State Bank of India vs M/s Furn Systems 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‟ seeking issuance of a Recovery Certificate for an aggregate sum of Rs.3,83,12,525/- with further

interest at the rate of 13.8% per annum 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 the 1st defendant represented by its Proprietrix, the 3rd defendant approached the applicant for sanction of credit facilities for its business and the applicant considering the said request vide its sanction dated 3.12.2013 sanctioned Cash Credit (Hypothecation) facility of Rs.1,00,00,000/- and SME Credit Plus facility of Rs.20,00,000/- along with bank guarantee of Rs.50,00,000/-. It is also the case of the applicant that the 1st defendant represented by 3rd defendant executed necessary loan documents on 4.12.2013 and the defendants 2 and 3 also executed guarantee agreements on 4.12.2013.

3. It is also the case of the applicant that at the request of the 1st defendants represented by 3rd defendant, the applicant vide sanction dated 7.2.2015 enhanced the credit facilities viz., Cash Credit Facility (Hypothecation) to the tune of Rs.3,00,00,000/- (with the facility of interchangeability to the tune of Rs.2 crores as Import LC) and SME credit plus facility of Rs.20,00,000/- along with Bank Guarantee of Rs.50,00,000/- and CEL facility of Rs.4,00,000/-. It is stated that the defendants executed necessary loan and security documents on 7.2.2015.

4. It is the further case of the applicant that the 2nd defendants deposited the title deeds of his properties more fully described in Schedule „B‟ to the OA on 5.5.2008 with an intention to create equitable mortgage over the same in favour

of applicant and confirmed the same by executing Memorandum of Deposit of Title deeds dated 7.2.2015 registered as Doc. No.826 of 2015, SRO, Virugambakkam.

5. It is the further case of the applicant that as the defendants failed and neglected to repay the outstanding dues despite repeated demands the applicant classified the loan account as NPA on 27.09.2017, however, the defendants acknowledged the liability by executing revival letters on 14.7.2016, 11.10.2017 and balance confirmation letter on 11.10.2017. It is also stated that since the defendants have been evading discharging their liability the applicant sent a demand notice under Section 13(2) of the SARFAESI Act on 6.10.2017 calling upon the defendants to discharge the liability. It is stated that the requests of the applicant to the defendants to clear the outstanding dues were in vain and hence the present application is filed for recovery of its dues.

6. The defendants filed their reply statement contending therein that the OA is liable to be dismissed. It is stated that the applicant has not given any details with regard to the claim amount of Rs.3,83,12,525/- and in the absence of the same the defendants are not in a position to put forth their contention in this regard. It is stated that the credit facilities were extended to the 1st defendant in the year 2013 and hence the claim is barred by limitation. Further, the title deeds were deposited only on 5.5.2008 and hence the subsequent facility granted will not be covered by the mortgage created in the year 2008. The defendants deny executing the revival letters and the balance confirmation letter. It is stated that the defendants had not availed the entire limit sanctioned. It is stated that as the

mortgage has been created on 5.5.2008 the same does not cover the credit limits sanctioned on 3.12.2013. It is also stated that the applicant has failed to comply with the provisions of the SARFAESI Act and the Rules made thereunder while bringing the Schedule „B‟ property to sale on 3.3.2018 and the applicant has sold the property for a meager price. It is stated that the applicant having invoked the provisions of SARFAESI Act cannot proceed under RDB Act also. It is contended that the amount claimed by the applicant is not proper and is exaggerated. It is contended that the application is premature and is liable to be dismissed.

7. The applicant bank filed its proof affidavit along with 22 documents, which are marked as Exhibits A-1 to A-22, the details of which are as under: - S. No. Date Description of Documents Exhibit Nos.

1. 03.12.2013 Sanction letter issued by the Applicant A-1

2. 04.12.2013 Letter of Arrangement issued by the applicant. A-2

3. 04.12.2013 Agreement of Loan cum Hypothecation executed by the 1st defendant A-3

4. 04.12.2013 Guarantee Agreement executed by 2nd defendant. A-4

5. 07.02.2015 Letter of arrangement issued by the applicant. A-5

6. 07.02.2015 Supplemental Agreement of Loan cum Hypothecation executed by 1st defendant A-6

7. 07.02.2015 Guarantee Agreement executed by 2nd defendant. A-7

8. 07.02.2015 Guarantee Agreement executed by 3rd defendant. A-8

9. 07.02.2015 Omnibus Counter Guarantee by 1st defendant A-9

10. 07.02.2015 Memorandum of Deposit of Title deeds relating to Schedule „B‟ property executed by 2nd defendant, registered as Doc. No.826/2015 A-10

11. 29.08.1974 Registered sale deed Doc. No.2506/1974 A-11

12. 27.05.1988 Registered Settlement deed – Doc. No.2132 of 1988. A-12

13. 30.04.1990 Registered Sale deed – Doc. No.1967/1990 A-13

14. 04.12.2013 Revival Letter executed by the defendants A-14

15. 14.07.2016 Revival Letter executed by the defendants A-15

16. 11.10.2017 Revival Letter executed by the 3rd defendant A-16

17. 11.10.2017 Balance confirmation letter executed by 3rd defendant. A-17

18. 11.10.2017 Balance confirmation letter executed by 3rd defendant A-18

19. 06.10.2017 Demand Notice issued under Section 13(2) of the SARFAESI Act by the applicant to the 1st defendant A-19

20. 06.10.2017 Demand Notice issued under Section 13(2) of the SARFAESI Act by the applicant to the 2nd and 3rd defendants A-20

21. Statement of Accounts A-21

22. Statement of Accounts A-22

8. The defendants did not choose to file their Counter Proof Affidavit despite availing sufficient opportunities and therefore the chance of filing Counter Proof Affidavit by the defendant was closed on 03.10.2023.

9. 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. Perused the records.

10. 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?

8. 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-22. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-22 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

9. Ld. Counsel for Applicant Bank would further submit that even as per the Reply Statement filed, the defendants have 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 contend that the contention of the defendants that they did not executed the revival letters and the balance confirmation letters are all false. Ld. Counsel also submitted that the contention of the defendant that the applicant having invoked the provisions of SARFAESI Act cannot invoke RDB Act is no more res integra and it is settled position of law that the applicant can simultaneously proceed under both the Acts. Ld. Counsel would also contend that the defendants though filed their reply statement they did not choose to file the Counter Proof Affidavit and as such the claim of the applicant stands unrebutted and is sufficient enough to allow the claim of the applicant.

10. 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 Counter Proof Affidavit, 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.

11. As regards the contention of the defendants that they have not executed the revival letters and the balance confirmation letter cannot be acceded to for the reason that the defendants have not disputed their signatures in the said documents viz., A-14 to A-18 and the defendants having signed the documents cannot raise a pleading to the contrary.

12. As regards the contention of the defendants that the mortgage was created on 5.5.2008 and hence the same cannot be extended to the credit facilities sanctioned in the year 2013 is concerned, it is to be stated that the defendants had on 7.2.2015 has executed a Memorandum of Extension of the existing deposit of title deeds to secure the limits outstanding as on the date of executing of the said documents, wherein the mortgage created on 5.5.2008 and 29.04.2013 are also referred to. Hence this contention of the defendants also fails.

13. 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-8 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?

14. 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.

15. 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 TA. 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 instant loan is 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. Therefore, under these circumstances, the Tribunal is inclined to grant pendente lite and future interest @ 13% p.a. simple on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

16. The applicant filed part satisfaction stating therein that the applicant has realized a sum of Rs.2,17,00,000/- by bringing the Schedule „B‟ property to sale. This Tribunal recorded part satisfaction of the claim by its proceedings dated 4.12.2020.

17. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) TA No.432 of 2023 stands allowed.

(b) Applicant is permitted to realize an aggregate amount of Rs.3,83,12,525/- with further interest @13% per annum (simple) from the defendants jointly and severally from the date of filing of OA till realization in full, after

deducting all the amounts received by them during the pendency of OA and also the sum of Rs.2,17,00,000/- realized by the applicant by sale of the mortgage property on its respective date, and also by selling the hypotheca and other assets of the defendants.

(c) It is made clear that the defendant 2 and 3 personally liable for all such amounts due under the loan accounts.

(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.

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