Apex Electronics And Ors. vs Punjab National Bank And Ors.

Ranjit Singh, J

These two appeals are directed against the order passed by the Tribunal below, dismissing the S.As., filed by the appellants. Two separate S.As. (Nos. 206/2011 and 217/2011) filed by the Mr. Vikas Bhalla and another, and M/s. Apex Electronics respectively were disposed of by a common order by the Tribunal as these S.As. pertained to a common property. Accordingly, both the appeals are taken up together and are being disposed of through this common order. M/s. Apex Electronics is a partnership concern of Mr. A.K. Singla, Mr. Kishan Lal both sons of Mr. Ram Chand and Mr. Tejinder Pal Bhalla. This partnership concern had availed financial limit from the respondent Punjab National Bank. To secure this financial facility, various properties standing in the name of partners were mortgaged in favour of the Bank. Due to a dispute between the partners, the business of the firm was closed in December 2009. On the death of one partner in October 2010, the partnership automatically stood dissolved.

The borrower company failed to repay the dues of the Bank. The Bank issued notice under Section 13(2) of the SARFAESI Act on 12.11.2010 raising a demand of Rs. 1,41,50,877.67. The account of the company was declared NPA on 30.9.2010. The appellant firm claims that it started making payment of the debt and had deposited an amount of Rs. 80 lac by different means and also an amount of Rs. 80 lac by selling property which belonged to the firm. It is alleged that after deposit of this amount, the balance amount due against the appellant firm was reduced to Rs. 61,92,000/-. In this regard, reference is made to the status report dated 11.2.2011 which is enclosed with the appeal.

The appellant company would also urge that the partners were always willing to make the remaining payment and Mr. A.K. Singla and the legal representative son of the deceased partner Mr. Krishan Lal Dhawan had approached the Senior Manager of the Bank on 31.3.2011. The appellant had accordingly made a request for one-time settlement (OTS) so as to make the remaining payment. It is also disclosed that in response to the same a meeting was held with the DGM of the Bank in the presence of Chief Manager and Senior Manager, and the Bank had agreed for OTS scheme with the condition that each partner, i.e., Mr. A.K. Singla and legal representative on behalf Mr. Krishan Lal Singla would make a pre-deposit of Rs. 10 lac each. This amount was deposited by Mr. Pardeep Dhawan, legal representative of deceased partner. A sum of Rs. 20 lac was accordingly deposited in sundry account against the OTS proposal. In this meeting, it was agreed that an amount of Rs. 41.28 lac would be paid as settlement amount (being two-thirds of Rs. 61,92,000/- which was outstanding against the firm). One-third of this amount was to be paid erstwhile partner Mr. Tejinder Pal Bhalla who had separately mortgaged the property of his son Mr. Vikas Bhalla.

Once the amount of Rs. 20 lac was deposited, the OTS scheme was forwarded for acceptance to the competent authority. The partners Mr. A.K. Singla and Mr. Pardeep Dhawan moved an application with an undertaking to deposit Rs. 13 lac as and when OTS scheme is accepted. While the OTS proposal was under consideration, Bank tried to take physical possession of residential house standing in the name of Mr. A.K. Singla. The appellant would urge that the Bank had taken this action violating all statutory provisions of the SARFAESI Act, and had acted without giving any notice under Section 13(4) of the Act. When the Bank was going ahead to take physical possession of the property, the appellant had filed S. A. before the Tribunal below and the action of the Bank was stayed subject to payment of Rs. 5 lac. Another sum of Rs. 5 lac was deposited by the appellant on their own volition.

The partner Mr. Tejinder Pal Bhalla and his son had also approached the Tribunal below by filing S.A. No. 206/2011. In this S.A. they had not impleaded other partners. During the pendency of these two S.As., the parties were advised to settle the matter amicably and, therefore, the case was even fixed before Lok Adalat. A meeting was ultimately held in the office respondent Bank on 20.3.2013. In this meeting, a settlement was reached between the parties. The partner Mr. A.K. Singla and Mr. Pardeep Dhawan made an offer of Rs. 33 lac in respect of their share against the total dues. As per the appellant, they had deposited a sum of Rs. 30 lac up to June 2011 towards compromise offer which had not been accepted by the Bank. In this meeting, however, the Bank conceded that the benefit of this amount lying deposited with the Bank should be given to the appellant. The appellant had also pointed out that a sum of Rs. 28.70 lac had been received by the Bank from auction of one of the properties which belonged to the appellant Mr. Vikas Bhalla. This amount was also lying with the Bank in the sundry account. Bank agreed to the proposal that the benefit of this amount and interest thereon should pass on to the parties. The total amount calculated as due with interest was worked out to be Rs. 73.59 lac. Out of this amount, the partner Mr. A.K. Singla and Mr. Pardeep Dhawan agreed to pay Rs. 49.06 lac which was two-thirds of the total amount payable. Since Rs. 30 lac was already lying in the sundry account, the parties agreed for appropriating this amount after approval of the OTS. Rs. 10.06 lac was agreed to be deposited after 26.3.2013. The minutes of the meeting dated 20.3.2013 reads as under:

"Minutes of the Meeting held at Circle Officer, Patiala in respect of NPA Account M/s. Apex Electronics BO : The Mall, Patiala Participants:

Sh. O.K. Sharma -- DGM and Circle Head

Sh. Charanjeet Singh -- AGM Circle Office

Sh. Shiv Kaura -- Sr. Manager, BO: SARC, Mall, Patiala

Sh. A.K. Singla -- Partner, M/s. Apex Electronics

Sh. Pardeep Dhawan -- Son of the deceased Partner (Sh. Krishan Lal) of Apex Electronics

Meeting with the above two persons at Sr. Nos. 4 and 5 was held on 20th March, 2013 with the Bank officials at Sr. 1, 2 and 3 at Circle Office, Patiala. The details of the discussions/decisions/actions proposed are misutised as under--

(1) Sh. A.K. Singla and Sh. Pardeep Dhawn made an offer of Rs. 33 lacs in respect of their share to the previous circle head in March 2011 against the total dues. However, this offer did not materialize.

(2) Meanwhile Bank launched recovery proceedings against the mortgaged properties. First property put Action of Sh. Vikas Bhalla, Guarantor, son of Sh. Tajinder Pal Bhalla, the third partner in the firm. The property was put on auction on 18.7.2011 and Rs. 28.70 lacs were deposited by the successful bidder in July 2011.

(3) Guarantor approached DRT and before the date of Auction fixed, we receive the stay order of the DRT Court ordering that -- Let the Auction be go on and the confirmation of sale would be subject to DRT permission. In compliance of the instruction of the DRT, the auction was done and proceeds were not appropriated in the account but kept in sundries as the confirmation of sale is yet to be allowed by the DRT.

(4) Party also represented the Bank in March, 2011 and gave Rs. 3 lacs on 9.3.2011 and Rs. 27.00 lacs on various dates up to June 2011 towards compromise offer which was not accepted by the Banker. The party has contended that since amount of Rs. 30.00 deposited in the Bank towards OTS offer which is still lying in sundries account, the interest benefit of the amount deposited as per the applicable rate should also be given to them. The Bank conceded their request.

(5) They also represented that while doing recovery proceedings a sum of Rs. 28.70 lacs mentioned in para No. 2 was also received by the Bank on account of auction money of the property of the guarantor son of the third partner Sh. Tejinder Pal Bhalla which is lying in sundries account. Since the funds remained with the Bank its interest benefit toward calculation of new OTS proposal shall also be passed on to the party. The Bank conceded their request to pass on the benefit to the party.

(6) Bank informed the party that the date of NPA was 30.9.2010 and they also expressed that whatever is applicable rate of interest i.e. 10.25% simple interest should be charged in the account. Partners consented to it.

(7) This has been calculated and total amounts come to Rs. 73.59 lacs out of which 2/3rd share of these partners comes to Rs. 49.06 lacs.

(8) Sh. A.K. Singla, Partner and Shri Pardeep Dhawan S/o late Sh. Krishan Lal (partner) has agreed to the above terms and conditions and has set the following payment of repayment of Rs. 49.06 lacs of their 2/3rd share.

Rs. 30.00 lacs already in sundries account (to be appropriated immediately after approval of the OTS.

Rs. 10.06 lacs shall be deposited up to 26.3.2013.

If they fail to pay the amount as per terms of the OTS and the same will be rescinded and Bank shall be free to undertake the recovery proceeding without any counter resistance from these partners.

(9) All pending cases will be withdrawn immediately.

(10) They also indemnify that they have no counter claim against the Bank in any shape or form or any civil or criminal liability.

(11) On full satisfaction of the compromised amount the properties mortgaged with the Bank will be released. In the event of continuous of recovery proceedings by the Bank they shall forbear any cost or any other consequence of the Bank so doing and they will bear no resistance.

Sh. A.K. Singla, Shri Pardeep Dhawan, Sh. Shiv Kaura, Shri Charanjeet Singh, Sh. D.K. Sharma."

One of the terms of the OTS was that in the event of appellant failing to pay the amount, the Bank could rescind the same and would be free to undertake measures without any counter resistance. The case of the Bank is that since the partner Mr. Tejinder Pal Bhalla and son Mr. Vikas Bhalla who were guarantors and whose property had been sold for Rs. 28.70 lac were neither sincerely and meaningfully willing to participate in the settlement nor had participated in the meeting, the Bank wrote to them to give their consent within seven days, Otherwise it was to be taken that they are not ready for settlement. Once these partners did not give their consent the OTS failed and thus the Bank assumed that it is entitled to proceed with the recovery of the amount.

The appellant firm, however, would contend that once this OTS had been entered into and the entire amount had been paid, the Bank was totally unjustified in proceeding with the sale of the property for recovery of the amount.

The Tribunal below apparently has missed certain aspects while passing the impugned order. The Tribunal has brushed aside the OTS by observing that the OTS proposal was duly replied to by the Bank and that no further representation was pending in this regard before the officer of the Bank. Though the proposal had been rejected, but the Bank had admitted that the amounts deposited by the appellants were duly lying intact in the sundry account. This, as per stand of the Bank, was no irregularity. While accepting these submissions, the Tribunal below has not appreciated that the total amount as settled by way of OTS had been received or was lying with the Bank. Could the Bank validly plead that the OTS had failed?

Though the appellants in their respective SAs have raised a number of other issues complaining violation of various statutory and mandatory provisions, while challenging the action of the Bank initiated under the SARFAESI Act, but both the appellants now seem to have given up those pleas to concentrate on the plea that the full amount agreed as per OTS was either deposited or had been received by the Bank and hence the action of the Bank in rejecting the OTS to proceed ahead with the recovery cannot stand the test of judicial scrutiny. The Counsel for the appellant firm and other partners would point out that complete sum of Rs. 49.06 lac had been paid by them and thus they had complied with their part of undertaking.

The problem primarily arose when the other Partner Mr. Tejinder Pal Bhalla and his son Mr. Vikas Bhalla had failed to respond to the communication initiated by the Bank to confirm and given consent for adjustment of Rs. 24.53 lac out of the sale proceeds of Rs. 28.70 lac realized by sale of their property. The case of the Bank is that the said partners did not give their consent and hence the OTS failed entitling the Bank to proceed with the recovery. The submissions on these lines as advanced by the Bank, however, apparently are pursued ignoring the vital aspect that the Bank had already realized a sum of Rs. 28.70 lac by the sale of the property of the partners. This property was of a guarantor. After selling a property which is mortgaged with the Bank, was there any need to seek permission or confirmation of a party for adjusting this money towards the dues, would it be possible for the borrower or guarantor to urge that the amount realized by the sale of mortgaged property should not be adjusted towards loan liability? Obviously, such plea can either been advance nor would be available to them. The submission made by the Counsel for the appellant that total amount of Rs. 73.59 lac as was settled had been received by the Bank within the time stipulated and hence the action of the Bank in seeking confirmation or consent for adjusting the amount realized from the sale of the property by auction cannot lead to changing the position so far the payment of the amount to the Bank was concerned.

It is not in dispute that a sum of Rs. 49.06 lac had been paid by the partnership firm and two of the partners. A sum of Rs. 8.70 had been realized by the Bank and was lying in sundry account with the Bank. One of the proposals in the one-time settlement was that this amount with interest may be adjusted towards the liability. This was agreed to by the Bank as can be seen from the OTS proposal reproduced above. Thus, an amount of Rs. 24.53 lac could easily have been adjusted by the Bank out of this amount which was lying with it. In my view, there was no requirement of seeking permission or consent of the partner who had mortgaged this property as guarantor. This action of the Bank, therefore, cannot be said as legally justified. The objection, if any, which may have been raised by the guarantor Mr. Vikas Bhalla and others have now been given up during the course of arguments in the connected appeal filed by him. The Counsel appearing for Mr. Vikas Bhalla has given his no objection for adjustment of this amount towards loan liability. This happened when this Tribunal apprised the Counsel for the parties that they cannot take advantage both ways while seeking adjustment of this amount towards OTS by simultaneously pleading to challenge the auction of this property, the Counsel gave up their challenge to the sale as raised by Mr. Vikas Bhalla. Thus, the Counsel has given up the challenge to the auction sale of the property as a result of which this amount can now be adjusted along with interest which it may have earned by now.

The submission by the Counsel or the Bank that it is too late now for the said appellant to change his position, in my view, cannot be accepted. It is not that this amount is now deposited. More than requisite amount was lying deposited with the Bank. It continued to remain with the Bank throughout. It is only the improper action on the part of the Bank to seek consent of the guarantor to adjust this amount which has led to the situation. The dispute raised by Mr. Vikas Bhalla primarily is a dispute which is between the partners and not with the action of the Bank. The recovery Tribunals are not proper Forum to deal with the issues Between the partners for which the appellant can initiate any proceedings, if he has any grievance in this regard. The Counsel for the appellant is justified in stating that the money being available with the Bank it cannot plead that the appellants had not complied with the requirement of making payment of the amount towards one-time settlement. The amount lying in the sundry account of the Bank obviously would have fetched interest. This would be enough to satisfy and compensate the Bank though primarily all this took place because of inappropriate action by the Bank in not adjusting this amount towards the loan liability in terms of the settlement. This Tribunal has been persuaded to take this view for adjusting this amount because this had been agreed to by the Bank while entering into settlement of this account with the borrower. Since now the parties have agreed for adjusting this amount towards loan liability, it be fair to dispose of this appeal by directing the Bank to adjust this amount realized from the auction sale of the property of Mr. Vikas Bhalla towards the OTS amount and since this amount is enough to satisfy the terms of OTS as was agreed to by the Bank, it would be appropriate to hold that further action by the Bank to realize the amount by sale of any property would be uncalled for and would stand quashed.

The present appeals are accordingly disposed of in above terms.