BANK OF BARODA vs B.Ajay Kumar and 4 Others on 8 July 2019

O R D E R

1. This application is filed by the applicant bank under Section 19 of Recovery of Debts and Bankruptcy Act,1993 (formerly Recovery of Debts Due to Banks and Financial Institutions Act, 1993) against the defendants for a total sum of Rs. 3,64,15,973.75 [Rupees Three Crore Sixty Four Lakhs Fifteen Thousand Nine Hundred and Seventy Three and paise Seventy Five Only], i.e.

i) a sum Rs.1,99,85,372.51 [ Rupees One Crore Ninety Nine Lakhs Eighty Five Thousand Three Hundred and Seventy Two and paise Fifty One Only] due as against the enhanced Overdraft Facility along with further interest @ 13.00 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest at the rate of 2% per annum,

ii) A sum of Rs.1,32,16,799.60 [Rupees One Crore Thirty Two Lakhs Sixty Thousand Seven Hundred Ninety Nine and paisa Sixty Only ] due as against the First Term Loan with further interest @ 12.50 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest @2% per annum,

iii) a sum of Rs.31,94,027.22 [ Rupees Thirty One Lakhs Ninety Four Thousand and Twenty Seven Only] due as against Working Capital Term Loan along with further interest @ 13.25 % p.a. with monthly rests from the date of filing till the date of for sale of the application schedule mentioned properties along with costs of this application.

2. Brief facts of Application are as follows:

2.1. The applicant bank has stated that the the D1 Company is a Private Limited Company, was carrying on business in aquaculture. The First Defendant represented by its Directors, viz., Defendants 2 to 4 herein had approached the Applicant bank in the year 2011 and applied for grant of Overdraft Facility for purposes of its business. Defendants 2 to 4 offered to create equitable mortgage over the property morefully described under item 4 of the Schedule to the OA. Defendants 2 to 4 also offered to guarantee due re-payment of the dues as regards the overdraft facility on the same being sanctioned.

2.2. It is further stated that the Applicant bank, on 01-02-2011 sanctioned an Overdraft Facility with the Limit of Rs.25,00,000/- to the First Defendant, on the guarantee of Defendants 2 to 4. The re-payment of the dues as regards the overdraft facility are secured by the hypothecation of the machinery, stocks of all stocks of raw materials, semi-finished products and finished products and packing materials, stores , etc. as also the book debts payable to the First Defendant-Company. Further the Defendants 2 and 3 on 27-01-2011 executed the following Documents in favour of the Applicant bank, in order to secure repayment of the dues as regarding the Overdraft Facility:

i. Demand Promissory Note for Rs. 25,00,000/-

ii. Letter of continuing security

iii. Composite Hypothecation Agreement

iv. Declaration-cum-undertaking-cum authority v. General Undertaking

2.3. It is further stated the Defendants 2 to 4 herein, on 27-01-2011 executed the General Form of Guarantee guaranteeing due re-payment of the dues as regarding the Overdraft Facility. Further on the same day, Defendants 2 to 4 had created equitable mortgage over the Property morefully described under item 4 of the Schedule to the OA thereby securing re-payment of the dues as regards the said Overdraft Facility. Defendants 2 to 4, had also executed a Memorandum of Deposit of Tile Deeds dated 04-02-2011 confirming the creation of equitable mortgage in favour of the Applicant.

2.4. The First Defendant company had availed the Overdraft Facility for purposes of meeting its working capital requirements of their business. Almost a couple of months later, the First Defendant Company represented by its Directors, viz., Defendants 2 to 4 had approached the Applicant with a request to enhance the Overdraft Limit to Rs.50,00,000/- and offered to guarantee due-repayment of the dues as regarding the Overdraft Facility and to extend the subsisting equitable mortgage over the Property morefully described under item 4 of the Schedule of the OA. Considering the Application of the First Defendant, the Applicant bank, on 15-03-2011 sanctioned the enhancement of the Overdraft Facility to Rs.50,00,000/- on the guarantee of Defendants 2 to 4.

2.5. The Applicant further submits that the Defendants 2 and 4 herein in their capacities as Directors of the First Defendant Company had executed the following Documents, in order to secure repayment of the dues as regards the Overdraft Facility with enhanced limits:

i. Demand Promissory Note for Rs. 25,00,000/-

ii. Letter of continuing security

iii. Composite Hypothecation Agreement

iv. Declaration-cum-undertaking-cum authority v. General Undertaking

2.6. Further the defendants 2 to 4, had on the same day, viz., 27-04-2011 executed the General Form of Guarantee guaranteeing due re-payment of the dues as regarding the Overdraft Facility and the said guarantee is a continuing guarantee. Further on the same day, Defendants 2 to 4 had extended the subsisting equitable mortgage over the Property being Land morefully described under item 4 of the Schedule to the OA. Defendants 2 to 4, had also executed a Memorandum of Deposit of Tile Deeds dated 29-04-2011 and registered as Doc.No.3909 of 2011 with the Office of the Sub-Registrar, Thiruporur, confirming the extension of equitable mortgage in favour of the Applicant as regarding the enhanced limit of the Overdraft Facility.

2.7. It is further stated that almost eight months later, the First Defendant- Company represented by its Directors, viz., Defendants 2 to 4 herein had approached the Applicant with a request to enhance the Overdraft Limit to Rs.1,00,00,000/- and to grant a Term Loan for purposes of development of hatcheries business. Defendants 2 to 4 offered to guarantee due-repayment of the dues as regarding the enhanced Overdraft Facility and the Term Loan and to create equitable mortgage over the properties described under item nos. 1 to 3 of the Schedule and to extend the subsisting equitable mortgage over the Property morefully described under item 4 of the Schedule to the OA. After considering the Application of the D1 Company the Applicant bank had on 08- 02-2012 sanctioned :

a) the enhancement of the Overdraft Limit to the First Defendant to Rs.1,00,00,000/- [Rupees One Crore Only]

b) a term loan of Rs.1,40,00,000/-[ Rupees One Crore and Forty Lakhs Only]

2.8. The dues as regarding the said Overdraft Facility are re-payable along with interest compounded monthly with the rate of interest as per the terms of sanction. Further, re-payment of the dues as regarding the overdraft facility are secured by the hypothecation of the machinery and other movables as also the book debts payable to the First Defendant-Company .

2.9. The Term Loan-I of Rs.1,40,00,000/-[Rupees One Crore and Forty Lakhs Only] is re-payable in seven yearly installments of Rs.20,00,000/- [Rupees Twenty Lakhs only] each along with interest compounded monthly with the rate of interest being 3.00% over the base rate of the Applicant. Further, Re- payment of the dues as regarding the Term Loan are secured by the hypothecation of the machinery, stocks of all stocks of raw materials, semi- finished products and finished products and packing materials, stores, etc. as also the book debts payable to the First Defendant-Company .

2.10. It is further stated the Defendants 2 and 4 herein in their capacity as Directors of the D1 Company on 09-02-2012 executed the following Documents in favour of the Applicant Bank, in order to secure repayment of the dues as regarding the Overdraft Facility with the enhanced limit of Rs.1,00,00,000/-: i) Demand Promissory Note for Rs.1,00,00,000/- ii) Letter of continuing security iii) Composite Hypothecation Agreement iv) Declaration-cum-undertaking-cum authority v) General Undertaking

2.11. It is further stated that on 09-02-2012, the defendants 2 and 4 executed the following Documents in favour of the Applicant, in order to secure repayment of the dues as regarding the Term loan of Rs.1,40,00,000/-:

i) Demand Promissory Note for Rs.1,40,00,000/-

ii) Letter of Installment with acceleration clause

iii) Composite Hypothecation Agreement

iv) Declaration-cum-undertaking-cum authority

v) General Undertaking

2.12. Further on 09-02-2012, Defendants 2 to 4 herein had executed the following documents :

a) A General Form of Guarantee guaranteeing due re-payment of the dues as regarding the enhanced overdraft facility with the Limit of Rs.1,00,00,000/-

b) A General Form of Guarantee guaranteeing due re-payment of the dues as regarding the Term Loan of Rs.1,40,00,000/- And both the guarantees are continuing guarantees.

2.13. It is further stated that the D3 on 09-02-2012 created simple mortgage over the property more fully described under item 3 of the Schedule to the OA, in favour of the Applicant bank, thereby securing repayment of the credit facilities aggregating to Rs.2,90,00,000/- [Rupees Two Crores and Ninety Lakhs Only]. Further D4 on 09-02-2012 created simple mortgage over the property more fully described under item 1 of the OA Schedule, in favour of the Applicant thereby securing repayment of the credit facilities aggregating to Rs.2,90,00,000/-.

2.14. It is further stated that the Defendants 4 and 2 had on 09-02-2012 created simple mortgage over the property more fully described under item 2 of the Schedule annexed hereunder, in favour of the Applicant thereby securing repayment of the credit facilities aggregating to Rs.2,90,00,000/-. Further Defendants 2 to 4 herein had on 09-02-2012 created simple mortgage over the property more fully described under item 4 of the OA schedule. Further, Defendants 2 to 4 on 09-02-2012 executed a Deed of Simple Mortgage Deed creating simple mortgage over the Properties described under item nos. 1 to 4 of the OA Schedule in favour of the Applicant , thereby securing repayment of the credit facilities aggregating to Rs.2,90,00,000/- [ Rupees Two Crores and Ninety Lakhs Only] along with further interest , costs and expenses.

2.15. It is further stated that D1 company represented by Defendants 2 to 4 had approached the Applicant with a request to restructure the credit facilities by way of granting a Working Capital Term Loan. Defendants 2 to 4 offered to guarantee due-repayment of the dues as regarding the enhanced Overdraft Facility and the Term Loan and to create equitable mortgage over the properties described under item nos. 1 to 4 of the Schedule. Considering the Application of the First Defendant-Company the Applicant bank had on 14-06-2013 sanctioned working capital term loan of Rs.30,99,000/- [Rupees thirty lakhs and ninety nine thousand only] to the First Defendant-Company on the guarantee of Defendants 2 to 4. The Working capital term loan is re-payable in seven yearly installments of Rs.4,42,714 each along with interest compounded monthly with the rate of interest being 3.75 % over the base rate of the Applicant and the first installment being payable on 30-04-2014. Further, Re-payment of the dues as regards the Working Capital Term Loan are secured by the hypothecation of the machinery, stocks of all stocks of raw materials, semi-finished products and finished products and packing materials, stores, etc. as also the book debts payable to the First Defendant-Company. Further Defendants 2 and 4 herein in their capacities as Directors of the First Defendant had on 15-06-2013 executed the following Documents in favour of the Applicant, in order to secure repayment of the dues as regarding the Working Capital Term loan of Rs.30,99,000/-: i) Demand Promissory Note for Rs.30,99,000/- ii) Letter of Installment with acceleration clause iii) Composite Hypothecation Agreement iv) Declaration-cum-undertaking-cum authority v) General Undertaking

2.16. The Applicant further submits that on 15-06-2013, Defendants 2 to 4 had executed A General Form of Guarantee guaranteeing due re-payment of the dues as regarding the Working Capital Term Loan of Rs.30,99,000/-. Further defendants 2 to 4 on 27-01-2015 executed a Deed of Simple Mortgage Deed over the Properties described under item nos. 1 to 4 of the Schedule to the OA, thereby securing repayment of the Working Capital Term Loan in addition to the other facilities already secured by mortgages.

2.17. The applicant bank further stated that the D1 company had availed the overdraft facility with the Limit of Rs.1,50,00,000, the Term Loan of Rs.1,40,00,000/-and the Working Capital Term Loan of Rs.30,99,000/-. The D1

Company represented by its Directors, Defendants 2 to 4 had on 08-08-2016 executed two Letter of Acknowledgement of Debt admitting their liability as regards the enhanced overdraft facility and the Term Loan of Rs.1,40,00,000/. I state that with the passage of time, the operation of the subject Overdraft Facility became highly irregular. Further the Defendants failed to pay the installments as regarding both the subject-term loans as undertaken. Inspite of numerous demands and reminders from the Officials of the Applicant-Bank, the Defendant company has not paid its dues and cleared the liability as regarding the term loan, working capital term loan as well as the subject- Overdraft facility. Hence the present OA.

3. Brief averments made by the Defendants in their reply statement are as follows; 3.1. It is stated that the application is barred by limitation and lack of jurisdiction. The claim against the defendant is not maintainable in law or facts. The rate of interest charged is not as per RBI guidelines and the bank has not filed any circular to prove its claim. While denying execution of loan documents, the defendants allege that the documents filed are not authenticated and need not be looked into by this Tribunal.

3.2. It is submitted that due to sudden financial constrain / business failure, demonetization, ex-CM death and Vardha Cyclone are also the main causes that the defendants were unable to make payments towards their loan account regularly. After availing loan facility the defendants were paying the monthly interest without any default. It is alleged that the exhibits A-23 to A-42 are fabricated and forged documents. At the time of sanction the applicant bank had got signatures from the defendants in many blank papers and now it has been misused by the applicant bank. The reliefs claimed in the OA are only based on presumptions and assumptions and are non-est in law. Thus contending, the defendant prayed the Tribunal to dismiss the OA.

4. In the light of the contest as above, the points that arises for consideration are;

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?

5. Point 1: Whether the applicant bank has established its claim against the defendants, if so, for what amount ?

5.1. According to the ld. Counsel for the applicant bank, the proof affidavit of AW-1, besides Exhibits A-1 to A-67 firmly established the case of the applicant bank as such the applicant bank is entitled for a recovery certificate. Ld. Counsel further stated that in para 14 of the reply statement, the defendants have admitted availing of credit facilities. However, the plea that they were paying monthly interest regularly without default is incorrect as there has been default in payment of interest as well as principal. Ld. Counsel further stated that the plea that Exhibits A-23 to A-42 are fabricated and the defendants did not sign the same is false and is liable to be rejected. Thus submitting, ld. Counsel for the applicant prayed for allowing the OA.

5.2. Defendants 1 to 4 have filed reply statement, inter alia, contending that they have not executed loan and security documents in favour of the applicant bank and the same are created by the applicant bank. It is further stated that after availing the loan, the defendants have been paying interest and principal regularly without any default. It is further stated that interest as claimed is incorrect. Thus contending, the defendants prayed for dismissal of OA.

5.3. At the outset it is to be stated that while it is the firm contention of the applicant that the defendants have sought for credit facilities under Ex. A-1 Board Resolution dated 22.12.2010, and accordingly the applicant bank sanctioned facilities under Exhibits A-2, A-9 and A-20, are not entitled to deny availing of credit facilities. The applicant bank, in support of the aforesaid plea, placed reliance on Exhibits A-1 to A-44. Here it is pertinent to state that, except filing reply statement, the defendants did not chose to file counter proof affidavit. Therefore, the contentions as put forth by the defendants in their reply statement remain un-substantiated. In so far as the mortgage of the application schedule mentioned properties is concerned, the same is evinced by Exhibits A-45. Here it is to be stated that except the ipsi dixit of the defendants, no material worth has been placed by the defendants before this Tribunal to disbelieve Ex.A-45, registered MOD. The Tribunal, is therefore not inclined to accept the plea of the defendants that the defendants have not created valid mortgage over the application schedule mentioned properties.

5.4. Therefore, having carefully perused the proof affidavit, Exhibits A-1 to A-67, the Tribunal is satisfied that the applicant bank had established its claim against the defendants, as such is entitled for a recovery certificate. Point is answered accordingly.

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

It is to be stated that even though in terms of Sec. 19(20) of Recovery of Debts and Bankruptcy Act, 1993, the Tribunal is entitled to interfere with the contractual rate of interest in so far as the same relates to pendente lite and future interest, such resort should be made only when there are justifiable circumstances. In so far as the case on hand, such circumstance neither pleaded nor exists. Therefore, under the circumstances, the Tribunal is not inclined to interfere with the contractual rate of interest, even in respect of pendente lite and future interest. Point is answered accordingly.

7. Therefore, the applicant bank is entitled for a recovery certificate against the defendants 1 to 4 for recovery of a sum of Rs.3,64,15,973.75 [Rupees Three Crore Sixty Four Lakhs Fifteen Thousand Nine Hundred and Seventy Three and paise Seventy Five Only], i.e.

i) a sum Rs.1,99,85,372.51 due towards the enhanced Overdraft Facility with further interest @ 13.00 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest at the rate of 2% per annum, ii) a sum of Rs.1,32,16,799.60 due towards First Term Loan with further interest @ 12.50 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest @2% per annum, iii) a sum of Rs.31,94,027.22 due towards Working Capital Term Loan along with further interest @ 13.25 % p.a. with monthly rests from the date of filing till the date of

The applicant bank is also entitled for sale of the OA schedule properties and costs.

8. In the result, application is allowed as under:

(a) The applicant bank is entitled for a recovery certificate against the defendants 1 to 4 for recovery of a total sum of Rs. 3,64,15,973.75 [Rupees Three Crore Sixty Four Lakhs Fifteen Thousand Nine Hundred and Seventy Three and paise Seventy Five Only], i.e. i) a sum Rs.1,99,85,372.51 due towards the enhanced Overdraft Facility with further interest @ 13.00 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest at the rate of 2% per annum, ii) a sum of Rs.1,32,16,799.60 due towards First Term Loan with further interest @ 12.50 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest @2% per annum, iii) a sum of Rs.31,94,027.22 due towards Working Capital Term Loan along with further interest @ 13.25 % p.a. with monthly rests from the date of filing till the date of realization in full and also penal interest at the rate of 2% per annum, b) It is further ordered that in case of default of payment by the Defendants, the Applicant Bank is at liberty to sell the schedule mentioned properties and appropriate the sale proceeds towards the decreetal dues, 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. d) It is further ordered that in case of default of payment by the defendants, the defendant is personally liable for all such amounts due. e) 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, and the balance amount only shall be claimed. f) The applicant bank is also entitled for costs from the defendants.

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

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

11. 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, transcript, corrected, signed and pronounced by me in the Open Court, this 8th day of February, 2019) Sd/- (N.V. BADARINATH) PRESIDING OFFICER DRT-I, CHENNAI