Securitization Application DRT to Redeliver Possession Back

Securitization Application DRT to Redeliver Possession Back

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This post is a case digest on Securitization Application in DRT to Redeliver the Possession to guarantor since the demand notice u/s 13(2) was bad in law, also the amount calculated is incorrect as of considering principal amount & interest as it is settled adjudication of amount cannot be done in Sarfaesi Act. Different accounts are clubbed from date of NPA’s and even unapplied interest is not even clear. The bank also do not consider objections filed under Section 13(2) and they remained unattended. Thus on the basis of above head, court ordered banks to redeliver the possession to the parties.

Now let’s read the judgment here.

THE DEBTS RECOVERY TRIBUNAL, II, MUMBAI

  1. A. No 33/2006

29th day of June, 2010

Applicants – 1. M/s. National Flask Industries Ltd.

  1. Mr. Arun M. Gandhi, M/s. National Flask Industries Ltd.
  2.    Mr. Shashikant M. Gandhi, M/s. National Flask Industries Ltd.
  3. Smt. Meena H. Gandhi
  4.               Mr. Haresh M. Gandhi
  5.          Smt. Daksha Arun Gandhi
  6.     M/s. Crown Industries

Respondents – 1.  M/s. Crown Industries

  1. The Shamrao Vithal Co-op. Bank Ltd
  2. The Cosmos Co-op. Bank Ltd.
  3.    The North Kanara GSB Co-op. Bank Ltd.

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The applicant seeks redelivery of possession of property under section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

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Timeline of events:

  • The Respondents took possession U/s. 13(4) of the SARFAESI Act of the properties on the Applicant’s failure to pay the amounts demanded by notice U/s. 13(2) of SARFAESI Act to the Applicant No. 1 on 30.12.2005
  • Applicants stated several facts about the reasons of the Company’s precarious financial condition.
  • Major fire broke on 04.06.2001 in the Company causing damage / loss of around Rs.17 /18 Crores from out of which a sum of Rs.5.70 Crores was received against the insurance claim.
  • Due top the loss, the Company was badly in need of additional finance which the Respondents did not sanction.
  • . The failure on the part of Respondents to grant ad-hoc limits led to the closure of operations of the Company.
  • The Company suffered loss, due to the Respondents’ not adhering to the RBI guidelines, to the extent of Rs.119.17 Crores, for which the Company has filed suit in Civil Court at Silvasa.
  • No ‘debt’.
  • The Respondents issued notice U/s. 13(2) of SARFAESI Act. The Applicants gave reply / representation to the same raising 105 objections.
  • Banks gave reply U/s. 13(3-A) of SARFAESI Act to the representation / reply to the demand notice.
  • The Respondents ultimately took possession of the properties.

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Grounds set out by the Applicants:

  • The notice is illegal.
  • The challenge is external and internal.
  • The issuances of two demand notices U/s. 13(2) are illegal.
  • The demand was in excess by Rs.23,22,65,631/-, in the aggregate, taking the amounts certified by the Banks in the Certificates of dues, to be the basis.

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Averments advanced:

  • The Banks have not produced advice for interest rates charged.
  • The reply given by the secured creditors is without application of mind.
  • The Respondents have not produced any authority U/s. 49 of Maharashtra Society’s Act from the Applicants.
  • The Banks have not produced advice for interest rates charged. The reply given by the secured creditors is without application of mind.
  • The miscellaneous contentions are that the penal interest is not quantified and is also compounded. The notice U/s. 13(2) to the Guarantor does not mention dates of NPA. The transaction is not registered with the central registry. The Respondents have not produced any authority U/s. 49 of Maharashtra Society’s Act from the Applicants.
  • The Respondents [the Respondent No. 1 being the leader] in consortium had granted several facilities to the Applicant No. 1 Company. The Applicant Nos. 1 & 7 created mortgage.
  • The Borrower [Applicant No.1] committed defaults and the account became irregular and consequently the same was classified by Saraswat Bank as NPA with effect from 31.03.2001 and by other Banks on the respective dates.
  • While meeting the contentions about the excess amount by Rs.23,22,65,631/-, it is stated that the amounts mentioned in the Bank Certificate [upon the basis of which the Applicants assailed the amount], are only principal amounts.
  • As per the RBI guidelines the interest cannot be debited [and was not debited] in the account after the date of NPA. It is also denied that excess interest of Rs.12,77,84,368/- is charged. The Applicants never raised any objection about the amount.

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Findings of the DRT:

  1. The notice dt. 30.12.2005 since not addressed to the Guarantor – Mortgager, is said to be bad. It is not possible to endorse this submission qua Applicant Nos. 2 to 6 since they are not mortgagors.
  2. The notice U/s. 13(2) was given on 02.01.2006 to Applicant Nos. 2 to 7. The bare perusal of said notice shows that it does not meet requirement of Section 13(2) & (3) of SARFAESI Act. It is so because by said notice, a sum in the aggregate is claimed by Respondent Nos. 1 to 3 without giving the amounts claimed under each facility much less the amounts of principal and interest.
  3. The notice dated 30.12.2005. is said to be bad on the ground that the amount demanded is highly exaggerated and inflated as stated in the tables in Para 4, supra. It is settled in law that adjudication of the amount is not to be done in the S.A.
  4. The amount demanded may not be accurate and precise but has to be close to the secured creditor’s entitlement. The secure creditor ought to demand the reasonably correct amount.
  5. An amount of Rs.23,22,65,631/- is said to have been demanded in excess.  the Applicants have completely overlooked interest from the date of NPA up to 30.11.2005. The Applicants have simply taken the figures [in Column No. 2 of the table] as given in the certificates issued by the Bank and harped upon the date therein [say for e.g. 31.03.2005 in case of Saraswat Co-op. Bank Ltd.]
  6. In respect of Saraswat Co-op. Bank Ltd. is generally and broadly applicable in respect of amount of unapplied interest as shown in third column of table in Para 4 above of remaining three Banks.
  7. In case of North Kanara GSB Co-op. Bank Ltd., there are three dates of NPA at three places. At one place, the date of NPA is 01.08.2000 while at other place it has stated that the account became NPA in December 2000 and at yet another place the date of NPA is 31.03.2001. This Bank also has not clarified the period and rate of unapplied interest which amounts to not giving ‘details’ as contemplated by Sub-section (3) of Section 13 of SARFAESI Act.
  8. The demand in the notice although made in respect of out standings under each facility is omnibus. Not only principal amount and interest amount should have been separately given but it was necessary to give the period of rate of interest. The failure amounts to not giving ‘details’ as required by Sub-section (3) of Section of SARFAESI Act.
  9. The figures of excess interest have been worked out by the Applicant on the basis of calculation by Applicant No. 1 and / or its auditors and therefore cannot be accepted on their face value.
  10. In respect of Saraswat Co-op. Bank Ltd. : The amount of Rs.6,29,67,724.35 claimed in the notice under Letter of Credit. The amount in the hand written statement as on 01.01.2002 is Rs.2,89,07,849/-. In the computerized Statement of Account, however, the outstanding balance as on 30.11.2005 excluding interest is Rs.4,00,26,837.80. It is not known as to how the amount has gone up. Moreover, just as in other accounts, the period and rate of interest of unapplied interest as on 30.11.2005 of Rs.2,29,40,886.55 is not clarified. The demand in the absence of above clarification about the interest is bad in law.
  11. The amount claimed by Saraswat Co-op. Bank Ltd. under Bank Guarantee of Rs.55 Lacs and odd amount was not due since admittedly the Bank Guarantees were invoked on the date of issuance of demand not notice. The said bank’s claim under said head therefore should not have been made. This adds to the illegality of the notice.
  12. The reply Dt. 10.07.2006 shows that the banks did not specifically consider the objections and denied the allegations by grouping them under 18 heads. Although this is not ordinarily acceptable, the same will have to be endorsed in this case having regard to the representation / objection.
  13. The application of Applicant Nos. 1 & 7 is liable to be allowed, Applicant Nos. 2 to 6 being unnecessary parties.

ORDER:

  1. A) The Securitization Application of Applicant Nos. 1 & 7 is allowed with no order as to costs.
  2. B) The Respondents shall redeliver possession of the properties to Applicant Nos. 1 & 7, as the case may be, within four weeks.
  3. C) The parties shall bear their costs.

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For case specific advice please contact Debt Recovery Tribunal DRT Chandigarh Lawyers Advocates practicing in Chandigarh Panchkula Mohali Zirakpur Kharar Derabassi Mullanpur etc.

This post is written by Rashika Garg. More on 99888-17966.

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