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CASE NO.: Appeal (civil) 7103 2000         Appeal (civil)  7104    2000

PETITIONER: CANARA BANK & ORS.

       Vs.

RESPONDENT: NATIONAL THERMAL POWER CORP.  & ANR.

DATE OF JUDGMENT:       05/12/2000

BENCH: K.T.Thomas,, R.P.Sethi

JUDGMENT:

     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

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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.

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     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

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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

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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

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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/-.