M/S GABS & Ors. v. State Bank of Patiala & Anr

1. Issue notice. Mr. Sanjeev Kakra, Advocate accepts notice. With consent, the petition was heard finally.

2. The petitioner in these proceedings under Article 226 of the Constitution of India is aggrieved by an order of the Debt Recovery Tribunal (DRT) dated 27.05.2014 made in two applications filed by the respondent (hereafter referred to as “the Bank”), i.e., OA 59/2005 and OA 79/2005.

3. The DRT had for the same reasons, dismissed the petitioner’s Securitisation Application under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security 2015:DHC:2693-DB W.P.(C)2774/2015 Page 2 Interest Act, 2002 (SARFAESI Act). The two applications OA Nos.59 & 79/2005 - were proceedings under Section 19 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereafter referred to as the Recovery Act) filed by the Bank.

4. The petitioner, M/s Group Apparel Business Services (hereafter referred to as “GABS”), had availed of export packing credit and certain facility by way of overdraft from the respondent bank.

5. Independently the partners of GABS G.K. Bhasin and Neelam Bhasin (hereafter collectively referred to as “the Bhasins”) - had availed a housing loan from the bank which they secured by equitable mortgage i.e. deposit of title deeds.

6. The bank declared the housing loan as a “non-performing asset” (NPA), sometime in June, 2014 and accordingly issued notice under Section 13 (2) of the SARFAESI Act sometime in July, 2014. It thereafter sought to put the property to auction. Thereupon, the borrowers, i.e., Bhasins preferred a Securitization Application under Section 17 of the SARFAESI Act in 2005. This unnumbered - though registered application under Section 17 was pending before the DRT when the Bank preferred OA Nos.59 & 79/2005. The subject matter of OA 59/2005 was the recovery of the housing loan. The bank claimed the principal amount of `23.[6] lakhs plus 10.85% per annum with monthly rests as the final order. Soon thereafter, the bank filed OA79/2005 claiming `29,93,277.77 on account of two amounts. The major component of this was the outstanding amount in respect of export packing credit availed of by GABS. The bank claimed 9% pendente lite interest per annum on monthly rests in respect of this W.P.(C)2774/2015 Page 3 outstanding amount, i.e., `29,24,947/-. The other decree sought for was a personal decree in respect of unrecovered interest on the current account overdraft to the extent of `68,330.77 with pendente lite and future interest @ 15% per annum with monthly rests. Since the entire dispute in this proceeding pertains to the rate of interest, it would be crucial to extract the relief claimed in OA 79/2005 from the relief clause of the application filed by the bank; the same is as under: “(a) That Defendants No.1 to 3 may be ordered to pay jointly and severally, individually and coextensively by way of a personal decree or order in respect of the aforesaid Export Packing Credit Limit a sum of Rs.29,24,947/- to the Applicant Bank together with pendente lite and future interest at the rate of 9% per annum with monthly rests till the date of actual and final realization along with all costs and charges and a Recovery Certificate may be issued in favour of the Applicant Bank for the said amount. (b) That Defendants no.1 to 3 may be ordered to pay jointly and severally, individually and coextensively by way of a personal decree or order in respect of the unrecovered interest on the Current account overdraft a sum of Rs.68,330.77 to the Applicant Bank, together with pendente lite and future interest at the rate of 15% per annum with monthly rests, till the date of actual and final realization alongwith all costs and charges and a Recovery Certificate may be issued in favour of the Applicant Bank for the said amount.”

7. In addition, the bank also sought for sale of the mortgage property by the DRT which was - as noticed earlier - hearing submissions of the Securitization Application (SA) preferred by the Bhasins.

8. During the pendency of these proceedings, the borrowers, i.e., W.P.(C)2774/2015 Page 4 Bhasins as well as GABS had offered to deposit the entire principal amount and requested that the interest claims of the bank to be adjudicated so as to crystallise (and possibly minimise) their liability. The orders of the DRT were appealed against in this regard, i.e., in MA 251/2007. The petitioners relied upon two orders of the DRAT dated 10.12.2010 and 01.09.2011. The order of the DRAT dated 10.12.2010 reads as follows: - “Counsel for the parties present. Counsel for the appellant, Mr. Harish Katyal, Advocate wants to make a statement. The statement is as under: “Sh. Harish Katyal, Advocate without SA The appellant is ready to pay the entire dues of the bank provided the Bank would issue sale certificate of both the properties pledged with them in the account of Housing Loan A/C G.K. Bhasin, M/s GABS, M/s GABS Global and M/s Mint Fortunz in favour of the person forwarded by the appellant.” Sd/- CHAIRMAN Sd/- (Harish Katyal) Advocate In view of the above statement it is hereby directed that on receipt of the entire dues within fifteen days, the mortgaged papers be returned to the appellant with the consent of the mortgagor for M/s Mint Fortunz only and sale certificate for others. The Bank is directed to submit the properties papers with the Ld. Registrar DRAT who will hand over to the appellant and sale certificate will also be issued by the DRAT. The Bank is further directed W.P.(C)2774/2015 Page 5 to furnish a copy of the statement of the accounts to the counsel for the appellant as per Ravindra Judgment within one month. It is made clear that capitalization penal interest is not permissible that view must be kept in mind. The appeal stands disposed of. Copies of this order be given to the parties as per law and one copy of this order be dispatched to the Ld DRT forthwith.” Likewise these directions were again reiterated by the DRAT in another proceedings, i.e., Miscellaneous Case No.382/2011 (in MA 251/2007) on 01.09.2011: - “Under these circumstances, since the matter is still pending before the DRT and, therefore, the due amount is actually is still be gone into, and, no other point will be decided by the DRT because before this Tribunal statement was given on behalf of Gopal Krishan Bhasin that they are ready to pay the entire dues. The Tribunal will only decide as to what are the entire dues which are recoverable by the bank and no other issue shall be decided. The case is remanded back to the Tribunal to this extent. Parties present today shall appear before the Tribunal on 8.9.2011. The Tribunal while arriving at an amount which is recoverable shall take into account the amount which has already been paid by Gopal Krishan Bhasin. Till such final adjudication the property papers not to be returned. The application stands disposed off.....”

9. It would, therefore, be evident that the DRT was directed more than once to decide the interest liability of both GABS and Bhasins in respect of the pending proceedings, i.e., the Securitisation Application W.P.(C)2774/2015 Page 6 as well as the Original Applications under the Recovery Act. This was a logical consideration given that the subject matter of OA59/2005 and the Securitisation Application were identical, i.e., housing loan whereas OA 79/2005 pertained to the commercial liabilities of GABS, a partnership firm of Bhasins. In these circumstances, unfortunately, the DRT in its order dated 27.05.2014 went about exploring the contractual nature of the relationship between the parties and held that the petitioners were liable. Given the fact that the petitioner’s liabilities – as regards the principal amount claimed – was never in dispute, the DRT was under an obligation to have decided what really the interest liability was. However, the DRT completely ignored the directions of the DRAT and proceeded to record as follows: -