Dismissed

Sri Ramchandra Rao Annamaraju v. Kotak Mahindra Bank Limited

DRT27 Mar 2023SA/304/2022

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal-II, Hyderabad, dismissed an application by loan borrowers to quash measures taken by Kotak Mahindra Bank for enforcing security interest and taking physical possession. The court ruled that the bank had valid grounds based on dishonored installments and held that judicial courts cannot interfere with interest rates mandated by banking regulations.

What did the court decide?

The Securitization Application was dismissed, the interim stay was vacated, and interlocutory applications were closed.

Sri Ramchandra Rao Annamaraju versus Kotak Mahindra Bank… — Company and Corporate | DRT (2023)

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IN THE DEBTS RECOVERY TRIBUNAL-II^{AT HYDERABAD}

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DATED THIS THE 27TH DAY^{OF MARCH, 2023}

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PRESENT: SH. RAMESHWAR^{KOTHE,B.Com,L.LB.(Hons.),M.A'} PRESIDING OFFICER

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Securitization Application^{No.3O4 OF 2022}

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1, Sri Ramachandra Rao^Annamraju S/o late A. Ramakrishna^Rao

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Aged about 63 Years,^Occ:Business R/o H.No.2-9t-30-W-22,^{Plot No.22} Vasantha ValleY, White^Fields Kondapur, Ranga^{Reddy District-500084}

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Smt, Sujatha^Rao

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W/o Sri Ramachandra^{Rao Annamraju}

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Aged about 57 Years,^{Occ:Housewife} R/o H.No.2-9L-30-W-22,^{Plot No.22} Vasantha ValleY,^WhiteFields Kondapur, Ranga Reddy^{District-500084}

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.,....,APPlicants'

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Versus

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The Kotak Mahindra^{Bank Limited} Rep. by its Authorized^Officer SituateO at ShoP^{No.4, 2nd Floor} North West Avenue^{Road,Sector-4} Club Road, Punjabi^Bagh t',tew Oetni-f 1OOZO

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.......Respondent.

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Counse! for the Applicants :Mr'N' Meher Prasad :Mr'R' Raiendra^Prasad Counsel for^{Respondent Bank}

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.; B-D-EB:-

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l.TheApplicantsfiledthepresentSecuritisationApplicationu/s.17 of the securitization^{and Reconstructionof Financial Assetsand} EnforcementofSecuritylnterestAct,2002(hereinafter.'theAct,. forshort)todeclaretheactionoftherespondentbankintaking Alv\94:>'

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Page 2 of 9

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SA No.304/2022

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physical possession of the SA schedule property through advocate commissioner vide notice dated 11.11.2018 in pursuance of warrant issued in Crl lvl P No.513/2022 on the file of learned Chief Metropolitan Magistrate, Cyberabad at LB Nagar and^possession notice dated 19.03.2019 issued under Sec.13(4) of the Act, as illegal, arbitrary and void.

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The case of the applicant, in brief, is that the 1st applicant availed term loan of Rs.2.15 crores from the respondent bank in the year 2018 and 2nd applicant stood as guarantor and mortgaged the SA schedule property as security. In spite of Covid-19 pandemic situation the applicants paid the instalments regularly. However, they received advocate commissioner notice on ll.ll.ZO22 to vacate the property on or before 26.ll.2022 in pursuance of warrant issued in Crt Mp No.513/2022 by the tearned Chief Metropolitan Magistrate, Cyberabad at LB Nagar. Thereafter the applicants obtained copy of application filed under Sec.14 by the respondent bank before learned CMM on 17.11.2022. Before initiating process to take physical possession, the demand notice and possession notice were not served on the applicants. The possession notice stated to be issued on 19.03.2019 was neither published in two leading newspapers nor affixed on SA schedule property thereby the respondent bank violated Rules g(1) and 8(2) of the Security Interest (Enforcement) Rules, 2002 (,,the Rules" hereinafter). The loan account was not NpA as per RBI guidelines. As per statement of account obtained by the applicants, an amount of Rs.53,21,125l- has been imposed as collection charges. In the application filed before learned CMM the date of NPA was mentioned as 09.09.2014 which is much prior to sanction of loan in 2018. The applicants are ready to

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Page 3 of9

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SA N0.304/2022

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regularize the account if some^{breathingtime is granted. The} respondent bank without considering^{the request eitherto} regularize the account by^{receivingoverdue amounts or to} restructure the loan is taklng^{coercivesteps to take physical} possession and sell the SA schedule^{property.Hence this 5A.}

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The respondent^{bank filed reply statementalong with documents} staling, inter alia, that the^{loan of Rs.215Lacs was sanctioned in} the^year 2014 and not^{in 2018. The applicants committed several} defaults even^prior to^{Covid-19 pandemic period. Due to several} defaults committed in^{payment, the loan account was classified} as NPA on 08.08.2018^{and demand notice dated 28.11.2018was} issued u/s 13(2) of the Act,^{2002 providing 60 days time to clear} the entire outstanding amount^{and the demand noticewas} served through registered^{post to the applicants.Since there was} no^{payment,possessionnotice dated19.03 2019 was issued u/s} 13(4) of the Act, the^{same was seTVedpersonallyon applicants,} affixed on secured^asset and^{published in 'The Tlmesof India'} and'Andhra Jyothi', English^{and Telugunewspapers respectively.} The applicants due an amount of^{Rs.2,65,50,943.21psas on} 18.08.2022 including all charges as^{accepted by the applicants} under sanctlon letter terms^{and conditions.The respondentbank} approached the Hon'ble^{CMM as provided underSec.14of the Act} for taking^{physicalpossession} of^{secured asset. The advocate} commissioner served advance^notice on^{LL.77.2022to vacate the} premises on or before 26.fl.2022 in accordance with^the Warrant issued by the learned^{CMM in Crl MP No.513/2022.} Though the applicants received the^{demand noticeand} possession notice, they filed the present SA with all^false averments and therefore,^{the SA is liableto be dismissed}

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Page 4 of 9

SA No.304/2022.

The applicants filed rejoinder to the reply filed by the respondent bank stating that admittedly the respondent bank submitted affidavit with date of NPA as 08.08.2014 which is much prior to sanction of loan on 06.11.2014. The statement of account filed by the respondent bank reflects the substantial payments of Rs.25 lakhs and Rs.22.95 lakhs made by the applicants on 22.09.2021 and 21.02.2022. fhe respondent bank charged more than Rs.61,78,000/- towards collection charges and Rs.2,09,26,000/- towards overdue interest amount which shows atrocious attitude of the respondent bank and hence the actions of the respondent bank are liable to be set aside.

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Heard learned counsel appearing for the applicants and learned counsel for the respondent bank. Perused the written arguments filed for the applicants as well as the respondent bank and the material documents placed on record.

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The learned counsel for the applicants reiterated the averments of the application stating that the loan account was not an NPA in view of the substantial payments made by the applicants. The respondent bank initiated coercive steps to take physical possession of the SA schedule property without serving demand notice and the possession notice as required under Secs.13(2) and 13(4) of the Act respectively. The respondent bank also violated Rules B(1) and 8(2) of the Rules by not affixing and publishing the possession notice. The respondent bank did not consider the request of applicants either to regularize the account by receiving overdue amounts or to restructure the loan. The respondent bank charged interest of Rs,2,09,26,000/- usuriously including penal interest @3olo per month which is against the

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SA N0.304/2022

guidelines of RBI and^judgment of the Hon'ble Supreme^Courtin Central Bank ot India vs,^{Ravindra and others} [(2002)¹ SCC 3671 and the ratio^{was Furtherapplied in Civil Appeal} No.8443 of 2O1O decided on 01.10.2010^{in the case of Punjab &} Sind Bank vs. A ied^{BeveragecompanYPvt. Ltd & Others.} The respondent bank also charged exorbitant^amountoF Rs.61,78,OOO/- towards^{collection charges. It also failed to adjust} the interest on interest during the^{Covid periodfrom 01.03.2020} to 31.08.2020 as^per RBI Circular^{dated27.04.2021 in} conformity with the^judgment of^{the Hon'ble Supreme Court in} the case of Small Scale^{fndustrialManufacturers} Association vs, lrOI & Ors in^{WP(C) No.476 of 2020 decidedon} 23.03.2021.

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It is further contended that^{the substantial paymentsto a tune of} Rs.48 lakhs made on two dates^{were not consideredby the} respondent bank. The date of NPA^{was falselystatedas} 08.08.2014 i.e.,^{even prlor to sanctionof loanon 06.11.2014in} the affidavit filed before the Hon'ble^{CMlvl and} 9ot^{appointed the} advocate commlssioner.

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The learned counsel further submits that^{the loan amountof} Rs.2.15 crores was^payable in 84^EMIS @^{Rs.4,51,884/-whlch} includes principal amount and^{interest amountbetween} December 2074 and^{September2021 whereasthe applicants} cleared the loan by February^{2022. fhe outstanding amount due} as^per demand notlce^{was Rs.1.98 croresas on 05.11.2018but} still the respondent bank^{is demandingRs.2,65,50,943,21 ps as} on 18.08.2022 even after all^{payments. Thereno subsisting debt} realizable by enforcing the security. While^referring to^the

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Page 6 of 9

sA No.304/2022'

documents filed along with application and written submissions in support of his contentions, the learned counsel sought for setting aside all the SARFAESI measures initiated by the respondent bank against the SA schedule^property.

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The learned counsel for the respondent bank refers to the documents filed along with reply statement as proof of service of demand notice, possession notice and affixture and publication of possession notice dated 19.03.2019. He also refers to the statement of account evidencing irregular conduct of the loan account by the applicants. Out of 116 instalments to be paid as on 18.08.2022, 8I number of instalments were dishonoured which can be noticed from statement of account. Therefore, the applicants cannot state that they paid the entire amount. The date of NPA was 08.08.2018 and the same was mentioned in the demand notice received by the applicants. The respondent bank lawfully approached the Hon'ble CMM by filing application u/s 14 of the Act and the advocate commissioner appointed in Crl MP No.513/2022. Due to the status quo order passed by this Tribunal, the respondent bank is not in a position to proceed further to realize the legitimate dues. The SA is filed with all frivolous grounds. With these submissions, learned counsel sought for dismissal of the application.

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Now, the point that arises for consideration is ;- Whether the applicants established any valid ground for quashing the measures taken by the respondent bank including measures for taking physical possession of the SA schedule praperty vide advocate commissioner notice dated 11.11.2022 in pursuance of order in Crl MP No.513/2022 on the file of learned Chief Metropolitan Magistrate, Cyberabad at LB Nagar as prayed for in the SA? 7frg1g /,' :f'"'

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Page 7 of9

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sA No.3O4l2O22

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The applicants are not disputing availment of^{loan facilities from} the respondent bank and mortgaging the^{SA schedule property} as security. The sanctlon letter dated 06.1f.2074^{containing the} terms and conditions of the loan^{facilltywas acknowledged by the} applicants. The statement of^{accountfiled by the respondent} bank is dated 18.08.2022 starting^{from disbursement of loan in} 2014. Out of 116 instalments, only 35^{instalmentswere} honoured and 81 instalments^{were dishonoured'At each instance} of default, collection charge^{was levied as per sanction terms and} so also the^penal interest. The^{payments claimed to be made} subsequent to demand notice issued in^{2018 have been reflected} in the loan account as^per statement of account. In^{view of this,} the argument that the applicants^cleared the^{entire due amount} does not hold water.

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1,2. The learned counsel for applicants heavily^{relied upon the} judgment of Hon'ble Supreme Couft in Puniab & Sind Bank vs, M/s Allied Beverage Company Pvt, Ltd &ors.^{(supra) lo} substantiate his argument that the^{respondent bank cannotbe} permitted to capitalize the interest by charging interest on interest. In the cited^{judgement, while referringto the declsionof} the Hon'ble Supreme Court in centrar Bank^of India^{vs. Ravindra} and others case (supra), the^{Hon'ble SupremeCourt upheld the} declsion of the Hon'ble High Court in^reducing lhe^{pendent lite} and future rate of interest from^18o/o to^{14yo as grantedby} the learned Debts Recovery Tribunal,^Delhi in^OA filed^{under the} RDB Act, 1993. As the case on hand is not an^{OA, question of} dealing with^pendent lite or future mterest does not arise and^the judgement relied upon is not of help to the applicants.

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Page 8 ofg

SA No.304/2022'

Moreover, it is pertinent to mention that the Reserve Bank of India is the supervisory authority which issues guidelines from time to time to the Banks/Fls with regard to rate of interest and the Banks/Fls are bound to follow the same. This Tribunal cannot interfere with the issue of interest charged on a loan according to Sec.214 of the Banking Regulation Act which reads as hereunder:

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"27A. Rotes oI interest chorged by bdnking componies not to be subject to sctutiny by courts.- Notwithstonding dnything contoined in the Usuriout Lodns Act, 1918 110 oI 1918), ot any othet low rcloting to indebtedness in Iorce in dny o tansoction between o banking compdny dnd its debtot shdll 'tote, not be rc-opened by dny court on the grcund thot the rute ol intercst chorged by the bdnking compony in rcspect of such trunsoction is excessive.

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The respondent bank approached the learned Chief Metropolitan Magistrate as provided under Sec.14 of the Act for taking physical possession of the secured asset though advocate commissioner who issued notice dated 11.11.2022 to the applicants to vacate the premises on or before 26.77.2022 in compliance of order in Crl MP No.51312022. The date of NPA mentioned in the application filed before the learned CMM as 08.08.2014 instead of 08.08.2018 appears to be a typographical mistake. However, the points urged in the application before the learned CMM cannot be questioned in the application filed under SARFAESI Act before this Tribunal. The date of NPA is mentioned as 08.08.2018 in the demand notice issued under Sec.13(2) of SARFAESI Act which was received by the applicant. Therefore, the contentions advanced by the applicants with regard to taking physical possession are not tenable.

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In view of the above, I do not see any merits in the application and the applicants failed to make out any valid ground to set aside the measuTes undertaken by the respondent bank under ary*

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Page 9 of 9

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SA No.30412022

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the provisions of the SARFAESI Act for taking^{physical possession} of SA schedule^property through advocate commissionerⁱⁿ pursuance of orders in Crl MP No.5L3/2022 on the file of learned Chief Metropolitan Magistrate, Cyberabad at^L. B. Nagar. Accordingly, the SA is liable to be dismissed and the interim stay granted vide order dated 23.tL.2022 and extended from time to time is liable to be vacated.

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In the result, this Securitization Application No.304/2022 is dismissed.

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L7. Consequently, the interim stay granted vide order dated 23.LL.2022 and extended from time to time, stands vacated and the Interlocutory Applications pending if any, shall stand closed.

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No order as to costs.

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communicate a copy of this order to the parties concerned.

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(Typed to my dictotion by the Ps, corrected, signed ond pronounced by me in the open court on this the 2t'h doy of March, 2023)

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?K-,>{e ESHWAR KOTHE) PRESIDING OFFICER

Sri Ramchandra Rao Annamaraju v. Kotak Mahindra Bank Limited

Case brief

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Sri Ramchandra Rao Annamaraju v. Kotak Mahindra Bank Limited

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