Gujarat High Court
Gujarat Credit Corporation Ltd vs Punjab National Bank, on 9 March, 2018
Author: Rajesh H.Shukla
Bench: Rajesh H.Shukla
C/SCA/17805/2016 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 17805 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE RAJESH H.SHUKLA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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GUJARAT CREDIT CORPORATION LTD & 1....Petitioner(s)
Versus
PUNJAB NATIONAL BANK, & 1....Respondent(s)
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Appearance:
MRS VD NANAVATI, ADVOCATE for the Petitioner(s) No. 1 - 2
MS NALINI S LODHA, ADVOCATE for the Respondent(s) No. 1 - 2
RULE SERVED BY DS for the Respondent(s) No. 1 - 2
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CORAM: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA
Date : 09/03/2018
ORAL JUDGMENT
The present petition is filed under Articles 14,19(1) (g), 300A and 226 of the Constitution of India as well as under the guidelines issued by the Page 1 of 12 C/SCA/17805/2016 JUDGMENT Reserve Bank of India under section 21 and section 35A of Banking Regulation Act, 1949 with regard to One Time Settlement (OTS) on 21.7.10. The prayer as prayed for in the petition inter alia is for appropriate writ, order or direction to quash and set aside clause 7 (recompense clause) from the terms of One Time Settlement offer dated 21.7.2010 at Annexure D and also to restrain the respondents from enforcing the demand notice dated 21.11.2016 and stay the letter dated 6.4.2015 on the ground stated in the memo of the petition.
2. The facts of the case briefly summarised are as follows. The petitioner no.1, is a Public Limited Company, registered under the provisions of the Companies Act, 1956. The petitioner no. 2 is the Director of petitioner no.1 and is a national and citizen of India. It is the case of the petitioner that they had approached the respondent bank for a corporate short term loan of Rs 11 crores which was sanctioned vide letter dated 8.8.2006 at Annexure B. The petitioner company purchased the land at Baroda through a public auction held by the Income Tax Department, for the sum of Rs 18.51 crores on 11.5.2006 at Annexure A (colly). Thus, the loan was obtained for the purchase of the aforesaid property and thereafter as stated in detail in the petition, the Page 2 of 12 C/SCA/17805/2016 JUDGMENT equitable mortgage of the said property in question in favour of the respondent bank was required. However, as the Income Tax Department did not grant the approval, the petitioner approached respondent -bank, for extension as well as for medium term loan as the petitioner could not repay the amount. The petitioner, approached the respondent bank with letter dated 20.11.2008 with the request to re-schedule the terms and conditions and ultimately one time settlement was arrived at between the petitioner and the bank, as per the letter dated 21.7.2010 at Annexure D. However, the Income Tax Department did not execute the sale deed and the bank did not agree to release the collateral security and issue No Due Certificate, in favour of the petitioner. This had been declined on the ground that clause (7) of the settlement provided for payment of recompense and therefore the sacrifice amount of Rs 98,89,794.90 has been claimed which has led to the present petition.
2.1 Heard learned senior counsel, Shri. S.N. Shelat appearing with Ms. V.D Nanavati. Learned senior counsel, Shri Shelat who referred to Annexure A which is a communication from the office of the Chief Commissioner of Income Tax, Baroda that the bid of the petitioner has been accepted and confirmed as Page 3 of 12 C/SCA/17805/2016 JUDGMENT per the letter dated 18.5.2006. The petitioner had made the full payment and therefore, the document was required to be executed in favour of the petitioner Company. Learned Senior Counsel, Shri . Shelat, submitted that for payment of the amount, the petitioner had approached the respondent bank for short term loan which was subsequently converted into term loan. However, as the the petitioner could not repay, he ultimately approached for reshedulement of the corporate loan vide letter dated 20.11.2008 at Annexure C and ultimately arrived at One Time Settlement as per the communication dated July, 21, 2010. The bank approved the same, subject to the terms and conditions. Learned Senior Counsel Shri. Shelat submitted that one of the conditions at serial no. 7 referred to in page 33, could not be imposed and therefore the petitioner had not agreed and therefore the bank did not issue no due certificate and rather made effort to issue demand notice. Learned Senior Counsel Shri. Shelat, submitted that in fact it is contrary to the guidelines issued by the Reserve Bank of India, produced at page 45 at Annexure H. He submitted that these guidelines in clause 3.1 clearly provided "One Time Settlement"/ (OTS)/ Negotiated Settlement. " He also referred to the revised guidelines at Annexure E and submitted that clause 4 again makes it clear about Page 4 of 12 C/SCA/17805/2016 JUDGMENT non-applicability of recompensation. The same is reproduced below :
"4(b) One Time Settlement Negotiated Settlement. : In case of OTS/NS, amount recoverable under OTS/NS is mutually decided by the lender and the borrower and hence, the recompense will not be applicable in such cases. "
3. Learned Senior Counsel Shri. Shelat, submitted that in view of these guidelines, the respondent -bank cannot make any demand for recompense. He submitted that any such conditions are arbitrary and unreasonable. He submitted that if it is unreasonable it cannot be sustained. He further submitted that after a long period when such issues are sought to be joined, it cannot be permitted. Learned senior counsel Mr. Shelat referred to and relied upon the judgment of the Apex Court Santosh kumar Shivgonda Patel Vs Balasaheb Tukaram Shevale (High Court of Maharashtra) 2009(o) GLHEL-SC 47685 to substantiate his stand.
4. Ms Nalini Lodha, learned advocate for the respondents referred to the document giving detailed history, as to how the petitioner had asked for short Page 5 of 12 C/SCA/17805/2016 JUDGMENT term loan in 2006 and thereafter it was not paid and had approached the bank for converting into term loan and thereafter as the petitioner again failed in the payment of installment he requested for extension which was granted. Thereafter as the petitioner could not make the payment the account was declared as a NPA on 30.6.2009. Therefore, the petitioner had approached the bank for one time settlement. Learned advocate Ms. Lodha, referred to one time settlement and the condition at No. 7, to emphasise that it was agreed and accepted to make payment of recompense amount by the petitioner and as he had remained under default his request for one time settlement was accepted with this condition. Clause 7 has been pressed in service and provided as as follows:
" In case of transfer of
land or release of funds by IT
Department in favour of the
company, Bank shall reserve the
right to recompense itself to the
extent of sacrifice plus further
interest @ 10%.
Learned advocate Ms. Lodha, submitted that
either one time settlement may be accepted fully
with condition no. 7 or it may fail. She therefore,
submitted that in that case bank may proceed further.
Page 6 of 12C/SCA/17805/2016 JUDGMENT Learned advocate Ms. Lodha, submitted that the
submissions made with reference to RBI guidelines are misconceived. She submitted that both the guidelines have reference to the corporate debt restructure which is not the case here. She therefore, submitted that such a circular or guidelines would apply in case of corporate debt restructure and it will not have any application to the case of the petitioner. She therefore, submitted that considering the public interest as it is a public money, the present petition may not be entertained.
5. In rejoinder, learned senior counsel Shri. Shelat, submitted that if it is argued that the guidelines are applicable to only corporate debt restructure then such recompense would also be applicable to only such corporate debt. It cannot be applied to the case of the petitioner. In any case, it is submitted that close look at the guidelines would make the position clear that in case of one time settlement, the same would not justify the claim for such recompense amount. Learned senior counsel Shri Shelat, submitted that the respondent bank is estopped from raising such conditions at a belated stage having accepted one time settlement.
6. In view of the rival submissions and having Page 7 of 12 C/SCA/17805/2016 JUDGMENT regard to the documents and the facts it is required to be considered whether the present petition deserves consideration. As it is evident from the record that the respondent bank has obliged the petitioner by not only giving the short term loan but thereafter permitting the extension and thereafter converting it into term loan. It is required to be stated that when the default was consistently made and no installment was paid, the respondent bank have referred for recovery in exercise of many law including SARFESI Act. It is evident that even the notice has been issued and the account has been declared as a NPA.
6.1 Be that as it may, even thereafter when the petitioner approached for one time settlement it has been accepted. It is not in dispute that the petitioner had acquired the property in question in a auction held by the Income Tax Department and because of the attitude of the respondent bank though purchase took place much earlier in 2011, the sale deed was not executed till 2016. It appears that the respondent bank has now tried to raise the issue to shield and cover the soft peddling of the officers by issuing such demand notice and raising such conditions at a belated stage. In any case it was open for the respondent bank not to accept the one time Page 8 of 12 C/SCA/17805/2016 JUDGMENT settlement unless the petitioner had agreed to clause
7. The bank accepted one time settlement and now is raising a demand for such recompense charge, which is not permissible. As per the submissions made by learned advocate Ms. Lodha either one time settlement may be accepted as it is or it may not be accepted, though condition no. 7 cannot be removed though it was open at the relevant point of time when the parties were at ad idem. One fails to understand as to what prevented the bank from refusing. On one time settlement on one hand as they accepted one time settlement and accepted the amount towards the repayment of the loan and now such issue is joined by referring to clause 7 which is not permissible. Apart from the reasonableness of such condition the respondent bank is estopped by its own conduct from raising such demand based on condition no. 7.
7. Another facet of the submission made by learned advocate Ms. Lodha is the novel argument that RBI guidelines is applicable only in case of corporate debt restructure. If that be the case then this provision for recompense would also not be applicable which is sought to be inserted by conditions no. 7 at the time of one time settlement. In fact bank has failed to show any source of power for Page 9 of 12 C/SCA/17805/2016 JUDGMENT making such claim on the ground of recompense amount. If the bank was conscious that it was their money, and that the petitioner is purchasing or buying the property, they could not have considered at the time of granting the loan and thereafter granting extension and thereafter converting it into the term loan, which reflect soft peddling by the officers. Therefore, it is too late in the light of the day to make such submissions relying upon clause 7. As nationlised bank dealing with the public money it also has an obligation and cannot be permitted to behave in such a fashion.
8. Therefore, the submission made by learned advocate Ms. Lodha that RBI guidelines is applicable to only corporate Debt Restructure would stare in the face, when it is referred in case of the petitioner since if it is not applicable then the petitioner cannot be made to pay such claim. In fact it is an admitted position that the parties were not ad idem on this clause then one time settlement could not have been accepted. Therefore without any further elaboration and having regard to the aforesaid guidelines which clearly provided that such recompense would not be applicable to one time settlement as referred to by learned senior counsel Shri Shelat, referred to revised guidelines which provided :" Non Page 10 of 12 C/SCA/17805/2016 JUDGMENT Applicability of Recompense"
Further 4 B provided :
"One Time Settlement/negotiated
Settlement :
In case of OTS/NS amount
recoverable under OTS/NS is
mutually decided by the lender and
the borrower and hence the
recompense will not be applicable
in such cases.
Thus, it is evident that in case of OTS/NS mutually agreed between the lender and the borrower to recompense was not made applicable. Thus it clearly states about non-applicability of recompense in case of OTS/Negotiated settlement.
9. Therefore if it is confined to corporate restructure then it would not be applied to the case of the petitioner if the case of the petitioner is corporate debt restructure then it will be applicable and since it was one time settlement the amount of recompense cannot be claimed. Therefore having regard to the aforesaid rival submissions and the conduct of the respondent bank and the background of fact, the present petition deserves to be allowed. Prayer in terms of para 20A, 20 AA and 20 B and C Page 11 of 12 C/SCA/17805/2016 JUDGMENT deserves to be granted. Communication/demand dated 22.11.2016 is quashed and also the respondent bank is restrained from implementing the letter dated 6.4.2015 in any manner and is directed to issue no due certificate and return security as prayed in clause prayer 20 CC. The present petition accordingly stands allowed. Rule is made absolute.
(RAJESH H.SHUKLA, J.) Further order After the judgment and order was pronounced, request is made on behalf of Ms. Lodha, learned advocate to stay the operation of the order for a period of 4 to 6 weeks to enable her client to take appropriate recourse. Request is declined.
(RAJESH H.SHUKLA, J.) mary Page 12 of 12