The Judgment was delivered by : J. M. Malik (Chairperson)
The learned DRT-II, Chandigarh issued a recovery certificate in the sum of Rs. 93,07,884.79 along with pendente lite and future interest @ 12% p.a. with quarterly rests from the date of filing of the O. A. till realization. The learned trial Court also awarded costs of litigation in favour of the applicant Bank and against the defendants in the O.A. Aggrieved by the said order, defendants 1 and 2 in the O.A. have filed the instant appeal.
2. Briefly stated, the facts of the case are these. The defendants/appellants availed of certain credit facilities, but could not maintain financial discipline resulting in the respondent Bank's filing of an O.A. for recovery of its dues. It may be mentioned here that the appellants have not denied the factum of availing of the loan from the respondent Bank. The defendants/borrowers had also filed counterclaim to the tune of Rs. 14,75,252/- with pendente lite and future interest @ 18% p.a. with quarterly rests from the date of the application until the date of realization. The appellants set up various defences in support of their case.
3. I have heard the Counsel for the parties and perused the written synopses submitted by them. The learned Counsel for the appellants invited the attention of this Court towards the fact that the loan in question was a loan granted to the appellants under the 'Punjab Agriculturist Policy'. Government of Punjab had also announced capital and interest subsidy to the agriculturists. The appellants availed the loan for the purpose of establishing a cold storage under the said scheme. It was contended that the cold storage is well covered under the definition of 'agriculture activity' as provided by
Industrial Policy and Incentive Code, 1996
issued by the State of Punjab.
4. It was argued that the appellants' account should have been classified as NPA on 31.3.1999 when it made the payments of Rs. 12,21,090/- or on 31.3.1997 after 180 days when it could not make payment of Rs. 15,08,469/- The learned Counsel for the appellants has given the details of the same, which run as follows:
|28.09.1996||Interest Debited||Rs. 5,623/-|
|03.01.1996||Upfront Fee||Rs. 7,500/-|
|06.01.1997||Interest Debited||Rs. 2,22,380/-|
|20.03.1997||Insurance Premium||Rs. 80,846/-|
|24.03.1997||Instalment of Repayment||Rs. 9,00,000/-|
|29.03.1997||Interest Debited||Rs. 2,92,120/-|
5. It was argued that according to the Prudential Norms issued by the Reserve Bank of India on 4.7.2002, vide Circular DBOB No. BP.BC1/21.048/2002-03, an asset including a leased asset becomes non-performing when it ceases to generate income for the Bank. Again, a 'non-performing asset' was defined as a credit facility in respect of which the interest and/or instalment of principal remain overdue for a period of 180 days in respect of a term loan. It was alleged that the Bank deliberately and intentionally did not declare the appellants' account as NPA on 31.3.1997 as it wanted to ruin the appellants' business financially. It was contended that had the appellants' account been declared as NPA on 31.3.1997 in their books, the appellants would have been given relief accordingly and their account would have been considered under O.T.S. as per the guidelines issued by the Reserve Bank of India on 27.7.2000 vi de Directive BP.BC 11/21.01044/99-00. These guidelines were applicable to all the NPAs in all sectors irrespective of the nature of business which has become doubtful or loss or substandard as on 31.3.1997 with outstanding balance of Rs. 5 crore and below with cut-off date. The said scheme was closed on 31.3.2001 and was applicable to cases pending before DRT.
6. It was also argued that as per the guidelines for recovery of dues relating to NPAs, issued by the Reserve Bank of India on 27.7.2000 vide Circular BP.BC/11/ 21.01.040/99-00, non-discretionary treatment, Banks, without discrimination should give notice by 31.8.2000 to the eligible defaulting borrowers to avail opportunity for one-time settlement of their outstanding dues in terms of the abovesaid guidelines. It was argued that it is difficult to fathom as to why did the officials of the Bank manipulate to deprive the appellants from availing that opportunity for OTS. Reference was made to the authority reported in Oriental Bank of Commerce v. Sunder Lal Jain, AIR 2008 SC 1339
7. All these arguments are devoid of force. I have perused the authority cited by the learned Counsel for the appellant. The said authority hardly dovetails with the facts of this case. The law does not require that the account must be declared NPA after the expiry of 180 days. Moreover, the case of the appellant itself is that the appellant's account shows that it was declared as NPA on 31.3.1997. The giving of the notice under Section 13(2) of the SRFAESI Act immediately or filing the O.A. immediately is not required by the law. Sometime request is made by the borrower himself. The borrower keeps on making commitments which are not fulfilled. Consequently, the malafide intention on the part of the Bank as such does not stand established. Moreover, the Bank could not have anticipated that in future the guidelines of RBI might be issued. On the other hand, it appears that the Bank placed reliance on the commitments made by the appellants and took a sympathetic view.
8. It must be borne in mind that the appellants have nowhere denied having taken the abovesaid loan from the respondent Bank. They have admitted having executed all the necessary documents.
9. Although, the appellants have showed that only five instalments were due as stated above, yet, these entries did not mention about the interest which was to be paid on the same. The learned Counsel for the respondent has well explained that the first instalment for the sum of Rs. 9 lakh was due on 24.3.1997 and after adjusting the amounts paid by the appellants a sum of Rs. 93,07,884.79 along with interest from 6.12.2001 @ 18% p.a. with quarterly rests was due and payable by the appellants to the Bank at the time of filing of the Original Application. The respondent Bank has proved statement of term loan account before the learned trial Court as A-39, a copy of which has also been placed before this Court. The learned Counsel for the appellants could not point out any flaw thereon. The said statement of account was certified under the Bankers' Books Evidence Act. The loan was disbursed to the appellants as and when they asked for the same to be disbursed and as per the terms and conditions of the contract entered into between them. Since the appellants defaulted in the payment of instalment, therefore, their account was declared as NPA.
10. Last but not the least, the action in this case was initiated against the appellants under the DRT Act and not under the SRFAESI Act. The provisions in respect of SRFAESI Act cannot be made applicable to these proceedings.
11. The second submission made on behalf of the appellants was that the appellants were entitled to capital subsidy and interest subsidy. As per the Industrial Policy and Incentive Code, 1996 issued by the Government of Punjab on 20.3.1996, vide Notification No. 15/43/96-5 IB/2238, and on 16.6.1996, vide Notification No. INC.11/1543/96-5/IB/4176, the cold storage comes under agro- based industry and as per this policy the applicant is eligible for certain incentives. It was argued that the appellants were entitled to capital subsidy to the tune of Rs. 28,62,000/-. It was submitted that it was the responsibility of the respondent Bank to get released the same from the concerned Government department. The attention of the Court was invited to the letter dated 11.9.1996 annexed with the rejoinder. This letter was written by the Zonal Office of the Bank to Nakodar branch, directing the branch to carry out tie-up arrangement with official of Industry department for payment of subsidy amount of Rs. 33.13 lakh on fixed capital investment direct to the Bank. The relevant portions of the said letter is reproduced hereunder:
"9. Disbursement-The cost of machinery will be paid directly to the supplier of plant and machinery after obtaining matching contribution of 25% from the borrower. For the construction of building, the payment will be released in a phased manner as per progress of construction.
13. Other stipulations-The Chief Manager will be advised to ensure-
(i) to (viii) xxxx
(ix) The borrowers are entitled for a subsidy of Rs. 33.13 lacs on the project as mentioned in the proposal. If subsidy is not received, the borrowers should undertake to induct this amount from their own sources and reduce the outstandings. For this-
(a) In consultation with the borrowers, a time limit (definite period) be fixed/advised to us. The time limit should be preferably around 6 months.
(b) It will be desirable to obtain matching deposit with lien thereon for the amount of subsidy (around Rs. 25.00 lacs minimum) so that Bank's overall commitment remains Rs. 50.00 lacs with higher stake of the borrowers in the project, chances of recovery be good.
(xi) A tie-up arrangement be undertaken with the Industries Deptt. for payment of subsidy amount of Rs. 33.13 lacs of fixed capital investment, directly to the Bank."
It is alleged that the officials of the respondent Bank never took steps for getting released this subsidy.
12. The learned Counsel for the appellants also submitted that on the one hand the respondent Bank was claiming that it had no role in getting the subsidy released but, on the other hand, it was claiming that they had extended all possible cooperation in getting the same released. However, they did not spell out as to what they did in this direction. Moreover, the Bank did nothing in this regard, therefore, the appellants made efforts and got released the subsidy from the concerned department. Further, when the subsidy was released, the respondent Bank adjusted it towards interest portion. It was argued that the appellants could not be made to suffer for the fault of the respondent Bank.
13. Secondly, the appellants were also entitled to the interest subsidy @ 5% of the total interest on term loan sanctioned as per the loan agreement by financial institution/scheduled Bank. It is alleged that the officials of the Bank failed to claim and reimburse the benefit of interest subsidy aggregating to Rs. 30,62,119/- from the period 30.9.1996 to 30.9.2003 to the appellant. It was also contended that the purpose of the present loan was to allow the appellants to establish a cold storage. It was argued that whenever a loan is granted for the establishment of production unit, moratorium period is observed. It was submitted that the very purpose of observing the moratorium was to enable the borrower to make its unit functional and generate profits and repay the loan along with interest. It was pointed out that as per the letter of the respondent Bank itself, the unit of the appellants became functional only on 1.4.1997. Under these circumstances, asking the appellants to make payment of instalment on 24.3.1997 itself is absolutely illegal. The repayment of instalment of loan is to be matched with the income generation of the unit.
14. I am unable to locate substance in these arguments. The delay in getting the subsidy was due to inaction, negligence and passivity on the part of the appellants. If you don't co-operate with the other party, you cannot put the blame on others. The parties have produced before me Industrial Policy and Incentives Code, 1996 issued by the Government of Punjab. There is a chapter under heading "Incentives for the Development of Electronic Industry" and Item No. 6 is the heading of 'Incentives to Small Scale Industrial Units'. Its para 6.1(d) runs as follows:
"6.1(d) Time limit-
A unit shall forfeit its entitlement to the grant of Investment Incentive, if it does not file its claim, complete in all respects, within six months of its coming into commercial production. The power to condone delay not exceeding six months in submission of investment incentive claim shall vest with the Director of Industries while Secretary Industries and Commerce shall be competent to condone delay exceeding six months in submission of claim by the unit."
Its para 6.2(b) runs as follows-
"6.1(b) Quantum of entitlement-
Interest beyond 7% on loan advanced by SIDBI/NSIC/PFC or specialised SSI branches of commercial Banks to the eligible units as mentioned in Rule 6.2(a) shall be subsided by the Director of Industries in lump sum."
Its para 6.2(c)(vii) runs as follows-
(vii) Such units shall execute an agreement in form II(iii) at the time of disbursement of interest subsidy and shall also furnish annual production return in form II(iv)."
Its para 6.3 runs as follows:
"6.3 Interest Subsidy or Sales Tax Exemption or Sales Tax Deferment-
Subject to the provisions of Rule 5, a unit shall opt in form III(I) for availing either interest subsidy or Sales Tax exemption or Sales Tax deferment. The option shall be submitted to the District Office, within six months of commencement of commercial production."
(I) Interest Subsidy-
"(a) Quantum of entitlement-
Interest subsidy @ 5% of the total interest on term loan sanctioned (as per loan agreement) by Financial Institution/ Scheduled Bank shall be sanctioned and disbursed to a unit alongwith investment incentive."
|'A' 300% of FCI||120 months.|
|'B' 150% of FCI||84 months."|
Its para 10(ii)(C)(c) runs as follows-
"10. Incentives for Agro-based Industry-
(C) xxx xxx xxx
(c) The unit will forfeit its entitlement to the grant of Generator set subsidy, if it does not file its claim complete in all respects, within six months of installation of the Generator set. The power to condone delay not exceeding six months in submission of claim shall vest with the Director of Industries while Secretary Industries and Commerce shall be competent condone delay exceeding six months in submission of claim by the unit."
It is thus clear that the appellants failed to file its claim complete in all respects before the Government of Punjab. There is no evidence that the above said formalities were completed by the appellants. Even if it is assumed that the appellant had completed the formalities, in that event the key dispute is between the Government of Punjab and the borrowers/appellants. The subsidy is to be given by the Government and not by the Bank. The Bank can always adjust any amount towards the loan itself.
15. It was further argued that the officials of the Bank took over six months to sanction the loan, whereas the appellants were given only 13 days to complete its project as last instalment of labour charges of Rs. 30,000/- was released on 11.3.1997. The appellants were not given any moratorium period to start the project. Again, no reasonable time was given to the appellants to make the project economically viable. It was also submitted that the loan sanctioned was Rs. 75 lakh, but the appellants availed only Rs. 63,43,851.79. However, the Bank did not reduce the instalment amount accordingly.
16. The agreement between the parties stipulates that the repayment of loan in annual instalments along with interest. The purpose behind it was to provide such condition to make the project functional. Again, it is common practice that the cold storage generates income annually and thus the instalment and interest were agreed to be paid annually. However, the Bank charged compound interest with quarterly rests in violation of the agreement. According to the appellants, the Bank illegally and arbitrarily demanded the first instalment on 24.3.1997 and treated the appellants as defaulter. The first instalment or repayment of the loan should have been due on 24.9.1997. i.e., after one year from the date of the sanctioning of loan and thereafter annually. The appellants had paid Rs. 51,13,434/- up to the date of filing of the suit, i.e., 6.12.2001 and as such nothing was due from the appellants.
17. All these arguments are without merit. The record reveals that the loan was disbursed to the appellants as and when they asked for the same to be disbursed and as per the agreement entered into between the parties. The costs of the machinery was to be paid directly to the supplier after matching contribution of 25% from the borrower/appellant No.1 and for the construction of building the disbursement of the loan was to be made in a phased manner as per the progress of construction. The grievance made in this context is an afterthought. No such complaint was ever made to the respondent Bank. No such evidence saw the light of the day. On the contrary the appellants waddled out of their commitments. The Agreement was signed with open eyes and now the appellants cannot be permitted to find out ways to wriggle out of their amenability to pay the debts,
18. The learned Counsel for the appellants also picked up a conflict with the original rate of interest. As per the sanction letter dated 11.9.1996 issued by AGM, Zonal Office, Jalandhar to the Chief Manager, Nokodar branch, the rate of interest to be charged was 18.5% p.a. as per H.O. Circular No. SIB/26 dated 8.12.1995 as per extant instructions of the Bank from time to time. The deed of pledge dated 26.9.1996 contained a stipulation regarding the rate of interest: "The borrowers shall pay the interest rate of 2 percent above the State Bank Advance Rate, rising and falling therewith a minimum of 18.5 percent per annum".
19. It was submitted that the guidelines issued by the Reserve Bank of India direct the officials of the Bank to give effect to any revision of interest rates whether upwards or downwards on existing advance from the date of directives. In the instant case, the interest rate agreed initially was 18.5% p.a. simple. The respondent Bank gave effect to the said guidelines and charged interest @ 18% in spite of the stipulation of minimum interest of 18.5%. However, the respondent Bank failed to give full benefits to the appellants. The said State Bank Advance Rate (SBAR) had been falling continuously. After 24.9.1996 SBAR showed the following downward trend :
|"Date||Rate of SBAR||Modified contracted rate of interest|
20. Moreover the Bank charged compound interest in violation of the agreement. It was also argued that the Bank did not maintain the statement of accounts in a regular or ordinary and usual course of Banking business. It was alleged that the Books of Accounts were cooked up by the officials of the Bank and the Statement of Account submitted was fabricated. The upfront fee of Rs. 75,000 had been wrongly charged as the appellants had not availed the loan of Rs. 75 lakh. The Bank cannot treat the upfront fee, insurance premium and other like charges as part of the loan and charge interest thereon as applicable to the loan.
21. It was also pointed out that as per the Banking norms Statement of Accounts should be maintained in such a manner that after every entry in the account there should be mentioning of "balance due". But, in the instant case out of 92 entries debited or credited in the statement of account, the balance had been shown only six times. Again, the appellants had deposited a cheque in the sum of Rs. 80,344.00 on 11.7.2000. There is a debit entry on 11.7.2000. On 13.7.2000 the entry of the said amount was reversed. It was not understood as to why this amount was not credited. The statement exhibited at A-39 showed interest in the sum of Rs. 18.62 having been credited on 20.4.2001 whereas the statement at A-40 showed that the interest to the tune of Rs. 13,06,086/- had only fallen due till that date.
22. All these submissions are bereft of merits. The O.A. was filed on 6.12.2001. I have perused the sanction letter on the record at Exhibit A-2. It clearly, specifically and unequivocally mentions that the medium term loan was sanctioned in the sum of Rs. 75 lakh only. The rate of interest has been mentioned at Clause (6) according to which the rate of interest 2.5% above SBAR rising and falling there with minimum of 18.5% with quarterly rests and purpose of the loan has been mentioned as "for construction of cold storage and purchase of machinery and plant. The sanction letter is dated 24.9.1996. It is rudimentary principle of jurisprudence that documentary evidence will always get preponderance over the oral evidence because it is well-known axiom of law that men may tell lies but the document cannot. Consequently, the abovesaid documentary evidence has thrown oral submissions into shade. It is difficult to fathom as to how the appellants have tried to wriggle out from the above said terms and conditions. Consequently, the appellants are bound to pay minimum interest of 18.5% p.a. with quarterly rests as agreed by them. They must have signed the said document with open eyes and cannot be permitted to back out from the same.
23. Now I turn to the question whether the loan was granted for agricultural category of Section 2(a) of the
Punjab Agricultural Credit Operations and Miscellaneous Provisions (Banks) Act, 1978
Industrial Policy and Incentive Code, 1996
. Section 2(a) defines agriculture and agricultural purposes. The said definition is reproduced as follows:
"2. Definitions-In this Act, unless the context otherwise requires-
(a) 'agriculture' and 'agricultural purpose' shall include making land fit for cultivation, cultivation of land, improvement of land including development of sources of irrigation, raising, protecting and harvesting of crops, horticulture, forestry, planting and farming, cattle breeding, animal husbandry, dairy farming, seed farming, pisciculture, apiculture, sericulture, piggery, poultry farming and such other activities as are generally carried on by agriculturists, dairy farmers, cattle breeders, poultry farmers and other categories of persons engaged in similar activities including marketing of agricultural products, their storage and transport and the acquisition of implements and machinery in connection with any such activity."
24. The learned Counsel for the appellants pointed out that as the activity of cold storage fell under agriculture category under Section 2(a) of the
Punjab Agricultural Credit Operations and Miscellaneous Provisions (Banks) Act, 1978
Industrial Policy and Incentive Code, 1996
, the Bank cannot charge pendente lite and future interest at more than 6% p.a. simple. In this regard, the Counsel for the appellants have referred to the following authorities:
(i) Corporation Bank v. D.S. Gowda & Anr., II (1994) BC 613 (SC).
(ii) Punjab National Bank v. Narain Dass & Ors., III (2003) BC 549 (DB) (HP).
(iii) Canara Bank v. B.B. Nanjundaiah & Ors., I (2002) BC 644 (Karnataka).
(iv) Andhra Bank v. Muvva Butchayya, I (1997) BC 225 (AP).
(v) Union Bank of India v. Noor Dairy Farm, I (1998) BC 691 (Bom).
25. On the other hand Counsel for the respondent submitted that term loan was regulated by the terms and conditions contained in the sanction letter and the various agreements entered into between the appellants and the respondent Bank and the contractual rate of interest has been charged by the respondent Bank. Moreover, the activities of the appellants cannot be considered as agricultural activities and are not entitled to any exemption. It was highlighted that the loan was given only for construction of the cold storage and not for running it. The learned Counsel for the appellant has cited few authorities in support of his case. In Shrimant Appasaheb Tuljaram Desai & Others v. Bhalchandra Vithalrao, AIR 1961 SC 589, it was held that a person not depending on tilling for his livelihood is not agriculturist. The Supreme Court was considering the definition of agriculturist under Section 60(1) Proviso, Clauses (b) and (c) while dealing with the case under Bombay Hereditary Offices Act.
26. He has also cited another authority reported in U.P. Financial Corporation and Another v. Gajendra Cold Storage (P) Ltd. Orai, AIR 1992 All. 108.
27. Another authority relied upon by the Counsel for the respondent is reported in State Bank of India v. Shri Umanath Ganpat Nadkarni & Ors., II (2000) BC 111 wherein it was held:
"16. Therefore, the materials on record do not disclose that the loan was for agricultural purposes. On the contrary it specifically discloses that it was for poultry business. Merely because the loan was granted under the scheme of 'agricultural term loan' by itself it would not be sufficient in the absence of evidence in support of the claim of the respondents, to hold that the loan was for agricultural purposes. It was necessary for the respondent to establish by producing cogent evidence on record that either the loan was for agricultural purpose or the mere fact of granting loan under the scheme of 'agricultural term loan' itself signifies that it is for agricultural purposes."
28. Again, in M/s Deepak Jain Industrial Enterprises & Others v. State Bank of India and Another, I (2000) BC 130 (DRT), it was held:
"10. Mrs. Masurkar, learned Advocate on behalf of the defendants referred to me the definition of 'agriculture' and 'agricultural purpose' from the Punjab Agricultural Credit Operations and Miscellaneous Provisions (Banks) Act, 1978. Relying upon the said definitions, it is advanced, that the loan was sanctioned for the agricultural purpose. The purpose for which the loan was sanctioned is adumbrated in the agreement itself. It has been mentioned that the medium term loan was granted for the 'construction of buildings on the land' in the manner referred to in the agreement itself. It is thus apparent that the primary object was the construction of the buildings. The defendants were not to store the foodgrains in the said buildings. The buildings were to be let out to FCI who of course had obtained the buildings for storing foodgrains. The implied purpose after the properties were let out does not attract the definitions relied upon by Mrs. Masurkar. The defendants were definitely to earn profit in the nature of rent from FCI under the separate agreement to that effect."
29. All these arguments have left no impression upon the Court. A bare reading of the above said Section 2(a) clearly goes to show that construction of cold storage also falls within the above said definition. The authorities cited above hardly dovetail with the facts of this case. Without the construction of cold storage there cannot be "storage" of agricultural products. Construction of storage and keeping the agricultural products, therein, are inseparable. Without its construction, the purpose of storing agricultural products cannot be accomplished.
30. Now I turn to the pendente lite and future interest. The learned Trial Court granted pendente lite and future interest @ 12% with quarterly rests. Learned Counsel for the appellant submits that interest granted by the learned Trial Court is on the higher side. In the cases reported in State Bank of India v. Sarathi Textiles & Ors., II (2009) BC 696=2008(3) SCALE 409, C.K. Sasankan v. Dhanalakshmi Bank Ltd., I (2009) CLT 368 (SC)=I (2011) BC 122 (SC)=II (2009) SLT 449= 2009(2) D.R.T.C. 320 (SC) and Sardar Associates and Others v. Punjab & Sind Bank and Others, VI (2009) SLT 473=III (2009) BC 705 (SC)=III (2009) CLT 186 (SC)=AIR 2010 SC 218, it was held that it is the discretion of the Court to award the pendente lite and future interest which has to be exercised fairly. Section 19(20) of the DRT Act runs as follows:
"19(20) The Tribunal may, after giving the applicant and the defendant an opportunity of being heard, pass such interim or final order, including the order for payment of interest from the date on or before which payment of the amount is found due up to the date of realization or actual payment, on the application as it thinks fit to meet the ends of justice."
31. No rate of interest under the circumstances can be made a rule of thumb.
32. This must be borne in mind that the loan was not granted for commercial purposes. The same was granted for agricultural purposes. The pendente lite and future interest granted by the lower Court is on the higher side and excessive. I, therefore, reduce the same to 8% p.a. simple from the filing of the suit till the recovery of the entire loan on reducing balance basis.
33. After evaluating the pros and cons of this case, I hereby partly allow this appeal. The revised statement of accounts be filed before the learned Registrar of learned DRT concerned within one month from today along with copy which be handed over to the appellants. Appellants are directed to pay the residue/remaining up-to-date amount within a period of 60 days from today failing which the Bank shall not be precluded from taking action under DRT Act. In case the entire amount stands paid the Bank will issue 'no due certificate' and return the title deed within four days. I hereby confirm the order passed by the learned Trial Court in respect of costs. However, there shall be no costs for this appeal.
34. Copies of this order be furnished to the parties as per law and one copy be sent to the learned DRT forthwith.