Case: Allahabad Bank Vs. Canara Bank &amp; Another

the Company Court, if he loses part of his security towards workmens dues, he gets reimbursed to that extent as a secured creditor, with an overriding priority under Section 529-A(1)(b). He gets priority over all other creditors before the Tribunal, to be compensated for this loss out of the monies that may have been realised at the instance of other creditors before the Tribunal. It is pointed out that Canara Bank has neither realised any amount outside winding up nor has it lost any part of its security towards workmens dues. In our view, this contention of the learned Attorney General is well founded and is entitled to be accepted. 62. In our opinion, the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of the proviso" obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmens dues under clause (c) of the proviso to Section 529(1) "rateably" against each secured creditor. To that extent, the secured creditor - who has stood outside the winding up and who has lost a part of the monies otherwise covered by security - can come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over al creditors, by virtue of Section 529(1)(b).63. This can be exemplified by three more examples. (1) Let us assume that the total amount due to a secured creditor is Rs. 90,000 and he has a security valued at Rs. 1 lakh. This security is sufficient to cover his entire dues. Let us assume that the total amount due to all secured creditors is Rs. 3 lakhs and workmens dues are Rs. 1 lakh, as in the illustration given under Section 529-A(3). This creditor can be made to part prorata upto with Rs. 25,000 out of his security of one lakh towards the workmens dues. This is the "workmens portion". That still leaves with him Rs. 75,000 of his security but that is not sufficient to meet his total dues of Rs. 90,000. Still Rs. 15,000 of his dues have to be cleared. By virtue of Section 529-A(1)(b), he can claim this sum of Rs. 15000 from monies realised by other creditors in the Tribunal on the basis of Section 529-A(1)(b) claiming overriding priority as against all other creditors. This is because the above amount is less than the `workmens dues of Rs. 25,000 taken away from the realisation out of his security, as prescribed in clause (c) of the proviso to Section 529(1). That is what is meant by the words "whichever is less".(ii) Take a case where the total dues of a secured creditor are only Rs. 65,000 and his security is Rs. 1 lakh in value. The other facts being the same as in the illustration to Section 529(3), the secured creditor loses his security rateably in a sum of Rs. 25,000. The balance of the available security is Rs. 75,000 and that is sufficient to meet his entire debt of Rs. 65,000. He has no occasion to claim any extra amount as a secured creditor under Section 529-A(1)(b). This situation presents no difficulty.(iii) Take yet another case where the secured creditor has a security valued at Rs. 1 lakh, but his total dues are Rs. 1.10 lakhs. In other words, Rs. 10,000 are not secured. Other facts are as in illustration to Section 529(3). He is made to part with Rs. 25,000 towards workmens dues rateably. He has Rs. 75,000 available from his security but he has to meet Rs. 1,10,000 and that leaves a balance of Rs. 35,000 (Rs. 1,10,000 - Rs. 75,000) to be recovered. He can claim overriding priority only upto Rs. 25,000 as a secured creditor, under clause (c) to proviso to Section 529(1). The priority is restricted to Rs. 35,000 only because as between Rs. 25,000 and Rs. 35,000, the amount of Rs. 25,000 answers the description whichever is less. It will be noticed that, after claiming Rs. 25,000 as a secured creditor out of the realisation of other creditors before the Tribunal, he has still dues upto Rs. 10,000 which remain unsecured. That was also the unsecured amount to start with initially.64. The above examples show that the secured creditor who stands outside the winding up and whose claims are restricted to Section 529-A read with the clause (c) of proviso to Section 529(1), does not in the ultimate analysis stand to lose any part of his security merely because the "workmens portion" is taken away from his security. Whatever he loses towards "workmens portion" out of his security, can be claimed by him as a secured amount with priority over such creditors out of other realisations made by other creditors whose monies are lying in the Tribunal. At the same time, his position would not improve from what it was originally and his priority would not extend to his entire unrealised sums which might be in excess of his security.65. But the point here is that the occasion for such a claim by a secured creditor (here the Canara Bank) against realisations by other creditors (like the Allahabad Bank) under Section 529-A read with proviso (c) to Section 529(1) can arise before the Tribunal only if the Canara Bank has stood outside winding up and realised amounts and if it shows that out of the amounts privately realised by it, some portion has been rateably taken away by the liquidator under sub-clauses (a) and (b) of the proviso to Section 529(1). It is only then that it can claim that it is to be re-imbursed at the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section 529-A(1)(b).

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]20. It is clear from Section 17 of the Act that the Tribunal is to decide the applications of the Banks and Financial Institutionsfor recovery ofdebts due to them. We have already referred to the definition of `debt in Section 2(g) as amended by Ordinance 12000. It includes "claims" by Banks and financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context Section 31 of the Act is also relevant. That Section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word `proceedings in Section 31 includes an `execution proceedings pending before a Civil Court before the commencement of the Act. The suits and proceedings so pending on the date of the Act stand transferred to the Tribunal and have to be disposed of "in the same manner" as applications under Section 19.In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applicationsfor recovery ofdebts due to Banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to issue a certificate under Section 19(22) (formerly under Section 19(7)) to the Recovery officerfor recovery ofthe debt specified in the certificate. The question arises as to the meaning of the word `recovery in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the defendant and then it has to issue a certificate under Section 19(22). Under Section 18, the jurisdiction of any other Court or authority which would otherwise have had jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This exclusion does not however apply to the jurisdiction of the Supreme Court or of a High Court exercising power under Articles 226 or 227 of the Constitution). This is the effect of Sections 17 and 18 of the Act.We hold that the provisions of Sections 17 and 18 of the RDB Act are exclusive so far as the question of adjudication of the liability of the defendant to the appellant Bank is concerned.Even in regard to `execution, the jurisdiction of the Recovery Officer is exclusive. Now a procedure has been laid down in the Actfor recovery ofthe debt as per the certificate issued by the Tribunal and this procedure is contained in Chapter V of the Act and is covered by Sections 25 to 30. It is not the intendment of the Act that while the basic liability of the defendant is to be decided by the Tribunal under Section 17, the BanksFinancial institutions should go to the Civil Court or the Company Court or some other authority outside the Act for the actual realisation of the amount. The certificate granted under Section 19(22) has, in our opinion, to be executed only by the Recovery Officer. No dual jurisdiction at differentd. Further, Section 34 of the Act gives overriding effect to the provisions of the RDBThere is one more reason as to why it must be held that the jurisdiction of the Recovery Officer is exclusive. The Tiwari Committee which recommended the constitution of a Special Tribunal in 1981for recovery ofdebts due to Banks and financial institutions state in its Report that the exclusive jurisdiction of the Tribunal must relate not only in regard to the adjudication of the liability but also in regard to the execution proceedings. It stated in Annexure XI of its Report that all "execution proceedings" must be taken up only by the Special Tribunal under the Act. In our opinion, in view of the special procedure for recovery prescribed in Chapter V of the Act, and Section 34, execution of the certificate is also within the exclusive jurisdiction of the Recovery Officer.23. Thus, the adjudication of liability and the recovery of the amount by execution of the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other Court or authority much less the Civil Court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decidedare of the view that the appellants case under the RDB Actwith an additional section like section 34is on a stronger footing for holding that leave of the Company Court is not necessary under Section 527 or under Section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court cannot also use its powers under Section 442 against the TribunalRecovery Officer. Thus, Sections 442, 446 and 537 cannot be applied against the Tribunal.Tribunal.31. While it is true that the principle of purposive interpretation has been applied by the Supreme Court in favour of jurisdiction and powers of the Company Court in Sudarshan Chits (P) Ltd. case, and other cases the said principle, in our view, cannot be invoked in the present case against the Debt Recovery Tribunal in view of the superior purpose of the RDB Act and the special provisions contained therein. In our opinion, the very same principle mentioned above equally applies to the TribunalRecovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of Sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedyfor recovery ofthousands of crores which were due to the Banks and to financial institutions, so that the delays occurring in winding up proceedings could becounsel for respondent relied upon para 24 of the judgment which stated that Section 171 (corresponding to Section 446(1)) was supplementary to Section 232 and 229 (corresponding to Section 529 of the new Act). But the said observations, in our view, cannot help the respondents, in view of the reasons given above.40. When the matter was listed for fresh arguments, learnedcounsel for the respondentrelied upon Ram Narain v. The Simla Banking and Industrial Co. Ltd., AIR 1956 SC 614 to contend that in that case the Court (the High Court of Punjab) which was winding up the Banking Company was held entitled to transfer the execution case pending before a Tribunal to the High Court and to dispose of the same. That case is, in our view, distinguishable. The facts there were that the Tribunal was one constituted under the Displaced Persons (Debt Adjustment) Act, 1951, while the High Court of Punjab was exercising special powers under Sectionsof the Banking Companies Act, 1949 (as amended in 1953) for winding up a Banking Company). Earlier, under the 1913 Act, the District Court was dealing with winding up proceedings but so far as Banking Companies were concerned, the Banking Companies Act, 1949 was amended in 1953 giving powers to the High Court to wind up Banking Companies. It was held that the latter Act of 1953 prevailed over the former Act of 1951 in view of Sectionand that the legislative intention was to prescribe a speedy procedure for the winding up of the Banking Companies outside the provisions of the Companies Act, 1913. Sectionconferred exclusive jurisdiction on the High Court (there the Punjab High Court) in this behalf. The more important distinguishing feature between that case and the present one is that Section 2 of the Banking Companies Act, 1949 specifically provided that its provisions would be in addition to those in the Companies Act and it was held that Sections 171 and 232 of the Companies Act, 1913 were available to the High Court as a winding up Court to stay the execution proceedings taken pursuant to the decree of the Tribunal under the 1951 Act and to transfer them to the High Court. But the position under the RDB Act is different. Sections 442, 446 and 537 are not saved by the RDB Act. Even Section 34(2) of the RDB Act does not save the provisions of the Companies Act.In our view, the decision of the Kerala High Court in ICICI case (supra) relied upon for the appellant, is correctly decided. It was pointed out in that case that the records leading to the decision in Srinivas Agencies and batch, 1996(4) SCC 165 show that suits filed by Banks and financial institutions were pending in civil Courts and a winding up petition was filed later on in the High Court. The Kerala High Court held that the suits would stand transferred to the Debt Recovery Tribunal under Section 31 of the RDB Act automatically and that section 446 of the Companies Act, 1956 could not be invoked in view of Section 34 of the RDB Act. The RDB Act was a special law overriding another special law, the Companies Act. Leave of the Company Court under Section 446(1) was not necessary nor could the suit be transferred to the Company Court under Section 446(2).45. Similarly, we are of the view that the Patna High Courts decision in Bihar Sales Pvt. Ltd. In re Vol. 96 Comp. Cases 40 is also correctly decided. There the decision of this Court in Srinivas Agencies was not accepted as laying down anything specific about the RDB Act and as to its interpretation. The decision of the Kerala High Court in Vanjinad Leathers Ltd. was followed.The decision of the Rajasthan High Court in Rajasthan Finance Corporation v. Official Liquidator, 1963(2) Comp.LJ 309 relied upon for the respondent cannot be of any help. That was a case which concerned itself with the State Finance Corporation Act, 1951. Section 537 of the Companies Act was applied and it was held that the Companies Act did not yield to the provisions of the State Finance Corporation Act, 1951. There was no provision in the State Finance Corporation Act, 1951 like Section 34 which gave overriding effect to its provisions.46. For the aforesaid reasons, we hold that at the stage of adjudication under section 17 and execution of the certificates under section 25 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of debts payable to Banks and financial institutions and there can be no interference by the Company Court under Section 442 read within Section 537 or under Section 446 of the Companies Act, 1956. In respect of the monies realised under the RDB Act, the question of priorities among the Banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with Sectionof the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against theand also after a winding up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against themay point out that Section 19(2) permits such impleadment "at any stage of the proceedings before a final order is passed". The final order here is the order of adjudication under Section 19(1) as to whether the debt is due or not. In the present case, the adjudication order in respect of the debt has already been made long back and therefore Section 19(2) does not permit any impleadment in the main application under Section 19(1) at this stage. Hence, this relief for impeadment cannot be granted.49. We shall now go into effect of Section 19(19) of the Ordinance 12000.(a) Case where defendant company is not ordered to be wound up :Where the defendant company is a company against which no winding up order is passed, the Company, in our view, is like any other defendant and if in such a situation a question of priority arises before the Tribunal, in respect of any monies realised under the RDB Act, as between the Bank or financial institutions on the one hand and the other creditors on the other, it will, in our opinion, be necessary for the Tribunal to decide such questions of priority bearing in mind principles underlying Section 73 of the Code of Civil Procedure. Section 22 of the RDB Act, in our view, gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under Section 22 are wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice have to be followed. See Industrial Credit and Investment Corporation of India Ltd. v. Grapco Industries Ltd. and others, 1999(4) SCC 710 and Allahabad Bank, Calcutta v. Radha Krishna Maity and others, 1999(6) SCC 755.50. But under Section 73 CPC, sharing in the sale proceeds (here, sale proceeds realised under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under Section 73. In the present case, the Canara Bank is not in a position to invoke the principles underlying Section 73 CPC because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying Section 73 CPC. Hence no relief can be granted on the basis of the said principles.(b) Position of secured creditors standing outside winding up and also not so standing out :The discussion here in confined to sharing the realisations made by the Recovery Officer under the RDB Act where winding up proceedings are pending in the Company Court against the defendant company.The respondents contention that Section 19(19) gives priority to all "secured creditors" to share in the sale proceeds before the TribunalRecovery Officer cannot, in our opinion, be accepted. The said words are qualified by the words "in accordance with the provision of SectionIn our opinion, the words "so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of the proviso" obviously mean the amount taken away from the private realisation of the secured creditor by the liquidator by way of enforcing the charge for workmens dues under clause (c) of the proviso to Section 529(1) "rateably" against each secured creditor. To that extent, the secured creditorwho has stood outside the winding up and who has lost a part of the monies otherwise covered by securitycan come before the Tribunal to reimburse himself from out of other monies available in the Tribunal, claiming priority over al creditors, by virtue of Section 529(1)(b).63. This can be exemplified by three more examples. (1) Let us assume that the total amount due to a secured creditor is Rs. 90,000 and he has a security valued at Rs. 1 lakh. This security is sufficient to cover his entire dues. Let us assume that the total amount due to all secured creditors is Rs. 3 lakhs and workmensRs. 1 lakh, as in the illustration given under SectionThis creditor can be made to part prorata upto with Rs. 25,000 out of his security of one lakh towards the workmens dues. This is the "workmens portion". That still leaves with him Rs. 75,000 of his security but that is not sufficient to meet his total dues of Rs. 90,000. Still Rs. 15,000 of his dues have to be cleared. By virtue of Sectionhe can claim this sum of Rs. 15000 from monies realised by other creditors in the Tribunal on the basis of Sectionclaiming overriding priority as against all other creditors. This is because the above amount is less than the `workmens dues of Rs. 25,000 taken away from the realisation out of his security, as prescribed in clause (c) of the proviso to Section 529(1). That is what is meant by the words "whichever is less".(ii) Take a case where the total dues of a secured creditor are only Rs. 65,000 and his security is Rs. 1 lakh in value. The other facts being the same as in the illustration to Section 529(3), the secured creditor loses his security rateably in a sum of Rs. 25,000. The balance of the available security is Rs. 75,000 and that is sufficient to meet his entire debt of Rs. 65,000. He has no occasion to claim any extra amount as a secured creditor under SectionThis situation presents no difficulty.(iii) Take yet another case where the secured creditor has a security valued at Rs. 1 lakh, but his totalRs. 1.10 lakhs. In other words, Rs. 10,000 are not secured. Other facts are as in illustration to Section 529(3). He is made to part with Rs. 25,000 towards workmens dues rateably. He has Rs. 75,000 available from his security but he has to meet Rs. 1,10,000 and that leaves a balance of Rs. 35,000 (Rs. 1,10,000Rs. 75,000) to be recovered. He can claim overriding priority only upto Rs. 25,000 as a secured creditor, under clause (c) to proviso to Section 529(1). The priority is restricted to Rs. 35,000 only because as between Rs. 25,000 and Rs. 35,000, the amount of Rs. 25,000 answers the description whichever is less. It will be noticed that, after claiming Rs. 25,000 as a secured creditor out of the realisation of other creditors before the Tribunal, he has still dues upto Rs. 10,000 which remain unsecured. That was also the unsecured amount to start with initially.64. The above examples show that the secured creditor who stands outside the winding up and whose claims are restricted to Sectionread with the clause (c) of proviso to Section 529(1), does not in the ultimate analysis stand to lose any part of his security merely because the "workmens portion" is taken away from his security. Whatever he loses towards "workmens portion" out of his security, can be claimed by him as a secured amount with priority over such creditors out of other realisations made by other creditors whoseare lying in theTribunal. At the same time, his position would not improve from what it was originally and his priority would not extend to his entire unrealised sums which might be in excess of his security.65. But the point here is that thesuch a claim by a secured creditor (here the Canara Bank) against realisations by other creditors (like the Allahabad Bank) under Sectionread with proviso (c) to Section 529(1) can arise before the Tribunal only if the Canara Bank has stood outside winding up and realised amounts and if it shows that out of the amounts privately realised by it, some portion has been rateably taken away by the liquidator under(a) and (b) of the proviso to Section 529(1). It is only then that it can claim that it is to beat the same level as a secured creditor with priority over the realisations of other creditors lying in the Tribunal. None of these conditions is satisfied by Canara Bank. Thus, Canara Bank does not belong to the class of secured creditors covered by Section