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2002 DIGILAW 953 (JHR)

Investment Bank Of India v. Magadh Spun Pipe Ltd.

2002-08-30

HARI SHANKAR PRASAD, M.Y.EQBAL

body2002
JUDGMENT M.Y. Eqbal, J. 1. This appeal under Clause 10 of the Letters Patent. Is directed against the judgment dated 26-3-98 passed in Company Petition No. 4/94(R), whereby the learned single Judge rejected the application filed by the petitioner/appellant under Sections 40 and 41 of the Industrial Reconstruction Bank of India Act, 1984 as being without jurisdiction and not maintainable. 2. Petitioner/appellant namely, Industrial Development Bank of India initially filed an application under Section 40 of the Industrial Reconstruction Bank of India Act, 1984 (in short Act of 1984) for an order to sale the properties as contained in Schedules A, B and C and for ad interim order of injunction restraining respondent No. 1 M/s. Magadh Spun Pipe Limited, its agents and servants from removing or alienating or encumbering the properties and assets during the pendency of the said application. The said Act of 1984 was repealed by the new Act namely, Industrial Reconstruction Bank of India Act, 1995. The petitioner/appellant then filed an amendment petition for treating the application under Section 40 of the New Act of 1995. The said amendment petition was allowed by the learned single Judge. 3. The brief facts of the case is that the appellant sanctioned a sum of Rs. 1.22 crores to the respondent No. 1 in 1989. Respondents Nos. 2 and 3 are the promoters of respondent No. 1 while respondent No. 4 is the Managing Director- cum-Chief Executive of respondent No. 1. The said respondent executed a lease deed and a deed of hypothecation. Respondents Nos. 1 and 2 further created equitable mortgage in favour of the petitioner in respect of immovable properties situated within the district of Hazaribagh. The appellants case was that respondent No. 1 defaulted in repayment of the loan as a result of which the outstanding reached to Rs. 1,93,60,116/-. When various attempts were made from the side of the petitioner to get repayment of the loan and the amount was going higher and when all attempts failed then the appellant having no alternative filed the instant application under Section 40 of the said Act for sale of the mortgaged assets and for injunction restraining respondents from alienating those mortgaged and hypothecated assets. 4. 4. Respondent No. 1 contested the application by filing an objection stating inter alia that application under Section 40 of the said Act was not maintainable before the High Court as the respondent Company already shifted its registered office to Patna before filing the petition and also on the ground that respondents are resident of Bihar and not residing within the territorial jurisdiction of the then Ranchi Bench of the Patna High Court. Respondent No. 1 further took an objection with regard to maintainability of the petition on the ground that the appellant already filed a suit being Original Suit No. 150 of 1994 in the original site of Calcutta High Court for realizing the amount of loan against the respondents. 5. Learned single Judge is of the view that if the application of the appellant is treated as an application before the Company Judge then the jurisdiction of the Court shall be decided under Companys Act as provided under Section 10 according to which High Court having jurisdiction in relation to the place at which registered office of the Company concerned is situated shall have the only jurisdiction to entertain the petition. Learned single Judge further held that if the application is treated as an application under the said Act of 1995 then in absence of any provisions for entertaining such application under the Patna High Court Rules, also application is not entertainable. For better appreciation paras 11 and 12 of the judgment of the learned single Judge is quoted herein below: "Mr. P. K. Prasad then submitted that it is not a company petition in its truest sense as nowhere under the Reconstruction Act it has been clarified or specified, rather, from different Sections of this Act and even under Section 40(8) of the Act, it is clear that for investigation of claims provisions of Civil Procedure Code would be applicable in that sense Section 10 of the Companies Act cannot come into play regarding the jurisdiction, rather Section 16 of the Civil Procedure Code would be applicable as admittedly the properties which had been hypothecated as contained in schedules A, B and C are situated within the jurisdiction of this Court. 6. Let us take this contention of Mr. P. K. Prasad for arguments sake to be correct that this petition shall be governed under the Civil Procedure Code. 6. Let us take this contention of Mr. P. K. Prasad for arguments sake to be correct that this petition shall be governed under the Civil Procedure Code. Then Patna High Court Rules requires amendment as no original Jurisdiction under the Reconstruction Act has been Included and this Court has got no original jurisdiction to entertain any such petition to be governed under the Civil Procedure Code." The learned single Judge further observed: "Mr. P. K. Prasad, for and on behalf of the petitioners has submitted that even if the respondent No. 1s show cause is accepted and there cannot be any proceeding against respondent No. 1 then also Sub-section (7) of Section 40 would come into play against other respondents and the same can be proceeded regarding the properties wherein the other respondents besides respondent No. 1 are directly Interested and the ad Interim order passed against all the respondents, even if the respondent No. 1 is allowed to be immuned from it because of the objection being filed the same should continue against the other non-contesting respondents and final order regarding sale etc. may be passed against the other respondents. But, when question of maintainability and jurisdiction raised then there is no scope to hold the petition to be maintainable and having jurisdiction against the other respondents, when as per discussion above it has already been held that this Court can have no Jurisdiction to entertain such a petition. First of all, if this petition is construed as a company petition then Section 10 remains as a bar and if it is not a company petition then there is no original jurisdiction of this Court to proceed under the Civil Procedure Code having jurisdiction under Section 16 of the Code of Civil Procedure and even if the same is also maintainable then also Section 10 of the C.P.C. is a bar. Further non-maintainability is there as the company petition before the Patna Bench is pending and no further suit can be proceeded without the prior leave of the Company Judge of Patna Bench of this Court." 7. Mr. P. K. Prasad, learned counsel appearing on behalf of the appellant assailed the impugned judgment, mainly on two grounds. Further non-maintainability is there as the company petition before the Patna Bench is pending and no further suit can be proceeded without the prior leave of the Company Judge of Patna Bench of this Court." 7. Mr. P. K. Prasad, learned counsel appearing on behalf of the appellant assailed the impugned judgment, mainly on two grounds. Learned counsel firstly submitted that the learned single Judge has gravely erred in law insofar as it held that the application under Section 40 of the said Act is not entertainable in absence of any provision in the Patna High Court Rules for entertaining such application. Learned counsel submitted that the financial institution is entitled to file an application to the concerned High Court seeking relief under Section 40 of the said Act. Learned counsel submitted that after the 1984 Act was re- pealed and the new Act, namely, Industrial Reconstruction Bank of India Act, 1984 was enacted, a petition was filed by the appellants before the learned single Judge for treating the appellants application as an application under Section 40 of the new Act which was allowed by the Court. 8. Before appreciating the submissions made by the learned counsel it would be useful to quote the relevant part of the provisions of Section 40 of the said Act which reads as under: "40. Enforcement of claims by the Reconstruction Bank:--1(a) Where an assisted industrial concern makes any default in the payment of any dues to, or in meeting its obligation in relation to any other assistance given by the Reconstruction Bank or otherwise fails to comply with the terms of agreement with that Bank; or (b) where the Reconstruction Bank makes an order under Section 38 requiring the assisted industrial concern to make immediate repayment of any assistance granted to it and the industrial concern fails to make any such repayment, then without prejudice to the provisions of Section 39 of this Act and of Section 69 of the Transfer of Property Act. 1982, any officer of the Reconstruction Bank generally and specifically authorized by the Board in this behalf, may apply to the concerned High Court for one or more of the following reliefs namely, (i) for an order for the sale or lease of the property assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank as security for the assistance granted to it, or for the sale or lease of any other property, of the industrial concern or (ii) for transferring the management of the industrial concern to the Reconstruction Bank or its nominee, or (iii) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment from the premises of the industrial concern without the previous permission of the Board, where each transfer or removal is apprehended, or (iv) for an order for the appointment of a receiver where there is apprehension of the machinery, equipment or any other property of substantial value which has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank being removed from the premises of the industrial concern or of being transferred without the previous permission of the Reconstruction Bank. (2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Reconstruction Bank, the ground on which it is made and such other particulars as may be necessary for obtaining the relief prayed for. (2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Reconstruction Bank, the ground on which it is made and such other particulars as may be necessary for obtaining the relief prayed for. (3) Where an application is for any relief mentioned in Sub-clause (i) of Sub-section (1), the High Court may- (a) by an order, authorize the Reconstruction Bank to grant lease of such property to such person and on such term and conditions as may be specified in the said order or (b) pass an order calling upon the person whose property has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank to show- cause, on a date to be specified in the notice, as to why an order for the sale of such property or so much of such property, as would, on being sold, realize, in its estimation, an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank, together with cost of the proceedings taken under this section, shall not be made, or (c) pass an ad interim order attaching any property of the industrial concern which has not been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank, or so much of such property, as would on being sold, realise, in its estimation an amount equivalent in value to the outstanding dues of the industrial concern to the Reconstruction Bank together with costs of the proceedings taken under this section, and pass an order calling upon the industrial concern to show cause on a date to be specified in the notice, as to why such order of ad interim attachment shall not be made absolute. (4) to (8) xx xx xx (9) On an investigation made under subsection (8), the High Court may pass an order:-- (a) for the sale of the property which has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank or so much of such property, as would, on being sold, realized. (4) to (8) xx xx xx (9) On an investigation made under subsection (8), the High Court may pass an order:-- (a) for the sale of the property which has been assigned, charged, hypothecated, mortgaged or pledged to the Reconstruction Bank or so much of such property, as would, on being sold, realized. in its estimation, an amount equivalent in value to the outstanding dues of the assisted industrial concern to the Reconstruction Bank together with cost of the proceeding taken under this section; or (b) confirming the order of attachment in directing the sale of the attached property, or the transfer of the management of the assisted industrial concern to the Reconstruction Bank or to its nominee; or (c) varying the order of attachment so as to release a portion of the property from attachment and directing the sale of the remainder of the attached property; and shall apply the proceeds of such sale for the discharge of the dues to the Reconstruction Bank and the residue of such proceeds, if any, shall be made over to the person entitled thereto, in accordance with his rights and interests; (d) releasing the property from attachment, if it is satisfied, that it is not necessary in the Interests of the Reconstruction Bank; or (e) confirming or vacating the injunction or the order for the appointment of the receiver: Provided that when making any order under Clause (d), the High Court may make such further orders as it thinks necessary to protect the interest of the Reconstruction Bank, and may apportion the costs of the proceedings in such manner as it thinks fit; Provided further that unless the Reconstruction Bank intimates to the High Court that it will not prefer an appeal against any order releasing any property from any attachment, such order shall not be given effect to until the expiry of the period fixed under Sub-section (12) within which an appeal may be preferred, or if an appeal is preferred, unless the Court empowered to hear appeals from the decisions of the said High Court otherwise directs, until the appeal is disposed of. 9. 9. From bare reading of the aforesaid provisions particularly Clause (a) of Sub-sec- tion (1) of Section 40 it is manifest that an application is to be filed by the Bank before the concerned High Court for the relief inter alia for an order for the sale of the mortgaged properties and/or for injunction restraining the Industrial concern from transferring the mortgaged or hypothecated assets. Admittedly the mortgaged properties are situated in Hazaribagh within the jurisdiction of this High Court. Learned single Judge is of the view that since there was no provision under the Patna High Court Rules for entertaining such application, this Court has got no jurisdiction to entertain any such petition. We are in disagreement with the view taken by the learned single Judge. The learned single Judge, in the impugned judgment has taken notice of the fact that after the Act of 1984 was repealed and new Act, namely, Industrial Reconstruction Bank of India Act, 1995 was enacted, a petition for amendment was filed and the said amendment petition was allowed. Sections 40 and 41 of the said Act clearly prescribes that the High Court within the local limits of whose jurisdiction the assets and properties are situated, will have the jurisdiction to entertain the application and exercise powers under Sections 40 and 41 of the said Act. 10. The learned single Judge further erred in law in proceeding with the assumption that the petition was filed under Section 10 of the Companies Act and the assumption was on the ground that the said application was registered as Company Case No. 4 of 1994. We are, therefore, of the view that the application filed by the petitioner-appellant under Sections 40 and 41 of the said Act of 1984 (new Act of 1995) ought to have been decided on merit. However, it shall be open to the respondents to take all defences that may be available to them including the effect of the company petition pending before the Patna High Court. 11. For the reasons aforesaid we allow this appeal, set aside the impugned judgment and remit the matter to the learned single Judge for disposal of the said petition on merit.