FEDERAL BANK vs JERRY MG on 29 August 2018

FINAL ORDER

The applicant bank has filed Original Application [for brevity referred as “OA”] on 20.03.2014 under Section 19(1) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 for recovery of a sum of Rs.22,42,475.77 due under the FHS Account with interest @15.75% per annum with monthly rests on Rs.22,32,831/- and a sum of Rs.6,46,395.16 due under the FPL Account with interest @ 18.05% per annum with monthly rests on Rs.6,42,411/- from the date of application till realization in fully from the defendants jointly and severally and by sale of schedule „A‟ property to the OA. BRIEF FACTS OF THE CASE

1. The applicant is a Banking Company within the meaning of Banking Regulation Act, constituted under the Companies Act, 1956, having its Registered Office at Alwaye and a branch amongst other places at Puzhakkal in Thrissur District and is entitled to sue and be sued in its name. The OA is signed and verified by Shri.Francis.T.M, the Senior Manager and Principal Officer of the applicant, who is conversant with the facts of the case and is competent to verify the application and represent the bank to file this application.

2. It is the case of the applicant bank that defendants are brothers. The 1st defendant is the principal borrower and 2nd defendant is the co-obligant to the credit facilities availed by the 1st defendant.

3. In June 2009, defendants approached the applicant for Federal Housing Loan [for brevity FHS] of Rs.18lakhs for construction of a house. The applicant after considering the request, granted FHS of Rs.18 lakhs on 30.06.2009. As security towards the credit facility defendants have executed demand promissory note dated 30.06.2009 for Rs.18 lakhs, promising to repay the said amount with interest thereon. Further the defendants have also executed FHS agreement dated 30.06.2009 agreeing to repay the said loan within a period of 240 months in equated monthly installments of Rs.18,274/- each and the first installment was agreed to be payable on 30.07.2009 and the subsequent installments on the same date of subsequent months. It was further agreed that the entire loan could be recalled in case of their default in payment or in complying with the terms of agreement.

4. As a collateral security for the aforesaid FHS loan facility 1st defendant on 30.06.2009 deposited the Sale Deed No.1836/2009 dated 11.06.2009 of SRO, Ayyanthole relating to 2.12 Ares (5.25 Cents) of property in Sy.No.169 part situated in Veluthoor Village, Thrissur Taluk, more fully described in schedule „A‟ to the OA. The 1st defendant vide letter dated 01.07.2009 confirmed the deposit of title deed and creation of mortgagee over the „A‟ schedule property.

5. It is submitted by the applicant that in August 2010, defendants approached the applicant for a personal loan of Rs.5lakhs. Considering the request of the defendants, applicant had sanctioned Federal Personal Loan [for brevity FPL] of Rs.5lakhs and the defendant has executed demand promissory note along with security delivery letter dated 12.08.2010 for Rs.5lakhs, promising to repay the said amount with interest thereon.

6. Further defendants have also executed FPL agreement dated 12.08.2010. As per the said agreement defendants have agreed to repay the said loan within a period of 120 months in equated monthly installments of Rs.7,540/- each. The first of such installment was agreed to be payable on 12.09.2010 and the subsequent installments on the same date of subsequent months. It was also agreed that the entire loan could be recalled in case of their default in payment or in complying with the terms of agreement. As per the FPL agreement, the 1st defendant had extended the benefit of mortgaged already created by him on 30.06.2009 over schedule „A‟ property to the OA and executed letter dated 13.08.2010 confirming/extending the mortgage of FPL limit.

7. It is the case of the applicant that the defendants had executed balance confirmation letter for the FHS and FPL loan accounts together on 18.08.20011 confirming the balance outstanding in both the accounts as on 17.08.2011 and confirmed the correctness of the amount with interest and other charges due to the applicant and their liability to pay the outstanding amount in both the loan accounts.

8. It is the contention of the applicant that the repayments in the accounts were defaulted inspite of request to regularize the accounts, the defendants did not repay the installment/regularize the accounts. Hence, the applicant had issued demand notice dated 02.12.2011 under Section 13(2) of the SARFAESI ACT calling upon them to pay the entire amount due under the loan accounts within 60 days from the date of notice. But the defendants failed to settle the liabilities. As on 20.03.2014 an amount of Rs.22,42,475.77 is due under the FHS account and an amount of Rs.6,46,395.16 is due under the FPL account. Hence, the applicant was constrained to file this Original Application for recovery of the said amounts.

9. After filing of the OA, the applicant bank has taken out the summons on the defendants as directed by the Tribunal and has filed the proof of service on 29.04.2014. The summons issued to the defendants were duly served on them as is evident from acknowledgement card and service of summons was completed as per the regulations. On 14.10.2014, the 1st defendant has filed vakalath. Inspite of receipt of summons, 2nd defendant neither appeared nor was he represented and he chose to remain absent and hence he was declared ex-parte on 13.07.2016.

10. The 1st defendant filed reply statement on 14.10.2014 contending inter alia that the OA is not maintainable either in law or on facts and it is liable to be dismissed. It is denied that the 1st defendant is the principle borrower and 2nd defendant is the co- obligant to the credit facilities availed by the 1st defendant. It is stated that the 2nd defendant availed the loan and applicant bank asked the 1st defendant to sign several printed blank forms and stamp papers which he honestly believed for the purpose of availing loan for 2nd defendant.

11. It is further contented that bank has no right to proceed against the property for recovery of loan arrears, and there was no legal and valid mortgage was created in favor of the bank with respect to the OA schedule property. The title deed of OA schedule property was deposited as a security with the bank and not with an intention to create an equitable mortgage. The property is having a market value of Rs.10lakhs per cent and a portion of the property is sufficient to satisfy the claim of the bank.

12. It is stated that the 1st defendant never executed a balance confirmation letter favoring the applicant. The 1st defendant never executed the FHS and FPL loan account together on 18.08.2011 confirming the balance outstanding in favour of the applicant bank. The interest calculated is excess, illegal and incorrect. On these contentions 1st defendant sought for dismissal of the OA with costs.

13. The evidence on the side of the applicant bank consists of the proof affidavit of its Senior Manager and Principal Officer, AW1 and Exhibits A1 to A16 were marked on the side of applicant and closed their side of evidence. The 1st defendants neither adduced any evidence nor produced any documents.

14. Heard arguments that came to be advanced by either side and perused the records of the case. The following points arise for my consideration:

(i) Whether the applicant is entitled to get the reliefs prayed for in the OA?

(ii) What order?

Findings:

Point No.1: In affirmative Point No.2: As per order

Reasons:

15. The sole contention raised by the 1st defendant is that he is not a principal borrower and the 2nd defendant is not a co- obligant to the credit facilities availed by the 1st defendant. By rebutting the said contention applicant bank had produced Exhibit

A1 to A9 original loan documents pertaining to the Federal Housing Loan and Federal Personal Loan duly counter signed by the defendants, wherein it is seen that that 1st defendant is the principal borrower and 2nd defendant is the co-obligant to the credit facilities. Hence there is not merit on his contention.

16. The second contention raised by the 1st defendant is that the 2nd defendant had availed loan and on applicant banks request the 1st defendant signed several printed blank forms and stamp papers which he honestly believed for the purpose of availing loan for the 2nd defendant. It is pertinent to mention here that no prudent man will sign and issue blank papers to anyone. On perusal of Exhibits A1 and A9, it could be seen that the 1st defendant has executed the said documents by putting his signatures on the documents and that falsity of the 1st defendant‟s case is seen from the materials available on record.

17. Yet another contention of the 1st defendant is that he has not mortgaged any property with the applicant bank and has not deposited any title deed with applicant bank. To counter the said contention applicant bank has produced Exhibit A3 original Sale Deed No.1836/2009 along with Exhibit A4 letter dated 01.07.2009 issued by 1st defendant to the applicant bank stating his intention to create mortgage by way of deposit of title deeds in favour of the applicant bank as a continuing collateral security for Rs.18,00,000/-. It is clear from the Exhibit A4 letter dated 01.07.2009 he had intended to create mortgage over the OA „A‟ schedule property to secured the FHS loan of Rs.18,00,000/-. Further as per Exhibit A8

letter dated 13.08.2010, the 1st defendant had confirmed the deposit of title deed and extended the mortgage to the FPL limit of Rs.5,00,000/- also. Hence the contention of the 1st defendant that he has not created any mortgage and nor deposited any title with the applicant bank is not sustainable.

18. It is the contention of the 1st defendant that he had not executed Exhibit A9 balance confirmation letter 18.08.2011 confirming the balance outstanding in favour of the applicant bank. On perusal of Exhibit A9, it could be seen that the 1st defendant has executed the said document on 18.08.2011 by putting his signatures on the balance confirmation letter confirming the balance due under the Federal Housing Loan and Federal Personal Loan on 18.08.2011. Therefore, there is no merit in the aforesaid contention of the 1st defendant.

19. Yet another contention raised by the 1st defendant is that the property is having a market value of Rs.10 lakhs per cent and a portion of the property is sufficient to satisfy the claim of the bank is not sustainable in the absence of any material on record. The 1st defendant has not taken any valuation nor produced any valid document in support of the said contention which is answered against him.

20. It is the further contention of 1st defendants interest charged is highly excessive, illegal and incorrect. Record indicate that the rate of interest prevalent at the time of availing the FHS and FPL facilities are 10.75% per annum with monthly rests and

13.75% with monthly rests respectively. It could be seen from Exhibit A2 and Exhibit A7 agreement executed by the defendants that they had agreed to pay additional interest in case of violation of any of the terms of the agreement. Records further reveal that the defendants have agreed that the principal amount under the agreement would include the interest calculated and debited to the loan account periodically.

21. In the light of the above, the Tribunal conclude that all the loan documents are valid and duly executed by the defendants. The factum of availing the loan coupled with the execution of documents and balance confirmation letter would go to show that the applicant bank has a legal right and cause of action against the defendants to recovery the amount due in the loan accounts from the defendants by instituting this OA.

22. During the pendency of the OA, applicant had filed IA.No.748/2018 stating that applicant has proceeded under SARFAESI ACT and have sold the schedule „A‟ property to the OA for an amount of Rs.20,02,000/-. The amount is credited to the loan account of the defendants on 10.01.2018 and prayed for return of Exhibit A3 title deed i.e. Sale Deed No.1836/2009 dated 11.06.2009. The Tribunal vide order dated 07.04.2018 allowed the said IA and released Exhibit A3 i.e., Sale Deed No.1836/2009 dated 11.06.2009 to applicant after obtaining proper acknowledgement.

23. In the above circumstance, the applicant bank is entitled for recovery of a sum of Rs.22,42,475.77 claimed as due under

Exhibit A11 statement of account relating to the Federal Housing Loan as on 20.03.2014 with further interest on the sum of Rs.22,31,016.77 (i.e.,Rs.22,42,475.77– penal interest of Rs.11,459/-) and a sum of Rs.6,46,395.16 claimed as due under Exhibit A12 statement of account relating to the Federal Personal Loan as on 20.03.2014 with further interest on the sum of Rs.6,41,509.16 (i.e., Rs.6,46,395.16 – penal interest of Rs.4,886/-) from the defendants jointly and severally, less the sum of Rs.20,02,000/- credit to the loan account of the defendants on 10.01.2018 by sale of schedule „A‟ property to the OA is proved by the proof affidavit of its Senior Manager and Principal Officer (AW1) and Exhibits A1 to A16.

24. Having regard to the amount advanced, the interest applied and the chronic default committed, I am of the view that the applicant bank is entitled to get interest pendente-lite and post- decree interest @10.75% per annum with monthly rests on the FHS and @13.25% per annum with monthly rests on the FPL.

ORDER

25. The OA is allowed with costs. The applicant bank is allowed to recover:

(i) the sum of Rs.22,42,475.77 (Rupees Twenty two lakhs forty two thousand four hundred seventy five and paisa seventy seven only) with further interest on the sum of Rs.22,31,016.77 (Rupees Twenty two lakhs thirty one thousand sixteen and paisa seventy seven only)

@10.75% per annum with monthly rests from 21.03.2014 till realization from the defendants jointly and severally;

(ii) the sum of Rs.6,46,395.16 (Rupees Six lakhs forty six thousand three hundred ninety five and paisa sixteen only) with further interest on the sum of Rs.6,41,509.16 (Rupees Six lakhs forty one thousand five hundred nine and paisa sixteen only) @13.25% per annum with monthly rests from 21.03.2014 till realization from the defendants jointly and severally;

(iii) less the sum of Rs.20,02,000/- (Rupees Twenty lakh two thousand only) credit to the loan account of the defendants on 10.01.2018 by sale of schedule „A‟ property to the OA;

(iv) In the event of failure of the defendants to pay the OA claim amount, the bank is at liberty to proceed against the other properties of the defendants as required under law;

(v) The applicant bank shall file the latest memo of calculation of OA amount together with interest costs etc., to be paid by the defendants duly considering the amounts if any paid by the defendants and or amount realised by sale of assets etc., during the intervening period after filing the OA enabling the office to prepare recovery certificate for the amount to be paid by defendants to the applicant bank;

(vi) Office is directed to issue recovery certificate as sought by the applicant bank in the OA and do the needful as required under law forthwith.

26. The Registry is directed to communicate copy of the order to the parties concerned by speed post or registered post with AD. [Dictated to the steno, transcribed by him, corrected by me and then pronounced in the open court on this the 29th day of August, 2018]

(S.V.GOWRAMMA) Presiding Officer

A P P E N D I X Witness for Applicant:

AW1: Francis T.M, Senior Manager & Principal Officer of the applicant bank.

Witness for Defendants: Nil

Exhibits on the part of the applicant

Ext.No. Date Particulars of documents A1. 30.06.2009 Demand Promissory Note for Rs.18,00,000/- executed by the defendants in favour of the applicant bank. A2. 30.06.2009 Agreement for Federal Housing Scheme executed by the Defendants. A3. 11.06.2009 Certified copy Sale Deed No.1836/2009 of SRO Ayyanthol. [Original sale deed returned to the applicant as per order in IA.No.748/2018 dated 07.04.2018 A4. 01.07.2009 Letter confirming deposit of title deed executed by the 1st defendant. A5. 12.08.2010 Demand Promissory Note for Rs.5,00,000/- executed by the defendants in favour of the applicant bank. A6. 12.08.2010 Security delivery letter executed by the defendants in favour of the applicant bank. A7. 12.08.2010 Agreement for Federal Personal Loan executed by defendants. A8. 13.08.2010 Letter confirming extension of mortgage executed by the 1st defendant. A9. 18.08.2011 Balance confirmation executed by the defendants. A10. 02.12.2011 Demand notice issued by the applicant to the defendants. A11.

Certified copy of the statement of account pertaining to the Federal Housing Loan. A12.

Certified copy of the statement of account pertaining to the Federal Personal Loan. A13.

Statement showing varying rates of interest applied in Federal Housing Loan account. A14.

Statement showing varying rates of interest applied in Federal Personal Loan account A15.

Statement showing penal interest and capitalized penal interest charged in Federal Housing Loan account. A16.

Statement showing penal interest and capitalized penal interest charged in Federal Personal Loan account.

Defendants Exhibits – Nil

[PRESIDING OFFICER]

IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

Dated this the 29th day of August, 2018

Present: S.V.Gowramma, B.A., LL.B Presiding Officer

T.A.No.346/2016 (O.A.No.185/2014) Between The Federal Bank Ltd., Registered Office Aluva, Branch Puzhakkal …Applicant And Jerry M.G & another …Defendants

FINAL ORDER