Over 49 lakh debtors defaulted Rs1 lakh crore of PSU banks

MDT/PTI | 05/07/2012 06:28 PM | Money life

There are 969 debtors who defaulted in repaying loans over Rs10 crore each, adding up to around Rs27,000 crore of the Rs1 lakh crore total defaults of nationalised banks

Thane: Over 49 lakh debtors have defaulted in repaying loans totalling more than Rs1 lakh crore from various nationalised banks in the country, an RTI query has revealed, reports PTI.

The information was provided by individual banks to Om Prakash Sharma, an RTI activist and a former National Council member of BJP.

The State Bank of India tops the list accounting for 32% of the total defaulted amount and 36.3% of the defaulters.

A compilation of the information received indicated that the debtors numbered 49.2 lakh and the defaulted amount was to the tune of Rs1.0 lakh crore.

The State Bank of India has a total of 17.9 lakh defaulters and the amount involved is Rs32,534 crores.

Punjab National Bank stands second with Rs9,632 crores in default, accounting for 0.1% of the total defaulted amount, followed by Union Bank of India where the debtors have not repaid Rs7,615 crore.

As regards the number of defaulters, Union Bank of India comes second with a total of 5.50 lakh defaulters followed by Bank of India which has 3.43 lakh defaulters.

There are six banks where the defaulted amount is between Rs3,000 and Rs4,000 crore, four banks where it is between Rs2,000 and Rs3,000 crore, seven where default is between Rs1,000 and Rs2,000 crore and three with less than Rs1,000 crore.

It was revealed that there were 969 debtors who defaulted in repaying loans over Rs10 crore each, adding up to around Rs27,000 crore.

The State Bank of India has 370 Non-Performing Assets, while Bank of India has 139 andUnion Bank of India 93.

Rajoo @ Ramakant vs State Of M.P. (Supreme Court- 09.08.2012 )

NEW DELHI: The Supreme Court has ruled that free assistance must be provided to all poor accused, irrespective of the severity of the crime attributed to them, at every stage of the three-tier justice delivery system and could not be restricted to the trial stage only.

“We are of the opinion that neither the Constitution not the Legal Services Authority Act makes any distinction between a trial and an appeal for the purpose of providing free legal aid to an accused or person in custody,” a bench of Justices A K Patnaik and Madan Lokur said. The bench ordered fresh hearing of appeal of one Rajoo, whose conviction in a gang rape case was upheld by the Madhya Pradesh High Court even though there was no legal assistance provided to the accused in the appeal stage. He had got free legal aid during the trial proceedings. Justice Lokur, writing the judgment for the bench, said when the Supreme Court Legal Services Committee provided assistance to eligible persons in the apex court, how could there be a bar on providing free legal aid to accused in the high courts. “It is important to note that Section 12 and 13 of the Legal Services Authorities Act do not make any distinction between the trial stage and the appellate stage for providing legal services. In other words, an eligible person is entitled to legal services at any stage of the proceedings which he or she is prosecuting or defending,” the bench said.

It disagreed with earlier judgments which hinted at carving out exceptions for providing free legal assistance to accused facing trial in economic offences or offences against law prohibiting prostitution or child abuse. “We have some reservation whether such exceptions can be carved out particularly keeping in mind the constitutional mandate and the universally accepted principle that a person is presumed innocent until proven guilty,” the bench said.

“If such exceptions are accepted, there may be a tendency to add some more, such as in cases of terrorism, thereby diluting the constitutional mandate and fundamental right guaranteed under Article 21 of the Constitution,” it said. The bench said it was obligatory for every court, from trial court to the Supreme Court, to inquire whether the accused or convict required legal representation at the government’s expense so as not to deprive the person a “fair trial or hearing”.

The Court in its Judgement discussed  the scheme of institutional machinery , various court orders and the legislation enacted for   legal aid in the country. The Judgement content is as follows:

Constitutional and statutory provisions :

By the 42nd Amendment to the Constitution, effected in 1977, Article 39-A was inserted. This Article provides for free legal aid by suitable legislation or schemes or in any other manner, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities. Article 39-A of the Constitution reads as follows:- 39A. Equal justice and free legal aid. – The State shall secure that the operation of the legal system promotes justice, on a basis of equal opportunity, and shall, in particular, provide free legal aid, by suitable legislation or schemes or in any other way, to ensure that opportunities for securing justice are not denied to any citizen by reason of economic or other disabilities.

Subsequently, with the intention of providing free legal aid, the Central Government resolved (on 26th September, 1980) and appointed the “Committee for Implementing the Legal Aid Schemes”. This committee was to monitor and implement legal aid programs on a uniform basis throughout the country in fulfillment of the constitutional mandate. Experience gained from a review of the working of the committee eventually led to the enactment of the Legal Services Authorities Act, 1987 (for short, the Act).

The Act provides, inter alia for the constitution of a National Legal Services Authority, a Supreme Court Legal Services Committee, State Legal Services Authorities as well as Taluk Legal Services Committees. Section 12 of the Act lays down the criteria for providing legal services. It provides, inter alia, that every person who has to file or defend a case shall be entitled to legal services, if he or she is in custody. Section 13 of the Act provides that persons meeting the criteria laid down in Section 12 of the Act will be entitled to legal services provided the concerned authority is satisfied that such person has a prima facie case to prosecute or defend.

It is important to note in this context that Sections 12 and 13 of the Act do not make any distinction between the trial stage and the appellate stage for providing legal services. In other words, an eligible person is entitled to legal services at any stage of the proceedings which he or she is prosecuting or defending. In fact the Supreme Court Legal Services Committee provides legal assistance to eligible persons in this Court. This makes it abundantly clear that legal services shall be provided to an eligible person at all stages of the proceedings, trial as well as appellate. It is also important to note that in view of the constitutional mandate of Article 39-A, legal services or legal aid is provided to an eligible person free of cost.

Decisions of this Court :

Pending the enactment of the Legal Services Authorities Act, the issue of providing free legal services or free legal aid or free legal representation (all terms being understood as synonymous) came up for consideration before this Court.

Among the first few decisions in this regard is Hussainara Khatoon (IV) v. Home Secretary, State of Bihar, (1980) 1 SCC 98. In that case, reference was made to Article 39-A of the Constitution and it was held that free legal service is an inalienable element of “reasonable, fair and just procedure for a person accused of an offence and it must be held implicit in the guarantee of Article 21 [of the Constitution].” It was noted that this is “a constitutional right of every accused person who is unable to engage a lawyer and secure free legal services on account of reasons such as poverty, indigence or incommunicado situation.” It was held that the State is under a mandate to provide a lawyer to an accused person if the circumstances of the case and the needs of justice so require, subject of course to the accused person not objecting to the providing of a lawyer.

The essence of this decision was followed in Khatri (II) v. State of Bihar, (1981) 1 SCC 627. In that case, it was noted that the Judicial Magistrate did not provide legal representation to the accused persons because they did not ask for it. This was found to be unacceptable. This Court went further and held that it was the obligation of the Judicial Magistrate before whom the accused were produced to inform them of their entitlement to legal representation at State cost. In this context, it was observed that the right to free legal services would be illusory unless the Magistrate or the Sessions Judge before whom the accused is produced informs him of this right. It would also make a mockery of legal aid if it were to be left to a poor, ignorant and illiterate accused to ask for free legal services thereby rendering the constitutional mandate a mere paper promise.

Suk Das v. Union Territory of Arunachal Pradesh, (1986) 2 SCC 401 reiterated the requirement of providing free and adequate legal representation to an indigent person and a person accused of an offence. In that case, it was reiterated that an accused need not ask for legal assistance – the Court dealing with the case is obliged to inform him or her of the entitlement to free legal aid. This Court observed that it was now “settled law that free legal assistance at State cost is a fundamental right of a person accused of an offence which may involve jeopardy to his life or personal liberty and this fundamental right is implicit in the requirement of reasonable, fair and just procedure prescribed by Article 21 [of the Constitution].”

Since the requirements of law were not met in that case, and in the absence of the accused person being provided with legal representation at State cost, it was held that there was a violation of the fundamental right of the accused under Article 21 of the Constitution. The trial was held to be vitiated on account of a fatal constitutional infirmity and the conviction and sentence were set aside.

We propose to briefly digress and advert to certain observations made, both in Khatri (II) and Suk Das. In both cases, this Court carved out some exceptions in respect of grant of free legal aid to an accused person. It was observed that there “may be cases involving offences such as economic offences or offences against law prohibiting prostitution or child abuse and the like, where social justice may require that free legal services need not be provided by the State.” We have some reservations whether such exceptions can be carved out particularly keeping in mind the constitutional mandate and the universally accepted principle that a person is presumed innocent until proven guilty. If such exceptions are accepted, there may be a tendency to add some more, such as in cases of terrorism thereby diluting the constitutional mandate and the fundamental right guaranteed under Article 21 of the Constitution. However, we need not say anything more on this subject since the issue is not before us. The above discussion conclusively shows that this Court has taken a rather pro-active role in the matter of providing free legal assistance to persons accused of an offence or convicted of an offence. Another view:

A slightly different issue had recently arisen in Clark v. Registrar of the Manukau District Court, (2012) NZCA 193. The issue before the Court of Appeal in New Zealand was whether legally aided defendants in criminal proceedings are entitled to choose or prefer the counsel assigned to represent them. The discussion in that case centered round the New Zealand Bill of Rights Act, 1990 and the issue was answered in the negative. However, in the course of discussion, the Court observed that the right of a fair trial is guaranteed by the Bill of Rights Act and it is an absolute right. A fundamental feature of a fair

trial is a right to legal representation under the Bill of Rights Act. Reference was made to the decision of the Supreme Court of New Zealand in Condon v. R, (2006) NZSC 62 wherein it was concluded that representation by a lawyer is nearly always necessary for a trial for a serious offence to be fair. An accused person must have legal representation or at least should have been afforded a reasonable opportunity of attaining it when charged with a serious offence. But, the Supreme Court held that: “An accused has the right to employ a lawyer, but the state does not guarantee to provide the lawyer’s services – in this respect its role is passive, in the sense that it must not impede the exercise of the right by the accused. The exception is under s 24(f) [of the Bill of Rights Act], when the accused does not have sufficient means to provide for legal assistance. Even in such a case, however, it is the accused who must take the necessary steps to obtain assistance under the Legal Services Act.”

It was noted that the Supreme Court agreed with the High Court of Australia in Dietrich v. R, 1992 HCA 57 that, other than in exceptional circumstances, “an accused who conducts his or her own defence to a serious charge, without having declined or failed to exercise the right to legal representation, would not have had a fair trial.” A conviction obtained in such circumstances would be quashed unless the prosecution is able to satisfy the appellate Court that the trial was actually fair.

That there is a right of legal representation available to an accused is undoubted, even in New Zealand and Australia. The only point of disagreement appearing from Condon, as far as we are concerned, is whether the accused should be asked whether he or she requires legal assistance or not. The Supreme Court in New Zealand appears to have taken the view that the role of the State (and indeed of the Court) in this regard is passive. The view taken by this Court on issues of legal representation, on the other hand, is pro-active and an obligation is cast on the Court to enquire of the accused or convict whether he or she requires legal representation at State expense.

Conclusion:

Under the circumstances, we are of the opinion that neither the Constitution nor the Legal Services Authorities Act makes any distinction between a trial and an appeal for the purposes of providing free legal aid to an accused or a person in custody. We are also of the view that the High Court was under an obligation to enquire from Rajoo whether he required legal assistance and if he did, it should have been provided to him at State expense. However, since the record of the case does not indicate any such endeavour having been made by the High Court, this case ought to be re- heard by the High Court after providing Rajoo an opportunity of obtaining legal representation.

Are Indian banks heading for a crisis?

livemint: Wed, Aug 22 2012. 1:15 AM IST

Banker’s Trust | Tamal Bandyopadhyay

A recent report by Credit Suisse Group AG pointed out that exposure to 10 large industrial groups constitutes 13% of the entire Indian banking system’s loan assets.

This means the concentration risk for the Indian banking system is rising. It’s not alarming if seen in isolation. If one looks at the other side of the story—the growing bad assets of banks—the system’s vulnerability becomes apparent.

The bad assets of Indian banks grew 46% in the fiscal year ended March 2012, nearly three times the pace of their loan books (17%). Add to this restructured assets and you know how grave the situation is.

As on 31 March, gross non-performing assets (NPAs) of the banking system amounted to Rs. 1.37 trillion and restructured assets Rs. 2.18 trillion.

If all restructured assets turn bad, then gross NPAs as a percentage of loans assets jump from 2.94% to 7.61%. This will not happen. By the Reserve Bank of India’s estimate, about 20% of restructured assets generally turn bad. If indeed that happens, the gross NPA ratio rises to 3.87%, and if 30% of the restructured assets turn bad, it reaches 4.34%.

This is bad news. There has been a secular decline in Indian banks’ bad assets since fiscal year 1997, when they amounted to 15.7% of loans. The percentage of bad assets declined to 2.4% in 2008. Since then, it has been rising—to 2.45% in 2009, 2.51% in 2010, and 2.94% in 2012.

In absolute terms, banks’ bad assets have doubled in three years between 2009 and 2012—from Rs. 68,216 crore to Rs. 1.37 trillion. During this period, the quantum of restructured assets has nearly trebled, from Rs. 75,946 crore to Rs. 2.18 trillion.

And both the bad assets as well as the restructured assets rose even further in the June quarter. I don’t have the restructured asset figures. The gross NPAs of listed banks rose from Rs. 1.32 trillion in March to Rs. 1.49 trillion in June. This means that for the entire industry, gross NPAs would have crossed Rs. 1.5 trillion, as this figure does not include the bad assets of unlisted private banks and foreign banks.

In percentage terms, at least four banks now have more than 4% gross NPAs, led by the nation’s largest lender State Bank of India (4.99%, Rs. 47,156 crore, up from 3.52% and Rs. 27,768 crore a year ago).

Bad assets in the coal, iron and steel, mining, construction, textiles and aviation sectors have been on the rise. Bankers are seeing stress in telecom and power sectors, too, but the gross NPA level in these two sectors is around 0.5% only. This means the bad assets of Indian banks can rise further as banks have hefty exposures to telecom and power, and neither of these sectors is in the best of health at this point in time.

The biggest beneficiaries of loan restructuring are large industrial houses in the manufacturing sector—8.24% of loans given to industries have been recast. In the services sector, the comparable figure is 3.99%, and in agriculture loans, 1.45%.

This makes it clear that small borrowers affected by the economic slowdown have not got a respite from loan servicing, but the large industrial houses have gotten one. It’s a win-win situation for both borrowers and banks; banks need to set aside very little money for restructured loans, and to that extent their profitability is not hit by provisions needed for bad loans.

Indeed, net NPAs, or bad assets after provisions, are not very high. At end-June, for listed banks they were close to Rs. 72,000 crore, and only one bank (Central Bank of India) had more than 3% net NPAs.

But this is small consolation. As banks need to set aside money to bring down their net NPAs, the growth in their capital gets stunted and that affects their ability to expand loan assets. Besides, as they need to provide for bad assets to bring them down, their ability to price their loans competitively also gets affected.

Public sector banks account for about 70% of the Indian banking industry, but when it comes to restructured assets, their share could be at least 90%. Consider these figures: while the entire banking industry has restructured 4.68% of loans till March 2012, public sector banks have recast 5.73% of their loans. The comparative figure for private banks is 1.61%, and foreign banks, 0.22%.

In the past three years, the restructured loans for public sector banks have grown at a compounded annual growth rate of close to 48% while their loan books have grown at 19.5%. For private banks, credit has grown at close to 20% while restructured loans have grown at 8.12%.

Why are public sector banks more vulnerable than their peers in the private sector? There are several reasons. Since many of them have large balance sheets, their ability to lend to different industries is more than that of most private banks. Their credit appraisal process seems to be weaker than their counterparts in the private sector; they do not pay market-related salaries and hence cannot attract people with the requisite expertise. Finally, when it comes to giving loans, they are also susceptible to pressure from politicians and bureaucrats.

Indeed, loan recasts are a global phenomenon, pioneered by the Bank of England through the so-called London Approach in the 1970s, which was later modified in the 1990s. The objective is prevention of liquidation of companies hurt by external developments, with the pain shared equally by the companies and their bankers.

But the Indian context is different. There is no bankruptcy law here and the banking system seems to be suffering more than the borrowers.

Tamal Bandyopadhyay keeps a close eye on all things banking from his perch asMint’s deputy managing editor in Mumbai.

Bad loans back to bite SBI

Livemint :Ravikrishnan:Sat, Aug 11 2012. 12:26 AM IST

State Bank of India’s (SBI’s) 137% increase in net profit for the June quarter from a year ago fails to mask the problems it is facing. Stressed loans are piling up for the bank even as it is slowing down on the operational side.

The June quarter numbers show that the good performance for the three months ended March may have been a temporary blip. In the June quarter, fresh slippages into bad loans totalled some Rs.10,844 crore, nearly double what the bank had guided for.

Adjusting for upgrades, SBI added Rs.7,480 crore to its gross non-performing assets (NPAs). That compares with a Rs.421 crore drop in March and Rs.6,000 crore-odd additions in the previous couple of quarters.

That means the bank’s gross NPAs, as a proportion of its total loan book, are 4.99%, the highest in at least eight quarters. On the brighter side, SBI recast loans worth only Rs.564 crore in the June quarter, about one-tenth of what it had in the three months ended March. But then look at the overall stressed asset position (i.e., gross NPAs plus recast loans). The June numbers are 60% more than those of March, reflecting continued pressures.

The bank seems to think that the bad loans situation should ease soon. Its loan loss provisions for June are the same as a year ago, when asset quality was far more robust. In effect, it has sacrificed provision cover to boost its net profit numbers.

Perhaps it didn’t have much choice. Operationally, the numbers are reflecting a slowdown from the March quarter. Net interest income grew 14.63% from a year ago in the June quarter against 43.84% in March. This is the slowest in at least eight quarters. Non-interest income shrank 1% in June compared with an 11.66% increase in March. Within this category, too, fee income grew a measly 1.2% year-on-year in the June quarter from 13.5% in March. The net result was that operating profit growth slowed down to 12.9% in June, way below the 57.85% in the fourth quarter of last fiscal.

Even the industry-beating 20% increase in SBI’s loan book from a year ago has come at a cost. The bank’s yield on advances declined 19 basis points sequentially, while its cost of deposits rose 29 basis points. As a result, net interest margin fell to 3.57% in June, down 18 basis points from a quarter ago. A basis point is 0.01%.

Also note that the fastest growing category in the loan book was farm debt, which grew 25.85% from a year ago. This is also a category that is seeing a fair amount of slippages, especially with a drought looming.

The outlook for SBI is sombre. With economic indicators showing that the economic downturn has not bottomed out, it is hard to see how India’s largest bank will fare any better.

Economic malaise in India and corporate debt restructuring

Moneylife :NAGESH KINI | 08/08/2012 02:32 PM |   

The need of the hour is arriving at just and equitable solutions for the revival of viable borrowers when both the lenders and borrowers share losses in equal measure and not resort to one-upmanship

The present condition of sky-rocketing food prices driven hyperinflation goes way back to 2006 through 2008 following rapid-fire economic cycles of boom, recession and stimulus-driven revival bringing it now to sheer stagflation accentuated by total policy paralysis, utterly bad governance coupled with trust deficit at the national level.To blame the slowdown in the West and coalition compulsions at home is absolutely fallacious and ridiculous. The United Progressive Alliance’s (UPA) flawed policies are the root cause for the current malaise.

The so-called heady boom of that period gave a kick-start to the demand for risk equity capital when investment and merchant bankers had field day raising initial public offering follow-up on public offers, qualified institutional placements, private equity investments and foreign institutional investors that flooded eastwards from the Western financial markets consequent upon the Western meltdown. Our markets were deluged with funds of all hues and colours, legitimate and illegitimate irrespective of enterprise valuations (EVs) which invariably appeared many a times astronomical!

 Following the post-Lehman crisis, beginning 2009 the markets lost their euphoria and sheen. Raising equity at high EVs became difficult and capital-intensive industries in engineering, procurement, reality, infrastructure and power had to go in for large-scale debt-funding via term borrowings from commercial banks and developmental finance institutions, increasingly present NBFCs and also external commercial borrowings.

The Reserve Bank of India (RBI), concerned with high inflation resorted to raising the key repo and reverse repo rates a record 13 times since March 2010 only to slow down now! This made debt servicing for the industries more expensive. Suffocated with high interest rates, defaults in interest and installments began to become the order of the day. The heady boom having come to an abrupt end, the focus has now shifted to numbers of bad loans or distressed assets as they are termed in the West.

This brought in an era of corporate debt restructuring (CDR), now denoted Greening of loans (!) It seeks to recognize impairment by allowing the reorganization of outstanding debt obligations by bringing about reductions in the burden of the mounting/compounding debts—lessening in the interest rates and rescheduling the installments by extending the term of repayment. This enables increase in the ability of the borrower to meet debt obligations by letting the lender waive in part or forgive or convert a part of debt into equity.

To prevent abuse by delinquent borrowers, the RBI-appointed Mahapatra Committee in its fairly comprehensive report, quoting best practices across the globe, has rightly stipulated that the CDR request be approved by at least 75% of total exposure and consent of 60% of the total creditors. As per the recommendations the promoter-directors are mandatorily required to infuse 15% of their own additional equity upfront to enhance their personal stake in the restructuring exercise. To revive the entities it is absolutely imperative that both the lenders and borrowers sacrifice in equal measure. The promoter-directors cannot be allowed to walk away in gay abandon with the cream of past malpractices when the lenders have to bear the brunt of write-off burden. This avenue has been unfairly exploited by a private airline to get its massive debt converted into equity at inflated valuations by at least half a dozen large commercial banks! So much for implementing and enforcing the rule of the law by the banking and market regulators!

According to the CDR Cell, during fiscal 2012 banks have restructured Rs 64,500 crore—an increase of 156% over the previous year— when the banks filed 84 cases.  This makes restructuring the highest since its launch in 2001. It has helped revive the macro-economic conditions for both the banks by promptly recognizing and providing for the impairment of their non-performing assets well in time. The borrowers are also able to reduce their interest and principal debt burdens by providing for sufficient breathing space to genuinely viable units to enable them to bring about a turnaround without having to resort to tedious DRT and court procedures or end in winding up proceedings.

The Hindu Business Line in a front page report said: “Wockhardt ready to exit debt recast process”. It reports that the company had first sought the CDR lifeline through ICICI Bank in 2009 when it defaulted on the $110 million FCCB (foreign currency convertible bond) that made worst its outstanding debts of Rs3,400 crore and Rs1,300cr under CDR.  According to chairman Habil Khorakiwala all loans had been restructured and it would settle with the banks that do not want to continue with the CDR process. The company had to close a Rs1,600 crore deal to sell its nutrition business to Danone to repay the debs due. It had already exited its non-core businesses as part of regaining financial health.

The Apparel Export Promotion Council (AEPC) has sought the finance minister’s help in restructuring loans —out of total outstanding debts of the textile sector of Rs1,55,809 crore, debts of Rs35,000 crore needed restructuring. Its chairman has requested the RBI (Reserve Bank of India) and the Department of Financial Services to give directions for the restructuring move.                        

The CDR route for debt mitigation has also been found to be unfairly exploited by Kingfisher, a private airline, by getting a part of its massive debt to banks converted into equity at inflated valuations. So much for implementing and enforcing the rule of the law by the banking and market regulators!

The need of the hour is arriving at just and equitable  solutions for the revival of viable borrowers when both the lenders and borrowers share losses in equal measure and not resort to one-upmanship—the borrower enjoying on misused/misapplied bank funds on the one hand and on the other, a vindictive lending bank seeking to squeeze the hapless borrower, more often than not small traders, SMEs, householders, vehicle loan or even a delinquent credit card defaulters who may have valid reasons and only seek additional time and concessions. There is no reason why the concessions are not extended to these small time borrowers where banks resort to extortionist recovery and attachment proceedings while dealing with big ticket chronic delinquent defaulters with Kid gloves by bending backwards with concessions.

Rightly put by a veteran banker—when a small man owes a few thousands to a bank, he is in deep trouble but when a big tycoon has outstandings running into crores with the bank, it is the bank that faces the music! 

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)

K.Kailasam V/S A.O., Canara Bank and anr

R.A(S.A):131/2011

1.         This appeal impugns the order dated 31.5.2011 passed by the Learned Presiding Officer, DRT Coimbatore in SA No.34/2010.

2.         The case of the appellant may be stated as follows:

The appellant is the Sole Proprietor of M/s Kailasam and Chitravathi Farm and the said farm is a reputed one in the area.  The appellant had planted flower plants, fruit trees like Amla, Mango, Sapota, Rose etc., in the said lands at Kermalam, Kudhiyalathur, Kadampur Post, Sathyamangalam Taluk, Erode District. The appellant had approached the first respondent bank for credit facilities and the first respondent bank sanctioned an Agricultural Term Loan of Rs.69,40,000/- on 20.9.2004 and the said sum was released in stages.   The loan was repayable within a period of ten years (including the initial holiday period of three years) in two yearly installments of Rs.4.70 lakhs each and 5 years installments of Rs.12 lakhs each.  The appellant had deposited the title deeds of the immovable properties viz., agricultural land in S.F. No.2428/1. 2428/5, 2429/2, 2430/1 etc., at Kermalam, Kudhiyalathur, Kadampur Post, Sathiyamangalam Taluk, Erode District and the house property at Old No.119, 120 and New No.117 and 118, Agrahara Street, Perundurai, Erode to secure the loan.  At the request of the appellant the first respondent bank sanctioned a further sum of Rs.33.39 lakhs on 10.5.2005 for the construction of a Green House, drip irrigation and for cultivation of capsicum.  The said sum was to be repaid in six years (including the initial holiday period of one year) with interest @11.75% p.a.  While so when the farm was coming up well wild elephants damaged the entire crops on several occasions and because of this the appellant faced losses and could not repay the loans as agreed to.  The appellant sent a representation to the first respondent bank requesting for the deferment of the payment of loan for sometime and also paid a sum of Rs.19 lakhs to show his bonafides.  In the meantime the Government of India issued guidelines for debt waiver and debt relief scheme for the farmers and as per the said scheme the appellant was entitled to get an One Time Settlement in which he would have got a rebate of 25% subject to the condition of payment of the balance 75% of the eligible amount.  The scheme required that the first respondent to display on or before 30.6.2008 the list of persons who could avail the benefit.  The first respondent failed to display the list and therefore the appellant could not submit his proposal.  While so the first respondent bank issued the demand notice under Section 13(2) of the SARFAESI Act on 28.10.2008 and took symbolic possession of the house property on 25.3.2009 and issued the sale notice on 22.5.2009 fixing the auction sale on 25.6.2009.   The appellant therefore filed SA No.65/2009 on the file of DRT Coimbatore wherein the Ld. Presiding Officer passed a conditional order. Aggrieved by the said order the appellant filed W.P. No.11229/2009 before the Hon’ble High Court and the said writ petition was dismissed with a direction to the Tribunal below to dispose of the SA before end of August 2009 and the Tribunal below dismissed the said SA.  Subsequently the first respondent bank issued a fresh sale notice on 22.1.2010 fixing the auction sale on 25.2.2010.  The appellant paid a sum of Rs.2.5 lakhs on 24.2.2010 into the loan account and the Branch Manager agreed to defer the auction on the condition that the entire dues are paid within two months.  The Authorized Officer therefore postponed the sale but did not communicate the next date of auction to the appellant as per the Act.  The Authorized Officer conducted the sale on 5.3.2010 and the sale certificate was issued on 30.3.2010 without the confirmation of the sale.  Aggrieved by the proceedings of the Authorized Officer the appellant filed SA No.34/2010 on the file of DRT Coimbatore and the same was dismissed by the Ld. Presiding Officer by his order dated 31.5.2011.  Hence this appeal.

3.         Ld. Counsel appearing on behalf of the appellant drew the attention of this Tribunal to the requirement under Rule 8(6) and Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 and stated that in this case the requirement under Rule 9(1) has not been followed by the Authorized Officer and that this contravention alone apart from the other contraventions entitles the appellant to have his appeal allowed.  Ld. Counsel further stated that in the absence of any confirmation the entire proceedings would come to a nullity as the Authorized Officer cannot issue a sale certificate in the absence of a confirmation.  Ld. Counsel further stated that the Authorized Officer could not have sold the property without inviting the public to participate in the auction which is mandatory under Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.  The Ld. Counsel relied upon the judgment of the Hon’ble High Court of Punjab and Haryana in the case of “Bharat Industrial Corporation Vs. Punjab Financial Corporation and Ors” II (1998) BC 546(DB) in support of his contentions.

4.         The Ld.  Counsel for the first respondent bank stated that the Authorized Officer has not contravened any of the provisions of the SARFAESI Act or the Rules made thereunder.  The Ld. Counsel drew the attention of this tribunal specifically to paragraph 11 of the order of the Ld.  Presiding Officer and stated that whatever that is found therein has been properly arrived at by the Ld.  Presiding Officer and that the bank was never at fault in taking up the proceedings under the provisions of the SARFAESI Act and the Rules made thereunder.  The Ld. Counsel relied upon a letter dated 11.5.2007 said to have been given by the borrower to the bank in this case and stated that a reading of the same would reveal that the borrower has admitted the liability and that having admitted the liability the borrower cannot now come forward to challenge the action of the Authorized Officer.  The Ld. Counsel prayed for a dismissal of the appeal.

5.         The first respondent bank filed its written submissions and the same form part of the record. 

6.         Ld.  Counsel appearing on behalf of the Auction Purchaser stated that the auction purchaser has invested more than Rs. 70 lakhs and that he has purchased the property in the month of March 2010 and that he is still not able to enjoy the property after investing his hard earned money.   Ld. Counsel stated that the sale certificate has been issued by the Authorized Officer and that no confirmation letter has been given to the Auction Purchaser so far.

7.         Heard the Ld. Counsel for the appellant, Ld. Counsel for the respondent bank and the Ld. Counsel for the auction purchaser.

8.         It is seen that the Authorized Officer in this case had issued the sale notice on 22.1.2010 and the sale was scheduled to take place on 25.2.2010.  It is seen that necessary paper publications have been taken out for the sale and thereafter the sale that was proposed to be held on 25.2.2010 did not take place and the Authorized Officer postponed the sale to 5.3.2010 by displaying a separate notice in the respondent bank’s notice board on the very same day i.e., 25.2.2010.  The case of the respondent bank is that the display of separate notice was enough for postponing the sale and the sale was conducted successfully on 5.3.2010.

9.         Now the questions that arise for consideration in this case may be stated as follows:

(i)               Whether the Authorized Officer is bound to confirm the sale on receipt of 25% of the bid amount in favour of the successful bidder?

(ii)              Whether the Authorized Officer can receive the balance 75% of the sale price without the issuance of the letter of confirmation?

(iii)            Whether in this case the letter of confirmation has been issued by the Authorized Officer?

(iv)            Whether the sale certificate can be issued in the absence of the confirmation of sale and if the sale certificate is issued without the confirmation, whether the sale certificate would be valid in the eyes of law?

(v)             whether the Authorized Officer can violate the condition stipulated in Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 and proceed to sell the secured asset on a date of his choice and by merely displaying the date of the fresh sale in the notice board of the respondent bank?

10.       Rule 9(2) of the Security Interest (Enforcement) Rules, 2002 reads as under:

“ The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the Authorized Officer and shall be subject to confirmation by the secured creditor.”

11.       A reading of the above said rule clearly reveals that the Authorized Officer is duty bound to confirm the sale in favour of the purchaser who has offered highest sale price in the bid.

12.       Rule 9(4) of the Security Interest (Enforcement) Rules, 2002 reads as under:

“The balance amount of purchase price payable shall be paid by the purchaser to the Authorized Officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.”

13.       A reading of the above rule clearly reveals that the balance purchase price payable by the successful bidder cannot be paid by the successful bidder or received by the Authorized Officer without the confirmation of sale.  A perusal of the records and the submissions of the Ld. Counsel for the Auction Purchaser made on 28.3.2012 reveals that the confirmation letter was not issued to the auction purchaser.

14.       Rule 9(6) of the Security Interest (Enforcement) Rules, 2002 reads as under:

“On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the Authorized Officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the Form given in Appendix V to these rules.”

15.       A reading of the above rule reveals that the Authorized Officer cannot issue the sale certificate unless the confirmation of the sale is done and the terms of payments have been complied with.  In this case it is seen that the confirmation has not taken place and therefore whatever sale certificate issued in this case is non est in law.

16.       Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 reads as follows:

“The Authorized Officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5);

Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include-

a)     the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor.

b)     The secured debt for recovery of which the property is to be sold.

c)     Reserve price, below which the property may not be sold;

d)     Time and place of public auction of the time after which sale by any other mode shall be completed.

e)     Depositing earnest money as may be stipulated by the secured creditor;

f)       Any other thing which the Authorized Officer deems it fit for a purchaser to know in order to judge the nature and value of the property.

Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 reads as follows:

“(1) No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule(6) or notice of sale has been served to the borrower.”

Rule 9(1) of the Security Interest (Enforcement) Rules, 2002 stipulates that an immovable property cannot be sold without the paper publication of the sale notice as referred to in proviso to Rule 8(6) or the notice of the sale has been given to the borrower prior to 30 days of the sale.  In this case the notice to the borrower had already been given and the sale notice had been issued on 22.1.2010 for the sale that was proposed to be held on 25.2.2010. The sale was not conducted on 25.2.2010 but was postponed to 5.3.2010 and neither any publication nor any public notice was made for the sale.  The public notice is required for the purpose of inviting the public in order to get a higher price for the secured asset, which would enable the liquidation of the loan.  In this case the Authorized Officer has simply put up a notice in the respondent bank’s notice board and merely displaying the notice regarding the postponement of the sale in the bank’s notice board cannot in any way deemed to be a public notice and also cannot be said to be an honest attempt by the Authorized Officer to get a higher price as the notice displayed in the notice board of the bank would be seen by the customers who have entered the bank during business hours alone.  Moreover the property is situated in Perundurai and the auction has been conducted in Coimbatoreand it cannot be expected that person who are customers of the bank at Coimbatore would be interested to purchase the property at Perundurai which is situated at a distant place.  Therefore the non providing of information about the postponement of the sale to the general public has caused prejudice to the borrower.  Therefore the Authorized Officer though has power to postpone the sale for valid reasons has to take steps to make every honest attempt to get a higher price and also conduct the auction in a fair manner after duly informing the general public.  In this case there was no proper notice to the public and therefore it can be seen that the lone bidder who has submitted his bid on 24.1.2010 had the bid knocked down in his favour and the non publication of the postponement of the sale to the general public has given the lone bidder an unfair advantage over the others and he has thus got the property.  Though the publications have been taken out for the earlier proposed sale and though the notice has been given before the sale, though it superficially appears that the Authorized Officer has obeyed Rule 9(1), it can be seen that the Authorized Officer has de facto has gone against the Rules which have been framed to enable the bank to get the best price and therefore the Authorized Officer by his act has caused prejudice to the borrower by denying other members of the public to participate in the auction by failing to make the postponement of the sale public in a manner that the Rules prescribe and has also caused prejudice to the secured creditor, where the secured creditor has lost the opportunity of getting a higher amount towards the recovery of its dues.

17.       It is also seen that in paragraph 8 of the order of the Ld. Presiding Officer, the Tribunal below has come to the conclusion that for the subsequent or repeated sales if conducted by public auction, it would be necessary to publish the sale notice in newspapers and affixing the same on property and personal service on the borrowers would not be a mandatory requirement.  However, it is seen in this case that for the subsequent sale conducted by the Authorized Officer on 5.3.2010, the said postponement notice has not either been published in the newspaper nor pasted on the secured asset but it is only stated to have been put up in the notice board of the first respondent.  Therefore, even according to the findings of the Ld. Presiding Officer the sale conducted on 5.3.2010 has not been conducted in a manner known to law and further that the property has been sold in contravention of the SARFAESI Act and the Rules made thereunder.

18.       Therefore from the fact that the Authorized Officer has not issued the letter of confirmation of the sale in favour of the successful bidder, from the fact that the Authorized Officer had not taken sufficient steps to protect the interest of the borrower as enshrined in the provisions of the Act and the Rules made thereunder, from the fact that the Authorized Officer also has not safeguarded the interest of the bank by not choosing to hold the auction after properly and sincerely informing the members of the public, from the fact that the Authorized Officer has enabled the successful bidder to avoid any competition to his bid this Tribunal is driven to conclude that the sale has not been conducted in a fair and a proper manner and it has to be concluded that the auction conducted in this case is liable to be set aside.

19.       In the result the appeal is allowed.

20.       The sale conducted by the Authorized Officer on 5.3.2010 is hereby set aside.

IA 705/2011 (Waiver):  RA(SA) is allowed.  Hence this IA is closed.

The above Order was passed by the Hon''ble Chair Person of DRAT ,Chennai on 7th Aug 2012

Attached: Deccan Chronicle Holdings Ltd's bank accounts

M Sagar Kumar, TNN | Aug 7, 2012, 02.28AM IST

HYDERABAD: In a setback for Deccan Chronicle Holdings Ltd (DCHL), the Debts Recovery Tribunal (DRT) in New Delhi has attached five accounts of the company with various banks in Hyderabad and Chennai through two orders issued on August 2 and 3, 2012.

With this, DCHL's accounts with the Hyderabad branches of Punjab National Bank (PNB), HDFC and ICICI as well as the Chennai branch of ICICI Bank have been attached.

The attachment orders were part of DRT's interim orders on a petition filed by Industrial Finance Corporation of India (IFCI) over DCHL's failure to redeem non-convertible debentures worth Rs 25 crore due before the June deadline this year.

During the course of the hearing at the tribunal, DCHL had paid some amount by way of interest on the NCDs to IFCI and for the principal amount of Rs 25 crore it had issued a cheque drawn on ICICI Bank at Chennai that bounced.

In its order, DRT directed that the attachment of accounts to the extent of around Rs 25.17 crore should be kept in interest-bearing 'no lien accounts' for a maximum period of six months and not be distributed without prior permission of the tribunal.

In the interim order, DRT also recorded the apprehensions of the IFCI counsel that DCHL was "transferring their assets one after another" and collection of IFCI's dues would be jeopardized if the bank accounts were not attached at this stage.

The DRT also observed that the "conduct of DCHL was not up to the mark and that they were transferring their shareholdings and encumbering assets in favour of some creditors such as banks and NBFCs.

The IFCI counsel in his plea argued that an urgent interim order was required as DCHL had "already transferred (assets), by way of pledge shareholding of 54% on July 26, 2012 and 14.4% on July 30, 2012". He added that an FIR was lodged by Karvy Stock Broking Ltd against DCHL and its directors for offences under various sections of IPC.

Meanwhile, ICICI Bank, which already has an exposure of Rs 490 crore with DCHL, has moved a fresh application before the DRT seeking protection of the securities mortgaged with the bank by the latter and has sought to be heard in the matter, which has been posted to August 8, 2012.