‘Borrowers are duty bound to repay debt’- Supreme Court

SOURCE :Aug, 2010, 05.16AM IST, Sanjay K Singh,ET Bureau


NEW DELHI: Expressing concern over the misuse of legal processes to frustrate the recovery proceedings of banks and financial institutions, the Supreme Court has said that the borrowers are duty bound to repay the due debt and any lapse in this regard will invite serious action.


The court, allowing the plea of appellant Indian Bank, directed the defaulter borrower to deposit Rs 3 crore with the lender, noting that the present case is “ illustrative of how a defaulting borrower can use the court process for frustrating the action initiated by a bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, for recovery of its dues”.


A bench comprising justice GS Singhvi and justice AK Ganguly said: “The court cannot lose sight of the fact that the bank is a trustee of public funds. It cannot compromise public interest for benefiting private individuals. Those who take loan and avail financial facilities from the bank are duty bound to repay the amount strictly in accordance with the terms of the contract. Any lapse in such matters has to be viewed seriously and the bank is not only entitled, but also duty bound to recover the amount by adopting all legally-permissible methods.”


The court said: “The parliament enacted the Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002) because it was found that legal mechanism available till then was wholly insufficient for the recovery of the outstanding dues of banks and financial institutions.”


In this case, the Indian Bank had sanctioned loan to M/s NS Investments, a Chennai-based partnership firm in 1989 and again in 1991. After some time, the account of the borrower was declared as non-performing asset.


In 1995, M/s Blue Jaggers Estate took over the assets and liabilities of the firm. Since it failed to clear the outstanding dues, the bank filed an application before Debts Recovery Tribunal for recovery of Rs 2,15,38,158 with interest, which is pending.


During its pendency, the parties signed joint memo of compromise on June 23, 2004. The bank agreed to accept an amount of Rs 153.50 lakh towards full and final settlement of its claim against the outstanding due of Rs 661.30 lakh.


The borrower did not pay full amount in terms of the compromise and as a result the bank acquired the right to recover all dues, it signed another compromise with the borrower which undertook to pay the balance amount of Rs 63.50 lakh.
It was not accepted by the bank.



The Tribunal took cognizance of the compromise deeds signed by the parties and observed that the bank is entitled to recover the outstanding dues because the borrower had failed to fulfil its commitment in accordance with the terms of compromise.


The Debts Recovery Appellate Tribunal granted interim stay on recovery proceedings, subject to the condition of deposit of Rs 3 crore.


The borrower then filed a writ petition in the high court for an absolute and unconditional stay of the recovery proceedings. It was dismissed.



Aggrieved, the borrower filed Special Leave Petition in the apex court which was dismissed.



Since the borrower did not comply with the order passed by the Appellate Tribunal, the bank auctioned some of the mortgaged properties for which bids of Rs 5 crore were received.



Thereafter, the borrower filed three applications before the Appellate Tribunal for waiver of the requirement of pre-deposit enshrined in second proviso to Section 18(1) of the Act.



The Appellate Tribunal, however, took suo motu cognizance of the fact that the notice had been issued to the defaulter for recovery of Rs 9,86,25,736.95 and directed them to deposit Rs 4.50 crore.



This enabled the defaulter to indulge in further litigation. It filed another writ petition in the high court for quashing order of the Appellate Tribunal and another petition for issue of a mandamus to the Tribunal to decide its application.



The high court then not only set aside the second interim order of the Appellate Tribunal, but also nullified the earlier conditional interim order by declaring that as a result of the sale of property worth Rs 5 crore, the requirement of deposit of Rs 3 crore stands satisfied. Aggrieved, the bank had come to the apex court.


In the meantime, the bank issued two notices under Section 13(2) of the Act asking the borrower to pay Rs 6,47,21,885 and Rs 9,86,25,736 which, according to the lender became due.


It was objected by the borrower firm. It filed objections under Section 13(3-A) of the Act claiming that during the pendency of the recovery proceedings instituted under DRT Act, the lender cannot invoke the provisions of the act.


It was turned down by the bank and issued notice on July 26, 2007, under Section 13(4) of the Act for taking possession of the mortgaged properties.


Faced with the imminent threat of sale of the mortgaged properties, the borrower filed an application under Section 17 of the Act for quashing the proceedings initiated by the lender bank.


Again, with the sole objective of delaying the legal process, it filed three applications. A writ petition was also filed in the Madras High Court.
 
The petition was referred by the high court to the Tamil Nadu Mediation and Conciliation Centre.
 
It submitted a report incorporating the offer of the borrower to pay interest for the delayed payment of Rs 63.50 lakh. It was not accepted by the bank.

The Tribunal took cognizance of the compromise deeds signed by the parties and observed that the bank is entitled to recover the outstanding dues because the borrower had failed to fulfil its commitment in accordance with the terms of compromise.



The Debts Recovery Appellate Tribunal granted interim stay on recovery proceedings, subject to the condition of deposit of Rs 3 crore.


The borrower then filed a writ petition in the high court for an absolute and unconditional stay of the recovery proceedings. It was dismissed.


Aggrieved, the borrower filed Special Leave Petition in the apex court which was dismissed.


Since the borrower did not comply with the order passed by the Appellate Tribunal, the bank auctioned some of the mortgaged properties for which bids of Rs 5 crore were received.


Thereafter, the borrower filed three applications before the Appellate Tribunal for waiver of the requirement of pre-deposit enshrined in second proviso to Section 18(1) of the Act.


The Appellate Tribunal, however, took suo motu cognizance of the fact that the notice had been issued to the defaulter for recovery of Rs 9,86,25,736.95 and directed them to deposit Rs 4.50 crore.


This enabled the defaulter to indulge in further litigation. It filed another writ petition in the high court for quashing order of the Appellate Tribunal and another petition for issue of a mandamus to the Tribunal to decide its application.

The high court then not only set aside the second interim order of the Appellate Tribunal, but also nullified the earlier conditional interim order by declaring that as a result of the sale of property worth Rs 5 crore, the requirement of deposit of Rs 3 crore stands satisfied. Aggrieved, the bank had come to the apex court.