NEUTRAL CITATION
C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6854 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE NIKHIL S. KARIEL
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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M/S NEHA IMPEX PRIVATE LIMITED
Versus
THE ASSISTANT GENERAL MANAGER, INDIAN BANK, STRESSED
ASSET MANAGEMENT BRANCH
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Appearance:
TIRTH NAYAK(8563) for the Petitioner(s) No. 1
RITESH D PATADIA(6460) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE NIKHIL S. KARIEL
Date : 25/08/2023
ORAL JUDGMENT
1. Heard learned Advocate Mr. Tirth Nayak for the petitioners and learned Advocate Mr. Ritesh D. Patadia for the respondent-Bank.
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2. Issue Rule returnable forthwith. Learned Advocate Mr. Patadia waives service of rule on behalf of the respondent-Bank.
3. With consent of learned Advocates for the parties, the present petition is taken up for final disposal.
4. A very short issue is raised for consideration of this Court, inasmuch as can the Bank refuse to grant a No Due Certificate and return the original documents with regard to a property which had been mortgaged as a security for a loan taken by a borrower on the ground that outstanding dues of the borrower in other group account have not been paid up.
5. Brief facts leading to filing of this petition are narrated hereinbelow:
5.1 The petitioner-company had availed of a term loan from the respondent-Bank in the year 2017 and in lieu of the loan amount of Rs. 1,20,00,000/-, as a security, the petitioner had mortgaged a property being Office No.421, Page 2 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined Vanijya Bhavan, Opposite Diwan Ballubhai School, Kankaria, Ahmedabad (hereinafter to be referred to as "the property in question") and whereas while the petitioner was the principal borrower and mortgagor, one Mr. Rajendra Ganeriwal had stood as guarantor for the said term loan. It appears that the said Mr. Ganeriwal had availed further credit facilities from the respondent-Bank in his individual capacity as well as in the capacity as a proprietor of one M/s. Nisha Tex. It also appears that the petitioner as well as the said Mr. Ganeriwal had defaulted on the loan in question and whereas as regards the loan availed by the present petitioner-company, the said loan had been declared NPA and notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (for short "SARFAESI Act") had been issued to the petitioner on 13.12.2008.
5.2 It would appear that the petitioner-company, Mr. Rajender Ganeriwal as well as M/s. Nisha Tex, had questioned the measures taken by the Bank under the Page 3 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined SARFAESI Act by preferring Securitization Applications No. 114, 115 and 116 of 2019, respectively, before the learned Debts Recovery Tribunal, Ahmedabad. It would also appear that the petitioner as well as other borrowers had shown their inclination to repay the loan amount and whereas the said securitization applications had been referred to the Lok Adalat and vide a common award dated 15.06.2019, the Securitization Applications referred to, were disposed of in terms of settlement agreement between the parties. It would appear that insofar as the present loan account is concerned, the settlement was arrived at whereby the petitioner was to repay an amount of Rs. 99,72,021.72ps and whereas the settlement had been reached at different amounts with regard to the different loan accounts. It would appear that the petitioner had paid in total an amount of Rs. 1,07,72,000/- pursuant to the said award and whereas the petitioner had thereafter sought for being granted No Due Certificate and whereas the petitioner had been served with a notice dated 13.11.2020, whereby it was Page 4 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined informed that a further amount of Rs.3,77,242/- with interest was outstanding. It appears that the petitioner had contested the said figure by replying to the said legal notice, yet, without prejudice the petitioner appears to have paid an amount of Rs.3,82,149/- to the respondent- Bank. It would appear that even after the payment of the said amount since the Bank did not issue a No Due Certificate and did not return the original documents of the property in question, the petitioner had preferred this writ petition.
6. Heard learned Advocate Mr. Tirth Nayak for the petitioner who would submit that the petitioner having made the payment of the entire outstanding, yet the respondent-Bank was neither releasing its original documents nor granting No Due Certificate. Learned Advocate would submit that the present petitioner, the guarantor of the loan Mr. Ganeriwal as well as another company that was a proprietor firm of Mr. Ganeriwal, had preferred three separate Securitization Applications against the measures taken by the Bank under the Page 5 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined SARFAESI Act, and whereas the said applications had been disposed of by way of a common order passed by the learned Debts Recovery Tribunal in Lok Adalat proceedings. Learned Advocate would submit that the award of the Lok Adalat would clearly show that the three applications and the loan accounts for which the applications had been preferred, were treated as separate loan accounts and the amount to be paid by the borrower in each of the loan accounts for settlement was separately stated. Learned Advocate would submit that even the respondent-Bank had issued a notice to the petitioner informing that though substantial amount is stated to have been paid, there was some amount outstanding from the petitioner-company, and whereas even the demanded amount had already been paid by the petitioner. 6.1 Learned Advocate Mr. Nayak would submit that under such circumstances, it would not open for the respondent to state that the money paid by the petitioner was adjusted towards all the three loan accounts. Learned Advocate would submit that the amount being Page 6 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined repaid by the present petitioner, the same should have been credited in the account of the petitioner and whereas if the entire outstanding was repaid by the petitioner, it was incumbent upon the respondent-Bank to complete all the necessary formalities including granting of No Due Certificate as well as returning of the original deeds. Learned Advocate would submit that having not done so, more particularly the action on the part of the Bank being arbitrary and illegal, this Court may intervene and pass appropriate orders.
7. This petition is vehemently objected to by learned Advocate Mr. Ritesh Patadia for the respondent-Bank. Learned Advocate Mr. Patadia would take this Court through the reply filed by the respondent. Learned Advocate would submit that the petitioner-company as well as it sister concern or persons connected with the petitioner-company, had availed of three different financial facilities from the respondent-Bank and the facilities were treated as group account by the Bank. Learned Advocate would submit that the petitioner- Page 7 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023
NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined company, its sister concern and the guarantor to the loan availed by the petitioner, had preferred three different securitization applications before the learned DRT and the said applications came to be disposed in the Lok Adalat, more particularly recording agreement of the petitioner as well as its sister concern and of the guarantor to the loan availed by the petitioner to pay outstanding. Learned Advocate would submit that considering the fact of the petitioner and its sister concerns being part of a group loan account, therefore the amounts which had been paid by the common guarantor had been appropriated proportionately towards three loan accounts which were group account of which the petitioner's account was also a part. Learned Advocate would submit that as a matter of fact the petitioner-company had passed a Board Resolution dated 30.03.2017 and had inter alia resolved that the property in question would be a continuing security for any loan account of the petitioner including the present loan account and whereas according to learned Advocate, Page 8 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined having resolved thus, it would not open for the petitioner to now turn around and contend otherwise. Thus submitting, learned Advocate Mr. Patadia would request this Court not to interfere in the present petition.
8. In rejoinder, learned Advocate Mr. Nayak would submit that the respondent-Bank has not shown any Rule or Regulation of the Reserve Bank of India, which empowers the Bank to treat a property which is mortgaged as regards one account, required to be treated as a security for all accounts, if the accounts are part of a group account. Learned Advocate would further submit that insofar as the said resolution of the petitioner- company is concerned, the same was in the nature of empowering the common guarantor, who was Managing Director of the company, to deposit the title deeds of the company for the present loan account or for any other loan account or as a security even for other loan accounts. Learned Advocate would submit that while the resolution empowers the Managing Director to take certain steps with regard to the subject property, there Page 9 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined was nothing on record to show that the Managing Director had infact entered into any agreement with the respondent-Bank, whereby it was agreed that the subject property would be a security towards the other loan accounts in the group loan account. Learned Advocate Mr.Nayak would therefore request this Court to issue appropriate directions to the respondent-Bank. Learned Advocate would also rely upon the decisions of the Division Benches of this Court in case of State Bank of India Vs. Radheshyam Spinning Mill Pvt. Ltd., dated 13.11.2019 in Letters Patent Appeal No. 656 of 2019 and in case of Supreme Nutri Grain Private Limited and Another Vs. Dena Bank, dated 18.12.2020 in Letters Patent Appeal No. 597 of 2018. Learned Advocate would submit that having regard to the law laid down by the Hon'ble Division Benches of this Court, this Court may declare the action on the part of the respondent being illegal and arbitrary.
9. Heard learned Advocates for the parties and perused the documents on record.
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10. As noted at the outset, the question that arises for consideration of this Court is whether in absence of any specific authorization, could the Bank treat the property which was tendered as a security towards one loan account as a security towards other loan accounts, if all the accounts are in the category of group account?
11. In the considered opinion of this Court, before answering the question raised above, it would appear that the facts as it stand would clearly show that neither it was agreed between the parties nor even the respondent- Bank had ever treated the present property as being a common security for all the loans availed in the group account.
12. In this regard, it would be required to be noted that the learned DRT, while disposing of all the three securitization applications preferred by the petitioner as well as its sister concern and also guarantor of the petitioner-company, had, in the award, noted the terms of the settlement. A perusal of the said award clearly reveals Page 11 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined that the settlement was arrived at, separately with regard to each of the group loan accounts corresponding with the Securitization Applications, inasmuch as, while the intent of the petitioner to pay Rs.99,72,021.72ps with regard to S.A. No. 114 of 2019; intent to pay Rs.3,49,10,227.72ps corresponding with S.A. No. 115 of 2019 and Rs. 27,14,233.72ps corresponding with S.A. No.116 of 2019, was recorded. It would thus appear that each loan account was treated as an independent unit and the outstanding amount towards the loan account was also separately stated, which the present petitioner and/or its sister concern or the common guarantor, as the case may be, had agreed to repay. It also appears that there was no condition mentioned in terms of settlement which would show that either the repayment was required to be adjusted proportionately or the security with regard to all the loan accounts jointly shall not be released unless the outstanding of all the three accounts were repaid. Furthermore, it also appears that Clause-(h) of the terms of settlement as noted in the award dated Page 12 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined 15.06.2019 that it was agreed that the Bank will be under an obligation to return the documents of title upon receipt of the amount to the satisfaction of the Bank, as stated in the award, within a period of 15 days from the last payment and No Due Certificate was also required to be issued. Specifically, even there is no rider attached with the said Clause, wherein it is mentioned that the property would be released from the mortgage only after the entire outstanding due from all the three accounts are repaid. It would thus appear that the three accounts though treated as part of a group account, yet, the loan accounts were treated as separate units and the outstanding towards each loan account was specifically and separately mentioned. It also appears that the parties had never agreed with regard to any cross security i.e. the property standing as a security for one loan account, standing as a security for all loan accounts of a company.
13. It would also appear that the respondent-Bank was very clear about such a position, inasmuch as, in a notice issued through its learned Advocate dated 13.11.2020 the Page 13 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined Bank had called upon the petitioner to pay outstanding dues of Rs.3,77,242.00 with interest. It would be pertinent to mention here that the said legal notice had been issued after the parties had settled before the learned DRT and whereafter the petitioner had paid an amount of approximately Rs.1,07,00,000/- towards the said loan account. Thus, it would very clearly appear that while the Bank had at that time appropriated the amount paid by the petitioner towards the loan account of the petitioner only, and whereas at the relevant point of time, it had never been the case of the petitioner that the amount repaid by the petitioner or the common guarantor had been appropriated pro-rata towards the outstanding in all the three accounts.
14. From the above discussion, the following aspects would clearly appear :
(i) In the award recording the terms of settlement, the loan accounts of the petitioner-company as well as its sister concern and of the guarantor to the loan Page 14 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined availed by the petitioner-company, were all treated as separate units.
(ii) The outstanding towards each of the separate units had been specifically mentioned in the award.
(iii) The parties had not agreed to the Bank appropriating any amount deposited by any of the three companies in all three accounts on proportionate basis.
(iv) It also does not appear that the properties mortgaged as collateral security for each of the loan accounts were to be treated as security for all the loan accounts jointly.
(v) Most importantly, at the relevant point of time, even the Bank had appropriated the amount repaid by the present petitioner towards the loan account of the present petitioner only and not towards all the three accounts proportionately, more particularly the same being evident from the legal notice sent by the learned Advocate for the Bank to the petitioner Page 15 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined informing the petitioner about an outstanding an approximately Rs. 3,77,000/- after the petitioner had repaid an amount of approximately Rs. 1,07,00,000/- towards the present loan account.
15. Thus, it would appear that having treated the loan accounts separately and having not agreed otherwise in the settlement before the learned DRT, it would not, now, be open for the respondent-Bank to contend that the amounts deposited by the petitioner after the settlement were appropriated proportionately toward all the three accounts and that even the collateral security for the present loan account was treated as a joint collateral security for all the loan accounts.
16. Insofar as the legal aspect is concerned, the affidavit-in-reply preferred by the respondent-Bank, does not refer to any Rules or Regulations or Guidelines of the Bank or the Reserve Bank of India, as the case may be, whereby in group loan accounts, property mortgaged as security towards one account would stand as security for Page 16 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined all the loan accounts.
16.1 At this stage, it would be relevant to mention here that in case of Supreme Nutri Grain Private Limited and Another (supra), the respondent therein, had raised a similar contention relying upon Master Circular of the RBI dated 01.07.2015 consolidating the instructions/guidelines relating to credit exposure limits for single/group borrowers. Negating similar contention, the Division Bench of this Court at paragraph No. 15 has observed as thus:
"15. Having perused the Master Circular, more particularly the purpose mentioned in the Master Circular as well as the covering letter to the same it becomes abundantly clear that the said Circular contains instructions issued by the RBI to the scheduled Commercial Banks relating to their credit exposure limits for single / group borrower etc. In our considered opinion, this Master Circular in no way empowers banks to consider the properties mortgaged by one borrower as being cross guarantee to a loan availed by a different borrower, albeit both the borrowers may have commonality of management and effective control. This Master Circular imposes ceiling limits upon the Banks with regard to their exposure to a single borrower or borrowers group. Thus having come to the above conclusion, we hold that reliance placed by the respondent bank upon the Master Circular of RBI Page 17 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined dated 01.07.2015 is of no avail and does not in any manner advance the case of the respondent bank."
17. Thus, it would appear that while the respondent- Bank herein has not relied upon any of its Rules or Regulations, and whereas in a similar situation, another Bank, relying upon a Master Circular of the RBI, had raised similar contention and whereas such contention was not countenanced by the Division Bench of this Court.
18. It would also appear that in case of State Bank of India Vs. Radheshyam Spinning Mill Pvt. Ltd. (Supra), the Division Bench of this Court had confirmed a decision of a learned Single Judge of this Court and whereas it would appear that the Bank therein had raised a contention, relying upon the Section 171 of the Indian Contract Act, 1982, inasmuch as, that the Bank had a right of general lien to hold the title deed of security given towards a loan availed by a company as a security towards loan availed of by another company, more particularly where there were common directors or Page 18 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined partners. It would appear that such a contention raised by the Bank therein, had been negated by the learned Single Judge, upheld by the Division Bench of this Court, more particularly by holding that under the general lien available with the Bank, the Bank would not be able to claim lien over the title deed deposited towards one loan account unless the property had been mortgaged towards the other loan account.
19. It would also appear here that insofar as the Resolution of Board of Directors of the petitioner- company is concerned, which is being relied upon by the respondent-Bank, it would appear that the Managing Director had been empowered to even deposit the title deed of the property in question towards dues in any other account and whereas it would not appear that the Managing Director had agreed, more particularly, agreed to have the title documents of the subject property treated as security for loan obtained by its sister concern or by the guarantor to the loan of the present company i.e. the Managing Director of the company in question. Page 19 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023
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20. In this view of the matter, in the considered opinion of this Court, the stand taken by the respondent-Bank of treating the property mortgaged as collateral towards the loan obtained by the other companies i.e. sister concern of the petitioner as well as the loan obtained by the guarantor to the loan availed by the petitioner, and whereas since the Bank itself was clear about the amount repaid by the petitioner-company after the settlement arrived at before the learned DRT, now the respondent- Bank cannot be permitted to turn around and take a different stand. Furthermore, in the considered opinion of this Court, the respondent-Bank could not substantiate by referring to any Rules, Regulations or Guidelines issued by the RBI, whereby property mortgaged towards one loan account could be treated as a security for other loan accounts in a group loan account. Under such circumstances, the stand taken by the respondent-Bank not appearing to be legal cannot be countenanced. Hence, the respondent-Bank is directed to forthwith i.e. not later than 15 days from the date of receipt of this Page 20 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023 NEUTRAL CITATION C/SCA/6854/2023 JUDGMENT DATED: 25/08/2023 undefined order issue No Due Certificate in favour of the petitioner towards the loan availed by the petitioner-company, more particularly if there are no outstanding dues from the present petitioner-company and furthermore the respondent-Bank shall also release the title deeds of the property referred to hereinabove which had been mortgaged as a collateral security for the loan availed of by the petitioner.
21. With the above observations and direction, the present petition is disposed of as allowed. Rule is made absolute to the above extent.
(NIKHIL S. KARIEL,J) BDSONGARA Page 21 of 21 Downloaded on : Sun Sep 17 02:32:39 IST 2023