Andhra Pradesh High Court - Amravati
The Best Sai Enterprises vs The Andhra Bank on 23 April, 2020
Author: D.Ramesh
Bench: D Ramesh
THE HON'BLE SRI JUSTICE RAKESH KUMAR
AND
THE HON'BLE SRI JUSTICE D.RAMESH
W.P.No.4934 of 2020
ORDER:(per the Hon'ble Sri Justice D.Ramesh)
1. This writ petition is filed challenging the proceedings of the first respondent bank in letter LTR: 0175/45/2019/341 dated 23.12.2019 for not considering the request for one time settlement and classifying the loan account number 017513100001866 as NPA as illegal, arbitrary and unconstitutional.
2. The first petitioner is a partnership firm doing business in wholesale and retail in electronics and electronic related produces, home appliances etc. and it is registered as MSME unit under the provisions of MSME Act. The second petitioner is the managing partner. The first petitioner firm was an existing customer of the first respondent bank for the period 2015-16 and on 30.01.2017 the first respondent bank renewed OCC facility with a limit of Rs.235 lakhs i.e. two crores and thirty five lakhs only as working capital. After obtaining the said credit facility, the first petitioner firm has been paying the interest regularly and they have paid Rs.1,76,000/- and Rs.1,84,000/- on 01.6.2018 and another amount of Rs.86,950.08ps on 31.7.2018. Hence the outstanding balance of the first petitioner firm not continuously in excess of the sanctioned limit/drawing power for 90 days period. Despite paying regularly the second respondent has issued demand notice under section 13(2) of SARFAESI Act, 2002 stating that the amount was classified as NPA on 29.7.2018. Thereafter the first respondent bank has taken measures under section 13(4) of SARFAESI Act, 2002 and sold item no.2 of collateral security belonging to the 2 guarantor, Kurmala Satyanarayana for an amount of Rs.78,30,000/- and a sale certificate was issued in favour of bidder and out of the said sale proceedings a sum of Rs.77,51,700/- was credited to the loan account on 21.02.2019 and thereby brought the loan account of first petitioner firm within its credit limits.
3. Apart from that as per the bank engineers valuation report dated 21.11.2017, the value of item no.1 of collateral security was Rs.4,05,00,000/-. But the bank issued successive e-auction sale notices dated 11.02.2019, 11.3.2019, 11.7.2019, 28.10.2019 and 10.02.2020 for want of bidders for sale of item no.1 by fixing reserve price at Rs.2,92,00,000/-. The said reserve price which was fixed by the bank is against the bank approved engineers valuation i.e. the value of Rs.4,05,00,000/-. Further in the present e-auction notice, the respondent bank reduced the reserve price unilaterally and fixed as Rs.2,75,00,000/-which is contrary to the valuation report dated 21.11.2017.
4. Subsequently, the first petitioner has made a request vide letter dated 06.12.2019 to give OTS expressing its willingness to pay the amount as determined. However the first respondent bank has rejected OTS request vide impugned letter dt.23.12.2019 stating that as the value of the collateral security available for the defaulted loan is more than the amount in default, they are unable to consider the request for settlement of dues under OTS.
5. Aggrieved by the said letter, the present writ petition is filed questioning the letter as well as the e-auction notice dated 17.01.2010 scheduled to be held on 28.02.2020.
6. The main contention of the first petitioners in this writ petition is that the letter dated 23.12.2019 of the first respondent bank is contrary to the guidelines of the Reserve Bank of India and 3 they have not considered the OTS request made by the first petitioner in a right perspective. They have rejected the OTS application by stating that the value of the collateral security available with the bank is more than the amount of default which cannot be a ground for rejection of the OTS application and the same is contrary to the guidelines prescribed by the Reserve Bank of India.
7. To support the said contention, the learned counsel for the petitioners relied on the following judgments:
1. In M/s. Sardar Associates and Ors v. Punjab and Sindh Bank and Ors1 wherein the Hon'ble Supreme Court observed that:
40. If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued. We would assume, as has been contended by Mr. Singh, that while exercising its power under Article 226 of the Constitution of India, the High Courts may or may not issue such a direction but the same, in our opinion, by itself, would not mean that the High Court would be correct in interfering with an order passed by the Appellate Tribunal which was entitled to consider the effect of such one time settlement.
41. The question pertaining to the present matter is regarding whether or not a circular issued by a statutory body for the governance and regulation of certain agreements confers a legal right upon the aggrieved party in case of non-compliance or complete and absolute deviation from the said guidelines by the body formulating such circulars. Alternately, can the aggrieved party, then, claim its right of judicial review under Article 32 or 226 to quash the said circular in case of discriminatory application of such rules/guidelines so mentioned in the circular.
46. As regards the Reserve Bank of India guidelines, it was the direction of the Appellate Tribunal that the Respondent-Bank should settle the case of the appellants under the RBI guidelines through a One Time Settlement and should invite a proposal for settlement and recovery of the agreed amount.
47. The Appellate Tribunal in passing its order followed the dicta laid down in Constitution Bench judgment in Central Bank of India (supra), wherein it was held that:
".....RBI directive have not only statutory flavour, any contravention thereof or any default in compliance therewith is punishable under sub- section (4) of S. 46 of the Banking Regulation Act, 1949".1
AIR 2010 SC 218 4
2. In Swetha Exports rep. by its Prop. Dr.B.Srinivasa Rao v. Bank of India and another2 wherein the High Court of Andhra Pradesh observed that:
Section 21 of the Banking Regulation Act, 1949 confers power on the Reserve Bank of India (RBI for short) to control advances by banking companies. Under sub-section (1) thereof, where the RBI 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 so determined.
The RBI is a statutory authority, and exercises supervisory power over the functioning of the scheduled banks. RBI is entitled to issue guidelines, from time to time, in matters relating to supervision of scheduled banks. (Sardar Associates3). The respondent Bank, a State within the meaning of Article 12 of the Constitution of India, is bound to follow the guidelines issued by RBI. The power of the Board of Directors of the bank, to deviate from the broad policy decisions contained in the RBI guidelines, is confined only to minor matters which do not touch upon the broad aspects of the policy decision. (Sardar Associates).
In Sardar Associates, on which reliance is placed on behalf of the petitioner, the guidelines, which fell for consideration, were those issued by RBI by its letter dated 3-9-2005 addressed to the Chairman/Managing Director of all public sector banks. This letter, in turn, referred to the Circular dated 19-8-2005 issued by RBI formulating the One-Time Settlement Scheme for recovery of NPA below Rs 10 crores. The guidelines were issued to provide a simplified, non-discretionary and a non-discriminatory mechanism in the small and medium enterprises sector, and all public sector banks were directed to uniformly implement these guidelines. In Sardar Associates3, the Supreme Court held that the circular dated 19.08.2005 was binding on the banks.
As public sector banks are bound by the guidelines issued by RBI, such guidelines can be enforced, in terms of the provisions of the SARFAESI Act, by the Debts Recovery Tribunal, and consequently by the Appellate Tribunal. (Sardar Associates). The Debt Recovery Tribunal and the Appellate Tribunal have the requisite jurisdiction to consider the prayer made by a debtor for a one-time settlement, particularly when it is within the purview of the One-Time Settlement Scheme of the RBI. (Sardar Associates).
Clause 4.7 of the 2016 RBI directions relates to the debt restructuring mechanism for MSMEs, and clause 4.7(ii) refers to the earlier circular of the RBI dated 04.05.2009 which put in place loan policies governing extension of credit facilities, restructuring/rehabilitation policy for revival of potentially viable sick unit/enterprises, and a non-discretionary One Time Settlement Scheme for recovery of non-performing loans for the MSE sector, with the approval of the Board of Directors. Under clause 4.7 (iii) banks were advised to give wide publicity to the One Time Settlement Scheme implemented by them, placing it on the banks website and through other possible modes of dissemination. In order to extend the benefits of the scheme to eligible borrowers, RBI directed the banks to allow reasonable time to the borrowers to submit the application, and to make payment of the dues.
It is no doubt true that if, in terms of the guidelines issued by RBI, a right is created in a borrower, a writ of mandamus can be issued. While 2 2017(5) ALT 696 (D.B) 5 exercising its power under Article 226 of the Constitution of India, the High Court may or may not issue such a direction, but it would not be justified in interfering with an order passed by the DRT/Appellate Tribunal considering the effect of a one-time settlement. (Sardar Associates 3).
3. In Hotel Paraag Limited (HPL) vs. State Bank of India (Industrial Finance)3 wherein the Hon'ble Supreme Court observed that:
In the light of the above, the position of law that an order by itself should disclose reasons failing which it will disclose non application of mind cannot be in dispute. However, if there was no contradictory fact on record, certainly to an extent, the explanation for the decision based on the guidelines itself would have been accepted herein. In the instant case, though the learned counsel for the respondent refers to the circular/guidelines to indicate the definition of micro, small and medium enterprises as provided therein and contends that the petitioner does not answer the definition since the value of the plant and machinery is more than Rs. 7 crores, what is to be noticed is that the medium enterprise defined therein is where the investment in plant and machinery is more than Rs.5 crores but does not exceed Rs.10 crores. The certificate relied on by the petitioner at Annexure-J would indicate that it is a medium enterprise/service. Though the date of issue of such certificate is referred to by the learned counsel for the respondent to contend that it was issued only on 16.04.2013, the fact that it was a medium enterprise even prior to that date will be prima facie the position which will depend on other materials also. If that be the position, whether it was a small or medium enterprise even prior to that is an issue which should have required factual determination at the hands of the respondent before coming to a conclusion on that aspect and that should have been reflected in the impugned communication itself with regard to the nature of consideration and conclusion thereof. Further, the petitioner has also relied on the extract at Annexure-K relating to the investment on equipments to contend that the plant and machinery for that purpose is below the limit relating to the Mahadevapura unit. Clause 1 (iv) of the guidelines is referred by the learned senior counsel to indicate that it specifies that there can be no clubbing of investments of different enterprises set up by the same person/company for the purpose of classification of micro, small and medium enterprises.
4. In M/s. Shyam Ice and Cold Storage (P) Ltd. And Ors. V. M/s. Syndicate Bank and Another4 wherein the High Court of Allahabad observed that:
Although there may not be a bar in the Bank proceeding under the Act of 2002 even when the One Time Settlement proposal is under active consideration, but permitting simultaneous proceedings against the borrower would amount to wielding the sword and the stick at the same time, which would not be appropriate. Even a defaulter has his rights. He can be proceeded against only in accordance with law. Merely because he has defaulted in payment of some instalments would not mean that he should be dealt a double or multiple blow. If he has a right to have his One Time Settlement considered (as per the Reserve Bank of India guidelines) then during the pendency of such One Time Settlement proposal, initiation of recovery proceedings under the Act of 2002 will not be permissible. It is for the Bank to choose as to whether 3 2013 0 Supreme (Kar) 561 4 AIR 2012 Allahabad 87 6 they are to proceed for One Time Settlement or they are to recover money from the borrower under the Act of 2002 or any other process. It is only after the Bank rejects the application for One Time Settlement (or if accepted and the borrower does not comply with the terms of settlement) that the Bank can proceed to recover the dues. As held by the Apex Court, the guidelines of the Reserve Bank of India have statutory force. The scheme for One Time Settlement is under the guidelines of the Reserve Bank of India, which would mean that the petitioners have statutory right for their application/proposal for One Time Settlement filed under the scheme for being considered by the Bank. It is for the Bank to assess the proposal of the borrower and then either reject or accept the proposal after negotiations but as long as the said proposal remains pending with the Bank, it would neither be proper nor permissible for the Bank to proceed to recover the amount from the borrower.
5. In Kumar Hotels and Restaurants v. Indian Overseas Bank and Ors5 wherein the High Court of Punjab and Haryana observed that:
A bare perusal of the aforesaid rejection of the offer made by the petitioner would show that there is no iota of consideration of the offer made as the respondent-Bank is obliged by virtue of the OTS guidelines. The aforesaid guidelines have now been held to be statutory major and binding on the financial institution including Bank. In the case of M/s. Sardar Associates and others v. Punjab and Sind bank and others, 2009 (8) SCC 257: (AIR 2010 SC 218), in fact the stand of the respondent-
Bank is that the petitioner is a willful defaulter and, therefore, the Bank is not obliged to consider the OTS offer. However, this was the precise reasons for rejecting the OTS offer in the judgment of Sardar Associates (AIR 2010 SC 218) (supra). The willful default is a phrase devise by the respondent-Bank and the order in the letter dated 30.6.2011 would not meet the judicial approval of the Court because it does not contain any reason whatsoever. It only shows that the proposal is not acceptable which is for passing of the detailed reasons order, therefore, we quash the aforesaid letter dated 30.6.2011 and direct the respondent-Bank to consider the OTS offer made by the petitioner on 22.6.2011 in accordance with law laid down by Hon'ble the Supreme Court in the case of Sardar Associates (AIR 2010 SC 218) (supra) and the proposal shall be disposed of within a period of two months from today. The order of the District Magistrate as well as the Commissioner of Police (P-2 and P-3) shall remain in abeyance and shall be subject to fresh determination of the Bank. The Bank shall not give effect to the order for a period of two weeks from the date of its communication to the petitioner.
6. In Sravan Dall Mill P. Limited, rep. by its Managing Director, Bandlaguda, Nagaram, R.R.Dist. v. Central Bank of India, rep. by its Chief Manager, Corporate Finance Branch, Hyderabad and another6 wherein the High Court of Andhra Pradesh observed that:
23.The right of the borrower to have a due consideration of objections is, therefore, an important right of the borrower where the bank is bound to 5 AIR 2012 PUNJAB AND HARYANA 167 6 2010(1) ALT 321 (D.B) 7 apply its mind and inform the borrower of its reasons as to why and how the account is classified as NPA, particularly, when the borrower raises specific objections in that regard. The reply of the bank must indicate application of mind by the bank that the decision of the bank in classifying the account as NPA was fully in conformity with the prudential norms of RBI. Non-consideration of the said objection by mere statements in the reply that the bank has considered the same cannot be said to be the fulfillment of the obligation of the bank under Sections 13(2) and 13(3)(A) of the SARFAESI Act. It also cannot be disputed that even assuming that particular had become NPA, the subsequent payments by the borrower entitled a borrower to upgrade the said account and may come out of the said classification of his account as NPA. Therefore, it is incorrect to presume that once an NPA is always an NPA and it is precisely for the said reason that the clause 4.2.4 of the prudential norms specifically states that if interest and principal are paid by the borrower in case of loans classified as NPA, the said account should no longer be treated as NPA and may be classified as sub-
standard account. Consequently, therefore, the action under the SARFAESI Act with regard to the said account would not be tenable, as jurisdictional fact under Section 13(2) of the SARFAESI Act would remain unsatisfied.
24.For the above reasons, therefore, we are of the view that the petitioner's objections have not been considered by the bank by due application of mind keeping in view the aforesaid guidelines and norms of the RBI and the decision of the Supreme Court in MARDIA CHEMICALS's case (2 supra) and other decisions referred to herein above. We may mention that a similar question was also considered by the Jharkhand High Court in STAN COMMODITIES PVT. LTD. v. PUNJAB & SIND BANK[5].
25. In the circumstances, we deem it appropriate to issue the following directions: The first respondent bank shall consider afresh the objections dated14.08.2006 and by a reasoned order communicate such reasons to the petitioner. It is open to the petitioner to supplement the said objections by further supplementary objections, if any, in view of the fact that the said objections were filed as early as on 14.08.2006 and several subsequent events may have become relevant. If the petitioner chooses to file the said supplementary objections, if any, he shall do so within a period of two (2) weeks from today. The first respondent is directed to consider the objections filed earlier together with supplementary objections, if any, within a period of six (6) from today and communicate its reasoned decision to the petitioner. The petitioner shall be at liberty to take such appropriate steps as permissible under law thereafter. As no measures under Section 13(4) of the SARFAESI Act are taken by the first respondent bank, no directions in that regard are necessary to be issued till the bank passes appropriate orders on the objections of the petitioner under Section 13(2) of the SARFAESI Act. The writ petition is accordingly disposed of. There shall be no order as to costs.
8. The counsel appearing for the respondent bank has rebutted the contentions of the petitioners and he specifically contended that
(i) the application which was filed by the petitioner for OTS is not in accordance with the format prescribed by the Reserve Bank of India, (ii) he further contended that they have not deposited the amount which required to be deposited along with the application 8 and (iii) that the letter filed by the petitioner for OTS is not annexed along with the writ petition.
9. In commercial matters such as this, the Writ Court, ordinarily not interfere and came in the way of recovery of dues involving public money as decided by the Hon'ble Apex Court in United Bank of India vs. Satyawati Tondon and others7 wherein it was observed that:
"It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection".
10. Heard both the counsel. As contended by the counsel for the respondents that the 1st petitioner has not filed the application/ letter requesting for OTS. In view of the disputed facts raised by the counsel and the ratio laid down by the Apex Court in the judgment in United Bank of India vs. Satyawati Tondon and others, these issues which were raised by the 1st petitioner in the present writ petition can also be raised before the Appellate Tribunal. Hence the present writ petition is dismissed. No costs.
11. As a sequel thereto, miscellaneous petitions, if any, pending shall stand closed.
___________________________ JUSTICE RAKESH KUMAR ______________________ JUSTICE D.RAMESH Date: 26.02.2020 Rd 7 2010 (8) Supreme Court Cases 110 9 THE HON'BLE SRI JUSTICE RAKESH KUMAR AND THE HON'BLE SRI JUSTICE D.RAMESH W.P.No.4934 of 2020 Dated 26.02.2020 Rd