Decided on January 27,2004



Pratibha Upasani, - (1.) THIS appeal is filed by the appellants/ original applicant Bank i.e. Bank of Rajasthan Ltd. being aggrieved by the judgment and Order dated 2.7.2002 passed by the learned Presiding Officer of Debts Recovery Tribunal-II, Mumbai in Original Application No. 607/2001 (DRT, Jaipur O.A. No. 388/2000). By the impugned judgment and order, the learned Presiding Officer allowed the application of the Bank against defendant Nos. 1 and 3 to 6 with costs and did order that the defendant Nos. 1 and 3 to 6 do jointly and severally pay to the applicant Bank an amount of Rs. 4,08,78,198.59 with interest at the rate of 17.5% per annum from the date of filing of the original application in DRT, Jaipur till full realization. He also gave consequential declarations and directed issuance of recovery certificate as per the above terms. However, the appellants are aggrieved as the learned Presiding Officer did not grant any penal interest to the applicant Bank and also did not award compounded interest but granted only simple interest at the rate of 17.5% per annum. Thus, the appeal of the applicant Bank is limited to these points only i.e. denial of penal interest and denial of compounded interest. 2 Few facts, which are required to be stated, are as follows: THIS original application was filed by the Bank in Debts Recovery Tribunal, Jaipur, which subsequently came to be transferred to Debts Recovery Tribunal-II, Mumbai under the orders of Hon'ble High Court of Rajasthan. Defendant No. 1 is the principal borrower and defendant Nos. 2 to 6 are guarantors. Defendant No. 2 is also mortgager of certain properties. Defendant Nos. 2 to 6 are also pledgers of shares for securitising the outstanding. Defendant No. 7 is occuping mortgaged premises on the alleged leave and licence. agreement from defendant No. 2. The applicant Bank had sued defendants on the ground that on defendant No. 1's request, inland letter of credit facility of Rs. 500 lacs was granted to it on 1.2.1996. In order to secure the credit facilities, defendant No. 2 had created equitable mortgage of flat in Mumbai. Defendant Nos. 2 to 6 in their individual capacity had executed indemnities. The credit facility was to carry agreed rate of interest as per the executed documents. The defendant No. 1 had executed several documents in lieu of the facilities including letter of undertaking and hypothecation agreement. There are contentions about creation of mortgage by the defendant No. 2 which are made in the original application. However, the learned Presiding Officer in his judgment and order has rightly not referred to those contentions because the original application as against the defendant No. 2 and defendant No. 7 is stayed as they are before the B.I.F.R. Applicant's case further is that in order to securitise the outstandings, defendant Nos. 2 to 6 had pledged 4,45,000 shares of defendant No. 2. The defendant Nos. 2. and 5 had pledged shares of various companies. Defendant No. 1 further approached the applicant Bank for revision of the said credit facilities. The request was to extend scope from inland letter credit facility to inland/import letter credit facility and that request was accepted by the Bank. The defendant No. 2 executed letter of guarantee for Rs. 500 lacs on 26.11.1998 for due payment and discharge on demand all amounts advanced to defendant No. 1 or paid for or on account of defendant No. I by the applicant Bank. Pursuant to terms of the agreements dated 1st February, 1996 and according to sanction of credit facilities, the applicant Bank issued various letters of credit on request of defendant No. 1. As certain bills which were duly negotiated under the letters of credit, were not paid by the defendant No. 1 on the respective due dates, payment of the same had to be made by the applicant Bank by debiting advance bills under the letter of credit account and details of that are given in the original application. The defendant No. 1 despite repeated reminders did not take effective steps to clear the outstandings. Therefore, the applicant Bank gave notice through their Advocate dated 25.5.1999 to defendant Nos. 1 to 6 expressing its intention to exercise its right as pledgee of the said shares. The defendants however in spite of the said legal notice failed and neglected to make payment of outstanding dues. The applicant Bank therefore sold some of the pledged shares and received net amount of Rs. 1,16,74,817.29 from the sale and dividend received on the pledged shares and the details of the same were given in the original application. The Bank could sell only shares of listed companies and share of defendant No. 2 could not be sold as they were in jumbo lots. The defendant No. 1 executed letters of acknowledgement on 22.4.1998 and 4.1.1999 acknowledging the liability. On account of non payment of dues by the defendant No. 2, despite persistent efforts by the applicant Bank, account of defendant No. 1 was categorized as per RBI guidelines as NPA on 30.9.1997 and debiting of interest was stopped. The principal sum said to be due was Rs. 1,97,18,362.71 and unapplied interest from 1.10.1997 to 28.6.2002 was Rs. 2,39,48,490/-. By notice dated 29.4.1999, amount was sought from defendant Nos. 1 to 6 but as that was not paid, the original application came to be filed by the applicant Bank. 3. Composite written statement was filed by the defendants Nos. 1 and 3 to 6 taking all the usual defences under the Sun including limitation, non-joinder of necessary parties, joining of unnecessary parties, like defendant No. 7, that the claim is exaggerated and that signatures were obtained by the Bank on the printed documents, etc. etc. 4. The leaned Presiding Officer after hearing both the sides and after going through the material placed before him came to the conclusion that contentions of the defendants were all without any substance except their plea with respect to debiting of interest. All along, it has been averred by the defendants that exaggerated interest was charged. Of course this contention was taken in the written statement for the first time and the defendants never took any objection by writing letter to the applicant Bank or by any other means. The applicant Bank in the original application, in tabular form, had given rates of interest made applicable from time-to-time. It was staled that these were the rates as per the RBI Regulations. Statement of accounts filed by the Bank clearly showed that the rate of interest was applied from time-to-time. It was never shown by the defendants that the same were incorrect. The learned Presiding Officer therefore held that omnibus contention that exaggerated interest had been levied, could not be given any importance. However, from the statements of accounts annexed to Exhibit No. 24, it was seen that penal interest of Rs. 27,44,550/- had been charged It was observed by the learned Presiding Officer that the applicant Bank had not pointed out that there was any agreement about penal interest. The rate of interest (23.75% per annum) mentioned in the hypothecation agreement (Exhibit No. 34) was the then prevailing rate of interest and did not refer to the penal interest. No clause in any of the documents under which the applicant was entitled to penal interest was shown. In the absence of any contract, the learned Presiding Officer came to the conclusion that the applicant Bank was not entitled to penal interest. He therefore deducted that amount from the amount claimed in the original application and thereafter outstanding came to Rs. 4,08,78,198.59. As regards future interest is concerned, the learned Presiding Officer came to the conclusion that it was to be granted at normal rate of interest i.e. 17.50% as mentioned in para XXVIII of Exhibit No. 28 to the original application. In other words, the learned Presiding Officer came to the conclusion that claimed rate of interest 19.85% which was inclusive of penal interest and interest tax, could not be allowed. Before me also, Mr. S.K. Jain, learned Advocate appearing for the respondent/original defendant Nos. 1 and 3 to 6, vehemently argued that if there was no provision of compounding interest, the Bank could not claim it, that if the contract did not provide for increase in the rate of interest, interest rate could not be increased even if the same went up. As far as second point is concerned, we are not concerned with it because in this matter claimed rate of interest was Rs. 17.5% which is less than agreed rate of interest (23.75% per annum). Moreover, in view of the judgment of the Supreme Court in the case of Central Bank of India v. Ravindra, 2001 Supreme Court 3095, law on the point of charging of interest has become very clear. In the present case at hand, after going through the proceedings and after hearing both the Advocates, it is revealed that what was agreed was simple interest at the rate of 17.5% per annum and the same was therefore granted by the learned Presiding Officer from the date of filing of the original application, since the agreement (hypothecation deed) did not provide for compounding of interest. Thus, while affirming submission of the applicant Bank that they have proved their case against defendant No. 1 as borrowers and defendant Nos. 3 to 6 as indemnifiers, I endorse view of the learned Presiding Officer that little merit is found in the defendants' case otherwise. The original application was therefore rightly allowed with costs excepting defendant Nos. 2 and 7 against whom the original application is stayed as they are before BIFR. In view of the aforesaid observations, in my opinion, the penal interest was correctly denied so also compounding of interest. Moreover interest @ 17.5% per annum from the date of filing of the original application in Debts Recovery Tribunal, Jaipur till full realization of amount was correctly granted. I therefore, do not find merit in this appeal, which is preferred on the limited points of denial of penal interest and compounding of interest. The impugned judgment and order does not call for any interference. The same will have to be confirmed and the appeal will have to be dismissed. 5. Mr. S.K. Jain, the learned Advocate appearing for the defendants/respondents herein in his reply to the appeal filed by the Bank has also come out with "cross objections" assailing finding of the learned Presiding Officer with respect to various defences taken by the defendants in the Tribunal. It is submitted inter alia that the learned Presiding Officer has erred in holding that the applicant Bank by modifying the inland letter of credit facility to inland/import letter of credit facility varied the facility for which the respondent Nos. 2 to 6 as indemnifies had stood discharged. According to them, the learned Presiding Officer erred in holding that there was no any substantial alteration or variation in the aforesaid facilities without the consent of the defendants Nos. 3 to 6 and that it did not result into novation of contract whereby the indemnifiers were duly discharged under Section 139 of the Indian Contract Act. Mr. Jain while supporting the impugned judgment and order on the points that the penal interest was rightly denied, that denial of compounding of interest was correct and granting of simple interest was also correct, assailed judgment on other points which are incorporated in his reply to the appeal and he has given nomenclature to his assailing as "cross objections". Though cross objections may be filed in the proceedings under the Arbitration Act in other proceedings under the Code of Civil Procedure, in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter to be referred to as the RDB Act), which is applicable to the present proceedings, there is no provision for filing cross objections. All proceedings under the RDB Act are conducted as per Section 19 of the RDB Act. If any person is aggrieved by an order made by the Tribunal under this Act, he may prefer an appeal to an appellate Tribunal having jurisdiction in the matter. THIS is what Sub-clause (1) of Section 20 of the RDB Act says. Section 21 of the RDB Act says that where an appeal is preferred by any person from whom the amount of debt is due to a Bank or a financial institution or a consortium of Banks or financial institutions, such appeal shall not be entertained by the appellate Tribunal unless such person has deposited with the appellate Tribunal 75% of the amount of debt so due from him as determined by the Tribunal under Section 19. Proviso to Section 21 of the RDB Act gives discretion to the appellate Tribunal for the reasons to be recorded in writing to waive or reduce the amount to be deposited under this section. However, deposit of 75% of the amount before entertaining the appeal is a rule and any deviation made therefrom is an exception. 6. In the present case at hand, the respondents, Advocate Mr. Jain while giving reply to the appeal filed by the Bank has also filed cross objection without payment of Court fees under Section 20 read with table as is given in Rule 8 of the RDB Act: The learned Advocate is assailing the impugned judgment and order in his cross objections without filing appeal as contemplated by Section 20 of the RDB Act, without payment of appropriate Court fees as per the Act and rules framed thereunder causing loss to the revenue. There is also violation of provisions of Section 21 of the RDB Act which requires the appellant before his appeal is entertained to deposit 75% of the amount as determined by the Tribunal under Section 19 of the RDB Act. It has to be always kept in mind that these proceedings are conducted under the RDB Act and provisions of this Act only are applicable to these proceedings. Section 22 of the RDB Act says that the Tribunal and the appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure 1908 but shall be guided by the principles of natural justice. Section 22 also says that subject to the other provisions of this Act and Rules, the Tribunal and appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. Thus, the Tribunal and the appellate Tribunal are bound by provisions of this Act and Rules framed thereunder and the only fetter on their powers is to observe principles of natural justice. Sub-clause 2 Section 22 gives some situations wherein the Tribunal and Appellate Tribunal shall have the same powers as arc vested in a Civil Court under the Code of Civil Procedure 1908, while trying a suit. Sub-clauses (a) to (b) of Sub-section 2 of Section 22 gives these situations, which do not include any provision regarding cross appeal, AS already observed the defendants wanted to bypass the procedure by not paying Court Ices while assailing the findings of the learned Presiding Officer. If the defendants want lo assail the findings of the learned Presiding Officer they have to come up with a separate appeal wherein all the contentions can be raised against the finding given by the learned Presiding Officer, by paying appropriate Court fees. Therefore, cross objections cannot be considered, which are taken by the respondents and which are incorporated in the reply to the appeal. In view of the above discussions, following order is passed: ORDER Appeal No. 51/2002 is dismissed.;

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