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Judgment
P.K. Bhasin, J
The appellants in these two appeals are aggrieved by the common order passed by the Debts Recovery Tribunal (DRT) on 17.10.2014 disposing of Securitisation Application (SA) No. 40 of 2009 under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act ('SARFAESI Act' in short) filed by the three appellants against Vijaya Bank and its assignee Phoenix ARC Ltd. and Original Application (O.A.) No. 198 of 2010 filed by the Vijaya Bank's assignee Phoenix ARC Ltd. against the three appellants herein and Vijaya Bank under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ('RDDBFI Act' in short). The appellant No. 1 M/s. B.L. Gupta Construction Pvt. Ltd. (which Company hereinafter shall be referred to as the borrower Company), was into the business of construction of big group housing projects as well as commercial buildings and was a customer of Vijaya Bank for two decades. Vijaya Bank had extended various financial facilities to the tune of crores of rupees to the said borrower Company during the period 1997-2008. The relevant financial facilities started in 1997 with sanction of a Cash credit limit of Rs. 25 lacs which limit thereafter was enhanced from time-to-time and finally in 2008 it stood enhanced to Rs. 9.30 crores. Then other facilities like, mortgage loan of Rs. 14,75,00,000/- in 2005 (ML-I); mortgage loan of Rs. 20,46,00,000/- in 2006 (ML-II); mortgage loan of Rs. 14,80,00,000/- in 2007 (ML-III) and mortgage loan of Rs. 8,06,00,000/- in 2008 (ML-IV); secured loan of Rs. 7,50,00,000/- in 2004 (SL-I) & secured loan of Rs. 15,30,00,000/- in 2008) SL-II) were also granted. Bank guarantee facility was also sanctioned. All these facilities had separate terms and conditions and different repayment schedules. The re-payment of the amounts covered under these various financial facilities was secured, inter alia, by way of mortgage of some immovable properties in Lajpat Nagar and Okhla Industrial Area in New Delhi and also in Noida by the borrower Company and appellant No. 2 Mr. B.L. Gupta, its Managing Director and personal guarantees of appellant No. 2 and his wife, appellant No. 3, who was also a director in the borrower Company.
As per the case of the Vijaya Bank even though it had extended these financial facilities to the borrower Company from time-to-time but the borrower Company had not been honouring its commitments in the matter of re-payment of Bank's dues as per the terms and conditions of sanction of those facilities.
Vijaya Bank served a notice dated 4.4.2009 upon the borrower Company calling upon it to pay the entire outstanding dues of the Bank within seven. Thereafter Vijaya Bank served upon the appellants a notice dated 13.4.2009 under Section 13(2) of the SARFAESI Act. In that notice the appellants were informed that the accounts of the borrower Company had been declared as NPAs and they were called upon to clear the entire outstanding dues under various loan accounts totaling Rs. 65,70,92,707.69, plus interest thereon at contractual rate, within the statutory period of sixty days.
The appellants, however, did not clear the Bank's dues and instead chose to refute the Bank's claim in its notice under Section 13(2) by submitting reply thereto through one Advocate which in turn was replied by Vijaya Bank also through its Advocate reiterating its claim made in the notice under Section 13(2) of SARFAESI Act. Having failed to receive its money from the appellants Vijaya Bank sought to enforce its rights as a secured creditor under the SARFAESI Act by selling the mortgaged properties to recover its dues. It appears that the borrower Company was declared as 'wilful defaulter' also and necessary intimation was sent to Credit Information Bureau (India) Ltd. (CIBIL). That action of the Bank appears to have forced the appellants to start this legal battle by filing S.A. No. 40 of 2009 before the DRT, Delhi against Vijaya Bank challenging the Bank's threatened actions under SARFAESI Act and to protect the mortgaged properties from being auctioned. In that S.A. the appellants also lodged a counter claim for a sum of Rs. 25 crores against Vijaya Bank inter alia on the grounds that the Bank had not sanctioned full amount of loans applied for by it and that had resulted into delay in completion of its projects resulting into huge losses to it.
The relevant averments made by the appellants in their S.A., and which grievances earlier were raised by them in their reply to the Bank's notice under Section 13(2) also, are as under:
"5.8 That the records of the defendant Bank would further reveal, that interest (though at an extremely harsh and exorbitant rates) has been continuously serviced.
5.9 That by communication dated 17.11.2004, addressed to the Defence Colony Branch of the defendant Bank the applicant No. 1 had informed the defendant Bank of the fact that the applicant No. 1 had been allotted a Group Housing Lease Hold Plot admeasuring 5330.35 Square Meter @ Rs. 30,350/- per Square Metre situated at Sector 110, Noida, U.P.
5.10 That it was also duly informed that the total cost of the land would Rs. 16,17,76,122.50/- out of which 10% of the total land cost had already been deposited by the applicants with Noida towards earnest money deposit.
The balance amount of Rs. 14,55,98,510.25 was to be deposited within the period stipulated by the said Authority. The defendant Bank was well informed of the applicants plan to construct a Residential Group Housing Project as per the Project Report which was also duly furnished to the defendant Bank. It was informed that the total cost of the project including the cost of land that of construction including the external development would be Rs. 3546.31 lakh......Accordingly, the applicants requested the defendant Bank for a composite loan/facility to the extent of Rs. 2659.00 lakh for a period of 18 months with a moratorium period of 12 months from the disbursement of the said loan. The entire project and requirements were duly assessed and appraised by the defendant Bank and throughout it was represented to the applicants that the proposed and requested limits for the said project were legitimate and the entire proposal would receive favourable sanction. The applicants bona fidely acted on such assurances and representations only to be let down by the defendant Bank afterwards.
5.11 That it is pertinent to state herein that during the relevant period, the real estate development and property market were witnessing growth both globally and domestically with demand exceeding the availability. Accordingly, the applicants took decision to venture into the said project, it did so with the overt encouragement of the officers of the defendant Bank concerned who continuously assured of all required and requested cooperation from the side of the defendant Bank. The applicants had no reason to disbelieve such promises and assurances. However, the unfortunate and adverse turn of events that took place subsequently both in the International and domestic markets crippling the economy and particularly property market, leading to economic meltdown is totally unprecedented and could not have been foreseen by anyone including the applicants. The applicants also fell victims of such unprecedented negative turn.
5.12 That though, a composite loan/facility, as aforesaid of Rs. 2659.00 lakh was sought for Noida Project, the same contrary to earlier promises and assurances was not approved fully by the defendant Bank. For the reason best known to the officials of the defendant Bank, the approval of the same was dragged unnecessarily.........Vide letter dated 19.01.2005 the defendant Bank only granted ad hoc sanction of Rs. 485 lakh as against the requirement and proposal for Rs. 2659 lakh. Though, the time period allowed by the Noida was to be strictly adhered to, it was only on 22.3.2005 that the defendant Bank conveyed its sanction of term loan (ML-I) of only Rs. 14.75 crores with adjustments of ad hoc sanction of Rs. 4.85 crores. The said amount was barely enough to meet the land cost of the Project. This is one such illustration of gross arbitrariness attributable to the defendant Bank. Further, the defendant Bank arbitrarily stipulated and thrust upon the applicants that the repayment of the loan would commence from 21.3.2006 in 6 EMIs.
5.13.......Assurance was given to sanction of balance loan for construction when the building plans were ready to take the project execution, however, the said assurances were not forthcoming. The defendant Bank supposedly manned by experts and professionals would have certainly known the inevitable adverse impact of its actions........
5.16 That though the approval was given in September, 2005 by Noida Authority, however, the defendant Bank sanctioned ML-II for Rs. 20.46 crores in September, 2006 for the construction of the Noida Project and consequently the commencement of work of the project got delayed. It is pertinent to note that the repayment schedule of ML-I commenced on 21.3.2006 and also expired before the sanction of ML-II.
5.17 That vide letter dated 10.10.2005 the applicant No. 1 approached/represented to defendant Bank for re-schedulement of ML-I, i.e. Rs. 14.75 crores by six months with repayment of commencing on September 2006 due to the change of Plan of execution and delay in receiving the building plans as well as loan sanction and consequently the start of project execution.
5.18 That on the suggestion of the Bank vide letter dated 23.3.2006 the applicant No. 1 applied for additional loan for Rs. 23.42 crores towards building construction at Noida Project with repayment in 6 EMIs commencing after 15 months from its disbursement. However, nothing was done at the end of the defendant Bank.
5.20 That the applicant No. 1 herein vide letter dated 10.4.2007 made a proposal for Okhla Project loan of Rs. 22.87 crores. However, instead of sanctioning the said amount for which requirement was duly appraised, considered and recommenced, defendant Bank sanctioned ML-III of Rs. 14.80 crores against the proposal of Rs. 22.87 crores. The said sanction was made vide letter dated 10.8.2007 by the defendant Bank, it is pertinent to note that the proposal was made on 10.4.2007 and the sanction thereof was issued on 10.8.2007 and that too the entire amount was not sanctioned, thereby making the applicants position grave.
5.21 That the lackadaisical, unprofessional and un-pragmatic approach of the officials of the defendant Bank in dragging the proposals of the applicants and sanctioning the same belatedly and that too not even the required/requested amount, not only hindered the progress of work of applicants but also became the main reason for the financial crunch/crisis of the applicant No. 1. Since, the requisite payments when not sanctioned and disbursed, the applicant Company had to face serious complex situations. The projects were already started however, lack of finance hindered the business of the applicants including unnecessary cost overruns...........................
5.22 That the defendant Bank on 8.2.2008 without appreciating the applicants' adverse predicament and position and genuine demand/request and without appreciating that the required proposal amount was necessary to complete the project, which would benefit all, issued the sanction of Rs. 8.60 Crore only for the construction of Okhla Project.
5.23 That it would be evident from the records of the defendant Bank that though the Bank guarantee Limit of Rs. 10 crores was only utilized to a minuscule amount, the applicants on 21.11.2008 requested the defendant Bank for issuing a Bank Guarantee of Rs. 1.10 Crore in favour of M/s. A.N. Buildwell (P) Limited towards security deposit and the concerned documents were submitted which, however, was refused........
5.24 That it is pertinent to state that there being neither any action nor any response to the requests of the applicants and since the already started project were being badly hit due to the lack of finances that was expected and ought to have been contemplated by the defendant Bank, the applicants herein again sent a reminder of the aforesaid vide letter dated 5.2.2009, which was received by the defendant Bank on 6.2.2009........
5.25 That the delay in completion of project or the unprecedented economic meltdown and the adverse impact the same had on the construction and the development business and project not only internationally but domestically as well as something that the most prudent businessman would not have anticipated. There were no warnings. The demands for office and housing projects hitherto even prompted Banks to lower rates of interest for housing and property loans. The economic meltdown had its adverse impact. Faced with the witnessing of closure and Banks overseas going Bankrupt, the crash of the prime and sub prime markets, the fact that numerous companies have been hit severely causing lay offs and calls of Bankruptcy, Banks worldwide and domestically started pulling in the reigns and started to become unpragmatic. The adverse economic conditions particularly domestically has witnessed a drastic fall in foreign investments in property projects, fall in domestic demand, rise in interest rates and defaults in even housing loans. The applicants were not an exception and faced the brunt of the economic melt down.
5.26 That it is submitted that the defendant Bank instead of adopting a pragmatic approach, to the current conditions had adopted an unpragmatic attitude. Instead of appreciating the severe market conditions and adverse impact the defendant Bank knowingly became oblivious of the same. Even the Reserve Bank of India (RBI) has been promoting and urging all Public Sector Banks towards allowing restructuring and re-schedulment of loans, particularly for commercial real estate. That is why over the last year, RBI itself has formulated schemes, notifications and circulars urging all Banks and financial institutions to pitch in at this time of crises and restructure, reschedule loans as well as the lower rates of interest. The markets are driven by human and humans are driven by sentiments. It will take a while for the current negative sentiments to turn positive and the market to push in a positive mode again. However, Banks and particularly Nationalised Banks must play a positive role in nursing the sick businesses and encourage rehabilitation rather than flexing their dominant economic muscles, taking undue advantage of the draconian laws made in their favour and crush and throttle legitimate businesses such as the applicant No. 1. The present case also illustrates gross arbitrariness being exhibited by the defendant Bank. The Bank, being a nationalized Bank, must play a positive role rather than the negative one it is exhibiting in the present case. The defendant Bank is clearly falling in its reciprocal obligations and obligations towards the State and its citizens.
5.27 That the defendant Bank by acting more unfairly and un-pragmaticatly, by keeping aside all the Surveys and intervention of the Government, RBI and IBA, in November, 2008, unilaterally and arbitrarily stopped all loan facilities including the Cash Credit Facility and that legitimate requests for issuance of Bank Guarantee were also turned down arbitrarily. In the projects, such as the applicants had in hand, the same had a disastrous effect. The same badly affected not only the applicants business but severally jeopardized its reputation it the market.
5.28 That instead of appreciating the ground realty, the defendant Bank addressed a letter dated 6.2.2009 to the applicants demanding its purported outstandings qua ML-I and ML-II by 10.3.2009. The same was followed by another letter dated 16.2.2009 immediately on the 10th day of earlier letter and by letter dated 24.2.2009. This itself establishes the mala fides of the Bank. Instead of appreciating and adopting a pragmatic approach, the officials of defendant Bank for obvious reasons bent upon harassing the applicants. It is pertinent to state that there was/is violations in the original terms of repayment. The payment period was from January to June, however, the defendant Bank started demanding the same in between.
5.29 That again there being no response from the defendant Bank to any requests/representations and letters and the various and numerous personal meetings with all concerned officials of the defendant Bank, the applicants vide letter dated 12.3.2009 bona fidely and legitimately requested the defendant Bank to restructure ML-III and ML-IV by 12 months with change in Instalment from six EMIs to six quarterly instalments. It was categorically informed to the defendant Bank of the prevalent slow down of global economy and the need and requirements of a fair and pragmatic approach by the defendant Bank, it was further informed that the projects are already on going, however due to the bad market condition hardly any buyer was coming forward to invest in the commercial properties unlike in the past..........
5.30 That the applicant No. 1 again vide letter dated 27.3.2009 requested the defendant Bank for re-schedulement of Ml-I to ML-IV. These requests were well within the guidelines, circulars of the Reserve Bank of India. It was categorically informed to the defendant Bank that in both the Noida and Okhla Projects, the applicants had already completed the structure and finishing works were in progress. It was also informed that for Okhla project though vide letter dated 21.11.2008 the applicants had applied for disbursement of loan of Rs. 1.10 crore to continue with the construction, the same was not accorded.........The same resulted in delay in completing the building and consequently its sale and disposal. It was also brought to the knowledge of the defendant Bank that the sanction facilities were suspended in between, which resulted in affecting the existing construction business and securing new contracts which had the effect of eliminating the possibility of additional funds generation....... Still despite the receipt of the said letter the defendant Bank's unpragmatic and unprofessional approach is evident from the fact that no response whatsoever was ever made in the said letter.
5.32 That admittedly, between January, 2009 and March, 2009, the applicants had repeatedly legitimately approached the defendant Bank to provide and furnish necessary Bank Guarantees, so as to enable it to compete for various prestigious and profitable projects. The endeavour was to bona fidely attempt to keep its head above the water and also further scale down its legitimate liabilities in a reasonable period of time. However, the defendant Bank arbitrarily, unreasonably blatantly refused, owning to which the applicants lost out additional business opportunities as also profitability of about 12%.............On a conservative estimate, an amount of Rs. 25 crores had been put to loss to the applicants due to the arbitrary and callous conduct of the defendant Bank. There was no justification in refusing to furnish such Bank Guarantee. There would have been no additional exposure that would have caused adverse or detriment to the interests and rights of the Bank. Rather, as aforesaid, on securing such projects, the applicant No. 1 certainly would have been also able to accelerate repayments of the pending facilities. The officials of the defendant Bank instead of adopting a fair and pragmatic approach obviously and with something in mind were guided by extraneous considerations.
5.33 That it is relevant to state that a meeting had taken place in December 2008 with the officials of the defendant Bank wherein for the first time it was informed to the applicant No. 2 by erring officials of the defendant Bank, that the Account of applicant No. 1 had been purportedly classified as NPA since December 2006 by the RBI and the applicants were advised to fully repay the ML-I and Ml-II for the Noida Project before December 2008. This was subsequently confirmed by the defendant Bank vide its letter dated 7.7.2009. The revelation came as a complete shock. Hitherto, there was no prior information communication or revelation from anybody within the defendant Bank or elsewhere. The said fact was never disclosed in the year 2006-2007 or otherwise. Further, the defendant Bank had purportedly sanctioned Rs. 8.06 crores and Rs. 15.30 crores in February 2008 and also allowed re-schedulment of ML-I and ML-II which ought not to have been possible if the Accounts had purportedly been classified as NPA in '2006'. Had this been known in time alternatively favourable action could be taken.
5.34 That notwithstanding the delay in communicating the factum of alleged classification of NPA, the applicants made their best efforts to pay ML-I and Ml-11 by selling the applicant No. 1 's property
5.35 That instead of taking a pragmatic approach, the defendant Bank vide its communication dated 4.4.2009, arbitrarily recalled all credit facilities sanctioned to applicant No. 1........In doing so, an unrealistic period of 7 days was stipulated to square up the accounts...........The said letter was served on 7.4.2009. It is pertinent to state that again in utter violation of the original terms of repayment, it is for the first time the defendant Bank informed that it has classified the applicants' Account as NPA as on 31.3.2009......... The said letter dated 4.4.2009 was received by the applicants on 7.4.2009. The applicants then came to know that the information provided to it in the Meeting December 2008, that the Accounts had been classified as NPA in 2006 was absolutely false and incorrect and such representation were made to mislead and unnecessarily harass and pressurize the applicants.
5.36 That it is pertinent to state at this juncture that the Accounts maintained by the Bank would reveal and establish that the first instalment purportedly became due on 28.1.2009 and the third instalment purportedly became due on 28.3.2009. All interest obligations were being fully met with. However, the defendant Bank classified the Account of the applicant No. 1 as NPA even before the expiry of the minimum required period in terms of the mandatory applicable Guidelines of Reserve Bank of India. Hence, even the Accounts of the applicant No. 1 was classified as NBA in total contradiction of the RBI Guidelines and applicable laws. This itself requires complete investigation and adjudication and appropriate reliefs to be granted to the applicants.
5.38 That immediately, after the communication dated 4.4.2009 vide which the defendant Bank arbitrarily recalled all the credit facilities, further arbitrarily and unreasonable flexing its muscles, the defendant Bank issued the impugned Notice purportedly under Section 13(2) of the SARFAESI Act dated 13.4.2009 received by the applicants on 14.4.2009, thereby calling upon the applicants to pay an unconscionable, arbitrary and exorbitant amount of Rs. 65,70,92,707.69 besides interest. Besides being illegal, the demand and threats extended were arbitrary. The perusal of the said Notice would itself establish that the said Notice, among others, does not disclose or provide the necessary material particulars as to how such claimed amount had been arrived at. This fact alone also vitiates the impugned notice..........
5.42 The defendant Bank and its officials are directly responsible and attributable for the stoppage of the ongoing projects of the applicants........ The State Bank of India on advice of the defendant Bank confirmed vide Letter dated 5.5.2009 that they have been advised by the defendant Bank to close the Account of the applicants. It was not that the operation of the said account was not within the knowledge of the defendant Bank right through but also had its tacit approval. However, the officials within the defendant Bank for extraneous, illegitimate, mala fide and arbitrary reasons were now finding all ways and means to lead to a complete closure of the projects and legitimate business of the applicants.
5.43 That the defendant Bank's further arbitrariness, mala fide, illegalities and absurdity are also evident from the fact that the defendant Bank arbitrarily, issued letter dated 7.5.2009 seeking to declare the applicants as 'wilful defaulters'........ The arbitrariness and illegalities in the said communication was dealt with and respondent by the applicants through their Lawyer's Response dated 26.5.2009.
5.46 That the applicants herein on receipt of the communication dated 13.4.2009, purportedly issued under Section 13(2) of the SARFAESI Act responded to the same through their Lawyer vide reply dated 12.6.2009.... ".
(Highlighting of different portions is mine)
The prayers made in the S.A. were as under:
"(i) Hold and declare that all action and measures resorted to and initiated by defendant Bank herein including but not limited to notice dated 13.4.2009 and purported response dated 19.6.2009, the purported symbolic possession notice dated 23.6.2009 of the properties in question bearing Plot No. GH-004, Sector -110, Noida, Plot Nos. 12 and 13, Community Centre, Okhla Phase-is New Delhi and A-21, Lajpat Nagar-II, New Delhi-110024, and all consequent actions and measures under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 including all measure that would be initiated by the defendant Bank are illegal, null and void and unenforceable and set aside and quash the same qua the aforesaid claims of the defendant Bank against the properties in question;
(ii) Hold and declare that the defendant Bank, its servants, agents and employees are not entitled to take recourse to the provisions of Securitization Act including but not limited to any measures thereunder qua the aforesaid properties being Plot No. GH-004, Sector-110, Noida, Plot Nos. 12 and 13, Community Centre, Okhla Phase-I, New Delhi and A-21, Lajpat Nagar-III New Delhi-110024;
(iii) Hold that the defendant Bank is liable to pay an amount of Rs. 25 crores (Rupees Twenty Five Crores) to the applicant No. 1 Company together with interest @ 12% per annum with quarterly rest and pass a decree of the said amount in favour of the applicants and against the defendant Bank;
(iv) And in any event direct the defendant Bank to re -phase and Re-schedule ML-I to ML-IV providing an 18 months moratorium w.e.f. 1.9.2009 and repayment thereafter of the principal sum in 8 quarterly instalments;
(v) EMS of SL-II and SL-III which is due from March, 2009 to August, 2009 be directed to be deferred and the repayment of the same be directed to commence after the end of the of remaining EMIs of said SL-II and SL-III as per present sanction;
(vi) defendant Bank be directed to reinstate all facilities which have been frozen or recalled Including restoring the unutilized Bank guarantee(s) facility;
(vii) Hold and declare that in any event the defendant Bank ought to have afforded rehabilitation, nursing and restructuring of the Accounts as had aforesaid guidelines/instructions issued by RBI from time-to-time;
(viii) Award cost of the entire litigation in favour of the applicant and against the defendant Bank;
(ix) Grant such other and further orders and reliefs in favour of the applicant and against the defendant Bank as this Hon'ble Tribunal shall deem just and appropriate in the facts and circumstances of the present case and as also would be warranted in equity."
The relevant averments made in the reply of Vijaya Bank are also being reproduced below:
"5.3-5.7 The contents of Para under reply are not denied. However, it is pertinent to mention that the scope of present Securitization Application is a limited one and concerns as to whether or not the measures referred to in Sub-section (4) of section of the Act, taken by the defendant, are in consonance with the provisions of the Act and the rules made there under. It is an undeniable factual position that the applicants have failed in not only fulfilling their promises and commitments made with the Bank but have also failed to apprise this Tribunal with correct facts. Consequently, the applicants cannot be permitted to allege that the defendant is not entitled to take recourse to the measures under the Securitization Act. A bare perusal of the documents placed on record would reveal that the applicants have misused the co-operation and assistance extended by the Bank and failed to ensure that the facilities granted to them are repaid in time bound manner........
5.9-5.10 The contents of Para under reply are a matter of record. However, it is pertinent to mention that admittedly the loan facility sought by the applicants was for a period of 18 months and the same was to be repaid in 6 equal instalments commencing after 12 months from the date of Disbursement of Loan. As per the assurances made to the Bank, the applicants had assured and represented that the proposed project would be completed in time bound manner and the facilities would stand repaid in full. On basis of said assurance and understanding the loan application was processed and the loan agreements were executed between the parties. Copy of sanction letter dated 19.1.2005 placed on record would show that the duration sought by the applicants was accepted by the Bank, in as much as the principal terms of sanction clearly state that the entire loan is to be repaid in 6 equal monthly instalments after the repayments holiday of 12 months from the date of first disbursement. However, despite the said factual position the applicants failed in their commitments with the Bank and not only failed to maintain proper financial discipline but also failed to repay the amounts due within the agreed contractual period. It is therefore wrong to suggest that the applicants have, in any manner, been let down by the defendant Bank. On the contrary it is applicants who have systematically Induced the Bank to part with huge sum of money and are now unashamedly denying their promises and commitments.
5.12 In response to the averments contained in Para under reply it is submitted that vide letter dated 17.11.2004, admittedly, the applicants had themselves informed and represented to the Bank that they have deposited 10% of the total Land Cost and the balance 90% of the land cost, amounting to Rs. 14,55,98,510/-, is to be deposited by them. The applicants further represented to the Bank that out of this balance sum an amount of Rs. 485 lakh is to be deposited by them within 60 days of the date of issue of allotment letter and the remaining amount of Rs. 9,70,65,673.50 is to be deposited within 120 days from the date of issue of the Allotment Letter. Consequently, on the basis of representations made to the defendant, and to enable the applicant tide over the urgent requirement of meeting the conditions of allotment, ad hoc facility of Rs. 485 lakh was sanctioned and granted in its/their favour.....on 22.3.2005, amongst other facilities sanction of term loan (ML) of Rs. 1475 lakh was conveyed to the applicant and out of this sum of Rs. 485 lakh already disbursed was adjusted by the Bank. From the contents of letter dated 22.3.2005, it is further evident that as against the loan of Rs. 1475 lakh, it was expressly informed to the applicants that the repayment is to be made in 6 equal monthly instalments after an initial moratorium of 12 months and interest is to be serviced as and when debited. In view of the said factual position, the applicants cannot turn around and blame the defendant Bank as to why the facility of Rs. 485 lakh was initially disbursed..............
5.13 The allegations contained in Para under reply are wrong and denied. It is denied that the defendant had acted arbitrarily or that the applicants had protested and voiced grievance of undergoing any adverse implications relating to sanction of facilities in its favour. In any view of the matter, it is submitted that not only at the time of making loan application but also at the time of communication of the loan approval, as also in the intervening period the applicants were aware that mere applications for grant of particular limit cannot result in automatic approval.......In any event, if the applicants were of the view that the loan sanctioned by the defendant Bank is inadequate to meet the project requirements, the applicants ought not have accepted the disbursements from the defendant Bank. It is submitted that the applicants had consciously accepted and availed the loan approved by the Bank and therefore, it cannot be permitted to either question or blame the defendant as regards the adequacy of limits, etc. The allegations of the arbitrariness are therefore not only bald, bogus and concocted but the same are also without any basis, motivated and ill-advised.
5.15-5.16 The averments contained in Para under reply are denied for want of knowledge in any view of the matter, it was applicants responsibility of ensure that necessary approvals are obtained in time and no undue delay is caused in the implementation of the project, engagement of architect, etc. Any delay attributable to either applicant's own failure or to NOIDA (as alleged) cannot be treated as justification and excuse to prejudice the defendant form making recoveries in respect of the facilities admittedly availed by the applicants. It is evident from the contents of letter dated 27.8.2007 that the applicants had deliberately and consciously delayed the construction at NOIDA property in order to take advantage of relaxation in regard to height of the structure. It is a matter of record that the applicants had knowingly allowed the projects to get delay to derive advantage and for personal gains and profits. It is therefore, wrong to allege that delay in implementation of NOIDA project, or for that matter any other project, is attributable to the defendant.
5.18 The averments contained in Para under reply are denied to the extent that the defendant Bank had suggested the applicant No. 1 to make application for grant of additional loan of Rs. 23.42 Crores, much less towards building construction at NOIDA project. The contents of applicant's letter dated 27.3.2006 would apparently reveal that the additional loan assistance was admittedly sought on the ground that the applicant No. 1 has been awarded fresh contracts to the extent of Rs. 65,12 Crores and that after making survey of the real estate market, the applicants changed their previous planning and decided to construct the Project "Euphoria Premium Apartment" as the applicants wanted to encash the boom in the real estate, in view of the Common Wealth Games taking place in 2010, in Delhi. Accordingly, vide letter dated 27.3.2006 the applicants voluntarily represented and sought additional loan for a period of 21 months, to be repaid in 6 equal monthly instalments commencing after 15 months from the date of disbursement of the loan. A perusal of letter dated 27.3.2006 would reveal that the same does not contain even a whisper a averment of allegation to the effect that the representations contained therein was made under suggestion from the defendant Bank. Rather the contents of the said latter evidently belie the falsity of claims made by the applicants and expose their mala fide and ill- intent.
5.20-5.21 The allegations levelled in Para under reply are wrong and denied. It is wrong to suggest that the defendant Bank was under obligation to sanction full amount of loan sought by an applicant. In the instant case also the loan applications/proposals submitted by the applicants were duly considered by the defendant and due consideration proper sanction were granted as per rules. It is pertinent to note that agreeing with the request made by the applicants, in the loan sanction letter dated 10.8.2007, it was clearly mentioned that loan would/be repayable in 6 equal monthly instalments with initial moratorium of 18 months from the date of first disbursement or immediately after completion of the project, whichever is earlier. Interest was to be paid as and when debited to the account. It is thus wrong to allege that the sanction was of Rs. 14.80 crores against the proposal of Rs. 22.87 Crores for Okhla project was improper or that entire amount sought by the applicants was liable to be sanctioned.
5.23-5.25........The applicants cannot blame international economic situation for their failure in implementation of project......It is an admitted factual position that the necessary funding for implementation of the projects in question was provided by the defendant Bank and the applicants were undue obligation to ensure that the commitments made to the defendant Bank and the concerned authorities are fulfilled...............
5.29-5.30........It is submitted that since the applicants had failed to honour their commitments made to the Bank, and had started committing defaults, therefore it was not advisable for the defendant to agree to the requests made by the applicants. It is wrong to suggest that irrespective of the conduct of the applicants and the manner in which the loan account were maintained, the defendant Bank was obliged to accept each and every request made by the applicant. It is reiterated that the delay in implementation of projects cannot be attributed to the defendant Bank.
5.33 The contents of Para under reply are wrong and denied. It is wrong to suggest that the account of the applicant No. 1 has been classified as NPA since December 2006. It is submitted that at the time of conducting annual audit, the auditors appointed by the RBI instructed the defendant Bank that since the accounts of applicants........satisfactory manner therefore, the said accounts be classified as NPA on 31.3.2009 with retrospective effect from 31.7.2006. It is wrong to suggest that the accounts of applicant No. 1 were classified as NPA in the year 2006-2007 or that the defendant Bank had failed to disclose the said information. As such it is wrong to allege that the sanction of loan of Rs. 8.06 crores and Rs. 15.30 crores in February 2008 was improper. The actions of the Bank are strictly in accordance with the rules, regulations, guidelines and directions issued by the RBI and there is no illegality in the same. The grievance of the applicants is absolutely unjustified and unsustainable.
5.36 The allegations levelled in Para under reply are false and incorrect, hence denied. It is denied that the classification of the accounts of applicant No. 1 was done in contravention of the RBI guidelines and applicable laws. It is denied that the allegations levelled by the applicant require investigation and adjudication. As submitted above, since the accounts in question were classified NPA on instructions received from the auditors of the RBI as such it cannot in any manner be alleged that the defendant had violated any guideline or applicable law.
5.37 The allegations levelled in Para under reply are wrong and denied. It is denied that the defendant had acted in an arbitrary manner. It is submitted that since the accounts of the applicant No. 1 stood classified as NPA therefore, the defendant Bank could not hove allowed disbursement of further payments and facilities to the applicants............
5.38-5.40.......It is wrong to allege that the notice dated 13.4.2009 was issued in arbitrary exercise of powers. It is wrong to suggest that the recoveries sought to be made from the applicants in illegal, unconscionable, arbitrary and exorbitant. The notice issued by the defendant is in consonance with the law.......
5.46 - 5.49 in reply to Paras 5.46, 5.47, 5.48 and 5.49, it is submitted that the applicants have admitted that on 14.4.2009 they were served with the notice dated 13.4.2009 issued under Section 13(2) of the Securitization Act.......The applicants had failed to file their response within the statutory period of 60 days therefore, the averments contained in reply letter dated 12.6.2009 cannot be read and referred for the purposes of present case and the same do not merit any adjudication. Since the applicants neither took requisite steps and comply with the demands made in the notice nor made any representation/objection as against the demand notice, within the period stipulated under law, therefore, as per the mandate of Section 13(2) of the Securitization Act, the Authorized Officer of defendant Bank was justified in taking measures for exercise of rights under Sub-section (4) of Section 13 of the Securitization Act.
5.50.......It is an undeniable factual position that admittedly loan facilities were sought and granted in favour of the applicants. It is also an admitted position that the applicants have failed to fulfil their promises and commitments made with the Bank and have failed to repay the facilities availed by them. It is submitted that since huge sums of money was due and recoverable from the applicant and even during the annual audit, the RBI auditors found the applicant accounts as doubtful and unsatisfactory therefore, in accordance with the rules the accounts were classified as NPA and the Authorized Officer of the defendant Bank was constrained to take recourse to measures under the SARFAESI Act, 2002."
(Highlighting is mine)
Sometime in the year 2010 during the pendency of the appellants' S.A. Vijaya Bank assigned the debts payable to it by the borrower Company in favour of one Asset Reconstruction Company by the name of Phoenix ARC Pvt. Ltd., which is respondent No. 1 in Appeal No. 124 of 2015 and respondent No. 4 in the other Appeal No. 123 of 2015 and accordingly this assignee Company was also impleaded as respondent No. 2 in S.A. No. 40 of 2009.
During the pendency of the appellants' S.A. No. 40 of 2009 the aforesaid assignee of Vijaya Bank also initiated recovery proceedings against the borrower Company and its two directors, appellants 2 and 3 herein, who had extended their personal guarantee for the re-payment of the loans advanced to their Company, by filing a petition under Section 19 of the RDDBFI Act before the DRT registered as O.A. No. 198/2010) for the recovery of Rs. 68,73,82,465/- plus interest thereon etc. and in that petition Vijaya Bank was impleaded as defendant No. 4.
The DRT disposed of the appellants' S.A. and assignee Company's O.A. by a common order dated 17.10.2014. The appellants felt aggrieved by the rejection of their counter claim in toto and also by some other conclusions regarding the declaration of their accounts as NPAs. Accordingly they filed separate appeals in respect of the final decisions in respect of the S.A. and O.A. The assignee Company also challenged some part of the DRT's order in the S.A. and O.A. by filing two appeals (being Appeal Nos. 446/2014 and 447/2014).
It appears that during the pendency of the four appeals the appellants and the assignee Company entered into some settlement and accordingly the appeals filed by the assignee Company were disposed of as settled for which purpose one joint application being I.A. No. 191/2016 was moved. This Tribunal is now to decide only the appeals of the borrower Company and the two guarantors. The same were heard analogously since the points urged in both the appeals were common centering around the declaration of the appellants' accounts as NPAs and so the same are being disposed of also by this common order.
Will first take up Appeal No. 123 of 2015 arising out of S.A. No. 40 of 2009 filed by the appellants. At the outset when it was put to Mr. Rajeeve Mehra, learned Senior Counsel for the appellants that when the matter of payment of money to Bank's assignee had been settled then why the appellants were still pursuing their fight as far as declaration of their accounts as NPAs by Vijaya Bank is concerned, his answer was that this is not a simple case of classification of the appellants' accounts as NPAs but it is the consequences of Bank's decision to that effect which had totally ruined the entire business of the borrower Company inasmuch as by referring the alleged defaults of the borrower Company to CIBIL characterizing it a 'wilful defaulter' it had become disentitled to get any kind of financial benefits from any other Bank or even from any financial institution in the finance market and hot only that when State Bank of India was lending its helping hand to the borrower Company by allowing financial facilities to it in its bad days Vijaya Bank had approached that State Bank of India also and got the facilities being extended to the borrower Company stopped.
Consequences of declaration of some borrower of a Bank as 'wilful defaulter' has very serious and far reaching consequences. Hon'ble Delhi High Court had noticed those consequences in the following para in its judgment dated 17 December, 2015 in LPA No. 589/2014, Punjab National Bank & Ors. v. Kingfisher Airlines Limited & Ors.:
"The ramifications of a person being labelled as a wilful defaulter are wide and drastic. Such declaration sounds the commercial death knell of the borrower in the sense that credit facilities would no longer be available to such borrower. Not only would such a borrower be deprived of credit facilities from Banks and financial institutions but is likely to be also deprived of credit from any other person with whom it may be having financial/commercial dealings. The suppliers of goods and raw materials to such borrowers would stop supplying goods and raw materials on credit and would insist upon delivery against payment. Not only so, such declaration as a wilful defaulter, which is put in public domain, is also injurious to commercial goodwill and reputation of the borrower, likely to make anyone weary of dealing with the borrower. All this is likely to lead to cessation of the business of such a borrower."
In view of these consequences faced by the borrower Company learned Senior Counsel was absolutely justified in making the submission that there was no way the appellants could give up their legal battle for getting a declaration from this Tribunal that the appellants were never 'wilful defaulters' and the conclusion of the DRT that the measures taken by Vijaya Bank under SARFAESI Act were justified was not sustainable at all. Though I was also informed that against the decision of the Vijaya Bank to declare the borrower Company as a 'wilful defaulter' necessary representation was made before the Grievance Redressal Committee constituted to look into the representations of the borrowers declared as 'wilful defaulters' and having not got reversal of that declaration the borrower Company had approached Hon'ble Delhi High Court also by filing Writ Petition No. (C) 1153/2009 and in that petition Vijaya Bank had made a statement that Grievance Redressal Committee will consider the representation of the borrower afresh. Accordingly the declaration of borrower Company as a 'wilful defaulter' was set aside by the High Court. I was also told that thereafter no fresh decision had so far been taken by the Grievance Redressal Committee. So, this legal battle, according to the submission of Mr. Rajeeve Mehra has to continue.
The appellants had also moved a review application before the DRT for review of its final order dated 17.10.2014 to the extent it was recorded therein that Counsel for the appellants herein had made some concessions based on which the O.A. was decided. However, that review application was dismissed. That fact was sought to be incorporated in the memorandum of present appeals by the appellants by moving an amendment application but at the time of consideration of that application it was agreed that the submissions touching the rejection of the review application could be made by the appellants at the time of hearing of these appeals. However, no submissions were made in respect of that application and in fact the entire submissions made by the learned Senior Counsel for the appellants were centering around the conclusion of the DRT in the impugned order that the measures taken by Vijaya Bank under SARFAESI Act were justified.
In view of the aforesaid submissions made by the learned Senior Counsel for the appellants it has thus become necessary to deal with the appeal arising but of the S.A. of the appellants on merits and the same cannot be disposed of as having become infructuous because of the settlement between the borrower Company and the Bank's assignee M/s. Phoenix ARC Pvt. Ltd.
Before considering the rival contentions let me first see how the learned Presiding Officer of the DRT dealt with the matter and decided the main controversy centering around the classification of the accounts of the appellants as NPAs and the legality of the Bank's measures taken under SARFAESI Act for the recovery of its money from the appellants. The relevant portions from the impugned order of the DRT need to be noticed for that purpose and are being re-produced below:
"2. The securitization application i.e. S.A. No. 40/2009 has-been filed by the applicants under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 read with principles of Sections 19(25), 22 of the RDDBFI Act read with Rule 18 of the DRT (Procedure) Rules, 1993 seeking quashing of all the actions initiated by the respondent Bank under Section 13(2) of the SARFAESI Act qua the properties belonging to the applicants situated at, (i) Plot No. GH-004, Sector 110, Noida, (ii) Plot Nos. 12 and 13, Community Centre, Okhla, Phase-II New Delhi and (iii) A-21, Lajpat Nagar-II, New Delhi.
It has further been stated that in December 2008, it has been informed by the officials of the Bank that the account of applicant No. 1 has been classified as NPA since December 2006 by the RBI and the applicants were advised to fully repay the ML-I and ML-II for the Noida project before December 2008. This is a shock to the applicants as they were never informed this fact in the year 2006 or 2007. Further, the respondent Bank was purportedly sanctioned Rs. 8.06 crores and Rs. 10.30 crores in February 2008 and also allowed re-schedulement of ML-I and ML-II which ought not to have been possible if the accounts had purportedly been classified as NPA in 2006. Vide letter dated 4.4.2009, the Bank has recalled its entire credit facilities and asked the applicants to square up the same within 7 days.
As per the applicants, the account maintained with the Bank would reveal and establish that the first instalment became due on 28.1.2009 and the third instalment became due on 28.3.2009. All interest obligations were duly met with. However, the account was declared as NPA without any basis and without following the mandatory guidelines of the RBI. Immediately thereafter, the Bank issued the notice under Section 13(2) of the SARFESI Act dated 13.4.2009 demanding on account of Rs. 65,70,92,707.69 which is totally illegal and arbitrary. That instead of cooperating in this hour of the need, the Bank vide their letter dated 4.5.2009 advised the SB/, another Banker of the applicant No. 1 to close all the accounts of applicant No. 1 and said action of the Bank was totally illegal, unwarranted and has been done with mala fide intentions. Resultantly, the SBI also backed out and stopped all transactions. This fact was also proved from the letter dated 7.5.2009 whereby the respondent No. 9 Bank declared the applicants as '"wilful defaulter".
The applicants vide their reply dated 12.6.2009 replied to the notice dated 13.4.2009 issued by the Bank under Section 13(2) and taken various pleas which includes, the notice was not sent by an authorized person, the amount claimed is wrong and erroneous, interest charged is exorbitant etc. the reply was replied by the Bank vide their letter dated 19.6.2009 dismissing all the objections taken by the applicants herein. It has been stated that the amounts shown as due in the alleged notice is due and outstanding against the applicants herein. Rates of interest, penal interest and capitalizing of penal interest has not been shown in the alleged notice. The reply given by the respondent Bank to the reply of the applicants is nothing but an eyewash and not as per the provisions of Section 13(3A) of the SARFESI Act, possession notice issued by the Bank under Rule 8 Dated 23.6.2009 is totally illegal and unwarranted. The applicants are not the wilful defaulters and it was all because of severe market conditions. Even the applicants have to recover about Rs. 20.00 crores from M/s. Unitech. The Bank assessed the value of the secured assets at a very low price.
In these facts, it has been prayed to declare the actions initiated by the respondent No. 1 Bank qua secured assets being illegal and the notices issued by the respondent Bank under Sections 13(2) and 13(4) be quashed. It has also been prayed to hold and pass a decree that the respondent Bank is liable to pay an amount of Rs. 25.00 crores to the applicant No. 1 company together with interest @ 12% p.a. with quarterly rests. It has further been prayed to direct the respondent Bank to reschedule the ML-Ito ML-IV and SI-II and SI-III Loans and the Bank be directed to reinstate all the facilities which has been frozen or recalled by the Bank.
The respondent Vijaya Bank has filed its reply to the present S.A. vehemently opposing the reliefs and grounds prayed for in the present S.A............
So far as declaration of account as NPA is concerned, it has been stated that at the time of conducting annual audit, the auditors appointed by the RBI instructed the respondent Bank that since the accounts of applicant No. I have not been maintained in a satisfactory manner, therefore, the said accounts be classified as NPA on 31.3.2009 with retrospective effect from 31.7.2006. In view of this, it is wrong to say that the accounts of applicant No. 1 were classified as NPA in the year 2006-2007 or that the respondent Bank had failed to disclose the said information. It is also wrong to say that the sanction of loan of Rs. 8.06 crores and Rs. 15.30 crores in February 2008 was improper. The actions of the Bank are strictly in accordance with the rules, regulations, guidelines and directions issued by the RBI by the RBI and there is no illegality in the same.
..........In nutshell, the main objection raised by the applicants in the present SA is wrongly declaration of the account as NPA on 31.3.2009 with retrospective effect from 31.7.2006 on the basis of some alleged audit observation by RBI under Section 35 of the Banking Regulation Act.
During the course of arguments, learned Counsel for the applicants Mr. Amit Dhuper submitted that he is confining his arguments only to the extent of declaring the account NPA. He submits that since the account has been wrongly declared as NPA, all the subsequent proceedings initiated by the respondents under the provisions of SARFAESI Act vitiates
On the contrary, learned Counsel for the respondent Bank produced before this Court a copy of the objections raised by the Auditors appointed by the Reserve Bank of India, copy whereof have been supplied to the applicants. I have heard both the sides on this issue at great length and have gone through the material available on record. This Tribunal feels that the account was declared as NPA for non-payment of the dues as per RBI guidelines. The Bank has duly considered the request of the applicants for restructuring of the loans. The loans were restructured and the same was not denied by the Bank. Until 2009, the accounts were not regularized by the applicants. Though the Counsel for the applicants submitted that they have paid certain amounts of interest. Learned Counsel for the respondent Bank submitted that even on the date of declaring the account as NPA on year 31.3.2009, the account was irregular and it is not the case of the applicants that they have got the account regularized.
This Tribunal feels that once the account is restructured, it cannot be declared NPA from a retrospective date. But the compulsions of the respondent Bank is that they have to abide by the instructions of their apex body i.e. Reserve Bank of India. This Tribunal feels that declaration of the account as NPA from a retrospective date is not correct and all actions subsequent thereto are illegal and liable to be set aside. But on the other hand, even if we take the declaration of account as NPA w.e.f. 31.3.2009 which is the actual date of NPA, the account was still irregular and it has not been regularized by the applicants. Thus, SARFAESI measures initiated by the respondent Bank are maintainable. Therefore, the action of the Bank is justifiable.
At this stage, learned Counsel for the applicants submits that he has convinced his clients to make payments of the respondent Bank and as per his instructions, his clients are ready to make the payments in eight equal quarterly instalments provided this Tribunal may consider the rate of interest charged by the Bank which is at higher side.
To this suggestion, learned Counsel for the respondent Bank/respondent company submits that they are interested in recovery of their money as debt has already been assigned by respondent No. 1 Bank in favour of respondent No. 2 company. This Tribunal has appreciated the views of learned Counsel Mr. Amit Dhuper that just to cut short the controversy, he has advised his clients that ultimately they have to make payment of dues of the respondent Bank and further litigation could have been curtailed in order to buy the peace.
Thus, in my considered view and in the peculiar facts and circumstances of the present case, the applicants herein are directed to make the payment in six monthly instalments along with interest to be decided by this Tribunal in OA No. 198/2010.
So far as counter-claim of Rs. 25.00 crores as raised by the applicants in the present S.A. is concerned, I have not found any force or substance in the same. The losses, if any, incurred by the applicants cannot be attributed to the respondent Bank. The applicants failed to show even a single document which can prima facie establish that any loss has accrued to them due to the lapses of the respondent Bank. I am satisfied with the reply and loaning documents filed by the Bank in support of their claim. The counter-claim is hereby dismissed.
In the tight of above discussions, the present S.A. No. 40/2009 stands disposed off accordingly."
(Highlighting of different portions is by me).
From the pleadings of the appellants and Vijaya Bank extracted already and particularly the portions which have been highlighted by me and which have been noticed by the DRT also in the impugned order and relevant portions wherefrom have also been extracted by me, as also the submissions advanced from both sides at the time of hearing of the two appeals and the it becomes evident that the main controversy between the parties was whether the Bank had wrongly declared their accounts as NPAs and its taking recourse to measures under SARFAESI Act was arbitrary, illegal and mala fide, as was the case of the appellants, or whether the Bank was justified in having recourse to Section 13(4) of SARFAESI Act after serving upon the appellants a notice dated 13.4.2009 under Section 13(2) after declaring their accounts as NPAs and upon their failing to repay the Bank's dues as demanded in the notice under Section 13(2) within the statutory period of sixty days, as was the case of Vijaya Bank.
A From the voluminous documents placed on record by the parties it appears and which position was not contested also by Mr. Vaibhav Dang, learned Counsel for Vijaya Bank and even by the learned Counsel for Phoenix ARC Pvt. Ltd. that even though the Bank had been extending whole heartedly various credit facilities, which are the subject matter of controversy in this legal battle, to the borrower Company from 1995 onwards till 2008 the Bank did not complain to the borrower Company during that long period that it was defaulting in repayment of principal loan money or interest as per the terms of sanctions of various financial facilities sanctioned to it. In fact, the Bank was graciously re-scheduling the re-payments of loan amounts at the request of the borrower Company. It was also not disputed that besides re-scheduling the re-payments under the already disbursed loan amounts Vijaya Bank also had also been continuing to sanction additional facilities running into crores. Even the learned Presiding Officer of the DRT in its impugned order had observed that "The Bank has duly considered the request of the applicants for restructuring of the loans. The loans were restructured and the same was not denied by the Bank". This finding of the DRT was not assailed as being incorrect either by the Bank's Counsel or the assignee's Counsel during the course of arguments. The Bank has not filed any appeal and the appeals filed by its assignee stand withdrawn.
Now, the undisputed position is that all of a sudden in the beginning of April, 2009 Vijaya Bank recalled all the loan facilities given to the borrower Company. It is also undisputed that even the re-calling of all loan facilities and the demand for immediate clearance of the outstanding dues was not the Bank's own decision but that was done in view of the directions from the audit team of Reserve Bank of India. The learned Presiding Officer of the DRT had also observed in the impugned order that "This Tribunal feels that once the account is restructured, it cannot be declared NPA from a retrospective date. But the compulsions of the respondent Bank is that they have to abide by the instructions of their apex body i.e. Reserve Bank of India". This observation was also not criticised by the learned Counsel for the Bank as well as the Bank's assignee as being incorrect factually.
It appears that when the audit team of Reserve Bank of India was carrying out the audit for the year 2007-2008 of Vijaya Bank's records regarding sanctions and disbursements of loans to different customers of the Bank it was noticed by the auditors that the borrower Company's two mortgage accounts (ML I & II) ought to have been declared as NPAs in 2006 itself as the borrower Company did not fit into the category of those borrowers specified by Reserve Bank of India who were entitled to the benefit of repeated re-scheduling of their accounts as had been done by Vijay Bank. Upon that observation of the audit team of Reserve Bank of India Vijaya Bank also then started claiming that re-scheduling of the accounts was done by the Bank itself wrongly and contrary to RBI guidelines and because of that reason even the loans which were sanctioned after sanction of Mortgage Loans I and II were re-called.
Mr. Rajeeve Mehra, Senior Advocate arguing for the appellants mainly restricted his submissions to the observation of the DRT in the impugned order that "But on the other hand, even if we take the declaration of account as NPA w.e.f. 31.3.2009 which is the actual date of NBA, the account was still irregular and it has not been regularized by the applicants. Thus, SARFAESI measures initiated by the respondent Bank are maintainable. Therefore, the action of the Bank is justifiable". Mr. Rajeeve Mehra submitted that it was not even the case pleaded by Vijaya Bank or for that matter even of its assignee Company that the accounts of the appellants were irregular as on 31.3.2009 even after rescheduling of their accounts and consequently the learned Presiding Officer of DRT erred in upholding the Bank's measures resorted to under SARFAESI Act which in fact ought to have been quashed after it had reached at the conclusion that the Bank had admittedly rescheduled appellants' accounts and so could not have been declared NPAs retrospectively even if audit team had observed that rescheduling was not proper though that observation was in any event was in respect of the originally sanctioned two mortgage loans (ML I and ML II). Further submission of the learned Senior Counsel was that if this Tribunal sets aside the observation of the DRT that the accounts of the appellants were not regular even on 31.3.2009 and so that date could be taken as the date of 'NPA' and the Bank is directed to write to CIBIL that their accounts were not NPAs on 31.3.2009 and the appellants be brought out from the category of 'wilful defaulters' they will be satisfied and in that event they will also not be pressing for their counter claim and compensation etc. which had been summarily rejected by the DRT without even discussing as to why the appellants were claiming 25 crores of rupees from Vijaya Bank and how they could be said to have not established their counter claim. Mr. Mehra very fairly also submitted the appellants would in any event continue to honour the terms of settlement which had been arrived at between them and Vijaya Bank's assignee M/s. Phoenix ARC Pvt. Ltd. as far as the appellants' liability determined by the DRT in its O.A. is concerned and because of which settlement this assignee Company had withdrawn its two appeals. Accordingly the learned Counsel for the Vijaya Bank's assignee did not address any arguments.
As far as Vijaya Bank is concerned, its learned Counsel Mr. Vaibhav Dang simply responded to the submissions of Mr. Mehra that it was not the Bank's case that even after restructuring done by the Bank the borrower Company was a defaulter in terms of the guidelines of Reserve Bank for India justifying the classification of its accounts as NPAs by saying that 'the Bank's stand in that regard was a matter of record' meaning thereby that it was being accepted that since the DRT had recognized the rescheduling of the accounts of borrower Company and which observation was not challenged by the Bank the borrower Company was not in default as on 31.3.2009.
Thus, even though after the audit team of Reserve Bank of India's report Vijaya Bank had also started claiming that rescheduling of accounts of the borrower Company should not have been done but that stand will not alter the factual position that it was never the case of Vijaya Bank, either pleaded in its pleadings or proved in evidence, that after rescheduling of the accounts also the borrower Company was in default as on 31.3.2009 the DRT could not have come to the conclusion on its own and make out a new case in favour of the Bank that even after rescheduling of the accounts the borrower Company was a defaulter. That is not permissible in law. The DRT was expected to examine the legality of the Bank's case as it was pleaded by it and having come to the conclusion that retrospective declaration the accounts of the borrower Company as NPS after rescheduling was done it could not have while dictating the final order made out an altogether new case for the Bank, which in fact not was even argued also before it by the Counsel for the Bank. By doing that the learned DRT not only violated the principles of natural justice but committed a patent illegality which has to be set aside more particularly for the reason that even before this Tribunal no attempt was made on behalf of Vijaya Bank to show that at any stage its case was that the borrowers' accounts were irregular even after final re-scheduling had been accepted by the Bank.
The result of the aforesaid discussion is that the conclusion of the learned DRT in its impugned order to the effect "But on the other hand, even if we take the declaration of account as NPA w.e.f. 31.3.2009 which is the actual date of NPA, the account was still irregular and it has not been regularized by the applicants. Thus, SARFAESI measures initiated by the respondent Bank are maintainable. Therefore, the action of the Bank is justifiable", is set aside. However, despite this, the actions which already stood taken by the assignee of the Bank under Section 13(4) of the SARFAESI Act will not stand set aside in view of the categorical undertaking having been given on behalf of the appellants during the course of arguments by their learned Senior Counsel that the appellants will not be asking for any consequential reliefs if the above quoted impugned lines from the impugned order of the DRT are removed by this Tribunal and further that the appellants shall continue to honour its commitments towards the assignee Company as per the settlement which had been arrived at between the borrower and the assignee Company. Vijaya Bank shall now forward a copy of this order to CIBIL and appellants will also be at liberty to deliver its copy in the office of CIBIL so that declaration of the borrower Company as 'wilful defaulter' is revoked.
As far as the appeal against the decision of the DRT in the O.A. is concerned the relevant paras and observations in the impugned order are re-produced below:
"31. At this stage, learned Counsellor for the applicants submits that he has convinced his clients to make payments of the respondent Bank and as per his Instructions, his clients are ready to make the payments in eight equal quarterly instalments provided this Tribunal may consider the rate of interest charged by the Bank which is at higher side.
To this suggestion, learned Counsel for the respondent Bank/respondent company submits that they are interested in recovery of their money as debt has already been assigned by respondent No. 1 Bank in favour of respondent No. 2 company. This Tribunal has appreciated the views of learned Counsel Mr. Amit Dhuper that just to cut short the controversy, he has advised his clients that ultimately they have to make payment of dues of the respondent Bank and further litigation could have been curtailed in order to buy the peace.
Thus, in my considered view and in the peculiar facts and circumstances of the present case, the applicants herein are directed to make the payment in six monthly instalments along with interest to be decided by this Tribunal in OA No. 198/2010.
XXX XXX XXX
The Original Application No. 198/2010 was filed by the applicant company i.e. Phoenix ARC Pvt. Ltd. against the defendant Nos. 1 to 3 for recovery of a sum of Rs. 68,72,82,465/- (Rupee Sixty Eight Crores Seventy Two Lacs Eighty Two Thousand Four Hundred and Sixty Five only) together with pendente lite and future interest at contractual rate of interest from the date of filing of this OA till its realization.
The defendant Nos. 1 to 3 contested the OA mainly on the grounds as mentioned above in the facts of S.A. No. 40/2009. Both the parties have filed their respective evidence by way of affidavits and documents.
The defendant Nos. 1 to 3 have neither denied the availment of loan facilities nor the creation of equitable mortgage or execution of any document. Even during the pendency of present proceedings, the defendants have already redeemed one of the mortgaged properties situated at NOIDA by paying an amount of Rs. 36.01 crores. The only ground taken by the defendants is that the account has wrongly been declared as NPA. The said issue has already been decided by this Tribunal in S.A. No. 40/2009.
In my opinion, the witness of the applicant company has fully corroborated the averments made in the OA. Even otherwise the whole case of the applicant is based on documents and the witness has duly proved all these documents. In my view there is no question of disbelieving the evidence led by the applicant and the applicant Bank has proved its case beyond reasonable doubts. The defendant Nos. 1 to 3 are held liable to pay jointly and severally to the applicant company.
As per the provisions of Section 19(20) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which is analogous to Section 34 of CPC, on filing the suit/claim, the contract between the parties comes to an end and the Court/Tribunal has a discretion to award the same depending upon the circumstances of each case. Same principle has been laid down by the Hon'ble Apex Court in the case of Central Bank of India v. Ravindra & Others. Taking stock of all the circumstances and keeping in view that there is a drastic fall in rates of interest globally and domestically, I am of the opinion that Interest of justice will be served if the interest at simple contractual rate is awarded from 31.3.2003 i.e. date of NPA (without any penal interest).
In the light of above discussions, the Original Application No. 198/2010 deserves to be allowed.
ORDER
(i) I allow this OA and direct the defendant Nos. 1 to 3 to pay to the applicant company, within a period of six months in six monthly instalments, a sum of Rs. 68,72,82,465/- (Rupees Sixty-Eight Crores Seventy-Two Lacs Eighty-Two Thousand Four Hundred and Sixty-Five Only) minus the amount already received by the applicant company, along with costs, expenses and future simple interest at contractual rate from 31.3.2009 till the date of realization, falling which the aforesaid amount shall be recovered from the sale of mortgage properties, hypothecated stocks and other movable and immovable assets of the defendants. The applicant company is also directed to file the revised statement of account before the learned Recovery Officer of this Tribunal after giving due adjustment of Rs. 36.01 crores received by it from the redemption of the property situated at NOIDA,
(ii) The recovery certificate be issued forthwith and be sent to the Recovery Officer, DRT-I, Delhi.
(iii) It is made clear that in case of a single default in payment of dues by defendant Nos. 1 to 3 as directed above, the applicant company is held entitled to take measures under the SARFAESI Act without any clarifications from this Tribunal."
As far as the appellants' counter claim raised in the S.A. is concerned, the DRT rejected the same and the relevant para in that regard in the impugned order reads as under:
"35. So far as counter-claim of Rs. 25.00 crores as raised by the applicants in the present S.A. is concerned, I have not find any force or substance in the same. The losses, if any, incurred by the applicants cannot be attributed to the respondent Bank. The applicants failed to show even a single document which can prima facie establish that any loss has occurred to them due to the lapses of the respondent Bank. I am satisfied with the reply and loaning documents filed by the Bank in support of their claim. The counter claim is hereby dismissed."
At the time of hearing no submissions were made in respect of these conclusions of the DRT in the O.A. and the reason appears to be that there was a settlement between the appellants and the ARC M/s. Phoenix ARC Pvt. Ltd. terms whereof are to be found in the joint IA No. 191 of 2016 which had been moved before this Tribunal by the appellants and the said assignee of Vijaya Bank and because of which settlement the assignee Company had not pursued its two appeals (443/2014 arising out of O.A. Nos. 198/2010 and 446 of 2014 arising out of S.A. No. 40/2009) against the final impugned order of DRT challenging grant of the benefit of payment of the dues to assignee in instalments and at a reduced rate of interest. Therefore, appellants' Appeal No. 124/2015 against the conclusions of the learned DRT in the O.A. stands dismissed and appellants' S.A. stands allowed partly to the extent indicated already.