HDFC BANK vs P Kannan & 4 Others on 4 March 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, against defendants to pass a final decree by issuing Recovery Certificate against the Defendants Defendants 1, 3, 4 and 5 jointly and severally to pay to the Applicant Bank a sum of Rs.80,76,560,43 (Rupees Eighty Lakhs Seventy Six Thousand Five Hundred and Sixty and Forty Three paise only) due and payable under the Secured as on 06.08.2015 together with interest at 12.75% monthly rests thereon from the date of filing of this application till date of realization, for sale of the schedule mentioned property along with costs of this application.

2. Brief facts of Application are as follows:

2.1. It is stated by the applicant bank that in the month of June 2011 the First and Second Defendant approached the Applicant Bank and represented that they want to develop their business and requested for secured loan facility to the tune of Rs.1,25,00,000/-. The defendants submitted the loan application dated 24.06.2011, offering the schedule mentioned property as primary security for the loan to be sanctioned. The Applicant sanctioned the secured loan for a sum of Rs.91,63,000/- vide sanction letter dated 03.09.2011, on the condition that the loan is repayable in 120 EMIs @ Rs. 1,35,466/- 2.2. The Applicant states that having accepted the above terms and conditions mentioned in the sanction letter dated 03.09.2011, the First and Second Defendant executed the Loan Agreement on 03.09.2011 to and in favour of the Applicant vide account No. 80202756 for Loan against Property Loan and the first and Second Defendant executed the letter of Continuity dated 03.09.2011 to and in favour of the Applicant.

2.3. The Applicant states that apart from that the Defendants have executed the Promissory note dated 03.09.2011 in favour of the Applicant Bank in and by which the Defendants promised to pay a sum of Rs. 91,63,000/- on demand to the applicant together with interest Base rate + 2.75% = 12.75% Per annum (interest rate linked to Base Rate). The Applicant disbursed the said Loan against property loan for a sum of Rs.91,63,000/-.The Applicant states that as agreed, the Second Defendant deposited the Title Documents of his property, viz. morefully described in schedule to the OA.

2.4. The Applicant states that the Defendants who had availed the aforesaid loan on the undertaking that they would comply with the terms and conditions of the Sanction Letter and other documents as stated herein above are bound to repay the amount as agreed and comply with the terms and conditions which was accepted by them at the time of availing the said Secured Loan. The Applicant requested the Defendants to repay the amount towards the loan availed by them but the Defendants failed to comply with the same in spite of repeated demands made by the Applicant Bank and the Defendants remained mute to the demands made by the Applicant.

2.5. The Applicant further states that the Co-Applicant, viz., Mr. Pappu Reddy was expired leaving behind the defendants 1, 3, 4 and 5 who are his wife and sons of said Late Pappu Reddy and they are his legal heirs. Since the defendants 1, 3, 4 and 5 are the legal heirs of Second defendant, i.e. Late Pappu Reddy, the defendants 1, 3, 4 and 5 are liable to pay the loan amount together with interest to the Applicant as his legal heirs. In view of the breach of terms of the said Loan Agreement committed by the Defendants and having given enough time to the Defendants to pay the amounts due and as the Defendants failed to pay the amounts due, the Applicant caused a notice dated 08.08.2015 for a sum of Rs.80,76,560,43 as on 06.08.2015 which includes principal outstanding, interest and other charges in respect of the above Loan against Property Loan to the defendants. Hence the present OA is filed against all the legal heirs since they are the legal heirs of deceased Pappu Reddy. The Applicant states that although the notices were sent to the defendants 1, 3, 4 and 5 by Speed post on 08.08.2015, in respect of the notice sent to the defendants 1, 3, 4 and 5 received and acknowledged by them on 11.08.2015, though the defendants received the notice dated 08.08.2015 they neither complied with the demands contained in the said legal notice nor sent any reply thereto. Hence the present OA.

3. Brief averments made by the 1st Defendant in his reply statement are as follows;

3.1. The OA does not have a valid cause of action to sustain and is liable to be dismissed in limine. The said loan was taken over from the applicant bank to develop the business. It is stated that the defendants 1 and 2 never approached the applicant bank for the purpose of financial facilities under the scheme of loan against property and never executed MOD. Hence, the applicant bank have no locus standi to proceed against the property.

3.2. The applicant bank has not mentioned NPA date in the reply notice, hence OA is not maintainable. The applicant bank had failed to furnish the RBI guidelines and has not only applied and charged the penal rate of interest but also adjusted such levied interest with the principal amount and capitalized the same. Hence, the statement of account cannot be relied upon. The applicant has not made up a legal claim and filed the above OA with unclean hands.

4. Brief averments made by the 5th Defendant in his reply statement are as follows;

4.1. The OA does not have a valid cause of action to sustain and is liable to be dismissed in limine. The said loan was taken over from the applicant bank to develop the business. It is stated that the defendants 1 and 2 never approached the applicant bank for the purpose of financial facilities under the scheme of loan against property and never executed MOD. Hence, the applicant bank have no locus standi to proceed against the property.

4.2. It is stated that the applicant bank has not mentioned NPA date in the reply notice, hence OA is not maintainable. The applicant bank had failed to furnish the RBI guidelines and has not only applied and charged the penal rate of interest but also adjusted such levied interest with the principal amount and capitalized the same. Hence, the statement of account cannot be relied upon. The applicant has not made up a legal claim and filed the above OA with unclean hands.

5. Brief averments made by 6th Defendant in her reply statement are as follows; dismissed in limine. The said loan was taken over from the applicant bank to develop the business. It is stated that the defendants 1 and 2 never approached the applicant bank for the purpose of financial facilities under the scheme of loan against property and never executed MOD. Hence, the applicant bank have no locus standi to proceed against the property.

5.2. The applicant bank has not produced the letter of arrangement. The defendants 1 and 2 alone borrowed the loan, but the defendants 3 to 5 have been impleaded as party to the proceedings. Hence the applicant bank is not entitled to claim personal decree against D3 to D7.

5.3. It is stated that the applicant bank has not mentioned NPA date in the reply notice, hence OA is not maintainable. The applicant bank had failed to furnish the RBI guidelines and has not only applied and charged the penal rate of interest but also adjusted such levied interest with the principal amount and capitalized the same. Hence, the statement of account cannot be relied upon. The applicant has not made up a legal claim and filed the above OA with unclean hands.

6. Perused the OA, proof affidavit filed by the applicant bank, reply statement and additional reply statement filed by the 1st defendant, reply statement filed the defendants 4, 5 & 6 and counter proof affidavit filed by the defendants 5 & 6. Heard both sides.

7. 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?

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

8.1. According to the ld. Counsel for the applicant, the proof affidavit of the official filed by the applicant bank besides Exhibits A1 to A-14 clearly establishes the claim

of the applicant bank as against the 1st and 5th defendants besides the deceased D-2, D-3 and D-4 as well. As such the applicant bank is entitled for a recovery certificate. Ld. Counsel would further submit that the 1st defendant in his reply statement had admitted that they have availed loan from the applicant bank for developing their business as such the claim of the applicant shall stand admitted. Ld. Counsel would submit that the plea of the defendants 1 and 2 that they never executed Memorandum of Deposit of Title deeds in favour of the applicant as such the applicant has no right to proceed against the application schedule mentioned property, is false and baseless.

8.2. According to the ld. Counsel, the deceased D2 and D3, have deposited the original title deeds with the applicant bank with an intention to create security for the due discharge of the credit facilities availed by the defendants. As such it cannot be said that no mortgage has been created in favour of the applicant bank over the application schedule mentioned property. Thus submitting, ld. Counsel for the applicant bank prayed that the applicant is entitled for recovery certificate.

8.3. Per contra, ld. Counsel for the defendants would submit that the defendants 1 and 2 never executed memorandum of deposit of title deeds in favour of the applicant. It is stated that the rate of interest arrived from the date of sanction as well as the details of rate of revised interest applied was not furnished. It is stated that the interest as charged is not in accordance with RBI guidelines. It is further stated that the interest charged is excessive.

8.4. In the additional reply statement filed by the 1st defendant, pleas put forth in the reply statement were reiterated. Thus contending, ld. Counsel for the 1st defendant prayed for dismissal of the OA.

8.5. It is to be stated that during the pendency of the OA, the 4th defendant died and his legal heirs, namely, Defendants 6 & 7 were impleaded on 10.8.2018 vide order in IA No. 431/18.

8.6. While it is the firm contention of the applicant bank that the defendants have availed the credit facilities at the instance of the 1st defendant, for the purpose of the business activities of the 1st defendant, and that the said loan was repayable by way of installments, is duly secured by the property of the deceased D2.

8.7. A perusal of the reply statement filed by the 1st defendant, categorically discloses that the defendants have not denied availing of credit facilities from the applicant bank. However, the grievance of the defendants appears to be that the 2nd defendant had not created any equitable mortgage over the application Item I & II for property No.1, and for property 2–Item Nos. 1 to 4, to serve the same as security for the due discharge of the credit facilities.

8.8. In terms of Sec. 55(f) of Transfer of Property Act, “55. Rights and liabilities of buyer and seller.—In the absence of a contract to the contrary, the buyer and the seller of immoveable property respectively are subject to the liabilities, and have the rights, mentioned in the rules next following, or such of them as are applicable to the property sold:—

(1) The seller is bound—

(f) to give, on being so required, the buyer, or such person as he directs, such possession of the property as its nature admits; “

8.9. Now I shall address the contention of the defendants that the deceased 2nd defendant has not created any mortgage over the application schedule mentioned properties, in favour of the applicant bank to serve the same as security for the due repayment of the loan. The defendants in their reply statement have categorically pleaded that the deceased 2nd defendant had not created any valid mortgage over the application schedule mentioned properties, as such the claim of the applicant that the deceased 2nd defendant had created valid mortgage over the application schedule mentioned properties and that the applicant has right to enforce the same for realization of its dues is, untenable and unsustainable under law. Since it is the case of the applicant that the deceased 2nd defendant had created equitable mortgage over the application schedule mentioned property, by deposit of title deeds, the burden is on the applicant to establish the same. It is no doubt true that the applicant in fact had filed Exh. A-7 and A-8, original sale deeds dt. 27.11.2009 and 27.7.2010, respectively, both belonging to the deceased 2nd defendant, and contended that the deceased 2nd defendant had created an equitable mortgage over the same properties. However, there is no whisper either in the application or in the proof affidavit that the said sale deeds were parted with by the deceased 2nd defendant in favour of the applicant with an intention to create equitable mortgage over the application mentioned properties, baring a stray mention in ‘ Limitation’ para in the OA. In fact, no document is produced to show that the security by way of equitable mortgage over the application schedule mentioned properties of the 2nd defendant was one of the conditions for availing the credit facilities by the deceased

2nd defendant from the applicant. In fact, a perusal of Ex. A-6, Sanction letter, does not say that the property of the deceased 2nd defendant shall be offered as security by way of equitable mortgage, for availing the credit facilities from the applicant. The column “security”, in Ex. A-6, Sanction Letter, it was only mentioned that “such security as may be acceptable to the bank”.

8.10. It is further pertinent to state that no where in the proof affidavit, AW-1 had stated that the “terms and conditions of sanction” require the 2nd defendant to create equitable mortgage over the application schedule mentioned properties by way of deposit of title deeds and pursuant to such an obligation the 2nd defendant had deposited Ex. A7 and A8, title deeds with the applicant bank with an intention to create equitable mortgage over the said properties, in order to serve the same as security for the due discharge of the credit facilities availed by the 1st and 2nd defendants.

8.11. The proof affidavit it is simply states that “sale deeds dt. 27.11.2009 and 27.7.2010 be marked as Exhibits A-7 and A-8.”. Any pleading without proof is of no avail to the applicant.

8.12. Hon’ble Supreme Court of India, in the matter between United Bank of India ltd., - vs – Lekharam Sonaram & co. & others [reported in AIR 1965 SCC 1591] has held as follows; “ 7. A mortgage by deposit of title deeds is a form of mortgage recognised by Section 58(f) of the Transfer of Property Act which provides that it may be effected in certain towns (including Calcutta) where a person " delivers to a creditor or his agent documents of title to immovable property with intent to create a security thereon." In other words, when the debtor deposits with the creditor title deeds of his property with an intent to create a security, the law implies a contract between the parties to create a mortgage and no registered instrument is required under Section 59 as in other classes of mortgage. It is essential to bear in mind that the essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. “

8.13. Hon’ble High Court of Calcutta Madras, in the matter between Saradindu Mukherjee – vs – Amiya Kumar Basu [ reported in AIR 1977 Cal 343 ] has held as follows; “ 7. …….. There is nothing in writing to show that the lease deed was deposited with the plaintiff in order to secure all advances made subsequently. It is well established that mere deposit of title deeds with the creditor by the debtor will not constitute an equitable mortgage unless it is proved that the said title deeds had been deposited with the intention of creating a mortgage. … “

8.14. Therefore, in the light of the discussion as aforesaid and the case law, supra, the Tribunal holds that the applicant failed in establishing that a valid mortgage has been created by the deceased 2nd defendant over the application schedule mentioned properties, consequently, the applicant cannot enforce its money claim against the application schedule mentioned properties.

8.15. Thus, in the absence of any document or any evidence that the deceased defendant had delivered Ex. A-7 and A-8, Title Deeds, to the applicant bank with an intention to create equitable mortgage over the subject property, it cannot be said that the 2nd defendant had created a valid equitable mortgage over the application schedule mentioned properties, in favour of the applicant bank. In the light of the above finding, the OA claim cannot be fastened on the defendants 3 to 7, who are the legal heirs of the deceased 2nd defendant.

8.16. In so far as the plea of the defendants that the interest charged is excessive. It is stated that the applicant bank has filed the statement of account with clarification as required under the Bankers Books Evidence Act. The defendants merely denied the correctness of the entries without even placing any iota of proof as to why these should not be accepted. When the applicant bank had filed the certified copy of the statement of account and also terms of sanction as regards the rate of interest chargeable, discrepancy, if any, in the account can be pointed out by the statement of the defendants, however, except ipsi dixit of the defendants, no material worth has been placed discrediting the statement of account filed by the applicant bank. Therefore, the said plea of the defendants that the interest charged is excessive, has no force and is not sustainable.

8.17. Therefore, in the light of the discussions aforesaid and on careful perusal of proof affidavit, Exhibits A-1 to A-14, the Tribunal is satisfied that the applicant bank established its claim for recovery of claim amount. Point is answered accordingly.

9. 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.

10. For the reasons stated as above, it is held that the applicant bank is entitled for a Recovery Certificate against the defendants 1, 5, 6 & 7 for a sum of

Rs.80,76,560,43 (Rupees Eighty Lakhs Seventy Six Thousand Five Hundred and Sixty and Forty Three paise only) due and payable as on 06.08.2015 together with interest at 12.75% monthly rests thereon from 7.8.2015 till the date of realization, along with costs of this application. However, defendants 6 & 7 are liable to the extent of the estate inherited by them from deceased D4.

11. In the result, application is allowed as under: a) The applicant bank is entitled to recover from the defendants 1, 5, 6 & 7 for a sum of Rs.80,76,560,43 (Rupees Eighty Lakhs Seventy Six Thousand Five Hundred and Sixty and Forty Three paise only) due and payable as on 06.08.2015 together with interest at 12.75% monthly rests thereon, from 7.8.2015 till the date of realization, b) It is further ordered that the defendants 6 & 7 are liable to the extent of the estate inherited by them from deceased D4, c) It is further ordered that in case of default of payment by the defendants, the defendants 1 & 5 are personally liable for all such amounts due. e) The applicant bank is entitled for costs of the OA from the defendants.

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

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

14. 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 4th day of March, 2019)

(N.V. BADARINATH) PRESIDING OFFICER DRT-1, CHENNAI