Recovery of Dues from the State under DRT proceedings

An important issue came up before Hon’ble Guwahati High Court in the matter of State of Nagaland and others v/s. UCO Bank & others [AIR 2004 Guwahati 150]. In this case the main issue involved was whether the Recovery Officer in exercise of his powers u/s. 28 of the Recovery of Debts due to Banks & Financial Institutions Act, 1993 [DRT Act] could attach and direct deduction of any amount from the Principal Deposit Account of the State lying with Reserve Bank of India in violation of the provisions embodied in the Constitution prescribing a definite mode for appropriation of moneys from the aforesaid account.

In this case, DRT had issued a Recovery Certificate in favour of the Bank and against the State of Nagaland in respect of its liability to liquidate the debt of a company viz. Nagaland Forest Products Limited, acquired by the State of Nagaland by an Act of Legislature. During the execution proceedings, the Recovery Officer directed the Regional Director, RBI, Guwahati to deduct the amount of Rs.3,99,12,814/- from the Principal Deposit A/c. of the Government of Nagaland and further to deposit the same with the Recovery Officer. The State of Nagaland filed an appeal u/s. 20 of the DRT Act challenging the order of DRT / Recovery Officer and also prayed for stay of further proceedings for recovery of debt under Chapter V of the DRT Act. As DRAT did not grant any stay, the State of Nagaland filed a writ petition under Article 226/227 of the Constitution praying for issuance of appropriate writ for quashing the impugned order of the Recovery Officer, DRT, Guwahati.

It was held that the interpretation of the provisions of Section 28 of the DRT Act which empower the Recovery Officer to require any person from whom money is due or may become due to the defendant or to any person who holds or may subsequently hold money for or on account of the defendant, to pay to the Recovery Officer, either forthwith upon the money becoming due or being held so much of the fund as is sufficient to pay the sum of debt due from the defendant have to be confined within the bound of the constitutional provisions. This power of the Recovery Officer can very well be exercised in all cases where there is no conflict with the constitutional provisions. Though the RBI is the custodian of the money deposited in the Consolidated Fund of the State of Nagaland, yet withdrawal of moneys therefor has to be in compliance with the constitutional requirements i.e. by way of an appropriation bill. Therefore the powers u/s. 28 cannot be exercised contrary to the constitution provisions. It cannot be said that the Union Parliament while enacting the DRT Act intended to vest unbridled powers to the Recovery Officer to act beyond the constitutional provisions.

It was observed by the High Court while setting aside the order of the Recovery Officer that this will not preclude the Recovery Officer from passing appropriate orders under Section 28 of the DRT Act for attachment of any money in deposit with any other authority other than the consolidated fund or the Contingency Fund of the State. It was also held by High Court that DRT may even direct the State functionaries to initiate steps for appropriation of the aforesaid amount from the Consolidated or the Contingency Fund in accordance with the provisions of Law.