Civil Appeal No. 4796 of 2009 (Arising out of SLP (C) No. 24715 of 2008) and Transfer Petition (C) Nos. 1195 and 1207-1209 of 2008. Case: 1. Nahar Industrial Enterprises Ltd., 2. Axis Bank Ltd., 3. Hongkong and Shanghai Banking Corporation Ltd. Vs 1. Hong Kong and Shanghai Banking Corporation, 2. Rajshree Sugars and Chemicals Ltd., [Alongwith Transfer Petition (C) No. 1196 of 2008], 3. Nahar Industrial Enterprises Ltd. and Ors.. Supreme Court

Case Number:Civil Appeal No. 4796 of 2009 (Arising out of SLP (C) No. 24715 of 2008) and Transfer Petition (C) Nos. 1195 and 1207-1209 of 2008
Party Name:1. Nahar Industrial Enterprises Ltd., 2. Axis Bank Ltd., 3. Hongkong and Shanghai Banking Corporation Ltd. Vs 1. Hong Kong and Shanghai Banking Corporation, 2. Rajshree Sugars and Chemicals Ltd., [Alongwith Transfer Petition (C) No. 1196 of 2008], 3. Nahar Industrial Enterprises Ltd. and Ors.
Counsel:For Appearing Parties: A.M. Singhvi, Ashok Desai, Shyam Divan, K.K. Venugopal, Rakesh Dwivedi, R.F. Nariman and S. Ganesh, Sr. Advs., Nandini Gore, Diya Kapoor, Premtosh Mishra, Pragya Singh Baghel, Lakshmi Ramachandran, Jatin Mongia, Advs. for Manik Karanjawala, Sameer Parekh, H. Jayesh, Huzefa Nasikwala, Nitin Thukral, Arjun Garg, Rukhmini ...
Judges:S.B. Sinha and Asok Kumar Ganguly, JJ.
Issue:Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Sections 2, 3, 3(1), 3(2), 14(6) to 14(11), 17, 18, 18(3), 19, 19(2), 19(6) to 19(11), 19(22), 22, 22(2), 23, 23(3), 24, 25, 30 and 31; Foreign Exchange Management Act, 2000; Reserve Bank of India Act, 1934 - Section 45U and 45V; Limitation Act, 1963 - Sections 5, 14, 24 and ...
Citation:JT 2009 (10) SC 199 , (2009) 8 MLJ 701 (SC) , 2009 (10) SCALE 360 , (2009) 8 SCC 646
Judgement Date:July 29, 2009
Court:Supreme Court
 
FREE EXCERPT

Judgment:

S.B. Sinha, J.

  1. Leave granted.

    INTRODUCTION

  2. Whether the High Court and/or this Court has the power to transfer a suit pending in a Civil Court situated in one State to a Debt Recovery Tribunal situated in another is the question involved herein.

    BACKGROUND FACTS

  3. We may notice the facts of the matter from Civil Appeal @ SLP (C) No. 24715 of 2008. It arises out of a judgment and order dated 15th September, 2008 passed by a learned Single Judge of the High Court of Punjab and Haryana at Chandigarh in Transfer Application No. 186 of 2008 whereby and whereunder the suit filed by the appellant and pending before the Civil Judge (Junior Division), Ludhiana was transferred to the Debt Recovery Tribunal-III at Mumbai.

  4. Some of the parties to the lis before us are the banks or financial institutions within the purview of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (1993 Act). The others are debtors of such banks or financial institutions. The parties hereto entered into diverse agreements in terms whereof banks or the financial institutions lent money to the debtors.

  5. Appellant entered into International Swaps and Derivatives Agreement with the respondent. On 1.11.2006, the appellant and the respondent entered into globally used market standard Master Agreement and Schedule published by ISDA (ISDA Master Agreement) (hereinafter referred to as "Master Agreement") wherein the respondent undertook derivative transactions for hedging or transformation of risk exposure.

  6. Under the said Master agreement i.e. the ISDA Agreement including the Schedule thereto, the appellant had entered into ten transactions with the respondent and out of those ten transactions, appellant has unwound (closed at the instance of the appellant at a mutually agreed value) four transactions; one transaction got matured and one expired due to occurrence of a contingent event. In all the six transactions, appellant had received an aggregate sum of about Rs. 1,87,00,000/- (Rupees one crore eighty seven lakhs only) from the respondent. In respect of 2 transactions Swap Reference: NCW072009996 and Swap Reference: NCW 072009997 both dated 13th July, 2007, the appellant has till date received Rs. 13,00,000 (Rupees Thirteen Lakhs Only) from the respondent.

  7. As on 02.04.2008, four foreign exchange derivative transactions were outstanding between the appellant and the respondent, dated 13.07.2007, 13.07.2007, 26.07.2007 and 30.07.2007.

  8. Appellant vide his letter of 03.04.2008 purported to disclaim, repudiate and reject only two out of those four transactions, i.e., the transactions with trade dates 26th July 2007 and 30th July, 2007.

  9. Appellant filed a suit in the Civil Court at Ludhiana seeking a declaration that foreign exchange derivative contracts dated 26.7.2007 and 30.7.2007, entered into by and between them were void as being illegal and violative of Foreign Exchange Management Act, 2000 as well as the Circulars and Guidelines issued by the Reserve Bank of India, and, thus, against public policy. The said suit was marked as Civil Suit No. 108 of 2008.

  10. An application for grant of injunction was also filed. By reason of an order dated 5.4.2008, the learned Civil Judge directed both the parties to maintain status quo in regard to the said two contracts, directing:

    Lest the purpose be not defeated by delay, both the parties are directed to maintain status quo (as on today) regarding the contracts involving the present cases till 16.4.2008. Compliance under Order 39 Rule 3 CPC be made as per rules. Plaintiffs shall also be duty bound to get the service effected on defendants for date fixed Summons be also given dasti.

  11. The said order of status quo is said to have been communicated to the respondent on or about 8.4.2008.

  12. Respondent issued a notice dated 12.4.2008 upon the appellant terminating the pending derivative transaction. Appellant contends that termination of the said derivative transaction is in violation of the order of status quo passed by the learned Civil Judge on 5.4.2008. Appellant responded to the said notice calling upon it to withdraw the same.

  13. On or about 15.4.2008, the respondent-bank filed an application before the Debt Recovery Tribunal at Mumbai marked as OA No. 122 of 2008 along with an interim application marked as Interim Application No. 125 of 2008 for recovery of dues under the two remaining Foreign Exchange Derivative Contracts dated 13.7.2007.

  14. Meanwhile, the order of status quo passed on 5.4.2008 was extended by the learned Civil Judge by an order dated 16.4.2008 till 23.4.2008. In the original application filed by the respondent-bank, the Tribunal by an order dated 22.4.2008 restrained the appellant from alienating, or in any way creating third party interests in its fixed assets in relation to the transactions which were not the subject matter of the suit. Respondent-bank issued two letters on 24.4.2008 to the appellant calling upon it to pay the amount due under the two transactions dated 26.7.2008 and 30.7.2008, and on the same day filed another application before the Debt Recovery Tribunal for recovery of dues under the said two foreign exchange derivative contracts.

  15. An application for clarification and/or modification of stay of the order dated 5.4.2008 was filed by the appellant before the civil judge which was heard on 13.5.2008 and 17.5.2008. The matter was adjourned to 29.5.2008.

    IMPUGNED JUDGMENT

  16. Respondent, however, filed transfer application before the High Court of Punjab & Haryana on or about 27.5.2008 seeking transfer of proceedings pending before the Civil Judge, Ludhiana to the Debts Recovery Tribunal, III, Mumbai. An application for violation of the order of injunction was filed by the appellant before the Civil Court on 28.5.2008. By reason of the impugned order, a learned Single Judge of the High Court allowed the said application transferring the suit filed by the appellant in the Ludhiana court to the DRT tribunal, Mumbai in the form of a counter claim.

  17. The Banks and the Financial Institutions including Axis Bank have also filed Transfer Petitions, said to be by way of abundant caution, before this Court under Section 25 of the Code which are marked as TP (C) Nos. 1207-1209 of 2008 and 1195-2008 & 1196-2008 respectively.

  18. While issuing the notice in SLP (C) No. 24715 of 2008 this Court, by order dated 20.10.2008, directed:

    Issue notice.

    Mr. Sameer Parekh, Advocate accepts notice on behalf of the respondent.

    As the question involved in this petition is a pure question of law, no counter affidavit need be filled. Put up for final disposal on 2nd December, 2008. We make it clear that on that day, this Court shall consider as to whether this Court, in the peculiar facts and circumstances of this case, may exercise its jurisdiction under Article 142 of the Constitution of India.

    In the meantime, there shall be stay of the operation of the final judgment and order dated 15.9.2008 of the High Court of Punjab & Haryana in Transfer Application No. 186/2008 as also stay of the proceedings before the Debt Recovery Tribunal, Mumbai in OA Nil of 2008 (Lodging No. 270).

    The parties shall file written submissions before the next date of hearing.

    ISSUES ARISING

  19. In the background of these facts, the following questions that arise for our consideration are:

    (I). Whether the High Court/Supreme Court has the power to transfer a suit from a Civil Court to the DRT, keeping in mind,

    1. The effect of a transfer from the Civil Court to the DRT is to oust the jurisdiction of the civil court which cannot be done without express statutory provisions.

    2. Proceedings before DRT is sui generis & totally different from the procedure in a Civil Court.

    3. Power of transfer under CPC (Sections 22, 23, 24 and 25) is inapplicable as these sections apply in a case where the transfer is from one Court to another & DRT being not a Court.

    4. The power to transfer under the DRT Act is restricted to cases filed by Banks that were pending on the date when the Act came into force and in respect of those cases in which DRT has jurisdiction.

    (II). Whether the decision of this Court in Indian Bank v. ABS Marine Products (P) Ltd. AIR 2006 SC 1899: (2006) 5 SCC 72, is applicable in the case of transfer of a suit from the Civil Court to the DRT to be tried as a counterclaim, and could a Coordinate two Judge Bench in State Bank of India v. Ranjan Chemicals Ltd. and Anr. 2006 (6) ALD 138 (SC): (2007) 1 SCC 97 have departed from the ratio thereof after noticing it and without referring the matter to a larger bench of Three Judges?

    (III) Even if the power to transfer exists, in the facts and circumstances of the case, whether it ought to have been exercised.

    (IV) Whether Article 142 is applicable to direct a transfer from a Civil Court to DRT, especially when:

    (i) The DRT Act does not bar the jurisdiction of the Civil Court to entertain a suit against a bank and therefore powers under Article 142 ought not to be exercised to have such an effect.

    (ii) Article 142 is not applicable where a statute occupies the field.

    (iii) Power under Article 142 should be exercised only to prevent injustice and do complete justice between the parties.

    (V). Whether in the exercise of powers under Article 142, transfer of case ought to be refused to do complete justice between the parties and the proceedings before the DRT be stayed pending disposal of the suit.

    SUBMISSIONS OF THE COUNSEL

  20. Dr. A.M. Singhvi, Mr. S. Ganesh, Mr. Rohington Nariman and Mr. Rakesh Dwivedi, learned senior counsel appearing on behalf of the appellants would contend:

    1) The High Court had no power to transfer a pending Civil Suit to a Debt Recovery Tribunal as the same was beyond its jurisdiction.

    2) The High Court and/or the Supreme Court have no power to transfer a case from a Civil Court to Debt Recovery Tribunal inasmuch as:

    1. The effect of a transfer from Civil Court to Debt...

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