Payless International And Ors. vs Bank Of Baroda

Ranjit Singh, J

The O.A. filed by Bank of Baroda stands allowed by the Tribunal below thus holding the Bank entitled to recover a sum of Rs. 9,86,01,746/- with interest @ 15% p.a. on monthly rests from 23.7.2010 onwards until recovery from all the four appellants jointly and severally with cost. Aggrieved against this finding, the appellants have filed the present appeal. When this appeal came up for hearing on 28.3.2014, Counsel for the appellants had made grievance only in regard to rate of interest as granted by the Tribunal. The interest allowed was urged to be excessive. Notice was accordingly issued.

In response to the notice, the Counsel for the Bank appeared and filed reply to waiver application. Taking note of the fact that the grievance in the appeal was primarily against the rate of interest, the Counsel for the respondent Bank was asked to file reply to the appeal as well. The Counsel for the Bank was also directed to ascertain if there is any FDR to the tune of Rs. 50 lacs stated to be lying with the Bank as was the plea of the Counsel for the appellants. The Bank thus has filed reply to the main appeal as well.

Another application seeking waiver of pre-deposit came to be filed pleading that the earlier amount received by the Bank from ECGC had been refunded and there is a requirement of seeking waiver of the amount required to be deposited to maintain the appeal. While these applications were under consideration, another application was filed by the appellants seeking direction to the respondent Bank not to take coercive steps. Notice on this application was also issued. Ultimately, the waiver application was considered on 25.11.2014. On this application, this Tribunal passed the following order on the waiver application:

"This appeal is directed against the order dated 5th February, 2014 holding the appellants liable to pay a sum of Rs. 9,86,01,746/- with interest @ 15% per annum with monthly rests from 23rd July, 2010 onwards. An application (IA No. 556 of 2014) seeking waiver of the requirement of pre-deposit is filed on the ground that the Bank has recovered some substantial amount on account of sale of certain properties.

Undisputed facts which have emerged from the submissions made by the Counsel are that one of the properties situated at Faridabad and belonging to the appellants has been sold for a sum of Rs. 3.60 crores. It is not in dispute that a sum of Rs. 3.72 crores has been received from the ECGC by the respondent Bank of Baroda.

Mr. Aggarwal would point out that out of Rs. 3.72 crores received by the Bank from the ECGC, it has already refunded Rs. 1.76 crores to the ECGC out of the sale proceeds of the property at Faridabad. Thus, virtually that the Bank at present has received a sum of Rs. 5.60 crores against the liability which stands determined.

Mr. Bhandari, at this stage, would point out that two properties worth Rs. 6 crores are already in possession of the respondent Bank and those are likely to be put to sale. Mr. Aggarwal, however, points out that these two properties have been evaluated at Rs. 1.30 crores and Rs. 1 crore and have fetched no buyer at this reserved price. Accordingly, he states that the value of these two properties is not Rs. 6 crores as is urged by the Counsel for the appellant.

Mr. Aggarwal further points out that the amount due by taking into account interest allowed payable by the appellant would be the tune of Rs. 17 crores.

Rate of interest and delayed payment thereof is subject matter of this appeal. Prima facie, one has to see the amount which is determined. Approximately 50% of the amount determined has been recovered in this case, and this aspect cannot be ignored. In view of fact that nearly 50% of the amount is recovered, the appellants may not be required to make any further deposit to maintain the present appeal. The waiver application (IA No. 556 of 2014) is accordingly disposed of in the above manner. The Bank would be at liberty to approach this Tribunal in case any requirement to further refund to ECGC arises on account of any consideration in future.

Reply in the appeal has already been filed. Adjourned to 12th December, 2014 for arguments."

When the appeal came up for hearing on 21.1.2015, the Counsel for the Bank submitted before this Tribunal that this Tribunal may in its discretion allow the interest at any rate considered proper in accordance with law. The Counsel, however, qualified this concession with a rider that the rate of interest be reduced if the appellants' are ready to make payment in time-bound instalments.

The Counsel for the appellants responded by stating that the Bank could realize the amount by sale of two properties which were in possession of the Bank and the appellants otherwise had no source to make payment. This Tribunal, therefore, considered it appropriate to allow the Bank to proceed ahead with the sale of the properties to see how much amount could be realized from the sale and then to determine the rate of interest in equity and fairness.

Despite efforts, the Bank could not succeed to auction the property. The auction which was fixed for Rs. 2.30 crores failed. The Counsel for the respondent Bank had then pointed out that even if both the properties were sold, that would not lead to recovery of the full amount due to the Bank. The plea accordingly was that this Tribunal should proceed ahead to consider the limited request made by the appellants to grant some concession in the rate of interest. Finding substance in the submission, this Tribunal decided that it may not be required to wait for the outcome of the auction. The appeal still had to be adjourned as the Counsel for the appellants was not available.

The Counsel accordingly made submissions on the next date, i.e., 17.3.2015. In view of the nature of submissions made by the Counsel for the Bank, the case had to be adjourned to enable the Counsel for the Bank to place on record the RBI instructions entitling the Bank to calculate interest either on monthly rests, quarterly rests or on half-yearly rests. The order dated 17.3.2015 reads thus:

"Limited issue arising in the present appeal is in regard to the rate of interests. Submission made by Mr. Bhandari, Counsel for the appellant, is that the Tribunal below has allowed the claim of the Bank with 15% p.a. interest with monthly rests which is against the agreed rate of interest.

Mr. Bhandari has made reference to number of documents to show that while mentioning the rate of interest, no reference is made to this fact whether the interest was to rest monthly, quarterly or half yearly.

Mr. Aggarwal, Counsel for the Bank, on the other hand, has referred to loan agreement with emphasis on Para 4.2 thereof which according to the Counsel gave option to the Bank to calculate interest either on monthly rests or quarterly rests or half yearly rests. The Counsel submits that the Bank, as per the guidelines issued by the RBI was authorized to charge interest with monthly rests as per the changed position incorporated about five years back.

What was the position in the year 2005 when this loan agreement was entered into along with latest instructions in this regard may be placed by the Bank on record for adjudication of the issue in a proper manner. Copy in advance be supplied to the Counsel for the appellant.

Adjourned to 24th April, 2015 for arguments."

The case was then taken up for hearing on 24.4.2015. On this day, Mr. Aggarwal appearing for the respondent Bank made a statement that the Bank would be even willing to charge interest 6% p.a., if the appellants were prepared to make the payment in a time-bound manner. There could not have been a better option for the appellants in this regard, especially so, when the appellants have only been pleading concession in the rate of interest. Instead of gleefully accepting this offer, the Counsel for the appellants was seen making an attempt to wriggle out of this situation by urging that it may not be possible for him to make commitment for adhering to the time-schedule for payment of the dues. The case accordingly had to be adjourned to 1.5.2015.

On 1.5.2015, the case was taken up for hearing on more than one occasion. Each time a request for adjournment was made to wait for the Counsel for the appellant. The Counsel chose not to appear and sent a request for adjourning the case. The case had earlier been unnecessarily adjourned on a number of occasions, the request for adjournment was declined. Finally, when the Counsel did not appear despite having waited for him to appear, the orders were reserved with liberty to the Counsel for the appellants to submit written submission, if so desired.

In this regard, the Counsel for the appellants was allowed time till 5.5.2015 to submit his written submission. No written submissions, however, have been received till date. Rather, Counsel for the respondent Bank, who was present at the time of hearing and had made his oral submissions, has made written submissions as well.

In these written submissions, the Bank has calculated interest at different rates. As per this calculation, if the interest is calculated @ 9% p.a. simple and @ 9% p.a. with monthly rests would work out to Rs. 14,29,72,532/- and Rs. 15,43,78,882.94 respectively. Similarly, the calculation if done @ 12% p.a. simple and @ 12% p.a. with monthly rests, the interest amount would be Rs. 15,77,62,788 and Rs. 17,91,29,466.43. Such calculation done with interest @ 15% p.a. simple and @ 15% p.a. with monthly rests would work out to be Rs. 17,25,53,056/- and Rs. 20,77,71,759.95 respectively.

Having given this calculation, the Counsel for the respondent has referred to the sanction letter where the rate of interest given was @ 17% p.a. While not disputing the discretion of this Tribunal to decide the rate of interest pendente lite and future, the plea by the Counsel is that in commercial transaction as a matter of rule pendente lite and future interest is to be awarded at contractual rate and the same can be reduced only in exceptional cases. In support of this proposition, the Counsel has also relied upon various judgments like Canara Bank v. Marshall Cycle & Ors., 72 (1998) DLT 295; Indian Bank v. Blue Jaggers Estate Ltd. & Ors., III (2010) BC 694 (SC) : VI (2010) SLT 26 : (2010) 8 SCC 129; Syndicate Bank v. West Bengal Cements Ltd., II (1990) BC 242 : AIR 1989 Delhi 107; Dr. E. Prabakaran & Anr. v. Lakshmi Vilas Bank Limited, IV (2011) BC 132 (DB) : 2011 (2) DRTC 695. The view that would emerge from these judgments generally is that use of discretion to reduce or deny interest will tantamount to penalizing the creditor and that the Court cannot lose sight of the fact that the Bank is a trustee of public fund and it cannot compromise the public interest for benefiting private individuals. The Court has also observed in the case of Syndicate Bank (supra) that the grant of interest at a rate less than the contractual rate will amount to giving a premium to those who trade upon the money of others, and that the defaulting borrower cannot be given benefit of reduced rate of interest as a matter of rule only because the Bank had to resort to legal recourse on account of non-payment by the borrower.

The existence of exceptional or special circumstances is what may call for consideration. Obviously, exception and special circumstances would depend upon of facts of each case. It is noticed that exceptional or special circumstances can be that where the borrower had made sincere efforts to pay but failed and the grant of interest at contractual rate may lead to closure of his unit. Relying on these judgments, the Counsel for the Bank has prayed for dismissing this appeal.

I have not been able to appreciate the approach adopted by the Counsel for the Bank. While making oral submissions before me the Counsel had categorically stated that the Bank would be ready and prepared to accept interest even @ 6% p.a. simple if the appellants were prepared to make payment of the dues within a timeframe which could be stipulated. No doubt, this statement was with a rider but is not found reflected in the written submissions. The Counsel could be expected to stand by what he had stated before the Tribunal while making oral submissions. In fact, no submissions were ever made on the lines as contained in the synopsis/written submissions submitted by the Counsel for the Bank. Be that as it may, the oral submissions made by the Counsel for the Bank cannot be ignored and can be so considered while deciding this appeal. Though this Tribunal may not have been inclined to reduce the interest to @ 6% p.a. simple, but considering that this concession was extended by the Counsel for the Bank, this Tribunal would consider it proper to exercise its discretion to give this concession a try. If the appellants undertake to discharge the remaining liability within a period of four months, either in one lump sum or in instalments, then they are permitted to so by calculating the amount due taking the interest @ 6% p.a. simple. If the appellants are unable to make this payment within this time, then the Bank would be entitled to recover the payment due with interest @ 15% p.a. simple. The present appeal is accordingly disposed of.