Punjab National Bank vs Asset Reconstruction Co. (India) Ltd. And Ors.

Ranjit Singh, J

The dispute in the present appeal is between two nationalized Banks. Appellant Punjab National Bank has filed this appeal to impugn the order dated 18.3.2013 passed by the Tribunal below vide which the miscellaneous application filed by the appellant has been dismissed with the direction that the amount in deposit as FDR with accrued interest be paid to the respondent Canara Bank for adjustment of recovery certificate in O.A. No. 388/2000. This loan had been taken over by ARCIL which is now defending the appeal.

The genesis of the dispute between the Banks is that both the Banks had advanced credit facilities to respondent M/s. VTL (India) Ltd. Appellant Punjab National Bank filed O.A. No. 410/2000 before the Tribunal below whereas Canara Bank filed O.A. No. 388/2000 to lay a claim on the credit facilities advanced to the same respondent. The appellant Punjab National Bank and the defendants entered into a one-time settlement (OTS) vide letter dated 29.5.2008. One of the conditions in the OTS was that the amount lying with the R.O. which had been claimed by the Bank will be settled between Punjab National Bank and Canara Bank and this was to be over and above the OTS amount. Otherwise, after the OTS, Punjab National Bank sought permission to withdraw the O.A. The Bank also filed an application for release of the amount lying with the Tribunal being the sale proceeds of hypothecated stocks.

The Tribunal below rejected this prayer vide its order dated 27.7.2010 and directed release of sale proceeds of hypothecated stocks with interest accrued thereon in favour of Canara Bank. The Tribunal below was of the view that matter has been settled between the appellant Punjab National Bank and the respondent Bank and there was nothing before the Tribunal to show that the amount lying with the DRT as FDR was over and above the amount of OTS entered between the appellant Bank and the borrower. Against this order, the appellant had filed an appeal before this Tribunal, which was dismissed on 21.10.2010. The appellant Bank then challenged the order by filing a writ petition before Hon'ble Delhi High Court and the orders passed by this Tribunal as well as by the Tribunal below were set aside and the Tribunals were directed to consider the matter afresh. The appellant Bank had then filed an application for release of the amount lying in deposit in FDR in its favour.

The appellant Bank claims that to the year 1999 M/s. VTL (India) Ltd. had approached the Bank for Packing Credit facility of Rs. 10 crore. The Bank had then enquired from Canara Bank whether it had given any Packing Credit limit to the borrower M/s. VTL (India) Ltd. and if there were any outstanding amount in the Packing Credit Limit. Canara Bank statedly had informed the appellant Bank vide its letter dated 15.10.1999 that the outstanding amount in the Packing Credit Limit was nil. As per the appellant Bank, it had then sanctioned Packing Credit Limit of Rs. 10 crore and the company had executed packing credit agreement dated 18.10.1999 in favour of the Bank. The charge was also got registered with the Registrar of Companies. The appellant Bank also wrote letter to Canara Bank on 16.12.1999 intimating the grant of Packing Credit Limit of Rs. 10 crore. The Bank had also claimed exclusive charge on stock of the company while apprise Canara Bank to cancel the Packing Credit Limit. The appellant had also got the stocks insured.

In the O.A. it was also urged that in the O.A. filed by Canara Bank against the borrower the Bank had stated that the amount was outstanding in the FBE Limit and there was no outstanding in the Packing Credit. It is thus stated that Canara Bank had not claimed any amount under Packing Credit Limit. The appellant Bank states to have taken possession of the stocks of the company on 26.2.2000 and inventory was prepared. Since the stocks were getting depleted, the Bank made a prayer for selling the stocks during the pendency of O.A. With the permission, the stocks were sold on 13.2.2002 and sale proceeds amounting to Rs. 45,42,280/- were deposited by way of FDR with the Tribunal. The application filed by the Bank for release of this FDR was dismissed as noted above.

The stand of Canara Bank is that the letter dated 15.10.1999 written to the appellant Bank clearly spoke about outstanding limit on the said date. Canara Bank would urge that the liability of credit limit was interchangeable with foreign bill limit, and the borrower had executed a letter dated 18.8.1999 with Canara Bank agreeing for interchangeability of limit with each vice-versa. The stand further was that on 2.10.1999, the borrower company had executed an agreement regarding collateral security counter indemnity for negotiation/purchase/discount of bills and power of attorney in respect of bill purchase/negotiated. These documents clearly revealed that Canara Bank had right to the hypothecated assets to recover its dues either in the same account or in the other account. This agreement was as follows:

"The hypothecated asset shall also be security to the Bank for monies due to it in this account and/or in other account is created for repayment of those other monies also."

The power of attorney was also executed on 27.10.1999 authorizing Canara Bank to sell hypothecated goods to recover its dues. Similar sets of documents were executed on 4.2.1999. It is on the basis of these documents that Canara Bank had claimed that its charge is prior to the charge of the appellant Bank. The letter dated 16.12.1999 was written by the borrower to cancel the cash credit limit was not clear and hence the request for cancellation was not accepted. The Bank accordingly prayed that it was entitled to the FDR for adjustment of its dues.

The Tribunal below has taken note of the order passed by the Delhi High Court. The Hon'ble Court had in its order dated 23.4.2012 has observed that the rival contentions of the two Banks have not been examined by this Tribunal and the Tribunal below and the adjudication was primarily on the basis of OTS of the appellant Bank. The Hon'ble High Court had taken note of the terms of the OTS which contained a condition that the amount settled would not in any way prejudice the claim of the petitioner (Punjab National Bank) over the hypothecated stocks. The High Court accordingly had required the Tribunal to determine as to which of the two Banks had prior charge or whether the amount was liable to be shared and if so. the principle thereof. The Tribunal below accordingly has considered this question by framing the following two issues:

"(1) Who is having priority of charge in respect of the hypothecated goods which were sold and the sale proceeds deposited before this Tribunal?

(2) Who is entitled to the money in deposit before this Tribunal?"

Before granting the request for Packing Credit Limit of Rs. 10 crore in the year 1999, the appellant Punjab National Bank had enquired from Canara Bank about the status of credit facility availed by the borrower. Canara Bank had informed the appellant Bank that the net outstanding amount was Rs. 4.85 crore though there was no outstanding in the Packing Credit Limit. In fact, the appellant Bank had granted Packing Credit Limit of Rs. 10 crore on 18.10.1999. The charge over the stock was registered with the Registrar of Companies. The borrower had written to Canara Bank on 16.12.1999 stating that the Packing Credit be interchanged with the FBE Limit. Borrower had then requested Canara Bank to cancel the Packing Credit Limit and keep the Bill Discounting Limit of Rs. 4.85 crore only. The borrower had stated that the appellant Punjab National Bank will have exclusive charge over the stock of the company. Canara Bank did not respond to this letter. Thus, Canara Bank never accepted the position that appellant Punjab National will have exclusive charge of stock of the borrower company. This was not accepted or acceptable to Canara Bank. The appellant Bank, however, would plead that there was culpable silence on the part of Canara Bank and thus appellant Bank had created a valid charge on the stocks.

In the background of above noted plea, the Tribunal below has considered whether the charge of Canara Bank would stand wiped out. The Canara Bank had relied upon letter date 18.8.1999 addressed to it by the borrower. In this letter, the borrower had stated that they were availing FBE credit limit of Rs. 410 lac and Packing Credit Limit of Rs. 75 lacs (interchanged with FBE limit). Thus, the borrower had interchanged Packing Credit Limit with the FBE limit which was for the export of readymade garments. There was an agreement executed on 27.10.1999. On this basis Canara Bank is found to have right over the hypothecated assets for recovery of its dues in the same account or any other account as per this agreement. The unilateral action of writing letter by the borrower to Canara Bank stating that the appellant Punjab National Bank will have exclusive right over the stocks of the company is not found sufficient to nullify the right or charge of Canara Bank over the stocks. The view expressed by the Tribunal below that the borrower having given liberty to have interchangeability could not unilaterally revoke the earlier charge given to Canara Bank, is a fair one. Merely on the basis of a letter written by the borrower it cannot be taken as sufficient to create exclusive charge of the appellant Bank over the stock or wipe out charge of the Canara Bank, which was prior in time.

On 4.2.1999, the borrower had even executed a power of attorney authorizing Canara Bank to sell, without any reference to the principal for proper and adequate consideration, any part of whole of the goods exported to sell or convert into money any goods which belonged to the principal. In this manner, the hypothecated stocks which were sold under the orders of the Tribunal and the amount was deposited by way of FDR is required to be decided on the basis of right of priority as is the direction of the Hon'ble High Court as well. As per the OTS clause, the appellant Bank could lay claim on the amount if it is legally entitled to the same. Once Canara Bank has come forward to lay claim over the amount on the ground it has priority of charge, the right of the appellant Bank would have to be considered in that light. The Tribunal below has, therefore, held that Canara Bank had priority of charge and the full amount of the FDR even is not sufficient to satisfy the claim of Canara Bank. The finding returned by the Tribunal of the priority of charge is fair and just and is well supported of the evidence and material on record. The claim of the appellant Bank over the FDR amount has been rightly rejected. The order passed by the Tribunal below is well supported by the evidence and material on record and would call for no interference. The appeal is accordingly dismissed.