PMA arbitration halted but liability left open: SC sends UCO Bank–NTC dispute to DRT; revives recovery and lets NTC/Union be impleaded
Case name: UCO Bank v. National Textile Corporation Ltd. & Anr. (with SLP(C) No. 20527 of 2014)
Date of Order: 05 March 2020
Citation: Civil Appeal No. 2046 of 2020 (arising out of SLP (C) No. 15914 of 2014)
Bench: R. Banumathi, J.; A.S. Bopanna, J. (author); Hrishikesh Roy, J.
Held: Quashing of the Permanent Machinery of Arbitration (PMA) notice was justified, but the High Court erred in recording conclusions on liability in writ proceedings. Questions whether National Textile Corporation (NTC) and/or the Union of India bear liability for the debts of Shree Sitaram Mills Ltd. must be decided in the pending debt-recovery matters before the appropriate forum, with opportunity to lead evidence.
Summary: Shree Sitaram Mills Ltd. enjoyed credit facilities from UCO Bank, with the Union of India (Ministry of Textiles) as guarantor. After takeover of management in 1983 and nationalisation of the textile undertaking with effect from 01.04.1994 under the 1995 Nationalisation Act, UCO Bank pursued two tracks: (i) recovery before DRT (O.A. No. 2526/1999, resulting in a Recovery Certificate dated 05.08.2004, and related proceedings including an appeal against certain defendants), and (ii) claims before the Commissioner of Payments under the Nationalisation Act (partly allowed for principal/interest up to the appointed date, balance interest rejected). In 2011, UCO invoked the PMA (per OM dated 22.01.2004) to arbitrate a large balance claim; NTC objected, citing Electronics Corporation of India (2011) and disputing any post-takeover liability on the footing that only the “undertaking” was nationalised, not the “company,” and that pre-appointed-date liabilities remained with the erstwhile owner. A Single Judge allowed PMA to proceed, but a Division Bench quashed the arbitral notice and went further to hold NTC not liable for pre-takeover dues. On appeal, the Supreme Court confined the controversy to the proper forum. While accepting that PMA was not the correct vehicle on these facts and upholding quashing of the PMA notice, the Court set aside the High Court’s pronouncement on non-liability, holding that such determinations whether liabilities travelled on nationalisation, whether secured assets moved, and whether the Union remains liable as guarantor are matters of evidence and adjudication within the DRT/recovery framework. The Court noted existing DRT proceedings and directed that they be taken to their logical end, with liberty to add NTC/Union as judgment-debtors/defendants so the liability issue is squarely tried.
Decision: Appeal allowed in part. Quashing of the PMA arbitral notice is affirmed; however, the High Court’s finding that NTC/Union are not liable is set aside. The recovery proceedings (including R.C. No. 269/2004 and O.A. No. 1114/2000) are revived and will proceed expeditiously. UCO Bank may apply to implead NTC/Union as judgment-debtors/defendants; the DRT/Recovery Officer will decide, on evidence and uninfluenced by prior observations, whether any liability attaches to them. No order as to costs; connected matter disposed.