Case: Indian Bank Vs. Abs Marine Products Pvt. Ltd

2. The first respondent (also referred to as the borrower or company) approached the appellant-Bank (for short the Bank) for certain credit facilities. By Sanction Advices dated 12.7.1991 and 6.12.1991, the Bank sanctioned ad hoc packing credit facilities to a limit of Rs.20 lakhs and Rs.5 lakhs respectively. According to the Bank, the company utilized the said credit facilities, but committed default in repaying the amounts advanced. Therefore, the Bank filed O.A. No.170/1995 on 21.8.1995 before the Debt Recovery Tribunal (for short the Tribunal) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short Debt Recovery Act) seeking a certificate to recover Rs.30,67,820/04 with interest from the company and its four guarantors (Directors), jointly and severally. The said application is pending and trial therein is yet to commence.  3. On 19.12.1991, the Bank sanctioned a Middle Term Loan of Rs.90 lakhs and certain other credit facilities to the company. The sanctioned loans were not released. The company filed C.S. No.7/1995 against the Bank in the Calcutta High Court in January, 1995, for recovery of Rs.25,38,58,000/- as damages (for non-disbursal of the loans) with interest. By the end of 2000, recording of evidence in the suit was completed and the suit was ripe for arguments.  4. On 24.1.2001, the Bank made an oral submission that the suit could not be tried by the High Court and it should be transferred to the Tribunal. A learned Single Judge rejected the said request by the following order:-Though not pleaded in the written statement specifically, the learned counsel for the defendant contends that in view of the amendment of section 19 of the Recovery of debts due to Banks and Financial Institutions Act, 1993, this suit cannot be tried by this court. I have gone through section 19 of the said act as amended up to date. It appears from the said amendment that the debtor/respondent will be entitled to make counter claims in the same proceeding initiated by the bank. Before amendment there was no such specific provision. But in this case, the plaintiff/debtor had filed the suit before the bank could file appropriate proceeding. It is a separate suit. It is neither a cross suit nor can be termed as counter-claim. So the suit is perfectly entertainable by this court. Therefore, the preliminary objection raised by the Bank is hereby overruled5. Thereafter, the Bank filed an application in writing, praying for transfer of C.S. No.7/1995 filed by the borrower to the Tribunal on the ground that the said suit was broadly in the nature of a counter-claim to Banks O.A. No.170/1995 and was integrally connected with its application. The learned Single Judge rejected the said application by order dated 13.3.2001, as barred by res judicata, in view of the fact the same prayer made orally earlier had been rejected on 24.1.2001. The said two orders dated 24.1.2001 and 13.3.2001 were challenged by the Bank in two appeals (APO Nos.57-58/2001) before a Division Bench of the High Court. In support of its contention that C.S. No.7/1995 should be transferred from the High Court to the Tribunal for being tried with OA No.170/1995, the Bank relied on Sections 19(6) to (11) of the Debts Recovery Act and the following observations of this Court in United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. [2000 (7) SCC 357] :-If a set-off or a counter-claim is to be equated to a cross-suit under Section 19, a fortiori there can be no difficulty in treating the cross-suit as one by way of set-off and counter-claim, and as proceedings which ought to be dealt with simultaneously with the main suit by the Bank.  In our view, in the context, the word counter-claim in Sections 19(8) to (11) which is equated to a cross-suit, includes a claim even if it is made in an independent suit filed earlier6. A Division Bench of the Calcutta High Court dismissed the Banks appeals by an order dated 10.5.2002. The High Court held that(i) In the absence of a provision in the Debt Recovery Act enabling a borrower to file a suit (application) against the bank or a financial institution, in the Debt Recovery Tribunal, the jurisdiction of the civil court to entertain a suit filed by the borrower against the bank is not excluded under Section 18 of the said Act.  (ii) Section 31 of the Debts Recovery Act providing for transfer of the pending suits/cases, from courts to tribunals, applies only to those suits or proceedings which were pending before any court immediately before the establishment of a Tribunal under the said Act and will not apply to any suit or proceeding validly initiated in a civil court after the establishment of the Tribunal.  (iii) Sub-section (8) of Section 19 of the Act is merely a provision enabling a defendant (in a Recovery Application filed by the Bank before the Tribunal) to raise a counter-claim in his written statement against the bank, and empowering the Tribunal to try such a counter-claim. Such an enabling provision cannot be construed as ousting or excluding the jurisdiction of the civil court to entertain a suit for damages filed by the borrower against the bank, or enabling the bank to seek transfer of such a suit, to the Tribunal. The observation in Abhijit (supra) that the borrowers suit should be transferred to the Tribunal by treating the independent suit of the borrower as a counter-claim in the application of the Bank, was in exercise of the extraordinary power under Article 142 of the Constitution of India, on the special and peculiar facts of that case. As the High Court in its jurisdiction as a civil court, did not possess the power available to the Supreme Court under Article 142, it could not pass any order for transfer of a suit validly instituted before it, to the Tribunal.  (iv) Even assuming that the High Court could transfer the suit, the basic requirement for transfer laid down in Abhijit (supra), that is, the subject-matter of the borrowers suit pending before the Court, and the Banks application pending before the Tribunal should be inextricably connected, was not present in this case. Therefore, there could be no transfer.  (v) Where a borrowers suit is deemed to be a counter-claim in respect of the Banks application, and is transferred to the Tribunal, it would be open for the Bank, to contend, as enabled by Section 19(11) of the Debts Recovery Act, that such suit should be tried independently. If such a contention is accepted by the Tribunal, the suit transferred from the civil court to the Tribunal will have to be re-transferred from the Tribunal to the civil court, as the Tribunal has no jurisdiction to entertain or try an independent suit of the borrower against the bank. That will lead to an anomalous situation.  (vi) The civil court has jurisdiction to try all suits of civil nature, except those excluded by reason of an express or implied bar in a statute. The jurisdiction of a civil court can never be contingent upon an order passed by the Tribunal, and that too on an application by one of the parties to the proceeding before the Tribunal. Nor will the jurisdiction vested in a civil court to proceed with a suit, cease on the Bank or financial institution filing an application for recovery before the Tribunal

Reasoning:
16. Making a counter claim in the Banks application before the Tribunal is not the only remedy, but an option available to the borrower/defendant. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the Bank and pursue the same. Even the Bank, in whose application the counter-claim is made, has the option to apply to the tribunal to exclude the counter-claim of the defendant while considering its application. When such application is made by the Bank, the Tribunal may either refuse to exclude the counter-claim and proceed to consider the Banks application and the counter-claim together; or exclude the counter-claim as prayed, and proceed only with the Banks application, in which event the counter-claim becomes an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counter claim as the Tribunal does not have jurisdiction to try any independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the Bank, cannot be compelled to make his claim against the Bank only by way of a counter-claim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a Tribunal against his wishes17. In this case, the first respondent does not wish his case to be transferred to the Tribunal. It is, therefore, clear that the suit filed by the first respondent against the Bank in the High Court for recovery of damages, being an independent suit, and not a counter-claim made in the application filed by the bank, the Banks application for transfer of the said suit to the Tribunal was misconceived and not maintainable. The High Court, where the suit for damages was filed by the company against the bank, long prior to the bank filing an application before the tribunal against the company, continues to have jurisdiction in regard to the suit and its jurisdiction is not excluded or barred under Section 18 or any other provision of Debts Recovery Act19. With reference to the first issue, this Court held that when the appeal against the compromise decree dated 29.3.1984 was allowed and the compromise decree was set aside, the suit stood restored and it should be deemed to be pending from 29.3.1984 itself, and consequently, must be deemed in the eye of law to be pending on 27.4.1994 when the Tribunal was constituted at Calcutta, and Sections 18 and 31 of the Debts Recovery Act would apply to the said suit. There is no dispute that the decision of this Court on the first issue is the law declared by this Court20. The second issue, as noticed above, was whether the suit of the Bank against the borrower should be retained in the High Court, merely because the borrowers suit was pending in the High Court. There was no application or prayer for transfer of the borrowers suit [OS No.272/1985] to the Debts Recovery Tribunal. Neither the Bank nor the borrower had sought transfer of the said suit from the High Court. In fact, before the High Court, the borrower had not even contended that the Banks suit should be retained in the High Court on the ground that it was inextricably connected with its suit pending in the High Court. However, the borrower raised an additional ground in support of its request for retention of the Banks suit in the High Court, for the first time, in this Court by contending that the subject matter of the Banks suit was inextricably connected with the subject matter of its suit, and therefore, both should be tried together by the High Court itself. The borrower submitted that as the borrowers suit could not be transferred to the Tribunal, having regard to Sections 17, 18 and 31 of the Debts Recovery Act, the Banks suit should also not be transferred to the tribunal. This Court held that having regard to the mandate contained in Section 31, it was not possible to retain the Banks suit before the civil (High) Court on the ground that it was connected with another suit filed against the Bank. This answered the second issue. But this Court thereafter proceeded to consider as an incidental issue whether the borrowers suit could be transferred to the Tribunal as the borrower was insisting that his suit and Banks suit should be tried together. It found a solution by holding that the principle underlyingn (8) of Section 19 which enabled the defendant making am in an application filed by the Bank, can broadly be extended and applied to an independent prior suit of the borrower by considering such suit as a, so that both could be transferred to the Tribunal, instead of transferring only the Banks suit22. Though there appears to be some merit in the first Respondents submission, we do not propose to examine that aspect. Suffice it to clarify that the observations in Abhijit that an independent suit of a defendant (in Banks application) can be deemed to be a counter claim and can be transferred to the Tribunal, will apply only if the following conditions were satisfied:(i) The subject matter of Banks suit, and the suit of the defendant against the Bank, should be inextricably connected in the sense that decision in one would affect the decision in the other(ii) Both parties (the plaintiff in the suit against the Bank and the Bank) should agree for the independent suit being considered as am in Banks application before the Tribunal, so that both can be heard and disposed of by the TribunalIn short the decision in Abhijit is distinguishable both on facts and law23. One word before parting. Many a time, after declaring the law, this Court in the operative part of the judgment, gives some directions which may either relax the application of law or exempt the case on hand from the rigour of the law in view of the peculiar facts or in view of the uncertainty of law till then, to do complete justice. While doing so, normally it is not stated that such direction/order is in exercise of power under Article 142. It is not uncommon to find that courts have followed not the law declared, but the exemption/relaxation made while moulding the relief in exercise of power under Article 142. When the High Courts repeatedly follow a direction issued under Article 142, by treating it as the law declared by this Court, incongruously the exemption/relaxation granted under Article 142 becomes the law, though at variance with the law declared by this Court