Debt Recovery Appellate Tribunal - Mumbai
Dhanlakshmi Bank Ltd. vs Bank Of India And Ors. on 26 July, 2005
Equivalent citations: 3(2006)BC183
JUDGMENT
Pratibha Upasani, J. (Chairperson)
1. This appeal is filed by the appellants/original defendant No. 3 Dhanlakshmi Bank Ltd. being aggrieved by the judgment and order dated 1st April, 2005 passed by the learned Presiding Officer of the D.R.T.-II, Mumbai in AppealNo. 114/2004. The impugned order was passed by the learned Presiding Officer on the appeal filed by one Swift Finlease (India) Ltd; it filed the said appeal under Section 17 of the SRFAESI Act, 2002. The appeal pertains to commercial premises being office Nos. 101 to 106, 1st Floor, Nilkanth Commercial Centre, Sahar Road, Andheri (East), Mumbai.
2. Few facts, which are required to be stated are as follows:
The appellant in Appeal No. 114/2004 (on which the impugned order has been passed) was Bank of India/respondent NO. 1' s constituent since 1989. At or about 1985, the appellant company was enjoying cash credit facility of Rs. 3.50 crores granted by the respondent No. 1 Bank of India inter alia against equitable mortgage (created in February 1995) of the property. The appellant could not clear the outstandings.
The appellant company's case is that the respondent No. 2 Bank of Baroda had sanctioned cash credit facility of Rs. 2.50 crores to it some time in March/April 1995, which is an admitted position. Similarly, the grant of credit facility by the respondent No. 2 Bank of Baroda to the extent of Rs. 1.50 crores also is an admitted position. As in 1997, the working capital facility enjoyed by the appellant from the respondent No. 1 Bank of India was to the extent of Rs. 3.50 crores, respondent No. 2 to the extent of Rs. 2.50 crores and respondent No. 3 Dhanlakshmi Bank Ltd. to the extent of Rs. 1.50 crores.
3. The appellant's case further before the D.R.T. was that non-repayment of the outstandings was for the reasons beyond its control, but that the respondents charged penal interest and levied processing charges, leading manager's fees etc. even while the appellants had explained its position and committed for repayment at the earliest. It is contended by the appellants that though the Original Application was filed against the appellants in the Tribunal for recovery of their amount, the respondent No. 1 Bank of India issued notice under Section 13(2)of the SRFAESI Act for Rs. 2, 05, 61, 966/- and on failure to pay the amount, the respondent No. 1 took possession of the property on 27th October, 1994.
It is the case of the appellants that the respondent No. 1 Bank acted illegally with ulterior motive and mala fide intention failed to disclose that it had agreed with respondent No. 2 Bank of Baroda and respondent No. 3 Dhanlakshmi Bank Ltd. to treat the mortgage property on pari passu basis. It is averred by the appellants that in the year 1996, it was decided between the respondents to form a consortium of which respondent No. 1 Bank of India was to be a lead Bank. It was further contended that the exchange letters between the respondents inter se in this connection had taken place and in fact, the drafts of the agreement also were prepared and were duly approved by the parties. According to the appellant company, there was a valid subsisting binding agreement between the respondent Banks inter se to share on pan passu basis the property. It is further contended that the respondent Nos. 2 and 3 have security interest in the property and as such, the respondent No. 1 Bank alone could not have exercised right under Section 13(4) of the SRFAESI Act. According to the appellant company, the respondent NO. 1's action was bad in law and was required to be struck down.
4. The respondent No. 1 Bank of India filed reply in the nature of affidavit of one Mr. Pandarinath S. and denied that there was any consortium between the respondents inter se and that the respondent Nos. 1 and 3 were standing (ranking) pari passu. It was contended by the respondent No. 1 Bank that the agreement between the respondents inter se did not culminate into a binding contract for formation of consortium and sharing of the property by them. The respondent No. 1 Bank also contended that they were well within their rights to take action under the SRFAESI Act after filing of the Original Application for recovery of the amount.
5. The respondent No. 2 Bank of Baroda has supported the case of the appellants. They came out with a case that they were ranking pari passu with the respondent No. 1 Bank in respect of secured assets in question.
6. The learned Presiding Officer after hearing both the sides, at the outset, rejected the submission of the appellants, whereby it was stated that since the Original Application was pending against them in D.R.T., action under Section 13(4) of the SRFAESI Act could not be taken. For this purpose, the learned Presiding Officer took recourse to the decision of the D.R.A.T., Chennai in R.A. Nos. 10 and 11 of 2005 between Asset Reconstruction Corporation Ltd., which has held that such an action can be taken when Original Application is pending.
As far as the second ground taken by the appellants was concerned, the learned Presiding Officer after hearing both the sides and after going though the correspondence etc. came to the conclusion that there was no consortium between three respondent Banks.
7. Having heard all the sides and having gone through the proceedings, I find myself in agreement with the findings given by the learned Presiding Officer. Case of the appellants is that since there was a consortium of three Banks of which Bank of India, respondent No. 1 was the leader, unless the secured creditors representing not less than 3/4th in value of the amount outstanding as on recorded date agreed to take action under Section 13(4) of the SRFAESI Act, such action could not be taken and that in the present case, since the other two Banks did not so consent to the action taken by the respondent No. 1 Bank of India, action taken by the Bank of India was not in accordance with law.
8. The respondent No. 1 Bank of India has very categorically denied that there was a consortium between itself and other two respondents and that they were secured creditors of the assets in question. It is also to be noted that this is not a case wherein the respondents had advanced working capital to the appellants pursuant to the consortium agreement. In fact, this is a converse case in which the advance was first granted for each of the Banks but the security was agreed to be shared in common. Therefore, it cannot be said that the appellants' case would fall within Section 13(9) of the SRFAESI Act. Section 13(9) of the SRFAESI Act can be reproduced below for the sake of convenience.
13(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on the all the secured creditors.
9. It is clear from the words in Section 13(9) that this provision contemplates that the financing of a financial asset should be by more than one secured creditors or there has to be joint financing of a financial asset by secured creditors. Therefore, the cases of subsequent ceding charge on pari passu basis also would not fall under Section 13(9) of the SRFAESI Act.
10. It is an admitted position that there was a meeting between the three respondents held on 11th February, 1997. It was decided to form consortium for securing already sanctioned and disbursed (individually), working capital limits by respondent No. 1 Bank of India of Rs. 3.50 crores, by respondent No. 2 Bank of Baroda of Rs. 2.50 crores and by respondent No. 3 Dhanlakshmi Bank Ltd. of Rs. 1.50 crores. Pursuant to the decision in the meeting, the respondent No. 1 Bank had given letters to respondent No. 2 on 22nd March, 1997 and to respondent No. 3 on 7th January, 1999 inter alia conforming that charge of the movable and immovable assets in its favour would rank pari passu subject to their ceding pari passu charge in favour of the respondent No. 1 Bank. The respondent No. 3 had accordingly given letter Dated 12th January, 2000 ceding the charge in its favour But it is to be seen that the agreement did not culminate into the contract. The letter dated 22nd November, 2000 by respondent No. 1 to other two respondents forwarding drafts of, (I) memorandum of entry for extension mortgage (2) inter se pari passu agreement, (3) resolution to be pined by the company and (4) authority letter to he issued in favour of the respondent No. 1 Bank would confirm this. The respondent No. 2 approved the draft of the documents. However, admittedly the aforesaid formalities contemplated by the respondent No. 1's letter dated 22nd November, 2000 eventually were not completed. Since the parties contemplated execution of formal documents and as the same was not done, this is the case of an executory and not executed contract and executory contract cannot be enforced. Therefore, provisions of Section 13(9) of the SRFAESI Act art not attracted and, therefore, it has to be held that the secured asset is not a common security of respondent Nos. 2 and 3 and, therefore, there was no bar for respondent No. 1 to itself take recourse under Section 13(9) of the SRFAESI Act
11. Having heard both the Advocates at length and having gone through the impugned judgment and order, I find no infirmity in the same. The learned Presiding Officer was very right in rejecting the appeal filed by the appellants under Section 17 of the SRFAESI Act. This appeal filed under Section 18 to this Appellate Tribunal, is without any merit and deserves to be dismissed. Accordingly, following order is passed:
ORDER Appeal No. 179/2005 is dismissed.
Request of stay of the order made by the appellant Bank is rejected.