# BANK OF RAJASTHAN LTD v. VCK SHARES & STOCK BROKING SERVICES LTD

- **Citation:** [2022] 17 S.C.R. 567
- **Court:** Supreme Court of India
- **Decided:** 2022-11-10
- **Case number:** Civil Appeal Nos. 8972-8973 of 2014
- **Bench:** Sanjay Kishan Kaul, Abhay S. Oka, Vikram Nath
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bank-of-rajasthan-ltd-v-vck-shares-stock-broking-services-ltd-35555
- **Pages:** 34

## Headnote

Code of Civil Procedure, 1908 : Order VII R.10 - Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (RDB) - s.
19 - The appellant bank sanctioned a term loan to the respondent
company, however, respondent failed to make the payment -
Appellant filed an application for recovery of the amounts before
the Debts Recovery Tribunal, (DRT) - Respondent entered
appearance to defend the proceedings, but in addition also filed a
Civil Suit in the High Court which was dismissed by the Single Judge
on the finding that the Court lacked jurisdiction as the same
exclusively vested with the DRT - However, on appeal the Division
Bench of the High court restored the suit and held that there is no
provision in the RDB ousting jurisdiction of civil court - There existed
a difference of opinion between several benches of the Supreme
Court and it was considered appropriate to refer it to larger bench
- The following questions were referred : (a) Whether an independent
suit filed by a borrower against a Bank or Financial Institution,
which has applied for recovery of its loan against the plaintiff under
the RDB Act, is liable to be transferred and tried along with the
application under the RDB Act by the DRT ?;(b) If the answer is in
the affirmative, can such transfer be ordered by a court only with
the consent of the plaintiff ?; (c) Is the jurisdiction of a Civil Court
to try a suit filed by a borrower against a Bank or Financial
Institution ousted by virtue of the scheme of the RDB Act in relation
to the proceedings for recovery of debt by a Bank or Financial
Institution ? - Held: There is no specific power to transfer a suit to
the DRT - Only a plaint can be returned u/Or. VII, r.10 - S.151 of
CPC cannot be utilized as a residuary power to achieve transfer -
Absence of any legislative power cannot give a power by implication
to the Civil Court -Also, not appropriate to read such power to
transfer a suit to a DRT u/s. 151 of the CPC, when DRT is a creature
[2022] 17 S.C.R. 567
567
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of a statute and statute does not provide for such eventuality - (b)
Once its concluded that there is no power with civil court, then
there is no question of transfer of the suit whether by consent or
otherwise - (c) There is no provision in the RDB Act by which the
remedy of a civil suit by a defendant in a claim by the bank is ousted,
but it is a matter of choice of that defendant - Such defendant may
file counterclaim, or may avail procedure establish under Code.
Dismissing the appeals, the Court
Held: 1.1 On a plain reading of the provisions, the
conclusion reached was that Section 17 of the RDB Act bars the
jurisdiction of the Civil Court only in respect of applications filed
by the bank or financial institution. This provision did not bar the
jurisdiction of the Civil Court to try a suit filed by the borrower.
There was also an absence of provisions in the Act for transfer of
suits and proceedings except Section 31, which relates to pending
suit proceedings by a bank or financial institution for recovery of
debt. [Para 39][594-G]
1.2 It was noticed that the significant aspect of Sections 17
and 18 of the RDB Act was that even after establishment of the
DRT, no jurisdiction had been conferred on it to try independent
suits or proceedings initiated by the borrower or others against
banks/financial institutions. What has been permitted is only a
cross-action in the form of a counterclaim by a defendant in the
pending application to facilitate a unified proceeding. [Para
40][594-H; 595-A-B]
1.3 There is no provision in the RDB Act by which the
remedy of a civil suit by a defendant in a claim by the bank is
ousted, but it is the matter of choice of that defendant. Such a
defendant may file a counterclaim, or may be desirous of availing
of the more strenuous procedure established under the Code,
and that is a choice which he takes with the consequences thereof.
[Para 45][596-G; 597-A]
1.4 There

## Text

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BANK OF RAJASTHAN LTD.
v.
VCK SHARES & STOCK BROKING SERVICES LTD.
(Civil Appeal Nos. 8972-8973 of 2014)
NOVEMBER 10, 2022
[SANJAY KISHAN KAUL, ABHAY S. OKA AND
VIKRAM NATH, JJ.]
Code of Civil Procedure, 1908 : Order VII R.10 - Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (RDB) - s.
19 - The appellant bank sanctioned a term loan to the respondent
company, however, respondent failed to make the payment -
Appellant filed an application for recovery of the amounts before
the Debts Recovery Tribunal, (DRT) - Respondent entered
appearance to defend the proceedings, but in addition also filed a
Civil Suit in the High Court which was dismissed by the Single Judge
on the finding that the Court lacked jurisdiction as the same
exclusively vested with the DRT - However, on appeal the Division
Bench of the High court restored the suit and held that there is no
provision in the RDB ousting jurisdiction of civil court - There existed
a difference of opinion between several benches of the Supreme
Court and it was considered appropriate to refer it to larger bench
- The following questions were referred : (a) Whether an independent
suit filed by a borrower against a Bank or Financial Institution,
which has applied for recovery of its loan against the plaintiff under
the RDB Act, is liable to be transferred and tried along with the
application under the RDB Act by the DRT ?;(b) If the answer is in
the affirmative, can such transfer be ordered by a court only with
the consent of the plaintiff ?; (c) Is the jurisdiction of a Civil Court
to try a suit filed by a borrower against a Bank or Financial
Institution ousted by virtue of the scheme of the RDB Act in relation
to the proceedings for recovery of debt by a Bank or Financial
Institution ? - Held: There is no specific power to transfer a suit to
the DRT - Only a plaint can be returned u/Or. VII, r.10 - S.151 of
CPC cannot be utilized as a residuary power to achieve transfer -
Absence of any legislative power cannot give a power by implication
to the Civil Court -Also, not appropriate to read such power to
transfer a suit to a DRT u/s. 151 of the CPC, when DRT is a creature
[2022] 17 S.C.R. 567
567
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of a statute and statute does not provide for such eventuality - (b)
Once its concluded that there is no power with civil court, then
there is no question of transfer of the suit whether by consent or
otherwise - (c) There is no provision in the RDB Act by which the
remedy of a civil suit by a defendant in a claim by the bank is ousted,
but it is a matter of choice of that defendant - Such defendant may
file counterclaim, or may avail procedure establish under Code.
Dismissing the appeals, the Court
Held: 1.1 On a plain reading of the provisions, the
conclusion reached was that Section 17 of the RDB Act bars the
jurisdiction of the Civil Court only in respect of applications filed
by the bank or financial institution. This provision did not bar the
jurisdiction of the Civil Court to try a suit filed by the borrower.
There was also an absence of provisions in the Act for transfer of
suits and proceedings except Section 31, which relates to pending
suit proceedings by a bank or financial institution for recovery of
debt. [Para 39][594-G]
1.2 It was noticed that the significant aspect of Sections 17
and 18 of the RDB Act was that even after establishment of the
DRT, no jurisdiction had been conferred on it to try independent
suits or proceedings initiated by the borrower or others against
banks/financial institutions. What has been permitted is only a
cross-action in the form of a counterclaim by a defendant in the
pending application to facilitate a unified proceeding. [Para
40][594-H; 595-A-B]
1.3 There is no provision in the RDB Act by which the
remedy of a civil suit by a defendant in a claim by the bank is
ousted, but it is the matter of choice of that defendant. Such a
defendant may file a counterclaim, or may be desirous of availing
of the more strenuous procedure established under the Code,
and that is a choice which he takes with the consequences thereof.
[Para 45][596-G; 597-A]
1.4 There is gainsay that there is no specific power to
transfer a suit to the DRT. A plaint can be returned only under
the provisions of Order VII Rule 10 of CPC for the reasons
specified therein. In the absence of such reasons, Section 151 of
the Code cannot be utilised as a residuary power to achieve the
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transfer, which is really a consequence of return of the plaint when
the grounds under Order VII Rule 10 of the Code are not
satisfied. The absence of any legislative power cannot give a
power by implication to the Civil Court. It would not be appropriate
to read such power to transfer a suit to a DRT under Section 151
of the Code when the DRT is a creature of a statute and that
statute does not provide for such eventuality. [Para 49][597-FH; 598-A]
1.5 There is no power of transfer in the Civil Court, the
consent or absence of it is not something which would lend such
power to the Civil Court. The option before the defendant, who
has instituted the suit, is clear - either he could file a counterclaim
before the DRT or he could institute separate civil proceedings.
[Para 51][598-C-D]
United Bank of India, Calcutta v. Abhijit Tea Co. Pvt.
Ltd. And Others (2000) 7 SCC 357 : [2000] 3
Suppl. SCR 153; State Bank of India v. Ranjan
Chemicals Ltd. and Another (2007) 1 SCC 97 : [2006]
7 Suppl. SCR 145 - held not correct law.
Indian Bank v. ABS Marine Products (P) Ltd.
(2006) 5 SCC 72 : [2006] 1 Suppl. SCR 52; Nahar
Industrial Enterprises Ltd. v. Hong Kong and Shanghai
Banking Corporation (2009) 8 SCC 646 : [2009]
12 SCR 54 - partly affirmed.
Transcore v. Union of India (2008) 1 SCC 125 : [2006]
9 Suppl. SCR 785; Swarka Prasad Agarwal v. Ramesh
Chander Agarwal (2003) 6 SCC 220; Nagri Pracharini
Sabha v. Vth Additional District and Sessions Judge
(1991) 2 Supp SCC 36; Ramesh Chand Arwaitya v. Anil
Panjwani (2003) 7 SCC 350 : [2003] 3 SCR 1149;
Union of India and Another v. Delhi High Court Bar
Association and Others (2002) 4 SCC 275 : [2002] 2
SCR 450; Dhulabhai v. State of Madhya Pradesh [1968]
3 SCR 3 660; Dwarka Prasad Agarwal (D) By LRs and
Anr. v. Ramesh Chander Agarwal and Ors. (2003)
6 SCC 220 : [2003] 1 Suppl. SCR 376 - referred to.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD.
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Case Law Reference
[2003] 3 Suppl. SCR 153
held not correct law
Para 15
[2006] 7 Suppl. SCR 145
held not correct law
Para 15
[2006] 9 Suppl. SCR 785
referred to
Para 25
[1968] 3 SCR 660
referred to
Para 43
[2003] 3 SCR 1149
referred to
Para 25
[2002] 2 SCR 450
referred to
Para 31
[1968] 3 SCR 660
referred to
Para 43
[2003] 1 Suppl. SCR 376
referred to
Para 43
[2009] 12 SCR 54
Partly affirmed
Para 60
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 89728973 of 2014.
From the Judgment and Order dated 19.04.2011 of the High Court
at Calcutta in A.P.O. No. 488 and 489 of 2002.
V. V. Giri, Sr. Adv., Anand Shankar Jha, Arpit Gupta, Girish
Bhardwaj, Srirang Varma, Ms. Meenakshi Devgan, Abhilekh Tiwari,
Arjun Garg, O. P. Gaggar, Sachindra Karan, Akshat Gupta, Advs. for
the Appellant.
Jaideep Gupta, Sr. Adv., Abhinav Mukerji, Mrs. Bihu Sharma,
Mrs. Pratishtha Vij, Akshay C. Shrivastava, Niraj Bobby Paonam for S.
K. Bhattacharya, Advs. for the Respondent.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
1. The present reference arises from a question mark over the
legal right of the borrower to initiate proceedings before a Civil Court
against the bank or financial institution, which seeks to recover a loan
amount against it.
The Factual History:
2. The appellant bank, Bank of Rajasthan Ltd. (since amalgamated
with ICICI Bank Ltd.), sanctioned a term loan to the respondent company
on 28.06.1994 with a limit of Rs.1.50 crores at interest of 19.25% per
annum, repayable in twelve quarterly instalments. In order to secure the
loan, the guarantors including the respondent, inter alia offered title
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deeds of immovable properties as security. By mutual agreement, a further
credit overdraft facility was granted on 19.09.1995, up to a limit of Rs.5
crores. This additional credit was secured by the deposit of shares, stocks,
and securities of various companies. The respondent did not adhere to
financial discipline, resulting in the appellant issuing a notice on 01.07.1997,
calling upon the respondent to settle the term loan account and overdraft
facility account within three days of the receipt of the notice.
3. Since the respondent failed to make the payment, the appellant
filed an application, being OA No.263 of 1997, for recovery of the
amounts due under Section 19 of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (hereinafter referred to as 'RDB
Act') before the Debts Recovery Tribunal, Kolkata (hereinafter referred
to as 'the DRT') on 21.11.1997. The appellant sought a recovery
certificate against the respondent for Rs.8,62,41,973.36 including interest
at the rate of 20.88% per annum.
4. The respondent entered appearance to defend the proceedings
but in addition also filed a Civil Suit No.77 of 1998 before the Kolkata
High Court against the appellant on 06.03.1998. The respondent inter
alia, claimed a decree for sale of the pledged shares, recovery of sale
proceeds, and an inquiry into the losses suffered by the respondent along
with a decree for payment of money after the same.
5. A crucial development took place on 18.03.1998 when the
appellant sold the pledged shares of BFL Software Ltd. for a total sum
of Rs.5,77,68,000/- to adjust the amounts against the dues in view of the
authorisation available with them as a part of the loan transaction. The
respondent, as a sequitur, filed Civil Suit no.129 of 1999 before the High
Court of Calcutta on 09.03.1999 praying, inter alia, for the following
reliefs:
"i) A declaration that the sale of shares of BFL Software Ltd.
was void;
ii) a decree for return of pledged shares in respect of overdraft
facility account, and in default to pay Rs. 48.95 crores; and
iii) a declaration that no sum was payable by the Respondent to
the Appellant in respect of the term loan dated 27.07.1994 and
Overdraft Account dated 19.09.1995 and that the Appellant bank
was not entitled to a decree for a sum of Rs. 8,62,41,973.36 from
the Respondent."
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
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6. The appellant, in those proceedings, filed applications, being
GA No.4206 of 2000 in C.S. No.77 of 1998 and GA No.4171 of 2000 in
C.S. No.129 of 1999 in November 2000, seeking rejection of the plaint
and dismissal of the suits filed by the respondent. It was claimed that the
suits were not maintainable and that the High Court lacked jurisdiction
as the same exclusively vested with the DRT. The learned Single Judge
vide order dated 06.09.2022 allowed both the applications of the appellant
and directed the suits to be taken off from the file of the High Court.
The respondent filed two appeals, being APOT No.691 of 2002 (later
APO No.488 of 2002) and APOT No.692 of 2002 (later APO No.489
of 2002), challenging the order dated 06.09.2022 of the learned Single
Judge. The Division Bench vide its order dated 27.09.2022 stayed the
operation of the order of the learned Single Judge while admitting the
appeal.
7. Insofar as the DRT proceedings were concerned, OA No.263
of 1997 was disposed of by the DRT vide order dated 19.05.2003
predicated on a reasoning that the appellant bank's claim of
Rs.6,04,17,777.36 was satisfied through sale of pledged shares. It found
that the amount actually due under the proceedings stood settled and
paid. The appellant was directed to return the title deeds of the pledged
shares and other securities to respondent. On the counter claim filed by
the respondent, the DRT held that the respondent was entitled to recover
Rs.6,88,187.49 from the appellant within four weeks of the order. The
respondent was also granted liberty to file appropriate proceedings for
recovery of dividends on the pledged shares except the sum of
Rs.20,11,337.35 for which set off was allowed in the proceedings.
8. The appellant, feeling aggrieved, proceeded to file an appeal
before the Debts Recovery Appellate Tribunal, Kolkata (hereinafter
referred to as 'the DRAT') with M.A. No.31 of 2003, which was
dismissed vide an order dated 14.11.2003 opining that the appellant should
have sold the shares in 1996 and, thus was not entitled to claim interest.
The appellant still not being satisfied moved C.O. No.2777 of 2003 under
Article 227 of the Constitution of India before the Kolkata High Court
on 17.11.2003 which was, however, dismissed in default vide High Court
order dated 11.02.2004 but restored later before a Single Judge vide
order dated 16.01.2013. We are informed that these proceedings also
stand dismissed on 26.08.2019 and, thus, there appears to be a quietus to
the extent of claim of the bank. The respondent, in terms of the decree,
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has also received the amounts due to it and thus nothing survives qua
that aspect.
9. Now, coming back to the suit instituted by the respondent, which
was dismissed by the learned Single Judge on the finding that the Court
lacked jurisdiction; the Division Bench allowed the appeals filed by the
respondent against the orders of the learned Single Judge in two cases,
and it is the decision in the two appeals permitting continuation of suits
which have been assailed before this Court.
Rationale of the Division Bench in restoring the suits:
10. The respondent successfully contended before the High Court
that there was no provision under the RDB Act for ousting the jurisdiction
of the Civil Court and to entertain a suit against banks and financial
institutions. There was also no provision to allow for transfer of suits
against banks and the financial institutions which were pending before
the Civil Court. It was thus submitted that the jurisdiction of the Civil
Court would remain intact even after the amendment to the RDB Act
effected in the year 2000, whereby the provisions for set-off and
counterclaims were included under Section 19 of the RDB Act. The
newly inserted sub-Sections (7) and (9) under Section 19 provided that a
set-off/counterclaim filed by the borrower would have the same effect
as a plaint in a cross-suit to be determined by the DRT.
11. The case of the appellant was that the proceedings before the
DRT were already pending when the suits were filed by the respondent.
Thus, the issue ought to have been raised in the statement of defence
either by way of set-off or a counterclaim before the DRT. It was pointed
out that the respondent had initially not raised such a counterclaim in the
proceedings before the DRT, but later this issue (subject matter of
subsequent suit, being CS No.129 of 1999) had been added by way of
amendment. The respondent pointed out that under the RDB Act, banks
and financial institutions were placed in an unequal position as they were
barred from raising a counterclaim before the Civil Court.
12. The Division Bench of the High Court opined that as per the
view of this Court in Nahar Industrial Enterprises Ltd. v. Hong Kong
and Shanghai Banking Corporation,1 a suit filed by a borrower against
the bank was not barred before the Civil Court, although a suit filed by
the bank against the borrower was barred. This judgment was found to
1 (2009) 8 SCC 646.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
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be the authority on the point as it came subsequent to the other decisions
of the Supreme Court on this issue.
Proceedings before this Court:
13. The reference in the present proceedings arose out of an order
dated 17.09.2014 noticing an apparent conflict of views. It was observed
that a two-Judges Bench of this Court in United Bank of India, Calcutta
v. Abhijit Tea Co. Pvt. Ltd. And Others2 had taken a view that as per
the legislative scheme of the RDB Act, jurisdiction was conferred upon
the DRT to try a counterclaim and set-off under Section 19 of the RDB
Act and that all such counter-claims and set-offs, including a cross-suit
filed independently, should be tried by the DRT.
14. In a later decision in Indian Bank v. ABS Marine Products
(P) Ltd.3 a Division Bench of this Court took the view that the jurisdiction
of the Civil Courts was not barred in regard to any suit filed by the
borrower against a bank for any relief. Jurisdiction was barred only in
regard to applications by a bank or a financial institution for recovery of
its debts. It was held that although a counterclaim and set-off may be
made under sub-Sections (6) and (11) of Section 19 of the RDB Act, no
jurisdiction was conferred on the DRT to try independent suits or
proceedings initiated by the borrowers. It was thus held that the borrower
had the option to file a separate suit before the Civil Court and the
counterclaim before the DRT was not the only remedy. Referring to the
earlier judgment in Abhijit Tea Co. Pvt. Ltd. & Others (supra), the
Bench in the Indian Bank (supra) observed that an independent suit
can be deemed to be a counterclaim and can be transferred to DRT only
if the following conditions are satisfied:
"a. The subject matter of the bank's suit, and the suit of the
defendant against the bank, should be inextricably connected in
the sense that decision in one would affect the decision in the
other.
b. Both parties (the plaintiff in the suit against the bank and the
bank) should agree for the independent suit being considered as a
counter-claim in the bank's application before the Tribunal, so
that both can be heard and disposed of by the Tribunal."
2 (2000) 7 SCC 357.
3 (2006) 5 SCC 72.
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15. Another Co-ordinate Bench of this Court in State Bank of
India vs. Ranjan Chemicals Ltd. and Another4 held that there was
no need to restrict the power of the Civil Court to order joint trial by
introducing a condition that a joint trial could be ordered only with the
consent of both parties. It was observed on the basis of Abhijit Tea
Co.'s case that a claim in an independent suit could be considered as a
claim for set-off and counterclaim within the meaning of Section 19 of
the RDB Act.
16. Thus, in the reference order, it was mentioned that subsequent
to the Ranjan Chemicals Ltd. case (supra), another Division Bench in
Nahar Industrial Enterprises Ltd. case (supra) held that the decision
in Ranjan Chemicals Ltd. (supra) could not have departed from the
decision in Indian Bank case (supra), both being Coordinate Benches.
It was thus concluded that there existed a difference of opinion between
several benches of this Court on this issue and it was considered
appropriate to refer the following questions to a larger Bench.
"(a). Whether an independent suit filed by a borrower against a
Bank or Financial Institution, which has applied for recovery of
its loan against the plaintiff under the RDB Act, is liable to be
transferred and tried along with the application under the RDB
Act by the DRT ?
(b). If the answer is in the affirmative, can such transfer be ordered
by a court only with the consent of the plaintiff?
(c). Is the jurisdiction of a Civil Court to try a suit filed by a
borrower against a Bank or Financial Institution ousted by virtue
of the scheme of the RDB Act in relation to the proceedings for
recovery of debt by a Bank or Financial Institution?"
17. We are thus to opine on the aforesaid questions referred to
us.
Plea of the Appellant:
Question No.1
18. The Supreme Court of India in Indian Bank case (supra),
Ranjan Chemicals Ltd. case (supra) and Nahar Industrial Enterprises
Ltd. case (supra) has had no cleavage of opinion regarding the first
4 (2007) 1 SCC 97.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
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question referred to a larger bench as they held that an independent suit
by a borrower can be transferred and tried along with the original
application by the bank under the RDB Act. The difference of opinion
arose only with respect to consent of the parties. These decisions have
set no bar in law regarding the transfer of independent suit filed by the
borrower against the bank to be decided as a counterclaim/set-off by
the DRT in an original application filed by the bank.
19. The appellant contended that non-consolidation of actions may
lead to multiplicity of actions and conflicting decisions between the same
parties on the same cause of action and, thus, sought answer in the
affirmative to the first question.
Question no.2
20. Mr.V.V. Giri, learned senior counsel for the appellant, while
conceding that consolidation of suits is not superficially provided for under
the Civil Procedure Code, 1908 (hereinafter referred to as 'the Code'),
contended this Court on multiple occasions has held that the absence of
specific provisions governing consolidation of suits provided for in the
Code, the Court may exercise its inherent powers under Section 151 of
the Code directing consolidation.5
21. The only cavil to the proposition is that Section 151 of the
Code cannot be utilised to pass orders contrary to the express provisions
of the Code. In view of this legal position, it was contended that no
consent of parties is required for exercise of the inherent powers of the
Court and, thus, the opinion in Indian Bank's case (supra) followed in
Nahar Industrial Enterprises case (supra) putting such a consent as a
pre-condition to direct consolidation of suits by the borrowers is contrary
to the permissible exercise of inherent powers of the Court under Section
151 of the Code. Thus, question no.2 was requested to be answered in
the negative.
Question no.3
22. The provisions of RDB Act provide for a complete scheme to
try a counterclaim/set-off filed by the borrower along with a written
statement to an OA filed by the bank as a cross-suit. This was stated to
5 Mahalaxmi Co-operative Housing Society Ltd. v. AshabhaiAtmaram Patel, (2013)
4 SCC 404 (Paras 45-46); Chitivasala Jute Mills v. Jaypee Rewa Cement, (2004) 3
SCC 85 (Para 12); and KK Velusamy v. N. Palanisamy, (2011) 11 SCC 275, (Para
12).
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be quite evident from a plain reading of Section 19(7) and Section 19(9)
of the RDB Act. The overall scheme of Sections 17, 18 and 19 of the
RDB Act was contended to form a bar for the purposes of Section 9 of
the Code.
23. The extensive provisions i.e. Sections 19(5), (6), (8), (10-A),
(10-B), (13) and (20) regarding filing of counter-claim/set-off, verification
of counter-claim/set-off in a manner similar to the pleadings before Civil
Court, evidence by way of affidavit and provisions regarding crossexamination in rules; demonstrate that sufficient powers have been vested
in the DRT to try claims raised by the borrower inextricably connected
with the claim of the bank. These provisions are enacted to guard against
multiplicity of proceedings in relation to similar subject matters, once
before the DRT and another before the Civil Court. Thus, even Question
no.3 was sought for to be answered in the affirmative.
Submissions on behalf of the respondent:
24. It is contended by Mr. Jaideep Gupta, learned senior counsel
for the respondent, that the RDB Act was enacted with the objective of
providing a summary procedure to enable banks and financial institutions
to recover debts due to them in a speedy manner and it did not oust the
jurisdiction of Civil Courts. The purpose of the statute would be defeated
if there was an influx of civil suits filed by the borrowers against the
lenders before the DRT. It was also pointed out that there were no
provisions in the RDB Act to permit a counterclaim to be adjudicated
independently even if the suit of the plaintiff failed.
 25. Learned senior counsel for the respondent submitted that as
per Transcore v. Union of India6 the DRT is a creature of statute and
has no inherent power, which exists in Civil Courts. In Swarka Prasad
Agarwal v. Ramesh Chander Agarwal7 it was held that a provision
seeking to circumscribe the jurisdiction of a Civil Court would require
strict interpretation and the Court ordinarily leans toward upholding the
jurisdiction of the Civil Courts. Learned senior counsel also sought to
rely on Nagri Pracharini Sabha v. Vth Additional District and
Sessions Judge8 and Ramesh Chand Arwaitya v. Anil Panjwani9 to
submit that a litigant having a grievance of a civil nature has an
6 (2008) 1 SCC 125
7 (2003) 6 SCC 220
8 (1991) Supp 2 SCC 36
9 (2003) 7 SCC 350
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
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independent right to institute a civil suit; and that Civil Court can entertain
a civil suit even where a special Tribunal conferred with the exclusive
jurisdiction to try a particular class of cases exists.
26. It was, thus, urged that the judgment of this Court in Indian
Bank case (supra) and Nahar Industrial Enterprises case (supra)
had correctly declared the law on the subject.
The scheme of the RDB Act
27. Banks and financial institutions lend public money to assist
entrepreneurs in their business. Thus, on one hand, there is the interest
of public, whose funds are utilised, while on the other hand are the
business establishments which need funds for their business. Banks and
financial institutions in a sense are intermediaries in the process.
28. Litigation instituted by banks and financial institutions became
coloured by gross delays in the civil proceedings, as a result of which
defaulters were at a premium. Borrowers who maintained financial
discipline were the ones at a disadvantage. The borrowing process was
being misused and a large amount of public funds were stuck in litigation.
29. In order to expedite the recovery of dues, the RDB Act was
enacted by Parliament on 27.08.1993 and brought into force w.e.f.
24.06.1993. The RDB Act provided for the establishment of a tribunal
for expeditious adjudication and recovery of debts due to banks and
financial institutions and for all matters connected therewith. The RDB
Act is comprehensive in character in terms of providing the methodology
towards the said objective.
30. In this regard, it would be apposite to note the Statement of
Objects and Reasons for enacting the RDB Act:
"Banks and financial institutions at present experience considerable
difficulties in recovering loans and enforcement of securities
charged with them. The existing procedure for recovery of debts
due to the banks and financial institutions has blocked a significant
portion of their funds in unproductive assets, the value of which
deteriorates with the passage of time. The Committee on the
Financial System headed by Shri M. Narasimham has considered
the setting up of the Special Tribunals with special powers for
adjudication of such matters and speedy recovery as critical to
the successful implementation of the financial sector reforms. An
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urgent need was, therefore, felt to work out a suitable mechanism
through which the dues to the banks and financial institutions could
be realised without delay. In 1981, a Committee under the
chairmanship of Shri T. Tiwari had examined the legal and other
difficulties faced by banks and financial institutions and suggested
remedial measures including changes in law. The Tiwari Committee
had also suggested setting up of Special Tribunals for recovery of
dues of the banks and financial institutions by following a summary
procedure. The setting up of Special Tribunals will not only fulfil a
long-felt need, but also will be an important step in the
implementation of the report of Narasimham Committee. Whereas
on 30-9-1990 more than fifteen lakhs of cases filed by the public
sector banks and about 304 cases filed by the financial institutions
were pending in various courts, recovery of debts involved more
than Rs 5622 crores in dues of public sector banks and about Rs
391 crores of dues of the financial institutions. The locking up of
such huge amount of public money in litigation prevents proper
utilisation and recycling of the funds for the development of the
country."
31. It is pertinent to note that a challenge was laid to the RDB Act
as it originally did not contain any provisions allowing a defendant in an
application filed by a bank to claim any setoff or counterclaim against
them. This issue received consideration in Union of India and Another
vs. Delhi High Court Bar Association and Others10. By the time the
judgment was made, the RDB Act was suitably amended by Act 1 of
2000 to include such provisions, and consequently the same were upheld.
The Statutory Framework
32. Chapter III of the RDB Act has the heading 'Jurisdiction,
Powers and Authority of Tribunals'.
33. Section 17 of the RDB Act delineates the jurisdiction of the
DRT as follows:
"17. Jurisdiction, powers and authority of Tribunals.- (1)
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.
10 (2002) 4 SCC 275.
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
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[(1A) Without prejudice to sub-section (1),-
(a) the Tribunal shall exercise, on and from the date to be
appointed by the Central Government, the jurisdiction, powers
and authority to entertain and decide applications under Part
III of Insolvency and Bankruptcy Code, 2016 (31 of 2016).
(b) the Tribunal shall have circuit sittings in all district
headquarters.]
(2) 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.
[(2A) Without prejudice to sub-section (2), the Appellate
Tribunal shall exercise, on and from the date to be appointed
by the Central Government, the jurisdiction, powers and
authority to entertain appeals against the order made by the
Adjudicating Authority under Part III of the Insolvency and
Bankruptcy Code, 2016 (31 of 2016).]"
34. The expression 'debt', as used in Section 17, is defined under
Section 2(g) of the RDB Act:
"2. Definitions.-In this Act, unless the context otherwise
requires,-
[(g) "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 1 [and includes any
liability towards debt securities which remains unpaid in full or
part after notice of ninety days served upon the borrower by
the debenture trustee or any other authority in whose favour
security interest is created for the benefit of holders of debt
securities or;]]"
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35. Section 18 creates a bar for the Civil Court in relation to matters
specified under Section 17 of the RDB Act. It provides as under:
"18. Bar of jurisdiction.-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 articles 226 and 227 of
the Constitution) in relation to the matters specified in section 17:
[Provided that any proceedings in relation to the recovery of debts
due to any multi-State co-operative bank pending before the date
of commencement of the Enforcement of Security Interest and
Recovery of Debts Laws (Amendment) Act, 2012 (1 of 2013)
under the Multi-State Co-operative Societies Act, 2002 (39 of
2002) shall be continued and nothing contained in this section shall,
after such commencement, apply to such proceedings.]"
36. Section 19 relates to the procedure before the DRT for the
making of applications for recovery. It provides as follows:
"[19. Application to the Tribunal.- (1) Where a bank or a
financial institution has to recover any debt from any person, it
may make an application to the Tribunal within the local limits of
whose jurisdiction-
[(a) the branch or any other office of the bank or financial
institution is maintaining an account in which debt claimed is
outstanding, for the time being; or]
[(aa)] the defendant, or each of the defendants where there
are more than one, at the time of making the application, actually
and voluntarily resides, or carries on business, or personally
works for gain; or
(b) any of the defendants, where there are more than one, at
the time of making the application, actually and voluntarily
resides, or carries on business, or personally works for gain; or
(c) the cause of action, wholly or in part, arises:
[Provided that the bank or financial institution may, with
the permission of the Debts Recovery Tribunal, on an application
made by it, withdraw the application, whether made before or
after the Enforcement of Security Interest and Recovery of Debts
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD. [SANJAY KISHAN KAUL, J.]
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Laws (Amendment) Act, 2004 (30 of 2004) for the purpose of
taking action under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(54 of 2002), if no such action had been taken earlier under that
Act:
Provided further that any application made under the first
proviso for seeking permission from the Debts Recovery Tribunal
to withdraw the application made under sub-section (1) shall be
dealt with by it as expeditiously as possible and disposed of within
thirty days from the date of such application:
Provided also that in case the Debts Recovery Tribunal
refuses to grant permission for withdrawal of the application filed
under this sub-section, it shall pass such orders after recording
the reasons therefor.]
[(1A) Every bank being, multi-State co-operative bank
referred to in sub-clause (vi) of clause (d) of section 2, may, at its
option, opt to initiate proceedings under the Multi-State Cooperative Societies Act, 2002 (39 of 2002) to recover debts,
whether due before or after the date of commencement of the
Enforcement of the Security Interest and Recovery of Debts Laws
(Amendment) Act, 2012 (1 of 2013) from any person instead of
making an application under this Chapter.
(1B) In case, a bank being, multi-State co-operative bank
referred to in sub-clause (vi) of clause (d) of section 2 has filed
an application under this Chapter and subsequently opts to
withdraw the application for the purpose of initiating proceeding
under the Multi-State Co-operative Societies Act, 2002 (39 of
2002) to recover debts, it may do so with the permission of the
Tribunal and every such application seeking permission from the
Tribunal to withdraw the application made under sub-section (1A)
shall be dealt with by it as expeditiously as possible and disposed
of within thirty days from the date of such application:
Provided that in case the Tribunal refuses to grant permission
for withdrawal of the application filed under this sub-section, it
shall pass such orders after recording the reasons therefor.]
(2) Where a bank or a financial institution, which has to
recover its debt from any person, has filed an application to the
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Tribunal under sub-section (1) and against the same person another
bank or financial institution also has claim to recover its debt,
then, the later bank or financial institution may join the applicant
bank or financial institution at any stage of the proceedings, before
the final order is passed, by making an application to that Tribunal.
[(3) Every application under sub-section (1) or sub-section
(2) shall be in such form, and shall be accompanied with true
copies of all documents relied on in support of the claim along
with such fee, as may be prescribed:]
Provided that the fee may be prescribed having regard to
the amount of debt to be recovered:
Provided further that nothing contained in this sub-section
relating to fee shall apply to cases transferred to the Tribunal
under sub-section (1) of section 31.
[Explanation.-For the purposes of this section, documents
includes statement of account or any entry in banker's book duly
certified under the Bankers' Books Evidence Act, 1891 (18 of
1891).]
[(3A) Every applicant in the application filed under subsection (1) or sub-section (2) for recovery of debt, shall-
(a) state particulars of the debt secured by security interest
over properties or assets belonging to any of the defendants and
the estimated value of such securities;
(b) if the estimated value of securities is not sufficient to
satisfy the debt claimed, state particulars of any other properties
or assets owned by any of the defendants, if any; and
(c) if the estimated value of such other assets is not sufficient
to recover the debt, seek an order directing the defendant to disclose
to the Tribunal particulars of other properties or assets owned by
the defendants.]
[(3B)] If any application filed before the Tribunal for
recovery of any debt is settled prior to the commencement of the
hearing before that Tribunal or at any stage of the proceedings
before the final order is passed, the applicant may be granted
refund to the fees paid by him at such rates as may be prescribed.]
BANK OF RAJASTHAN LTD. v. VCK SHARES & STOCK
BROKING SERVICES LTD.