Holding

Civil courts retain jurisdiction over independent suits filed by borrowers and the Debt Recovery Act does not compel their transfer to the DRT; the Abhijit observation is an Article 142 exercise, not a binding rule of law.

Summary

Indian Bank filed an application before the Debt Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 to recover a loan amount. While the application was pending, the borrower, ABS Marine Products, sued the bank in the Calcutta High Court for damages alleging non‑disbursement of a sanctioned loan. The bank sought transfer of the suit to the DRT, arguing that the suit was essentially a counter‑claim linked to its DRT application. The Supreme Court held that Sections 17 and 18 of the Act bar civil courts only for bank‑initiated recovery applications, not for borrower‑initiated suits, and that Section 31 does not apply to suits filed after the tribunal’s establishment. The Court further clarified that the observation in the earlier Abhijit case was made under Article 142 and is not a binding rule of law. Consequently, the High Court’s refusal to transfer the suit was upheld and the appeals were dismissed.

Issues considered

Whether the subject‑matter of the borrower’s suit and the bank’s DRT application are inextricably connected.
Whether the Debt Recovery Act mandates the transfer of an independent borrower‑initiated suit to the DRT as a counter‑claim.
Whether the observation in United Bank of India v. Abhijit Tea Co. (2000) constitutes a binding legal principle or merely an exercise of power under Article 142.

Legislation cited

Code of Civil Procedures. 9
Constitution of Indias. Article 141, s. Article 142, s. Article 226, s. Article 227
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 17, s. 18, s. 19, s. 31

Subjects

Debt Recovery Actjurisdictioncivil courtDebt Recovery Tribunalcounter‑claimtransfer of suitArticle 142set‑offindependent suitbanking law

Judgment

A INDIAN BANK
v.
ABS MARINE PRODUCTS PVT. LTD.

APRIL 18, 2006

B [DR. AR. LAKSHMANAN AND R.V. RAVEENDRAN, JJ.]

Recove1y of Debts Due to Banks and Financial Institutions Act, 1993--· ·
Sections 17, 18, 19 and 31.

c Suit by borrower against bank-Held-Jurisdiction of civil courts is
barred only in regard to applications by bank/financial institution for recovery
of its debts-It is not barred in regard to any suit filed by a borrower or 'Jther
person against a Bank---On facts, jurisdiction of civil court held not be
barred in a borrower's suit for damages against bank for non-disbursement
D of a sanctioned loan--The suit found not be a counter claim to an earlier
Original Application (0.A.) of Bank before D.R. T for recovery of an amount
advanced to the borrower under another loan-Subject matter of O.A and
suit were not connected and decision in one did not depend un other--Such
a suit was not required to be transferred to D.R. T-lt was more so as the suit
was fil-ed afier establishment of latter and the provisions of the Act did not
E support transfer of such swt.

Counter claim by borrower/defendant in Bank's Original Application
before D.R. T-Forum for-Held--Counter claim is not the only remedy, but
an option available to borrower/defendant-If they have an independent
claim against Bank, they cannot be compelled to make their claim against
F Bank only by counter-claim before D.R. T-Such a claim made by them by an
independent suit in a court having jurisdiction cannot be transferred to
D.R. T against their wishes.

Constitution of India, 1950- Article 142- Afier declaration Gj law,
G Supreme Court in operative part ofjudgment relaxing application of !hat law
under Article 141--/n such a case, the precedent value is that of ratio
decidendi, and not the relaxation given on ~pecial facts· -One solution to
avuid a situation where relaxation itself comes to be treated as law, is for
the Supreme Court to clarifY that it was given in exercise of power under
Article 142. f
H 52
INDIAN BANK v. ABS MARINE PRODUCTS PVT.LTD. 53
Appellant-bank sanctioned ad hoc packing credit facilities to the A
respondent company: According to appellant, respondent utilised the said
credit facilities but committed default in repaying the amounts advanced.
Therefore, they flied a~ Original Applieation (0.A.) before the Debt Recovery
Tribunal (D.R.T.) under Section 19 'or the. Recov.ery of Debts Due to Banks.
and Financial Institutions Act, 1993 seeking a certificate of recovery thereof B
with interest. During pendency of the O.A. wherein trial was yet to commence,
appellant sanctioned another loan and credit facilities to the respondent, but
the sanctioned amounts were not released. For this, respondent filed a suit
against the appellant in High Court for recovery of damages with interest.
Recording of evidence in the suit had been completed and it was ripe for
arguments. At this stage, appellant pleaded that the suit could not be tried by C
the High Court and it should be transferred to the D.R.T. on the ground that
it was broadly in the Mttire·of a couiiter-claim to appellant's O.A and was
integrally connected with..it. For this they relied on Sections 19(6) to (11) of
the Act. High Court rejected these· claims of appellant. Hence the present·
appeals.
D
. On the contentions of the parties, following questions arose for
consideration of.the Court: .

.(a) Whe~her the. subjechmatter of the borrower's suit before the High
Court and Ban.k's 0.A. before D.R.T. were inextricably linked?
E
(b) Whether the' provi~ions of tlie Act requir~ the tran~fer o'f aii
indepe~iient suit filed by a borrower against a Bank before a ci~il court to
' L , • •• • • i

D.R: t. in tlie· event of the Bank filing a recovery application against the
borro~er before D.R.T. to be tried. as a counter-claim in the Bank's o:A.? .
) Dismissing the appeal, the Court' F

•HELD: t. It.is evident from Sections 17 and 18 of the Debts Recovery
Act that-civil court's jurisdiction is barred only in regard to 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 G.
other person against a bank for any relief. [68-F]
'~ . '' '. .
. . 1.2. :fhe Debts Recovery Act, as it orginally stood, did not contain any
provision enabling a defendant in application filed by the bank/.financial
institution to claim· any set off or .make any counter claim against bank/ ·
J
financial_il)stitution. The Act was amended .by Act 1 of 2000 to remove· the H
54 SUPREME COURT REPORTS [2006) SUPP. I S.C.R.

A lacuna by providing for set off and counter-claims by defendants in the
applications filed by Banks/financial institution before the Tribunal. What is
significant is that Sections 17 and 18 have not been amended. Jurisdiction
has not been conferred on the Tribunal, even after the amendment, to try
independent suits or proceedings initiated by borrowers or others against
banks/financial institutions, nor the jurisdiction of civil courts barred in
B regard to such suits or proceedings. (64-B, C, D, F, GI

Union of India v. Delhi High Court Bar Association, (2002( 4 SCCS,
relied on.

Delhi High Court Bar Association v. Union of India, AIR (1995) Delhi
.
c 323 approved.
2. The issues that arose in the Bank's application was whether the
borrower failed to repay the sums borrowed and whether the Bank was entitled
to the amounts claimed. On the other hand, the issues that arose in the
borrower's suit were whether the Bank had promised/agreed to advance certain
D
monies, whether the Bank committed breach in refusing to release such loans
in terms of the sanction letter; whether the borrower failed to fulfill the terms
and conditions of sanction and therefore the Bank's refusal to advance, was
justified; and even if there was breach, whether the borrower suffered any
loss on account of such non-disbursement and if so whether the borrower
E was entitled to the amounts claimed. While the claim of the Bank was for an
ascertained sum due from the borrower, the claim of the borrower was for
damages which required firstly a determination by the court as to whether
the Bank was liable to pay damages and thereafter assessment of quantum of
such damages. Thus there is absolutely no connection between the subject
matter of the two suits and they are no way connected. A decision in one does
F
not depend on the other. Nor could there be any apprehension of different and
inconsistent results if the suit and the application are tried and decided
separately by different forums. In the circumstances, it cannot be said that
the borrower's suit and Bank's application were inextricably connected.
(61-C, Fl
G
3. It is not disputed that the Calcutta High Court had the jurisdiction to
entertain and dispose of suit filed by 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 f
H of a debt. It is evidence from Section 31 that only those cases and proceedings
INDIAN BANK v. ABS MARINE PRODUCTS PVT. LTD. 55
'I (for recovery of debts due to bank and financial institutions) which were A
' 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 Debts Recovery Tribunal, Calcutta, was
established long prior to the company filing suit 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 B
for recovery ofa debt, did not attract section 31. (63-G, H; 64-A]

4. Making 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
c
same. Even the Bank, in whose application, the counter-claim is made has the
option to apply to the Tribunal to exclude the counter-claim of the defendant
while considering its application. When such application is made by the Bank,
the Tribunal may either refuse to exclude the counter claim and proceed to
consider the Bank's application and the counter-claim and together or exclude D
the counter claim as prayed and proceed only with the Bank's application, in
~
which event the counter claim would become 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

.
1 jurisdiction to try and independent claim against a bank/financial institution.
A defendant in an application, having an independent claim against the Bank, E
cannot be compelled to make his claim against the Bank only by way of
counter-claim. Nor can his claim by way of independent suit in a court having
jurisdiction, be transferred to a Tribunal against his wishes. In this case, the
first respondent does not wish his case to be transferred to the Tribunal.
(65-A-E] F
,
'
United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd., (2000] 7
sec distinguished.
5. Many a time, after declaring the law, this court in the operative part
of the judgment, gives some directions which may either relax the application G
of law or exempt the case on hand from the rigour of the law in view of the
peculiar facts or in view of the uncertainty of law till then, to do complete
injustice. While doing so, normally it is not stated such determination/order
is in exercise of power under Article 142. It is not uncommon to find that
') courts have followed not the law declared, but the exemption/relaxation made
while moulding the relief in exercise of power under Article 142. When the H
56 SUPREME COURT REPORTS J2006J SUPP. I S.C.R.

A High Courts repeatedly follow a direction issued under Article 142, treating
it as the law declared by this court, incongruously the exemption/relaxation
granted under Article 142 becomes the law, though at variance with the law
declared by this Court. The Courts should therefore be careful to ascertain
and follow the ra1io decidendi. and not the relief given on t.he special facts,
B exercising pov•er under Article 142. One solution to avoid such a situation is
for this Court to clarify that a particular direction or portion of the order is
in exercise of power under Article 142. J70-D, E, Fl

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 10074-10075 of
2003.

c From Judgment and Final Order dated 10.5.2002 of the High Court of
Calcutta in A.P.O. No. 57 and 58 of 200 I.

L.N. Rao, Himanshu Munshi and Rajesh Kumar Chaurasia, for the
Appellant.

D Jaidt:ep Gupta, Rana Mukherjee. Siddharth Gautam and Goodwill lndeevar,
for the Respondent.

The Judgment of the Court was delivered by

RA VEENDRAN, J. These appeals by special leave are filed against the
E judgment dated I0.5.2002 of the Calcutta High Court, dismissing A.P.O. •
Nos. 57-58 of 2001 filed by the appellant-Bank against orders dated 24.1.200 I
and 13.3.200 I passed by a learned Single Judge of that court, rejecting an oral
application and a written application respectively, filed by the appellant-Bank
for transfer of Civil Suit No. 7/1995 (filed by first respondent herein against
F the appellant and others and pending on the file of the Calcutta High Court)
to the Debt Recovery Tribunal, Calcutta, for being tried with O.A.
No. 170/1995 (filed by the appellant against the first respondent and its
guarantors).

2. The first respondent (also referred to as the 'borrower' or 'company')
G approached the appellant-Bank (for short 'the Bank') for certain credit facilities.
By Sanction Advices dated 12.7.1991and6.12.1991, the Bank sanctioned ad
hoc packing credit facilities to a limit of Rs.20 lakhs and Rs.5 lakhs respectively.
According to the Bank, the company utilized the said credit facilities, but
committed default in repaying the amounts advanced. Therefore, the Bank
filed O.A. No.170/1995 on 21 :8.1995 before the Debt Recovery Tribunal (for
H short "the Tribunal') under Section 19 of the Recovery of Debts Due to Banks
INDIAN BANK v. ABS MARINE PRODUCTS PVT. LTD. [RA YEEND RAN, J.] 57
' ' ' . ' " ' . ;' . ' . i
and Financial Institutions Act, 1993 (for short 'Debt Recovery Act') seeking A
a certificatt; to recover Rs.30,67,820/04 with interest from the company and its
four guarantors (Directors), jointly and severally. The said application is
pending and trial therein, is yet to commence.

3. On 19.12.1991, the Bank sanctioned a Middle Term Loan of Rs. 90
lakhs and c~rtain other credit facilities to the company. The sanctioned loans B
were not released. The company filed C.S. No.7/1995 against the Bank in the
Calcutta High Court in January, 1995~ for recovery of Rs.25,38,58,000/- as
damages (for non-disbqrsal of the loans) with interest. By the end of 2000,
recording of evidence in the suit was completed and the suit was ripe for .
arguments.
c
4. On 24.1.2001, the Bank made an oral submission that the suit could
not be tried by the High Court and it should be transferred to the Tribunal.
A learned Single Judge rejected the said request by the following order :-

"Though not pleaded in the written statement specifically, the learned D
counsel for the defendant contends that in view of the amendment of
}' section 19 of the Recovery of debts due to Banks and Financial
Institutions Act, 1993, this suit cannot be tried by this court. I have
· gone through section 19 of the said act as amended up to date. It
appears from the said amendment that the debtor/respondent will be
entitled to make counter claims in the same proceeding initiated by the E
bank. Before amendment there was no such specific provision. But in
this case, the plaintiff/debtor had filed the suit before the bank could
file appropriate proceeding. It. is a separate suit. It is neither a cross
suit nor can be termed as counter-claim. So the suit is perfectly
entertainable by this court. Therefore, the preliminary objection raised F
by the Bank is hereby overruled."

5. Thereafter, the Bank filed an application in writing, praying for transfer
of C.S. No. 7/1995 filed by the borrower to the Tribunal on the ground that
the said suit was broadly in the nature of a counter-claim to Bank's O.A.
No.170/1995 and was integrally connected with its application. The learned G
Single Judge rejected· the said application by order dated 13.3.2001, as barred
by res judicata, in view of the fact the same prayer made orally earlier had
been rejected on 24.1.2001. The said two orders dated 24.1.200 I :and 13.3.2001
were challenged by the Bank in two appeals (APO Nos.57-58/2001) before a
Division Bench of the High Court. In support of its contention that C.S. No'.71
1995 should be transferred from the High Court to the Tribunal for being tried H
58 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A with OA No.170/1995, the Bank relied on Sections 19(6) to (11) of the Debts
Recovery Act and the following observations of this Court in United Bank
of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd, [2000] 7 SCC 357:-

"If a set-off or a counter-claim is to be equated to a cross-suit under
Section 19, a fortiori there can be no difficulty in treating the cross-
B suit as one by way of set-off and counter-claim, and as proceedings
which ought to be dealt with simultaneously with the main suit by the
Bank .... "In our view, in the context, the word "counter-claim" in
Sections 19(8) to ( 11) which is equated to a cross-suit, includes a
claim even if it is made in an independent suit filed earlier."

c 6. A Division Bench of the Calcutta High Court dismissed the Bank's
appeals by an order dated 10.5.2002. The High Court held that :

(i) In the absence of a provision in the Debt Recovery Act enabling
a borrower to file a suit (application) against the bank or a financial
institution, in the Debt Recovery Tribun~, the jurisdiction of the civil
D court to entertain a suit filed by the borrower against the bank is not
excluded under Section 18 of the said Act.
..
(ii) Section 31 of the Debts Recovery Act providing for transfer of the
pending suits/cases, from courts to tribunals, applies only to those
suits or proceedings which were pending before any court immediately
E before the establishment of a Tribunal under the said Act and will not
apply to any suit or proceeding validly initiated in a civil court after
the establishment of the Tribunal.

(iii) Sub-section (8) of Section 19 of the Act is merely a provision
enabling a defendant (in a Recovery Application filed by the Bank
F before the Tribunal) to raise a counter-claim in his written statement
against the bank, and empowering the Tribunal to try such a counter-
claim. Such an enabling provision cannot be construed as ousting or
excluding the jurisdiction of the civil court to entertain a suit for
damages filed by the borrower against the bank, or enabling the bank
G to seek transfer of such a suit, to the Tribunal. The observation in
Abhijit (supra) that the borrower's suit should be transferred to the
Tribunal by treating the independent suit of the borrower as a counter-
claim in the application of the Bank, was in exercise of the extraordinary
power under Article 142 of the Constitution of India, on the special
and peculiar facts of that case. As the High Court in its jurisdiction
H
INDIAN BANK v. ABS MARINE PRODUCTS PVT. LTD. [RA YEEND RAN, J.] 59

~

')
as a civil court, did not possess the power available to the Supreme A
Court under Article 142, it could not pass any order for transfer of a
suit validly instituted before it, to the Tribunal.

(iv) Even assuming that the High Court could transfer the suit, the
.basic requirement for transfer laid down in Abhijit (supra), that is, the
subject-matter of the borrower's suit pending before the Court, and B
the Bank's application pending before the Tribunal should be
inextricably connected, was not present in this case. Therefore, there

... cou Id be no transfer.

(v) Where a borrower's suit is deemed to be a counter-claim in respect
of the Bank's application, and is transferred to the Tribunal, it would c
be open for the Bank, to contend, as enabled by Section 19(11) of the
Debts Recovery Act, that such suit should be tried independently. If
such a contention is accepted by the Tribunal, the suit transferred
from the civil court to the Tribunal will have to be re-transferred from
the Tribunal to the civil court, as the Tribunal has no jurisdiction to
D
entertain or try an independent suit of the borrower against the bank.
That will lead to an anomalous situation.
)'
(vi) The civil court has jurisdiction to try all suits of civil nature,
except those excluded by reason of an express or implied bar in a
statute. The jurisdiction of a civil court can never be contingent upon
E
an order passed by the Tribunal, and that too on an application by
one of the parties to the proceeding before the Tribunal. Nor will the
jurisdiction vested in a civil court to proceed with a suit, cease on the
Bank or financial institution filing an application for recovery before
the Tribunal.
F
') 7. The said decision of the Division Bench of the Calcutta High Court
is challenged by the Bank in these appeals by special leave, on the ground
that the subject matter of the Bank's application and the first respondent's
suit were inextricably connected, and though the suit of the borrower was
prior to the Bank's application before the Tribunal, in view of the law laid
down in Abhijit (supra), the borrower's suit should be considered as a G
counter-claim in the Bank's application before the Tribunal and consequently,
... transferred to the Tribunal. On the contentions raised, the following questions
arise for our consideration :

• (a) Whether the subject-matter of the borrower's suit before the
H
60 SUPREME COURT REPORTS (20061 SUPP. 1 S.C.R.

A High Court and Bank's application before the Tribunal were
inextricably connected?
(b) Whether the provisions of Debts Recovery Act mandate or require
the transfer of an independent suit filed by a borrower against
a Bank before a civil court to the Tribunal, in the event of the
B Bank filing a recovery application against the borrower before the
Tribunal, to be tried as a counter-claim in the Bank's application?
(c) Whether the observation in Abhijit (supra) that the suit filed by
the borrower against the Bank has to be transferred to the Tribunal
for being tried as a counter-claim in the applications of the Bank,
c is to be conotrued as a principle laid down by this Court, or as
an observation in exercise of power under Article 142 in order to
do complete justice between the parties?

Re : Question No. (i) :

D 8. The Bank sanctioned an ad hoc packing credit limit of Rs.20 lacs on
12.7.1991 and an additional ad hoc packing credit limit ofRs.5 lacs on 6.12.1991,
subject to the terms contained in the Sanction Advice dated 12.7.1991. In
regard to the initial limit of Rs.20 lacs, the company executed an agreement
dated 15. 7.1991 and its 4 Directors executed a guarantee dated 15.7.199 l. In
regard to the additional amount of Rs.5 lacs, ;i promissory note and an
E agreement were executed on 20. I 1.199 I. Claiming that the company failed to
pay the amounts advanced, the Bank filed an application before the Tribunal
for recovery ofRs.30,67,820.04. The cause of action for the Bank's application
is the alleged non-payment of the amounts advanced to the borrower, in
pursuance of ad-hoc limits sanctioned on 12. 7.1991 and 6.12.199 I. On the
F other hand, the subject matter of the suit filed by the borrower against the
Bank and the cause of action therefor, are totally unconnected with and
different from the subject matter of and cause of action for the Bank's
application. On the request of the borrower, the Bank by letter dated 19.12.1991
sanctioned several credit facilities to the borrower, namely, (i) a Medium Term
Loan of Rs.90 lacs; (ii) packing credit loan facilities to a limit of Rs.50 lacs;
G (iii) bridge loan of Rs.15 lacs; and (iv) guarantee facility to an extent of
Rs.85.42 lacs. The Bank also agreed to absorb the ad hoc packing credit
facilities of Rs.25 lacs already sanctioned within the fresh limits sanctioned.
..
The borrower alleged that it proceeded to a arrange its affairs and activities

•
on the assumption that the Bank will be releasing the loans; and that the Bank
H failed to release the credit facilities, thereby putting it (the borrower) to huge
· INDIANBANK v. ABS MARINE PRODUCTS PVT. LTD. [RA VEENDRAN, J.) 61

) losses, apart from denying the profits from the business. Consequently, it.· A
fi!ed C.S. No:7/1995 for recovery of Rs. 25,3S,58,000/- made up of Rs .
.· U ,33,22,000/- towards loss of profits, Rs. I 0 crores as compensation for loss
of goodwill-and reputation, Rs.3.50 corers as damages on account of the
impact of inflation and difference in foreign exchange rates; Rs.31,36,000/-
towards. expenditure which became infructuous on account of the Bank's , B
failure to release the loans, and Rs.24 lacs towards interest up ·to the date of
the.suit.The cause of action for the borrower's suit is the alleged breach by
the Bank, in not releasing the sanctioned loans.

9. The issues ·that arose in the Bank's applicatio~ was whether the
·borrower failed to repay the sums borrowed and whether the Bank was C
entitled to the amounts claimed. On the other hand, the issues that arose in
the borrower's suit were whether the Bank had promised/agreed to' advance
certain monies; whether the Bank committed breach in refusing to release
such loans in terms of the sanction letter; whether the borrower failed to fulfil
the terms and conditions of sanction and therefore the Bank's refusal to
advance, was justified; and even if there was breach, whether the borrower D
suffered any loss on account of such non-disbursement and if so whether the
borrower was entitled to the amounts claimed. While the claim of the Bank
was for an ascertained sum due from the borrower, the claim of the borrower
was for damages which required firstly a determination by the court as to
whether the Bank was liable to pay damages and thereafter assessment of E
quantum of such damages. Thus there is absolutely no connection between
the subject matter of the two suits and they are no way conne.eted, A decision
in one does not depend on the other. Nor could there be any, apprehension
of different and. inconsistent results if the suit and the application are tried
and decided separately by different forums. In the circumstances, it cannot
be said that the borrower's suit and the Bank's application were inextricably F
> connected.

Re : Question No. 2 :

I 0. Section 17 of the Debts Recovery Act deals with jurisdiction, powers
and authority of the Tribunals. Sub-section ( l) thereof provides that a tribunal G
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.
"Debt" is defined under Section 2(g) as follows :
H
62 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A "(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 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
B 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
rec0verable on, the date of the application;"

Section 18 provides that on and from the appointed day, no court or other
C authority shall have, or be entitled to exercise, any jurisdiction, powers or
authority (except the Supreme Court, and a High Court exercising jurisdiction
under Article 226 and 227 of the Constitution) in relation to the matters
specified in Section 17.

11. Section 19 related to the procedure of Tribunal, in regard to filing
D of applications. Section 19, as it originally stood, was substituted in entirety
by Act I of 2000. Sub-section (I) of section 19 provides that a Bank or
financial institution can make an application to jurisdictional Debt Recovery
Tribunal. Sub-sections (6) to (11) of new Section 19, relevant for our purpose,
are extracted below :

E "(6) Where the defendant claims to set-off against the applicant's
demand any ascertained sum of money legally 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
sought to be set-off.
F
(7) The written statement shall have the same effe,ct as a plaint in a
cross-suit so as to enablt:! the Tribunal to pass a final order in respect
both of the original claim and of the set-off.

(8) A defendant in an application may, in addition to his right of
G 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 limited for
delivering his defence has expired, whether such counter-claim is in
'H
the nature of a claim for damages or not.
..
INDIAN BANK v. ABS MARINE PRODUCTS PVT. LTD. [RAVEENDRAN, J.] 63

) (9) A counter-claim under sub-section (8) shall have the same effect A
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 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 as B
may be fixed by the Tribunal.

(11) Where a defendant sets up a counter-claim and 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 applicant
may, at any time before issues are settled in relation to the counter-
c
claim, apply to the Tribunal for an order that such counter-claim may
be excluded, and the Tribunal may, on the hearing of such application
make such order as it thinks fit."

12. Section 31 of the Debts Recovery Act provides that every suit or D
other proceeding pending before any court immediately before the date of
establishment of a Tribunal under the said Act, being a suit or proceeding
.·"' the cause of action whereon it is based is such that it 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.
E
13. Section 9 of the Code of Civil Procedure provides that the courts
shall have jurisdiction to try all suits of a civil nature, excepting suits of which
their cognizance is either expressly or impliedly barred.

14. It is evident from Sections 1_7 and 18 of the Debts Recovery Act that
civil court's jurisdiction is barred only in regard to applications by a bank or
F
• 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
borrower when it was filed and continues to have jurisdiction to entertain and G
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 financial institutions) which were pending before any court immediately H
before the date of establishment of a tribunal under the Debts Recovery Act
64 SUPREME COURT REPORTS [2006) SUPP. I S.C.R.

A 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 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,
B did not attract section 3 I.

15. As far as sub-sections (6) to (I I) of section 19 are concerned, 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
C claim against the bank/financial institution. On that among other grounds, the
Act was held to be unconstitutional (see Delhi High Court Bar Association
v. Union of India, AIR (1995) Delhi 323 ). During the pendency of appeal
against the said decision, before this Court, the Act was amended by Act I
of 2000 to remove the lacuna by providing for set off and counter-claims by
D 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 v. Delhi 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
E ascertained sum of money legally recoverable by him from such bank/financial
institution; and (b) 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
p defence or before the time for delivering 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
G institunons, nor the jurisdiction of civil courts 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 words, what is provided
-
and permitted is a cross-action by a defendant in a pending application by
H 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
INDIAN BANK v. ABS MARINE PROD.UCTS PVT.LTD. [RA YEEND RAN, J.) 65

) claim for set off of the defendant, as a single unified proceeding, t9 be A
disposed. of by a common order.

16, rytaking 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 sq it or proceeding before a civil court or other
appropriate forum in.respect of his claim again.st the Ban.k and pursue the B
same. Even the Bank, in whose _application the counter-claim is made, has the
option to apply to the tribunal to exclude the counter-claii:n of the defendaf\t.
while considering its application. When such applic~tion is macle by the Bank,
t
the Tribunal may either refuse to exclude the counter-claim and proceed to
consider the Bank's application and the counter-claim together; or ex<;lud~ the
counter-claim as prayed, and proceed only with the Bank's application, in
c
which event the counter-.claim .becomes an independent claim against a bank/
·~
financial institution. The defendant will then have to approach the civil court
in respect of such excluded counter claim as· the Tribunal does not have
jurisdiction to try any independent claim against a bank/financial institution.
A defendant in an application, having an independent claim against the Bank, D·
,, 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 aga'inst his wishes.

17. In this case, the first respondent does not wish his case to be
transferred to the Tribunal. It is, therefore, clear that the suit [;led.by the first E
respondent against the Bank in the High Court for recovery ·of damages,
being an independent suit, and not a counter-claim made in. th~ app.lication
filed by the bank, the Bank's application for transfer of the said .suit to the
Tribunal was misconc~ived and not maintainable. The, High Court, where the
suit for damages was filed by the company against the bank, long prior to F
the bank filing an application before the tribunal against the company, continues
to have jurisdiction in regard to the suit and its jurisdiction is n.ot excluded
or barred under Section 18 or any other provision of De.bts Recovery Act.

Re : Question No. (iii) :
G.
18. Let us examine what happened in Abhijil (supra). A suit (No.410/
1985) filed by the Bank in the Ca!Cutta Hig~ Court, w~s dispos~d of in terms
of an alleged compromise on 29:3. i984. The Tribunal was established on
27.4.1994. Subsequently, the compromise decree was set aside by a Division
Bench on l 1.8.199.8 and the said suit stood restored to file. The debtor.. H .
company filed an application praying that the Bank's suit should be· retained
66 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
I•
A on the original side of the Calcutta High Court and should not be transferred
to the tribunal, as the said suit was "not pending" on 27.4.1994 and therefore
Section 31 of the Debts Recovery Act was not attracted. A learned Single
Judge of the Calcutta High Court accepted the said contention and directed
that the Bank's suit should be retained and proceeded with before the High
B Court. That order was challenged by the Bank before this Court. Before this
Court, the debtor company urged an additional ground for seeking retention
of the Bank's suit in the High Court by contending that the Bank's suit was
inextricably connected with a suit filed by it against the Bank (Suit No. 272/
1985) and therefore, the Bank's suit should not be transferred to the Tribunal.
This Court formulated the following four questions as arising for its
C consideration :

"( 1) Whether Suit No.410 of 1985 by the Bank which was disposed
of by judgment dated 29.3.1994 and which judgment was set aside by
the Bench on 11.8.1998 and remanded to the Single Judge, could not
be treated as pending immediately before the commencement of the
D Act on 27.4.1994 (in West Bengal) and whether it could not be
transferred to the Recovery Tribunal ?

(2) What is the combined effect of Sections 18 and 31 and of the Act
on pending proceedings ?

E (3) Whether the pendency of Suit No.272of1985 filed by the debtor
Company against the Bank for specific performance and for perpetual
and mandatory injunctions raising common issues between parties in
both these suits was a sufficient reason for retention of the Bank's
suit No.410 of 1985 on the original side of the High Court to be tried
along with Suit No.272 of 1985 filed by the debtor Company ?
F
(4) Whether Suit No.272 of 1985 filed by the debtor Company was, in
substance, one in the nature of a "counter-claim" against the Bank
and was one which also fell within the special Act by reason of
Sections 19(8) to (11) of the Act (as introduced by amending Act I
of 2000) and if that be so, whether it could still be successfully
G pleaded by the respondent Company that the pendency of the
Company's Suit No.272 of 1985 was a ground for retention of the
Bank's Suit No.410of1985 on the original side of the High Court?"
-
Though the questions raised were four, the issues were only two. The first
H was whether suit disposed of on 29.3.1994 and restored on 11.8.1998 could
be deemed to be pending on 27.4.1994, when the Tribunal was established,
INDIAN BANK v'. ABS MARINE PRODUCTS PVT. LTD. [RA VEENDRAN, J.] 67

for purpose bf Section· 31. The second was, whether the Bank's suit, even A
· though liable to be transferred to ·the Tribunal under section 31, could be
retained in the High Court on the ground that it was inextricably' connected
with an· earlier suit filed by the borrower against the Bank. The question
· whether a suit filed by the borrower against a Bank in a civil court, ·cou'ld be
transferred to the Tribunal against his wishes, neither arose for decision nor B
was considered or decided.

19. With reference to the first issue, this Court held that when the
appeal against the compromise decree dated 29.3.1984 was allowed and the
comp~omis!! decree was set aside, the suit stood restored and it should be
deemed to be pending from 29.3.1984 itself, and.consequently, must be deemed C
in the eye of law to be pending on 27.4.1994 when the Tribunal was constituted
·at Calcutta, arid Sections 18 and 31 of the Debts Recovery Act would apply
to the said suit. There is no dispute that the decision of this Court on the
fast issue is the law declared .by this Court.

20. The second issue, as noticed above, was whether the suit of the D
Bank against·,·the bo~ciwer should be retained in the High 'court, merely
' ."' be~aus~ the. borrower's suit was pending in the High Court. There was no
appliCation or prayei"_for transfer of the bo~ower's suit [OS No.272/1985] to
the Debt~ Recovery Tribunal. Neither the Bank nor the borrower had sought
. transfer of the said .511it from the High Court. In fact, before the High Court,
the borrower had not even contended that the )3ank's.suit shouid be. reta~ned E
in the High Court on the. ground that it was inextricably connected ~ith its
suit pending in the High Court. However, the borrower .raised an additfonal
ground in support of its request for retention of the Bank's suit in the High
Court, for th"e first time, in this Court by contending that the subject matter
of the Bank's suit was inextricably connected with the subject matter of its , p
suit, and therefore, both should be tried together by the High Court itself. The
' . 9!mowe~ subn1itted that as the borrowe.r' s suit, could not be transferred to the
Tri~unaJ, having regard to Sections 17, 18 and 3 I of the Debts Recovery Act,
the Bank's suit should also not be transferred to the tribunal. This Court held
, I • ,

that h~ving regard to the mandate contained in Section 31, it was not possible
to retain the Bank's suit before the civil (f!igh) Cpurt on the ground that it ·G
was connected with another suit filed against the Bank. This answered the
second issue. But this Court thereafter proceeded to consider as an incidental
'issue whether the borrower's suit could be transferred to the Tribunal as the
_ · ·borrower was' insisting'that his suit and Bank's suit should be tried together.
,J It found a solution by holding that the principle underlying sub-section (8) H
68 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A of Section 19 which enabled the defendant making a counter-claim in an
application filed by the Bank, can broadly be extended and applied to an
independent prior suit of the borrower by considering such suit as a counter-
claim, so that both could be transferred to the Tribunal, instead of transferring
only the Bank's suit. This Court, however, held so only because of the
B following circumstances :-

(i) The borrower contended that its suit and the Bank's suit cannot
be tried independently, as the subject-matter of its suit and the
Bank's suit were inextricably connected;
(ii) the Bank also agreed that the borrower's suit can be tried along
C with its suit; and
(iii) the court on examination found that the two suits were in fact
inextricably connected.

But the confusion is in regard to <his 'incidental' decision/observations made
D while deciding the second issue. While the Appellant contends that the said
incidental observations, made on an issue not arising for decision, are also
in the nature of law declared by this Court, the first Respondent contends that
they are merely observations made on the peculiar facts and circumstances
...
of that case, in exercise of the power under Article 142 to do complete justice.

E 21. The first Respondent drew our attention to the following
circumstances in support of its contention that the observations relating to
treating a borrower's independent suit as a counter claim, was in exercise of
power under Article 142 :

(a) Though there was no prayer for transfer of the borrower's suit
F to Tribunal at any stage, this Court held that borrower's suit
should be transferred to the Tribunal.
(b) The four questions that were formulated for consideration
(extracted above) clearly showed that the question as to whether
borrower's suit should be transferred n.:ver arose for
G consideration. In fact, no arguments were addressed by either
party on the question whether the borrower's suit can be or
should be transferred to the Tribunal.
(c) Sub-section (8) of Section 19 refers only to a counter-claim in the
Bank application, and does not contemplate a separate suit filed
H against a Bank, being treated as a counter-claim.
INDIAN BANK v. ABS MARINE PRODUCTS PVT. LTD. [RA VEENDRAN, J.] 69

\ The first respondent also pointed out that th is Court, in the operative portion, A
only directly transfer of Bank's suit, but not the borrower's suit;· to the
Tribunal. The first respondent also relied on the following observations/
directions in paras 42, 43, 44 and 45 of the judgmentto demonstrate that the
decision was by exercising power under Article 142 :

"Our decision in regard to the real nature ofSuit No:212 of 1985 has B
become necessary in the context of a plea by the debtor Company that
the Company's Suit No.272of1985 is liable to be retained in the civil
court and on account of the plea that the connected suit by the Bank
Suit No.410 of 1985 is also to be retained.

We, therefore, direct the Bank's Suit No.410 of 1985 to be transferred c
by the Registrar, Calcutta High Court to the appropriate Tribunal
under the Act. So. far as the debtor Company's Suit No.272 of 1985
is concerned, action has to be taken likewise by the Registrar in the
light of our finding, which finding ·has become necessary in view of
the contention on behalf of the debtor Company before us, as explained
D
above.
-\ ;-'
The pendency of the Company's Suit No. 272 of 1985 in the High
Court is no reason for keeping the Bank's suit No. 410 of 1985 in the
High Court. Suit No. 410 of 1985 is liable t? be transferred to the
Tribunal. Incidentally, we also hold that even Suit No. 272 of 1985 is E
to be _tried only by the· Tribunal.

The appeal is allowed. The order of the learned Single Judge is set
aside and Suit No. 41 Oof 1985 is directed to be transferred by the
Registrar, High Court to the Tribunal. In the light of our finding as to
.... ,_ .. the real nature of the Company's Suit No. 272 of 1985, it will be for
the Registrar of the High Court to pass appropriate orders. We hope
F
that appropriate orders will be passed in relation to suit no. '272 of
1985 expeditiously, at any rate, within one month from today."

(Emphasis supplied)
G
It is further submitted that any direction issued in exercise of power under
Article 142 to do proper justice and the reasons, if any, given for exercising
such power, cannot be considered as law laid down by this Court under
Article 141. It is pointed out that other courts do not have the power similar
./ • to that conferred on this Court under Article 142 and any attempt to follow
the exercise of such power will lead to incongruous and disastrous results. H
70 SUPREME COURT REPORTS [2006] SUPP. I S.C.R.

A 23. Though there appears to be some merit in the first Responder.t's
submission, we do not propose to examine that aspect. Suffice it to clarify that
the observations in Abhijit that an independent suit of a defendant (in Bank's
application) can be deemed to be a counter claim and can be transferred to
the Tribunal, will apply only if the following conditions were satisfied :-

B (i) The subject matter of 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.

(ii) Both parties (the plaintiff in the suit against the Bank and the
Bank) should agree for the independent suit being considered as
C a counter-claim in Bank's application before the Tribunal, so that
both can be heard and disposed of by the Tribunal.

In short the decision in Abhijil is distinguishable both on facts and law.

23. One word before parting. Many a time, after declaring the law, this
D Court in the operative part of the judgment, gives some directions which may
either relax the application of !aw or exempt the case on hand from the rigour
of the law in view of the peculiar facts or in view of the uncertainty of law , I

till then, to do complete justice. While doing so, normally it is not stated that
such direction/order is in exercise of power under Article 142. It is not
uncommon to find that courts have followed not the law declared, but the
E exemption/relaxation made while moulding the relief in exercise of power under
Article 142. When the High Courts repeatedly follow a direction issued under
Article 142, by treating it as the law declared by this Court, incongruously
the exemption/relaxation granted under Article 142 becomes the law, though
at variance with the law declared by this Court. The courts should therefore
F be careful to ascertain and follow the ratio decidendi, and not the relief given
on the special facts, exercising power under Art. 142. One solution to avoid •
such a situation is for this Court to clanfy that a particular direction or portion
of the order is in exercise of power under Art. 142. Be that as it may.

Conclusion
G
24. In view of the above, we find that the order of the High Court does
not call for any interference. These appeals are accordingly dismissed. Pat1ies
to bear their respective costs.

v.s. Appeal dismissed.
H