REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL No. 4029 OF 2010

(@ SLP (C) No. 3883 of 2008)

Eureka Forbes Limited           ….Appellant

Versus

Allahabad Bank & Ors.       …Respondents

JUDGMENT

    Swatanter Kumar, J.

1. Leave granted.

2.         While pressing into service the definition of the word  

‘debt’ appearing in Section 2 (g) of the Recovery of Debts Due  

to Banks and Financial Institutions Act, 1993 (for short as the  

‘Recovery Act’), it is vehemently contended before us that the  

Debt  Recovery  Tribunal  (for  short  the  ‘Tribunal’)  lacks  

inherent  jurisdiction  to  entertain  and decide the claim of the  

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Bank  against  the  appellant.   The  appellant  was  neither  a  

borrower nor was there any kind of privity of contract between  

the two.  As such, money claimed from them was not a ‘debt’  

and,  therefore,  rigors  of  the  recovery  procedure  under  the  

provisions of the Recovery Act could not be enforced against  

the appellant.  This is a submission which, at the first blush,  

appears to be sound and acceptable.  But, once it is examined in  

some depth and following the settled canons of law, one has to  

arrive only at a conclusion that the contention is without any  

substance and merit.  At the very outset, as a guiding principle  

we may refer to the maxim ‘a verbis legis non est recedendum’  

but before we proceed to examine the merit or otherwise of the  

principal contention raised before us, it will be necessary for us  

to  refer  to  the  basic  facts  giving  rise  to  the  present  appeal,  

particularly, in view of the fact that it has a wretched and long  

history which began in the year 1988.     

FACTS

3.         Appellant  is  a  company duly incorporated under the  

provisions of the Companies Act, 1956, while Respondent No.  

1,  Allahabad  Bank  is  a  body  constituted  under  the  Banking  

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Companies (Acquisition and Transport  of Undertakings) Act,  

1976.   Respondent  No.  3  in  the  present  appeal  is  a  

proprietorship  firm  of  Respondent  No.  2.   The  appellant  

company is stated to have entered into an agreement on 16th  

August, 1983 with respondent Nos. 2 & 3, granting licence in  

their favour to use premises at Jainkunj at Goragachha Road,  

Kolkata  (hereinafter  referred  to  as  ‘the  premises’)  for  a  

consideration  of  Rs.12,000/-  payable  to  the  appellant,  along  

with  the  plant  and  machinery  as  well  as  their  trade  mark  

“OSBOURNE”.  It is further the case of the appellant that they  

had no knowledge of the fact that, respondent Nos. 2 & 3 had  

availed certain cash credit facility and had hypothecated their  

raw  materials,  semi-finished  and  finished  products  to  Bank.  

However, on or about 28th February, 1987, the said respondents  

had requested the appellant to take over the possession of the  

said premises along with the closing stock lying therein.  This  

was so requested because respondent Nos. 2 & 3 had not paid  

the  licence  fee  for  the  use  and  occupation  of  the  premises,  

goods  etc.  as  agreed  and  further  vide  letter  dated  23rd July,  

1987, they stated that appellant could sell the stocks as well as  

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lathe machine lying in the factory premises and adjust the sale  

proceeds  thereof  towards  the  arrears  of  licence  fee.   After  

taking  possession  of  the  factory  premises,  the  appellant  

prepared an inventory of the stock in possession and as alleged  

by them, they had no knowledge that  these stocks  had been  

hypothecated by the said respondents in favour of the Bank.  

The  letter  dated  7th August,  1987  has  been  annexed  by  the  

appellant  in  support  of  such  averment.   It  appears  from the  

record  that  the  respondent  Bank  vide  its  letter  dated  21st  

August, 1987 wrote to respondent Nos. 2 & 3 raising an issue  

as to how the possession of the stocks and machinery was given  

to the appellant.   This  was done in response to the letter  of  

respondent  Nos.  2  &  3  dated  18th August,  1987  and  copy  

thereof was sent to the appellant while referring to the letter  

dated 7th August, 1987 addressed by the appellants to the other  

respondents.  It will be useful to reproduce the relevant extract  

of the letter dated 21st August, 1987 which reads as under:

“We  acknowledge  receipt  of  your  letter  dated 18.8.1987 along with enclosures.   

In  this  regard  we  fail  to  understand  as  to  how  you  have  permitted  M/s  Eureka  Forbes  Limited  to  take  possession  of  your  factory  at  1,  

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Goragacha  Road,  Kolkata  –  700 043,  the  stocks  and machineries of which are already hypothecated  to us.  And again you are advising us not to visit  the factory at the moment which we are requesting  you to do the same reputedly.  Since April, 1986,  you are also not submitting the stock statement and  you  have  virtually  stopped  all  your  banking  operations through us.  Now we observe from the  stock statement forwarded to us as enclosure that  there are good amount of stock still  lying at  the  factory.”

4.         To the above letter, the appellant responded vide its reply  

dated 23rd September, 1987 saying that the factory belongs to  

them and they had given the same on licence to respondent No.  

3  and  when  the  possession  was  handed  over  back  to  them  

certain stocks and machinery belonging to the respondent No. 3  

were lying in the factory.  They had made a specific request  

that these should be sold and adjusted towards the licence fee  

and the surplus money, if any, should be refunded to them.  The  

respondent  Bank  claimed  that  they  had  a  charge  over  the  

movable assets, in particular, the CTC machine which appellant  

had disposed off.  For the sale of CTC machine, they had issued  

an advertisement on 12th March, 1988 and the same was sold  

for Rs.1,48,975/-.   

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5.           The Bank filed a suit in the District Court at Alipore  

against  the  present  appellant  and  respondent  Nos.  2  &  3  

claiming a sum of Rs.22,11,618.62.  In this  suit,  the present  

appellant  filed  a  written  statement  making  a  preliminary  

objection  that  there  was  no  privity  of  contract  between  the  

Bank and the present appellant.  That it was not a borrower of  

the Bank and had no dealings with them as such, the suit was  

barred for misjoinder  of parties  and in fact  no suit  could lie  

against the present appellant.  The plea of suit being barred by  

time, the principles of estoppel, waiver and acquiescence was  

also taken.  It was stated on merits, that neither they were aware  

of any transaction between plaintiff Bank and respondent Nos.  

2 & 3 nor of any charge over the machinery and equipment etc.  

The appellant denied the allegations made against them.  Most  

of  the  paragraphs  were  denied  for  want  of  knowledge  and  

emphasis  was  laid  only  on  the  above  stated  two averments.  

Appellant also averred that the Bank was trying to cover up  

lapses of its own officials by pressurizing them.  It could not  

have accepted, as security, the factory or machinery as it was  

owned by the appellant and it had not given any consent for  

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that  purpose.  This  suit  came  to  be  transferred  after  the  

provisions  of  the  Recovery  Act  came into  force  in  the  year  

1994.  Upon transfer  it  was numbered as T.A. No. 15/1994.  

The appellant was served with a notice from the Tribunal and it  

appointed one M/s Mallick and Palit as its Advocate to appear  

and pursue the case on its behalf.  The appellant did not appear  

before the Tribunal and after some time the proceedings were  

carried on in their absence.       The evidence was recorded and  

finally an ex-parte judgment was passed against the appellant  

on 15th June, 1995.  In furtherance to the ex-parte judgment, a  

Recovery  Certificate  No.  48  of  1995  was  issued  by  the  

competent  authority  under  the  provisions  of  the  Act  on  30th  

June, 1995.  The appellant claims to have taken steps for setting  

aside the ex-parte judgment.  They filed a writ petition before  

the High Court of Kolkata,  (being Writ Petition No. 1804 of  

1995), challenging the constitutional validity of the provisions  

of the Recovery Act and also prayed for stay of execution of the  

ex-parte  judgment  dated  15th June,  1995.   An  interim  order  

dated 3rd November, 1995 was passed in favour of the appellant  

directing that the execution proceedings should go on, however  

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no final order be passed without the leave of the Court.  The  

Tribunal  vide  its  Order  dated  4th March,  1996,  appointed  a  

receiver to prepare an inventory of hypothecated goods and a  

warrant  of  attachment  was  also  issued.   The  High  Court  of  

Kolkata, again on application filed by the appellant directed the  

receiver only to make inventory of the goods and not to take  

any further action.  During the pendency of these proceedings,  

the  Recovery  Officer  upon  further  application  by  the  

respondent Bank, directed the receiver to make inventory of all  

the  properties  vide  its  Order  dated  17th August,  1996.   This  

order was challenged by the appellant before the Calcutta High  

Court which stayed further proceedings.

6.          According to the appellant, it was advised to initiate  

proceedings  to  set  aside  the  ex-parte  decree  and  Recovery  

Certificate  and  hence  an  application  was  filed  before  the  

Tribunal for recalling the ex-parte order.  Along with this, an  

application  for  condonation  of  delay  was  also  filed.  

Consequent  upon  the  dismissal  of  the  application  for  

condonation of delay, the appellant filed an appeal before the  

Debt  Recovery  Appellate  Tribunal  (for  short  the  ‘Appellate  

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Tribunal’) against the order dated 19th August, 1999, passed by  

the Tribunal.  The same was also dismissed by the Appellate  

Tribunal vide its judgment dated 1st June, 2001.  This again was  

assailed  before  the  High  Court  under  Article  227  of  the  

Constitution  of  India.   The  same was also  dismissed  by  the  

High Court of Kolkata vide Order dated 28th November, 2001.  

Still  unsatisfied,  the  appellant  filed  a  Special  Leave  Petition  

before this Court, being SLP (C) No. 7883 of 2002 against the  

Order of the High Court of Kolkata which was dismissed as  

withdrawn by this Court vide Order dated 26th April, 2002.  In  

other words, the Order of the Tribunal declining to set aside the  

ex-parte decree attained finality.  The Revision Petition filed by  

the appellant before the High Court of Kolkata also came to be  

dismissed  finally  vide  Order  dated  2nd April,  2003.   In  

furtherance to its zeal to somehow get the ex-parte decree set  

aside,  the  appellant  preferred an appeal  before the  Appellate  

Tribunal against the order of the Tribunal dated 15th June, 1995.  

The Order dated 16th April, 2004 of the Appellate Tribunal was  

challenged before the learned Single Judge of the High Court.  

In those proceedings, an application for amendment to bring the  

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subsequent events on record, was filed which was dismissed by  

the  learned  Single  Judge  vide  Order  dated  11th June,  2004.  

Against  this  Order,  an  appeal  was  filed  before  the  Division  

Bench of Kolkata High Court which also met the same fate.  

However,  the  Division  Bench  while  dismissing  the  appeal  

observed that the Order passed by the learned Single Judge was  

correct  in  law  but  it  would  not  prevent  the  appellant  from  

resorting to any remedy which is available to it in accordance  

with law.

7.          In the Appeal preferred by the appellant, the Appellate  

Tribunal  vide  its  Order  dated  15th July,  2003  directed  the  

appellant  to  deposit  a  sum  of  Rs.5,00,000/-  as  condition  

precedent  for  entertaining  the  said  appeal.   This  sum  was  

deposited and a reply affidavit to this application was filed on  

behalf  of  the  Bank.  Vide  Order  dated  16th April,  2004,  the  

Appellate Tribunal dismissed the application for condonation of  

delay in filing the appeal.  The order dated 16th April, 2004 of  

the  Appellate  Tribunal  was  challenged  in  a  Civil  Revision  

Application before the High Court of Kolkata.  The High Court  

vide  its  interim  Order  dated  11th June,  2004  directed  the  

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appellant to deposit a sum of Rs.15,54,118.62 as a condition for  

hearing  the  appeal  and  the  same  was  deposited.   This  

application  was  against  the  interim  order  and  the  appeal  

remained  pending  before  the  Chairperson  of  the  Appellate  

Tribunal.  Finally the appeal was allowed vide Order dated 28th  

December, 2006 by the Appellate Tribunal.  While setting aside  

the ex-parte decree the Appellate Tribunal held as under:-

“Having said all  that,  to my mind, the net  result  is,  the  ex-parte  decree  in  question  passed  against  the  appellant,  Eureka Forbes  Ltd.  by the  Debts  Recovery  Tribunal,  Calcutta,  is  without  jurisdiction and therefore, the appeal must succeed.  Consequently,  the  entire  sum  of  money  appropriated by the respondent-bank as per orders  of  the Hon’ble Court  in C.O.  No.  1568 of  2004  will  be  refundable  together  with  interest  at  the  lending  rate  also  as  per  the  said  orders  of  the  Hon’ble Court.

Accordingly,  the  decree  in  question  dated  15th June, 1995 in T.A. 15 of 1994 passed by the  Debts Recovery Tribunal, Calcutta, and certificate  in  pursuance  thereof  as  against  the  appellant,  Eureka Forbes Ltd., is hereby set aside.  The entire  sum appropriated by the respondent bank in terms  of  the  orders  of  the  Hon’ble  Court  in  C.O.  No.  1568 of 2004 be refunded to the appellant by the  bank  together  with  interest  at  the  lending  rate  within a period of three months from date. There  shall be no orders as to costs.”

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8.         Respondent Bank challenged the Order of the Appellate  

Tribunal under Article 227 of the Constitution of India being  

C.O. No. 554 of 2007, before the learned Single Judge of the  

Kolkata  High  Court  which  vide  its  judgment  dated  12th  

October,  2007,  restored  the  judgment  and  the  order  of  the  

Tribunal.   Aggrieved  therefrom,  the  appellant  preferred  the  

appeal before the Division Bench of Kolkata High Court which,  

vide its Order dated 11th February, 2008, dismissed the appeal  

and sustained the Order of the learned Single Judge giving rise  

to the present Special      Leave Petition.

9.         The challenge to the impugned orders is inter alia on the  

ground that, Tribunal had no jurisdiction to entertain such an  

application filed on behalf of the Bank as there was no privity  

of contract between the appellant and the Bank.  Besides the  

issue of jurisdiction, the stand taken is that the Bank had not  

proved on record by way of any evidence that anything is due  

to it from the appellant.  All the witnesses examined on behalf  

of the Bank have stated nothing to the above mentioned effect.  

In any case, in the subsequent proceedings the decree should  

have been set aside, as nothing in law could be stated to be due  

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from the appellant.  In the suit, which was decreed ex-parte by  

the Tribunal on 15th June, 1995, it was specifically averred in  

the plaint that, Respondent No. 3 along with other defendants  

illegally,  erroneously,  arbitrarily  and  whimsically  had  taken  

possession  of  the  entire  stock,  machinery,  equipments  etc.  

without knowledge of the respondent Bank.  The respondents  

had not allowed inspection of the factory and verification of the  

stock and other requisite elements.  In fact, the appellant has  

misguided the Bank while informing vide their letter dated 18th  

August,  1987,  that  the  workers  had  forcibly  occupied  the  

factory.  Reference was also made to the fact that some stocks,  

plant and machine belonging to respondents had been given to  

the  appellant  for  sale  etc.  as  per  the  agreement  between the  

parties.  The goods, stocks were hypothecated to the Bank and  

according to the Bank, all the defendants in the suit were liable  

to pay the dues of the Bank.  On this premise, the Bank prayed  

for decree for the entire amount and also interest @ 18.05% per  

annum.  A specific prayer was made that the Bank has a valid  

and subsisting charge over the properties of defendant Nos. 1 &  

2  for  the  due  repayment  to  it.   A  decree  for  realization  of  

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hypothecated goods by and under the direction of the Court was  

also prayed for.  We have already noticed above that there was  

denial of the allegations made in the plaint.

Merits of the case relatable to the factual matrix

10.          The main stand of the appellant was in relation to the  

jurisdiction and lack of knowledge of the fact that the goods in  

stock were hypothecated to the Bank along with the plant and  

machinery.  The two important documents, dated 16th August,  

1983  and  28th February,  1987,  which  have  been  placed  on  

record,  are  of  some significance.   The  agreement  dated  16th  

August,  1983  states  the  conditions  of  the  leave  and  licence  

agreement between respondent Nos. 2 & 3 and the appellant.  It  

was indicated therein that they could use the plant and machine  

in the premises and it was for a period of three years with a  

deposit  of  Rs.  1,00,000/-  and  Rs.12,000/-  per  month  as  fee.  

Under Clause 6, the stocks at the relevant time were to be sold  

for a consideration of 0.75 lakhs and they were entitled to use  

the trade mark.  However, vide letter dated 28th February, 1987,  

which is after the expiry of a period of more than three years, it  

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was indicated by Respondent Nos. 2 & 3 to the appellant that,  

they wanted to give back possession of factory and there were  

stocks  of  about  Rs.7,00,000/-  which  included  raw  material,  

semi-finished  and  finished  goods,  lathe  worth  Rs.1,15,000/-  

which  could  be  sold  to  a  subsequent  licencee.   Relevant  

paragraphs  of  this  letter  can  be  usefully  reproduced  at  this  

stage:

“2.  We are  having stocks  worth  about  Rs.7  lacs  which  includes  raw  material,  semi-finished  &  finished  goods.   We  would  be  grateful  if  your  subsequent  licencee  agree  to  take  oil  the  stocks  plus one Lathe worth Rs.1,15,000/- as we would  be willing to negotiate with them.

5. We would be pleased to settle our account with  you as soon as the factory stocks are sold to your  future licences and also the worker’s retrenchment  dues.   We state  this  as  we  have  suffered  heavy  losses due to continues agitations and non-payment  of due by our customers and also cancellation of  our orders.”

11.          Another letter written by Respondent Nos. 2 & 3 to the  

appellant  on  23rd July,  1987  referred  to  certain  telephonic  

conversation.  It was specifically recorded in it that possession  

of the factory will be handed over on 31st July, 1987.  It was  

also stated that  there was financial  crisis  and that  the stocks  

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worth  Rs.7,00,000/-   and the  lathe  worth  Rs.  1,15,000/-  etc.  

could be sold and they will not be able to pay any licence fee in  

future.  On 7th August, 1987, the possession of the premises was  

taken by the appellant and a list had been prepared, copy of the  

list placed on record shows the physical stock as on 7th August,  

1987  and  it  contains  bearings,  plumber  block,  bearing  of  

milling  MC,  GM  Brass  and  Segment,  old  Osborn,  C.I.  of  

Milling M.C., C.I. components, AC IMCA machinery etc.   It is  

interesting  to  note  that  all  these  correspondences  and  

conversations  between  the  parties  had  been  without  any  

intimation to the respondent Bank.  In fact,  all this had been  

done behind the back of the Bank.  Besides this, the Bank had  

led oral and documentary evidence in support of its claim.  The  

Bank had written the letter dated 21st August, 1987 in response  

to the letter of Respondent Nos. 2 & 3 dated 18th August, 1987,  

but the letter dated 18th August, 1987 has not been placed on  

record.  However,  vide  letter  dated  21st August,  1987  copy  

whereof  was  sent  to  the  appellant  as  well,  the  bank  had  

informed  them  that  it  had  given  the  financial  assistance  to  

respondent Nos. 2 & 3 and the Bank was having charge over  

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the stocks and machinery which had been hypothecated to the  

Bank.   The  Bank  further  expressed  surprise  as  to  how  the  

appellant had taken possession of the unit.   Another relevant  

aspect  of  the  matter  would  be  the  conduct  of  the  present  

appellant.   We  have  serious  issues  that  the  appellant,  after  

taking possession of the premises, had not come to know about  

the goods being hypothecated to the Bank.  Advertisement for  

the  sale  of  machinery  was issued  as  late  as  on 12th August,  

1988.  In other words, they had sold goods, even machines, like  

CTC  at  a  throw  away  price,  even  after  having  complete  

knowledge about the hypothecated goods.  Thereafter,  an ex-

parte decree was passed, however they did not take any steps to  

get the same set aside, except when a recovery certificate had  

been issued by the competent authority. Thereafter, their prayer  

for setting aside ex-parte decree was rejected consistently by all  

the courts. When the High Court of Kolkata was dealing with  

the  Revision  Petition  filed  against  the  Order  dated  1st June,  

2001,  passed  by  the  Appellate  Tribunal,  the  Court  had  

specifically  noticed  the  conduct  of  the  appellant  and  had  

observed as under:-

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“After  hearing  Mr.  Mitra  appearing  on  behalf of the petitioner and after going through the  material on record I fully agree with the Tribunal  below  that  the  present  proceedings  have  been  initiated by the petitioner Balu:  10 with the sole  object of delaying the execution of a decree passed  in the year 1995.  It has been rightly pointed out by  those Tribunals that after filing written statement  in the suit  in 1989 till  the decree was passed in  1998  the  Tribunal  below,  the  petitioner  took  no  step in the original proceedings.  There is no scope  of doubt that notice of the proceedings was served  through  the  Tribunal  and  the  petitioner  entered  appearance through a lawyer.  No reason has been  assigned  in  the  application  what  prevented  the  learned advocate-on record of the petitioner from  contesting the proceedings before the Tribunal.  In  paragraph 5 of the application before the Tribunal  it  has  simply  been  state  that  “although  the  petitioner engaged Mr. H.P. Balu of M/s. Mallick  &  Palit,  solicitors  to  look  after  the  petitioner’s  interest in the said matter, the said advocates chase  not to appear in the proceedings for and on behalf  of  the  petitioner  and consequently  the  certificate  was  passed  by  the  tribunal  in  favour  of  the  plaintiff.  It appears that the very same advocate- on-record has preferred writ application before this  Court challenging the vires of the act and had also  filed subsequent application under Article 227 of  the Constitution of India impugning order passed  in  execution  proceedings  and  the  petitioner  has  obtained  interim  orders  in  those  proceedings  before this court.  It is not the case of the petitioner  that it has abandoned those proceedings and by the  advice of the new lawyer has confined itself to the  present proceedings.  It appears that although those  matters  are  still  pending,  the  petitioner  by  filing  instant  proceedings  has  tried  to  find  out  an  additional  avenue  for  stalling  the  execution  proceedings.”

18

12.          After having lost upto this Court, another round of  

litigation started, claiming it to be in furtherance to the Order of  

Kolkata  High  Court,  granting  them  liberty  to  take  steps  in  

accordance with law.  It is in furtherance of this observation of  

the  High  Court  that,  the  proceedings  again  started  from the  

Appellate Tribunal and now the present petition has been filed  

before this Court.  We have already noticed that owing to the  

sale  of  goods,  complete  knowledge,  that  the  goods  were  

hypothecated to the Bank is  attributable  to the appellant  and  

hence,  they  could  not  have  sold  the  said  goods  without  

permission of the Bank.  Admittedly nothing of this kind was  

done and the Bank was kept in dark.  

13.           The application for setting aside the ex-parte decree had  

been  filed  by  the  appellant  along  with  an  application  for  

condonation of delay in filing the said application.  However,  

the  application  for  condonation  of  delay  was  rejected  and  

subsequently the ex-parte decree was not set aside.  This order  

of the Tribunal was neither interfered by the High Court nor by  

this  Court  in  a  Special  Leave  Petition  preferred  by  the  

19

appellant.  In view of the observations made by the High Court  

in the order, the appellant filed another application for setting  

aside  the  decree  on  the  ground  that  the  Tribunal  had  no  

jurisdiction.  The said application came to be allowed by the  

Appellate  Tribunal  which  accepted  the  contention  raised  on  

behalf of the appellant. The reasoning recorded in the judgment  

of the Tribunal was that, it was a claim for damages in tort and  

was not a debt, and also that it was beyond the scope of the  

jurisdiction vested in the Tribunal under Section 17(1) of the  

Recovery  Act,  as  there  were  insufficient  allegations  or  

evidence.  No liability in terms of the debt can be fastened on  

the appellant.  This reasoning of the Tribunal was set aside by  

the  High  Court  of  Kolkata  in  the  impugned  judgment  and  

observed that, even claim for damages would fall well within  

the  jurisdiction  of  the  Tribunal  in  the  facts  of  the  case,  and  

particularly, when the averments remained uncontroverted and  

no evidence was led by the appellant. The hypothecated goods  

at the place of business of Respondent Nos. 2 & 3 were there at  

the time of handing over of the possession of the factory back  

to the appellant, and this fact can hardly be disputed on record.  

20

A finding was recorded in the proceedings that appellant was  

an intermeddler and there was collusion between the appellant  

and Respondent  Nos.  2  & 3.   Based on this  finding,  it  was  

further held that the case of the Bank was fully covered under  

the  expression  “debt”,  “any  liability”,  “any  person”  and  

accordingly, the Court set aside the judgment of the Tribunal.  

In the light of the facts and circumstances of the case, we are  

unable to find the stand of the High Court to be erroneous.  Of  

course,  to  some  extent,  the  entire  suit  could  not  have  been  

decreed  against  the  appellant.   The  respondent  Bank  was  

entitled to a limited relief,  vis-à-vis,  its  hypothecated stocks,  

goods and machinery, if any.  It was not even the case of the  

Bank  before  the  Tribunal  that  the  present  appellant  was  a  

borrower and in discharge of its final liability towards Bank the  

entire  suit  was liable  to be decreed.   The cause of action in  

favour  of  the  Bank  and  against  appellant,  at  best,  could  be  

limited to the hypothecated stock and goods, as beyond that,  

there is no averment in the plaint which would justify grant of  

any larger relief in their favour.  We would shortly discuss the  

legal aspects as well as the reasoning in law, in this regard.  The  

21

Bank has examined merely four witnesses in support of its case.  

There  is  no  statement  or  note  of  any  of  these  witnesses  for  

imposition  of  any  liability  upon  the  appellant,  except  to  the  

extent of goods hypothecated; such a conclusion can even be  

drawn  from the  letters  dated  28th February,  1987,  23rd July,  

1987, 7th August, 1987 and 21st August, 1987.  The correctness  

of these letters has never been disputed by any of the parties  

and it was admitted by the appellant that the advertisement for  

sale of goods was issued on 12th March, 1988.  Certainly and  

apparently,  the  appellant  had  complete  knowledge,  that  the  

entire stock, goods, machinery etc. had been hypothecated to  

the Bank.  Certainly, there has been a definite lapse on the part  

of the Bank, as the loan facility was granted in the year 1984,  

i.e.  subsequent  to  the  execution  of  the  leave  and  licence  

agreement dated 16th August, 1983.  It is obvious from the facts  

appearing on record that the loan has been sanctioned in a most  

casual and undesirable manner without even verifying the basic  

securities of                        respondent Nos. 2 & 3.

14.           Besides the fact that the present appellant had earlier  

raised all the pleas in their application for setting aside the ex  

22

parte decree which was rejected by the Tribunal, High Court as  

well  as  this  Court,  it  also  needs  to  be  noticed  that  except  

making vague denials in the written statement, which they had  

filed before the Tribunal at the relevant point of time, they had  

raised no specific or concrete defence in regard to the sale of  

hypothecated  goods  by  them.   The  fact,  as  already  noticed,  

cannot  be  disputed  that  the  goods  in  question  which  were  

hypothecated or were under the charge of the Bank have been  

sold  by  the  appellant.   The  advertisement  issued  by  them  

clearly  shows  that  they  had  invited  offers  for  sale  of  CTC  

machines and spares, which itself demonstrates that a number  

of machines and other goods have been sold by them.  It is an  

accepted precept of appreciation of evidence that a party which  

withholds  from  the  Court  best  evidence  in  its  power  and  

possession,  the  Court  would  normally  draw  an  adverse  

inference against that party.  In any case, the bona fide of such  

a  party  would  apparently  be  doubted.   The  appellant  was  

possessed of best evidence in regard to the goods of which they  

had  taken  possession  on  7th August,  1987,  in  fact  were  

hypothecated  to  the  Bank.   These  goods  including machines  

23

were sold by the appellant prior and subsequent to the issue of  

the  advertisement  dated  12th March,  1988.   Thus,  the  best  

evidence in this regard, was obviously in appellant’s power and  

possession which they did not produce before the Court despite  

prolonged litigation.  As such, we would have no hesitation in  

drawing some adverse inference against  the  appellant  in  this  

behalf.  Another ancillary factor, which the Court has to take  

into consideration is that, the value declared by respondent Nos.  

2 and 3 in relation to stocks, has not been denied specifically,  

either in correspondence or in the pleadings by the appellant.  

In the letter dated 28th February, 1987 value of goods worth Rs.  

7,00,000/- and lathe machine worth Rs. 1,15,000/- was alleged  

to be lying in the factory, in addition to other materials.  The  

inventory which was annexed to the letter of 7th August, 1987  

refers to various components, parts, bearings etc. but does not  

refer to CTC machines.   Admittedly, the appellants have sold  

these machines in furtherance to the advertisement dated 12th  

March, 1988.  In short, an amount which cannot be disputed, as  

is evident from the documentary and oral evidence on record is,  

Stock A,  Stock lying  in  the  premises,  7  lacs  lathe  machine,  

24

Rs.1,15,000/-  CTC machine,  as  sold by  the  appellant  as  per  

their  own version,  the  CTC machine which was sold by the  

appellant for a sum of   Rs. 1,48,975/-, thus, totaling up to Rs.  

9,63,975/-. The respondent Bank would be entitled to receive  

the interest at the rate of 6% per annum from 14th March, 1988  

till the date of payment of the amount.  We are awarding the  

same rate of interest which has been awarded by the Tribunal  

and was accepted by the Bank.  

15.         It appears that the Bank is acting in a manner which is ex  

facie not in consonance with the commercial principles and in a  

most casual and irresponsible manner.  The method in which  

the financial limits have been sanctioned to respondent Nos. 2  

and 3 does not stand to reasoning.  Admittedly, respondent Nos.  

2 and 3 had no title to the property.  What verification was done  

to  the  appraisal  report  has  been  left  to  imagination.   The  

conduct of the appellant further creates some suspicion in the  

mind of the Court.  The appellant took no remedial or bonafide  

steps even after it had admittedly come to know that the goods  

in question were hypothecated to the Bank.  On the contrary, it  

issued advertisement in March, 1988 for sale of hypothecated  

25

goods.  On the face of this fact, they had no preferential right to  

sell the goods.  In the letter dated 21st August, 1987, they had  

been informed that possession of the property as well  as the  

goods have been taken unauthorizedly.  Even if it is assumed  

that certain amounts were due to the appellant from respondent  

nos. 2 and 3 on account of licence fee, still they could not have  

brushed  aside  the  charge  of  the  Bank  over  the  goods  and  

machinery in question.  Also in the alleged leave and licence  

agreement,  dated  16th August,  1983,  there  was  no  clause,  at  

least  none has been brought  to our notice,  that  the appellant  

would have charge over the goods and machinery, in the event  

of default in the payment of licence fee.  In other words, the  

charge  of  the  Bank  was  binding  upon  the  appellant.   The  

inventory of the goods had been prepared and signed by the  

parties.  In the letter dated 7th August, 1987, these facts were  

confirmed  in  furtherance  to  the  correspondence  exchanged  

between the parties from                    28th February, 1987.   

16.          Ashok Kumar Goswami, Senior Manager, Allahabad  

Bank, who was examined as witness No. 1 on behalf of the  

Bank, has stated that the loans were advanced to Respondent  

26

Nos. 2 & 3.  According to him Exh. 7 is the agreement cum  

letter of hypothecation for packing credit advance under which  

the financial assistance was allowed to them.  He also proved  

Exh. 11, statement of stock of finished goods, work in progress,  

raw-material and machinery executed by Respondent No. 2 for  

and on behalf  of  Respondent  No.  3.   The  stocks  statements  

were shown in Exh. 12, while Exh. 13, was a letter written by  

Respondent  No.  2  on  29th May,  1984  to  the  Bank.   He  

specifically  stated  that  the  hypothecated  goods  were  handed  

over by Respondent Nos. 2 & 3 to the appellant behind the back  

of the Bank.  Another witness, whose statement at this stage  

can be usefully looked into, is that of Sh. Sankar Chakraborty,  

PW-2.  Besides stating the general facts of the case, this witness  

specifically stated, that the Bank had impleaded the appellant,  

as  they  had  taken  possession  of  hypothecated  goods  of  the  

Bank and that, the appellant had written a letter to the Bank and  

they raised a specific claim against it.   

17.          From the above stated documentary evidence, it is clear  

that the parties had the knowledge of the fact that respondent  

nos. 2 and 3 enjoyed the financial assistance from the Bank and  

27

the goods were hypothecated to it.  Even as per the statement of  

respondent nos. 2 and 3, the appellant sold the hypothecated  

goods with complete knowledge.  This included hypothecated  

stock  worth  Rs.  7,00,000/-,  lathe  machine  of  value  of  Rs.  

1,15,000/-, in addition to CTC machine and other spares.     

18.        The goods in question, therefore, have been disposed off  

by the appellant either in collusion with respondent nos. 2 and 3  

or  at  its  own  but  with  the  knowledge  that  the  goods  were  

hypothecated to the Bank.  Thus, to that extent, the liability of  

the appellant cannot be disputed.

LEGAL ASPECTS OF THE CASE:-

19.         In continuation of the above factual matrix, now let us  

examine the principles of law which would be applicable to the  

facts and circumstances of the case and result thereof.     There  

is,  in  fact,  hardly  any  dispute  before  us  that  the  goods  in  

question  had been hypothecated to the Bank.  The appellant  

had complete knowledge of this fact, still it went on to sell the  

goods.   The  Bank  had  been  negligent  and,  to  some  extent,  

irresponsible,  in  invoking  its  rights  and  taking  appropriate  

remedy in accordance with law.  Mere irresponsibility, on the  

28

part of the Bank, would not wipe out the rights of the Bank in  

law.  Without the consent of the Bank, no person can utilize the  

hypothecated goods for his own benefit or sale by the borrower  

or any person connected thereto.  It is nobody’s case that the  

Bank had consented to such sale.   This Court in case of Indian  

Oil Corporation  v. NEPC India Limited [(2006) 6 SCC 736]  

described  the  meaning  of  ‘entrustment’  in  relation  to  

hypothecation as follows:

                   xxxx             xxxx             xxxx                       xxxx

“The  creditor  may  also  have  the  right  to  claim  payment from the sale proceeds (if such proceeds  are  identifiable  and  available).   The  following  denifitions  of  the  term  ‘hypothecation’  in  P.  Ramanatha  Aiyar’s  Advanced  Law  Lexicon  [3rd  Edn.  (2005),  Vol.  2  pp.  2179  and  2180]  are  relevant:

“Hypothecation—It is the act of pledging an asset  as security for borrowing, without parting with its  possession  or  ownership.   The  borrowers  enters  into an agreement with the lender to hand over the  possession  of  the  hypothecated  assets  whenever  called upon to do so.  The charge of  hypothecation  is  then  converted  into  that  of  a  pledge  and  the  lender enjoys the rights of a pledge.

*                                  *                                          *

‘Hypothecation’  means  a  charge  in  or  upon  any  movable property, existing or future, created by a  borrower in favour of a secured creditor, without  

29

delivery of possession of the movable property to  such creditor, as a security for financial assistance  and includes floating charge and crystallization of  such  charge  into  fixed  charge  on  movable  property.  [Borrowed  from  Section  2(n)  of  Scuritisation  and  Reconstruction  of  Financial  Assets and Enforcement of Security Interest  Act,  2002].”

20.           Physical domain over the hypothecated goods is no way a  

sine qua non for enforcing Bank’s rights against the borrower.  

It was obligatory upon the appellant to deal with the goods only  

with the leave and permission of the Bank.  Absence of such  

consent in writing would obviously result in breach of Bank’s  

rights.

21.        The next  question of  law, that  we are called upon to  

consider, is the ambit and scope of provisions of Section 2(g) of  

the  Recovery  Act,  on  which  the  entire  case  of  the  parties  

hinges.  We have already noticed that the appellant has argued  

with great vehemence that, there was no privity of contract  and  

they were not  covered under the definition of ‘debt’,  and as  

such, recovery proceedings could not be initiated, much less,  

recovery  could be effected  from them under the provisions of  

the Act.    Section 2(g) of the Recovery Act reads as under:

30

  “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;”

22.           The Recovery Act of 1993, was enacted primarily for the  

reasons that, the Banks and financial institutions should be able  

to recover their dues without unnecessary delay, so as to avoid  

any adverse consequences in relation to the public funds.  The  

Statement of Objects and Reasons of this Act clearly state that  

Banks  and  financial  institutions  at  present,  experience  

considerable difficulties in recovering loans and enforcements  

of securities  charged with them.  The existing procedure for  

recovery  of  dues   of  the  Bank  and  the  financial  institutions  

block significant portion of their funds in un-productive assets,  

the  value  of  which  deteriorates  with  the  passage  of  time.  

Introduction of similar procedure was suggested by the Tiwari  

Committee.   The  Act  provided  for  the  establishment  of  

31

Tribunals and Appellate Tribunals and modes for expeditious  

recovery of dues to the Banks and financial institutions.  

23.          In this background, let us read the language of Section 2  

(g)  of  the  Recovery  Act.  The  plain  reading  of  the  Section  

suggests  that  legislature  has  used  a  general  expression   in  

contra distinction to specific,  restricted or limited expression.  

This  obviously  means  that,  the  legislature  intended  to  give  

wider meaning to the provisions.   Larger area of jurisdiction  

was intended to be covered under this provision so as to ensure  

attainment of the  legislative  object, i.e. expeditious recovery  

and  providing  provisions  for  taking  such   measures  which  

would  prevent  the  wastage   of  securities  available  with  the  

banks and financial institutions.  

24.          We may notice some of the general expressions used by  

the framers of law in this provision :

a)  any liability;

b) claim as due from any person;

c) during the course of any business activity undertaken by the  

Bank;

d) where secured or unsecured;

32

e) and lastly legally recoverable.

25.         All the above expressions used in the definition clause  

clearly suggest that, expression ‘debt’ has to be given general  

and wider meaning,  just to illustrate, the word ‘any liability’ as  

opposed to the word ‘determined liability’ or ‘definite  liability’  

or ‘any person’ in contrast to ‘from the debtor’.  The expression  

‘any person’ shows that the framers do not wish to restrict the  

same  in  its  ambit  or  application.   The  legislature  has   not  

intended to  restrict to the relationship of a creditor or debtor  

alone.  General  terms,  therefore,  have  been  used  by  the  

legislature to give the provision a wider and liberal meaning.  

These are  generic  or  general  terms.   Therefore,  it  will  be  

difficult  for  the  Court,  even  on  cumulative  reading  of  the  

provision,  to  hold  that  the  expression  should  be  given  a  

narrower  or  restricted  meaning.   What  will  be  more  in  

consonance with the purpose and object of the Act is  to give  

this expression a general meaning on its plain language rather  

than  apply  unnecessary  emphasis  or  narrow  the  scope  and  

interpretation of these provisions, as they are likely to frustrate  

the very object of the Act.   

33

26.          In the case of State of Gujarat and Ors. v. Akhil Gujarat  

Pravasi  V.S.  Mahamandal  & Ors.   [(2004) 5 SCC 155],  this  

Court was concerned with the question of payment of taxes in  

relation to the provisions of the Bombay Motor Vehicle Tax  

Act, 1958.  The Court while interpreting the scope of the entries  

in the legislative lists held that, they should be construed widely  

and general words used therein must comprehend ancillary or  

subsidiary matters relating to Schedule VII,  Articles 245 and  

246.  The Court held as under:-

“In interpreting the scope of various entries in the  legislative  lists  in  the  Seventh Schedule,  widest- possible  amplitude  must  be  given  to  the  words  used and each general word must be held to extend  to ancillary or subsidiary matters which can fairly  be  said  to  be  comprehended  in  it.   The  entries  should, thus be given a broad and comprehensive  interpretation.  In order to see whether a particular  legislative provision falls within the jurisdiction of  the legislature which has passed it, the Court must  consider what constitutes in pith and substance the  true subject-matter of the legislation and whether  such  subject-matter  is  covered  by  the  topics  enumerated in the legislative list pertaining to that  legislature.”

27.        Again in the of case of Raman Lal Bhailal Patel & Ors. v.  

State of Gujarat [(2008) 5 SCC 449], this Court was dealing  

34

with the word ‘person’ appearing in the provisions of Gujarat  

Agricultural Land Ceiling Act, 1960.  The expression ‘person’  

was defined with the inclusive definition that a person includes  

a  joint  family.   The Court  held  that,  where  the  definition is  

inclusively defining the word, there, the legislative intention is  

clear that it wishes to enlarge the meaning of the word used in  

the statute and that such word must be given comprehensive  

meaning.  In law, the word ‘person’ was stated to be having a  

slightly  different  connotation and refers  to  any entity  that  is  

recognized by law as having rights and duties of human beings.

28.           In the case of Greater Bombay Coop. Bank Ltd. v. United  

Yarn Tex (P) Ltd. & Ors. [(2007) 6 SCC 236], this Court took  

the view that, the elementary rule of interpretation of statute is  

that  the  words  used  must  be  given  their  plain  grammatical  

meaning, therefore, the Court cannot add something which the  

legislature  has  not  provided  for.   Similar  view  was  also  

expressed by another Bench of this Court in the case of Unique  

Butyle Tube Industries (P) Ltd. v. U.P. Financial Corporation  

and  Ors.   [(2003)  2  SCC 455],  that  the  Court  cannot  write  

anything  into  the  statutory  provisions  which  are  plain  and  

35

unambiguous.   A Statute  is  an edict  of  the legislature.   The  

language  employed  in  a  statute  is  determinative  factor  of  

legislative intent.  The first and the primary rule of construction  

is  that,  the  intention  of  the  legislation must  be found in  the  

words used by the legislature itself.  The question is not what  

may be supposed and has been intended but what has been said.

29.         The learned counsel for the appellant has heavily relied  

upon  the  judgment  of  the  United  Bank  of  India  v.  Debt  

Recovery Tribunal & Ors.  [(1999) 4 SCC 69], to contend that  

the  general  expression  must  receive  general  meaning  and  in  

light of this principle, the present proceedings could not  have  

been  initiated,  much  less,  recoveries  effected  under  the  

provisions of the Recovery Act.  We shall shortly discuss the  

merit of                    this contention.

30.           Before we advert to the discussion while applying these  

principles of interpretation to the provisions of Section 2 (g) of  

the Recovery Act, and also examine the merit of the contention  

raised  on  behalf  of  the  respondent,  it  may  be  interesting  to  

know as to how the word ‘debt’ has been defined and explained  

36

by this Court in different judgments, with different context and  

under       different laws.

31.          Years back this Court in the case of P.S.L. Ramanathan  

Chettiar  & Ors.  v.  O.R.M.P.R.M. Ramanathan  Chettiar  [AIR  

1968 SC 1047], explained the expression ‘debt’ as defined in  

the Madras Agriculturists  Relief  Act,  1938.   The Court  held  

that  the  definition  appearing  in  Section  3  (iii)  of  the  Act,  

despite the fact that it specifically states that ‘debt’ would not  

include  rent  as  defined  in  clause  (iv),  or  ‘Kanartham’,  as  

defined in Section 3 (1)(1) of the Malabar Tenancy Act, 1929,  

held that the definition is still  of a very wide magnitude and  

would include ‘any liability’  due from an agriculturists with  

the specified  expressions. The Court held as under:

“’Debt’  has been defined in Sec. 3 (iii)  of  the Act as meaning “any liability” in Cash or kind,  whether  secured  or  unsecured,  due  from  an  agriculturist,  whether  payable  under  a  decree  or  order of a civil or revenue court or otherwise, but  does not include rent as defined in Clause (iv), or  ‘Kanartham’ as defined in Section 3 (1) (1) of the  Malabar Tenancy Act, 1929.”

In  the  case  of  Union  of  India  v.  Raman  Iron  

Foundry [(1974) 2 SCC 231], this Court quoted as under:

37

“The classical definition of ‘debt’,  is to be found  in Webb v. Stenton where Lindley, L.J. said: “… a  debt is a sum of money which is now payable  or  will become payable in the future by reason of a  present  obligation”.   There  must  be  debitum  in  praesenti;  solvendum  may  be  in  praesenti  or  in  future  –  that  is  immaterial.   There  must  be  an  existing obligation to pay a sum of money now or  in future.”

32.          Still, in another case titled as State Bank of Bikaner &  

Jaipur v. Ballabh Das & Co. & Ors. [(1999) 7 SCC 539], the  

Court  was  concerned  with  the  un-amended  provisions  of  

Section 2 (g) of the Recovery  Act.  The Court while setting  

aside the order of the High Court, while dealing with the word  

‘debt’ followed by the words ‘alleged as due’, held as under:-

“According to the definition, the term ‘debt’  means liability which is alleged as due from any  person by a bank or a financial institutions or by a  consortium of  banks  or  financial  institutions.   It  should  have  arisen  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.  The liability to be  discharged may be in cash or otherwise.  It would  be immaterial  whether  the  liability  is  secured or  unsecured or whether it is payable under a decree  or  an  order  of  any  civil  court  or  otherwise.  However,  it  should  be  subsisting  and  legally  recoverable on the date on which proceedings are  initiated for recovering the same.

The  important  words  in  the  definition  “alleged as due” have been overlooked by the High  

38

Court and, therefore,  it  has erroneously held that  unless  the  amounts  claimed  by  the  Bank  are  determined or decided by a competent forum they  cannot be said to be due and would not amount to  “debt” under the Act.  What was necessary for the  High Court to consider  was whether the Bank has  alleged in the suits that the amounts are due to the  Bank from the respondents, that the liability of the  respondents has arisen during  the course of their  business  activity,  that  the  said  liability  is  still  subsisting and legally recoverable.”

33. As already noticed, this judgment was pronounced by the  

Court while dealing with the un-amended provisions of Section  

2 (g) of the Recovery Act.  This section was amended by Act 1  

of 2000 and the words ‘alleged as due’ stood substituted by the  

expression  ‘claimed  as  due’  with  effect  from  17th January,  

2000.   This  shows  the  intention  of  the  legislature  to  

significantly introduce definite expression and give emphasis to  

the  claim of  the  Bank  rather  than,  what  is  allegedly  due  or  

determinatively  due to the Bank from its  borrowers.   In this  

case,  the application of  the Bank had been dismissed by the  

High Court on the ground that it was not maintainable as it was  

not  covered  under  the  definition  of  the  word  ‘debt’.   While  

setting aside the order of the High Court, this Court held that,  

the High Court had gone wrong in holding that the application  

39

by the Bank was premature and till the Court determines the  

amount, such application could not be filed by the Bank.  This  

Court clearly stated the dictum that, such application would be  

maintainable and the amount payable to the Bank does not have  

to be a determined sum under the provisions of the Recovery  

Act.

34. Similar  contention  had  been  raised  before  us  on  the  

strength of the judgment of this Court in the Case of United  

Bank of India (Supra) on behalf of the appellant.  Firstly, we  

fail  to  understand  as  to  what  advantage  the  learned  counsel  

appearing for the appellant wishes to draw from this judgment  

and secondly,  this  judgment has clearly returned the finding,  

even  on  the  facts  of  that  case,  that  application  under  the  

provisions  of  the  Recovery  Act  was  maintainable  within  the  

scope of Section 2 (g) of the Act.  The Court held as under :  

“In view of the rival stands of the parties,  the short question that arises for consideration is,  as to whether the said claim of the plaintiff can be  said to be a claim for recovery of debts due to the  plaintiff  as  provided  under  Section  17(1)  of  the  Act.   The answer of this  question in turn would  depend upon the meaning of the expression “debt”  as defined in Section 2(g) of the Act.  Before we  examine the two provisions referred to above, it is  

40

to be borne in mind that the procedure for recovery  of debts due to the banks and financial institutions  which was being followed, resulted in a significant  portion of the funds being blocked. To remedy the  locking up of huge funds, the Financial Institutions  Bill, 1993”, which was passed by Parliament and  the Act has come into existence.

The  Act  and  the  relevant  provisions  will  have to be construed bearing in mind the objects  for  which  Parliament  passed  the  enactment.  The  prime  object  of  the  enactment  appears  to  be  provide  for  the  establishment  of  tribunals  for  expeditious adjudication and recovery of debts due  to banks and financial institutions and for matters  connected therewith or incidental thereto.

In  the  case  in  hand,  there  cannot  be  any  dispute that the 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.  In ascertaining the question whether any particular  claim of  any  bank or  financial  institution  would  come within  the  purview of  the  tribunal  created  under  the  Act,  it  is  imperative  that  the  entire  averments  made by the  plaintiff  in  the  plaint  be  looked  into  and  them  find  out  whether  notwithstanding  the  specially-created  tribunal  having  been  constituted,  the  averments  are  such  that  it  is  possible to hold that  the jurisdiction of  such  a  tribunal  is  ousted.   With  the  aforesaid  principle  in  mind,  on  examining  the  averments  made in the plaint, we have no hesitation to come  to the conclusion that the claim in question made  by the plaintiff is essentially one for recovery of a  

41

debt due to it from the defendants and, therefore, is  the Tribunal which has the exclusive jurisdiction to  decide  the  dispute  and  not  the  ordinary  civil  court.”

35.  As  is  obvious  from  the  above  recorded  findings,  the  

Court while referring to Section 2 (g), 17(1) and 31 (1) of the  

Recovery Act, observed that jurisdiction of the Civil Court was  

barred  under  the  provisions  of  the  Act  and  the  suits  or  

proceedings  shall  transfer  to  the  Tribunal  upon  coming  into  

force of the Recovery Act.  The Court was primarily concerned  

with  the  matters  being  transferred  from  Civil  Courts  to  

Tribunal, still while referring to the provisions of Section 2 (g),  

held  that  the  claim  of  the  Bank  was  covered  under  the  

provisions of the Act.  The suit, as instituted in the year 1991,  

had  claimed  various  relief  including  the  claim for  damages.  

The objection raised was that, there was undetermined amount  

and  other  relief  could  not  be  referred  to  the  Tribunal  for  

adjudication.   The  suit  was  subsequently  transferred  to  the  

Tribunal under the provisions of the Act and the Court while  

giving wide meaning to the expression ‘debt’, clearly held that,  

this expression was of liberal amplitude and there was occasion  

42

for the Court to grant a restricted meaning.  Thus, in our view,  

even the case of United Bank of India (supra) no way supports  

the submissions made on behalf of the appellant.

36. On the plain analysis of the above stated judgment of this  

Court, it is clear that the word ‘debt’ under Section 2 (g) of the  

Recovery Act is incapable of being given a restricted or narrow  

meaning.  The legislature has used general terms which must be  

given  appropriate  plain  and  simple  meaning.   There  is  no  

occasion for the Court to restrict the meaning of the word ‘any  

liability’,  ‘any person’ and particularly the words ‘in cash or  

otherwise’.  Under Section 2 (g), a claim has to be raised by the  

Bank against any person which is due to Bank on account of/in  

the course of any business activity undertaken by the Bank.  In  

the  present  case,  Bank  had  admittedly  granted  financial  

assistance  to  respondent  nos.  2  and  3,  who  in  turn  had  

hypothecated the goods, plants and machinery in favour of the  

Bank.  There cannot be any dispute before us that the goods in  

question have been sold by the appellant without the consent of  

the  Bank.   Respondent  nos.  2  and 3 have  hardly  raised  any  

dispute and resistance, to the claim of the Bank.  In fact,  even  

43

before this Court there is no representation on their behalf.  The  

documentary  and oral  evidence on record  clearly  established  

that the Bank has raised a financial claim upon the principal  

debtor, as well as upon the person who had intermeddled and/or  

at least dealt with the charged goods without any authority in  

law.  Not only this,  the  appellant  had sold the  hypothecated  

goods  and  stocks  by  public  auction,  despite  the  fact  the  

appellant had due knowledge of the fact that the goods were  

charged in  favour of  the Bank.   Another  aspect  of  this  case  

which  required  to  be  considered  by  this  Court  is,  what  was  

intended to  be suppressed by the  legislature  by enacting the  

Recovery  Act,  1993  and  thereafter,  by  amending  various  

provisions, including Section 2(g) in the year 2000.  Obviously,  

the  mischief  which  was  intended  to  be  controlled  and/or  

prevention of wastage of securities provided to the Bank, was  

the main consideration for such enactment.  The purpose was  

also  to  prevent  wrong  doers  from taking  advantage  of  their  

wrong/mistakes,  whether  permissible  in  law  or  otherwise.  

These preventive measures are required to be applied with care  

and  purposefully  in  accordance  with  law  to  ensure  that  the  

44

mischief, if not entirely extinguished, is curbed.   

37.  Maxim Nullus commodum capere potest de injuria sua  

propria  has  a  clear  mandate  of  law  that,  a  person  who  by  

manipulation of a process frustrates the legal rights of others,  

should  not  be  permitted  to  take  advantage  of  his  wrong  or  

manipulations.  In the present case Respondent Nos. 2 & 3 and  

the  appellant  have  acted  together   while  disposing  off  the  

hypothecated goods, and now, they cannot be permitted to turn  

back to  argue,  that  since  the  goods have been sold,  liability  

cannot be fastened upon respondent Nos. 2 & 3 and in any case  

on the appellant.  The Bench of this Court in the case of Ashok  

Kapil v. Sana Ullah (Dead) and Ors. [1996 (Vol. 6) SCC  342],  

referred  to  rule  of  mischief  and  while  explaining  the  word  

‘building’, held as under,:-

“Stroud’s Judicial Dictionary (Vol.  I of the  5th Edition)  states  that  ‘what  is  a  building  must  always be a question of degree and circumstances’.  Quoting  from Victoria  City  Corpn.  v.  Biship  of  Vancover  Island  (AC  at  p.390),  the  celebrated  lexicographe commented that ‘ordinary and natural  meaning of the word building  includes the fabric  and the  ground on which it  stands”.   In Black’s  Law  Dictionary  (5th Edn.)  the  meaning  of  the  building  is  given  as  “  A  structure  or  edifice  enclosing a space within its walls, and usually, but  no  necessarily,  covered  with  a  roof”.  (emphasis  

45

supplied).  The said description is a recognition of  the  fact  that  roof  is  not  a  necessary   and  indispensable adjunct for a building because there  can be roofless  buildings. So a building, even after  losing the roof, can continue to be a building in its  general  meaning.   Taking  recourse  to  such  meaning  in  the  present  context  would  help  to  prevent a mischief.

38. The learned counsel for the appellant also relied upon the  

judgment of the   Gujarat High Court in the case of Bank of  

India v. Vijay Ramniklal [AIR 1997 Gujarat 75], in support of  

the contention,   that  claim of bank was not  ‘debt’  within the  

meaning of Section 2(g) of the Act so as to give jurisdiction to  

the Tribunal.  We are not impressed by this argument.  Firstly,  

the judgment of the Gujarat High court is entirely on different  

facts  and  in  that  case  an  employee  of  the  Bank  had  

misappropriated  the  amount  of  the  Bank,  the  Bank  had  

instituted an application under the provisions of the Recovery  

Act.   Rightly so it was held by the High Court, that it was not a  

‘debt’ within the meaning of Section 2 (g) and, therefore, could  

not  be  tried  before  the  Tribunal.   We  may  state  another  

illustration to demonstrate the case where the Tribunal may not  

have jurisdiction.   Some persons commit  a theft in the Bank  

46

and take away the money and/or the goods hypothecated to the  

Bank or the goods in the custody of the Bank.  Upon Bank’s  

lodging  a  first  information  report  (FIR)  to  the  police,  those  

persons are traced, arrested and tried in accordance with law for  

theft.  In such a case, the Tribunal may not have jurisdiction to  

entertain and decide an application for recovery of money or  

value of goods in terms of Section 17 of the Recovery Act.  

That is neither the case here nor in any of the judgments which  

have been relied upon by the parties before us, except in the  

case of Gujarat High Court.  In the case in hand, the goods were  

hypothecated  to  the  Bank  and  the  appellant  admittedly  had  

knowledge  prior  to  the  sale  of  the  goods,  that  they  were  

hypothecated to the Bank.  If the contention of the appellant is  

accepted, it will amount to giving advantage or premium to the  

wrong  doers.   It  would  also  further  perpetuate  the  mischief  

intended  to  be  suppressed  by  the  enactment.   This  could  

completely defeat the very object and purpose of the Act.  A  

party which had pledged or mortgaged properties in favour of  

the Bank, then would transfer  such properties  in favour of a  

third  party.   In  the  event,  the  Bank  takes  action  under  the  

47

provisions of the Recovery Act, they would take the objection  

like the present appellant.  This would tantamount to travesty of  

justice and would frustrate the very legislative object and intent  

behind the provisions of the Recovery Act.  Therefore, such an  

approach or interpretation would be impermissible.

39. We have already noticed that the legislature has not used  

words of a restrictive or definite nature.   It has intentionally  

made use of the expressions which are quite general and can be  

construed  widely  in  their  common  parlance.   There  is  no  

occasion for  this  Court  to  read the  word other  than  the  one  

intended by the legislature in the provisions of Section 2 (g) of  

the Recovery Act.  Wherever the legislature requires, it uses the  

expressions  of  definite  connotations  and  consequences,  for  

example,  in the Interest  Act,  1978, the word ‘debt’ has been  

defined under Section 2(c) of that Act by using specific terms  

of  restricted  character.   It  means  ‘any  liability  for  an  

‘ascertained sum’ of money and includes a debt payable in any  

kind but does not include a ‘judgment debt’.  In this definition,  

the ‘ascertained sum’ obviously means a sum which has been  

determined  under  any  methods  of  the  adjudicative  process  

48

while, on the other hand, the expression ‘payable in kind’ is a  

general  expression,  again  the  excluding  clause  in  relation  to  

‘judgment debt’ is specific.   Such is not the language or the  

purport  of  Section  2  (g)  of  the  Recovery  Act.   Mr.  R.F.  

Nariman, the learned senior counsel appearing for the appellant,  

while referring to the provisions of Section 19 (8) and Section  

19 (11) respectively, of the Recovery Act contended, that these  

sections clearly postulate that, a non applicant in  proceedings  

before the  Tribunal  can  raise  a  plea  of  set  off,  as  well  as  a  

counter claim, but where the counter claim is objected to on the  

ground that it ought not to be disposed off by way of a counter  

claim, as it is an independent action, then the person raising a  

counter claim can take leave of the Tribunal for exclusion of  

such counter claim.  With reference to language of these two  

provisions, it is contended that, the claim like the one raised by  

the  respondent  Bank  against  the  appellant,  is  a  claim which  

cannot be raised in the proceedings before the Tribunal and the  

Bank  ought  to  have  taken  independent  steps,  if  any,  in  

accordance with law.  On the other hand, Mr. Jaideep Gupta,  

learned senior counsel for the respondent-Bank argued that, this  

49

argument has no bearing on the matter in controversy before us,  

in as much as, the claim of the Bank is maintainable within the  

definition of ‘debt’ under the Recovery Act.   

40. This contention of appellant needs to be noticed only for  

being  rejected.   In  our  detailed  discussion  above,  we  have  

clearly held that, the claim raised by the Bank falls well within  

the ambit and scope of Section 2 (g) of the Recovery Act and  

the jurisdiction of the Tribunal cannot be ousted on this ground.

41. Thus, in our opinion, the provisions of Section 2 (g) have  

to be construed, so as to give it liberal meaning.  The general  

expressions used in this provision will have to be understood  

generally.  Neither there is scope to hold nor is the legislative  

intent  that  these provisions  should be given  a  narrower  or  a  

restricted meaning.  In our considered view, the claim of the  

Bank relatable to the hypothecated goods was well within the  

jurisdiction of the Tribunal exercising its power under Section  

17 of the Recovery Act.

Applicability of the principles of public accountability on the  facts of the present case :  

50

42.  Having answered both the questions of fact partially and  

law against the present appellant, still there is another important  

facet  of this  case which cannot be ignored by the Court.   It  

relates  to  the  conduct  of  the  respondent  Bank  and  its  

officers/officials.   The  witnesses  appearing  on  behalf  of  the  

Bank had stated that, at the stage of appraisal report itself, the  

Bank had come to know, that respondent Nos. 2 and 3 have a  

leave and license agreement with the appellant.  Despite that,  

and without proper verification, as it appears from the record,  

heavy  loan  was  sanctioned  and  disbursed  to  the  above  

respondents.  Even thereafter, the Bank and its officers/officials  

appear to have taken no serious steps to ensure that the goods  

hypothecated  to  the  Bank  are  not  disposed  off  without  its  

consent.  The officers/officials of the Bank, even after knowing  

about  the  handing  over  of  the  possession  of  the  property  

including the hypothecated goods to the appellant and having  

communicated the same to the appellant vide their letter dated  

24th August, 1987, made no serious efforts to recover its debt  

and ensure that the goods are not disposed off, as the suit itself  

was filed for recovery of the amount on 1st February, 1989 after  

51

serious  delay.   These  facts,  to  a  great  extent,  are  even  

conformed in  the  affidavit  which  was filed  on behalf  of  the  

Bank  by  one  Shri  Kamal  Kumar  Kapoor  as  late  as  on  22nd  

August, 2009 before this Court.  There is no doubt in our mind  

that  the  Bank  could  have  protected  its  interest  and  ensured  

recovery  while  taking  due  caution  and  acting  with  

expeditiousness.  There is definite negligence on the part of the  

concerned  officers/officials  in  the  Bank.   They  have  

jeopardized  the  interest  of  the  Bank  and  consequently  the  

public funds, only saving grace being that orders were passed  

by  the  competent  forum,  requiring  the  appellant  to  deposit  

some money in the suit for recovery of more than 22 lac which  

was filed by the Bank in the year 1989.  Even this order was  

also vacated by the Tribunal vide its order dated 28th December,  

2006 wherein it passed the order for refund of the amount.  The  

concerned quarters  in the Bank also failed to act  despite the  

advertisement  for sale  of the hypothecated material  given by  

the appellant on 12th March, 1988, whereafter the machines like  

CTC is said to have been sold at a throwaway price.  All these  

facts indicate definite negligence and callousness on the part of  

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the concerned quarters.  The legislative object of expeditious  

recovery  of  all  public  dues  and  due  protection  of  security  

available with the Bank to ensure pre-payments of debts cannot  

be achieved when the officers/officials of the Bank act in such a  

callous  manner.   There  is  a  public  duty  upon  all  such  

officers/officials to act fairly, transparently and with sense of  

responsibility  to  ensure  recovery  of  public  dues.   Even,  an  

inaction on the part of the public servant can lead to a failure of  

public  duty  and  can  jeopardize  the  interest  of  the  State  or  

its instrumentality.   

43. In our considered opinion, the scheme of the Recovery  

Act  and  language  of  its  various  provisions  imposes  an  

obligation upon the Banks to ensure a proper and expeditious  

recovery of its dues.   In the present case, there is certainly ex  

facie failure of statutory obligation on the part of the Bank and  

its officers/officials.  In the entire record before us, there is no  

explanation much less  any reasonable  explanation as  to why  

effective steps were not taken and why the interest of the Bank  

was  permitted  to  be  jeopardized.   The  concept  of  public  

accountability and performance is applicable to the present case  

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as well.   These are instrumentalities of the State and thus all  

administrative  norms  and  principles  of  fair  performance  are  

applicable  to  them  with  equal  force  as  they  are  to  the  

Government department, if not with a greater rigor.   The well  

established precepts  of  public  trust  and public  accountability  

are  fully  applicable  to  the  functions  which emerge from the  

public servants or even the persons holding public office.  In  

the case of State of Bihar v. Subhash Singh [ (1997) 4 SCC  

430], this Court, in exercise of the powers of judicial review  

stated that, the doctrine of full faith and credit applies to the  

acts done by officers in the hierarchy of the State.  They have to  

faithfully discharge their duties to elongate public purpose.

44. Inaction,  arbitrary  action  or  irresponsible  action  would  

normally  result  in  dual  hardship.   Firstly,  it  jeopardizes  the  

interest of the Bank and public funds are wasted and secondly,  

it even affects the borrower’s interest adversely provided such  

person was acting bonafide.  Both these adverse consequences  

can easily be avoided by the authorities concerned by timely  

and coordinated action.  The authorities are required to have a  

more practical and pragmatic approach to provide solution to  

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such  matters.   The  concept  of  public  accountability  and  

performance of functions takes in its ambit proper and timely  

action  in  accordance  with  law.   Public  duty  and  public  

obligation both are essentials of good administration whether  

by  the  State  instrumentalities  and/or  by  the  financial  

institutions.  In the case of Centre for Public Interest Litigation  

& Anr.  v.  Union of  India  & Anr.  [(2005)  8  SCC 202],  this  

Court declared the dictum that State actions causing loss are  

actionable under public law and this is as a result of innovation  

to a new tool with the court, which are the protectors of civil  

liberty  of  the  citizens  and  would  ensure  protection  against  

devastating  results  of  State  action.  The  principles  of  public  

accountability and transparency in State action even in the case  

of appointment, which essentially must not lack bonafide was  

enforced by the Court.  All these principles enunciated by the  

Court  over  a  passage  of  time  clearly  mandate  that  public  

officers are answerable both for their inaction and irresponsible  

actions.   What  ought  to  have  been  done,  if  not  done,  

responsibility should be fixed on the erring officers then alone  

the real public purpose of an answerable administration would  

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be satisfied.

45. The doctrine of full  faith and credit  applies to the acts  

done by the officers and presumptive evidence of regularity of  

official acts done or performed, is apposite in faithful discharge  

of duties to elongate public purpose and to be in accordance  

with  the  procedure  prescribed.   It  is  known  fact  that,  in  

transactions  of  the  Government  business,  none  would  own  

personal  responsibility  and  decisions  are  leisurely  taken  at  

various  levels  (Refer  :  State  of  Andhra  Pradesh  v.  Food  

Corporation of India [(2004) 13 SCC 53].

Principle of public accountability is applicable to such  

officers/officials with all its vigour.  Greater the power to decide,  

higher is the responsibility to be just and fair.  The dimensions of  

administrative law permit judicial intervention in decisions, though  

of  administrative  nature,  but  are  ex  facie  discriminatory.   The  

adverse impact of lack of probity in discharge of public duties can  

result in varied defects not only in the decision making process but  

in the decision as well.  Every public officer is accountable for its  

decision and actions to the public in the larger interest and to the  

State administration in its governance.  It needs to be seen in the  

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facts  and  circumstances  of  the  present  case,  why  and  how the  

interest of the Bank has been jeopardized, in what circumstances  

the loan was sanctioned and disbursed despite some glaring defects  

having been exposed in the appraisal report.  Significant element  

of discretion is vested in the officers/officials of the Bank while  

sanctioning  and  disbursing  the  loans  but  this  discretion  is  

circumscribed by the inbuilt commercial principles/restrictions as  

well  as  that  such  decisions  should  be  free  from  arbitrariness,  

unreasonableness and should protect the interest of the Bank in all  

events.  We are neither competent nor do we wish to venture to  

examine this aspect, it is for the appropriate authorities in the Bank  

to  examine  the  matter  from  all  quarters  and  then  to  take  

appropriate action against the erring officers/officials involved in  

the present case, that too, in accordance with law.

46. For  the  reasons  afore-recorded,  we partially  allow this  

appeal and while modifying the order of the High Court to the  

extent  that,  the  appellants  would  be  liable  to  pay  to  the  

respondent Bank a sum of Rs. 9,63,975/-. (approximate value  

of the hypothecated stock sold by the appellants) with interest  

at the rate of 6% per annum on the above sum during the period  

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from 14th March, 1988, the date of filing of the plaint, to the  

date of actual realization as originally allowed by the Tribunal.

47. We further direct the Chairman of the Allahabad Bank to  

examine  this  case  in  light  of  our  discussion  supra  and  take  

appropriate action against erring officers/officials in accordance  

with law.   

48.            However, in the facts and circumstances of the case, the  

parties are left to bear their own costs.

........................................J. [ B.SUDERSHAN REDDY ]

........................................J.       [ SWATANTER KUMAR ]

    New Delhi     May 3, 2010

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