Dismissed

Supreme Bed House v. Punjab National Bank

DRT15 Dec 2022SA/4/2022

Case brief

AI extract

What is this about?

The Tribunal dismissed the applicants' application to set aside SARFAESI notices and order loan regularization. It held there was no merit in the claim regarding misappropriation of government funds and that the bank complied with statutory formalities. Requests for court adjudication of accounts were rejected as beyond the Tribunal's jurisdiction.

What did the court decide?

None. The SA is dismissed with no costs. Directions for court adjudication or CA deputation are rejected.

Supreme Bed House versus Punjab National Bank — Banking and Recovery | DRT (2022)

¶1

Fair Order

¶2

IN THE DEBTS RECOVERY TRIBUNAL - 1 AT ERNAKULAM

¶3

DATED THIS 15^th DAY OF DECEMBER, 2022

¶4

PRESENT: Su. WILLYAHM, B.Sc., M.L. [DISTRICT JUDGE - Retd] PRESIDING OFFICER

¶5

S.A No. 4 of 2022

¶6

Between

¶7

M/s Supreme Bed House,

¶8

C.K. Shopping Complex, Kinassery-673007, Kozhikode, Represented by its Managing Partner C.K.Prakashan, S/o.Gopalan, Punathil Meethal House,

¶9

5^th Mile, Velliparamba, Kozhikode-673 008.

¶10

C.K. Prakashan, S/o. Gopalan, Punathil Meethal House, 5^th Mile, Velliparamba, Kozhikode-673 008.

¶11

M.K. Sreenivasan, S/o.Raman Nambiar, Meleparambath, P.O. Chathamangalam, Kozhikode-673 601.

¶12

K.V. Nishanth, S/o. Narayanan, Anjali House, P.O. Madhavipuram, Pantheerankavu, Kozhikode-673019.

¶13

SA 4/2022

¶14

¶15

Babu E., S/o. Appu, Thekkepuliyoli House, Near Poovattuparambu Temple, Perumanna, Kozhikode-673019.

¶16

V.K. Dharmarajan, S/o. Choyikutty, Vappumkara House, Chemmalathur P.O., Kuttikkattoor, Kozhikode-673008.

¶17

--- Applicants

¶18

And

¶19

Punjab National Bank, Bank Road Branch,

¶20

Kozhikode-673001,

¶21

Represented by its Manager.

¶22

The Authorised Officer (Chief Manager), Punjab National Bank, Circle Sastra Centre, Kozhikode, Shathabdi Bhavan, Mini Bypass Road,

¶23

Govindapuram, Kozhikode-673016.

¶24

--- Defendants

¶25

This petition coming on 16.11.2022 for hearing before me in the presence of Mr. Nitheesh, Advocate for the Applicants and Mr.Ajithkumar Advocate for the defendants and upon hearing arguments of both sides’ Counsels and upon perusing the material records, this Tribunal delivered the following:

¶26

O R D E R

¶27

This Securitisation Application was filed on 29.12.2021 seeking to set aside Annexures-IV to VII notices.

¶28

The averments of the applicants in the SA in brief are as follows:

¶29

Applicants 2 to 6 are the partners of M/s Supreme Bed House, a partnership firm registered under the Indian Partnership Act, 1932. The 1^st applicant firm availed of loan from the 1^st defendant bank with Account No.4257008700004506 opened on 13.5.2016 with limit Rs.3,00,00,000/-.

¶30

Three landed properties have been furnished as collateral security for the loan. The 1^st property is having extent of 40 cents (16.195 Ares)

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SA 4/2022

comprised in Re-Sy. No.11/3 of Kuttikkattoor amsom and Village and Pingottupuram Desom, Kozhikode owned by the 4^th applicant, the 2^nd property is having extent of 40 cents (16.195 Ares) comprised in Re-Sy. No.11/3 of Kuttikkattoor Amsom owned by the 5^th applicant. The 3^rd applicant is having 93 cents (37.65 Ares) comprised in Re-Sy. No.391/3 of Poolakkode Amsom and village, Kozhimanna Desom, Kozhikode Taluk and District together with a residential building situating therein.

¶35

The applicants were paying back the loan amount with due diligence and earnestness. The Central Government provided Rs.60,00,000/- to the 1^st applicant through Account as Covid Boosting Fund after finding the applicants were paying back the loan regularly and without default. The 1^st defendant bank furnished details of the applicants’ loan account and record of their repayment and also submitted certificate or assurance that the applicants’ account was performing regularly and duly without any default or laches in support of the application for Covid Boosting Fund. The amount provided by the Central Government under the head Covid Boosting Fund shall be returned or repaid with interest through the bank through which the application was submitted and forwarded, viz., the 1^st defendant bank. The Account Number of Covid Boosting Fund is 425700IL00000149. It is through this account the Central Government paid Covid Boosting Fund to the 1^st defendant bank for being disbursed to the applicants. The 1^st defendant bank did not disburse the said amount or any portion thereof to the applicants. The 1^st defendant bank rather appropriated the said Covid Boosting Fund to the tune of Rs.60,00,000/- by itself in the loan account or otherwise.

¶36

Since 13.5.2016, the applicants have withdrawn money from account bearing No.4257008700004506 periodically and have been making the repayments regularly and without any lapse. The said account, viz., Account No.4257008700004506 is an insured account for which insurance premium was paid every year. Thus, the bank collected Rs.51,319/- on 2.6.2016, Rs.52,857/- on 9.8.2017, Rs.12,803/- on 25.10.2017, Rs.52,657/- on 7.8.2018, Rs.44,625/- on 8.8.2019, Rs.44,628/- on 11.8.2020 from this account towards insurance premium. The risk insured in the said insurance policies covers business loss sustained due to unforeseen contingencies including the natural calamities and disasters. At present the applicants do not know the whereabouts of the insurer and hence the insurer is not made party in the Securitization Application. A separate application to that effect is filed herewith for directing the 1^st defendant to furnish the details of the insurer before this Tribunal.

¶37

The 1^st defendant initiated proceedings under the SARFAESI Act and declared the applicants’ loan account, viz., Account No.4257008700004506

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SA 4/2022

as well as Covid Boosting Fund Account having No.425700IL00000249 as Non-Performing Asset. The 2^nd defendant thereupon issued notice No. S.I-4 dated 30.4.2021 purported to be one under Section13(2) of the SARFAESI Act. Full details of the amount payable by the borrower including the account number and such other particulars and the details of the secured assets intended to be enforced by the secured creditor has not been shown at all.

¶42

Thereafter the 2^nd defendant issued notice dated 16.6.2021 to the applicants showing that the loan account of the applicants had been declared as Non-Performing Asset for the alleged default on the part of the applicants for the alleged reason that negligible primary security was available and the sale proceeds have not been credited in the account. The applicants submitted reply dated 5.7.2021 to Annx.II notice showing the details. In the reply, the misappropriation of Covid Boosting Fund provided by the Central Government to the applicants’ account, by the 1^st defendant bank was also specifically stated.

¶43

Due to loss of business occurred because of the natural calamity and disaster, thirteen out of fifteen show rooms were closed by the end of 2020. The 1^st property furnished as collateral security is having a minimum market value of Rs.2,00,00,000/-, that is at the rate of Rs.5,00,000/- per cent. The 2^nd property furnished as collateral security for the loan is also having a minimum market value of Rs.2,00,00,000/-, that at the rate of Rs.5,00,000/- per cent. The 3^rd property furnished as security is having minimum market value of Rs.7,65,00,000/-, that is including Rs.7,15,00,000/- for the land at the rate of Rs.50,00,000/- per cent and Rs.1,85,00,000/- for the building situating therein. The 2^nd defendant issued separate possession notices dated 15.11.2021 to the applicants under Section 13(4) in respect of the 1^st , 2^nd and 3^rd properties furnished as security by the 4^th , 5^th and 3^rd applicants respectively. The 2^nd defendant also issued notice No.CO/SASTRA/3/2021 dated 16.11.2021 in respect of these properties to the applicants showing symbolic possession being taken over.

¶44

Annx.IV to VII are illegal, incorrect and arbitrary and for the very reason the same are liable to be set aside. The 1^st defendant calculated interest in exorbitant and illegal rate and in violation of the loan agreement. The defendants are not entitled to any such interest or penal interest or rest from the applicants. In view of the above set of facts involved in the matter, it is necessary to settle the accounts of the applicant’s loans with the 1^st defendant bank through the process of the court and by deputing a

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SA 4/2022

Chartered Accountant in the interest of justice and for proper and effective adjudication of the case.

¶49

It is also necessary to regularize the loan accounts (in respect of which Annx.IV to VII have been issued) by permitting the applicants to pay the outstanding arrears by 15 equal monthly installments and thus to enable the applicants to repay the loan by availing full tenure of the loan and full E.M.I thereafter in view of the above facts and circumstances.

¶50

The defendants came on record and filed Written Statement inter-alia contending as follows :

¶51

All the averments and allegations in the above SA are hereby denied except to the extent that they are herein specifically admitted or otherwise dealt with.

¶52

At the request of the 1^st applicant, they were sanctioned a Cash Credit Limit of Rs.300 lakhs by the 1^st defendant on execution of necessary loan documents by the applicants. The loan was sanctioned on the primary security of hypothecation of stock of goods of the 1^st applicant and on the collateral security of the properties owned by the applicants 3, 4 and 5, over which item of properties, security interest was created. While enjoying the said Cash Credit (Hypothecation) Facility by the 1^st applicant, in due course of time, 1^st defendant could note that there were limited operations in the account and borrower failed to submit the financial statements. To tide over the crisis, at the request of the 1^st applicant, they were granted a Funded Interest Term Loan (FITL) for a sum of Rs.20.10 Lakhs, against which necessary loan documents were executed by applicants in favour of the 1^st defendant. The said FITL Facility enjoyed by the 1^st applicant since 30.11.2019 was subsequently closed, by adjusting back to the Cash Credit Account. Subsequently, in the aftermath of Covid-19, the 1^st applicant approached the 1^st defendant for the Guaranteed Emergency Credit Line (GECL), envisaged by National Credit Trustee Company, Mumbai, with the object of providing 100% guarantee to the Member Lending Institution, against extension of credit upto 20% of loan outstanding as on 29.2.2020. Considering the said request, 1^st defendant sanctioned a sum of Rs.60 lakhs to the 1^st applicant on 4.8.2020, in the form of Additional Working Capital Term Loan Facility, against which applicants 1 to 5 executed certain loan documents, such as Demand Promissory Note, Agreement of Working Capital Term Loan, Master Agreement, Supplementary Term Loan Agreement and Letter of Undertaking, besides execution of personal guarantee. The GECL amount of Rs.60 lakhs was given credit to the operative account of the 1^st applicant, ie. Cash Credit Hypothecation Agreement on 4.8.2020 by the 1^st defendant, for further disbursement by

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SA 4/2022

the 1^st defendant. It was not permitted to be utilized by the 1^st defendant due to the fact that 6^th applicant did not sign the loan documents along with other applicants so as to complete the documentation for utilizing the sanctioned amount. But at the same time, their Cash Credit Account Balance was reduced by Rs.60 lakhs. The 1^st defendant informed the applicants that unless 6^th applicant signs the requisite documents for availing the GECL Facility, the sanctioned amount will not be disbursed, as it falls short of the mandatory requirements. The amount is still kept in the Cash Credit Account to allow the applicants to utilize the same at any time on completing the documentation, by all the parties concerned. It is thus clear that applicants were not able to get funds because of their own fault. The borrower failed to deposit the sale proceeds to the account and diverted bank funds. The 1^st defendant requested the applicants for regularization of the account. Despite repeated requests, the applicants could not regularize the loan account. As a result, the loan account of the 1^st applicant was classified as Non-Performing Asset (NPA) by the 1^st defendant on 31.3.2021. The 1^st defendant thereafter recalled the loan account of the applicants by issuing recall notice. The 1^st defendant initiated proceedings under the SARFAESI Act, by issuing Annx.1 Section 13(2) notice. Subsequently, 1^st defendant has issued Annx.II show cause notice also to the applicants. As the applicants failed to settle the liabilities despite expiry of the statutory time of issuance of Annx.I, the 1^st defendant thereafter took symbolic possession of the secured asset on 15.11.2021, vide Annx.IV, V and VI possession notices and then put the properties for sale. But, for want of bidders, the sale did not fructify.

¶57

The averments in paragraphs 1 to 3 of the S.A are generally true. The averments in paragraph 4 of the SA that the Covid Boosting Fund of Rs.60 lakhs is provided by the central Government is not correct. As explained above, the relief measure announced by Government of India for MSME borrower during COVID period is the GECL facility. The reasons why the GECL Facility was not utilized by the applicants even though sanctioned by the 1^st defendant is as explained above. The averments contrary to the same in the S.A that the defendants appropriated the amount of Rs.60 lakhs by itself in the loan account, is utter falsehood and denied.

¶58

The averments in paragraph 5 of the S.A that repayments in the working capital limit were regular and without any lapse, is not correct and denied. As the loan being a working capital facility, all the genuine business transactions are to be routed through the account. But the borrower did not route the genuine trade transaction of business through the account. As per the loan sanction terms, the stock of goods hypothecated to the 1^st defendant will be insured for the risks covered under the natural calamities and disasters. Whereas, the applicants did not submit any application for

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SA 4/2022

claims with supporting evidences, reporting any loss of disasters/calamities happened in the units of the 1^st applicant. The stock of goods are ensured by the 1^st defendant for the full value with M/s Bajaj Alliance for a sum of Rs.3 Crores. The sanction of GECL Facility of Rs.60 lakhs to the 1^st applicant and that the reason for non-disbursal of the same, is due to the non co-operation of the 6^th applicant. It is in accordance with the guidelines, the 1^st defendant has classified the loan account of the 1^st applicant as NPA on 31.3.2021, for the irregularities committed. The reply submitted by the applicants on 5.7.2021 was duly responded by the defendants making proper reply.

¶63

At no point of time, applicants discussed with the defendants about the difficulties, as averred in para 9 of the SA. The allegation of misappropriation of Covid Boosting Fund is utter falsehood. As per the valuation report obtained by the approved valuer of the defendants, the total value of the secured assets, at the time of sanction of loan would come to Rs.4.09 Crores, which valuation has come down to Rs.2,95,75,000/- as per the last valuation dated 10.11.2021 of the bank, taken after the account has been classified as NPA.

¶64

On compliance of the statutory requisite formalities, defendants took symbolic possession of the secured asset, in accordance with law and hence there is no legal infirmity in the issuance of Annxs.IV to VII notices issued by the defendants. The various grounds raised in the S.A does not call for the interference of this Tribunal in the subject matter of the case. There is no merit in the S.A. The intentions of the applicants are to protract the matter for one or the other grounds. The above S.A is devoid of merits and is liable to be dismissed with costs.

¶65

Point arising for consideration is as to whether the applicants are entitled to get the reliefs sought for in this S.A.

¶66

Point: There is no dispute with regard to availment of cash credit limit of Rs.300 Lakhs from the 1^st defendant bank by the applicants upon execution of necessary loan documents and creation of primary security of hypothecation of stocks and goods of the 1^st applicant firm as well as upon creation of equitable mortgage over the immovable properties belonging to the 3^rd 4^th , 5^th applicants as the collateral security in favour of the 1^st defendant bank. It is also not in dispute with regard to availment of Funded Interest Term Loan (FITL) for a sum of Rs.20.10 Lakhs upon execution of necessary documents by the applicants in favour of the 1^st defendant Bank.

¶67

According to the defendants, at the request of the 1^st applicant firm a sum of Rs.60 lakhs was sanctioned as Guaranteed Emergency Credit Line (GECL) upon execution of necessary loan documents by the applicants 1 to

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SA 4/2022

5 and even though the amount was given credit to the operative account of the 1^st applicant firm, the 1^st applicant firm was not permitted to utilize it due to the fact that 6^th applicant did not sign the loan documents along with other applicants so as to complete the documentation for utilizing the sanctioned amount. A perusal of the letter Annexure-B1, sent to the 1^st applicant firm, it can be noticed that one of the conditions stipulated therein is that, amount shall be released after obtaining signature from Mr. Dharmarajan (6^th applicant herein) and submission of provisional financial papers. The contention of the defendants that the aforesaid sum of Rs.60 lakhs could not be disbursed to the account of the 1^st applicant due to the failure of the 6^th applicant to sign the loan documents has not been specifically refuted or denied by the side of the applicants. Therefore, this Tribunal does not find any force in the argument advanced by the counsel for the applicants that the 1^st defendant bank did not disburse the amount to the tune of Rs.60 lakhs or any portion thereof to the applicants. Therefore this Tribunal holds that there is no necessity to have discussion with regard to Annx.A9 to A15 which are true copies of documents pertaining to GECL loan transactions.

¶72

Annexue-B2 is the notice dated 01.03.2021 calling upon the applicants to regularize the loan accounts and Annexure-B3 is the notice dated 02.04.2021 issued by the 1^st defendant Bank to the applicants informing them that if the applicants failed to repay the loan due, loan account will be recalled. Admittedly, the applicants did not respond to the aforesaid two notices.

¶73

It is the contention of the defendants that since the applicants failed to regularize the loan accounts, the loan account was classified as Non Performing Asset by the 1^st defendant Bank on 31.3.2021 and that thereafter the loan account of the applicants was recalled. Demand notice dated 30.4.2021 was issued to the applicants calling upon them to repay the outstanding loan due within the period of 60 days from the date of receipt of the notice. However, the applicants sent reply dated 5.7.2021, Annx.A3 for the notice dated 6.6.2021, Annx.A2 sent by the 2^nd defendant to the applicants. In annx.A3 it has been mentioned that ‘reply is sent’ to the notice dated 16.6.2021 (Annx.A2). Therefore it is evident that the applicants neither sent objection to the demand notice nor did they comply with the terms of the demand notice. The counsel for the applicants submitted during his advancement of argument that loan accounts of the applicants shown in the demand notice Annx.A1, is not the loan account of the applicants and that therefore the issuance of the demand notice is illegal. The counsel appearing for the defendants submitted that due to typological error account number has been wrongly mentioned in the demand notice and that however in the possession notice it has been correctly mentioned

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and that the demand notice does not mandate the mentioning of the account number and that therefore the issuance of the demand notice cannot be considered as invalid. This Tribunal concurs with the above submission of the counsel for the defendants.

¶78

The 2^nd defendant issued separate possession notices dated 15.11.2021, Annx.A4 to A6 to the applicants 4, 5, 3 respectively for taking symbolic possession of their properties. The 2^nd defendant also issued notice dated 16.11.2021, Annx.A7 intimating the applicants to show that the symbolic possession of the aforesaid properties had been taken.

¶79

It is seen from the perusal of Annx.B4 to B6 which are valuation reports dated 7.3.2022 that the value for the secured assets belonging to the applicants 3, 4 an 5 respectively has been properly valued by the approved Valuer. Even though the applicants have averred in the SA that minimum market value for the 1^st and 2^nd items of the properties in the possession notice is Rs.2 Crores each and that minimum market value for the 3^rd item of the properties is Rs.7,65,00,000/-, no reliable document has been produced to substantiate the above contention.

¶80

The applicants have merely averred in the SA that issuance of Annx.4 to 7 notices is illegal, incorrect an arbitrary and that therefore the notices are liable to be set aside. They have not specifically averred in the SA as to whether any procedural irregularity has been committed by the defendants in respect of issuance of Annx.A4 to A7 notices. In Annx.4 to 7 notices, the issuance of the demand notice to the applicants, their failure to repay the outstanding loan due, the details of the secured assets has been clearly and properly stated. Therefore, this Tribunal does not find any force in the contention of the applicants that 2^nd defendant has failed to show all the details in respect of the loan and the collateral security, does not hold good.

¶81

The applicants have not produced any material before this Tribunal to prove their averment that interest has been charged exorbitantly in violation of the loan agreement. However, the above averment has been stoutly refuted by the side of the defendants. The applicants have also failed to convince this Tribunal as to how the classification of the account of the applicants is against the guidelines of the RBI. The provisions of the SARFAESI Act, 2002 as well as the Rules made there under does not contemplate or mandate to pass any direction to the secured creditors for settlement by the borrowers through the process of the DRT or by deputing a Chartered Accountant. The above relief sought for by the applicants is highly unsustainable. It is revealed from the perusal of the letter, Annx.B1 as well as from the averments of the written statement of the defendants that in spite of sufficient opportunity was granted to the applicants, they

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SA 4/2022

failed to make use of it. However, the Debts Recovery Tribunal cannot pass any direction to the defendants to regularize their loan accounts.

¶86

The applicants have miserably failed to prove their case that they are entitled to get the relief sought for in the SA.

¶87

In view of the foregoing reasons this SA No.4 of 2022 stands dismissed. No costs.

¶88

Dictated to Steno, taken down, transcribed, typed by him, corrected and pronounced by me in the open court on this the 15^th December, 2022.

¶89

(Su. WILLYAHM) PRESIDING OFFICER

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SA 4/2022

List of documents filed by the Applicants along with the application

¶94

S.No.	Date	Particulars
1.	30.4.2021	True copy of the notice No. S.I-4 issued by the 2^nd defendant to the applicants.
2.	16.6.2021	True copy of the notice issued by the 2^nddefendant to the applicants.
3.	05.07.2021	True copy of the reply submitted by the applicants to Annx.II.
4.	15.11.2021	True copy of the notice No. SI-10 issued by the 2^nd defendant to the 4^thapplicant in respect of his property.
5.	15.11.2021	True copy of the notice No. SI-10 issued by the 2^nd defendant to the 5^thapplicant in respect of his property.
6.	15.11.2021	True copy of the notice No. SI-10 issued by the 2^nd defendant to the 3^rdapplicant in respect of his property.
7.	16.11.2021	True copy of the notice No.CO/SASTRA/3/2021 issued by the 2^nddefendant to the applicants in respect of their properties.
8.	21.10.2022	True copy of the notice issued by Advocate Commission Ashil V.P in CMP No.139/2022 on the file of the Chief Judicial Magistrate Court, Kozhikode.
9.	---	True copy of the Emergency Credit Line Guarantee Scheme (ECLGS) issued by the NCGTC
10.	04.08.2020	True copy of the Emergency Credit Line Guarantee Scheme (ECLGS)-Modification in Operational Guideline No.2718/NCGTC/ECLGS issued by NCGTC
11.	31.10.2020	True copy of the Emergency Credit Line Guarantee Scheme (ECLGS) Extension of the duration of the scheme No.3014/NCGTC/ECLGS issued by NCGTC
12.	----	True copy of the Emergency Credit Line Guarantee Scheme (ECLGS) Operational Guidelines updated on 30.3.2022 issued by the NCGTC.

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SA 4/2022

13.	----	True copy of the Emergency Credit Line Guarantee
		Scheme (ECLGS) Operational Guidelines updated on 06.10.2022 issued by the NCGTC.
14.	----	True copy of the statement of account in respect of
		Account No.4257008700004506 of the 1^stdefendant
		bank between 13.5.2016 to 30.11.2021.

¶99

List of documents filed by the Defendants along with the Written Statement

¶100

S.No.	Date	Particulars
1.	---	True photocopy of the letter issued by the 1^stdefendant to the 1^stapplicant.
2.	01.03.2021	True photocopy of the default notice issued by 1^st defendant to the applicants.
3.	02.04.2021	True photocopy of the recall notice issued by the 1^st defendant to the applicants.
4.	07.03.2022	True photocopy of the valuation report of the secured asset belonged to 3^rdapplicant obtained by the defendants from their panel valuer.
5.	07.03.2022	True photocopy of the valuation report of the secured asset belonged to 4^thapplicant obtained by the defendants from their panel valuer.
6.	07.03.2022	True photocopy of the valuation report of the secured asset belonged to 5^thapplicant obtained by the defendants from their panel valuer.

¶101

(Su. WILLYAHM) PRESIDING OFFICER

¶102

Page 12 of 12

Supreme Bed House v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

Supreme Bed House v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

Case details

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