INDIAN BANK vs M/s.JR Exports and 2 Others on 21 January 2019

O R D E R

1. This application is filed by the applicant bank under Section 19(1) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as ‘the Act’) against the defendants jointly and severally for recovery of a total sum of Rs.1,30,29,130/- consisting of Rs.30,36,461/- due under Home Loan Facility and Rs.99,92,669/- due under Secured Overdraft

Facility with future interest at 10.25% p.a. with monthly rests and 14.75% p.a. with monthly rests respectively plus penal interest of 2% for both facilities from 24.2.2015 till the date of realization in full, for sale of the schedule mentioned properties along with costs of this application.

2. Brief facts of Application are as follows: 2.1 It is stated that the 2nd defendant applied for sanction of home loan and D2 offered the Schedule A property as security to the said Home Loan facility. The applicant bank after assessment, sanctioned a Home Loan of Rs.30.00 lakhs on 16.3.2012. Evidencing the borrowing, D2 and D3 as a co-applicant, The Applicant Bank states that the 2nd and 3rd Defendant had accepted the Terms and conditions of the said facility and executed the following documents; SI. No Date Documents

1. 16.03.12 Term Loan agreement executed by the Defendants.

2. 16.03.12 Demand Promissory Note executed by the Defendants.

3. 16.03.12 Disposal Proceeds Letter.

4. 16.03.12 Declaration by the Borrower.

5. 16.03.12 Consent Letter from the Borrower.

6. 16.03.12 Letter of Confirmation of EM executed by the borrowers Defendants created an equitable mortgage in favour of the applicant bank by depositing title deeds relating to Schedule A property on 16.3.2012 and confirmed the same vide letter of confirmation dated 16.3.2012.

2.2 While so, D1, who is carrying on the business in the name and style of M/s J.R. Exports and represented by D2 as its sole proprietor, approached the bank seeking sanction of Secured OD Facility to the tune of Rs.40.00 lakhs on 9.9.2011 and later sought an enhancement of the same to Rs.80.00 lakhs on 10.11.2012. The applicant bank considered the request of D1 and sanctioned SOD Facility limit of Rs.40.00 lakhs on 9.9.2011 and later enhanced the same to Rs.80.00 lakhs on 30.1.2013. D3 stood as a guarantor for the loan availed by D1 proprietory firm. D1 represented by its sole proprietor D2 executed necessary loan documents such as demand promissory note, agreement of hypothecation, etc. on 30.1.2013. D3 executed agreement of guarantee on 30.1.2013 guaranteeing the due repayment of the aforesaid loan facility. Defendants created an equitable mortgage in favour of the bank by depositing title deeds of the property mentioned in the Schedule B of the OA on 9.4.2012. D2 also executed the registered memorandum of the title deeds in favour of the bank on9.4.2012 in respect of the B Schedule property. While so, for enhancement of limit to Rs.80.00 lakhs , D2 and D3 executed a letter confirming extension of the equitable mortgage of the schedule mentioned properties on 30.1.2013 itself. Thus, D2 and D3 offered the schedule mentioned properties as collateral security for the credit facilities availed by D1. D2 and D3 jointly executed letter of extension of the equitable mortgage and thus created an equitable mortgage in favour of the bank in respect of the SOD facility.

2.3 The applicant bank further stated that the defendants were irregular in making payments from the beginning in both the loan accounts. In spite of frequent reminders through letters, there was no improvement and no payment was received from them. The demand notice issued under the provisions of the SARFAESI Act also did not evoke any response from the defendants. Hence, the present OA.

3. Brief of the averments made by the defendants in their reply statement is as follows; 3.1. The Defendants submit that the claim is false, illegal, vexatious, frivolous and not maintainable in law as well as on facts and liable to be rejected in limine. It is submitted that the Applicant had malafidely verified the address of the Defendants in the OA in spite of knowledge and information as to their shifting and change of address for correspondence under due intimation as well as by efflux of legal proceedings invoked on the measures initiated by the Applicant over the allegedly secured assets under the SARFAESI Act, 2002. In that aspect the OA is required to be not in conformity to the Rules and liable to be rejected.

3.2. The Defendants submit that the constitution and composition of the Applicant is not known, the Authorization for the signatory to the OA is also disputable and denied in view of the fact that no Authorization in favour of the signatory has ever been projected and hence the pleadings as such have no sustainability before this Tribunal.

3.3. It is submitted that the Over Draft facility in a sum of Rs.40 lakhs and enhanced to Rs.80 lakhs have been completely utilized and not a single rupee had been diverted or siphoned away by the Defendants. It is also not the case of the Applicant that the Defendants had ever committed any such acts. The Schedule A property alone was offered as Security to the said SOD facility. The statement that the Schedule B property had never been offered as Security and the allegation is baseless. The Documents for the said OD facility are executed by the Defendants and the so much of blanks in the said Mutual Documents are permitted to exist in the Agreement of Hypothecation of Movables, as is presented along with the OA. Thus the said Indenture have become inadmissible and no sanctity could be attached thereto.

3.4. It is further stated that the Agreement of Guarantee by the 3rd Defendant is to the extent of SOD alone. The DPN dated 30/1/2013 had been executed by the 2nd Defendant alone for the enhanced OD Limit. Had the Applicant disclosed such information as mentioned therein, the same is without due authorization and liable for any breach committed and appropriate relief oriented proceedings legally is hereby reserved by the Defendants. Further the Documents evidencing the creation of Equitable Mortgage until registration of MODT in respect of Schedule A property for the SOD Facility alone is subsisting and existing. Thus the Home Loan is not secured by any charge over the Schedule B property as alleged.

3.5. The Defendants submit that in so far as the availing of Home Loan as a Term Loan, the facility had been fully utilized for the said purpose. At the same time, the Letter of consent for disclosure of informations by the Defendants 2 & 3 do not specify the nomenclature of the Account. Hence the said Letters lack any legal sanctity and not admissible. It is submitted that no security interest or MODT had ever been created as is required under Law in respect of the Schedule B property. While so, the Applicant claiming security interest over the Schedule B property and proceeded to invoke the SARFAESI Act measures prior to the OA Claim are all illegal and purposeful. Mere custody of the original sale deed bestowing title for the 2nd Defendant would not confer any right for the Applicant over the Schedule B property. On record there is no such charge to exist is substantiated by the Applicant. In any event the retention of the title deed in original of the Schedule B property by the Applicant is void and illegal.

3.6. It is further submitted that the value of the Schedule A property as on the date of OA is around Rs.5 Crores and odd. When the Defendants are not chronic defaulters and unsupported by the Applicant at the time of need and necessity to run the project business thereby to rescue from leading to loss, the claim laid is pre-mature and un-warranted in the peculiar circumstances of the case.

3.7. It is further stated that there is no clear statement of accounts projected along with the OA as filed. No certification as per legal implications have been attached thereto. It is equally inadmissible as per law and contemplations of the Bankers’ Book Evidence Act. No proper interest calculation is made and the debt sought to be determined is unjust, illegal, without any proof, miscalculated and lacks any merit to sustain the same. Hence, the Claim in the OA is liable to be rejected as unfounded.

3.8. It is also submitted that the Defendants have prosecuted the measures invoked by the Authorised officer of the Applicant on more than one occasion upon learning about the same by way of newspaper publication of the Auction Sale Notices. In the course of such litigation before this Tribunal, vide compliance of certain orders, have deposited a sum of Rs.10 lakhs to the credit of the Loan Account. On two occasions, the Statutory Applications were disposed off on the ground of the measure becoming infructuous. On the third occasion, by an order passed on merits, this Tribunal was pleased to set aside the Auction Sale Notice.

3.9. It is submitted that though it has been the endeavour of the Defendants to discharge the dues to the Creditor, the sudden debacle in the business and sustained loss followed by family issues had prevented the Defendants from effectively discharge the legitimate dues to the Applicant Bank. The bonafideness of the Defendants could not be doubted. The Schedule A

property is over and above available in value to discharge the debts legally determinable. Rather than initiating legal proceedings in one form or the other, the Applicant could have very well re- scheduled the account with re-devised terms of repayment etc.. On the other hand, the Applicant had concentrated only on claims and litigations. It is unethical and unsustainable. Thus the Application lacks merits, bonafides and liable to be rejected. In view of the suppression and false suggestion, the Application has lost its sustainability before this Tribunal, more specifically for determination of the debt claimed.

3.10. Thus contending, the Defendants pray that to pass an order dismissing the Original Application with costs and thus render justice.

4. Perused the OA, proof affidavit filed by the applicant bank, reply statement and counter proof affidavit filed alongwith documents B-1 to B-8, by the defendants. Heard both sides.

5. 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?

6. “Whether the applicant bank has established its claim against the defendants, if so, for what amount ?

6.1. According to the ld. Counsel for the applicant, the proof affidavit of AW-1 besides Exhibits A1 to A-25 clinchingly establishes the claim of the applicant bank as such the applicant bank is entitled for a recovery certificate. Ld. Counsel further submitted in the reply statement, the defendants have not denied availing of credit facilities as aforesaid said, and infact, contented that the home loan had been fully serviced and that the applicant had not created any security over the schedule ‘B’ property in a manner mandated under law, namely, registration of the mortgage by deposit of title deeds before the competent authority. According to the ld. Counsel, these contentions are devoid of any basis and are untenable. According to the ld. Counsel the defendants have not discharged the home loan as claimed and the contention that there is no proper mortgage created over the ‘B’ schedule property and for want of registration of the same the same is unenforceable is untenable. Ld. Counsel submits that Ex. A-7, Memorandum of Deposit of Title deed, registered as Doc No. 1388 / 12 by the 2nd defendant sufficiently covers the subject credit facilities availed by the defendants and the same is valid and duly enforceable. Thus contending, ld. Counsel for the applicant bank prayed to allow the OA.

6.2. Per contra, ld. Counsel for the defendants submitted that while admitting that the 1st defendant availed credit facilities from the applicant bank, claimed that the applicants had malafidely verified their address, in the legal proceedings registered before this Tribunal, despite having knowledge of the same. It is stated that a sum of Rs.40 lakh, availed was enhanced to Rs.80 lakhs by the applicant, has been completely utilized for business purpose and not a single rupee had been diverted or siphoned away by the defendants. It is stated that the OA schedule ‘A’ property alone was offered as security to the said SOD facility and schedule ‘B’ property had never been offered as security. It is further contended that the documents evidencing creation of equitable mortgage in respect of schedule ‘A’ property for the SOD facility alone is subsisting. Thus according to the ld. Counsel for the defendants the home loan alone is not secured by any charge over the schedule ‘B’ property and no security interest or MODT had ever been created as required under law in respect of schedule ‘B’ property. It is stated that claiming security interest over ‘B’ schedule property, the applicant bank had initiated measures under the SARFAESI Act prior to filing of this claim illegally. Thus contending, the defendants prayed the Tribunal to dismiss the OA claim.

6.3. In the light of the contentions as aforesaid, it is clear that the defendants have admitted availing of credit facilities as aforesaid and also creation of security interest by way of equitable mortgage on application schedule ‘A’ mentioned property alone in respect of the Home Loan, however, denied creation of any security interest over the application ‘B’ schedule property in respect of SOD facility.

6.4. Therefore, the point that emerges for consideration is: Whether the OD facility availed by the defendants is not secured by equitable mortgage over the application ‘B’ schedule property ?

6.5. There is no denial of the fact that the 1st defendant approached the applicant bank for sanction of SOD facility for Rs.40 lakhs on 9.9.2011 and the same was enhanced to Rs.80 lakhs at the request of the defendants. However, while the applicant contends that the SOD facility is duly secured by the equitable mortgage created over the application ‘B’ schedule property, the 2nd and 3rd defendants have strongly refuted the same. The applicant bank, in support of its contention that the application ‘B’ schedule mentioned property is also offered as security in respect of SOD facility of Rs.80 lakhs, placed reliance on the following documents; i) Registered sale deed No. 2845 / 06 dt. 14.7.2006 (Exh. A-13) ii) Registered MOD dt. 9.4.2012 ( Exh. A-7) iii) Letter from the defendants confirming creation of EM ( Exh. A-20), iv) Registered Sale Deed executed by Kasi in favour of 2nd defendant dt. 19.3.2012 ( Exh. A-21)

6.6. Exh. A-7 is the Memorandum of deposit of title deeds dt. 9.4.2012 and the same is duly registered. In Exh. A-7, the 2nd defendant has acknowledged the deposit of title deed relating to the property described in the MOD already created with the applicant bank with an intention to create a valid equitable mortgage by way of deposit of title deeds for the due repayment of all advances and credit facilities granted and to be granted by the bank to a maximum sum of Rs.40 lakhs by way of SOD together with interest, costs and other charges. As already stated execution of this MOD is not in dispute. It is pertinent to mention herein that the maximum sum for which the security created under Exh. A-7 is Rs.40 lakhs only. Now this SOD limit of Rs.40 lakhs was admittedly enhanced to Rs.80 lakhs on 30.1.2013. The applicant bank, while enhancing the SOD as above, obtained the following documents from the defendants, i.e. Ex. A8 - Letter from the defendants confirming the extention of equitable mortgage dt. 30.1.2013, and Ex. A-9, letter of continuity executed by D1 dt. 30.1.2013. Further, it is pertinent to note herein that the defendants have not denied execution of Ex. A-8 and other documents, however, contended that Ex. A-8 requires registration and that as Ex. A-8 being un-registered, the same cannot be relied upon. However, the said plea was refuted by the ld. Counsel for the applicant bank. In the light of this contest, it is to be seen whether under Ex. A-8, no valid equitable mortgage over the application ‘B’ schedule mentioned property was created in favour of the applicant bank.

6.7. “ 23. In Rachpal Maharaj v. Bhagwandas Daruka MANU/SC/0046/1950 : [1950]1SCR548 Patanjali Sastri, J. said at p. 551 (of SCR) : at pp. 273, 274 of AIR: The crucial question is: Did the parties intend to reduce their bargain regarding the deposit of the title deeds to the form of a document? If so, the document requires registration. If, on the other hand, its proper construction and the surrounding circumstances lead to the conclusion that the parties did not intend to do so, then, there being no express bargain, the contract to create the mortgage arises by implication of the law from the deposit itself with the requisite intention, and the document, being merely evidential does not require registration. “

6.8. In the backdrop of the aforesaid judgement, I would first refer herein to the recitals in Ex. A-8 before adverting to the discussions on the above point. The recitals in Ex. A-8 discloses that the defendants have acknowledged and confirmed deposit of title deeds with the applicant bank the property at “ Old No. 3, New No.2, Gandhi Street, Old Thirumangalam, Anna Nagar West, Chennai – 40 on 3.4.2012, which is morefully described in the schedule as security for the advances already made on 28.11.2011 and to be granted or advanced and further confirm having agreed with you at the time of grant of further facility to your continuing to hold the title deeds of the above property also as additional security for further advances made or to be made or facilities granted or to be granted by you to me / us upto a maximum of Rs.80,00,000/- by way of SOD “

6.9. Thus, it is clear from the aforesaid letter dated 30.1.2013 that no fresh mortgage has been created under Ex. A-8 and Ex. A8 only confirms prior deposit of title deeds of application ‘B’ schedule mentioned property with the applicant bank to serve the same as security for the credit facilities already availed and the said security is extended in respect of the additional facilities granted to the defendants by the applicant bank upto a maximum of Rs.80 lakhs.

6.10. In the light of the aforesaid rulings the plea that the ‘B’ schedule mentioned property cannot serve as security for the OA claim cannot be countenanced. Baring the above plea, no other plea worth has been raised by the defendants. Therefore, on careful consideration of the material placed before the Tribunal, coupled with the proof affidavit, and Exhibits A1 to A25, filed on behalf of the applicant bank, I am satisfied that the applicant bank has successfully proved the OA claim against the defendants. Hence, it is held that the applicant bank is entitled for the Recovery Certificate as prayed for.

7. Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate? Since the defendants failed to repay the debt, the Tribunal finds no bonafides on the part of the defendants in discharging their liability. Hence this Tribunal is not inclined to interfere with the rate of interest claimed by the applicant. Point No.2 is answered accordingly.

8. 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 a total sum of Rs.1,30,29,130/- consisting of Rs.30,36,461/- due under Home Loan Facility and Rs.99,92,669/- due under Secured Overdraft Facility with future interest at 10.25% p.a. with monthly rests and 14.75% p.a. with monthly rests respectively from 24.2.2015 till the date of realization in full, for sale of the schedule mentioned properties along with costs of this application.

9. In the result, application is allowed as under: i) The applicant bank is entitled to recover a total sum of Rs.1,30,29,130/- (Rupees one crore thirty lakhs twenty nine thousand one hundred and thirty only) consisting of Rs.30,36,461/- due under Home Loan Facility and Rs.99,92,669/- due under Secured Overdraft Facility with future interest at 10.25% p.a. with monthly rests and 14.75% p.a. with monthly rests respectively from 24.2.2015 till the date of realization in full, from the defendants jointly and severally.

ii) It is further ordered that in case of default of payment by the defendants, the applicant bank is entitled to sell the schedule mentioned properties and adjust the sale proceeds towards the amount due. iii) If the sale proceeds are not found sufficient to cover the amount due and payable to the applicant bank, the defendants 2 and 3 are personally liable for all such amounts due.

iv) It is further ordered that any amount remitted or realized, if any, during the course of the proceedings, shall be given due credit to the loan account of the defendants.

10. The applicant bank is directed to file costs memo within two weeks of the receipt of this order.

11. Issue recovery certificate in favour of the applicant bank in terms of this final order.

10. Communicate a copy of the order to the parties concerned in terms of Rule 16 read with Rule 2(c) of DRT (Procedure) Rules, 1993. (Dictated to PS, transcribed by him, corrected, signed and pronounced by me in the Open Court, this 21st day of January, 2019)

Sd/- (N.V. BADARINATH) PRESIDING OFFICER DRT-I, CHENNAI