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Recovery of Debts Due to Banks and Financial Institutions Act, 1993-Sections 17, 18, 19 and 31. Suit by borrower against bank-Held-Jurisdiction of civil courts is barred only in regard to applications by bank/financial institution for recovery of its debts-It is not barred in regard to any suit filed by a borrower or other person against a Bank-On facts, jurisdiction of civil court held not be barred in a borrower’s suit for damages against bank for non-disbursement of a sanctioned loan-The suit found not be a counter claim to an earlier Original Application (O.A.) of Bank before D.R.T. for recovery of an amount advanced to the borrower under another loan-Subject matter of O.A and suit were not connected and decision in one did not depend on other-Such a suit was not required to be transferred to D.R.T.-It was more so as the suit was filed after establishment of latter and the provisions of the Act did not support transfer of such suit. Counter claim by borrower/defendant in Bank’s Original Application before D.R.T.-Forum for-Held-Counter claim is not the only remedy, but an option available to borrower/defendant-If they have an independent claim against Bank, they cannot be compelled to make their claim against Bank only by counter-claim before D.R.T.-Such a claim made by them by an independent suit in a court having jurisdiction cannot be transferred to D.R.T. against their wishes. Constitution of India, 1950-Article 142-After declaration of law, Supreme Court in operative part of judgment relaxing application of that law under Article 142-In such a case, the precedent value is that of ratio decidendi, and not the relaxation given on special facts-One solution to avoid a situation where relaxation itself comes to be treated as law, is for the Supreme Court to clarify that it was given in exercise of power under Article 142. Appellant-bank sanctioned ad hoc packing credit facilities to the respondent company. According to appellant, respondent utilised the said credit facilities but committed default in repaying the amounts advanced. Therefore, they filed an Original Application (O.A.) before the Debt Recovery Tribunal (D.R.T.) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 seeking a certificate of recovery thereof with interest. During pendency of the O.A. wherein trial was yet to commence, appellant sanctioned another loan and credit facilities to the respondent, but the sanctioned amounts were not released. For this, respondent filed a suit against the appellant in High Court for recovery of damages with interest. Recording of evidence in the suit had been completed and it was ripe for arguments. At this stage, appellant pleaded that the suit could not be tried by the High Court and it should be transferred to the D.R.T. on the ground that it was broadly in the nature of a counter-claim to appellant’s O.A and was integrally connected with it. For this they relied on Sections 19(6) to (11) of the Act. High Court rejected these claims of appellant. Hence the present appeals. On the contentions of the parties, following questions arose for consideration of the Court: (a) Whether the subject-matter of the borrower’s suit before the High Court and Bank’s O.A. before D.R.T. were inextricably linked? (b) Whether the provisions of the Act require the transfer of an independent suit filed by a borrower against a Bank before a civil court to D.R.T. in the event of the Bank filing a recovery application against the borrower before D.R.T. to be tried as a counter-claim in the Bank’s O.A.? Dismissing the appeal, the Court HELD: 1. It is evident from Sections 17 and 18 of the Debts Recovery Act that civil court’s jurisdiction is barred only in regard to applications by a bank or a financial institution for recovery of its debts. The jurisdiction of civil courts is not barred in regard to any suit filed by a borrower or any other person against a bank for any relief. [68-f] 1.2. The Debts Recovery Act, as it orginally stood, did not contain any provision enabling a defendant in application filed by the bank/financial institution to claim any set off or make any counter claim against bank/financial institution. The Act was amended by Act 1 of 2000 to remove the lacuna by providing for set off and counter-claims by defendants in the applications filed by Banks/financial institution before the Tribunal. What is significant is that Sections 17 and 18 have not been amended. Jurisdiction has not been conferred on the Tribunal, even after the amendment, to try independent suits or proceedings initiated by borrowers or others against banks/financial institutions, nor the jurisdiction of civil courts barred in regard to such suits or proceedings. [64-b, c, d, f, g] Union of India v. Delhi High Court Bar Association, [2002] 4 SCC 5, relied on. Delhi High Court Bar Association v. Union of India, AIR (1995) Delhi 323 approved. 2. The issues that arose in the Bank’s application was whether the borrower failed to repay the sums borrowed and whether the Bank was entitled to the amounts claimed. On the other hand, the issues that arose in the borrower’s suit were whether the Bank had promised/agreed to advance certain monies, whether the Bank committed breach in refusing to release such loans in terms of the sanction letter; whether the borrower failed to fulfill the terms and conditions of sanction and therefore the Bank’s refusal to advance, was justified; and even if there was breach, whether the borrower suffered any loss on account of such non-disbursement and if so whether the borrower was entitled to the amounts claimed. While the claim of the Bank was for an ascertained sum due from the borrower, the claim of the borrower was for damages which required firstly a determination by the court as to whether the Bank was liable to pay damages and thereafter assessment of quantum of such damages. Thus there is absolutely no connection between the subject matter of the two suits and they are no way connected. A decision in one does not depend on the other. Nor could there be any apprehension of different and inconsistent results if the suit and the application are tried and decided separately by different forums. In the circumstances, it cannot be said that the borrower’s suit and Bank’s application were inextricably connected. [61-c, f] 3. It is not disputed that the Calcutta High Court had the jurisdiction to entertain and dispose of suit filed by borrower when it was filed and continues to have jurisdiction to entertain and dispose of the said suit. There is no provision in the Act for transfer of suits and proceedings, except section 31 which relates to suit/proceeding by a Bank or financial institution for recovery of a debt. It is evidence from Section 31 that only those cases and proceedings (for recovery of debts due to bank and financial institutions) which were pending before any Court immediately before the date of establishment of a tribunal under the Debts Recovery Act stood transferred, to the Tribunal. In this case, there is no dispute that the Debts Recovery Tribunal, Calcutta, was established long prior to the company filing suit against the bank. The said suit having been filed long after the date when the tribunal was established and not being a suit or proceeding instituted by a bank or financial institution for recovery of a debt, did not attract section 31. [63-g, h; 64-a] 4. Making counter claim in the Bank’s application before the Tribunal is not the only remedy, but an option available to the borrower/defendant. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the Bank and pursue the same. Even the Bank, in whose application, the counter-claim is made has the option to apply to the Tribunal to exclude the counter-claim of the defendant while considering its application. When such application is made by the Bank, the Tribunal may either refuse to exclude the counter claim and proceed to consider the Bank’s application and the counter-claim and together or exclude the counter claim as prayed and proceed only with the Bank’s application, in which event the counter claim would become an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counter claim as the Tribunal does not have jurisdiction to try and independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the Bank, cannot be compelled to make his claim against the Bank only by way of counter-claim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a Tribunal against his wishes. In this case, the first respondent does not wish his case to be transferred to the Tribunal. [65-a-e] United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd., [2000] 7 SCC distinguished. 5. Many a time, after declaring the law, this court in the operative part of the judgment, gives some directions which may either relax the application of law or exempt the case on hand from the rigour of the law in view of the peculiar facts or in view of the uncertainty of law till then, to do complete injustice. While doing so, normally it is not stated such determination/order is in exercise of power under Article 142. It is not uncommon to find that courts have followed not the law declared, but the exemption/relaxation made while moulding the relief in exercise of power under Article 142. When the High Courts repeatedly follow a direction issued under Article 142, treating it as the law declared by this court, incongruously the exemption/relaxation granted under Article 142 becomes the law, though at variance with the law declared by this Court. The Courts should therefore be careful to ascertain and follow the ratio decidendi, and not the relief given on the special facts, exercising power under Article 142. One solution to avoid such a situation is for this Court to clarify that a particular direction or portion of the order is in exercise of power under Article 142. [70-d, e, f] L.N. Rao, Himanshu Munshi and Rajesh Kumar Chaurasia, for the Appellant. Jaideep Gupta, Rana Mukherjee, Siddharth Gautam and Goodwill Indeevar, for the Respondent.2006 AIR 1899, 2006(1 )Suppl.SCR52 , 2006(5 )SCC72 , 2006(4 )SCALE423 , 2006(5 )JT281

CASE NO.:
Appeal (civil) 10074-10075 of 2003

PETITIONER:
Indian Bank

RESPONDENT:
ABS Marine Products Pvt. Ltd.

DATE OF JUDGMENT: 18/04/2006

BENCH:
Dr. AR. Lakshmanan & R. V. Raveendran

JUDGMENT:
J U D G M E N T
RAVEENDRAN, J.
These appeals by special leave are filed against the judgment dated
10.5.2002 of the Calcutta High Court, dismissing A.P.O. Nos.57-58 of
2001 filed by the appellant-Bank against orders dated 24.1.2001 and
13.3.2001 passed by a learned Single Judge of that court, rejecting an oral
application and a written application respectively, filed by the appellant-
Bank for transfer of Civil Suit No.7/1995 (filed by first respondent herein
against the appellant and others and pending on the file of the Calcutta
High Court) to the Debt Recovery Tribunal, Calcutta, for being tried with
O.A. No.170/1995 (filed by the appellant against the first respondent and
its guarantors).
2. The first respondent (also referred to as the ‘borrower’ or
‘company’) approached the appellant-Bank (for short ‘the Bank’) for
certain credit facilities. By Sanction Advices dated 12.7.1991 and
6.12.1991, the Bank sanctioned ad hoc packing credit facilities to a limit of
Rs.20 lakhs and Rs.5 lakhs respectively. According to the Bank, the
company utilized the said credit facilities, but committed default in
repaying the amounts advanced. Therefore, the Bank filed O.A.
No.170/1995 on 21.8.1995 before the Debt Recovery Tribunal (for short
‘the Tribunal’) under Section 19 of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (for short ‘Debt Recovery Act’)
seeking a certificate to recover Rs.30,67,820/04 with interest from the
company and its four guarantors (Directors), jointly and severally. The said
application is pending and trial therein is yet to commence.

3. On 19.12.1991, the Bank sanctioned a Middle Term Loan of Rs.90
lakhs and certain other credit facilities to the company. The sanctioned
loans were not released. The company filed C.S. No.7/1995 against the
Bank in the Calcutta High Court in January, 1995, for recovery of
Rs.25,38,58,000/- as damages (for non-disbursal of the loans) with interest.
By the end of 2000, recording of evidence in the suit was completed and
the suit was ripe for arguments.

4. On 24.1.2001, the Bank made an oral submission that the suit could
not be tried by the High Court and it should be transferred to the Tribunal.
A learned Single Judge rejected the said request by the following order :-

“Though not pleaded in the written statement specifically, the learned
counsel for the defendant contends that in view of the amendment of
section 19 of the Recovery of debts due to Banks and Financial
Institutions Act, 1993, this suit cannot be tried by this court. I have gone
through section 19 of the said act as amended up to date. It appears from
the said amendment that the debtor/respondent will be entitled to make
counter claims in the same proceeding initiated by the bank. Before
amendment there was no such specific provision. But in this case, the
plaintiff/debtor had filed the suit before the bank could file appropriate
proceeding. It is a separate suit. It is neither a cross suit nor can be termed
as counter-claim. So the suit is perfectly entertainable by this court.
Therefore, the preliminary objection raised by the Bank is hereby
overruled.”
5. Thereafter, the Bank filed an application in writing, praying for
transfer of C.S. No.7/1995 filed by the borrower to the Tribunal on the
ground that the said suit was broadly in the nature of a counter-claim to
Bank’s O.A. No.170/1995 and was integrally connected with its
application. The learned Single Judge rejected the said application by order
dated 13.3.2001, as barred by res judicata, in view of the fact the same
prayer made orally earlier had been rejected on 24.1.2001. The said two
orders dated 24.1.2001 and 13.3.2001 were challenged by the Bank in two
appeals (APO Nos.57-58/2001) before a Division Bench of the High Court.
In support of its contention that C.S. No.7/1995 should be transferred from
the High Court to the Tribunal for being tried with OA No.170/1995, the
Bank relied on Sections 19(6) to (11) of the Debts Recovery Act and the
following observations of this Court in United Bank of India, Calcutta v.
Abhijit Tea Co. Pvt. Ltd. [2000 (7) SCC 357] :-

“If a set-off or a counter-claim is to be equated to a cross-suit under
Section 19, a fortiori there can be no difficulty in treating the cross-suit as
one by way of set-off and counter-claim, and as proceedings which ought
to be dealt with simultaneously with the main suit by the Bank.”In
our view, in the context, the word “counter-claim” in Sections 19(8) to
(11) which is equated to a cross-suit, includes a claim even if it is made in
an independent suit filed earlier.”
6. A Division Bench of the Calcutta High Court dismissed the Bank’s
appeals by an order dated 10.5.2002. The High Court held that :

(i) In the absence of a provision in the Debt Recovery Act enabling a
borrower to file a suit (application) against the bank or a financial
institution, in the Debt Recovery Tribunal, the jurisdiction of the civil
court to entertain a suit filed by the borrower against the bank is not
excluded under Section 18 of the said Act.

(ii) Section 31 of the Debts Recovery Act providing for transfer of the
pending suits/cases, from courts to tribunals, applies only to those suits or
proceedings which were pending before any court immediately before the
establishment of a Tribunal under the said Act and will not apply to any
suit or proceeding validly initiated in a civil court after the establishment
of the Tribunal.

(iii) Sub-section (8) of Section 19 of the Act is merely a provision
enabling a defendant (in a Recovery Application filed by the Bank before
the Tribunal) to raise a counter-claim in his written statement against the
bank, and empowering the Tribunal to try such a counter-claim. Such an
enabling provision cannot be construed as ousting or excluding the
jurisdiction of the civil court to entertain a suit for damages filed by the
borrower against the bank, or enabling the bank to seek transfer of such a
suit, to the Tribunal. The observation in Abhijit (supra) that the borrower’s
suit should be transferred to the Tribunal by treating the independent suit
of the borrower as a counter-claim in the application of the Bank, was in
exercise of the extraordinary power under Article 142 of the Constitution
of India, on the special and peculiar facts of that case. As the High Court
in its jurisdiction as a civil court, did not possess the power available to
the Supreme Court under Article 142, it could not pass any order for
transfer of a suit validly instituted before it, to the Tribunal.

(iv) Even assuming that the High Court could transfer the suit, the
basic requirement for transfer laid down in Abhijit (supra), that is, the
subject-matter of the borrower’s suit pending before the Court, and the
Bank’s application pending before the Tribunal should be inextricably
connected, was not present in this case. Therefore, there could be no
transfer.

(v) Where a borrower’s suit is deemed to be a counter-claim in respect
of the Bank’s application, and is transferred to the Tribunal, it would be
open for the Bank, to contend, as enabled by Section 19(11) of the Debts
Recovery Act, that such suit should be tried independently. If such a
contention is accepted by the Tribunal, the suit transferred from the civil
court to the Tribunal will have to be re-transferred from the Tribunal to the
civil court, as the Tribunal has no jurisdiction to entertain or try an
independent suit of the borrower against the bank. That will lead to an
anomalous situation.

(vi) The civil court has jurisdiction to try all suits of civil nature, except
those excluded by reason of an express or implied bar in a statute. The
jurisdiction of a civil court can never be contingent upon an order passed
by the Tribunal, and that too on an application by one of the parties to the
proceeding before the Tribunal. Nor will the jurisdiction vested in a civil
court to proceed with a suit, cease on the Bank or financial institution
filing an application for recovery before the Tribunal.

7. The said decision of the Division Bench of the Calcutta High Court
is challenged by the Bank in these appeals by special leave, on the ground
that the subject matter of the Bank’s application and the first respondent’s
suit were inextricably connected, and though the suit of the borrower was
prior to the Bank’s application before the Tribunal, in view of the law laid
down in Abhijit (supra), the borrower’s suit should be considered as a
counter-claim in the Bank’s application before the Tribunal and
consequently, transferred to the Tribunal. On the contentions raised, the
following questions arise for our consideration :

(a) Whether the subject-matter of the borrower’s suit before
the High Court and Bank’s application before the
Tribunal were inextricably connected?

(b) Whether the provisions of Debts Recovery Act mandate
or require the transfer of an independent suit filed by a
borrower against a Bank before a civil court to the
Tribunal, in the event of the Bank filing a recovery
application against the borrower before the Tribunal, to
be tried as a counter-claim in the Bank’s application?

(c) Whether the observation in Abhijit (supra) that the suit
filed by the borrower against the Bank has to be
transferred to the Tribunal for being tried as a counter-
claim in the applications of the Bank, is to be construed
as a principle laid down by this Court, or as an
observation in exercise of power under Article 142 in
order to do complete justice between the parties?
Re : Question No. (i) :
8. The Bank sanctioned an ad hoc packing credit limit of Rs.20 lacs on
12.7.1991 and an additional ad hoc packing credit limit of Rs.5 lacs on
6.12.1991, subject to the terms contained in the Sanction Advice dated
12.7.1991. In regard to the initial limit of Rs.20 lacs, the company executed
an agreement dated 15.7.1991 and its 4 Directors executed a guarantee
dated 15.7.1991. In regard to the additional amount of Rs.5 lacs, a
promissory note and an agreement were executed on 20.11.1991. Claiming
that the company failed to pay the amounts advanced, the Bank filed an
application before the Tribunal for recovery of Rs.30,67,820.04. The cause
of action for the Bank’s application is the alleged non-payment of the
amounts advanced to the borrower, in pursuance of ad-hoc limits
sanctioned on 12.7.1991 and 6.12.1991. On the other hand, the subject
matter of the suit filed by the borrower against the Bank and the cause of
action therefor, are totally unconnected with and different from the subject
matter of and cause of action for the Bank’s application. On the request of
the borrower, the Bank by letter dated 19.12.1991 sanctioned several credit
facilities to the borrower, namely, (i) a Medium Term Loan of Rs.90 lacs;
(ii) packing credit loan facilities to a limit of Rs.50 lacs; (iii) bridge loan
of Rs.15 lacs; and (iv) guarantee facility to an extent of Rs.85.42 lacs. The
Bank also agreed to absorb the ad hoc packing credit facilities of Rs.25 lacs
already sanctioned within the fresh limits sanctioned. The borrower alleged
that it proceeded to a arrange its affairs and activities on the assumption
that the Bank will be releasing the loans; and that the Bank failed to release
the credit facilities, thereby putting it (the borrower) to huge losses, apart
from denying the profits from the business. Consequently, it filed C.S.
No.7/1995 for recovery of Rs. 25,38,58,000/- made up of Rs.
11,33,22,000/- towards loss of profits, Rs.10 crores as compensation for
loss of goodwill and reputation, Rs.3.50 croress as damages on account of
the impact of inflation and difference in foreign exchange rates,
Rs.31,36,000/- towards expenditure which became infructuous on account
of the Bank’s failure to release the loans, and Rs.24 lacs towards interest up
to the date of the suit. The cause of action for the borrower’s suit is the
alleged breach by the Bank, in not releasing the sanctioned loans.

9. The issues that arose in the Bank’s application was whether the
borrower failed to repay the sums borrowed and whether the Bank was
entitled to the amounts claimed. On the other hand, the issues that arose in
the borrower’s suit were whether the Bank had promised/agreed to advance
certain monies; whether the Bank committed breach in refusing to release
such loans in terms of the sanction letter; whether the borrower failed to
fulfil the terms and conditions of sanction and therefore the Bank’s refusal
to advance, was justified; and even if there was breach, whether the
borrower suffered any loss on account of such non-disbursement and if so
whether the borrower was entitled to the amounts claimed. While the claim
of the Bank was for an ascertained sum due from the borrower, the claim of
the borrower was for damages which required firstly a determination by the
court as to whether the Bank was liable to pay damages and thereafter
assessment of quantum of such damages. Thus there is absolutely no
connection between the subject matter of the two suits and they are no way
connected. A decision in one does not depend on the other. Nor could there
be any apprehension of different and inconsistent results if the suit and the
application are tried and decided separately by different forums. In the
circumstances, it cannot be said that the borrower’s suit and the Bank’s
application were inextricably connected.
Re : Question No. 2 :
10. Section 17 of the Debts Recovery Act deals with jurisdiction, powers
and authority of the Tribunals. Sub-section (1) thereof provides that 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. “Debt” is defined under Section 2(g) as follows :

“(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;”
Section 18 provides that on and from the appointed day, no court or other
authority shall have, or be entitled to exercise, any jurisdiction, powers or
authority (except the Supreme Court, and a High Court exercising
jurisdiction under Article 226 and 227 of the Constitution) in relation to
the matters specified in Section 17.

11. Section 19 related to the procedure of Tribunal, in regard to filing of
applications. Section 19, as it originally stood, was substituted in entirety
by Act 1 of 2000. Sub-section (1) of section 19 provides that a Bank or
financial institution can make an application to jurisdictional Debt
Recovery Tribunal. Sub-sections (6) to (11) of new Section 19, relevant for
our purpose, are extracted below :

“(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 sought to be set-off.

(7) The written statement shall have the same effect as a plaint in a cross-
suit so as to enable the Tribunal to pass a final order in respect both of the
original claim and of the set-off.

(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 fixed
by the Tribunal.

(11) Where a defendant sets up a counter-claim and 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 applicant may, at any time
before issues are settled in relation to the counter-claim, apply to the
Tribunal for an order that such counter-claim may be excluded, and the
Tribunal may, on the hearing of such application make such order as it
thinks fit.”

12. Section 31 of the Debts Recovery Act provides that every suit or
other proceeding pending before any court immediately before the date of
establishment of a Tribunal under the said Act, being a suit or proceeding
the cause of action whereon it is based is such that it would have been, if it
had arisen after such establishment, within the jurisdiction of such
Tribunal, shall stand transferred on that date to such Tribunal.

13. Section 9 of the Code of Civil Procedure provides that the courts
shall have jurisdiction to try all suits of a civil nature, excepting suits of
which their cognizance is either expressly or impliedly barred.

14. It is evident from Sections 17 and 18 of the Debts Recovery Act that
civil court’s jurisdiction is barred only in regard to applications by a bank
or a financial institution for recovery of its debts. The jurisdiction of civil
courts is not barred in regard to any suit filed by a borrower or any other
person against a bank for any relief. It is not disputed that the Calcutta
High Court had jurisdiction to entertain and dispose of C.S. No.7/1995
filed by the borrower when it was filed and continues to have jurisdiction
to entertain and dispose of the said suit. There is no provision in the Act for
transfer of suits and proceedings, except section 31 which relates to
suit/proceeding by a Bank or financial institution for recovery of a debt. It
is evident from Section 31 that only those cases and proceedings (for
recovery of debts due to banks and financial institutions) which were
pending before any court immediately before the date of establishment of a
tribunal under the Debts Recovery Act stood transferred, to the Tribunal. In
this case, there is no dispute that the Debt Recovery Tribunal, Calcutta, was
established long prior to the company filing C.S. No.7/1995 against the
bank. The said suit having been filed long after the date when the tribunal
was established and not being a suit or proceeding instituted by a bank or
financial institution for recovery of a debt, did not attract section 31.

15. As far as sub-sections (6) to (11) of section 19 are concerned, they
are merely enabling provisions. The Debts Recovery Act, as it originally
stood, did not contain any provision enabling a defendant in an application
filed by the bank/financial institution to claim any set off or make any
counter claim against the bank/financial institution. On that among other
grounds, the Act was held to be unconstitutional (see Delhi High Court Bar
Association vs. Union of India  AIR 1995 Delhi 323). During the
pendency of appeal against the said decision, before this Court, the Act
was amended by Act 1 of 2000 to remove the lacuna by providing for set
off and counter-claims by defendants in the applications filed by
Banks/financial institution before the Tribunal. The provisions of the Act
as amended were upheld by this Court in Union of India vs. Delhi High
Court Bar Association [2002 (4) SCC 275]. The effect of sub-sections (6)
to (11) of Section 19 of the amended Act is that any defendant in a suit or
proceeding initiated by a bank or financial institution can : (a) claim set off
against the demand of a Bank/financial institution, any ascertained sum of
money legally recoverable by him from such bank/financial institution; and
(b) set-up by way of counter-claim against the claim of a Bank/financial
institution, any right or claim in respect of a cause of action accruing to
such defendant against the bank/financial institution, either before or after
filing of the application, but before the defendant has delivered his defence
or before the time for delivering the defence has expired, whether such a
counter claim is in the nature of a claim for damages or not. What is
significant is that Sections 17 and 18 have not been amended. Jurisdiction
has not been conferred on the Tribunal, even after amendment, to try
independent suits or proceedings initiated by borrowers or others against
banks/financial institutions, nor the jurisdiction of civil courts barred in
regard to such suits or proceedings. The only change that has been made is
to enable defendants to claim set off or make a counter-claim as provided
in sub-sections (6) to (8) of Section 19 in applications already filed by the
bank or financial institutions for recovery of the amounts due to them. In
other words, what is provided and permitted is a cross-action by a
defendant in a pending application by the bank/financial institution, the
intention being to have the claim of the bank/financial institution made in
its application and the counter-claim or claim for set off of the defendant,
as a single unified proceeding, to be disposed of by a common order.

16. Making a counter claim in the Bank’s application before the Tribunal
is not the only remedy, but an option available to the borrower/defendant.
He can also file a separate suit or proceeding before a civil court or other
appropriate forum in respect of his claim against the Bank and pursue the
same. Even the Bank, in whose application the counter-claim is made, has
the option to apply to the tribunal to exclude the counter-claim of the
defendant while considering its application. When such application is made
by the Bank, the Tribunal may either refuse to exclude the counter-claim
and proceed to consider the Bank’s application and the counter-claim
together; or exclude the counter-claim as prayed, and proceed only with the
Bank’s application, in which event the counter-claim becomes an
independent claim against a bank/financial institution. The defendant will
then have to approach the civil court in respect of such excluded counter
claim as the Tribunal does not have jurisdiction to try any independent
claim against a bank/financial institution. A defendant in an application,
having an independent claim against the Bank, cannot be compelled to
make his claim against the Bank only by way of a counter-claim. Nor can
his claim by way of independent suit in a court having jurisdiction, be
transferred to a Tribunal against his wishes.

17. In this case, the first respondent does not wish his case to be
transferred to the Tribunal. It is, therefore, clear that the suit filed by the
first respondent against the Bank in the High Court for recovery of
damages, being an independent suit, and not a counter-claim made in the
application filed by the bank, the Bank’s application for transfer of the said
suit to the Tribunal was misconceived and not maintainable. The High
Court, where the suit for damages was filed by the company against the
bank, long prior to the bank filing an application before the tribunal against
the company, continues to have jurisdiction in regard to the suit and its
jurisdiction is not excluded or barred under Section 18 or any other
provision of Debts Recovery Act.

Re : Question No. (iii) :
18. Let us examine what happened in Abhijit (supra). A suit
(No.410/1985) filed by the Bank in the Calcutta High Court, was disposed
of in terms of an alleged compromise on 29.3.1984. The Tribunal was
established on 27.4.1994. Subsequently, the compromise decree was set
aside by a Division Bench on 11.8.1998 and the said suit stood restored to
file. The debtor company filed an application praying that the Bank’s suit
should be retained on the original side of the Calcutta High Court and
should not be transferred to the tribunal, as the said suit was “not pending”
on 27.4.1994 and therefore Section 31 of the Debts Recovery Act was not
attracted. A learned Single Judge of the Calcutta High Court accepted the
said contention and directed that the Bank’s suit should be retained and
proceeded with before the High Court. That order was challenged by the
Bank before this Court. Before this Court, the debtor company urged an
additional ground for seeking retention of the Bank’s suit in the High Court
by contending that the Bank’s suit was inextricably connected with a suit
filed by it against the Bank (Suit No. 272/1985) and therefore, the Bank’s
suit should not be transferred to the Tribunal. This Court formulated the
following four questions as arising for its consideration :

“(1) Whether Suit No.410 of 1985 by the Bank which was disposed of by
judgment dated 29.3.1994 and which judgment was set aside by the
Bench on 11.8.1998 and remanded to the Single Judge, could not be
treated as pending immediately before the commencement of the Act on
27.4.1994 (in West Bengal) and whether it could not be transferred to the
Recovery Tribunal ?

(2) What is the combined effect of Sections 18 and 31 and of the Act on
pending proceedings ?

(3) Whether the pendency of Suit No.272 of 1985 filed by the debtor
Company against the Bank for specific performance and for perpetual and
mandatory injunctions raising common issues between parties in both
these suits was a sufficient reason for retention of the Bank’s suit No.410
of 1985 on the original side of the High Court to be tried along with Suit
No.272 of 1985 filed by the debtor Company ?

(4) Whether Suit No.272 of 1985 filed by the debtor Company was, in
substance, one in the nature of a “counter-claim” against the Bank and was
one which also fell within the special Act by reason of Sections 19(8) to
(11) of the Act (as introduced by amending Act 1 of 2000) and if that be
so, whether it could still be successfully pleaded by the respondent
Company that the pendency of the Company’s Suit No.272 of 1985 was a
ground for retention of the Bank’s Suit No.410 of 1985 on the original
side of the High Court ?”

Though the questions raised were four, the issues were only two. The first
was whether suit disposed of on 29.3.1994 and restored on 11.8.1998 could
be deemed to be pending on 27.4.1994, when the Tribunal was established,
for purpose of Section 31. The second was, whether the Bank’s suit, even
though liable to be transferred to the Tribunal under section 31, could be
retained in the High Court on the ground that it was inextricably connected
with an earlier suit filed by the borrower against the Bank. The question
whether a suit filed by the borrower against a Bank in a civil court, could
be transferred to the Tribunal against his wishes, neither arose for decision
nor was considered or decided.

19. With reference to the first issue, this Court held that when the appeal
against the compromise decree dated 29.3.1984 was allowed and the
compromise decree was set aside, the suit stood restored and it should be
deemed to be pending from 29.3.1984 itself, and consequently, must be
deemed in the eye of law to be pending on 27.4.1994 when the Tribunal
was constituted at Calcutta, and Sections 18 and 31 of the Debts Recovery
Act would apply to the said suit. There is no dispute that the decision of
this Court on the first issue is the law declared by this Court.

20. The second issue, as noticed above, was whether the suit of the Bank
against the borrower should be retained in the High Court, merely because
the borrower’s suit was pending in the High Court. There was no
application or prayer for transfer of the borrower’s suit [OS No.272/1985]
to the Debts Recovery Tribunal. Neither the Bank nor the borrower had
sought transfer of the said suit from the High Court. In fact, before the
High Court, the borrower had not even contended that the Bank’s suit
should be retained in the High Court on the ground that it was inextricably
connected with its suit pending in the High Court. However, the borrower
raised an additional ground in support of its request for retention of the
Bank’s suit in the High Court, for the first time, in this Court by contending
that the subject matter of the Bank’s suit was inextricably connected with
the subject matter of its suit, and therefore, both should be tried together by
the High Court itself. The borrower submitted that as the borrower’s suit
could not be transferred to the Tribunal, having regard to Sections 17, 18
and 31 of the Debts Recovery Act, the Bank’s suit should also not be
transferred to the tribunal. This Court held that having regard to the
mandate contained in Section 31, it was not possible to retain the Bank’s
suit before the civil (High) Court on the ground that it was connected with
another suit filed against the Bank. This answered the second issue. But
this Court thereafter proceeded to consider as an incidental issue whether
the borrower’s suit could be transferred to the Tribunal as the borrower was
insisting that his suit and Bank’s suit should be tried together. It found a
solution by holding that the principle underlying sub-section (8) of Section
19 which enabled the defendant making a counter-claim in an application
filed by the Bank, can broadly be extended and applied to an independent
prior suit of the borrower by considering such suit as a counter-claim, so
that both could be transferred to the Tribunal, instead of transferring only
the Bank’s suit. This Court, however, held so only because of the following
circumstances :-

(i) The borrower contended that its suit and the Bank’s suit
cannot be tried independently, as the subject-matter of its suit
and the Bank’s suit were inextricably connected;

(ii) the Bank also agreed that the borrower’s suit can be tried
along with its suit; and

(iii) the court on examination found that the two suits were in fact
inextricably connected.

But the confusion is in regard to this ‘incidental’ decision/observations
made while deciding the second issue. While the Appellant contends that
the said incidental observations, made on an issue not arising for decision,
are also in the nature of law declared by this Court, the first Respondent
contends that they are merely observations made on the peculiar facts and
circumstances of that case, in exercise of the power under Article 142 to do
complete justice.

21. The first Respondent drew our attention to the following
circumstances in support of its contention that the observations relating to
treating a borrower’s independent suit as a counter claim, was in exercise
of power under Article 142 :

(a) Though there was no prayer for transfer of the borrower’s suit
to Tribunal at any stage, this Court held that borrower’s suit
should be transferred to the Tribunal.
(b) The four questions that were formulated for consideration
(extracted above) clearly showed that the question as to
whether borrower’s suit should be transferred never arose for
consideration. In fact, no arguments were addressed by either
party on the question whether the borrower’s suit can be or
should be transferred to the Tribunal.
(c) Sub-section (8) of Section 19 refers only to a counter-claim in
the Bank application, and does not contemplate a separate suit
filed against a Bank, being treated as a counter-claim.

The first respondent also pointed out that this Court, in the operative
portion, only directly transfer of Bank’s suit, but not the borrower’s suit, to
the Tribunal. The first respondent also relied on the following observations/
directions in paras 42, 43, 44 and 45 of the judgment to demonstrate that
the decision was by exercising power under Article 142 :

“Our decision in regard to the real nature of Suit No.272 of 1985 has
become necessary in the context of a plea by the debtor Company that
the Company’s Suit No.272 of 1985 is liable to be retained in the civil
court and on account of the plea that the connected suit by the Bank
Suit No.410 of 1985 is also to be retained.

We, therefore, direct the Bank’s Suit No.410 of 1985 to be transferred by
the Registrar, Calcutta High Court to the appropriate Tribunal under the
Act. So far as the debtor Company’s Suit No.272 of 1985 is concerned,
action has to be taken likewise by the Registrar in the light of our finding,
which finding has become necessary in view of the contention on
behalf of the debtor Company before us, as explained above.

The pendency of the Company’s Suit No. 272 of 1985 in the High Court is
no reason for keeping the Bank’s suit No. 410 of 1985 in the High Court.
Suit No. 410 of 1985 is liable to be transferred to the Tribunal.
Incidentally, we also hold that even Suit No. 272 of 1985 is to be tried
only by the Tribunal.

The appeal is allowed. The order of the learned Single Judge is set aside
and Suit No. 410 of 1985 is directed to be transferred by the Registrar,
High Court to the Tribunal. In the light of our finding as to the real
nature of the Company’s Suit No. 272 of 1985, it will be for the
Registrar of the High Court to pass appropriate orders. We hope that
appropriate orders will be passed in relation to suit no. 272 of 1985
expeditiously, at any rate, within one month from today.”

(Emphasis supplied)

It is further submitted that any direction issued in exercise of power under
Article 142 to do proper justice and the reasons, if any, given for exercising
such power, cannot be considered as law laid down by this Court under
Article 141. It is pointed out that other courts do not have the power similar
to that conferred on this Court under Article 142 and any attempt to follow
the exercise of such power will lead to incongruous and disastrous results.

23. Though there appears to be some merit in the first Respondent’s
submission, we do not propose to examine that aspect. Suffice it to clarify
that the observations in Abhijit that an independent suit of a defendant (in
Bank’s application) can be deemed to be a counter claim and can be
transferred to the Tribunal, will apply only if the following conditions were
satisfied :-
(i) The subject matter of Bank’s suit, and the suit of the defendant
against the Bank, should be inextricably connected in the
sense that decision in one would affect the decision in the
other.

(ii) Both parties (the plaintiff in the suit against the Bank and the
Bank) should agree for the independent suit being considered
as a counter-claim in Bank’s application before the Tribunal,
so that both can be heard and disposed of by the Tribunal.

In short the decision in Abhijit is distinguishable both on facts and law.

23. One word before parting. Many a time, after declaring the law, this
Court in the operative part of the judgment, gives some directions which
may either relax the application of law or exempt the case on hand from the
rigour of the law in view of the peculiar facts or in view of the uncertainty
of law till then, to do complete justice. While doing so, normally it is not
stated that such direction/order is in exercise of power under Article 142. It
is not uncommon to find that courts have followed not the law declared, but
the exemption/relaxation made while moulding the relief in exercise of
power under Article 142. When the High Courts repeatedly follow a
direction issued under Article 142, by treating it as the law declared by this
Court, incongruously the exemption/relaxation granted under Article 142
becomes the law, though at variance with the law declared by this Court.
The courts should therefore be careful to ascertain and follow the ratio
decidendi, and not the relief given on the special facts, exercising power
under Art. 142. One solution to avoid such a situation is for this Court to
clarify that a particular direction or portion of the order is in exercise of
power under Art. 142. Be that as it may.

Conclusion

24. In view of the above, we find that the order of the High Court does
not call for any interference. These appeals are accordingly dismissed. Parties
to bear their respective costs.

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