O.A. No. 415 of 2001. Case: Central Bank of India Vs Munis Forge Ltd. and Ors.. Nagpur Debt Recovery Tribunals

Case NumberO.A. No. 415 of 2001
CounselFor Appellant: M.D. Samel, Adv. and For Respondents: A.S. Gupta, Adv. for Defendant Nos. 1, 2, 4, 6 to 9, 11, 12, 14 and 15 and Shyam Devani, Adv. for Defendant Nos. 2, 5, 10 and 13
JudgesK.J. Paratwar, Presiding Officer
IssueRecovery of Debts Due to Banks Act
CitationI (2006) BC 6
Judgement DateAugust 19, 2005
CourtNagpur Debt Recovery Tribunals


K.J. Paratwar, Presiding Officer

  1. This is an application for recovery of amounts outstanding as under:

    --------------------------------------------------------------------------- Sr. Credit Facility Total Dues No. Rs. --------------------------------------------------------------------------- 1. Cash Credit 3,14,23,173.50 2. Packing Credit 10,92,53,534.76 3. Export Bill Purchase 2,33,02,731.50 4. CD Overdraft 6,06,191.64 5. Supply Bills 41,98,488.00 6. Development in Letter of 6,01,79,542.00 Credit (Inland) 7. Development Export L.C. 5,24,31,797.00 8. Co-acceptance Development 68,59,093.95 ---------------------------------------------------------------------------

    The amounts are sought to be recovered by liquidating mortgaged properties of defendant Nos. 6, 9 and 11 and hypothecated properties of 1st defendant.

  2. The borrower (defendant No. 1) is a company of which defendants 2 to 11 are Directors sued as guarantors. Defendant Nos. 2 to 15 are sued as guarantors.

  3. Defendant Nos. 2 to 4 were manufacturing forging steel of various types in the name of M/s, Mehta Steel Industries, a partnership firm/Defendant Nos. 4 to 11 subsequently joined the firm. The firm was the applicant's constituent enjoying several loan/credit facilities aggregating to Rs. 10.35 crores. The partnership firm then changed the name as "M/s. Munis Forge" and soon thereafter formed the company- defendant No. 1- which was incorporated on 5.1.1995. The company took over entire running business as also assets and liabilities of the partnership firm. By resolution dated 6th Jan., 1995 the company inter alia took over the following facilities:

    Cash Credit Limit against Rs. 1,70,00,000/- hypothecation of stocks, raw material etc. Overdraft against hypothecation of Rs. 1,25,00,000/- Book debts Packing credit facility against Rs. 1,75,00,000/- hypothecation of stocks, raw material, finished goods etc. meant for exports Export bill purchase and export bill Rs. 1,30,00,000/- discount against confirmed orders and shipment documents Inland letter of credit with Usuance Rs. 1,00,00,000/- of 90 days against documents of title of goods and stocks Import letter of credit with 180 days Rs. 1,25,00,000/- usuance against documents of title to goods Bank guarantee favouring Customs, Rs. 2,10,00,000/- Central Excise, Sales Tax etc. and other Government Departments

    In lieu thereof the company executed D.P. Notes and usual security documents. Defendant Nos. 2 to 15 gave letter of guarantee and thus stood as personally liable.

  4. Although the facilities were sanctioned for one year, at its behest 1st defendant was allowed to continue to avail even thereafter. Defendant No. 1 many a times requested the applicant to allow availment of the facilities in excess of the sanctioned amounts and the Bank allowed to do so. On the 1st defendant's request the facilities were revised to become as below;-

    Packing credit limit against Rs. 7,00,00,000/- hypothecation of stocks, for export/ export bills upto 180 days interchangeable with export bills purchase/export bill discount facility Import letter of credit against Rs. 10,00,00,000/- hypothecation of goods under letter of credit Bank guarantee in land favouring Rs. 2,50,00,000/- Customs, Central Excise, Sales Tax etc. against the counter guarantee of defendant No. 1

    Defendant No. 1 in the meeting of Board of Directors held on 28.2.1998 accepted the terms and conditions of the latest sanction and resolved to execute security documents in lieu there of. Accordingly, the usual security documents were executed. The guarantee was executed by defendant Nos. 5, 6, 10 and 11. Subsequently, on 6.10.1998 the letter of acknowledgement in respect of outstandings under cash credit and under overdraft facility was executed.

  5. Subsequently, defendant Nos. 5 to 10 informed vide letter dated 10.11.1998 the applicant that they had resigned as Directors of the company and requested for withdrawal as guarantors. The Bank vide letter dated 29.12.1998, informed them that they would continue to be liable as guarantors until the outstandings are liquidated.

  6. On 7.1.1999 defendant Nos. 6 and 11 deposited title deeds of their property in order to secure the outstandings.

  7. The applicant had opened L/C for US D 42,08,000/- for payment after 180 days from the date of Bill of Lading favouring M/s. Metalsrussia Corpn. Ltd., Hong Kong for importing 2160 M.T. of hot rolled non allied steel plates. Defendant No. 1 unconditionally accepted the documents under the L/C. The bill drawn under the L/C was clue on 4.8.1999. Defendant No. 1 did not pay the amounts even after called upon to do so. On the other hand it informed the Bank that it had applied for extension of due date and request was made to withhold the payment. However, this was not valid ground for not meeting the international commitments which is why the Bank was required to make payment thereof. But the 1st defendant did not compensate the applicant. Second L/C for US D 4,14,000/- payable after 180 days of bill of leading in the name of M/s. Metalsrussia Corpn. Ltd., Hong Kong was opened by the Bank on 9.1.1999 at the 1st defendant's behest. The 1st defendant unconditionally accepted the documents despite discrepancies and undertook to pay on due date i.e. 30.8.1999. The 1st defendant instead of making payment informed the applicant that it had requested the beneficiary of the L/C for extension of due date by 90 days. In the meanwhile, the applicant received reminder from beneficiary's Bank for payment. Since there was no extension, the applicant was required to- and did- make payment. One the 1st defendant's request L/C favouring M/s. PSE Stall Handle BMBH of Germany for US D 3,06,322/- for import of non alloy hot rolled steel plates was opened on 5.3.1999. The 1st defendant accepted the bills and undertook to make payment on due date i.e. 27.10.1999. The 1st defendant by letter dated 3.8.1999, however, raised dispute about quality of goods and informed the exporter to take back the goods or replace the same. The applicant as such informed the Exchange Control Dept. of RBI about the dispute. The RBI informed the applicant that it had no role to play since there is well recognized redressal system in the international trade. The applicant intimated defendant No. 1 accordingly. On 19.10.1999 the Bank received telefax from BHF Bank on behalf of the exporter that the matter had been solved and called upon the applicant to remit US D 2,97,462/- with interest of US D 8,157.90. The beneficiary's Bank also called upon the applicant to remit 3,05,619.90 USD. The applicant vide letter dated 21.10.1999 accordingly informed defendant,.| asking him to arrange for the money. The defendant No. 1, however, did not fulfil the commitment. The applicant also informed defendant No. 1 that the dispute about quality is irrelevant so far as liability under L/ C is concerned. The defendant No. 1, however, committed default and did not make the payment. The defendant No. 1 thus made default in making payment of 22 devolved L/Cs set out in Annexure O-l.

  8. Under the co-accepted bill account, the bill dated 6.3.1999 for Rs. 1 crore drawn by M/s. Narendra Enterprises due on 1.9.1999 was accepted at the instance of defendant No. 1 by the applicant for payment. Defendant No. 1 executed D.P. Note and agreement in lieu thereof. Similarly, a bill dated 23.3.1999 for Rs. 1,03,40,000/- drawn by M/s. Narendra Enterprises due on 18.9.1999 was also co-accepted by the applicant on the 1st defendant's request. In lieu thereof defendant No. 1 executed DP Note and agreement. The defendant No. 1 did not make payment of said amounts.

  9. Under supply bills facility, the 1st defendant committed default in respect of 14 bills drawn on Sr. Manager, Ordnance Factory, Ambazari, Nagpur and thus default was committed to the extent of Rs. 48,14,138/-. After appropriating margin money a sum of Rs. 36 lakh is due thereunder.

  10. The defendant No. 1 was not properly operating the account. On 17.8.1999 it, however, confirmed the then debit balance under the cash credit and requested to clear the overdrawn limit of Bill Purchase and Packing credit.

  11. On or about 29.2.2000, defendant No. 9 visited the applicant's office and deposited title deeds in respect of his property and thus created equitable mortgage for securing the outstandings.

  12. The defendant No. 1 did not clear the outstandings under various heads even after repeated requests and demands. The applicant, therefore, caused to be issued notice through Advocate recalling the outstandings. The guarantors also were called upon to make the payment. Since neither the borrower nor the guarantors responded, this O.A. is filed.

  13. The 1st defendant vide written statement at Ex. 39 has not only disputed the liability but made counter claim of Rs. 42,21,26,529.09 ps. The defendant No. 1, however, has admitted that it had taken over the assets and liability of M/s. Mehta Steel Industry. It is also admitted that the 1st defendant enjoyed credit facilities from the applicant to the tune of Rs. 10.35 crores. The O.A., however, is said to be barred by limitation. The execution of documents in 1995 is undenied. It is contended that...

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