1. HMT Limited (a public sector undertaking) has filed this appeal against judgment dated 20.8.2004 passed by DRT-III, Delhi in O.A.169/2002. The O.A. had been filed by the respondent herein-The Nainital Bank Ltd. (applicant in O.A.) for the recovery of Rs. 1,13,11,593/- along with pendente lite and future interest @ 16.5% per annum with half yearly rests as also costs. The DRT allowed the O.A. directing the defendant (appellant herein) to pay the said amount of Rs. 1,13,11,593/- along with costs, pendente lite and future interest @ 10% per annum with effect from 5.8.2002 (date of filing of the O.A.). The appellant/defendant is aggrieved thereby and has lodged this appeal.
2. The facts may be stated shortly: A sum of Rs. 50 lakh was invested by the respondent-Bank (applicant in O.A.) in HMT Bonds in New Delhi and a sum of Rs. 49.75 lakh, after adjusting upfront discount of Rs. 25,000/-, was deposited with the appellant/defendant. The appellant/defendant issued Bond Certificate (Unsecured) 1994 Series bearingCertificateNo.0114Regd. Folio No. 92, Distinctive Nos.70354 to 70403, HMT (Taxable Bonds Series B-3. Instrument of Bond in the Nature of Promissory Note) dated 8.8.2004 in respect of 50 Bonds of Rs. 1.00 lakh each in favour of the applicant Bank. As per the terms and conditions of the said Bonds, interest @ 16.5% per annum with effect from 8.8.1994 was payable half yearly. The Bank received interest up to 31.12.1996 and thereafter the accrued interest with effect from 1.7.1997 to 31.12.1997 was also received on 15.1.1998, but despite repeated requests/reminders, the appellant/defendant failed and neglected to make payment of interest with effect from 1.1.1997 to 30.6.1997 and with effect from 1.1.1998 onwards. The Bonds were due for payment after the expiry of 5 years. Having been issued in 1994, they were to be redeemed in 1999. The request for redemption of the Bonds was to be made one month prior to the date of expiry by the applicant Bank. By letter dated 6.7.1999 the Bank requested the appellant/defendant to make payment of the Bonds amount of Rs. 50 lakh along with unpaid interest. The appellant/defendant although acknowledged the receipt of the said letter, expressed its inability to make payment. The original Bonds duly discharged were also sent to the appellant/defendant as requested by them, but the payment of the Bonds amount of Rs. 50 lakh and unpaid overdue interest was not made. The appellant/defendant had acknowledged and admitted its liability from time-to-time, and lastly on 23.5.2002. However, it failed to keep up its promise and even final legal notice dated 5.1.2002 served upon it did not bring any fruitful result. As the liability was not liquidated by the appellant/defendant, the Bank was obliged to bring the O.A. for the recovery of Rs. 1,13,11,593/- (which had become due till the date of filing of the O.A.) with costs, pendente lite and future interest.
3. The O.A. was contested by the appellant/defendant by filing written statement on varied grounds. The defence as per the written statement and the arguments advanced by the learned Counsel for the defendant/appellant may be summarised thus: It is admitted that it had floated five-year unsecured Bonds in question and many of the institutions, corporations and Banks including the applicant-Bank had invested therein. It is not denied that the applicant-Bank had invested Rs. 50 lakh in the said Bonds. It is also admitted that the interest rate of the said Bonds was 16.5% per annum, but it was allegedly applicable only during the period of the Bonds. The terms and conditions of the Bond were silent with regard to the rate of interest subsequent to maturity. Due to certain market conditions and slow-down in the economy, the appellant/defendant could not adhere to the conditions of the said Bonds. An understanding was arrived at between the Government and the appellant/defendant company, whereby the company formulated a scheme as per the directives of the Government which was accepted by all bond holders whereby the Bond amounts and interest during the Bond period and subsequent to maturity were settled. The scheme was that the principal amount under the Bond was to be paid in full. As regards interest, upto maturity the interest was to be paid at the rate mentioned in the Bonds plus post-maturity interest calculated at the rate mentioned in the Bonds but 75% of the total interest was to be waived. The investment made by the Bank in the Bonds was not in the course of its Banking business and the subject matter was beyond the scope and jurisdiction of the DRT, not being covered under the definition of 'debt' as defined under Section 2(g) of the RDDBFI Act.
The DRT-III, Delhi had no territorial jurisdiction. The amount claimed included interest on interest at compounded rates. The Tribunal below could not award pendente lite and future interest @ 10% per annum. The settlement arrived at between the defendant-company and most of the investors mandated a scheme of arrangement and was to be applicable to all investors including the applicant-Bank. These very pleas have been raised in appeal to assail the impugned order passed by the Tribunal below.
4. Having heard the learned Counsel for the parties and having waded through the record, I propose to deal with the points involved in the appeal, one by one.
5. It is taken up first as to whether the investment made by the respondent through the Bonds in question is covered under the definition of 'debt'. Let us turn to the definition of 'debt' as contained in Section 2(g) of the RDDBFI Act, which reads as under: '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 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 the date of the application.United Bank of India v. Debts Recovery Tribunal and Ors.
that expression 'debt' has to be given the widest amplitude to mean any liability which is alleged as due from any 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 otherwise and legally recoverable on the date of the application.
6. A few instances flow from the decisions of the superior Courts which throw flood of light as to the scope of the expression 'debt' as contained in Section 2(g) reproduced above. The Hon'ble High Court of Delhi held in the case of J.U. Mansukhani and Co. and Anr. v. Presiding Officer and Ors. , that issuance of Bank drafts to petitioners without consideration, drafts alleged to be fraudulently obtained in direct or indirect collusion with Bank officials is clearly business activity of the Bank and it is 'debt' since the liability thereunder is legally recoverable and that the application of the Bank is triable by the DRT.while interpreting Section 2(g) aforesaid, the Hon'ble High Court of Delhi held that any liability in cash or otherwise, subsisting and legally recoverable, during the course of "any business activity" undertaken by the Banks is 'debt'. The deposit of rent forms part of business activity. The Court held that the word "business" is a word of large signification, and would include any trade, commerce or any adventure or concern in the nature of trade or commerce. It is a word which has a more extensive meaning than 'trade'. All trade is business but all business is not trade. However, when Section 2(g) uses the expression "business" it would only mean the business of banking in India. But, then what is more to be noticed is that Section 2(g) does not use the word "business" alone. It talks of "business activity" undertaken under any law for the time being in force. It means much more than 'object' of the Bank. In that case, the defendant, a practising Advocate, was on the panel of lawyers of the plaintiff Bank and in that capacity he had been entrusted from time-to-time with some of its legal cases. The plaintiff Bank was tenant in respect of certain premises in respect of which some dispute arose between two parties.
The plaintiff-Bank thought it prudent to deposit rent in Court and engaged the services of the defendant for the purpose and a cheque for Rs. 4,13,483.66 was issued in his name. The grievance of the plaintiff-Bank was that out of the said amount, the defendant furnished a receipt only for Rs. 1,73,483.66 and the balance amount of Rs. 2,40,000/- had not been deposited. It was not the end of the story. The plaintiff-Bank alleged that it had also paid the defendant a sum of Rs. 61,800/- for depositing the same in Court towards arrears of rent of another premises tenanted by it for the residence of Senior Manager and the said amount had also not been deposited by the defendant lawyer.
So, the suit was brought for the recovery of Rs. 3,01,680/-towards principal and Rs. 7,20,280/- towards interest. The defendant challenged the so-called liability saying that it was not "on account of or as a result of any business activity" of the plaintiff-Bank. The High Court repelled the contention and held that the deposit of rent was necessarily part of the "business activity" of the Bank and the suit was maintainable. The amount claimed against the defendant lawyer was held to be covered under the definition of 'debt' as per Section 2(g) of the RDDBFF Act.
8. I should point out that floating of debentures or bonds is a mode adopted by the companies and public sector undertakings to raise loans.
Share-holding is different from debenture-holding or bond-holding. A share-holding is the constituent of ownership and a shareholder is a component of the whole body of owners of the company or institution by whatever name called. On the other hand, the character of the bond or debenture-holder is different. He becomes the creditor qua the company or undertaking floating the bonds or debentures. So, the relationship of creditor and debtor comes into existence. It is wholly untenable on the part of the appellant to contend that the amount of Rs. 50 lakh invested by the respondent in its (appellant's) Bonds did not fall within the definition of 'debt' as contained in Section 2(g) of the RDDBFI Act. During the course of this business activity, the respondent invested Rs. 50 lakh in five-year unsecured redeemable Bonds of the appellant. The copy of the Bond Certificate is there on record, which itself describes the instrument of bond as being in the nature of promissory note. The respondent invested Rs. 50 lakh in such Bonds of Rs. 1 lakh each on 8.8.1994. The relevant content of the Bond is reproduced below: HMT Limited in consideration of the value received on 8.8.1994 do hereby promise to pay on demand in accordance with Clause No. 6 of Terms and Conditions of Bond on or after the due date to the above named Bond Holder(s) or order the sum indicated herein at its above noted Registered Office or at Bombay/New Delhi if it is so desired by the Bond Holder(s) in writing to HMT Ltd. and further to pay interest due on such sum @ 16.50% (sixteen and half percent) per annum effective from 8th August, 1994 such interest being payable by half-yearly payments on the 31st day of December and First day of July each year, the First of such payments has already been made upto 31.1.1994 will be made on 1.7.1995. No interest will accrue after the end of five years. The Bond being in the nature of Promissory Note may be transferred by endorsement and delivery except in favour of minors, unregistered Trusts and Partnership Firms. This Bond is issued subject to the conditions endorsed hereon and terms of its issue which are to be deemed to form part of it for all purposes and for all intents.
Condition 6 (of the Terms and Conditions of the Bond)on the reverse of the Certificate is also relevant which is reproduced below: One-third of the face value of bonds are payable at the end of four years from the date of issue hereafter and another one-third in face value of each series of bonds are repayable at the end of four and half years and the balance at the end of five years. However, such redemptions shall be on specific request of the Bond holder to be made at the Registered Office of the Company at least 30 days before the redemption periods indicated hereinabove.
9. On cumulative consideration, including the interpretation of contents and conditions of the Bond in question, I have not the slightest doubt that the investment of Rs. 50 lakh made by the respondent with the appellant through Bonds in question is covered under the definition 'debt' as contained in Section 2(g) of the RDDBFI Act, as rightly held by the Tribunal below. The point is decided against the appellant.
10. The contention raised from the side of the appellant that the Delhi DRT did not have jurisdiction to entertain the O.A. is also wholly misplaced. I may refer to Section 19(1) of the RDDBFI Act which, inter alia, provides that the Bank or financial institution may make an application to the Tribunal within the local limits of whose jurisdiction the cause of action, wholly or in part, arises. The learned Counsel for the appellant urged that only the Court in Bangalore should have jurisdiction to try the suit where the Head Office of the appellant is located. Referring to para 3 of the O.A., he pointed out that the Bank averred that the defendant (appellant-HMT) had branch office at Delhi, but actually it did not have any branch office at Delhi. I note from para 2 of the written statement that the appellant/defendant did say that it had a liaison office at Delhi but that it was not doing any business from the same. It is, however, to be pointed out that it is established by Bank's voucher dated 3.7.1994 (paper No. 3) on record that the amount of Rs. 49.75 lakh against Rs. 50 lakh (deducting upfront discount of Rs. 25,000/-) was invested from Panchkuian Road branch of the Bank (Nainital Bank). The demand draft was got prepared from its current account with Bank of Baroda. So, the cause of action did arise within the jurisdiction of DRT, Delhi and the O.A. could well be filed here. It is also to be pointed out that the appellant had written on 31.8.1995 to Panchkuian Road branch, New Delhi of Nainital Bank asking to return the original allotment letter.
Another letter dated 25.1.1996 was also sent by the defendant/appellant to the Panchkuian Road branch of Bank. Through this letter it was informed that due to temporary liquidity crunch, it (appellant) was not able to service interest on the Bonds held by the Bank for the half year ended 31.12.1995. A request was made to bear with it for some more time. Vide another letter dated 7.4.2007 the appellant wrote to the Panchkuian Road branch of the Bank for settlement proposing a meeting on 11.4.2007 at its office located at 5, Parliament Street, Jeevan Tara Building, New Delhi. In the face of such sterling evidence, the contention and argument from the side of the appellant that the DRT at Delhi did not have territorial jurisdiction is bound to be rejected and is accordingly rejected.
11. The third point is regarding settlement allegedly arrived at by the appellant under some scheme of arrangement with other bond-holders. It is to be pointed out that the respondent-Bank was not a party to any such settlement scheme and, therefore, is not bound by the same. The appellant is bound to discharge its obligation as committed in the conditions of the Bonds itself. Even if it is taken for a moment for the sake of argument that the appellant has arrived at a settlement with other investors, the same is not binding on the respondent-Bank which is only enforcing its rights by filing the O.A. as per the terms and conditions of the Bonds which it is entitled to do legally.
12. The fourth and the last point is of interest. The learned Counsel for the appellant argued that respondent-Bank's claim included interest on interest on compounded rates. It, however, failed to bring home this contention. The O.A. was filed for the recovery of Rs. 1,13,11,593/- representing the principal amount of Rs. 50 lakh and unpaid interest till the date of filing of the O.A. The principal sum would be the sum total of original amount and the unpaid interest. It was so held by the Hon'ble Delhi High Court in Syndicate Bank v. West Bengal Cements Ltd. and Ors. AIR 1989 Delhi 107. For pendente lite and future period, the Tribunal has granted interest @ 10% per annum (instead of contractual rate of interest of 16.5% payable half-yearly as per the terms of the Bond). Referring to Section 19(20) of RDDBFI Act, the DRT observed that taking stock of all the circumstances and keeping in mind the drastic fall in the rates of interest all over it would be in the interest of justice to award pendente lite and future interest @ 10% per annum. It also relied on Hon'ble Apex Court's decision in the case of Central Bank of India v. Ravindra and Ors. I (2002) BC 150 (SC) : IV (2001) CLT 127 (SC). The appellant could not justifiably say that no interest ought to have been allowed for the pendente lite and future period till actual realization. Indeed, the principal amount together with interest must have been paid at the stipulated time as per the terms of the Bond. The appellant defaulted in discharging its obligation in this behalf with the result that the respondent-Bank was deprived of the use of its money. It is according to well settled judicial principle that interest deserves to be allowed fox pendente lite and future period.
The DRT has rightly done so. The award of pendente lite and future interest @ 10% only, in essence, has benefited the appellant. But, the respondent has not made any grouse out of it. So, the impugned order passed by the Tribunal below is not to be interfered with on any score whatsoever.
13. In view of the above discussion, the appeal has no merit. It is hereby dismissed with costs.
Copy of this order be supplied to the parties, and be also sent to the Tribunal below.