Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2046 OF 2020
(Arising out of SLP (Civil) No.15914 of 2014)
UCO Bank .…Appellant(s)
Versus
National Textile Corporation Ltd. …. Respondent(s)
& Anr.
WITH
SLP(C)No.20527/2014
J U D G M E N T
A.S. Bopanna,J.
Leave granted.
2. The instant appeal has been filed assailing the
judgment dated 10.2.2014 passed by the High Court of
Signature Not Verified
Digitally signed by
MADHU BALA
Date: 2020.03.05
16:29:51 IST
Reason:
Delhi at New Delhi in LPA No. 808/2012 wherein the
Page 1 of 25
High Court allowed the LPA filed by Respondent No
1/National
Textile Corporation Ltd. and inter alia restrained the
Arbitral Tribunal from proceeding with the arbitral claim
made by appellant herein.
3. As per the averments made by the appellant, M/s
Shree Sitaram Mills Ltd. was taken over by National
Textile Corporation Ltd./Respondent No. 1 under the
Textile Undertaking (Takeover of Management) Act, 1983
and was nationalised w.e.f. 01.04.1994 under the Textile
Undertakings (Nationalisation) Act, 1995. Said Shree
Sitaram Mills Ltd. was enjoying credit facilities with the
Appellant Bank and Respondent No. 2, i.e. Ministry of
Textiles was the guarantor in respect of the said credit
facilities. The last guarantee was issued by the Ministry
of Textiles on 23.2.1995, valid up to 31.3.1996.
4. The Appellant filed a recovery suit bearing Suit
No.3961/1988 against Respondent No. 1 seeking
recovery of an amount of Rs. 3,19,09,000/ which was
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transferred to the Debts Recovery Tribunal on coming
into force of the Recovery of Debts Due to Banks Act
(‘RDDB Act’ for short) renumbered as O.A.No.2526/1999.
On 05.08.2004 – DRT I issued a recovery certificate
against one of the Company – Shri Sitaram Mills Ltd. for
a sum of Rs.11,70,78,726.69. The recovery proceedings
are adjourned sine die in view of the application filed by
the Respondent that it has been declared a sick company
under the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985.
5. The Appellant then submitted its claim with the
Commissioner of Payment on 17.1.2002 which was
registered on 4.7.2005. A sum of Rs. 1,05,35,86,783.47
was claimed towards post takeover liability under the
Textile Undertakings (Nationalisation) Act. Vide award
dated 13.3.2006, the Commissioner of Payment allowed a
part of the claim under category 1 of the Textile
Undertakings (Nationalisation) Act to the tune of Rs.
70,23,025/ towards principal. Claim of Rs.
1,18,80,098/ was relegated to category II (b) being an
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outstanding liability against unserviced interest. The
balance claim of Rs. 103,46,83,660.47 towards interest
beyond appointed date was rejected. By a subsequent
award dated 28.3.2007 a further sum of Rs. 89,59,609/
was awarded by the Commissioner of Payment towards
pending liability of interest till the appointed date. Thus,
in all, the appellant received a sum of Rs. 1,59,82,634/
against total claim of Rs. 1,05,35,86,783.47.
6. In the meantime, the Government of India issued
an Office Memorandum dated 22.1.2004 for settlement of
commercial disputes between Public Sector Enterprises
inter se and Public Sector Enterprises and Government
Department through Permanent Machinery of
Arbitrators.
7. Claiming that it was entitled to the balance
amount also, the Appellant lodged its request for
initiation of arbitration with the Union of
India/Respondent No.2 vide communication dated
30.8.2004. The appellant sought recovery of balance sum
of Rs. 103,76,04,149.47/ from Respondent No.1 and
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Shree Sitaram Mills Ltd. Vide notice dated 17.10.2011,
the Joint Secretary and sole arbitrator who was
appointed under the Permanent Machinery of Arbitration
(PMA) directed the appellant, Respondent No. 1 and
Shree Sitaram Mills Ltd. to submit their statements of
claim as well as counter reply. Parties were informed that
the forum had been constituted in compliance of the
directions of the Apex Court in ONGC vs. Collector of
1995 Supp (4) SCC 541. The
Central Excise, Mumbai
Appellant thereafter filed its statement of claim before the
PMA, New Delhi claiming award of payment of Rs.
103,76,04,149.47 by Shree Sitaram Mills Ltd. and Union
of India jointly and severally.
8. Respondent No. 1 filed an application for
discontinuation and cessation of arbitral proceedings in
light of the judgment of the Supreme Court in
Electronics Corporation of India Ltd. vs. Union of
(2011) 3 SCC 404 wherein this Court recalled the
India
orders reported in 1995 Supp (4) SCC 541. Thus, it was
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averred that the arbitral procedure is not based on any
statute or consent.
9. Vide order dated 28.6.2012, the Arbitral Tribunal
held that the practice of the PMA was to decide all the
issues at one time and thus the parties were directed to
submit their documents or evidence in support of their
claim and counter claim.
10. Aggrieved, Respondent No. 1 filed a writ petition
assailing notice dated 17.10.2011 and challenging the
jurisdiction of the Arbitrator to proceed further with the
matter. The learned Single Judge of the High Court
dismissed the writ petition and opined that PMA was
constituted by the decision of the Cabinet Secretariat of
the Govt. of India as reflected in its Office Memorandum
dated 22.01.2004. Though undoubtedly, the Committee
of Disputes (COD) was formed based on the judgments of
the Supreme Court it has been reversed by the Supreme
Court by its subsequent judgment in the case of
Electronics Corporation of India Ltd. It did not comment
or deal with Constitution of PMA. The PMA was
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constituted by virtue of an Office Memorandum dated
22.01.2004 issued by the Govt. of India, Ministry of
Heavy Industries and Public Enterprises, Department of
Public Enterprises. It is therefore, not a mechanism
which stands effaced by virtue of dissolution of the COD.
It cannot be disputed that both Respondent No. 1 and the
Appellant are covered under the OM dated 22.01.2004;
Respondent No.1 being a Central Public Sector
Enterprise, while Appellant is a Nationalised Bank. If that
is so, then no consent is required for initiation of
arbitration proceedings under the PMA mechanism.
11. The Respondent No. 1 claiming to be aggrieved
filed LPA. Vide impugned judgment, the Division Bench of
High Court noted that on enquiring from the counsel for
Respondent No. 1 as to what is there to show that the
claim of Appellant before the Permanent Machinery of
Arbitrators (PMA) is with respect to liability prior to
01.04.1994, the counsel for Respondent No.1 referred to
the claim petition filed by the appellant before the PMA in
which, “Sitaram Mills Ltd.” is referred to as respondent
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no. 2. It is stated therein that “respondent no. 2 was
nationalised w.e.f. 01.04.1994 under the Textile
Undertaking (Nationalisation) Act, 1995 and prior to the
takeover of the management of respondent no. 2 under
the said Act, a sum of money to the extent of Rs.
11,70,39,000/ became due and payable by respondent
No.2 to the claimant”. The Court opined that once it is
not in dispute that claims of the appellant lodged before
PMA are of the period prior to the appointed day, the
liability therefor is not of Respondent No.1. As per the
scheme of Textile Undertaking (Nationalisation) Act, the
said dues, even though pertaining to the textile
undertaking so acquired by the Central Govt. and
transferred to respondent No.1, did not become the
liability of the Central Govt. or respondent No. 1. The
same remained the liability of the earlier owner Company,
which significantly was neither taken over under the
Textile Undertaking (Nationalisation) Act nor had ceased
to exist. The Division Bench held that the Single Judge
fell in error in not appreciating the difference between
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“textile undertaking” and “textile company” and
presuming that “Shree Sitaram Mills Ltd.” was taken over
when only “Shree Sitaram Mills” i.e. the textile
undertaking of “Shree Sitaram Mills Ltd.” was taken over.
Moreover, appellant has made the claim for the entire
amount before the Commissioner of Payments before
whom, as per Section 20 of Textile Undertaking
(Nationalisation) Act, only the claims against the earlier
owner company were to be made, thereby admitting the
liability therefor to be of the earlier owner company only.
Concluding that the dues claimed by the appellant being
of the period prior to the takeover by the Central Govt. of
the textile undertaking earlier owned by Shree Sitaram
Mills Ltd., the Division Bench held that Respondent No.
1 cannot be said to be liable therefor and the arbitration
proceedings before PMA for recovery thereof against
Respondent No. 1 are misconceived. The appeal was
accordingly allowed.
12. Heard Shri A.M. Singhvi, learned senior counsel for
the appellant, Ms. Pinky Anand and Shri Vikramjit
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Banerjee, learned Additional Solicitor General for the
respondents and perused the appeal papers.
13 . It has been contended by the appellant before us
that the High Court failed to appreciate that the Office
Memorandum dated 22.1.2004 issued by the Central
Government provides for a mechanism of PMA which has
neither been quashed nor set aside by the Apex Court in
Electronics Corporation of India Ltd. vs. Union of
India (2011) 3 SCC 404. The law laid down in said case
deals with abolition of HighPowered Committee on
disputes and not abolition of PMA. Moreover, the Office
Memorandum dated 22.1.2004 is an executive
instruction issued by the Government of India as a policy
decision, more particularly decision in economic matter
which requires no judicial review. The Division Bench of
High Court also did not appreciate that the Appellant
Bank is a public sector bank and cannot allow its funds
to sink inasmuch as on the one hand DRT proceedings
have come to a standstill because of the proceedings
being adjourned sine die and on the other the
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Commissioner of Payments has rejected the balance
claim of approximately Rs. 100 crores on the ground that
it is beyond its jurisdiction in terms of Section 20 of the
Nationalisation Act. In such a situation, the impugned
judgment quashing the commencement of the arbitral
proceedings amounts to thwarting the recovery
proceedings of the Appellant Bank. The High Court also
did not appreciate that after takeover of the management
of the borrower company by the Government of India in
1983 and after nationalisation of the owner company
under the provisions of Nationalisation Act, 1955, all its
rights and liabilities stood vested in the name of
Respondent No.1 and as such Shree Sitaram Mills Ltd. as
st
referred in the 1 schedule of the Nationalisation Act and
Shree Sitaram Mills Ltd. are one and the same entity.
14. On the other hand, it has been submitted by
Respondent No.1 that as per Section 4 (2) and 4 (5) of the
Textile Undertakings (Nationalisation) Act, 1995, all
liabilities pertaining to prenationalisation period, i.e.
01.04.1994 will be of the erstwhile owner and cannot be
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enforced against Respondent No.1. It is also the
argument of respondent that Shree Sitaram Mills Ltd.
had not been nationalised and in fact continued to retain
its private existence. It was only the textile undertaking
that was owned by Shree Sitaram Mills Ltd., namely,
Sitaram Mills that had been nationalised. Further, as the
appellant had already approached the Commissioner of
Payments under the Textile Undertakings
(Nationalisation) Act, 1995 therefore it could not have
sought to maintain the instant claim. As per Section 7 of
Textile Undertakings (Nationalisation) Act, 1995, a
claimant who is dissatisfied with the decision of the
Commissioner may prefer an appeal against the decision
to the principal civil court of original jurisdiction. Next, it
has been argued that the arbitral notice dated
17.10.2011 intimated that the forum has been
constituted by the cabinet secretariat in compliance with
the mandate of the Supreme Court in
ONGC vs.
Collector of Central Excise 1995 Supp (4) SCC 541
which was recalled by the Apex Court in its order dated
Page 12 of 25
17.02.2011 passed in Electronics Corporation of India
. It has also been
Ltd. vs. Union of India and Ors
alleged that the appellant is forum shopping, having
already traversed various courts/tribunals.
15. Though elaborate contentions are urged with
regard to the claim put forth by the appellant Bank and
the liability for the same being disputed by the
respondents namely, Union of India and National Textile
Corporation as according to them such liability was not
taken over by them, on hearing the learned senior
counsel for the parties the contentions would disclose
that the consideration required herein is essentially with
regard to the forum that is to be provided to the parties
for the purpose of appropriate adjudication in that
regard. In such forum the liability of the parties and the
mode of recovery, if any, is to be ultimately determined.
Limited to this aspect an examination of the contentions
would disclose that the appellant had initiated the
arbitration proceedings before the PMA considering that
both, the appellant and the respondent No.1 are Central
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Public Sector establishments/Bank and as such were
governed under the guidelines stipulated in the Office
Memorandum dated 22.01.2004. The appellant Bank
invoking the same initiated the arbitration proceedings
pursuant to which a notice of arbitration dated
17.10.2011 was issued by the learned Arbitrator – Joint
Secretary. By Order dated 17.10.2011, the arbitrator
directed the parties to file their claims. The appellant
Bank filed statements of claim and claimed
Rs.103,76,04,149.47. In response to the notice dated
17.10.2011, NTC raised objection as to maintainability of
the arbitration proceedings before PMA. By its order
dated 13.02.2012, PMA directed the appellantBank to
file its rejoinder and also directed the respondent to file
its reply to the rejoinder and directed the parties to
appear on or before 28.06.2012. On 17.02.2012, the
NTC filed an application praying to decide on the
maintainability of arbitral proceedings as a preliminary
issue and thereafter, recall the arbitral notice dated
17.10.2011 and to discontinue the arbitral proceedings
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forthwith. The appellant – Bank objected to the said
application and prayed for dismissal of the said
application. Rejecting the application filed by NTC dated
17.02.2012, the learned Arbitrator, PMA vide order dated
28.06.2012, directed continuation of the arbitral
proceedings
16. The initiation of arbitration proceedings and the
order passed by the Arbitrator triggered the present
round of litigation since the respondent claiming to be
aggrieved by the same, preferred the Writ Petition bearing
WP(C) No.5527/2012 wherein the respondents herein as
the writ petitioners had sought for quashing the notice of
arbitration dated 17.10.2011 and to issue Writ of
Prohibition to the appellant herein from proceeding
further with the arbitral proceedings. The learned Single
Judge by the order dated 22.11.2012 had dismissed the
writ petition considering the same only as an issue with
regard to the jurisdiction and on deciding in that regard.
The respondent herein claiming to be aggrieved preferred
the appeal LPA No.808/2012. The Division Bench
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through order dated 10.02.2014 has set aside the order
of the learned Single Judge and while quashing the notice
dated 17.10.2011 of the Arbitral Tribunal under the PMA
has also decided the aspect of liability and held against
the appellant. The appellant, therefore, being aggrieved
has preferred this appeal.
17. As noted it is contended by the learned senior
counsel for the appellant the liability was that of M/s
Shri Sitaram Mills Ltd. and the claim put forth by the
appellant herein is due to the fact that the said Shree
Sitaram Mills was taken over by the respondents and in
that circumstance the liability also is taken over and is to
be liquidated. It is in that premise since the respondent
is a Public Sector Enterprise and the appellant is also a
Public Sector Bank which was nationalized under the
Banking Companies (Acquisition & Transfer of
Undertakings) Act, 1970 the Office Memorandum dated
22.01.2004 was applicable and, therefore, the claim was
put forth before the PMA. The reason for which the PMA
was brought into existence due to the observations of this
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Court in the case of ONGC vs. Collector of Central
was referred in detail. However, in view of the
Excise
subsequent observations in Electronics Corporation
(2011) 3 SCC 404
India Ltd. vs. Union of India & Ors.,
wherein this Court having noticed that the mechanism
suggested had outlived its utility and diluted the same, a
Committee on Disputes (‘COD’ for short) was constituted
which was in the nature to examine the claims being put
forth. It is further brought to the notice that the present
mechanism brought in through the Office Memorandum
dated 22.05.2018 is the Administrative Mechanism for
Resolution of CPSEs Disputes (AMRCD) wherein a similar
consideration as was being made by PMA will be made.
18. The learned Additional Solicitor General while
controverting the contentions insofar as the said Office
Memorandum providing the forum would contend that
the same would not be applicable in the present facts. In
that regard it is contended that the very liability of
respondent No.1 herein is in dispute as only the Textile
Mill is taken over and, in such circumstance, the said
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mechanism which provides for adjudication in the case of
claims inter se between two Public Sector Enterprises
would not be applicable herein. In that light it is
contended that the Division Bench of the High Court was
justified in quashing the notice issued by the Arbitral
Tribunal which was seeking to adjudicate the matter in
the jurisdiction which it did not possess.
19. As already noticed, since the present examination
herein is limited to the aspect relating to forum and when
it is seen that the claim initially made by the appellant is
against the Shree Sitaram Mills Ltd. and the Respondent
No.1 herein is disputing the liability for the same by
bringing about a distinction since the takeover was only
of Shree Sitaram Mills and not of Shree Sitaram Mills
Ltd., an adjudication on that aspect to be made cannot
be considered as a dispute as involving only the two
public sector establishments as contemplated under the
Official Memorandum referred to above.
20. While stating so it cannot also be lost sight that
the appellant herein had originally instituted the recovery
Page 18 of 25
proceedings against Shree Sitaram Mills Ltd. by filing
Suit No.3961/1988 which was thereafter transferred to
the Debts Recovery Tribunal I, Mumbai in O.A.
No.2526/1999. The said proceeding had concluded by
issue of Recovery Certificate dated 05.08.2004 against
the other defendants except defendant Nos.3 (a to c)
regarding which an appeal in DRTA Appeal No.271/2005
is pending before the Debts Recovery Appellate Tribunal,
Mumbai. The said appeal is against the judgment and
decree dated 29.03.2005. In the recovery proceedings
pursuant to the decree, if in the meanwhile certain
change of status relating to the judgment debtor has
taken place as in the instant case, namely, the takeover
of Shree Sitaram Mills which was a part of Shree Sitaram
Mills Ltd. is to be taken note. Upon consideration of
evidence adduced by the parties it has to be determined
in that light as to whether the Respondent No.1
Corporation has in fact inherited such liability making
themselves liable for the decree in existence or on the
other hand if such liability has remained and subsisted
Page 19 of 25
with Shree Sitaram Mills Ltd. It is a matter to be
examined in such recovery proceedings by providing
opportunity to the parties to adduce evidence. Further in
respect of post take over period a Suit No.4489/96 was
filed which was transferred to DRT and registered as
O.A.No.1114/2000 which has remained pending as
respondent No.2 had proceeded to BIFR. No doubt in
that circumstance if the appellant herein had chosen to
initiate the proceedings before the PMA, keeping in view
that the COD which was subsequently constituted is a
mechanism in the nature of prelitigation mediation, it
cannot be said that the step adopted by the appellant is
wholly without basis.
21. However, when it is noticed that the Respondent
No.1 has serious objections to the liability and nature of
takeover of the Textile Mills is to be examined before
recoveries are made, the adjudication of the matter in the
recovery proceedings would be the appropriate course.
Therefore, to that extent the Division Bench no doubt was
justified in setting aside the arbitral proceedings by
Page 20 of 25
quashing the notice dated 17.11.2011. However, we
notice that the Division Bench while arriving at its
conclusion has also referred to the decision of the High
Court of Madras in
Swadeshi Cotton Mills Company
Ltd. vs. The Commissioner of Central Provident Fund
MANU/TN/ 0532/1999 and the decision of the High
Court of Allahabad in
U.P State Sugar Corporation
Ltd. vs. Dr. Kailash Behari Sharma
MANU/UP/1055/1997 to hold that the liability would not
transfer on takeover. The said consideration is with
regard to the Provident Fund dues towards the Provident
Fund contribution. In the instant case, the claim is by
the lender Bank towards which a decree had already
been granted in respect of one claim and the other claim
is pending consideration. The fact as to whether in the
matter of take over, the liabilities were also included is
one aspect of the matter. Further, the aspect which may
also require examination by the Court undertaking the
recovery proceedings is as to whether in the process of
takeover of Shree Sitaram Mills the secured assets for
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the loan transaction has been taken over by the
Respondent No.1 or was it available with Shree Sitaram
Mills Ltd. if it had retained its existence and identity after
takeover of the Textile Mills and in that circumstance
whether the recovery proceedings could still be resorted
to against the Respondent No.1 in respect of the liability
of Shree Sitaram Mills Ltd., and would the Union of India
be liable as Guarantor. This is an aspect which is to be
examined after providing opportunity to the parties, if
need be, after tendering evidence in that regard.
22. Therefore, the question of liability could neither
have been decided in the writ proceedings before the High
Court nor in this appeal. If this aspect is kept in view,
the conclusion reached by the Division Bench in
paragraph 25 to hold that the respondent herein is not
liable for the dues of Shree Sitaram Mills Ltd. and the
proceedings is misconceived for such claim is an
erroneous conclusion reached in a proceedings where
such conclusion ought not to have been recorded. Hence
the decision to that effect is liable to be set aside.
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23. In view of the above conclusion, and on the
reasonings we have recorded above we hold that the
impugned judgment dated 10.02.2014 passed in LPA
No.808/2012 to the extent of quashing the notice dated
17.10.2011 of the Arbitral Tribunal under the PMA
warrants no interference. However, the conclusion
reached by the Division Bench that the respondents are
not liable for the amount claimed by the appellant herein
is set aside. The question of liability and the manner of
recovery is left open to be considered by the appropriate
forum. In that regard as noticed above, the proceedings
in O.A. No.2526/1999 had concluded by issue of
Recovery Certificate in O.A. No.2526/1999 and the R.C.
No.269/2004 was initiated towards recovery of amount.
Insofar as the rejection of the claim against defendant
Nos.3 (a to c) the Appeal DRTA No.271/2005 is stated to
be filed in the DRTA Mumbai and the same is said to be
pending. In so far as the post take over claim, the
proceedings in O.A.No.1114/2000 is pending before the
DRT, Mumbai and is stated to be adjourned sine die. The
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said proceedings shall now stand revived and are
permitted to be taken towards its logical conclusion one
way or the other in accordance with law. In the said
recovery proceedings in R.C. No.269/2004 the appellant
herein is permitted to bring on record the respondents
herein by filing an appropriate application seeking to
bring them on record as judgment debtors/defendants for
the reasons stated by the appellant in arbitral
proceedings before the PMA and in the instant
proceedings. The respondents herein are reserved the
liberty of putting forth their contentions to oppose the
same, where after the Recovery Officer/Presiding Officer
of the DRT in the respective proceedings shall if
necessary, after providing opportunity for tendering
evidence take a decision with regard to the liability if any,
on the part of the respondents to satisfy the
decree/recovery certificate issued against Shree Sitaram
Mills Ltd. Such decision shall be taken by the Recovery
Officer/Presiding Officer independently, based on the
materials available on record without being influenced by
Page 24 of 25
any of the observations contained either in the order of
the High Court or the order passed by this Court in this
appeal. All contentions of the parties are left open.
24. The appeal is allowed in part without any order as
to costs. In view of the judgment passed in Civil Appeal
arising out of SLP (Civil) No.15914 of 2014, SLP (Civil)
No.20527/2014 also stands disposed of.
25. Pending applications if any, shall also stand
disposed of.
………….…………….J.
(R. BANUMATHI)
.……………………….J.
(A.S. BOPANNA)
………….…………….J.
(HRISHIKESH ROY)
New Delhi,
March 05, 2020
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