Canara Bank vs M.D. Art Jeweller And Ors.

S.N.H. Zaidi, J

This appeal impugns the judgment and order dated 7.10.2009 passed by the Presiding Officer of DRT-III, Delhi allowing OA No. 1691 2012 against respondent Nos. 1 to 3 for the recovery of Rs. 14,72,281/-, rounded off to Rs. 15 lacs, together with interest @ 10% per annum w.e.f. 01.01.2009 till the realization, payable in 12 monthly instalments. The facts of the case, briefly stated, are that the appellant bank had sanctioned an open Cash Credit (Hypothecation) Limit of Rs. 20 lacs on 26.5.2004 under the 'Traders Finance Scheme' to respondent Nos. 1 and 2 on execution of loan and security documents and also on executing guarantee agreement and mortgaging a shop situated at A-107, Ground Floor, Majlis Park, Delhi by respondent No. 3 in favour of the bank. The respondent No. 1, through its proprietor respondent No. 2, acknowledged the outstanding debt of Rs. 20,25,606/- on 6.1.2006. As the loan account became out of order, it was classified as Non Performing Asset (NPA) by the bank on 30.9.2006 and a demand notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) was issued on 8.11.2006 claiming an amount of Rs. 23,86,453/-. The bank filed an application (O.A. No. 169/2008) on 17.11.2008 under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, the RDDBFI Act) against the borrowers and guarantor/mortgagor for the recovery of Rs. 23,25,781/- alongwith pendente lite and future interest @ 15.75% p.a. compounded monthly with 2% penal interest. All the respondents appeared through counsel and without filing the written statement, sought time to settle the matter with the bank, but no settlement was made. The respondent No. 3 filed an application under section 17 of the SARFAESI Act (S.A. No. 95/2009) challenging the measures taken by the bank. The Tribunal below while observing that the respondents had made payments of Rs. 8,53,500/- from 31.1.2007 to 30.4.2008, reduced that amount and allowed the O.A for the recovery of Rs. 14,72,281/-, which has been rounded off to Rs. 15 lacs, together with interest, with the direction for its payment in 12 equal monthly instalments, vide order impugned dated 7.10.2009. Feeling aggrieved with that order, the bank has filed the present appeal.

As respondent No. 3 Smt. Promila Rani had died during the pendency of appeal, her legal representatives were duly substituted. The appeal has been heard ex parte against respondent Nos. 1 and 2, also arrayed as respondent No. 3A, as they failed to appear despite sufficient service of notice.

Ms. Seema Gupta, the learned counsel appearing for the appellant bank, contended that as defendant/respondent Nos. 1 to 3 had neither disputed the bank's claim nor they had filed any written statement to the O.A despite putting appearance before the Tribunal below through their counsel and seeking time to settle the matter with the bank with an undertaking to deposit a substantial amount by the end of March 2009, but instead of settling the dispute or depositing any amount, the guarantor/mortgagor, Smt. Promila Rani (defendant/respondent No. 3) had filed an S.A. under the SARFAESI Act. as such the averments of the O.A. stood proved. She further contended that it is clear from paragraph 7 of the judgment impugned that Smt. Promila Rani had admitted the creation of the mortgage of property in question in favour of the bank in her S.A. Mrs. Gupta also contended that the payments of Rs. 8,53,500/- were made by the borrower/respondents between 31.1.2007 and 30.4.2008, i.e., much prior to the filing of the O.A. on 17.11.2008 and the said payments were duly adjusted and only the balance amount of Rs. 23,25,781/- was claimed in the O.A. and as such the Tribunal below had erred in deducting the aforesaid payments again from the claimed amount.

She also contended that the appellant bank had claimed the interest at the contractual rate of 15.75% per annum compounding monthly alongwith penal interest @ 2%, but the Tribunal below without considering that the loan in question was a commercial one which was sanctioned under the 'Traders Finance Scheme' of the bank and without assigning any reason wrongly reduced the interest rate to 10%. She also contended that though the O.A. was filed on 17.11.200S, but the Tribunal below had erroneously made the interest payable from an imaginary date of 1.1.2009 again without giving any reason therefor. Ms. Gupta also contended that the cost of the O.A. had also not been awarded by the Tribunal without giving any reason.

Mr. Raja Beriwal, the learned counsel for respondent Nos. 38 to 3G, contended that the liability of these respondents was restricted only to the extent of the estate they had inherited from their deceased mother and they were not personally liable to the claimed amount. He, however, pointed out that the mortgage of the property in question in favour of the respondent bank was not lawful and was the result of the conspiracy between the appellant bank and respondent Nos. 1 and 2.

I have given my anxious thoughts to the submissions of the parties' counsel and perused the record. It is evident from the record that on 18.3.2009 respondent Nos. 1 to 3 had appeared through their counsel before the Registrar of the Tribunal below, before whom the matter was listed for completion of pleadings, and after seeking time for filing the written statement, had stated that they wanted to settle the matter and would deposit a substantial amount by the end of March 2009 and a further amount by the second week of April 2009. There is no dispute to the fact that the defendant/respondents had neither filed any written statement nor settled the matter with the bank. The appellant's counsel, however, admitted that only an amount of Rs. 80,000/- was deposited by the defendants/respondents with the bank. A perusal of the statement of account of the loan in question (Annexure F) would show that on 28.9.2006 an amount of Rs. 23,86,453/-, inclusive of interest, was in balance. A similar amount was claimed by the bank through the demand notice dated 8.11.2006 issued under section 13(2) of the SARFAESI Act. The said statement, Annexure F, further shows that subsequent to classification of the account in question as NPA on 30.9.2006, no amount of interest was debited to the account and the deposits made by the borrowers from 31.1.2007 up to 30.4.2008 were duly credited to and on 30.4.2008 an amount of Rs. 14,73,824/- was in balance, including the interest accrued upto 30.9.2006. The chart of interest and penal interest filed by the appellant w.e.f. 30.6.2006 to 16.11.2008 (page Nos. 62/63 of the appeal paper book) also confirms that on 28.9.2006 an amount of Rs. 23,86,453/- was in balance and on debiting the interest amount of Rs. 25,982/- for the month of September 2006, the balance rose to Rs. 24, 11,762/- on 30.9.2006. This chart further shows that on debiting the interest amount and crediting the deposits made from 31.7.2007 to 30.4.2008 an amount of Rs. 22,17,859/- was in balance on 16.11.2008 and on adding the amount of penal interest of Rs. 1,05,902/- the total outstanding amount on that date was Rs. 23,25,598/-. In view of the aforesaid circumstances, it is sufficiently established that Rs. 8,53,500/- deposited by the borrowers were duly adjusted by the bank and the learned Tribunal below had committed error in reducing that amount again from the amount claimed in the O.A. The evidence on record also goes to show that on 17.11.2008, i.e., the date of filing of the O.A., an amount of Rs. 23,25,781/- was in balance in the loan account in question.

The Tribunal below, while awarding the interest, appears to have lost sight of the fact that the loan in question was a commercial one sanctioned under the 'Traders Finance Scheme'. In view of this the award of interest @ 10% simple without assigning any reason for such reduction from the contractual rate of 15.75% compounding monthly is not sustainable. I am in full agreement with the appellant's counsel that the pendente lite interest should have been awarded from the date of the filing of the O.A. and not from a subsequent or irrelevant date of 1.1.2009. The DRT, under section 19(20) of the RDDBFI Act, can order for payment of interest from the date on or before which payment of the amount is found due upto the date of realization or actual payment which should be in conformity with the facts and circumstances of the case. The claim of interest at the contractual rate of 15.75% with monthly rests, to my view, appears to be on the higher side and looking to the circumstance that the respondent Nos. 1 to 3 had not disputed the bank's claim, the award of interest at the agreed rate of 15.75% per annum but without any compounding effect would be proper and reasonable. Since the averments of the O.A., on the basis of which recovery of debt has been sought, are not in dispute, therefore, the O.A. is entitled to be allowed with cost as the bank had to file it due to the default of the respondents in repayment of the same. In view of the foregoing discussion, the order impugned cannot be sustained and the appeal filed against it is entitled to be allowed. Consequently, the appeal is allowed with cost and the order impugned is set aside. The O.A. is also allowed with costs. The defendant/respondents are directed to pay Rs. 23,25,781/- together with interest @15.75% per annum from the date of filing of the O.A., i.e., 17.11.2008, till realization within four weeks from the date of this order, failing which the applicant/appellant bank may recover the same by sale of the mortgaged property. Any payment made after the filing of the O.A., if any, shall be duly adjusted. The liability of respondents 3A to 3G shall be restricted to the extent they have inherited the estate of deceased respondent No. 3.

Copy of this order be furnished to the parties as per law and be also sent to the DRT concerned.