CANARA BANK vs M/s. SRI MOOKAMBIGA EXPORTs on 31 December 2021

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 defendant seeking issuance of a Recovery Certificate for aggregate a sum of Rs.69,16,356.93/- comprising of Rs.41,02,594-93/- and Rs.27,66,831/- and Rs.46,931/- with further interest at the rate of 17.50%, 11.40% and 18.60% per annum with monthly rests being the amount due under OCC Limit, Working Capital Term Loan and Temporary Overdraft respectively from the date of filing of the application till the date of realisation along with costs of the application and for sale of schedule mentioned properties.

2. It is the case of the applicant that the 1st defendant approached the applicant for grant of credit facility in order to develop the manufacturing activities by its application dated 4.8.2015 and considering the said request the applicant vide its sanction dated 4.8.2015 sanctioned OCC facility of Rs.58 lakhs. Having availed the facility, the 1st defendant executed various loan documents on 4.8.2015 viz., Cash Credit Agreement, Demand Promissory Note for Rs.58 lakhs, Common Hypothecation Agreement. It is contended that defendants 2 and 3 executed guarantee agreement on 4.8.2015 in favour of the applicant.

3. The 4th defendant deposited the title deeds of his property more fully described in schedule to the OA with an intention to create equitable mortgage over the same

in favour of the applicant and confirmed the same by executing Memorandum of Deposit of Title deeds dated 19.3.2012 registered as Doc. No.3338/2012 on the file of SRO, Guduvancherry. In view of the availment of OCC Limit by the 1st defendant, the 4th defendant executed Supplemental Memorandum of Deposit of Title deeds dated 3.8.2015 registered as Doc. No.9860/2015 on the file of SRO, Guduvancherry. It is also contended that the 1st defendant executed consent letter on 4.8.2015 and thereby confirmed that the mortgage would continue for the present OCC Limit of Rs.58 lakhs.

4. It is also the case of the applicant that the 1st defendant again approached the applicant for grant of credit facilities to meet its Working Capital requirements and considering the said request, the applicant sanctioned Working Capital Term Loan of Rs.25 lakhs to the 1st defendant on 31.3.2016 and the defendants executed various loan and security documents on favour of the applicant on the same day. It is contended that the defendants agreed to repay the said sum in 36 months after a moratorium period of 12 months and as such the repayment commenced from February, 2017 onwards.

5. It is the further case of the applicant that at the request of the 1st defendant the applicant had also sanctioned Temporary Overdraft limits to the 1st defendant.

5. It is also the case of the applicant that the defendants after availing the credit facilities failed to comply with the terms and conditions of sanction and also defaulted in repayments, but, by their letter dated 27.5.2016 assured the applicant that the loan accounts will be closed shortly. It is contended that

despite repeated demands the defendants did not come forward to regularize the loan accounts and hence the loan accounts were classified as NPA on 28.06.2016. It is also contended that the defendant failed and neglected to comply with their legal obligations and hence the applicant by letter dated 22.9.2016 recalled the entire loan and advised the defendants to clear the outstanding dues.

6. It is the further case of the applicant that the applicant invoked the provisions of the SARFAESI Act and issued the demand notice under Section 13(2) of the SARFAESI Act on 14.11.2016, followed by a possession notice under Section 13(4) of the Act on 30.1.2017. It is contended that questioning the action initiated by the applicant under SARFAESI Act, the defendants 2 and 4 sent legal notice on 28.1.2017 and 18.2.2017 respectively and the 4th defendant filed SA No.36 of 2017 before this Tribunal and the same is pending. Hence this application is filed by the applicant for recovery of its legitimate dues.

7. The defendants 1 to 3 filed a common written statement contending that the defendants approached the applicant in year March 2012 for Packing Credit and Export Bill Discount loan and several transactions had taken place from March 2012 to January 2015 amounting to a sum of Rs.6,94,37,000/-, however, due to global recession and floods in Chennai, this defendant incurred huge loss in stock, due to which the OCC Limit was split into two loans viz., OCC Limit and Working Capital Term Loan. It is contended that though the defendants made genuine efforts in view of the circumstances beyond their control the default had occurred and the same is neither willful nor wanton. It is also contended that the

applicant has charged excessive interest in violation of guidelines of RBI and in violation of the judgments of the Hon’ble Supreme Court of India.

8. It is contended by the defendants that due to loss in business, he was unable to continue the business and is now working in a private concern, by which he is unable to even meet the expenses required for the education of his daughter who is doing B.Arch course. It is contended that the loan account was classified as NPA on 28.6.2016 against the guidelines of RBI. It is contended that the applicant has charged usurious interest against the contractual obligations. It is also contended that if the applicant is ready to calculate interest at contractual rates, the defendant is willing to settle the loan account under OTS. It is further contended that after the issuance of possession notice dated 30.1.2017 by the applicant the defendant sent a legal notice on 18.2.2017, for which no reply has been sent by the applicant.

9. It is contended by the 2nd defendant that he did not authorize the applicant to deduct the credit card dues from the loan account and the said action has resulted in the account slipping to NPA. It is also contended that the applicant has violated the provisions of the SARFAESI Act and the Rules made thereunder while initiating action under the provisions of the SARFAESI Act and prayed for dismissing the OA claim against defendants 1 to 3.

10. The fourth defendant filed written statement this defendant is the owner of the schedule mentioned property which was purchased by them out of hard earned money and there are three tenants occupying the 1st and 2nd floors. It is

contended that the demand notice issued by the applicant dated 14.11.2016 is bereft of mandatory particulars. It is also contended that the applicant has wrongly classified the account as NPA, which is otherwise not.

11. It is contended by the 4th defendant that the defendants 1 to 3 have sufficient means to repay the debt, hence the action of the applicant in proceeding against the 4th defendant’s property is illegal. It is stated that this defendant has two daughter and the defendant is in severe financial crisis.

12. It is also contended by the 4th defendant that the defendant had sent a legal notice on 28.1.2017 and the same was received by the applicant on 30.1.2017 but till now no reply is received. It is contended that the applicant should first proceed against the defendants 1 to 3 and their properties and thereafter only can resort to action against the 4th defendant. It is contended that the applicant did not send any notice to the defendants before classifying the account as NPA on 28.6.2016.

13. It is further contended that this defendant had approached the applicant seeking certain details regarding the loan transaction and the SARFAESI Action by an application dated 27.11.2017 under Right to Information Act but the reply is yet to be received. It is also contended by the applicant that the SARFAESI action is initiated by the applicant is illegal as it has been done by a person who is not empowered to do so. It is further contended that the debiting of credit card dues to the loan account is illegal. It is also contended that 2nd defendant by letter dated 31.8.2016 had requested time till 30.9.2016 for repayment of the loan,

however the applicant without waiting till 30.9.2016 has proceeded to initiate action under SARFAESI Act, which is in clear violation of SARFAESI Act.

14. It is contended by the 4th defendant that the applicant had violated the provisions of the SARFAESI Act and the Rules made thereunder while taking SARFAESI action against the 4th defendant’s property. Thus submitting the defendant prayed for dismissing the application in respect of the 4th defendant.

15. The applicant bank filed its proof affidavit along with 63 documents, which are marked as Exhibits A1-A63 along with the proof affidavit. S. No. Date Description of Documents Exhibit Nos.

1. 16.02.2006 Deed of Partnership between defendants 2 &3 A-1

2. 21.07.2009 Amendment Deed of Partnership A-2

3. 12.01.2007 Certificate of Registration in Form-D, issued by the Commercial Tax Officer A-3

4. 11.11.2010 Certificate issued by the Department of Industries & Commerce A-4

5. 04.08.2015 Request for over draft facilities by 1st

A-5

6. 04.08.2015 Cash Credit Agreement by 1st defendant to applicant A-6

7. 04.08.2015 Pronote for Rs. 58 Lakhs A-7

8. 04.08.2015 Common Hypothecation Agreement by 1st defendant to applicant A-8

9. 04.08.2015 Guarantee covering letter together with guarantee agreement by 2nd defendant A-9

10. 04.08.2015 Guarantee covering letter together with guarantee agreement by 3rd defendant A-10

11. 04.08.2015 Guarantee covering letter together with guarantee agreement by 4th defendant A-11

12. 04.08.2015. Mortgage extension letter by 4th defendant to applicant A-12

13. 19.03.2012 Memorandum of deposit of title deeds vide A-13

Document No.3338/2012 in SRO Guduvancherry

14. 03.08.2015 Supplemental Memorandum relating to deposit of title deeds vide Document No.9860/2015 in SRO Guduvancherry A-14

15. 09.12.1967 Deed of partition vide Document No.3253/1967 in SRO Tambaram A-15

16. 21.12.1990 General Power of Attorney vide Document No.10/1991 in SRO Guduvancherry A-16

17. 11.04.1991 Proceedings of the Commissioner, Kattankolathur Panchayat A-17

18. Approved plan A-18

19. 18.08.1991

Sale deed vide Document No.2492/1991 in SRO Guduvancherry A-19

20. 23.09.1991 Sale Deed vide Document No.3093/1991 in SRO Guduvancherry A-20

21. 27.12.1995 Deed of Release vide Document No.2272/1996 in SRO Guduvancherry A-21

22. 24.05.2004 Sale deed vide Document No.2900/2004 in SRO Guduvancherry A-22

23. 17.12.2004 Patta No.2062 in the name of Mrs. A. Jamunarani A-23

24. - Encumbrance Certificate No.32162 issued by SRO Tambaram A-24

25. 22.11.2011 Certificate issued by VAO, Mannivakkam A-25

26. Adangal in the name of A. Jamunarani. A-26

27. 26.04.2005 Proceedings of the President, Mannivakkam Panchayat A-27

28. 26.04.2005 Proceedings of the President, Mannivakkam Panchayat A-28

29. 26.04.2005 Receipt issued by the President, Mannivakkam panchayat vide No.048752 A-29

30. 26.04.2005 Receipt issued by the President, Mannivakkam panchayat vide No.048753 A-30

31. 01.04.2005 Planning permit vide No.849/2005 A-31

32. - Approved layout plan vide PPD/LO No.

A-32

33. 16.12.2010 House Tax receipt No.113543 A-33

34. 16.12.2010 House Tax receipt No.113542 A-34

35. Encumbrance Certificate No. 20272/2011, A-35

issued by SRO Guduvancherry

36. 31.03.2016. Agreement for segregated liability by 1st defendant to applicant A-36

37. 27.05.2016 Letter by 1st defendant to applicant A-37

38. 31.08.2016 Letter by 1st defendant to applicant A-38

39. 22.09.2016 Demand letter by applicant to defendants A-39

40. Acknowledgement Cards A-40

41. 14.11.2016 Demand notice under Section 13(2) of the SARFAESI Act to defendants 1 & 2 A-41

42. 14.11.2016 Demand notice under Section 13(2) of the SARFAESI Act to Defendants 1 & 3 with Acknowledgement card A-42

14.11.2016 Demand notice under Section 13(2) of the SARFAESI Act to Defendants 4th with Acknowledgement cards A-43

44. 28.01.2017 Legal notice by 4th defendant to applicant A-44

45. 30.01.2017 Possession notice by the applicant bank A-45

46. Acknowledgement cards. A-46

47. 30.01.2017 Possession notice publication in English A-47

48. 18.02.2017 Legal notice by 2nd defendant to applicant A-48

59. 02.06.2017 Statement of Account pertaining open Cash Credit A-49

50. 03.06.2017

Banker’s Books of Evidence Act 1891 A-50

51. 03.06.2017 Certificate Under Section 2(A)(b) of the Banker’s Books of Evidence Act 1891 A-51

52. 03.06.2017 Certificate Under Section 2(A)(c) of the Banker’s Books of Evidence Act 1891 A-52

53. 03.06.2017 Certificate for Notional interest A-53

54. 02.06.2017 Statement of Account pertaining to working capital term loan A-54

55. 03.06.2017 Certificate Under Section 2(A)(a) of the Banker’s Books of Evidence Act 1891 A-55

56. 03.06.2017

Banker’s Books of Evidence Act 1891 A-56

57. 03.06.2017 Certificate Under Section 2(A)(c) of the Banker’s Books of Evidence Act 1891 A-57

58. 03.06.2017 Certificate for Notional interest A-58

59. 02.06.2017 Statement of Account pertaining to Current Account TOD A-59

60. 03.06.2017 Certificate Under Section 2(A)(a) of the Banker’s Books of Evidence Act 1891 A-60

61. 03.06.2017 Certificate Under Section 2(A)(b) of the Banker’s Books of Evidence Act 1891 A-61

62. 03.06.2017

A-62

Banker’s Books of Evidence Act 1891

63. 03.06.2017 Certificate for Notional interest and further certificate.

A-63

16. The defendants 1 to 3 and 4th defendants filed separate Counter Proof Affidavit reiterating their contentions made in their reply statement and did not produce any documentary evidence to substantiate their contentions.

17. Heard the Ld. Counsel for the Applicant Bank. Despite affording sufficient opportunity for arguments as there was no representation for the defendants, the opportunity was closed. Perused the records.

18. Having heard the Ld. Counsels for the parties and after perusing the records, the Tribunal framed the following points for consideration: -

1. Whether the applicant bank has established its claim against the defendant? If so, for what amount?

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

19. 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-63. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-63 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

20. Ld. Counsel for Applicant Bank would further submit that even as per the Reply Statement filed, the defendant has not denied availing of credit facility, execution of loan documents and creation of mortgage over the schedule property in favour

of the applicant and as such the said admission 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 has charged interest only at contractual rates and the applicant bank has produced the statement of accounts duly certified under Bankers’ Book Evidence Act to substantiate the amount claimed by the applicant. Ld. Counsel further contended that defendants though filed the reply statement and CPA, did not choose to file any documents substantiate their contentions in the reply statement and therefore the claim of the applicant stands unrebutted.

21. As rightly contended by the Ld. Counsel for Applicant, barring filing of reply statement and counter proof affidavit, the defendant did not choose to file any documents substantiating the pleas taken by them. 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 any evidence other than the testimony by way of CPA, as rightly contended by the Ld. Counsel for Applicant, the defense put forth by the defendant remain unsubstantiated hence cannot be considered, thus 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 defendants that the applicant the

amount claimed by the applicant is not proper and has charged higher interest rates fails and remain unsubstantiated.

22. In so far as the contention of the defendants that the applicant has not followed the provisions of the SARFAESI Act and Rules made thereunder while proceeding against the secured asset is not germane in the proceedings initiated by the applicant under RDB Act and the defendants can raise the said objections in appropriate proceedings and hence the said contention fails.

23. In so far as the contention of the 4th defendant that the applicant has to proceed first against the defendants 1 to 3 and their properties who are capable of repaying the debt and thereafter proceed against the property of the 4th defendant is concerned, it is to be stated that such contention is untenable as the 4th defendant is also liable for repayment of the dues to the applicant.

24. 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-63 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?

25. 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.

26. 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 thelending 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.

27. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) OA No.320 of 2017 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.69,16,356.93p-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 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 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.

28. 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 Virtual Court, through Video Conference on this the 31st day of December, 2021)

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