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Judgment
Appellant no.1 had availed of loan facilities of crores of rupees from respondent no.1 Bank for implementation of one contract for some road construction by respondent no.2. Re-payment of the loans was guaranteed by appellant no.1 by mortgaging his residential house in Friends Colony, New Delhi. The appellant no.1 defaulted in re-payment of the dues of the respondent no.1 Bank which default led to its accounts being declared Non Performing Asset(NPA) in the year 2015. A demand notice under Section 13(2) of the SARFAESI Act was then served upon the borrower Company and guarantor/mortgagor requiring them to re-pay the outstanding dues of Rs. 11crores 23 lacs within sixty days. The appellant Company respondent to that demand notice as provided under Section 13(3A) SARFAESI Act. The respondent no.1 Bank rejected the objections raised by the appellant no.1. Since the dues of the Bank were not cleared by the appellants the Bank invoked Section 13(4) of SARFAESI Act and took symbolic possession of the mortgaged house of appellant no.2 on 24.04.2015.
Apprehending that the Bank might take physical possession also the mortgaged house the appellants approached DRT-I, Delhi on 26. 04.2015 with a Securitisation Application(S.A.) under Section17(1) of SARFAESI Act challenging, inter alia, the very declaration of different accounts of appellant no.1 as NPA, taking of symbolical possession of the mortgaged house etc.
The prayers made in the S.A. were as under:-
"It is therefore most respectfully prayed that this Hon'ble Tribunal may kindly be pleased to:
(a) Hold the entire measures initiated by the Respondent No.1 Bank under the SARFAESI Act as bad in law;
(b) Hold that declaration of the account as NPA by the Respondent No.1 Bank is bad in law;
(c) Hold that the notice dated 19.01.2015 issued by the Respondent No.1 Bank under Section 13(2) of the SARFAESI Act, 2002 is bad in law and therefore quash the same.
(d) Hold that the act of taking symbolic possession of the property on 24.04.2015 is bad in law and quash the same as well as all notices issued in relation thereto.
(e) Hold that the Applicants are not liable to pay any amount to the Respondent No.1 Bank and direct the Respondent No.1 Bank to release the title documents of the immoveable property and hold that the Respondent No.1 Bank does not have any charge or claim over the same.
(f) Hold that the Respondent No.1 Bank is liable to pay a sum of Rs.1 Crore to the Applicants as damages / compensation for its unlawful and illegal acts.
(g) Direct the Respondent No.2 to deposit a sum of Rs.1,10,07,045/- with the Respondent No.1 Bank
(h) In the event of failure of the Respondent No.2 to deposit a sum of Rs.1,10,07,045/- with the Respondent No.1 Bank, the Respondent No.2 be directed to hand over the plant and machinery to the Applicants or in the alternative a Receiver be appointed for taking control of the plant and machinery and other equipments belonging to the Applicants and thereafter auction the same.
(i) Costs of the present application may also be allowed in favour of the Applicants and against the Respondents.
(j) Pass any other order or further relief which this Hon'ble Tribunal may deem fit, just and proper in the facts and circumstances of the case, in favour of the Applicants and against the Respondents."
The respondent no.1 Bank contested the S.A. and had prayed for rejection of the S.A.
The learned DRT vide its order dated 02.01.2018 dismissed the appellants' S.A. The relevant portions from the impugned order of the DRT are-produced below:-
"1. The present securitization application has been filed by the applicants praying therein to hold the declaration of the account as NPA by the respondent no.1 bank is bad in law; to hold the notice dated 19.01.2015 issued by the respondent no. 1 bank under Section 13(2) of the SARFAESI Act, 2002; to hold the act of taking symbolic possession of the property on 24.04.2015 and quash the same as well as all notices issued in relation; to hold that the applicants are not liable to pay any amount to the respondent no. 1 bank and direct the respondent no. 1 bank to release the title documents of the immovable property and hold that the respondent no. 1 bank does not have charge or claim over the same to hold that the respondent no.1 bank is liable to pay a sum of Rs.1 Crore to the applicants as damage/compensation for its unlawful and illegal acts; direct the respondent no.2 to deposit a sum of Rs.1,10,07,045/- with the respondent no.1 bank; to hold the valuation reports dated 05.05.2015 and 16.12.2015 of M/s Gupta R.K. & Associates obtained by the respondent no. 1 bank and quash the same; hold that the reserve price of the entire Friends Colony property cannot be fixed at less than Rs.30 Crores, as it's circular rate and market value is around Rs.34 Crores; to hold the First Floor (without roof rights) of the Friends Colony property's market value is Rs.10.54 crores and the respondent no. 1 bank cannot auction the same below a reserve price of Rs.10.50 crores; to hold that the respondent no. 1 bank is liable to proceed first against the property in question by auctioning the same at a reserve price of Rs.10 crores and only thereafter taken any further measure.
Facts as succinctly set out in the SA are that the applicant no. 1 company is incorporated under the Companies Act, which was awarded a sub-contract by respondent no. 2 for executing part of work construction and widening the existing carriageway to 2 lane for ChandbaliBhadrakAnandpur Road in Odisa. For executing the said contract the applicant no. 1 approached the respondent no. 1 for availing certain credit facilities and respondent no. 1 vide sanction letter dated 07.01.2014 has sanction the following facilities:
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It is further stated that to establish credit worthiness the applicant no. 2 handed over original title deed of the property bearing no. 7 - A/3, Friends Colony (West), New Delhi (hereinafter referred as "Property in question"). However the respondent no 1 bank illegally retained the original title deed with them and wrongly claiming charge over the property.
It is also stated that de hors the contention of the applicants that no charge was created over the property, even a perusal of the sanction letter dated 07.01.2014 shows that out of 4 credit facilities the respondent bank has not claimed its alleged charge over the property in question in respect of the letter of guarantee facility.
It is sated that the cash credit limit was enhanced on 8. 09.2014 from Rs.200 lacs to 250 lacs and again alleged charge of the property in question was extended for the said enhanced facility only but not for the letter of guarantee facility.
It is further stated that the respondent bank did not make the payment to the applicant no. 1 in time and due to this fact the applicant suffered huge loss. ............................................................
It is also stated that the credit facilities was enhanced by the respondent no. 1 bank on 08.09.2014 which shows that the account was regular, however, respondent bank in a very illegal and arbitrary declared the account as NPA and issued the notice dated 19.01.2015 under section 13 (2) of the SARFAESI ACT, 2002 thereby claiming a total sum of Rs 1123.03 lacs. Thereafter, the applicant has filed the objection/ reply under section 13 (3A) of the SARFAESI ACT, 2002 dated 16.03.2015, however the respondent bank has given very stereotyped and mechanical reply dated 25.3.2015, therefore it is prayed that entire measures of the respondent bank under SARFAESI ACT, 2002 may be quashed...........................................
The respondent no 1 bank has filed its reply stated that the applicants at the time of availing the credit facilities have executed, on 27.08.2009, guarantee deed and thereafter the sanction advice dated 14.01.2012, which was issued by the respondent bank duly accepted by the applicant no.1 alongwith all the guarantors. It is further stated that the respondent no. 1 after considering the valuation of the property in question has allowed the security for credit facilities i.e. MCC limit of Rs 200.00 lacs plus Rs 50.00 lacs, adhoc limit for 90 days plus WCTL of Rs 200.00 lacs will be held as collateral security for the LG limit/term loan, thus the facilities were duly received by virtue of current assets of the company and property in question. It is also stated that charge have been created with ROC and limit were enhanced and the latest charge which was modified with ROC on 09.09.2014.
It is further stated that since the applicant failed to maintain the financial discipline in the account, therefore the respondent bank has declared the amount, therefore the respondent bank has declared the amount as NPA and thereafter issued notice under 13 (2) of the SARFAESI ACT,2002.
Having heard rival submissions and perused the record.
The applicants in the present SA have mainly raised the following objections-
(i) that the account was wrongly declared as NPA;
(ii) that the bank has illegally invoked the bank guarantee.
(iii) that the property in question was not a security for the bank guarantee
(iv) that the authorised officer was not duly authorised;
(v) that the respondent bank gave very mechanically a stereotypereply of objection under section 13(3A) of the SARFAESI ACT,2002 and
(vi) the bank has drastically reduced the reserve price.
Now hereinafter, i will decide the issue/objection raised by the applicants.
(i) The applicants have raised the first objection that the account was wrongly declared as NPA. Ld. Counsel for the respondent-bank strongly refuted the said contention and contended that since the applicant failed to maintain financial discipline, therefore, theaccount was declared as NPA.
Records reveals that to meet out default in cash credit facility and adhoc cash credit facility was granted by the bank on 8.9.2014 and was to be expired on 8.12.2014 and was to be expired on 8.12.2014.As per terms and conditions of the said facility, the account to be adjusted by the applicant no.1 upto 8.12.2014 but applicant no.1 failed to adjust on 8.12.2014 hence considering the default in cash credit account, the same was declared NPA on 9.12.2014. Similarly, term loans account of the applicant no 1 has not serviced, the interest hence term loans were also become NPA on 9.12.2014.Further, the applicant no. 1 did not service the interest in the regularterm loans for the month of August, September, October, Novemberand December, 2014 and, thus the said account has also become NPA.Therefore, in my view bank has rightly declared the account as NPA. Thus, the objection raised by the applicants is not sustainable and the same is hereby declined.
(v) The applicant has raised another objection that the respondent bank in a stereotyped and mechanical manner rejected the objection/ reply of the applicant of Section 13(3A) of the SARFAESI Act, 2002.
I have perused the reply of the respondent bank on 13(3A) of the SARFAESI Act, 2002 dated 25.03.2015 (Annexure A-15), same is very detailed and reasoned reply consisting around 11 pages, therefore, the objection of the applicant is baseless and thus, rejected.
(vi) The applicant by way of an application for amendment also raised certain objection pertaining to the valuation of the property in question. It is stated by the applicants that worth of the property in question is around Rs. 34 Crores as per circle rate and marker rate therefore, reserve price of the property cannot be fixed less then Rs. 30 crores further, stated that the valuation report dated 05.05.2015 and 16.12.2015 of M/s Gupta R.K and Associates obtained by respondent no. 1 bank are bad in law and may be quashed. It is also stated that the market value of the 1st Floor (without roof rights) is around Rs. 10.54 crores and the respondent bank cannot auctioned the same below the reserve price of Rs. 10.50 crores therefore, it is prayed that the respondent bank may be directed to auction the property for a reserve price of Rs. 10 crores and in case the auction could not materialized then the respondent bank in terms of provision of Section 13 (5-A) of the SARFAESI Act, 2002 purchase the same and give Credit of Rs.10.50 crores in the account of the applicant. Further, in case if there will be any short fall, the respondent bank shall first recover its remaining dues from the sale of the plant and machineries over which bank claims its lien.
Learned counsel for the respondent bank submits that the property was put on auction 4 occasions. However, no buyer has come forward as the applicant no. 2 is in possession of the property. Therefore, he contended that unless and until possession of the propertywould be handed over to the bank, only then the bank may be able to get a prospective buyer.
After considering the submission of the applicants, the Tribunal has also allowed the opportunity to the applicants to bring the buyer for the property however, they failed to do so. The respondent bank has put the entire property for auction and also they call the bid floor wise however, no bidder has come forward.
The applicant has challenged the order of this Tribunal before the Hon'ble Delhi High Court also in W.P (C) No. 4558/2016 and the Hon'ble Delhi High Court on the request of the applicants allowed the applicants to move one time settlement to the Bank and respondent bank was directed to consider the same sympathetically. Further, the applicant was provided an opportunity for bringing the buyer within six weeks from the date of the order. However, Hon'ble Delhi High Court has made it clear, that in case no settlement arrived between the parties or no buyer is identified by the applicant within six weeks, Bank was allowed to proceed further for auction. It is pertinent to note that the applicants neither bring buyer for the property nor any settlement has arrived between the parties.
It appears that the applicants are raising objection of valuation of the property with an aim to half the recovery of the respondent bank. Therefore, i do not find any merit in the objection raised by the applicants hence, same is hereby rejected.
Order sheet dated 28.03.2016 reveals that the bank has put the property floor wise. Even applicant could not bring any buyer for the property despite the permission of Hon'ble Delhi High Court.
Therefore, in my view, the objection raised by the applicant that bank may proceed further for auction floor wise is not sustainable in law. It appears from the order sheet that the bank has already put the property four times on auction. However, every time applicant has raised objection on the auction on one or the other ground. Further, he has challenged the order passed by this Tribunal before the Hon'ble DRAT, Delhi and also before the Hon'ble Delhi High Court and wherein Hon'ble High Court of Delhi has allowed an opportunity to the applicant either to go for one-time settlement to bring a buyer but the applicant has failed to comply any of the proposal of Hon'ble Delhi High Court and now he is raising objection about the action taken by the bank on very technical ground that the bank guarantee was wrongly invoked.
In the light of above said discussions, i do not find any merit in the present SA, and thus, same is hereby dismissed.
However, considering the age of respondent no. 2 he is more than 80 years therefore, I allow one more opportunity to the applicants to bring a buyer or pay the entire dues of the respondent bank within 60 days from today, failing which bank may take physical possession of the property without any further direction of the court.
File be consigned to records. A copy of the order be sent to both the parties as per procedure."
As noticed already, the appellants had challenged the very declaration of their accounts as NPA. The relevant pleadings in respect of this ground of challenge to the initiation of proceedings under SARFAESI Act by the respondent no.1 Bank are as under:-
"XXII BECAUSE the notice dated 19.01.2015 states that the account was declared as NPA on 09.12.2014.the account could not have been declared as NPA on 09.12.2014. As per the Prudential Norms/Guidelines prescribed by the Reserve Bank of India for declaring an account as NPA, the account does not fall under any of the categories of the said Prudential Norms.
As per the Master Circular /Prudential Norms/ Guidelines of the Reserve Bank of India in respect of NPA, it is only if the interest in a particular quarter is not serviced by the borrower, then the Respondent No.1 Bank has to wait for a period of 90 days from the end of that quarter and only thereafter can the account be declared as NPA.
In the present case, the credit facilities were sanctioned/enhanced by the Bank on 08.09.2014, meaning thereby that undisputedly, the account as on 08.09.2014 was regular and in order.
Although, the contention of the Applicants is that the interest for the quarter ending December, 2014 has been duly serviced as the same was debited by the Bank on 31.10.2014, 30.11.2014 and 31.12.2104, even if it is presumed for the sake of arguments that there was any default on the part of the Applicants in servicing the interest for the quarter ending December, 2014, as per the terms of the Prudential Norms of the RBI, the Applicants had, a time of 90 days from the end of the quarter i.e. upto 31.03.2015, to pay the defaulted interest and it was only thereafter that the Respondent No.1 Bank could have declared the Account as NPA. Clause 2.1.3 of the Master Circular of the RBI, is reproduced as under:
"2.1.3 In case of interest payments, banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter."
In view of the above facts, the declaration of the Account as NPA on 09.12.2014, is thus in violation of the Prudential Norms of RBI and is bad in law.
It has been held by the DRAT, Delhi in the matter of Soul & Attires Creations Pvt. Ltd. &Ors. Vs. Bank of India &Anr.that the account cannot be declared as NPA before the expiry of 90 days from the end of the quarter in which the interest has not been serviced. In the said case, the Hon'ble Appellate Tribunal held the declaration of the account as NPA by the Bank, to be bad in law and struck it down.
The valid declaration of the account as NPA, being a pre-requisite and a sine qua non for proceeding under the SARFAESI Act, 2002, makes the measures initiated by the Respondent No.1 Bank under the SARFAESI Act, 2002 being the notice dated 1.01.2015, a nullity in the eyes of law."
It was not disputed before this Tribunal from either side that if the very declaration if appellants' account as NPA is found to be illegal, subsequent measures initiated under SARFAESI Act by respondent Bank will also be illegal. Therefore, the learned DRT was expected to deal with this aspect seriously which has not been done as isevident from the impugned order. The learned DRT has not even adverted to the claim of the appellants herein that as per the RBI guidelines if interest component is not serviced and there is default, then 90 days period from expiry of the quarter in which default occurred has to be given to the borrower. This objection has been taken by the appellants even in their representation made by it under Section 13(3-A) of the SARFAESI Act on receipt of demand notice under Section 13(2). Though the learned DRT has observed in the impugned order that 'record reveals that the appellants' account was legally declared NPA', but it is significant to note that the Bank had not even led any evidence to show that it had lawfully declared the appellants' account NPA. In my view, the learned DRT ought to have dealt with this objection of the security applicants in correct perspective and returned some finding on what they were claiming that their account could not have been declared NPA even if there is a default, before the expiry of 90 days from the end of the quarter in which the default had allegedly occurred. This being a fundamental question going to the root of the matter has remained unanswered. Therefore, the matter has to be remanded back to the DRT for a fresh order, particularly dealing with the aforesaid objection/ contention of the security applicants.
The appellants had also taken a plea before the learned DRT and even before this Tribunal that in case the Bank was not getting any buyers, it should be directed to buy itself the first floor of the property as provided under Section 13(5A) of the SARFAESI Act. The learned DRT has also not given any decision on this part of the case put forth by the appellants. Though before this Tribunal the Bank had claimed that the Bank had declined to purchase the property, but, in my view, since the matter is to be remanded back to the DRT as observed above, even on this aspect it would be appropriate if the DRT return a finding as to whether the Bank could be compelled to buy the first floor of the property in question and give credit to the appellants.
No other point was urged from the side of the appellants.
For the foregoing reasons, this matter is remanded back to the DRT for a fresh decision keeping in mind the observations made hereinabove. The matter shall now be taken up by the DRT for appropriate directions on 16.12.2019 at 2 p.m.