Markandeya Katju, C.J:— This writ petition has been filed for quashing the impugned order dated January 23, 2006, in Miscellaneous Appeal No. 227 of 2005 and for a writ of mandamus directing the respondents not to dispossess the petitioner from the mortgaged property at C-12, Site-IV, Sahibabad Industrial Area, Ghaziabad, U.P The petitioner also prayed for a mandamus directing the respondents to settle the matter between the petitioners as per the guidelines on the Rehabilitation/OTS Scheme and not to proceed further for confirming the auction sale.
2. Heard learned counsel for the parties. The facts of the case have been set out in paragraph 3 of the writ petition which we have perused.
3. Petitioner No. 2 is a sole proprietor of petitioner No. 1 and is running a small scale industry for manufacturing various electrical and electronic products.
4. The petitioners had approached the respondent/State Bank of India, and since 1972 was sanctioned and granted various working capital facilities (both fund based and non-fund based) for its working capital requirements in respect of its business in its factory at C-12, Site-IV, Sahibabad Industrial Complex, U.P which was duly availed of and utilized by it over the years.
5. On the request of defendant No. 1 the respondent/State Bank of India granted and renewed the following financial assistance to the petitioners:
Nature of facility
(Rs. in lakhs)
(A) Fund based Sanctioned Limit
Cash credit (factory type)
17.00
Cash credit [E.P.C (pre shipment)]
5.00
Cash credit (book debts)
3.00
Cash credit (bills clean)
12.00
Cash credit [export bills (post shipment)]
6.00
Demand draft purchase (cheque)
2.00
Medium term loan
2.25
(B) Non-fund based
Letters of credit
6.00
Bank guarantee
20.00
6. The sanction/renewal of the aforesaid facilities by the State Bank of India to the petitioner was subject to the terms and conditions set out in the bank's letter dated August 10, 1994 (the sanction letter) which was duly accepted by the petitioners. In token of the acceptance of the said terms and conditions by petitioner No. 1, petitioner No. 2 who is the sole proprietor of petitioner No. 1 duly signed/endorsed copy of the said sanction letter.
7. Pursuant to the sanction of the said facilities petitioner No. 1 executed various documents and created various securities the details of which have been given in the application of the bank before the Debts Recovery Tribunal under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (herein after referred to as “the Act”).
These include:
(a) Cash credit of Rs. 17 lakhs with interchangeability with cash credit [E.P.C (pre shipment)] facility of Rs. 5 lakhs aggregating to Rs. 22 lakhs in pursuant to which petitioner No. 1 executed and entered into an agreement with cash credit dated August 10, 1994, with the bank.
(b) Cash credit [E.P.C (pre shipment)] facility of Rs. 5 lakhs with interchangeability with cash credit (factory type) up to Rs. 5 lakhs, aggregating to Rs. 10 lakhs.
(c) Cash credit (book debts) facility of Rs. 3 lakhs.
(d) Cash credit (bills clean) facility of Rs. 12 lakhs.
(e) Cash credit [export bills (post shipment)] facility of Rs. 6 lakhs.
(f) Demand draft purchase (cheque) facility of Rs. 2 lakhs.
(g) Medium term loan of Rs. 2.25 lakhs.
(h) Bank guarantee facility of Rs. 20 lakhs and letters of credit facility of Rs. 6 lakhs.
8. Pursuant to the aforesaid documents executed and securities created the petitioner duly availed of and utilised the said credit facilities and loans from time to time. In the meantime, petitioner No. 1 approached the bank with a request for allowing interchangeability between the cash credit (factory type) facility of Rs. 17 lakhs, cash credit [EPC (pre shipment)] facility of Rs. 5 lakhs, cash credit (export bills (post shipment) facility of Rs. 6 lakhs and cash credit (bills clean) facility of Rs. 12 lakhs. The bank considered this request and conveyed its sanction for interchangeability of the aforesaid facilities to the maximum limit of Rs. 32 lakhs. Pursuant to the sanction of interchangeability aggregating to Rs. 32 lakhs by the bank, petitioner No. 1 executed and entered into an agreement for cash credit dated June 19, 1996, with the bank setting out the terms and conditions of the said facility.
9. Under this agreement, petitioner No. 1 secured payment of the aggregate balance due under the said facility on demand by the bank upon the security of pledge of goods, produce and merchandise deposited and/or to be deposited with the bank. Under this agreement, petitioner No. 1 also agreed to pay to the bank interest at the rate of 2.75 per cent above SBAR with minimum 17.75 per cent per annum.
10. As further security for the said credit facilities of Rs. 32 lakhs petitioner No. 1 furnished a demand promissory note dated June 19, 1996, in favour of the bank thereby promising to pay to the bank on demand a sum of Rs. 32 lakhs for value received with interest from the said date at the rate of 2.75 per cent above SBAR with minimum of 17.75 per cent per annum with quarterly rests.
11. Pursuant to the aforesaid documents executed and securities created petitioner No. 1 duly availed of the said credit facilities/loan with the aforesaid interchangeability sanctions to it by the bank over a period of time.
12. In terms of the sanction of the said loan, petitioner No. 1 was required to repay the said loan to the said bank in accordance with the repayment schedule set out in the loan agreement and to pay interest to the bank as mentioned in the said agreement. Further, with regard to the said credit facilities, petitioner No. 1 was required to maintain and operate the said accounts in accordance with the terms and conditions of their sanction and also to maintain financial discipline.
13. However, petitioner No. 1 failed and neglected to repay the said loan to the bank in accordance with the terms and conditions of the said loan agreement. Further, as regard the said credit facilities petitioner No. 1, contrary to the terms of sanction, did not regularize the said account and defaulted in properly maintaining the said account apart from committing various other breaches and violations of the sanction of the said credit facilities. Petitioner No. 1 further failed to maintain financial discipline in regard to maintenance of the said accounts. As a result, due to periodic defaults the outstanding liability due and payable by petitioner No. 1 in regard to the said credit accounts started to swell.
14. Despite repeated requests and reminders from the bank, petitioner No. 1 failed to make good the aforesaid defaults and breaches of the terms and conditions of sanction of the said loan as well as the said credit facilities. As such, the bank through its lawyer sent a legal notice dated January 31, 1998, calling upon the petitioners to regularise the said accounts by making payment of the entire outstanding dues and take steps to remedy the defaults and breaches set out therein within 15 days of the receipt of the said notice failing which it was categorically pointed out that the bank would be constrained to transfer the petitioner's account to the recalled debt account/protested bill account for initiation of appropriate proceedings in the competent court of law. Despite the said notice the petitioner failed and neglected to make good the defaults set out therein. As such, in accordance with the recognized accounting procedure of the bank and the instructions of the Reserve Bank of India the said accounts of petitioner No. 1 stood classified as non-performing assets with effect from March 31, 1997, whereafter as directed by the Reserve Bank of India the accrued interest is not required to be debited to the said accounts, though the bank is entitled to the recovery of the same under the law with effect from April 1, 1997.
15. The petitioners, from time to time, executed revival letters in respect of security documents and acknowledged their liability by signing balance confirmation in respect of said loan as well as credit facilities. As per balance confirmation dated April 18, 1998, executed by the petitioners as on April 17, 1998, amounts of Rs. 29,76,175.55, Rs. 3,00,000 and Rs. 10,51,459.25 were due and payable by the petitioners in respect of said cash credit facility.
16. Despite the said notice, the petitioners failed and neglected to pay any amount towards outstanding dues to the bank. The total liability of the petitioner is Rs. 55,72,585 as on November 19, 1998. In view of these facts the bank filed the petition under section 19 of the Act before the Debts Recovery Tribunal for the following reliefs:
(a) defendants Nos. 1 and 2 to pay to the applicant a sum of Rs. 55,72,585 inclusive of interest till October 19, 1998, in respect of its outstanding dues with further interest and other charges thereon at the rate of 16.58 per cent subject to change from time to time in accordance with instructions issued by SBI till payment and/or realization in full;
(b) order sale of mortgaged and hypothecated/pledged properties and assets of the defendants by public auction or a private treat and net sale proceedings thereof be adjusted towards payment of the applicant's outstanding dues;
17. The bank also prayed for an interim order restraining the petitioners from transferring, alienating or otherwise dealing with property in question without permission of the Tribunal.
18. Thus, a perusal of the OA 400 of 1998 filed by the bank under section 19 of the Act against the petitioner shows that the bank has prayed for recovery of Rs. 55,72,585 together with costs and pendente lite and future interest at 16.58 per cent per annum.
19. The petitioner filed a written statement before the Debts Recovery Tribunal.
20. By an order dated February 21, 2002, the Debts Recovery Tribunal noted that no one had appeared for the defendant and hence proceeded ex parte fixing the date April 22, 2002, for ex parte arguments.
21. Thereafter, by an ex parte order dated April 22, 2002, the Debts Recovery Tribunal allowed the OA filed by the bank and directed the petitioners to pay to the bank jointly or severally a sum of Rs. 55,72,585 with interest within 30 days. In case of default the above amount was to be recovered from the sale of the mortgaged property/hypothecated assets and other assets/properties of the defendants.
22. In paragraph 5 of the impugned order dated April 22, 2002, the Debts Recovery Tribunal has noticed that after service the defendant had appeared and filed a written statement/counter-claim. However, subsequently, the defendant stopped appearing and accordingly the case proceeded ex parte. No evidence was led by the defendant (writ petitioner) before the Debts Recovery Tribunal.
23. On the other hand, evidence was led by the bank by producing witnesses who corroborated the averments made in the OA The Tribunal held that even otherwise the case of the bank has been duly proved by the witnesses.
24. Subsequently, the writ petitioner by Miscellaneous Application No. 128 of 1998 dated June 10, 2002, prayed for setting aside the ex parte order dated April 22, 2002. However, that application was rejected by the Debts Recovery Tribunal on August 26, 2002. The order dated August 26, 2002, states as follows:
26-8-2002
OA No. 400/98
Present: Ms. Savita Dixit, Proxy Counsel for CDs
MA No. 128 of 1998
By this application it has been prayed that final order dated April 22, 2002, be set aside. Learned counsel contends that the daughter of Mr. J.C Gupta, advocate, got married on April 22, 2002, and thereafter maternal uncle of counsel expired, therefore, counsel could not appear on April 22, 2002, nor any application for setting aside the ex parte order dated April 22, 2002, could be filed. Perusal of record shows that defendants were proceeded against ex parte on February 21, 2002 and thereafter matter was fixed for April 22, 2002, for ex parte arguments. There is no explanation as to why no steps were taken between February 21, 2002, to April 22, 2002, for setting aside the ex parte order. Even, this application has been filed in the month of June, 2002, i.e, after two months after passing of the final order. Since there is no sufficient and cogent reason for non-appearance on February 21, 2002, and no application for setting aside ex parte order was filed as also the past conduct of the defendants as emerging from the records I am of the view that the defendants are only interested in dragging on the litigation. Accordingly, I am of the view that there is no ground to set aside the ex parte final order. This application is accordingly dismissed.
(Sd.) A.K Pathak,
Presiding Officer, DRT-1, Delhi.
25. As noted from the order dated August 26, 2002, the contention of counsel for the petitioner was that the daughter of Mr. J.C Gupta, advocate got married on April 22, 2002, and thereafter the maternal uncle of counsel expired and hence it is alleged that he could not appear on April 22, 2002. In our opinion, even if the allegation that the daughter of counsel was married on April 22, 2002, was correct counsel could have sent one of his juniors or some other learned counsel known to him or even his clerk to the Debts Recovery Tribunal to mention this fact to the Presiding Officer, DRT-I, Delhi, but no one appeared on April 22, 2002, even to seek an adjournment. It was only by an application dated June 10, 2002, that the prayer was made to recall the order dated April 22, 2002. There is no explanation why the application was filed after two months of the passing of the order dated April 22, 2002. In these circumstances, the Presiding Officer of the Debts Recovery Tribunal held that there is no sufficient and cogent reason for non-appearance on February 21, 2002, or April 22, 2002, and it appears that the whole game of the defendant (writ petitioner) was only to drag on the litigation. Hence, he rejected the application under Order 9, rule 13, Civil Procedure Code.
26. Against the order dated August 26, 2002, a Miscellaneous Appeal No. 227 of 2005 was filed by the petitioner which has been rejected by the impugned order of the DRAT dated January 23, 2006.
27. We have carefully perused the order dated January 23, 2006, and find no infirmity in the same.
28. It may be mentioned that a writ of certiorari can be issued when there is error of law apparent on the face of the record. No such error of law has been pointed out to us by learned counsel for the petitioner. Whether there was sufficient cause for non-appearance on April 22, 2002, or not is a question of fact, and the Debts Recovery Tribunal as well as DRAT have recorded a finding of fact that there was no sufficient cause. In fact the petitioner had initially appeared before the Debts Recovery Tribunal but subsequently stopped appearing.
29. As regards the affidavit filed by Mr. J.C Gupta, advocate it has been noted in the order of the DRAT dated January 23, 2006, in paragraph 11 that the affidavit of Sh. Gupta dated June 13, 2002, does not mention when he was instructed to appear on behalf of the appellant. The appellants were proceeded ex parte on February 21, 2002, and the ex parte decree was passed on April 22, 2002. It is not mentioned in the affidavit of Sh. Gupta that he had been authorised to represent the appellant on or before April 22, 2002.
30. As already stated above, no one appeared before the Debts Recovery Tribunal on February 21, 2002, and April 22, 2002. Even assuming that Sh. J.C Gupta had been engaged on or before April 22, 2002, he should have sent his junior or requested some other lawyer or even his clerk to mention before the Debts Recovery Tribunal about his personal difficulty. In fact even for about two months after April 22, 2002, no application under Order 9, rule 13, Civil Procedure Code was filed. Hence, the Debts Recovery Tribunal and the DRAT rightly rejected the application under Order 9, rule 13, Civil Procedure Code. At any event, whether there was sufficient cause for non-appearance or not is a question of fact, and in writ jurisdiction, this court cannot interfere with a finding of fact.
31. As regards the OTS offer made to the petitioner that was made in the year 2003 which the petitioner did not accept. Now, he is not eligible for the same as OTS is not available when a decree has been passed against a party. It seems to us that the whole game of the petitioner was to drag on the litigation, so that he may not pay his debts.
32. In our opinion, this is not a fit case for interference under article 226 of the Constitution. Writ is a discretionary remedy, and we are not inclined to exercise our discretion in this case.
33. In Mardia Chemicals Ltd. v. Union of India, [2004] 120 Comp Cas 373 : [2004] 4 SCC 311 the Supreme Court quoted from the Narasimham Committee Report which stated (page 394):
“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 the delays 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.”
34. In paragraph 34 of the same judgment the Supreme Court observed (page 393):
“It is also a fact that a large sum of amount remains unrecovered. The normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is an 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 consequential ill effects.”
35. In this case there is no equity in the petitioner's favour and hence we are not inclined to exercise our discretion in his favour under article 226 of the Constitution as we are of the opinion that the petitioner was adopting tactics to avoid paying his dues. It is a well known tactic in courts that defendants who have a weak case allow an ex parte decree to be passed, and then apply for restoration and in this manner to drag on the litigation.
36. 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 businessmen for setting up new industrial units.
37. Thus, interfering with such recoveries obstructs industrialization of the country and does incalculable harm to the economy which will be continued to be done if persisted by the courts because new businessmen cannot get loans if the borrowers do not repay their loans.
38. Thus, there is no force in this petition and it is dismissed.