PUNJAB NATIONAL BANK vs RAINBOW BOARD MILLS PVT LTD on 28 May 2019

J U D G M E N T

1. Applicant Bank had filed this Original Application on 17.04.2015 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.8,02,39,023.15Ps. (Rupees Eight Crore Two Lakh Thirty-Nine Thousand and Twenty-Three and Paisa Fifteen only) alongwith pendente-lite and future interest @13.75% per annum with monthly rests from the date of filing of the O.A. till the date of realization and costs.

2. The brief facts of case are that the Defendant No.1 is a Private Limited Company incorporated under the provisions of Companies Act, 1956. The Defendant No.2 to 5 are the Directors of the Defendant No.1 Co. The Defendants No. 2 to 5 also stood guarantors for the Credit facilities availed by the Defendant No.1 Co. from the Applicant Bank. The Defendant No.1 Co. was engaged in business of manufacturing of board & papers. The Defendant No.1 through its Directors approached Applicant Bank for grant of financial assistance in the shape of Cash Credit Limit of Rs.10,00,000/- for Working Capital and submitted loan application. Applicant Bank after considering the loan application sanctioned a Cash Credit Limit of Rs.10,00,000/- for Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 & 3 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendant No.1 to 3 executed and signed various loan and security documents on 24.12.2001 in favour of Applicant Bank.

3. Further, the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of Term Loan of Rs.4,50,000/- for Plant & Machinery and submitted loan application. Applicant Bank after considering the loan application sanctioned a Term Loan of Rs.4,50,000/- for Plant & Machinery to the Defendant No.1 against primary security of hypothecation of Plant & Machinery, personal guarantee of the Defendant No.2 & 3 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendant No.1 to 3 again executed and signed various loan and security documents on 07.01.2003 in favour of Applicant Bank. The rate of interest was agreed between the parties, applicable at that time @14.25% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

4. Further, on 20.12.2004 the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of enhancement of existing Cash Credit Limit and submitted loan application. Applicant Bank after considering the loan application on 07.01.2005 enhanced existing Cash Credit Limit to Rs.15,00,000/- for

Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, book debts, personal guarantee of the Defendant No.2 & 3 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendant No.1 to 3 again executed and signed various loan and security documents on 07.01.2005 in favour of Applicant Bank. The rate of interest was agreed between the parties, applicable at that time @10.75% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

5. Further, on 04.05.2007 the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of enhancement of existing credit facilities and submitted loan application. Applicant Bank after considering the loan application on 07.07.2007 enhanced existing Cash Credit Limit to Rs.55,00,000/- for Working Capital & Term Loan to Rs.1,73,95,000/- for Plant & Machinery to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 to 5 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 07.07.2007 in favour of Applicant Bank. The rate of interest was agreed between the parties @1.50% above Base Rate, applicable at that time @13.25% per annum with monthly rests for these credit facilities plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

6. Further, on 16.04.2008 the Defendant No.1 through its Directors approached Applicant Bank for grant of more financial assistance in the shape of Term Loan of Rs.25,00,000/- for Plant & Machinery and submitted loan application. Applicant Bank after considering the loan application on 17.04.2008 sanctioned a Term Loan-II of Rs.25,00,000/- for Plant & Machinery to the Defendant No.1 against primary security of hypothecation of plant & machinery, personal guarantee of the Defendant No.2 to 5 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 17.04.2008 in favour of Applicant Bank. The rate of interest was agreed between the parties, applicable at that time @13.00% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

7. Further, on 10.11.2008 the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of enhancement of existing Cash Credit Limit and submitted loan application. Applicant Bank after considering the loan application on 10.11.2008 enhanced existing Cash Credit Limit to Rs.98,00,000/- for Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 to 5 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 10.11.2008 in favour of Applicant Bank. The rate of interest was agreed between the parties @1.00% above PLR per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

8. Further, on 20.04.2009 the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of Term Loan of Rs.45,00,000/- for Plant & Machinery and submitted loan application. Applicant Bank after considering the loan application sanctioned a Term Loan-III of Rs.45,00,000/- for Plant & Machinery to the Defendant No.1 against primary security of hypothecation of plant & machinery, personal guarantee of the Defendant No.2 to 5 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 17.04.2008 in favour of Applicant Bank. The rate of interest was agreed between the parties @1.50% above Base Rate, applicable at that time @12.50% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

9. Further, the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of enhancement of existing Cash Credit Limit and submitted loan application. Applicant Bank after considering the loan application on 10.09.2009 enhaced existing Cash Credit Limit to Rs.1,95,00,000/- for Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 to 5 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The

Defendants again executed and signed various loan and security documents on 12.09.2009 in favour of Applicant Bank. The rate of interest was agreed between the parties @2.00% above Base Rate, applicable at that time @13.00% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

10. Further, the Defendant No.1 through its Directors again approached Applicant Bank for grant of additional financial assistance in the shape of additional Cash Credit Limit of Rs.39,00,000/- for Working Capital and submitted loan application. Applicant Bank after considering the loan application sanctioned a Cash Credit Limit of Rs.39,00,000/- for Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 & 3 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 31.12.2009 in favour of Applicant Bank. The rate of interest was agreed between the parties @4.00% above Base Rate per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

11. Further, On 30.06.2010 the Defendant No.1 through its Directors again approached Applicant Bank for grant of financial assistance in the shape of reschedule of existing credit facilities and submitted loan application. Applicant Bank after considering the loan application on 30.06.2010 rescheduled existing credit facilities as previous Cash Credit Limits to WCTL (Working Capital Term Loan) of

Rs.1,00,00,000/- and Rs.1,34,00,000/- as Fund Based Working Capital, rescheduled previous Term Loans facilities to Term Loan-I of Rs.1,41,14,000/-, Term Loan-II of Rs.22,46,000/-, Term Loan-III of Rs.47,42,000/- to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, plant & machinery, personal guarantee of the Defendant No.2 to 4 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 in favour of Applicant Bank. The Defendants executed and signed various loan and security documents on 30.06.2010 in favour of Applicant Bank. The rate of interest was agreed between the parties @2.00% above Base Rate, applicable at that time @12.50% per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

12. Further, the Defendant No.1 through its Directors again approached Applicant Bank for grant of more financial assistance in the shape of Cash Credit Limit of Rs.26,80,000/- for Working Capital and submitted loan application. Applicant Bank after considering the loan application sanctioned a Cash Credit Limit of Rs.26,80,000/- for Working Capital to the Defendant No.1 against primary security of hypothecation of entire stocks, Book Debts, personal guarantee of the Defendant No.2 to 4 and collateral security by way of equitable mortgage of immovable property owned by the Defendant No.1 through Defendant No.2 & 3 in favour of Applicant Bank. The Defendants again executed and signed various loan and security documents on 20.06.2011 in favour of Applicant Bank. The rate of interest was agreed between the parties @7.00% above Base Rate per annum with monthly rests plus penal interest @2.00% per annum subject to change from time to time as per RBI Guidelines.

13. However, after availing the aforesaid Loan/Credit Facilities, the Defendant No.1 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 failed to regularize the loan accounts. Consequently, the said accounts of the Defendant No.1 were classified as NPA on 30.09.2011 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. Applicant Bank has also initiated action under the S.A.R.F.A.E.S.I. Act, 2002 against the secured assets/mortgaged properties but no secured asset has been sold till date. Hence, the present Original Application has been filed by Applicant Bank against Defendants for recovery of Rs.8,02,39,023.15Ps. (Rupees Eight Crore Two Lakh Thirty- Nine Thousand and Twenty-Three and Paisa Fifteen only) alongwith pendente-lite, future interest, costs and for issuance of Recovery Certificate for the said amount.

14. 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.

15. The summons were issued to the Defendants by both mode of service. However, despite service, none appeared for the Defendant No.1 to 5. Hence, the Defendant No.1 to 5 were proceeded ex-parte vide order dated 20.01.2017.

16. 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. 550/2018.

17. Applicant Bank filed its evidence by way of affidavit of Sh. Naresh Chand Kansal, Senior 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-1/74.

18. I have heard the arguments of Ld. Counsel for the Applicant Bank as their arguments or ex-parte against Defendant No.1 to 5 and perused the material on record.

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

20. 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.

21. Further, Applicant Bank has fully corroborated the averments made in the O.A. against the Defendants through evidence of witness Sh. Naresh Chand Kansal, Senior 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-1/74. On a careful scrutiny of the evidence on affidavit and exhibits marked as Exhibit- AW-1/1 to Exhibit- AW-1/74, it is proved that Defendant No.1 through its Directors had availed the Cash Credit Limit & Term Loan facilities from the Applicant Bank 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.1 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 had utilized the above loan facility as granted to them.

22. However, after availing the aforesaid Cash Credit Limit & Term Loan facilities, Defendant No.1 failed to maintain financial discipline as per terms and conditions of the loan agreement. Consequently, the said accounts were rightly classified as NPA on 30.09.2011 and recalled by Applicant Bank. Thereafter, Applicant Bank served final Demand Notice dated 03.04.2012 Exhibit- AW-1/65 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.

23. Further, on perusal of Exhibits AW-1/67 to AW-1/72 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-1/67 to AW-1/72.

24. Moreover, Applicant Bank has been able to prove that the Defendant No.1 availed the Cash Credit Limit & Term Loan Facilities 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 17.04.2015 i.e. within three years from the date of execution of Acknowledgment of Balance & Security Confirmation Letters being made on 07.08.2012 admitting debt liability for the purpose of limitation as reflected from Account Statement Exhibit AW-1/63. 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. However, Defendant No.5 is not liable to pay any dues as Defendant No.5 did not sign or execute any fresh guarantee agreement while rescheduling/restructuring of all Credit facilities. Further, Defendant No.5 is not signatory to the letter of NOC for continuing guarantee dated 30.06.2010 as Exhibits AW-1/58. Which amounts to novation of contract in favour of Defendant No.5. 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.

25. Applicant Bank has claimed interest @13.75% per annum with monthly rests w.e.f. 17.04.2015 till the date of realization and costs. The contract between Applicant Bank and the Defendant No.1 to 4 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.

26. In the light of above discussion, the Original Application deserves to be allowed against the Defendant No.1 to 4 with costs. However, Defendant No.5 is not liable to pay any dues.

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.8,02,39,023.15Ps. (Rupees Eight Crore Two Lakh Thirty-Nine Thousand and Twenty- Three and Paisa Fifteen 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. 17.04.2015 till the date of realization with costs. However, Original Application against the Defendant No.5 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 10.07.2019.

(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.

27. 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 28th Day of May, 2019.

(SHAMMI KHAN) Presiding Officer, DRT, Dehradun