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

Small companies' defaults to fuel bank NPAs

Source :Indian Express :Tue May 31 2011, 14:52 hrs

Central Bank of India's Chairman and Managing Director S Sridhar today said non performing assets (NPAs) for the industry are likely to increase, as some smaller companies that had borrowed in a low rates regime, find it difficult to service their loans due to hike in rates.

"Some increase in NPAs cannot be ruled out, in my view across the industry," he said, adding that different banks would adopt different strategies to deal with the problem.

The stress will emanate from smaller accounts, which "are not able to bear the increased cost of funding" and are constrained because of a "lower access" to money as compared to the past, he said.

Sridhar pointed out that the stress can be traced back to the years of global slowdown after 2008 September, when the Government announced a stimulus that resulted in high liquidity and low rates.

"Somebody down the chain will have to bear the stress," Sridhar said, adding the stress is "inevitable".

The Reserve Bank had adopted a stance of softening in policy to fuel growth in the slowdown years and then started to tighten it as tackling the growing inflation took precedence.

RBI has raised its key rates a record eight times in the last 12 months in order to tame the inflation number, the last one being a higher-than-expected 50 bps hike on May 3 and also given a guidance of attacking the number even at the cost of a short term blip in growth numbers.

Sridhar said Central Bank of India is installing a software, which will point out stress in assets at an early stage, so that actions of containing it can be taken swiftly.

"The idea is to be proactive than reactive," Sridhar, who retires from the bank today, said.

Central Bank of India today announced a tie-up with brokerage firm Angel Broking, which will announce its account holders to trade in different asset classes like equities, derivatives and F&O, among others.

Air India debt recast "in final stage", seen by June-end

Source :Reuters - By Anurag Kotoky and Swati Pandey:

NEW DELHI/MUMBAI | Thu May 19, 2011 4:49pm IST

Photo :Reuters:Pundit Paranipe

State-run Air India said on Thursday it is in "final stages" of discussions with banks for restructuring 200 billion rupees of debt and expects to complete the formalities by end-June.

According to the plan, a portion of the debt will be converted into long-term loans at fixed rates of interest with the remainder being converted into cumulative redeemable preference shares which will be redeemed after 15 years.

For banks, to avoid a default from Air India -- reeling under accumulated loss of nearly 160 billion rupees over three years -- the only option is to agree to restructuring lest they will be further burdened with a huge amount of non-performing loans.

The restructuring will help the airline save at least 6 billion rupees in interest costs and boost liquidity, spokesman K. Swaminathan wrote in an email response to a Reuters query.

Air India has set a target to enhance its revenues by 50 billion rupees and also to reduce costs by 40 billion rupees a year, post the restructuring, according to its website.

Of the 26 lenders, at least four with whom Reuters spoke expressed concern about the restructuring package.

"They are asking for large number of concessions, longer period, more amount to be converted into cumulative redeemable preference shares and at lesser rate of interest," said one of the lenders, who did not wish to be identified.

In the quarter-ended March, non-performing assets (NPAs) of several mid-cap banks rose sequentially and analysts expect the uptrend to continue as rising interest rates curb repayment capabilities of borrowers.

"This (Air India restructuring) is going to be a negative, particularly for the public sector banks," said Deepak Tiwari, banking analyst at K.R. Choskey. "But it's better to restructure than getting into NPAs."

"The public sector banks may resist such a restructuring if terms and conditions are not favourable to them. But if the government forces, they don't have any other choice," he added.

"If we don't go for this restructuring proposal, they're not going to repay the term loan. And, no banker can afford to have such a huge NPA on his book," another lender said.

For this reason, and the backing of the government, Air India's plan is likely to go through.

Loss-making Kingfisher Airlines, India's second largest airline by market share, restructured its debt earlier this year by converting into equity almost 12 billion rupees of loans from a consortium of 13 banks led by State Bank of India.

The lenders now own close to a quarter of the airline.

With Air India, which witnessed a pilots' strike recently and has failed to operationally merge with Indian Airlines, things are a lot bleaker, analysts and lenders said.

Bankers to the beleaguered carrier includes State Bank of India, Punjab National Bank, Oriental Bank of Commerce, Bank of Baroda, Central Bank of India and Bank of India.

SECTOR ALL FINE

Analysts and bankers, however, feel the airline sector, which has recently seen a healthy growth in load factor, has a lot of potential in Asia's third-largest economy.

An investor with a time horizon of 9-12 months can invest in the sector for a 30-40 percent return, said Rashesh Shah, an analyst with ICICI Direct.

Bankers also do not think after Kingfisher and Air India, other airlines will have to take such desperate measures.

"I don't think there is any problem in the sector. Go Air, it was until now a loss making company and it has turned the corner in 1-1/2 years. JetLite is doing well and SpiceJet is also doing extremely well," said a banking source.

Apart from volatility in crude oil prices, there is no other major worry for the sector in general, analysts said.

(Editing by Rajesh Pandathil)

DRT Patna cancels sale certificate of Canara Bank

Source :ARUN KUMAR, TNN, Jun 23, 2010, 03.59am IST

 In a case pertaining to Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, the Debts Recovery Tribunal, Patna, has found the Canara Bank main branch, Gandhi Maidan, chief manager on wrong side of the law. The petition was filed against bank authorities by one Dinesh Prasad, a resident of Bakarganj Bazaza Lane, for violation of Sarfaesi Act.

According to the tribunal order, Prasad took term loan from the bank in 2002 to purchase the property — now in question — located at shop no. G-23, Govinda Complex, Govind Mitra Road, and made payment to the bank. The bank started debiting the interest illegally on monthly basis which resulted into financial crunch and the applicant was overburdened and the bank illegally classified the account as non-productive account on June 30, 2004 without any information to the applicant.

The notice by the bank was served to Prasad in August 2005 and symbolic possession of the property was taken by the bank on December 30, 2005.

On April 27, 2008, the bank published the sale notice in the newspaper. The petitioner filed a petition before the tribunal within stipulated time limit — on June 11, 2008.

During the pendency of the appeal, the bank executed the sale deed in favour of the single bidder for the property, one Damodar Prasad Santhalia, on August 12, 2008 without seeking permission from the tribunal.

The tribunal noted that in this case the fraud was committed by the bank officials and auction purchaser by giving false affidavits and the bank sold the property during pendency of the appeal. The tribunal order with regard to the public auction said the legal obligation of the bank authorities was to secure the best price, but in this case the respondent bank sold the property at a throwaway price to Santhalia.

Allowing the Sarfaesi appeal of Prasad, the tribunal cancelled the sale certificate and confirmation of the sale certificate.

M/S New Rajendra Tyre Agency vs The Debt Recovery Tribunal ,Pa on 28 May, 2011

IN THE HIGH COURT OF JUDICATURE AT PATNA
CWJC No.725 of 2011



-----------
M/S New Rajendra Tyre Agency,



 N.H. 31, Har-Har Mahadeo Chowk,
 near Kailash Hotel, Meerganj,
 Begusarai through its Proprietor, 
Rashmi Singh, wife of Sri Rajendra Prasad,
 resident of village and 
P.O. Khutaha Chetan Tola, P.S. Barahia,
 District Lakhisarai .. Petitioner


Versus


1. The Debts Recovery Tribunal, Patna through its Registrar, 34, Bank Road, Opposite New Police Line, Lodhipur, Patna-800001.
2. The Central Bank of India, Begusarai Branch its Branch Manager, Begusarai.
3. The Regional Manager, Central Bank of India, Saharsa, Regional Office Kosi Chowk, Ward No.12, Saharsa 852201.
4. The Zonal Manager, Central Bank of India Zonal Office Maurya Lok Complex, Patna.
. Respondents


-------
For the Petitioner : M/s. Kaushalesh Choudhary and Kula Nand Jha, Advocates
For the Respondents : Mr. Sarvesh Chandra Verma, Advocate ------




03/ 28.01.2011 Heard learned counsel for the petitioner and learned counsel for respondent-Central Bank of India and its authorities.


2. This writ petition has been filed by the petitioner challenging order dated 29.10.2010 (Annexure 7) passed by the Presiding Officer of the Debts Recovery Tribunal, Patna in M.A. No. 06 of 2010 dismissing the petitioner's appeal and affirming the ex parte order dated 30.09.2009 (Annexure 6) passed by the same authority in O.A. No. 51 of 2006.


3. It transpires that the Central Bank of India filed O.A. No. 51 of 2006 under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ( hereinafter referred to as `the Act' for the sake of brevity ) against the petitioner to recover its debts along with pendente lite and future interest at the contractual rate. The said O.A. No. 51 of 2006 was allowed by the Debts Recovery Tribunal vide order dated 30.09.2009 (Annexure 6).


4. Learned counsel for the petitioner states that the said order was passed behind the back of the petitioner, whereas, learned counsel for the respondents submits that notices were duly served upon the petitioner, who had appeared and filed written statement in the case, but on the date of final decision he absented. Hence the petitioner filed M.A. No. 06 of 2010 on 21.01.2010 for recalling/setting aside the aforesaid order dated 30.09.2009. This M.A. No. 06 of 2010 has been rejected by the Debts Recovery Tribunal vide order dated 29.10.2010 (Annexure 7).


5. Learned counsel for the petitioner further stated that she has been paying amount regularly and she is ready to pay the entire amount as is clear from her application dated 13.10.2010 (Annexure 10), in which only concession was requested under the One Time Settlement Scheme ( hereinafter referred to as `the O.T.S. Scheme' for the sake of brevity).



6. Considering the facts and circumstances of the case, it is quite apparent that the impugned order of the Debts Recovery Tribunal is appealable before the Appellate Tribunal under section 20 of the Act, but without exhausting the said remedy the petitioner has approached this court. Furthermore, the question with regard to O.T.S. Scheme could have also been raised by the petitioner before the Appellate Authority but she has failed to exhaust her statutory remedy although no special case is made out for consideration by this court.



7. Accordingly, this writ petition is dismissed. The petitioner may utilise the statutory remedy available to it by way of filing an appeal and if any interim relief is required by the petitioner, it may approach the said authority by filing an interlocutory application in that respect also which, if filed, shall be decided in accordance with law.


MPS/ ( S. N. Hussain, J.)