State Bank Of India v. Krishna Enterprises

S.K Mohapatra, Presiding Officer:— The applicant S.B.I, Tupudana Branch, Hatia, Ranchi had presented this application under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as RDDBFI Act) before the D.R.T, Ranchi on 3rd July, 2003 against the defendants for recovery of debts of Rs. 10,40,301.93 as on 30th June, 2003 along with pendente lite and future interest at the contractual rate till realisation with cost. The application was numbered as Original Application No. 33 of 2003.

2. The brief facts of the case of the applicant as stated in their application is that the S.B.I is a body corporate constituted under State Bank of India Act, 1955 having its head office at Madam Cama Road, Nariman Point, Mumbai and one of its branches at Tupudana, Hatia, Ranchi; Defendant No. 1 Krishna Enterprises is a proprietary concern engaged in the business of Steel Fabrication. The defendant No. 2 is the proprietor of defendant No. 1 who had approached the applicant Bank for grant of term loan facility to purchase the machineries and cash credit loan facility, to run the business. Consequent to the request applicant granted Rs. 3.50 lacs as term loan and Rs. 2 lacs as cash credit vide sanction letter dated 18rd March, 1998. To secure the loan defendants executed various agreements on 18th March, 1998 and 22nd December, 1998 like general agreement for the grant of medium term loan, ancillary agreement for medium term loan, guarantee agreement for term loan, agreement of loan for the grant of small industrial advances, agreement for hypothecation of Goods and Assets, etc. Defendant No. 2 stood as surety and executed guarantee agreement for the facilities. It is also Bank's case that defendant No. 2 mortgaged his landed property situated in Mouse Hundru, P.S Doranda, District Ranchi more fully described in Schedule ‘B’ of Original Application by depositing the title documents with the applicant Bank on 18th March, 1998, with intention to secure the above stated loans. Defendants availed she loan however subsequently failed to regularize the accounts and committed defaults. Consequently applicant Bank-served legal notice through its lawyer on 28th February, 2003 calling upon the defendants to pay the entire dues but without any avail. Hence this application.

3. Under Section 19(4) and Rule 11 of RDDBFI Act, 1993 a copy of application was sent by this Tribunal to all the defendants by registered post with acknowledgement. Consequently, defendants filed vakalatnama on 21st August, 2003 before this Tribunal and thereafter filed their written statement and evidence on affidavit on 16th December, 2003 and 16th July, 2004 respectively.

4. The applicant Bank has filed evidence on affidavit on 25th May, 2004 by way of affidavit of Sri Pravin Kumar Sinha, working as Chief Manager, S.B.I, Tupudana Branch, Ranchi. The applicant Bank has also filed original documents before this Tribunal on 5th January, 2004, the details of which are as follow:

Sl. No. Name of Documents Date of Execution Amount Rs. Executed by 1. Copy of Sanction Letter for Term Loan 18.3.1998 3.50 lacs Accepted and agreed, by defendant No. 2 for defendant No. 1 and Branch Manager of Bank 2. Copy of Sanction Letter for Cash Credit Loan 18.3.1998 2.00 lacs Defendant No. 2 for defendant No. 1 and Branch Manager of Bank 3. General Agreement for Medium Term Loan Specimen No. 32 18.3.1998 3.50 lacs Defendant No. 2 for defendant No. 1 4. Ancillary Agreement for Medium Term Loan 18.3.1998 3.50 lacs Defendant No. 2 for defendant No. 1 Specimen No. 14 pledge of movable machinery 5. Guarantee Agreement (Term Loan) Specimen No. 19 18.3.1998 3.50 lacs Defendant No. 2 and defendant No. 1

6. Agreement for the grant of Small Industries Advance and Hypothecation of movables Specimen No. 1 22.12.1998 2.00 lacs Defendant No. 2 for defendant No. 1 7. Ancillary Agreement to the General Agreement Specimen No. 3 22.12.1998 2.00 lacs Defendant No. 2 for defendant No. 1 8. Guarantee Agreement for Working Capital Finance Specimen No. 9 22.12.1998 2.00 lacs Defendant No. 2 and defendant No. 1 9. Revival Letter acknowledging the cash credit loan in Specimen No. 21 15.3.2001 2.00 lacs C.C Loan (Working Capital) Defendant No. 2 for defendant No. 1 and defendant No. 2 10. Revival letter acknowledging the Term Loan in Specimen No. 21 15.3.2001 Term loan Defendant No. 2 for defendant No. 1 and defendant No. 2. 11. Registered Deed of Sale No. 8010 with map in favour of Sri Krishna Kumar Singh 16.7.1990 12. Mutation Correction slip with respect to the land mortgaged with the Bank 16.8.1990 13. Rent Receipt 6.9.1990 10.10.1995 14. Non-encumbrance certificate 8.1.1998 15. Agreement for realizing the Bank dues under Bihar and Orissa Public Demand Recovery Act 18.3.1998 3.50 lacs Defendant No. 2 and defendant No. 1 16. Agreement for realizing the Bank dues under B & 0 Public Demand Recovery Act. 22.12.1998 2.00 lacs Defendant No. 2 and defendant No. 1 17. Copy of Lawyer's Demand Notice to the 28.2.2003

defendants Postal Registration Receipts 18. Statement of Accounts duly certified.

5. Arguments of learned Counsel for the applicant Bank and defendants were heard and I have also thoroughly perused the case records.

Jurisdiction:

6. It is seen that the loan was sanctioned and accounts were maintained at the branch office of S.B.I at Tupudana, Hatia, Ranchi, which falls within the territorial jurisdiction of Jharkhand. That apart it is seen from the cause title that the present address of the defendants also are within the State of Jharkhand. Various agreements were executed at the branch office of the applicant Bank at Ranchi. Besides the mortgaged properties situated at Mouza Hundru, Doranda, Ranchi. This reveals that most of the cause of action arose in the State of Jharkhand. That apart, the suit claim on the date of filing of the application exceeds Rs. 10 lacs. Therefore, this Tribunal has the territorial as well as pecuniary jurisdiction to adjudicate the instant application.

Limitation:

7. On the issue of limitation, it is seen that the instant loan transaction has been secured by mortgage. Accordingly, Article 62 of the Limitation Act shall govern in mortgage suit extending the limitation period to 12 years. Be that as it may it is seen that the instant loan was sanctioned on 18th March, 1998 and various loan agreements were executed on 18th March, 1998 and 22nd December, 1998. Defendants executed revival letter on 15th March, 2001. The execution of revival letter by borrower saves limitation and the period of limitation stands extended as per provisions contained in Section 18 of the Limitation Act. When three years' period is counted from the date of execution of revival letter i.e 15th March, 2001, it will be evident that the instant application has been instituted within three years, limitation period from the date of execution of last revival letter. Accordingly it is abundantly clear that the case has been filed well within the limitation period.

Quantum of debts due to Bank:

8. Applicant Bank has produced evidence on affidavit of Sri Pravin Kumar Sinha, Chief Manager, S.B.I, Tupudana Branch, Ranchi, who has proved on oath by way of affidavit, the pleadings and documents of the applicant Bank. It has been duly proved vide sanction letter dated 18th March, 1998 at S1. Nos. 1 and 2, para 4 that applicant Bank has sanctioned cash credit facility for Rs. 2 lacs and term Joan for Rs. 3.5 lacs. The terms and conditions of said sanction letters have been accepted and agreed by the defendant Nos. 1 and 2 as is seen from the said documents. The acceptance of terms of sanction gives abundant support to the claim of Bank.

9. In addition, defendants have executed general agreement for medium term loan, pledge of movable machinery, hypothecation of movables, agreement under P.D.R Act in order to secure both the loan facilities. These agreements are at SI. Nos. 3, 4, 6, 7, 15 and 16 at para 4. Besides defendants executed personal guarantee agreement on 18t h March, 1998 (Sl. No. 5) and 22nd December, 1998 (31. No. 8) to secure both loan facilities for Rs. 3.5 lacs and Rs. 2 lacs respectively. In view of She agreements both the defendants are personally liable to pay back the dues of applicant Bank with interest and cost

10. Besides, borrower-defendants have acknowledged and signed revival letters on 35th March, 2001 in Specimen No. 21 for both facilities, which are at S1. Nos. 9 and 10 at para 4. The execution of revival letters by borrower not only saves limitation but clearly gives cause of action to the plaintiff Bank to base its claim.

11. Defendants in their written statement and evidence on affidavit have inter alia disputed on the enforceability of aforesaid loan documents. It is their contention that they were compelled to sign blank documents which were later on filled in by applicant Bank.

In this connection, it is pertinent to refer to the Hon'ble Andhra Pradesh High Court's observation in the case of Corporation Bank v. Sushil Enterprises, (2004) 1 I.S.J Banking 160, that “nobody is expected to sign the documents without reading it or when it is blank and if he does so he does at his own risk and the very fact that the plaintiff Bank has disbursed the loan amount and defendant had availed it also shows that the documents were valid and duly executed”. The defendants have availed the loan. They are not denying their signature on the documents. Such loan in lacs cannot be disbursed by a nationalized Bank without executing loan documents. Even if defendants have given blank documents, it was at their own risk. At that material time they could have objected regarding blank execution of documents or immediately thereafter. After availing the loan and without re-paying the same they cannot dispute the documentation at such a late stage. They are precluded from questioning the validity of loan documents at this belated stage.

12. In addition to aforesaid various loan documents, the applicant Bank has also furnished certified copy of statement of account, which not only is admissible in evidence but shall be taken as correct statement of account since the entries in the statement of account has not been challenged. The applicant Bank not only contended that they have charged interest as per agreement but also has furnished in their evidence on affidavit and in the statement of accounts, the details of rate of interest charged during different corresponding periods. As per the statement of account Rs. 10,40,301.93 is due as on 30th June, 2003. The outstanding in cash credit accounts comes to Rs. 4,61,053.43 as on 26th June, 2001 plus uncharged interest from 1st April, 2000 to 30th June, 2003 for Rs. 2,35,341/- totalling Rs. 6,96,391.43. The outstanding in term loan account comes to Rs. 2,26,921 as on 18th January, 2002 plus uncharged interest from 1st April, 2000 to 30th June, 2003 for Rs. 1,16,989.50 totalling Rs. 3,43,910.50. The sum total of dues in both facilities comes to Rs. 10,40,301.93. as on 30th June, 2003.”

13. The onus is cast upon the defendants to point out errors in the statement of accounts. The defendants have neither denied the utilization of the loan facility by them nor have pointed out any specific error or discrepancy in the statement of account, which has been kept in due course of Banking business. In the facts of the case, the evidence on affidavit which supported the claim of applicant Bank is found correct and believable.

14. It was held in Andhra Bank v. Chhalla Subha Reddy, I (2003) BC 291, that “Plaintiff Bank is entitled to interest as claimed and Courts have no power to scale down the debts due to Bank”. Therefore where no specific entry in the certified copy of statement of account has been challenged or discrepancy could be pointed out; the amount claimed has to be allowed. Although Court has no power to interfere with the agreed rate of interest but it is no longer res Integra that Court has clear jurisdiction to award pendente lite and future interest as deem fit and proper. Admittedly, the borrower company is a sick company and there has been efforts for its revival. Secondly, it is undisputed that there was a theft of properties of defendant concern and only Rs. 55,456/- was received from Insurance Company out of total claim of Rs. 2,35,850/-. That apart, it is noticed that with the present change in the economy and the policy of R.B.I, the rate of interest is already on the decline. Considering the fact that the borrower is a sick unit and also considering the trend in decline in interest rate in recent days, it is felt that in the interest of justice 7% pendente lite and future interest per annum from the date of institution of the suit till realisation shall be just and reasonable. Applicant is accordingly entitled for Rs. 10,40,301.93. with 7% interest from 3rd July, 2003 till realisation with cost.

Equitable Mortgage:

15. Applicant Bank has filed title deed pertaining to landed property measuring kathas situated in Hundru, District Ranchi more fully described in Schedule ‘B’ of the Original Application. Defendant No. 2 has deposited title documents with the applicant Bank on 18th March, 1998 as fully described in Schedule ‘B’ of the Original Application with the intention to create equitable mortgage to secure the loan facility. The applicant-Bank has filed the original title deed, which is at Sl. No. 11 para 4. In addition, Bank has filed certified copy of correction slip dated 16th August, 1990 revealing mutation in the name of defendant No. 2 as will appear from S1. No. 12, para 4. Applicant Bank has also filed original rent receipts dated 6th September, 1990 and 10th October, 1995 in respect of landed property as will appear at S1. No. 13, para 4. The non-encumbrance certificate dated 8th January, 1998 is at SI. No. 14, para 4. When title deed, mutation and rent receipts with regard to the property is with Bank, it is evident that documents must have been deposited to create mortgage. The aforesaid documents clearly reveal that there was intention to create equitable mortgage in respect of aforesaid land as fully described at Schedule ‘B’ of the Original Application. The mortgaged land and hypothecated properties of defendants, therefore, can be sold to realize the outstanding debts due to the applicant Bank.

16. Defendants have filed written statement and evidence on affidavit on 16th December, 2003 and 16th July, 2004 respectively. Defendants have challenged the loan documents as void ab initio on the ground that these were signed blank and were subsequently filled in. Simple bald allegation will not do. No documents were produced to show that defendants disputed at the time of signing of blank document or immediately thereafter. The objection has been dealt with at para 11 above. Secondly there has been dispute regarding inflation in the statement of account. Defendants could not lay any material to contradict any specific entry in the statement of account. The onus to show discrepancy in the accounts lies on defendants. They could neither establish any irregularity in the account nor show the interest and accounts entries are inflated. This aspect has been discussed at paras 12 to 14 above. The objection on jurisdiction and limitation has been discussed at paras 6 and 7 above. Defendants have alleged that Bank did not help in their rehabilitation. In this connection, Bank has stated in their petition dated 11th August, 2005 that the loan became N.P.A in March, 2000. Pursuant to the request of defendants dated 21 st September, 2002, applicant Bank replied on 25th September, 2002 to submit detail project report. However, it has been stated at para 8 that no such project report nor any payment was deposited by the defendant thereafter. Defendant's’ rehabilitation proposal dated 18th September, 2003 was made only after filing of the instant suit. Applicant Bank has filed Original Application for adjudication of their dues outstanding from defendant borrowers. Courts cannot scale down the dues of Banks. This is more so when defendants failed to show how the claim is excessive. However, considering the fact of theft and that the defendant is a sick unit pendente lite and future interest has been lowered to 7% per annum simple. The quantum of debt due to Bank has been adjudicated in paras 8 to 14 above. Defendants have not filed any counter-claim or claim of set-off for adjudication. That apart, defendants have not laid any specific evidence to show that they did not avail the loan. Bank has produced several loan documents including certified copy of statement of account in support of its case. Since the claim of plaintiff could not be repudiated specifically, the claim of applicant Bank has to be allowed.

17. In the facts of the case, in my opinion, it is well proved by the evidence of the applicant Bank that the applicant Bank is entitled to receive from the defendants jointly and severally Rs. 10,40,301.93 together with pendente lite and future interest at the rate of 7% per annum from the date of filing of the suit till realization.

Hence, the application of the applicant Bank is, hereby, accepted and allowed with cost against the defendants and it is hereby ordered that the applicant Bank is entitled to receive from the defendants jointly and severally the loan and interest amounting to Rs. 10,40,301.93 (Rupees ten lacs forty thousand three hundred one and ninety-three paisa only) along with pendente lite and future interest @ 7% per annum from 3th July, 2003 till the realisation of the entire sum due and recoverable with cost. Defendants are restrained from depleting, transferring, encumbering or in any way dealing with the mortgaged and hypothecated properties without paying the aforesaid adjudicated dues to the applicant Bank. Let a certificate of recovery be prepared in terms of provision contained in Section 19(22) of RDDBFT Act, 1993. Put up for seal and signature on 22nd August, 2005.

Judgment pronounced in the open Court on this the 16th August, 2005.

Application allowed.