Allahabad Bank vs

Canara Bank & Another

BY
SAHANA BALARAJ-PES1UG19BL022
P R AT H I K S H A P R A B A K A R - P E S 1 U G 1 9 B L 0 1 9
H AV I L A H S P U RT H I B U N G A - P E S 1 U G 1 9 B L 0 0 5
 Introduction
•In this case, Allahabad Bank and Canara Bank are two nationalized banks.
•The argument made by the latter bank, whose claim as a secured creditor was still
pending before the same tribunal in Delhi under the Recovery of Debts Due to Banks
and Financial Institution Act 1993, was in contention before the court..
 Facts
•Under S.19 of RDB Act, 1993, the Allahabad Bank filed O.A.No.109 of 1995 with the Debt
Recovery Tribunal in Delhi for the recovery of Rs.21,49,29,520, and a simple money order
was issued on 13.1.1998 with interest of 18 percent and interest tax of 0.75 percent per
annum.
•Allahabad Bank filed a recovery case (R.C.No.9 of 98) with the Recovery Officer.
•Allahabad Bank filed an appeal with the appellate Tribunal under No. 270 of 1998, but
there was no stay because the money directed to be deposited had not been deposited.
•Canara Bank later filed a claim before the Debt Recovery Tribunal in Delhi under the RDB
Act and a decree for Rs.14,40,05,982.98 with interest was issued, and it was estimated
that an amount of Rs.25 crores was owed.
•Canara Bank filed an interlocutory action for impleadment in the appellant’s recovery case,
seeking prorate division of sale proceeds from auctions of the debtor company’s properties
before the Recovery Officer.
 Facts
•The Allahabad Bank objected, claiming that as no rulings had been issued in favour of
the Canara Bank in its claim against the same entity before the Delhi Tribunal, there was
no point in impleading . It was noted by the court that the topic of proportionate
allocation of sale money was premature and that the matter may be addressed later.
•On the date of 09.03.1999, Under Section 442 read with Section 537 of the Companies
Act, the learned Company Judge issued the impugned judgement, halting the sale of the
Company’s assets and also prohibiting the disbursement of cash already realized in
earlier transaction.
•Therefore the question was further raised by the respondent in this case that, how will
the sale proceeds of the mentioned company be distributed among the creditors and
whether the Tribunal at Delhi can entertain proceedings against the sale proceeds and
winding up proceedings against the said company, also if the leave is necessary
 Issues
1. Whether Before a winding up order is issued against a company, leave of the Company
Court is required under Section 537 for the beginning of different processes by banks and
financial institutions under the RDB Act or before the appointment of a provisional liquidator
under Section 446 (1)  and whether the Company Court can pass orders of stay of
proceedings before the Tribunal, in exercise of powers under Section 442?
2. Whether in relation to RDB Act proceedings at the level of adjudication for money owed to
banks or financial institutions, or at the stage of execution for the recovery of sums under
the RDB Act, and whether the Company Court can pass orders of stay of proceedings
before the Tribunal, in exercise of powers under Section 442?
3. Whether after a winding up order is passed under Section 446(1) of the Company Act or a
provisional liquidator is appointed, whether the Company Court can stay proceedings under
the RDB Act, transfer them to itself and also decide questions of liability, execution, and
priority under Section 446(2) and (3) read with Sections 529, 529A and 530 etc. of the
Companies Act or whether these questions are all within the exclusive jurisdiction of the
Tribunal?
 Issues
4. Whether, in light of the stipulations of Sections 19(2) and 19(19) can the Tribunal
allow the appellant-Bank to use the entire sale revenues solely for the benefit of the
appellant-Bank and does Section 529A only restricts you to a certain extent?
5. Can the secured creditors like the Canara Bank claim under Section 19(19) any part
of the realizations made by the Recovery Officer and is there any difference between
cases where the secured creditor opts to stand outside the winding up and where he
goes before the Company Court?
6. What is the relief to be granted on the facts of the case since the Recovery Officer
has now sold some properties of the company and the monies are lying partly in the
Tribunal or partly in this Court?
 Decision
•The court observed that the Act will not apply if the debt outstanding is less than Rs. 10
lakhs or such other sum as may be notified, according to S. 1(4) of RDB Act
•Court while referring to Sections 17 and 18 in Chapter III of the RDB Act which deal with
adjudication of the debt, further held that the Tribunal is to decide the applications of the
Banks and Financial Institutions for recovery of debts due to them.
•Hon’ble court went on and further opined that the jurisdiction of the Tribunal in regard to
adjudication is exclusive. The RDB Act requires the Tribunal alone to decide applications
for recovery of debts due to Banks or Financial Institutions. 
 Decision
•Also, in the matter of issue raised for “execution” jurisdiction of recovery officer is also
exclusive
•While adjudicating on the other issues the court held, that as a winding up order is
passed, provisions in pursuant of Section 446 become applicable. Under Sub-clause (1)
of Section 446, when a winding up order is passed or the official liquidator is appointed
as a provisional liquidator, no suit or other legal proceeding shall be commenced, or if
pending at the date of winding up order, shall be proceeded with against the company,
except by leave of the Court provided by terms imposed by the court
•Therefore while applying the principle of purposive interpretation the court held that
there exists a superior purpose of Debt Recovery Tribunal in regard of the RDB Act and
the special provisions contained therein as it was intended that  a speedy and summary
remedy for recovery of thousands of crores which were due to the Banks and to
Financial Institutions, so that the delays occurring in winding up proceedings could be
avoided.
 Decision
•The court held further that the Canara Bank cannot rely on the words in Section 19(19)
vis, “to be distributed among its secured creditors” for claiming any amount lying in the
Tribunal towards its security nor can it claim priority as against the Allahabad Bank.
•Also, there being no decree in the favor of Canara Bank from any court or from any
Tribunal, and the other conditions of Section 73 not having been satisfied, no dividend
can be claimed out of money realized at the instance of the Allahabad Bank, even if the
Allahabad Bank is an unsecured creditor.
 Analysis
•While setting aside the previous orders, court made it simply very clear how the different
sections of Companies Act and other amendments in the prevalent laws can be
interpreted by referring to the purposive interpretation of the statutes
•As rightly pointed out by the court that jurisdiction can not be put in question on the mere
understanding of one party that the other party is being benefited from the loss of other
party.
•Undoubtedly, it can be ascertained that in the present case the Hon’ble court has
judiciously and meticulously reflected the relevant points and made the judgement which
benefits the parties unbiasedly.
 Thank you
PR E SE N TATI O N B Y
H AV IL AH SPU RT H I BU N G A, SAH AN A B AL AR A J & PR AT H IK SH A PR ABA KAR