THE HON'BLE SRI JUSTICE GHULAM MOHAMMED & THE HON'BLE SRI JUSTICE G.CHANDRAIAH WRIT PETITION No :14475 of 2010 and W.P.(SR) No.79035 of 2010 Date: 29.6.2010 Between: M/s.V.V.R. Cold Storage Pvt. Ltd., and others. … Petitioners And State Bank of India rep. By its Chief General Manager, Industrial Branch, Guntur and others. … Respondents For the petitioners : SMT.K. Sesharajyam & Sri K.Chaitanya For the Respondents : Sri K. Narender Reddy < Gist: > Head Note: ? CITATIONS: 1999(1) ISJ 513 THE HON'BLE SRI JUSTICE GHULAM MOHAMMED & THE HON'BLE SRI JUSTICE G.CHANDRAIAH WRIT PETITION Nos :14475 of 2010 and W.P.(SR) No.79035 of 2010 Dated: 29.6.2010 Between: M/s. V.V.R. Cold Storage Pvt.Ltd. and others. ..PETITIONERS And State Bank of India rep. by its Chief General Manager, Industrial Estate Branch, Guntur and others. ..RESPONDENTS This Court made the following: THE HON'BLE SRI JUSTICE GHULAM MOHAMMED & THE HON'BLE SRI JUSTICE G. CHANDRAIAH WRIT PETITION No : 14475 of 2010 And W.P.(SR) No.79035 of 2010 COMMON JUDGMENT: (Per Hon’ble Sri Justice Ghulam Mohammed) Since the issue involved in both these writ petitions being the same, they are clubbed and disposed of by this common order. Writ Petition No. 14475 of 2010 is filed by the guarantor of the principal borrowers, assailing the orders dated 26.5.2010 of the Debt Recovery Tribunal, Visakhapatnam made in I.A Nos. 327 of 2010 and 328 of 2010 in O.A No. 113 of 2010; whereas W.P.(SR) No. 79035 of 2010 is filed by the farmers, who are the principal borrowers, questioning the very same order of the Debts Recovery Tribunal, Visakhapatnam. Since the issues involved in both the petitions being the same, it would be suffice if the facts in Writ Petition No. 14475 of 2010 are narrated. The petitioner is the owner of cold storage unit/godown with a capacity of storing 1,20,000/- bags of agricultural products situated at Guntur. According to the petitioner, the godown has been divided into two parts i.e., ‘A’ Chamber and ‘B’ Chamber and each has a storage capacity of 60,000 bags. Petitioner states that the agriculturists and the traders, who do not dispose of their produce/stocks immediately due to the market conditions, store their produce/stocks in its godown/cold storage unit so that they can sell their produce/stocks whenever they get good market price for their stocks and the petitioner collects rents for the stock so stored and undertakes the responsibility of maintaining the stocks. While so, in order to facilitate the farmers to have immediate liquidity, at least to some extent and to enable them to avoid distress sale, the Central Government has formulated a scheme to lend/finance to all the farmers to the extent of 50% of their product value stored in Cold Storage Unit/Godown and it is stated that in pursuance of the said scheme, the 1st respondent-bank has advanced loans to respondents 3 to 117, who are the farmers, including the petitioners in the other writ petition. In that regard, a tripartite agreement has been entered into between the petitioner-cold storage unit, owner of the stocks (individual loanees/farmers) and the bank. That as per the scheme, the farmers apply for loan on the strength of the warehouse receipts issued by the petitioner and on the basis of the written authorisation of the bank, the petitioner-unit delivers stocks to the owner of the stocks and stands as guarantor for the loan so granted. Further, under the agreement the owner of the cold storage unit has to indemnify the bank against any loss, damage or injury caused to the products so stored by the borrower in his godown and the borrower need not pay the amounts due to the bank from the sale proceeds of the stocks produced. Further, depending upon the capacity of the storage, the company recommends to the bank the extent of loan that can be advanced to various farmers. It is stated that in pursuance of the said scheme, the first respondent-banks has advanced about Rs.4.00 cores to respondents 3 to 111 and other ryots/traders and when they did not repay the loan amounts within the stipulated time, they fell in arrears. When the petitioner-company was informed about the non-payment of loan amount/default committed by the farmers, it requested the bank to furnish xerox copies of the Tripartite agreement and other documents executed by the borrowers so as to enable the petitioner to file a reply for the demand made by the 1st respondent-bank. It is further stated that each borrower has availed a loan to the extent of Rs.3.00 lakhs to 5.00 lakhs and none of them have availed the loan exceeding10.00 lakhs. However, when the petitioner failed to repay the amounts, the 1st respondent has instituted O.A. No. 113 of 2010 before the Debts Recovery Tribunal, Visakhapatnam for recovery of the loan amounts together with interest. In that O.A , it filed I.A. No.327 of 2010 seeking attachment of ‘B’ Schedule properties while directing the petitioner to furnish security to the O.A. and through order dated 26.5.2010 the Tribunal granted conditional order of attachment giving 48 hours time to the respondents to furnish security to the O.A. amount from the time of receipt of the order, failing which, the attachment of petition schedule ‘B’ properties shall follow. In so far as the other I.A., namely, I.A. No. 328 of 2010 which was filed for appointment of an Advocate commissioner to prepare inventory of the stock held by the 1st respondent company , take possession of the same and to conduct sale of the said stock and credit the sale proceeds to the credit of the above O.A. is concerned, the Tribunal granted the interim relief as sought for. Aggrieved, the petitioner filed these two writ petitions. Smt. K. Sesharajyam, learned counsel appearing on behalf of the petitioner would contend that the respondent No.1 sanctioned loans to various farmers individually on different dates and the same cannot be treated as a single transaction. She further contended in the event of default on the part of the principal borrowers, i.e,, the farmers in payment of loan amount, the bank has to institute suit primarily against such principal borrower first, and if necessary, it shall add the petitioner, who is the guarantor as a party to such proceedings and the O.A. is not maintainable. She further stated that it is almost analogous to Order 2 Rule 1 of C.P.C. She further contended that since the transactions are all single transactions and each debt is less than Rs. 10.00 lakhs and in order to attract the pecuniary jurisdiction of the Tribunal, the 1st respondent-bank has clubbed the loans granted to various farmers as one transaction and filed the O.A. She, therefore, contended that the Debts Recovery Tribunal has no jurisdiction to entertain the matter in view of Sub-unction (4) of Section 1 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (For short ‘the Act’),which reads thus: “The provisions of this Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ten lakhs rupees or such other amount, being not less than one lakh rupees, as the Central Government may by notification, specify.” Hence, the O.A. as filed is not maintainable. Lastly, she would contend that the amount which is sought to be recovered from the petitioner would not come within the definition of ‘debt’ as envisaged under Section 2(g) of the Act. She also relied upon the judgment of the Supreme Court in UNITED BANK OF INDIA vs. DEBTS RECOVERY TRIBUNAL([1]). She, therefore, prayed that the writ petition be allowed and the impugned orders be set aside. Mr. K. Chaitanya, learned counsel appearing on behalf of the petitioners-borrowers in the other writ petition adopted the arguments of Smt. K. Sesharajyam, learned counsel for the petitioner and submitted that the writ petition be allowed and the impugned orders be set aside. On the other hand, Sri K. Narender Reddy, learned Standing Counsel for the 1st respondent would contend that they filed the O.A. under Section 19 of the Act seeking recovery of the amount by making the petitioner as the first defendant and the farmers as defendants 7 to 113 to the said O.A. He further contended that the Central Government introduced the welfare scheme so as to protect the interest of the farmers and to give a better price to their agricultural produce and a tripartite agreement as referred to above, was entered into between the principal borrowers, the petitioner and the bank in respect of the loans, which were advanced to various farmers and for which the petitioner stood as guarantor. He further contended that the petitioners 2 to 6, who are no other than the family members of the petitioner are holding the posts of Managing Director and Director and they along with the 1st petitioner conducted operations of the 1st petitioner company with an intention to commit breach of the contractual agreements and to cause monetary loss to some of the agriculturists, who are the real beneficiaries of the original scheme. He also drew our attention to the resolution of the board meeting of the 1st petitioner company dated 21.3.2009, which reads thus: “Resolved to apply for recognizing the cold storage bonds/receipts issued by the company in favour of the owners to facilitate the owner in order to obtain finance from State Bank of India, Industrial Estate Branch, Guntur against the stocks stored, for which cold storage receipts are issued by the company requesting limit of Rs.500 lacs from the 1st respondent bank and to sign all the documents as may be required with the applicant bank.” While referring to the aforesaid resolution, learned counsel would state that in pursuance of the said resolution, the petitioner/1st defendant made an application on 23.3.2009 to the 1st respondent bank requesting advances against warehouse receipts to the farmers to enable the farmers to obtain a loan against the pledge of the warehouse receipts issued by the petitioner/1st defendant and also for an exposure cap of Rs.500 lacs covering 50% of the storage capacity of the 1st petitioner warehouse to be financed by the applicant bank, and furnished the relevant documents. When that being so, the petitioner cannot contend that each transaction is distinct and separate and the tribunal lacks pecuniary jurisdiction. He further stated that all the goods stored by the farmers are perishable in nature and when they failed to repay the loan amount within the stipulated time, they issued notices to the petitioner-company seeking to repay the entire outstanding dues. When the petitioner also failed to repay the loan amounts, the bank instituted the present O.A. There is also no dispute about the fact that in pursuance of the scheme conceived by the Central Government, the petitioner has approached the 1st respondent bank for extending financial aid to various farmers and the same was accordingly extended to those farmers. It is relevant to mention here that in order to safeguard the interest of the bank and to further secure the loan granted to the borrower, a tripartite agreement has been entered between the parties. It is necessary to extract Clauses 3,4, and 5 of the tripartite agreement, which read thus: 3. The firm agrees with the bank that in the event of default of repayment by the borrower, the bank shall be entitled to demand upon the Firm to deliver custody of the produce covered under the aforesaid warehouse receipts with full rights to sell them as pledged for realisation of the loan granted by the bank to the borrower and the firm undertakes to comply with the demand so made by the bank forthwith without claiming rights. 4. The firm agrees to indemnify the bank as against any loss, damage or injury caused to the produced stored by the Borrower in the godown. In the event of any such loss, damage or injury being caused to the produce of the borrower, the firm shall forthwith pay the value of the produce to the bank. 5. The borrower agrees that the bank need not necessarily exercise its right for realisation from the produce alone and that the borrower is responsible to repay the loan on a demand being made by the bank.” On a perusal of aforesaid clauses, it is quite clear that in the tripartite agreement, the petitioner has clearly undertaken that in the event of default of repayment by the borrower, the bank shall be entitled to demand upon the firm to deliver custody of the produce covered under the aforesaid ware house receipts with full rights to sell them as pledged for complying with the demand so made by the bank forthwith without claiming any rights. It also undertook to indemnify the bank as against any loss, damage or injury caused to the produce stored by the borrower in the godown in the event of any such loss, damage or injury. Therefore, the contention of the petitioner that for recovery of the amounts, the bank has to necessarily proceed against the principal borrower first cannot be accepted. So far as the contention of the learned counsel for the petitioner that the Tribunal lacks pecuniary jurisdiction is concerned, admittedly, in its board meeting held on 21.3.2009, the petitioner-company having passed a resolution requesting for an exposure cap of Rs.500 lacs c.c. limit, covering 50% of the storage capacity of the petitioner-warehouse to be financed by the applicant bank and having furnished the relevant documents, cannot now contend that each loan transaction is distinct and separate and the tribunal lacks pecuniary jurisdiction. Therefore, the same requires to be negative and it is accordingly negatived. Now, coming to the other contention of the learned counsel for the petitioner that the amount which is sought to be recovered would not come within the meaning of Section 2(g) of the Act is concerned, it is necessary to extract Section 2(g) of the Act, which reads thus: "Section 2(g) 'Debt' means any liability (inclusive of interest) which is claimed as due from any person by a Bank or a financial institution or by a consortium of Banks or financial institutions during the course of any business activity undertaken by the Bank or the financial institution or the consortium under any law for the time being in force in cash or otherwise whether secured or unsecured or assigned or whether payable under a decree or order of any Civil Court or any arbitration award or otherwise or under a mortgage and subsisting on and legally recoverable on the date of the application". The language employed in Section 2(g) clearly indicate that the word ‘debt’ included not only the amounts, which have been determined as due, but also the amounts, which were alleged to be due provided, of course, that the liability of the debtor had arisen during the course of his business activity and that the liability was subsisting and legally recoverable. Section 2(g) also makes it clear that the subject matter of recovery must be arising "during the course of any business activity undertaken by the Bank" and "subsisting on and legally recoverable on the date of the application." Further, this definition of "debt" has to be considered keeping in view the objects of the Act, which are given in the preamble. The said pre-amble states as follows: "An Act to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and financial institutions and for matters connected therewith or incidental thereto". Admittedly, the object of the Act is to provide speedy adjudication of the claims and recovery of debts due to the financial institutions. Undisputedly, the subject matter of O.A. is the recovery of the loan amounts which are advanced to various farmers , for which, the petitioner stood as guarantor by virtue of the cold storage facilities provided to various farmers and the same still remained unpaid. Under the circumstances, the contention of the petitioner that the amounts recoverable would not come within the definition of 2(g) cannot be countenanced and the same also does not stand. It is also seen from the record that in the affidavit filed in support of the O.A., the 1st respondent bank has averred that when they inspected the premises on 18.1.2010, they found that the stocks are not in conformity with the cold storage receipts passed on by the petitioner-company to it and the petitioner removed the stocks from the godown without obtaining any permission and contrary to the terms of loan agreement. As such, the bank issued notice on 4.2.2010 demanding repayment of the amounts, followed by notices dated 11.2.2010 and 20.2.2010. Despite these notices, the 1st petitioner failed to repay the loan amounts. It is also stated that the petitioner having issued the bonds and having undertaken in the tripartite agreement to retain the stock till the debts of the agriculturists with the bank are discharged, acted in contravention of the said agreement with an intention to defraud the public institution like the 1st respondent and also caused monetary loss to some of the agriculturists, who are the beneficiaries of the scheme. For the aforesaid reasons and keeping in view the grave financial irregularities alleged by the 1st respondent-bank against the petitioner in the O.A. filed by it, we are not inclined to interfere with the interim orders granted by the tribunal. However, in view of the fact that the main O.A. is pending before the Tribunal, we are not inclined to express any opinion on the merits of the matter. We also make it clear that the observations made by us in this order, shall not be construed as an expression of opinion on the merits of the case and the Tribunal shall consider and dispose of the main O.A. on its own merits. The petitioner is entitled to raise all the contentions that are raised in this writ petition before the Tribunal. Writ Petition No. 14475 of 2010 is accordingly dismissed. Now, coming to the other writ petition, namely, W.P.(SR) No. 79035 of 2010 filed by the farmers, for the reasons recorded in Writ Petition No.14475 of 2010, this writ petition also must fail and it is accordingly dismissed. No costs. ________________________ GHULAM MOHAMMED,J DATE: 29th June, 2010 ___________________ G. CHANDRAIAH,J Note: 1) Furnish c.c. as early as possible. B/o Pnb 2) L.R.Copy to be marked. [1] 1999(1) ISJ 513