A.P. STATE CONSUMER DISPUTES REDRESSAL COMMISSION

HYDERABAD.

FA  767/2006  against C.C. 990/2000, Dist. Forum-II, Hyderabad.   

Between:

1)  G. D. Sultania

S/o. Narmull Sultania

Age: 75 years,

2)  Smt. Durga Devi Sultania

W/o. G. D. Sultania

Both are  R/o.  6-3-47/9/2

Dwarakapuri Colony

Punjagutta, Hyderabad.                              ***                         Appellants/

                                                                                                Complainants.

                                                                   And

1)  Raashi Fertilizers Ltd.

Regd. Office : 8, Swastik Chambers

CST Road, Chembur

Mumbai-400 071.

2) The Managing Director

M/s. Raashi Fertilizers Ltd.

Regd. Office : 8, Swastik Chambers

CST Road, Chembur

Mumbai-400 071.                                       ***                         Respondents/

                                                                                                 O.P. No. 1 & 2

3)  State Bank of India

Securities & Services Division

Mumbai Main Branch

Mumbai Samachar Marg

P.B.No. 13,  Mumbai- 400 023.                   ***                         Respondent/

                                                                                                O.P. No. 3

Counsel for the Appellants:                         M/s. Javed Razack.

Counsel for the Resps:                                None

CORAM:

HON’BLE SRI JUSTICE D. APPA RAO, PRESIDENT

                 SMT. M. SHREESHA, MEMBER

    &

SRI K. SATYANAND, MEMBER

MONDAY, THIS THE TWENTY FOURTH  DAY OF AUGUST TWO THOUSAND NINE

Oral Order: (Per Hon’ble Justice D. Appa Rao, President)

                                                          *****

1)                 The appellants are  unsuccessful complainants.

2)                 The case of the complainants  in brief is that   they were holding  1140 non-convertible debentures of R1 and R2.  They have purchased them in secondary market for a valuable consideration.  R1 has been paying  the interest up till  31.3.1997,  thereafter committed default for the period from 1.4.1997 to 31.3.1999.   They have to redeem the same  at  par value in three instalments,    the first instalment being  on 1.6.1999 for the total value of  Rs. 19,380/-.   The interest accrued as on 31.3.1999  is Rs. 18,240/- besides overdue  interest on such defaulted payments  amounting to Rs. 7,660/-  from 1.7.1997 to 30.9.1999 and further interest till the date of filing of complaint.    R3  State Bank of India is  as a trustee  in terms of  Trust Deed  Dt. 28.5.1993 to enforce payment of interest along with accrued interest  on the debentures held by them.  Despite several reminders  they failed to pay.    Since the above said amount was not paid,  after issuing legal notice  they filed the complaint for directing the respondents to pay the above said amount together with  compensation of Rs. 50,000/-  and costs.

3)                R1 and R2  addressed a letter obviously  by way of counter to the President of the Dist. Forum  alleging that the debenture holders are not consumers they being secured creditors.    By virtue of Section  117 of Companies Act, 1956  the proper authority is   SEBI Forum.   The Hon’ble Supreme Court in  Morgan Stanley  Mutual Fund  Vs. Kartick Das  (1994) 81 Con.Cases 318(SC)   opined that the prospective investors are not consumers.   The debentures secured by the complainants for earning interest is for commercial purpose,  and therefore the provisions of  Consumer Protection Act  have no application.   The  Dist. Forum is not having jurisdiction as  it carries on business  at Mumbai  where the Registered Office is situated.   Therefore it prayed for dismissal of the complaint.

4)                R3  State Bank of India  alleged that the primary responsibility is on  R1 and R2  to pay interest and on redeeming them.   There is no  privity of contract between it and the complainant.   It had taken the responsibility of  ensuring payment of interest to the complainant by addressing  a letter on  25.9.1999.  In fact R1 and R2  by letter Dt. 24.1.2000 promised to settle the dispute.    There was no deficiency in service on its part.  There is no territorial jurisdiction  for the Dist. Forum at Hyderabad to settle the dispute.  It prayed for dismissal of the complaint with costs.

5)                The complainants in proof of their case filed affidavit evidence and got Exs. A1 to A78 marked, while the respondents neither filed affidavit evidence nor documents. 

6)                The Dist. Forum after considering the evidence placed on record  observed  that the offices of respondents are situated at Mumbai and therefore opined that it had no territorial jurisdiction and dismissed the complaint. 

7)                Aggrieved by the said decision, the complainants preferred the appeal contending that the Dist. Forum did not appreciate either the facts or law in correct perspective.   It ought to have noticed that all through the respondents have been making payments by crediting the amounts  in their bank accounts at Hyderabad.   Section 11(2) ( c ) ordains  that a complaint could be filed where  the cause of action wholly or in part  has arisen.  When all through  the respondents have been paying the amounts to the banks at Hyderabad  and in fact they have branches at Hyderabad, it cannot be held that it has no jurisdiction  and consequently prayed that the appeal be allowed.

8)                           The points that arise for consideration are :

i)             Whether the Dist. Forum at Hyderabad is having territorial jurisdiction  to resolve the dispute?

ii)           Whether the complainants are entitled to interest and redumption value payable under debentures issued by R1 & R2?

9)                 It is an undisputed fact that  the complainants are holding  1140 non-convertible debentures of R1 & R2 evidenced under Exs. A5 to A78. All through interest  accrued on the debentures  besides over due interest on such defaulted payments were paid by R1 & R2  by way of crediting the amounts to the complainants’ accounts at Hyderabad.   Undisputably R3  is having branches  through out India and equally at Hyderabad.   Undisputably   they are also carrying on business  through branch offices at Hyderabad.  The territorial jurisdiction to file a complaint is  contemplated u/s 11 (2) of the Consumer Protection Act which reads as follows :

(2)  A complaint shall be instituted in a District Forum within the local limits of whose jurisdiction,—

(a)      the opposite party or each of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides or carries on business or has a branch office or personally works for gain, or

(b)      any of the opposite parties, where there are more than one, at the time of the institution of the complaint, actually and voluntarily resides, or carries on business or has a branch office, or personally works for gain, provided that in such case either the permission of the District Forum is given, or the opposite parties who do not reside, or carry on business or have a branch office, or personally work for gain, as the case may be, acquiesce in such institution; or

(c)      the cause of action, wholly or in part, arises. 

A reading of the above provisions makes it  more than clear that  the respondents  having transacted the business allotted the debentures by receiving  the amount  through the  bank and equally crediting the interest  accrued on the debentures as well as redemption amounts  at Hyderabad  it cannot be said that the Dist. Forum at Hyderabad has no  jurisdiction   The contentions as well as the decisions relied by  R1 & R2 in their letter  are beside  the point.   The provisions of CPC  are altogether different from that of the provisions of Consumer Protection Act ignoring the concept could not be justified.  More so when a specific provision is introduced  in this regard in Consumer Protection itself. 

10)              The complainant claimed Rs. 19,380/- being the debenture redemption amount as on 1.6.1999 and further sum of Rs. 18,240/- being defaulted payment of accrued interest  on  1140 debentures with overdue  interest amounting to Rs. 7,660/- as on 30.9.1999 till the date of payment,  in all Rs. 45,280/-.  Admittedly they were not paid.   R3,   State Bank of India  the  trustee,  has categorically admitted in its counter stating “ It has addressed a letter Dt. 25.9.1999 to  opposite parties 1 and 2 calling upon them to redress the grievance of the complainant.   As the grievance was not redressed, it got a legal notice Dt. 20.12.1999 issued to opposite parties 1 and 2 have replied  by a letter Dt. 24.1.2000 citing certain reasons for non-payment of the interest amounts  on the debentures  and promising to settle the dues.  It addressed another letter  Dt. 15.2.2000 to opposite parties 1 & 2  to call for a meeting of the debenture holders.   Thus, it can be seen that it has been taking all reasonable steps to protect the interests of the debenture holders.   It is submitted that there was no deficiency  of service on the part of the bank.  It is carrying on its duties in a diligent manner.”  The bank took up the cause and directed R1 and R2 to pay the amount however  R1 and R2 did not oblige without any reason. 

11)               Yet another contention that was taken by R1 & R2  in their counter is that the complainants who are holding debentures are  secured creditors  and therefore the  Consumer Protection Act has no application, it is SEBI  which has jurisdiction to try these cases.   Assuming without admitting that SEBI has  jurisdiction to resolve the dispute, when the jurisdiction  under  the Consumer Protection Act is not excluded, the  Consumer Forum  can  resolve the matter by virtue of  Section 3 of the Consumer Protection Act.   The Supreme Court   in Fair  Air  Engineers (P) Ltd. Vs. N. K. Modi (1996) 6 SCC 385 observed:  

The provisions of the Act are to be construed widely to live effect to the object and purpose of the Act. Itis seen that Section 3 envisages that the provisions of the Act are in addition to and are not in derogation of any other law in forces. it is true, as rightly contended by Shri, that the words "in derogation ofthe provisions of any other law for the time being in force" would be given proper meaning and effect and if the complaint is not stayed and the parties are not relegated to the arbitration, the Act purports to operate in derogation of the provisions of the Arbitration Act. Prima facie, the contention appears to be plausible but on construction and conspectus of the provisions of the Act we think that the contention is not well-founded. The Parliament is aware of the provisions of the Arbitration Act and the Contract Act and the consequential remedy available under Section 9 of the Code of Civil Procedure, i.e., to avail of right of civil action in a competent court of civil jurisdiction. Nonetheless, the Act provides the additional remedy. It would, therefore, be clear that the Legislature intended to provide a remedy in addition to the consentient arbitration which could be enforced under the Arbitration Act or the civil action in a suit under the provisions of the Code of Civil Procedure. Thereby, as seen, Section 34 of the Act does not confer an automatic right nor create an automatic embargo on the exercise of the power by the judicial authority under the Act. It is a matter of discretion. considered from this perspective, we hold that though the District Forum, State Commission and National Commission are judicial authorities, for the purpose of Section 34 of the Arbitration Act, in view of the object of the Act and by operation of Section 3 thereof, we are of the considered view that it would be appropriate that these forums created under the Act are at liberty to proceed with the matters in accordance with the provisions of the Act rather than relegating the parties to an arbitration proceedings pursuant to a contract entered into between the parties. The reason is that the Act intends to relieve the consumers of the cumbersome arbitration proceedings or civil action unless the forums on their own and on the peculiar facts and circumstances of particular case, come to the conclusion that the appropriate forum for adjudication of the disputes would be otherwise those given in the Act. 

          The Supreme Court in  Thirumurugan  Co-operative Agricultural Credit Society  Vs. M. Lalitha reported in  (2004) 1 SCC 305 held that  :

The respondents, being the members of the appellant- Society , had pledged paddy bags for obtaining loan. The appellant Society issued notices to the respondents demanding payment of loan amount with interest thereon. The respondents filed petitions in the District Consumer Disputes Redressal Forum. Thiruchirapally seeking direction to the appellant to release the paddy bags pledged on receipt of the loan amount or in the alternative to direct the appellant to pay the market value of the paddy bags with interest thereon from the date of pledging till the date of release and also to pass an order for compensation for mental agony and suffering. The appellant contested the claims of the respondents before the District Forum raising a preliminary objection that Consumer Forum had no jurisdiction to decide the dispute between members and Co-operative  Society in view of Section 90 of the Tamil Nadu Co-operative  Societies Act, 1983. The, The District Forum  decided in favour of the respondents and granted relief.  But the  State Commission allowed the appeal of the appellant society.  However, the National Commission allowed the revision petition preferred by the respondents, set aside the order of the State Commission and restored that of the Dist. Forum.

          The appellant in the  appeal raised the following arguments before the Supreme Court : (1) Section 90 of the Act impliedly ousts the jurisdiction of all Courts and Tribunals including that of a Civil Court under Section 9, C.P.C. and the Consumer Forum created under the Consumer Protection Act, 1986 (for short ‘the 1986 Act’) from adjudicating upon the issues falling within the scope of said section; on the facts of the present case, the dispute is covered by the said section. For this purpose, he relied on Section 156 of the Act; (2) the Act being a special enactment and when specific provisions are made exclusively to deal with the disputes between a Co-operative  Society  and its members, the disputes raised before District Forum by the respondents were not maintainable; (3) the Act read with the Rules creates special rights and liabilities for the members and the management and lays down that all questions about the said rights and liabilities are to be determined by the Registrar and that has the provisions for appeal, revision and review. Hence the case in any event is covered by the proposition (2) set out at page 682 in Dhulabhai & Ors. v. The State of Madhya Pradesh & Anr., 1968 (3) SCR 662, and (4) if the argument of the respondents is accepted a situation may arise where one party may approach a Forum under the 1986 Act and the other under the Act, or the same party may approach two Forums one after the other or simultaneously. In such a situation there is likelihood of conflict of decisions, which should be avoided.

Having due regard to the scheme of the Act and purpose sought to be achieved to protect the interest of the consumers, better the provisions are to be interpreted broadly, positively and purposefully in the context of the present case to give meaning to additional/extended jurisdiction, particularly when Section 3 seeks to provide remedy under the Act in addition to other remedies provided under other Acts unless there is clear bar.  The remedies available under the 1986 Act for redressal of disputes are in addition to the available remedies under the Act. Under the 1986 Act  the Court has  to consider as regards the additional jurisdiction concerned on the Forums and not their exclusion. In Dhulabhai case consideration was whether the jurisdiction of the Civil Court was excluded. Propositions (1) and (2) indicate that where the statute gives a finality to the orders of the special tribunals the jurisdiction of Civil Courts must be held to be excluded if there is adequate remedy to do what the Civil Courts would normally do in a suit. Further, where there is an express bar of the jurisdiction of the Court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but is not decisive to sustain the jurisdiction of the Civil Court. The remedies that are available to an aggrieved party under the 1986 Act are wider. For instance in addition to granting a specific relief the Forums under the 1986 Act have jurisdiction to award compensation for the mental agony, suffering, etc., which possibly could not be given under the Act in relation to dispute under Section 90 of the Act. Merely because the rights and liabilities are created between the members and the management of the Society  under the Act and Forums are provided, it cannot take away or exclude the jurisdiction conferred on the Forums under the 1986 Act expressly and intentionally to serve a definite cause in terms of the objects and reasons of the Act, reference to which is already made above. When the decision of Dhulabhai’s case was rendered the provisions similar to 1986 Act providing additional remedies to parties were neither available nor considered. If the argument of the learned Counsel for the appellant is accepted it leads to taking away the additional remedies and Forums expressly provided under the 1986 Act, which is not acceptable.

If the parties approach both the Forums created under the Act and the 1986 Act, as indicated in the case of Fair Air Engineers (P) Ltd. (supra), it is for the Forum under the 1986 Act to leave the parties either to proceed or avail the remedies before the other Forums, depending on the facts and circumstances of the case.  We are of the view that the National Commission was right in holding that the view taken by the State Commission that the provisions under the Act relating to reference of disputes to arbitration shall prevail over the provisions of the 1986 Act is incorrect and untenable.”

12)               The National Commission in Sadan Sundar Rao Mahajan & Ors. Vs. Manipal Finance Corporation Ltd. reported in  III (2008) CPJ 75 (NC)  had observed that the  debenture holders are consumers  and they are entitled to maintain the complaint  under the Consumer Protection Act.   Respondents have agreed to pay  interest  as well as redemption value by crediting the same into the account of the complainants,  and therefore it cannot be held to say that  they are not liable to pay for extraneous reasons.  Even otherwise  they did not amplify the reasons for not paying the same.   After considering the various provisions under various enactments  the National Commission finally opined that  “ We have no doubt in our mind that the appellants are consumers.  The liability of the respondents to refund the amount deposited by the appellants  with the respondent  company under different  nomenclature like share certificates, fixed deposits and debenture certificates  have to be refunded along with interest”.   (Emphasis ours)

13)              Further the National Commission in   Central Bank of India Vs. Tadepalli Padmaja & others reported in  III (2008) CPJ 124 (NC)  held that :

“If the Central Bank accepted to be a debenture trustee, it was its duty to first verify, at every relevant stage, the financial position of the Company which issued the debentures and secondly, to ensure that these assets were at all relevant times adequate to meet the financial obligations of the Company to the debenture holders.

Most important, the Petitioner ought to have discharged its duty as a professional corporate trustee and if the loss was caused to the debenture holders due to its deficiency in not taking special care and in not exercising its special expertise as a corporate trustee, which it professes, then it  is liable for its deficiency in service.

Further, we have to state that if there are certain conditions or covenants in the Trust Deed, which abrogate or minimize such duties, those covenants are required to be ignored. That is specifically provided in section 119(1) of the Companies Act, 1956. It was the duty of the petitioner to verify whether the assets of the company were sufficient to discharge the liability towards the debenture holders.

As per the Code of Conduct for the debenture trustees prescribed under the SEBI Regulations, the Petitioner, as a debenture trustee, was required to take all reasonable steps to ascertain and satisfy itself of the true and full identity of the companies for which it undertook to become the debenture trustee and the financial position of each of the companies from the very beginning.  It  is apparent that this was not done in the present case. In this view of the matter, the impugned orders passed by the State Commissions cannot be said to be in any way illegal or erroneous.

          As a Debenture Trustee, the Petitioner – a public sector scheduled commercial bank with specialized skills to operate as a Debenture Trustee, ought to have taken a number of steps prescribed under the relevant Act and the SEBI Regulations, 1993.

(i)       First, the Trust Deed was required to conform with the set of minimum requirements specified in Schedule IV of the SEBI Regulations. The learned Counsel for the Petitioner has not stated anything before us to establish that this was indeed so. Under Regulation No. 15 (1) (b), the Petitioner should have inspected the books of accounts, records and registers of the Company as well as the property offered as the security cover for the debentures to ensure that the said property was sufficient at all times to the extent necessary for the Company to discharge the obligations. The Trustee should have further taken necessary steps to ensure that this security was enforceable.

(ii)      Further,  the Trustee was also required to take appropriate measures to protect the interests of the debenture holders as soon as any breach of the Trust Deed or the particular lapse came to its notice.

(iii)     It was also mandatory for the Debenture Trustee to either to call or cause the Company to call a meeting of the debenture holders on the happening of any event which constituted a default or which, in the opinion of the Trustee, affected the interests of the debenture holders.

(iv)     In addition, as the Debenture Trustee, the Petitioner was required to take all actions specified in Scheduled III (Code of Conduct). In reality, however, all that the Debenture Trustee did was to write letters to the Company – it simply failed to take (or refrained from taking, for reasons best known to it) any effective action even after repeated instances of default by the Company in the payment of half-yearly interest on the debentures came to its notice. By its own admission, the Petitioner took no effective steps till long after taking over as the Debenture Trustee, to even ensure that the original version of the Trust Deed was secured and kept in its possession. For long, it took no steps to ascertain even the locations of the Company’s assets stated to have been leased / hired out by the Company as part of its regular business activities. Clearly, there was no verification by the Petitioner to ascertain and establish that these assets were actually available at these locations and in good condition, i.e., they were and would continue to remain productive and yield necessary income to the Company so as to enable the latter to discharge its financial liability under the Debenture Trust Deed.

(v)      The Petitioner conducted no inspection of either the books of accounts of the Company or the relevant assets pledged by way of security for the debentures, even after it became fully aware that the security coverage ratio under the Debenture Trust Deed had fallen well below the minimum mandate of 1.33 times. Merely writing letters to the Company to point out that the debt equity ratio had risen or the debt service coverage ratio had fallen is altogether a different matter from investigating as to why these actually happened and what ought to be done by the Company immediately as well as over the tenure of the debentures to meet the two primary requirements, namely, the regular payment of half-yearly interest and full redemption of the debentures on maturity.

          In short, the Petitioner-Bank failed to discharge its fiduciary duty with special care and skill as is expected from  professional corporate trustee and had not taken appropriate steps as contemplated under the SEBI Regulations.”

          In the light of the above categorical pronouncements, we hold that R1 & R2  and the bank  to pay the amount covered under debentures. 

14)              We do not see any  tenable grounds for  R1 & R2 to refuse payment of the amount  as claimed by the complainants.   It amounts to deficiency in service.   R3 bank being trustee  has responsibility to see that amounts are paid to the debenture holders.   Non-payment of amounts by R1 & R2 itself amounts to deficiency in service. 

15)               In the result the appeal is allowed.  The order of the Dist. Forum is set-aside, consequently the complaint is allowed  directing the respondents No.  1 to 3 jointly and severally   to pay  Rs. 45,280/- with interest @ 9% p.a., from the date of complaint till the date of  payment.  Since respondents  unjustly denied the amount, we are awarding  an amount of Rs. 10,000/- towards compensation.   The appellants are entitled to  costs of Rs. 5,000/-.   Time for compliance four weeks. 

1)      _______________________________

PRESIDENT                 

2)      ________________________________

 MEMBER           

3)           _________________________________

 MEMBER

                                                           Dt.  24.  08.  2009.

*pnr

“UP LOAD – O.K.”