STATE BANK OF INDIA vs Ms ANS Industries and Eight Others on 31 August 2021

: - O R D E R - :

1. In the present proceedings the applicant Bank is approaching this Tribunal under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 praying for the issuance of a Recovery Certificate allowing Recovery of a total sum of Rs.1,94,02,972.88 being the total outstanding in the Cash Credit and Term loan accounts, with further interest from the date of the OA.

2. It is the case of the applicant that the 1st defendant approached the Vellore branch of the applicant Bank for sanction of credit facilities and the Bank had sanctioned a Cash Credit facility for Rs.10 Lakhs and a Term loan for Rs.40 lakhs on 16.10.2009, on execution of loan documents, for which the 2nddefendant and one late Saminathan stood as guarantors. It is also contended that by virtue of the loan agreements, the borrower as well as guarantors had agreed to pay back the amount borrowed with interest @ 11.75% and 12.5% respectively. It is also contended that mortgage was created over schedule A to D properties by defendants 2,4,5 and 6 respectively. It is the further case of the applicant that the 1st defendant had on 15.10.2010 sought for renewal of the cash credit facility and also for a fresh term loan for Rs.15 lakhs and that the applicant had sanctioned a fresh term loan for Rs.15 lakhs and apart from renewing the facilities already availed by them. It is also stated that the defendants had executed the supplemental hypothecation agreement dated 1.11.2020 and the guarantee agreements were also executed by D2 to D5 along with late A.K Sawaminathan. It is also stated that the credit facility was enhanced to Rs.1 crore on execution of necessary documents and creation of mortgage by D2, D4, D5 and D6.

3. It is also contented by the applicant that after availing the additional facilities, the operation of the account became sluggish and the arrears were mounting consequentially the account was classified as NPA on 25.4.2013. However, it is also stated that a revival letter was issued on 1.8.2013 acknowledging the outstanding liability. It is further stated that a demand notice u/s 13(2) of the SARFEASI Act is sent on 31.5.2013 and even after the issuance of demand notice, the liability was not cleared and hence the OA is filed.

4. The defendant 1 and 2 had filed their reply statement contenting that OA is not maintainability and also denying the liability. It is contented that the 2nd defendant is a technically qualified person and taking into consideration the same, the applicant approached the defendants and expressed their willingness to finance the project to be set up for manufacturing TMT bars. It is admitted by the defendants 1 and 2 that a term loan of Rs.55 lakhs was sanctioned. But they claim that the defendants were promised with a working capital loan with limit of 1 crores. It is further contented that as the applicant failed to disburse the entire amount as agreed, the defendant 1 and 2 were left to arrange other sources for the purchasing machinery and building cost. It is further stated by the defendants 1 and 2 that without fulfilling their promise for the disbursal of substantial amount, the applicant bank had only sanctioned a further term loan for Rs.15 lakhs. It is also stated that, even though the project was to commence from October, 2010, the same could not be done due to non-funding by the applicant. Additional Reply statement was later filed by the 2nd defendant on 12.7.2021. This was done after the earlier orders passed by Tribunal was set aside by the Hon’ble High court of Judicature Madras in WP.34745 of 2019 and directed disposal of the matter fresh.

5. In the additional statement the 2nd defendant had contended that the applicant bank had in fact destructed an industry. It is also contended that till date, the applicant had not furnished the documents as sought for by the defendants. It is further stated that the defendant being a Micro, Small and Medium Enterprises was entitled for various schemes, which were not extended to the defendant. It is also specifically pleaded that electric connection was taken as the applicant had assured additional funding, which caused expenditure on electric charges and labour charges about Rs.10,00,000/-, even before the same is required. It is also stated that the applicant is bound by Precedential Norms on income Recognition Asset classification and Provisions pertaining to Advance, which mandates that the bank should fix a date of commencement of commercial operations and that the bank cannot declare the project as NPA before the completion of 2 years from the date of commencement of commercial operations. Hence it is the case of the 2nd defendant is that they are entitled for a grace period of 2 year from the date fixed for commencement of commercial operations and the act of applicant recalling the facility within the grace period is bad and unsustainable.

6. The defendants 4,5 and 6 had filed their statement contenting that they have not signed any document pertaining to the loan and are unaware as to the loan details of the defendants 1 to 3. It is also stated that the statement of accounts produced by the applicant cannot be relied up on.

7. The defendants 7, 8 and 9 had filed their written statement contenting that they have not signed any of the documents pertaining to the loan and they are unaware as to transaction between applicant and other defendants.

8. In the light of above pleadings, the following points arise for consideration. i) Whether the applicant has established the claim against the defendants. ii) Whether the declaration of NPA was during the Moratorium period as claimed by the defendants. iii) Whether the applicant is entitled for pendent lite interest and if so at what rate ?

9. Heard the Ld. Counsels appearing for applicant, the 2nd defendant as party in person and the Ld. Counsels for defendants.

10. The applicant had filed the Proof Affidavit in conformity with the OA claim and marked the following documents.

Sl.No. Description of the Documents Exhibits

1. Letter of Arrangement issued by the Applicants to the Defendants 1 to 6 A1

2. Agreement of Loan Cum Hypothecation entered into between the 1st Defendant and Applicant Bank A2

3. Guarantee Agreement executed by the Defendants 2 to 5 in favour of the Applicant Bank A3

4. Letter of Confirmation for creation of Mortgage by Deposit of title deeds executed by 2nd Defendant in favour of the Applicant Bank. A4

5. Letter of Confirmation for creation of Mortgage by Deposit of title deeds executed by 4th Defendant in favour of the Applicant Bank. A5

6. Letter of Confirmation for creation of Mortgage by Deposit of title deeds executed by 5th Defendant in favour of the Applicant Bank. A6

7. Letter of Confirmation for creation of Mortgage by Deposit of title deeds executed by 6th Defendant in favour of the Applicant Bank. A7

8. Memorandum relating to deposit of title deeds executed by Defendants 2 & 4 to 6 in favour of the Applicant Bank, registered as Document Number 811/2009 on the file of the Sub-Registrar, Office of Gudiyatham. A8

9. Letter of Arrangement issued by the Applicant to the Defendants 1 to 5 A9

10. Supplementary Agreement of Loan cum Hypothecation entered into between the 1st Defendant and the Applicant bank A10

11. Guarantee agreement executed by the Defendants 2 to 5 in favour of the Applicant bank A11

12. Letter of Arrangement issued by the Applicant to the Defendants 1 to 5. A12

13. Supplementary Agreement of Loan cum Hypothecation entered into between the 1st Defendant and the Applicant bank A13

14. Guarantee agreement executed by the Defendants 2 to 5 in favour of the Applicant bank A14

15. Partnership Letter executed by Defendants 2 to 4 to the Applicant Bank A15

16. Letter of Confirmation for extension of Mortgage executed by the 2nd Defendant in favour of the Applicant Bank A16

17. Letter of Confirmation for creation of mortgage by deposit of title deeds executed by the 4th Defendant in favour of the Applicant Bank. A17

18. Letter of Confirmation for creation of mortgage by deposit of title deeds executed by the 5th Defendant in favour of the Applicant Bank. A18

19. Letter of Confirmation for creation of mortgage by deposit of title deeds executed by the 6th Defendant in favour of the Applicant Bank. A19

20. Memorandum of Confirmation for the extension of Mortgage by Deposit Deeds executed by the Defendants 2 & 4 to 6. A20

21. Revival Letter, executed by the Defendants to the Applicant bank A21

22. Demand Notice under Section 13(2) of SARFAESI Act issued by the Applicant Bank to the Defendants 2 to 4. A22

23. Demand Notice under Section 13(2) of SARFAESI Act issued by the Applicant Bank to the Defendants 5 & 6. A23

24. Paper publication of Demand Notice effected in one issue of Tamil Daily Dinamani A24

25. Paper publication of Demand Notice effected in one issue of English Daily The New Indian Express. A 25

26. Possession Notice under Section 13(4) of SARFAESI Act issued by the Applicant Bank to the Defendants 1 to 6 A26

27. Proof of Affixture of Possession Notice A27

28. Acknowledgement Cards A28

29. Paper publication of Possession Notice effected in one issue of Tamil Daily Dinamani A29

30. Paper publication of Possession Notice effected in one issue of English Daily The New Indian Express. A 30

31. Sale Deed dated 15.09.2005, in the name of 2nd Defendant registered as Document No.4533/2005 on the file of Sub- Registrar Office, Gudiyatham. A31

32. Sale Deed dated 29.11.1984, in the name of 4th Defendant registered as Document No.5036/1984 on the file of Sub- Registrar Office, Gudiyatham. A32

33. Sale Deed dated 07.10.1980, in the name of 5th Defendant registered as Document No.4533/2005 on the file of Sub- Registrar Office, Gudiyatham. A33

34. Will dated 22.01.1992 in the name of 6th Defendant registered as Document Number 7/1992 on the file of the Sub-Registrar Office, Gudiyatham. A34

35. Statement of Accounts (Cash Credit Facility) A35

36. Statement of Accounts (Term Loan – I) A36

37. Statement of Accounts (Term Loan – II) A37

For brevity of discussion both points 1 and 2 are decided together. Point No.1 & 2

11. The learned counsel for the applicant placing reliance on the documents produced along with the proof affidavit as Ext.A1 to A38 contents that by virtue of the documents, they have established the claim. The Ld.Counsel further took this Tribunal to the reply statement filed by the 1st defendants where in the availment of facility to the tune of Rs.55 Lakhs is admitted and further contented that the said admission being voluntary and categorical, has to be accepted as no further evidence is required for proving the claim. Furthermore the contentions put forth by other defendants regarding their obligation and validity of the claimed Mortgage is unsustainable; contents the Ld.counsel for the applicant as the Memorandum of deposit of title deeds were created vide Exts.A8 to A20 and the said documents and its validity remains unchallenged till date.

12. The Ld. Counsels appearing for the defendants had submitted that, even though the availment of the facility is admitted by the 1st defendants, they had taken a contention that on account of the failure of the applicant to disburse the amount as agreed, the defendant could not commence the commercial operation on time and had to meet the initial expenses from their own funds. The legal heirs of deceased Swaminathan had taken the contention that they are neither borrower nor guarantors for the facilities availed by the defendants 1 to 3.The defendants, other than 1 to 3 are not accepting the creation of Security Interest. But the applicant had produced the memorandum evidencing deposit of title deeds and till date there is no challenge from any quarters against the Memorandum of Deposit of title deeds and as such this Tribunal of the view that the applicant had succeeded in proving the creation of Mortgage in their favour. The supplemental agreement dated 21.2.2012 and the guarantee agreement dated the same, also proves the case as contented by the applicant. Exh.A21 revival letter issued by the defendants remain unchallenged and undisputed.

13. One more important aspect that is to be taken note of is that, it came out in evidence that late A.K. Saminathan had executed the deed of guarantee and so such the legal heirs cannot content that they are unnecessary parties to the OA. Apart from taking the contention that the lethargy of the applicant in not sanctioning and disbursing the amount as agreed, nothing is produced to substantiate the contention about the alleged lethargy or deficiency in disbursement of the agreed amount.

14. It is contented by the 1st respondent that, on the basis of the assurance by the applicant the 1st respondent expended his own money; but the applicant kept the loan applicant pending for 2 years without any progress and process. It is further contented that by that time the amount of the 55 lakhs was sanctioned, the cost of the project went up to crores of rupees. It is further submitted that even though the technical committee of the bank entered into the conclusion that the though the project is ready for operation, the same could not function due to want of working capital further that the entire working capital disbursed was used to pay Electricity Board and for the purchase of raw materials. The grievance of the defendant is that, inspite of the fact that the “Technical Committee finding that the company could not commence operation for want of funds, the applicant failed to disburse additional funds on time, as the additional facility was sanctioned only on 21.2.2012.

15. However the above contention does not inspire the confidence of this Tribunal, as if at all any such deficiency in disbursement of the amount as assured, the defendant could have very well avoided the service of the applicant bank. Even after the alleged repeated failure of the applicant is disbursing the amounts as agreed, the respondent had not chosen to abandon the service of the applicant and continue to receive whatever amounts sanctioned; which the 1stand 2nddefendants says was quit inadequate. The contention that the defendant believed the words of the officials does not have any evidentiary support. In the absence of any proof as to why the defendant received the amounts, though the same was inadequate there cannot be any force in the contention that there was deficiency in service from the part of the applicant in disbursing the amounts, which the defendants 1 and 2 claim they had agreed to. More over apart from raising the contention regarding the alleged lethargy of the applicant, no counter claims or relief for set off were put forward by the defendant. The disbursement of the loan and the quantum of disbursement are all in the domain of the bank, which depends on various factors and this Tribunal cannot substitute it’s wisdom, especially in the absence of particulars in this regard. All these are matters in the sole discretion of the lender and the customer cannot claim the same as a right. Hence this Tribunal is of the view that there is no force in defendant contenting that only as of the applicant failed in disbursing the entire amount as agreed, they cannot seek recovery of the amount, disbursed, if fell due.

16. Now the issue to be gone into is as the whether the classification of NPA is illegal and to see as to whether the same is done during the moratorium period. The defendants 1 to 4 is placing heavy reliance as to the Master Circular of RBI wherein according to them, the banks should fix a date of commencement of Commercial Operations and that the bank cannot declare the account as NPA before the completion of 2 years from the date of commencement of commercial operation. This contention is put forward on the basis of report of the technical committee of the applicant, which mentions that commercial operation had not been commenced and hence it is contented that the defendants were not provided with the benefit of said master circular. The Ld. Counsel for the defendants 1, 3 and 4 had filed a statement on 22.12.2020 narrating which according to there is the chronology of dates and events, where in it is admitted that an amount of Rs.1.5 crores was sanctioned on 8.2.2012, but further contends the defendants were not extended the benefit of the Master Circular, which protects the classification of account as NPA within 2 years from the date of commencement of commercial operation.

17. In reply to the above contention the Ld.Counsel for the applicant took this Tribunal to the typeset of documents produced by the defendants and contented that the sanction of credit facility which stipulate that the repayment should commenced from July 2012. It is also come out from the document that (para 14) of Paper book that the applicant given an opportunity to the defendants to regularize the account on 11.3.2013. Even though these documents were not marked and cannot be taken into evidence, a reference of the same could be made as to find out the real issue. More over even according to the defendants, the factory was operational as early as on 13.7.2011 and commercial operations could not commence for want of funds. Hence it is clear that even after the factory being ready and operational, the commercial operation could not commence, for want of funds. Be what every the reasons, the non-commencement of commercial operations till the account is declared as NPA from 13.7.2011 will itself prove that the applicant is justified in not waiting for a further period of 2 years. The borrower cannot indefinitely prolong to commence the operation of unit and refrain from commencing the commercial operation citing one reason or another. Hence this Tribunal is of the view that the applicant Bank cannot be made to wait for another two years after the commencement of commercial operation, which could not commence till 31.5.2013 even though the unit was fully functional as early as on 13.7.2011.

18. Another reason which prompted this Tribunal in rejecting the contentions of the defendant is that, the 1st defendant is admitting that project was to commence

from October 2010 and had to pay off the electric dues. It is also admitted that existing working capital was utilized for power supply and for purchase of small quantity of raw materials which itself proves the amounts were syphoned off and not utilized for the purpose it is disbursed.

19. Now having found the applicant is entitled to proceed further and that there is no point in contenting that the account is wrongly classified as NPA, the next issue that needs to be looked into is as to what is the amount which the applicant is entitled to claim from the defendants.

20. The applicant had produced the statement of accounts as duly certified under the Bankers Book Evidence Act and even after the production of the same, the defendants were not able to make any challenge by pointing out any anomaly in the statement as produced by the applicant. In the absence of any challenge, this Tribunal is accepting the duly certified statement and as such the applicant is entitled for a Recovery certificate for Rs.1,94,02,972.88 with further interest from the date of OA, after deducting an amount of Rs.19,12,000/- realized through the sale of B schedule property and any other remittance or amounts recovered in the account during the pendency of OA and hence the points point 1 and 2 are answered accordingly.

Point No.(iii) Whether the applicant is entitled for pendent lite interest and if so at what rate?

21. In terms of Sec.19 (20) of the RDB Act, the Tribunal is empowered to pass an order regarding payment of interest from the date on or before which payment of amount is found due, up to the date of realization or only payment, as it think fit to meet the ends of justice. Hon’ble Supreme Court, in its judgment (reported in II 2009 BC pg.696) in the matter of State Bank of India-vs-Sarathi Textiles, held that “sec.19

(20) of the RDDB & FI Act confers discretion on the Tribunal to award interest on the applicant being as it thinks fit to meet the ends of justice”. In Central Bank of India- vs-N. Raveendra (reported in 2002[1] SCC pg.367) held that “Sec.34 of CPC confers discretion on the court to award or not to award or not to award interest or to award interest at such rate as it deems fit de-horse notwithstanding the contract between the parties.” Sec.19 (20) of the RDDB & FI Act is akin to Sec.34 CPC.

22. In so far as the case on hand is concerned, the Ld.Counsel for the applicant would submit that the applicant is entitled for interest at contractual rate and the defendants having defaulted repayment are not entitled for any concession in the rate of interest. However, the Ld.Counsel for the defendants would contend that the contractual rate of interest can be applied only till the time the claim is filed before the Tribunal and the Tribunal in terms of Sec.19(20) of RDDB & FI Act, can intervene in the contractual rate of interest and can even reduce the rate of interest. The Ld.Counsel, would further submit that in so far as defendants 7 to 9 are concerned, they being the legal heirs of deceased A.K.Swaminathan cannot be subjected to the contractual rate of interest. It is further submitted that the defendants have made substantial repayments and therefore, the Tribunal may consider awarding simple interest @ 9% p.a.

23. Having heard the Ld.Counsel for the defendants and on perusal of the statute, there can be no doubt, that the Tribunal has the power to intervene in the rate of interest from the time when the claim is made before the Tribunal. The applicant calculated interest at contractual rate besides added costs and expenses in the claim, filed before the Tribunal and the Tribunal has awarded the same. Therefore, taking into consideration, what –all stated above, the Tribunal is of the considered opinion that if the rate of interest is fixed at 10% p.a. (Simple) in respect of both the credit facilities availed, would enable the defendants to discharge the liability within a reasonable period of time. It is therefore, ordered that the applicant is entitled to claim interest @ 10% p.a. (simple) on the T.A claim amount from the date of filing the OA, till the date of realization along with cost of the proceedings.

24. For the reasons stated as above, it is held that the applicant bank is entitled for a recovery certificate against the defendants jointly and severally for Recovery Certificate against the defendants jointly and severally for recovery of a total sum of Rs.1,94,02,972.88 with further interest (simple) 10% from the date of filing of the application, till realization of the same, after deducting all the amounts received and recovered during the pendency of the OA including the amount of Rs.19,12,000/- realized during through sale of B schedule property, and that the amount due cold be recovered by proceedings against the schedule A,C and D properties. The defendants 7 to 9 an only liable to pay the amount only out if estate, if any inherited by then from their deceased father Shri.A. K Swaminathan and beyond that the defendants 7 to 9 are not liable personally.

25. In the result this application is allowed as follows.

i) The applicant bank is entitled to recover a total sum of Rs.1,94,02,972.88 being the total sum of Rs.1,22,75,319, due under the cash credit, Rs.52,61,189.94 due a term loan, and sum of Rs.18,66,462.97 due in term loan in after deducting all the amounts received and recovered in the account including Rs.19,12,000/- realized by selling schedule B property, together with future interest @10% (simple) from the date of filing of the OA from the defendants jointly and severally. However, it is made clear that defendant 7 to 9 are liable to pay the said amount from and out of the estate inherited by them from the deceased father A.K. Swaminathan and that they are not personally liable.

ii) The amount could be recovered by proceedings against and selling schedule A; C and D properties and if the sale proceeds are not sufficient, to cover the amount due and payable the defendants 1 to 6 are personally liable.

iii) The applicant is entitled to realize cost of this application.

26. The applicant Banks directed to file cost memo. In two weeks from the date of receipt of this notice.

27. Issue recovery certificate in favour of applicant bank in term of final order.

28. Communicate copy of the order to the parties concerned in terms of Section 19(21)(i) of the RDB Act, read with Rule 16 of DRT(Procedure) Rules, 1993. (Dictated to PS, transcribed by him, corrected, signed and pronounced by me in Virtual Court, through Video Conference on this 31st day of August, 2021)

Sd/-

(T. RAJESH)

PRESIDING OFFICER

(i/c) DRT-I, CHENNAI