1. Both these Miscellaneous Appeals arise out of the same O.A. 1/2004 of DRT-III, Delhi and have been filed by the applicant of the said O.A., i.e., Oriental Bank of Commerce against the respondents (defendants in O.A.). So, they can be conveniently decided together.
2. Miscellaneous Appeal 68/2005 is directed against the order dated 27.1.2005 passed by the Tribunal below dismissing LA. 342/2004 moved by the Oriental Bank of Commerce. The said I.A. 342/2004 had been made by the Bank under Section 19(11) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the Act') to exclude the counter-claim of the defendants from the O.A. and to direct the counter-claim to be disposed of by an independent order.
3. The Bank has filed the O.A. in question for the recovery of Rs. 40 lakh and odd against the respondents herein (defendants in O.A.). They put in appearance before the DRT and filed written statement with a counter-claim for Rs. 9,90,107.68 with interest @ 24% per annum. Their contention was that owing to the alleged lapses of the Bank they suffered huge loss to the tune of Rs. 40 lakh. So, the said amount of Rs. 40 lakh was said to be due to them as damages. According to them, after subtracting the amount of claim of the Bank, they were claiming a balance amount of Rs. 9,90,107.68. Since the prayer of the Bank, as stated earlier, did not find favour with the Tribunal below, it dismissed the Bank's application. The Bank has preferred this appeal feeling aggrieved thereby.
4. I have heard the learned Counsel for the parties. The learned Counsel for the appellant-Bank has urged that the claim of the defendants for the alleged loss of Rs. 40 lakh was based on the Bank having declined to merge the loan granted to their proprietary concern with that of the partnership firm in the name and style of Sanraj Marketing Corporation which admittedly came into existence after the loan facilities had been availed of by the proprietorship concern.
Further, the loanee. M/s. Sanraj Corporation, proprietorship concern, had furnished from the applicant Bank, a Bank Guarantee of Rs. 7.50 lakh in favour of M/s. Spices Trading Corporation Ltd. The respondents/defendants alleged that M/s. Spices Trading Corporation Ltd. supplied certain damaged articles to them. The defendants requested M/s. Spices Trading Corporation Ltd. to change the damaged stock worth Rs. 5 lakh. They also requested that the amount of Rs. 7,56,500/- to be released by invoking Bank Guarantee should be released only after 10.1.2001. But, M/s. Spices Trading Corporation Ltd. realized a sum of Rs. 7,57,500/- from the appellant-Bank without the approval of the defendants. The result was that they had been left with damaged stock of worth Rs. 7,57,500/- unsaleable in the market. The learned Counsel submitted that neither the Bank was obliged to accede to the request of the respondents to merge the loan account of the proprietorship concern with the newly formed partnership firm M/s.
Sanraj Marketing Corporation, nor could it decline to honour the invocation of the Bank Guarantee by M/s. Spices Trading Corporation Ltd. owing to the alleged dispute between the borrowers and M/s. Spices Trading Corporation Ltd. The learned Counsel pointed out that the issue of Bank Guarantee was a separate contract between the Bank and the beneficiary and the Bank having issued the Bank Guarantee was under legal obligation to honour the same. On account of the alleged supply of damaged goods by M/s. Spices Trading Corporation Ltd. to the borrowers, the Bank could not be prevented or directed by them (borrowers) against the enforcement of Bank Guarantee given by it (Bank). It has further been submitted by the appellant-Bank that the claim of the respondents/defendants to the tune of Rs. 40 lakh was hypothetical and it had been fileo only with a view to frustrate the claim of the Bank by causing delay, simply paying a Court fee of Rs. 12,000/-. The learned Counsel invited my attention to the provision contained in Section 19(11) of the Act, which reads as under: Where a defendant sets up a counter-claim and the applicant contends that the claim thereby raised ought not to be disposed of by way of counter-claim but in an independent action, the applicant may, at any time before issues are settled in relation to the counter-claim, apply to the Tribunal for an order that such counter-claim may be excluded, and the Tribunal may, on the hearing of such application, make such order as it thinks fit.
The learned Counsel, relying upon the aforesaid provision of Section 19(11) of the Act, urged that it is a fit case where the counter-claim of the respondents/defendants ought to be segregated from the O.A. That is, the O. A. should not have been clubbed with the counter-claim which could be decided separately according to law.
5. On the other hand, the learned Counsel for the respondents has urged that having regard to the averments made in the written statement, the O.A. and the counter-claim are to be decided together. Counsel vehemently argued that the respondents/defendants suffered loss to the tune of Rs. 40 lakh due to illegal acts of the appellant-Bank. She contended that for the smooth functioning of the business of the proprietary concern, it was decided to merge it with the partnership firm, i.e., M/s. Sanraj Marketing Corporation whereof Smt. Ranjni Mali (proprietor of original borrower-M/s. Sanraj Corporation) and Mr.
Sanjeev Malik (husband of Smt. Rajni Malik) were the partners. The said merger, the Counsel pointed out, was done with a view to increase capital, stock and the turnover, but the appellant-Bank failed to meet the request of the respondents/defendants thereby causing huge financial loss to them. Further, the Bank was well aware of the transaction between the respondents/defendants and M/s. Spices Trading Corporation Ltd. and committed the illegal act of releasing the Bank Guarantee in favour of M/s. Spices Trading Corporation, in spite of having been asked not to do so by them (respondents/ defendants). The learned Counsel supported the impugned order passed by the Tribunal below for not excluding the counter-claim from the O.A. filed by the Bank.
6. The controversy in the connected Miscellaneous Appeal 69/2005 relates to the dismissal of Bank's LA. 343/2004. The said application had been made under Section 19(25) of the Act read with Order 12 Rule 6, CPC, seeking a decree of Rs. 31,09,892.32 as on 20.4.2002 on the basis of the alleged admission of the respondents/defendants contained in their rejoinder/notice dated 4.5.2002 read with their written statement-cum-counter-claim [para V (13)]. The Tribunal below held that looking to the language of the rejoinder/notice, it could not be taken to be any admission of liability on the part of the respondents/defendants. The LA. 343/2004 was, accordingly dismissed.
7. The learned Counsel for the appellant on this aspect of the matter has referred to Rule 12(5) of the Debts Recovery Tribunal (Procedure) Rules, 1993, which reads as under: Where a defendant makes an admission of the full or part of the amount of debt due to a Bank or financial institution, the Tribunal shall order such defendant to pay the amount, to the extent of the admission, by the applicant within a period of one month from the date of such order failing which the Tribunal may issue a certificate in accordance with Section 19 of the Act to the extent of amount of debt due admitted by the defendant.
8. The learned Counsel urged that the above Rule is on the pattern of Order 12 Rule 6, CPC and that by way of an interim order decree should have been passed by the Tribunal to the extent of Rs. 31,09,892.32 as on 20.4.2002. He also made a reference to the copy of the Balance Sheet of M/s. Sanraj Corporation (proprietorship concern-original borrower) as on 25.1.2002 (paper No. 33 of the appeal paper book). In it the secured loan of Oriental Bank of Commerce has been shown as Rs. 29,99,082.32. The same amount is reflected as the secured loan of the said Bank in the Balance Sheet as on 27.1.2002 of M/s. Sanraj Marketing Corporation (partnership firm which is said to have come into existence and with which the loan amount was required to be merged by the proprietorship concern) (paper No. 28 of the appeal paper book).
9. It may be stated for the sake of clarity here that at the time of grant of credit facilities to the original borrower M/s. Sanraj Corporation, Smt. Rajni Malik was its proprietor and her husband Mr.
Sanjeev Malik was the guarantor. Both of them are said to be the partners of the newly formed partnership firm-M/s. Sanraj Marketing Corporation. To come to the point, the learned Counsel for the appellant urged that on the basis of admission of the claim of the Bank to the above extent in the Balance Sheet of the respondents/defendants, decree ought to have been passed at interim stage keeping in view the above provision of law.
10. He referred to the case of Pre in Industries and Anr. v. State Bank of India and Ors. All India Banking Law Judgment 1994(2) pages 210 to 211, to urge the point that on the basis of unambiguous, unequivocal, unconditional and clear admission in the Balance Sheet as to the liability towards the Bank, decree could be passed to that extent before the final decision in the O.A.11. The learned Counsel for the respondents urged that there was no unqualified admission on the part of the respondents/defendants as contended by the learned Counsel for the Bank and as such no interim decree could be passed against them.
12. I have carefully considered the arguments of the learned Counsel for both the parties in the light of the relevant provisions of law. It should be pointed out that Banks and financial institutions were experiencing considerable difficulties in recovering loans and enforcing the securities charged with them. The Parliament, in its wisdom, passed a special statute, i.e., Recovery of Debts Due to Banks and Financial Institutions Act, 1993, to provide a mechanism for speedy recovery of debts due to them. Many of the provisions of CPC have been engrafted in the Act to ensure fair trial for the Banks and financial institutions on the one hand and the borrowers on the other. But, care has been taken to do away with such of the provisions which tend to delay the proceedings and are often resorted to by one of the parties to pre-empt the likely ultimate outcome of the litigation. The underlying idea is to discourage the borrowers to postpone repayment of dues and also to enable the Banks and financial institutions to speedily recover their dues.
13. In the case at hand, there are good grounds to segregate the counter-claim of the respondents/defendants as per Section 19(11) of the Act reproduced earlier. It should be pointed out that the Bank pleaded in para V(13) of the O.A. that due to defaults of the defendants, the applicant did not find it proper to grant the enhancement of the limits. However, it called upon the defendants vide letters dated 20.12.2001, 22.12.2001, 12.1.2002, 16.1.2002, 1.2.2002, 16.2.2002, 26.2.2002, 26.3.2002, 21.5.2002 and 13.7.2002 to regularize the account. The Bank has further averred in para V(14) of the O.A.that the repeated requests of the Bank to the defendants to regularize the account did not yield any result. Therefore, vide reply/notice dated 20.4.2002 the Bank intimated the defendants 1 and 2 about the recalling of the facilities. In the written statement filed by the defendants, they stated that the letters received by them from the Bank were duly replied back and they even sent legal notice dated 9.4.2002 calling upon the Bank to merge the CC account of M/s. Sanraj Corporation with M/s. Sanraj Marketing Corporation. They also dernanded Rs. 40 lakh as damages. But, in the reply to the said notice, the Bank demanded an amount of Rs. 31,09,892.32 with interest @ 17% from the defendants. Vide their rejoinder/notice, the respondents/defendants clarified that after adjusting the claim of Rs. 31,09,892.32 of the applicant, a sum of Rs. 8,90,107.68 was still due and payable by the applicant-Bank to them (defendants).
14. A copy of the reply notice dated 20.4.2002 sent by the Bank to the defendants and the rejoinder/notice dated 4.5.2002 are also on record being paper Nos. 21 to 27 of the paper book of the appeal. It is significant to note that availing of the credit facilities by the defendants is not denied. It appears that when the Bank built pressure on the defendants through several letters/reminders to regularize their account, they (defendants) fired the salvo by slapping a claim of Rs. 40 lakh by way of damages allegedly suffered by them on account of two alleged lapses of the Bank, i.e., not merging the account of original borrower-M/s. Sanraj Corporation with M/s. Sanraj Marketing Corporation and for having allegedly illegally honoured the invocation of the Bank Guarantee by M/s. Spices Trading Corporation Ltd. This being the scenario, the O.A. filed by the Bank and the counter-claim of the defendants for damages to the tune of Rs. 40 lakh for the alleged lapses of the Bank could and should be separated and tried independently. There was hardly any justification for the claim of damages of the defendants to be clubbed with the O.A. filed by the Bank, availing of the credit facilities having not been denied by the defendants.
15. The success or failure of the counter-claim is dependent on a number of factors which could be adjudicated upon separately and independently. I think it proper to point out that the following would be the pertinent issues in the trial of the counter-claim of the defendants put forth by them against the Bank: (i) Virtually the counter-claim is for Rs. 40 lakh, because this amount has been claimed by the defendants as damages. A counter-claim has the effect of a cross-suit. Therefore, the DRT has to decide in the trial of the counter-claim as to on what amount the defendants are required to pay Court fee.
(ii) Pleadings precede the proof. Really speaking, pleadings may be called prelude to be followed by proof. So, the damages of Rs. 40 lakh claimed by the defendants have to be pleaded and then proved.
(iii) It is to be decided by the Tribunal whether it was obligatory on the part of the Bank to accept the request of the defendants to merge the account of the original borrower (proprietorship concern) with that of the partnership firm-M/s. Sanraj Marketing Corporation, which came into existence later on. Its effect either way has to be adjudged.
(iv) The Tribunal below has also to decide whether the Bank could refuse to honour in vocation of Bank Guarantee by M/s. Spices Trading Corporation Ltd. Its effect either way has to be adjudged.
(v) Any other factor or argument has also to be considered by the Tribunal, which may be put forth by the defendants in support of their claim for damages and in opposition of the same by the applicant-Bank.
16. Needless to say, in case of the defendants' succeeding in proving themselves to be entitled to recover any amount as damages from the Bank, the same would be recoverable from the Bank. The Bank being a public financial institution, there is no likelihood of the defendants' money sinking in the eventuality of their ultimate success. But, in the light of the facts and circumstances of the present case, the O.A.could not be clubbed with the counter-claim. Rather, the latter deserved to be excluded and tried independently as provided by Section 19(11) of the Act.
17. This relates to the Miscellaneous Appeal 68/2005. That is, the impugned order of the Tribunal below is liable to be upturned.
18. Coming to the Miscellaneous Appeal 69/2005, it deserves mention that the Tribunal below was swayed by the approach that the O.A. and the counter-claim were to be tried together, and that the counter-claim could not be excluded from the O.A. It judged the controversy in this perspective and failed to meticulously examine this aspect of the matter as to what is the impact of the admission of the claim of the Bank by the respondents/defendants in their Balance Sheet to certain extent, the averments made in the rejoinder/notice of the defendants dated 4.5.2002 with regard to the dues of the Bank and those contained in the written statement, i.e., parawise reply to the averments made by the Bank in the O.A.19. The matter has to be remanded back to the Tribunal below to hear the parties again in view of what has been stated in the preceding paragraph and then to pass a reasoned order one way or other.
20. Certain other rulings have also been referred to by the learned Counsel for the appellant, but having regard to the view taken by me, it has not been considered necessary to discuss the same as the matter is remanded back to the Tribunal below, finding good justification for the segregation of the O.A. from the counter-claim.
21. In view of the above discussion, I decide the two appeals in the following manner: (i) Miscellaneous Appeal 68/2005 is allowed. The impugned order dated 27.1.2005 passed by the DRT is quashed. Consequently, I.A. 342/2002 is allowed. The counter-claim of the respondents/defendants is excluded from the O.A. as per Section 19(11) of the Act with the result that the O.A. of the Bank and the counter-claim of the defendants shall be tried separately and independently, keeping in view of the observations made in the body of this judgment.
(ii) Miscellaneous Appeal 69/2005 is allowed and the impugned order dated 27.1.2005 passed by the DRT on LA. No. 343/2002 is set aside.
The Tribunal shall decide the I.A. 343/2002 afresh after hearing the parties and keeping in view and observations made in the body of judgment.
The parties are directed to appear before the Tribunal below on 29th October, 2007 for further proceedings.
Copy of this order be supplied to the parties and be also sent to the Tribunal below.