Anil Kumar Srivastava, Chairperson
THE APPELLATE TRIBUNAL :
1. Instant appeal has arisen against the judgement and order passed by learned DRT-II, Kolkata in T.A. No. 179 of 2020 arising out of O.A. No. 742 of 2018 [State Bank of India Vs. Abhijeet Ferrotech Ltd. & Ors.] whereby learned DRT has held that the O.A. filed by the bank is premature. Accordingly, T.A. 179 of 2020 stands disposed of.
2. As per pleadings of the parties, the erstwhile State Bank of Travancore was subsequently merged with the State Bank of India, the appellant. The respondent no.1 Abhijit Ferrotech Ltd was granted credit facilities by the appellant bank, which was classified NPA in due course of time. Proforma respondent no. 5 to 9 are joint lenders of the credit facilities.
3. O.A. 742 of 2018 was filed before the DRT-III, Kolkata on 11.09.2018 for recovery of Rs.1,13,32,74,525.88 against respondent no.1 to 4 jointly and severally as on 26. 08.2018 with further interest thereon from 27.08.2018 at the contractual rate with monthly rest till realization along with other reliefs. O.A. was subsequently transferred to DRT-II, Kolkata for adjudication and which was renumbered as TA 179 of 2020.
4. The claim of the appellant bank was secured as emerged from the memo of appeal filed by the appellant.
5. Respondent no.1 has availed the credit facilities from appellant bank for the purpose of manufacturing of Ferro Manganese and Silicon Manganese at its plant at Achutapuram, Visakhapatnam, Andra Pradesh. Respondent no. 2 and 3 are the Directors and had given personal guarantee to secure the said credit facilities sanctioned in favour of respondent no.1. Respondent no.4 is the corporate guarantor who has agreed to secure the credit facilities in favour of respondent no.1. Erstwhile bank has sanctioned credit facilities to the tune of Rs.99.00 crore with interest under various terms and conditions mentioned in the sanction letter dated 17.03.2012 which was duly accepted by respondent no. 1 to 4. Thereafter appellant bank renewed the credit facilities vide sanction letter dated 08.04.2013, which was duly accepted by the respondents.
6. On the request of respondent no.1 and proforma respondents for restructuring the outstanding dues of the existing credit facilities it was referred to the CDR Cell, which is a non-voluntary mechanism set up under the aegis of the RBI for efficient restructuring of corporate debts. The CDR EG at their meeting held on 26.09.2013 approved the restructuring package. Consequently, respondent no.1 entered into a Master Restructuring Agreement dated 28.09.2013 with the appellant bank and the proforma respondents. Accordingly, respondent no.1 executed a Common Term Loan Agreement dated 30.09.2013 with the appellant bank and proforma respondents.
7. Pursuant to various consortium meeting with the respondent no.1, erstwhile bank restructured the credit facilities in favour of respondent no.1 and an amount of Rs.89.46 crore was sanctioned on 14.02.2014 in the favour of respondent no.1, which was duly accepted by the respondents. Thereafter, respondent no.1 executed the Deed of accession and Modification to the Master Restructuring Agreement in favour of the consortium banks and pursuant to said sanction and Board Resolution, respondent no.1 executed the Deed of Guarantee on 26.03.2014 in favour of the Axis Bank Ltd as the Security Trustee. Respondent no. 1 has also executed Registered Supplemental Deed of Indenture of Mortgage on 29.03.2014 with the proforma respondent no.5 acting on behalf of the appellant bank. Thereafter, on the request of respondent no.1 erstwhile bank sanctioned Rs.36.74 crore on 23.12.2015 and the terms and conditions of the said sanction was accepted by the respondents. Thereafter, respondent no.1 vide letter dated 02.01.2016 requested the appellant bank to modify the letter of sanction in terms of the assessment by the lead bank, i.e. Axis Bank Ltd. It was adopted by Board Resolution of respondent no.1 on 23.12.2015.
8. Appellant bank disbursed various amounts from time to time to respondent no.1, who had utilised the credit facilities, however, despite repeated requests and reminders, respondent no.1 has failed to pay the dues of the bank. Consequently, accounts became irregular and classified as NPA from 31.03.2013. Demand notice was issued on 18.05.2018 requiring to pay the dues of Rs.109,91,11,273.47 inclusive of interest as on 30.04.2018 with further interest from 01.05.2018 plus penal interest and other applicable charges till realization, jointly and severally. A sum of Rs.113,32,74,525.88 is due and payable by respondent no. 1 to 4 on account of various loan accounts maintained by the appellant bank and proforma respondents. Movable properties were hypothecated with the proforma respondent no.5 for the benefit of the appellant and other proforma respondents on pari passu basis. Various properties mortgaged with the proforma respondent no.5 for the benefit of the appellant and other proforma respondents on pari passu basis.
9. Respondent no.1 filed affidavit of evidence with the assertion that application is hopelessly barred by limitation and principles of resjudicata. The application is also bad for non-joinder and mis-joinder of necessary parties. It is stated in the O.A. that respondent no.1 approached the Axis Bank, Indian Bank, Indian Overseas Bank, UCO Bank and United Bank of India, since merged with Punjab National Bank and requested for financial assistance for setting up of Ferro Alloy Plant of eight semi-closed electric arc furnaces of 13.05 MVA capacity at Haldia in East Midnapore, West Bengal. Total cost of construction was Rs.555.33 crore which was proposed to be funded. Rs.370.00 crore was agreed to be disbursed as financial assistance. Respondent no.1 at that time was named as M/s. Coastal Ferro Tech Ltd. which was subsequently changed on 21.01.2010 as Abhijit Ferrotech Ltd. It is also stated that financial institutions apart from State Bank of India (erstwhile State Bank of Travancore) entered into a loan agreement dated 14.08.2009 wherein financial assistance of Rs.370.00 crore was agreed and repayment was fixed by 24 instalments from 31.12.2012 to 30.09.2018. Subsequently, the project was relocated to Vishakhapatnam, Andhra Pradesh. Consent to that effect was granted in Consortium meeting dated 29.12.2009 by the consortium lenders. Respondent no.1 utilised the fund to the best of its ability and installed eight sub-merged electric Arc Furnaces for enhanced capacity of 22.5 MVA each at plot No. 50 and 51. Plant was thereafter built at a capacity of 300000 MT pa. The plant was successfully commissioned and commercial production of Ferro Alloy began in June, 2012. However, due to shortage of electricity, plant was not run by its full capacity. This was within the knowledge of the consortium lenders and various meetings were held.
10. Respondent no.1 submitted proposal for restricting of the debts under CDR mechanism to CDR Cell on 21.06.2013. Existing financial assistance was restructured and repayment to be made within 10 years, whereas 2014 and 2015 were excluded from repayment. The consortium of banks entered into a Master restructuring agreement on 30.09.2013. Subsequently, a deed of accession and modification was entered into between respondent no.1 as the borrower and banks. On 30.09.2013 in terms of letter of approval for the purpose of cash flow from the project a Trust and Retention Account Agreement was entered into by the respondents and Axis Bank. It is stated that in spite of Master Restructuring Agreement, consortium of banks other than Axis Bank and United Bank did not accorded sanction. They said that CDR package repayment can only be made when the plant is operated at 65% capacity utilization. However, consortium took unanimous decision to provide additional fund to improve plant’s capacity utilization. The proposal to enhance working capital limit was approved and sanctioned by the CDR EG vide letter dated 29.06.2015 expressing the lender to sanction and disburse the enhance working capital to respondent no.1. CDR Cell vide letter dated 22.07.2015 admitted that defendants had complied all terms and conditions, requested appellant bank, UCO Bank and IOB to comply with the directions. Thereafter, joint lenders meeting took place on 27.07.2015 against requested to sanction enhanced working capital limits. It is submitted that lenders did not sanction the amounts. It is further submitted that if working capital funds were sanctioned it would help the respondent to repay the loan by generating more revenue. Lenders banks called a meeting for the purpose of invoking the security of the pledged shares. Respondents had approached Hon’ble Delhi High Court by filing a writ petition No. WP(C) No. 12333 of 2015. Hon’ble High Court vide order dated 23.12.2015 issued notice to the consortium lenders and directed them not to take any coercive steps. It is mentioned that appellant bank gave its sanction to enhancement of working capital on 23.12.2015. During pendency of the writ petition, RBI directed respondent no.1 to approach the CDR Cell and banks for redressal of grievance. Respondent no.1 approached the CDR Cell and lenders bank. Respondent no.1 withdrew the writ petition as per advice of the banks, but enhanced sanction was not made. Again respondent no.1 filed another writ petition No. WP(C) No. 5485 of 2016. Thereafter, a petition for mandatory injunction and declaration was filed before Ld. Civil Judge, Patiala House Court, wherein lenders took an objection of territorial jurisdiction. Thereafter, respondent filed a suit No.COMSL/980 of 2018 for specific performance of Master Restructuring Agreement dated 30.09.2013 and other associated agreements and in the alternative recovery of Rs.1186,43,00,000/- on account of damages caused before the Hon’ble Bombay High Court.
11. Respondent no. 2, 3 and 4 had filed written statement, but the same was not considered on the ground of filing beyond the stipulated time of 45 days.
Learned DRT framed the following issues for consideration:
“1. Whether the written statement filed by the contesting defendants (i.e. defendants 1 to 4) is beyond the period of limitation provided under Section 19(5) (i) of RDDB Act?
2. Whether the Applicant Bank is estopped in the facts of the case from filing this O.A. on account of laches committed by the applicant bank, as claimed by the contesting defendants (i.e. defendants 1 to 4)?
3. Whether the contention of the Defendants 1 to 4 that unless the applicant Bank fulfilled all its contractual obligations vis-à-vis the grant of loan the applicant bank could not have filed O.A/ Suit for realization of loan amount is tenable?
4. Whether the terms of Master Restructuring Agreement entered by and between parties consequent to CDR Scheme prevail over earlier terms of loan agreements contract? If so to what extent and what are the consequences that would emanate?
5. Whether the Applicant Bank is entitled for the realization of O.A. claim amount as prayed for by them?”
12. Learned DRT decided the issue No. 1 against the Bank. Issue No. 2 was decided in affirmative by holding that the Applicant Bank had failed to follow the Master Restructuring Agreement Terms.
13. Issue No. 3 was also decided in favour of the defendants by holding that reciprocal obligations were not fulfilled by the Bank resulting into fundamental breach of contract.
14. Issue No. 4 is also decided in favour of the Respondents by holding that the terms of the MRA will prevail over earlier classification of debt which is waived of in terms under MRA.
15. Issue No. 5 is decided holding that the O.A. filed by the Bank is premature.
16. Accordingly, T.A. No. 179 of 2020 arising out of O.A. No. 742 of 2018 was disposed of.
17. I have heard the Learned Counsel for the parties and perused the record.
18. Loan of Rs. 99 crores was sanctioned by the Appellant and the same was communicated to the Respondent No. 1 vide letter dated 17.03.2012. Prior to it, a consortium of five member Banks in 2009 sanctioned a loan of Rs. 370 crore on 14.08.2009. Member Banks were Axis Bank, Indian Bank, Indian Overseas Bank, UCO Bank and United Bank of India. Repayment was to be made in 24 instalments from 31.12.2012 till 30th September, 2018.
19. Working capital of 90 crore was renewed by the Appellant for a period of 12 months and was conveyed to Respondent No. 1 on 08.04.2013. Accounts were classified as NPA on 31.03.2013. Appellant entered into a Master Restructuring Agreement (MRA) on 28.09.2013 with the Respondent No. 1. Common term loan agreement, working capital term loan agreement, securities trustee agreement, trust and retention account agreement and pledge agreement were also executed. On 14.02.2014 pursuant to the consortium meeting, the then State Bank of Travancore (now State Bank of India) restructured the credit facilities in favour of Respondent No. 1 and an amount of Rs. 89,46,00,000 was sanctioned and deed of accession and modification of MRA along with unattested supplemental deed to the deed of hypothecation were executed on 23rd December, 2015. State Bank of Travancore additionally sanctioned the limit of Rs. 36,74,000/- and agreement of loan for overall working capital limit, agreement of hypothecation of goods and assets, letter regarding the grant of individual limit within the overall working capital limit, agreement to pledge share and securities, agreement to create equitable mortgage and deed of Guarantee for overall working capital limit were executed. On 28.12.2015, the then State Bank of Travancore sanctioned the limit of Rs.12,36,00,000 in favour of Respondent No.1. Thereafter, defaults were made by the Respondent No. 1. A joint lender forum meeting was held on 12.08.2016 which was attended by Mr. Manoj Jaiswal.
20. The loan account of the Respondent No.1 was again slipped into NPA category on 30.09.2016 with effect from 31.03.2013. Entire loan was recalled by the Appellant on 25.11.2016 and seven days time was granted to the Respondent No. 1 to close the account which could not be complied by the Respondent No. 1. On 17.02.2017, securitization proceedings were initiated by the Appellant, Demand Notice was issued on 18.05.2018 and Application under Section 19 of the Recovery of Debts and Bankruptcy Act being O.A. No. 742 of 2018 was filed on 11.09.2019.
21. Learned DRT dismissed the O.A. application on 17.06.2022 by the impugned order.
22. Learned Counsel for the Appellant would submit that the Learned DRT has erred in holding that the principal loan account was not to be repaid by the Respondents. The terms of the MRA dated 28.09.2013 were not followed by the Respondents and were declared as wilful defaulters on 01.07.2015. Loan was again classified as NPA on 30th September, 2016 with effect from 31.03.2013.
23. It is further submitted that initial sanction amount of Rs.99,00,00,000/- on 17.03.2012 was not disputed, rather, acknowledged. Hence, the finding that the O.A. is premature is erroneous. It is further submitted that the existing events of defaults were never waived by the Certificate Debtor lenders. Rather, it was in terms of the MRA.
24. It is further submitted that the Learned DRT erred in misinterpreting clause 2.4.1(v) of MRA. It is further submitted that no waiver of NPA as classified on 31. 03.2013 was ever granted.
25. Ld. Counsel for the Appellant would further submit that submission of the Respondents that there was a breach on the part of the Appellant in performance of the agreement which resulted in non-compliance could not be accepted. A breach of contract can only be culminated into a claim for damages, a suit is pending before the Hon’ble Delhi High Court wherein no counter claim was filed. Hence, the finding of the Learned DRT to the effect that the O.A. is premature, is erroneous and against the law.
26. Per contra, Learned Senior Advocate for the Respondent would submit that the Appellant failed to disburse the sanction limit. Hence, there cannot be any default on the part of the Respondents and he is discharged from its repayment obligation. It is further submitted that Section 64 of the Indian Contract Act provides that failure to perform fundamental obligation under a contract gives rise to a repudiatory breach. Failure to disburse sanction limit in the project is fundamental obligation under a contract. Reliance is placed upon Suraj Kana Pharmaceuticals Vs Bihar State Financial Corporation AIR 2009 Patna 91. Reliance is further placed upon Gujarat State Financial Corporation Vs. M/s Lotus Hotels Pvt. Ltd. (1983) 3 SCC 379 decided on 3rd May, 1983.
27. It is further submitted that the Appellant is trying to take the advantage of its own wrong. On 18.05.2018 a letter was sent by the Appellant to the Respondent contending that they failed to regularize their accounts and the same has been declared NPA, but no amount was disbursed from the Limit of Rs.36.74 crores sanctioned on 23rd December, 2015. It is further submitted that there is no substance in the Appellants’ arguments that the account of the Respondent No. 1 reverted to original NPA status as was on 31.03.2013. When the limit of Rs. 36.75 crores was sanctioned on 23.12.2015, no defaults would have been made without restructuring limits being first disbursed by the Appellant.
28. Learned Counsel for the Respondent vehemently argued and placed reliance upon Section 51 to 54 of the Indian Contract Act and submitted that there was a reciprocal contract between the parties wherein the Appellant herein failed to perform its part under the Contract. Accordingly, there is no default on the part of the Respondents.
29. Learned DRT decided the issue No. 1 in negative against the Appellant. Issue No. 2 and 3 were decided holding that the Appellant Bank failed to follow the MRA terms and conditions. Further, reciprocal obligations were not fulfilled by the Bank and other consortium lenders and it was a fundamental breach of contract in view of Section 51 to 54 of the Indian Contract Act.
30. In issue No. 4, a finding is recorded that earlier events of defaults are waived of. But further the right of realization of debt is reserved. Issue is decided in the terms that the terms of MRA will prevail over earlier classification of debt which is waived off in terms under MRA.
31. In issue No. 5, it was held that the O.A. is premature as there is no default and the Respondent No. 1 is not given sufficient opportunity of notice in view of existence of CDR Scheme and Master Restructuring Agreement. Accordingly, O.A. was disposed of.
32. In the Master Restructuring Agreement, repayment of the principal loan amount was to be made by the Respondent in quarterly instalments and the interest was to be paid on a monthly basis which was not done by the Respondents. As per the terms of the Master Restructuring Agreement dated 28.09.2013, a joint lender meeting was held on 12.08.2016 wherein the Promoter/ Director of Respondent No. 1 Sri Manoj Jaiswal was present. Therein it is recorded in the minutes that the Bank cannot provide any additional finance to the Company. Bankers who have sanctioned the enhanced limit will not be able to release any further funds and if any sanction is to be made by any Bank, same will not be made. It is further communicated that Respondent has been declared as wilful defaulter. Respondent was declared as wilful defaulter as per the guidelines of the RBI circular. Accordingly, Corporate Debt Restructuring failed. An amount of Rs. 99 crore was sanctioned by the State Bank of Travancore vide letter dated 17.03.2012 which was duly accepted and acknowledged by the Respondents, that amount was to be repaid by the Respondents which was not repaid. Reliance is placed by the Learned DRT upon the documents referred as flash report is misleading and reliance is wrongly placed upon these documents as it is an unsigned document. Master Restructuring Agreement is the core document which is binding upon the parties. Para 2.4 prescribes the restructuring terms which are as under:
2.1. RESTRUCTURING TERMS
24.1 Obligations as on the Effective Date
(i) The Parties hereby agree that the CDR Lenders shall not recover any repayment installments due under the Existing Facilities for the period commencing from the Cut-off Date till the Effective Date.
(ii) The Parties hereby agree that the Borrower shall be permitted to operate the working capital accounts on ‘Hold-on Basis’ without any deductions and without recovering any dues towards installments and irregularities in working capital till the Effective Date. Further, any payment made by the Borrower to the CDR Lenders including any penal interest, overdue interest or liquidated damages, after the Cut-off Date till the Effective Date and which is not in conformity with the CDR Package, shall be refunded through the Trust and Retention Account, upon implementation of the CDR Package.
(iii) It is further agreed that the working capital limits under the Existing Facilities shall be continued at the existing sanctioned limits till the Cut-off Date and on and from the Cut-off Date, such working capital facilities shall be restructured in the manner as provided in this Agreement.
(iv) The Parties hereby agree that any principal installment charged and paid, after the Cut-off Date, by the Borrower to the CDR Lenders and the differential interest, difference between the rate of interest charged and the Applicable Interest Rate charged and paid, after the Cut-off Date, by the Borrower to the CDR Lenders shall be refunded to the Borrower through the Trust and Retention Account, upon implementation of the CDR Package.
(v) Subject to Section 7.3 hereof, each of the CDR Lenders hereby waives any existing Events of Default relating to such CDR Lender. For avoidance of doubt, it is clarified that the CDRE Lenders do not hereby waive their right to recover their respective Facilities, unpaid interest, penal interest, liquidated damages, compound interest and any other interests, charges, expenses as on the Cut-off Date, in accordance with the terms of this Agreement.
2.4.2.
Waiver of Liquidated Damages, Interest/ Further Interest
(i) Each CDR Lender hereby waives the obligation of the Borrower to pay any liquidated damages or penal interest or charges, further interest or excess interest, charged by the CDR Lender in excess of the documents interest rates specified in the Existing Financing Documents of such CDR Lender, together with compound interest, penalties or any other charges thereon under the Existing Financing Documents of such CDR Lender during the period commencing on the Cut-off Date and ending on the Effective Date.
(ii) For the purposes of this Section, the document interest rates in relation to any CDR Lender shall mean the rate of interest applicable to the outstanding amounts under the Existing Facilities of such CDR Lender under its Existing Financing Documents prior to the Cut-off Date.
Para No. 7.3 of MRA prescribes that-
Consequences of Revocation
Upon revocation of the restructuring of the Existing Facilities pursuant to Section 7.2 (Right of Revocation) above the rights and remedies of the CDR Lenders under the Existing Financing Documents would continue as if they had not been waived, amended, modified, superseded or replaced by the CDR Documents and the CDR Lenders shall be entitled to enforce such rights and remedies, including the right to appoint additional nominee directors and all rights arising on account of the occurrence of an Existing Event of Default, as if the same had not been waived and/ or modified pursuant to this Agreement and the other CDR Documents. Provided however, that the obligations of the Borrower under the CDR Documents shall continue to be binding on the Borrower and the CDR Lenders shall be entitled to exercise all rights and remedies conferred on them pursuant to the CDR Documents, including the right to enforce any Security Interests created pursuant to the CDR Documents. The CDR Lenders may, in addition to all other rights and remedies under the CDR Documents and Applicable Law, cease to fund interest on the relevant Facilities and/ or charge default interest or liquidated damages in respect of any interest that has been funded by them.
33. A perusal of above terms would show that the right to recover the respective facilities, unpaid interest, penal interest liquidated damages, compound interest and any other interest, charges, expenses as on the cut off dates in accordance with the terms of the agreement were not waived by the CDR lenders. Further, in Para 2.4.2, no such waiver was granted. Rather, it is specified that the waiver was granted for the period commencing on the cut off dates and ending of the effective dates. It cannot be inferred that earlier defaults were anywhere waived by the Appellants. RBI Circular No. RBI/2015-16/101 dated 1st July, 2015 is a master circular – prudential norms on income recognition, asset classification and provisioning pertaining to advances was issued wherein in Para 17.2.2, 17. 02.3 and 17.2.6 it is stated as under:
17.2.2 The non-performing assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per extant asset classification norms with reference to the pre-restructuring repayment schedule.
17.2.3 Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the bank should be upgraded only when all the outstanding loan/ facilities in the account perform satisfactorily during the ‘specified period’ (Annex -5), i.e. principal and interest on all facilities in the account are serviced as per terms of payment during that period.
17.2.6 If a restructured asset, which is a standard asset on restructuring in terms of para 20.2, is subjected to restructuring on a subsequent occasion, it should be classified as substandard. If the restructured asset is a sub-standard or a doubtful asset and is subjected to restructuring, in a subsequent occasion, its asset classification will be reckoned from the date when it became NPA on the first occasion. However, such advances restricted on second or more occasion may be allowed to be upgraded to standard category after the specified period (Annex-5) in terms of the current restructuring package, subject to satisfactory performance.
34. It is also not in dispute that the Respondents were declared as wilful defaulter by the Appellants. A meeting was held on 12.08.2016. Minutes of the GLF meeting were drawn wherein Sri Manoj Jaiswal, Chairman of the Abhjeet Group also participated. In the said meeting’s minutes, it is mentioned that –
“The Company and the promoter, Mr. Manoj Jayaswal, Chairman of Abhijeet Group was informed about the collective decision taken by the lenders. He was informed that the lenders cannot provide any additional finance to the Company i.e. banks who have sanctioned the enhanced limits will not be able to release any further funds and banks who are yet to sanction, will not be able to sanction any enhancement in working capital limits. This decision was taken since the name of the promoters and group company, Abhijeet Projects Ltd. is appearing in wilful defaulters’ list as reported by Dena Bank and various other banks have reported as defaulter, fraud and red flagged account. He was also informed that extant RBI guidelines do not permit the banks to provide additional financing to listed wilful defaulters. Due to track record of defaults as reported by various banks and the listing of the promoter as wilful defaulter, the lenders have lost faith in the ability of the current promoter.
Mr. Manoj Jayaswal informed the lenders that he is making sincere efforts to pay the dues of all lenders and the plant has been restricted and is operating at around 40% capacity utilization. Lenders advised Mr. Jayaswal to induct a new investor and get a new management on board. He was also advised to arrange to infuse funds in the Company for day to day operations, maintain the production of the plant and regularize overdues of lenders. Subject to satisfactory change in management, infusion of funds and accounts upgradation from NPA, lenders can reconsider proposal for sanction/ disbursement of enhanced working capital limits. ”
35. Perusal of the minutes would show that Sri Manoj Jaiswal was informed that the lenders cannot provide any additional finance to the Company i.e. Banks, who have sanctioned the enhanced limit, will not be able to release any further funds and Banks, who are yet to sanction, will not be able to sanction any enhancement in working capital limits. It also finds place in the minutes that Abhjeet Project Ltd. is appearing in wilful defaulter’s list. A specific mention of the fact about wilful defaulter as well as non-disbursement of further limits upon Banks in unequivocal terms clarifies that this fact was well informed to Sri Manoj Jaiswal who was representing the Respondents. Accordingly, it cannot be accepted that the Respondents were not informed about non-disbursement of further amount or the facts that the Respondent is a wilful defaulter.
36. The circular of Reserve Bank of India regarding restructuring as mentioned above specifically provides in Para 17.2.2 that the non-performing assets upon restructuring would continue to have the same asset classification as prior to restructuring and slipped into further lower asset classification categories as per instant Asset Classification norms with reference to the pre restructuring repayments schedule. It is a specific case of the Appellant that the loan account was classified as NPA on 31.03.2013 and was reclassified as NPA on 30th September, 2016 with effect from 31.03.2013 which is strictly in accordance with RBI Circular as referred above.
37. In the case of events of default and remedies thereon are specified in article 6 of MRA and in accordance with the aforesaid provisions, the CDR lenders had a right to reverse any waiver or sacrifices that has been granted as part of the CDR package. Further, it is provided in para 6.2.1 that the CDR lenders are entitled to take all remedies under applicable clauses including SARFAESI Act as well as Recovery of Debts and Bankruptcy Act. It is abundantly clear from record that defaults were committed by the Respondents before and after MRA. Accordingly, Appellant was well within its jurisdiction to file an application under Section 19 of the Recovery of Debts and Bankruptcy Act.
38. The Respondents were declared as the wilful defaulters as per the guidelines of the RBI. There was a breach of the terms of Master Restructuring Agreement dated 28.09.2013. RBI Master Circular had wilful defaults dated 01.07.2015 and Corporate Debt Restructuring failed in terms of the RBI Circular dated 16.02.2014. Accordingly, the loan account was declared as NPA with effect from 31.03.2013. The same was duly communicated to Sri Manoj Jaswal in the joint lender meeting held on 12.08.2016 as has been held earlier. Accordingly, there cannot be any doubt that the Respondents were duly communicated about the fact that no additional facilities will be sanctioned by the lenders. Since the Respondents were declared as wilful defaulters, and the corporate debt restructuring failed in terms of RBI Circular dated 26.02.2014, accordingly, the account was rightly declared as NPA with effect from 31.03.2013.
39. Much emphasis has been laid by Learned Senior Advocate for the Respondents by submitting that there was a reciprocal obligation between the parties and the appellants herein have not fulfilled their part of the agreement. Further, he pressed Section 51 to 54 of the Indian Contract Act and submitted that the Appellant failed to disburse the sanction limit, hence, there could be no question of any default on the part of the Respondent No. 1 and accordingly, Respondent No. 1 were discharged from its obligation to make repayment to the Appellant. Further, it is submitted that as per Section 54 of the Indian Contract Act, failure to perform a fundamental obligation under a contract gives rise to a repudiatory breach. Failure to disburse sanction limit is the breach of fundamental obligation under a contract. Reliance is placed upon Suraj Kana Pharmaceuticals Vs. Bihar State Financial Corporation AIR 2009 Patna 91. It is further submitted that the Appellants are trying to take advantage of their own wrong by making recovery from the Respondent No. 1 which was directly permitted on the disbursement of the sanction limit in favour of the Respondent to enable it to generate revenue therefrom. Reliance is further placed upon a letter dated 18th May, 2018 which has already been held to be inadmissible.
40. Section 51 to 54 of the Indian Contract Act reads as under:
“51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform.-When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.
52. Order of performance of reciprocal promises.-Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.
53. Liability of party preventing event on which the contract is to take effect.-When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes viodable at the option of the party so prevented: and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.
54. Effect of default as to that promise which should be performed, in contract consisting of reciprocal promises.-When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.
41. Reliance is placed upon a three judges Bench judgment of the Hon’ble Apex Court in Haryana Financial Corporation Vs. Jagdamba Oil Mills (2002) 3 SCC wherein in Para 6 it was held that-
“6. The Corporation as an instrumentality of the State deals with public money. There can be no doubt that the approach has to be public-oriented. It can operate effectively if there is regular realization of the instalments. While the Corporation is expected to act fairly in the matter of disbursement of the loans, there is corresponding duty cast upon the borrowers to repay the instalments in time, unless prevented by insurmountable difficulties. Regular payment is the rule and non-payment due to extenuating circumstances is the exception. If the repayments are not received as per the scheduled time-frame, it will disturb the equilibrium of the financial arrangements of the Corporations. They do not have at their disposal unlimited funds. They have to cater to the needs of the intended borrowers with the available finance. Non-payment of the instalment by a defaulter may stand in the way of a deserving borrower getting financial assistance.”
42. Further, in para 21 of Punjab Financial Corporation Vs. Surya Auto Industries (supra) at page No.309 it was held that-
“21. The proposition of law which can be culled out from the decisions noted above is that even though the primary function of a corporation established under Section 3 of the Act is to promote small and medium industries in the State, but it is not obliged to revive and resurrect every sick industrial unit dehors the financial implications of such exercise. The Corporation is not supposed to give loans and refrain from taking action for recovery thereof. Being an instrumentality of the State, the Corporation is expected to act fairly and reasonably qua its borrowers/ debtors, but it is not expected to flounder public money for promoting private interests.”
43. Further in the case of Innovative Industries Ltd. Vs. ICICI Bank and another (2018) 1 SCC 407 the fact was as mentioned in Para 5 of the judgment that-
“the Appellant pleaded that owing to non-release of funds under MRA, the Appellant was unable to pay back its debt as envisaged.”
Further, it repaid only some amounts to five lenders who according to the Appellant complied with their obligation under MRA. In the aforesaid circumstances, it was pleaded that no default was committed. In the facts of the case, the Hon’ble Apex Court held in Para 63 and 64 that-
“63. Even otherwise, Shri Salve took us through MRA in great detail. Dr. Singhvi did likewise to buttress his point of view that having promised to infuse funds into the appellant, not a single naya paisa was ever disbursed. According to us, one particular clause in MRA is determinative on the merits of this case, even if we were to go into the same. Under Article V entitled
“Representations and Warranties”, Clause 20(t) states as follows:
“t” NATURE OF OBLIGATIONS
The obligations under this Agreement and the other restructuring documents constitute direct, unconditional and general obligations of the borrower and the reconstituted facilities, rank at least pari passu as to priority of payment to all other unsubordinated indebtedness of the borrower other than any priority established under applicable law.”
64. The obligation of the corporate debtor was, therefore, unconditional and did not depend upon infusing of funds by the creditors into the appellant Company. Also, the argument taken for the first time before us that no debt was in fact due under MRA as it has not fallen due (owing to the default of the secured creditor) is not something that can be countenanced at this stage of the proceedings. In this view of the matter, we are of the considered view that the Tribunal and the Appellate Tribunal were right in admitting the application filed by the financial creditor ICICI Bank Ltd.”
44. Accordingly, the law laid down by the Hon’ble Apex Court specifically makes it clear that the terms and conditions of the MRA would prevail and when the Respondent No. 1 has failed to comply the terms and conditions of the MRA, Appellant herein cannot be asked to pump the additional funds in favour of the Respondents so that the Respondent may make the payment of earlier dues which he is liable to pay. This would be an anomalous situation.
45. It was held in Para No. 57 of the judgment Saradamani Kandappan Verses Rajalakshmi and others (2011) 12 SCC 18 that –
“ 57. The terms of the contract make it clear that payment of the sale price did not depend on execution of the sale deed. The sale deed was not required to be executed within any specific period. The purchaser had to fulfil her obligation in regard to payment of price as provided in Clause 4 and thereafter the vendors were required to perform their reciprocal promise of executing the sale deed, whenever required by the purchaser, either in her name or in the names of her nominees. The sale deed had to be executed only after payment of complete sale consideration within the time stipulated. In these circumstances, Section 52 of the Contract Act does not help the appellant but actually supports the vendor respondents.”
46. As far as the question of reciprocal promise is concerned, in the present case there is no question of any reciprocal promise or obligation to be performed by the Appellant herein. Admittedly, initial loan was sanctioned in favour of the borrower i.e. Respondent No. 1. Even if there was an arrangement for further sanction of limit, by no stretch of imagination it can be accepted that the initial sanction and utilized amount would not be paid by the Respondent until additional funds are infused in favour of their Respondent. Further, there was no clause in the agreement to this effect. In the MRA, there is repayment schedule as provided in Para 2.6.1 with schedule 4 wherein terms and conditions of the repayment are provided. None of these schedules have been made subject to the prior disbursement of the further amount by the Bank. In Para
6. 1.1. events of defaults are provided wherein the relevant paragraphs are-
6. 1.1EVENTS OF DEFAULT
(i) Default in Payment of Principal amounts of the Facilities
Failure by the Borrower in the payment when due of the Facilities (including a Repayment installment) on any part thereof on the Due Dates at the place at where it is expressed to be payable and in a manner as provided for in this Agreement and the other CDR Documents.
(ii) Default in Payment of Interest and Other Amounts
(a) Failure by the Borrower in the payment, when due, of the interest on the Facilities on the Due Dates and/or any other monies whatsoever stipulated in or payable under the CDR Documents on the Due Date at the place at where it is expressed to be payable and in a manner as provided for in this Agreement and/ or the other CDR Documents.
(b) Failure by the other Obligors in the payment when due of any fee, commission, costs or any other amounts under the CDR Documents, to which they are a party, on their respective Due Dates at the place at where it is expressed to be payable and in a manner as provided for this in such CDR Documents.
(iii) Breach of Obligations
Failure by an Obligor to comply with any provision of the
CDR
Documents to which it is a party or in the performance of any of its obligations under any of the CDR Documents to which it is a party or breach of any undertakings or covenants under the CDR Documents to which it is a party (other than those referred to in the other sub-sections of this Section 6.1.1).
47. Section 2(f) of the Indian Contract Act, 1872 defines the reciprocal promise as “Promises which form the consideration or part of the consideration for each other, are called reciprocal Promise.”
48. Section 54 of the Indian Contract Act provides the effect of default as to that promise which should be performed in contract consisting of reciprocal promises.
49. Firstly, we have to see as to whether there was a reciprocal promise between the parties. It is well settled that in contract of mutual promise, the promises of both sides are the consideration and the only consideration for one another. In order to apply the Rule, it has to be ascertained whether the promises are or are not to be simultaneously performed. In the present case as has been argued by the Learned Counsel for the Respondents that there was a reciprocal promise wherein the Appellant herein has not performed his reciprocal obligation, hence he is not entitled for the recovery of any amount. I am unable to accept the contention raised by the Learned Senior Counsel for the Respondent on the ground that there was no condition in the MRA or any other agreement that the already sanctioned amount would be subject to the release of the additional loan by the Bank. Further, in the case of sanction of loan by the Bank there is no reciprocal obligation upon the Bank to firstly sanction the additional limit and thereafter make realization of the already sanctioned amount.
Para 5.2.1 (xxiv) (i) and 5.2.1 (xxvi)(e) of MRA reads as under:
(xxiv) (i) “The disbursements, if any, under the Facilities shall be made by the CDR Lenders subject to the Borrower and the other Obligors being in compliance with the provisions of this Agreement and the other CDR Documents. The Borrower shall ensure that the other Obligors perform all obligations under the respective CDR Documents executed by such Obligors.”
5.2.1 (xxvi)(e) “The CDR Lenders reserve the right to review or withdraw the CDR Package at any time during its currency in case of default in the repayment or payment of the Facilities on the Due Dates on the part of the Borrower under this Agreement.”
50. A bare perusal of the contents of the MRA makes it specifically clear that there was no scope for any simultaneous obligations and the Appellant was not under a reciprocal obligation to sanction the additional limit to release the already sanctioned amount. Accordingly, it cannot be accepted that the Appellant was under any reciprocal obligation or there was any reciprocal promise to be performed by the Appellant before filing the O.A. under Section 19 of the Recovery of Debts and Bankruptcy Act.
51. At this stage it would also be relevant that there was a contract between the parties. Section 73 to 75 of the Indian Contract Act deals with the consequences of breach of contract. Had there been any breach by the Appellant in performance of the contract, remedial measures are provided under the Act. A suit for damages is already filed by the Respondent. In the O.A. filed by the Bank neither any set off nor counter claim was claimed by the Respondents.
52. In a recent judgment reported in Authorised Officer Central Bank of India Vs Shanmugavelu 2024 SCC OnLine SC 92, it is held in Para No. 53 that-
“ Damages can be awarded only for the loss directly suffered on account of the breach and not for any remote or indirect loss sustained by reason of the breach of contract. The general rule is that where two parties enter into a contract and one of them commits breach, the other party will be entitled to receive as damages in respect of such breach of contract, such sum as may fairly and reasonably be considered arising naturally, that is according to the usual course of things, from such breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of the breach of it. If any special circumstances about the dependency of the performance of other contract(s) by the party complaining of the breach, on the performance of the contract in dispute by the party in breach, had been communicated to the party in breach, and thus known to both parties at the time of entering into the contract, then the damages for the breach of the contract in dispute, may include the compensation for the loss suffered in regard to such other dependent contracts. But, on the other hand, if the special circumstances were not made known to the party breaking the contract, the party breaking the contract, at the most, could only be supposed to have had in its contemplation the amount of injury which would arise generally and directly and not any remote or unknown loss or damage.”
53. Hence, I do not find any force in the submission that there was any reciprocal obligation upon the Appellant which was not performed by the Appellant.
54. It is submitted by the Learned Counsel for the Respondent that the Appellants have not pleaded any default in the original application. I do not find any force in the submission. All the documents including the statement of account were filed along with the original application wherein default by the Respondent was alleged. It is not in dispute that the loan was not originally sanctioned to the Respondent. In the affidavit of the Appellant filed in evidence, specific plea was taken about the default.
55. Original application under Section 19 of the Recovery of Debts and Bankruptcy Act,1993 was filed on the basis of the original disbursement of loan which was declared as NPA when defaults were made by the Respondents. Subsequent to the original agreement, there was no novation of any agreement. Hon’ble Delhi High Court passed an order in W.P. No. 22846 of 2016 giving a liberty to the Appellant to proceed for recovery of the loan account. Respondents have placed reliance upon Bachhaj Nahar Vs Nilima Mandal and another (2008) 17 SCC 491 and Arikala Narasa Reddy versus Venkata Ram Reddy Reddygari, (2014) 5 SCC 312 which are on the issue that a fact not pleaded cannot be looked into by the Courts. It is settled legal proposition. However, all the facts have been pleaded by the Appellant. Hence, Respondents cannot take any advantage of the case laws. Reliance is further placed upon Suraj Kana Pharmaceuticals Versus Bihar State Financial Corporation, 2009 SCC OnLine Pat. 61 AIR 2009 Patna 91 which is not applicable to the facts of the present case as no breach of agreement could be proved against the Appellants. Reliance is further placed upon a judgment of the Hon’ble Apex Court Gujarat State Financial Corporation Versus Lotus Hotels (P) Ltd. (1983) 3 SCC 379 wherein a principle of promissory estoppel was invoked by the Hon’ble Apex Court which is not applicable to the facts of the present case as no promise was made by the Appellant, rather there is an MRA.
56. Reliance is further placed upon Devendra Kumar versus State of Uttaranchal and others (2013) 9 SCC 363 wherein in Para 25 it was held that a person having done wrong cannot take advantage of his own wrong and plead bar of any law to frustrate trial by a competent Court. The law laid down by the Hon’ble Apex Court does not apply as no wrong committed by the Appellant could have been proved.
57. At this stage, it would be pertinent to observe that the Learned DRT passed a very cryptic and illegal order wherein it was held that the O.A. is premature as there is no default and the defendant is not given sufficient opportunity of notice. It is held that O.A. filed by the Appellant -Secured Creditor was not premature.
58. On the Basis of discussion made above, I am of the considered view that the Learned DRT committed a manifest error by holding that the O.A. filed by the Appellants is premature. An illegality has been committed by the Learned DRT. Accordingly, impugned order is liable to be set aside and appeal deserves to be allowed.
ORDER
Appeal is allowed. Impugned order dated 17.06.2022 passed by Learned DRT-2 Kolkata in T.A. No. 179 of 2020 arising out of O.A. No. 742 of 2018 is set aside. Learned DRT -2 Kolkata is hereby directed to decide the O.A. afresh in accordance with law after affording an opportunity of hearing to the parties.
No Order as to costs.
File be consigned to Record Room.
Copy of the order be supplied to Appellant and the Respondents and a copy be also forwarded to the concerned DRT.
Copy of the Judgment/ Final Order be uploaded in the Tribunal’s Website.
Order signed and pronounced by me in the open Court on this the 19th day of March, 2024.
