Am Distributors vs. The Manager, South Indian Bank LTD. - Kerala High Court, 28 July 2021

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE T.R.RAVI WEDNE AY, THE 28TH DAY OF JULY 2021 / 6TH SRAVANA, 1943 WP(C) NO. 8259 OF 2021 PETITIONER: AM DISTRIBUTORS, 37/3985 B, 50/2364C, THENKUDATH BUILDING, NEAR LULU MALL, EDAPPALLY POST, ERNAKULAM - 682024., REPRESENTED BY MANAGING PARTNER MR. MUHAMMED BASHEER. BY ADV K.LATHA RESPONDENTS: 1 THE MANAGER, SOUTH INDIAN BANK LTD. BENERGY ROAD, EVERSHINE BUILDING, FIRST FLOOR, BENERGY ROAD, ERNAKULAM - 682 018. 2 UNION OF INDIA REPRESENTED BY SECRETARY, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, ROOM NO.46, NORTH BLOCK, NEW DELHI - 110 001. 3 MANAGING DIRECTOR CRIF HIGH MARK CREDIT INFORMATION SERVICES (P) LTD., FOFB-04, 04, 06 FOURTH FLOOR, ART GUILD HOUSE, PHOENIX MARKET CITY, CTS NO.124/B 15, LBS MARG, KURLA WEST, MUMBAI, MAHARASHTRA - 400070, INDIA. 4 NATIONAL CREDIT GUARANTEE TRUSTEE COMPANY LIMITED SOUGHT TO BE IMPLEADED 5 RESERVE BANK OF INDIA SOUGHT TO BE IMPLEADED BY ADVS. SRI.SUNIL SHANKER SRI.KRISHNADAS P.NAIR, CGC SMT.ANJALI MENON SMT.VIDYA GANGADHARAN SRI. P. VIJAYAKUMAR, ASGI THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 28.07.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

W.P.(C)No.8259 of 2021 :-2-: Dated this the 28th day of July, 2021 J U D G M E N T The petitioner holds a UDYAM registration Certificate, as can be seen from Exhibit P1, issued on 12.08.2020. The petitioner has GST registration and was sanctioned a cash credit facility CCOL of Rs.6.30 crores with a sub-limit of Rs.1.8 crores, with a margin of 25% on stock and 15% on book debts with floating interest rates. The business of the petitioner was seriously affected due to the COVID 19 pandemic. The Government of India announced various packages for various businesses to overcome the effect of the pandemic on the business. One such initiative is the Extended Credit Line Guarantee Scheme known as Guaranteed Emergency Credit Line ('GECL', for short). The operational guidelines for the scheme has been produced by the petitioner as Exhibits P2 and P3. According to the petitioner, they are eligible to get Rs.1,20,00,000/- under the scheme as a pre-approved loan. The 1st Respondent bank did not consider the request of the petitioner. The petitioner thereupon approached this Court by filing W.P.(C)

W.P.(C)No.8259 of 2021 :-3-: No. 26505/2020 on 30.11.2020. The Writ petition was disposed of by Exhibit P7 judgment dated 03.02.2021. It can be seen from paragraph No.4 of Exhibit P7 judgment that, at that point of time the only objection raised regarding the eligibility of the petitioner was that as per the credit report issued by the 3rd Respondent, a sum of Rs.4,820/- is shown as amount overdue on a corporate vehicle loan account as on 29.2.2020. On the basis of the documents produced by the petitioner, this Court in paragraph No.8 of the judgment held that, the view expressed in the report of the 3rd Respondent regarding the vehicle loan could not be correct. This Court directed the petitioner to approach the 3rd Respondent with the details obtained from Tata Motors and get the credit report corrected. The petitioner thereupon approached the 3rd Respondent and by Exhibit P11 letter dated 12.3.2021 addressed to the counsel for the petitioner, the 3rd Respondent has informed that required changes in the database have been made. The petitioner thereafter approached the 1st Respondent bank. By Exhibit P12 letter, the 1st Respondent informed the petitioner that the ECLGS facility of Rs.120 lakhs cannot be

W.P.(C)No.8259 of 2021 :-4-: disbursed to the petitioner since, in the bureau report the DPD of 150 days in corporate vehicle loan account continues to be visible as on 29.2.2020 and as per the bureau report of the borrower dated 18.3.2021, an overdraft of Rs.50 lakhs is classified as sub standard DPD of 154 days. The petitioner has challenged the above action of the 1st Respondent on the ground that in the light of Exhibit P7 judgment of this Court, there cannot be any further objection regarding the vehicle loan and that as regards the overdraft facility also, no amount is overdue as on date. It is hence the contention that since neither of the reasons really exist, the petitioner should be granted the facility.

The 1st Respondent has filed a detailed counter affidavit, wherein it is stated that the 1st Respondent cannot be faulted for not extending the facility as per the scheme, since the supporting documents do not show that the petitioner is eligible for the loan. The 1st Respondent maintains that the report of the 3rd Respondent even after the correction said to have been made, still shows that the corporate vehicle loan has DPD 150 days as on 29.2.2020. The 1st Respondent submits that they will not be in a

W.P.(C)No.8259 of 2021 :-5-: position to extend the facility, particularly since the facility is extended on the basis of operational guidelines issued by the National Credit Guarantee Trustee Company Ltd ('NCGTC', for short) whereby for the amounts released by the 1st respondent, they enjoy a guarantee. It is the contention of the 1st Respondent that, if they fail to comply with the guidelines, they will not be able to get the guarantee under the scheme, for the facility extended to the petitioner. The 1st respondent has specifically stated in paragraph No.6 of the counter affidavit that the ECLGS facility was sanctioned to the petitioner on 17.2.2021 and this fact was informed to the petitioner and the petitioner was requested to provide the corrected report from the 3rd respondent. It is further stated that the details have to be uploaded in the website of the NCGTC, wherein there is a specific column relating to DPD status as on 29.2.2020, which can be filled up only on the basis of the credit report. It is further stated that if the 1st respondent fills up the details as per the credit report issued by the 3rd respondent, the application will not be accepted and the website will show technical error.

W.P.(C)No.8259 of 2021 :-6-:

After hearing the parties and considering the documents which have been produced in the case, it is clear that the stand taken as regards the corporate vehicle loan cannot be sustained in the light of the specific finding issued by this Court in Exhibit P7 judgment that, the entry in credit report regarding amounts due under the corporate vehicle loan account cannot be correct. This Court had noticed the fact that the entire vehicle loan was already closed and even the sum of Rs. 4,820/- stated to be outstanding, can only be the bank charges, which were subsequently paid. This Court specifically considered the definition of the term "amount in default" and held that the amount stated in the credit report cannot be included as amount in default. Since the 3rd Respondent has not appeared before this Court, even after notice, as was the position when this Court considered the earlier Writ petition filed by the petitioner, interest of justice requires that the matter is not further prolonged for hearing the 3rd Respondent. Since this Court has already held that the petitioner cannot be termed to be having any amount in default as far as the corporate vehicle loan is concerned, the Respondents are

W.P.(C)No.8259 of 2021 :-7-: bound by the said finding and the 1st Respondent is hence directed to proceed as if the petitioner is not having any amount in default as far as the said loan is concerned. The 2nd objection raised is regarding an overdraft facility availed by the petitioner, which has been classified as substandard in Exhibit R1(d). The report of the 3rd Respondent shows an amount of Rs.9,70,546/- as overdue. It can be seen that the drawing power was Rs.50 lakhs and that the loan was sanctioned on 26.7.2017. The petitioner has produced Exhibit P13, which is a communication issued by the lender M/s. Axis Bank Ltd, wherein it is stated that the cash credit account is normal and that the interest due has been paid. It would appear from Exhibit P13 that the Axis Bank has also granted facility to an extent of Rs.6,97,000/- on 18.3.2021, as working capital loan. Petitioner also has a further contention that, if the 1st Respondent had extended the facility of Rs.1.20 crores, to which the petitioner was entitled, there would have been no occasion for even the said overdraft account to have become DPD for 154 days. It is therefore submitted that since no amount is overdue in the said account, there is no reason to treat

W.P.(C)No.8259 of 2021 :-8-: the petitioner as having any existing account, which is coming under the definition of amount in default. The petitioner hence submits that the classification of the overdraft account as substandard can also not be justified since no amount is overdue in the said account. The contention put forward by the petitioner is reasonable. The 1st Respondent may be justified in sending Exhibit P12 letter since they are strictly following the guidelines issued to them, and were ensuring that they will not be denied the guarantee for the amounts that are to be released as extended facility to the petitioner. At the same time, the fact cannot be overlooked that the petitioner cannot be faulted for certain mistakes that had occurred in the credit report, prepared by the 3rd Respondent. As submitted by the petitioner, if the said report had been correct, there would have been no occasion for the petitioner to approach this Court and even at the time when the first Writ Petition was filed, the 1st Respondent would have granted the facility without any objections; since at that point of time, there was no other objection available in the case of the petitioner. The objection regarding the second loan account came

W.P.(C)No.8259 of 2021 :-9-: only much later and even that has been settled by the petitioner and no amount is now overdue. In the above circumstances, Exhibit P12 letter, by which the facility was rejected to the petitioner, is set aside. The 1st Respondent is directed to reconsider the issue on the basis of the findings made by this Court in Exhibit P7 judgment that there was no amount in default in the corporate vehicle loan account and the further fact that there is no amount overdue to the Axis Bank, as can be seen from Exhibit P13, and to extend the facility to the petitioner if they are otherwise entitled. In the light of the above directions issued by this Court, the amounts advanced to the petitioner under the scheme by the 1st respondent will get the cover of guarantee of the NCGTC. The writ petition is disposed of with the above directions and observations. All pending interlocutory applications are closed. T.R.RAVI, JUDGE ami/

W.P.(C)No.8259 of 2021 :-10-: APPENDIX OF WP(C) 8259/2021 PETITIONER EXHIBITS EXHIBIT P1 THEOF UDYAM MSME REGISTRATION CERTIFICATE OF THE PETITIONER ISSUED BY GOVERNMENT OF INDIA, MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES. EXHIBIT P2 THEOF THE RELEVANT PORTION OF GECL UPDATED AS ON OCTOBER 31ST, 2020. EXHIBIT P2A THEOF THE EMERGENCY CREDIT LINE GUARANTEE SCHEMES - OPERATIONAL GUIDELINES UPDATED AS ON 26TH NOVEMBER 2020. EXHIBIT P3 THEOF THE SANCTION/RENEWAL OF CREDIT FACILITIES LETTER ISSUED BY THE FIRST RESPONDENT BANK TO THE PETITIONER. EXHIBIT P4 THEOF THE RELEVANT PORTION OF THE BANK STATEMENT OF THE PETITIONER. EXHIBIT P5 THEOF THE LETTER DATED 25.11.2020 SUBMITTED BY THE PETITIONER BEFORE THE RESPONDENT BANK. EXHIBIT P6 THEOF THE LETTER DATED 01.12.2020 ISSUED BY THE FIRST RESPONDENT BANK TO THE PETITIONER. EXHIBIT P7 THEOF THE JUDGMENT IN WRIT PETITION W.P.(C) NO.26505 OF 2020 DTD.3RD DAY OF FEBRUARY 2020. EXHIBIT P8 THEOF THE LETTER DATED 19.02.2021 ISSUED BY THE FIRST RESPONDENT BANK TO THE PETITIONER. EXHIBIT P9 THEOF THE LETTER ISSUED BY THE COUNSEL FOR THE PETITIONER TO THE FIRST RESPONDENT BANK.

W.P.(C)No.8259 of 2021 :-11-: EXHIBIT P10 THEOF THE LETTER ISSUED BY THE COUNSEL FOR THE PETITIONER TO THE THIRD RESPONDENT CRIF HIGH MARK CREDIT INFORMATION SERVICES P LTD. EXHIBIT P11 THEOF THE LETTER DATED 12TH MARCH 2021 ISSUED BY THE THIRD RESPONDENT CRIF HIGH MARK CREDIT INFORMATION SERVICES P LTD TO THE COUNSEL FOR THE PETITIONER. EXHIBIT P12 THEOF THE SAID LETTER DATED 24.03.2021 ISSUED BY THE FIRST RESPONDENT BANK TO THE COUNSEL FOR THE PETITIONER. EXHIBIT P13 THEOF THE EMAIL COMMUNICATION DATED 5TH APRIL 2021 ALONG WITH STATEMENT FOR A/C:917030053060567 BETWEEN 1-8-2020 AND 4-4-2021 AND THE LOAN SANCTION LETTER DATED 18-3-2021 ALL ISSUED BY AXIS BANK TO THE PETITIONER RESPONDENTS' EXTS.: EXHIBIT R1(a) THEOF THE LETTER DATED 19.02.2021 EXHIBIT R1(b) THEOF THE LETTER DATED 22.2.2021 EXHIBIT R1(c) THEOF THE LETTER DATED 24.03.2021 EXHIBIT R1(d) THEOF THE REPORT DATED 30.03.2021

W.P.(C)No.8259 of 2021 :-12-: EXHIBIT R1(e) THEOF THE EMERGENCY CREDIT LINE GUARANTEE SCHEME (ECLGS) OPERATIONAL GUIDELINES (UPDATED AS ON NOVEMBER 26, 2020) EXHIBIT R1(f) THEOF FREQUENTLY ASKED QUESTIONS (FAQs) ON EMERGENCY CREDIT LINE GUARANTEE SCHEME (UPDATED AS ON JANUARY 07, 2021)