Case: UCO BANK Vs. NATIONAL TEXTILE CORPORATION LTD. &amp; ANR

3. As per the averments made by the appellant, M/s Shree Sitaram Mills Ltd. was taken over by National Textile Corporation Ltd./Respondent No. 1 under the Textile Undertaking (Take-over of Management) Act, 1983 and was nationalised w.e.f. 01.04.1994 under the Textile Undertakings (Nationalisation) Act, 1995. Said Shree Sitaram Mills Ltd. was enjoying credit facilities with the Appellant Bank and Respondent No. 2, i.e. Ministry of Textiles was the guarantor in respect of the said credit facilities. The last guarantee was issued by the Ministry of Textiles on 23.2.1995, valid up to 31.3.19964. The Appellant filed a recovery suit bearing Suit No.3961/1988 against Respondent No. 1 seeking recovery of an amount of Rs. 3,19,09,000/- which was transferred to the Debts Recovery Tribunal on coming into force of the Recovery of Debts Due to Banks Act (RDDB Act for short) renumbered as O.A.No.2526/1999. On 05.08.2004 – DRT -I issued a recovery certificate against one of the Company – Shri Sitaram Mills Ltd. for a sum of Rs.11,70,78,726.69. The recovery proceedings are adjourned sine die in view of the application filed by the Respondent that it has been declared a sick company under the provisions of the Sick Industrial Companies (Special Provisions) Act, 19855. The Appellant then submitted its claim with the Commissioner of Payment on 17.1.2002 which was registered on 4.7.2005. A sum of Rs. 1,05,35,86,783.47 was claimed towards post take-over liability under the Textile Undertakings (Nationalisation) Act. Vide award dated 13.3.2006, the Commissioner of Payment allowed a part of the claim under category 1 of the Textile Undertakings (Nationalisation) Act to the tune of Rs. 70,23,025/- towards principal. Claim of Rs. 1,18,80,098/- was relegated to category II (b) being an outstanding liability against unserviced interest. The balance claim of Rs. 103,46,83,660.47 towards interest beyond appointed date was rejected. By a subsequent award dated 28.3.2007 a further sum of Rs. 89,59,609/- was awarded by the Commissioner of Payment towards pending liability of interest till the appointed date. Thus, in all, the appellant received a sum of Rs. 1,59,82,634/- against total claim of Rs. 1,05,35,86,783.476. In the meantime, the Government of India issued an Office Memorandum dated 22.1.2004 for settlement of commercial disputes between Public Sector Enterprises inter se and Public Sector Enterprises and Government Department through Permanent Machinery of Arbitrators7. Claiming that it was entitled to the balance amount also, the Appellant lodged its request for initiation of arbitration with the Union of India/Respondent No.2 vide communication dated 30.8.2004. The appellant sought recovery of balance sum of Rs. 103,76,04,149.47/- from Respondent No.1 and Shree Sitaram Mills Ltd. Vide notice dated 17.10.2011, the Joint Secretary and sole arbitrator who was appointed under the Permanent Machinery of Arbitration (PMA) directed the appellant, Respondent No. 1 and Shree Sitaram Mills Ltd. to submit their statements of claim as well as counter reply. Parties were informed that the forum had been constituted in compliance of the directions of the Apex Court in ONGC vs. Collector of Central Excise, Mumbai 1995 Supp (4) SCC 541. The Appellant thereafter filed its statement of claim before the PMA, New Delhi claiming award of payment of Rs. 103,76,04,149.47 by Shree Sitaram Mills Ltd. and Union of India jointly and severally8. Respondent No. 1 filed an application for discontinuation and cessation of arbitral proceedings in light of the judgment of the Supreme Court in Electronics Corporation of India Ltd. vs. Union of India (2011) 3 SCC 404 wherein this Court recalled the orders reported in 1995 Supp (4) SCC 541. Thus, it was averred that the arbitral procedure is not based on any statute or consent9. Vide order dated 28.6.2012, the Arbitral Tribunal held that the practice of the PMA was to decide all the issues at one time and thus the parties were directed to submit their documents or evidence in support of their claim and counter claim10. Aggrieved, Respondent No. 1 filed a writ petition assailing notice dated 17.10.2011 and challenging the jurisdiction of the Arbitrator to proceed further with the matter. The learned Single Judge of the High Court dismissed the writ petition and opined that PMA was constituted by the decision of the Cabinet Secretariat of the Govt. of India as reflected in its Office Memorandum dated 22.01.2004. Though undoubtedly, the Committee of Disputes (COD) was formed based on the judgments of the Supreme Court it has been reversed by the Supreme Court by its subsequent judgment in the case of Electronics Corporation of India Ltd. It did not comment or deal with Constitution of PMA. The PMA was constituted by virtue of an Office Memorandum dated 22.01.2004 issued by the Govt. of India, Ministry of Heavy Industries and Public Enterprises, Department of Public Enterprises. It is therefore, not a mechanism which stands effaced by virtue of dissolution of the COD. It cannot be disputed that both Respondent No. 1 and the Appellant are covered under the OM dated 22.01.2004; Respondent No.1 being a Central Public Sector Enterprise, while Appellant is a Nationalised Bank. If that is so, then no consent is required for initiation of arbitration proceedings under the PMA mechanism11. The Respondent No. 1 claiming to be aggrieved filed LPA. Vide impugned judgment, the Division Bench of High Court noted that on enquiring from the counsel for Respondent No. 1 as to what is there to show that the claim of Appellant before the Permanent Machinery of Arbitrators (PMA) is with respect to liability prior to 01.04.1994, the counsel for Respondent No.1 referred to the claim petition filed by the appellant before the PMA in which, Sitaram Mills Ltd. is referred to as respondent no. 2. It is stated therein that respondent no. 2 was nationalised w.e.f. 01.04.1994 under the Textile Undertaking (Nationalisation) Act, 1995 and prior to the takeover of the management of respondent no. 2 under the said Act, a sum of money to the extent of Rs. 11,70,39,000/- became due and payable by respondent No.2 to the claimant. The Court opined that once it is not in dispute that claims of the appellant lodged before PMA are of the period prior to the appointed day, the liability therefor is not of Respondent No.1. As per the scheme of Textile Undertaking (Nationalisation) Act, the said dues, even though pertaining to the textile undertaking so acquired by the Central Govt. and transferred to respondent No.1, did not become the liability of the Central Govt. or respondent No. 1. The same remained the liability of the earlier owner Company, which significantly was neither taken over under the Textile Undertaking (Nationalisation) Act nor had ceased to exist. The Division Bench held that the Single Judge fell in error in not appreciating the difference between textile undertaking and textile company and presuming that Shree Sitaram Mills Ltd. was taken over when only Shree Sitaram Mills i.e. the textile undertaking of Shree Sitaram Mills Ltd. was taken over. Moreover, appellant has made the claim for the entire amount before the Commissioner of Payments before whom, as per Section 20 of Textile Undertaking (Nationalisation) Act, only the claims against the earlier owner company were to be made, thereby admitting the liability therefor to be of the earlier owner company only. Concluding that the dues claimed by the appellant being of the period prior to the take-over by the Central Govt. of the textile undertaking earlier owned by Shree Sitaram Mills Ltd., the Division Bench held that Respondent No. 1 cannot be said to be liable therefor and the arbitration proceedings before PMA for recovery thereof against Respondent No. 1 are misconceived. The appeal was accordingly allowed.

Reasoning: 19. As already noticed, since the present examination herein is limited to the aspect relating to forum and when it is seen that the claim initially made by the appellant is against the Shree Sitaram Mills Ltd. and the Respondent No.1 herein is disputing the liability for the same by bringing about a distinction since the take-over was only of Shree Sitaram Mills and not of Shree Sitaram Mills Ltd., an adjudication on that aspect to be made cannot be considered as a dispute as involving only the two public sector establishments as contemplated under the Official Memorandum referred to above20. While stating so it cannot also be lost sight that the appellant herein had originally instituted the recovery proceedings against Shree Sitaram Mills Ltd. by filing Suit No.3961/1988 which was thereafter transferred to the Debts Recovery Tribunal I, Mumbai in O.A. No.2526/1999. The said proceeding had concluded by issue of Recovery Certificate dated 05.08.2004 against the other defendants except defendant Nos.3 (a to c) regarding which an appeal in DRTA Appeal No.271/2005 is pending before the Debts Recovery Appellate Tribunal, Mumbai. The said appeal is against the judgment and decree dated 29.03.2005. In the recovery proceedings pursuant to the decree, if in the meanwhile certain change of status relating to the judgment debtor has taken place as in the instant case, namely, the take-over of Shree Sitaram Mills which was a part of Shree Sitaram Mills Ltd. is to be taken note. Upon consideration of evidence adduced by the parties it has to be determined in that light as to whether the Respondent No.1 Corporation has in fact inherited such liability making themselves liable for the decree in existence or on the other hand if such liability has remained and subsisted with Shree Sitaram Mills Ltd. It is a matter to be examined in such recovery proceedings by providing opportunity to the parties to adduce evidence. Further in respect of post take over period a Suit No.4489/96 was filed which was transferred to DRT and registered as O.A.No.1114/2000 which has remained pending as respondent No.2 had proceeded to BIFR. No doubt in that circumstance if the appellant herein had chosen to initiate the proceedings before the PMA, keeping in view that the COD which was subsequently constituted is a mechanism in the nature of pre-litigation mediation, it cannot be said that the step adopted by the appellant is wholly without basis21. However, when it is noticed that the Respondent No.1 has serious objections to the liability and nature of take-over of the Textile Mills is to be examined before recoveries are made, the adjudication of the matter in the recovery proceedings would be the appropriate course. Therefore, to that extent the Division Bench no doubt was justified in setting aside the arbitral proceedings by quashing the notice dated 17.11.2011. However, we notice that the Division Bench while arriving at its conclusion has also referred to the decision of the High Court of Madras in Swadeshi Cotton Mills Company Ltd. vs. The Commissioner of Central Provident Fund and the decision of the High Court of Allahabad in U.P State Sugar Corporation Ltd. vs. Dr. Kailash Behari Sharma to hold that the liability would not transfer on takeover. The said consideration is with regard to the Provident Fund dues towards the Provident Fund contribution. In the instant case, the claim is by the lender Bank towards which a decree had already been granted in respect of one claim and the other claim is pending consideration. The fact as to whether in the matter of take over, the liabilities were also included is one aspect of the matter. Further, the aspect which may also require examination by the Court undertaking the recovery proceedings is as to whether in the process of take-over of Shree Sitaram Mills the secured assets for the loan transaction has been taken over by the Respondent No.1 or was it available with Shree Sitaram Mills Ltd. if it had retained its existence and identity after take-over of the Textile Mills and in that circumstance whether the recovery proceedings could still be resorted to against the Respondent No.1 in respect of the liability of Shree Sitaram Mills Ltd., and would the Union of India be liable as Guarantor. This is an aspect which is to be examined after providing opportunity to the parties, if need be, after tendering evidence in that regard22. Therefore, the question of liability could neither have been decided in the writ proceedings before the High Court nor in this appeal. If this aspect is kept in view, the conclusion reached by the Division Bench in paragraph 25 to hold that the respondent herein is not liable for the dues of Shree Sitaram Mills Ltd. and the proceedings is misconceived for such claim is an erroneous conclusion reached in a proceedings where such conclusion ought not to have been recorded. Hence the decision to that effect is liable to be set aside.