Indian Bank Vs Kay Pee Kay Medical Services Pvt. Ltd.,

 IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

DATED THE 14^TH OCTOBER, 2004

PRESENT:  HON’BLE JUSTICE DR. PRATIBHA UPASANI

CHAIRPERSON

MA-72/2004

(IA-187/2003 in TA-533/2001-DRT-II, Chennai)

BETWEEN:

Indian Bank,

ARMB-I Branch,

Chennai.

…  Appellant

            (Counsel:  Mr. T.R. Rajagopalan for M/s. Aiyar & Dolia)

AND

1.  M/s. Kay Pee Kay Medical Services Pvt. Ltd.,

     Rep. by its Managing Director Dr. K. Padmanabhan,

     43, II Main Road,

     Raja Annamalaipuram,

     Chennai-600 028.

2.  Dr. K. Padmanabhan,

     (Address as in 1 above).

…  Respondents

            (Counsel:  Mr. Krishnamurthy for M/s. G. Govindarajan)

:  O R D E R  :

1.         Mr. T.R. Rajagopalan, Advocate holding for M/s. Aiyar & Dolia for the appellant Indian Bank and Mr. Krishnamurthy, Advocate holding for M/s. G. Govindarajan for the respondents 1 & 2, are present.

2.         This Miscellaneous Appeal is filed by the appellant/Original applicant Indian Bank aggrieved by the Order dated 16.4.2004 passed by the Learned PO of DRT-II, Chennai, in IA-187/2003 in TA-533/2001.  By the impugned Order the Ld. PO allowed the application made by the defendants/Respondents herein wherein they had prayed for giving direction to the applicant Bank to treat the cut-off date as 31.3.1992 with respect to Medium Term Loan (MTL) Account and Temporary Overdraft Account of the respondents and cut-off date as 22.9.1995 with respect to Clean Loan Accounts I, II & III.  Further direction was given to the applicant Bank that on the basis of these cut-off dates, calculation with respect to OTS amount payable by the defendants including the legal expenses and other charges be made, and the same be informed to the defendants within 15 days from the date of the Order.  Defendants were directed to pay the amount quantified by the applicant Bank in terms of the above Order within three weeks from the date of communication by the applicant Bank failing which the applicant Bank was held to be entitled for the whole claim in the TA with future interest etc.  The Bank is aggrieved by this Order because direction with respect to treating cut-off date with respect to the accounts of the defendants as given by the Ld. PO was not acceptable to the Bank.  Moreover, contention of the Bank was that the One Time Settlement (OTS) guidelines given by the Reserve Bank of India (RBI) were only for directions and not for governance and therefore, they are not binding upon them.  The appeal has been filed by the Bank mainly on these two grounds.

3.         I have heard Mr. T.R. Rajagopalan, Advocate appearing for the appellant Indian Bank and Mr. Krishnamurthy, Advocate appearing for the respondents.  I have also gone through the proceedings including the impugned Order, the revised RBI guidelines for compromise settlement of chronic Non-Performing Assets (NPAs) of public sector banks and other relevant material and, in my view, the Ld. PO was not correct in passing the impugned Order.

4.         It is revealed from the proceedings that the Suit was filed by the Bank way back in the year 1995 in the High Court of Judicature at Madras.  The Suit is dragging on from that year onwards and was transferred to DRT after the establishment of Tribunals under the RDDB&FI Act, 1993.  The offer for OTS was made by the Bank in the year 2003 by their letter dated 27.2.2003 and the defendants showed interest in the said OTS Scheme.  It appears that the account of the respondent No.1 Company was classifed as NPA since 31.10.1992.  It was re-classified as Standard Asset as on 31.3.1993 and 31.3.1994 because the defendants made payment of Rs.1,98,07,678/- in the year 1993. Their account was classified as Sub-standard asset as on 31.3.1995 and was classified as doubtful asset on 31.3.1996 by the statutory auditors of the Bank.  The Bank filed Suit on 22.9.1995 including the liabilities in the name of the Original defendant No.2 (2^nd respondent herein) and the outstandings were transferred to the Protested Bills Account.

5.         The Bank’s contention all throughout has beenthat as per the revised RBI Scheme the cut-off date was correctly taken as 22.9.1995 and the amount transferred to Protested Bills was Rs.7,88,84,836/-.  In the Protested Bills Account there was a credit of Rs.2,53,11,690/- by way of FCNRD proceeds from Purasawalkkam Branch and another credit of Rs.81,462/- by Current account proceeds.  The minimum recoverable amount was worked out as per revised RBI scheme for compromise of NPA Accounts and the said figure arrived at was Rs.5,48,55,264/-.  Thus, taking into consideration all the transactions, the Bank sanctioned compromise settlement of Rs.550 lakhs and it was this proposal which was communicated to the respondents by their letter dated 28.1.2003.  But, it appears that the respondents did not accept the said proposal nor adhered to the stipulated terms and conditions and the Bank by their letter dated 30.4.2003, therefore, intimated to the respondents that the sanction accorded stood cancelled.  It was communicated to the respondents that if they were still desirous of settling the amount, fresh proposal could be sent under the revised Scheme of RBI on or before 30.4.2003 and the Bank would consider and pass orders either way.

6.         Though on principle, the respondents were agreeable to the compromise proposal the mute question was what was the cut-off date.  According to the defendants, the cut-off date with respect to MTL account was 31.3.1992 and that of Temporary OD Account the cut-off date was 31.3.1992 and with respect to Clean Loan Accounts I, II & III, the cut-off date was 22.9.1995.  The contention of the respondents to this effect was accepted by the Ld. PO, but the Bank was not agreeable to this.  Though the account of the defendants became NPA as on 31.3.1992, it was re-classified as Standard Asset as on 31.3.1993 and 31.3.1994, because payments were made by the defendants.  Therefore, again their account was classified as Sub-standard Asset as on 31.3.1995 and was classified as doubtful asset as on 31.3.1996.  This contention of the Bank appears reasonable.  I, therefore, reject the contention of the respondents’ Advocate on this point.

7.         Moreover, the respondents’ contention that the RBI guidelines are binding on the Bank even if they are to their detriment, cannot be accepted.  These guidelines are indeed in the nature of guidance and they are not meant for governing.  These guidelines are not issued under Section-21(1) of the Banking Regulation Act, 1949, or under Section-47 A (1) (b) of the said Act and, therefore, Bank cannot be compelled to accept the proposal made by the respondents nor can they be compelled to accept the cut-off date as per the respondents’ contention.

8.         While allowing the Appeal RA-12/2004 filed by the Central Bank of India, this Appellate Tribunal by its Order dated 15.9.2004, has held that the RBI guidelines are there to guide and not to govern.  Reference was usefully made to the decision of the Allahabad High Court in 2004(3) CCC 165 (AIL) (Sardar Prem Singh Vs. Bank of Baroda).  The Division Bench of the Allahabad High Court in this case has held that guidelines for recovery of non-performing assets do not confer right on a party to get one time settlement and that guidelines are purely administrative instructions which are not enforceable by Court of law.  Even the previous Chairperson of this Appellate Tribunal, Late Justice Smt. A. Subbulakshmy, has held in deciding the case of Sri Raghavendra Theatre Vs. Bank of India (Appeal RA No.7/2003 in Appeal-1/2002 in OA-878/1995) that if default is committed by the appellant in terms of the compromise then the compromise is to be treated as broken and the terms of the compromise is no longer binding on the Bank.

9.         In the present case at hand, the respondents have not adhered to the terms of the compromise.  That appears to be their regular practice on earlier two occasions also.  The respondents did not accept the compromise offered by the Bank though it was for a lesser amount and though the Bank’s claim was duly accepted and was reflected in the Balance Sheet by the respondents.  Therefore, I am in respectful agreement of the above two authorities (supra) and I am in agreement with the Bank’s contention that the guidelines are not binding upon the Bank even though they are not prejudicial to the Bank’s interest.  Therefore, the Ld. PO ought not have compelled the Bank to accept the proposal as given by the defendants.  The impugned Order will have, therefore, to be set aside and the appeal will have to be allowed.  Accordingly, following Order is passed.

10.       Miscellaneous Appeal MA-72/2004 is allowed.

(Dictated to PS, the transcript corrected and order pronounced in the open court & signed by me today 14.10.2004).

                                                                                                                        Sd/-

[ JUSTICE  DR. PRATIBHA UPASANI ]

CHAIRPERSON

Kotti Finance Ltd Vs Indian Bank

IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

DATED THE 21^ST OCTOBER, 2008

PRESENT:  HON’BLE MR. JUSTICE T.V. MASILAMANI

CHAIRPERSON

RA(SARFAESI)-113/2008

(SA-178/2007 – DRT-III, Chennai)

BETWEEN –

M/s. Kotti Finance Ltd.,

No.180-181, Gandhi Road,

Kanchipuram Town,

Rep. by its Director,

Mr.S. Kamakotti

….  Appellant

AND

Indian Bank,

Circle Office,

No.510-511, Gandhi Road,

Kanchipuram,

Rep. by its Authorised Officer

….  Respondent

Counsel for Appellant – M/s. Prakash Goklaney, Rishi S. Ahuja & Harshad P. Goklaney

Counsel for Respondent Bank – M/s. Aiyar & Dolia

O R D E R

1.         The Appellant/Third party has filed this Appeal challenging the impugned Order passed by the DRT-III, Chennai, in SA-178/2007 on 10.1.2008.

2.         The facts leading to the filing of this Appeal may be set out briefly as under :-

            The Respondent Bank sanctioned the loan facilities by way of Overdraft and OCC limit to M/s. Lakshmi Vilas Silks Ltd. against collateral security of movable properties for which equitable mortgage of land and building bearing Door Nos.186C (New No.181) and 186B (New No.180) situated at Gandhi Road, Kanchipuram, was also created in favour of the Bank by the borrower.  The Directors of the principal borrowers stood as guarantors for the due repayment of the loan.  Since the account was out of order, the Bank invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter called as SARFAESI Act) and issued the demand notice dated 26.12.2002, under Section-13(2) in the said Act and also took physical possession of the 1^st and 2^nd floors of the building and symbolic possession of the ground floor on 7.1.2005.  Since the borrowers have not repaid any amount, the secured property was sold by the Bank on 16.10.2006, and the same was also confirmed in favour of the highest bidder on 17.10.2006.  The Bank issued notice to the borrowers to hand over physical possession, but the Appellant, who is third party filed the said SA contending that the Appellant institution is a tenant of the ground floor in the said mortgaged property.  The Respondent Bank filed a detailed Counter Affidavit.  After hearing both sides and upon perusal of the material records, Ld. PO dismissed the Application filed by the Appellant.  Hence the Appeal.

3.         Heard Mr. Prakash Goklaney, Ld. Counsel appearing for the Appellant and Mr. Subramaniam, Ld. Counsel appearing for the Respondent Bank.

4.         Ld. Counsel for the Appellant has putforth the following contentions :- 

The Appellant is a Public Limited Company inducted into possession of the ground floor in the mortgaged property from the year 1995 under a lease deed dated 9.1.1991, and has been in occupation of the same, carrying on business including that of provision of safe deposit lockers to its customers.  The Respondent Bank is now attempting to evict the Appellant in the guise of evicting the debtor and such an action on the part of the Respondent Bank is illegal as also an abuse of process of law.  The DRT failed to note that the law of evidence is not provided in so far as the proceedings before the DRT is concerned.  The Appellant is a tenant entitled to the protection under the Tamil Nadu Buildings (Lease and Rent Control) Act, and there need not be a lease deed for the purpose of invoking the provisions under the said Act.  Similarly the DRT erred in stating that the lease was not in accordance with Section-65A of the Transfer of Property Act, which is not applicable to cases covered by the Rent Control Act.  Similarly the finding rendered by the DRT that the action on the part of the Appellant was barred by limitation has no legal basis for the reason that only when the Respondent Bank threatened to break open and take physical possession, the Appellant was constrained to institute the said proceedings. Even otherwise, the delay if any, could have been condoned by the DRT as there was sufficient cause for such delay.

5.         In the above circumstances, the points for consideration are as follows :-

1)      Whether the Appellant being a third party to the transaction is entitled to claim tenancy rights over the ground floor of the mortgaged property ?

2)      Whether the impugned Order passed by the DRT has to be set aside as prayed for ?

The Points :

6.         It is common ground that the Respondent Bank had taken measures under Sections-13(2) & 13(4) of the SARFAESI Act, against the principal borrower M/s. Lakshmi Vilas Silks Ltd., and the Directors of the Company, who stood as guarantors for the due repayment of the loan amount and in the process the secured property was taken possession.  Similarly it is not in dispute that the ground floor of the secured property was taken by way of symbolic possession by the Bank and in this context the Appellant has putforth the claim in the said Application in SA-178/2007 before the DRT that they are in possession of the ground floor as a tenant under the principal borrower.  In this respect, it is relevant to note that some of the Directors of the principal borrower Company are the Directors of the Appellant institution also.

7.         In the above circumstances, it has become necessary to consider whether the Appellant has proved satisfactorily that the institution is a statutory tenant of the 1^st floor of the mortgaged premises?  The Appellant has placed strong reliance on the unregistered document so as to claim the status of a statutory tenant.  In this connection, Ld. Counsel for the Respondent Bank has cited the decision, Duraisamy Naidu & Ors. Vs. Ramakrishnan & Ors.- [(2007) 1 MLJ 424], wherein the principle of law is laid down that where the lease deed is executed for a period of more than one year, it has to be mandatorily registered as per Section-17(1)(d) of the Indian Registration Act, and that such an unregistered document would be inadmissible in evidence.  Hence it goes without saying that the unregistered document relied on by the Appellant cannot be pressed into service for any purpose and therefore, this Tribunal holds that the finding rendered by Ld. PO on this aspect of the matter has to be confirmed.

8.         Though the Appellant has produced Income-tax returns of the Appellant Company with reference to financial years 1997, 1998 and 1998-1999 to show that even prior to the loan transaction between the Respondent Bank and the borrower Company, the Appellant was inducted into possession of the premises as a tenant, this Tribunal is inclined to accept the contentions of the Respondent’s Counsel that the said documents are self-serving in nature and that therefore, no reliance can be placed upon them so as to jeopardise the valuable rights of the Bank. In this context, Ld. Counsel for the Respondent Bank has cited the decision M/s. Sree Lakshmi Products Vs. State Bank of India [2007 (2) CTC 193], laying down the proposition of law that if a claim is made on the basis of an unregistered document so as to affect the rights of the secured creditor, such claimant is not a protected tenant and that the continuance of possession of such a claimant is contrary to the provision of Section-65A of the Transfer of Property Act.  Hence the Ld. Counsel for the Respondent has argued rightly in my opinion that the Appellant has no right to continue in possession of any portion of the secured property. 

9.         On the other hand, Ld. Counsel for the Appellant has placed strong reliance upon the decision Hutchison Essar South Ltd. Vs. Union Bank of India & Anr. [AIR 2008 Karnataka 14] in support of his contention that non-registration of lease agreement is not fatal and that irregularities in inducting the Appellant into possession of the premises make the occupier trespasser of the same.  However, since the said decision was rendered by the Ld. Single Judge of the High Court of Karnataka at Bangalore, inasmuch as the ratio laid down by the First Bench of the Madras High Court referred supra is binding on this Tribunal, I am unable to endorse the view projected by the Ld. Counsel for the Appellant on the basis of the said decision and it follows that the principle of law enunciated therein cannot be made applicable to the facts of the present case.

10.       Further as has been rightly pointed out by the Ld. Counsel for the Respondent Bank, the conduct of the Appellant would also assume importance while disposing of this Appeal.  The Appellant filed a Civil Suit in the Munsif Court at Kanchipuram in OS No.494/2006 and obtained interim injunction in IA-1240/2006 and after contest by the Respondent Bank, the injunction Order was vacated on merits.  Similarly, the said Order became final as the same was not challenged by the Appellant in any other forum.  Further the Directors of the Appellant Company, some of whom are Directors in the borrower Company did not disclose any such tenancy agreement between the borrower Company and the Appellant Company at the time of entering into the loan transaction with the Respondent Bank and therefore, this Tribunal is of the considered view that if really the Appellant Company was inducted into possession of the ground floor as a tenant even prior to the loan transaction, in the course of normal conduct, the Directors of the borrower Company, who are also Directors of the Appellant Company should have revealed such tenancy agreement to the Bank.  But on the other hand, in this case, the borrower Company did not come forward to putforth any contention to support the plea of tenancy projected by the Appellant Company and it follows necessarily that such conduct on the part of the Directors of both the Companies would go a long way to show that the plea of tenancy set up by the Appellant Company is purely an after thought. 

11.       Further, in support of the plea of taking possession of the secured property, the Respondent Bank filed the Memo in this Appeal along with Panchanama recorded on 15.6.2008, 11.6.2008 and 17.1.2005, which reveal that a portion of the ground floor wherein safety lockers are embedded to earth, had alone been taken possession by the Bank symbolically and the remaining portion of the ground floor as well as the other two floors of the secured building had been physically handed over to the Bank as per the Panchanama produced in this Tribunal.  In any view of the matter, both on facts and in law, the Appellant miserably failed to establish its claim of tenancy over the second floor of the secured property.  Considering the above facts and circumstances in the light of the principles of law enunciated in the said decisions referred supra, this Tribunal is of the considered opinion that there is no illegality or irregularity pointed out in the impugned Order so as to interfere with the same and it is therefore confirmed.

12.       For the aforesaid reasons, the Appeal is dismissed with cost of Rs.5000/- and consequently the impugned Order passed by the DRT-III, Chennai, in SA-178/2007 dated 10.1.2008, is confirmed.  The cost of Rs.5000/- is ordered to be paid to The Spastics Society of Tamil Nadu, Taramani Road, Chennai-600 113. Cost Memo is directed to be filed within two weeks.

(Dictated to PS, transcript corrected and order pronounced & signed by me in open court today 21.10.08)

[ JUSTICE T.V. MASILAMANI ]

CHAIRPERSON

SBI Vs V N Ananthakrishnan

IN THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI

DATED THE 4^TH MARCH, 2005

PRESENT:  HON’BLE JUSTICE DR. PRATIBHA UPASANI

CHAIRPERSON

RA-43/2004

(OA-866/1999-DRT, Bangalore)

BETWEEN:

State Bank of India,

Commercial Branch,

Industrial Estate, Rajaji Nagar,

Bangalore-560 044.

…  Appellant

AND

V.N. Anantha Krishnan,     

S/o. Vadiraj,

No.3, Somashekara Layout,

Basaveshwaranagar,

Bangalore-560 079.

…  Respondent

Appearances:

1.  Mr. S. Sethuraman, Advocate for the Appellant Bank.

2.  Respondent in person.

:  O R D E R  :

1.         This substantive appeal is filed by the appellant/Original applicant State Bank of India, being aggrieved by the Judgement and Order dated 29.10.2004, passed by the Learned PO of DRT, Bangalore, in OA-866/1999.  By the impugned Judgement and Order, the Ld. PO allowed the OA with cost in favour of the Bank directing defendants No.1 to 5 to personally pay to the applicant Bank jointly and severally, sum of Rs.11,19,479.19p with subsequent interest at the rate of 15.80% p.a. compounded quarterly from the date of application till the date of realisation.  He further gave direction with respect to the enforcement of securities by giving direction that the applicant Bank should cause the sale of Schedule ‘A’ hypothecated properties, Schedule ‘B’ mortgaged property belonging to defendant No.4 and Schedule ‘C’ mortgaged property belonging to defendant No.6, for the purpose of realisation of the above debt.  A further direction, thereafter, was given that the applicant Bank should proceed against the Schedule ‘C’ property of defendant No.6 only as a last resort, and it is this last direction which is hurting the applicant Bank and hence appeal to this Appellate forum on this limited issue and ground.

2.         Few facts which are required to be stated are as follows.

3.         Defendant No.1 Aparna Creations is a Partnership firm of which defendants No.2 to 5, are the partners.  Defendant No.6 is arraigned in his status as a guarantor.  Defendant No.1 firm represented by its partners approached the applicant Bank for certain credit facilities.  Accordingly, the applicant Bank on consideration of their request sanctioned Medium Term Loan of Rs.28.20 lakhs on 21.8.1996.  The defendants accepted the terms and conditions of sanction.  Defendants No.1 to 5 fully availed and utilized the said facility.  Defendants No.2 to 5, apart from being partners of defendant No.1 firm had also personally guaranteed due repayment of the debt alongwith guarantor defendant No.6.  Usual security documents were executed by the defendants.

            Defendants No.2 to 5, again approached alongwith defendant No.6, the appllicant Bank seeking grant of credit facilities.  In consideration thereof, the applicant Bank sanctioned Cash Credit (Mundy Type) of Rs.7 lakhs and Cash Credit (Receivables) of Rs.19 lakhs.  Again, security documents were executed and defendants No.2 to 5 and defendant No.6 stood as guarantors.  In addition to the primary security of hypothecated machineries, the defendants No.4 to 6 also created equitable mortgage of their property set out in Schedules ‘B’ and ‘C’ respectively, in favour of the applicant Bank towards due security of both the credit facilities.  Revival letters were also executed by defendants acknowledging the availment of credit facilities.  However, thereafter, the defendants’ account became irregular and they committed defaults.  The applicant Bank, therefore, issued legal notice recalling the outstanding amount which was due to the Bank, but there was no response.  Hence, the Bank was constrained to file the OA in DRT, Bangalore.

4.         Defendant No.1 firm remained exparte despite service.  Defendant No.4 filed Written Statement, which was adopted by defendants No.2 & 3.  Defendants No.5 & 6 filed their respective Written Statements separately. 

…4/

5.         Defendants No.2 to 4 admitted being partners of defendant No.1 firm.  Sanction of two facilities by the applicant Bank was also admitted.  It was pleaded that loans were borrowed from the applicant with complete consensus between the defendants No.4 to 6.  It was also contended that the entire transaction was carried by defendants No.5 & 6 only and that they could not turn around and repudiate their liability.  In short, it was contended that defendants No.5 & 6 were managing the affairs of the partnership firm and the transaction with the Bank, that defendant No.4 was induced by defendants No.5 & 6 to start a business with involvement of other family members with the partnership firm.  But they complained of foul play played by defendants No.5 & 6.  Thus, the thrust of the entire defence of defendants No.2 to 4 was that only defendants No.5 & 6 were liable to the Bank.

6.         Defendant No.5 filed a separate Written Statement denying that he approached the Bank for credit facilities as averred in the plaint.  He pleaded ignorance about sanction on term and conditions.  According to him, defendant No.4 was exclusively handling the loan transaction and that defendant No.1 firm had incurred loss due to mal-administration and mishandling of financial matters solely by defendant No.4 and, therefore, defendant No.5 should not be held responsible.

…5/

7.         Defendant No.6 contended that the OA was misconceived.  He admitted having stood as guarantor but his contention was that he stood as guarantor only for the 5^th defendant in respect of the business agreed to be carried on and also in accordance with the ratio (i.e. 25%) of the partnership capital under the terms and conditions of the partnership deed.  According to him, the applicant and defendants No.2 to 4 took undue advantage of his goodness and that on several nominal printed forms his signatures were obtained.  Contention is taken that applicant Bank should proceed first against the principal debtors and thereafter, for the balance amount, if any, the Bank should approach the guarantors.

8.         Parties filed their respective Affidavits and arguments of both sides were heard by the Ld. PO.  Thereafter, the Ld. PO came to the conclusion on the basis of the material placed before him that the Bank had proved its case against all the defendants.

            As far as the case of defendant No.6 was concerned, the Ld. PO observed that though the Guarantee Agreements were not disputed by any of the executants including defendant No.6, status of defendant No.6 was totally different from the status of defendants No.2 to 5.  The Ld. PO observed that defendants No.2 to 5 were not only partners but were also guarantors while defendant No.6 was an outside guarantor and that because of the negligence of the Bank with respect to the hypothecated goods, defendant No.6 was entitled to protection given by Section-139 of the Indian Contract Act.

            Observing as above with respect to defendant No.6, the Ld. PO, however, said that though defendant No.6 was entitled to be absolved from the entire guarantee liability, he could not avoid any liability with respect to mortgage because his liability as a mortgagor remained intact.  He observed that liability of defendant No.6 emanating from his position as a guarantor was not to be mixed up with his liability emanating from his status as a mortgagor.  He observed that defendant No.6 had mortgaged ‘C’ Schedule property to secure the loans given to defendant No.1.  He, however, went on to observe further that though liability of defendant No.6 was fixed in his capacity as a mortgagor, the fact remained that defendant No.6 was not the principal borrower and, therefore, he was inclined to extend the benefit of the decision given by the Karnakata High Court in 1997(2) Kar. L.J. 610, which held that surety’s asset should be sold only as a last resort.  Therefore, he gave a peculiar direction that property of defendant No.6 i.e. ‘C’ Schedule property should be taken resort to by the applicant Bank only as a last resort.

9.         I have heard Mr. S. Sethuraman, Advocate for the appellant Bank and the respondent/Original defendant No.6 Mr. V.N. Anantha Krishnan, who appeared in person.  I have also gone through the proceedings and relevant case laws cited across the bar and in my view, the view taken by the Ld. PO of DRT, Bangalore, is contrary to the Judgement of the Hon’ble Supreme Court and it has to be said that the reliance placed upon by the Ld. PO on Karnataka High Court (supra), was erroneous.  Section-128 of the Indian Contract Act, 1872, lays down categorically that liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.  In AIR 1969 Supreme Court 297 (The Bank of Bihar Ltd.  Vs. Dr. Damodar Prasad & Another), this is what the Supreme Court has observed :-

“Under Section 128, save as provided in the contract, the liability of the surety is co-extensive with that of the principal debtor. The surety thus becomes liable to pay the entire amount. His liability is immediate. It is not deferred until the creditor exhausts his remedies against the principal debtor. In the absence of some special equity the surety has no right to restrain an action against him by the creditor on the ground that the principal is solvent or that the creditor may have relief against principal in some other proceedings.  Likewise, where the creditor has obtained a decree against the surety and the principal, the surety has no right to restrain execution against him until the creditor has exhausted his remedies against the principal.”

10.       Again, the Supreme Court in AIR 1992 SC 1740 (State Bank of India Vs. M/s. Indexport Registered & Others) stated that when the decree is a composite money decree being both personal against all the defendants including guarantor as well as mortgage decree without limitation on execution, then the decree holder cannot be forced to first exhaust remedy by way of execution of mortgage decree alone and then to proceed against guarantor. 

11.       In view of the above stated Supreme Court Judgements, the reliance placed by the Ld. PO on the Karnataka High Court Judgement reported in II (1997) BC 157 (S.V. Apparao Vs. Vijaya Bank & Another), was erroneous.  It was held by the Karnataka High Court, inter alia, in this case that liability of the surety commences when execution against principal debtor is impossible and that the precaution that the executing Court must take is to first ensure that reasonable efforts for execution have been made as against the principal debtor.  It has to be stated that the proposition of law enunciated in the Karnataka High Court judgement is not in consonance with the law laid down by the Supreme Court in the above mentioned two cases (supra) and, therefore, has to be ignored.

12.       The Ld. PO also appears to have unduly placed reliance upon the statement made by the Bank’s witness in cross-examination that the Bank was not knowing the exact hypothecation goods and hence they were not shown in the Schedule of the application.  Relying only on this statement the Ld. PO has sought to give benefit of Section-139 of the Indian Contract Act to defendant No.6.  For the sake of convenience, Section-139 of the Contract Act can be reproduced below :-

…9/

“139.   Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy – If the creditor does any act which is inconsistent with the right of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.”

            The proceedings, in fact, reveal that the Bank sold the hypothecated goods and secured Rs.25 lakhs.  There was no question of any negligence and the statement quoted by the Ld. PO in his impugned Judgement appears to be torn out of context.  His finding, therefore, on this point is also be to rejected.

13.       In view of the provision of law incorporated in Section-128 of the Contract Act and reiterated by the Supreme Court, the Ld. PO was not correct in giving the direction to the Bank that the Bank should proceed against the ‘C’ Schedule property of defendant No.6, only as a ‘last resort’.  In fact, it ought to have been held that property of defendant No.6 also was liable and accessible and available for execution of the decree against defendants No.1 to 5, and the decree ought to have been joint and several against all the defendants including defendant No.6.  The Ld. PO placed defendant No.6 in a special category as “outside guarantor”, when no such category exists in law.  The impugned Order will have, therefore, to be set aside and the appeal will have to be allowed.  Accordingly, following order is passed.

…10/

:  O R D E R  :

Regular Appeal RA No.43/2004, is hereby allowed in terms of Prayer Clause-6 of the Appeal Memo and the impugned Order dated 29.10.2004, passed by the Ld. PO of DRT, Bangalore, is set aside as against defendant no.6 and is substituted as follows :-

           

OA is allowed with cost and defendants No.1 to 6 are held jointly and severally liable to pay to the applicant Bank sum of Rs.11,19,479.19p with further interest at the rate of 15.80% p.a. compounded quarterly from the date of filing of the OA till realisation.

           

Direction given by the Ld. PO in the last two lines of the impugned Order giving direction to the Bank to proceed against the ‘C’ Schedule property of defendant No.6, only as a last resort, is hereby set aside.  Rest of the Order remains as it is.

           

Regular Appeal RA-43/2004, is disposed of in the above stated terms.

(Dictated to PS, transcript corrected, pronounced & signed by me in the open court today 2.3.2005).

                                                                                                           

                                                                                                                        Sd/-

[ JUSTICE  DR. PRATIBHA UPASANI ]

CHAIRPERSON

NPA provisioning of SBI increased three-fold between 2008-2011

Source:DRG TUESDAY, 30 AUGUST 2011 17:30

Rising bad debt has forced State Bank of India (SBI) to increase its provisioning more than 

three-fold to Rs 8,792 crore in 2010-11 from Rs 2,474 crore in 2008-09 informed the 

government.

 

Finance Minister Pranab Mukherjee while addressing through a written reply to a question raised in the Rajya Sabha said, this provision in 2010-11 includes a counter cyclical buffer of Rs 2,330 crore toward achieving the 70 per cent Provision Coverage Ratio prescribed by the Reserve Bank of India over-and-above the prudential provision.

The NPAs have gone up substantially in agriculture, small scale industries and corporates, he said. 

 

While naming the defaulter companies, he informed that, in the year 2010-11, outstanding loans of Rs 210.34 crore given by SBI to Shah Alloys Ltd turned into NPAs. At the same time, an outstanding loan of Rs 193.99 crore to Indorama Synthetics became a NPA.

 

The government has received a proposal from SBI for raising capital through various instruments -- Qualified Institutional Placement (QIP), Preferential Allotment, a Follow-On Public Offer and a rights issue. The proposal is under examination, said Minister of State for Finance Namo Narain Meena.