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Judgment
P.K. Jaiswal, J.—This order shall govern disposal of (1) Writ Petition No. 9918/2013 (Krishnakant Goyal v. M/s. Midex Global Private Limited and others) and (2) Writ Petition No. 11720/2013 (State Bank of India v. M/s. Midex Global Private Limited and others).
The respondent No. 1-M/s. Midex Global (P) Ltd. is a company incorporated under the Indian Companies Act, 1956, having its registered office at Indore. The main activity of the company is trading (Export and Import) in Engineering Goods, Molasses, Soya and other agricultural products. The respondents No. 2 to 4 are the Directors of the Company. The Company was enjoying various credit facilities in the aforesaid business activity from the respondent No. 5-State Bank of India since January 2006. At the request of the company, the respondent No. 5 had sanctioned various credit facilities vide sanction letter dated 19.01.2006 (Rs. 23.25 crores). The respondents No. 2 to 4 offered their personal guarantee in respect of the aforesaid credit facilities sanctioned by the bank to the company and, therefore, they are jointly and severally liable along with the company to pay all the outstanding dues to the bank.
As a security for the aforesaid credit facilities aggregating Rs. 23.25 crores, the respondent No. 2 had signed various security documents in possession of the bank. The respondents No. 2 and 3 had jointly executed a deed of guarantee for repayment of Rs. 23.25 crores with interest, costs and other expenses in favour of the bank. They as a further security for repayment of amount of Rs. 23.25 crores executed an equitable mortgage of their respective properties in favour of the respondent No. 5 bank on 25.01.2006.
That, apart from a term loan of Rs. 5.25 crores sanctioned by the bank by sanction letter dated 19.1.2006, the bank vide sanction letter dated 19.9.2007 had sanctioned/modified various credit facilities in favour of the company. The respondents No. 2 to 4 had accepted the terms and conditions mentioned in the sanction letter dated 19.09.2007 and appended their signatures thereon signifying such acceptance. At the request of the respondent No. 1-Company, the bank has structured the terms for Forward Contract limit of Rs. 16 crores and also a Credit Exposure limit of Rs. 4.40 crore on 09.10.2007 for which ISDA Master Agreement has been executed by the company on 10.04.2008. The Board of Directors of the Company passed a resolution for availing Forex Derivative Contract. After sanction of such facilities, ISDA Master Agreement was executed between the company and the bank.
That, for availing the facilities of Forex Derivative Transaction, the company was required to submit letters for the same from time to time. The Forex Derivative Transactions were routed through the cash credit limit at the request of the company by submitting letters from time to time.
On 12.01.2009, the respondent No. 1 company had submitted letter to the bank stating therein that cash credit account had become irregular due to Forex Derivative Transactions and requested for Working Capital Term Loan of Rs. 18 crores to make the cash credit account regular. The bank vide sanction letter dated 09.02.2009, sanctioned the enhanced credit facilities (Rs. 27.39 crores). As per Annexure/I, which is part of the sanction letter dated 09.02.2009 and which is duly signed by the respondent No. 1 to 4, specifically provides that all the facilities mentioned in the sanction letter are duly secured by primarily and collaterally security of the properties mentioned therein as also the personal guarantees of the respondents No. 2 to 4.
From the aforesaid, it is clear that at the request made by the company vide letter dated 12.01.2009, the respondent No. 5 bank vide letter dated 09.02.2009 carved out the Forex Derivative Transactions and parked the same in the Working Capital Terms Loan amount of Rs. 19.50 crores, which was duly secured by primary and collateral security as also the guarantee of respondents No. 1 to 4. It is, therefore, very clear that the Working Capital Term Loan was not a pre-funded or pre-existing facility, but was open to park the currency/Forex Derivative laws till then being routed through cash credit account.
The respondent No. 1 company paid an amount of Rs. 36,50,007/- towards stamp duty for execution of various security documents and creation of equitable mortgage in favour of the respondent No. 5 bank vide letter dated 14.05.2009 as a security for various credit facilities sanctioned vide letter dated 09.02.2009. The respondents No. 2 to 4 had executed various security documents on 14.05.2009, pursuant to sanction/transaction/enhancement of various credit facilities and had also executed supplemental deed of guarantee for increase in Over All Limit aggregating Rs. 30.55 crores on 14.05.2009.
The respondent No. 2 on behalf of the respondent no. 1 company had further executed a letter of undertaking not to create further charge in-respect of current and fixed assets of the company over which the bank has already having first charge. On 14.05.2009, the respondent No. 2 Narottham Somani, has executed a joint Hindu family letter.
That, as a security for the aforesaid credit facilities sanctioned vide sanction letter dated 09.02.2009, the following properties are mortgaged with the respondent no. 5 bank :-
(i) Plot no. 14/2, Block No. 658 and plot No. 15/2, Block No. 657, admeasuring 4000 sq.ft. Eachm, total area 8000 sq.ft. Situated in New Palasia, Indore belonging to respondent No. 3 Smt. Meenakshi Somani.
(ii) Plot No. 16/2, area 400 sq.ft, Block no. 6 situated in Scheme No. 2-C, New Palasia, Indore in the name of Respondent No. 4-Shri Narottam Somani. (HUF).
(iii) Open Terrace adjoining Prakoshta No. 401A and 401B, situated on the 4th Floor, Municipal House No. 10, Manoramaganj, Plot No. 2 B, Rajgarh Kothi, Appollo Trade Center, Indore belonging to Midex Global Pvt. Ltd.
(iv) Prakoshta No. 401 A, situated on the 4th Floor, Municipal House No. 10, Manoramaganj, Plot No. 2 B, Rajgarh Kothi, Apollo Trade Centre, Indore belonging to Midex Global Pvt. Ltd.
(v) Prakostha No. 401 B, situated on the 4th Floor, Municipal House No. 10, Manoramaganj, Plot No. 2-B, Rajgarh Kothi, Apollo Trade Centre, Indore belonging to Midex Global Pvt. Ltd.
(vi) Prakoshtha No. 403 and 404, situated on the 4th floor, Municipal House No. 10, Manoramaganj, Plot No. 2-B, Rajgarh Kothi, Apollo Trade Centre, Indore belonging to Midex Global Pvt. Ltd.
(viii) Land out of Survey No. 104, House No. 7 and Survey No. 108, House No. 13, situated in village Vijaydurg, Tehsil Devgad, Distt. Sindhugarh (Maharashtra)."
As per audited balance sheet for the year ending 31.03.2009, the respondent No. 1 company had admitted its liability to the extent of Rs. 33,82,73,677.76/- N.P. and the balance of Working Capital Term Loan is reflected under Working Capital Loan from Banks under Schedule ("c") attached and forming part of the balance sheet of respondent No. 1.
That, since the respondent No. 1 company failed to maintain the financial discipline, the loan account has become irregular and, therefore, the same were classified as "Non Performing Assets" (NPA), in accordance with the directives of Reserve Bank of India.
The irregularity occurred in cash credit account was due to Forex Derivative Transactions and were further confirmed by the Board of Resolution dated 14.05.2009 and 11.01.2010.
The bank had filed Original Application No. 149/2011 before the Debts Recovery Tribunal, Jabalpur (In short, ''DRT'') for recovery of amount of Rs. 41,42,47,514.93/- (Forty One Crores Forty Two Lakhs Forty Seven Thousand Five Hundred Fourteen Rupees and Ninety Three Paise). Simultaneously, the bank also issued a demand notice dated 21.05.2011 under Section 13(2) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (herein after referred as ''the Securitization Act'') to the respondents No. 1 to 4, requiring them to make payment of Rs. 40,52,30,116.10/- (Forty Crores Fifty Two Lakhs Thirty Thousand One Hundred Sixteen Rupees and Ten Paise) within 60 days from the date of notice failing which the action as provided under Section 13(2) of the Securitization Act would be taken. The respondents No. 1 to 4, instead of making repayment of outstanding dues, submitted an objection dated 20th July, 2011 under Section 13(3-A) of the Securitization Act to the Bank. The bank rejected this offer on 29.07.2011.
That, since the outstanding dues were not liquidated within the stipulated period of 60 days, the bank issued possession notice dated 24.09.2011 and 20.09.2011 under Section 13 (4) of the Securitization Act.
That being aggrieved by the action taken by the respondent No. 5-bank for recovering its outstanding due under the Securitization Act, the respondents No. 1 to 4 filed Securitisation Application No. 199/11, before the Debt Recovery Tribunal, Jabalpur under Section 17 of the Securitization Act for quashing of the entire action of the bank initiated under Section 13 thereof.
During pendency of the said Securitisation Application, the respondent No. 5 issued auction notice in the news paper dated 28.01.2012 in respect of the immovable properties and fixed the date and time for auction for 28.02.2012 at about 11.30 PM.
The respondents No. 1 to 4 filed an application for grant of stay of auction before the DRT. The learned Presiding Officer of DRT by order dated 27.02.2012 dismissed the stay application. The learned Presiding Officer, DRT has held that outstanding dues arising out of various credit facilities sanctioned vide letter dated 09.02.2009 were duly secured and the same are sought to be recovered by the bank. The respondents No. 1 to 4 had made false allegations only for the purpose of misleading the DRT and obtaining the desired relief.
The petitioner has submitted the tender for Rs. 5.31 crores along with security deposit of Rs. 53.00 lacs. On 28.2.2012, i.e., on the date of auction, the petitioner was declared as successful bidder in respect of the property bearing house No. 14/2 Block No. 658 (4000 sq ft) and house No. 13/2 Block No. 657 (40000 sq ft) New Palasia, Indore, MP for Rs. 5.31 crores.
That being aggrieved by the order dated 27.02.2012 passed by the DRT, Jabalpur an Appeal No. R-24/12 was filed before the Debts Recovery Appellate Tribunal, Allahabad (for short, ''DRAT'') under Section 18 of the Act challenging the interim order passed by the DRT on 27.02.2012. The learned DRAT considering the fact that tenders were received on 27.02.2012 vide order dated 28.02.2012 directed that the bank shall be entitled to open the tenders, but shall not give effect to the same by confirming the auction or otherwise.
The respondent No. 5 bank has issued a letter No. 2874 to the petitioner on 29.02.2012 in which the petitioner''s highest bid was accepted and the petitioner was directed to pay 25% of the bid i.e. amount of Rs. 1,32,75,000/-, which the petitioner has deposited on 29.2.2012 itself, after deducting the amount of security deposit/earnest money to the tune of Rs. 53 lacs.
The respondent No. 5 issued another letter No. 2875 dated 29.02.2012 and has directed the petitioner to deposit the remaining 75% i.e., Rs. 3,98,25,000/- on or before 14.03.2012. It has also been informed to the petitioner that such action is subject to the final decision of the matter pending before the DRT and before DRAT. The petitioner after receipt of letter from the bank came to know about the interim order passed by the DRAT and has sent a letter dated 06.03.2012 and 09.03.2012 to the respondent No. 5 bank not to insist upon the petitioner to deposit balance 75% amount of Rs. 3,98,25,000/- till the disposal of the matter pending before the DRT and DRAT.
As no reply has been given by the respondent No. 5-Bank and, therefore, the amount of Rs. 3,98,25,000/- has been remitted by the petitioner to the respondent No. 5 bank through RGTS on 14.03.2012, i.e. within the time specified by the respondent No. 5 bank in its letter No. 2875 dated 29.02.2012. The appeal No. R-24/2012 was listed for hearing before the DRAT on 24.08.2012 on which date it was brought to the notice of the learned DRAT that the Securitisation Application was already fixed for final hearing on 25.09.2012. The DRAT passed an order on 24.08.2012 to the effect that "since the matter has already been fixed for final arguments on 25.09.2012, therefore, it will be appropriate to adjourn the case with direction to the DRT that on 25.09.2012, the matter be heard and no adjournment shall be sought by the parties. The appeal be listed on 10.10.2012. The interim order passed shall continue".
On 17.09.2012, the respondents No. 1 to 4 filed an application before the DRT, Jabalpur for quashing of the recovery proceedings initiated by the bank under the provisions of the Act on the ground that provisions of the Act are not applicable in the instant matter. The bank filed its reply and opposed the prayer. The Presiding Officer of the DRT on 25.09.2012 reserved the case for orders on Securitisation Application as well as interlocutory application and the case was listed for 16.10.2012 for delivery of the orders. Order dated 25.09.2012 of DRT reads, as under:-
"25.09.2012
Shri Satish Agarwal for Appellant.
Shri Sanjay Agarwal for Bank (Respondent).
Shri Manoj Sharma for bidder of property (along-with Adv. Narendra Chauhan) who lodged intervention application on 24.09.2012. Reply lodged by appellant who lodged IA on 17.09.2012. Order dated 24.08.2012 in Appeal R-24/12 had directed this Tribunal that on 25.09.2012 the matter shall be heard and no adjournment shall be sought by the parties. Shri Satish Agrawal for appellant submitted that he is arguing only the IAs and not prepared for arguing SA. Shri Sanjay Agarwal has filed reply to the IA lodged by appellant for quashing the recovery proceedings and argued IA as well as SA. Hence this case is reserved for orders in SA and IA. The appellant may lodge written arguments if so desired within one week."
The respondents No. 1 to 4 being aggrieved by order dated 25.09.2012 passed by the Tribunal filed an application in pending SA No. R-24/2012 on 26.09.2012 before the DRAT seeking following relief :-
"i. Stay further proceedings in SA No. 199/2011 pending before DRT, Jabalpur, until disposal of Securitization Appeal No. R-24/2012 pending adjudication before this Hon''ble Appellate Tribunal;
ii. Direct the Learned DRT to decide interim application filed by appellant and other pending interim applications first, without deciding the SA No. 199/2011;
iii. This Hon''ble Appellate Tribunal may kindly be pleased to hear the captioned appeal finally and decide the issue of power of respondent bank under provisions of SARFAESI Act, 2002.
iv. This Hon''ble Tribunal may be pleased to pass any other or further order(s) deemed fit and necessary in the facts and circumstances of the matter."
The DRAT vide order dated 27.09.2012 directed the DRT to decide the preliminary objection contended in the application dated 26.09.2012 first. Being aggrieved by the aforesaid order of the DRAT, the respondent No. 5 bank had filed Writ Petition No. 17203/2012 before the High Court Principal Seat at Jabalpur, which was dismissed by the Division Bench of the court on 11.10.2012. In view of the order dated 27.09.2012 passed by the DRAT in pending Appeal No. R-24/2012 and the order dated 11.10.2012 passed in Writ Petition No. 17203/2012, the DRT decided the application dated 26.09.2012 filed by the respondents No. 1 to 4 by order dated 09.04.2013 and held that the action of the bank under the Act is absolutely legal and justified. Order dated 09.04.2013 reads as under :-
"SA No. 199/2011
09.04.2013
Order in IA lodged on 17.09.2012 by the appellants to quash the recovery proceedings on the ground that provisions of Act 2002 are not applicable.
Shri Satish Agarwal, for the appellant.
Shri Sanjay Agarwal, for the Bank.
Heard. Perused the records.
The submission of the appellant is that the Respondent Bank had proceeded with the recovery of the dues since the CC account had become irregular due to transfer of losses arising out of derivative transaction therefore, at the request of the appellant WCTL of Rs. 18 Crores was sanctioned to make the CC account regular. The sanction letter is dated 09.02.2009 and was secured by primary security which is evident from board resolution dated 14.05.2009, security documents were executed on 14.05.2009 and thus the loss due to forex derivative transaction were transferred in WCTL account. These submissions are false and incorrect. The sanction letter dated 18.10.2006 by which limit of Rs. 16 Crores was sanctioned for derivative contract and a limit of Rs. 4 Crores at credit exposure limit derivative deals. No security interest was credited vide sanction letter dated 18.10.2008 and therefore, the provisions of Act 2002 does not apply. Vide sanction letter A5, A10, A20 and A21, CC Limit was sanctioned for Rs. 1.00 Crore only for the purpose mentioned in Annex. A6 of the sanction letter. Contrary to the terms of sanction CC Limit has been debited over 27 times by the loss of derivative transaction which is illegal and without authority of law. The cash credit account was always in credit because there was no occasion to pay any customs duties. On 25.10.2008 the CC account was debited for Rs. 38,88,194/- for the first time which is derivative loss and thereafter, various debit entries were made which are more than Rs. 1.00 Crore towards derivative losses which can be verified with the statement of account. The cheques issued by the company to use the credit balance were dishonoured there was no condition to debit the derivative losses in the CC account. The money which thus became due to the Bank is for illegal business which was carried out between the Bank and the client violating RBI guidelines and cannot be recovered under Act 2002. No security interest was created before 26.03.2009 to secure the alleged loan of Rs. 19.50 Crores credited in the CC account on 27.03.2009. No cheques or transfer voucher is signed by the applicant for such transfer and no request was made. No documents is produced to show disbursement of any amount to the applicant after execution of documents on 14.05.2009. If the account of the appellant was NPA of 30.06.2009 by sanction letter dated 09.04.2010 was issued by the Bank. If the security documents are executed on 14.05.2009, then how could the account be classified as NPA on 30.06.2009 before 90 days. Sanction of WCTL was valid upto 01.03.2009 and no security documents were created till that date. Letter dated 09.02.2009 containing purpose terms and conditions sanction of WCTL does not disclose that the same was sanctioned to park derivative losses and therefore, the same is to be decided by this Tribunal as directed by the Hon''ble DRAT, Allahabad dated 24.08.2012 for which this IA is lodged.
In the reply lodged by the Bank to this application, it is submitted that since it was submitted before the appellate Tribunal that the case is fixed for final arguments before DRT Jabalpur on 25.9.2012, the Hon''ble Appellate Authority had directed that the case be heard finally on 25.09.2012 and no adjournment shall be sought by the parties. The issue raised in this IA is one of the main issues in the appeal and therefore, the appeal can be heard finally. The reply of the Bank to the SA, to the application for stay as well as additional reply may be considered as the reply to this IA as per document No. 1 letter dated 24.09.2010 the applicants have confirmed the outstanding dues to be Rs. 33.08 Crores as on 01.04.2009 out of which Rs. 24.73 Crores was due towards forex derivative losses, and after calculation of interest other than forex derivative losses, the total dues was Rs. 34.45 Crores. The applicants have admitted in the said letter that the account had become NPA on account of forex derivative losses. Hence requested for a dismissal of the IA with costs.
This IA is seen lodged by the applicant referring certain documents lodged by the Respondent Bank in the reply to the appeal No. R-24/2012 lodged by the appellant before DRAT, Allahabad challenging the interim order dated 27.02.2012 of this Tribunal wherein it was held "...... When it is revealed that the borrowers are not willing to liquidate the dues though they have continued to enjoy the credit facility from the date of availing and subsequent enhancement/additions as per their requests as seen from the pleadings documents produced by the parties this Tribunal cannot interfere by granting stay of auction schedule for 28.02.2012 when no illegality is proved by the Appellant in the proceedings for recovery initiated by the Respondent Bank against them under Act 2002.
Therefore, the prayer in the IA seeking stay of auction scheduled for 28.02.2009 lodged by Appellant is dismissed with costs to the Respondent Bank."
The documents of the defendants in the reply before Hon''ble DRAT, Allahabad referred to in this IA are not produced by the applicant and this Tribunal is not able to no as to when of the documents referred by the Bank in the reply before the Hon''ble Appellate Tribunal are being mentioned in this IA by the appellant. The Respondent Bank in the reply to this IA has submitted that the reply to the SA, the reply to the interim prayer for stay of auction and the additional reply lodged by the Bank in the SA may be considered to be the reply to the pleadings in this IA. Therefore, the documents referred by the Bank in their above referred pleadings are considered for the decision in this IA. In the order dated 27.02.2012 the plea of the appellant raised in this IA was duly considered on merits by this Tribunal and was held "......The appellants who have thus availed the Foreign Exchange Derivative Facility from the Bank by giving assurances to produce the underlying import export contract as required under FEMA 1999 and Regulation 4 of Regulation 2000 framed thereunder have failed to submit the underlying import export contract with the passive support of the respective officers of the Bank but continued to enjoy the facility without submitting the contract to the Bank which is admitted by them in the letter dated 12.01.2009. Therefore, the arguments of the learned Counsel for the appellant that since no underlying contract was produced by the bank, (that the Bank had specifically admitted in writing in its reply under the Right to Information Act) is not a ground to hold that no such assistance was granted/if at all granted without necessary underlying export import agreement is speculative in nature and is contrary to law and therefore, cannot be enforced as argued by the learned Counsel for the Appellant.
In the decision reported in Rajshree Sugars and Chemicals Limited Vs. AXIS Bank Limited, formerly known UTI Bank Limited, it was held that "......contention raised that there was no underlying exposure, cannot be heard to be raised by the plaintiff who made a declaration in contract in question that it was entering into this transaction solely for the purpose of hedging its foreign currency Balance sheet exposure-Declaration is binding on the plaintiff and the same was sufficient for the defendant Bank to enter into the deal" is applicable to the contention now raised by the appellant that since the Bank had failed to produce the underlying contract the same cannot be enforced is therefore, not applicable.
The appellants having accepted Annex. R-4 sanction and executed the necessary loaning and security documents Annex. A-28 to A-31 on 14.05.2009 as stated in the OA, the confirmation as per resolution of the Board of Directors of the company on 14.05.2009 and 11.01.2010 clearly reveal that the Bank is fully entitled to recover its dues as claimed for from the Appellant in its 13 (2) notice of demand dated 21.05.2011." Therefore, having once held that the Bank is entitled to recover its dues as claimed for from the appellant in the notice of demand dated 21.05.2011, this Tribunal cannot by the pleadings in the IA alone hold otherwise as required by the appellants. The reason for the said finding was also given in detail as follows "...... The contention of the learned Counsel for the appellant that there was no security interest created in favour of the Bank for the dues under WCTL of Rs. 19.50 lacs enjoyed since acceptance of Annex. R-4 sanction, is seen to be rebutted by the Bank in its reply and the documents produced which shows that R-3 ISDA agreement was superseded by the execution of Annex. R-4 sanction dated 09.02.2009 that too on the request of the appellants as per letter dated 12.01.2009 given by the MD of D1 company to the Bank. The arguments of the learned Counsel for the appellant that Annex. R-4 sanction was not as requested by the appellant as per letter dated 12.01.2009 cannot be accepted because Annexure R-4 sanction is seen accepted by the appellants on the very same day and duly approved by the Board of Directors on 14.05.2009 and 11.01.2010 of sanction and if they had any reservation in accepting the terms and conditions of Annex. R-4 they could have declined from accepting Annex. R-4 or even they could have evaded execution of loaning and security documents on 14.05.2009 as per the Annex. R-4 sanction seen duly accepted by them. In pg. 3 of Annex. R-4 Annex. 1 it is revealed that the WCTL availed as per Annex. R-4 was duly secured by the mortgage of the properties in favour of the Bank. Though Annex. A20 is the copy of sanction dated 09.02.2009 the Appellants have produced the copy without their signature so as to strengthen their misleading averment that the same was never accepted. This will reveal that they have come before this Tribunal with false allegations only for the purpose of misleading the Tribunal and obtaining a relief against the recovery proceedings and are therefore, not entitled for an order on merits as held by the Hon''ble Apex Court in its decision reported in AIR 2007 SCW 5350."
Their submission that their account could not be NPA was also not accepted by holding thus "...... because the said sanction Annex. A21 has never been accepted by the appellant and has never come into effect. This will only reveal that though the Bank was ready to help the appellant to tide over the financial crunch so as to help them to regularize the account they have declined the offer by refusing to accept the same and therefore, they cannot now plead that Annex. A-21 sanction dated 09.04.2010 will reveal that the classification of their account as NPA was never done. Though the appellants have produced Annex. A-21 sanction the letter dated 25.03.2010 of the company referred therein has not been produced.
The submission that notice as required under ISDA agreement was not given is also not accepted because IDSA agreement is seen superseded by acceptance of Annex. R-4 dated 09.02.2009 and execution of loaning and security documents on 14.05.2009 in favour of the Bank by the borrowers without any reservations/objections. So also due to the acceptance of the terms and condition of Annex. R-4 sanction by the borrowers who had continued to enjoy the credit facility availed by them till the issuance of 13 (2) notice, their contention that any dispute under the ISDA agreement has to be resolved through arbitration and therefore, jurisdiction of judicial authority is ousted under Section 5 of Arbitration and Conciliation Act is not tenable. Had the Annex. R-3 ISDA Agreement been not superseded by acceptance of Annex. R-4 sanction dated 09.02.2009 and subsequent execution of documents on 14.05.2009 by the Appellants, the appellants would have resorted to resolve the dispute by invoking by provisions by Arbitration and Conciliation Act against the Bank which admittedly is not invoked till date as the same is not pleaded in this SA." Therefore, their submission that their account was never NPA and therefore, the recovery proceedings is to be quashed as not maintainable cannot be accepted.
Annex. R-9, 10 and 11 produced by the Bank, with the additional reply also reveal that the appellants had admitted that their CC account had irregular due to forex derivative transaction requested for sanction WCTL of Rs. 18 Crores to make its CC account regular. Considering the said request the bank as per R-4 sanction dated 09.02.2009 had curbed out the forex derivative transaction and parked the same in WCTL account which was duly secured by primary and collateral security as well as the guarantee of appellants who had paid stamp duty of Rs. 3.65 lacs as seen from R-12 letter dated 14.05.2009. It is further clear from Annex. R-6 letter dated 25.06.2008 the forex derivative transaction were routed to the CC limit at the request of the appellant. As per Annex. A-22 to A-27 to the OA 149/2011 the appellant No. 2 had confirmed the balance as on 31.03.2009 and in R-7 the audited balance sheet for the year ending 31.03.2009, the appellant company is seen to have admitted its liability to the tune of Rs. 33,82,73,677.6p. The document No. 1 produced by the Bank with the reply to this IA dated 24.09.2010 written by the appellants reveal that they confirmed the principal balance Rs. 33.08 Crores as on 01.04.2009 out of which Rs. 27.45 Crores is due to forex derivative losses. After calculation of interest other then forex derivative losses they had admitted the dues to be Rs. 34.45 crores. By this letter it is seen that they have admitted the dues and had requested for reschedulement for compromise as per proposal A to J of document No. 1.
The effort of the appellant in this case by abusing and misusing the provision of law is found to be only to prevent the applicant Bank from pursuing the recovery proceedings which are seen duly initiated and pursued by the Bank for recovery of its lawful dues from the appellants who had time and again reiterated their liability in favour of the Bank. Except for assurance to pay the dues, the appellants have till date not made any substantial payment towards the dues, instead they are bent upon preventing the applicant Bank from making the payment as well as preventing this Tribunal from disposing the appeal within the period stipulated under 17(5) of the Act 2002. The prayer in the IA to hold that the provisions of Act 2002 are not applicable in the instant matter and to quash the recovery proceeding is rejected directing the appellant to pay costs of Rs. 3.00 lacs in this IA.
The parties are directed to appear for final hearing for disposal of this appeal as per the direction of the Hon''ble Division Bench of the Allahabad High Court reported in 2012 (2) BC 5."
As per prayer made in the application dated 15.04.2013 filed by the respondents No. 1 to 4, it has been prayed that order dated 09.04.2013 passed by the DRT be taken on record, prayer clause of the said application is relevant which reads as under :-
"In view of the aforementioned facts and circumstances of the matter this Hon''ble DRAT may kindly be pleased to take the accompanied order dated 9.4.2013 passed by Hon''ble DRT, on record;
This Hon''ble DRAT may kindly be pleased to decide the issue about the powers of the bank to have taken recourse to the provisions of the 2002 Act, in the present case, in view of order dated 27.9.2012 passed by this Hon''ble DRAT;
This Hon''ble DRAT may be kindly be pleased to pass any other or further order(s) deemed fit and necessary in the facts and circumstances of the matter."
It is well settled that unless and until the order dated 09.04.2013 was challenged by filing an appeal under Section 18 of the Act, the legality of the same cannot be decided in pending Appeal No. R-24/2012, which has been filed against the interlocutory order of rejection of application for grant of stay. It is also to be noted that Securitisation Application of the respondents No. 1 to 4 had not been finally decided by the DRT and during pendency of the said Appeal, a preliminary objection was filed and in compliance to the order passed by the DRAT, the DRT decided the objection and rejected it by order dated 09.04.2013. The DRAT vide its judgment dated 30th July, 2013, decided the Appeal No. R-24/2012, which was filed against the interlocutory order of refusal of stay dated 27.02.2012, passed by the DRT in S.A. No. 199/2012, but very surprisingly also set aside the final order dated 09.04.2013 of DRT, which was never challenged by the respondents No. 1 to 4 by filing appeal under Section 18 of the Act.
Learned Senior Counsel for the petitioner submitted that the DRAT has committed grave illegality in holding that the losses arising out of Forex Derivative Transactions could not have been transferred into Working Capital Term Loan and Cash Credit Account, as the same is contrary to the Circular of the Reserve Bank of India (RBI) dated 29.10.2008. The Appellate Tribunal has completely erred in interpreting the RBI Circular dated 29.10.2008, which is modification of earlier RBI Circular dated 13.10.2008, ignoring Clause 2.1 (ii) of the Circular, which remains effective and unchanged. Clause 2.1 (ii) of the Circular dated 13.10.2008 provides for debiting Cash Credit/Overdraft Account of forex transactions on due date and as such, the action of the bank is in consonance and adhering to the Circular of the RBI.
It is also submitted that respondents No. 1 to 4 by letter dated 12.01.2009 had made a request to the bank that Cash Credit Account had become irregular due to Forex Derivative Transactions and requested for sanction of Working Capital Term Loan to make the Cash Credit Account regular. Pursuant to such request made by the respondents No. 1 to 4, the bank vide sanction letter dated 09.02.2009 carved out Forex Derivative Transactions and parked the same in the Working Capital Term Loan Account of Rs. 19.50 crores, which was duly secured by primary and collateral security as also the guarantee of the respondents No. 1 to 4. This sanction letter was duly signed by respondents No. 1 to 4 signifying their acceptance to the terms and conditions mentioned therein.
The Board of Directors of the respondent No. 1-Company vide resolutions dated 14.05.2009 and 11.01.2010 confirmed the irregularities, which had occurred in Cash Credit Account due to Forex Derivative Transactions and the Directors of the Company had executed security documents in favour of the Bank, and therefore, the Appellate Tribunal (DRAT) committed gross error in its order by holding that no security documents were executed in favour of the Bank pursuant to Board''s Resolution dated 14.05.2009 in lieu of sanction of credit facilities by sanction letter dated 09.02.2009 to the respondent No. 1/Company. The respondent No. 1/Company also submitted Form No. 8 under the Companies Act, 1956 to the Registrar of Companies for registration of particulars of modification of charge. A memorandum was also recorded showing extension of deposit of title deeds covering enhanced limits and creation of equitable mortgage on additional properties for existing limits and enhanced limits/additional facilities, and thus the bank was well within its right to initiate action under the provisions of the Act for recovery of its outstanding dues.
It is further pointed out that the Appellate Tribunal (DRAT) is not justified in holding that bank cannot recover losses arising out of Forex Derivative Transactions. The losses arising out of Forex Derivative Transactions were converted into Working Capital Term Loan at the request of the respondent No. 1/Company vide letter dated 12.01.2009 and the same is sought to be recovered by the bank. Thus, the conversion of losses of Forex Derivative Transactions into WCTL cannot be said to be contrary to the Circular of RBI dated 29.10.2009, which is modification of RBI Circular dated 13.10.2008; clause 2.1 (ii) of which permits debit to Cash Credit/Overdraft Facility, if the client concerned is also a borrower of the bank enjoying a Cash Credit or Overdraft facility from the bank. In the present case, respondent No. 1/Company is also the borrower and as such, conversion was in accordance with the said Circular. The Appellate Tribunal (DRAT) failed to see that the amount which was sought to be recovered against the Cash Credit Limit, WCTL and Term Loan were fully secured by the security interest. Thus, it is absolutely incorrect to say that no security interest is available with the bank to enforce the same by invoking the provisions under the Act.
Shri A.K. Sethi, learned Senior Counsel for the petitioner has submitted that Securitisation Appeal No. R-24/2012 was filed by respondents No. 1 to 4 against the order dated 27.02.2012 by which their application for grant of injunction/stay has been rejected. Thereafter, on 24.08.2012, when the SA No. R-24/2012 was listed for hearing, it was brought to the notice of the learned Appellate Tribunal (DRAT) that the main application (Securitisation Application) was already fixed for final hearing before the DRT on 25.09.2012. The Appellate Tribunal (DRAT) on 24.08.2012, adjourned hearing of appeal with direction to the DRT that on 25.09.2012, the matter shall be heard and no adjournment shall be sought by the parties; and directed that the appeal be listed on 10.10.2012. On 27.09.2012, the DRAT in the aforesaid pending Appeal passed an order and directed the DRT to decide the preliminary objections first. In pursuance to the aforesaid order, the DRT on 09.04.2013 has come to the conclusion that the provisions of the Act of 2002 are applicable and rejected the preliminary objections.
The respondents No. 1 to 4 neither have challenged the aforesaid order by filing an appeal under Section 18 of the Act of 2002 nor any application for amendment has been submitted by them in SA No. R-24/2012, seeking amendment to challenge the aforesaid order dated 09.04.2013. Without being any challenge to the order dated 09.04.2013 before the DRAT, the Appellate Tribunal quashed the proceedings under the Securitisation Act of 2002 pending before it and acted without jurisdiction in directing the respondent No. 5-bank to return the auction money received from the auction purchaser along with the interest. This amounts to an error apparent on the face of the record and the learned DRAT was having no authority or jurisdiction to set aside the order dated 09.04.2013 passed by the DRT, which was not at all under challenge before it. The only limited jurisdiction of DRAT in SA No. R-24/2012 was either to grant interim relief or stay or to confirm the order dated 27.02.2012 passed by the DRT by which the prayer for grant of interim relief/stay made by respondents No. 1 to 4 was refused. The matter on merits was not at all the subject matter of the appeal and in absence of any challenge of the order dated 09.04.2013 by respondents No. 1 to 4 that order has attained finality and was binding upon all the parties concerned. The learned DRAT has exceeded its jurisdiction in examining the legality, propriety and validity of the order dated 09.04.2013.
In SA No. R-24/2012, the DRAT having knowing well that the appeal was filed against the order of injunction and thus has committed an error apparent on the face of the record in holding that respondent No. 5 bank was not justified in declaring the accounts of respondent No. 1 as ''NPA''.
The Appellate Tribunal (DRAT) without going through Clause 2.1 (ii) of the Circular dated 13.10.2008 and circular dated 29.10.2008 erred in holding that the action of respondent No. 5/bank is against the RBI''s Circulars. The DRAT also erred in holding that RBI Circular would not be applicable and at the same time, has held that action of respondent No. 5/bank is against the RBI Circular.
It is further submitted that on 03.08.2012, respondent No. 5/bank filed an application under Section 14 of the Securitization Act before the Additional District Magistrate for taking possession of the property and the same was allowed by the Additional District Magistrate, Indore vide order dated 11.06.2013 (Annexure P/17) in Case No. 04/A-74/2012-13 by exercising the powers conferred under Section 14 of the Securitization Act and the possession of the property was ordered to be delivered. This order was never challenged by respondents No. 1 to 4 before any competent court of law and thus, the aforesaid order has attained the finality.
Shri A.K. Sethi, learned Senior Counsel placed reliance on the decision of the Apex Court in the case of Kotak Mahindra Bank Ltd. Vs. Hindustan National Glass and Ind. Ltd. and Others, , the issue before the Hon''ble Supreme Court was: whether a willful default in meeting payment obligation to a bank/financial institution under a derivative transaction will be covered under the RBI Master Circulars on willful defaulters dated 01.07.2008, 01.07.2009 and 01.07.2010? The Apex Court, after appreciating the contention of the learned counsel for the petitioner has held that the definition of ''willful default'' in the Master Circular indicates that a willful default would be deemed to have occurred in any of the events mentioned in sub-clauses (a), (b), (c) and (d) of Clause 2.1. The phrase "willful default" in the Master Circular has to be construed by reading the Master Circular as a whole, looking to the provisions of the Reserve Bank of India Act, 1934 under which RBI has powers to issue circulars and instructions to the banks, the purpose for which the Master Circular was issued and the mischief that the Master Circular intends to remedy because these constitute the context and the subject matter in which the definition of ''willful default'' finds place in the Master Circular.
Prior to auction, the respondents No. 1 to 4/company made an offer on 24.09.2010 that against the principal outstanding balance of Rs. 33.08 crores and total dues of Rs. 39.35 crores, they are ready to settle the matter and made an offer for payment of Rs. 34.45 crores towards full and final settlement of their dues, which will be paid in three years. Paragraphs A to J of the letter dated September 24, 2010 is relevant, which reads, as under:-
"A. We request Bank to waive all interest charged on all the derivative losses from the time the account has been classified as NPA. The bank may freeze the principal liability as Rs. 34.45 crores as on September 30th 2010 for all the amounts and accounts put together.
B. We are enclosed herewith a cheque of Rs. 12 lacs approx, as out confirmation towards the settlement, which may be encashed and deposited in our outstanding.
C. We are ready to pay 5% (after deduction of Rs. 12 lacs, as described in Para B) as first settlement payment towards the principle amount of the outstanding within 15 days of acceptance of our OTS proposal, to show our commitment towards the settlement of the outstanding.
D. We shall pay 1 installment of Rs. 60 lacs every month for next 9 months, for payment of principal amount.
E. We shall pay 1 installment of Rs. 100 lacs every month for next 12 months, for payment of principal amount.
F. The balance amount may be divided in 12 equal installments, which will be paid, towards the principal amount.
G. We request bank to calculate the interest on the OTS amount at PLR rate of interest, simple interest at the end of the payment, which we shall pay in 3 equal installments after the payment of principal is done.
H. We have identified some buyers for our fixed assets like office at 401/402 Apollo Trade Center, Indore, which is presently of no use. The proceed of such sales will be in addition to what has been committed above.
I. In case we are able to dispose off any of our assets/shares in the overseas venture, which we will try to our best of ability, then we will expedite the payment.
J. We will also be doing some exports business for which we are in the process of tying up a JV agreement, wherein we will be using our port facility to export. Any revenue received will be deposited with you, in addition to the above mentioned commitment."
The terms and conditions of the said offer were never abided by the company, and therefore, the bank vide letter dated 24.07.2011 communicated the same; relevant paragraph 4 thereof is relevant, which reads, as under:-
"4. We further advise that despite follow up, we are neither in receipt of 2nd copy of our sanction letter of compromise offer dated 28.03.2011 duly signed by the authorized signatory of the company with Board Resolution and other guarantors in token of having accepted the terms and conditions of sanction of compromise nor in receipt of Rs. 35549825.00/- towards installments of OTS amount from Oct'' 10 to Mar'' 11. It appears that the company and guarantors are not serious towards resolution of the account through the compromise offer approved by the Bank at the request of the company/guarantors and are simply buying time on different pretexts. It is the responsibility of the company/directors to fulfill their promise/offer, irrespective of directors being abroad or otherwise which can not be a plea for avoiding the matter and acceptable to the Bank. We therefore again request you to send 2nd copy of sanction letter of compromise offer duly signed by the authorized signatory of the company with Board Resolution and other guarantors in token of having accepted the terms and conditions of sanction of compromise and or at-least make payment of Rs. 35549825.00 (pertaining to installments payable up to 31.03.2011) latest by 30.04.2011 to show your seriousness towards the OTS, failing which the said compromise shall be treated as cancelled/failed by the Bank an the Bank will be at liberty to proceed for initiation of suitable action against the Borrower and its directors/guarantors including actions under SARFAESI Act."
Learned Senior Counsel appearing for the petitioner-auction purchaser submitted that after making full payment within the stipulated time, sale was confirmed, but due to stay granted by DRAT, the bank had not issued any sale certificate, and therefore, the sale was deemed to have been confirmed, as per Rule and prayed that the impugned order of the learned DRAT be set aside and writ petition be allowed.
In reply, Shri Majumdar, learned counsel for respondent No. 5 bank pointed out about the settlement of total dues of more than forty one crores in the sum of Rs. Fifteen crores arrived at between the borrower and bank and prayed for dismissal of the writ petition.
In presence of the parties, during the course of hearing in the Writ Petition, stay was granted on 23.10.2013 by a Division Bench that the bank will not return the amount received by it from the petitioner/auction purchaser and the same stay was confirmed on 12.12.2013, after hearing the learned counsel for the parties, including learned counsel for the bank.
It is very strange that a fresh offer of Rs. 15 crores which was made by the respondent No. 1/company on 05.08.2014 was accepted by the bank vide letter dated 25.10.2014 on the following terms, which reads as under:-
"i) Unfront amount of Rs. 0.75 crore, already paid and kept in a "No Lien" Fixed Deposit Account, has since been appropriated including interest earned thereon (Rs. 7500000.00 plus interest Rs. 105910.00 and total Rs. 7605910.00) towards the said compromise offer approved by the Bank.
ii) Balance amount of OTS Rs. 142394090.00 shall be paid by you within 90 days from the date of receipt of sanction OTS.
iii) The borrower and guarantors will sign the compromise deed jointly within the Bank and coordinate/arrange to obtain consent decree in the case filed in DRT with suitable default clause inserted therein (as per paragraphs v and vi).
iv) On payment of full compromise amount along with interest, if any, as per terms of the sanction of compromise, the properties mortgaged to the Bank shall be released from the Bank encumbrance an all charges released.
v) In the event of non payment of compromise amount on due date by the company, the Bank shall be at liberty to treat the compromise as failed/cancelled. In such a situation, pre-compromise liabilities will be restored and Bank shall be at liberty to proceed against the borrower and guarantors to recover entire dues as legally deemed fit.
vi) Any legal proceedings filed by the company/directors/guarantors against the Bank will be withdrawn immediately.
vii) On receipt of full compromise amount along with interest as per terms of sanction of compromise, the Bank will withdraw legal actions related to this account against the company/directors/guarantors.
viii) The names of the company and its directors will be removed from RBI/CIBIL list of defaulters/willful defaulters only on payment of entire compromise amount along with interest, if any, as per terms of sanction of compromise."
As per the aforesaid proposal, the company has to pay the amount in installments as per the terms and conditions of the accepted offer dated 25.10.2014.
Learned Senior Counsel for the petitioner has submitted that the bank being a Government Company fully owned and controlled by the Government of India has committed a fraud in accepting the offer of Rs. 15 crores, whereas the earlier offer dated 24.09.2010 of Rs. 34.45 crores was turned down by the Bank. This shows how the bank officers are working and acting and playing fraud with the public to cause loss to the State Exchequer. He submitted that it is not the money of the private individual. It is a tax payers money. The bank owes some duty to discharge in the interest of public, but their officers in-connivance with respondents No. 1 to 4 acted illegally and contrary to the norms of the Bank settled the dues of more than Rs. 41.42 crores only a meagre amount of Rs. 15 crores.
In reply, Shri Mazumdar, learned counsel for the bank has contended that from the mortgaged property they will get only a sum of Rs. 11.90 crores, and therefore, settlement of the dues of Rs. 41.42 crores to the sum of Rs. 15 crores is in public interest and for the benefit of the bank. The bank and the learned counsel have failed to see that apart from the property, which was mortgaged with the bank, the respondents No. 2 to 4 have submitted their personal guarantee and rest of the amount of Rs. 41.42 crores can be recovered from their personal guarantee, which includes their personal property and assets of the company. Thus, we are not at all satisfied with the aforesaid explanation submitted by Shri Mazumdar, learned counsel on behalf of the bank regarding settlement of the dues in a meagre amount of Rs. 15 crores out of total dues of Rs. 41.42 crores, when the company itself gave an offer of Rs. 34.45 crores in the month of September, 2010 and the same was accepted on 28.03.2011.
In the case of Ram Chandra Singh Vs. Savitri Devi and Others, , wherein the Apex Court has held that a collusion or conspiracy with a view to deprive the rights of the other in relation to a property would render the transaction void ab initio.
Learned Senior Counsel for the petitioner also placed reliance on the decision of the Apex Court in the case of Kancherla Lakshminarayana Vs. Mattaparthi Syamala and Others, and submitted that he has purchased the property in a private auction, and therefore, no confirmation from a Court is required. The bank, after confirmation of auction, had also completed the sale, but for want of stay order passed by this Court, no formal letter has been issued.
In respect of right of the petitioner who is an auction purchaser and whose highest bid was accepted by the bank and the whole amount of Rs. 5.31 crores have been deposited on 28.02.2012, 29.02.2012 and 14.03.2012 respectively, the question whether he is entitled to get the sale confirmed being a successful bidder.
It is submitted that all the formalities for issuance of sale letter has been finalized by the bank, and therefore, the bank directed the petitioner to deposit the rest 75% of the bid amount, amounting to Rs. 3,98,25,000/- within a period of fifteen days i.e. up to 14.03.2012. The petitioner deposited the aforesaid balance 75% of the bid amount within the aforesaid period. Now nothing remains to be considered by the bank and has to issue a sale certificate in favour of the petitioner.
As per letter dated 29.02.2012 issued by respondent No. 5-Bank, the petitioner was declared successful bidder and he was directed to deposit rest 75% of the bid amount within fifteen days and after depositing the aforesaid 75% bid amount, a sale certificate will be issued in his favour. Letter dated 29.02.2012 is relevant, which reads, as under:-
Shri Satish Majumdar, learned counsel, who is appearing on behalf of the Bank, has drawn our attention to Annexure P/6 letter dated 29.02.2012 (in Writ Petition No. 9918/2013) and submitted that the confirmation of sale was subject to the decision on Securitization Application pending before the DRT and DRAT. He very fairly admitted that a letter/offer of compromise for settling dues has been given by respondents No. 2 to 4 on 24.09.2010 and their offer was for an amount of Rs. 34,45,00,000/- (rupees thirty four crores forty five lakhs), but as terms of letter dated 28.03.2011 of the Bank was not fulfilled, and therefore, their offer was rejected by the Bank. He also admitted that the bid of the petitioner was over and above the offset price fixed by the Bank in the auction and he being the successful bidder, his bid was accepted and he deposited the whole amount within the time, as fixed by the Authorized Officer. The Bank accepted his bid, but sale letter was not issued, because of the pendency of the matter before the DRT and DRAT. He has also drawn our attention to sub-section (8) of Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and sub-rule (2) and (6) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 and has drawn our attention to the following decisions: (1) M/s. S.J.S. Business Enterprises (P) Limited v. State of Bihar reported in LAWS (SC)-2004-3-9/ROL-2004-0-157; (2) Navalkha and Sons Vs. Ramanuja Das and Others, ; (3) Ravindranath and Others Vs. Panna Lal and Others, ; and (4) India Finlease Securities Limited v. Indian Overseas Bank reported in LAWS (APH)-2012-9-7/LAP-2012-0-364 and submitted that on 13.10.2014, respondents No. 2 to 4-borrower and the bank had filed a joint application in Original Application No. 149/2011 pending before the DRT, Jabalpur to record a settlement and the said application has been allowed with the consent of all the parties by order dated 13.12.2014 in terms of OTS dated 28.10.2014 and the borrower has time to deposit OTS amount up to 28.01.2015 without interest; and once the application has been allowed and the dispute between the bank and the borrower has been settled, the petitioner-auction purchaser has no right over the property in question and prayed for dismissal of the writ petition.
Shri S.C. Bagadiya, learned Senior Counsel appearing with Shri Satish Agrawal, learned counsel for respondents No. 2 to 4-borrower submitted that as per Clause 11 of the Tender Notice dated 28.01.2012, auction was subject to pending dispute. They have also drawn our attention to the provisions of sub-rule (6) of Rule 9 of the Security Interest (Enforcement) Rules, 2002 and submitted that DRAT is entitled to set aside the order dated 09.04.2013, because in pending appeal, which was against the refusal of injunction/stay, the borrower placed all the aforesaid order before the DRAT and also prayed for setting aside of the same. He admitted that no separate appeal against the order dated 09.04.2013 was filed, but in pending appeal, the DRAT was fully competent to set aside the order dated 09.04.2013 passed by the DRT. He also submitted that the auction purchaser was well aware about the pendency of the proceedings before the DRT, as the same was published in public notice and thus, the contention of the petitioner-auction purchaser, that the Bank suppressed the fact about pendency of proceedings before the DRT and Appeal No. R-24/2012 before the DRAT, is incorrect.
It is also submitted that the Bank never raised any objection before the DRAT about considering the order dated 09.04.2013 and thus, it cannot be said that the order of the DRT was without jurisdiction. They lastly submitted that now the dispute has been settled between the bank and the borrower and in pursuance to the settlement arrived at between them, a joint application has been filed, which has been allowed by the Debts Recovery Tribunal on 13.12.2014 and Original Application No. 149/2011 has been disposed of, as per the settlement arrived at between the bank and the borrower, the auction purchaser has no right over the property in question and prayed for dismissal of the writ petition.
To counter the arguments, Shri A.K. Sethi, learned Senior Counsel submitted that the petitioner had information about the pendency of proceedings before the DRT, but the bank never disclosed the fact about the interim order dated 28.02.2012 passed by the DRAT. It is also submitted that when the writ petition is pending between the petitioner-auction purchaser, borrower and the bank and the Bank also aggrieved by the order dated 30.07.2013, filed a separate petition against the order passed by the DRAT, in all fairness, the bank could have communicated the settlement letter dated 28.10.2014. He prayed that the writ petition be allowed and the impugned order dated 30.07.2013 (Annexure P/16) passed by the DRAT be set aside.
Section 13(8) of Securitization Act clearly provides that borrower has right to pay the amount only before the date fixed for sale or transfer and he cannot be permitted to exercise this right after a particular date i.e. the date fixed for sale. After making full payment within the stipulated time under Rule 9 (4), no further confirmation of sale is required. Respondent No. 5-bank received the entire amount before the due date and issued a communication to this effect to the petitioner as per Rule 9 of the Rules. The respondent No. 5-bank accepted the full amount, and therefore, the sale was deemed to have been confirmed, as per the Rules. On accepting the whole sale amount on 14.03.2012, the sale becomes absolute; a sale certificate shall be deemed to have been issued in favour of the petitioner.
As per Section 13(8), if the borrower tenders dues of the secured creditor together with all costs, charges and expenses incurred at any time before the date fixed for sale, then the secured assets shall not be a sale in the auction. In the case in hands, the borrower failed to tender dues before the date fixed for sale, and therefore, the Authorized Officer proceeded with the matter in auctioning the property.
In the present case, it is not the case of the bank-secured creditor that he has not confirmed the sale. In spite of pendency of the matter before the DRT and DRAT, the bank vide letter No. 2875 dated 29.02.2012, directed the petitioner-auction purchaser to deposit the whole amount and after receiving the whole amount, a sale letter/certificate will be issued, as per the terms of the tender notice. The petitioner, on coming to know and after depositing 25% of the amount, requested the bank not to accept the whole amount, as the stay has been granted by the DRAT, the bank forced the petitioner to deposit the amount, and therefore, the petitioner deposited the whole amount by 14.03.2012. Thus, it is not right on the part of the bank to raise an objection and say that the sale has not been confirmed by the secured creditor.
As per the terms and conditions of the auction, sale in favour of the highest bidder shall be confirmed on payment of the entire bid amount of rupees 5.31 crores. Therefore, it is clear that the moment, the total bid amount is paid by the auction purchaser, the sale becomes absolute and the title vests in the purchaser. Therefore, the contention that since balance amount of purchase price has been paid on or before the 15th day by the auction purchaser, it is deemed that the property vests in the petitioner/auction purchaser, has merit.
In the case of Sagar Mahavidyalaya, Sagar v. Pandit Sadashiv Rao Harshe (supra) it was held that "It may be noted that once an order was made under Order XXI Rule 92 confirming the sale, the title of the auction purchaser related back to the date of sale as provided under Section 65 C.P.C. The title in the property thereafter vests in the auction purchaser and not in the judgment debtor. The issue of sale certificate under Order XXI Rule 94 C.P.C. in favour of the auction purchaser though mandatory but the granting of certificate is a ministerial act and not judicial."
In the present case, the borrower never approached the secured creditor or Authorized Officer before the date fixed for sale or after the sale or before the sale becomes absolute, therefore, the decision cited by the bank in the case of India Finlease Securities Limited v. Indian Overseas Bank (supra) would not be applicable to the facts of the present case.
In the present case, the DRAT has misunderstood the scope of its jurisdiction and committed grave error in entertaining the order dated 09.04.2013 passed by the DRT in pending Appeal No. R-24/2012, which was filed before the DRAT against the order dated 27.02.2012 passed by the DRT, rejecting the application for grant of stay filed by the borrower. The order dated 09.04.2013 was not impugned in pending Appeal No. R-24/2012 nor any separate appeal against the aforesaid order was filed before the DRAT. The error committed by the learned Appellate Tribunal was an error apparent on the face of the proceedings and by entertaining the aforesaid order dated 09.04.2013, the DRAT caused a serious harm, injustice and prejudice to the petitioner. The procedure followed by the DRAT is so erroneous that it is in total disregard to the settled principles of law.
The learned DRAT in setting aside the order dated 09.04.2013, which was not impugned in pending Appeal No. R-24/2012, has erred in proceeding with the matter and setting aside the order dated 09.04.2013.
For the above mentioned reasons, we are of the view that the learned DRAT has exceeded its jurisdiction and committed grave error in setting aside the order dated 09.04.2013 passed in Appeal No. R-24/2012, which was filed against an interlocutory order dated 27.02.2012, by which the stay application filed by respondents No. 2 to 4 was rejected by the DRT and accordingly, we set aside the order dated 30.07.2013 (Annexure P/16) passed by the DRAT.
As observed in the preceding paragraphs, that in Writ Petition No. 11720/2013, which has been filed by the Bank, Division Bench of this Court by order dated 23.10.2013, after hearing Shri Satish Majumdar, learned counsel for the bank, granted interim relief and directed that the State Bank of India need not return the amount received by it from the auction purchaser. The aforesaid order has been made absolute on 12.12.2013.
The learned DRAT has misinterpreted the circulars issued by the RBI dated 29.10.2008 and Clause 2.1 (ii) of the Circular dated 13.10.2008 and other instructions contained in the said circular. Consequently, as per clause 2.1 (ii) of the circular dated 13.10.2008 it is clear that respondent No. 5-Bank in respect of a borrower enjoying a Cash Credit/Overdraft facility under the forex transactions on the due date can be debited to cash credit/overdraft facility account and the impact of non-payment in the cash credit/overdraft facility account and as such there has been no violation of the RBI guidelines by the Bank and thus, the action taken by the bank cannot be said to be illegal to the extent of the liability i.e. the liability excluding the liability of forex derivative transactions for which the security interest already exists and therefore, quashing the notice under Section 13(2) of the Securitization Act, 2002.
The action of the bank in settling the dues of Rs. 41.42 crores, which was outstanding against the bank in the year 2011 against respondents No. 2 to 4-borrower for a meagre amount of Rs. 15 crores, when the bank knowing well that they had earlier rejected the offer of Rs. 34.45 crores of the borrower, is against the norms and guidelines framed by the RBI. We, therefore, refer the matter to the Central Vigilance Commission and Ombudsman of the Bank to examine the same and take appropriate action, in accordance with law. We also direct the learned Chairman of the State Bank of India to examine the matter when on earlier occasion an offer of Rs. 34.45 crores on behalf of the borrower had been turned down by the bank in 2011, whether it would be appropriate for the officers of the bank to accept an offer of Rs. 15 crores in respect of the dues of more than Rs. 41 crores and settle the claim of the bank to nullify the effect of Court proceedings.
As per record, an order dated 11.06.2013 has been passed by the Additional District Magistrate, Indore in Case No. 04/A074/2012-13 in favour of the bank, in exercise of powers conferred under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and allowed the application of the respondent-bank and directed that the possession of the property to be delivered. Thus, secured creditor is to take possession of the property in question in pursuance to the order dated 11.06.2013 passed by the Additional District Magistrate, Indore for delivering the same to the petitioner-auction purchaser.
For the all going reasons, we are of the opinion that the impugned order of the DRAT dated 30.07.2013 (Annexure P/16) is liable to be set aside. Accordingly, we set aside the impugned order of the DRAT and allow both the writ petitions leaving the parties to bear their own costs.
Copy of this order be sent to (1) Chairman, State Bank of India, Corporate Centre, "State Bank Bhavan", Madam Cama Road, Mumbai 400 021; (2) The Banking Ombudsman for Madhya Pradesh and Chhatisgarh (under the Banking Ombudsman Scheme, 2006), C/o Reserve Bank of India, Hoshangabad Road, Post Box No. 32, Bhopal 462 011; and (3) Central Vigilance Commission, Satarkata Bhavan, A-Block, GPO Complex, INA, New Delhi-110 023.