Debt Recovery Appellate Tribunal - Madras
Sri Raghavendra Theatre vs Bank Of India on 27 February, 2003
Equivalent citations: III(2003)BC47
ORDER
A. Subbulakshmy, J. (Chairperson )
1. The appellant filed appeal AOR-1/ 2002 on the file of DRT, Bangalore to pass order to the effect that the 1st respondent Bank is not entitled to recover the amount from the appellants in terms of the decree passed by the DRT in OA-878/1995 dated 10.6.1997 and direct the 1st respondent Bank to accept a sum of Rs. 33,75,000/- in all as full and final settlement of their dues as per the compromise dated 3.2.2001 and withdraw the Recovery Certificate DRC No. 360/1997, dated 26.10.1997 and also withdraw the Recovery Certificate No. 182/2001, dated 26.10.1997. The Tribunal heard the matter and dismissed that petition. Aggrieved against that order the appellant has preferred this appeal. The OA was disposed of and final order was passed in the OA on 10.6.1997.
2. Counsel for the appellant submitted that subsequent to the passing of the final order the matter was compromised between the Bank and the appellant and One Time Settlement (OTS) was arrived at and the matter was compromised for a sum of Rs. 45 lakhs and the appellant paid a sum of Rs. 13.25 lakhs and there is balance of Rs. 33.75 lakhs and the Bank must be directed to accept only that amount in view of the compromise effected and the final order passed by the Presiding Officer, DRT, and the Recovery Certificate issued in consequence of that final order cannot be proceeded with and the Bank is not entitled to recover the amount in terms of the decree passed by the DRT and the Bank must be directed to accept the balance amount of Rs. 33.75 lakhs in full and final settlement of the dues as per the compromise effected and the Recovery Certificate issued by the DRT is also to be withdrawn. Counsel for the appellants further submitted that the Bank has to settle the matter in the light of the Reserve Bank of India (RBI) guidelines which was in force at the time of settling this matter and invoking the RBI guidelines alone the matter can be disposed of and accordingly the compromise effected on 3.2.2001 has to be given effect to, only the amount arrived at in the compromise has to be received by the Bank in full and final settlement of the claim and the Bank is not entitled to recover the amount in terms of the decree passed by the Presiding Officer, DRT.
3. The appellant sent a requisition to the Bank on 25.1.2001 for making a compromise by offering Rs. 45 lakhs towards full and final settlement of the dues due to the Bank. The appellant has also given proposal in the letter with regard to the mode of payment that the appellant would pay Rs. 11.25 lakhs out of the compromise amount of Rs. 45 lakhs within 8 days from the date of the Bank's acceptance of their offer and the appellant also agreed to pay the balance amount of Rs. 33.75 lakhs in six monthly instalments of Rs. 5,62,500/- per month and the appellant also agreed to pay simple interest at 12.5% per annum on the above mentioned reducing balance one month after the date of acceptance of compromise and on deposit of the entire amount, they also sought for withdrawal of the case from the DRT and arrange for delivery of the title deeds mortgaged to the Bank and security in the captioned account. The offer made by the appellant was accepted by the Bank by letter dated 3.2.2001. The Bank has accepted for compromise for a sum of Rs. 45 lakhs in full and final settlement of the dues due to the Bank and also directed the appellant to pay Rs. 13.25 lakhs immediately not later than 8 days from the date of that letter and also directed the appellant to pay the balance amount of Rs. 33.75 lakhs in six monthly instalments of Rs. 5,62,500/- each commencing from March, 2001 and ending in August, 2001. Interest is to be paid by the appellant at existing PLR i.e. 12.5% p.a. Simple on the reducing balance one month after date of acceptance of the offer of compromise by the Bank i.e. from 5.3.2001 till full and final payment by the appellant. A single default clause was also imposed in the compromise letter dated 3.2.2001 i.e. the terms of compromise would be treated as broken by the appellant if the appellant fails to pay even a single monthly instalment and the Bank would be free in such case to proceed with the execution and all other legal proceedings against the appellant and the partners. On payment of the entire compromise amount, security documents also would be released and it was also agreed in that letter that the appellant would withdraw the writ petitions filed against the Bank immediately and not file any petitions nor to proceed against the Bank legally in any manner till the conclusion of the terms of compromise.
4. Counsel for the appellant vehemently argued that since the compromise has been effected the Bank receive only the compromise amount and the Bank has necessarily to settle the matter as per the RBI guidelines and the Bank will have to receive the amount only as per the compromise effected and the Bank cannot enforce the decree passed by the Presiding Officer, DRT. Counsel for the respondent Bank submitted that the appellant is not entitled to invoke the RBI guidelines since he is a wilful defaulter. The RBI guidelines provide that the guidelines will not, however, cover cases of wilful default, fraud and malfeasance. It is also stipulated in the guidelines that these guidelines will also cover cases pending before Courts/DRTs/BIFR subject to consent decree being obtained from the Courts/DRTs/BIFR, but cases of wilful default, fraud and malfeasance will not be covered. The guidelines further provide that the minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of NPAs classified as doubtful or loss as on 31.3.1997 would be 100% of the outstanding balance in the account as on the date of transfer to the protested bills account or the amount outstanding as on the date on which the account was categorised as doubtful NPAs, whichever happened earlier, as the case may be. It is further stated in the guidelines that the amount of settlement arrived at should preferably be paid in one lumpsum. In cases where the borrowers are unable to pay the entire amount in one lump-sum, at least 25% of the settlement amount should be paid up front and the balance amount of 75% should be recovered in instalments within a period of one year together with interest at the existing Prime Lending Rate (PLR) from the date of settlement upto the date of final payment.
5. Counsel for the appellants submitted that the RBI guidelines is a statutory one and the Bank is bound to apply the RBI guidelines and compromise the matter and the Bank cannot go behind that. He relies upon the decision of the Hon'ble Supreme Court in VII (1998) SLT 100=AIR 1998 SC 3000 (Canara Bank v. P.R.N. Upadhyaya and Ors.). The apex Court has observed in the above said decision that "The Circulars issued by the RBI under Section 21 or Section 35 of the Banking Regulation Act, 1949 are statutory in nature and are required to be complied with by the Banks, is not in any doubt". Relying upon this decision of the Apex Court, the learned Counsel for the appellants vehemently argued that the RBI guideline is statutory in nature and the Bank is bound to comply with this guideline. Counsel for the respondent Bank submitted that the guidelines issued on 27.7.2000 is not the guideline/ Circular issued under Section 21 or Section 53 of the Banking Regulation Act, 1949 and so it is not statutory in nature and this circular is in respect of the one time compromise settlement and as the circular is not issued under Section 21 or Section 35 of the Banking Regulation Act, it is not statutory in nature and the argument advanced by the Counsel for the appellant does not hold good.
6. On a perusal of the circular/guidelines issued by the RBI, it is seen that it was not issued under Section 21 or Section 35 of the Banking Regulation Act. Counsel for the appellant submitted that even though there is no mention in the Circular about Section 21 or Section 35 of the Banking Regulation Act it is deemed that the RBI issued this circular only under that section and it is statutory in force. There is no specific mentign in that Guideline/Circular dated 27.7.2000 that the circular was issued under Section 21 or Section 35 of the Banking Regulation Act. Section 21 of the Banking Regulation Act relates to the power of the RBI to control advances by Banking Companies:
"Section 21 : Power of Reserve Bank to control advances by Banking Companies :
(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the public interest (or in the interests of depositors) (or Banking Policy) so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking company in particular, and when the policy has been so determined, all banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.
(2) Without prejudice to the generality of the power vested in the Reserve Bank under Sub-section (1), the Reserve Bank may give directions to banking companies, either generally or to any banking company or group of banking companies in particular as to-
(a) the purposes for which advance may or may not be made;
(b) the margins to be maintained in respect of secured advances;
(c) the maximum amount of advances or other financial accommodation which, having regard to. the paid-up capital, reserves and deposits of a banking company and other relevant considerations, may be made by that banking company to any one company, firm, association of persons or individual;
(d) the maximum amount upto which, having regard to the considerations referred to in clause (c), guarantees may be given by a banking company on behalf of any one company, firm, association of persons or individual, and
(e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made or guarantees may be given.
(3) Every banking company shall be bound to comply with any directions given to it under this section."
"Section 21 (A)--Rates of interest charged by Banking Companies Act not to be subject to scrutiny by Courts :
Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of 1918), or any other law relating to indebtedness in force in any State, a transaction between a banking company and its debtor shall not be reopened by any Court on the ground that the rate of interest charged by the banking company in respect of such transaction is excessive."
7. Section 21 of the Banking Regulation Act deals with regard to the determination of the policy in relation to the advances to be followed by the banking companies and other matters mentioned therein. The circular/guidelines issued dated 27.7.2000 is in respect of the compromise settlement relating to OTS. The guidelines specifically state that the amount of settlement arrived at should preferably by paid in one lumpsum. With regard to the OTS alone, this guideline was issued so as to enable the Bank to settle the NPAs. This guideline was not issued under Section 21 or Section 35 of the B.R. Act. So, it is not statutory in nature.
8. The RBI has issued letter to one of the borrowers Managing Director, Kanva Industries P. Ltd., Metagalli, Mysore, stating that the Reserve Bank guidelines for recovery of dues relating to NPAs stipulates only the minimum amount that should be recovered under compromise settlement and it is not obligatory on the part of the Bank to accept the minimum amount and actual amount to be recovered has to be decided by the Bank and borrowers concerned through compromise settlement.
9. The Apex Court has held that RBI Circulars issued under Section 21 and Section 35 of the B.R. Act are statutory in nature. Since this RBI guideline was not issued under Section 21 or Section 35 of the B.R. Act, the present RBI guideline/circular involved in this case is not statutory in nature. The Karnataka High Court in W.P. No. 11556/2001 considered the aspect with regard to the guidelines issued'by the RBI dated 27.7.2000 and has held that this guideline has no statutory force and it is not passed under Section 21 or Section 35 of the B.R. Act. In the above said decision, the Karnataka High Court has observed that-
"By perusing the guidelines mentioned in the circular issued by the Chief Manager of RBI, it is not mentioned as to whether the RBI is satisfied and found that it is expedient in the public interest or in the interest of depositors or in the interest of the Banking Policy to accept the said guidelines issued by the Chief General Manager. By reading the entire document of the circular produced by the petitioners and the so-called guidelines purported to have been issued by the RBI it is clear that the petitioners have not shown that the said guidelines have been issued by the RBI as defined under the Reserve Bank of India Act of 1934 except contending that the Chief General Manager of RBI, who is the Competent Authority under the provisions of the Act has issued the circular. Even in the said circular, it is not disclosed that the same has been issued by him either in the interest of the public or the depositors or the Banking policy. In this view of the matter, this Court has to record a finding and hold that the guidelines contained in the Circular referred to above upon which much reliance is placed upon by the petitioners Counsel placing reliance upon the judgments of the Apex Court, this Court and Andhra Pradesh High Court are not the guidelines issued in terms of Section 21 of the B.R. Act, 1949. I concur with the view taken by the Karnataka High Court in the above said case."
10. In the case on hand, the OA was disposed of by the Tribunal and final order was passed and recovery certificate was issued. The recovery certificates issued are not challenged by the appellant before the appellant authority. The appellant is bound by the loan agreement entered into with the respondent Bank and the Bank is entitled to enforce the same against the appellant as per the terms and conditions of the loan agreement. Subsequent to the parsing of the decree the appellant approached the Bank for OTS by issuing offer for OTS for Rs. 45 lakhs and that was accepted by the Bank. But as per the compromise effected, the appellant did not act and did not make the payment in terms of the compromise.
11. As per the compromise effected, the appellant did not pay the amount of Rs. 11.25 lakhs immediately or within 8 days from the date of that letter. The amount of Rs. 11.25 lakhs was deposited in piece meal on various occasions till 31.3.2001. The balance amount of Rs. 33.75 lakhs was also not paid in six monthly instalments commencing from March, 2001 and ending in August, 2001. Not even one monthly instalment was paid for the balance amount. So, the default clause provided in that compromise letter has to be invoked. The default clause clearly provides that the terms of compromise would be treated as broken if the appellant fails to pay even a single monthly instalment. The appellant did not pay even one monthly instalment. So, it is crystal clear that there is default in payment of the monthly instalment and the default clause has to be invoked and as per the default clause the terms of compromise would be treated as broken as the appellant failed to pay even the first monthly instalment. After making such default the appellant filed appeal AOR-1/2002 before the DRT to accept the sum of Rs. 33.75 lakhs in full and final settlement of the dues as per the compromise letter which appeal was dismissed by the Presiding Officer, DRT. Counsel for the appellants submitted that after final order was gassed by the Presiding Officer, DRT, and recovery certificate was issued, the matter was compromised for Rs. 45 lakhs and after deducting the amount paid by the appellant the balance is only Rs. 33.75 lakhs and the respondent Bank can proceed for execution only for this balance amount of Rs. 33.75 lakhs and the decree passed by the Presiding Officer, DRT, cannot be enforced and so the Bank must be directed to accept this sum of Rs. 33.75 lakhs in full and final settlement of the dues.
12. Counsel for the appellants further submitted that in the default clause provided i.e. in Para 3 of the compromise acceptance letter sent by the Bank, it is stated that in case of default the terms of compromise would be treated as broken and the Bank would be free in such case to proceed with the execution and other legal proceedings against the firm and the partners and this execution and legal proceedings relate only to the balance amount of Rs. 33.75 lakhs and it does not relate to the entire decree amount as passed by the DRT because it does not specifically say that in case of default the execution has to be taken for the entire decree amount and since such a clause is absent i.e. with regard to the execution of the entire decree amount, EP proceedings can be initiated only for the balance amount of Rs. 33.75 lakhs. I do not find any force in the argument advanced by the Counsel for the appellants since the default clause clearly provides that the terms of compromise would be treated as broken if the appellant fails to pay even a single monthly instalment. Admittedly, the appellant did not pay the monthly instalments. In such cases of default, the default clause has to be invoked and the compromise has to be treated as broken. When the compromise itself has to be treated as broken in terms of the compromise entered into between the parties, by no stretch of imagination it can be stated that execution proceedings can be taken only for the balance ' amount as entered in the compromise and not for the entire decree amount. Immediately after the compromise is treated as broken the Bank is at liberty execute the decree passed by the Presiding Officer, DRT, and execution proceedings have to be taken only for executing the decree passed by the DRT.
13. The significant factor is that the decree passed by the Presiding Officer, DRT, was not challenged in the appeal and that decree is still in force. Even the compromise effected was out of Court only and it was not passed through Court. The compromise was effected between the Bank and the appellant which compromise had fallen through as the appellant committed default. The compromise effected was not by any consent decree passed by the Court or the matter was not settled through the Court. It was purely entered into between the Bank and the appellant and the appellant has committed default, the entire decree passed by the Presiding Officer, DRT, is liable to be executed by the Bank. The object of OTS is only for realisation of the amount within a short spell and that is why the Bank came forward to reduce the amount to a larger extent and settle that amount for a lesser amount than the amount for which the decree was passed. Only for quick realisation of the amount, OTS is being effected and the matters are compromised. After effecting compromise, if the appellant drags on for number of years without making any payment as per the compromise effected, it is no longer open to the appellant to contend that only as per the compromise the Bank must receive the amount even though the appellant is dragging the matter for number of years. When there is a default of the terms of compromise effected, the default clause has to be invoked and the compromise would be treated as broken. After committing default the appellant is not at all entitled to contend that after lapse of years the compromise effected was still in force and the Bank must accept only that amount. If the contention of the appellant that even after the time granted by the Bank for OTS elapsed the Bank should agree for the OTS amount only even though there is lapse of number of years is accepted, the banking policy for lending money would be adversely affected and thereby the banking policy, depositor's interest and public interest would suffer to a great extent.
14. As I have already indicated, only for quick realisation of that amount this OTS was effected and the matter was compromised and the Bank prepared to forego certain amount only because of the consideration that the entire amount compromised would be paid in one lump sum. If the compromise amount is not paid as per the terms of compromise effected, the policy of the Bank and the interest of the Bank would be adversely affected much. If the amount settled at the compromise which is lower than the decree amount is not paid within the short spell, no purpose will be served if the matter is dragged on for payment for number of years after compromise was effected when the interest of the Bank has been adversely affected.
15. In the case on land, since the appellant committed default in payment of the monthly instalment, the terms of compromise was treated as broken and the terms of the compromise are no longer binding on the Bank. As per the default clause provided, as the appellant has committed default the Bank would be free to proceed with the execution and other legal proceedings against the appellant and its partners. As there was clear breach of the terms of the contract under the compromise entered into between the Bank and the appellant, the appellant is not entitled to enforce the compromise and direct the Bank to receive the balance amount of Rs. 33.75 lakhs. As there is violation of the contract and consequent on the default committed by the appellant in paying the monthly instalment as per the compromise, the Bank is entitled to recover the amount in terms of the decree passed by the Tribunal dated 10.6.1997. The appellant is not at all entitled to ask the Bank to accept for the balance amount. The order passed by the Presiding Officer, DRT, Bangalore, does not suffer from any infirmity.
16. Appeal dismissed.