In this appeal the challenge is the judgment order dated 25th November, 2019 of the Calcutta High Court, where in the decision of the Single Judge dismissing the suit was Reversed. The suit was filed against Small Industries Development Bank of India (SIDBI) seeks interest on the alleged payment of principal sum and accrued interest to the plaintiff for the Bonds issued by SIDBI.
The Plaintiff that is SIBCO had purchased the Bonds in the form of promissory notes which
was issued by the defendant SIDBI. The interest payable on a half-yearly basis on or before
21st June and 21st December of every year. The 5th series Bonds agreed to be redeemed on 21st December, 2004 whereas the 4th series Bonds to be redeemed on 21st December, 2003. The Bonds were freely tradable in the market. M/s. SIBCO purchased 15 Bonds and 26 Bonds and of face value of ten lakhs each for an aggregate price of Rs. 3.69 crores from Shankar Lal Saraf.
The Bonds were deposited with the defendant on 2nd July, 1998 with the request to endorse the name of the Plaintiff on the Bonds. On refusal to register the name of the SIBCO on the ground that CRB Capital had gone into involuntary liquidation proceedings at the instance of the RBI.
At first the Plaintiff filed pleadings before the Calcutta High Court seeking a writ of mandamus upon the defendant to transfer the foresaid Bonds in favour of the plaintiff and also to pay the interest accrued on them.
In this case the question was whether the plaintiff had set forth just a claim,
based on the Bonds issued by the defendant or a case of trial in Shakespeare’s ‘The
Merchant of Venice’ where Shylock is claiming the promised pound of flesh in the
form of interest on the delayed payment purchased by the plaintiff.
The case projected by the plaintiff was both the principal and the interest, which
were paid beyond the maturity period. Therefore, the defendant is liable to pay the
interest for the delayed payment. According to the plaintiff, the defendant has
unreasonably held the amount, whereas, the defendant states that because of the
restriction by the RBI and the pending proceedings, the maturity amount was not paid.
The reliance has been placed by both the sides on the facsimile issued by the RBI.
1. The High Court of Calcutta held that writ court is not the proper forum and contended
the petitioner to approach the Company Court, and seek intervention in the liquidation
proceeding against CRB Capital. Though an intra-court appeal was preferred but it was
not proceeded. On the request of the plaintiff, Shankar Lal Saraf filed an interlocutory
application in the pending liquidation proceeding before the Company-Court, claiming
that the foresaid transactions should be treated outside the purview of the liquidation
proceeding, under the Companies Act, 1956.
2. The Company Court held that the Bonds were beyond the preview of the liquidation
proceeding and directed Shankar Lal Saraf to put the matter before the defendant. After
that the defendant made the payment of the principal amount together with the interest
to M/s SIBCO with TDS deduction at around 20%.
3. The RBI was found to be empowered to control the management of the Banking
Company in certain situations and laid down the parameters enabling Banking
Companies to expand business and regulate the paid-up capital, reserve funds, cash
funds and allocation of resources, etc. The RBI is authorized by the Parliament to enact
the policy and to issue guidelines which had statutory force and as held in case of ICICI
Bank Ltd. Vs. Official Liquidator. In support for the foresaid proposition, the Trial
Court relied on the ratio in Sudhir Shantilal Mehta Vs. Central Bureau of India for its
4. As it can be seen, the Suit was dismissed primarily on two grounds: -
(A) Firstly, the bonds could not be transferred by the petitioner since the RBI had
initiated winding up proceedings against CRB Capital before the Delhi High
Court, there after the RBI has issued a directive to the petitioner herein
directing not to register transfer of CRB Capital’s Bonds or to part with any
payment pertaining to the Bonds, without consent of the Official Liquidator.
The learned Judge therefore found that the petitioner had acted entirely in
accordance with the directive of the RBI, and thereby promptly making the
payment of the amounts due after the appropriate orders were passed by the
Delhi High Court were winding up proceedings were going on. Hence, the
defendant could not be held liable for the delayed payment.
(B) Secondly, the Trial Judge noted the conduct of the plaintiff in accepting the
payment, including interest, without any protest. The plaintiff suddenly for the
first time claimed interest for the delayed payment in 2005. The court therefore
found that since the plaintiff had accepted the encashment without the protest
of the law laid down by the Court in Bhagwati Prasad Pawan Kumar v. Union
of India would apply, since there was acceptance by conduct.
5. The present appeals were filed impugning the above judgment of the Calcutta High
Court. The defendant seeks relief of setting aside the judgment of the Division Bench.
Whereas, the plaintiff seeks the interest over and above the interest already awarded,
and was disputing the rate of interest awarded by the Division bench on interest and
6. There was a triable issue as to whether there was any subsisting cause of action, after
receipt of the redemption value of the bonds along with the interest payable and also
whether the defendant can be held responsible for the delay or not, having regard to the
facts and circumstances of this case, inter alia directing the defendant not to transfer or
register any lien or otherwise deal with securities of the defendant in which CRB
Capital Market Ltd. had invested without the permission of the Official Liquidator. The
earlier communication of Reserve Bank of India informing the defendant of the freezing
assets of CRB Ltd. and the various communications from the defendant to the Official
Liquidator attached to Delhi High Court. The application for summary judgment of the
Original Side was therefore dismissed.
It is clear from the above discussion that the RBI has wide supervisory powers over financial institutions further any direction issued by the RBI, deriving the power from the RBI Act or the Banking Regulation Act is statutorily binding on the defendant. The RBI issued
Notification deriving the power from Sec. 45-MB (2) of the RBI Act. Thereby, the RBI froze
the assets of CRB Capital on the grounds of public policy and for the purpose of protecting
interests of creditors and depositors of CRB Capital. In reference to Sec. 531 of Companies
Act, 1956 cannot be denied that there was a suspicion over the title of the plaintiff’s
predecessor-in-interest. The plaintiff’s title ‘Ipso facto’, with the transaction during the
“suspect spell” was also under the cloud.
This article is written by Aanchal Kothari of Amity University, Mumbai.