BANK OF BARODA vs M/s S.N.E (India) Pvt Ltd on 14 January 2019

JUDGMENT

(14.01.2019)

1. The applicant Bank has filed the present OA on 05.02.2013 for recovery of a total sum of Rs.3,86,47,915/- (Rupees Three Crores, Eighty Six Lakhs, Forty Seven Thousand, Nine Hundred and Fifteen 2 TA No. 38/2015

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only) along with pendentelite and future interest at the contractual rate compounded monthly rests alongwith costs.

2. It is pertinent to mention here that the original OA (No. 143/20135) was filed with the Hon’ble DRT-III on 08.02.2013 and was transferred to this Tribunal on 22.07.2015, as per Govt. notification dated 11.05.2015 on jurisdiction and was allotted TA no. 38/2015.

3. Facts as succinctly set out in the OA are that the present O.A. is filed by Mr. Debashis Bakshi, Chief Manager of the applicant bank who holds a power of attorney and is competent to sign, verify and institute the present OA.

4. It is stated that the defendant No.1 being a company incorporated under the Companies Act, who was sanctioned a Cash-Credit facility of Rs. 3,20,00,000 @ 3.25% above base rate and a Term Loan (outstanding balance Rs. 39,14,000.00) @ 3.50% above base rate, on the request of the defendants and they executed various loaning documents viz., Demand Promissory Note, Letter of Installment, Letter of Hypothecation, Undertaking, Confirmation of creation of equitable mortgage of the property owned by the company, Power of Attorney in respect of Book Debts etc. on 04.10.2010 as also affixed the common seal of the company, as authorized by the Board of Directors in the meeting held for this purpose. Defendant No. 2 to 4 stood as Guarantors for advances granted to defendant no. 1.

5. In consideration of availing the said loan facility, the defendant No. 1 through its Directors, created equitable mortgage of its immoveable property located at SIDCUL, Sitarganj and Kasna Industrial Area, Greater Noida. Details have been given in para 9 of the plaint.

6. It is further stated that defendant no. 1 failed to maintain financial discipline and the applicant was constrained to recall the credit facility, 3 TA No. 38/2015

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therefore, the applicant bank served a notice under Section 13(2) of the SARFAESI Act, 2002 on 11.05.2012 and a legal notice dated 28.01.2013 to the defendants for the payment of entire outstanding amount of Rs. 3,86,47,915.00 as on 31.01.2013, but the defendants failed to make the payment. Thus, the present O.A. is preferred by the applicant bank to recover its dues.

7. Notice was issued to the defendants. Despite service, none appeared for the defendants no. 4 and he was proceeded ex-parte vide order dated 13.02.2015. Defendant nos. 1 & 2 as well as defendant no.3 caused appearance and filed their separate written statement but failed to file their evidence, despite being given innumerable opportunities, last being on 7.12.2016 and their rights for evidence were closed on 13.04.2017.

8. Defendant nos. 1 to 3 in their written statements have raised the following objections:

(i) That the applicant bank has failed to bring on record that they have already taken physical possession of the mortgaged properties and they cannot file a suit for recovery simultaneously with action under Section 13 of the SARFAESI Act, 2002.

(ii) That the applicant bank has failed to take possession of and sell the hypothecated stocks stored at their place of business, with the result that they have frittered away and the defendants stand discharged to the extent of their value.

(iii) That there has been no notice for the variation in interest, which has been charged at excessive rates above the contractual rate.

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(iv) That the applicant bank obtained their signatures on blank and standard forms, which the defendants had no choice to opt for.

9. The applicant bank filed filed its rejoinder to the reply submitted by defendants nos. 1 to 3 stating:

(i) That due procedure has been followed under the provisions of SARFAESI Act, 2002 to proceed under Sec 13 thereof and that there are a number of decided cases whereby a bank can simultaneously proceed against the mortgaged property under the SARFAESI Act, 2002 and file an OA under the RDDB&FI Act, 1993.

(ii) That it is the borrower who is responsible for the safe upkeep of the hypothecated goods and the defendants cannot be discharged by their own inaction or losses incurred due to their negligence.

(iii) That interest has been charged in line with the agreements signed by the defendants and changes in base rate are as per RBI guidelines.

(iv) That it was open to the defendants not to sign any standard format documents, which are formatted in accordance with the requirements of Law. The documents were duly filled in before execution by the defendants.

10. The applicant bank filed its evidence by way of affidavit of Mr. Debashis Bakshi, Chief Manager of the Bank and proved its documents as Exhb. CW 1/1 to Exhb. CW 1/24.

11. Further, on 04.07.2016, the applicant bank has submitted a revised statement of account after due credit of sale proceeds of Rs.

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2,60,14,659/- out of sale of the mortgaged property. They have also claimed pendente lite interest @ 13.75% on Rs. 3,74,84,371.00 (Cash- Credit A/c) from 01.02.2013 till 28.08.2015 and thereafter @ 13.75% on Rs. 1,14,69,712/- and @ 14% on Rs. 11,63,294/- (Term Loan A/c).

12. Heard the rival submissions and perused the record.

13. I have considered the submissions made by the defendant No. 1 to 3 and the applicant bank on the objections raised by the defendant nos. 1 to 3. Now I shall deal with them individually.

14. The first objection of the defendants is that the applicant bank has simultaneously proceeded u/S 13(4) of the SARFAESI Act, 2002 and under RDDB&FI Act, 1993 and thus this OA is not maintainable. Hon’ble Supreme Court has held that proceedings under RDDB&FI Act, 1993 and SARFAESI Act, 2002 can be held simultaneously in Transcore Vs. Union of India & Anr. 1 as under: “18. On analysing the above provisions of the DRT Act, we find that the said Act is a complete Code by itself as far as recovery of debt is concerned. It provides for various modes of recovery. It incorporates even the provisions of the Second and Third Schedules to the Income Tax Act, 1961. Therefore, the debt due under the recovery certificate can be recovered in various ways. The remedies mentioned therein are complementary to each other. The DRT Act provides for adjudication. It provides for adjudication of disputes as far as the debt due is concerned. It covers secured as well as unsecured debts. However, it does not rule out applicability of the provisions of the TP Act, in particular Sections 69 and 69A of that Act. Further in cases where the debt is secured by pledge of shares or immovable properties, with the passage of time and delay in the DRT proceedings, the value of the pledged assets or mortgaged properties invariably falls. On account of inflation, value of the assets in the hands of the bank/FI invariably depletes which, in turn, leads to asset liability mis-match. These contingencies are not taken care of by the DRT Act and, therefore, Parliament had to enact the NPA Act, 2002.”

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15. Further, in M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero Fincorp Ltd. 2 & Mathew Varghese vs. M. Amritha Kumar 12, the Hon’ble Supreme Court has held that: “45. A close reading of Section 37 shows that the provisions of the SARFAESI Act or the Rules framed thereunder will be in addition to the provisions of the RDDB Act. Section 35 of the SARFAESI Act states that the provisions of the SARFAESI Act will have overriding effect notwithstanding anything inconsistent contained in any other law for the time being in force. Therefore, reading Sections 35 and 37 together, it will have to be held that in the event of any of the provisions of the RDDB Act not being inconsistent with the provisions of the SARFAESI Act, the application of both the Acts, namely, the SARFAESI Act and the RDDB Act, would be complementary to each other. In this context, reliance can be placed upon the decision in Transcore v. Union of India [(2008) 1 SCC 125 : (2008) 1 SCC (Civ) 116] . In para 64 it is stated as under after referring to Section 37 of the SARFAESI Act: (SCC p. 162) “64. … According to American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is only one remedy, then the doctrine of election does not apply. In the present case, as stated above, the NPA Act is an additional remedy to the DRT Act. Together they constitute one remedy and, therefore, the doctrine of election does not apply. Even according to Snell's Principles of Equity (31st Edn., p.

46. …A reading of Section 37 discloses that the application of the SARFAESI Act will be in addition to 11 (2008) 1 SCC 125 12 (2014) 5 SCC 610 and not in derogation of the provisions of the RDDB Act. In other words, it will not in any way nullify or annul or impair the effect of the provisions of the RDDB Act. We are also fortified by our above statement of law as the heading of the said section also makes the position clear that application of other laws are not barred. The effect of Section 37 would, therefore, be that in addition to the provisions contained under the SARFAESI Act, in respect of proceedings initiated under the said Act, it will be in order for a party to fall back upon the provisions of the other Acts mentioned in Section 37, namely, the Companies Act, 1956, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, or any other law for the time being in force.”

Hence, in view of the above said judgments, this objection is rejected.

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16. The second objection is that the applicant bank has failed to take possession of and to sell the hypothecated goods, resulting in loss of value. As submitted by the applicant bank, it was obligatory on the part of defendants to safeguard and dispose of the hypothecated goods and to credit the proceeds with the applicant bank against their liability. Thus, this objection is also rejected.

17. The third objection of the defendants relates to variation in rates of interest, which was not informed to the defendants from time time and of excessive interest charged. As pointed out by the applicant bank interest has been charged in terms of agreement and variations as per RBI guidelines are covered in the same. In view of the submissions and perusal of Exb.CW1/4, it is clear that the defendants had agreed to floating rate of interest linked to the base rate. Hence, this objection is also overruled.

18. The last objection raised by the defendants is that the applicant bank obtained signatures on blank documents and in a standard format, without any option to the defendants. The law as laid down by the Hon’ble High Court of Delhi in the mater of Indian Bank Vs. Cheese Wafers India Pvt. Ltd., is that a person who raised this objection should have approached higher authorities first before he could raise this objection. This contention of signing on blank appears to be an after-thought, as it was never brought up by them before the appropriate authorities, before this juncture. As to the standardized formats, the applicant bank has submitted that the formats are formulated as per requirements of law and it is a justified contention. Thus this objection is also dismissed.

19. The witness of the applicant bank has fully corroborated the averments made in the OA. Even otherwise the whole case of the applicant bank is based on documents and the witness has duly proved 8 TA No. 38/2015

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all these documents. In my view there is no question of disbelieving the evidence lead by the applicant bank and the applicant bank has proved its case beyond reasonable doubts.

20. The applicant bank has claimed interest at the rate of 13.75% on Cash-Credit Account and 14% on Term Loan account, compounded with monthly rests alongwith costs in this Tribunal. The contract between the applicant bank and the defendants comes to an end. So far as the question of pendentelite and future interest is concerned, according to the new Webster’s Comprehensive Dictionary of the English Encyclopedic Edition (2004) the word pendentelite which is a Latin word means pending or during suit. Pendentelite and future interest would start from the date when the proceedings before the Court are filed. After the filling of the OA as per the provisions of Section 19(20) of the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 (as amended in 2000) which is analogous to Section 34 of the CPC, the Tribunal/Court has discretion in awarding pendentelite and future interest. Section 19(20) of the DRT runs as follows: “19(20) The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such interim or final order, including the order for payment of interest from the date on or before which payment of the amount is found due up to the date of realization or actual payment on the application is it thinks fit to meet the ends of justice.” In the cases reported in State Bank of India Vs. Sarathi Textiles & Ors. 2008(3) SCALE 409, C.K. Sansankan Vs. Dhanlakshmi Bank Ltd. 2009(2) D.R.T.C. 320 S.C. and Sardar Associates and Others Vs. Punjab & Sind Bank and others, AIR 2010 (SC) 218 it was held that it is the discretion of the court toward the pendentelite and future interest which has to be exercised fairly. I am also supported in my view by the Hon’ble Supreme Court in a case titled Central Bank of India Vs. Ravindra and others reported in 2001 SC page 3095. On the basis of the fore going discussion and considering the present fall in rate of 9 TA No. 38/2015

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interest, I am of the opinion that interest of justice will be served if pendentelite and future interest is awarded at the rate of 12% p.a. (simple).

22. In the light of above discussions, the Original Application deserves to be allowed.

ORDER

i) I allow this OA and direct the defendants No. 1 to 4 to pay to the applicant bank within a period of 30 days, a sum of Rs. Rs.3,86,47,915/- (Rupees Three Crores, Eighty Six Lakhs, Forty Seven Thousand, Nine Hundred and Fifteen only) along with pendentelite and future interest at the rate of 12% p.a., failing which the aforesaid amount shall be recovered from the sale of their immoveable property located at SIDCUL, Sitarganj and Kasna Industrial Area, Greater Noida. Details have been given in para 9 of the plaint as well as other personal moveable and immoveable assets of the defendants. The cost of litigation be also borne by the defendants. ii) The applicant is also directed to file the revised statement of account before the Ld. Recovery Officer of this Tribunal.. iii) The recovery certificate be issued forthwith and be sent to the Recovery Officer, DRT-I Delhi. iv) The parties are directed to appear before the Ld. Recovery Officer on 01.03.2019. v) Copy of this judgment and recovery certificate be sent to all the parties free of cost by registered post. File be consigned to record room.

(Dr. REKHA G. DHAKAR) PRESIDING OFFICER DRT-I, DELHI ANNOUNCED IN OPEN COURT January 14, 2019