SBI Vs B I Metalic Steel & Alloys Ltd

IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

DATED THE 22^ND APRIL, 2004

PRESENT:  HON’BLE MRS. JUSTICE A. SUBBULAKSHMY

CHAIRPERSON

MA-37/2003

(MA-95/02 in RA-1/02 in MP-3&4/01 in RP-375/01 in OA-1144/1995-DRT, Hyderabad)

BETWEEN:

State Bank of India,

Main Branch, Bank Street,

Koti, Hyderabad.

….  Appellant

            (Counsel:  Mr. K.S. Sundar)

AND

1.  Mr. V. Chakrapani,             (Party in person)

     325, Kabra Complex,

     M.G. Road, Secunderabad,.

2.  M/s. Bi Metalic Steel & Alloys Ltd.,

     Rep. by its Official Liquidator,

     Hyderabad.

3.  Allahabad Bank,

     Parklane Branch,

     Secunderabad.

…  Respondents

:  O R D E R  :

1.         The Original Application (OA) was allowed by the Tribunal by Order dated 13.1.1997.  Recovery proceedings commenced.  The 1^st respondent filed MP-3/2001 before the Recovery Officer praying to close the recovery proceedings against immovable properties of the defaulter as barred by limitation and another petition MP-4/2001 was also filed before the Recovery Officer by M/s. V.M. Finance & Leasing Company against the property and the Recovery Officer rejected both the applications by Order dated 28.8.2002.  

Then the petitioner in MP-3/01 preferred an appeal RA-1/2002 before the Presiding Officer and that was dismissed by the Tribunal by Order dated 4.10.2002.  

Again the 1^st respondent filed Review Petition MA-95/2002 before the Tribunal for reviewing its Order dated 4.10.2002 and the Review Petition was allowed by the Tribunal by Order dated 6.1.2003 and consequently RA-1/02 was also allowed.  That Order dated 6.1.2003 is being now challenged by the Bank in this appeal.

2.         The Recovery Officer in his Order dated 28.8.2002 has found that the Demand Notice under Rule-2 of the Second Schedule of Income Tax Act, 1961 were issued under Part-1 of the Rules whereas attachment of the property is provided under Rule 48 of the said rules and service of attachment is provided under Rule 49 and Proclamation of Attachment is provided under Rule 50 and Rule 51 clearly states that the attachment of property under Rule 48 shall relate back to the date on which the notice to pay arrears was served and the time limit of four years stipulated in Rule 68(B) shall be taken into consideration only with reference to the service of the proceedings commenced from the stage of Rule 48 i.e. attachment and not earlier in view of the language used under Rule 68(B) of the Second Schedule to the Income Tax Act, 1961 to the effect that no sale of immovable property shall be made under this part after expiry of 4 years and in the present case attachment of immovable property was issued under Rule 48 on 31.7.2001 and still the period of 4 years is available for proceeding further and it is not barred by limitation. 

3.         Even though the PO, DRT, initially dismissed the appeal RA-1/02 preferred as against the Recovery Officer’s Order, on the Review Petition (MA-95/02) filed by the 1^st respondent herein, the PO, DRT allowed that Review Petition by Order dated 6.1.2003 holding that after recovery proceedings are taken he is empowered to act only under the provisions of the Income Tax Act, which is made applicable under Section 29 read with Section 34 of the RDDB&FI Act and he has ultimately found that it is barred by limitation. 

 The PO’s finding is that the Recovery Officer has to take action with regard to the recovery only under the provisions of the Income Tax Act, which is made applicable under Section-29 read with Section-34 of the RDDB&FI Act. 

4.         Section-29 of the RDDB&FI Act, 1993 reads as follows :-

“Application of certain provisions of Income-tax Act:  The provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time shall, as far as possible, apply with necessary modifications as if the said provisions and the rules referred to the amount of debt due under this Act instead of to the income-tax :

Provided that any reference under the said provisions and the rules to the “assessee” shall be construed as a reference to the defendant under this Act.”

5.         Section-34 of the RDDB&FI Act, 1993 reads as follows -

“Act to have overriding effect – (1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2)        The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948, the State Financial Corporations Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984 [the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989]”

6.         Section-29 of the RDDB&FI Act clearly states that only the provisions of the Second and Third Schedule to the Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962 as in force from time to time shall as far as possible apply with necessary modification.  It clearly states that the provisions of Second and Third Schedules to the Income tax Act, 1961 alone will apply and not the entire Income Tax Act.  

So, the finding of the PO, DRT that after execution proceedings started the provisions of the Income Tax Act is made applicable under Section 29 read with Section 34 of the RDDB&FI Act, is erroneous and it is liable to be set aside in as much as Section 29 reads that the provisions of Second and Third Schedules to the Income Tax Act and Income Tax (Certificate Proceedings) Rules, 1962 alone will apply as far as possible. 

7.         Rule-68B of the Second Schedule of Income Tax Act, 1961 reads as follows :-

“Time limit for sale of attached immovable property -  (1) No sale of immovable property shall be made under this Part after the expiry of four years from the end of the financial year in which the order giving rise to a demand of any tax, interest, fine, penalty or any other sum, for the recovery of which the immovable property has been attached, has become conclusive under the provisions of section 245-I or, as the case may be, final in terms of the provisions of Chapter XX.”

8.         Rule-68B of the Income tax Act states that amount for recovery of which immovable property has been attached, that has become conclusive under the provisions of Section 245-I or, as the case may be, final in terms of the provisions of Chapter XX.  

This Rule is not applicable under the RDDB&FI Act and these provisions cannot be applied to for sale of the property under the RDDB&FI Act. Rule-68B will apply only for the recovery of amount which has become conclusive under the provisions of Section 245-I or in terms of provisions of Chapter XX.  Since the provisions of Section 245-I and Chapter XX are not applicable under the RDDB&FI Act, this cannot be invoked at all.

9.         The 1^st Respondent pointed out that by applying this provision under Rule-68B, the period of four years has to be reckoned from the end of the financial year in which the Order giving rise to a demand of any tax, interest, fine, penalty or any other sum of recovery to which the immovable property has been attached.  The 1^st respondent pointed out that the OA Order was passed on 13.1.1997 and from the end of the financial year if the period of four years is reckoned this case is clearly barred by limitation.  He pointed out that the Order giving rise to a demand means Order passed in the main OA and from that date from the end of that financial year, no sale can take place after the expiry of four years.  That argument is not an acceptable one.  The provisions of Section 245-I or provisions of Chapter XX are not applicable under the RDDB&FI Act.  The end of financial year will come only in the case of Income tax arrears and interest etc. and not under the RDDB&FI Act.  The question of financial year will not arise under the Act under the provisions and Section 245-I or Chapter XX are also not applicable under the RDDB&FI Act.  Section-29 of the RDDB&FI Act clearly states that only the provisions of Second and Third Schedule to the Income Tax Act, 1961 will apply with necessary modification.  The Heading in Section-29 itself indicates that only certain provisions of the Income tax Act shall be applicable i.e. provisions of Second and Third Schedule to the Income Tax Act.  So the whole of Income tax Act is not applicable under the RDDB&FI Act and also the provisions of Section 245-I or Chapter XX.  The amount which has become conclusive under the provisions of Section 245-I or Chapter XX alone cannot be recovered after the expiry of four years from the end of the financial year and not the amount determined under the RDDB&FI Act.  So, by invoking Section-68B of the Income-tax Act the 1^st respondent cannot contend that the time limit fixed for sale of attached immovable property under the RDDB&FI Act is only four years from the end of the financial year in which the Order for demand arises.  So the period of limitation set out in Rule-68B is not applicable for recovery of the amount under the RDDB&FI Act.

10.       Further, Section-24 of the RDDB&FI Act states with regard to the limitation.  It reads that the provisions of Limitation Act, 1963 shall, as far as may be, apply to an application made to a Tribunal.  With regard to the limitation, it has been clearly set out under the Act that only the provisions of Limitation Act, 1963 shall apply to an application made under the RDDB&FI Act to the Tribunal.  When there is specific provision with regard to the limitation under the RDDB&FI Act, the provisions contained in Section-68B of the Income-tax Act cannot be applied.  Under the Limitation Act, the period of limitation for execution proceedings is 12 years.

11.       Law empowers the Recovery Officer a period of 12 years to start the execution proceedings.  When there is specific provision which is made applicable for recovery of the amount under the RDDB&FI Act, only that law is applicable and not the period of limitation provided under Rule-68B of the Income tax Act.  

All the cases which have been transferred to the DRT under the RDDB&FI Act were pending before the Civil Court before the enactment of the RDDB&FI Act. 

 After the RDDB&FI Act came into force, under the provisions of this Act the cases pending before the Civil Court were transferred and only those provisions relating to recovery of proceedings for mortgage suits are applicable under the RDDB&FI Act as there is specific provision under the Act with regard to the period of limitation under Section-24 of the Act. 

 So, the period of limitation is only 12 years and not the period mentioned in Rule-68B of the Income Tax Act.  

So, I do not find any force in the argument advanced by the 1st respondent.  Order dated 6.1.2003 passed by the PO, DRT, Hyderabad, allowing the Review Petition (MA-95/02) and consequently allowing RA-1/2002 holding that the recovery proceedings against immovable properties is barred by limitation, is erroneous and it is liable to be set aside and it is set aside.

12.       Appeal allowed.  Order dated 6.1.2003 passed by the PO, DRT, Hyderabad, in the Review Petition (MA-95/2002) is set aside.  Recovery Officer is directed to continue the recovery proceedings.

(Dictated to PS & the transcript corrected, pronounced & signed by me in the open court today the 22^nd April, 2004).

[ MRS. JUSTICE A. SUBBULAKSHMY ]

CHAIRPERSON

Karnataka banks file cases to recover Rs 120.25 cr

Source :BL :BANGALORE, JUNE 19:2011

Banks, belonging to both the public and private sector in Karnataka, have filed 25,473 revenue recovery cases, amounting to Rs 120.25 crore under the Revenue Recovery (RR) Act.

According to a note prepared for the 117{+t}{+h} State Level Bankers' Committee (SLBC)-Karnataka meet to be discussed on Monday, there are 8,588 cases pending for more than three years for recovery under the RR Act, Karnataka Agricultural Operations and Miscellaneous Provisions (KACOMP) Act and Karnataka Public Moneys Recovery of Dues (KPMR) Act.

In the current quarter, banks filed 783 applications involving a loan amount of Rs 5.04 crore.

At the 115th SLBC meet, it was reported that deputy commissioners of Chickmagalur and Kodagu districts were not accepting cases under the RR Act .

The State Revenue Department was requested to advise district-level authorities to expedite execution of recovery certificates for realising the dues.

“The State Revenue Department has been asked to inform the SLBC meet on Monday on steps taken in this regard,” said the SLBC convenor.

DEBT RECOVERY TRIBUNAL

Positions of presiding officer and recovery officer at Bangalore Debt Recovery Tribunal (DRT) have not been filled and are lying vacant for long. This has hampered the cases pending before the tribunal.

The presiding officer of Chennai DRT holds additional charge of Bangalore DRT.

As a result, it is reported that numerous instances of delay in taking the recovery measures to logical end even after issuance of a decree/order/RC.

“The delay in appointment is leading to deterioration in asset quality and value of assets charged to the banks. Since this is of prime concern to all banks, the State Bank of India has requested for taking up DRT matters in SLBC meetings for solving the issues,” explained the convenor.

RECOVERY TAHSILDARS

The Under Secretary to the Government Finance Department, in a letter on July 13, 2010, informed as follows, “Earlier the districts with large amount of bank dues to be recovered as arrears of land revenue used to have Recovery Tahsildars assisted by few staff. The salary of the recovery unit was being met by the banks. It is advised to place this matter before the SLBC to take a view whether the same arrangement can be revived.”

The matter was discussed during earlier SLBC meetings and based on the suggestion of the sub-committee on recovery and rehabilitation, it was decided in the previous SLBC meeting to select Belgaum, Bellary, Uttara Kannada and Bijapur districts for appointment of special tahasildars for recovery as these districts have have a higher number of cases pending under the RR Act.

expected to inform the steps taken in this regard.

SLBC has requested the State Finance Department for the appointment of special Tahasildars in the above districts and the Finance Department is

expected to inform the steps taken in this regard.

Mounting Debts

Source:MOHIT SATYANAND:outlookindia:june 15,2011

State Bank of India’s quarterly numbers sent a chill down Dalal Street, with a huge, unexpected charge towards provisions for bad debts. 

The stock dropped 8 per cent in one day; at the time of writing, it is being traded close to its 52-week low of Rs 2,138, and a massive 39 per cent off its high, late last year, of over Rs 3,500. If you have read even a few of these columns, you know how wary I have been of bank stocks; though I take no pleasure in seeing investors take losses, at least I have the satisfaction of having warned a few readers to take their profits while the going was good.

One of the reasons for the huge write-down in SBI’s numbers was the change of guard, as O.P. Bhatt handed over charge to the new chairman, Pratip Chaudhuri. For the new chairman, it makes sense to take the hit at the beginning of his tenure, so he can—rightly in my view—say that the loan losses were not his fault.

The larger issue, though, is that good times make for bad loans. From the banking perspective, good times are those when money is cheap. When inflation is running at 8 per cent, and banks can raise money from the RBI at 6 per cent, money is beyond cheap—banks are being paid to borrow money from the central banker. Times don’t get better than this, so expect a lot more bad loans to show up.

Pranab Mukherjee reinforced the learning from SBI barely a couple of days later, stating that there were probably a whole lot of bad loans in the books of PSU banks. I would hardly contradict him, especially as government-owned banks are known to come under a great deal of pressure to make loans to individuals, corporates, or sectors favoured by mandarins in the corridors of power. Naturally, this excludes Pranabda: he is concerned about the problem, so he could hardly be adding to it.
Later in the earnings season, DLF announced its numbers, which were also a lot worse than expected. Though turnover was up, inflationary pressures hit margins. In addition, the real estate giant struggled to finance its debt, with interest payments adding up to 67 per cent of profits. Prior-period adjustments allowed the company to provide a minuscule amount for income tax; nevertheless, earnings per share have dropped to just over Rs 2 for the quarter. Unless the company is able to do something drastic, the figure will drop further, and even the current two-year low price, just above Rs 210, will look extremely expensive. If the country’s biggest lender and biggest developer are both squirming under the weight of their balance sheets, the situation is likely to be even worse for smaller players in both sectors. And, if conditions worsen, financial distress among borrowers will force bankers to increase the provisions in their books.

Enter Players No. 3 and 4—the government and the Reserve Bank of India (RBI). The former is spending its way to what it hopes will be social justice and political success. The first objective will only lead to more leakages and corruption. The second, only the polls will tell. What I can see clearly is the need for more and more borrowing to finance a hugely deficit exchequer; bond yields are now at their highest in 2½ years. The RBI, meanwhile, is trying to distance itself from the government —which is as it should be—and is determined to fight inflation with the only significant tool at its disposal, namely monetary policy.

Higher interest rates are going to make life increasingly difficult for the debt-ridden. Put your money only where balance sheets are clean.

Restructured loans vulnerable to shocks

SOURCE :BS Reporter / Mumbai June 15, 2011, 0:25 IST

On a day when rising inflation numbers raised many a concern, the Reserve Bank of India (RBI) said rising prices and interest rates may adversely affect banking assets. Restructured standard loans remain vulnerable to shocks, and stare at the threat of turning into non-performing loans.

Stress tests to check the ability of loans to withstand shocks had earlier showed the system’s resilience. However, banks need to remain vigilant to headwinds from the prevailing inflation and interest rate situation, which may hit the quality of assets, RBI said its Financial Stability Report.


A change in interest rates has the most significant (negative) impact on the slippage ratio of banks. Put simply, higher interest rates, coupled with the rising inflation, could erode the capacity of households and small and medium enterprises to repay loans. This raises risks of defaults and a rise in non-performing assets.

The report said the banking system had the ability to withstand an adverse shock in non performing assets (NPAs) through their capital funds. The stress tests for the near term (end-March 2012) showed the percentage of gross NPAs, compared to total advances, rose to 2.92 per cent from 2.34 per cent in end-March. The tests assumed a standard 30 per cent of restructured standard assets turning into NPAs.


The banking system’s capital adequacy ratio remained at 11.27 per cent and almost all banks maintained the ratio at above nine per cent. When the NPA level rose to 6.33 per cent, the system capital adequacy ratio stood at 9.33 per cent. However, the capital was adversely affected under an extreme deterioration of the asset quality (when NPAs rose by 168 per cent). The capital adequacy fell below below nine per cent for most banks.


Indian banks withstood the fallout of the global financial crisis in 2008. Now, stress testing on banking assets in end-March confirmed their capacity to effectively face systemic shocks, albeit with some impact on profitability, RBI said

High rates, rising NPAs may erode banks' profits: RBI

Source :BS Reporter / Mumbai June 15, 2011, 0:31 IST



The Reserve Bank of India (RBI) today said high interest rates and a rise in non-performing assets (NPAs) may erode the profitability of banks in the coming quarters.


“The SCBs’ (scheduled commercial banks) profitability showed an improvement in 2010-11. Going forward, increasing interest rates, a rise in the savings account interest rate, amortisation of pension and gratuity liabilities and the potentially enhanced provisioning requirements for NPAs may hit the profitability of banks,” RBI said in its Financial Stability Report, which was released today.





The report assesses the health of India’s financial sector and is set to be released by the central bank bi-annually — in June and December every year.

In 2010-11, profitability ratios of the Indian banking sector showed an improvement, signaling a recovery of the Indian economy. The return on banks’ assets rose from 1.0 per cent to 1.1 per cent, while return on equity improved from 13.3 per cent to 13.7 per cent, compared to the previous financial year. Public sector banks, however, witnessed a marginal decline in profitability ratios, as higher provisioning for pension liabilities led to a sharp rise in staff expenses.


RBI said it was necessary to tighten prudential norms, since deterioration in asset quality posed a threat to growth in banks’ earnings in the coming quarters.


“Asset quality improved on the back of a rebound in the credit off-take, as credit growth outpaced the growth in NPAs. Going forward, the rapid credit growth also raised the possibility of large scale slippages, requiring continued vigilance,” the central bank said.


The gross NPA ratio of banks improved to 2.3 per cent from 2.5 per cent in 2009-10, while net bad loan ratio declined by 20 basis points to 0.9 per cent.


The banking regulator, however, remains worried, since “NPAs were becoming increasingly stickier”, and the slippage ratio for public sector banks stayed above the system average. Rising delinquencies in priority sector loans, especially in farm credit, was another area of concern. The gross NPA ratio in the agriculture sector rose to 3.3 per cent in March from 2.4 per cent a year earlier.


RBI also said the revival in the demand for bank credit was driven by a handful of sectors like retail, commercial real estate and infrastructure. High exposure to the real estate sector may stress banks’ asset quality, as NPAs in real estate loans remained above the system level NPA growth. “Going forward, the asset quality in this segment may decline further pressure, given the increasing interest rate environment,” RBI said.


The central bank, however, was comfortable with the capital adequacy of banks, despite a minor decline in the adequacy ratio due to the robust credit disbursement. The leverage ratio of banks in India remained above three per cent, as required under Basel III norms.


Foreign banks’ off-balance sheet exposure surges


The Reserve Bank of India (RBI) today said off-balance sheet exposure of foreign banks in India have increased significantly and a vigilant risk management framework was required to keep a watch on the associated credit risks.


The off-balance sheet exposures in India typically comprise simple products and deals, including foreign exchange contracts, guarantees, acceptances, and endorsements.


The off-balance sheet exposures of scheduled commercial banks in India, as a percentage of the total size of the balance sheet, rose to 198 per cent in March from 178 per cent a year ago.
“In case of foreign banks, OBS (off-balance sheet) exposure, as a proportion of their on-balance sheet exposure, rose from 1,554 per cent to 1,860 per cent during the year,” RBI said in its Financial Stability Report.


“The distribution of the aggregate notional amount of OBS exposures among bank groups showed a concentration of about 68 per cent in foreign banks and just 15 per cent each in case of PSBs (public sector banks) and new private sector banks,” RBI said.

Delisting & Recovery : Compact Disc India Ltd

Source BSE : Mumbai :6th-Jun-2011 

With reference to "Suit for recovery filed by M/s Hongkong and Shanghai Banking Corporation Ltd. & delisting of the shares of Compact Disc India Ltd", Compact Disc India Ltd has informed BSE that :

"We confirm that Recovery Officer, DRT - II, Delhi vide its order dated May 10, 2011 has restrained the company from initiating any process for delisting of the shares of the Company. The copy of the said order was received by us on May 28, 2011. The case is listed on June 08, 2011.

The company has already tendered a re-payment schedule for payment of entire amount within 12 months starting from February 2011. The company has already paid a sum of Rs. 2.00 crore and balance amount will be paid within the given time schedule."

HC Asks CBI to Investigate Bank-Mafia Nexus

Source :Outlook :PTI:Newdelhi:june 5,2011


The Delhi High Court has asked CBI to inquire and respond to a plea alleging conspiracy by officials of the State Bank of India and Standard Chartered Bank in the sale of non-performing assets at throw-away prices to "builder mafias".

Justice Mukta Gupta issued a notice asking the CBI to respond within four weeks, Rohit P Ranjan, counsel for a director of a private firm, said.

Saroj Kumar Bagaria, a Delhi-based businessman and director of M/s Vishal Global Ltd , in his petition said that the firm had been granted a credit facility of Rs 5 crore in 1999 and pledged his property as security with SBI.

As the firm suffered losses and could not repay the loan, some officials of SBI and SCB conspired and sold its alleged "bad debt", declared as non-performing asset (NPA), to "builder mafia" at cheap price.

Terming it as conspiracy, Bagaria has sought the court's directions to CBI and the Bank Securities and Fraud Cell to register an FIR on the basis of his complaint, lodged in 2010.

"Erring persons (builder mafias) conspired with officials of SBI and the SCB to buy such loans (secured by properties) at price of peanuts and cause huge wrongful loss to the SBI and its borrowers and huge wrongful gains to themselves as well as SCB," the petition said.

"It is submitted that since the loans were duly secured by properties having high value and the SBI already had a decree for sale of properties from the Debt Recovery Tribunal, there was no need and occasion for the SBI to sell these debts to private banks," it said.