Indian Overseas Bank vs Amit Kumar

JUSTICE R. D. KHARE, CHAIRPERSON

The present appeal has been preferred by the appellant-Bank under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "The SARFAESI Act") against the order dated 19.12.2023, whereby the S.A. No. 43/2022 has been allowed.

Brief facts of the matter are that the respondent No. 1 was granted a term loan of Rs. 142.00 lacs by the appellant-Bank under the CGTMSE Scheme for purchase of Hydraulic Excavator, to which the said machine was hypothecated with the Bank. The respondent-borrower was also granted a housing loan by the appellant-Bank for a sum of Rs.46.80 lacs. In order to secure the same, an equitable mortgage was created by the respondent-borrower over the property being Flat No. 4A, (4^th) Floor of multistoried building, Binoy Shanti Apartment, MS Plot No. 492, Ward No. 01 (old) 02 (New) Municipal Corporation Holding No. 184, RMC Ranchi corresponding to service Plot No. 911, RS Plot No. 157, Village-Kathargonda, Kanke Road MPS Gonda, Thana No. 201, District Ranchi by depositing original title deed with the bank. Since the respondent-borrower could not maintain the financial discipline, therefore, the same was classified as NPA including the account of housing loan on 31.05.2021 and a demand notice dated 24.11.2021 was issued by the Bank u/s 13(2) of the SARFAESI Act for a sum of Rs.23,63,166.33 in the Housing Loan Account and Rs. 1,24,82,783.30 in the Term Loan Account as on 31.10.2021. Thereafter, the symbolic possession of the property in question was taken by the bank by issuing possession notice dated 02.03.2022 u/s 13(4) of the SARFAESI Act, which was served, affixed and published in the newspapers on 05.03.2022.

The respondent-borrower challenged the demand notice and possession notice by filing the present S.A. No. 43/2022 before the Tribunal below. Thereafter, the appellant-Bank issued auction sale notice dated 30.06.2022 scheduling the auction of the property in question on 01.08.2022, which was challenged by the respondent-borrower by filing amendment application being I.A. No. 424/2022 in the said pending S.A. stating therein that the Bank has not complied with the Rules 8(5), (6) and (7) of the Security Interest (Enforcement) Rules, 2002. The Tribunal below vide order impugned has allowed the S.A. of the respondent-borrower holding that the mortgaged property in the housing loan cannot be sold off for recovery of the loan under CGTMSE Scheme without proceeding with the security available therein and after proceeding in RDB Act and obtain a decree against the properties of the borrowers/guarantors. Being aggrieved by the said order, the present appeal has been filed by the appellant-Bank.

Learned counsel for the appellant submitted that the Tribunal below has wrongly allowed the S.A. of the respondent vide order impugned restraining the Bank from proceeding against the mortgaged property in the housing loan and further directing the Bank to proceed under the RDB Act and obtain a decree against the properties of the borrower for recovery of the loan under CGTMSE Scheme. It was further contended that as per the clause 4.2.7 of the guidelines of the Reserve Bank of India, the classification of the accounts as NPA is made borrower-wise and not account-wise. It was also contended that the Bank has every right to classify both the accounts as NPA and issue a combined demand notice, even the housing loan account was regular, because the term loan account of the borrower was admittedly irregular.

Learned counsel further submitted that it is sole discretion of the secured creditor to enforce all or any one of the secured assets for recovery of its dues and no one can direct the Bank to enforce all or any specific security for recovery of its dues. It was further contended that even if the loan is covered under the CGTMSE Scheme, it does not absolve the borrower from its repayment of the dues of the Bank and the Bank can take all measures for recovery of its dues from the borrower. It was further contended that the respondent-borrower has never shown any inclination for liquidating the dues of the Bank and he only wants to linger-on and delay the recovery proceedings of the Bank. It was thus contended that the Tribunal below without considering these aspects of the matter has passed the order impugned in favour of the borrower, which is against the pleadings and evidence on record. It was therefore, prayed that the order impugned may be set-aside and the appeal may be allowed.

Learned counsel for the respondent-borrower submitted that the order impugned passed by the Tribunal below is fully justified and correct in the light of the facts, circumstances and statutory provisions and Reserve Bank of India Guidelines in particular. It was further contended that the CGTSME is collateral free credit facilities available to Micro and Small Enterprises (MSEs). It was also contended that the housing loan of the borrower was in order at the time off classification of NPA of the term loan, as the said term loan cannot be classified as NPA in terms of Rule 2.2.5 of Master Circular-Prudential Norms on Income Recognition, Asset Classification & Provisioning pertaining to Advances and other related matter-UCBs dated 01.07.2009. It was thus contended that the entire process adopted by the Bank under the provisions of the SARFAESI Act by clubbing the running housing loan account with the term loan under the CGTMSE Scheme were invalid, unlawful and illegal ab-initio. It was therefore, prayed that the appeal filed by the appellant may be dismissed with heavy costs.

I have considered the rival contentions of the learned counsels for the parties and perused the record.

Undisputedly, the present S.A. was filed by the respondent-borrower with regard to the demand notice, possession notice and sale notice issued by the appellant-Bank pertaining to both the accounts. In the said S.A., the main thrust of the respondent-borrower was that the housing loan account was regular and could not be declared as NPA. The appellant-Bank itself has admitted that the said account was not irregular, but the same had become NPA on the ground that the term loan granted to the respondent-borrower had become NPA. From it, the question arises, as to whether both the loan accounts were having separate legal entity or not?

No doubt, the term loan of the respondent-borrower was granted by the appellant-Bank under the CGTMSE Scheme. In addition to it, the said facility was also secured by the principal security in the form of hypothecation of the said Hydraulic Excavator. The said facility was also guaranteed by the Central Government. In this regard, para 4.2.14.1 of the Master Circular itself says "the credit facilities backed by guarantee of the Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked". In the present case, there is nothing on record, which may show that the Bank has ever invoked the said guarantee and the Government has rejected the same. If the account of the firm had become NPA, it was the duty of the Bank to first raise its demand to the Government for payment, to which the guarantee was extended by it and thereafter, for the remaining dues, the Bank ought to have filed the recovery suit before the competent court for obtaining the decree against the borrower. It is stated that if the loan of the Bank is secured either by the Central Government or by the State Government, then there is no risk of the Bank to recover its dues, but in so many cases it has been seen that instead of recovering the money from the Government being guarantor, the Bank firstly proceeds to recover its dues from the borrower by adopting various methods for the same, whereas in my opinion, the Bank should proceed first for its recovery from the guarantor, particularly where is the Central Government or the State Government, because the bank can recover its money easily from the Government instead of borrower. In the present case, the bank ought to have proceeded first for its recovery from the Central Government to recover its dues, but it did not do so. For the sake of argument, if it is assumed that the said loan account was not of special category of the loan such as CGTSME loan, even then housing loan of the borrower despite being standard could not be declared as NPA on the ground of the NPA of the term loan granted to the respondent-borrower, because the said facility was granted under the special scheme launched by the Government of India i.e. CGTMSE. As per the Clause 4.2.7 of the Master Circular of the RBI, no doubt, if one account becomes NPA, the another account of the same borrower would automatically become NPA, but in the present case, the security created by the borrower in both the loan accounts are different and not collateral and the customer ID of the borrower in both the loan accounts are also different, therefore, the said clause is not applicable to the case in hand. However, the Bank itself has admitted that the housing loan of the respondent-borrower was standard. The contention of the appellant that since the term loan account had become NPA, therefore, the account of the housing loan had also become NPA, is not tenable, because it appears to be technical issue of the system of the Bank, for which the borrower or any person cannot be made to suffer. Thus the Tribunal below has rightly held that the mortgage property in the house loan cannot be sold for recovery of the loan under CGTMSE Scheme without proceeding with the security available therein and after proceeding in RDB Act and obtain a decree against the properties of the borrowers/guarantors.

In view of the discussions as held above, the order impugned does not call for any interference by this Tribunal. Consequently, the appeal filed by the appellant is dismissed with no order as to costs.

A copy of this judgment be forwarded to the parties as well as the DRT concerned and be also uploaded on the e-DRT portal.