(1.) THE respondent Bank filed the OA for recovery of Rs. 3,37,09,121.11p together with interest @ 19.5% p.a. with quarterly rests from the date of filing or the OA till realisation.
(2.) The 1st appellant company who is defendant No. 1 in the OA, is a Public Limited Company, a joint sector project promoted by Kerala State Industrial Development Corporation. The company became a sick unit and, therefore, the matter was referred to BIFR who declared it as a sick unit on 29.5.1991. BIFR sanctioned the rehabilitation scheme for revival of the company on 29.2.1994 and that also could not be implemented and ultimately BIFR recommended for winding up of the unit. Even after the Advocate notice, the company did not pay the amount and hence Bank filed the suit.
The defendants resisted the claim by filing the reply statement, which runs as follows. The defendants denied their liability. It is stated that after filing of the OA, a proposal for rehabilitation was under consideration and during the said proceedings, a compromise was arrived at, between the parties in 1997, which was approved by the Bank in the year 1999. The Bank sent a letter dated 18.1.1999 affording two months time for the defendants to pay the compromise amount of Rs. 1.03 crores. During this period, there was a recession in the overall economy and the collapse of the real estate market and because of that, the defendants could not mobilise funds to pay to the Bank. But however, the defendants with great difficulty managed to raise Rs. 25 lakh and remitted the sum on 9.3.1999. Further amount of Rs. 5 lakh was also paid on 25.8.1999, Rs. 7 1akh on 27.10.1999, another Rs. 10 lakh on 22.10.1999 and in all, the defendants remitted Rs. 62 lakh. That thereafter, the defendants were set exparte and the matter was restored to file as per the orders of the High Court of Kerala and the defendants have paid a sum of Rs. 10 lakh as per the orders of the High Court. That thereafter, the Reserve Bank of India (RBI) came up with a fresh One Time Settlement Scheme (OTS) under which the defendants were eligible to have the complete interest accrued on their account waived after the date on which the account was transferred to the protested bills account. Accordingly, the defendants' account was transferred to the protested bills account on 1.1.1991 and on which date, the amount stood against their account was only Rs. 1.06 crore. As the Bank did not accept the proposal of the defendants they have approached the High Court of Kerala and the High Court directed the defendants to pay a sum of Rs. 8 lakh and the said Order was subsequently modified and directed the defendants to pay two instalments of Rs. 10 lakh each within two months and that could not he complied with and the defendants filed the writ appeal. It is the contention of the defendants that at the time when their account was transferred to protested bills account, their liability was only Rs. 1.06 crore and the Bank is not entitled to claim interest over that amount and prayed to accept the said amount and to dismiss the claim of the Bank. The DRT did not accept the case of the appellants/defendants and decreed the OA as prayed for and hence this Appeal.
I have heard the learned Advocate for the appellants and respondent and also perused the appeal papers.
(3.) MR. R. Suhramanian, the learned Advocate for the appellants has mainly argued that the appellants are entitled to the One Time Settlement (OTS) Scheme formulated by the Reserve Bank of India and the amount due even as per the statement of accounts relied upon by the respondent Bank for the period 1.1.1991 to 28.2.1991, the appellants were liable to pay only Rs 1,06,59,167.11p and in the teeth of the statement of account produced by the Bank itself, the claim of the Bank in the OA is unsustainable. It is further pointed when once the account of the appellants became a Non-Performing Asset (NPA) in 1993 itself, the Bank is not entitled to claim any interest thereafter. The Reserve Bank of India guidelines for recovery of dues relating to NPAs of public sector Banks dated July 27, 2000, is applicable to the appellants and the guideline says "A review of compromise settlements of NPAs through Settlement Advisory Committees (SACs) made by us has revealed that the progress of recovery of NPAs through this mechanism has not been encouraging." Therefore, the RBI had issued revised guidelines thereby directing, "While Banks should take effective measures to strengthen the credit appraisal and post-credit monitoring to arrest the incidence of fresh NPAs, a more realistic approach is needed to reduce the stock of existing and chronic NPAs in all categories. It has, therefore, been decided to modify the guidelines, which will provide a simplified, non-discretionary and non-discriminatory mechanism for recovery of the stock of NPAs. All public sector Banks should uniformly implement these guidelines, so that maximum realisation of dues is achieved from the stock of NPAs within the stipulated time".
The guidelines for recovery of NPAs Clause (A) Sub-clause (a) states : "The revised guidelines will cover all NPAs in all sectors in respect of the nature of business, which have become doubtful or loss as on 31st March, 1997, with outstanding balance of Rs. 5.00 crores and below on the cut-off date, "Sub-clause (c) states that, "These guidelines will also cover cases pending before Courts/DRTs/ BIFR, subject to consent decree being obtained from the Courts/DRTs/BIFR."
Under the Heading "Settlement Formula" of the guidelines, Sub-clause (a) deals with NPAs classified as doubtful or loss as on 31st March, 1997, which states, "The minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of NPAs classified as doubtful or loss as on 31st March, 1997 would be 100% of the outstanding balance in the account as on the date of transfer to the protested bills account or the amount outstanding as on the date on which the account was categorised as doubtful NPAs, whichever happened earlier, as the case may be". Pointing out this guideline, it is argued on behalf of the appellants that the appellants' account became NPA as on 1.1.1986 and the amount payable on that date was only Rs. 50,01,661.19p. Even otherwise, it could be construed that the account became NPA as on 1.1.1991, as per the statement of accounts filed and relied upon by the Bank, which is available from Page-53 to 76 of Volume-II typeset of papers. As on 6.5.1991, the balance amount shown in the Statement of Accounts (Page-56) is Rs. 1,05,57,390.61p. Thereafter, certain amounts were added towards tax, insurance premium and certain other charges as on 30.6.1996, the balance arrived at was Rs. 1,06,59,167.11p. (Page 76A). It is the case of the appellants that they are entitled to the guidelines issued by the RBI dated 27.7.2000, and that the account of the appellants was never classified as wilful default, fraud or malfeasance, and hence they are entitled to the benefit of the RBI Scheme and, therefore, they have submitted their offer for OTS on 21.10.2000, wherein they have stated that their account was transferred to the Protested Bills Account on 31.12.1990, and the amount outstanding on that date was Rs. 106.59 lakh. Their account was classified as doubtful NPA in 1994 only and they have agreed to settle the entire dues by payment of Rs. 106.59 lakh. They have also stated that they have already remitted a sum of Rs. 72 lakh and the balance amount that would be payable was Rs. 34.59 lakh, which they have agreed to pay on or before 31.3.2001. The said offer of the appellants was not accepted by the Bank and they in their letter dated 24.10.2000, informed that there had already been a proposal for OTS for Rs. 130 lakh and the same was approved by the Bank in 1998 and, therefore, the offer for Rs. 106.59 lakh cannot be considered. The appellants have once again brought to the notice of the Bank that any default in compliance of the earlier compromise will not disentitle them from claiming the benefit under the guidelines issued by the Reserve Rank of India, and they have reiterated that their offer for Rs. 106.59 lakh could be accepted. In fact, the appellant also relied upon the circular issued by several Nationalised Banks including the State Bank of India dated 17.11.2000 (Page-187), wherein in the annexure, under the heading 'Clarification' Point No. 1.6.10 (Page-197) it is stated that, "Cases where sanction under such OTS Schemes (i.e. schemes earlier announced by RBI/SBI) is no more valid due to default expiry of payment, period etc. may be treated as eligible under RBI OTS-2003 and fresh notices issued. Cases where payments are still forthcoming under those OTS Scheme as per sanction terms, or where the scheme is still open (i.e. RBI OTS for small and marginal farmers), such cases may be followed up for full settlement. (The recovery in such cases may continue to be reported under the respective Schemes)." It is further notified that "The maximum amount to be mentioned in notices to be issued in such cases should ordinarily be the amount last offered by the borrower". The appellants request by their letter dated 14.11.2000 to accept those guidelines and permit them to pay the admitted amount was not considered.
In Neetu Autos Pvt. Ltd. and Ors. v. UCO Bank, I (2003) BC 62 (DRAT/DRT), a similar question arose for consideration of this Tribunal, wherein it was observed that, "The settlement formula of RBI Guidelines reads that the amount outstanding as on the date on which the account was categorised as doubtful NPAs call be taken as the date for declaring as NPA". Under the revised guidelines in respect of the compromise settlement of NPAs classified as doubtful or loss as on 31.3.1997 would be 100% of the outstanding balance in the account as on the date of transfer to the Protested Bills Account or the amount outstanding as on the date on which the account was categorised as doubtful NPAs whichever happened earlier as the case may be.
The very same view was taken by this Tribunal in the case of Canara Bank v. C.H. Venkataraman and Ors. I (2004) BC 32 (DRAT) : Regular Appeals RA-9 and RA-10/2003.
A reference was also made to the Orders passed by the High Court of Madras in W.P. No. 4655/2001 and WMP No. 6594/2001, wherein it was held, "The Banks are bound to act in accordance with the guidelines of the RBI and the Tribunal/Court are also bound to give effect to such instructions and the instructions of the Reserve Bank cannot be rendered, useless or infructuous by the Banks delaying the implementation of the instructions and thus driving the parties from pillar to post and denying them the benefits of the guidelines and the Tribunal/Court are duty bound to pass appropriate orders whenever such petitions are filed". The Order of this Tribunal in Neetu Autos Pvt. Lid. & Others, was confirmed by the High Court of Madras in W.P. No. 2913/2003. As such, it is not open for the respondent Bank to submit that in spite of the earlier OTS where the parties were not able to pay the amount as agreed, cannot re-open the OTS under the revised OTS, is not proper and, therefore, it is submitted that the appellant is entitled to have the benefit of the revised OTS issued by the RBI dated 27.7.2000.
MR. Rule Subramanian, the learned Advocate for the appellants has further submitted that they have requested the respondent Bank by their letter dated 14.11.2000 stating that their account became NPA from 1994, and the Bank had already transferred the balance to Protested Bill Account in January, 1991, and therefore, they requested the Bank to accept the RBI guidelines, which is applicable to all NPAs in all sectors, which have become doubtful or loss as on 31st March, 1997, with outstanding balance of Rs. 5.00 crores. To it, they have received a belated reply from the Bank dated 26.3.2001, nearly after five months, stating that the Controllers of the Bank have advised the Bank that the appellants account cannot be considered under the above Scheme as the account was treated as a case of wilful default and a compromise offer submitted by the appellants has already been accepted by the Bank. It is pointed out that no reason has been given how the Bank has treated the account of the appellant as wilful default. There is nothing on record to categorise the appellants' account as wilful default. In fact, the term "wilful default" is defined in another Notification dated 20.2.1999 of the RBI (Page-221 Vol-II typeset), which states:
(a) Deliberate non-payment of the dues despite adequate cash flow and good net worth.
(b) Siphoning off of funds to the detriment of the defaulting unit.
(c) Assets financed have either not been purchased or have been sold and proceeds have been misutilised.
(d) Misrepresentation/falsification of records.
(e) Disposal/removal of securities without Bank's knowledge.
(f) Fraudulent transactions by the borrower.
It is further stated that the identification of the wilful default should be made keeping in view the track record of the borrowers and should not be decided on the basis of isolated transactions/incidents. The default to be categorised as wilful must be intentional, deliberate and calculated. The respondent Bank has not placed any material to show that it had taken into account the track record of the appellant to establish that the appellant deliberately withheld to payments in spite of the fact that it had adequate cash flow. The appellants do not come in any one of the clause under which the borrower should be treated as wilful defaulter and the respondent Bank has also not pointed out the act committed by the appellant to treat it as a wilful defaulted and, therefore, the respondent Bank all of a sudden treating/branding the appellants as a wilful defaulter for the first time in their letter dated 26.3.2001, is not sustainable.
MR. V. Raghunathan, examined on behalf of the Bank in the cross-examination has stated: "The RBI guidelines is not fully binding on the Bank since it is only guidelines. The case is whether there was already compromise amounts or terms settled and the RBI guidelines commenced subsequently were not to be re-opened as per the guidelines mentioned above. I do admit that the SBI follows the guidelines by the RBI. As per instructions issued by our Head Office, we were instructed not to re-open the matters already settled terms previously". This piece of evidence shows that the Bank has not accepted the RBI guidelines to re-open and settle the matter only as per instructions given by their Head Office. It is submitted on behalf of the appellants that the Head Office is not expected to give such instructions to the Banks. In fact, this aspect was also considered by this Tribunal in Canara Bank v. C.H. Venkataraman and Ors. (supra), wherein it was observed, "The Banks are not entitled to pass such In-house Circulars depriving the benefit of the modified guidelines to the borrowers when the object of the RBI guidelines is to recover the NPAs by enforcing the modified RBI guidelines. Any internal circular passed by the Bank to its subodinates are not valid and they cannot have any statutory force. The object of the RBI guidelines is to provide simplified, non-discretionary and non-discriminatory mechanism for recovery of the stock of NPAs and that object cannot be defeated by passing internal circulars by the Banks to be followed among themselves. The RBI is one of the watch dogs of finance and economy of the nation. It is, and it ought to be aware of all relevant factors including credit conditions as prevailing, which would invite its policy decisions. RBI has been issuing directions/circulars from time to time, which inter alia, deal with the rate of interest which can be charged and the periods at the end of which rests can be struck down, interest calculated thereon and charged and capitalised. It should continue to issue such directives. Its circulars shall bind those who falls within the net of such directives. Only with a view to speedy recovery of NPAs these guidelines have been issued by the RBI and most of the matters have also been settled under the RBI guidelines and these guidelines are operative throughout India on all the nationalised Banks and pending matters are also being settled under these guidelines". Hence the appellants requested the Bank to agree for One Time Settlement in view of the revised RBI guidelines, which was applicable to all NPAs in all sectors, which have become doubtful or loss as on 31.3.1997, with outstanding balance of Rs. 5 crores and below as on that date. Pursuant to the same, the respondent Bank by its letter dated 17.7.2003 had agreed to receive Rs. 50 lakh towards payment of the balance amount of the compromise settlement agreed earlier, which has been approved by the Appropriate Authority on condition that interest at PLR rate would be paid from 1.4.1999 till the date of final payment of the compromise amount. But a difference of opinion arose with regard to the payment of interest. According to the appellant, they are liable to pay interest for that Rs. 50 lakh only from 17.7.2003, but whereas the respondent Bank claimed interest from 1.4.1999. When the matter came up for hearing before this Tribunal on 4.10.2005, the Tribunal directed the appellants to submit a proposal to the Bank offering interest from 17.7.2003 at the PLR rate, which is 10.25% p.a. The appellants also furnished a Work Sheet indicating the amount due as per the Bank in their letter dated 17.7.2003 is Rs. 50 lakh and the interest was worked out upto 31.3.2004 @ 10.25% p.a., which comes to Rs. 3,63,000/- out of which the appellants had paid Rs. 15 lakh on 31.3.2004. Further interest was calculated upto 30.6.2005 @ 10.25% (for 15 months), which comes to Rs. 4,47,000/- and the appellants paid a sum of Rs. 30 lakh on 1.7.2005, for which they are agreeing to pay interest @ 10.25% on any date that would be fixed. The appellants are ready and willing to pay the said amount.;