The Supreme Court stated last week that the debt recovery proceedings of Industrial Reconstruction Bank of India (IRBI) may be continued against a defaulting company by its successor, Industrial Investment Bank of India Ltd (IIBIL). The new institution was brought into being by the Industrial Reconstruction Bank (Repeal) Act in 1997.
In this case, IIBIL vs Jain Cables Ltd, a loan was granted to the company. The latter did not meet the loan obligations and therefore, the creditor moved the Rajasthan high court. It held that the petition was not maintainable because it was moved under the repealed law. IIBIL therefore appealed to the Supreme Court. It overruled the high court. It stated that the provisions of the 1997 Act made it clear that any cause of action which arose before 1997 and pursued by IRBI could be continued and enforced by IIBIL. The case could be pursued as if the 1997 Act had not been enacted, the judgement said.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8123 OF 2004
Industrial Investment Bank of India Ltd. … Appellant
Versus
M/s Jain Cables Pvt. Ltd. & Ors. … Respondents
JUDGMENT
AFTAB ALAM, J.
1. The appellant, Industrial Investment Bank of India Limited (“IIBIL” for short), is the successor of the Industrial Reconstruction Bank of India(“IRBI” for short) constituted under section 3(1) of the Industrial Reconstruction Bank of India Act, 1984, (“the 1984 Act” for short).
2. In the year 1985, the IRBI had sanctioned a loan of rupees twenty two lakhs (Rs.22,00,000/-) in favour of M/s Jain Cables Pvt. Ltd., respondentno.1. Out of the sanctioned amount a sum of rupees twenty lakhs (Rs.20,00,000/-) was actually disbursed in the year 1991 and the balance amount of the loan was cancelled. The repayment of the loan was secured by mortgage of the immovable properties of the borrower company and by creating the charge of hypothecation over its immovable properties in favour of the IRBI. The borrower company defaulted in repayment of the loan and in 1994, on its request, the IRBI granted to it an amended schedule of payment under which the last installment of the loan amount was to be paid on February 15, 1996. The respondent no.1 did not adhere even to the rescheduled payment plan.
3. On March 27, 1997, the Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997 (“the 1997 Act” for short) came into force and by virtue of notification, S.O. 242 (E), dated March 25, 1997 the undertakings of the IRBI were transferred to and vested in the IIBIL with effect from March 27, 1997.
4. On August 14, 1997, the IIBIL gave a notice to respondent no.1 under section 38 of the 1984 Act recalling the loan. The notice did not bring any payments from respondent no.1 and after about 2 years from the date of the notice, in the year 1999, the IIBIL filed an application before the Rajasthan High Court, under section 40 of the 1984 Act. The application filed by the IIBIL was registered in the High Court as S.B.C. Misc. ApplicationNo.40/99. The High Court issued notice on the application but after hearing the other side, rejected it by order dated November 1, 2002 holding that the application was not maintainable as it was filed under the provision of a repealed Act.
The High Court in its brief order referred to section 40 of the1984 Act and the repeal and saving provision as contained in section 13 of the 1997 Act and took the view that the provision of section 40 of the 1984Act was purely procedural and it simply provided the IRBI with an additional forum besides those available under section 39 of the 1984 Act and section 69 of the Transfer of Property Act. On the other hand, the provision of repeal contained in section 13 of the 1997 Act was definite and categorical and the provision of section 40 of the 1984 Act was not saved by sub-section (2) of section 13 of the 1997 Act. In other words, according to the High Court, the application was filed under a provision that was no longer in existence. In this connection, the High Court held and observed as follows:
“Thus, to put it in other words, the rights and liabilities of the Company, as they existed on the appointed day, are saved, obviously substantive rights qua the other persons, and the liabilities. Section 40 does not confer any such substantive right, as it is only procedural provision providing an additional forum to be available to the Company for effecting recovery of its out standings by praying for taking up & different course than the one available under Section 39 of that Act, or Section 69 of Transfer of Property Act. As such, the provisions of section 40 or more remain available to the petitioner. An overall reading of the repealing Act of 1997 also does show that it predominantly comprehends the rights and liabilities of Industrial Investment Bank of India, which are to devolve on Industrial Reconstruction Bank of India, as the Act is to provide for transfer and vesting of the Undertakings to the Company to be formed and registered as company under the Companies Act, and for matters concerned therewith, or incidental thereto, and also to repeal the 1984 Act.”
5. For the sake of the record, it may also be noted that during the pendency of the proceeding before the High Court, the IIBIL also moved the Debt Recovery Tribunal. But its application to the Debt Recovery Tribunal was against the guarantor alone and no relief was claimed against respondentno.1, the borrower company. The application against the guarantor was decreed ex parte but the decree has so far not borne any fruits as it was a personal guarantee and there were no assets against which the decree may beexecuted.
6. The IIBIL has now brought this matter in appeal, by grant of special leave, against the order of the High Court dated November 1, 2002 rejecting its application filed against the borrower company, respondent no.1, under section 40 of the 1984 Act.
7. At this stage, it will be useful to take a look at some of the provisions of the 1984 Act and the 1997 Act. Section 2(a) of the 1984 Act defined” assistance” to mean any direct or indirect financial, managerial or technical assistance granted by the Reconstruction Bank in pursuance of its business referred to in section 18. Section 2(c) defined “assisted industrial concern” to mean any industrial concern to which any assistance was given by the Reconstruction Bank. Chapter VIII of the Act contained sections 36 to 51dealing with the “Special Powers of the Reconstruction Bank”. Section 38,in that chapter, authorized the IRBI, under certain conditions enumerated in clauses (a) to (f), to ask, by notice in writing, any industrial concern to which it had granted any assistance to forthwith discharge in full its entire dues and also discharge its other liabilities to the Bank. The statutory provision expressly overrode anything contained in any agreement to the contrary. Section 39 dealt with the rights of the IRBI in case of default by any assisted industrial concern. Section 40 of the 1984 Act provided for the enforcement of claims by the IRBI and in so far as relevant for the present it is as under: “40. Enforcement of claims by the Reconstruction Bank- (1)
a. Where an assisted industrial concern makes any default in the payment of any dues to, or in meeting its obligation in relation to any other assistance given by the Reconstruct on Bank or otherwise fails to comply with the terms of agreement with that Bank, or
b. where the Reconstruction Bank makes an order under section 38 requiring the assisted industrial concern to make immediate repayment of any assistance granted to it and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section 39 of this Act and of section 69 of the Transfer of Property Act, 1882, any officer of the Reconstruction Bank generally or specially authorised by the Board in this behalf, may apply to the concerned High Court for one or more of the following reliefs, namely :– 6
i. for an order for the sale or lease of the propertyassigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank as security for the assistance granted to it, or for the sale or lease of any other property, of the industrial concern; or
ii. *********************
iii. for an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment from the premises of the industrial concern without the previous permission of the Board, where such transfer or removal is apprehended; or
iv. for an order for the appointment of a receiver where there is apprehension of the machinery, equipment or any other property of substantial value which has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank, being removed from the premises of the industrial concern or of being transferred without the previous permission of the Reconstruction Bank.
(2) ***************
(3) Where an application is for any relief mentioned in sub-clause (i) of sub-section (1), the High Court may,– (a) by an order, authorise the Reconstruction Bank to grant lease of such property to such person and on such terms and conditions as may be specified in the said order; or (b) pass an order calling upon the person whose property has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank to show cause, on a date to be specified in the notice, as to why an order for the sale of such property or so much of such property, as would, on being sold, realise, in its estimation, an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank, together with costs of the proceedings taken under this section, shall not be made; or 7 (c) pass an ad interim order attaching any property of the industrial concern which has not been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank, or so much of such property, as would on being sold, realise, in its estimation, an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank, together with costs of the proceedings taken under this section, and pass an order calling upon the industrial concern to show cause on a date to be specified in the notice as to why such order of ad interim attachment shall not be made absolute.
(4) ***************
(5) Where an application is for the relief mentioned in sub-clause
(iii) of sub-section (1), the High Court shall grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery or other equipment and issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, as to why such ad interim in junction shall not be made absolute.
(6) Where an application is for the relief mentioned in sub-clause (iv) of sub-section (1), the High Court shall pass an ad interim order appointing a receiver in respect of the property assigned, charged, hypothecated, mortgaged or pledged and shall issue a notice calling upon the industrial concern to show cause, on a date to be specified in the notice, as to why the ad interim order appointing the receiver shall not be made absolute.
(7) ***************
(8) ***************
(9) ***************
