K INBARAJAN Vs. TAMILNAD MERCANTILE BANK LIMITED
LAWS(DR)-2005-6-14
DEBTS RECOVERY APPELLATE TRIBUNAL
Decided on June 08,2005

Appellant
VERSUS
Respondents

JUDGEMENT

A.Vijay Kumar, - (1.) THIS appeal has been filed by the appellants seeking an order of this Tribunal to place appellants in possession with regard to two immovable properties mentioned in the possession notice dated 18.11.2004 and call for the statement of accounts relating to the transactions, rate of interest, etc. from the respondent. It is further prayed that notice issued under Section 13(2) of the SARFAESI Act, 2002 by the respondent be declared as illegal and quash all the proceedings taken by the respondent in pursuance of the same and for costs in this application.
(2.) The brief facts of the case are as follows: (a) The appellant is a partner of the partnership firm M/s. Leela Agencies and the authorised signatory of the partnership firm M/s. Leela Traders. This appeal has been filed on behalf of the appellant and also on behalf of all the signatories of loan documents, as borrowers, guarantors or property owners, for the loans availed from the respondent Bank in his favour and in favour of M/s. Leela Agencies and M/s. Leela Traders. The appellant is a partnership firm engaged in the business of stockists and traders of consumer goods and also manufacturers of sugar candy as a small scale industrial unit. The appellants availed loan facilities from the respondent Bank for their business. Further on the strength of assurances given by the respondent Bank for grant of financial facilities, the appellants offered immovable properties as security for the loans granted from the year 1987 onwards, during the year 2003 due to fraud committed by the manager of the appellant's sugar candy unit, the petitioner suffered loss and this fact is known to the respondent Bank. However, the Bank did not co-operate with the appellants and with ulterior motive compelled the appellants to execute various renewal documents. b) Further, while negotiations were going on with the respondent Bank for amicable settlement of the loans, the Bank initiated proceedings under Section 13(2), of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) and issued notice on 28.7.2004 demanding a sum of Rs. 17,96,048.02. The said notice was issued by a 'Manager' of the Bank who is not an authorised officer under the Act and hence the same is illegal, null and void. The appellant sent objections on 16.9.2004 through their Counsel to the Bank in the light of judgment of the Apex Court in Mardia Chemicals Ltd. v. UOI. But the respondent Bank failed to reply within the stipulated period of one week on receipt of objections, but sent a ritual reply only on 10.11.2004 without giving any details regarding statement of account, interest, etc., which reached the appellant's Counsel on 17.11.2004. In spite of the attempts by the appellants for compromise, the respondent made false publication in 'Dhinamalar' paper on 18.11.2004 claiming to have taken possession of the two residential immovable properties on the same day. The possession notice was actually served only at 10.30 a.m. and 11.00 a.m. on 18.11.2004 to the appellants. The possession notice was issued by the Branch Manager of the respondent Bank who is the secured creditor of the Bank. The same officer cannot become the authorised officer for the same branch for invoking the provisions of the Securitisation Act. The respondent Bank did not comply with the formalities prescribed under Rules 4 and 8 of the Security Interest (Enforcement) Rules, 2002 for taking possession and hence the action taken by the Bank in taking possession and its publication are illegal and invalid. It is apprehended that the respondent Bank assumes unlimited powers and put up the dwelling secured properties for sale causing loss to the appellants. (c) The other grounds of the application are as follows: (i) As per the Securitisation Act, the secured creditor can invoke the provisions for enforcement of security interest only after registration for security interest, in Central Registry set up for the purpose. Since the registration of security was not created over the properties, the proceedings initiated under the Act is null and void. (ii) The demand notices dated 28.7.2004 under Section 13(2) were not issued by the authorised officer but signed only by a Manager and hence the same is null and void. (iii) The impugned notice dated 28.7.2004 did not contain calculation of the amount claimed and no statement of accounts was enclosed so as to enable the appellant to verify the same. (iv) The rate of interest charged by the respondent Bank is exorbitant and usurious and added hidden charges to the loan account of the appellants without their consent. Further the signatories to the documents dated 29.9.2003 referred in the said notice did not receive any consideration on the date of execution of such documents. (v) As per the demand notice, the accounts have been classified as NPA exactly after five months after the date of DPN. Hence, it is evident the respondent Bank had already decided to classify the account as NPA after five months, while getting fresh documents of the earlier dues. (vi) As per the Apex Court's ruling in Central Bank of India v. Ravindra, penal interest cannot be compounded and capitalized. Hence the respondent has to recalculate the dues and re-credit the excess interest and charges debited to the loan accounts. (vii) The respondent Bank should furnish the statement of loan accounts, the rate of interest, etc. and other documents relied upon by them to this Tribunal as directed by the RBI Circular. (viii) As per the Act, the notice under Section 13(2) should contain particulars envisaged for a 'plaint' and it must be in the nature of a decree/judgment which has to be issued by authorised officer at least in the cadre or Chief Manager. However, the notice dated 28.7.2004 has been issued by a Manager of the Bank without complying with the basic requirements. (ix) The possession notice under Section 13(4) published in 'Dinamalar' was published before actual possession took place in pursuance of the illegal notice issued by the Manager of the respondent Bank. Hence the same may be declared as null and void. (x) Since the appellants were willing to settle due dues amicably, there is no imminient threat exists to the respondent Bank to take steps to invoke the proceedings under the Securitisation Act. (xi) If the amounts remitted by the appellants were correctly accounted to their loan account and if the correct rate of interest applicable to small scale industrial unit and retail trading were applied, the account would not have been classified as NPA. (xii) If the provisions of the Securitisation Act were invoked, the appellants would be put to hardship and harassment. (d) Hence this application has been filed seeking an order of this Tribunal to place appellants is possession with regard to two immovable properties mentioned in the possession notice dated 18.11.2004 and call for the statement of accounts relating to the transactions, rate of interest, etc. from the respondent. It is further prayed that notice issued under Section 13(2) of the SARFAESI Act, 2002 by the respondent be declared as illegal and quash all the proceedings taken by the respondent in pursuance of the same and for costs in this application. The averments contained in the counter affidavit filed by the respondent Bank are that the application is devoid of merits and is liable to be dismissed in limine. The appellant is admittedly a defaulter in respect of the financial facilities availed by M/s. Leela Agencies and M/s. Leela Traders and hence, they are not entitled for any relief. The appellant has not furnished any documents authorising him to file this appeal on behalf of M/s. Leela Traders and the guarantors and as such the appeal is liable to be dismissed. M/s. Leela Traders and their associate concerns availed various financial facilities from the respondent Bank upto a total limit of Rs. 16.0 lakhs and executed promissory notes on 29.9.2003 and 20.10.2003 for the same. The facilities were further secured by equitable mortgage over the house properties situated at Perali Road and Ull Street, Virudhunagar. The accounts in respect of M/s. Leela Agencies and M/s. Leela Traders became NPA on 29.2.2004 and that of K. Inbrajan on 20.3.2004. Hence, Demand Notice under Securitisation Act was issued on 28.7.2004. The appellants sent reply raising objections through their Counsel on 16.9.2004 which was received on 20.9.2004. A detailed reply through the Bank's Counsel was sent on 10.11.2004 rejecting the same. Thereafter the respondent Bank took possession on 18.11.2004 after personally serving all the borrowers/guarantors and the possession notice was published for the benefit of the general public in the dailies, 'The Hindu' and 'Dinamalar'. The copies were given in advance to the dailies who have published the same inadvertently on 18.11.2004 edition itself. The mistake is a bona fide one and no prejudice is likely to be caused to the appellant. The allegation relating to the alleged embezzlement by the manager of the sugar candy manufacturing unit and that the respondent Bank knew the same are denied. The allegation that the respondent did not co-operate with the appellants and that the appellants and other signatories were threatened to execute renewal documents are denied. The notice issued under Section 13(2) by the Manager/Chief Manager/Authorised Officer of the respondent is perfectly valid. The expression "Authorised Officer" would mean any person of authority exercising powers of superintendence, direction and control of the business or affairs of the secured creditor, i.e. the respondent Bank. Hence the same is valid. Further the respondent Bank had given all the particulars regarding the loan and other particulars in the said notice. Even before issuance of the said notice dated 28.7.2004, various reminders were issued to the appellant. The statement of accounts was also enclosed with the respondent's Counsel's reply notice dated 10.11.2004. The allegation that the Branch Manager of the respondent Bank cannot be the Authorised Officer for the same branch is dented and there is no prohibition under the Act. The allegations contained in para V(10) of the appeal, that the respondent did not comply with the formalities prescribed under Rules 4 and 8 of Security Interest (Enforcement) Rules, 2002 for taking possession are denied. The allegations contained in para V(11) are speculative. The appellants being an admitted defaulter cannot take any bona fide defence in respect of the actions initiated by the respondent to enforce its security interest. As regards the allegation regarding the registration of security interest in the Central Registry, it is stated that for the enforcement of security interest, the provisions of Chapter III of the Act are applicable which does not provide for any registration of security interest in the Central Registry. According to Section 39 of the Act, certain provisions of the Act are applicable only after the Central Registry is set up. Hence, the actions initiated by the respondent Bank are valid. The allegation regarding charging of exorbitant rate of interest without the consent of the appellant are denied. The allegation that the appellants did not receive any consideration for the promissory note executed on 29.9.2003 is also misleading. The renewal/revival letter and other documents are executed by the borrower in respect of existing facilities/limits extended to them and no separate consideration is required. At the time of availing the loan the appellants have agreed to be governed by all the terms and conditions of the respondent Bank including charging of interest. The respondent Bank has charged interest as per the Bank's Ruling Rate and the same is not usurious. The appellants and other parties have verified the statement of accounts and confirmed the correctness of the same and executed balance confirmation letter also. They also executed loan revival letter and mortgage extension letter for the loan availed by them. At no point of time the appellants raised any objection regarding the correctness of statement of accounts or the amount mentioned in the respondent's Counsel's notice dated 25.5.2004. In fact, the appellant by letter dated 17.10.2004 requested for conversion of CC limit into term loan for 120 months. Since the request was unreasonable the respondent Bank was unable to consider the same. Since the account was irregular, the account was classified as NPA as per the prevailing norms stipulated by the RBI and penal interest was charged as per the agreed terms and conditions, The terms and conditions including the rate of interest were intimated to the appellants at the time of sanction itself and the appellants accepted the terms and conditions by signing the copy of sanction letter. As regards the allegations contained in Grounds X to XIII, it is slated that Mr. V. Abraham Sunder Singh, Senior Manager of the Branch who initiated the action is the authorised officer of the respondent Bank and is of Chief Manager cadre. Hence is empowered to initiate the proceedings under the Securitisation Act. Since there was no response to the demand notice served on 28.7.2004 till 17.11.2004, the respondent Bank after giving due personal notice on 18.11.2004 took possession of the immovable properties of the appellant. The appellants and others received the possession notice on 18.11.2004 itself and affixed their signature at once. Since the accounts have become irregular, in order to protect the Bank's interest and to protect the public interest, the Bank was constrained to initiate proceedings under the Securitisation Act. Hence the appeal may be dismissed.
(3.) THE point for consideration is whether the appellants are entitled to the relief as prayed for?;


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