UCO BANK versus NATIONAL TEXTILE CORPORATION LTD. & ANR.

[2020] 4 S.C.R.

UCO BANK

NATIONAL TEXTILE CORPORATION LTD. & ANR.

(Civil Appeal No. 2046 of 2020)

BMARCH 05, 2020

[R. BANUMATHI, A. S. BOPANNAAND HRISHIKESH ROY, JJ.]

Textile Undertakings (Nationalisation) Act, 1995 – As perappellant-Bank, Shree Sitaram Mills Ltd. was taken over byCrespondent no.1 & nationalised w.e.f. 01.04.1994 – It enjoyed creditfacilities with the appellant – Respondent no.2-Ministry wasguarantor in respect of said credit facilities – Appellant filed recoverysuit against respondent no.1 – Transferred to Debts RecoveryTribunal – Recovery certificate issued – However, recoveryDproceedings were adjourned sine die – Appellant submitted claimwith Commissioner of Payment – Received Rs.1,59,82,634/- againstclaim of Rs.1,05,35,86,783.47/- – Meanwhile, Govt. of India issuedO.M dated 22.01.2004 for settlement of commercial disputes betweenPublic Sector Enterprises inter se; Public Sector Enterprises andGovt. Dept. through Permanent Machinery of Arbitrators (PMA) –EAppellant requested initiation of arbitration with Union of India/respondent no.2 – Sought recovery of balance sum from respondentno.1 and Shree Sitaram Mills Ltd. – By notice dated 17.10.2011,Arbitrator appointed under PMA directed the appellant, respondentno.1 & Shree Sitaram Mills Ltd. to submit statements of claim andFcounter reply – Respondent no.1 filed application for cessation ofarbitral proceedings – Rejected by Arbitrator, PMA – Respondentno.1 filed writ petition assailing aforesaid notice and challengingjurisdiction of the Arbitrator – Dismissed – Filed LPA – Allowed –Held: Present examination is limited to the aspect relating to forum– Claim initially made by the appellant is against Shree SitaramGMills Ltd. – Respondent no.1 is disputing the liability for the sameby bringing about distinction since the take-over was only ofShree Sitaram Mills (which was part of Shree Sitaram Mills Ltd.)and not of Shree Sitaram Mills Ltd. – Thus, an adjudication on thataspect cannot be considered as dispute involving only the two

public sector establishments as contemplated under the O.M –Question of liability could neither have been decided in writproceedings nor in this appeal – Impugned judgment to the extent itquashed notice dated 17.10.2011 warrants no interference –However, the conclusion that the respondents are not liable for theamount claimed by the appellant is set aside – Question of liabilityand the manner of recovery to be considered by appropriate forum– Textile Undertaking (Take-over of Management) Act, 1983 –Recovery of Debts Due To Banks and Financial Institutions Act,1993.

Partly allowing the appeal, the Court

HELD: 1.1 Since the present examination is limited to theaspect relating to forum and when it is seen that the claim initiallymade by the appellant is against the Shree Sitaram Mills Ltd. andthe Respondent No.1 is disputing the liability for the same bybringing about distinction since the take-over was only of ShreeSitaram Mills and not of Shree Sitaram Mills Ltd., an adjudicationon that aspect to be made cannot be considered as dispute asinvolving only the two public sector establishments ascontemplated under the Official Memorandum referred to above.The appellant had originally instituted the recovery proceedingsagainst Shree Sitaram Mills Ltd. by filing Suit No.3961/1988 whichwas thereafter transferred to the Debts Recovery Tribunal I,Mumbai in O.A. No.2526/1999. The said proceeding hadconcluded by issue of Recovery Certificate dated 05.08.2004against the other defendants except defendant Nos.3 (a to c)regarding which an appeal in DRTA Appeal No.271/2005 is pendingbefore the Debts Recovery Appellate Tribunal, Mumbai. The saidappeal is against the judgment and decree dated 29.03.2005. Inthe recovery proceedings pursuant to the decree, if in themeanwhile certain change of status relating to the judgmentdebtor has taken place as in the instant case, namely, the take-over of Shree Sitaram Mills which was part of Shree SitaramMills Ltd. is to be taken note. Upon consideration of evidenceadduced by the parties it has to be determined in that light as towhether the Respondent No.1 Corporation has in fact inheritedsuch liability making themselves liable for the decree in existenceor on the other hand if such liability has remained and subsistedwith Shree Sitaram Mills Ltd. It is matter to be examined in

Asuch recovery proceedings by providing opportunity to the partiesto adduce evidence. Further in respect of post take over perioda Suit No.4489/96 was filed which was transferred to DRT andregistered as O.A.No.1114/2000 which has remained pending asrespondent No.2 had proceeded to BIFR. In that circumstance ifthe appellant herein had chosen to initiate the proceedings beforeBthe PMA, keeping in view that the COD which was subsequentlyconstituted is mechanism in the nature of pre-litigationmediation, it cannot be said that the step adopted by the appellantis wholly without basis. However, when it is noticed that theRespondent No.1 has serious objections to the liability and natureCof take-over of the Textile Mills is to be examined beforerecoveries are made, the adjudication of the matter in therecovery proceedings would be the appropriate course. [Paras19-21][702-G-H; 703-A-G]

1.2 The question of liability could neither have been decidedDin the writ proceedings before the High Court nor in this appeal.If this aspect is kept in view, the conclusion reached by theDivision Bench to hold that the respondent herein is not liablefor the dues of Shree Sitaram Mills Ltd. and the proceedings ismisconceived for such claim is an erroneous conclusion reachedin proceedings where such conclusion ought not to have beenErecorded. The impugned judgment passed in LPA to the extentof quashing the notice dated 17.10.2011 of the Arbitral Tribunalunder the PMA warrants no interference. However, theconclusion reached by the Division Bench that the respondentsare not liable for the amount claimed by the appellant herein isFset aside. In that regard, the proceedings in O.A.No.2526/1999had concluded by issue of Recovery Certificate in O.A.No.2526/1999 and the R.C. No.269/2004 was initiated towards recoveryof amount. Insofar as the rejection of the claim against defendantNos.3 (a to c) the Appeal DRTA No.271/2005 is stated to be filedin the DRTA Mumbai and the same is said to be pending. In soGfar as the post take over claim, the proceedings in O.A.No.1114/2000 is pending before the DRT, Mumbai and is stated to beadjourned sine die. The said proceedings shall now stand revived.In the said recovery proceedings in R.C.No.269/2004 theappellant is permitted to bring on record the respondents. TheHrespondents are reserved the liberty of putting forth their

contentions to oppose the same. The Recovery Officer/PresidingOfficer of the DRT in the respective proceedings shall ifnecessary, after providing opportunity for tendering evidencetake decision with regard to the liability if any, on the part of therespondents to satisfy the decree/recovery certificate issuedagainst Shree Sitaram Mills Ltd. Such decision shall be taken bythe Recovery Officer/Presiding Officer independently, based onthe materials available on record without being influenced by anyof the observations contained either in the order of the HighCourt or the order passed by this Court in this appeal. [Paras 22-24][704-D-H; 705-A-E]

ONGC v. Collector of Central Excise, Mumbai (1995)Supp 4 SCC 541; Electronics Corporation of India Ltd.v. Union of India (2011) 3 SCC 404 : [2011] 2 SCR971; Swadeshi Cotton Mills Company Ltd. v. TheCommissioner of Central Provident Fund MANU/TN/0532/1999; U.P State Sugar Corporation Ltd. v. Dr.Kailash Behari SharmaMANU/UP/1055/1997– referred to.

Case Law Reference

(1995) Supp 4 SCC 541referred toPara 7[2011] 2 SCR 971referred toPara 8

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2046of 2020.

From the Judgment and Order dated 10.02.2014 of the High Courtof Delhi at New Delhi in L.P.A. No. 808 of 2012.

With Special Leave Petition (Civil No. 20527 of 2014)

Ms. Pinky Anand, Vikramjit Banerjee, ASGs, Dr. Abhishek M.Singhvi, Sr. Adv., Ms. Arti Singh, Aakash Deep Singh, Ms. Pooja Singh,Sanjoy Ghose, Hemant Arya, Babu Ram, Rishabh Jetley, KaustubhAnshuraj, Merusagar Samantray, Siddhartha Sinha, Ms. Priyanka Das,Sumit Upadhyay, Raj Bahadur, Advs. for the appearing parties.

AThe Judgment of the Court was delivered byA. S. BOPANNA, J.

1. Leave granted.

2. The instant appeal has been filed assailing the judgment dated10.2.2014 passed by the High Court of Delhi at New Delhi in LPA No.B808/2012 wherein the High Court allowed the LPA filed by RespondentNo-1/National Textile Corporation Ltd. and inter alia restrained theArbitral Tribunal from proceeding with the arbitral claim made byappellant herein.

3. As per the averments made by the appellant, M/s Shree SitaramCMills Ltd. was taken over by National Textile Corporation Ltd./Respondent No. 1 under the Textile Undertaking (Take-over ofManagement) Act, 1983 and was nationalised w.e.f. 01.04.1994 underthe Textile Undertakings (Nationalisation) Act, 1995. Said Shree SitaramMills Ltd. was enjoying credit facilities with the Appellant Bank andRespondent No. 2, i.e. Ministry of Textiles was the guarantor in respectDof the said credit facilities. The last guarantee was issued by the Ministryof Textiles on 23.2.1995, valid up to 31.3.1996.4. The Appellant filed recovery suit bearing Suit No.3961/1988against Respondent No. 1 seeking recovery of an amount ofRs. 3,19,09,000/- which was transferred to the Debts Recovery TribunalEon coming into force of the Recovery of Debts Due to Banks Act(‘RDDB Act’ for short) renumbered as O.A.No.2526/1999. On05.08.2004 – DRT -I issued recovery certificate against one of theCompany – Shri Sitaram Mills Ltd. for sum of Rs.11,70,78,726.69.The recovery proceedings are adjourned sine die in view of the applicationfiled by the Respondent that it has been declared sick company underFthe provisions of the Sick Industrial Companies (Special Provisions) Act,1985.5. The Appellant then submitted its claim with the Commissionerof Payment on 17.1.2002 which was registered on 4.7.2005. sum ofRs. 1,05,35,86,783.47 was claimed towards post take-over liability underGthe Textile Undertakings (Nationalisation) Act. Vide awarddated 13.3.2006, the Commissioner of Payment allowed part of theclaim under category 1 of the Textile Undertakings (Nationalisation)Act to the tune of Rs. 70,23,025/- towards principal. Claim ofRs. 1,18,80,098/- was relegated to category II (b) being an outstandingliability against unserviced interest. The balance claim ofHRs. 103,46,83,660.47 towards interest beyond appointed date was rejected.

By subsequent award dated 28.3.2007 further sum of Rs. 89,59,609/- was awarded by the Commissioner of Payment towards pending liabilityof interest till the appointed date. Thus, in all, the appellant received asum of Rs. 1,59,82,634/- against total claim of Rs. 1,05,35,86,783.47.

6. In the meantime, the Government of India issued an OfficeMemorandum dated 22.1.2004 for settlement of commercial disputesbetween Public Sector Enterprises inter se and Public Sector Enterprisesand Government Department through Permanent Machinery ofArbitrators.

7. Claiming that it was entitled to the balance amount also, theAppellant lodged its request for initiation of arbitration with the Union ofIndia/Respondent No.2 vide communication dated 30.8.2004. Theappellant sought recovery of balance sum of Rs. 103,76,04,149.47/- fromRespondent No.1 and Shree Sitaram Mills Ltd. Vide notice dated17.10.2011, the Joint Secretary and sole arbitrator who was appointedunder the Permanent Machinery of Arbitration (PMA) directed theappellant, Respondent No. 1 and Shree Sitaram Mills Ltd. to submittheir statements of claim as well as counter reply. Parties were informedthat the forum had been constituted in compliance of the directions ofthe Apex Court in ONGC vs. Collector of Central Excise, Mumbai1995 Supp (4) SCC 541. The Appellant thereafter filed its statement ofclaim before the PMA, New Delhi claiming award of payment ofRs. 103,76,04,149.47 by Shree Sitaram Mills Ltd. and Union of Indiajointly and severally.

8. Respondent No. 1 filed an application for discontinuation andcessation of arbitral proceedings in light of the judgment of the SupremeCourt in Electronics Corporation of India Ltd. vs. Union of India(2011) 3 SCC 404 wherein this Court recalled the orders reported in1995 Supp (4) SCC 541. Thus, it was averred that the arbitral procedureis not based on any statute or consent.

9. Vide order dated 28.6.2012, the Arbitral Tribunal held that thepractice of the PMA was to decide all the issues at one time and thusthe parties were directed to submit their documents or evidence in supportof their claim and counter claim.

10. Aggrieved, Respondent No. 1 filed writ petition assailingnotice dated 17.10.2011 and challenging the jurisdiction of the Arbitratorto proceed further with the matter. The learned Single Judge of the HighCourt dismissed the writ petition and opined that PMA was constitutedby the decision of the Cabinet Secretariat of the Govt. of India as reflected

Ain its Office Memorandum dated 22.01.2004. Though undoubtedly, theCommittee of Disputes (COD) was formed based on the judgments ofthe Supreme Court it has been reversed by the Supreme Court by itssubsequent judgment in the case of Electronics Corporation of IndiaLtd. It did not comment or deal with Constitution of PMA. The PMAwas constituted by virtue of an Office Memorandum dated 22.01.2004Bissued by the Govt. of India, Ministry of Heavy Industries and PublicEnterprises, Department of Public Enterprises. It is therefore, not amechanism which stands effaced by virtue of dissolution of the COD. Itcannot be disputed that both Respondent No. 1 and the Appellant arecovered under the OM dated 22.01.2004; Respondent No.1 being aCCentral Public Sector Enterprise, while Appellant is Nationalised Bank.If that is so, then no consent is required for initiation of arbitrationproceedings under the PMA mechanism.11. The Respondent No. 1 claiming to be aggrieved filed LPA.Vide impugned judgment, the Division Bench of High Court noted thatDon enquiring from the counsel for Respondent No. 1 as to what is thereto show that the claim of Appellant before the Permanent Machinery ofArbitrators (PMA) is with respect to liability prior to 01.04.1994, thecounsel for Respondent No.1 referred to the claim petition filed by theappellant before the PMA in which, “Sitaram Mills Ltd.” is referred toas respondent no. 2. It is stated therein that “respondent no. 2 wasEnationalised w.e.f. 01.04.1994 under the Textile Undertaking(Nationalisation) Act, 1995 and prior to the takeover of the managementof respondent no. 2 under the said Act, sum of money to the extent ofRs. 11,70,39,000/- became due and payable by respondent No.2 to theclaimant”. The Court opined that once it is not in dispute that claims ofFthe appellant lodged before PMA are of the period prior to the appointedday, the liability therefor is not of Respondent No.1. As per the schemeof Textile Undertaking (Nationalisation) Act, the said dues, even thoughpertaining to the textile undertaking so acquired by the Central Govt.and transferred to respondent No.1, did not become the liability of theCentral Govt. or respondent No. 1. The same remained the liability ofGthe earlier owner Company, which significantly was neither taken overunder the Textile Undertaking (Nationalisation) Act nor had ceased toexist. The Division Bench held that the Single Judge fell in error in notappreciating the difference between “textile undertaking” and “textilecompany” and presuming that “Shree Sitaram Mills Ltd.” was takenHover when only “Shree Sitaram Mills” i.e. the textile undertaking of

“Shree Sitaram Mills Ltd.” was taken over. Moreover, appellant hasmade the claim for the entire amount before the Commissioner ofPayments before whom, as per Section 20 of Textile Undertaking(Nationalisation) Act, only the claims against the earlier owner companywere to be made, thereby admitting the liability therefor to be of theearlier owner company only. Concluding that the dues claimed by theappellant being of the period prior to the take-over by the Central Govt.of the textile undertaking earlier owned by Shree Sitaram Mills Ltd., theDivision Bench held that Respondent No. 1 cannot be said to be liabletherefor and the arbitration proceedings before PMA for recovery thereofagainst Respondent No. 1 are misconceived. The appeal was accordinglyallowed.

12. Heard Shri A.M. Singhvi, learned senior counsel for theappellant, Ms. Pinky Anand and Shri Vikramjit Banerjee, learnedAdditional Solicitor General for the respondents and perused the appealpapers.

13. It has been contended by the appellant before us that the HighCourt failed to appreciate that the Office Memorandum dated 22.1.2004issued by the Central Government provides for mechanism of PMAwhich has neither been quashed nor set aside by the Apex Court inElectronics Corporation of India Ltd. vs. Union of India (2011) 3SCC 404. The law laid down in said case deals with abolition of High-Powered Committee on disputes and not abolition of PMA. Moreover,the Office Memorandum dated 22.1.2004 is an executive instructionissued by the Government of India as policy decision, more particularlydecision in economic matter which requires no judicial review. TheDivision Bench of High Court also did not appreciate that the AppellantBank is public sector bank and cannot allow its funds to sink inasmuchas on the one hand DRT proceedings have come to standstill becauseof the proceedings being adjourned sine die and on the other theCommissioner of Payments has rejected the balance claim ofapproximately Rs. 100 crores on the ground that it is beyond its jurisdictionin terms of Section 20 of the Nationalisation Act. In such situation, theimpugned judgment quashing the commencement of the arbitralproceedings amounts to thwarting the recovery proceedings of theAppellant Bank. The High Court also did not appreciate that after takeoverof the management of the borrower company by the Government ofIndia in 1983 and after nationalisation of the owner company under the

Aprovisions of Nationalisation Act, 1955, all its rights and liabilities stoodvested in the name of Respondent No.1 and as such Shree Sitaram MillsLtd. as referred in the 1[st] schedule of the Nationalisation Act and ShreeSitaram Mills Ltd. are one and the same entity.

14. On the other hand, it has been submitted by Respondent No.1Bthat as per Section 4 (2) and 4 (5) of the Textile Undertakings(Nationalisation) Act, 1995, all liabilities pertaining to pre-nationalisationperiod, i.e. 01.04.1994 will be of the erstwhile owner and cannot beenforced against Respondent No.1. It is also the argument of respondentthat Shree Sitaram Mills Ltd. had not been nationalised and in factcontinued to retain its private existence. It was only the textile undertakingCthat was owned by Shree Sitaram Mills Ltd., namely, Sitaram Mills thathad been nationalised. Further, as the appellant had already approachedthe Commissioner of Payments under the Textile Undertakings(Nationalisation) Act, 1995 therefore it could not have sought to maintainthe instant claim. As per Section 7 of Textile Undertakings (Nationalisation)

DAct, 1995, claimant who is dissatisfied with the decision of theCommissioner may prefer an appeal against the decision to the principalcivil court of original jurisdiction. Next, it has been argued that the arbitralnotice dated 17.10.2011 intimated that the forum has been constitutedby the cabinet secretariat in compliance with the mandate of the SupremeCourt in ONGC vs. Collector of Central Excise 1995 Supp (4) SCCE541 which was recalled by the Apex Court in its order dated 17.02.2011passed in Electronics Corporation of India Ltd. vs. Union of Indiaand Ors. It has also been alleged that the appellant is forum shopping,having already traversed various courts/tribunals.15. Though elaborate contentions are urged with regard to theFclaim put forth by the appellant Bank and the liability for the same beingdisputed by the respondents namely, Union of India and National TextileCorporation as according to them such liability was not taken over bythem, on hearing the learned senior counsel for the parties the contentionswould disclose that the consideration required herein is essentially withGregard to the forum that is to be provided to the parties for the purposeof appropriate adjudication in that regard. In such forum the liability ofthe parties and the mode of recovery, if any, is to be ultimately determined.Limited to this aspect an examination of the contentions would disclosethat the appellant had initiated the arbitration proceedings before thePMA considering that both, the appellant and the respondent No.1 areH

Central Public Sector establishments/Bank and as such were governedunder the guidelines stipulated in the Office Memorandum dated22.01.2004. The appellant Bank invoking the same initiated the arbitrationproceedings pursuant to which notice of arbitration dated 17.10.2011was issued by the learned Arbitrator – Joint Secretary. By Order dated17.10.2011, the arbitrator directed the parties to file their claims.The appellant-Bank filed statements of claim and claimedRs. 103,76,04,149.47. In response to the notice dated 17.10.2011, NTCraised objection as to maintainability of the arbitration proceedings beforePMA. By its order dated 13.02.2012, PMA directed the appellant-Bankto file its rejoinder and also directed the respondent to file its reply to therejoinder and directed the parties to appear on or before 28.06.2012. On17.02.2012, the NTC filed an application praying to decide on themaintainability of arbitral proceedings as preliminary issue andthereafter, recall the arbitral notice dated 17.10.2011 and to discontinuethe arbitral proceedings forthwith. The appellant – Bank objected to thesaid application and prayed for dismissal of the said application. Rejectingthe application filed by NTC dated 17.02.2012, the learned Arbitrator,PMA vide order dated 28.06.2012, directed continuation of the arbitralproceedings.

16. The initiation of arbitration proceedings and the order passedby the Arbitrator triggered the present round of litigation since therespondent claiming to be aggrieved by the same, preferred the WritPetition bearing WP(C) No.5527/2012 wherein the respondents hereinas the writ petitioners had sought for quashing the notice of arbitrationdated 17.10.2011 and to issue Writ of Prohibition to the appellant hereinfrom proceeding further with the arbitral proceedings. The learned SingleJudge by the order dated 22.11.2012 had dismissed the writ petitionconsidering the same only as an issue with regard to the jurisdiction andon deciding in that regard. The respondent herein claiming to be aggrievedpreferred the appeal LPA No.808/2012. The Division Bench throughorder dated 10.02.2014 has set aside the order of the learned SingleJudge and while quashing the notice dated 17.10.2011 of the ArbitralTribunal under the PMA has also decided the aspect of liability and heldagainst the appellant. The appellant, therefore, being aggrieved haspreferred this appeal.

17. As noted it is contended by the learned senior counsel for theappellant the liability was that of M/s Shri Sitaram Mills Ltd. and the

Aclaim put forth by the appellant herein is due to the fact that the saidShree Sitaram Mills was taken over by the respondents and in thatcircumstance the liability also is taken over and is to be liquidated. It is inthat premise since the respondent is Public Sector Enterprise and theappellant is also Public Sector Bank which was nationalized under theBanking Companies (Acquisition & Transfer of Undertakings) Act, 1970Bthe Office Memorandum dated 22.01.2004 was applicable and, therefore,the claim was put forth before the PMA. The reason for which thePMA was brought into existence due to the observations of this Court inthe case of ONGC vs. Collector of Central Excise was referred indetail. However, in view of the subsequent observations in ElectronicsCCorporation India Ltd. vs. Union of India & Ors., (2011) 3 SCC 404wherein this Court having noticed that the mechanism suggested hadoutlived its utility and diluted the same, Committee on Disputes (‘COD’for short) was constituted which was in the nature to examine the claimsbeing put forth. It is further brought to the notice that the presentmechanism brought in through the Office Memorandum dated 22.05.2018Dis the Administrative Mechanism for Resolution of CPSEs Disputes(AMRCD) wherein similar consideration as was being made by PMAwill be made.18. The learned Additional Solicitor General while controvertingthe contentions insofar as the said Office Memorandum providing theEforum would contend that the same would not be applicable in the presentfacts. In that regard it is contended that the very liability of respondentNo.1 herein is in dispute as only the Textile Mill is taken over and, insuch circumstance, the said mechanism which provides for adjudicationin the case of claims inter se between two Public Sector EnterprisesFwould not be applicable herein. In that light it is contended that the DivisionBench of the High Court was justified in quashing the notice issued bythe Arbitral Tribunal which was seeking to adjudicate the matter in thejurisdiction which it did not possess.

19. As already noticed, since the present examination herein isGlimited to the aspect relating to forum and when it is seen that the claiminitially made by the appellant is against the Shree Sitaram Mills Ltd. andthe Respondent No.1 herein is disputing the liability for the same bybringing about distinction since the take-over was only of Shree SitaramMills and not of Shree Sitaram Mills Ltd., an adjudication on that aspectto be made cannot be considered as dispute as involving only the twoH

public sector establishments as contemplated under the OfficialMemorandum referred to above.

20. While stating so it cannot also be lost sight that the appellantherein had originally instituted the recovery proceedings against ShreeSitaram Mills Ltd. by filing Suit No.3961/1988 which was thereaftertransferred to the Debts Recovery Tribunal I, Mumbai in O.A. No.2526/1999. The said proceeding had concluded by issue of Recovery Certificatedated 05.08.2004 against the other defendants except defendant Nos.3(a to c) regarding which an appeal in DRTA Appeal No.271/2005 ispending before the Debts Recovery Appellate Tribunal, Mumbai. Thesaid appeal is against the judgment and decree dated 29.03.2005. In therecovery proceedings pursuant to the decree, if in the meanwhile certainchange of status relating to the judgment debtor has taken place as inthe instant case, namely, the take-over of Shree Sitaram Mills whichwas part of Shree Sitaram Mills Ltd. is to be taken note. Uponconsideration of evidence adduced by the parties it has to be determinedin that light as to whether the Respondent No.1 Corporation has in factinherited such liability making themselves liable for the decree in existenceor on the other hand if such liability has remained and subsisted withShree Sitaram Mills Ltd. It is matter to be examined in such recoveryproceedings by providing opportunity to the parties to adduce evidence.Further in respect of post take over period Suit No.4489/96 was filedwhich was transferred to DRT and registered as O.A.No.1114/2000which has remained pending as respondent No.2 had proceeded to BIFR.No doubt in that circumstance if the appellant herein had chosen toinitiate the proceedings before the PMA, keeping in view that the CODwhich was subsequently constituted is mechanism in the nature ofpre-litigation mediation, it cannot be said that the step adopted by theappellant is wholly without basis.

21. However, when it is noticed that the Respondent No.1 hasserious objections to the liability and nature of take-over of the TextileMills is to be examined before recoveries are made, the adjudication ofthe matter in the recovery proceedings would be the appropriate course.Therefore, to that extent the Division Bench no doubt was justified insetting aside the arbitral proceedings by quashing the notice dated17.11.2011. However, we notice that the Division Bench while arrivingat its conclusion has also referred to the decision of the High Court ofMadras in Swadeshi Cotton Mills Company Ltd. vs. The Commissioner

Aof Central Provident Fund MANU/TN/ 0532/1999 and the decision ofthe High Court of Allahabad in U.P State Sugar Corporation Ltd. vs.Dr. Kailash Behari Sharma MANU/UP/1055/1997 to hold that theliability would not transfer on takeover. The said consideration is withregard to the Provident Fund dues towards the Provident Fund contribution.In the instant case, the claim is by the lender Bank towards which aBdecree had already been granted in respect of one claim and the otherclaim is pending consideration. The fact as to whether in the matter oftake over, the liabilities were also included is one aspect of the matter.Further, the aspect which may also require examination by the Courtundertaking the recovery proceedings is as to whether in the process ofCtake-over of Shree Sitaram Mills the secured assets for the loantransaction has been taken over by the Respondent No.1 or was itavailable with Shree Sitaram Mills Ltd. if it had retained its existenceand identity after take-over of the Textile Mills and in that circumstancewhether the recovery proceedings could still be resorted to against theRespondent No.1 in respect of the liability of Shree Sitaram Mills Ltd.,Dand would the Union of India be liable as Guarantor. This is an aspectwhich is to be examined after providing opportunity to the parties, ifneed be, after tendering evidence in that regard.22. Therefore, the question of liability could neither have beendecided in the writ proceedings before the High Court nor in this appeal.EIf this aspect is kept in view, the conclusion reached by the DivisionBench in paragraph 25 to hold that the respondent herein is not liable forthe dues of Shree Sitaram Mills Ltd. and the proceedings is misconceivedfor such claim is an erroneous conclusion reached in proceedings wheresuch conclusion ought not to have been recorded. Hence the decision toFthat effect is liable to be set aside.

23. In view of the above conclusion, and on the reasonings wehave recorded above we hold that the impugned judgment dated10.02.2014 passed in LPA No.808/2012 to the extent of quashing thenotice dated 17.10.2011 of the Arbitral Tribunal under the PMA warrantsGno interference. However, the conclusion reached by the Division Benchthat the respondents are not liable for the amount claimed by the appellantherein is set aside. The question of liability and the manner of recoveryis left open to be considered by the appropriate forum. In that regard asnoticed above, the proceedings in O.A. No.2526/1999 had concluded byissue of Recovery Certificate in O.A. No.2526/1999 and the R.C. No.269/H

2004 was initiated towards recovery of amount. Insofar as the rejectionof the claim against defendant Nos.3 (a to c) the Appeal DRTA No.271/2005 is stated to be filed in the DRTA Mumbai and the same is said to bepending. In so far as the post take over claim, the proceedings inO.A.No.1114/2000 is pending before the DRT, Mumbai and is stated tobe adjourned sine die. The said proceedings shall now stand revived andare permitted to be taken towards its logical conclusion one way or theother in accordance with law. In the said recovery proceedings in R.C.No.269/2004 the appellant herein is permitted to bring on record therespondents herein by filing an appropriate application seeking to bringthem on record as judgment debtors/defendants for the reasons statedby the appellant in arbitral proceedings before the PMA and in the instantproceedings. The respondents herein are reserved the liberty of puttingforth their contentions to oppose the same, where after the RecoveryOfficer/Presiding Officer of the DRT in the respective proceedings shallif necessary, after providing opportunity for tendering evidence take adecision with regard to the liability if any, on the part of the respondentsto satisfy the decree/recovery certificate issued against Shree SitaramMills Ltd. Such decision shall be taken by the Recovery Officer/PresidingOfficer independently, based on the materials available on record withoutbeing influenced by any of the observations contained either in the orderof the High Court or the order passed by this Court in this appeal. Allcontentions of the parties are left open.

24. The appeal is allowed in part without any order as to costs. Inview of the judgment passed in Civil Appeal arising out of SLP (Civil)No.15914 of 2014, SLP (Civil) No.20527/2014 also stands disposed of.

25. Pending applications if any, shall also stand disposed of.

Divya Pandey

Appeal partly allowed.

ABC