T.A. No. 163 of 2002. Case: Allahabad Bank Vs S.S. Brick Field (P.) Ltd. and Ors.. Kolkatta Debt Recovery Tribunals

Case NumberT.A. No. 163 of 2002
CounselFor Appellant: Jaydeb Brahmachari, Adv. and For Respondents: Chinmoy Mukhopadhyay, Adv. for Defendant No. 1, Snigdha Sinha, Adv. for Defendant Nos. 4 and 5 and P. Banerjee, Adv. for Defendant No. 6
JudgesD.C. Thakur, Presiding Officer
IssueRecovery of Debts Due to Banks and Financial Institutions Act, 1993 - Sections 19 and 34(2); State Financial Corporation Act, 1951 - Sections 29, 30 and 46
CitationIII (2004) BC 38
Judgement DateJuly 14, 2003
CourtKolkatta Debt Recovery Tribunals


D.C. Thakur, Presiding Officer

  1. In a lawful action for recovery of debt from the six defendants, one of which has been impleaded by the applicant Bank as the necessary defendant because the said defendant has been impleaded in such lawful action as the party in view of being the first charge holder of the mortgage properties of the other defendants by dint of a tripartite agreement entered into between the applicant Bank on the one hand and the other defendants and the said specific defendant on the other, the pertinent issue, arising from the angle of law is: whether the applicant Bank shall be entitled to any relief against the said specific defendant. Such peculiar affair has arisen in respect of one Section 19 application preferred by the applicant Bank on February 9, 2000 before the learned Transferring Tribunal against the defendant Nos. 1 to 5 and the defendant No. 6 for realization of Rs. 12,79,132.05 p.

  2. Before dealing with the above issue, it will be highly necessary to refer in brief, to the factual background behind the making of such an application.

  3. The defendant No. 1, being a company incorporated under the provisions of the Companies Act, 1956 (Act No. 1 of 1956), approached the applicant Bank and made one application on July 15, 1992 for the reason of sanctioning itself the cash credit and the overdraft facilities and the Bank guarantee. In a reply letter dated September 25, 1993 the said applicant defendant company was informed of that it was sanctioned the following facilities with the certain limit and on a set of terms and conditions stipulated in the said letter by the applicant Bank:

    (a) Cash credit limit of Rs. 3 lakhs to be enjoyed by the said company against hypothecation of paid for stocks;

    (b) Overdraft facilities for a sum of Rs. 4.50 lakhs against hypothecation of book debts along with 18.75 per cent interest per annum inclusive of tax levied at quarterly rests. A duration for the enjoyment of such facility was specifically prescribed for one year; and

    (c) Bank guarantee to the extent of Rs. 2,32 lakhs

  4. The said reply letter from the applicant Bank did contain in itself the hard and fast collateral securities to be furnished by the said applicant defendant company numbering about five; besides the above, the said letter did consist of the other terms and conditions numbering about twenty-eight; and on September 28, 1993, the acceptance of the sanction letter dated September 25, 1993 was specifically found to have been made by the said company. The terms of sanction as specifically prescribed in the reply letter dated September 25, 1993 were agreed to be confirmed by the empowered and authorised Director on behalf of the said company. The terms of sanction confirmed on behalf of the said company have been quoted below;

    (i) In the event of our failing to get State Capital Subsidy from the Government for our Project we will bring equivalent extra fund from our own resources to meet the gap.

    (ii) We will not declare any dividend without prior written consent from your end.

    (iii) We will not make any investment in subsidiary/associated sanctions by way of loan or advance or inform of shares of such concern without your written permission.

    (iv) We confirm that the Directors are not related to any Senior Executive of Allahabad Bank.

    (v) We will mobilise F.D.R. of Rs. 50,000/- within 2 months from the date of first disbursement

  5. Furthermore in the letter of acceptance dated September 28, 1993 there was expressly contained a declaration made on its behalf under Clause (d) of Sub-section (1) of Section 293 of the Companies Act, 1956 (Act No. 1 of 1956) not to borrow moneys where the condition that the moneys to be borrowed together with the moneys already borrowed by the said company (apart from the temporary loans obtained from the company's Bankers in the ordinary course of its business) which shall not have the effect of exceeding the aggregate or the total limit, of the paid up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purpose.

  6. On April 23, 1994 there was executed one 'Demand Promissory Note' for the sum of Rs. 9,82,000/- only after jointly and severally taking the responsibility or promising to pay at the Shyam Bazaar Branch office, Kolkata of the said Bank the aforementioned sum along with a minimum of 18.75 per cent per annum with quarterly rests. Such execution of 'Demand Promissory Note' witnessed the commencement of the commercial transaction between the applicant Bank on the one hand and the said defendant on the other. Here mention may be made of that prior to that date, an agreement between the defendant company having its registered office situated at Manushpur, Bandel Junction. Hooghly, West Bengal and the Bank was evidently executed on April 22, 1993, whereby the said company, as the first party, did voluntarily and independently create the charges and hypothecation by way of first charge in favour of the applicant Bank of the second Part on the present and future products, goods and immovable property of any kind of itself including all movable plants, engines and machinery, apparatus, tools, motor lorries and cars, furniture and stocks of raw materials (namely clay, fly ash, linen, etc.) work in progress, finished goods and book debts.

  7. The defendant Nos. 2 and 3 and the concerned Manager of the applicant Bank did jointly execute the said deed of hypothecation. Secondly, the defendant company, in whose favour the applicant Bank had agreed to grant or continue the Company accommodation through the medium of cash credit and/or overdraft account with the Shyam Bazaar Branch of itself under a drawing limit of Rs. 9,82,000/- had been found in agreeing in complying with and strictly following the stipulations mentioned below:

    "The value of the book debts would be at all times sufficient to provide the margin of security amounting to twenty five per cent over and above the balance of payment being at debit of the said overdraft/cash credit account including interest payable thereon but not yet debited to the account; after the Bank by its managers and nominees shall be at all times as if absolute owner and without notice or demand to the borrower but at the said Company's risk and expense has expressed to exercise all or any of the following powers, namely, for example, on any default by the said company in payment of any money hereby secured for the purpose of any obligation to the Bank under these presents or in the event of the existence of any circumstances which in the opinion of the applicant Bank might endanger this security to take possession of, remove, recover, receive, appoint receivers of and/or sell by public auction or private contract or otherwise dispose of or deal with in any manner with all or part of the book debts. The said company was further found in agreeing to accept the Bank's accounts of sales and realisations as sufficient proof of any amount realised. According to the undertaking given on April 22, 1994, the defendant company No. 1 was held bound along with the other defendants not to create or suffer any mortgage charge or any lien or encumbrance over those without the Bank's consent. The borrower defendant company would further hand over to the applicant Bank the proceeds of any bill, discounted purchased or taken as security by the Bank."

  8. For the purpose of enjoyment of the loan facilities under the different heads and to the extent of Rs. 9.82 lakhs, the said borrowing company also did submit one copy of the resolution adopted in a meeting of the Board of Directors of itself held on September 30, 1993 at the Registered Office of itself and under the Chairmanship of the defendant No. 2 whereby the company had been found to have ratified such borrowing from the applicant Bank through cash credit and overdraft as payable on demand to be secured by hypothecation of its entire movable properties both present and future also comprising book debts.

  9. In view of the above resolution, Shri Subrata Sen, the Managing Director of the said company (hereinafter to be referred to as the defendant No. 2) was authorised in the above meeting to execute on behalf of the company all the security documents, which had already been approved by the Bank; and to use its seal. The functioning of such commercial transaction actually involved three parties, principally, namely:

    (i) The defendant company being a company incorporated under the relevant provisions of the Companies Act, 1956;

    (ii) The applicant Bank; and

    (iii) The West Bengal Industrial Development Corporation Ltd., a Government Company with limited liability and incorporated under the said Act of 1956 which had been impleaded factually as the defendant No. 6 on February 9, 2000 by the applicant Bank in its application under Sub-section (1) of Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (Act No. LI of 1993).

  10. For the smooth functioning of such commercial transaction, a tripartite agreement or arrangement was entered into between those three parties for the purpose of creating the ranking of charge. By such tripartite arrangement the WBIDC was shown to have and hold the first charge over the land and building on security for the payment of the term loan for payment of Rs. 90 lakhs only obtained from itself with interest, in favour of which the applicant defendant company created oh April 13, 1994, the said charge by way of depositing the title deeds in respect of the land and building both enumerated in the third schedule thereto with the WBIDC.

  11. Secondly, by the said tripartite arrangement, the applicant Bank stood as the second charge holder and such creation of second charge in favour of the applicant Bank on April 22, 1994 was done by the said company with the prior consent of the said Corporation over the movable plant and machineries of the said borrowing...

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