Dismissed

Gravity Concrete Solutions Pvt. Ltd. v. Jammu and Kashmir Bank Limited

DRT15 Jun 2023SA/169/2022

Case brief

AI extract

What is this about?

This judgment dismisses a Securitization Application challenging a Notice under Section 13(2) of the SARFAESI Act. The debtor argued that the bank's account was wrongfully declared NPA due to legitimate payment of a bank guarantee and lack of restructuring. The tribunal held the payment was legally obligatory and the application frivolous.

What did the court decide?

The Securitization Application (SA) and all pending interlocutory applications are dismissed along with the Notice under Section 13(2).

Gravity Concrete Solutions Pvt. Ltd. versus Jammu and Kashmir… — Banking and Recovery | DRT (2023)

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SA No.169/2022

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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SA No.169/2022

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Gravity Concrete Solutions Private Limited and others

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Versus

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The Jammu and Kashmir Bank and others

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15.06.2023 Item No.15

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Argued by : Sh.Ashok Malik, Counsel for the Applicant. Sh.Mayank Mathur, Counsel for Respondent bank.

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Gravity Concrete Solution Private Limited and others (Applicants) have filed the present Securitization Application (SA) under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 against The Jammu and Kashmir Bank and others (Respondents).

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In brief the case of the applicants, as setup up in the SA, is that in the year 2013; 2015; 2017 and 2018, respondent No.1 had sanctioned credit and overdraft facilities, fully detailed in para No.5.3 of the application, to them. To secure these debts, applicants No.2 to 9 had created security interest in respect of the properties, fully detailed in para No.5.4 of the application, in favour of the bank. As per the applicants, on 05.11.2021, respondent No.1/Bank issued a notice under Section 13(2) of the SARFAESI Act recalling the sum of Rs.36,72,34,098.19p. The notice also stated that accounts of the applicants had been declared NPA on 30.09.2019. Applicants have alleged that respondent No.1 had declared their account NPA, illegally.

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It appears that at the instance of applicant No.1, respondent No.1 had issued a bank guarantee of Rs.2,56,12,608/- in favour of respondent No.6. On the invocation of this bank guarantee by respondent No.6, respondent No.1/bank made the payment of the same to respondent No.6. As per the applicants, respondent No.1 should not have made the payment of the bank guarantee. In the SA, applicants have also alleged about some work contract by Konkon Railways.

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It is their case that they could not perform this contract on account of the

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Page 1 of 9

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SA No.169/2022

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unpreparedness of respondent No.6. It is also alleged that there were some arbitration proceedings and the Hon’ble J&K High Court passed a status quo order. Applicants have also alleged that respondent No.1 had made the payment of bank guarantee, wrongly. Bank continued to assure them that they would not make the payment of bank guarantee. However, on account of the pressure mounted by respondent No.6, respondent No.1 made the payment of bank guarantee. The Bank also called upon them to deposit the bank guarantee amount within a week’s time. They raised many objections with the bank. However, the bank did not take any action. On 05.12.2019, they also issued a legal notice to the bank claiming damages from them. On 18.01.2020, they informed the reasons which led to the irregularities in their accounts and requested that their accounts as well as the accounts of their sister concern, be restructured. After serving the legal notice, they had meetings with the bank officers. On 03.04.2020, they informed the bank that they were expecting a payment of Rs.7.91 crores from MES department in respect of the arbitration award and requested that their accounts be regularized. Again on 29.04.2020, a request was made by them to regularize their accounts. On 08.05.2020, respondent bank demanded details of the work contracts from them. In the meantime, they were also informed that respondent bank had put their case on hold temporarily. On 01.06.2020, respondent bank again sought details from them in respect of their proposal for restructure. On 05.06.2020, bank sent them the statements of account. They forwarded the statements of account to the Chartered Accountant. On 30.09.2020, they requested the bank for enhancement of SOD limit from 1955 lacs to 3000 lacs as working capital; bank guarantee upto 2000 lacs vide letter dated 29.04.2020. However, the said letter is still pending. From time to time the bank continued to ask them to provide some details of the work contracts allotted to them; the payments due to them and other facts. They continued to provide the information to the bank. On 30.09.2020, they again requested the bank for regularization of their accounts. Vide letter dated 05.10.2020, the bank was pleased to sanction draw down facility in SOD account on the basis of 75:25

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Page 2 of 9

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SA No.169/2022

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towards the liquidation and overdue amount. However, vide letter dated 08.10.2020, they requested the bank to revise the draw down facility in SOD account on the basis of 90:10 towards the liquidation and overdue in the existing SOD and term loan facility. On 20.10.2020, they requested the bank to revise the draw down facility to 84:16. On 13.11.2020, they again made representation to the bank for restructuring their account. On 03.12.2020 and 15.12.2020, the bank sought information from them regarding the details of the contracts under execution and the pending payments. On 19.12.2020, bank sought further information. They duly complied with the instructions of the respondent bank. Further, on 07.01.2021, the respondent bank declined to sanction draw down facility in the ration of 84:16. On 13.01.2021, they issued legal notice claiming damages of Rs.54,12,11,000/-. On 05.11.2021, the bank issued notice under Section 13(2) of the SARFAESI Act. On 12.12.2021, they made the representation. On 04.01.2022, the bank sent the rejoinder. On 06.04.2022, there was meeting between the Chairman of the bank and applicants. The Chairman of the bank assured them that he will look into their genuine grievances. Thereafter, the bank filed application under Section 14 of the SARFAESI Act, before CJM, Srinagar, who ordered to take the physical possession. They had also challenged the order passed by CJM, before the Hon’ble J&K High Court, which dismissed the same and directed them to seek their remedy before appropriate forum. They also filed the application before CJM, Srinagar for recalling the order. The application is still pending. On these broad facts, they filed the present SA on 25.07.2022.

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In the reply filed by the bank, it has alleged that initially in the year 2012, it had granted SOD facility of Rs.2,25,00,000/- vide sanction letter dated 18.03.2012 to applicant No.1. Applicants had executed all the relevant documents in favor of the bank on 20.03.2012 and 24.03.2012. In the year 2012, respondent No.7 had acquired a contract from Konkan Railway Corporation. Respondent No.7 sub-contracted the work to applicant No.1. Thereafter, respondent No.7

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Page 3 of 9

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SA No.169/2022

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requested the bank through Parvez Ahmad Dar (Applicant No.2) to grant Performance Bank Guarantee Facility of Rs.2,56,12,608/- in favour of Konkon Railway Corporation Limited. This facility was granted. The parties executed the relevant documents. In the year 2013, at the request of applicant No.1, the limit was enhanced from Rs.2,25,00,000/- to Rs.7,50,00,000/- vide sanction letter dated 16.03.2013. In the year 2013, at the request of applicant No.1, the bank granted Term Loan of Rs.55,80,000/-. Again a term loan of Rs.1,20,00,000/- was granted for the purchase of ten tippers of TATA Company. In the year 2014, the SOD Facility was enhanced from Rs.7,50,00,000/- to Rs.12,00,00,000/-. In the year 2015, the respondent bank sanctioned the WCTL facility of Rs.3,13,02,000/-. In the year 2016, the respondent bank enhanced the SOD facility from Rs.11,00,00,000/- to Rs.14,50,00,000/-. In the year 2017, the respondent bank sanctioned/restructured the credit facilities. Vide Sanction letter dated 07.03.2018, a car loan of Rs.12,56,000/- was also sanctioned. In the year 2019, adhoc facility to the tune of Rs.2,50,00,000/- was sanctioned above the existing facility of Rs.15,95,00,000/-, for 90 days. In the year 2019, the bank sanctioned the adhoc facility to the tune of Rs.6,00,00,0000/-, for 90 days. In the year 2019, the respondent bank at the request of applicant No.7 extended the bank guarantee of Rs.2,56,12,608/- in favor of Konkon Railway Corporation. Applicants created security interest on different properties. Vide email dated 12.09.2019, the bank informed the applicants that Konkon Railway Corporation had been demanding the encashment of Bank guarantee of Rs.2,56,12,608/-. The applicants failed to deposit the money. The bank informed the applicants that as per the instructions of Head Office, the amount has been credited to the account of Konkon Railway Corporation. Applicant also failed to adjust the adhoc facility of Rs.6,00,00,000/within 90 days. Accordingly, as per the circulars of RBI, the account was declared NPA. The applicant defaulted in the payment of interest in the SOD account and EMI in the term loan account. Applicants, even after their account was declared NPA, did not come forward for the repayment plan. Accordingly, on 16.11.2021 bank issued the composite notice under Section 13(2) of the Act. Applicant No.1

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Page 4 of 9

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SA No.169/2022

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vide letter dated 22.12.2021, raised frivolous objections under Section 13(3)(A) of the SARFAESI Act stating that the composite notice dated 16.11.2021 had been issued in a casual manner and further, the bank had wrongly made the payment of bank guarantee to Konkon Railway Corporation. The bank duly replied on 04.01.2022 to the applicants. Bank also informed the applicants that the account has been declared NPA as per the RBI guidelines. Further, this is not a manual process. Further, bank also filed an application under Section 14 of the SARFAESI Act before the CJM, Srinagar, who vide Order dated 22.06.2022 allowed the same and permitted the respondent bank to take the possession. The SHO was also directed to submit the compliance report dated 30.07.2022. When the SHO visited the spot to take the possession on 28.07.2022, applicant No.2/Tahir Ahmad Dar and other persons created ruckus there. Respondent Bank also filed a FIR on 28.07.2022. The SHO also filed a compliance report before the CJM on 30.07.2022 who granted the sanction till 22.06.2022. The matter is pending before CJM. The respondents in reply, have alleged that the applicants have got no case at all, but they are simply delaying the proceedings. They have dragged the bank to civil litigation by filing a civil suit for damages. The bank prayed that there is no merit in the present SA and the same be dismissed.

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This deserves to be mentioned that the present SA was filed on 25.07.2022 and was put up before the PO for the first time on 01.08.2022. On 01.08.2022 the case was adjourned to 02.08.2022. On 02.08.2022 the applicant was directed to deposit Rs.2 Crores. Admittedly, till date applicants have not deposited the amount Rs.2 Crores. During the pendency of the SA, applicants also filed IAs.

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Mr. Ashok Malik Counsel for the applicants has argued that the whole of the action of the bank in initiating SARFAESI proceedings is wrong. The main reason for the account of the applicants becoming NPA is the wrong payment of bank guarantee to the Konkon Railway. Further, the bank did not consider the objections of the applicants submitted by it in pursuance to the notice under Section 13(2) of the SARFAESI Act. Mr. Ashok Malik also submitted that whereas, on the one hand the bank was assuring the applicants to enhance the

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Page 5 of 9

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SA No.169/2022

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credit facilities; on the other hand it initiated the SARFAESI proceedings. Bank also did not follow the RBI guidelines issued in its circular dated 01.07.2015. Mr. Malik submitted that as a rule the bank should have submitted the case of the applicants to the designated committee for restructuring but it was not done. Accordingly, the action of the bank is bad in the eye of the law. Counsel submitted that the notice under Section 13(2) as well as order passed by the CJM be set aside.

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7. Per cont ra, Mr. Mathur, counsel for the bank submitted that the bank has been extending credit facilities to the applicants. At the request of the applicants, a bank guarantee of Rs.2.56 crores and odd sum was issued. The said bank guarantee was invoked by Konkon Railways. The bank had no option except to make the payment of the same. To stall the recovery proceedings, applicants have been indulging in litigation. Applicants had approached the Civil Court and filed a frivolous civil suit for damages. Applicants had also approached the Hon’ble Jammu and Kashmir High Court. Applicants had challenged the order passed by the CJM before the Hon’ble Jammu and Kashmir High Court, which was dismissed. Applicants have been carrying on the business, but they are not routing their business through J&K bank. This fact is admitted by the applicants. The respondent bank, time and again had written to the applicants to submit the documents for restructuring their account. However, applicants have been dragging their feet. In these circumstances, there was no option for the bank except to initiate the SARFAESI proceedings. Winding up his arguments, Mr. Mathur submitted that the applicants have no case, but they are indulging in avoidable litigation. There is no merit in the present SA and the same be dismissed.

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I have considered the rival contentions.

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At the outset, this deserves to be mentioned that though the applicants are carrying on the business, yet, they are not routing their financial transactions through the respondent bank. As a rule, the applicants cannot route their business/financial transactions in respect of the account, which they are

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Page 6 of 9

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SA No.169/2022

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maintaining with respondent bank, through other channels or banks. The RBI guidelines on this aspect are to the effect that the financial transactions be routed through the bank from which the borrowers have taken the loans. It is also admitted on the record that applicants have not carried out any transactions through the respondent bank since 2019. With this background, I come to the issues raised by the applicants.

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It is admitted on the record that respondent No.1/bank had sanctioned credit facilities to the applicants and the applicants had created security interest in respect of some immovable and movable properties in favour of the bank. In the present SA, applicants have challenged the action of the bank in declaring their account NPA. Applicants have also challenged the order passed by CJM, Srinagar, under Section 14 of the SERFAESI Act. The case of the applicants is that the bank had made the payment of the bank guarantee of Rs.2,56,12,608/- to respondent No.6 wrongly and this resulted in their account being declared NPA. It is also the case of the applicants that bank had not responded to their objections which they had raised in reply to notice issued under Section 13(2) of the SARFAESI Act. Though the applicants have not raised the issue in the present SA that bank should have placed their case for restructuring before the designated committee, yet, at the time of arguments this argument was raised by Mr.Ashok Malik, counsel for the applicant.

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However, I am of the considered view that none of the grounds raised by the applicants in this SA has got any merit. First of all, once the bank guarantee had been invoked by respondent No.6, bank had not option except to make the payment of the same. As a rule, bank cannot decline to make the payment of bank guarantee, in case it has been invoked as per the terms and conditions of the same. In the case in hand, applicants have failed to show that the bank had committed any illegality in making the payment of the bank guarantee. There is no denying the fact that the bank in one of its letters has written to the applicants that they have made the payment of the bank guarantee on account of the pressure mounted by respondent No.6. It appears that the bank was delaying the payment of the

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SA No.169/2022

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bank guarantee to respondent No.6, at the request of the applicants. Since there was no ground for the bank to withhold the payment of the bank guarantee, it had no option except to make the payment. The action of the bank in making the payment of bank guarantee cannot be found fault with. I am of the considered view that there is also no force in the contention of the applicants that bank did not consider the representation made by them in reply to the notice issued under Section 13(2) of the SARFAESI Act.

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I have perused the representation dated 22.12.2021 (Annexure A-44) made by the applicants to the bank in reply to their notice issued under Section 13(2) of the Act. Applicants in their representation have made mention of the payment of bank guarantee; legal notice issued by them; Covid etc. Vide letter dated 04.01.2022 (Annexure A-45) bank had responded to the same and mentioned that their representation was the verbatim copy of the legal notice dated 13.01.2021 which they had already responded vide their letter dated 10.02.2021. The bank also responded that though it had sanctioned the draw down facility yet, the attitude of the applicants was non cooperative. I have also perused the notice dated 13.01.2021 (Annexure A-38) of the Advocate of the applicants wherein they have raised the issue of payment of bank guarantee. Bank in reply to the notice dated 13.01.2021, had replied vide letter dated 10.02.2021 (Annexure A- 41) wherein they had clarified that they were under obligation to make the payment of bank guarantee. They also informed that the payment of bank guarantee has got nothing to do with the issue of declaring the account of the applicants NPA. Bank had also pointed out that despite the fact that they had sought certain clarification and documents from the applicants, however, applicants had not furnished the same. The bank was left with no other alternative, except to proceed under the SARFAESI Act. I am of the considered view that applicants have raised a frivolous ground that the bank had declared the account NPA as it had made the payment of bank guarantee illegally. In fact the bank was under legal obligation to make the payment of the same. The contention is thus, rejected.

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SA No.169/2022

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12 I am of the considered view that there is no force in the contention of the applicants that bank should have placed their case before the designated committed as per the RBI guidelines issued vide notification dated 01.07.2015. In the whole of the SA, no such ground has been raised by the applicants. It was only during the pendency of the SA, applicants raised this issue. It has already been mentioned that though applicants have been carrying on the business, yet, they have not been routing their transactions through respondent bank since 2019. Further, the bank has been writing to them to provide information to them about their credit worthiness, yet, applicants have not been responding to the same. 13. I am of the considered view that the bank could consider the case of the applicants for placing before the designated committee, had the applicants been routing their business through the bank. I am of the considered view that this is a frivolous SA. Applicants have filed this SA with the object to delay the recovery. Earlier also they had filed civil suit and other proceedings before the Hon’ble J&K High Court, without any basis. There is no merit in the present SA. The same is hereby dismissed . All the pending IAs, if any, are also disposed of, accordingly.

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File be consigned to record room after due compliance.

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(A S Narang) Presiding Officer DRT-I, Chandigarh

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Pronounced in open court Manoj/15.06.2023

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Gravity Concrete Solutions Pvt. Ltd. v. Jammu and Kashmir Bank Limited

Case brief

What is this about?

What did the court decide?

Gravity Concrete Solutions Pvt. Ltd. v. Jammu and Kashmir Bank Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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Issues for consideration

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