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IN THE HIGH COURT OF JUDICATURE AT MADRAS
S. MANI KUMAR, V. BHAVANI SUBBAROYAN, JJ.
M/s. Omega Cables Limited, Rep.by its Director, Ambattur Industrial Estate, Chennai - Petitioner
Versus
State Bank of India, Rep.by its Assistant General Manager, Industrial Finance Branch, Chennai & Others - Respondents
W.P. Nos. 5275 & 5276 of 2018 & W.P. No. 3419 of 2018
Decided On : 10-06-2019
lien - Loan Security - Section 171 of Indian Contract Act 1872 - The court discussed the bank's right to retain the security documents and the exercise of general lien under Section 171 of the Indian Contract Act 1872. The court held that the bank cannot exercise lien over the securities offered by M/s.Omega Cables Limited for the loan secured by M/s.East Coast Construction and Industries Limited, as there was no written contract by M/s.Omega Cables Limited to stand as security or guarantor for the loan availed by M/s.East Coast Construction and Industries Limited. The court also referred to various judgments to support its decision.
Fact of the Case:
The case involved a dispute between M/s.Omega Cables Limited and the State Bank of India regarding the return of title deeds and the exercise of general lien by the bank over the securities offered by M/s.Omega Cables Limited for the loan secured by M/s.East Coast Construction and Industries Limited. M/s.Omega Cables Limited had settled its dues with the bank, but the bank had withheld the release of original documents pertaining to a separate loan agreement with the bank. The bank had also sought an injunction against M/s.Omega Cables Limited from alienating or encumbering certain properties.
Finding of the Court:
The court found in favor of M/s.Omega Cables Limited, holding that the bank had no right to hold the documents offered as security by the petitioner for the loan availed by them. The court also held that the bank cannot exercise lien over the securities offered by M/s.Omega Cables Limited for the loan secured by M/s.East Coast Construction and Industries Limited. Additionally, the court found that the Debt Recovery Appellate Tribunal had granted an injunction beyond the scope of the original application, which was held to be illegal and beyond the scope of the main relief sought in the original suit.
Issues: The issues considered by the court included the entitlement of the petitioner for the return of the security documents from the bank, the exercise of general lien by the bank, and the grant of injunction beyond the scope of the original application by the Debt Recovery Appellate Tribunal.
Ratio Decidendi: The court's decision was based on the interpretation of Section 171 of the Indian Contract Act 1872 and the absence of a written contract by M/s.Omega Cables Limited to stand as security or guarantor for the loan availed by M/s.East Coast Construction and Industries Limited. The court also relied on various judgments to support its decision.
Final Decision: The court set aside the order passed by the Debt Recovery Appellate Tribunal, Chennai, and directed the bank to return the original title deeds of the property offered as security by M/s.Omega Cables Limited. The court also restored the order passed by the Debt Recovery Tribunal-II, Chennai, and allowed the writ petitions filed by M/s.Omega Cables Limited while dismissing the writ petition filed by the State Bank of India.
V. Bhavani Subbaroyan, J.
(Prayer in W.P.No.5275 of 2018 : Writ Petition is filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, calling for the records comprised in the order of proceedings dated 14.12.2017 passed by the Debts Recovery Appellate Tribunal in M.A.No.152 of 2017 and quash the same, to the extent of the two directions viz., the direction that operates against the petitioner from alienation or creating third party interests on the property and the requirement for the petitioner to be a party to O.A.No.607 of 2016, in as much as they are without properly appreciating the facts beyond the powers of the DRAT and contrary to law.
Prayer in W.P.No.5276 of 2018 : Writ Petition is filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, calling for the records comprised in the order of proceedings dated 14.12.2017 passed by the Debts Recovery Appellate Tribunal in M.A.No.151 of 2017 and quash the same, to the extent of the two directions viz., the direction that operates against the petitioner from alienation or creating third party interests on the property and the requirement for the petitioner to be a party to O.A.No.607 of 2016, in as much as they are without properly appreciating the facts beyond the powers of the DRAT and contrary to law.
Prayer in W.P.No.3419 of 2018 : Writ Petition is filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, calling for the records of the impugned order passed in M.A.No.152 of 2017 dated 14.12.2017 by DRAT, Chennai, and to quash the portion of the same by directing the petitioner bank to return the title deeds belonging to the third respondent.)
W.P.Nos.5275 and 5276 of 2018 are filed against the order passed by DRAT, Chennai, in M.A.Nos.151 & 152 of 2017 dated 14.12.2017.
2. W.P.No.3419 of 2018 is filed to quash the portion of the impugned order passed in M.A.No.152 of 2017 dated 14.12.2017 by DRAT, Chennai, in directing the first respondent bank to return the title deeds belonging to the petitioner herein.
3. The brief facts of the case as submitted by the learned counsel for the petitioner in W.P.Nos.5275 and 5276 of 2018 is as follows:-
The petitioner, namely, M/s.Omega Cables Limited, which is a Public Limited Company, had requested the first respondent bank for a term loan of Rs.20 crores to meet out the cost of preliminary works for development of its property at Ambattur Industrial Estate. Based on the said request, the first respondent bank, through its Industrial Finance Branch, sanctioned one-time cash credit of Rs.15 Crores by their letter dated 24.01.2013. The securities offered by the petitioner company were movable and immovable assets, apart from the land admeasuring 16.31 acres situated at Ambattur Industrial Estate. The petitioner company had also executed loan agreements, apart from guarantee agreement. The first respondent bank, by letter dated 01.02.2016 and 17.02.2016, asked the petitioner company to settle the one-time cash credit facility immediately, and further informed that if the amount is not settled within 15 days from the date of the letter, they would proceed under the SARFAESI Act against the petitioner company. In order to settle the debts due to the first respondent bank, the petitioner had entered into a Memorandum of Understanding with one company, namely, M/s.ETA Star Info park to jointly develop the land, to which, the said M/s.ETA Star Infopark agreed to pay the dues to the first respondent bank and thereby, clear the security.
4. In furtherance of the Memorandum of Understanding, the said M/s.ETA Star Infopark remitted a sum of Rs.15,15,19,500/- on 22.03.2016 by way of RTGS, including the outstanding interest amounts till then. Thereafter, by letter dated 29.04.2016, the petitioner company approached the respondent bank to release the original documents and to provide statement of accounts, confirmation of balance and no due certificate. The first respond
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