1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO. 966 OF 2007 IN COMPANY PETITION NO. 395 OF 2006 The Greater Bombay Co-op Bank Ltd .. Applicant V/s IMP Powers Limited .. Respondent Mr. V.R. Walavalkar with Mr. Sameer R. Bhalekar for the Applicant Mr. Milind Sathe, Sr. Advocate with Mr. Chirag Balsara and Mr. Mahesh Londhe i/b M/s. Sanjay Udeshi & Co for the Respondent Mr. C.J. Joy with Mr. N.D. Sharma i/b S.K. Mohapatra for Regional Director CORAM : DR. D.Y. CHANDRACHUD, J DATE : 22nd April, 2009 JUDGMENT: 1. By a Judgment and Order dated 29th March, 2007, this Court sanctioned a scheme of arrangement between the company (IMP Powers Limited) and its secured creditors under Sections 391 to 394 of the Companies Act 1956. While doing so, the Judgment of the Court excluded the Indus Ind Bank Limited from the purview of the Scheme of arrangement, with the result Rma CA97107220409.sxw 2 that proceedings which were pending before the Debt Recovery Tribunal at the behest of the bank were not to stand affected by the sanctioning of the scheme of arrangement. The Company application which forms the subject matter of this proceeding, has been filed by Greater Bombay Co-operative Bank Limited which is a Co-operative society registered under the provisions of the Maharashtra Co-operative Societies Act 1960. The bank had sanctioned a term loan of Rs. 3.5 Corres to the company on 23rd June, 2001. The loan was recalled on a default by the company and an amount of Rs. 3,43,46,000/- was stated to be due and payable to the bank. Following a demand notice, the Bank instituted a proceeding under Section 101 of the Maharashtra Co-operative Societies Act, 1960 before the Assistant Registrar for the recovery of its dues together with interest. The Assistant Registrar by an order dated 12th July, 2004 declined to issue a recovery certificate and the order was confirmed in Revision. It has been averred that this Court by an order dated 12th April, 2005 disposed of a Writ Petition filed by the Bank with liberty to institute a fresh application under Section 101. Accordingly, on Rma CA97107220409.sxw 3 02nd July, 2005, the bank filed a proceeding under Section 101. The application was dismissed by the Assistant Registrar but on Revision, the Divisional Joint Registrar remitted the proceedings back to the Assistant Registrar for a decision on merits. It has been averred that the case was closed for orders by the Assistant Registrar after hearing. According to the Applicant – Bank, the company filed a written statement before the Assistant Registrar on 13th April, 2007 disclosing the approval that was granted by this Court to the Corporate Debt Restructuring (CDR) Scheme in the Company proceedings. The Assistant Registrar rejected the application under Section 101 on 16th May, 2007 against which the Bank preferred a Revision application before the Divisional Joint Registrar. 2. The case of the bank is that it learnt about the scheme of arrangement having been approved by this Court for the first time in the proceedings before the Assistant Registrar. According to the bank, service of the proceedings was effected by the company at its corporate office at Churchgate though the Rma CA97107220409.sxw 4 company was aware of the fact that the appropriate department for effecting service would be the Legal Department. 3. The basic contention on merits is that the Company Court in exercise of its Jurisdiction under Sections 391 to 394 of the Companies' Act 1956 cannot adjudicate upon the claim of the Applicant against the company or foreclose the adjudication on the application for recovery instituted under Section 101 of the Maharashtra Co-operative Societies Act 1960. It is contended that the scheme which has been approved by the Company Court has the effect of adjudicating upon the claims of the Applicant which falls exclusively within the purview of the forum constituted by the Co-operative Societies Act. The scheme contemplates concessions and reductions as well as adjustments which would fall within the exclusive domain of the forum constituted under Section 101 of the Maharashtra Co-operative Societies Act 1960. The Applicant, it has been submitted, is a Co-operative Bank which is structured differently from a Commercial bank while a majority of the secured creditors in the Rma CA97107220409.sxw 5 CDR scheme are Commercial Banks. Under the Scheme, the Applicant would have to subscribe to equity / cumulative redeemable preference shares of the company, and this is not permissible under the regulations governing the Applicants as an Urban Co-operative Bank. 4. On the other hand, it has been urged on behalf of the Company that there is no conflict with the remedy available under the Maharashtra Co-operative Societies Act 1956. As a result of the sanctioning of the scheme of arrangement, the debts due and owing by the company are restructured and it would be opon the creditors to seek recourse to the remedy available in law for repayment of the restructured debt. 5. The rival submissions are principally founded on two Judgments of the Supreme Court : i] Alahabad Bank Vs Canara Bank (2000)4 SCC 406; ii] Greater Bombay Co-operative Bank Limited Vs United Yarn Tex Pvt Ltd 2007(3) Mh. L. J. 434. Rma CA97107220409.sxw 6 6. The Judgment in the Allahabad Bank Case deals with the question as to whether in respect of proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Debt Recovery Tribunals and Recovery Officers are conferred with exclusive jurisdiction in their respective spheres from the stage of adjudication to execution. In that context, the Supreme Court also dealt with the jurisdiction of the Company Court under Companies' Act 1956 in relation to such claims of financial institutions that are governed by the RDB Act. The Supreme Court held that the RDB Act confers exclusive jurisdiction on Debt Recovery Tribunals and Recovery Officers from the stage of adjudication of claims to execution of certificates for recovery, in respect of debts payable to banks and financial institutions and there can be no interference by the Company Court under Sections 442, 537 or 436 of the Companies' Act 1956. Even in respect of money realized under the Act, the question of priority could be decided only by the Debt Recovery Tribunal. The provisions of the RDB Act are to the Rma CA97107220409.sxw 7 above extent inconsistent with the Companies' Act 1956 and the latter would have to yield to the former. The judgment in Allahabad Bank Case dealt with two enactments of Parliament. The Supreme Court also held that the RDB Act, being a special enactment,would to that extent, override the provisions of the Companies' Act, 1956 particularly in view of the provisions of Section 34 of the Act. 7. In the second Judgment in Greater Bombay Co-operative Company Limited (Supra) , a Bench of three learned Judges of the Supreme Court dealt with the issue as to whether the RDB Act applies to debts due to Co-operative Banks constituted under the Maharashtra Co-operative Societies Act 1960, among other State Acts. The Supreme Court held, on a review of the provisions of Co-operative legislation of several States, including the Maharashtra Co-operative Societies Act 1960, that the State legislation is comprehensive and self-contained. Legislation governing co-operative societies provides a framework for Rma CA97107220409.sxw 8 dealing with dues recoverable by Co-operative societies and, as a result, the RDB Act would have no application to such societies. The Supreme Court held as follows : “The dues of co-operatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act,1960 and the APCS Act,1964, which are comprehensive and self-contained legislations. Similarly, for Multi-State Co-operatives there is a specific enactment in the form of the MCSC Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co- operatives. Therefore, when there is an admittedly existing legal framework specifically dealing with issues pertaining to co-operatives and especially when the co-operative banks are, in any case, not covered by the provisions of the RDB Act specifically, there is no justification of covering the co- operative banks under the provisions of the RDB Act by invoking the Doctrine of Incorporation.” Moreover, the Supreme Court held that legislation governing the Co-operative Societies would be covered by the entry relating to Co-operative Societies, namely Entry 32 of List II of the Seventh Schedule of the Constitution. Co-operative banks established Rma CA97107220409.sxw 9 under the Maharashtra Co-operative Societies Act 1960, among other States Act were held not to fall within the meaning of the expression ‘Banking Companies’ under Section 5(c) of the Banking Regulation Act, 1949. 9. The Judgment in Allahabad Bank is authority for the proposition that the jurisdiction of the Company Court is denuded in relation to the recovery of dues of banks and financial institutions governed by the RDB Act upon its enactment in 1993. From adjudication of claims to the execution of recovery certificates, the exclusive jurisdiction is vested in Debt Recovery Tribunals and Recovery Officers constituted under the Act of 1993. As regards Co-operative Societies (including Co-operative Banks) constituted under state Legislation, the Supreme Court held in the Judgment in Greater Bombay Co-operative Bank that Co-operative law enacted by the State Legislatures deals with the regulation of Co-operative Societies. Since Co- operative legislation provides a framework for the recovery of the Rma CA97107220409.sxw 10 dues of such societies, the forum for recovery created under such legislation would remain unaffected by the enactment of the RDB Act, 1993. The effect of these two Judgments is to emphasise the exclusivity of the jurisdiction that is conferred upon Debt Recovery Tribunals to deal with questions relating to the recovery of dues owing to banks and financial institutions covered by the RDB Act 1993 on one hand; and of the framework provided in state legislation to regulate co-operative societies including in the matter of the recovery of dues, on the other. The powers of the Company Court must not impinge upon or affect the exclusivity of the Jurisdiction conferred upon Tribunals constituted under the RDB Act 1993 or, as the case may be, by State Co-operative Legislation including the Maharashtra Co- operative Societies' Act 1960. The power to adjudicate upon a claim and to enforce the execution of a recovery certificate is conferred upon the specialized framework created by the Act in question. The Maharashtra Co-operative Societies Act 1960 is a comprehensive and self-contained code dealing with the adjudication of claims of Co-operative societies and the recovery Rma CA97107220409.sxw 11 of claims. The rules framed under the Maharashtra Co- operative Societies Act 1960 give effect to the provisions of the Act. 10. The effect of the scheme that has been propounded by the company is to restructure the debts due and owing to secured creditors including the Applicant before the Court. The Applicant, under the terms of the scheme has to restructure its liabilities along the lines of the provisions made in regard to the IDBI (SASF) / SBICI. The concessions which are contemplated included the waiver of liquidated damages / further interest as on 30.04.2004; funding interest by conversion into equity or, as the case may be, into 4% cumulative redeemable preference shares; non charging of further interest on the interest accruing during the period 30.04.2004 till 30.09.2005; fixation of the repayment schedule and the reduction in rates of interest on term loans. There is merit in the submission which has been urged on behalf of the Applicant that the effect of the scheme is to dilute Rma CA97107220409.sxw 12 the full and plenary powers conferred under the Maharashtra Co-operative Societies Act 1960 on the forum constituted by that Act to adjudicate upon the claim of the Applicant. Upon the application of the scheme under Sections 391 to 394 of the Companies Act, 1956 to the Applicant before the Court, the debt due to the Applicant as an Urban Co-operative Bank would stand restructured in terms of the scheme which has been approved by the Company Court. That exactly is the objection of the Applicant. There is merit in the objection. The Bank has made an application for recovery of its dues under Section 101 of the Maharashtra Co-operative Societies' Act 1960. The forum under that Act has exclusive jurisdiction to determine whether a debt is due and the quantum of the debt. The liability towards interest will fall for determination in those proceedings. The effect of the Scheme prepared by the Company under Section 391 is to restructure the quantum of the debt and the mode of repayment. The scheme has the effect of scaling down the debt and requiring concessions, reduction and adjustments. That in substance and in fact operates to detract from a full adjudication Rma CA97107220409.sxw 13 of the liability under the Maharashtra Co-operative Societies' Act, 1960. The Maharashtra Co-operative Societies' Act 1960 provides a self-contained and comprehensive framework for adjudication of claims of Co-operative Societies including of Urban Co-operative Banks. That legislation is referable to Entry 32 of List II of the Seventh Schedule to the Constitution, as held by the Supreme Court. The power of the Company Court under the Companies' Act, 1956 must be harmonized with those of the adjudicatory fora under the State Co-operative legislation. The latter is equally a valid statutory enactment under a legislative head falling within state legislation competence. The state legislation is exclusively referable to regulatory powers over co- operative societies that fall within the legislative competence of the State. In these circumstances, the Applicant is justified in asserting that the Company Court, while sanctioning the scheme between the Company and its secured creditors under Sections 391 to 394 had no jurisdiction to impinge upon the legislative framework created by the Maharashtra Co-operative Societies' Act, 1960. The Company Application would hence, have to be Rma CA97107220409.sxw 14 allowed. The Application is made absolute in terms of prayer clauses (a) and (b). There shall, in the circumstances, be no order as to costs. (DR. D.Y. CHANDRACHUD, J) Rma CA97107220409.sxw