# ALLAHABAD BANK v. CANARA BANK AND ANR

- **Citation:** [2000] 2 S.C.R. 1102
- **Court:** Supreme Court of India
- **Decided:** 2000-04-10
- **Bench:** M. Jagannadharao, Santosh Hegde
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/allahabad-bank-v-canara-bank-and-anr-17213
- **Pages:** 43

## Headnote

Debt Laws:
Recovery of Debts Due to Banks and Financial Institutions Act! 1993Sections 17, 18, 19, 25-30 and 34-Jurisdiction of Recovery Officer as against
Companies Court-Held, Recove1y officer has exclusive jurisdiction in respect of decree passed by Tribunal.
Companies Act 1956-Secs. 442, 537, 446(1), (2), (3), 529, 529-A and
530-Debt Recovery Trikunal passing a decree against a Company-RecovD
ery Proceedings pending-Petition for Winding Up of debtor Company by
other creditors-Held, execution of ce11ificate of debts payable to Banks and
Financial Institutions are within the exclusivejurisdiction of Tribunal-Legal
Proceedings before Tribunal cannot be stayed by Company Court.
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Recpvery of Debts-One of the creditors of a Company obtaining
certificate-Proceedings for recovery pending-Other creditors whose claim
has not been adjudicated by the Tribunal, cannot be impleaded at recovery
stage.
Civil Procedure Code 1908-Section 73-Decree obtained by unsecured
creditor-Monies deposited in Court-Held, priorities among creditors to be
decided by Tribunal-Companies Act-Sec. 529-A-Directions- issued to Supreme Court Registry to release monies to Tribunal-Tribunal to disburse
monies after ascertaining workmen's dues.
Interpretation of Statutes-Principle of Purposive interpretation-DisG
cussed.
Maxims-Maxim "Generalia Speicalibus non derogant"-Meaning of
The appellant filed an application before the Debt Recovery Tribunal, Delhi under section 19 of the Recovery of Debts Due to Banks and
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Financial Institutions Act, 1993 for recovery of same due to them and a
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ALLAHABAD BANK v. CANARA BANK
1103
simple money decree was passed with interest at 18 % and interest tax levy
at 0.75% p.a. Recovery Case was filed by them for recovery before the
Recovery Officer. The debtor company filed an appeal before the appellate
Tribunal and there was no stay since the company defaulted in deposit of
the money directed to be deposited. An application was filed by respondent
No. 1 also under the Act of 1993 in the Debit Recovery Tribunal, Delhi for
recovery. The said application of the Respondent is pending in the Delhi
Tribunal under the Act of 1993.
Canara Bank filed an interlocutory application before the Recovery
Officer for impleadment in the recovery case of the appellant, seeking prorata distribution of sale proceeds from auctions of the debtor company's
properties. The appellant Banks opposed the same contending that since
no orders have been passed in favour of Canara Bank in its application
filed before the Delhi Tribunal against the same company, there was no
question of impleading the Canara Bank. As regards proportionate disbursement of sale proceeds, it was observed that the question was premature and that the said issue could be considered after sale proceeds were
received by the Tribunal. These applications were dismissed.
Since the Recovery Officer declined to confirm a sale in respect of a
property of the debtor company and directed a fresh auction, the appellant
Bank filed a writ petition under Articles 226 and 227.
Canara Bank then filed applications in the Debt Recovery Tribunal
under section 22 of the Act of 1993 seeking stay of recovery proceedings in
the recovery proceedings, which were pending. Canara Bank filed an
application in the companies court in a pending winding up petition under
sections 442 and 537 of the Companies Act 1956 seeking stay of recovery
proceedings and for staying sales of assets of company by the appellant
Bank.
In the said application the Company Judge passed an order staying
the further sale of assets of the Company in the recovery case in the DRT
and also restraining disbursement of monies already realised in other
sales.
In appeal to this Court, the Appellant contended that the Act of 1993
is a special statute intended for expeditious adjudication and recovery of
debts due to Banks and financial institutions and it contains two crucial
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## Text

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ALLAHABAD BANK
v.
CANARA BANK AND ANR.
APRIL 10, 2000
[M. JAGANNADHARAO AND SANTOSH HEGDE, JJ.]
Debt Laws:
Recovery of Debts Due to Banks and Financial Institutions Act! 1993Sections 17, 18, 19, 25-30 and 34-Jurisdiction of Recovery Officer as against
Companies Court-Held, Recove1y officer has exclusive jurisdiction in respect of decree passed by Tribunal.
Companies Act 1956-Secs. 442, 537, 446(1), (2), (3), 529, 529-A and
530-Debt Recovery Trikunal passing a decree against a Company-RecovD
ery Proceedings pending-Petition for Winding Up of debtor Company by
other creditors-Held, execution of ce11ificate of debts payable to Banks and
Financial Institutions are within the exclusivejurisdiction of Tribunal-Legal
Proceedings before Tribunal cannot be stayed by Company Court.
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Recpvery of Debts-One of the creditors of a Company obtaining
certificate-Proceedings for recovery pending-Other creditors whose claim
has not been adjudicated by the Tribunal, cannot be impleaded at recovery
stage.
Civil Procedure Code 1908-Section 73-Decree obtained by unsecured
creditor-Monies deposited in Court-Held, priorities among creditors to be
decided by Tribunal-Companies Act-Sec. 529-A-Directions- issued to Supreme Court Registry to release monies to Tribunal-Tribunal to disburse
monies after ascertaining workmen's dues.
Interpretation of Statutes-Principle of Purposive interpretation-DisG
cussed.
Maxims-Maxim "Generalia Speicalibus non derogant"-Meaning of
The appellant filed an application before the Debt Recovery Tribunal, Delhi under section 19 of the Recovery of Debts Due to Banks and
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Financial Institutions Act, 1993 for recovery of same due to them and a
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ALLAHABAD BANK v. CANARA BANK
1103
simple money decree was passed with interest at 18 % and interest tax levy
at 0.75% p.a. Recovery Case was filed by them for recovery before the
Recovery Officer. The debtor company filed an appeal before the appellate
Tribunal and there was no stay since the company defaulted in deposit of
the money directed to be deposited. An application was filed by respondent
No. 1 also under the Act of 1993 in the Debit Recovery Tribunal, Delhi for
recovery. The said application of the Respondent is pending in the Delhi
Tribunal under the Act of 1993.
Canara Bank filed an interlocutory application before the Recovery
Officer for impleadment in the recovery case of the appellant, seeking prorata distribution of sale proceeds from auctions of the debtor company's
properties. The appellant Banks opposed the same contending that since
no orders have been passed in favour of Canara Bank in its application
filed before the Delhi Tribunal against the same company, there was no
question of impleading the Canara Bank. As regards proportionate disbursement of sale proceeds, it was observed that the question was premature and that the said issue could be considered after sale proceeds were
received by the Tribunal. These applications were dismissed.
Since the Recovery Officer declined to confirm a sale in respect of a
property of the debtor company and directed a fresh auction, the appellant
Bank filed a writ petition under Articles 226 and 227.
Canara Bank then filed applications in the Debt Recovery Tribunal
under section 22 of the Act of 1993 seeking stay of recovery proceedings in
the recovery proceedings, which were pending. Canara Bank filed an
application in the companies court in a pending winding up petition under
sections 442 and 537 of the Companies Act 1956 seeking stay of recovery
proceedings and for staying sales of assets of company by the appellant
Bank.
In the said application the Company Judge passed an order staying
the further sale of assets of the Company in the recovery case in the DRT
and also restraining disbursement of monies already realised in other
sales.
In appeal to this Court, the Appellant contended that the Act of 1993
is a special statute intended for expeditious adjudication and recovery of
debts due to Banks and financial institutions and it contains two crucial
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[2000] 2 S.C.R.
provisions viz., Section 18 which ousts the jurisdiction of all Courts or
other auth(_)rities (except the Supreme Court and the High Court exercising powers under Articles 226 and 227) in relation to matters covered by
·· Section 17 which covers the entire procedure from the filing of an application under section 18, to the 'adjudication' and 'recovery', that these
matters are taken out from the purview of the Companies Act 1956,
inciuding Sections 442, 537 and Section 446 of the said Act, that the
proceedings under the Act of 1993 cannot be stayed by the Company
Court nor can they be transferred to the Company Court, that no leave
from the Company Court is necessary either for the filing of the OA for
adjudication of the debt nor for executing the decree passed by the Tribunal, that Section 34(1) gives overriding effect to the provisions of the Act
save as provided in Section 34(2), Section 34(2) as amended by Ordinance
1/200 saves only six statutes from the purview of Section 34(1) and the
Companies Act, 1956 is not one of them, that hence, the Act of 1993,
overrides sections 442 and 537 and also section 446 of the Companies Act.
The Appellant further contended that even otherwise Section 446 of the
Act of 1956 cannot be invoked in this case because there is no winding up
order nor an order appointing a provisional liquidator so far in respect of
the debtor Company, that principles underlying Section 73 CPC are not
·• attracted before the Tribunal since no decrees have been obtained from
any Civil Court or Debt. Recovery Tribunal by the Respondent nor any
steps have been taken by the Canara Bank, that Courts must interpret the
Act of 1993 so as to subserve the purpose of realisation of thousands of
crores of Bank funds which are due, that the legislature intended to avoid
the long drawn proceedings in the Civil Court as well as under Sections
442, 446 and 537 of the Act of 1956 and this is now clear from Section
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19(19) as re-enacted by Ordinance 1/2000 which permits even the working
out of priorities by the Tribunal.
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The appellant Bank contended that having obtained a decree and
having got the properties sold it was solely entitled to the entirety of
these proceeds and there is no question of the appellant sharing the sale
proceeds with others nor is it necessary to wait till the Canara Bank gets a
decree in its O.A. pending before the Delhi Tribunal, that only Section 529A of the Companies Act is attracted and that too for a limited purpose if a
question of "workman's portion" is involved, that no other provisions of
the Companies Act, much less section 529(1) or (2) are attracted, that if a
secured creditor wants to come before the Company Court in the winding
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ALLAHABAD BANK v. CANARA BANK
1105
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up proceedings he has to give up his security and prove his debt befol'.e the
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liquidator to seek dividends as per the insolvency rules mentioned in
Section 529(1), read with Sections 45 to 50 of the Provisional Insolvency
".
Act and stand in the queue along with all unsecured creditors under
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Section 529(2), that even that is applicable only in respect of any monies
realised by the Company Court and not by the Tribunal that the limited
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extent to which secured creditors can claim priority under the Act of 1993
is as limited by Section 19(19) of the Act of 1993 and this is covered by
Section 529-A alone read with sub-clause (c) to the proviso to Section
529(1) and that the effect of these provisions is that if any monies are
realised by Canara Bank by standing outside winding up and if any part of c
such realisations of Canara Bank are taken away by the liquidator for
payment of workmen, only to the extent of such "workmen's portion', can
the Canara Bank have priority over other creditors, and otherwise, Canara
Bank cannot invoke Section 529(1), (2) and that too before the Tribunal.
Appellant contended that in respect of the monies realised under the
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Act of 1993, the only restriction on the distribution of dividends is the one
specified in Section 529-A, so far as secured creditors are concerned tha~
the secured creditor has no other general right of preference, sections
529(1) and (2) are also not attracted and that workmen's dues are entitled
to highest priority even as against other secured creditors, that where a
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secured creditor keeps himself outside as stated in the proviso to Section
529(1) and seeks to recover his dues outside the Company Court, if he loses
part of his security towards workmen's dues, he gets reimbursed to that
extent as a secured creditor, with an overriding priority under Section 529A(l)(b), over all other creditors before the Tribunal to be compensated for
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this loss out of the monies that may have been realised at the instance of
other creditors before the Tribunal, and that Canara Bank has neither
realised any amount outside winding up nor has it lost any part of its
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security towards workmen's dues •
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Respondents - Canara Bank contended that when a winding up
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Petition is pending in the Company Court, it is necessary that the leave of
the Company Court is obtained for obtaining a decree before the Tribunal
or for execution before the Recovery Officer, that Sections 442, 446 and
537 of the Act of 1956 applied even to proceedings under the Act of 1993,
that leave is necessary under Section 537 even if no winding up order is
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
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passed, that it is therefore necessary to stay the sale proceedings before the
Recovery Officer or the distribut~on of sale proceeds, that the Company
Court alone can sell the properties of the Company in the winding up
proceedings, that the recovery proceedings must be stayed and then the
proceedings must be transferred to the Company Court and thereafter,
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once the proceeds of sale come before the Company Court, the said Court
alone will have to distribute the monies according to priorities as men·
tioned in Sections 446(2)(d), 528, 529-A and 530 etc., that Canara Bank is
also a nationalised bank and merely because the Allahabad Bank has been
able to get a decree from the Debt Recovery Tribunal earlier than Canara
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Bank, under the Act of 1993, Allahabad Bank can not be allowed to
appropriate the entire sale proceeds recovered by it, that if Canara Bank
has only a 'claim' and not a decree • in view of Section 2(g), its security has
preference and that unlike Section 73 CPC, Section 446 of the Act of 1956
does not required a decree and it is sufficient to prove a debt before the
liquidator. Alternatively, the Respondent contended that even before the
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Tribunal, Section 73 CPC and also Section 529(1) and (2) of Act 1956 read
with Section 529-A, 530 etc. are attracted for purposes of distribution of
the sale proceeds and working out priorities, assuming that jurisdiction of
the Company Court is excluded in so far as recovery of debts due to Banks
and financial institutions are concerned. Respondent also contended that
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the proceedings before the Tribunal/Recovery Officer under the Act of
1993, are 'legal proceedings' and could be stayed under Section 537 read
with Section 442 of the Act of 1956, that as per sec. 19(19) other secured
creditors of the debtor company could seek or share the realisation made
by the Recovery Officer and that the words in 'the first part of the clause
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(c) to proviso to Section 529(1) "so much of the debt due to such secured
creditor as could· not be realised by him" meant the entire unrealised
amounts of the secured creditor and not merely the "workmen's portion".
Allowing the Appeal, the Court
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HELD : 1. The jurisdiction of the Tribunal in regard to adjudication
is exclusive. The Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 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 under
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Section 19(22) formerly under section 19(7) to the Recovery Officer for
ALLAHABAD BANK v. CANARA BANK
. 1107
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recovery of the debt specified in the ce'=tificate. The Tribunal is to adjudiA
cate the liability of the Defendant and then it has to issue a certificate under
Section 19(22). Under Section 18, the jurisdiction of any other Court or
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authority which would otherwise have had jurisdiction but for the provi-
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sions of the Act, is ousted and the power of adjudication upon the liability
is exclusively vested in the Tribunal. (This exclusion does not however apply
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. to the jurisdiction of the Supreme Court or of a High Court exercising
power under Articles 226 or 227 of the Constitution). (1127-A-C]
2.1. It is not the intendment of the Act of 1993 that while the basic
liability of the defendant is to be decided by the Tribunal under Section 17,
the Banks/Financial institutions should go to the Civil Court or the Comc
pany Court or some other authority outside the Act for the actual realisation of the amount. The certificates granted under Section 19 (22) has to be
executed only by the Recovery Officer. No dual jurisdiction at different
stages are contemplated. Further, Section 34 of the Act gives overriding
effect to the provision of the Act of 1993. The provisions of Section 34(1)
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clearly state that the Act of 1993 overrides other laws to the extent of
'inconsistency'. The prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of
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these debts in any other manner. (1121-F-G; 1122-C]
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2.2. In view of the special procedure for recovery prescribed in
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Chapter V of the Act, and Section 34, execution of the certificate is also
within the exclusive jurisdiction of the Recovery Officer. Thus, the adjudication of liability and the recovery of the amount by execution of the
certificate are respectively within the exclusive jurisdiction of the Tribunal
and the Recovery Officer and no other Court or authority much less the
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Civil Court or the Company Court can go into the said questions relating
to the liability and the recovery except as provided in the Act. (1122-F-G]
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Tiwary Committee Report, referred to.
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3. There is no need for the appellant to seek leave of the Company
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Court to proceed with its claim before the Debt Recovery Tribunal or in
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respect of the execution proceedings before the Recovery Officer. Nor can
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they be transferred to the Company Court. Leave of the Company Court is
not necessary under Section 537 or under Section 446 for the same reasons. If the jurisdiction of the Tribunal is exclusive, the Company Court
cannot also use its power under Section 442 against the TribunaVRecovery
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(2000] 2 S.C.R.
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Officer. Thus, Sections 442, 446 and 537 cannot be applied against the
Tribunal. (1125-E; HJ
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Damji Valiji Shah and Am: v. LIC & Ors., (1965] 3 SCR 665, referred
to.
4. The principle of purposive interpretation cannot be invoked in the
present case against .the Debt Recovery Tribunal in view of the superior
purpose of the Act of 1993 and the special provisions contained therein.
The very same principle mentioned above equally applies to the TribunaU
Recovery Officer under the Act of 1993, because the purpose of the said
Act is something more important than the purpose of Sections 442, 446
and 537 of the Companies Act. It was intended that there should be a
speedy and summary remedy for recovery ~f thousands of crores which
due to the Banks and to financial institutions, so thatthe delays occurring
in winding up proceedings could be avoided. Section 19(19) is clearly
inconsistent with section 446 and other provisions of the Companies Act.
Only Section 529A is attracted to proceedings before the Tribunal. Thus,
on questions of adjudication, execution and working out priorities, the
special provisions made in the Act of 1993 have to be applied. The jurisdiction of the TribunaVRecovery Officer under the Act of 1993 is exclusive
and Section 34 gives overriding effect to the provisions of the Act of 1993.
{1126-G-H; 1127-A-B; 1128-D-E]
Governor General in Council v. Shirmani Sugar Mills Ltd., AIR (1946)
33 SC 16; Sudarshan Chits (India) Ltd. v. 0. Sukukmaran Pilai and Ors.,
[1984) 4 SCC 657; Union of India v. India Fisheries, (1965) 3 SCR 679; life
Insurance Corporation of India v. D.J. Bahadur, AIR (1980) SC 218 and
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Maharashtra Tunes Ltd. v. State of Industrial and Investment Corporation of
India, (1993) 2 SCC 144, referred to.
Ram Narain v. The Simla Banking & Industrial Co. Ltd., AIR (1958) SC
614; MK Ranganathan v. Govt. of Madras, AIR (1955) SC 604; ICICI v.
Srinivas Agencies, (1996) 4 SCC 165 and Rajasthan Finance Corporation v.
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Official liquidator, (1963) 2 Comp. L.J. 309, distinguished.
Mis. Major Syntex Ltd. v. Punjab and Sind Bank, (1977) 67 DLT 836
and UCO Bank v. Concast Products Ltd., (1966) 2 Com. L.J. 449, disapproved.
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ICICI v. Vanjinad Leathers Ltd., AIR (1997) Ker. 273 and In Re Bihar
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ALLAHABAD BANK v. CANARA BANK
1109
Sales Pvt. Ltd., vol. 96 Comp. Cases 40, approved.
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Re Webb and Co., (1922) 2 Ch. 369(A) and Food Controller v. Cork,
(1923) AC 647, referred to.
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Tiwari Committee Report (1981) Chapter Vill para 82 in Narasimham
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Committee Report, referred to.
5. At the stage of adjudication under Section 17 and execution of the
certificate under Section 2,5 etc. the provisions of the Act of 1993, confer
exclusive jurisdiction in the Tribunal and the Recovery Officer in respect of
debts payable to Banks and financial institutions and there can be no c
interference by the Company Court under Section 442 read with Section
537 or under Section 446 of the Companies Act, 1956. In respect of the
monies realised under the Act of 1993, the question of priorities among the
Banks and financial institutions and other creditors can be decided only by
the Tribunal under the Act of 1993 and in accordance with Section 19(19)
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read with Section 529-A of the Companies Act and in no other manner. The
provisions of the Act of 1993, are to the above extent inconsistent with the
provisions of the Companies Act, 1956 and the latter Act has to yield to the
provisions of the former. This position holds good during the pendency of
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the winding up petition against the debtor-company and also after a winding up order is passed. No leave of the Company Court is necessary for
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initiating or continuing the proceedings under the Act of 1993. (1134-D-F]
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6. The adjudication order in respect of the present debt has already
been made long back and therefore Section 19(2) does not permit any
impleadment in the main application under Section 19(1) at this stage.
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Hence, the relief for impleadment cannot be granted. (1135-D]
7. Where the defendant company is a company against which no
winding up order is passed, the company, is like any other defendant and if
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in such a situation a question of priority arises before the Tribunal, in
respect of any monies realised under Act of 1993, as between the bank or
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financial institutions on the one hand and the other creditors on the other,
it will, be necessary for the Tribunal to decide such question on priority
bearing in mind the principles underlying Section 73 of the Code of Civil
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Procedure. Section 22 of the Act of 1993, gives sufficiently wide powers to
the Tribunal and the Appellate Tribunal to decide such questions of prioriH
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
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ties, subject only to the principles of natural justice. In the present case,
Canara Bank is not in a position to invoke the principles underlying
Section 73 CPC because it has not yet obtained any decree or adjudication
of its ~ebt from the Tribunal. Nor has it complied with other provisions
underlying Section 73 CPC. Hence no relief can be granted on the basis of
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the said principles. [1135-F; G; 1136-C]
Industrial Credit and Investment Corporation of India ud v. Grapco
Industries 11d & Others, [1999] 4 SCC 710 and Allahabad Bank, Calcutta v.
Radha Krishna Maity & Others, [1999] 6 SCC 755 relied on.
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8.1. The contention of the Respondent that Section 19(19) gives priority to all ''secured creditors" to share in the sale proceeds before the Tribunal/Recovery Officer cannot, be accepted. The said words are qualified by
the words ''in accordance with the provision of Section 529A". Hence, it is
neiessary to identify the above limited class of secured creditors who have
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priority over all others in accordance with Section 529A. [1139-E]
8.2. The words in proviso section 529(1) that, "so much of the debt
due to such secured creditor as could not be realised by him by virtue of
the foregoing provisions of the proviso" obviously mean the amount taken
away from the private realisation of the secured creditor by the liquidator
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by way of enforcing the charge for.workmen's dues under clause (c) of the
proviso to Section 529(1), "rateably" against each secured creditor. To that
extent, the secured creditor • who has stood outside the winding up and
who has lost a part of the monies otherwise covered by security • can come
before the Tribunal to reimburse himself from out of other monies availF
able in the Tribunal, claiming priority over all creditors, by virtue of
Section 529A(l)(b). [1141-E]
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8.3. The secured creditor who stands outside the winding up and
whose claims are restricted to Section 529-A read with the clause {c) of
proviso to Section 529(1), does not in the ultimate analysis stand to lose any
part of his security merely because the "workmen's portion" is taken away
from his security. Whatever he loses towards "workmen's portion" out of
his security, can be claimed by him as a secured amount with priority over
such creditors out of other realisations made by other creditors whose monies
are lying in the Tribunal. At the same time, his position would not improve
from what it was originally and his priority would not extend to his entire
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C.A. No. 323 of 1999.
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Soli J. Sorabjee, Attorney General, Kapil Sibal, Indveer Singh Alag,
Pradeep K. Bhakshi, Y.P. Narula, Abhijeet Chatterjee, Mrs. Sada Chandra,
Suresh A. Shroff, Manish Singhvi, Ms. Rashmi Verma, Sunil Dogra, Ms.
Monica Shanna, Ms. Sayali Pathak, A.S. Chandok, Siboney Sagar and V.
Sibal for the appearing parties.
The Judgment of the Court was delivered by
M. JAGANNADHA RAO, J. Leave granted.
The case raises issues relating to the impact of the provisions of the
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter called the RDB Act) on the provisions of the Companies Act, 1956.
The immediate dispute before us is between two nationalised Banks, the
Allahabad Bank (appellant) on the one hand which has obtained a simple
money decree against the debtor-company (Mis M.S.Shoes (East) Co. Ltd.
from the Debt Recovery Tribunal at Delhi under the RDB Act and the Canara
Bank on the other, whose claim as a secured creditor is still pending before
the same Tribunal at Delhi against the same company. The Allahabad Bank
has appealed before us against an order passed by the learned Company Judge
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under sections 442 and 537 of the Companies Act, (in a winding up petition
by Ranbaxy Ltd.) staying the sale proceedings taken out by the Allahabad
Bank before the Recovery Officer under the RDB Act. Applications for
winding up the defendant company are pending in the Delhi High Court. As
yet no winding up order has been passed nor a provisional liquidator
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appointed as contemplated by section 446(1).' Point has been raised by the
respondent - Canara Bank that the appellant Allahabad Bank is obliged. to
seek leave of the Company Court under the Companies Act, 1956 and the
Company Court can stay these proceedings as aforesaid under Sections 44~
and.537 for the ultimate purpose of deciding the priorities, in the event of a
winding up order or other order appointing a provisional liquidator being
passed under section 446(1) of the Companies Act, 1956. After the appellant
obtained decree from the Debt Recovery Tribunal, some properties of the
company have been sold by the Recovery Officer. Appellant contends that the
Tribunal under the RDB Act can itself deal with the question of appropriation
of sale proceeds in respect of sales of the company properties held at the
instance of the appellant and the priorities and that the appellant alone is
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ALLAHABAD BANK v. CANARA BANK [M. JAGANNADHA RAO, J.]
1113
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entitled to all the sums so realised .
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The matter was argued and judgment was reserved. Thereafter, our
attention was invited by the learned counsel for the respondent - Canara Bank
to the Amending Ordinance (Ordinance 1 of 2000) which came into force
with effect from 17. l.2000. The effect of the Ordinance and in particular
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section 19(19) then fell for consideration. Question of distribution of the sale
proceeds by Company Court/Tribunal and method of working out priorities
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among creditors was argued.
The facts of the case are as follows:
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The appellant Bank filed O.A.No.109 of 1995 before the Debt Recov-
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ery Tribunal, Delhi under section 19 of the RDB Act, 1993 for recovery of
Rs. 21,49,29,520 and a simple money decree was passed on 13.1.1998 with
interest at 18% and interest tax levy at 0.75% p.a. Recovery Case (R.C.No.9
of 98) was filed by the Allahabad Bank for recovery before the Recovery
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Officer. The debtor Company filed appeal No.270 of 1998 before the appellate Tribunal and then~ was no stay inasmuch as. there was default in deposit
of the money directed to be deposited. O.A. No.784of1996 was filed by the
Canara Bank also under the RDB Act in the Debt Recovery Tribunal, Delhi
for a decree for Rs. 14,40,05,982.98 plus interest and it was said that a sum
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of about Rs. 25 crores was due from the same company. The said O.A. of
Canara Bank is pending in the Delhi Tribunal under the RDB Act.
The Canara Bank filed interlocutory application before the Recovery
Officer for impleadment in the said recovery case of the appellant. viz., RC.9/
98 seeking pro-rata distribution of sale proceeds from auctions of the debtor
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company's properties. The appellant Bank resisted the same contending that
inasmuch as no orders have been passed in favour of the Canara Bank in its
claim filed before the Delhi Tribunal against the same company, there was no
qut:stion of impleading the Canara Bank. As regards proportionate disbursement of sale proceeds, it was observed that that question was premature and
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that the said issue could be considered after sale proceeds were received by
the Tribunal. These applications were dismissed on 28.9.98.
..--
The property of the debtor company situated at Village Kherki Daula,
admeasuring Ac 32.64 was sold on 8.1.99 for Rs. 2,30,11,200. The sale was
confirmed on 16.2.99 by the Recovery Officer. Property of the Company at
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
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village Dundahera admeasuring Ac 4.23 was also sold on 15.1.99 for
Rs.3,17,34,375, but the Recovery Officer declined to confirm that sale and
directed fresh auction and the appellant Banlc filed W.P. under Articles 226,
227.
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Canara Banlc then filed applications in the Debt Recovery Tribunal
under section 22 of the RpB Act in January,1999 seeking stay of recovery
proceedings in RC No.9/98. They were heard on 25.2.99, adjourned to 3.3.99
then to 5.3.99. On 5.3.99, the counsel for Canara Banlc informed the Recovery
Officer that it had filed Company application No. 296 of 1999 in Company
Petition No.141195 (being a winding up petition filed by Ranbaxy Ltd. against
M.S.Shoes Co.) under sections 442, 537 of the Companies Act for stay of the
appellant's Recovery Case, RC No. 9/98. The said CA 296/99 was filed by
Canara Banlc in CP 141/95 under section 442 and section 537 of the
Companies Act seeking stay of RC 9/98 and for staying sales of assets of
company by the appellant Banlc. Later on Canara Banlc filed CA 323/99 again
D . under section 442 and section 537 for similar reliefs as in CA 296/99.
On 9.3.99, the learned Company Judge passed the impugned order in
CA 323/99 under section 442 read with' section 537 of the Companies Act
staying the further sale of assets of the Company in RC 9/98 in OA 109195
and also restraining disbursement of monies already realised in other sales.
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It is against the above order dated 9.3.99 that this appeal has been preferred.
(While narrating the facts, we have not referred to a number of other
proceedings taken out by the debtor-company before various Courts to stall
the sales. In fact allegations have been made that the action of the Canara
Banlc in tryiug to stall sales - which are being held at the instance of the
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Allahabad Banlc - was intended to benefit the debtor-company.These allegations were, of course, denied by the Canara Bank.
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We shall refer to some subsequent events which took place during the
pendency of this appeal. On 14.5.99 this Court passed an order in favour of
the Allahabad Banlc directing that the sale of the debtor company's property
in Shed No.15 to go on but that the sale proceeds be not distributed.
Unfortunately, the sale was not held for quite some time due to an omnibus
stay order dated 29.6.99 passed by the Tribunal at Delhi. That order was
stayed by the Appellate Tribunal, Bombay on 29.6.99. The sale did not take
place even by 7 .1.2000. This Court then issued further orders on 7 .1.2000 for
sale of the company's property in Shed No.15. Thereafter, sale of Industrial .
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ALLAHABAD BANK v. CANARA BANK [M. JAGANNADHA RAO, J.]
1115
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Shed No.15/Category-ll under SFS at Rohtak Road, Industria1 Complex, New
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Delhi-110005 was held on 28.1.2000. (The raw materia1 and machinery in the
shed which were said to have been mortgaged to Canara Bank were removed
and segregated. An order was passed that an inventory be prepared and to
remove the pledged property). It appears the sa1e proceeds of about Rs. 20
lakhs are in deposit 'in this Court. Now, the position is that some sa1e proceeds
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are in deposit in the Tribuna1 and some in this Court, a11 such sa1es having
been held at the instance of the appellant Bank a1one. Questions have been
raised by the respondent as to whether the Tribuna1 can entertain proceedings
for recovery, execution proceedings, and a1so for distribution of monies
rea1ised by sa1es of properties of a company against which winding up c
proceedings are pending, whether leave is necessary and as to which Court
is to distribute the sale proceeds and according to what priorities among
various creditors?
In this appeal, Sri Soli Sorabjee, the learned Attorney Genera] for India
appearing for the appellant, Allahabad Bank has submitted that the RDB Act
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of 1993 is a specia1 statute intended for expeditious adjudication and recovery
of debts due to banks and financial institutions and it contains two crucia1
provisions. One of them is section 18 which ousts the jurisdiction of a11
Courts or other authorities (except the Supreme Court and the High Court
exercising powers under Articles 226, 227) in relation to matters covered by
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section 17 and that section 17 covers the entire procedure from the filing of
an application under section 19, to the 'adjudication' and 'recovery'. These
matters are taken out from the purview of the Companies Act, including
sections 442, 537 and section 446 of the said Act. The proceedings under the
RDB Act cannot be stayed by the Company Court nor can they be transferred
to the Company Court. No leave of the Company Court is necessary either
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for the filing of the OA for adjudication of the debt nor for executing the
decree passed by the Tribuna1. Section 34( 1) gives overriding effect to the
provisions of the Act save as provided in section 34(2). Section 34(2) as
amended by Ordinance 1/2000 proceedings saves only six statutes from the
purview of section 34(1). The Companies Act, 1956 is not one of them.
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Hence, the RDB Act, 1993 overrides sections 442, 537 and a1so section 446
of the Companies Act. It is contended that even otherwise section 446 cannot
...
be invoked in this case because there is no winding up order nor an order
appointing a provisiona1 liquidator so far. So far as principles underlying
section 73 CPC are concerned, even if applicable,- on facts, they are not
attracted before the Tribunal since no decrees have been obtained from any
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SUPREME COURT REPORTS
[2000] 2 S.C.R.
Civil Court or Debt Recovery Tribunal by the Canara Bank (respondent) nor
any steps as visualised by section 73 have been taken by the Canara Bank.
It is urged that Courts must inteipret the RDB Act of 1993 so as to subserve
the puipose of realisation of thousands of crores of Bank funds which are due.
The legislature intended to avoid the long drawn proceedings in the Civil
Court as well as under section 442 and 446 and 537 of the Companies Act
and this is now clear from section 19(19) as re-enacted by Ordinance 1/2000
which pennits even the working out of priorities by the Tribunal. Several
rulings of this Court and of High Courts under various other statutes have
been cited before us and we shall refer to them at the appropriate stage. It
is submitted that the appellant Bank having got a decree and having got the
properties sold is solely entitled to the erttirety of these proceeds and there
is no question of the appellant sharing the sale proceeds with others nor is
it necessary to wait till the Canara Bank gets a decree in its O.A. pending
before the Delhi Tribunal.
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Important submissions have been made by the learned Attorney .GenE
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eral as to the effect of section 19(19) introduced by Ordinance 112000, it is
contended by the learned Attorney General that only section 529A of the
Companies Act is attracted and that too for a limited puipose if a question
of "workman's portion" is involved. No such question has arisen so far.
Hence no other provision of the Companies Act, much less section 529(1) or
(2) are attracted. In the Company Court, any secured creditor who has not
stood out of winding up but wants to come before the Company Court has
to give up his security and prove his debt before the iiquidator to seek
dividends as per the insolvency rules mentioned in section 529(1), read with
sections 45 to 50 of the Provincial Insolvency Act and stand in the queue
along with all unsecured creditors under section 529(2). Even that procedure
is applicable only in respect of any monies realised by the Company Court
and not by the Tribunal. The limited extent to which secured creditors can
claim priority under the RDB Act is as limited by section 19(19) of the RDB
Act and this is covered by section 529A alone read with sub-clause (c) to the
proviso to section 529(1). The effect of these provisions is that if any monies
are realised by Canara Bank by standing outside winding up and if any part
of such realisations of the Canara Bank are taken away by the liquidator for
payment to workmen, only to the extent of such "workmen's portion", can
the Canara Bank haye priority over other creditors. Otherwise, Canara Bank
cannot invoke Section 529(1), (2) and that too before the Tribunal.
--
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ALLAHABAD BANK v. CANARA BANK [M. JAGANNADHA RAO, J.]
1117
On the other hand, learned counsel for the Canara Bank Sri Y.P.Narula
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has submitted that when a winding up petition is pending in the Company
Court, it is necessary that the leave of the Company Court is obtained for
obtaining a decree before the Tribunal or for execution before the Recovery
Officer. Sections 442, 446, 537 applied even to proceedings under the RDB
Act. Leave is necessary under section 537 even if no winding up order is
passed. It is therefore necessary to stay the sale proceedings before the
Recovery Officer of the distribution of sale proceeds. The Company Court
alone can sell the properties of the Company in the winding up proceedings.
The recovery proceedings must be stayed and then the proceedings must be
transferred to the Company Court and thereafter, once the proceeds of sale
come before the Company Court, the said Court alone will have to distribute
the monies according to priorities as mentioned in sections 446(2)(d), 529,
529A and 530 etc. The Canara Bank is also a nationalised bank and merely
because the Allahabad Bank has been able to get a decree from the Debt
Recovery Tribunal earlier than the Canara Bank, under the RDB Act, the
Allahabad Bank can not be allowed to appropriate the entire sale proceeds
recovered by it. Even if the Canara Bank has only a 'claim' and not a decree
- in view of section 2(g), its security has preference. Unlike section 73 CPC,
section 446 does not require a decree and it is sufficient to prove a debt before
the liquidator. Alternatively, it is submitted that even before the Tribunal
section 73 CPC and also section 529(1) and (2) of the Companies Act read
with sections 529A, 530 etc. are attracted for purposes of distribution of the
sale proceeds and working out priorities, assuming that jurisdiction of the
Company Court is excluded in so far as recovery of debts due to Banks and
financial institutions are concerned.
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From the aforesaid contentions, the following points arise for considF
eration:
(1) Whether in respect of proceedings under the RDB Act at the stage
of adjudication for the money due to the Banks or financial institutions and
at the stage of execution for recovery of monies under the RDB Act, the
Tribunal and the Recovery Officers are conferred exclusive jurisdiction in
their respective spheres?
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(2) Whether for initiation of various proceedings by the Banks and
financial institutions under the RDB Act, leave of the Company Court is
necessary under Sections 537 before a winding up order is passed against the
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1118
SUPREME COURT REPORTS
(2000] 2 S.C.R.
Company or before provisional liquidator is appointed under section 446(1)
and whether the Company Court can pass orders of stay of proceedings before
the Tribunal, in exercise of powers under section 442?
(3) Whether after a winding up order is passed under Section 446 (1)
of the Company Act or a provisional liquidator is appointed, whether the
Company Court can stay proceedings under the RDB Act, transfer them to
itself and also decide questions of liability, execution, and priority under
section 446 (2) and (3) read with sections 529, 529A and 530 etc. of the
Companies Act or whether these questions are all within the exclusive
jurisdiction of the Tribunal?
(4) Whether, in case it is decided that the distribution of monies is to
be done only by the Tribunal, the provisions of section 73 CPC and subclause (1) and (2) of section 529, section 530 of the Companies Court also
apply - apart from section 529A - to the proceedings before the Tribunal
under the RDB Act?
(5) Whether- in view of provisions in section 19(2) and 19(19) as
introduced by Ordinance 1/2000, the Tribunal can permit the appellant Bank
alone to appropriate the entire sale proceeds realised by the appellant except
to the limited extent restricted by section 529A? Can the secured creditors like
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the Canara Bank claim under section 19(19) any part of the realisations made
by the Recovery Officer aild is there any difference between cases where the
secured creditor opts to stand outside the winding up and where he goes
before the Company C()hrt?
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(6) What is the relief to be granted on the facts of the case since the
Recovery Officer has now sold some properties of the company and the
monies are lying partly in the Tribunal or partly in this Court?
Points 1:
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This point concerns the question as to the exclu~e jurisdiction of the
Tribunal and the Recovery Officer in their respectiye spheres.
The RDB Act is, as disclosed by its ~ble, an Act to provide for
.