Companies Act Case Law Canara Bank & Ors Vs National Thermal Power Corp & Anr

Appeal (civil) 7103 2000
Appeal (civil) 7104 2000



DATE OF JUDGMENT: 05/12/2000

K.T.Thomas,, R.P.Sethi



Leave granted. As the question of law in both the
appeals is common and the facts similar, the appeals are
being disposed of by this common judgment. The appellants
are aggrieved of the impugned judgment passed by the High
Court in Company Appeals by which the orders passed by the
Company Law Board have been set aside and disputes allegedly
existing between the parties referred to the High powered
Committee in terms of the judgment of this Court in Oil &
Natural Gas Commission & Anr. v. Collector of Central
Excise [1995 Supp. (4) SCC 541]. It is contended that the
dictum of this Court in ONGC’s case was not applicable to
the facts of the cases under appeals, as there did not exist
a genuine dispute between the parties which could be
referred to the High Powered Committee. The facts giving
rise to the filing of the present appeals, as extracted from
the Appeal arising out of SLP (C) No.14660, are as under.
The appellants filed Company Petition Nos.11/111/-95CLB &
12/111/95-CLB under Section 111(4), (5) & (7) of the
Companies Act before the Company Law Board, Northern Region
Bench, New Delhi, stating therein that they were Trustees of
Canbank Mutual Fund (hereafter referred to as “CBMF”), a
Trust constituted under the Indian Trusts Act, 1882. The
main object of the Trust is to conduct business of mutual
fund by permitting savings of small and individual investors
through various schemes, inviting subscriptions from the
prospective investors and channelising the funds into the
capital market for attractive returns. From September, 1993
CBMF was being managed by an Asset Managing Company, the
Appellant No.6. Appellant No.1 is a body corporate
constituted under the Banking Companies (Acquisition and
Transfer of Undertakings) Act, 1971. The Bank as “Settlor”
by an Adventure of Trust dated 17th December, 1987 had
constituted the Trust CBMF, the Settlor being its Principal
Trustee. The National Thermal Power Corporation, respondent
No.1 (hereinafter referred to as “the corporation”) is a
Government of India Enterprise and respondent No.2 a Banking
Company which went into liquidation. On 5.8.1988 the CBMF
purchased 14% NTPC Bonds (of the corporation) having face
value (FV) of Rs.2.17 crores along with several other bonds
through the Broker M/s.Batliwala & Karani in respect of
which Cheque No.80961 dated 5.8.1988 was issued in favour of
Bank of Karad, second respondent-bank who in turn issued a
BR undertaking to deliver the securities. In 1989 the BR
was liquidated by delivery of bonds. Out of the aforesaid
bonds the respondent-company vide its letter dated 11.8.1992
lodged the bonds valuing Rs.4 crores for registration of
transfer in the name of Canara Bank, Trustee of the CBMF.
On 25th September, 1992, CBMF lodged with the corporation
for registration of the bonds of FV Rs.50.05 lacs in the
name of Canara Bank, Trustee CBMF. On the same date the
CBMF lodged bonds of FV Rs.50 lacs with the Corporation with
a request to register the same in the name of Canara Bank,
Trustee CBMF. Again on 11.2.1993 CBMF lodged the bonds of
FV Rs.113 lacs with the respondent corporation for
registration in the name of Canara Bank, Trustee CBMF after
removing the objections. The Corporation wanted the CBMF to
produce no objection certificate from the Official
Liquidator of the Bank of Karad for the purpose of
registering the transfer of the bonds for which letter dated
17.5.1993 of the Bank of Karad was furnished with all
documentary proof of the purchase of bonds of FV of Rs.2.17
crores from the Bank of Karad on 5.8.1988. Request was made
to the Liquidator, appointed in the winding up proceedings
against the said Bank, to confirm to respondent Corporation
that the CBMF’s purchase was bonafide and the transaction
had taken place much prior to the relevant period prescribed
under Section 531 of the Companies Act. On 17.5.1993 a
letter was sent to the respondent-corporation setting out
the particulars of the purchase of the bonds and re-stating
that the relevant document had already been submitted in
proof of the bonafide title to the bonds. The request was
renewed by the CBMF again by writing letter to the
Corporation on 28th June, 1993. Another letter dated 21st
September, 1993 was addressed to the official liquidator
requesting him to issue a no objection certificate as
demanded by the corporation. On 18.10.1993 the CBMF was
informed that as ‘no objection certificate’ had not been
furnished, the original bond certificates were being
returned for further necessary action by the CBMF. On
2.11.1993, Appellant No.6, the Canbank Investment Management
Services Ltd. addressed a letter to the official liquidator
of the Bank of Karad suggesting that CBMF would move the
court for a direction to the CBI for production of relevant
documents of Bank of Karad, under liquidation, and the
official liquidator could obtain copies of those documents
on the basis of which he could issue a no objection
certificate. Inaction attributable to the official
liquidator was intimated vide letters dated 18.11.1993 and
15.7.1994. It was contended before the Company Law Board
that the official liquidator was not justified in not
issuing the no objection certificate. It was submitted that
the corporation was bound and liable in law to transfer the
aforesaid bonds in the name of Canara Bank, Trustee of CBMF
and pay the redemption proceeds in respect thereof since the
transaction was not transgression of Section 531 of the
Companies Act. The appellants therefore, prayed: “(a)
Respondent No.1 company be ordered and directed to transfer
the bonds stated below, in the name of Canara Bank:
Trustee: Canbank Mutual Fund.

Certificate From Number ValueTotal Certifi- Rs. To@@
Lacs in cate Rs.Each@@

128802 130801 2000 5,000 100.00

165338 1 1,00,000 1.00

165586 165588 3 1,00,000 3.00

0000007 0000010 4 10,00,000 40.00

0000012 110,00,000 10.00@@

0006647 0006651 5 1,00,000 5.00@@

0006684 0006541 58 1,00,000 58.00@@

(b) Respondent NO.1 be ordered and directed to rectify
the Register of Bond Holders and delete the name of Bank of
Karad or any other holder appearing in such Register and
instead insert the name of Canara Bank: Trustee Canbank
Mutual Fund.

(c) Respondent No.1 be ordered and directed to pay to
Canara Bank: Trustee Canbank Mutual Fund the redemption
amount in respect of the said bonds along with other
interest at 24% from the date of maturity till the payment.”
The petition was resisted by the respondents on
various preliminary objections raised in the reply filed
before the Company Law Board. On merits it was stated: “It
is respectfully submitted that the Company ought not to have
returned to the bond certificates which were lodged for
registration. The company was indulging in dilatory tactics
and was unnecessarily delaying in entering the name of
Canara Bank: Trustee Canbank Mutual Fund in the register of
bond holders and paying the redemption amount, without any
justifiable cause or reason.
The Company Law Board (hereinafter referred to as “the
Board”) formulated the following questions for its
determination: “(a) As regards 13% bonds whether the
register should be rectified to enter the name of ‘Canara
Bank-Trustee Canbank Mutual Fund’ in place of Canara Bank
and whether NTPC should be directed to pay to Canara Bank
the redemption amount in respect of these bonds.

(b) As regards the 14% bonds whether NTPC should be
directed to rectify the register by entering the name of
‘Canara Bank – Trustee Canbank Mutual Fund’ in place of Bank
of Karad and whether it should be directed to pay the
redemption amount to Canara Bank.”
On considering the material placed before it, the
Board found that the Corporation had specifically recognised
the holdings in the name of the Mutual Fund. Canara Bank
had, therefore, approached the Board in the representative
capacity of the Trust and not in its individual capacity.
The Corporation could not deny such fact as it had admitted
having registered transfers in the name of the Trust
earlier. Under Section 6 of the Banking Regulations Act,
1949 the Bank as a part of its banking function could also
take up the Trusteeship function. A Trustee could not mix
up the Trust’s funds with its own funds. Dealing with the
facts of the case, the Board held: “We are convinced that
Canbank Mutual Fund is the real owner of both 13% and 14%
bonds and that Canara Bank is holding the bonds only in the
capacity of a trustee. In fact this is not seriously
contested by NTPC as well. Since the relationship of
trustee and beneficiary is proved, in accordance with the
Trust Act we could have directed the NTPC to register the
bonds in the name of ‘Canara Bank Trustee-Canbank Mutual
Fund’. We are, however, not in a position to grant this
prayer of the petitioner despite recognising the
relationship as there is a statutory prohibition under
Section 153 of the Act to take cognizance of any
relationship of trustee and beneficiary in the Register.
Therefore, any order to this effect would be in direct
violation of section 153 of the Act which prohibits a
company from taking notice of any trust express, implied or
constructive. This statutory prohibition was the reason for
the Company Law Board [Western Bench] in not granting a
similar prayer of the petitioners in Bharat Petroleum Ltd.
vs. Stock Holding Corporation Ltd.”
Rejecting the alleged dispute raised by the
Corporation, the Board held: “NTPC has no right to adjust@@
the proceeds of redemption against dues if any from Canara
Bank as this would result in a breach of trust to which the
Trustees would be forced to. It should also be remembered
that these Bonds are secured Bonds and there is a Trustee
for these Bonds. Applying the equitable principle the
holder of the Bond is also entitled to enforce the security
and those Trustee would be bound to realise the security.
Hence from whatever angle one looks at the case, the
proceeds has to be given to the Mutual Fund.”
The Board also found that the dictum of this Court in
ONGC’S case was not applicable to the facts of the present
case. In ONGC’s case the Cabinet Secretary was shown to
have taken appropriate initiative as per direction of the
Court dated 11.9.1991 and reported to the Court that the
dispute between the Government Department and the public
sector undertaking of the Union of India had been settled.
In that view of the matter no further action was taken on
the petition. The Cabinet Secretary in his Report had
stated: “I would also like to state that the Government
respects the views expressed this Honourable Court and has
accepted them that public undertakings of Central Government
and the Union of India should not fight their litigation in
Court by spending money on fees on counsel, court fees,
procedural expenses and wasting public time. It is in this
context that the Cabinet Secretary has issued instructions
from time to time to all Departments of the Government of
India as well as to public undertakings of the Central
Government to the effect that all disputes, regardless of
the type, should be resolved amicably by mutual consultation
or through the goods offices of empowered agencies of the
Government or through arbitration and recourse to litigation
should be eliminated.”
In the light of the Report of the Cabinet Secretary
this Court directed as under: “We direct that the@@
Government of India shall set up a Committee consisting of
representatives from the Ministry of Industry, the Bureau of
Public Enterprises and the Ministry of Law, to monitor
disputes between Ministry and Ministry of Government of
India, Ministry and public sector undertakings of the
Government of India and public sector undertakings in
between themselves, to ensure that no litigation comes to
Court or to a Tribunal without the matter having been first
examined by the Committee and its clearance for litigation.
Government may include a representative of the Ministry
concerned in a specific case and one from the Ministry of
Finance in the Committee. Senior Officers only should be
nominated so that the Committee would function with status,
control and discipline.

It shall be the obligation of every Court and every
Tribunal where such a dispute is raised hereafter to demand
a clearance from the Committee in case it has not been so
pleaded and in the absence of the clearance, the proceedings
would not be proceeded with.

The Committee shall function under the ultimate
control of the Cabinet Secretary but his delegate may look
after the matters. This Court would expect a quarterly
report about the functioning of this system to be furnished
to the Registry beginning from 1.1.1992.”
What the Court has directed in ONGC’s case is that
frivolous litigation between Government Departments and
Public Sector Undertakings of the Union of India should not
be dragged in the courts and be amicably resolved by the
Committee. The judgment is intended to prevent avoidable
litigation between the Government Departments and the
Undertakings of the Union of India. In the present
litigation there does not appear to be a genuine dispute
between the Government of India undertakings. In this case
one of the public sector undertaking is shown to be acting
not as an undertaking but as Trustee of a Trust. The Board
was, therefore, justified in holding “that the real
litigation in this case, therefore, is between Mutual Fund
and NTPC” and not between the two undertakings. The meaning
of word “dispute” is, ‘a controversy having both positive
and negative aspects. It postulates the assertion of a
claim by one party and its denial by the other’. In the
instant case the claim preferred on behalf of the CBMF was
not denied by the Corporation but in turn a counter claim
with respect to the liability of a subsidiary of the Bank
was raised. The dispute raised is without laying any basis
or placing on record any evidence in support thereof.
Imaginative disputes raised only to defeat the undisputed
claim of the Trustee could not be made basis to deprive the
Trustees and ultimately the public at large, of the value of
the bonds which had, admittedly, been received by the
Corporation with unambiguous undertaking to repay back the
same. A perusal of the bonds, purchased by the appellants,
would indicate that such bonds were termed and styled as
“Instrument of Bond in the nature of promissory bond”. The
Corporation had agreed “to pay on demand to the above named
bond-holder or order the sum of …..”. In other words the
bonds were transferable and respondents undertaking, under a
contractual and statutory obligation, to pay the value
thereof to the transferee. Such a transferee could not be
denied the payment of the value of the bonds on the ground
of the liability of the transferor or any of its subsidiary.
The perusal of the bond incorporating the condition of
payment unambiguously shows that no dispute can be raised by
the Corporation for payment of the amount on demand to its
holder or order. The claim of the Corporation, if any, can
be enforced separately against the subsidiary of the Canara
Bank but cannot be made a ground to resist the claim of the
appellants. We are of the opinion that the High Court was
not right in referring the alleged disputes to the High
Powered Committee with the aid of judgment in ONGC’s case.
It was under an obligation to give a finding with regard to
the directions given by the Board to pay the redemption
amount to the appellants. The Trustees of the Trust
constituted by the Canara Bank as Settlor for the benefit of
numerous units holders cannot be termed and styled as
Government Company or Public Sector Undertaking. The
dispute raised by the respondents with the appellant was
imaginary and even prima facie not real. We are further of
the opinion that the Board in its order had dealt with all
aspects of the matter and rightly concluded that ONGC’s
judgment was not applicable in the facts and circumstances
of the present case. Under the circumstances, the appeals
are allowed by setting aside the judgments of the High Court
and restoring the orders of the Board. The appellants are
also held entitled to costs quantified at Rs.10,000/-.



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