Dismissed

M/S Crystal Agro Foods v. Canara Bank

DRT19 Apr 2025SA/296/2023

Case brief

AI extract

What is this about?

M/s Crystal Agro Foods filed a Securitization Application challenging Canara Bank's recovery action, claiming the Bank violated RBI guidelines by refusing restructuring of their MSME account. The Tribunal found that the Borrowers had committed fraud by mortgaging properties while simultaneously executing agreements to sell them to third parties and collecting payments, without disclosing these agreements to the Bank. Consequently, the Security Application stood dismissed in view of the borrowers' fraudulent conduct and attempt to delay recovery through frivolous litigation.

What did the court decide?

Securitization Application dismissed; special costs of Rs. 2.00 lacs awarded to Respondent Bank; pending applications disposed of accordingly.

M/S Crystal Agro Foods versus Canara Bank — Banking and Recovery | DRT (2025)

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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SA No. 296 of 2023 M/s Crystal Agro Foods and another Versus Canara Bank

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Dated: 19.04.2025 Item No. 05

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Argued by : Shri Vikas Bali and Shri Arpit Chawla, Counsel for the Applicants.

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Shri Rakesh Gupta and Shri Yogesh Kumar, Counsel for Respondent Bank.

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M/s Crystal Agro Foods and another (Applicants) have filed

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this Securitization Application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), against Canara Bank (Respondent).

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The case of the Applicants, as set up in the Securitization Application, is that it is an MSME unit, engaged in the business of rice processing, sorting and grading. In the year 2020, it approached the Respondent to avail some credit facilities, for the purchase of plant and machinery as well as for working capital. The Bank sanctioned them the following credit facilities:-

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Nature of Limit	Permitted Limit (Rs. In Lakh)
OCC/ODBD	50.00
PC	200.00
FDB/FBE	100.00
TL	80.00
Total	350.00

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SA No.296 of 2023 DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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The Bank renewed the credit facilities from time to time vide sanction letters, dated 20.02.2020; 23.06.2021; 15.12.2021 and 16.05.2022 (Annexure A-3 to A-6). To secure the said credit facilities, they had created security interest in respect of following properties owned by Applicant no. 2, in favour of the Bank:-

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a. Hypothecation of new plant and machinery.

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b. Residential property bearing No. 569, Khasra No. 11219, 11227 Min situated at D Block, Ranjit Avenue in the Revenue Estate of Gumtala, Suburban, Tehsil & District Amritsar measuring 400 sq. yds.

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C. Industrial property bearing Khasra No. 298 Min (2-15) 2961 (1-19) situated at main Amritsar to Tarn Taran Road, Opposite Dhingra Paper Mills falling in the Revenue Estate of village Chabba, Tehsil & District Amritsar, total measuring 2057 sq. yds. i.e. 3 Kanal.

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Vide sanction letter dt. 15.12.2021 (Annexure A-5), Bank had sanctioned GECL 1.0 of Rs 1.10 Crores to them. It is stated that though they were maintaining the loan account properly, yet, due to global recession and uncertainty in the export sector, they suffered losses. Accordingly, they immediately approached the Bank with the request to restructure their loan account to save their unit from shutdown. Vide letter dated 15.02.2023, (Annexure A-7), they requested the Bank to convert the Packing Credit Limit (PCL) into Term Loan by providing a moratorium of one year with an additional sanction of ad hoc working capital limit. They also requested the Bank to convert the FDB/FBE Limit of Rs. 1.50 crores, which was unutilized, and credit the same to already existing CC limit, thus,

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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giving an additional benefit in the form of Working Capital. However, the General Manager/Chief Manager of the Bank vide letter dated 10.03.2023 (Annexure A-8), without referring the proposal to the higher authorities, who could have sent the case further to the Designated Committee, to consider their request for restructuring, in an arbitrary and biased manner, declined the same, by observing that ‘on visiting the unit, it was found that sufficient stock was available and the unit was running properly and since sufficient credit facilities had already been granted from time to time, there was no reason for moving the proposal for restructuring of advance’. It is stated that they were shocked on getting the letter dated 10.03.2023 and immediately approached the Bank again and requested for restructuring as they were facing hardship due to financial crunch and it was not possible to run the unit. The Branch Manager directed them to submit another application with a request to reconsider the already submitted restructuring proposal. Accordingly, vide letter dated 25.04.2023 (Annexure A-9), they submitted another proposal for restructuring and invited the attention of the Bank to the RBI guidelines dated 17.03.2016. However, on 27.04.2023, they were shocked when they came to know that their request for restructuring has been declined. Further, while rejecting their proposal, Bank issued a letter dated 24.04.2023 stating that their loan account would slip into NPA on 12.05.2023. It is stated that the Bank, in an arbitrary manner, against RBI guidelines dated 17.03.2016, did not even forward the restructuring proposal to the competent authority.

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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Aggrieved by the same, they filed CWP No. 10093-2023 wherein they challenged the action of the Bank. The said writ petition was clubbed with a bunch of petitions, wherein a common question of law, was involved. The writ petition was taken up on 05.10.2023. However, the Bank without waiting for the decision of the writ petition, issued the sale notice dated 01.09.2023, which was received on 12.09.2023, putting up the property for auction for 09.10.2023. It is stated that no notice under Section 13(2) was served upon them. This was done by the Bank to deprive them of their right to file objections under Section 13(3A). However, they came to know of the demand under Section 13(2) of the Act from the newspaper. It is stated that they filed objections to the same. In the objections, they stated that the Bank has acted against the RBI guidelines and wrongly declared their account NPA. It is also stated that the security interest was not registered with the CERSAI and thus, there has been violation of Section 26(D) of the SARFAESI Act. It was stated in the objections that the Bank had recalled the GECL regarding which there was a moratorium, and the Bank could not recall the same. However, the Bank, vide (Annexure A-18), rejected the objections, stating that the Applicants were required to apply to the Designated Committee in terms of Clause 2.3 of the Master Circular. Since, the Applicants had not applied to the Designated Committee in the prescribed format, it was not possible to refer the matter to the Designated Committee. On receiving this letter, they filed a rejoinder and reiterated all the objections and requested the Bank to reconsider

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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their request for restructuring and sought further information under RTI Act. However, the Bank again acted in an arbitrary manner and on 18.8.2023 (Annexure A-20) issued the possession notice under Section 13(4). The Bank further proceeded in an arbitrary manner, by closing an RD account, which was in the name of the proprietor of the firm, namely, Savinder Gugnani, without there being any authorization or request from them and appropriated a sum of Rs. 11 lacs. They sent the letter dated 22.05.2023 by registered post and by mail. However, till date the Bank has not replied to the said letter. Applicants also state that the Bank has been levying charges under different heads, which are not permissible under the law. It is stated that the Bank has put up the property to auction at a meager price and in violation of the valuation conducted by the Bank itself. The Bank has also submitted wrong particulars at the time of CERSAI registration stating that Ms. Dolly Gugnani is the sole proprietor of M/s Crystal Agro Foods. Accordingly, it is stated that the sale notice dated 01.09.2023 be set aside and the Bank be directed to restructure the loan of the Applicants in terms of RBI circular dated 17.03.2016 and it be directed not to take any coercive action.

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This deserves to be mentioned that on 21.07.2024, Applicants filed an application for amendment of the SA in order to challenge the notices/letters dated 25.06.2024 and 01.07.2024 (Annexure A-28 and A-29) and ex parte orders dated 17.10.2023 and 01.03.2024 (Annexure A-32 to A-35).

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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In the IA, Applicants alleged that the Bank has obtained the permission from the District Magistrate under Section 14 of the Act, for taking physical possession of the secured assets. They were surprised to get a phone call from one of the officials of the Bank that they would take physical possession of the industrial property on 15.07.2024 and of the residential property, on 24.7.24, under the garb of orders passed by the DM, Amritsar, dated 17.10.2023 and 01.03.2024. On getting the information, they rushed to the office of DM, Amritsar and enquired about the passing of the order. Applicant No. 2 was surprised when she came to know that the Bank had filed two applications under Section 14 of the Act in respect of both the properties. Accordingly, it was prayed that Applicants be allowed to amend the SA. Applicants filed the amended SA wherein they challenged not only the SARFAESI action initiated by the Bank but the action of the Bank also in not referring the matter to the Designated Committee as well as the DM order for taking the possession of the secured assets.

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In reply to the amended SA, Bank has denied the case of the Applicants. Bank has alleged that the Applicants have not approached this Tribunal with clean hands and have concealed the material facts. It is stated that on 20.02.2020, Applicants were sanctioned credit facilities to the tune of Rs. 3.50 crores. On 23.06.2021, the credit facilities were enhanced to Rs. 4.80 crores. Finally, as per sanction letter dated 26.05.2022, they were enhanced to Rs. 749.97 lacs.

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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Applicants had created security interest in respect of two properties. The account of the Applicants had turned NPA on 16.05.2023. The Bank had issued the notice under Section 13(2), which was duly served upon the Applicants and they had filed objections dated 13.07.2023. The Bank had disposed of the objections and on 18.08.2023, served the notice under Section 13(4). Even before the Bank had issued the demand notice under Section 13(2), Applicants had filed CWP No. 10093-2023, which was dismissed by the Hon’ble High Court vide order dated 18.12.2023. Thereafter, two SAs were filed by the Applicants i.e. SA No. 296 of 2023, titled M/s Crystal Agro Foods versus Canara Bank, the present SA and SA No. 288 of 2024. It is stated that the Bank had filed CWP No. 1284-2024 for appropriate directions to the District Magistrate for taking physical possession of the secured assets. A notice was issued to the Applicants, for 17.07.2024. In all those proceedings, Applicants never disclosed that two Civil Suits had been filed against them. Subsequently, it came to the notice of the Bank that on 20.05.2023, one Mr.Naresh Mahajan had filed Civil Suit No. 1539 of 2023 (Annexure R-5/Plaint), for specific performance and possession on the basis of agreement to sell dated 31.03.2019, in respect of the property measuring 8 kanals 8 marlas. Naresh Mahajan in the Civil Suit had alleged that it was agreed between the parties that the total sale consideration of the land would be Rs. 80 lacs and out of the same he had made the following payments:-

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31.03.2019 Rs. 10.00 lacs at the time of agreement to sell

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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11.10.2019	Rs. 10.00 lacs
13.08.2020	Rs. 7.00 lacs
20.08.2021	Rs. 10.00 lacs
24.08.2021	Rs. 10.00 lacs
24.08.2021	Rs. 5.00 lacs
14.12.2022	Rs. 5.00 lacs

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Applicant No. 2/Dolly Gugnani continued to extend the last date of registration of the sale-deed. However, the Bank is not a party to the said Civil Suit. On 20.05.2023, the Trial Court has granted interim injunction against Applicant No. 2/Dolly Gugnani.

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Further, it also came to the notice of the Bank that one Kuldeep Thakur had also filed Civil Suit No. 1105 of 2023 against Dolly Gugnani for specific performance, on the basis of agreement to sell, dated 27.03.2019, in respect of the house, which was mortgaged with the Bank (Plaint Annexure R-7 and Written Statement by Dolly Gugnani Annexure R-8). As per agreement to sell, the total sale consideration was agreed at Rs. 1.15 crores, out of which, Applicant No. 2 has received the following payments:-

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01.09.2019	Rs. 10.00 lacs
15.07.2020	Rs. 15.00 lacs
25.03.2021	Rs. 15.00 lacs
20.12.2021	Rs. 15.00 lacs
30.06.2022	Rs. 18.00 lacs.

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All the said payments were received by Dolly Gugnani on different dates. Dolly Gugnani kept on extending the date of execution of the sale-deeds. In the said Civil Suit, the Trial Court has observed that the pendency of the Civil Suit would have no effect in

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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the proceedings by the Bank. The Bank has alleged that at the time of creating equitable mortgage, Applicant No. 2 had given an affidavit dated 18.10.2019 (Annexure R-10) that the properties were free from encumbrances. It is stated that alongwith the affidavit, the original title-deeds were handed over and Applicant No.2 executed memorandum of mortgage (Annexure R-11) and enhancement memorandum of mortgage (Annexure R-12). The Bank alleged that in order to put undue pressure on the Bank, Applicant No. 2/Dolly Gugnani had filed a complaint to the Additional Deputy Commissioner of Police, Amritsar, on 26.06.2024 stating that the Bank while filing application under Section 14 of the SARFAESI Act had not disclosed the pendency of the Civil Suits and the affidavit filed by the Bank before the DM was wrong. Further, on 19.08.2024, Applicant No. 1 filed another complaint to ADC of Police, Amritsar, to the same effect. The Bank alleged that in fact, Applicants have committed a fraud with the Bank. Further, Applicant No. 2 filed CRM-M-27845-2024 in the Hon’ble High Court. Later it was withdrawn on 29.05.2024. The Bank was not impleaded as a party to the same. Further, Applicant No. 1 filed CRM-M-45048-2024 in the Hon’ble High Court. The Hon’ble High Court passed an innocuous order directing the ADC of Police, Amritsar to decide the complaint, dated 11.09.2024. It is stated that the police had no role in the proceedings, yet, in order to comply with the orders passed by the Hon’ble High Court, the police conducted a detailed inquiry and prepared the report dated 02.10.2024. The police concluded that no

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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criminal angle was made out. Applicant No. 1 again filed CRM-M57979-2024 in the Hon’ble High Court. Bank was again not impleaded as a party. However, the Bank put in appearance in the Hon’ble High Court and Applicant No.1 withdrew the petition on 22.11.2024. Another writ petition, bearing CRM-M-61168-2024 was filed by Applicant No. 1. It is alleged that at the time of filing the writ petitions, Dolly Gugnani did not disclose the agreements to sell with Shri Naresh Mahajan, dated 31.03.2019 and Shri Kuldeep Thakur, dated 27.03.2019. In this manner, Applicants committed fraud with the Bank. It is also stated that the Applicants after creating mortgage in favour of the Bank, continued to accept money from the prospective vendees. Applicants never disclosed the pendency of Civil Suits in the writ petition filed by them before the Hon’ble High Court and in the meantime, the DM passed the order dated 17.10.2023. It is alleged that the SA is time-barred. Accordingly, it is prayed that the SA be dismissed.

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I have heard Mr.Vikas Bali and Mr.Arpit Chalwa, counsel for the Applicants and Mr.Rakesh Gupta, counsel for Respondent Bank.

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Mr.Bali and Mr.Chawla, counsel for the Applicants have argued that admittedly Applicant is an MSME unit. On 17.03.2016, RBI had issued guidelines that in the case of MSME units, the Bank would not declare the account NPA and whenever the account of an MSME unit is under stress, the Bank would refer the matter to the Designated Committee. As per RBI circular, dated 17.03.2016 even a borrower of MSME unit can apply for restructuring. Counsel submitted that

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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admittedly Applicants had requested the Bank for restructuring. In fact, the request was made on two occasions. However, the Bank in an arbitrary manner declined the same. This led the Applicants to approach the Hon’ble High Court by filing the writ petition. Their writ petition was clubbed with a bunch of petitions wherein a similar question of law was involved. Finally, vide order dated 18.12.2023, the Hon’ble High Court disposed of all the clubbed writ petitions, by holding that the DRT is the competent authority to look into the aspect as to what is the effect of not referring the matter to the Designated Committee, in those cases where the unit is an MSME and a request has been made to the Bank to refer the matter to the Designated Committee. Mr.Bali and Mr.Chawla submitted that the Hon’ble Supreme Court in M/s Pro Knit’s case has held that the RBI circulars are binding on the Bank. In fact, the RBI circular dated 17.03.2016 has the flavour of statutory provisions. Since, the Bank has violated the statutory guidelines, the action of the Bank in declaring the account NPA is illegal, null and void . The Bank should have referred the matter to the Designated Committee. Counsel further submitted that since there has been violation of the statutory provisions, the SARFAESI action be set aside and the Bank be directed to refer the matter to the Designated Committee. Counsel further submitted that the Bank has obtained the order from the DM by misstating the facts. Bank has filed wrong affidavit before the DM. In fact, two orders were obtained. The law does not envisage any such situation. Since, the Bank had obtained the order under Section 14 of the SARFAESI Act in an illegal manner, Applicants had to approach the Hon’ble High Court which ordered that an inquiry be conducted. In the inquiry, it was found

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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that the Bank had made mis-statements. Accordingly, the order passed by the DM also be set aside and the SARFAESI action be quashed.

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13. Per contra , Mr. Gupta, counsel for the Respondent Bank has argued that this is a false and frivolous SA. Applicants have not approached this Tribunal with clean hands. Prior to offering the property as security, Applicants had entered into agreements to sell in respect of secured assets with Mr.Naresh Mahajan and Kuldeep Thakur. Despite the fact that the Applicants had entered into agreements to sell with Naresh Mahajan and Kuldeep Thakur, they offered the properties as security to the Bank. Applicants filed an affidavit that their properties were free from encumbrances. Accordingly, Applicants have committed fraud and forgery with the Bank. Counsel submitted that on this very ground the SA is liable to be dismissed. Mr.Gupta further submitted that the Applicants continued to file frivolous petitions before the Hon’ble High Court and by misstating the facts, tried to obtain orders from the Hon’ble High Court. Mr Gupta submitted that Applicants owe more than Rs. 8 crores to the Bank and for the last about 1 ½ years, they have been able to stall the recovery by the Bank. Accordingly, it is submitted that there is no merit in the SA and the same be dismissed.

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I have considered the rival contentions.

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It is admitted on the record that on 20.02.2020, Canara Bank had sanctioned credit facilities to the tune of Rs. 3.50 crores to Applicant No.1. On 23.06.2021, these credit facilities were enhanced to Rs. 4.80 crores and finally on 26.05.2022, to Rs. 749.97 crores. To secure these credit facilities, Applicant No. 2 had created security interest in respect

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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of the properties, fully detailed in para No. 3 of this order. The case of the Applicants is that before the Bank had declared their account as NPA, they had made a request on 15.02.2023 to the Bank to restructure their account. However, on 10.03.2023, the Bank rejected their request on flimsy grounds. They had again made a request to the Bank on 25.04.2023 to restructure the account. However, the Bank again rejected the same on 27.04.2023. The case of the Applicants is that RBI has issued guidelines dated 17.03.2016 in respect of MSME units. As per RBI guidelines, dated 17.03.2016, the Bank cannot decline the request of an MSME unit for restructuring. Whenever such a request is made, the Bank is under obligation to refer the matter to the Designated Committee. In the case in hand, the Bank did not refer the matter to the Designated Committee. At the first instance, it declined the request on the ground that there was no need for further advance. Second time, again the Bank declined the request on the ground that the Applicants should have approached the Designated Committee at their end. It is admitted on the record that Applicants had approached the Hon’ble High Court by filing CWP No. 10093-2023, which was dismissed on 18.12.2023 and it was observed that the DRT is the competent authority to look into the matter. I am of the considered view that there is no need to return a finding on the question as to whether the bank was justified in not referring the matter to the Designated Committee. The fact remains that Applicants have played a fraud with the Bank. The Bank has proved on the record that before creating security interest in respect of two properties, Applicant No. 2 had entered into agreements to sell with Kuldeep Thakur and Naresh Mahajan, dated 27.03.2019 and

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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31.03.2019, respectively. Bank has also proved on the record that Naresh Mahajan and Kuldeep Thakur have filed Civil Suits against Applicant for specific performance. It has also come on the record that Dolly Gugnani had accepted Rs. 57.00 lacs in respect of the sale of plant and machinery and Rs. 73.00 lacs in respect of the house property. Dolly Gugnani has not denied these agreements to sell and has stated that her husband has done all this. I am of the considered view that Applicants have played fraud with the Bank. Dolly Gugnani had filed an affidavit (Annexure R-10) with the Bank on 18.10.2019 stating that both these properties were free from all encumbrances. On the assurance of the Applicants that their properties were free from encumbrances, the Bank had sanctioned these credit facilities. Had the Bank been aware that Applicant No.2 had entered into agreements to sell in respect of these properties and accepted money on the basis of these agreements to sell, the Bank would not have sanctioned the loan. It is admitted on the record that even after creating security interest, Applicant No. 2 continued to accept money from Naresh Mahajan and Kuldeep Thakur, on the basis of agreements to sell. Not only that, Applicants also made every possible effort to stall the recovery of the Bank by filing frivolous petitions in the Hon’ble High Court and before the police authorities. The conduct of the Applicants is highly condemnable. I am of the considered view that Applicants do not deserve any relief. Accordingly, their SA is hereby dismissed with special costs of Rs. 2.00 lacs. All the pending IAs, if any, are also disposed of, accordingly.

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SA No.296 of 2023

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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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 Dated: 19.04.2025/Manoj

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

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M/S Crystal Agro Foods v. Canara Bank

Case brief

What is this about?

What did the court decide?

M/S Crystal Agro Foods v. Canara Bank

Case brief

What is this about?

What did the court decide?

What the court decided

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