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UCO Bank v. National Textile Corporation Ltd. & Anr.

Civil Appeal · 2020 INSC 282Decided 5 Mar 2020
Civil Appeal No. 2046 of 2020
Justice R. Banumathi · Justice A.S. Bopanna · Justice Hrishikesh Roy

Background

UCO Bank had extended credit facilities to Shree Sitaram Mills Ltd., which was later taken over and nationalised, with National Textile Corporation Ltd. (NTC) as the resulting entity. When the Bank's recovery efforts through the Debts Recovery Tribunal and the Commissioner of Payments did not fully satisfy its claim, it invoked a Government arbitration mechanism (the Permanent Machinery of Arbitrators) against NTC and Union of India for the balance amount. NTC challenged the arbitration before the Delhi High Court, which not only quashed the arbitration notice but also went further and ruled that NTC was not liable for the dues at all, since the debt predated the actual takeover of the mill.

Decision Breakdown

The Supreme Court agreed that the question of whether NTC had inherited this pre-takeover liability was not suitable for decision either in a writ petition or in this appeal: it required a proper fact-finding forum where evidence could be led. It therefore upheld the High Court's quashing of the arbitration notice (since the arbitration forum was not the right venue either), but set aside the High Court's further finding that NTC was not liable, since that conclusion was reached without the kind of evidentiary inquiry the issue deserved. The Court revived the pending DRT recovery proceedings and directed that the question of liability be examined there, with both sides free to lead evidence, uninfluenced by any observations made by the High Court or the Supreme Court itself.

Lesson Learnt

Complex factual disputes about who inherited a debt after a corporate takeover need to be resolved by the proper fact-finding tribunal (here, the Debts Recovery Tribunal) after a full hearing: a court deciding a narrower procedural question (like which forum has jurisdiction) should not also finally decide the underlying merits in the same breath.

Official source (sci.gov.in)View Judgment (PDF)

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