DRT RULES IN BORROWER'S FAVOUR, ASKS BANK TO PAY DAMAGES

In what may be a disappointment to the banking sector, the debt recovery tribunal (DRT) has ruled in favour of the borrower under the new recovery law, and has even directed the lender to pay damages for the number of days the property was attached.

This is the first time under the Securitisation and Reconstruction of Finance Assets and Enforcement of Securities Interest (Srafesi) Act that a bank has lost a case against a borrower.

The concerned parties are Bharat Cooperative Bank and Eekey Tools & Pressings. The case gains significance as banks looked to the Srafesi Act as a route to quick recovery of bad loans.

The bank had sent various notices to the company for amounts varying from Rs 18 lakh to Rs 62 lakh. The preceding officer, Hemant Sampat, has observed that the amount claimed was highly exaggerated and excessive.

He said that "by any stretch of imagination" it was not sufficient compliance of Section 13(3) of the Srafesi Act, which states that the notice should give details of the amount payable by the borrower.

The DRT has ruled that Bharat Coop Bank should pay the borrower Rs 500 per day as damages from the day of taking possession till handing over the same. Besides, the bank should pay Rs 5,000 to the borrower for the cost of making the appeal.

Rajesh Nagori, the borrower's counsel argued that on a single day - July 7, '03 - the borrower received two notices of varying amounts - Rs 17.64 lakh and Rs 8.6 lakh.

Then on March 20, '03, the borrower received a notice for Rs 62.45 lakh. Mr Nagori disputed the bank's action on the grounds that different demands were made in different notices.

The bank's counsel, Niranjan Jagtap, argued that the earlier notice was based on the one-time settlement (OTS) offer given to the bank.

However, since the borrower did not repay the loan as per the OTS, the subsequent notices did not take OTS in account.

The preceding officer observed that such notices are not an "empty formality", particularly because the Act {section 13 (4)} says that if the borrower fails to discharge his liability in full within the stipulated period, then only the secured creditor can take recourse to further measures, including taking possession.