Research › Search › Judgment

Delhi High Court · body

2008 DIGILAW 101 (DEL)

National Housing Bank v. Mal Chand Periwal

2008-01-30

BADAR DURREZ AHMED

body2008
JUDGMENT Badar Durrez Ahmed, J. 1. By way of this application filed on behalf of the plaintiff, a judgment on admissions is being sought. The plaintiff had filed this suit for specific performance of the contract dated 19.3.1993 which is styled as a letter of subscription whereunder the defendants 1 and 2 had undertaken to buy back 2,00,000 equity shares of the face value of Rs. 10/- each from the plaintiff after a period of five years, upon the plaintiff making a demand for the same. In the alternative, the plaintiff also prayed for an appropriate decree directing the defendants 1 and 2 to jointly and severally pay to the plaintiff a sum of Rs. 42,69,726/- by way of compensation together with simple interest @ 15% per annum from 1.11.2000 till the date of payment or realisation. Prayers were also made for pendente lite and future interest @ 15% per annum as well as for costs of the suit. 2. The plaintiffs claim is based on several documents. The first document which has been referred to by the learned Counsel for the plaintiff is the letter dated 21.1.1993 which was issued by the plaintiff in favor of the defendant No. 3 of which the defendants 1 and 2 are the promoter directors. By virtue of this letter, the defendant No. 3 was informed that the Board of Directors of the plaintiff had considered their proposal for the plaintiffs participation in the equity of the defendant No. 3 company to the extent of Rs. 20 lakh. This is followed by a document which purports to be the extract of the minutes of the 21st Meeting of the Board of Directors of the defendant No. 3 held on 28.1.1993 at the registered office of the said defendant No, 3. The said document is marked as Exhibit P-5. The minutes disclose that the defendant No. 3 accepted the offer of the plaintiff to subscribe to the said two lakh equity shares on the terms and conditions contained in the said letter dated 21.1.1993. The minutes also disclose that the defendants 1 and 2 were authorised severally to convey to the plaintiff the acceptance on behalf of the company of the said offer for financial assistance by way of direct subscription to the equity on the terms and conditions contained in the said letter dated 21.1.1993. The minutes also disclose that the defendants 1 and 2 were authorised severally to convey to the plaintiff the acceptance on behalf of the company of the said offer for financial assistance by way of direct subscription to the equity on the terms and conditions contained in the said letter dated 21.1.1993. This was followed by the letter of subscription dated 19.3.1993 (Exhibit P-6) which has been signed by both the plaintiff and the defendant No. 1 as Managing Director for the defendant No. 3. It is an admitted position that the specific condition with regard to the buy-back arrangement which had been agreed to by and between the parties is as under: The promoters shall undertake to buy back the shares of the company subscribed by NHB at any time after 5 years of the issue or such early time as NHB may decide fit at: .(a) issue price of the equity shares plus simple interest for the period at 15 % p.a. less gross dividend received; OR .(b) market value of the share; OR .(c) par value of the share, whichever is higher. If the promoters do not buy back the shares at the price offered by NHB within a period of 30 days from the date of the offer, NHB would be free to dispose of the shares without further reference to the promoters. .3. On the same date, i.e., on 19.3.1993, an undertaking had been furnished by the defendant Nos. 1 and 2 as promoters of the defendant No. 3 in terms of clause 20 of the letter of subscription dated 19.3.1993 (Exhibit P-6). The undertaking (Exhibit P-7) specifically provides that the defendants 1 and 2 had undertaken that they shall buy back the shares of the defendant No. 3 subscribed by the plaintiff in .terms of the letter of direct subscription dated 19.3.1993 at any time after 5 years of the issue or such other time as the plaintiff may decide fit at the three alternative prices given in the clause extracted above. Subsequently, share certificates [Exhibit P-8 (Colly)] were issued in the name of the plaintiff in respect of the said two lakh equity shares of the defendant No. 3. 4. Subsequently, share certificates [Exhibit P-8 (Colly)] were issued in the name of the plaintiff in respect of the said two lakh equity shares of the defendant No. 3. 4. By a letter dated 6.1.1999, the plaintiff called upon the defendants 1 and 2 to buy back the shares in accordance with the undertaking given by them within a period of 30 days from the date of receipt of the letter. It was also indicated that the amount payable by them, in terms of the undertaking, worked out to Rs. 37,20,274/ as on 31.12.1998. It was also indicated that the defendants would be liable to pay interest from 1.1.1998 till the date of payment @ 15% per annum. No response was received to this letter. A letter dated 16.9.1999 was issued to the defendant No. 1 with a copy marked to defendant No. 2. This letter was sent by registered post. The learned Counsel for the defendant states that the receipt of this letter is not denied though the contents arc not admitted. In the said letter, there is mention of a discussion between the defendant No. 1 and the Chairman and Managing Director of the plaintiff on 12.4.1999. It is indicated that the defendants had sought time to take a decision but that they had not come for any further discussion nor had they sent any proposal. The defendants were, thereforee, requested to buy back the shares held by the plaintiff in accordance with the undertaking and that the amount payable as on 31.8.1999 would be Rs 39,19,178/-. It was also indicated that the defendants would be liable to pay interest from 1.9.1999 till actual payment @ 15% per annum. No response to this letter was sent by the defendants to the plaintiff. Finally, by a legal notice dated 29.8.2000 (Exhibit P-10), the plaintiff once again called upon the defendants 1 and 2 to honour their part of the undertaking and consequently, they were called upon to buy back the shares for a sum of Rs 41,94,726/- as on 31.7.2000 calculated on the basis of the conditions stipulated in the letter of subscription dated 19.3.1993. Since the defendants did not respond to this letter nor did they make any arrangements for buying back the shares, the plaintiffs were constrained to file the present suit seeking specific performance of the contract evidenced by the letter of subscription dated 19.3.1993 and supported by the undertaking of the same date. .5. The learned Counsel for the plaintiff submitted that since all the above documents have been admitted by the defendants, nothing further requires to be established on the part of the plaintiff. She submits that pursuant to the contract between the parties, the plaintiff had extended the sum of Rs. 20 lakh to the defendants in exchange of the two lakh equity shares which were also subscribed by virtue of the letter of subscription dated 19.3.1993. The specific condition was that after a period of 5 years, the promoters were obliged to buy back the shares of the defendant No. 3 which had been subscribed to by the plaintiff. Since the period of 5 years had elapsed, the plaintiff had called upon the promoters (i.e. the defendants 1 and 2) to buy back the shares exercising its option that the same be bought at the initial price of the equity shares plus simple interest for the period @ 15% per annum less gross dividend received. According to the plaintiff, this option had been exercised because the other options of buying back the shares at the market value of the share and the par value of the share did not arise because the specific condition was that the price of the share was to be fixed on the basis of the highest of any of the three alternatives. There was no market value for the share and the value of the shares based on issue price plus interest less gross dividend received was higher than the par value of the share. There was no market value for the share and the value of the shares based on issue price plus interest less gross dividend received was higher than the par value of the share. It was, thereforee, submitted by the learned Counsel for the plaintiff that on the basis of the admissions made by the defendants with regard to the subscription of the shares, the undertaking given by the defendants 1 and 2, the issuance of the share certificates to the plaintiff, the factum that 5 years had elapsed from the date of issuance of the shares, the fact that the plaintiff had made a call upon the defendants 1 and 2 in terms of the specific undertaking given by them to buy back the shares and the fact that despite such call, the defendants had not bought back the shares as agreed, the plaintiff was entitled to have the agreement between the parties specifically enforced by seeking a decree from this Court. 6. The learned Counsel for the defendants submitted, with reference to the condition of the buy back arrangement, that the latter part of the condition specifically permitted the promoters not to buy back the shares at the price offered by the plaintiff within the stipulated period of 30 days. He also submitted that the plaintiff was free to dispose of the shares without further reference to the promoters, i.e. the defendants 1 and 2. Consequently, it was submitted by him, the contract was not specifically enforceable inasmuch as the same was terminable. Considering this argument straightaway, I am not in agreement with what has been submitted by the learned Counsel for the defendants. The latter part of the condition with regard to the buy back is not an option available to the defendants, but is only an option available to the plaintiff. The said portion of the condition stipulates that if the promoters do not buy back the shares at the price offered by the plaintiff within the stipulated period of 30 days from the date of the offer, the plaintiff would be free to dispose of the shares without further reference to the promoters. This clause does not, in any way, permit the promoters to wriggle out of their obligation to buy back the shares which they had undertaken to do. This clause does not, in any way, permit the promoters to wriggle out of their obligation to buy back the shares which they had undertaken to do. It will also be pertinent to note that the undertaking dated 19.3.1993 does not contain this latter condition. The undertaking that has been given by the defendants 1 and 2 is unconditional. In any event, the option that has been given is only to the plaintiff and not to the defendants. The plaintiff has not exercised that option, but has persisted in its endeavor to have the contract specifically enforced. That being the case, there is no question of any argument being advanced on the ground that the plaintiff was free to dispose of the shares and that, because it did not do so, the present suit for specific performance would not lie. .7. The next ground raised by the learned Counsel for the defendants in opposition to the present application is that this Court does not have jurisdiction in the present matter. With reference to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the said Act), the learned Counsel for the defendants submitted that the present case is essentially one for recovery of a debt and the same would be barred under the provisions of Section 18 of the said Act read with Section 17 and Sections 1(4) and 2(g) thereof. He also referred to the decision of the Supreme Court in the case of United Bank of India v. Debts Recovery Tribunal and Ors.: [1999]2SCR496 , in an attempt to contend that the present suit was essentially one for recovery of a debt and consequently the same fell within the domain of the Debts Recovery Tribunal and that the civil Courts were barred from entertaining such a suit. .8. I am afraid that I am unable to agree with this submission of the learned Counsel for the defendants. Section 17(1) of the said Act provides that a Tribunal shall exercise judicial powers and authority to entertain and decide applications from banks and financial institutions for recovery of debts due to such banks and financial institutions. .8. I am afraid that I am unable to agree with this submission of the learned Counsel for the defendants. Section 17(1) of the said Act provides that a Tribunal shall exercise judicial powers and authority to entertain and decide applications from banks and financial institutions for recovery of debts due to such banks and financial institutions. Section 18 of the said Act stipulates that 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 Articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17. Thus, reading the two provisions together, it is apparent that if a matter is covered within Section 17(1) of the said Act, then a civil Courts jurisdiction is barred in respect thereof. The question is whether the present suit is a suit for recovery of a debt due to a bank or to a financial institution. There is no doubt that the plaintiff is a bank. The only question is whether the present suit is one for recovery of a debt. The expression debt has been defined in Section 2(g) of the said Act as under: .2. Definitions.-In this Act, unless the context otherwise requires-(a) xxxx xxxx xxxx .(g) debt means any liability (inclusive of interest) which is alleged 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 whether payable under a decree or order of any civil Court or otherwise and subsisting on, and legally recoverable on, the date of the application. 9. In United Bank of India (supra), the Supreme Court was concerned with a case wherein a suit had been filed for damages and compensation. The question that was before the Supreme Court was whether such a suit where the damages and compensation were required to be quantified before a decree could be passed would be within the purview of the provisions of Section 17(1) of the said Act. The question that was before the Supreme Court was whether such a suit where the damages and compensation were required to be quantified before a decree could be passed would be within the purview of the provisions of Section 17(1) of the said Act. While answering this question, the Supreme Court considered the meaning of the expression debt as defined in Section 2(g) of the said Act. Referring to the decision in Kesoram Industries and Cotton Mills Ltd. v. Commissioner of Wealth Tax, (Central) Calcutta: [1966]59ITR767(SC) , the Supreme Court observed that in that decision, the Court had held that the meaning of the expression debt may take colour from the provisions of the Act concerned. It was, however, noted that it was unanimously accepted that a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. Considering several other decisions and the provisions of the Act, the Supreme Court, in United Bank of India (supra), concluded as under: 15. In the case in hand, there cannot be any dispute that the expression debt has to be given the widest amplitude to mean any liability which is alleged as due from any person by a bank during the course of any business activity undertaken by the bank either in cash or otherwise, whether secured or unsecured, whether payable under a decree or order of any Court or otherwise and legally recoverable on the date of the application. In ascertaining the question whether any particular claim of any bank or financial institution would come within the purview of the Tribunal created under the Act, it is imperative that the entire averments made by the plaintiff in the plaint have to be looked into and then find out whether notwithstanding the specially created Tribunal having been constituted, the averments are such that it is possible to hold that the jurisdiction of such Tribunal is ousted. With the aforesaid principle in mind, on examining the averments made in the plaint, we have no hesitation to come to the conclusion that the claim in question made by the plaintiff is essentially one for recovery of a debt due to it from the defendants and, thereforee, it is the Tribunal which has the exclusive jurisdiction to decide the dispute and not the ordinary civil Court. In this view of the matter the High Court was in error to hold that the dispute in question is not entertainable by the Tribunal under Section 17 of the Act. We, accordingly, set aside the impugned order of the Calcutta High Court and direct that the suit in question which stood transferred to the Tribunal, constituted under the Act and was registered as Transferred Application No. 163 of 1996 be disposed of by the Tribunal in accordance with law. These appeals are allowed but in the circumstances, without any order as to costs. 10. The facts of the present case, however, are different. The plaintiff has filed the suit not for recovery of a debt even as understood in the widest terms of a liability as indicated by the Supreme Court. The suit has been framed as a suit for specific performance of the contract between the parties as well as of the undertaking given by the defendants 1 and 2 to buy back the shares at a price as stipulated in the contract itself. The present suit, thereforee, cannot be regarded as a suit for recovery of a debt. Consequently, the present suit would not be hit by the bar contained in Section 18 of the said Act. 11. It was lastly contended by the learned Counsel for the defendants that the contract between the parties was not specifically enforceable in view of the provisions of Section 14(1)(a) of the Specific Relief Act, 1963. Section 14(1)(a) of the Specific Relief Act, 1963 stipulates that, inter alia, a contract for the nonperformance of which compensation in money is an adequate relief cannot be specifically enforced. The contention of the learned Counsel for the defendants is that if the defendants, as they have done in the present case, do not buy back the shares, then the plaintiff can be compensated in terms of money and the same would constitute an adequate relief. thereforee, according to him, the present contract is not specifically enforceable, Following this, he submits, the suit would be one for recovery of money plain and simple and that would take it back within the realm of the recovery of a debt and consequently would be hit by the bar contained in Section 18 of the said Act. This argument of the learned Counsel for the defendants, though ingenuous, cannot be accepted. This argument of the learned Counsel for the defendants, though ingenuous, cannot be accepted. The reason is that the plaintiff had come to this Court seeking specific performance of the arrangement/contract between the parties whereby the defendants 1 and 2 had agreed and indeed, even undertaken to buy back the shares at the stipulated price. The suit was clearly for specific performance. The prayer for compensation was only in the alternative. The suit as styled and the prayers as made in the plaint cannot, by any stretch of imagination, be construed to be a suit for recovery of a debt pure and simple. Consequently, the bar of Section 18 of the said Act would not apply even on this footing. 12. This being the position, the plaintiff is entitled to a judgment on admissions. The suit is decreed in favor of the plaintiff and against the defendants 1 and 2 in terms of the prayers contained in paragraphs 22(a), 22(c) and 22(d). 13. This application, the suit and all other pending applications stand disposed of. The formal decree be drawn up.