Delhi District Court
Canara Bank vs Mr. Ravi Kumar Jain on 7 September, 2024
IN THE COURT OF SH. BRIJESH KUMAR GARG,
DISTRICT JUDGE (COMMERCIAL COURT)-01 :
SHAHDARA, KARKARDOOMA COURTS: DELHI
CS (Comm.) No. 634/22
CNR No. DLSH01-007435-2022
CANARA BANK
A Corporate Body Constituted under the Banking Companies
(Acquisition & Transfer of Undertakings Act, 1970).
Having its head office at Ramanashree Arcade, No. 18 III,
Mahatma Gandhi Road, Bengaluru, Karnataka-560001,
and one of its Branch at
Canara Bank, 177, Saini Enclave, Karkardooma,
Delhi-110 092
......Plaintiff
Versus
SH. RAVI KUMAR JAIN
S/o Shree Pal Jain,
Proprietor of M/s S.P. Jain & Sons,
R/o House No. F-12/30, Krishna Nagar,
Delhi-110 051.
Also At :
I/536-B/2, Gali No. 4A, Hans Raj Compound,
Friends Industrial Area,
Shahdara, Delhi-110 032.
......Defendant
Date of Registration : 15.11.2022
Date of final arguments : 05.08.2024
Date of Judgment : 07.09.2024
JUDGMENT
1. The present commercial suit for recovery of a sum of Rs.15,85,343.83p (Rs. Fifteen Lakhs Eighty Five Thousand Three Hundred Forty Three and Paise Eighty Three Only), alongwith pendentelite and future interest @9.15% per annum, has been filed on behalf of the plaintiff bank.
CS (Comm.) 634/2022 page 1 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi
2. In the plaint, it is stated that the plaintiff is a Body Corporate duly Constituted under the Banking Companies Act, having its head office at Bangalore, Karnataka, and branch office at 177, Saini Enclave, Karkardooma, Delhi-110092.
3. It is further stated in the plaint that the defendant Ravi Kumar Jain is the proprietor of M/s S. P. Jain & Sons, and he approached the plaintiff bank for grant of OCC Limit of Rs.15 Lakhs under CGTMSE Scheme, vide loan application dated 20.06.2014, and after considering and examining the request of the defendant, the plaintiff bank sanctioned OCC Limit of Rs.15 Lakhs, vide loan account No. 3333261000027, vide sanction letter dated 20.06.2014. It is further stated that to secure the repayment of the amount and interest and other charges, the defendant also executed the necessary documents, in favour of the plaintiff bank on 21.06.2014.
4. It is further stated in the plaint that the defendant again approached the plaintiff bank for enhancement of OCC Limit, from Rs.15 Lakhs to Rs.30 Lakhs, and accordingly, after considering and examining the request of the defendant, the OCC Limit was enhanced from Rs.15 Lakhs to Rs.30 Lakhs, vide link letter, dated 28.07.2015.
5. It is further stated in the plaint that the defendant again approached the plaintiff bank for enhancement of OCC Limit, from Rs.30 Lakhs to Rs.35 Lakhs, vide loan application dated 26.10.2016 and after considering and examining the request of the defendant, the OCC Limit was enhanced from Rs.30 Lakhs to Rs.35 Lakhs, vide sanction letter, dated 04.03.2017.
CS (Comm.) 634/2022 page 2 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi Accordingly, the defendant executed the necessary documents on 04.03.2017.
6. It is further stated in the plaint that the defendant again applied for renewal of the aforesaid loan facility, vide loan application dated 10.04.2019, and accordingly, the plaintiff bank renewed the aforesaid loan facility, on 10.04.2019, and the defendant executed all the necessary loan and security documents on 10.04.2019.
7. It is further stated in the plaint that the defendant again approached the plaintiff bank for renewal of the aforesaid loan facility on 05.04.2021, and after considering the request of the defendant, the OCC Limit was decreased from Rs.35 Lakhs to Rs.30 Lakhs, vide sanction letter dated 05.04.2021. Thereafter, the defendant executed all the necessary documents on 05.04.2021.
8. It is further stated in the plaint that the defendant duly enjoyed the loan facility and acknowledged his debt and security on 03.07.2021, and executed the Acknowledgment of Debt and Security, dated 03.07.2021.
9. It is further stated in the plaint that due to non-sufficient business transactions through the loan account, the plaintiff bank was unable to continue the said limit, and therefore, the aforesaid account of the defendant was declared as 'NPA', on 09.05.2022.
10. It is further stated in the plaint that the defendant had made the last payment of Rs.5,00,000/- on 23.06.2022, and therefore, the plaintiff bank sent a legal notice, dated 16.08.2022, whereby, CS (Comm.) 634/2022 page 3 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi the defendant was asked to make the payment of total outstanding amount of Rs.15,18,322.83p., within seven days of receipt of the said notice. But, the defendant had failed to make any payment, and hence, the present suit. It has been prayed that the suit of the plaintiff bank may be decreed for the due amount of Rs.15,85,343.83p, alongwith pendentelite and future interest @9.15% per annum, alongwith penal interest @2% per annum, with monthly rests.
11. After filing of the present suit, the summons of the suit for settlement of issues were duly served upon the defendant and in compliance, the defendant filed his written statement, on 27.03.2023, wherein, it is stated that the suit of the plaintiff bank is time barred and has a sham and bogus claim. But, the defendant has admitted that he entered into a loan agreement under CGTMSE scheme, and therefore, any dispute arising out of the contract, shall strictly abide by the contractual provisions of the said scheme. It is further stated that the plaintiff bank has failed to file its updated bank statement, and therefore, the present suit be dismissed with exemplary costs for suppression of material facts.
12. It is further stated in the written statement that under the CGTMSE (Credit Guarantee Fund Scheme for Micro and Small Enterprises), the plaintiff bank was required to provide the necessary financial impetus to the micro and small enterprises, for which, a maximum guarantee coverage of 75% of the total credit facility was provided by the Government of India, when the credit facility availed lies in the bracket of Rs.5 Lakhs to CS (Comm.) 634/2022 page 4 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi Rs.50 Lakhs. It is further stated that the plaintiff bank has maliciously omitted to mention the said fact of guarantee coverage given by the Central Government. It is further stated that the plaintiff bank was well aware about the true nature of the loan account.
13. It is further stated in the written statement that one of the prime features of the said scheme was that the scheme has a guarantee coverage, in case of default, to the extent of 75% and the credit loan facility was to be dispensed to the concerned MSME, without keeping any collateral security. Therefore, it is incumbent upon the plaintiff bank to approach the Government of India, first, before filing any suit, before this court. Therefore, the cause of action will arise only when the remedy provided under the Scheme was availed by the plaintiff bank, and thereafter, the plaintiff bank should approach this court for recovery of the residual 25% of the default amount. It is further stated that the plaintiff bank had already received an amount of Rs.8,22,566/- under the 'CGTMSE Scheme first claim amount', subject to refund and as per the Scheme of the loan, and therefore, the original cause of action is no longer existing.
14. It is further stated in the written statement that with a view to unlawfully recover the alleged loan amount, the plaintiff bank has resorted to unlawful trade/service practices and has frozen its fixed deposit receipt of Rs.40,000/-, with the intention to harass the defendant. It is further stated that the said fixed deposit was not a pre-requisite or a mandatory condition for availability of loan under CGTMSE Scheme.
CS (Comm.) 634/2022 page 5 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi
15. It is further stated that the defendant was continuing his business operations and was duly submitting the stock statements etc, and therefore, the loan account of the defendant was not liable to be declared as 'NPA'. It is further stated that the plaintiff bank has hastely declared the loan account of the defendant as 'NPA', which has caused extreme hardship and losses to the defendant, worth Rs.80,000/- per months. It is further stated that the defendant was dependent upon the credit facility under the CGTMSE Scheme for running his business operations and the untimely and brazen act of the plaintiff bank had led to financial crippleness of the defendant.
16. It is further stated in the written statement that after 'Covid-19' period, the RBI, vide its notification dated 05.05.2021, had directed the lending institutions to modify the loan scheme, by increasing the period of moratorium and to increase the residual time upto two years. But, despite said relaxation, the plaintiff bank has not provided any opportunity to the defendant to structure his loan term or to defer the loan payment. It is further stated that due to such misconduct of the plaintiff bank, the defendant has suffered huge losses. The defendant has also denied the execution of various documents and has denied the fact that an amount of Rs.15,85,343.83p. was due or payable by him, as on 30.09.2022. It has been prayed that the suit of the plaintiff be dismissed with costs.
17. Replication to the written statement of the defendant was also filed, on behalf of the plaintiff bank, wherein, the contents of the written statement were denied and the contents of the plaint CS (Comm.) 634/2022 page 6 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi were reiterated and reaffirmed as correct. It is further stated in the replication that in order to invoke the guarantee provided under the CGTMS Scheme, it is mandatory for the plaintiff bank to comply with Section 10 of the said Scheme, and therefore, inter-alia, recall the credit facility and initiate the recovery proceedings under due process of law. It is further stated that the payment of guarantee claim by the Trust, to the lending institution, does not take away the responsibility of the lending institution, to recover the entire amount of credit from the borrower and the lending institution has to recover the entire dues and to safeguard the interest of the Trust. It is further stated that, in case, the Trust having released the said amount, in default, the lending institution recovers money, subsequent to the recovery proceedings instituted by it, the same shall be deposited by the lending institution to the Trust, as per the terms & conditions of the CGTMS Scheme.
18. It has been admitted in the replication that the plaintiff bank had received an amount of Rs.8,22,566/- under the CGTMS Scheme. It is further stated that as per the reports of the auditor, the transactions in the account of the defendant were not satisfactory and the sales were also not upto the mark and the turn over was also not reflecting in the account, and therefore, the loan account of the defendant was declared as 'NPA', on the basis of the independent branch auditor's report. It has been prayed that the suit of the plaintiff bank may be decreed.
CS (Comm.) 634/2022 page 7 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi
19. First case management hearing was conducted on 07.02.2024 and from the pleadings of the parties, the following issues were framed, as under:
1. Whether the present suit is barred by limitation ?
OPD
2. Whether the plaintiff bank is entitled to claim/ recover the amount of Rs.15,85,343.83, from the defendant, as claimed in the plaint ? OPP
3. Whether the plaintiff is entitled to claim pendentelite and future interest from the defendant? If so, at what rate and for which period ? OPP
4. Relief.
20. Vide order dated 07.02.2024, a local commissioner was also appointed to record the evidence of the parties and accordingly, the Ld. Local Commissioner recorded the evidence of the parties and submitted the record of evidence, alongwith her report, in the court, on 12.03.2024.
21. During the trial, the plaintiff bank has examined its Branch Manager/AR Sh.Mohit Kumar as PW-1. Whereas, the defendant has examined himself as DW-1.
22. After completion of trial, final arguments were concluded by Sh.Subodh Kumar Singh and Sh. Praveen Kumar Mishra, Advocates, for the plaintiff and Sh. Varun Gupta; Sh. Ronak Gupta & Ms. Simran Wason, Advocates, for the defendant, on 05.08.2024. During the course of final arguments, it was argued by the Ld. Counsel for the plaintiff that the witness of the plaintiff has proved the case of the plaintiff. He has further CS (Comm.) 634/2022 page 8 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi argued that PW-1 Sh. Mohit Kumar, Branch Manager/AR of the plaintiff bank has also proved the various loan documents on record. During the course of final arguments, the Ld. Counsel for the plaintiff has also filed a copy of the RBI Guidelines and has argued that the loan account of the defendant was declared as 'NPA', as per the guidelines of the RBI. He has further argued that the branch auditor of the plaintiff bank has also submitted his report and has intimated that there was no sufficient business in the firm of the defendant, and therefore, on the basis of the independent auditor's report, the loan account of the defendant was declared as 'NPA', as per the guidelines of the RBI. The Ld. Counsel for the plaintiff bank has also filed his written arguments, as well as an affidavit of its branch manager/AR Sh.
Mohit Kumar, regarding the rate of floating interest, charged in the loan account of the defendant, for the period w.e.f. 01.07.2014 to 01.05.2024. He has also relied upon the judgment of the Hon'ble Supreme Court of India, in case titled as, ' United Bank of India vs. Naresh Kumar and Ors.', dated 18.09.1996 , in support of his contentions that the present suit has been instituted on behalf of the plaintiff bank, properly, and PW-1 Sh. Mohit Kumar, was competent to depose, on behalf of the plaintiff bank.
23. On the other hand, the Ld. Counsel for the defendant has argued that the loan account of the defendant was illegally declared as 'NPA', on 09.05.2022, as there was no default on the part of the defendant. He has further argued that the guidelines of RBI were also not followed by the plaintiff bank for declaring the loan account of the defendant, as 'NPA'. He has further argued that the loan account of the defendant was declared as CS (Comm.) 634/2022 page 9 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi 'NPA', arbitrarily and without properly following the guidelines of the RBI, and the plaintiff bank was not entitled to institute the present suit. He has also relied upon the following judgments, in support of his above contentions :
(i) 'M/s Stan Commodities Pvt. Ltd. vs. Punjab & Sind Bank', reported as, '2008 SCC OnLine Jhar 169';
(ii) 'M/s Holystar Natural Resources Pvt. Ltd. & Anr. vs. Union of India & Anr.', reported as, '2014 SCC OnLine Del 230';
(iii) 'M/s Sanatan Logistics Pvt. Ltd. vs. Kotak Mahindra Bank Ltd.', passed by Debt Recovery Tribunal-2, Chandigarh, on 18.07.2023';
(iv) 'Anil Gahalawat vs. A.U. Small Finance Bank Limited', passed by Debts Recovery Tribunal-Jaipur', dated 05.10.2021';
(v) 'M/s Subh Shree vs. IDFC First Bank Limited', passed by Debts Recovery Tribunal-Jaipur', dated 30.05.2023';
(vi) 'M/s Jasbir Singh and Brothers vs. State bank of India', passed by Debts Recovery Tribunal-2, Chandigarh, dated 26.09.2022'; and
(vii) 'Sh. Padam Chand Sanghi vs. HDB Financial Services Limited', passed by Debts Recovery Tribunal, Jaipur', dated 04.11.2023.
24. The Ld. Counsel for the defendant has also filed his written arguments and has further argued that the plaintiff bank has not followed the terms & conditions of the CGTMSE Scheme and had intentionally concealed the fact that an amount of Rs.8,22,566/- had already been claimed by the plaintiff bank from the Government of India, under the said scheme, and the said amount has not been deducted by the plaintiff bank from the due amount against the loan account of the defendant. He has CS (Comm.) 634/2022 page 10 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi further argued that PW-1 Sh. Mohit Kumar, Branch Manager, was not authorized to depose before the court, on behalf of the plaintiff, and Ms. Upasana Gaur, Sr. Manager, was also not competent to institute the present suit. He has prayed that the suit of the plaintiff be therefore, dismissed with costs.
25. I have carefully perused the case file and I have also given my considered thoughts to the arguments addressed by the Ld. Counsels for the parties. I have also perused the various judgments cited by the Ld. Counsels for the parties. My findings on the various issues are as under:
Issue No. 1Whether the present suit is barred by limitation ? OPD
26. The burden to prove this issue lies on the defendant. But, during the trial, no evidence was led by the defendant in this regard. Even during the course of final arguments, it was conceded by the Ld. Counsel for the defendant that the present suit is not barred by limitation and the same has been filed by the plaintiff bank, well within the period of limitation.
27. Perusal of the record shows that the OCC facility of Rs.15 Lakhs was sanctioned to the defendant on 20.06.2014 and was enhanced from time to time, and lastly, the OCC limit was enhanced on 04.03.2017, vide letter Ex.PW1/16, and letter of renewal Ex.PW1/17, was also executed. Thereafter, another sanction memorandum was issued in favour of the defendant on 05.04.2021, whereby, the OCC limit was reduced from Rs.35 CS (Comm.) 634/2022 page 11 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi lakhs to Rs.30 Lakhs, and accordingly, a renewal letter was also issued on 05.04.2021. On 05.04.2021, the defendant had again executed various documents regarding OCC limit of Rs.30 Lakhs. On 03.07.2021, the defendant had again acknowledged his liability, vide acknowledgment of debt and security, ExPW1/27. The present suit has been instituted on 15.11.2022, and is therefore, well within the period of limitation.
This issue is, accordingly, decided in favour of the plaintiff and against the defendant.
Issue No.2 Whether the plaintiff bank is entitled to claim/recover the amount of Rs.15,85,343.83, from the defendant, as claimed in the plaint ? OPP
28. The burden to prove this issue lies on the plaintiff and in support of its contentions, the plaintiff bank has examined its branch manager/AR Sh. Mohit Kumar, as PW-1, who has filed his affidavit Ex.PW1/A, wherein, he has reproduced the entire contents of the plaint. It is mentioned in the affidavit that he was posted as branch manager of the plaintiff bank and was fully conversant with the facts of the case. He has proved the authority letter in his favour as Ex.PW1/1.
29. During the trial and final arguments, an objection was taken by the Ld. Counsel for the defendant that the present suit has not been instituted properly and PW1 Sh. Mohit Kumar was also not competent to depose, on behalf of the plaintiff bank, as there is no authority letter, in favour of Ms. Upasana Gaur and Sh. Mohit Kumar, the branch manager of the plaintiff, on record.
CS (Comm.) 634/2022 page 12 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi But, I do not find any merit in the said argument of the Ld. Counsel for the defendant, in view of the judgment of the Hon'ble Supreme Court, in case titled as, 'United Bank of India vs. Naresh Kumar & Others', dated 18.09.1996, wherein, it was held as under:
"In this appeal, therefore, the only question which arises for consideration is whether the plaint was duly signed and verified by a competent person.
In cases like the present where suits are instituted or defended on behalf of a pubic corporation, public interest should not be permitted to be defeated on a mere technicality. Procedural defects which do not go to the root of the matter should not be permitted to defeat a just cause. There is sufficient power in the Courts, under the Code of Civil Procedure, to ensure that injustice is not done to any party who has a just case. As far as possible a substantive right should not be allowed to be defeated on account of a procedural irregularity which is curable.
It cannot be disputed that a company like the appellant can sue and be sued in its own name. Under Order 6 Rule 16 of the Code of Civil Procedure a pleading is required to be signed by the party and its pleader, if any. As a company is a juristic entity it is obvious that some person has to sign the pleadings on behalf of the company. Order 29 rule 1 of the Code of Civil Procedure, therefore, provides that in a suit by against a corporation the Secretary or any Director or other Principal officer of the corporation who is liable to depose to the facts of the case might sign and verify on behalf of the company. Reading Order 6 Rule 14 together with Order 29 rule 1 of the Code of Civil Procedure it would appear that even in the absence of any formal letter of authority or power of attorney having been executed a person referred to in Rule 1 of Order 29 can, by virtue of the office which he holds, sign and verify the pleadings on behalf of the corporation. In addition thereto an de hors Order 29 Rule 1 of the Code of Civil Procedure, as a company is a juristic entity, it can duly authorise any person to sign the plaint or the written statement on its behalf and this would be regarded as sufficient compliance with the provisions of Order 6 Rule 14 of the Code of Civil Procedure. A person may be expressly authorised to sign the pleadings on behalf of the company, for example by the Board of Directors passing a resolution to that effect or by a power of attorney being executed in favour of any individual. In absence thereof and CS (Comm.) 634/2022 page 13 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi in cases where pleadings have been signed by one of it's officers a Corporation can ratify the said action of it's officer in signing the pleadings. Such ratification can be express or implied. The Court can, on the basis of the evidence on record, and after taking all the circumstances of the case, specially with regard to the conduct of the trial, come to the conclusion that the corporation had ratified the act of signing of the pleading by it's officer."
30. Perusal of the record further shows that in the affidavit Ex.PW1/A, it is reiterated that on the request of the defendant, OCC Limit of Rs.15 Lakhs was sanctioned to the defendant, vide loan account No. 3333261000027 with charged interest @11.45%, calculated on the basis of the floating rates of interest with monthly rests, vide sanction letter dated 20.06.2014. The loan application and the sanction memorandum dated 20.06.2014 have been proved on record as Ex.PW1/2 (Collectively).
31. It is further stated in the affidavit Ex.PW1/A that after sanction of the OCC limit, the defendant executed various loan documents, in favour of the plaintiff bank. The cash credit agreement dated 21.06.2014 has been proved on record as Ex.PW1/3. Agreement regarding collateral security etc. has been proved on record as Ex.PW1/4. Letter of undertaking regarding loans and advances has been proved on record as Ex.PW1/5. The letter of proprietorship has been proved on record as Ex.PW1/6. Pro-note and certificate of loan papers have been proved on record as Ex.PW1/7 & Ex.PW1/8 respectively.
32. It is further stated in the affidavit that the OCC limit was enhanced from Rs. 15 Lakhs to Rs.30 Lakhs vide letter dated 28.07.2015. The letter regarding enhancement of credit facilities CS (Comm.) 634/2022 page 14 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi dated 28.07.2015, letter of renewal dated 28.07.2015, letter of undertaking regarding loans and advances dated 28.07.2015, letter of proprietorship dated 28.07.2015, pro-note dated 28.07.2015 and certificate of loan papers dated 28.07.2015, have been proved on record as Ex.PW1/9, Ex.PW1/10, ExPW1/11, Ex.PW1/12, Ex.PW13, & Ex.PW1/14 (Collectively), respectively.
33. It is further stated in the affidavit that the OCC limit was again enhanced from Rs.30 Lakhs to Rs.35 Lakhs vide application dated 26.10.2016. The Loan application dated 26.10.2016, and sanction memorandum dated 04.03.2017 have been proved on record as Ex.PW1/15 (collectively). The link letter regarding enhancement of credit facilities dated 04.03.2017, letter of renewal dated 04.03.2017, supplemental agreement dated 04.03.2017, letter of proprietorship dated 04.03.2017, pro-note dated 04.03.2017, certificate of loan papers obtained, dated 04.03.2017, and acknowledgment of debt and security dated 04.03.2017, have been proved on record as Ex.PW1/16 to Ex.PW1/22, respectively.
34. It is further stated in the affidavit that the aforesaid loan facility was again renewed on 10.04.2019. The loan application dated 10.04.2019, sanction memorandum dated 10.04.2019 and letter of renewal dated 10.04.2019, have been proved on record as Ex.PW1/23 (collectively). The certificate of loan papers obtained, dated 10.04.2019, is Ex.PW1/24.
35. It is further stated in the affidavit Ex.PW1/A, that the defendant had again applied for renewal of the aforesaid loan CS (Comm.) 634/2022 page 15 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi facility. But, the aforesaid loan facility was renewed by decreasing the limit of OCC, from Rs.35 Lakhs to Rs.30 Lakhs, vide letter dated 05.04.2021. The sanction memorandum dated 05.04.2021 and letter of renewal dated 05.04.2021 have been proved on record as Ex.PW1/25 (collectively). The certificate of loan papers obtained, and letter evidencing execution of documents, dated 05.04.2021, have been proved on record as Ex.PW1/26 (collectively).
36. It is further stated in the affidavit Ex.PW1/A, that vide acknowledgment of debt and security, Ex.PW1/27, the defendant had acknowledged his debt and security worth Rs.2283857.9p on 03.07.2021.
37. It is further stated in the affidavit Ex.PW1/A that due to non-sufficient business transactions through the aforesaid account, the plaintiff bank was unable to continue the said limit, and therefore, the aforesaid loan account of the defendant was declared as 'NPA' on 09.05.2022. It is further stated that the defendant had made the last payment of Rs.5 Lakhs, in the said account on 23.06.2022.
38. It is further stated in the affidavit that a legal notice dated 16.08.2022 was also sent to the defendant, whereby, the defendant was asked to make the payment of the outstanding amount of Rs.15,18,322.83p, as due on 28.07.2022, within 7 days, of the receipt of the notice. The legal notice dated 16.08.2022 and its postal receipts are Ex.PW1/28 (collectively).
CS (Comm.) 634/2022 page 16 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi
39. It is further stated in the affidavit Ex.PW1/A, that the defendant had neglected and failed to pay the due amount and therefore, the plaintiff bank approached Shahdara District Legal Services Authority, for pre-institution mediation, as per Section 12A of the Commercial Courts Act, 2015, on 29.08.2022. But, the defendant failed to participate in the process, despite opportunity, and therefore, a non-starter report was issued by Shahdara District Legal Services Authority, on 07.10.2022. The non-starter report is Ex.PW1/29.
40. It is further stated in the affidavit Ex.PW1/A, that an amount of Rs.15,85,343.83p was due and payable by the defendant, as on 30.09.2022, on which, the plaintiff bank is also entitled to claim interest @9.15% per annum with monthly rests. It is further stated that the defendant was also liable to pay the penal interest @2% per annum, with costs and various other charges.
41. In the affidavit Ex.PW1/A, it is further stated that the loan account of the defendant is covered under the CGTMSE Scheme and the plaintiff bank had claimed the first installment under the said scheme after filing of the present suit, and as per policy, the Trust had released the fund of Rs.8,22,566/- under the CGTMSE Scheme on 14.02.2022. It is further stated that the payment of the guarantee claim by the Trust to the plaintiff bank does not take away the responsibility of the plaintiff to recover the entire outstanding amount against the defendant. It is further stated that, in case, the plaintiff bank recovers money, subsequent to the recovery proceedings instituted by it, the same shall be deposited CS (Comm.) 634/2022 page 17 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi by the plaintiff bank with the Trust. A copy of the CGTMSE Scheme is also filed on record as Ex.PW1/31. But, all these averments are not a part of the plaint and are beyond pleadings.
42. It is further stated in the affidavit Ex.PW1/A that the loan account of the defendant was specified as 'NPA', after memorandum of charges passed in independent branch auditor report, held at the plaintiff branch and as per the auditor, the transactions in the account were not satisfactory and sale was not upto the mark and turnover was also not reflecting the amount and the value of the stock in stock statement and balance sheet was also different. The extracts from the report of independent branch auditor have been filed on record as Ex.PW1/33. These averments are also not a part of the plaint and are beyond pleadings.
43. During the course of trial, this witness was also subjected to a lengthy cross-examination on behalf of the defendant, and in reply to queries of the Ld. Counsel for the defendant, this witness has categorically stated that all the paragraphs of his affidavit Ex.PW1/A, were based on the records maintained by the bank. He has further deposed that his affidavit was prepared on the basis of the information given to him, as per bank records. He has further deposed that Ms. Upasana Gaur, was holding the post of branch manager, prior to her transfer in the year 2023. During his deposition he has further deposed that Mr. Vinod Kumar, the Divisional Manager of the plaintiff bank has authorized Ms.Upasana Gaur to institute the present suit.
CS (Comm.) 634/2022 page 18 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi
44. During his cross-examination, PW-1 Mohit Kumar, Branch Manager, has admitted that the plaintiff bank was following the guidelines and circulars issued by the Reserve Bank of India. He has further deposed that before declaring the loan account of the defendant as 'NPA', the plaintiff bank had demanded the loan amount from the defendant, and then, from the Trust. He has further deposed that the plaintiff bank has claimed the first installment from the CGTMSE Trust and the Trust had released a sum of Rs.8,22,566/- as first installment. He has categorically denied the suggestion that the plaintiff bank had not followed the guidelines/circulars of Reserve Bank of India, before declaring the loan account of the defendant as 'NPA'.
45. During the trial, to rebut the contentions of the plaintiff bank, the defendant has examined himself as DW1 and has filed his affidavit Ex.DW1/A, wherein he has also reproduced the contents of his written statement. It has been reiterated in his affidavit Ex.DW1/A, that he had availed the loan facility under CGTMSE Scheme and therefore, the plaintiff bank was bound by the terms of such scheme.
46. It is further stated in the affidavit that the scheme covers a maximum guarantee coverage of 75% of the total credit facility, by the Government of India, in case of default, when the credit facility availed lies in the bracket of Rs.5 Lakhs to Rs.50 Lakhs. It is also reiterated in the affidavit that the cause of action to file the present suit shall arise in favour of the plaintiff bank only after availing of the remedies available under the said Scheme, and thereafter, the plaintiff bank was required to approach this CS (Comm.) 634/2022 page 19 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi court to recover the residual amount of 25% of the default amount. It is further stated that an amount of Rs.8,22,566/- had already been claimed by the plaintiff, as first installment, as per the scheme, and therefore, the original cause of action no longer subsists in favour of the plaintiff and against the defendant.
47. In his affidavit Ex.DW1/A, the defendant has further stated that the plaintiff bank has hastily declared the loan account of the defendant as 'NPA', which has caused extreme hardship and losses to the defendant. It is further mentioned that despite relaxations by the RBI, vide notification dated 05.05.2021, the plaintiff bank has not provided any opportunity to the defendant to structure its loan term or to defer the loan repayment and has left the defendant financially crippled. It is further stated that due to the misconduct of the plaintiff bank the defendant has suffered huge losses and damages, which shall be recovered by the defendant from the plaintiff, by due legal recourse.
48. During his cross-examination, the defendant has deposed that the legal notice Ex.PW1/28, was never received by him, but it mentions his correct residential address. He has further admitted that his factory was also functioning, earlier, at the address mentioned in the notice Ex.PW1/28. Therefore, the defendant cannot take the defence that no demand was made by the plaintiff bank from him or no opportunity was given to him to regularize his loan account, prior to institution of the present suit.
49. During the trial, the main contention of the Ld. Counsel for the defendant has remained that the loan account of the defendant was declared 'NPA' arbitrarily and illegally, without following CS (Comm.) 634/2022 page 20 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi the guidelines of the RBI. Therefore, the plaintiff bank was not entitled to institute the present suit for recovery. But, during the course of arguments, it was admitted by the Ld. Counsel for the defendant that wrong declaration of 'NPA' does not bar the plaintiff bank to reclaim the loan amount from the defendant. In these circumstances, it would be appropriate that the RBI guidelines, in this regard are considered by the court, before deciding this objection. Accordingly, the relevant provisions of the master circular bearing No. RBI/2024-25/12 DOR.STR.REC.8/ 21.04.048/2024-25, dated 02.04.2024, are reproduced below, for ready reference, as under :
Master Circular - Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances Part A
1. GENERAL .......
2. DEFINITIONS 2.1 Non-performing Assets 2.1.1 An asset, including a leased asset, becomes non- performing when it ceases to generate income for the bank. 2.1.2 A non-performing asset (NPA) is a loan or an advance where;
i. interest and/ or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan, ii. the account remains 'out of order' as indicated at paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC), iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted, iv. the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops, v. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops, vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction CS (Comm.) 634/2022 page 21 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi undertaken in terms of the Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 as amended from time to time.
vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
2.1.3 In addition, an account may also be classified as NPA in terms of certain specific provisions of this Master Circular, including inter alia Paragraphs 4.2.4, 4.2.9 and Part B2. 2.2 'Out of Order' status 2.2.1 A CC/OD account shall be treated as 'out of order' if:
i. The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or ii. The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period. 2.2.2 The definition of "out of order" as at paragraph 2.2.1 above shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purpose and/or which entail interest repayments as the only credits.
2.3 'Overdue' status 2.3.1 Any amount due to the bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the bank. The borrower accounts shall be flagged as overdue by the banks as part of their day-end processes for the due date, irrespective of the time of running such processes.
50. In the affidavit of PW-1 Mohit Kumar, Ex.PW1/A, and during the final arguments, it was stated on behalf of the plaintiff that the loan account of the defendant was specified as 'NPA' on the basis of the report of the independent branch auditor. A copy of independent branch auditor was also placed on record as Ex.PW1/33. But, the same could not be proved, during the trial, in accordance with law. Furthermore, the averments in respect of CS (Comm.) 634/2022 page 22 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi this independent branch auditor report are also beyond pleadings, as the same were not mentioned in the plaint. However, perusal of the ledger account Ex.PW1/30, shows that the transactions in this loan account were very irregular, after January 2022. The defendant was even unable to pay the accrued interest for several months, on several occasions. The defendant had made a substantial payment of Rs.5 Lakhs on 23.06.2022, after declaration of the loan account as 'NPA' on 09.05.2022. During the period w.e.f. January, 2022 to 23.06.2022, there were no substantial transactions in this loan account. Therefore, in view of the submissions of the Ld. Counsel for the plaintiff and the guidelines of the RBI, as noted above, it cannot be said that the aforesaid loan account of the defendant was declared as 'NPA' illegally or arbitrarily.
51. During the trial, second contention of the defendant and his Ld. Counsel has remained regarding the terms and conditions of the CGTMSE Scheme and it was argued that the plaintiff bank had already claimed the first installment from the Trust, under the said scheme, worth Rs.8,22,566/- and therefore, the plaintiff bank cannot claim the entire due amount of Rs.15,85,343.83p from the defendant. Since the terms and conditions of the CGTMSE Scheme are also agitated by the defendant, the relevant terms and conditions of the said Scheme are also reproduced below for ready reference, as under :
CREDIT GUARANTEE FUND SCHEME FOR MICRO AND SMALL ENTERPRISES INTRODUCTION The Board of Trustees of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), had framed a Scheme for the CS (Comm.) 634/2022 page 23 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi purpose of providing guarantees in respect of credit facilities extended by Lending Institutions to the borrowers in Micro and Small Enterprises (MSEs). The details of the Scheme are given below:
.........
7. Responsibilities of lending institution under the scheme:
(i) The lending institution shall evaluate credit applications by using prudent banking judgement and shall use their business discretion / due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence.
(ii) The lending institution shall closely monitor the borrower account.
(iii) The lending institution shall safeguard the primary securities taken from the borrower in respect of the credit facility in good and enforceable condition.
(iv) The lending institution shall ensure that the guarantee claim in respect of the credit facility and borrower is lodged with the Trust in the form and in the manner and within such time as may be specified by the Trust in this behalf and that there shall not be any delay on its part to notify the default in the borrowers account which shall result in the Trust facing higher guarantee claims.
(v) The payment of guarantee claim by the Trust to the lending institution does not in any way take away the responsibility of the lending institution to recover the entire outstanding amount of the credit from the borrower. The lending institution shall exercise all the necessary precautions and maintain its recourse to the borrower for entire amount of credit facility owed by it and initiate such necessary actions for recovery of the outstanding amount, including such action as may be advised by the Trust.
(vi) The lending institution shall comply with such directions as may be issued by the Trust, from time to time, for facilitating recoveries in the guaranteed account, or safeguarding its interest as a guarantor, as the Trust may deem fit and the lending institution shall be bound to comply with such directions.
(vii) The lending institution shall, in respect of any guaranteed account, exercise the same diligence in recovering the dues, and safeguarding the interest of the Trust in all the ways open to it as it might have exercised in the normal course if no guarantee had been furnished by the Trust. The lending institution shall, in particular, refrain from any act of omission or commission, either before or CS (Comm.) 634/2022 page 24 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi subsequent to invocation of guarantee, which may adversely affect the interest of the Trust as the guarantor. In particular, the lending institution should intimate the Trust while entering into any compromise or arrangement, which may have effect of discharge or waiver of personal guarantee(s) or security. The lending institution shall also ensure either through a stipulation in an agreement with the borrower or otherwise, that it shall not create any charge on the security held in the account covered by the guarantee for the benefit of any account not covered by the guarantee, with itself or in favour of any other creditor(s) without intimating the Trust.
Further the lending institution shall secure for the Trust or its appointed agency, through a stipulation in an agreement with the borrower or otherwise, the right to list the defaulted borrowers' names and particulars on the Website of the Trust."
52. From the above provisions, it is clear that the payment of the guarantee by the Trust, to the plaintiff bank, does not take away the responsibility of the plaintiff bank to recover the entire outstanding amount from the defendant. Therefore, the argument of the defendant that the plaintiff bank had already received the first installment of guarantee from the CGTMSE Trust worth Rs.8,22,566/- and therefore, the said amount should not be claimed by the plaintiff bank from the defendant, is also devoid of any merit.
53. From the perusal of the ledger account Ex.PW1/30, it is clear that an amount of Rs.15,85,343.83p was due and payable by the defendant as on 30.09.2022. Therefore, this issue is decided in favour of the plaintiff and against the defendant.
Issue No. 3Whether the plaintiff is entitled to claim pendent-lite and future interest from the CS (Comm.) 634/2022 page 25 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi defendant? If so, at what rate and for which period ? OPP
54. The burden to prove this issue also lies on the plaintiff. In his affidavit Ex.PW1/A, PW-1 Sh. Mohit Kumar, Branch Manager/AR, has deposed that the plaintiff bank was also entitled to claim pendentelite and future interest @9.15% per annum with monthly rests, on the aforesaid due amount of Rs.15,85,343.83p. It is further stated that the defendant is also liable to pay penal interest @2% per annum, with costs and other charges. The relevant documents pertaining to the claim of interest have already been placed on record and during the course of final arguments, a complete detail of calculation of interest as per floating rate of interest was also filed on record. But, perusal of the same shows that after 05.04.2022, the rate of interest has been mentioned as 16.25%. There is nothing on record to suggest the levy of interest at the said rate of 16.25%. Therefore, in the considered opinion of this court, the plaintiff is entitled to claim interest only @9.15% per annum, alongwith additional penal interest @2% per annum with monthly rests, w.e.f. 01.10.2022, till its realization.
This issue is also decided accordingly, in favour of the plaintiff and against the defendant.
Relief
55. In view of my findings on the various issues, as discussed above, the suit of the plaintiff is hereby decreed, in favour of the plaintiff and against the defendant, and a money decree is passed CS (Comm.) 634/2022 page 26 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi for a sum of Rs.15,85,343.83p, alongwith interest @11.15 % per annum w.e.f. 01.10.2022, till its realization.
The costs and expenses i.e. the fees of the Ld. counsel for the plaintiff, as provided under the High Court of Delhi, Rules, are also awarded in favour of the plaintiff and against the defendant.
Decree sheet be prepared accordingly.
File be consigned to record room after due compliance.
Digitally signedAnnounced in the open Court BRIJESH by BRIJESH KUMAR GARG on this 07th Day of September, 2024 KUMAR Date:
GARG 2024.09.07
17:02:27 +0530
BRIJESH KUMAR GARG
District Judge (Commercial Court)-01
Shahdara Distt, KKD, Delhi
CS (Comm.) 634/2022 page 27 of 27 D.J.(Commercial)-01/Shahdara/KKD/Delhi