DRAT Allahabad Upholds Ex-Parte Recovery Decree: Delay Condonation Denied in Loan Default Matter

Introduction

In a significant ruling reinforcing procedural discipline, the Debt Recovery Appellate Tribunal (DRAT) sitting at Allahabad dismissed an appeal challenging the rejection of a delay condonation application. The judgment in Nirman Sudha Vs Housing and Urban Development Corporation Ltd. (HUDCO) underscores the importance of adhering to statutory timelines when seeking to set aside ex-parte decrees in debt recovery proceedings. The appellate tribunal's decision emphasizes that parties cannot claim relief when they fail to comply with procedural requirements despite being granted multiple opportunities.

Background of the Dispute

Loan Arrangement and Default

The genesis of this litigation traces back to August 2004 when the financial institution (respondent) extended monetary assistance to the first appellant firm through its proprietor, who was the second appellant. To secure the financial facility, the appellants executed a deed of guarantee dated 16.01.2004 and created an equitable mortgage by depositing original title deeds of their property with the lending institution. Various loan documents were also executed as part of the arrangement.

However, the borrowers failed to maintain proper financial discipline, leading to deterioration in the loan account. Consequently, the lending institution classified the account as a Non-Performing Asset (NPA). To recover the outstanding dues, the financial institution issued a legal notice dated 16.03.2015 to the appellants, demanding payment of the accumulated debt.

Initiation of Recovery Proceedings

Despite receiving the legal notice, the appellants failed to clear their outstanding obligations. This prompted the respondent-FI to file Original Application (O.A.) No. 115/2015 on 27.03.2015 before the Debt Recovery Tribunal, seeking recovery of Rs. 41,04,137/- along with pendente lite interest, future interest, and costs until complete realization of the dues.

Proceedings Before the Debt Recovery Tribunal

Initial Appearance and Delays

The appellants initially appeared before the Tribunal through their legal counsel Shri Satyam Agarwal on 21.05.2015. The Tribunal granted them 20 days to file their written statement, with the matter scheduled for 11.08.2015. However, instead of filing the required written statement on the scheduled date, the appellants chose to file an interlocutory application seeking stay of proceedings. The matter was consequently adjourned to 09.10.2015.

On 09.10.2015, the appellants again failed to file their written statement. The case was further adjourned to 14.01.2016, providing yet another opportunity for the appellants to comply with procedural requirements.

Ex-Parte Proceedings

On 14.01.2016, when the matter was called for hearing, no representative appeared on behalf of the appellants. Taking note of the continued non-compliance and absence, the Tribunal directed that ex-parte proceedings be initiated against the appellants. The final hearing was scheduled for 11.02.2016.

On 11.02.2016, the ex-parte final hearing was conducted, and the matter was reserved for judgment to be delivered on 16.03.2016. The appellants filed an application on 18.02.2016 seeking recall of the orders dated 14.01.2016 and 11.02.2016, requesting permission to defend their case. However, this application was dismissed by the Tribunal vide order dated 16.03.2016.

Ex-Parte Judgment

On the same date, i.e., 16.03.2016, the Debt Recovery Tribunal allowed the Original Application filed by the respondent-FI through an ex-parte judgment, granting recovery of the claimed amount along with interest and costs.

Application Under Section 22(2)(g) and Delay Condonation

Asserting that they became aware of the ex-parte judgment on 31.03.2016, the appellants filed Miscellaneous Application No. 45/2016 on 16.05.2016 under Section 22(2)(g) of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), seeking to set aside the ex-parte judgment. Along with this application, they also filed a separate application on 15.06.2016 for condonation of the delay in filing the recall application.

The Tribunal below, vide order dated 08.08.2017, dismissed the Miscellaneous Application as being barred by limitation, holding that the delay could not be condoned. Aggrieved by this dismissal, the appellants preferred an appeal under Section 20 of the RDB Act before the DRAT, Allahabad.

Contentions Before the DRAT

Arguments Advanced by the Appellants

The appellants' counsel submitted that they had appeared on every scheduled date after the Original Application was filed. They claimed that on 09.10.2015, the case was adjourned to 14.01.2016, but due to an erroneous notation of the date as 14.02.2016 in their records, they could not appear on 14.01.2016. As a result, ex-parte proceedings were initiated against them without their knowledge.