Asset Reconstruction Company (India) Limited vs M/s. SAPPHIRE JEWEL CRAFTS LTD on 4 August 2022

O R D E R

1. This Application has been filed under Section 19(1) of the RDDBFI Act 1993 by the Applicant to recover from the defendants a sum of Rs.68,45,429/- (Rupees Sixty Eight Lakhs Forty Five Thousand Four Hundred and Twenty Nine only) along with interest @ 18.87% per annum, with quarterly rests from the date of application, till the date of its realization, and also by sale of the hypothecated properties which are more fully described in Schedule 'A' belonging to D1, and the mortgaged property which is more fully described as Item 1 and 2 of the Schedule 'B', with costs.

2. The brief facts of the case are as follows:- 2.1 The Credit facilities were originally sanctioned by Bank of Maharastra, Tiruppur Branch(hereinafter referred to as “the Bank”) which was subsequently assigned to the Asset Reconstruction Company India Ltd (hereinafter referred to as “ARCIL”) and the original applicant ie.Bank of Maharastra was substituted with the Assignee M/s Asset Reconstruction Company India Ltd vide order dated 10.12.2007. 2.2 Then D1 was originally a private limited Company and Defendant No.s 2 and 3 were its’ Directors. In the year 1993, they have approached the Bank for availing Cash Credit limit of Rs.25,00,000/- (Rupees Twenty Five Lakhs only) and Bank Guarantee limit of Rs.5,00,000/- (Rupees Five lakhs only ) for the business purposes of D1 Company. Accordingly, the loan was sanctioned by the Bank. The primary security was the Hypothecation of stocks and book debts and consumables and also hypothecation of Plant, Machinery and Furniture. The D2 and D3 & D4 to D6 had executed Guarantee Agreements in favour of the Applicant Bank on 16.09.1993 and stood as guarantors for the loan availed by D1. Therefore, all the 6 defendants are jointly and severally, liable to repay the loan. On 16.09.1993, D1 executed Letter of Guarantee /Indemnity , Agreement of Hypothecation of stocks and Book debts and consumables, Agreement for FOBN/FOBP/BP/BD Agreement, Hypothecation of plant, machinery, Furniture, fixtures, tools, equipments and goods, , Agreement of Indemnity and hypothecation in support of the loan transaction. D6 deposited the Title Deeds pertaining to the properties which are more fully described in the Schedule 'B1' in favour of the Applicant Bank with an intention to create an equitable mortgage over the same and he confirmed the same through his letter dated 17.09.1993. Similarly, D4 deposited the Title Deeds pertaining to the properties which are more fully described in Schedule 'B2' in favour of the Applicant Bank with an intention to create an equitable mortgage over the same and he confirmed the same through his letter dated 17.09.1993 . 2.3 In August 1994, at the request made by the Defendants, the Bank sanctioned additional credit facilities of (i) Packing Credit facility up to the limit of Rs.10.00 Lakhs (ii) FOBP facility of Rs.25.00 Lakhs and (iii) Bank Guarantee limit of Rs.75 Lakhs. On 11.08.1994, D1 executed Agreement for Packing Credit and Hypothecation, Agreement of Indemnity for Guarantee, Letter of indemnity for Guarantee, Hypothecation of Plant and Machinery. D2 and D3 & D4 to 6 had executed Guarantee Agreements in favour of the Applicant Bank on 11.08.1994 and stood as guarantors for the overall credit limits availed by D1. 2.4 In the year 1995, D1 was converted into a public limited Company and D5 joined as one of its’ Directors. At the request made by the Defendants, the Bank sanctioned/ renewed credit facilities and on 12.06.1995, D1 executed Agreement for Packing Credit and Hypothecation, Agreement for Foreign bills negotiation and Foreign Bills Purchase, Agreement of Indemnity for Guarantee, Hypothecation of Plant and Machinery. D3,D4 and D 6 & D2 and D5 had executed Guarantee Agreements in favour of the Applicant Bank on 12.06.1995 and stood as guarantors for the overall credit limits availed by D1. 2.5 The account became irregular and Bank sent a recall notice dated 13.10.1997 demanding repayment of Rs.84.71 Lakhs. However defendants failed to repay the entire dues. The D1 availed aforesaid loans with an undertaking to repay the same within 12 months with interest at 18.87 % p.a.. 2.6 Therefore, the Applicant Bank is entitled to recover the sum of Rs.68,45,429/- (Rupees Sixty Eight Lakhs Forty Five Thousand Four hundred and twenty nine only) from the defendants along with interest @ 18.87% per annum, with quarterly rests from the date of application, till the date of its realization, and also by sale of the properties which are more fully described in Schedule 'A' and 'B', with costs. Hence, the application.

2.7 During the pendency of the OA, the Bank assigned the loans together with all its rights, Title, Interests and underlying security interest and guarantees to Asset Reconstruction Company India Ltd vide Assignment Agreement dated 28.03.2007. Pursuant to the said Assignment Agreement, ARCIL executed a Special Power of Attorney dated 26.04.2007 in favour of ITCOT Consultancy & Services Limited for the purpose of making realisation/ recoveries from / out of the assets. In view of the same, ARCIL represented by ITCOT Consultancy & Services Limited was substituted in the place of the Bank vide order dated 10.12.2007. Subsequently IA No.491/2011 was filed to substitute ITCOT Consultancy & Services Limited with BFI Factoring Services Limited and the same was allowed vide order dated 08.08.2011.

3. The D1 and D2 were set ex-parte on 04.11.1999. D3 and D5 were set ex-parte on 06.12.1999. The D3 filed IA 1493/2000 and IA 1494/2000 ie. Petition to condone delay and Petition to set aside ex- pare order and the same was dismissed vide order dated 24.12.2003 with costs. The D3 further filed a Review Petition in RP 1/2004 and the same was dismissed vide separate order dated 09.11.2006 observing that same was filed just to delay the proceedings and challenging the same, D3 filed Appeal in MA 182/2007 before Hon’ble DRAT, Chennai and DRAT was pleased to grant interim stay of the proceedings. After hearing the Appeal by Hon’ble DRAT vide order dated 15.08.2010 allowed the Appeal and IA 1493/2000 and IA 1494/2000 were also allowed. Inspite of giving various opportunities, D3 failed to file Reply Statement and Counter Proof Affidavit and hence his evidence was closed vide order dated 17.01.2011 specifically observing that unsigned copy of Reply statement of D3 filed by his counsel is on record and he cannot get out of whatever stated therein as it has been filed by his counsel even though it is not signed. It is also observed that his intention does not appear to be bonafide and the only object of D3 is to take time , which he has been doing successfully for years together abusing the process of law. Thereafter on 11.04.2012 D3 filed Counter Proof Affidavit along with a petition to accept it and the same was allowed. Since, there was no representation on consecutive occasions, D3 was again set ex-parte vide order dated 02.01.2013. Again D3 filed IA 1538/2014 to set aside ex-parte and the same was allowed vide order dated 02.03.2016. It was submitted on behalf of D3 that W\S already filed. D4 and D6 initially entered appearance through counsel but subsequently failed to participate in the proceedings and hence set ex- parte on 31.01.2022.

4. The Applicant, in order to prove its claim, has filed Proof Affidavit executed by one K P Mohandas, Branch Manager of the Bank and the documents marked as Exhibits A1 to A 45 in support of the claim in the OA. Additional Proof Affidavit dated 06.07.2016 executed by K Manjula Balaji, Chief Manager of ARCIL was also filed.

5. The D3 filed Counter Proof Affidavit contending that he was the Director of D1 Company and he signed the Application dated 16.09.1993 submitted to the Bank for grant of credit facilities to the extent of Rs.30.00 Lakhs and also signed documents. He resigned from the directorship of D1 Company vide his letter dated 14.08. 1994 and also a sent a copy of the letter to the Registrar of Companies. After that he was not concerned with the affairs of the Company. He came to know about availing of enhanced credit limits availed by D1 Company only when he received notice from the Bank on 24.10.1997 for which he has sent a reply. When he verified the records of ROC, it was found that D2 failed to file required Form 32 pertaining to his resignation . The letter dated 11.08.1994 requesting for enhanced limits were not signed by him. He has also not executed documents dated 11.08.1994 mentioned as items 1 to 7 of Page 7 of the OA , which are dated 3 days prior to his

resignation. He has not executed the said documents in respect of the enhanced limits and the signatures are forged and as such he is not liable for the same. On 24.11.2001, he has forwarded a complaint to the Commissioner of police. He also received order from the Office of the Commissioner of Customs Bangalore Region and he was discharged from the offences and hence he cannot be made liable for the acts of D1 and D2. Personal Guarantee given by hm is dated 16.09.1993 and the same lapsed after 3 years and is unenforceable. Hence D3 has requested for dismissal of OA as against him.

6. It is observed by this Tribunal that D3 has admitted execution of Guarantee dated 16.09.1993, but denied execution of Guarantee dated 11.08.1994. He has not specifically denied the latest Guarantee dated 12.06.1995 execution of which is specifically averred in Page 8 at Sl No.

(v) of OA. As such execution of Guarantee dated 12.06.1995 ie. Exhibit A41 deemed to have been admitted by D3. As per the said Guarantee dated 12.06.1995, D3 guaranteed repayment of credit facilities to the extent of Rs.1,10,00,000/- along with all interest, costs and charges. Since, the guarantee was executed in his personal capacity, his resignation from the directorship of D1 Company will not in any way affect his personal liability under the agreement of Guarantee. Applicant demanded payment of amounts guaranteed vide Recall notice dated 13.10.1997 and also Lawyer notice dated 26.11.1997. As such the contention of the D3 that the claim against him based on the guarantee is barred by limitation, cannot be accepted by this Tribunal. D3 filed IA No.1983/2016 for sending documents dated 11.08.1994 along with the the document of the year 1993 which contained his admitted signature to Forensic laboratory at Chennai for expert opinion. However, in view of the reasons discussed above and deemed admission of execution of Guarantee dated 12.06.1995, an expert opinion is not necessary for deciding the claim made by the Bank as against D6 in the above OA. Hence, the same is hereby dismissed. All other pending IAs if any, are also closed and stand disposed of by this Tribunal.

7. A cumulative analysis of both the Proof Affidavit, Counter Proof Affidavit and the documents marked would prove the claim of the Applicant in the OA. During the pendency of the proceedings in IA No.422/2015 was filed by ARCIL to record part satisfaction of Rs.75.00 Lakhs received from D4 and D6 and to relieve D4 and D6 from further proceedings and also to release the documents relating to the mortgaged property and the said Petition was allowed and part satisfaction was recorded on 13.03.2015. Therefore, the Applicant Bank is entitled for a final order by deducting the amounts already adjusted from the OA claim on the following lines:-

8. In the result, in view of the observations made supra, the Applicant Bank is entitled to recover from the Defendant Nos. 1 to 3 and 5 , jointly and severally, a sum of Rs.68,45,429/- (Rupees Sixty Eight Lakhs Forty Five Thousand Four Hundred and Twenty Nine only) along with interest @ 18.87% per annum, from 01.04.1998 ie. the date of filing of application, till the date of its realization , and also by sale of the hypothecated properties which are more fully described in Schedule 'A' belonging to D1, by reducing / by giving due credit of Rs.75,00,000/- (Rupees Seventy Five Lakhs) with effect from the date of recording of part satisfaction ie. 13.03.2015 , with costs.

9. Therefore, the defendants, jointly and severally, are directed to pay to the Applicant Bank a sum of Rs.68,45,429/- (Rupees Sixty Eight Lakhs Forty Five Thousand Four Hundred and Twenty Nine only) along with interest @ 18.87% per annum, from 01.04.1998 ie. the date of filing of application, till the date of its realization, by reducing / by giving due credit of Rs.75,00,000/- (Rupees Seventy Five Lakhs) with effect from the date of recording of part satisfaction ie. 13.03.2015, with costs. On failure to pay the above said debt to the Applicant Bank, the Applicant Bank is directed to bring the hypothecated properties which are more fully described in the Schedule “A” for sale to realize its dues.

10. 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. The Registry is directed to communicate copies of this order to both the parties as provided in Rule 16 of the Debts Recovery Tribunal (Procedure) Rules 1993, as amended in 2003. (Dictated to my PA directly on computer and after necessary corrections, signed and pronounced by me in the open Tribunal on this the 04th August, 2022)

Sd/-

(M.P BALASUBRAMANIAN)

PRESIDING OFFICER

SCHEDULE “A”

1. Gold and gold ornaments in the premises of D1 Company, its Godown and in transit.

2. Lien on Export Bills

3. Machineries described as under:- Micro torches, Polishing Balls, Injunction/Wx/Rubber, Ball Burnishing, Investment Powder, Casting Allied, Flexible Shat and others, Casting machine and others, Vacuum pump, Tube forming machine, Rolling Mill, Bangle Cutting machine, Refining Unit, Factory Tools & work tables, Office equipments -Vacuum cleaner, A/c, Computer and Peripherals, Vehicles, Electronic Weighing scales, Electrical fittings, vacuum injecting machine, stock in trade viz. gold in raw & jewellery form, Furniture& Fixtures , Tools and equipments.

Sd/-

(M.P BALASUBRAMANIAN)

PRESIDING OFFICER