Introduction

The case of State Bank of India (SBI) v. M/s S.K. Rice Mills & Others adjudicated by the Debts Recovery Tribunal (DRT), Dehradun on November 25, 2022, underscores the robust mechanisms available for financial institutions in India to recover dues from defaulters. This judgment delves into the complexities surrounding non-performing assets (NPA) and highlights the accountability of guarantors in partnership firms.

Summary of the Judgment

SBI filed an original application under Section 19(1) of the Recovery of Debts and Bankruptcy Act, 1993, seeking the recovery of an outstanding amount of ₹1,17,17,137 along with interest, penal charges, and costs from M/s S.K. Rice Mills and its partners. The partnership firm had defaulted on multiple loan facilities extended by SBI, leading to the classification of the account as NPA. The defendants failed to respond to the summons, resulting in an ex-parte proceeding.

The Tribunal, after scrutinizing the extensive documentary evidence and affidavits presented by SBI, concluded that the defendants were jointly and severally liable for the outstanding dues. Consequently, the application was allowed, directing the defendants to repay the amount within 30 days. In the event of non-compliance, the tribunal empowered SBI to recover the dues through the sale of hypothecated assets and mortgaged properties.

Analysis

Precedents Cited

While the judgment does not explicitly cite previous cases, it operates within the established framework of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act). The Tribunal's reliance on Section 19(1) is consistent with prior rulings that uphold the rights of banks to initiate recovery proceedings against defaulters and guarantors. Additionally, the application of the Bankers' Books Evidence Act, 1891, reaffirms the reliance on meticulously maintained banking records as credible evidence in debt recovery.

Legal Reasoning

The Tribunal's decision is anchored in the clear evidence of default and the comprehensive documentation provided by SBI. Key aspects of the legal reasoning include:

• Joint and Several Liability: By undersigning as guarantors, the partners of M/s S.K. Rice Mills were held jointly responsible for the repayment, thereby ensuring that the bank has multiple avenues for recovery.
• Classification as NPA: The firm's inability to maintain financial discipline and subsequent classification of the account as NPA underlined the urgency of recovery, justifying the Tribunal's swift action.
• Documentary Evidence: The extensive loan and security documents, along with the affidavit of the Chief Manager, provided irrefutable proof of the firm's obligations and default.
• Interest and Penal Charges: The Tribunal's approval of both pendente-lite and future interest at specified rates aligns with the provisions of the RDB Act, ensuring that the bank is compensated for the delay in repayment.

Impact

This judgment reinforces the efficacy of the DRTs in facilitating swift debt recovery, thereby bolstering the confidence of financial institutions in the legal framework governing NPAs. The affirmation of joint and several liability ensures that guarantors cannot evade responsibility, which may deter potential defaults and encourage stricter compliance with loan agreements.

Moreover, the directive to prevent the defaulters from dealing with hypothecated and mortgaged assets without settling dues introduces an additional layer of accountability, aiding banks in securing and realizing their collateral efficiently.

Complex Concepts Simplified

Conclusion

The judgment in State Bank of India v. M/s S.K. Rice Mills & Others serves as a pivotal reference point for debt recovery proceedings in India. By upholding the bank's entitlement to recover dues through multiple avenues, it underscores the judiciary's role in ensuring financial discipline and accountability. The emphasis on comprehensive documentation and the reinforcement of guarantors' responsibilities are crucial takeaways that will influence future cases in the realm of debt recovery and banking law.