UNION BANK OF INDIA vs M S LAKSHMI GOLD KHAZAANAA PVT LTD on 3 April 2024

: - O R D E R - :

The Applicant Bank has filed the present OA before DRT-II, Bangalore for recovery of a sum of Rs.107,01,43,843/- along with interest to be recovered from Defendants 1 to 5 jointly and severally and has also sought for a direction to sell the properties of Defendant No.1 more fully described in Schedule II & III and further had sought for an order to sell the mortgaged properties mentioned in Schedule I towards the recovery of the sum prayed for.

FACTS OF THE CASE:-

1.1 The Applicant Bank, is constituted under the Banking Companies (Acquisitions and Transfer of Undertakings) Act, 1970, and having its Head Office in Mumbai and one of the branches at Mid Corporate Branch, Bengaluru. The Defendant No.1 is a Private Limited Company, is the Principal Borrower in the present O.A. It availed loan facilities from the Applicant Bank. Defendants 2 & 3 are the Directors of the 1st Defendant Company. Defendants 2 to 5 are the guarantors.

1.2 It is averred that the Defendant No.6, namely, Bank of Baroda has pari- passu charge along with the Applicant Bank over the stocks of Gold, Silver and Diamond Jewelry hypothecated by Defendant No.1, more fully described under Schedule-III of the O.A. 1.3 It is submitted that the Defendant No.1 has been availing credit facilities from the Applicant Bank from the year 2011 (the erstwhile Corporation Bank - now merged with the Applicant Bank consequent to the Gazette Notification dated 04.03.2020) and the same was renewed form time to time on execution of the loan documents by the Defendant No.1. It is further submitted that the Defendant No.1 in the year 2013, approached the Applicant Bank for enhancement/renewal of Sanction of Cash Credit Facility. Accordingly, the Cash Credit Loan was sanctioned on 31.01.2013 for a sum of Rs.123.50 Crores. The original Sanctioned Loan amount was for Rs.86 Crores. Certain documents like board resolution of Defendant No.1, its letter for request, supplemental common deed, guarantee deed and letter of undertaking, demand promissory note for a sum of Rs.123,50,00,000/- and the take delivery all dated 15.02.2013 are relied by the Applicants along with the undertakings, GPA all dated 12.10.2013 and the guarantee agreement executed by D1 to D5 dated 23.10.2013 for a sum of Rs.150,75,00,000/- are all relied by the Applicant in support of the OA. 1.4 It is also pleaded that the afore stated credit facilities were renewed/ enhanced to Defendant No.1, upon execution of the Board Resolution dated 15.02.2013, Letter for Overdraft Facility dated 15.02.2013, in addition to the Supplemental Common Deed of Hypothecation, Guarantee Agreement and Letter of Undertaking, Demand Promissory notice, Take Delivery Letter, General Power of Attorney, dated 15.02.2013, thereby agreeing to the terms and conditions stated in the respective documents. It is submitted that the loan documents were executed by Defendant Nos.1 to 5 for availing renewed / enhanced credit limits. 1.5 It is also the case of the Applicant Bank that Credit Facilities were renewed on 16.04.2014. It is submitted that a General Power of Attorney, dated 08.07.2015, was executed by the Defendant No.1 in favour of the Applicant Bank. The Defendant No.1 executed the acknowledgement of debt on 02.06.2017 and on 20.09.2019 confirming the balances payable. The Applicant Bank also relies on certain documents all dated 02.06.2017, which includes the promissory notes and the acknowledgement of debts. 1.6 It is further averred that the Defendant No.1 again approached the Applicant Bank for renewal of Credit Facilities, and accordingly, a Sanction Letter (renewal), dated 25.05.2018, was issued. The Defendant No.1 executed another promissory note dated 20.09.2019 along with the take delivery letter agreeing to pay the interest. It is also submitted that on request of Defendant No.1, the Cash

Credit Limit was reduced from Rs.123.50 Crores to Rs.85.50 Crores vide Letter dated 05.12.2018. Accordingly, the Applicant bank pleads that the three mortgaged properties were released by the bank. It is submitted that on request of Defendant No.1, the Funded Interest Term Loan (‘FITL’) was sanctioned for Rs.5,83,86,612 on 09.09.2020 by the Applicant Bank. 1.7 The Applicant Bank further submits that on request of Defendant No.1, the Applicant Bank renewed Cash Credit facility for Rs.89 Crores on 19.06.2020 @11.15%. The total FITL sanctioned as on 09.09.2020 is Rs.5,83,86,612, and a Board Resolution was passed on 10.09.2020 to avail the FITL facilities.

2.1. The Defendants mortgaged the properties more fully described under Schedule- I & IV of the O.A. for availing the credit facilities from the Applicant Bank. The Defendant Nos. 1 to 3 have executed Memorandum of Deposit of Title Deeds in favour of the Applicant Bank dated 11.04.2011, 24.10.2013, and a Supplementary Memorandum of Entry dated 24.09.2020. 2.2 It is further submitted that the Applicant Bank has registered its charge over the properties of Defendants with the Registrar of Charges under Form 8 and Form 13 of the Companies Act, 2013. Furthermore, a Search report dated 07.05.2020 is also filed. 2.3 It is submitted the Defendant No.1 executed the Acknowledgement of Debt Letters dated 02.06.2017, 20.09.2019, 24.09.2020 amongst others in favour of the Applicant Bank thereby confirming the outstanding liabilities of amounts due and payable to the Applicant Bank.

3.1 The case of the Applicant Bank is that the Defendant No.1 failed to maintain financial discipline, and thereby did not pay the outstanding loan amounts due to the Applicant Bank. Therefore, the loan account of Defendant No.1 was classified as a Non-Performing Asset on 01.03.2021. It is also submitted that Follow up Letters were sent by the Applicant Bank from 03.12.2020 to 12.04.2021 to Defendant No.1 demanding to repay the outstanding dues. The total Loan Sanctioned along with breakup of the amounts due and payable to the Applicant Bank as on 19.04.2021 is detailed in the Demand Notice, in which the bank had called upon the applicant to pay a sum of Rs.101,28,49,660.86p together with interest from 01.04.2021 and the same was asked to be paid within sixty days. The Defendants did not comply despite the postal acknowledgement of such notice. 3.2 The Applicant submits that compound interest is charged and capatilised at periodical rests as per the RBI Guidelines and that the transaction is of commercial nature. The amount claimed in the OA is Rs.107,01,43,843/- along with interest on four accounts as on 30.09.2021. The Applicant prays for interest to be awarded @11.15% p.a. from 01.10.2021.

3.3 The Applicants plead that the cause of action having arisen on several dates i.e. on 11.04.2011, 16.08.2011, 27.06.2012, 12.02.2013, 23.10.2013, 08.07.2015, 02.06.2017, 20.09.2019, 10.09.2020 and 24.09.2020, when the documents were executed and further on 01.03.2021 when the account was classified as NPA and further on 19.04.2021, when the demand notice was issued. Hence the OA.

4.1 The present OA is transferred to this Tribunal consequent to the pecuniary jurisdiction and notices were ordered on 26.12.2022. The Applicant bank is represented by the local counsel and he had filed affidavit of service intimating the next date to all the Defendants. The Defendants are all served and none appeared before this Tribunal and were placed exparte on 02.03.2023. The Defendant No.6 who is a proforma party is also represented by counsel. It is seen from the record that though the OA was filed on 05.11.2021, the same was ordered to be registered only on 27.09.2022 during which period certain compliances, were directed so that the defects be cured. After such defects cured, it was registered on 27.09.2022 and the 1st date of hearing before this Tribunal was on 26.12.2022, on which date the Applicant was directed to inform the Defendants and filed AOS. It is seen that the Defendants were delivered with the notices, but none appeared. They were placed exparte on 02.03.2023.

4.2 The Defendant No.6 which is a pro-forma Defendant, had not filed their version to the OA since no relief is claimed against them.

4.3 The Applicant Bank was directed to lead the evidence and the Proof Affidavit was filed on 12.06.2023, which was found with defects and was not rectified till 25.07.2023. Thereafter on 05.09.2023, the witness on behalf of the Applicant bank AW1 Mr.Lakshmeesha K. Bharghav, Chief Manager was examined and the matter was kept for final arguments.

4.4 On 26.10.2023, the Ld. Counsel submitted that there has been some recoveries made after selling the properties of the guarantors. The part satisfaction memo was filed on 22.11.2023.

4.5 The Ld. Counsel for the Applicant bank had filed the written submissions on 02.04.2024, which includes the recovery of certain sums that is a sum of Rs.13,34,89,000/- under the sale conducted on 16.11.2023. This is incorporated in Para – 12 of the written arguments. It is also submitted in the part satisfaction

memo filed on 22.11.2023 that a sum of Rs.3 Crores were recovered as per the orders of the Hon'ble High Court.

5.1 Heard the Ld. Counsel. Apart from filing the written arguments, the Ld. Counsel submits that the acknowledgement of debts executed by Defendant No.1 validates the transaction and further the deed of guarantee executed by Defendants 2 to 5 is continuing in nature and is governed under Section 128 & 129 of the ‘Indian Contract Act’. He has also relied on the following rulings:- (a) E.Prabhakaran & Ors. Vs. The Lakshmi Vilas Bank Ltd. (MANU/TN/0969/2011) – To urge that to deprive the grant of interest amounts to penalizing the creditor. Reducing the rate of interest whether present or future must be supported by valid reasons.

(b) Indian Bank Vs. Blue Jaggers Estates Ltd. & Ors. (MANU/SC/0570/2010)

– To emphasize that the borrowers cannot be allowed to demur by stating that they would not pay the contractual interest on the outstanding dues.

(c) Punjab Financial Corporation Vs. Surya Auto Industries (MANU/SC/1984/2009) – To plead the point of law laid down concerning the contractual interest, which shall be binding and cannot be interfered by the Court.

(d) Kotak Mahindra Bank Vs. Kew Precision Parts Pvt. Ltd. & Ors. (MANU/SC/0971/2022) – To urge that Section 18 of the Limitation Act would come into play upon the acknowledgement of debts and the balance sheets reviving the period of limitation.

(e) Asset Reconstruction Company India Ltd. Vs. Tulip Start Hotels Ltd. (MANU/SC/0946/2022) – To urge the same points on the law of limitation.

(f) Indian Bank Vs. B.Pataniak Mines Pvt. Ltd., & Ors. (MANU/OR/0379/2002) – To urge that the DPN is an effective contract.

(g) Infrastructure Leasing and Financial Services Limited Vs. BPL Limited (MANU/SC/0018/2015) – Wherein it held that the pledge is a security in possession of the pledgee, but in case of hypothecation, it remains with the owner. The accepted legal principle is that the hypothecation is to be treated as a subspecies of pledge and thereby the Ld. Counsel submits that the rights over the hypothecated goods as mentioned in Schedule III of the OA be permitted to be sold.

(h) Ram Kishun & Ors Vs. State of UP (MANU/SC/0494/2012) – To submit that Section 128 of the Contract Act makes the creditor to obtain a decree against the surety and the borrower.

(i) Bihar Limited Vs. Damodar Prasad & Ors. (MANU/SC/0220/1968) – To submit that the creditor can proceed against the guarantor irrespective as to whether the creditor proceeds against the principal borrower.

(j) PNB Vs. State of UP (MANU/SC/1133/2001) – On the same point on the liability of the guarantors.

6.1 After considering the evidence adduced by the Applicant bank in the light of pleadings available and the arguments advanced, the only point that arises for consideration in this OA is:- ‚Whether the Applicant Bank had made out a case for recovery of sums as prayed for in the Application?‛ 7.1 To answer the above point for consideration, this Tribunal has perused the OA and the documents tendered during the evidence. The Applicant Bank had examined AW1 Sh. Lakshmeesha K. Bharagav. The Original documents produced by the witness were compared by the Registry and returned. Such documents are Exh. A1 to A22, A24 to A35, A37 to A38, A40 to A42, A44 to A47, A49 to A53. 7.2 The affidavit of AW1 reiterates the plaint averments. The aspect of the Defendant No.1 Company having the initial transactions with the Corporation Bank, which now merged into the Applicant Company could be traced to Exh.A3 dated 27.06.2012, in which the Defendant No.1 Company had executed the common deed of hypothecation dated 11.04.2011 and 16.08.2011. In consideration of the bank having allowed the credit facilities as mentioned therein and the Defendant No.1 Company had pledged the entire movables described therein. The credit sanction is seen at Annexure A5 which is dated 31.01.2013, wherein the credit sanction of Rs.123.50 Crores was released to meet the working capital under three schemes. The documents dated 15.02.2013 at Exh. A6 to A12 includes the DPN at Exh. A11 for a sum of Rs.123,50,00,000/- executed by Defendant No.1. The guarantee deed executed by Defendants 2 to 5 dated 23.10.2013 establishes the personal guarantee to the outstanding loan amount of Rs.150,75,00,000/-. The acknowledgement of debt dated 02.06.2017 executed by Defendant No.1 are six in numbers, all dated 02.06.2017 refers to different accounts, wherein the outstanding amounts are clarified. There is further DPN dated 20.09.2019 for a sum of Rs.105.00 Crores arising out of three accounts. The loan accounts are specified therein. The DPNs all six in numbers of the date 02.06.2017 at Exhs. A26, 28, 30, 32, 34 & 36 are all executed by Defendant No.1 through its Managing Director, who is the Defendant No.2 herein. 7.3 The latest acknowledgement of debt is found in the letter dated 24.09.2020 addressed to the bank, wherein the Defendant No.1 had unequivocally acknowledged the fund interest term loan to the extent of Rs.94,83,86,612/- and further reiterates the hypothecation agreement. This document is seen at Exh.A51 and the related documents at Exh. A52 to A54 all of the same date. This speaks of the various accounts under which the allegations against the Defendants go un- rebutted. The memorandum of deposit of title deeds executed by D1 to D3 in consideration of the term loan advanced is found from Exh.A55. 7.4 The statement of accounts relied by the AW1 in his affidavit is at Exh.A61 which is duly certified under law. The same is perused. It is collectively produced concerning four account numbers. The proper certificate issued under the Bankers Book Evidence Act is filed along with the OA. The documentary evidence is not disputed by the Defendants who had remained exparte. In the circumstances there is nothing to discredit the say of the Applicant Bank witness. Hence this Tribunal is of the considered opinion that the Applicant had proved its case for recovery of the sums as claimed in the OA.

7.5 The prayer of the Applicant is ‚to issue a Recovery Certificate of Rs.107,01,43,843/-* (Rupees One Hundred and Seven Crores, One Lac Forty Three Thousand, Eight Hundred and Forty three Only) as on 30.09.2021 with future interest at 11.15% p.a. thereon against Defendant No.1 to 5 severally and jointly for the purpose of recovery by one or more of the modes specified under the Recovery of Debts to Banks and Financial Institutions Act, 1993 with future interest thereon.‛ It is to be noted that the Applicant bank has not added the words ‚compound interest‛ or ‚periodical rests‛ in their prayer. In view of the above, the following reliefs:-

RELIEF:- 8.1 The claim of the Applicant Bank is allowed with costs as follows:- 8.2 The Applicant Bank is entitled to recover a total sum of Rs.107,01,43,843/-* along with interest @11.50% p.a. till the date of realization against defendants 1 to 5 LESS the part amounts realized jointly and severally.

8.3 It is further hereby ordered that the Applicant is at liberty to recover the aforesaid amount by proceeding against the Defendant No.1 concerning schedule II & III of the properties as mentioned in the OA for realization of the amounts due.

8.4 It is also ordered that the Applicant may proceed with the sale of schedule I properties mortgaged with the Applicant bank.

8.5 While proceedings against such properties, the Applicant bank to keep in mind the pari passu charges of the Defendant No.6 Bank.

8.6 After such sale of the assets in case of any balance remains to be recovered, the Defendants 1 to 5 named shall be held personally liable for such balance dues. 8.7 It is also ordered that any amounts remitted or realized, if any, during the course of the proceedings or thereafter shall be given due credit towards the dues. 8.8 The applicants are directed to file costs memo within two weeks of the receipt of this order.

8.9 Issue recovery certificate in favour of the applicants in terms of this final order, indicating the separate schedules of the movable and immovable properties hypothecated / mortgaged.

8.10 Communicate a copy of the order to the parties concerned in terms of Rule 16 read with Rule 2(c) of DRT (Procedure) Rules, 1993.

Sd/-

(A.S.JAYACHANDRA)

PRESIDING OFFICER

DRT-I, CHENNAI

(Dictated to PS, who directly typed in the system, corrected, signed and pronounced by me on this 3rd Day of April, 2024)

* Amount amended as ordered vide proceedings dated 10.05.2024.