Case Note & Summary
The dispute arose when the petitioners borrowed money from the respondent and failed to repay, leading the respondent to invoke arbitration under the loan agreement. An arbitral award was passed and put into execution before the District Court at Pune. The petitioners objected, asserting that the arbitrator lacked jurisdiction because the respondent was a financial institution and, under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), only the Debt Recovery Tribunal could adjudicate recovery claims. The District Judge rejected this objection on 25 March 2011, prompting the petitioners to file the present Civil Revision Application in the Bombay High Court. The core legal issue was whether the respondent qualified as a 'financial institution' under section 2(h) of the RDDBFI Act, thereby ousting the arbitrator's jurisdiction. The petitioners relied on the definition of financial institution in the Reserve Bank of India Act, 1934, and argued that the exclusive jurisdiction of the Debt Recovery Tribunal rendered the arbitral award a nullity. The respondent contended that it did not meet the specific criteria under the RDDBFI Act's own definition. The court held that when a term is defined in a statute, that definition alone applies, and it cannot be supplanted by definitions from other enactments. Analyzing section 2(h), the court noted that 'financial institution' means (i) a public financial institution under section 4A of the Companies Act, 1956, (ia) a securitisation or reconstruction company registered under the SARFAESI Act, or (ii) an institution notified by the Central Government. The respondent was none of these; it was not even claimed to be notified under clause (ii). Consequently, the respondent was not a financial institution for the purposes of section 17, and the bar under section 18 did not apply. The court distinguished the Supreme Court's decision in Harshad Chamanlal Modi v. DLF Universal Limited regarding inherent lack of jurisdiction, as the arbitrator here did have jurisdiction. Accordingly, the revision application was dismissed. The court granted a four-week stay of its order on the condition that the deposited money remained with the District Court.
Headnote
A) Debt Recovery - Jurisdiction of Debt Recovery Tribunal - Definition of 'Financial Institution' - Recovery of Debts Due to Banks and Financial Institutions Act, 1993, Sections 2(h), 17, 18 - The meaning of 'financial institution' for purposes of the Debt Recovery Act is governed solely by its definition under section 2(h) of that Act, not by definitions in other statutes such as the Reserve Bank of India Act, 1934. Held that the respondent company, not being a public financial institution under section 4A of the Companies Act, 1956, a securitisation company under the SARFAESI Act, or notified by the Central Government under clause (ii), was not a financial institution under the Debt Recovery Act, and hence the exclusive jurisdiction of the Debt Recovery Tribunal under section 17 did not apply. (Paras 2-5)
B) Civil Procedure - Jurisdiction - Inherent Lack of Jurisdiction - General Principle - The well-settled principle that a decree passed by a court lacking inherent jurisdiction is a nullity and can be challenged at any stage, even in execution proceedings, was discussed. Held that since the Arbitral Tribunal had jurisdiction as the respondent was not a financial institution under the Debt Recovery Act, this principle did not apply, and the award was valid. (Para 6)
Issue of Consideration
Whether the Arbitral Tribunal had jurisdiction to adjudicate the recovery claim by the respondent, given the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, particularly section 18 read with section 17 and the definition of 'financial institution' under section 2(h) of the said Act.
Final Decision
The revision application was dismissed. The court held that the respondent was not a financial institution within the meaning of section 2(h) of the RDDBFI Act; therefore, the Arbitral Tribunal had jurisdiction. The District Judge's order was upheld. A stay of operation of this order was granted for four weeks, subject to the condition that the money deposited by the petitioners remains with the District Court.
Law Points
- definition of financial institution in Debt Recovery Act is exhaustive
- only institutions notified by Central Government under section 2(h)(ii) are financial institutions under the Act
- definition in the Act itself governs and not that in RBI Act
- an arbitrator has jurisdiction to decide loan recovery claims by entities not falling under Debt Recovery Act
- jurisdictional objection can be raised at any stage if tribunal lacks inherent jurisdiction
- waiver or consent cannot confer jurisdiction on a tribunal lacking inherent competence
Case Details
2011 LawText (BOM) (08) 66
Civil Revision Application No. 318 of 2011
Mr. A.M. Joshi for the applicants, Mr. P.S. Dani i/b Nikhil Rodriques for the respondent
Mr. Rakesh Hatia and another
Citifinance Consumer Pvt. Ltd.
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Nature of Litigation
Civil revision application against order of District Judge overruling objection to execution of arbitral award.
Remedy Sought
The applicants sought to set aside the District Judge's order and stay execution of the arbitral award on the ground that the Arbitral Tribunal lacked jurisdiction.
Filing Reason
The applicants contended that the respondent was a financial institution and thus only the Debt Recovery Tribunal had jurisdiction under the RDDBFI Act, rendering the arbitral award void.
Previous Decisions
The District Judge, Pune, by order dated 25 March 2011, overruled the objection and allowed execution of the arbitral award.
Issues
Whether the Arbitral Tribunal had jurisdiction to adjudicate the recovery claim in view of the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, particularly section 18 read with section 17?
Whether the respondent fell within the definition of 'financial institution' under section 2(h) of the RDDBFI Act, thereby attracting the exclusive jurisdiction of the Debt Recovery Tribunal?
Submissions/Arguments
The applicants argued that the respondent, being a financial institution under the Reserve Bank of India Act, fell within the purview of the Debt Recovery Act, and thus the Arbitral Tribunal lacked jurisdiction; the award was a nullity and could be challenged at any stage, relying on Harshad Chamanlal Modi v. DLF Universal Limited.
The respondent contended that it did not meet the definition of 'financial institution' under section 2(h) of the RDDBFI Act, and therefore the arbitrator had jurisdiction.
Ratio Decidendi
The definition of 'financial institution' for purposes of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is governed exclusively by section 2(h) of that Act, not by definitions in other statutes. Only institutions that are (i) public financial institutions under section 4A of the Companies Act, 1956, (ia) securitisation or reconstruction companies registered under the SARFAESI Act, or (ii) specifically notified by the Central Government, qualify as financial institutions under the Act. As the respondent did not fall within these categories, the bar under section 18 did not apply, and the arbitral tribunal had valid jurisdiction to pass the award. The principle that a decree passed without inherent jurisdiction is a nullity is well-settled, but it has no application when the tribunal indeed possessed jurisdiction.
Judgment Excerpts
Section 18 of the Debt Recovery Act says that on and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority in relation to the matters specified in section 17 of the Debt Recovery Act.
The jurisdiction to decide applications for recovery of debts due to banks and financial institutions is vested exclusively with the Debt Recovery Tribunal and a Arbitral Tribunal cannot entertain and decide a claim for recovery by a bank or a financial institution.
It is a settled principle of law that when a word or an expression has been defined in an Act then the word or expression used in any provision of the Act shall have the same meaning as given to it under the definition unless the context requires otherwise. A definition of the very word or expression given in any other Act would not govern the meaning of the word or expression used in the Act.
As such, the respondent cannot be regarded a financial institution for the purpose of section 17 of the Debt Recovery Act.
The principle is well settled that a decree or order passed by a court or tribunal having no jurisdiction is nonest and nullity and its invalidity can be set up whenever it is sought to be enforced against a person. In my view, the principle has no application to the facts of the case because, as I have held, the Arbitral Tribunal had the jurisdiction to pass the award in the present case.
Procedural History
The petitioners borrowed money from the respondent and defaulted. The respondent invoked arbitration per the loan agreement, and the Arbitral Tribunal passed an award. The respondent then filed an execution petition before the District Court, Pune. The petitioners objected, contending that the arbitrator lacked jurisdiction due to the exclusive jurisdiction of the Debt Recovery Tribunal under the RDDBFI Act. The District Judge overruled the objection on 25 March 2011. The petitioners then filed the present Civil Revision Application before the High Court.
Acts & Sections
- Recovery of Debts Due to Banks and Financial Institutions Act, 1993: 2(h), 17, 18
- Reserve Bank of India Act, 1934: 45I
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: 3(4)
- Companies Act, 1956: 4A
