Supreme Court of India
EUREKA FORBES LIMITEDversusALLAHABAD BANK AND ORS.
- Citation
- 2010 INSC 268
- Decided
- 3 May 2010
- Disposal
- Case Partly allowed
- Bench
- B SUDERSHAN REDDY
Holding
The claim of Allahabad Bank falls within the definition of "debt" under s.2(g) of the Recovery Act, giving the Debt Recovery Tribunal jurisdiction, and the appellant is liable only for the hypothecated stock sold.
Summary
Eureka Forbes Ltd. granted a licence to two respondents to use its factory premises. When the licencees failed to pay fees, Eureka sold the stock in the premises, which was hypothecated to Allahabad Bank, without the bank's consent. The bank sued Eureka and the licencees for recovery of the hypothecated goods. The issue was whether the bank's claim fell within the definition of "debt" under s.2(g) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and whether the Debt Recovery Tribunal had jurisdiction to entertain the claim against Eureka, which had no direct contract with the bank. The Supreme Court held that the word "debt" must be given a wide meaning, the bank's claim was within s.2(g), and the Tribunal had jurisdiction. Eureka was liable only for the hypothecated stock sold, not for the whole suit, and was ordered to pay Rs 9,63,975 with interest. The Court also noted the bank’s negligence but held it did not defeat the statutory purpose.
Issues considered
- The meaning of "debt" under s.2(g) of the Recovery Act and its scope.
- Whether the Debt Recovery Tribunal had jurisdiction to entertain a claim against a non‑borrower with no privity of contract.
- Liability of the appellant for selling hypothecated goods without the bank’s consent.
- Whether the entire suit could be decreed against the appellant or relief should be limited to the hypothecated assets.
Legislation cited
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. 17, s. 19(11), s. 19(8), s. 2(g)
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. 2(n)
Subjects
Debt Recovery Actdefinition of debthypothecationDebt Recovery Tribunal jurisdictionprivity of contractbank liabilitypublic accountabilitybank negligenceex parte decree
Judgment
[2010] 5 S.C.R. 990
A EUREKA FORBES LIMITED
v.
ALLAHABAD BANK AND ORS.
(Civil Appeal No. 4029 of 2010)
MAY 03, 2010
B
[B. SUDERSHAN REDDY AND SWATANTER KUMAR,
JJ.]
Recovery of Debts Due to Banks and Financial
C Institutions Act, 1993:
Object of the Act - Discussed.
s.2(g) and 17 - 'debt' - Meaning of- Jurisdiction of Debt
Recovery Tribunal - Respondent nos.2 and 3 had obtained
D licence from appellant company to use their factory premises
- They failed to pay the licence fee - Appellant sold the goods
lying in the premises and adjusted the sale proceeds thereof
towards the arrears of licence fee, without the consent of
respondent no.1-bank, though said goods were hypothecated
E by respondent nos.2 and 3 in favour of respondent no.1 -
Claim by respondent no.1-Bank against appellant before
Debt Recovery Tribunal - Plea of appellant that the Tribunal
lacked inherent jurisdiction to entertain and decide the claim
since appellant was neither a borrower nor was there any kind
F of privity of contract between it and respondent no. 1; and as
such, money claimed from them was not a 'debt' - Further
plea that there was lack of knowledge on the part of appellant
that the goods in stock were hypothecated to respondent no. 1
- Held: Appellant took no remedial or bonafide steps even
G after it admittedly came to know that the goods in question
were hypothecated to the Bank - Even if certain amounts were
due to appellant from respondent nos.2 and 3 on account of
licence fee, still they could not have brushed aside the charge
of respondent no. 1 over the goods in question - The goods
H 990
EUREKA FORBES LIMITED v. ALLAHABAD BANK 991
AND ORS.
in question were disposed off by appellant either in collusion A
with respondent nos. 2 and 3 or at its own but with the
knowledge that the goods were hypothecated to the Bank -
The word 'debt' under s.2(g) is incapable of being given a
restricted or narrow meaning - Claim raised by respondent
no.1 fell well within the ambit and scope of s.2(g) and wa.c:; we!! B
within the jurisdiction of the Tribunal exercising its power under
s. 17 - However, the entire suit could not have been decreed
against the appellant - The cause of action in favour of
respondent no. 1 and against appellant, at best, could be
limited to the hypothecated goods. c
Maxims - Maxim "Nullus commodum capere potest de
injuria sua propria" - Applicability of
Doctrines/Principles:
D
Doctrine of full faith and credit - Applicability of
Principle. of public accountability and transparency in
State action - Applicability of
Respondent nos.2 and 3, who had obtained licence E
from appellant company to use their factory premises,
failed to pay the licence fee. The appellant sold the goods
lying in the premises and adjusted the sale proceeds
thereof towards the arrears of licence fee, without the
consent of respondent no.1-bank, though the said goods
F
were hypothecated by respondent nos. 2 and 3 in favour
of respondent no.1.
Respondent no.1 claimed that it had a charge over
the movable assets disposed off by the appellant and filed
a civil suit against the appellant and respondent nos.2 & G
3 claiming a sum of Rs.22.11 Lakhs.
The suit was transferred to the Debt Recovery
Tribunal. The appellant did not appear before the Tribunal
and finally an ex-parte decree was passed against it, and
H
992 SUPREME COURT REPORTS [2010] 5 S.C.R.
A a recovery certificate was issued by the competent
authority under the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993. The
prayer of appellant for setting aside ex-parte decree was
rejected consistently by all the courts.
B
After having lost upto this Court, the appellant
initiated another round of litigation. The matter came up
before the appellate Tribunal which set aside the said ex-
parte decree on the reasoning that, the claim in question
was for damages in tort and not a debt, and also that it
C was beyond the scope of the jurisdiction vested in the
Debt Recovery Tribunal under s.17(1) of the Act.
The High Court, however, held that, even claim for
damages would fall well within the jurisdiction of the Debt
o Recovery Tribunal in the facts of the case, and set aside
the judgment of the appellate Tribunal.
In appeal to this Court the main stand of the
appellant was in relation to the jurisdiction and lack of
knowledge of the fact that the goods in stock were
E hypothecated to the Bank along with the plant and
machinery. While pressing into service the definition of
the word 'debt' appearing in s.2(g) of the Act, it was
vehemently contended by the appellant that the Debt
Recovery Tribunal lacked inherent jurisdiction to entertain
F and decide the claim of respondent no.1 against the
appellant. It was contended that the appellant was neither
a borrower nor was there any kind of privity of contract
between it and respondent no.1-bank; and as such,
money claimed from them was not a 'debt' and, therefore,
G rigors of the recovery procedure under the provisions of
the Act could not be enforced against the appellant.
Partly allowing the appeal, the Court
HELD: 1.1. From the documentary evidence on
H record, it is clear that all the correspondences and
EUREKA FORBES LIMITED v. ALLAHABAD BANK 993
AND ORS.
conversations between respondent nos.2 and 3 on the A
one hand, and the appellant on the other had been
without any intimation to the respondent no.1-Bank. In
fact, all this had been done behind the back of the Bank.
Another relevant aspect of the matter is the conduct of
the appellant. This Court has serious issues that the B
appellant, after taking possession of the premises, had
not come to know about the goods being hypothecated
to the Bank. Owing to the sale of goods, complete
knowledge, that the goods were hypothecated to the
Bank is attributable to the appellant and hence, they c
could not have sold the said goods without permission
of the Bank. [Paras 11 and 12] [1012-C-F; 1014-C-D]
1.2. It is an accepted precept of appreciation of
evidence that a party which withholds from the Court
best evidence in its power and possession, the Court D
would normally draw an adverse inference against that
party. In any case, the bonafide of such a party would
apparently be doubted. The appellant was possessed of
best evidence in regard to the goods of which they had
taken possession, in fact were hypothecated to the Bank. E
These goods including machines were sold by the
appellant prior and subsequent to the issue of the
advertisement. Thus, the best evidence in this regard,
was obviously in appellant's power and possession
which they did not produce before the Court despite F
prolonged litigation. As such, there is no hesitation in
drawing some adverse inference against the appellant in
this behalf. [Para 14] [1016-F-H; 1017-A-B]
1.3. The appellant took no remedial or bonafide steps
even after it had admittedly come to know that the goods G
in question were hypothecated to the Bank. On the
contrary, it issued advertisement for sale of hypothecated
goods. On the face of this fact, they had no preferential
right to sell the goods. They had been informed that
possession of the property as well as the goods have H
994 SUPREME COURT REPORTS [2010] 5 S.C.R.
A been taken unauthorizedly. Even if it is assumed that
certain amounts were due to the appellant from
respondent nos. 2 and 3 on account of licence fee, still
they could not have brushed aside the charge of the
Bank over the goods and machinery in question. Also in
B the alleged leave and licence agreement, there was no
clause, at least none has been brought to the notice of
this Court, that the appellant would have charge over the
goods and machinery, in the event of default in the
payment of licence fee. In other words, the charge of the
c Bank was binding upon the appellant. [Para 15] [1017-H;
1018-A-D]
1.4. From the documentary evidence, it is clear that
the parties had the knowledge of the fact that respondent
nos.2 and 3 enjoyed the financial assistance from the
D Bank and the goods were hypothecated to it. Even as per
the statement of respondent nos.2 and 3, the appellant
sold the hypothecated goods with complete knowledge.
The goods in question, therefore, were disposed off by
the appellant either in collusion with respondent nos.2
E and 3 or at its own but with the knowledge that the goods
were hypothecated to the Bank. Thus, to that extent, the
liability of the appellant cannot be disputed. [Paras 17 and
18] [1019-C-E]
F 1.5. The Bank had been negligent and, to some
extent, irresponsible, in invoking its rights and taking
appropriate remedy in accordance with law. Mere
irresponsibility, on the part of the Bank, however, would
not wipe out the rights of the Bank in law. Without the
G consent of the Bank, no person can utilize the
hypothecated goods for his own benefit or sale by the
borrower or any person connected thereto. [-Para 19]
[1019-G-H]
1.6. Physical domain over the hypothecated goods
H is no way a sine qua non for enforcing Bank's rights
EUREKA FORBES LIMITED v. ALLAHABAD BANK 995
AND ORS.
against the borrower. It was obligatory upon the appellant A
to deal with the goods only with the leave and
permission of the Bank. Absence of such consent in
writing obviously resulted in the breach of Bank's rights.
[Para 20] [1020-G-H; 1025-A]
B
1.7. However, the entire suit could not have been
decreed against the appellant. The respondent Bank was
entitled to a limited relief, vis-a-vis, its hypothecated
stocks, goods and machinery, if any. The cause of action
in favour of the Bank and against appellant, at best, could C
be limited to the hypothecated stock and goods, as
beyond that, there is no. averment in the plaint which
would justify grant of any larger relief in their favour. [Para
13] [1015-D-F]
Indian Oil Corporation v. NEPC India Ltd., (2006) 6 SCC D
736, referred to.
2.1. The Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 was enacted primarily for
the reasons that, the Banks and financial institutions
E
should be able to recover their dues without
unnecessary delay, so as to avoid any adverse
consequences in relation to the public funds. Under
s.2(g), a claim has to be raised by the Bank against any
person which is due to Bank on account of/in the course
of any business activity undertaken by the Bank. Some F
of the general expressions used by the framers of law in
this provision are "any liability"; "claim as due from any
~
person"; 'during the course of any business activity
undertaken by the Bank"; ·"where secured or
unsecured"; and lastly "legally recoverable". All the G
above expressions used in the definition clause clearly
suggest that, 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 H
996 SUPREME COURT REPORTS [2010] 5 S.C.R.
A 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
B give the provision a wider and liberal meaning. The plain
reading of s.2(g) of the Act suggests that legislature has
used a general expression in contra distinction to
specific, restricted or limited expression. This means that,
the legislature intended to give wider meaning to the
C 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. It will be difficult for the
D
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
E 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. [Paras 22, 23,
24 and 25] [1021-F; 1022-A-H; 1023-A-B]
F 2.2. It is clear that the word 'debt' under s.2(g) of the
Recovery Act is incapable of being given a restricted or
narrow meaning. The legislature has used general terms
which must be given appropriate plain and simple
meaning. There is no occasion for the Court to restrict
G the meaning of the word 'any liability', 'any person' and
particularly the words 'in cash or otherwise'. In the
present case, the documentary and oral evidence on
record clearly established that the Bank has raised a
financial claim upon the principal debtor, as well as upon
H the person who had intermeddled and/or at least dealt
EUREKA FORBES LIMITED v. ALLAHABAD BANK 997
AND ORS.
with the charged goods without any authority in law. Not A
only this, the appellant had sold the hypothecated goods
and stocks by public auction, despite the fact the
appellant had due knowledge of the fact that the goods
were charged in favour of the Bank. Another aspect of
this case which required to be considered by this Court B
is, what was intended to be suppressed by the legislature
by enacting the Act, and thereafter, by amending various
provisions, including s.2(g). Obviously, the mischief
which was intended to be controlled and/or prevention
of wastage of securities provided to the Bank, was the c
main consideration for such enactmen_t. The purpose
was also to prevent wrong doers from taking advantage
of their wrong/ mistakes, whether permissible in law or
otherwise. These preventive measures are required to be
applied with care and purposefully in accordance with 0
law to ensure that the mischief, if not entirely
extinguished, is curbed. [Para 36] [1029-E-H; 1030-A-E]
2.3. Maxim "Nul/us commodum capere potest de
injuria sua propria" has a clear mandate of law that, a
person who by manipulation of a process frustrates the E
legal rights of others, should not be permitted to take
advantage of his wrong or manipulations. In the present
case respondent nos. 2 & 3 and the appellant have acted
together while disposing off the hypothecated goods,
and now, they cannot be permitted to turn back to argue, F
that since the goods have been sold, liability cannot be
fastened upon respondent Nos. 2 & 3 and in any case on
the appellant.
The claim raised by respondent no.1- Bank falls well
within the amhit and scope of s. 2(g) of the Act and the G
jurisdiction of the Debt Recovery Tribunal cannot be
ousted on this ground. [Paras 37 and 40] [1030-F-G;
1033-F]
2.4. The provisions of s.2 (g) have to be construed, H
998 SUPREME COURT REPORTS [2010] 5 S.C.R.
A so as to give it liberal meaning. The general expressions
used in this provision will have to be understood
generally. In the considered view of this Court, the claim
of the Bank relatable to the hypothecated goods was well
within the jurisdiction of the Tribunal exercising its power
B under s.17 of the Act. [Para 41] [1033-G-H; 1034-A]
Bank of India v. Vijay Ramnik/al AIR 1997 Gujarat 75 -
distinguished.
State of Gujarat and Ors. v. Akhil Gujarat Pravasi V. S.
C Mahamandal & Ors. (2004) 5 SCC 155; Raman Lal Bhai/al
Patel & Ors. v. State of Gujarat (2008) 5 SCC 449; Greater
Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. & Ors.
(2007) 6 SCC 236; Unique Butyle Tube Industries (P) Ltd. v.
UP. Financial Corporation and Ors. (2003) 2 SCC 455;
D United Bank of India v. Debt Recovery Tribunal & Ors. (1999)
4 SCC 69; P:S.L. Ramanathan Chettiar & Ors. Vo
0. R. M. P.R. M. Ramanathan Chettiar AIR 1968 SC 1047;
Union of India v. Raman Iron Foundry (1974) 2 SCC 231;
State Bank of Bikaner & Jaipur v. Bal/abh Das & Co. & Ors.
E (1999) 7 sec 539 and Ashok Kapil v. Sana Ullah (Dead) and
Ors. 1996 (6) SCC 342, referred to.
3.1. There is another important facet of this case
which cannot be ignored by the Court. It relates to the
conduct of the respondent Bank and its officers/officials.
F The witnesses appearing on behalf of the Bank had stated
that, at the stage of appraisal report itself, the Bank had
come to know, that respondent nos. 2 and 3 have a leave
and license agreement with the appellant. Despite that,
and without proper verification, as it appears from the
G record, heavy loan was sanctioned and disbursed to the
above respondents. Even thereafter, the Bank and its
officers/officials appear to have taken no serious steps
to ensure that the goods hypothecated to the Bank are
11ot disposed off without its consent. The officers/officials
H of the Bank, even after knowing aoout the handing over
EUREKA FORBES LIMITED v. ALLAHABAD BANK 999
AND ORS .
. of the possession of the property including the A
hypothecated goods to the appellant and having
communic(lted the same to the appellant, made no
serious efforts to recover its debt and ensure that the
goods are not disposed off, as the suit itself was filed for
recovery of the amount after serious delay. These facts, B
to a great extent, are even confirmed in the affidavit filed
on behalf of the Bank before this Court. There is no doubt
that the Bank could have protected its interest and
ensured recovery while taking due caution and acting
with expeditiousness. There is definite negligence on the c
part of the concerned officers/officials in the Bank. They
have jeopardized the interest of the Bank and
consequently the public funds, only saving grace being
that orders were passed by the competent forum,
requiring the appellant to deposit some money in the suit D
for recovery of more than 22 lac which was filed by the
Bank. [Para 42] [1034-8-H; 1035-A]
3.2. The concerned quarters in the Bank also failed
to act despite the advertisement for sale of the
hypothecated material given by the appellant, whereafter E
the machines like CTC is said to have been sold at a
throwaway price. All these facts indicate definite
negligence and callousness on the part of the concerned
quarters. The legislative object of expeditious recovery
of all public dues and due protection of security available F
with the Bank to ensure pre-payments of debts cannot
be achieved when the officers/officials of the Bank act in
such a callous manner. There is a public duty upon all
such officers/officials to act fairly, transparently and with
sense of responsibility to ensure recovery of public dues. G
Even, an inaction on the part of the public servant can
lead to a failure of public duty and can jeopardize the
interest of the State or its instrumentality. [Para 42] [1035-
B-D]
3.3. The scheme of the Recovery Act and language H
1000 SUPREME COURT REPORTS [2010] 5 S.C.R.
A of its various provisions imposes an obligation upon the
Banks to ensure a proper and expeditious recovery of its
dues. In the present case, there is certainly ex facie failure
of statutory obligation on the part of the Bank and its
officers/officials. In the entire record, there is no
s explanation much less any reasonable explanation as to
why effective steps were not taken and why the interest
of the Bank was permitted to be jeopardized. The concept
of public accountability and performance is applicable to
the present case as well. These are instrumentalities of
C the State and thus all administrative,norms and principles
of fair performance are applicable to them with equal
force as they are to the Government department, if not
with a greater rigor. The well established precepts of
public trust and public accountability are fully applicable
to the functions which emerge from the public servants
0
or even the persons holding public office. [Para 43]
[1035-E-H; 1036-A]
3.4. Inaction, arbitrary action or irresponsible action
would normally result in dual hardship. Firstly, it
E jeopardizes the interest of the Bank and public funds are
wasted and secondly, it even affects the borrower's
interest adversely provided such person was acting
bonafide. Both these adverse consequences can easily
be avoided by the authorities concerned by timely and
F coordinated action. The authorities are required to have
a more practical and pragmatic approach to provide
solution to such matters. The concept of public
accountability and performance of functions takes in its
ambit proper and timely action in accordance with law.
G Public duty and public obligation both are essentials of
good administration whether by the State
instrumentalities and/or by the financial institutions. [Para
44] [1036-C-E]
3.5. The principles of public accountability and
H transparency in State action even in the case of
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1001
AND ORS.
appointment, which essentially must not lack bonafide A
was enforced by the Court. All these principles
enunciated by the Court over a passage of time clearly
mandate that public officers are answerable both for their
inaction and irresponsible actions. What ought to have
been done, if not done, responsibility should be fixed on B
the erring officers then alone the real public purpose of
an answerable administration would be satisfied. [Para
44] [1036-F-G]
3.6. The doctrine of full faith and credit applies to the
acts done by the officers and presumptive evidence of C
regularity of official acts done or performed, is apposite
in faithful discharge of duties to elongate public purpose
and to be in accordance with the procedure prescribed.
It is known fact that, in transactions of the Government
business, none would own personal responsibility and D
decisions are leisurely taken at various levels. The
principle of public accountability is applicable to such
officers/officials with all its vigour. Greater the power to
decide, higher is the responsibility to be just and fair. The
dimensions of administrative law permit judicial E
intervention in decisions, though of administrative nature,
but are ex facie discriminatory. The adverse impact of lack
of probity in discharge of public duties can result in varied
defects not only in the decision making process but in
the decision as well. Every public officer is accountable F
for its decision and actions to the public in the larger
interest and to the State administration in its governance.
It needs to be seen in the facts and circumstances of the
present case, why and how the interest of the Bank has
been jeopardized, in what circumstances the loan was G
sanctioned and disbursed despite some glaring defects
having been exposed in the appraisal report. Significant
element of discretion is vested in the officers/officials of
the Bank while sanctioning and disbursing the loans but
this discretion is circumscribed by the inbuilt commercial
H
1002 SUPREME COURT REPORTS [2010] 5 S.C.R.
A principles/restrictions as well as that such decisions
should be free from arbitrariness, unreasonableness and
should protect the interest of the Bank in all events. As
regards, this aspect, it is for the appropriate authorities
in the Bank to examine the matter from all quarters and
B then to take appropriate action against the erring officers/
officials involved in the present case, that too, in
accordance with law. [Para 45) [1036-A; 1037-A-GJ
State of Bihar v. Subhash Singh (1997) 4 SCC 430;
Centre for Public Interest Litigation & Anr v. Union of India &
C Anr. (2005) 8 SCC 202 and State of Andhra Pradesh v. Food
Corporation of India (2004) 13 SCC 53, relied on.
4. The appellants would be liable to pay to the
·respondent Bank a sum of Rs. 9,63,975/-. (approximate
0 value of the hypothecated stock sold by the appellants)
with interest at the rate of 6% per annum. [Para 46) [1038-
A-B]
Case Law Reference:
E (2006) 6 sec 736 referred to Para 19
(2004) 5 sec 155 referred to Para 26
(2008) 5 sec 449 referred to Para 27
(2001) 6 sec 236 referred to Para 28
F
(2003) 2 sec 455 referred to Para 28
(1999) 4 sec 69 referred to Para 29
AIR 1968 SC 1047 referred to Para 31
G (1974) 2 sec 231 referred to Para 31
(1999) 1 sec 539 referred to Para 32
1996 (6) sec 342 referred to Para 37
H AIR 1997 Gujarat 75 distinguished Para 38
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1003
AND ORS.
(1997) 4 _sec 430 relied on Para 43 A
(2005) s sec 202 relied on Para 44
(2004) 13 sec 53 relied on · Para 45
CIVIL APPELLATE JURISDICTION : Civil Appeal No. B
4029 of 2010.
From the Judgment & Order dated 12.10.2007 of the High
Court of Calcutta is Revisional Application C.O. No. 554 of
2007.
c
R. F. Nariman, Pratap Venugopal, Surekha Raman (for
K.J. John & Co.) for the Appellant.
Jaideep Gupta, Bijoy Kumar Jain, A.K. Jain, Pankaj Jain
for the Respondents.
D
The Judgment of the Court was delivered by
SWATANTER KUMAR, J. 1. Leave granted ..
2. While pressing into service the definition of the word
E
'debt' appearing in Section 2 (g) of the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993 (for short as the
'Recovery Act'), it is vehemently contended before us that the
Debt Recovery Tribuna! (for short the 'Tribunal') lacks inherent
jurisdiction to entertain and decide the claim of the Bank against
the appellant. The appellant was neither a borrower nor was F
there any kind of privity of contract between the two. As such,
money claimed from them was not a 'debt' and, therefore, rigors
of the recovery procedure under the provisions of the Recovery
Act could not be enforced against the appellant. This is a
submission which, at the first blush, appears to be sound and G
acceptable. But, once it is examined in some depth and
following the settled canons of law, one has to arrive only at a
conclusion that the contention is without any substance and
merit. At the very outset, as a guiding principle we may refer
to the maxim 'a verb is leg is non est recedendum' but before H
1004 SUPREME COURT REPORTS [2010] 5 S.C.R.
A we proceed to examine the merit or otherwise of the principal
contention raised before us, it will be necessary for us to refer
to the basic facts giving rise to the present appeal, particularly,
in view of the fact that it has a wretched and long history which
began in the year 1988.
B FACTS
3. Appellant is a company duly incorporated under the
provisions of the Companies Act, 1956, while Respondent No.
1, Allahabad Bank is a body constituted under the Banking
C Companies (Acquisition and Transport of Undertakings) Act,
1976. Respondent No. 3 in the present appeal is a
proprietorship firm of Respondent No. 2. The appellant
company is stated to have entered into an agreement on 16th
August, 1983 with respondent Nos. 2 & 3, granting licence in
D their favour to use premises at Jainkunj at Goragachha Road,
Kolkata (hereinafter referred to as 'the t:1remises') for a
consideration of Rs.12,000/- payable to the appellant, along with
the plant and machinery as well as their trade mark
"OSBOURNE". It is further the case of the appellant that they
E had no knowledge of the fact that, respondent Nos. 2 & 3 had
availed certain cash credit facility and had hypothecated their
raw materials, semi-finished and finished products to Bank.
However, on or about 28th February, 1987, the said
respondents had requested the appellant to take over the
F possession of the said premises along with the closing stock
lying therein. This was so requested because respondent Nos.
2 & 3 had not paid the licence fee for the use and occupation
of the premises, goods etc. as agreed and further vide letter
dated 23rd July, 1987, they stated that appellant could sell the
G stocks as well as lathe machine lying in the factory premises
arid adjust the sale proceeds thereof towards the arrears of
licence fee. After taking possession of the factory premises,
the appellant prepared an inventory of the stock in possession
and as alleged by them, they had no knowledge that these
stocks had been hypothecated by the said respondents in
H favour of the Bank. The letter dated 7th August, 1987 has been
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1005
AND ORS. [SWATANTER KUMAR, J.]
annexed by the appellant in support of such averment. It A
appears from the record that the respondent Bank vide its letter
dated 21st August, 1987 wrote to respondent Nos. 2 & 3 raising
an issue as to how the possession of the stocks and machinery
was given to the appellant. This was done in response to the
letter of respondent Nos. 2 & 3 dated 18th August, 1987 and B
copy thereof was sent to ,the appellant while referring to the letter
dated 7th August, 1987 addressed by the appellants to the
other respondents. It wil! be useful to reproduce the relevant
extract of the letter dated 21st August, 1987 which reads as
unde~ c
"We acknowledge receipt of your letter dated
18.8.1987 along with enclosures.
In this regard we fail to understand as to how you
have permitted Mis Eureka Forbes Limited to take D
possession of your factory at 1, Goragacha Road, Kolkata
- 700 043, the stocks and machineries of which are
already hypothecated to us. And again you are advising
us not to visit the factory at the moment which we are
requesting you to do the same reputedly. Since April, E
1986, you are also not submitting the stock statement and
you have virtually stopped all your banking operations
through us. Now we observe from the stock statement
forwarded to us as enclosure that there are good amount
of stock still lying at the factory." F
4. To the above letter, the appellant responded vide its
reply dated 23rd September, 1987 saying that the factory
belongs to them and they had given the same on licence to
respondent No. 3 and when the possession was handed over
back to them certain stocks and machinery belonging to the G
respondent No. 3 were lying in the factory. They had made a
specific request that these should be sold and adjusted
towards the licence fee and the surplus money, if any, should
be refunded to them. The respondent Bank claimed that they
had a charge over the movable assets, in particular, the CTC H
1006 SUPREME COURT REPORTS [201 OJ 5 S.C.R.
A machine which appellant had disposed off. For the sale of CTC
machine, they had issued an advertisement on 12th March,
1988 and the same was sold for Rs.1,48,975/-.
5. The Bank filed a suit in the District Court at Alipore
B against the present appellant and respondent Nos. 2 .& 3
claiming a sum of Rs.22, 11,618.62. In this suit, the present
appellant filed a written statement making a preliminary
objection that there was no privity of contract between the Bank
and the present appellant. That it was not a borrower of the
Bank and had no dealings with them as such, the suit was
C barred for misjoinder of parties and in fact no suit could lie
against the present appellant. The plea of suit being barred by
time, the principles of estoppel, waiver and acquiescence was
also taken. It was stated on merits, that neither they were aware
of any transaction between plaintiff Bank and respondent Nos.
D 2 & 3 nor of any charge over the machinery and equipment etc.
The appellant c;lenied the allegations made against them. Most
of the paragraphs were denied for want of knowledge and
emphasis was laid only on the above stated two averments.
Appellant also averred that the Bank was trying to cover up
E lapses of its own officials by pressurizing them. It could not have
accepted, as security, the factory or machinery as it was owned
by the appellant and it had not given any consent for that
purpose. This suit came to be transferred after the provisions
of the Recovery Act came into force in the year 1994. Upon
F transfer it was numbered as T.A. No. 15/1994. The appellant
was served with a notice from the Tribunal and it appointed one
Mis Mallick and Palit as its Advocate to appear and pursue the
case on its behalf. The appellant did not appear before the
Tribunal and after some time the proceedings were carried on
G in their absence. The evidence was recorded and finally an ex-
parte judgment was passed against the appellant on 15th June,
1995. In furtherance to the ex-parte judgment, a Recovery
Certificate No. 48 of 1995 was issued by the competent
authority under the provisions of the Act on 30th June, 1995.
H The appellant claims to have taken steps for setting aside the
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1007
AND ORS. [SWATANTER KUMAR, J.]
ex-parte judgment. They filed a writ petition before the High A
Court of Kolkata, (being Writ Petition No. 1804 of 1995),
challenging the constitutional validity of the provisions of the
Recovery Act and also prayed for stay of execution of the ex-
parte judgment dated 15th June, 1995. An interim order dated
3rd November, 1995 was passed in favour of the appellant B
directing that the execution proceedings should go on, however
no final order be passed without the leave of the Court. The
Tribunal vide its Order dated 4th March, 1996, appointed a
receiver to prepare an inventory of hypothecated goods and a
warrant of attachment was also i.ssued. The High Court of c
Kolkata, again on application filed by·the appellant directed the
receiver only to make inventory of the goods and not to take
any further action. During the pendency of these proceedings,
the Recovery Officer upon further application by the respondent
Bank, directed the receiver to make inventory of all the D
properties vide its Order dated 17th August, 1996. This order
was challenged by the appellant before the Calcutta High Court
which stayed further proceedings.
6. According to the appellant, it was advised to initiate
proceedings to set aside the ex-parte decree and Recovery E
Certificate and hence an application was filed before the
Tribunal for recalling the ex-parte order. Along with this, an
application for condonation of delay was also filed. Consequent
upon the dismissal of the application for condonation of delay,
the appellant filed an appeal before the Debt Recovery F
Appellate Tribunal (for short the 'Appellate Tribunal') against the
order dated 19th August, 1999, passed by the Tribunal. The
same was also dismissed by the Appellate. Tribunal vide its
judgment dated 1st June, 2001. This again was assailed before
the High Court under Article 227 of the Constitution of India. G
The same was also dismissed by the High Court of Kolk.ala
vide Order dated 28th November, 2001. Still unsatisfied, the
appellant filed a Special Leave Petition before this Court, being
SLP (C) No. 7883 of 2002 against the Order of the High Court
of Kolkata which was dismissed as withdrawn by this Court vide H
1008 SUPREME COURT REPORTS {2010] 5 S.C.R.
A Order dated 26th April, 2002. In other words, the Order of the
Tribunal declining to set aside the ex-parte decree attained
finality. The Revision Petition filed by the appellant before the
High Court of Kolkata also came to be dismissed finally vide
Order dated 2nd April, 2003. In furtherance to its zeal to
B somehow get the ex-parte decree set aside, the appellant
preferred an appeal before the Appellate Tribunal against the
order of the Tribunal dated 15th June, 1995. The Order dated
16th April, 2004 of the Appellate Tribunal was challenged
before the learned Single Judge of the High Court. In those
c proceedings, an application for amendment to bring the
subsequent events on record, was filed which was dismissed
by the learned Singl~ Judge vide Order dated 11th June, 2004.
Against this Order, an appeal was filed before the Division
Bench of Kolkata High Court which also met the same fate.
However, the Division Bench while dismissing the appeal
0
observed that the Order passed by the learned Single Judge
was correct in law but it would not prevent the appellant from
resorting to any remedy which is available to it in accordance
with law.
E 7. In the Appeal preferred by the appellant, the Appellate
Tribunal vide its Order dated 15th July, 2003 directed the
appellant to deposit a sum of Rs.5,00,000/- as condition
precedent for entertaining the said appeal. This sum was
deposited and a reply affidavit to this application was filed on
F behalf of the Bank. Vide Order dated 16th April, 2004, the
Appellate Tribunal dismissed the application for condonation
of delay in filing the appeal. The order dated 16th April, 2004
of the Appellate Tribunal was challenged in a Civil Revision
Application before the High Court of Kolkata. The High Court
G vide its interim Order dated 11th June, 2004 directed the
appellant to deposit a sum of Rs.15,54, 118.62 as a condition
for hearing the appeal and the same was deposited. This
application was against the interim order and the appeal
remained pending before the Chairperson of the Appellate
H
EUREKA FORBES LIMITED v. ALLAHABAD· BANK 1009
AND ORS. [SWATANTER KUMAR, J.]
Tribunal. Finally the appeal was allowed vide Order dated 28th A
December, 2006 by the Appellate Tribunal. While setting aside
the ex-parte deyree the Appellate Tribunal held as under:-
"Having said all that, to my mind, the net result is, the
ex-parte decree in question passed against the appellant, B
Eureka Forbes Ltd. by the Debts Recovery Tribunal,
Calcutta, is without jurisdiction and therefore, the appeal
must succeed. Consequently, the entire sum of money
appropriated by the respondent-bank as per orders of the
Hon'ble Court in C.O. No. 1568 of 2004 will be refundable
together with interest at the lending rate also as per the
c
said orders of the Hon'ble Court.
Accordingly, the decree in question dated 15th June,
1995 in T.A. 15 of 1994 passed ~y the Debts Recovery
Tribunal, Calcutta, and certificate in pursuance thereof as D
against the appellant, Eureka Forbes Ltd., is hereby set
aside. The entire sum appropriated by th6 respondent
bank in terms of the orders of the Hon'ble Court in C.O.
No. 1568 of 2004 be refunded to the appellant by the bank
together with interest at the lending rate within a period of E
three months from date. There shall be no orders as to
costs."
8. Respondent Bank challenged the Order cf the Appellate
Tribunal under Article 227 of the Constitution of India being C.O.
F
No. 554 of 2007, before the learned Single Judge of the
Kolkata High Court which vide its judgment dated 12th October,
2007, restored the judgment and the order of the Tribunal.
Aggrieved therefrom, the appellant preferred the appeal before
the Division Bench of Kolkata High Court which, vide its Order
dated 11th February, 2008, dismissed the appeal and G
sustarned the Order of the learned Single Judge giving rise to
the present Special Leave Petition.
9. The challenge to the impugned orders is inter alia on
the ground that, Tribunal had no jurisdiction to entertain such H
1010 SUPREME COURT REPORTS [2010) 5 S.9.R.
A an application filed on behalf of the Bank as therE:! was no privity
of contract between the appellant and the Bank. Besides the
issue of jurisdiction, the stand taken is that the Bank had not
proved on record by way of any evidence that anything is due
to it from the appellant. All the witnesses examined on behalf
B of the Bank have stated nothing to the above mentioned effect.
In any case, in the subsequent proceedings the decree should
have been set aside, as nothing in law could be stated to be
due from the appellant. In the suit, which was decreed ex-parte
by the Tribunal on 15th June, 1995, it was specifically averred
c in the plaint that, Respondent No. 3 along with other defendants
illegally, erroneously, arbitrarily and whimsically had taken
possession of the entire stock, machinery, equipments etc.
without knowledge of the respondent Bank. The respondents
had not allowed inspection of the factory and verification of the
stock and other requisite elements. In fact, the appellant has
0
misguided the Bank while informing vide their letter dated 18th
August, 1987, that the workers had forcibly occupied the factory.
Reference was also made to the fact that some stocks, plant
and machine belonging to respondents had been given to the
appellant for sale etc. as per the agreement between the
E parties. The goods, stocks were hypothecated to the Bank and
according to the Bank, all the defendants in the suit were liable
to pay the dues of the Bank. On this premise, the Ba.nk prayed
for decree for the entire amount and also interest@ 18.05%
per annum. A specific prayer was made that the Bank has a
F valid and subsisting charge over the properties of defendant
Nos. 1 & 2 for the due repayment to it. A decree for realization
of hypothecated goods by and under the direction of the Court
was also prayed for. We have already noticed above that there
was denial of the allegations made in t.he plaint.
G
Merits of the case relatable to the factual matrix
10. The main stand of the appellant was in relation to the
jurisdiction and lack of knowledge of the fact that the goods in
stock were hypothecated to the Bank along with the plant and
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1011
AND ORS. [SWATANTER KUMAR, J.]
machinery. The t,,vo important documents, dated 16th Aygust, A
1983 and 28th February, 1987, which have been placed on
record, are of some significance. The agreement dated 16th
August, 1983 states the conditions of the leave and licence
agreement between respondent Nos. 2 & 3 and the appellant.
It was indicated therein that they could use the plant and B
machine in the premises and it was for a period of three years
with a deposit of Rs. 1,00,000/- and Rs.12,000/- per month as
fee. Under Clause 6, the stocks at the relevant time were to
be sold for a consideration of 0.75 lakhs and they were entitled
to use the trade mark. However, vide letter dated 28th February, c
1987, which is after the expiry of a period of more than three
years, it was indicated by Respondent Nos. 2 & 3 to the
appellant that, they wanted to give back possession of factory
and.there were stocks of about Rs.7,00,000/- which included
raw material, semi-finished and finished goods, lathe worth D
Rs.1, 15,000/- which could be sold to a subsequent licencee.
Relevant paragraphs of this letter can be usefully reproduced
at this stage:
"2. We are having stocks worth about Rs.7 lacs which
includes raw material, semi-finished & finished goods. We E
would be grateful if your subsequent licencee agree to take
oil the stocks plus one Lathe worth Rs.1, 15,000/- as we
would be willing to negotiate with them.
5. We would be pleased to settle our account with you as F
soon as the factory stocks are sold to your future licences
and also the worker's retrenchment dues. We state this as
we have suffered heavy losses due to continues agitation$
and non-payment of due by our customers and also
cancellation of our orders."
G
11. Another letter written by Respondent Nos. 2 & 3 to the
appellant on 23rd July, 1987 referred to certain telephonic
conversation. It was specifically recorded in it that possession
of the factory will be handed over on 31st July, 1987. It was also
H
1012 SUPREME COURT REPORTS [2010] 5 S.C.R.
A stated that there was financial crisis and that the stocks worth
Rs. 7,00,000/- and the lathe worth Rs. 1, 15,000/- etc. could be
sold and they will not be able to pciy any licence fee in future.
On 7th August, 1987, the possession of the premises was
taken by the appellant and a list had been prepared, copy of
B the list placed on record shows the physical stock as on 7th
August, 1987 and it contains bearings, plumber block, bearing
of milling MC, GM Brass and Segment, old Osborn, C.I. of
Milling M.C., C.I. components, AC !MCA machinery etc. It is
interesting to note that all these correspondences and
C conversations between the parties had been without any
intimation to the respondent Bank. In fact, all this had been done
behind the back of the Bank. Besides this, the Bank had led
oral and documentary evidence in support of its claim. The Bank
had written the letter dated 21st August, 1987 in response·to
the letter of Respondent Nos. 2 & 3 dated 18th August, 1987,
0
but the letter dated 18th August, 1987 has not been placed on
record. However, vide letter dated 21st August, 1987 copy
whereof was sent to the appellant as well, the bank had
informed them that it had given the financial assistance to
respondent Nos. 2 & 3 and the Bank was hiiving charge over
E the stocks and machinery which had been hypothecated to the
Bank. The Bank further expressed surprise as to how the
appellant had taken possession of the unit. Another relevant
aspect of the matter would be the conduct of the present
appellant. We have serious issues that the appellant, after taking
F possession of the premises, had not come to know about the
goods being hypothecated to the Bank. Advertisement for the
sale of machinery was issued as late as on 12th August, 1988.
In other words, they had sold goods, even machines, like CTC
at a throw away price, even after having complete knowledge
G about the hypothecated goods. Thereafter, an ex-parte decree
was passed, however they did not take any steps to get the
same set aside, except when a recovery certificate had been
issued by the competent authority. Thereafter, their prayer for
setting aside ex-parte decree was rejected consistently by all
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1013
AND ORS. [SWATANTER KUMAR, J.]
the courts. When the High Court of Kolkata was dealing with A
the Revision Petition filed against the Order dated 1st June,
2001, passed by the Appellate Tribunal, the Court had
specifically noticed the conduct of the appellant and had
observed as under:-
B
"After hearing Mr. Mitra appearing on behalf of the
petitioner and after going through the material on record I
fully agree with the Tribunal below that the present
proceedings have been initiated by the petitioner Balu: 10
with the sole object of delaying the execution of a decree C
passed in the year 1995. It has been rightly pointed out
by those Tribunals that after filing written statement in the
suit in 1989 till the decree was passed in 1998 the
Tribunal below, the petitioner took no step in the original
proceedings. There is no scope of doubt that notice of the
proceedings was served through the Tribunal and the D
petitioner entered appearance through a lawyer. No
reason has been assigned in the application what
prevented the learned advocate-on record of the petitioner
from contesting the proceedings before the Tribunal. In
paragraph 5 of the application before the Tribunal it has E
simply been state that "although the petitioner engaged
Mr. H.P. Balu of M/s. Mallick & Palit, solicitors to look after
the petitioner's interest in the said matter, the said
advocates chase not to appear in the proceedings for and
on behalf of the petitioner and consequently the certificate F
was passed by the tribunal in favour of the plaintiff. It
appears that the very same advocate-on-record has
preferred writ application before this Court challenging the
vires of the act and had also filed subsequent application
under Article 227 of the Constitution of India impugning G
order passed in execution proceedings and the petitioner
has obtained interim orders in those proceedings before
this court. It is not the case of the petitioner that it has
abandoned those proceedings and by the advice of the
H
1014 SUPREME COURT REPORTS [2010] 5 S.C.R.
A new lawyer has confined itself to the present proceedings.
It appears that although those matters are still pending, the
petitioner by filing instant proceedings has tried to find out
- an additional avenue for stalling the execution
proceedings."
B
12. After having lost upto this Court, another round of
litigation started, claiming it to be in furtherance to the Order
of Kolkata High Court, granting them liberty to take steps in
accordance with law. It is in furtherance of this observation of
the High Court that, the proceedings again started from the
C Appellate Tribunal and now the present petition has been filed
before this Court. We have already noticed that owing to the
sale of goods, complete knowledge, that the goods were
hypothecated to the Bank is attributable to the appellant and
hence, they could not have sold the said goods without
D permission of the Bank. Admittedly nothing of this kind was
done and the Bank was kept in dark.
13. The application for setting aside the ex-parte decree
had been filed by the appellant along with an application for
E condonation of delay in filing the said application. However, the
application for condonation of delay was rejected and
subsequently the ex-parte decree was not set aside. This order
of the Tribunal was neither interfered by the High Court nor by
this Court in a Special Leave Petition preferred by the appellant.
F In view of the observations made by the High Court in the order,
the appellant filed another application for setting aside the
decree on the ground that the Tribunal had no jurisdiction. The
said application came to be allowed by the Appellate Tribunal
which accepted the contention raised on behalf of the appellant.
G The reasoning recorded in the judgment of the Tribunal was that,
it was a claim for damages in tort and was not a debt, and also
that it was beyond the scope of the jurisdiction vested in the
Tribunal under Section 17(1) of the Recovery Act, as there were
insufficient allegations or evidence. No liability in terms of the
debt can be fastened on the appellant. This reasoning of the
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1015
.
AND ORS. [SWATANTER KUMAR, J.]
Tribunal was set aside by the High Court of Kolkata in the A
impugned judgment and observed that, even claim for
damages would fall well within the jurisdiction of the Tribunal in
the facts of the case, and particularly, when the averments
remained uncontroverted and no evidence was led by the
appellant. The hypothecated goods at the place of business of B
Respondent Nos. 2 & 3 were there at the time of handing over
of the possession of the factory back to the appellant, and this
fact can hardly be disput~_d on record. A finding was recorded
in the proceedings that appellant was an intermeddler and there
was collusion between the appellant and Respondent Nos. 2 c
& 3. Based on this finding, it was further held that the case of
the Bank was fully covered under the expression "debt", "any
liability", "any person" and accordingly, the Court set aside the
judgment of the Tribunal. In the light of the facts and
circumstances of the case, we are unable to find the stand of . D
the High Court to be erroneous. Of course, to some extent, the
. entire suit could not have be~n decreed against the appellant.
The respondent Bank was entitled to a limited relief, vis-a-vis,
its hypothecated stocks, goods and machinery, if any. It was
not even the case of the Bank before the Tribunal that the
present appellant was a borrower and in discharge of its final E
liability towards Bank. the entire suit was liable to be decreed.
The cause of action in favour of the Bank and against appellant,
at best, could be limited to the hypothecated stock a11d goods,
as beyond that, there is no averment in the plaint which would
justify grant of any larger relief in their favour. We would shortly F
discuss the legal aspects as well as the reasoning in law, in
this regard. The Bank has examined merely four witnesses in
support of its case. There is no statement or note of any of
these witnesses for imposition of any liability upon the
appellant, except to the extent of goods hypothecated; such a G
conclusion can even be drawn from the letters dated 28th
February, 1987, 23rd July, 1987, 7th August, 1987 and 21st
August, 1987. The correctness of these letters has never been
disputed by any of the parties and it was admitted by the
appellant that the advertisement for sale of goods was issued H
1016 SUPREME COURT REPORTS [201 OJ 5 .1S:C.R.
A on 12th March, 1988. Certainly and apparently, the appellant
had complete knowledge, that the entire stock, goods1,
machinery etc. had been hypothecated to the Bank. Certainly,
there has been a definite lapse on the part of the Bank, as the
loan facility was granted in the year 1984, i.e. subsequent to
B the execution of the leave and licence agreement dated 16th
August, 1983. It is obvious from the facts appearing on record
that the loan has been sanctioned in a most casual and
undesirable manner without even verifying the basic securities
of respondent Nos. 2 & 3.
c 14. Besides the fact that the present appellant had earlier
raised all the pleas in their application for setting aside the ex
parte decree which was rejected by the Tribunal, High Court
as well as this Court, it also needs to be noticed that except
making vague denials in the written statement, which they had
D filed before the Tribunal at the relevant point of time, they had
raised no specific or concrete defence in regard to the sale of
hypothecated goods by them. The fact, as already notiqed,
cannot be disputed that the goods in question which were
hypothecated or were under the charge of the Bank have been
E sold by the appellant. The advertisement issued by them clearly
shows that they had invited offers for sale of CTC machines
and spares, which itself demonstrates that a number of
machines and other goods have been sold by them. It is an
accepted precept of appreciation of evidence that a party which
F withholds from the Court best evidence in its power and
possession, the Court would normally draw an adverse
inference against that party. In any case, the bona fide of such
a party would apparently be doubted. The appellant was
possessed of best evidence in regard to the goods of which
G they had taken possession on 7th August, 1987, in fact were
hypothecated to the Bank. These goods including machines
were sold by the appellant prior and subsequent to the issue
of the advertisement dated 12th March, 1988. Thus, the best
evidence in this regard, was obviously in appellant's power and
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1017
AND ORS. [SWATANTER KUMAR, J.]
possession which they did not produce before the Court A
despite prolonged litigation. As such, we would have no
hesitation in drawing some adverse inference against the
appellant in this behalf. Another ancillary factor, which the Court
has to take into consideration is that, the value declared by
respondent Nos. 2 and 3 in relation to stocks, has not been B
denied specifically, either in correspondence or in the pleadings
by the appellant. In the letter dated 28th February, 1987 value
of goods worth Rs. 7,00,000/- and lathe machine worth Rs.
1, 15,000/- was alleged to be lying in the factory, in addition to
other materials. The inventory which was annexed to the letter c
of 7th August, 1987 refers to various components, parts,
bearings etc. but does not refer to CTC machines. Admittedly,
the appellants have sold these machines in furtherance to the
advertisement dated 12th March, 1988. In short, an amount
which cannot be disputed, as is evident from the documentary D
and oral evidence on record is, Stock A, Stock lying in the
premises, 7 lacs lathe machine, Rs.1, 15,000/- CTC machine,
as sold by the appellant as per their own version, the CTC
machine which was sold by the appellant for a sum of Rs.
1,48,975/-, thus, totaling up to Rs. 9,63,975/-. The respondent
E
Bank would be entitled to receive the interest at the rate.of 6%
per annum from 14th March, 1988 till the date of payment of
the amount. We are awarding the same rate of interest which
has been awarded by the Tribunal and was accepted by the
Bank.
F
15. It appears that the Bank is acting in a manner which
is ex facie not in consonance with the commercial principles
and in a most casual and irresponsible manner. The method
in which the financial limits have been sanctioned to respondent
Nos. 2 and 3 does not stand to reasoning. Admittedly, G
respondent Nos. 2 and 3 had no title to the property. What
verification was done to the appraisal report has been left to
imagination. The conduct of the appellant further creates some
suspicion in the mind of the Court. The appellant took no
remedial or bonafide steps even after it had admittedly come H
1018 SUPREME COURT REPORTS (2010] 5 S.C.R.
A to know that the goods in question were hypothecated to the
Bank. On the contrary, it issued advertisement in March, 1988
for sale of hypothecated goods. On the face of this fact, they
had no preferential right to sell the goods. In the letter dated
21st August, 1987, they had been informed that possession of
B the property as well as the goods have been taken
unauthorizedly. Even if it is assumed that certain amounts were
due to the appellant from respondent nos. 2 and 3 on account
of licence fee, still they could not have brushed aside the charge
of the Bank over the goods and machinery in question. Also in
c the alleged leave and licence agreement, dated 16th August,
1983, there was no clause, at least none has been brought to
our notice, that the appellant would have charge over the_ goods
and machinery, in the event of default in the payment of licence
fee. In other words, the charge of the Bank was binding upon
the appellant. The inventory of the goods had been prepared
0
and signed by the parties. In the letter dated 7th August, 1987,
these facts were confirmed in furtherance to the
correspondence exchanged between the parties from 28th
February, 1987.
'
E 16. Ashok Kumar Goswami, Senior Manager, Allahabad
Bank, who was examined as witness No. 1 on behalf of the
Bank, has stated that the loans were advanced to Respondent
Nos. 2 & 3. According to him Exh. 7 is the agreement cum letter
of hypothecation for packing er-edit advance under which the
F financial assistance was allowed to them. He also proved Exh.
11, statement of stock of finished goods, work in progress, raw-
material and machinery executed by Respondent No. 2 for an_d
on behalf of Respondent No. 3. The stocks statements were
shown in Exh. 12, while Exh. 13, was a letter written by
G Respondent No. 2 on 29th May, 1984 to the Bank. He
specifically stated that the hypothecated goods we.re handed
over by Respondent Nos. 2 & 3 to the appellant behind the
back of ·the Bank. Another witness, whose statement at this
stage can be usefully looked into, is that of Sh. Sankar
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1019
AND ORS. [SWATANTER KUMAR, J.]
Chakraborty, PW-2. Besides stating the general facts of the A
case, this witness specifically stated, that the Bank had
impleaded the appellant, as they had taken possession of
hypothecated goods of the Bank and that, the appellant had
written a letter to the Bank and they raised a specific claim
against it. B
17. From the above stated documentary evidence, it is
clear that the parties had the knowledge of the fact that
respondent nos. 2 and 3 enjoyed the financial assistance from
the Bank and the goods were hypothecated to it. Even as per
the statement of respondent nos. 2 and 3, the appellant sold C
the hypothecated goods with complete knowledge. This
included hypothecated stock worth Rs. 7,00,000/-, lathe
machine of value of Rs. 1, 15,000/-, in addition to CTC machine
and other spares.
D
18. The goods in question, therefore, have been disposed
off by the appellant either in collusion with respondent nos. 2
and 3 or at its own but with the knowledge that the goods were
hypothecated to the Bank. Thus, to that extent, the liability of
the appellant cannot be disputed. E
LEGAL ASPECTS OF THE CASE:-
19. In continuation of the above factual matrix, now let us
examine the principles of law which would be applicable to the
facts and circumstances of the case and result thereof. There F
is, in fact, hardly any dispute before us that the goods in
question had been hypothecated to the Bank. The appellant
had complete knowledge of this fact, still it went on to sell the
goods. The Bank had been negligent and, to some extent,
irresponsible, in invoking its rights and taking appropriate G
remedy in accordance with law. Mere irresponsibility, on the
part of the Bank, would not wipe out the rights of the Bank in
law. Without the consent of the Bank, no person cao utilize the
. hypothecated goods for his own benefit or sale by the borrower
or any person connected thereto. It is nobody's case that the H
1020 SUPREME COURT REPORTS [2010] 5 S.C.R.
A Bank had consented to such sale. This Court in case of Indian
Oil Corporation v. NEPC India Limited [(2006) 6 SCC 736]
described the meaning of 'entrustment' in relation to
hypothecation as follows:
xxxx xxxx xxxx xxxx
B
"The creditor may also have the right to claim payment
from the sale proceeds (if such proceeds are identifiable
and available). The following denifitions of the term
'hypothecation' in P. Ramanatha Aiyar's Advanced Law
c Lexicon [3rd Edn. (2005), Vol. 2 pp. 2179 and 2180] are
relevant:
/
"Hypothecation-lt is the act of pledging an asset as
security for borrowing, without parting with its possession
or ownership. The borrowers enters into an agreement
0 with the lender to hand over the possessi.on of the
hypothecated assets whenever called upon to do so. The
charge of hypothecation is then converted into that of a
pledge and the lender enjoys the rights of a pledge.
E * * *
'Hypothecation' means a charge in or upon any movable
property, existing or future, created by a borrower in favour
of a secured creditor, without delivery of possession of the
movable property to such creditor; as a security for
F
financial assistance and includes floating charge and
crystallization of such charge into fixed charge on movable
property. [Borrowed from Section 2(n) of Scuritisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002]."
G
20. Physical domain over the hypothecated goods is no
way a sine qua non for enforcing Bank's rights against the ·
borrower. It was obligatory upori the appellant to deal with the
goods only with the leave and permission of the Bank. Absence
H of such consent in writing would obviously result in breach of
EUREKA FORBES LIMITED v. ALLAHABAD BAt';JK 1021
AND ORS. [SWATANTER KUMAR, J.]
Bank's rights. ;\
21. The next question of law, that we are called upon to
consider, is the ambit and scope of 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
B
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. Section 2(g) of the Recovery Act reads as under:
c
"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 D
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, E
the date of the application;"
22. The Recovery Act of 1993, was enacted primarily for
the reasons that, the Be<nks 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.
F
The Statement of Objects and Reasons of this Act clearly state
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 G
significant portion of their funds in un-productive 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 Tribunals
and Appellate Tribunals and modes for expeditious recovery H
1022, SUPREME COURT R~PORTS [2010], 5 S.C.R.
A otjlues to the Banks and financial institutions.
.. I
· ~3. lnthis background, let us read the language of Section
2 (g) of the Recovery Act. The plain reading of the Section
suggests that legislature has used a general expression in
B c,ontra distinction to specific, restricted or limited expression.
this obviously means that, the legislature intended to give wider I
meaning to the provisions. Larger area of jurisdiction was
intended to be covered under this provision so as to ensure
attainment of the legislative o.iject, i.e. expeditious recovery
, C and providing provisions for taking such measures which would
prevent the wastage of securities available with the banks and
financial institutions.
24. We may notice some of the general expressions used
by the framers of law in this provision :
b {a) any liability;
' {b) ' claim as due from any person;
{c) during the course of any business activity
E undertaken by the Bank;
{d) where secured or unsecured;
{e) and lastly legally recoverable.
F 25. All the above expressions used in the definition clause
clearly suggest that, expression 'debt' has to be given general
' a~d wider m,ear(mg, jusU:o illustrate, the word 'any liabilify' as
. opposed toj'tt)e word 'determined liability' or 'definite liability'
or ~·any person' in contrast to 'from the debtor'. The expression
G '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.
H
EUREKA F9RBES LIMITED V. ALLAHABAD BANK 1023
AND)ORS. [SWATANTER KUMAR, J.]
These are generic or general terms. Therefore, it will be difficult A
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 B
unnecessary emphasis or narrow the scope and interpretation
of these prov!Sions, as they are likely to frustrate the very object
of the Act. ' ·
26. In t~e case of State of Gujarat and Ors. v. Akhil Gujarat
Pravasi V.$. Mahamandal & Ors. [(2004) 5 SCC 155], this C
Court was c:oncerned with the question of payment of taxes in
relation to the provisions of the Bombay Motor Vehicle Tax Act,
1958. The Court while interpreting the scope of the entries in
the legislative lists held that, they should be construed widely
and general ~ords used therein mu!>t co~prehend ancillary or D
. subsidiary f11rtters relating to Schedule VII, A7icle~ :f'45 ~nd
246. The C6brt held as under:- . .1
"In interpreting the scope of various entries i,n the legislative
lists in the Seventh Schedule, widest-po$sible amplitude E
must be given to the words used and each general word
must be held to extend to ancillary or subsidiary matters
which can fairly be said to be comprehende~ in it. The
entries should, thus be given a broad and comprehensive
interpretation. In order to see whether a particular
F
legislative provision falls within the jurisdiction of the
legislature which has passed it, the Court must consider
what constitutes in pith and substance the true subject-
matter of the legislation and whether su~h subject-matter
is covered by the topics enumerated in the legislative list
pertaining to that legislature." G
27. Again in the of case of Raman Lal Bhailal Patel &
Ors. v. State of Gujarat [(2008) 5 SCC 449], this Court was
dealing with the word 'person' appearing in the provisions of
H
1024 SUPREME COURT REPORTS [2010] 5 S.C.R.
A Gujarat Agricultural Land Ceiling Act, 1960. The expression
'person' was defined with the inclusive definition that a person
includes a joint family. The Court held that, where the efinition
is inclusively defining the word, there, the le · 1ve intention
. is clear that it wishes to enlarg5! t aning of the word used
B- !n the statute and thatsueh. ord must be given comprehensive
meaning. In law, the word 'person' was stated to be having a
slightly different connotation and refers to any entity that is
recognized by law as having rights and duties of human beings.
28. In the case of Greater Bombay Coop. Bank Ltd. v.
C United Yarn Tex (P) Ltd. & Ors. [(2007) 6 SCC 236], this Court
took the view that, the elementary rule of interpretation of statute
is that the words used must be given their plain grammatical
meaning, therefore, the Court cannot add something which the
legislature has not provided for. Similar view was also
D expressed by another Bench of this Court in the case of Unique
Butyle Tube Industries (P) Ud. v. UP. Financial Corporation
and Ors. [(2003) 2 sec 455], that the Court cannot write
anything into the statutory provisions which are plain and
unambiguous. A Statute is an edict of the legislature. The
E language employed in a statute is determinative factor of
legislative intent. The first and the primary rule of construction
is that, the intention of the legislation must be found in the words
used by the legislature itself. The question is not what may be
supposed and has been intended but what has been said. /
F
29. The learned counsel for the appellant has heavily relied
upon the judgment of the United Bank of India v. Debt
Recovery Tribunal & Ors. [(1999) 4 SCC 69], to contend that
the general expression must receive general meaning and in
light of this principle, the present proceedings could not have
G been initiated, much less, recoveries effected under the
provisions of the Recovery Act. We shall shortly discuss the
merit of this contention.
30. Before we advert to the discussion while applying these
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1025
AND ORS. [SWATANTER KUMAR, J.]
principles of interpretation to the provisions of Section 2 (g) of A
the Recovery Act, and also examine the merit of the contention
raised on behalf of the respondent, it may be interesting to know
as to how the word 'debt' has been defined and explained by
this Court in different judgments, with different context and under
different laws. B
31. Years back this Court in the case of P. S.L.
Ramanathan Chettiar & Ors. v. O.R.M.P.R.M. Ramanathan
Chettiar [AIR 1968 SC 1047], explained the expression 'debt'
as defined in the Madras Agriculturists Relief Act, 1938. The
Court held that the definition appearing in Section 3 (iii) of the C
Act, despite the fact that it specifically states that 'debt' would
not include rent as defined in clause (iv), or 'Kanartham', as
defined in Section 3 (1 )(1) of the Malabar Tenancy Act, 1929,
held that the definition is still of a very wide magnitude and would
include 'any liability' due from an agriculturists with the specified D
expressions. The Court held as under:
'"Debt' has been defined in Sec. 3 (iii) of the Act as
meaning "any liability" in Cash or kind, whether secured
or unsecured, due from an agriculturist, whether payable E
under a decree or order of a civil or revenue court or
otherwise, but does not include rent as defined in Clause
(iv), or 'Kanartham' as defined in Section 3 (1) (1) of the
Malabar Tenancy Act, 1929."
In the case of Union of India v. Raman Iron Foundry F
[(1974) 2 SCC 231], this Court quoted as under:
"The classical definition of 'debt', is to be found in Webb
v. Stenton where Lindley, L.J. said:" ... a debt is a sum of
money which is now payable or will become payable in the G
future by reason of a present obligation". There must be
debitum in praesenti; solvendum may be in praesenti or
in future - that is immaterial. There must be an existing
obligation to pay a sum of money now or in future."
H
1026 SUPREME COURT REPORTS. [2010] 5 S.C.R.
A 32. Still, in another case titled as State Bank of Bikaner
& Jaipur v. Bal/abh Das & Co. & Ors. [(1999) 7 SCC 539],
the Court was concerned with the un-amended provisions of
Section 2 (g) of the Recovery Act. The Court while setting aside
the order of the High Court, while dealing with the word 'debt'
B followed by the words 'alleged as due', held as under:-
"According to the definition, the term 'debt' means
liability which is alleged as due from any person by a bank
or a financial institutions or by a consortium of banks or
financial institutions. It should have arisen during the course
c 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
D 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.
E 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
F "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 tine said
liability is still subsisting and legally recoverable."
G
33. As already noticed, this judgment was pronounced by
the Court while dealing with the un-amended provisions of
Section 2 (g) of the Recovery Act. This section was amended
by. Act 1 of 2000 and the words 'alleged as due' stood
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1027
AND ORS. [SWATANTER KUMAR, J.]
substituted by the expression 'claimed as due' with effect from A
17th January, 2000. This shows the intention of the legislature
to significantly introduce definite expression and give emphasis
to the claim of the Bank rather than, what is allegedly due or
determinatively due to the Bank from its borrowers. In this case,
the application of the Bank had been dismissed by the High B
Court on the ground that it was not maintainable as it was not
covered under the definition of the word 'debt'. While setting
aside the order of the High Court, this Court held that, the High
Court had gone wrong in holding that the application by the
Bank was premature and till the Court determines the amount, c
such application could not be filed by the Bank. This Court
clearly stated the dictum that, such application would be
maintainable and the amount payable to the Bank does not
have to be a determined sum under the provisions of the
Recovery Act.
D
34. Similar contention had been raised before us on the
strength of the judgment of this Court in tre Case of United
Bank of India (Supra) on behalf of the appelllant. Firstly, we fail
to understand as to what advantage th·e learned counsel
appearing for the appellant wishes to draw from this judgment E
and secondly, this judgment has clearly returned the finding,
even on the facts of that case, that application under the
provisions of the Recovery Act was maintainable within the
scope of Section 2 (g) of the Act. The Court held as under :
F
"In view of the rival starids of the parties, the short
question that arises for consideration is, as to whether the
said claim of the plaintiff can be. said to be a claim for
recovery of debts d.ue to the plaintiff as provided under
Section 17(1) of the Act. The answer of this question in G
turn would depend upon the meaning of the expression
"debt" as defined in Section 2(g) of the Act. Before we
examine the two provisions referred to above, it is to be
borne in mind that the procedure for recovery of debts due
to the banks and financial institutions which was being
H
1028 SUPREME COURT REPORTS [2010] 5 S.C.R.
A followed, resulted in a significant portion of the funds being
blocked. To remedy the locking up of huge funds, the
Financial Institutions Bill, 1993", which was passed by
Parliament and the Act has come into existence. ·
The Act and the relevant provisions will have to be
B
construed bearing in mind the objects for which Parliament
passed the enactment. The prime object of the enactment
appears to be provide for the establishment of tribunals
for expeditious adjudication and recovery of debts due to
banks and financial institutions and for matters connected
c therewith or incidental thereto.
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
D 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 otherVliis~ and legally
recoverable on the date of the application. In ascertaining
E 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 be
looked into and them find out whether notwithstanding the
F specially-created tribunal having been constituted, the
averments are such that it is possible to hold that the
jurisdiction of such a 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
G
for recovery of a debt due to it from the defendants and,
therefore, is the Tribunal which has the exclusive
jurisdiction to decide the dispute and not the ordinary civil
court."
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1029
AND ORS. [SWATANTER KUMAR, J.]
35. As is obvious from the above recorded findings, the A
Court while referring to Section 2 (g), 17(1) and 31 (1) of the
Recovery Act, observed that jurisdiction of the Civil Court was
barred under the provisions of the Act and the suits or
proceedings shall transfer to the Tribunal upon coming into
force of the Recovery Act. The Court was primarily concerned B
with the matters being transferred from Civil Courts to Tribunal,
still while referring to the provisions of Section 2 (g), held that
the claim of the Bank was covered under the provisions of the
Act. The suit, as instituted in the year 1991, had claimed various
relief including the claim for damages. The objection raised was c
that, there was undetermined amount and other relief could not
be referred to the Tribunal for adjudication. The suit was
subsequently transferred to the Tribunal under the provisions of
the Act and the Court while giving wide meaning to the
expression 'debt', clearly held that. this expression was of D
liberal amplitude and there was occasion for the Court to grant
a restricted meaning. Thus, in our view, even the case of United
Bank of India (supra) no way supports the submissions made
on behalf of the appellant.
36. On the plain analysis of the above stated judgment of E
this Court, it is clear that the word 'debt' under Section 2 (g) of
the Recovery Act is incapable of being given a restricted or
narrow meaning. The legislature has used general terms which
must be given appropriate plain and simple meaning. There is
no occasion for the Court to restrict the meaning of the word F
'any liability', 'any person' and particularly the words 'in cash
or otherwise'. Under Section 2 (g), a claim has to be raised by
the Bank against any person which is due to Bank on account
of/in the course of any business activity undertaken by the Bank.
In the present case, Bank had admittedly granted financial G
assistance to respondent nos. 2 and 3, who in turn had
hypothecated the goods, plants and machinery in favour of the
Bank. There cannot be any dispute before us that the goods in
question have been sold by the appellant without the consent
of the Bank. Respondent nos. 2 and 3 have hardly raised any, H
1030 SUPREME COURT REPORTS [201(i)] 5 S.C.R.
A dispute and resistance, to the claim of the Bank. In fact, even
before this Court there is no representation on their behalf. The
documentary and oral evidence on record clearly established
that the Bank has raised a financial claim upon the principal
debtor, as well as upon the person who had intermeddled and/
B or at least dealt with the charged goods without any authority
in law. N.ot only this, the appellant had sold the hypothecated
goods and stocks by public auction, despite the fact the
appellant had due knowledge of the fact that the goods were
charged in favour of the Bank. Another aspect of this case which
c req!fired to be considered by this Court is, what was intended
to be suppressed by the legislature by enacting the Recovery
Act, 1993 and thereafter, by amending various provisions,
including Section 2(g) in the year 2000. Obviously, the mischief
which was intended to be controlled anr'or prevention of
wastage of securities provided to the Bank, was the main
0
consiperation for such enactment. The purpose was also to
prevent wrong doers from taking advantage of their wrong/
mistakes, whether permissible in law or otherwise. These
preventive me<;1sures are required to be applied with care and
purposefully in accordance with law to ensure that the mischief,
E if not entirely extinguished, is curbed.
37. Maxim Nullus commodum capere potest de injuria sua
propria has a clear mandate of law that, a person who by
manipulation of a process frustrates the legal rights of others,
F should not be permitted to take advantage of his wrong or
manipul~tions. In the present case Respondent Nos. 2 & 3 and
the appellant have acted together while disposir:i_g off the
hypothecated goods, and now, they cannot be permitted to turn
back to argue, that since the goods have been sold, liability
G cannot be fastened upon respondent Nos. 2 & 3 and in any
case on the appellant. The Bench of this Court in the case of
Ashok Kapil v. Sana Ullah (Dead) and Ors. [1996 (Vol. 6)
sec 342], referred to rule of mischief and while explaining the
word 'building', held as under,:-
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1031
AND ORS. [SWATANTER KUMAR, J.]
'•
·:stroud's Judicial Dictionary (Vol. I of the 5th Edition) A
stat~s that 'what is a building must always be a question
of degree and circumstances'. Quoting from Victoria City
Corpn. v. Biship of Vancover Island (AC at p.390), the
celebrated lexicographe commented that 'ordinary and
natural meaning of the word building includes the fabric B
and the ground on which it stands". In Black's Law
Dictionary (5th Edn.) the meaning of the building is given
as " A structure or edifice enclosing a space within its
walls, and usually, but no necessarily, covered with a roof'.
(emphasis supplied). The said description is a recognition c
of the fact that roof is not a necessary and indispensable
adj~pct for a building because there can be roofless
buildings. So a building, even after losing the roof, can
continue to be a building in its general meaning. Taking
re¢ourse to such meaning in the present context would help D
t!;> prevent a mischief.
38. The learned counsel for the appellant also relied upon
the.Judgment of the Gujarat High Court in the case of Bank of
ln<tita v. Vijay Ramniklal [AIR 1997 Gujarat 75], in support of
the contention, that claim of bank was not 'debt' within the E
meaning of Section 2(g) of the Act so as to give jurisdiction to
the Tribunal. We are not impressed by this argument. Firstly,
the judgment of the Gujarat High court is entirely on different
facts and in that case an employee of the Bank had
misappropriated the amount of the Bank, the Bank had !-
.· instituted an application under the provisions of the Recovery
Act. Rightly so it was held by the High Court, that it was not a
'debt' within the meaning of Section 2 (g) and, therefore, could
not be tried before the Tribunal. We may state another
illustration to demonstrate the case where the Tribunal may not G
have jurisdiction. Some persons commit a theft in the Bank and
take away the money and/or the goods hypothecated to the
·.Sank or the gqods in the custody of the Bank. Upon Bank's
lodging a first information report (FIR) to the police, those
H
1032 SUPREME COURT REPORTS · [2010] 5 S.C.R.
A persons are traced, arrested and tried in accordance with law
for theft. In such a case, the Tribunal may not have jurisdiction
to entertain and decide an application for recovery of money
or value of goods in terms of Section 17 of the Recovery Act.
That is neither the case here nor in any of the judgments which
B have been relied upon by the parties before us, except in the
case of Gujarat High Court. In the case in hand, the goods were
hypothecated to the Bank and the appellant admittedly had
knowledge prior to the sale of the goods, that they were
hypothecated to the Bank. If the contention of the appellant is
c accepted, it will amount to giving advantage 9r premium to the
wrong doers. It would also further perpetuate the mischief
intended to be suppressed by the enactment. This could·
. completely defeat the very object and purpose
/
of the Act. A
party which had pledged or mortgaged properties in favour of
the Bank, then would transfer such properties in favour of athird
0
party. In the event, the Bank takes action under the provisions
of the Recovery Act, they would take the objection like the
present appellant. This would tantamount to travesty of justice
and would frustrate the very legislative object and intent behind
the provisions of the Recovery Act. Therefore, such an
E ;:ipproach or interpretation would be impermissible.
39. We have already noticed that the legislature has not
used words of a restrictive or definite nature. It has intentionally
made use of the expressions which are quite general and can
F be construed widely in their common parlance. There is no
occasion for this Court to read the word other than the one
intended by the legislature in the provisions of Section 2 (g) of
the Recovery Act. Wherever the legislature requires, it uses the
expressions of definite connotations and consequences, for
G example, in the Interest Act, 1978, the word 'debt' has been
defined under Section 2(c) of that Act by using specific terms
of restricted character. It means 'any liability for an 'ascertained
sum' of money and includes a debt payable in any kind but does
not include a 'judgment debt'. In this definition, the 'ascertained
H sun 1' obviously means a sum whic.h has been determined under
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1033
AND ORS. [SWATANTER KUMAR, J.]
any methods of the adjudicative process while, on the other A
hand, the expression 'payable in kind' is a general expression,
again the excluding clause in. relation to 'judgment debt' is
specific. Such is not the language or the purport of Section 2
(g) of the Recovery Act. Mr. R.F. Nariman, the learned senior
counsel appearing for the appellant, while referring to the B
provisions of Section 19 (8) and Section 19 (11) respectively,
of the Recovery Act contended, that these sections clearly
postulate that, a non applicant in proceedings before the
Tribunal can raise a plea of set off, as well as a counter claim,
but where the counter claim is objected to on the ground that it c
ought not to be disposed off by way of a counter claim, as it is
an independent action, then the person raising a counter claim
can take leave of the Tribunal for exclusion of such counter
claim. With reference to language of these two provisions, it is
contended that, the claim like the one raised by the respondent D
Bank against the appellant, is a claim which cannot be raised
in the proceedings before the Tribunal and the Bank ought to
have taken independent steps, if any, in accordance with law.
On the other hand, Mr. Jaideep Gupta, learned senior counsel
for the respondent-Bank argued that, this argument has no
bearing on the matter in controversy before us, in as much as,
E
the claim of the Bank is maintainable within the definition of
'debt' under the Recovery Act.
40. This contention of appellant needs to be noticed only
for being rejected. In our detailed discussion above, we have F
clearly held that, the claim raised by the Bank falls well within
the ambit and scope of Section 2 (g) of the Recovery Act and
the jurisdiction of the Tribunal cannot be ousted on this ground.
41. Thus, in our opinion, the provisions of Section 2 (g) G
have to be construed, so as to give it liberal meaning. The
general expressions used in this provision will have to be
understood generally. Neither there is scope to hold nor is the
legislative intent that these provisions should be given a
narrower or a restricted meaning. In our considered view, the
H
1034 SUPREME COURT REPORTS [201 O] 5 S.C.R.
A claim of the Bank relatable to the hypothecated goods was well
within the jurisdiction of the Tribunal exercising its power under
Section 17 of the Recovery Act.
Applicability of the principles of public accountability on
B the facts of the present case :
42. Having answered both the questions of fact partially
and law against the present appellant, still there is another
important facet of this case which cannot be ignored by the
Court. It relates to the conduct of the respondent Bank and its
C officers/officials. The witnesses appearing on behalf of the Bank
had stated that, at the stage of appraisal report itself, me Bank
had come to know, that respondent Nos. 2 and 3 have a leave
and license agreement with the. appellant. Despite that, and
without proper verification, as it appears from the record, heavy
D loan was sanctioned and disbursed to the above respondents.
Even thereafter, the Bank and its officers/officials appear to
have taken no serious steps to ensure that the goods
hypothecated to the Bank are not disposed off without its
consent. The officers/officials of the Bank, even after: knowing
E about the handing over of the possession of the property
including the hypothecated goods to the appellant and having
communicated the same to the appellant vide their letterdated
24th August, 1987, made no serious efforts to recov·er its debt
and ensure that the goods are not disposed off, as the suit itself
F was filed for recovery of the amount on 1st February, 1989 after
serious delay. These facts, to a great extent, are even
conformed in the affidavit which was filed on behalf of the Bank
by one Shri Kamal Kumar Kapoor as late as on 22nd August,
2009 before this Court. There is no doubt in our mind that the
G Bank could have protected its interest and ensured recovery
while taking due caution and acting with expeditiousness. There
is definite negligence on the part of the concerned officers/
officials in the Bank. They have jeopardized the interest of the
Bank and consequently the public funds, only saving grace
being that orders were passed by the competent forum,
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1035
AND ORS. [SWATANTER KUMAR;~ J.]
requiring the appellant to deposit some money in the suit for A
recovery of more than 22 lac which was filed by the Bank in
the year 1989. Even this order was also vacated by the Tribunal
vide its order dated 28th December, 2006 wherein it passed
the order for refund of the amount. The concerned quarters in
the Bank also failed to act despite the advertisement for sale B
of the hypothecated material given by the appellant on 12th
March, 1988, whereafter the machines like CTC is said to have
been sold at a throwaway price. All these facts indicate definite
negligence and callousness on the part of the concerned
quarters. The legislative object of expeditious recovery of all c
public dues and due protection of security available with the
Bank to ensure pre-payments of debts cannot be achieved
when the officers/officials of the Bank act in such a callous
manner. there is a public duty upon all such officers/officials
to act fairly, transparently and with sense of responsibility to D
ensure recovery of public dues. Even, an inaction on the part
of the public servant can lead to a failure of public duty and can
jeopardize the interest of the State or its instrumentality. '
43. In our considered opinion, the scheme of the Recovery
Act and language of its various provisions imposes an E
obligation upon the Banks to ensure a proper and expeditious
recovery of its dues. In the present case, there is certainly ex
·facie failure of statutory obligation on the part of the Bank and
its officers/officials. In the entire record before us, there is no
explanation much less any reasonable explanation as to why F
effective steps were not taken and why the interest of the Bank
was permitted to be jeopardized. The concept of public
accountability and performance is applicable to the present
case as well. These are instrumentalities of the State and thus
all administrative norms and principles of fair performance are · G
applicable to them with equal force as they are to the
Government department, if not with a greater rigor. The well
established precepts of public trust and public accountability
are fully applicable to the functions which emerge from the
H
1036 SUPREME COURT REPORTS [2010] 5 S.C.R.
A public servants or even the persons holding public office. In the
case of State of Bihar v. Subhash Singh [ (1997) 4 sec 430],
this Court, in exercise of the powers of judicial review stated
that, the doctrine of full faith and credit applies to the acts done
by officers in the hierarchy of the State. They have to faithfully
B discharge their duties to elongate public purpose.
44. Inaction, arbitrary action or irresponsible action would
normally result in dual hardship. Firstly, it jeopardizes the interest
of the Bank and public funds are wasted and secondly, it even
affects the borrower's interest adversely provided such person
C was acting bonafide. Both the!?e adverse consequences can
easily be avoided by the authorities concerned by timely and
coordinated action. The authorities are required to have a more
practical and pragmatic approach to provide solution to such
matters. The concept of public accountability and performance·
D of functions takes in its ambit proper and timely action in
accordance with law. Public duty and public obligation both are
essentials of good administration whether by the State
instrumentalities and/or by the financial institutions. In tne case
of Centre for Public Interest Litigation & Anr. v. Union of India
E & Anr. [(2005) 8 SCC 202], this Court declared the dictum that
State actions causing loss are actionable under public law and
this is as a result of innovation to a new tool with the court,
which are the protectors of civil liberty of the citizens and would
ensure protection against devastating results of State action.
F The principles of public accountability and transparency in State
action even in the case of appointment, which essentially must
not lack bonafide was enforced by the Court. All these principles
enunciated by the Court over a passage of time clearly mandate
that public officers are answerable both for their inaction and
G irresponsible actions. What ought to have been done, if not
done, responsibility should be fixed on the erring officers then
alone the real public purpose of an answerable administration
would be satisfied.
45. The doctrine of full faith and credit applies to the acts
H
EUREKA FORBES LIMITED v. ALLAHABAD BANK 1037
AND ORS. [SWATANTER KUMAR, J.]
done by the officers and presumptive evidence of regularity of A
official acts done or performed, is apposite in faithful discharge
of duties to elongate public purpose and to be in accordance
with the procedure prescribed. It is known fact that, in
transactions of the Government business, none would own
personal responsibility and decisions are leisurely taken at B
various le·vels (Refer : State of Andhra Pradesh v. Food
Corporation of India [(2004) 13 SCC 53].
Principle of public accountability is applicable to such
officers/officials with all its vigour. Greater the power to decide,
higher is the responsibility to be just and fair. The dimensions
c
of administrative law permit judicial intervention in decisions,
though of administrative nature, but are ex facie discriminatory.
The adverse impact of lack of probity in discharge of public
duties can result in varied defects not only in the decision
making process but in the decision as well. Every public officer D
is accountable for its decision and actions to the public in tbe
larger interest and to the State administration in its governance.
It needs to be seen in the facts and circumstances of the
present case, why and how the interest of the Bank has been
jeopardized, in what circumstances the loan was sanctioned E
and disbursed despite some glaring defects having been
exposed in the appraisal report. Significant element of
discretion is vested in the officers/officials of the Bank while
sanctioning and disbursing the loans but this discretion is
circumscribed by the inbuilt commercial principles/restrictions F
as well as that such decisions should be free from arbitrariness,
unreasonableness and should protect the interest of the Bank
in all events. We are neither competent nor do we wish to
venture to examine this aspect, it is for the appropriate
authorities in the Bank to examine the matter from all quarters G
and then to take appropriate action against the erring officers/
officials involved in the present case, that too, in accordance
with law.
46. For the reasons afore-recorded, we partially allow this
H
1038 SUPREME COURT REPORTS [2010] 5 S.C.R.
A appeal and while modifying the order of the High Court to the
extent that, the appellants would be liable to pay to the
respondent Bank a sum of Rs. 9,63,975/-. (approximate value
of the hypothecated stock sold by the appellants) with interest
at the rate of 6% per annum on the above sum during the
B period from 14th March, 1988, the date of filing of the plaint, to
the date of actual realization as originally allowed by the Tribunal.
4.7. We further direct the Chairman of the Allahabad Bank
to examine this case in light of our discussion supra and take
C appropriate action against erring officers/officials in accordance
with law.
48. However, in the facts and circumstances of the case,
the pa1iies are left to bear their own costs.
B.B.B. Appeal partly allowed.
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