REPORTAB LE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.8123 OF 2004

Industrial Investment Bank of India Ltd.            … Appellant

Versus

M/s Jain Cables Pvt. Ltd.  & Ors.      … Respondents

J U D G M E N T

AFTAB ALAM, J.

1. The appellant, Industrial Investment Bank of India Limited (“IIBIL”  

for short), is the successor of the Industrial Reconstruction Bank of India  

(“IRBI”  for  short)  constituted  under  section  3(1)  of  the  Industrial  

Reconstruction Bank of India Act, 1984, (“the 1984 Act” for short).  

2. In the year 1985, the IRBI had sanctioned a loan of rupees twenty two  

lakhs (Rs.22,00,000/-) in favour of M/s Jain Cables Pvt. Ltd.,  respondent  

no.1.  Out  of  the  sanctioned  amount  a  sum  of  rupees  twenty  lakhs  

(Rs.20,00,000/-)  was actually disbursed in the year 1991 and the balance  

amount of the loan was cancelled. The repayment of the loan was secured by  

mortgage  of  the  immovable  properties  of  the  borrower  company and by

creating the charge of hypothecation over its immovable properties in favour  

of the IRBI. The borrower company defaulted in repayment of the loan and  

in  1994,  on  its  request,  the  IRBI  granted  to  it  an  amended  schedule  of  

payment under which the last installment of the loan amount was to be paid  

on  February  15,  1996.  The  respondent  no.1  did  not  adhere  even  to  the  

rescheduled payment plan.  

3. On March 27, 1997, the Industrial Reconstruction Bank (Transfer of  

Undertaking and Repeal) Act, 1997 (“the 1997 Act” for short) came into  

force and by virtue of notification, S.O. 242 (E), dated March 25, 1997 the  

undertakings of the IRBI were transferred to and vested in the IIBIL with  

effect from March 27, 1997.

4. On August 14, 1997, the IIBIL gave a notice to respondent no.1 under  

section 38 of the 1984 Act recalling the loan. The notice did not bring any  

payments from respondent no.1 and after about 2 years from the date of the  

notice, in the year 1999, the IIBIL filed an application before the Rajasthan  

High Court, under section 40 of the 1984 Act. The application filed by the  

IIBIL  was  registered  in  the  High  Court  as  S.B.C.  Misc.  Application  

No.40/99. The High Court issued notice on the application but after hearing  

the other side, rejected it by order dated November 1, 2002 holding that the  

application was not maintainable as it  was filed under the provision of a  

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repealed Act. The High Court in its brief order referred to section 40 of the  

1984 Act and the repeal and saving provision as contained in section 13 of  

the 1997 Act and took the view that the provision of section 40 of the 1984  

Act  was  purely  procedural  and  it  simply  provided  the  IRBI  with  an  

additional forum besides those available under section 39 of the 1984 Act  

and  section  69  of  the  Transfer  of  Property  Act.  On  the  other  hand,  the  

provision of repeal contained in section 13 of the 1997 Act was definite and  

categorical and the provision of section 40 of the 1984 Act was not saved by  

sub-section (2) of section 13 of the 1997 Act. In other words, according to  

the  High Court,  the  application  was filed  under  a  provision  that  was  no  

longer in existence. In this connection, the High Court held and observed as  

follows:  

“Thus, to put it in other words, the rights and liabilities of the  Company,  as  they  existed  on  the  appointed  day,  are  saved,  obviously  substantive  rights  qua  the  other  persons,  and  the  liabilities.  Section  40  does  not  confer  any  such  substantive  right, as it is only procedural provision providing an additional  forum to be available to the Company for effecting recovery of  its  outstandings  by  praying  for  taking up  & different  course  than the one available under Section 39 of that Act, or Section  69 of Transfer of Property Act.

As such, the provisions of section 40 or more remain available  to  the  petitioner.  An overall  reading  of  the  repealing  Act  of  1997 also  does  show that  it  predominantly  comprehends  the  rights  and  liabilities  of  Industrial  Investment  Bank  of  India,  which  are  to  devolve  on  Industrial  Reconstruction  Bank  of  India, as the Act is to provide for transfer and vesting of the  

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Undertakings to the Company to be formed and registered as  company under the Companies Act, and for matters concerned  therewith,  or  incidental  thereto,  and  also  to  repeal  the  1984  Act.”

5. For  the  sake  of  the  record,  it  may  also  be  noted  that  during  the  

pendency of the proceeding before the High Court, the IIBIL also moved the  

Debt Recovery Tribunal. But its application to the Debt Recovery Tribunal  

was against the guarantor alone and no relief was claimed against respondent  

no.1,  the  borrower  company.  The  application  against  the  guarantor  was  

decreed  ex parte but the decree has so far not borne any fruits as it was a  

personal guarantee and there were no assets against which the decree may be  

executed.  

6. The IIBIL has now brought this matter in appeal, by grant of special  

leave, against the order of the High Court dated November 1, 2002 rejecting  

its application filed against the borrower company, respondent no.1, under  

section 40 of the 1984 Act.  

7. At this stage, it will be useful to take a look at some of the provisions  

of the 1984 Act and the 1997 Act.  Section 2(a) of the 1984 Act defined  

“assistance” to mean any direct or indirect financial, managerial or technical  

assistance granted by the Reconstruction Bank in pursuance of its business  

referred to in section 18. Section 2(c) defined “assisted industrial concern”  

to mean any industrial concern to which any assistance was given by the  

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Reconstruction Bank. Chapter VIII of the Act contained sections 36 to 51  

dealing with the “Special Powers of the Reconstruction Bank”. Section 38,  

in that chapter, authorized the IRBI, under certain conditions enumerated in  

clauses (a) to (f), to ask, by notice in writing, any industrial concern to which  

it had granted any assistance to forthwith discharge in full its entire dues and  

also  discharge  its  other  liabilities  to  the  Bank.  The  statutory  provision  

expressly  overrode  anything  contained  in  any agreement  to  the  contrary.  

Section 39 dealt with the rights of the IRBI in case of default by any assisted  

industrial concern. Section 40 of the 1984 Act provided for the enforcement  

of claims by the IRBI and in so far as relevant for the present it is as under:

“40. Enforcement of claims by the Reconstruction Bank- (1)  (a) Where an assisted industrial concern makes any default in the  payment of any dues to, or in meeting its obligation in relation to  any  other  assistance  given  by  the  Reconstruction  Bank  or  otherwise fails to comply with the terms of agreement with that  Bank, or

(b) where the Reconstruction Bank makes an order under  section  38  requiring  the  assisted  industrial  concern  to  make  immediate  repayment  of  any  assistance  granted  to  it  and  the  industrial concern fails to make such repayment,

then, without prejudice to the provisions of section 39 of this Act  and of  section  69  of  the  Transfer  of  Property  Act,  1882,  any  officer  of  the  Reconstruction  Bank  generally  or  specially  authorised  by  the  Board  in  this  behalf,  may  apply  to  the  concerned High Court for one or more of the following reliefs,  namely :--

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(i)  for  an  order  for  the  sale  or  lease  of  the  property  assigned,  charged,  hypothecated,  mortgaged  or  pledged  to  the  Reconstruction Bank as security for the assistance granted to it,  or for the sale or lease of any other property, of the industrial  concern; or

(ii) *********************   (iii) for an  ad interim injunction restraining the industrial  

concern  from transferring  or  removing its  machinery,  plant  or  equipment from the premises of the industrial concern without  the  previous  permission  of  the  Board,  where  such  transfer  or  removal is apprehended; or

(iv) for an order for the appointment of a receiver where  there is apprehension of the machinery, equipment or any other  property of substantial value which has been assigned, charged,  hypothecated, mortgaged or pledged to the Reconstruction Bank,  being removed from the premises of the industrial concern or of  being  transferred  without  the  previous  permission  of  the  Reconstruction Bank.

(2) ***************

(3)  Where  an  application  is  for  any  relief  mentioned  in  sub-clause (i) of sub-section (1), the High Court may,--

(a) by an order, authorise the Reconstruction Bank to grant  lease  of  such property  to  such person and on such terms  and  conditions as may be specified in the said order; or

(b) pass an order calling upon the person whose property  has been assigned, charged, hypothecated, mortgaged or pledged  to  the  Reconstruction  Bank  to  show  cause,  on  a  date  to  be  specified in the notice, as to why an order for the sale of such  property or so much of such property, as would, on being sold,  realise,  in its  estimation,  an amount equivalent in value to the  outstanding dues of the industrial concern to the Reconstruction  Bank,  together  with  costs  of  the  proceedings  taken  under  this  section, shall not be made; or

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(c) pass an ad interim order attaching any property of the  industrial  concern  which  has  not  been  assigned,  charged,  hypothecated, mortgaged or pledged to the Reconstruction Bank,  or so much of such property, as would on being sold, realise, in  its estimation, an amount equivalent in value to the outstanding  dues  of  the  industrial  concern  to  the  Reconstruction  Bank,  together with costs of the proceedings taken under this section,  and pass  an order  calling upon the industrial  concern to show  cause on a date to be specified in the notice as to why such order  of ad interim attachment shall not be made absolute.

(4) ***************

(5) Where an application is for the relief mentioned in sub- clause (iii) of sub-section (1), the High Court shall grant an  ad  interim injunction  restraining  the  industrial  concern  from  transferring or removing its machinery or other equipment and  issue a notice calling upon the industrial concern to show cause,  on a date to be specified in the notice, as to why such ad interim  injunction shall not be made absolute.

(6) Where an application is for the relief mentioned in sub- clause (iv) of sub-section (1), the High Court shall  pass an ad  interim  order  appointing  a  receiver  in  respect  of  the  property  assigned, charged, hypothecated, mortgaged or pledged and shall  issue a notice calling upon the industrial concern to show cause,  on a date to be specified in the notice, as to why the ad interim  order appointing the receiver shall not be made absolute.

(7) ***************

(8) ***************

(9) ***************

(10) **************

(11) **************

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(12) **************

(13) **************

8. Then  comes,  the  1997  Act.  Section  2(a)  of  the  1997  Act  defines  

“appointed day” which is March 27, 1997 vide notification dated March 25,  

1997 issued by the  Central  Government and published in  the  Gazette  of  

India,  Extra.,  of  that  date.  Section  2(b)  defines  “company”  to  mean  the  

Industrial Development Bank of India Ltd to be formed and registered under  

the Companies Act. Section 2(c) defines “Reconstruction Bank” to mean the  

Industrial Reconstruction Bank of India established under sub-section (1) of  

section 3 of the 1984 Act. Section 3 of the 1997 Act provides that on the  

appointed  date  (March  27,  1997)  the  undertakings  of  the  Reconstruction  

Bank shall be transferred to and vest in the Company. Section 4 of the 1997  

Act  deals  with  the  effect  of  vesting  of  undertaking in  the  Company and  

provides as follows:

“4. General effect of vesting of undertaking in Company- (1)  The  Central  Government,  being  the  shareholder  of  the  Reconstruction  Bank  immediately  before  the  appointed  day,  shall  be deemed to be registered,  on and from the appointed  day, as a shareholder of the Company.

(2)  The  undertakings  of  the  Reconstruction  Bank  which  are  transferred  to, and which vests in, Company under Section 3  shall be deemed to include all business, assets, rights, powers,  authorities  and  privileges  and  all  properties,  movable  and  immovable,  real  and  personal,  corporeal  and  incorporeal,  in  

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possession  or  reservation,  present  or  contingent  of  whatever  nature  and  whatsoever  situate  including  lands,  buildings,  vehicles, cash balances, deposits, foreign currencies, disclosed  and  undisclosed  reserves,  reserve  fund,  special  reserve  fund,  benevolent  reserve fund, any other  fund, stocks, investments,  shares,  bonds,  debentures,  security,  management  of  any  industrial concern, loans, advances and guarantees given to the  industrial  concerns,  tenancies,  leases  and  book  debts  and  all  other rights and interests arising out of such property as were  immediately  before  the  appointed  day  in  the  ownership,  possession or power of the Reconstruction Bank in relation to  its undertakings, within or without India, all books of account,  registers, records and documents relating thereto and shall also  be deemed to include all borrowings, liabilities and obligations  of whatever kind within or without India then subsisting of the  Reconstruction Bank in relation to its undertakings.

(3) All contracts, deeds, bonds, guarantees, powers of attorney,  other  instruments  and  working  arrangements  subsisting  immediately  before  the  appointed  day  and  affecting  the  Reconstruction  Bank  shall  cease  to  have  effect  or  to  be  enforceable against the Reconstruction Bank shall be of as full  force and effect against or in favour of the Company in which  the  undertakings  of  the  Reconstruction  Bank have vested  by  virtue of this Act and enforceable as fully and effectually as if  instead  of  the  Reconstruction  Bank,  the  Company  had  been  therein or had been a party thereto.  

(4)  Any proceeding  or  cause  of  action  pending or  existing  immediately  before  the  appointed  day  by or  against  the  Reconstruction Bank in relation to its undertakings may, as  from the  appointed  day,  be  continued  and enforced  by  or  against  the  Company  in  which  the  undertakings  of  the  Reconstruction Bank have vested by virtue of this Act as it  might  have been enforced by  or against  the Reconstruction  Bank  if this Act had not been enacted and shall cease to be  enforceable by or against the Reconstruction Bank.”                                                                 (Emphasis added)

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9. Section 13 of the 1997 Act containing the repeal and saving clause is  

as follows:

“13. Repeal  and  saving  of  Act  62  of  1984-(1)  On  the  appointed day, the Industrial Reconstruction Bank of India Act,  1984 shall stand repealed.

(2)  Notwithstanding  the  repeal  of  the  Industrial  Reconstruction Bank of India Act, 1984-

(a) the Company shall, so far as may be, comply with the  provisions  of Chapter VII of the Act so repealed for any of the  purposes  related  to  the  annual  accounts  and  audit  of  the  Reconstruction Bank;

(b) the  provisions  of  Chapter  VIII  of  the  Act  so  repealed  will  continue  to  be  applicable  in  respect  of  the  arrangements entered into by the Reconstruction Bank with  an  industrial  concern under  section 18  thereof  up to  the  appointed day and the Company will be entitled to act upon  and enforce the same as fully and effectually as if this Act  had not been enacted.”

10. A plain  reading  of  sub-section  (4)  of  section  4  coupled  with  sub-

section (2) (b) of section 13 of the 1997 Act would make it manifest and  

clear that any cause of action by the IRBI in relation to its undertakings  

existing immediately before March 27, 1997 may be continued and enforced  

by the IIBIL as it might have been enforced by the IRBI if the 1997 Act had  

not been enacted. And further,  that the provisions of Chapter VIII of the  

1984 Act, that include section 40, would continue to be applicable in respect  

of  the  arrangements  entered  into  by  the  IRBI  with  an  industrial  concern  

under section 18 of the 1984 Act and the IIBIL would be able to enforce the  

same as fully and effectually as if the 1997 Act had not been enacted.  

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11. The High Court in the impugned judgment referred to section 13 of  

the  1997 Act,  but  failed  to notice  the true  import  of  sub-section 2(b)  of  

section 13. Further, the High Court completely overlooked the provisions of  

sub-section (4) of section 4 of the 1997 Act and as a result  arrived at a  

conclusion that is patently erroneous and cannot be sustained for a moment.  

12. On the basis of the provisions contained in section 4 (4) and section  

13(2)(b)  of  the  1997  Act,  we  do  not  have  the  slightest  doubt  that  the  

application filed by the appellant under section 40 of the 1984 Act for the  

enforcement of its claim against respondent no.1 was perfectly maintainable  

before the High Court. We, accordingly, accept the appeal and set aside the  

order dated November 1, 2002 passed by the High Court. As a result, S.B.C.  

Misc. Application No.40/99 is restored to its file and the High Court shall  

now proceed to examine it on merits and dispose it of in accordance with  

law.

.……….……...................J.                                                     (AFTAB ALAM)          

………..……...................J.                                                   (R.M. LODHA)         

New Delhi January 5, 2011.

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