INDIAN OVERSEAS BANK vs M/S Empee Sugars And Chemicals Ltd on 29 August 2023

: - O R D E R - :

In this application under 19(1) of the Recovery of Debts and Bankruptcy Act, 1993, the Applicant Bank prays for issuance of Recovery Certificate for a sum of Rs.105,02.82,269.14p as on 15.02.2019 along with the interest on six accounts against the Defendants 1 to 4 jointly and severally. It is also prayed that the proceeds upon sale of the secured properties may be dealt on pari-passu basis with the 5th Defendant and IFCI towards their outstanding amounts also.

It is pleaded that the 1st Defendant is a manufacturer of sugar and alcohol at Nellore District, AP and had commenced operations in the year 1992 and the loan was sought for the establishment of another composite sugar plant at Ambasamudram Taluk at Tirunelveli District, TN. Loan application is dated 20.08.2008.

The 5th Defendant is the assignee of the debts of the other lender banks.

1.0 Facts of the case:-

1.1 The Applicant Bank was approached by the 1st Defendant and submitted the loan application on 20.08.2008 for a term loan to set up a sugar manufacturing complex. Upon this application, the applicant sanctioned fund based term loan of Rs.30 Crores and short term loan of Rs.20 Crores on 03.10.2008, taking the 1st charge on the entire block assets existing then and future on pari-passu basis with other lenders. The Defendants 2 to 4 stood as guarantors; the necessary documents were executed.

1.2 It is stated that in the year 2009, this applicant is elected as leader of consortium banks for the Ambasamudram project and the same is reduced to writing on 04.05.2009. The credit limits were revised. Accordingly, on 06.05.2009, the defendants 1 being empowered by Defendants 2 to 4 had confirmed the details of amount obtained from the other banks of which the confirmed amounts obtained were shown as Rs.291 Crores towards term loan and Rs.77 Crores towards short term loan. The Defendants executed common loan security documents to cover the above in favour of the applicant bank, Bank of India, Indian Bank, Punjab National Bank, United Bank of India, Oriental Bank of Commerce and Andhra Bank. The documents i.e. joint term loan agreement, joint deed of hypothecation, agreement of pari-passu charge, agreement of guarantee by Defendants 2 to 4, inter-se agreement amongst the banks mentioned above, consent letter from the borrower for disclosure of information all dated 12.06.2009, were executed.

1.3 It is also pleaded that the 1st Defendant deposited original title deeds to create equitable mortgage on the properties mentioned in the schedule to cover the loan liability of total Rs.368 crores sanctioned by the all the above banks. One consortium member i.e. Bank of India had confirmed the extension of equitable mortgage on 12.06.2009. The memorandum of deposit of title deeds is registered on 23.07.2009 in favour of all the above banks pertaining to the properties mentioned in the schedule of the OA there under.

1.4 Apart from the term loan sanctioned, the bank had further sanctioned the fund based term loan and cash credit for the sugar complex at Iddaikal Village and Non fund based letter of credit, which are detailed as term loan renewal at Rs.28.60 Crores, short term loan renewal Rs.19.30 Crores, Cash Credit fresh totally amounting to Rs.13.00 Crores, Letter of credit 13.00 Crores and letter of guarantee 1.00 Crore. These amounts were sanctioned upon hypothecation of raw material and finished goods including the movables, receivables, stocks of fuel, consumable stores and receivables, hypothecation stocks at the factory - all on the charge ranking pari- passu amongst the consortium banks. Counter indemnity was obtained from Defendant No.1 Company as first pari-passu charge on all the current assets and bills of exchange. Defendants 2 to 4 executed personal guarantee. For the working capital, a second pari-passu charge was created on the Ambasamudram unit and a second pari-passu charge was created on the assets of Ambi Unit. It is the case of the applicant that the defendants have executed the working capital consortium agreement, joint deed of hypothecation agreement of guarantee, inter-se agreement among the banks, letter of authority all dated 29.09.2010 and the deposit of title deeds registered dated 15.12.2010.

1.4 It is pleaded that inspite of extending credit facilities, by the banks including the applicant, the defendant could not achieve the optimum results leading to a crunch in the liquidity and failure in debt servicing obligations. The lenders were approached by the 1st Defendant for restructuring of debts. Accordingly, a joint lenders meeting was held on 07.07.2011. The restructuring package was approved on 29.11.2011. The same was implemented on 29.12.2011 by all the lenders.

1.5 This applicant bank also sanctioned CDR Package independently on 26.12.2011 for which the defendants 1 to 4 executed the Master Restructuring Agreement dated 29.11.2011, Deed of Guarantee dt.29.12.2011, trust and retention agreement dated 29.09.2011. The defendants have acknowledged the outstanding loan payable to the applicant on 01.07.2011. The working capital term loan-I was reconstituted at Rs.6.14 Crore on 01.07.2011 and as per the CDR Package working capital term loan-II at Rs.5.11 Crore, fund interest term loan at Rs.5.94 Crores, as per the CDR Package. Consequent to the same, the security interest is created on the term loan and working loan on the Naidupet Unit and for the WCTL FITL and WCTL-

II, the charge were created on Ambasamudram unit and Naidupet unit being the first and second pari-passu charges as pleaded in Para-23 of the application.

1.6 The Applicant submits that as per the master restructuring agreement, it had the rights to revoke all or any part of the existing loans. Consequent to the CDR Package, the 1st Defendant extended the equitable mortgage on 11.04.2012 and the restructured facilities aggregated to Rs.605.78 crores by the consortium. The 1st Defendant had registered modification of charge before the ROC to cover the liability towards all the banks on 11.05.2012, of which the loan liability is Rs.546,53,00,000/- . As there was inadequate servicing of the debts, a joint lenders meeting was held on 24.07.2014.

1.7 The 1st Defendant on 26.09.2014 informed the applicant bank of their intention to shift the sugar plant to Karnataka and use the Ambasamudram project for mega food processing. The lenders namely Bank of India, Indian Bank, PNB, United Bank of India, Oriental Bank of Commerce and Andhra Bank, have not considered the proposal. However, the 1st Defendant executed a revival letter on 30.09.2014, following Section 18 of the limitation Act. The accounts of the 1st Defendant were classified as NPA on 28.06.2014.

1.8 This applicant issued a demand notice under SARFAESI Act on 26.10.2015 and no reply was received. The 1st Defendant Company became ineligible for further restructuring. All the lender banks had issued possession notices under Section 13(4) of SARFAESI Act. The lead bank is Bank of India. During the pendency of SARFAESI proceedings, the other banks had assigned the debt in favour of the 5th Defendant.

1.9 It is pleaded that the Defendants 1 to 4 are liable to pay the amount claimed on different accounts, which are pleaded as on 15.02.2019 which details are as under:-

Account No. Nature of Credit Amount Due Rate of Interest 010902000970673 Cash Credit Facility-I 19,35,23,484.05p 12% 010902000970674 Cash Credit Facility-II 9,09,26,388.52p 12% 010903280900001 Term loan-I 41,64,13,733.84p 12.50% 010903281100012 Term Loan - II 12,97,97,313.92p 12.50% 010903511100002 Fund Interest Term Loan 10,48,91,254.58p 12.50% 010903391200001 Working Capital Term Loan 11,47,30,094.24p 12.50%

It is also pleaded that equitable mortgage executed by the 1st Defendant in favour of the applicant and other banks dated 23.07.2009 is for the amount advanced Rs.59,22,00,000/- and the outstanding amounts mentioned on different accounts as above stood at a total of Rs.105,02,82,269.14p, which included the interest calculated as detailed above and further declared that compound interest capitalised at periodical rests are calculated. No penal interest has been compounded in the accounts.

1.10 It is also pleaded that the cause of action arose at Chennai on 12.06.2009, 29.09.2010, 29.12.2011 when the defendants 1 to 4 had executed the loan security documents on 30.09.2014 and 20.09.2017 when the defendants 1 to 4 had executed revival letter on 12.06.2009, 23.07.2009, 15.12.2010 and 11.04.2012 when the first defendant created and extended EM in favour of consortium of banks, on 28.06.2014 when the loan accounts had become NPA in the books of Applicant Bank on 26.10.2015 when demand notice issued u/s 13(2) of the SARFAESI Act, and on subsequent dates, when the defendants 1 to 4 had failed to repay the loan dues and the Applicant Bank is falling within the jurisdiction of the Tribunal. Hence the application.

2.0 The case was initially filed before the Ld. DRT-II, Chennai, which had directed the notices to the Defendants. One counsel appeared for the Defendants 1 to 4 on 01.05.2019 and undertook to file Vakalathnama on 24.06.2019. The Defendant No.5 is represented by another counsel. The Defendants 1 to 4 despite entering appearance, did not file the written statements and the opportunity to file the same is closed by the Ld. Predecessor by an order dated 04.02.2021. Thereafter there is no representation on behalf of them.

3.0 Case of Defendant No.5 who filed the Memo dated 24.06.2019, only stated that it had acquired the debts from Bank of India, Indian Bank, PNB, United Bank of India, Oriental Bank of Commerce and Andhra Bank. It is also submitted that the assignees have initiated demand notice under SARFAESI Act and Bank of India has taken the symbolic possession of the assets of the 1st Defendant. It is also pleaded by the Defendant No.5 that they have pari-passu charge over the assets of the 1st Defendant Company.

4.0 The applicant in order to prove their case had filed the Proof Affidavit only by 27.04.2023 and the same was found to be in order and the witness AW1 namely Shri.M.P.Vinuraj was examined on 15.05.2023. Exh.A1 to A3, A5 to A10, A13 to A18 and A29 & A30 are produced in original, rest of the documents relied on are certified copies.

5.0 There is no evidence on behalf of the Defendants.

6.0 Heard the Ld. Counsel for the Applicant, who had filed the written submissions. The Ld. Counsel for the Applicant contended based on the facts detailed above, that the 1st Defendant had deposited the original title deeds with an intention to create equitable mortgage to the tune of Rs.368 Crores sanctioned by the different banks including the applicant on 12.06.2009. It is also submitted that the same is duly registered on 23.07.2009. The personal guarantee of Defendants 2

to 4 is extended to the Applicant Bank. It is argued that in spite of the restructuring of the debt, the defendant 1 to 4 failed to service the debt. The accounts were declared NPA and the suit was filed in time. The accounts statement establishes the liability of the Defendants 1 to 4. He prays for the Recovery Certificate as pleaded in the OA.

7.0 In the context of the above, the only point that arises for determination in this OA is: “Whether the applicant bank proves the debt and is eligible for the recovery certificate as prayed for?”

8.0 In order to answer the above point for determination, the evidence adduced on behalf of the applicant is perused AW1 Mr.M.P.Vinuraj, working as Chief Manager in the Applicant Bank who is well acquainted with the facts of this case deposed to the pleadings and also relied the documentary evidence and Exh.A1 to A38. The documents at Exh.A1 being the sanction letter of the applicant with the caption of credit sanction advice establishes that initially Rs.50 Crores was sanctioned in favour of Defendant No.1 consequent to the loan application dated 20.08.2008. The other documents at Exh.A5 to A10 being the joint term loan agreement by the Defendant in favour of lenders including the applicant bank establishes the loan limits extended by this applicant bank. The other documents are consistent with the pleadings.

9.0 This Tribunal had also considered Exh.A27, which is the revival letter dated 30.09.2014. The Defendant No.1 had confirmed to the Bank of India, which is the lead bank that they confirm the execution of the security documents and for the purposes of Section 18 of the Limitation Act, the liability towards the member banks is addressed to the lead bank. This is a true copy duly attested by the applicant. There is nothing to disbelieve in this document. Apart from this Exh.29, which is in original addressed to the applicant bank is the reaffirmation of the liability as on date. The same is dated 20.09.2017. The debit balance position is dated

20.09.2017 at Exh.A30 is also confirmed by the Defendant No.1. Exh.A31 is the demand notice dated 26.10.2015. The statements of accounts at Exh.A32 to Exh.37 are also produced and the same are not disputed. The defendants 1 to 4 did not file their written statement to dispute their liability. The certificate under the Banker Books Evidence Act is also produced and duly signed by the competent person. The contention of the applicant bank that the amount due by the Defendant No.1 Company as per the pleadings for which, the Defendants 2 to 4 stood as guarantors is evidenced by the document at Exh.A16. After the careful perusal of the evidence adduced by way of affidavit which is corroborated by the documentary evidence, this Tribunal does not find any reason to deny the claim of the applicant bank against the defendants 1 to 4. The liability of defendants 2 to 4 is both joint and several concerning all the six accounts. Therefore, there is no reason to decline the relief to recover the amount of debt.

10.0 The plaintiff/Applicant was asked to file the PA by an order dated 04.02.2021 by the Ld. Predecessor. The same was not rectified till 27.04.2023 as noted by the Ld. Registrar. The Defendant No.5 is only a proforma defendant. The pari-passu charge of the 5th Defendant over the mortgaged properties is also to be taken note of. From the pleadings it is revealed that the Defendant No.1 Company went sick and there has been restructuring of loan implemented as far back as 07.07.2011. Apart from this, the covid situation ensued during 2020-21. These facts are taken note of in awarding the lis pendens and future interest.

11.0 For the aforesaid reasons, this Tribunal passes the following:-

: - O R D E R - :

The application filed by the applicant bank is allowed with costs. Consequently

(i) The Defendants 1 to 4 are hereby directed to pay a sum of Rs.105,02,82,269.14p jointly and severally to the applicant bank along with the interest @9% simple p.a. from the date of filing i.e.25.02.2019 till the date of realisation.

(ii) In the event of the defendants 1 to 4 failing to pay the above sum, the applicant bank is at liberty to recover the above sum by selling the mortgaged properties and realise its dues in accordance with the pari-passu charge which is in favour of Defendant No.5 as per the documents of charge and mortgage.

(iii) The applicant bank shall give due adjustments to any of such sums deposited by defendants 1 to 4 after filing of the case.

(iv) Cost Memo to be filed by the applicant bank within 15 days.

(v) The defendants 1 to 4 are also personally liable to make good the amount ordered to be recovered as balance after the selling of the secured assets.

(vi) The applicant bank is entitled for costs of this application.

12.0 The applicant bank is directed to file costs memo within two weeks of the receipt of this order.

13.0 Issue recovery certificate in favour of the applicant bank in terms of this final order.

14.0 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 on the system corrected, signed and pronounced by me on this 29TH day of August, 2023)