-1- IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 710 OF 2007 IN NOTICE OF MOTION NO. 40 OF 2007 IN NOTICE NO. N/224 OF 2007 HDFC Bank Ltd., ) a company incorporated under the provisions of ) the Companies Act, 1956 and having its Registered ) office at HDFC Bank House, Senapati Bapat Marg, ) Lower Parel, Mumbai-400 013 and amongst other ) places one of its offices known as HDFC bank Ltd., ) 2nd floor, Trade World, New Building, Kamala Mills, ) Senapati Bapat Marg, Lower Parel, Mumbai-400 013 )...Appellant versus Kishore K. Mehta, ) having office at Diamond House, 9 Vatcha Gandhi ) Road, Gamdevi, Mumbai-400 007, and residing at ) Usha Kiran, 1st floor, Flat No. 36, ) Carmichael Road, Mumbai-400 026. )..Respondent Sri Kishore Jain with Sarvasri Mihir Mody and Pushkar Bavare, instructed by K. Ashar & Company, for the appellant. Sri V.R. Dhond with Sri T.N. Tripathi and Ms. Sapana Ranchure, instructed by Sri T.N. Tripathi for the respondent. WITH APPEAL (LODGING) NO. 945 OF 2007 IN NOTICE OF MOTION NO. 14 OF 2007 IN NOTICE NO. N/345 OF 2006 Kotak Mahindra Bank Limited, ) a company incorporated under the provisions of ) -2- the Companies Act,1956 and a banking company ) having its Registered Office at 36-38 A, Nariman ) Bhawan, 227, Nariman Point, Mumbai-400 021 )...Appellant versus 1. Omprakash Agarwal ) 2. Krishna Kumar Agarwal ) 3. Sharad Kumar Agarwal ) 4. Rajkumar Agarwal ) 5. Satyanarayan Agarwal ) of Mumbai, all adult Indian Inhabitants residing ) at 6-C, “D” Road, Agarwal House, Churchgate, ) Mumbai-400 020, and their place of gain/business ) or address of occupation as M/s. Krishna Filaments ) Ltd., Eucharistic Congress Building II, 5 Convent ) Street, Colaba, Mumbai-400 039. )..Respondents Ms. Rajani Iyer, Senior Advocate, with Sri Kishore Jain, instructed by Sri Tushar Goradia and Ms. Nisha Parmar, for the appellant. Sri J.P. Sen with Ms. Pratibha Mehta, instructed by M/s. Little & Company, for the respondents. CORAM: SRI R.M.S. KHANDEPARKAR & SRI P.B. MAJMUDAR, JJ. DATE: JUNE 30, 2008. ORAL JUDGMENT: (Per Sri R.M.S. Khandeparkar, J.) 1. We have heard at length the learned counsel for the appellants and the respondents. Admit. Learned counsel appearing for respective respondents waive service. By consent, heard forthwith. 2. Since common questions of law and facts arise in both these appeals, -3- they were heard together and are being disposed of by this common judgment. 3. The short but very important point which arises for consideration in both these appeals is whether an insolvency notice can be issued under Section 9 (2) of the Presidency-Towns Insolvency Act, 1909, hereinafter called as “the Insolvency Act”, on the basis of a recovery certificate issued under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1994, hereinafter called as “the RD Act”. 4. As a prelude to the above point for consideration, it would be necessary to ascertain the meaning of “decree or order “ under Section 9 (2) of the Insolvency Act as well as that of the expression “of any Court” under Section 9 (1) (e) of the Insolvency Act. It would be also necessary to know whether the Tribunal constituted under the RD Act is the Court within the meaning of the said expression under the Insolvency Act and in particular Section 9 thereof and whether the recovery certificate issued under the RD Act is either a decree or order within the meaning of the said expressions under the Insolvency Act. And finally, to know whether the procedure prescribed and the forum provided under the RD Act are exclusive in nature and bar any other proceeding and forum for realisation of the debt to the Banks and Financial Institutions. -4- 5. In both these matters, the Debts Recovery Tribunal, Mumbai, issued recovery certificates under the RD Act pursuant to which the Insolvency Registrar, at the instance of the appellants, issued insolvency notices under the provisions of Section 9 (2) of the Insolvency Act. Upon service of the said notices on the respondents, they took out Notices of Motion under the provisions of Section 9 (5) of the Insolvency Act seeking to set aside the said insolvency notices, inter alia, on the ground that on the basis of the recovery certificate issued by DRT, no insolvency notice can be issued under the provisions of Section 9 (2) of the Insolvency Act. The said Notices of Motion were sought to be opposed by the appellants on the ground that there is no legal impediment in issuing insolvency notice on the basis of the recovery certificate or the order made by DRT under the RD Act. Reliance was placed in the decision of the learned single Judge in the matter of Deepak Cochhar & anr. vs. Indusind Bank Ltd.1. The learned single Judge after considering the rival contentions and placing reliance in the decision of the Apex Court in the matter of Paramjeet Singh Patheja v. ICDS Ltd.2 held that on the basis of recovery certificate issued by DRT constituted under the RD Act, no insolvency notice under Section 9 (2) of the Insolvency Act can be issued. 6. Section 9 (1) of the Insolvency Act enumerates the acts of insolvency on the part of a debtor and provides that on commission of such 1 2006 (3) Bom.C.R. 520 2 JT 2006 (10) SC 41 -5- insolvency act or acts by a debtor, a notice in terms of sub-section (3) of Section 9 can be issued and served upon him by his creditor provided that the latter is armed with a decree or order for payment of money by such debtor to the creditor. The provisions of law comprised under Section 9 of the Insolvency Act read thus: “9. Acts of insolvency.- (1) A debtor commits an act of insolvency in each of the following cases, namely:- (a) if, in the States or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally; (b) if, in the States or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors; ( c) if, in the States or elsewhere he makes any transfer of his property or of any part thereof which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged an insolvent; (d) if, with intent to defeat or delay his creditors.- (i) he departs or remains out of the States, (ii)he departs from his dwelling-house or usual place of business or otherwise absents himself. (iii)He secludes himself so as to deprive his creditors of the means of communicating with him; (e) if any of his property has been sold or attached for a period of not less than twenty-one days in execution of the decree of any Court for the payment of money; (f) if he petitions to be adjudged an insolvent; (g) If he gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts. (h) if he is imprisoned in execution of the decree of any Court -6- for the payment of money. (2) Without prejudice to the provisions of sub-section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a notice (hereafter in this section referred to as the insolvency notice) as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein: Provided that where a debtor makes an application under sub-section (5) for setting aside an insolvency notice - (a) in a case where such application is allowed by the Court, he shall not be deemed to have committed an act of insolvency under this sub-section; and (b) in a case where such application is rejected by the Court, he shall be deemed to have committed an act of insolvency under this sub-section on the date of rejection of the application or the expiry of the period specified in the insolvency notice for its compliance, whichever is later: Provided further that no insolvency notice shall be served on a debtor residing, whether permanently or temporarily, outside India, unless the creditor obtains the leave of the Court therefor. (3) An insolvency notice under sub-section (2) shall- (a) be in the prescribed form; (b) be served in the prescribed manner. ( c) specify the amount due under the decree or order and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent; (d) specify for its compliance a period of not less than one month after its service on the debtor or, if it is to be served on a debtor residing, whether permanently or temporarily, outside India, such period (being not less than one month) as may be specified by the order of the Court granting leave for the service of such notice; -7- (e) state the consequences of non-compliance with the notice. (4) No insolvency notice shall be deemed to be invalid by reason only that the sum specified therein as the amount due under the decree or order exceeds the amount actually due, unless the debtor, within the period specified in the insolvency notice for its compliance, gives notice to the creditor that the sum specified in the insolvency notice does not correctly represent the amount due under the decree or order. Provided that if the debtor does not give any such notice as aforesaid, he shall be deemed to have complied with the insolvency notice if, within the period specified therein for its compliance he takes such steps as would have constituted a compliance with the insolvency notice had the actual amount due been correctly specified therein. (5) Any person served with an insolvency notice may, within the period specified therein for its compliance, apply to the Court to set aside the insolvency notice on any of the following grounds, namely:- (a) that he has a counter-claim or set off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed. (b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that - (i) he has made an application before the competent authority under such law for the setting aside of the decree or order; or (ii)the time allowed for the making of such application has not expired. (c ) That the decree or order is not executable under the provisions of any law referred to in clause (b) on the date of the application. Explanation.- For the purposes of this section, the act of an agent may be the act of the principal, even though the agent have no specific authority to commit the act.” -8- 7. On the face of it, Section 9 (2) quoted hereinabove nowhere discloses that a decree or order referred to thereunder has to be necessarily issued by a Court. It simply speaks of “decree or order for payment of money”. The Insolvency Act nowhere defines the terms “decree” or “orders” nor it defines the expression “decree or order of any Court” which has been used in sub-section (1) of Section 9 thereof. 8. The fact remains that even though the said terms and the expressions are not defined under the Insolvency Act, it is apparent that the same relates to an ultimate result of adjudication of a dispute relating to a debt or a claim for money. It is essentially relating to the determination of a right to a monetary claim in a civil action, in contrast to criminal proceedings. 9. The right to receive money would obviously arise under a contract between the parties and the right to recover the same would be in terms of statutory provision. Such a right would be a contractual right and, therefore, could be enforceable by following the procedure prescribed by the law applicable to civil proceedings. 10. The manner in which a dispute can be adjudicated upon depends upon the procedural law which is in force in the State. As regards the civil dispute, the law in that regard which is in force is the Code of Civil Procedure. It is essentially in terms of the Code of Civil Procedure that the -9- Civil Courts are empowered to decide all the disputes of civil nature including the claim for property, immovable as well as movable, which would obviously include claim for money and, therefore, the action for recovery of money could be by following the procedure prescribed under the said Code, vide Union of India and another vs. Delhi High Court Bar Association and others3 and Deep Chand and others vs. Land Acquisition Officer and others4. 11. Undoubtedly, as already observed above, the Insolvency Act nowhere defines the above referred terms. In the absence of definition of the said terms in the Insolvency Act and the action for recovery of the debts being in accordance with the civil procedure, one has to refer to the Code of Civil Procedure to understand the meaning of the said terms and the expressions in the Insolvency Act. 12. Under Section 2 (2) of the Code of Civil Procedure (“CPC” for short) the term “decree is defined as under: “ “decree” means the formal expression of an adjudication which, so far as regards the Court expressing it, conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit and may be either preliminary or final. It shall be deemed to include the rejection of a plaint and the determination of any question within Section 144, but shall not include- (a) any adjudication from which an appeal lies as an appeal 3 2002 (2) SCALE 668 4 AIR 1994 SC 1901. -10- from an order, or (b) any order of dismissal for default. Explanation.- A decree is preliminary when further proceedings have to be taken before the suit can be completely disposed of. It is final when such adjudication completely disposes of the suit. It may be partly preliminary and partly final.” The use of the words like “court”, “suit” and “adjudication sufficiently indicate the scope of the said term. The “adjudication” implies a legal process of resolving a dispute or a the process of judicially deciding a case. An adjudication has to be in a suit which obviously relate to the civil proceedings. The adjudicatory authority has to be a Court. Since the proceedings are required to be of civil nature, the court would obviously be a Civil Court. 13. The Apex Court in The Bharat Bank Ltd. Delhi vs. The Employees of the Bharat Bank Ltd., Delhi,5 while distinguishing Court from Tribunals, has clearly ruled that before a person or persons can be said to constitute a Court, it must be held that they derive their powers from the State and are exercising the judicial powers of the State. The Tribunal, though may enjoy many of the trappings of a Court, yet they are not Court in strict sense of exercise of judicial powers of the State. The expression judicial power implies the one which every sovereign authority must of necessity have to decide 5 AIR 1950 SC 188 -11- controversies between its subjects or between itself and its subjects. It is also to be noted that even where the Court hears a matter not as a Civil Court but either as a Tribunal or persona designata its decision cannot be termed as a decree or order. It would be an award. 14. It was clearly held by the Apex Court in Hanskumar Kishan Chand vs. The Union of India6 that “ Nor does it make any difference in the legal position that the reference under the statute is to a Court as arbitrator. In that case, the Court hears the matter not as a Civil Court but as persona designata, and its decision will be an award not open to appeal under the ordinary law applicable to decisions of Courts. A statute however might provide for the decision of a dispute by a Court as Court and not as arbitrator, in which case its decision will be a decree or order of Court in its ordinary civil jurisdiction, and that will attract the normal procedure governing the decision of that Court, and a right of appeal will be comprehended therein” . 15. The Courts of ordinary civil jurisdiction are obliged to entertain all 6 AIR 1958 SC 947 -12- suits of civil nature except specifically or impliedly barred and this is clear from Section 9 of the CPC and elaborately explained by the Apex Court in Most Rev. P.M.A. Metropolitan and others, etc. etc. vs. Moran Mar Marthoma and another etc. etc.,7 wherein it was held thus: “One of the basic principles of law is that every right has a remedy. Ubi jus ibi remediem is the well known maxim,. Every civil suit is cognizable unless it is barred, “there is an inherent right in every person to bring a suit of a civil nature and unless the suit is barred by statute one may, at one's peril, bring a suit of one's choice. It is no answer to a suit, howsoever frivolous the claim, that the law confers no such right to sue. Smt. Ganga Bai v. Vijay Kumar, AIR 1974 SC 1126. The expansive nature of the Section is demonstrated by use of phraseology both positive and negative. The earlier part opens the door widely and latte debars entry to only those which are expressly or impliedly barred. The two explanations, one existing from inception and latter added in 1976 bring out clearly the legislative intention of extending operation of the Section to such religious matters where right to property or office is involved irrespective of whether any fee is attached to the office or not. The language used is simple but explicit and clear. It is structured on the basic principle of a civilised jurisprudence that absence of machinery for enforcement of right renders it nugatory. The heading which is normally key to the Section brings out unequivocally that all civil suits are cognizable unless barred. What is meant by it is explained further by widening the ambit of the Section by use of the word “shall” and the expression all suits or a civil nature unless expressly or impliedly barred. 28. Each word and expression casts an obligation on the Court to exercise jurisdiction for enforcement of right. The word “shall” makes it mandatory. No Court can refuse to entertain a suit if it is of description mentioned in the Section. That is amplified by use of expression, 'all suits of civil nature'. The word 'civil' according to dictionary means, 'relating to the citizen as an individual; civil rights'. In Black's Legal Dictionary it is defined as 'relating to provide rights and remedies sought by civil actions as contrasted with criminal proceedings. In law it is understood as an antonym of criminal. Historically the two 7 AIR 1955 SC 2001 -13- broad classifications were civil and criminal. Revenue, tax and company etc. were added to it later. But they too pertain to the larger family of 'civil'. There is thus no doubt about the width of the word 'civil'. Its width has been stretched further by using the word 'nature' along with it. That is even those suits are cognizable which are not only civil but are even of civil nature”. 16. It has been held by the Apex Court in the case of Paramjeet Singh Patheja (supra) that the words 'court', 'adjudication' and 'suit' conclusively show that only a court can pass a decree and that too only in suit commenced by a plaint and after adjudication of a dispute by a judgment pronounced by the Court. It is obvious that an arbitrator is not a court, an arbitration is not an adjudication and, therefore, an award is not a decree. 17. It has been further held by the Apex Court in Patheja's case (supra) that : “The expression 'Court' in the context (of Article 136) denotes a tribunal constituted by the State as a part of the ordinary hierarchy of courts which are invested with the State' s inherent judicial powers. A sovereign State discharges legislative, executive and judicial function and can legitimately claim corresponding powers which are legislative, executive and judicial. Under our constitution, the judicial functions and powers of the State are primarily conferred on the ordinary courts which have been constituted under its relevant provisions. The Constitution recognized hierarchy of court and to their adjudication are normally entrusted all disputes between citizens as well as between citizens and the State. These courts can be described as ordinary courts of civil judicature. They are governed by their prescribed rules of procedure and they deal with questions of -14- fact and law raised before them by adopting a process which is described as judicial process. The powers which these courts (exercise ?) are judicial powers, the functions they discharge are judicial functions and the decisions they reach are and pronounce are judicial decisions.” (emphasis supplied) and further that: “47. Tribunals occupy a special position of their own under the scheme of our Constitution. Special matters are entrusted to them and in that sense they share with the courts one common characteristic both the Courts and the tribunals are 'constituted by the State and are invested with judicial as distinguished from purely administrative or executive functions'... The basic and fundamental feature which is common to both the courts and tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign State. 48. By 'courts' is meant courts of civil judicature and by 'tribunals/ those bodies of men who are appointed to decide controversies arising under certain special laws. Among the power of the State is the power to decide such controversies. This is undoubtedly one of the attributes of the State and is aptly called the judicial power of the State”. 18. In M/s. Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala and others8 the Apex Court has held that : “All tribunals are not Courts, though all Courts are tribunals. The word “Courts” is used to designate those tribunals which are set up in an organised State for the administration of justice”. “By “Courts” is meant Courts of Civil Judicature and by “tribunals”, those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included the power to decide such controversies. This is undoubtedly one of the attributes of the State, and is aptly called the judicial power of the State. 8 1962 (2) SCR 339 -15- In the exercise of this power, a clear division is thus noticeable. Broadly speaking, certain special matters to before tribunals, and the residue goes before the ordinary Courts of Civil Judicature. Their procedures may differ, but the functions are not essentially different. What distinguishes them has never been successfully established.” “In my opinion, a Court in the strict sense is a tribunal which is a part of the ordinary hierarchy of Courts of Civil Judicature maintained by the State under its constitution to exercise the judicial power of the State. These Courts perform all the judicial functions of the State except those