IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD PRESENT : : THE HON’BLE SRI JUSTICE N.V.RAMANA AND THE HON’BLE SRI JUSTICE P. DURGA PRASAD W.P.No.21034 of 2010 Dated:16-09-2011 Between: M/S Gopala Krishna and Co., rep. by its Partner Kurra Gopala Krishna Murthy and others. ….Petitioners. And Union Bank of India, Guntur and another. ….Respondents. The Court made the following: THE HON’BLE SRI JUSTICE N.V.RAMANA AND THE HON’BLE SRI JUSTICE P. DURGA PRASAD W.P.No.21034 of 2010 ORDER: (per the Hon’ble Sri Justice P.Durga Prasad) This Writ Petition is filed for issuance of writ of Mandamus declaring the action of the respondents as illegal and arbitrary in not abiding to the OTS agreement dated 02.06.2004 and in not considering the application of the petitioner dated 01.07.2008 and consequently direct the 1st respondent Bank to refrain from proceeding with any further auctioning of any of the properties and to declare the auctioning of item Nos.3,4, 6 and 7 of C schedule properties or any other properties by the 1st respondent Bank as null and void and to set aside the same as non-est in the eyes of law and consequently direct the 1st respondent Bank to receive the unpaid balance amount of the OTS dated 02.06.2004 along with interest as per the RBI guidelines and to close down the entire loan account of the petitioner. According to the petitioners, the 1st petitioner is a Partnership firm and it has availed loan and advances for its business purpose from the 1st respondent Bank during the years 1971 to 1986 and the amount fallen due to a tune of Rs.38,86,203-75 Ps., because of the heavy losses occurred in the business, ultimately their loan account turned out to be an NPA. The respondent Bank has filed O.A.No.494 of 2002 against them in D.R.T., Visakhapatnam for realization of their dues and prayed for auction of the securities, which have been mortgaged to the Bank towards security for the loan amount advanced to them. While the O.A.No.494 of 2002 was pending on the file of the DRT, Visakhapatnam, the RBI had introduced OTS scheme and their case was compromised under One Time Settlement (for short ‘OTS’) on their application dated 02.06.2004 for an amount of Rs.30,00,000/-. As per the terms and conditions of the OTS scheme and they have paid an amount of Rs.15,00,000/- on four different occasions and could not pay the balance amount and the respondent Bank after expiry of the time granted, started demanding them for payment and the petitioners again addressed a letter on 01.07.2008 and after personal discussion with the General Manager of the Head Office of the respondent Bank, the respondent Bank has again agreed once for all final settlement to an amount of Rs.35,00,000/- and to take up the matter, they were asked to pay an amount of Rs.4,00,000/- immediately to process the matter. They have surrendered an FDR kept in the name of Smt.K.Vijaya Lakshmi, who is the wife of 3rd petitioner, to the 1st respondent Bank and sought for further time for payment of remaining amount. As they were assured by the respondent Bank’s officials about the 2nd OTS, they are in trials for procuring the required amount and somehow could not attend the DRT in the above O.A.No.494 of 2002 as the matter ended as per the OTS. But the respondent Bank without disclosing about the arrangement arrived at under OTS, obtained exparte decree. They filed an application for setting aside the exparte decree and the same is pending for consideration by the DRT, Visakhapatnam. The 1st respondent Bank meanwhile taking advantage of the exparte decree filed the R.P.No.55 of 2004 in O.A.No.494 of 2002 and proceeding with the auction of the mortgaged property. The Recovery Officer had already sold some properties and adjusted the sale proceeds into the loan account. The Authorized Officer of Andhra Bank, Arundalpet Branch initiated steps under SARFAESI Act against his wife and possession notice dated 21.06.2009 was issued much prior to the auction itself against certain properties, which were released by the 1st respondent Bank pursuant to the OTS. As per the RBI guidelines the minimum amount that shall be recovered in respect of one time settlement of NPA classified as doubtful of loss as on 31.03.2004 and in his loan account an outstanding amount was on the dated 07.05.2004 was Rs.3,00,24,891-33 Ps. And the respondent Bank has in fact agreed for a total amount of Rs.30,00,000/- as per the OTS guidelines. In response to his letter the 1st respondent agreed to receive an amount of Rs.35,00,000/- and the 1st respondent Bank had received an amount of Rs.4,00,000/- thereon immediately and so far petitioners have paid Rs.19,00,000/- towards discharge of the loan pursuant to the OTS scheme. In addition to the Rs.19,00,000/-, he was compelled to deposit an amount of Rs.1,17,130-35 Ps in DRT on 03.02.2010 for setting aside the sale of item Nos.9 of C schedule property in the claim petition filed under Rule 60 of Income Tax Rules and the Recovery Officer had set aside the sale and passed the Orders on 21.05.2010. The 1st respondent Bank’s officials have auctioned 4 items in schedule –C about one and half months back without even giving a notice or intimation to him or to his wife, who has filed claim petition. The 1st respondent Bank has been acting high handedly and in utter violation of the scheme of OTS issued by RBI. In the event of committing delay in payment by the debtor, no doubt the Bank is entitled to receive interest as per the guidelines of RBI. As such the 1st respondent Bank may be refrained from proceeding with any further auctioning of any of the properties and to declare the auctioning of item Nos.3,4,6 and 7 of ‘C’ schedule properties or any other properties by the 1st respondent Bank as null and void. The 1st respondent Bank has filed counter opposing the said application. According to them, in view of the non-adherence to the OTS agreement, held in June, 2004, the Bank has further initiated the recovery proceedings for recovery of Bank’s dues in full. The 1st petitioner is a partnership firm and the petitioner Nos.2 and 3 are its partners. They have availed loan and committed default in payment of instalments and fell due of huge amounts. They have filed O.A.No.494 of 2002 against the petitioners before the DRT, Visakhapatnam for recovery of Rs.38,86,203.75 Ps., together with current and future interest and the amount was sought to be recovered by sale of the secured assets and by proceedings against the petitioners as guarantors. They admitted that the petitioners approached the 1st respondent Bank for OTS and based on the request of the of the petitioners, the matter was compromised and the petitioners have agreed to pay a sum of Rs.30,00,000/-. However, as the petitioners failed to adhere to the OTS settlement within the prescribed time schedule, the Bank has initiated the recovery proceedings for recovery of dues in full. They admitted about the payment of Rs.15,00,000/- on 4 different dates and thereafter till this date, there was no sincere effort made by the petitioners to discharge the entire debt. The petitioners have failed to pay the balance of OTS amount despite repeated demands, and they are entitled to recover the amount as ordered in O.A.No.494 of 2002. They denied about the addressing letter dated 01.07.2008 and the respondent Bank has agreed to accept Rs.35,00,000/- in full and final settlement of the entire loan amount and asked them to pay Rs.4,00,000/- immediately for process their application. They denied about the 1st respondent Bank obtaining exparte decree in O.A.No.494 of 2002 before the DRT, Visakhapatnam. According to the 1st respondent Bank, the said decree was passed on contest and the decree was passed long back on 07.05.2004 and after 6 years they have filed an application for setting aside the said decree. Even though the decree was passed on 07.05.2004, opportunity was available to the petitioners to discharge the debt, but they are practicing delay tactics and preventing the 1st respondent Bank from realizing the amount due to them. The 1st respondent Bank delivered the title deeds in respect of schedule property of Mr. Kurra Raghava RAo, who is one of the partners of the 1st petitioner firm in O.A.No.494 of 2002, on receipt of the sum of Rs.15,00,000/- as per the OTS arrangement. The 1st respondent Bank has received Rs.19,00,000/- after the O.A. was filed which was adjusted in the suit filed loan account and the petitioners are liable to pay the balance amount under the decree as already passed by Debts Recovery Tribunal, Visakhapatnam. As the petitioners have failed to comply with the admitted terms and conditions of the OTS proposal, the OTS has become insignificant. In pursuance of the certificate issued in O.A.No.494 of 2002, they are entitled to recovery the amount due from the petitioners by selling way the secured assets. The 3rd petitioner mortgaged one of the mortgaged property total extent of 403-3/9 square yards with the Bank, which is item Nos.1 and 2 in C schedule of proclamation of sale dated 17.11.2009 was transferred in the name of his wife without discharging the bank debt by executing registered gift deeds in her favour. The said transfer are nothing but fraudulent transfers made by the 3rd petitioner. The 3rd petitioner has sold away the properties mortgaged with the bank without obtaining the permission. Therefore, the petitioners are not entitled for any relief and the petition is liable to be dismissed. The writ petitioners’ counsel has pleaded that as per the guidelines issued by RBI; OTS can be entered into between the borrower and the Bank even during the pendency of the proceedings before DRT and the said guidelines of RBI are statutory in nature and the 1st respondent Bank has violated the said guidelines in not accepting the OTS offered by the petitioners to clear off the loan amount. He further pleaded that as per the guidelines of RBI, 25 % of the OTS amount has to be paid immediately and the balance 75% should be recovered in instalments within a period of one year together with interest, but the 1st respondent Bank without following the said guidelines has directed them to make the payment immediately. As the statutory guidelines of the RBI are not followed by the 1st respondent Bank, they are to be directed to implement the OTS agreed upon by them on 02.06.2004 and receive the balance amount with interest. The counsel appearing for the 1st respondent Bank has pleaded that the said OTS granted in the year 2004 and the petitioners have not fulfilled the conditions of said OTS, and thereafter some of the properties were already sold and after more than 6 years, they cannot question the said OTS granted in the year 2004. As such the petitioners are not entitled to make the balance amount of the OTS amount at this stage and the petitioners are not entitled for any relief as claimed. There is no dispute between the parties with regard to the petitioners availing loan from the 1st respondent Bank and becoming due an amount of Rs.38,86,203-75 Ps., and the 1st respondent Bank agreed to receive an amount of Rs.30,00,000/- under the OTS, and the 1st respondent Bank has filed O.A.No.494 of 2002 for recovery of Rs.38,86,203-75 Ps, even prior to OTS. According to the 1st respondent Bank, the said O.A. was decreed on 07.05.2004 in their favour on contest for recovering the entire amount by selling away the secured assets of the petitioners. The petitioners pleaded that the DRT has passed the exparte decree and they have filed an application for setting aside the same. The O.A. was allowed much prior to the OTS and the 1st respondent Bank also filed R.P.No.55 of 2004 for recovery of the amount. Admittedly, the OTS was agreed upon by the 1st respondent Bank for payment of Rs.30,00,000/- as per the application of the petitioners dated 02.06.2004 and the 1st respondent Bank has accepted the compromise for Rs.30,00,000/- and admitted about the payment of Rs.1,00,000/- and the balance amount of Rs.29,00,000/- has to be paid as follows: Rs.14,00,000/- to be paid immediately on receipt of this communication, and the balance amount of Rs.15,00,000/- to be paid within a month from the date of approval i.e. 10.05.2004 and that consent decree terms will be filed in the DRT with default clause, if he fail to pay the settlement amount within the given time and the entire amount as prayed for in the plaint shall become payable at once. The petitioners are questioning the said condition imposed by the 1st respondent Bank for granting OTS. The petitioners’ counsel has pleaded that the guidelines issued by the RBI with regard to granting of OTS is statutory in nature and binding on the 1st respondent Bank. In support of his contention he relied upon a decision in “M/S SARDAR ASSOCIATES AND OTHERS. V. PUNJAB AND SINDH BANK AND OTHERS[1]”. In the above said decision, the Apex Court held that the Reserve Bank of India is entitled to formulate the policies which the banking companies are bound to follow. Sub-Section (3) of Section 21 of the 1949 Act clearly mandates that every banking company shall be bound to comply with the directions given to it in terms thereof. Section 35A of the 1949 Act, which was inserted by the Banking Companies (Amendment) Act, 1956, empowers the Reserve Bank to issue directions inter alia in the interest of banking policy. The Apex Court further observed that the question as to whether the guidelines issued by the Reserve Bank of India are binding or not now stands concluded by reason of a Constitution Bench Judgment in Central Bank of India v. Ravindra and others ((2002) 1 SCC 367). The petitioners’ counsel has pleaded that the 1st respondent Bank has violated the guidelines issued by the RBI. In the above said decision, the Apex Court has extracted the salient features of the guidelines as under: “The guidelines will cover cases on which the banks have initiated action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and also case pending before Courts/DRTs/BIFR subject to consent decree being obtained from the Courts/DRTs/BIFR. (ii) Settlement Formula amount. a) NPAs classified at Doubtful or Loss as on March 31, 2004. The minimum amount that should be recovered in respect of compromise settlement of NPAs classified as doubtful or loss as on 31st March 2004 would be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPA. b) NPAs classified as sub-standard as on 31st March, 2004 which became doubtful or loss subsequently. The minimum amount that should be recovered in respect of NPAs classified as sub-standard as on 31st March, 2004 which became doubtful or loss subsequently would be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPAs plus interest at existing Basic Prime Lending Rate from 1st April, 2004 till the date of final payment. (iii) payment The amount of settlement arrived at in both the above case, should preferably be paid in one lump sum. In cases where the borrowers are unable to pay the entire amount in one lump sum, at least 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be recovered in installments within a period of one year together with interest at the existing Prime Lending Rate from the date of settlement up to the date of final payment. Non-discretionary treatment.” As per the above said guidelines, the OTS is applicable to the cases on which the Banks have initiated action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and also cases pending before Courts/DRTs/BIFR subject to consent decree being obtained form the Courts/DRTs/BIFR. As per the settlement formula, the NPAs classified as Doubtful or Loss as on 31st March, 2004. The minimum amount that should be recovered in respect of compromise settlement of NPAs classified as doubtful or loss as on 31st March, 2004 would be 100% of the outstanding balance in the account as on the date on which the account was categorized as doubtful NPA. With regard to the payment, the amount of settlement arrived at should preferably be paid in one lump sum. In cases where the borrowers are unable to pay the entire amount in one lump sum, at least 25% of the amount of settlement should be paid upfront and the balance amount of 75% should be recovered in installments within a period of one year together with interest at the existing Prime Lending Rate from the date of settlement up to the date of final payment. By relying upon the same, the petitioners’ counsel has pleaded that in the present cases, the said guidelines are violated by the 1st respondent Bank with regard to OTS dated 02.06.2004. The 1st respondent Bank has admitted about the acceptance of OTS dated 02.06.2004 with certain conditions mentioned therein. As per the said conditions, the compromise amount is Rs.30,00,000/-, out of which Rs.1,00,000/- was already paid and out of balance amount, Rs.14,00,000/- to be paid immediately on receipt of communication and remaining balance amount of Rs.15,00,000/- to be paid within a month from the date of approval i.e. 10.05.2004. Therefore, the 1st respondent Bank has put a condition for payment of balance amount within one month from the date of approval i.e. 10.05.2004. Even though the said conditions imposed by the 1st respondent Bank are pleaded to be contrary to the guidelines referred to in the above said decision, the petitioners have not questioned the same but made payment of Rs.15,00,000/-, and failed to make payment of balance amount in spite of issuing remainders by the Bank. As the petitioners could not pay the balance amount, the 1st respondent Bank has taken steps to sell away the secured assets of the petitioners and some of the properties were already sold and with regard to releasing of one of the property i.e. Item No.9 in ‘C’ schedule an amount of Rs.1,17,130.35 Ps was paid towards purchase money, penalty and interest on the auction amount and got released the said property from the 2nd respondent. Therefore, in view of the conduct of the petitioners, they cannot be permitted to question the OTS dated 02.06.2004 after lapse of 6 years. Admittedly, till the date of filing of the writ petition, they have not paid the balance amount as agreed by them under OTS, but they pleaded that again on 01.07.2008 they sent proposals to the 1st respondent Bank for settlement of the loan account on payment of Rs.35,00,000/- and as the 1st respondent agreed to process the same and directed them to pay Rs.4,00,000/- immediately, they handover the FDR standing in the name of Vijaya Lakshmi and agreed to pay balance amount of Rs.31,00,000/- within 3 months. The 1st respondent Bank has denied about the acceptance of the said proposals by them. Moreover, when once OTS agreed by the 1st respondent Bank was not fulfilled by the petitioners, the question of making 2nd proposal for OTS in the year 2008 cannot be accepted by the 1st respondent Bank and the guidelines issued by the RBI are not applicable for the 2nd OTS proposed by the petitioners. Therefore having failed to comply with the conditions of OTS granted by the 1st respondent Bank till this date, the petitioners are not entitled for any relief as prayed for. In the result, the writ petition is dismissed, but in the circumstances without costs. _______________________ JUSTICE N.V.RAMANA. _____________________________ JUSTICE P. DURGA PRASAD Dated:16-09-2011 Ksp [1] AIR 2010 Supreme Court 218