@JUDGMENTTAG-ORDER
D. Murugesan, J.@mdashThe parties are referred to as per the cause title in O.A. No. 315/2004.
The averments in brief that led to the present reference are as follows:
The first respondent viz., The State Bank of Hyderabad, Indira Nagar Branch, Madras has filed C.S. No. 993/1993 before this Court for a
judgment and decree against the defendants 1 to 13 therein including the 2nd and 3rd respondent herein jointly and severally to pay to the plaintiff
a sum of Rs.2,95,05,577/- together with interest at the rate of 24.05% p.a. from the date of plaint, till the date of realisation and other reliefs. The
suit was filed on the ground that the first respondent sanctioned overdraft facility to a limit of Rs.200 lakhs to the defendants 1 to 4 therein for
construction of residential flats at Virugambakkam, Madras. The terms of sanctions were subject to various conditions specified therein denoting
disbursement of loan in various stages, inter alia, the loan is to be secured by collateral security by various equitable mortgages including the
equitable mortgage of landed property bearing S.F. No. 218 situate at Virugambakkam, Madras measuring 83394 sq.ft. belonging to Mrs. Deepa
Udayakumar, Miss Priya Dharshini (the petitioners), A.S. Balachandar and Smt. Kavitha Ravichandran. The 2nd respondent executed an on
demand promissory note promising to pay the defendants 2 to 8 or order at the State Bank of Hyderabad for the value received with interest. It
was also alleged in the plaint that the suit was also filed on the ground that on the same day, all the defendants 1 to 8 therein endorsed on the
reverse of the promissory note for payment to State Bank of Hyderabad. It was further alleged in the suit that the defendants 9 to 13 executed a
equitable mortgage through their power of attorney by name Mr. A. Muthuvelu, the 3rd respondent herein in respect of the properties mentioned in
the schedule as security. It was also alleged in the plaint that after availing of the said over draft facility, the defendants therein were very irregular in
repayment, they were compelled to file the suit for recovery of Rs.2,95,05,577/- together with interest at the rate of 24.05% p.a. from the date of
plaint, till the date of realisation and other reliefs.
The said suit was decreed on 10.8.1994 on the basis of a compromise memo. Based on the said decree and in view of the Recovery of Debts due
to Banks and Financial Institutions Act, 1993 (hereinafter referred to as ""the Act"") came into force on 24.8.1 993 and the Debt Recovery Tribunal
I was constituted at Madras on 31.10.1996. the plaintiff filed application in O.A. No 159/1998 before the Tribunal for issue of recovery certificate
showing the appellants as respondents. As the petitioners came to know about the auction notice issued by the Recovery Officer, approached this
Court by filing suit in C.S. No. 318/2004 for the following relief.
(a) for a declaration that the judgment and decree passed in CS No. 993/1 993 dated 10.8.1994 based on the compromise memo is illegal, invalid
and non-est in law and not binding on the plaintiffs in respect of their right, title and interest in the suit property;
(b) for a declaration that the Recovery Certificate issued in O.A. No. 159/1998 by the Debt Recovery Officer II, Debt Recovery Tribunal,
Chennai dated 24.4.2000 and consequential sale proceedings in respect of the suit property are illegal, invalid and non-east
(c) for a declaration that there is no valid equitable mortgage in favour of the first defendant in respect of suit A Schedule binding the plaintiff and
affecting their rights.
(d) for a mandatory injunction directing the bank to deliver all the title deeds pertaining to the A schedule property to the plaintiffs:
2. The said suit was filed on the ground that the first respondent Bank in active collusion with the 3rd defendant viz.. Mr. A. Muthuvelu, had
maneuvered to create equitable mortgage by deposit of title deeds without getting the word or consent from the plaintiffs who are the real owners.
The suit was also filed on the ground that the 3rd respondent was given a limited power and on the strength of the said power of attorney, he
cannot represent the petitioners on their behalf so as to bind the plaintiffs in any kind of a transaction. It was also alleged in the plaint that there
cannot be any valid charge or mortgage over the properties belonging to the plaintiffs for the loan or amounts advanced to the respondents 1 and
2. The petitioners also filed applications in O.A. Nos. 315 and 316/2004 for the grant of an order of interim injunction restraining the respondents
herein from alienating or dealing with the suit property in any manner more fully described in the schedule. This Court had granted interim injunction
as per order dated 7.4.2004. By a further order dated 26.04.2004 this Court protected the possession of the 4th defendant M/s Sabari
Foundations subject to the condition that the 4th defendant shall not exploit the property handed over to him in any manner until further orders.
3. The first respondent State Bank of Hyderabad, Indira Nagar Branch, Chennai has filed O.A. No. 3062/2004 seeking the prayer for dismissal of
the suit by rejecting the plaint.
4. A learned single Judge of this Court has passed the following order on 26.04.2004.
For all matters provided for u/s 17 of the Act, the Tribunal alone has jurisdiction and to that extent, the jurisdiction of other Courts stands ousted
u/s 18 of the Act. The power of this Court and the Hon''ble Supreme Court of India under Articles 226 and 227 alone is protected. When a cause
of action is based on a debt due to the bank and financial institutions, under the Act, as already stated, the tribunal alone has the jurisdiction. The
question is, whether the relief of declaration prayed for in this case to declare the earlier decree as null and void is an issue, which comes within the
purview of section 17 of the Act. The earlier decree is attacked on several grounds namely, the plaintiffs in the present suit are not parties to the
decree and that they are not debtors to the plaintiff. As stated by Mr. Sriram Panchu, learned senior counsel whether there exists a debt or not, is
definitely an issue covered u/s 17 of the Act and therefore, this Court cannot go into that question in the suit as framed. But however, the
declaratory relief prayed for on the ground that the plaintiffs in the present suit are not parties to the earlier suit and the decree, would not be a
matter covered u/s 17 of the Act. The declaratory relief, on the validity of the decree, is also on the basis that the power of attorney, who is stated
to have made an endorsement in the memo of compromise binding the present plaintiffs, was not holding any power with him to do so. Therefore,
whether the earlier decree passed by this Court is valid or not on the two grounds referred to above, would not be a claim by a bank or other
financial institutions on a debt within the meaning of the word"" debt"" defined in the Act. The above grounds raised, in attacking the earlier decree,
appear to have escaped the attention of the learned trial Judge while the learned Judge held that Section 1 8 creates a bar on this Court to entertain
a suit of this nature
5. In view of the above conclusions the learned Judge referred the following question for reference:
Would a declaratory suit before a civil Court to declare an earlier decree as invalid on the ground that the parties seeking the relief were not
parties to the earlier suit and that their alleged representation in the memo of compromise by a power agent, who held no power at all, would be hit
by Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
6. The reference arose in view of the fact that in respect of some other property covered under the decree in C.S. No. 993/93, a suit in O.S. No.
599/2003 was filed on the same ground for declaration that the said decree was illegal and invalid. Along with the suit application Nos. 704, 705
and 3597 of 2003 were also filed. While disposing of those applications, the learned Judge by placing reliance on Section 18 of the Act held that
this Court has no jurisdiction to try the issue raised in those applications after the Act has come into force.
7. For answering the reference, we must necessarily dwell as to the purpose for which the Act was enacted. As per the statement of objects and
reasons, the procedures that were in existence prior to the introduction of the Act for recovery of debts due to Banks and Financial Institutions,
had blocked a significant portion of their funds in unproductive assets and the value of which deteriorated in passage of time. As it was felt that to
work out a suitable mechanism through which the dues to the banks and financial institutions could be realised without delay, the Act was enacted
to provide for establishment of Tribunals for expeditious adjudication and recovery of debts and for matters connected therewith or incidental
thereto. The said Act came into force on 24.6.1993 and provisions were not made applicable where the amount of debt due to any bank or
financial institution or to a consortium of banks or financial institutions is less than ten lakh rupees or such other amount being not less than one lakh
rupees as the Central Government may by notification specify. As a necessary corrolory the provisions of the Act shall apply in respect of recovery
where the amount of debt due is more than ten lakhs or such other amount more than rupees one lakh as specified by the Central Government by
notification.
Section 2(g) of the Act defines the debt thus:
debt"" means 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 on, and legally recoverable on, the date of the
application
8. Chapter II deals with Establishment of Tribunal and Appellate Tribunal:
In terms of Section 3, the Central Government shall by notification, establish one or more tribunals to be known as the Debts Recovery Tribunal,
to exercise the jurisdiction, powers and authority conferred on such tribunal or under this Act. The Central Government shall also specify in the
notification, the areas within which the tribunal may exercise jurisdiction for entertaining and deciding the applications filed before it. In terms of
Section 8. the Central Government shall, by notification, establish one or more appellate Tribunals, to be known as the Debts Recovery Appellate
Tribunal, to exercise the jurisdiction, powers and authority conferred on such tribunal by or under this Act. The Central Government shall also
specify in the notification in relation to which the appellate tribunal may exercise jurisdiction. In terms of Section 2(c)"" appointed day"" in relation to
a tribunal or an appellate Tribunal, means the date on which such tribunal is established under Sub-section (1) of Section 3 or as the case may be,
sub-section (1) of Section 8. The Debt Recovery Tribunal I was established in Chennai on 31.10.1996. Hence the ""appointed day"" in relation to a
tribunal means the date on which the tribunal is established and not the date on which the Act came into force. The judgment and decree in
question was made in C.S. No. 993/1993 dated 10.8.1994.
9. Chapter III deals with jurisdiction, powers and authority of Tribunals: In terms of Sub-section(1) of Section 17, a tribunal shall exercise, on and
from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for
recovery of debts due to such banks and financial institutions. In terms of sub-section(2) of Section 17, an appellate tribunal shall exercise, on and
from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made or deemed to have been made by a
tribunal under this Act. Section 18 bars the jurisdiction of the Court or other authority. It contemplates that on and from the appointed day, no
court or other authority shall have or be entitled to exercise any jurisdiction, powers or authority(except the Supreme Court and a High Court
exercising jurisdiction under Article 226 and 227 of the Constitution) in relation to matters specified in section 17.
10. Chapter IV deals with procedure of tribunals. In terms of Section 19 where a bank or a financial institution has to recover any debt from any
person it may make an application to the tribunal having jurisdiction. On receipt of application and after affording opportunity to the defendants to
file written statement, pass final orders by issuing certificate under subsection 9 of Section 19. The tribunal is empowered to make interim orders of
injunction, stay or attachment as the case may be in terms of Sub-section 12 of Section 17. The tribunal may also direct conditional attachment of
the property. In terms of sub-section 22 of Section 19, the Presiding Officer shall issue a certificate on the basis of the order of the Tribunal to the
recovery officer for recovery of the amount of debt specified in the certificate.
11. To avoid long term process, Section 22 contemplates that the tribunal and the appellate tribunal shall not be bound by the procedure laid down
by the Code of Civil Procedure, 1908 but shall be guided by the principles of natural justice and subject to the other provisions of this Act and of
any rules, the tribunal and the appellate tribunal shall have the powers to regulate their own procedure for disposal of matters.
12. Chapter V deals with recovery of debt determined by the Tribunal. In terms of Section 25. the Recovery Officer shall on receipt of the copy of
the certificate under Sub-section (7) of Section 19, proceed to recover the amount or debt specified in the certificate by attachment and sale of
movable or immovable property of the defendant, arrest of the defendant and his detention in prison and appointing a receiver for the management
of the movable or immovable properties of the defendant.
13. Section 31-A in Chapter VI relates to the power of tribunal to issue certificate of recovery in case of decree or order. The said section reads
thus:
(1) where a decree or order was passed by any court before the commencement of the Recovery of Debts to Banks and Financial Institutions
(Amendment) Act, 2000 and has not yet been executed, then, the decree-holder may apply to the Tribunal to pass an order for recovery of the
amount.
(2) On receipt of an application under sub-section (1), the tribunal may issue a certificate for recovery to a Recovery officer.
(3) On receipt of a certificate under sub-section) the Recovery Officer shall proceed to recover the amount as if it was a certificate in respect of a
debt recoverable under this Act.
14. A combined reading of the above provisions shows that in the matter of claim of debt by bank or a financial institution or by a consortium of
banks or financial institutions from any person, the Tribunal shall be established in terms of Section 3 of the Act and the appellate Tribunmal shall
be established in terms of Section 8 of the Act. The Bank or financial institutions or by consortium of banks or financial institutions as the case may
be, may make an application before the tribunal u/s 19 in respect of a debt from any person, whether 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 on and legally
recoverable on the date of the application. On receipt of the application, the tribunal is empowered to pass interim orders, conditional attachment
order and pass final orders on the application as well to give directions as may be necessary or expedient to give effect to its orders or to prevent
abuse of its process or to secure the ends of justice. As the object of the Act is only ensure speedy recovery as the existing procedures for
recovery of debts due to the banks or financial institutions had blocked a significant portion of their funds in unproductive assets but the Act was
intended for implementation of the same by simplifying the procedures as could be seen from section 22 of the Act. The enquiry u/s 19 has all
trappings of judicial proceedings. The Tribunal has also the powers of every Courts and in fact could also adopt its own procedure for disposal of
disputes. Such power includes the power to fix the liability of person or persons and to decide as to from whom the debt is to be recovered. The
legislation is comprehensive enough to deal with the liability of any person to the bank or financial institutions as the case may be.
15. Section 31 of the Act deals with transfer of pending cases before the Court immediately before the establishment of the tribunal. Infact Section
31A also contemplates a provision empowering the decree holder to apply to the tribunal to pass an order for recovery of the amount where a
decree or order was passed by any Court before the commencement of the Act.
16. In Union of India and Another Vs. Delhi High Court Bar Association and Others, the Supreme Court has upheld the validity of the said Act.
The Supreme Court also repealed the argument that eroded the independence of judiciary since the jurisdiction of civil court had been blocked and
vested in the Tribunal had observed as follows:
The manner in which a dispute is to be adjudicated upon is decided by the procedural laws which are enacted from time to time. It is because of
the enactment of the CPC that normally all disputes between the parties of a civil nature would be adjudicated upon by the civil Courts. There is no
absolute right in any one to demand that his dispute is to be adjudicated upon only by a civil Court. The decision of the Delhi High Court proceeds
on the assumption that there is such a right. As we have already observed it is by reason of the provisions of the CPC that the Civil Courts had the
right, prior to the enactment of the Debts Recovery Act, to decide the suits for recovery filed by the banks and financial institutions. This forum,
namely, that of a civil Court, now stands replaced by a Banking Tribunal in respect of the debts due to the bank. When in the Constitution Articles
323-A and 323-B contemplate establishment of a Tribunal and that does not erode the independence of the judiciary, there is no reason to
presume that the Banking Tribunals and the appellate Tribunals so constituted would not be independent, or that justice would be denied to the
defendants or that the independence of the judiciary would stand eroded
17. In AIR 2003 SC 2103 while considering the jurisdiction, powers and authority of tribunals as contemplated u/s 17 and the Bar of jurisdiction
u/s 18, the Supreme Court had held as follows:
It is clear from Section 17 of the Act that the tribunal is to decide the applications of the banks and financial institutions for recovery of debts due
to them. We have already referred to the definition of ""debt"" in Section 2(g) as amended by Ordinance 1 of 2000. It includes ""claims"" by banks
and financial institutions and includes the liability incurred and also liability under a decree or otherwise. In this context Section 31 of the Act is also
relevant. That Section deals with transfer of pending suits or proceedings to the Tribunal. In our view, the word ""proceedings"" in Section 31
includes "" execution proceedings"" pending before a civil court before the commencement of the Act. The suits and proceedings so pending on the
date of the Act stand transferred to the tribunal and have to be disposed of ""in the same manner"" as applications u/s 19.
21. In our opinion, the jurisdiction of the Tribunal in regard to adjudication is exclusive. The RDB Act requires the tribunal alone to decide
applications for recovery of debts due to banks or financial institutions. Once the Tribunal passes an order that the debt is due, the Tribunal has to
issue a certificate u/s 19(22) (formerly u/s 19(7) to the Recovery Officer for recovery of the debt specified in the certificate. The question arises as
to the meaning of the word ""recovery"" in Section 17 of the Act. It appears to us that basically the Tribunal is to adjudicate the liability of the
defendant and then it has to issue a certificate u/s 19(22). u/s 18, the jurisdiction of any other Court or authority which would otherwise have had
jurisdiction but for the provisions of the Act, is ousted and the power to adjudicate upon the liability is exclusively vested in the Tribunal. (This
exclusion does not however apply to the jurisdiction of the Supreme Court or a High Court exercising the power under Article 226 or 227 of the
Constitution). This is the effect of Sections 17 and 18 of the Act
18. In the above judgment, the Supreme Court has authoritatively held that u/s 18, jurisdiction of any other Court or authority which would
otherwise have had jurisdiction but for the provisions of the Act is ousted and the power to adjudicate upon the liability is exclusively vested in the
Tribunal. The Supreme Court has also held that such power includes the execution proceedings.
19. In Punjab National Bank Vs. O.C. Krishnan and Others, the Supreme Court even while considering the power of the High Court under Article
226 and 227 of the Constitution of India or the Civil suit has held in para 6 as follows:
The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions. There is
a hierarchy of appeal provided in the Act, namely, filing of an appeal u/s 20 and this fast-track procedure cannot be allowed to be derailed either
by taking recourse to proceedings under Articles 226 and 227 of the Constitution or by filing a civil suit, which is expressly barred. Even though a
provision under an Act cannot expressly oust the jurisdiction of the Court under Articles 226 and 227 of the Constitution, nevertheless, when there
is an alternative remedy available, judicial prudence demands that the Court refrains from exercising its jurisdiction under the said constitutional
provisions. This was a case where the High Court should not have entertained the petition under Article 227 of the Constitution and should have
directed the respondent to take recourse to the appeal mechanism provided by the Act
On the above settled law by the Supreme Court, the reference should be considered. The learned Judge was persuaded to refer the matter on the
ground that Section 18 will not create a bar on the Court to entertain a suit where the suit is filed for declaration to declare the earlier decree as null
and void and on the ground that there was no debt due by the petitioners/plaintiffs to the first respondent bank. In view of the reference, the
question that arises for our consideration is whether the first respondent bank could enforce the decree against the petitioners when the petitioners
were not parties to the decree and when the decree was allegedly passed on collusion between the first respondent and the 3rd respondent. In our
opinion, the word ""debts"" defined u/s 2(g) debts includes any liability 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 on and legally recoverable on the date
of application. Further, liability is state of being liable and for which some one is liable especially a financial obligation. Admittedly, there is a decree
and the same could be enforced in terms of Section 31-A of the Act by issue of recovery certificate. Whether the certificate of recovery could be
issued on the basis of a decree or order could also be the subject matter of the Tribunal in terms of Subsection (25) of Section 19 of the Act
inasmuch as it empowers the Tribunal to make such orders giving such direction as may be necessary or expedient to give effect to its orders or to
prevent abuse of its process or to secure the ends of justice. In our considered view, the question as to whether the decree was obtained behind
the back of the petitioners and fraudulently by entering into compromise memo by the 3rd respondent with the first respondent as alleged by the
petitioners, can also be the subject matter for adjudication before the Tribunal as the jurisdiction of the Civil Court is completely ousted after the
constitution of the Tribunal and the tribunal or the appellate Tribunal as the case may be, is vested with the power to entertain and decide the issue
as to the liability including interest. Equally the issue as to whether the compromise decree binds only those persons who are parties to the same or
to the petitioners as well is also a matter which could be considered by the Tribunal. The debt means only the liability and the liability of the
petitioners had arises under the decree, which is sought to be executed in terms of Section 31-A of the Act. As we have held that even the issue as
to the liability can be the subject matter of the Tribunal, the suit is barred u/s 18 of the Act. We answer the question for reference in the affirmative.
Post the applications for disposal accordingly.
