Karnataka High Court
M/S Hotel Paraag Ltd (Hpl) vs State Bank Of India on 22 July, 2015
Author: A.S.Bopanna
Bench: A S Bopanna
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF JULY 2015
BEFORE
THE HON'BLE MR. JUSTICE A S BOPANNA
WRIT PETITION No.49366/2013 (GM-RES)
BETWEEN:
M/S/ HOTEL PARAAG LTD (HPL)
NO.3, RAJ BHAVAN ROAD
BANGALORE-560001
REP. BY ITS MANAGING DIRECTOR
MR. RAMESH S JANNU
... PETITIONER
(BY SRI M N MADHUSUDHANA NAIK, SR. COUNSEL
FOR SRI B JAYAPRAKASH SHETTY)
AND:
STATE BANK OF INDIA
(INDUSTRIAL FINANCE)
RESIDENCY ROAD
BANGALORE-560 001
REPRESENTED BY ITS
DEPUTY GENERAL MANAGER
... RESPONDENT
(BY SRI S.S. NAGANAND, SR. COUNSEL FOR
SRI CHINTAN CHINNAPPA FOR
M/S. DUA ASSOCIATES)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
& 227 OF THE CONSTITUTION OF INDIA, WITH A PRAYER
TO SET ASIDE THE ORDER OF REJECTION OF ONE TIME
SETTLEMENT SCHEME ISSUED BY THE RESPONDENT
VIDE LETTER DATED 15.10.2013 VIDE ANN-P AND DIRECT
THE RESPONDENT TO PROVIDE ONE TIME SETTLEMENT
SCHEME, SBI-OTS-MSME-2012 TO THE PETITIONER
HOLDING THE SAME AS MEDIUM ENTERPRISE.
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THIS WRIT PETITION HAVING BEEN RESERVED FOR
ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY,
THE COURT PRONOUNCED THE FOLLOWING :
ORDER
The petitioner is before this Court assailing the letter dated 15.10.2013 (Annexure-P) issued by the respondent whereby the one time settlement sought by the petitioner under the scheme has been rejected. The petitioner is therefore seeking mandamus to direct the respondents to extend the benefit of one time settlement under the SBI-OTS-MSME-2012 scheme.
2. The petitioner with the object of constructing a hotel at Mahadevapura availed the loan of Rs.62,00,00,000/- from the respondent which was sanctioned on 25.01.2011. Since there was default in repayment of the said amount, the respondent classified the account of the petitioner as Non-Performing Asset ('NPA' for short) on 31.03.2011. With a view to provide 3 incentives to smaller enterprise, the Micro, Small and Medium Enterprises Development Act, 2006 (the 'MSMED Act' for short) has been enacted. In furtherance of such benefit, a master circular has been issued by the Reserve Bank of India ('RBI' for short) based on which the respondent-Bank has formulated the one time settlement scheme in respect of NPAs of the enterprises falling under the MSMED Act. The petitioner claiming benefit of the same had approached the respondent Bank.
3. The respondent-bank at the first instance had by their endorsement dated 31.07.2012 rejected the request of the petitioner. The petitioner was therefore before this Court in W.P.No.35087/2012 assailing the said endorsement. This Court on taking note of the rival contentions, by the order dated 03.09.2013 was of the opinion that a detailed factual determination was required 4 and as such the endorsement dated 31.07.2012 was quashed. Further the respondent-bank was directed to reconsider the representation dated 23.07.2012 in accordance with the guidelines. The respondent-bank on such reconsideration has issued the letter dated 15.10.2013 impugned herein. By the said letter, the petitioner has been intimated that the request for one time settlement under the said scheme cannot be accepted as the petitioner did not fall in the category of MSME as defined under the MSMED Act. It is in that circumstance the petitioner is before this Court once over again.
4. Heard Sri Madhusudan Naik, learned senior counsel for the petitioner and Sri S.S.Naganand, learned senior counsel for the respondent-Bank and perused the petition papers.
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5. In the light of the rival contentions, a perusal of the petition papers indicates that the order dated 03.09.2013 passed in the earlier petition in W.P.No.35087/2012 (GM-RES) is available at Annexure- N. This Court though had directed reconsideration, had not pronounced that the petitioner falls under the SBI- OTS-MSME-2012 Scheme. However, taking note of the nature of consideration that is required to be made and on finding that the respondent-Bank had not made such consideration had directed reconsideration as factual aspects were necessary to be considered. One of the aspects which had however been clarified is that the investment made in two different establishments of the same borrower cannot be clubbed while reckoning the value of investment to determine the applicability of the said scheme, but no finding was rendered as to whether in the instant case they were two different enterprise as claimed by the petitioner. That aspect as also the other 6 aspects of the matter were to be determined by the respondent-Bank taking note of the materials on record. It is to enable such determination the endorsement dated 31.07.2012 which did not indicate reasons was quashed and reconsideration was ordered.
6. The respondent-Bank on having reconsidered the matter, by their communication dated 15.10.2013 at Annexure-P have intimated the petitioner that they do not fall into the category of MSME as defined under the Act. Hence, the respondent-Bank has conveyed their inability to consider the request under SBI-OTS-MSME- 2012.
7. The provision contained in Section 7 (1)(b)(i) to (iii) of the Act provides for classification of enterprises engaged in providing or rendering of services. Whether such enterprise is to be considered as Micro, Small or 7 Medium to fall under the Act is based on the value of investment in equipment. The maximum of the investment in equipment provided therein is five crore rupees for a medium enterprise so as to fall under the Act. The petitioner is claiming benefit as a medium enterprise engaged in providing service as classified in Section 7(1)(b)(iii) of the Act.
8. In that background, the RBI has issued a Master Circular dated 02.07.2012 relating to lending to MSME sector. In Clause 1(b) it provides that, Enterprise engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) as specified therein. For a medium enterprise, the investment in equipment should be more than Rs.2 crores but should 8 not exceed Rs.5 crore. Under the circular dated 19.03.2012, the respondent-Bank has offered the scheme for One Time Settlement of NPAs of MSME defined under MSMED Act, 2006.
9. In the instant case, though the petitioner at this stage would seek to put forth the case that its unit at Rajbhavan Road is independent of the unit at Devasandra Industrial Area and the certificates dated 16.04.2013 and 03.08.2013 issued by the Directorate of Industries and Commerce, Government of Karnataka are relied upon, the same cannot be treated as conclusive for the present purpose. Firstly, there is no clarity with regard to the same as the certificate dated 16.04.2013 indicates as Part I and is valid for two years while the certificate dated 03.08.2013 indicates as Part II. Secondly, the certificates have been obtained during the pendency of the earlier writ petition and was not in existence when the loan was 9 sanctioned and that was not a consideration at that stage. If in that backdrop, the situation is taken into consideration on taking note of the contentions urged by the respondent-Bank in their objection statement, they would be justified in not treating the two units of the petitioner as separate enterprises by merely relying on such certificate while considering as to whether the petitioner would fit into the definition of medium enterprise under the MSMED Act. Hence, without foreclosing the right of the petitioner to rely on such registration, if any, in any other circumstance as and when it may arise, the right as claimed for consideration under the scheme based on other aspects is to be considered herein and not by merely relying on the said certificates.
10. The learned senior counsel for the petitioner would contend that the portion indicated in brackets in the Master Circular is not contained in the Act and as 10 such the inclusion of the value of land and buildings also relating to the service enterprise is not permissible. In that regard, reliance is placed on the notifications at Annexures-V and W produced along with the additional statement filed by the petitioner. The attempt is to establish that the investment of the petitioner in the equipments is less than rupees five crores and the OTS scheme is applicable. The note 2.10 relating to investment in equipment as contained in Annexure-W would seek to explain the phrase "investment in equipment" as the term "equipment" is neither defined in the Act nor does the Act or the notification lay down guidelines in that regard. Therefore, it is indicated that the investment in equipment should be taken at original cost excluding; land and buildings; furniture, fixtures and fittings; and other items not directly related to the services rendered. 11
11. Even to consider the instant case in that background, it is to be noticed that if the letter dated 25.01.2011 at Annexure-A ( also at Annexure-R-1) as well as Annexure R-2 are kept in perspective, the manner in which the sanction of term loan was made to the petitioner does not suggest as the loan being for a different and distinct enterprise. The sanction is to partly fund the hotel project of the petitioner M/s. Hotel Paraag Ltd., at Mahadevapura. It is not as if an enterprise was being set up independently by a same group of individuals manning another enterprise. In that light, it is not as if the existing M/s. Paraag Hotel or any other person was offering themselves as guarantors for the loan of another enterprise, but they are the borrowers in respect of the same enterprise. If they were in that sense different entities, only then they could have been treated as two different enterprises and clubbing could not have been made. The resolution of the Board of Directors dated 12 29.10.2007 along with Annexure-R.1 suggests otherwise. Further, the Annual report of the petitioner for the year 2010-11 through the Director's report has referred to it as an additional project for establishing another hotel, which obviously would imply as another hotel of the same enterprise. If viewed from that standpoint, it cannot be considered as clubbing of two distinct enterprises since the entire transaction is of a single loan.
12. If in that backdrop, the investment is taken into consideration, the petitioner by relying upon Annexure-T along with the additional statement has sought to quantify the investment in equipment at Rs.3,53,61,956/-, by bifurcating it from the total investment in plant and machinery as had been relied to obtain the certificate under the Act. In that light, a reference to Annexure-R.7 along with the objection statement of the respondent-Bank indicates that in the 13 Annual Report of the petitioner for the year 2010-11, the details of the fixed asset is shown. The value of the plant and machinery is shown as Rs.7,31,54,273/-. The said total amount is the similar figure seen in Annexure-T though it has been bifurcated as equipment and utilities to suit their purpose of interpretation to seek to fall under the OTS scheme. Even if the definition of equipment as all instruments, office machines and such other electro- mechanical or electrical appliances that are directly related to the service as contained in Annexure-W is kept in view, the exclusions as made in Annexure-T as utilities instead of equipment cannot be accepted. Further, the OTS Scheme at Annexure-R.4 also makes a provision relating to valuation of properties and the valuation as recorded in the Bank's books will be taken into account and it provides the method to resolve if there is an objection. 14
13. Therefore in the instant case, even if the value of land, buildings, furniture and fixtures are excluded also, the value of equipment would be more than rupees five crores and the petitioner being an enterprise engaged in providing service cannot claim the benefit under SBI- OTS-MSME-2012. Hence, irrespective of the reasons mentioned, the ultimate conclusion of the respondent- Bank in conveying their regret through their letter dated 15.10.2013 impugned herein cannot be faulted.
Hence, for the reasons stated, the impugned letter dated 15.10.2013 does not call for interference.
The petition is accordingly dismissed with no order as to costs.
SD/-
JUDGE akc/bms