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2014 DIGILAW 295 (PNJ)

State Bank of Patiala v. Shiv Shanker Rice Mills

2014-02-07

AUGUSTINE GEORGE MASIH, SANJAY KISHAN KAUL

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JUDGMENT AUGUSTINE GEORGE MASIH, J. By this order, we propose to decide Letters Patent Appeal Nos.594 and 409 of 2010 as they arise out of the judgment dated 5.2.2010, allowing the writ petitions in which the appellants herein were respondents. For disposal of these appeals, the facts are being taken from L.P.A. No.594 of 2010. 2. The brief facts of the case are that M/s. Shiv Shankar Rice Mills, respondent No.1, took cash credit limit from the appellant-Bank of Rs.100 lacs, which was later on enhanced to Rs.130 lacs and contingency limit of Rs.5 lacs, totalling Rs.135 lacs by way of term loan and cash credit facility against its primary and collateral security. There had been default in due payment of the loan and the account became irregular. 3. Respondent No.1 instead of clearing the dues, duped the appellant-Bank by disposing of the pledged stocks without the permission of the Bank and even the sale proceeds amounting to Rs.1.75 crores had not been deposited with the Bank according to the stock statement dated 15.12.2002. As per the condition of the agreement, respondent No.1 could not have sold the stocks without the permission of the Bank as the same had been hypothecated with the Bank. 4. As the default in payment of the deals persisted, it was declared a Non-Performing Asset (for short, “NPA”) on 31.03.2003. A notice was issued by the Bank on 20.6.2003 to respondent No.1 to repay the entire amount within seven days. However, instead of submitting his reply to the said notice, respondent No.1 wrote a letter dated 27.6.2003, seeking permission of the Bank to allow them to use the sheller for shelling purpose for a period of one month as a Finance Company was ready to finance their entire project. Respondent No.1 had also conveyed to the Bank that efforts were being made to raise finances from other financiers against the rice mill, which has already been mortgaged with the respondent Bank. Since the conduct of respondent No.1 was doubtful and the appellant Bank was apprehending that respondent No.1, a willful defaulter, will try to cheat the appellant-Bank did not accept the same but instead lodged a complaint dated 21.7.2003 with the Station House Officer, Safidon, Jind, for registration of FIR against respondent No.1, its partners and guarantors for theft and misappropriation etc. 5. 5. On 14.8.2003, again a notice was issued to respondent No.1 to repay the entire loan amount within seven days. Instead of responding to said notice on the basis of letter dated 27.6.2003, a Civil Writ Petition No.13895 of 2003 (Shiv Shankar Rice Mills and another v. State Bank of Patiala and others) was filed by respondent No.1. In the said writ petition, a direction was issued by this Court vide order dated 2.9.2003 to the appellant-Bank to consider the offer of sale of the mortgaged property in terms of the contract. 6. An amount of Rs.1,46,42,918/- was due from respondent No.1 as recoverable on 31.08.2003. The Bank being unaware of the order passed by this Court, a notice dated 18.09.2003 was issued to respondent No.1 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “2002 Act”) to repay the entire borrowed amount along with interest with 60 days. When the factum of order passed by this Court was brought to the notice of appellant-Bank on 5.1.2004, the Bank called upon respondent No.1 vide letter dated 6.1.2004 to bring the proposed buyer and asked to deposit the money. Vide letter dated 7.1.2004, respondent No.1 intimated the Bank that it had a buyer of two mortgaged properties, who was ready to purchase the same for Rs.45 lacs. In response thereto, the Bank intimated vide letter dated 16.1.2004 that the Bank approved the said proposal for sale of two mortgaged properties subject to the deposit of the amount directly with the Bank. A reminder dated 23.1.2004 was also sent to respondent No.1 about non-receipt of acceptance of the offer made by the Bank and non-intimation of the addresses of the buyers. Respondent No.1 was requested to expedite the necessary action as per its undertaking. 7. In response to this, respondent No.1 vide letter dated 25.1.2004, wrote that one of the proposed buyer of the properties, who had agreed to purchase, would give Rs.2.5 lacs as advance and deposit the same by 15.3.2004 in the shape of F.D.R and the sale deed would be executed within four months i.e. upto 10.6.2004 and the balance amount will be deposited with the Bank at the same time. 8. 8. In between, respondent No.1 submitted a proposal for one time settlement of the dues vide letter dated 1.3.2004, to which the response was sent by the Bank on 18.3.2004 that the offered amount was not sufficient and it be improved. The Bank further conveyed that an assurance was given by respondent No.1 for deposit of Rs.45 lacs after selling the mortgage property to re-pay the bank loan but the said promise has not been fulfilled. 9. When the things did not move any further, all these steps taken by respondent No.1 were taken as a delaying tactics on its part by the Bank with an intention to avoid payment on one pretext or the other and to gain time. The appellant-Bank decided to take further action and vide letter dated 22.9.2004, declared respondent No.1 as willful defaulter on the ground that the sale proceeds of the stocks were not deposited with it. Even 15 days time was given to respondent No.1 to represent against the said decision and accordingly a representation dated 4.10.2004 was filed by respondent No.1, which was rejected by the appellant-Bank. The Reserved Bank of India on 31.12.2004 circulated a list of willful defaulters and name of respondent No.1 figured at Sr.No.116. 10. In pursuance to notice dated 8.9.2003 issued under Section 13 (2) of 2002 Act, which was served upon respondent No.1, submitted its reply in response, which was considered and rejected in terms of Section 13 (3-A) of the 2002 Act. Another notice under Section 13(4) of 2002 Act was served and thereafter notice dated 31.12.2004 under Section 13 (7) of 2002 Act for auction of the property was issued by the Bank. 11. The proceedings under the 2002 Act were not challenged by respondent No.1. However, coparceners of respondent No.2 in the mortgaged ancestral properties preferred S.A. No.18 of 2005 under Section 17 of 2002 Act in the Debt Recovery Tribunal-I, Chandigarh. In the said proceedings, respondent Nos.1 and 2 were impleaded as party respondent Nos.4 and 5. The prayer for staying the proceedings was not accepted, however, vide order dated 17.1.2005, the Tribunal confirmation of the sale was stayed. 12. In the said proceedings, respondent Nos.1 and 2 were impleaded as party respondent Nos.4 and 5. The prayer for staying the proceedings was not accepted, however, vide order dated 17.1.2005, the Tribunal confirmation of the sale was stayed. 12. The auction was held on 7.2.2005, in which two of the properties i.e. (i) the land and building of rice mill measuring 16940 Sq.Yards situated at Goshalla Road, Safidon and (ii) Shop/godown measuring 180 Sq.Yards, Anaj Mandi, Safidon, were auctioned for a total sum of Rs.1.65 crores. S.A. No.18 of 2005 was dismissed with costs by the Presiding Officer, Debt Recovery Tribunal-I, Chandigarh, vide order dated 22.8.2006. The sale by way of auction in favour of M/s. Sadhu Ram and Company was confirmed on 29.9.2006 and sale certificate issued on dismissal of the S.A. As per the pleadings, the appeal preferred against the said order, was pending consideration at the time of filing of writ petition before the Debt Recovery Appellate Tribunal, Delhi. 13. In the meanwhile, guidelines of the Reserved Bank of India dated 3.9.2005 were issued under the Banking Regulation Act, 1949, which provided for guidelines on One Time Settlement Scheme for Small and Medium Enterprises (SME) accounts for recovery of NPAs below Rs.10 crores. It was to be applicable to the NPAs, which have been classified as doubtful or loss as on 31.3.2004. These guidelines contained a stipulation that the said offer will not be available for those who are willful defaulters and committed fraud and malfeasance. 14. Respondent No.1 then moved a representation dated 28.3.2006 with the appellant-Bank to settle the account under the OTS scheme for SME as per the circular of Reserved Bank of India dated 3.9.2005. The representation of respondent No.1 was considered regarding the OTS proposal and vide letter dated 24.4.2006, it was conveyed to respondent No.1 that on account of malfeasance on its part, it was not held eligible for settlement under One Time Settlement Scheme. In that letter it was also mentioned therein that the Bank had already lodged an FIR against two partners and guarantors of respondent No.1-firm at Safidon Police Station on 22.8.2003. 15. In that letter it was also mentioned therein that the Bank had already lodged an FIR against two partners and guarantors of respondent No.1-firm at Safidon Police Station on 22.8.2003. 15. Respondent No.1 preferred Writ Petition (Civil) Nos.14702-03 of 2006 on 15.9.2006, praying for direction to the Bank to adhere to One Time Settlement Scheme of 2005 but the same was ultimately withdrawn vide order dated 23.2.2007, on an objection taken by the Bank about the jurisdiction of the Delhi High Court to entertain the writ petition with liberty to approach this High Court by way of an appropriate writ petition. Some amounts were ordered to be deposited by the High Court of Delhi, which were deposited by respondent No.1, which led to filing of Civil Writ Petition No.2945 of 2007, where again some deposits have been made in pursuance to the order passed by this Court. 16. The writ petition has been allowed by the learned single Judge of this Court on the ground that the sale had been held even without exhausting the O.T.S proposal submitted by respondent No.1 and has also held that the right to reject O.T.S is available to the Bank only on exceptions provided in the guidelines issued by the Reserved Bank of India itself. Since the ground of malfeasance as invoked by the appellant-Bank along with the assertion regarding the registration of FIR against respondent No.1, has been found to be incorrect in view of the certificate issued by the Station House Officer of the Police Station, Safidon that there was no FIR lodged against respondent No.1, its partners or guarantors, the action of the Bank was unsustainable as there being no reason, which would disentitle respondent No.1 to the claim. The benefit of OTS could also not be denied to it as at all times it has been expressing willingness to pay the loan. It has also been mentioned that the complaint was lodged only 30.8.2007, which was far beyond the time when a decision dated 24.2.2006 was taken to deny the OTS. The sale was set aside as a corollary to the decision on the enforceability of the right to demand OTS. It has also been mentioned that the complaint was lodged only 30.8.2007, which was far beyond the time when a decision dated 24.2.2006 was taken to deny the OTS. The sale was set aside as a corollary to the decision on the enforceability of the right to demand OTS. Since the rejection of OTS by the Bank was found to be unjustified, the Company i.e. M/s. Sadhu Ram and Company, Panipat (appellant in L.P.A. No.409 of 2010) who had paid at the auction held by the Bank has been compensated by the Court while resorting to the provisions of Order 21 Rule 87, CPC and has been granted the refund of the purchase price at the rate applicable to the fixed deposit on reinvestment scheme from the day when the amount was deposited with the bank till the date of repayment along with solatium at the rate of 5% of the purchase price by respondent No.1. 17. Counsel for the parties have made their submissions before the Court in detail. 18. Apart from other grounds taken in the appeal, the appellant-Bank had taken an objection with regard to maintainability of the writ petition in this Court on the ground that an effective alternative remedy under the 2002 Act being available to respondent No.1, which has not been availed of at the first instance, apart from the Appellate Forum, which would also be available prior to approaching this Court. The said objection, however, was negated by the learned single Judge. On merits, it was asserted that respondent No.1 was not eligible under the OTS policy, being a willful defaulter and so declared by the Reserved Bank of India also. 19. On considering the submissions made by counsel for the parties, we are of the considered view that the order passed by the learned single Judge cannot sustain on the short ground that the benefit of the OTS under the R.B.I. Guidelines dated 3.9.2005 would not be available to respondent No.1 as it was declared as a willful defaulter by the appellant-Bank on 22.09.2004 and its name was included in the list of willful defaulters issued by the Reserved Bank of India at Sr.No.116 on 31.12.2004, which is prior to the coming into force of OTS. A party, which is already declared a willful defaulter and that decision having not been challenged, would bind the said party, disentitling the benefit of consideration of OTS proposal. 20. Relevant para 2 of the Reserved Bank of India Guidelines dated 3.9.2005 on One Time Settlement Scheme for SME Accounts reads as follows: “2. The guidelines will not, however, cover cases of willful default, fraud and malfeasance, Banks shall identify cases of willful default, fraud and malfeasance and initiate prompt action. Accordingly, guidelines for one-time settlement of dues relating to NPAs of Public sector banks in SME sector are given below: (A) Guidelines for one-time settlement of chronic NPAs up to Rs.10 crores (i) Coverage (a) The revised guidelines will cover all NPAs in SME sector which have become doubtful or loss as on March 31, 2004 with outstanding balance of Rs.10 crores and below on the date on which the account was classified as doubtful. (b) The guidelines will also cover NPAs classified as substandard as on 31st March, 2004, which have subsequently become doubtful or loss where the outstanding balance was Rs.10 crores and below on the date on which the account was classified as doubtful. (c) These guidelines will cover cases on which the banks have initiated action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and also cases pending before Courts/DRTs/BIFR, subject to consent decree being obtained from the Courts/DRTs/BIFR. (d) Cases of willful default, fraud and malfeasance will not be covered. (e) The last date for receipt of applications from borrowers will be as at the close of business on March 31, 2006. The processing under the revised guidelines shall be completed by June 30, 2006.” 21. The above leaves not an iota of doubt that no benefit accrues to the petitioner out of Reserve Bank of India guidelines on One Time Settlement Scheme for SME Accounts dated 3.9.2005. The impugned letter dated 24.04.2006 (Annexure P-12) states while referring to the Reserve Bank of India guidelines dated 03.09.2005 that cases of willful default, fraud and malfeasance are not covered under the One Time Settlement Scheme. It has further been stated that the account of respondent No.1 is not eligible under the Scheme due to malfeasance apart from the fact that FIR has been lodged against the partners and guarantors of the firm on 22.08.2003. It has further been stated that the account of respondent No.1 is not eligible under the Scheme due to malfeasance apart from the fact that FIR has been lodged against the partners and guarantors of the firm on 22.08.2003. Although it is admitted by the Bank that in the letter, it should have been mentioned a complaint for registration of an FIR was lodged instead of FIR has been lodged, which reason even if ignored to be an incorrect or non-existent ground for rejection, as held by the learned single Judge, the other ground of malfeasance still stands. 22. Respondent No.1 was categorized as willful defaulter for having sold the pledged stock worth Rs.177 lacs as per stock statement dated 15.12.2002 without permission of the Bank, thus, misappropriating the sale proceeds as the same were not deposited with the Bank. A notice to show cause was served by the Bank and as default in payment persisted, the amount was declared NPA on 31.03.2003. Notice to repay the entire balance amount was served by the Bank, some correspondence took place regarding raising of finance from other financiers but then the Bank realised that this was a tactic to delay further steps to be taken by the Bank and was intended to defraud/delay payments to the Bank. The subsequent action taken by the Bank resulting in firstly declaring respondent No.1 as a willful defaulter on 22.09.2004 (Annexure R-6) for the reason that the sale proceeds of the hypothecated stocks have not been deposited with the Bank. Fifteen days were given to respond. When nothing was heard, case of respondent No.1 was reported to Reserve Bank of India. In the list circulated by Reserve Bank of India dated 31.12.2004, name of respondent No.1 was included as a willful defaulter at Serial No.116. All this proves that there was malfeasance on the part of respondent No.1 and, thus, this ground for rejection of OTS of respondent No.1 by the appellant-Bank was fully justified and in accordance with Reserve Bank of India guidelines dated 03.09.2005 under which the claim was to be considered. It may be added here at the cost of repetition that respondent No.1 being a declared willful defaulter not only by the appellant-Bank but the Reserved Bank of India also, was ineligible for even consideration under the Reserve Bank of India guidelines dated 03.09.2005 for the OTS as claimed under the writ. It may be added here at the cost of repetition that respondent No.1 being a declared willful defaulter not only by the appellant-Bank but the Reserved Bank of India also, was ineligible for even consideration under the Reserve Bank of India guidelines dated 03.09.2005 for the OTS as claimed under the writ. 23. We are, in the light of above, unable to agree with the judgment of the learned single Judge. 24. The writ petition of respondent No.1 also deserves rejection on the ground that the said respondent had an effective alternative remedy under the 2002 Act as has been explained by the Hon'ble Supreme Court in Mardia Chemicals Limited and others v. Union of India, (2004) 4 SCC 311 : ( AIR 2004 SC 2371 ), which judgment is a complete code in itself. If the petitioner had any grievance with regard to the proceedings initiated under 2002 Act and the consequential sale that took place by auction, which was duly confirmed on 39.9.2006 (sic) after the decision of S.A. No.18 of 2005 dated 22.8.2002, which was preferred by the coparceners of respondent No.2 in the mortgaged ancestral properties where both respondent Nos.1 and 2 were party respondent Nos.4 and 5, the remedy, if any, was available to the petitioner under the said Act. Approach of respondent No.1 to this Court, without exhausting the effective alternative remedy available must lead to dismissal of the writ petition as respondent No.1 herein failed to opt and avail of it despite objection taken in the writ. 25. The exceptional ground on the basis of which the learned single Judge has proceeded to entertain the writ petition i.e. the eligibility of respondent No.1 to avail of the benefit of OTS scheme of Reserve Bank of India dated 03.09.2005, having been found to be not correct and one of the grounds for rejecting the OTS proposal by the Bank i.e. malfeasance having been found to be correct, justified and in accordance with the Reserve Bank of India guidelines dated 03.09.2005, as observed above, the writ petition preferred by respondent No.1 cannot be entertained and, therefore, deserve dismissal. 26. In view of the above discussion, both the appeals are allowed. The judgment dated 05.02.2010 of the learned single Judge is set aside and Civil Writ Petition No.2945 of 2007 stands dismissed. All pending applications also stand disposed of. 27. 26. In view of the above discussion, both the appeals are allowed. The judgment dated 05.02.2010 of the learned single Judge is set aside and Civil Writ Petition No.2945 of 2007 stands dismissed. All pending applications also stand disposed of. 27. The parties are left to bear their own costs. Appeals allowed.