Delhi High Court
Chinar Fabrics And Furnishing Private ... vs State Bank Of India on 17 November, 2005
Author: Markandeya Katju
Bench: Markandeya Katju, Madan B. Lokur
JUDGMENT Markandeya Katju, C.J.
1. This writ petition has been filed with a prayer to direct the respondent State Bank of India to accept the One Time Settlement offered by the petitioners for a sum of Rs. 25 Lakhs as per the applicable OTS guidelines of the Reserve Bank of India.
2. Heard learned counsel for the parties and perused the record.
3. The petitioner is a private limited company. The respondent State Bank of India had sanctioned the financial assistance limit (Over Draft Limit) of approximately Rs. 18 Lakhs in favor of the petitioner in the year 1995.
4. In 1997 the respondent Bank informed the petitioner that the said facility would not be renewed. It appears that when the said financial limit was withdrawn by the Bank approximately Rs. 16 Lakhs was outstanding against the petitioner. Hence, the Bank initiated recovery proceedings against the borrower/petitioner No. 1 and the guarantors/petitioner Nos. 2 to 4 by filing O.A. No. 587/1977 in Debt Recovery Tribunal-I, Delhi (for short 'DRT').
5. An ex-parte final order was passed against the petitioners by the DRT. By that order the judgment debtors were held to be liable to pay to the Bank Rs. 18,78,240/- along with interest. A true copy of the final order is Annexure-B to the writ petition. In pursuance of that order a Recovery Certificate was issued on 20.12.2001 under Section 19(22) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the DRT Act). A true copy of the recovery certificate is Annexure-C to the writ petition.
6. Subsequently a settlement was arrived at between the respondent bank and the petitioners on 12.6.2003 under the then prevailing One Time Settlement Scheme (OTS) of the Reserve Bank of India. Pursuant to the above OTS, Sheesh Pal Nehra, Director of Petitioner No. 1, paid a sum of Rs. 10.86 lakhs to the bank, although the amount which had to be paid was Rs. 20 Lakhs. Admittedly, the petitioners did not pay the balance amount of Rs. 9.14 Lakhs under the OTS Scheme.
7. It is alleged in the petition that under pressure from the bank vide letter dated 7.9.2005 the petitioner increased the OTS amount to Rs. 25 Lakhs. However, it is alleged that to the surprise of the petitioners the respondent bank refused to accept the above said Rs. 25 lakhs. Before the Recovery Officer, the bank submitted that it will not agree for any settlement with the petitioners. Hence, it was directed that mortgaged properties will be auctioned on 26th to 28th September, 2005.
8. The petitioners are aggrieved by the said act of the respondent bank of not accepting the OTS offer of the petitioners. Hence, they have filed this petition.
9. A counter affidavit has been filed by the bank and we have perused the same. It is alleged by the respondent bank that it had lent money to the petitioners after borrowing the same from the market. It is submitted that the petitioners cannot pray to this Court for issuance of any writ to the respondent bank to accept an amount which is much less than the contractual liability of the petitioners towards the respondent bank. It is alleged that the concessional settlement offer was not withdrawn by the respondent bank, but was abandoned by the petitioners themselves.
10. It is stated by the respondent in its counter affidavit that the present petition of the petitioners seeks directions to the respondent Bank to revive the expired arrangement between the parties and is not maintainable. The offer of the bank to settle the dues at a highly concessional rate was a one-time measure taken by the bank, but the petitioners have failed to avail the said benefit because of their own lapses. The one-time settlement offer by the bank was a time bound arrangement which has already expired and cannot be revived at this belated stage. Now the petitioners are liable to pay the entire outstanding due and payable by them to the bank.
11. A total amount of Rs. 53.64 Lakhs is due and payable by the petitioners as on 6.11.2005 after adjustment of Rs. 10.86 Lakhs already paid by them. It is also alleged that there is a provision for filing an appeal against the order of the DRT. If the petitioners have any grievance, they can avail of that remedy. A final order has been passed by the DRT and the recovery certificate has been issued in pursuance of that.
12. It may be mentioned that the bank had filed a suit/O.A in December,1997 against the petitioners for the recovery of Rs. 18,78,240/- with interest before the DRT, Delhi. While the said suit/O.A was pending before the DRT the respondent bank came out with a one-time settlement scheme for defaulting borrowers. The respondent bank sent intimation of the said scheme to the petitioners on 29.8.2000 and 25.11.2000, but the petitioners did not respond to the same. It is stated that in the year 2003 revised guidelines of the one-time settlement scheme were issued by the Reserve Bank of India and accordingly the respondent bank came out with another one-time settlement scheme (popularly called as RBIOTS-2003 Scheme). As per the said scheme, the eligible borrowers had to approach the bank with an application on or before 30.4.2003. As per the said scheme, the entire OTS amount was payable in lumpsum. However, the bank was also entitled to consider payment of the OTS amount in Installments and in case of payment in Installments, the borrower had to pay 25% of the OTS amount as upfront money and the balance 75% in Installments within a period of one year together with the interest at the rate at par with Bank's PLR from the date of settlement.
13. The bank sent a communication to the petitioners on 28.2.2003 informing them about the said scheme. Vide his letter dated 25.4.2003 petitioner No. 2 approached the bank with an offer. Though the petitioner No. 2 agreed to pay the OTS amount of Rs. 20 Lakhs within a period of one year, he showed his inability to pay the upfront amount i.e. 25% of the OTS amount. Petitioner No. 2 offered to pay a sum of Rs. 1 Lakh only against the upfront amount of Rs. 5 Lakhs and to pay the balance amount of Rs. 19 Lakhs together with interest at the rate of Bank's PLR on or before 31.5.2004 i.e. within a period of one year. As per the said offer petitioner No. 2 promised to pay Rs. 4 Lakhs together with interest on or before 31.10.2003; another Rs. 2 Lakhs together with interest on or before 31.12.2003; another Rs. 5 Lakhs together with interest on or before 31.3.2004 and the balance amount of Rs. 8 Lakhs together with interest on or before 31.5.2004. On 11.6.2003 the respondent bank as a special case agreed to consider the loan amount of the petitioner No. 1 under RBIOTS Scheme-2003 on the payment of Rs. 20 Lakhs strictly as per the offer. On 12.6.2004 the said compromise under the OTS failed because of non-fulfilment of the conditions of payment of OTS amount of Rs. 20 Lakhs. Hence, the bank started following up the recovery proceedings.
14. It has been alleged in the counter affidavit that the petitioners had become ineligible under the OTS scheme as the Reserve Bank of India had clarified on 4.8.2004 that the guidelines were not applicable to the cases where the decree/final had already been passed and the execution is in progress.
15. It is alleged that by extensive efforts the respondent bank was able to pay the mortgaged properties on auction and the said auction was scheduled for 26th, 27th and 28th September,2005. It is alleged that on 26th September 2005 the auction had failed because the petitioners had brought some musclemen at the auction site and had not allowed the prospective bidders to participate in the auction. The auction on 27th and 28th September,2005 was stayed vide this Court's order dated 26.9.2005. It is alleged that petitioner No. 2 was personally present at the site and threatened the auctioneer and the bank officers.
16. We are of the opinion that there is no merit in this petition. The matter is entirely contractual and no writ can be issued in this connection. A writ lies if there is violation of law or error of law apparent on the face of the record. No error of law on the face of the record or violation of law has been pointed out in this case. A writ cannot be issued merely on sympathetic considerations. There are well settled principles of exercise of writ jurisdiction.
17. Moreover, the one-time settlement offered by the bank under which an opportunity to settle the liability at a concessional rate of interest was given to the petitioners expired because the said OTS scheme was only a time bound measure and the same cannot be revived at a belated stage. The Bank cannot be compelled to accept an amount which is less than the contractual amount, which in our opinion, is the sole commercial decision of the bank. The petitioners failed to adhere to the financial discipline of the bank and committed various defaults. The account of the petitioner company had become irregular in a very short time. We agree with the stand of the respondent bank that irregularity in the accounts cannot be allowed by the respondent bank.
18. As is evident from the record, in the year 2000 when the O.A was pending before the DRT the bank offered to the petitioners a settlement under the OTS Scheme of the RBI. However, none of the petitioners came forward in that connection. It was only in the year 2003 that the petitioner No. 2 approached the respondent bank with an offer. It is alleged that the petitioners had disposed of the stocks hypothecated with the respondent bank and pocketed the proceeds thereof.
19. In paragraph XI(k) of the counter affidavit full facts have been given and we see no reason to disbelieve the same. It is evident from the facts that the petitioner was a defaulter and hence is not entitled to the equitable remedy under Article 226 of the Constitution of India.
20. There are well settled limitations in writ jurisdiction. A writ cannot be issued against a bank to accept an amount which is less than its dues. A writ can only lie if there is a violation of law and no such violation of law has been shown in this case. Writ jurisdiction is equity jurisdiction and is discretionary vide Chandra Singh v. State of Rajasthan .
21. This is not a fit case for the exercise of our discretion under Article 226 of the Constitution of India. In this connection we may mention that recovery of tens of thousands of Crores of Rupees of bank loans are pending in our country and this is causing an adverse effect on the economy. Unless loans are recovered, fresh loans to the needy business men cannot be granted and this is holding up the industrialization of the nation. There must be fiscal discipline in such matters and it is not proper for this court to interfere with such recoveries, particularly, since the matter is entirely contractual.
22. In Haryana Financial Corporation v. Jagdamba Oil Mills , the Supreme Court observed:-
The corporation as an instrumentality of the state deals with public money. There can be no doubt that the approach has to be public oriented. It can operative effectively if there is regular realization of the Installments. While the corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the Installments in time, unless prevented by insurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception. If the repayments are not received as per the scheduled time frame, it will disturb the equilibrium of the financial arrangements of the Corporations. They do not have at their disposal unlimited funds. They have to cater to the needs of the intended borrowers with the available finance. Non-payment of the Installment by a defaulter may stand on the way of a deserving borrower getting financial assistance.
As was observed by this Court in Gem Cap's case (supra), the legislative intent in enacting the statute in question was to promote industrialization of the states by encouraging small and medium industries by giving financial assistance in the shape of loans and advances, repayable within a stipulated period. Though the corporation is not like an ordinary moneylender or a bank which lends money, there is purpose in its lending i.e. to promote small and medium industries. The relationship between the corporation and the borrower is that of creditor and debtor. That basic feature cannot be lost sight of. A corporation is not supposed to give loan and then to write it off as a bad debt and ultimately tog et out of business. As noted above, it has to recover the amounts due so that fresh loans can be given. In that way industrialization which is the intended object can be promoted. It certainly is not and cannot be called upon to pump in more money to revive and resurrect each and every sick industrial unit irrespective of the cost involved. That would be throwing good money after bad money.
23. In our opinion the Court should observe judicial restraint in matters relating to loan recoveries and it should not embarrass financial institutions or banks which granted loans by over activism. Stay of such recoveries has an adverse effect on the economy. When a loan is recovered, it is advanced to set up new industrial units, but if it is not recovered, new industrial units cannot be set up. Thus non recovery holds up the industrialization of our nation, which is a top priority. Moreover, it is well known that in our country many unscrupulous businessmen borrow money from banks or financial institutions and divert it to secret accounts, and declare their unit sick. In this way scarce financial resources of the country are siphoned off. This Court cannot approve of such malpractices.
24. In our opinion, no one has a legal right to get rehabilitation. When a person has taken a loan he has to repay the same in accordance with the loan schedule as per the agreement between the parties. Rescheduling of the loan is in the sole discretion of the bank or the financial institution which granted the loan and the Court cannot compel it to reschedule the loan. The matter regarding loan from financial corporations/banks is purely contractual and a party has to abide by the agreement which he has entered into.
25. A Writ of Mandamus can only be issued when there is a legal right with a party asking for the writ to compel the performance of some statutory duty. The petitioners have not been able to show that there is any statute or rule having the force of law which casts a duty on the respondent bank to accept the offer made by the petitioners to settle the dues. In fact, the matter is purely contractual. A Division Bench of the Allahabad High Court in M.M. Accessories v. U.P.F.C., 2002(46) A.L.R 261 has discussed several Supreme Court on the scope of a Writ of Mandamus, and has dismissed the writ petition praying for one time settlement of the loan, observing that no legal duty is cast on the respondents to grant the prayer. The ratio of the decision applies to this case.
26. In Mardia Chemicals Ltd v. Union of India , the Supreme Court quoted from the Narasimham Committee reported which stated:-
Banks and financial institutions at present face considerable difficulties in recovery of dues from the clients and enforcement of security charged to them due to delay in the legal processes. A significant portion of the funds of banks and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amounts of expenditure by way of legal charges which add to their overheads.
27. In paragraph 34 of the same judgment the Supreme Court observed:
"It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time consuming and is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequent ill effects.
28. In this case there is no equity in the petitioners' favor and hence we are not inclined to exercise our discretion under Article 226 of the Constitution in this case.
29. We have been informed that about Rs. 1,34,000 Crores of loans of banks and financial institutions are outstanding in India and have not been repaid. Unless repayment of the loans is done, the bank or the financial institution cannot lend money to new businessmen and new industrial units cannot be set up. Thus, interfering with such recoveries does incalculable harm to the economy and will be continued to be done if persisted by the Courts because new businessmen cannot get loans since the borrowers have not repaid.
30. The petition is accordingly dismissed.