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2018 DIGILAW 611 (GUJ)

Supreme Nutri Grain Private Limited v. Dena Bank

2018-04-12

RAJESH H.SHUKLA

body2018
JUDGMENT AND ORDER : Rajesh H. Shukla, J. The present petition is filed by the petitioners under Article 226 of the Constitution of India for the prayers inter alia that appropriate writ, order or direction may be issued to the respondent - bank to release the charge over the movable and immovable property as stated in the prayer clause and also direct to issue No Due Certificate to the petitioners. 2. The facts of the case briefly summarized are as follows: 2.1 That, the petitioner no.1 is a Private Limited Company incorporated under the provision of the Companies Act, 1956. The petitioner no.2 is a guarantor for the loan granted to the petitioner no.1Company. The respondent - bank had sanctioned cash credit facility for maximum limit of Rs. 700 lacs and term loan facility with maximum limit of Rs. 450 lakhs in favour of the petitioner, however as the petitioner no.1 was not satisfied with the facility and service, it decided to shift loan with Kotak Mahindra Bank, who agreed to provide loan facility with more attractive terms. Therefore on the basis of the sanction letter dated 02.05.2016, the confirmation of the respondent - bank was to be obtained for handing over the property papers upon full and final settlement of outstanding of CC account and the term loan of the petitioner with the respondent - bank. The respondent - bank is said to have declined to issue no due certificate, which led to present petition. 3. Heard learned advocate, Shri Aditya Gupta for the petitioner and learned advocate, Shri S.S. Panesar for the respondent - bank. 4. Learned advocate, Shri Gupta referred to the papers at length and submitted that Kotak Mahindra Bank was to pay up entire outstanding loan amount of the respondent - bank. He submitted that outstanding amount of the respondent bank was to be paid by the Kotal Mahindra Bank pursuant to the understanding between the petitioners and Kotak Mahindra Bank. He referred to the fact that Kotal Mahindra Bank had paid the outstanding amount by RTGC to the respondent - bank on 27.05.2016. However, learned advocate, Shri Gupta submitted that the respondent - bank refused to release the mortgage and clear the charge with ROC and also refused to provide no due certificate. He referred to the fact that Kotal Mahindra Bank had paid the outstanding amount by RTGC to the respondent - bank on 27.05.2016. However, learned advocate, Shri Gupta submitted that the respondent - bank refused to release the mortgage and clear the charge with ROC and also refused to provide no due certificate. Learned advocate, Shri Gupta has also referred to the communication from the Kotal Mahindra Bank and submitted that as stated in the conditions, for shifting loan facility, no due certificate was required to be obtained from the respondent - bank. Learned advocate, Shri Gupta referred to the communication from the respondent - bank dated 17.08.2016 at Annexure-G and submitted that the bank has replied to the advocate of the petitioner and the respondent - bank has clearly stated that the reason for shifting account of Dena Bank to Kotal Mahindra Bank is not stated, however, the respondent - bank has refused to release the papers and to give no due certificate. 5. Learned advocate, Shri Gupta, therefore, submitted that the respondent - bank which is a "State" within the meaning of Article 12 of the Constitution of India could not have refused once the outstanding dues are agreed to be paid by the Kotal Mahindra Bank. He has also referred to the judgment of the Hon'ble Apex Court in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others., (2010) 11 SCC 186 and strenuously submitted that in similar circumstances in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others. (2010) 11 SCC 186 , the Hon'ble Apex court has issued direction that despite clearance of the outstanding dues of the borrower, if the bank has failed to issue no due certificate or the return of the documents, it would be arbitrary and illegal. He has referred to the observations made by the Hon'ble Apex Court. Learned advocate, Shri Gupta has also referred to other judgments including the judgment of the Hon'ble Kalkatta High Court in a Writ Petition No.411/2007. He has also referred to the judgment of the High Court (Coram : R.M. Chhaya, J.) in Special Civil Application No. 18426/2013 and submitted that appropriate direction may be issued for issuance of no due certificate by the respondent - bank. 6. He has also referred to the judgment of the High Court (Coram : R.M. Chhaya, J.) in Special Civil Application No. 18426/2013 and submitted that appropriate direction may be issued for issuance of no due certificate by the respondent - bank. 6. Learned advocate, Shri Gupta also submitted that the respondent - bank is estopped from withholding such no due certificate on principle of estoppel. Again he referred to the judgment of the Hon'ble Apex Court in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others (Supra). 7. Learned advocate, Shri Panesar for the respondent - bank referred to the background of the facts and submitted that the petition is not maintainable in view of remedy available under the SARFAESI Act. He also submitted that the petition suffers from suppressio veri and suggestio falsi. 8. Learned advocate, Shri Panesar submitted that the petitioner has not come with clean hands, which has been referred to in affidavit-in-reply. Learned advocate, Shri Panesar submitted that it is not simply shifting of the account from one bank to another but there is breach of the Circular or the guidelines of the Reserve Bank of India. He, therefore, referred to the conditions subject to which, Kotal Mahindra Bank had agreed to take over the dues and the said conditions include that no due certificate shall be obtained by the petitioner from the respondent - bank with release of the pay order or RTGC. He pointedly referred to Condition Nos.3 and 7, which reads as under : "3. Before disbursement, confirmation from Dena Bank to be obtained regarding hand over of property papers upon full and final settlement of outstanding in CC account and Term Loan Account of Supreme Nutri Grain Pvt. Ltd. Request letter shall be taken from the Borrower asking the Bank to directly disburse to Dena Bank to clear-off its dues. 7. No Dues Certificate shall be obtained from Dena Bank with release of pay order/RTGS." 9. Learned advocate, Shri Panesar also referred to the letter by the respondent - bank dated 17.08.2016 at Annexure-G and submitted that it was replied in response to the notice that shifting of the account from Dena Bank to Kotal Mahindra Bank is with ulterior motive. No Dues Certificate shall be obtained from Dena Bank with release of pay order/RTGS." 9. Learned advocate, Shri Panesar also referred to the letter by the respondent - bank dated 17.08.2016 at Annexure-G and submitted that it was replied in response to the notice that shifting of the account from Dena Bank to Kotal Mahindra Bank is with ulterior motive. He emphasized that as stated, Ms/.Supreme Nutri Grain Private Limited and M/s. Shree Ramdev Cotton Ginning are having common Promoters/Directors and therefore, it was a group company and group account. He submitted that due to huge outstanding dues to the tune of Rs. 1398.48 lacks in the account of M/s. Shree Ramdev Cotton Ginning, such shifting of the account is sought to be made. He also pointedly referred to the details to emphasis that even in reply, it was pointed out that due to outstanding dues, the respondent - bank had initiated proceeding under the SARFAESI Act on 26.07.2016 and filed Recovery Application before the Debt Recovery Tribunal, Ahmedabad and the attachment before the judgment was sought against the share of one of the Directors, Sanjay V. Kapuria. Learned advocate, Shri Panesar referred to the affidavit in reply for further details as to how the account has been manipulated and to support his contention that it is not a genuine or bona-fide shifting of the account from one bank to another bank. He emphasized that Sanjay Kapuria has been deliberately kept away in faint attempt to hide their own misdeeds. Learned advocate, Shri Panesar referred to the guidelines issued by the Reserved Bank of India produced with affidavit-in-reply at AnnexureR2 and submitted that Clause - 2.1.3.6 refers to "group". He emphasized that concept of group and task of identification of the borrower is required to be considered. He pointedly referred to Clause 2.1.3.6, which reads as under: "2.1.3.6 Group (a) The concept of 'Group' and the task of identification of the borrowers belonging to specific industrial groups is left to the perception of the banks/financial institutions. Bank/financial institutions are generally aware of the basic constitution of their clientele for the purpose of regulating their exposure to risk assets. The group to which a particular borrowing unit belongs, may, therefore, be decided by them on the basis of the relevant information available with them, the guiding principle being commonality of management and effective control. Bank/financial institutions are generally aware of the basic constitution of their clientele for the purpose of regulating their exposure to risk assets. The group to which a particular borrowing unit belongs, may, therefore, be decided by them on the basis of the relevant information available with them, the guiding principle being commonality of management and effective control. In so far as public sector undertakings are concerned, only single borrower exposure limit would be applicable. (b) In the case of a split in the group, if the split is formalised the splinter groups will be regarded as separate group. If banks and financial Institutions have doubts about the bona fides of the split, a reference may be made to Reserve Bank of India for its final view in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the Group Approach." 10. Learned advocate, Shri Panesar also submitted that the group concept has been explained and when it is controlled or significantly influenced by same enterprise or person, it would be considered as group. He pointedly emphasized criteria laid down for the same, which reads as under: "Group Concept encompasses: Tow or more enterprises are said to belong to the same group, if any time during the reporting period of during the period under review, the financial or operating decisions of the said enterprises are "controlled" or "significantly influenced" by the same enterprise/person. Two or more enterprises are deemed to be controlled by the same enterprise/person when: (a) Controlling/Substantial interest i.e. holding of shares of 20% and above, is by the same enterprise or by the same individual himself or jointly with his/her close relatives (as defined below), and/r (b) More than 50% of the directors/partners (excluding the ones nominated by Govt. of India/RBI/Banks/ Debenture Trustees) in one enterprise are the same, and/or (c) Tow or more enterprise have a contractual arrangement to share the power to govern the financial and/or operating policies of the said enterprises, and/or (d) One company is subsidiary company (i.e. holding more than 50% of the issued share) of another company either by itself or through one or more subsidiaries. (e) If holding company of two or more company is the same company." 11. (e) If holding company of two or more company is the same company." 11. Learned advocate, Shri Panesar also submitted that when two or more enterprises are said to be under "significant influence" by the same enterprise/person has also been explained and, therefore, the bank is required to consider. Thus, the respondent - bank had asked for certain details, which have been avoided as stated in the reply by Shree Ramdev Cotton Ginning dated 22.06.2015. He submitted that it was specifically asked to provide group profile for Supreme Nutri Grain Pvt. Ltd. with financials of ABS as on 31.03.2014. Learned advocate, Shri Panesar has referred to AnnexureR3, which is a statement of account of Shree Ramdev Cotton Ginning and submitted that there were entries, which suggest that the amount borrowed by Shree Ramdev Cotton Ginning has been diverted to the account of other concern like the petitioner or Shri Sanjay Kapuria. He, therefore, submitted that these are all issues, which could be examined on the basis of the material and evidence on record and the respondent - bank has already made an application before the Debt Recovery Tribunal for recovery of the amount and, therefore,, such petition under Article 226 of the Constitution of India may not be maintainable. He, therefore, submitted that the discretionary jurisdiction under Article 226 of the Constitution of India may not be exercised. 12. In rejoinder, learned advocate, Shri Gupta again referred to the papers to support his contention that two entities are different and account of Shree Ramdev Cotton Ginning has nothing to do with the account and advances or transaction with the petitioner as it is a separate entity, which has been also discussed in the judgment of the Hon'ble Apex Court in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others. He also referred to the observation made in the judgment of the Hon'ble Calcutta High Court in case of Gour Nitye Tea & Industries Ltd. & Another. Vs. Central Bank of India and Others., (2008) AIR Calcutta 193. 13. In view of the rival submissions, it is required to be considered whether the present petition deserves consideration. 14. As it transpires from the record and the rival submissions, the submission made by learned advocate, Shri Gupta with regard to shifting of the accounts, is rather over simplification. Vs. Central Bank of India and Others., (2008) AIR Calcutta 193. 13. In view of the rival submissions, it is required to be considered whether the present petition deserves consideration. 14. As it transpires from the record and the rival submissions, the submission made by learned advocate, Shri Gupta with regard to shifting of the accounts, is rather over simplification. In fact, it reflects the motive with which the account is sought to be shifted in the guise of argument like separate entity and the arbitrariness of the respondent - bank when the outstanding dues are paid by another bank like Kotal Mahindra Bank. The submissions which have been made initially may sound appealing or rather simple but on a scrutiny of the record, it clearly reflects that they are devoid of merits and it smacks of something under the sleeve with an ulterior motive. 15. Therefore first aspect which is required to be considered is maintainability of the petition under Article 226 of the Constitution of India and scope of exercise of jurisdiction under Article 226 of the Constitution of India when there is an alternative remedy provided under the SARFAESI Act. As stated by the respondent, the Original Application No.553/2016 has already been made by the respondent - bank before the Debt Recovery Tribunal in July, 2016 and the injunction was asked, which has already been granted and it has been served also. Therefore one of the petitioner, Shri Nilesh Govindbhai Kapuriya is also served with the notice and is aware about the proceedings. In fact, as it would be dealt with hereinafter under the concept of group advances, the petitioners are very much aware about the proceedings initiated in the Debt Recovery Tribunal, Ahmedabad by the respondent - bank. Therefore, the present petition is filed after such order was served passed by the Debt Recovery Tribunal in September, 2016. Further as it is stated, admittedly the petitioner has moved Bank Ombudsmen, which again reflect that the petitioner made an approach to the Bank Ombudsmen and having failed has tried to invoke discretionary jurisdiction under Article 226 of the Constitution of India by the present petition. The provision of Section 17 of the SARFAESI Act after the amendment in Section 17 of the SARFAESI Act enables "any person aggrieved" to approach the Debt Recovery Tribunal. The provision of Section 17 of the SARFAESI Act after the amendment in Section 17 of the SARFAESI Act enables "any person aggrieved" to approach the Debt Recovery Tribunal. Therefore after the amendment, any person, who is aggrieved by any measure referred to in Section 13 of the SARFAESI Act taken by the secured creditor (the respondent - bank) can approach the Debt Recovery Tribunal having jurisdiction. Therefore, the petitioner had opportunity to approach the Debt Recovery Tribunal, Ahmedabad by making suitable application or by contesting the Original Application filed by the respondent - bank for recovery. There is also provision for the Appellate Authority. Instead thereof, the petitioner approached the Bank Ombudsmen and having failed there, the present petition is filed. Thus in view of the statutory provision of Section 17 of the SARFAESI Act, which after the amendment makes it clear that any person, who is aggrieved, can approach the Debt Recovery Tribunal, it leave no room of doubt that the petitioner could have approached the Debt Recovery Tribunal. Thus the alternative remedy is bye-pass. 16. Again had the petitioner moved the Debt Recovery Tribunal, the Original Application filed by the respondent - bank would have made the picture clear with regard to the borrowing by the petitioner covered under the concept of group as suggested by the Reserve Bank of India's guideline. Clause 2.1.3.6 referring to the group clearly provides that concept of group and identification of borrowing belonging to the industrial group is left to the perception of the bank or financial institution. It also provides that it could be decided by the bank on the basis of the relevant information and the guiding principle would be commonality of the management and the effective control. Further group concept has been elaborately explained with reference to the criteria which has been set out hereinabove and also whether two or more enterprise can be said to have been under the significant influence or when it could be said to have been controlled by some enterprise or person. This guideline also permits that in case of group borrowing, the bank may examine gross holding amongst the group companies and can also examine financial details of the concerned borrower including the outstanding of other account. It is in this background, the submissions, which have been made are rather over simplification, require a closer scrutiny. This guideline also permits that in case of group borrowing, the bank may examine gross holding amongst the group companies and can also examine financial details of the concerned borrower including the outstanding of other account. It is in this background, the submissions, which have been made are rather over simplification, require a closer scrutiny. As stated above, the petitioner and the Shree Ramdev Cotton Ginning are controlled and managed by the persons, who are closely related or associated. The submission that Sanjay V. Kapuria having resigned from the petitioner - Company is only an eyewash and nothing has been placed on record with regard to the compliance with the provision of the Companies Act, which oblige to get necessary details recorded with the Registrar of Companies. Therefore considering the present day scenario with regard to the loopholes in the banking system, which have been exploited in connivance with the officers of the bank to dupe public money of the Nationalize Bank, the submission requires a close scrutiny in light of the guidelines of Reserve Bank of India regarding group company and group account. Therefore, the Reserve Bank of India has issued guidelines as referred to referring to the group or concept of borrowing. In the present day scenario, therefore it is necessary to have corporate veil pierced or lifted to have the clear picture to avoid any fraud being played with the bank. The present mechanism and the legal frame work calls for an appropriate or suitable changes in the legal frame work to curb any such attempt to dupe the public money of the Nationalize Bank. Therefore, the submissions which have been made that the Sanjay V. Kapuria is no longer Director of the petitioner no.1Company or that both are the petitioner Company and Shree Ramdev Cotton Ginning are separate entity have to be considered in background of the facts. The submissions which have been made with much emphasis relying upon the observations made by the Hon'ble Apex Court in a judgment in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others. have to be considered. The submissions which have been made with much emphasis relying upon the observations made by the Hon'ble Apex Court in a judgment in case of Zonal Manager, Central Bank of India Vs. Devi Ispat Limited and Others. have to be considered. Though it is sought to be suggested that it is a same issue with regard to no due certificate to be issued and shifting of the accounts by the borrower to other bank, may be there but there is no reference to the guidelines of the Reserve Bank of India with reference to the group borrowing concept of group. With the change in the nature of economic activity or the business, nature of advances or the borrowing has also undergone a sea change, which has called for such guidelines by the Reserve Bank of India in case of more than one entity under the same group borrowing huge amount. In other words, it is under one umbrella, different unit or entity/company are set up with interlink transaction and funds could be diverted and, therefore, any such submission that it is a separate entity is devoid of merits and the group veil has to be lifted to see through the game plan of person, who has resorted to such shifting of the account with ulterior motive. 17. There is no quarrel with regard to the fact that the bank is a "State" within the meaning of Article 12 of the Constitution of India. However same judgment has referred to earlier judgment of the Hon'ble apex Court in case of ABL International Ltd. & Another. Vs. Export Credit Guarantee Corporation of India Ltd. and Others., (2004) 3 SCC 553 . Further the issue therein focused was with regard to the contractual obligation and whether the petition would be maintained even in respect of the contractual obligation by the "State" or its instrumentality under Article 12 of the Constitution of India. It is required to be stated that while examining such issues, though it is a matter of contractual obligation between the borrower and the bank and the bank being "State" under Article 12 of the Constitution of India cannot act arbitrarily or unreasonably. It is required to be stated that while examining such issues, though it is a matter of contractual obligation between the borrower and the bank and the bank being "State" under Article 12 of the Constitution of India cannot act arbitrarily or unreasonably. But at the same time, when the parties have provided for mutual rights and obligations, which in turn also referred to the applicability of the guidelines for the purpose of borrowing from the institution like bank or financial institutions, it would be always binding to both sides including borrower to submit to the scrutiny under the guidelines. In the facts of the case, the respondent - bank vide letter at Annexure-G called for the information in light of the aforesaid guidelines by the Reserve Bank of India and when the petitioner failed and neglected or rather avoided, the Original Application for recovery was filed and, therefore, the present petition filed by the petitioner No.1 Company covered under the concept of group or extensive control cannot be heard to say about the unreasonableness of the respondent - bank that it has declined to issue no due certificate. It is at that stage, the judgment of the Hon'ble Apex Court expressing the word of caution for the purpose of exercising the discretion under Article 226 of the Constitution of India requires to be noted. The Hon'ble Apex Court in a judgment in case of Union of India v. Rajasthan High Court and Others., (2017) 2 SCC 599 , has also observed, "The distinction between what lies within and what lies outside the power of judicial review is necessary to preserve the sanctity of judicial power. Judicial power is respected and adhered to in a system based on the rule of law precisely for its nuanced and restrained exercise. If these restraints are not maintained the court as an institution would invite a justifiable criticism of encroaching upon a terrain on which it singularly lacks expertise and which is entrusted for governance to the legislative and executive arms of Government." 18. The Hon'ble Apex Court in a judgment in case of Authroized Officer, State Bank of Travancore and Anr. v. Mathew K.C., (2018) 3 SCC 85 , has made the observations, "The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The Hon'ble Apex Court in a judgment in case of Authroized Officer, State Bank of Travancore and Anr. v. Mathew K.C., (2018) 3 SCC 85 , has made the observations, "The discretionary jurisdiction under Article 226 is not absolute but has to be exercised judiciously in the given facts of a case and in accordance with law. The normal rule is that a writ petition under Article 226 of the Constitution ought not to be entertained if alternate statutory remedies are available, except in cases falling within the well defined exceptions." 19. Thus there is no lack of inherent jurisdiction but rather it is a matter of propriety or a self imposed restriction. Therefore, when the statute like SARFAESI Act provides for a remedy by way of Section 17 to any aggrieved person to move against the measures taken by the bank or the financial institutions, there is no justification to exercise the discretionary jurisdiction under Article 226 of the Constitution of India, particularly, when the Original Application filed by the respondent - bank is already pending before the Debt Recovery Tribunal, Ahmedabad. 20. Again as stated and recorded hereinabove, it requires a closer scrutiny of the material for the purpose of examining the nature of control of two separate entity like the petitioner and Shree Ramdev Cotton Ginning and also whether there is substantial interest and significant influenced by some enterprise or person, which would be examined on the basis of the material and details that may be produced before the Debt Recovery Tribunal. On that count also, as it would require a question of facts based on appreciation of material and evidence, this Court would decline to exercise the discretionary jurisdiction under Article 226 of the Constitution of India. 21. One more aspect which is required to be stated is about the reflecting about the conduct and the attitude of the petitioner. The shifting of the account with Kotal Mahindra Bank is subject to the fulfillment of the condition and the resignation of a main person, Sanjay V. Kapuria is raising some doubt when the procedure under the Companies Act and the Rules have not been fulfilled. The officers of the Bank Ombudsmen in reply dated 26.08.2016 has also made it clear that since the issue is pending before the Debt Recovery Tribunal, it would not interfere. The officers of the Bank Ombudsmen in reply dated 26.08.2016 has also made it clear that since the issue is pending before the Debt Recovery Tribunal, it would not interfere. Therefore the petitioner having failed to avail alternative remedy filed present petition after the knowledge about the proceeding before the Debt Recovery Tribunal, which cannot be entertained in exercise of discretionary jurisdiction under Article 226 of the Constitution of India. 22. The Hon'ble Apex Court in a judgment in case of ABL International Ltd. has also made observations with reference to the scope of exercise of discretionary jurisdiction under Article 226 of the Constitution of India. It has been observed that the power of the High Court to issue writ under Article 226 of the Constitution of India is plenary and not limited by other provisions of Constitution. However at the same time, a word of caution has been expressed that normally the High Court will not exercise such power to the exclusion of other available remedies unless the action of the State or the instrumentality of the State is arbitrary or unreasonable or in violation of the constitutional mandate. 23. The present, therefore, deserves to be dismissed and accordingly stands dismissed. Interim relief, if any, stands vacated. Rule is discharged.