Industrial Finance Corporation Ltd vs Bank Of Baroda And Ors

R. D. Khare, Chairperson

The present appeal has been preferred by the appellant-FT under section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short "the RDDBFI Act") against the judgment dated 26.02.2020 passed by the DRT, Dehradun, whereby the T.A. No. 563/2018 filed by the respondent no. 1-Bank of Baroda has been allowed.

The factual matrix of the present matter is that M/s Shiva Paper Mills Limited was granted certain credit facilities by the appellant-F.I. along with other banks including the respondent no. 1-bank. The borrower company was also granted term loan facilities amounting to Rs.23,49,22,000/- under consortium financing. Besides it, the respondent no. 1 also granted fund based limits aggregating to Rs. 1.80 crore. All these credit limits were secured by first charge on current assets ranking pari-passu amongst the consortium bank members. The consortium bank members were holding the second charge and the appellant  as well as respondent No. 2 was holding first charge of pari-passu charge. Since the borrowers did not maintain the financial discipline in terms of the loan agreements, therefore, the accounts were classified as NPA on 30/07/2003. Thereafter the appellant-Fl and the respondent no. 2-Bank holding more than 75% share of the secured debt had called for a joint meeting of secured creditors on 03/03/2008 and offered 20% of the principle amount due to second charge holders. In view of section 19 of the SARFAESI Act, the appellant and the respondent no. 2 proceeded and sold the secured assets of the borrowercompany for a sum of Rs. 15.00 crores. It appears that in a joint meeting held on 26.03.2009 at New Delhi, it was agreed by all the consortium members that there cannot be any discrimination amongst the secured creditors under the SARFAESI Act and the appellant be requested to distribute the sale proceeds in proportionate to the principal outstanding dues in each secured creditor. Thereafter, the respondent no. 1 made a number of the correspondences with the appellant with regard to its share, but the appellant failed to respond to their requests in writing, therefore, the respondent no. 1 filed the original application no. 819/2014 before the DRT, Lucknow for recovery of Rs. 1,30,64,930/- along with pendentelite and future interest @ 18% per annum with monthly rests, which was subsequently transferred to the DRT, Dehradun and renumbered as T.A. No. 563/2018. The Tribunal below vide order impugned decreed the said O.A. in toto against the appellant, but the interest was reduced from 18% to 12% per annum with compounding monthly rests from 25.09.2014 till the date of realization in full. Being aggrieved by the said judgment, the present appeal has been filed.

Learned counsel for the appellant submitted that the Tribunal below has passed the order impugned without considering the facts of the case and the same is contrary to the provisions of the RDB Act. It was contended that the original application filed by the respondent no. 1-Bank is not maintainable in view of section 2(g) the provisions of the RDB Act, 1993, wherein definition of debt has been defined, as there is no business activity between the appellant and the respondent no. 1 and the appellant has not availed any financial assistance/debt from the respondent no. 1. The provisions of the RDB Act are not applicable for recovery of dues by a Bank or Financial Institution against another Bank, since the present loan was a consortium loan, which was given to Shiva Paper Mills Ltd.

The learned counsel for the appellant further submitted that  after default in repayment of the loan amount by the borrower-company, a demand notice under section 13(2) of the SARFAESI Act, 2002 was issued on 08.01.2008 under section 13(2) of the SARFAESI Act for Rs. 94,84,84,255/- and thereafter the property was put to auction by issuing sale notice on 25.07.2008 fixing the reserve price of Rs. 1150.00 lakhs, but the appellant received the bid only for plant and machinery of Rs. 9.00 crore from M/s Venus Polymers Pvt. Ltd., which was accepted, but the same could not be confirmed in consonance of order of the Hon'ble High Court passed in writ petition filed by the borrower-company. Before confirmation of sale, the borrower-company approached the appellant with an OTS proposal for Rs.14.20 crore, which was accepted by the appellant. Subsequently, the appellant auctioned the secured assets of the borrower-company by way of private treaty under the SARFAESI Act to M/s Multiwal Pulp & Paper Mills Ltd. for Rs. 11.50 crores and the amount realized from the auction sale has been adjusted towards the dues of the First Charge Holders i.e. appellant and the IDBI Bank and after adjustment, there is still outstanding dues in the books of the appellant, therefore, no distribution can be made to the Second Charge holders, as there is no surplus money.

Learned counsel for the appellant next submitted that in the meeting dated 03.03.2008, the appellant offered 20% of the outstanding dues to the consortium members including the respondent no. 1-Bank of Baroda, but the same was never accepted by the respondent no. 1, therefore, there was no contract between the appellant and the respondent no. 1-Bank, as it was contended that the respondent no. 1 has admitted in para 5.16 of the O.A. that Ms. Rashmi Sachdev, AGM (Law) of IFCI (appellant) advised that Bank of Baroda had not consented for proposed sharing system at the time of seeking consent for SAFAESI action. It was therefore contended that as the appellant was having majority shares of 75% required for action, it had proceeded and effected the sale of assets. In the last, it was submitted that the Tribunal below has not considered the aforesaid facts while passing the order impugned, therefore, the same is liable to be quashed, hence prayed that the appeal may be allowed and the order impugned may be quashed.

Learned counsel for the respondent-Bank submitted that the impugned judgment and order passed by the Tribunal below is based on pleadings and evidence on record and it does not call for any interference.

The learned counsel further submitted that the property of the borrower-company was mortgaged with the consortium Banks including the appellant as security and the pari-passu charge provides equal rights over the property mortgaged to the lenders under the arrangement. In case of default, the joint lenders decide to dispose off the security for recovery of their dues and the money realized is shared amongst them in proportion to the balance outstanding in their accounts. In this regard, the learned counsel has referred to a minutes of meeting held on 03.03.2008, which is filed as Annexure No. 2 to its reply and has stated that in the said minutes, it has been resolved that the Bankers will get 20% of their outstanding dues on the date of NPA subject to sale of the secured assets, therefore, withholding of share of the respondent no. 1-Bank by the appellant-FI is illegal.

Learned counsel for the respondent no. 1 also submitted that the contention of the appellant that there was no acceptance of the offer made by the appellant is incorrect, because it had made several correspondences in writing with the appellant to release its share, but the appellant did not do anything.

The learned counsel for the respondent No. 1 further submitted that the contention of the appellant that respondent No. 1 is not entitled to file the Original Application against the appellant is not correct, as the Tribunal below has already allowed the claim of the Bank of Baroda while adjudicating its O.A. No. 191/2009 vide judgment dated 29.12.2017 and had given liberty to recover the dues by sale of secured assets including the personal movable and immovable asset of the borrower company. As such the amount claimed in the present O.A. is a part of the amount which has been recovered by the appellant-Fl. It was thus prayed that the appeal filed by the appellant is liable to be dismissed, hence the same may be dismissed with heavy costs.

Having heard the learned counsels for the parties and considering the material available on record, it is undisputed that the certain credit facilities were granted under the consortium financing, for which the assets of the borrower-company was mortgaged with the consortium Banks and there was Pan i Passu charge of the consortium Banks. It is also not disputed that the appellant-Fl and respondent No. 2 was holding major shares of 75% of the secured assets. It is apparent that when the borrower did not maintain the financial discipline, the accounts of the borrower were declared as NPA and the proceedings under the SARFAESI Act were initiated by the appellant-FT to recover the loan amount extended to the borrower. It is also borne out from the record that on 03.03.2008 a joint meeting of the secured creditors was convened and it was agreed that 20% of the principle amount due to the second charge holders shall be disbursed from the amount realized by the auction sale of the secured assets of the borrower-company. Pursuant to the proceedings under the SARFAESI Act, the secured assets were auctioned by the appellant for a sum of Rs. 15.00 crores and when the appellant did not give the agreed amount of 20% to the respondent No. 1 of its principle amount due in spite of several communications with the appellant Fl for release of the same, the respondent No. 1-Bank of Baroda was constrained to file O.A. No. 819/2014 before the Tribunal below for recovery of Rs. 1,30,64,930/- along with pendentilite and future interest at the rate of 18% per annum with monthly rests, which was subsequently transferred to DRT, Dehradun and renumbered as T.A. No. 563/2018. The said O.A. was allowed vide impugned order dated 26.02.2020 by the Tribunal below, whereby the claim of respondent No. 1 was allowed, but the interest was reduced from 18% to 12% per annum with compounding monthly rest from 25.09.2014 against which the present appeal has been filed on the pretext that the O.A. filed by the respondent No. 1 before the DRT, Lucknow was not maintainable in view of the provisions of section 2 (g) of the RDB Act, which defines the debt and there was no debt due between the appellant and the respondent No. 1, therefore, provisions of the RDB Act are not applicable for recovery of the dues by the Bank or the Financial Institution against another Bank, which contention did not find favour with the Tribunal below on the ground that the assets of the borrower-company was mortgaged and the loaning was done by the Banks under the consortium financing, therefore, the O.A. filed by the respondent No. 1 was maintainable under the RDB Act in view of the fact that the Tribunal below had already allowed the claim of the respondent No. 1 while adjudicating its O.A. No. 191/2009 vide judgment dated 29.12.2017, whereby the liberty was given to the respondent No. 1 for recovery of its dues by selling the secured assets including the personal movable and immovable assets of the borrower-company. As such the Tribunal below has rightly allowed the present O.A. of the respondent no. 1-Bank of Baroda.

In view of the discussions has held above, this Tribunal is of  the considered opinion that there is no good ground made out by the appellant-Fl to interfere by this Tribunal in the impugned order dated 26.02.2020 passed by the Tribunal below. Thus the appeal is liable to be dismissed. Hence, the same is dismissed with no order as to costs.

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