Holding

The Court held that where bonds are held in trust, the obligor must pay the redemption proceeds to the trustee without set‑off, and no genuine dispute existed to justify referral to the High Powered Committee, thus restoring the Company Law Board's order.

Summary

Canara Bank, as the principal trustee of Canara Bank Mutual Fund, purchased NTPC bonds from a bank that later went into liquidation and sought registration of the bonds in the trustee's name and payment of redemption proceeds. NTPC refused registration without a no‑objection certificate from the liquidator and later attempted to set off the redemption proceeds against dues of the bank. The Company Law Board directed NTPC to transfer the bonds to the trustee and to pay the proceeds, holding that the bonds were held in trust and could not be set off. The Delhi High Court set aside the Board's order and referred the matter to the High Powered Committee under the ONGC precedent, finding a dispute between the two public sector undertakings. The Supreme Court held that no genuine dispute existed, that NTPC could not adjust the proceeds, and that the High Court was wrong to refer the case to the Committee, thereby restoring the Board's order. The appeal was allowed and costs were awarded to the appellants.

Issues considered

The existence of a genuine dispute between Canara Bank (as trustee) and NTPC warranting referral to the High Powered Committee under the ONGC precedent.
Whether NTPC could set off redemption proceeds against the bank's or its subsidiary's dues when the bonds are held in trust.
Whether the bonds could be registered in the name of the trustee despite the prohibition under Section 153 of the Companies Act, 1956.
The validity of the Company Law Board's directions to transfer the bonds and pay redemption proceeds to the trustee.
The correctness of the Delhi High Court's decision to refer the matter to the High Powered Committee.

Legislation cited

Banking Regulations Act, 1949s. 6
Companies Act, 1956s. 111, s. 153, s. 531
Indian Trusts Act, 1882

Subjects

trustmutual fundbond redemptionset‑offhigh powered committeeCompanies Act 153public sector undertakingliquidationno‑objection certificate

Judgment

CANARA BANK AND ORS. A
v.
NATIONAL THERMAL POWER CORPORATION AND ANR.

DECEMBER 5, 2000

[K.T. THOMAS AND R.P. SETHI, JJ.) B

Companies Act, 1956-Sections Ill and 153-Mutual Fund under the
Trusteeship of a Public Sector Bank-Purchase of bonds of Public Sector
Corporation by the Trust from a banking company, which subsequently went
into liquidation-Deposit of bonds by Trustee with Corporation for registration C
in the name of Trustee-Refusal of registration for want of 'no objection
certificate' from the banking company which sold the bonds-Corporation
adjusting redemption proceeds of the bonds against other dues of the Trustee-
Reference of disputes to High Powered Committee by High Court-Held, there
is no genuine dispute for reference to High Powered Committee-Corporation D
cannot adjust redemption proceeds as the bonds are held in trust.

Appellant-Public Sector Bank as Principal Trustee/Settler created a
trust Can bank Mutual Fund (CBMF) through which it conducted business
of mutual fund. In August 1988, the CBMF purchased bonds of Respondent-
Public Sector Corporation worth Rs. 2.17 crores through a stock broker E
from Bank of Ka rad, the respondent Banking Company. CBMF lodged he
bonds in different lots during 1992-93 with the Corporation for registration
of the same in the name of the trustee. Meanwhile, the Banking Company
went into liquidation. The Corporation wanted a no-objection certificate from
Official liquidator of the Banking Company before registering the transfer
of bonds. Appellant-bank requested the Liquidator of the Banking Company F
to issue the no-objection certificate in favour of CBMF to the Corporation
stating that the purchase of bonds was bona fide and that the transaction had
taken place much prior to the relevant period prescribed under Section 531
of the Companies Act, 1956. On failure to get the required certificate from
the Liquidator of the Banking Company, the Corporation returned baclt the G
original bond certificates to CBMF. Appellant-Bank filed an appeal before
Company Law Board under Section 111 of the Companies Act, 1956 against
the Corporation for direction to transfer the bonds in the name of the trustee
and to pay redemption proceeds with interest at 24% from the date of maturity
till the date of payment. The Board held that in view of restriction imposed
H
387
388 SUPREME COURT REPORTS rzooo] SUPP. 5 S.C.R.

A under Section 153 of the Companies Act, 1956, only the name of the appellant-
Bank can be entered in register of holdings and not the name of the trustee.
The Board, however, held that the Corporation cannot adjust the redemption
proceeds against dues of the appellant-bank as the bonds were held in trust.
The Board further held that the dictum of this Court in Oil & Natural Gas
B Commission and Anr. v. Collector ofCentral Excise, [1995) Supp. 4 SCC 541
for reference of dispute to High Powered Committee was not applicable to
the facts of the case. On appeal by the Corporation, High Court set aside the
orders of the Board and referred the disputes to the High Powered Committee.
Hence these appeals.

C Appellant-Bank contended that the reference of disputes to High
Powered Committee was not necessary as there did not exist a genuine dispute
between the parties.

Allowing the appeals, the Court

D HELD : 1.1. The judgment in ONGC 's case is intended to prevent frivolous
litigation between the Government Departments and Public Sector
Undertakings in the Courts and resolve the disputes amicably by the High
Powered Committee specially set-up for the purpose. There does not appear
to be a genuine dispute between the Government of India undertakings. The
Board was justified in holding th.it the real litigation is between CBMF and
E the Corporation and not between the two undertakings. The claim preferred
on behalf of CBMF was not denied by the Corporation but in turn a counter
claim with respect to the liability of a subsidiary of the Bank was raised. The
dispute raised is without laying any basis or placing on record any evidence
in support thereof. Imaginative disputes raised only to defeat the undisputed
F claim of the Trustee could not be made the basis to deprive the Trustees and
ultimately the public at large, of the value of the bonds which had, admittedly,
been received by the Corporation with unambiguous undertaking to repay
the same. [395-B-E)

1.2. The bonds were transferable and the Corporation was under a
G contractual and statutory obligation, to pay the value thereof to the transferee.
Such a transferee could not be denied the payment of the value of the bonds
on the ground of the liability of the transferrer or any of its subsidiary. The
perusal of the bond incorporating the condition of payment unambiguously
shows that no dispute can be raised by the Corporation for payment of the
amount on demand to its holder or order. The claim of the Corporation, if any,
H can be enforced separately against the subsidiary of the appellant-bank but
CA~ARA BANK v. N.T.P.C. [SETHI. .I. I 389
cannot be made a ground to resist the claim of the appellants. The High Court A
was not right in referring the alleged disputes to the High Powered Committee
with the aid of judgment in ONGC 's case. It was under an obligation to give a
finding with regard to the directions given by the Board to pay the redemption
to the appellant-bank. The Trustees of the Trust constituted by the appellant-
bank as Settlor for the benefit of numerous units holders cannot be termed
and styled as Government Company or Public Sector Undertaking. The dispute
B
raised by the Corporation with the appellant-bank was imaginary and even

- prim a facia not real. The Board in its order had dealt with all aspects of the
matter and rightly concluded that ONGC's judgment was not applicable in the
facts and circumstances of the present case. (395-F, G, H; 396-A-B)

Oil & Natural Gas Commission & Anr. v. Collector of Central Excise,
c
(1995) Supp. 4 SCC 541, distinguished.

CIVIL APPELLATE JVRISDICTION : Civil Appeal Nos. 7103
and 7104 of 2000.
D
From the Judgment and Order dated 6.7.99 of the Delhi High Court in
Company Appeal Nos. 23 and 22 of 1996.

R.N. Trivedi, Additional Solicitor General, Gopal Subramaniam, Dr. A.M.
Singhvi, N. Menon, Jay Savla, Ms. Sunita Out, Rakesh K. Sharma, Ciccu
Mukhopadhaya, Manish Kumar, V. Krishnamurthy and Pramod Dayal for the E
appearing parties.

The Judgment of the Court was delivered by

SETHI, J. Leave granted.

As the question of law in both the appeals is common and the facts F
similar, the appeals are being disposed of by this common judgment.

The appellants are aggrieved of the impugned judgment passed by the
High Court in Company Appeals bY, which the orders passed by the Company
Law Board have been set aside and disputes allegedly existing between the G
parties referred to the High Powered Committee in terms of t~e judgment of
this Court in Oil & Natural Gas Commission & Anr. v. Collector of Central
~cise, (1995] Supp. 4 SCC 541. It is contended that the dictum of this Court
m ONGC's case was not applicable to the facts of the cases under appeals,
as there did not exist a genuine dispute between the parties which could be
referred to the High Powered Committee. H
390 SUPREME COURT REPORTS (2000) SUPP. 5 S.C.R.

A The facts giving rise to the filing of the present appeals, as extracted
from the Appeal arising out of SLP (C) No. 14660, are as under.

The appellants filed Company Petition Nos. I J/111/-95CLB & 12/111/95-
CLB under Section 111(4), (5) & (7) of the Companies Act before the Company
Law Board, Northern Region Bench, New Delhi, stating therein that they were
B Trustees of Canbank Mutual Fund (hereinafter referred to as "CBMF"), a
Trust constituted under the Indian Trusts Act, 1882. The main object of the
Trust is to conduct business of mutual fund by permitting savings of small
and individual investors through various schemes, inviting subscriptions
from the prospective investors and channelising the funds into the capital
C market for attractive returns. From September, 1993 CBMF was being managed
by an Asset Managing Company, the Appellant No. 6. Appellant No. I is a
body corporate constituted under the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1971. The Bank as "Settlor" by an Adventure
of Trust dated 17th December, 1987 had constituted the Trust CBMF, the
Senior being its Principal Trustee. The National Thermal Power Corporation,
D respondent No. I (hereinafter referred to as "the corporation") is a Government
of India Enterprise and respondent No. 2 a Banking Company which went into
liquidation. On 5.8.1988 the CBMF purchased 14% NTPC Bonds (of the
corporation) having face value (FY) of Rs. 2.17 crores along with several other
bonds through the Broker M/s.Batliwala & Karani in respect of which Cheque
E No. 80961 dated 5.8.1988 was issued in favour of Bank of Karad, second
respondent-bank who in turn issued a BR undertaking to deliver the securities.
In 1989 the BR was liquidated by delivery of bonds. Out of the aforesaid
bonds the respondent-company vide its letter dated 11.8.1992 lodged the
bonds valuing Rs. 4 crores for registration of transfer in the name of Canara
Bank, Trustee of the CBMF. On 25th September, 1992, CBMF lodged with the
F corporation for registration of the bonds of FY Rs. 50.05 lacs in the name of
Canara Bank, Trustee CBMF. On the same date the CBMF lodged bonds of
FY Rs. 50 lacs with the Corporation with a request to register the same in the
name of Canara Bank, Trustee CBMF. Again on 11.2.1993 CBMF lodged the
bonds of FY Rs. 113 lacs with the respondent corporation for registration in
G the name of Canara Bank, Trustee CBMF after removing the objections. The
Corporation wanted the CBMF to produce no objection certificate from the
Official Liquidator of the Bank of Karad for the purpose of registering the
transfer of the bonds for which letter dated 17.5.1993 of the Bank ofKarad
was furnished with all documentary proof of the purchase of bonds of FY of
Rs. 2.17 crores from the Bank of Karad on 5.8.1988. Request was made to the
H Liquidator, appointed in the winding up proceedings against the said Bank,
CANARA BANK v. N.T.P.C. [SETHI, J.] 391
to confinn to respondent Corporation that the CBMF's purchase was bonafide A
and the transaction had taken place much prior to the relevant period
prescribed under Section 531 of the Companies Act. On 17 .5.1993 a letter was
sent to the respondent-corporation setting out the particulars of the purchase

- of the bonds and re-stating that the relevant ·document had already been
submitted in proof of the bonafide title to the bonds. The request was B
renewed by the CBMF again by writing letter to the Corporation on 28th June,
1993. Another letter dated 21st September, 1993 was addressed to the official
liquidator requesting him to issue a no objection certificate as demanded by
the corporation. On 18.10.1993 the CBMF was informed that as 'no objection
certificate' had not been furnished, the original bond certificates were being
returned for further necessary action by the CBMF. On 2.11.1993, Appellant C
No.6, the Canbank Investment Management Services Ltd. addressed a letter
to the official liquidator of the Bank of Karad suggesting that CBMF would
move the court for a direction to the CBI for production of relevant documents
of Bank of Karad, under liquidation, and the official liquidator could obtain
copies of those documents on the basis of which he could issue a no
objection certificate. Inaction attributable to the official liquidator was intimated D
vide letters dated 18.11.1993 and 15.7.1994. It was contended before the
Company Law Board that the official liquidator was not justified in not issuing
the no objection certificate. It was submitted that the corporation was bound
and liable in law to transfer the aforesaid bonds in the name of Canara Bank,
Trustee of CBMF and pay the redemption proceeds in respect thereof since E
the transaction was not transgression of Section 531 of the Companies Act.
The appellants therefore, prayed:

"(a) Respondent No. I company be ordered and directed to transfer
the bonds stated below, in the name of Canara Bank: Trustee: Canbank
Mutual Fund. F

1HE DETAILS OF THE BOND CERTIFICATES

Certificate From Number to Value Certificate Total Rs. in
Rs. Each Lacs G
128802 130801 2000 5,000 100.00
165338 l,00,000 1.00
165586 165588 3 l,00,000 3.00
0000007 0000010 4 10,00,000 40.00 H
392 SUPREME CO CRT REPORTS [2000] SUPP. 5 S.C.R.

A 0000012 10,00,00') 10.00
0006647 0006651 5 1,00,000 5.00
0006684 0006541 58 1,00,000 58.00

TOTAL VALUE OF CERTIFICATES ENDORSED BY BOX LIMITED
B 217.00

(b) Respondent No. I be ordered and directed to rectify the Register
of Bond Holders and delete the name of Bank of Karad or any other
holder appearing in such Register and instead insert the name of
Canara Bank: Trustee Canbank Mutual Fund.
c (c) Respondent No. I be ordered and directed to pay to Canara Bank:
Trustee Canbank Mutual Fund the redemption amount in respect of
the said bonds along with other interest at 24% from the date of
maturity till the payment."

The petition was resisted by the respondents on various preliminary
D
objections raised in the reply filed before the Company Law Board. On merits
it was stated:.

"It is respectfully submitted that the Company ought not to have
returned the bond certificates which were lodged for registration. The company
E was indulging in dilatory tactics and was unnecessarily delaying in entering
the name of Canara Bank: Trustee Canbank Mutual Fund in the register of
bond holders and paying the redemption amount, without any justifiable
cause or reason.

The Company Law Board (hereinafter referred to as "the Board")
F formulated the following questions for its determination:

"(a) As regards 13% bonds whether the register should be rectified
to enter the name of 'Canara Bank-Trustee Canbank Mutual Fund' in
place of Canara Bank and whether NTPC should be directed to pay
to Canara Bank the redemption amount in respect of these bonds.

G (b) As regards the 14% bonds whether NTPC should be directed to
rectify the register by entering the name of 'Canara Bank - Trustee
Canbank Mutual Fund' in place of Bank of Karad and whether it
should be directed to pay the redemption amount to Canara Bank."

On considering the material placed before it, the Board found that the
H Corporation had specifically recognised the holdings in the name of the
CANARA BANK v. N.T.P.C. [SETHI, J.] 393
Mutual Fund. Canara Bank had, therefore, approached the Board in the A
representative capacity of the Trust and not in its individual capacity. The
Corporation could not deny such fact as it had admitted having registered
transfers in the name of the Trust earlier. Under Section 6 of the Banking
Regulations Act, 1949 the Bank as a part of its banking function could also
take up the Trusteeship function. A Trustee could not mix up the Trust's
funds with its own funds. Dealing with the facts of the case, the Board held: B
"We are convinced that Canbank Mutual Fund is the real owner of
both 13% and 14% bonds and that Canara Bank is holding the bonds
only in the capacity of a trustee. In fact this is not seriously contested
by NTPC as well. Since the relationship of trustee and beneficiary is C
proved, in accordance with the Trust Act we could have directed the
NTPC to register the bonds in the name of 'Canara Bank Trustee-
Canbank Mutual Fund'. We are, however, not in a position to grant
this prayer of the petitioner despite recognising the relationship as
there is a statutory prohibition under Section 153 of the Act to take
cognizance of any relationship of trustee and beneficiary in the Register. D
Therefore, any order to this effect would be in direct violation of
section 153 of the Act which prohibits a company from taking notice
of any trust express, implied or constructive. This statutory prohibition
was the reason for the Company Law Board [Western Bench) in not
granting a similar prayer of the petitioners in Bharat Petroleum Ltd.
v. Stock Holding Corporation ltd." E
Rejecting the alleged dispute raised by the Corporation, the Board held:

"NTPC has no right to adjust the proceeds of redemption against
dues if any from Canara Bank as this would result in a breach of trust
to which the Trustees would be forced to. It should also be remembered F
that these Bonds are secured Bonds and there is a Trustee for these
Bonds. Applying the equitable principle the holder of the Bond is also
entitled to enforce the security and those Trustee would be bound to
realise the security. Hence from whatever angle one looks at the case,
the proceeds has to be given to the Mutual Fund."
G
The Board also found that the dictum of this Court in ONGC's case was
not applicable to the facts of the present case.

In ONGC's case the Cabinet Secretary was shown to have taken
appropriate initiative as per direction of the Court dated 11.9.1991 and reported
to the Court that the dispute between the Government Department and the H
394 SUPREME COURT REPORTS [2000] SUPP. 5 S.C.R.

A public sector undertaking of the Union of India had been settled. In that view
of the matter no further action was taken on the petition. The Cabinet Secretary
in his Report had stated:

"I would also like to state that the Government respects the views
expressed by this Honourable Court and has accepted them that
B public undertakings of Central Government and the Union of India
should not fight their litigation in Court by spending money on fees
on counsel, court fees, procedural expenses and wasting public time.
It is in this context that the Cabinet Secretary has issued instructions
from time to time to all Departments of the Government of India as well
as to public undertakings of the Central Government to the effect that
c all disputes, regardless of the type, should be resolved amicably by
mutual consultation or through the goods offices of empowered
agencies of the Government or through arbitration and recourse to
litigation should be eliminated."

D In the light of the Report of the Cabinet Secretary this Court directed
as under:

"We direct that the Government of India shall set up a Committee
consisting of representatives from the Ministry of Industry, the Bureau
of Public Enterprises and the Ministry of Law, to monitor disputes
E between Ministry and Ministry of Government of India, Ministry and
public sector undertakings of the Government of India and public
sector undertakings in between themselves, to ensure that no litigation
comes to Court or to a Tribunal without the matter having been first
examined by the Committee and its clearance for litigation. Government
may include a representative of the Ministry concerned in a specific
F
case and one from the Ministry of Finance in the Committee. Senior
Officers only should be nominated so that the Committee would
function with status, control and discipline.

It shall be the obligation of every Court and every Tribunal where
G such a dispute is raised hereafter to demand a clearance fr9m the
Committee in case it has not been so pleaded and in the absence of
the clearance, the proceedings would not be proceeded with.

The Committee shall function under the ultimate control of the Cabinet
Secretary but his delegate may look after the matters. This Court
H would expect a .quarterly report about the functioning of this system
CANARA BANK v. N.T.P.C. [SETHI, J.) 395
to be furnished to the Registry beginning from 1.1.1992." A
What the Court has directed in ONGC's case is that frivolous litigation
between Government Departments and Public Sector Undertakings of the
Union of India should not be dragged in the courts and be amicably resolved
by the Committee. The judgment is intended to prevent avoidable litigation
between the Government Departments and the Undertakings of the Union of B
India. In the present litigation there does not appear to be a genuine dispute
between the Government of India undertakings. In this case one of the public
sector undertaking is shown to be acting not as an undertaking but as
· Trustee of a Trust. The Board was, therefore, justified in holding "that the
real litigation in this case, therefore, is between Mutual Fund and NTPC" and C
not between the two undertakings. The meaning of word "dispute" is, 'a
controversy having both positive and negative aspects. It postulates the
assertion of a claim by one party and its denial by the other'. In the instant
case the claim preferred on behalf of the CBMF was not denied by the
Corporation but in tum a counter claim with respect to the liability of a
subsidiary of the Bank was raised. The dispute raised is without laying any D
basis or placing on record any evidence in support thereof. Imaginative
disputes raised only to defeat the undisputed claim of the Trustee could not
be made basis to deprive the Trustees and ultimately the public at large, of
the value of the bonds which had, admittedly, been received by the Corporation
with unambiguous undertaking to repay back the same. E

A perusal of the bonds, purchased by the appellants, would indicate
that such bonds were termed and styled as "Instrument of Bond in the nature
of promissory bond". The Corporation had agreed "to pay on demand to the
above named bond-holder or order the sum of ..... ". In other words the bonds
were transferable and respondents undertaking, under a contractual and F
statutory obligation, to pay the value thereof to the transferee. Such a transferee
could not be denied the payment of the value of the bonds on the ground
of the liability of the transferor or any of its subsidiary. The perusal of the
bond incorporating the condition of payment unambiguously shows that no
dispute can be raised by the Corporation for payment of the amount on G
demand to its holder or order. The claim of the Corporation, if any, can be
enforced separately against the subsidiary of the Canara Bank but cannot be
made a ground to resist the claim of the appellants. We are of the opinion
that the High Court was not right in referring the alleged disputes to the High
Powered Committee with the aid of judgment in ONGC's case. It was under
an obligation to give a finding with regard to the directions given by the H
396 SUPREME COURT REPORTS (2000) SUPP. 5 S.C.R.

A Board to pay the redemption amount to the appellants. The Trustees of the
Trust constituted by the Canara Bank as Settlor for the benefit of numerous
units holders cannot be termed and styled as Government Company or Public
Sector Undertaking. The dispute raised by the respondents with the appellant
was imaginary and even prima facie not real. We are further of the opinion
B that the Board in its order had dealt with all aspects of the matter and rightly
concluded that ONGC's judgment was not applicable in the facts and
circumstances of the present case.

Under the circumstances, the appeals are allowed by setting aside the
judgments of the High Court a'ld restoring the orders of the Board. The
C appellants are also held entitled to costs quantified at Rs. I 0,000.

B.S. Appeals allowed.