Uco Bank vs National Textile Corporation … on 5 March, 2020


Supreme Court of India

Uco Bank vs National Textile Corporation … on 5 March, 2020

Author: A.S. Bopanna

Bench: R. Banumathi, A.S. Bopanna

                                                             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



                                               JUDGMENT

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

Delhi at New Delhi in LPA No. 808/2012 wherein the
Digitally signed by
MADHU BALA
Date: 2020.03.05
16:29:51 IST
Reason:

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

Page 2 of 25
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

Page 3 of 25
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

Page 4 of 25
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

Central Excise, Mumbai 1995 Supp (4) SCC 541. The

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

India (2011) 3 SCC 404 wherein this Court recalled the

orders reported in 1995 Supp (4) SCC 541. Thus, it was

Page 5 of 25
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

Page 6 of 25
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

Page 7 of 25
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

Page 8 of 25
“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

Page 9 of 25
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

Page 10 of 25
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

referred in the 1st 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

Page 11 of 25
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

Ltd. vs. Union of India and Ors. It has also been

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

Page 13 of 25
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

Page 14 of 25
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

Page 15 of 25
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

Page 16 of 25
Court in the case of ONGC vs. Collector of Central

Excise was referred in detail. However, in view of the

subsequent observations in Electronics Corporation

India Ltd. vs. Union of India & Ors., (2011) 3 SCC 404

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

Page 17 of 25
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

Page 21 of 25
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.

Page 22 of 25

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

Page 23 of 25
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

Page 25 of 25



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