1. The Applicant Bank viz,, State Bank of India, Stressed Assets Management Branch, Secunderabad filed the present Original Application u/s.19 of the Recovery of Debts and Bankruptcy Act, 1993 for recovery of a sum of Rs.43,47,25,952/- from the Defendants jointly and severally with costs and interest @ t4.75o/o p.a. with monthly rests from the date of OA till the date of realization and for sale of OA schedule properties.
2. The case of the Applicant Bank, in brief, is that Industrial Finance Branch of the Applicant Bank at Somajiguda sanctioned term loan of "Y''1 OA.No.181/2017 Rs.35 crores to the l.'t Defendant company vide sanction letter dated 31.03.2011. Backed by resolution of the Board, 2nd Defendant executed loan documents on behalf of 1't Defendant company. Defendants 2 to 5 stood as guarantors for the loan and executed deed of guarantee on 31.03.2011. Defendants 2 to 5 also created equitable mortgage of OA schedule A to D properties as a security for the term loan sanctioned to 1st Defendant company by way of deposit of title deeds and executed confirmation of mortgage under letter dated 04.04.2011. 1"t Defendant also created equitable mortgage on lease hold rights over OA schedule- E property by deposit of original lease deed as a security for the term loan. The Maharashtra Industrial Development Corporation (lvlIDC) gave consent and no objectlon through letters dated 31.05.2011 and 02.08.2011 for creation of sald mortgage on lease hold rights and 1st Defendant, Applicant Bank and lvlIDC entered into agreement on 29.08.2011. Defendant No.3 also created equitable mortgage over OA schedule-F property as a security for the loan by deposit of title deeds and conflrmed the same under letter dated 08.07.2013. At the request of the 1't Defendant, Applicant Bank extended the equitable mortgage over OA schedule-E property and lease hold rights on OA schedule-F property in favour of 6th Defendant Bank in respect of loan of Rs.20.50 crores sanctioned by it to 1st Defendant company. Applicant Bank and 6th Defendant Bank executed inter-se agreement on 18.06.2012 in this regard. In terms of agreement, the movable property morefully described in OA schedule-G stands pledged/hypothecated as security in favour of Applicant Bank and 6th Defendant Bank on pari passu basis. Since 1st Defendant failed to repay the loan amount, Applicant Bank classified the loan account as NPA and initiated Securitization proceedings by lssuing demand notlce dated 13.07,2013 followed by possession notice dated 03.10.2013. 2nd Defendant representing 1't Defendant company executed letter dated 14.11.2013 confirming the outstanding balance in the loan account as on 31.03.2013. Subsequently the loan account has been transferred from Industrial 2Ylr OA.No.1U/2A17 Finance Branch to SAM Branch of Applicant for further course of action. Said transfer has been duly informed to the Defendants vide notice dated 07.02.2014. Despite notice, Defendants 1 to 5 failed to repay the outstanding dues therefore, Applicant Bank filed the present OA.
3. 1st Defendant filed written statement which has been adopted by 4th Defendant. The submissions of the Defendants 1 and 2 as per the written statement, in brief, are that the OA is barred by Iimitation. The security documents are inadmissible in evidence. The mortgages and hypothecation are not properly created hence Applicant Bank cannot claim any right over the OA schedule properties. 1.t Defendant challenged the measures initiated by Applicant Bank by filing SA No.36/2017 and the same was allowed by the Tribunal thereby measures of Applicant Bank pursuant to possession notice came to be quashed. There is no privity of contract between the Applicant Bank and Defendants hence OA is liable to be dismissed. There is no cause of action accrued to file the OA. The facilities sancuoned by the 6th Defendant were not fully released due to which the power poect of 1st Defendant in Maharashtra could not be completed and capital of promoters got locked. Under the circumstances, the repayment schedule could not be adhered to. Instead of cooperating with the 1"t Defendant in bringlng the unit operational, Applicant Bank as well as 6th Defendant Bank have taken a routine view and issued notices and filed the OA. Applicant Bank is not entitled to any relief.
4. In order to prove its case, the Applicant Bank examined Smt. D. Sarada Raju, Chief lvlanager as AW-1 and marked 43 documents through her as Ex.A.1to A.43.
5. In order to substantiate their defence, contesting Defendants 1 and 4 examlned Sri V. Narayana Rao-2nd Defendant and Managing Director of 1st Defenda nt as DW-1. ,Q ratuil7
7 ---- s OA.N,.181/2017 6.. Heard Ld. Counsel appearing for the Applicant Bank, Ld. Counsel appearing for the Defendants reported that orders may be passed on merits. Perused the material brought on record.
7. It is the contended by Ld. Counsel appearing for the Applicant Bank that 1st Defendant is a company. 2nd Defendant is the Managing Dlrector and Defendants 3 to 5 are the Directors of the 1st Defendant company. 1't Defendant company availed loan of Rs.35 crores for establishing bio-mass based power plant.2"d Defendant representing 1st Defendant company executed loan documents on 31.03.2011. Defendants 2 to 5 stood as guarantors and mortgaged the properties morefully described in OA schedule A to D and F properties. 1st Defendant company mortgaged its leasehold rights over the OA schedule-E property. Defendants 1to 5 confirmed the mortgage of properties under confirmation letter dated 04.04.2071. The plant and machinery, fixed assets etc of the 1st Defendant company have been pledged with the Applicant Bank and 6th Defendant Bank on pari passu charge. 2nd Defendant representing 1't Defendant company conflrmed the existing outstanding balance as on 31.03.2013 under letter dated 14.1-1-.2073. The 1"t Defendant company having availed the credit facilities, committed default in repayment of the loan and therefore Applicant Bank classified the loan account as NPA and issued demand notice dated 13.07.2013 followed by possession notice dated 03.11.2013. The Applicant Bank auctioned the OA schedule-A and B properties and Item No.1 of the OA schedule-C property and OA schedule-F property and realized Rs.61.50 lakhs. The Defendants are planning to dlspose of the IA No.2330/2016 schedule property to defeat the OA claim. In the event of it being allowed and in case of alienation of said property, Applicant Bank may not be able to recover the entire secured debt. The OA claim is far exceeding the value of the mortgaged properties warranting attachment of IA No.2330/2016 schedule properties. According to Applicant Bank, the evidence of AW-1 coupled 4raUttt Y ---
6 OA.No.181/2017 with recitals in Ex.A.1 to Ex.A.43 amply proves the OA claim against Defendants and OA schedule properties and therefore OA may be allowed. It is the plea of the Defendants as could be seen from the written statement and chief evidence affidavit of DW-1 that there is no privity of contract between the Applicant Bank and the Defendants 1 to 5 and therefore, OA is liable to be dismissed against Defendants 1 to 5, It is the further contention of the Defendants that OA claim is barred by limitation. There was a delay in laying the transmission lines from OA schedule-E property to sub-station of MSETC Limited and thereby income from commencing the project was delayed. The Applicant Bank instead of extending its support in restructuring the loan resorted to take coercive measures for recovery of dues by taking recourse to the provisions under the Securitization Act. The Defendants filed SA No.36/2017 questioning the measures initiated by the Applicant Bank and the said SA came to be allowed on 20.02.20L7. The very filing of the OA is unjustified. In support of their pleas, Defendants examined 2nd Defendant Sri V. Narayana Rao as DW-1. With these submissions Defendants sought for dismissal of the OA. Now, the points that arise for adjudication are:-
i) Whether the Applicant Bank proved the OA claim Defendants and OA schedule properties? ii) Whether the Applicant Bank made out a valid attachment of IA No.2330/2016 schedule properties? iii) To what relief? against the ground for ?ryy- OA.No.181/2017 . Point No.(i) & (ii):-
10. Availment of loan by 1't Defendant from Applicant Bank is not under dispute. DW-1 is the 2nd Defendant and he is Managing Director of the 1st Defendant company. 3'd Defendant is the wife of 2nd Defendant and Defendants 4 and 5 are his daughters and they are Directors of the 1et Defendant company. DW-1 admits the availment of loan and execution of loan documents and also mortgage of OA schedule properties as a security. For better appreciation, I may refer the relevant portion in cross-examination of DW-1 and it is thus: "I am the managing director of D7 company the D3 is my wife, D4 and D5 are my daughters. D3 to D5 are also directors of D7 company. In the year 2011 we approached applicant bank for sanction of term loan of Rs.35 Crores. Applicant bank sanctioned said term loan of Rs.35 Crores as per sanction letter Dt:31.03.2011 Ex-A2. The said sanction letter was accepted in the board resolution Dt:31.03.2011 Ex-A3. Myself and also as MD of D7 company and D3 to D5 executed loan documents Ex-A4 to 49,12,14,18,21,25,31,43. We have created mortgage and also hypothecated the propefties described in the application schedule of properties A to G as security for due repayment of the said loan. After execution of loan documents we have filed form No.8 and board resolutions of Dl company from time to time with the registrar of the companies (ROC) for creation of charge for the above said loan in this case we have filed form No.8 etc, registering the charge for the loan facilities of applicant bank(SBI) and also SBH. With regard to schedule E property we have obtained lease deeds from MIDC and thereafter before creation of mortgage we have obtained consent letters and no objection letter from MIDC Ex-A26,27,35 for creation of moftgage on schedule E." In view of the above admissions of DW-1 in cross examination, the plea of the Defendants of there being no privity of contract between them and Applicant Bank has no merit. With regard to limitation of OA claim, loan documents are dated 31.03.2011 whereas OA is filed on 18.03.2014 and therefore, OA claim is well within limitation. 6th Defendant i.e., State Bank of Hyderabad QruttYttl7- OA.No.181/2017 granted loan of Rs.20.50 crores. Lease hold rights on OA schedule-E property and movable property morefully described in OA schedule-G property have been mortgaged/hypothecated to the Applicant Bank as well as 6th Defendant on pari passu basis. pending the OA, the 6th Defendant State Bank of Hyderabad has been merged with the Applicant Bank vide Order No.GSR 158(E) dated 22.O2.20t7 of Government of India publication in Gazette of India, Extraordinary and the said acquisition is effective frcm Ot.O4.ZO77. The Applicant Bank filed a memo on 14.02.2018 not pressing the OA against the 6th Defendant Bank. In view of the said memo, the OA is dismissed against the 6rh Defendant as not pressed. Pending the OA, the Applicant Bank auctioned OA schedules-A, B, Item No.1 of OA schedule-C and OA schedule-F properties and realized Rs.61.50 lakhs. This factual aspect has been admitted by AW-1 in the cross examination. The relevant portion of cross examination of AW-1 needs to be noted and it is thus; "During the pendency of the OA we have sold schedule-A property and schedule-B and schedule-C item no.1 schedule-F. All the properties are sold for an amount of Rs.61,5 O,OOOI-." 1,4. Since the above referred properties are no more available, no decree can be granted against them.
15. In the affldavit filed in support of IA No.233Ol2016, the deponent Sri P.H. Maheswarulu, Assistant General Manager of the Applicant Bank has stated that mortgaged properties are not sulfcient to satisfy the OA claim. There is no reason to discard the sworn affidavit of the said AGM of the Applicant Bank fited in support of IA No.2330/2016. Therefore, I find that Applicant Bank made out a valid ground for attachment of IA No.2330/2016 schedule properties. f"P' OA.No.181/2017
16. The evidence of AW-1 coupled with recitals in Ex.A.1 to Ex.A,43 substantiates the balance OA claim of Rs.4gA7,2S,9SZ|- minus Rs.61,5O,OOO/- with future interest @12.50% p.a. simple from the date of OA till the date of realization against Defendants and OA schedule properties-Item Nos.2 and 3 of OA schedule-C, schedule-D, schedule-E and schedule-G properties and accordingly OA and IA No.2330/2016 deserve to be allowed. Point No.(iiil:- L7. In the result, the present Original Application and IA No.2330/2016 is allowed with costs, as under:- The Defendants 1 to 5 jointly and severally are liable to pay to the Applicant Bank a sum of Rs.43A7,2S,9SZ/- minus Rs.61,5O,OOO/- with future interest @12.50o/o p.a. simple from the date of filing of the OA till the date of realization; The claim of the Applicant Bank is secured by way of mortgage of Item Nos.2 and 3 of OA schedule-C, schedule-D, schedule-E and hypothecation of schedule-G properties and the Applicant Bank is entitled to proceed against the same towards realization of its debt; The Applicant Bank is also entitled to proceed against the person and properties of Defendants 1 to 5 towards realization of its debt; The Applicant Bank is entitled to the costs of the OA. iii) ?'y"
10 OA.N,.1B7/2017
18. The Applicant Bank is directed to file cost Memo within 2 weeks from the date of this Order.
19. IA No.2330/2016 is allowed. consequently, schedule properties of IA No.2330/2016 stand attached.
20. OA is dismissed against 6th Defendant Bank as not pressed. 2t. Issue Recovery Certificate accordingly.
22. Communicate a copy of this order to the parties concerned. (Dictated to the steno, transcribed by him, corrected, signed and pronounced by mein the open court on this the O 1st May, 2019). ,,f":Kl;"^,pne6tott{c oFFrcER