Company Profile

for

Legal Remedy

in

DRT / SARFAESI Cases

[ Prepared by www.BankRuna.com ]

Name of Borrower : M/S Kalinga Metalics & Power Pvt Ltd

Regd. Office: Plot No. 2280, Holding No. 52, Jaydev Vihar, Bhubaneswar- 751013, Odisha

Correspondence address : at College Square, P.O- Keonjhargarh, Dt- Keonjhar

Factory address : at Gopalpur, Badapasi, Dist- Keonjhar, Odisha.

Constitution: Private Limited Company under ROC, Odisha

Date of Incorporation : 29/05/2001 Regd. No-15-06520 with ROC, Cuttack, Odisha

Authorised Share Capital: Rs 600 lac with Face Value of Rs 100/

Paid up Share Capital : Rs 4,51,50,000/-

Sector : Industry in Medium Industry sector (MSME)

Registration: With District Industries Center, Keonjhar, Odisha as a manufacturing Medium Enterprise. Regd. No- 21-006-13-00001 dated 30/05/2007 (first 2 boxes are for state/union territory code, next three boxes are for District code, sixth box for indicating manufacturing/ service, and seventh box for micro or small or medium )

Category: C & I – Non-Priority Sector

Activity : Rolling mill for production of TMT bars / MS Rounds (final product) From billets / M S Ingots. The unit also had provision of producing intermediate product M S Ingot in induction furnace(IF) route. The size of M S Rounds will be from 8mm – 32 mm, grades Fe 500 & Fe 550 equivalent to International Standard.

Trial Production: 01/04/2010

Commercial Production: 01/06/2010

Description of Raw material: M S Ingot / Billet and consumables of Coal, furnace Oil. Sponge Iron and scrap as input for M S Ingot

Installed Capacity: 33000 TPA induction furnace unit (As per TEV Report- 39600 TPA ) 72000 MTPA rolling mill unit

Technology Specification if any : Thermax technology from HSE,GmbH, Germany through H & K Rolling Mill Engineers (P) Ltd, Mumbai for the rolling Mill.

BEP as per Sanction: % of Installed capacity

Average Utilisation : % of installed capacity

Name of Directors : (1) Pareshnath Sahu, M D s/o Late Gokul Chandra Sahu, Age- 53 years

(2) Amitabh Sahu s/o Satish Chandra Sahu, Age- years

( Abinash Sahu, Dinesh Kumar Behera who were initially directors had resigned on ------------- and the same was intimated to Bank vide letter Dt ------------ )

Name of Lender Bank & Details State Bank of India, Keonjhar (Main) – 758001, Ph- 06766- 254398 / 250059 Headed by Chief Manager . The proposal was processed and sanctioned at Centralized Processing Cell, SBI at Administrative Unit Bldg, Hussain House, Ainthapali, Sambalpur, Odisha.

Technical Appraisal: Done by SBI Approved TEV Consultant Mott MacDonald Pvt Ltd – report dated 22/01/2008 (Website—www.mottmac-india.com ) Second report is Techno-economic feasibility report Dated Feb, 2012 by Mecon Ltd

Sanction Chronology : (Rs in Lakh ) Dt. of Sanction Fund Based Non Fund based Total

129 129FBWC- 100, SME credit plus-20; Term loan- 911/04/2008 1879 Nil 1879FBWC-150, SLC-20, term loan I – 9, term loan II - 1700 21/04/2010 2870 Nil 2870FBWC-850, SLC-120, term loan II -1700, term loan- 200

Date of NPA: Bank has not intimated the borrower about the date of NPA either in recall notice Dated 30/07/12 nor in 13(2) notice. This has been explicitly mentioned in Company’s objection to 13(2) notice to which the Bank has remained silent. However, Bank letter RBD/55/105 Dated 27/7/2011 does mention the NPA date as 23/07/2011.

Facility wise position: ( Rs in Lakh )

Limit Disbursement o/s at 23/7/11 Dr since NPA Cr. Since NPA o/s on 850 849.92 120 Nil Nil Nil Nil Nil1700 1393.10 200(T/L) 146.08 147.89TOTAL

Tenor & Repayment: (a) T/L Rs 200 Lac has tenor of 73 months. Repayment by 23 quarterly installment of Rs 8.70 Lac each commencing from quarter ending September,2010. (b) T/L Rs 1700 Lac has tenor of 73 months. Repayment by 23 quarterly installment with 1st installment of Rs 50 Lac, 2nd & 3rd installment of Rs 75 Lac each, 4th to 7th installment of Rs 125 lac each, 8th to 11th installment of Rs 100 lac each,12th to 15 th installment of Rs75 lac each, 16th to 19th installment of Rs 50 Lac each and 20th to 23rd installment of Rs 25 lac each commencing from quarter ending September,2009.

Status of Guarantee:

1 ) Pareshnath Sahu – (managing director), s/o Late Gokul Chandra Sahu, DOB-05/05/1962

2 ) Amitabh Sahu - ( Director ), s/o Satish Chandra Sahu, DOB-15/05/1979

3 ) Manjulata Sahu, w/o Satish Chandra Sahu, DOB-07/06/1960

4 ) Mami Sahu, w/o Pareshnath Sahu , DOB-11/04/1974

That the above guarantee were stipulated to be verified from Annexure-A of latest sanction. Moreover, the Bank fraudulently incorporated & invoked guarantee of Directors Dinesh Kumar Behera and Abinash Sahu through 13(2) and Possession notice, a guarantee which was not executed in first place. We have to ascertain whether these people were served demand notice by advocate as guarantors.

Status of Collateral Securities: (Rs in Lakh ) [SA-sum assured]

Name Mouza- khata no.-plot no. Area in dec. kisam Dt. Of mortgage Mkt. valuePareshnath Sahu Magurgadia- 176/33-372/645 0.188 gharabari

373/646 0.110 --do-- 176/389-408/1797 0.017 --do-- Baniapata136/332-923/1384 0.075 --do-- Ukchabeda112/12- 867 0.280 --do-- 866 0.220 --do-- 112/21-869 0.940 --do-- Mundula 28/3 –47/197 0.6 H --do-- 28/4-- 50 0.44H --do--

Smt. Manjulata Sahu Magurgadia- 176/258-475/878 0.130 --do-- Smt Mami Sahu Magurgadia- 176/390-408/1798 0.023 --do--

Pareshnath Sahu Bajaj policy-0024280406 5 SA 0046682507 250 SA LIC-580137232 0.75 584413874 5 580523256 0.50 583104479 1.00 582462963 1.00 585958090 5.00 584413856 1.00

Mami Sahu Bajaj Policy-0025489694 6.25

Valuation of Collateral Securities: (Rs in Lakh )

Name Mouza- khata no.-plot no. date Mkt value& distress value

date Mkt. value& distressvalue

Pareshnath Sahu Magurgadia- 176/33-372/645 08/03/08 373/646 ---do--- 130.93 (104.74) 12/3/11 170(127.5) 176/389-408/1797* ---do-- 33.45 (28.43) 12/3/11 43.40(34.5) Baniapata136/332-923/1384 --do---- 16.22 (13.84) 12/3/11 22(17.6) Ukchabeda112/12- 867** 08/03/08 (86.48) ?? 866 ---do--- 112/21-869 ---do--- 14.40(11.52) 12/3/11 21.55(17.24) Mundula 28/3 –5047/197** ---do-- 28/4-- 50 0.44H --do-- ??

Smt. Manjulata Sahu Magurgadia- 176/258-475/878 08/03/08 45.69(38.83) 12/3/11 56.40(45.12) Smt Mami Sahu Magurgadia- 176/390-408/1798* ---do---

Status of Primary Security:

Name Mouza-Khata no. – Plot no. Area in deci. Kisam Dt. Of Mortgage Mkt. valueMD-Kalinga Metalics & power Gopalpur-79/100- 38 3.00 industrial

38/996 4.48 38/997 1.65

Whether Restructuring was done prior to account being NPA – No

Date of Recall: 30/07/2012

Date of 13(2) Notice—14/11/2012

Date of Representation : 12/01/2013 by the Company l 16/01/2013 by Manjulata Sahu | 16/01/2013 by Abinash Sahu | 15/01/2013 by Amitabha Sahu |

Bank Response- Cm/Gen/56/83 –23/01/2013 to Amitabh Sahu /81 – 23/01/2013 to Company

Whether Written Off / Prudentially Written Off Account? No

Submission of OTS proposal -- 04/05/2013

Sanction of OTS Proposal : 05/08/2013 vide letter no. Gen / 57.

Cancellation of OTS Sanction- letter Gen/57/85 dated 24/10/201, reason being non-compliance to the terms of Payment.

Caveat Petition before High Court- 28/10/2013 against company, Pareshnath Sahu, Amitabh Sahu, Abinash Sahu,Dinesh Kumar Behera, Mami Sahu, Manjulata Sahu.

13(4) Notice : 09/11/2013 with symbolic possession

Date of Publication of Non-alienation Notice (under section 13(3)) :

Date of Sale Notice: Not yet published

Documentation:

Date of DP note- Agreement of loan for overall limit dated 28/04/2008 in Form C.1 followed by Supplemental Agreement of Loan Dt. 23/04/2010 in Form C1.ALetter regarding grant of individual limits within overall limit in form C5 dated 28/04/2008 followed by C-5A dated 23/04/2010

Chain of LAD / Revival documents : Revival letter in FORM C6 of supplemental agreement dated 23/04/2010 for Rs 28,70,00,000/ and acknowledgement of execution of documents C1-A, C2-A,C3 ,C3-A, C4-A, C5 & C8. It has to be confirmed as to how many guarantors signed. Revival letter is undated.

As regards balance confirmation is concerned, there are 2 sets of confirmation in Annexure-8 (revised format) Cos-48R, both being undated. One set confirms balance as on 31/03/2013 at Rs 20,19,71,448/74 as the sum of c/c – 78565857/74,T/L-I at 11,3883,916/, T/L-II at 95,21,675/ ( The accounts are identified with account no. which is not there ). On revenue stamp, only Amitabh Sahu’s signature , while signature of Pareshnath Sahu, again Amitabh Sahu,Manjulata Sahu and Mami Sahu are not on revenue stamp. In the second confirmation, Company signature with company stamp is without revenue stamp and Amitabh Sahu’s signature on revenue stamp.

The second set confirms balance as on 14/8/2013 separately with account 30374726205 at Rs 11,09,79916, account 31144434286 at Rs 9521675 and account 11382871776 at Rs 58922309=74 by Manjulata Sahu & Mami Sahu.

Date of Letter of Guarantee: Deed of Guarantee dt. 28/04/2008 in Form C4 followed by Supplemental Deed of Guarantee dt. 14/08/2013 in Form C4.A.

Date of Hypothecation of goods : 28/04/2008 in Form C.2 followed by Supplemental Agreement of Hypothecation of Goods Dt. 23/04/2010 in form C2.A.

Date of Pledge of goods & Other Fixed Assets : 28/04/2008 in Form C.3 followed by Supplemental Agreement of pledge of goods and Fixed Assets

Other Fixed Assets Dt. 23/04/2010 in form C3.A.

Date of hypothecation of Movable machinery:

Date of hypothecation of Book Debts:

Date of Hypothecation of Vehicles:

Whether Confirmation letter of Mortgage Sent ? Letter of confirmation for extension of mortgage by deposit ofTitle deeds in form SME-8 dt. ------.

Date of Recital of Equitable mortgage / Memorandum of Entry: In Form C-9, date not known

Any of above documents kept blank / unstamped?

Whether Board resolution supports above documentation?

Date of Registration of Charge with ROC- 28/04/2008

Dates of modifications of charge – 26/05/2010

Copy of Latest Search Report & Comments thereon-

Date of DRT / Civil Suit – No suit yet

Details of suit court – Not applicable

Suit Number: Not applicable

Background Information

M/S Kalinga Metalics & Power Pvt Ltd is a company promoted by Mr Pareshnath Sahu and was incorporated on 29th May , 2001 with registered office at Plot No. – 2280, Holding No.-52, Jayadev vihar, Bhubaneshwar, Odisha-751013. The Company, which is a Medium Sector Enterprise in the backward district of Keonjhar, is engaged in the production of TMT Bars from the M.S Ingots/Billets, partly to be produced from own Induction Furnace.

The Company started the Rolling Mill project of Rs 29.88 Crores with financial assistance from the State Bank of India, Keonjhar Branch.

The State Bank of India on 11.04.2008 sanctioned the following credit facilities

Facility Limit ( Rs in lacs)

Term Loan I 9Term Loan II 1700SLC 20FBWC 150TOTAL 1879

Above facilities were extended for development of land and procurement of plant and machinery. Term Loan II Rs 1700 Lac had tenor of 73 months with repayment by 23 quarterly installment with 1st installment of Rs 50 Lac, 2nd & 3rd

installment of Rs 75 Lac each, 4th to 7th installment of Rs 125 lac each, 8 th to 11th installment of Rs 100 lac each,12th to 15 th installment of Rs75 lac each, 16 th to 19th installment of Rs 50 Lac each and 20 th to 23rd installment of Rs 25 lac each commencing from quarter ending September,2009. It is pertinent to note that when a plant is financed, it is effected by combination of assistance in Term Loan and and Working Capital facilities. However, in the instant case, the company was open to uncertainty of working capital at a subsequent stage as the same was not tied up initially.

Subsequently, due to escalation of cost , the company was sanctioned an additional credit facility by way of term Loan of 200 Lac which had tenor of 73 months repayment of which was to made in 23 quarterly installment of Rs 8.70 Lac each commencing from quarter ending September,2010. Also a FWBC limit of Rs 8.50 crore was sanctioned for working capital facility belatedly. Thus the aggregate credit facility was augmented to Rs 28.70 crore.

Commissioning was complete and the Company commenced trial production on 1/04/2010 and commenced commercial production on 1/06/2010.

Though the working capital facility was sanctioned for Rs 8.50 crore, the bank became extremely rigid in releasing the same and made available small portions of the facility in incremental steps for almost 7 months. The average FBWC loan available for the month of April, 2010,May 2010, June 2010,July 2010, August 2010, September 2010 were Rs 1 crore ,Rs 2 crore, Rs 3 crore, Rs 5 crore, Rs 6 crore and Rs 7 crore respectively on an approximate basis. As a result, the unit was not allowed even to operate on a viable basis which resulted in fixed costs overshooting and erasing profitability. To make matters worse, the Bank debited amounts from the Cash credit account for purposes other than working capital which resulted in working capital limit getting exhausted for redundant purpose.

In stead of assessing the situation and rescheduling the loan to match the delay in commissioning of the project, Bank forcefully made repayment in the term loan accounts from the funds meant for the working capital and thereby made the unit sick as the working capital dried up. The request of the borrowers fell in deaf ears and bank restricted operation in the accounts. The borrower approached the Bank with the restructuring and rehabilitation proposal on ------- which Bank did not accept on one flimsy plea or other.

All of a sudden, Bank invoked the Provisions of SARFAESI ACT, 2002 and slapped 13(2) notice Dated ---------.The same was vigorously challenged by the company vide their objection Dated ------------------. But in stead of replying to even a single query, Bank in its traditionally arrogant way displayed its financial might with a terse reply dated ---------Having no bearing with the facts nor the objections.

The harassed borrowers, still fearful of the mighty bank and at the same time desperate to save the unit at any cost made last ditch attempt of One time Solution (OTS) proposal which bank took a leisurely --- months to finalize and sanctioned on -------------. The company paid Rs --------------- in spite of all the hardships by ----------- to save the unit. In the mean time, a devastating cyclone struck the state of Odisha and the damage unleashed by it need not be elaborated here which is a matter of public record. The infrastructure of the factory as well as the associated logistic

networks were severely disrupted resulting in stoppage of production and consequent repayment. To overcome this unusual situation, the company made a fervent appeal to the Bank to postpone payment by a few months to restore normalcy vide its letter Dated --------. Bank with its characterstic arrogance turned down the same in a casual manner and arbitrarily revoked the OTS sanction letter and thereafter without any delay slapped 13(4) Notice on --------------------.

It is clear that Bank has acted in most casual and negligent manner in handling the borrowal account. It rejected the restructuring cum rehabilitation proposal on flimsy grounds and did not entertain the rescheduling proposal.As prescribed in its own guidelines.

Documents Relied upon

1. Sanction letter Dated 07/04/20082. Sanction letter dated 21/04/20103. Request letter dated ----------- for rehabilitation of the unit.4. Bank’s rejection letter Dated --------------5. Bank’s 13(2) notice dated --------------6. Reply dated ---------- to 13(2) notice7. Bank’s response letter dated ---------- to Borrower’s reply8. OTS proposal dated ----------- by the company9. Bank’s sanction letter dated ----------- of OTS proposal10. Company’s request for deferment of installments vide its letter dated ---------------11. Bank’s refusal letter dated ----------------12. Bank’s revocation of sanction letter dated ---------------------13. Bank’s 13(4) notice14. Newspaper advertisement dated -----------------15. Account statements of t/l – I , t/l-ii, Cash Credit

LEGAL POINTS in BRIEF

1. 13(2) not maintainable as NPA date not mentioned, loan facility not recalled and hence demand of payment

is illegal.

2. In absence of recall notice, the amount payable is the installments due and not the entire liability. Hence the figures quoted in the 13(2) notice is wrong.

3. The Borrower contests the assumption of creation of equitable mortgage by the bank in absence of Memorandum of recital and confirmation. The Bank is put to strict proof of the same by production of material evidence and not by mere declaration.

4. Landed property with Khata no. 79/100, 67,37 with plot no. 38,38/969,38/996 respectively are agricultural land at the time of creation of mortgage and hence not attachable under SARFAESI Act.

5. Bank has arbitrarily debited amounts from the accounts without the authority of the company and thereby

Has inflated the outstanding which is not trnable.

6. The documents are time barred by limitation in as much as undated blank confirmations have been inserted by Bank in its form COS-48R to save the documents.

7. The applicants to approach DRT under section 17(1) of SARFAESI Act as aggrieved mortgagers against

Bank’s Enforcement of its security interest on their properties rather than as Guarantors against the Bank’s alleged dues on them.

1. The petitioner states that each and every allegation made in the section 13(2) notice

are vexatiou , frivolous, misconceived, baseless, unwarranted, wrong and is

vehemently denied individually and specifically and hence not maintainable.

Subsequently notices sent under section 13(4) are also not maintainable and void.

2. The notice under section 13(2) had been issued in contravention of the object,

purpose and provisions of the SARFAESI Act. The notice u/s 13(2) of the Act was

wholly without jurisdiction, void ab initio, misconceived, illegal, not warranted in law

and in the facts and circumstances of the case, inter alia, on the following grounds,

which are independent to one another and without prejudice to one another.

(i) That the notice had been issued in contravention of Section 13 of the SARFAESI

Act. The classification of the account as Non-Performing Asset (NPA) is

condition precedent and sine qua non for issuance of notice under Section 13 of

the SARFAESI Act. Section 13(2) states as under

“ Where any borrower who is under a liability to a secured creditor under a

security agreement , makes any default in repayment of a secured debt or any

instalment thereof, and his account in respect of such debt is classified by the

Secured Creditor as Non Performing Asset, then the secured creditor may require

the borrower by notice in writing to discharge in full his liability to the secured

creditor within 60 days from the date of notice failing which the secured creditor

shall be entitled to exercise all or any of the rights under sub section (4).”

In view of the above, it is quite clear that the Bank had illegally issued the notice

to the petitioner without classifying the account as NPA. Because, admittedly the

bank, has failed to mention the date on which the account the petitioner was

classified as NPA. Other wise also, the Bank could not have classified the

account of the petitioner as NPA for the reasons that the petitioner had serviced

interest and made payment of instalment of term loan last on 31/10/12 as such the

account of petitioner could not have been classified as NPA just 12 days after

receiving the payments in the respective accounts of Term Loan/ Working

Capital. By no means applying the RBI guidelines/method the accounts of the

petitioner could be classified as an NPA on 12.11.12. Further in the absence of

any recall notice, the amount payable is the instalment due and not the whole

amount As such, the present notice under section 13(2) of the SARFAESI Act is

illegal and void ab initio.

(ii) That the notice under section 13(2) had been issued in contravention of section

13(3) of the SARFAESI act. As per section 13(3), the notice referred to in section

13(2) is required to set out details of the amount payable by the borrower and the

secured assets intended to be enforced by the secured creditor in the event of non-

payment of secured debts. The word used is ‘details’ not ‘detail’. A conjoint

reading of section 13(3) and guidelines for the classification of NPA, it is clear

that the bank should provide details in respect of all facilities advanced to such

borrower, as to what amount remained ‘ out of order’ for two quarters or when

default in the account occurred and till what date it continued to be classified as

NPA. However in the present Notice no such details of the amount payable have

been mentioned or set out. The aforesaid details are all the more necessary

because as per Section 31(j) the provisions of the Act shall not apply in case the

amount due is less than 24 % of the principal amount and interest thereto.

Therefore the said notice is not in compliance with the provisions of the

SARFAESI Act.

(iii) Even otherwise a bare perusal of the provisions of the SARFAESI Act

makes it absolutely clear that the Act is promulgated primarily for the

Securitisation and Reconstruction of Financial Assets. So far as the issue of

enforcement of Security Interest is concerned , it is only incidental or secondary

to it. Therefore before embarking on any action as per section 13(4) of the Act,

for which the notice has purportedly been issued, the Bank is duty bound to

ascertain whether dues can be realized by other suitable measures already

provided in the Act. Considering the fact that as per Section 9 of the Act,

reconstruction can be done even by re-schedulement of payment of the debt or by

settlement of dues payable by the borrower, the notices under section 13 (2) and

13(4) are untenable in the eyes of law, since they had been issued without

exhausting other remedies as provided in the SARFAESI Act. More so, when as

per discussion which took place with the Authorized Officer itself, the petitioner

had submitted restructuring proposal on 25.11.2011, which was never considered

by the Bank.

(iv)That the notice under section 13(4) is also not sustainable as it purports to enforce

“ security interest” against the petitioner, which in fact, has not been created so far

, as the Central Registry had been set up as per the provisions of Chapter IV of the

Act. Because section 2(zc) defines “Secured Assets” means the property on which

security interest is created. As such, before proceedings under the Act, the

banks/financial institutions are required to get the Secured Assets registered with

the central registry, which the bank has admittedly not done.

(v) That as per section 13 of the Act Bank is bound to disclose in the notice itself the

measures to be taken by the Bank towards maintenance of the alleged assets

purported to be taken. Admittedly, no such details or material particulars have

been provided and therefore, the said notice in any event is not in compliance

with the provisions of the SARFAESI Act.

(vi)Without prejudice to rights of our petitioner and without admitting anything, it is

submitted that the Bank is not entitled in law to recover anything from our

petitioner under any provisions of law, rather the bank is liable to compensate the

petitioner for the losses suffered by them due to serious and callous acts and

omissions of the officers of the Bank.

In case the petitioner the approach of the Bank has been negligent, callous,

uncooperative and contrary to settled precepts of Banking law and Practise. The

Bank had repeatedly and habitually committed delay in sanctioning / disbursing

the Financial Assistance. For example, the petitioner had requested the Bank for

enhancement/renewal of the limit at around late 2009 and early 2010 but it took a

year for the bank to sanction the same which caused cost overrun and the

petitioner suffered losses.

As per the guidelines of RBI, Working Capital Facility should be as per the need

and requirement of the borrower. Banks are supposed to carry out periodical

appraisal of the performance of the borrower and reduce/enhance the working

capital accordingly. However, in the instant case, the Bank had never provided the

facilities as per the need and requirement of the petitioner. Thus, the Bank is

guilty of breach of duty cast upon it by the guidelines of RBI.

Due to acts and omissions of the Bank, the operations of the petitioner were

ruined , for which the bank is solely responsible.

In view of the framework of the law enshrined in the Government Policies and

Guidelines circulated by RBI from time to time, the creditors are supposed to

detect quickly the warning signals for incipient sickness, provide for quick

remedial action to cure the incipient sickness, to take care of various needs of the

borrower, to provide and extend adequate and timely working capital limits, to be

a friend, philosopher and guide during a difficult period to expel the notion that

banks are only fair weather friends, to ensure proper duty of care not to be

negligent at any time.

The Hon’ble Supreme Court in the matter titled as Mardia Chemicals Limited v

Union of India & Ors. has held at para 71

“ Arguments have been advanced as to how far principles of lender’s liability are

applicable. What ever be the position, however, it can not be denied that the

financial institutions namely, the lenders owe a duty to act fairly and in good

faith. There has to be fair dealing between the parties and financing companies /

institution are not free to ignore performance of their part of the obligation as a

party to the contract. They cannot be free from it. Irrespective of the fact as to

whatever may have been held in discussions of some American courts, in view of

the facts and circumstances and the terms of the contract and other details

relating to those matters, that may or may not strictly apply, nonetheless even in

absence of any such decisions or legislations, it is incumbent upon such financial

institution to act fairly and in good faith complying with their part of obligations

under the contract. This is also the basic principle of concept of lender’s liability.

It cannot be one sided affair shutting out all possible and reasonable remedies to

the other party, namely borrowers and assume all drastic power for speedier

recovery of NPAs. Possessing more drastic powers call for exercise of higher

degree of good faith and fair play. The borrower cannot be left remediless in case

they have been wronged against or subjected to unfair treatment violating the

terms and conditions of the contract. They can always pleading defence

deficiencies on the part of the banks and financial institutions”

Considering the aforesaid, it is quite clear that the Bank is not entitled to recover

anything from the petitioner rather the petitioner is entitled to be compensated by

the bank for the losses suffered by it.

(vii) It is pertinent to mention here that that the Hon’ble Supreme Court in

Mardia case has further held that as under :

“The purpose of serving a notice under section 13(2) of the Act is that a reply

may be submitted by him explaining the reasons as why measures may or may not

be taken under section 13(4) in case of non compliance with notice within 60

days. The creditor must apply its mind to the objections raised in reply to such

notice and an internal mechanism must be particularly evolved to consider such

objections raised in the reply to the notice. There may be some meaningful

consideration of the objections raised rather to ritually reject them proceed to

take drastic measures under Section 13(4) of the Act.

Once a duty to meaningfully consider the objections raised by the borrowers in

reply to a notice under Section 13(2) is envisaged on the part of the creditor, it

would only be conducive to the principles of fairness on the part of the creditor ,

it would only be conducive to the principles of fairness on the part of the banks

and financial institutions in dealing with their borrowers to apprise them of the

reasons of not accepting the objections or points raised in reply to the notice

served upon them before proceeding to take measures under section 13(4)

especially since, till the stage of making of the demand and notice under section

13(2) of the Act, no hearing can be claimed by the borrowers.

A person in respect of whom steps under Section 13(4) of the Act, is likely to be

taken can not be denied the right to know the reasons of non acceptance and his

objections.

It is necessary to communicate the reasons for not accepting the objections raised

by the borrower in reply to the notice under section 13(2) of the Act, more

particularly for the reason that normally in the vent of non-compliance with the

notice, the party giving notice approaches the court to seek redressal but in the

present case in view of S.13(1), the creditor is empowered to enforce the security

himself, without the intervention of the court. Therefore, it goes with logic and

reason that he may be checked to communicate the reasons for not accepting the

objections, if raised and before he takes measures liken taking over possession of

the secured assets etc. This is also be in keeping with the concept of right to know

and renders liability of fairness to keep the borrower informed particularly of the

developments immediately before taking measures under section 13(4). It will

also cater to the cause of transparency and not secrecy and shall be conducive in

building nan atmosphere of confidence and healthy commercial practise. Such a

duty, in the circumstances of the case and provisions, is inherent u/s 13(2) of the

Act.

On perusal of the observations of the Hon’ble Supreme Court it is clarified that

the Bank is under duty to meaningfully consider the objections raised in the

instant reply by evolving an internal mechanism and intimate the petitioner either

directly and/or through the undersigned within 15 days ( as amended) in writing

as to how the Bank is entitled to exercise any of the alleged rights.

1. The petitioner had never created any security interest in favour of the bank with

respect to the property described in the para under reply and the bank is put to

strict proof of the averments made in the para under reply.

2. It is denied that the account of the petitioner has been classified as NPA in

accordance with guidelines stipulated by RBI . The bank has failed to mention as

on which date the account of the petitioner has been classified as NPA. It is

submitted that in view of the fact that the petitioner has made payments in their

account till 31.10.2012, their account could not be classified as NPA. Further, the

bank has not disclosed the date on which the account of the petitioner has been

classified as NPA, therefore any such notice under the provisions of the

SARFAESI Act is bad in law for the reason that classification of the account as

NPA is sine qua non for initiating any action under the Act,

3. The amount mentioned in the notice is seriously disputed and specifically denied.

It is further denied that the petitioner is liable to pay any further amount by way of

future interest at any alleged contractual rate on the aforesaid amount together

with any alleged incidental expenses, cost, charges etc. Further in the absence of

any recall notice, the amount payable is the instalment due and not the whole

amount.