State Bank Of Bikaner And Jaipur vs Surender Chauhan

S.N.H. Zaidi, J

The instant Appeal has been directed against the order dated 30th July, 2010, passed by the Presiding Officer of DRT-III, Delhi, whereby S.A. No. 233/2010 has been disposed of with the direction to the applicant/borrower to pay Rs. 23,32,074/- along with simple interest @ 10% per annum upon Rs. 25,87,074/- w.e.f. 1st July, 2009 till the full realization, in twelve equal monthly instalments. The facts of the case indicate that on execution of loan documents and creation of equitable mortgage of a property in favour of the appellant-Bank, a Cash Credit Hypothecation facility of Rs. 25 lacs was sanctioned by the Bank to the respondent for the expansion of his business. As per the terms and conditions of the sanction, the said loan was to be repaid with interest @ 12.25% per annum. The respondent however, failed to maintain the financial discipline and defaulted in making repayment of the monthly instalments. As a consequence of the default, the said loan account was classified as Non Performing Asset (NPA) on 31st March, 2009 with an outstanding amount of Rs. 25,99,157/-, including interest up to 28th February, 2009. A demand notice dated 22nd July, 2009 under Section 13(2) of the SARFAESI Act, 2002, hereinafter referred to as the said Act, was also issued claiming an amount of Rs. 26,11,291/- including interest up to 15th May, 2009. The notice was duly served upon the respondent, but since he failed to comply with or reply to that notice, the Bank initiated process for obtaining the possession of the secured asset and filed an application under Section 14 of the said Act before the CMM, Delhi. The ACMM, Delhi allowed that application on 6th May, 2010 and appointed Mr. B.P. Pancholi, the Authorized Officer of the appellant-Bank, as the Court Receiver with direction to take possession of the secured asset. The Receiver issued notice dated 18th May, 2010 for taking possession, which was duly served upon the respondent. The respondent, however, filed the application under Section 17(1) of the said Act (S.A. No. 233/2010) before the DRT-III, Delhi challenging the action of the Bank and sought interim protection qua his dispossession. The DRT, vide order dated 14th June, 2010, granted interim protection to the borrower/respondent on the condition of payment of Rs. 2 lacs on or before the next date of hearing, i.e., 25th June, 2010, which was not fully complied with by the respondent and only Rs. 50,000/- were deposited. The learned Tribunal, disposed of the said S.A., vide impugned order dated 30th July, 2010, as stated above. Feeling aggrieved with that order, the Bank has filed the instant Appeal.

Mr. Rajeev Aggarwal appearing for the Bank contended that the respondent in his S.A. had not disputed the outstanding NPA amount or the rate of interest, but the DRT arbitrarily reduced the NPA figure from Rs. 25,99,157/- to Rs. 25,87,074/- and though it had held that the applicant/respondent was liable to pay the re-assessed NPA amount, it again arbitrarily reduced the rate of interest from 12.25% per annum to 10% per annum on reducing balance basis. He also contended that the DRT had committed error in granting concessions in the rate of interest and payment period and in not allowing the cost of legal proceeding without assigning any reason.

Mr. Aggarwal further contended that the DRT did not consider the conduct of the applicant/respondent that he had not complied with the condition of the interim order dated 14th June, 2010 and failed to deposit the entire ordered amount According to him, if the impugned order is allowed to sustain, the Bank would incur a direct loss of approximately Rs. 3,84,104/- which the Bank would not be able to recover despite having sufficient security to recover the entire outstanding dues.

The appellant's Counsel also pointed out that the DRT has not given any finding qua the issue whether or not the Bank had acted in accordance with the provisions of the said Act or the rules made thereunder while taking the measures under Section 13(4) of the said Act. It was also pointed out by him that the DRT, in exercise of the power under Section 17 of the said Act, was not required to determine the amount of debt due on the borrower, which had already been crystallized by the Bank vide its demand notice issued under Section 13(2) of the said Act, but the learned Presiding Officer of the DRT, without arriving at any conclusion about the legality of the measures taken by the Bank, arbitrarily reduced the amount of debt due, as indicated above, without assigning any reason.

Mr. Aggarwal also contended that none of the reliefs claimed in Clauses 6(a) to 6(d) of the S.A. could be allowed and as such the S.A. was liable to be dismissed on that count alone.

Mr. Prashant Kumar, the learned Counsel for the respondent, on the other hand, contended that after the issue of the demand notice dated 22nd July, 2009, the applicant/respondent had deposited Rs. 2 lacs, as is reflected from the copy of the statement of account (page 199 of the Appeal paper book) and Rs. 50,000/- was deposited during the pendency of the S.A. and the learned Presiding Officer had deducted the said payments from the NPA amount. Pointing out to the aforesaid statement of account, he contended that an amount of Rs. 5,000/- was also deposited by the applicant/respondent after the classification of the loan account as NPA and the learned PO had given the adjustment of this deposit also. Mr. Kumar further pointed out that the Tribunal also observed that the Bank was not entitled for the processing fee of Rs. 7,000/- charged by it at the time of the sanctioning of the loan as on that date no relationship of creditor and borrower was established between the Bank and the applicant.

I have considered the submissions of the parties' Counsel and perused the record.

The parties or not in dispute in respect of the facts that the respondent was sanctioned a credit facility of Rs. 25 lacs by the appellant-Bank on execution of necessary loan documents and creation of equitable mortgage in favour of the Bank; that the borrower/respondent committed default in repayment of the loan; that the loan account was classified as NPA on 31st March, 2009 and on that date an amount of Rs. 25,99,157/- was outstanding against the respondent; that the Bank had issued to the respondent a demand notice dated 22nd July, 2009 for Rs. 26,11,291/- under Section 13(2) of the said Act and the notice was neither replied to or complied with by him within the stipulated period of 60 days. It appears that in view of aforesaid circumstances, the Bank had proceeded to recover its outstanding dues and approached the learned CMM, Delhi under Section 14 of the said Act for taking possession over the secured asset and the application of the Bank was allowed by the learned ACMM, Delhi and the Authorized Officer of the Bank was appointed as Court Receiver to take possession of the secured asset. In his S.A. filed before the DRT, the borrower/respondent admitting that due to heavy loss in the business he could not make regular payment to the Bank, sought the following reliefs in Clause 6 thereof:

Relief Sought

In view of the facts and circumstances mentioned herein above the applicants prays for the following relief--

(a) The Court receiver, respondent-Bank, through its servants, agents and employees be restrained by an ex parte ad interim order from, in any manner taking physical possession of the said property, details of which are more particularly described in paras hereinabove of the present.

(b) To restrain the respondent-Bank from taking any action in any manner against the said property by taking recourse to the provisions of the SARFAESI Act.

(c) To instruct the respondent-Bank to regularize the said account or.

(d) To fully and finally settle the said account on principal outstanding with deleting all illegal charges along with providing at least three years to clear the due and also direct the respondent-Bank to hand over all the original documents to the applicant within 24 hours and also to give 'No Dues Certificate' to the applicant.

(e) To pass any other/further order which this Hon'ble Tribunal deems fit in the facts and circumstances of the case in favour of the appellant.

I find force in the contention of Mr. Aggarwal that none of the aforesaid reliefs could have been granted by the DRT in exercise of its jurisdiction under Section 17 of the said Act, vide which the DRT was to consider whether or not the action taken by the Bank was in accordance with the provisions of the said Act or the rules made thereunder. The learned DRT, without considering the above aspect and without giving any finding qua the legality/illegality of the actions taken by the Bank for the enforcement of its security interest qua the secured asset, had disposed of the S.A. by directing the borrower/respondent to pay the amount in twelve monthly instalments. The said order is definitely not in conformity with the provisions of the said Act and as such cannot be sustained.

The learned Tribunal below appears to have lost sight of the circumstance that after classifying the loan account as NPA, the Bank had issued the mandatory demand notice on 22nd July, 2009 under Section 13(2) of the said Act claiming an amount of Rs. 26,11,291/- (see notice at pages 201 to 205). The Tribunal below, instead of taking the said crystallised amount of Rs. 26,11,291/- as the debt due and without giving any reason therefor, had taken into account the NPA amount of Rs. 25,99,157/-, as was outstanding on the borrower on 31st March, 2009. The secured creditor cannot be deprived of the benefit of interest accrued on the outstanding amount of debt due after the classification of the account as NPA upto the date of issue of demand notice. The correctness of the amount of debt due as crystallised in the demand notice issued under Section 13(2) of the said Act has not been challenged before the DRT. The DRT was thus at fault in taking the NPA amount as the amount of debt due instead of the demand notice amount. The Tribunal in exercise of its jurisdiction under Section 17 of the said Act was required to see the legality of the measures taken by the Bank under Section 13(4) of the said Act for the enforcement of its security interest, but the order impugned is silent on this point also.

The borrower is entitled for the adjustment of all the amounts deposited by him with the Bank subsequent to the issue of the demand notice. As per the copy of the statement of account (page 199 of the Appeal paper book) the borrower/respondent had deposited Rs. 2 lacs upto 13th February, 2010. The statement, however, shows that after the adjustment of the said payment, an amount of Rs. 24,11,291/- was due on the borrower/respondent on that date. The contention of Mr. Prashant Kumar that an amount of Rs. 23,90,259/- was due on that date, in not acceptable though such figure has been shown in the statement summary (page 200 of the Appeal paper book), as it does not make out from that statement that the said amount was outstanding against the borrower. It is pertinent to note that it is not the case of the applicant/respondent that beside the deposit of Rs. 2 lacs, any other amount was deposited by him with the Bank up to 13th February, 2010. The deposit of Rs. 5,000/- which has been taken into account and adjusted against the out-standing amount of debt by the DRT was credited on 31st March, 2009, i.e., prior to the issue of demand notice dated 22nd July, 2009, therefore, the Tribunal below has erred in adjusting the said amount.

I am in full agreement with the contention of Mr. Aggarwal that the DRT has wrongly determined the amount due on the borrower/respondent in the order impugned, and it was not required to do that for the purposes of disposal of the application under Section 17 of the SARFAESI Act. This contention of the appellant is also tenable that since the applicant/respondent has failed to show that the measures taken by the Bank for the enforcement of its security interest were not in accordance with the provisions of the said Act or the rules made thereunder, therefore, the SA has deserved the dismissal.

In view of the foregoing discussion, I am of the considered view that the order impugned cannot be allowed to sustain and the same being bad in law as well as on facts, is liable to be set aside and the S.A. being devoid of force is also liable to be dismissed. The Appeal, accordingly, succeeds and the order impugned dated 30th July, 2010 is hereby set aside and the S.A. 233/2010 is dismissed. The parties shall bear their own cost of this Appeal. Copy of this order be furnished to the parties as per law.