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Judgment
Ranjit Singh, J
This appeal is directed against an order passed by the Tribunal below holding the Bank entitled to recover a sum of Rs. 20,24,13,481/- with simple interest @ 15% p.a. from 4.11.2006 onwards. Appellants 1 to 6, who were defendants in the O.A., were jointly and severally held liable to pay this amount. The Bank was also held entitled to recover a sum of Rs. 20,02,90,918/- along with same rate of interest from 5.11.2006 from appellants 3 and 4 who were held jointly and severally liable to pay this amount as well. The appellants have accordingly impugned this order by filing the present appeal. M/s. India SME Asset Reconstruction Company Ltd. (ISARC) is an assignee of Punjab National Bank which had filed Original Application (O.A.) for recovery of these amounts. The Bank had sanctioned various credit facilities to the appellants vide sanction letter dated 19.7.1999 for a total sum of Rs. 778 lac. Appellant Nos. 1 and 2 had executed security documents. The term loan of Rs. 396 lac was repayable in 28 equal quarterly instalments and the payment of instalments were to commence one year after the release of the loan. Interest @ 10% p.a. with quarterly rests calculated on daily balance was agreed to be paid on Packing Credit facility. In case of appellant's failure to export goods within the stipulated period, the interest was to be paid @19.38% p.a. with quarterly rests.
The company failed to export the goods and committed default, Thus, it became liable to pay interest at the agreed rate. Appellant Nos. 2 to 6 were the guarantors. The facility of Packing Credit was also released from time to time and various bills remained unpaid. The same were debited in FDBP/FOUBP account.
The company had also created an equitable mortgage in respect of property A 47-A, Khushkhera (Bhiwadi), Distt. Alwar, Rajasthan by deposit of title deed. Appellant No. 4 also created equitable mortgage of property at Unit-1, Bapuji Nagar, 74, Forest Park, Mauja Bhuvneshwar. Appellant No. 6 created equitable mortgage of her immovable property bearing Flat No. FF-A, FF-B. Plot No. C-3, Survey No. 144/1, Calanqute Barde, Goa by deposit of the original title deeds. Similarly, appellant No. 5 had also created equitable mortgage of Plot No. 3126 SP, Sector 46, HUDA. Gurgaon.
Subsequently, in 2000, the borrower made a request for ad hoc limit of Rs. 40 lac, which was sanctioned on 1.12.2000. Another ad hoc limit of Rs. 12 lac was also sanctioned on 23.7.2000 for purchase of raw material. Appellant Nos. 2,5 and 7 had executed guarantee to secure this Inland Letter of Credit limit of Rs. 12 lacs. In the year 2000, the company had approached the Bank to issue two Bank Guarantees worth Rs. 7.50 lac and Rs. 2.50 lac in favour Central Excise, Bhiwadi. The Bank had complied with the requirement. When the appellant committed default, the Central Excise Department invoked Bank Guarantees and a sum of Rs. 10 lac was paid by the Bank on 30.5.2003. The Bank requested the appellants to pay this amount, but the appellants did not make any payment despite promise. The bills drawn were also dishonoured, The account of the appellants became irregular. The appellants, however, failed to regularize the account and it was ultimately classified as NPA on 31.3.2002.
A notice under section 13(2) of the SARFAESI Act was also issued, when the company made a proposal for one-time settlement for a sum of Rs. 8,83,93,005. This amount was to be paid by 30.6.2004. Appellant No. 1 requested for change of conditions of payment which was not accepted by the competent authority in the Bank. The company only paid a sum of Rs. 12 lac and was ultimately informed that the compromise offered stood revoked and withdrawn. The entire loan amount with interest thus became payable.
When the Bank initiated steps under the SARFAESI Act, the company filed an application under Section 17 of the Act. As per the Bank, total amount outstanding in various accounts was Rs. 20,24,13,481.76 as on 3.11.2006. The Bank also filed O.A. for recovery of this amount. The recovery against respondent No. 3 impleaded as proforma was for Rs. 21,22,563.50.
Appellant Nos. 1 to 3 filed a joint written statement. Appellant No. 4 filed a separate written statement whereas appellant Nos. 2, 5 and 6 filed a joint written statement. Proforma respondent No. 3 filed her separate written statement.
The appellants have raised different pleas. Appellants would plead that the OA was barred by limitation and, therefore, was liable to be dismissed. As per the appellants, the O.A. was barred by Section 62 of the Indian Contract Act in view of one-time settlement pursuant to which payment was made. The appellants accordingly pleaded that the Bank could not recover the entire amount as pleaded in the O.A. Allegations of fraud were also made against the Bank and even the rate of interest was disputed. The company denied the allegation that it had failed to export goods. It was stated that, as per the stand of the company it had exported goods worth Rs. 4 crore. The appellants would plead that they could not export goods as the factory was shut down due to failure of the Bank to renew the Packing Credit facility.
Respondent No. 3 came forward with the plea that no personal guarantee agreement dated 24.7.2001 was ever executed by her. She also denied that she had created any equitable mortgage in respect of her property. The said respondent accordingly pleaded that she was not liable to make any payment, She also pointed out that no person would mortgage his property worth Rs. 2 crore for availing a credit limit of Rs. 12 lac.
The Tribunal below framed various issues for consideration and while rejecting all the pleas raised by the defendants has allowed the O.A., holding the Bank entitled to recover the amounts as already noticed.
The Counsel for the appellants has pressed his plea raised before the Tribunal below that the O.A. was barred by limitation. Counsel therefore would submit that notice under Section 13(2) of the SARFAESI Act was issued on 3.12.2002 for an amount which was the amount due as on 30.9.2002. This amount was claimed in terms of contract of guarantee which, as per the Counsel, came to an end when one-time settlement was entered into on 23.3.2004 and 5.4.2004. Counsel would plead that the limitation to file the O.A. would commence after expiry of 60 days from the date when notice was issued under Section 13(2) of the SARFAESI Act and thus the date for this purpose would be 3.2.2003, Thus, the O.A. could be filed before 3.12.2005 but the same was filed on 3.1.2006 and thus was barred by limitation.
While raising this plea, the Counsel for the appellants is totally ignoring the fact that in this case the guarantors had agreed to pay and satisfy the Bank on demand and that the application could be filed when there was a breach of the demand within three years of the said breach. The Tribunal below, in my view, has rightly considered the legal aspect involved in this regard. In this case, the guarantors', liability depended upon the terms of the contract. It being continuing guarantee, the guarantors would remain liable to pay on demand.
Even otherwise, the claim in this case was on the basis of mortgage and the period of limitation thus would be 12 years from the date of default, The issue of notice under Section 13(2) of the SARFAESI Act would have no relevance and this was a step for initiating action under the SARFAESI Act, The demand notice for entire amount was made subsequently and thus the plea of limitation raised by the appellants was rightly rejected. Thus, this finding by the Tribunal below would not call for any interference.
The Counsel for the appellants, however, has challenged that part of the finding whereby the Tribunal below has held that appellants 1 to 6 are liable to pay 20,24,13,481/- and has gone hold to the appellant Nos. 3 and 4 liable to pay Rs. 20,02,90,918/-. Obviously, there is some confusion in regards to this finding. Mr. Agarwal appearing for the respondent has not disputed that the liability to pay Rs. 20,24,13,481/- would be of appellant Nos. 1,2, 5 and 6 whereas appellant Nos. 3 and 4 would be liable for the payment of Rs. 20,02,90,918/-. As per the Counsel, the reasoning in this regard can be seen where the tribunal below has discussed the point Nos. 3 and 4 in para 20 onward. The Counsel thus submits that he will not have any objection if this part of the finding is clarified in this manner. Accordingly, its is directed that this part of the finding contained in sub-para (1) and (2) of para 33 shall be read accordingly.
The Counsel for the appellants would next contend that the creditor Bank in this case was guilty of gross negligence in losing the security valued at Rs. 365 lac. The submission is that the Bank had taken possession of the property in October 2004. The appellant had filed S.A. in January 2005. Though there was a restraint order passed by the Tribunal below, but the SA came to be dismissed on 26.8.2008. Throughout this period, the mortgaged property, including the plant and machinery, was in the possession of the Bank. In this regard, the Counsel would refer to the possession notice which is on record. The inventory of the plant and machinery is also available on record and so also the valuation of the same as got done by the Bank which was intimated to the company through a communication dated 5.1.2005. Through this communication, the Bank had informed the appellant No. 1 company about the reserve price of the assets since taken into possession by the Bank. The land and building at Bhiwadi was assessed at Rs. 106 lac and plant and machinery was valued at Rs. 365 lac. In this letter, the Bank had further intimated the appellant company that in case it was interested in disposal of the property through private treaty, it may contact the Bank with the intending buyer, The conceded position thus is that the plant and machinery was valued at Rs. 365 lac in the year 2005.
The record would show that there was a theft on 25.6.2008 and the entire plant and machinery seem to have been stolen. The Bank had accordingly lodged an FIR on 22.7.2008 which is also on record, The Counsel would thus contend that the negligence on the part of the Bank by not taking care of the property has resulted in this loss for which the appellants cannot be held liable. If this plant and machinery had been sold, the liability of the appellants could have lessened substantially.
This aspect in fact was raised before the Tribunal below. The stand of the Bank was that the list of alleged stolen articles is false, frivolous and bogus and the valuation put against the articles is imaginary. The Bank had also stated that the goods/machinery were insured for full value and the security personnel were employed to guard the site. After the theft the loss was assessed with the help of the valuer and an FIR was lodged. The Tribunal found that the Bank had done what was expected from a reasonably prudent man and no negligence can be attributed to the Bank. While viewing so, the Tribunal below apparently was influenced by the fact that insurance claim once is settled would result in some payment which can then be deducted from overall outstanding amount against the appellants. This LA. filed by the appellants therefore was closed.
During the course of hearing arguments, the Counsel for the Bank was asked to confirm if any amount has been received from the insurance company with respect to the plant and machinery which were stolen. The Counsel for the Bank states that no amount seems to have been received from the Insurance Company. The Counsel was then asked to disclose as to what amount was claimed by the Bank from the Insurance Company. It may be shocking to notice that Bank is not even aware of how much amount was claimed and even does not have a copy of the claim which may have been filed with the insurance company.
Once the Bank had taken possession of the property, the responsibility to preserve the same or to guard it would be that of the Bank. If this property is lost because of any reason whatsoever, the responsibility would be of the Bank which had the physical possession of the same. The Bank cannot palm off its responsibility by simply pleading that it had employed guard and had lodged FIR.
Whether this will be enough to attribute prudence to the Bank to relieve it of liability of Rs. 365 lac. which is the resultant loss to the appellant? Once the Bank had taken possession of the property, it can be expected to account for the same and once the Bank has not been able to preserve the same, it cannot seek for being excused from any liability and burden the appellants with this huge loss. The Bank is not seen to have acted as expected from a prudent person and rather is even found casual inasmuch as that it is not even aware of if any amount has been claimed and if so, how much. The Bank is not even having the copy of the claim statedly lodged with the insurance company . Would this be an action of a prudent man? The answer certainly would be an emphatic "No'. The Bank has to account for this loss and for which the appellants cannot be saddled with any responsibility. The credit of this loss is therefore due to the appellant and this amount is required to be excluded for the amount claimed by the Bank. Thus this amount of Rs. 365 lac, shall have to be excluded from the amount due on the date when the possession of the property was taken by the Bank. The directions are, therefore, issued to the Bank to exclude this amount from the amount due from the appellants on the date when the property was taken and recalculate the amount due by calculating the interest on the remaining amount till the date of the order passed in the O.A. The recovery certificate would accordingly stand amended. The parties are directed to appear before the Tribunal below on 24.3.2015 for the Bank to submit the amount due after recalculating the same in terms of the order passed by this Tribunal and to enable the Tribunal to issue amended 'RC'.
The appeal is partly allowed in the above terms.