Those who avail bank loans in the country behave as if it is their “fundamental right” not to repay the credit facilities and resort to all sorts of “gimmicks” to make the creditors run round in circles, the Madras High Court has said. It disapproved of the practice of borrowers clinging on to properties furnished by way of security, and resorting to litigation to delay the inevitable, despite having failed to repay the debt.
Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy made the observations while dismissing a writ petition filed by a guarantor who had furnished his property as security for a bank loan of ₹55 lakh in 2006. The judges directed the petitioner to pay costs of ₹20,000 each to State Bank of India (SBI) and the auction purchaser of the property for having made them face multiple legal proceedings since 2010.
After finding that the borrower had not settled the loan dues in the last 14 years though he could have done so at various stages to retrieve his property from the clutches of the bank, the court observed: “True to the expected conduct of an Indian borrower, the petitioner herein did not reach for his pocket at any of such stages and cannot now be rescued out of the morass of his own creation.”
Though the writ petitioner sought to make a distinction between the borrower who had failed to repay the loan and him being the guarantor who had only furnished his properties as security for the loan, the Division Bench rejected such a contention and said: “In law, however, there is no distinction as even under the Contract Act of 1872, the liability of a guarantor is co-extensive with that of a borrower.”
Further, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 makes no distinction between a principal debtor and a guarantor and clubs the two together within the fold of the definition of ‘borrower,’ the Bench pointed out. In the present case, the writ petitioner had furnished his 3.36 acre land as security for the loan obtained by another individual from SBI.
The borrower failed to repay the loan and the bank began issuing notices since August 2007. Finally, a sale notice was issued in October 2010 deciding to auction the property in November 2010. “In between, there was a one-time settlement offer that was made by the bank but the borrowers, true to form, played ducks and drakes with the secured creditor after depositing a paltry amount,” the Division Bench said.
Thereafter, the property was sold for ₹2.07 crore in the auction and the bank returned ₹80 lakh to the petitioner after deducting the principal loan amount along with interest. However, the petitioner refused to receive the money and approached the Debt Recovery Tribunal (DRT) challenging the auction sale on the ground that the property had been undervalued and sold for a song and therefore the sale must be nullified.
The DRT ruled in favour of the petitioner in 2015. “However, the order of such Tribunal dated April 8, 2015 is trifle short on reasons, if there are any reasons to be found therein at all,” the Division Bench said. The Bench further held that the Debt Recovery Appellate Tribunal (DRAT) had, in March this year, rightly reversed the DRT’s 2015 order and hence the present petition challenging the DRAT’s order could not be entertained.
On the petitioner’s contention that his property had been grossly undervalued since there was a gap of 17 months between the valuation and the auction sale, the Bench said: “A period of 17 months does not appear to be so much of a hiatus for the valuation report to be found to be obsolete or irrelevant.” It also rejected the other contention that only a part of the property ought to have been auctioned because the bank’s claim was much less than the value of the entire property.
“Merely because the law enables the secured creditor (bank) to sell the whole or a part of the property, a legal obligation to sub-divide and sell a part of the mortgaged asset cannot be imposed,” the judges said.
