Appeal No. R-24 of 2012. Case: Midex Global Pvt. Ltd. and Ors. Vs State Bank of India. Allahabad DRAT DRAT (Allahabad Debt Recovery Appellate Tribunals)
| Case Number | Appeal No. R-24 of 2012 |
| Counsel | For Appellant: Mr. V.K. Srivastava, Advocate and For Respondents: Mr. Manoj Sharma, Advocate for the Intervenors and Mr. Sanjay Agrawal, Advocate |
| Judges | R.K. Gupta, J. (Chairperson) |
| Issue | Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 - Sections 13(2), 13(4), 18, 2(j), 2(zc), 2(zf) |
| Citation | I (2014) BC 147 (DRAT) |
| Judgement Date | July 30, 2013 |
| Court | Allahabad DRAT DRAT (Allahabad Debt Recovery Appellate Tribunals) |
Judgment:
R.K. Gupta, J. (Chairperson)
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This is an Appeal preferred by the appellant-borrowers under Section 18 of the SARFAESI Act, 2002. At the time when the appeal was preferred, the appellants challenged the order dated 27th February, 2012 passed by the Debts Recovery Tribunal in S.A. No. 199/2011. By the said order, the application for stay was rejected by the DRT. The facts leading to the present appeal are that the appellant company incorporated under the provisions of the Companies Act, 1956 is engaged in trading and export. The main turnover of the appellant company is from export of molasses. The other appellants are the guarantors and owners of the property in question. The Bank vide its sanction letter dated 19th January, 2006 advanced certain credit facilities in favour of the appellants and the relevant security documents were signed and executed by the appellants and equitable mortgage was also created in favour of the Bank. Subsequently, on 19th September, 2007 certain more facilities were also granted to appellants. Thereafter, the Bank has structured the terms for Formal and Derivative contracts of Rs. 16.00 crores and also a credit exposure limit of Rs. 4.40 crores on 9th October, 2007 for which ISDA Master Agreement has been executed by the Company on 10th April, 2008 and subsequently again the Bank vide sanction letter dated 9th February, 2009 again sanctioned/modified/enhanced credit facilities to the appellants and the outstanding amount against the Forex Derivative Transactions were parked in Working Capital Terms loan. The appellants defaulted in regularizing their accounts therefore, the Bank issued a demand notice dated 21st May, 2011, under Section 13(2) of SARFAESI Act, 2002 raising demand of Rs. 40,52,30,116.10 as on 30th April, 2011 and further interest from 1st May, 2011. The objections were raised by the appellants which were replied by the Bank and subsequently on 14th September, 2011, the Bank took the symbolic possession of the properties of the appellants at Indore and on 20th September, 2011 the properties at Village Vijaydurg, Distt. Sindhudurg (MS) under Section 13(4) of the SARFAESI Act, 2002, and served Sale Notice dated 26th September, 2011 for sale of the properties of the appellants.
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Being aggrieved by the action taken under Section 13(4) of the SARFAESI Act, 2002 by the respondent Bank, the appellants preferred securitization application before the Debts Recovery Tribunal, Jabalpur which was registered therein as S.A. No. 199/11. In the meantime, the auction notice was published in the newspaper dated 28th January, 2012, scheduling the auction for 28th February, 2012. The notice further provides to adjourn the date of auction to 12th March, 2012. Another sale notice was also published on 1st February, 2012 in newspaper edition published from Pune for sale of properties of the appellants situated at Vijaydurg, District Sindhudurg scheduling the auction for 3rd March, 2012 and second adjournment on 17th March, 2012.
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The Counsel for the appellant submits that an application was moved on 11th November, 2011 on behalf of the appellants seeking a direction to the Bank to provide statement of accounts which was denied by the Bank on the ground that the statement of account has been provided with the O.A. No. 149/2011 and as per the appellants the entries shown in the statement of accounts are incorrect and erroneous. It is further submitted on behalf of the appellants that the guarantee executed by appellants was only for a sum of Rs. 12.00 crores and interest thereon only. It is further submitted that the demand notice dated 21st May, 2011, which shows an outstanding of Rs. 40,52,30,116.10 is bad ab initio because this includes Forex Derivative losses of Rs. 23,91,27,126/- which are not the part of the sanctioned and disbursed credit facilities and no security had ever been provided by the appellants for such Forex Derivative losses and in the absence of any security to secure the Forex Derivative losses, the same cannot be recovered from the sale of security provided to secure Working Capital facility.
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It is further submitted on behalf of the appellant that the respondent Bank has violated the guidelines issued by the Reserve Bank of India. The Counsel for the appellants submits that the appellant Company had been sold by the respondent Bank various currencies as commodity at higher price and later on purchased at much lesser price using all influence and threat causing huge financial losses which has ultimately ruined the business of the appellant company. It is further submitted that the appellant company who was one of the best financially managed company in the year 2007-08 had reached at the verge of insolvency only because of the Bank's advice and selling of Forex Derivatives. He further submits that these Forex Derivative transactions were entered into by the appellant company with Ahmedabad Branch of the respondent Bank without utilizing Working Capital facility sanctioned and granted for trading activities. Thus, it is the respondent Bank which violated the R.B.I. guideline and persuaded the appellant to venture into Forex Derivative transaction and when loss have been suffered, the same has been debited to Working Capital account though from the perusal of the Forex Derivative contract it is clear that there is no relationship with the existing Working Capital facility granted to the appellants and in the said contracts there is no commitment that the amount to be received or paid be debited or credited to the Cash Credit Account of the appellants. It is further submitted that the appellants have never intended to create any fresh security or extend the benefit of already created security to cover any losses from Forex Derivative transactions. It is further submitted on behalf of the appellants that the Reserve Bank of India vide circular dated 13th October, 2008, and 29th October, 2008, directed the Banks to park the losses suffered by the borrowers due to Forex Derivative transactions in the separate account not affecting normal Banking transactions or credit facilities and the Reserve Bank of India has further directed the Banks not to classify any loan/credit facility as Non-Performing Asset (NPA), if the account has become irregular because of losses suffered by the borrower due to clean Forex Derivative transactions.
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It is further submitted on behalf of the appellant that they were permitted to have Forex Derivative Contract entered with the Bank to the extent of Rs. 16.00 crores. To enter into contract and to expose certain limit does not amount to liability unless any loss has been suffered. To park any such loss to the extent of Rs. 4.00 crores a limit was specifically provided. Therefore, under no circumstances, the credit exposure of the Bank to the appellant would have exceeded Rs. 4.00 crores. On the basis of the aforesaid, the Counsel for the appellants submits that the respondent Bank has no right or authority to recover any amount of loss on Forex Derivatives which were allowed by the Bank in total violation and defiance of the R.B.I., guidelines. Moreover, all the transactions being clean and without security do not give any authority to the respondent Bank to initiate proceedings under SARFAESI Act, 2002. It is further submitted that as per sanction letter dated 9th February, 2009, Working Capital Term Loan of Rs. 19.50 crores and existing Term Loan of Rs. 2.09 crores aggregating to Rs. 21.59 crores which were sanctioned for acquiring or further investment in equity share of SIPL Zimbabwe were payable from sale proceed of 74% holding of the Company MGPL in its overseas venture SIPL.
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It is further submitted that the forward purchase of foreign exchange is a derivatives transaction. The Bank and the entity are two parties to transaction of purchase and sale. The Bank was acting as Seller of the Forex and the appellants were buyer of the Forex. Thus, there was relationship of buyer and seller between the appellants and the Bank. Secondly the Bank was acting in its capacity as a "Derivatives dealer", therefore, it is not a case of grant of financial assistance akin to a loan or credit facility and in order to establish that the derivative transaction is not financial assistance, Sections 2.0(k) and 2.1(zd) explaining the meaning of the financial assistance and secured creditor have been referred. On the basis of the several judgments of...
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