A party declared as a willful defaulter would be disentitled from the benefit of consideration of OTS proposal.

AUGUSTINE GEORGE MASIH, J.

By this order, we propose to decide Letters Patent Appeal Nos.594 and 409 of 2010 as they arise out of the judgment dated 5.2.2010, allowing the writ petitions in which the appellants herein were respondents. For disposal of these appeals, the facts are being taken from L.P.A. No.594 of 2010.

2. The brief facts of the case are that M/s. Shiv Shankar Rice Mills, respondent No.1, took cash credit limit from the appellant-Bank of Rs.100 lacs, which was later on enhanced to Rs.130 lacs and contingency limit of Rs.5 lacs, totalling Rs.135 lacs by way of term loan and cash credit facility against its primary and collateral security. There had been default in due payment of the loan and the account became irregular.

3. Respondent No.1 instead of clearing the dues, duped the appellant-Bank by disposing of the pledged stocks without the permission of the Bank and even the sale proceeds amounting to Rs.1.75 crores had not been deposited with the Bank according to the stock statement dated 15.12.2002. As per the condition of the agreement, respondent No.1 could not have sold the stocks without the permission of the Bank as the same had been hypothecated with the Bank.

4. As the default in payment of the deals persisted, it was declared a Non-Performing Asset (for short, “NPA”) on 31.03.2003. A notice was issued by the Bank on 20.6.2003 to respondent No.1 to repay the entire amount within seven days. However, instead of submitting his reply to the said notice, respondent No.1 wrote a letter dated 27.6.2003, seeking permission of the Bank to allow them to use the sheller for shelling purpose for a period of one month as a Finance Company was ready to finance their entire project. Respondent No.1 had also conveyed to the Bank that efforts were being made to raise finances from other financiers against the rice mill, which has already been mortgaged with the respondent Bank. Since the conduct of respondent No.1 was doubtful and the appellant Bank was apprehending that respondent No.1, a willful defaulter, will try to cheat the appellant-Bank did not accept the same but instead lodged a complaint dated 21.7.2003 with the Station House Officer, Safidon, Jind, for registration of FIR against respondent No.1, its partners and guarantors for theft and misappropriation etc.

5. On 14.8.2003, again a notice was issued to respondent No.1 to repay the entire loan amount within seven days. Instead of responding to said notice on the basis of letter dated 27.6.2003, a Civil Writ Petition No.13895 of 2003 (Shiv Shankar Rice Mills and another v. State Bank of Patiala and others) was filed by respondent No.1. In the said writ petition, a direction was issued by this Court vide order dated 2.9.2003 to the appellant-Bank to consider the offer of sale of the mortgaged property in terms of the contract.

6. An amount of Rs.1,46,42,918/- was due from respondent No.1 as recoverable on 31.08.2003. The Bank being unaware of the order passed by this Court, a notice dated 18.09.2003 was issued to respondent No.1 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “2002 Act”) to repay the entire borrowed amount along with interest with 60 days. When the factum of order passed by this Court was brought to the notice of appellant-Bank on 5.1.2004, the Bank called upon respondent No.1 vide letter dated 6.1.2004 to bring the proposed buyer and asked to deposit the money. Vide letter dated 7.1.2004, respondent No.1 intimated the Bank that it had a buyer of two mortgaged properties, who was ready to purchase the same for Rs.45 lacs. In response thereto, the Bank intimated vide letter dated 16.1.2004 that the Bank approved the said proposal for sale of two mortgaged properties subject to the deposit of the amount directly with the Bank. A reminder dated 23.1.2004 was also sent to respondent No.1 about non-receipt of acceptance of the offer made by the Bank and