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2006 (2) Bankmann 520
DEBTS RECOVERY TRIBUNAL, AHMEDABAD
S.T. Mahadik, Presiding Officer
State Bank of India — Applicant
versus
Part Apartments Pvt. Ltd.
& Ors. — Defendants
Original Application No. 549 of 2000
Decided on 7-3-2006
Counsel for the Parties:
For the Applicant:Ms. Nalini Lodha, Advocate.
For the Defendant Nos. 1 to 3:Mr. M.B. Parikh, Advocate.
For the Defendant No. 4:Mr. B.A. Shah, Advocate.
For the Defendant No. 5:Mr. J.K. Seth, Advocate.
For the Defendant No. 6:Mr. A.R. Bhat, Advocate.
For the Defendant Nos. 7 to 9:Mr. V.T. Rami, Advocate
IMPORTANT POINT
Even if there is delay/negligence or inaction on part of creditor in protecting hypothecated security, surety would not be discharged and surety would be discharged only if the pledge goods are lost, destroyed or eroded because of creditor.
Headnote:Recovery of Debts Due to Banks and Financial Institutions Act, 1993—Section 19—Applicant sanctioned medium term loan of Rs. 25 lakhs to defendant No.1 —Defendant No. 1 created hypothecation of all movable—Defendant Nos. 2 to 4 were directors of defendant No. 1 and defendant No. 2 created equitable mortgage—Defendant No. 5 was guarantor—Recovery suit by bank—Defence plea of defendant No. 5 that he stood discharged because of negligence/inaction on part of applicant in protecting securities—Difference between hypothecation and mortgage/pledge—Hypothecation was the non-promissory security interest whereas pledge was the possessory security interest—Even if there was negligence/inaction on part of creditor in protecting hypothecated security, surety would not be discharged—Surety would be discharged only if pledged goods were lost, destroyed or eroded because of creditor—Applicant was not bound to accept the advice of defendant No. 5 and if defendant No. 2 fled country, defendant No 5 could not escape liability—Suit was liable to be decreed with interest simple at 12% p.a. (Paras 10 to 13 & 16)
Result: Application allowed.
S. T. Mahadik, Presiding Officer.—Applicant has filed this application for recovery of the debts an enforcement of the security against the defendants under Section 19(1) of the Recovery of the Debts Due to Banks and Financial Institutions Act, 1993, in short, the Debt Recovery Act, on the following grounds :
1.Applicant is the Tilak Road Branch, Ahmedabad of S.B.I. Defendant No. 1 is a Private Limited Company. Defendant No.1 wanted to enter into the Hotel business. Accordingly, defendant No. 1 started the Hotel/ Restaurant in the trade name of “Silly Point” at Ahmedabad. Defendant No. 1 was in need of finance for the said hotel project. Defendant Nos. 2 to 4 were the Directors of the defendant No. 1. Applicant sanctioned medium term loan of Rs. 25 lakhs to the defendant No. 1, in the year 1999. Defendant No. 1 executed the security documents. Defendant No. 1 had created hypothecation of all the movables, namely, furnitures, equipments etc., purchased/to be purchased with the funds of the applicant. Defendant No. 2 had created equitable mortgage of the property belonging to the defendant No. 1. Charges were registered with the Registrar of Companies. Necessary description of the properties are given in Schedule I and Part-A of Schedule II of the application. Defendant Nos. 2 to 4 along with defendant No. 5 executed personal guarantee. Defendant Nos. 2, 4 and 6 had created equitable mortgage of their joint property which is described in Part B of Schedule II of the application. It is the case of the applicant that the defendants, therefore, created primary and secondary securities. Interest was to be paid at the contractual rate. In case of default, penal interest was to be paid @ 2% per annum. Defendants defaulted in payment of the instalments. Applicant called upon the defendants to pay the outstanding dues. Applicant had also sanctioned clean overdraft to the extent of Rs. 6,000 to the defendant No. 1, repayable at the contractual rate of interest. It is the case of the applicant that defendants failed to repay the indebtedness. Applicant had no option but to institute the recovery proceedings against the defendants. Total amount due including interest in both the accounts is Rs. 28,57,166.00. It is, therefore, prayed that recovery certificate be issued against the defendants. It is further prayed that schedule properties be sold for realizing the certified dues.
2.Defendant No. 5 has filed written statement at Ext. R-26. Defendant No. 5 has denied that he had executed personal guarantee for the indebtedness of defendant No. 1. Defendant No. 5 has averred that the applicant is guilty of delay, inaction and negligence. According to defendant No. 5, he had informed the applicant that defendant No. 2, the defaulter was likely to permanently leave the country. However, applicant did not take any preventive action and helped the defendant No. 2 to slip away from the country. It is also the case of the defendant No. 5 that he had informed the applicant to protect and safeguard the prime securities. Applicant had not cared to answer the letters addressed by the defendant No. 5. Because of the delay and inaction on the part of the applicant, the securities were eroded and lost. Defendant No. 5 is, therefore, discharged to the extent of the value of the securities so eroded or lost. In short, defendant No. 5 has prayed that as his liability as a guarantor stood discharged, the application be dismissed with cost.
3.Applicant has filed suit claim affidavit of one Shri V.D. Vanza, the Branch Manager, at Ext. A-52. Defendant No. 4 has filed counter affidavit at Ext. R58. Defendant No. 5 has reiterated the averments raised in his written statement, referred to above.
4.Defendant Nos. 7 to 9 have filed counter-affidavit at Ext. R/56. It is admitted that defendant Nos. 8 and 9 are the directors of the defendant No. 7. It is denied that defendants are in any way concerned with the transaction between the applicant and the remaining de
