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Judgment
Ashok Menon, Chairperson
This is an appeal filed by the borrowers/guarantors impugning the common judgment dated 30.12.2009 in Original Application (O.A.) No. 222/2006 and Securitisation Application (S.A.) No. 59/2007. The challenge is confined to the judgment in O.A. which was allowed in part in favour of the respondent Union Bank of India (erstwhile Corporation Bank).
To entertain the appeal, the appellants must comply with the pre-requisite under Sec. 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDB & FI Act” for short) by making a pre-deposit. The appellants have filed M.A.No.165 of 2010 for waiver of pre-deposit provided under the proviso to Sec. 21.
The facts in brief can be encapsulated thus:
The first appellant is a company which is the principal borrower. The rest of the appellants are guarantors/mortgagors. On 29.12.2001, the Corporation Bank sanctioned a credit facility called “Crop-Vypar Limit” for ₹25 lakhs against hypothecation of goods such as radios/audios/black and white and colour TVs/ CDs/VCD/DVD systems. The facility was guaranteed by appellants Nos. 2 to 5. Collateral security of the fifth defendant’s flat situated at Dadar, Mumbai was also created by a mortgage. Apart from that, a demand promissory note hypothecation agreement and letters of acknowledgement were executed in favour of the bank. In 2002, the second appellant approached the bank for sanctioning a pledge loan of ₹150 to 200 lakhs for purchasing 2000 sets of music systems in semi-knocked-down (SKD) condition from the Mumbai Customs lying at the Bombay Port Trust. It was informed that a well-known international company which had imported the goods were yet to get it cleared from the customs department. Hence, the first appellant wanted to seize the opportunity to get those goods in tender. The bank sanctioned an ad-hoc pledge loan of ₹150 lakhs vide letter dated 18.11.2002 repayable in three months. Defendants Nos. 2 to 5 again provided a guarantee and extended the mortgage. On 27.01.2003, the second defendant requested the bank for another ad-hoc pledge loan of ₹75 lakhs to Bombay Port Trust against the pledge of 1000 numbers of high-wattage music system VC 58 in semi-knocked down condition.
That request was also accepted on similar conditions. The bank was in control and custody of goods purchased by the company and kept in the leased premises of M/s Glaze Polycoat Pvt. Ltd. which was taken on lease for the purpose up to 24.11.2003.
The first appellant requested an extension of the loan by two months and wrote a letter to the bank on 13.05.2003. The bank declined the request to extend the time of repayment. Thereafter, several demand letters were issued by the bank and also requested for renewal of the lease of the premises. The appellants could not however comply with any of the requests made by the bank. There was some technical inability on the part of the appellants to assemble the sets.
The owner of the leased premises demanded vacant possession after the termination of the lease and also filed Suit No. 6/2004 in the Court of Civil Judge (JD), Vashi. The suit however got settled on 21.09.2004. The bank was to remove all the goods from the warehouse within a week and hand over vacant possession to the lessor. The pledged goods were shifted to a new godown at Turbhe, New Mumbai.
The bank issued a demand notice u/s 13(2) of the SARFAESI Act followed by a possession notice. On taking symbolic possession of the mortgaged property, the appellants filed S.A. No. 3/2006 which was disposed of on 07.04.2006, permitted the bank to sell the pledged goods after preparing an inventory and in case the sale proceeds were found insufficient, it could proceed against the mortgaged property. It was found that certain goods were damaged while some goods were found missing. The bank sold the pledged goods for ₹7 lakhs. There were still huge outstanding dues to be paid by the appellants and hence, O.A. No. 222/2006 was filed.
The appellants had objected to the O.A. by filing a written statement. The fifth defendant raised a contention that the mortgage was created only for the Corp-Vypar Limit and not for the other facilities. The first defendant contended that the goods were purchased from Port Trust and the value of 2000 sets was ₹320 lakhs while 1000 sets were worth ₹190 lakhs. The godown in which those goods were stored was under the lock and key of the bank. For valid reasons, the company could not assemble the goods and the bank was kept informed about the inability of the company. There was also a freak accident of thunder and lightning striking the overhead electric wire passing over the godown of the company at Shiroda (Goa) leading to a major fire accident resulting in goods worth ₹75 lakhs getting destroyed. After much persuasion, the insurance company paid ₹25,80,170/- as compensation on 07.02.2005. That amount was paid directly to the bank on the condition that 250 sets of audio and music systems should be delivered. The bank did deliver those sets but some critical parts were missing. After further persuasion, some of the parts were delivered but 64 sets could not be assembled for want of parts which were not delivered. The company thus sustained a loss of about ₹40 lakhs.
The Ld. Counsel for appellants submits that the respondent bank was admittedly in possession of hypothecated goods and certain goods were already sold. The appellants have sustained loss due to the act of the respondent in not preserving the goods properly. The business activities of the appellants have in affected and no income whatsoever derived from the business. Hence, the appellants pray that the mandatory pre-deposit may be waived.
The respondent bank has opposed the application and the contentions in the appeal have been disputed.
The DRT has already found that the contentions of the appellants are not sustainable and they were directed to pay ₹37,62,103/- together with the interest rate of 18.5% p.a. and a further amount of ₹2,34,814.79 together with interest as above. Thus a total amount of ₹39,96,917.79 is determined as an amount due and on that interest @ 18.5% p.a. is also due. Approximately, a sum of ₹60 lakhs would be due on the date of filing this appeal.
The appellants have not pleaded or proved any financial strain. The income tax and the balance sheet of the company are not produced. Hence, a total waiver of the pre-deposit amount cannot be granted. The appellants are directed to deposit a sum of ₹30 lakhs as a pre-deposit for getting the appeal entertained. The said amount shall be paid within two weeks i.e., on or before 17.12.2024.
Default in payment of any of the amount on time shall entail the dismissal of the appeal without any further reference to this Tribunal.
The amount shall be deposited in the form of a Demand Draft/RTGS with the Registrar of this Tribunal. Payment by RTGS shall be communicated to the Registry for verification and intimated to the counsel for the respondent.
As and when the said amount is deposited, they shall be invested in term deposits in the name of Registrar, DRAT, Mumbai, with any nationalised bank, initially for 13 months, and thereafter to be renewed periodically.
With these observations, the I.A. is disposed of.
List the appeal on 18.12.2024 for reporting compliance regarding the payment of pre-deposit.