Supreme Court Clarifies Limitation Act Applicability to Review Petitions under RDB Act

Date of the Judgment: 21 January 2020

Citation: (2020) INSC 27

Judges: R.F. Nariman, J. and V. Ramasubramanian, J.

Can the delay in filing a review petition before the Debt Recovery Tribunal (DRT) be condoned by applying the Limitation Act? The Supreme Court of India addressed this critical question in a case between Standard Chartered Bank and MSTC Limited, clarifying the scope of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) and its interplay with the Limitation Act, 1963. The Court held that the Limitation Act does not apply to review petitions filed under Rule 5A of the Debt Recovery Tribunal (Procedure) Rules, 1993, which are distinct from original applications under Section 19 of the RDB Act. The judgment was delivered by a two-judge bench comprising Justice R.F. Nariman and Justice V. Ramasubramanian.

Case Background

The case revolves around a Receivables Purchase Agreement dated 29 August 2008, between Standard Chartered Bank (the appellant) and MSTC Limited (the respondent), a Government Company. Under this agreement, the bank purchased receivables from overseas buyers against invoices raised by MSTC, remitting 95% of the invoice amount to MSTC. An Export Insurance Policy was obtained from ICICI Lombard General Insurance Company to cover defaults by foreign buyers. When the insurance claim was repudiated on 3 March 2011, the bank filed an application before the DRT, Mumbai on 13 March 2012, under Section 19 of the RDB Act, seeking to recover Rs. 191,03,54,070.96.

MSTC challenged the DRT’s jurisdiction, which was ultimately rejected on 3 February 2017. Subsequently, the bank filed an Interlocutory Application (I.A.) claiming Rs. 222,51,00,000 based on MSTC’s balance sheet admissions. The DRT allowed this I.A. on 26 October 2017. MSTC appealed to the Debt Recovery Appellate Tribunal (DRAT) on 14 November 2017, but later withdrew the appeal on 2 January 2018. Following this, on 18 December 2017, MSTC filed a review application before the DRT, along with an application to condone a 28-day delay.

Timeline:

Course of Proceedings

The DRT, Mumbai initially dismissed MSTC’s review petition on 21 April 2018, citing the judgment in International Asset Reconstruction Company of India Limited vs. Official Liquidator of Aldrich Pharmaceuticals Limited and Others, (2017) 16 SCC 137, which held that Section 5 of the Limitation Act does not apply to review petitions under Rule 5A of the Rules. The DRT also rejected the plea to exclude time under Section 14 of the Limitation Act, stating that the review petition was an attempt to circumvent the appeal process which requires a 25% deposit. MSTC then filed a writ petition before the Bombay High Court on 26 April 2018.

The Bombay High Court, in its judgment dated 3 May 2019, allowed the writ petition, holding that the alternative remedy of appeal was not available, making the writ petition maintainable. The High Court distinguished the International Asset Reconstruction Company of India Limited case, stating it was confined to Section 30 of the RDB Act. The High Court reasoned that a review application, originating from an order under Section 19, is subsumed under Section 19 and is not an independent application. Consequently, the High Court set aside the DRT’s order, condoned the delay in filing the review application, and restored the review application to the DRT’s file.

Legal Framework

The Supreme Court examined several key provisions of the RDB Act and the Debt Recovery Tribunal (Procedure) Rules, 1993. These include:

• Section 2(b) of the RDB Act: Defines “application” as an application made to a Tribunal under Section 19.
• Section 19 of the RDB Act: Specifies the procedure for banks and financial institutions to apply to a Tribunal for debt recovery. It includes provisions for filing applications, written statements, set-offs, counterclaims, and interim orders.

  “19. Application to the Tribunal. – (1) Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction- (a) the branch or any other office of the bank or financial institution is maintaining an account in which debt claimed is outstanding, for the time being; or (aa) the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business, or personally works for gain; or (b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business, or personally works for gain; or (c) the cause of action, wholly or in part, arises”

• Section 20 of the RDB Act: Provides for appeals to the Appellate Tribunal from orders made by the Tribunal, with a 30-day limitation period and a provision for condonation of delay.

  “20. Appeal to the Appellate Tribunal . – (1) Save as provided in sub-section (2), any person aggrieved by an order made, or deemed to have been made, by a Tribunal under this Act, may prefer an appeal to an Appellate Tribunal having jurisdiction in the matter.”

• Section 21 of the RDB Act: Requires a deposit of 50% of the debt amount for appeals, which can be reduced to 25% by the Appellate Tribunal.
• Section 22 of the RDB Act: States that the Tribunal and Appellate Tribunal are not bound by the Code of Civil Procedure, 1908, but by principles of natural justice. It also grants them the power to review their decisions under Section 22(2)(e).

  “22. Procedure and powers of the Tribunal and the Appellate Tribunal. – (1) The Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely: (a) xxx xxx xxx (e) reviewing its decisions;”

• Section 24 of the RDB Act: Applies the provisions of the Limitation Act, 1963 “as far as may be” to an application made to a Tribunal.

  “24. Limitation. – The provisions of the Limitation Act, 1963 (36 of 1963), shall, as far as may be, apply to an application made to a Tribunal.”

• Section 34(1) of the RDB Act: Gives the RDB Act overriding effect over other laws.

  “34. Act to have overriding effect .— (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.”

• Rule 2(b) and 2(c) of the Debt Recovery Tribunal (Procedure) Rules, 1993: Defines “applicant” and “application” to include those under Section 19, 31A, and appeals under Section 30(1) of the RDB Act.
• Rule 4(1) of the Rules: Prescribes the procedure for filing applications under Section 19, 31A, and 30(1).
• Rule 5A of the Rules: Governs review petitions, setting a 30-day limitation period and stating that no such application shall be entertained unless it is accompanied by an affidavit verifying the application.

  “5A.Review.- (1)Any party considering itself aggrieved by an order made by the Tribunal on account of some mistake or error apparent on the face of the record desires to obtain a review of the order made against him, may apply for a review of the order to the Tribunal which had made the order. (2)No application for review shall be made after the expiry of a period of thirty days from the date of the order and no such application shall be entertained unless it is accompanied by an affidavit verifying the application.”

• Rule 7 of the Rules: Specifies the fees for various applications, including review applications.

Arguments

Appellant’s Arguments (Standard Chartered Bank):

• The High Court erred in applying Order XLVII Rule 7 of the CPC as it is inapplicable under Section 22(1) of the RDB Act.
• Section 20 of the RDB Act allows appeals to the DRAT from all applications disposed of by the Tribunal.
• The judgment in International Asset Reconstruction Company of India Limited was incorrectly applied; Section 24 of the RDB Act applies only to applications under Section 19, and a review application is an independent proceeding.
• A review petition cannot be equated with the original proceeding, citing Kamlesh Verma vs. Mayawati and Others, (2013) 8 SCC 320.
• Rule 5A of the Rules uses peremptory language, mandating dismissal of review petitions filed after 30 days, and does not provide for condonation of delay, unlike Section 20 of the RDB Act.

Respondent’s Arguments (MSTC Limited):

• The application before the DRT was frivolous and filed belatedly in 2017, five years after the original application.
• Section 19 of the RDB Act is not exhaustive of all types of applications.
• Section 19 and 22 should be read together, as a review proceeding emanates from and is part of the original proceeding; therefore, Section 24 should apply the Limitation Act to review proceedings.
• Relied on paragraph 12 of International Asset Reconstruction Company of India Limited, arguing that the case is distinguishable because it dealt with recovery officers not being tribunals.
• Supported the High Court’s decision on the maintainability of the writ petition.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The Supreme Court addressed the following key issues:

1. Whether the High Court was correct in holding that an appeal from an order dismissing a review petition would not be maintainable before the DRAT.
2. Whether the judgment in International Asset Reconstruction Company of India Limited was correctly applied by the High Court.
3. Whether the peremptory language of Rule 5A of the Rules, coupled with the absence of a provision for condonation of delay, would render the impugned judgment faulty.
4. Whether the High Court was correct in holding that the writ petition was maintainable.

Treatment of the Issue by the Court:

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

On the Applicability of Limitation Act:

• International Asset Reconstruction Company of India Limited vs. Official Liquidator of Aldrich Pharmaceuticals Limited and Others, (2017) 16 SCC 137, Supreme Court of India: This case held that Section 5 of the Limitation Act does not apply to appeals against orders of Recovery Officers under Section 30 of the RDB Act. The Court clarified that Section 24 of the RDB Act applies only to original applications under Section 19.

  “11. An “application” is defined under Section 2(b) of the RDB Act as one made under Section 19 of the Act. The latter provision in Chapter IV deals with institution of original recovery proceedings before a Tribunal. An appeal lies against the order of the Tribunal under Section 20 before the Appellate Tribunal within 45 days, which may be condoned for sufficient cause under the proviso to Section 20(3) of the Act. The Tribunal issues a recovery certificate under Section 19(22) to the Recovery officer who then proceeds under Chapter V for recovery of the certificate amount in the manner prescribed. A person aggrieved by an order of the Recovery officer can prefer an appeal before the Tribunal under Rule 4, by an application in the prescribed Form III. Rule 2(c) defines an “application” to include a memo of appeal under Section 30(1). The appeal is to be preferred before the Tribunal, as distinct from the Appellate Tribunal, within 30 days. Section 24 of the RDB Act, therefore, manifestly makes the provisions of the Limitation Act applicable only to such an original “application” made under Section 19 only.”

On the Nature of Review Petitions:

• Kamlesh Verma vs. Mayawati and Others, (2013) 8 SCC 320, Supreme Court of India: This case held that a review proceeding cannot be equated with the original hearing of the case.

  “13. In a criminal proceeding, review is permissible on the ground of an error apparent on the face of the record. A review proceeding cannot be equated with the original hearing of the case.”

Legal Provisions Considered:

• Section 2(b) of the RDB Act: Defines “application” as an application made to a Tribunal under Section 19.
• Section 19 of the RDB Act: Specifies the procedure for banks and financial institutions to apply to a Tribunal for debt recovery.
• Section 20 of the RDB Act: Provides for appeals to the Appellate Tribunal from orders made by the Tribunal.
• Section 22 of the RDB Act: States that the Tribunal and Appellate Tribunal are not bound by the Code of Civil Procedure, 1908, but by principles of natural justice. It also grants them the power to review their decisions under Section 22(2)(e).
• Section 24 of the RDB Act: Applies the provisions of the Limitation Act, 1963 “as far as may be” to an application made to a Tribunal.
• Rule 5A of the Debt Recovery Tribunal (Procedure) Rules, 1993: Governs review petitions, setting a 30-day limitation period.

[TABLE] of Authorities and their Treatment:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• International Asset Reconstruction Company of India Limited vs. Official Liquidator of Aldrich Pharmaceuticals Limited and Others, (2017) 16 SCC 137*: The Court followed this judgment, stating that it clearly held that Section 24 of the RDB Act applies only to applications filed under Section 19 and no other. This means that review applications, which are filed under Section 22(2)(e) read with Rule 5A of the Rules, are excluded from the purview of Section 24 of the RDB Act.
• Kamlesh Verma vs. Mayawati and Others, (2013) 8 SCC 320*: The Court used this judgment to support its view that a review petition is not a continuation of the original proceeding, but a separate proceeding for correcting errors.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily driven by a strict interpretation of the statutory provisions of the RDB Act and the Rules. The Court emphasized the following points:

• Statutory Interpretation: The Court focused on the definition of “application” in Section 2(b) of the RDB Act, which explicitly refers to applications made under Section 19. The Court held that this definition cannot be extended to include review petitions.
• Legislative Intent: The Court noted that the legislature had consciously limited the application of the Limitation Act to original applications under Section 19, and had not provided for condonation of delay in filing review petitions under Rule 5A.
• Distinct Nature of Review Petitions: The Court emphasized that review petitions are not part of the original proceedings but are independent proceedings aimed at correcting errors apparent on the record.
• Peremptory Language of Rule 5A: The Court highlighted the mandatory language of Rule 5A, which states that no review application shall be made after 30 days, indicating a strict timeline.
• Overriding Effect of RDB Act: The Court reiterated that the RDB Act has an overriding effect over other laws, including the Code of Civil Procedure, making it clear that the Tribunal is not bound by the CPC.

[TABLE] of Sentiment Analysis of Reasons:

Fact:Law Ratio:

Logical Reasoning:

Key Takeaways

• The Limitation Act, 1963, does not apply to review petitions filed under Rule 5A of the Debt Recovery Tribunal (Procedure) Rules, 1993.
• Review petitions under the RDB Act must be filed within 30 days, and there is no provision for condonation of delay beyond this period.
• A review petition is not a continuation of the original proceeding but an independent proceeding for correcting errors.
• The Recovery of Debts and Bankruptcy Act, 1993, has an overriding effect over other laws, including the Code of Civil Procedure.
• The judgment clarifies that the DRT is not bound by the procedures of the CPC.

Directions

The Supreme Court set aside the judgment of the Bombay High Court and allowed the appeal filed by Standard Chartered Bank. The review application of MSTC was held to be not maintainable due to the delay.

Development of Law

The ratio decidendi of this case is that the provisions of the Limitation Act, 1963, do not apply to review petitions filed under Rule 5A of the Debt Recovery Tribunal (Procedure) Rules, 1993. This judgmentclarifies the scope of Section 24 of the RDB Act, which applies the Limitation Act only to original applications under Section 19, and not to review petitions. The Supreme Court’s decision reinforces the strict timelines for review petitions under Rule 5A, emphasizing that there is no provision for condonation of delay. This interpretation upholds the legislative intent of the RDB Act and the Rules, ensuring efficient and timely resolution of debt recovery matters. Furthermore, the judgment reinforces the independent nature of review proceedings from the original proceedings, and clarifies the overriding effect of the RDB Act over other laws, including the Code of Civil Procedure. This judgment provides clarity on the procedural aspects of review petitions before the DRT and DRAT, ensuring that all stakeholders adhere to the stipulated timelines.