Canara Bank vs Sigma Refrigeration Ltd

P.K. Bhasin, J

Counsel for the Bank informs that all the three cheques given by the respondent's Counsel on the last date of hearing have been duly honoured. I have heard Counsel for the parties finally as Counsel were ready with their arguments saying that point involved is only about the power of DRT to reduce rate of interest in a Securitisation Application filed by a defaulting borrower under Section 17(1) of SARFAESI Act when the borrower comes forward to clear the entire dues of the Bank at a time when there is an imminent threat of his being dispossessed from the property mortgaged by him in favour of the Bank from whom he had availed of financial facilities.

The only grievance of the appellant Bank in this appeal is that the learned DRT has wrongly given a huge financial benefit to the defaulting borrower in the form of reduction in rate of interest while directing the borrower, security applicant before it, to clear the appellant Bank's dues along with simple interest @ 12% p.a. on reducing balance as against the contractual rate of interest of @ 15.95% to be compounded monthly plus penal interest of 2% p.a.

The relevant paras of the impugned order giving justification for giving benefit in the matter of interest is re-produced below :

"5. Heard the learned Counsel for both the parties and I am of considered view that the purpose of enacting the SARFAESI Act, 2002 is the speedy recovery of the dues of the Banks and financial institution and no fruitful purpose would be served to drag the present litigation further when the applicant has come forward to clear the dues of the respondent Bank but the only hitch is that the applicant wants some time as well as some concession in the rate of interest charged by the respondent Bank.

In view of the above, I hereby exercised my power as per the provision 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 of 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 and the same principle has been laid down by the Hon'ble Apex Court in the case of Central Bank of India v. Ravindra & Ors. and thus I hereby direct the respondent Bank to charge the interest @ 12% simple on reducing basis from the date of default till the date of realization.

Thus in view of the above, I hereby direct the applicant herein to clear the balance dues of the respondent Bank along with interest @ 12% simple, on reducing basis to be charged from the date of default till the date of realization within a period of four months to be deposited through four equal monthly instalments. The applicant is also directed to file an affidavit-cum-undertaking, within a period of one week with advance copy to the other side, to this effect that they will make the payment as above."

It is undisputed that respondent therein had not even cleared the principal amount within four months period granted to it by the DRT and which was to be cleared in four equal monthly instalments. The principal amount is stated to have been cleared by the respondent only after filing of the present appeal and during its pendency before this Tribunal.

It is undisputed as per the contract between the parties the respondent borrower was supposed to pay interest at contractual rate as noticed above. The borrower defaulted in repayment of the loan which led to declaration of its account as NPA in the year 2013 and, therefore, a statuary demand notice under Section 13(2) of SARFAESI Act came to be given to it on 20.5.2014. The respondent borrower had failed to comply with the demand notice within the statutory period of sixty days. The appellant Bank then initiated proceedings under SARFAESI Act to recover its money by auctioning the property which the respondent borrower had equitably mortgaged in its favour in the year 2006. Subsequently, however, the Bank lost/misplaced the title deeds and then a registered mortgage deed came to be executed by the mortgagor in favour of the appellant Bank. In order to protect the mortgaged property from being sold, the respondent had filed a securitisation application under Section 17(1) of the SARFAESI Act before DRT-III, Delhi which was registered as S.A. No. 366/2015.

During the hearing of that S.A., the respondent borrower appears to have abandoned its challenge to the SARFAESI measures taken by the Bank and volunteered to clear the Bank dues and as noticed above, the learned Presiding Officer of the DRT took a sympathetic view, in view of the fact that respondent borrower had come forward to clear the Bank dues and granted to it the benefit in the rate of interest though by coming forward to clear the Bank's dues the borrower was not obliging the Bank.

The impugned order dated 9.6.2016 is reproduced below :

"1. This securitisation application has been filed by the applicant against the action of the respondent Bank under the SARFAESI Act, 2002 qua the property i.e. 3575 - 76, Netaji Subhash Marg, Daryagani, Delhi (hereinafter the property in question).

The applicant is the borrower to the respondent Bank and he has availed the home loan facility from the respondent ban against the mortgage of the property in question.

The learned Counsel for the applicant submits that the applicant is ready and willing to pay the balance dues of the respondent Bank within a period of four months provided some concession in the rate of interest may be granted to them. He has also raised the objection that the original title documents of the property in question have been lost by the Bank.

On the other hand the learned Counsel for the respondent Bank has vehemently opposed for granting any concession in the rate of interest on the ground that the respondent Bank is liable to charge the contractual rate of interest. He also submits that the applicant has not complied with the direction of this Tribunal and in view of the same no indulgence may be granted to the applicant herein.

Heard the learned Counsel for both the parties and I am considered view that the purpose of enacting the SARFAESI Act, 2002 is the speedy recovery of the dues of the Bank and financial institution and no fruitful purpose would be served to drag the present litigation further when the applicant has come forward to clear the dues of the respondent Bank but the only hitch is that the applicant wants some time as well as some concession in the rate of interest charged by the respondent Bank.

In view of the above, I hereby exercised my power as per the provision 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 of 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 and the same principle has been laid down by the Hon'ble Apex Court in the case of Central Bank of India v. Revindra & Ors. and thus I hereby direct the respondent Bank to charge the interest @ 12% simple on reducing basis from the date of default till the date of realization.

Thus in view of the above, I hereby direct the applicant herein to clear the balance dues to the respondent Bank along with interest @ 12% simple, on reducing basis to be charged from the date of default till the date of realization within a period of four months to be deposited through four equal monthly instalments. The applicant is also directed to file an affidavit-cum-undertaking, within a period of one week with advance copy to the other side, to this effect that they will make the payment as above.

The applicant is also directed to approach, within a period of one week, the respondent Bank for obtaining the statement of account and the respondent Bank is also directed to supply the revised statement of account to the applicant herein.

Till then, the respondent Bank/Court receiver is hereby restrained from taking further measures in any manner in respect of the property in question.

As regard to loss of the title documents, the respondent Bank is hereby directed to pay a sum of Rs. 25,000/- to the applicant herein towards the compensation for the loss of the title documents to cooperate with the application herein getting the certificate copy or duplicate copy of the title documents from the concerned Sub-Registrar.

With the above observations, the present securitization application is disposed of.

File be consigned to records."

After hearing Counsel for the parties, I have no manner of doubt that DRT was not justified in giving aforesaid huge benefit in the rate of interest of the defaulting borrower particularly when the borrower had not even insisted for adjudication of its liability including rate of interest. Merely by volunteering to clear the Bank dues and that too much after the expiry of the statuary period given to it by the Bank for payment before initiating action under Section 13(4) of SARFAESI Act grant of this relief was not justified at all. The learned Presiding Officer had observed that he had discretion to reduce the rate of interest under Section 19(20) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 as also under Section 34 of CPC but, thereafter, did not give any reason to justify exercise of that discretion if at all there was any, vested in him Any relief which is to be granted to any litigant by a quasi-judicial authority must be supported by reasons and is not to be granted merely for the asking. The respondent herein was undisputedly a defaulter in repayment of the Bank's dues and in fact impugned order shows that instead of continuing its legal battle to establish infinities in the SARFAESI measures initiated by its secured creditor, told to the DRT that it was ready to clear the Bank's dues 'provided some benefit in interest is given to it'. That shows that the defaulting borrower was putting condition upon the Adjudicating Authority for seeking some financial benefit and, unfortunately, the DRT accepted that conditional offer being made before it by the defaulting borrower and gave relief which the defaulting borrower did not deserve at all.

It is now well settled by various decisions of the Hon'ble Apex Court that grant of interest at the contractual rate should be the rule and any deviation should only be an exception. If any defaulter borrower says that at the time of grant of loan the Bank was unreasonable in claiming unreasonable rate of interest, the borrower ought not to have taken loan and once he decides to take loan on the terms and conditions being set out in the loan documents by the Bank, the borrower subsequently cannot turn around and start claiming reduction in the rate of interest and that too without even claiming that the agreed rate of interest was either unconscionable or against public policy or in any other way contrary to some law.

In one of the judgments of the Hon'ble Supreme Court in the case of Indian Bank v. Blue Jaggers Estates Ltd. & Ors., III (2010) BC 694 (SC) : VI (2010) SLT 26, the question regarding reduction in rate of interest by DRT was examined. Relevant paras from the said judgment are being re-produced below :

"16. The argument of the learned Counsel for the respondents that the rate of interest in unconscionable, expropriatory and contrary to law also merits rejection because at no stage the respondents had questioned the terms on which loan and other financial facilities were extended by the appellant. That apart, after having enjoyed those facilities for more than one decade, the respondents cannot turn around and raise an argument based on the judgments of this Court in Central Inland Water Transport Corporation v. Brojo Nath Ganguly, 1986 (SLT Soft) 149 : (1986) 3 SCC 156 and Delhi Transport Corporation v. D.T.C. Mazdoor Congress & Ors., 1991 Supp. (1) SCC 600. It must be remembered that the respondents were not in a position of disadvantage viz-à-vis the appellant. If they so wanted, the respondents could have dec lined to avail loan and other financial facilities made available by the appellant. However, the fact of the matter is that they had signed the agreement with open eyes and agreed to abide by the terms on which the loan, etc. was offered by the appellant. Therefore, the doctrine of unconscionable contract cannot be invoked for frustrating the action initiated by the appellant for recovery of its dues."

(Emphasis laid)

Thus, the decision of the learned DRT in granting huge benefit to a defaulting borrower and that too without any justification, can be said to be in the teeth of the above quoted views of the Apex Court. These kinds of unjustified orders cause great damage to 'public interest'. For all these reasons, this appeal deserves to be allowed. The impugned order of the DRT, whereby, the Bank was denied the benefit of contractual rate of interest and benefit was given to the defaulting borrower of a huge amount on account of interest and is liable to be set aside. That loss certainly was a loss of 'public money' and ought not to have been caused without any justification and particularly ignoring the limited jurisdiction which DRTs exercise while dealing with Securitisation Applications under SARFAESI Act, whereunder, all that the Tribunal is expected to see is whether there was any illegality committed by the Bank while resorting to the stringent measures provided under Section 13(4) of SARFAESI Act. In case any security applicant abandons his legal fight in that direction then, all the more it will be good reason to reject the S.A. itself and leave the parties to fight for adjudication of their respective rights in other appropriate proceedings which the Bank may decide to institute, like, recovery proceedings under Section 19 of Recovery of Debts and Bankruptcy Act, 1993 wherein, of course, DRTs can examine the question of rate of interest also provided borrower/guarantor raises any justifiable challenge to the rate of interest and strong reasons are to be given by the DRT there also in order to scale down the contractual rate of interest.

This appeal is accordingly allowed and the order dated 9.6.2016 of the DRT is set aside. Record of the Tribunal below be sent back.