The Supreme Court in UCO Bank vs National Textile Corporation Ltd. delivered an important banking law judgment on 05.03.2020. The dispute relates to recovery of Rs 103 crores by UCO Bank against Shree Sitaram Mills Ltd. Shree Sitaram Mills was taken over by National Textile Corporation under Textile Undertakings (Take-over of Management) Act, 1983 and nationalised w.e.f 01.04.1994 under Textile Undertakings (Nationalisation) Act, 1995. Ministry of Textiles was guarantor for credit facilities.
UCO Bank filed recovery suit in 1988 which was transferred to DRT Mumbai as O.A. No.2526/1999. DRT issued Recovery Certificate on 05.08.2004 for Rs 11.70 crores. Proceedings were adjourned sine die as NTC was declared sick company. Bank also filed claim before Commissioner of Payments under Nationalisation Act. Only Rs 1.59 cr was awarded. Balance claim of Rs 103.76 cr was rejected. Bank then invoked PMA Arbitration under OM dated 22.01.2004 against NTC and Union of India. High Court quashed PMA proceedings and held NTC not liable for pre-nationalisation dues. Supreme Court set aside that part.
Facts: Bank Loan; Takeover; DRT Decree; PMA Arbitration
UCO Bank advanced credit to Shree Sitaram Mills Ltd. NTC took over management in 1983 and undertaking was nationalised in 1994. Bank filed suit and got DRT decree. When Commissioner of Payments rejected major part of claim, Bank went to PMA Arbitration claiming NTC inherited liability. NTC objected saying only undertaking was taken over, not company. High Court agreed and quashed arbitration.
Legal Issue: Whether PMA Arbitration Valid And Whether NTC Liable For Pre-1994 Dues
Supreme Court held PMA notice dated 17.10.2011 was rightly quashed. PMA mechanism is for disputes between two PSUs. Here liability itself is disputed - whether NTC took over liability of Shree Sitaram Mills Ltd.
Court said proper forum is DRT recovery proceedings. In R.C. No.269/2004, Bank can implead NTC and Union of India as judgment debtors. DRT will decide after evidence whether liability vested in NTC and whether secured assets were taken over. Court also clarified High Court erred in finally deciding NTC is not liable. That issue must be decided by DRT, not in writ.
Ratio Decidendi: DRT Is Correct Forum, Not PMA
Supreme Court 05.03.2020 held that question of liability cannot be decided in writ or arbitration when recovery proceedings are pending. Bank must pursue DRT. DRT will examine take-over documents, Nationalisation Act, and guarantee by Ministry of Textiles.
Observation of High Court that NTC is not liable is set aside. All contentions left open.
Conclusion:
Pursue Recovery In DRT
UCO Bank vs National Textile Corporation is key uco bank vs national textile corporation supreme court 2020 precedent. Supreme Court directed Bank to revive DRT proceedings and implead NTC. Liability to be decided by DRT based on evidence. Important ruling for PSU Bank recoveries against nationalised entities.
