1 S. No. 11 IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH AT SRINAGAR WP(C) 2489/2023 M/S CLASSIC OIL MILLS …Petitioner(s) Through: Mr. Altaf Haqani, Sr. Advocate with Mr. Asif Wani, Advocate. Vs. THE JAMMU AND KASHMIR BANK LIMITED AND ORS. ...Respondent(s) Through: Mr. Adil Asimi, Advocate. CORAM: HON’BLE MR JUSTICE JAVED IQBAL WANI, JUDGE O R D E R 13.02.2025 (ORAL) 1. The petitioner in the instant petition implores for the following reliefs:- i) A Writ, order or direction including one in the nature of Certiorari quashing the impugned communication dated 30-3-2023 (Annexure-l) and the notice dated 5-9-2023 (Annexure-A-I) ii) A writ, order or direction including one in the nature of Mandamus, declaring the Impugned communication dated 30-3-2023 (Annexure-l) and the notice dated 5-9-2023 (Annexure-A-I) as illegal and unconstitutional being arbitrary, with a further command upon the respondents to forbear from giving effect to the Impugned communication and notice (Annexures-l and A-I) iii) A writ, order or direction including one in the nature of Mandamus, commanding upon the respondents to consider and approve the Restructuring of the Loan accounts of the petitioners with additional funds as decided by the high-level committee in the Mid-December, 2021 and in light of the economic and financial viability of the Unit as pointed out by the Team of Officers/Experts qua their inspection report dated 6-3-2023 and in continuation of the communication dated 25-5-2023 of the Branch Unit, Aircargo, Srinagar. 2. The facts under the shade and cover of which the aforesaid reliefs have been prayed and as are stated in the petition are that the petitioner is a partnership firm constituted vide partnership deed dated 28th of May 2003 and established a unit for blending of edible vegetable oil over a plot of land measuring 02 kanals allotted to the petitioner herein at Industrial Estate Phase III, Khanmoh, registered with the Industries Department of the Government on 8th of May 2006 as also registered as “M/s Micro 2 Small and Medium Enterprises” in terms of MSMED Development Act, 2006 (hereinafter for short “the Unit”). It is stated that the petitioner availed financial assistance from the J&K Bank (for short “the Bank”) respondent herein being the facilities of Cash Credit for Rs.55 lakhs enhanced to 2.27 Crores, besides fresh Term Loan of Rs.50 lakhs for purchase of additional/new machinery, vide communication dated 26th of March, 2018, and in this regard, the respondent Bank got a survey/ inspection conducted through its empanelled Consulting Engineers/Approved Valuers, in order to testify and verify the installation of the new machinery, which upon verification was found to be valuing at Rs.61.24 lakhs. It is further stated that for the purpose of installing the said new machinery, the partners of the Unit invested their own resources, initially without availing any financial assistance from the Bank, and also constructed an additional building on spot, which too had been verified by the Bank's Surveyors/Valuers during the inspection. It is next stated that in the phase of expansion of activity of the unit and enhanced production capacity thereof, the Unit was ready for operation by the end of December 2020, however, since the enhancement in the production capacity, the working capital requirement of the unit in question had also got substantially increased, therefore, the petitioner approached the respondent Bank in the month of January 2021 through the medium of series of representations for enhancement of grant of working capital facility of Rs.10 Crores, more so when such proposed facility was already secured by existing properties charged and pledged with the Bank. It is further stated that the Bank consumed a considerable period of 08 months for processing the case of the petitioner in this regard, which compelled the petitioner to approach the Corporate Headquarters, whereupon taking cognizance thereof the competent authority at the Corporate Headquarters, constituted a Committee of senior executives of the Bank, at the levels of the Corporate Office, Zonal Office and Branch Office of Aircargo Srinagar, headed by the President Credit of the Bank in the month of December 2021, which Committee was required to examine and assess the economic viability of the unit, and that the said 3 Committee decided and recommended that the existing Working Capital of Rs.2.72 Crores be partly converted into Term Loan 200.00 lakhs, and the balance of payment of Rs.72.00 lakhs as Working Capital, with additional funding of Rs.150.00 to Rs.200.00 lakhs be sanctioned. It is next stated that at that relevant point of time, the account of the petitioner's unit were standard account(s) without any sign of Non- Performance of whatsoever nature. It is further stated that the aforesaid Committee, beside proposed the unit be considered for restructuring as per the guidelines of the Reserve Bank of India. It is next stated that the Bank, however, instead of taking further action in compliance to the opinions and recommendations of the Committee, initiated a process of restructuring the loan account of the petitioner’s Unit without asking of the petitioner or else any request made thereof by the petitioner and proceeded in this regard, suo-moto and processed the case of the petitioner’s unit under the Scheme known as “Frame-Work for Revival and Rehabilitation of Micro Small and Medium Enterprises”, notified by the respondent Bank in compliance to the Scheme of the Reserve Bank of India. It is further stated that in the process of the restructuring of the loan account of the petitioner’s unit, the Bank on its own framed the proposal for such restructuring, besides asking for the valuation reports and also obtained Techno-viability report dated 9th of March 2022, inasmuch as called upon the petitioner to furnish requisite information for the purpose of restructuring. It is next stated that though the information sought by the Bank was furnished by the petitioner on time, yet the Bank did not take any decision in this regard and instead the proposal was got processed and examined by the Bank through another Committee headed by Zonal Manager Central Srinagar, which Committee in association with Branch Head, Branch Unit Aircargo Advances Manager, and Senior Executives of Zonal Office conducted a thorough inspection of the petitioner’s Unit on 19th of September 2022, and strongly recommended that the unit shall realize the envisaged productivity with new structure of Plant and Machinery in the event of sanction and implementation of the 4 restructuring loan with additional funds and also as per the information of the petitioner admitted and observed that the petitioner had executed substantial expansion of the unit by way of extension in the civil structure as well as installation of fresh Plant and Machinery and that the Unit was functioning on very minimum scale due to absence of working capital and had also reported the nature of new machinery installed in the unit. It is next stated that after receiving the report from the said Committee on 28th of November 2022, the Bank sought additional verification and information from the petitioner which, however, could not be furnished on account of non-availability of the petitioner of being outside the Kashmir Valley in connection with the treatment of one of his family members. It is being further stated that the respondent Bank though on one hand required the petitioner to downgrade its loan so as to satisfy the requirement of restructuring policy, yet on the other hand prolonged the disposal of restructuring proposal and without taking into consideration that the petitioner’s unit was not at fault for non-consideration of its case for enhancement of additional funds, the Bank issued a demand notice dated 27th of February 2023 to the petitioner making a demand from the petitioner for liquidation of outstanding loan amount. It is being next stated that instead of realizing the omission on its part the Bank the Bank vide inter-se e-Mail dated 30th of March 2023 sought to assert that restructuring proposal pertaining to the petitioner's unit stands closed and issued a notice under section 13(2) of the SARFAESI Act in furtherance of the demand notice dated 27th of February, 2023 which came to be duly replied by the petitioner. 3. Petitioner herein has, while maintaining the instant petition and seeking the aforesaid reliefs, has alleged acts of omission and commission on the part of the respondent Bank, in closing unilaterally the case of the petitioner for restructuring the additional funds of the petitioner's Unit initiated suo-moto by the Bank also while calling in question and seeking quashment of e-Mail dated 30th of March, 2023, and demand notice dated 5th of September, 2023. 4. Reply to the petition has been filed by the respondent Bank wherein the petition is being opposed. The said reply at para 4 being relevant and 5 significant for the disposal of the instant petition is in extenso reproduced hereunder: - 4. That in reply to para 6 to 19, it is submitted that the writ petitioner maintained Current Accounrt with branch office Khonmoh of the answering respondents from 06.01.2010 till 13.02.2010. A Cash Credit with limit of Rs.55.00 Lakh was availed and sanctioned in favour of the writ petitioner on13.02.2010. The limit was enhanced from time to time to Rs.272.00 Lakh as per the following details: Date Limit in Rs. 13.02.2010 55,00,000.00 18.08.2011 80,00,000.00 15.11.2012 1,10,00,000.00 31.12.2014 1,70,00,000.00 03.01.2018 1,87,00,000.00 07.12.2018 2,72,00,000.00 Subsequently, the accounts of the Writ Petitioner were transferred to Branch office Air Cargo of the respondent Bank on 27-05-2020 at his request and in accordance with Zonal Office Kashmir (C) sanction JKB/ADV/ZOK(C)/2020-141 dated 29-04- 2020. The respondent Bank at its branch office Air Cargo sanctioned GECL facility to the tune of Rs. 64.10 Lakh was sanctioned by Zonal Office Kashmir (C) bearing No. JKB/ZOK(C)/GECL/2020-707 in favour of the petitioner firm on 19-06-2020, and accordingly GECL was disbursed on 20-06-2020. Further at the request of the Writ petitioner firm for enhancement in working capital limit, the branch Air cargo moved an enhancement cum renewal proposal of the cash Credit Account of the Writ Petitioner, however same was not acceded by the Competent Authority on account of failure of the Writ petitioner on number of counts to satisfy the requirement of proposed enhancement including but not limited to capital erosion, failure to achieve projected sales, and treatment of loss The branch office again submitted a revised enhancement proposal twice at the request of the Writ Petitioner to the sanctioning authority, however same were not returned with directions to justify recommendation for enhancement in view of existing low sales, over dues, difference in estimation and Provisionals, capacity utilization without any further addition in P&M and acceptance of projections of the unit for FY 2021-22.Having failed to satisfy the respondent bank regarding various observation, the Writ Petitioner instead of replying to the queries raised applied for restructuring of loan accounts under RBI's Resolution Framework- 2.0, (Resolution of Covid-19 related stress of Individuals and small businesses) on 29-09-2021 just one day before the date of invocation/implementation of the Resolution Plan which was 30-09-2021.Even though case of the Writ Petitioner did not fall within the parameters, same was sent for consideration to the Competent Authority at the request of the Writ Petitioner, however it was conveyed by Competent Authority on Sept 29,2021 that that the case does not fall within the ambit of "Resolution Framework 2.0 Scheme" as there is no stress on net worth and sales as per the branch proposal and the DSCR for projection year 2024 & 2025 is not within the acceptable range, as such the case stands rejected. Consequently, the accounts of the firm were downgraded on 30-12-2021 with the NPA amount as follows: Facility Account No./Title Limit Date of NPA Amount of NPA Cash Credit 025202010000700 M/s Classic Oil Mills 27200000.00 30.12.2021 2,74,95,156.72 GECL 0252260320000087 M/s Classic Oil Mills 6410000.0 30.12.2021 59,35,895.23 6 Term Loan 0252266800010246 M/s Classic Oil Mills 4905040.90 30.12.2021 38,83,218.28 TOTAL 38515040.90 3,73,14,270.23 The respondent Bank even entertained another restructuring proposal of the writ petitioner for restructuring of the existing facilities and additional working facility of Rs. 130.00 Lakh. Restructuring plan by way of alteration of payment period/payable amount/ the amount of installments/ rate of interest: rollover of credit facilities: sanction of additional credit facility/ release of additional funds for an account in default to aid curing of default/ enhancement of existing credit limits. The proposal was to combine all outstanding balances in all term loan accounts and eroded working capital to one term loan account with 11 (Eleven) years of repayment including the moratorium and gestation period of one year. Besides fresh cash credit facility of Rs. 130.00 Lakh over and above the existing working capital of Rs. 70.00 Lakh (Derived as per Drawing Power available and conversion of eroded working That with reference to the restructuring proposal of the Wit petitioner Competent Authority desired certain documents/ information for the assessment of the resolution structure. The said proposal was returned by the Competent Authority on June 01, 2022, the restructuring proposal is returned to the branch after the desired information was not submitted by the Writ Petitioner with instructions to branch to resubmit the proposal after addressing the infirmities/deficiencies In the follow up to the instruction writ petitioner was requested vide mail/letter dated 03-11-2022 to provide following information; i. Original invoices of the fresh machineries installed along with the details of the year in which the machineries were installed. ii. ii. GST returns for FY 2020-21, 2021-22 and CFY 2022-23. iii. Details/ sources of margin for procurement of fresh machinery After submission of the documents, the proposal was considered by the Divisional Credit Committee (DCC) of the respondent Bank The DDC recorded following observations 31.03.2022: on the analysis of the financials as on Liabilities Amt.in lacs Assets Amt.in lacs Capital 105.88 Fixed Assets 114.92 Term Loan 103.69 Stocks 86.98 Working Capital 284.26 Receivables 184.05 Sundry Creditor 0.90 Cash & Bank Bal 0.25 Accumulated Losses 108.53 Total Liabilities 494.73 Total Assets 494.73 Since total sales in FY2021-22 were only Rs.28.46 Lakh therefore debtors older than one year as on 31.03.2022 have to be only Rs.155.59 Lakh (Rs.184.05-Rs.28.46 lacs) even after assuming 100% credit sales in FY2021-22. For the computation of current ratio and NWC the figure of current assets is to be considered net of Rs. 164.12 Lakh (total of accumulated Posses (Rs.108.53 Lakh) plus debtors older than six months (Rs. 155.59 Lakh) and accordingly:- a. Current Ratio works out at 0.40:1 and networking capital is arrived at negative figures of Rs. 169.47 Lakh. b. The accumulated losses of Rs.108.53 Lakh is more than Tangible Net worth of Rs. 105.88 Lakh, which indicates that the borrower has negative net worth and TL/TNW is more than 385:1. c. Going by 25% margin concept, the net worth of the borrower corresponding to cumulative bank loan of Rs.387.95 Lakh works out to 7 Rs.129.32 Lakh, which transpires that the borrower is required to bring in Rs. 129.32 Lakh as his share over and above that may be required pursuant to restructuring request. The financials analysis suggest that there is no stake of the borrower, all the business assets correspond to bank loan only and that too if and only if the stocks worth Rs.86.98 Lakh existed as on 31.03.2022. d. Infusion of Rs.75.00 Lakh capital in FY2020-21 is represented by an equal addition in fixed assets. However the machinery purchase related bills pertain to prior periods. As per the statement of the borrower machinery for expansion program were purchased/installed upto FY2-20. e. As per the financial statements of FY 2021-22 borrower has to arrange for capital infusion of Rs. 129.32 Lakh to make up his margin contribution of 25%. f. Obtain financials statements of the borrower as 31.12.2022. g. Business Unit to check the veracity of the stocks in hand and the major debtors at least 80% of the existing debtors as on 31.12.2022. Business Unit to ensure whether debtors really exist. h. Branch to ascertain that debtors of Rs. 184.0 Lakh are realizable as on date. i. Business Unit to take sensitivity analysis to ascertain the veracity of achieving the projected sales of Rs.645.25 Lakh and profits thereof. j. Promoters to bring in their sake upfront through additional funds before initiation of restructuring and the same shall not be less than the proposition at the time of original sanction of loan. k. Opinion of LAPM Department be sought and placed on record and copy of the same be forward for perusal of the committee. l. Business Unit to certify that there has not been any diversion of funds. m. Business to ascertain that all statutory permissions/approvals from concerned Govt. Departments are in place and valid as on date. n. Business unit to certify that the adherence of policy for restructuring of MSME borrower is being complied in the restructuring proposal." Immediately thereafter the branch of the respondent Bank through mail on February 06, 2023 conveyed the same to Writ petitioner on their mail id caybr99@gmail.com & classicoilmills@gmail.com, conveyed observations of the DCC for necessary perusal and response. The Writ Petitioner failed to provide any information despite considerable time and accordingly the proposal for restructuring was returned by the DDC to the branch for resubmitting after the Writ petitioner submits the desired information and documents. The said decision, regarding returning of proposal due to non- submission of information clarification sought from the Writ Petitioner/borrower firm, were conveyed to the borrower through mail on Feb 14,2023 and 2 days time was provided to address the observations conveyed through mail dated February 06, 2023 to the Writ Petitioner borrower firm. It is thereafter on February 16, 2023 branch office Air cargo receives a letter from the Writ Petitioner/borrower firm wherein the firm sought some more time to provide information/ clarifications on the observations made by the DCC. Having failed to provide the desired information, respondent bank was forced to issue Demand Notice on Feb 27,2023 to the Writ petitioner /borrower firm along with partners, mortgagors & guarantors to repay the amount of Rs. 4,25,75,954.23 (Rupees Four Crore Twenty Five Lakh Seventy Five Thousand Nine Hundred Fifty Four and Twenty Three Paisa Only), being balance outstanding in the loan accounts of the borrower firm, within a period of 7 (Seven) days from the 8 date of issuance of demand notice along with interest and other charges in full till the adjustment of the account failing which appropriate proceedings for recovery will be initiated at borrower's cost risk & responsibility. The Writ Petitioner borrower firm replied to the legal notice and same was given due consideration and information submitted by the Writ Petitioner was forwarded on March 24, 2023 the branch submits response to DCC provided by the borrower firm and same could not be considered in view of the investigation initiated in the loan accounts of the Writ Petitioner by Supervision, Control & Audit, CHQ. The said investigation was subsequently closed. The Writ Petitioner has failed to provide satisfactory reply to the queries which has resulted in non-consideration of the restructure proposal and cannot blame respondent Bank for the same. The respondent Bank thereafter on May 11, 2023 issued demand Notice under Section 13(2) of SARFAESI Act, 2002 to the borrower firm along with partners, mortgagors & guarantors to repay the amount of Rs 4,38,59,586.23 (Rupees Four Crore Thirty Eight Lakh Fifty Nine Thousand Five Hundred Eighty Six and Twenty Three Paisa Only), together with interest at contractual rate thereon w. e. f. 01.05.2023 along with other charges and costs to be incurred by the Bank from time to time and thereby discharge in full all borrower's liabilities to the Bank within a period of 60 days from the date of this notice failing which the Bank shall at borrower's costs and risk exercise its powers under the Act. Same was followed by recall notice on September 05, 2023, to repay Rs. 4,57,13,712.23 (Rupees Four Crore Fifty Seven Lakh Thirteen Thousand Seven Hundred Twelve and Twenty Three Paisa Only) within a period of 7 days from the date of issuance of the notice. Instead of repaying the outstanding loan amount, the writ petitioner has by suppression of facts invoked the extraordinary jurisdiction of the Hon’ble Court. Anything stated contrary to what has been stated herein above in the paras under reply is denied being bereft of facts and record. As is evident, the issue involves commercial transaction and disputed facts which cannot be decided in writ jurisdiction. Heard counsel for the parties and perused the record. 5. Mr. Altaf Haqani, Senior Advocate appearing for the petitiioner while making his submissions in tune and line with the case set up in the petition, would reiterate the contentions raised and grounds urged in the petition. However, would submit that the petitioner may not press the relief prayed in the petition qua quashing of demand notice dated 5th of September, 2023, in the event respondent Bank re-visits and re-considers the restructuring case of the petitioner on merit taking into consideration the guidelines of the Reserve Bank of India as also those framed by the respondent Bank under the name and style of “Code Banks Commitment to Micro and Small Enterprises” inasmuch as the report of the Committee dated 30th of March, 2023, decision of High Level Committee of December 2021 as also the inspection report conducted by the Committee 9 constituted by Branch authorities on 6th of March 2023 reported in terms of e-Mail dated 30th of March 2023. Mr. Haqani would further submit that since the respondent Bank has not rendered any decision on merits qua restructuring case of the petitioner’s unit but has closed the same on account of alleged failure of the petitioner to furnish necessary and requisite information sought by the respondent Bank, respondent Bank should have no impediment in considering the restructuring case of the petitioner afresh on merits while taking into consideration the aforesaid reports and e-Mail/guidelines and decisions. 6. Mr. Adil Asimi, appearing counsel for the respondent Bank, would, however, oppose the prayer made by the counsel for the petitioner and, while reiterating the case set up in the reply filed by the respondent Bank, would admit that the respondent Bank has closed the restructuring case of the petitioner unit only on account of failure of the petitioner to furnish necessary and requisite information sought by the respondent Bank. Mr. Asimi, however, would not dispute and deny the fact that the respondent Bank did not render any decision on merits qua the restructuring case of the petitioner but for the aforesaid reason on non- furnishing of document/material by the petitioner. Mr. Asimi, while summarizing his submissions would, however, submit that the petition deserves to be dismissed in li-mini, owing its not being maintainable against the demand noticed dated 5th of September, 2023. 7. Insofar as the question of non-maintainability of the petition of the petitioner raised by the counsel for the respondent is concerned, the said plea pales into insignificance, in that, as has been noticed in the preceding paras. The counsel for the petitioner did not press the petition qua the notice dated 5th of September 2023. 8. Insofar as the aforesaid submission of the counsel for the petitioner for reconsideration of the restructuring case of the petitioner by respondent Bank is concerned, the said submission seems to be just and fair more so, in presence of the specific case set up by the respondent Bank that the restructuring case of the petitioner had not been decided by the 10 respondent Bank on merits but, in fact, closed on account of alleged non- furnishing of the documents/requisite information by the petitioner. 9. Having regard to the aforesaid facts and circumstances of the case, inasmuch as the aforesaid respective submission of counsels for the parties, the pleadings as also the documents appended thereto, it is deemed appropriate to dispose of the instant petition at this stage, with the consent of the appearing counsel for the parties without expressing any opinion as to the entitlement or otherwise of the petitioner for restructuring of its case as this Court has not expertise to determine the same or return any findings thereof. 10. Accordingly, the petition is disposed of as follows: - “Petitioner herein is directed to provide the requisite information/record/documents which the respondent Bank had sought from it in terms of letter dated 19.05.2022 and e-Mail dated 14.02.2023 afresh within two weeks from the date a copy of this order is produced by the petitioner before the respondent Bank. The Respondent Bank however, shall be at liberty to seek further information from the petitioner in this regard within two weeks thereafter, whereafter the respondent Bank shall accord effective consideration to the restructuring case of the petitioner, taking into consideration the entire relevant material, including the guidelines of the Reserve Bank of India, guidelines of 2015 of the Bank, and take a decision in the matter on its own merits, preferably within a period of six weeks thereafter, and convey the decision thereof to the petitioner without any further delay. It is made clear that till the decision as directed above is taken by the respondent Bank, the operation of demand notice dated 5th of September 2023 shall remain on hold.” 11. Disposed of. (JAVED IQBAL WANI) JUDGE SRINAGAR 13.02.2025 Ishaq Whether the order is speaking? Yes/No Whether approved for reporting ? Yes/No