Bank of Baroda vs M/s. Zas Leathers on 23 June 2026

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 defendants seeking issuance of a Recovery Certificate for recovery of an aggregate sum of Rs.4,36,21,849.24p comprising a sum of Rs.3,29,67,971/- together with interest at the rate of 11.00% per annum being the amount due under the overdraft Limit Account; a sum of Rs.29,93,784.95p together with interest at the rate of 7.00% per annum with monthly rests being the amount due under WCTL ( BGECLS) account; a sum of Rs.63,81,905.29p together with interest at the rate of 10.9% per annum with monthly rests being the amount due under WCTL (BGECLS) account and a sum of Rs.12,78,188/- together with interest at the rate of 11.00% per annum with monthly rests being the amount due under FITL Account from the date of the application till the date of realisation along with costs of the application and for sale of schedule mentioned properties.

Facts of the case as averred in the Application

2. At the request of the defendants, the applicant has sanctioned to the 1st Defendant Firm vide its sanction letter dated 19.07.2018 the credit facility Overdraft Limit of Rs.300 Lakhs subject to the terms and conditions contained in the sanction letter. The applicant submits the 1st defendant has availed credit facilities from the erstwhile Vijaya Bank, Egmore Branch, Chennai, 600 008 and the Defendants have executed Security Documents and created Securities in favour of the erstwhile Vijaya Bank, Egmore Branch, which is now merged with the Bank of Baroda, the applicant herein pursuant to the Notification No.02 Part II, Section 3, Sub-Section (i) and Order No. G.S.R.2 (E) dated 02.01.2019 of the Government of India.

3. It is stated that pursuant to the Notification No.02 Part II, Section 3, Sub- Section (i) and Order No. G.S.R.2 (E) dated 02.01.2019 of the Government of India, the Vijaya Bank, has been amalgamated with the Bank of Baroda (BOB), under Section 9 of Banking Companies (Acquisition and Transfer of Undertakings) of India Act, 1970 and Section 9 of the Banking Companies (Acquisition & Transfer of undertakings) Act, 1980 with effect from 01.04.2019. The applicant submits that in terms of the said notification, on and from the effective date, (i.e., 01.04.2019) the undertaking of the transferor Bank (i.e; Vijaya Bank), as it stood before the effective date, shall without any further act, instrument or deed, stand transferred to, and vest in, the Transferee Bank (i.e. Bank of Baroda).

4. The 1st defendant is a partnership firm originally represented by the 2nd and 3rd defendants and one Mrs. M. Kanagavalli as its Partners, are carrying on business of manufacture and trading of Finished Leather and Leather Products under the name and style “M/s. ZAS LEATHERS” and having its Office at 1st Floor, No.13/2, Kattur, Sadayappan Street, Periamet, Chennai – 600 003. The Applicant also submits that the 2nd and 3rd Defendants and one Mrs. Kanagavalli are the guarantors to the loan sanctioned to the 1st Defendant on 19.07.2018. The said Mrs. Kanagavalli has retired from the Partnership Firm. Now the 1st defendant is now represented by the 2nd and 3rd defendants as its Partners. The present loans are also collaterally secured by the equitable mortgage over the immovable properties belonging to the 2nd Defendant, more fully described in schedules “B” and “C” hereunder as a security for the due repayment of the credit limits availed by the 1st Defendant and hypothecation of the Stocks of leather goods and Book Debts.

5. The 1st defendant represented by the 2nd, 3rd Defendants and the above said Mrs. Kanagavalli as its partners submitted loan application dated Nil to the applicant bank. Considering the request of the Defendants, the applicant vide its letter dated 19.07.2018 has sanctioned the Working

Capital limit of Rs.300 Lakhs subject to the terms and conditions mentioned in the above sanction letter which was duly acknowledged by the defendants. The above Overdraft credit facility shall carry interest @ MCLR Plus 3.55% at floating rate with monthly rests with a minimum of interest @ 12.15% p.a. It is also stipulated that the defendants are liable to pay additional interest @ 2% in case of failure to conduct/operate the account in terms of sanction.

6. The 1st defendant availed the above limits after the Defendants executed the following Security Documents in order to evidence and secure the due payment of the above limits executed various loan and security documents on 20.07.2018.

7. The 1st defendant firm was reconstituted on the retirement of Mrs. M. Kanagavalli and now the 1st defendant is reconstituted with the 2nd and 3rd defendants as its partners. The operations in the above account were not satisfactory and the defendants unable to operate the account in terms of sanction. The 1st defendant represented by the 2nd and 3rd defendants as its partners requested the applicant bank for restructure of the loan. The applicant considering the request of the 1st defendant has restructured the above loan account under MSME Accounts Restructure Scheme of the Bank and sanctioned restructure of the loan to the 1st defendant on 31.12.2019 as under subject to the terms and conditions mentioned therein i.e., Cash Credit Limit of Rs.3,00,00,000.-, FITL Limit of Rs.13,61,000/- and WCTL Limit of Rs.4,00,000.-.

8. Thee applicant has also sanctioned COVID-19 relief loan of Rs.30 Lakhs under Baroda General Emergency Credit Line Scheme vide sanction letter dated 14.05.2020 in response to the request made by the defendants vide its letter dated 14.05.2020. It is submitted that the Applicant as a relief measure as per the Guidelines of Govt of India/RBI/Bank’s guidelines, has sanctioned the following limits to the 1st defendant. It is also submitted that the defendants submitted a loan application dated 14.05.2020 seeking another Working Capital Term Loan Limit of Rs. 60 Lakhs. The applicant has also sanctioned COVID-19 relief loan of Rs.60 Lakhs under Baroda General Emergency Credit Line Scheme vide sanction letter dated 20.10.2020. It is also submitted that the 1st defendant closed the FITL loan limit of Rs.2,66,311/- on 27.10.2020.

9. The 1st defendant availed the above restructured limits after the Defendants executed the Security Documents on 31.12.2019, 15.05.2020 and 20.10.2020 in order to evidence and secure the due repayment of the above limits.

10. The credit facilities are also secured by the hypothecation of the Stocks of Finished Leathers and Book Debts and other movables more fully mentioned in the schedule “A” hereunder.

11. The 2nd defendant has created a mortgage by way of deposit of Title Deeds including the Sale Deed dated 25.05.2018 bearing Doc. No. 7868/2018 along with the certificate dated 08.12.2017 issued by the Tahsildar, Coimbatore certifying that the Schedule “B” Property is a Non Agricultural Land, over the Schedule “B” mentioned property as a security with the applicant bank at Egmore, Chennai with intention to create a mortgage thereon. The 2nd defendant has executed a Registered Memorandum of Deposit of Title Deeds dated 28.08.2018 bearing Doc. No.12620/2018 duly confirming the deposit of title deeds relating to Schedule “B“property as a security in favour of the Applicant. The 2nd defendant has also executed a Supplemental Memorandum of Deposit of Title Deeds dated 23.12.2020 bearing Doc. No.18012/2020 duly confirming the deposit of title deeds relating to Schedule “B“ property as a security in favour of the Applicant bank. The 2nd defendant has created a mortgage by way of deposit of Title Deeds including the Sale Deed dated 25.03.2019 bearing Doc. No. 3071/2019 over the Schedule “C” mentioned property as a security with the applicant bank at Egmore, Chennai with intention to create a mortgage thereon. The 2nd defendant has executed a Registered Memorandum of Deposit of Title Deeds dated 22.12.2020 bearing Doc. No.10581/2020 duly confirming the deposit of title deeds relating to Schedule “C“ property as a security in favour of the Applicant.

12. The defendants executed the Acknowledgment of liability dated 20.10.2020 in respect of Cash Credit (OD Loan) duly acknowledging the debt. The defendants also executed Acknowledgment of liability dated 20.10.2020 in respect of Term Loan.

13. It is submitted that the operation of the above account was not regular despite restructuring the loan account and several reminders including the Reminders dated 06.02.2021 and 03.03.2021. The 1st defendant failed to operate the above accounts as per the terms of sanction. The defendants made false promises for regularising the account but failed to repay the dues. Several meetings held with the defendants did not yield any result. As the account was irregular despite restructure, the applicant has declared the account as NPA as on 31.03.2021 in terms of the guidelines of RBI. As the defendants did not make any repayments, the loan account has been classified as NPA as on 31.03.2021 in terms of the guidelines of RBI and the applicant by invoking the provisions of the SARFAESI Act, had issued a Demand Notice dated 13.05.2021 under Section 13 (2) of the SARFAESI Act to the defendants through it’s Authorised Officer. The same has been received by the defendants and have failed to pay the outstanding dues within 60 days of the receipt of the above notice. The defendants did not submit any reply/objections to the above demand notice. Further the Authorized Officer of the Applicant Bank has issued a

Possession Notice dated 25.08.2021 under Section 13(4) SARFAESI Act. The applicant is filing this O.A. without prejudice to its rights under the SARFAESI Act.

Reply Statement by 2nd Defendant

14. The 2nd defendant filed reply statement denying the averments in the OA and submitted that it is false to state that 3rd defendant is one of the partners of the 1st defendant. It is stated that in the year 2020 itself she was relieved from the 1st defendant partnership concern and the same was intimated to the applicant bank by submitting GST return and inpsite of many reminders the applicant bank failed to replace her with one Mr. Fareeth Shaik Imam and on 15.06.2021 written letter was given to the applicant bank which was acknowledged by bank. Inspite of the same the applicant bank added her as defendant in the application as one of the partner, which is absolutely wrong.

15. It is false to state that the applicant bank has sanction COVID-19 relief loan of Rs.30 lakhs and 60 lakhs vide letter dated 14.05.2020. In order to fulfill their norms of distributing COVID-19 relief loan, the applicant bank themselves sanctioned and the said amount was deducted for the overdraft loan account. The defendant did not even see the single pie out of that relief fund as stated by the applicant bank.

16. It is false to state that the operation of the loan account was not regular despite restructuring. In fact the aqbove said overdraft loan was obtained in the year 2018 and these defendants were repaying installments regularly till the pandemic situation and as a result these defendants could not repay the same regularly. The defendants are engaged in leather business and due to lock down for more than seven months all finished leather goods got spoiled.

17. The defendants come under Small Scale Sector and during pandemic situation the entire business was lost, despite the same the applicant classified the account as NPA on 31.03.2021. The applicant bank has deducted the COVID-19 Relief Loan from the overdraft account which is not proper. The applicant has to prove the amount claimed in the OA. Thus contending the defendant prayed for dismissing the OA. Reply Statement by 3rd defendant

18. The 1st defendant, a Partnership firm, initially at the time of stating the business and obtaining the loan from the applicant bank, this defendant was also one of the partners of the 1st defendant. Subsequently one of the partner viz., Mrs. M. Kanagavalli got relieved from partnership and subsequently in the year 2020 due to personal inconvenience this defendant also got relieved, despite the same the bank has filed the OA

against this defendant also as if this defendant is one of the Partners of the 1st defendant firm, which is not maintainable under law.

19. This defendant on 15.06.2021, a written letter was submitted to the applicant bank intimating about the relieving of this defendant from the partnership firm and one Mr. Fareeth Shaik Inam has joint the firm. Inspite of the same the above OA si filed on 16.09.2021 showing this defendant as one of the Partners is not maintainable.

20. For the foregoing, the above OA is liable to be dismissed as against this defendant as she is no more the partner of the 1st defendant. Proof affidavit filed by the Applicant Bank

21. The applicant bank filed its proof affidavit along with 55 documents, which are marked as Exhibits A-1 to A-55, the details of which are as under: - Sl. No. Date of Document Description of the Documents

Ex. No.

19.07.2018 Loan Application A1

19.07.2018 Sanction Letter A2

20.07.2018 Loan Agreement cum Hypothecation Deed A3

20.07.2018 Letter of Access by D1 A4

20.07.2018 Letter of Access by D1, D2, D3 Mrs. Kanagavalli A5

20.07.2018 Letter of Guarantee by D2, D3 and Mrs.Kanagavalli A6

31.12.2019 Letter of Sanction of Restructure of Loan A7

14.05.2020 Sanction of BCECLS Loan along with Loan application dated 14.05.2020 (Request Letter) A8

14.05.2020 Loan Application submitted by the 1st defendant A9

20.10.2020 Sanction of BGECLS-Covid Loan for Rs. 60,00,000/- A10

31.12.2019 Letter of Partnership A11

31.12.2019 D.P. Note for Rs. 3,00 ,00,000/- A12

31.12.2019 Letter of Instalment A13

31.12.2019 General Undertaking A14

31.12.2019 Draft Undertaking A15

31.12.2019 General form of Continuing Guarantee by D2 & D3 A16

31.12.2019 Consent Letter for disclosure A17

31.12.2019 Letter of Partnership A18

31.12.2019 D.P. Note for Rs. 10 ,95,184/- A19

31.12.2019 Letter of Instalment A20

31.12.2019 General Undertaking A21

31.12.2019 Letter of Draft Undertaking A22

31.12.2019 General Form of Continuing Guarantee by D2 & D3 Supplementary Agreement A23

31.12.2019 Consent Letter for disclosure A24

31.12.2019 Letter of Partnership A25

15.05.2020 Letter of Partnership A26

15.05.2020 D.P. Note for Rs.30,00,000/- A27

15.05.2020 Letter of instalment A28

15.05.2020 Letter of continuing security A29

15.05.2020 Loan cum Hypothecation Agreement- A30

15.05.2020 Composite Hypothecation Agreement- A31

15.05.2020 Letter of Undertaking with negative lien A32

15.05.2020 General Undertaking A33

15.05.2020 General Form of Continuing Guarantee by D2 & D3 A34

20.10.2020 Letter of Partnership A35

20.10.2020 D.P. Note for Rs.60,00,000/- A36

20.10.2020 Letter of instalment A37

20.10.2020 Loan cum Hypothecation Agreement A38

20.10.2020 Letter of Undertaking with negative lien A39

20.10.2020 Declaration cum undertaking cum Authority A40

20.10.2020 Undertaking Letter from borrowers A41

25.05.2018 Sale Deed bearing Doc.No.7868/2018 A42

08.12.2017 Certificate issued by Tashildar certifying it is a non agricultural land A43

28.08.2018 Reg. Memorandum of Deposit of Title Deeds bearing Doc.No.12620/2018 A44

23.12.2020 Supplemental Memorandum of Deposit of Title Deeds bearing Doc.No.18012/2020 A45

25.03.2019 Sale Deed bearing Doc.No.3071/2019 A46

22.12.2020 Reg. Memorandum of Deposit of Title Deeds bearing Doc.No.10581/2020 A47

20.10.2020 Letter of Acknowledgment of Debt for Cash Credit A48

20.10.2020 Letter of Acknowledgment of Debt for Term Loan A49

27.10.2020 Letter from the 1st Defendant advising the utilization of Covid Relief Loan of Rs.60,00,000/- A50

06.02.2021 Reminder A51

03.03.2021 Reminder A52

13.05.2021 Demand Notice A53

25.08.2021 Possession Notice A54

------ Statement of Accounts A55

22. Though the defendants were represented initially by their Ld. Counsel and the reply statement was also filed on behalf of the defendants as there was no representation for the defendants continuously and on 07.03.2024, they were called absent and set ex-parte on that day. Thus the defendants did not choose to file their Counter Proof Affidavit.

23. Heard the Ld. Counsel for the Applicant Bank. The defendants were set ex-parte on 07.03.2024. Perused the records.

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

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

2. Whether the applicant bank 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?

25. The applicant bank in its endeavor to establish its claim against the defendant examined its official as AW1 and got marked exhibits Ex.A-1 to A-55. Ld. Counsel for Applicant placing reliance on the proof affidavit of

AW-1, besides Exhibits A-1 to A-55 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

26. Ld. Counsel for Applicant Bank would contend that defendants remained absent and did not choose to contest the case and hence the claim against these defendants remained unrebutted and thus proved. Further the contention of the 3rd defendant that she was relieved from the partnership firm by the time OA is filed is not supported by documentary evidence. Ld. Counsel would also contend that the statement of accounts filed is proper and supported by appropriate certificate under Bankers’ Book Evidence Act and Information Technology Act and hence the claim of the applicant stands proved. It is further contended that the defendants though filed the reply statement, did not choose to file any CPA despite sufficient opportunity and therefore the claim of the applicant stand unrebutted.

27. As rightly contended by the Ld. Counsel for Applicant, barring filing of reply statement, the 3rd defendant did not choose to file Counter Proof Affidavit substantiating the pleas taken in reply statement. 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, as rightly contended by the Ld. Counsel for Applicant, the defense put forth by the defendants remain unsubstantiated hence cannot be considered, thus the claim of the applicant stands unrebutted.

28. Therefore, in the light of the discussion as aforesaid, it is clear that the proof affidavit and the documents filed along with by the applicant remain unchallenged by the defendant. Further, the Tribunal on careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-55 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?

29. 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.

30. 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, it is to be noted 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 and as such 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 subject loan being a business loan and the lending rate had considerably come down, the Tribunal is of the view that the defendants are entitled for a reduced rate of interest (simple) on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

31. In view of the afore mentioned discussions, the OA is disposed off in the following manner from the date of the application till the date of realisation along with costs of the application and for sale of schedule mentioned properties and other assets of the defendants: - (a) TA No.167 of 2022 stands allowed.

(b) Applicant is permitted to realize an aggregate sum of Rs.4,36,21,849.24p in the following manner: -

(i) A sum of Rs.3,29,67,971/- together with interest at the rate of 10% per annum (simple) being the amount due under the overdraft Limit Account;

(ii) A sum of Rs.29,93,784.95p together with interest at the rate of 7% per annum (simple) being the amount due under WCTL ( BGECLS) account;

(iii) A sum of Rs.63,81,905.29p together with interest at the rate of 9% per annum (simple) being the amount due under WCTL (BGECLS) account and

(iv) A sum of Rs.12,78,188/- together with interest at the rate of 10% per annum (simple) being the amount due under FITL Account

(c) If the sale proceeds are not found sufficient to cover the amount due and payable to the Applicant, the defendants 2 and 3 are personally liable for all such amounts due.

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

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

32. 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.

Sd/-

(SHARANG DHAR UPADHYAY)

DRT-II, CHENNAI (Dictated to PS, who typed in the system directly, corrected, signed and pronounced by me in Open Court, on this 23rd day of June, 2026)

DESCRIPTION OF PROPERTIES

SCHEDULE “A” HYPOTHECATED PROPERTY

Hypothecation of Stocks of Finished Leathers and Book Debts and other movables kept at No. 12-A, Perianna Maistry Street, 1st Floor, Periamet, Chennai – 600 003.

SCHEDULE “B” MORTGAGED PROPERTY BELONGING TO D2

All that piece and parcel of Vacant land at Kurudampalayam Village, comprised in S.F.No.9/1 an extent of 2.72 acres, as per sub division in Patta No.757, in S.F.No.9/1A, an extent of 0.23.5 Hectares and in patta No.631, in S.F.No.9/1B an extent of 0.13.5 hectares in this, an extent of 0.91.43 acre with half share in the cart track on the Western side of S.F.No.10/1 and right to use the said cart track and all other appurtenances thereto within the following boundaries North of – “B” Schedule property in Partition deed dated 21.12.1959 allotted to Rajagopal Naidu and others South of – Property of Palani Gounder East of – Land in S.F. No.10/2; West of – S. F. No. 9/2 and with right of way through Cart Track on the Western side of S. F. No.10/1 and all other appurtenances thereto; morefully described in the Sale Deed dated 25.05.2018 bearing Doc. No.7868 of 2018 at SRO, Periyanaickenpalayam and Registration District of Coimbatore, Property belonging to Mr.Zakir Ahmed Khan, D2.

SCHEDULE “C” MORTGAGED PROPERTY BELONGING TO D2

All that piece and parcel of Land in the Sanctioned Plan of the Vellakinar Housing scheme Phase-I area bearing Plot No. A-123 in S. No. 81/1 part, 81/2A part and 85/2 Part of Vellakinar Coimbatore and Bounded: On the North By: Plot No.C-139, C-140 and C-141 On The East By: Plot No.A-124 On the South By: 12.00 Mtr. Road (40 Ft. Road) On the West By: Plot No.A-122 Measuring On the North By 12.00 meter On the East by 18.00 meter On the South By 12.00 Meter On the West by 18.00 meter And all measuring Nil ground and 2325 Sq. Ft. (216.00 Sq. Meter) with the building standing and erected thereon and situated within the Sub Registration District of Gandhipuram and Registration District of Coimbatore. Thudiyalur Neighbourhood Scheme Phase-I- Plot No.123, Block No.12, Ref. No. A12/8929/06 and morefully described in the Sale Deed dated 25.03.2019 bearing Doc. No.3071 of 2019 at SRO, Gandhipuram, property belonging to Mr. Zakir Ahmed Khan, D1.

Sd/- (SHARANG DHAR UPADHYAY)

DRT-II, CHENNAI