Pratibha Upasani, J. -
(1.) THIS appeal is filed by the appellants/ original applicants Central Bank of India being aggrieved by the judgment and order dated 31.7.2003 passed by the learned Presiding Officer of the Debts Recovery Tribunal -I, Mumbai in Original Application No. 2766 of 1999. By the impugned judgment and order, the learned Presiding Officer allowed the original application in favour of the Bank against the defendant Nos. 1 to 3 with costs and ordered them to jointly and severally pay to the Bank a sum of Rs. 1,67,27,825.65 with future interest at the rate of 30.25% per annum with quarterly rests from the date of the application till realization of the amount. He also gave certain consequential declarations. The learned Presiding Officer, however, dismissed the original application as against the defendant Nos. 4,6,7 and 8. It is this portion of the order, which is hurting the applicant Bank and hence, this appeal to that limited extent.
(2.) Few facts, which are required to be stated are as follows:
The defendant No. 1 Kirti N, Sanjanwala and defendant No. 2 Asha Sanjanwala had availed a credit facility from the applicant Bank. The defendant Nos. 3 to 7 were stated to be the guarantors. The defendant No. 8 is State Investment Corporation having first charge on the fixed assets of the defendant No. 6 Gravure Graphic System Pvt. Ltd. It is the case of the Bank that in or about May, 1988 the applicant Bank had granted an overdraft facility with a limit of Rs. 30,000/ - to the defendant Nos. 1 and 2 in consideration thereof they executed a demand promissory note, letter of continuity security, letter of interest, letter of disbursement and a letter of lien. Under the said facilities, the defendant Nos. 1 and 2 utilized a sum of Rs. 265 lacs by 20.5.1991. They also executed demand promissory note for Rs. 265 lacs and executed similar security documents. On the same day, the defendant No. 1 on the letterhead of the defendant No. 4 Navneet Electronics Pvt. Ltd., wrote to the applicant Bank a letter sending a list of plant and machinery to be hypothecated to the applicant Bank as security. They also executed deed of guarantee.
The defendant Nos. 4 and 5, are the Private Limited Companies. In consideration of the applicants having granted the facilities to the defendant Nos. 1 and 2 and to further secure the amounts due and payable by the defendant Nos. 1 and 2 to the applicants, the defendant Nos. 4 and 5 were said to have agreed to create mortgage of their movable and immovable properties. On 20.5.1991, the defendant No. 4 passed a resolution that all its assets, movable and immovable be equitably mortgaged and charged to the applicants as security. On the same day, the defendant No. 5 also passed a similar resolution. The defendant Nos. 4 and 5 also agreed to create charge on the assets of the defendant Nos. 4 and 5 described in Exhibits J and L. The defendant No. 6 which is also a Private Ltd. Company agreed to create second charge on the fixed assets belonging to it, subject to the charge of the defendant No. 8. When the applicant Bank called upon the defendant No. 8 to give consent for creating second charge, the defendant No. 8 refused to do so. The applicant Bank has alleged that the defendant No. 8 cannot withhold the consent and its act in refusing to give consent was unreasonable.
It is further the case of the applicant Bank that under a deed of hypothecation dated 18.7.1991, the defendant No. 4 company hypothecated in favour of the applicant Bank, all movable properties described in Exhibit Q of the defendant No. 4. The defendant Nos. 1 and 2 also executed a deed of guarantee. The defendant No. 4 executed a deed of guarantee on 18.7.1991. The defendant No. 6 executed a deed of guarantee on 18.7.1991 and on the same day, the defendant No. 5 executed a deed of hypothecation in respect of the property described in Exhibit U and also the defendant No. 6 executed deed of hypothecation in respect of its movable assets described in Exhibit V and also executed a deed of guarantee. On 18.7.1991, the defendant No. 7 executed a deed of guarantee in favour of the applicants.
The Bank's further case is that on 12.8.1991, the defendant Nos. 1,2 and 4 executed an agreement of hypothecation -cum -guarantee whereunder the defendant No. 4 company irrevocably agreed to make payment on demand and without demur of the sum mentioned in the same and hypothecated all movable properties including plant and machinery, spare parts and equipments described in Exhibit Z.
The defendant Nos. 5,1 and 2 as well as 6,1 and 2 also executed similar agreement of hypothecation -cum -guarantee. The defendant Nos. 1 and 2 had created lien on National Saving Certificates (NSCs) and MMDCs.
The defendant Nos. 1 and 2 failed and neglected to repay the amount. The amounts received on maturity of pledged MMDCs and NSCs were appropriated. On 5.2.1992, a notice was issued by the Bank to the defendant Nos. 1 to 7 calling upon them to make good the outstanding amount, however, there was no response. Hence, the Bank was constrained to file the original application for recovery of a sum of Rs. 1,67,27,825.65, which according to the Bank was due to them. Thus, the original application came to be filed for recovering the said amount and for enforcement of the securities. In view of the agreement executed by the defendant Nos. 4 and 5 to create mortgage, an order for specific performance of the said agreements and creation of mortgage also was sought in the said original application. It was also prayed that the defendant No. 8 be ordered to create second charge on the fixed assets of the defendant No. 6.
(3.) NOBODY appeared in the DRT -II, Mumbai to contest the original application except the defendant Nos. 4 Navneet Electronics Pvt. Ltd. and defendant No. 8 Gujarat Industrial Investment Corpn. Ltd. The defendant No. 4 filed its written statement and stated that at no point of time, the defendant No. 4 had agreed to create mortgage on any of its properties nor it had guaranteed the repayment of the amounts due against the defendant Nos. 1 and 2. It was stated that the resolution dated 20.5.1991 produced by the applicant Bank was never adopted by the Board of Directors of the defendant No. 4 and no such resolution was ever passed by the defendant No. 4. It was alleged that the said resolution was fabricated. It was also averred that the manner in which the applicant Bank had relied on the said resolution of creating charge on the assets of the defendant No. 4 company for repayment of the personal debts of the defendant Nos. 1 and 2 clearly showed that the applicant Bank had acted against elementary principles of Banking. It was contended that as per common practice, the personal guarantees of the directors are ordinarily secured for the repayment of the debts owed by the company, but the assets of the company are never secured for repayment of personal debts of the Directors. It was pointed out that the Director of the company is both; trustee and an agent of the company and cannot create any security on any of the properties of the company for repayment of his personal debts. It was contended that the applicant Bank had been grossly negligent and/or naive in dealing with the defendant Nos. 1 and 2 and/or had acted in collusion with them in order to foist their liability on the defendant No. 4, and that the applicant Bank ought to have taken reasonable care before acting on the alleged resolution dated 20.5.1991, which was ex facie invalid.;