Case Note & Summary
The petitioner, Isibars Limited, a company incorporated under the Companies Act, 1956, had availed credit facilities from Commerzbank AG, a German banking corporation with a branch in Mumbai. The petitioner defaulted on repayment, leading Commerzbank to file Original Application No. 153 of 2001 before the Debts Recovery Tribunal II, Mumbai (DRT) for recovery of the outstanding amount. After filing its written statement in January 2002, the petitioner learned from newspaper reports that Commerzbank had surrendered its banking licence in India and ceased its banking operations. The petitioner then filed an application before the DRT seeking dismissal of the recovery application on the ground that the bank, having surrendered its licence, could not maintain the proceedings. The DRT dismissed this application, and the petitioner appealed to the Debt Recovery Appellate Tribunal (DRAT), which also dismissed the appeal. Aggrieved, the petitioner filed the present writ petition before the Bombay High Court. The petitioner argued that once a bank surrenders its licence, it ceases to be a 'bank' under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) and cannot sue before the DRT. The respondent bank contended that its status as a 'bank' is determined at the time of filing the application and that surrender of licence does not dissolve the company. The High Court examined the definition of 'bank' under Section 2(d) of the RDB Act, which includes a banking company as defined in the Banking Regulation Act, 1949. The court noted that Commerzbank was a banking company at the time of filing the application and that the surrender of its licence did not result in its dissolution or winding up. The court held that the DRT's jurisdiction is determined at the time of institution of the proceedings and subsequent events do not divest it of jurisdiction. The court also observed that the bank continues to exist as a legal entity and can sue and be sued. Accordingly, the High Court dismissed the writ petition, upholding the orders of the DRT and DRAT.
Headnote
A) Debt Recovery - Jurisdiction of DRT - Surrender of Banking Licence - The issue was whether a foreign bank which had surrendered its banking licence and stopped operations in India could continue to prosecute a recovery application before the Debt Recovery Tribunal. The Court held that the DRT's jurisdiction is determined at the time of filing the application and subsequent cessation of banking business does not oust its jurisdiction. (Paras 1-10) B) Banking Law - Foreign Bank - Winding Up - The petitioner argued that the respondent bank, having surrendered its licence, must be treated as wound up and cannot sue. The Court rejected this, noting that surrender of licence does not amount to dissolution or winding up of the company; the bank continues to exist as a legal entity. (Paras 5-8) C) Interpretation of Statutes - Section 2(d) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - The definition of 'bank' includes a banking company as defined in the Banking Regulation Act, 1949. A foreign bank which had a branch in India and was carrying on banking business at the time of filing the application falls within this definition. Subsequent cessation of business does not affect its status as a 'bank' for the purpose of the Act. (Paras 6-9)
Issue of Consideration
Whether the surrender of banking licence by a foreign bank and cessation of its banking operations in India affects the maintainability of a recovery application filed by it before the Debt Recovery Tribunal.
Final Decision
The High Court dismissed the writ petition, upholding the orders of the DRT and DRAT. The court held that the respondent bank was a 'bank' under the RDB Act at the time of filing the application and the surrender of its licence did not affect the maintainability of the proceedings.
Law Points
- Debt Recovery Tribunal jurisdiction
- foreign bank winding up
- surrender of banking licence
- Recovery of Debts Due to Banks and Financial Institutions Act
- 1993
- Companies Act
- 1956
