B)        The Shamrao Vithal Co-op. Bank Ltd. 

C)        The North Kanara GSB Co-op. Bank Ltd. 

d)         The Cosmos Co-op. Bank Ltd. 

6.         The other ground common to the Respondent Banks is that the charged interest is far in excess. The Applicant Company had pointed out the same by several letters and had even shown from the certificate issued by M/s. Kiran Matani & Asso., Chartered Accounts that the interest charges is in excess by Rs.12,77,84,368/- as on 30.11.2005 as per the table extracted below for ready reference: 

7.         The Banks have not produced advice for interest rates charged. The reply given by the secured creditors is without application of mind. The miscellaneous contentions are that the penal interest is not quantified and is also compounded. The notice U/s. 13(2) to the Guarantor does not mention dates of NPA. The transaction is not registered with the central registry. The Respondents have not produced any authority U/s. 49 of Maharashtra Society’s Act from the Applicants. 

8.         After the aforesaid grounds common to all the Respondent Banks, the Applicants have raised individual contentions in respect of Banks many of which do not constitute grounds within the scope of SARFAESI Act. The contentions as regards The Saraswat Co-op. Bank Ltd. are thus: 

(i)         In the statement issued on 31.03.2002, balance in forced Letter of Credit account is shown Rs.2,89,07,849/-. However, in the notice U/s. 13(2) the amount as on 30.11.2005 is shown Rs.6,29,67,724.35. This means that the amount has gone up by Rs.3,40,59,875.35 in 44 months which is obviously exorbitant.  

(ii)        The Bank Guarantee has not been invoked. Yet, the Bank demanded in the notice is Rs.55,07,443/- thereunder. 

(iii)       The Bank classified account as NPA on 31.03.2001. Yet, it forcibly obtained cheque of Rs.5.70 Lacs after the NPA date. The cheque was transferred to the account of sister concern namely M/s. National Plastic. From said account the Bank took cheque and unauthorisely transferred money to Suspense Account at Kandivali Branch. This ground is not pressed into service perhaps realizing that the state grievance cannot be addressed in the application U/s. 17 of SARFAESI Act.  

(iv)       The Bank did not credit interest of Rs.5,38,531.51 on the margin money deposited in FDR for Letter of Credit. This ground is also not perused. 

(v)               Vide letter Dt. 31.03.2001, the bank reviewed the then existing limits and decided to issue NOC to IDBI allowing the first charge over fixed assets to be financed by IDBI and to induct Indian Bank in consortium. Yet, inconceivable the account is said to have became NPA on same date i.e. 31.03.2001. 

9.         The grounds in respect of The Shamrao Vithal Co-op. Bank Ltd. are thus:

(i)         The Bank debited, without advice or authority, from time to time between 23.02.1998 to 31.10.1998 a sum of Rs.2,64,28,790.02 as set out on Page 23 & 24 of the S.A. This ground is not pressed into service probably realizing that the challenge to the debit entries taken before about seven years does not fall within the scope of the application. 

(ii)        The Bank did not give credit to margin amount of Rs.1,93,11,642/-. This contention is also not pressed into service. 

(iii)       The amount demanded under notice U/s. 13(2) is against two Cash Credit Facilities while there was only one Cash Credit Facility. In this regard, it is ultimately admitted that the amount of Rs.1,92,62,589.38 is wrongly said to be under Cash Credit although it is under Term Loan. The attempt to exploit the technical mistake was abandoned. 

(iv)       The Bank wrongfully made payment to Income Tax of Rs.68,35,165/- without consent of B.I.F.R. This ground is also not pressed into service. 

(v)        The dividend of Rs.4,050/- of the shares in the name of the Directors was credited in the Company’s account. This ground is also abandoned.  

10.       There are no specific and substantive individual grounds in respect of the Cosmos Co-op. Bank Ltd. It is stated that agreed rate of interest is @ 16.50% while the interest levied is at said rate with quarterly rests. 

11.       In case of the North Kanara GSB Co-op. Bank Ltd., the contention is that by letter Dt.10.10.2002 it had informed that the account became NPA from December 2010 but in letter Dt.31.03.2001 the NPA date is 31.03.2001 while the S.A. states that the NPA date is 01.08.2000.  

12.       The S.A. is sought to be allowed on the aforesaid grounds. 

13.       The Respondents resisted the S.A. by reply [Exh.9] in the nature of affidavit of Mr. Ajit S. Rege, D.G.M. of Respondent No. 1 Bank. It is contended that the Respondents [the Respondent No. 1 being the leader] in consortium had granted several facilities to the Applicant No. 1 Company. The Applicant Nos. 1 & 7 created mortgage. The Borrower [Applicant No.1] committed defaults and the account became irregular and consequently the same was classified by Saraswat Bank as NPA with effect from 31.03.2001 and by other Banks on the respective dates. The Respondents had issued notice U/s. 13(2). It is stated that the actual possession of Silvasa and Sarigaon property is taken but only symbolic possession of Jogeshwari property is taken. The Banks admit about the fire on 04.06.2001 in the Company’s Silvasa Unit. It is also admitted that the Bank did not grant Ad-hoc Facility of Rs.2 Crores as sought by the Company. But that was because huge amounts were due and the account was classified as NPA on 31.03.2001. the averments about OTS are admitted but it is denied that the banks were ready for settlement for Rs. 9 Crores which amount in fact was suggested by the Applicant Company. 

14.       While meeting the contentions about the excess amount by Rs.23,22,65,631/-, it is stated that the amounts mentioned in the Bank Certificate [upon the basis of which the Applicants assailed the amount], are only principal amounts. This is so because as per the RBI guidelines the interest cannot be debited [and was not debited] in the account after the date of NPA. It is also denied that excess interest of Rs.12,77,84,368/- is charged. The Applicants never raised any objection about the amount. In fact, they admitted the extent of the Company’s liability in its balance sheet. The contentions about the grounds which are not pressed into service are also denied. The S.A. is sought to be dismissed on aforesaid grounds. 

15.       The Applicants filed rejoinder in the nature of affidavit of Mr. H. Gandhi, Director of Applicant No. 1 at Exh.34. The Applicants also filed copies of the Bank Certificate, Statement of Account and other documents. The Respondents filed Statement of Account at Exh. 25 to 28. the additional affidavit of Mr. H. Gandhi is filed at Exh. 77 and copies of the balance sheets for the year 2007-08 to 2008-09 below Exh. 78 for explaining the admission of liability in the earlier balance sheets. 

16.       I have heard arguments of Learned Counsel representing the rival parties. 

17.       At the very threshold, the contention about the legality of notice U/s. 13(2) is taken up. As noted earlier, the contention is two fold. The notice dt. 30.12.2005 since not addressed to the Guarantor – Mortgager, is said to be bad. It is not possible to endorese this submission qua Applicant Nos. 2 to 6 since they are not mortgagors and therefore cannot be said to be ‘Borrowers’ for the purpose of SARFAESI Act. Therefore, it was unnecessary to issue notice to them. The Applicant No. 7 is mortgagor of one property. Therefore, in law, it was unnecessary to issue a notice U/s. 13(2) to it. What the Respondent did was to merely endorse copy to Applicant No. 7 without even calling upon it to discharge the liability. Notice Dt. 30.12.2005 therefore cannot be treated to be statutory notice U/s. 13(2) against Applicant no. 7. 

18.       Realizing the above position, the notice U/s. 13(2) was given on 02.01.2006 to Applicant Nos. 2 to 7. The Applicants’ contention that said notice supercedes the first notice is mentioned for the purpose of rejection; for said notice is not given to the principal Borrower and is given mainly to Applicant No. 7 who is ‘Borrower’ [being mortgagor of Jogeshwari property]. The bare perusal of said notice shows that it does not meet requirement of Section 13(2) & (3) of SARFAESI Act. It is so because by said notice, a sum in the aggregate is claimed by Respondent Nos. 1 to 3 without giving the amounts claimed under each facility muchless the amounts of principal and interest. Such a omnibus demand is not in conformity with the requirement of Sub-section (2) & (3) of Section 13 of SARFAESI Act. What is required is that the notice gives ‘details’ of the amount payable by the Borrower. Said notice therefore in itself is untenable. But, the facility wise amount was demanded in the notice Dt.30.12.2005, a copy of which was sent to Applicant No. 7. This can be construed to be demand under each facility. The external challenge to the notice therefore fails. 

19.       That brings me to the internal challenge to the notice Dt.30.12.2005. The notice is said to be bad on the ground that the amount demanded is highly exaggerated and inflated as stated in the tables in Para 4, supra. It is settled in law that adjudication of the amount is not to be done in the S.A. Therefore, it is impermissible to find out the exact outstandings. At the same time, simply because the extent of claim is not to be adjudicated in the S.A., it does not mean that secured creditor can demand any amount. The amount demanded may not be accurate and precise but has to be close to the secured creditor’s entitlement. The secure creditor ought to demand the reasonably correct amount. 

20.       An amount of Rs.23,22,65,631/- is said to have been demanded in excess. In reply, the Respondent Banks have contended that the aforesaid amount is in fact interest from the dates of respective NPA up to 30.11.2005. After hearing the parties at great length and on going through the record, I find that the Applicants have completely overlooked interest from the date of NPA up to 30.11.2005. The Applicants have simply taken the figures [in Column No. 2 of the table] as given in the certificates issued by the Bank and harped upon the date therein [say for e.g. 31.03.2005 in case of Saraswat Co-op. Bank Ltd.]. It can be seen from the Statement of Account that the amount in the certificate does not include interest up to the aforesaid date. At the same time, it is not that the amount does not at all include interest after the date of NPA. The Learned Counsel for the bank admitted that although the account of Saraswat Co-op. bank Ltd. was classified as NPA on 31.03.2001, the interest has been debited in the account from time to time up to 31.12.2002. Mr. Bhadbhade Learned Counsel has tried to submit across the bar that it was so because attempts for restructuring the account were going on and therefore the account was in operation. This however is not contended in the reply / say and therefore cannot be entertained especially when not clarified in the notice. At the end of the Statement of Account, Saraswat Co-op. Bank Ltd. has merely given said figures of interest under the heading ‘unapplied interest up to 30.11.2005’. This in my view is absolutely wrong. Have regard to the peculiar facts of the case, it was necessary to give the date of commencement of unapplied interest and the rates at which it has been applied from time to time. Moreover, if that was so, it is not understood as to how the interest for about 33 months [01.01.2003 to 30.11.2005] would be as high as given in Column No. 3 of the table. 

21.       What is said in respect of Saraswat Co-op. Bank Ltd. is generally and broadly applicable in respect of amount of unapplied interest as shown in third column of table in Para 4 above of remaining three Banks. The date of NPA of Shamrao Vithal Co-op. Bank Ltd. is 30.06.2001 but the Statement of Account of CC No. 79 shown that interest has been debited on 31.03.2003, 31.05.2003 and 30.06.2003. Thus, it is not as if that no interest has been debited after the date of NPA. In the absence of period and rate of unapplied interest, it was not possible to the Borrower to know and verify the amounts of interest. 

22.       In case of North Kanara GSB Co-op. Bank Ltd., there are three dates of NPA at three places. At one place, the date of NPA is 01.08.2000 while at other place it has stated that the account became NPA in December 2000 and at yet another place the date of NPA is 31.03.2001. This Bank also has not clarified the period and rate of unapplied interest which amounts to not giving ‘details’ as contemplated by Sub-section (3) of Section 13 of SARFAESI Act. The Statement of Account of Cosmos Co-op. Bank Ltd. shows that is it has levied interest after the date of NPA Dt. 31.03.2001. There are several debit entries of interest from 30.06.2001 to 30.06.2003. No doubt, there are also reversal entries of interest but, such entries are not of all debit entries.   

23.       In view of the above, it is more than obvious that the demand in the notice although made in respect of outstandings under each facility is omnibus. Not only principal amount and interest amount should have been separately given but it was necessary to give the period of rate of interest. The failure amounts to not giving ‘details’ as required by Sub-section (3) of Section of SARFAESI Act. Mr. Bhadbhade, Learned Defence Counsel has submitted that in the audited balance sheet, the Applicant No. 1 has admitted the liability of the Respondent banks and therefore the challenge to the extent of outstandings cannot be entertained. The copy of the audited balance sheet for the financial year 2005-06 partly supports this contention. But, the amount stated therein is Rs.54 Crores plus while the amount demanded by notice is about Rs.64 Crores plus. The difference thus is of about Rs.10 Crores. Thus, it cannot be said that there is admission of liability about extent of outstandings. This only shows that the Applicants have highly exaggerated their contention. Yet, there is substantial difference in the correct outstandings and demanded amount. Therefore, the conclusion that the notice is bad in law remains undisturbed. 

24.       In view of the above, it is in fact not necessary to go into the other issues. But, since the arguments were advanced and for the purpose of completeness, I would deal them. The Applicants’ contention about charging of excess interest of Rs.12,77,84,368/- [as set out in Para 5] though is exaggerated is also not altogether incorrect. The figures of excess interest have been worked out by the Applicant on the basis of calculation by Applicant No. 1 and / or its auditors and therefore cannot be accepted on their face value. But, on the Banks own showing, the amount demanded at best includes not only penal interest but also interest on penal interest since penal interest has been compounded on regular basis. The settled law now is that although the Banks may be entitled to penal interest, they are not entitled to compounding part of the same. Therefore, it was necessary for the Respondents to have excluded the amount of interest on penal interest. Ordinarily, such amount is not much but in this case the claims are running into several crores and said amount also may be in Lacs and consequently not insignificant. 

25.       That brings me to the bankwise contentions. The first is in respect of Saraswat Co-op. Bank Ltd. : The amount of Rs.6,29,67,724.35 claimed in the notice under Letter of Credit. The amount in the hand written statement as on 01.01.2002 is Rs.2,89,07,849/-. In the computerized Statement of Account, however, the outstanding balance as on 30.11.2005 excluding interest is Rs.4,00,26,837.80. It is not known as to how the amount has gone up. Moreover, just as in other accounts, the period and rate of interest of unapplied interest as on 30.11.2005 of Rs.2,29,40,886.55 is not clarified. The demand in the absence of above clarification about the interest is bad in law. 

26.       It is also to be noted that the amount claimed by Saraswat Co-op. Bank Ltd. under Bank Guarantee of Rs.55 Lacs and odd amount was not due since admittedly the Bank Guarantees were invoked on the date of issuance of demand not notice. The said bank’s claim under said head therefore should not have been made. This adds to the illegality of the notice. 

27.       That brings me to the Applicants’ contention that the reply given by the secured creditors to the representation / objuection was without application of mind. The reply Dt. 10.07.2006 shows that the banks did not specifically consider the objections and denied the allegations by grouping them under 18 heads. Although this is not ordinarily acceptable, the same will have to be endorsed in this case having regard to the representation / objection. The advocate for the Applicants gave 1672 pages objection by letter Dt.25.02.2006. Although most of the same is by way of Annexures in bond four books, the proper objection also runs into 105 pages raising many frivolous issues and taking the contentions omnibusly and vaguely practically making it impossible to deal them. If the Applicants themselves have made the things unworkable, they cannot take the benefit. It the representation / objection are themselves not proper and reasonable as could be ordinarily dealt with, the secured creditor may not have any option but to deal it in the manner in which Respondents did it. As such, it is not possible to upheld this contention. 

28.       It is also contended on behalf of the Applicants that on 31.03.2001, Saraswat Co-op. bank Ltd. has reviewed the existing limit where because it cannot be said that the account was NPA on said date. The bank has not clarified as to how the account became NPA on said date. This also is not without significance. 

29.       For the aforesaid  reasons, the application of Applicant Nos. 1 & 7 is liable to be allowed, Applicant Nos. 2 to 6 being unnecessary parties. As the Banks may test the order, I propose to give four weeks time to redeliver the possession. Hence, following order;