w w w . L a w y e r S e r v i c e s . i n



Ahmed Leather Exports Pvt. Ltd. v/s Bank of Ceylon

    R.A. 52 of 2005 and M.A. 93 of 2005

    Decided On, 16 December 2005

    At, Debt Recovery Appellate Tribunal At Chennai

    By, THE HONOURABLE MR. JUSTICE K. GNANAPRAKASAM

    For Petitioner: S.N. Amarnath, Advocate And For Respondents: K.V. Venkatapathi, Senior. Advocate., i/b., Srinath Sridevan, Advocate.



Judgment Text

1. Both these appeals have been filed by the defendants 1 and 2 in the OA-345/2002 Regular Appeal RA-52/ 2005 has been filed as against the final order dated 31.3.2005 in OA-345/2002 and Miscellaneous Appeal MA-93/2005 filed as against the order dated 31.3.2005 in IA-348/2004 in OA-345/2002, passed by the DRT-II, Chennai. The respondent Bank filed the OA for recovery of a sum of Rs. 7,51,30,174/- together with future interest @22% per annum with monthly rests from the date of application till realisation and for other reliefs and the same was decreed. Hence the appeal.

2. The 1st defendant is a company with three Directors, (1) Mr. Ahmed Basha, (2) Mrs. Shamshad Begum, and his nephew, (3) Mr. Ameen Sayed. Mr. Ahmed Basha was no more on the date of filing of the OA. As per the information available to the Bank, Mrs. Shamshad Begum and Ameen Sayed, are the only legal representatives of the deceased Ahmed Basha and they have undertaken the liability for all his debts and obligations. The 1st defendant had ad hoc credit facilities with the Bank in 1997, furnished his immovable properties set out in Schedule 'B'. These were guaranteed by the other defendants. The defendants had also deposited title deeds related to the 'B' schedule properties with the Bank on 4.3.1997, with an intention to create equitable mortgage in respect of the immovable properties. On 9.10.1993, the defendants sought facilities to procure raw materials and stocks of leather, and for export and import purpose under two heads-(1). Packing Credit facility = Rs. 200 lakh(2). Letter of Credit = Rs. 150 lakh The 1st defendant agreed to secure the facilities, inter alia, by hypothecation of movables, personal guarantees of the defendants 2 to 5, and had also agreed to hypothecate the goods procured for export, and also stocks and raw materials, in favour of the Bank, which are set out in Schedule 'A' in the original application. Towards continuing collateral security for the loan granted to the 1st defendant, the 2nd and 3rd defendants had deposited the title deeds related to the immovable properties, which are set out in Schedule 'B', with an intention to create a security and also confirmed the same by their letter dated 13.10.1997. The defendants have also executed necessary documents ten in number, such as demand promissory note, packing credit agreement, indemnity letter, as listed in Para (d) of the OA. The defendants have further agreed that as far as the properties mortgaged on 4.3.1997 were concerned, they have agreed that the same could continue to be held by the applicant Bank for further advances also and the details of the documents deposited in order to create various equitable mortgages are concerned, set out in the index of documents filed along with the OA.

3. The defendants having availed the facilities and utilised the same, they were not maintaining the accounts in a regular fashion in spite of several reminders sent to the 1st defendant to regularise the account.

The defendants sought some time and executed the acknowledgement of liability. The defendant also wrote to the Bank on 23.11.1999 promising to effect shipments of Rs. 34 lakh by the end of 1999, and promising to pay Rs. 15 lakh by the end of the year. But they have not kept up their promise. As the defendants failed to pay the amount, the OA was filed, after the issuance of the legal notice to the defendants on 20.6.2001.

As on the date of filing of the suit, the defendants were liable to pay Rs. 6,53,50,569/- towards packing credit facility, and Rs. 97,79,605/- towards current account (Overdraft) and in total Rs. 7,51,30,174/- together with interest @ 22% p.a. with monthly rests. The OA was filed for the realisation of the amount due together with interest thereon and for costs and for sale of the immovable properties for realisation of the amount. The 2nd defendant filed the reply statement for self and on behalf of other defendants, which runs as follows.

4. The defendants state that the 1st defendant company had three Directors and after demise of Ahamed Basha, this defendant stepped into the shoes of the demised Director. The defendants were carrying on business in export of leather garments. The defendant admits the ad hoc facilities which they had with the Bank and also the deposit of title deeds of the properties set out in Schedule 'B' on 4.3.1997, in favour of the Bank by creating an equitable mortgage. It is their case that only one property bearing Door No. 55/A, New Avadi Road, Kilpauk, Chennai - 600010, was offered as collateral security for ad hoc sanction limit. But they denied offering of 'B' Schedule property which consist of number of properties. It is admitted that on 9.10.1997, the company approached for facilities to the extent of Rs. 200 lakh for packing credit and Rs. 150 lakh for letter of credit on the strength of hypothecation of movables and personal guarantees of the defendants 2 and 5 also hypothecation of goods produced for exports and also stock of raw materials set out in Scnedule 'A'. But they state that as on 9.10.1997, no sanction letter was issued approving the credit facilities, but whereas the Bank has issued letter only on 24.5.1998, granting facilities to the tune of Rs. 350 lakh. It is also stated that they made the deposit of title deeds on 9.10.1997 and confirmed by them on 13.10.1997. After obtaining credit facilities, the applicant Bank was pressurising the defendants to transfer the accounts from State Bank of India to their Bank and documentation was completed after 13.7.1998, and thereafter, the Bank was behaving with hostile attitude with the defendants. The Bank was regularly recovering certain percentage of their export bills and keeping them in interest free deposits and because of that the company had lost interest to the tune of Rs. 40 to 50 lakh, but the company was made liable to pay interest on the borrowings. The overdraft facilities also carried out a substantial interest, but whereas the deposit of the company credit carried no interest. When the defendants requested for enhancement of the credit facilities from the Council of Leather Exports, who certified that the company had a good track record, the Bank did not do it. The Bank wanted to cut short the facility on the ground that the company was not maintaining proper account and they have obtained a revival letter dated 8.11.1999, which was duly signed with the condition that subject to their appeal made to the waiver of penal interest. They have returned the revival letters with a covering letter wherein the company made clear that they are going to make exports for a value of Rs. 50 lakh by 30.11.1999, and thereafter, for Rs. 26 lakh by December, 1999. That towards the export of Rs. 8.5 lakh they have drawn only Rs. 3 lakh. Similarly, for the export of Rs. 26 lakh, they had drawn only Rs. 16 lakh. The company was ready to pay money on doing export, but no help was given by the Bank and also refused to release the goods, which is under their lock and key. The defendant had given the entire stock statement as on 11.1.2000, and the total value of stock lying in the godown under the custody of the Bank was valued as Rs. 5,53,73,557/-. The defendants have also given a letter in the month of November, 2001, to the Bank informing that they have obtained an order of export to the value of Rs. 21,76,000/- and sought the permission to release the leather goods, and the Bank has not come forward to release the goods. Nor the Bank had taken any steps to sell the goods in the open market in the year 1999 itself, when the value of the goods at that time was worth Rs. 5.5 crore. The Bank did not act prudently. The defendant is not satisfied with the statement of accounts furnished by the Bank and also contended that the claim of the Bank is barred by limitation. The facilities were granted on 9.10.1997 and revival letters were taken on 8.11.1999 and they are not valid acknowledgement of liabilities as those letters were sent with the condition that it is subject to the appeal made by the defendants for waiver of penal, compound interest etc. The defendants, therefore, prayed for dismissal of the OA.

5. On the above said pleadings, the DRT framed the following points for consideration: (1) Whether the applicant Bank proves the loan liabilities of the defendants? (2) Whether the defendants prove that the applicant Bank avoided the compromise as provided under the OTS Scheme? (4) Whether the applicant Bank is entitled to a recovery certificate. If so, to what extent?

6. Eased upon the claim made in the OA and by taking into consideration the defence of the defendants and also the proof affidavit filed by the manager of the applicant Bank and relying upon Exhibits-A1 to A34 and also the additional proof affidavit Exh. A-35, the Tribunal came to the conclusion that the applicant Bank has proved that the defendants are liable to pay the loan liability as claimed and decreed the OA for a sum of Rs. 7,51,30,174/- with Simple Interest @ 16% p.a. from the date of application till the date of realisation, and also ordered to sell the hypothecated/ mortgaged property mentioned in Schedule 'B' for realisation of the decretal amount and also granted personal decree as against defendants 2 and 3.

7. Before this Tribunal, the learned Advocate for the appellant has raised two points consideration: (1) The amount claimed by the respondent Bank in Para-5(h) of the OA is not true and correct amount; (2) The letter marked Exhs. A-16, A-17 and A-18, are only confirmation and they are not valid acknowledgement of liability as required under Section 18 of the Limitation Act.

8. The first and foremost submission that has been made on behalf of the appellant is that the claim made by the respondent Bank in Para 5(h) in the OA is not proper and is not supported by documents, particularly the statement of account. The claim made in Para 5(h) as on 12.9.2002, in respect of the dues of the 1st defendant, was Rs. 6,53,50,569/- towards packing credit facility and Rs. 97,79,605/-. towards Current Account (Overdraft) and the total liability comes to Rs. 7,51,30,174/-. The respondent Bank has filed the typeset of papers wherein the copy of the statement of accounts Exh. A 27 is made available from Page 27 to 29. At Page 28, the amount due by the appellant/ defendants upto 12.9.2002 is shown as Rs. 6,53,50,569/-, which tallies with the claim made in para 5(h) in the OA. Likewise, the amount due on Current Account is available at page 29 of the typeset of papers and upto 12.9.2002, the liability of the appellant is shown as Rs. 97,79,605/-. The statement of account is certified as, "Certified that the above given are true statement of accounts maintained in the ordinary course of business of the Bank, related to the account of Ahmed Leather Exports Pvt. Ltd." There is nothing on record to disbelieve the statement of accounts furnished by the respondent Bank.

The various loan facilities availed by the defendants and documents executed therefor are reflected in Exhs. A1 to A19, and they clearly establish that the defendants are liable to pay the loan amount as claimed by the respondent Bank in Para 5(h) of the OA. As such, the observation of the learned PO that the defendants have availed the total loan amount sanctioned by the applicant Bank and the applicant Bank has also proved that the defendants are liable to pay the said loan liability, does not call for any interference.

9. The learned Advocate for the appellant has heavily commented upon Exhs. A16, A17 and A18 stating that they are only confirmation letters and those letters also contained certain conditions and, therefore, they could not be considered as valid acknowledgement. In support of his contention, he relied upon the case of A.C.K. Krishnaswami v.Stressed Concrete Constructions Pvt. Ltd. , wherein an acceptance of liability to pay a salary came for consideration and it was held in para 5, "The next contention for the respondent is that even assuming that the amount claimed by the petitioner is due to him, the claim became barred by 8.1.1963, when the present petition was filed. I have already stated that at the director's meeting dated 17.12.1959, they resolved to request the petitioner to wave his claim.

Impliedly it might be taken that the request for waiver presupposed acceptance of liability to pay the salary. But I consider that this cannot be treated as an acknowledgement of liability under Section 19 of the Limitation Act". The facts in that case under which the above observation was made are entirely different. According to the appellants, the acknowledgement of liability must be without any condition and it must be in clear terms accepting the liability, but whereas, Exh. A16, A17 and A18, did not comply with this requirement.

The fact that the loan facilities were availed in the year 1997 and necessary documents were also executed for availing the loans and letter of confirmation/acknowledgement, were given on 8.11.1999, and the OA was filed in the month of November, 2002/2004, and the same is well within three years from the date of confirmation or acknowledgement. Now let us see whether Exhs. A16, A17 and A18 are valid acknowledgement of liability as required under Section 18 of the Limitation Act: 18. Effect of acknowledgement in writing-(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.

(2) Where the writing containing the acknowledgement is undated, oral evidence, may be given of the time when it was signed; but subject to the provision of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

(1) The acknowledgement of liability must be before the expiration of the prescribed period for a suit or application in respect of any property or right.

(2) Acknowledgement must be in writing signed by the party or by any person through whom he derives his title or liability.

Then a fresh period of limitation will be computed from the time when the acknowledgement was signed.

10. The explanation reads that an acknowledgement may be sufficient though it omits to satisfy the exact nature of the property or right or avers that the time for payment, till, performance or enjoyment has not yet come or is acknowledged by a refusal to pay, till perform permits to enjoy or is coupled with a claim to set off, or is addressed to a person other than the person entitled to that property or right. As per the explanation, if there is a refusal to pay, the starting point of limitation will commence from the date onwards. The confirmation letter recites, "I hereby confirm the correctness of the balance which is due and payable by me to the Bank subject to our appeals to be made for waiver of penal, compound interest etc. for reviving our sick unit".

The words subject to our appeal to be made for waiver, only indicate that their right of appeal for wavier of penal/compound interest.

Confirmation is not a contingent one, and nowhere it is indicated that the amount shown in Exhs. A16, A17 and A18 are incorrect or not admitted. As such, these letters are valid acknowledgement in writing, which satisfies the requirements of Section 18 of the Limitation Act.

11. The learned Advocate for the appellant has also further argued that they have already submitted a letter for one time settlement and the same is pending with the applicant Bank without being considered. It is further submitted that the interest claimed and charged is exorbitant and the interest awarded by the Tribunal is also high and that has got to be reduced. It is further submitted that the defendants have closed their business in the year 1995, and no export business seems to have been carried on and there is nothing on record to show that the defendants/appellants engaged in any other business activity and that, therefore, the defendants have also sought for wavier of penal and compound interest, but the DRT awarded interest @16% p.a. from the date of application till realisation. The learned Advocate for the appellants has pointed out that even the said rate of interest @16% p.a. is excessive. It appears that the appellants are not carrying on any other business activity and that their business have also closed down and their stocks in trade were also sold for a very low price, I feel that the rate of interest awarded by the DRT may be reduced from 16% to 9% simple, from the date of OA till realisation.

12. With regard to the offer made by the appellants in their letter dated 25.3.2003 to consider their one time settlement, the same may be considered by the respondent Bank as per the guidelines issued by the Reserve Bank of India, as the appellants are said to have incurred heavy loss in their business and even if the proposal said to have been given by the appellant is not available, the appellants are at liberty to give their proposal even after disposal of this appeal and the same may also be considered by the respondent Bank in the light of their claim in the letter.

13. In the result, the interest awarded by the DRT alone, is modified and reduced from 16% p.a. to 9% p.a. simple, from the date of application till the date of realisation and in other respects, the order dated 31.3.2005 passed by the DRT-II, Chennai, are hereby confirmed and both the appeals are dismissed.