Nandanam Tiles And Sanitaries PVT. LTD. vs. Union Of INDIA
Original PDF →IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.NAGARESH FRIDAY, THE 26TH DAY OF MARCH 2021/5TH CHAITHRA, 1943 WP(C).No.28198 OF 2020(Y) PETITIONERS: 1 M/S.NANDANAM TILES AND SANITARIES PVT. LTD., SREE DHARMASASTHA BUILDING, KUNNAMKULAM ROAD, NEAR SOBHA CITY, PUZHAKKAL P.O., THRISSUR-680 003, REPRESENTED BY ITS MANAGING DIRECTOR. 2 MYLATH SANDEEP, S/O NARAYANAN KUTTY, AGED 49, MANAGING DIRECTOR, M/S NANDANAM TILES AND SANITARIES PVT.LTD., SREE DHARMASASTHA BUILDING, NEAR SOBHA CITY, KUNNAMKULAM RD, PUZHAKKAL P.O., THRISSUR-680 003. 3 DEEPA P., W/O MYLATH SANDEEP, AGED 42, RESIDING AT MYLATH HOUSE, KANNAPURAM, CHETTUPUZHA P.O., THRISSUR-680 012. BY ADV. SRI.R.S.KALKURA RESPONDENTS: 1 UNION OF INDIA REPRESENTED BY THE SECRETARY TO GOVERNMENT, DEPARTMENT OF FINANCIAL SERVICES, 3RD FLOOR, JEEVANDEEP BUILDING, SANSAD MARG,NEW DELHI-110 001. 2 THE SECRETARY TO GOVERNMENT, DEPARTMENT OF FINANCIAL SERVICES, 3RD FLOOR,JEEVANDEEP BUILDING, SANSAD MARG, NEW DELHI-110 001. WP(C) No.28198/2020 : 2 : 3 RESERVE BANK OF INDIA, REGIONAL OFFICE, TRIVANDRUM, BAKERYJUNCTION, P.B.NO.6507, THIRUVANANTHAPURAM-695 033, REPRESENTED BY ITS REGIONAL DIRECTOR. 4 NATIONAL CREDIT GUARANTEE TRUSTEE COMPANY LTD., MINISTRY OF FINANCE, GOVERNMENT OF INDIA, HAVING ITS REGISTERED OFFICE, SWALAMBAN BHAVAN, C11,G BLOCK, BANDRA KURLA COMPLEX, BANDRA E, MUMBAI-400 051 REPRESENTED BY ITS MANAGING DIRECTOR. 5 SOUTH INDIAN BANK LTD., M.G.ROAD, M.G.ROAD, P.B.NO.70, AMBIKA ARCADE, M.G.ROAD, THRISSUR-680 001, REPRESENTED BY ITS CHIEF MANAGER. 6 SOUTH INDIAN BANK LTD., SIB HOUSE, T.B.ROAD, P.B.NO.28, MISSION QUARTERS, THRISSUR-680 001, REPRESENTED BY ITS MANAGING DIRECTOR. R1-R4 BY SRI.P.VIJAYAKUMAR, ASGI R1-R4 BY ADV. SUDHINKUMAR K., CGC R5-R6 BY ADV. SRI.SUNIL SHANKER R5-R6 BY ADV. SMT.VIDYA GANGADHARAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 26.03.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C) No.28198/2020 : 3 : J U D G M E N T ~ ~ ~ ~ ~ ~ ~ ~ ~ Dated this the 26th day of March, 2021 The petitioners have filed this writ petition seeking to declare that the 1st petitioner-Company is entitled to the benefit conferred under Ext.P6 and that respondents 5 and 6 are bound to provide financial assistance to the extent covered by Ext.P6, by providing additional loan.
The petitioners state that the 1st petitioner is a Company. The 2nd petitioner is the Managing Director of the Company. The 3rd petitioner, who is the wife of the 2nd petitioner, is a Director of the Company. The petitioners are doing business in sanitary items and tiles as Micro Small and Medium Enterprises (MSME).
The 1st petitioner has taken six cash credit facilities and one bill purchase facility from the 5th respondent-Bank. The total facility availed by the petitioners would come around `33 Crores. The floods occurred in Kerala in the year 2018
WP(C) No.28198/2020 : 4 : and 2019 and the COVID pandemic spread in 2020 put the Company into financial doldrums.
The Government framed Ext.P6 Emergency Credit Line Guarantee Scheme (ECLGS) for extending financial assistance to industries. The accounts maintained by the 1st petitioner with the 5th respondent-Bank were never declared as Non-Performing Asset, prior to 29.02.2019. The 1st petitioner sought financial assistance under Ext.P6. By Ext.P10 judgment in W.P.(C) No.24693/2020, this Court directed the 5th respondent-Bank to take a decision on the application submitted by the petitioners within five days.
The 5th respondent-Bank rejected the application as per Ext.P11 communication. In Ext.P11, the 5th respondent-Bank gave the following reasons for not extending financial assistance:- (i) The financial ratios of the 1st petitioner shows a downward trend since 2019. (ii) Audited financial statements for 2020 was not submitted by the 1st petitioner in spite of the request. (iii) The financial distress of the 1st petitioner related to periods even anterior to pandemic period.
WP(C) No.28198/2020 : 5 : (iv) The pre-Covid level debt burden of the petitioner is disproportionate. (v) The 1st petitioner do not satisfy the financial parameters prescribed by expert committee of the RBI, for restructuring. (vi) Shortage of the drawing power is already evident in the account of the 1st petitioner based on financial statement.
For the same reasons, the 5th respondent declined the request to grant additional facility to the extent of 20% under the ECLG Scheme.
Learned counsel for the petitioners pointed out that the 1st petitioner has been making remittances regularly and at no point of time, the accounts of the 1st petitioner was declared as NPA. When the 5th respondent has not declared the accounts of the petitioners as NPA, the 5th respondent cannot take a stand that the 1st petitioner is under financial distress already. The counsel for the petitioners further argued that pre-Covid level debt burden cannot be taken as an excuse to deny benefit under Ext.P6 Scheme. Ext.P6 is an independent Scheme and it cannot be made subject to any other parameters.
WP(C) No.28198/2020 : 6 :
The 5th respondent, however, resisted the writ petition. The 5th respondent stated that it is the responsibility of lending institutions to assess the viability before extending credit facility under Ext.P6. On a review of financial statements submitted by the petitioners for the financial year 2018–'19, the 5th respondent detected signs of distress in the accounts of the petitioners and the distress existed even prior to the pandemic period. Distress on the petitioners' account is not related to COVID 19. In the circumstances, the denial of credit facility to the petitioners under Ext.P6 Scheme is justified.
I have heard the learned counsel for the petitioners and the learned Standing Counsel appearing for respondents 5 and 6. 9. One reason put forth by the 5th respondent-Bank for declining the benefit of ECLG Scheme is that financial ratio of the 1st petitioner shows a downward trend as per the audited financial submitted for the year 2019. However, it is to be noted that the accounts of the 1st petitioner was never
WP(C) No.28198/2020 : 7 : declared as NPA, which would only show that the 1st petitioner has been making remittances. Whether financial situation of a debtor for the period of anterior to the ECLG Scheme can be a reason to deny benefits under the Scheme, which was formulated to overcome the distress arising out of Covid-19 pandemic, is a debatable issue.
The Hon'ble Apex Court in the judgment in WP(C) No.476/2020 dated 23.03.2021 has observed that any borrowing arrangement is a commercial contract between the lender and the borrower and bankers and commercial entities are best placed to assess the requirements of its customers and therefore the discretion was left to the lending institutions concerned. In the case of the petitioners, the petitioners had a significant financial stress which had potentially impacted the long-term viability of the firm even before the pandemic.
The financials of the 1st petitioner, according to the 5th respondent-Bank, has been deteriorating since Financial Year 2018–'
The account was in constant overdue before Covid-19 crisis. The 5th respondent would further submit that
WP(C) No.28198/2020 : 8 : the petitioners had on 19.09.2019 approached the Bank informing that they are not in a position to service the loans as per the originally stipulated sanction due to loss of revenue and had requested to restructure their loan facilities. The petitioners closed their packing credit facility of ₹1 Crore availing two other credit facilities from the same Bank.
The 5th respondent would state that the 1st petitioner-Company has not even arranged for the insurance coverage for the stocks extended as security to the 5th respondent-Bank. The 1st petitioner has not commenced stock audit and there is non-cooperation by the 1st petitioner-Company in conducting the stock audit. Continuous defaults/delay in filing GST returns are observed in the account even before the pandemic period. Cheque bounce cases before the Chief Metropolitan Magistrate, New Delhi, are also noted against the 1st petitioner-Company. The CIBIL report also showed certain delinquencies of the Directors of the 1st petitioner-Company.
WP(C) No.28198/2020 : 9 :
As stated by the 5th respondent, while considering an application under the Scheme, the Member Lending Institutions are entitled to assess the viability before extending the credit facility to the borrower. The 5th respondent is entitled to consider leverage, liquidity and the serviceability of the 1st petitioner while considering the application under the Scheme. The 5th respondent has considered the application of the 1st petitioner for financial assistance under the Scheme and has found that the 1st petitioner is not eligible for such assistance. The said finding of the 5th respondent are based on materials available with the Bank.
In the circumstances of the case, this Court do not deem it fit to unsettle the decision taken by the 5th respondent-Bank and to direct the Bank to extend financial facility/assistance to the 1st petitioner, under the Scheme. The writ petition is therefore dismissed. N. NAGARESH, JUDGE aks/29.03.2021
WP(C) No.28198/2020 : 10 : APPENDIX PETITIONERS' EXHIBITS: EXHIBIT P1 THEOF THE RELEVANT PORTION OF THE ATRICLES OF ASSOCIATION OF THE FIRST PETITIONER COMPANY. EXHIBIT P2OF THE CERTIICATE OF INCORPORATION DATED 23.6.2016 ISSUED BY THE MINISTRY OF CORPORATE AFFAIRS,GOVERNMENT OF INDIA IN RESPECT OF THE FIRST PETITIONER COMPANY. EXHIBIT P3OF THE UDYOG AADHAR REGISTRATION CERTIFICATE ISSUED IN THE NAME OF THE FIRST PETITIONER COMPANY REGISTERING IT AS A MSME SHOWING DATE OF COMMENCEMENT AS 23.6.2016. EXHIBIT P4OF THE LETTER OF SANCTION DATED 20.12.2018 ISSUED BY THE 6TH RESPONDENT TO THE PETITIONER. EXHIBIT P5OF THE LETTER OF SANCTION DATED 20.12.2018 ISSUED BY THE 6TH RESPONDENT TO THE FIRST PETITIONER. EXHIBIT P6OF THE EMERGENCY CREDIT LINE GUARANTEE SCHEME UPDATED AS ON 31.10.2020. EXHIBIT P7OF THE REGISTRATION CERTIFICATE UNDER THE GST VALID FROM 19.2.2018. EXHIBIT P8OF THE LETTER DATED 30.9.2020 ISSUED BY THE FIRST PETITIONER TO THE 5TH RESPONDENT EXHIBIT P9OF THE EMAIL DATED 7.11.2020 ISSUED BY THE FIRST PETITIONER TO THE 5TH RESPONDENT EXHIBIT P10OF THE JUDGMENT DATED 19.11.2020 IN WP(C)NO.24693 OF 2020. EXHIBIT P11OF THE COMMUNICATION DATED 23.11.2020 ISSUED BY THE 5TH RESPONDENT TO THE PETITIONER.
WP(C) No.28198/2020 : 11 : EXHIBIT P12OF THE LETTER DATED 18.03.2019 ISSUED BY THE 5TH RESPONDENT TO THE STATE BANK OF INDIA, VILANGAN BRANCH, THRISSUR. EXHIBIT P13OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087652000001423. EXHIBIT P14OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087652000001424. EXHIBIT P15OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087652000001425. EXHIBIT P16OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087652000001426. EXHIBIT P17OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087655000000455. EXHIBIT P18OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087655000000454. EXHIBIT P19OF THE STATEMENT OF ACCOUNTS KEPT IN THE NAME OF THE PETITIONER BY THE FIFTH RESPONDENT IN RESPECT OF TERM LOAN NO.0087083000001297. EXHIBIT P20OF THE E-MAIL DATED 28.02.2019 ISSUED BY THE FIFTH RESPONDENT TO THE PETITIONER ALONG WITH TWO COPIES OF POLICIES ISSUED BY BAJAJ ALLIANCE.
WP(C) No.28198/2020 : 12 : EXHIBIT P21OF THE E-MAIL DATED 29.03.2019 ISSUED BY THE BANK TO THE PETITIONER. EXHIBIT P22OF THE LETTER DATED 24.02.2020 ISSUED BY THE FIFTH RESPONDENT TO THE PETITIONER. EXHIBIT P23 THEOF THE COVER BOTH SIDES INDICATING THE DATE ON WHICH IT WAS POSTED TO THE PETITIONER. EXHIBIT P24OF THE REPLY DATED 10.03.2021 TO EXHIBIT P22 ISSUED BY THE PETITIONER TO THE FIFTH RESPONDENT. EXHIBIT P25OF THE E-MAIL DATED 17.03.2021 ISSUED BY THE DIRECTOR, MSME TO THE PETITIONER AS WELL AS RESPONDENTS 3 AND 4. RESPONDENTS' EXHIBITS: EXHIBIT R5(a)OF THE AUDITED FINANCIAL STATEMENT FOR FY2018-19 EXHIBIT R5(B)OF THE PROVISIONAL BALANCE SHEET AS ON 31.3.2020 EXHIBIT R5(c)OF THE TERM LOAN ACCOUNT M/S NANDANAM SANITARIES SHOWING THE DELAYED PAYMENTS DURING THE YEAR 2018. EXHIBIT R5(d)OF THE DEFAULT SUMMARY. EXHIBIT R5(e)OF THE TABULAR STATEMENT SHOWING THE DATES ON WHICH THE LIMITS WERE EXCEEDED. EXHIBIT R5(f)OF THE STOCK STATEMENT AND PROVISIONAL STATEMENT FOR MARCH 2020 VARIOUS DATES DURING 2018. ncd
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.