O.A. No. 125 of 2001. Case: UCO Bank Vs Bonafide Steel Industries Pvt. Ltd. and Ors.. Nagpur Debt Recovery Tribunals

Case NumberO.A. No. 125 of 2001
CounselFor Appellant: M.N. Phadke, Adv. and For Respondents: B.J. Agrawal, Adv.
JudgesK.J. Paratwar, Presiding Officer
IssueLimitation Act, 1963 - Schedule - Article 55; Contract Act - Section 74
CitationIII (2005) BC 4
Judgement DateMarch 04, 2005
CourtNagpur Debt Recovery Tribunals


K.J. Paratwar, Presiding Officer

  1. In this O.A. for recovery of Rs. 1,83,89,977.18 with interest at the rate of 18% per annum with quarterly rests, there is 1st defendants counter claim for Rs. 2,59,11,342.50 Ps.

  2. The 1st defendant company manufactures colour coated sheets and galvanized sheets. Defendant No. 2 is its Managing Director while defendants 3 to 6 are directors sued as guarantors.

  3. The applicant's case stated pithily is that on or about 9.7.1987 cash credit limit of Rs. 26 lakhs was sanctioned by it to 1st defendant. In lieu thereof, defendant No. 1 executed D.P. Note and Agreement of Hypothecation in the applicant's favour. The security was of surety by defendant Nos. 2 to 6 and equitable mortgage by deposit of title deeds of 1st defendant's property being Leasehold Plot No. A-8/4 admeasuring 7200 sq.m. together with the buildings, shed, godown and machineries situated at MIDC, Kamleshwar Industrial Estate, Kamleshwar, Distt. Nagpur. On or about 24.10.1987, the applicant sanctioned ad hoc CC of Rs. 6 lakhs. The cash credit limit was enhanced to Rs. 75 lakhs on or about 9th January, 1988. It was further enhanced to Rs. 95 lakhs on or about 25.10.1989 on which date Bill Purchase facility to the extent of Rs. 90 lakhs was also sanctioned. The aforesaid enhancements were on personal guarantee of defendant Nos. 2 to 6 and continuation of equitable mortgage earlier created. In lieu thereof, the defendants executed usual documents namely D.P. Note, Agreement of hypothecation and the letters of guarantee, as the case may be.

  4. The defendant No. 1 utilized both the facilities. However, bills discounted by the Bank aggregating Rs. 25.35 lakhs were not retired by the respective parties and returned unpaid. The amount, therefore, was debited in cash, credit account. From out of it, sum of Rs. 20 lakhs was paid between December, 1989 and July, 1990. The defendant No. 1 company did not regularize the account and eventually closed the manufacturing unit. However, the defendant No. 1 company executed fresh D.P. Note and Deed of hypothecation on or about 6.7.1990. The company, however, continued to commit defaults and failed in making payment despite repeated letters and demands. The Bank, therefore, issued recall notice dated 20.6.1991. While defendants 5 and 6 in reply dated 27.6.91 admitted the liability, the other defendants refused to accept the notice. This O.A, therefore, has been filed for recovery of the amount by sale of the mortgaged property.

  5. The defendant No. 1 in lengthy written statement at Ex. 34 (adopted by rest of the defendant vide pursis at Ex. 35) have admitted the availment of credit facilities from time-to-time. They have also admitted signatures with usual rider that the signatures were obtained when the documents were blank. The signatures on the guarantee deeds are said to have been made not in the individual capacity but as directors. By amendment introduced in 1999, the defendants have denied the signatures on the guarantee deed. I may at once say that this rider is meaningless since the contents of the documents can be said to be uncontroverted in view of admission about the availment of facilities. It is not the defendant's case that the documents were filled in for the amounts other than the sanctioned limits. Thus, the execution of the documents itself can be said to have been admitted by the defendants. However, they have come out with technical defence challenging the authority of Mr. Kuberkar who signed and filed the O.A.

  6. The counter is based on these averments: In October, 1986, the then Manager of the applicant Bank (Mr. S.B. Bhoot) requested defendant No. 2 to open the company's account in the applicant Bank's branch. Defendant No. 2 informed Mr. Bhoot that the company would require need based working capital and loan limits. The said Manager discussed the matter with the then Divisional Manager Mr. Kothari and thereafter promised to advance need based finance pursuant to which the 1st defendant opened account in the applicant Bank on 20.10.1986. The defendant No. 1 then applied to the Bank for term loan against fixed assets worth Rs. 11.34 lakhs and working capital against stock to the tune of Rs. 26.07 lakhs. In the application, the 1st defendant had given necessary details about anticipated monthly turnover, cost of raw material, etc. On 9.7.1987, the applicant sanctioned C.C. of Rs. 26 lakhs on the illegal (contrary to RBI directions) conditions (i) of deposit of Rs. 4 lakhs in fixed deposit, and (ii) creation of equitable mortgage. Even otherwise, the document being agreement (and not the lease deed) deposited with the applicant Bank was not a document of title equitable mortgage cannot be said to have been created. Moreover, the mortgage was pursuant to the sanction dated 15.7.1987 and, therefore, required registration.

  7. The defendant's further case is that by letter dated 16.9.1987 additional working capital limit of Rs. 34 lakhs (C.C. of Rs. 14 lakhs for purchase of raw material and Bill purchase limit of Rs. 20 lakhs) was sought by...

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