CHEMSTAR ORGANICS INDIA LIMITED Vs. BANK OF BARODA

JUDGEMENT

(1.) M/s Chemstar Organics India Limited (COIL), petitioner-company, availed of term loans from both Gujarat Industrial Investment Corporation (GIIC) and Bank of Baroda (BOB), R-2 and R-1 respectively with R-2 being the lead financial institution. It is the say of the petitioner that more than 75% of the long term financial assistance was obtained from R-2 while the remaining was availed from R-1.

(2.) The petitioner-company had financial difficulties and failed to adhere to the discipline of the terms of the loan. This resulted in a notice being issued by BOB to the petitioner-company dated 15.06.2006 under Section 13(2) of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 (SARFAESI Act). This notice is stated to be qua the residential property of the promoters of the petitioner-company Mr. Ashutosh Majmudar and Mrs. Ami Majmudar in respect of which equitable mortgage had been created in favour of BOB. It may be noticed that some dispute has been raised by the petitioner/company qua the alleged equitable mortgage, but the fact remains that in pursuance to the said notice, BOB took over symbolic possession of the residential property of the promoters under Section 13(4) of the SARFAESI Act on 12.01.2007. The promoters of the petitioner/company, who are the owners of the residential property thus approached DRT-I, Mumbai under Section 17 of the SARFAESI Act by filing SA No.4/2007 on 09.02.2007 alleging that no security/equitable mortgage had been created qua the residential property and that BOB could not have issued the notice or taken symbolic possession of the residential property as they did not constitute 3/4 th of the secured creditors and did not have the consent of the majority creditors i.e. GIIC as per the requirements of Section 13(9) of the SARFAESI Act before initiating the process under Section 13(4) of the SARFAESI Act. In these proceedings, the DRT on 08.03.2007 granted an order of status quo prohibiting the BOB from taking further action in pursuance to the symbolic possession taken by them of the residential property.

(3.) The second set of legal proceedings emanated from the claim of the petitioner-company that its net worth had been wiped out and thus it filed a reference before the Board for Industrial and Financial Reconstruction (BIFR) in April, 2007 under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 {SICA}. The reference was still pending consideration when a second notice was issued on 05.04.2008 by BOB under Section 13(2) of the SARFAESI Act qua the assets of the petitioner-company situated at Village Nandesari, District: Vadodara and at Umraya, Taluka: Padra, District: Vadodara. The notice was replied to by the petitioner-company through their counsel on 21.04.2008 alleging that the assets over which BOB was claiming security interest had been secured by GIIC and that the requirement of the statute of consent of at least 3/4 th of the secured creditors was not satisfied as no consent by GIIC had been forwarded to the petitioner. A more detailed reply dealing with the other aspects was sent by the petitioner on 22.05.2008 and since no response had been received in respect of the query raised by the petitioner/company, a stand was sought to be taken that the right to take any further action against the petitioner-company had lapsed. In the proceedings held before the BIFR on 03.07.2008, it is alleged, conflicting stands were put forth by the BOB and GIIC inasmuch as the representatives of BOB submitted that the symbolic possession of the assets of the petitioner-company had been taken over with the consent of the GIIC while on the other hand the representative of the GIIC states that till that date they did not give the consent to BOB for taking any action under Section 13(4) of the SARFAESI Act. The GIIC, however, simultaneously stated that in the proceedings before the Gujarat High Court emanating from the provident fund recovery, an agreement had been recorded that the land, building, plant & machinery to be sold by public auction and the proceeds realized shall, after squaring the amount of provident fund, be distributed between GIIC and BOB having pari passu charge over the assets. The BIFR consequently called upon the BOB to submit a copy of the consent letter obtained from GIIC for taking action under Section 13(4) of the SARFAESI Act.