# EUREKA FORBES LIMITED v. ALLAHABAD BANK AND ORS

- **Citation:** [2010] 5 S.C.R. 990
- **Court:** Supreme Court of India
- **Decided:** 2010-05-03
- **Case number:** Civil Appeal No. 4029 of 2010
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/eureka-forbes-limited-v-allahabad-bank-and-ors-26805
- **Pages:** 49

## Headnote

A
B
[2010] 5 S.C.R. 990
EUREKA FORBES LIMITED
v.
ALLAHABAD BANK AND ORS.
(Civil Appeal No. 4029 of 2010)
MAY 03, 2010
[B. SUDERSHAN REDDY AND SWATANTER KUMAR,
JJ.]
Recovery of Debts Due to Banks and Financial
C Institutions Act, 1993:
Object of the Act - Discussed.
s.2(g) and 17 - 'debt' - Meaning of- Jurisdiction of Debt
Recovery Tribunal - Respondent nos.2 and 3 had obtained
D licence from appellant company to use their factory premises
- They failed to pay the licence fee - Appellant sold the goods
lying in the premises and adjusted the sale proceeds thereof
towards the arrears of licence fee, without the consent of
respondent no.1-bank, though said goods were hypothecated
E by respondent nos.2 and 3 in favour of respondent no.1 -
Claim by respondent no.1-Bank against appellant before
Debt Recovery Tribunal - Plea of appellant that the Tribunal
lacked inherent jurisdiction to entertain and decide the claim
since appellant was neither a borrower nor was there any kind
F of privity of contract between it and respondent no. 1; and as
such, money claimed from them was not a 'debt' - Further
plea that there was lack of knowledge on the part of appellant
that the goods in stock were hypothecated to respondent no. 1
- Held: Appellant took no remedial or bonafide steps even
G after it admittedly came to know that the goods in question
were hypothecated to the Bank - Even if certain amounts were
due to appellant from respondent nos.2 and 3 on account of
licence fee, still they could not have brushed aside the charge
of respondent no. 1 over the goods in question - The goods
H
990
EUREKA FORBES LIMITED v. ALLAHABAD BANK
991
AND ORS.
in question were disposed off by appellant either in collusion
A
with respondent nos. 2 and 3 or at its own but with the
knowledge that the goods were hypothecated to the Bank -
The word 'debt' under s.2(g) is incapable of being given a
restricted or narrow meaning - Claim raised by respondent
no.1 fell well within the ambit and scope of s.2(g) and wa.c:; we!!
B
within the jurisdiction of the Tribunal exercising its power under
s. 17 - However, the entire suit could not have been decreed
against the appellant -
The cause of action in favour of
respondent no. 1 and against appellant, at best, could be
limited to the hypothecated goods.
c
Maxims - Maxim "Nullus commodum capere potest de
injuria sua propria" - Applicability of
Doctrines/Principles:
Doctrine of full faith and credit - Applicability of
Principle. of public accountability and transparency in
State action - Applicability of
Respondent nos.2 and 3, who had obtained licence
from appellant company to use their factory premises,
failed to pay the licence fee. The appellant sold the goods
lying in the premises and adjusted the sale proceeds
thereof towards the arrears of licence fee, without the
consent of respondent no.1-bank, though the said goods
were hypothecated by respondent nos. 2 and 3 in favour
of respondent no.1.
Respondent no.1 claimed that it had a charge over
the movable assets disposed off by the appellant and filed
D
E
F
a civil suit against the appellant and respondent nos.2 &
G
3 claiming a sum of Rs.22.11 Lakhs.
The suit was transferred to the Debt Recovery
Tribunal. The appellant did not appear before the Tribunal
and finally an ex-parte decree was passed against it, and
H
992
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A a recovery certificate was issued by the competent
authority under the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993. The
prayer of appellant for setting aside ex-parte decree was
rejected consistently by all the courts.
B
After having lost upto this Court, the appellant
initiated another round of litigation. The matter came up
before the appellate Tribunal which set aside the said exparte decree on the reasoning that, the claim in question
was for damages in tort and not a debt, and also that it
C was beyond the scope of the jurisdiction vested in the
Debt Recovery Tribunal under

## Text

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A
B
[2010] 5 S.C.R. 990
EUREKA FORBES LIMITED
v.
ALLAHABAD BANK AND ORS.
(Civil Appeal No. 4029 of 2010)
MAY 03, 2010
[B. SUDERSHAN REDDY AND SWATANTER KUMAR,
JJ.]
Recovery of Debts Due to Banks and Financial
C Institutions Act, 1993:
Object of the Act - Discussed.
s.2(g) and 17 - 'debt' - Meaning of- Jurisdiction of Debt
Recovery Tribunal - Respondent nos.2 and 3 had obtained
D licence from appellant company to use their factory premises
- They failed to pay the licence fee - Appellant sold the goods
lying in the premises and adjusted the sale proceeds thereof
towards the arrears of licence fee, without the consent of
respondent no.1-bank, though said goods were hypothecated
E by respondent nos.2 and 3 in favour of respondent no.1 -
Claim by respondent no.1-Bank against appellant before
Debt Recovery Tribunal - Plea of appellant that the Tribunal
lacked inherent jurisdiction to entertain and decide the claim
since appellant was neither a borrower nor was there any kind
F of privity of contract between it and respondent no. 1; and as
such, money claimed from them was not a 'debt' - Further
plea that there was lack of knowledge on the part of appellant
that the goods in stock were hypothecated to respondent no. 1
- Held: Appellant took no remedial or bonafide steps even
G after it admittedly came to know that the goods in question
were hypothecated to the Bank - Even if certain amounts were
due to appellant from respondent nos.2 and 3 on account of
licence fee, still they could not have brushed aside the charge
of respondent no. 1 over the goods in question - The goods
H
990
EUREKA FORBES LIMITED v. ALLAHABAD BANK
991
AND ORS.
in question were disposed off by appellant either in collusion
A
with respondent nos. 2 and 3 or at its own but with the
knowledge that the goods were hypothecated to the Bank -
The word 'debt' under s.2(g) is incapable of being given a
restricted or narrow meaning - Claim raised by respondent
no.1 fell well within the ambit and scope of s.2(g) and wa.c:; we!!
B
within the jurisdiction of the Tribunal exercising its power under
s. 17 - However, the entire suit could not have been decreed
against the appellant -
The cause of action in favour of
respondent no. 1 and against appellant, at best, could be
limited to the hypothecated goods.
c
Maxims - Maxim "Nullus commodum capere potest de
injuria sua propria" - Applicability of
Doctrines/Principles:
Doctrine of full faith and credit - Applicability of
Principle. of public accountability and transparency in
State action - Applicability of
Respondent nos.2 and 3, who had obtained licence
from appellant company to use their factory premises,
failed to pay the licence fee. The appellant sold the goods
lying in the premises and adjusted the sale proceeds
thereof towards the arrears of licence fee, without the
consent of respondent no.1-bank, though the said goods
were hypothecated by respondent nos. 2 and 3 in favour
of respondent no.1.
Respondent no.1 claimed that it had a charge over
the movable assets disposed off by the appellant and filed
D
E
F
a civil suit against the appellant and respondent nos.2 &
G
3 claiming a sum of Rs.22.11 Lakhs.
The suit was transferred to the Debt Recovery
Tribunal. The appellant did not appear before the Tribunal
and finally an ex-parte decree was passed against it, and
H
992
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A a recovery certificate was issued by the competent
authority under the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993. The
prayer of appellant for setting aside ex-parte decree was
rejected consistently by all the courts.
B
After having lost upto this Court, the appellant
initiated another round of litigation. The matter came up
before the appellate Tribunal which set aside the said exparte decree on the reasoning that, the claim in question
was for damages in tort and not a debt, and also that it
C was beyond the scope of the jurisdiction vested in the
Debt Recovery Tribunal under s.17(1) of the Act.
The High Court, however, held that, even claim for
damages would fall well within the jurisdiction of the Debt
o Recovery Tribunal in the facts of the case, and set aside
the judgment of the appellate Tribunal.
In appeal to this Court the main stand of the
appellant was in relation to the jurisdiction and lack of
knowledge of the fact that the goods in stock were
E hypothecated to the Bank along with the plant and
machinery. While pressing into service the definition of
the word 'debt' appearing in s.2(g) of the Act, it was
vehemently contended by the appellant that the Debt
Recovery Tribunal lacked inherent jurisdiction to entertain
F and decide the claim of respondent no.1 against the
appellant. It was contended that the appellant was neither
a borrower nor was there any kind of privity of contract
between it and respondent no.1-bank; and as such,
money claimed from them was not a 'debt' and, therefore,
G rigors of the recovery procedure under the provisions of
the Act could not be enforced against the appellant.
Partly allowing the appeal, the Court
HELD: 1.1. From the documentary evidence on
H record, it is clear that all the correspondences and
EUREKA FORBES LIMITED v. ALLAHABAD BANK
993
AND ORS.
conversations between respondent nos.2 and 3 on the
A
one hand, and the appellant on the other had been
without any intimation to the respondent no.1-Bank. In
fact, all this had been done behind the back of the Bank.
Another relevant aspect of the matter is the conduct of
the appellant. This Court has serious issues that the
B
appellant, after taking possession of the premises, had
not come to know about the goods being hypothecated
to the Bank. Owing to the sale of goods, complete
knowledge, that the goods were hypothecated to the
Bank is attributable to the appellant and hence, they c
could not have sold the said goods without permission
of the Bank. [Paras 11 and 12] [1012-C-F; 1014-C-D]
1.2. It is an accepted precept of appreciation of
evidence that a party which withholds from the Court
best evidence in its power and possession, the Court
D
would normally draw an adverse inference against that
party. In any case, the bonafide of such a party would
apparently be doubted. The appellant was possessed of
best evidence in regard to the goods of which they had
taken possession, in fact were hypothecated to the Bank.
E
These goods including machines were sold by the
appellant prior and subsequent to the issue of the
advertisement. Thus, the best evidence in this regard,
was obviously in appellant's power and possession
which they did not produce before the Court despite
F
prolonged litigation. As such, there is no hesitation in
drawing some adverse inference against the appellant in
this behalf. [Para 14] [1016-F-H; 1017-A-B]
1.3. The appellant took no remedial or bonafide steps
even after it had admittedly come to know that the goods
in question were hypothecated to the Bank. On the
contrary, it issued advertisement for sale of hypothecated
goods. On the face of this fact, they had no preferential
right to sell the goods. They had been informed that
possession of the property as well as the goods have
G
H
994
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A been taken unauthorizedly. Even if it is assumed that
certain amounts were due to the appellant from
respondent nos. 2 and 3 on account of licence fee, still
they could not have brushed aside the charge of the
Bank over the goods and machinery in question. Also in
B the alleged leave and licence agreement, there was no
clause, at least none has been brought to the notice of
this Court, that the appellant would have charge over the
goods and machinery, in the event of default in the
payment of licence fee. In other words, the charge of the
c Bank was binding upon the appellant. [Para 15] [1017-H;
1018-A-D]
1.4. From the documentary evidence, it is clear that
the parties had the knowledge of the fact that respondent
nos.2 and 3 enjoyed the financial assistance from the
D Bank and the goods were hypothecated to it. Even as per
the statement of respondent nos.2 and 3, the appellant
sold the hypothecated goods with complete knowledge.
The goods in question, therefore, were disposed off by
the appellant either in collusion with respondent nos.2
E and 3 or at its own but with the knowledge that the goods
were hypothecated to the Bank. Thus, to that extent, the
liability of the appellant cannot be disputed. [Paras 17 and
18] [1019-C-E]
F
1.5. The Bank had been negligent and, to some
extent, irresponsible, in invoking its rights and taking
appropriate remedy in accordance with law. Mere
irresponsibility, on the part of the Bank, however, would
not wipe out the rights of the Bank in law. Without the
G consent of the Bank, no person can utilize the
hypothecated goods for his own benefit or sale by the
borrower or any person connected thereto. [-Para 19]
[1019-G-H]
1.6. Physical domain over the hypothecated goods
H is no way a sine qua non for enforcing Bank's rights
EUREKA FORBES LIMITED v. ALLAHABAD BANK
995
AND ORS.
against the borrower. It was obligatory upon the appellant
A
to deal with the goods only with the leave and
permission of the Bank. Absence of such consent in
writing obviously resulted in the breach of Bank's rights.
[Para 20] [1020-G-H; 1025-A]
1.7. However, the entire suit could not have been
decreed against the appellant. The respondent Bank was
entitled to a limited relief, vis-a-vis, its hypothecated
stocks, goods and machinery, if any. The cause of action
B
in favour of the Bank and against appellant, at best, could
C
be limited to the hypothecated stock and goods, as
beyond that, there is no. averment in the plaint which
would justify grant of any larger relief in their favour. [Para
13] [1015-D-F]
Indian Oil Corporation v. NEPC India Ltd., (2006) 6 SCC
736, referred to.
2.1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 was enacted primarily for
the reasons that, the Banks and financial institutions
should be able to recover their dues without
unnecessary delay, so as to avoid any adverse
consequences in relation to the public funds. Under
s.2(g), a claim has to be raised by the Bank against any
person which is due to Bank on account of/in the course
of any business activity undertaken by the Bank. Some
of the general expressions used by the framers of law in
this provision are "any liability"; "claim as due from any
~
person"; 'during the course of any business activity
D
E
F
undertaken by the Bank"; ·"where secured or
unsecured"; and lastly "legally recoverable". All the
G
above expressions used in the definition clause clearly
suggest that, expression 'debt' has to be given general
and wider meaning, just to illustrate, the word 'any
liability' as opposed to the word 'determined liability' or
'definite liability' or 'any person' in contrast to 'from the
H
996
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A debtor'. The expression 'any person' shows that the
framers do not wish to restrict the same in its ambit or
application. The legislature has not intended to restrict to
the relationship of a creditor or debtor alone. General
terms, therefore, have· been used by the legislature to
B give the provision a wider and liberal meaning. The plain
reading of s.2(g) of the Act suggests that legislature has
used a general expression in contra distinction to
specific, restricted or limited expression. This means that,
the legislature intended to give wider meaning to the
C provisions. Larger area of jurisdiction was intended to be
covered under this provision so as to ensure attainment
of the legislative object, i.e. expeditious recovery and
providing provisions for taking such measures which
would prevent the wastage of securities available with the
banks and financial institutions. It will be difficult for the
D Court, even on cumulative reading of the provision, to
hold that the expression should be given a narrower or
restricted meaning. What will be more in consonance
with the purpose and object of the Act is to give this
expression a general meaning on its plain language
E rather than apply unnecessary emphasis or narrow the
scope and interpretation of these provisions, as they are
likely to frustrate the very object of the Act. [Paras 22, 23,
24 and 25] [1021-F; 1022-A-H; 1023-A-B]
F
2.2. It is clear that the word 'debt' under s.2(g) of the
Recovery Act is incapable of being given a restricted or
narrow meaning. The legislature has used general terms
which must be given appropriate plain and simple
meaning. There is no occasion for the Court to restrict
G the meaning of the word 'any liability', 'any person' and
particularly the words 'in cash or otherwise'. In the
present case, the documentary and oral evidence on
record clearly established that the Bank has raised a
financial claim upon the principal debtor, as well as upon
H the person who had intermeddled and/or at least dealt
EUREKA FORBES LIMITED v. ALLAHABAD BANK 997
AND ORS.
with the charged goods without any authority in law. Not
A
only this, the appellant had sold the hypothecated goods
and stocks by public auction, despite the fact the
appellant had due knowledge of the fact that the goods
were charged in favour of the Bank. Another aspect of
this case which required to be considered by this Court
B
is, what was intended to be suppressed by the legislature
by enacting the Act, and thereafter, by amending various
provisions, including s.2(g). Obviously, the mischief
which was intended to be controlled and/or prevention
of wastage of securities provided to the Bank, was the c
main consideration for such enactmen_t. The purpose
was also to prevent wrong doers from taking advantage
of their wrong/ mistakes, whether permissible in law or
otherwise. These preventive measures are required to be
applied with care and purposefully in accordance with
0
law to ensure that the mischief, if not entirely
extinguished, is curbed. [Para 36] [1029-E-H; 1030-A-E]
2.3. Maxim "Nul/us commodum capere potest de
injuria sua propria" has a clear mandate of law that, a
person who by manipulation of a process frustrates the
E
legal rights of others, should not be permitted to take
advantage of his wrong or manipulations. In the present
case respondent nos. 2 & 3 and the appellant have acted
together while disposing off the hypothecated goods,
and now, they cannot be permitted to turn back to argue,
F
that since the goods have been sold, liability cannot be
fastened upon respondent Nos. 2 & 3 and in any case on
the appellant.
The claim raised by respondent no.1- Bank falls well
within the amhit and scope of s. 2(g) of the Act and the
G
jurisdiction of the Debt Recovery Tribunal cannot be
ousted on this ground. [Paras 37 and 40] [1030-F-G;
1033-F]
2.4. The provisions of s.2 (g) have to be construed,
H
998
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A so as to give it liberal meaning. The general expressions
used in this provision will have to be understood
generally. In the considered view of this Court, the claim
of the Bank relatable to the hypothecated goods was well
within the jurisdiction of the Tribunal exercising its power
B under s.17 of the Act. [Para 41] [1033-G-H; 1034-A]
Bank of India v. Vijay Ramnik/al AIR 1997 Gujarat 75 -
distinguished.
State of Gujarat and Ors. v. Akhil Gujarat Pravasi V. S.
C Mahamandal & Ors. (2004) 5 SCC 155; Raman Lal Bhai/al
Patel & Ors. v. State of Gujarat (2008) 5 SCC 449; Greater
Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. & Ors.
(2007) 6 SCC 236; Unique Butyle Tube Industries (P) Ltd. v.
UP. Financial Corporation and Ors. (2003) 2 SCC 455;
D United Bank of India v. Debt Recovery Tribunal & Ors. (1999)
4 SCC 69; P:S.L. Ramanathan Chettiar & Ors.
Vo
0. R. M. P.R. M. Ramanathan Chettiar AIR 1968 SC 1047;
Union of India v. Raman Iron Foundry (1974) 2 SCC 231;
State Bank of Bikaner & Jaipur v. Bal/abh Das & Co. & Ors.
E (1999) 7 sec 539 and Ashok Kapil v. Sana Ullah (Dead) and
Ors. 1996 (6) SCC 342, referred to.
3.1. There is another important facet of this case
which cannot be ignored by the Court. It relates to the
conduct of the respondent Bank and its officers/officials.
F The witnesses appearing on behalf of the Bank had stated
that, at the stage of appraisal report itself, the Bank had
come to know, that respondent nos. 2 and 3 have a leave
and license agreement with the appellant. Despite that,
and without proper verification, as it appears from the
G record, heavy loan was sanctioned and disbursed to the
above respondents. Even thereafter, the Bank and its
officers/officials appear to have taken no serious steps
to ensure that the goods hypothecated to the Bank are
11ot disposed off without its consent. The officers/officials
H of the Bank, even after knowing aoout the handing over
EUREKA FORBES LIMITED v. ALLAHABAD BANK
999
AND ORS .
. of the possession of the property including the
A
hypothecated goods to the appellant and having
communic(lted the same to the appellant, made no
serious efforts to recover its debt and ensure that the
goods are not disposed off, as the suit itself was filed for
recovery of the amount after serious delay. These facts,
B
to a great extent, are even confirmed in the affidavit filed
on behalf of the Bank before this Court. There is no doubt
that the Bank could have protected its interest and
ensured recovery while taking due caution and acting
with expeditiousness. There is definite negligence on the c
part of the concerned officers/officials in the Bank. They
have jeopardized the interest of the Bank and
consequently the public funds, only saving grace being
that orders were passed by the competent forum,
requiring the appellant to deposit some money in the suit D
for recovery of more than 22 lac which was filed by the
Bank. [Para 42] [1034-8-H; 1035-A]
3.2. The concerned quarters in the Bank also failed
to act despite the advertisement for sale of the
hypothecated material given by the appellant, whereafter
E
the machines like CTC is said to have been sold at a
throwaway price. All these facts indicate definite
negligence and callousness on the part of the concerned
quarters. The legislative object of expeditious recovery
of all public dues and due protection of security available
F
with the Bank to ensure pre-payments of debts cannot
be achieved when the officers/officials of the Bank act in
such a callous manner. There is a public duty upon all
such officers/officials to act fairly, transparently and with
sense of responsibility to ensure recovery of public dues.
G
Even, an inaction on the part of the public servant can
lead to a failure of public duty and can jeopardize the
interest of the State or its instrumentality. [Para 42] [1035B-D]
3.3. The scheme of the Recovery Act and language
H
1000
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A of its various provisions imposes an obligation upon the
Banks to ensure a proper and expeditious recovery of its
dues. In the present case, there is certainly ex facie failure
of statutory obligation on the part of the Bank and its
officers/officials. In the entire record, there is no
s explanation much less any reasonable explanation as to
why effective steps were not taken and why the interest
of the Bank was permitted to be jeopardized. The concept
of public accountability and performance is applicable to
the present case as well. These are instrumentalities of
C the State and thus all administrative,norms and principles
of fair performance are applicable to them with equal
force as they are to the Government department, if not
with a greater rigor. The well established precepts of
public trust and public accountability are fully applicable
0 to the functions which emerge from the public servants
or even the persons holding public office. [Para 43]
[1035-E-H; 1036-A]
3.4. Inaction, arbitrary action or irresponsible action
would normally result in dual hardship. Firstly, it
E jeopardizes the interest of the Bank and public funds are
wasted and secondly, it even affects the borrower's
interest adversely provided such person was acting
bonafide. Both these adverse consequences can easily
be avoided by the authorities concerned by timely and
F coordinated action. The authorities are required to have
a more practical and pragmatic approach to provide
solution to such matters. The concept of public
accountability and performance of functions takes in its
ambit proper and timely action in accordance with law.
G Public duty and public obligation both are essentials of
good
administration
whether
by
the
State
instrumentalities and/or by the financial institutions. [Para
44] [1036-C-E]
3.5. The principles of public accountability and
H transparency in State action even in the case of
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1001
AND ORS.
appointment, which essentially must not lack bonafide
A
was enforced by the Court. All these principles
enunciated by the Court over a passage of time clearly
mandate that public officers are answerable both for their
inaction and irresponsible actions. What ought to have
been done, if not done, responsibility should be fixed on
B
the erring officers then alone the real public purpose of
an answerable administration would be satisfied. [Para
44] [1036-F-G]
3.6. The doctrine of full faith and credit applies to the
acts done by the officers and presumptive evidence of C
regularity of official acts done or performed, is apposite
in faithful discharge of duties to elongate public purpose
and to be in accordance with the procedure prescribed.
It is known fact that, in transactions of the Government
business, none would own personal responsibility and
decisions are leisurely taken at various levels. The
principle of public accountability is applicable to such
officers/officials with all its vigour. Greater the power to
decide, higher is the responsibility to be just and fair. The
dimensions of administrative law permit judicial
intervention in decisions, though of administrative nature,
but are ex facie discriminatory. The adverse impact of lack
of probity in discharge of public duties can result in varied
defects not only in the decision making process but in
the decision as well. Every public officer is accountable
for its decision and actions to the public in the larger
interest and to the State administration in its governance.
It needs to be seen in the facts and circumstances of the
present case, why and how the interest of the Bank has
been jeopardized, in what circumstances the loan was
sanctioned and disbursed despite some glaring defects
having been exposed in the appraisal report. Significant
element of discretion is vested in the officers/officials of
the Bank while sanctioning and disbursing the loans but
this discretion is circumscribed by the inbuilt commercial
D
E
F
G
H
1002
SUPREME COURT REPORTS
[2010] 5 S.C.R.
A principles/restrictions as well as that such decisions
should be free from arbitrariness, unreasonableness and
should protect the interest of the Bank in all events. As
regards, this aspect, it is for the appropriate authorities
in the Bank to examine the matter from all quarters and
B then to take appropriate action against the erring officers/
officials involved in the present case, that too, in
accordance with law. [Para 45) [1036-A; 1037-A-GJ
State of Bihar v. Subhash Singh (1997) 4 SCC 430;
Centre for Public Interest Litigation & Anr v. Union of India &
C Anr. (2005) 8 SCC 202 and State of Andhra Pradesh v. Food
Corporation of India (2004) 13 SCC 53, relied on.
4. The appellants would be liable to pay to the
·respondent Bank a sum of Rs. 9,63,975/-. (approximate
0
value of the hypothecated stock sold by the appellants)
with interest at the rate of 6% per annum. [Para 46) [1038A-B]
Case Law Reference:
E
(2006) 6 sec 736
referred to
Para 19
(2004) 5 sec 155
referred to
Para 26
(2008) 5 sec 449
referred to
Para 27
F
(2001) 6 sec 236
referred to
Para 28
(2003) 2 sec 455
referred to
Para 28
(1999) 4 sec 69
referred to
Para 29
AIR 1968 SC 1047
referred to
Para 31
G
(1974) 2 sec 231
referred to
Para 31
(1999) 1 sec 539
referred to
Para 32
1996 (6) sec 342
referred to
Para 37
H
AIR 1997 Gujarat 75
distinguished
Para 38
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1003
AND ORS.
(1997) 4 _sec 430
(2005) s sec 202
(2004) 13 sec 53
relied on
relied on
relied on ·
Para 43
A
Para 44
Para 45
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
B
4029 of 2010.
From the Judgment & Order dated 12.10.2007 of the High
Court of Calcutta is Revisional Application C.O. No. 554 of
2007.
R. F. Nariman, Pratap Venugopal, Surekha Raman (for
K.J. John & Co.) for the Appellant.
Jaideep Gupta, Bijoy Kumar Jain, A.K. Jain, Pankaj Jain
for the Respondents.
The Judgment of the Court was delivered by
SWATANTER KUMAR, J. 1. Leave granted ..
2. While pressing into service the definition of the word
'debt' appearing in Section 2 (g) of the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 (for short as the
'Recovery Act'), it is vehemently contended before us that the
Debt Recovery Tribuna! (for short the 'Tribunal') lacks inherent
jurisdiction to entertain and decide the claim of the Bank against
the appellant. The appellant was neither a borrower nor was
there any kind of privity of contract between the two. As such,
money claimed from them was not a 'debt' and, therefore, rigors
of the recovery procedure under the provisions of the Recovery
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Act could not be enforced against the appellant. This is a
submission which, at the first blush, appears to be sound and
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acceptable. But, once it is examined in some depth and
following the settled canons of law, one has to arrive only at a
conclusion that the contention is without any substance and
merit. At the very outset, as a guiding principle we may refer
to the maxim 'a verb is leg is non est recedendum' but before
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A we proceed to examine the merit or otherwise of the principal
contention raised before us, it will be necessary for us to refer
to the basic facts giving rise to the present appeal, particularly,
in view of the fact that it has a wretched and long history which
began in the year 1988.
B FACTS
3. Appellant is a company duly incorporated under the
provisions of the Companies Act, 1956, while Respondent No.
1, Allahabad Bank is a body constituted under the Banking
C Companies (Acquisition and Transport of Undertakings) Act,
1976. Respondent No. 3 in the present appeal is a
proprietorship firm of Respondent No. 2. The appellant
company is stated to have entered into an agreement on 16th
August, 1983 with respondent Nos. 2 & 3, granting licence in
D their favour to use premises at Jainkunj at Goragachha Road,
Kolkata (hereinafter referred to as 'the t:1remises') for a
consideration of Rs.12,000/- payable to the appellant, along with
the plant and machinery as well as their trade mark
"OSBOURNE". It is further the case of the appellant that they
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had no knowledge of the fact that, respondent Nos. 2 & 3 had
availed certain cash credit facility and had hypothecated their
raw materials, semi-finished and finished products to Bank.
However, on or about 28th February, 1987, the said
respondents had requested the appellant to take over the
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possession of the said premises along with the closing stock
lying therein. This was so requested because respondent Nos.
2 & 3 had not paid the licence fee for the use and occupation
of the premises, goods etc. as agreed and further vide letter
dated 23rd July, 1987, they stated that appellant could sell the
G stocks as well as lathe machine lying in the factory premises
arid adjust the sale proceeds thereof towards the arrears of
licence fee. After taking possession of the factory premises,
the appellant prepared an inventory of the stock in possession
and as alleged by them, they had no knowledge that these
stocks had been hypothecated by the said respondents in
H favour of the Bank. The letter dated 7th August, 1987 has been
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1005
AND ORS. [SWATANTER KUMAR, J.]
annexed by the appellant in support of such averment. It
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appears from the record that the respondent Bank vide its letter
dated 21st August, 1987 wrote to respondent Nos. 2 & 3 raising
an issue as to how the possession of the stocks and machinery
was given to the appellant. This was done in response to the
letter of respondent Nos. 2 & 3 dated 18th August, 1987 and
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copy thereof was sent to ,the appellant while referring to the letter
dated 7th August, 1987 addressed by the appellants to the
other respondents. It wil! be useful to reproduce the relevant
extract of the letter dated 21st August, 1987 which reads as
unde~
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"We acknowledge receipt of your letter dated
18.8.1987 along with enclosures.
In this regard we fail to understand as to how you
have permitted Mis Eureka Forbes Limited to take
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possession of your factory at 1, Goragacha Road, Kolkata
- 700 043, the stocks and machineries of which are
already hypothecated to us. And again you are advising
us not to visit the factory at the moment which we are
requesting you to do the same reputedly. Since April,
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1986, you are also not submitting the stock statement and
you have virtually stopped all your banking operations
through us. Now we observe from the stock statement
forwarded to us as enclosure that there are good amount
of stock still lying at the factory."
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4. To the above letter, the appellant responded vide its
reply dated 23rd September, 1987 saying that the factory
belongs to them and they had given the same on licence to
respondent No. 3 and when the possession was handed over
back to them certain stocks and machinery belonging to the
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respondent No. 3 were lying in the factory. They had made a
specific request that these should be sold and adjusted
towards the licence fee and the surplus money, if any, should
be refunded to them. The respondent Bank claimed that they
had a charge over the movable assets, in particular, the CTC
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A machine which appellant had disposed off. For the sale of CTC
machine, they had issued an advertisement on 12th March,
1988 and the same was sold for Rs.1,48,975/-.
5. The Bank filed a suit in the District Court at Alipore
B against the present appellant and respondent Nos. 2 .& 3
claiming a sum of Rs.22, 11,618.62. In this suit, the present
appellant filed a written statement making a preliminary
objection that there was no privity of contract between the Bank
and the present appellant. That it was not a borrower of the
Bank and had no dealings with them as such, the suit was
C barred for misjoinder of parties and in fact no suit could lie
against the present appellant. The plea of suit being barred by
time, the principles of estoppel, waiver and acquiescence was
also taken. It was stated on merits, that neither they were aware
of any transaction between plaintiff Bank and respondent Nos.
D 2 & 3 nor of any charge over the machinery and equipment etc.
The appellant c;lenied the allegations made against them. Most
of the paragraphs were denied for want of knowledge and
emphasis was laid only on the above stated two averments.
Appellant also averred that the Bank was trying to cover up
E lapses of its own officials by pressurizing them. It could not have
accepted, as security, the factory or machinery as it was owned
by the appellant and it had not given any consent for that
purpose. This suit came to be transferred after the provisions
of the Recovery Act came into force in the year 1994. Upon
F transfer it was numbered as T.A. No. 15/1994. The appellant
was served with a notice from the Tribunal and it appointed one
Mis Mallick and Palit as its Advocate to appear and pursue the
case on its behalf. The appellant did not appear before the
Tribunal and after some time the proceedings were carried on
G in their absence. The evidence was recorded and finally an exparte judgment was passed against the appellant on 15th June,
1995. In furtherance to the ex-parte judgment, a Recovery
Certificate No. 48 of 1995 was issued by the competent
authority under the provisions of the Act on 30th June, 1995.
H The appellant claims to have taken steps for setting aside the
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1007
AND ORS. [SWATANTER KUMAR, J.]
ex-parte judgment. They filed a writ petition before the High A
Court of Kolkata, (being Writ Petition No. 1804 of 1995),
challenging the constitutional validity of the provisions of the
Recovery Act and also prayed for stay of execution of the exparte judgment dated 15th June, 1995. An interim order dated
3rd November, 1995 was passed in favour of the appellant
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directing that the execution proceedings should go on, however
no final order be passed without the leave of the Court. The
Tribunal vide its Order dated 4th March, 1996, appointed a
receiver to prepare an inventory of hypothecated goods and a
warrant of attachment was also i.ssued. The High Court of c
Kolkata, again on application filed by·the appellant directed the
receiver only to make inventory of the goods and not to take
any further action. During the pendency of these proceedings,
the Recovery Officer upon further application by the respondent
Bank, directed the receiver to make inventory of all the
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properties vide its Order dated 17th August, 1996. This order
was challenged by the appellant before the Calcutta High Court
which stayed further proceedings.
6. According to the appellant, it was advised to initiate
proceedings to set aside the ex-parte decree and Recovery
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Certificate and hence an application was filed before the
Tribunal for recalling the ex-parte order. Along with this, an
application for condonation of delay was also filed. Consequent
upon the dismissal of the application for condonation of delay,
the appellant filed an appeal before the Debt Recovery
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Appellate Tribunal (for short the 'Appellate Tribunal') against the
order dated 19th August, 1999, passed by the Tribunal. The
same was also dismissed by the Appellate. Tribunal vide its
judgment dated 1st June, 2001. This again was assailed before
the High Court under Article 227 of the Constitution of India.
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The same was also dismissed by the High Court of Kolk.ala
vide Order dated 28th November, 2001. Still unsatisfied, the
appellant filed a Special Leave Petition before this Court, being
SLP (C) No. 7883 of 2002 against the Order of the High Court
of Kolkata which was dismissed as withdrawn by this Court vide
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A Order dated 26th April, 2002. In other words, the Order of the
Tribunal declining to set aside the ex-parte decree attained
finality. The Revision Petition filed by the appellant before the
High Court of Kolkata also came to be dismissed finally vide
Order dated 2nd April, 2003. In furtherance to its zeal to
B somehow get the ex-parte decree set aside, the appellant
preferred an appeal before the Appellate Tribunal against the
order of the Tribunal dated 15th June, 1995. The Order dated
16th April, 2004 of the Appellate Tribunal was challenged
before the learned Single Judge of the High Court. In those
c proceedings, an application for amendment to bring the
subsequent events on record, was filed which was dismissed
by the learned Singl~ Judge vide Order dated 11th June, 2004.
Against this Order, an appeal was filed before the Division
Bench of Kolkata High Court which also met the same fate.
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However, the Division Bench while dismissing the appeal
observed that the Order passed by the learned Single Judge
was correct in law but it would not prevent the appellant from
resorting to any remedy which is available to it in accordance
with law.
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7. In the Appeal preferred by the appellant, the Appellate
Tribunal vide its Order dated 15th July, 2003 directed the
appellant to deposit a sum of Rs.5,00,000/- as condition
precedent for entertaining the said appeal. This sum was
deposited and a reply affidavit to this application was filed on
F behalf of the Bank. Vide Order dated 16th April, 2004, the
Appellate Tribunal dismissed the application for condonation
of delay in filing the appeal. The order dated 16th April, 2004
of the Appellate Tribunal was challenged in a Civil Revision
Application before the High Court of Kolkata. The High Court
G vide its interim Order dated 11th June, 2004 directed the
appellant to deposit a sum of Rs.15,54, 118.62 as a condition
for hearing the appeal and the same was deposited. This
application was against the interim order and the appeal
remained pending before the Chairperson of the Appellate
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EUREKA FORBES LIMITED v. ALLAHABAD· BANK 1009
AND ORS. [SWATANTER KUMAR, J.]
Tribunal. Finally the appeal was allowed vide Order dated 28th
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December, 2006 by the Appellate Tribunal. While setting aside
the ex-parte deyree the Appellate Tribunal held as under:-
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"Having said all that, to my mind, the net result is, the
ex-parte decree in question passed against the appellant,
Eureka Forbes Ltd. by the Debts Recovery Tribunal,
Calcutta, is without jurisdiction and therefore, the appeal
must succeed. Consequently, the entire sum of money
appropriated by the respondent-bank as per orders of the
Hon'ble Court in C.O. No. 1568 of 2004 will be refundable c
together with interest at the lending rate also as per the
said orders of the Hon'ble Court.
Accordingly, the decree in question dated 15th June,
1995 in T.A. 15 of 1994 passed ~y the Debts Recovery
Tribunal, Calcutta, and certificate in pursuance thereof as
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against the appellant, Eureka Forbes Ltd., is hereby set
aside. The entire sum appropriated by th6 respondent
bank in terms of the orders of the Hon'ble Court in C.O.
No. 1568 of 2004 be refunded to the appellant by the bank
together with interest at the lending rate within a period of
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three months from date. There shall be no orders as to
costs."
8. Respondent Bank challenged the Order cf the Appellate
Tribunal under Article 227 of the Constitution of India being C.O.
No. 554 of 2007, before the learned Single Judge of the
Kolkata High Court which vide its judgment dated 12th October,
2007, restored the judgment and the order of the Tribunal.
Aggrieved therefrom, the appellant preferred the appeal before
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the Division Bench of Kolkata High Court which, vide its Order
dated 11th February, 2008, dismissed the appeal and
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sustarned the Order of the learned Single Judge giving rise to
the present Special Leave Petition.
9. The challenge to the impugned orders is inter alia on
the ground that, Tribunal had no jurisdiction to entertain such
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A an application filed on behalf of the Bank as therE:! was no privity
of contract between the appellant and the Bank. Besides the
issue of jurisdiction, the stand taken is that the Bank had not
proved on record by way of any evidence that anything is due
to it from the appellant. All the witnesses examined on behalf
B of the Bank have stated nothing to the above mentioned effect.
In any case, in the subsequent proceedings the decree should
have been set aside, as nothing in law could be stated to be
due from the appellant. In the suit, which was decreed ex-parte
by the Tribunal on 15th June, 1995, it was specifically averred
c in the plaint that, Respondent No. 3 along with other defendants
illegally, erroneously, arbitrarily and whimsically had taken
possession of the entire stock, machinery, equipments etc.
without knowledge of the respondent Bank. The respondents
had not allowed inspection of the factory and verification of the
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stock and other requisite elements. In fact, the appellant has
misguided the Bank while informing vide their letter dated 18th
August, 1987, that the workers had forcibly occupied the factory.
Reference was also made to the fact that some stocks, plant
and machine belonging to respondents had been given to the
appellant for sale etc. as per the agreement between the
E parties.