SM 1 904.wp.676.11 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 676 OF 2011 Export Import Bank of India ....Petitioner Versus Continental Construction Ltd. ....Respondent ____________ Mr. Kevik Setalvad with Ms. Sneha Rao i/b Tyabji Dayabhai for the Petitioner. Ms. Mamta Sad for the Respondent. CORAM: DR. D. Y. CHANDRACHUD & A. A. SAYED, J.J. DATED : SEPTEMBER 6, 2011. P.C.: Rule, by consent, returnable forthwith. With the consent of the Counsel and at their request, the Petition is taken up for hearing and final disposal. 2. The Export Import Bank of India which is a statutory Corporation constituted under a Parliamentary enactment of 1981 has questioned in these proceedings the validity of an order dated 12 January 2011 passed by the Debts Recovery Appellate Tribunal (DRAT) at Mumbai, granting an absolute waiver of the requirement of pre-deposit under Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. SM 2 904.wp.676.11 3. On 6 February 1995, a Deferred Dues Facility Agreement was entered into by the Petitioner, the First Respondent and the State Bank of India. In 1998, the Petitioner instituted a suit before this Court for the recovery of a sum of Rs.102.93 Crores together with interest claimed to be due and outstanding under the facility. The suit came to be transferred to the Debts Recovery Tribunal on 27 April 2000. An Advocate by the name of Mr. Shirdhonkar had entered appearance on behalf of the First Respondent before the Tribunal. The Tribunal passed an interim order on 27 December 2001, which was confirmed by the Debts Recovery Appellate Tribunal. In these proceedings and in a writ proceeding before this Court (W. P. 3768 of 2002), the same Advocate had represented the First Respondent. 4. There were two groups in the Management of the First Respondent – the M. S. Basi Group and the Chander Verma Group. Disputes arose between these two groups in respect of the management of the First Respondent ,which led to the institution of a Petition before the Company Law Board under Section 397 and Section 398 of the Companies Act, 1956 by the M. S. Basi Group in 2002. On 19 September 2002, the 39th Annual General SM 3 904.wp.676.11 Meeting of the First Respondent was held, at which a resolution to appoint Mr. Chander Verma as Managing Director was defeated. He, however, continued to be a Director of the Company. On 10 February 2003, an order was passed by the Supreme Court, by which, there was a direction to the effect that no Court, other than the High Court of Delhi, shall entertain any suit or proceedings wherein the outcome of the 39th AGM was called in question. On 11 March 2003, the Company Law Board passed an order, by which it directed that any decision which would be taken in the meeting of the Board of Directors to be held on 12 March 2003 should not be implemented until an interim application was disposed of by it. One of the items on the Agenda of the meeting was to review the steps taken for settlement of the outstanding issues with the Petitioner and with the State Bank of India. The Court is informed in these proceedings by Counsel appearing on behalf of the First Respondent that no meeting took place on 12 March 2003. On 24 March 2003, the Supreme Court while passing an order on a Transfer Petition directed that no court other than the Delhi High Court and the Company Law Board, Principal Bench, Delhi shall hear or entertain any suit or proceedings wherein the outcome of the 39th AGM dated 19 September 2002 of the First Respondent was called into question. SM 4 904.wp.676.11 5. On 30 June 2003, an application was made by the Chander Verma Group in proceedings before the Debts Recovery Tribunal seeking relief to the effect that the Tribunal take on record the Vakalatnama of another Advocate duly signed by Chander Verma in his capacity as Managing Director of the First Respondent. The Debts Recovery Tribunal dismissed the application by its order 9 September 2003. In Appeal, the order of the Debts Recovery Tribunal was set aside by the DRAT on 30 September 2003. The DRAT was of the view that, there was no occasion for the Tribunal to consider the locus of either Chander Verma or M. S. Basi to pursue the appeals before the Appellate Tribunal and that the Tribunal would have to decide the Original Application in which the parties were Financial Institutions and Banks on the one hand and borrowers on the other hand. The DRAT held that the order of the Tribunal was void and without jurisdiction and did not exist. The Debts Recovery Appellate Tribunal was of the view that the issue as to the authority of the First Respondent would have to be decided by the Delhi High Court or the Company Law Board which were seized of all the issues. The DRAT while deciding the correctness of the order of the Tribunal did not issue a specific direction allowing the prayer SM 5 904.wp.676.11 of Chander Verma for taking on record the Vakalatnama of an alternate Advocate. 6. Negotiations ensued between the Petitioner and the First Respondent for an amicable settlement of the dues outstanding to the Petitioner. According to the Petitioner, on 23 October 2003 and 19 November 2003, both the M. S. Basi Group and the Chander Verma Group agreed to pay a sum of Rs.75.12 Crores in full and final settlement to the Petitioner though the letters were marked as without prejudice. On 21 January 2004, in a proceeding which was initiated by the State Bank of India under the same Deferred Dues Facility, an order was passed by the Debts Recovery Appellate Tribunal at Delhi upholding the action of M. S. Basi to initiate proceedings on behalf of the First Respondent. 7. On 6 February 2004, Consent Terms were arrived at between the Petitioner and the First Respondent before the Debts Recovery Tribunal. The Consent Terms inter-alia contained the following statement: “The parties to Original Application 1241 of 2000 viz., the Application and Defendant No. 1 have arrived at a negotiated settlement as recorded in SM 6 904.wp.676.11 these Consent Terms, on the basis that these Consent Terms are between the Applicant and Defendant No. 1, which is a company incorporated under the provisions of the Companies Act, 1956, and not between the Applicant and any individual or individuals who may be in the management and/or control of Defendant No. 1 and also on the basis of the representation hereby made by and/or on behalf of Defendant No.1 that neither Defendant No. 1 nor any of its promoters or its management is prevented by an order of any court, tribunal or any governmental authority from making and implementing these Consent Terms between the Applicant and Defendant No. 1 and also on the basis of the representations hereby made by Defendant No. 1 n its letter NO. 211/Exim/OS/360 dated 12.01.2004, which representations continue to be in force as on the date of execution of these Consent Terms, as recorded herein.” 8. An application was filed before the Tribunal by the Chander Verma Group praying that the Consent Terms should not be taken on record. The Tribunal overruled those objections and took on the record the Consent Terms by its order dated 6 February 2004. The Consent Terms were signed by an authorised signatory for the Petitioner; by Mr.M. S. Basi on behalf of the First Respondent and by the Advocates appearing on behalf of the parties. The Chander Verma Group filed an appeal before the Debts Recovery Appellate Tribunal on 19 March 2004 to challenge the Consent Terms principally on the ground that Mr. M. S. Basi had no authority to enter upon the settlement. Nearly two years SM 7 904.wp.676.11 after an appeal was filed, an application was moved in 2006 for waiver of pre-deposit under Section 21. That application remained pending for nearly five years. 9. In the meantime, on 21 November 2007, an order was passed by the Company Law Board recording that the parties had agreed that the First Respondent would be divided in the ratio 43:43:14 between the M. S. Basi Group, the Chander Verma Group and the Vijay Verma Group. The parties agreed before the Company Law Board that the Board of Directors would meet and decide on the stand to be taken with banks and shall negotiate for a settlement within 12 weeks. On 12 February 2008, the Petitioner was informed that the dispute inter-se in the management of the company had been settled in terms of the order of the Company Law Board. 10. On 9 April 2008, the Debts Recovery Tribunal permitted appropriation of an amount of Rs.27.94 crores towards the amount due under the Consent Terms. The order of the Tribunal continues to hold the field. On 2 May 2008, an order was passed by the Company Law Board in the following terms: SM 8 904.wp.676.11 “Heard the counsel on the application. I had passed various orders restraining the respondents from holding board meetings of M/s. Continental Construction Ltd. and /or giving effect to the resolutions passed in meetings if any had been held, including the one with regard to One Time Settlement with Banks. In line with these orders, it is hereby clarified that the 2nd respondent i.e Shri. M. S. Basi did not have any authority to act on behalf of the company, M/s. Continental Construction Limited to enter into any settlement or any valid consent terms on behalf of the company with the Exim Bank or any other Bank during the subsistence of the said orders. By an order dated 21.11.2007, I had constituted the Board of Directors and only this board and none else will have authority to enter into any One Time Settlement with the Banks, that too by a unanimous decision of all the members of the Board.” 11. On 21 May 2008, the Petitioner informed the First Respondent that the outstanding dues payable under the Consent Terms amounted to Rs. 26.66 Crores. On 5 June 2008, a letter was addressed by the First respondent to the Petitioner which was signed by four directors, including Mr. M. S. Basi, in which it was sought to be contended that Mr. M. S. Basi did not have authority to enter into the Consent Terms. The Petitioner, by its letter dated 7 June 2008, reiterated that the Consent Terms were entered into over four years earlier and the Petitioner was not a party to the proceedings before the Company Law Board. SM 9 904.wp.676.11 12. By an order dated 12 January 2011, the Debts Recovery Appellate Tribunal has, in an appeal filed by the First Respondent against the order of the Tribunal taking the Consent Terms on the record, granted a complete waiver of the requirement of pre- deposit under Section 21 of the Act. 13. Counsel appearing on behalf of the Petitioner submitted that (i) There was no embargo or injunction of either the Company Law Board or of any other Court or tribunal injuncting the Petitioner or Mr. M. S. Basi from arriving at Consent Terms to settle the dues outstanding to the Petitioner; (ii) Though the appeal before the Debts Recovery Appellate Tribunal was filed in 2004, an application for dispensing with the requirement of pre- deposit was lodged nearly two years thereafter in 2006. That application was kept pending for nearly five years; (iii) In the mean time, the parties to the proceedings before the CLB resolved the dispute in agreed terms on 21 November 2007 by which the First Respondent was agreed to be divided in stated proportions and M. S. Bas was to hold 43%; (iv) Thereafter, an order was passed by the CLB on 2 May 2008, the tenor of which would indicate that there was no opposition to the passing of the order. The CLB in proceedings to which the Petitioner was not a party SM 10 904.wp.676.11 recorded that M. S. Basi had no authority to enter into any settlement; (v) It was after the dispute was thus settled between the rival groups in management inter-se that the application for waiver of pre-deposit was activated and in which the impugned order was passed. All this could not have been done to the detriment of the dues outstanding to a statutory corporation. Learned Senior Counsel appearing on behalf of the Petitioner made a serious grievance of the manner in which the hearing before the Debts Recovery Appellate Tribunal was sought to be rushed through despite the fact that the present Petition was pending before this Court and had been heard in the month of April 2011. The term of the office of the earlier Chairperson was to expire in July 2011 and it was urged that though the present Petition against the order of waiver of pre-deposit was pending, an effort was made to pursue the hearing of the appeal without pre- deposit. It has been urged that the order passed by the Debts Recovery Appellate Tribunal waiving pre-deposit, is in error. The requirement of pre-deposit under Section 21, it was urged ought not to have been waived and an appropriate order of deposit should have been passed. Counsel submitted that the Consent Terms were acted upon before the Tribunal, which permitted appropriation of an amount of 27.94 Crores on 9 April 2008. SM 11 904.wp.676.11 14. Counsel appearing on behalf of the First Respondent, submitted that (I) On 11 March 2003, the CLB had directed that whatever decision would be taken by the Board of Directors on 12 March 2003 should not be implemented, pending the orders of the CLB. No meeting took place on 12 March 2003; (ii) On 24 March 2003, the Supreme Court directed in a Transfer Petition that all disputes pertaining to the 39th AGM could only be resolved by the CLB or the Delhi High Court; (iii) On 19 September 2002 Chander Verma was sought to be removed as Managing Director of the First Respondent. The validity of that action was in question before the CLB; (iv) The order of the DRAT dated 13 September 2003, left open the question as to whether M. S. Basi or Chander Verma had authority to represent the First Respondent, to be decided in appropriate proceedings before the CLB or the Delhi High Court; (v) The Consent Terms were taken on record on 6 February 2004 despite the objections of the Chander Verma Group to the settlement of the dispute with the Petitioner. An amount of Rs.26 Crores approximately was claimed to be due and payable by the Petitioner in its letter dated 12 May 2008. In these circumstances, it was urged that the order of waiver of deposit does not fall for interference under Article 226 of the Constitution. SM 12 904.wp.676.11 15. Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides that when an Appeal is preferred by any person from whom a debt is due to a bank or a financial institution or a consortium of banks or financial institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal seventy-five percent of the amount of the debt so due from him as determined by the Tribunal. The Appellate Tribunal is, however, empowered for reasons to be recorded in writing, to waive or reduce the amount to be deposited under the Section. 16. In the present case, it is not in dispute that on behalf of the First Respondent, appearance had been entered before the Tribunal by an Advocate, J. N. Shirdhonkar. The Advocate, who had entered appearance represented the First Respondent before the Tribunal, the Appellate Tribunal and in proceedings before this Court. There was a dispute inter-se in the management of the First Respondent and as noted earlier, an order was passed by the Supreme Court on 24 March 2003 by which, it was directed that any dispute in relation to the 39th AGM (at which Chander Verma was removed as Managing Director) could be determined only by SM 13 904.wp.676.11 the CLB or by the Delhi High Court. On 11 March 2003, an order was passed by the CLB, by which it directed that until an interim application which had then been made was disposed of no decision taken in the meeting of the Board of Directors shall be implemented. The Agenda for the meeting included a review of the steps taken for a settlement of the dues of the Petitioners and the State Bank of India. As a matter of fact, this Court has been informed by Counsel appearing on behalf of the First Respondent that no meeting took place on 12 March 2003. 17. A settlement before the Debts Recovery Tribunal was arrived at on 6 February 2004. A meeting of the Board of Directors was convened thereafter on 2 June 2004 to take note of the one time settlement. On 3 June 2004, a direction was issued by the Company Law board that no decision would be taken in regard to the Board meeting, pending further orders. The DRAT has in its impugned order proceeded on the basis that prima facie M. S. Basi had no authority or competence to enter into the Consent Terms with the First Respondent. In holding thus, the DRAT has placed a considerable amount of reliance on the order passed by the CLB dated 11 March 2003, which directed that any decision at the meeting of the Board of Directors on 12 March SM 14 904.wp.676.11 2003 would not be implemented until a pending application was disposed of. The Agenda of the meeting was to review steps taken for settling the outstandings of the Petitioner and the State Bank of India. The meeting of the Board of Directors never took place. A meeting of Directors was convened on 2 June 2004 to take note of a one time settlement which had been arrived at. The order of the CLB dated 3 June 2004 was after the settlement was arrived at with the Petitioner on 6 February 2004. Prima facie, none of the orders of the CLB injuncted the First Respondent from entering into a settlement with the Petitioner on the date on which, the settlement was arrived at, namely 6 February 2004. 18. After the Consent Terms were arrived at between the parties, an order was passed by the Tribunal on 9 April 2008, by which, it permitted appropriation of an amount of Rs.27.94 Crores towards the amount due and payable under the Consent Terms. The Consent Terms were therefore acted upon and, the order of the Tribunal permitting appropriation continues to hold the field. The DRAT has prima facie taken an erroneous view that M. S. Basi had no authority or competence to enter into the Consent Terms. The record before the Court would reveal that against the order dated 6 February 2004 of the Tribunal accepting the Consent SM 15 904.wp.676.11 Terms an appeal was filed before the Debts Recovery Appellate Tribunal. In that appeal nearly two years later an application for waiver of pre-deposit was made. The application remained pending for over five years. In the mean time, on 21 November 2007, the dispute inter-se in the management of the First Respondent was resolved under which the M. S. Basi and Chander Verma groups agreed to divide their interests in the company in the proportion of 43:43; the balance being alloted to a third Group. M. S. Basi, who had entered into the Consent Terms on behalf of the First Respondent, was to hold a substantial interest in the First Respondent. It is significant that despite this a letter was addressed to the Petitioner on 5 June 2008 by four Directors of the First Respondent including by M. S. Basi who was a signatory to the letter contending that M. S. Basi had no authority to enter into the Consent Terms. After the order of the CLB dated 21 November 2007, a further order was passed by the CLB on 2 May 2008 clarifying that “ in line ” with its earlier order, M. S. Basi did not have any authority to enter into any settlement or Consent Terms on behalf of the company with the Petitioner or with any other Bank during the subsistence of all its various orders. Prima facie, at this stage, we are of the view that the conduct on the part of the First Respondent is to defeat the outstanding dues of the SM 16 904.wp.676.11 Petitioner, which is a public financial institution, in the garb of a defence that M. S. Basi had no authority to act on behalf of the First Respondent. 19. The claim of the Petitioner as on 21 May 2008 under the Consent Terms was in the amount of Rs.26.66 Crores. The DRAT recorded in the course of its order that, the claim on the date of the order was in the principal amount of Rs.26.66 Crores and towards interest in the amount of 27.99 Crores. M. S. Basi who signed the Consent Terms on behalf of the First Respondent evidently agreed with the Chander Verma group before the CLB to resolve disputes inter-se in the management of the First Respondent. Parties agreed to an order before the CLB on 21 November 2007. M. S. Basi was under this agreement to hold a substantial stake in the company. On 5 June 2008, a joint letter was adressed to the Petitioner claiming that M. S. Basi had no authority to enter into this terms. The solemn agreement which was entered into with the Petitioners was signed not only by M. S. Basi but by the Advocate who had entered appearance for the company. Prima facie an effort is being made to defeat the settlement by raising a frivolous plea objecting to the authority of M. S. Basi. The reasons, on the basis of which the DRAT has come SM 17 904.wp.676.11 to the conclusion that, prima facie M. S. Basi had no authority to enter into the Consent Terms, are prima facie erroneous. 20. The interference of this Court in the exercise of its writ of jurisdiction under Article 226 of the Constitution is warranted to prevent a manifest failure of justice. Section 21 cannot be allowed to be defeated on the nature of the defence which has found acceptance by the Debts Recovery Appellate Tribunal in its impugned order. No prima facie case was made out for the grant of a complete waiver of pre-deposit. A suitable order of deposit, considering the legislative object underlying the enactment of Section 21, was warranted in the interest of justice. 21. For the reasons aforesaid, we set aside the impugned order of the Debts Recovery Appellate Tribunal granting a complete and absolute waiver of the requirement of pre-deposit under Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. We, direct that the First Respondent shall deposit an amount of Rupees seven Crores with the Debts Recovery Appellate Tribunal within a period of four weeks from today, in terms of the provisions of Section 21 of the Act. SM 18 904.wp.676.11 22 . Rule is made absolute in the aforesaid terms. There shall be no order as to costs. (A. A. SAYED, J.) (DR. D. Y. CHANDRACHUD, J.)