Settlement in Debt Recovery Case: Supreme Court Directs Payment and Stay on Further Proceedings

The Supreme Court of India, in XLO India Limited & Anr. vs. International Asset Reconstruction Company Pvt. Ltd. & Ors., delivered a significant order related to debt recovery proceedings under the Recovery of Debts and Bankruptcy Act, 1993 and the enforcement of an attachment order. The case addressed critical issues of payment in the course of debt recovery and the role of courts in enforcing recovery orders while ensuring fairness in the process.

Background of the Case

This case arises from the ongoing dispute between XLO India Limited (the appellant) and International Asset Reconstruction Company Pvt. Ltd. (the respondent), concerning the recovery of debt. The respondent had filed a recovery application before the Debt Recovery Tribunal (DRT), Jaipur, against the appellant, alleging that the appellant owed approximately Rs. 29 crores. The dispute revolves around the enforcement of a debt and the attachment of the shares held by the appellant.

Earlier, in 2021, the Debt Recovery Appellate Tribunal (DRAT) had confirmed the order of attachment of shares held by the appellant in XLO India Limited. However, the respondent had also filed a petition challenging the pre-deposit of Rs. 1.53 crores, which had been made by the appellant while preferring the appeal before the DRAT.

Legal Disputes and Issues Raised

The appellant disputed the claim for Rs. 29 crores, arguing that the amount had already been paid, and the question was whether the debt had been fully discharged. The parties were at an impasse regarding the attachment of shares and the recovery of the outstanding amount. Additionally, the appellant requested a stay on further recovery actions while challenging the underlying claims of the debt.

Proceedings Before the Court

The case was brought before the Supreme Court following an appeal against the High Court’s dismissal of the appellant’s writ petition, which had initially been filed to contest the order of the DRAT. The Supreme Court was asked to review the legality of the attachment order, the obligation to make a pre-deposit, and whether further recovery actions should continue while the dispute was pending.

Arguments Presented

Appellant’s (XLO India Limited) Arguments:

The appellant contended that the amount claimed by the respondent was either paid or disputed.
The appellant had already deposited a sum of Rs. 1.53 crores as part of the appeal process.
The attachment order for the shares was harsh and should be stayed during the resolution of the dispute.
The appellant also requested a final hearing of the case within a reasonable timeframe to ensure the debt was conclusively settled.

Respondent’s (International Asset Reconstruction Company) Arguments:

The respondent claimed that the debt due was approximately Rs. 29 crores, and this amount was not yet paid by the appellant.
The respondent requested that the appellant continue the payment process as per the tribunal’s order.
The respondent also demanded the withdrawal of the pre-deposit amount of Rs. 1.53 crores made by the appellant, as well as additional funds in accordance with the recovery process.

Supreme Court’s Ruling

The Supreme Court disposed of the appeal in favor of a fair settlement between the parties and issued the following directives:

On Payment and Pre-Deposit:

The Court directed the appellant to deposit an additional Rs. 5 crores with the Presiding Officer, DRT, Jaipur within four weeks, without prejudice to the rights of either party in the appeal.
The respondent was allowed to withdraw the Rs. 5 crores deposited by the appellant along with Rs. 1.53 crores (with accrued interest), which had been deposited as part of the appeal.
The respondent was also permitted to withdraw Rs. 25 lakhs that were already lying with the Recovery Officer.

On Stay of Further Recovery Actions:

The Court directed that no further recovery proceedings take place until the appeal in the DRT was disposed of within eight weeks. The attachment order regarding the appellant’s shares would continue until the final disposal of the appeal.

On Resolution of the Case:

The Court emphasized that the DRT, Jaipur should expedite the resolution of Appeal No. 1/2020 and dispose of it within eight weeks from the date of the order.
It was also stated that the withdrawal of amounts by the respondent would be without prejudice to the final outcome of the appeal.

Impact of the Judgment

This judgment has far-reaching implications in debt recovery cases, especially regarding:

The enforcement of attachment orders in commercial disputes.
The importance of timely resolution of disputes in debt recovery cases.
The balance between creditor rights and the debtor’s ability to contest claims.
The Court’s emphasis on ensuring that recovery actions do not continue in parallel with pending appeals, which may affect the fairness of the process.

Conclusion

The Supreme Court’s decision ensures that both the creditor’s rights and the debtor’s ability to contest the debt are respected. The Court has laid down a clear framework for the balance between securing the claim through recovery actions and ensuring the prompt resolution of disputes. This case highlights the need for careful attention to procedural fairness in the enforcement of debt recovery and emphasizes that a speedy, just resolution of such disputes is paramount to preserving justice in financial matters.

Petitioner Name: XLO India Limited & Anr..
Respondent Name: International Asset Reconstruction Company Pvt. Ltd..
Judgment By: Justice M.R. Shah, Justice A.S. Bopanna.
Place Of Incident: Jaipur, Rajasthan.
Judgment Date: 27-10-2021.

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