-: 1 :- Appeal No.236 of 2008. HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL No. 236 OF 2008 IN NOTICE OF MOTION No. 3588 OF 2007 IN SUIT No. 1251 OF 2000. 1. Vakrangee Softwares ] Limited, A limited company ] incorporated under the ] Companies Act,1956 & having ] its registered office at B/7, ] Hind Saurashtra Industrial ] Estate, M.V.Road, Marol Naka, ] Andheri (East), MUMBAI 400 059 ] ] 2. Dinesh Nandwana, ] ] 3. Mrs. Jyoti Dinesh Nandwana, ] Both of Bombay, Indian ] inhabitant, R/a: N-65, Jalvayu ] Vihar, Hiranandani Garden, ] Powai, MUMBAI 400 076. ]..APPELLANTS V E R S U S. Central Bank of India, ] Nariman Point Branch, ] Chandramukhi, Ground Floor, ] Nariman Point, MUMBAI 400 021. ] ..Respondent Mr. Pravin Samdani a/w Chetan Kapadia i/b M/s. Vinod Mistry & Co., for the Petitioner. Mr. V. R. Dhond a/w Mr. T. N. Tripathi for the Respondent. -: 2 :- Appeal No.236 of 2008. Coram: S. B. MHASE & PRASANNA B. VARALE, JJ. Date : 14/11/2008. ORAL JUDGMENT (Per S. B. Mhase, J.) 1. This appeal is directed against the order passed on 17th March 2008 in Notice of Motion No. 3588 of 2007 in Suit No. 1251 of 2000. In this notice of motion the plaintiff – appellant is seeking a mandatory direction calling upon the defendant no.1 to withdraw the name of the plaintiff from the list of “willful defaulters” and to issue injunction restraining the defendant from proceeding with a letter dated 27th November 2006 and from taking any steps threatened therein. For the sake of brevity and to avoid confusion, it is clarified that in this judgment the Appellants are referred to as the Plaintiff while the respondent – Central bank of India is referred to as the Defendant. 2. It is also clarified that the suit No. 1250 of 2000 has been filed by the Appellant – -: 3 :- Appeal No.236 of 2008. Plaintiff as against the Respondent – Defendant in this Court, while the Respondent – Defendant has filed Original Application No. 770 of 2001 before the Debt Recovery Tribunal, Mumbai. 3. In the suit No. 1251 of 2000 the Plaintiff has filed Notice of Motion No. 3588 of 2007 as stated in the earlier part of this judgment, and since in the said Notice of Motion the learned Single Judge has passed an order of return of plaint of suit No. 1251 of 2000 to be presented to the Debt Recovery Tribunal, Bombay with a further direction that the parties shall appear before the Debt Recovery Tribunal on 21st April 2008 for further direction and it will be open to the Plaintiff to pursue application for interlocutory relief before the Debt Recovery Tribunal. Thus, in stead of granting the interim relief as prayed by the Plaintiff, the plaintiff's suit has been returned by the learned Single Judge relying upon the two judgments of the Apex Court, namely, United Bank of India V/s. Abhijit Tea Co., (P) Ltd) and Industrial Investment Bank of India (I) Ltd & Ano. V/s. Marshal's Power & Telecom (I) Ltd, (reported in -: 4 :- Appeal No.236 of 2008. 2007(2) Mh.L.J . 796 ). 4. The plaintiff's suit is that, that in or about June 1995, the Plaintiff has approached the Defendant for cash credit facility or overdraft facility and the Defendant by its letter dated 4th July 1995 sanctioned and granted the cash credit facility in a sum of Rs. 1 crore. The Plaintiff nos. 2 & 3 are the guarantors of the Plaintiff no.1 and they have executed the deed of guarantee in favour of the Defendant. Apart from the deed of guarantee executed by the Plaintiff Nos. 2 & 3, the Plaintiff Nos. 1 to 3 have mortgaged the industrial galas, residential flats as stated in Exhibits “A” & “B” to the plaint. The Plaintiff No. 2 has pledged 1 lac shares of the Plaintiff no.2 with the Defendant bank so as to secure the cash credit facility advanced to the Plaintiff no.1 as described in Exhibit-”C” to the plaint. The Plaintiff was in arrears of Rs.1,96,59,600 as on 1st October 1999, and therefore by a letter dated 29th October 1999, the Defendant called upon the Plaintiff to pay the said amount. The Plaintiff decided to have One-Time-Settlement with the bank and therefore submitted a proposal -: 5 :- Appeal No.236 of 2008. that the Plaintiff is ready to offer Rs.1.61 crores as a full and final settlement of the C. C. Account. The bank was not ready to settle the matter with this amount and asked the Plaintiff to enhance the settlement amount. Therefore, the Plaintiff by its letter dated 15th December 1999 raised the amount from Rs. 1.61 crores to 1.70 crores, and since it was not settled the Plaintiff further raised the offer by letter dated 31st December 1999 to Rs. 1.75 crores and the said offer was accepted by the bank by its letter dated 31st December 1999 and it was agreed between the Plaintiff and the Defendant that by way of full and final settlement of account the Plaintiff shall pay an amount of Rs. 1.75 crores without interest within a period of three months from the date of this letter, i.e., the Plaintiff was to pay the amount of Rs.1.75 crores upto 31st March 2000. It was further agreed that the deposit of Rs. 25 lacs held by the Defendant bank in “No-Lien Account” shall be adjusted against the loan amount of the Plaintiff, and there was condition that if the Plaintiff fails to pay the settlement amount as per the terms provided by the bank in its letter dated 31st December 1999, -: 6 :- Appeal No.236 of 2008. all the concessions granted by the bank under the One-Time-Settlement Agreement shall stand withdrawn and immediate steps will be initiated for recovery of the entire loan amount by filing a suit. The Plaintiff has communicated the acceptance of the compromise proposal on terms specified, and returned a copy of the letter dated 31st December 1999 duly signed. Thus, according to the Plaintiff novation of contract has taken place and a fresh contract in respect of the payment of loan, as stated above, has come into force. The Plaintiff further averred that the Defendant adjusted the amount of Rs.25 lacs held by it in the “No-Lien Account” towards the loan account of the Plaintiff. Thereafter the Plaintiff by his letter dated 8th February 2000, 14th February 2000 and 21st February 2000 submitted cheques of Rs.5 lacs, Rs.5 lacs and Rs.25 lacs respectively towards the payment of loan amount and requested the Defendant bank to accept the said amount and credit the same towards the One- Time-Settlement Agreement. The Defendant has accepted the amount of Rs. 5 lacs and Rs.5 lacs submitted along with the letters dated 8th February 2000 and 14th February 2000, however, the -: 7 :- Appeal No.236 of 2008. amount sent along the letter dated 21st February 2000, i.e., Rs. 25 lacs, was not accepted by the Defendant bank towards the loan account of the Plaintiff because by letter dated 16th February 2000, the Defendant withdrew from the One-Time- Settlement Agreement dated 31st December 1999 and directed the plaintiff to deposit the total amount of Rs. 1,92,94,093/- as on the date of the notice inclusive of Rs.25 lacs received on 12th January 2000 and Rs. 5 lacs received on 10th February 2000 together with interest @ 20.25 % per annum till the payment in full. Because according to the Defendant there was substantial increase in the value of the shares pledged by the Plaintiff no.2 with the Defendant. The Plaintiff thereafter on 28th February 2000 and 2nd March 2000 called upon the Defendant to authorise the officials to get in touch with the advocates of the Plaintiff to receive the balance amount of Rs. 1.15 crores and complete necessary formalities including the discharge of securities pledged, and for that purpose the Plaintiff purchased and faxed a copy of the Pay Order of Rs.1.15 crores in favour of the Defendant. Since the Plaintiff has found that the Defendant– bank -: 8 :- Appeal No.236 of 2008. has resiled from the agreement of One-Time- Settlement even though the Plaintiff was ready and willing to perform his part of the contract or agreement, the Plaintiff found that the bank is not releasing the shares pledged and the properties mortgaged, the Plaintiff filed a suit on or about 16th March 2000, mainly claiming the relief that the bank shall accept the remaining amount of Rs. 1.15 crores and release the properties described in Exhibits - “A”, “B” and “C” to the plaint. In short, it is a suit for specific performance, redemption of the mortgaged immovable properties and release of the pledged shares. 5. While the suit was pending, the bank issued a letter dated 27th November 2000 calling upon the Plaintiff to pay an amount of Rs. 252.78 lacs upto 25th June 2001 and further calling upon the Plaintiff that why he should not be declared as defaulter. Therefore, the Plaintiff moved Notice of Motion No. 1044 of 2000. In the said Notice of Motion, while giving limited protection to the Plaintiff, the Defendant was directed to initiate action for recovery of its dues within a -: 9 :- Appeal No.236 of 2008. period of six weeks as against the Plaintiff. 6. The Defendant thereafter in view of the directions given in Notice of Motion No. 1044 of 2000 filed Original Application No. 770 of 2001 before the Debt Recovery Tribunal, Mumbai. In this application the Defendant bank has made a reference to the documents on the basis of which the cash credit facility has been advanced to the Plaintiff and securities taken by the Defendant bank for the said loan. What is important to be noted, on going through Original Application No. 770 of 2001 and suit of the Plaintiff it is revealed that there is no dispute between the Plaintiff and the Defendant in respect of the advancement of loan of Rs.1 crore towards the CC. Account No. 159. Both of them have equally admitted that the securities and deed of guarantees executed by the Plaintiff nos.1 to 3. Therefore so far as the first part of the transaction between the Plaintiff and the Defendant is concerned, namely, the advancement of loan– cash credit facility and the securities offered by the Plaintiff to the Defendant bank, there is no dispute between the Plaintiff and the -: 10 :- Appeal No.236 of 2008. Defendant. What is further important to be noted is that, that the plaintiff's claim that on 31st December 1999 there was an agreement between the Plaintiff and Defendant in respect of CC. Account No. 159 by way of a full and final settlement is not in dispute. It is further accepted that the amount of Rs.25 lacs held in the “No-lien account” has been adjusted by the bank towards the loan account as per One-Time-Settlement Agreement. The amount of Rs.5 lacs and Rs.5 lacs tendered by the Plaintiff along with the letter dated 8th February 2000 and 14th February 2000 have been equally adjusted towards the loan account. It is only on 16th February 2000 the bank resiled from the One-Time-Settlement Agreement. Thereafter the dispute has started between the Plaintiff and Defendant. 7. So far as the resilement of the Defendant bank from the One-Time-Settlement Agreement is concerned, the bank's case is that the said settlement was arrived at because of certain misrepresentations made by the Plaintiff. The bank has pleaded that the Plaintiff painted a dismal picture of the financial condition of the -: 11 :- Appeal No.236 of 2008. Plaintiff and therefore the bank entered into One-Time-Settlement Agreement, however the bank subsequently found that the plaintiff's performance in the market was good and the price of the shares pledged by the Plaintiff with the bank has gone up and the Plaintiff has earned a profit of Rs.1.70 crores and that the Plaintiff has distributed the dividend of 10% to its shareholders. Therefore, the Defendant bank has resiled from One-Time-Settlement Agreement and accordingly has communicated to the Plaintiff on 16th February 2000. Therefore the Defendant bank has claimed the entire amount of the loan ignoring the One-Time-Settlement Agreement. 8. The Plaintiff has filed a written statement in Original Application No. 770 of 2001 before the Debt Recovery Tribunal, wherein the Plaintiff has stated in defence the said One- Time-Settlement Agreement and in addition to that the Plaintiff has claimed an amount of Rs.4.53 crores by way of damages for not releasing the mortgaged properties and pledged securities with the Defendant bank. It is important to note that the claim of redemption and release of the -: 12 :- Appeal No.236 of 2008. pledged properties by way of counter claim has not been made by the present Plaintiff in written statement which has been filed in Original Application No. 770 of 2001. 9. Thus, from the pleadings of the parties as reflected from the plaint and Original Application No. 770 of 2001 and the written statements filed by the Plaintiff and Defendant in respective proceedings we find that the success of the Plaintiff depends upon the agreement dated 31st December 1999, on the fact that it was undisputedly partially acted upon by the Defendant and on the fact that the plaintiff is further ready and willing to perform his part of the contract as per One-Time-Settlement Agreement. The success of the Defendant depends upon the fact that the One-Time-Settlement Agreement which was arrived at and accepted by the Defendant bank on 31st December 1999, was accepted by the Defendant bank because of the dismal financial picture placed by the Plaintiff and to that effect the Defendant was induced to enter into the said One-Time-Settlement Agreement by making misrepresentations, and therefore the -: 13 :- Appeal No.236 of 2008. said contract can be resiled by the Defendant at his option because the said agreement or contract was entered into because of the misrepresentations made by the Plaintiff which the Defendant believed to be true. So far as the claim of the Plaintiff made in the written statement of Original Application No. 770 of 2001 for an amount of Rs. 4.53 crores for damages is concerned, it is based upon failure of the Defendant to obey the One-Time-Settlement Agreement for valid reasons. This is the factual position by and large in between the parties. This analysis has been carried out on the basis of the pleadings generally. 10. When the suit and Original Application No. 770 of 2001 both were pending the Defendant bank issued a letter dated 27th November 2006 to the Plaintiff calling upon the Plaintiff why his name should not be listed as “willful defaulter” and informed to the Reserve Bank of India and why the further steps as threatened in the said letter should not be taken. Therefore the Plaintiff filed Notice of Motion No. 3588 of 2007 which was decided by the learned Single Judge on -: 14 :- Appeal No.236 of 2008. 17th March 2008 and therefore the present appeal before this Court. 11. When the Plaintiff has approached this Court by Notice of Motion No. 3588 of 2007 to restrain the Defendant from acting upon the letter dated 27th November 2006 and while Notice of Motion was being heard, the learned counsel for the Defendant submitted before the learned Single Judge that the suit itself would have to be transferred to the Debt Recovery Tribunal in the exercise of the powers of this Court under Section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The submission of the Defendant is that the Plaintiff has already raised a counter claim before the Debt Recovery Tribunal in an amount of Rs.4.53 crores and that the claim in the suit before the Court is in essence the defence to Original Application No. 770 of 2001 filed before the Debt Recovery Tribunal. The contention therefore is that in exercise of the powers conferred by section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 the suit would have to be transferred before the Debt -: 15 :- Appeal No.236 of 2008. Recovery Tribunal and it was for the Debt Recovery Tribunal to consider the application made in Notice of Motion. 12. The learned Single Judge while considering the submission of the Defendant has considered the definition of the debt under Section 2(g) and the provisions of section 19(6) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and has referred to two judgments of the Apex Court (mentioned supra) and has passed the impugned order returning the plaint. 13. In this Court when the matter was being thoroughly scrutinised, the learned counsel for the Defendant realised that the order passed by the learned Single Judge cannot be sustained by taking recourse to section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and therefore the learned counsel for the Defendant gave a concession that the Defendant is not relying upon the submission made before the learned Single Judge to transfer the proceeding pending before this Court to the Debt -: 16 :- Appeal No.236 of 2008. Recovery Tribunal in view of the provisions of section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. He agreed that the provision of section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would apply to the cases instituted prior to the coming into force of the said Act and after the coming into force of the said Act, which are covered under Section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Therefore, he submitted that Original Application No. 770 of 2001 which has been filed by the Defendant is a proceeding which cannot be filed in this Court and if such a proceeding is filed before this Court either coming into force of the said Act and/or after the coming into force of the said Act, such proceeding stand transferred in view of the provisions of section 31 read with section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. In short, he submitted that taking recourse to section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 the suit filed by the Plaintiff cannot be transferred to the Debt -: 17 :- Appeal No.236 of 2008. Recovery Tribunal. Therefore he submitted that the ground as raised before the learned Single Judge by the Defendant is not pressed in service for the justification of the order in question. However, he submitted that the order passed by the learned Single Judge is just and proper. He submitted, by making reference to provisions of sub-sections (7) to (11) of section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, that the plaintiff's claim is in the nature of set-off and counter- claim and that is intrinsically connected with the cause of action which has been raised in Original Application No. 770 of 2001 and therefore this Court can transfer the plaintiff's suit under an inherent power under Section 151 of the Code of Civil Procedure, 1908 to the Debt Recovery Tribunal. In support of his contentions the learned counsel for the Defendant relied upon the decisions in United Bank of India V/s. Abhijit Tea Co., (P) Ltd) reported in reported in (2000) 7 SCC 357 and Industrial Investment Bank of India (I) Ltd & Ano. V/s. Marshal's Power & Telecom (I) Ltd, (reported in 2007(2) Mh.L.J . 796) and State Bank of India v/s. Ranjan -: 18 :- Appeal No.236 of 2008. Chemicals Ltd & Another, reported in 2007(2) Mh.L.J . 787 and Chitivalasa Jute Mills v/s. Jaypee Rewa Cement reported in (2004) 3 SCC 85 and M. V. Elisabeth & Others v/s. Harwan Investment & Trading Pvt. Ltd, reported in AIR- 1993 SC 1014, and Manohar Lal Chopra v/s. Rai Bahadur Rao Raja Seth Hiralal reported in AIR- 1962 SC 527, and unreported judgment of this Court in the matter of Iridium India Telecom Ltd v/s. Motorola Inc (Decision dated 30/4/2004 in Appeal No. 702 of 2003 of Original Side.) 14. The learned counsel for the Appellant – Plaintiff has challenged the impugned order on several grounds. The learned counsel for the Appellant submitted that the order of return of the plaint has been passed by the learned Single Judge while hearing a Notice of Motion filed by the Plaintiff. According to the Appellant the plaint can be returned by the Court under Order- VII, Rule-10 of the Code of Civil Procedure, 1908 and therefore the Court has come to the conclusion that this Court has no jurisdiction to entertain the suit and that the Debt Recovery -: 19 :- Appeal No.236 of 2008. Tribunal is the forum where the plaint should have been presented. However, he submitted that the learned Single Judge has not recorded a finding that the learned Single Judge in the facts and circumstances of the present case has no jurisdiction to entertain and decide the suit in question. Therefore, He submitted that the order of return of plaint passed by the learned Single Judge without recording a finding that the learned Single Judge has no jurisdiction to entertain the suit is not in consonance with Order-VII, Rule-10 of the Code of Civil Procedure, 1908. He further submitted that if the learned Single Judge was desirous of considering the preliminary issue of jurisdiction, then the learned Single Judge should have followed the procedure as provided under Section 9A of the Code of Civil Procedure, 1908 as is applicable in the State of Maharashtra. Since the said procedure has not been followed, according to the learned counsel for the Appellant the order passed by the learned Single Judge is not sustainable in law. He submitted that the present suit filed by the Plaintiff was not a suit covered under Section 17 of the Recovery of -: 20 :- Appeal No.236 of 2008. Debts Due to Banks and Financial Institutions Act, 1993, and therefore section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is not applicable. He submitted that whenever the borrower is ready to pay the debt of the bank or financial institutions, as in the present case the Defendant, and the Defendant-bank or financial institution for whatsoever reasons is not accepting the amount, and instead desires to proceed to dispose of the mortgaged immovable properties or the pledged movable properties, the only remedy for the borrower is to institute a suit for appropriate reliefs in the Civil Court. There is no remedy provided to the borrower under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. He submitted that section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which provides for the set-off and counter claim is not a remedy available to the Plaintiff unless and until the Defendant institutes the action, and therefore it will not be possible for the Plaintiff to wait till the Defendant files appropriate proceeding before the Debt Recovery -: 21 :- Appeal No.236 of 2008. Tribunal, to seek relief of redemption and the release of the pledged properties. And, therefore in the given circumstances it is only the civil Court which had jurisdiction to entertain the suit and therefore he submitted that the present suit which has been filed by the Plaintiff was very much tenable and was within the jurisdiction of the civil Court. Therefore, since this Court is having jurisdiction to entertain the suit, the learned Single Judge should not have returned the plaint. In fact, the learned counsel for the Appellant submitted that, the claim of the