EDELWEISS ASSET RECONSTRUCTION COMPANY LTD vs TECPRO SYSTEMS LIMITED on 31 August 2021

FINAL ORDER

1. This application is filed by the applicant bank under Section 19(1) of Recovery of Debts and Bankruptcy Act, 1993 against the defendant seeking issuance of a Recovery Certificate for a sum of Rs.2461,07,22,036/- with interest thereon at contractual rate with monthly rests from the date of filing of the application till the date of realisation along with costs of the application and for sale of schedule properties.

2. It is the case of the applicant that it is a financial institution as defined in Section 2 (h) (i-a) of the Recovery of Debts due to banks and Financial Institutions Act and is registered under Section 3 of the SARFAESI Act, 2002 as Securitization and Reconstruction Company, with Reserve Bank of India and is an assignee of the securitized receivables due from the Defendants from State Bank of India. It is also the case of the applicant that the facilities in question were sanctioned to the 1st Defendant, M/s. Tecpro Systems Ltd which is a Public Limited Company registered under the Companies Act, 1956 established in the year 1990 having its registered office in New Delhi and Corporate Office in Siruseri, Chennai and is engaged in the manufacture of idlers, pulleys, structural, metal roller crushers, and the like. It is also the case of the applicant that the defendants 2 and 3 are the Directors and Promoters of the 1st Defendant Company and also the guarantors to the credit facilities availed by the 1st defendant. It is also contended that the defendants 4 and 5 have also guaranteed due repayment of the credit facilities, availed by 1st defendant by executing personal guarantee and corporate guarantee respectively. It is further contended that the defendants 6 to 10 are consortium banks who had advance facilities to the 1st defendant and hold joint interest over the properties mentioned in Schedule B & C, J to L on pari passu basis.

3. The applicant contends that the 1st defendant for the purpose of their business had over several years, appear to have availed facilities from State Bank of India and from other consortium members for various amounts. It is also the case of the applicant that the 1st defendant has created security interest over the property more fully described in Schedule „A‟ (movables) and Schedule „B to L‟ to the OA in favour of various banks either separately or under multi- lateral banking set up.

4. It is also the case of the applicant that ultimately the entire borrowal came to be crystallized pursuant to the 1st Defendant approaching all the Banks for increased facilities, which they consented to, provided the following were fulfilled:- (a) The facilities to be converted into consortium facility with SBI, L&I Branch, being the leader.

(b) The existing prime securities over the schedule “A” property to be charged to all the consortium banks on pari-passu basis.

(c) The defendant No. 2,3 and 4 to personally guarantee the due repayment of the facilities availed by the 1st defendant.

(d) The defendant No.5 to give corporate guarantee for the due repayment of the facilities availed by the 1st defendant.

(e) The collateral securities over the properties described in Schedule B and C to be in favour of all the Banks on pari-passu basis.

(f) The security interest over properties comprised in Schedules, D,E,F,G,H and I to stand secured exclusively to SBI L&I Branch.

(g) Apart from the guarantee extended by defendants 2 to 4, they were to provide security interest over the properties comprised in Schedules H,J,K and L;

(h) To execute necessary documentation to record the obligations of the defendants.

5. It is the case of the applicant that on 20.4.2013, a consortium was formed with the aforementioned banks for sanctioning the enhanced facilities with SBI as the lead bank and the said formation was duly authorized by the Board of Directors of the 1st defendant company vide their Board resolution dated 20.4.2013. It is also the case of the applicant that the following facilities were advanced under the consortium and availed by the 1st Defendant Company as on 20.04.2013:- S. No. Name of the Banks Limit(FBWC + NFBWC)

1. State Bank of India 2125.00

2. Bank of India 800.00

3. ICICI Bank 500.00

4. IDBI Bank 500.00

5. DBS Bank 370.00

6. Standard Chartered Bank 327.00

7. AXIS Bank 150.00

8. Vijaya Bank 100.00

9. IndusInd Bank 100.00

10. Allahabad Bank 250.00

Total 5222.50

6. It is the case of the applicant that various documents were executed pursuant to the forming of consortium on 26.04.2013 viz.,Working Capital Consortium agreement, Deed of Guarantee executed by Defendants 2 to 4, Inter – Se agreement, Link letter from the 1st defendant Company extending the security interest to the consortium advances, Deed of Guarantees executed by 4th

Defendant dated 25.05.2013 and 26.04.2013, Memorandum of Entry dated 26.04.2013 creating charge on immovable properties described in Schedule B and Schedule C, Memorandum of Entry dated 26.04.2013 creating charge on immovable properties described in Schedule J and Schedule K, Memorandum of Entry dated 26.04.2013 creating charge on immovable properties described in Schedule L. It is stated a valid security interest has been created in respect of the assets of the defendants mentioned in the Schedule to the OA came to be extended to the other consortium members by virtue of their Inter- Se agreement dated 26.04.2013. It is also the case of the applicant that, with respect to schedule B and C, J to L properties, SBI has a pari-passu charge with all the consortium banks and in respect of Schedule B to I properties SBI has an exclusive charge.

7. It is the case of the applicant that it is acting in its capacity as the trustee of different trust constituted for the said purpose, acquired the dues of the 1st defendant (and securities available thereof) from DBS Bank, IDBI Bank, ICICI Bank and Bank of India. It is stated that the OA confined to the rights assigned by SBI to the applicant under the Assignment Deeds dated 23.3.2015, 29.6.2015, 29.9.2015, 30.12.2015, 29.3.2016 and 30.6.2016.

8. It is also the case of the applicant that the facilities were subsequently renewed and enhanced on 25.07.2013 by State Bank of India and the said advancement also was duly authorized by Board of Directors of the 1st Defendant Company vide their Board Resolution dated 30.07.2013 and Working Capital Consortium Agreement dated 07.08.2013 was executed with the following facilities:-

S. No Facility Exposure by SBI (FBWC + NFBWC) Exposure by other Banks (FBWC + NFBWC)

1. Cash credit (Stocks & Book debts) 750.00 Bank of India 800.00

2. EPC (Sublimit under CC) 25.00 ICICI Bank 500.00

3. DDP (Cheques) (Sublimit under CC) - IDBI Bank 500.00

4. FDB (Non Lc) (Sublimit under CC) 2.00 DBS Bank 370.00

5. LC 320.00 Std Chartered Bank 327.50

6. BG 1280.00 Axis Bank 150.00

7. 3rd Party Guarantee (Sublimit to BG) 300.00 Vijaya Bank 100.00

8. IndusInd Bank Ltd 100.00

9. Allahabad Bank 250.00

TOTAL 2350.00 TOTAL 3097.50

GRAND TOTAL 5447.50

9. It is contended that the defendants having availed the above facilities executed various loan and security documents on 07.08.2013 viz., Working Capital Consortium agreement, Deed of Guarantee executed by 2nd and 3rd Defendants, Deed of Guarantee executed by 4th Defendant, Deed of Guarantee executed by 5th Defendant, Inter – Se agreement, Link letter from Company extending the security interest to the consortium advances,

10. It is also contended that a further sanction was accorded by SBI L & I Branch vide its sanction order dated 22.02.2014 and the same had been approved vide the 1st Defendant‟s Board resolution dated 24.02.2014. It is further contended that the defendants in consideration thereof executed various loan and security documents on 25.02.2014 viz., Agreement for overall limit in

respect of Short Term Loan, Agreement of hypothecation of goods and assets, Deed of guarantee for overall limit by Defendants No. 2 and 3, Deed of guarantee for overall limit by Defendant No.4, Deed of guarantee for overall limit by Defendant No.5, Letter regarding grant of individual limits within overall limits, Agreement to create mortgage. It is also contended that security interest over properties mentioned in Schedule “D to I” are mortgaged exclusively in favour of the Applicant and the same have been extended to the subsequent facilities also vide confirmation letters dated 26.2.2014, 26.2.2014, 26.2.2014, 20.5.2014 and 27.5.2014.

11. It is the case of the applicant that the 1st defendant continued to draw funds for their business and continued to enjoy the funds already drawn, however, the 1st defendant was unable to service its dues to the various lenders Banks resulting the Defendants 2 to 5 liable to make good the monies owed by the 1st Defendant. It is stated that in these circumstances, the 1st Defendant fell into default and several banks classified the account as NPA and pursuant to which State Bank of India also classified the account as NPA and thereafter the debt was assigned to this Applicant.

12. It is the case of the applicant that the Defendants confirmed their balance outstanding as on 31.03.2014 vide their letter dated 20.04.2014 and while so, the debt of the defendants were assigned to the applicant herein under the Assignment Agreements dated March 23, 2015, June 29, 2015, September 29, 2015, December 30, 2015, March 29, 2016 and June 30, 2016 along with the right, title and interest in the financing documents and all underlying security interest and this OA is confined to this claim alone and the applicant reserves the right to separately sue in respect of the rights assigned in its favour by ICICI Bank Ltd under Assignment Deeds dated 31.12.2015 and 30.6.2015, the rights assigned in its favour by IDBI Bank Ltd under Assignment Deeds dated 30.3.2016, the rights assigned in its favour by DBS Bank Ltd under Assignment Deeds dated 28.11.2014, the rights assigned in its favour by Bank of India under Assignment Deeds dated 30.3.2015,27.1.2015 and 28.9.2015, 29.12.2015,29.3.2016.

13. It is contended that the 1st defendant after drawing down and enjoying the facilities, defaulted in the repayment of the loan, advance by the consortium, and in view of the failure of the 1st defendant, the defendants 2 to 5 became jointly and severally liable to make good the same.

14. It is also contended that the 1st defendant filed a reference before the BIFR vide case No. 86 of 2015 and pursuant to the notification of the Insolvency and Bankruptcy Code, the reference to BIFR no longer survives and there is no impediment for the applicant in filing this OA. Hence the applicant is filing the above OA for Recovery Debts due from the defendants 1 to 5, in respect of monies advanced by State Bank of India to the 1st Defendant reserving the right to initiate separate proceedings in respect of the other debts of the 1st defendant company assigned by other banks.

15. The defendants 2 to 7 and 10th defendant did not choose to contest the claim and hence they were set ex-parte on 28.06.2017. As the Ld. Counsel who undertook to file vakalat on behalf of 1st defendant did not choose to file the same, and 1st defendant was set ex-parte on 26.07.2017. Similarly, 8th defendant was set ex-parte on 21.02.2018. Subsequently, 8th defendant filed

IA No.299/2018 to set aside the ex-parte, which came to be allowed by this Tribunal on 29.06.2018.

The only contesting defendants, the 8th defendant filed Reply statement stating therein that at the request of the 1st defendant, they had granted cash credit and Bank Guarantee Facilities to the tune up of Rs.100 Crores, for meeting the Working Capital Requirements of the 1st defendant‟s company. It is stated that the to secure the above said Facilities the 1st defendant created mortgage over four properties on pari passu basis with other banks and hypothecation of unencumbered movable fixed assets on pari passu basis with other banks.

17. It is contended that the credit limits were availed by the 1st Defendant Company from them by executing necessary loan and security documents. Defendants 2 to 5 along with one Mr. Aditya Gabrani who stood as the guarantors for the facilities availed by the 1st defendant and had also mortgaged their properties in favour of 8th defendant.

18. It is stated that this defendant do not have any say on the quantum of amount claimed by the applicant in the Original Application as they do not have any direct knowledge on the various claims made by the Applicant Bank therein. It is also stated that this defendant is also contemplating recovery proceeding against the borrower/guarantor for recovery of their dues and enforcement of their securities from defendants 1 to 5, based on the loan documents and securities created in their favour.

19. It is stated that the relief as sought for by the applicant can never be granted in their favour as this defendant is also having pari-passu charge over the

Schedule „A‟ mentioned movables, as also the properties mentioned in Schedules B,C,J,K and L. In such circumstances, the relief sought for by the applicant for the sale of the Schedule properties towards the realization of the applicant‟s dues and in case of any insufficient to attach the personal assets of the defendants 2 to 4 can never be granted. It is stated that as a joint lender of the facilities to the 1st defendant, this defendant has a right over the securities with pari-passu charge and hence the Original Application as prayed for by the applicant can never be granted.

20. It is stated that the relief as sought for by the applicant in paragraph 6(d) & 6(e) also cannot be granted and such relief can be sought for only against the defendants 1 to 5 and not against the other defendants, more particularly the 8th defendant. It is stated that by no stretch of imagination, this defendant could be directed to pay the contingent expenses and also to bear the cost of the proceedings.

21. The applicant bank filed its proof affidavit along with 45 documents, which are marked as Exhibits A-1 to A-45, the details of which are as under: - S. No. Date Description of Documents Exhibit Nos.

1. 7.3.2018 Copy of Board Resolution A-1

2. 20.4.2013 Consortium Formation A-2

3. 26.4.2013 Working Capital Consortium Agreement A-3

4. 26.4.2013 Deed of Guarantee executed by defendants 2 to 4 A-4

5. 26.4.2013 Inter-Se Agreement A-5

6. 26.4.2013 Link Letter from 1st defendant co extending security interest to consortium advances A-6

7. 26.4.2013 Letter of Authority to lead Bank A-7

8. 25.5.2013 Deed of Guaranty executed by 4th defendant A-8

9. 26.4.2013 Deed of Guaranty executed by 5th defendant along with Board Resolution dated 25.4.2013. A-9

10. 26.4.2013 Memorandum of Entry creating charge on immovable properties in Schedule B & C A-10

11. 26.4.2013 Memorandum of Entry creating charge on immovable properties in Schedule J & K A-11

12. 26.4.2013 Memorandum of Entry creating charge on immovable properties in Schedule L A-12

13. 26.4.2013 Joint Deed of Hypothecation creating charge on movable properties of 1st defendant A-13

14. 25.7.2013 Sanction Letter of renewal and enhancement by SBI A-14

15. 30.7.2013 Correlative Resolution Company A-15

16. 7.8.2013 Working Capital Consortium Agreement A-16

17. 7.8.2013 Deed of Guarantee executed by 2nd and 3rd defendants A-17

18. 7.8.2013 Deed of Guarantee executed by 4th defendant A-18

19. 7.8.2013 Deed of Guarantee executed by 5th defendant along with requisite Board Resolution date 30.7.2013 A-19

20. 26.4.2013 Joint Deed of Hypothecation creating charge on movable properties of 1st defendant. A-20

21. 7.8.2013 Inter-Se Agreement A-21

22. 7.8.2013 Link Letter extending Security Interest to Consortium advances A-22

23. 22.2.2014 Sanction Letter Facilities modification at request of defendants 1 – 5 A-23

24. 24.2.2014 Correlative Board Resolution A-24

25. 25.2.2014 Agreement for overall limit of short term loan A-25

26. 25.2.2014 Agreement of Hypothecation of goods and assets A-26

27. 25.2.2014 Deed of Guarantee for overall limit of defendants 2 & 3 A-27

28. 25.2.2014 Deed of Guarantee for overall limit of defendant 4 A-28

29. 25.2.2014 Deed of Guarantee for overall limit of defendant 5 along with requisite Board Resolution dated 24.2.2013 A-29

30. 24.2.2014 Agreement to create a charge A-30

31. 26.2.2014 Confirmation Letters of Security Interest over properties in Sch. D-I mortgaged in favour of applicant and extended to subsequent facilities A-31

32. 26.2.2014 Confirmation Letters of Security Interest over properties in Sch. D-I mortgaged in favour of applicant and extended to subsequent facilities A-32

33. 26.2.2014 Confirmation Letters of Security Interest over properties in Sch. D-I mortgaged in favour of applicant and extended to subsequent facilities A-33

34. 20.4.2014 Defendant confirming their outstanding balance as on 31.3.2013 A-34

35. 20.5.2014 Confirmation Letters of Security Interest over properties in Sch. D-I mortgaged in favour of applicant and extended to subsequent facilities A-35

36. 25.2.2015 Letter regarding grant of individual limits within overall limits A-36

37. 23.3.2015 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-37

38. 27.5.2015 Confirmation Letters of Security Interest over properties in Sch. D-I mortgaged in favour of applicant and extended to subsequent facilities A-38

39. 29.6.2015 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-39

40. 29.9.2015 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-40

41. 30.12.2015 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-41

42. 29.3.2016 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-42

43. 30.6.2016 Assignment Agreements along with right, title, interest in financing documents and all underlying security interest. A-43

44. 30.9.2016 Assignment deed –rights assigned in its favour by Axis Bank A-44

45. Statement of Accounts and BB certificate A-45

22. Heard the Ld. Counsel for the Applicant. Despite affording sufficient opportunity for arguments as there was no representation for the defendants, the opportunity was closed. Perused the records.

23. Having heard the Ld. Counsels for the parties and after perusing the records, the Tribunal framed the following points for consideration: -

1. Whether the applicant has established its claim against the defendant? If so, for what amount?

2. Whether the applicant is entitled for pendent lite and future interest, if so, at what rate?

Point No.1

Whether the applicant bank has established its claim against the defendants? If so, for what amount?

24. The applicant bank in its endeavor to establish its claim against the defendants examined its official as AW1 and got marked exhibits Ex.A-1 to A-

45. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-45 strenuously contended that the claim of the applicant stands established from the said undisputed documents, as such, the applicant is entitled for a recovery certificate.

25. The Ld. Counsel for Applicant Bank would contend that the defendants 1 to 5 against whom the claim has been filed did not choose to enter appearance and contest the case and as such the same is sufficient enough to allow the claim of the applicant. It is further contended that the 8th defendant which has filed the reply statement is proforma party and a consortium banker who had lent money to the 1st defendant.

26. Here it is to be stated that as per the scheme of adjudication of a claim/counter under the RDB Act, parties shall file their respective affidavits/counter affidavits in support of their claim or counter claim as the case may be and the Tribunal shall on the basis of the affidavits filed, adjudicate and decide the claim/counter claim. Therefore, in the absence of any Counter Proof Affidavit, the claim of the applicant stands unrebutted.

27. Further, the applicant has filed the statement of accounts accompanied by certificates under Bankers‟ Book Evidence Act and therefore the claim of the applicant is proved.

28. Further, during the pendency of the OA the applicant filed a Memo in SR No.2398 dated 1.4.2021 stating therein that the applicant had filed the above OA in respect of the debts due from the defendants 1 to 5 to State Bank of India. It is stated that during the pendency of the OA before this Tribunal, the parallel proceedings were initiated before NCLT which by the order dated 7.8.2017 directed Corporate Insolvency Resolution Process against 1st defendant and thereby a moratorium came to be imposed. It is stated that in accordance with the judgment of the Hon‟ble Supreme Court in State Bank of India Vs. V Ramakrishnan, reported in AIR 2018 SC 3876, the applicant is proceeding against the defendants 2 to 5. It is also stated in the memo that the Committee of Creditors in its meeting dated 11.11.2019 had taken a decision to initiate liquidation proceedings against the 1st defendant company and now the company is under liquidation by the NCLT and that has become final as the Appellate Tribunal and the Hon‟ble Supreme Court refused to interfere in the said order. It is stated that the 1st defendant is under liquidation process under IBC Code and the applicant is fully entitled to go against defendants 2 to 5 as per the dictum of Hon‟ble Supreme Court of India in State Bank of India Vs. V. Ramakrishnan (supra). It is stated that the applicant is making its claim against defendants 2 to 5.

29. Therefore, in the light of the discussion as aforesaid, it is clear that the proof affidavit and the documents filed along with the same by the applicant remain unchallenged by the defendants 1 to 5. Further, the Tribunal on careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-45 is fully satisfied that the applicant has established its claim. This point is answered accordingly.

Point No.2

Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate?

30. In terms of Sec. 19 (20) of the RDB Act, the Tribunal has been empowered to pass an order regarding payment of interest from the date on or before which payment of the amount is found due, up to the date of realisation or only payment, as it think fit to meet the ends of justice. Further, Hon‟ble Supreme Court, in the judgement (reported in II 2009 BC pg. 696) in the matter of State Bank of India – vs – Sarath 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.”. Further, Hon‟ble Supreme Court of India in the matter of 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 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.

31. While it is the case of the applicant that the applicant bank is entitled for contractual rate of interest till discharge of the entire outstanding dues, however, the defendant would contend that in so far as pendente lite and future interest is concerned, the contractual rate of interest may not be applied. It is to be stated that the claim of the applicant bank includes the rate of interest and other charges payable as per the contract. The Tribunal already held that the applicant bank is entitled for the amount claimed in the OA. As already stated, the Tribunal has awarded contractual rate of interest as claimed by the applicant bank till the date of filing the OA and in view of the fact that the lending rates had considerably come down, the Tribunal is of the view that the defendants are entitled for a reduced rate of interest. Therefore, under these circumstances, the Tribunal is inclined to grant pendente lite and future interest @ 12% p.a. simple on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

32. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) OA No.80 of 2017 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.2461,07,22,036/- with further interest @12% per annum (simple) from the date of filing of OA till realization in full, after deducting all the amounts received by them during the pendency of OA, from the defendants 2 to 5 jointly and severally and also by selling the schedule properties and other assets of the defendants 2 to 5, which shall be subject to the consortium agreement entered into between the consortium lender banks and State Bank of India.

(c) If the sale proceeds are not found sufficient to cover the amount due and payable to the Applicant Bank, the defendants 2 to 4 are personally liable for all such amounts due.

(e) Applicant is permitted to realize cost of the proceedings and shall file cost memo within 7 days from the date of the order.

(f) The Recovery Certificate shall be drawn up and issued to the Recovery Officer in terms of this final order.

33. Communicate a 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 the 31st day of August, 2021)

Sd/- (T. RAJESH) PRESIDING OFFICER DRT-II, CHENNAI