Asset Reconstruction Company (India) Limited vs MISHAL ZINC INDUSTRIES PVT LTD on 31 May 2024

J U D G M E N T

1. The Original Application has been filed by the Assignor Bank i.e. State Bank of India against the Defendants before the Ld. DRT-III, Mumbai, which stands transferred to this Tribunal on 27.10.2016 per Govt. Notification dated 26.09.2016 and registered as TA No. 867/2016. The OA has been filed for recovery of Rs.9,39,60,648/- (Rupees Nine Crore Thirty Nine Lakh Sixty Thousand Six Hundred Forty Eight Only) with further interest @ 16.25 % with quarterly rests till payment/ realisation.

2. During the pendency of the OA, the Assignor Bank i.e. State Bank of India (Original Applicant) sold, assigned, transferred and released in favour of the Respondents, its rights, title and interest in respect of various financing documents, all agreements, deeds and documents including financing documents pertaining to the Defendants herein, in favour of the Applicant herein, vide Deed of Assignment dated 30.03.2005.

3. Facts as succinctly set out in the OA are that the Defendant No.1 is a Private Limited Company who is the Principal Borrower of the Applicant. Defendant No.2 & 3 are the Directors of the Defendant No.1 and have also guaranteed in their personal capacity. Defendant No. 4 & 5 have also guaranteed the repayment of the credit facilities granted to the Defendant No. 1.

4. It is stated that Defendant No. 1 was at their instance & sanctioned the undermentioned cash credit limits by Assignor Bank on 17/08/1998: Facility Limit Fund Based: Demand Cash Credit (Stock) Rs. 100 Lakh Clean Cash Credit (Bills) Rs. 100 Lakh __________ (A) Rs. 200 Lakh Non Fund Based: Letter of Credit Rs. 195 Lakh Bank Guarantee Rs. 5 Lakh __________ (B) Rs. 200 Lakh Total (A + B) Rs. 400 Lakh

5. In consideration of sanction of the aforesaid facility, Defendant No. 1 executed following loaning and security documents on 21.08.1998: i. Agreement of Loan for overall limit ii. Agreement for hypothecation of goods and assets iii. Letter regarding the grant of individual limits within the overall limits iv. Letter of arrangement

6. In order to further security the aforesaid facilities, Defendant No. 1 mortgaged their leasehold land & factory premises situated at Plot No. C/42, MIDC, Lote Parshuram Chiplun, Taluka Khed, Dist.

Ratnagiri. Defendant No. 1 deposited necessary documents in favour of the Assignor Bank.

7. It is also stated that by way of further security for the aforesaid facilities, Defendant No. 1 executed a power of Attorney dated 01.09.1998 in favour of the Assignor Bank to create a mortgage in their own favour.

8. It is further stated that to secure the aforesaid facilities, Defendant No. 2 to 5 in their personal capacities, executed deed of guarantee dated 21.08.1998 in favour of the Assignor Bank.

9. It is also stated that on or about 14/08/1999, Defendant No. 1 instance & application for additional credit facility of Rs. 500 Lakh was granted by the Assignor Bank to Defendant No. 1, in the following manner: Facility Limit Fund Based: Demand Cash Credit (Stock) Rs. 300 Lakh Clean Cash Credit (Bills) Rs. 100 Lakh Non Fund Based: Letter of Credit Rs. 495 Lakh Bank Guarantee Rs. 5 Lakh Total Rs. 900 Lakh

10. In consideration of sanction of the aforesaid facilities, Defendant No.1 executed following loaning and security documents on 14.08.1999: i. Supplemental Agreement of Loan for increase in overall limit ii. Supplemental Agreement for hypothecation of goods and assets for increaser in overall limit iii. Letter of arrangement

11. It also stated that the mortgaged leasehold land & factory premises was extended to cover the enhanced limits by the Applicant to the Defendant No.

by way of extension of mortgaged dated 20.08.1999. Further, by way of further security for the aforesaid facilities, Defendant No. 1 executed a power of Attorney dated 20.08.19991998 in favour of the Assignor Bank to create a mortgage in their own favour.

12. It is further stated that to secure the aforesaid facilities, Defendant No. 2 to 5 in their personal capacities, executed deed of guarantee for increase overall limit of Rs. 900 Lakh dated 14.08.1999 in favour of the Assignor Bank.

13. However, after availing the aforesaid facilities and enhancement facilities, Defendant No.1 became highly irregular since about 17.11.1999. Defendant No. 1 could not regularise their accounts despite several reminders. Thereafter, the Assignor Bank issued legal notice dated 09.05.2000 & 30.06.2000 upon the Defendants, Hence, the present OA has been filed.

14. Notices were issued to the Defendants. Defendants put their appearance through counsel and filed their respective written statements.

15. The Applicant has produced all the Original Loan documents and other relevant documents along with their Claim Affidavit filed through Ajay Prabhakar Joshi, Chief Manager of the Applicant.

16. I have heard the Ld. Counsel of the parties and perused the record.

17. In the written statement and during the course of arguments, the Defendant No.1 to 5 have raised the following objections that:

(i) The Defendant No.1 Company had taken on lease the Plot No.C-42, MIDC, Lote Parshuram, Chiplun, Taluka Khed, Dist. Ratnagiri from Maharashtra Industrial Development Corporation (“MIDC”) to the best of knowledge of the Defendant No.1 Company, the lease has been terminated by MIDC and MIDC was in the process of reassigning the lease to a third party; therefore, the mortgage decree cannot be prayed for by Applicant as the property which was never owned by the Defendant No.1 Company and same was never mortgaged;

(ii) Statement of Accounts produced by the Applicant is not in conformity with the provisions of the Bankers Book of Evidence Act.

(iii) The alleged guarantee documents are not properly stamped and executed by Defendant No.2, 3, 4 and 5.

(iv) The ZINC OXIDE STOCKS worth more than Rs.8 crores were present inside the factory premises of the Defendant No.1 company situated inside Plot No.c-42, MIDC, Lote Parshuram, Chiplun, Taluka Khed, Dist. Ratnagiri, but the Applicant did take any steps to take possession of the stock and sell the same towards their alleged outstanding and the Applicant is liable for loss of security situated inside the factory premises.

18. Now hereinafter, I would like to decide the issue raised by the Defendant No.1 to 5 in the written statement as well as during the arguments.

(i) The first objection raised by the Defendants is that the Defendant No.1 Company had taken on lease the Plot No.C-42, MIDC, Lote Parshuram, Chiplun, Taluka Khed, Dist. Ratnagiri from Maharashtra Industrial Development Corporation (“MIDC”) to the best of knowledge of the Defendant No.1 Company, the lease has been terminated by MIDC and MIDC was in the process of reassigning the lease to a third party; therefore, the mortgage decree cannot be prayed for by Applicant as the property which was never owned by the Defendant No.1 Company and same was never mortgaged. On the other hand, the Applicant has stated that no evidence has been adduced with respect to the aforesaid statement and further it is also mentioned by the Defendant No.1 itself “to the best of knowledge”, therefore the Defendant is making ambiguous statement without leading evidence in regards thereof and in absence of any evidence, the said contention of the Defendant No.1 ought to be rejected outright. The Defendant No.1 Company had obtained lease for a period of 95 years commencing from 1989 and the same leasehold rights were mortgaged against the credit facilities obtained and enjoyed and usurped by the Defendants, thus, the objection of the Defendants is baseless and without any foundation or merits. I have gone through the record. Record reveals that in order to secure the loan facility availed by the Defendant No.1 from the Assignor Bank, the Defendant No.1 mortgaged their leasehold land & factory premises by an equitable mortgage dated 21.08.1998 (Exb.E of the COD) and also executed power of attorney in respect of the said property (Exb.F of the COD). Further, the said mortgage was also extended to cover the enhanced credit limit granted by the Applicants by way of extension of mortgage dated 20.08.1999 (Exb.J) and also executed letter of confirmation of deposit of title deeds dated 24.08.1999 (Exb.J/1 of the COD). Therefore, the objection of the Defendants that there is no valid mortgage in favour of the Applicant is not sustainable. Even otherwise, nothing has been produced on record by the Defendants to prove the alleged allegation that the lease has been terminated by MIDC, thus, the objection of the Defendants is baseless hence, rejected.

(ii) The next objection raised by the Defendants is that the Statement of Accounts produced by the Applicant is not in conformity with the provisions of the Bankers Book of Evidence Act. It is also stated that the Applicant has failed to file a fresh statement of accounts after being assigned the Debt by SBI. Record reveals that the Applicant has filed the complete statement of account alongwith particulars of Claim i.e. (Exb.M and Exb.N of the COD). The Defendants failed to point out any single entry in the statement of account which is incorrect, therefore, the objection raised by the Defendants is not sustainable hence, rejected.

(iii) The next objection raised by the Defendants is that the alleged guarantee documents are not properly stamped and executed by Defendant No.2, 3, 4 and 5. Record reveals that the Defendant No.2 to 5 executed the guarantee agreement dated 21.08.1998 (Exb.G) and dated 14.08.1999 (Exb.L of the COD) to secure the credit facilities availed by the Defendant No.1 for an aggregated amount of Rs.9 crore. The said Guarantee is duly signed and executed by the Defendant No.2

to 5 therefore, the allegation of the Defendants is baseless hence, declined.

(iv) The next objection raised by the Defendants is that the ZINC OXIDE STOCKS worth more than Rs.8 crores were present inside the factory premises of the Defendant No.1 company situated inside Plot No.c-42, MIDC, Lote Parshuram, Chiplun, Taluka Khed, Dist. Ratnagiri, but the Applicant did not take any steps to take possession of the stock and sell the same towards their alleged outstanding and the Applicant is liable for loss of security situated inside the factory premises. According to the Applicant, the Applicant has taken action under provisions of SARFAESI Act, 2002 however, due to recording of certain alleged charge of the Sales Tax they were not able to proceed with the same and further a Writ Petition is pending before the Hon’ble Bombay High Court. Since the issue raised by the Defendants is pertaining to the measures taken under the SARFAESI Act, 2002 thus, the Defendants are not entitled to challenge the said measures in the present proceeding hence, objection of the Defendants is hereby declined as not maintainable.

19. The witness of the Applicant has fully corroborated the averments made in the OA, even otherwise the whole case of the Applicant is based on documents and the witness has duly proved all these documents as against the Defendants. In my view there is no question of disbelieving the evidence led by the Applicant and the Applicant has proved its case beyond reasonable doubt. The liability of Defendant No. 1 to 5 is joint and several.

20. In the light of above discussions, the Original Application filed by the Applicant deserves to be allowed against the Defendant No. 1 to

5.

O R D E R

(i) I allow the present O.A. and direct the Defendant No. 1 to 5 to pay to the Applicant, jointly and severally, within a period of 60 days, a sum of Rs.9,39,60,648/- (Rupees Nine Crore Thirty Nine Lakh Sixty Thousand Six Hundred Forty Eight Only) with further interest @ 16.25 % with quarterly rests from the date of filing of the present OA till its realization.

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

(iii) Defendants are hereby directed not to deal with their properties till further direction of Ld. Recovery Officer.

(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 : 31.05.2024

Presiding Officer,

DRT-1, Mumbai. Tjs/-