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Judgment
This appeal was filed by the appellant against the order of the Tribunal below(DRT) rejecting his application for setting aside ex parte final order dated 11.11.2010 passed in respondent Bank's Original Application No.44/2006 under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993('RDDBFI Act' in short) whereby a joint and several recovery certificate for a sum of Rs.18,08,82,432.02 with interest was issued against the appellant herein and respondents 2 to 4. The appeal filed by the appellant-defendant, in which the only grievance raised was that the he was never served with the notice of the O.A. filed by the Bank, was dismissed by my learned predecessor Chairperson vide order dated 25.11.2014. That order was assailed by the appellant in Hon'ble Delhi High Court by way of a Writ Petition No.1169/2015. That writ petition was disposed of vide order dared 24.02.2016. While upholding the rejection of the appellant's application for recall of the ex parte final order against him in respondent Bank's O.A. No.44/2006 this Tribunal was, however, directed to reconsider the appeal as to whether any recovery certificate could be issued against the appellant-defendant and in what capacity and which aspect this Tribunal ought to have examined, even if in the O.A. the appellant-defendant had remained ex parte.
The relevant observations of the Hon'ble High Court in para nos. 6 to 8 of its order were that:
" 6......We, however, note that the learned DRAT vide impugned order did not avert itself as to how the petitioner could be made personally liable for the default of company. There is no discussion in the impugned order as to the extent the bank was secured by the assets of the petitioner or whether he stood personal guarantee.
It is trite law that a company is a juristic entity independent of its directors and/or shareholders, enjoys its own legal rights.........The company alone is bound to discharge its debts and liabilities unless the directors of the company have stood as guarantors for discharge of such a liability. There is no discussion in the impugned order as to how the petitioner even though a director of M/s Lata Steel Agencies(P) Ltd. was personally liable for the debts of the company.
Even though the petitioner was proceeded ex-parte, the DRAT could not havedismissed the appeal without considering the legal aspects as noted above. Consequently the impugned order is set aside. Miscellaneous appeal No. 148/2013 is restored to its original position. DRAT will reconsider the miscellaneous appeal in the light of the law noted above."
That is how this appeal was heard again and after giving fresh hearing to the counsel for the appellant and respondent no.1 bank in terms of the said order of the High Court and is now being decided again.
Since the only point which the Hon'ble High Court required this Tribunal to examine was as to in what capacity a decree had been passed against him by DRT I have minutely gone through the averments made in the O.A. by applicant Bank as also the evidence adduced qua the appellant-defendant. The relevant paras from the O.A. dealing with the case against the appellant-defendant are extracted below:-
5.3 That the respondent no.1 is a private limited company duly incorporated under the provisions of The Companies Act, 1956 and respondents No.2 to 4 are the Directors of respondent No.1 and have executed Third Party Guarantee Deed to guarantee the repayment of the loan advanced to respondent no.1. Further respondent No.2 to 4 are family members. As such all the respondents are liable as Borrowers/Guarantors to pay the debts of the applicant Bank jointly and severally.
5.4. That respondent No.1 through respondent No.2 approached the applicant bank and represented to applicant that they were in need of some banking facilities. In this regard they represented that they had very profitable business of marketing and trading of Iron and Steel etc. In furtherance to their representation, respondents offered third party guarantees of directors of respondent no.1 i.e. respondent No.2 to 4. It was represented that the said guarantors were wealthy and owned sufficient properties to additionally secure the bank.
5.5. That based on the representation of the respondent and on the strength of the creditworthiness of respondent No.2 to 4, the applicant sanctioned Letter of Credit Limit of Rs.80 lacs and bank guarantee limits of Rs.40 lacs aggregating to Rs.1,20,00,000/-(Rupees one crore twenty lacs only) in favour of respondent no.1.
5.7. That in consideration of the applicant bank having sanctioned the financial facilities to respondent No.1 to the tune of Rs.120 lacs respondents No.2 to 4 respectively executed the personal guarantees all three dated 30.05.1995 and became the Guarantors for the repayment of the facility extended to the respondent no.1. Respondents No.2 & 4 also vide affidavit and undertook that they would not create any charge, encumbrance, lien etc. over the properties belonging to them.
5.8. That on the execution of the security documents and the personal Guarantee Deed by the respondents No.1 to 4, the applicant bank disbursed the aforesaid facility. The respondent no.1 availed the financial facilities as per the needs of its business.
5.9. That with a view to further secure the financial facility aggregating to the amount of Rs.120 lacs extended by the applicant bank, respondent No.2& 3 deposited the original title documents in respect of the following properties with the intention of creating equitable mortgage for securing the due repayment of the financial facilities extended to the respondent no.1:
a. Bungalow/residential property situated at Plot No.64, Neighbourhood No.1 (West Side) situated in New Township, Faridabad, Tehsil & District Faridabad, Haryana;
b. Commercial property/Office bearing Room No.11 & 12 situated at First Floor of the building bearing No.2897/98/99 situated at Bazar Sirkiwalan, Delhi.
It is pertinent to mention here that the property situated at Faridabad have been sold by the borrowers and the sale proceed have been adjusted in the accounts of the borrowers and the original title documents have been released to the borrowers/purchasers.
5.10. That in the month of July 1995, respondents again approached the applicant bank and requested for granting them Cash Credit Facility. On the request of respondents, the applicant bank cash granted cash credit facility to the tune of Rs.30 lacs against hypothecation of stocks and guarantee of directors of respondent No.1
5.16. That with a view to further secure the financial facility aggregating to the amount of Rs.355 lacs extended by the applicant bank, respondent No.2 & 3 deposited the original title documents in respect of the following properties with the intention of creating equitable mortgage for securing the due repayment of the financial facilities extended to the respondent No.1:
a. Residential property bearing No.C-6/18-19 situated at Rana PratapBagh, Delhi;
b. Farm Land/Fam house measuring 22 bighas, 8 biswas bearing Khasra Nos. 60/13 (Min) (2-8), 14/1(2-8), 14(2)(2-8), 15/2 (0-16), 16(4-16), 17(4-16), 18 Min (2-08), 23 Min (2-08) situated in the revenue estate of Village Bakhtawarpur, Delhi State, Delhi;
c. Bungalow/residential house situated at Plot No.64, Neighbourhood No.1 (West Side) situated in New Township, Faridabad, Tehsil & District Faridabad, Haryana;
d. Commercial property/Office bearing Room No.11 & 12 situated at First Floor of the building bearing No.2897/98/99 situated at Bazar Sirkiwalan, Delhi
It is pertinent to mention here that the properties mentioned above except the property mentioned at Serial No.d, have been sold by the borrowers. The sale proceed have been adjusted in the accounts of the borrowers and the original title deeds have been released by the bank to the borrowers/purchasers.
5.20 That the respondents confirm the correctness of the FCL Account maintained with the bank as on 30.09.1997 to the outstanding amount of Rs.68,79,989/-. The correctness of balance in IBLC Account maintained with the was also confirmed by the respondents on 04.10.1997 to a debt amount of Rs.2,38,48,891.40 as on 30.09.1997. Further the borrower also executed Demand Promissory Note dated 30.09.1997 and 31.12.1997 promising to pay on demand a sum of Rs.2,38,48,891.40 and Rs.64,10,712.62 respectively to the applicant bank. The correctness of balance in the CC account of the applicant bank was confirmed by the respondents on 05.01.1998 for a debit amount of Rs.64,10,712.62 as on 31.12.1997.
5.24. That the account of the respondent no.1 was classified as NPA w.e.f. 01.10.1997 the outstanding balance after classification of account as NPA stood at Rs.332.33 lacs, which was reduced to a sum of Rs.2,95,28,349.02 by adjusting the sale proceeds of the property of Bakhtawarpur and Faridabad. It is pertinent to mention here that the sale proceeds of the properties situated at Bakhtawarpurwas divided equally in the two accounts in the ratio of 50:50 and a sum of Rs.68.50 lacs was appropriated in the account of respondent No.1 herein upon the request of M/s Lata Steel Agency Pvt. Ltd. vide their letter dated 24.06.1997. A further sum of Rs.70 lacs was deposited in the accounts of the borrower by the borrowers, after the residential house situated at RanaPratapBagh was sold by them. It is pertinent to mention here that original title documents of the property situated at 64, NeelamBagh Road, Faridabad were released to Sh. S.M. Lata vide request letter dated 22.07.1999 of Shri P.D. Lata. Thereafter the title documents of the property situated at RanaPratapBagh was released to the borrowers against their request letter dated 13.05.2005.
5.25. That the plaintiff bank is a baking Company and maintains a correct, true and regular accounts, which are maintained in the normal course of banking business, and the amount outstanding in the account of respondent No.1 after appropriating the sale proceeds of the secured properties sold by the borrowers as on 30.06.2005 is as under:
S.No.
Name of Facility
Amount Due
i.
Cash Credit account
Rs.2,95,28,349.02
ii.
Interest on FLC
Rs.1,59,30,621.00
iii.
Interest on Cash Credit Facility
Rs.9,46,07.466.00
iv.
Interest on ILC
Rs.4,08,15,996.00
Rs.18,08,82,432.02
Besides above the respondents were also liable to pay an interest @15% p.a. with monthly rests w.e.f. 30.06.2005 till the date of payment. A correct copy of statement of Cash Credit account of respondent No.1 duly certified as per Bankers Book Evidence Act is annexed herewith.
5.26. That the applicant bank is as such entitled to get and all the respondents 1 to 4 are jointly and severally liable to pay to the applicant bank a sum of Rs.18,08,82.432.02 to the applicant along with future and pendentalite interest @15% p.a. with monthly rest, from the date of institution of suit till its actual realization, being borrowers/Guarantors.
Besides the above, the applicant is also entitled to costs and expenses in addition to the above amounts."
The prayers made in the O.A. were as under:-
"In view of the facts mentioned in para 5 above, the applicant prays for the following relief(s)-
a) pass a joint and several decree and issue a certificate of recovery for an amount of Rs.18,08,82,432.02 (Rupees eighteen crores eight lacs eighty two thousand four hundred thirty two and two paise only) as on 30.06.2006 in favour of the Applicant bank and against respondent no.1 to 4 along with interest @15% p.a. with monthly rests w.e.f. 30.06.2006 till the date of its realization;
b) pass an order of attachment and sale of the hypothecated good/stocks, book debts etc. of defendant no.1;
c) pass an order in favour of the plaintiff Bank directing the defendants to pay the decretal amount within the stipulated time and failing which the remaining mortgaged property/ office bearing Room No.11 & 12 situated at First Floor of the building bearing No.2897/98/99 situated at Bazar Sirkiwalan, Delhi, of the defendant no.3 mortgaged with the plaintiff Bank be ordered to be sold for the recovery of the Certificate amount;
d) pass an order for the sale of the personal property and other assets of respondent No.2 to 4 for the recovery of the Certificate amount;
e) award the entire costs of the application in favour of the applicant against the defendants;
f) grant such other and further relief(2) to the applicant as may be deemed fit and proper in the facts and circumstances of the case."
The appellant-defendant had not appeared in the O.A. proceedings before the DRT to refute the aforesaid factual averments made by the applicant Bank. Thus, each factual averment stood admitted by the appellant-defendant. It stood admitted by the appellant thathe had stood guarantor for the borrower, respondent no.2 herein, which had availed of financial facility of huge amount of Rs. 1,20,000,00/- from respondent no.1 Bank(O.A.applicant) way back in the year 1995 and then further facilities were also sanctioned and availed of by respondent no2. It also stood admitted by the appellant-defendant by non-traverse that he had executed a guarantee deed as also that he had created equitable mortgage of his property in Bazar Sikriwalan, Delhi. Though in view of admission by non-traverse of the averment in the O.A. that the appellant-defendant had given personal guarantee for the borrower it was not necessary for the Bank to give proof of that fact yet the Bank had proved in its evidencethe guarantee deed executed by the appellant-defendant Though the appellant-defendant had attempted before the DRT in his application for setting aside the ex parte final order dated 11.11.2010 in the O.A. to show that his brothers, respondents 3 and 4 herein, had forged the guarantee deed and other security documents allegedly executed by him and which were being relied upon by the Bank but no cognizance of that allegation could be taken since no written statement was filed by him.
Thus, the learned DRT was justified in directing a recovery certificate against the appellant-defendant as a guarantor and its recovery from him and also by sale of the property mortgaged by him. He had not been made liable as a director of the borrower Company, as was the submission made on his behalf.
This appeal is accordingly dismissed again and the final order dated 11.11.2010 of the DRT in O.A.No.44/2006 is maintained.
Since a huge amount of public money still remains to be recovered from the respondents, as was claimed by the counsel for the CH Bank, the recovery officer shall expedite the recovery efforts and submit a report to be forwarded by his Presiding Officer as to the fate of recovery efforts,within a period of one month from the date of receipt of a copy of this order.
Records of DRT be sent back with a copy of this order. One copy shall be given to the Recovery Officer concerned also for compliance.