Safiya Malik

The Bombay High Court has set aside the Debt Recovery Appellate Tribunal’s (DRAT) order remanding a long-standing dispute between HDFC Bank Limited and the Bank of Bahrain & Kuwait B.S.C. (BBK) to the Debt Recovery Tribunal (DRT). The court directed the DRAT to adjudicate the appeals instead of remanding them, stating that remands should not be resorted to lightly, particularly in a case that has been pending for nearly two decades.

The dispute involves financial transactions between HDFC Bank, BBK, and Ashima Limited concerning the clearance of a cheque and the resultant claims regarding a sum of Rs.7.5 crores. Ashima Limited held a current account with HDFC Bank. On November 29, 2002, Ashima issued a cheque for Rs.7.5 crores in favor of BBK. Before this cheque could be deposited, Ashima filed a civil suit before the City Civil Court at Ahmedabad, seeking an injunction to prevent BBK from presenting the cheque for clearance. Despite this, BBK presented the cheque through the RBI Clearing House System.

HDFC Bank contended that BBK wrongfully obtained credit of Rs.7.5 crores from HDFC Bank despite the injunction and the insufficiency of funds in Ashima’s account. HDFC further argued that this transaction was improper and that BBK was obligated to return the funds, citing Section 72 of the Indian Contract Act. Consequently, HDFC Bank filed an original application before the DRT in Mumbai on March 7, 2005, seeking the recovery of the disputed sum from BBK and Ashima Limited.

BBK and Ashima contested the application, arguing that the amount in question did not constitute a "debt" as defined under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993. They sought the dismissal of HDFC’s application on jurisdictional grounds. On October 26, 2005, the DRT ruled in favor of HDFC, holding that the claim did constitute a "debt" under the Act and that the tribunal had jurisdiction to hear the case. BBK and Ashima appealed this decision before the DRAT.

After years of litigation, the DRAT, by its order dated April 26, 2024, set aside the DRT’s final order of June 30, 2017, and remanded the matter for reconsideration, directing the DRT to assess the issue of jurisdiction afresh.

The Bombay High Court, while addressing the challenge to the DRAT’s remand order, noted that the appellate tribunal failed to adjudicate the substantive legal and jurisdictional issues raised before it. The court observed:

• “When there is no finding on jurisdiction by the DRT, it would not be appropriate to assume that the question has already been determined. However, the DRAT was duty-bound to decide this issue rather than remand the matter for fresh adjudication.”

• “The entire factual material necessary for adjudication was available before the DRAT. The tribunal should have determined the appeals on merits rather than avoiding the responsibility of adjudication.”

The High Court held that remands should be ordered only in exceptional circumstances where an appellate body lacks sufficient material to reach a conclusion. It cited various precedents, including Arvind Kumar Jaiswal v. Devendra Prasad Jaiswal and Ashwinkumar K Patel v. Upendra J. Patel, which establish that an appellate tribunal must decide on issues presented before it unless a remand is imperative due to lack of evidence or procedural defects.

Further, the court pointed out that the DRAT had ample factual and legal material before it, including previous rulings on the issue of whether HDFC’s claim constituted a "debt" under the Recovery of Debts and Bankruptcy Act. The court stated that the DRAT’s approach of remanding the matter rather than addressing the legal issues was improper and resulted in unnecessary prolongation of the dispute, which has been pending for nearly two decades.

In its order, the Bombay High Court directed the DRAT to hear and decide the appeals filed by BBK and Ashima Limited against the DRT’s order dated June 30, 2017, which had allowed HDFC Bank’s recovery claim. The court ruled that the remand was unjustified and instructed the DRAT to adjudicate all issues on record, including the jurisdictional question under Section 2(g) of the Recovery of Debts and Bankruptcy Act, 1993.

The court also stated that the amount of Rs.20.70 crores, currently held in a no-lien account with HDFC Bank, shall remain in place until the final adjudication by DRAT. Additionally, the High Court requested the DRAT to expedite the hearing process and avoid further procedural delays.

Case Title: HDFC Bank Limited v. Bank of Bahrain & Kuwait B.S.C. & Ashima Limited
Case Number: WP-9344/2024 & WP-12708/2024
Bench: Justice M.S. Sonak & Justice Jitendra Jain

[Read/Download order]