M/S Neha Impex Private Limited vs The Assistant General Manager, ...
2023 Latest Caselaw 6242 Guj

                                                                                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
==========================================================
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,

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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

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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

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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

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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

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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-

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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,

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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