Supreme Court of India · 29 July 2009
Nahar Industrial Enterprises Ltd v. Hong Kong & Shanghai Banking Corp
(2009) 8 SCC 646
Court
Supreme Court of India
Bench
S.B. Sinha & Asok Kumar Ganguly, JJ.
Date
29 July 2009
Citation
(2009) 8 SCC 646
Background & Facts
Nahar Industrial Enterprises Ltd had entered into an ISDA Master Agreement with the Hong Kong and Shanghai Banking Corporation (HSBC) on 1 November 2006, under which it undertook foreign exchange derivative transactions. In April 2008 it repudiated two outstanding transactions and filed a suit before the Civil Judge (Junior Division), Ludhiana, seeking a declaration that those contracts were void as violating the Foreign Exchange Management Act and RBI circulars. The Civil Judge ordered the parties to maintain status quo on 5 April 2008.
HSBC then approached the Debts Recovery Tribunal at Mumbai for recovery of dues under the derivative contracts, and applied to the Punjab and Haryana High Court to transfer the Ludhiana suit to the DRT. By an order of 15 September 2008, a Single Judge of the High Court transferred the suit to DRT-III, Mumbai, to be tried as a counter-claim. Nahar appealed to the Supreme Court. Banks including HSBC and Axis Bank also filed transfer petitions under Section 25 of the Code of Civil Procedure in connected matters, seeking transfer of borrowers' suits to DRTs.
The Court framed the question at the outset: “Whether the High Court and/or this Court has the power to transfer a suit pending in a Civil Court situated in one State to a Debt Recovery Tribunal situated in another”.
Key Issues Before the Court
Holdings of the Court
Holding 1 — A DRT Is Not a Civil Court
The Court held that the Tribunal has a limited jurisdiction: no independent proceeding can be initiated before it by a debtor, it can issue a certificate for recovery but cannot pass a decree, and it is not bound by the procedure of the Code of Civil Procedure. Unlike some statutes, the RDB Act contains no deeming provision making the Tribunal a civil court. “The Tribunal, therefore, would not be a Civil Court.” Nor is it a court subordinate to the High Court.
Holding 2 — No Power to Transfer a Civil Suit to a DRT
Section 31 of the RDB Act, which transfers only suits and proceedings pending immediately before a Tribunal was established, is the only transfer provision in that Act. Sections 22 to 25 of the CPC are exhaustive (following Durgesh Sharma v. Jayshree) and apply to transfers between civil courts, so the inherent power under Section 151 cannot be invoked to transfer a suit to a Tribunal. The Court concluded that “even Section 24 of the Code of Civil Procedure cannot be taken recourse to”, and that the Punjab and Haryana High Court could not have transferred the Ludhiana suit to the DRT. Earlier transfers from one Tribunal to another were distinguished as yielding no principle on this question.
Holding 3 — Civil Court Jurisdiction Is Ousted Only Within Sections 17 and 18
The jurisdiction of the civil court is ousted only in respect of the matters in Section 18, read with Section 17 — applications by banks and financial institutions for recovery of their debts. “It must be remembered that the jurisdiction of a civil court is plenary in nature.” A debtor's suit may or may not be a counter-claim to the bank's claim, “but for that purpose consent of the plaintiff is necessary.” The Court added that a transfer would also curtail the plaintiff's vested right of appeal under the Code, since an appeal to the Appellate Tribunal is conditional on a pre-deposit.
Holding 4 — Indian Bank Binds; Its Two Conditions Are Conjunctive
Ranjan Chemicals, a coordinate Bench, “was bound by the decision rendered in Indian Bank” and could not have taken a contrary view. The two conditions stated in Indian Bank — that the bank's claim and the borrower's suit are inextricably connected, and that both parties agree — must be read conjunctively, not disjunctively.
Holding 5 — Article 142 Not Invoked
Although the banks argued that the suits were pre-emptive, the Court held that they have adequate remedies in law and that a case of a very exceptional nature must be made out for Article 142. With fraud and misrepresentation alleged and complicated issues likely before the civil court, it declined to direct a transfer. The transfer petitions were dismissed, Nahar's appeal was allowed, and the Tribunal was asked to dispose of the bank's claims expeditiously.
Statutory Note — Pre-Deposit Since 2016
The judgment describes the pre-deposit for an appeal to the Appellate Tribunal as 75% of the amount, which was the law in 2009. Section 21 of the RDB Act was amended by Act 44 of 2016 (w.e.f. 1 September 2016): the deposit is now fifty per cent of the debt as determined by the Tribunal under Section 19, which the Appellate Tribunal may, for reasons recorded in writing, reduce to not less than twenty-five per cent.
Practical Implications
A bank faced with a borrower's suit in a civil court — even one it regards as pre-emptive — cannot have that suit moved into its DRT proceeding by a transfer application under the CPC. The suit stays with the civil court, and the bank must use the remedies the Code provides against a vexatious or non-maintainable suit, while pursuing its own recovery application before the DRT.
For borrowers, the decision confirms that a claim against a bank can be litigated in the civil court, or raised as a set-off or counter-claim in the bank's application under Section 19 of the RDB Act, at the borrower's option. The Court also noted that whether a particular transaction (here, derivative contracts) falls within the RDB Act is a jurisdictional issue the Tribunal can decide.
Relevant Statutory Provisions
Practical Application Note
Where a borrower has sued a bank in a civil court and the bank has a recovery application before the DRT, Nahar Industrial means the two proceedings ordinarily run in their own forums unless the borrower chooses to bring its claim into the DRT. This note is general legal information, not legal advice. Our partner-led team advises banks, NBFCs, ARCs and borrowers on DRT strategy and forum questions before DRT benches across India.
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