BANK OF BARODA vs . M/s G.S. Rack Industries on 30 August 2022

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 an aggregate sum of Rs.32,86,634/- comprising of a sum of Rs.31,59,944/- with further interest at the rate of 13.75% per annum with monthly rests being the amount due under Cash Credit Limit and a sum of Rs.1,26,690/- with further interest at the rate of 13.5% per annum with monthly rests being the amount due under Term Loan from the date of filing of this OA till the date of realization in full along with costs of this application and for sale of schedule properties.

2. The subject matter of the case is the “Cash Credit Limit” and “Term Loan” availed by the defendants from the applicant bank.

3. It is the case of the applicant that the 1st defendant a proprietary concern with the 2nd defendant as its Proprietrix engaged in the business of manufacturing of iron and steel racks approached the applicant bank for sanction of credit facilities for their business and considering the said request the applicant vide its sanction dated 1.2.2011 sanctioned Cash Credit Limit of Rs.12,75,000/- towards Working Capital requirements and a Term Loan of Rs.5,04,000/- towards purchase of machinery / equipments under CGTMSE Scheme. It is also the case of the applicant that to secure the Cash Credit Limit, the defendants executed various documents on 1.2.2011 viz., Demand Promissory Note for Rs.12,75,000/-, Letter of Sole Proprietorship by 2nd defendant, Letter of continuity security and Instrument of hypothecation of goods.

4. It is also the case of the applicant that at the request of the defendants, the applicant vide its sanction dated 2.6.2012 enhanced the Cash Credit Limit from Rs.12,75,000/- to Rs.28,00,000/- and also reduced the Term Loan limit from Rs.5,04,000/- to Rs.4,01,000/- subject to terms and conditions, which were duly accepted by the defendants. It is stated that to secure the enhanced limit of Rs.15,25,000/- the defendants executed various loan and security documents on

5.6.2012 viz., Demand Promissory Note for Rs.15,25,000/-, Composite Hypothecation Agreement, Letter of undertaking, declaration cum undertaking cum authority and letter of continuing security.

5. It is the further case of the applicant that at the request of the 1st defendant, the applicant sanctioned Fresh Term Loan limit of Rs.4,50,000/- and to secure the same the defendants executed various loan and security documents on 9.7.2014 viz., Demand Promissory Note for a sum of Rs.4,50,000/-, Letter of installments with acceleration clause thereby agreeing to pay the loan in 48 monthly installments of Rs.12,185/- per month commencing from 9.10.2015, Composite Hypothecation Agreement and declaration cum undertaking cum authority. It is stated that the defendants in respect of cash credit limit executed acknowledgement of debt on 5.6.2014 and letters of acknowledgement of debt on 31.12.2014 and 19.11.2016. It is also stated that the defendants in respect of the Term Loan executed Letters of Acknowledgement of Debt on 31.12.2014 and 19.11.2016. It is also stated that after availing the Term Loan Limit of Rs.4,50,000/- on 9.7.2014, the defendants liquidated the outstanding liabilities under Term Loan of Rs.5,04,000/- dated 1.2.2011 and reduced limit of Rs.4,01,000/- dated 5.6.2012.

6. t is the case of the applicant that the defendant having availed the credit facility defaulted in repayments and failed to regularize the loan account despite repeated demands and also failed to comply with the terms and conditions of sanction and therefore the applicant issued a recall notice through its lawyer on 28.8.2018 calling upon the defendants to clear the outstanding dues, however, as the defendants did not come forward to clear the dues the applicant classified the loan account as NPA on 10.05.2018.

7. 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 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.

8. Summons were taken out to the sole defendants and the same returned with endorsement “ Left”, however the defendants were represented by Ld. Counsel. Despite availing sufficient opportunities the defendants did not choose to file the reply statement and hence the chance for filing reply statement was closed on 9.4.2021. Applicant Bank filed Proof Affidavit along with 30 documents, which were marked as Ex. A-1 to A-30 on 20.05.2022, however Exhibit A-27 and A-28 were marked subject to proof and relevancy. As there was no representation on behalf of the defendants continuously, the defendants were called absent and set ex-parte on 20.05.2022. The Ld. Counsel for Applicant Bank made his submissions on 5.7.2022 and thereafter the matter stood till this date for passing final orders.

9. The following issues arise for consideration in the matter: - (a) Whether the applicant had succeeded in proving the liability of the defendants?

(b) What order as to cost of the proceedings need be passed?

These issues are considered together.

10. Heard the Ld. Counsel for the applicant, perused the OA averments and the records placed before the Tribunal.

11. The evidence of the applicant is led by AW1 who produced the documents Exhibit A-1 to A-30 along with the proof affidavit. Exhibit A-1 is the Letter of sanction dated 1.2.2011 issued by the applicant. Exhibit A-2 is the Demand Promissory Note for Rs.12,75,000/- dated 1.2.2011 executed by the defendants. Exhibit A-3 is the Letter of Sole Proprietorship dated 1.2.2011 executed by the 2nd defendant. Exhibit A-4 is the Letter of continuing security dated 1.2.2011 executed by the defendants. Exhibit A-5 is the Instrument of hypothecation of goods dated 1.2.2011 executed by the defendants. Exhibit A-6 is the letter of sanction dated 2.6.2012 for the enhanced cash credit limit issued by the applicant. Exhibit A-7 is the Demand Promissory Note dated 5.6.2012 for a sum of Rs.15,25,000/- executed by the defendants. Exhibit A-8 is the Composite Hypothecation Agreement dated 5.6.2012 executed by the defendants. Exhibit A-9 is the letter of undertaking dated 5.6.2012 executed by the defendants. Exhibit A-10 is he general undertaking dated 5.6.2012 executed by the defendants. Exhibit A-11 is the declaration cum undertaking cum authority dated 5.6.2012 executed by the defendants. Exhibit A-12 is the letter of undertaking dated 5.6.2012 executed by the defendants. Exhibit A-13 is the letter of continuing security dated 5.6.2012 executed by the defendants. Exhibit A-14 is the Letter of sole Proprietorship dated 5.6.2012 executed by the 2nd defendant. Exhibit A-15 is the Demand Promissory Note dated 9.7.2014 for a sum of Rs.4,50,000/- executed by the defendants. Exhibit A-16 is the letter of installment with acceleration clause dated 9.7.2014 executed by the defendants. Exhibit A-17 is the Composite Hypothecation Agreement dated 9.7.2014 executed by the defendants. Exhibit A-18 is the declaration cum undertaking cum authority executed by the defendants on 9.7.2014. Exhibit A-19 is the letter of acknowledgement of debt dated 5.6.2012 for the Cash Credit Limit dated 1.2.2011 executed by the defendants. Exhibit A-20 is the letter of acknowledgement of debt for Cash Credit Limit dated 1.2.2011 executed by the defendants. Exhibit A-21 is the Letter of acknowledgement of debt dated 19.11.2016 for the Cash Credit Limit dated 1.2.2011 and 5.6.2012. Exhibit A-22 is the letter of acknowledgement of debt dated 31.12.2014 for the Term Loan limit dated 9.7.2014 executed by the defendants. Exhibit A-23 is the Letter of acknowledgement of debt dated 19.11.2016 for the Term Loan limit dated 9.7.2014. Exhibit A-24 is the recall notice dated 28.8.2018 issued by the applicant. Exhibit A-25 and A-26 are returned unserved notice from the defendants 1 and 2 respectively, A-27 and A-28 are the statement of accounts in respect of Cash Credit Limit and Term Loan limit respectively along with certificates under Bankers’ Book Evidence Act. Exhibit A-29 is the letter of authority dated 28.8.2018.issued by the applicant. Exhibit A-30 is the power of attorney dated 20.04.1995 issued by the applicant bank.

12. Exhibits A-1 to A-5 evidences that at the request of the 1st defendant represented by the 2nd defendant the applicant vide its sanction dated 1.2.2011 sanctioned Cash Credit Limit of Rs.12,75,000/- and Term Loan of Rs.5,04,000/- and the defendants executed various loan and security documents on 1.2.2011. Exhibit A-6 to A-14 evidences that at the request of the defendants the applicant enhanced the Cash Credit Limit from Rs.12,75,000/- to Rs.28,00,000/- and reduced the Term Loan limit to Rs.4,01,000/- vide its sanction dated 2.6.2012 and to secure the said enhanced limit the defendants executed various loan and security documents on 5.6.2012. Exhibit A-15 to A-18 evidences that the defendants had availed the Term Loan of Rs.4,50,000/- from the applicant on 9.7.2013 and to secure the said limit executed the loan documents on 9.7.2014. Exhibits A-19 to A-23 evidences that the defendants had executed letter of acknowledgement of debts on 5.6.2012, 31.12.2014 and 19.11.2016 in respect of the Cash Credit Limit and on 31.12.2014 and 19.11.2016 in respect of the Term Loan Limit. Exhibits A-24 to A26 evidences that the defendants defaulted in repayment and failed to regularize loan account despite repeated requests and hence the applicant issued the recall notice through its Lawyer on 28.8.2018 and the same returned unserved. Exhibit A-27 and A-28, the statement of accounts in respect of both the loan accounts produced and certified under the Banker’s Book Evidence Act, clearly indicates that the amount claimed by the applicant is due from the defendants. It is clear from the statement of accounts that penal interest is not capitalized. Exhibit A-29 evidences that the Senior Branch Manager of the Velacherry Branch of the applicant is empowered to institute and

defend the claim on behalf of the applicant. Exhibit A-30 evidences that the applicant had granted power of attorney to its officer to represent the applicant.

13. The proof affidavit of the applicant bank remained unchallenged and unrebutted. Therefore, on careful consideration of proof affidavit along with Exhibits filed on behalf of the applicant bank, besides the material placed before the Tribunal, the Tribunal is satisfied that the applicant bank has successfully proved the OA claim against the defendants. Point is answered accordingly.

14. In view of the fact that the loan availed by the defendants being business loan and the defendants had failed to comply with the terms and conditions of sanction after availing the limits, this Tribunal is not inclined to interfere with the interest rate claimed by the applicant.

15. In view of the afore mentioned discussions, the only conclusion this Tribunal can draw is that the applicant had clearly proved the disbursement of the loan, which the applicant is entitled to realize. Hence, OA is disposed off in the following manner: - (a) OA No.197 of 2019 stands allowed.

(b) Applicant is permitted to realize an aggregate sum of Rs.32,86,634/- comprising of a sum of Rs.31,59,944/- with further interest at the rate of 13.75% per annum with monthly rests and a sum of Rs.1,26,690/- with further interest at the rate of 13.50% per annum with monthly rests from the date of filing of the OA till date of realization from the defendants jointly and severally, after deducting all the amounts received by them during the pendency of OA, and also by selling the schedule mentioned properties and other assets of the defendants.

(c) If the sale proceeds are not found sufficient to cover the amount due and payable to the Applicant Bank, the 2nd defendant is 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.

16. 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 30th day of August, 2022)

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