(Prayer: Writ Petition has been filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorarified Mandamus, calling for the records and quashing the Impugned Order dated 27.04.2023 in RA.No.131 of 2014 passed by the Debt Recovery Appellate Tribunal and direct the Debts Recovery Tribunal to drop proceedings against the Petitioner as without jurisdiction. WP No. 22532 of 2023

Writ Petition has been filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorarified Mandamus, calling for the records and quashing the Impugned Order dated 27.04.2023 in MA.No.134 of 2014 passed by the Debt Recovery Appellate Tribunal and direct the Debts Recovery Tribunal to drop proceedings against the Petitioner as without jurisdiction. WP No. 22535 of 2023

Writ Petition has been filed under Article 226 of the Constitution of India praying for issuance of a Writ of Certiorarified Mandamus, calling for the records and quashing the Impugned Order dated 27.04.2023 in RA.No.9 of 2017 passed by the Debt Recovery Appellate Tribunal and direct the Debts Recovery Tribunal to drop proceedings against the Petitioner as without jurisdiction)

Common Order

G. Arul Murugan, J.

1. W.P.No.22528 of 2023 is filed assailing the common order dated 27.04.2023 passed by the Debt Recovery Appellate Tribunal (DRAT), Chennai, in RA.No.131 of 2014, dismissing the appeal by confirming the common order dated 08.08.2014 passed by the Debts Recovery Tribunal- II (DRT-II), Chennai, issuing a Recovery Certificate against the petitioner/Insurance Company.

2. W.P.No.22532 of 2023 is filed assailing the very same common order dated 27.04.2023 passed by the DRAT, Chennai in MA.No.134 of 2014, dismissing the appeal and confirming the order passed in I.A.No.231 of 2012 in O.A.No.150 of 2011, whereby the DRT-II rejected the petition filed by the petitioner seeking to delete them from the array of parties.

3. W.P.No.22535 of 2023 is also filed by the petitioner/Insurance Company assailing the common order dated 27.04.2023 passed by the DRAT in R.A.No.9 of 2017, which confirmed the order passed by the DRT-II in I.A.No.231 of 2012 in O.A.No.150 of 2011 dismissing the original application as against respondents 2 and 3.

4. Since all these writ petitions arise out of a common order passed by the DRAT, Chennai, they were heard analogously and are being disposed of by this common order.

5. The brief facts are that the 2nd respondent/Company and its Directors/respondents 3 and 4 availed various credit facilities from the 1st respondent/Bank. The 2nd respondent had executed Composite agreement in favour of the 1st respondent/Bank along with two counter-guarantees indemnifying the 1st respondent/Bank. In terms of the sanction, the credit facilities were to be secured by a Credit Risk Insurance Policy issued by the Insurance Company. Due to which the petitioner/Insurance Company came forward and issued a Trade Credit-Single Debtor Insurance Policy covering the subject matter of Invoice of Purchase of Aviation Turbine Fuel (ATF) and Spares for the period from 25.09.2008 to 24.09.2009, for the credit limit of Rs.29/- crores with the insured coverage of 95% of the credit limit. The petitioner had made amendments through clarification on 26.09.2008 that the subject matter of the policy should be read as a credit facility for the purchase of Spares, ATF and Ancillary Services, including lease/rental charges.

6. Further, the petitioner/Insurance Company on 23.09.2009, clarified that the subject matter of the three insurance policies issued by them shall automatically include purchase of Spares and ATF, Ancillary Services and payments to Airport Authority of India (AAI) and other Airports. Thereby the petitioner Insurance Company indemnified the 1st respondent Bank in respect of the insurance/credit facility for the loss sustained as result of the insured peril up to the policy limit of 95%.

7. The 2nd respondent/Company committed default in payments of the debts and the petitioner is as such liable to pay the amounts in terms of the insurance policy to an extent of 95%. The 1st respondent raised claims before the petitioner/Insurance Company on various dates, viz., 21.10.2009, 21.10.2009, 02.12.2009, 22.04.2010, 24.04.2010 and 02.06.2010. It is stated that there was a huge delay under the guise of conducting survey and the 1st respondent claims to have submitted appropriate reply for the queries raised by the surveyor. However, ultimately, the petitioner repudiated the claims.

8. Following the repudiation, Andhra Bank (which is now merged with the 1st respondent/Bank) filed O.A.No.150 of 2011 before the DRT-II, Chennai under Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Bank sought recovery of a sum of Rs.52,77,42,564/- from respondents 2 to 4 along with the interest and a sum of Rs.51,37,10,475/- from the petitioner with interest at the rate of 18.25% per annum.

9. In the Original Application, the petitioner filed I.A.No.231 of 2012 seeking to discharge them from array of parties on the ground that the claim against the petitioner cannot be construed as a ‘debt’ under the Act, as the relationship between the 1st respondent/Bank and petitioner/ Insurance Company is that of an insured and insurer, respectively, but not that of lender and borrower. Therefore, it is contended that the application against the petitioner was not maintainable and that the Tribunal also has no jurisdiction to entertain the claim against the petitioner.

10. The DRT-II, by order dated 08.08.2014 allowed the original application in favour of the 1st respondent/Bank to recover a sum of Rs.52,77,42,564/- with interest at the rate of 12% per annum (simple) from the 2nd respondent/company and legally enforceable insurance claim amount from the petitioner. However, the Tribunal dismissed the claim against respondents 3 and 4 and also dismissed the I.A.No.231 of 2012 filed by the petitioner seeking discharge.

11. Aggrieved, the petitioner/Insurance Company preferred two separate appeals in R.A.No.131 of 2014 and M.A.No.134 of 2014 before the DRAT, Chennai, challenging the final order issuing recovery certificate and dismissing the petition for discharge. The 1st respondent/Bank filed separate appeal in R.A.No.9 of 2017 challenging the dismissal of the claim against respondents 3 and 4. The DRAT, by a common order dated 27.04.2023, dismissed all the three appeals. Assailing the common order, the petitioner/Insurance Company has preferred these three writ petitions.

12. Mr.M.V.Swaroop, learned counsel appearing for the petitioner/Insurance Company contended that when the relationship between the petitioner/Insurance Company and the Bank is that of an insurer and insured and not a lender and borrower, the very application filed making claim against the Insurance Company is not maintainable. Learned counsel, by referring to Section 5(b) of the Banking Regulation Act, 1949, submitted that the insurance activity does not fall within the meaning of the ‘banking’ as defined under the Act. Consequently, the application filed by the Bank before the DRT against the Insurance Company is not maintainable.

13. He further argued that when the Bank can only make a claim before the DRT in respect of the claim for any of the business activities of the Bank, admittedly, the insurance is not a business activity of the Bank rather it is a business activity of the petitioner. Therefore, the DRT was not within its jurisdiction to entertain the dispute. The DRT is only vested with the authority to entertain the claims of the Bank in respect of the ‘debts’ and when the Insurance Company is neither borrower nor a guarantor, the DRT does not vest with the jurisdiction to entertain the dispute against the Insurance Company. Further, learned counsel submitted that when the Insurance Company had repudiated the claim and the same was not challenged before the appropriate Forum and even not before the DRT, ultimately, orders passed against the Insurance Company for recovery of the amount is without jurisdiction and not maintainable.

14. Lastly, he contended that even assuming that the DRT possessed the jurisdiction to try the dispute, it failed to exercise it legally, as the issue as to whether repudiation was right or not has not been decided by the Tribunal. The DRAT, being the appellate authority, also without independently assessing the issue on merits and without any reasons by cryptic order simply confirmed the orders of the DRT stating that the DRT itself has decided the issue, which cannot be sustained and, therefore, seeks for interference of this Court.

15. Countering the submissions, Mr.AR.L.Sunderasan, learned Senior Counsel appearing on behalf of the 1st respondent/Bank, submitted that the DRT is the competent authority and possesses jurisdiction to try the disputes raised by the claim made by the Bank in respect of the recovery of the debt. Learned Senior Counsel by referring to Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993 [herein after referred to as ‘RDB Act’] submitted that the definition of ‘debt’ is not limited, but rather includes any liability which is claimed as due from any person by a Bank during the course of any business activity, whether secured or unsecured. Therefore, when the provision is wide enough to include all debts, the DRT has rightly entertained the dispute, which has been confirmed by the DRAT.

16. Learned Senior Counsel further referring to Section 17 of the RDB Act submitted that only the DRT has jurisdiction to entertain and decide the applications from the Bank for the recovery of its debts. Further, there is a bar under Section 18 of the RDB Act, where no Court or authority shall have jurisdiction to entertain any claim in respect to the matters specified in Section 17 of the RDB Act. In such circumstances, the Bank rightly made the claim before the DRT as against the petitioner also, as they cannot approach any other forum for recovery of the debt due which is indemnified by the Insurance Company.

17. He further submitted that the petitioner/Insurance Company had issued a specific policy under the Trade Credit-Single Debtor Credit Policy and as per the insurance peril, they are liable to pay the Bank on failure of the debtor to clear the credit facilities. When the Insurance Company had secured the credit risk by issuing policy covering the loan amount up to an insured percentage of 95% of the credit limit, the petitioner cannot simply wriggle out of its liability to indemnify the Bank on untenable grounds. He further argued that the DRT and DRAT have rightly issued the Recovery Certificate against the petitioner. In support of his contentions, learned Senior Counsel relied on the decisions of the Hon'ble Supreme Court in the cases of State Bank of Bikaner and Jaipur vs. Ballabh Das and Co. and Others((1997) 7 SCC 539), and Eureka Forbes Limited vs. Allahabad Bank and Others((2010) 6 SCC 193).

18. We gave our anxious consideration to the submissions made on either side and considered the materials available on record.

19. Before adverting to the facts of the case, it is apposite to refer to relevant statutory provisions under the RDB Act, 1993.

                     (a) Section 2(g) “debt” means any liability (inclusive of interest) which is claimed as due from any person 7 [or a pooled investment vehicle as defined in clause (da) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)] 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 1 [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;

                     (b) Section 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. (1A) 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 been made, by a Tribunal under this Act.

                     (2A) 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;

                     (c) Section 18 – Bar of Jurisdiction — 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 articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17:

                     Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 (1 of 2013) under the Multi-State Co-operative Societies Act, 2002 (39 of 2002) shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings.

                     (d) Section 34 – Act to have Overriding Effect

                     (1) Save as provided under Sub-Section (2) the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

                     (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), 1 [, the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989)].

20. A bare perusal of the aforesaid provisions reveals that ‘debt’, as defined, means any liability which is claimed as due from any person by a Bank or a financial institution during the course of any business activities undertaken by the Bank or Institution, whether secured or unsecured. If such liability exists on the date of the application, the claim shall be instituted by the Bank before the Tribunal alone, which has jurisdiction to entertain the dispute and the Bank is also barred from approaching any other forum.

21. The Hon'ble Supreme Court in State Bank of Bikaneer’s case (supra) considered the term ‘debt’, as contained under Section 2(g) of the RDB Act along with overriding effect under Section 34 of the RDB Act and the power of the Tribunal to entertain the dispute. The Apex Court held that once if the debt is alleged by the Bank as being due, the claim is maintainable and entertainable by the Tribunal under Section 17 of the RDB Act and it is not necessary that the amount claimed by the Bank has to have been determined by the competent forum to constitute the debt. The relevant portion of the judgment reads as under:

                     “6. The question which arises for consideration is whether in view of these facts the amounts claimed by the Bank in the suits can be said to be “debt” due and recoverable by the Bank from the respondents. Section 2(g) of the Act defines the term “debt” as under:

                     “2. (g) ‘debt’ means any liability (inclusive of interest) which is alleged as due from any person by a bank …, 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;”

                     Section 17 of the Act 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. Section 18 has created a bar that no court or other authority can thereafter 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. In respect of pending cases Section 31 provides as under:

                     “31. Transfer of pending cases.—(1) Every suit or other proceeding pending before any court immediately before the date of establishment of a Tribunal under this 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: Provided that nothing in this sub-section shall apply to any appeal pending as aforesaid before any court.

                     (2) Where any suit or other proceeding stands transferred from any court to a Tribunal under sub-section (1),—

                     (a) the court shall, as soon as may be after such transfer, forward the records of such suit or other proceeding to the Tribunal; and

                     (b) the Tribunal may, on receipt of such records, proceed to deal with such suit or other proceeding, so far as may be, in the same manner as in the case of an application made under Section 19 from the stage which was reached before such transfer or from any earlier stage or de novo as the Tribunal may deem fit.”

                     Section 34 gives the Act an overriding effect by enacting that the Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law.

                     7. According to the definition, the term “debt” means liability which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions. It should have arisen 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. The liability to be discharged may be in cash or otherwise. It would be immaterial whether the liability is secured or unsecured or whether it is payable under a decree or an order of any civil court or otherwise. However, it should be subsisting and legally recoverable on the date on which proceedings are initiated for recovering the same.

                     8. The important words in the definition “alleged as due” have been overlooked by the High Court and, therefore, it has erroneously held that unless the amounts claimed by the Bank are determined or decided by a competent forum they cannot be said to be due and would not amount to “debt” under the Act. What was necessary for the High Court to consider was whether the Bank has alleged in the suits that the amounts are due to the Bank from the respondents, that the liability of the respondents has arisen during the course of their business activity, that the said liability is still subsisting and legally recoverable.”

22. Again the Hon'ble Supreme Court in Eureka Forbes Limited’s case (supra), while considering the term ‘debt’ as defined under Section 2(g) of the RDB Act and the jurisdiction of the Tribunal, held that the Tribunal has jurisdiction to try the claim against the party, who even intermeddled with hypothecated goods or dealt with charged goods without authority of law, he being not a debtor. The relevant portion of the judgment reads as under:

                     “47. The next question of law, that we are called upon to consider, is the ambit and scope of the provisions of Section 2(g) of the Recovery Act, on which the entire case of the parties hinges. We have already noticed that the appellant has argued with great vehemence that, there was no privity of contract and they were not covered under the definition of “debt”, and as such, recovery proceedings could not be initiated, much less, recovery could be effected from them under the provisions of the Act.

                     48. Section 2(g) of the Recovery Act reads 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;”

                     49. The Recovery Act of 1993 was enacted primarily for the reasons that the banks and financial institutions should be able to recover their dues without unnecessary delay, so as to avoid any adverse consequences in relation to the public funds. The Statement of Objects and Reasons of this Act clearly states that banks and financial institutions at present, experience considerable difficulties in recovering loans and enforcements of securities charged with them. The existing procedure for recovery of dues of the Bank and the financial institutions block significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. Introduction of similar procedure was suggested by the Tiwari Committee. The Act provided for the establishment of the Tribunals and Appellate Tribunals and modes for expeditious recovery of dues to the banks and financial institutions.

                     50. In this background, let us read the language of Section 2(g) of the Recovery Act. The plain reading of the section suggests that the legislature has used a general expression in contradistinction to specific, restricted or limited expression. This obviously means that, the legislature intended to give wider meaning to the provisions. Larger area of jurisdiction was intended to be covered under this provision so as to ensure attainment of the legislative object i.e. expeditious recovery and providing provisions for taking such measures which would prevent the wastage of securities available with the banks and financial institutions.

                     51. We may notice some of the general expressions used by the framers of law in this provision:

                     (a) any liability;

                     (b) claim as due from any person;

                     (c) during the course of any business activity undertaken by the bank;

                     (d) where secured or unsecured;

                     (e) and lastly legally recoverable.

                     52. All the above expressions used in the definition clause clearly suggest that, the expression “debt” has to be given general and wider meaning; just to illustrate, the word “any liability” as opposed to the word “determined liability” or “definite liability” or “any person” in contrast to “from the debtor”. The expression “any person” shows that the framers do not wish to restrict the same in its ambit or application. The legislature has not intended to restrict to the relationship of a creditor or debtor alone. General terms, therefore, have been used by the legislature to give the provision a wider and liberal meaning. These are generic or general terms. Therefore, it will be difficult for the Court, even on cumulative reading of the provision, to hold that the expression should be given a narrower or restricted meaning. What will be more in consonance with the purpose and object of the Act is to give this expression a general meaning on its plain language rather than apply unnecessary emphasis or narrow the scope and interpretation of these provisions, as they are likely to frustrate the very object of the Act.”

23. From the law enunciated by the Hon'ble Supreme Court, the term ‘debt’ under Section 2(g) of the RBD Act cannot be given a restricted or narrow meaning and when the legislature has used the words ‘any liability’, ‘any person’, particularly words ‘in cash or otherwise, secured or unsecured’, the words must be given appropriate plain and simple meaning and the word ‘debt’ under Section 2(g) of the RDB Act is wide enough to cover any liability claimed against any person during the course of business activities.

24. In the instant case, the 2nd respondent/Company had availed various credit facilities from the 1st respondent/Bank. As per the terms of sanction, the credit facilities were to be secured by the credit risk policy issued by the Insurance Company. As per the policy of the Bank and in the course of its business activities, the Bank advanced the credit with the specific terms that the credit facilities have to be secured by a credit insurance policy, issued by an Insurance Company.

25. Admittedly, the petitioner/Insurance Company came forward and issued a Trade Credit-Single Debtor Insurance Policy for the subject matter of invoice of the purchase of ATF and Spares covering 95% of the credit limit in case of failure of the debtor to pay the dues to the Bank. The insurance peril covered under the insurance policy is extracted hereunder:

                     “Insured Peril means

                     a) Non-payment

                     The failure of the Debtor to pay to the Assured all or part of the Invoice Value of Insured Goods within the Waiting Period except as provided for by paragraph b), Currency Inconvertibility, below.

                     b) Currency Inconvertibility

                     The failure of the appropriate exchange authority of the Debtor’s Country to approve and effect the transfer of Contract Currency to the Assured, provided that the Debtor has made the deposit of Local Currency in a depository in the Debtor’s Country designated by law or administrative regulation for the acquisition and transfer of Contract Currency, which deposit has not been transferred within the Waiting Period.”

26. By communication dated 26.09.2008, the petitioner/Insurance Company incorporated amendments by reading the subject matter of the policy as credit facilities for the purchase of spare, ATF including lease and rental charges and further the petitioner again on 23.09.2009 clarified the policy by including ancillary services and payment to Airport Authority of India and Airports. As per the Trade Credit- Single Debtor Insurance Policy insurance issued by the petitioner, the 1st respondent/Bank was indemnified for 95% of the credit limit as insurance peril, in the event of the debtor failing to pay the credit dues.

27. As the 2nd respondent/Company failed to pay the dues, the 1st respondent/Bank approached the petitioner/Insurance Company seeking to pay the debt dues towards their indemnity covered for 95% towards the insurance policy. After processing the claims, the Insurance Company by proceedings dated 18.04.2011 had repudiated the claims after listing out 16 deficiencies, observations and reasons for exclusions, which are scanned and extracted hereunder: