1 wpl1123.11.sxw IN THE HIGH COURT OF JDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO. 1123 OF 2011 UCO Bank ...Petitioner Vs. Palm Karnel India Ltd. & Others ..Respondent Mr.Harinder Toor with Mr. N.N. Amin and Ms. Tajashvi Dalvi for the Petitioner. Mr. Venkatesh R. Dhond, Sr. Advocate with Mr. V.N. A.Kumar i/by M/s VNA legal for Respondent Nos. 1to 3. CORAM : DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ. DATE : 8 SEPTEMBER, 2011. P.C. 1. In these proceedings the Petitioner, the UCO Bank, has challenged an order of the Debts Recovery Appellate Tribunal of 21 December 2010. The DRAT dismissed an appeal filed by the Bank against an order of the Debts Recovery Tribunal dated 25 November 2010. 2. UCO bank had a recovery certificate in its favour dated 24 March 2009, issued by the Debts Recovery Tribunal in the sum of Rs.1,65,56, 226/- together with interest at 13.5% per annum. In terms of a letter addressed by 2 wpl1123.11.sxw the Bank on 9 October 2009, a settlement was entered into between the Bank and the First Respondent by which the Bank agreed to settle the outstanding dues in a reduced sum of Rs. 143.12 lakhs. Of this, Rs. 43.12 lakhs was to be paid upfront. The balance was payable in two equal instalments each of Rs. 50 lakhs on or before 28 October 2009 and 28 November 2009. The Bank's letter stipulated in clause 4 that upon the failure of the First Respondent to adhere to the settlement, the settlement would stand revoked and the bank would be entitled to claim its entire dues. On the request of the Respondents the Bank extended the last date for the payment of the OTS amount until 27 February 2010, by its letter dated 17 February 2010. The Respondents admittedly failed to adhere to the time schedule agreed upon by the parties for making payments. The consequences envisaged by the parties for breach of the agreement would ordinarily ensue and the recovery certificate would become executable for the entire sum which it represented. 3. On 7 April 2010, the Bank informed the Respondents that since the dues had not been deposited in terms of the settlement, the compromise had failed and the amount of Rs. 40.25 lakhs deposited by the Respondents was appropriated against the dues of the bank. Following this, the bank issued a proclamation of sale on 18 August 2010, which was published in the 3 wpl1123.11.sxw newspapers. The grievance of the bank is that in breach of an order of interim injunction which had been passed by the Tribunal certain properties were mortgaged by the Respondents to the Indian Overseas Bank. On 27 September 2010, an auction sale took place at which the Fourth Respondent was declared to be the successful bidder. An amount of Rs. 4,75,51,000/- was deposited by the Fourth Respondent with the Recovery Officer representing 25% of the bid amount. 4. A Miscellaneous Application was filed by the Respondents to interdict the auction sale, before the Debts Recovery Tribunal in September 2010, seeking an order of the Tribunal directing the bank to allow an extention of five months for implementation of the sanctioned OTS and for a direction to the Recovery Officer to stay the auction sale which was scheduled to take place on 27 September 2010. In support of the application the Respondents relied upon certain guidelines of the Reserve Bank of India. However, it is common ground that the guidelines which were referred to in paragraph 5.4 of the Application and annexed to the application were neither of RBI nor of the Petitioner, but of the Indian Overseas Bank. Para 5.4 of the Application stated thus: "The Certificate Holder did not consider the request for extension 4 wpl1123.11.sxw of time in good prospects and looking to the practical difficulties and by not taking fair and legitimate view of the situation. The Certificate Holder did not give an opportunity to these Applicants for implementing the same in total which it could have considered in the interest of equity and natural justice. Annexed hereto and marked "Exhibite-IV" is the copy of the text of RBI guidelines in this regard pertaining to the matter on hand. The guidelines pertaining to our case reads as - " The sanctioned OTS should be recovered, normally, within 3 months from the date of conveying the sanction without charging interest. However, if the payment is to be made in instalments and has to extend beyond 3 months, 25% of the OTS sanctioned amount is to be paid within 3 months of the conveying the sanction and the balance 75% may be paid in monthly/quarterly instalments not exceeding further 9 months together with interest at PLR on the date of sanction, from the date of conveying the sanction to date of final payment made". The applicants after having paid 28% of OTS amount are asking only five months maximum because the process takes so much time for sanction and disbursement." The Respondents seem to have also taken out an interim application in the M.A. on 18 November 2010. 5. The Debts Recovery Tribunal allowed the Application by its order dated 25 November 2010 and directed that the Respondents pay an amount of Rs. 1,01,420/- to the Bank. The Respondents had also paid an amount of Rs. 1,12,12,830/ which was tendered without prejudice in pursuance of an earlier order dated 20 October 2010. The Bank challenged the order of the Debts Recovery Tribunal before the Debts Recovery Appellate Tribunal. The DRAT dismissed the appeal by its judgment dated 21 December 2010. 5 wpl1123.11.sxw 6. During the course of the hearing of these proceedings, the submissions which have been urged on behalf of the Petitioner are: (i) The guidelines of the RBI upon which reliance has been placed by the Petitioner provide that they would apply to pending cases. Hence, they have no application to the present case where there was a final recovery certificate that was issued by the Debts Recovery Tribunal; (ii) The Respondents would hence not have a vested right to an extension of time to pay, beyond what was agreed upon in the settlement with the Bank; (iii) Despite a recovery certificate, the bank furnished an opportunity to the Respondents to pay a lower amount of Rs. 1.43 crores towards its dues, subject to payment being made according to an agreed time schedule; (iv) There was a breach on the part of the Respondents to comply with the agreement as a result of which the Bank became entitled to execute the Recovery Certificate; (v) The settlement was not on OTS governed by the RBI circular but was entered into under Section 63 of the Contract Act and since the Respondents committed a breach, the bank was entitled to recover the entire amount due under the recovery certificate; (iv) The powers under Section 19(25) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, are in the nature of a residuary power and it was not open to the DRT and DRAT to exercise these powers contrary to statute. The submissions are sought to be buttressed by relying upon the judgments of the Supreme Court in X- 6 wpl1123.11.sxw Calibre Kinvies (P.) Ltd. V. State Bank of India 1 and of the Division Bench as of this Court in Sathe Biscuits, Chocolates Company Ltd. Vs. Bank of Maharashtra 2 and Chemosyn Limited Vs. Union Bank of India 3 . 7. On the other hand, Counsel appearing on behalf of the Respondents submitted that (i) the settlement which was arrived at between the Petitioner and the Respondents does not appear to have been based on the guidelines of the Reserve Bank of India as such, but was based on a circular of the UCO Bank, governing one time settlements; (ii) From the decision of the Supreme Court in M/s Sardar Associates V. Punjab & Sindh Bank 4 it would emerge that an OTS would be applicable even if a final recovery certificate is issued and in this case the circular of the Bank did enable it to conclude an OTS notwithstanding a final recovery certificate; (iii) After the judgment of the Tribunal, the bank encashed the pay order that was issued by the Respondents for the balance and hence, the bank cannot be heard to complain of the judgment delivered by the DRAT. 8. A compilation has been filed by Counsel appearing on behalf of the Petitioner containing the relevant guidelines and circulars issued by the RBI 1 (2005) 10 Supreme Court Cases 265. 2 (2004) 122 Company Cases 251 (Bom). 3 (2005) 127 Company Cases 398 (Bom). 4 AIR 2010 SC 218 7 wpl1123.11.sxw from time to time. Though the Respondents relied upon a particular circular of the RBI in the Miscellaneous Application, it now emerges that what was annexed to the application was a circular of the Indian Overseas Bank, and not of the RBI. Both the DRT as well as DRAT have not had the benefit of considering the matter in its perspective, since the circulars which have now been produced for the first time before the Court were evidently not before either of the two Tribunals. 9. In that view of the matter both Counsel appearing on behalf of the Petitioners and Counsel appearing on behalf of the Respondents have agreed that the orders passed by the DRT on 25 November 2010 and by the DRAT on 21 December 2010 may be quashed and set aside by consent without the expression of any final opinion by this Court, and the Miscellaneous Application filed by the Respondents may be restored to the file of the Tribunal for a fresh decision. 10. Accordingly, in terms of the statement made before this Court in agreed terms by Counsel and by consent we pass the following order: (i) The orders passed by the DRT on 25 November 2010 and by the DRAT on 21 December 2010 are set aside; 8 wpl1123.11.sxw (ii) The Miscellaneous Application (M.A.No. 121 of 2010) shall stand restored to the file of the DRT; (iii) Counsel appearing on behalf of the Respondents tenders an undertaking on instructions that pending the decision of the Tribunal, the Respondents shall not create any further rights or interests whatsoever in respect of the movable and immovable properties that form the subject matter of the public notice dated 18 August 2010 (pages 90 and 91 of the Paper Book); (iv) Counsel appearing on behalf of the Petitioner states on instructions that until the disposal of the Application by the DRT, the Petitioner shall not take any coercive steps in respect of the Seven accounts covered by the settlement dated 9 October 2009; (v) All the rights and contentions of the parties are kept open. 11. We have in the preceding part of this order, indicated the broad 9 wpl1123.11.sxw contours of the controversy to bring focus on the points raised and to ensure an expeditious disposal by the Tribunal. However, we clarify that in view of the order of remand passed by this Court in agreed terms, this shall not amount to a final opinion on the rival contentions of the parties. Liberty to the parties to file further affidavits before the Tribunal by presenting all relevant material including circulars which have been produced before this Court. This shall be done within a period of three weeks from today. The statements set out in clauses (iii) and (iv) are accepted. 12. The petition is accordingly disposed of in the aforesaid terms; since no other point is pressed on either side. No order as to costs. ( A.A. SAYED, J. ) (DR. D.Y.CHANDRACHUD, J.)