Natasha Singh and Ors. vs Small Industries Development Bank of India and Ors.

S.N.H. Zaidi, J

The instant application (LA. No. 547/2011) has been filed under Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act (for short, the Act) for waiver of pre-deposit for entertaining the accompanying Appeal No. 324/2011. Reply to the application has been filed by the 1st respondent.

I have heard Mr. Rajeeve Mehra, learned Senior Advocate accompanied by Mr. Bhoumik Nayyar, Counsel for the appellants and Mr. S.N. Relan, Counsel for the 1st respondent Bank, and perused the record.

Mr. Mehra submitted that the accompanying appeal has been filed against the final order dated 14.3.2011 passed by DRT-II, Delhi in O.A. No. 315/97 filed by the 1st respondent against Mesco Pharmaceuticals Ltd. and seven others, including the appellants/applicants who were arrayed as defendant Nos. 3 to 8. He pointed out that in Clauses (a) and (b) of the Relief column of the O. A., prayers were sought for judgment/decree for the claim amount with costs and interest and for the sale of the movable and immovable properties for the recovery of the outstanding dues against defendant No. 1 only and in Clause (c) the only prayer sought against defendants 2 to 8 was limited to the sale of their shares which were allegedly pledged with the applicant Bank as security for the recovery of dues. He further submitted that in the O.A allegations qua defendants 2 to 8 were made only in Paras 5(ii), 5(vii) and 5(x). In Clause 5(ii) it has been alleged, inter alia, that respondents 2 to 8 have furnished security for the due repayment of the dues by respondent No. 1 by way of pledge of shares with the applicant and respondents 5 and 6 also pledged shares as Karta of their respective HUFs and thus the pledge of shares is binding on the respective HUFs and as such against respondents 2 to 8. In Clause 5(vii) it has been alleged inter alia that respondents 2 to 8 executed deeds of pledge of shares by way of security for the due repayment of the dues by respondent No. 1 and respondent Nos. 5 and 6 also executed deeds of pledge on behalf of their HUFs, being Karta, and those agreements are binding on the HUFs represented through them and in Clause 5(x) it has been alleged that respondents 2 to 8 had executed agreement of pledge in favour of the applicant and pledged the shares along with transfer deed with the applicant and they are liable to the Bank for the outstanding liabilities of the respondent company and demand notice were sent to respondents 2 to 8 asking them to pay the mortgage value of their shares towards their liability.

The submission of Mr. Mehra is that despite the fact that the appellants are neither the borrowers nor the mortgagors or guarantors and as per the averments in the O.A. they had only pledged their shares and although the alleged fact is also disputed but even assuming at this stage that the defendants/applicants had pledged their share with the applicant/1st respondent, but there was no allegation against them that they had executed any personal guarantee qua any of the loans/facilities granted to the respondent company. He further submitted that admittedly no document has either been pleaded or led in evidence by the Bank to show that the defendants/applicants had undertaken any personal covenant for the payment of the amount due to the respondent Bank, but the learned DRT, traveling beyond the pleadings and the relief sought in the O.A. has made all the defendants, including defendants 3 to 8, jointly and severally liable to pay the decreed amount. Mr. Mehra has drawn my attention to the documents filed by the applicant/1st respondent in the O.A., a compilation of photo copies whereof has been filed by him.

In view of all these facts and circumstances, Mr. Mehra submitted that the impugned judgment is ex facie perverse and the appellants/applicants are entitled for the complete waiver of the requirement of pre-deposit.

Mr. S.N. Relan, on the other hand, vehemently opposed the application and submitted that the compliance of requirement of pre-deposit under Section 21 of the Act is mandatory and unless the amount is deposited the accompanying appeal cannot be entertained. He further pointed out that the appellants in Clause (7) of the agreement of pledge of shares had given the then market value of their shares which were pledged with the Bank and as such they are liable to the extent of the market value of shares at the time of executing the pledge agreement.

Mr. Relan is not in dispute with the contention that the appellants did not execute any personal guarantee for any of the loans/credit facilities granted to the respondent company. It is also not in dispute that except execution of alleged agreement for pledge of shares and the letter regarding deposit of share certificates no other document was executed by the applicants. The perusal of the notices of demand sent by the 1st respondent to the appellant shows that it was specifically mentioned in those notices that if the due amount is not paid within the given time, the shares pledged for realizing dues would be sold for enforcing agreement of pledge.

Without further commenting at this stage upon the merit of the case, 1 am satisfied that prima facie the liability of the appellants/applicants appears to be limited to the extent of their shares allegedly pledged with the 1st respondent Bank and there appears to be no personal guarantee/covenant qua the repayment of the dues advanced to the respondent company by the Bank and as such the impugned order making the appellants jointly and severally liable in their personal capacity qua the decree is questionable. Looking to the peculiar facts and circumstances of the case as mentioned above, it appears to be a fit case for complete waiver of the required pre-deposit under Section 21 of the Act and the application is entitled to be allowed. Accordingly, the application is allowed and the appeal is held to be entertainable. Listen 24.1.2012 for hearing on admission.