INDIAN OVERSEAS BANK vs ROYAL ENGINEERING WORK on 22 March 2019

J U D G M E N T

1. Applicant Bank had filed this Original Application on 16.09.2016 under section 19(1) of the Recovery of Debts Due to Banks & Financial Institutions Act, 1993 (as amended from time to time) against the Defendants before Debts Recovery Tribunal, Lucknow for recovery of Rs.1,47,98,298/- (Rupees - One Crore Forty-Seven Lacs Ninety-Eight Thousand Two Hundred Ninety-Eight only) alongwith pendente-lite and future interest @12.70% per annum with monthly rests plus penal interest @2.00% per annum w.e.f. 31.03.2016 till the date of realization and costs.

2. The brief facts of case are that the Defendant No.1 is a Partnership Firm. The Defendant No.2, 3, 5 & 6 are partners of the Defendant No.1 Borrower Firm. The Defendants No.2, 3, 5 & 6 stood guarantors for the Defendant No.1. The Defendant No.1 through its partners approached Applicant Bank for grant of financial assistance in the shape of Cash Credit Limit of Rs.25,00,000/- for Working Capital & Term Loan-I of Rs.62,00,000/- for purchase of Plant & Machinery and Term Loan-II of Rs.6,00,000/- for business purpose and submitted loan application. Applicant Bank after considering the loan application on 17.10.2012 sanctioned a Cash Credit Limit of

Rs.25,00,000/- for Working Capital & Term Loan-I of Rs.62,00,000/- for purchase of Plant & Machinery and Term Loan-II of Rs.6,00,000/- for business purpose to the Defendant No.1 under CGTMSE Guarantee Cover against primary security of hypothecation of entire stocks, Book Debts, Plant & Machinery for Cash Credit Limit, Hypothecation of Plant & Machinery purchased out of bank finance for Term Loan-I and equitable mortgage of immovable property owned by the Defendant No.3 for Term Loan-II and personal guarantee of the Defendant No.2, 3, 5 & 6 for aforesaid credit facilities. The Defendants executed and signed various loan and security documents on 20.11.2012, 22.11.2012 & 10.01.2013 for Term Loan-II, Term Loan-I & Cash Credit Limit respectively in favour of Applicant Bank. The rate of interest was agreed between the parties @1.75% above Base Rate, applicable at that time @12.25% per annum for Cash Credit Limit, @2.50% above Base Rate, applicable at that time @13.00% per annum for Term Loan-I and @2.50% above Base Rate, applicable at that time @13.00% per annum for Term Loan-II with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

3. Later on, the Defendant No.5 & 6 withdrawn their shares from the partnership firm and as such Defendant No.5 & 6 were expelled by remaining partners through a deed of expulsion/dissolution dated 20.11.2014 & 27.11.2014 respectively. Thereafter, Defendant No.2 & 3 are the partners of borrowing firm.

4. The Defendant No.1 through its partners again approached Applicant Bank for grant of financial assistance in the shape of rephasement/restructure of existing credit facilities & sanction of some fresh credit facilities. Applicant Bank after considering the request on 26.12.2014 sanctioned a fresh Cash Credit Limit of Rs.20,00,000/- for working capital, rephased existing Term Loan-I to Rs.71,37,000/-, rephrased existing Term Loan- II to Rs.5,56,000/-, sanctioned fresh Term Loan-III of Rs.10,00,000/- for purchase of plant & machinery and converted/rephased existing Cash Credit Limit to Working Capital Term Loan to Rs.25,00,000/- to the Defendant No.1 under CGTMSE Guarantee Cover against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of Defendant No.2, 3 & 4 and equitable mortgage of immovable properties owned by Defendant No.2, 3 & 4 for fresh Cash Credit Limit, Hypothecation of Plant & Machinery, personal guarantee of Defendant No.2 & 3 & equitable mortgage of immovable properties owned by Defendant No.2 & 3 for Term Loan-I, Hypothecation of plant & machinery, personal guarantee of Defendant No.2 & 3 & equitable mortgage of immovable properties owned by the Defendant No.2 & 3 for Term Loan-II, Charge on plant & machinery purchased out of Bank finance, personal guarantee of Defendant No.2, 3 & 4 and equitable mortgage of immovable properties owned by Defendant No.2, 3 & 4 for fresh Term Loan-III and hypothecation of entire stocks, Book Debts, personal guarantee of Defendant No.2 & 3 and equitable mortgage of immovable properties owned by the Defendant No.2 & 3 for WCTL Limit . The Defendant No.1 to 4 executed and signed various loan and security documents on 25.05.2015 in favour of Applicant Bank. The rate of interest was agreed between the parties @3.00% above Base Rate, applicable at that time @13.25% per annum for these credit facilities with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

5. However, after availing the aforesaid Loan/Credit Facilities, the Defendant No.1 to 3 failed to maintain financial discipline as per terms and conditions of the loan agreement due to which loan accounts became irregular. Despite repeated reminders and persuasion, the Defendant No.1 to 3 failed to regularize the loan accounts. Consequently, the said accounts of the Defendant No.1 to 3 were classified as NPA on 31.03.2016 and recalled by Applicant Bank. Thereafter, Applicant Bank served Demand Notice to the Defendants to repay the outstanding dues but the Defendants failed to make the payment of outstanding dues. Thereafter, without permission of the Applicant Bank and even without intimating the Applicant Bank, the factory of Defendant No.1 was shifted by the Defendants from mortgaged premises & some hypothecated machines were also misplaced & shifted. Further, on 05.02.2016, the Applicant Bank has intimated the facts of shifting of factory and misplacing of hypothecated machineries to the S.S.P. Haridwar, Uttarakhand requesting to lodge an F.I.R against the Defendant NO.2 & 3. Hence, the present Original Application has been filed by Applicant Bank against Defendants for recovery of Rs.1,47,98,298/- (Rupees - One Crore Forty-Seven Lacs Ninety-Eight Thousand Two Hundred Ninety-Eight only) alongwith pendente-lite, future interest, costs and for issuance of Recovery Certificate for the said amount.

6. The averments of Applicant Bank are set out in detail in its Original Application and therefore, these are not being stated here afresh to avoid a repetition of facts.

7. The summons were issued to the Defendants and after due service Defendant No.1 to 6. Subsequently, vide order dated 06.03.2018 case was transferred from Debts Recovery Tribunal, Lucknow to this Tribunal in view of change of jurisdiction in pursuance of establishment of new DRT at Dehradun on 16th. February 2017 vide Gazette Notification 411, S.O.454 (E) dated 15.02.2017, 692, S.O.784 (E) dated 23.02.2018 and corrigendum Gazette Notification 719 S.O. 816(E) dated 27.02.2018. The case was re-numbered as T.A. No. 120/2018.

8. Thereafter, fresh summons were issued to the Defendants by this Tribunal and after due service the Defendant No.3 & 4 appeared through their counsel and filed Written Statement denying various averments made in Original Application. However, despite service, none appeared for the Defendant No.1 & 2. Hence, the Defendant No.1 & 2 were proceeded ex- parte vide order dated 09.11.2018 & the Defendant No.5 & 6 were again ordered to be served by substituted mode of service by way of publication in two Newspapers by this Tribunal. Later on, despite service, none appeared for the Defendant No.5 & 6. Hence, the Defendant No.5 & 6 were also proceeded ex-parte vide order dated 29.12.2018. The Defendant No.3 pleaded that the he never created any equitable mortgage in the form of primary security hence statement of the Applicant Bank are completely wrong and denied. Further, the Defendant No.4 pleaded that he never stood as a guarantor in any loan account in his lifetime because he is an illiterate person neither gave his thumb impression nor executed any documents. The contentions of the Defendant No.3 & 4 are set out in detail in their Written Statement. Therefore, they are not being stated here afresh to avoid a repetition of facts.

9. Applicant Bank also filed Replication to Written Statement filed by Defendant No.3 & 4 contradicting the allegations and reiterating its averments made in the Original Application. The contentions of Applicant Bank are set out in detail in its Replication. Therefore, they are not being stated here afresh to avoid a repetition of facts.

10. Applicant Bank filed its evidence by way of affidavit of Sh. Pushpinder, Branch Manager of Applicant Bank as AW-1/1 who proved the various loan and security documents by way of admission and denial which are marked as Exhibit- AW-1/1 to Exhibit- AW-1/54. The Defendant No.3 & 4 also filed evidence by way of written statements & Affidavit as DW-3/1 & DW-4/1. However, no document has been relied upon in support in their defence in evidence.

11. I have heard the arguments of Ld. Counsel for the Applicant Bank, Ld. Counsel for the Defendant No.3 & 4, considered the written statement of Defendant No.3 & 4, ex-parte against Defendant No.1, 2, 5 & 6 and perused the material on record.

12. The point for consideration is whether Applicant Bank is entitled to recover the claim as prayed for?

13. Section 17(1) of the RDB Act of 1993 vests a Tribunal constituted under the Act with the jurisdiction, powers and authority to entertain and decide applications from the Banks and Financial Institutions for recovery of debts due to such Banks and Financial Institutions. 'Debt' is, defined in Section 2(g) of the Act, 1993. The RDB Act, 1993 creates a complete code for the adjudication of matters referred to in Section 17 and provides for the procedure in respect thereof. The jurisdiction of the Civil Courts to try cases in respect of recovery debts of Rs.10.00 Lac and above due to Banks and financial institutions stands ousted by the Act. Hence, Original Application filed U/s 19(1) of the Recovery of Debts and Bankruptcy Act, 1993 is within the jurisdiction and legally maintainable before this Tribunal.

14. Though the Defendant No.3 & 4 has contested the case in their written statement but failed to prove through any document, cogent evidence or otherwise their point of challenge to legality, validity, authenticity and correctness of the loan documents/Statements of Accounts and that Original Application is not legally maintainable. Defendant No.3 failed to prove any cogent evidence against mortgaged property in question as well as Defendant No.4 about plea of non execution of the guarantee agreement & mortgage deed. On the other hand, Applicant Bank has fully corroborated the averments made in the O.A. against the Defendant No.1 to 4 through evidence of witness Sh. Pushpinder, Branch Manager of Applicant Bank as AW-1/1. The Applicant Bank has also established its case through documentary evidence being Exhibit- AW-1/1 to Exhibit- AW-1/54. On a careful scrutiny of the evidence on affidavit and exhibits marked as Exhibit- AW- 1/1 to Exhibit- AW-1/54, it is proved that Defendant No.1 through its Partners had availed the Cash Credit Limit & Term Loan facilities from the Applicant Bank under CGTMSE Guarantee Cover against primary security of hypothecation of entire stocks, Book Debts, Plant & Machinery, personal guarantee of Defendant No.2 to 4 and collateral security by way of equitable mortgage of immovable property owned by Defendant No.2 to 4 by executing various loan & security documents detailed as above in favour of the Applicant Bank.

A perusal of Original Application, evidence and documents relied upon clearly show that Defendant No.1 to 3 had utilized the above loan facility as granted to them.

15. However, after availing the aforesaid Cash Credit Limit & Term Loan, Defendant No.1 to 3 failed to maintain financial discipline as per terms and conditions of the loan agreement. Consequently, the said account was rightly classified as NPA on 31.03.2016 and recalled by Applicant Bank. Thereafter, Applicant Bank served Recall Notice dated 05.02.2016 Exhibit- AW-1/52 to the Defendants to repay the outstanding dues but the Defendants failed to make the payment of outstanding dues. The whole case of the Applicant Bank is based on documentary evidence and the witness has duly proved all these documents. In my view there is no question of disbelieving the evidence lead by the Applicant Bank and Applicant Bank has proved its case beyond reasonable doubts.

16. Further, on perusal of Exhibits AW-1/54 show that Applicant Bank has maintained the Books of account in the ordinary course of banking business showing disbursal of the loan amounts as per provisions of Bankers Books Evidence Act, 1891 and Guidelines of RBI under Banking Regulation Act, 1949. It further shows that Applicant Bank had regularly credited the amount if any, paid by the defendants in the books of account. Applicant Bank had also charged interest from time to time and the entries are relevant U/s 4 of the Bankers Books Evidence Act, 1891 as reflected from A/c Statements attached with O.A. Exhibits AW-1/54.

17. Moreover, Applicant Bank has been able to prove that the Defendant No.1 to 3 availed the Cash Credit Limit & Term Loan Facility and failed to repay the same in terms of loan documents. Since, the transactions are of commercial nature between the parties, the Defendants are bound to repay the loan amount with interest as agreed upon and Applicant Bank is entitled to recover suit amount with interest as claimed by it. The Original Application has been presented on 16.09.2016 i.e. within three years from the date of execution of Revival Letter on 22.10.2014 as Exhibit AW-1/49, Acknowledgment of Balance & Security Confirmation Letter on 30.09.2015 as Exhibit AW-1/50, and last deposit being made on 30.12.2015 admitting debt liability for the purpose of limitation as reflected from Account Statement Exhibit AW-1/54. Thus, it is proved that the Defendant No.1 to 4 are jointly and severally liable to pay the claim made in the O.A. to the Applicant Bank. The hypothecated assets & mortgage properties are liable to be sold for recovery of amount due alongwith the personal movable & immovable properties/assets of the Defendant No.1 to 4.

18. Applicant Bank has claimed interest @12.70% per annum with monthly rests plus @2.00% Penal interest w.e.f. 31.03.2016 till the date of realization and costs. The contract between Applicant Bank and the Defendants comes to an end and after filing of the O.A. as per the provisions of Section 19(20) of the Recovery of Debts and Bankruptcy Act, 1993 (as amended from time to time) which is analogous to Section 34 of the CPC, the Tribunal/Court has discretion in awarding pendente- lite and future interest. I am also supported in my view by the Hon’ble Supreme Court in a case titled Central Bank of India Vs. Ravindra and others reported in AIR 2001 SC page 3095. On the basis of the foregoing discussion, interest of justice will be served if pendente-lite and future interest is granted @12.00% per annum simple rate on reducing balance from the date of filing of the O.A. till the date of realization with costs.

19. In the light of above discussion, the Original Application deserves to be allowed against the Defendant No.1 to 4 with costs. However, claim against the Defendant No.5 & 6 is dismissed.

ORDER

(i) The Original Application is allowed declaring that the Defendant No.1 to 4 are liable to pay jointly and severally a total sum of Rs.1,47,98,298/- (Rupees One Crore Forty-Seven Lacs Ninety-Eight Thousand Two Hundred Ninety-Eight only) to Applicant Bank alongwith pendente-lite and future interest @12.00% per annum simple rate of interest on reducing balance from the date of filing of the O.A. i.e. 16.09.2016 till the date of realization with costs. However, claim against Defendant No.5 & 6 is dismissed.

(ii) Applicant Bank is entitled to recover aforesaid amount by sale of hypothecated assets & mortgaged properties (if not sold earlier under the provisions of the S.A.R.F.A.E.S.I. Act, 2002). The amount, if any, already recovered by sale of any hypothecated assets/mortgage properties or otherwise shall be adjusted towards the debt and only the balance amount shall be recoverable. If the dues of Applicant Bank still remain unsatisfied, the same shall be recovered by attachment and sale of the personal movable and immovable assets of the Defendant No.1 to 4 jointly and severally. Applicant Bank is at liberty to enforce the claim through due process of law.

(iii) Any other application pending stands disposed of.

(iv) Recovery Certificate be issued forthwith in above terms U/s 19(22) of the Recovery of Debts and Bankruptcy Act, 1993 (as amended from time to time) and be sent to the Recovery Officer-I, DRT, Dehradun.

(v) Applicant Bank is directed to file revised statement of account before the Recovery Officer of this Tribunal. Parties are directed to appear before the Recovery Officer-I, DRT, Dehradun on 03.05.2019.

(vi) The Defendant No.1 to 4 are hereby restrained by means of injunction from depleting, transferring, encumbering, alienating, selling or otherwise dealing with their properties/estates without first paying the above claim of Applicant Bank.

(vii) In case, any of the Defendant No.2 to 4 expire, the legal representatives shall be liable to pay in proportion to the inheritance.

(viii) Copy of this Judgment and Recovery Certificate be given Dasti to Applicant Bank and be sent to the Defendants free of cost by Registered Post in terms of section 19(21) (i) of the RDB Act, 1993 (as amended from time to time) and Rules as well as to the Recovery Officer and after due compliance, file be consigned to record room.

20. Applicant Bank is directed to file a Memo of Cost, if not filed earlier, for preparing Recovery Certificate U/s 19(22) of the Recovery of Debts and Bankruptcy Act, 1993 (as amended from time to time). Judgment pronounced in the open court on this 22nd Day of March, 2019.

(SHAMMI KHAN) Presiding Officer, DRT, Dehradun