DRT has no jurisdiction to issue Certificate of Recovery against the Guarantor -Part 3

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 HAS NO POWER TO CONDONE DELAY IN FILING APPEAL UNDER SECTION 30 OF THE RDDBFI ACT, 1993

                                      

2. A Division Bench of hon’ble Bombay High Court in Madhukar Govindrao Thaware vs Central Bank of India {2012 (1) DRTC 14 (Bom); Decided on 13 October, 2011} observed and held as follows.

 

 “15. In the result, we must conclude that the Tribunal under RDDBFI Act had no power by the impugned orders to condone delay that occurred in filing Appeal under Section 30 of the RDDBFI Act, 1993 as provision of Section 5 of the Limitation Act or principles thereof can not apply. Impugned orders are therefore set aside.”

 

Thus, a Division Bench of Bombay High Court in Madhukar Govindrao Thaware vs Central Bank of India (supra) concluded that the DRT under RDDBFI Act had no power by the impugned orders to condone delay that occurred in filing Appeal under Section 30 of the RDDBFI Act, 1993 as provision of Section 5 of the Limitation Act or principles thereof can not apply. The Court observed that if the relevant special statute provides for the specific period of limitation to prefer appeal without any specific provision for the court to condone delay, then inherent power of the court to condone delay under the general law i.e. Limitation Act, 1963 can not apply and delay can not be condoned on the ground of equity and hardship. Order of the Recovery officer under Chapter V of the RDDBFI Act would become absolute and binding if no appeal is preferred within specified limitation of 30 days as provided for under section 30 of the Act.

 

 

DRT CAN NOT PASS A DECREE HOLDING THAT THERE IS FRAUD, EVEN IF BEST OF THE EVIDENCE IS ADDUCED IN SUPPORT OF THE SPECIFIC PLEADINGS OF FRAUD

 

3. Recently, hon’ble Madras High Court in Cambridge Solutions Ltd vs Global Software Ltd (AIR 2009 Mad 74; Decided on 30 September, 2008) observed and held as follows.

“16. Section 34 of the SARFAESI Act debars the civil court from entertaining any suit in respect of any matter which falls within the jurisdiction of the Debts Recovery Tribunal or the Appellate Tribunal as the case may be. As already pointed out by this court, as regards the allegation of fraud in obtaining certain orders depriving the valuable right of a third party, it is only the civil court which has got jurisdiction to deal with it. Such an issue falls outside the purview of the Debts Recovery Tribunal or the Appellate Tribunal.

Thus, hon’ble Madras High Court in Cambridge Solutions Ltd vs Global Software Ltd (supra) observed that as regards the allegation of fraud in obtaining certain orders depriving the valuable right of a third party, it is only the civil court which has got jurisdiction to deal with it. Such an issue falls outside the purview of the Debts Recovery Tribunal or the Appellate Tribunal.

 

4. Very recently, hon’ble Gauhati High Court in Bhopal Thapa Vs  Girijesh Tiwari {2015 (1) DRTC 399 (Gau), CRP No. 257 of 2014; Decided on 01.09.2014} has observed and held as follows.

 

“[20] Now, the next question arises as to whether such disputed facts on fraud can be decided by Debt Recovery Tribunal (for short, ‘DRT’). Can a DRT pass decree holding that there is fraud even if best of the evidence is adduced in support of the specific pleadings of fraud under order VI rule 4 of the Code of Civil Procedure? Can it pass anything more than issuing a recovery certificate? All these questions came up for considerations before the Hon’ble Supreme Court in the case of Nahar Industrial Enterprises Ltd. Vs. Hong Kong and Shanghai banking Corporation reported in (2009) 8 SCC 646 and it is held that DRT is a tribunal constituted for a specific purpose and no independent issue can be initiated before it by a debtor. It cannot pass a decree. It can only pass recovery certificates. In the present case there shall be oral and documentary evidence by both sides to prove and disprove respective allegations on fraud going much beyond the books of accounts and banking notes and this would warrant interrogatories as well as examinations and cross examinations of witnesses. Considering the nature, scope, power and jurisdiction of the DRT as revealed in the discussions of the case of Nahar Industrial Enterprises Ltd. (supra) it does not appear that allegations of the nature mentioned in the plaint under question, can be decided by a DRT. It can be done by the Civil Court only.”

                                                 

Further, it is submitted that the level of proof required for proving fraud is extremely high. The party who alleges fraud / misrepresentation should furnish the full particulars in the plaint. (A.C. Ananta Swamy Vs. Boraiah (Dead) By LRS. [(2004) 8 SCC 588). Application of CPC and Evidence Act                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         are essential to prove fraud / misrepresentation. High level proof is required in such cases (Sangram Singh Gaekwad Vs. Shantadevi Gaekwad (2005) II SCC 314).CPC and Evidence Act have no application to DRT proceedings {Nahar Industrial Investments (P) Ltd. Vs. H.S.B.C (2009) 8 SCC 646}.

 

Thus, hon’ble Gauhati High Court in Bhopal Thapa Vs  Girijesh Tiwari  (supra) observed that in the present case there shall be oral and documentary evidence by both sides to prove and disprove respective allegations on fraud going much beyond the books of accounts and banking notes and this would warrant interrogatories as well as examinations and cross examinations of witnesses. Considering the nature, scope, power and jurisdiction of the DRT it does not appear that allegations on fraud under question can be decided by a DRT. It can be done by the Civil Court only.

 

5. Hon’ble Supreme Court In Sangramsinh P. Gaekwad & Ors vs Shantadevi P. Gaekwad {(2005) II SCC 314; Decided on 20 January, 2005} has observed and held as follows.

“Mala fide, improper motive and similar other allegations, it is trite, must be pleaded and proved as envisaged in the Code of Civil Procedure. Acts of mala fide are required to be pleaded with full particulars so as to obtain an appropriate relief……..It is not in dispute that having regard to Rule 6 of the Company Courts Rule, the provisions of the Code of Civil Procedure will be applicable in a proceeding under the Companies Act. In terms of Order 6, Rule 4 of the Code of Civil Procedure, the plaintiff is bound to give particulars of the cases where he relies on misrepresentation, fraud, breach of trust, etc. ……….In A.C. Ananthaswamy and Others Vs. Boraiah (Dead) By LRS. [(2004) 8 SCC 588], this Court held that the level of proof required for proving fraud is extremely high. [See also Maharashtra Power Development Corporation Ltd. Vs. Dabhol Power Co. and Others, (2004) 3 Comp LJ 58 (Bom)]”

Thus, hon’ble Supreme Court In Sangramsinh P. Gaekwad & Ors vs Shantadevi P. Gaekwad (supra) observed that held that the level of proof required for proving fraud is extremely high. It is submitted that considering the nature, scope, power and jurisdiction of the DRT it does not appear that allegations on fraud under question can be decided by a DRT. It can be done by the Civil Court only.

 

DRT AND DRAT HAS NO POWER TO CONFISCATE THE PASSPORT OR TO PUT ANY RESTRICTION ON THE TRAVEL OF THE GUARANTOR

 

6.         Hon’ble Delhi High Court in A.S. Mittal vs P.O., Debt Recovery Tribunal And Ors [(2004) 121 Comp Cas 309 Delhi, 2004 (72) DRJ 440, 2004 (20) A.I.C. 847 (Delhi); Decided on 21 November, 2003] has held as follows.

“5. Having gone through the powers enumerated above, I hold that the Tribunal had no authority whatsoever to either impound the passport of the petitioner or to put any restriction on the travel of the petitioner. In the present case, the tribunal is entitled to pass interim orders in accordance with Section 19(6) of the Act and no more. In this view of the matter, I set aside the order dated 4th May, 1999. However, the petitioner is directed to make himself available before the Tribunal as and when he is required, for which purpose he shall give an undertaking to the Tribunal.

6. Since the order dated 4th May, 1999 has been set aside any direction/intimation to the Airport Authorities to the contrary shall stand withdrawn.”

Thus, hon’ble Delhi High Court in A.S. Mittal vs P.O., Debt Recovery Tribunal And Ors (supra) has held that the Tribunal had no authority whatsoever to either impound the passport of the petitioner or to put any restriction on the travel of the petitioner. The tribunal is entitled to pass interim orders in accordance with Section 19(6) of the Act and no more. Further, since the order of DRT has been set aside any direction /intimation to the Airport Authorities to the contrary shall stand withdrawn.

 

7.         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.

 

ONLY CIVIL COURT CAN GRANT RELIEF OF DECLARATION THAT THE PERSONAL GUARANTEES STAND DISCHARGED/ EXTINGUISHED

 

8. Hon’ble Karnataka High Court in R. Gopalakrishna vs The Karnataka State Financial Corporation (AIR 2008 Kant 77; Decided on 22 January, 2008) has observed and held as follows.

“27. In the present case, by reading the pleadings of the parties especially the plaint, the plaintiff Is claiming the declaratory relief and consequential injunction on the ground that under Section 133135 and 139 of the Contract Act, because of the acts of the creditor and the borrower, the liability of the plaintiff who is a guarantor stood extinguished.

30. The last Act viz., Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002…….. It is also to be noted that under Section 13 of the Act, the machineries provided for enforcement of security interest or for recovery of money, but it does not give or provide any forum for a borrower or a guarantor like the appellant in the present case to raise directly such question and seek the declaratory relief. Even under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, vide Section 17, wherein the jurisdiction, power and authority of the institution is defined, it indicates that it is for the limited purpose and for the specified institutions alone, the civil courts does not have jurisdiction. Similarly Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, which is relied upon by the learned Counsel for the respondents does not create any bar in respect of suits of present nature.

32. On entire consideration of the laws In this regard, and keeping in view the basic tenet of law that the suit of all nature are maintainable before the civil Courts…….we find that the conclusion of the trial Court as to the non-maintainability of the suit is totally Illegal and erroneous and hence liable to be set aside.”

 

 

Thus, hon’ble Karnataka High Court in R. Gopalakrishna vs The Karnataka State Financial Corporation (supra) held that under Section 13 of the Securitisation Act the machineries has been provided for enforcement of security interest or for recovery of money, but it does not provide any forum for a borrower or a guarantor to raise directly that under Section 133135 and 139 of the Contract Act, because of the acts of the creditor and the borrower, the liability of the plaintiff who is a guarantor stood extinguished and seek the declaratory relief. Hence, on entire consideration of the laws in this regard the High Court found that the conclusion of the trial Court as to the non-maintainability of the suit was totally Illegal and erroneous and hence was set aside. By necessary implication, it may be safely concluded that only a civil court can grant relief of declaration that the personal guarantees stood extinguished, and therefore, DRT does not have this jurisdiction, power and authority under Section 17 of DRT Act, 1993.

 

9. In Mrs. Sunayana Malhotra & Ors. vs ICICI Bank [IA No.5814/2009 in CS(OS)No.527/2009; [2010 (1) DRTC 353 (Delhi); Decided on 6 October, 2009] application of the defendant under Order 7 Rule 11 of the CPC for rejection of the plaint for the reason of the relief claimed in the suit being barred by Section 18 of the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (‘DRT Act’) r/w Section 34 of the Securitization & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘Securitization Act’) was for consideration before hon’ble Delhi High Court. The plaintiffs had instituted the suit for declaration and permanent injunction. They had pleaded that the plaintiffs had executed personal guarantees in favour of the defendant; that the plaintiffs had sold their shareholding in the company and had resigned from the Board of Directors of the company and were left with no concern with the company; that the defendant had got issued notice dated 31st December, 2008 claiming the plaintiffs to be jointly and severally liable for the debts of the company; that the plaintiffs were not so liable for the debts of the company not only for the reason of having transferred their shares and resigned from the Board of Directors of the company but also for the reason of the defendant having altered the terms & conditions of the credit facility with the company. The plaintiffs had further pleaded that notwithstanding the aforesaid and in breach of the RBI guidelines with regard to "willful defaulters", the defendant had threatened to declare the plaintiffs as willful defaulters and which would interfere with the plaintiffs' right to carry on other businesses. The plaintiffs had claimed the relief of declaration that the personal guarantees executed by the plaintiffs in favour of the defendant stand discharged, the relief of perpetual injunction restraining the defendant from invoking the personal guarantees and for mandatory injunction directing the defendant to produce the documents of personal guarantee and for cancellation thereof. The Delhi High Court observed and held as follows.

“4. In Nahar Industrial Enterprises Ltd. Vs. Hong Kong and Shanghai Banking Corporation MANU/SC/1330/2009…..the Supreme Court has held that no independent proceedings can be initiated by a debtor before DRT; a debtor under the common law of contract as also in terms of the agreement may have an independent right; no forum has been created for endorsement of that right - jurisdiction of civil court is barred only in respect of matters which strictly come within the purview of Section 17 of DRT Act and not beyond the same; the civil court therefore will continue to have jurisdiction; ………..DRT can issue a certificate only for recoveries of dues of a bank - it cannot pass a decree; that the statutory provisions contained in Sections 17 & 18 of DRT Act cannot be said to have ousted the jurisdiction of the civil court qua the suits filed by the debtor ………The court quoted portion of judgment in Indian Bank Vs. A.B.S. Marine Products Pvt. Ltd. AIR 2006 SC 1899 laying down that Sections 17 & 18 of DRT Act had not been amended and jurisdiction had not been conferred on DRT even after amendment of Section 19 to try independent suits or proceedings initiated by borrowers or others against Banks/Financial Institutions; nor the jurisdiction of civil court barred in regard to such suits/proceedings.

5. In the light of the aforesaid dicta, the plea for rejection of the plaint in so far as on the ground of the relief claimed therein being barred by Section 18 of DRT Act is not tenable and is rejected.”

 

Thus, in Mrs. Sunayana Malhotra & Ors. vs ICICI Bank (supra) Delhi High Court held that the plea for rejection of the plaint in so far as on the ground of the relief claimed therein being barred by Section 18 of DRT Act,1993 is not tenable and is rejected. By necessary implication, it may be safely concluded that only a civil court can grant relief of declaration that the personal guarantees stand discharged, and therefore, DRT does not have this jurisdiction, power and authority under Section 17 of DRT Act, 1993.(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  http://www.lawyersclubindia.com/articles/DRT-has-no-jurisdiction-to-issue-Certificate-of-Recovery-against-the-Guarantor-5140.asp#.UIvOLG_Mjp9

                                                                      OR

 http://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:

Narendra Sharma

Consultant (Arbitration, DRT, Securitisation)

Expert (Director's Personal Guarantee) 

 (Mobile: 9229574214/8982321310/9424858767),

E-mail: nkdewas@yahoo.co.in

DRT Has No Jurisdiction

























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