Court’s Decision
The Bombay High Court (Aurangabad Bench) dismissed the writ petition challenging the transfer of a commercial recovery suit to the Debts Recovery Tribunal (DRT) after the original non-banking lender, HDFC Limited, amalgamated with HDFC Bank Limited. The Court held that, post-amalgamation, the plaintiff is a “bank” within the meaning of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), and the claim qualifies as a “debt” under Section 2(g). Consequently, Sections 17 and 18 confer exclusive jurisdiction on DRT, and the bar under Section 18 overrides procedural constraints under Section 31. The Court adopted a purposive interpretation, holding that even though the case was not strictly covered by Section 31, it must be transferred to DRT to honour the statutory scheme.
Facts
HDFC Limited filed a civil recovery suit in 2007 for ₹3,14,85,223 against the petitioner and other defendants, arising from two separate loan accounts. At the time, HDFC Limited was not a banking company and the civil court had jurisdiction. After the Commercial Courts Act, 2015, the matter was transferred to the Commercial Court as Commercial Suit No. 12/2019.
On 17 March 2023, pursuant to orders of the NCLT, HDFC Limited amalgamated with HDFC Bank Limited, a banking company under the Banking Regulation Act, 1949. By virtue of the amalgamation scheme, all assets, liabilities, and pending litigations of HDFC Limited vested in HDFC Bank Limited.
HDFC Bank filed an application seeking transfer of the pending commercial suit to the DRT under Sections 17 and 18 of the RDB Act. The trial court allowed the transfer, prompting the petitioner (a defendant in the suit) to file the present writ petition contending lack of jurisdiction of DRT.
Issues
- Whether the DRT has jurisdiction to entertain a recovery suit initially filed by a non-banking financial company (HDFC Limited) but subsequently prosecuted by a bank (HDFC Bank) after amalgamation.
- Whether Section 31 of the RDB Act permits transfer of such a suit to DRT when it was filed after the establishment of DRT and was originally outside its jurisdiction.
Petitioner’s Arguments
The petitioner argued that the DRT’s jurisdiction under Section 19 applies only to debts claimed by banks or financial institutions arising during their business activities. Since the loan was advanced by HDFC Limited (not a bank), it did not constitute a “debt” under Section 2(g). Therefore, the suit was rightly filed in civil court in 2007 and cannot be transferred to DRT merely because of later amalgamation.
Relying on judgments such as SBI v. Raman Kapur, State Bank of Bikaner & Jaipur v. Ballabh Das, Oriental Bank of Commerce v. Mohan Gupta, and Bank of India v. Ramniklal Kapadia, it was contended that amounts due from fraud or non-banking transactions fall outside DRT’s jurisdiction.
The petitioner also invoked Section 31 of the RDB Act, arguing that it applies only to suits pending before DRT’s establishment and within its jurisdiction at the time of filing. Since the case did not meet either requirement, the trial court lacked authority to transfer it.
Respondent’s Arguments
The respondent-bank submitted that, after amalgamation, the plaintiff is a bank within the meaning of Section 2(d) of the RDB Act, and the claim squarely falls within the definition of “debt” under Section 2(g). The bar under Section 18 is absolute, ousting jurisdiction of all civil courts for matters within DRT’s purview.
They relied heavily on Kotak Mahindra Bank Ltd. v. Stiefel Und Schuh India Ltd., where the Delhi High Court held that debts assigned from a non-banking entity to a bank must be prosecuted before DRT. They also cited United Bank of India v. Abhijit Tea Co., Allahabad Bank v. Canara Bank, and Saraswati Industrial Syndicate Ltd. v. CIT to highlight the legal effect of amalgamation, where the transferor company ceases to exist, unlike in cases of mere assignment.
Analysis of the Law
The Court noted that the definition of “debt” under Section 2(g) covers any liability claimed as due by a bank, whether secured, unsecured, or assigned, provided it arises during business activities. This does not require that the amount be originally advanced by the bank itself.
Sections 17 and 18 of the RDB Act were construed as substantive provisions granting DRT exclusive jurisdiction and barring all civil courts from adjudicating such matters. Section 31, dealing with transfer of pending suits, is procedural and must yield to the overriding mandate of Section 18.
The Court applied a purposive interpretation to harmonise these provisions, holding that the statutory bar applies to pending cases even if they did not originally fall within DRT’s jurisdiction, provided subsequent developments bring them within it.
Precedent Analysis
- Kotak Mahindra Bank Ltd. v. Stiefel Und Schuh India Ltd. – Applied directly; held that once a debt is assigned to a bank, DRT has exclusive jurisdiction.
- United Bank of India v. Abhijit Tea Co. – Apex Court held all suits by banks post-RDB Act must go to DRT.
- Allahabad Bank v. Canara Bank – Confirmed the exclusivity of DRT’s jurisdiction.
- Saraswati Industrial Syndicate Ltd. v. CIT – Explained the effect of amalgamation; transferor company ceases to exist.
- Dhurandhar Prasad Singh v. Jai Prakash University – Distinguished; applies to assignments, not amalgamations.
Court’s Reasoning
The Court held that after amalgamation, the plaintiff’s claim is now by a “bank” during the course of its business, fitting squarely within Section 2(g). Recovery of amounts assigned or vested in a bank through amalgamation is part of its business activity, irrespective of the original lender’s status.
It rejected the petitioner’s reliance on Section 31, holding that the legislative intent and Section 18’s mandatory bar require transfer to DRT. The amalgamation results in complete merger, not mere assignment, and the jurisdictional bar applies to pending cases.
Conclusion
The writ petition was dismissed. The Court upheld the trial court’s transfer of the suit to DRT, holding that jurisdiction of civil and commercial courts is ousted post-amalgamation. The interim order was extended for six weeks to allow the petitioner to seek further remedies.
Implications
This judgment reinforces that post-amalgamation, recovery suits by banks—regardless of the original lender’s status—must be heard by DRT, ensuring consistency in jurisdiction. It underscores the mandatory nature of Section 18 and prioritises DRT’s exclusive domain over procedural limitations under Section 31.
FAQs
1. Can a recovery suit filed by a non-banking company be transferred to DRT after amalgamation with a bank?
Yes. Post-amalgamation, the plaintiff becomes a “bank” under the RDB Act, and Section 18 bars civil court jurisdiction.
2. Does the debt need to be originally advanced by the bank for DRT to have jurisdiction?
No. Section 2(g) covers debts assigned or vested in a bank, regardless of who advanced them initially.
3. Does Section 31 prevent such transfers?
No. Section 31 is procedural and must yield to the substantive mandate of Sections 17 and 18, which ensure exclusive DRT jurisdiction.