Punjab National Bank vs IDBI Bank Ltd

S. Ravi Kumar, Chairperson

These two Appeals are preferred against Common Order dated 28.04.2015 in Appeal Nos. 14 & 15 /2011 on the file of DRT-I, Chennai.

Brief facts leading to these Appeals are as follows:-

Respondent Bank herein obtained Recovery Certificate for Rs.5,10,87,028.30p as per orders in OA 1151/2000. Appellant Bank obtained Recovery Certificate for Rs.3,09,86,435.04p as per orders in OA 81/2000 and in respect of OA 1151/2000, Recovery Officer registered Recovery Certificate as DRC No.128/2002, and in respect of OA 81/2000, Recovery Officer registered Recovery Certificate as DRC No.149/2005. Both Appellant Bank and Respondent Bank brought the mortgaged property of M/s. Baba & Sai Hotels Private Limited for sale and it was sold for Rs.1.18 Crores. Appellant Bank herein filed IA 1/2010 before Recovery Officer claiming sale proceeds in the ratio of 39.63 : 60.37. Respondent Bank herein filed IA 2/2010 claiming sale proceeds in the ratio of 75.62: 24.38. Considering the claims of both Appellant Bank and Respondent Bank, Recovery Officer passed order dated 08.09.2010 distributing sale proceeds in the ratio of 36.77: 63.23 in favour of Appellant Bank and Respondent Bank herein respectively. Aggrieved by said Order, Respondent Bank herein preferred Appeals before DRT-I, Chennai, and Learned Presiding Officer while setting aside Order dated 08.09.2010 of Recovery Officer, remanded back both IAs together to Recovery Officer with a direction to once again consider those Applications in terms of observation made in that Order. Learned Presiding Officer observed the Order of Learned Recovery Officer is not legal and acceptable as it is based on Letter dated 04.02.1998 of erstwhile Nedungadi Bank Limited and the ratio has to be taken on the basis of Term Loans granted. Aggrieved by said Order, Appellant Bank herein preferred present Appeals.

Both parties filed their Written Arguments, but only Advocate for Appellant Bank submitted oral arguments.

According to Appellant Bank, the suggestion of Respondent Bank to share sale proceeds in the ratio of 24.38:75.62 percentages between Appellant Bank and Respondent Bank is not agreeable as Respondent Bank ignored interest and legal charges. According to Appellant Bank, the outstanding as on date of proclamation of sale namely 24.02.2008 will have to be considered as common date for the purpose of sharing, and on that basis, Appellant Bank claimed ratio of 39.63:60.37 percentages between Appellant Bank and Respondent Bank. It is submitted that Learned Recovery Officer, without accepting the suggestions of both parties, fixed ratio of 36.77:63.23 for sharing the sale proceeds on the basis of amount reflected in Recovery Certificates. It is submitted that erstwhile Nedungadi Bank Ltd., which is now taken over by Appellant Bank, addressed a Letter dated 04.02.1998, authorizing Respondent Bank and on the basis of said Letter, interest charged will have to be considered while sharing the sale proceeds, and the sharing pattern suggested by Respondent Bank is by ignoring the interest part, therefore, it is not acceptable for Appellant Bank. It is submitted that, Tribunal below ought to have taken into consideration the interest aspect, and therefore, impugned Order dated 28.04.2015 is arbitrary, which is contrary to Letter dated 04.02.1998. It is further submitted that Recovery Certificates issued in favour of both the Banks are not only for principal, but included interest and expenses also. It is further submitted that date of proclamation is the common date, upto which date interest has to be calculated for sharing purpose. It is submitted that Order of Tribunal below dated 28.04.2015 has to be set aside.

According to Respondent Bank, mortgage was created in favour of Respondent Bank on 10.02.1998 for sanction of Rs.300 Lakhs and as per agreement between Banks, that security will be on first charge basis for its Term Loan of Rs.300 Lakhs, and for Term Loan of Appellant Bank to a tune of Rs.86 Lakhs, and in view of that sharing, ratio ought to have been 300:86. It is further submitted that basing on that ratio, and basing on the amount disbursed out of sanctioned loan, the percentage of share between Respondent Bank and Appellant Bank is 75.62:24.38 respectively. According to Respondent Bank, the correct procedure for distribution of sale proceeds should be on the basis of principal loan amount disbursed, and Tribunal below rightly remanded back the matter and that there are no grounds to interfere with.

It is not in dispute that both Appellant Bank and Respondent Bank have advanced loan to M/s. Baba and Sai Hotels Private Limited and Recovery Certificates are issued in favour of both Banks. It is also not in dispute, the same property is mortgaged to both the Banks and mortgaged property was sold for Rs.1.18 Crores, out of which, Rs.13,44,786/- was paid to Ootacamund Municipality towards property tax dues pending on the said property. Subsequently property tax dues were recovered back as per Orders of Learned Presiding Officer, DRT and now the total sale proceeds available are Rs.1.18 Crores. It is also not in dispute that no express agreement was entered into between Banks for sharing the sale proceeds. According to Section 29 of Recovery of Debts and Bankruptcy Act (RDB Act), 1993, the provisions of II Schedule to the Income Tax Act, 1961 shall apply for the purpose of recovery. So, as per that Section, Recovery Officer has to conduct sale by following Rules under II Schedule to Income Tax Act, 1961.

Now, the issue is about distribution of sale proceeds of property mortgaged to both the Banks. The duty of Recovery Officer is only to execute Recovery Certificate and he cannot go beyond Recovery Certificate. For distribution of sale proceeds, Recovery Officer has to necessarily go by Recovery Certificate, and for distribution, if no provision is made under II Schedule to Income Tax Act, 1961, Recovery Officer has to follow the General Law for ratable distribution of sale proceeds of mortgaged property. Admittedly, Recovery Officer, without following principle of ratable distribution, fixed percentage by adopting his own method, which was rightly set aside by Tribunal below, and matter was remanded back for fresh consideration. I fail to understand how Appellant Bank is aggrieved by that, because Recovery Officer has to again decide the matter for distribution of sale proceeds, but only grievance of Appellant Bank may be as Learned Presiding Officer, DRT-I, Chennai, directed Recovery Officer to decide the distribution as per observations he made, which in my view is not correct. Therefore, I deem it appropriate, while confirming the order of remand with a direction to Recovery Officer to distribute the amount in accordance with law, would meet the ends of justice.

For the reasons stated above, both the Appeals MA 157/2017 & MA 158/2017 are dismissed confirming the Order of Tribunal below remanding the matter to Recovery Officer for fresh consideration, with a direction to Recovery Officer without following the observations made by Learned Presiding Officer, DRT-I, Chennai, but to decide the issue by following the law as applicable for distribution of sale proceeds. There shall be no order as to costs. All pending IAs, if any, stand closed.