UNION BANK OF INDIA vs M/S MERCURY APPAREL LTD on 7 May 2024

J U D G M E N T

1. The Original Application has been filed by the Applicant against the Defendants before Ld. DRT-II, Mumbai, which was transferred to this Tribunal on 12.11.2016 as per the Govt. Notification dated 26/09/2016 and registered as TA No.847/2016. Thereafter, on 21.10.2022, the matter was again transferred to the Ld. DRT-II, Mumbai due to change of jurisdiction vide Govt. Notification dated 04.10.2022. Subsequently, the same stands transferred to this Tribunal in view of stay order dated 17.11.2022 to the said Notification dated 04.10.2022, passed by the Hon’ble Bombay High Court, and thus, the matter is registered as TOA No.679/2023.

2. The present OA has been filed for recovery of Rs.2,16,52,406.33 (Rupees Two Crore Sixteen Lakh Fifty Two Thousand Four Hundred Six and paise Thirty Three only) with further interest at the rate of B.R.+5% arising out of Cash Credit Facility of the Applicant, plus penal interest @2% p.a. from the date of filing of the present OA till its realization.

3. Facts as succinctly set out in the OA are that on the request of the Defendants, the Applicant sanctioned Cash Credit Facility to the Defendant No.1 on 29.12.2007 and thereafter from time to time enhanced/renewed and the said Cash Credit Facility was lastly renewed on 02.08.2013 for Rs.2 crores in the name of the Defendant No.1 with Defendant No.2 & 3 as the Guarantors.

4. In consideration of the said Credit Facility, the Defendants have executed the various loaning and security documents which includes

(i) Memorandum of Mortgage dated 23.02.2008;

(ii) Declaration dated 23.02.2008;

(iii) Affidavit dated 12.03.2008;

(iv) Memorandum of Extension of equitable mortgage by deposit of title deed dated 24.08.2010;

(v) Letter of Guarantee dated 18.07.2013 executed by Shalaka Chandra, the Guarantor of Defendant No.1;

(vi) Letter of Guarantee dated 18.07.2013 executed by Bipin Chandra, the Guarantor of Defendant No.1;

(vii) Supplemental Deed of Composite Hypothecation Deed dated 18.07.2013;

(viii) Letter of Continuity dated 18.07.2013;

(ix) Letter of Undertaking not to alienate hypothecated goods dated 18.07.2013;

(x) Declaration dated 18.07.2013;

(xi) Demand Promissory Note dated 18.07.2013;

(xii) Letter dated 18.07.2013 to be obtained from the Directors in case where advances have been permitted to private limited/limited companies;

(xiii) Board Resolution passed by the Defendant no.1 dated 17.07.2013;

5. In order to secure the said loan, the Defendants created equitable mortgage by way of deposit of title deeds in respect of the immovable property being Flat No.1401, 14th Floor, Veena Apartments, admeasuring 1165 sq. ft. built up, Shankeshwar CHSL, constructed on plot bearing C.S. No.2/176 along with open car parking space no.N-6 on the ground floor at Malabar and Cumballa Hill Division situated at 198A, Walkeshwar Road, Mumbai-400006, and the same was recorded in Memorandum of Entry dated 24.08.2010. The Defendants also delivered the title documents of the said property.

6. It is further stated that by Supplemental Deed of Hypothecation dated 18.07.2013, the Defendants agreed and hypothecated all the goods, stock, plant, machinery, fixtures, implements, fittings nad other installations, furniture, vehicles, and all articles and things, both present and future, whether installed or note, whether lying loose or in cases, at site or in transit and all the Borrower’s present and future book debts, outstanding monies, receivables, claims, bills, contracts, securities, investments, rights and assets for the due repayment to the Applicant Bank.

7. It is also stated that the Defendants have admitted and confirmed their liability by letter of acknowledgment of debit balance.

8. However, the Defendant No.1 failed to adhere to the financial discipline of the Applicant Bank. Thus, the account was declared as NPA on 07.08.2015. Thereafter, the Applicant issued notice dated 28.08.2015 under Section 13(2) of the SARFAESI Act, 2002 and called upon the Defendants to make the payment of the outstanding dues and on the other hand by its letter dated 23.10.2015, the Defendants raised false, frivolous, vague and untenable representation/objections with the ulterior motive to delay the recovery proceeding. The Applicant by its letter dated 07.11.2015 communicated to the letter dated 23.10.2015 of the Defendant No.1 thereby denying all the baseless objections/representations raised by the Defendant No.1. Hence, the present OA.

9. Notices were issued to the Defendants. Defendants put their appearance through counsel and filed the written statement.

10. The Applicant has filed all the original documents and other relevant documents alongwith their claim affidavit filed through Jogesh Kumar Ranjan, Manager.

11. I have heard the Ld. Counsel for the parties and perused the record.

12. In the written statement, the Defendants have admitted the availment of the loan facilities and execution of the Defendants. The only objection raised by the Defendants in the written statement with regards to the rate of interest.

13. Therefore, I would like to decide the issue of rate of interest, raised by the Defendants.

(i) Ld. Counsel for the Defendants submitted that the sanction letters do not confirm under which scheme/product the Cash Credit facilities were sanctioned to M/s Mercury Apparel Limited from 2008 to 2013 and Rate of Interest related to such scheme/product linked to Credit Rating as mandated under RBI Master Circulars and as per the Bank Policy. He submitted that the Applicant vide its letter dated 16.03.2015 stated that the cash credit facilities sanctioned were assessed accordingly under credit scheme “Union Trade” I.C. No.7224 dated 13.09.2005 although the account was internally rated as CR-1 but applied CR-3 but as per scheme Union Trade Rate of Interest is same for CR1 to CR5: Collateral Security as % age of total fund based limits Rate of Interest (For CR-1 to CR-5 rating linked to BPLR) If the value of collateral security is 133% and above of total fund based limit BPLR-1.75%

(ii) He submitted that as per the Applicant letter dated 03.07.2015, the Scheme “Union Trade” I.C. 7224 under which the account was assessed and cash credit facility sanctioned was valid from 13.09.2005 till 26.11.2011 but applied wrong rate of interest without taking into consideration the criteria of collateral percentage of loan amount even though collateral security provided is over 171% to 200% in period 2008 to 2001” as stated in the table below: Year Rate of Interest to be applied as per Scheme Union Trade IC 7224 w.e.f. 13.09.2005 till 26.11.2011 for CR 1 to CR5 Wrong Rate of Interest applied as per sanction letter ADV/0466 dt.10.04.08 BPLR-1.75% BPLR+0.25% ADV/1383 dt. 21.10.09 BPLR-1.75% BPLR+2.25% ADV/1007 dt. 06.08.10 BPLR-1.75% BPLR+2.25% ADV/0281 dt.03.06.11 BPLR-1.75% BPLR+2.25

(iii) He further stated that as per the bank letter dated 16.03.2015, sanction of 2008, applied rate of interest on I.C. No.7644 dated 24.04.2007 which is Union Trade MINUS collateral criteria as stated in IC 7224 (not for the advances where collateral percentage to loan amount is not considered). The scheme Union Trade I.C. 7224 continued under I.C. No.9142 from 26.11.2011 till 27.08.2014 but the Applicant applied wrong rate of interest even though collateral security provided is over 258% in period 2012 to 2013” as stated in the table below: Year Rate of Interest to be applied as per Scheme Union Trade IC

continued under IC 9142 w.e.f. 26.11.2011 till 27.08.2014 for CR-3 to CR-4 Wrong Rate of Interest applied as per sanction letter ADV/757 dt.16.06.12 Base Rate+2% Base Rate +7% ADV/845 dt. 27.06.12 Base Rate+2% Base Rate + 6.25% ADV/701 dt. 02.08.13 Base Rate+2% Base Rate+5.00%

(iv) He also submitted that the sanction letter dated 02.08.2013 applied Rate Interest BR+5% which is of “Union Trade” (without taking into consideration of the collateral value of collateral security as percentage of total limit, whereas the “Union Trade based on the collateral coverage and geographical ceiling as per IC 9142 dated 26.11.2011) the rate of Interest should be BR+2%.

(v) Therefore, he submitted that the Applicant cannot claim any amount over and above the amount based on the scheme under which the cash credit facilities assessed and sanctioned, is Rs.1,16,79,409/- which is paid by the Defendant No.1 and the

Applicant is liable to pay compensation of Rs.22,73,72,848/- for violation of RBI Master Circular; UBI Customer Rights Policy; Declaring the account illegally as NPA; violation of Section 17, 18 and 19 of the Indian Contract Act, 1872; Deficiency of Service and Unfair Trade Practice u/s 2(11), 2(46) and 2(47) of Consumer Protection Act, 2019.

(vi) On the other hand, Ld. Counsel for the Applicant has submitted that the Defendants have never raised the objections with regards to the rate of interest in the matter since the year 2008 onwards. It was only after the account of the Defendants having turned NPA and after the filing of the OA and the Applicant Bank, having initiated action under the provisions of the SARFAESI Act, 2002 that the Defendants have as a matter of afterthought raise the objection with regards to the interest rate in the matter. Further, the Defendants have already admitted their liability as on 31.03.2013 by executing balance confirmation letter dated 18.07.2013 which is marked as Exhibit “AW-13” at Page 31 of the CAOD filed by the Applicant Bank in the matter. Hence, the objection with regards to the rate of interest and the calculation of the outstanding dues by the Applicant Bank cannot be now challenged by the Defendants at this belated stage and the entire objection raised by the Defendants has to be rejected.

(vii) I have gone through the record.

(viii) Record reveals that the Defendants availed the loan from the Applicant on 29.12.2007 and thereafter the facility was enhanced/renewed from time to time enhanced/renewed and lastly the credit facility was renewed on 02.08.2013 for Rs.2 crores. As per the sanction letter dated 02.08.2013 (Exb.36), the details of the

credit facilities sanctioned in favour of the Defendants along with the rate of interest in provided in following manner: Rs.in lacs Nature of limit Amount Margin Int/Comm. Security Existing Proposed -- -- -- Cash Credit 200.00 200.00 25% BR+5.00% Hyp. Of Stock & Book Debts not older than days Total 200.00 200.00 25% -- -- (emphasis supplied)

(ix) Therefore, the sanction letter dated 02.08.2013 clearly provides that the rate of interest is at the rate of Base Rate + 5%. The said sanction letter is duly signed by the Defendants and at that time the Defendants choose not to oppose the rate of interest charged by the Applicant.

(x) Besides this, as per the Demand Promissory Note dated 18.07.2013, (Exb.AW-10 of COD), the Defendants inter alia agreed that: “(Where the interest rates are linked to Bank’s Base Rate) Corporate Clients/Joint Individuals

Date: 18.07.2013 Rs.2,00,00,000/- On Demand, We M/s. Mercury Garment Ltd. promise to UNION BANK OF INDIA or order sum of Rupees Two Crores only together with interest on such sum from this date at the rate of 7.75% over Union Bank of India’s Base Rate or such other rates as may be prescribed by the Bank from time to time with a minimum of 18.00% per annum with monthly rests for value received.” (emphasis supplied)

(xi) Therefore, on perusal of the aforesaid documents, it is clear that the rate of interest charged by the Applicant is an agreed rate of interest as the Defendants were duly agreed upon the same. The Defendants enjoyed the credit facilities from the Applicant but failed to adhere to the terms of the sanction and when the Bank initiated steps for recovery of their dues from the Defendants, they raised the objection on the rate of interest.

(xii) Therefore, looking to the above facts and circumstances, I do not find any merit in the objection raised by the Defendants and the same is hereby declined.

14. Record reveals that after filing of the present OA, the Defendants filed an SA No.31/2016 before Ld. DRT-II, which stands transferred to this Tribunal and registered as TSA No.159/2016. This Tribunal vide order dated 18.03.2016 passed the following order in SA No.159/2016: “Without concluding that what is the actual outstanding to be repaid by the applicants and considering the admission of the applicants as regards actual dues of Rs.1,26,18,255/- to be paid the applicants to the respondent bank, the Applicant is hereby directed to repay the admitted amount of Rs.1,26,18,255/- within a month from today and in the meantime I think it just and proper to appoint a commissioner to examine and ascertain as to what is the actual total outstanding dues for repayment by the applicants to the respondent bank as on 28.08.2015 and as on the date of examination of loan account. Hence, Mr. Sanjay C. Shah & Asso., Madhav Nagar, Plot No.10, Second Floor, S.V. Road, Andheri (W), Mumbai-400053 is hereby appointed as Auditor Commissioner to audit the loan account of the Applicant and for the purpose as stated above on cost of the applicants of Rs.5000/- to be deposited in the Tribunal. Let the report be submitted within a fortnight from the receipt of this order. The Registrar shall issue letter to the commissioner accordingly.” (emphasis provided)

15. Pursuant to the order dated 18.03.2016, the Defendants herein paid a sum of Rs.1,16,79,409/- to the Applicant herein.

16. Further, in terms of the said order dated 18.03.2016, Mr. Sanjay C. Shah & Associates, Auditor Commissioner filed audit report dated 27.05.2016 and as per the said report, after adjusting the amount of Rs.1,16,79,409/- the total outstanding dues payable by the Defendants herein to the Applicant is Rs.80,73,945/- as on 25.08.2015 with further interest.

17. Therefore, the Applicant herein by way of the claim affidavit, praying for issuance of Recovery Certificate for an aggregated sum of Rs.80,73,945.25 due as on 25.08.2015 together with contractual rate of interest i.e. B.R.+5% i.e. 18% p.a. with monthly rests, till payment and or realization.

18. 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 all these documents against the Defendants. In my view there is no question of disbelieving the evidence led by the Applicant Bank and the Applicant Bank has proved its case beyond reasonable doubt. The liability of the Defendant No.1 to 3 is joint and several.

19. Insofar as pendentelite and future interest is concerned, the Applicant is praying for further interest at the rate of B.R.+5% i.e. 18% p.a. with monthly rests, from 26.08.2105 till payment and or realization. The litigation between the parties has been pending since 2016 and Defendants are regularly appearing in the present matter and the contract between the applicant and the Defendants comes to an end. After the filling of the OA as per the provisions of Section 19(20) of the Recovery of Debts and Bankruptcy Act, 1993, 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.” (emphasis supplied)

20. 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 foregoing discussion and considering the present fall in rate of interest, I am of the opinion that interest of justice will be served if pendentelite and future interest is awarded at the rate of 10% p.a. (simple).

21. In the light of the abovesaid discussions, the Original Application filed by the Applicant Bank deserves to be allowed against the Defendant No.1 to 3, for an amount of Rs.80,73,945.25 together with further interest @10% p.a. from 25.08.2015 till its realization.

O R D E R

(i) I allow the present O.A. and direct the Defendant No.1 to 3 to pay to the Applicant Bank, jointly and severally, within a period of 60 days, a sum of Rs.80,73,945.25 (Rupees Eighty Lakh Seventy Three Thousand Nine Hundred Forty Five and paise Twenty Five only) with further interest 10% p.a. from 25.08.2015 till its realization.

(ii) Failing which the aforesaid amount shall be recovered from the sale of mortgaged property, hypothecated goods as well as other personal moveable and immoveable assets of the Defendants.

(iii) The Defendants are hereby directed not to deal with their properties till the further direction of this Tribunal.

(iv) Defendants shall also pay the cost and expenses of the OA.

(v) Recovery Certificate be issued forthwith and be sent to the Recovery Officer of this Tribunal.

Copy of this order be sent to the parties as per rules. File be consigned to record. Place: Mumbai. (Dr. Rekha G. Dhakar) Date: 07.05.2024

Presiding Officer,

DRT-1, Mumbai. sc