BANK OF RAJASTHAN LTD. versus VCK SHARES & STOCK BROKING SERVICES LTD. on 10 November 2022

[2022] 17 S.C.R. 567

BANK OF RAJASTHAN LTD.

v.

VCK SHARES & STOCK BROKING SERVICES LTD.

(Civil Appeal Nos. 8972-8973 of 2014)

NOVEMBER 10, 2022

[SANJAY KISHAN KAUL, ABHAY S. OKA ANDVIKRAM NATH, JJ.]

Code of Civil Procedure, 1908 : Order VII R.10 - Recovery ofDebts Due to Banks and Financial Institutions Act, 1993 (RDB) – s.19 – The appellant bank sanctioned a term loan to the respondentcompany, however, respondent failed to make the payment –Appellant filed an application for recovery of the amounts beforethe Debts Recovery Tribunal, (DRT) – Respondent enteredappearance to defend the proceedings, but in addition also filed aCivil Suit in the High Court which was dismissed by the Single Judgeon the finding that the Court lacked jurisdiction as the sameexclusively vested with the DRT – However, on appeal the DivisionBench of the High court restored the suit and held that there is noprovision in the RDB ousting jurisdiction of civil court – There existeda difference of opinion between several benches of the SupremeCourt and it was considered appropriate to refer it to larger bench– The following questions were referred : (a) Whether an independentsuit filed by a borrower against a Bank or Financial Institution,which has applied for recovery of its loan against the plaintiff underthe RDB Act, is liable to be transferred and tried along with theapplication under the RDB Act by the DRT ?;(b) If the answer is inthe affirmative, can such transfer be ordered by a court only withthe consent of the plaintiff ?; (c) Is the jurisdiction of a Civil Courtto try a suit filed by a borrower against a Bank or FinancialInstitution ousted by virtue of the scheme of the RDB Act in relationto the proceedings for recovery of debt by a Bank or FinancialInstitution ? – Held: There is no specific power to transfer a suit tothe DRT – Only a plaint can be returned u/Or. VII, r.10 – S.151 ofCPC cannot be utilized as a residuary power to achieve transfer –Absence of any legislative power cannot give a power by implicationto the Civil Court –Also, not appropriate to read such power totransfer a suit to a DRT u/s. 151 of the CPC, when DRT is a creature

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Aof a statute and statute does not provide for such eventuality – (b)Once its concluded that there is no power with civil court, thenthere is no question of transfer of the suit whether by consent orotherwise – (c) There is no provision in the RDB Act by which theremedy 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 mayBfile counterclaim, or may avail procedure establish under Code.

Dismissing the appeals, the Court

Held: 1.1 On a plain reading of the provisions, theconclusion reached was that Section 17 of the RDB Act bars theCjurisdiction of the Civil Court only in respect of applications filedby the bank or financial institution. This provision did not bar thejurisdiction of the Civil Court to try a suit filed by the borrower.There was also an absence of provisions in the Act for transfer ofsuits and proceedings except Section 31, which relates to pendingsuit proceedings by a bank or financial institution for recovery ofDdebt. [Para 39][594-G]

1.2 It was noticed that the significant aspect of Sections 17and 18 of the RDB Act was that even after establishment of theDRT, no jurisdiction had been conferred on it to try independentsuits or proceedings initiated by the borrower or others againstEbanks/financial institutions. What has been permitted is only across-action in the form of a counterclaim by a defendant in thepending application to facilitate a unified proceeding. [Para40][594-H; 595-A-B]

1.3 There is no provision in the RDB Act by which theFremedy of a civil suit by a defendant in a claim by the bank isousted, but it is the matter of choice of that defendant. Such adefendant may file a counterclaim, or may be desirous of availingof 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 totransfer a suit to the DRT. A plaint can be returned only underthe provisions of Order VII Rule 10 of CPC for the reasonsspecified therein. In the absence of such reasons, Section 151 ofthe Code cannot be utilised as a residuary power to achieve theH

transfer, which is really a consequence of return of the plaint whenthe grounds under Order VII Rule 10 of the Code are notsatisfied. The absence of any legislative power cannot give apower by implication to the Civil Court. It would not be appropriateto read such power to transfer a suit to a DRT under Section 151of the Code when the DRT is a creature of a statute and thatstatute 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, theconsent or absence of it is not something which would lend suchpower to the Civil Court. The option before the defendant, whohas instituted the suit, is clear - either he could file a counterclaimbefore 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] 3Suppl. SCR 153; State Bank of India v. RanjanChemicals 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; NaharIndustrial Enterprises Ltd. v. Hong Kong and ShanghaiBanking 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. RameshChander Agarwal (2003) 6 SCC 220; Nagri PrachariniSabha v. Vth Additional District and Sessions Judge(1991) 2 Supp SCC 36; Ramesh Chand Arwaitya v. AnilPanjwani (2003) 7 SCC 350 : [2003] 3 SCR 1149;Union of India and Another v. Delhi High Court BarAssociation and Others (2002) 4 SCC 275 : [2002] 2SCR 450; Dhulabhai v. State of Madhya Pradesh [1968]3 SCR 3 660; Dwarka Prasad Agarwal (D) By LRs andAnr. v. Ramesh Chander Agarwal and Ors. (2003)6 SCC 220 : [2003] 1 Suppl. SCR 376 – referred to.

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Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 8972-8973 of 2014.

From the Judgment and Order dated 19.04.2011 of the High CourtDat Calcutta in A.P.O. No. 488 and 489 of 2002.

V. V. Giri, Sr. Adv., Anand Shankar Jha, Arpit Gupta, GirishBhardwaj, Srirang Varma, Ms. Meenakshi Devgan, Abhilekh Tiwari,Arjun Garg, O. P. Gaggar, Sachindra Karan, Akshat Gupta, Advs. forthe Appellant.

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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 thelegal right of the borrower to initiate proceedings before a Civil Courtagainst the bank or financial institution, which seeks to recover a loanamount against it.

GThe Factual History:

2. The appellant bank, Bank of Rajasthan Ltd. (since amalgamatedwith ICICI Bank Ltd.), sanctioned a term loan to the respondent companyon 28.06.1994 with a limit of Rs.1.50 crores at interest of 19.25% perannum, repayable in twelve quarterly instalments. In order to secure theloan, the guarantors including the respondent, inter alia offered title H

deeds of immovable properties as security. By mutual agreement, a furthercredit overdraft facility was granted on 19.09.1995, up to a limit of Rs.5crores. This additional credit was secured by the deposit of shares, stocks,and securities of various companies. The respondent did not adhere tofinancial discipline, resulting in the appellant issuing a notice on 01.07.1997,calling upon the respondent to settle the term loan account and overdraftfacility account within three days of the receipt of the notice.

3. Since the respondent failed to make the payment, the appellantfiled an application, being OA No.263 of 1997, for recovery of theamounts due under Section 19 of the Recovery of Debts Due to Banksand Financial Institutions Act, 1993 (hereinafter referred to as ‘RDBAct’) before the Debts Recovery Tribunal, Kolkata (hereinafter referredto as ‘the DRT’) on 21.11.1997. The appellant sought a recoverycertificate against the respondent for Rs.8,62,41,973.36 including interestat the rate of 20.88% per annum.

4. The respondent entered appearance to defend the proceedingsbut in addition also filed a Civil Suit No.77 of 1998 before the KolkataHigh Court against the appellant on 06.03.1998. The respondent interalia, claimed a decree for sale of the pledged shares, recovery of saleproceeds, and an inquiry into the losses suffered by the respondent alongwith a decree for payment of money after the same.

5. A crucial development took place on 18.03.1998 when theappellant sold the pledged shares of BFL Software Ltd. for a total sumof Rs.5,77,68,000/- to adjust the amounts against the dues in view of theauthorisation available with them as a part of the loan transaction. Therespondent, as a sequitur, filed Civil Suit no.129 of 1999 before the HighCourt of Calcutta on 09.03.1999 praying, inter alia, for the followingreliefs:

“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 overdraftfacility account, and in default to pay Rs. 48.95 crores; and

iii) a declaration that no sum was payable by the Respondent tothe Appellant in respect of the term loan dated 27.07.1994 andOverdraft Account dated 19.09.1995 and that the Appellant bankwas not entitled to a decree for a sum of Rs. 8,62,41,973.36 fromthe Respondent.”

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A6. The appellant, in those proceedings, filed applications, beingGA No.4206 of 2000 in C.S. No.77 of 1998 and GA No.4171 of 2000 inC.S. No.129 of 1999 in November 2000, seeking rejection of the plaintand dismissal of the suits filed by the respondent. It was claimed that thesuits were not maintainable and that the High Court lacked jurisdictionas the same exclusively vested with the DRT. The learned Single JudgeBvide order dated 06.09.2022 allowed both the applications of the appellantand 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 (laterAPO No.488 of 2002) and APOT No.692 of 2002 (later APO No.489of 2002), challenging the order dated 06.09.2022 of the learned SingleCJudge. The Division Bench vide its order dated 27.09.2022 stayed theoperation of the order of the learned Single Judge while admitting theappeal.

7. Insofar as the DRT proceedings were concerned, OA No.263of 1997 was disposed of by the DRT vide order dated 19.05.2003Dpredicated on a reasoning that the appellant bank’s claim ofRs.6,04,17,777.36 was satisfied through sale of pledged shares. It foundthat the amount actually due under the proceedings stood settled andpaid. The appellant was directed to return the title deeds of the pledgedshares and other securities to respondent. On the counter claim filed bythe respondent, the DRT held that the respondent was entitled to recoverERs.6,88,187.49 from the appellant within four weeks of the order. Therespondent was also granted liberty to file appropriate proceedings forrecovery of dividends on the pledged shares except the sum ofRs.20,11,337.35 for which set off was allowed in the proceedings.

8. The appellant, feeling aggrieved, proceeded to file an appealFbefore the Debts Recovery Appellate Tribunal, Kolkata (hereinafterreferred to as ‘the DRAT’) with M.A. No.31 of 2003, which wasdismissed vide an order dated 14.11.2003 opining that the appellant shouldhave 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 underGArticle 227 of the Constitution of India before the Kolkata High Courton 17.11.2003 which was, however, dismissed in default vide High Courtorder dated 11.02.2004 but restored later before a Single Judge videorder dated 16.01.2013. We are informed that these proceedings alsostand dismissed on 26.08.2019 and, thus, there appears to be a quietus tothe extent of claim of the bank. The respondent, in terms of the decree,H

has also received the amounts due to it and thus nothing survives quathat aspect.

9. Now, coming back to the suit instituted by the respondent, whichwas dismissed by the learned Single Judge on the finding that the Courtlacked jurisdiction; the Division Bench allowed the appeals filed by therespondent against the orders of the learned Single Judge in two cases,and it is the decision in the two appeals permitting continuation of suitswhich have been assailed before this Court.

Rationale of the Division Bench in restoring the suits:

10. The respondent successfully contended before the High Courtthat there was no provision under the RDB Act for ousting the jurisdictionof the Civil Court and to entertain a suit against banks and financialinstitutions. There was also no provision to allow for transfer of suitsagainst banks and the financial institutions which were pending beforethe Civil Court. It was thus submitted that the jurisdiction of the CivilCourt would remain intact even after the amendment to the RDB Acteffected in the year 2000, whereby the provisions for set-off andcounterclaims were included under Section 19 of the RDB Act. Thenewly inserted sub-Sections (7) and (9) under Section 19 provided that aset-off/counterclaim filed by the borrower would have the same effectas a plaint in a cross-suit to be determined by the DRT.

11. The case of the appellant was that the proceedings before theDRT were already pending when the suits were filed by the respondent.Thus, the issue ought to have been raised in the statement of defenceeither by way of set-off or a counterclaim before the DRT. It was pointedout that the respondent had initially not raised such a counterclaim in theproceedings before the DRT, but later this issue (subject matter ofsubsequent suit, being CS No.129 of 1999) had been added by way ofamendment. The respondent pointed out that under the RDB Act, banksand financial institutions were placed in an unequal position as they werebarred from raising a counterclaim before the Civil Court.

12. The Division Bench of the High Court opined that as per theview of this Court in Nahar Industrial Enterprises Ltd. v. Hong Kongand Shanghai Banking Corporation,[1] a suit filed by a borrower againstthe bank was not barred before the Civil Court, although a suit filed bythe bank against the borrower was barred. This judgment was found to 1 (2009) 8 SCC 646.

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Abe the authority on the point as it came subsequent to the other decisionsof the Supreme Court on this issue.

Proceedings before this Court:

13. The reference in the present proceedings arose out of an orderdated 17.09.2014 noticing an apparent conflict of views. It was observedBthat a two-Judges Bench of this Court in United Bank of India, Calcuttav. Abhijit Tea Co. Pvt. Ltd. And Others[2] had taken a view that as perthe legislative scheme of the RDB Act, jurisdiction was conferred uponthe DRT to try a counterclaim and set-off under Section 19 of the RDBAct and that all such counter-claims and set-offs, including a cross-suitCfiled 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 jurisdictionof the Civil Courts was not barred in regard to any suit filed by theborrower against a bank for any relief. Jurisdiction was barred only inDregard to applications by a bank or a financial institution for recovery ofits debts. It was held that although a counterclaim and set-off may bemade under sub-Sections (6) and (11) of Section 19 of the RDB Act, nojurisdiction was conferred on the DRT to try independent suits orproceedings initiated by the borrowers. It was thus held that the borrowerhad the option to file a separate suit before the Civil Court and theEcounterclaim before the DRT was not the only remedy. Referring to theearlier judgment in Abhijit Tea Co. Pvt. Ltd. & Others (supra), theBench in the Indian Bank (supra) observed that an independent suitcan be deemed to be a counterclaim and can be transferred to DRT onlyif the following conditions are satisfied:F“a. The subject matter of the bank’s suit, and the suit of thedefendant against the bank, should be inextricably connected inthe sense that decision in one would affect the decision in theother.

b. Both parties (the plaintiff in the suit against the bank and theGbank) should agree for the independent suit being considered as acounter-claim in the bank’s application before the Tribunal, sothat both can be heard and disposed of by the Tribunal.”

2 (2000) 7 SCC 357.H3 (2006) 5 SCC 72.

15. Another Co-ordinate Bench of this Court in State Bank ofIndia vs. Ranjan Chemicals Ltd. and Another[4] held that there wasno need to restrict the power of the Civil Court to order joint trial byintroducing a condition that a joint trial could be ordered only with theconsent of both parties. It was observed on the basis of Abhijit TeaCo.’s case that a claim in an independent suit could be considered as aclaim for set-off and counterclaim within the meaning of Section 19 ofthe RDB Act.

16. Thus, in the reference order, it was mentioned that subsequentto the Ranjan Chemicals Ltd. case (supra), another Division Bench inNahar Industrial Enterprises Ltd. case (supra) held that the decisionin Ranjan Chemicals Ltd. (supra) could not have departed from thedecision in Indian Bank case (supra), both being Coordinate Benches.It was thus concluded that there existed a difference of opinion betweenseveral benches of this Court on this issue and it was consideredappropriate to refer the following questions to a larger Bench.

“(a). Whether an independent suit filed by a borrower against aBank or Financial Institution, which has applied for recovery ofits loan against the plaintiff under the RDB Act, is liable to betransferred and tried along with the application under the RDBAct by the DRT ?

(b) . If the answer is in the affirmative, can such transfer be orderedby a court only with the consent of the plaintiff?

(c) . Is the jurisdiction of a Civil Court to try a suit filed by aborrower against a Bank or Financial Institution ousted by virtueof the scheme of the RDB Act in relation to the proceedings forrecovery of debt by a Bank or Financial Institution?”

17. We are thus to opine on the aforesaid questions referred to us.

Plea of the Appellant:

Question No.1

18. The Supreme Court of India in Indian Bank case (supra),Ranjan Chemicals Ltd. case (supra) and Nahar Industrial EnterprisesLtd. case (supra) has had no cleavage of opinion regarding the first AB

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Aquestion referred to a larger bench as they held that an independent suitby a borrower can be transferred and tried along with the originalapplication by the bank under the RDB Act. The difference of opinionarose only with respect to consent of the parties. These decisions haveset no bar in law regarding the transfer of independent suit filed by theborrower against the bank to be decided as a counterclaim/set-off byBthe DRT in an original application filed by the bank.

19. The appellant contended that non-consolidation of actions maylead to multiplicity of actions and conflicting decisions between the sameparties on the same cause of action and, thus, sought answer in theaffirmative to the first question.C

Question no.2

20. Mr.V.V. Giri, learned senior counsel for the appellant, whileconceding that consolidation of suits is not superficially provided for underthe Civil Procedure Code, 1908 (hereinafter referred to as ‘the Code’),Dcontended this Court on multiple occasions has held that the absence ofspecific provisions governing consolidation of suits provided for in theCode, the Court may exercise its inherent powers under Section 151 ofthe Code directing consolidation.[5]

21. The only cavil to the proposition is that Section 151 of theECode cannot be utilised to pass orders contrary to the express provisionsof the Code. In view of this legal position, it was contended that noconsent of parties is required for exercise of the inherent powers of theCourt and, thus, the opinion in Indian Bank’s case (supra) followed inNahar Industrial Enterprises case (supra) putting such a consent as apre-condition to direct consolidation of suits by the borrowers is contraryFto the permissible exercise of inherent powers of the Court under Section151 of the Code. Thus, question no.2 was requested to be answered inthe negative.

Question no.3

22. The provisions of RDB Act provide for a complete scheme toGtry a counterclaim/set-off filed by the borrower along with a writtenstatement 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) 3SCC 85 (Para 12); and KK Velusamy v. N. Palanisamy, (2011) 11 SCC 275, (ParaH12).

be quite evident from a plain reading of Section 19(7) and Section 19(9)of the RDB Act. The overall scheme of Sections 17, 18 and 19 of theRDB Act was contended to form a bar for the purposes of Section 9 ofthe 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, verificationof counter-claim/set-off in a manner similar to the pleadings before CivilCourt, evidence by way of affidavit and provisions regarding cross-examination in rules; demonstrate that sufficient powers have been vestedin the DRT to try claims raised by the borrower inextricably connectedwith the claim of the bank. These provisions are enacted to guard againstmultiplicity of proceedings in relation to similar subject matters, oncebefore the DRT and another before the Civil Court. Thus, even Questionno.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 counselfor the respondent, that the RDB Act was enacted with the objective ofproviding a summary procedure to enable banks and financial institutionsto recover debts due to them in a speedy manner and it did not oust thejurisdiction of Civil Courts. The purpose of the statute would be defeatedif there was an influx of civil suits filed by the borrowers against thelenders before the DRT. It was also pointed out that there were noprovisions in the RDB Act to permit a counterclaim to be adjudicatedindependently even if the suit of the plaintiff failed.

25. Learned senior counsel for the respondent submitted that asper Transcore v. Union of India[6] the DRT is a creature of statute andhas no inherent power, which exists in Civil Courts. In Swarka PrasadAgarwal v. Ramesh Chander Agarwal[7] it was held that a provisionseeking to circumscribe the jurisdiction of a Civil Court would requirestrict interpretation and the Court ordinarily leans toward upholding thejurisdiction of the Civil Courts. Learned senior counsel also sought torely on Nagri Pracharini Sabha v. Vth Additional District andSessions Judge[8] and Ramesh Chand Arwaitya v. Anil Panjwani[9] tosubmit 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

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Aindependent right to institute a civil suit; and that Civil Court can entertaina civil suit even where a special Tribunal conferred with the exclusivejurisdiction to try a particular class of cases exists.

26. It was, thus, urged that the judgment of this Court in IndianBank case (supra) and Nahar Industrial Enterprises case (supra)Bhad correctly declared the law on the subject.

The scheme of the RDB Act

27. Banks and financial institutions lend public money to assistentrepreneurs in their business. Thus, on one hand, there is the interestof public, whose funds are utilised, while on the other hand are theCbusiness establishments which need funds for their business. Banks andfinancial institutions in a sense are intermediaries in the process.

28. Litigation instituted by banks and financial institutions becamecoloured by gross delays in the civil proceedings, as a result of whichdefaulters were at a premium. Borrowers who maintained financialDdiscipline were the ones at a disadvantage. The borrowing process wasbeing misused and a large amount of public funds were stuck in litigation.

29. In order to expedite the recovery of dues, the RDB Act wasenacted 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 tribunalEfor expeditious adjudication and recovery of debts due to banks andfinancial institutions and for all matters connected therewith. The RDBAct is comprehensive in character in terms of providing the methodologytowards the said objective.

30. In this regard, it would be apposite to note the Statement ofFObjects and Reasons for enacting the RDB Act:

“Banks and financial institutions at present experience considerabledifficulties in recovering loans and enforcement of securitiescharged with them. The existing procedure for recovery of debtsdue to the banks and financial institutions has blocked a significantGportion of their funds in unproductive assets, the value of whichdeteriorates with the passage of time. The Committee on theFinancial System headed by Shri M. Narasimham has consideredthe setting up of the Special Tribunals with special powers foradjudication of such matters and speedy recovery as critical tothe successful implementation of the financial sector reforms. An H

BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCKBROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]

urgent need was, therefore, felt to work out a suitable mechanismthrough which the dues to the banks and financial institutions couldbe realised without delay. In 1981, a Committee under thechairmanship of Shri T. Tiwari had examined the legal and otherdifficulties faced by banks and financial institutions and suggestedremedial measures including changes in law. The Tiwari Committeehad also suggested setting up of Special Tribunals for recovery ofdues of the banks and financial institutions by following a summaryprocedure. The setting up of Special Tribunals will not only fulfil along-felt need, but also will be an important step in theimplementation of the report of Narasimham Committee. Whereason 30-9-1990 more than fifteen lakhs of cases filed by the publicsector banks and about 304 cases filed by the financial institutionswere pending in various courts, recovery of debts involved morethan Rs 5622 crores in dues of public sector banks and about Rs391 crores of dues of the financial institutions. The locking up ofsuch huge amount of public money in litigation prevents properutilisation and recycling of the funds for the development of thecountry.”

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31. It is pertinent to note that a challenge was laid to the RDB Actas it originally did not contain any provisions allowing a defendant in anapplication filed by a bank to claim any setoff or counterclaim againstthem. This issue received consideration in Union of India and Anothervs. Delhi High Court Bar Association and Others[10]. By the time thejudgment was made, the RDB Act was suitably amended by Act 1 of2000 to include such provisions, and consequently the same were upheld.

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The Statutory Framework

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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 theDRT as follows:

“17. Jurisdiction, powers and authority of Tribunals.— (1)GA Tribunal shall exercise, on and from the appointed day, thejurisdiction, powers and authority to entertain and decideapplications from the banks and financial institutions for recoveryof debts due to such banks and financial institutions.

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A[(1A) Without prejudice to sub-section (1),—

(a) the Tribunal shall exercise, on and from the date to beappointed by the Central Government, the jurisdiction, powersand authority to entertain and decide applications under PartIII of Insolvency and Bankruptcy Code, 2016 (31 of 2016).

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(b) the Tribunal shall have circuit sittings in all districtheadquarters.]

(2) An Appellate Tribunal shall exercise, on and from the appointedday, the jurisdiction, powers and authority to entertain appealsagainst any order made, or deemed to have been made, by aTribunal under this Act.

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[(2A) Without prejudice to sub-section (2), the AppellateTribunal shall exercise, on and from the date to be appointedby the Central Government, the jurisdiction, powers andauthority to entertain appeals against the order made by theAdjudicating Authority under Part III of the Insolvency and D

Bankruptcy Code, 2016 (31 of 2016).]”

34. The expression ‘debt’, as used in Section 17, is defined underSection 2(g) of the RDB Act:

“2. Definitions.—In this Act, unless the context otherwiserequires,—

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[(g) “debt” means any liability (inclusive of interest) which isclaimed as due from any person by a bank or a financialinstitution or by a consortium of banks or financial institutionsduring the course of any business activity undertaken by thebank or the financial institution or the consortium under anylaw for the time being in force, in cash or otherwise, whethersecured or unsecured, or assigned, or whether payable undera decree or order of any civil court or any arbitration award orotherwise or under a mortgage and subsisting on, and legallyrecoverable on, the date of the application 1 [and includes anyliability towards debt securities which remains unpaid in full orpart after notice of ninety days served upon the borrower bythe debenture trustee or any other authority in whose favoursecurity interest is created for the benefit of holders of debtsecurities or;]]”

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BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCKBROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]

35. Section 18 creates a bar for the Civil Court in relation to mattersspecified under Section 17 of the RDB Act. It provides as under:

“18. Bar of jurisdiction.—On and from the appointed day, nocourt or other authority shall have, or be entitled to exercise, anyjurisdiction, powers or authority (except the Supreme Court, anda High Court exercising jurisdiction under articles 226 and 227 ofthe Constitution) in relation to the matters specified in section 17:

[Provided that any proceedings in relation to the recovery of debtsdue to any multi-State co-operative bank pending before the dateof commencement of the Enforcement of Security Interest andRecovery of Debts Laws (Amendment) Act, 2012 (1 of 2013)under the Multi-State Co-operative Societies Act, 2002 (39 of2002) 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 themaking of applications for recovery. It provides as follows:

“[19. Application to the Tribunal.— (1) Where a bank or afinancial institution has to recover any debt from any person, itmay make an application to the Tribunal within the local limits ofwhose jurisdiction—

[(a) the branch or any other office of the bank or financialinstitution is maintaining an account in which debt claimed isoutstanding, for the time being; or]

[(aa)] the defendant, or each of the defendants where thereare more than one, at the time of making the application, actuallyand voluntarily resides, or carries on business, or personallyworks for gain; or (b) any of the defendants, where there are more than one, atthe time of making the application, actually and voluntarilyresides, or carries on business, or personally works for gain; or

(c) the cause of action, wholly or in part, arises:

[Provided that the bank or financial institution may, withthe permission of the Debts Recovery Tribunal, on an applicationmade by it, withdraw the application, whether made before orafter the Enforcement of Security Interest and Recovery of Debts AB

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Laws (Amendment) Act, 2004 (30 of 2004) for the purpose oftaking action under the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002(54 of 2002), if no such action had been taken earlier under thatAct:

Provided further that any application made under the firstproviso for seeking permission from the Debts Recovery Tribunalto withdraw the application made under sub-section (1) shall bedealt with by it as expeditiously as possible and disposed of withinthirty days from the date of such application:

Provided also that in case the Debts Recovery Tribunalrefuses to grant permission for withdrawal of the application filedunder this sub-section, it shall pass such orders after recordingthe reasons therefor.]

[(1A) Every bank being, multi-State co-operative bankreferred to in sub-clause (vi) of clause (d) of section 2, may, at itsoption, 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 theEnforcement of the Security Interest and Recovery of Debts Laws(Amendment) Act, 2012 (1 of 2013) from any person instead ofmaking an application under this Chapter.

(1B) In case, a bank being, multi-State co-operative bankreferred to in sub-clause (vi) of clause (d) of section 2 has filedan application under this Chapter and subsequently opts towithdraw the application for the purpose of initiating proceedingunder the Multi-State Co-operative Societies Act, 2002 (39 of2002) to recover debts, it may do so with the permission of theTribunal and every such application seeking permission from theTribunal to withdraw the application made under sub-section (1A)shall be dealt with by it as expeditiously as possible and disposedof within thirty days from the date of such application:

Provided that in case the Tribunal refuses to grant permissionfor withdrawal of the application filed under this sub-section, itshall pass such orders after recording the reasons therefor.]

(2) Where a bank or a financial institution, which has torecover its debt from any person, has filed an application to the Tribunal under sub-section (1) and against the same person anotherbank or financial institution also has claim to recover its debt,then, the later bank or financial institution may join the applicantbank or financial institution at any stage of the proceedings, beforethe final order is passed, by making an application to that Tribunal.

[(3) Every application under sub-section (1) or sub-section(2) shall be in such form, and shall be accompanied with truecopies of all documents relied on in support of the claim alongwith such fee, as may be prescribed:]

Provided that the fee may be prescribed having regard tothe amount of debt to be recovered:

Provided further that nothing contained in this sub-sectionrelating to fee shall apply to cases transferred to the Tribunalunder sub-section (1) of section 31.

[Explanation.—For the purposes of this section, documentsincludes statement of account or any entry in banker’s book dulycertified under the Bankers’ Books Evidence Act, 1891 (18 of1891).]

[(3A) Every applicant in the application filed under sub-section (1) or sub-section (2) for recovery of debt, shall—

(a) state particulars of the debt secured by security interestover properties or assets belonging to any of the defendants andthe estimated value of such securities; (b) if the estimated value of securities is not sufficient tosatisfy the debt claimed, state particulars of any other propertiesor assets owned by any of the defendants, if any; and

(c) if the estimated value of such other assets is not sufficientto recover the debt, seek an order directing the defendant to discloseto the Tribunal particulars of other properties or assets owned bythe defendants.]

[(3B)] If any application filed before the Tribunal forrecovery of any debt is settled prior to the commencement of thehearing before that Tribunal or at any stage of the proceedingsbefore the final order is passed, the applicant may be grantedrefund to the fees paid by him at such rates as may be prescribed.]

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[(4) On receipt of application under sub-section (1) or sub-section (2), the Tribunal shall issue summons with followingdirections to the defendant—

(i) to show cause within thirty days of the service ofsummons as to why relief prayed for should not be granted;

(ii) direct the defendant to disclose particulars ofproperties or assets other than properties and assets specifiedby the applicant under clauses (a) and (b) of sub-section (3A);and

(iii) to restrain the defendant from dealing with ordisposing of such assets and properties disclosed under clause(c) of sub-section (3A) pending the hearing and disposal of theapplication for attachment of properties.]

[(4A) Notwithstanding anything contained in section 65Aof the Transfer of Property Act, 1882 (4 of 1882), the defendant,on service of summons, shall not transfer by way of sale, lease orotherwise except in the ordinary course of his business any of theassets over which security interest is created and other propertiesand assets specified or disclosed under sub-section (3A), withoutthe prior approval of the Tribunal:

Provided that the Tribunal shall not grant such approvalwithout giving notice to the applicant bank or financial institutionto show cause as to why approval prayed for should not be granted:

Provided further that defendant shall be liable to accountfor the sale proceeds realised by sale of secured assets in theordinary course of business and deposit such sale proceeds in theaccount maintained with the bank or financial institution holdingsecurity interest over such assets.]

[(5) (i) the defendant shall within a period of thirty daysfrom the date of service of summons, present a written statementof his defence including claim for set-off under sub-section (6) ora counter-claim under sub-section (8), if any, and such writtenstatement shall be accompanied with original documents or truecopies thereof with the leave of the Tribunal, relied on by thedefendant in his defence:

Provided that where the defendant fails to file the writtenstatement within the said period of thirty days, the PresidingOfficer may, in exceptional cases and in special circumstances tobe recorded in writing, extend the said period by such furtherperiod not exceeding fifteen days to file the written statement ofhis defence;

(ii) where the defendant makes a disclosure of any propertyor asset pursuant to orders passed by the Tribunal, the provisionsof sub-section (4A) of this section shall apply to such property orasset;

(iii) in case of non-compliance of any order made underclause (ii) of sub-section (4), the Presiding Officer may, by anorder, direct that the person or officer who is in default, be detainedin civil prison for a term not exceeding three months unless in themeantime the Presiding Officer directs his release:

Provided that the Presiding Officer shall not pass an orderunder this clause without giving an opportunity of being heard tosuch person or officer.

Explanation.—For the purpose of this section, the expression‘officer who is in default’ shall mean such officer as defined inclause (60) of section 2 of the Companies Act, 2013 (18 of 2013).]

[(5A) On receipt of the written statement of defendant oron expiry of time granted by the Tribunal to file the writtenstatement, the Tribunal shall fix a date of hearing for admission ordenial of documents produced by the parties to the proceedingsand also for continuation or vacation of the interim order passedunder sub-section (4).

(5B) Where a defendant makes an admission of the full orpart of the amount of debt due to a bank or financial institution,the Tribunal shall order such defendant to pay the amount, to theextent of the admission within a period of thirty days from thedate of such order failing which the Tribunal may issue a certificatein accordance with the provisions of sub-section (22) to the extentof the amount of debt due admitted by the defendant.]

(6) Where the defendant claims to set-off against theapplicant’s demand any ascertained sum of money legally A

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recoverable by him from such applicant, the defendant may, atthe first hearing of the application, but not afterwards unlesspermitted by the Tribunal, present a written statement containingthe particulars of the debt 2 [the debt sought to be set-off alongwith original documents and other evidence relied on in support ofclaim of set-off in relation to any ascertained sum of money, againstthe applicant].

(7) The written statement shall have the same effect as aplaint in a cross-suit so as to enable the Tribunal to pass a finalorder in respect both of the original claim and of the set-off.

(8) A defendant in an application may, in addition to hisright of pleading a set-off under sub-section (6), set up, by way ofcounter-claim against the claim of the applicant, any right or claimin respect of a cause of action accruing to the defendant againstthe applicant either before or after the filing of the application butbefore the defendant has delivered his defence or before the timelimited for delivering his defence has expired, whether suchcounter-claim is in the nature of a claim for damages or not.

(9) A counter-claim under sub-section (8) shall have thesame effect as a cross-suit so as to enable the Tribunal to pass afinal order on the same application, both on the original claim andon the counter-claim.

(10) The applicant shall be at liberty to file a written statementin answer to the counter-claim of the defendant within such period3 [as may be prescribed].

[(10A) Every application under sub-section (3) or writtenstatement of defendant under sub-section (5) or claim of set-offunder sub-section (6) or a counter-claim under sub-section (8) bythe defendant, or written statement by the applicant in reply to thecounter-claim, under sub-section (10) or any other pleadingwhatsoever, shall be supported by an affidavit sworn in by theapplicant or defendant verifying all the facts and pleadings, thestatements pleading documents and other documentary evidenceannexed to the application or written statement or reply to set-offor counter-claim, as the case may be:

Provided that if there is any evidence of witnesses to beled by any party, the affidavits of such witnesses shall be filed simultaneously by the party with the application or writtenstatement or replies filed under sub-section (10A).

(10B) If any of the facts or pleadings in the application orwritten statement are not verified in the manner provided undersub-section (10A), a party to the proceedings shall not be allowedto rely on such facts or pleadings as evidence or any of the mattersset out therein.]

[(11) Where a defendant sets up a counter-claim in thewritten statement and in reply to such claim the applicant contendsthat the claim thereby raised ought not to be disposed of by wayof counter-claim but in an independent action, the Tribunal shalldecide such issue along with the claim of the applicant for recoveryof the debt.]

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(13) (A) Where, at any stage of the proceedings, 3 [the Tribunalon an application made by the applicant along with particulars ofproperty to be attached and estimated value thereof, or otherwiseis satisfied], that the defendant, with intent to obstruct or delay orfrustrate the execution of any order for the recovery of debt thatmay be passed against him,—

(i) is about to dispose of the whole or any part of his property;or

(ii) is about to remove the whole or any part of his propertyfrom the local limits of the jurisdiction of the Tribunal; or

(iii) is likely to cause any damage or mischief to the property oraffect its value by misuse or creating third party interest, the Tribunal may direct the defendant, within a time to be fixed byit, either to furnish security, in such sum as may be specified in theorder, to produce and place at the disposal of the Tribunal, whenrequired, the said property or the value of the same, or such portionthereof as may be sufficient to satisfy the certificate for therecovery of the debt, or to appear and show cause why he shouldnot furnish security.

(B) Where the defendant fails to show cause why he shouldnot furnish security, or fails to furnish the security required, within A

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the time fixed by the Tribunal, the Tribunal may order the attachmentof the whole or such portion of the properties claimed by theapplicant as the properties secured in his favour or otherwiseowned by the defendant as appears sufficient to satisfy anycertificate for the recovery of debt.

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(15) The Tribunal may also in the order direct the conditionalattachment of the whole or any portion of the property specifiedunder 5 [sub-section (13)].

(16) If an order of attachment is made without complying withthe provisions of sub-section (13), such attachment shall be void.

(17) In the case of disobedience of an order made by the Tribunalunder sub-sections (12), (13) and (18) or breach of any of theterms on which the order was made, the Tribunal may order theproperties of the person guilty of such disobedience or breach tobe attached and may also order such person to be detained in thecivil prison for a term not exceeding three months, unless in themeantime the Tribunal directs his release.

(18) Where it appears to the Tribunal to be just and convenient,the Tribunal may, by order—

(a) appoint a receiver of any property, whether beforeor after grant of certificate for recovery of debt; (b) remove any person from the possession or custodyof the property;

(c) commit the same to the possession, custody ormanagement of the receiver; (d) confer upon the receiver all such powers, as tobringing and defending suits in the courts or filing and defendingapplications before the Tribunal and for the realisation,management, protection, preservation and improvement of theproperty, the collection of the rents and profits thereof, theapplication and disposal of such rents and profits, and theexecution of documents as the owner himself has, or such ofthose powers as the Tribunal thinks fit; and (e) appoint a Commissioner for preparation of aninventory of the properties of the defendant or for the salethereof.

[(19) Where a certificate of recovery is issued against acompany as defined under the Companies Act, 2013 (18 of 2013)and such company is under liquidation, the Tribunal may by anorder direct that the sale proceeds of secured assets of suchcompany be distributed in the same manner as provided in section326 of the Companies Act, 2013 or under any other law for thetime being in force.]

[(20) The Tribunal may, after giving the applicant and thedefendant, an opportunity of being heard, in respect of all claims,set-off or counter-claim, if any, and interest on such claims, withinthirty days from the date of conclusion of the hearings, pass interimor final order as it deems fit which may include order for paymentof interest from the date on which payment of the amount is founddue up to the date of realisation or actual payment.]

[(20A) Where it is proved to the satisfaction of the Tribunalthat the claim of the applicant has been adjusted wholly or in partby any lawful agreement or compromise in writing and signed bythe parties or where the defendant has repaid or agreed to repaythe claim of the applicant, the Tribunal shall pass orders recordingsuch 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 whichsecurity interest is created in favour of any bank or financialinstitution and direct the Recovery Officers to distribute the saleproceeds of such assets as provided in sub-section (20AB).

(20AB) Notwithstanding anything to the contrary containedin any law for the time being in force, the proceeds from sale ofsecured assets shall be distributed in the following orders of priority,namely:—

(i) the costs incurred for preservation and protection ofsecured assets, the costs of valuation, public notice for possessionand auction and other expenses for sale of assets shall be paid infull; AB

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(ii) debts owed to the bank or financial institution.

Explanation.—For the purposes of this sub-section, it ishereby clarified that on or after the commencement of theInsolvency and Bankruptcy Code, 2016 (31 of 2016), in caseswhere insolvency and bankruptcy proceedings are pending inrespect of secured assets of the borrower, the distribution ofproceeds from the sale of secured assets shall be subject to theorder of priority as provided in that Code.]

[(21) (i) The Tribunal shall send a copy of its final orderand the recovery certificate, to the applicant applicant anddefendant.

(ii) The applicant and the defendant may obtain copy ofany order passed by the Tribunal on payment on such fee as maybe prescribed.]

[(22) The Presiding Officer shall issue a certificate ofrecovery along with the final order, under sub-section (20), forpayment of debt with interest under his signature to the RecoveryOfficer for recovery of the amount of debt specified in thecertificate.]

[(22A) Any recovery certificate issued by the PresidingOfficer under sub-section (22) shall be deemed to be decree ororder of the Court for the purposes of initiation of winding upproceedings against a company registered under the CompaniesAct, 2013 (18 of 2013) or Limited Liability Partnership registeredunder the Limited Liability Partnership Act, 2008 (6 of 2009) orinsolvency proceedings against any individual or partnership firmunder any law for the time being in force, as the case may be.]

(23) Where the Tribunal, which has issued a certificate ofrecovery, is satisfied that the property is situated within the locallimits of the jurisdiction of two or more Tribunals, it may send thecopies of the certificate of recovery for execution to such otherTribunals where the property is situated:

Provided that in a case where the Tribunal to which thecertificate of recovery is sent for execution finds that it has nojurisdiction to comply with the certificate of recovery, it shall returnthe same to the Tribunal which has issued it.

(24) The application made to the Tribunal under sub-section(1) or sub-section (2) shall be dealt with by it as expeditiously aspossible and 1 [every effort shall be made by it to complete theproceedings in two hearings, and] to dispose of the applicationfinally within one hundred and eighty days from the date of receiptof the application.

(25) The Tribunal may made such orders and give suchdirections as may be necessary or expedient to give effect to itsorders or to prevent abuse of its process or to secure the ends ofjustice.]”

37. Section 31 provides for the transfer of pending cases beforecourts to the DRT on the date of establishment of the same:

“31. Transfer of pending cases.—(1) Every suit or otherproceeding pending before any court immediately before the dateof establishment of a Tribunal under this Act, being a suit orproceeding the cause of action whereon it is based is such that itwould have been, if it had arisen after such establishment, withinthe jurisdiction of such Tribunal, shall stand transferred on thatdate to such Tribunal:

Provided that nothing in this sub-section shall apply to anyappeal pending as aforesaid before any court:

[Provided further that any recovery proceedings in relationto the recovery of debts due to any multi-State co-operative bankpending before the date of commencement of the Enforcementof Security Interest and Recovery of Debts Laws (Amendment)Act, 2012 (1 of 2013) under the Multi-State Co-operative SocietiesAct, 2002 (39 of 2002), shall be continued and nothing containedin this section shall apply to such proceedings.]

(2) Where any suit or other proceeding stands transferredfrom any court to a Tribunal under sub-section (1),—

(a) the court shall, as soon as may be after such transfer,forward the records of such suit or other proceeding to theTribunal; and (b) the Tribunal may, on receipt of such records, proceedto deal with such suit or other proceeding, so far as may be, inthe same manner as in the case of an application made under

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592SUPREME COURT REPORTS

Asection 19 from the stage which was reached before suchtransfer or from any earlier stage 2 *** as the Tribunal maydeed fit.”

The reference before us

38. The interplay of the provisions of the RDB Act and the CodeBhas been discussed in the aforesaid judgment in Indian Bank’s case(supra). We find it appropriate to extract the paragraphs which dealwith this aspect:

“15. It is evident from Sections 17 and 18 of the Debts RecoveryAct that civil court’s jurisdiction is barred only in regard toCapplications by a bank or a financial institution for recovery of itsdebts. The jurisdiction of civil courts is not barred in regard to anysuit filed by a borrower or any other person against a bank forany relief. It is not disputed that the Calcutta High Court hadjurisdiction to entertain and dispose of C.S. No.7/1995 filed by theDborrower when it was filed and continues to have jurisdiction toentertain and dispose of the said suit. There is no provision in theAct for transfer of suits and proceedings, except section 31 whichrelates to suit/proceeding by a Bank or financial institution forrecovery of a debt. It is evident from Section 31 that only thosecases and proceedings (for recovery of debts due to banks andEfinancial institutions) which were pending before any courtimmediately before the date of establishment of a tribunal underthe Debts Recovery Act stood transferred, to the Tribunal. In thiscase, there is no dispute that the Debt Recovery Tribunal, Calcutta,was established long prior to the company filing C.S. No.7/1995Fagainst the bank. The said suit having been filed long after thedate when the tribunal was established and not being a suit orproceeding instituted by a bank or financial institution for recoveryof a debt, did not attract section 31.

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16. As far as sub-sections (6) to (11) of section 19 are concerned,they are merely enabling provisions. The Debts Recovery Act, asit originally stood, did not contain any provision enabling a defendantin an application filed by the bank/financial institution to claim anyset off or make any counter claim against the bank/financialinstitution. On that among other grounds, the Act was held to beunconstitutional (see Delhi High Court Bar Association vs. Union G

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of India AIR 1995 Delhi 323). During the pendency of appealagainst the said decision, before this Court, the Act was amendedby Act 1 of 2000 to remove the lacuna by providing for set off andcounter-claims by defendants in the applications filed by Banks/financial institution before the Tribunal. The provisions of the Actas amended were upheld by this Court in Union of India vs. DelhiHigh Court Bar Association [2002 (4) SCC 275]. The effect ofsub-sections (6) to (11) of Section 19 of the amended Act is thatany defendant in a suit or proceeding initiated by a bank or financialinstitution can : (a) claim set off against the demand of a Bank/financial institution, any ascertained sum of money legallyrecoverable by him from such bank/financial institution; and (b)set-up by way of counter-claim against the claim of a Bank/financialinstitution, any right or claim in respect of a cause of actionaccruing to such defendant against the bank/financial institution,either before or after filing of the application, but before thedefendant has delivered his defence or before the time for deliveringthe defence has expired, whether such a counter claim is in thenature of a claim for damages or not. What is significant isthat Sections 17 and 18 have not been amended. Jurisdiction hasnot been conferred on the Tribunal, even after amendment, to tryindependent suits or proceedings initiated by borrowers or othersagainst banks/financial institutions, nor the jurisdiction of civil courtsbarred in regard to such suits or proceedings. The only changethat has been made is to enable defendants to claim set off ormake a counter-claim as provided in sub-sections (6) to (8)of Section 19 in applications already filed by the bank or financialinstitutions for recovery of the amounts due to them. In otherwords, what is provided and permitted is a cross-action by adefendant in a pending application by the bank/financial institution,the intention being to have the claim of the bank/financial institutionmade in its application and the counter-claim or claim for set offof the defendant, as a single unified proceeding, to be disposed ofby a common order.

17. Making a counter claim in the Bank’s application before theTribunal is not the only remedy, but an option available to theborrower/defendant. He can also file a separate suit or proceedingbefore a civil court or other appropriate forum in respect of hisclaim against the Bank and pursue the same. Even the Bank, in AB

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Awhose application the counter-claim is made, has the option toapply to the tribunal to exclude the counter-claim of the defendantwhile considering its application. When such application is madeby the Bank, the Tribunal may either refuse to exclude the counter-claim and proceed to consider the Bank’s application and thecounter-claim together; or exclude the counter-claim as prayed,Band proceed only with the Bank’s application, in which event thecounter-claim becomes an independent claim against a bank/financial institution. The defendant will then have to approach thecivil court in respect of such excluded counter claim as the Tribunaldoes not have jurisdiction to try any independent claim against aCbank/financial institution. A defendant in an application, having anindependent claim against the Bank, cannot be compelled to makehis claim against the Bank only by way of a counter-claim. Norcan his claim by way of independent suit in a court havingjurisdiction, be transferred to a Tribunal against his wishes.

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D18. In this case, the first respondent does not wish his case to betransferred to the Tribunal. It is, therefore, clear that the suit filedby the first respondent against the Bank in the High Court forrecovery of damages, being an independent suit, and not a counter-claim made in the application filed by the bank, the Bank’sapplication for transfer of the said suit to the Tribunal wasEmisconceived and not maintainable. The High Court, where thesuit for damages was filed by the company against the bank, longprior to the bank filing an application before the tribunal againstthe company, continues to have jurisdiction in regard to the suitand its jurisdiction is not excluded or barred under Section 18 orFany other provision of Debts Recovery Act.”

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39. On a plain reading of the provisions, the conclusion reachedwas that Section 17 of the RDB Act bars the jurisdiction of the CivilCourt only in respect of applications filed by the bank or financialinstitution. This provision did not bar the jurisdiction of the Civil Court toGtry a suit filed by the borrower. There was also an absence of provisionsin the Act for transfer of suits and proceedings except Section 31, whichrelates to pending suit proceedings by a bank or financial institution forrecovery of debt.

40. It was noticed that the significant aspect of Sections 17 andH18 of the RDB Act was that even after establishment of the DRT, no jurisdiction had been conferred on it to try independent suits orproceedings initiated by the borrower or others against banks/financialinstitutions. What has been permitted is only a cross-action in the formof a counterclaim by a defendant in the pending application to facilitatea unified proceeding. The most significant aspect considered in this behalfis set out in para 17 extracted above - that a counterclaim in a bank’sapplication before the DRT was not the only remedy, but an optionavailable to the defendant borrower. The borrower was not precludedfrom filing a separate suit or proceeding before a Civil Court or otherappropriate forum. Not only that, even the bank, in whose application acounterclaim is made, has the option to apply to the DRT to exclude thecounterclaim of the defendant while considering its application. If theDRT were to find in the bank’s favour, the defendant would have toapproach the Civil Court in respect of such excluded counterclaim, asthe DRT does not have jurisdiction to try an independent claim againstthe bank/financial institution.

41. The question thus arises as to whether the view expressed inIndian Bank (supra) is the correct legal proposition in view of certainearlier judgments as well as latter judgments. We may however noticethat the earlier judgment in the case of Abhijit Tea Co. Pvt. Ltd. (supra),where an independent suit of a defendant was deemed to be acounterclaim and transferred to the DRT, was considered anddifferentiated in the Indian Bank case (supra). Although both werejudgments 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 partiesconsented to such transfer.

42. In the subsequent judgment in Ranjan Chemicals Ltd. AndAnother (supra), the Court went as far as to say that the transfer couldbe made of the civil proceedings to the DRT without consent of both theparties and that a claim in an independent suit could be considered as theclaim for set-off or a counterclaim. This flip-flop-flip continued dependingon the view that the Bench of two Judges wanted to take as thereafterin Nahar Industrial Enterprises Ltd. (supra), it was found that therewas no reason to depart from the view taken in Indian Bank case(supra), as was sought to be done in Ranjan Chemicals Ltd. AndAnother case (supra), and that is how the reference arose.

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43. We must note at the threshold itself that there are norestrictions on the power of a Civil Court under Section 9 of the Codeunless expressly or impliedly excluded. This was also reiterated by aConstitution Bench of this Court in Dhulabhai vs. State of MadhyaBPradesh[11]. Thus, it is in the conspectus of the aforesaid proposition thatwe 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 thisCourt in Dwarka Prasad Agarwal (D) By LRs and Anr. v. RameshChander Agarwal and Ors.[12] where it was opined that Section 9 ofthe Code confers jurisdiction upon Civil Courts to determine all disputesCof civil nature unless the same is barred under statute either expressly orby necessary implication and such a bar is not to be readily inferred. Theprovision seeking to bar jurisdiction of a Civil Court requires strictinterpretation and the Court would normally lean in favour of constructionwhich would uphold the jurisdiction of the Civil Court.D

44. Now, if we turn to the objective of the RDB Act read with thescheme and provisions thereof; it is abundantly clear that a summaryremedy is provided in respect of claims of banks and financial institutionsso that recovery of the same may not be impeded by the elaborateprocedure of the Code. The defendant has a right to defend the claimEand file a counterclaim in view of sub-Sections (6) and (8) of Section 19of the RDB Act. In case of pending proceedings to be transferred to theDRT, Section 31 of the RDB Act took care of the issue of mere transferof the Bank’s claim, albeit without transfer of the counterclaim. Thus, ifthe debtor desires to institute a counterclaim, that can be filed before theDRT and will be tried along with the case. However, it is subject to aFcaveat that the bank may move for segregation of that counterclaim tobe relegated to a proceeding before a Civil Court under Section 19(11)of the RDB Act, though such determination is to take place along withthe determination of the claim for recovery of debt.

45. We are thus of the view that there is no provision in the RDBGAct by which the remedy of a civil suit by a defendant in a claim by thebank is ousted, but it is the matter of choice of that defendant. Such adefendant may file a counterclaim, or may be desirous of availing of the 11 1968 SCR (3) 660.H12 (2003) 6 SCC 220.

more strenuous procedure established under the Code, and that is achoice which he takes with the consequences thereof.

46. We may notice that the RDB Act was amended from time totime, including by amendments made under Act 1 of 2000, Act 30 of2004, Act 1 of 2013 and Act 44 of 2016. The anomaly, inter alia, initiallysought to be cured was on account of the non-availability of provisionson counterclaim and set-off. It is to get over such a scenario thatamendment through Act 1 of 2000 was made by the Legislature itself tocure the problem. The Legislature did not, at any stage, make any furtheramendment for excluding the jurisdiction of the Civil Court in respect ofa claim of a defendant in such a proceeding being filed along with thesuit. The Legislature in its wisdom has also not considered it appropriateto 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 theStatute, does not have any inherent power which inheres in Civil Courtssuch as Section 151 of the Code.

48. We now draw our attention to Chapter 5 of the RDB Act,which deals with recovery of debt determined by the DRT. Section 25of the RDB Act prescribes the mode of recovery of debts, which takesplace pursuant to a certificate issued under sub-Section (7) of Section19 to recover the amount of debt specified in the certificate by any ofthe modes specified therein. The expanse of the reliefs the defendantmay claim in the suit proceeding can certainly go beyond mereadjustments of the amounts of claim, for which the DRT would not haveany power.

49. Now, turning to the issue of the power of the Civil Court totransfer an independent proceeding instituted by a defendant to be triedalongside a recovery proceeding before the DRT. There is gainsay thatthere is no specific power to transfer a suit to the DRT. A plaint can bereturned only under the provisions of Order VII Rule 10 of the Code forthe reasons specified therein. In the absence of such reasons, Section151 of the Code cannot be utilised as a residuary power to achieve thetransfer, which is really a consequence of return of the plaint when thegrounds under Order VII Rule 10 of the Code are not satisfied. Theabsence of any legislative power cannot give a power by implication tothe Civil Court. We believe that it would not be appropriate to read such AB

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Apower to transfer a suit to a DRT under Section 151 of the Code whenthe DRT is a creature of a statute and that statute does not provide forsuch eventuality.

50. We must also notice an important aspect that even where adefendant is to invoke the jurisdiction of the DRT by filing a counterclaim,Bthe bank has a right to seek a relegation of that claim to the Civil Courtand 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 providedbefore the DRT and thus, if certain inquiries beyond the contours ofwhat the DRT does are envisaged, a Civil Court remedy may beconsidered as appropriate.C

51. Now coming to the question whether consent is required forthe transfer of a suit. We do believe that once we have opined that thereis no power of transfer in the Civil Court, the consent or absence of it isnot something which would lend such power to the Civil Court. Theoption before the defendant, who has instituted the suit, is clear - eitherDhe could file a counterclaim before the DRT or he could institute separatecivil proceedings.

52. We however have a word of caution keeping in mind thenature of powers exercised by the DRT and the objective of its creation.The interpretations in Abhijit Tea Co. and Ranjan Chemicals (supra),Eseeking to give power of transfer to the Civil Court, whether by consentor otherwise, were apparently predicated on an apprehension that adefendant may launch a suit before the Civil Court in order to delay theproceedings before the DRT.

53. We certainly would not like that the process envisaged underFthe RDB Act be impeded in any manner by filing of a separate suit if adefendant chooses to do so. A claim petition before the DRT has toproceed in a particular manner and would so proceed. There can be noquestion of stay of those proceedings by way of a civil proceedinginstituted by a defendant before the Civil Court. The suit would take itsGown course while a petition before the DRT would take its own course.We appreciate that this may be in the nature of parallel proceedings butthen it is the defendant’s own option. We see no problem with the sameas long as the objective of having expeditious disposal of the claim beforethe DRT under the RDB Act is not impeded by filing a civil suit. Thus, itis not open to a defendant, who may have taken recourse to the CivilH

Court, to seek a stay on the decision of the DRT awaiting the verdict ofhis 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 anoption exercised by the defendant who filed an independent suit, whateverbe the nature of reliefs, the claim petition under the RDB Act wouldcontinue to proceed expeditiously in terms of the procedure establishedtherein to come to a conclusion whether a debt is due to a bank and/orfinancial institution and whether a recovery certificate ought to be issuedin that behalf.

55. We may say that if the Legislature were to think otherwise,nothing prevented the Legislature nor prevents it now from makingsuitable amendments in the RDB Act to meet such a scenario.

56. In view of the discussion aforesaid, the questions framed aboveare to be answered as under:

(c) Is the jurisdiction of a Civil Court to try a suit filed by a borroweragainst a Bank or Financial Institution ousted by virtue of thescheme of the RDB Act in relation to the proceedings for recoveryof debt by a Bank or Financial Institution?

The aforesaid question ought to be answered first and is answeredin the negative.

(a) Whether an independent suit filed by a borrower against aBank or Financial Institution, which has applied for recovery ofits loan against the plaintiff under the RDB Act, is liable to betransferred and tried along with the application under the RDBAct by the DRT?

In the absence of any such power existing in the Civil Court, anindependent suit filed by the borrower against the bank or financialinstitution cannot be transferred to be tried along with applicationunder the RDB Act, as it is a matter of option of the defendant inthe claim under the RDB Act. However, the proceedings underthe RDB Act will not be impeded in any manner by filing of aseparate suit before the Civil Court.

(b) If the answer is in the affirmative, can such transfer be orderedby a court only with the consent of the plaintiff?

AB

C

D

E

F

G

H

[2022] 17 S.C.R.

ASince there is no such power with the Civil Court, there is noquestion 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 aBculmination with satisfaction of the claim and, thus, no proceedingsinstituted 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 mannerother than trial of the suit instituted by the respondent. In fact, some partof the claim of the bank was not even allowed and some adjustmentsCwere directed to be made. Even thereafter so far as any other claims ofthe respondent are concerned, the DRT in terms of the order dated19.05.2003 permitted the respondent to pursue the remedy in accordancewith law - which can only mean the civil proceedings. Thus, the suit isliable to proceed accordingly.

Conclusion:D

59. The civil appeals are accordingly dismissed leaving the partiesto bear their own costs.

60. The judgments in Abhijit Tea Co. (supra) and RanjanChemicals Ltd. (supra) are held not to be laying down the correct legalEproposition. The judgments in Indian Bank (supra) and NaharIndustrial Enterprises (supra) are affirmed except to the extent thatthey allow the transfer of a suit from the Civil Court to the DRT.

F

Ankit Gyan and Anurag Bhaskar(Assisted by : Priyanshu Agarwal, LCRA)

Appeals dismissed.

G

H