Debt Recovery Appellate Tribunal - Madras
Vysali Pharmaceuticals Ltd. vs The Federal Bank Ltd. And Ors. on 25 October, 2002
Equivalent citations: I(2003)BC79
ORDER
A. Subbulakshmy, J. (Chairperson)
1. The respondent Bank filed the Original Application (OA) before the Presiding Officer, DRT, Ernakulam, for recovery of the amount due to the Bank. Then the case was taken up for evidence, the defendants urged with regard to the maintainability of the OA due to the fact that the loans were availed by the defendants from the consortium Bank and also in view of the counter-claim raised in the Reply statement. The issue with regard to the maintainability of the OA was argued before the Presiding Officer, DRT, by both parties and the Presiding Officer, DRT, by her order dated 27.2,2002 held that the OA is perfectly maintainable subject to the merits of the case and the plea with regard to the counter-claim can be decided only after recording evidence in the case and posted the matter for evidence. Aggrieved against that order the appellant-Ist defendant has filed this appeal.
2. The appellant contends that the appellant availed the loan facility from consortium Banks and the present OA filed by one of the Banks which is a member of the consortium Banks, is not maintainable and further the appellant has also filed counter-claim and further the appellant also contends that in spite of the movables mentioned in the A-Schedule of the OA there is pari passu charge and in respect of B-Schedule property in respect of Item 1 there is pari passu charge and in respect of Item 2, D-10 KSIDC is having first charge and the 1st respondent Bank is having second charge.
3. Counsel for the appellant submitted that the defendants have availed loan from consortium Banks and the Suit which is filed by one of the members of the consortium is not maintainable and the 1st respondent Bank has not followed the RBI guidelines relating to Consortium of Banks and the suit filed by one of the members of the Consortium is not maintainable and the OA is liable to be dismissed. Counsel for the appellant relies upon the minutes of the First Consortium Meeting held on 13.1.1995 at Hotel Presidency, Ernakulam, at 4.00 P.M. The Deputy General Manager, Manager and Officer of the Federal Bank, Chief Manager of Indian Bank, Assistant General Manager, Chief Manager and Field Officer of State Bank of India (SBI), Asstt. General Manager, IFB, Ernakulam of State Bank of Travancore, the appellant's Managing Director, Jt. Managing Director, General Manager and other Managers and Officer of the 1st defendant were present in that meeting. In the meeting it was expressed that the State Bank of Travancore has no objection in the appellant forming a consortium banking arrangement with the Federal Bank as the leader and the Indian Bank and State Bank of India as the other members of the Consortium and Indian Bank also expressed no objection in forming consortium with the Federal Bank and they are willing to continue the Bank operation with the same existing limits sanctioned by them. It was expressed in the meeting that Indian Bank has no objection to share pari passu charge with the Federal Bank Ltd. on the assets hypothecated and shall issue a letter accordingly. The State Bank of India informed that they have referred the matter regarding joining the consortium to their Local Head Office at Madras and after getting the confirmation letter they will inform the Federal Bank accordingly and till such time the limits sanctioned by them earlier continues and it was also informed by Stale Bank of India that SBI has no objection to share pari passu charge with the Federal Bank Ltd. on the assets hypothecated. The DGM of Federal Bank also instructed that the Company shall obtain consent from KSIDC for creation of second charge on Land and Building situated at The vakkal Survey No. 689/1-1 of Afwaye East Village. Another meeting was held on 9.4.1996 at Hotel Taj Residency Ernakulam at 5.00 P.M. That is the minutes of the 3rd Consortium. The Joint General Manager and other Managers of the Federal Bank, the Asstt. General Manager and Chief Manager of the South Indian Bank, Chief Manager and Sr. Manager of Indian Bank, Managing Director and other Directors and staff of the appellant Company were present in that meeting. It was also explained by the Federal Bank that the lead Bank i.e. the Federal Bank is sharing 75% of the overall limit sanctioned to the Company including that of Indian Bank and 25% of the limit is to be shared by the Sough Indian Bank. It was also explained by the Jt. General Manager of the Federal Bank that the modus operandi of the present Consortium arrangements will be separately discussed and finalized with regard to the documentation, creation of charge, etc. after consultation with Legal Department and also exchange of pari passu letters and in order to avoid any possible delay of releasing the various limits of the Company, individual documents can be executed and since the interest rate of each Bank varies from time-to-time, the interest applicable should be separately indicated. Thus the meeting was concluded. Relying upon these minutes, Counsel for the appellant submitted that there was consortium of Banks and the Suit must be filed by the consortium of Banks and the present OA filed by one of the members of the consortium is not maintainable.
4. Counsel appearing for the R-2 South Indian Bank submitted that the respondent Bank is the leader Bank and large amount is due to the 1st respondent Bank and the appellant Company is on good terms with the 2nd respondent and 3rd respondent and there is no dispute between them and for the amount due to the 1st respondent, the 1st respondent Bank has filed the OA and as the other Banks are not willing to join with the 1st respondent for filing the OA since they are on good terms with the appellant Company, the 1st respondent Bank has come forward to file the OA adding the other Banks as respondents and the OA filed is maintainable. Mr. Mudhusoodanan, Senior Manager (Legal) of the Federal Bank submitted that there was a default by the appellant Company and it was declared as NPA in the year 1999 and there were no further transactions and for the amount due to the 1st respondent Bank, the Bank has filed the OA for recovery of the amount due to it and as the other Banks are not willing to join as plaintiffs they are added as respondents in the OA and the individual Bank is entitled to file the OA for the amount due to it and the OA filed by the 1st respondent Bank is maintainable. He further submitted that the RBI also has subsequently issued a Circular stating that the mandatory requirement on formation of Consortium for providing working capital finance under multiple Banking arrangement has been withdrawn by RBI in April, 1997 and the 1st respondent Bank can very well file the OA against the appellant and the OA filed is maintainable.
5. Counsel for the appellant drew my attention to the provisions of Banking Law Practice in India and pointed out that the RBI has fixed the guideline and the consortium Bank has to act as per that guideline. He drew my attention to Clauses 12 and 13 of the provisions.
Clause 12 states that :
"While a member-Bank may be permitted not to take up its enhanced/incremental share, it cannot be permitted to leave a consortium before expiry of at least two years from the date of its joining the consortium. An existing member-Bank may be permitted to withdraw from the consortium after two years provided other existing member-Banks and/or a new Bank is willing to take its share by joining the consortium."
Clause 13 states that :
"In cases, where the other existing member-Banks or a new Bank are unwilling to take over the entire outstanding of an existing member desirous of moving out of the consortium after the expiry of above mentioned period of two years, such Bank may be permitted to leave the consortium by selling its debt at a discount and/or furnishing an unconditional undertaking that the repayment of its dues would be deferred till the dues of other members are repaid in full.
Note : It would be open to a borrower to choose his Bank(s) for obtaining credit facilities as also for the Bank(s) to take a credit decision on the borrower. However, once a consortium (obligatory or voluntary) is formed entry of a new member (unless mentioned otherwise under the "Fresh Guidelines") into a consortium should be in consultation with the consortium."
6. Representative of the 1st respondent Bank submitted that the two years period mentioned in Clause 12 was over and the amount due by the appellant was declared as NPA in 1999 and there was no further transaction and on that NPA only the 1st respondent Bank filed the OA and it is no longer open to the appellant to contend that the 3st respondent Bank has no locus standi to file the OA. He further produced the RBI Circular passed in the year 1996--Monetary and Credit Policy: Second Half of 1996-97, which also deals with consortium lending. It reads as follows :
"While the threshold limit for obligatory consortium arrangement continue to be Rs. 50 crores, it has now been decided that whenever a consortium is formed, either on a voluntary basis or on an obligatory basis, the ground rules of the consortium arrangement, viz, number of participating Banks, minimum share of each Bank, entry/ exit from the consortium, sanction of additional/ad hoc limit in emergent situations/ contingencies by lead Bank/other Banks, the fee to be charged by the lead Bank for the services rendered by it, grant any facility to the borrower by a non-member Bank, etc., would be framed by the participating Banks in the consortium. Earlier, these guidelines were framed by the Reserve Bank."
7. The other guideline "Method of sharing Bank credit consortium/other arrangements" was produced by the representative of the 1st respondent Bank. It states that "The mandatory requirement on formation of consortium for providing working capital finance under multiple Banking arrangement has been withdrawn by RBI in April, 1997. Banks are, therefore, now free to evolve appropriate mechanism for adoption of sole Bank/multiple Bank/consortium or syndication approach for financing their clients and also for framing required ground rules for operational aspects." So, the mandatory requirement on formation of consortium has been withdrawn by the RBI in April, 1997. So, one of the members of the consortium Bank is now free to evolve appropriate mechanism for their operational aspects. The 1st respondent Bank is the lead Bank. The amount due to the 1st respondent Bank has been declared as NPA in 1999. So, there was no further transaction between the 1st respondent Bank and the appellant after 1999. Since it has become an NPA, the borrower is well aware that there was no further transaction and the I st respondent Bank is entitled to take appropriate proceedings on the NPA. For the amount due to the 1st respondent Bank the 1st respondent Bank has filed OA since the other Banks are not willing to join with the 1st respondent Bank in filing the OA and the other Banks are added as defendants in the OA. For the amount due to the 1st respondent Bank, the 1st respondent Bank will have to take steps for recovery of the amount by filing the OA within the period of limitation even though there was a consortium of Banks from whom the 1st appellant has availed the loan facility. Since the 1st appellant is getting on well with the other Banks, the other Banks have not come forward to file any suit against the appellant and the 1st respondent Bank to whom alone the appellant has not paid its dues, the 1st respondent Bank has to necessarily file the OA against the appellant for the amount due to it within the period of limitation and the amount due to the 1st respondent Bank by the appellant has also been declared as NPA.
8. Counsel for the 2nd respondent Bank pointed out that Section 19 of the RDDB&FI Act, 1993 provides that "where a Bank or a Financial Institution has to recover any debt from any person, it may make an application to the Tribunal for recovery of the amount". He pointed out that it is nowhere stated in Section 19 that where a Bank or a Financial Institution or a consortium of Banks, where a Bank or a Financial Institution has to recover any debt from any person, it may make an application and the word 'Consortium of Banks' is absent under Section 19 and any Bank or Financial Institution to whom the debt is due can file an application before the Tribunal for recovery of the amount. He argued that the absence of the word 'Consortium of Banks' in Section 19 implies that even if there is aconsortium of Banks, any Bank or Financial Institution can file the OA for recovery of the debt due to it. Section 19 clearly provides that any Bank or any Financial Institution can file the OA for Recovery of the amount due to it. It is not necessary that the OA must be filed by the consortium of Banks. Section 2(g) defined debt -- "Debt means any liability (inclusive of interest) which is claimed as due from any person by a Bank or a Financial Institution or by a consortium of Banks or Financial Institutions during the course of any business activity." Under Section 19, the Bank or Financial Institution may make an application to the Tribunal for recovery of the debt due to it. The I st respondent Bank has filed OA for recovery of the debt due to it from the appellant for the amount due to the 1st respondent. The 1st respondent Bank can very well file the OA under Section 19 for recovery of the amount.
9. Section 5 A of the Banking Regulation Act states that "Act to override memorandum, articles, etc.--Save as otherwise expressly provided in this Act-
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a banking company, or in any agreement executed by it, or in any resolution passed by the banking company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Banking Companies (Amendment) Act, 1959 (33 of 1959); and
(b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be.
Comment : Statutory agreements--what amounts to--The directives issued by the Reserve Bank, no doubt, have statutory force.They lay down the guidelines about the methodology of operations, policy, procedure and rate of interest in financing or advancing loans to various classes of persons. But the loan transactions entered into by the executives of banking institutions in the usual course of their business are not statutory agreements. They are just commercial transactions governed by the guidelines laid down by the Reserve Bank. Therefore, it could not be urged that since the loan transactions entered into by Banks, with their customers are governed by statutory directives of the Reserve Bank, the transactions become statutory agreements and Court cannot apply the Usury Acts to scale down the interest charged in view of the overriding effect given to the Banking Regulation Act, under Section 5A."
10. It has also been decided by this Appellate Tribunal in the decision reported in 2001 ISJ (Banking) Page 641, Abdul Rasheed v. State Bank of Travancore, that "either under the provisions of the Act or in the rules under the Act there is no provision to try any point as a preliminary issue", The 1st respondent Bank is the lead Bank. The other Banks R2 and R3 had granted less than the loan advanced by the 1st respondent Bank and they are not willing to join as plaintiff and so they are added as defendants 8 and 9 in the OA. For the amount due to the 1st respondent Bank, the 1st respondent Bank has filed this OA for recovery of the amount due to it. The 1st respondent Bank is entitled to file the OA independently for recovery of the amount due to it. For the foregoing discussions, I hold that the OA filed by the 1st respondent Bank, namely the Federal Bank, is maintainable.
11. With regard to the case of the appellant that the appellant has filed counter-claim, the counter-claim has to be decided only after taking evidence in the case and the claim of the appellant with regard to the counter-claim is left open and it has to be decided in the OA after letting in oral as well as documentary evidence.
12. Further, with regard to the case of the appellant that with regard to the A-Schedule there is pari passu agreement and with regard to the B-Schedule Item No. 1 there is pari passu agreement and in respect of Item No. 2 of B-Schedule the 1 Oth defendant has the first charge and the 1st respondent Bank has second charge over it, these pari passu agreements and the charges over the property cannot be decided now at the stage and the Presiding Officer, DRT, is compowered to pass appropriate orders on the contentions raised by the respective parties based on the merits of the case, oral as well as documentary evidence after trial. It was represented that even the respondent 2 and 3 have not filed their written statements. What all the contentions raised in the written statement by the defendants, with regard to those contentions the parties are at liberty to let in evidence and the Presiding Officer, DRT can pass appropriate orders on the contentions raised by the defendants in their written statement in respect of the pari passu agreement and also with regard to the creation of the charge over the properties as per the contentions raised by the respective parties.
13. The Hon'ble Supreme Court in I (2000) BC 627 (SC)=IV (2000) SLT325=III (2000) CLT 129 (SC)=2000 (II) CTC 723, Allahabad Bank v. Canara Bank, has laid down guidelines in respect of any money realized under the RDB Act, as between the Bank or Financial Institutions on the one hand and the other creditors on the other. The Apex Court has held that "In respect of any monies realized under the RDB Act, it is necessary for the Tribunal to decide such questions on priority bearing in mind the principles underlying Section 73 of the CPC." Section 22 of the RDDB&FI Act gives sufficiently wide powers to the Tribunal and the Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. This Court has explained that the powers under Section 22 are wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice have to be followed."
The Apex Court has also observed that "But under Section 73, CPC, sharing in the sale proceeds (here, sale proceeds realized under the RDB Act) is permissible only if a person seeking such share has obtained a decree or an order of adjudication from the Tribunal and has also complied with other conditions laid down under Section 73. In the present case, the Canara Bank is not in a position to invoke the principles underlying Section 73, CPC because it has not yet obtained any decree or adjudication of its debt from the Tribunal. Nor has it complied with other provisions underlying Section 73, CPC. Hence no relief can be granted on the basis of the said principles."
The Apex Court has further observed that "The workmen's dues have priority over all other creditors, secured and unsecured, because of Section 529 A(1)(a)."
14. In the decision cited supra, the Apex Court has given the guidelines with regard to the appropriation of the sale amount. The Presiding Officer, DRT, is directed to dispose of the OA on merit after giving opportunity to the defendants to file their reply statement who have not already filed their reply statement and also by giving opportunity to both parties to let in their oral and documentary evidence and also to consider with regard to the contentions raised by the defendants 8, 9 and 10, if any, with regard to the pari passu agreement and charge over the property and pass appropriate orders, according to law.
15. Appeal disposed of with the above said directions. No costs.