Dismissed

M S Om Sri Bhavani Industries v. Punjab and Sind Bank

DRT12 Mar 2024SA/214/2022

Case brief

AI extract

What is this about?

In a securitization application, the court examined objections raised by borrowers against a bank's SARFAESI Act proceedings, including rejection of restructuring applications, lack of proper notice service, and failure to notify legal heirs of a deceased guarantor. The court found no valid grounds for the applicants' contentions and dismissed the application.

What did the court decide?

Stay granted by the Tribunal stands vacated; Interlocutory Applications disposed off.

M S Om Sri Bhavani Industries versus Punjab and Sind Bank — Cheque Dishonour | DRT (2024)

¶1

IN THE DEBTS RECOVERYTRIBUNAL.I AT HYDERABAD

¶2

DATED THIS THE 12-IH DAY OF MARCH,2C.24

¶3

PRESENT: GUMMADI GOPICHAND, PRESIDING OFFICER

¶4

sA.No.2 14/2c22

¶5

M/s. Om Sri Bhavani^polymers, Rep. by its Proprietor, Mr. Vadnala Rammohan, Regd. Office at H.No.2 -Z_394, Excise Colony, Hanamkonda, Warangal_5O6o0 1.

¶6

Mr. Vadnala Rammohan, S/o. late V. Narayana, aged 53 years, Occ: Business, R/o. Flat No.205, 2"d Floor, H. No. I -2- L9 &,20, Emerald park, Gagan Mahal Road, Domalguda, Hyderabad.

¶7

Mrs. Vadnala Mamatha, W/o. Mr. V. Rammohan, aged: Major, Occ: Business, R/o. Flat No.205, i"d Floor, H.No. I -2- 19&20, Emerald park, Gagan Mahal Road, Domalguda, Hyderabad.

¶8

Applicants.

¶9

Versus

¶10

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

¶11

Respondent.

¶12

Counsel for tLrc Applicants : Sri Hai Prasad podita. Sn 1V. V. Subba Raju.

¶13

-:ORDER:.

¶14

1' The Applicants filed the present Securitization Application u/s.17 of Financial Assets and the Securitization ana _gryU$f,fri Enforcement of Securit5r:iptUiLst i.i I Act), 2OO2, for setting aside all the by the ent Bank under the properties pursuant lare the action of the Respondent tunity of restructuring

¶15

SA.No.214/2022

¶16

subject credit facilities vide letter dt.23.04.2021 with reference cited therein letter dt. 15.0 4.2O21, as illegal.

¶17

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

¶18

The Applicant No.2 is the proprietor of Applicant No. t herein and also Managing partner of "M/ s. Sri Bhavani polymers,. 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.3.9S crorres for plant & machinery, Rs.7.O0 crores and Rs. 1.65 crores to run the business. That apart, the Applicant No.2 arso 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 20rg to December 201g due to general elections in the Telangana state, due to which the working capital cycle got disturbed. Meanwhile, the Terangana Government has empanelled both the firms of Applicant No.2 in the TS AGRO, in the month of January, 2019 and subsequently, issued work orders to the tune of Rs.35.00 crores. The Applicants approached the Respondent Bank and requested for sanction of Adhoc limit of Rs.5.00 crores for a period of igO days to overcome working capital requirement but, the Respondent did not support the Applicants, due to which the loan account of the Applicants became NPA.

¶19

ii) The Applicant No. 1 is-pligible for restructuring of loan facilities under MSME g{;T.. as per Virbus circulars issued by RBI. The Applicants'subrhitted varibus,,.flpplications/representations, including lelters dt.O7.O1.2o2},,ahh tS.tZ.ZO20 and also a representation dt.Xd Ih?p20,to tt,e $i.,ist.y of Finance, Govt. of India, for restructuring of the Ioari...facilities and while pending those repredelt;tlon+ the, Respondeht e".,k proceeded to sell the

¶20

¶21

SA.No.214/2022

¶22

application schedule properties under the SARFAESI Act, by issuing e-Auction Sale Notice dt.O4 .O2.2O21. The Respondent Bank has neither followed RBI circulars for allowing restructuring of loan facilities of the Applicant No.l nor has followed the RBI guidelines while classi$ing the loan accounts of the Applicant No. I as NPA nor has followed the due procedure laid down under the SARFAESI Act while proceeding against the secured assets.

¶23

iii) The Respondent Bank did not serve any notice u/s. 13(2) & 13(4) of the 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(a) was not affixed 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, 2OO2, in respect of the hypothecated movables. The Respondent Bank has also failed to issue separate notices under Rule 8(6) and 9(l) of the Rules, 2OO2 for the sale of the mortgaged properties. The Applicants filed WP.No.6O67 l2OT. before the Hon'ble High Court for the State of Telangana challenging the e-Auction Notice issued by the Reppondent Bank, wherein the Hon'ble High Court vide order " dt. 16.,03.2.02 1, directed the Respondent Bank to consider the applicationq\ dt.O7.O3.2O20 and 15.12.2021 submitted by the ApplicantS'fcir restructuring of the advances availed by the 12 &$$ii.t t" i.ritr,. name of both the firms i.e., Applicant No.1 *i herein and"Mf s. Sri Durga Bhavani Polymers in terms of the RBI circulars, as expeditiously as possible, before taking further

¶24

.r * 12 4-l

¶25

SA.No.214/2022

¶26

steps. The Respondent Bank approached the Chief Judicial Magistrate at Warangal and obtained Warrants in Crl.MP.No. I t3 I 2O2O; Crl.MP.No. 1 14 I 2O2O & Crl.MP.No. 25 I 202 t in S.R.No. 18OI l2O2O 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 subclause (l to ix) of Sec.14(1) of the SARFAESI Act. Challenging the said action of the Respondent Bank and also non-compliance of directions of the Hon'ble High Court in the order dt.16.O3.2021, issued in WP.No.6067/2021, by the Respondent Bank, the Applicants liled WP.Nos.l7957, 17965, and 2t684 of 2021 before the Hon'ble High Court for the State of Telangana. The Applicants received letter dt.23.O4.2021 of the Respondent Bank 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 aforesaid 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.15.O4 .2021, alleging that the loan account of M/s. Sri Durga Bhavani Traders was classified as NPA on 31.03.2019, that as per external Audit Report dt.3O.O7.2O2O, the unit was closed since one year and stock held was NIL and the reasons for rejecting the restructuring proposal of Applicant No.t herein account became NPA as on 31.08.2019. 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 false. The Hon'ble High Court in the aforesaid writ petitions, initially passed interim orders dt.02 .O8.2021, directing the further under the SARFAESI Act -he movable and properties of the Applicants said interim ordr extended from time to time and writ petitions on O1.O8.2O22, this Tribunal and in the

¶27

!,A.No.214/2022

¶28

meantime stay orders have been extended for further time of 30 days. Hence the SA.

¶29

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

¶30

The Applicant No. t has availed loan facilities in the form of Cash Credit limit of Rs.165.00 lakhs; Housing Loan of Rs.1¹ 1.O3 lakhs and Housing Loan of Rs.69.00 lakhs from the Respondent Bank by executing necessary loan documents. The Applicants No.2 & 3 herein stood as guarantors for the due repayment ofthe said loan facilities and they have also created mortgage over the immovable properties by deposit of title deeds. However, the borrower failed to repay the loans as per the agreed terms and consequently the loan account of the Applicants was classified as NPA as^{per RBI} norms. The Respondent Bank invoked the measures under^the SARFAESI Act and issued Demand Notice dt.06.09.2019 to^the Applicants. As the Applicants failed to discharge their liability within the statutory period of 60 days, the Respondent Bank took possession of the properties by issuing Possession Notice dt.l2.l2.2ol9. The said Possession Notice was affixed on the properties and was also published in the newspapers. Thereafter, applications vide Cr1.MP.No.113l2O2O & Crl.MP.No.114l2O2O were liled before the Ld. Chief Judicial Magistrate,^Warangal, wherein vide order dt.31.03.202 1, Advocate Commissioner^was appointed for taking physical^possession of the^{properties. Due to} Covid-19, warrant has been extended for taking^physical

¶31

. poSSeSsion - :":l^ of the p.operties and subsequently, Advocate Commissi'dher. has issued vacate notice to the borrower. The

¶32

.,.,., auction of^{'tt-.re ,} schedule properties scheduled on^10.03.2021, pursuant to^=thA Sale Notice dt.o4 .o2.2o21, issued by the

¶33

4 I i.$ffiag?,.l Bantq did not materialize for want of bidders.^There is no violatiqn of the orders of the Hon'ble High^Court dt.30.04.2021 &, 15.O7.2021, issued in WP.No.3/2021.

¶34

S'A.No.214/2022

¶35

iil Pursuant to the orders of the Hon'ble High Courtⁱⁿ WP.No.6067/ 2021, tt:,e Respondent Bank has examined the representations of the Applicants and rejected the same vide letter dt.23.O4.2021. Simultaneous proceedings are initiated by the Respondent Bank by liling OA.No.27Ol2020 before this Tribunal and same is pending. The Applicants have not approached this Tribunal with clean hands and the^{present SA} filed by them is devoid of merits and is liable to be dismissed.

¶36

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.

¶37

Now, the points that arise for consideration are,-

¶38

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^declarethe action of the Respondent Bank in^rejectingthe applications/representations submitted by the^{Applicantsfor} restructuring of the subject financial^{facilities as illegal?}

¶39

ii) To what relieP

¶40

Point No.lllt

¶41

The admitted facts of the case are, Applicant^{No.1 availed Cash Credit} and Housing Loan facilities from the^{RespondentBank by creating} security interest- ir+.'fario1r1- of the Reipondent^{Bank over the} application "-cfibdule propedq:\Pelonging to^{Applicants No.2 & 3} J;

¶42

herein. Thq6pptcants averre& in\heir^{pleadings that even though} Applicant No. 1 started its^prodUctid, p with^{full capacity from June} TS AGRO on demand, as the

¶43

zora "rraorpplied'pffi.fr.!"r,.g,t"llto book debt& got struck during thePe4iod^{September2018 to December}

¶44

SA.No.214/2022

¶45

2018 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.l as NpA. So, it is not the case of the Applicants that they have serviced the loan 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 securit5r interest and during the said process, the Respondent Bank, in the year 2020, approached the Ld. Chief Judicial Magistrate, Warangal, u/s. 14 of the SARFAESI Act, and filed Crl.MP.No.t13l2O2O; Crl.Mp.No.1t4 l2O2O & Crl.MP.No.2S l2O2l in S.R.No.1801/2O2O and, obtained Advocate Commissioner Warrants 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 10.03.2021. 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/enhancement of the credit facilities, the Applicants filed WP.No.6067/2O2I before the Hon'ble High Court for the State of Telangana and the Hon'ble High Court disposed off the said writ petition vide order dt. 16.03.2021 with a direction to the Respondent Bank to consider the applications dt.07.03.2O2O and lS.l2.2O2O submitted by the Applicants for restructuring of the advances in terms of the RBI circul4rs framed, as expeditiously as possible her acdon, 'if u.ry. Thereafter, the Applicants submitted application dated 06.04.2021, to the Respondent Bank, of the Hon'ble High Court and the of the requests of the rescheduling and.enhancement of the credit facilities.

¶46

SA.No.214/2022

¶47

The Respondent Bank obtained fresh Advocate Commissioner Warrants obtained in Crl.Mp.No. l13l2O2O; Crl.Mp.No. I 14 /2O2O; and, crl'MP.No'2S 12021 in S.R.No. 1081/2o2o vid,e orders of the Ld. cJM, Warangal dt.31.03.2021, 19.04.2021 and, 19.O4.2O21 respectively. Aggrieved by the said action of the Respondent Bank, the Applicants filed wP.Nos.rzgsz, 17g6s, and 27684 of 2o2r 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 Applicants, enclosed the letter dt.23.o4.2021, to the said Counters, rejecting the applications of the Applicants for rescheduling and enhancement of roan facilities. The Hon,ble High court in the aforesaid writ petitions, initially passed interim orders dt'o2.o8.2021, directing the Respondent Bank not to proceed further under the SARFAESI Act against the movable and immovable properties of the Applicants and the said interim orders were extended from time to time and finally disposed off the aforesaid writ petitions on 01.O8.2022, relegating the parties to approach this Tribunal and in the meantime stay orders have been extended for further time of 3o days. So, the Applicants approached this Tribunal and filed the present sA, challenging the aforesaid action of the Respondent Bank.

¶48

¶49

Now, coming to the contentions raised by the Applicants, the crucial contention raised by them is, despite severar requests made by them to restructure a.d enhance the credit facilities sanctioned to the Applicant No. l, which is eligible under MSME scheme as per various circulars issued by the RBI, the Respondent Bank did not respond. It is also contended that, during pendency of writ petitions, the Respondent Bank encrosed a letter dt.23.o4.2o2r to the counters served in writ petitio's--ehd .\vide said letter dt.23.04.202 1 alleging that the competent authorit! has rejeg:ed the applications/representations submitted by the Applicants forYrestructure/enhancement of credit facilities forittie 16asa,l. that, the accqunt of the account of M/s. Sri ourga ehalani^{polymlF&(a?$"ar..uayj} t.., a..t"."d as NpA as on 31.03.2019; that as per external .riiiy'."po., dt.3o.oz.2o2o, the unit

¶50

SA.No.214/2022

¶51

was closed one year back and stock held was nil and the reasons for restructuring proposal of Applicant No. I is that the account was declared as NpA as on 31.Og.2O19. Both the parties to the SA filed a copy of the said refusal letter dt.23.04.2o21 along with its material documents in the Reply Statement. The Applicants contended that, the said external audit report is a fictitious one and the arlegation that the Unit was closed one year back with nil stock is also not correct. The Applicants, except making a bard statement that the external audit report is a fictitious one, did not file any documents to substantiate their contention. Further, the Appricants have arso not filed any 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 Appricants that the loan accounts of both the firms were serviced with interest and principal regularly and the loan accounts of both the firms are not NPA. so, I do not lind 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.

¶52

The next contention raised by the Applicants is that, the Respondent Bank has not served any notice u/s. l3(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.O9.2019, issued u/s. 13(2) along with copies of postal receipts. Similarly, the Respondent Bank has arso filed copies of possession Notices (4 in Nos.) dt.t2.t2.2o1g, issued u/s.13(4) of the SARFAESI Act in respect of the application schedule properties. In fact, the Applicants have filed copies of said Demand Notice dt. 12.09.2o19 and, Possession Notices dt. 12J2r?glg-,along with the SA. The Respondent -' Bank has also Iil ' -^i{ ,,te9^{coples ot phetographsdepicting affixture of} Possession Noti#s*.on schedule ;;p,&r*" and also publication of comptiance Possession rudtiAe oriHrI. ;r.- B$/#W i2 -English ap21r.," and sei|r.iqr . llernacular rnteresr newspapers (Enforcement)in '"'^;'' Rules. 2002.ⁱ i r)^{' i'} ,.i \ 'i .

¶53

SA.No.214/2022

¶54

The next contention raised by the Applicants is that, mother of Applicant No.2 viz., Smt Vadnala Kousalya, who stood as one of the guarantors and mortgaged her property as securit5r 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 guarantor/ mortgagor. The Respondent Bank contended that, it is the duty of the legal 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. Further, said Smt Vadna,la Kousalya is neither a guarantor nor mortgagor to the subject loan transaction of Applicant No.1 herein with the Respondent Bank.

¶55

Now, coming to the e-Auction Sale Notice dt.04.02.2021, 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 materialize for want of bidders. Similarly, the Advocate Commissioner Warrants dated 31.03.2021, 19.04.2021 and 19.04.2021, issued in Crl.MP.No. 1 13l2O2O; Crl.MP.No. 1 14 l2O2O; & Crl.Mp.No. 25 l2O2O in S.R.No.1801/2O2O ot the file of Ld. CJM, Warangal, remained unexecuted and the period of Warrants has also expired. So, I am not delving into the issues as to whether the Respondent Bank has followed Sec.l(1 .fEBSABFAESI Act while filing the affidavits before the Ld. CJM, Waiangalt lor obtaining Advocate Commissioner i. " ,.|,^.. Warraqf,s. for taking physii[l. fossession of the schedule properties and also,ras to,w-hether tt',. n."p'Jha.nt Bank has followed Rule g(6) & e(1) ol tr.,.^{'b;"Jrftf 'ffit.r"".;} iur,a...-".nt Rutes, 2oo2, white proceeding for the sale of secured assets.

¶56

SA.No.214/2022

¶57

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 Appticants for restructure/enhancement of loan facilities and also for setting aside the Possession Notices dt.l2.l2.2O1g, issued u/s. 13(a) of the SARFAESI Act, in respect of the application schedule properties. Accordingly, this point is answered against the Applicants.

¶58

Polnt No.lli)t

¶59

1.) In the result, the present Securitization Application is dismissed. Consequently, the stay granted by this Tribunal stands vacated and the Interlocutory Applications, pending if any, shall stand disposed off. No order as to costs.

¶60

Communicate a copy of this order to the parties concerned.

¶61

(Dbtated to the StenograpLer, transcibed bg him, conected, signed and. pronounced. by me in the open court on this the 121h dag of March, 2024).

¶62

sdl(G. GOPTCHANDI PRESIDING OFFICER

¶63

i l,# i:
I

¶64

r[iv*^:yr
,_!:;h{,*ii,., ^

M S Om Sri Bhavani Industries v. Punjab and Sind Bank

Case brief

What is this about?

What did the court decide?

M S Om Sri Bhavani Industries 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

Similar cases

Vajra Paraboiled Rice Mills Private Limited versus State Bank of India

State Bank of India versus Mr. Ravinder Rangu

City Union Bank Limited versus M/S. Vigneshwara Transport

Union Bank of India versus M/S. Dasari Vijayalaxmi Works Contractor

State Bank of India versus M/S. K. K. Enterprises

M S Sri Durga Bhavani Polymers versus Punjab and Sind Bank