Asrec (India) Ltd. v. M/s. Aksitex World Wide (Impex) Ltd. and Ors.

DRAT6 Sept 2023REGULAR APPEAL/43/2011

Case brief

AI extract

What is this about?

This division bench allowed the appeal in part, holding that there is a valid mortgage over commercial premises to be realized for the decreed amount. It reversed the DR.T.'s order exonerating minor defendants, ruling HUF property mortgaged for business debt binds all coparceners.

What did the court decide?

Modified recovery certificate issued; charge over commercial premises confirmed; minor respondents held liable.

Asrec (India) Ltd. versus M/s. Aksitex World Wide (Impex)… — Banking and Recovery | DRAT (2023)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson

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Appeal No. 43/2011

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Between

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ASREC (India) Ltd. … Appellant/s

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V/s.

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M/s. Aksitex World Wide (Impex) Ltd. & Ors. …Respondent/s Mr N. N. Amin, Advocate for Appellant.

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Mr Sharath Pai, Advocate for Respondents Nos. 1, 2(B), 3, 4 & 6(A). Mr Ismail Nasikwala, i/b Ms. Sheela Mistry, Advocate for Respondents Nos. 7 & 8.

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This appeal impugns the judgment and order dated 01/10/2010 in Original Application (O.A.) No. 119 of 2008 on the files of the Debts Recovery Tribunal-II, Mumbai (D.R.T.) filed under the provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ('RDDB & FI Act', for short).

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The appeal was originally filed by the Vijaya Bank and later substituted by ASREC (INDIA) Ltd. consequent to the assignment of the debt.

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The 1^st Respondent is a company namely M/s Aksitex World Wide (Impex) and Respondent Nos. 2, 4, and 5 are the directors of the company while the 3^rd Respondent is the Managing Director of the company. The 1^st Respondent had availed a loan from the Vijaya Bank with Respondent Nos. 3 to 6 as guarantors. Respondent Nos. 2 is a

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mortgagor who is also impleaded as Respondent Nos. 6 in his capacity as the Karta of the Hindu Undivided Family (HUF). The 2^nd Respondent died and his legal representatives are impleaded as additional Respondents Nos. 2(A) to 2(C). The position of the HUF is presently held by Respondent No 2 (B).

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The Appellant had sanctioned financial facilities to the 1^st Respondent vide sanction letter dated 14/09/2004 and lastly on 24/08/2005. Documents pertaining to the debts were executed by the Respondents which includes letters of guarantee. On 14/09/2004, Respondents 2 to 6 had executed a letter of guarantee for ₹5 crores. On 23/03/2005 Respondent Nos. 3 to 6 executed a letter of guarantee for ₹7 crores. Thereafter, on 29/08/2005 Respondents Nos. 3 to 6 executed a letter of guarantee for ₹11,50,00,000/-. The 6^th Respondent vide a memorandum dated 14/09/2004 had deposited the title deeds of the HUF property. Supplementary memorandums were executed on 23/03/2005 and on 29/08/2005 with the Appellant to secure the loan.

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The Respondents defaulted payment and hence the Vijaya Bank filed the O.A. claiming a sum of ₹15,34,63,408/-as the aggregate amount due on several facilities with varied rates of interest on each of the facilities. An order of attachment and sale of the hypothecated and mortgaged properties belonging to the Respondents and scheduled to the O.A. was also sought.

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Written statements were filed by the Respondents wherein it was contended that the 3rd Respondent who was appointed as Managing

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Director of the 1st defendant company was never involved in the dayto-day affairs and business of the company. It was the deceased the 2nd defendant who was looking after the business and he expired on 17/10/2008. The signatures of the 3rd defendant were allegedly taken on blank papers. Contentions regarding the jurisdiction of the D.R.T. and the authority of the officer who signed the O.A. were challenged. The Respondents have also denied having signed the guarantee letters relied upon by the Appellant. The existence of a mortgage was denied. The HUF has not been properly impleaded and it was contended that the family was never benefited from the affairs in business of the 1st defendant. The legal representatives of the deceased the 2nd defendant also disowned the liability. Respondents Nos. 7 and 8 contended that they have coparcenary rights in the movable properties purchased in the name of Ramesh Chandra Agarwal (HUF) by agreement dated 15/06/1978 which was allegedly mortgaged in favour of the bank. It is also contended that the mortgage was not a legal necessity and that the Respondents Nos. 7 and 8 who were minors are not bound by the mortgage.

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On examining the evidence and the rival arguments, the Ld. Presiding Officer allowed the O.A. in part against defendant Nos. 1 to 6 (a) subject to the liability of defendant Nos. 2 (a) and 2 (c) being restricted to ₹5 crores and interest and to the extent of estate devolved upon them from the deceased 2^nd defendant. The O.A. was disallowed as against defendant Nos. 7 and 8. Though it was declared that there is a legal and valid mortgage created by the 3^rd defendant and the deceased the 2^nd defendant, the undivided share to the extent of ₹7

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crores with interest alone was allowed. A charge over the hypothecated goods was granted. Defendant Nos. 1 and 3 to 6 (a) were directed to pay to the Applicant bank a sum of ₹14,58,47,342.09 together with interest at the rate of 12% per annum with effect from the date of filing of the application till realisation restricting the liability of defendants Nos. 2 (a) and (c) to a sum of ₹5 crores with interest as above.

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The Appellant is aggrieved and hence in appeal.

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The points that arise for consideration in appeal are whether the D.R.T. was justified in limiting the claim with regard to the mortgage and secondly, whether the D.R.T. was justified in exonerating Defendants Nos. 7 and 8 from the liability.

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Both sides were heard. Records perused.

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The Ld. Counsel appearing for the Appellant points out that there was a legal and valid mortgage created by the directors of the first Respondent company. Respondents Nos. 2 to 6 executed a letter of guarantee and thereafter Respondents Nos. 3 to 6 executed another letter of guarantee for ₹7 crores and then the very same Respondents executed a guarantee for ₹11.50 crores. The 6^th Respondent representing the HUF as its Karta and in his own capacity as director of the company as the 2^nd Respondent, deposited the title deeds of the HUF property and also executed supplementary memorandums on 23/03/2005 and on 29/08/2005. It is pointed out that there was no justification in limiting the claim of the Appellant with regard to the mortgage to only ₹7 crores instead of ₹11.50 crores claimed. Though

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the Appellant has claimed penal interest as well, the Ld. Counsel appearing for the Appellant fairly conceded that the claim for penal interest is given up. When the Karta of a HUF mortgages a property on behalf of the family which is involved in the business, there is no reason to exempt anyone from stating that they were minors and that the mortgage does not bind them. Hence, the D.R.T. committed an error in exonerating defendant Nos. 7 and 8. It is pointed out that the minor defendants including their father, the 3^rd defendant and grandfather, the 2^nd Defendant are the members of the joint family. There is nothing to show that defendants Nos. 7 and 8 are not depending on the income derived from the joint family business. The HUF property was mortgaged for the loan availed by the company and is evident from the recorded Minutes of the Board. It is also pertinent to note that the Karta had not mortgaged HUF property for his personal benefit or for any immoral or illegal purpose. It was for the necessity of the family business run by the member of the family as the first Respondent company that the loan was availed.

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The Ld. Counsel for the Appellant relies on certain precedents in support of his argument. In Venkatesh Dhonddev Deshpande vs. Sou. Kusum Dattatraya Kulkarni & Ors (1979) 1 SCC 98 it is held thus:

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“If the loan was borrowed by Dattatraya, the father, as Karta of the joint Hindu family for the benefit of the family, certainly it would be a joint family debt and all the joint family property would be liable for this debt. Even if there is a subsequent partition before the debt is repaid, the creditor can proceed against the joint family property in the hands of any of the coparceners because the joint family property is liable for the joint family debts. The Karta or the manager of a joint Hindu family has implied authority to borrow money for family purposes and such debts are binding on other coparceners and the liability of the coparceners in such a case does not cease by subsequent partition.”

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The Ld. Counsel has also relied on another decision of the

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Hon’ble Supreme Court in Sunil Kumar & Ano. vs. Ram Prakash & Ors (1988) 2 SCC 77 wherein it is held that the Karta/father by reason of his paternal relation and his position as the head of the family is its manager and he is entitled to alienate joint family property so as to bind the interests of both adult and minor coparceners in the property, provided that the alienation is made for legal necessity or for the benefit of the estate or for meeting an antecedent debt.

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In the case at hand, the HUF property was mortgaged for a debt incurred by the first Respondent company which was run mainly by the members of the joint family and undoubtedly benefited the minors as well. Defendants/Respondents Nos. 7 and 8 are, therefore, liable to repay the debt at the joint family property over which they have an undivided interest would also be liable. The findings of the Ld. Presiding Officer exonerating defendants Nos. 7 & 8 were, therefore, not justified. None of the coparceners in the joint family objected to the mortgage of the property.

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The appeal is, therefore, allowed in part and it is declared that there is a valid mortgage with regard to commercial premises No. 2 admeasuring 2817 ft² approximately on the ground floor, Shri Sai Ashish Apartments, situated at plot No. A-368, C.T.S No. F/1227, S.V. Road, Bandra West Mumbai from all the defendants from out of the sale of the mortgaged assets for the realisation of the amount decreed. A modified Recovery Certificate shall be issued.

Sd/-

Chairperson

mks-1

Asrec (India) Ltd. v. M/s. Aksitex World Wide (Impex) Ltd. and Ors.

Case brief

What is this about?

What did the court decide?

Asrec (India) Ltd. v. M/s. Aksitex World Wide (Impex) Ltd. and Ors.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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