Canara
Bank & Ors Vs. National Thermal Power Corp. & ANR [2000] INSC 619 (5
December 2000)
Appeal (civil) 7104 2000
K.T.Thomas,,
R.P.Sethi
SETHI,
J.
Leave
granted. As the question of law in both the appeals is common and the facts
similar, the appeals are being disposed of by this common judgment. The
appellants are aggrieved of the impugned judgment passed by the High Court in
Company Appeals by which the orders passed by the Company Law Board have been
set aside and disputes allegedly existing between the parties referred to the
High powered Committee in terms of the judgment of this Court in Oil &
Natural Gas Commission & Anr. v. Collector of Central Excise [1995 Supp.
(4) SCC 541]. It is contended that the dictum of this Court in ONGC's case was
not applicable to the facts of the cases under appeals, as there did not exist
a genuine dispute between the parties which could be referred to the High
Powered Committee. The facts giving rise to the filing of the present appeals,
as extracted from the Appeal arising out of SLP (C) No.14660, are as under.
The
appellants filed Company Petition Nos.11/111/-95CLB & 12/111/95-CLB under
Section 111(4), (5) & (7) of the Companies Act before the Company Law
Board, Northern Region Bench, New Delhi, stating therein that they were
Trustees of Canbank Mutual Fund (hereafter referred to as "CBMF"), a
Trust constituted under the Indian Trusts Act, 1882. The main object of the
Trust is to conduct business of mutual fund by permitting savings of small and
individual investors through various schemes, inviting subscriptions from the
prospective investors and channelising the funds into the capital market for
attractive returns. From September, 1993 CBMF was being managed by an Asset
Managing Company, the Appellant No.6. Appellant No.1 is a body corporate
constituted under the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1971. The Bank as "Settlor" by an Adventure of
Trust dated 17th
December, 1987 had
constituted the Trust CBMF, the Settlor being its Principal Trustee. The
National Thermal Power Corporation, respondent No.1 (hereinafter referred to as
"the corporation") is a Government of India Enterprise and respondent
No.2 a Banking Company which went into liquidation. On 5.8.1988 the CBMF purchased
14% NTPC Bonds (of the corporation) having face value (FV) of Rs.2.17 crores
along with several other bonds through the Broker M/s.Batliwala & Karani in
respect of which Cheque No.80961 dated 5.8.1988 was issued in favour of Bank of
Karad, second respondent-bank who in turn issued a BR undertaking to deliver
the securities. In 1989 the BR was liquidated by delivery of bonds. Out of the
aforesaid bonds the respondent-company vide its letter dated 11.8.1992 lodged
the bonds valuing Rs.4 crores for registration of transfer in the name of Canara
Bank, Trustee of the CBMF.
On 25th September, 1992, CBMF lodged with the corporation
for registration of the bonds of FV Rs.50.05 lacs in the name of Canara Bank,
Trustee CBMF. On the same date the CBMF lodged bonds of FV Rs.50 lacs with the
Corporation with a request to register the same in the name of Canara Bank,
Trustee CBMF. Again on 11.2.1993 CBMF lodged the bonds of FV Rs.113 lacs with
the respondent corporation for registration in the name of Canara Bank, Trustee
CBMF after removing the objections. The Corporation wanted the CBMF to produce
no objection certificate from the Official Liquidator of the Bank of Karad for
the purpose of registering the transfer of the bonds for which letter dated
17.5.1993 of the Bank of Karad was furnished with all documentary proof of the
purchase of bonds of FV of Rs.2.17 crores from the Bank of Karad on 5.8.1988.
Request was made to the Liquidator, appointed in the winding up proceedings
against the said Bank, to confirm to respondent Corporation that the CBMF's
purchase was bonafide and the transaction had taken place much prior to the
relevant period prescribed under Section 531 of the Companies Act. On 17.5.1993
a letter was sent to the respondent-corporation setting out the particulars of
the purchase of the bonds and re-stating that the relevant document had already
been submitted in proof of the bonafide title to the bonds. The request was
renewed by the CBMF again by writing letter to the Corporation on 28th June, 1993. Another letter dated 21st September, 1993 was addressed to the official
liquidator requesting him to issue a no objection certificate as demanded by
the corporation. On 18.10.1993 the CBMF was informed that as 'no objection
certificate' had not been furnished, the original bond certificates were being
returned for further necessary action by the CBMF. On 2.11.1993, Appellant
No.6, the Canbank Investment Management Services Ltd. addressed a letter to the
official liquidator of the Bank of Karad suggesting that CBMF would move the
court for a direction to the CBI for production of relevant documents of Bank
of Karad, under liquidation, and the official liquidator could obtain copies of
those documents on the basis of which he could issue a no objection
certificate. Inaction attributable to the official liquidator was intimated
vide letters dated 18.11.1993 and 15.7.1994. It was contended before the
Company Law Board that the official liquidator was not justified in not issuing
the no objection certificate. It was submitted that the corporation was bound
and liable in law to transfer the aforesaid bonds in the name of Canara Bank,
Trustee of CBMF and pay the redemption proceeds in respect thereof since the
transaction was not transgression of Section 531 of the Companies Act. The
appellants therefore, prayed: "(a) Respondent No.1 company be ordered and
directed to transfer the bonds stated below, in the name of Canara Bank:
Trustee:
Canbank Mutual Fund.
THE
DETAILS OF THE BOND CERTIFICATES.
Certificate
From Number ValueTotal Certifi- Rs. To@@ IIIIIIJJJJJJJJJJJJJJJII Lacs in cate Rs.Each@@
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
------------------------------------------------------ 128802 130801 2000 5,000
100.00 165338 1 1,00,000 1.00 165586 165588 3 1,00,000 3.00 0000007 0000010 4
10,00,000 40.00 0000012 110,00,000 10.00@@ IIIIIIIIIIIIIII 0006647 0006651 5
1,00,000 5.00@@ IIIII 0006684 0006541 58 1,00,000 58.00@@ IIIIII TOTAL VALUE OF
CERTIFICATES ENDORSED BY BOX LIMITED 217.00@@ IIIIII (b) Respondent NO.1 be
ordered and directed to rectify the Register of Bond Holders and delete the
name of Bank of Karad or any other holder appearing in such Register and
instead insert the name of Canara Bank: Trustee Canbank Mutual Fund.
(c)
Respondent No.1 be ordered and directed to pay to Canara Bank: Trustee Canbank
Mutual Fund the redemption amount in respect of the said bonds along with other
interest at 24% from the date of maturity till the payment." The petition
was resisted by the respondents on various preliminary objections raised in the
reply filed before the Company Law Board. On merits it was stated: "It is
respectfully submitted that the Company ought not to have returned to the bond
certificates which were lodged for registration. The company was indulging in dilatory
tactics and was unnecessarily delaying in entering the name of Canara Bank:
Trustee Canbank Mutual Fund in the register of bond holders and paying the
redemption amount, without any justifiable cause or reason.
The
Company Law Board (hereinafter referred to as "the Board") formulated
the following questions for its determination: "(a) As regards 13% bonds
whether the register should be rectified to enter the name of 'Canara
Bank-Trustee Canbank Mutual Fund' in place of Canara Bank and whether NTPC should
be directed to pay to Canara Bank the redemption amount in respect of these
bonds.
(b) As
regards the 14% bonds whether NTPC should be directed to rectify the register
by entering the name of 'Canara Bank - Trustee Canbank Mutual Fund' in place of
Bank of Karad and whether it should be directed to pay the redemption amount to
Canara Bank." On considering the material placed before it, the Board
found that the Corporation had specifically recognised the holdings in the name
of the Mutual Fund. Canara Bank had, therefore, approached the Board in the
representative capacity of the Trust and not in its individual capacity.
The
Corporation could not deny such fact as it had admitted having registered
transfers in the name of the Trust earlier. Under Section 6 of the Banking
Regulations Act, 1949 the Bank as a part of its banking function could also
take up the Trusteeship function. A Trustee could not mix up the Trust's funds
with its own funds. Dealing with the facts of the case, the Board held:
"We are convinced that Canbank Mutual Fund is the real owner of both 13%
and 14% bonds and that Canara Bank is holding the bonds only in the capacity of
a trustee. In fact this is not seriously contested by NTPC as well. Since the
relationship of trustee and beneficiary is proved, in accordance with the Trust
Act we could have directed the NTPC to register the bonds in the name of 'Canara
Bank Trustee-Canbank Mutual Fund'. We are, however, not in a position to grant
this prayer of the petitioner despite recognising the relationship as there is
a statutory prohibition under Section 153 of the Act to take cognizance of any
relationship of trustee and beneficiary in the Register.
Therefore,
any order to this effect would be in direct violation of section 153 of the Act
which prohibits a company from taking notice of any trust express, implied or
constructive. This statutory prohibition was the reason for the Company Law
Board [Western Bench] in not granting a similar prayer of the petitioners in Bharat
Petroleum Ltd.
vs. Stock
Holding Corporation Ltd." Rejecting the alleged dispute raised by the
Corporation, the Board held: "NTPC has no right to adjust@@ JJJJJJJJJJJ
the proceeds of redemption against dues if any from Canara Bank as this would
result in a breach of trust to which the Trustees would be forced to. It should
also be remembered that these Bonds are secured Bonds and there is a Trustee
for these Bonds. Applying the equitable principle the holder of the Bond is
also entitled to enforce the security and those Trustee would be bound to realise
the security.
Hence
from whatever angle one looks at the case, the proceeds has to be given to the
Mutual Fund." The Board also found that the dictum of this Court in ONGC'S
case was not applicable to the facts of the present case. In ONGC's case the
Cabinet Secretary was shown to have taken appropriate initiative as per
direction of the Court dated 11.9.1991 and reported to the Court that the
dispute between the Government Department and the public sector undertaking of
the Union of India had been settled.
In
that view of the matter no further action was taken on the petition. The
Cabinet Secretary in his Report had stated: "I would also like to state
that the Government respects the views expressed this Honourable Court and has
accepted them that public undertakings of Central Government and the Union of
India should not fight their litigation in Court by spending money on fees on
counsel, court fees, procedural expenses and wasting public time. It is in this
context that the Cabinet Secretary has issued instructions from time to time to
all Departments of the Government of India as well as to public undertakings of
the Central Government to the effect that all disputes, regardless of the type,
should be resolved amicably by mutual consultation or through the goods offices
of empowered agencies of the Government or through arbitration and recourse to
litigation should be eliminated." In the light of the Report of the
Cabinet Secretary this Court directed as under: "We direct that the@@
JJJJJJJJJJJJJJJJJJJJ Government of India shall set up a Committee consisting of
representatives from the Ministry of Industry, the Bureau of Public Enterprises
and the Ministry of Law, to monitor disputes between Ministry and Ministry of
Government of India, Ministry and public sector undertakings of the Government
of India and public sector undertakings in between themselves, to ensure that
no litigation comes to Court or to a Tribunal without the matter having been
first examined by the Committee and its clearance for litigation.
Government
may include a representative of the Ministry concerned in a specific case and
one from the Ministry of Finance in the Committee. Senior Officers only should
be nominated so that the Committee would function with status, control and
discipline.
It
shall be the obligation of every Court and every Tribunal where such a dispute
is raised hereafter to demand a clearance from the Committee in case it has not
been so pleaded and in the absence of the clearance, the proceedings would not
be proceeded with.
The
Committee shall function under the ultimate control of the Cabinet Secretary
but his delegate may look after the matters. This Court would expect a
quarterly report about the functioning of this system to be furnished to the
Registry beginning from 1.1.1992." What the Court has directed in ONGC's
case is that frivolous litigation between Government Departments and Public
Sector Undertakings of the Union of India should not be dragged in the courts
and be amicably resolved by the Committee. The judgment is intended to prevent
avoidable litigation between the Government Departments and the Undertakings of
the Union of India. In the present litigation there does not appear to be a
genuine dispute between the Government of India undertakings. In this case one
of the public sector undertaking is shown to be acting not as an undertaking
but as Trustee of a Trust. The Board was, therefore, justified in holding
"that the real litigation in this case, therefore, is between Mutual Fund
and NTPC" and not between the two undertakings. The meaning of word
"dispute" is, 'a controversy having both positive and negative
aspects. It postulates the assertion of a claim by one party and its denial by
the other'. In the instant case the claim preferred on behalf of the CBMF was
not denied by the Corporation but in turn a counter claim with respect to the
liability of a subsidiary of the Bank was raised. The dispute raised is without
laying any basis or placing on record any evidence in support thereof.
Imaginative
disputes raised only to defeat the undisputed claim of the Trustee could not be
made basis to deprive the Trustees and ultimately the public at large, of the
value of the bonds which had, admittedly, been received by the Corporation with
unambiguous undertaking to repay back the same. A perusal of the bonds,
purchased by the appellants, would indicate that such bonds were termed and
styled as "Instrument of Bond in the nature of promissory bond". The
Corporation had agreed "to pay on demand to the above named bond-holder or
order the sum of .....". In other words the bonds were transferable and
respondents undertaking, under a contractual and statutory obligation, to pay
the value thereof to the transferee. Such a transferee could not be denied the
payment of the value of the bonds on the ground of the liability of the
transferor or any of its subsidiary.
The
perusal of the bond incorporating the condition of payment unambiguously shows
that no dispute can be raised by the Corporation for payment of the amount on
demand to its holder or order. The claim of the Corporation, if any, can be
enforced separately against the subsidiary of the Canara Bank but cannot be
made a ground to resist the claim of the appellants. We are of the opinion that
the High Court was not right in referring the alleged disputes to the High
Powered Committee with the aid of judgment in ONGC's case.
It was
under an obligation to give a finding with regard to the directions given by
the Board to pay the redemption amount to the appellants. The Trustees of the
Trust constituted by the Canara Bank as Settlor for the benefit of numerous units
holders cannot be termed and styled as Government Company or Public Sector
Undertaking. The dispute raised by the respondents with the appellant was
imaginary and even prima facie not real. We are further of the opinion that the
Board in its order had dealt with all aspects of the matter and rightly
concluded that ONGC's judgment was not applicable in the facts and
circumstances of the present case. Under the circumstances, the appeals are
allowed by setting aside the judgments of the High Court and restoring the
orders of the Board. The appellants are also held entitled to costs quantified
at Rs.10,000/-.
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