MS ASSET RECONSTRCUTION COMPANY INDIA LTD vs SRI. RANGA INDUSTRIES on 20 February 2024

O R D E R

1. This Transfer Application is filed by the 1st Applicant Bank under section 19 of the RDDB & FI Act, 1993,

a. to direct the Defendant Nos.1 to 7 personally, jointly and severally to pay to the 2nd Applicant FI for a sum of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, from the date of Application, till the date of its realization, failing which,

b. to direct to bring the Schedule III, IV, V & VII Machineries which are mentioned in the Description of Property and mortgaged properties which are mentioned in Schedule I, Items 1 & 2 of Schedule II, Schedule IV, Schedule VI, & Schedule VIII of Description of Property for Sale and the sale proceeds appropriated for recovery of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, from the date of Application, till the date of its realization, with Costs of this OA.

BRIEF FACTS

2. The Averments made by the 2nd Applicant FI in the Amended Application are stated as follows: 2.1 The 1st Applicant Bank transacts all types of Banking Business including granting of Credit Facilities by way of working capital accommodation and Term Loan to Industrial Units run as Sole Proprietary Concerns or Partnership Firms or Limited Companies (Public/Private).

5 TA 2038/2002

2.2. The 2nd Defendant is a Diploma Holder in Mechanical Engineering. The 2nd Defendant started business in or about the year 1969, in the execution of Machinery Job Orders from Bharat Heavy Electricals Ltd., Trichy and Manufacture of Pump Sets Business under the Name and Style of Sri Ranga Industries, the 1st Defendant, of which the 2nd Defendant is the Sole Proprietor. The 1st Defendant was availing Loans and Advances from Canara Bank for credit needs of his business in the name of the 1st Defendant from 1969 to 1976.

2.3. In the year 1976, at the request of the 2nd Defendant, the 1st Applicant Bank took over the Loans and Advances until then enjoyed by him in the name of the 1st Defendant from Canara Bank. The 1st Applicant Bank sanctioned the 1st Defendant during May 1976, a Cash Credit Limit of Rs.40,000/- by way of Hypothecation Limit. In July 1976, the 1st Applicant Bank sanctioned to the 2nd Defendant in the name of the 1st Defendant as a further advance Clean Cash Credit Limits of Rs.14,850/- and Rs.36,000/- for purchase of certain items of Machinery and the amount due in respect of the above said to limit was repaid. Again in November 1977, the 1st Applicant Bank sanctioned to the 2nd Defendant on behalf of 1st Defendant Company, a Term Loan of Rs.28,500/- for purchase of certain fresh items of Machinery.

2.4. Between 1976 and 1979, the 2nd Defendant as the Sole Proprietor of the 1st Defendant showed increased business actively, the 1st Applicant Bank enhanced the Hypothecation Limit of Rs.90,000/- towards Working Capital and a Term Loan of Rs.36,000/- for the purchase of Machinery. The Cash Credit Advances and the Term Loans granted from time to time till besides the normal securities like Hypothecation of Assets, pledge of Machineries were additionally secured by the Personal Guarantee and mortgaging the properties of 6 TA 2038/2002 Defendants 4 & 5 more fully described in the Schedule of Properties of the Original Application.

2.5. In April 1980, at the request of the 2nd & 4th Defendants, the Applicant Bank revised the Working Capital Credit Limits extended in the name of the 1st Defendant and granted enhanced working capital credit facilities by way of (i). Cash Credit (mundy type) limit of Rs.2,25,000/-, (ii). Cash Credit (Bills/Copies of invoices) Limit of Rs.2,00,000/-, (iii). DD Purchase Limit of Rs.1,00,000/- and (iv). Guarantee Limit of Rs.1,50,000/- i.e. limits aggregating Rs.6,75,000/- . It was agreed that the repayment of the amounts due and becoming due under the operative Cash Credit Account and other Accounts relating to the said limits shall be secured by hypothecation of all the stocks and goods and movable assets and book debts and receivables in the business of the 2nd Defendant in the name of the 1st Defendant, personal guarantee of 4th & 5th Defendants. It was also agreed that the repayment of the amounts due and becoming due under the operative Cash Credit Account shall be secured by pledge of raw materials, semi finished and finished goods i.e., Cast Iron, Steel, MS Steel Road etc in the business of the 1st Defendant. The 2nd Defendant as Proprietor in the name of the 1st Defendant and 4th & 5th Defendants executed security documents on 30.04.1980 in favour of Applicant Bank in respect of the said enhanced Credit Limits.

2.6. The 1st Defendant was initially engaged in doing the jobs of machining of components supplied by BHEL. Further, it expanded its activities, it started manufacture and supply to Southern Railway of Coupler Hooks and Yoke and Brake Shoes, Buffer Plunger, Guide Ring etc., required for Railway Bogies. The 2nd Defendant requested the Applicant Bank to sanction to him in the name of the 1st Defendant, Additional Working Capital Finance to the extent of a further sum of

7 TA 2038/2002 Rs.1,50,000/-. The Applicant Bank agreed to the said request subject to the condition that the enhanced working capital finance to the extent of Rs.8,25,000/- (Rs.6,75,000/- + Rs.1,50,000/-) is secured by the Hypothecation of the movable assets and book debts and receivables in the business of the 1st Defendant, the Personal Guarantee of 4th & 5th Defendants and extension of the mortgage of the Schedule I Property and Schedule 2 property. 2nd, 4th & 5th Defendants also executed in favour of the Applicant Bank on 22.09.1980.

2.7. At the request of the 2nd, 4th & 5th Defendants, the Plaintiff granted to them in the name of the 1st Defendant in April 1981, a Fresh Medium Term Loan of Rs.2,50,000/- for purchase of (i). one heavy duty lathe, (ii). one universal milling machine and (iii). one double column planning machine. The repayment of the said Term Loan was secured by (a). Hypothecation of the movable assets and book debts and receivables, (b). Pledge of the said Lathe and Accessories purchased with the Term Loan, (c). Personal Guarantee of the 4th & 5th Defendants and (d). Extension o the Mortgage which was already created of the Schedule II property owned by the 4th Defendant and the Schedule I property owned by the 2nd Defendant.

2.8. In June 1981, though the aggregate of the said two limits was Rs.4,25,000/- only, there was a sum of Rs.6,80,873.78 due on 14.05.1981. The 2nd Defendant represented to the Applicant Bank that he was able to get several purchase orders from Southern Railway, for the purpose or executing the said orders he had to acquire large quantities of raw materials and that realization of bills from the Railways would to in reduction of the outstanding in the Operative Case Credit account. He failed to act upto the said representations 8 TA 2038/2002 and therefore, the operative cash credit account contained to remain constantly over drawn.

2.9. In March, 1982 the 2nd Defendant applied to the 8th Defendant for the grant of a Term Loan of Rs.15,00,000/- for acquisition of certain items of machines and equipment for his factory in the name of the 1st Defendant against the security by way of hypothecation of the Machines and Equipments purchased with the said loan. The Machines and Equipments hypothecated by the 2nd Defendant as Proprietor for the 1st Defendant in favour of the 8th Defendant are set in Schedule III.

2.10. In July 1982, the specific request of the 2nd Defendant, he was permitted to draw a sum of Rs.3,00,000/- in the name of the 1st Defendant under a Current Account for meeting certain urgent needs of the 1st Defendant on the Specific Understanding that it would be re- credited within 15 days and that if default was committed in doing so the amount could be debited to the Operative Cash Credit Account. However, the 2nd Defendant, failed to reimburse the said sum and therefore it was debited to the Cash Credit Account. On 22.09.1982, the amount outstanding in the Operative Cash Credit Account in the name of the 1st Defendant was Rs.18,81,223.78 as against (a). the aggregate of the limits of Rs.4,25,000/-, and (b). Rs.13,98,502/- having the value of the stocks and receivables under charge of the

2.11. In 1981, the 2nd Defendant as promoted and established the 3rd Defendant as a Private Company and himself as a Managing Director and the 2nd Defendant as Director Manufacture of Steel Alloy, casting in the same factory premises viz., where the 1st the Defendant was having his factory and place the business. The 2nd Defendant also 9 TA 2038/2002 promoted a Partnership Firm in the name and style of Liasar Flow and Company with himself and the 6th Defendant as Partners.

2.12. Further, at the request of the Defendants 2, 3 & 6, the Applicant Bank sanctioned to the 3rd Defendant in September 1982, Working Capital Credit Facilities by way of (i). Cash Credit (Mundy Type) Limit of Rs.10,00,000/- and (ii). Cash Credit (Bills and Receivables) Limit ofRs.13,00,000/-. The Cash Credit (Mundy Type) Limit was secured primarily by pledge of stocks of Raw Materials, Semi Finished and Finished products such as Scrap, Ferromanganese, Ferrochrome, Polychrome, Vanadium, Nickel etc., as its business places, the Cash Credit (Receivables) Limit was secured by assignment of all its rights over the amounts received from its Customers like Railways and Neyveli Lignite Corporation and others to whom supplies against Orders were to be made by the 3rd Defendant. The said two limits were secured further by (i). the personal guarantee of Defendants 2 and 6. Defendants 3, 2 & 6 executed in favour of the Applicant Bank of the said working capital finance sanctioned in the name of the 3rd Defendant on 11.09.1982.

2.13. The Charge by way of Hypothecation of Movable Assets and Book Debts and Receivables created by the 3rd Defendant in favour of the Plaintiff as security for the extent of Rs.23,00,000/- interest, costs, charges and expenses was registered in the books of Company Register in terms of Section 125 of the Companies Act, 1956.

2.14. During June 1983, at the request of 2nd & 7th Defendants, the Applicant Bank sanctioned in the name of the 1st Defendant, a Medium Term Loan of Rs.5,20,000/- to enable the 2nd Defendant to construct Office and Factory Buildings on land described fully in Schedule IV, owned by the 7th Defendant and held on lease by the 2nd Defendant. The 2nd & 7th Defendants executed necessary security 10 TA 2038/2002 documents on 02.06.1983 in favour of Applicant Bank in respect of the said Term Loan.

2.15. Thereafter, on 05.07.1983, the Applicant Bank sanctioned to the 3rd Defendant, a Medium Term Loan of Rs.2,75,000/- to purchase a 160 KV Generator set with accessories and the loan was secured by pledge of said Generator set with accessories.

2.16. Both the Industrial Units, the 1st & 3rd Defendants were resorting to excess drawings in respect of the Working Capital Limits enjoyed by each of them, the Applicant’s Two Technical Officers visited their works in July 1983, to assess the performance of the said Units and the reasons for the excess drawings and the remedial measures to be adopted for wiping out such excess drawings. They found that (a). the two units were not maintaining proper books of accounts, stock registers and other records, (b). there were interlocking and diversion of funds as between the two units and other units of the 2nd Defendant and (c). there were clean drawings to the extent of Rs.11,00,000/- in the case of the 1st Defendant and Rs.7,00,000/- in the case of the 3rd Defendant in January 1983.

2.17. The 2nd Defendant as Proprietor of the 1st Defendant and as Managing Director of the 3rd Defendant failed to take any steps to rectify the irregularities, interlocking of funds, diversion of funds, excess drawing and other unsatisfactory features noticed by the Technical Officers. The 2nd Defendant was having an account in the name of the 1st Defendant with Syndicate Bank, that he was routing the realizations from the 1st Defendant’s Customers through the said account thus depriving the Applicant Bank of the benefit of the said realizations credited to Operative Cash Credit Account which was contrary to the terms and conditions subject to which credit facilities were extended in the name of the 1st Defendant.

11 TA 2038/2002

2.18. During March, 1984, the position of the Accounts of the 1st & 3rd Defendants were detailed hereunder: 1st DEFENDANT : Cash Credit (Mundy type) Limit Rs.2,25,000/- and Cash Credit (receivables) Limit Rs.2,00,000/- Amount Outstanding Rs.42,89,000/- 1st Term Loan of Rs.2,50,000/- Amount Outstanding Rs. 34,000/- 2nd Term Loan of Rs.5,20,000/- Amount Outstanding Rs.4,60,000/-

3rd DEFENDANT :

Cash Credit (Mundy type) Limit Rs.10,00,000/- and Cash Credit (receivables) Limit Rs.13,00,000/- Amount Outstanding Rs.70,38,000/- Medium Term Loan of Rs.2,75,000/- Amount Outstanding Rs. 2,64,000/-

2.19. The 2nd Defendant as Proprietor of the 1st Defendant and as Managing Director of the 3rd Defendant failed to rectify the irregularities or the 2nd Defendant take measures to bring down the outstanding in the respective accounts.

2.20. The 7th Defendant is the owner of the Agricultural Lands described in Schedule VI of the Schedule of Property.

2.21. During February, 1984 at the request of the 7th Defendant, the Applicant Bank granted to the 7th Defendant an Agricultural Loan of Rs.96,000/- for purchasing an HMT Tractor and Trailer against the security of the said Tractor and Trailer and mortgage by deposit of Title Deeds of the Schedule VI Property. The 7th Defendant executed the necessary and Security Documents in respect of the said Agricultural Loan on 27.02.1984.

12 TA 2038/2002

2.22. The Operative Cash Credit Accounts and the Term Loan Accounts in the name of the 1st & 3rd Defendants were very irregular and unsatisfactory, the Defendants were called upon to execute supplementary documents to cover the outstanding in the said accounts, which were in excess of the limits set out in the security documents previously executed by them. Accordingly the Defendants 2, 3, 4, 6 and 7 executed supplemental agreements dated 31.03.1984 in respect of the credit facilities extended to the 3rd Defendant to cover the outstanding then remaining due.

2.23. In respect of the very large outstanding in the Operative Cash Credit and other accounts in the name of the 1st Defendant, the 2nd Defendant as Proprietor of the 1st Defendant and Defendants 4, 5 & 7 as Guarantors executed in favour of the Applicant Bank on 16.10.1984, security documents to cover the excess drawings in the Operative Cash Credit Account.

2.24. The 2nd Defendant as Proprietor of the 1st Defendant further issued a Letter dated 29.10.1984 confirming pledge of the 57 items of Schedule VII Machines.

2.25. All possible assistance made by the Applicant Bank to the 1st & 3rd Defendants and assurance given by the 2nd Defendant. The 2nd Defendant failed to carry out any of the terms and conditions as promised. On 31.12.1984, the advance value of the Stocks under Hypothecation against which advances were availed of in the case of 1st & 3rd Defendants were Rs.29,94,071.62 and Rs.27,43,855.65 respectively, and the Accounts outstanding in the Operative Cash Credit Accounts in the name of the 1st & 3rd Defendants were Rs.64,39,523.85 and Rs.90,10,224.29 respectively.

2.26. The 2nd Defendant as the Proprietor of the 1st Defendant and Managing Director of the 3rd Defendant, continued to maintain the

13 TA 2038/2002 accounts with other Banks and the 2nd Defendant was able to withdraw and divert the funds by routing the bills and realizations in respect of supplies in the name of 1st & 3rd Defendants through the other Bank Accounts. The Applicant Bank had obtained from the 1st & 3rd Defendants Authority under Deeds of Power of Attorney to collect the bills relating to supplies of goods made to them, the 2nd Defendant managed to collect them directly on behalf of the 1st & 3rd Defendants and utilized the proceeds for their own benefit and failed to honour the commitments with the Applicant Bank.

2.27. As on 31.12.1985, the Accounts relating to the Advances and Loans granted to the 1st & 3rd Defendants were detailed hereunder: I. Accounts of the 1st Defendant : i. Operative Cash Credit Account relating to the Cash Credit (Mundy type) Limit and Cash Credit (Bills & Receivables) Limit Amount Due Rs.64,47,709.47 ii. Medium Term Loan of Rs.5,20,000/- Rs.4,15,461.65 iii. Liability under guarantee issued on behalf of the 1st Defendant Rs.55,000.00

II. Accounts of the 3RD Defendant : i. Operative Cash Credit Account relating to the Cash Credit (Mundy type) Limit and Cash Credit (Bills & Receivables) Limit Amount Due Rs.94,27,853.70 ii. Medium Term Loan of Rs.2,75,000/- Rs.2,25,806.70 iii. Liability under guarantee issued on behalf of the 3RD Defendant Rs.3,000.00

2.28. During the latter half of the 1985, the 2nd Defendant was able to obtain Orders from the Railways in the name of the 1st & 3rd Defendants for supplies of large numbers of casnub bogies valued at Rs.4,60,00,000/-. Therefore, the 2nd Defendant on behalf of 1st Defendant requested the Applicant Bank to grant Special Cash Credit 14 TA 2038/2002 Limit of Rs.7,00,000/-, and for 3rd Defendant to grant Special Cash Credit Limit of Rs.13,00,000/-for working capital requirement to the completion of the Railway Orders. In February 1986, the Applicant agreed to sanction the Special Credit Limit of Rs.7,00,000/- and Rs.13,00,000/- to the 2nd Defendant and Rs.13,00,000/- respectively in the name of 1st & 3rd Defendants and was also sanctioned. The Defendants 1 to 7 were created securities by way of extension and executed necessary documents respectively on 21.02.1986.

2.29. On 28.06.1986, the position of the Operative Cash Credit Accounts of the 1st & 3rd Defendants were detailed hereunder:

1st Defendant – Outstanding

Rs. 70,79,104.02

3rd Defendant – Outstanding

Rs.1,00,82,494.02 There was no improvement in the position of the Cash Credit Accounts in the names of the 1st & 3rd Defendants and at their request further drawing to the extent of Rs.3,90,000/- had to be permitted from the Operative Cash Credit Accounts for (a). Payments of excise duty on 12 Nos. of Casnub Boogies and 100 Nos. of Axle Boxes to the Railways, (b) Required of Bills relating to purchase of components required for bogies to be supplied to Railways and (c). Payment of Salaries to the workmen.

2.30. During August 1986, at the request of the 2nd Defendant and was permitted to draw from the Operative Cash Credit Account further sums in the names of the 1st &H 3rd Defendants for meeting certain payments like excise Duty, Sales Tax and Electricity Bills subject to a maximum of Rs.5,00,000/-. The 1st & 3rd Defendants to purchase certain essential bought out components to execute the Railway Order, In respect of the same, the Defendants 2, 4, 5 & 7 executed on 15 TA 2038/2002 12.08.1986 in favour of the Applicant Bank, the security documents to cover the said Additional Facilities.

2.31. On 22.08.1986, the 2nd Defendant created extension of the mortgage of the Property in the Schedule I, the 4th Defendant created extension of the mortgage of Item 1 of the Schedule II Property and the 2nd & 7th Defendants jointly created extension of the mortgage of the Schedule IV Property together with the Factory Building, Other Structures, Fixed Plant and Machinery, the 7th Defendant created extension of the mortgage of the Property in Schedule VI, by way of extension of the Mortgage already created on 03.08.1981, 30.04.1980 & February, 1986 respectively in favour of the Applicant Bank, as security for the outstanding under the Working Capital Finance and Term Loan to the aggregate extent of Rs.96,45,000/- & Rs.1,15,75,000/- in the name of the 1st & 3rd Defendants respectively, upto the aggregate extent of Rs.2,12,20,000/-.

2.32. The outstanding in the Operative Cash Credit Accounts of the 2 Units of the 1st & 3rd Defendants continued to remain highly excessive and both the Units were Sick Units. As a major part of the said outstanding remained unsecured, the aggregate of the outstanding in the Operative Cash Credit Account in the name of the 1st and 3rd Defendants at Rs.1,87,44,000/-. The 2 Units were called upon to the extent of their level of performance and pave the way for rehabilitating the Two Units to normalcy.

2.33. During December 1986, the 1st & 3rd Defendants had not completed the supplies to the Railways. To speed up the production level and complete the Orders of the Railways, the Applicant Bank sanctioned to the 2nd Defendant in the name of 1st Defendant an Enhanced Letter of Credit Limit of Rs.15,00,000/- and the aggregate of the outstanding in the Operative Cash Credit Accounts of 16 TA 2038/2002 Rs.1,87,44,000/- and the 3 to 5 & 7th Defendants executed the necessary documents in favour of the Applicant Bank on 08.12.1986.

2.34. The 2nd Defendant as owner of the Schedule I property, the 4th Defendant as owner of the Schedule II Property, the 2nd & 7th Defendants as owner/lessee of the Schedule IV Property with the Factory Buildings, Structures and fixed Plant and Machinery thereon and the 7th Defendant as owner of the Schedule VI Property created in favour of the Applicant Bank, extensions of the mortgages and extensions thereof already created respectively by them to cover the aggregate outstanding of Rs.1,11,45,000/- in the name of the 1st Defendant and Rs.1,15,75,000/- in the name of 3rd Defendant i.e., total outstanding of Rs.2,28,05,000/-.

2.35. The performance and the production of the 2 Units, the 1st & 3rd Defendants continued to dwindle, the 1st & 3rd Defendants were not able to effect credits into the Operative Cash Credit Accounts and interest, the outstanding in the said account went beyond the limit of Rs.1,87,68,000/-. The first few months of 1987, the outstanding in the 2 Operative Cash Credit Accounts in the names of the 1st & 3rd Defendants exceeded Rs.2,33,00,000/- and the said outstanding by rising them from Rs.1,87,68,000/- to Rs.2,33,44,000/-. The 2nd & 3rd Defendants did not have resources to purchase Raw Materials and carry on their manufacturing activities. The Railways had withheld certain payments due to the 1st & 3rd Defendants against what Railway’s term as their claim for payment of liquidated damages by 1st & 3rd Defendants. After negotiations they were prepared to release them against Bank Guarantees. The 1st & 3rd Defendants required finance by way of Cash Credit Facility and Establishment of Letters of Credit to meet their pressing demands such as (a). Arrears of Sale Tax, (b). Electricity Bills, (c). Energy Charges, (d). Telephone Bills, 17 TA 2038/2002

(d) . Bills Drawn under L/Cs. In July 1987, at the request of the Defendants, the Applicant Bank agreed to sanction enhanced working capital finance but at the same time stipulated certain terms and conditions to be complied with by the 1st & 3rd Defendant Units.

2.36. The 2nd Defendant as Proprietor of the 1st Defendant, 4th, 5th & 7th Defendants executed the necessary documents on 14.07.1987, 16.07.1987 in respect of the enhanced Working Capital Facilities extended by way of rehabilitation in the name of the 1st Defendant. The 2nd Defendant as Owner of the Schedule I Property, the 4th Defendant as Owner of the Schedule II Property, the 7th & 2nd Defendants as Owner/Lessee of the Schedule IV Property with the factory buildings, structures and fixed plant and machineries, structures thereon, the 7th Defendant as Owner of the Schedule VI Property on 14.07.1987 extended mortgages of the said properties already created before to cover an extended mortgage security, the outstanding to the aggregate extent of Rs.1,50,11,000/- due and in the name of the 1st Defendant and of Rs.1,29,75,000/- due then in the name of the 3rd Defendant i.e., total outstanding of Rs.2,79,86,000/- by both the said Defendants.

2.37. The Industrial Units of the 1st & 3rd Defendants had become sick, the 2nd Defendant as Proprietor and Managing Director of the 1st & 3rd Defendants and in control of all the activities of the said Units failed to exercise any financial or other discipline in conducting their activities and in the conduct of the operations on the Operative Cash Credit Accounts, the 2nd Defendant was resorting to various other unhealthy practices such as diversion of funds drawn from the Bank, removal of stocks under pledge/hypothecation without authority, non submission of stock statements, failure to keep proper books and accounts, manipulation of books and records, resorting to double

18 TA 2038/2002 billing, interlocking of funds etc., a Senior Officer of the Applicant Bank was nominated as Financial Adviser of both the Units in terms of two Agreements dated 20.07.1987 executed by and between the Applicant Bank, the 2nd Defendant as Proprietor of the 1st Defendant and the Applicant Bank and the 3rd Defendant.

2.38. The assistance and measures of rehabilitation and further finance and accommodation grated to the Defendants 1 & 3 by the Applicant Bank as stated above, the position of the Defendants 1 & 3 Units did not show any improvement and the two units continued to have sales tax liabilities and other demands.

2.39. During October 1987, after adjusting certain amounts towards excess drawings, the aggregate of the outstanding of the two units, the 1st & 3rd Defendants were Rs.2,28,70,000/- as on 07.10.1987. As the 1st Defendant needed further funds for its day to day activities and complete the Orders placed by the Railways, additional funds by establishing letters of credit were made available by the Applicant Bank in October, November 1987 to the 2nd Defendant in the name of the 1st Defendant. The 2nd Defendant as Proprietor of the 1st Defendant, 4th, 5th & 7th Defendants executed security documents in respect of the said Additional Assistance extended on 14, 19.11.1987.

2.40. Again on 16.11.1987, the 2nd, 4th, 7th/2nd Defendants, 7th Defendant as Owner of Schedule I Property, Schedule II Property, Schedule IV Property with the Factory Buildings, Structures, erections, fixed plant and machinery thereon, and Schedule VI Property further extended mortgages already created in favour of the Applicant Bank to cover as security, the aggregate outstanding of Rs.2,00,14,000/- then due in the name of the 1st Defendant and 19 TA 2038/2002 Rs.1,29,75,000/- in the name of the 3rd Defendant i.e., the total sum of Rs.3,29,89,000/-.

2.41. On 31.12.1987, the aggregate of the outstanding in the Operative Cash Credit Accounts in the name of the 1st Defendant and the 3rd Defendant was Rs.2,46,66,644.84. Besides, the 1st Defendant was owing a sum of Rs.5,41,673.35 under the Term Loan of Rs.5,20,000/-, and the 3rd Defendant was due a sum of Rs.2,94,405.50 under the Term Loan of Rs.2,75,000/-. In January 1988, after examining the working of the Two Units, the 1st & 3rd Defendants, the Applicant Bank agreed to further rehabilitate the 1st & 3rd Defendants and in a further effort enabling the Two Units to be revived and brought to normalcy as per an Integrated Rehabilitation package scheme formulated for the Two Units. In accordance with the said scheme, the outstanding in the Operative Cash Credit Accounts and the Term Loan Accounts in the name of the 1st & 3rd Defendants in respect of the Credit Facilities until then extended in the name of the 1st & 3rd Defendant were to be re-allocated as now Credit Limits and Term Loans as detailed hereunder : I Defendant Unit : Outstanding under the Operative Cash Credit Account as on 10.02.1988 Rs.1,29,67,387.73 outstanding in the Term Loan Account of Rs.5,41,673.35 (Term Loan of Rs.5,20,000/-). Limits under the integrated Rehabilitation package:- a. Cash Credit Guarantee cum Hypothecation Limit Rs.80,00,000/- b. Working Capital Term Loan Rs.45,00,000/- c. Funded Interest Loan Rs.42,00,000/- d. Existing Term Loan Rs. 5,24,000/- e. Letters of Credit Limit Rs.75,00,000/-

20 TA 2038/2002 f. Guarantees Limit Rs.15,00,000/-

III Defendant Unit : Outstanding under the Operative Cash Credit Account as on 16.02.1988 Rs.1,21,14,275.02 outstanding in the Term Loan Account of Rs.5,41,673.35 (Term Loan of Rs.5,20,000/-). Limits under the integrated Rehabilitation package :- a. Reimbursement Term Loan Rs.74,00,000/- b. Funded Interest Term Loan Rs.68,00,000/- c. Existing Interest Loan Rs.2,85,000/-

2.42. It was agreed that all the amounts then due and thereafter becoming due by the 2nd Defendant as Proprietor of the 1st Defendant under the Accounts covered by the integrated Rehabilitation Package shall be secured, besides the other securities normally obtainable by the Applicant Bank, by the (a). Personal Guarantee of the Defendants 2, 4 to 7, (b). Pledge of Machines of the 2nd Defendant in the business of the 1st Defendant, (c). Pledge of machines of the 3rd Defendant, (d). Schedule I Property, Schedule II Property, Schedule III Machines subject to the charge in favour of the 8th Defendant. Schedule VI Property, Schedule V Machines, Schedule VI Property together with the fixed plant, likewise it was agreed that all the amounts then due and thereafter becoming due by the 3rd Defendant under the Accounts covered by the integrated Rehabilitation package shall be secured besides the other securities, normally obtainable by the Applicant Bank.

2.43. The 2 Letters dated 15.02.1988 advised the Defendant of the Sanction by the Applicant Bank of the integrated Rehabilitation package scheme and the revised limits and loans sanctioned, the 21 TA 2038/2002 Terms and Conditions subject to which the package will be implemented, the securities by which the limits and loans under the package are to be covered and the security documents to be executed. In both the said letters, the 2nd Defendant as Proprietor of the 1st Defendant and as Managing Director of the 3rd Defendant, the 4th, 5th, 6th & 7th Defendants affixed their signature in token acceptance of the terms and conditions set out in the documents.

2.44. I. Working Capital Limits:

In respect of the item of limits and loans covered by the integrated Rehabilitation package in the name of the 1st Defendant for Working Capital Limits for a sum of Rs.80,00,000/- and the Defendants executed the necessary documents on 17.02.1988 in favour of the Applicant Bank viz., (i). Cash Credit Guarantee cum Hypothecation Limit - Agreement for the same of goods as Form “K” executed by the 2nd Defendant in the name of the 1st Defendant as Borrower and Defendants 3, 4, 5 and 7 as Guarantors, (ii). Agreement for Cash Credit Hypothecation of Debts and Assets in Form “L” executed by 2nd Defendant as Proprietor of the 1st Defendant and the 3rd, 4th 5th & 7th Defendants as Guarantors, (iii). A Demand Promissory Note executed by 2nd Defendant as Proprietor of 1st Defendant in favour of the Defendants 3, 4, 5 & 7 and endorsed by the letter and delivered by the letter in favour of the Applicant Bank, (iv). An Agreement of Guarantee on Form “I” Special, execute by Defendants 3, 4, 5 & 7 in favour of Applicant Bank.

2.45. For Letters of Credit Limit of Rs.75,00,000/- and the Defendants executed the necessary documents on 17.02.1988 in favour of the Applicant Bank viz., (i). Hypothecation Agreement executed by the 2nd Defendant as Proprietor of the 1st Defendant in respect of the imports/purchases of raw materials, (ii). A Demand 22 TA 2038/2002 Promissory Note executed by 2nd Defendant as Proprietor of 1st Defendant in favour of the Defendants 3, 4, 5 & 7 and endorsed by them and delivered along with a D.P. Note Delivery Letter, (iii). An Agreement of Guarantee on Form “I” Special, execute by Defendants 3, 4, 5 & 7.

2.46. For Guarantee Limit of Rs.15,00,000/- and the Defendants executed the necessary documents on 17.02.1988 in favour of the Applicant Bank viz., (i) An Agreement of Hypothecation executed by the 2nd Defendant as Proprietor of the 1st Defendant in consideration of the Applicant Bank issuing Guarantees, in favour of Railways, in respect of Work Orders placed by the Railways, (ii). A Demand Promissory Note executed by the 2nd Defendant as Proprietor of the 1st Defendant in favour of the Defendants 3, 4, 5 and 7 and endorsed by the Letter and delivered to the Applicant Bank with a D.P. Note take delivery letter, (iii) An Agreement of Guarantee on Form “I” Special, execute by Defendants 3, 4, 5 & 7.

II. Term Loans :

2.47. (A). Working Capital Term Loan of Rs.45,00,000/- For the above said loan, the 2nd Defendant as Proprietor of the 1st Defendant and the Defendants 3, 4, 5 & 7 are Guarantors, executed the following documents in favour of Applicant Bank on 17.02.1988 such as (i) A Demand Promissory Note by 2nd Defendant in favour of Defendants 3, 4, 5 & 7 as the Guarantors endorsed with a D.P. Note Delivery Letters, (ii) An Agreement of Guarantee on Form “I” Special, execute by Defendants 3, 4, 5 & 7.

(B). Funded Interest Term Loan of Rs.42,00,000/- For the above said loan, the 2nd Defendant as Proprietor of the 1st Defendant and the Defendants 3, 4, 5 & 7 are Guarantors, 23 TA 2038/2002 executed the following documents in favour of Applicant Bank on 17.02.1988 such as (i). Demand Promissory Note for Rs.42,00,000/- by 2nd Defendant in favour of Defendants 3, 4, 5 & 7 as the Guarantors endorsed with a D.P. Note Delivery Letters, (ii) An Agreement of Guarantee on Form “I” Special, execute by Defendants 3, 4, 5 & 7 and 2nd Defendant executed Letter of confirming (i) pledge in favour of the Applicant Bank of 57 Nos. and 5 Nos. of machines described in Schedule VII and as security for a sum of Rs.2,62,24,000/-.

(A). Reimbursement Term Loan of Rs.74,00,000/- For the above said loan, (i). the 3rd Defendant executed a Demand Promissory Note in favour of Defendants 2, 4, 5, 6 & 7 and endorsed by them in favour of Applicant Bank and delivered with a D.P. Note Delivery Letter, (ii). An Agreement of Guarantee on Form “I” Special executed by the Defendants 2, 4, 5, 6 & 7 guaranteeing the repayment to the Applicant Bank.

(B). Funded Interest Term Loan of Rs.68,00,000/-

For the above said loan, (i). the 3rd Defendant executed a Demand Promissory Note in favour of Defendants 1, 2, 4, 5, 6 & 7 and endorsed by them in favour of Applicant Bank and delivered with a D.P. Note Delivery Letter, (ii). An Agreement of Guarantee on Form “I” Special executed by the Defendants 2, 4, 5, 6 & 7 guaranteeing the repayment to the Applicant Bank. The 3rd Defendant also executed a Letter of Confirming (i). Pledge in favour of the Applicant Bank of 10 items and 11 items of machines mentioned in Schedule IX Machines for a sum of Rs.1,44,85,000/- due in respect of the loans and limits sanctioned in the name of the 3rd Defendant. The 3rd Defendant also executed certain further documents in respect of the integrated Rehabilitation Package on 17.02.1988 in its name.

24 TA 2038/2002

2.48. On 17.02.1988, the 2nd Defendant as Owner of the Schedule I Property, the 4th Defendant as Owner of the Schedule II Property, 2nd & 7th Defendants as Owner/lessee of the Schedule VI Property, with the factory buildings, structures, erections with the fixed plant and machinery thereon and the 7th Defendant as the owner of the Schedule VI Property created in favour of the Applicant Bank, fresh mortgages of the said properties and extended mortgages created to cover (a). the aggregate sum of Rs.2,62,24,000/- total limits and loans created by the integrated Rehabilitation package in the name of the 1st Defendant and (b) aggregate sum of Rs.1,44,85,000/- total of the loans covered by the Integrated Rehabilitation Package.

2.49. Consequent to the sanction of the revised Integrated Rehabilitation Package in April 1988, the 2nd Defendant in the name of the 1st & 3rd Defendants, the aggregate Principal of the limits and loans got increased to Rs.2,67,46,000/- (from Rs.2,62,24,000/-) and Rs.1,53,08,000/- (from Rs.1,44,85,000/-), i.e., aggregate sum of Rs.4,20,54,000/- (from Rs.4,07,70,000/-). The security documents were further extended by the 2nd, 4th, 5th, 6th & 7th Defendants.

2.50. The 2nd Defendant, along with 1st & 3rd Defendants Company had chose to run another concern viz., Llasar & Company and created Capital Assets by diverting funds from the 1st & 3rd Defendants. The 2nd Defendant did not do so. The 2nd Defendant got registered other Private Companies/Firms under the names of Sri Ranga Alloys Pvt., Ltd., with the close relations as Directors/Partners at the same place, where the 1st & 3rd Defendants are having their Factory. The 2nd Defendant was the absolute owner of all the business concerns. The conduct of the 2nd Defendant is in obtaining the Orders in the name of the 3rd Parties other than 1st & 3rd Defendants. The 3rd Parties have no 25 TA 2038/2002 right to utilize the machines, raw materials belonging to the 1st & 3rd Defendants to the determent of the Applicant Bank.

2.51. The Applicant Bank wrote several letters i.e., on 04.04.1988 to the 2nd Defendant in respect of 1st & 3rd Defendants as Proprietor and Managing Director respectively for continuing unsatisfactory features and irregularities in carrying on the defects ad irregularities. But, no response was given by the 2nd Defendant.

2.52. During April, 1988, certain further concessions and additional reliefs by way of funding of interest on certain loans, for the quarter ending 31st December 1987 and 31st March 1988 and sanction of Additional Working Capital Limit of Rs.25,00,000/- sought by the 2nd Defendant.

2.53. On 15.04.1988, the Applicant Bank advised to the 1st Defendant, sanction in the name of the 1st Defendant by the Applicant Bank of revised credit facilities by way of Rehabilitation Package subject to the general terms and conditions are detailed hereunder :

(i) . Cash Credit Guarantee cum Hypothecation (against hypothecation of stocks and receivables) Limit of Rs.1,05,00,000/- (enhanced from Rs.80,00,000/-) sanctioned under the Original Integrated Rehabilitation Package Scheme.

(ii) . Fresh Funded Interest loan by funding of accrued interest on the funded interest Term Loan and Working Capital Term Loan Rs.5,22,000/-.

(iii) . Letters of Credit of Rs.50,00,000/- by reducing the limit from Rs.75,00,000/- sanctioned under the Integrated Rehabilitation Package.

26 TA 2038/2002 For the same, the necessary documents were executed by the 2nd Defendant as Proprietor of the 1st Defendant as borrower & 3rd, 4th 5th & 7th Defendants as guarantors. For which, the hypothecation by the 1st, 2nd, 3rd, 4th, 5th & 7th Defendants already created by them was extended.

2.54. Neither the 1st Defendant nor the 3rd Defendant repaid the loans availed by them. Therefore, the two units, the 1st & 3rd Defendants had committed default in respect of all the commitments they had undertaken with the Applicant Bank. Despite of repeated demands, personal calls and letters, the 2nd Defendant who was running two units, did not effect payments due and rectify the irregularities and failed to comply the terms and conditions of the Integrated Rehabilitation on package.

2.55. At the time of sanctioned the revised integrated rehabilitation package in April 1988, in the name of the 1st & 3rd Defendant by the 2nd Defendant as Proprietor of the 1st Defendant & Managing Director of the 3rd Defendant under a Letter of Undertaking dated 19.04.1988 as ;

(a) . That they would forward all their supply bills and they would have the entire proceeds deposited with the Applicant Bank for credit of their respective accounts; (b). Under no circumstances shall the 1st & 3rd Defendant thereafter open any account with any other Bank ;

(c) . They shall not divert working funds to create block assets.

(d) . Unsecured loans obtained from the friends/relatives of the 2nd Defendant would not be repaid till the dues to the Applicant Bank are paid in full.

27 TA 2038/2002

(e) . Creditors in respect of purchases would be paid only after obtaining approval from the Applicant Bank.

(f) . The then existing sundry creditors would not be brought under the letters of credit to be issued thereafter.

2.56. Thereafter the integrated rehabilitation package was implemented, the working of the two units was closely watched by the Financial Advisor. On a review of the working it was found that (a). the 2nd Defendant as Proprietor of the 1st & 3rd Defendants was not complying with the terms and conditions of the said package ; (b). they did not meet payment of the bills drawn under the letters of credit established;

(c) . interest accruing on the term loans was not being paid ; (d). attempts made by the Applicant Bank to inculcate and bring about a reasonable measure of financial discipline in the working of the limits was resented ;

e. diversion of funds continued ;

f. shortage in stocks continued ;

g. blockage of funds in non-current assets and h. very huge amounts including accumulations of interest continued to remain due and outstanding under the limits and loans covered by the package. The Applicant Bank wrote a Letter dated 20.07.1988 to the 1st Defendant detailing some of the unsatisfactory features continuing even after the sanctioning of the package.

2.57. One of the conditions of the package was that the 1st Defendant and the 3rd Defendant would create in favour of the 28 TA 2038/2002 Applicant Bank a second mortgage over the immovable property charged to the 8th Defendant.

2.58. Neither the 1st Defendant nor the 3rd Defendant repaid the term loans. In the beginning of October 1988 the two units, the 1st & 3rd Defendants had committed default in respect of all the commitments they had undertaken with the Applicant Bank.

2.59. Despite the repeated Demands, personal calls and letters, the 2nd Defendant who was running the two units as one, did not effect payments due and rectify the irregularities. The 2nd Defendant resented the presence of the Applicant Bank’s Officer as Financial Adviser. The 2nd Defendant failed to comply with the terms of the Integrated Rehabilitation Package.

2.60. During November, 1988, the total indebtedness of the 1st & 3rd Defendants to the Applicant Bank was about Rs.4,32,30,000/-. Besides, they owed a liability of Rs.81,66,000/- to the 8th Defendant.

2.61. The Applicant Bank continued its attempts with the Southern Railway, the Central Railway, the South Central Railway, the Western Railway, South Eastern Railway, Northern Railway and Eastern Railway to have the deed of Power of Attorney executed by the 2nd Defendant as the Sole Proprietor of the 1st Defendant and to have the payment due in respect of supplies made in the name of the 1st Defendant to each of them which were financed by the Applicant Bank, paid to the Applicant Bank.

2.62. The Applicant Bank’s Officer deputed as Financial Adviser found that money drawn from the Cash Credit Accounts generated from the income from the units in the name of the 1st & 3rd Defendant were being paid to concerns such as M/s. Swamy Cleaners, M/s. Muthuswamy, Sri Mugrugan Labour Contractors, Sri Murugan 29 TA 2038/2002 Engineering Works, Sri. Saravana Industry, Messrs. Llaser & Co., and Sri Sampathkumar Industries for performance of alleged sub contract works, that such charges were found to be far in excess of the reasonable charges. Therefore, requisitioned the services of R.G.N. Price & Co., who have held such payments are on the high side.

2.62. The position of the accounts of the loans and limits in the name of the 1st & 3rd Defendant as on 30.09.1989 was as follows : I. Accounts in the name of the 1st Defendant :

(i) Cash Credit Guarantee cum

Hypothecation Limit

: Rs.1,12,50,117.98

As against the stock

value of Rs.74,04,000/-

i.e., an excess drawal of

Rs.

(ii) Letters of Credit Limit

: Rs.48,15,085.68

Remaining outstanding.

(iii) Guarantee Limits

: Guarantee to the extent

of Rs.10,95,700/-.

(iv) Working Capital Term Loan

: Rs.44,99,941.45

(Rs.45,00,000/-)

outstanding.

(v) Funded Interest Loan I

: Rs.41,99,969.70

(Rs.42,00,000/-)

outstanding.

(vi) Funded Interest Loan II

: Rs.5,22,000/-

(Rs.5,22,000/-)

outstanding.

(vii) . Term Loan Rs.5,24,000/-

: Rs.5,23,991.70

outstanding.

II. Accounts in the name of 3rd Defendant :

Reimbursement Term Loan

(Rs.74,00,000/-)

: Rs.73,99,912.70

Funded Interest Loan I

(Rs.68,00,000/-)

: Rs.67,99,951.70

30 TA 2038/2002

Funded Interest Loan II

(Rs.8,23,000/-)

: Rs. 8,23,000/-.

Term Loan

(Rs.2,85,000/-)

: Rs.2,84,994.75.

Notwithstanding the fact that all the accounts were highly irregular and unsatisfactory, the Defendants 1, 2 & 3 were not able to meet the payments and they failed to comply with the terms and conditions stipulated by the Applicant Bank while sanctioning the Integrated Rehabilitation package, the 2nd Defendant as Proprietor continued his requests for permission to draw moneys from the Cash Credit Account for making payments such as excise duty and other expenses.

2.63. One of the stipulations relating to the sanction of the Integrated Rehabilitation package was that the 2nd Defendant would arrange with the TIIC for the creation in favour of the Applicant Bank, a charge by way of mortgage of the property over which a mortgage had already been created in favour of the TIIC for the aggregate of the amounts due by the 2nd Defendant as Proprietor of the 1st & 3rd Defendant to the Applicant Bank ranking pari passu with the said Mortgage subsisting in favour of the 8th Defendant. The 8th defendant was initially agreeable to create in favour of the Applicant Bank such as pari passu charge over the said properties but required certain particulars to be furnished by the 2nd Defendant. He failed to furnish the said particulars and failed to create a charge over the said property in favour of the Applicant Bank.

2.64. The Defendants 1 to 7 are jointly and severally liable as borrowers and / or guarantors for repayment of the sum of Rs.3,43,60,573.05 and Rs.1,71,57,317.35 i.e., Rs.5,15,17,890.40 in the aggregate together with interest at the rate of 16.5% per annum from the date of Application, till the payment in full.

31 TA 2038/2002

2.65. For the all transactions of the 2nd Defendant as Director and Managing Director of 1st & 3rd Defendants and other Defendants as Guarantors are executed all necessary documents.

2.66. The Applicant Bank transactions are commercial in nature, as such Nationalized Banks are entitled to levy interest at the rate of 16.5% p.a. Therefore, the Applicant Bank filed this OA against the Defendant for recovery of the OA amount with interest & Costs, and this Hon’ble Tribunal may be allowed the OA with Costs.

3. The 6th, 7th, 10th, 15th & 16th Defendants were called absent set ex-parte. During the pendency of the OA/TA, the 2nd, 4th, 5th, 9th, 10th & 14th Defendants were reported dead.

4. The Averments made by the 2nd Defendant adopted by the 1st & 3rd Defendant in Written Statement are stated as follows:

4.1. The Assignment Deed No.2268/2008 dated 16.11.2007 is null and void and not binding the Defendants. The Assignment Order is unconstitutional and has no legal validity. The 2nd Applicant has no legal authority or right to implead as Applicant in the place of the 1st Applicant Bank, who is the Principle Creditor. Initially the 1st, 2nd & 3rd Defendants admitted that the loan availed from Canara Bank and subsequently it was take over by the 1st Applicant Bank.

4.2. The 2nd Defendant being a Mechanical Engineer and had so many companies and business. The 2nd, 9th to 14th Defendants are the legal heirs of the 4th Defendant. The 4th Defendant mortgaged the Item No.1 of Schedule 2 Property. During the pendency of Mortgage, the 4th Defendant executed a Sale Deed in favour of the 2nd Defendant for valid consideration. The 2nd Defendant is the absolute owner of the above said property, the Defendants 9 to 14 has no right, Title and 32 TA 2038/2002 interest whatsoever upon the said property. As such, the Defendants 9 to 14 could not succeed the property of the 4th Defendant.

4.3. The Applicant Bank granted Term Loan of Rs.15,00,000/- after the 2nd Defendant had hypothecated the Schedule – III Machineries to the Bank. The Premises of the 1st & 3rd Defendant Company is situated at S.F.No.441 of Ganapathy Village, having the total extent of nearly 3 Acres. The 2nd Defendant as business man started so many Companies in his own lands and based on the lease of other Companies.

4.4. The 2nd Defendant started his Business in the year of 1960 by manufacturing pump sets and supplying order to Bharat Heavy Electricals Limited. Out of the hard work, the 2nd Defendant subsequently enhanced the business and obtained Orders from Indian Railway. The 2nd Defendant is the only man, who obtained license for manufacturing of bogies for India Railway in Southern India. The 2nd Defendant did not commit any malpractices. The Accounts calculations of the 1st Applicant Bank are unilateral documents, prepared by them without crystallizing the liability. The Deed of Guarantee, Agreements and promissory Notes were obtained by the 1st Applicant Bank in Blank Format. The 2nd Defendant did not execute Letter of undertaking dated 19.04.1988. Without considering the financial conditions of the 1st Defendant Company, the 1st Applicant Bank imposed more conditions to the 1st Defendant. The Applicant Bank also appointed a Director for Cheque Operating Power of the 1st Defendant Company. The said Director started to act detrimental to the interest of the 1st Defendant Company. After adjusting huge amounts due to the Company from various creditors towards the Bank, the said Director left the Company without any information.

33 TA 2038/2002

4.5. The 2nd Defendant never diverted funds of the 1st Defendant Company to some other purpose. The entire lands situated in Kunnathur Village were purchased by the 2nd Defendant in his own money. It is not correct that the machinery and plant in the Schedule – VIII have been acquired by the 2nd Defendant out of the funds provide by the Applicant Bank. The loan amount borrowed from the Applicant Bank was never diverted to any other business. All the transactions were closely monitored by the Company Officials. The rate of interest of 16.5% per annum is very high and illegal.

4.6. The 2nd Defendant availed Financial Facility of Rs.64,00,000/- for Tem Loan, Working Capital Finance and Cash Credit Facility from the 1st Applicant in the year 1982, and M/s. Llaser Flow Controls Pvt., Ltd., availed of Financial Facility of about Rs.56,00,000/- in the form of Cash Credit Facility from the 1st Applicant Bank in the year 1986. The 2nd Defendant was prompt in repayment of the interest and the Principal under the aforesaid two loan accounts to the 1st Applicant Bank upto the year 1989.

4.7. The 2nd Defendant was mainly engaged in the manufacturing of Railway Wagons and other allied products and was only catering to the needs of Indian Railways. The steep raise in the cost of raw – materials, the inordinate delay on the part of the Indian Railways in settling the claim of the 2nd Defendant and the labour problem faced, adversely affected the operations of the 2nd Defendant. As on 27.12.1990, the 2nd Defendant’s liability in the books was Rs.77.80 Lakhs and M/s. Llaser Flow Controls Private Company was Rs.72.77 Lakhs.

4.8. During the year 1990, the 1st Applicant Bank preferred a case before the Board of Industrial and Financial Reconstruction Delhi in Case No.14/1990. During the proceedings, the 2nd Defendant 34 TA 2038/2002 submitted so many schemes and the same were rejected by the 1st Applicant Bank. As per the deliberation of BIFR, the 2nd Defendant has deposited a sum of Rs.10,00,000/- in no lien account to prove the bonafides. However, BIFR ordered winding up of the company due to adamancy of the Applicant Bank and the Applicant Bank kept the amount till this date. Hence, the 2nd Defendant is entitled to be refunded the same with interest.

4.9. The Applicant Bank has filed Civil Suit bearing O.S.No.72/1991 (This TA) before the Ld. Sub Judge, Coimbatore on 03.01.1991 for recovery of the dues from the 2nd & 3rd Defendants and was transferred to this Honourable Tribunal. The 3rd Defendant Company was referred to BIFR under Case No.14/1990 and the AIFR has now recommended the said Company to be wound up vide its Order dated 26.03.2001 passed in AIFR Case No.409/2000.Further, M/s. Tamil Nadu Industrial Investment Corporation Limited has also sold the assets, land, huge buildings and machinery of M/s. Llaser Flow Controls Private Limited i.e., 3rd Defendant Company in exercise of their powers under Section 29 of the State Finance Corporation Act. The Assets of the M/s. Llaser Flow Controls Private Limited i.e., 3rd Defendant Company were hypothecated to the 1st Applicant by way of 2nd Charge, the Applicant Bank did not take any measure to protect their interest, when the TIIC unlawfully sold the Assets of SRAL as LFC Company, despite repeated Appeal from this 2nd Defendant. As such, this TA 2038/2002 against the 2nd Defendant, M/s. Llaser Flow Controls Private Limited and others has become infructuous.

4.10. The 2nd Defendant approached the Applicant Bank to give an opportunity to settle the liability and the liquidation of M/s. Llaser Flow Controls Private Limited by way of One Time Settlement. The specific instructions and directions of the Applicant Bank, the 2nd

35 TA 2038/2002 Defendant agreed to discharge his liability in respect of 3rd Defendant to the 1st Applicant Bank at Rs.50,00,000/- and the 2nd Defendant also remitted a sum of Rs.2.50 Lakhs towards establishing bonafides in this regard as advised by the 1st Applicant Bank. But received the said sum of Rs.2.50 Lakhs, the 1st Applicant Bank deferred the resolutions of the dispute under one protest or another since March 2005.

4.11. The Applicant Bank vide its Letter dated 16.08.2005 informed the 2nd Defendant to improve One Time Settlement offer of Rs.50,00,000/- towards resolution of the dispute. In respect of the above, the 2nd Defendant herein improved One Time Settlement Offer from Rs.50,00,000/- to Rs.54,00,000/- under Letters dated 05.09.2005 and 10.11.2005 of 2nd Defendant. Initially the 1st Applicant Bank accepted to consider favourably, but the Applicant rejected the same by its Letter dated 18.11.2005 and returned the Advance amount of Rs.2.50 Lakhs to the 2nd Defendant along with the accrued interest without any information to the 2nd Defendant.

4.12. The 2nd Defendant has following up with the 1st Applicant Bank to give him a fair opportunity to discharge the liability and that of M/s. Llaser Flow Controls Limited at Rs.54,00,000/-. Without any valid reason, the 1st Applicant Bank rejected the OTS offer of the 2nd Defendant, through the Letter dated 18.11.2005. As per Resolution dated 02.12.2005 passed by the Executive Committee of the Central Board (ECCB) of State Bank of India under Ref.No.35/2005-2006, the 1st Applicant Bank has resolved to assign and transfer the book debt of the 2nd Defendant and that of M/s. Llser Flow Controls Private Limited together with the collateral securities attached thereto to M/s. Asset Reconstruction Company India Limited, the 2nd Applicant for the sale Consideration of Rs.40,00,000/-.

36 TA 2038/2002

4.13. The 2nd Defendant offered to discharge his liability and that of M/s. Llaser Flow Controls Private Limited at Rs.54,00,000/- to the 1st Applicant, the 1st Applicant is not fair and justified in transferring and assigning the liability together with the attached security to M/s. Asset Reconstruction Company India Limited, the 2nd Applicant at Rs.40,00,000/- in camera proceedings without giving the Defendant an opportunity to discharge his liability at the said agreed sum of Rs.54,00,000/-.

4.14. The 1st Applicant Bank being a Government of India undertaking in all fairness should only consider the Offer of the 2nd Defendant, when compared to the sale price offered by the 2nd Applicant FI. The Principal of equity, natural justice and fair play weight in favour of the 2nd Defendant and in the interest of justice and fair play, it has become incumbent rather imperative upon the Defendant to accept the offer of the 2nd Defendant to discharge the said liability at Rs.54,00,000/- in lieu of the offer of Rs.40,00,000/- offered by ARCIL.

4.15. By way of resolving to assign and transfer the liability or the 2nd Defendant and that of M/s. Llaser Flow Controls Private Limited together with the attached security to the 2nd Applicant FI, the 1st Applicant Bank is attempting to cause irreparable loss, great hardship and prejudice to the 2nd Defendant and posing pecuniary loss to Government Exchequer.

4.16. The Dispute between the 2nd Defendant and 1st Applicant Bank is seized upon the files of this Honourable Tribunal in TA 2038/2002, the 1st Applicant Bank has no right whatsoever, to assign and transfer the liability of the 2nd Defendant and that of M/s. Llaser Flow Controls Private Limited to the 2nd Applicant FI. The 1st Applicant Bank did not take any measure whatsoever either to terminate the 37 TA 2038/2002 proceedings from the files of this Honourable Tribunal or to secure the leave of the Tribunal to assign and transfer the liability and the security offered by the 2nd Defendant to ARCIL.

4.17. The One Time Settlement offer of the 2nd Defendant by 1st Applicant is against law, principles of equity, fair play and natural justice. There is no transparency in dealing of the Applicants in respect of Defendants 1 to 3. The M/s. Llaser Flow Controls Private Limited is already in liquidation, M/s. TIIC has already sold the Assets, Plants and Machinery of M/s. Llaser Flow Controls Private Limited is an unlawful and unjust manner. The Applicants failed to protect their security interest in and over the assets of the said M/s. Llaser Flow Controls Private Limited and owing to the fact that the said company is under Liquidation, OA 2038/2002 filed by the Applicants against the 2nd Defendants suffers legal impairment. The sudden squeezing of Credit Limit of the 2nd Defendant by the Applicants and the Applicants’ tacit support to TIIC in liquidating the assets of M/s. Llaser Flow Controls Private Limited adversely affected the financial status of the 2nd Defendant. The 2nd Defendant neither has income nor has assets, but only enjoys a social reputation. Even at the dire financial crisis into which the 2nd Defendant has been entangled, being a law abiding citizen and a person, the 2nd Defendant is ready and willing to discharge the liability to the Applicants Bank/FI at the OTS price of Rs.54,00,000/-.

4.18. In the case of “Mardia Chemicals Ltd., -.Vs.- Union of India (2004-4-SCC-Page 311), the Apex Court has held that in cases where O.A. is already pending on the files of DRT before the effective date i.e., 11.11.2004 and no action has been taken under the Provisions of the SARFAESI Act, prior to 11.11.2004, then in such event if any Bank wants to enforce the Provisions of the SARFAESI Act, specific leave 38 TA 2038/2002 should be obtained from DRT for the said purpose. In fact Section 20 in Chapter 3 of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2004, makes the prior leave from DRT as statutory requirement for any proposed action under the Provisions of the SARFAESI Act. In this case, the 1st Applicant Bank did not take any action against the Defendant under the Provisions of the SARFAESI Act prior to 11.11.2004. The 1st Applicant Bank has failed to take actions prior to the effective dated i.e., 11.11.2004, it is statutorily incumbent upon the Applicants to obtain leave from DRT to sell the assets in question. Since no permission/prior leave in this regard was obtained by the Applicants from the DRT, the proposed sale is prima facie bad and violate of the statutory provisions and if permitted would cause irreparable loss and damage to the 2nd Defendant.

4.19. The Ranga Industries and M/s. Llaser Flow Controls Private Limited are in Liquidation. Both the Companies cannot be revived and AAIFR has also rendered its recommendation for the winding up of the M/s. Llaser Flow Controls Private Limited. Admittedly, the assets of the both the Companies had also been auctioned out by TII illegally. Hence, the contention of the 1st Applicant that the 2nd Applicant is intending to act as an agent in the process of recovery does not arise. The Assets in question are contemplated to be sold to the 2nd Applicant at the reduced price of Rs.40,00,000/- for the benefit of the shareholders of the 2nd Applicant. The contention of the 1st Applicant Bank that they are benefited by the proposed sale of the 2nd Applicant FI at Rs.40,00,000/- is far from reality and the same cannot be accepted both in fact and law.

4.20. The Applicants have not taken the permission from this Hon’ble DRT for the sale of the assets in question. Leave from DRT has 39 TA 2038/2002 become a statutory condition precedent for any action under the Provisions of the SARFAESI Act, as per Section 20 of the Enforcement of Security Interest and Recovery of Debt Laws (Amendment) Act, 2004. The 2nd Defendant has made bonafide efforts to settle the liability at Rs.54,00,000/-. The 2nd Defendant also demonstrated his intention by way of remitting the advance amount as prescribed by the 1st Applicant Bank. The 1st Applicant Bank has rejected the offer of the 2nd Defendant without any valid ground for reasons best know to the 2nd Defendant. The 2nd Applicant FI is not entitled to recover the amount from the 2nd Defendant based on the alleged assignment order. In these circumstances, the 2nd Defendant prays this Hon’ble Tribunal may be dismissed the Original Application.

5. The Averments made by the 8th Defendant in Reply Statement are stated as follows:

5.1. The 8th Defendant is neither aware of nor concerned with the transactions inter-se between the Applicants Bank/FI and Defendants 1 to 3. The 8th Defendant is concerned, they have advanced credit limits to the 3rd Defendant Company M/s. Llaser Flow Controls Private Limited, detailed hereunder. The 8th Defendant sanctioned a Term Loan of Rs.25,00,000/- on 29.10.1981 to the 3rd Defendant Company for the purchase of land, construction of building and for the purchase and erection of machinery for their industry. For securing the loan, the 3rd Defendant Company, represented by its Directors viz., Thiru. A.K. Kandasamy and Thiru. Palanisamy have executed necessary documents in favour of the 8th Defendant, thereby mortgaging / hypothecating the land, building and machinery at Door No.62, Athipalayam Piruvu, Ganapathy, Coimbatore in favour of the 8th Defendant. The 3rd Defendant Company was a systematic and willful defaulter from the date of inception of the loan and did make a single

40 TA 2038/2002 payment towards Principal Amount and thus committed breach of the terms and conditions of the loan sanction.

5.2. Further, the 8th Defendant therefore decided to initiate recovery action against the 3rd Defendant Company under the Provisions of the State Financial Corporations Act for recovery of the huge amount outstanding. The 3rd Defendant Company filed an Application before the Board for Industrial and Financial Reconstruction (BIFR), Delhi in Case No.14/90 during March 1990. Inspite of several concessions agreed before BIFR, the 3rd Defendant did not show any positive response to settle the dues. Therefore, BIFR ordered winding up of the 3rd Defendant Company on 09.09.1993. The 3rd Defendant Company filed an Appeal before the AAIFR against the Order of BIFR and the AAIFR also dismissed the Appeal on 28.03.2001.

5.3. Thereafter, the Directors of the 3rd Defendant Company negotiated with the 8th Defendant for One Time Settlement of the dues, which was also considered favourably by the 8th Defendant. Accordingly, during the year 1995, the 8th Defendant agreed to waive penal and compound interest and 60% of simple interest towards one time settlement of the loan. However, the 3rd Defendant Company failed to make the payments and therefore the one time settlement proposal did not materialize on account of the default committed by the 3rd Defendant.

5.4. Amount due to the 8th Defendant from the 3rd Defendant Company was mounting and the 3rd Defendant Company failed to settle the account despite several demands and reminders, the 8th Defendant issued a notice (registered 7 days) on 16.10.2000 giving one more opportunity to the 3rd Defendant to settle the loan in full to avoid legal action. The said letter was duly received by the 3rd 41 TA 2038/2002 Defendant Company on 21.10.2000. The 3rd Defendant Company failed to make use of the opportunity and did not respond in any manner or make any payment.

5.5. Thereafter, the 8th Defendant took possession of the mortgaged assets on 31.10.2000 by exercising its rights under the Mortgage Deed executed by the 3rd Defendant Company and under the provisions of the State Financial Corporations Act. At the time of taking possession, the Officials of the 3rd Defendant Company prevented the Officials of the 8th Defendant Corporation from taking possession of the unit and police held was sought. The 2nd Defendant as Director of the 3rd Defendant Company sent a Letter to the 8th Defendant dated 30.10.2000 stating that the 3rd Defendant is a sick unit and requested that since the proceedings are pending before the AAIFR legal action may not be taken. The 3rd Defendant Company was also pleading with the 8th Defendant for release of possession of the unit and the 8th Defendant by letter dated 07.05.2001 expressed their inability to release possession of the Unit. The non-repayment of the dues, the 8th Defendant proceeded with auction of assets. Before conducting the auction, the 8th Defendant had sent an Advance Intimation to the 3rd Defendant Company and its Directors by Registered Letter dated 06.11.2022 duly informing the date of auction and other relevant details about the auction sale. Out of the assets taken possession, the machineries and super structure were sold on 22.11.2002 in public auction after giving wide publicity and advertisement.

5.6. The 8th Defendant Corporation received a highest bid amount of Rs.26.25 lakhs in the public auction from M/s. Devi Traders, Coimbatore for machinery and super structure of the building and the offer was subsequently enhanced to Rs.32.50 Lakhs inclusive of 42 TA 2038/2002 payment of Sales Tax/Resale Tax. The building was valued by a Chartered Engineer at Rs.8.83 Lakhs and machinery was valued at Rs.22.29 Lakhs earlier. A Letter dated 22.01.2003 regarding confirmation of bid amount was communicated to the highest bidder after getting approval from the 2nd Defendant.

5.7. The auction purchaser paid the Statutory due of Rs.5.20 Lakhs by way of Banker’s Cheque on 04.02.2003 to PF Commissioner as per the Terms and conditions of Auction and the Auctioned Assets were delivered to the highest bidder M/s. Devi Traders on 05.02.2003. The 2nd Defendant as the Managing Director of the 3rd Defendant Company is a litigious person and has initiated a number of litigations against the 8th Defendant Corporation. After took possession of the land, building and machineries of the 3rd Defendant Company by 8th Defendant Corporation, 2nd Defendant filed a Writ Petition in W.P.No.19826/2000 before the Hon’ble High Court for a direction to restrain the 8th Defendant Corporation from selling the assets pursuant to the Letter of the 8th Defendant Corporation and had also filed a Miscellaneous Petition for Interim Orders. The Hon’ble High Court dismissed the same.

5.8. The 2nd Defendant as Managing Director of the 3rd Defendant Company filed a suit in OS No.1219/2002 before the District Munsif Court, Coimbatore for declaration that the Auction Procedure and the proposed auction fixed on 22.11.2002 are null and void and for an injunction against conducting the auction sale on the said date. The Court had not passed any interim orders, since the Corporation conducted the auction on the stipulated date and hence suit was also dismissed for default.

5.9. The 1st Defendant Company M/s. Ranga Alloys Ltd., (In Liquidation), represented by the 2nd Defendant filed O.S.No.205/2003

43 TA 2038/2002 before the District Munsif Court, Coimbatore against the 8th Defendant and the 3rd Defendant for an Order of Injunction restraining the removal of the machinery and for a declaration that the part removal of the plant and machineries belonging to M/s. Sri Ranga Alloys Limited, housed in the premises of the 3rd Defendant Company on 07.02.2003 by the Auction Purchaser M/s. Sabari Traders is illegal and improper. In the said Suit, the Court had initially ordered status quo and later on enquiry and contest, the injunction petition was dismissed by the Honourable Court on merits.

5.10. The 3rd Defendant also filed 2 Writ Petitions in No.11041 and 11042/2023 before the Hon’ble High Court of Madras, which were argued in length, when the judgment was about to be pronounced, the 3rd Defendant withdraw the Writ Petitions and the same were dismissed as withdrawn. The 3rd Defendant has also filed another Writ Petition in W.P.No.6417/2003 before the Hon’ble High Court, Madras and W.M.P.No.8257/2003, the Company prayed for an injunction against the 8th Defendant Corporation and the Auction Purchaser from removing the machineries. The Hon’ble High Court of Madras by Order dated 26.08.2003 dismissed the above petition.

5.11. After the sale of machinery and superstructure in the auction sale dated 22.11.2002, the 8th Defendant Corporation proceeded to sell the land under the Provisions of the State Financial Corporations Act for realization of the balance amount – outstanding. After due publication and advertisement, the Auction was conducted on 29.12.2004 and in the said Auction Sale, there was a highest bid of Rs.50.00 Lakhs for the same. Against the above Auction Sale, the 3rd Defendant moved the Writ Petition was disposed on 07.09.2010 with the direction to the 8th Defendant Corporation to initiate fresh proceedings according to law.

44 TA 2038/2002

5.12. The 8th Defendant Corporation after giving wide and due publicity and advertisement in the Dina Thanthi and the Economic Times Newspapers conducted the Auction Sale on 10.12.2010. In the said Auction Sale, 34 persons participated in the Auction Sale and the 8th Defendant Corporations has received the highest bid of Rs.601.00 Lakhs. Subsequently, the Managing Director of the 3rd Defendant Company, 2nd Defendant filed W.P.No.28460/2010 before the Honourable High Court of Madras, and the Honourable High Court of Madras grated interim stay of confirmation of auction sale conducted on 10.12.2010 till 06.01.2011. The Confirmation of the Auction Sale Proceeding is pending and the 8th Defendant Corporation is taking steps to defend the said Writ Petition. The 3rd Defendant Company filed a suit in OS No.88/2011 before the Hon’ble Sub Court, Coimbatore for redemption of mortgage and for permanent injunction which is pending disposal.

5.13. A sum of Rs.1454.39 Lakhs remains due and payable by the 3rd Defendant Company to the 8th Defendant Corporation as on 12.12.2011 with subsequent interest thereon is also from 13.02.2011.

5.14. Therefore, there is no relief is claimed against them in the OA and their prior charge over the hypothecated machineries of the 3rd Defendant Company is admitted by the Applicant Bank/FI themselves. The hypotheca has already been sold and the sale proceeds have been appropriated by the 8th Defendant Corporation and there is no surplus left. Therefore, the 8th Defendant Corporation may be recorded the above facts and appropriate orders be passed safeguarding the right of the 8th Defendant Corporation.

6. The Averments made by the 9th, 11th to 14th Defendants in Reply Statement are stated as follows :

45 TA 2038/2002

6.1. The 1st Applicant Bank assigning any asset and liabilities of the Defendants to the 2nd Applicant FI, 1st Applicant Bank has not sent any prior notice to the 9th, 11th to 14th Defendants. The said Assignment is not valid and enforceable. The subject matter Assignment Deed will not bind the rights of the 9th, 11th to 14th Defendants to safeguard their legal rights over the Schedule mentioned properties in the OA.

6.2. The 9th, 11th to 14th Defendants did not mortgage any property with the Applicants with an intention to create equitable mortgage with deposit of their title deeds to avail any loan from the Applicants Bank - FI. The 9th, 11th to 14th Defendants have also not executed any document, entered agreement, personal guarantee agreement with the Applicants Bank – FI in the subject matter loan and mortgage. The 9th, 11th to 14th Defendants are not personally liable to pay any amount with future interest to the Applicant Bank – FI. The 9th, 11th to 14th Defendants are not beneficiary of the loan availed by the 1st to 3rd Defendants and other Defendants other than this Defendants. The Applicant Bank – FI have not sent any Demand Notice demanding their claim amount to the above Defendants so far. The 2nd Defendant with malafide intention has cheated, fabricated and misappropriated the Title Deeds and Documents which belonging to the 9th, 11th to 14th Defendants deceased Father without his knowledge. In the above circumstances, the OA is not maintainable and liable to be dismissed. Therefore, this Hon’ble Tribunal may be pleased to dismiss the OA with costs of the 9th, 11th to 14th Defendants.

7. The 1st Applicant Bank, in order to prove its claim, has filed Proof Affidavit executed by Mr.W.Jeevakumar Vedamani, Manager of the Applicant Bank and marked the documents as Exts.A-1 to A-110

46 TA 2038/2002 in support of its claim in the OA. The 1st Applicant Bank has reiterated the statement made in the Original Application.

8. The 2nd Defendant as Managing Partner of the 1st Defendant Company and as Managing Director of the 3rd Defendant Company to prove the claim has filed Counter Proof Affidavit & Additional Counter Proof Affidavit and reiterated the Statements made in the Reply Statement.

9. The 11th Defendant to prove his claim has filed Counter Proof Affidavit and adopted by 9th, 12th to 14th Defendants. The 9th, 11th to 14th Defendants are reiterated the statements made in their Reply Statement.

10. The Written arguments of Assignor Bank dated 05.09.2007 and the Assignee Bank dated 09.10.2023 shall forms part of the record.

11. Therefore, in view of the observations made supra, the OA stands allowed and the Applicant Bank is entitled to recover,

a. from the Defendant Nos.1 to 7 personally, jointly and severally to pay to the Assignee FI (2nd Applicant) for a sum of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, and whereas, the Defendants 2,4,5 having died, the LRs being the defendants 9 to 16 shall be liable for the dues to the extent of mortgage property inherited by them, from the date of Application, till the date of its realization.

b. On failure to pay, the Assignee FI (2nd Applicant) is directed to bring the Schedule III, IV, V & VII (Machineries) which are mentioned in the Description of Properties and Schedule I, Items 1 & 2 of 47 TA 2038/2002 Schedule II, Schedule IV, Schedule VI, & Schedule VIII (mortgaged properties) which are mentioned in Description of Properties for Sale and the sale proceeds appropriated for recovery of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, from the date of Application, till the date of its realization, with Costs of this OA.

12. In the result, a. it is hereby directed that the Defendant Nos.1 to 7 personally, jointly and severally to pay to the Assignee FI (2nd Applicant) for a sum of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, and whereas, the Defendants 2,4,5 having died, the LRs being the defendants 9 to 16 shall be liable for the dues to the extent of mortgage property inherited by them, from the date of Application, till the date of its realization.

b. On failure to pay, the Assignee FI (2nd Applicant) is hereby directed to bring the Schedule III, IV, V & VII (Machineries) which are mentioned in the Description of Properties and Schedule I, Items 1 & 2 of Schedule II, Schedule IV, Schedule VI, & Schedule VIII (mortgaged properties) which are mentioned in Description of Properties for Sale and the sale proceeds appropriated for recovery of Rs.5,15,17,890.40 (being the aggregate of the sum of Rs.3,43,60,573.05 due in respect of the 1st Defendant and Rs.1,71,57,317.35 in the name of the 3rd Defendant) with interest at the rate of 16.5% per annum, from the date of Application, till the date of its realization, with Costs of this OA.

48 TA 2038/2002

13. All the pending IAs. if any, stand closed and disposed of by this Tribunal.

14. The Registry is directed to prepare DRC in terms of this Final Order. The Applicant Bank shall file memo of costs within 15 days from the date of this Order.

15. The Registry is directed to communicate the copy of this Order to both parties as provided in Rule 16 of the Debts Recovery Tribunal (Procedure) Rules, 1993 as amended in 2016. Dictated to Steno, directly typed on the Computer corrected and pronounced by me in the open Tribunal, this the 20th day of February, 2024.

Sd/-

[M.P. BALASUBRAMANIAN]

49 TA 2038/2002

SCHEDULE OF PROPERTIES

Schedule I

In Gandhipuram registration sub registration District, Coimbatore Registration, District, Sanganoor Village in S. F. No. 204, Plot No. 317/1 measuring 6085 sq.ft and the building thereon bearing Door No.68.A.

Schedule II

Item I

i) In Coimbatore Regn District, Annur Sub Dist, Avanashi taluk, Masakkavundan Chettipalayam, village S.F.No. 413/1 out of 12.61 acres the land of an extent of 2.96 acres within the following boundaries South of S.F.No.412 West of the share of Velappa Gounder and Chinnammal and North south cart track.

North of S. No. 416/3 and East of the share of Ramaswami Gounder.

The above land is in S.F. No.413/B-1, and 413/1 b/2 as per present sub division together with right over car track on the east.

(ii) In the above village S.F.No.412/0.28 acres within the following boundaries South of east-west cart track East of Ramaswami Gounder’s land West of north-south cart track and north of S.F.No.413.

Item II

Annur registration Sub District Masagounder chettipalayam Village in SF.No. 433/1 an extent of 53 cents within the following boundaries.

South of Venkita Chettiar’s land West of Marudan Chettiar’s land South of Rangaswami Chettiar’s land and of the boundary of Kunnathur village 50 TA 2038/2002 The above land is now S.F.No.433/10 according to the present sub-division In the above village in S.F.No. 434/1 land of an extent of 1.48-1/2 acres within the following boundaries west of Chinniya Gounder’s land South of Krishna Chettiar’s share West of Ramana Gounder’s land and South of the land of Adiappa gounder and others.

c. In the above village in S.No. 416/3 land of an extent of 1.82 acres.

SCHEDULE III SRI RANGA INDUSTRIES (List of Machinery pledged to TIIC)

S. No

Details Cost (Rs.) Dep upto 30.06.87 (Rs.) W.D.V. as on 30.06.87 (Rs.)

Planning machines 22 stroke 633874 167343 466531

Horizontal Bearing machines 100HP 380325 100406 279919

Vertical Boring machines 3.2 mm 1128802 238403 890399

Horizontal Boring machine 100 mm 356464 75285 281179

Meter for the above 36646

28118

Schedule IV

In Gandhipuram Registration Sub District, Coimbatore Registration District, Ganapathy Village in S.F.No. 441/1 an extent of 45 cents within specified boundaries and now comprised in S.F. No.441/1B.

Schedule V

(a) 160 KVA Generator with accessories.

(b) Llasar Flow Controls (P) Ltd

51 TA 2038/2002

LIST OF MACHINERY PLEDGED TO TIIC

Sl. No

Details Cost (Rs.) Dep upto 30.06.87 (Rs.) W.D.V. as on 30.06.87 (Rs.)

Electric arc Furnace 38,03,245 10,04,067 27,99,188

HT Panel Board & Circuit Breaker 3,16,937 83,671 2,33,266

Current Transformers 40 KVA 25,355 6,694 18,661

Transformers 6 KVA for battery charge 7,606 2,008 5,598

EOT Crane

T capacity including Gantry Grinder 6,97,262 1,84,077 5,13,185

Air Compressor Model S 300 57,049 15,061 41,988

Distribution transformer

KVA 1,14,097 30,122 83,975

Grinding Machine 58,032 10,040 97,992

Sand Mix Huller 270 kgs 25,355 6,694 18,661

Laddle pre-heater 31,694 8,367 23,327

Metal Holding ladle ton capacity 1,52,130 40,162 1,11,968

V (C) LLASAR FLOW CONTROLS P LTD

S. No Description Cost Deprn upto 30.06.87 WDV as on 30.6.87

Pneumatic hammer 6,339 1,673 4,666

Two role structure incoming rod 76,045 20,001 85,984

Charging bucket 20,284 5,355 14,929

Roof ring for furnace 22,820 6,024 16,796

Optical Pyrometer 6,339 1,673 4,666

52 TA 2038/2002

Sand testing apparatus /eqpt 12,678 3,347 9,331

Chemical Balance 5,071 1,339 3,732

Physical Balance 2,535

1,866

Carbon Sulphur deduction apparatus 11,410 3,012 8,398

Muffle furnace 2,535

1,866

Hardness tester Rockwell 11,410 3,012 8,398

Moulding boxes 5,96,144 1,57,381 4,38,763

Sandmix muller 250kgs 57,049 15,061 41,988

Spctro meter 12,678 3,347 9,331

Crane motor 15HP 12,678 3,347 9,331

Motors 10 HP 5,071 1,339 3,732

Motors 1.5 HP 5,071 1,339 3,732

Motors 5.0 HP 15,213 4,016 11,197

Motors 3.0 HP 10,142 2,677 7,465

Motors 2.0 HP 1,902

1,400

Motors 1.5 HP 1,902

1,400

Pumps various sizes 10,142 2,677 7,465

Deep well Pump set with water line 44,371 11,714 32,657

Alloy elements bins 5,071 1,339 3,722

Slag bins 50,710 13,387 37,323

Slag bins 20,284 5,335 14,929

Metal handling equipments assorted 6,339 1,673 4,666

Scarp collection trolleys 6,339 1,673 4,666

Cooling tank attachment switches 10,142 2,677 7,465

Battery charge (small) 2,535

1,866

M.V Panel 48,174 12,178 35,456

Lab Hot plate distilled water plant 5,071 1,339 3,732

53 TA 2038/2002

Laboratory works at chemical lab 10,142 2,677 7,465

Water distribution tank 2,535

1,866

Oxygen cylinder 1,268

Sand Bings 40,568 10,710 29,858

Compressor cooling tank 7,606 2,008 5,598

Gas cutting sets 8,874 2,342 6,532

Services tank 1,902

1,400

Moulding machine 2,28,194 60,243 1,67,951

Diesel Generator engine set

3,93,002 1,03,752 2,89,250

Furnace oil tank with pumping unit 25,704 6,785 18,918

Core sand mixed 150kgs 31,693 8,367 23,326

Hoist 2 tones 19,016 5,020 13,996

Chain pulley block 5 T 3,803 1,004 2,700

Quenching pumping set with motor 5,071 1,339 2,732

EOT Crane GT cap 2,91,582 76,978 2,14,604

Weighing M/c 3T 27,819 6,024 16,795

EOT Crane 5 T Cap

3,11,221 82,162 2,20,059

Universal Testing m/c 1,90,162 50,202 1,39,960

Heat Treatment Furnace 2,06,009 56,386 1,51,623

500 T Press 6,33,874 1,67,342 4,66,532

Furnace Trolley Maint. 6,753 1,004 5,749

Battery changer Big 14,259 3,011 11,248

Gauging unit 50,411 12,547 46,864

Sub Switch Board 77,234 16,312 60,922

Scrap Collection Trolleys 1,782

1,406

Microscope with camera 23,764 5,019 18,745

Testing Table 1,188

Temperature Indicator

54 TA 2038/2002

Hardnebility tester toming

EOT Crane 5 T Cap 7,12,927 1,50,570 5,62,357

Air compressor with motor 6,17,871 1,30,496 4,87,377

Sand mix muller 600 kgs 1,90,114 40,152 1,49,962

Knock out trooey 17,823 3,764 14,059

Moulten metal 21,388 4,517 16,871

Fettling trolley 17,823 3,764 14,059

Oil Burner 1,188

Air pipe line with hose complete 1,06,939 22,585 84,354

Rammer SR 14,259 3,012 11,247

Rammer S.R 11,882 2,509 9,373

Chippers Spinders 46,340 9,787 36,553

Angle Grinders 71,293 15,057 56,236

Electric Grinders 47,259 10,038 37,491

Gas regulations 4,159

3,281

Swing Frame Grinders 71,293 15,057 56,236

Welding Transformer 49,905 10,540 39,365

Gas cutting set 1,782

1,406

Magnetic crack detector 8,317 1,757 6,560

Pattern making tools 5,941 1,255 4,686

2000 Kg weighing scale 50,148 10,591 39,557

Surface table 1m * 1m 9,506

Surface table large 61,788 13,050 48,738

Height Gauge 1m 11,882 2,509 9,373

Tripoid Stand

Other tools 4,753 1,004 3,749

Jack screws 15 ton 3,188 2,257

Pulling & lifting tackles 4,756 1,004 3,749

O. Meters 11,882 2,509 9,373

Motor 25 HP 11,882 2,509 9,373

55 TA 2038/2002

125 HP Slip ring motor & St 67,884 10,626 56,458

Distribution transformer 600 KVA -11000/413 V 11,807 17,710 94,097

Magnetic Crack Detector 23,479 3,719 19,760

Capacitors 5 KVAR 8,945 1,471 7,528

Welding transformer oil cooled 450A 5,439 1,722 3,713

600 kg Muller 1,33,920 -- --

1.5 T Jib Crane 59,850 -- --

Vacuum cleaner 8,500 -- --

Electric Motor with grinding attachment 27,743.85 -- --

Become & HP Transformer 7,239 -- --

Molding Boxes 1,51,706.50 -- --

Schedule VI

In Coimbatore registration district, Thondamuthur Registration Sub -Registration District Madhvarayapuram village, in S.F. No.652 an extent of 8 acres in the north - west.

Schedule VII Sri Ranga Industries.

List of Machinery Pledged to State Bank of India Sl. No Description Cost Deprn upto 30.06.87 WDV as on 30.6.87

Ammonia printing machine 6,999 1,109 5,890

2 wheel tipping trailer 37,455 5,933 31,522

Radial drilling machine BVR 5 1,49,456 47,348 1,02,108

EOT Crane 5 T capacity including gantry grinders 5,07,099 1,33,974 3,73,225

Hacksaw machine 25,355 6,694 18,661

Pillar Drilling machine 5,123 1,893 2,220

-do- 1-1/2” 17,564 6,492 11,072

56 TA 2038/2002

Radial drilling machine 1-1/2” 36,593 13,875 23,068

Welding Transformer 600A 17,564 6,492 11,072

Double end tool grinder 7,319 2,705 4,615

Slotting machine 12” stroke 29,274 10,820 18,454

Centre lathe 46,838 17,311 29,527

Centre lathe heavy duty 58,548 21,639 36,909

Centre lathe 29,274 10,820 18,454

Centre lathe heavy duty 58,548 21,639 36,909

Welding generator 17,564 6,492 11,072

Universal Milling machine 8-A

2,48,829 91,967 1,56,862

Hand drilling machine 4,075 1,291 2,785

Double end grinding machine 2,717

1,856

Shapping machine 24” 12,676 3,347 9,331

Electric motors 21,956 8,115 13,841

Electric Hoist 5 ton EOT crane including gantry grinder 54,348 17,217 37,131

-do- 47,529 10,038 37,491

Face million cutter 5,071 1,339 3,732

Double end tool grinder 3,565 7,753 2,812

Double end tool grinder 3,565 7,753 2,812

Four jaws jocks 5,855 2,164 3,691

Rivettin number 9,606

Rivettin number 5,941 1,255 4,686

Angle Grinder

Pneumatic grinder 9,506

Hand rammer, pneumatic 10,694 2,259 8,435

Revittin fixture for bogie 45,152 9,536 35,616

Pistal calller 1,188

Internal micrometer 5,911 1,255 4,686

Bore dial gauge 3,565

2,812

57 TA 2038/2002

Gas cutting tools regulators 4,753 1,004 3,749

Gear Box Assy for radial drilling machine 16,771 2,657 14,114

Side frame gauge 10,694 2,259 8,435

Bolster & side frame gauge 1,06,939 22,586 84,353

Knuckle gauge set 29,705 6,274 23,431

Coupler Body Gauge 83,175 17,567 65,608

CBC body Gauge 71,293 15,057 56,608

Gauges for CMC couplet 59,411 12,548 46,863

CBC coupler fixture 35,646 7,528 28,118

Dies for coupler Assy 2,49,525 52,700 1,96,825

5 T EOT crane 2,13,878 45,171 1,68,707

Electrical, cable, internal wiring etc 81,522 25,826 55,696

Various oneuamatic appliance like grinder, hammer, chipper etc 1,01,420 26,775 74,645

Centre lathe heavy duty 1,694 8,367 23,327

Vernier caliper big 9,506

U1 Trasonic flaw detector 51,109 16,191 34,918

Chain pulley block 6324.24 -- --

Grinders 57,700.85 -- --

Straight Grainder & chipping hammer 11,854.82 -- --

Gauges for coupler 32,708 -- --

Gauges for coupler 32,996.60 -- --

SCHEDULE VIII

Coimbatore registration district, Annur Sub Registration District, Kunnathur Village, Survey No.94/1, 94/3 and 95/1A as following :- Survey No. 94/1 5.78 acres. 94/3 0.15 acres.

58 TA 2038/2002 95/1A 2.00 acres, belonging to 2nd Defendant 96/1A 1.70 acres, belonging to 7th Defendant

Sd/-

[M.P. BALASUBRAMANIAN]

PRESIDING OFFICER

PROOF AFFIDAVIT OF THE APPLICANT/ASSIGNOR BANK

1. Mr.W.Jeevakumar Vedamani, Deputy Manager

2. COUNTER PROOF AFFIDAVIT AND ADDITIONAL PROOF AFFIDAVIT FILED BY 2ND DEFENDANT.

3. COUNTER PROOF AFFIDAVIT FILED BY THE DEFENDANTS (D9, D12 TO D14).

LIST OF DOCUMENTS MARKED BY THE 2ND APPLICANT FI

Sl. No. Date Description of Document Exhibits

17.02.1988 Letter by the 1st Defendant to the Applicant Bank. A.1

17.02.1988 Demand Pro-note for Rs.80,00,000/- by the 1st Defendant in favour of the Defendants 3,4,5

A.2

17.02.1988 D.P Note delivery letter executed by Defendants 1 to 5 and 7 in favour of Applicant bank. A.3

17.02.1988 Agreement for cash credit hypothecation of goods executed by Defendants 1 to 5 and 7 in favour of Applicant Bank. A.4

17.02.1988 Agreement for cash credit hypothecation of Debts and Assets by Defendants 1 to 5 and 7 in favour of Applicant Bank. A.5

17.02.1988 Agreement for guarantee for Rs.80 lakhs executed by Defendants 1 to 5 and 7 in favour of Applicant Bank. A.6

17.02.1988 Demand pro-note for Rs.45 lakhs executed by 1st Defendant in favour of Defendants 3, 4, 5

A.7

17.02.1988 D.P. note delivery letter by Defendants 1 to 5 and 7 to Applicant Bank. A.8

59 TA 2038/2002

17.02.1988 Hypothecation Agreement by the 1st Defendant in favour of the Applicant Bank. A.9

17.02.1988 Agreement of Guarantee executed by Defendants 1 to 5 & 7 in favour of Applicant Bank. A.10

17.02.1988 Demand pro-note for Rs.45 lakhs executed by 1st Defendant in favour of Defendants 3, 4, 5

A.11

17.02.1988 D.P. note delivery letter by defendants 1 to 5 and 7 to Applicant bank. A.12

17.02.1988

A.13

17.02.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.14

17.02.1988 Demand pronote for Rs.75 lakhs executed by 1st defendant in favour of defendants 3,4,5 and 7 and endorsed by them in favour of Applicant bank. A.15

17.02.1988 D.P.note delivery letter by defendants 1 to 5 and 7 to Applicant bank. A.16

17.02.1988

A.17

17.02.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.18

17.02.1988 Demand pronote for Rs.15 lakhs executed by 1st defendant in favour of defendants 3,4,5 and 7 and endorsed by them in favour of Applicant bank. A,19

17.02.1988

A.20

17.02.1988

A.21

17.02.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.22

30.04.1988 Demand pro-note for Rs.1,05,00,000/- executed by 1st defendant in favour of A.23

60 TA 2038/2002 defendants 3,4,5 and 7 and endorsed by them in favour of Applicant bank.

30.04.1988

A.24

30.04.1988 Agreement for cash credit hypothecation of goods by defendants 1 to 5 and 7 in favour of applicant bank. A.25

30.04.1988 Agreement of for cash credit hypothecation of goods by defendants 1 to 5 and 7 in favour of applicant bank. A.26

30.04.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.27

30.04.1988 Demand pro-note for Rs.50,00,000/- executed by 1st defendant in favour of defendants 3,4,5

A.28

30.04.1988

A.29

30.04.1988

A.30

30.04.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.31

30.04.1988 Demand pro-note for Rs.5,22,000/- executed by 1st defendant in favour of defendants 3,4,5

A.32

30.04.1988

A.33

30.04.1988

A.34

30.04.1988 Agreement of guarantee executed by defendants 1 to 5 & 7 in favour of Applicant bank. A.35

17.02.1988 Letter by 3rd defendant to the Applicant bank. A.36

17.02.1988 Demand pro-note for Rs.74,00,000/- executed by 3rd defendant in favour of defendants 1,2,4,

A.37

61 TA 2038/2002

17.02.1988 D.P. Note delivery letter by defendants 1 to 7 in favour of the Applicant bank. A.38

17.02.1988 Hypothecation agreement executed by the 3rd defendant in favour of the Applicant bank. A.39

17.02.1988 Agreement of guarantee executed by defendants 1 to 7 in favour of Applicant bank. A.40

17.02.1988 Demand pro-note for Rs.68,00,000/- executed by 3rd defendant in favour of defendants 1, 2, 4

A.41

17.02.1988 D.P. Note delivery letter by defendants 1 to 7 in favour of the Applicant bank. A.42

17.02.1988 Hypothecation agreement executed by the 3rd defendant in favour of the Applicant bank. A.43

17.02.1988 Agreement of guarantee executed by defendants 1 to 7 in favour of Applicant bank. A.44

30.04.1988 Demand pro-note for Rs.8,23,000/- executed by 3rd defendant in favour of defendants 1,2,4,

A.45

30.04.1988 D.P. Note delivery letter by defendants 1 to 7 in favour of the Applicant bank. A.46

30.04.1988 Hypothecation agreement executed by the 3rd defendant in favour of the Applicant bank. A.47

30.04.1988 Agreement of guarantee executed by defendants 1 to 7 in favour of Applicant bank. A.48

30.04.1988 Letter of undertaking by 3rd Defendant in favour of the Applicant Bank. A.49

Memorandum of deposit of title Deeds. A.50

Memorandum of deposit of title Deeds. A.51

Memorandum of deposit of title Deeds. A.52

17.11.1987 Memorandum of deposit of title Deeds. A.53

Memorandum of deposit of title Deeds. A.54

Memorandum of deposit of title Deeds. A.55

26.03.1979 Original Sale deed executed in favour of the 2nd Defendant A.K.Kandasamy by Smt.Meenakshi Ammal. A.56

62 TA 2038/2002

-- Encumbrance certificate from 01.01.72 to 08.03.1988. A.57

Memorandum of deposit of title Deeds executed by 4th defendant in favour of Applicant bank. A.58

Memorandum of deposit of title Deeds executed by 4th defendant in favour of Applicant bank. A.59

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.60

17.11.1986 Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.61

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.62

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.63

13.02.1969 Original Sale deed executed in favour of the 4th Defendant Arunachalam Chettiar by Kaliappa gounder and others. A.64

27.08.1987 Original Sale deed executed by 4th Defendant Arunachalam Chettiar in favour of the 2nd Defendant. A.65

21.08.1987 Original Sale deed executed by 4th Defendant in favour of the 2nd Defendant. A.66

-- Encumbrance certificate from 01.01.64 to 02.03.1988. A.67

30.04.1980 Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.68

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.69

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.70

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.71

17.11.1987 Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.72

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.73

Memorandum of deposit of title Deeds by 4th defendant in favour of Applicant bank. A.74

63 TA 2038/2002

10.09.1987 Original Sale deed executed by 4th Defendant in favour of the 2nd Defendant Kandasamy. A.75

05.04.1976 Original Sale deed executed by Rangasamy Gounder and others in favour of the 4th Defendant. A.76

13.06.1968 Original Sale deed executed in favour of Kuppusamy Chettiar by Thangasamy Gounder and others. A.77

-- Encumbrance certificate from 01.01.68 to 29.02.1988. A.78

Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.79

Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.80

Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.81

20.11.1986 Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.82

Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.83

Memorandum of deposit of title Deeds executed by 2nd and 7th defendants in favour of Applicant. A.84

20.11.1980 Memorandum of deposit of title Deeds by 2nd and 7th defendants in favour of Applicant. A.85

-- Encumbrance certificate from 01.01.1969 to 08.03.1988. A.86

Memorandum of deposit of title Deeds executed by 7th defendant in favour of Applicant. A.87

Memorandum of deposit of title Deeds executed by 7th defendant in favour of Applicant. A.88

17.12.1987 Memorandum of deposit of title Deeds executed by 7th defendant in favour of Applicant. A.89

20.11.1987 Memorandum of deposit of title Deeds executed A.90

64 TA 2038/2002 by 7th defendant in favour of Applicant.

Memorandum of deposit of title Deeds executed by 7th defendant in favour of Applicant. A.91

Memorandum of deposit of title Deeds executed by 7th defendant in favour of Applicant. A.92

25.10.1983 Original sale deed executed in favour of 7th defendant A.Shanthi by Attimuthu gounder. A.93

-- Encumbrance certificate from 01.01.59 to 15.02.1984. A.94

16.05.1990 Xerox Copy of Final Notice issued by the applicant bank to the defendants 1 to 7 [Office copy]. A.95

26.05.1990 Reply by the 1st defendant to the applicant bank. A.96

26.05.1990 Reply by the 2nd defendant to the applicant bank. A.97

26.05.1990 Reply by the 3rd defendant to the applicant bank. A.98

26.05.1990 Reply by the 4th defendant to the applicant bank. A.99

26.05.1990 Reply by the 5th defendant to the applicant bank. A.100

26.05.1990 Reply by the 6th defendant to the applicant bank. A.101

26.05.1990 Reply by the 7th defendant to the applicant bank. A.102

to

-- True copy of statement of accounts in respect of 1st defendant. A.103 to A.107

to

-- True copy of Statement of Accounts in respect of 3rd defendant. A.108 to A.110

Sd/-

[M.P. BALASUBRAMANIAN]