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Judgment
Anand Byrareddy, J.—1. The petitioner is said to be a sick industrial company and proceedings for its rehabilitation are said to be pending before the Board for Industrial and Financial Reconstruction (BIFR), in case No. 102/1999.
The respondent - bank is said to have lent monies to the petitioner and is a secured creditor. It is also said to be the Operating Agency appointed by the BIFR to facilitate the rehabilitation of the petitioner.
It is the case of the petitioner that there are two applications pending consideration before the BIFR which would determine, inter alia, whether the reference continues, by virtue of which, the petitioner continues to be protected under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Even as the applications are pending, the respondent is said to have proposed to bring the properties of the petitioner to sale by auction, as per notice dated 14.9.2015.
One of the applications pending is said to have been filed by the respondent to state that it is said to have initiated action under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Hereinafter referred to as the ''SARFAESI Act'', for brevity) and has sought an Order before the BIFR claiming that the reference has abated by virtue of the said proceedings under the SARFEASI Act.
The second application is by the petitioner, in the following background:
The petitioner is said to have filed a statutory appeal under Section 17 of the SARFEASI Act before the Debt Recovery Tribunal (DRT). The same is said to have been dismissed as on 9.6.2015. One of the main grounds urged therein was that the interest rates charged by the respondent had been in breach of the permissible rates of interest applicable to sick industrial companies, in terms of the RBI guidelines - applicable to sick industrial companies. It was the case of the petitioner that if the excessive rates are reversed, the petitioner would be liable to pay the respondent only a sum of Rs. 5.14 crore as on 5.5.2014, instead of Rs. 18.30 crore, as claimed by the respondent.
It is stated that while dismissing the appeal filed by the petitioner, the DRT, by its order dated 9.6.2015, had held that the petitioner was not entitled to the benefit of the aforesaid RBI Guidelines, since the BIFR did not specifically state while sanctioning the rehabilitation Scheme in the year 2002 that the revised RBI guidelines from time to time would apply to the loan account of the petitioner, and that the RBI guidelines of the year 1999 which was in effect when the Scheme was sanctioned alone would apply. A review petition is said to be pending before the DRT.
The present petition is filed in the circumstance that the BIFR has not had occasion to consider the application filed by the petitioner and in the mean time, the respondent having chosen to resort to coercive measures for recovery of its monies, the petitioner pleads that with no alternative remedy if this court should pronounce on the question whether the petitioner is entitled to have the excessive rates of interest reversed, to keep in line with the RBI guidelines issued from time to time - the petitioner would be relieved of a large liability which is unfairly sought to be foisted on the petitioner by the respondent.
After having heard the learned Senior Advocate, Shri Udaya Holla appearing for the counsel for the petitioner and the learned Senior Advocate, Shri Dyan Chinnappa, appearing for the counsel for the respondent and on a perusal of the material placed on record - it is seen that the Scheme approved by the BIFR for the petitioner, at page 36 thereof, while indicating the reliefs and concessions to which the petitioner is entitled, it is specified as follows:
"The extent of reliefs, concessions and assistance from various financial institutions are as per RBI guidelines."
The RBI guidelines are issued from time to time regarding interest chargeable by Banks. The RBI also issues Master Circulars every year. The Master Circular for the year 2001, at Annexure-R, specifies at Clause -7 thereof that the banks are required to incorporate the following proviso in all the loan agreements:
"Provided that the interest payable by the borrower shall be subject to the changes in interest rates made by the Reserve Bank from time to time...... The banks are obliged to give effect to any revision of interest rates whether upwards or downwards on all existing advances from the date of directive/revised interest rate (change in PLR and spread) come into force, unless the directives specifically provide otherwise".
The petitioner has made available, under cover of a memorandum dated 16.12.2015, the Master Circular issued by the RBI for the years 2002 to 2014. It is seen that a similar clause is to be found in each one of them.
It is noticed that in terms of the Master Circular, the sanction letters of the respondent bank sanctioning loan to the petitioner, Annexure-P series, specify as follows:
"Cash credit (Hypothecation) equal to the State Bank of India advance rate presently 11.5% per annum, rising and falling therewith with quarterly rests, subject to change as per Bank/RBI directives."
It would thus appear that the changes as per RBI directives will apply to the loan in question and any change in interest rates upwards or downwards as per RBI guidelines and the Bank''s directives would apply to the loan of the petitioner herein.
Yet another indication that the petitioner is entitled to interest as per RBI guidelines is made out by reference to the Circular dated 12.5.2004, Annexure-M to the petition, issued by the respondent - bank. This appears to be issued on the basis of the policy adopted by the respondent - bank and on the RBI guidelines. In that, it is specified that a uniform approach is adopted in the extension of RBI norms as to the reliefs and concessions to weak and sick Small-scale Industrial units, to potentially viable units in other sectors. In that, it is specified that it applies to even non-CDR and non BIFR manufacturing units in the Commerce and Industries Sector. That the petitioner is a potentially viable unit is evident by the circumstance that BIFR has approved a Scheme of rehabilitation for it.
In furtherance of the above Circular, yet another Circular dated 10.11.2004, according to which the concessional rate of interest chargeable to potentially viable sick units in Commerce and Industries sector has been modified.
It is significant that the bank in its Executive Summary dated 25.10.2010, Annexure - S to the petition, it is stated that in terms of the above Circulars dated 12.5.2004 and 10.11.2004, the petitioner was entitled to concessionary rate of interest set out therein. (See: page 227 of the paper book.) The tabular column indicates that in respect of Working Capital Term Loan (WCTL) as against the entitlement of the petitioner to interest rate of 2% below State Bank of India Advance Rates (SBAR), the petitioner had been charged 0.5% above SBAR. And in respect of cash credit, as against the entitlement of the petitioner to 2% below SBAR, it has been charged interest at SBAR.
It is further significant that in yet another Executive Summary dated 15.10.2011, Annexure -T to the writ petition, at page 270, an identical fact is set out.
Hence, the respondent is in no position to justify as to why the said position did not apply during the relevant points of time, earlier. More specifically when the account was restructured by the grant of working capital term loan in the year 2007. (See: pages 187 and 188 of the paper book). This would certainly establish that the revised rates, commencing from the year 2002, as mentioned in the Circular of the year 2004, did apply. In this regard, it is pertinent to note that the respondent has contrasted, the concessionary interest that the petitioner was eligible for, with the excess interest actually charged.
It is also seen that in the sanction letter dated 31.12.2011, Annexure -AA (IA No. 3), the respondent has mentioned that the new WCTL was to be levied 1.5% below SBAR. The new proposed rate, 1.5% below SBAR, tallies with the revised guideline. This is clearly an admission of the fact that the guidelines stated in Annexures -M & N were applicable to the petitioner.
This is further fortified by the fact that the Modified Draft Rehabilitation Scheme of 2012, Annexure -AB (at page 42 of IA-3) also indicates that the new WCTL was to be levied at 1.5% below SBAR.
It is noticed that the respondent - bank had issued an Circular which was made applicable to all Schemes of restructured advances, dated 24.2.2008, the same clearly sets out the concessional rate of interest that the petitioner was entitled to. The petitioner claims to fulfill the eligibility criteria of C& I segment, as the outstanding is above Rs. 10 crore and is an NPA Account. It is also noticed that in the second restructuring of the account during December 2007, the respondent has charged interest in excess of that specified in the above circulars.
In the light of the above, the petitioner is held entitled to the benefit of the revised rates of interest provided under the RBI guidelines of 2002 and 2008, as applicable to sick industrial companies, as stated at Annexures - M & N. The respondent - bank is directed to crystallize the dues as per the statement of account furnished along with IA No. IV, which has been accepted by the respondent - bank as being arithmetically accurate, after due verification. Having regard to the grave financial situation of the petitioner, the said exercise shall be completed forthwith, in any event within a period of seven days from to-day. Consequently, the notice dated 14.9.2015, Annexure - A, is quashed.
The petition stands disposed of.