Case: Southern Petrochemicals Industries Corporation Ltd Vs. Administrator of Specified Undertaking of Unit Trust of India and Ors

4. The factual background in which these questions arise is as follows:-Under a common loan agreement dated October 1, 1992 executed between the Unit Trust of India (for short UTI), the Industrial Development Bank of India (for short IDBI) as the lead institution, IFCI, respondent No.4 herein, ICICI Ltd., respondent No.5 herein, and the appellant herein, a sum of Rs.10 crores was advanced to the appellant for its project on the terms and conditions contained therein. The UTI also advanced a sum of Rs.25 crores against privately placed debentures. The appellant Company accumulated liabilities exceeding Rs.1,000 crores and defaulted in its obligation to the UTI under the common loan agreement. The Reserve Bank of India was contemplating a restructure scheme pursuant to which all the creditors of the appellant company met in September, 2003 to consider proposals for reduction in the rate of interest and fresh scheduling of re-payment etc.. There was a general consensus among the other creditors but the Unit Trust of India did not agree with the suggested scheme and instead filed a claim under the DRT Act being O.A. No.237 of 2003.5. At this stage, it may be noted that under the UTI (Transfer of Undertaking and Repeal) Act, 2002 (hereinafter referred to as UTI Act, 2002), respondent No.1, the Administrator of Specified Undertaking of Unit Trust of India, and respondent No.2 UTI Trustee Company Private Limited, were created. The Unit Trust of India Act, 1963 was repealed and the Board of Trustees referred to in Section 10 of the said Act stood dissolved.6. In O.A. No.237 of 2003, the appellant filed a Misc. Application on December 12, 2003 praying for dismissal of the O.A. on the ground that respondents 1 and 2 not being "financial institutions" within the meaning of that term in the DRT Act, the Tribunal under the Act had no jurisdiction to entertain and decide the application filed by respondents 1 and 2 for alleged recovery of debts due to them. The Debts Recovery Tribunal by its order of February 12, 2004 dismissed the said application. The appellant challenged the order of the Tribunal before the Debt Recovery Appellate Tribunal but the appeal was also dismissed on May 5, 2004. The Appellate Tribunal held that respondents 1 and 2 were "financial institutions" as defined by Section 2 (h) (i) of the DRT Act and, therefore, the application by them for recovery of debts due from the appellant was maintainable under Section 19 of the DRT Act.7. The Appellate Order was challenged before the High Court of Bombay in writ petition No.5758 of 2004 which was also rejected on August 10, 2004. The appellant has preferred this appeal by special leave impugning the judgment and order of the High Court.

Reasoning: 25. Before the High Court the main submission urged on behalf of the appellant was that respondents 1 and 2 herein are not financial institutions within the meaning of DRT Act, 1993. The respondents, however, relied on Section 11 of the UTI Act 2002 and Section 2(h)(ii)(ii) of the DRT Act to contend that the aforesaid respondents are financial institutions within the meaning of the term in the DRT Act. The High Court upheld the contention of the respondents. Section 18 of the UTI Act, 2002 in terms provide that for the words "Unit Trust of India", wherever they occur in any Act, rule, regulation, or notification, the words " Specified Company" and "Administrator of the Specified Undertaking of the Unit Trust of India" shall be substituted. The effect of this provision is that in every Act, rule, regulation or notification the words "Unit Trust of India" are substituted by the "Specified Company" and the "Administrator of the Specified Undertaking" referred to in the UTI Act, 2002. It is, therefore, not necessary to pass a separate amending Act or to amend all the rules, regulations or notifications by adopting an amending procedure. Section 18 of the UTI Act, 2002 operates by its own force to bring about the substitution. Legislative policy adopted by the Parliament to enact a legislation which effects an amendment in other Acts, rules, regulations, notifications etc. is permissible subject to its legislative competence. If the enactment brings about such amendments as is within the legislative competence of the Parliament and the statutes, notifications, etc. in which such amendment is affected are also within the legislative competence of the Parliament, the method adopted by the Parliament cannot be assailed. Rather than enacting several statutes and numerous amendments of rules, regulations, notifications etc., the Parliament achieved this purpose by a single enactment.26. Section 4-A of the Companies Act provides that each of the financial institutions specified in sub-section (1) shall be regarded for the purpose of this Act, as a public financial institution. The financial institutions specified included the "Unit Trust of India" established under Section 3 of the UTI Act, 1973. By operation of Section 18 of the UTI Act, 2002, "Unit Trust of India" is substituted by the "Specified Company" or "Administrator of the Specified Undertaking", as the case may be. Thus, the "Specified Company" and the "Administrator of the Specified Undertaking" must be deemed to be financial institutions specified in sub-section (1) of Section 4-A of the Companies Act.l submitted that under Section 18 of the UTI Act, 2002 the substitution is of "Specified Company" or "Administrator of the Specified Undertaking", "as the case may be".According to him this brings about an uncertainty and in each case it has to be discovered as to whether one or the other is substituted. According to him Section 18 which in a sense is a definition clause should not permit such uncertainty. We find no merit in this submission. By reason of Section 18 of the UTI Act, 2002, in place of Unit Trust of India, both respondents 1 and 2 stand substituted. Both are entitled to sue as financial institutions and the question whether they have an enforceable claim must be decided in the facts and circumstances of each case. There is no uncertainty because the assets possessed by these two identities are clearly enumerated in Schedules I and II of the UTI Act, 2002. We, therefore, do not find that the use of the words "as the case may be" introduces any element ofScheme of the Act discloses that the Unit Trust of India created under the Unit Trust of India Act, 1963 ceased to exist and in its place the Specified Company and the Administrator of the specified undertaking of the Trust were created which took charge of all the properties, business assets, rights etc. of the erstwhile Unit Trust of India. The initial capital of the Trust stood transferred to and vested in the Central Government under Section 3(1) of the Act. Sub-section (2) however, mandated that the initial capital contributed by the named contributors shall be refunded by the Central Government to such extent as may be determined by it. Section 21 provides for the repeal of the Unit Trust of India Act, 1963 and the dissolution of its Board of Trustees.29. Having done so UTI Act of 2002 by Section 4 thereof vested in the specified company the undertaking of the Trust (excluding the specified undertaking) for such consideration and on such terms and conditions as may be mutually agreed upon between the Central Government and the subscribers to the capital and the specified company. The decision of the Central Government as to whether any business, assets, liabilities or properties represent or relate to the undertaking or specified undertaking is made final. If there remained any business, asset or property which was not represented or related to the undertaking or specified undertaking, that vested in the Central Government. In this manner, the erstwhile Unit Trust of India ceased to exist and in its place a specified company and an Administrator of the specified undertaking of the Trust came into existence.30. The transfer and vesting of assets, rights etc. in these two bodies is in the widest possible terms as would be obvious from a plain reading of Section 5 of the UTI Act, 2002.Thus the transfer and vesting is complete. All contracts, deeds bonds, guarantees, other instruments and working arrangements subsisting immediately before the appointed day cease to be enforceable against the erstwhile Trust but shall be of as full force and effect against or in favour of the Specified Company or the Administrator, as the case may be, in which the undertaking or specified undertaking has vested, and enforceable as fully and effectually as if instead of the Trust, the Specified Company or the Administrator, as the case may be, had been named therein or had been a party thereto. Similarly, all unit schemes taken by the Board of the erstwhile Trust are deemed to have been taken by the Specified Company or the Administrator as the case may be.32. Having vested the undertaking of the Trust in the Administrator, Section 7 of the Act provides for the appointment of the Administrator of the specified undertaking who is entrusted with the task of taking over the administration thereof and to carry on the management of the specified undertaking of the Trust for and on behalf of the Central Government. Sub-section (2) of Section 7 empowers the Central Government to issue such directions to the Administrator as to his powers and functions as the Government may deem desirable. The Administrator may also seek directions from the Central Government as to the manner in which he shall conduct the management of the specified undertaking or in relation to any matter arising in the course of such management.33. Much was sought to be made of the use of the words "carry on the management of the specified undertaking of the Trust for and on behalf of the Central Government" in Section 7 of the UTI Act, 2002. It was also emphasized that under sub-section (2) of Section 7 the Central Government has been authorized to issue directions to the Administrator as to his powers and functions and similarly permitted the Administrator to seek directions of the Central Government as to the manner in which he shall conduct the management of the specified undertaking or in relation to any matter arising in the course of such management. The power to issue directions of this nature are to be found in several other statutes which create a Government cooperation or other legal entity. The power to issue directions vested in the Central Government is with a view to provide policy guidance to the Administrator. The fact that the management is carried on by the Administrator of the specified undertaking on behalf of the Central Government which is authorized to issue directions to the Administrator does not detract from the fact that the "specified undertaking" vests in the Administrator. The wide sweep of the language employed in Section 5 of the Act leaves no manner of doubt that the vesting in the Administrator or in the Specified Company is complete. The powers vested in the Administrator under Section 10 of the Act cover almost every power of management and administration. Section 10 (1) (b) in particular authorizes him on the advice of the Board of Advisors to invest, acquire, hold or dispose of securities and to exercise and enforce all powers and rights incidental thereto including protection or realization of such investment etc. Thus, it is a part of the power of management vested in the Administrator to invest as well as to realize such investments. Apparently therefore, if any amount is owing to the specified undertaking, the Administrator has the authority to take all necessary steps to realize any amount due to the specified undertaking. The statute vests this power in the Administrator. It cannot therefore by any stretch of imagination be assumed that the Administrator does not possess the power to make recoveries in course of management of the specified undertaking. The mere fact that the Central Government may give him directions or he may seek instructions from the Central Government of the nature contemplated by sub-section (2) of Section 7, does not mean that the power exercised by the Administrator are not the powers vested in him by law. Subject to such directions as may be given under the aforesaid sub-section, it is the Administrator who must exercise his power of management and administration. Apparently therefore in recovering dues owing to the specified undertaking, the Administrator exercises the powers vested in him under the Act in his own right since the undertaking vests in him, and the Act vests in him wide powers of management and administration which include the power to recover dues owing to the specified undertaking. It is, therefore, futile to contend that the Administrator acts as an agent of the Central Government. He acts in exercise of the powers vested in him by the statute and in the manner prescribed by the statute.Even assuming that the Administrator manages the specified undertaking on behalf of the Central Government, that will not make any difference. The amounts sought to be recovered are allegedly owing to the Specified Company and the Administrator, who as we have found are "financial institutions" within the meaning of that term in the DRT Act, 1993. Thus, the Specified Company and the Administrator of the Specified Company are not seeking to recover any dues owing to the Central Government, and therefore, they cannot be held to be acting on behalf of the Central Government. In their own right they are seeking to recover the amounts due to them in exercise of status and power conferred upon them by statute. So viewed, the nature of control of the Central Government over them is wholly irrelevant in considering the question of jurisdiction of the Debts Recovery Tribunal to entertain such a claim. Similarly, the vesting of the undertaking (excluding the specified undertaking) in the Specified Company is also complete in terms of Section 5 of the Act. Being a company, it is a distinct legal entity and, therefore, must exercise its authority in accordance with law. Advisedly, the legislature did not vest the specified undertaking in a company as it has done in the case of undertaking other than specified undertaking, because in so far as the specified undertaking of the Trust is concerned, the Act contemplates the redemption of all the schemes and the payment of entire amount to investors. After this is achieved, the Administrator in terms of Section 8 of the Act shall vacate his office and forthwith deliver to the Central Government, or any institution or officer specified by it, possession of all assets and properties representing and relatable to the specified undertaking which are in his possession, custody and control. The Administrator of specified undertaking is, therefore, constituted as a statutory authority under the Act with wide powers and functions vests in him in relation to the specified undertaking which also stand vested in him. When he seeks to recover dues owing to the specified undertaking he exercises his own authority as Administrator and assumes powers which vests in him by law. There is nothing in the Act which may justify the submission that the specified company acts as a trustee. It manages and executes the schemes contained in Schedule I of the Act in accordance with the provisions of the Act.35. Learned counsel for the appellant submitted that under the Banking Regulation Act, 1949 Section 6 authorises a banking company to engage in business even as an executor. According to him, an executor cannot recover dues under the provisions of the DRT Act. He placed reliance on the judgment of the Supreme Court in State Bank of India Vs. Special Secretary Land & Land Revenue & Reforms & Land & Land Utilisation Deptt. of W.B. and Ors. 1995 Supp (4) SCC 30 particularly paragraph 5 thereof. This Court considered its earlier decision in Holdsworth (Supra). The question which arose for consideration of this Court was whether Section 19 of the Urban Land (Ceiling and Regulation) Act, 1976 was attracted to vacant land of a Trust created by a private individual, if a Bank accepted administration of such Trust and became a trustee in the course of carrying on its permitted commercial activity. The decision in that case turned on the meaning of the words "to hold" under Section 2(l) of the Act and interpreting the said term, this Court held that the vacant land owned or possessed as owner or in certain other capacities by Central Government or others as specified in(1) of the Section were exempted from the applicability of the provisions in Chapter III of the Act. Clause (iii) of(1) mentioned banks falling within the meaning of the explanation given thereto as those which fell in exempted categories. The decision therefore, rested on the meaning given to the term "to hold" in Section 19 of the Act. Having examined the provisions of the UTI Act, 2002 we have no doubt that vesting in the Administrator or the Specified Company is complete. The concept of mere vesting of management cannot be imported into the scheme of the Act. The Administrator and the Specified Company were therefore, fully authorized in law to recover the dues from the appellants as "financial institutions". The Debts Recovery Tribunal had therefore undoubted jurisdiction to entertain their claims.