The Delhi High Court has held that the Union Bank has failed to comply with the order of the Debt Recovery Tribunal (DRT) in which Union Bank was directed to refund the amount collected from the petitioner along with interest at the rate of 8% p.a.
The Bench of Justice Vibhu Bakhru and Justice Amit Mahajan noted that instead of comply with the DRT’s order, the Bank continued to recover interest at the rate of 10% per annum on the loan extended to the petitioner towards purchase of the mortgage property.
The Union Bank had provided cash credit facility to the extent of ₹7.98 crores to the Principal Borrower. The facility was secured by mortgage of the property. The repayment obligation of the Principal Borrower was also guaranteed by the Guarantors. The Union Bank claims that the Principal Borrower had defaulted in its repayment obligations.
Consequently, on 14.06.2017, the account was classified as Non- Performing Asset (NPA) in terms of the guidelines issued by the Reserve Bank of India.
The Union Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) calling upon the Principal Borrower and the Guarantors to repay the outstanding amount quantified at ₹8,39,22,454 as on 04.09.2017.
The Union Bank filed an original application1 under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 for recovery of its dues. The said application was allowed by an order dated 12.09.2022 passed by the DRT and the Recovery Certificate was issued.
The Union Bank states that the amounts were also outstanding in three other accounts, the repayment of which was guaranteed by the Guarantors. The Union Bank had also filed Original Applications2 in respect of two of those accounts. The amount outstanding in the third account, was duly guaranteed. The Union Bank filed proceedings for recovery of the amounts outstanding in that account as well.
The Union Bank also issued a sale notice dated 08.03.2018 for sale of the mortgaged property but the same did not fructify.
The interim applications moved in Securitisation Application were heard on various occasions and was allowed by the DRT’s final order. The order indicated that the borrowers had filed an application seeking to redeem their mortgaged property and had also deposited a sum of ₹2.125 crores pursuant to the orders passed by the DRT.
The DRT found that the Union Bank had violated Rules 8(5) and 9(2) of the Rules. It found that the Union Bank had ignored the previous valuation report dated 29.09.2015, which assessed the value of the mortgaged property as ₹12.3 crores. The DRT also found that the petitioner had failed to deposit the entire sale consideration on or before the fifteenth day of the confirmation of sale, which was in violation of Rule 9(4) of the Rules. The DRT also noted that the valuation report furnished by the Securitisation Applicants on 29.03.2018 indicated that the market value of the mortgage property was ₹14.35 crores and its realisable value was ₹12.19 crores.
The DRT also observed that the petitioner did not have the necessary funds to pay for the mortgaged property at the material time, which was evident from the fact that he had to arrange funds by way of loans from the Union Bank and the Axis Bank. In addition, the DRT made observations to the effect that the petitioner may not be the real purchaser of the mortgaged property and collusion between the officials of the Union Bank and the petitioner could not be ruled out.
The court held that the Union Bank is liable to refund the consideration paid by the petitioner along with interest at the rate of 8% p.a.
“We further clarify that this would not
preclude the Union Bank from claiming costs and expenses or any loss suffered from the Securitisation Applicants, if they fail to pay the redemption amount. It is clarified that all rights and contentions of the parties are reserved and this order will not preclude the Union Bank from pursuing its appeal before the DRAT. The DRAT shall also consider the petitioner’s contention that he is no longer interested in purchasing the mortgaged property and cannot be compelled to standby his offer, notwithstanding the delay in completion of the sale of the mortgaged property in its favour,” the court clarified.
Case Title: SANJEEV KUMAR JAIN V/s UNION BANK
Citation: W.P.(C) 1904/2023
Date: 07/08/2023