# SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA v. M/S. SIBCO INVESTMENT PVT. LTD

- **Citation:** [2022] 1 S.C.R. 913
- **Court:** Supreme Court of India
- **Decided:** 2022-01-03
- **Case number:** Civil Appeal No. 08 of 2022
- **Bench:** R. Subhash Reddy, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/small-industries-development-bank-of-india-v-m-s-sibco-investment-pvt-ltd-35789
- **Pages:** 37

## Headnote

Reserve Bank of India, 1934: Supervisory powers of RBI -
Held: RBI has wide supervisory powers over financial institutions
- For 'public interest' the RBI is empowered to issue any directive to
any banking institution, and monitor the conduct of every NBFC -
Banking Regulation Act, 1949 - s.35A.
Reserve Bank of India, 1934: s.45K - Authority of RBI to
issue directions for ensuring effective implementation of its orders
- Held: Any direction by the RBI, is compelling and enforceable
similarly like the provisions of the RBI Act by its very nature - For
ensuring effective implementation of relevant directions, RBI is not
only vested with curative powers but also preventive powers - RBI
can also issue directions to ensure that the relevant orders/directions
are effectively followed.
Negotiable Instruments Act, 1881: ss.8 and 9 - 'Holder in
due course' - An obligation has been imposed on the transferee of
the promissory notes, to be deemed to be a 'Holder in due course',
that the notes should have been acquired in good faith; after
exercising reasonable care and caution about the holder's title.
Code of Civil Procedure, 1908: s.34 - Held: As per s.34 CPC,
award of interest is a discretionary exercise, steeped in equitable
considerations - Interest is payable for different purposes such as
compensatory, penal, etc.
Code of Civil Procedure, 1908: Necessary party - Held: On
facts, when a claim in the suit was relatable to embargo by the RBI,
it was necessary to implead RBI in the litigation, for getting more
clarity on the issue - The plaintiff omitted to do so at their own peril
despite the defense set out on this basis.
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Doctrines/Principles: Principle of dominus litus - The plaintiff
is dominus litus, and cannot be compelled to seek relief against
anyone.
Doctrines/Principles: Principle of waiver/acquiescence -
Applicability - Held: Plaintiff accepted payment from defendant as
due settlement of its claims - Plaintiff's failure to raise protest and
demand for interest at the earliest possible stage, amounted to
sub-silencio acceptance - Accordingly, plaintiff is barred from raising
this demand after several months applying the principle of waiver/
acquiescence.
Doctrines/Principles: Principle of Constructive Res Judicata
- Held: The cause of action for the plaintiff accrued the first time,
when the defendant allegedly failed to pay timely interest on delayed
payment - Since such a claim was not raised in the writ court, the
subsequent suit of plaintiff is barred by the principle of Constructive
Res Judicata.
Words and Phrases: Term "Public interest" - Meaning of -
Held: The term 'Public interest' has no rigid definition - It has to be
understood and interpreted in reference to the context in which it is
used - The concept derives its meaning from the statute where it
occurs, the transaction involved, the state of society and its needs.
Allowing SIDBI's appeal and dismissing SIBCO's crossappeal, the Court
HELD: 1. RBI's 09.06.1997 COMMUNICATION-
'ADVICE' OR 'DIRECTIVE':
1.1 For efficient discharge of its functions, the RBI has been
granted special powers for controlling and regulating various
financial institutions, as is clear from different provisions of The
RBI Act, 1934 and The Banking Regulation Act, 1949. As per
the RBI Act, 1934, the RBI has wide supervisory jurisdiction
over all Banking Institutions in the country. [Para 8][934-A-B]
Internet and Mobile Association of India vs. RBI (2020)
10 SCC 274 - relied on.
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1.2 Through Chapter IIIB of the RBI Act, 1934, the RBI is
empowered to regulate and also monitor the conduct of every
Non-Banking Financial Institutions (NBFC) in India. Under S.
45-JA of the RBI Act, 1934, the RBI is empowered, in public
interest or to protect the interests of the depositors or to regulate
the financial system of the country, to determine the policy and
issue directions to NBFCs. S. 45-K grants authority to the RBI
to collec

## Text

_Characters 0–39,656 of 82,638. This is a partial read: ask again with offset=39656 for what follows._

[2022] 1 S.C.R. 913
913
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
v.
M/S. SIBCO INVESTMENT PVT. LTD.
(Civil Appeal No. 08 of 2022)
JANUARY 03, 2022
[R. SUBHASH REDDY AND HRISHIKESH ROY, JJ.]
Reserve Bank of India, 1934: Supervisory powers of RBI -
Held: RBI has wide supervisory powers over financial institutions
- For 'public interest' the RBI is empowered to issue any directive to
any banking institution, and monitor the conduct of every NBFC -
Banking Regulation Act, 1949 - s.35A.
Reserve Bank of India, 1934: s.45K - Authority of RBI to
issue directions for ensuring effective implementation of its orders
- Held: Any direction by the RBI, is compelling and enforceable
similarly like the provisions of the RBI Act by its very nature - For
ensuring effective implementation of relevant directions, RBI is not
only vested with curative powers but also preventive powers - RBI
can also issue directions to ensure that the relevant orders/directions
are effectively followed.
Negotiable Instruments Act, 1881: ss.8 and 9 - 'Holder in
due course' - An obligation has been imposed on the transferee of
the promissory notes, to be deemed to be a 'Holder in due course',
that the notes should have been acquired in good faith; after
exercising reasonable care and caution about the holder's title.
Code of Civil Procedure, 1908: s.34 - Held: As per s.34 CPC,
award of interest is a discretionary exercise, steeped in equitable
considerations - Interest is payable for different purposes such as
compensatory, penal, etc.
Code of Civil Procedure, 1908: Necessary party - Held: On
facts, when a claim in the suit was relatable to embargo by the RBI,
it was necessary to implead RBI in the litigation, for getting more
clarity on the issue - The plaintiff omitted to do so at their own peril
despite the defense set out on this basis.
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Doctrines/Principles: Principle of dominus litus - The plaintiff
is dominus litus, and cannot be compelled to seek relief against
anyone.
Doctrines/Principles: Principle of waiver/acquiescence -
Applicability - Held: Plaintiff accepted payment from defendant as
due settlement of its claims - Plaintiff's failure to raise protest and
demand for interest at the earliest possible stage, amounted to
sub-silencio acceptance - Accordingly, plaintiff is barred from raising
this demand after several months applying the principle of waiver/
acquiescence.
Doctrines/Principles: Principle of Constructive Res Judicata
- Held: The cause of action for the plaintiff accrued the first time,
when the defendant allegedly failed to pay timely interest on delayed
payment - Since such a claim was not raised in the writ court, the
subsequent suit of plaintiff is barred by the principle of Constructive
Res Judicata.
Words and Phrases: Term "Public interest" - Meaning of -
Held: The term 'Public interest' has no rigid definition - It has to be
understood and interpreted in reference to the context in which it is
used - The concept derives its meaning from the statute where it
occurs, the transaction involved, the state of society and its needs.
Allowing SIDBI's appeal and dismissing SIBCO's crossappeal, the Court
HELD: 1. RBI's 09.06.1997 COMMUNICATION-
'ADVICE' OR 'DIRECTIVE':
1.1 For efficient discharge of its functions, the RBI has been
granted special powers for controlling and regulating various
financial institutions, as is clear from different provisions of The
RBI Act, 1934 and The Banking Regulation Act, 1949. As per
the RBI Act, 1934, the RBI has wide supervisory jurisdiction
over all Banking Institutions in the country. [Para 8][934-A-B]
Internet and Mobile Association of India vs. RBI (2020)
10 SCC 274 - relied on.
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1.2 Through Chapter IIIB of the RBI Act, 1934, the RBI is
empowered to regulate and also monitor the conduct of every
Non-Banking Financial Institutions (NBFC) in India. Under S.
45-JA of the RBI Act, 1934, the RBI is empowered, in public
interest or to protect the interests of the depositors or to regulate
the financial system of the country, to determine the policy and
issue directions to NBFCs. S. 45-K grants authority to the RBI
to collect information pertaining to the NBFCs and to
give directions pertaining to deposits to them. Whereas, under
S. 45-L, general powers are conferred on the RBI to call for
information from the Financial Institution and issue directions to
regulate the credit system of the country. S. 45-M of the RBI
Act, 1934 casts an obligation upon the NBFCs, to furnish all
information and details as required by the RBI and to comply
with RBI's direction given under Chapter IIIB of the RBI Act.
Similar powers are granted to the RBI in respect of Banks under
the Banking Regulation Act, 1949. [Paras 8.1 and 8.2][934-E-H]
1.3 S.45-MB of the RBI Act, 1934 empowers the RBI, to
inter alia prohibit the acceptance of deposit and alienation of assets
by Non-Banking Financial Companies, when they fail to comply
with RBIs direction or infringe any statutory provisions.
[Para 8.3][935-E]
1.4 The RBI in its communication dated 09.06.1997 has
informed SIBCO of the winding up proceedings initiated against
CRB Capital and categorically prohibited the defendant from, inter
alia, parting with the interest on securities. However, the RBI
has not mentioned any provision under which the abovementioned communication was issued. This has encouraged the
plaintiff to argue that it is merely an 'advice' from RBI, and not a
statutorily enforceable directive. [Para 8.5][936-D-F]
1.5 In the case at hand, vide the previous Notification dated
10.04.1997, the RBI restrained CRB Capital (an NBFC), from
alienating or creating charge over their assets in 'public interest',
and through the consequential directive dated 09.06.1997 has
restrained the defendant from parting with any money in relation
to securities held by the said NBFC. Even though, on the date of
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the prohibitory Notification dated 10.04.1997, the Bonds were in
Shankar Lal Saraf's ownership, and not held by CRB Capital, the
Notification and subsequent directive dated 09.06.1997 was still
applicable as there was a clear shadow over the Shankar Lal Saraf's
title. [Para 8.6][936-F-H]
 1.6 A conjoint reading of the statutory provisions makes it
abundantly clear that for 'public interest' the RBI is empowered
to issue any directive to any banking institution, and to prohibit
alienation of an NBFC's property. The term 'Public interest' has
no rigid definition. It has to be understood and interpreted in
reference to the context in which it is used. The concept derives
its meaning from the statute where it occurs, the transaction
involved, the state of society and its needs. [Para 8.7][936-H;
937-A-B]
Bihar Public Service Commission vs. Saiyed Hussain
Abbas Rizwi and Anr. (2012) 13 SCC 61 : [2012] 11
SCR 1032; Peerless General Finance and Investment
Co. Ltd. vs. RBI (1992) 2 SCC 343 : [1992] 1 SCR 406
- relied on.
1.7 It is not necessary for RBI to mention a specific
provision before issuing directions, for it to have statutory
consequences. All that is required is the authority under the law,
to issue such direction. RBI directives carry statutory force,
gathering authority from the provisions of both the RBI Act, 1934
and the Banking Regulation Act, 1949. Any direction by the RBI,
is compelling and enforceable similarly like the provisions of the
RBI Act by its very nature. [Para 8.9 and 8.10][938-B-D; 938-E]
State of U.P. v. Babu Ram Upadhya AIR 1961 SC 751
: [1961] SCR 679; D.K.V. Prasada Rao v. Government
of A.P. AIR 1984 AP 75 - referred to.
1.8 For ensuring effective implementation of relevant
directions, RBI as was declared is not only vested with curative
powers but also preventive powers. Hence, it is not necessary
for the bank to wait for a direction to be violated, and then launch
penal actions against the offenders. But the RBI can also issue
directions to ensure that the relevant orders/directions are
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effectively followed. Thus, the RBI under Ss. 45-MB of the RBI
Act, 1934 and 35-A of the Banking Regulation Act, 1949 has the
requisite authority to issue the communication dated 09th June,
1997. The omission by the RBI to mention any enabling provision,
doesn't change the nature and status of the direction. The actions
in furtherance of grounds of 'public policy' by the RBI was
justified, for issuing the Notification dated 10.04.1997. The
notification itself clearly mentioned that it is issued for the benefit
of depositors and creditors of CRB Capital. The RBI's
communication dated 09.06.1997 was in fact a direction, with the
appropriate statutory backing traceable to S. 45-MB of the RBI
Act as well as S. 35-A of the Banking Regulation Act. The
09.06.1997 direction was issued, in furtherance of and to
effectively implement the 10.04.1997 notification issued earlier
by the RBI. As such the RBI's 09.06.1997 Notification was
definitely binding on the defendant which as noted earlier, is a
banking institution. [Paras 8.13 and 8.14][939-F-G; 940-A-D]
RBI vs. Peerless General Finance and Investment Co.
Ltd. (II) (1996) 1 SCC 642 : [1996] 1 SCR 58; Ganesh
Bank of Kurundwad Ltd. vs. Union of India (2006) 10
SCC 645 : [2006] 5 Suppl. SCR 437 - relied on.
1.9 Situated thus, the actual status of the RBI Notification
would have a bearing on the claim against the defendant in the
suit and the later proceeding. The plaintiff, always had the option
of challenging its legality but they have never specifically
challenged those in the Suit. Therefore, when the legality of the
RBI Notification is not under challenge, relief can't be granted
in the Suit without determining its legality. This can by itself, put
a quietus on the issue at hand. [Para 8.15][940-D-F]
1.10 That apart, when the claim in the Suit is relatable to
the embargo by the RBI, it was necessary to implead RBI in the
litigation, for getting more clarity on the issue. The plaintiff omitted
to do so at their own peril despite the defense set out on this
basis. The plaintiff is dominus litus, and they cannot be compelled
to seek relief against anyone. The plaintiff cannot be granted
parity with its predecessor-in-interest, Shankar Lal Saraf, who
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was paid interest which accrued in July, 1997 despite the RBI
directive of 09.06.1997. The defendant has explained this
aberration by clarifying that the payment to Shankar Lal Saraf
was made before the defendant was in receipt of the RBI directive.
Hence, the plaintiff cannot claim any advantage for themselves
or parity with its predecessor-in-interest, on this cause.
[Paras 8.16 and 8.17][940-F-H]
2. SHADOW OVER SHANKAR LAL SARAF'S
TRANSACTION:
2.1 S. 441(2) of the Companies Act, 1956 reveals that
winding-up proceedings other than voluntary winding-up, are said
to have commenced from the date of presentation of petition.
[Para 9.1][941-D-E]
2.2 A conjoint reading of ss. 531 and 441(2) of the
Companies Act, 1956 prima facie reveals that any transfer of
property by or against a company in involuntary winding up, the
suspect spell for deemed fraudulent transaction is six months
before presentation of the winding up petition. In the present
case, the petition for winding-up was submitted by RBI on
22.05.1997 and admittedly, the transfer in Shankar Lal Saraf's
favor was executed in February, 1997. Hence, the defendant's
prima facie suspicion that the transfer during the suspect spell,
may be deemed fraudulent, is not misplaced. [Para 9.2][941-H;
942-A-B]
IDBI vs. Official Liquidator (2020) 15 SCC 517 - relied
on.
2.3 The suspicion harboured by the defendant is during the
suspect spell as supported by the Calcutta High Court in its order
dated 09.01.2001, where the Writ Court refused to interfere on
the grounds that the issue was in the teeth of the litigation pending
in the Delhi Company Court. [Para 9.3][942-D]
2.4 Significantly it has been admitted by Shankar Lal Saraf
in his Application (CA 1380/1998) to the Delhi Company Court
that the defendant was acting under the advice of RBI, which
treated the transfer of Bonds as fraudulent. Additionally, the Single
Judge of the Calcutta High Court, in his judgment dated
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13.03.2015 recorded a finding that initially both, RBI and the
Official Liquidator, treated the transfer in Shankar Lal Saraf's
favor, as fraudulent in the following words:- ...On a winding up
petition having moved on 22nd May, 1997, the Company Court
appointed a Professional Liquidator. The RBI issued a letter to
the bank not to deal with the subject bonds as the liquidator has
treated the same as fraudulent preference under S. 531 of the
Act... Though it was held that the transactions are genuine and
cannot be declared as fraudulent preference at the instance of
the Official Liquidator, but the fact remains that there was some
claim over the subject bonds..." [Para 9.4][942-E-H]
2.5 While the Division Bench of the Calcutta High Court
has set-aside the order of the Learned Single Judge, the finding
mentioned above at the relevant time, is not refuted by the
contesting party. [Para 9.5][943-A]
2.6 The cloud over the issue was cleared by the Company
Court judgment (17.12.2004) wherein, the defendant's claim that
the transfer in Shankar Lal Saraf's favor was 'fraudulent
preference', was rejected. Significantly as soon as this decision
was communicated to the defendant, payment was promptly made
by the defendant to the plaintiff, without hesitation. [Para 9.6]
[943-B]
2.7 At this juncture it is apposite to mention, that the validity
of the Company Court judgment dated 17.12.2004 has not been
challenged by either party. Hence, the judgment has attained
finality and the issue whether the transfer in Shankar Lal Saraf's
favor was fraudulent, is therefore put to rest. [Para 9.7][943-C]
2.8 It is clear that the defendant's impression that the
transfer in favour of Shankar Lal Saraf was not legitimate, was a
reasonable opinion, shared by many, including the RBI and the
Official Liquidator. The defendant was in receipt of the RBI's
directions, not to part with payment as the Official Liquidator
had treated the transaction as fraudulent. This had clearly placed
a shadow over the plaintiff's title to the Bonds and consequences
must flow therefrom. [Para 9.8][943-D-E]
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3. WHETHER WITHHOLDING PAYMENT BONA
FIDE?
3.1 Assuming ad arguendo, that the RBI directions could
be disregarded yet the Bonds and the interest accrued thereon,
were in the teeth of the litigation, pending in the Company Court.
The defendant proactively applied to the Official Liquidator on
multiple occasions seeking clarification on interest payment. But,
the Official Liquidator did not respond. Hence, it is clear that
despite the defendant's best intentions and proactive efforts, it
would be imprudent for the defendant to release the payment
accrued on the suspect Bonds. When the Bonds were released
from dispute pending before the Company Court, the defendant
promptly complied with the order of the Company Court.
[Para 10][943-F-G]
3.2 The plaintiff has failed to show how the defendant
derived any undue benefit by withholding the payment accrued
on the Bonds. The amount due on the Bonds was immediately
transferred to the 'Accrued Interest' head and was not used by
the defendant for their business. Hence, the plaintiff's contention
that the defendant's actions of withholding payment were mala
fide, is not acceptable to us. [Para 10.1][943-G-H; 944-A]
3.3 The plaintiff also argues that the Company Court
judgment (17.12.2004) has attained finality and the defendant is
barred by res judicata from raising the issue of fraudulent
preference. The issue of fraudulent preference is no longer res
integra and none sought to challenge the Company Court's
judgment and re-agitate the issue. Hence, this contention will be
of no advantage for the plaintiff. [Para 10.2][944-B-C]
4. BOND STATUS AND OBLIGATION: "HOLDER IN
DUE COURSE".
4.1 S. 8 of the Negotiable Instruments Act defines a 'Holder'
of promissory note as any person who in his own name is entitled
to the possession of the note and to recovery of due amount,
pursuant to the said note. [Para 11]
U. Ponnappa Moothan Sons, Palghat vs. Catholic
Syrian Bank Ltd. and Ors. (1991) 1 SCC 113 : [1990]
1 Suppl. SCR 542 - referred to.
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4.2 An obligation has been imposed on the transferee of
the promissory notes, to be deemed to be a 'Holder in due
course', that the notes should have been acquired in good faith;
after exercising reasonable care and caution about the holder's
title. In the present case, while the Shankar Lal Saraf's (holder)
title over the Bonds/Promissory Notes is not in dispute but
Shankar Lal Saraf's holding stood cleared by the Company Court
only on 17.12.2004 but before the said judgment, there was a
cloud over his title. Consequently, the plaintiff's status as 'holder
in due course' was suspect at the relevant point of time.
[Para 11.2][945-C-D]
4.3 The defendant bank was therefore justified in
withholding payment till conclusion of dispute in Company Court,
even though the relief claimed was in respect of an 'unconditional
undertaking', as there were reasonable legal concerns for the
transaction during the suspect spell, for making such payments.
[Para 11.3][945-E]
5. ENTITLEMENT FOR INTEREST ON DELAYED
PAYMENT AND PENDENTE LITE INTEREST.
5.1 The defendant was justified in withholding the accrued
dues. The actions of SIDBI were bona fides, in furtherance of
RBI directives, which were issued in public interest. In the case
of Clariant International Ltd. Vs. SEBI, this court speaking
through Justice S B Sinha held that two conditions need to be
satisfied before awarding interest. First, that money should be
wrongfully withheld from the rightful owners; Second, that there
should be equitable considerations for awarding said interest. In
the case at hand, neither of these conditions are found to be
satisfied. [Para 12][945-F-H]
Clariant International Ltd. vs. SEBI (2004) 8 SCC 524
: [2004] 3 Suppl. SCR 843 - referred to.
5.2 As per S. 34 of the Code of Civil Procedure (CPC),
award of interest is a discretionary exercise, steeped in equitable
considerations. Interest is payable for different purposes such
as compensatory, penal, etc. but these are not the situations in
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the case in hand. Here firstly, the defendant was justified in
withholding payment, as they were under RBI's direction to do
so; secondly, the defendant hasn't derived any undue benefit by
their act and; thirdly, due payment was promptly made to the
plaintiffs upon settlement of rights by the court. Moreover, the
concerned transactions were during the "suspect spell". This
shows that the defendant acted bona fide and there was no undue
delay on their part, to remit the dues. [Para 12.1][946-A-C]
5.3 The plaintiff did pray for pendente lite interest in the
Trial Court but neither did the trial court frame any issue in this
regard, nor were any arguments recorded. This shows that such
claim was not pressed by the plaintiff. Further, no ground is urged
in the appeal memo, that such an issue ought to have been framed.
Hence, it is clear that the plaintiff is not serious on its claim for
pendente lite interest. The issue is rested accordingly.
[Para 12.2][946-C-D]
6. WAS PLAINTIFF'S DEMAND BARRED BY WAIVER/
ACQUIESCENCE?
It is evident from the record, that when the payment
warrants were received by the plaintiff, it effaced the warrants by
handwritten remark 'Received'. Pertinently, in the first instance,
protest was only raised in reference to excessive TDS deduction
by the defendant while remitting the dues. The demand for
interest on delayed payment, was raised after passage of 7 months,
when the books of SIBCO were allegedly audited. This
justification does not appear to be reasonable. In fact, as has been
stated previously in this judgment, the plaintiff was entitled to
demand interest for delayed payment in its writ petition as well.
But SIBCO has consistently failed to raise this demand at every
stage including at the stage of accepting the sum tendered by the
defendant, without any protest. Hence, it is clear that the plaintiff
accepted the payment from the defendant as due settlement of
its claims. SIBCO's failure to raise protest and demand for interest
at the earliest possible stage, amounted to sub-silencio
acceptance. Accordingly, the plaintiff is barred from raising this
demand after several months applying the principle of waiver/
acquiescence. [Paras 13, 13.1][946-E-H; 947-A]
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7.
WHETHER
PRESENT
SUIT
BARRED
BY
CONSTRUCTIVE RES JUDICATA ?
The defendant has argued that the principle of constructive
res judicata would also offset the plaintiff's claim. Pertinently,
the previous Bond holder Shankar Lal Saraf could not possibly
have claimed interest on delayed payment before the Company
Court for it lacked the jurisdiction to adjudicate claims unrelated
to the liquidation proceedings, against CRB Capital. But, the
successor Bond holder i.e. the plaintiff could have claimed interest
on delayed payment from the writ court. SIBCO's submission is
not acceptable that the cause of action arose only on 23.11.2005,
when the defendant refused to heed to the demand of interest on
delayed payment. The cause of action for the plaintiff accrued the
first time, when the defendant allegedly failed to pay timely
interest. Since such a claim was not raised in the writ court, the
subsequent Suit of SIBCO is barred by the principle of
Constructive Res Judicata. [Para 14][947-B-D]
8.1 It is clear that the RBI has wide supervisory powers
over financial institutions like SIDBI, in furtherance of which,
any direction issued by the RBI, deriving power from the RBI
Act or the Banking Regulation Act is statutorily binding on the
defendant. Admittedly, the RBI issued Notification dated
10.04.1997, deriving power from S. 45-MB(2) of the RBI Act.
Thereby, the RBI froze the assets of CRB Capital on the grounds
of public policy, for the purpose of protecting interests of creditors
and depositors of CRB Capital. [Para 15][947-E-F]
8.2 The RBI did not cite any provision in its Direction dated
09.06.1997 to the defendant, as it was not under any compulsion
to do so. It was sufficient that the RBI's power to issue such a
direction could be traced to either S.45-MB(2) of the RBI Act,
or S. 35-A of the Banking Regulation Act. Hence, the said
direction was statutorily binding on the defendant. Without the
said direction, the Notification dated 10.04.1997, would have been
rendered toothless, causing irreparable harm to the creditors
and depositors of CRB Capital. In reference to the Directive
dated 09.06.1997, the defendant proactively sought advice from
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the Official Liquidator in regards to the payment of interest
income to the defendant. But, in absence of the Official
Liquidator's consent and guidance, the defendant could not have
made the payment without inviting onerous consequences for
itself. Hence, it can be said that the defendant acted prudently,
being conscious of the legal obligation, to withhold such payment
to the plaintiff. [Para 15.1][947-F-H; 948-A-B]
8.3 Further, in reference to S. 531 of Companies Act, 1956
read with S. 441(2) of the same act, it cannot be denied that there
was a suspicion over the title of the plaintiff's predecessor-ininterest. Ipso facto, the plaintiff's title with transaction during the
"suspect spell" was also under a cloud. It is clear from the
discussion above that such suspicion was not misplaced, as it
was shared by the RBI as well as the Official Liquidator.
Immediately after the Company Court vide its decision
(17.12.2004), clarified the position that the plaintiff was in the
clear for the concerned transactions, the defendant has duly
ensured compliance with the said order. Hence, it is clear that
the defendant acted bona fide in withholding the payment.
[Para 15.2][948-B-D]
8.4 The elements that could have weighed on the defendant
for not making timely payments are: I) Contravention of the RBI
Directives; II) Issue being related to the ongoing litigation in
the Delhi Company Court; III) Concerns with the defendant's
title over the Bonds/promissory notes transacted during the
"suspect spell" and these perturbing elements can't be brushed
aside as not relevant. We are therefore of the view that even
though the payment was demanded in furtherance of an
unconditional undertaking in the Bonds, the defendant was not
entitled to it till the Company Court's order dated 17.12.2004.
[Para 15.3][948-D-F]
8.5 The plaintiff's transaction of Bonds with Shankar Lal
Saraf does not sound right in this court's estimation, with purchase
being made during the "suspect spell" and concurrent alarm bells
rung by the RBI, and the Court in that duration. When SIBCO
approached the Writ Court to validate their transaction, they failed
to put forth any claim for interest on delayed payment. Curiously,
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the plaintiff chose not to approach the Company Court directly
and instead relied upon Shankar Lal Saraf to secure a favourable
verdict on the issue. They even chose to forgo the very first
opportunity that arose for claiming interest on delayed payment,
when the defendant was remitting the amount due to the plaintiff
while complying with the Company Court verdict. Pertinently the
payment was accepted without protest and only after about 7
months, additional sums were demanded on the Bonds. Despite
all these disquieting factors, the plaintiffs, like the Shakespearean
character of Shylock, have raised the demand "I'll have my bond.
Speak not against my bond." As we see the situation, the holder
of the Bond has received their 'pound of flesh', but they seem to
want more. Additional sum in our estimation is not merited as
SIBCO has already received their just entitlement and burdening
the defendant with any further amount towards interest would be
akin to Shylockian extraction of blood from the defendant.
Therefore the question formulated in paragraph 3 of this
judgment is answered accordingly against the plaintiff.
[Para 15.4][948-F-H; 949-A-B]
ICICI Bank Ltd. v. Official Liquidator of APS Star
Industries Ltd. (2010) 10 SCC 1 : [2010] 12 SCR 644;
Sudhir Shantilal Mehta v. Central Bureau of India
(1992) 2 SCC 343 : [1992] 1 SCR 406; Bhagwati
Prasad Pawan Kumar v. Union of India (2006) 5 SCC
311 : [2006] 2 Suppl. SCR 975 - referred to.
Case Law Reference
[2010] 12 SCR 644
referred to
Para 5.1
[1992] 1 SCR 406
referred to
Para 5.1
[2006] 2 Suppl. SCR 975
referred to
Para 5.3
(2020) 10 SCC 274
relied on.
Para 8
[2012] 11 SCR 1032
relied on.
Para 8.7
[1992] 1 SCR 406
relied on.
Para 8.8
[1961] SCR 679
referred to.
Para 8.10
AIR 1984 AP 75
referred to
Para 8.10
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA v. M/S.
SIBCO INVESTMENT PVT. LTD.
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[2022] 1 S.C.R.
[1996] 1 SCR 58
referred to
Para 8.12
[2006] 5 Suppl. SCR 437
relied on.
Para 8.13
(2020) 15 SCC 517
referred to
Para 9.2
[1990] 1 Suppl. SCR 542
referred to
Para 11.1
[2004] 3 Suppl. SCR 843
referred to
Para 12
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8 of
2022.
From the Judgment and Order dated 25.11.2019 of the High Court
of Calcutta in APD No.291 of 2015.
With
Civil Appeal No. 9 of 2022.
K. V. Viswanathan, Sr. Adv., Ms. Uttara Babbar, Niki Kantawala,
Manan Bansal, M. G. Arvind Raj, Rahul Sangwan, Sabyasachi Chaudhury,
Rauf Rahim, Rajarshi Dutta, Ali Asghar Rahim, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
HRISHIKESH ROY, J.
1. Leave granted.
2. The challenge in these appeals is to the judgment and order
dated 25.11.2019 of the Division Bench of the High Court of Calcutta,
whereby the decision of the Single Judge dismissing the suit i.e. CS No.
79/2006 of M/s. SIBCO Investment Pvt Ltd (for short SIBCO) was
reversed. The suit was filed against Small Industries Development Bank
of India (SIDBI) seeking interest on the alleged belated payment of
principal sum and accrued interest to the plaintiff for the Bonds issued
by SIDBI.
3. The question to be answered in this case is whether plaintiff
has set forth a just claim, based on the Bonds issued by the defendant or
is it a case of that trial in Shakespeare's The Merchant of Venice
where Shylock is claiming the promised pound of flesh in the form of
interest on delayed payment on the Bonds purchased by the plaintiff.
The 41 Bonds related to this case were initially issued by SIDBI to M/s.
CRB Capital Markets Ltd. (Hereinafter referred to as "CRB Capital")
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in 1993. Those Bonds were then sold by CRB Capital to one Shankar
Lal Saraf in February, 1997 and those in turn were then sold on 1.7.1998
to SIBCO - the plaintiff and the respondent herein. In the meantime,
CRB Capital faced winding up proceedings at the instance of the RBI in
the Delhi High Court. The said proceeding will have a bearing on this
case.
4. The following relevant facts necessary for consideration of
this appeal are broadly culled out from the judgment of the Calcutta
High Court:-
4.1 The Plaintiff SIBCO purchased the Bonds in the form of
promissory notes issued by the defendant SIDBI. These are termed as
SIDBI Bonds 2003 (4th Series) carrying 13.50% interest and SIDBI
Bonds 2004 (5th Series) generating interest at the rate of 12.50%, from
one Shankar Lal Saraf on 1st July, 1998. The interest is payable on a
half-yearly basis on/or before 21st day of June and 21st day of December
of every year. The 5th series Bonds were agreed to be redeemed on
21st December, 2004 whereas the 4th series Bonds were to be redeemed
on 21st December, 2003. The Bonds are freely tradable in the market.
M/s. SIBCO purchased 15 Bonds (interest payable @ 13.50%) and 26
Bonds (interest payable @12.50%) of face value of ten lakhs each for
an aggregate price of Rs. 3.69 crores on 1st July, 1998 by M/s. SIBCO
from the said Shankar Lal Saraf. The Bonds were deposited with M/s.
SIDBI (defendant) on July 2, 1998 with the request to endorse the name
of the Plaintiff-purchaser on the said Bonds. On refusal to register and/
or record the name of the SIBCO by the defendant on the ground that
CRB Capital had gone into involuntary liquidation proceedings at the
instance of the RBI. At first the Plaintiff filed the W.P. No. 1456 of 1998
before the Calcutta High Court seeking a mandamus upon defendant to
transfer the aforesaid Bonds in favour of the plaintiff and also to pay the
interest accrued on them.
4.2 The Calcutta High Court on 09.01.2001 held that writ court is
not the proper forum and permitted the petitioner to approach the
Company Court, being the High Court at Delhi, seeking intervention in
the liquidation proceeding initiated against CRB Capital. Though an intracourt appeal was preferred against the said order but it was not proceeded
with. On the request of the plaintiff, the Shankar Lal Saraf (the plaintiff's
predecessor-in-interest) filed an interlocutory application in the pending
liquidation proceeding before the Company-Court, claiming that the
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA v. M/S.
SIBCO INVESTMENT PVT. LTD. [HRISHIKESH ROY, J.]
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aforesaid transactions should be treated as outside the purview of the
liquidation proceeding, under the Companies Act, 1956.
4.3 By a judgment dated 17th December, 2004, the Learned
Company Court held that the subject Bonds are beyond the purview of
the liquidation proceeding and directed Shankar Lal Saraf to put up the
matter before the defendant. On 17th February, 2005 the above judgment
of the Company Court was communicated and the Bonds were presented
to the defendant. Then on 21st February, 2005 the defendant made the
payment of the principal amount together with the interest calculated up
to the date, as promised in the said Bond to M/s SIBCO with TDS
deduction at around 20%. By a letter dated 24th February, 2005, the
Plaintiff raised an objection over the rate on which the TDS was deducted,
which was accepted by the defendant as it issued a further warrant
covering a sum of Rs. 58,86,833/- on account of excess TDS deductions.
4.4 The case projected in the plaint in the CS No. 79/2006, was
that the defendant during their audit detected that the interest was
calculated up to 31st October, 2005 and demand was raised on account
of interest on delayed payment of the principal amount and the interest
on Bonds through a letter dated November 10, 2005. The defendant
refused to accede to the demand made by the plaintiff in its reply letter
dated November 23, 2005. Aggrieved by the refusal, M/s SIBCO filed
the CS No. 79/2006 for a sum of Rs. 3,25,54,483/- from M/s SIDBI.
4.5 The defendant disputed the claim on account of delayed
payment or in other words, delayed redemption of the aforesaid Bonds.
It was categorically pleaded that a liquidation proceeding was initiated
against CRB Capital, who at one point of time was the holder of the
aforesaid Bonds and sold it to the said Shankar Lal Saraf on February
20, 1997 and on April 7, 1997. The RBI issued a facsimile dated June 9,
1997 advising the defendant not to affect any transfer, register any lien
or otherwise deal with such security invested by CRB Capital and its
Group Companies, without prior permission of the Official Liquidator
appointed by the Company Court at Delhi. Since Shankar Lal Saraf as
well as the plaintiff were pressing hard for enfacing their name on the
said Bonds, a clarification was sought on December 23, 1997 by the
defendant from the RBI seeking advice for further action in the matter
on January 29, 1998. The RBI advised the defendant to take up the
matter with the Official Liquidator which was accordingly done on April
3, 1998.
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4.6 The defendant stated that despite multiple reminders till July
18, 2001 no reply was received from the Official Liquidator in this regard.
The specific stand is that due to the embargo imposed by RBI, the
defendant couldn't act in defiance of the RBI's directions. It is further
stated that because of the pendency of the writ petition before the
Calcutta High Court, the matter was not taken up and, therefore, neither
the interest nor the redemption was paid. According to the defendant,
after the Company Court order in the liquidation proceeding, the plaintiff's
name was put down upon the said Bonds and the holder was paid the
principal, as well as the interest up to the date of redemption. As such
there is no latches, negligence and delay on the part of the defendant to
honour the Bonds to the plaintiff.
4.7 The central case projected by the plaintiff was that the amount,
both principal and interest, were paid beyond the maturity period and,
therefore, the defendant is liable to pay the interest for delayed payment.
According to the plaintiff, the defendant has unreasonably withheld the
said amount, whereas, the defendant says that because of the embargo
and restriction by the RBI and the pending proceedings, the maturity
amount was not paid on the date of maturity. The reliance appeared to
have been placed by both the sides on the facsimile dated 9th June, 1997
issued by the RBI.
I. TRIAL COURT FINDINGS
5. The learned Trial Judge in his judgment noted that there is a
clear stipulation against affecting any transfer, register any lien or
otherwise deal with, the securities of CRB Capital with further stipulation
that it should not part with the interest, dividend or principal without the
permission of the Official Liquidator. Additionally it appears from the
order passed by the Company Court that there was a notification issued
on 10th April 1997 under Section 45-MB of the RBI (Amendment) Act,
1997 directing the said Company not to sell, transfer, create charge or
mortgage or deal in any manner with any of its profits and assets without
the permission of the RBI for a period of six months from the date of the
said notification. The Official Liquidator was appointed on 22nd May,
1997 who subsequently treated the subject Bonds as fraudulent
preference under Section 531 of the Companies Act, 1956. Though it
was held by the Company Court vide its judgment dated 17.12.2004,
that the transactions are genuine and cannot be declared as fraudulent
preference at the instance of the Official Liquidator, the fact remains
that there was some claim over the subject Bonds.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA v. M/S.
SIBCO INVESTMENT PVT. LTD. [HRISHIKESH ROY, J.]
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[2022] 1 S.C.R.
5.1 The RBI is found to be empowered to control the management
of the Banking Company in certain situations and can lay down the
parameters enabling Banking Companies to expand business and regulate
the paid up capital, reserve funds, cash funds and above all policies in
the matter of advances to be made by the Banking Companies and
allocation of resources etc. The RBI is authorized by the Parliament to
enact the policy and to issue directions/guidelines which have statutory
force, as held in case of ICICI Bank Ltd. Vs. Official Liquidator of
APS Star Industries Ltd.1 In support for the aforesaid proposition, the
Trial Court also relied on the ratio in Sudhir Shantilal Mehta Vs. Central
Bureau of India2 to comment on the Regulatory role of the RBI vis-àvis the business of the banking companies.
5.2 This suggests that once the RBI has issued directions, any
action contrary thereto, may not only attract the civil liability but might
also invite criminal breach of trust. According to the Trial Court the
defendant was not sitting in slumber after receiving the RBI instructions
but sought advice immediately thereafter and was directed to approach
the Official Liquidator. The defendants sought clarification from the
Official Liquidator but did not receive any reply. Ultimately on 17th
December, 2004, the application of Shankar Lal Saraf before the
Company-Court succeeded and within a short span of time, the
redemption value along with interest was paid to the plaintiff. The Learned
Trial Judge did not agree with the submission of the plaintiff that there
was any deliberate attempt to delay the payment of the maturity amount
by the defendant. It would be worth noting that the Trial Court relied on
defendants' witness to hold that the accrued interest was transferred to
the accrued interest head and, therefore, it was not utilized nor any benefit
was taken therefrom.
5.3 As can be seen, the Suit was dismissed primarily on two
grounds: -
(A) The bonds in question could not be transferred by the petitioner
since the RBI had initiated winding up proceedings against CRB Capital
before the Delhi High Court, whereafter the RBI has issued a directive
dated 9.6.1997 to the petitioner herein directing not to register transfer
of CRB Capital's Bonds in question, or to part with any payment pertaining
1 (2010) 10 SCC 1.
2 (1992)2 SCC 343.
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to the said Bonds, without consent of the Official Liquidator.