Heard learned Counsel for the parties.
At the out set, it is relevant to mention that it has been noticed that quite often, after availing the facility of financial assistance, the borrowers hardly show interest in repayment of loan which keep on accumulating as a result of which it becomes difficult for the financial institutions to continue the financial assistance to deserving parties due to heavy blockade of money stuck up with the erring borrowers. It is not good for a financial institution to have heavy NPA[Non-performing Account]. The eradication of non-performing loans is a necessary condition to improve the economic status. If the non-performing loans are kept existing and continuously rolled over, the resources are locked up in profitable sectors; thus, hindering the economic growth and impairing the economic efficiency.
Financial assistance rendered to the company/industry or an individual by the financial institutions does not mean that it is not refundable money or is payable at the sweet will of the loanee. As a matter of fact, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill effects.
A Non-performing loan (NPL) is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms.
Here is the case where all sorts of delaying tactics are being adopted by the contesting respondents in not paying the loan, though the factum of taking loan/advance under the facility of cash credit limit has been admitted by them before this Court in other writ petitions, reference of which will be given later on.
By means of instant writ petition, the petitioner has questioned the validity of the order dated 28.8.2009 passed by Co-operative Tribunal, U.P. whereby the Award dated 19.02.04 passed by the Additional Registrar/ Arbitrator in case no. 73 of 2003-04 'Nagar Vikas Sahkari Bank Ltd., Hardoi vs M/S Good Refectories Ltd., Hardoi, through its Managing Director-Sri Krishna Kumar Singh, and others, has been set aside inter-alia on the grounds that the Tribunal committed manifest error in entertaining the appeal of M/s Good Refectories Ltd (opposite party no.2) which was highly belated and that too when there was no application for condonation of delay. The next ground of challenge is that the learned Tribunal also erred in holding that the order was passed without there being actual service of notice on the company overlooking the fact that the opposite party no.7-Krishna Kumar Singh was the Managing Director of the Company at the relevant time and he remained in that capacity till the declaration of Award.
Brief facts, which lead to the filing of the writ petition are that M/S Good Refectories Ltd. through its Managing Director Sri Krishna Kumar Singh applied for a loan and signed the Loan Agreement. The said agreement was also signed by the guarantors and the opposite party no.7-Krishna Kumar, who was the Managing Director of the Company, also mortgaged agricultural land with the bank. At the time of disbursement of the said loan Sri Krishna Kumar Singh was a Director in the lending Bank. As the Company defaulted in paying the loan amount and also stopped transaction in the Current Account, a notice was sent to the Company through its Managing Director but when no response was received, the Bank preferred an application under sec. 70 of U.P. Cooperative Societies Act on 06.01.2003 before the Arbitrator/ Addl. Registrar, Cooperative Societies, U.P., Lucknow who, on 19.02.04, directed for recovery of the outstanding amount of Rs. 12,08,867/- from the mortgaged property alongwith interest thereon.
Against the said order of the Arbitrator, Shri Krishna Kumar Singh-opposite party no.7 preferred an Appeal no. 34 of 2004 in individual capacity before Cooperative Tribunal, U.P., Lucknow which was dismissed on the ground of maintainability vide judgment dated 24.07.06. The said order of the Tribunal was assailed by opposite party no.7-Krishna Kumar Singh in writ petition bearing no. 2153 (M/B) of 2007; Krishna Kumar Singh vs Nagar Vikas Sahkari Bank Ltd. and others but the same was got dismissed as not pressed vide order dated 09.04.07.
It has come on record that since Krishna Kumar Singh-opposite party no.7 was the sitting M.L.A., and as such, the recovery process was not proceedings. Under these circumstances, the Bank had approached this Court by filing writ petition no. 5931/MB/2007 to get the said award executed. After the intervention of this Court, recovery proceedings were started by the Revenue Authorities.
On an application moved by the Registrar, Cooperative Societies an order was passed directing the Additional Registrar (Administration) to re-adjudicate the Arbitration Proceedings bearing No. 73/2003-04, who vide order dated 12.9.2007 rejected the application. The Company- M/s Good Refectories Limited filed a writ petition bearing no. 4915(MS) of 2007 assailing the aforesaid orders dated 12th September, 2007 and 19th February, 2004 on the ground that the Award made on 19th February is an ex-parte award as no notice was served to the petitioner and he came to know about the same when recovery was initiated against him. The said writ petition was dismissed by a judgment and order dated 20.9.2007.
At this juncture, it is relevant to point out that against the order dated 23.8.2007 and 31.8.2007 passed by this Court in Writ Petition No. 5931(MB) of 2007, M/s Good Refectories Limited as also its Managing Director, namely, Krishna Kumar Singh ( opposite Party No. 7) filed separate SLPs before the Apex Court bearing S.L.P.s no. 18018-19 of 2007 and 16803-804 of 2007. Initially, the Apex Court stayed the sale proceedings vide its interim order dated 24.09.07 but subsequently the SLPs preferred by the contesting respondents i.e. S.L.P. No 18018-18019 of 2007 was got dismissed as withdrawn and S.L.P. Nos. 16803-16804 of 2007 was dismissed for lack of grounds for interference.
It may be noted that during the pendency of the above petitions before Hon'ble Apex Court, M/S Good Refectories Ltd. filed a time barred appeal before the Cooperative Tribunal, U.P., Lucknow bearing no. 195 of 2007 which has been allowed vide order dated 28.08.09 and the matter has been remanded back to the Arbitrator. This order dated 28.08.09 is the cause of action of the present writ petition.
It has been argued that the impugned order is wholly illegal, arbitrary and misconceived as the same has been passed on the ground that M/S Good Refectories Ltd. had not been served with any notice of the arbitration proceedings, which is absolutely wrong as the Company is only a legal entity represented through its employees and Officers etc. Undisputedly, on the date of taking loan, on the date of filing of proceedings as also on the date of Award dated 19.2.2004, Krishna Kumar Singh- opposite party no.7 was the Managing Director of the Company and he was seriously contesting the proceedings.
It has also been vehemently argued that the impugned order dated 28.8.2009 passed by the Co-operative Tribunal is not sustainable in view of the fact that the same has been passed ignoring the orders passed by the Apex Court and the High Court in various petitions, referred to above. The opposite party no.2 has also suppressed the orders passed by the Apex Court and mislead the Tribunal in passing the impugned order.
On behalf of the respondent no.2, it has been urged that the Tribunal had passed a well reasoned and sound order and it does not suffer from any infirmity as alleged by the petitioner. In the Counter Affidavit , opposite party no. 2 has denied the demand of loan of Rs. Ten Lacs by the then Managing Director of the Company and instead of it, through mathematical manipulation, it has been projected that there was a demand of 'cash credit limit' of mere Rs. five lacs. It has also been contended that in Appeal no. 34 of 2004 before the Tribunal, that the Company, the original sufferer, was not the appellant rather the appeal was filed by opposite party no. 7 in his individual capacity.
It has been repeatedly stated in the Counter Affidavit that during the arbitration proceedings, the company had never been served with the notice on its registered address to put his version rather the Bank had tried to show that there was proper service of notice on all the Directors of the Company including the Managing Director Krishna Kumar Singh as they refused to take the same.
According to learned Counsel for the respondent, the Company as a legal entity was entitled to be served as its registered office by post i.e. at the address at '37/19(1), the Mall Kanpur' which is the registered address of the Company. Clarifying further, it has been submitted that the petitioner himself has impleaded the Company-M.s Good Refractories Ltd. as opposite party no.2 to the writ petition, giving its address as '37/19(1), The Mall, Kanpur' which is correct address of the registered office of Company. Thus, when notice was issued on the wrong address of Hardoi district, it cannot be said that notice was served upon the company.
It has also been urged that neither under Section 116 of the U.P. Cooperative Societies Act, 1965 nor under section 51 of the Companies Act, 1956 there is provision for service of notice and documents by way of substituted service and publication in Newspaper as such when registered notice, patently, had been sent at wrong address, therefore, the question of any substituted service on the Company by way of publication in Newspaper become irrelevant and cannot be treated as legal service.
Counsel for the respondent no.2 has also urged that the petitioner-Bank has played fraud which would be evident from the fact that while granting Cash Credit Limit, blank documents were got signed by the petitioner Bank from the Managing Director of the Company-opposite party no. 7, on 21.10.1999 in which the alleged blank receipt was also got signed from the then Managing Director of the Company. As a matter of fact in the ledger account of the Company right from the date 21.10.1999 till 30.7.2003, which was also placed before the Arbitrator, nowhere payment of Rs. 10 lac to the company is shown in any manner. The petitioner-Bank also failed to produce vouchers regarding payment of Rs. 10 lac in cash to the Managing Director on behalf of the Company. There is no law which permits release of heavy amount in cash to anyone.
Concluding his arguments, learned Counsel for the respondent submitted that the principles of natural justice have grossly been violated and the Company has not been afforded any opportunity of hearing at all and service of notices as well as documents have been manipulated and manufactured which will require fact findings and no useful purpose would be served by remanding the matter to the Tribunal. He further submitted that pursuant to the order of the Apex Court, the answering respondent has already deposited a sum of Rs. 8 lacs and as such in the facts and circumstances of the case, it would be appropriate that the Arbitrator is appointed for adjudicating the matter within a fixed period which will serve the ends of justice.
In his rejoinder reply, the petitioner's Counsel seriously refuted the allegations made by the answering respondent and stated that the opposite party no.2-Company is a family company of Mr Krishna Kumar Singh-opposite party no.7 and he had full knowledge of the service as well as the ex-parte Award since he has filed an appeal in a individual capacity when he could have filed it on behalf of the Company. Therefore, it is wrong to say that the Company had no knowledge. Moreover, after dismissal of the Special Leave Petition filed by the opposite party no.7 by the Apex Court, the Arbitration Award had attained finality. The Apex Court did not find any substance or force in question raised by the respondent regarding ex-parte Award and its executability. There cannot be any doubt that the opposite party no.2/Company through its then Managing Director i.e. opposite party no.7 is deliberately chosen to avoid the payment of outstanding loan amount by initiating one after another frivolous and vexatious litigation.
Elaborating his argument, learned Counsel for the petitioner submitted that in the instant matter, Section 116 of the Cooperative Societies Act, 1965 would be applicable and not Section 51 of the Companies Act. The defaulter Company cannot escape its liability to repay the outstanding loan amount under the garb of technical plea. As averred above, the opposite party no.2-Company is a family owned Company and the service upon the Company is deemed to have been affected, if the opposite party no.7 was served, who was none other than the erstwhile Managing Director of the Company.
Before dealing with the rival contentions, it would be appropriate to mention that against the Award dated 19.2.2004, Opposite party no.7-Krishna Kumar Singh (erstwhile Managing Director) preferred an Appeal before the Tribunal but the same was dismissed on 24.7.2006. Against the order rejecting the appeal, the erstwhile Managing Director (Opposite party no.7) preferred a Writ Petition no. 2153(MB) of 2007 but the opposite party no.7 after arguing the matter at some length got it dismissed on 9.4.2007, as not pressed with liberty to seek remedy before the appropriate forum.
The present petitioner-Bank had also approached this Court when the Revenue Authorities were not recovering the amount due from the opposite party no.7 by filing a Writ Petition no. 5931(MB) of 2007 and in the said writ petition, on behalf of respondent no. 7 appearance was put in by Sri P.K.Sinha, Advocate who is also the Counsel in the instant case. A Division Bench of this Court passed an order dated 23.8.2007 wherein it was observed as under:-
"It is admitted case of the parties that on an application moved by Shri Krishna Kumar Singh, Managing Director, Good Refectories before the Nagar Vikas Sahkari Bank Limited Railway Ganj Branch, District Hardoi, a loan of Rs. 10,00,00/- was granted to M.s Good Refectories Limited. The said amount was received by the opposite party no.1 on behalf of M/s Good Refectories Limited being its Managing Director. Admittedly, when the loan was not paid by the opposite party nos. 2 and 1, the bank moved an application under Section 70 of the U.P. Cooperative Societies Act on 8.10.2003. The Arbitrator thereafter passed an award on 19.2.2004. Admittedly, the opposite party no.2 has not challenged the award. The award was challenged by the opposite party no.1 by way of an appeal, which was registered as Appeal No. 34 of 2004, which was dismissed being not maintainable by the judgment and order dated 24th July, 2006. Shri Krishna Kumar Singh also preferred a writ petition in this Court, which was registered as Writ Petition No. 2153(MB) of 2007, which was dismissed as not pressed by the judgment and order dated 9th April, 2007.
The amount, which was paid by the bank is a public money and the District Administration is under an obligation to recover the amount against the recovery certificate issued by the Assistant Registrar on 28th April, 2006".
Thus from the perusal of the aforesaid order, it is evident that the contesting respondents defaulted in repaying the advance given by the Bank. Moreover, it is not open for the answering respondent to raise the question that the Bank has committed fraud and infact no loan was ever taken by the Company through its Officers.
As averred above, the Award dated 19th February, 2004 as also the order dated 12th September, 2007 whereby the application for recall of the Award was rejected by the learned Arbitrator, were assailed by the Company in Writ Petition no. 4915(MS) of 2007 amd the same was dismissed on the ground of availability of alternative remedy by a detailed order dated 20.9.2007 and the co-ordinate bench observed as under:-
" The fact remains that the award was made on 19th February, 2004 and the petitioner moved the application to recall the same after more than 2 years, the same has also been rejected and the award passed earlier has been made good by the subsequent order also. I am also informed by the learned Counsel for the respondents that Mr Krishna Kumar Singh challenged the same recovery proceedings before this Court through the writ petition no. 5931(MB) of 2007 and this court has declined to interfere in the same rather has issued direction to the recovery officer to proceed with the recovery by means of order dated 31st August, 2007, the same is on record as annexure No. 19 to the writ petition."
Being dissatisfied with the aforesaid order dated 20.9.2007, M/s Good Refectories Ltd as well as Krishan Kumar Singh approached the Apex Court by filing Writ Petition no. 18018-19 of 2007 and 16803-804 of 2007. The Apex Court by an order dated 24.9.2007 passed an order that the sale shall not be conducted, until further orders of the Court. The Apex Court, on 10.7.2009, passed an order dismissing the SLP and declined to interfere with the impugned order. On the other hand, the SLP filed by M/s Good Refectories Ltd was dismissed as withdrawn.
It is pertinent to add that during the pendency of the matter before the Apex Court, M/s Good Refectories Ltd in a clandestine manner filed a time-barred appeal before the Cooperative Tribunal registered as Appeal No. 195 of 2007, which was allowed by the impugned order dated 28.8.2009 and the matter was remanded to the Registrar.
Having considered the submissions made by the learned Counsel for the parties and various orders passed by co-ordinate Benches of this Court, one thing is settled that the Company-opposite party no.2 was sanctioned Cash Credit Limit of ten lacs for which the application was moved on behalf of the company by the Managing Director i.e. opposite party no.7. From the agreement dated 21.10.1999 signed by the opposite party no.7, it is clear that in the event of failure in repaying the advance, the same could be recovered from the property of opposite party no.7, for which an equitable mortgage was executed in favour of the Bank.
It is relevant to point out that under the cash credit limit facility popularly known as "CC limit", the loanee is entitled to withdraw the amount from the Bank to the permitted limit either by single transaction or in installment as he wish but the same is payable with interest. It is an admitted fact that the Company was having a current account with the petitioner-Bank. It is on record, as brought by the Counsel for the petitioner, that a sum of Rupees Five lacs was withdrawn by the opposite party no.7 through Cheque no. 10115. It has been stated by the Counsel for the petitioner that from the statement of account, which has been annexed with the reply, would show that the then Managing Director had deposited and withdrew the amount on different dates till 18.12.2001, the date on which a sum of Rs. 90,2238/- was outstanding against the Company. The amount swelled on account of interest that accrued from time to time on the outstanding amount. As no amount was deposited towards the outstanding amount, a notice was sent and ultimately, Section 70 of the U.P. Cooperative Societies Act, 1965 was invoked by the Bank.
In the appellate order, which is impugned in the present writ petition, it has been held that Arbitrator has not issued notice to the appellant Company at its correct address as required and as such the Company was not heard before passing the Award dated 19.2.2004. Therefore, the same is hit by the provision of natural justice. On behalf of the Bank, it has been informed that in arbitration proceedings, the notices were sent by the Arbitrator to the Company through its Chief Executive Officer/Managing Director, who was none else than the opposite party no.7. This notice was sent on the address given in the loan agreement. The service of notices to opposite party no.2-Company was also effected by publication in local Newspaper " Dainik Chakragati", Hardoi edition dated 21.1.2004.
However, the fact remains that when different Benches of this Court after hearing the parties i.e. Counsel for the Bank, opposite party no.7 and the Company had passed order and negated the assertions of the Company and the opposite party, it was not open for the Tribunal to pass order contrary to the orders passed by this Court. Not only this, as indicated above, the Company and the opposite party no.7 had approached the Apex Court. The Apex Court had initially stayed the sale but later on dismissed the SLPs and did not come in rescue of the contesting respondents. Therefore, after dismissal of SLP, in my considered opinion, there was no legal impediment in putting the property on sale with a view to recover the amount due.
It appears that all the tactics are being played out only to avoid payment of loan liability. If the loan has been disbursed by the Bank, which has been admitted by the contesting respondents, as would be evident from the orders passed by this Court in other writ petitions preferred by them, it is the liability of the Company and Managing Director to repay it. It is also pertinent to note that after dismissal of Special Leave Petitions by the Apex Court, the Award dated 19.2.2004 has attained finality, there was no occasion for the Tribunal to pass contrary orders as the order of the Apex Court is binding, which has declined to interfere in the matter. It is also pertinent to mention that the opposite party no.7 had raised the question of law regarding ex-parte Award before the Apex Court but the SLP was dismissed.
The delaying tactics and filing vexatious litigations by the contesting respondents, would also be evident from the fact that when an ad-interim order was passed by this Court on 13.11.2009 in favour of the petitioner, it was again assailed by the Company before the Apex Court, but this time the Apex Court while disposing off the SLP, directed the petitioner to deposit a sum of Rs. 8 lacs.
Assertion of the contesting respondents that the petitioner-Bank had not treated them fairly sans credibility can be of no avail as the contesting respondents themselves had failed to repay the outstanding dues. When the contesting respondent had taken loan but failed to fulfill his commitment and delayed the repayment of loan, they are responsible for the consequences. The Court cannot loose sight of the fact that the Bank is a trustee of public funds and as such, it cannot compromise with the public interest for benefiting private individuals. Those who take loan and avail financial facilities from the Bank are duty bound to repay the amount strictly in accordance with the terms of the contract. Any lapse in such matters has to be viewed seriously and the Bank is entitled to recover the amount by adopting all legally permissible methods.
Taking the holistic view of the matter, the impugned order dated 28.8.2009 has no legs to stand and suffers from infirmities. Accordingly, the same is quashed. The amount which is deposited in this Court pursuant to the direction of the Apex Court, if has not been released in favour of the petitioner, shall be released forthwith.
The writ petition stands allowed accordingly.