INDIAN OVERSEAS BANK vs M/s. FIVE D ANIMATIONS (P) LTD. on 1 December 2018

FINAL ORDER

This Original Application has been filed under Section 19(1) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short ‘the Act’) for recovery of a sum of Rs.16,70,161/- due under the term loan account with future interest on the sum of Rs.16,39,267/- @12% per annum with monthly rests from the defendants and by sale of the OA schedule property and the sum of Rs.2,59,597/- due under the cash credit account with future interest on the sum of Rs.2,52,989/- @13.50% per annum with monthly rests from the defendants and by sale of the OA schedule property. BRIEF FACTS OF THE CASE

1. The 1st defendant is a company incorporated to carry on animation related business and the 2nd defendant is the managing director of the 1st defendant company and defendants 3 to 6 are its directors. During 2007, the 1st defendant company through its managing director approached the General Hospital Junction Branch of the applicant bank seeking financial assistance. Accordingly, the applicant bank sanctioned to the 1st defendant among others, a term loan of Rs.13 lakhs and a cash credit facility of Rs.2.41 lakhs. The 1st defendant availed the term loan of Rs.13 lakhs on 11.06.2007 upon executing demand promissory notice for Rs.13 lakhs, term loan agreement and a letter of undertaking in favour of the applicant bank.

2. It is submitted by the applicant that the 1st defendant had also availed a term loan of Rs.2.41 lakhs on 11.06.2007 and executed demand promissory notice for Rs.2.41 lakhs, letter of hypothecation and letter of hypothecation of machinery in favour of the applicant bank. On 11.06.2007, defendants 2 to 6 executed agreement of guarantee in favour of the applicant bank and thereby guaranteed the prompt repayment of the amount due to the applicant bank from the 1st defendant from time to time in respect of the above credit facilities. Further, the 1st defendant has agreed to pay penal interest @2% per annum over and above the normal interest in the event of default on its part in complying with the terms and conditions of the said credit facilities. The machineries purchased with the finance of the applicant bank (details of which are described in the schedule to the OA) are hypothecated to the applicant bank by the 1st defendant as per the terms of contract entered into with the applicant to secure repayment of the credit facilities referred to above.

3. It is urged by the applicant bank that since the defendants failed to liquidate the liability to the applicant bank in respect of the loans availed by them, the applicant bank had issued lawyer notices to the defendants calling upon them to pay the amounts due to the bank. Though the defendants received the notice, they did not pay the amount. On 31.03.2009, based on the request of the defendants, the applicant bank segregated a portion of the outstanding in the term loan account amounting to Rs.1,87,287/- and treated the same as a separate loan so as to enable the defendants to repay the same conveniently. In view of the said arrangement, the applicant bank is maintaining two separate accounts for the term loan granted to the defendants.

4. As per the books of account maintained by the applicant bank, an amount of Rs.16,70,161/- is outstanding in the term loan account of Rs.13 lakhs availed by the 1st defendant which includes a total sum of Rs.30,894/- claimed by the applicant by way of penal interest. As per the books of account maintained by the applicant bank, a sum of Rs.2,59,597/- is outstanding in the cash credit account of Rs.2.41 lakhs availed by the 1st defendant which includes a sum of Rs.6,608/- claimed by the applicant by way of overdue interest. It is submitted that the applicant bank has charged interest in the account of the 1st defendant at such rates and capitalized at such periodical rests, as are permitted by and do not run counter to the directives of RBI. The applicant has charged penal interest/overdue interest in the loan accounts and no amount is claimed in the OA on account of capitalization of penal interest.

5. The 3rd defendant filed written statement for himself and on behalf of other defendants contending inter alia that the District Industries Centre (DIC) directed the applicant bank a collateral free loan under the RBI promoted scheme (CGTSI) and thus the applicant bank allowed a term loan of Rs.13 lakhs. The DIC has directed SIDBI to guarantee 75% of this collateral free loan. The defendant company has already remitted an amount of Rs.3,80,064/- as installment amount and its related interest. During the recession period, the defendant company cannot sell the animation products due to financial stringency and the applicant bank has shown no leniency to the defendant company.

6. It is urged by the defendants that the Kerala State Information Technology Mission through DIC, Thiruvananthapuram recommended an amount of Rs.4,32,578/- as investment subsidy on 26.12.2007 to the defendant company on the basis of the bank guarantee. At that time, the defendants requested the applicant bank for bank guarantee, but the bank denied the bank guarantee. The averment of the applicant that they sent lawyer notice to the defendant company is baseless. The statement of the applicant bank that they are entitled to claim the entire amount outstanding in the term loan account is baseless and that the applicant bank has no right to proceed to recover the entire amount from defendants 2 to 6 personally.

7. It is submitted by the defendants that the applicant bank never gave bank guarantee or to approach the SIDBI to sustain the difficulties faced by the defendant company. As per the terms and conditions of term loan, there is two years more time to settle the entire liability and there are 60 equal monthly installments period is given and it commence from 01.10.2007 and hence more than 21 months remains for full payment of the loan. It is also a fact that the applicant bank has given the term loan and cash credit under the direction of the DIC, Thiruvananthapuram. At the time of sanctioning the loan, an amount of Rs.25,000/- was deposited in favour of IDBI for getting security of the said loan. The applicant bank could consider the company as a sick company and hence the bank could recover the aforesaid amount from IDBI and not from the defendants. The defendants prayed to dismiss the OA and thus render justice.

8. The evidence on the side of the applicant bank consists of the proof affidavit of its Senior Manager (AW1) and Exts.A1 to A15. Despite sufficient opportunity granted, the defendants have not filed any counter proof affidavit and they chose to remain absent from 28.08.2013 onwards.

9. Heard arguments of the applicant bank 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:

10. On a conspectus of the pleadings and evidence available on record, the Tribunal could find that the applicant bank sanctioned a term loan of Rs.13 lakhs and cash credit limit of Rs.2.41 lakhs to the 1st defendant company as per Ext.A1 sanction letter dated 11.06.2007 with the personal guarantees of the 2nd defendant and defendants 4 to 6, being the managing director and directors of the 1st defendant company respectively. As security for the aforesaid two limits, the defendants hypothecated machineries, implements etc. existing and to be acquired along with other office equipment, furniture and fixtures, raw materials etc. All the defendants have countersigned Ext.A1 sanction letter dated 11.06.2007 in token of having accepted the terms and conditions thereof.

11. The records would indicate that as security for the term loan of Rs.13 lakhs granted by the applicant on 11.06.2007, the 1st defendant executed Ext.A2 demand promissory notice for Rs.13 lakhs and Ext.A3 term loan agreement dated 11.06.2007 agreeing to repay the term loan in 60 monthly installments @ Rs.29,000/- each commencing from October, 2007 together with interest @12.25% per annum with monthly rests or at such rates and rests as may be notified by the bank from time to time. It was also agreed in Ext.A3 agreement that in case of default in repayment of any of the installments, the bank shall be entitled to charge interest @2% per annum over the rate mentioned above on the amount of such default from the date of default till payment of realization of such defaulted principal or interest. The defendants had also executed Ext.A4 letter of undertaking dated 11.06.2007 in favour of the applicant bank undertaking to repay the term loan in 60 monthly installments commencing from October, 2007.

12. As security for the cash credit limit of Rs.2.41 lakhs granted to the 1st defendant, the 1st defendant executed Ext.A5 demand promissory notice for Rs.2.41 lakhs on 11.06.2007, Ext.A6 letter of hypothecation and Ext.A7 letter of hypothecation of machinery in favor of the applicant bank. Furthermore, defendants 2 to 6 executed Ext.A8 guarantee agreement dated 11.06.2007 guaranteeing due repayment of an aggregate sum of Rs.15.41 lakhs

and of all moneys which shall include all interest due or to become due in respect of the said advances from the date of advance until repayment and all costs, charges and expenses which may incur in enforcing or obtaining payment of all such amount.

13. A perusal of the documents would reveal that the loan accounts became irregular and the aggregate sum of Rs.15.41 lakhs availed by the 1st defendant on 11.06.2007 remained outstanding with an amount of Rs.17,44,445/- as on 28.07.2009. Consequently, the applicant bank issued Ext.A9 lawyer notice dated 19.02.2010 to the defendants calling upon them to pay the amount due within seven days of receipt of the notice. Despite issuance of the aforesaid notice, the defendants did not care to settle the liability. On perusal of the proof affidavit filed by AW1 along with the documents produced by the applicant bank would show that an amount of Rs.16,70,161/- (excluding the capitalized penal interest of Rs.352/-) is due under Ext.A10 and A11 statements of account relating to the term loan as on 31.05.2010 and an amount of Rs.2,59,597/- (excluding the capitalized penal interest of Rs.259/-) is due under Ext.A13 statement of account relating to the cash credit limit as on 31.05.2010. On the strength of Ext.A8 guarantee agreement executed by defendants 2 to 6, they are personally liable for the amounts due to the applicant bank under the term loan and cash credit limits availed by the 1st defendant. In the light of the facts narrated supra, the Tribunal does not find any merit in the contentions raised by the defendants in their written statement.

14. Having regard to the amounts advanced, the interest and the penal interest applied and the default committed, I am of the view that the applicant bank is entitled to get interest pendente-lite and post-decree interest @10% per annum with monthly rests on the amount due under the term loan account and @11.50% per annum with monthly rests on the amount due under the cash credit account.

FINAL ORDER

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

(i) the sum of Rs.16,70,161/- (Rupees sixteen lakhs seventy thousand one hundred and sixty one only) due under the term loan account with further interest on the sum of Rs.16,39,267/- (Rupees sixteen lakhs thirty nine thousand two hundred and sixty seven only) @10% per annum with monthly rests from 01.06.2010 till realization from the defendants and by sale of the OA schedule property;

(ii) the sum of Rs.2,59,597/- (Rupees two lakhs fifty nine thousand five hundred and ninety seven only) due under the cash credit account with further interest on the sum of Rs.2,52,989/- (Rupees two lakhs fifty two thousand nine hundred and eighty nine only) @11.50% per annum with monthly rests from 01.06.2010 till realization from the defendants and by sale of the OA schedule property; and

(iii) also its costs from the defendants and by sale of OA schedule property.

16. The schedule to the OA shall be appended to this order.

17. The applicant bank shall file memo of costs within ten days from the date of this final order.

18. Recovery Certificate shall be drawn up and issued to the Recovery Officer in terms of the final order.

19. 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 PS, transcribed by her, corrected by me and then pronounced in the open court on this the 1st day of December, 2018]

(S.V.GOWRAMMA)

Presiding Officer

A P P E N D I X Witness for Applicant: AW1: M.Gopanunni Menon, Senior Manager of the applicant bank.

Witness for Defendant(s): Nil

Exhibits on the part of the applicant

Ext.No. Date Particulars of documents

A1 11.06.2007 Sanction letter issued to the 1st defendant by the applicant bank which was countersigned by the defendants in token of having accepted the terms and conditions thereof. A2 11.06.2007 Demand promissory notice for Rs.13 lakhs executed by the 1st defendant in favour of the applicant bank. A3 11.06.2007 Term loan agreement executed by the 1st defendant in favour of the applicant bank. A4 11.06.2007 Letter of undertaking executed by the 1st defendant in favour of the applicant bank. A5 11.06.2007 Demand promissory notice for Rs.2.41 lakhs executed by the 1st defendant in favour of the applicant bank. A6 11.06.2007 Letter of hypothecation executed by the 1st defendant in favour of the applicant bank. A7 11.06.2007 Letter of hypothecation of machinery executed by the 1st defendant in favour of the applicant bank. A8 11.06.2007 Agreement of guarantee executed by defendants 2 to 6 in favour of the applicant bank. A9 19.02.2010 Office copy of lawyer notice issued to the defendants by the applicant bank A10 … Certified copy of the relevant pages of the books of account pertaining to the term loan of Rs.1,87,287/- A11 … Certified copy of the statement of account pertaining to the term loan of Rs.13 lakhs. A12 … Statement showing the rates of interest applied in Ext.A11 account from time to time. A13 … Certified copy of the statement of account pertaining to the cash credit limit of Rs.2.41 lakhs.

A14 … Statement showing the rates of interest applied in Ext.A13 account from time to time. A15 06.06.1984 Copy of the Power of Attorney executed by the applicant bank in favour of AW1.

(PRESIDING OFFICER)

SCHEDULE

1. DV Cam for capturing – Rs.75,000/-

2. Audio Editing Studio Equipment and Software – Rs.2,44,000/-

3. Video Editing Studio Equipment and Software – Rs.3,82,616/-

4. Digital Animation Computers and Software – Rs.5,16,240/-

5. Sound proof works for studio – Rs.1,00,000/-

6. 2 KVA UPS – Rs.75,000/-

7. AC for Lab – Rs.28,000/-

PRESIDING OFFICER

IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

Dated this the 1st day of December, 2018

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

TA No.1216/2016 (OA No.236/2010) Between Indian Overseas Bank …Applicant And M/s.Five D Animations (P) Ltd. & 5 others. …Defendants

FINAL ORDER