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


City Union Bank Limited V/S Manjunatha Pharma and Others.

    Original Application No. 99 of 2016
    Decided On, 03 February 2020
    At, Debts Recovery Tribunal Chennai
    By, THE HONORABLE JUSTICE: DR. N.V. BADARINATH
    By, (PRESIDING OFFICER)
    For Petitioner: R. Balachander And For Respondents: R. Sundararajan


Judgment Text

1. This application is filed by the applicant bank under Section 19(20) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of an aggregate sum of Rs. 96,40,963.96 (Rupees Ninety Six Lakhs Forty Thousand Nine Hundred and Sixty Three and Ninety Six Paise only) due under Cash Credit Limit (OLCC Limit), Additional Limit (Ad hoc Limit) and STOD Limit together with interest @14% p.a. compounded with monthly rests jointly and severally from the Defendants 1 to 3 from the date of filing of the application till the date of realization in full, for sale of the A & B schedule mentioned properties and Schedule C hypothecated assets along with costs of this application.

2. Brief facts of the application:

2.1 First defendant is a Sole Proprietary concern under the name and style of M/s. Manjunatha Pharma wherein, 2nddefendantis the sole proprietor. Second defendant along with his wife, third defendant approached the applicant bank during September 2013 for sanction of Credit facility to the 1st defendant firm for working capital facility to be bound by the terms and conditions subject to which those credit facility would be sanctioned/enhanced/varied/modified from time to time and the proprietor of the first defendant offered to hypothecate all the stocks and goods of the first defendant as set out in Schedule-C. As security for all the amounts including interest and costs of the limits that might become due and repayable by 1st defendant to the applicant, the second and third defendants agreed to deposit the Title Deeds, relating to the immovable properties owned by them, more fully described in the Schedule A & B for creation of an Equitable Mortgage over the same.

2.2 Considering the said request of the defendants, the applicant bank vide its Sanction Letter dated 04.10.2013 sanctioned OLCC Limit of Rs. 70,00,000/- to the defendants. Having availed the above OLCC facility, the defendants on 04.10.2013 executed loan documents such as Demand Promissory Note, Letter of Continuity with O.D. Rules, Agreement of Loan-Cum-Hypothecation(by 1st defendant by its Proprietor) hypothecating stocks & goods of 1st defendant and Consent Letters executed by second and third defendants separately to give their properties described in the Schedules A & B.

2.3 On 03.10.2013, second defendant deposited with the applicant bank, the Sale Deed of Schedule A property dated 19.09.1928 bearing Doc. No. 1456/1928 on the file of SRO, Singampuri along with other documents with an intent to create Equitable Mortgage over the same for due repayment of the loan including interest costs. The second defendant confirmed Deposit of Title Deed by a Memorandum of Deposit of Title Deed dated 04.03.2013 registered as Doc. No. 2323/2013 on the file of SRO, Ponnamaravathy.

2.4 On 26.12.2013, third defendant deposited with the applicant bank, the Sale Deed of Schedule B property bearing Doc. No. 4940/2003 dated 24.11.2003 on the file of SRO, Avadi with an intent to create Equitable Mortgage over the same for due repayment of the loan including interest costs. The third defendant confirmed Deposit of Title Deed by a Memorandum of Deposit of Title Deed dated 27.12.2013 registered as Doc. No. 15743/2013 on the file of SRO, Avadi.

2.5 On 29.01.2014, second and third defendants constructively re-deposited with the applicant bank, the Title Deeds of the Schedule-A& B Properties which was deposited by them with the applicant earlier on 03.10.2013, and 26.12.2013 respectively and thereby extended the Equitable Mortgage to cover the additional credit facilities to the extent of Rs. 92,00,000/-. On 30.01.2014, the second defendant confirmed extension of Equitable Mortgage by a Memorandum of Extension registered as Doc. No. 922/2014 on the file of SRO, Ponnamaravathi and the third defendant also on 30.01.2014 confirmed extension of Equitable Mortgage (by deposit of Title Deed) by a Memorandum of Extension registered as Doc. No. 2356/2014 on the file of SRO, Avadi.

2.6 During June 2014, the defendants approached the applicant bank for additional/enhanced limit offering to be bound by the terms & conditions subject to which those credit facility would be sanctioned/enhanced/varied/modified from time to time. The applicant bank vide its Sanction Letter dated 01.06.2014 sanctioned an Ad hoc Limit of Rs. 22,00,000/-.

2.7 First defendant vide its letter dated 02.01.2015 requested applicant bank for STOD Limit of Rs. 12,00,000/- promising to liquidate the same within 21.01.2015. Having availed the STOD Limits, the defendants 1 to 3 on 05.01.2015 executed the documents such as Demand Promissory Note and Letter of Continuity with O.D. Rules in favour of applicant bank.

2.8 After availing the loans, the operation of the account was highly irregular inspite of various oral reminders to regularize the accounts. On 20.06.2015, the applicant recalled the credit facilities sanctioned. Thus the defendants are liable to pay jointly and severally the aggregate sum of Rs. 96,40,963.96 p together with interest at the rate of 14% p.a. compounded with monthly rests.

3. Brief averments of Reply Statement filed by the defendants:

3.1 The defendants denied all the allegations and averment contained in the above O.A except those which are specifically admitted therein and puts the plaintiff to strict proof of the same. It is stated that the applicant bank has filed this O.A as if, the Proprietor concern namely M/s. Manjunatha Pharma is a legal personality. In fact, as per law a Proprietary concern is not a legal person, as such the applicant bank has erred in impleading the Proprietorship concern as the 1st defendant in the O.A and hence the O.A. filed by the applicant bank is to be rejected in the first instance itself.

3.2 It is submitted that the averment in Para V(b) stating that M/s. Manjunatha Pharma is a sole proprietary concern of P.N. Gowthaman, is admitted as true. But the other averments stating that P.N. Gowthaman and his wife approached the applicant Bank for credit facility, as security for all the amounts including interest and cost, the 2nd and 3rd defendants agreed to deposit the title deeds relating to immovable properties owned by them described in Schedule A and B with an intention to create an equitable mortgage over the same are denied as false. In fact, the 3rd defendant has neither approached the applicant for alleged loan nor signed the sanction letter filed by the applicant bank. Therefore, the 3 defendant cannot be made liable for any alleged amount due to the applicant bank from 2nd defendant.

3.3 It is stated that the averments in Para V(C) stating that considering the need and relying upon the assurances and securities offered by the defendants 1 to 3, the applicant bank vide its Sanction Letter dated 04.10.2013 sanctioned a credit facility of Rs. 70.00 lakhs is denied as false. In fact as stated above, M/s. Manjunatha Pharma cannot be considered as a legal personality. On the other hand, the 2nd defendant along availed credit facility. The 3rd defendant is not at all having any connection with the loan granted by the applicant bank. The 3rd defendant has not signed the sanction letter produced by the applicant bank.

3.4 It is stated that the documents said to be have executed by defendants 1 to 3 on 04.10.2013 viz., D.P. Note, Letter of Continuity with OD Rules and Separate Consent Letter are denied as false. In fact the 3rd defendant has not at all executed any of the above said documents. On the other hand, the applicant bank has manipulated the said documents for the purpose of filing this application.

3.5 It is stated that the averments in Para V(E) & V(F) stating that on 02.10.2013 & 26.12.2013, the 2nd defendant has deposited the Title Deed in respect of Schedule A property of the application with an intention to create an Equitable Mortgage denied as false. In fact, there was no intention on the part of defendants 2 & 3 to create Equitable Mortgage in respect of the property mentioned in Schedule A & B and also the 3rd defendant has not at all executed the Memorandum of Title Deeds with an intention to create Equitable Mortgage over the properties mentioned in Schedule-B. In fact, the bank officials insisted and threatened the 2nd & 3rd defendants to execute a Memorandum of Deposit of Title Deeds in respect of the properties mentioned in Schedule-B through the properties mentioned in Schedule A and C is more than enough for the loan granted by the applicant bank. Without any other go, the 3rd defendant executed the Memorandum of Deposit of Title Deeds and hence the said deposit which was obtained by force is invalid one.

3.6 It is stated that the averments in Para V(G) stating about redeposit of Title Deeds done by the 2nd & 3rd defendants are denied as false. In fact, the 2nd & 3rd defendants have not at all had any intention to redeposit the Title Deeds. But the applicant bank has compelled 2nd & 3rd defendants to execute the Deed of Redeposit of Title Deed and accordingly, the 2nd & 3rd defendants have executed the same.

3.7 It is stated that the averments in Para V(H) and V(I) that on June 2014, the defendants approached the applicant Bank for additional enhanced limit on 02.01.2015, the 1st defendant requested the applicant for STOD limit of Rs. 12,00,000/- and defendants 1 to 3 executed the D.P. note and Letter of Continuity with O.D. Rules are denied as false. In fact, the 3rd defendant has not at all executed any Promissory Note or Letter of Continuity as alleged by the applicant Bank. With regard to 2nd defendant it is submitted that the applicant bank had obtained the signature of 2nd defendant in unfilled Promissory Note at the time of availing the loan of Rs. 70,00,000/- itself. On the other hand, the applicant bank has never sanctioned any Over Draft of Rs. 12,00,000/- as alleged in the O.A.

3.8 It is stated that the averments in Para V(J) stating that the operation of the account is highly irregular is denied as false. In fact, the 2nd defendant had been properly repaying the loan dues to the applicant bank. Suddenly due to huge loss in the business, 2nd defendant could not able to repay the loan dues as agreed. On the other hand, the 2nd defendant had approached applicant bank and requested for reschedule and rephrase of the loan dues. But the bank officials have not heeded the request of the 2nd defendant. Thereafter, the applicant bank has initiated proceedings under SARFAESI Act, by issuing a demand and possession notice. The said notices were improper. As such the 2nd defendant has preferred an appeal before the DRT, Madurai and the same is pending. By suppressing the said facts, the applicant bank has filed this O.A.

3.9 It is stated that the averments in Para V(K) stating that the defendant is liable to pay Rs. 96,40,963.96 is denied as false. In fact, the applicant bank has calculated the dues with 14% interest whereas the 2nd defendant has never agreed to pay 14% interest. As such the demand of the applicant bank is unsustainable one. It is submitted that as stated above M/s. Manjunatha Pharma is not a legal personality and as such, this Hon'ble Tribunal cannot pass an order against D-1. Thus contending, defendants prayed for dismissal of OA.

3.10 Despite sufficient opportunities, as defendants did not choose to file CPA, opportunity to file CPA was closed on 01.09.2017.

4. In the light of the above, the points that arise for consideration by this Tribunal are:

1. Whether the applicant bank has established its claim? If so, against which defendants and for what amount?

2. Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate?

5. Point No. 1

Whether the applicant bank has established its claim? If so, against which defendants and for what amount?

5.1. The applicant bank in its endeavor to establish its claim against the defendants examined its official as AW 1 and got marked exhibits Ex. A-1 to A-15. Ld. Counsel for Applicant placing reliance on the proof affidavit of AW-1, besides Exhibits A-1 to A-15 strenuously contended that the claim of the applicant stands established, as such, the applicant is entitled for a recovery certificate.

5.2. Referring to the defence put forth by the defendants, Ld. Counsel for Applicant Bank would submit that both the proprietary concern as well as the proprietor being made parties to the claim, the so called plea that first defendant is not a legal entity is unsustainable. Ld. Counsel would submit that the third defendant offered her immovable property mentioned in the application schedule as collateral security for the due discharge of the credit facilities availed by the defendants 1 and 2 by executing Memorandum of Deposit of title deeds, registered as Doc No. 15743/2013 dated 27.12.2013. As such, the plea that as D-3 did not sign Ex A-1 - Sanction Letter, hence third defendant cannot be made liable for the OA claim, is baseless and liable to be rejected. It is stated that the plea of the defendants that the applicant invoked SARFAESI Act and enforced the security interest improperly, is not only false but the same is irrelevant for the purpose of the present claim, as the present claim is based on a default in repayment of credit facilities availed by the defendants. Thus submitting, Ld. Counsel prayed for allowing the same.

5.3. Defendants in their reply statement have, inter alia, contended that the claim against D-1 which is not a legal entity is not maintainable and nextly, that the defendants 2 and 3 have not offered their properties as securities for the due discharge of the credit facilities by creating a Memorandum of deposit of title deeds as claimed by the applicant, as such no mortgage can be enforced against D-3. Ld. Counsel would further contend that the signatures of the defendants were obtained on blank forms including Demand Promissory Note and later they were filled and used for the purpose of this case. As such the claim is liable to be dismissed. Lastly, it was contended that the bank improperly invoked the provisions of the SARFAESI Act. As such the present claim is not sustainable.

5.4. In the light of the contest put forth, I have carefully examined the records. At the outset, it is to be stated that the plea that the claim as filed is not maintainable in as much as the first defendant is not a legal entity, is devoid of any force for more than one reason. Admittedly, business of D-2 is proprietary and the business is being carried on in the name of D-1. This has been so declared by the first defendant in Ex A-1 and other documents executed by D-1. The second defendant is none other than the proprietor of the first defendant. Therefore, the proprietary concern as well as the proprietor being made parties to the lis by the applicant, the Tribunal finds no force whatsoever in the contention of the applicant that the claim as made against the defendants is not sustainable on the ground that the first defendant is not a legal entity, is devoid of any force. Hence rejected.

5.5. In so far as the next contention of the applicant is that the signatures of the defendants were taken on blank forms including Ex A-2 and later filled for the purpose of this case is concerned, firstly it is to be stated that the said plea takes in its fold the admission of signature of defendants on Ex A-1. Nextly, the plea that the defendants have signed on a blank printed documents cannot come to the rescue of the defendants in the light of the ruling of Hon'ble DRAT, Mumbai in the matter of Sangli Bank Ltd. Vs. Prabha K. Maheshwari and others reported in held in paragraph 8 that;

"8. The grant of loan as alleged by the Bank and defendant Nos. 6 to 10 having signed a guarantee agreement is an admitted position. Their contention is that on 30th July, 1992, defendant Nos. 1 to 5 had sent blank letter of lien, demand note for grant of Rs. 30 lacs to the Bank, which indeed, appears to be correct. However, it has to be pointed out that settled legal position is that the person who signs blank standard documents takes responsibility for the same and the plea of non est factum is not available to him "
Therefore, the said plea is unsustainable.

5.6. Now, coming to the other plea of defendants that third defendant did not sign Ex A-1 as such the third defendant is not liable for OA claim, it appears that the same is yet another mischievous and frivolous plea put forth by the defendants, firstly for the reason that the third defendant had not denied execution of Ex A-5, which was submitted on 04.01.2013 to the applicant. Nextly, a perusal of Memorandum of deposit of title deeds dated 27.12.2013 discloses that the same was not only executed pursuant to the terms and conditions of Ex A-1 and Ex A-5 but also registered as Doc No. 15743/2013 dated 27.12.2013 before the concerned Sub-Registrar. The title deeds of the properties covered by the said Memorandum of deposit of title deeds were parted with by the third defendant, in favour of the applicant. Thus, the above acts when viewed in terms of Ex A-5, Consent Letter of the Mortgagor expressing willingness to offer his property as security, satisfies the requirements under Section 58(F) of Transfer of Property Act, as such a valid equitable mortgage over the application schedule mentioned properties has been created during the pendency of OA, applicant bank filed memos reporting part satisfaction of the claim of a sum of Rs. 52,10,000/- and Rs. 17 lakhs being the sale proceeds of sale of secured assets viz., Application A and B schedule properties under a SARFAESI action. The Tribunal recorded part satisfaction on 21.07.2017 and 08.11.2019 respectively. That apart the defendants have not raised any objection for recording part satisfaction. Therefore, the plea that there is no valid mortgage created is hereby rejected.

5.7. In so far as the plea that statement of account is not reliable is concerned, the applicant bank had filed copies of the same along with necessary enclosures as required under Banker's Book Evidence Act. A perusal of the same goes to show that there is compliance of mandatory requirements under BBE Act, in so far as the statement of account is concerned. Therefore, in the light of the above, barring no other plea worth has been raised.

5.8. Further, as rightly contended by the Ld. Counsel for Applicant, barring filing of reply statement, the defendants did not choose to file Counter Proof Affidavit substantiating the pleas taken in reply statement. Here it is to be stated that as per the scheme of adjudication of a claim/counter claim under the RDB Act, parties shall file their respective affidavits in support of their claim or counter claim and counter proof affidavit in support of their defence, as the case may be and the Tribunal shall on the basis of the affidavits filed adjudicate and decide the claim/counter claim. Therefore, in the absence of any Counter Proof Affidavit, as rightly contended by the Ld. Counsel for Applicant, the defence put forth by the defendants in the Reply Statement remained unsubstantiated and as such no reliance can be placed on the unsubstantiated pleas.

5.9. As already stated the applicant bank in support of its claim filed Proof Affidavit of AW-1 besides Exhibits A-1 to A-15, which remain unrebutted, as despite opportunity the defendants failed to file Counter Proof Affidavit. Therefore, in the light of above discussion and on careful perusal of the unrebutted Proof Affidavit of AW-1 besides Exhibits A-1 to A-15, the Tribunal is fully satisfied that the applicant has established its claim. This point is answered accordingly.

6. Point No. 2

Whether the applicant bank is entitled for pendent lite and future interest, if so, at what rate?

6.1. In terms of Sec. 19 (20) of the RDB Act, the Tribunal has been empowered to pass an order regarding payment of interest from the date on or before which payment of the amount is found due, up to the date of realisation or only payment, as it think fit to meet the ends of justice.

6.2. Hon'ble Supreme Court, in its recent judgement (reported in II 2009 BC pg. 696) in the matter of State Bank of India - Vs - Sarath Textiles, held that "Sec. 19 (20) of the RDDB & Fl Act confers discretion on the Tribunal to award interest on the applicant being as it thinks fit to meet the ends of justice."

6.3. Hon'ble Supreme Court of India in the matter of Central Bank of India - vs - N. Raveendra (reported in : 2002 [1] SCC pg. 367) held that "Sec. 34 of CPC confers discretion on the Court to award or not to award interest or to award interest at such rate as it deems fit de-horse notwithstanding the contract between the parties." Sec. 19 (20) of the RDDB & Fl Act is akin to Sec. 34 CPC.

6.4. While it is the case of the applicant that the applicant bank is entitled for contractual rate of interest till discharge of the entire outstanding dues, however, the defendants would contend that as the subject loan is availed for their small scale unit and the defendants have paid part amount, in so far as pendente lite and future interest is concerned, the contractual rate of interest may not be applied. It is to be stated that the claim of the applicant bank includes the rate of interest and other charges payable as per the contract. The Tribunal already held that the applicant bank is entitled for the amount claimed in the OA. Further, the first defendant is a small scale unit. Both Government of India and Reserve Bank of India have announced several sops for small scale borrowers. As already stated, the Tribunal has awarded contractual rate of interest as claimed by the applicant bank till the date of filing the OA. Therefore, under these circumstances, the Tribunal is inclined to grant pendente lite and future interest @ 12% p.a. (simple) on the OA claim amount from the date of filing till the date

Please Login To View The Full Judgment!
of realization. Point No. 2 is answered accordingly. 7. For the reasons stated as above, I find that the applicant bank has successfully proved its OA claim against the defendant and it is held that the applicant bank is entitled for a Recovery Certificate for the amounts claimed in the OA with pendente lite and future interest at and 12% p.a. (simple) from the date of the application till the date of realization, from the defendants, for sale of the application schedule mentioned property along with costs of the application. The defendants are also personally liable for the OA claim to the extent specified hereunder. 8. In the result, application is allowed as under: (a) The applicant bank is entitled to recover a sum of Rs. 96,40,963.96 (Rupees Ninety Six Lakhs Forty Thousand Nine Hundred and Sixty Three and Ninety Six Paise only) due under Cash Credit Limit (OLCC Limit), Additional Limit (Ad-hoc Limit) and STOD Limitless the amounts of Rs. 52,10,000/- and Rs. 17,00,000/- realized by way of SARFAESI sale of secured assets, together with interest at the rate of 12% p.a. (simple) from the date of the application till the date of its realization in full, from the defendants jointly and severally. (b) It is further ordered that in case of default of payment by the defendants, the Applicant Bank is at liberty to sell the application 'C' schedule mentioned hypotheca in terms of the order in (a) supra and appropriate the sale proceeds towards the decreetal dues. (c) If the sale proceeds are not found sufficient to cover the amount due and payable to the Applicant Bank, defendants 2 and 3 are personally liable for all such amounts due. (d) It is further ordered that any amount remitted or realized if any, during the course of the proceedings, shall be given due credit to the loan account of the defendants. (e) The applicant bank is entitled for costs of this application. 9. The applicant bank is directed to file costs memo within two weeks of the receipt of this order. 10. Issue recovery certificate in favour of the applicant bank in terms of this final order. 11. Communicate a copy of the order to the parties concerned in terms of Rule 16 read with Rule 2(c) of DRT (Procedure) Rules, 1993. (Dictated to PS, transcribed by her, corrected, signed and pronounced by me in the Open Court, this 03rd day of February, 2020.)
O R