that Sections 17 and 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 having not been amended, the jurisdiction has not been conferred on the DRT/DRAT to try independent suits/proceedings initiated by borrowers or others against the Bank. Reliance was also placed on the decision of the Supreme Court in the case of "United Bank of India, Calcutta vs. Abhijit Tea Co. Pvt. Ltd.", reported in 2000 (7) SCC 357, to suggest that the subject matter in the Bank suit/suits of the defendants against the Banks should not be inextricably connected in the sense that the decision in the one could affect the decision in the other. It was further submitted that in the present case, there was no inextricable connection, as the Original Application has been filed for recovery of money due to the Bank, as the defendant- Company (SPIC) was unable to pay the amounts borrowed. The defendant-Company (SPIC) on the other hand, is demanding payment on the ground that it has to run the factory and maintain it. The relief claimed by the Banks and the relief claimed by the borrower are diametrically opposite. So far as the enhanced power of the DRAT is concerned, learned counsel appearing on behalf of the State Bank of India placed reliance on the decision of the Supreme Court in the case of "Transcore vs. Union of India", reported in 2008 (1) SCC 125, wherein the Supreme Court held that the DRT being a statutory body, does not have inherent powers as in the Civil Courts. It was also submitted that no interim order can be passed under Section 19(20) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. https://hcservices.ecourts.gov.in/hcservices/ The respondent-Company (SPIC) took one of the pleas that the Bank having submitted to the jurisdiction of the DRT and having complied with the order passed by the DRT, cannot now plead that the DRT is not having jurisdiction. While placing reliance on the Supreme Court decisions in the case of "Chief Engineer, Hydel Project and others vs. Ravinder Nath and others", reported in 2008 (2) SCC 350, "Hasham Abbas Sayyad vs. Usman Abbas Sayyad", reported in 2007 (2) SCC 355 and the other decisions, the learned counsel for the State Bank of India submitted that if moot question is as to whether the order passed by the person lacking inherent jurisdiction would be a nullity, it will be so, and the principle of estoppel, waiver and acquiescence or even res-judicata, which are procedural in nature, would have no application in the case where the order has been passed by the DRT/DRAT/Court, which has no authority in this behalf. Any order passed by the Court without jurisdiction would be "forum non-judis" being a nullity and the same ordinarily should not be given effect to. Learned counsel for the other Banks, i.e. Indian Bank, Central Bank of India., inter-alia contended that: (a) the DRAT has no jurisdiction to pass such order; (b) no disbursal can be given to a Company classified as NPA (non- performing asset) which is a defaulter; (c) the Company did not keep up its demand to honour the devolved letters of credit; (d) the Company has not shown progress despite receipt of RS.389 crores; (e) existing assets are not sufficient to meet the existing liability and (f) the demand for payment of critical expenses is not maintainable. 5. Asset Recovery Company (India) Ltd., (for short, 'the ARCIL') (i.e. tenth respondent in W.P.No.6590 of 2008), which is a Company registered under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (for short, 'the SARFAESI Act'). According to the tenth respondent-ARCIL, it is the single largest lender in respect of the credit and other financial facilities obtained by SPIC, having been assigned the debts of SPIC with IDBI, ICICI, Bank of Baroda, Allahabad Bank and Indian Overseas Bank. The SPIC has availed of various credit facilities and was unable to repay and the debts due to