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New Tech Pipes Ltd. And Others v. State Bank Of India And Another
Factual and Procedural Background
This opinion concerns an appeal filed under section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) challenging an interim order passed by the Debts Recovery Tribunal (DRT) on 8th October 2012. The Tribunal had rejected a preliminary objection raised by the appellants (defendants) regarding the maintainability of the Original Application filed by the Bank under section 19 of the RDDBFI Act for recovery of dues. The appellants contended that since their industry is situated within a Special Economic Zone (SEZ) governed by the Special Economic Zones Act, 2005, the provisions of that Act, specifically sections 5, 23, 24, 51, and 58, oust the jurisdiction of the DRT and thus the RDDBFI Act could not be invoked for debt recovery against them.
Legal Issues Presented
- Whether the provisions of the Special Economic Zones Act, 2005, particularly sections 5, 23, 24, 51, and 58, exclude the jurisdiction of the Debts Recovery Tribunal under the RDDBFI Act, 1993 in matters of debt recovery against units situated within a Special Economic Zone.
- Whether the dispute between the Bank and the appellants falls within the scope of "disputes of civil nature" under sections 23 and 42 of the SEZ Act, thereby requiring resolution by designated courts or arbitration as per that Act.
- Whether the RDDBFI Act, 1993 and the SEZ Act, 2005 operate in overlapping fields or are mutually exclusive, and if there is any inconsistency affecting the applicability of the RDDBFI Act in the present case.
Arguments of the Parties
Appellants' Arguments
- The appellants contended that since their industry is located within a Special Economic Zone, the provisions of the SEZ Act, 2005, specifically sections 5, 23, 24, 51, and 58, oust the jurisdiction of the Debts Recovery Tribunal.
- They argued that the recovery of debts should be governed by the SEZ Act and not by the RDDBFI Act, as the SEZ Act applies to units within the Special Economic Zone.
Respondent Bank's Position
- The Bank filed the Original Application under section 19 of the RDDBFI Act, 1993 for recovery of dues, asserting its jurisdiction to do so.
- The Bank argued that it is neither a “Developer” nor an “Entrepreneur” under the SEZ Act, and hence the dispute does not fall within the ambit of section 42 of the SEZ Act requiring resolution by designated courts or arbitration.
- The Bank contended that the SEZ Act and the RDDBFI Act operate in separate fields without any inconsistency, and therefore the provisions of the RDDBFI Act apply for recovery of debts.
- The Bank also noted that the appellants did not demonstrate that their factory carries on export business, which is relevant under the SEZ Act for certain benefits and protections.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court examined the provisions of the Special Economic Zones Act, 2005, particularly sections 23 and 42, which deal with jurisdiction over civil disputes arising within Special Economic Zones. Section 23 allows the State Government, with concurrence of the High Court, to designate courts to try suits of civil nature within SEZs, and section 42 provides for arbitration if no such courts are designated.
The court noted that no notification was placed on record indicating that section 23 of the SEZ Act had come into force, and thus no designated courts existed under that section. Moreover, the court analyzed the definitions of "Developer," "Co-Developer," and "Entrepreneur" under the SEZ Act and found that the Bank is none of these, meaning the dispute between the Bank and the appellants does not fall within the category of disputes contemplated by section 42 of the SEZ Act.
The court further observed that the SEZ Act is intended for the establishment, development, and management of Special Economic Zones to promote exports and related matters, and does not provide for ousting the jurisdiction of the Debts Recovery Tribunal in matters of debt recovery by banks.
Section 51 of the SEZ Act, which states that its provisions shall have effect notwithstanding anything inconsistent in other laws, was considered. The court held that there is no inconsistency or overlap between the SEZ Act and the RDDBFI Act, as they operate in separate fields. Therefore, section 51 does not bar the Bank from invoking the RDDBFI Act for recovery of dues.
The court also pointed out that the appellants failed to demonstrate that their factory conducts export business, which is relevant for SEZ benefits and protections under the SEZ Act.
Consequently, the court upheld the Tribunal's rejection of the preliminary objection and confirmed that the Bank's Original Application under section 19 of the RDDBFI Act is maintainable.
Holding and Implications
The appeal is dismissed.
The direct effect of this decision is that the Debts Recovery Tribunal retains jurisdiction to entertain the Bank's Original Application under section 19 of the RDDBFI Act, 1993 for recovery of dues from the appellants, notwithstanding the appellants' location within a Special Economic Zone. No broader precedent altering the interplay between the SEZ Act and the RDDBFI Act was established beyond affirming the non-overlapping operation of these statutes in the present context. The appellants were also ordered to pay costs of Rs. 50,000/-.
R.K Gupta, Chairperson:— This is an Appeal preferred under section 20 of the RDDBFI Act, 1993 challenging the interim order passed by the Tribunal on 8th October, 2012. By this order, the Tribunal has rejected the preliminary objection with regard to the maintainability of the Original Application preferred by the Bank under section 19 of the rddbfi act, 1993.
It was objected on behalf of the Appellants being the Defendants that the Central Government has promulgated the Special Economic Zones Act, 2005 and the provisions as contained under sections 5, 23, 24, 51 and 58 of the Act ousts the jurisdiction of the Debts Recovery Tribunal and on this basis, it is contended that since the Industry of the Appellants is situated within the Special Economic Zone area, therefore, it is covered under the said Act, hence the provision of the RDDBFI Act, 1993 cannot be invoked for the recovery of its debts by the Bank against the Appellants.
2. In this reference, the Tribunal relied upon the two letters, which are Annexures No. A-28 and A-29 dated 18th January, 2012 and 8th February, 2012 issued by the Assistant Development Commissioner, Indore Special Economic Zone. He has observed that the recovery of debt is a matter which pertains purely between both the units and the Bank which may taken action under statutory provisions to recover its dues because of commercial borrowing between the Bank and the Appellant.
3. With reference to the said objection, this is to be seen that the Special Economic Zone Act, 2005 is enacted to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected, therewith or incidental thereto. By virtue of section 1(3) of the Act, 2005, the same shall come into force on such date as the Central Government may be notification in official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any such provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision. Accordingly, sections 1 to 19, 25 to 30 and 42 to 58 were brought into force on 1st February, 2006 vide notification No. S.O 195(E), dated 10th February, 2006, sections 31 to 41 were brought into force on 1st October, 2008 vide Notification No. S.O 2320(E) dated 1st October, 2008 and so far as sections 20, 21 and 22 are concerned, these sections were brought into force on 13th January, 2010 vide Notification No. S.O 75(E) dated 13th January, 2010. Thus, no notification is placed on record that section 23 of the Act, 2005 has come into operation.
4. Section 23 provides that the State Government, in which the Special Economic Zone in situated, may, with the concurrence of the Chief Justice of the Hon'ble High Court of that State, designate one or more Courts to try all Suits of a civil nature arising in the Special Economic Zone and to try notified offence committed in the Special Economic Zone. Sub-section (2). of section 23 provides that no Court, other than the Court designated under sub-section (1), shall try any Suit or conduct the trial of any notified offence referred to in that sub-section. Proviso appended to subsection (2) of section 23 of the Act, 2005 further makes it clear that the Courts, in which any Suit or the Suit in civil nature in Special Economic Zone has been filed before, the commencement of this Act, shall continue to conduct the trial of such Suit after the commencement of the Act. The same provision by the second proviso appended to sub-section (2) of section 23 relates to trial of notified offence. Nothing has been brought either before the Tribunal below or before this Tribunal that section 23 has been brought into, force by the Central Government.
5. However, Sec. 42 provides that notwithstanding anything contained in any other law for the time being in force. If any dispute of civil nature arises among two or more entrepreneurs or two or more Developers or between an entrepreneur and a Developer in the Special Economic Zone. Sub-clause (b) of section 42 stated that if no Court or Courts by virtue of section 23(1) have been designated, then such disputes shall be referred to, arbitration. The cumulative effect of section 23 and section 42 of the Act, 2005 if it is to be understood, then any dispute of civil nature has to be understood which could be tried by virtue of this section 23. Since the word ‘dispute of civil nature’ has not been defined under the Act, 2005, therefore, section 42 would be relevant for the purpose of understanding the scope and purview of section 23, which provides for constitution of special designated Court to try the dispute of civil nature. Section 42 provides for adjudication of the dispute of civil nature and it describes that any dispute of civil nature which arises among two or more entrepreneurs or two or more Developers or between an entrepreneur and a Developer in the Special Economic Zone. The word “Developer” and “Co-Developer” have been defined in section 2 of the Act, 2005, which read as under:
“(g) “Developer” means a person who, or a State Government which, has been granted by the Central Government a letter of approval under sub-section (10) of section 3 and includes an Authority and a Co-Developer;
(f) “Co-Developer” means a person who, or a State Government which has been granted by the Central Government a letter of approval - under sub-section (12) of section 3”.
6. The word “entrepreneur” has also been defined, which reads as under:
“(j) “entrepreneur” means a person who has been granted a letter of approval by the Development Commissioner under sub-section (9) of section 15.”
7. The dispute, which is to be decided by virtue of section 42 by special designated Court to be constituted under section 23(1) of the Act, would only be a dispute of civil nature which arises among two or more entrepreneurs or two or more Developers or between an entrepreneur and a Developer in the Special Economic Zone.
8. The Bank, who has filed the Original Application for recovery of its dues under section 19 of the RDDBFI Act, 1993, is neither a “Developer” or “Co-Developer” nor is an “entrepreneur” so that the dispute could have been covered by virtue of section 42 of the Act, 2005. Therefore, the dispute between the Bank and unit for recovery of its dues from a borrower cannot be said to be a dispute covered under section 42 of the Act, 2005 which requires to be decided by the designated Court to be constituted by virtue of section 23(1) of the Act, 2005.
9. By virtue of sub-clause (b) also, the dispute as such between the Bank and the Borrower for recovery of its dues is also beyond the Sub-clause (b) of section 42 of the Act, 2005, so that it could be said that the matter requires to be arbitrated u??? Act No. 26 of 1996. Thus, the objection as such which has been raised has rightly been rejected by the Tribunal.
10. Section 51 of the Act, 2005 provides that 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.
11. This is very clear that for recovery of the dues, the Parliament has already enacted a separate law which deals with the recovery of its debts by the Banks, which is the Special Act for the recovery of “debts”.
12. The power of Central Government is derived from List No. 1 Item No. 42 of Vllth Schedule of the Constitution of India. The said Act is in operation in a separate field and so far as the Act of 2005 is concerned, it operates in a separate field and both the Acts are not overlapping on each other. There is no conflict or consistency between the two Acts, therefore, section 51 of the Act, 2005 will not come in way of the Bank to recover its dues by filing an application under section 19 of the RDDBFI Act, 1993. The Special Economic Zones Act, 2005 is an Act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matter connected therewith or incidental thereto.
13. While filing the reply only objection was raised that the factory is situated within the Special Economic Zone and has not been stated that the factory is carrying on a business of exports.
14. Apart from the aforesaid, for the purpose of giving certain facility and concessions, the provision of the Act, 2005 were promulgated for giving the benefits to such Industries which are carrying-on the business of export. In this reference, section 52 of the Act, 2005 is also relevant, which provides that the certain provisions of the certain Acts shall not apply to the Industry situated in the Special Economic Zone and for the purpose of convenience. Section 52 of the Act, 2005 is reproduced as under:
“52. Certain provisions not to apply. —The provisions contained in the Chapter X-A of the Customs Act, 1962 (52 of 1962) and the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs Procedure) Regulations, 2003 made thereunder shall not, with effect from such date as the Central Government by notification appoint, apply to the Special Economic Zones.
(2) Notwithstanding anything contained in sub-section (1), shall offences committed, before the commencement of this Act, under any provisions of the Customs Act, 1962 (52 of 1962) and the Special Economic Zones Rules, 2003 and the Special Economic Zones (Customs F???ocedure) Regulations, 2003 made thereunder, shall continue to be governed by the said Act or rules, as the case may be.
(3) Anything done or any action taken or purported to have been done or taken including any rule, notification, inspection, order or notice made or issued or any permission, authorization or exemption granted or any document or instrument executed under the said provisions of the Act, rules and regulations referred to in sub-section (1) shall, insofar as they are not inconsistent with the provisions of this Act, be deemed to have been done or taken or made or issued or granted under the corresponding provisions of the Act or rules referred to in that subsection.”
15. It is not stated in the Act, 2005 that the provisions of the RDDBFI Act, 1993 shall not be applicable to the Industry situated in Special Economic Zone, as it has already been held that both the Acts are operative in different fields and there is no inconsistency between the said two Acts, therefore, it cannot be said that the provisions of Act, 2005 will have overriding effect on the RDDBFI Act, 1993.
16. Section 7 of the Act, 2005 deals with the exemption from taxes, duties or cess and the First Schedule deals with such items.
17. Section 8 of the Act, 2005 provides for constitution of Board to promote the industry and section 9 deals with the duties, powers and functions of Board, subject to the powers to be exercised by the Board under the Act to promote and ensure orderly development of the Special Economic Zones.
18. Section 15 of the Act, 2005 further provides that any person, who intends to set up a Unit for carrying oh the authorized operations in a Special Economic Zone, may, submit a proposal to the Development Commissioner concerned in such form and manner containing such particulars as may be prescribed. On recommendation of the committee, the powers are to be exercised by granting approval to set up a Unit.
19. On the basis of the aforesaid, the provisions of the Special Economic Zones Act, 2005 shall not be a bar to invoice the provision of 1993 Act by the Respondent-Bank and the objection as such raised by the Appellant has rightly been rejected and accordingly, the Appeal stands dismissed as it has no force, subject to the cost of Rs. 50,000/-.
20. A copy of this judgment be supplied to the parties as well as to the DRT concerned as per law.
Order announced in presence of the Counsel for the Appellant in open Court.
Appeal Dismissed.
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