Case Law Details

Case Name : Union Bank of India Vs Chairperson, Debts Recovery Appellate Tribunal (Allahabad High Court)
Appeal Number : Civil Misc. Writ Petition No. 29076 & 29083 OF 2011
Date of Judgement/Order : 07/07/2011
Related Assessment Year :
Courts : All High Courts (3701) Allahabad High Court (195)

HIGH COURT OF ALLAHABAD

Union Bank of India

v/s.

Chairperson, Debts Recovery Appellate Tribunal

DILIP GUPTA, J.

CIVIL MISC. WRIT PETITION NOS. 29076 & 29083 OF 2011

JULY 7, 2011

JUDGMENT

Dilip Gupta, J. – Writ Petition No. 29076 of 2011 has been filed by the Union Bank of India, Sarvodaya Nagar, Kanpur (hereinafter referred to as the “bank”) for quashing the order dated February 18, 2011, passed by the chairperson of the Debts Recovery Appellate Tribunal, Allahabad (hereinafter referred to as “the Appellate Tribunal”) in Appeal No. 614 of 2005 filed by respondents Nos. 2 and 3, Arun Kapoor and Anant Ram Kapoor against the order dated August 10, 2005, passed by the Debts Recovery Tribunal, Allahabad (hereinafter referred to as “the Tribunal”) in T.A. No. 1415 of 2000.

2. Writ Petition No. 29083 of 2011 has been filed by the bank for quashing the order dated February 18, 2011, passed by the Appellate Tribunal in Appeal No. 663 of 2005 filed by Atul Kapoor and Smt. Asha Kapoor against the order dated August 10, 2005, passed by the Tribunal in T.A. No. 1415 of 2000.

3. It transpires that M/s. Asha Edible Oils P. Ltd., respondent No. 6 (hereinafter referred to as “the company”) was granted credit facilities by the bank. Respondents Nos. 2 to 5 are the guarantors to the said credit facilities provided by the bank but as the company defaulted in payment, original application under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as “the Act”) was filed by the bank before the Debts Recovery Tribunal, Jabalpur for recovery of Rs. 12,38,91,472 with pendente lite and future interest. This application was subsequently transferred to the Debts Recovery Tribunal, Allahabad and was numbered as T.A. No. 1415 of 2000. In the meantime, an order dated October 5, 1999, was passed by the High Court in Company Application No. 5 of 1996 and the company was directed to be wound up and the official liquidator was appointed to proceed in accordance with law.

4. The bank filed its claim for an amount of Rs. 12,38,91,472 with interest, pendente lite and future interest before the official liquidator. The bank, however, filed its willingness before the official liquidator to accept amount of Rs. 78,16,428.42 towards full and final settlement of its claim and thereafter the order dated July 2, 2003, was passed by the company judge directing the official liquidator to make the payment to the bank. The order is as follows :

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“The official liquidator in his Report No. 301 of 2002 has submitted that he may be allowed to disburse the amount of Rs. 78,16,428.42 to the Union Bank of India towards full and final settlement of the claim of the bank submitted before the official liquidator. The Union Bank of India by its Application No. 83970 of 2003 dated May 6, 2003, has agreed to accept the amount towards full and final settlement of its claim. In view of this situation and lack of objection by any other party the official liquidator is directed to make the said payment to the bank.”

5. In terms of the aforesaid order, an amount of Rs. 78,16,428.42 was paid to the bank.

6. T.A. No. 1415 of 2000 filed by the bank, which was pending before the Tribunal, was finally allowed by the Tribunal by the order dated August 10, 2005, against defendants Nos. 2 to 5 but was dismissed against the company. A recovery certificate to the tune of Rs. 12,38,91,472 subject to adjustment of Rs. 78,16,428.42, which was received by the bank from the official liquidator, was issued with interest at the rate of 17.5 per cent per annum with quarterly rests from the date of filling of the application till its realisation.

7. It is against this order dated August 10, 2005, that two appeals were filed under section 20 of the Act. Appeal No. 614 of 2005 was filed by Arun Kapoor and Anant Ram Kapoor (defendants Nos. 2 and 3 in T.A. No. 1415 of 2000 and respondents Nos. 2 and 3 in Writ Petition No. 29076 of 2011), while Appeal No. 663 of 2005 was filed by Atul Kapoor and Asha Kapoor (defendants Nos. 4 and 5 in T.A. No. 1415 of 2000 and respondents Nos. 4 and 5 in Writ Petition No. 29083 of 2011). These two appeals were allowed by a common order dated February 18, 2011, passed by the chairperson of the Appellate Tribunal and the relevant portion of the order is as follows :

“6. Learned counsel appearing for the appellants in both the appeals submitted that once the amount has been accepted by the respondent-bank before the hon’ble company judge of the hon’ble High Court towards ‘full and final settlement of the claims’ then the liabilities towards principal debtor stands discharged fully and therefore, no liability can be fixed of the present appellants either in the capacity of the directors or in the capacity of guarantors to recover any further amount either from the directors or from the guarantors because the liability is co-extensive.

7. In the present case, there is no dispute that if the amount is not recovered or cannot be recovered from the principal debtor then the amount as such, can always be recovered by the secured creditors either from the directors or guarantors but the circumstances in the present case are different.

8. Learned counsel appearing for the bank relied upon the judgment passed by the hon’ble apex court in Maharashtra State Electricity Board v. Official Liquidator, High Court, Ernakulam, AIR 1982 SC 1497 ; [1983] 53 Comp. Cas. 248 and relied upon paragraph No. 7 of the said judgment to substantiate that in case the principal debtor is discharged by the operation of law in bankruptcy (or in liquidation proceedings in the case of a company) then same will have no effect to absolve the guarantor from his liabilities. In the present case, this is to be seen that the said judgment will have no application because the principal debtor has not been absolved because of any judgment or the order passed under the operation of law but the principal debtor stands absolved from his liabilities on the ground that before the hon’ble company judge, the bank has accepted the amount of Rs. 78,16,428.42 paise towards ‘the full and final settlement of the claim of the bank’. Thus, once the bank himself against the principal debtor has settled the matter and such settlement has been accepted by the bank before the hon’ble judge by accepting the amount towards the full and final settlement of the claim of the bank then absolving the principal debtor from his liabilities would be case of settlement or to say due to the conduct of the bank by settling the matter finally as full and final and on this eventually, there is no question of absolving the present appellants because of the operation of any law so that the judgment passed by the apex court in Maharashtra State Electricity Board, AIR 1982 SC 1497 ; [1983] 53 Comp. Cas. 248, is attracted.

9. The liabilities of a security is co-extensive with the liabilities of the principal debtor by virtue of section 128 of the Indian Contract Act, 1872 and once the respondent-bank accepted the amount towards the full and final settlement of the claim of the bank and has settled the same against the principal debtor then in the present case, there is no liability of the guarantors or directors, i.e., the appellants. In the present appeals, the Tribunal granted enough adjournments to the respondent-bank to seek clarification from the hon’ble High Court of the order dated July 2, 2003, passed in Misc. Company Application No. 5 of 1996 which has already been reproduced herein above but the bank failed to seek clarification to the said order.” (emphasis supplied)

8. It is this order dated February 18, 2011, that has been impugned in the two writ petitions.

9. Sri Kushal Kant, learned counsel appearing for the petitioner-bank has placed reliance upon section 134 of the Indian Contract Act, 1872, which relates to discharge of surety by release or discharge of principal debtor. It is his submission that there was no contract between the borrower and the bank and so the surety is not discharged and in support of his submission, he has placed reliance upon the decision of the Calcutta High Court in United Bank of India v. Modern Stores (India) Ltd. [1990] 69 Comp. Cas. 697. It is also his submission that discharge of the principal borrower by operation of the bankruptcy law will not discharge the guarantors and in support of his submission, he has placed reliance on the decision of the Supreme Court in Maharashtra State Electricity Board v. Official Liquidator [1983] 53 Comp. Cas. 248.

10. Sri R.P. Agarwal, learned counsel for the respondents, assisted by Sri Ravi Prakash Srivastava has, however, submitted that the bank had filed an application dated May 6, 2003, supported by an affidavit before the company judge that the official liquidator may disburse Rs. 78,16,428.42 to the bank towards full and final settlement of the claim submitted by the bank before the official liquidator though the claim that was submitted by the bank before the official liquidator was to the extent of Rs. 12,38,91,472. It is, therefore, his submission that in view of the application submitted by the bank and in view of the order dated July 2, 2003, passed by the company judge, the bank cannot claim the remaining amount and the Appellate Tribunal committed no illegality in allowing the appeals. He has further submitted that in view of the order dated July 2, 2003, passed by the company judge, the liability of the surety automatically gets terminated. In support of his contention, he has placed reliance upon the decision of the Andhra Pradesh High Court in Kurnool Chief Funds (P.) Ltd. v. P. Narasimha AIR 2008 AP 38. He has further submitted that since the bank has concealed the filing of the application before the company judge, the petitions are liable to be dismissed with exemplary costs.

11. I have considered the submissions advanced by learned counsel for the parties.

12. The bank had provided credit facilities to the company, M/s. Asha Edible Oils P. Ltd. The private respondents in the two writ petitions were the guarantors to the said credit facilities provided by the bank. As there was default in payment of the bank dues, T.A. No. 1415 of 2000 was filed by the bank against the company and private respondents in these petitions. It transpires that the company was declared a sick company under section 3(1)(o) of the Sick Industrial Companies (Special provisions) Act, 1985 (hereinafter referred to as “the SICA”) by the Board for Industrial and Financial Reconstruction on November 8, 1994 and recommendation was made for it to be wound up. An appeal was filed which was also dismissed. The opinion of the Board for Industrial and Financial Reconstruction was accepted by the company judge in Misc. Company Application No. 5 of 1996 and the company was directed to be wound up by the order dated October 5, 1999. The Official Liquidator, High Court, Allahabad was appointed as the liquidator who was directed to proceed in accordance with law. The official liquidator filed Report No. 301 of 2002 before the company judge with a prayer that the official liquidator may be allowed to pay a sum of Rs. 78,16,428.42 to the bank towards full and final settlement of its claim before the official liquidator. In response to the said report, the bank filed an application dated May 6, 2003, before the company judge with a prayer that report submitted by the official liquidator may be accepted and the official liquidator may be directed to disburse Rs. 78,16,428.42 to the bank towards full and final settlement of the claim of the bank submitted before the official liquidator. In support of this application, an affidavit of A.K. Dixit, manager of the bank was filed.

13. It is in view of the report submitted by the official liquidator and the application filed by the bank that the company judge passed an order on July 2, 2003, which has been referred to above. The official liquidator was directed to make the payment to the bank as the bank had agreed to accept the amount towards full and final settlement of its claim. This order was passed by the company judge on July 2, 2003 and, therefore, the bank should have restrained itself from pursuing T.A. No. 1415 of 2000 which was filed by the bank and which was pending in the Tribunal but the bank not only pursued the application but also submitted before the Tribunal that since the claim before the Tribunal was to the extent of Rs. 12,38,91,472 with interest and it had received Rs. 78,16,428.42 only, a direction should be issued to the guarantors for payment of the remaining amount. The Tribunal dismissed the claim of the bank against the company but allowed the application as against the guarantors (defendants Nos. 2 to 5 in T.A. No. 1415 of 2000) and issued a recovery certificate for the payment of balance amount with interest. The Appellate Tribunal, however, allowed the appeals filed by the guarantors in view of the order passed by the company judge on July 2, 2003.

14. The submission of Sri Kushal Kant, learned counsel for the bank is that the surety is not discharged under the first part of section 134 of the Indian Contract Act, 1872, since there was no contract between the bank (creditor) and the company.

15. This submission of Sri Kushal Kant, learned counsel for the bank cannot be accepted. The company had been wound up and the official liquidator had been appointed. The official liquidator had filed Report No. 301 of 2002 before the company judge with a prayer that he may be allowed to disburse Rs. 78,16,428.42 to the bank towards full and final settlement of the claim of the bank submitted before the official liquidator. The bank had filed an application supported by an affidavit of the branch manager that the report of the official liquidator may be accepted and the official liquidator may be directed to disburse Rs. 78,16,428.42 to the bank towards full and final settlement of the claim of the bank before the official liquidator. The company judge accepted the report and passed an order that since the bank had agreed to accept the said amount towards full and final settlement of the claim, the official liquidator shall make the amount. This amount was subsequently paid by the official liquidator to the bank. It cannot, therefore, be urged by the bank that in view of section 134 of the Indian Contract Act, 1872, the surety is not discharged. The official liquidator had stepped into the shoes of the company when it was wound up. The decision in the case of United Bank of India (supra), relied upon by learned counsel for the bank is not applicable to the facts of the present case.

16. The second submission of learned counsel for the bank that discharge of the principal borrower by operation of the bankruptcy law will not discharge the guarantors is also without any force and needs to be rejected. The bank had accepted the amount towards full and final settlement of its claim submitted before the company judge and the principal borrower did not stand discharged because of operation of law. The decision of the Supreme Court in Maharashtra State Electricity Board (supra), therefore, does not help the petitioner-bank. On the other hand, the submission of Sri R.P. Agarwal, learned counsel for the respondents that the liability of the surety gets automatically terminated when liability of principal debtor is extinguished, deserves to be accepted.

17. Thus, there is no merit in any of the contention advanced by learned counsel for the bank.

18. What further needs to be noticed in this case is that the bank, which in all fairness should have restrained itself from pursuing the application filed before the Tribunal which was numbered as T.A. No. 1415 of 2000 once it had agreed to accept Rs. 78,16,428.42 towards full and final settlement of the claim submitted by it before the official liquidator, not only pursued the application but has also filed these petitions to challenge the order passed by the Appellate Tribunal. Though the order passed by the company judge on July 2, 2003, has been enclosed, but the filing of the application and the affidavit by the branch manager has not been disclosed in the writ petition and nor these documents have been enclosed with the writ petitions. It is, therefore, clearly a case where exemplary costs should be imposed upon the bank for unnecessarily pursuing the matter and are, accordingly, imposed.

19. The two writ petitions are, accordingly, dismissed with costs of Rs. 25,000 in each of the petition.

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