Debt Recovery Appellate Tribunal - Madras
Kerala Financial Corporation And Ors. vs Union Bank Of India on 5 April, 2002
ORDER
A. Subbulakshmy, Chairperson
1. The appeals are filed by the appellant 6th defendant in (RA-3/2002) and appellant 5th defendant (in RA-4/2002) as against the Order dated 26.2.2001 passed by the Presiding Officer, Debts Recovery Tribunal (DRT), Ernakulam, in TA-1213797. The respondent applicant United Bank of India filed the suit for recovery of Rs. 1,39,98,386/- with interest and also for sale of the property in the Sub-Court, Kochi on 17.9.1996. The 1st defendant is the Company and defendants 2 to 4 are the Directors. The defendants 5 and 6 are having par/passu charge over the land, machinery and fixed assets of the Company along with the plaintiff. D-1 Company represented by D-2 requested the plaintiff Bank for grant of financial assistance and loan of Rs. 28 lakhs was sanctioned. D-2 and D-3 were authorized to execute necessary documents securing the loan and D-l to D-3 executed the necessary documents. D-2 representing D-l deposited with D-5 the title deeds in respect of the A-Schedule properties. Then D-1 approached the plaintiff for additional term loan and additional loan of Rs. 22 lakhs and another term loan of Rs. 3,30,000/- was sanctioned. D-1 (o D-4 secured the loans by way of executing documents. On 18.11.1990, D-l through D-2 and D-3 confirmed the balance under the term loan account No. 1 as Rs. 28,99,457.60 besides interest. At the request of D-l the plaintiff granted again another term loan of Rs. 10 lakhs andDl to D4 executed the necessary documents and they also confirmed the balance as on 30.6.1991 as Rs. 34,47,718.70, Rs. 26,13,488.40, Rs. 11,77,697.10 and Rs. 4.07,741.70. The plaintiff at the instance of Dl, granted another term loan No. 2 of Rs. 8,20,000/- and Dl to D4 also executed promissory note and hypothecation agreement. D2 and D3 executed letter of guarantee on 11.10.1991 for Rs. 1,94,90,000/- and interest. DI also extended the charge over the plaint A-Schedule properties over the plaintiff in respect of the various dues.
2. Defendants 1 to 4 confirmed the balance under the term loans on 11.10.1991. Dl to D3 also by debit balance confirmed on 10.5.1993, acknowledged the balance under the five accounts as on 31.12.1992 inclusive of interest upto 25.12.1992. On 18.8.1993, D1 through D2 and D3 executed a deemed promissory note undertaking to pay debit balance of Rs. 30,89,203/- with interest with quarterly rests. Dl to D4 also acknowledged the debit balance of Rs. 24,40,397/- with interest with quarterly rests. So also Dl to D4 acknowledged the debit balance of Rs. 11,33,703/- outstanding under term loan No. 3. Dl through D2 and D3 executed the demand promissory note. D1 to D4 also further acknowledged the debit balance of. Rs. 3,75,837/- and Rs. 9,32,799/- under the funded interest on term loan No. 1 and term loan account respectively. D1 through D2 and D3 had alsoexecuted demand promissory note to repay the said amounts. D2 and D3 also executed a letter of guarantee for a sum of Rs. 1,51,50,000/- on 22.9.1993. D4 had also executed a similar guarantee. D2 had deposited title deeds relating to his properties in the plaint B-Schedule with the plaintiff Bank with the intention to create equitable mortgage to secure the advances granted to Dl. The loans sanctioned were secured by the personal guarantee of D2 to D4 as well as by way of their charge with D5 and D6 over the plaint A-Schedule properties and by creating equitable mortgage over the B-Schedule property of D2. The defendants were irregular in making payments and committed default. As per the accounts maintained by the Bank a total sum of Rs. 1,39,98,387/- is due from Dl to D4 to the Bank.
3. In the Sub-Court, D5 and D6 entered appearance through Counsel and D4 was called absent. The matter was transferred to DRT, Chennai, and numbered as TA-1213797 and then it was transferred to DRT, Ernakulam. In DRT, Ernakulam, Dl to D3 entered appearance through Counsel and they filed the written statement. D4 was called absent and set ex pane, D1 filed written statement contending that the suit is barred by limitation. D2 and D3 did not execute any letter of guarantee and demand promissory notes and the signature was obtained in blank printed forms and the defendants also did not confirm the balance and there was no equitable mortgage of the properties securing the loan and Dl Company is a sick unit and the plaintiff had got the titled deeds of the plaint B-Schedule properties through illegal means.
4. The 5th defendant filed written statement contending that D6 had granted a term loan of Rs. 60 lakhs to D1 and D1 executed agreements in favour of D6 to repay the term loan and Dl had also executed a deed of hypothecation charging its movables as collateral security. Personal guarantee of the Directors was also obtained. The immovable properties of DI in the plaint A-Schedule was offered as security by way of equitable mortgage to D5 and D5 and D6 have joint security for the above said term loan. Pari passu inter se arrangement was entered into and letters were exchanged between the plaintiff Bank and D5 and D6 confirming the pari passu arrangement of joint mortgage given to the parlies. Dl committed default in repayment of loan due to the defendant and a sum of Rs. 3,30,00,000/- wasdue from D1 and the dues were charged on the plaint A-Schedule properties. D6 has set forth the prayer to distribute the sale proceeds among the plaintiff", D5 and D6 in proportion to the loans advanced and the dues thereby. The Official Liquidator is the 7th defendant. The Official Liquidator 7th defendant filed a statement contending that he is unable to ascertain the exact amount due to secure the creditors including the applicant Bank and the 1st defendant was ordered to be wound up by the Company Court and the applicant Bank was allowed to continue the proceedings before the Tribunal by virtue of the order in CA-642798.
5. The Learned PO, DRT, after trial, passed Order allowing the TA with costs granting a decree to the plaintiff for Rs. 1,39,98,387/- together with future interest @ 15.25% per annum on Rs. 52,19,734/- with quarterly rests from the date of suit till realisation from defendants 1 to 4 and also by sale of the plaint schedule properties, subject to the charge over the plaint A-Schedule items for D5 and D6 at the ratio of 80:60:71.5 for D5, D6 and applicant Bank respectively and also declaring that D1 to D4 are jointly and severally liable for the debt and ordered for issue of Recovery Certificate.
6. Aggrieved against that Order the appellants-defendants 5 and 6 have preferred these appeals. The only dispute raised in the appeals is with regard to the ratio ordered by the Tribunal in respect of A-Schedule items. The learned Counsel appearing for the appellants contended that the Order of the Tribunal with regard to the grant of charge over A-Schedule property at the ratio of 80:60:71.5 is erroneous and the ratio must be 80:60:28 and the pan passu arrangement was never renewed for the subsequent loans sanctioned by the Bank enhancing the credit limit from Rs. 28 lakhs to Rs. 71.5 lakhs was done without the knowledge and consent of the appellant and Ex. A-72 is merely a Form 8 submitted by the borrower Company with the Registrar of Companies registering the creation of charge over the Company assets and Ex. A-72 will not create any right for the Bank to claim charge over the properties at the enhanced ratio. Counsel for the appellants contends that the agreement entered into was in the ratio of 80:60:28 and the Bank is entitled for charge over the A-Schedule property only to the extent of Rs. 28 lakhs for which alone there is pan-passu arrangement with these appellants and so the Order passed by the DRT granting charge over A-Schedule property at the ratio of 80:60:71.5 is not proper and it is liable to be set aside and the Order must be to the effect of granting charge over the plaint A-Schedule property at the ratio of 80:60:28 for the appellants-defendants 5, 6 and the applicant Bank respectively.
7. Counsel for the appellants, at the outset, argued that the Bank is entitled for an Order granting charge over the A-Schedule property to an extent of Rs. 28 lakhs whereas the appellants are entitled to 80:60. He submitted that for the subsequent borrowings by the 1 st defendant Company from the applicant Bank, D5 and D6 cannot be held responsible and they are not concerned with the subsequent borrowings, and the subsequent enhancement of the credit limit from Rs. 28 lakhs to Rs. 71.5 lakhs was done without the knowledge of the appellants and the appellants are not bound by it and the ratio must be 80:60:28.
8. Counsel for the respondent Bank submitted that the Bank advanced the loan amount enhancing the limit and the amount borrowed from the Bank was 71.5% and the appellants are also the Board of Directors and they are very well aware of the subsequent borrowing by the 1 st defendant from the plaintiff Bank and they are parties to the borrowing and the plaintiff Bank is entitled to Rs. 71.5 lakhs. He relies upon Form No. 8 of the Companies Act, 1956. The Company has given Form No. 8 under the Companies Act wherein the Company has accepted that the present loan limit is Rs. 71.50 lakhs consisting of--
Amount (In lakhs)
(a) Term Loan No. I (Existing) Rs. 28.00
(b) Term Loan No. II (Existing) Rs. 22.00
(c) Funded Interest on Term Loan No. I (Existing) Rs. 03.30
(d) Term Loan No. III (Existing) Rs. 10.00
(c) Funded interest on Term Loan No. II (New Limit) Rs. 08.20 TOTAL Rs. 71.50 lakhs It is also stated in Column 7 of Form-8 that by the preserit modification made on 11.10.1991 the limit was enhanced to Rs. 71.50 lakhs on the security of pari passu charge over building, plant and machinery and entire fixed assets of the Company, present and future, with Kerala Financial Corporation for the term loan of Rs. 60 lakhs and Kerala State Industrial Development Corporation for the term loan of Rs. 80 lakhs and the present limit of the Bank loan of Rs. 71.50 lakhs.
9. Counsel for the appellants submits that this is only a Form No. 8 given by the Registrar of Companies given under the Companies Act and the appellants are not parlies to the enhanced loan and they have not entered into any agreement with regard to 71.50% of the loan and the agreement is only for Rs. 28 lakhs and so, the ratio must he 80:60:28 and not 80:60:71.5. The 7th Annual Report of the Company for 1992-93 shows that the appellants are the nominees and they are in the Board of Directors and it is also stated in the Report that the Bank has also sanctioned new credit limits. The appellants being the Board of Directors, they are aware of the loan given by the Bank to the 1st defendant. The Balance Sheet and the schedules attached forming part of the Balance Sheet as on 3 3.3.1993 shows that the secured loans i.e. term loan due to KSIDC was Rs. 80 lakhs, Kerala Financial Corporation, Rs. 60 lakhs, and United Bank of India, Rs. 71.50 lakhs. The Balance Sheet also shows that the 1st defendant has availed Rs. 71.50 lakhs from the plaintiff Bank and the appellants are well aware of the same. So it cannot be stated that without the knowledge and consent of the appellants the enhanced loan of Rs. 71.5 lakhs was availed by the D-1 Company.
10. Much reliance is placed upon by the appellants on the Agreement and the Counsel for appellants contends that the agreement is to the effect that the ratio must be 80:60:28.
11. Counsel for the respondent Bank drew my attention to the various clauses in the Agreement and submitted that the appellants were entitled to inspect the office book records, etc. and they being the Directors were interested in the affairs of the D1 Company and they were also having the right to inspect the plant and machinery, etc. and they also had the right to appoint Directors. Under the Agreement, the KSIDC was allowed by the Company to examine through its own officials or person:; deputed by KSIDC, its accounts, books, papers, documents and other material at the Company's Registered Office and shall provide all facilities to such officials as the case may be, to enable them to report to KSIDC on the business of the Company and the Company, as and when required by the KSIDC, provide to KSIDC all such information and particulars relating to the project, its progress and operations including information relating to the financial position of the Company and the Company shall also furnish to KSIDC copies of documents and correspondence in respect of arrangements made or to be made from time-to-time with Bankers, financial institutions or others for financial assistance to the Company.
12. The Company shall inform KSIDC in writing promptly of the happening of any event likely to have a substantial effect on the Company's profits or business, such as strikes, lockouts, lay-offs or any other event likely to delay the completion of the Project or affect production. If there are delays in the implementation of the project, during the construction period or otherwise, or if after the project has been completed the production or sales are quite different from those as estimated, the Company shall inform KSIDC in writing of the said events with an explanation or the reasons therefor. The insurance in respect of the properties to be charged to KSIDC shall be taken in the joint names of the Company and KSIDC and/ or any other person or institution having an insurable interest in the properties of the Company and acceptable to KSIDC and other participating financial institution/Bank. Unless otherwise agreed to by KSIDC, the Company shall deposit and keep deposited with KSIDC the insurance policies and renewals thereof.
13. It is further stated in the Agreement that in the event of failure on the part of the Company or the other participating financial institution/Bank to insure the properties or to pay the insurance premia or other sums referred to above, KSIDC may, but shall not be obliged to, get the properties insured or pay the insurance premia and other sums referred to above, as the case may be, and the Company shall, forthwith on receipt of a notice of demand from KSIDC reimburse KSIDC all sums so paid by KSIDC together with interest at the rate specified in Clause-II(3)(i) hereof from the date of payment of KSIDC.
14. KSIDC shall be entitled to appoint director(s) on the Board of Directors of the Company at any time during the currency of this Agreement. Such directors are not required to hold qualification share(s). Such nominee directors shall be entitled to all the rights and privileges of a director of the Company and shall also have the right to attend all general meetings of the Company. The Company shall pay to such director all remuneration, fees allowances, expenses and other nominees to which the other directors are entitled. The Company shall also pay or reimburse any expenses that may be incurred by KSIDC or such directors in connection with their appointment. Such director(s) as well as KSIDC shall be entitled to receive al! notices and other communications (including agenda) relating to meetings of the Board and its Committees and general meetings of the Company and the Minutes of all such meetings. The Company shall amend its Articles of Association if necessary, in such form as may be required by KSIDC for the above purposes.
15. KSIDC shall be entitled to depute one or more observers to attend a meeting of the Board of Directors of the Company or any of its Committees or any general meeting of the Company. The Company shall reimburse KSIDC the amounts paid or payable to such observers on account of travelling and halting allowances and any other expenses for attending any such meetings.
16. Further terms of the Agreement arc to the effect that the charge in favour of KSIDC on the movables shall be subject to the charge created or to be created by the Company in favour of its Bankers on stocks of raw materials, semi-finished and finished goods and consumable stores and book debts for its working capital requirements. The Company shall not, without the previous consent of KSICC in writing, raise funds against any of its other assets or for any other purpose or from any person other than its Bankers or create a charge on any of its assets except as herein provided.
17. The aforesaid charges in favour of KSIDC shall be a charge ranking paripassu with the following charges created and/or to be created by the Company as security in favour of--
Kerala Financial Corporation - Rs. 60 lakhs Union Bank of India - Rs. 28 lakhs
18. So the terms and conditions of the Agreement stipulate that the appellants had taken part. They are aware of the loan facilities and they have taken part in availing the loan facility, The resolution passed on 27.3.1987 at the Company shows that the term loan to be secured from KSIDC, KFC and Union Bank of India is Rs. 80 lakhs, Rs. 60 lakhs and Rs. 28 lakhs. It has further been resolved on that date that the consent of the Company be and is hereby accorded to the Buard of Directors under Section 293(1)(d) of the Companies Act, 1956 to borrow any sum or sums of moneys from lime-to-time notwithstanding that the money or moneys to be borrowed together with the moneys already borrowed by the Company (apart from temporary loans obtained from the Company's Bankers in the ordinary course of business) may exceed the aggregate of the paidup capital of the Company and its free reserves, that is to say, reserve not set apart for any specific purposes provided however, the total amount so borrowed shall not exceed Rs. 170 lakhs (Rupees one hundred and seventy lakhs only).
19. The Company has given consent to the Board of Directors to borrow money from time-to-time and can exceed the limit. Resolution was also passed on 28.9.1989 to that effect--
"Resolved that the Company to create i n favour of Kerala State Industrial Development Corporation Ltd. (KSIDC), Kerala Financial Corporation (KFC) and Union Bank of India (Bank) security by way of joint equitable mortgage by deposit of title deeds of the Company's land and other immovable properties by depositing the title deeds with KSIDC, KSIDC acting for itself as agent of KFC and Bank to secure the financial assistance as hereinafter mentioned.
Resolved further that Shri V.J. Mathews and Shri Oommen Johnson, Directors be and are hereby authorized severally to deliver and deposit the title deeds with KSIDC in respect of the said immovable properties in order to create the equitable mortgage as aforesaid."
20. The Directors (Appellants) have also confirmed and acknowledged their indebtedness to the Bank and they have also confirmed that they continue to be liable to the Bank in accordance with the terms thereof as evidenced by the documents which find place in Annexures 26 to 37. It is clearly revealed by the documents that the Directors are parties to the subsequent borrowing and they have also acknowledged their liability confirming the payment of the dues due to the Bank.
21. A perusal of the records reveal that the debt due to the Bank is the debt be a charge on the plaint schedule properties subject to pari passu charge of D5 and D6 over the plaint A-Schedule properties. Ex. A-66 is the Joint memo filed on behalf of the applicant Bank and defendants 5 and 6. Under Ex. A-66, the appellants have clearly admitted with regard to the further term loan facility to the extent of Rs. 60 lakhs. Ex. A-66 reveals that in the joint meeting of appellants defendants 5 and 6 and the applicant Bank held at the Office of the 5th defendant appellant on 22.7.1993 it was agreed by and between them that the sharing ratio among the 5th defendant KSIDC, 6th defendant KFC (Appellants in this appeal) and the applicant Union Bank of India is 80:60:60. It is also stated in the Joint statement Ex. A-66 that the appellants are having a share of insurance premium in the ratio of 80:60:60. Ex. A-66clcarly reveals that the appellants have admitted the ratio to the extent of 80:60:60 between the appellants and the Bank.
22. Ex. A-72 is Form No. 8 given under the Companies Act to the Registrar of Companies, Kerala, signed by the Managing Director of the Company which confirms the borrowing from the Bank to an extent of Rs. 71.50 lakhs. Ex. A-72 coupled with Ex. A-66 clearly go to establish that the appellants admit with regard to the ratio regarding the subsequent borrowing and thus the ratio is 80:60:71.5. The Bank has also stated that the 5th defendant is the promoter shareholder of the 1st defendant Company and also a member of the Board of Directors of the Company. The audited balance sheets of the Company shows that the pan passu charge is in respect of the all term loans advanced by the Bank. The Joint statement Ex. A-66 and Form-8 prove that the ratio is 80:60:71.5 respectively in favour of KSIDC, KFC and Union Bank of India. It has been clearly established by documentary evidence that the ratio of share between D5, D6 and the Union Bank of India is 80:60:71.5. So the charge over plaint A-Schedule property is at the ratio of 80:60:71.5. The learned PO, DRT, Ernakulam, has considered ail the documents and analysed and has clearly found the ratio as 80:60:71.5.
23. I find no error in the order passed by the learned PO, DRT, Ernakulam.