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Patheja Forgings and Auto Parts Mfg. Ltd. and Another V/S I.F.C.I. Ltd. and Others.

    Misc. Appeal No. 394 of 2003

    Decided On, 22 March 2005

    At, Debt Recovery Appellate Tribunal At Mumbai

    By, THE HONORABLE JUSTICE: PRATIBHA UPASANI (CHAIRPERSON)

    For Petitioner: Bharucha Advocate. i/b., Mehta and Girdharlal, Advocates And For Respondents: Munjee Advocate. i/b., Singhania and Co. for Respondent No. 1 and Meenal Bhambhlani Advocate. i/b., Bhambhlani and Co. for Respondent No. 14



Judgment Text


1. This Misc. Appeal is filed by the appellants/original defendants being aggrieved by the order dated 13.10.2003 passed by the learned Presiding Officer of Debts Recovery Tribunal-II, Mumbai on Exhibit No. 30 in Original Application No. 185/2002. By the impugned order, the learned Presiding Officer rejected the application made by the appellants/defendant Nos. 1 and 5 for dismissal of the original application and in the alternative for adjourning it until the logical end of the notice under Section 13(2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for the sake of brevity hereinafter to be referred to as 'Securitization Act') issued by the leader of the consortium (ICICI Bank) of which (the consortium) the applicant/IFCI Ltd. was a member.

2. Few facts which are required to be stated are as follows :

The applicant IFCI Ltd. filed original application being O.A. No. 185/2002 for recovery of Rs. 1,15,76,15.607/- with interest thereto. After filing of the original application, the leader of consortium issued notice on 16.7.2003 under the Securitization Act. By its letter dated 14.5.2002, the applicant had given its consent. It was undisputed that though the notice had been issued by ICICI Bank, the recovery would ensure to the benefit of financial institutions.

It was the contention of the appellants that as the applicant had resorted to the remedy under Securitization Act, this original application was not tenable. It was urged that in any case, it was required to be adjourned until logical end of the notice under the Securitization Act.

3. This application came to be opposed by the applicant IFCI Ltd. by filing reply. It was contended that the remedies under the Securitization Act and under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for the sake of brevity hereinafter to be referred to as 'the RDB Act') were independent. It was also contended that Section 37 of the Securitization Act declared that the remedies available under the said Act were in addition to and not in derogation of the RDB Act. It was submitted that the concurrent proceedings could legally go on.

The learned Presiding Officer after hearing both the sides, by the detailed reasoned order rejected the said application taken out by the defendant Nos. 1 and 5. Being aggrieved, the present appeal is filed.

4. I have heard Mr. Bharucha for the appellants, Mr. Munjee for the respondent No. 1 and Ms. Meenal Bhambhlani for the respondent No. 14. I have gone through the proceedings including the impugned order, so also relevant provisions of the RDB Act as well as the Securitization Act and in my view, the learned Presiding Officer was right in holding that the proceedings under the Securitization Act and proceedings of the Original Application No. 185/2002 would go on simultaneously and that there was no bar for the simultaneous proceeding of both these proceedings.

5. The Government of India issued the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004 (which has now become an Act of Parliament) amending certain provisions of the Securitization Act, as also the RDB Act. One of the amendments is to Section 19 of the RDB Act of 1993 :

"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 Laws (Amendment) Ordinance, 2004, for the purpose of taking action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, if no such action had been taken earlier under that Act."

6. By this amendment, a proviso has been added to Sub-section (1) of Section 19 of the RDB Act, 1993. It provides that the Bank or the financial institution may, with the permission of the DRT, on an application filed by it, withdraw the application (OA). It is also provided that the said O.A. could have been filed either before or after the Ordinance of 2004, and that the withdrawal must be for the purpose of taking action under the Securitization Act.

According to the second proviso introduced by this amendment, when any application is made under the first proviso for seeking permission from the Presiding Officer, DRT to withdraw the application made under Sub-section (1), it should be disposed of within thirty days from the date of such application.

The third proviso enables the Presiding Officer of DRT to refuse permission for withdrawal of the application under this Sub-section by giving reason therefor.

It is contended by the appellants that the intention behind amendment to Section 19(1) of the Act, 1993, by providing these three provisos was that Banks and financial institutions should pursue one of these remedies only, either under the Act of 1993 or under the Securitization Act, at a time, because even under the general law the Banks and financial institutions have the right to withdraw the OA pending before any DRT. It is contended that the purpose of this specific proviso is to allow the Banks and financial institutions to withdraw the OA, with liberty to, and for the purpose of pursuing the remedy under the Securitization Act and, therefore, though the word "may" has been used, it has to be read in the context as "shall", and that it is mandatory for the Banks and financial institutions to apply to the Presiding Officer of DRT for withdrawing the pending OA for the purpose of taking action under the Securitization Act.

7. To buttress this submission, the learned Advocate appearing for the appellants took recourse to the Supreme Court decision in A.P. State Financial Corporation v.. GAR Re-Rolling Mills and Anr., AIR 1994 SC 2151, for the purpose of drawing analogy. In the said judgment, the Supreme Court had discussed the provisions of Section 29 and 31 of the State Financial Corporations Act and on principle, has observed that out of the two remedies of Sections 29 and 31, the Corporation cannot simultaneously pursue the remedies at the same time. The Supreme Court further discussed the doctrine of election (On facts, however, in this case the Supreme Court allowed the appeals of A.P. State Financial Corporation after much discussion on Sections 29 and 31 of the State Financial Corporations Act, so also the doctrine of election). The Supreme Court thus answered in the affirmative the following questions :

"Whether the Financial Corporation set up under Section (3) of the State Financial Corporations Act is entitled to take recourse to the remedy available to it under Section 29 of the Act even after having obtained an order or a decree after invoking the provisions of Section 31 of the Act but without executing that decree or order?"

8. I have gone through the aforesaid decision of the Supreme Court. In my view, Para 15 of the said decision, is a complete answer to the submissions made by Mr. Bharucha, the learned Advocate appearing for the appellants and two simultaneous proceedings cannot go on, one under the RDB Act, and the other under Securitization Act. The said para 15 can be reproduced below :

"The Doctrine of Election clearly suggests that when two remedies are available for the same relief, the party to whom the said remedies are available has the option to elect either of them but that doctrine would not apply to cases where the ambit and scope of the two remedies is essentially different. To hold otherwise may lead to injustice and inconsistent results. Since, the Corporation must be held entitled and given full protection by the Court to recover its dues it cannot be bound down to adopt only one of the two remedies, provided under the Act...."

9. The distinguishing point here is that the Hon'ble Supreme Court has discussed the remedies provided under Sections 29 and 31 of the State Financial Corporation Act. Both these sections and the remedies provided therein are under the same Act. One, however, has to remember that in the present case at hand, the two remedies which are being taken into account are not the two remedies under one and the same Act. While one remedy is under the RDB Act, 1993, the other remedies is under some other Act, namely, Securitization Act. Therefore, there is no question of Doctrine of Election here. The ambit and scope of these two remedies provided by the RDB Act and Securitization Act, is different. Here there are two adversaries who come before the Tribunal and the issue raised by them are adjudicated by the Presiding Officer. As far as the Securitization Act is concerned, it is more of an executory nature. There is no adjudication process at least, till action under Section 13(4) is taken. It is another thing that, thereafter, the legality or otherwise of the action taken by the Bank or financial institution can be challenged by filing appeal under Section 17 of the Act.

10. In my view, these two Acts namely RDB Act and Securitization Act operate in two different spheres. Both the Acts are passed by Parliament and, therefore, their legislative competency cannot be questioned. The RDB Act, is adjudicatory in nature, while the Securitization Act is mostly an executory law. While RDB Act, covers secured as well as unsecured debts, the Securitization Act, covers only secured debts. It is also to be remembered that when Securitization Act was passed, the Parliament was fully conscious of the fact that there is another Act namely, RDB Act, which is in force, but still Securitization Act was passed for speedy recovery of secured assets only. No doubt there is an element of overlapping but both these Acts provide different remedies. Their nature is also different and they operate in different fields. The provisions of both these Acts have to be reconciled and while interpreting the provisions of these Acts one has to resort to harmonious interpretation.

11. The learned Chairperson of DRAT, Delhi, in the case of Indusind Bank Ltd. v. Deva Tools and Forgings, I (2005) BC 97 (DRAT/DRT), has taken a view that if the OA is pending in the DRT, then action under Securitization Act cannot be intimated without permission from DRT and that both the actions cannot be taken simultaneously.

The learned Chairperson of Debts Recovery Appellate Tribunal, Delhi has held that the word "may" used in Section 19 of the RDB Act has to be construed as "shall" and it will be mandatory for the Banks and financial institutions to apply to the Presiding Officer of DRT for withdrawing the pending original application for the purpose of taking action under the Securitization Act, with respect to the then learned Chairperson of DRAT, Delhi, I am unable to agree with the view taken by him for the reasons stated above. In my view, both the proceedings can proceed simultaneously and there is no bar as such. At the same time, both the Acts are to be harmoniously construed. Both the Acts are enacted by the Parliament and are on the statute book. Harmonious construction, therefore, has to be such that it would allow the statute to flourish and not to perish. For this purpose, preambles of the respective Acts can be looked into.

The preamble to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 states that "this Act is to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and financial institutions and for matters connected therewith or incidental thereto".

Preamble to the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 states that "this Act is to regulate the Securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto".

12. Thus, the intention in enacting RDB Act was to establish Tribunals for expeditious adjudication and recovery of debts due to Banks and financial institutions and for matters connected therewith or incidental thereto and the intention in enacting the Securitization Act was to regulate the Securitization and reconstruction of financial assets and enforcement of security interest. Paramount interest is expeditious recovery of the Banks and financial institutions dues, which is public money and enforcement of the securities of the Banks and financial institutions and to regulate procedure for Securitization and reconstruction. As already observed, the RDB Act covers secured as well as unsecured dues, while the Securitization Act takes into account only secured assets and secures interest of the secured creditors only. The intention in enacting both the Acts therefore is complimentary to each other, but they operate in different sphere. The RDB Act is for expeditious adjudication at the hands of the Tribunals, while the Securitization Act bypasses intervention of the Courts for expeditious recovery of dues of Banks and financial institutions, which is public money of which they are custodian.

13. Section 37 of the Securitization Act, also has to be kept in mind which states as follows :

"37. Application of other laws not barred--The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force."

Thus, Section 37 makes it clear that the provisions of the Securitization Act are in addition to the provisions of the RDB Act, 1993. The words used in Section 37 cannot be equated with words "in lieu of. Under the RDB Act of 1993, all the creditors can approach whether the debts are secured or not secured, while under the Securitization Act, those who can resort to the remedies under the Securitization Act, are only the secured creditors and not others.

The question with respect to limitation also is a question mark. In Securitization Act, if the secured creditor has to first recover its dues by taking recourse to the provisions of the Securitization Act, then it is not known as to how much time those proceedings will consume and if he has to come back to DRT for filing OA for recovering the shortfall, then there is no specific and categorical provision for saving limitation. Therefore, in my view, withdrawal of OA before taking action under Section 13(4) of Securitization Act has to be treated as directory and not mandatory. The word "may", therefore, in the amendment has to be interpreted as 'may' only and not as 'shall'.

Also full effect must be given to the language of Section 35 of the Securitization Act, which states that the provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

14. In this context, useful reference can be made to the judgment of the Gujarat High Court in Apex Electricals Ltd. v. ICICI Bank Ltd . In this judgment, the Hon'ble High Court after exhaustively considering the provisions of Securitization Act and the RDB Act amongst other Acts has culled down in the ratio in para 65 of the judgment, which is reproduced below for the ready reference.

65.4 The secured creditors under the present Act can resort to simultaneous remedies provided under any other law for the time being in force and also under the present Act, but such remedies under the present act cannot be read as nullifying the effect of binding judgment of a competent forum on facts qua such secured assets or quantification of outstanding amount or liability therefrom and simultaneously resorting to the remedies unde

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r the present Act in addition to the remedies under any other law for the time being in force qua secured assets should not result into frustrating the basic principles of justice and good conscience and rule of law as per the observations made in earlier paragraphs. The Hon'ble High Court has thus clearly held that simultaneous remedies are not forbidden subject to that remedy under Securitization Act cannot be read as nullifying the effect of binding judgment of a competent Forum. In the present case at hand, admittedly as yet no judgment adjudicating the claim has been rendered and, therefore, question of nullifying the effect of said judgment by the action under the Securitization Act does not arise. Sitting in Chennai as Chairperson of the Debts Recovery Appellate Tribunal, Chennai while deciding Appeal No. RA 10/2005 filed by Asset Reconstruction Company (India) Ltd. v. Kumar Metallurgical Corporation Ltd. and Ors., on 28.2.2005, I have taken a view, dissenting from the view taken by the learned Chairperson of Debts Recovery Appellate Tribunal, Delhi, that proceedings under RDB Act of 1993 and proceedings under the Securitization Act can go on simultaneously and that the word 'may' in the proviso in the amendment has to be read as 'may' only and not as 'shall'. Having taken this view earlier, I do not see any reason to deviate from my earlier view. In view of the aforesaid discussion, in my view, no fault can be found with the impugned order. Therefore, the said order will have to be upheld and the appeal will have to be dismissed. Hence following order is passed: ORDER Misc. Appeal No. 394/2003 is dismissed. In view of this, Misc. Application No. 604/2003 does not survive and is disposed of accordingly.
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