Allowed

Ms Sanatan Logistics Pvt. Ltd. v. Kotak Mahindra Bank Limited

DRT18 Jul 2023SA/61/2023

Case brief

AI extract

What is this about?

The Tribunal examined a Securitisation Application challenging the bank's declaration of the account as NPA and ensuing possession actions. The court found the account did not meet the 90-day NPA criteria and the bank failed to answer specific pleas.

What did the court decide?

The Securitisation Application was allowed with costs on the ground that the account was not classified as NPA for a continuous period of 90 days.

Ms Sanatan Logistics Pvt. Ltd. versus Kotak Mahindra Bank… — Banking and Recovery | DRT (2023)

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DEBTS RECOVERY TRIBUNAL-2, CHANDIGARH,

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PRESIDED OVER BY M.M. DHONCHAK

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SECURITISATION APPLICATION NO.61/2023

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DATE OF INSTITUTION: 16.03.2022

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DATE OF DECISION: 18^th DAY OF JULY, 2023

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M/s Sanatan Logistics Private Limited, a body corporate, having its Registered Office at House no.1267, Sector-4, Urban Estate, Gurgaon, through its Director, Sh. Kushal Raj Singh

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Sh. Kushal Raj Singh S/o Sh. Hari Raj Singh, Director, M/s Sanatan Logistics Private Limited R/o of House No.1267, Sector-4, Urban Estate, Gurgaon

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Sh. Bhajan Singh S/o Sh. Chandgi Ram, Director, Sector-4, Urban Estate, Gurgaon

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….. Applicants

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Versus

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Authorised Officer, Kotak Mahindra Bank Limited, 1/11, First Floor, East Patel Nagar, Delhi

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Kotak Mahindra Bank Limited, having its Branch Office at 1/11, First Floor, East Patel Nagar, Delhi

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Sh. Batesh Thakur, the alleged Authorised Officer, Kotak Mahindra Bank Limited, 1/11, First Floor, East Patel Nagar, Delhi

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…..Respondents

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Argued by: Sh. Manoneet Dalal, Authorised Representative for the applicants (SA)

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Sh. Vikram Sharma, Deputy Vice President for the respondent bank

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FINAL ORDER

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This Securitisation Application has been filed under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity).

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In brief, it is the case of the applicants that order dated 16.01.2023 for taking over the physical possession of the property belonging to the applicants by respondent No. 4, was illegal; that the declaration of the account by the applicants as NPA on 12.12.2019 even after issuance of

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SA/61/2023 M/S SANATAN LOGISTICS PRIVATE LIMITED AND OTHERS VS KOTAK MAHINDRA BANK AND OTHERS

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revised sanction letter dated 21.12.2019, by issuing legal illegal demand notice under Section 13(2) of the Act was illegal; that a fraud was played upon the District Magistrate by actively concealing and misrepresenting the important facts with regard to issuance of revised sanction letter dated 21.12.2019 and existing of tenancy over the commercial property of the applicants; that applicant No. 1 being a small and medium enterprise was entitled to all benefits, privileges and concessions available to a MSME Establishment; that the respondent bank sanctioned CC limit of Rs. 13,50,00,000/- vide sanction letter dated 26.06.2018; that the CC limit was renewed vide agreement dated 10.08.2019; that order dated 06.01.2023, was passed in violation of order passed by this Tribunal in SA No. 127 of 2021; that order under Section 14 of the Act cannot survive without a valid notice under Section 13(4) of the Act; that the account was declared NPA without following the guidelines laid down by the Reserve Bank of India; that the account of the applicants was never irregular for a continuous period of 90 days; that the applicants got their CC account standardized after adjusting the fixed deposit of 1.5 crores approximately against CC account and thereby, the interest on the CC limit of their account stood paid till the end of the month of March 2020, i.e. 31.03.2020; that the account access of the applicants was frozen whereby only the credit entries were allowed and no debits were permitted by the respondent bank; that the respondent bank approached the applicants to novate the terms of the contract and after mutual negotiations, it was decided to novate the CC limit of the account of applicant No. 1 and revising the same from 13.5 crores to 12.06 crores; that the respondent bank never acted on the same despite request from the applicants; that an e-mail was sent on 05.06.2020 by the applicants requesting restructuring of its loan account but the respondent bank did not revert on this proposal; that on the one hand, the account of applicant No. 1 was classified as NPA on 12.12.2019 but on the other hand, the revised sanction letter dated 21.12.2019 was issued whereby the account of applicant No. 1 was restructured with a revision in the sanction of CC limit along with other terms and conditions; that commercial vehicle bearing Registration No. HR55V5098 belonging to applicant No. 1 fully loaded with goods of the customers of the applicants was seized and possession of the same was taken by the respondent bank.

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Commercial Truck was a secured asset as per Section 2 (zc) of the applicants over which a security interest has been created by the respondent bank in view of Section 2 (zf). It is pertinent to mention that as per the provisions of the Act, the possession of security interest could only be

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obtained by the respondent bank after the declaration of the account as NPA. Thereafter, only after complying with notice requirements under Sections 13 (2) and 13 (4) of the Act, and after obtaining an order from the District Magistrate under Section 14 of the Act, the possession could be taken from the Applicants. The Respondent bank has also committed a material criminal breach of trust and fragrantly abused the powers by issuing letters/notices dated 22.11.2019, i.e. even before declaring the applicants as an NPA, to all the major sundry debtors/clients of the applicants asking them to deposit the amount due to the applicants in the account being maintained with the respondent bank. The respondent bank only had the authority to take over the possession of the secured properties for which the equitable mortgage had been created with the respondent bank. The respondent bank has acted in a malicious and fraudulent manner only to usurp the valuable properties of the applicants. As on 31.12.2019, respondent bank has charged and debited the CC account of the applicants within amount of Rs. 23,20,463/- towards interest for the month of December 2019, which is almost double of the regular interest charged by the respondent bank in accordance with the terms of the sanction letter. It is relevant to mention that the charge or debit of the said sum for the period from 1.12.2019 to 31.12.2019, was far too excessive as compared to the interest charged in the earlier months which amounted to Rs. 10,00,000/- per month. The interest charged by the respondent bank on 31.10.2019 was Rs. 11,35,525/when the CC limit was Rs. 13.5 Crores and the interest charged on 30.11.2019 was Rs. 10,96,990/- when the CC limit was brought down to 12.06 Crores after the adjustment of the FD lying with the respondent bank. The account balance as on 30.12.2019 was Rs. 12,05,88,839.26/- and thereafter, on 31.12.2019, the Respondent bank debited an excessive interest of Rs. 23,20,463/- without any plausible explanation and flagrantly abused its power. No mention of revised sanction letter dated 21.12.2019 was ever made by the respondent bank in their notice dated 03.06.2020 under Section 13(2) of the Act and deliberately concealed the fact of existence of a revised sanction letter only in order to cover up their illegal act of wrongful declaration of the account of the applicants as NPA on 12.12.2019, just few days before the issuance of revised sanction letter. The previous sanction letter dated 26.06.2018 along with the terms of the operating CC limit have been overridden and substituted by a new sanction letter dated 21.12.2019 and hence, this act is expressly covered by Section 62 of the Indian Contract Act, 1872, constituting a valid and enforceable novation. The respondent bank has made an admission regarding the

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SA/61/2023 M/S SANATAN LOGISTICS PRIVATE LIMITED AND OTHERS VS KOTAK MAHINDRA BANK AND OTHERS

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presence of a revised sanction letter before the Debt Recovery Tribunal – I, at New Delhi, in its Original Application dated 24.08.2020 in Para 5 clause (xxl), wherein the Respondent bank has deliberately misrepresented the date but admitted the revision of CC limit from Rs. 13.50 Crore to Rs. 12.06 Crores. On one hand, the respondent bank classified the account of the Applicant No. 1 NPA on 12.12.2019 and froze the account of the Applicant No. 1 thereby denying the Applicant No. 1 access to the sanctioned limit and on the other hand, issued a revised sanction letter dated 21.12.2019, whereby the account of the Applicant No. 1 had been restructured with revision in the sanctioned CC limit along with other terms and conditions. The respondent bank has played a fraud upon the Court below by actively concealing the fact of existence of the revised sanction letter and novation of contract dated 21.12.2019 in the proceedings under Section 14 of the Act, before the District Magistrate, Gurugram, Haryana.

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Reply to the SA was filed wherein inter alia it was contended that that upon representation and documents submitted by the applicants, Cash Credit Facility was granted for a sum of Rs. 13,50,00,000/- (Rupees Thirteen Crores Fifty Lakhs Only); that earlier the present applicants had filed SA before this Tribunal which was dismissed by this Tribunal vide order dated 29.09.2022; that during the pendency of the said SA, the applicant/borrower had filed the writ petition before the Hon'ble Punjab and Haryana High Court, Chandigarh, without disclosing the fact that the SA was already pending before this Tribunal and when the said fact was brought to the knowledge of the Hon'ble Court by the respondent bank, then the said writ petition No. 11017 of 2022 was withdrawn by the applicants without taking any liberty to pursue the case before the Tribunal; that admittedly, the applicant Company was routing all its transactions through ICICI Bank to divert the funds and stopped operations in the account with the respondent bank eventually rendering the account slippage into NPA, after availing of the limits from the respondent bank and as such approached this Tribunal with unclean hands; that even after the request of the applicants to revise the sanction letter, the applicant failed to pay even a single penny which itself showed that the applicants were having no intention to repay the amount taken from the respondent bank and the only intention of the applicants was to delay the recovery process; that the said sanction letters were in continuation of earlier sanction letter accepting all terms and conditions of the sanction facility hence, could not be termed as novation of the contract; that the limit was revised from 13.50 Crores to 12.06 Crores though the new contract was never entered and the terms and conditions of

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the earlier sanction letters and loan agreements executed by the applicants remained the same; that the current assets of the Borrowers/Applicants were charged to the respondent bank as per the terms of the sanction and loan agreement and the bank had every right to take control over the hypothecated/charged assets to secure its interests. Rest of the averments made in the SA were also denied in the reply to the SA.

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Rejoinder to the reply to SA was filed wherein the averments made in the SA were reiterated and that of the reply to the SA were controverted.

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I have heard both the parties and also gone through the record carefully.

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It was argued on behalf of the applicants that on the day of declaration of the account as NPA, the applicants were not defaulters. It was further argued that there was no default for a continuous period of 90 days. It was further argued that it was imperative for the applicants to remain defaulter continuously for a period of 90 days but that was not the position. It has not been mentioned as to for how many days the default was there. It would have been better had it been clearly mentioned in the pleadings as to for how many days there was continuous default before classification of the account as NPA. It was further argued that in order to get the CC account standardized, the applicants had adjusted the fixed deposit of Rs. 1.5 crores approximately against their CC account and thereby the interest on the CC limit of their account stood paid till the end of month of March 2020, i.e. 31.03.2020 and thus, there was no occasion for declaring the account as NPA. It was argued on behalf of the respondent bank that the FDR was already under the charge of the bank and from the pocket of the applicants they paid nothing.

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Para No. V(k) of the SA and its reply are reproduced below in quick succession for facilitative reference:

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“k. That the Respondent bank has grossly misused its dominant position to illegally declare the account of the Applicant no.1 as NPA without following the guidelines laid down by the RBI and thereafter without informing the Applicants initiated the proceedings against the Applicants under the provisions of SARFAESI Act, 2002 to illegally obtain a dispossession order against the Applicants and to usurp the property of the Applicants on which the security interest was created by the Respondent bank. It is relevant to mention that firstly the account of the Applicants has never irregular for a continuous period of 90 days and could not be qualified

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SA/61/2023 M/S SANATAN LOGISTICS PRIVATE LIMITED AND OTHERS VS KOTAK MAHINDRA BANK AND OTHERS

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to be an NPA as per the guidelines issued by the RBI. For an account to be classified as an NPA it is imperative that the same remains "OUT OF ORDER for continuously 90 days. The relevant part of the RBI guidelines has been reproduced hereunder: XXXXXXXXXXXX

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Accordingly, treatment of CC/OD accounts as 'out of order' on or after the date of this circular shall be based on the above instructions.

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Further even when the account of the Applicants was declared as NPA on 12.12.2019 by the Respondent bank, no communication was made by the Respondent bank in this regard to the Applicants. It is pertinent to mention that the Applicant no. 1's account has never been irregular for a continuous period of 90 days to qualify it as an NPA and the maximum time of Irregularity in the account has only been for a maximum of 58 days at one point continuously. Further it is also relevant to mention that the proceedings under Section 13 of the SARFAESI Act can only be invoked if the account in respect of such debt has been classified as non-performing asset (NPA) in accordance with the guidelines laid down. The relevant portion of the act has been reproduced as under: XXXXXXXXXXX

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That from the reading of the above-mentioned section it is aptly clear that this provision of the SARFAESI Act, 2002 can only be used when the account has been declared NPA. Therefore, the actions taken by the Respondent bank of illegally declaring the CC account as NPA without a continuous default of 90 days is patently illegal and against the norms of the RBI. Further even the action of issuing notices under Section 13(2) and under Section 13(4) of the SARFAESI Act are patently illegal and violate the mandate issued by the RBI and the mandate of law. Thus, the Respondent bank has unscrupulously classified the account of the Applicant no.1 as NPA without any legal basis and has unlawfully imposed the provisions of SARFAESI Act on the Applicants in order to usurp their property.

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The copy of the table showing the number of delays in the payment of interest as per the account statement has been annexed as ANNEXURE A- 11 . The copy of the RBI Guidelines titled "Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances" dated 1st July 2015 has been annexed herewith as ANNEXURE A 12 . The copy of Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances - Clarifications dated 12th November, 2021 have been annexed herewith as ANNEXURE A-13 .”

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“k. That the contents of Para no. k are wrong and denied. Further it is submitted that the account of the applicant was declared as NPA as per the guidelines of RBI.”

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SA/61/2023 M/S SANATAN LOGISTICS PRIVATE LIMITED AND OTHERS VS KOTAK MAHINDRA BANK AND OTHERS

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Para No. V(l) of the SA and its reply are reproduced below in quick succession for facilitative reference:

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“l. That it is also relevant to mention that the Respondent Bank has in utter violation of law illegally tried to usurp the property of the Applicants for unlawful gains. Further, it is imperative to note that the Applicants in order to get their CC account standardised adjusted the Fixed Deposit (FD) of 1.5 crores approx. against their CC account and thereby the interest on the CC limit of their account stood paid till the end of the month of March 2020 i.e. 31.03.2020. The Applicants diligently paid off the interest against their loan account in advance, even in times of utter hardship only to maintain the account balance, yet the account of the Applicant no.1 was unfairly and illegally declared as NPA, and the account access was frozen, whereby only the credit entries were allowed and no debits were permitted against the same by the Respondent bank. Further, RBI, in view of the continued need to support the viable MSME entities on account of the emergence of Covid19 and to align these guidelines with the Resolution Framework for COVID 19related Stress announced for other advances, extended the scheme in terms of the aforementioned circular.

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“l. That the contents of Para no. l are wrong and denied. It is submitted that Applicants have duly accepted and acknowledged the terms of the Sanction Letters issued by the Respondent bank and thereby accepted all terms and condition of the sanction facility hence cannot abstain from their liability to repay the due outstanding to the Respondent Bank.”

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Para No. V(n) of the SA and its reply are reproduced below for facilitative reference:

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“n. That after adjustment of the FD to the tune of 1.5 crores the entire CC limit stood paid till 31st March, 2020, the Respondent bank expressly approached the Applicants to novate the terms of the contract and after mutual negotiations, it was thereby decided to novate the CC limit of the Applicant no.1 account and revise the same from 13.5 crores to 12.06 crores. All agreements pertaining to same were signed by both the parties yet the Respondent bank never acted on the same even after constant requests from the Applicants. The conduct of the bank and its intention to defraud the Applicants and commit a breach of its fiduciary duties is apparent from the fact that even after issuance of revised sanction letter the account of the Applicant no.1 remained frozen and the account of the applicant No.1 remained an "NPA". Further, the Respondent bank has also grossly abused its dominant position and this can be corroborated from the

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fact that the Respondent bank has wrongly initiated proceedings under SARFAESI Act, 2002 against the Applicants even when the account of the Applicant no.1 could never classify as 'NPA' in accordance with guidelines laid down by RBI and also by the issuance of a revised sanction letter dated 21.12.2019, as novation meant a new start. It is pertinent to mention that the malicious intention of the Respondent bank can be aptly made out from the conduct furthered by them and thus, the Respondent bank is liable to be held guilty for the same.

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The copy of the revised sanction letter issued by the Respondent bank to the Applicants dated 21.12.2019 has been annexed herewith as ANNEXURE A- 14 .”

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“n. That the contents of Para no. n are wrong and hence denied. Further it is submitted that even after the request of the applicant to revise the sanction letter, the applicant failed to pay even a single penny which itself shows that the applicant is having no intention to repay the amount taken from the respondent bank and the only intention of the applicants is to get delay the recovery process. Further it is submitted that the said sanction letters are in continuation of earlier sanction letter accepting all terms and condition of the sanction facility hence cannot be termed as novation of the Contract.”

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As per own case of the applicants, possession of vehicle of the applicants was taken on 25.11.2019 and the account was classified as NPA on 12.12.2019 and thus, it cannot be said that the applicants were not aware of the default on their part and they were taken by a surprise when their account was classified as NPA all of a sudden.

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It was argued on behalf of the respondent bank that subsequent sanction letters were in continuation of earlier sanction letters accepting all terms and conditions of the sanction facility and thus, it could not be termed as novation of the contract between the parties. It was further argued that no new contract was ever entered and terms and conditions of the earlier sanction letters and loan agreements executed by the applicants remained the same. It was further argued that revised sanction letter was part of the master facility loan agreement and other related documents which meant that earlier sanction letter as well as master facility loan agreement were still applicable to the applicants. The attention of this Tribunal was drawn towards the relevant part of the revised sanction letter dated 21.12.2019 which is as under:

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“This letter and the Annexure here under shall form part of the Master Facility/Loan Agreements and other related documents, which will be executed in favour of the bank following your acceptance of the offer.”

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Annexure A14 of the SA contains the above said version and with the above said version remaining intact, it passes comprehension as to how the theory of novation of the contract can come into existence. This Tribunal has no hesitation in negating this theory.

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In para V(k) of the SA, it was pleaded that the account of the applicants was never irregular for a continuous period of 90 days and thus, the same could not be classified as NPA as per guidelines issued by the RBI. Relevant RBI guidelines were also produced. In reply to this para of this SA as reproduced above, nothing has been said except a bald denial. It was incumbent upon the respondent bank to plead as to how the period of 90 days was complete and as to how the RBI guidelines were not applicable. The reproduction of some of the paras of the pleadings above would reveal that there is evasive denial and not specific denial of the contents of the SA. In the circumstances of the case, this Tribunal is of the considered opinion that in view of the evasive denial and there being no specific denial, the contents of para No. V(k) the account not remaining NPA for a continuous period of 90 days before classification of the same as NPA has been admitted in the pleadings on behalf of the respondent bank and when that is so, the SA has to succeed. In view of the SA succeeding on the ground of account not being classified as NPA for a period of continuous 90 days, there is no requirement of going into the other aspects of the SA.

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No other point was urged before this Tribunal.

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In view of the above discussion, the SA is allowed with costs.

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Announced in the open Tribunal

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(M.M. Dhonchak) Presiding Officer DRT-2, Chandigarh

Ms Sanatan Logistics Pvt. Ltd. v. Kotak Mahindra Bank Limited

Case brief

What is this about?

What did the court decide?

Ms Sanatan Logistics Pvt. Ltd. v. Kotak Mahindra Bank Limited

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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