Supreme Court of India
INDUSTRIAL INVESTMENT BANK OF INDIA LTD.versusM/S JAIN CABLES PVF. LTD. & ORS.
- Citation
- 2011 INSC 14
- Decided
- 5 January 2011
- Disposal
- Appeal(s) allowed
- Bench
- AFTAB ALAM
Holding
An application under section 40 of the 1984 Act is maintainable and may be enforced by the successor company under the 1997 Act as if the 1984 Act had not been repealed.
Summary
The Industrial Reconstruction Bank of India (IRBI) sanctioned a loan to Jain Cables Ltd., which defaulted. After the Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997 transferred IRBI's undertakings to the Industrial Investment Bank of India Ltd. (IIBL), the latter issued a notice under s.38 of the 1984 Act and filed an application under s.40 of the same Act for enforcement of its claim. The Rajasthan High Court dismissed the application, holding that s.40 was a repealed provision and therefore non‑maintainable. On appeal, the Supreme Court examined s.4(4) and s.13(2)(b) of the 1997 Act and held that any cause of action existing before the appointed day could be continued and enforced by the successor company as if the 1984 Act had not been repealed. Consequently, the application under s.40 was deemed maintainable, the High Court’s order was set aside and the matter was restored for merits‑determination.
Issues considered
- Whether an application filed under section 40 of the Industrial Reconstruction Bank of India Act, 1984 is maintainable after the transfer of IRBI's undertakings to IIBL under the 1997 Act.
- Interpretation of section 4(4) of the Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997 and section 13(2)(b) of the same Act with respect to the survival of causes of action.
- Whether the repeal of the 1984 Act extinguishes the procedural remedy provided by section 40.
Legislation cited
- Industrial Reconstruction Bank of India Act, 1984s. 18, s. 38, s. 39, s. 40
- Industrial Reconstruction Bank (Transfer of Undertaking and Repeal) Act, 1997s. 13(2)(b), s. 2, s. 3, s. 4(4)
- Transfer of Property Act, 1882s. 69
Subjects
loan defaultenforcement of claimtransfer of undertakingstatutory saving provisionsection 40section 4(4)section 13(2)(b)corporate successionindustrial bank
Judgment
[2011] 1 S.C.R. 82
A INDUSTRIAL INVESTMENT BANK OF INDIA LTD.
v.
M/S JAIN CABLES PVf. LTD. & ORS.
(Civil Appeal No. 8123 of 2004)
JANUARY 05, 2011
B
[AFTAB ALAM AND R.M. LODHA, JJ.]
Industrial Reconstruction Bank of India Act, 1984 - s. 40
- Enforcement of claims by the Reconstruction Bank -
C Industrial concern defaulting in repayment of loan given by
the Reconstruction Bank (/RBI) - Subsequent, transfer of
undertakings of /RBI to Industrial Investment Bank of India Ltd.
(I/BIL) in 1997 - Recalling of loan by I/BIL - Non-payment of
loan by industrial concern - Application by I/BIL against
D industrial concern uls. 40 of the 1984 Act before the High Court
- Maintainability of- Held: Application is maintainable - Sub-
section (4) of Section 4 read with Sub-Section (2)(b) of Section
13 of the 1997 Act makes it clear that any cause of action by
/RBI in relation to its undertakings existing immediately before
E March 27, 1997 may be continued and enforced by I/BIL as
it might have been enforced by /RBI if the 1997 Act had not
been enacted - Provisions of Chapter VIII of the 1984 Act,
that include s. 40 would continue to be applicable in respect
of the arrangements entered into by /RBI with an industrial
F
concern u/s. 18 of the 1984 Act and the //BIL would be able
to enforce the same as fully and effectually as if the 1997 Act
had not been enacted - Industrial Reconstruction Bank
(transfer of Undertaking and Repeal) Act, 1997 - ss. 4(4),
13(2)(b).
G · . T•.• e Industrial Reconstruction Bank of India (IRBI)
sanctioned certain loan in favour of respondent No. 1 who
defaulted in repayment of the loan amount. The IRBI told
respondent No. 1 to make payment as per an amended
H 82
INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v. 83
JAIN CABLES PVT. LTD. & ORS.
schedule but respondent No. 1 did not adhere to the A
same. Thereafter, the Industrial Reqonstruction ·Bank
(Transfer of Undertaking and Repeal) Act, 1997 came into
force and the undertakings of the IRBI were transferred
to and vested in the Industrial Investment Bank of India
Ltd. (llBIL). The llBIL gave a notice to respondent No, 1 ' B
to make the payment but respondent No. 1 did not make
the payment. The llBIL then filed an application before the
High Court under Section 40 of the Industrial
Reconstruction Bank of India Act, 1984. The High Court
held that the application was not maintainable as it was c
filed under the provision no longer in existence.
Therefore, the appellant filed the instant appeal.
Allowing the appeal, the Court
HELD: 1.1 A plain reading of Sub-section (4) of D
Section 4 coupled with Sub-Section (2) (b) of Section 13
of the Industrial Reconstruction Bank (Transfer of
Undertaking and Repeal) Act, 1997 would make it manifest
and clear that any cause of action by the IRBI in relation
to its undertakings existing immediately before March 27, E
.·. . 1$97 may be continued ang enforced by the llBIL as it
'Wtfiht ll~v!3,been enforced by th~ l,RBI if the 1997 Act had
not bee~ ·~,,.~S~f~: The provisions<(}t(:hapter VIII of the
lndustriatl~ec611'slfuetiqn Bank of fntila Act, 1984, that
include Sectfon 40, would continue to be applicable in F
respect of the arrangements entered into by the IRBI with
an industrial concern under Section 18 of the. 1984 Act
and the llBIL would be able to enforce the same as fully
and effectually as if the 1997 Act had not been enacted.
[Para 10) [92-G-H; 93-A-B]
G
1.2 The High Court in the impugned judgment
referred to Section 13 of the 1997 Act, but failed to notice
the true import of Sub-section 2(b) of Section 13 as also
overlooked the provisions of Sub-Section (4) of Section
H
84 SUPREME COURT REPORTS [2011] 1 S.C.R.
A 4 of the 1997. Act; and as a result arrived at a conclusion
that is patently erroneous and cannot be sustained. On _,..
the basis of the provisions contained in Section 4 (4) and
Section 13(2)(b) of the 1997 Act, there is no doubt that the
application filed by the appellant under Section 40 of the
B 1984 Act for the enforcement of its claim against
respondent No.1 was perfectly maintainable before the
High Court. The order passed by the High Court is set
aside. [Paras 11 and 12] [93-C-F] 4--
c 8123CIVIL APPELLATE JURISDICTION : Civil Appeal No.
of 2004.
From the Judgment and Order dated 01.11.2002 of the
High Court of Judicature of Rajasthan at Jodhpur in S.B.C.
Misc. Application No. 40 of 1999.
D
Sanjay Bhatt and Amit Wadhwa (for Shobha for the
Appellant.
-- -~-.:-----
Dr. Manish Singhvi, AAG, Sahil S. Chauhan and P.V.
Yogeswaran for the Respondents.
E
The Judgment of the Court was delivered by
AFTAB ALAM, J. 1. The appellant, Industrial Investment ·-r
Bank of India l.imited ("llBIL" for short), is the successor of the
Industrial Reconstruction Bank of India ("IRBI" for short)
F
constituted under section 3(1) of the Industrial Reconstruction
Bank of India Act, 1984, ("the 1984 Act" for short).
2. In the year 1985, the IRBI had sanctioned a loan of
rupees twenty two lakhs (Rs.22,00,000/-) in favour of M/s Jain
G Cables Pvt. Ltd., respondent no.1. Out of the sanctioned amount
a sum of rupees twenty lakhs (Rs.20,00,000/-) was actually
disbursed in the year 1991 and the balance amount of the loan
was cancelled. The repayment of the loan was secured by
mortgage of the immovable properties of the borrower company
H and by creating the charge of hypothecation over its immovable
INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v. 85
JAIN CABLES PVT. LTD. & ORS. [AFTAB ALAM, J.]
properties in favour of the IRBI. The borrower company A
defaulted in repayment of the loan and in 1994, on its request,
the IRBI granted to it an amended schedule of payment under
which the last installment of the loan amount was to be P,aid on
February 15, 1996. The respondent no.1 did not adhere even
to the rescheduled payment plan. 13
3. On March 27, 1997, the Industrial Reconstruction Bank
(Transfer of Undertaking and Repeal) Act, 1997 ("the 1997 Act"
for short) came into force and by virtue of notification, S.O. 242
(E), dated March 25, 1997 the undertakings of the IRBI were
transferred to and vested in the llBIL with effect from March 27, C
1997.
4. On August 14, 1997, the llBIL gave a notice to
respondent no.1 under section 38 of the 1984 Act recalling the
loan. The notice did not bring any payments from respondent D
no.1 and after about 2 years from the date of the notice, in the
year 1999, the llBIL filed an application before the Rajasthan
High Court, under section 40 of the 1984 Act. The application
filed by the llBIL was registered in the High Court as S.B.C.
Misc. Application No.40/99. The High Court issued notice on E
the application but after hearing the other side, rejected it by
order dated November 1, 2002 holding that the application was
not maintainable- as it was filed under the provision of a
repealed Act. The High Court in its brief order referred to
section 40 of the 1984 Act and the repeal and saving provision F
as contained in section 13 of the 1997 Act and took the view.
that the provision of section 40 of the 1984 Act was purely
procedural and it simply provided the IRBI with an additional
forum besides those available under section 39 of the 1984 Act
and section 69 of the Transfer of Property Act. On the other
hand, the provision of repeal contained in section 13 of the G
1997 Act was definite and categorical and the provision of
section-40 of the 1984 Act was not saved by sub-section (2)
of section 13 of the 1997 Act. In other words, 'according to the
High Court, the application was filed under a provision that was
H
86 •• SUPREME COURT REPORTS [2011] 1 S.C.R.
A no longer in existence. In this connection, the High Court held
and observed as follows:
• "Thus, to put it in other words, the rights and liabilities of
the· Company, as they existed on the appointed day, are
saved, obviously substantive rights qua the other persons,
B and the liabilities. Section· 40 does not confer any such
substantive right, as it is only procedural provision
providing an additional forum to be available to the
Company for effecting recovery of its outstandings by
praying for taking up & different course than the one
c available under Section 39 of that Act, or Section 69 of
Transfer of Property Act.
As such, the provisions of section 40 or more remain
available to the petitioner. An overall reading of the
D repealing Act of 1997 also does show that it predominantly
comprehends the rights and liabilities of Industrial )-
Investment Bank of India, which are to devolve on Industrial
Reconstruction Bank of India, as the Act is to provide for
transfer and vesting of the Undertakings to the Company
E to be formed and registered as company under the
Companies Act, and for matters concerned therewith, or
incidental thereto, and also to repeal the 1984 Act."
5. For the sake of the record, it may also be noted that -r-
during the pendency of the proceeding before the High Court,
F the llBIL also moved the Debt Recovery Tribunal. But its
application to the Debt Recovery Tribunal was against the
guarantor alone and no relief was claimed against respondent
no.1, the borrower company. The application against the
guarantor was decreed ex parte but the decree has sc far not
G borne any fruits as itwas a personal guarantee and there were
no assets against which the decree may be executed.
6. The llBIL has now brought this matter in appeal, by grant
· of special leave, against the order of the High Court dated
November 1, 2002 rejecting its application filed against the
H
INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v. 'J7
JAIN CABLES PVT. LTD .. & ORS. [AFTAB ALAM, J.)
borrower company, respondent no:1, und~r section 40 of the A
1984 Act.
7. Atthis stage, it will be useful to take< look at some of
the provisions of the 1984 Act and the 1997 Act. Section 2(a)
of the 1984 Act defined "assistance" to mean any direct or
8
indirect financial, managerial or technical assistance granted
by the Reconstruction Bank in pursuance of its business
referred to in section 18. Section 2(c) defined "assisted
industrial concern" to mean any industrial concern to which any
assistan~ was given by the Reconstruction Bank. Chapter VIII
of the Act contained sections 36 to 51 dealing with the "Special C
Powers of the Reconstruction Bank". Section 38, in that chapter,
authorized the IRBI, under certain conditions enumerated in
clauses (a) to (f), to ask, by notice in writing, any industrial
concern to which it had granted any assistance to forthwith
. ---1._ . discharge in full its entire dues and also discharge its other D
liabilities to the Bank. The statutory provision expressly overrode
anything contained in any agreement to the contrary. Section
39 dealt with the rights of the IRBI in case of default by any
assisted industrial concern. Section 40 of the 1984 Act
provided for the enforcement of claims by the IRBI and in so E
far as relevant for the present it is as under:
"40. Enforcement of claims by the Reconstruction
Bank- (1) (a) Where an assisted industrial concern makes
any default in the payment of any dues to, or in meeting F
its obligation in relation to any other assistance given by
the Reconstruction Bank or otherwise fails to comply with
the terms of agreement with that Bank, or
(b) where the Reconstruction Bank makes an order
und~r ~ection 38 requiring the assisted industrial concern G
to make immediate repayment of any assistance granted
to it and ·the industrial concern fails to make such
repayment,
...............
then, withoulprejudice to the provisions of section 39 of · H
-~ .
88 SUPREME COURT REPORTS [2011] 1 S.C.R.
A this Act and of section 69 of the Transfer of Property Act,
1882, any officer of the Reconstruction Bank generally or
specially authorised by the Board in this behalf, may apply
to the concerned High Court for one or more of the
following reliefs, namely : -
B
(i) for an order for the sale or lease of the property
assigned, charged, hypothecated, mortgaged or pledged
t0 the Reconstruction Bank as security for the assistance +
granted to it, or for the sale or lease of any other property,
of the industrial concern; or
c
(ii) *********************
(iii) for an ad interim injunction restraining Urn
industrial concern from transferring or removir:; i!s
D machinery, plant or equipment from the premises of the
industrial concern without the previous permission of the
Board, where such transfer or removal is apprehended; or
(iv) for an order for the appointment of a receiver
where there is apprehension of the machinery, equipment
E or any other property of substantial value which has ,J:ieen
assigned, charged, hypothecated, mortgaged or p)edged
to the Reconstruction Bank, being removed f,r'om the ,_.,..
premises of the industrial concern or of being transferred
without the previous permission of the Reconstruction
F Bank.
(2) ***************
(3) Where an application is for any relief mentioned
in sub-clause (i) of sub-section (1), the High Court may,-
G
(a) by an order, authorise the Reconstruction Bank
to grant lease of such property to such person and on such
terms and conditions
I ,
as may be specified in the said
order; or
H
INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v. 89
JAIN CABLES PVT. LTD. & ORS. [AFTAB ALAM, J.]
(b) pass an order calling upon the person whose A
property has been assigned, charged, hypothecated,
mortgaged or pledged to the Reconstruction Bank to show
cause, on a date to be speCified in the notice, as to why
an order for the sale of such property or so much of such
property, as would, on being sold, realise, in its estimation, .B
an amount equivalent in value to the outstanding dues of
the industrial concern to the Reconstruction Bank, together
.+ with costs of the proceedings taken under this section,
shall not be made; or
(c) pass an ad interim order attaching any property
c
of the industrial concern which has not been assigned,
·charged, hypothecated, mortgaged or pledged to the
Reconstruction Bank, or so much of such property, as
would on being sold, realise, in its estimation, an amount
equivalent in value to the outstanding dues of the industrial D
concern to the Reconstruction Bank, together with costs
of the proceedings taken under this section, and pass an
order calling upon the industrial concern to show cause on
a date to be specified in the notice as to why such order
of ad interim attachment shall not be made absolute. E
(4) ***************
(5) Where an application is for the relief mentioned
in sub-clause (iii) of sub-section (1), the High Court shall
F
grant an ad interim injunction restraining the industrial
concern from transferring or removing its machinery or
other equipment and issue a notice calling upon the
industrial concern to show cause, on a date to be specified
"'the notice, as to why such ad interim injunction shall not
-!-- be n; ~de absolute. G
(6) Where an application is for the relief mentioned
in sub-clause (iv) of sub-section (1 ), the High Court shall
pass an ad interim order appointing a receiver in respect
of the property assigned, chc:11ged, hypothecated, H
90 SUPREME COURT REPORTS [2011] 1 S.C.R.
A mortgaged or pledged and shall issue a notice calling
upon the industrial concern to show cause, on a date to
be specified in the notice, as
to why the ad interim order
appointing the receiver shall hot be made absolute.
(7) ***************
B
(8) ***************
(9) **.*************
(10) **************
c
(11 ) **************
(12) **************
( 13) **************
D
8. Then comes, the 1997 Act. Section 2(a) of the 1997
Act defines "appointed day" which is March 27, 1997 vide
notification dated March 25, 1997 issued by the Central
Government and published in the Gazette of India, Extra., of
E that date. Section 2(b) defines "company'' to mean the Industrial
Development Bank of India Ltd to be formed and registered
under the Companies Act. Section 2(c) defines
"Reconstruction Bank" to mean the Industrial Reconstruction
Bank of India established under sub-section (1) of section 3
F of the 1984 Act. Section 3 of the 1997 Act provides that on
the appointed date (March 27, 1997) the undertakings of the
Re.construction Bank shall be transferred to and vest in the
Company. Section 4 of the 1997 Act deals with the effect of
vesting of undertaking in the Company and provides as follows:
G "4. General effect of vesting of undertaking in
Company-(1) The Central Government, being the
shareholder of the Reconstruction Bank immediately
before the appointed day, shall be deemed to be
registered, on and from the appointed day, as a
H shareholder of the Company.
_,
INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v. 91
JAIN CABLES PVT. LTD. & ORS. [AFTAB ALAM, J.]
; (2) The undertakings of the Reconstruction Bank which A
..... are transferred to, and which vests in, Company under
Section 3 shall be deemed to include all business, assets,
rights, powers, authorities and privileges and. all
properties, movable and immovable, real and personal,
-1 corporeal and incorporeal, in possession or reservation, B
present or contingent of whatever nature and whatsoever
situate including lands, buildings, vehicles, cash balances,
--',
J deposits, foreign currencies, disclosed and undisclosed
reserves, reserve fund, special reserve fund, benevolent
reserve fund, any other fund, stocks, investments, shares, c
bonds, debentures, security, management of any industrial -
concern, loans, advances and guarantees given to the
industrial concerns, tenancies, leases and book debts and
all other rights and-interests arising out of such property
as were immediately before the appointed day in the
D
ownership, possession or power of the Reconstruction
!il . -!.....
Bank in relation to its undertakings, within or without India,
all books of account, registers, records and documents
relating thereto and shall also be deemed to include all
borrowings, liabilities and obligations of whatever kind
within or without India then subsisting of the Reconstruction E
Bank in relation to its undertakings.
y (3) All contracts, deeds, bonds, guarantees, powers of
attorney, other instruments and working arrangements
~
subsisting immediately before the appointed day and F
affecting the Reconstruction Bank shall cease to have
effect or to be enforceable against the Reconstruction
Bank shall be of as full force and effect against or in favour
of the Company in which the undertakings of the
Reconstruction Bank have vested by virtue of this Act a.nd G
~
enforceable as fully and effectually as if instead of the
Reconstruction Bank, the Company had been therein or
had been a party thereto.
(4) Any proceeding or cause of action pending or existing
. immediately before the appointed day by or against the H
92 SUPREME COURT REPORTS [2011] 1 S.C.R.
A Reconstruction Bank In relation to Its undertakings may,
•
~-
as from the appointed day, be continued and enforced by
or against the Company in which the undertakings of the
Reconstruction Bank have vested by virtue of this Act as
--
it might have been enforced by or against the
B Reconstruction Bank if this Act .had not been enacted and
t
shall cease to be enforceable by or against the
Reconstruction Bank."
'
(Emphasis added) ,\_
c 9. Section 13 of the 1997 Act containing the repeal and
saving clause is as follows:
"13. Repeal and saving of Act 62 of 1984-(1) On the
appointed day, the Industrial Reconstruction Bank of India
Act, 1984 shall stand repealed. -
D
(2) Notwithstanding the repeal of the Industrial >
Reconstruction Bank of India Act, 1984-
(a) the Company shall, so far as may be, comply with
E the provisions of Chapter VII of the Act so repealed for any
of the purposes related to the annual accounts and audit
of the Reconstruction Bank;
(b) the provisions of Chapter VIII of the Act so 'T
repealed will continue to be applicable in respect of the
F
arrangements entered into by the Reconstruction Bank
with an industrial concern under section 18 thereof up to
the appointed day and the Company will be entitled to
act upon and enforce the same as fully and effectually
as if this Act had not been enacted."
G
10. A plain reading of sub-section (4) of section 4 coupled
with sub-section (2) (b) of section 13 of the 1997 Act would
make it manifest and clear that aay cause of action by the IRBI
in relation to its undertakings existing immediately before March
H
- INDUSTRIAL INVESTMENT BANK OF INDIA LTD. v.
JAIN CABLES PVT. LTD. & ORS. [AFTAB ALAM, J.]
93
27, 1997 may be continued and enforced by the llBIL as It might A
have been enforced by the IRBI if the 1997 Act had not been
..... enacted. And further, that the provisions of Chapter VIII of the
1
1984 Act, that include section 40, would continue to be
applicable in respect of the arrangements entered into by the
IRBI with an industrial concern under section 18 of the 1984 Act 8
and the llBIL would be able to enforce the same as fully and
effectually as if the 1997 Act had not been enacted.
,J._ 11. The High Court in the impugned judgment referred to
section 13 of the 1997 Act, but failed to notice the true import
of sub-section 2(b) of section 13. Further, the High Court
c
completely overlooked the provisions of sub-section (4) of
section 4 of the 1997 Act and as a result arrived at a
conclusion that is patently erroneous and cannot be sustained
for a moment.
D
12. On the basis of the provisions contained in section 4
~
(4) and section 13(2)(b) of the 1997 Act, we do not have the
slightest doubt that the application filed by the appellant under
section 40 of the 1984 Act for the enforcement of its claim
against respondent no.1 was perfectly maintainable before the E
High Court. We, accordingly, accept the appeal and _set aside
the order dated November 1, 2002 passed by the High Court.
As a result, S.B.C. Misc. Application No.40/99 is restored to
._, its file and the High Court shall now proceed to examine it on
merits and dispose it of in accordance with law. F
N.J. Appeal allowed.
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