G.L. Bajaj Educational Trust ... vs State Bank Of India And Ors.
2019 Latest Caselaw 1737 Del

$~14.

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                              Date of Decision: 28.03.2019

%       W.P.(C) 2083/2019

        G. L. BAJAJ EDUCATIONAL TRUST (REGD.) AND ORS.
                                                 ..... Petitioners
                   Through:     Mr. Rajeeve Mehra, Sr. Adv. (amicus
                                curiae) with Ms. Niti A Sachar,
                                Advocate
                        versus

        STATE BANK OF INDIA AND ORS.             ..... Respondents
                 Through:      Mr. Rajiv Kapur, Adv. for R-1/SBI



        CORAM:
        HON'BLE MR. JUSTICE VIPIN SANGHI
        HON'BLE MS. JUSTICE REKHA PALLI

VIPIN SANGHI, J. (ORAL)

1. By the detailed order dated 28.02.2019, this Court has dismissed the present writ petition. We have observed in the said order that the order passed by Mr. G.V.K. Raju, the learned Presiding Officer, DRT-II, Delhi on 10.01.2019 shocks our conscience, and we wish to examine as to what steps are called for at our end, if any. For that purpose, we kept the matter for today while requesting Mr. Rajeeve Mehra, Senior Advocate to assist us on this aspect.

2. At this stage itself, we may observe that we are not dealing with the order dated 10.01.2019 passed by the DRT as an appellate forum. That appeal has been entertained by the learned DRAT. We are also not sitting in judicial review of the said order passed by the DRT. We are also conscious of the fact that we do not exercise the power of administrative superintendence over the DRT under Article 235 of the Constitution of India, and our superintendence under Article 227 of the Constitution of India is restricted to judicial superintendence only.

3. Before we proceed further, we may indicate as to what is it in the order dated 10.01.2019 passed by the learned Presiding Officer, DRT-II Mr. G.V.K. Raju that shocks our conscience and drives us to pass this order.

4. The DRT was aware of the fact that the applications for attachment before judgment, of the State Bank of India, were pending before it when it passed the order dated 10.01.2019. It was also aware of the fact that the claim of State Bank of India was over Rs.55 crores; that the property at Preet Vihar had fetched only about Rs.10.60 crores; that the OTS offer of State Bank of India stood withdrawn as respondent no.3 had failed to honour its terms. The DRT was aware of the fact that the Maharani Bagh property belonged to the Corporate Guarantor of SBI i.e. respondent No.8, and that the liability of respondent No.8 qua State Bank of India was co-extensive with that of the principal borrower, i.e. respondent No.3.

5. A perusal of the order dated 10.01.2019 reflects extremely poorly on the competence of the Presiding Officer, even if one were to give him the benefit of the doubt that while passing the order dated 10.01.2019, he was

not swayed by any other extraneous consideration. We cannot fathom as to how the learned Presiding Officer could have permitted sale of the entire Maharani Bagh property, and permitted respondent No.8 to receive and appropriate the entire sale consideration after settling the account of Kotak Mahindra Bank, when the attachment applications of the SBI were pending. By directing that those applications would be heard later than 10.01.2019 - when the order was passed by the learned Presiding Officer modifying the order dated 05.01.2019, the learned Presiding Officer of the DRT rendered those applications infructuous, since the transfer of the property and receipt & appropriation of the sale proceeds was allowed to proceed without any limitation/ condition. The passing of the order dated 10.01.2019 presented a fait accompli to the SBI. Even without consideration of the two applications for attachment before judgment, those applications were rendered infructuous and were, as good as, dismissed.

6. Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 may be referred to at this stage. Sub-Section (3A) of Section 19 requires the applicant to:

"(a) state particulars of the debt secured by security interest over properties or assets belonging to any of the defendants and the estimated value of such securities;

(b) if the estimated value of securities is not sufficient to satisfy the debt claimed, state particulars of any other properties or assets owned by any of the defendants, if any; and

(c) if the estimated value of such other assets is not sufficient to recover the debt, seek an order directing the defendant to

disclose to the Tribunal particulars of other properties or assets owned by the defendants."

7. In the present case, when it filed the Original Application, the SBI apparently was not even aware of the valuable asset owned by respondent No.8 - the Corporate Guarantor, at Maharani Bagh. When it learnt of the same, it moved an application for attachment before judgment of the said asset. When it learnt of the further development that the said property was mortgaged to Kotak Mahindra Bank, and was likely to be sold to liquidate the outstanding debt of Kotak Mahindra Bank, it moved the second application for attachment before judgment of the balance sale proceeds. These steps were necessitated since the security interest over the properties owned by respondent No.3 - the Principal Debtor, and the properties owned by the guarantors - which were known to SBI, were evidently not sufficient to satisfy the outstanding dues owed to SBI.

8. Pertinently, sub-Section (4) of Section 19 of the Recovery of Debts and Bankruptcy Act obliges the Tribunal to direct the defendants, inter alia, to disclose particulars of properties or assets other than properties and assets specified by the applicant under clauses (a) and (b) of sub-Section (3A). It is equally pertinent to note that sub-Section (4A) of Section 19 states that, notwithstanding anything contained in section 65A of the Transfer of Property Act, 1882, the defendant, on service of summons, shall not transfer by way of sale, lease or otherwise except in the ordinary course of his business any of the assets over which security interest is created "and other properties and assets specified or disclosed under sub-section (3A), without the prior approval of the Tribunal:". Therefore, there is a statutory bar

against transfer by way of sale, lease or otherwise of any property which, though not mortgaged to the applicant bank, is disclosed by the applicant bank to the Tribunal under Clauses (b) and (c) of Sub-Section (3A) if the estimated value of the securities is not sufficient to satisfy the debt claimed. Pertinently the first proviso to sub-Section (4A) directs that the Tribunal shall not grant approval for transfer by way of sale, lease or otherwise of any such asset without giving notice to the applicant bank or financial institution, to show cause as to why approval prayed for should not be granted.

9. In the present case, the SBI had moved the two applications for seeking attachment before judgment since the estimated value of the securities held by it was not sufficient to satisfy the debt claimed by SBI. Thus, by force of sub-Sections (4) and (4A) of Section 19, firstly, the learned DRT was obliged to restrain the defendants - including defendant No.8, from dealing with or disposing of the Maharani Bagh asset and, secondly, the defendants - which included defendant No.8, was statutorily injuncted from selling, leasing or otherwise transferring any portion of the Maharani Bagh property which was not necessary to be dealt with except to liquidate the outstanding liability owed to Kotak Mahindra Bank. The learned Presiding Officer Mr. G.V.K. Raju has conducted himself - while passing the order dated 10.01.2019, in blissful ignorance of the aforesaid statutory provisions and scheme of the Act.

10. The learned Presiding Officer appears to exhibit little understanding of the scheme of the Recovery of Debts and Bankruptcy Act which it is his

duty to enforce. The DRT and the Appellate Tribunal have been created under the Recovery of Debts and Bankruptcy Act with the object of effectively securing and recovering dues which are owed to banks and financial institutions - which are public monies. Section 19 statutorily seeks to protect the rights of the applicant bank/ institution by imposing a statutory obligation on the defendants to make full and complete disclosure of their assets, and also injuncts the sale, lease or other transfer of the asset, including those, over which security interest has not been created, without the prior approval of the Tribunal.

11. Here, in the present case, the DRT was made aware of the position that the debt owed to the SBI was to the tune of Rs.55 Crores; the market value of one of the secured assets (Preet Vihar property) was only Rs.10.63 Crores and the other secured asset was a property situated in Uttarakhand. It was aware that respondent no.8 was a corporate guarantor of SBI and was the owner of the Maharani Bagh property. Despite that being the position, without returning a finding that the value of the security interest held by SBI was sufficient to meet the claim of SBI, the learned Presiding Officer allowed respondent No.8 - the Corporate Guarantor to get away with the sale of its entire Maharani Bagh property, and also permitted it to pocket the balance sale consideration over and above Rs.13.5 Crores which was payable to Kotak Mahindra Bank. The conduct of the learned Presiding Officer demonstrates his utter lack of concern for the interest of SBI, which is a public sector bank dealing in public money.

12. The order dated 10.01.2019 refers to "same terms & conditions imposed on 05.01.2019", subject to which the strategic buyers, i.e. the petitioners had offered to deposit Rs.19 Crores in the No Lien Account with SBI. A perusal of the order dated 05.01.2019 shows that there are absolutely no terms & conditions imposed on SBI in the order dated 05.01.2019. There was no question of any "offer" not being accepted by SBI, as recorded in the order dated 10.01.2019. There is nothing in the order dated 05.01.2019 passed by DRT to suggest that SBI had ever agreed not to proceed with the auction of the Preet Vihar property. Pertinently, no finding was returned by the Presiding Officer, DRT while passing the order dated 10.01.2019, that on 05.01.2019 there was an understanding - formal or otherwise, that SBI would not proceed with the sale of the Preet Vihar property under the SARFAESI Act. Even otherwise, it does not stand to reason as to why the SBI should not proceed with the said sale, considering the fact that its outstanding dues were to the tune of Rs.55 Crores and the best offer received for the Preet Vihar property was only Rs.10.63 Crores.

13. Though the learned Presiding Officer does not mention anything in the order dated 10.01.2019 about the OTS offer made in respect of the outstanding loan amount owed to SBI, it was argued before us that the SBI had agreed to revive its OTS offer and to treat the payment of Rs.19 crores as payment under the OTS, and to not sell the Preet Vihar property. It appears on a reading of the impugned order that the learned Presiding Officer reeled under the impression that the SBI was bound to revive the OTS offer, despite it being withdrawn on account of respondent No.3 not fulfilling its terms & conditions. This also reflects very poorly on the

knowledge and understanding of the learned Presiding Officer. The bank was not obliged to revive the OTS offer - terms of which had not been met by the borrower respondent no.3. Evidently, the SBI was not aware about the existence of a valuable asset of a corporate guarantor respondent No. 8, which could be reached for the purpose of liquidation of the outstanding amounts owed by the borrower and its guarantors when the OTS offer was made which, eventually, fell through.

14. Under the RBI Guidelines for OTS issued from time to time, cases of willful default, fraud and malfeasance are not covered. The guidelines cover NPAs which have become doubtful or loss. The RBI circular dated 04.10.2007 bearing No.RBI/2007-2008/152 lays down the guidelines on purchase/ sale of Non Performing Assets and states that the net present value of the settlement amount should be calculated and this amount should generally not be less than the net present value of the realizable value of the securities. The circular of the RBI bearing No. RBI/2009-10/500 dated 21.06.2010 highlighted the serious concern expressed by one of the DRTs on account of the bank agreeing to receive a lesser amount against the amount claimed, despite availability of ample securities in ignorance of RBI guidelines. This circular goes on to state:

"2. In this connection, we draw your attention to our circular DBOD.No.BP. BC.81/21.01.040/95 dated July 28, 1995, read with circulars DBOD.BP.BC. No.50/21.04.018/2006-07 dated January 4, 2007, DBOD.BP.BC.34/21.04.048 /2007-08 dated October 4, 2007, and other related circulars issued from time to time and advise that adequate care should be taken to ensure that the compromise settlements are done in a fair and

transparent manner and in full compliance with RBI guidelines on the matter.

3. It has also been decided that henceforth, the officer/authority sanctioning a compromise/one time settlement should append a certificate stating that the compromise settlements are in conformity with the RBI guidelines."

15. In Vindale Distilleries Ltd. Vs. Union of India & Others, (2008) 145 CompCas 396 (Delhi), a learned Single Judge of this Court held that the RBI guidelines on One Time Settlement:

"were not applicable in those cases where there was willful defaults and guidelines were applicable only in those cases where outstanding recovery was doubtful. In the instant case, the company is having financial assets worth Rs. 300 crore. ... ... ... ... ... It is clear that there is no lack of capacity with the company in paying the debt of the bank. The only thing is that there is lack of intention to pay the debt of the bank and the intention is to have maximum out of the company's properties and to pay minimum to the bank. It is true that RBI guidelines are to be followed by all the banks universally, without discrimination and without distinction but the RBI's guidelines do not lay down that the banks have to bring under this scheme even those debts where the bank is not doubtful in recovery of the debts and the security available with the bank is more than sufficient to recover the debts. I consider wherever the bank feels that the security available with the bank securing its debts is sufficient to recover the debts and the bank could recover the debts following legal course available to it under SARFAESI Act and the bank should not give up its debt, the bank is justified in rejecting such OTS offers. The value of money which the bank lent years ago is not the same. The bank cannot be compelled to recover the amount which it had lent with no interest or freezed interest despite the fact that the company has sufficient assets. The assets of the company were comparable to the amount lent years ago. If those very

assets are sufficient to recover bank's contractual amount, there is no reason why the Bank should be compelled to accept Lesser amount. ... ... ... ... ... The intention of the RBI Scheme is to recover the money from those companies where the companies which are not having sufficient assets and the debts become doubtful or there is danger of total loss and it is felt that the legal battle between the bank and the company may take years together and at the end recovery of money of the bank maybe doubtful as company was having no assets. With the coming of SARFAESI Act in force and the bank having sound security, I consider that if the bank can recover its loan along with interest, the bank should not be prevented to recover the real value of the money which was lent and should not be compelled to accept much lesser amount. In case where the company is poor and has so many debts that it would not be able to discharge the bank's liability, Bank must go for OTS but where the bank is sure to recover its debts, the bank cannot be compelled to accept the proposal of one-time settlement even it is made by the petitioner qua NPAs." (emphasis supplied)

16. The debt owed to banks and financial institutions are public monies and if sufficient security is available to recover the contractual dues, no bank or financial institution can let go any of its dues on its own without proper justification and reasons reflected on the record. To permit bank/ financial institutions to do so without proper reasons and justification - even in cases where there is sufficient security to recover the entire outstanding amount, would itself lead to arbitrariness, favouritism, discrimination and possible corruption. Obviously, the learned Presiding Officer, DRT while passing the order dated 10.01.2019 acted in ignorance of the OTS guidelines issued by the RBI from time to time as well as the decision of this Court in Vindale

Distilleries Ltd. (supra). The aforesaid aspects, in our view reflect poorly on the capacity of the learned Presiding Officer Mr. G.V.K. Raju.

17. Mr. Mehra has drawn our attention to Section 15(2) of the Recovery of Debts and Bankruptcy Act, which states that the Presiding Officer of a Tribunal or the Chairperson of an Appellate Tribunal shall not be removed from his officer except by an order made by the Central Government on the ground of proved misbehaviour or incapacity after inquiry. Section 17A delineates the powers of Chairperson of the Appellate Tribunal. The Chairperson of the Appellate Tribunal exercises the general power of superintendence and control over the tribunals and his jurisdiction includes the power of appraising the work and recording the Annual Confidential Reports of Presiding Officers. Sub-section (1B) of Section 17A reads:

"(1B) Where on assessment of the performance of any Presiding Officer of the Tribunal or otherwise, the Chairperson is of the opinion that an inquiry is required to be initiated against such Presiding Officer for misbehaviour or incapacity, he shall submit a report to the Central Government recommending action against such Presiding Officer, if any, under section 15, and for reasons to be recorded in writing for the same.]"

18. We, therefore, direct that our order dated 28.02.2019 and the present order be placed before the learned Chairman, DRAT. The learned Chairman, DRAT shall independently assess and form his opinion whether an inquiry is required to be initiated against Mr. G.V.K. Raju, Presiding Officer, DRT-II, Delhi and he may proceed in the matter accordingly.

19. We have indicated our reasons for issuing the aforesaid directions. However, the learned Chairman, DRAT may form his own opinion independently without being influenced by our observations or remarks.

20. The petition stands disposed of in the aforesaid terms.

VIPIN SANGHI, J.

REKHA PALLI, J.

MARCH 28, 2019 N.Khanna/sr