1. It is submitted that the recovery proceedings against the Guarantor before hon’ble Debts Recovery Tribunal (hereinafter ‘DRT’ or ‘Tribunal’) under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter ‘DRT Act’) are absolutely without jurisdiction. As per BLACK’s Law Dictionary, Ninth Edition, at page 1389, “recovery” means the regaining or restoration of something lost or taken away. It follows that the DRT has no jurisdiction to proceed against the Guarantor as he has not taken any “debt”, which he has to repay. As per section 4 of the U.S. Statutes of Frauds, 1677 a promise ‘to answer for the debt, default or miscarriage of another person’ is a contract of guarantee. The Guarantor promises to discharge the debtor’s liability if the debtor should fail to do so. The Guarantor’s liability is therefore secondary to that of the principal debtor {Guild & Co. v. Conrad (1894) 2 QB 885, 896}.
1.1 Section 2(g) of the Act defines ‘debt’ to mean:
“any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil Court or any arbitration award or otherwise or under a mortgage and subsisting and legally recoverable on, the date of the application.”
Hon’ble Bombay High Court in Centurion Bank Ltd. vs Indian Lead Ltd. And Anr. {(2000) 100 Comp Cas 537 Bom; (1999-3) 101 Bom LR 556; Decided on 20 August, 1999} has, inter alia, held as follows.
“19. It has been pointed out that defendant No. 2 is a guarantor against whom the suit is only for recovery of money. The suit against the guarantor is not a suit for recovery of debt but for enforcement of the guarantee.” (emphasis supplied)
As per BLACK’s Law Dictionary, Ninth Edition, at page 608, “enforcement” means the act or process of compelling compliance with a law, mandate, command, decree or agreement.
DRT DOES NOT HAVE ANY INHERENT POWERS AND IT IS CLEAR THAT SECTION 19(25) CONFERS LIMITED POWERS
2. Hon’ble Supreme Court in Standard Chartered Bank V. Dharminder Bhohi and others {(2013) 15 SCC 341; Decided on 13.09.2013} has, inter alia, observed as follows.
27. The tribunal does not have any inherent powers and it is limpid that Section 19(25) confers limited powers. In this context, we may refer to a three-Judge Bench decision in Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd.[ (AIR 1963 SC 217] wherein it has been held that when the tribunal has not been conferred with the jurisdiction to direct for refund, it cannot do so. The said principle has been followed in Union of India v. Orient Paper and Industries Limited[(2009) 16 SCC 286]. (emphasis supplied)
28. In Union of India v. R. Gandhi, President, Madras Bar Association [(2010) 11 SCC 1], the Constitution Bench, after referring to the opinion of Hidayatullah, J. in Harinagar Sugar Mills Ltd. v. Shyam Sunder Jhunjhunwala [AIR 1961 SC 1669], the pronouncements in Jaswant Sugar Mills Ltd. v. Lakshmi Chand [AIR 1963 SC 677], Associated Cement Companies Ltd. v. P.N. Sharma [AIR 1965 SC 1595] and Kihoto Hollohan v. Zachillhu [1992 Supp (2) SCC 651], ruled thus: –
“45. Though both courts and tribunals exercise judicial power and discharge similar functions, there are certain well- recognised differences between courts and tribunals. They are:
(i) Courts are established by the State and are entrusted with the State’s inherent judicial power for administration of justice in general. Tribunals are established under a statute to adjudicate upon disputes arising under the said statute, or disputes of a specified nature. Therefore, all courts are tribunals. But all tribunals are not courts.
(ii)…………..x………..x…………….x…………..x
(iii) While courts are governed by detailed statutory procedural rules, in particular the Code of Civil Procedure and the Evidence Act, requiring an elaborate procedure in decision making, tribunals generally regulate their own procedure applying the provisions of the Code of Civil Procedure only where it is required, and without being restricted by the strict rules of the Evidence Act.”
(emphasis supplied)
30. Section 34 of the RDB Act provides that the said Act would have overriding effect. We have referred to the aforesaid provisions to singularly highlight that the sacrosanct purpose with which the tribunals have been established is to put the controversy to rest between the banks and the borrowers and any third party who has acquired any interest. They have been conferred jurisdiction by special legislations to exercise a particular power in a particular manner as provided under the Act. It cannot assume the role of a court of different nature which really can grant “liberty to initiate any action against the bank”. It is only required to decide the lis that comes within its own domain. If it does not fall within its sphere of jurisdiction it is required to say so. Taking note of a submission made at the behest of the auction purchaser and then proceed to say that he is at liberty to file any action against the bank for any omission committed by it has no sanction of law. The said observation is wholly bereft of jurisdiction, and indubitably is totally unwarranted in the obtaining factual matrix.” (emphasis supplied)
Thus, in September, 2013, hon’ble Supreme Court held that DRT and DRAT do not have any inherent powers and it is clear that Section 19(25) of DRT Act confers limited powers on the Tribunals and Appellate Tribunals. A three-Judge Bench of hon’ble Supreme Court in Upper Doab Sugar Mills Ltd. v. Shahdara (Delhi) Saharanpur Light Rly. Co. Ltd.[ (AIR 1963 SC 217] held that when the tribunal has not been conferred with the jurisdiction to direct for refund, it cannot do so. The said principle has been followed in Union of India v. Orient Paper and Industries Limited [(2009) 16 SCC 286]. It is submitted that by necessary implication the Tribunals and Appellate Tribunals have no jurisdiction to lift the corporate veil in the case of a company being a borrower.
Further, a Constitution Bench of Supreme Court in Union of India v. R. Gandhi, President, Madras Bar Association [(2010) 11 SCC 1], ruled that Courts are established by the State and are entrusted with the State’s inherent judicial power for administration of justice in general. Tribunals are established under a statute to adjudicate upon disputes arising under the said statute, or disputes of a specified nature. While courts are governed by detailed statutory procedural rules, tribunals generally regulate their own procedure.
Hence, hon’ble Supreme Court in Standard Chartered Bank (supra) concluded that Section 34 of the DRT Act provides that the said Act would have overriding effect. Thus, the sacrosanct purpose with which the tribunals have been established is to put the controversy to rest between the banks and the borrowers and any third party who has acquired any interest. They have been conferred jurisdiction by special legislations to exercise a particular power in a particular manner as provided under the Act. It cannot assume the role of a court of different nature. It is only required to decide the lis that comes within its own domain. If it does not fall within its sphere of jurisdiction it is required to say so. It is pertinent to note here that hon’ble Supreme Court observed that the Tribunals and Appellate Tribunals have been established to put the controversy to rest between the banks and the borrowers, however, there is no reference to guarantors. It is settled law that the terms ‘borrowers’ and ‘guarantors’ convey altogether different legal persons.
A TRIBUNAL CAN HAVE NO MORE JURISDICTION THAN WHAT IT IS GIVEN BY THE ACT WHICH BRINGS IT INTO EXISTENCES
3. A three judge bench of hon’ble Supreme Court in Upper Doab Sugar Mills Ltd. Vs. Shahdara (Delhi) Saharanpur light Railway Company Ltd. {1963 AIR 217; 1963 SCR (2) 333; Decided on 23/04/1962}, while dealing with the issue of the jurisdiction of the Railway Rates Tribunal, has held that when the tribunal has not been conferred with the jurisdiction to direct for refund, it cannot do so and, inter alia, observed as follows.
“The Tribunal can have no more jurisdiction than what it is given by the Act which brings it into existences; and if on a proper construction of the words of the statute we find that the Tribunal was not given any such jurisdiction we cannot clothe it with that jurisdiction on any consideration of convenience or equity or justice.
What the Tribunal has to do after a complaint is made is mentioned in s. 41 (1) itself. It is said there that the Tribunal shall hear and decide the complaint. The complaint being that something is unreasonable all that the Tribunal has to decide is whether that thing is unreasonable or not.
A finding that it is unreasonable does not involve any consideration or decision of what would flow from the finding. In other words, in making the complaint the complainant can ask only for a declaration that the rate or charge is unreasonable and it is only this declaratory relief which the Tribunal has been authorised to give.
There is no provision that the Tribunal can also give a consequential relief.
The only other thing which the Tribunal is authorised to do in connection with the complaint is to fix “such rate or charge as it consider reasonable”. In the absence of anything to indicate to the contrary it is reasonable to think that this fixation can only be prospective, that is, the Tribunal in making this order fixing the reasonable rate or charge will mention a future date for this to come .into operation. Even if it was assumed for the sake of argument that the Tribunal can fix these rates from the date of the complaint that would not give the Tribunal any power to order refund.” (emphasis supplied)
Thus, a three judge bench of hon’ble Supreme Court in Upper Doab Sugar Mills (supra) has observed that in making the complaint the complainant can ask only for a declaration that the rate or charge is unreasonable and it is only this declaratory relief which the Railway Rates Tribunal has been authorised to give. There is no provision that the Railway Rates Tribunal can also give a consequential relief. By necessary implication, it may be safely concluded that, prima facie, the subject matter of enforcement of guarantee is not within the jurisdiction of DRT, because there is no provision in DRT Act that the DRT can also give a declaratory relief. Further, hon’ble Supreme Court in Nahar Industrial Enterprises Ltd vs Hongkong & Shanghai Banking Corp. {2009 (8) SCC 646; 2009 (2) DRTC 273 (SC); Decided on 29 July, 2009} has also observed that before DRT no declaratory relief can be sought for by the debtor.
DRT AND DRAT HAS NO POWER TO CONFISCATE THE PASSPORTS OR CANNOT DIRECT TO SURRENDER THE PASSPORTS
4. Recently, the Debts Recovery Appellate Tribunal, Mumbai in Varun Industries Ltd & Ors Vs Indian Bank {2015 (1) DRTC 303 (DRAT, Mum.); Decided on 21.01.2015) has, inter alia, held as follows.
“6. From the perusal of the order, this Court has to say that DRT and DRAT has no power to confiscate the passports or cannot direct to surrender the passports and to pass the impugned order.”
Thus, Debts Recovery Appellate Tribunal, Mumbai in Varun Industries Ltd & Ors Vs Indian Bank (supra) has held that DRT and DRAT has no power to confiscate the passports or cannot direct to surrender the passports, and therefore, set aside the order passed by the DRT-I, Mumbai to this effect.
NOTHING IS WITHIN THE JURISDICTION OF AN INFERIOR COURT UNLESS IT IS EXPRESSLY SHOWN ON THE FACE OF THE PROCEEDINGS THAT THE PARTICULAR MATTER IS WITHIN THE COGNIZANCE OF THE PARTICULAR COURT.
5. A nine-Judge Constitution Bench of Supreme Court, in Naresh Sridhar Mirajkar v. State of Maharashtra, AIR 1967 SC 1, has observed as under:-
“60. ….. in the case of a superior Court of Record, it is for the Court to consider whether any matter falls within its jurisdiction or not. Unlike a court of limited jurisdiction, the superior court is entitled to determine for itself questions about its own jurisdiction. That is why this Court did not accede to the proposition that in passing the order for interim bail, the High Court can be said to have exceeded its jurisdiction with the result that the order in question was null and void. In support of this view, this Court cited a passage from Halsbury’s Laws of England where it is observed that:-
“prima facie, no matter is deemed to be beyond the jurisdiction of a superior court unless it is expressly shown to be so, while nothing is within the jurisdiction of an inferior court unless it is expressly shown on the face of the proceedings that the particular matter is within the cognizance of the particular Court.” (Halsbury’s Laws of England, Vol. 9, p. 349).”
As detailed in my another Article (see Note-1 below), hon’ble Supreme Court in Karnataka State Financial Corporation Vs N. Narasimahaiah & Ors {2008 AIR 1797, 2008 (5) SCC 176; Decided on 13/03/2008} has observed that ordinarily, when a guarantee is sought to be enforced, the same must be done through a court having appropriate jurisdiction. Vide Halsbury’s Laws of England (Vol. 9, p. 349), by necessary implication, it may be safely concluded that prima facie, the subject matter of enforcement of guarantee is not within the jurisdiction of DRT, being an inferior court, unless it is expressly shown on the face of the proceedings that the same is within the cognizance of the DRT.
COURTS TO ENSURE THAT LEGAL PROCEEDINGS ARE NOT USED AS A DEVICE FOR HARASSMENT, EVEN OF AN APPARENT TRANSGRESSOR OF THE LAW
6. A three judge bench of hon’ble Supreme Court in Dashrath Rupsingh Rathod V. State of Maharashtra & Anr. {(2014) 9 SCC 129; Decided on 01.08.2014} has, inter alia, observed as follows.
“Courts are enjoined to interpret the law so as to eradicate ambiguity or nebulousness, and to ensure that legal proceedings are not used as a device for harassment, even of an apparent transgressor of the law. Law’s endeavour is to bring the culprit to book and to provide succour for the aggrieved party but not to harass the former through vexatious proceedings. Therefore, precision and exactitude are necessary especially where the location of a litigation is concerned. “(emphasis supplied)
Thus, Hon’ble Supreme Court held that Courts are to ensure that legal proceedings are not used as a device for harassment, even of an apparent transgressor of the law. Law’s endeavour is to bring the culprit to book and to provide succour for the aggrieved party but not to harass the former through vexatious proceedings. Therefore, precision and exactitude are necessary especially where the location of a litigation is concerned.
Hence, hon’ble Supreme Court in Standard Chartered Bank (supra) has observed that the Tribunals and Appellate Tribunals have been established to put the controversy to rest between the ‘banks’ and the ‘borrowers’, however, there is no reference to guarantors. It is settled law that the terms ‘borrowers’ and ‘guarantors’ convey altogether different legal persons. However, as detailed above, in the scheme of DRT Act, either in section 2(g) or in section 19 there is no reference to guarantors at all, consequently DRT has no jurisdiction to proceed for enforcement of the guarantee against the Guarantors. (END).
Note-1: For a detailed study of this concept the readers may refer to my another Article ‘DRT has no jurisdiction to issue Certificate of Recovery against the Guarantor’ at https://taxguru.in/corporate-law/drt-jurisdiction-issue-certificate-recovery-guarantor.html
Note-2: The views expressed are my personal and a view point only.
(Author: Author can be reached at Mobile-9229574214, E-mail: nkdewas@yahoo.co.in)
