DRAT MR.K.R.SHRIRAM, CHIEF JUSTICE AND THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ W.P. Nos.33396, 33398, 33399 of 2019, 3412, 3419 and 3427 of 2020 and
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 21.02.2025
PRONOUNCED ON: 03.04.2025
CORAM:
THE HONOURABLE MR.K.R.SHRIRAM, CHIEF JUSTICE AND THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ
W.P. Nos.33396, 33398, 33399 of 2019, 3412, 3419 and 3427 of 2020 and
W.M.P. Nos.33865, 33866, 33867, 33868, 33869 of 2019, 14519 of 2021,
3530 of 2020, 3989, 3996, 7452, 8659 of 2020
1.M/s.INMA International Limited,
Rep. by its Chairman cum Managing Director,
G.Rathinavelu,
No.251 (Old) and 292, Avvai Shanmugam Salai, Gopalapuram, Chennai-600 086.
2.Mr.G.Rathinavelu
3.Mr.G.Sundaravadivelu
… Petitioners in W.P.Nos.33396, 33398
and 33399 of 2019
Vs. Indian Overseas Bank,
Rep. by its Assistant General Manager,
Cathedral Branch,
No.762, Anna Salai,
Chennai-600 002. … Respondent in W.P.Nos.33396, 33398 and 33399 of 2019
1.Indian Overseas Bank,
Rep. by its Assistant General Manager, Cathedral Branch, No.762,
Anna Salai, Chennai -600002.
…Petitioner(s) in W.P.Nos.3412,
3419 and 3427 of 2020
Vs
1.M/s. INMA International Limited,
Rep. by its Chairman cum
Managing Director,
G.Rathinavelu,
No. 251 (Old) and 292, Avvai Shanmugam Salai, Gopalapuram, Chennai 600086
and also for service at No.1-C Rahul Apartments, 24 Cenatoph 1st Street, Teynampet, Chennai- 600018.
2. G.Rathinavelu
3. G.Sundara Vadivelu
…Respondent(s) in W.P.Nos.3419 and
3427 of 2020
1.M/s. INMA International Limited,
Rep. by its Chairman cum
Managing Director,
G.Rathinavelu,
No. 251 (Old) and 292, Avvai Shanmugam Salai, Gopalapuram, Chennai 600086
and also for service at No.1-C Rahul Apartments, 24 Cenatoph 1st Street,
Teynampet, Chennai- 600018.
2. G.Rathinavelu
3. G.Sundara Vadivelu
4. R.Gunamalar,
5. D.SilambuSelvi
…Respondent(s) in W.P.No.3412
of 2020
PRAYER in W.P.No.33396 of 2019: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorari calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14.11.2019 in R.A.No.110 of 2019 and quash the same.
PRAYER in W.P.No.33398 of 2019: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorari calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14.11.2019 in R.A.No.111 of 2019 and quash the same.
PRAYER in W.P.No.33399 of 2019: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorarified Mandamus calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14.11.2019 in R.A.No.138 of 2019 and quash the same and consequently allow the R.A.No.138 of 2019.
PRAYER in W.P.No.3412 of 2020: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorarified Mandamus calling upon the records pertaining to the order dated 14.11.2019 passed in R.A.No.110 of 2019 passed by DRAT at Chennai and quash the same and consequently direct the respondents to pay the entire dues with accrued interest.
PRAYER in W.P.No.3419 of 2020: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorari calling upon the records pertaining to the order dated 30.05.2019 in CC 6 of 2018 on the file of the Debts Recovery Tribunal at Chennai and the consequential order dated 14.11.2019 in R.A.No.138 of 2019 on the file of the Debts Recovery Appellate Tribunal at Chennai, quash the same and consequently direct the respondents to pay the entire dues with accrued interest in the loan account of the 1st respondent.
PRAYER in W.P.No.3427 of 2020: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorarified Mandamus calling upon the records pertaining to the order dated 30.05.2019 in CC 6 of 2018 on the file of the Debts Recovery Tribunal at Chennai and the consequential order dated 14.11.2019 in R.A.No.111 of 2019 on the file of the Debts Recovery Appellate Tribunal at Chennai quash the same and consequently direct the respondents to pay the entire dues with accrued interest in the loan account of the 1st respondent.
For Petitioner(s) : Mr.E.Omprakash
in W.P.Nos.33396, Senior Advocate
33398 and 33399 for Mr.B.Thilak Narayanan
of 2019 for Resolution Professional for P1
Mr.N.L.Rajah Senior Advocate
for M/s.Ramya Subramanian forP2,P3
For Petitioner(s) : Mr.Vijay Narayanan
in W.P.Nos.3412, 3419 Senior Advocate
and 3427 of 2020 for Mr.S.Sathiyanarayanan
For Respondent(s) : Mr.Vijay Narayanan
in W.P.Nos.33396, Senior Advocate
33398 and 33399 of 2019 for Mr.S.Sathiyanarayanan
For Respondent(s) : Mr.E.Omprakash
in W.P.Nos.3412, 3419 Senior Advocate
and 3427 of 2020 for Mr.B.Thilak Narayanan for Resolution Professional for R1
Mr.N.L.Rajah Senior Advocate for M/s.Ramya Subramanian forR2,R3
For Respondent(s)
in W.P.No.3412 of 2020 : No appearance (for R4 and R5)
COMMON ORDER
Mohammed Shaffiq, J.
The issue that arises for consideration in this batch of writ petitions revolves around the scope of sub-section (8) to Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 (hereinafter referred to as “RDB Act”).
1.1. There are six writ petitions, three filed by INMA International Limited (W.P.Nos.33396, 33398, 33399 of 2019) and other three writ petitions filed by Indian Overseas Bank (W.P.Nos.3412, 3419 and 3427 of 2020). All six writ petitions are filed challenging the common order dated 14.11.2019 of the Debt Recovery Appellate Tribunal (hereinafter referred to as “DRAT”) in R.A. Nos.110, 111 and 138 of 2019. Since the issue that arises for consideration in all six writ petitions are inter-connected, these writ petitions are disposed of by way of a common order. For the purpose of this order, we shall refer to INMA International Limited as 1 st petitioner, Mr.G.Rathinavelu as 2nd petitioner and Mr.G.Sundaravadivelu as 3rd petitioner (collectively as petitioners) and Indian Overseas Bank as respondent bank.
2. Brief facts:
In the above batch of writ petitions, INMA International Limited was originally represented by its Directors viz., 2nd and 3rd petitioners.
Proceedings were initiated against 1 st petitioner under Insolvency and
Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) wherein Resolution Professional (RP) came to be appointed vide order dated
21.09.2022. In view thereof, 1 st petitioner company viz., INMA International Limited is represented by RP. Before proceeding to narrate the relevant facts, we intend to clarify at the outset that proceedings were initiated under RDB Act, Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (hereinafter referred to as “SARFAESI Act”) and IBC. The present writ petitions are challenging the order of DRAT under RDB Act, we would thus focus primarily on the proceedings under RDB Act. While setting out briefly the proceedings under SARFAESI and IBC, we also intend to deal with facts under the following heads rather than a chronological narration of facts inasmuch as the proceedings overlap. The heads of narration of facts being:
A) Proceedings under RDB Act; B) Proceedings under SARFAESI Act;
C) Proceedings under IBC.
A. Proceedings under RDB Act:
2.1. 1 st petitioner is engaged in Engineering Constructions on Turnkey Project Basis. One Mosmetro India Private Limited (hereinafter referred to as “Principal Contractor”), an Indian subsidiary of Mosmetrostroy, a Russian company awarded to 1 st petitioner works/ contract of supplying fabricated reinforcement cages for precast elements of the cylindrical tunnel for the Chennai Metro Rail Project in Chennai. Work order was issued on 06.12.2012.
2.2. 1 st petitioner approached respondent bank for financing the project. Respondent bank sanctioned Clean Cash Credit of Rs.5 crores, Cash Credit limit against Book Debts to the tune of Rs.5 crores and Letter of Guarantee to the tune of Rs.20 crores. 2nd and 3rd petitioners stood as guarantors and offered their personal properties worth Rs.32 crores by way of security to respondent bank towards above facilities.
2.3. While 1 st petitioner carried out the work, payments were delayed by the Principal Contractor. Principal Contractor abandoned the project sometime in May 2015, without settling payment due to sub-contractors including 1 st petitioner. As a result, 1 st petitioner faced severe financial constraints. This led to default in servicing loan accounts by 1 st petitioner. Loan accounts of 1 st petitioner were classified as NPA on 30.12.2014. Thereafter, a notice under Section 13(2) of the SARFAESI Act was issued on 27.01.2015, demanding a sum of Rs.16,51,98,132,50/-. On 28.07.2015, symbolic possession of secured assets were taken by respondent bank.
2.4. It was submitted that 1 st petitioner approached various banks and financial institutions for extending / lending/ financial facilities. However, bankers/ financial institutions rejected such request of 1 st petitioner.
2.5. After petitioners attempt to obtain loans from various banks/financial institutions failed, petitioners approached New India Co-operative Bank for extending financial facilities with a view to settle its dues with respondent bank. New India Co-operative Bank, informed 1 st petitioner that statement of outstanding does not match/tally with financial report of Credit Information Bureau (India) Limited (hereinafter referred to as “CIBIL”). It is submitted, based on information received from New Indian Co-operative Bank, 1 st petitioner came to know that amount outstanding against its account was shown as Rs.32 Crores on CIBIL database. 1 st petitioner obtained a report from CIBIL regarding erroneous reporting of outstanding relating to petitioner as submitted by respondent bank to CIBIL. It was explained by respondent bank and CIBIL that, while migrating from 17 digits to 15 digits account number, a mistake had inadvertently crept, whereby dues in cash credit account of 1 st petitioner was reported twice. This excess outstanding (admittedly erroneous) in turn was reflected in report submitted by respondent bank to CIBIL. The above error adversely affected petitioner’s CIBIL rating.
2.6. After petitioners realized erroneous reporting of amount outstanding against its account in CIBIL’s database, 1 st petitioner addressed letters to respondent bank between 21.12.2015 to 30.03.2016, regarding furnishing wrong information to CIBIL. On 31.12.2015, CIBIL deleted duplicate account entry. 1 st petitioner was informed on 09.05.2016 that error in database/ platform of CIBIL relating to cash credit account of 1 st petitioner had been corrected after obtaining clarifications from respondent bank.
2.7. On 27.07.2016, 1 st petitioner issued a legal notice to respondent
bank and CIBIL regarding false information submitted in relation to credit facilities of 1 st petitioner. On 16.08.2016, CIBIL responded to legal notice issued by 1 st petitioner stating that it only collates information provided by Banks and has no authority to make any unilateral change to data/records.
2.8. On 26.08.2016, respondent bank replied to 1 st petitioner’s legal notice, wherein it admitted to double entries but submitted that same was due to inadvertent error which crept at the time of migrating from 17 digits account numbers to 15 digits account numbers.
2.9. While so, respondent bank instituted O.A.No.633 of 2016 seeking recovery before Debts Recovery Tribunal (hereinafter referred to as “DRT”) seeking recovery of Rs.14.13 Crores along with interest at 15.70% per annum with monthly rests. A counter claim came to be filed by petitioner’s praying for damages of Rs.30 Crores on the premise that in view of erroneous reporting by respondent bank to CIBIL of outstanding at Rs.32,11,31,188/- instead of Rs.15,76,56,258/-, petitioners suffered loss in business, loss of reputation and mental agony. DRT disposed of the Original
Application with following directions viz.,
a) Respondent bank is entitled to recover remaining principal amount after adjusting the payments made by petitioners from the date of sanction of financial facilities till the date of order with interest at 6% per annum simple from filing of O.A. till the date of realisation.
b) There shall be a waiver of interest from the date of sanction of loan facilities till the date of filing of O.A. as damages.
3. Aggrieved by above order of DRT dated 30.05.2019, both Bank and petitioners preferred appeals before DRAT. Respondent bank challenged the order of DRT inasmuch as it was aggrieved by the waiver of interest towards counter claim by way of damages made by petitioners. Petitioners preferred an appeal challenging the order of DRT insofar as its counter claim of Rs.30 crores was restricted to waiver/dis-entitlement of Bank in claiming interest from the date of sanctioning of financial facilities till the date of filing of original application and prayed to award damages of Rs.30 crores as claimed.
3.1. DRAT, by a common order dated 14.11.2019 in R.A.Nos.110, 111 and 138 of 2019, held that in view of the negligence of respondent bank in submitting an erroneous report to CIBIL, it may not be entitled to claim contractual rate of interest but, however, found fault with waiver of interest by DRT till the date of filing of O.A. towards/by way of damages.
DRAT modified the order of DRT waiving interest till the date of filing of O.A. by respondent bank, holding that respondent bank shall be entitled for recovery of interest from the date of sanction till the date of filing of O.A. at 9% per annum simple (a reduction from contractual rate). Further, rate of interest shall be 9% per annum simple from the date of the order till the date of realisation.
3.2. Aggrieved by above order of DRAT, both, petitioners and respondent bank have preferred the following six writ petitions. Prayer in the six writ petitions are tabulated below:
S.No. Writ
Petition No. Prayer Impugned Order
1. W.P. No.
3412/
2020
(Filed by Responde nt Bank) Praying this Court to issue a Writ of Certiorarified Mandamus or any other appropriate Writ or direction in the nature of Writ calling upon the records pertaining to the order dated 14.11.2019 passed in R.A. No.
110/2019 passed by the Hon’ble DRAT at Chennai and quash the same and consequently direct the respondents to pay the entire dues with accrued interest. Challenging the common order dated 14.11.2019 passed by the
DRAT Chennai in
R.A. No. 110/2019
In
[O.A. No. 633/2016 on the file of
DRT-II, Chennai]
In
R.A. No. 111/2019
In
[ C.C No. 6/2018 on the file of DRT-II, Chennai]
R.A. No. 138/2019
In
[C.C. No. 6/2018 on the file of
DRT-II, Chennai]
The appellant bank is entitled for recovery of interest from the date of sanction till the date of filing of O.A also 9% p.a. simple. From
the date of order till the date of realization rate of interest also should be 9% p.a. simple.
The three appeals are disposed of.
2. W.P. No. 3419/
2020(File
d by
Responde nt Bank) Praying this Court to issue a Writ of Certiorarified Mandamus or any other appropriate Writ, Order or direction in the nature of Writ of Certiorari Mandamus calling upon the records pertaining to the order dated 30.05.2019 passed in CC No. 6 of
2018 on the file of The Debts Recovery Tribunal at Chennai and the Consequential order dated 14.11.2019 in R.A No. 138 of 2019 on the file of the DRAT at Chennai quash the same and consequently direct the respondents to pay the entire dues with accrued interest in the
loan account of the 1 st
Respondent. Challenging the common order dated 14.11.2019 passed by the
DRAT Chennai in
R.A. No. 110/2019
In
[O.A. No. 633/2016 on the file of
DRT-II, Chennai]
In
R.A. No. 111/2019
In
[ C.C No. 6/2018 on the file of DRT-II, Chennai]
R.A. No. 138/2019
In
[C.C. No. 6/2018 on the file of
DRT-II, Chennai]
The appellant bank is entitled for recovery of interest from the date of sanction till the date of filing of O.A also 9% p.a. simple. From the date of order till the date of realization rate of interest also should be 9% p.a. simple.
The three appeals are disposed of.
3. W.P. No. 3427/
2020(File
d by
Responde nt Bank) Praying this Court to issue a Writ of Certiorarified Mandamus or any other appropriate Writ, Order or direction in the nature of Writ of Certiorari Mandamus calling upon the records pertaining to the order dated 30.05.2019 passed in CC No. 6 of
2018 on the file of The Debts Recovery Tribunal at Chennai and the Consequential order dated 14.11.2019 in R.A No. 111 of 2019 on the file of the DRAT at Chennai quash the same and consequently direct the Challenging the common order dated 14.11.2019 passed by the
DRAT Chennai in
R.A. No. 110/2019
In
[O.A. No. 633/2016 on the file of
DRT-II, Chennai]
In
R.A. No. 111/2019
In
[ C.C No. 6/2018 on the file of DRT-II, Chennai]
R.A. No. 138/2019
In
[C.C. No. 6/2018 on the file of
respondents to pay the entire dues with accrued interest in the
loan account of the 1 st
Respondent. DRT-II, Chennai]
The appellant bank is entitled for recovery of interest from the date of sanction till the date of filing of O.A also 9% p.a. simple. From the date of order till the date of realization rate of interest also should be 9% p.a. simple.
The three appeals are disposed of.
4. W.P.No.
33396 of
2019 M/s.
INMA
Internati onal Limited and its Directors Praying this court to issue writ, order or Direction more particularly a writ in the nature of Writ of certiorari calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14/11/2019 in R.A.No.110 of 2019 and quash the same. Challenging the common order dated 14/11/2019 passed by the
DRAT, Chennai in
RA.110/2019
IN
(O.A.No.633/2016 on the file of
DRT-II, Chennai)
RA:111/2019
IN
(C.C.No.6/2018 on the file of
DRT-II, Chennai)
RA:138/2019
IN
(C.C.NO.6/2018 on the file of
DRT-II, Chennai) The respondent bank is entitled for recovery of interest from the date of sanction till the date of filing of OA and also from the date of order till date of realization @9% p.a. simple.
5. W.P.No.
33398 of
2019
M/s.
INMA
Internati onal Limited and its Directors Praying this court to issue Writ, Order or Direction more particularly in the nature of Writ of certiorari calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14/11/2019 in R.A.No.111 of 2019 and quash the same. Challenging the common order dated 14/11/2019 passed by the
DRAT, Chennai in
RA.110/2019
IN
(O.A.No.633/2016 on the file of
DRT-II, Chennai)
RA:111/2019
IN
(C.C.No.6/2018 on the file of
DRT-II, Chennai)
RA:138/2019
IN
(C.C.No.6/2018 on the file of
DRT-II, Chennai) The DRAT has affirmed the waiver of interest as a mark of compensation towards borrowers counter claim of Rs.30 crores.
6. W.P.No.
33399 of
2019 M/S.
INMA
Internati onal Ltd, and its
Directors Praying this court to issue writ, order or Direction more particularly a writ in the nature of Writ of certiorarified Mandamus calling for the records on the file of Debt Recovery Appellate Tribunal relating to the order dated 14/11/2019 in R.A.No: 138 of 2019 and quash the same and consequently allow the R.A.No: 138 of 2019 as prayed for. Challenging the common order dated 14/11/2019 passed by the
DRAT, Chennai in
RA.110/2019
IN
(O.A.No.633/2016 on the file of
DRT-II, Chennai)
RA:111/2019
IN
(C.C.No.6/2018 on the file of
DRT-II, Chennai)
RA:138/2019
IN
(C.C.No.6/2018 on the file of
DRT-II, Chennai) The DRAT has affirmed the rejection of the counter claim filed by the petitioner in CC.No.
6/2018.
4. For sake of completion of narration of facts and events, it may be relevant to note that respondent bank, also proceeded under SARFAESI Act, before DRT and under IBC, before National Company Law Tribunal (hereinafter referred to as “NCLT”), respectively. We shall in the following paragraphs briefly deal with proceedings under SARFAESI Act and NCLT inasmuch as written submission refers to said proceedings in great detail, though may not be of much relevance for the purpose of disposing the present batch of writ petitions.
B) Proceedings under SARFAESI Act:
4.1. Three sale notices dated 19.12.2015, 25.01.2017 and 20.12.2017 were issued. The same were the subject matter of challenge in S.A.Nos.20 of 2016, 15 and 287 of 2017. The above S.A’s were disposed of on the
following terms viz.,
a. S.A.No.20 of 2016 challenging sale notice dated 19.12.2015 was dismissed.
b. S.A.No.15 of 2017 challenging sale notice dated 25.01.2017, was partly allowed directing respondent Bank to bring only 1 st item of property to sale, while directing that 2nd property shall not be sold.
c. S.A.No.287 of 2017 challenging sale notice dated 20.12.2017 was dismissed as infructuous.
C) Proceeding before National Company Law Tribunal (NCLT):
4.2. On 16.10.2018, respondent bank filed an application under
Section 7 of IBC in IBA No.49 of 2019, before NCLT to initiate Corporate
Insolvency Resolution Process (CIRP) against Corporate Debtor/INMA (1 st petitioner).
4.3. On 13.04.2022, NCLT passed order admitting IBA.No.49 of 2019 and thereby initiating CIRP against 1 st petitioner. Interim Resolution Professional (IRP) took control of Corporate Debtor (1 st petitioner) immediately.
D) Proceedings before National Company Law Appellate Tribunal
(NCLAT):
4.4. On 22.04.2022, 1 st petitioner filed an appeal before National
Company Law Appellate Tribunal (hereinafter referred to “NCLAT”),
Chennai, in Company Appeal (AT)(INS) No.143 of 2022 along with an Interlocutory Application No.330 of 2022, seeking to stay the operation of impugned order dated 13.04.2022 in IBA No.49 of 2019.
4.5. On 07.06.2022, 1 st petitioner filed a Contempt Petition in Cont.P.No.1260 of 2022, for alleged violation of order of this Court in W.M.P.No.33866 of 2019 in W.P.No.33396 of 2019, and the same is pending.
4.6. On 28.11.2022, this Court directed the parties to maintain status quo as on date with regard to alienation of property and matter stood adjourned to 30.11.2022.
4.7. Thereafter, NCLAT, vide judgment dated 27.06.2023, dismissed the appeal.
4.8. On 28.07.2023, a Civil Appeal was filed before the Hon’ble
Supreme Court against the judgment dated 27.06.2023 passed by NCLAT.
4.9. On 01.08.2023, Resolution Professional (RP) took custody of office premises. On 22.09.2023, Civil Appeal bearing No.29891 of 2023 filed by 1 st petitioner challenging order of NCLAT was dismissed by the
Hon’ble Supreme Court. The order speaks about One Time Settlement (OTS) reached at Rs.11.46 Crores and its non compliance. Relevant portions of the same is extracted below:
“Delay condoned.
We are not inclined to interfere with the impugned order under Article 136 of the Constitution of India.
We repeatedly put a question to learned senior counsel for the appellant that having made an offer of payment of Rs.11.46 crore in the insolvency proceedings which was accepted, the finding is that it was not honoured. Learned counsel for the appellant keeps on referring to payments made before that. That is irrelevant! Fully knowing what payments had been made, what their claims were, what the Bank’s claims were, this amount was offered. If they have paid Rs.11.46 crores after the offer was made, something which is not before us, in view of the finding, they may approach the NCLT with proof of payment of Rs.11.46 crores after the date of acceptance of the offer.
The Civil Appeal is dismissed in the aforesaid terms.”
5. Having narrated the sequence of events leading to impugned order of DRAT, we shall now proceed to set out the orders of this Court in W.P.No.1421 of 2017, orders of DRT and DRAT, i.e., impugned orders which are the subject matter of challenge in the present batch of writ petitions.
5.1. Order of High Court:
Petitioner(s) aggrieved by wrong reporting/duplication of credit account and credit balance of 1 st petitioner by respondent bank, while submitting its report to CIBIL and its consequential reporting by CIBIL in its database/platform, a writ petition in W.P.No.1421 of 2017 came to be filed by 1 st petitioner with the following prayer:
PRAYER:
“to issue a writ of mandamus directing the third respondent to take on file the complaint of the petitioner herein and expeditiously investigate and proceed in accordance with law as to how a dubious fraudulent parallel account was created and whether huge bank money was swindled by the 4th respondent officials.”
5.1.1. This Court while disposing of writ petition vide order dated
13.11.2017, found that there were lapses on the part of respondent bank in furnishing/providing correct account and credit balance details of petitioners to CIBIL. However, learned Judge thereafter proceeded to observe that neither RBI nor IOB or CBI, could find any prima facie material, in the complaint given by petitioners to infer any wilful omission or false statement knowingly furnished by IOB officials, i.e., respondent bank. The writ petition was dismissed with a finding that Court is not inclined to entertain the writ petition seeking mandamus. 1 st petitioner was also granted liberty, if so advised, to proceed against respondent bank for damages. Following portions of the order is relevant and thus extracted hereunder:
Order in W.P.No.1421 of 2017:
“21.Apparently, in this case, a dispute has arose and the communication between the parties since 21.11.2015 till 30.03.2016 centres around the dispute and the settlement of the said dispute. Despite rectification of the duplicate entries, if the writ petitioner is under the Impression that the duplication is not an Innocuous error crept inadvertently but, with intention to cause wrongful loss to the company, it is always open to the writ petitioner to seek damages under the common law remedy.
22. From the records, it appears that neither the RBI nor the IOB nor CBI could find any prima facie material in the complaint given by the writ petitioner to infer any willful omission or false statement knowingly furnished by IOB officials. In such circumstances, this Court is not inclined to entertain this writ petition seeking mandamus.
23.In the result, the writ petition fails and accordingly, the same is dismissed. However, it is open to the writ petitioner, if so advised, to resort relief under common law procedure. No costs. Consequently, connected miscellaneous petition is closed.”
5.1.2. 1 st petitioner filed a writ appeal in W.A.No.1853 of 2018 as against orders refusing to order investigation in W.P.No.1421 of 2017. The same came to be dismissed on 31.08.2018. Against this, a review is stated to have been filed.
5.2. Order of Debts Recovery Tribunal and Debt Recovery
Appellate Tribunal:
Having narrated broadly the proceedings in Original Application before DRT and Regular Appeal before DRAT, we shall take a closer look at the orders of DRT and DRAT, inasmuch as the above orders are the subject matter in issue in the present batch of writ petitions.
i) Order of Debts Recovery Tribunal:
5.2.1. Learned Tribunal after making reference to the order of this Court in W.P.No.1421 of 2017 proceeds on the premise that the High Court had held that there is tortious liability and petitioners are entitled for damages. The relevant portions of DRT’s order is extracted hereunder:
“….The Hon’ble High court held that the defendants are entitled for damage from the applicant bank’s tortuous liability. Though there is CIBIL report against D1 for no fault of D1, we need not elaborately discuss about CIBIL report since the Hon’ble High Court had held that the defendants are entitled for damages for applicant bank’s tortuous liability.
(emphasis supplied)
5.2.2. Tribunal also found that while respondent bank classified loan amount as NPA and initiated proceedings under SARFAESI Act, petitioners with a view to resolve the above issue had approached New India Co-operative Bank to take over liability of the Bank. Initially, New India Co-operative Bank expressed its willingness, while accepting the above request of 1 st petitioner and its directors. However, on verifying CIBIL score report, it noticed that there were two accounts in the name of 1 st petitioner and that assets were also classified as “sub-standard”. New India Co-operative Bank, refused to sanction financial facilities due to CIBIL score report. It is submitted that petitioners were unable to settle the dues only because New India Co-operative Bank had withdrawn its earlier proposal to take over the liability of petitioners with respondent bank. This, according to Tribunal, must have resulted in loss of business, loss of reputation and mental agony. It was found that though petitioners had approached the
Bank for settlement, however, proposal for settlement was rejected without even placing the proposal before the Board of Directors. Respondent bank instead proceeded under SARFAESI Act, which in view of Tribunal lacked bonafides. Tribunal finally looked to the wrong CIBIL report to find that it has caused loss of business, loss of reputation and mental agony to petitioners thereby warranting award of damages by way of waiver of interest. Relevant portions of order in O.A.No.633 of 2016 is extracted hereunder:
“16. ….. Therefore, the defendants are entitled for waiver of the total interest from the date of sanction of loan facilities till the date of filing of OA as damage. This interest amount is treated as compensation amount to D1 under Counter Claim. Hence I find D1 to D3 are entitled for this amount only as counter claim from the applicant bank and not entitled for Rs.30 crores as prayed in the Counter Claim due to the blunder of the officials of the Applicant Bank which affected D1’s name and its business.”
17. Defendants prayed for Rs.30 crores as damage for loss in business, loss of reputation, and mental agony. Applicant bank claimed a sum of Rs.14,13,87,217.60p. For the wrong CIBIL report, the entire claim amount of the applicant bank has to be set off as damage since there is loss in business, loss of reputation, and mental agony to D1 to D3. However, the claim amount in the OA is public money and for the wrongful act act at the officials of the applicant bank, the entire claim amount cannot be set off. Hence for the interest of justice,applicant bank is not entitled for the interest from the date of sanctioning of financial facilities till the date of filing of this OA. Further, the payments made by the defendants from the date of sanction of the loan till today has to be adjusted only towards the principal amount. If there is balance outstanding due after adjustment, applicant bank is entitled to recover the same from the defendants….”
(emphasis supplied)
ii) Order of Debt Recovery Appellate Tribunal:
5.3. Aggrieved by the order of DRT, both petitioners and respondent bank preferred appeal before DRAT. While petitioners would submit that DRT erred in not awarding damages of Rs.30 crores as claimed by petitioners, on the other hand, respondent bank would challenge the award of damages by way of waiver of interest. DRAT modified the order of DRT waiving interest and respondent bank was found entitled to interest at 9% per annum instead of interest at contractual rate. Relevant portions of
Appellate Tribunal’s order is extracted hereunder:
“20. The Presiding Officer has waived interest from the date of sanction till date of filing of OA only on the basis of generation of wrong CIBIL report. If it is not a malafide or fraudulent act/omission of the bank, at least it is a gross negligence on the part of the bank that has caused a prejudice to the borrowers to some extent. This is also true that this mistake is continued for a period of only three weeks and it was rectified also and borrower was willing to clear the dues for OTS of Rs.14 crores also. For negligence of maintenance of CIBIL, bank is responsible in part and is liable to lose some Interest on dues.
21. In such a situation, denial of interest from the date of sanction till the date of filing of OA seems not reasonable. The bank had other means for recovery of dues also. In such a situation, on the basis of this OA, in view of the facts and circumstances of this case, the appellant bank is entitled for recovery of Interest from the date of sanction till the date of filing of OA also @9% p.a. simple.
From the date of order till date of realisation rate of interest also should be @9% p.a. simple. Loss of the bank is the gain for the borrower. The Presiding Officer has rightly rejected the counter claim treating that relief in interest will be equal to the amount of counter claim.
22. Accordingly, Impugned order is modified in part. The bank is entitled for rate of interest on due amount from the date of sanction till realisation @ 9% p.a. simple. The remaining part of the order is hereby affirmed.
23. In terms of the above, said all three appeals are disposed of.”
(emphasis supplied)
5.4. In the present batch of six writ petitions, three filed by petitioners and three other filed by respondent bank, challenge is made to the common order dated 14.11.2019 of DRAT. Petitioners, in their written submissions, have narrated the facts, which we have captured in earlier portions of this order and thus not dealt with again to avoid repetition. We shall now proceed to deal with issues and contentions raised by either side in the present batch of Writ Petitions.
6. Case of 1 st petitioner represented by Resolution Professional
6.1. Shri E.Om prakash, learned Senior Advocate appearing on behalf of the Resolution Professional representing 1 st petitioner, while not advancing any arguments on the legality of the order of DRT/DRAT, focused primarily on the conduct of 2nd and 3rd petitioners and submitted the following:
6.2. An application was lodged against 1 st petitioner by respondent bank under section 7 of IBC for initiation of Corporate Insolvency Resolution Process. Claim of the respondent bank was admitted and Corporate Insolvency Resolution Process was ordered by NCLT vide order dated 13.04.2022. Interim Resolution Professional was appointed on the same day i.e., 13.04.2022. Thereafter IRP was replaced by a Resolution Professional Mr.Shriraam Shekher. 2nd and 3rd petitioners were suspended as Directors.
6.3. A Report and an Additional Report was filed by the Resolution Professional on behalf of 1 st petitioner wherein serious allegations of fraud was made against 2nd and 3rd petitioners. We do not propose to get into the details of those allegations except to very broadly outline the contents of Report and Additional Report which inter alia contained the following allegations :
a)Non co-operation by petitioners 2 and 3 herein with RP including non furnishing of details necessary to carry out the day to day affairs of the petitioner company and discharge statutory obligations/compliances.
b) Transfer of 1 st petitioner’s immovable property at Gopalapuram to 3rd petitioner for a value of Rs.5.8 crore vide sale deed dated 15.12.2015, however, verification of statement of accounts of 1 st petitioner would reveal that sale consideration stated to have been paid vide cheque dated 15.12.2015 was not realized by 1 st petitioner.
c) 3rd petitioner by mortgaging the above property obtained loan from
New India Co-operative Bank.
d) A forensic audit was carried out/conducted by the RP in terms of Section 25 of IBC, in view of fraudulent activities of the 2nd and 3rd petitioners.
e) Forensic Report revealed that apart from the transfer of the Gopalapuram property which is stated to be not supported by consideration, there was sale of movable assets to the extent of Rs.3 crores which was not mentioned in the Asset Purchase Agreement by 2nd petitioner.
f) Additional Report states that the transactions relating to movable and immovable property without consideration qualifies as the fraudulent or wrongful trading/transaction in terms of Section 66 of IBC.
g) Additional Report also alleges that the properties of 1 st petitioner
which has been fraudulently transferred to petitioners nos.2 and 3 was utilized to avail cash credit facilities for one Tunnel Konnect India Pvt. Ltd., which apparently was related to petitioners nos.2 and 3.
h) Audit report also recommends investigation into the affairs of 1 st petitioner to determine whether the acts of petitioners nos.2 and 3 would come under the purview of PMLA Act (Prevention of Money Laundering Act, 2002).
i) The Report and Additional Report contains other serious allegations of fraud and other irregularities committed by 2nd and 3rd petitioners which we do not propose to deal with in detail except to the limited extent they have a bearing on the issues that were raised particularly as to whether petitioners really suffered any loss or damage.
6.4. Case of 2 nd and 3 rd petitioners:
Shri N.L.Rajah, learned Senior Advocate submitted the following on behalf of 2nd and 3rd petitioners:
i) Loss of business and reputation caused by intentional sabotage of respondent bank.
ii) Bank account numbers are to be 15-digit since January, 2010 (Refer to RBI Circular, April 2011). Therefore, second fraudulent account opened by IOB which was reflected in CIBIL report from Feb 2013 was created wantonly by manual intervention by IOB, as the Core Banking Software will not accept a 17 digit account number. The first four digits and last four digits are the same.
iii) CIBIL filed affidavit before this Court in W.P.No.1421 of 2017, wherein it clearly states that it only acts as a repository of information and loads information given by the bank. It does not undertake any independent activity of either scrutinizing or providing information.
iv) Petitioners led evidence in DRT extensively and filed 46 exhibits and introduced their witness, Mr. J.Thiruvarasan, the CEO of petitioner Company. However, respondent bank did not cross-examine petitioners’ witnesses. Therefore, Respondent ought to be deemed to have admitted the statements and documents introduced by petitioners. Reference was made to the judgments of the Hon’ble Supreme Court in Rajinder Pershad v. Darshana Devi , and State of U.P. v. Nahar Singh (dead) .
6.5. DRT further held that there was loss of business and reputation to the company and that property worth Rs.32 crore was pledged with the bank. The bank wanted to assert their rights over the property. Importantly, even though New India Co-operative Bank was willing to take over the loan from IOB, they did not extend the facility in view of erroneous data/ rating shown in CIBIL’s database viz., dues of Rs.32 crores as against the actual due of Rs.15 crores, which petitioners owed to respondent bank. When approached by petitioners, CIBIL informed that a credit information bureau such as CIBIL is only a repository of credit information received from its member banks and that it can make a correction/deletion only after such correction/deletion has been certified as correct by the concerned member credit institution/bank. Therefore, the company has lost contracts worth several crores due to adverse actions of the Bank.
6.6. Respondent bank sought to benefit from property secured with respondent bank and was therefore not interested in accepting OTS and Mediation. Petitioners have repaid Rs.14.13 crore from date of NPA. In any event, 1 st petitioner is not a wilful defaulter.
6.7. DRT has the right to award damages as counter claim under
Section 19(8) of RDB Act.
6.8. Court has power to reduce contractual rate of interest as held in the judgment of the Apex Court in Punjab & Sind bank v M/s. Allied beverage company , in Civil Appeal No.8443 of 2010.
6.9. DRT, under Section 22(2) of RDB Act, has all powers of civil court as enunciated under Code of Civil Procedure, 1908. Therefore, reading the above in conjunction with Section 34 of the CPC, shall have the power to reduce the interest to nil.
6.10. That order of DRAT is a bundle of contradictions/
inconsistencies and setting out instances of the same.
6.11. Order of DRAT is contrary to settled principles of law that the scope of interference/modification for an appellate court is narrow. The principle is based on the fact that court of first instance, being a fact finding court has painstakingly considered all materials before it and come to the conclusion. Therefore, unless perversity or illegality is shown, there can be no reversal of fact finding, either by DRAT or by this Court. In this regard, reliance was placed on the following judgments:
(a) Collector of Customs Bombay vs. Swastic Woollens Pvt Ltd ,
(b) Mohd. Salamatullah and ors. vs. Government of Andhra Pradesh5,
(c) Delhi Development Authority vs. Associate Builders6.
6.12. The matters were reserved for orders on 21.02.2025. Counsel for 2nd and 3rd petitioners sought time to file their response/ counter after the arguments were over. This was rejected as all the material including Report and Additional Report of RP on behalf of 1 st petitioner were submitted as early as on 24.08.2023 and 25.02.2024, respectively and no response was filed by 2nd and 3rd petitioners for almost a year or even before the matter was heard. Learned counsel for 2nd and 3rd petitioners then requested leave to file written submissions. This was permitted. Respondent bank was also, therefore, permitted to file its written submissions. Petitioners were permitted to file submissions and response by the bank, if
any, to such rejoinder was permitted to be filed. Counsel for 2nd and 3rd Petitioners had submitted written submissions, however, the rejoinder was submitted in the form of an affidavit when all that was permitted was to file written submissions. We are thus not inclined to take the rejoinder on record. However, we shall deal with the oral submissions made by the
learned counsel for the 2nd and 3rd petitioner, inter alia,
dealing with the submissions / reports made by
5. AIR 1977SC 1481 (Para 4)
6. 2008(1)ARBLR490(Delhi) (Para 6)
learned Senior Advocate appearing on behalf of the 1 st petitioner company. It was submitted that Forensic Audit Report (hereinafter referred as “FAR”) is irrelevant to present writ petitions which are confined to order of DRT and DRAT. That FAR and its conclusion are sub-judice before NCLT and would have no bearing on correctness of orders of DRT and DRAT which are the subject matter of challenge in this batch of writ petitions. That FAR cannot be relied upon for it was not part of pleadings before DRT or DRAT.
6.13. Without prejudice to their case that FAR is not relevant for purposes of present writ petition, the 2nd and 3rd petitioner would submit that the transfer of Gopalapuram property of 1 st petitioner was in fact supported by consideration. The consideration was paid as under:
Date of Payment Transfer reference number Amount
17.12.2015 SBINR52015121723605691 2,00,00,000/-
22.01.2016 SBINR52016012225115649 1,00,00,000/-
10.02.2016 SBINR52016021025868083 3,50,00,000/-
(Though we prima facie find that the above submission itself is contrary to sale deed dated 15.12.2015, which contains a recital/provides that sale consideration of Rs.5.8 Crores was paid by 2nd petitioner vide Cheque No.755655 dated 15.12.2015 – We are not elaborating the same for the purpose of disposing of the present batch of writ petitions.)
6.14. 2nd and 3rd petitioners does not deal with any of the other allegations including the following:
a) Diversion of credit/ cash facilities to M/s.Tunnel Konnect India Pvt.
Ltd., related to 2nd and 3rd petitioner;
b) Transfer of movable assets not supported by consideration;
c) Acts of petitioner’s 2 and 3 would come under purview of PMLA.
2nd and 3rd petitioners have merely stated that allegations are dealt with in the proceedings before NCLT and the same may not be relevant for resolving the issue arising in the present batch of writ petitions.
7. Case of the Respondent:
Shri Vijay Narayanan, learned Senior Advocate would submit the following on behalf of the Respondent Bank:
7.1. Claims of the Bank made in O.A.No.633 of 2016 was fully allowed by DRT. Against the same, no appeal was preferred by
petitioners/borrowers.
7.2. As far as the counter claim of petitioners made before DRT is concerned, it was submitted that DRT has no jurisdiction to adjudicate claim for damages for purported loss of business and reputation and for mental agony.
7.3. The Hon’ble Supreme Court in Bank of Rajasthan Ltd Vs. VCK Shares & Stock Broking Services Ltd (Civil Appeal Nos.8972-8973 of 2024) has held in paragraphs 48 and 50, that DRT does not have jurisdiction to decide on counter claim which is in the nature of remedy to be specifically adjudicated in a civil suit.
7.4. If DRT does have jurisdiction, it is submitted that petitioners/borrowers have failed to substantiate their claim for damages through evidence. Rather, DRT has allowed waiver of interest in lieu of damages solely on erroneous interpretation of this Court’s order dated 13.11.2017 passed in W.P.No.1421 of 2017 and therefore held that petitioners/borrowers are entitled for damages for error that occurred in CIBIL Report.
7.5. DRT without recording any findings assumed that damage was caused to petitioners / borrowers, by over-looking the finding of DRT – III in its order dated 09.09.2016 in S.A.No.20 of 2016, that mistake in CIBIL Report was reflected only for a short period and that no searches were made by anybody to establish that petitioners suffered any damage over the same.
7.6. Further, petitioners’ / borrowers’ averment that it would not getany credit sanctioning because of alleged error in CIBIL report is also false as New India Co-operative Bank Ltd. issued sanction letter to Mr. Rathinavelu for Rs. 4 Crores on 27.11.2015, on the agreed terms that loan is to be disbursed in favour of 1st petitioner Company (INMA International Limited). Hence, no alleged loss was suffered by petitioners / borrowers on account of alleged CIBIL error.
7.7. Further, it has come to light from reports filed by the Resolution Professional that petitioners / borrowers, in addition to the initial loan
obtained from New India Cooperative Bank, had obtained two
enhancements to the loan from the said bank by mortgaging property which was transferred to its director. It was submitted that above transfers were without receipt of any sale consideration. Further loans were also obtained by mortgaging additional properties as well. Therefore, it is clear that (i) in spite of availability of funds, petitioners / borrowers did not pay approved OTS, and (ii) no prejudice was caused to petitioners / borrowers due to error in CIBIL report.
7.8. Further, DRT without arriving at any finding as to whether any alleged damages has occurred or not based on evidences and without going into the exercise of quantifying the alleged damages that is purported to be caused to petitioners, has erroneously ordered for waiver of interest on the erroneous premise that High Court had held that petitioners / borrowers suffered due to CIBIL report and petitioners / borrowers are entitled for damages in tort.
7.9. Further, DRT in its order dated 30.05.2019 has arbitrarily stated that order dated 09.09.2016 passed in S.A.No.20/2016 by DRT is not binding in subject proceedings. The said statement reflects lack of judicial discipline and non-coherence.
7.10. DRAT did not disturb the finding of DRT to the extent of admission of claim of respondent bank. Further, DRAT also recorded that interest cannot be waived as the same is nothing but public money. However, in spite of such observation DRAT has erroneously ordered for simple interest at 9% per annum from the date of order till date of realization. The interest rate ordered by DRAT is less that the contractual rate agreed by the parties.
7.11. Further, in Civil Appeal Diary No.29801/2023 preferred by petitioners/borrowers, the Hon’ble Supreme Court in its order dated
22.09.2023 has observed that the petitioners/borrowers have made an offer for Rs.11.46 Crores when insolvency proceedings were pending and subsequently failed to honor the same.
8. Against the above background, following questions arise for consideration viz.,
a) Whether DRT was within its jurisdiction in entertaining the claim for damages, after finding that the same is founded on tort?
b) Assuming DRT was within its jurisdiction in entertaining the plea of damages, the following issues would arise for consideration viz.,
i) Whether the order of DRT/DRAT insofar it grants/modifies, damages on the counter claim made by petitioners, is made on a gross misreading of the judgment of this Court in W.P.No.1241 of 2017 dated 31.08.2018, thus patently illegal?
ii) Whether the order of DRT/DRAT insofar it grants/modifies damages on the counter claim made by petitioners made in the absence of evidence suffers from being perverse and arbitrary?
iii) Whether the order of DRT/DRAT insofar it grants/modifies damages on the counter claim made by petitioners, ought to have seen that the above claim itself is an after thought, thus unsustainable?
Analysis:
9. Recapitulation of facts:
9.1. It may be necessary to recapitulate the relevant facts on the basis of which claim for damages is founded by petitioners, to understand the nature of damages claimed and ordered. Claim for damages is made by petitioners on the premise that while reporting to CIBIL, respondent bank had shown a sum of Rs.32,11,31,188/- as outstanding from petitioners’ company as against actual due of Rs.15,76,56,258/-. CIBIL in turn disclosed the dues outstanding as Rs.32,11,31,188/-. In view of the excessive outstanding shown against the account of petitioners, petitioners faced difficulties in obtaining credit/loan facilities. As a result thereof, DRT found that petitioners suffered loss of reputation, loss of business and mental agony. Importantly, DRT had, while awarding damages, found that claim of damages is founded in tort.
10. Question thus arises whether it is within the jurisdiction of DRT/
DRAT to adjudicate a claim for damages founded in tort.
10.1. To answer the above question, it may be necessary to bear in mind the object of RDB Act, scope and extent of power of DRT/DRAT constituted under RDB Act, post the amendment inserting sub-sections (6) to (11) to Section 19 of RDB Act, which inter-alia includes adjudication of counter claims whether by way of damages or not, in terms of sub-section
(8) to Section 19 of RDB Act introduced vide Act 1 of 2000.
10.2. Object of RDB Act:
It may be relevant to refer to the background necessitating the introduction of RDB Act. RDB Act was enacted by Parliament with the object of ensuring expeditious recovery of debts due to the banks. Before coming into force of RDB Act, banks were approaching Civil Courts for recovery of their debts from defaulters by filing civil suits before Civil Courts of competent jurisdiction. After the coming into force of RDB Act on 25th June, 1993, the jurisdiction of Civil Courts was taken away. The decision to have separate Bank Tribunals was taken by the Central
Government after considering increasing workload of Civil Courts and delay in disposal of the bank suits. The Statement of Objects and Reasons for enactment of RDB Act would show that banks and financial institutions experienced considerable difficulties in recovering loans and enforcement of securities charged with them. The procedure prior to introduction of RDB Act, for recovery of debts due to banks and financial institutions blocked a significant portion of their funds in unproductive assets, the value of which deteriorated with the passage of time. The locking up of such huge amount of public money in litigation prevented proper utilisation and recycling of the funds for the development of the country . It was against the above background that RDB Act was introduced. In this regard, it would be apposite to note the Statement of
Objects and Reasons for enacting RDB Act, which reads as under:
“Statement of Objects and Reasons.—Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realised without delay. In 1981, a Committee under the chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfil a long-felt need, but also will be an important step in the implementation of the report of Narasimham Committee. Whereas on 30-9-1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than Rs 5622 crores in dues of public sector banks and about Rs 391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilisation and recycling of the funds for the development of the country.”
10.3. It may also be relevant to refer to the following judgments of the Hon’ble Supreme Court wherein the object of RDB Act has been expounded to ensure speedy/expeditious adjudication/recovery of debts due to banks and financial institutions. There could be no two views, about the fact that the object/central theme of RDB Act, is to expedite recovery process which has for long suffered gross delays in civil proceedings which has been taken undue advantage of defaulters thereby adversely impacting public interest. In this regard, it may be relevant to refer to the following judgments:
i) Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services
Ltd.:
“44. Now, if we turn to the objective of the RDB Act read with the scheme and provisions thereof; it is abundantly clear that a summary remedy is provided in respect of claims of Banks and financial institutions so that recovery of the same may not be impeded by the elaborate procedure of the Code.” ii) Official Liquidator v. Allahabad Bank :
“9. The purpose of the RDB Act, as is evincible, is to provide for establishment of Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto.”
10.4. The above view of the Supreme Court in VCK Shares (supra) on the object of the RDB Act was reiterated by the Hon’ble Supreme Court in its recent judgment in the case of Central Bank of India and Another vs. Smt.Prabha Jain and Others .
10.5. It is thus beyond the pale of any doubt that the introduction of the RDB Act and formation/constitution of the Tribunal under the said Act, was with the avowed objective of expeditious adjudication of claims relating to debts due to bank and financial institutions.
11. Background leading to insertion of Provisions for Set-Off and Damages –
11.1. When RDB Act was introduced, there were no provisions either to claim a set off or to lodge a counter claim. Provisions of RDB Act was the subject matter of challenge before the Delhi High Court in the case of Delhi High Court Bar Association vs. Union of India wherein the validity of the Act was challenged primarily on the ground that it erodes independence of judiciary. Challenge was also on the ground that there is no provision in RDB Act for set off or counter claim. It was found that RDB Act produced anomalous results. The challenge to the provisions was upheld. The matter was carried in appeal by the Union of India to the Hon’ble Supreme Court. It is pertinent to note that by the time the judgment was rendered in Delhi
High Court Bar Association, RDB Act was suitably amended by Act 1 of 2000 to include provisions providing for set off and counter-claim and thus the anomaly pointed out by Delhi High Court stood remedied/ plugged. Consequently, the Act was upheld.
12. Jurisdiction, power and authority of Tribunal to adjudicate counter claim by way of damages:
12.1. Having examined the object of RDB Act, and the legislativehistory behind conferment of power on DRT/DRAT to adjudicate on counter claims whether in the nature of damages or not, we shall now examine the relevant provisions relating to jurisdiction, power and authority of DRT/DRAT including its jurisdiction and authority to adjudicate counter claims under RDB Act. The relevant provisions reads as under:
12.2. Relevant provisions of RDB Act:
Section 17:
“17. Jurisdiction, powers and authority of Tribunals.
(1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.
[(1-A) Without prejudice to sub-section (1), –
(a) the Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain and decide applications under Part III of Insolvency and Bankruptcy Code, 2016.
(b) the Tribunal shall have circuit sittings in all district headquarters.]
(2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have made, by a Tribunal under this Act.
[(2-A) Without prejudice to sub-section 2) the Appellate Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016.]”
“Section 19: Application to the Tribunal:
(6)Where the defendant claims to set-off against the applicant’s demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement containing the particulars of the debt[1][the debt sought to be set-off along with original documents and other evidence relied on in support of claim of set-off in relation to any ascertained sum of money, against the applicant].
…
(8) A defendant in an application may, in addition to his right of pleading a set-off under sub-section (6), set up, by way of counter-claim against the claim of the applicant, any right or claim in respect of a cause of action accruing to the defendant against the applicant either before or after the filing of the application but before the defendant has delivered his defence or before the time limited for delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages or not.
(9) A counter-claim under sub-section (8) shall have the same effect as a cross-suit so as to enable the Tribunal to pass a final order on the same application, both on the original claim and on the counter-claim.
(10)The applicant shall be at liberty to file a written statement in answer to the counter-claim of the defendant within such period[as may be prescribed].
(11)Where a defendant sets up a counter-claim in the written statement and in reply to such claim the applicant contends that the claim thereby raised ought not to be disposed of by way of counter-claim but in an independent action, the Tribunal shall decide such issue along with the claim of the applicant for recovery of the debt.”
13. Section 17 of RDB Act, deals with jurisdiction, powers and authority of DRT/DRAT constituted under RDB Act. It provides that DRT/DRAT shall have jurisdiction, power and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. The expression “debt” is defined under Section 2(g) of RDB Act as under:
“2…..
(g) “debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application [ Ins. by Act 44 of 2016, S. 26(i) (w.e.f. 1-9-2016).] [and includes any liability towards debt securities which remains unpaid in full or part after notice of ninety days served upon the borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of debt securities or];”
13.1. On a reading of sub-sections (6) and (8) to Section 19 of RDB Act, it would be clear that DRT/DRAT may adjudicate/examine a claim of set-off under sub-section (6) to Section 19 of RDB Act, or a counter claim including by way of damages under sub-section (8) to Section 19 of RDB Act.
13.2. We are concerned with the authority/ jurisdiction of DRT/DRAT to deal with a claim of damages, rather the class/ nature of damages, that could be adjudicated by DRT/DRAT. In other words, the question is whether DRT/DRAT by virtue of sub-section (8) to Section 19 of RDB Act, has jurisdiction to adjudicate damages in all its hues including damages in tort or is it restricted to damages arising out of and incidental to debt sought to be recovered under the contract between bank and borrower. There is no dispute that damages claimed in the present case is founded on tort and not contract.
14. To appreciate the issue that arises for consideration, it may be relevant to understand the nature and scope of the expression “damages”. We shall refer to the meaning attributed to the expression “damages” jurisprudentially.
14.1. “Damages” are the pecuniary recompense given by process of law to a person for the actionable wrong that another has done him .
14.2. McGregor defines damages as the pecuniary compensation,obtainable by success in an action, for a wrong which is either a tort or a breach of contract.
14.3. The essentials of damages are (a) detriment to one by wrongdoer of another, (b) reparation awarded to the injured through legal remedies and (c) its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often not always, a punitive addition as a deterrent cum denunciation by the law .
14.4. . The range and nature of damages are very wide. In this regard, it may be useful to refer to the following:
“A plurality of variants stemming out of a core concept is seen in such words as actual damages, civil damages, compensatory damages, consequential damages, contingent damages, continuing damages, double damages, excessive damages, exemplary damages, general damages, irreparable damages, pecuniary damages, prospective damages, special damages,
substantial damages, unliquidated damages. ”
14.5. It is not in dispute that DRT had found that damages in the present case is founded in tort. Relevant portion of DRT’s order is extracted hereunder:
“14….Therefore there is tortuous liability and they are entitled for damages from the applicant bank…
“15….The Hon’ble High court held that the defendants are entitled for damage from the applicant bank’s tortuous liability. Though there is CIBIL report against D1 for no fault of D1, we need not elaborately discuss about CIBIL report since the Hon’ble High Court had held that the defendants are entitled for damages for applicant bank’s tortuous
liability….”
14.6. We would think that independent of the above finding of DRT, claim for damages, if any, obtaining in the facts of the case is founded in tort and not contract. This would be clear if we bear in mind that respondent bank was under an obligation to submit data to CIBIL admittedly in view
