Withdrawal of drawing power under the cash credit facility extended to the petitioners as per Ext.P11 and subsequent proceedings by way of Ext.P16 notice issued under Section 13 (2) of the SARFAESI Act are mainly under challenge in W.P(C) No.6783 OF 2013. The grievance projected in the other writ petition i.e. W.P.(C)15311 of 2014 (preferred by the petitioners 1 and 3 in the former writ petition , who are husband and wife ) is in respect of non return of gold ornaments, despite satisfaction of the entire outstanding liability under the concerned gold loan account, for non-satisfaction of the amount due under the other loan accounts (which forms the subject matter of the former writ petition).
2. The sequence of events is as follows (with reference to W.P.(C)NO. 6784 of 2013): The first petitioner availed a cash credit facility of Rs.50 lakhs from the respondent Bank in June 2005 creating security interest over the property offered by the petitioners 2 and 3, as borne by Ext.P1 Sanction Order. As per Ext.P2, an additional extent of 14.5 cents was offered as security and the ceiling limit of loan account was enhanced to 45.70 lakhs. The loan was renewed in the year 2008, vide Ext.P3 and thereafter, as per Ext.P4 the ceiling was enhanced to Rs.53 lakhs in the year 2009. Subsequently, the ceiling was further enhanced to Rs.68 lakhs in the year 2010 and on both the above occasions, necessary processing charges were collected from the petitioners vide Exts.P4(a) and P5(a). According to the petitioners, when the loan period expired in July 2012, the tenure was extended for a further period of 24 months. A sum of Rs.10,200/- was collected as processing charges as per Ext.P8 dated 19.10.2012. But on the very next day, an additional amount of Rs.8125/- was also collected vide Ext.P9, stating that payment already effected was insufficient.
3. While so, the third petitioner (husband of the first petitioner) had an occasion to file a complaint against some officers/staff of the Punjab National Bank, in connection with some service which was sought to be availed from the said Bank. Pursuant to the complaint, it is stated, a lady officer /Manager of the Punjab National Bank was transferred. The said petitioner had an occasion to prefer a complaint against an official of the respondent Bank as well, in connection with a deal allegedly involving forgery and some other offences, which led to Ext.P10 FIR registered by the Police against all concerned. 'AGM' of the respondent Bank required the complainant to withdraw the complaint in December 2012, which was not acceded to. It was in the said circumstance, that the respondent Bank turned against the petitioners with retaliatory measures, leading to the impugned proceedings.
4. The case of the petitioners is that, they were operating the accounts without room for complaint from any corner and were doing the business accordingly. But on a fine morning, the 'drawing power' of the petitioners was taken away as per Ext.P11, strangulating the establishment, inspite of the fact that the debit had never exceeded the drawing power. Reference is made to Ext.P18 statement of accounts, which shows that the limit of 'drawing power' was 68 lakhs; whereas the debit as on 31.12.2012 was only 67,99,943/-. Further, Ext.P11 was issued without giving any notice to the petitioners and by virtue of the turn of events, the petitioners were constrained to close down the industry. The factum of closure of business was let known to the Commercial Tax Officer and the Income Tax Officer, vide Ext.P21 and P22 respectively.
5. The petitioners contend that, by virtue of the abrupt stoppage of business (because of wrongful action on the part of the respondent Bank) many sumptuary accounts/payments, which were due to the petitioners could not be collected/realised from the creditors. Reference is made to Ext.P13, as to the loss sustained by the petitioners which runs to several lakhs. It is pointed out that the version of the respondent that renewal effected in the year 2012 was only for a period of 9 months is not at all correct, which was actually for 24 months and necessary processing charges were collected from the petitioners as borne by Exts. P8 and P9 . It is also stated that the officers of the Bank had been frequently visiting the premises and were satisfied with the stock position and the Books of accounts. Reliance is sought to be placed on Ext.P14 inspection report regarding such visits, regularly till 18.04.2013. It is also pointed out that, withdrawal of the term loan in respect of the car purchased by the petitioners is absolutely without any authority of law, as the balance overdue was only Rs.38384 /- ( or Rs.,39,986/- as stated elsewhere), which was much less than 10% of the total loan amount of Rs.2.87 lakhs, by virtue of which, the petitioner was not liable to be proceeded against , as per the mandate under Section 31(j) of the SARFAESI Act.
6. Heard Mr. Babu Kuruvathazha, the learned Counsel appearing for the petitioners and Mr. George Thomas Mevada, the learned Counsel for the first respondent/Bank at length.
7. The learned Counsel for the petitioners points out that, since the course pursued by the respondent Bank is per se wrong and illegal in all respects, the Bank is not justified in proceeding with further steps under the SARFAESI Act; more so when the statutory requirements to have such exercise have not been satisfied. The learned Counsel for the petitioners submits that declaration of the account as 'NPA' is very essential to proceed with further steps under Section 13(2) of the Act .
8. Section 2(1)(o) defines the term 'NPA' and the said term, in terms of the guidelines issued by the RBI, constitutes three types:
i) Sub standard
ii) doubtful and
iii) loss asset.
It is also contended that Ext.P11 runs contrary to the counter affidavit filed from the part of the Bank, as in the counter affidavit the Bank has conceded that there was renewal, but it was only for 9 months. With reference to Ext.P15, it is stated that interest was applied and added to the account and as such, the account could not have been declared as 'NPA' under any circumstance. It is also pointed out that there is no case for the respondent Bank that the security provided by the petitioners in respect of the loan covered by the first case (W.P.(C)No.6784 of 2013) is not sufficient and as such, retention of the gold items, inspite of the satisfaction of the entire outstanding amount under the gold loan account, which forms the subject matter of the second writ petition (W.P.(C)No.15311 of 2014 ) is absolutely without any basis, which is rather arbitrary and liable to be intercepted by this Court.
9. The learned Sr. Counsel for the Bank submits that the writ petitions are not at all maintainable either in law or on facts. It is stated that the very basis for extending the cash credit facility is the 'stock in trade', which form the primary asset and this in turn decides the 'drawing power', which varies from 25% to 40% towards the margin to be retained. In other words, if the parties have the 'stock' worth Rs. One crore, the 'drawing power' could be up to Rs.60 lakhs. At the time of sanctioning the loan as per Ext.P1 (of Rs. 30 lakhs) and on all times of extension, covered by Exts. P2 to P5, specific conditions were incorporated therein, also creating first charge in favour of the Bank and stipulating that the entire business had to be routed through the respondent Bank itself.
10. Clause 4 and Clause 8 of Ext.P3 refer to the 'margin' to be maintained and the necessity to furnish stock statements. The conditions incorporated therein make it obligatory for the borrower, to file the latest stock statements/returns/financial statements and such other documents pertaining to the Commercial tax and Income tax departments. Ext.P5 is the sanction letter dated 26.05.2010, whereby ceiling of the financial assistance was enhanced from 53 lakhs to 68 lakhs; simultaneously increasing the tenure to 24 months from 06.05.2010. In other words, whenever enhancement was there, fresh agreements were being executed, also stipulating the relevant conditions and realising processing charges.
11. Ext.P12 produced by the petitioners themselves reveal that the total transactions for the period from 01.04.2011 to 31.03.2012 is only of about Rs.41.88 lakhs. From 01.04.2012 to 04.03.2013, it was still down at Rs. 36.57 lakhs;
whereas the total transaction for the prior period from 01.04.2010 to 31.03.2011, was Rs.6.21 crores. In other words, there is a steep fall in the transactions and money was not fully routed through the accounts of the petitioners maintained with the respondent Bank. Ext.P13 is the proceedings dated 29.09.2011 showing the Profit and Loss Accounts/Balance Sheet as on 31.03.2011. After Ext.P13, no Balance Sheet or Profit and Loss Accounts has ever been produced by the petitioners, inspite of the obligation to have had it done, in terms of the agreement.
12. A perusal of the documents produced along with the counter affidavit is also relevant in this context, to ascertain the various steps and correspondences between the petitioner and the Bank, finally leading to Ext.P11, whereby the petitioners' withdrawal power was withdrawn. Ext.R1(a) is copy of the supplemental general agreement, in connection with the extension/enhancement of the loan from Rs.53 to 68 lakhs. Inspite of the specific terms of the agreement, the petitioner did not choose to abide by the same, upon which the Bank intimated the irregularities, vide letter/reminder dated 14.09..2011(Ext.R1 (c)). Ext.R1(d) is another intimation sent by the Bank, as to the shortfall in the account, referring to the figures as nearly Rs.15.24 lakhs.
13. In reply to the letter dated 15.10.2011 sent by the petitioners, Ext.R1(e) communication dated 08.11.2011 was issued by the Bank, referring to the necessity to have routed all the transactions through the Bank. Meanwhile, the shortcomings came to the notice of the RBI(Reserve Bank of India), who issued Ext.R1(f)dated 19.07.2011 to the respondent Bank seeking for the particulars in respect of the petitioners. As per Ext.R1(g) dated 09.04.2012, (which is same as Ext.P6 produced by the petitioners along with the writ petition), the Bank asked for production of 11 documents, in response to which, the petitioners submitted Ext.R1(h) letter dated 04.05.2012 stating that the above communication was received belatedly on 01.05.2012 and assured to furnish the documents. The Bank has got a case that Ext.R1(g) communication was served well on time, as borne by Ext.R1(i) delivery voucher of the Courier, bearing the seal affixed by the petitioners as to the receipt of the communication dated 16.04.2012. Anyhow, after Ext. R1 (j) dated 11.05.2012, the petitioners submitted Ext.R1(k) letter dated 11.08.2012 expressing difficulty in producing the Books of Accounts, referring to some 'computer problem'. Later, the petitioners produced only some of the documents, as borne by Ext.R1(L) dated 05.12.2012, and preferred Ext.R1(M) dated 11.12.2012 stating that the 'computer problem' was not over , also adding that all the documents will be submitted before 31.01.2013.
14. Referring to Ext.R1(L) letter of the petitioners, the Bank instructed the petitioner as per Ext.R1(N) dated 19.12.2012, to produce all the relevant documents, simultaneously alerting the petitioners of the seriousness with reference to 'CIBIL' report.. In the course of further proceedings, as there was no other alternative, the account was declared as 'NPA' and the Bank proceeded with further steps under the SARFAESI Act as well, issuing Ext.R1(0) notice under Section 13 (2) of the said Act (which is same as Ext.P16 produced along with the writ petition). The petitioners sent Ext.R1(P), stating that the account was being properly operated, which was duly replied by the Bank as per Ext.R1(Q) dated 04.06.2013 rebutting the said version.
15. There is a case for the petitioners that the 'signature' on Ext.R1(M) is not that of the first petitioner . Alleging that it is a fabricated document ,I.A. 10281/14 has been filed seeking for a direction to send the disputed document for verification by an expert. The Bank has filed a detailed counter affidavit to the said I.A., besides the counter affidavit filed to I.A. 942/2014, (which I.A. was filed seeking for a direction to cause production of the documents regarding extension/renewal of the loan). According to the Bank, both Ext.R1(K) and (R1(M) were forwarded together. In Ext.R1(K) dated 11.08.2012, the petitioners have addressed the concerned Chartered Accountant to inform the Income Tax Department and others concerned, as to the delay, referring to the 'computer problem'. Ext.R1(M) is an intimation to the Bank, referring to such event and undertaking that the records would be produced in the due course.
16. There is no dispute with regard to the signature of the party in Ext.R1(M) or that the said document is fabricated in any manner. When the petitioners contend on one hand that there was problem for computer, the communications/correspondences as per Ext.R1(K) and Ext.R1 (M) are generated in computer and the same/similar seal appears in the concerned documents. Reference is also made from the part of the Bank to Ext.R1(R)-the postal acknowledgement card, wherein signature of all the parties concerned appear and there is no case, that it was fabricated. In any view of the matter, even if there is a dispute as to the authenticity/authorship of Ext.R1(M), the duty cast upon the petitioners to have furnished all the relevant documents, in terms of the agreement, is not successfully rebutted and no convincing evidence has been produced to infer that all such documents were produced well on time.
17. That apart, if, based on the alleged production of all the documents, the tenure of the loan was extended for 24 months in June, 2012 as contended by the petitioner, there was absolutely no need for the petitioner to have written Ext. R1(l) dated 05.12.2012. As such, the contention of the petitioners that the loan period was extended for 24 months in the year 2012 is not liable to be accepted.
18. As mentioned hereinbefore, the documents produced from the part of the petitioners themselves reveal that the transactions through the respondent Bank sustained a deep fall. Ext.P18 produced by the petitioners shows that the transactions for the period from 01.12.2012 to 01.01.2013 involve only two deals; Rs.6000/- by way of cash cheque and Rs.70947/- in cash. No other activity was there for the whole month. Similarly, the total credit for the period from 11.01.2013 to 28.02.2013, as reflected from Ext.P19 statement comes to a meagre sum of Rs.47,735/-; whereas the total outstanding liability as on 28.02.2013 was Rs. 69.5 lakhs, as discernible from the very same document . Ext.P20 is a copy of the statement for the period from 01.02.2013 to 31.03.2013 and the amounts credited for the above two months are Rs.1500 + Rs.165 + Rs.165.
19. It is seen that the petitioners were transacting business in the name of the establishment -'Sonu Tex' and other sister concerns through various accounts maintained with other Banks as well. The factual particulars in this regard are discernible from paragraphs,5,8 and 9 of the counter affidavit dated 05.08.2013, which are extracted below for convenience of reference:
“5. The first petitioner, who is the proprietrix of M/s. Sonu Textiles, is the wife of the third petitioner and daughter in law of the second petitioner. The 1st petitioner is also the proprietrix of M/s. Abhishek Textiles, Sindhu Enterprises and Standard Textiles. The 3rd petitioner is the master brain in setting up several business activities in the names of his mother and wife for availing credit facilities from various banks under the pretext of utilisation of the funds for genuine business activities. The 2nd petitioner is the proprietrix of M/s. Akshay Garments and is also a Director of M/s. Swapnil Hosieries (Pvt.)Ltd. The 3rd petitioner is the proprietor of M/s. Valarmathy Textiles. Petitioners 1 to 3 have availed credit facilities from M/s. Punjab National Bank for the projected purpose of carrying on their business as proprietors in the name and style M/s. Abhishek Textiles, M/s. Standard Textiles, M/s. Aksay Garments and M/s . Valarmathy Textiles. According to the information available with the respondents, the operation of the accounts of the above said 4 units with the Punjab National Bank is totally unsatisfactory. The 3rd petitioner is also reported to have swindled the Punjab National Bank to the tune of above Rs.40 Lacs by the fraudulent purchase (discounting) of cheques issued by M/s. Swapnil Hosieries (Pvt)Ltd. In which his mother , the 2nd petitioner is a Director. Indian Express Daily dated 13/1/2011 carried an advertisement published by Indian Bank, proposing the sale of the property offered as security for the advances given to M/s. Sindhu Enterprises, of which the 1st petitioner is the proprietrix, for the recovery of the outstanding sum of Rs.1.04 crores as on 27/2/2009, with future interest and costs.
8. The first respondent was repeatedly requesting the first petitioner to furnish the financial statements to evaluate the entitlement of the first petitioner to have the credit facilities renewed. However, crafty as they are, petitioners 1 and 3 were always fishing for excuses to delay the submission of the financial statements including balance sheets and audited accounts. By letter dated 11.08.2012, true photocopy which is herewith produced , marked as Exhibit R1(K), the third petitioner requested his chartered accountant explaining the reason for the delay in the nonproduction of the books of accounts for the year 31/3/2012. The reason projected was that “our computers is not working due to hardware problems so we are unable to retrieve the information”. Thereafter by letter dated 05.12.2012, true photocopy of which is herewith produced and marked as Exhibit R1 (L), the first petitioner informed the Bank that she is submitting the papers mentioned therein for the renewal of the CC account. She informed that the profit and loss account and audited balance sheet are not ready. By letter dated 11/12/2012, true photocopy of which is herewith produced marked as Exhibit R1(M), the first petitioner informed that the auditing has not been done during the year 2011-12 due to a computer problem. She also informed that the balance sheet etc will be submitted before 31.01.2013 and requested for renewal of the account in the light of the provisional balance sheet. It is interesting to note that even after the expiry of 4 months of projecting the computer problem for failure to produce the balance sheets, the same reasoning is projected for the same omission, exposing the total hollowness of the reason projected for non- auditing of the accounts.
9. The 1st petitioner was dealing in printed Bed Sheets and Lungies from the same premises, where other activities were carried on by petitioners 2 and 3. The Bank was always considerate to the requests of the 1st petitioner as evident from the grant of extension of credit facilities and grant temporary extensions for a total period of nine months, inspite of the serious lapses from the part of the 1st petitioner. The validity of sanction granted on 6/5/2010 expired by 5/5/2012. Though temporary extensions were granted, the 1st petitioner failed to furnish the details called for and failed to act in terms of the arrangement letter as well as the agreements executed by her. The credit summations for the period 01/4/2011 to 31/03/2012 was only Rs.41.63 Lacs as against the projection of Rs.4.62 crores. This also indicated that the business was not conducted satisfactorily and the funds were not used for the projected activity. The Bank was hence constrained to call up the advances for the 7 reasons stated in Exhibit P11. In my respectful submission, there is no valid reason whatsoever for challenging exhibit P11.”
20. The specific averment raised from the part of the respondent Bank as to the different accounts maintained by the petitioners in respect of the establishment Sonu Tex with other Banks and the cash dealings through such Banks, have not been successfully rebutted in the reply affidavit filed by the petitioners. The version of the petitioners as disclosed from paragraph -'7' of the reply affidavit dated 16.12.2003 is in the following terms:
“At the risk of repetition, it is submitted that,all the documents demanded by the Bank from time to time were furnished by the 1st petitioner on time. The petitioner never committed breach of any of the conditions. The petitioner has never routed the accountable sale proceeds through other banks. The petitioner has never failed to adhere to any of the directions issued by the bank. The claim of the petitioner bank that the account was declared NPA and it was done as per the circulars of the Reserve Bank of India are absolutely false. There is no reason or justification for the bank to declare or treat the 1st petitioner's account as NPA/NPI as claimed by the respondent Bank in terms of RBI Circulars.”
21. The contention of the petitioners is that the petitioners have never routed the “accountable sale proceeds” through other banks. There cannot be any “unaccountable sale proceeds” and if the petitioners have not accounted all the sale proceeds, it will amount to violation of other relevant provisions of law as well.
22. From the above, it is quite obvious that the petitioners were not doing business solely through the accounts maintained with the respondent Bank. The terms and conditions stipulated as per the relevant agreements, executed at the relevant point of time (while availing the financial assistance and at the time of enhancing the ceiling), have not been given effect to and there is clear infringement of the agreed terms under several heads. The documents produced from the part of the respondent Bank clearly reveal that the Bank had alerted the petitioners on many an occasion and it was after several such futile attempts , that the Bank was constrained to withdraw the 'drawing power' of the petitioners vide Ext.P11. Admittedly, the petitioners have closed down the business and no transactions are being done now. This being the position, the prayer to set aside Ext.P11 withdrawing the 'drawing power' cannot have any significance as the facility has already been utilised by the petitioners to almost the maximum extent. As such, the challenge raised against the said proceeding is not assailable under any circumstances.
23. With regard to 'clubbing of accounts', treating the Car loan also as 'NPA', inspite of the fact that the deficit was much below 10% of the loan amount, thus attracting the bar under Section 31(j) of the SARFAESI Act, it is to be noted that, by virtue of the mandate given by the RBI, declaration of account as 'NPA' has to be 'facility-wise' and not 'person-wise'. It was because of the chronic default of the petitioners, that the main account came to be declared as 'NPA', leading to proceedings under the SARFAESI Act, issuing notice under Section 13(2), as borne by Ext.P16. Since the main account was declared as NPA, the Car loan account of the petitioners also came to be declared as 'NPA', to be tagged along with and proceeded against, accordingly. This Court does not find anything wrong in pursuing such steps and the contentions raised to the contrary are devoid of any merit or bonafides .
24. As rightly pointed out by the learned Senior Counsel for the Bank in W.P.(C)15371 of 2014, merely on satisfying the amount under the two gold loan accounts, the petitioners cannot claim return of gold ornaments pledged by them with the Bank, as a matter of right, in view of other subsisting liability. This is for the reason that the Bank is having a 'general lien' in this regard, by virtue of Section 171 of the Contract Act. This Court finds support from the law declared by the Apex Court in this regard as per the decision in AIR 1992 SC 1066. (Syndicate
Bank vs. Vijay Kumar and others. ).. This being the position, the prayer raised by the petitioners in W.P.(C)No.15311 of 2014 is not liable to be granted.
25. With regard to the prayers raised in W.P.(C)No. 6784 of 2013, the challenge raised against Ext.P11, withdrawing the 'drawing power' is not liable to be interfered, for the reasons already discussed hereinbefore. As to the challenge against Ext.P16 (notice dated 02.04.2013 issued under Section 13(2) of the SARFAESI Act) and the prayer to declare that the Bank is not justified in proceeding with steps under the SARFAESI Act, this Court finds that the basis for such a prayer is with reference to the challenge raised against Ext.P11, whereby the drawing power of the petitioners was withdrawn. The challenge raised against Ext.P11 having been found as not correct or sustainable, there remains no basis to sustain the challenge against Ext.P16 notice issued under the SARFAESI Act. Even otherwise, once a notice is issued in this regard, it is always open for the petitioners to submit statement of objections, if any, as envisaged under the statute and it will be for the Bank to consider and pass appropriate orders thereon in terms of Section 13(3A). If the petitioners are aggrieved of further steps under Section 13(4) and other relevant provisions of the SARFAESI Act /relevant rules, it is still open for the them to challenge the same by resorting to the remedy as provided under the statute.
In the above circumstance, this Court finds that there is absolutely no merit or bonafides in the above two writ petitions. Interference is declined and they are dismissed accordingly.
P.R.RAMACHANDRA MENON JUDGE lk