Case: Industrial Investment Bank of India Ltd Vs. M/s Jain Cables Pvt. Ltd. &amp; Others

1. The appellant, Industrial Investment Bank of India Limitedfor short), is the successor of the Industrial Reconstruction Bank of Indiafor short) constituted under Section 3(1) of the Industrial Reconstruction Bank of India Act, 1984,for short).2.In the year 1985, the IRBI had sanctioned a loan of Rupees twenty two lakhs (Rs. 22,00,000/-) in favour of M/s. Jain Cables Pvt. Ltd., respondent No. 1. Out of the sanctioned amount a sum of Rupees twenty lakhs (Rs. 20,00,000/-) was actually disbursed in the year 1991 and the balance amount of the loan was cancelled. The repayment of the loan was secured by mortgage of the immovable properties of the borrower company and by creating the charge of hypothecation over its immovable properties in favour of the IRBI. The borrower company defaulted in repayment of the loan and in 1994, on its request, the IRBI granted to it an amended schedule of payment under which the last instalment of the loan amount was to be paid on February 15, 1996. The respondent No. 1 did not adhere even to the rescheduled payment plan.3.On March 27, 1997, the Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997for short) came into force and by virtue of notification, S.O. 242 (E), dated March 25, 1997 the undertakings of the IRBI were transferred to and vested in the IIBIL with effect from March 27, 1997.4.On August 14, 1997, the IIBIL gave a notice to respondent No. 1 under Section 38 of the 1984 Act recalling the loan. The notice did not bring any payments from respondent No. 1 and after about 2 years from the date of the notice, in the year 1999, the IIBIL filed an application before the Rajasthan High Court, under Section 40 of the 1984 Act. The application filed by the IIBIL was registered in the High Court as S.B.C. Misc. Application No. 40/99. The High Court issued notice on the application but after hearing the other side, rejected it by order dated November 1, 2002 holding that the application was not maintainable as it was filed under the provision of a repealed Act. The High Court in its brief order referred to Section 40 of the 1984 Act and the repeal and saving provision as contained in Section 13 of the 1997 Act and took the view that the provision of Section 40 of the 1984 Act was purely procedural and it simply provided the IRBI with an additional Forum besides those available under Section 39 of the 1984 Act and Section 69 of the Transfer of Property Act. On the other hand, the provision of repeal contained in Section 13 of the 1997 Act was definite and categorical and the provision of Section 40 of the 1984 Act was not saved by Sub-section (2) of Section 13 of the 1997 Act. In other words, according to the High Court, the application was filed under a provision that was no longer in existence. In this connection, the High Court held and observed asto put it in other words, the rights and liabilities of the Company, as they existed on the appointed day, are saved, obviously substantive rights qua the other persons, and the liabilities. Section 40 does not confer any such substantive right, as it is only procedural provision providing an additional forum to be available to the Company for effecting recovery of its outstandings by praying for taking up & different course than the one available under Section 39 of that Act, or Section 69 of Transfer of Property Act.As such, the provisions of Section 40 or more remain available to the petitioner. An overall reading of the repealing Act of 1997 also does show that it predominantly comprehends the rights and liabilities of Industrial Investment Bank of India, which are to devolve on Industrial Reconstruction Bank of India, as the Act is to provide for transfer and vesting of the Undertakings to the Company to be formed and registered as company under the Companies Act, and for matters concerned therewith, or incidental thereto, and also to repeal the 1984the sake of the record, it may also be noted that during the pendency of the proceeding before the High Court, the IIBIL also moved the Debt Recovery Tribunal. But its application to the Debt Recovery Tribunal was against the guarantor alone and no relief was claimed against respondent No. 1, the borrower company. The application against the guarantor was decreed ex parte but the decree has so far not borne any fruits as it was a personal guarantee and there were no assets against which the decree may be executed.6.The IIBIL has now brought this matter in appeal, by grant of special leave, against the order of the High Court dated November 1, 2002 rejecting its application filed against the borrower company, respondent No. 1, under Section 40 of the 1984 Act.

Court's reasoning:
10.A plain reading of Sub-section (4) of Section 4 coupled with Sub-section (2)(b) of Section 13 of the 1997 Act would make it manifest and clear that any cause of action by the IRBI in relation to its undertakings existing immediately before March 27, 1997 may be continued and enforced by the IIBIL as it might have been enforced by the IRBI if the 1997 Act had not been enacted. And further, that the provisions of Chapter VIII of the 1984 Act, that include Section 40, would continue to be applicable in respect of the arrangements entered into by the IRBI with an industrial concern under Section 18 of the 1984 Act and the IIBIL would be able to enforce the same as fully and effectually as if the 1997 Act had not been enacted.11.The High Court in the impugned judgment referred to Section 13 of the 1997 Act, but failed to notice the true import of Sub-section 2(b) of Section 13. Further, the High Court completely overlooked the provisions of Sub-section (4) of Section 4 of the 1997 Act and as a result arrived at a conclusion that is patently erroneous and cannot be sustained for a moment.