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2025 Supreme(Online)(DRAT) 96
DEBT RECOVERY APPELLATE TRIBUNAL
MR. JUSTICE G. CHANDRASEKHARAN, J
M/s Pacific Print Forms – Appellant
Versus
State Bank of India – Respondent
11203/2018
M/s M.L. Ganesh & Co., M/s Rohini Ravikumar & Co.
The primary responsibility for insurance renewal lies with the borrower, but the bank also has obligations when it undertakes insurance on behalf of the borrower.
Headnote:(A) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 20 - Appeals against order of DRT - The bank sought recovery of Rs.72,16,811/- but was awarded Rs.31,66,811/- with interest at 12% p.a. - The bank failed to renew the insurance policy, leading to shared liability for damages caused by floods - The Tribunal found the bank entitled to recover the full amount claimed, with interest at 6% p.a. (Paras 1-28)
(B) Insurance Responsibility - The court emphasized that the primary responsibility for insurance renewal lies with the borrower, but the bank also has obligations when it undertakes insurance on behalf of the borrower (Paras 10-20).
(C) Interest Rate - The Tribunal modified the interest rate from 12% to 6% p.a. to ensure fairness (Paras 26-27).
Facts of the case:
The bank filed an OA for recovery against the respondent, who defaulted on loans. The respondent claimed damages due to the bank's failure to renew insurance, leading to losses from floods.
Findings of Court:
The Tribunal held that the bank is entitled to recover the full amount claimed, with interest at 6% p.a.
Issues: The main issues were the bank's entitlement to the full claim amount and the responsibility for insurance renewal.
Ratio Decidendi: The court ruled that while the borrower has the primary responsibility for insurance, the bank also has obligations when it undertakes insurance.
Result: Appeals allowed in part; the bank is entitled to recover Rs.72,16,811/- with modified interest.
COMMON ORDER
1. These appeals viz. RA 183/2018 and RA 5/2020 are filed under Section 20 of RDDB & FI Act against the order passed in OA 654/2016 passed by Ld. Presiding Officer, DRT-II, Chennai on 6.8.2018.
2. Appeal RA 183/2018 is filed by the applicant bank in OA 654/2016 and Appeal RA 5/2020 is filed by the respondent in OA 654/2016.
3. The State Bank of India filed OA No.654/2016 on the file of DRT-II, Chennai against M/s Pacific Print Forms for recovery of a sum of Rs.72,16,811/- together with interest at 13% per annum with monthly rests and for other relief. After contest, Ld. Presiding Officer, DRT-II, Chennai held that applicant bank is entitled to recover a sum of Rs.31,66,811/- instead of Rs.72,16,811/- as claimed in the OA, with interest at 12% p.a. (simple) from the date of OA till the date of realization together with costs. Challenging this part of the order, i.e., against the rejection of part of the claim and reduction of part of rate of interest, bank has filed RA No.183/2018. Challenging the order that applicant bank is entitled for recovery of Rs.31,66,811/- with interest at 12% p.a. (simple), the defendants viz., filed RA 5/2020.
4. The case of the appellant bank before Tribunal below, in brief, is that respondent i.e. Pacific Print Forms approached the bank for sanction of Cash Credit Facility and Term Loan facility since the year 2008 and the bank sanctioned CC Limit facility and Term Loan Facility and renewed/enhanced the said loans from time to time. These loan facilities were enhanced to Rs.81.28 lakhs on 7.12.2012under the following heads:
(i) Cash Credit Limit of Rs.50,00,000/-
(ii) Term Loan I of Rs.3,28,000/-
(iii) Term Loan II of Rs.23,00,000/-
(iv) Bank Guarantee of Rs.5,00,000/-
5. In addition to these enhanced facilities, respondent availed Rs.10.00 lakhs under SME Care. For the loan facilities availed, respondent executed necessary loan documents such as hypothecation agreement, etc. and created equitable mortgage of schedule property by deposit of title deeds. As respondent defaulted in repayment of the loan, that necessitated the bank to classify the loan account as a NPA. A legal notice was issued on 3.10.2016 calling upon the respondent to repay the due. Since repayment was not made, bank filed OA 654/2016 for recovery of the due amount.
6. The case of the respondent before Tribunal below, in brief, is that there is no dispute with record to availing loan facilities as detailed in the application. It is submitted that Cash Credit and Term Loan Facilities and Bank guarantee were covered under CGTMSE scheme. In the sanction letter dated 3.3.2014, it was mentioned that CC Limit of Rs.50.00 lakhs, Bank Guarantee of Rs.5.00 lakhs, Term Loan I of Rs.3.28 lakhs and Term Loan II of Rs.23.00 lakhs were squarely covered under CGTMSE Scheme. Loans under CGTMSE Scheme are given to Micro and Small Scale Enterprises upto Rs.1.00 crore without any collateral security and third party guarantee. Respondent is listed under Micro and Small and Medium Enterprises Development Act, 2006. Bank had not given any copies of the agreement entered into between respondent and the bank and others documents executed by the respondent.
7. Insurance policies for all other assets were taken by the appellant bank. On 1.8.2008, insurance policy charges have been debited from the respondent’s account. Initially respondent took insurance policy with New India Insurance Company Limited. As per bank’s direction, insurance policy was taken from SBI General Insurance from 1.01.2011. Last of such policy was taken from 1.10.2014 to 30.9.2015. It is for the appellant bank to renew the insurance policy before its expiry date. During first week of December, 2015, Chennai experienced heavy floods and water entered in residences and caused damage to the tune of Rs.54.00 lakhs of stocks, finished products, raw material, etc. When the respondent wanted to make insurance claim, it was informed that bank did not renew the insurance policy after 30.9.20
