CANARA BANK vs M/S.VIRESCENT POWER SYSTEMS on 29 July 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’ seeking issuance of a Recovery Certificate for a sum of Rs.67,73,703.41p with further interest at the rate of 11.20% per annum with monthly rests plus 2% penal interest 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, a Partnership firm represented by its Partners, defendants 2 to 4 approached the applicant by its loan application dated 25.9.2013 for grant of credit facilities to meet the Working Capital requirements and considering the said request the applicant sanctioned a sum of Rs.40 lakhs by its sanction dated 25.9.2013. It is also the case of the applicant that the defendants to secure the said loan executed various loan documents on 25.9.2013 viz., Cash Credit Agreement, Agreement of Guarantee thereby guaranteeing due repayment of the credit facility availed by the 1st defendant.

3. It is also the case of the applicant that the defendants again approached the applicant on 28.8.2014 for grant of additional credit facility and the applicant considering the request of the defendants enhanced the credit facility from Rs.40 lakhs to Rs.90 lakhs under Canara Unnati Scheme in the category of SME- Manufacturing Micro Enterprises vide sanction letter dated 2.8.2014 and the account is covered under CGTMSE and the period of tenability was till 11.9.2015. It is the case of the applicant that the defendants executed various loan and security documents on 28.8.2014 viz., Demand Promissory Note for Rs.50 lakhs, Guarantee agreement for Rs.90 lakhs by defendants 2 to 4.

4. It is the further case of the applicant that the defendants failed to submit quarterly statement of stock cum book debts as per the agreement and were also highly irregular in repayment. It is the further case of the applicant that after availing the credit facilities the defendants defaulted in repayments and also failed to regularize the loan account despite repeated requests and therefore the loan account was classified as NPA. It is contended that as the defendants did not come forward to clear the outstanding dues, the applicant issued a demand notice dated 15.02.2017 and thereafter a legal notice on 19.07.2017 calling upon the defendants to clear the outstanding dues. 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.

5. The 2nd defendant filed reply statement on his behalf and on behalf of the 1st defendant. It is stated that the 1st defendant is firm registered under Indian Partnership Act during 2013 and is engaged in manufacture of UPS, Inverters, Batteries, Stabilizers, K-rated transformers, LED Products and Electronic Components. It also stated that the purpose of expanding the business of 1st defendant, the defendants 2 to 4 as partners of 1st defendant approached applicant for grant of credit facility and the applicant sanctioned Cash Credit facility of Rs.50 lakhs.

6. It is contended that due to the floods during the month of November 2015 in Chennai city the 1st defendant lost its entire stocks resulting in huge loss. It is stated that as the stocks were insured, the defendants requested the applicant bank to approach the insurance company for making the claim, the applicant did not take any steps for the same. It is also stated that after a long time the applicant bank made the claim and in view of the failure on the part of the applicant to submit the correct extent of loss, the settlement of claim was made for Rs.27,68,000/- instead of Rs.83,00,000/-. It is further stated that the applicant had not filed any appeal against the decision of the insurance company.

7. It is also stated that the defendants deny the averment in the applicant to the effect that the defendants failed to submit the quarterly statement of stocks cum book debts and defaulted in repayment of principal and interest. It is stated that the defendants were making payments as and when stocks were sold and amounts realized from the buyers. It is stated that the defendants had not provided any collateral security for the loan amount and the same is accepted by the bankers. Thus submitting the defendants prayed for dismissing the OA.

8. The applicant bank filed its proof affidavit along with 15 documents, which are marked as Exhibits A-1 to A-15, the details of which are as under: -

S. No. Date Description of Documents Exhibit Nos.

1. 25.09.2013 Request of the defendants for overdraft facilities of Rs.40 lakhs A-1

2. 25.09.2013 Cash Credit Agreement executed by the defendants for Rs.40 lakhs A-2

3. 25.09.2013 Agreement of guarantee executed by defendants 2 to 4 A-3

4. 25.09.2013 Pronote executed by the defendants for Rs.40 lakhs A-4

5. 25.09.2013 Certificate of loan papers for Rs.40 lakhs issued by the applicant bank. A-5

6. 28.08.2014 Link Letter of defendants for enhancement of credit facilities A-6

7. 28.08.2014 Partnership Letter of the defendants A-7

8. 28.08.2014 Supplemental Agreement for enhancement of limit to Rs.50 lakhs A-8

9. 28.08.2014 Agreement of guarantee executed for Rs.90 lakhs by defendants 2 to 4 along with guarantee covering leters A-9

10. 28.08.2014 Pronote executed y the defendants for Rs.50 lakhs. A-10

11. 25.08.2014 Sanction Memorandum of the applicant for enhancement of credit facilities to the defendants up to 90 lakhs A-11

12. 16.03.2016 Particulars of Guarantors / Co-obligants i.e., of defendants 2 to 4 A-12

13. 15.02.2017 Demand Notice of the applicant bank to the defendants A-13

14. 19.07.2017 Demand notice issued by the applicant to the defendants. A-14

15. Statement of Accounts in respect of loan account. A-15

9. The defendant 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 04.02.2019.

10. Heard the Ld. Counsel for the Applicant Bank. Despite affording sufficient opportunities the Ld. Counsel for the defendants did not chose to advance arguments on behalf of the defendants. Perused the records.

11. 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?

12. The applicant bank in its endeavor to establish its claim against the defendant examined its official as AW1 and got marked exhibits Ex.A-1 to A-15. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-15 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

13. 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 document and as such the said admission is sufficient enough to allow the claim of the applicant. Ld. Counsel for Applicant Bank would also submit that the contention of the defendants that the applicant bank has failed to project the exact amount of damage caused to the stocks of the 1st defendant due to floods to the insurance company due to which only meager amount was paid by the insurance company and further that the applicant did not take any steps to file an appeal against the payment of amounts by the insurance company are all false and the applicant had taken every steps to claim the insurance amount. 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. Ld. Counsel would also submit that the applicant 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.

14. 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.

15. As regards the contention of the defendants that the applicant had not made a claim before the insurance company with the exact amount of loss resulting in payment of very meager amount and further that the applicant has not made any

appeal against such payments are concerned, it is seen that the amount received as settlement had duly been given credit to the account.

16. 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 careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-15 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?

17. 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.

18. 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 OA. 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 @ 9% p.a. simple on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

19. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) OA No.428 of 2017 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.67,73,704/- with further interest @9% 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 by selling the schedule property 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 defendants 2 to 4 are 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.

20. 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 July, 2022) Sd/- (T. RAJESH) PRESIDING OFFICER DRT-II, CHENNAI