ORDER
A. Subbulakshmy, J. (Chairperson)
1. The appeal is directed as against the order dated 25.7.1997 passed by the Presiding Officer, Debts Recovery Tribunal (DRT), Bangalore, in OA-527/1995. The appellants are defendants 4 and 5 in the Original Application. The PC), DRT, has passed the order allowing the application directing all the defendants jointly and severally to pay the decree amount with interest as directed in the order and further ordered that the FCNR deposits shown in Schedule ‘C’ are collateral security to the credit facility given to the 1st defendant and the applicant Bank is entitled to appropriate the proceeds of the sale granting three months’ lime to settle the claim of the Bank failing which for sale of the ‘A’ Schedule properly and for balance if any to proceed personally against the defendants.
2. The appellants are aggrieved against the order of the PC), DRT, direct ing the appellants to pay the decree amount and also for the declaratory order passed that the FCNR deposits shown in ‘C’ Schedule are collateral security to the credit facility given to Ihe 1st defendant and the applicant Bank is entitled to the proceeds of the sale. The appellants-defendants 4 and 5 are having the FCNR deposits in the 1st respondent Bank. The appellants contend that they
are having FCNR deposits in the 1st respondent Bank but they never executed any document offering their FCNR deposits as collateral security and they never executed any documents and they also did not create any mortgage and they never deposited the FCNR receipts as securities and absolutely there are no documents to fasten the liability due to the Bank and when the defendants never executed any documents in respect of this loan in favour of the Bank the defendants are in no way liable for the claim amount and the order passed by the PO, DRT, directing them to pay the amount and also declaring the FCNR deposits shown in ‘C’ Schedule as collateral security to the credit facility given to the 1st defendant and directing the applicant Bank to appropriate the proceeds of the sale is illegal, not sustainable and is liable to be set aside.
3. Even though the 1st respondent Bank entered appearance through Counsel, the Counsel for the 1st respondent Bank was absent for a number of hearings and the appeal is being disposed of on merits after hearing the Counsel for the appellants.
4. The learned Counsel appearing for the appellants submitted that the defendants 4 and 5 are not at all concerned with the loan and they have not executed any documents in respect of this loan and they are also not partners of the 1st defendant Firm and they have no connection with the 1st defendant and they are also not connected with the loan transaction with the Bank and as no document has been executed by defendants 4 and 5, the appellants herein in respect of this loan, the defendants 4 and 5 are not liable for the suit claim. He further submitted that the appellants never offered FCNR deposits as collateral security to the Bank and viewed at any angle the appellants cannot be held liable for the loan transaction. He drew my attention to the evidence deposed by the witness on behalf of the Bank and also the other documents to substantiate the contention of the appellants that they are in no way connected with the loan transaction. The Branch Manager of the applicant Bank who has signed and verified the plaint has been examined as AW-1 and he has categorically spoken in his evidence that there are no. documents to show that the appellants were partners of the 1st defendant and in Ex. A3 only defendants 2 and 3 are the partners. He has further admitted that the appellants-defendants 4 and 5 have not discharged the FCNR given by them to the Bank. He has further admitted that permission of the Reserve Bank of India has to be obtained whenever FCNRs are offered as security and the Bank has to make an application to the RBI for such permission and permission of RBI is not obtained in this case to accept the FCNRs of defendants 4 and 5 as collateral security,
5. The Bank Officer has been examined as AW-2 and he has deposed in his evidence that the appellants-defendants 4 and 5 never met him in his tenure, they are residents of U.S.A., they have not executed any specific document on the day of the documents executed by defendants 1, 2 and 3 and the appellants-defendants 4 and 5 were not having any deposit in the applicant Bank. He has further deposed that on the day when the loans were advanced the defendants 4 and 5-appellants were not the partners of the 1st defendant Firm. His categorical admission is that after the loan was advanced defendants 4 and 5 have no connection with the 1st defendant.
6. The evidence of AW-1 and AW-2 prove that the appellants are not the partners of the 1st defendant Firm, the appellants have not executed any documents either creating mortgage or offering as collateral security for the loan. The categorical admission of AW1 and AW2 prove that the appellants are in no way concerned with this loan transaction.
7. The learned PO, DRT, has found that Ex. A-26 is the sanction letter dated 18.9.1991
and in this letter also lien on the FCNR deposits is specifically shown as collateral security On a perusal of Ex. A-26, it is seen that the partner of the Firm, one Mr. Vinayak Y. Lele has signed the Ex. A. 26. The FCNR deposit is shown as collateral security. The appellants are not parties to the document Ex. A-26. The appellants have not executed any documents in favour of the Bank offering the FCNR as collateral security. Only the 2nd defendant partner has signed in Ex. A-26. He has shown the FCNR deposit as collateral security. When the appellants have not executed any documents for offering their FCNR as collateral security any inclusion of the FCNR as collateral security by the 2nd defendant in Ex. A-26 is of nc avail. The 2nd defendant on his own accord has created that document offering this FCNR as collateral security. When the appellants are not parties to any document offering this FCNR as collateral security, the inclusion of the FCNR in Ex. A-26 as collateral security has no bearing and it will not create any right in the Bank to have any lien over the FCNR deposit. It may be that these appellants have opened the FCNR deposit in the respondent Bank.
8. It is seen from the records that originally the appellants were having FCNR account in the Central Bank of India, Belgaum Branch, and then they transferred their funds from Central Bank of India to the State Bank of Mysore, the 1st respondent Bank, to open new FCNR CD A/c. Merely because the appellants opened new account in the respondent Bank that does not mean that their FCNR accounts are given as collateral security for the present loan. Unless the appellants execute any document creating any security on the FCNR A/c, the Bank is not entitled to contend that the FCNR A/c of the appellants are offered as security for this loan transaction. In Exs. A-50 and 51, the appellants have categorically stated that they never authorized the respondent-applicant Bank to use their FCNR deposits as security for M/s. Vastu Shilp, the 1st defendant Firm. Absolutely there are no documents to show that the appellants have offered the FCNR deposits as collateral security for this loan transaction.
9. The learned PO, DRT, has found that the defendants 4 and 5 have not filed any statement in this case, they have not opposed seriously about their FCNR deposits being offered as collateral security except writing two letters to the Bank and when the FCNR deposit was not offered as collateral security it is not known why the defendants 4 and 5 transferred them from the Central Bank of India to the applicant Bank and no acceptable reason is forthcoming for this particular transfer and perhaps the only inference possible is that since the FCNR deposits were offered as collateral security to the credit facility given to the 1st defendant and the accounts of the 1st defendant were closed in the Central Bank of India and reopened in the applicant Bank, the FCNR deposits were transferred to the State Bank of Mysore, all these circumstances probabilise the fact that although the defendants 4 and 5 are not shown to be partners of the 1st defendant, they allowed the 2nd defendant to represent this fact to the Bank and by their conduct they have made the Bank to believe that their FCNR deposits are collateral securities and in the background of these things it is not open to the appellants-defendants now to say that the FCNR deposits are not securities and they have to be released. On this the PO, DRT, has held that after carefully going through every bit of the documents produced by the applicant Bank, on the contents of the documents which are not controverted by any of the defendants, the Tribunal is led to think that the appellants-defendants 4 and 5 by their conduct allowed the Bank to believe that they were partners at some point of time and that they have offered their FCNR deposits as collateral security to the Bank. The entire matter relates to the loan transaction, loan obtained from the Bank by the 1st defendant Firm and their partners, in the absence of any specific documents fastening the liability of the appellants with the loan transaction, it cannot be stated that the
conduct of the appellants and the transfer of the FCNR A/c from one Bank to the 1st respondent Bank amount to offering as security by the appellants towards the loan transaction.
10. In the written statement filed by the other defendants, it has been averred that the FCNR deposits were not offered as collateral security by defendants 4 and 5. Admittedly, the appellants are not the partners of the D-1 Firm. It may be that the FCNR deposits would have been offered as security to the Central Bank of India for the dues of the 1st defendant but that will not establish that after the appellants transferred their FCNR A/cs to this Bank, the appellants have created collateral security on these FCNRs. The appellants have not executed any documents creating collateral security for the FCNRs in favour of the Bank. To fasten the liability on any person there must be documentary proof. In the absence of any documents executed by the appellants creating collateral security the Bank is not entitled to contend that the FCNR deposits are offered as collateral security for the loan given to the 1st defendant. When the appellants are not the partners of M/s. Vastu Shilp, the 1st defendant Firm and the appellants have not executed any document either creating mortgage or collateral security offering the FCNR as security it cannot be concluded that the appellants have created collateral security in respect of the FCNR deposit and they are liable for the suit claim. The FCNRs were neither endorsed, nor discharged, nor signed in favour of the 1st respondent Bank by the appellants to show as collateral security. The appellants are neither guarantors for repayment of the loan nor parties to any transaction in respect of the loan transaction before the 1st respondent Bank. The appellants have not executed any documents in respect of the loan transaction. The evidence of AW-1 and AW-2 prove this.
11. Further, it is seen that the FCNR could not be offered as security to the Bank as no permission from the Reserve Bank of India was obtained to deposit foreign money in favour of the 1st respondent Bank. Such permission was not taken by the 1st respondent Bank. The learned PO, DRT, has observed that the Bank has to approach the RBI for sanction and the matter is left to the RBI and the applicant Bank and this plea of non-obtaining the sanction of RBI putforth on behalf of the defendants appears to be clear afterthought. The PO, DRT, has come to the conclusion that by their conduct the appellants-defendants have made the Bank to believe that the FCNR deposits were offered as collateral security for the facilities given to the 1st defendant. It is not a question of making the Bank to believe with regard to the happening of certain things. The crux of the matter involved in this case relates to the loan transaction, loan obtained from the 1st respondent Bank by the D-1 Firm. Anything connecting the loan transaction, anything to fasten the liability arising out of the loan transaction has to be only by execution of the documents. Admittedly, defendants 4 and 5-appellants have not executed any documents in respect of the loan transaction either as guarantors or as mortgagors. The finding of the PO, DRT, that the conduct of the appellants made the Bank to believe that the FCNR deposits are offered as collateral security is not based on sound reasoning and legal principles of law.
12. In the absence of any documentary proof entitling the Bank to proceed against defendants 4 and 5, it is futile on the part of the applicant Bank to contend that the defendants 4 and 5 who have just deposited their FCNR A/cs are also liable for the suit claim. The order passed by the PO, DRT, as against defendants 4 and 5 and also declaring the FCNR deposits shown in “C” Schedule as collateral security to the credit facility given to the 1st defendant and entitling tht applicant Bank to appropriate the proceeds of the same, is not sustainable and is liable to be set aside and it is set aside.
13. In the result the appeal is allowed to the extent indicated above. No costs.