Supreme Court of India
BANK OF RAJASTHAN LTD.versusVCK SHARES & STOCK BROKING SERVICES LTD.
- Citation
- 2022 INSC 1193
- Decided
- 10 November 2022
- Disposal
- Dismissed
- Bench
- SANJAY KISHAN KAUL
Holding
The RDB Act does not oust civil court jurisdiction to try a borrower’s suit and there is no statutory power to transfer such a suit to the DRT; consequently, the suit cannot be transferred and consent of the bank is immaterial.
Summary
Bank of Rajasthan Ltd. (now part of ICICI Bank) granted a term loan and overdraft facility to VCK Shares & Stock Broking Services Ltd., which defaulted. The bank sought recovery of the debt before the Debts Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act). The borrower simultaneously filed a civil suit in the Calcutta High Court challenging the bank's actions. The High Court initially held it lacked jurisdiction, but a Division Bench later restored the suit, leading to a conflict of authority among Supreme Court decisions. The Supreme Court was asked whether an independent suit by a borrower must be transferred to the DRT, whether such transfer requires the bank's consent, and whether the RDB Act ousts civil court jurisdiction. The Court held that the RDB Act does not bar civil courts from trying borrower suits, there is no statutory power to transfer such suits to the DRT, and consent is therefore irrelevant. Consequently, the appeals were dismissed and the civil suits were allowed to proceed independently of the DRT proceedings.
Issues considered
- Whether an independent suit filed by a borrower against a bank or financial institution, which has applied for recovery of its loan under the RDB Act, is liable to be transferred and tried along with the application before the DRT.
- If the answer to the above is affirmative, whether such transfer can be ordered only with the consent of the plaintiff (bank).
- Whether the scheme of the RDB Act ousts the jurisdiction of civil courts to try a suit filed by a borrower against a bank or financial institution.
Legislation cited
- Bankers' Books Evidence Act, 1891
- Code of Civil Procedure, 1908s. Order VII Rule 10, s. Section 151
- Companies Act, 2013s. Section 326
- Insolvency and Bankruptcy Code, 2016
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. Section 17, s. Section 18, s. Section 19, s. Section 31
Subjects
Recovery of debtsDebts Recovery TribunalCivil jurisdictionTransfer of suitCounterclaimSet‑offSection 151 CPCIndependent suitBank loan recoveryStatutory interpretation
Judgment
[2022] 17 S.C.R. 567 567
BANK OF RAJASTHAN LTD. A
v.
VCK SHARES & STOCK BROKING SERVICES LTD.
(Civil Appeal Nos. 8972-8973 of 2014)
NOVEMBER 10, 2022 B
[SANJAY KISHAN KAUL, ABHAY S. OKA AND
VIKRAM NATH, JJ.]
Code of Civil Procedure, 1908 : Order VII R.10 - Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (RDB) – s.
C
19 – The appellant bank sanctioned a term loan to the respondent
company, however, respondent failed to make the payment –
Appellant filed an application for recovery of the amounts before
the Debts Recovery Tribunal, (DRT) – Respondent entered
appearance to defend the proceedings, but in addition also filed a
Civil Suit in the High Court which was dismissed by the Single Judge D
on the finding that the Court lacked jurisdiction as the same
exclusively vested with the DRT – However, on appeal the Division
Bench of the High court restored the suit and held that there is no
provision in the RDB ousting jurisdiction of civil court – There existed
a difference of opinion between several benches of the Supreme
E
Court and it was considered appropriate to refer it to larger bench
– The following questions were referred : (a) Whether an independent
suit filed by a borrower against a Bank or Financial Institution,
which has applied for recovery of its loan against the plaintiff under
the RDB Act, is liable to be transferred and tried along with the
application under the RDB Act by the DRT ?;(b) If the answer is in F
the affirmative, can such transfer be ordered by a court only with
the consent of the plaintiff ?; (c) Is the jurisdiction of a Civil Court
to try a suit filed by a borrower against a Bank or Financial
Institution ousted by virtue of the scheme of the RDB Act in relation
to the proceedings for recovery of debt by a Bank or Financial
G
Institution ? – Held: There is no specific power to transfer a suit to
the DRT – Only a plaint can be returned u/Or. VII, r.10 – S.151 of
CPC cannot be utilized as a residuary power to achieve transfer –
Absence of any legislative power cannot give a power by implication
to the Civil Court –Also, not appropriate to read such power to
transfer a suit to a DRT u/s. 151 of the CPC, when DRT is a creature H
567
568 SUPREME COURT REPORTS [2022] 17 S.C.R.
A of a statute and statute does not provide for such eventuality – (b)
Once its concluded that there is no power with civil court, then
there is no question of transfer of the suit whether by consent or
otherwise – (c) There is no provision in the RDB Act by which the
remedy of a civil suit by a defendant in a claim by the bank is ousted,
but it is a matter of choice of that defendant – Such defendant may
B
file counterclaim, or may avail procedure establish under Code.
Dismissing the appeals, the Court
Held: 1.1 On a plain reading of the provisions, the
conclusion reached was that Section 17 of the RDB Act bars the
C jurisdiction of the Civil Court only in respect of applications filed
by the bank or financial institution. This provision did not bar the
jurisdiction of the Civil Court to try a suit filed by the borrower.
There was also an absence of provisions in the Act for transfer of
suits and proceedings except Section 31, which relates to pending
suit proceedings by a bank or financial institution for recovery of
D debt. [Para 39][594-G]
1.2 It was noticed that the significant aspect of Sections 17
and 18 of the RDB Act was that even after establishment of the
DRT, no jurisdiction had been conferred on it to try independent
suits or proceedings initiated by the borrower or others against
E banks/financial institutions. What has been permitted is only a
cross-action in the form of a counterclaim by a defendant in the
pending application to facilitate a unified proceeding. [Para
40][594-H; 595-A-B]
1.3 There is no provision in the RDB Act by which the
F remedy of a civil suit by a defendant in a claim by the bank is
ousted, but it is the matter of choice of that defendant. Such a
defendant may file a counterclaim, or may be desirous of availing
of the more strenuous procedure established under the Code,
and that is a choice which he takes with the consequences thereof.
G [Para 45][596-G; 597-A]
1.4 There is gainsay that there is no specific power to
transfer a suit to the DRT. A plaint can be returned only under
the provisions of Order VII Rule 10 of CPC for the reasons
specified therein. In the absence of such reasons, Section 151 of
the Code cannot be utilised as a residuary power to achieve the
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 569
BROKING SERVICES LTD.
transfer, which is really a consequence of return of the plaint when A
the grounds under Order VII Rule 10 of the Code are not
satisfied. The absence of any legislative power cannot give a
power by implication to the Civil Court. It would not be appropriate
to read such power to transfer a suit to a DRT under Section 151
of the Code when the DRT is a creature of a statute and that
B
statute does not provide for such eventuality. [Para 49][597-F-
H; 598-A]
1.5 There is no power of transfer in the Civil Court, the
consent or absence of it is not something which would lend such
power to the Civil Court. The option before the defendant, who
has instituted the suit, is clear - either he could file a counterclaim C
before the DRT or he could institute separate civil proceedings.
[Para 51][598-C-D]
United Bank of India, Calcutta v. Abhijit Tea Co. Pvt.
Ltd. And Others (2000) 7 SCC 357 : [2000] 3
Suppl. SCR 153; State Bank of India v. Ranjan D
Chemicals Ltd. and Another (2007) 1 SCC 97 : [2006]
7 Suppl. SCR 145 – held not correct law.
Indian Bank v. ABS Marine Products (P) Ltd.
(2006) 5 SCC 72 : [2006] 1 Suppl. SCR 52; Nahar
Industrial Enterprises Ltd. v. Hong Kong and Shanghai E
Banking Corporation (2009) 8 SCC 646 : [2009]
12 SCR 54 – partly affirmed.
Transcore v. Union of India (2008) 1 SCC 125 : [2006]
9 Suppl. SCR 785; Swarka Prasad Agarwal v. Ramesh
Chander Agarwal (2003) 6 SCC 220; Nagri Pracharini F
Sabha v. Vth Additional District and Sessions Judge
(1991) 2 Supp SCC 36; Ramesh Chand Arwaitya v. Anil
Panjwani (2003) 7 SCC 350 : [2003] 3 SCR 1149;
Union of India and Another v. Delhi High Court Bar
Association and Others (2002) 4 SCC 275 : [2002] 2 G
SCR 450; Dhulabhai v. State of Madhya Pradesh [1968]
3 SCR 3 660; Dwarka Prasad Agarwal (D) By LRs and
Anr. v. Ramesh Chander Agarwal and Ors. (2003)
6 SCC 220 : [2003] 1 Suppl. SCR 376 – referred to.
H
570 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Case Law Reference
[2003] 3 Suppl. SCR 153 held not correct law Para 15
[2006] 7 Suppl. SCR 145 held not correct law Para 15
[2006] 9 Suppl. SCR 785 referred to Para 25
B [1968] 3 SCR 660 referred to Para 43
[2003] 3 SCR 1149 referred to Para 25
[2002] 2 SCR 450 referred to Para 31
[1968] 3 SCR 660 referred to Para 43
C [2003] 1 Suppl. SCR 376 referred to Para 43
[2009] 12 SCR 54 Partly affirmed Para 60
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8972-
8973 of 2014.
From the Judgment and Order dated 19.04.2011 of the High Court
D at Calcutta in A.P.O. No. 488 and 489 of 2002.
V. V. Giri, Sr. Adv., Anand Shankar Jha, Arpit Gupta, Girish
Bhardwaj, Srirang Varma, Ms. Meenakshi Devgan, Abhilekh Tiwari,
Arjun Garg, O. P. Gaggar, Sachindra Karan, Akshat Gupta, Advs. for
the Appellant.
E Jaideep Gupta, Sr. Adv., Abhinav Mukerji, Mrs. Bihu Sharma,
Mrs. Pratishtha Vij, Akshay C. Shrivastava, Niraj Bobby Paonam for S.
K. Bhattacharya, Advs. for the Respondent.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
F
1. The present reference arises from a question mark over the
legal right of the borrower to initiate proceedings before a Civil Court
against the bank or financial institution, which seeks to recover a loan
amount against it.
G The Factual History:
2. The appellant bank, Bank of Rajasthan Ltd. (since amalgamated
with ICICI Bank Ltd.), sanctioned a term loan to the respondent company
on 28.06.1994 with a limit of Rs.1.50 crores at interest of 19.25% per
annum, repayable in twelve quarterly instalments. In order to secure the
loan, the guarantors including the respondent, inter alia offered title
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 571
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
deeds of immovable properties as security. By mutual agreement, a further A
credit overdraft facility was granted on 19.09.1995, up to a limit of Rs.5
crores. This additional credit was secured by the deposit of shares, stocks,
and securities of various companies. The respondent did not adhere to
financial discipline, resulting in the appellant issuing a notice on 01.07.1997,
calling upon the respondent to settle the term loan account and overdraft
B
facility account within three days of the receipt of the notice.
3. Since the respondent failed to make the payment, the appellant
filed an application, being OA No.263 of 1997, for recovery of the
amounts due under Section 19 of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (hereinafter referred to as ‘RDB
Act’) before the Debts Recovery Tribunal, Kolkata (hereinafter referred C
to as ‘the DRT’) on 21.11.1997. The appellant sought a recovery
certificate against the respondent for Rs.8,62,41,973.36 including interest
at the rate of 20.88% per annum.
4. The respondent entered appearance to defend the proceedings
but in addition also filed a Civil Suit No.77 of 1998 before the Kolkata D
High Court against the appellant on 06.03.1998. The respondent inter
alia, claimed a decree for sale of the pledged shares, recovery of sale
proceeds, and an inquiry into the losses suffered by the respondent along
with a decree for payment of money after the same.
5. A crucial development took place on 18.03.1998 when the E
appellant sold the pledged shares of BFL Software Ltd. for a total sum
of Rs.5,77,68,000/- to adjust the amounts against the dues in view of the
authorisation available with them as a part of the loan transaction. The
respondent, as a sequitur, filed Civil Suit no.129 of 1999 before the High
Court of Calcutta on 09.03.1999 praying, inter alia, for the following F
reliefs:
“i) A declaration that the sale of shares of BFL Software Ltd.
was void;
ii) a decree for return of pledged shares in respect of overdraft
facility account, and in default to pay Rs. 48.95 crores; and G
iii) a declaration that no sum was payable by the Respondent to
the Appellant in respect of the term loan dated 27.07.1994 and
Overdraft Account dated 19.09.1995 and that the Appellant bank
was not entitled to a decree for a sum of Rs. 8,62,41,973.36 from
the Respondent.” H
572 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 6. The appellant, in those proceedings, filed applications, being
GA No.4206 of 2000 in C.S. No.77 of 1998 and GA No.4171 of 2000 in
C.S. No.129 of 1999 in November 2000, seeking rejection of the plaint
and dismissal of the suits filed by the respondent. It was claimed that the
suits were not maintainable and that the High Court lacked jurisdiction
as the same exclusively vested with the DRT. The learned Single Judge
B
vide order dated 06.09.2022 allowed both the applications of the appellant
and directed the suits to be taken off from the file of the High Court.
The respondent filed two appeals, being APOT No.691 of 2002 (later
APO No.488 of 2002) and APOT No.692 of 2002 (later APO No.489
of 2002), challenging the order dated 06.09.2022 of the learned Single
C Judge. The Division Bench vide its order dated 27.09.2022 stayed the
operation of the order of the learned Single Judge while admitting the
appeal.
7. Insofar as the DRT proceedings were concerned, OA No.263
of 1997 was disposed of by the DRT vide order dated 19.05.2003
D predicated on a reasoning that the appellant bank’s claim of
Rs.6,04,17,777.36 was satisfied through sale of pledged shares. It found
that the amount actually due under the proceedings stood settled and
paid. The appellant was directed to return the title deeds of the pledged
shares and other securities to respondent. On the counter claim filed by
the respondent, the DRT held that the respondent was entitled to recover
E Rs.6,88,187.49 from the appellant within four weeks of the order. The
respondent was also granted liberty to file appropriate proceedings for
recovery of dividends on the pledged shares except the sum of
Rs.20,11,337.35 for which set off was allowed in the proceedings.
8. The appellant, feeling aggrieved, proceeded to file an appeal
F before the Debts Recovery Appellate Tribunal, Kolkata (hereinafter
referred to as ‘the DRAT’) with M.A. No.31 of 2003, which was
dismissed vide an order dated 14.11.2003 opining that the appellant should
have sold the shares in 1996 and, thus was not entitled to claim interest.
The appellant still not being satisfied moved C.O. No.2777 of 2003 under
G Article 227 of the Constitution of India before the Kolkata High Court
on 17.11.2003 which was, however, dismissed in default vide High Court
order dated 11.02.2004 but restored later before a Single Judge vide
order dated 16.01.2013. We are informed that these proceedings also
stand dismissed on 26.08.2019 and, thus, there appears to be a quietus to
the extent of claim of the bank. The respondent, in terms of the decree,
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 573
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
has also received the amounts due to it and thus nothing survives qua A
that aspect.
9. Now, coming back to the suit instituted by the respondent, which
was dismissed by the learned Single Judge on the finding that the Court
lacked jurisdiction; the Division Bench allowed the appeals filed by the
respondent against the orders of the learned Single Judge in two cases, B
and it is the decision in the two appeals permitting continuation of suits
which have been assailed before this Court.
Rationale of the Division Bench in restoring the suits:
10. The respondent successfully contended before the High Court
that there was no provision under the RDB Act for ousting the jurisdiction C
of the Civil Court and to entertain a suit against banks and financial
institutions. There was also no provision to allow for transfer of suits
against banks and the financial institutions which were pending before
the Civil Court. It was thus submitted that the jurisdiction of the Civil
Court would remain intact even after the amendment to the RDB Act D
effected in the year 2000, whereby the provisions for set-off and
counterclaims were included under Section 19 of the RDB Act. The
newly inserted sub-Sections (7) and (9) under Section 19 provided that a
set-off/counterclaim filed by the borrower would have the same effect
as a plaint in a cross-suit to be determined by the DRT.
E
11. The case of the appellant was that the proceedings before the
DRT were already pending when the suits were filed by the respondent.
Thus, the issue ought to have been raised in the statement of defence
either by way of set-off or a counterclaim before the DRT. It was pointed
out that the respondent had initially not raised such a counterclaim in the
proceedings before the DRT, but later this issue (subject matter of F
subsequent suit, being CS No.129 of 1999) had been added by way of
amendment. The respondent pointed out that under the RDB Act, banks
and financial institutions were placed in an unequal position as they were
barred from raising a counterclaim before the Civil Court.
12. The Division Bench of the High Court opined that as per the G
view of this Court in Nahar Industrial Enterprises Ltd. v. Hong Kong
and Shanghai Banking Corporation,1 a suit filed by a borrower against
the bank was not barred before the Civil Court, although a suit filed by
the bank against the borrower was barred. This judgment was found to
1
(2009) 8 SCC 646. H
574 SUPREME COURT REPORTS [2022] 17 S.C.R.
A be the authority on the point as it came subsequent to the other decisions
of the Supreme Court on this issue.
Proceedings before this Court:
13. The reference in the present proceedings arose out of an order
dated 17.09.2014 noticing an apparent conflict of views. It was observed
B that a two-Judges Bench of this Court in United Bank of India, Calcutta
v. Abhijit Tea Co. Pvt. Ltd. And Others2 had taken a view that as per
the legislative scheme of the RDB Act, jurisdiction was conferred upon
the DRT to try a counterclaim and set-off under Section 19 of the RDB
Act and that all such counter-claims and set-offs, including a cross-suit
C filed independently, should be tried by the DRT.
14. In a later decision in Indian Bank v. ABS Marine Products
(P) Ltd.3 a Division Bench of this Court took the view that the jurisdiction
of the Civil Courts was not barred in regard to any suit filed by the
borrower against a bank for any relief. Jurisdiction was barred only in
D regard to applications by a bank or a financial institution for recovery of
its debts. It was held that although a counterclaim and set-off may be
made under sub-Sections (6) and (11) of Section 19 of the RDB Act, no
jurisdiction was conferred on the DRT to try independent suits or
proceedings initiated by the borrowers. It was thus held that the borrower
had the option to file a separate suit before the Civil Court and the
E counterclaim before the DRT was not the only remedy. Referring to the
earlier judgment in Abhijit Tea Co. Pvt. Ltd. & Others (supra), the
Bench in the Indian Bank (supra) observed that an independent suit
can be deemed to be a counterclaim and can be transferred to DRT only
if the following conditions are satisfied:
F “a. The subject matter of the bank’s 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.
b. Both parties (the plaintiff in the suit against the bank and the
G bank) should agree for the independent suit being considered as a
counter-claim in the bank’s application before the Tribunal, so
that both can be heard and disposed of by the Tribunal.”
2
(2000) 7 SCC 357.
H 3
(2006) 5 SCC 72.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 575
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
15. Another Co-ordinate Bench of this Court in State Bank of A
India vs. Ranjan Chemicals Ltd. and Another4 held that there was
no need to restrict the power of the Civil Court to order joint trial by
introducing a condition that a joint trial could be ordered only with the
consent of both parties. It was observed on the basis of Abhijit Tea
Co.’s case that a claim in an independent suit could be considered as a
B
claim for set-off and counterclaim within the meaning of Section 19 of
the RDB Act.
16. Thus, in the reference order, it was mentioned that subsequent
to the Ranjan Chemicals Ltd. case (supra), another Division Bench in
Nahar Industrial Enterprises Ltd. case (supra) held that the decision
in Ranjan Chemicals Ltd. (supra) could not have departed from the C
decision in Indian Bank case (supra), both being Coordinate Benches.
It was thus concluded that there existed a difference of opinion between
several benches of this Court on this issue and it was considered
appropriate to refer the following questions to a larger Bench.
“(a). Whether an independent suit filed by a borrower against a D
Bank or Financial Institution, which has applied for recovery of
its loan against the plaintiff under the RDB Act, is liable to be
transferred and tried along with the application under the RDB
Act by the DRT ?
(b). If the answer is in the affirmative, can such transfer be ordered E
by a court only with the consent of the plaintiff?
(c). Is the jurisdiction of a Civil Court to try a suit filed by a
borrower against a Bank or Financial Institution ousted by virtue
of the scheme of the RDB Act in relation to the proceedings for
recovery of debt by a Bank or Financial Institution?” F
17. We are thus to opine on the aforesaid questions referred to
us.
Plea of the Appellant:
Question No.1 G
18. The Supreme Court of India in Indian Bank case (supra),
Ranjan Chemicals Ltd. case (supra) and Nahar Industrial Enterprises
Ltd. case (supra) has had no cleavage of opinion regarding the first
4
(2007) 1 SCC 97. H
576 SUPREME COURT REPORTS [2022] 17 S.C.R.
A question referred to a larger bench as they held that an independent suit
by a borrower can be transferred and tried along with the original
application by the bank under the RDB Act. The difference of opinion
arose only with respect to consent of the parties. These decisions have
set no bar in law regarding the transfer of independent suit filed by the
borrower against the bank to be decided as a counterclaim/set-off by
B
the DRT in an original application filed by the bank.
19. The appellant contended that non-consolidation of actions may
lead to multiplicity of actions and conflicting decisions between the same
parties on the same cause of action and, thus, sought answer in the
affirmative to the first question.
C
Question no.2
20. Mr.V.V. Giri, learned senior counsel for the appellant, while
conceding that consolidation of suits is not superficially provided for under
the Civil Procedure Code, 1908 (hereinafter referred to as ‘the Code’),
D contended this Court on multiple occasions has held that the absence of
specific provisions governing consolidation of suits provided for in the
Code, the Court may exercise its inherent powers under Section 151 of
the Code directing consolidation.5
21. The only cavil to the proposition is that Section 151 of the
E Code cannot be utilised to pass orders contrary to the express provisions
of the Code. In view of this legal position, it was contended that no
consent of parties is required for exercise of the inherent powers of the
Court and, thus, the opinion in Indian Bank’s case (supra) followed in
Nahar Industrial Enterprises case (supra) putting such a consent as a
pre-condition to direct consolidation of suits by the borrowers is contrary
F to the permissible exercise of inherent powers of the Court under Section
151 of the Code. Thus, question no.2 was requested to be answered in
the negative.
Question no.3
22. The provisions of RDB Act provide for a complete scheme to
G
try a counterclaim/set-off filed by the borrower along with a written
statement to an OA filed by the bank as a cross-suit. This was stated to
5
Mahalaxmi Co-operative Housing Society Ltd. v. AshabhaiAtmaram Patel, (2013)
4 SCC 404 (Paras 45-46); Chitivasala Jute Mills v. Jaypee Rewa Cement, (2004) 3
SCC 85 (Para 12); and KK Velusamy v. N. Palanisamy, (2011) 11 SCC 275, (Para
H 12).
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 577
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
be quite evident from a plain reading of Section 19(7) and Section 19(9) A
of the RDB Act. The overall scheme of Sections 17, 18 and 19 of the
RDB Act was contended to form a bar for the purposes of Section 9 of
the Code.
23. The extensive provisions i.e. Sections 19(5), (6), (8), (10-A),
(10-B), (13) and (20) regarding filing of counter-claim/set-off, verification B
of counter-claim/set-off in a manner similar to the pleadings before Civil
Court, evidence by way of affidavit and provisions regarding cross-
examination in rules; demonstrate that sufficient powers have been vested
in the DRT to try claims raised by the borrower inextricably connected
with the claim of the bank. These provisions are enacted to guard against
multiplicity of proceedings in relation to similar subject matters, once C
before the DRT and another before the Civil Court. Thus, even Question
no.3 was sought for to be answered in the affirmative.
Submissions on behalf of the respondent:
24. It is contended by Mr. Jaideep Gupta, learned senior counsel D
for the respondent, that the RDB Act was enacted with the objective of
providing a summary procedure to enable banks and financial institutions
to recover debts due to them in a speedy manner and it did not oust the
jurisdiction of Civil Courts. The purpose of the statute would be defeated
if there was an influx of civil suits filed by the borrowers against the
lenders before the DRT. It was also pointed out that there were no E
provisions in the RDB Act to permit a counterclaim to be adjudicated
independently even if the suit of the plaintiff failed.
25. Learned senior counsel for the respondent submitted that as
per Transcore v. Union of India6 the DRT is a creature of statute and
has no inherent power, which exists in Civil Courts. In Swarka Prasad F
Agarwal v. Ramesh Chander Agarwal7 it was held that a provision
seeking to circumscribe the jurisdiction of a Civil Court would require
strict interpretation and the Court ordinarily leans toward upholding the
jurisdiction of the Civil Courts. Learned senior counsel also sought to
rely on Nagri Pracharini Sabha v. Vth Additional District and G
Sessions Judge8 and Ramesh Chand Arwaitya v. Anil Panjwani9 to
submit that a litigant having a grievance of a civil nature has an
6
(2008) 1 SCC 125
7
(2003) 6 SCC 220
8
(1991) Supp 2 SCC 36
9
(2003) 7 SCC 350 H
578 SUPREME COURT REPORTS [2022] 17 S.C.R.
A independent right to institute a civil suit; and that Civil Court can entertain
a civil suit even where a special Tribunal conferred with the exclusive
jurisdiction to try a particular class of cases exists.
26. It was, thus, urged that the judgment of this Court in Indian
Bank case (supra) and Nahar Industrial Enterprises case (supra)
B had correctly declared the law on the subject.
The scheme of the RDB Act
27. Banks and financial institutions lend public money to assist
entrepreneurs in their business. Thus, on one hand, there is the interest
of public, whose funds are utilised, while on the other hand are the
C business establishments which need funds for their business. Banks and
financial institutions in a sense are intermediaries in the process.
28. Litigation instituted by banks and financial institutions became
coloured by gross delays in the civil proceedings, as a result of which
defaulters were at a premium. Borrowers who maintained financial
D discipline were the ones at a disadvantage. The borrowing process was
being misused and a large amount of public funds were stuck in litigation.
29. In order to expedite the recovery of dues, the RDB Act was
enacted by Parliament on 27.08.1993 and brought into force w.e.f.
24.06.1993. The RDB Act provided for the establishment of a tribunal
E for expeditious adjudication and recovery of debts due to banks and
financial institutions and for all matters connected therewith. The RDB
Act is comprehensive in character in terms of providing the methodology
towards the said objective.
30. In this regard, it would be apposite to note the Statement of
F Objects and Reasons for enacting the RDB Act:
“Banks and financial institutions at present experience considerable
difficulties in recovering loans and enforcement of securities
charged with them. The existing procedure for recovery of debts
due to the banks and financial institutions has blocked a significant
G portion of their funds in unproductive assets, the value of which
deteriorates with the passage of time. The Committee on the
Financial System headed by Shri M. Narasimham has considered
the setting up of the Special Tribunals with special powers for
adjudication of such matters and speedy recovery as critical to
the successful implementation of the financial sector reforms. An
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 579
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
urgent need was, therefore, felt to work out a suitable mechanism A
through which the dues to the banks and financial institutions could
be realised without delay. In 1981, a Committee under the
chairmanship of Shri T. Tiwari had examined the legal and other
difficulties faced by banks and financial institutions and suggested
remedial measures including changes in law. The Tiwari Committee
B
had also suggested setting up of Special Tribunals for recovery of
dues of the banks and financial institutions by following a summary
procedure. The setting up of Special Tribunals will not only fulfil a
long-felt need, but also will be an important step in the
implementation of the report of Narasimham Committee. Whereas
on 30-9-1990 more than fifteen lakhs of cases filed by the public C
sector banks and about 304 cases filed by the financial institutions
were pending in various courts, recovery of debts involved more
than Rs 5622 crores in dues of public sector banks and about Rs
391 crores of dues of the financial institutions. The locking up of
such huge amount of public money in litigation prevents proper
D
utilisation and recycling of the funds for the development of the
country.”
31. It is pertinent to note that a challenge was laid to the RDB Act
as it originally did not contain any provisions allowing a defendant in an
application filed by a bank to claim any setoff or counterclaim against
them. This issue received consideration in Union of India and Another E
vs. Delhi High Court Bar Association and Others10. By the time the
judgment was made, the RDB Act was suitably amended by Act 1 of
2000 to include such provisions, and consequently the same were upheld.
The Statutory Framework
F
32. Chapter III of the RDB Act has the heading ‘Jurisdiction,
Powers and Authority of Tribunals’.
33. Section 17 of the RDB Act delineates the jurisdiction of the
DRT as follows:
“17. Jurisdiction, powers and authority of Tribunals.— (1) G
A Tribunal shall exercise, on and from the appointed day, the
jurisdiction, powers and authority to entertain and decide
applications from the banks and financial institutions for recovery
of debts due to such banks and financial institutions.
10
(2002) 4 SCC 275. H
580 SUPREME COURT REPORTS [2022] 17 S.C.R.
A [(1A) Without prejudice to sub-section (1),—
(a) the Tribunal shall exercise, on and from the date to be
appointed by the Central Government, the jurisdiction, powers
and authority to entertain and decide applications under Part
III of Insolvency and Bankruptcy Code, 2016 (31 of 2016).
B (b) the Tribunal shall have circuit sittings in all district
headquarters.]
(2) An Appellate Tribunal shall exercise, on and from the appointed
day, the jurisdiction, powers and authority to entertain appeals
against any order made, or deemed to have been made, by a
C Tribunal under this Act.
[(2A) Without prejudice to sub-section (2), the Appellate
Tribunal shall exercise, on and from the date to be appointed
by the Central Government, the jurisdiction, powers and
authority to entertain appeals against the order made by the
D Adjudicating Authority under Part III of the Insolvency and
Bankruptcy Code, 2016 (31 of 2016).]”
34. The expression ‘debt’, as used in Section 17, is defined under
Section 2(g) of the RDB Act:
“2. Definitions.—In this Act, unless the context otherwise
E
requires,—
[(g) “debt” means any liability (inclusive of interest) which is
claimed as due from any person by a bank or a financial
institution or by a consortium of banks or financial institutions
during the course of any business activity undertaken by the
F
bank or the financial institution or the consortium under any
law for the time being in force, in cash or otherwise, whether
secured or unsecured, or assigned, or whether payable under
a decree or order of any civil court or any arbitration award or
otherwise or under a mortgage and subsisting on, and legally
G recoverable on, the date of the application 1 [and includes any
liability towards debt securities which remains unpaid in full or
part after notice of ninety days served upon the borrower by
the debenture trustee or any other authority in whose favour
security interest is created for the benefit of holders of debt
securities or;]]”
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 581
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
35. Section 18 creates a bar for the Civil Court in relation to matters A
specified under Section 17 of the RDB Act. It provides as under:
“18. Bar of jurisdiction.—On and from the appointed day, no
court or other authority shall have, or be entitled to exercise, any
jurisdiction, powers or authority (except the Supreme Court, and
a High Court exercising jurisdiction under articles 226 and 227 of B
the Constitution) in relation to the matters specified in section 17:
[Provided that any proceedings in relation to the recovery of debts
due to any multi-State co-operative bank pending before the date
of commencement of the Enforcement of Security Interest and
Recovery of Debts Laws (Amendment) Act, 2012 (1 of 2013) C
under the Multi-State Co-operative Societies Act, 2002 (39 of
2002) shall be continued and nothing contained in this section shall,
after such commencement, apply to such proceedings.]”
36. Section 19 relates to the procedure before the DRT for the
making of applications for recovery. It provides as follows: D
“[19. Application to the Tribunal.— (1) Where a bank or a
financial institution has to recover any debt from any person, it
may make an application to the Tribunal within the local limits of
whose jurisdiction—
[(a) the branch or any other office of the bank or financial E
institution is maintaining an account in which debt claimed is
outstanding, for the time being; or]
[(aa)] the defendant, or each of the defendants where there
are more than one, at the time of making the application, actually
and voluntarily resides, or carries on business, or personally F
works for gain; or
(b) any of the defendants, where there are more than one, at
the time of making the application, actually and voluntarily
resides, or carries on business, or personally works for gain; or
(c) the cause of action, wholly or in part, arises: G
[Provided that the bank or financial institution may, with
the permission of the Debts Recovery Tribunal, on an application
made by it, withdraw the application, whether made before or
after the Enforcement of Security Interest and Recovery of Debts
H
582 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Laws (Amendment) Act, 2004 (30 of 2004) for the purpose of
taking action under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(54 of 2002), if no such action had been taken earlier under that
Act:
B Provided further that any application made under the first
proviso for seeking permission from the Debts Recovery Tribunal
to withdraw the application made under sub-section (1) shall be
dealt with by it as expeditiously as possible and disposed of within
thirty days from the date of such application:
C Provided also that in case the Debts Recovery Tribunal
refuses to grant permission for withdrawal of the application filed
under this sub-section, it shall pass such orders after recording
the reasons therefor.]
[(1A) Every bank being, multi-State co-operative bank
D referred to in sub-clause (vi) of clause (d) of section 2, may, at its
option, opt to initiate proceedings under the Multi-State Co-
operative Societies Act, 2002 (39 of 2002) to recover debts,
whether due before or after the date of commencement of the
Enforcement of the Security Interest and Recovery of Debts Laws
(Amendment) Act, 2012 (1 of 2013) from any person instead of
E making an application under this Chapter.
(1B) In case, a bank being, multi-State co-operative bank
referred to in sub-clause (vi) of clause (d) of section 2 has filed
an application under this Chapter and subsequently opts to
withdraw the application for the purpose of initiating proceeding
F under the Multi-State Co-operative Societies Act, 2002 (39 of
2002) to recover debts, it may do so with the permission of the
Tribunal and every such application seeking permission from the
Tribunal to withdraw the application made under sub-section (1A)
shall be dealt with by it as expeditiously as possible and disposed
G of within thirty days from the date of such application:
Provided that in case the Tribunal refuses to grant permission
for withdrawal of the application filed under this sub-section, it
shall pass such orders after recording the reasons therefor.]
(2) Where a bank or a financial institution, which has to
H recover its debt from any person, has filed an application to the
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 583
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
Tribunal under sub-section (1) and against the same person another A
bank or financial institution also has claim to recover its debt,
then, the later bank or financial institution may join the applicant
bank or financial institution at any stage of the proceedings, before
the final order is passed, by making an application to that Tribunal.
[(3) Every application under sub-section (1) or sub-section B
(2) shall be in such form, and shall be accompanied with true
copies of all documents relied on in support of the claim along
with such fee, as may be prescribed:]
Provided that the fee may be prescribed having regard to
the amount of debt to be recovered: C
Provided further that nothing contained in this sub-section
relating to fee shall apply to cases transferred to the Tribunal
under sub-section (1) of section 31.
[Explanation.—For the purposes of this section, documents
includes statement of account or any entry in banker’s book duly D
certified under the Bankers’ Books Evidence Act, 1891 (18 of
1891).]
[(3A) Every applicant in the application filed under sub-
section (1) or sub-section (2) for recovery of debt, shall—
E
(a) state particulars of the debt secured by security interest
over properties or assets belonging to any of the defendants and
the estimated value of such securities;
(b) if the estimated value of securities is not sufficient to
satisfy the debt claimed, state particulars of any other properties
F
or assets owned by any of the defendants, if any; and
(c) if the estimated value of such other assets is not sufficient
to recover the debt, seek an order directing the defendant to disclose
to the Tribunal particulars of other properties or assets owned by
the defendants.]
G
[(3B)] If any application filed before the Tribunal for
recovery of any debt is settled prior to the commencement of the
hearing before that Tribunal or at any stage of the proceedings
before the final order is passed, the applicant may be granted
refund to the fees paid by him at such rates as may be prescribed.]
H
584 SUPREME COURT REPORTS [2022] 17 S.C.R.
A [(4) On receipt of application under sub-section (1) or sub-
section (2), the Tribunal shall issue summons with following
directions to the defendant—
(i) to show cause within thirty days of the service of
summons as to why relief prayed for should not be granted;
B (ii) direct the defendant to disclose particulars of
properties or assets other than properties and assets specified
by the applicant under clauses (a) and (b) of sub-section (3A);
and
(iii) to restrain the defendant from dealing with or
C disposing of such assets and properties disclosed under clause
(c) of sub-section (3A) pending the hearing and disposal of the
application for attachment of properties.]
[(4A) Notwithstanding anything contained in section 65A
of the Transfer of Property Act, 1882 (4 of 1882), the defendant,
D on service of summons, shall not transfer by way of sale, lease or
otherwise except in the ordinary course of his business any of the
assets over which security interest is created and other properties
and assets specified or disclosed under sub-section (3A), without
the prior approval of the Tribunal:
E Provided that the Tribunal shall not grant such approval
without giving notice to the applicant bank or financial institution
to show cause as to why approval prayed for should not be granted:
Provided further that defendant shall be liable to account
for the sale proceeds realised by sale of secured assets in the
F ordinary course of business and deposit such sale proceeds in the
account maintained with the bank or financial institution holding
security interest over such assets.]
[(5) (i) the defendant shall within a period of thirty days
from the date of service of summons, present a written statement
G of his defence including claim for set-off under sub-section (6) or
a counter-claim under sub-section (8), if any, and such written
statement shall be accompanied with original documents or true
copies thereof with the leave of the Tribunal, relied on by the
defendant in his defence:
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 585
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
Provided that where the defendant fails to file the written A
statement within the said period of thirty days, the Presiding
Officer may, in exceptional cases and in special circumstances to
be recorded in writing, extend the said period by such further
period not exceeding fifteen days to file the written statement of
his defence;
B
(ii) where the defendant makes a disclosure of any property
or asset pursuant to orders passed by the Tribunal, the provisions
of sub-section (4A) of this section shall apply to such property or
asset;
(iii) in case of non-compliance of any order made under C
clause (ii) of sub-section (4), the Presiding Officer may, by an
order, direct that the person or officer who is in default, be detained
in civil prison for a term not exceeding three months unless in the
meantime the Presiding Officer directs his release:
Provided that the Presiding Officer shall not pass an order D
under this clause without giving an opportunity of being heard to
such person or officer.
Explanation.—For the purpose of this section, the expression
‘officer who is in default’ shall mean such officer as defined in
clause (60) of section 2 of the Companies Act, 2013 (18 of 2013).] E
[(5A) On receipt of the written statement of defendant or
on expiry of time granted by the Tribunal to file the written
statement, the Tribunal shall fix a date of hearing for admission or
denial of documents produced by the parties to the proceedings
and also for continuation or vacation of the interim order passed F
under sub-section (4).
(5B) Where a defendant makes an admission of the full or
part of the amount of debt due to a bank or financial institution,
the Tribunal shall order such defendant to pay the amount, to the
extent of the admission within a period of thirty days from the
G
date of such order failing which the Tribunal may issue a certificate
in accordance with the provisions of sub-section (22) to the extent
of the amount of debt due admitted by the defendant.]
(6) Where the defendant claims to set-off against the
applicant’s demand any ascertained sum of money legally
H
586 SUPREME COURT REPORTS [2022] 17 S.C.R.
A recoverable by him from such applicant, the defendant may, at
the first hearing of the application, but not afterwards unless
permitted by the Tribunal, present a written statement containing
the particulars of the debt 2 [the debt sought to be set-off along
with original documents and other evidence relied on in support of
claim of set-off in relation to any ascertained sum of money, against
B
the applicant].
(7) The written statement shall have the same effect as a
plaint in a cross-suit so as to enable the Tribunal to pass a final
order in respect both of the original claim and of the set-off.
C (8) A defendant in an application may, in addition to his
right of pleading a set-off under sub-section (6), set up, by way of
counter-claim against the claim of the applicant, any right or claim
in respect of a cause of action accruing to the defendant against
the applicant either before or after the filing of the application but
before the defendant has delivered his defence or before the time
D limited for delivering his defence has expired, whether such
counter-claim is in the nature of a claim for damages or not.
(9) A counter-claim under sub-section (8) shall have the
same effect as a cross-suit so as to enable the Tribunal to pass a
final order on the same application, both on the original claim and
E on the counter-claim.
(10) The applicant shall be at liberty to file a written statement
in answer to the counter-claim of the defendant within such period
3 [as may be prescribed].
F [(10A) Every application under sub-section (3) or written
statement of defendant under sub-section (5) or claim of set-off
under sub-section (6) or a counter-claim under sub-section (8) by
the defendant, or written statement by the applicant in reply to the
counter-claim, under sub-section (10) or any other pleading
whatsoever, shall be supported by an affidavit sworn in by the
G applicant or defendant verifying all the facts and pleadings, the
statements pleading documents and other documentary evidence
annexed to the application or written statement or reply to set-off
or counter-claim, as the case may be:
Provided that if there is any evidence of witnesses to be
H led by any party, the affidavits of such witnesses shall be filed
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 587
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
simultaneously by the party with the application or written A
statement or replies filed under sub-section (10A).
(10B) If any of the facts or pleadings in the application or
written statement are not verified in the manner provided under
sub-section (10A), a party to the proceedings shall not be allowed
to rely on such facts or pleadings as evidence or any of the matters B
set out therein.]
[(11) Where a defendant sets up a counter-claim in the
written statement and in reply to such claim the applicant contends
that the claim thereby raised ought not to be disposed of by way
of counter-claim but in an independent action, the Tribunal shall C
decide such issue along with the claim of the applicant for recovery
of the debt.]
* * * * *
(13)(A) Where, at any stage of the proceedings, 3 [the Tribunal
on an application made by the applicant along with particulars of D
property to be attached and estimated value thereof, or otherwise
is satisfied], that the defendant, with intent to obstruct or delay or
frustrate the execution of any order for the recovery of debt that
may be passed against him,—
(i) is about to dispose of the whole or any part of his property; E
or
(ii) is about to remove the whole or any part of his property
from the local limits of the jurisdiction of the Tribunal; or
(iii) is likely to cause any damage or mischief to the property or
F
affect its value by misuse or creating third party interest,
the Tribunal may direct the defendant, within a time to be fixed by
it, either to furnish security, in such sum as may be specified in the
order, to produce and place at the disposal of the Tribunal, when
required, the said property or the value of the same, or such portion
thereof as may be sufficient to satisfy the certificate for the G
recovery of the debt, or to appear and show cause why he should
not furnish security.
(B) Where the defendant fails to show cause why he should
not furnish security, or fails to furnish the security required, within
H
588 SUPREME COURT REPORTS [2022] 17 S.C.R.
A the time fixed by the Tribunal, the Tribunal may order the attachment
of the whole or such portion of the properties claimed by the
applicant as the properties secured in his favour or otherwise
owned by the defendant as appears sufficient to satisfy any
certificate for the recovery of debt.
B * * * * *
(15) The Tribunal may also in the order direct the conditional
attachment of the whole or any portion of the property specified
under 5 [sub-section (13)].
(16) If an order of attachment is made without complying with
C the provisions of sub-section (13), such attachment shall be void.
(17) In the case of disobedience of an order made by the Tribunal
under sub-sections (12), (13) and (18) or breach of any of the
terms on which the order was made, the Tribunal may order the
properties of the person guilty of such disobedience or breach to
D be attached and may also order such person to be detained in the
civil prison for a term not exceeding three months, unless in the
meantime the Tribunal directs his release.
(18) Where it appears to the Tribunal to be just and convenient,
the Tribunal may, by order—
E
(a) appoint a receiver of any property, whether before
or after grant of certificate for recovery of debt;
(b) remove any person from the possession or custody
of the property;
F (c) commit the same to the possession, custody or
management of the receiver;
(d) confer upon the receiver all such powers, as to
bringing and defending suits in the courts or filing and defending
applications before the Tribunal and for the realisation,
G management, protection, preservation and improvement of the
property, the collection of the rents and profits thereof, the
application and disposal of such rents and profits, and the
execution of documents as the owner himself has, or such of
those powers as the Tribunal thinks fit; and
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 589
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
(e) appoint a Commissioner for preparation of an A
inventory of the properties of the defendant or for the sale
thereof.
[(19) Where a certificate of recovery is issued against a
company as defined under the Companies Act, 2013 (18 of 2013)
and such company is under liquidation, the Tribunal may by an B
order direct that the sale proceeds of secured assets of such
company be distributed in the same manner as provided in section
326 of the Companies Act, 2013 or under any other law for the
time being in force.]
[(20) The Tribunal may, after giving the applicant and the C
defendant, an opportunity of being heard, in respect of all claims,
set-off or counter-claim, if any, and interest on such claims, within
thirty days from the date of conclusion of the hearings, pass interim
or final order as it deems fit which may include order for payment
of interest from the date on which payment of the amount is found
due up to the date of realisation or actual payment.] D
[(20A) Where it is proved to the satisfaction of the Tribunal
that the claim of the applicant has been adjusted wholly or in part
by any lawful agreement or compromise in writing and signed by
the parties or where the defendant has repaid or agreed to repay
the claim of the applicant, the Tribunal shall pass orders recording E
such agreement, compromise or satisfaction of the claim.]
(20AA) While passing the final order under sub-section (20),
the Tribunal shall clearly specify the assets of the borrower which
security interest is created in favour of any bank or financial
institution and direct the Recovery Officers to distribute the sale F
proceeds of such assets as provided in sub-section (20AB).
(20AB) Notwithstanding anything to the contrary contained
in any law for the time being in force, the proceeds from sale of
secured assets shall be distributed in the following orders of priority,
namely:— G
(i) the costs incurred for preservation and protection of
secured assets, the costs of valuation, public notice for possession
and auction and other expenses for sale of assets shall be paid in
full;
H
590 SUPREME COURT REPORTS [2022] 17 S.C.R.
A (ii) debts owed to the bank or financial institution.
Explanation.—For the purposes of this sub-section, it is
hereby clarified that on or after the commencement of the
Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases
where insolvency and bankruptcy proceedings are pending in
B respect of secured assets of the borrower, the distribution of
proceeds from the sale of secured assets shall be subject to the
order of priority as provided in that Code.]
[(21) (i) The Tribunal shall send a copy of its final order
and the recovery certificate, to the applicant applicant and
C defendant.
(ii) The applicant and the defendant may obtain copy of
any order passed by the Tribunal on payment on such fee as may
be prescribed.]
[(22) The Presiding Officer shall issue a certificate of
D recovery along with the final order, under sub-section (20), for
payment of debt with interest under his signature to the Recovery
Officer for recovery of the amount of debt specified in the
certificate.]
[(22A) Any recovery certificate issued by the Presiding
E Officer under sub-section (22) shall be deemed to be decree or
order of the Court for the purposes of initiation of winding up
proceedings against a company registered under the Companies
Act, 2013 (18 of 2013) or Limited Liability Partnership registered
under the Limited Liability Partnership Act, 2008 (6 of 2009) or
F insolvency proceedings against any individual or partnership firm
under any law for the time being in force, as the case may be.]
(23) Where the Tribunal, which has issued a certificate of
recovery, is satisfied that the property is situated within the local
limits of the jurisdiction of two or more Tribunals, it may send the
copies of the certificate of recovery for execution to such other
G
Tribunals where the property is situated:
Provided that in a case where the Tribunal to which the
certificate of recovery is sent for execution finds that it has no
jurisdiction to comply with the certificate of recovery, it shall return
the same to the Tribunal which has issued it.
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 591
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
(24) The application made to the Tribunal under sub-section A
(1) or sub-section (2) shall be dealt with by it as expeditiously as
possible and 1 [every effort shall be made by it to complete the
proceedings in two hearings, and] to dispose of the application
finally within one hundred and eighty days from the date of receipt
of the application.
B
(25) The Tribunal may made such orders and give such
directions as may be necessary or expedient to give effect to its
orders or to prevent abuse of its process or to secure the ends of
justice.]”
37. Section 31 provides for the transfer of pending cases before C
courts to the DRT on the date of establishment of the same:
“31. Transfer of pending cases.—(1) Every suit or other
proceeding pending before any court immediately before the date
of establishment of a Tribunal under this Act, being a suit or
proceeding the cause of action whereon it is based is such that it D
would have been, if it had arisen after such establishment, within
the jurisdiction of such Tribunal, shall stand transferred on that
date to such Tribunal:
Provided that nothing in this sub-section shall apply to any
appeal pending as aforesaid before any court: E
[Provided further that any recovery proceedings in relation
to the recovery of debts due to any multi-State co-operative bank
pending before the date of commencement of the Enforcement
of Security Interest and Recovery of Debts Laws (Amendment)
Act, 2012 (1 of 2013) under the Multi-State Co-operative Societies F
Act, 2002 (39 of 2002), shall be continued and nothing contained
in this section shall apply to such proceedings.]
(2) Where any suit or other proceeding stands transferred
from any court to a Tribunal under sub-section (1),—
(a) the court shall, as soon as may be after such transfer, G
forward the records of such suit or other proceeding to the
Tribunal; and
(b) the Tribunal may, on receipt of such records, proceed
to deal with such suit or other proceeding, so far as may be, in
the same manner as in the case of an application made under H
592 SUPREME COURT REPORTS [2022] 17 S.C.R.
A section 19 from the stage which was reached before such
transfer or from any earlier stage 2 *** as the Tribunal may
deed fit.”
The reference before us
38. The interplay of the provisions of the RDB Act and the Code
B has been discussed in the aforesaid judgment in Indian Bank’s case
(supra). We find it appropriate to extract the paragraphs which deal
with this aspect:
“15. It is evident from Sections 17 and 18 of the Debts Recovery
Act that civil court’s jurisdiction is barred only in regard to
C applications by a bank or a financial institution for recovery of its
debts. The jurisdiction of civil courts is not barred in regard to any
suit filed by a borrower or any other person against a bank for
any relief. It is not disputed that the Calcutta High Court had
jurisdiction to entertain and dispose of C.S. No.7/1995 filed by the
D borrower when it was filed and continues to have jurisdiction to
entertain and dispose of the said suit. There is no provision in the
Act for transfer of suits and proceedings, except section 31 which
relates to suit/proceeding by a Bank or financial institution for
recovery of a debt. It is evident from Section 31 that only those
cases and proceedings (for recovery of debts due to banks and
E financial institutions) which were pending before any court
immediately before the date of establishment of a tribunal under
the Debts Recovery Act stood transferred, to the Tribunal. In this
case, there is no dispute that the Debt Recovery Tribunal, Calcutta,
was established long prior to the company filing C.S. No.7/1995
F against the bank. The said suit having been filed long after the
date when the tribunal was established and not being a suit or
proceeding instituted by a bank or financial institution for recovery
of a debt, did not attract section 31.
16. As far as sub-sections (6) to (11) of section 19 are concerned,
G they are merely enabling provisions. The Debts Recovery Act, as
it originally stood, did not contain any provision enabling a defendant
in an application filed by the bank/financial institution to claim any
set off or make any counter claim against the bank/financial
institution. On that among other grounds, the Act was held to be
unconstitutional (see Delhi High Court Bar Association vs. Union
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 593
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
of India AIR 1995 Delhi 323). During the pendency of appeal A
against the said decision, before this Court, the Act was amended
by Act 1 of 2000 to remove the lacuna by providing for set off and
counter-claims by defendants in the applications filed by Banks/
financial institution before the Tribunal. The provisions of the Act
as amended were upheld by this Court in Union of India vs. Delhi
B
High Court Bar Association [2002 (4) SCC 275]. The effect of
sub-sections (6) to (11) of Section 19 of the amended Act is that
any defendant in a suit or proceeding initiated by a bank or financial
institution can : (a) claim set off against the demand of a Bank/
financial institution, any ascertained sum of money legally
recoverable by him from such bank/financial institution; and (b) C
set-up by way of counter-claim against the claim of a Bank/financial
institution, any right or claim in respect of a cause of action
accruing to such defendant against the bank/financial institution,
either before or after filing of the application, but before the
defendant has delivered his defence or before the time for delivering
D
the defence has expired, whether such a counter claim is in the
nature of a claim for damages or not. What is significant is
that Sections 17 and 18 have not been amended. Jurisdiction has
not been conferred on the Tribunal, even after amendment, to try
independent suits or proceedings initiated by borrowers or others
against banks/financial institutions, nor the jurisdiction of civil courts E
barred in regard to such suits or proceedings. The only change
that has been made is to enable defendants to claim set off or
make a counter-claim as provided in sub-sections (6) to (8)
of Section 19 in applications already filed by the bank or financial
institutions for recovery of the amounts due to them. In other
F
words, what is provided and permitted is a cross-action by a
defendant in a pending application by the bank/financial institution,
the intention being to have the claim of the bank/financial institution
made in its application and the counter-claim or claim for set off
of the defendant, as a single unified proceeding, to be disposed of
by a common order. G
17. Making a counter claim in the Bank’s 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 H
594 SUPREME COURT REPORTS [2022] 17 S.C.R.
A 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 Bank’s application and the
counter-claim together; or exclude the counter-claim as prayed,
B
and proceed only with the Bank’s 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
C 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 wishes.
D 18. 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 Bank’s
application for transfer of the said suit to the Tribunal was
E 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
F any other provision of Debts Recovery Act.”
39. On a plain reading of the provisions, the conclusion reached
was that Section 17 of the RDB Act bars the jurisdiction of the Civil
Court only in respect of applications filed by the bank or financial
institution. This provision did not bar the jurisdiction of the Civil Court to
G try a suit filed by the borrower. There was also an absence of provisions
in the Act for transfer of suits and proceedings except Section 31, which
relates to pending suit proceedings by a bank or financial institution for
recovery of debt.
40. It was noticed that the significant aspect of Sections 17 and
H 18 of the RDB Act was that even after establishment of the DRT, no
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 595
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
jurisdiction had been conferred on it to try independent suits or A
proceedings initiated by the borrower or others against banks/financial
institutions. What has been permitted is only a cross-action in the form
of a counterclaim by a defendant in the pending application to facilitate
a unified proceeding. The most significant aspect considered in this behalf
is set out in para 17 extracted above - that a counterclaim in a bank’s
B
application before the DRT was not the only remedy, but an option
available to the defendant borrower. The borrower was not precluded
from filing a separate suit or proceeding before a Civil Court or other
appropriate forum. Not only that, even the bank, in whose application a
counterclaim is made, has the option to apply to the DRT to exclude the
counterclaim of the defendant while considering its application. If the C
DRT were to find in the bank’s favour, the defendant would have to
approach the Civil Court in respect of such excluded counterclaim, as
the DRT does not have jurisdiction to try an independent claim against
the bank/financial institution.
41. The question thus arises as to whether the view expressed in D
Indian Bank (supra) is the correct legal proposition in view of certain
earlier judgments as well as latter judgments. We may however notice
that the earlier judgment in the case of Abhijit Tea Co. Pvt. Ltd. (supra),
where an independent suit of a defendant was deemed to be a
counterclaim and transferred to the DRT, was considered and
differentiated in the Indian Bank case (supra). Although both were E
judgments of Coordinate Benches of this Court, Indian Bank’s case
(supra) opined that the transfer would only be possible if the subject-
matter of the two suits was inextricably connected and where both parties
consented to such transfer.
42. In the subsequent judgment in Ranjan Chemicals Ltd. And F
Another (supra), the Court went as far as to say that the transfer could
be made of the civil proceedings to the DRT without consent of both the
parties and that a claim in an independent suit could be considered as the
claim for set-off or a counterclaim. This flip-flop-flip continued depending
on the view that the Bench of two Judges wanted to take as thereafter G
in Nahar Industrial Enterprises Ltd. (supra), it was found that there
was no reason to depart from the view taken in Indian Bank case
(supra), as was sought to be done in Ranjan Chemicals Ltd. And
Another case (supra), and that is how the reference arose.
H
596 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Our view:
43. We must note at the threshold itself that there are no
restrictions on the power of a Civil Court under Section 9 of the Code
unless expressly or impliedly excluded. This was also reiterated by a
Constitution Bench of this Court in Dhulabhai vs. State of Madhya
B Pradesh11. Thus, it is in the conspectus of the aforesaid proposition that
we will have to analyse the rival contentions of the parties set out above.
Our line of thinking is also influenced by a Three-Judges Bench of this
Court in Dwarka Prasad Agarwal (D) By LRs and Anr. v. Ramesh
Chander Agarwal and Ors.12 where it was opined that Section 9 of
the Code confers jurisdiction upon Civil Courts to determine all disputes
C of civil nature unless the same is barred under statute either expressly or
by necessary implication and such a bar is not to be readily inferred. The
provision seeking to bar jurisdiction of a Civil Court requires strict
interpretation and the Court would normally lean in favour of construction
which would uphold the jurisdiction of the Civil Court.
D 44. Now, if we turn to the objective of the RDB Act read with the
scheme and provisions thereof; it is abundantly clear that a summary
remedy is provided in respect of claims of banks and financial institutions
so that recovery of the same may not be impeded by the elaborate
procedure of the Code. The defendant has a right to defend the claim
E and file a counterclaim in view of sub-Sections (6) and (8) of Section 19
of the RDB Act. In case of pending proceedings to be transferred to the
DRT, Section 31 of the RDB Act took care of the issue of mere transfer
of the Bank’s claim, albeit without transfer of the counterclaim. Thus, if
the debtor desires to institute a counterclaim, that can be filed before the
DRT and will be tried along with the case. However, it is subject to a
F caveat that the bank may move for segregation of that counterclaim to
be relegated to a proceeding before a Civil Court under Section 19(11)
of the RDB Act, though such determination is to take place along with
the determination of the claim for recovery of debt.
45. We are thus of the view that there is no provision in the RDB
G Act by which the remedy of a civil suit by a defendant in a claim by the
bank is ousted, but it is the matter of choice of that defendant. Such a
defendant may file a counterclaim, or may be desirous of availing of the
11
1968 SCR (3) 660.
12
H (2003) 6 SCC 220.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 597
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
more strenuous procedure established under the Code, and that is a A
choice which he takes with the consequences thereof.
46. We may notice that the RDB Act was amended from time to
time, including by amendments made under Act 1 of 2000, Act 30 of
2004, Act 1 of 2013 and Act 44 of 2016. The anomaly, inter alia, initially
sought to be cured was on account of the non-availability of provisions B
on counterclaim and set-off. It is to get over such a scenario that
amendment through Act 1 of 2000 was made by the Legislature itself to
cure the problem. The Legislature did not, at any stage, make any further
amendment for excluding the jurisdiction of the Civil Court in respect of
a claim of a defendant in such a proceeding being filed along with the
suit. The Legislature in its wisdom has also not considered it appropriate C
to bring any amendment to enhance the powers of the DRT in this respect.
47. We may also refer to the judgment of this Court in Transcore
(supra) opining that the DRT, being a Tribunal and a creature of the
Statute, does not have any inherent power which inheres in Civil Courts
such as Section 151 of the Code. D
48. We now draw our attention to Chapter 5 of the RDB Act,
which deals with recovery of debt determined by the DRT. Section 25
of the RDB Act prescribes the mode of recovery of debts, which takes
place pursuant to a certificate issued under sub-Section (7) of Section
19 to recover the amount of debt specified in the certificate by any of E
the modes specified therein. The expanse of the reliefs the defendant
may claim in the suit proceeding can certainly go beyond mere
adjustments of the amounts of claim, for which the DRT would not have
any power.
49. Now, turning to the issue of the power of the Civil Court to F
transfer an independent proceeding instituted by a defendant to be tried
alongside a recovery proceeding before the DRT. There is gainsay that
there is no specific power to transfer a suit to the DRT. A plaint can be
returned only under the provisions of Order VII Rule 10 of the Code for
the reasons specified therein. In the absence of such reasons, Section G
151 of the Code cannot be utilised as a residuary power to achieve the
transfer, which is really a consequence of return of the plaint when the
grounds under Order VII Rule 10 of the Code are not satisfied. The
absence of any legislative power cannot give a power by implication to
the Civil Court. We believe that it would not be appropriate to read such
H
598 SUPREME COURT REPORTS [2022] 17 S.C.R.
A power to transfer a suit to a DRT under Section 151 of the Code when
the DRT is a creature of a statute and that statute does not provide for
such eventuality.
50. We must also notice an important aspect that even where a
defendant is to invoke the jurisdiction of the DRT by filing a counterclaim,
B the bank has a right to seek a relegation of that claim to the Civil Court
and the DRT has been empowered to do so, albeit, at the final adjudication
stage. This is so in view of the summary nature of remedy provided
before the DRT and thus, if certain inquiries beyond the contours of
what the DRT does are envisaged, a Civil Court remedy may be
considered as appropriate.
C
51. Now coming to the question whether consent is required for
the transfer of a suit. We do believe that once we have opined that there
is no power of transfer in the Civil Court, the consent or absence of it is
not something which would lend such power to the Civil Court. The
option before the defendant, who has instituted the suit, is clear - either
D he could file a counterclaim before the DRT or he could institute separate
civil proceedings.
52. We however have a word of caution keeping in mind the
nature of powers exercised by the DRT and the objective of its creation.
The interpretations in Abhijit Tea Co. and Ranjan Chemicals (supra),
E seeking to give power of transfer to the Civil Court, whether by consent
or otherwise, were apparently predicated on an apprehension that a
defendant may launch a suit before the Civil Court in order to delay the
proceedings before the DRT.
53. We certainly would not like that the process envisaged under
F the RDB Act be impeded in any manner by filing of a separate suit if a
defendant chooses to do so. A claim petition before the DRT has to
proceed in a particular manner and would so proceed. There can be no
question of stay of those proceedings by way of a civil proceeding
instituted by a defendant before the Civil Court. The suit would take its
G own course while a petition before the DRT would take its own course.
We appreciate that this may be in the nature of parallel proceedings but
then it is the defendant’s own option. We see no problem with the same
as long as the objective of having expeditious disposal of the claim before
the DRT under the RDB Act is not impeded by filing a civil suit. Thus, it
is not open to a defendant, who may have taken recourse to the Civil
H
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK 599
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
Court, to seek a stay on the decision of the DRT awaiting the verdict of A
his suit before the Civil Court as it is a matter of his choice.
54. We thus make it abundantly clear that in case of such an
option exercised by the defendant who filed an independent suit, whatever
be the nature of reliefs, the claim petition under the RDB Act would
continue to proceed expeditiously in terms of the procedure established B
therein to come to a conclusion whether a debt is due to a bank and/or
financial institution and whether a recovery certificate ought to be issued
in that behalf.
55. We may say that if the Legislature were to think otherwise,
nothing prevented the Legislature nor prevents it now from making C
suitable amendments in the RDB Act to meet such a scenario.
56. In view of the discussion aforesaid, the questions framed above
are to be answered as under:
(c) Is the jurisdiction of a Civil Court to try a suit filed by a borrower
against a Bank or Financial Institution ousted by virtue of the D
scheme of the RDB Act in relation to the proceedings for recovery
of debt by a Bank or Financial Institution?
The aforesaid question ought to be answered first and is answered
in the negative.
E
(a) Whether an independent suit filed by a borrower against a
Bank or Financial Institution, which has applied for recovery of
its loan against the plaintiff under the RDB Act, is liable to be
transferred and tried along with the application under the RDB
Act by the DRT?
F
In the absence of any such power existing in the Civil Court, an
independent suit filed by the borrower against the bank or financial
institution cannot be transferred to be tried along with application
under the RDB Act, as it is a matter of option of the defendant in
the claim under the RDB Act. However, the proceedings under
the RDB Act will not be impeded in any manner by filing of a G
separate suit before the Civil Court.
(b) If the answer is in the affirmative, can such transfer be ordered
by a court only with the consent of the plaintiff?
H
600 SUPREME COURT REPORTS [2022] 17 S.C.R.
A Since there is no such power with the Civil Court, there is no
question of transfer of the suit whether by consent or otherwise.
57. The aforesaid takes care of the reference.
58. Now coming to the factual scenario of the case. The fact is
that the proceedings under the RDB Act in any case have reached a
B culmination with satisfaction of the claim and, thus, no proceedings
instituted by the appellant are pending before the DRT. As for the suit,
there is no question of a counterclaim or a transfer or any other manner
other than trial of the suit instituted by the respondent. In fact, some part
of the claim of the bank was not even allowed and some adjustments
C were directed to be made. Even thereafter so far as any other claims of
the respondent are concerned, the DRT in terms of the order dated
19.05.2003 permitted the respondent to pursue the remedy in accordance
with law - which can only mean the civil proceedings. Thus, the suit is
liable to proceed accordingly.
D Conclusion:
59. The civil appeals are accordingly dismissed leaving the parties
to bear their own costs.
60. The judgments in Abhijit Tea Co. (supra) and Ranjan
Chemicals Ltd. (supra) are held not to be laying down the correct legal
E proposition. The judgments in Indian Bank (supra) and Nahar
Industrial Enterprises (supra) are affirmed except to the extent that
they allow the transfer of a suit from the Civil Court to the DRT.
Ankit Gyan and Anurag Bhaskar Appeals dismissed.
F (Assisted by : Priyanshu Agarwal, LCRA)
G
H
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