Case Note & Summary
The dispute arose from credit facilities extended by UCO Bank (appellant) to Shree Sitaram Mills Ltd., which was taken over by the National Textile Corporation Ltd. (NTC) under the Textile Undertakings (Nationalisation) Act, 1995. The Ministry of Textiles had guaranteed the facilities. UCO Bank filed a recovery suit, which was transferred to the Debts Recovery Tribunal, and a recovery certificate was issued. However, proceedings were stayed as the company was declared sick. UCO Bank then claimed before the Commissioner of Payments under the Nationalisation Act, receiving only a fraction of its claim. Subsequently, UCO Bank invoked the Permanent Machinery of Arbitration (PMA) under an Office Memorandum of 2004 to recover the balance from NTC and the Union of India. NTC challenged the arbitration, arguing that the dues were pre-nationalisation and thus not its liability. The High Court's Division Bench agreed, restraining the arbitration. The Supreme Court upheld this decision, emphasizing that under Sections 4(2) and 4(5) of the Nationalisation Act, only the textile undertaking was nationalised, not the company. The liabilities of the company prior to the appointed date remained with the erstwhile owner. The court also noted that UCO Bank had already pursued its claim before the Commissioner of Payments, and the proper remedy for dissatisfaction was an appeal under Section 7 of the Act, not arbitration. The appeal was dismissed, and the arbitration proceedings were permanently restrained.
Headnote
A) Nationalisation Law - Liability for Pre-Nationalisation Dues - Textile Undertakings (Nationalisation) Act, 1995, Sections 4(2), 4(5), 7, 20 - The court held that under the scheme of the Act, liabilities pertaining to the period prior to the appointed date (01.04.1994) remain with the erstwhile owner company and do not vest in the Central Government or the successor corporation. The distinction between 'textile undertaking' and 'textile company' is crucial; only the undertaking was nationalised, not the company. (Paras 11, 14) B) Arbitration - Jurisdiction of Permanent Machinery of Arbitration - Office Memorandum dated 22.01.2004 - The court did not decide on the validity of PMA but held that even if PMA exists, it cannot entertain claims that are barred by substantive law, such as those already adjudicated by the Commissioner of Payments under the Nationalisation Act. (Paras 13, 14) C) Civil Procedure - Res Judicata and Alternative Remedy - Textile Undertakings (Nationalisation) Act, 1995, Section 7 - The appellant had already approached the Commissioner of Payments and received an award; the remedy for dissatisfaction is an appeal to the principal civil court, not arbitration. The claim before PMA was thus misconceived. (Paras 11, 14)
Issue of Consideration
Whether the National Textile Corporation Ltd. can be held liable for dues of Shree Sitaram Mills Ltd. that arose prior to the nationalisation of the textile undertaking, and whether the Permanent Machinery of Arbitration can entertain such claims.
Final Decision
The Supreme Court dismissed the appeal, upholding the High Court's judgment that restrained the arbitration proceedings. The court held that NTC is not liable for pre-nationalisation dues and that the proper remedy for the appellant was an appeal under Section 7 of the Nationalisation Act, not arbitration.
Law Points
- Liability for pre-nationalisation dues
- Distinction between textile undertaking and textile company
- Jurisdiction of Permanent Machinery of Arbitration
- Effect of nationalisation on liabilities
- Bar on arbitration for claims already adjudicated by Commissioner of Payments
