Dismissed

Ms Sun Industries v. Punjab National Bank

DRT7 Jun 2024SA/323/2023

Case brief

AI extract

What is this about?

In this securitization application, the applicant challenged notices issued under the SARFAESI Act, alleging wrongful NPA classification and lack of moratorium. The Debt Recovery Tribunal dismissed the application, rejecting claims of procedural errors and affirming the bank's right to declare the account NPA following Supreme Court orders and noting the IBC petition was unregistered.

What did the court decide?

Notice dated 28.03.2022, 11.03.2022, and 16.04.2021 issued under the SARFAESI Act were not set aside; the application was dismissed.

Ms Sun Industries versus Punjab National Bank — Banking and Recovery | DRT (2024)

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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SA No.323 of 2023 M/s Sun Industries Vs. Punjab National Bank and another

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07.06.2024 Item No.8

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Argued by: Sh. Akhilesh Vyas, Counsel for the Applicant. Sh. Gaurav Goyal and Sh. Saurav Goyal, Counsel for the respondent bank.

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M/s Sun Industries (Applicant) has filed this Securitization Application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), wherein it has prayed for setting aside notice dated 28.03.2022 (Annexure A-10); notice dated 11.03.2022 (Annexure A-9) issued under Section 13(4) and notice dated 16.04.2021 (Annexure A-7) issued under Section 13(2) of the SARFAESI Act, against the Authorized Officer, Punjab National Bank (PNB) & another (Respondents).

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The case of the applicant is that it is a partnership concern and an MSME

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unit. It had availed following credit facilities from the respondent bank:-

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Sr. No.	Account No.	Sanction Amount
1.	3882008700002992	Rs.400.00
2.	388200PS00000828	Rs.90.00
3.	388200IL0000190	Rs.80.00
4.	38800CF0000219	Rs.23.15

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To secure these loans, applicant had created security interest in respect of the properties, fully detailed in para No . 5.3 of the application. Applicant has alleged that he was served with the notice under Section 13(2) on 16.04.2021 stating therein that his account has been declared NPA on 31.03.2021. It is alleged that applicant had deposited sufficient amount in February 2021 and March 2021. Accordingly, his account could not be declared NPA. No prior notice was issued to it. Applicant states that the declaration of account NPA in this case was wrong

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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and erroneous in law. RBI, vide circular dated 22.05.2020 had extended the moratorium from 1^st June 2020 to 31^st August 2020. It is alleged that SMA-1 and SMA-2 norms were not followed while classifying the account NPA. Accordingly, the SARFAESI proceedings are vague and illegal. For classification of the account as NPA, the period of 90 days (180 days in MSME) has been specified. But the bank has violated the statutory period before declaring the account NPA. Applicant further states that after the issuance of notice under Section 13(2), he had approached the bank through various letters dated 05.04.2021; 25.05.2021 and 13.10.2021. However, there was no proper response from the bank. It is alleged that he had filed CWP No.21507-2021, titled Tisha Impex versus RBI & others and CWP No.25070-2021, titled Kiran Industries versus RBI and others. It is alleged that when the property was put to sale on 24.03.2022, another writ petition was filed by the applicant firm, challenging the action of the bank in CWP No.6051-2022. Regarding the property which is involved in the present case, it is stated that CWP No.10316-2022 was filed by the applicant. Applicant states that on 11.03.2022 notice under Section 13(4) was issued to him and the date of delivery of the possession was fixed for 26.03.2022. However, on 28.03.2022, various persons alongwith the officers of the bank visited the residential property, where only female members were present. However, the officials of respondent bank started harassing the female members of the family. The wall of the residence was also painted with red paint that the property is mortgaged with the bank. This caused a lot of humiliation to the applicant. Applicant states that on 11.03.2022, bank issued the notice under Section 13(4) of the SARFAESI Act. Bank also forwarded a copy of this notice to SSP, Amritsar for police help. No affixation of the possession notice was done by the authorized officer. There was no publication of the possession notice. Applicant states that during Covid, RBI had extended the moratorium. Applicant has alleged that the bank has violated Rule 8 of the Security Interest (Enforcement) Rules, 2002. Applicant has alleged that it was not given the benefit of moratorium period. The Reserve Bank of India had issued circular dated

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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27.03.2020 and 17.04.2020 by providing extension of moratorium period for three months and subsequently vide circular No. RBI/2019-20/244 DOR No.B.P.B.C.71/21.040.048/2019-20, dated 23.05.2020 had issued certain regulatory measures in the wake of disruption on account of Covid-19 Pandemic. Applicant states that he had submitted consolidated representation in respect of all the accounts to the respondent bank. However, the same was rejected. He had filed representations also. Applicant has alleged that he had also submitted OTS proposal for Rs.3.50 Crore pertaining to the present account only. However, bank proceeded with the possession notice. He has also submitted the OTS proposal in other accounts. However, the bank declined the same, without giving any reason for the same. Applicant has alleged that he is eligible for Technology Upgradation Fund TUFS Scheme. It is alleged that since, 2011 applicant is entitled to Working Capital Subsidy. However, the same was not released to the applicant. Applicant states that in case the subsidy amount is paid, the major part of the loan would be squared off. Applicant states that all the four writ petitions filed by him, were finally disposed of on 09.10.2023 by the Hon’ble High Court. He was allowed to withdraw the writ petitions with the liberty to avail statutory remedy under the law. On these facts, applicant has filed the present SA, for setting aside notice dated 28.03.2022 (Annexure A-10); notice dated 11.03.2022 (Annexure A- 9) issued under Section 13(4) and notice dated 16.04.2021 (Annexure A-7) issued under Section 13(2) of the SARFAESI Act. By way of application for interim relief, applicant has prayed that the respondent bank be restrained from taking the possession and from selling the property.

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Bank, in the reply, has denied the case of the applicant and alleged that despite the service of notice issued to the Applicant under Section 13(2), Applicant did not raise any objections under Section 13(3A) of the SARFAESI Act. It has alleged that Applicant was required to file this SA within 45 days from 28.03.2022. However, the present SA was filed much later. Accordingly, it is barred by limitation. The bank had sanctioned the CC Limit of Rs.400 LACS to the applicant, vide sanction letter dated 22.09.2015 against the hypothecation of

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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stocks. Applicant had created security interest in respect of the following properties.

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(a). Factory land and building situated at Rakhsi Kargah Abadi Green Land Silver Estate, Tehsil and District Amritsar.

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(b). House No.24, Situated at Urban Circle No.110, Ideal Lane Court Road, Tehsil and District Amritsar.

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Apart from that, bank has also sanctioned Working Capital Limit of Rs.90 Lacs under PNB Stand by Line Scheme, vide sanction letter dated 22.06.2020, which was repayable in 12 monthly installments of Rs.7.50 Lacs per month. During COVID, bank had extended full cooperation to the applicant and granted GECL Loan of Rs.80 Lacs vide sanction letter dated 16.10.2020 and also granted FITL Term Loan of Rs.23.15 Lacs, vide sanction letter dated 16.10.2020. Vide letters dated 08.07.2020; 14.07.2020; 05.08.2020; 02.09.2020; 09.09.2020; 29.09.2020 and 13.10.2020 bank had asked the applicant to submit the documents for renewal of CC Limit. Applicant was also informed that due to non-submission of the documents, the limit cannot be renewed. In spite of repeated requests, applicant failed to submit the requisite documents. The loan account of the applicant firm was running irregular since 2020. Applicant failed to serve interest in CC Limit and also failed to pay the installments in WCTL, FITL and GECL loan accounts. As per RBI guidelines, the loan accounts of the Applicant were declared NPA on 31.03.2021. The Bank has attached the statement of account of all the loan accounts. On 16.04.2021, bank issued notice under Section 13(2) of the SARFAESI Act. However, applicant failed to make the payment of the loan. On 11.03.2022, applicant was directed to deliver the possession of the secured asset before 26.03.2022. However, applicant failed to deliver the possession to the bank. On 28.03.2022, bank issued the notice under Section 13(4) against the residential property. This notice was also published in ‘Punjabi Jagran’ and ‘Indian Express’ on 03.04.2022. Vide letters dated 10.10.2022 and 21.11.2022, applicant was asked to submit the stock statement on monthly basis and submit the audited balance sheet yearly. However, the applicant failed to submit the

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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balance sheet for financial year 2020-2021 and 2021-2022. Applicant did not allow the bank officers to inspect the stock of hypothecated goods. On 03.08.2022, applicant was asked to allow the bank officers to inspect the stocks. Thereafter, the bank officials visited the unit for stock inspection. However, the applicant did not allow them to enter the premises. Applicant also lodged complaint with the Police at Amritsar. On 08.08.2022, the bank wrote a letter to the Chief Minister of Punjab; Principal Secretary, Government of Punjab and Director General of Police, Amritsar regarding the harassment by the police officials to the officials of the bank, at the instance of the Rajesh Kumar and Sachin Kumar, partner of the firm. Bank further alleged that apart from the present loan, it has also sanctioned loan facilities of Rs.345.96 lacs in the loan account of M/s Tisha Impex; Rs.363.33 lacs to Mr. Sachin Kumar; Rs.264.36 lacs in the loan account of M/s Kiran Industries. The borrowers, in all the cases, are related to each other and the properties have also been mortgaged in these accounts. It is alleged that bank has also filed OA No.2051-2022, for the recovery of Rs.6,66,79,826/- in the loan account of the applicant firm; OA No.39-2023 for the recovery of Rs.2,31,43,799/- in the loan account of M/s Tisha Impex and OA No.2071-2022 for the recovery of Rs.3,87,62,665/- in the loan account of Mr. Sachin Kumar. All these OAs are pending. Further, the Bank has initiated the procedure of declaring the loan account of M/s Tisha Impex, M/s Kiran Industries and Mr. Sachin Kumar, as willful defaulters and also issued letters to the Applicants and the borrowers on 04.01.2021 Vide letters dated 15.05.2023 and 23.08.2023, the Bank had asked the Applicant to provide the financial documents of the firm to the Bank authorized stock auditor or to the Bank officials. However, Applicant failed to do so. It is stated that as on 30.09.2023, a sum of Rs.7,47,20,863.96p is outstanding in the loan account of the applicant firm; Rs.2,75,09,818.56p in the loan account of M/s Tisha Impex; Rs.4,56,49,260.20p in the loan account of Mr. Sachin Kumar and Rs.6,73,20,692.23p in the loan account of M/s Kiran Industries. It is also stated that the SA is time barred and there is no merit in the present SA and the same be dismissed.

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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I have heard Mr. Akhilesh Vyas, counsel for the applicant and Mr. Gaurav Goyal and Mr. Sourav Goyal, counsel for the respondent bank.

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Mr. Akhilesh Vyas, counsel for the applicant has argued that the Bank has wrongly declared the account of the Applicant NPA on 31.03.2021. Counsel submitted that RBI, vide two circulars, had extended the moratorium till 31.08.2020. Thereafter, the Hon’ble Supreme Court in case of Small Scale Industries had directed all the Banks not to declare any account NPA till further orders. The Hon’ble Supreme Court had disposed of the writ petition of Small Scale Industries on 23.03.2021. However, the Bank declared the account of the Applicant NPA on 31.03.2021. This was also informed to the Applicant on 16.04.2021 vide notice under Section 13(2). Counsel further submitted that Bank did not follow procedure of SMA-1 and SMA-2 norms. In fact, the Bank should have declared the account NPA, 90 days (180 days in MSME case) after the decision of the Hon’ble Supreme Court. However, the Bank declared the account NPA just eight days after the decision of the Hon’ble Supreme Court. Mr. Vyas, further argued that it had filed writ petition in the Hon’ble High Court. Taking into the consideration the circumstances, the Hon’ble High Court had passed the interim order. He argued that Applicant has also made some payments during this period. Mr. Vyas argued that Applicant is an MSME unit. As per RBI guidelines, the case of the Applicant should have been put up before the designated committee. However, the Bank never put up the case of the Applicant before the MSME committee and straightway proceeded to declare the account NPA. Mr. Vyas submitted that since the very declaration of the account as NPA is wrong, the SARFAESI proceedings initiated by the Bank, be set aside. Further, the possession notice was not affixed on the property and also not published in the newspapers. Mr. Vyas, further argued that in this case properties are owned by Rajinder Kumar, who has filed a petition under Section 94 of the IBC before the NCLT. The moment a petition is filed, under Section 96, there is a moratorium. Accordingly, no further proceedings can be taken in this case. Winding up his

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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arguments, Mr. Vyas submitted that the SA be allowed and SARFAESI action initiated by the Bank be quashed.

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Per contra , Mr. Gaurav Goyal and Mr. Saurav Goyal, counsel for the Respondent Bank have argued that the present SA is time barred. Mr. Goyal submitted that the account of the Applicant is irregular since 2020. Though, the Bank had extended all the cooperation to the Applicant, yet, the Applicant did not adhere to the financial discipline. Counsel submitted that there is a basic fallacy in the arguments of Mr. Vyas that the account was declared NPA wrongly. Counsel submitted that as per RBI guidelines, there was moratorium till 31.08.2020. Thereafter, the Hon’ble Supreme Court ordered that no account would be declared NPA till further orders. Vide order dated 23.03.2021, the Hon’ble Supreme Court disposed of the writ petition. Counsel submitted that once the Hon’ble Supreme Court had vacated the stay order, the field was open for the Bank to declare the account NPA, in case the borrower had not serviced interest/installments of the loan account. Mr. Goyal submitted that the Bank was not required to wait for another 90 days’ after the decision by the Hon’ble Supreme Court to declare the account NPA. Counsel submitted that it is admitted on the record that Bank had issued the notice under Section 13(2) to the Applicant. However, Applicant did not respond to the same. Bank repeatedly made requests to the Applicant to submit the stock statement and audited balance sheet. However, Applicant did not submit the same. Applicant was also asked to allow the Bank officials to inspect the stock lying in the unit. However, Applicant did not allow the Bank officials to enter the factory premises. Mr. Goyal submitted that in fact there is no stock lying in the factory premises. Accordingly, Applicant did not permit the Bank officials to inspect the stock. Mr. Goyal argued that since the Applicant had not submitted the required documents for the renewal of the limits and it did not allow the Bank officials to inspect the stock, it was left with no alternative, except to declare the account of the Applicant NPA. The question of putting up the case of the Applicant before the MSME committee could arise, had the Applicant submitted

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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the renewal documents and allowed the Bank officials to inspect the stock. Mr. Goyal, further submitted that though it is stated that Rajinder Kumar, has filed a petition under Section 94 of the IBC before the NCLT, yet he is not a party in the present SA. Further, the petition has not been registered. Hon’ble Kerala High Court has held that till a proper petition is filed before the NCLT there would not be any moratorium. Winding up his arguments, Mr. Goyal submitted that the case of the Applicant is neither here nor there. There is no merit in the present SA and the same be dismissed.

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I have considered the rival contentions.

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It has already been mentioned that the Applicant has mainly raised three contentions. The first contention is that the account was wrongly declared NPA; the second is that the case of the Applicant was not put up before the MSME committee and the third is that there is moratorium.

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As far as the first contention of Mr. Vyas, that the account of the Applicant could not be declared NPA on 31.03.2021 is concerned, I am of the considered view that there is no force in the same. It is admitted on the record that till 31.08.2020 there was a moratorium. Thereafter, the Hon’ble Supreme Court had simply ordered that the account would not be declared NPA till further orders. Once the Hon’ble Supreme Court had vacated the stay order the field was open to the Bank to declare the account NPA, in case the borrower had not serviced the interest or installments. Applicant has failed to show that it had serviced the interest or installments sufficient that its account could not be declared NPA. Admittedly, Applicant had not paid sufficient amount in the GECL account and other accounts. In these circumstances, there was no option for the Bank, except to declare the account NPA. Further, Applicant had also not submitted the renewal documents despite repeated requests/reminders made by the Bank. Applicant did not allow the Bank officials to inspect the stock. There was complete non-cooperation by the Applicant. In these circumstances, Bank was left with no alternative, except to declare the account NPA. Since, Applicant had not

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SA No.323/2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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submitted the renewal documents and not allowed the Bank officials to inspect the stock, it did not lie in the mouth of the Applicant that its case should have been placed before the MSME committee. Applicant had not responded to the notice under Section 13(2) of the SARFAESI Act. Applicant has complained that no notice was issued to him prior to the notice under Section 13(2). I am of the considered view that Applicant was not entitled to any such notice. In case, he wanted to respond to any notice, he could do it to the notice under Section 13(2).

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I am of the considered view that there is no force in the contention of Mr. Vyas that since Rajinder Kumar, has filed the petition before NCLT there would be moratorium. It is admitted that till date the said petition has not been registered. In these circumstances there would not be any moratorium.

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Having considered the case of the Applicant from all angles, I am of the considered view that Applicant has failed to make out any case. Accordingly, the present SA is hereby dismissed . All the pending IAs, if any, are also disposed of, accordingly.

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Registrar is directed to send a copy of this order to all the parties, as per rule. Thereafter, file be consigned to record room after due compliance.

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Pronounced in open court. PANKAJ/07.06.2024

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

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Ms Sun Industries v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

Ms Sun Industries v. Punjab National Bank

Case brief

What is this about?

What did the court decide?

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