1. The short question raised in this appeal about the jurisdiction of the Debts Recovery Tribunal arises in the context of the following facts.
The appeal has been filed against the order dated 4.2.2005 passed by the DRT-I, Mumbai rejecting the application of the appellants moved for dismissal of the original application on the ground that the Tribunal had no jurisdiction to entertain and try the same.
The respondent which is a financial institution filed original application before the DRT under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the RDB Act) for recovery of its claim pursuant to an undertaking executed by the original defendant Nos. 1 to 11, appellants herein, on 21.7.1999. It is the case of the respondent that they had advanced financial assistance to the defendant No. 12 company for meeting a part of the costs of the project for manufacturing copper and copper alloys flat products of strips and foils at Goa by subscribing 16% OCCRP shares of Rs. 100/- each, to the extent of Rs. 15 lacs. The respondent had tried to secure the amount by taking an undertaking dated 21.7.1999 from the defendant Nos. 1 to 11, who are promoters and directors of the defendant No. 12 company and the respondents had also taken pledge of the shares of the defendant No. 12 company held by the defendant Nos. 1 to 11.
As per the subscription agreement entered into with the defendant No. 12 company, the defendant No. 12 had to pay dividend on those shares at the rate of 16 per cent per annum payable at the end of each financial year to the respondents. Accordingly, in the original application, the claim is filed for the sum of Rs. 15 lacs, which was the purchase price of the shares with interest thereon calculated @ 16% per annum amounting to Rs. 7,31,50,684.93. Thus, the total amount which is claimed is Rs. 22,31,50,684.63. In the prayers in the original application decree is sought for Rs. 22,31,50,684.93 against defendant Nos. 1 to 11 who had jointly and severally agreed to buy back shares of the defendant No. 12 company, which were purchased by the respondents and also for the sale of the shares pledged by the defendant Nos. 1 to 11.
3. The appellants who are the original defendants filed an application before the DRT for dismissal of the original application on the ground that the amount claimed in the original application on the basis of the undertaking to buy back the shares of the defendant No. 12 company which were initially purchased by the respondents, was not a 'debt' within the meaning of Section 2(g) of the RDDB Act, 1993 and therefore the DRT had no jurisdiction to entertain and try the original application. According to the appellants, the appropriate relief which the respondents should have asked for was for specific performance of the agreement or the undertaking to buy back the shares and the claim for money to the extent of the value of those shares could be made alternatively, which is a matter of discretion of the Court. It is further contention of the appellants that the DRT has no jurisdiction to pass a decree for specific performance of the contract, for which the respondents have to take recourse to the provisions of Specific Relief Act, 1963 under which suit is maintainable in a Civil Court.
4. The aforesaid contentions were turned down by the DRT and the application was rejected holding that the Court had to go by the averments in the original application, what was claimed was the ascertained amount which according to the respondents/applicants was due and payable by the defendant Nos. 1 to 11 and therefore, the said claim could be entertained and decided by the DRT under the provisions of the RDDBFI Act. Aggrieved by the order dismissing their application, the appellants have preferred this appeal.
5. The learned Advocate appearing for the appellants raised the same points before me, which were taken before the DRT. According to him, the original application could not have been filed by the respondents for the recovery of the sum of Rs. 22,31,50,684.93 as prayed. The-claim was filed on the basis of the undertaking given by the defendant Nos. 1 to 11 and, therefore, the respondents should have filed suit for specific performance of the undertaking or agreement executed by the defendant Nos. 1 to 11 for which the DRT cannot be the Forum because the said relief can be given in a suit filed in the Civil Court under the Specific Relief Act.
6. On the other hand, on behalf of the respondents, it is argued that the respondents are not a baking institution but a financial institution and as such the respondents could not give financial assistance to the defendant No. 12 by advancing loan like Banks and, therefore, they had entered into an arrangement by executing subscription agreement with the defendant No. 12 company and, by way of security, an undertaking was obtained from the defendant Nos. 1 to 11, who are the directors of the defendant No. 12 company to buy back shares for the purpose of repayment of the financial assistance given to the defendant No. 12. In the subscription agreement, there is also a provision made for the repayment of that amount, which was paid to the defendant No. 12 company. As far as purchase price of the preferential shares is concerned, it is mentioned in the undertaking that the dividend will be paid annualized return at the rate of 16% per annum.
In other words, the defendant Nos. 1 to 11 had to buy back the shares to repay the original amount of loan given to the defendant No. 12 with interest calculated by annualizing return on shares at the rate of 16% per annum for all those years. That is how, the figure of interest has been arrived at Rs. 7,31,50,684.93.
7. From the aforesaid arrangement entered into by and between the parties, it appears that the respondents were not interested in subscribing and purchasing shares of the defendant No. 12 company except for the purpose of giving loan to the defendant No. 12 on the security of shares and an additional security of the undertaking from the promoters of the company who are defendant Nos. 1 to 11. There was also pledge of the shares of the defendant No. 12 company held by the defendant Nos. 1 to 11.
8. As stated earlier, the averment made in the subscription agreement shows that the defendant No. 12 company had approached the U.T.I, for financial assistance to meet part of the cost of the project for manufacture of copper and copper alloys, etc. It is not in dispute that the respondents are a financial institution and, therefore, the provisions of the RDB Act are applicable for recovery of its debts.
9. As far as the definition of the word "debt" is concerned, Section 2(g) of the RDB Act states that debt means any liability (inclusive of interest) which is claimed as due from any person by a Bank or a financial institution...etc. Though the respondents have claimed as debt an amount of Rs. 22 crores and odd from the defendant Nos. 1 to 11, whether the respondents are able to prove their claim is a question, which can be decided at the time of hearing of the application.
10. Reference can be now made to certain decisions, firstly, in the case of United Bank of India v. Debts Recovery Tribunal and Ors.
, wherein it was held that: Expression "debt" has to be given the widest amplitude to mean any liability which is alleged as due from any person by a Bank during the course of any business activity undertaken.
In the above case, jurisdiction of the DRT was challenged on the ground that the claim was of an undetermined amount and was, therefore, not a "debt" within the meaning of Section 2(g) of the RDB Act. However, the Supreme Court going by the definition of the word "debt" in Section 2(g) of the RDDBFI Act, held that the expression 'debt' means any liability or claim which is alleged by a Bank as due from any person.
In other words, when a Bank files a suit claiming or alleging certain amount as due and payable to them as a debt, prima facie the provisions of RDB Act would be applicable because it is a 'debt' claimed within the meaning of Section 2(g) of the RDDBFI Act, though the defendant may claim that it cannot be a 'debt' as it is not an ascertained amount and is claimed as damages or compensation.
11. In the present case, in the original application claim is filed by the financial institution claiming the amount as due and payable by the defendants to the financial institution. If we go by the averments made in the original application, the respondents having claimed certain amount as 'debt' due to them from the defendant Nos. 1 to 11, the DRT has jurisdiction to entertain the claim under the provisions of the RDB Act as held in the United Bank's case (supra).
12. In this respect, the DRT has also made reference to the judgment of the Division Bench of the Madras High Court in the case of G.V. Films Ltd. v. Unit Trust of India and Anr. III (2002) BC 15 (DRT) : 2002 CC 257. That was a case where the claim was filed by UTI for recovery of an amount from the party who was wrongly paid the dividend. The contention was raised on behalf of the defendants that it was not a debt but the Division Bench after referring to the judicial dictionary and several judgments in that behalf held that the amount being ascertainable and the party to whom it was wrongly paid was conscious in respect of wrongly paid amount, it was the 'debt' recoverable under the RDB Act.
13. The learned Advocate appearing for the appellants lastly contended that the transaction which is entered into between the parties is illegal as it is hit by Notification dated 27.6.1969, which prohibits all contracts of sale or purchase of security including buy back transactions entered into by banking companies with the brokers. Prima facie, it appears that buy back transactions entered into by the Banking companies are prohibited by the aforesaid notification. This point can be raised by the defendants before the DRT in the original application because if any illegality is pointed out in that respect, the claim may fail, but that is not the ground to oust the jurisdiction of the DRT at the threshold to entertain the application.
14. For the aforesaid reasons, I hold that prima facie the DRT has jurisdiction to entertain the application under the provisions of the RDB Act. In view of the above, I see no reason to interfere with the impugned order passed by the DRT. The appeal, therefore, is dismissed with no order as to costs.