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Judgment
This Appeal is filed against the final order passed in OA No.151/2011 by the Learned Presiding Officer, DRT-II, Chennai on 05.04.2019, more specifically against the observation made in the last sentence of paras 10 and 14 (a) of the impugned order.
Learned Counsel for Appellant submitted that Appellant is a secured creditor in respect of the 2nd Respondent, the borrower. The 2nd Respondent availed loan facility in the year 2002 to the tune of Rs.1,695/- Lakhs by entering into a loan agreement and hypothecation agreement on 06.03.2002. As per the loan agreement, Respondent No.2 offered security by registered mortgage in respect of immovable properties, and by hypothecation agreement, it offered security in respect of plant and machineries and movable items. The loan was availed for the purpose of starting a biomass power generation plant in Karnataka. Both the loan agreement and the hypothecation agreement had specific clauses whereby the first priority over the properties had been accorded in favour of the Appellant. In case, the borrower wants to avail loan facility from any other Bank/financial institution, the borrower should obtain prior written consent from the Appellant for borrowing the loan.
It appears that 1st Respondent, UCO Bank, sanctioned a loan of Rs.1,500/- Lakhs to the 2nd Respondent. First Respondent sent a letter to the Appellant on 21.05.2005 with regard to the pari pasu arrangement. It is specifically said that the proceeds received will be apportioned towards the periodical interest/principal on pari pasu basis for the loan sanctioned by the UCO Bank and the Appellant. On 25.05.2005, Appellant sent a letter to 2nd Respondent, with a copy marked to the 1st Respondent, informing the ceding of pari pasu on the fixed assets of the company and the receivables of power in favour of 1st Respondent, UCO Bank, to secure its Term Loan of Rs.1,500/- Lakhs. There is also a condition incorporated that UCO Bank shall give commitment / undertaking to Appellant to make payment of dues of Appellant on or before the due date. Thereafter, on 30.07.2010, UCO Bank sent a letter to 2nd Respondent, M/s. Bhagyanagar Solvent Extractions Pvt. Ltd. informing that the Term Loan of Rs.1,500/- Lakhs was closed. With the closure of this loan, the pari pasu agreement between the Appellant and the 1st Respondent, UCO Bank comes to an end.
On 13.08.2012, Appellant sent a letter to UCO Bank informing that when the loan sanctioned by UCO Bank to the tune of Rs.1,500/- Lakhs was repaid by the borrower in full, the loan sanctioned by Appellant was still due i.e., still remain unpaid. This is a breach of agreement / contract between the UCO Bank and the Appellant. UCO Bank sent a letter dated 24.08.2011 whereby it was informed that M/s. Bhagyanagar Solvent Extractions Pvt. Ltd. availed term loan / cash credit, and short-term loans from time to time. On default committed, the account was classified as NPA on 15.04.2011 and notice under SARFAESI Act was issued for recovery of the outstanding amount of Rs.821.06 Lakhs as on 31.03.2011. The loan availed by the borrower from Appellant is also referred, along with pari pasu arrangement. Thus, the 1st Respondent took the consent of the Appellant for ceding its authority over the assets of the 2nd Respondent.
It was replied by the Appellant on 08.11.2011 informing that Appellant had not ceded any authority over the assets of the 2nd Respondent, except for the term loan of Rs.1,500/-Lakhs. This loan amount was paid. Appellant was not able to understand how the 1st Respondent took charge over the assets which were not ceded by the Appellant. Appellant’s exclusive authority on the entire asset was reiterated. As far as the properties offered as security, Appellant had no mortgage over ‘A’ and ‘B’ Schedule properties. However, hypothecation was created in respect of ‘C’ Schedule property in favour of the Appellant. When that being the case, and when there is no subsisting pari pasu agreement in respect of ‘C’ Schedule property, especially after settlement of Rs.1,500/- Lakhs loan by 2nd Respondent to the 1st Respondent, observation made by the Learned Presiding Officer in para 10 that Applicant has second charge over ‘C’ Schedule property and that 1st Respondent herein is also entitled to recover due amount by sale of ‘C’ Schedule property with the consent of Official Liquidator and on priority of charge of the Appellant, is not factually and legally correct. Therefore, this Appeal.
Learned Counsel for 1st Respondent filed a Memo, stating that it has already settled the dispute with the Respondent No.2 borrower, by issuing a No Due Certificate on 11.01.2022, after receiving a sum of Rs.25 Lakhs on 24.12.2021 and Rs.80 Lakhs on 31.12.2021, totaling to an extent of Rs.1.05 Crores. Therefore, the 1st Respondent filed a Memo for withdrawal of OA on 22.08.2022. Thus, it is submitted that this Appeal has become infructuous.
Considered the rival submissions and perused the records.
It is not in dispute that Edelweiss Asset Reconstruction Company Limited filed OA 151/2011 against the Defendant M/s. Bhagyanagar Solvent Extractions Pvt. Ltd. and 8 others, to recover a sum of Rs.9,03,66,947/- with further interest. M/s. Indian Renewable Energy Development Agency Limited has been added as Defendant No.9 for the reason that there is charge in respect of ‘C’ Schedule property in favour of D9. The OA was disposed of allowing Edelweiss Asset Reconstruction Company Limited, the first Respondent in this Appeal, to recover a sum of Rs.9,03,66,947/- from the Defendants 1 to 8 with interest @ 6% p.a. (simple) from the date of OA till the date of realization, and in default to pay the amount, the 1st Respondent was empowered to sell the immovable properties in Schedules ‘A’ and ‘B’ to the OA in consultation with OL. There was a further direction to recover the amount by sale of ‘C’ Schedule property in consultation with OL and on priority of charge with D9. Aggrieved against this portion of the order, this Appeal is filed.
It is the submission of the Leaned Counsel for Appellant that only the Appellant has charge over ‘C’ Schedule property and the Appellant is the exclusive charge holder for ‘C’ Schedule property. Learned Presiding Officer, in para 10 of the order, observed that the Appellant has the first charge over the ‘C’ Schedule property and the first Respondent has the pari pasu charge over ‘C’ Schedule property. The loan agreement entered into between the Appellant and 2nd Respondent on 06.03.2002 shows that 2nd Respondent has agreed and undertook to take Appellant’s prior permission before taking any additional loan. In the event of default, it was indicated that creation of charge, encumbrance, alienation or transfer without the prior approval of Appellant in writing, would be the one of the events of the default. The Appellant ceded pari pasu charge on fixed asset of the company and receivables of the power in favour of UCO Bank, Chennai, to secure its Term Loan of Rs.15 Crores. It was ceded on the condition that the sale proceeds of power to be received from KPTCL in a special account, for appropriation towards the payment of dues of Appellant and first Respondent. The UCO Bank should give commitment/undertaking to Appellant to make payment of dues of Appellant before its due date. However, the UCO Bank apportioned all the sale proceeds received from KPTCL against its dues without sharing the sale proceeds with the Appellant. It is a breach of the contract entered into between the Appellant and UCO Bank and now Edelweiss Asset Reconstruction Company Limited. It was reiterated that the Appellant had not ceded any charge over the assets of the company except for Term Loan of Rs.15 Crores, which was payable in 42 monthly instalments.
It is the case of the Respondent No.2 that the Respondent No.2 settled the dues of the first Respondent in its entirety. Thus, it is abundantly made clear that 2nd Respondent’s claim is entirely settled and only the dues of Appellant alone are to be recovered from the Respondents 2 to 9. Effectively, the Appellant has exclusive charge over the ‘C’ Schedule property now, for the dues recoverable from the Respondents 2 to 9.
In this view of the matter, observation made in the last sentence of paras 10 and para 14 (a) that “……The Applicant is having second charge over the said ‘C’ schedule property and it cannot claim first charge in respect of that hypothecated property” and “Applicant bank is also entitled to recover the due amount by sale of ‘C’ schedule property with the consent of OL and on priority of charge with D9”, are ordered to be deleted from the impugned order.
Thus, the Appeal in RA 23/2020 is allowed on the above terms. DRT-II, Chennai is directed to issue corrected order. Both parties shall bear their own costs. All pending IAs, if any, stand closed.