M/s KOTAK MAHINDRA BANK LIMITED vs M/s. KFJ Gold and Diamonds Private Limited on 29 December 2023

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 for recovery of a sum of Rs.16,35,40,378.70p with interest at the rate of 11.30% per annum with monthly rests plus penal interest at the rate of 1.70% per annum from the date of filing of the OA till the date of realization in full along with costs of this application and for sale of schedule mentioned properties.

2. The subject matter of the case is the “Overdraft Facility” availed by the defendants from the applicant bank.

3. It is the case of the applicant that the 1st Defendant is a Private Limited Company with Defendants 2 to 5 as its Directors and is engaged in the business of running showrooms with Gold, Silver, Diamond & Platinum Jewelry articles. It is also the case of the applicant that the 1st defendant approached the applicant bank for grant of credit facilities for the purpose of its business and the applicant considering the said request vide Sanction Memorandum dated 22.06.2015 sanctioned Over Draft - Stocks in trade/ Book Debts – Rs.15.00 crores for the purpose of meeting Working Capital Requirements which included a takeover of Rs.9.50 crores from State of Bank India.

4. It is also the case of the applicant that having availed the credit facility, the 1st defendant represented by defendants 2 to 5 executed various loan and security documents on 23.06.2015. It is stated that subsequently on 20.03.2017, the applicant bank renewed working capital facility at the existing level of Rs.15.00 crores and the first Defendant Company, represented by Defendants 2 to 5 as Directors, executed the loan and security Documents in favour of the Applicant Bank on 11.06.2017. It is also stated that the defendants 2 to 5 guaranteed the loan facility availed by the 1st defendant in their individual capacity by executing Guarantee Agreements on 23.06.2015 and 11.06.2017 respectively.

5. It is the further case of the applicant that the 5th defendant deposited the title deeds of her property more fully described in Schedule „B‟ to the OA with the applicant on 10.07.2015 with an intention to create equitable mortgage over the same and confirmed the same by executing Agreement relating to Deposit of Title deeds dated 10.7.2015 and also by Memorandum of Deposit of Title deeds dated 18.1.2006, 7.12.2007, 13.5.2010 and 05.1.2012 registered as Doc. Nos.90 of 2006, 2964 of 2007, 1178 of 2010 and 18 of 2012 respectively.

6. It is alsothe case of the applicant that the defendants defaulted in repayments and failed to regularize the loan account despite repeated demands and hence the applicant issued several letters including the Recall Notice dated 11.6.2018 calling upon them to regularize the loan accounts.

7. It is further contended that the applicant that the loan account was classified as NPA on 29.5.2018 and the applicant issued the demand notice under Section 13(2) of the SARFAESI Act on 14.7.2018, to which the defendants sent a reply but did not come forward to regularize the loan account.

8. It is the case of the applicant that after availing the loan, the defendants were irregular in remitting the loan amount. The efforts of the applicant bank to make the defendants to settle the loan did not yield any result, and hence the applicant approached this Tribunal seeking issuance of a Recovery Certificate allowing recovery of the amount due in the account.

9. The defendants filed written statement contending therein that the claim of the applicant is illegal, unsustainable, baseless and exorbitant and that the defendants are not liable to pay the said exorbitant amount. The Recovery Proceedings is neither maintainable in law nor on facts and the application is not in conformity with the mandatory provisions of Section 19 of the RDB Act. The application has been filed with frivolous and fictitious claims and on the basis of illegal, invalid and unenforceable documents. The application is very vague, lacking in particulars, unsupported by documents and is therefore liable to be rejected in limine. It is also contended that claim of the applicant is barred by limitation. The application is liable to be dismissed for suppression of material facts. It is stated that the defendants originally availed Cash Credit Facility of Rs.9 crores from State Bank of India, which was subsequently taken over by ING Vysya Bank with an assurance to enhance the said loan to Rs.15 crores. Though the said bank sanctioned Rs.15 crores, the amount of Rs.5.50 crores was not disbursed in one go and disbursed the same in piece meal and lastly on 17.03.2016, because of which the defendants sustained heavy loss in business which was carried forward in subsequent years. It is also stated that the applicant has classified the account as NPA without taking into account the repayments made by the defendants. It is stated that the applicant obtained signatures of the defendants in various printed and blank documents and later on filled the same for the purpose of filing this application. The documents alleged to have been signed on 23.6.2015, 30.06.2015, 11.06.2017, 09.07.2015 and 10.07.2015 are not valid and enforceable in law. It is also stated that various remittances made by the defendants have not been given due credit to and had the said payments were accounted for the account would have regular. The statement of accounts is not proper and supported by valid certificates. The applicant bank has charged usurious interest and against the various guidelines of the RBI. Thus contending the defendants prayed for dismissing the OA.

10. The applicant bank filed its proof affidavit along with 9 documents, which are marked as Exhibits A-1 to A-38, the details of which are as under: - S. No. Date Description of Documents Exhibit Nos.

1. 22.06.2015 Sanction Communication A1

2. 01.07.2015 Letter to SBI- Take over with acknowledgement A2

3. 23.06.2015 Board Resolution A3

4. 23.06.2015 Demand Promissory Note for Rs.15.00 crores A4

5. 23.06.2015 Demand Promissory Note Take delivery letter A5

6. 23.06.2015 Deed of General hypothecation A6

7. 23.06.2015 Facility Agreement A7

8. 23.06.2015 Company declaration for non-payment of consideration A8

9. 23.06.2015 Undertaking letter for keep the lease in force A9

10. 23.06.2015 Undertaking letter not to borrow from other institutions A10

11. 23.06.2015 Undertaking letter to abide by various terms and conditions A11

12. 30.06.2015 Undertaking cum indemnity Bond A12

13. 20.03.2017 Sanction Letter A13

14. 11.06.2017 Demand Promissory Note A14

15. 11.06.2017 Deed of hypothecation A15

16. 11.06.2017 Master facility Agreement A16

17. 11.06.2017 Letter of continuing security A17

18. 11.06.2017 Letter of undertaking against credit facilities A18

19. 29.06.2017 Sanction communication A19

20. 11.06.2017 End use undertaking A20

21. 09.07.2015 Declaration A21

22. 23.06.2015 Deed of Guarantees A22

23. 11.06.2017 Personal Guarantee A23

24. 10.07.2015 Agreement relating to Deposit of title deeds A24

25. 10.07.2015 Memorandum from Guarantor (Mrs. Valsa Cherian) A25

26. 11.06.2018 Loan Recall notice A26

27. 14.07.2018 Demand Notice under sec 13(2) A27

28. Reply to Demand Notice A28

29. 20.12.2005 Certificate of Incorporation KFJ A29

30. 16.12.2005 Memorandum of Association A30

31. Articles of Association A31

32. 23.03.2017 Board Resolution A32

33. 29.08.1981 Sale Deed document number 3362 of 1981 A33

34. 18.01.2006 Certified copy of Memorandum of Deposit of title deeds document number 90 of 2006 A34

35. 07.12.2007 Certified copy of Memorandum of Deposit of title deeds document number 2964 of 2007 A35

36. 13.05.2010 Certified copy of Memorandum of Deposit of title deeds document number 1178 of 2010 A36

37. 05.01.2012 Certified copy of Memorandum of Deposit of title deeds document number 18 of 2012 A37

38. Statement of Accounts and BBE certificate A38

11. The defendants filed their Counter Proof Affidavit reiterating their contentions raised in the Reply Statement, however, did not choose to file any documents in support of their claim.

12. Heard the Ld. Counsel for the applicant. There was no representation on behalf of the defendants continuously and hence the Tribunal proceeded to pass order based on the averments in the Reply Statement and Counter Proof Affidavit. Perused the records.

13. 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?

14. 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-38. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-38 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

15. Ld. Counsel for Applicant Bank would further submit that even as per the Reply Statement filed, the defendant has not denied availing of credit facility, execution of documents and creation of mortgage and as such the said admission is sufficient enough to allow the claim of the applicant. Ld. Counsel would also submit that the amount claimed by the applicant is proper and the applicant has charged interest only at contractual rates and the applicant bank has also produced the statement of accounts duly certified under Bankers‟ Book Evidence Act to substantiate the amount claimed by the applicant. Ld. Counsel would also contend that the contention of the defendants that the applicant obtained the signatures of the defendants in blank unfilled documents and later on filled the same for the purpose of filing this application is a usual ground taken by every defaulting borrower and hence the contention that the said documents are not valid is unsustainable. The Ld. Counsel would also contend that defendants though filed their reply statement and Counter Proof Affidavit they did not choose to file the documents in support of their contention and as such the claim of the applicant stands unrebutted and is sufficient enough to allow the claim of the applicant.

16. 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 along with supporting documents, adjudicate and decide the claim/counter claim. Therefore, in the absence of any supporting documents, the claim of the applicant stands unrebutted. Further, the applicant bank has filed the statement of accounts accompanied by certificates under Bankers‟ Book Evidence Act and therefore the claim of the applicants remains unrebutted.

17. In so far as the contention of the defendants that the applicant obtained the signatures of the defendants in blank printed documents and later on filled the same for the purpose of filing this application is concerned it is to be stated that this is the usual ground taken by every defaulting borrower. In this connection, it will be pertinent to refer to the judgment of Hon‟ble DRAT, Mumbai in the matter of Sangli Bank Ltd. Vs. Prabha K.Maheshwari and others reported in MANU/DM/0025/2005 held in paragraph 8 that; “8. The grant of loan as alleged by the Bank and defendant Nos.6 to 10 having signed a guarantee agreement is an admitted position. Their contention is that on 30th July, 1992, defendant Nos. 1 to 5 had sent blank letter of lien, demand note for grant of Rs.30 lacs to the Bank, which indeed, appears to be correct. However, it has to be pointed out that settled legal position is that the person who signs blank standard documents takes responsibility for the same and the plea of non est factum is not available to him”

18. As regards the contention of the defendants that various remittances made by them have not been given proper credit to and had the same is given credit to the account would not have slipped into NPA is concerned, it is to be stated that the applicant has filed the statement of accounts duly certified under Bankers‟ Book Evidence Act to substantiate their claim, but, the defendants have failed to produce the details of the payments made, which have not been given credit to, so that this Tribunal can go into the issue. Hence this contention of the defendants also fails.

19. During the pendency of the TA, the applicant filed a part satisfaction memo stating therein that the Schedule „B‟ property was brought to sale on 25.2.2022 and the applicant realized a sum of Rs.8,11,00,000/- and prayed for recording part satisfaction of the TA claim. This Tribunal by its proceedings dated 28.3.2022 recorded part satisfaction of the OA claim.

20. 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 defendants. Further, the Tribunal on a careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-38 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?

21. This Tribunal already held that the applicant bank is entitled for the amount claimed in the OA and Tribunal has awarded contractual rate of interest as claimed by the applicant bank till the date of filing the OA. However, in view of the fact that the defendants did not show their bonafides in preserving the hypotheca, this Tribunal is not inclined to interfere with the interest rates claimed by the applicant. Point No.2 is answered accordingly.

22. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) TA No.40 of 2023 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.16,35,40,378.70p with further interest @11.30% per annum with monthly rests from the defendants jointly and severally from the date of filing of OA till realization in full, after deducting all the amounts received and recovered by them during the pendency of OA, and also by selling the hypotheca, if any available and other assets of the defendants.

(c) A sum of Rs.8,11,00,000/- realized by the applicant by sale of Schedule „B‟ property be given credit to the loan account of the defendants on its respective date.

(d) It is made clear that the defendants 2 to 5 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.

23. 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 Open Court on this the 29th day of December, 2023)

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