PUNJAB NATIONAL BANK vs M/s.Tasa Smart Wood Pvt. Ltd. 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 70,11,585.21p with further interest at the rate of 12.90% per annum plus penal interest @ 2% with monthly rests 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 first defendant represented by its Directors, the second and third defendants had approached the applicant by representing that they are qualified and experienced entrepreneurs to start a small scale industrial unit to manufacture a unique product namely wood polymer composite sheets which has vast application in construction industry and also represented that they have gained sufficient experience in business management and administration and highly qualified to setup a small scale industrial unit with financial assistance of the bank.

3. It is also the case of the applicant that at the request of the 1st defendant by loan application dated 23.06.2014, the applicant vide its Sanction dated 13.09.2014 sanctioned Cash Credit Facility of Rs.12 lakhs and Term Loan of Rs.71 lakhs subject to the terms and conditions as envisaged thereon and duly accepted by the defendants 1 to 3. It is contended that the said facility was granted based on the Primary Security i.e,Hypothecation of Plant & Machinery, Raw Materials, Semi Finished & Finished goods and book debts present and future. It is contended by the applicant that the defendants 2 & 3 had expressed that they do not have any collateral security of immovable property and requested the bank to sanction the aforesaid credit facilities under CGTMSE scheme and the 1st executed various loan and security

documents on 17.09.2014 viz., Hypothecation of goods and book debts to secure cash credit facility, Term Loan Agreement executed, Hypothecation of Assets to secure the term loan. It is also contended that the defendants 2 and 3 on 17.9.2014 executed agreement of guarantee in favour of the applicant thereby guaranteeing due repayment of the credit facility availed by the 1st defendant.

4. It is the further case of the applicant that subsequent to availing of the aforesaid cash credit facility, the first defendant had not submitted the stock statement and further during inspection of stocks, the officials of the applicant bank observed that stocks were not upto the desired level, no active business operations were going on and machineries appeared to be not in use for quite long time. It is also contended that the defendants defaulted in repayments and failed to reguarlize the loan account despite repeated demands, however the 1st defendant confirmed the outstanding due by executing balance and security confirmation letter on 30.05.2017. It is further contended that as the defendants did not come forward to regularize the loan account the applicant sent a recall letter on 06.09.2017 to the defendants but in vain and hence applicant classified the loan account as NPA on 31.12.2017.

5. It is relevant to mention that as per the scheme of CGTMSE cover, the applicant bank has to file O.A against the borrower(s) to recover the total outstanding loan amount from the defendants and upon receipt of the same, the applicant bank has to reimburse to the CGTMSE. It is pertinent to mention that even part payment as received from the borrower, the same has to be returned to the CGTMSE. If not, the applicant bank has to pay interest to CGTMSE. It is not out of place to mention that the role of CGTMSE is acting

as guarantor and not providing Govt. Subsidy to the borrower as they think. Hence if any payment made by CGTMSE to the applicant bank will not exonerate the loan liability of the defendants.

6. It is case of the applicant that despite the recall letter sent by the bank, the defendants did not come forward to clear the outstanding dues and hence this application.

7. The defendants filed written statement stating therein, the defendants have submitted a loan application on 23.06.2014 seeking for cash credit and term loan facilities and the applicant bank sanctioned cash credit facility to the limit of Rs.12 lakhs and term loan facility to the tune of Rs.71 lakhs on 13.09.2014 subject to the terms and conditions. It is contended by the defendants that they had hypothecated the plant and machinery, raw materials, semi finished and finished goods in favour of the applicant and requested the applicant bank to sanction the above said credit facility under CGTMSE Scheme.

8. It is also contended by the defendants that they had placed orders on Fly Tech Engineering, No.1/32, Porur Kundrathur Main Road, Periyapanicherry, Chennai- 600 128 for supply WPC Plant technology transfer along with plant technology transfer along with plant and equipment of 40-50 Kg/Hr and the total cost of the equipment is Rs.80,99,000/-. It is also contended that the applicant bank has issued a cheque directly to the Fly Tech Engineering. It is further contended that the defendants decided to drop the project due to timelines being not met by the Fly Tech Engineering and returned the equipment to the Fly Tech Engineering which was duly received. It is further contended that the said company in order to return the amount received by

them from the defendants issued various cheques in favor of the defendants, but the same were returned by the banker stating insufficient funds and hence he defendants caused legal notice to the said company on 20.06.2018 and the same was received but the said company did not bother to send any reply and hence the defendants filed a complaint under Section 138 of the Negotiable Instruments Act 1881 before the Metropolitan Magistrate Court, Egmore.

8. It is contended by the defendants only in view of above said fact the defendants defaulted in repayment due to severe financial crunch resulted in view of the return of machinery to the above said company and in view of the fact that the amounts were directly given to the company and despite receiving back the machinery the company did not pay the amounts to the defendants. The defendants thus prayed for dismissing the OA filed by the applicant.

9. The applicant bank filed its proof affidavit along with 10 documents, which are marked as Exhibits A1-A10the details of which are as under:- S. No. Date Description of Documents Exhibit Nos.

1. 23.06.2014 Loan Application A-1

2. 13.09.2014 Sanction Letter with terms and conditions A-2

3. 17.09.2014 Hypothecation of goods and book debts to secure CC facility executed by the 1st defendant A-3

4. 17.09.2014 Term Loan Agreement A-4

5. 17.09.2014 Hypothecation of Assets to secure term loan A-5

6. 17.09.2014 Agreement of Guarantee executed by the 2nd and 3rd defendants A-6

7. 30.05.2017 Balance and Security confirmation letter A-7

8. 06.09.2017 Recall letter A-8

9. 01.08.2018 Statement of Accounts for the period from 17.09.2014 to 31.07.2018 for Term Loan facility A-9

10. 01.08.2018 Certificate under Bankers’ Books Evidence Act, 1891 A-10

12. Despite affording sufficient opportunities the defendants did not choose to file their Counter Proof Affidavit and hence the chance of filing Counter Proof Affidavit by the defendants was closed on 23.11.2021.

13. 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.

14. 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 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?

15. 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-10. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-10 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

16. 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, did not choose to file any CPA despite sufficient opportunity and therefore the claim of the applicant stand unrebutted.

17. As rightly contended by the Ld. Counsel for Applicant, barring filing of reply statement, the defendant did not choose to file Counter Proof Affidavit substantiating the pleas taken in reply statement. 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 Counter Proof Affidavit, 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.

18. The only contention of the applicant is that the applicant had directly paid the money to the supplier for the machine purchased by the 1st defendant, which was returned by it as it had some manufacturing defects and the defendants could not get the money back from the supplier, resulting in huge financial crisis. The contention even if proved will not exonerate the defendants from their liability.

19. 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-8 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?

20. 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.

21. 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 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 @ 10% p.a. simple on the OA claim amount from the date of filing till the date of realization. Point No.2 is answered accordingly.

22. In view of the afore mentioned discussions, the OA is disposed off in the following manner: - (a) OA No.615 of 2018 stands allowed.

(b) Applicant is permitted to realize an amount of Rs.70,11,585.21p-with further interest @10% 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 and 3 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.

19. 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