Dismissed

M S Sri Durga Bhavani Polymers v. Punjab and Sind Bank

DRT12 Mar 2024SA/213/2022

Case brief

AI extract

What is this about?

Applicants challenged bank proceedings under SARFAESI Act besides possession notices and sale auctions, alleging non-compliance with notice provisions and illegal rejection of restructuring requests. Tribunal found applicants failed to substantiate claims regarding non-NPA status or fictitious audit reports, dismissing the application and vacating stay.

What did the court decide?

Application dismissed; stay granted by the Tribunal vacated; interlocutory applications disposed off.

M S Sri Durga Bhavani Polymers versus Punjab and Sind Bank — Banking and Recovery | DRT (2024)

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IN THE DEBTS RECOVERYTRIBUNAL - I AT HYDERABAD

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DATED THIS THE 1 2TH DAY OF MARCH. 2024

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PRESENT: GUMMADI GoPICHAND, PRESIDING oFFIcER

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sA.No.213./2c22

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M/s. Sri Durga Bhavani polymers, Rep. by its Partner, Mr. Vadnala Rammohan, Plot No.232124O /lDA, Rampur, Madikonda, Dharmsagar, Warangal, Telangana-5060O 1.

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Mr. Vadnala Rammohan, S/o. late V. Narayana, aged 53 years, Occ: Business, R/o. Flat No.205, 2"d Floor, H.No. 1-2-19&20, Emerald Park, Gagan Mahal Road, Domatguda, Hyderabad.

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Mrs. Vadnala Mamatha, W/o. Mr. V. Rammohan, aged: Major,

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Occ: Business, R/o. Flat No.205, 2"d Floor, H.No. 1-2- 19&20, Emerald Park, Gagan Mahal Road, Domalguda, Hyderabad.

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Applicants.

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Tersus

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Punjab & Sind Bank, Specialized Recovery Branch, # 7, Metro Estate, Abids, Hyderabad. Rep. by its AGM/Authorized Officer.

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Respondent.

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Counsel for the Applicants : Sn Hari^{prasadpod.ila.}

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Counsel for the Respondenl,- SnN.y. Subba Raju. _.4 1.

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The Applican,l/m.a t!-re- prescnt s..if.jS.tion Application u/s. 17 of the

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Securitizarion ,nq R.J.3"tff0tJm{rr r$iir"i.r Assets and Enforcement of Security Interest Aet (SARFAESI .Agt);^t2OO2, fo, setting aside all the

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SA.No.213/2022

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proceedings initiated by the Respondent Bartk under the said Act, 20o2, against the application schedule properties pursuant to the possession Notice dt. 12.12.2019 and to declare the action of the Respondent Bank in rejecting one time opportunity of restructuring subject credit fac ities vide letter dt.23'04.2o2r with reference cited therein letter dt.15.04.2o2r, as il1egal.

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The averments made in the application, if briel are as under:_

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The Applicant No.2 is the Managing partner of Applicant No. 1 and also Proprietor of "Om Sri Bhavani Industries. The Applicant No.1 sought financial assistance of Rs. 14.00 crores from the Respondent Bank for his business requirements but, the Respondent Bank has sanctioned about Rs.3.95 crorres for plant & machinery, Rs.7.O0 crores and Rs. 1.65 crores to run the business. That apart, the Applicant No.2 also availed Housing Loans from the Respondent Bank and purchased two houses at Hyderabad and Warangal. The Applicant No.1 started its production with full capacity from June, 20 l g and supplied polythene sheets to TS AGRO on demand but, the book debts got struck during the period September 2018 to December 2O1g due to general elections in the Telangana State, due to which the working capital cycle got disturbed. Meanwhile, the Telangana Government has empaneled both the l-rrms of Applicant No.2 in the TS AGRO, in the month of January, 2019 and subsequently, issued ,*,ork orders to the tune of Rs.35.00 crores. The Applicants approached the Respondent Bank and requested for sanction of Adhoc limit of Rs.5.OO crores for a period of 180 days to overcome working capital requirement but, the Respondent did ngt^'support i pplicants, due to which the loan account of the Aliplicants became

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ii) The ApplicantrNo.l is loan facilities under -1 MSME scheme as pei RBI. The Applicants submitted various including letters

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sA.No.213/2022

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dt.O7.Ol.2O2O and lS.12.2O2O arrd also a representation dt.Is.12.2O2O to the Ministry of Finance, Govt. of India, for restructuring of the loan facilities and while pending those representations, the Respondent Bank proceeded to sell the application schedule properties under the SARFAESI Act, by issuing e_ Auction Sale Notice dt.o4.o2.2o2r. The Respondent Bank has neither followed RBI circurars for alrowing restructuring of loan facilities of the Applicant No. 1 nor has folrowed the RBI guiderines while classifying the loan accounts of the Applicant No. 1 as NpA nor has followed the due procedure laid down under the SARFAESI Act while proceeding against the secured assets.

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iii) The Respondent Bank did not serve any notice u/s. 13(2) & l3(a) ofthe SARFAESI Act and has also failed to publish Sec.13(4) notice in two leading newspapers within the territorial jurisdiction of the mortgaged / hypothecated properties. Notice u/s. 13(4) was not afhxed on the mortgaged properties. The mother of Applicant No.2 viz., Vandanala Kousalya, who stood as one of the guarantors and mortgaged her property as security for the credit facilities availed by Applicant No. 1, died subsequently and same is within the knowledge of the Respondent Bank. But, the Respondent Bank has failed to serve notices to the legal heirs of the deceased v. Kousalya, which is totally illegal. The Respondent Bank did not issue separate notices under Rules 4 to 6 of the Security Interest (Enforcement) Rules, 2002, in respect of the hypothecated movables. The Respondent Bank has also failed to issue separate notices under Rule 8(6) and 9(1) of the Rules, 2OO2 for the sale of the mortgaged properties. The Applicants filed WP.No.6067/2021 before the Honble High Court for the State of Telangana challenging,the i:-Auctioa. \otice issued- by the Respondent ,/ Bank, wherein t{ i ,t:"Hon'ble High^'Court vide order dt. 16.0 3.2021, directed rhe desfbndent Bank to consider ttre applications i dL.O7.O4.2O2O :. bnd 15,12.2p21 . tiif submitted ,, _ __ by the Applicants for i

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SA-No.213/2022

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restnrcturing of the advances availed by the Applicants in the name of both the firms i.e., Appricant No. t herein and om Sri Bhavani Industries in terms of the RBI circulars, as expeditiously as possible, before taking further steps. The Respondent Bank approached the Chief Judicial Magistrate at Warangal and obtained Warrants in Crl.MP.No. 111/2O2O; Crl.Mp.No. 1t2l2O2O; Crt.Mp.No.110 /2020 & Crl.MP.No. 115 /2O2O for taking physical possession of the mortgaged properties. The Respondent Bank while filing affidavits in the said petitions, did not follow Clause (b) proviso with sub_clause (I to ix) of Sec. 14( 1) of the SARFAESI Act. Challenging the said action of the Respondent Ba,k and also non-compliance of directions of the Honble High Court in the order dt.16.O3.2O27, issued in Wp.No.6O6Z /2021, by the Respondent Bank, the Applicants filed Wp.No s.72962, 17955, 17926 and 17970 of 2o2r beforc the Honble High court for the state of relangana. The Applicants received letter dt.23.0 4.2o2r of the Respondent Balk rejecting the applications of the Applicants for rescheduling and enhancement of loan facilities only along with the counter filed by the Respondent Bank in the aroresaid writ petitions. In the said refusal letter dt.23.04.2o21, the Respondent Bank has alleged that the representations of the Applicants were rejected by the Competent Authority vide letter dt.lS.O4.2O2\ that as per external Audit Report dt.3O.O7.2O2O, the unit was closed and since one year, stock was NIL. The alleged external Audit Report dt.30.07.2020 is a fictitious one and the alleged closure of the unit with NIL stock is also fa'lse. The Hon'ble High court in the aforesaid writ petitions, initially passed interim orders dt.02.08.2o21, directing the Respondent Bank not to proceed further under the SARFAESI Act against the movable and immovable properll'es of t# Applicants "r.,a tf,. said interim orders were extended from time to time',and fina_lly disposed off the aforesaid writ pegtions relegating ttre parti$ to approach this Tribunar !. and in the -..nfiipn. !r.. stay ord.e5-s have beeri\extended for lurther time hA of 30 days. Henco the SA. ,

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SA.No.213/2022

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The Respondent Bank filed its Reply Statement^{denying all the adverse} allegations made in the application and the^{contentionsof the Respondent} Bank, in brief, are as under:-

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The Applicant No.t has availed loan^{facilitiesin the form of TermLoan} with a limit of Rs.394.00 lakhs and Cash^{Credit limit of Rs.700.00} Iakhs from the Respondent Bank^{by executing necessaryloan} d.ocuments. The Applicants^{No.2 & 3herein and Mrs. Vadnala} Kousalya stood as^{guarantorsfor the due repayment of the said loan} facilities and they have also^{created mortgageover the immovable} properties by deposit of title deeds'^{However,the borrower failed to} repay the loans as^{per the agreed terms and consequently the loart} account of the Applicants^{was classifiedas NPA as per RBI norms' The} Respondent Bank invoked^{the measures underthe SARFAESI Act and} issued Demand Notice^{dt'1 1.09.2019 to the Applicants' As the} Applicants failed to discharge^{their liabilitywithin the statutoryperiod} of 60 days, the Respondent^{Bank took possession of the properties by} issuing Possession^{Noticedt.12.12.2019.The said Possession Notice} was a-ffixed on the^{properties and was also published inthe} newspapers. Thereafter,^{applicationsvide Crl'MP'No'111/2020;} Crl.MP.No.112l202O;^{Crl.MP.No.1lOl2O2O&Crl'MP'No'll5l2O2O} were filed before the Ld. Chief^{JudicialMagistrate, Warangal, wherein} vide order dt.31.03.2021,^{Advocate Commissioner was appointed for} taking physical^{possession of the properties. Due to Covid-19,warralt} has been extended^{for takingphysicalpossession of the properties and} subsequently, Advocate^{Commissionerhas issued vacate noticeto the} borrower. The auction^{of the schedulepropertiesscheduledon} Notice d1.04.022021,^{issuedby the} 10.O3.2021, Pursuant^to Respondent^gank, didnot^rrlat br want of bidders.^{There isno} & violation of the 15.o7.202t,

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t1h{^i!

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SA.No.213/2022

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ii) Insofar as the death of Mrs. Vadnala Kousalya is concerned, the Hon'ble High Court in the judgment dt.OT.O4.2O2t in WP.No.4753l2021 has held that, it is the responsibility of the LRs to inform the death to the Bank. Moreover, the Applicant No.2 is one of the legal heirs of the deceased person arrd there is substantia_l representation of the estate of the deceased in the SARFAESI proceedings initiated by the Respondent Bank. pursuant to the orders of the Honble High Court in WP.No.606T l2O2l, the Respondent Bank has examined the representations of the Applicants and rejected the same vide letter dt.23.04.2021. Simultaneous proceedings are initiated by the Respondent Bank by filing OA.No.269/2O2O before this Tribunal and same is pending. The Applicants have not approached this Tribunal with clean hands and the present SA hled by them is devoid of merits and is liable to be dismissed.

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Ld. Counsels for the Applicants and the Respondent Bank filed their Written Arguments reiterating the versions of the Applicants and the Respondent Bank respectively, as stated supra.

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Now, the points that arise for consideration are,-

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Whether the Applicants have established any valid grounds for setting aside the proceedings initiated by the Respondent Bank under the SARFAESI Act and the Rules made thereunder against the application schedule properties and to declare the action of the Respondent Bank in rejecting the applicatioqgl,repr.gsentations sutmitted by the -'- -.-.-

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, /,*-;'

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Applicants for restructulirfg / 4: the subfipt {qancial iix\q'*\ facilities as illegal? ./^{- (-}

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'i i 'i-: ':\

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ii) To what relieP ts\

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Potnt No.(ilr ! 1 'r nlA '02t " ii

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i ^^:7'.1

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The admitted facts of the case are, ApplicanrtNii,'L",availed Term Loan and .,;!

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Cash Credit facilities from the Respondent Bank.by creating security interest

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SA.No.213/2022

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in favour of the Respondent Bank over the apprication schedule properties belonging to Applicants No.2 & 3 herein and one Smt Vadnala Kousalya, who died subsequently. The Appricants averred in their pleadings that even though Applicant No. I started its production with full capacity from June 2018 and supplied polythene sheets to TS AGRO on demand, as the book debts got struck during the period september 20 1g to December 20 1g due to general elections in the Telangana state, and the working capital cycle got disturbed, the Applicants made several requests to the Respondent Bank for rescheduling of the loan accounts but, the Respondent Bank did not adhere to their requests and classified the loan accounts of the Applicant No. 1 as NPA. so, it is not the case of the Applicants that they have serviced the roan accounts by paying interest and principal regularly as per the terms and conditions of sanction. Since the loan accounts became NpA, the Respondent Bank, in order to recover the outstanding dues from the Applicants, invoked the measures under the SARFAESI Act to enforce the security interest and during the said process, the Respondent Bank, in the year 2O2O, approached the Ld. Chief Judicial Magistrate, Warangal, u/s. 14 of the SARFAESI Act, and fited Crl.Mp.No. 1 11 /2O2O; Crt.Mp.No. 1 12 /2O2O; crl.MP.No.110/2020 & crl.Mp.No. 115/2o20 and obtained Advocate commissioner warrants dt.rg.o3.2o2o for taking physical possession of the application schedule properties. However, according to the Respondent Bank the said warrants could not be executed due to covid- 19 lockdown. Subsequently, the Respondent Bank issued e-Auction sale Notice dt.O4.O2.2O2l, proclaiming the auction of the schedule properties on 1o.o3.2o21. Aggrieved by the said e-Auction Notice and also the action of the Respondent Bank in not considering the applications/representations submitted by the Applicants for restructuring/enha,cement of the credit facilities, the Applicants filed 2027 before the Honble High Court for the State of Telang#a ,rfffitie High Court disposed off the said writ petition vide'order ol at.fO.O'S.Zo'lS,\th a direction to the Respondent Bank dt.O7.O3.2O2O and g of the advances in

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SA.No.213/2022

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terms of the RBI circulars and scheme framed, as expeditiously as possible before taking further action, if any. Thereafter, the Applicants submitted another application dated, 06.04.2027, to the Respondent Bank, enclosing therewith the said order of the Hon'ble High court ald the RBI circulars for consideration of the requests of the Applicants for rescheduling and enhancement of the credit facilities. The Respondent Bank got extended the Advocate Commissioner Warrants obtained in Crl.Mp.No.1 ll /2O2O; Crl.MP.No. 112/2O2O; Crl.Mp.No.t 10/2O2O & Crl.Mp.No .t1S/2O2O, wd,e orders of the Ld. CJM, Warangal dt.31.03.2021, 3l.OS.2O2l, 31.O3.2O21 and 77.o4.2o21. Aggrieved by the said action of the Respondent Bank, the Applicants filed wp.Nos. 1z96z, rzgss, 11926 and rzgzo of 2021 before the Honble High Court for the State of Telangana, during which time the Respondent Bank while serving Counters in the aforesaid writ petitions on the Appricaats, encrosed the letter dt.23.o4.2021, to the said counters, rejecting the applications of the Applicants for rescheduling and enhancement of roan facilities. The Honbre High court in the aforesaid writ petitions, initially passed interim orders dt.02. Oa.2O2l, directing the Respondent Bank not to proceed further under the Act against the movable and immovable properties of the Applicants 'ARFAESI and the said interim orders were extended from time to time and finally disposed off the aforesaid writ petitions relegating the parties to approach this Tribunal in the meantime stay orders have been extended for further time of 30 days. So, the Applicarts approached this Tribunal and filed the present sA, challenging the aforesaid action ofthe Respondent Bank.

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Now, coming to the contentions raised by the Applicants, the crucia_l contention raised by them is, despite several requests made by them to restructure and e4-hance.:the. .credit facilities sanctioned to the Applicant No ' .1, l. which is ,ep fig iUtibl e rmdbr'ufldbr'. MSME -scheme scheme as Depe r vario rru s cirnrrlers circulars icc-oAissued during by the RBI, pendency tli'e, Rdspondent aanr.14i1por respond. of writ '. petitions,' : thi Jr Respondent rt Bank is arso enclosed contended th-rt a Ll letterl.l l a rLt dt.23.o4.2o2t.,o ,fl.2ctf,8r.?i'f,"*ia,i" writ petitions and vide said retrer

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SA.No.213/2022

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dt.23.O4.2O27 alleged that the competent authority has rejected the applications/representations submitted by the Applicants for restructure/enhancement of credit facilities for the reasons that, the account of the Applicant No.t has already been declared as NpA as on 31'03'2019 and as per external audit report dt.ao.oz.2o2o, the unit was closed one year back and stock herd was nil. Both the parties to the SA filed a copy of the said refusar letter dt.23.o 4.2o2r along with its materia] documents in the Reply Statement. The Applicants contended that, the said external audit report is a fictitious one and the allegation that the Unit was closed one year back with ni1 stock is also not correct. The Applicants, except making a bald statement that the external audit report is a fictitious one, did not file any documents to substantiate their contention. Further, the Applicants have also not liled a,,y stock statements pertaining to the said period to establish that, there was sufficient stock in the Unit and the Unit was also in a running condition. It is also not the case of the Applicants that the 10an accounts of both the l-rrms were serviced with interest and principal regularly and the loan accounts of both the firms are not NpA. So, I do not find any fault on the part of the Respondent Bank in rejecting the applications/representations of the Applicants for restructuring/ enhancement of the subject loan facilities.

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The next contention raised by the Applicants is that, the Respondent Bank has not served any notice u/s.r3(2) of the SARFAESI Act nor published the said notice in the newspapers. The Respondent Bank, in its material documents, has filed a copy of Demand Notice dt. 12.09.2019, issued u/ s. 13(2) along with copies of postal receipts. Similarly, the Respondent Bank has also filed copies of possession Notices (4 in Nos.) dt.12.12.2O1g, issued u/s. 13(a) of the SARFAEST:AcI i5r respect of rhe apprication schedule rts hav6 filed copies of said Demand Notice dt.l2.O9.2Ol9 and Notices d,t:l2.l2.2otg along with the SA. The Respondent Bank also filed .copies of photographs depicting affixture of also publication of^possession Possession Noticesbn ".n.arr.f;Spertibs and ;

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sA.No.213/2022

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Notice in English and Vernacular newspapers in compliance of Rule g(t) & (2) of the Security Interest (Enforcement) Rules, 2002.

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The next contention raised by the Applicants is that, mother of Applicant No.2 viz., Smt Vadnala Kousalya, who stood as one of the guara.tors and mortgaged her property as security in favour of the Respondent Bank, died subsequently but, the Respondent Bank, which is having knowledge about the said demise of the guarantor/mortgagor, has not served notices on the legal heirs of the said deceased grara,tor/mortgagor. The Respondent Bank contended that, it is the duty of the regar heirs of the deceased to inform the Bank but, no such information was furnished to the Bank. The Applicants have not filed any document to establish that the Respondent Bank has been put to knowledge about the death of Smt Vadnala Kousalya. Even otherwise, Applicant No.2 is none other than the son of the deceased guarantor/mortgagor and as such there is sufficient representation to the estate of the deceased guarantor/mortgagor.

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Now, coming to the e-Auction Sale Notice dt.O4.0 2.2021, issued by the Respondent Bank fixing the auction of the schedule properties on 1o'o3'2o21, the Respondent Bank has submitted in its Reply Statement that, the auction of the schedule properties did not materiarize for want of bidders' Similarly, the Advocate commissioner warrants dated 31.03.2021, 31.O3.202I, 31.O3.2O21 and, tT.O4.2O21, issued in Crl.Mp.No.Ilt /2O2O; Crl.MP.No. 112 /2O2O; Crt.Mp.No. 110 /2O2O & Crl.Mp.No.l tS/2O2O on the file of Ld. cJM, warangal, remained un-executed and the period of warrants has also expired. So, I am not delving into the issues as to whether the Respondent Bank has folowed sec. 14 of the SARFAESI Act while firing the affidavits before the Ld. CJIV! .Wdtirirgai for obtaining Advocate Commissioner Warrants for taking physical posSession of the schedule properties and also as to wlether the Respondent Benk has followed Rule 8(6) & 9(1) of the securfdy, Interest (Enforcement)" Rrrr.", 2002, while proceeding for the sale of secured ,"".iJ#

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SA.No.21j/2022

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so' in view of the facts and circumstances of the case, I am of the considered opinion that' the Applicants have failed to establish any valid grounds for declaring the action of the Respondent Bank in rejecting the applications/representations of the Applicants for restructure/ enhancement of loan facilities and also for setting aside the possession Notices dt'L2.12.201g, issued u/s.13(4) of the 'ARFAESI^{Act, in respectof}

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the application schedule properties. Accordingly, this point is answered against the Applicants.

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Point No.(ti):-

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In the result' the present securitization Application is dismissed. consequently, the stay granted by this Tribunar stands vacated and the Interlocutory Applications, pending if any, shall stand disposed off. No order as to costs.

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communicate a copy of this order to the parties concerned.

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open (Dictated court to the on this stenographer' the l2th dag of transcribed bg him, March ZOZit. corected., signed. and pronounced bg me in the

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sd/ - (c. coPrcHAND) PRESIDING OFFICEd

M S Sri Durga Bhavani Polymers v. Punjab and Sind Bank

Case brief

What is this about?

What did the court decide?

M S Sri Durga Bhavani Polymers v. Punjab and Sind 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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