M. Balasubramaniam Vs Federal Bank Limited (ITAT Chennai)
Debt Recovery Appellate Tribunal (DRAT) in Chennai has directed several guarantors, including M. Balasubramaniam, to pay their pro-rata share of a defaulted loan to Federal Bank Limited, but with a significant rider: the amount must be paid with simple interest at 6% per annum calculated from September 2002. The tribunal imposed the interest penalty after concluding that the appellants demonstrated a “lackadaisical attitude” and negligence in prosecuting their appeal, which had been delayed for years due to dismissals for non-prosecution.
The order disposes of an appeal filed against a 2002 decision by the Debt Recovery Tribunal (DRT), Ernakulam. The original case involved a loan facility extended by a consortium of banks, including Federal Bank, to M/s Teak Tex Processing Complex Ltd. The company’s directors, the appellants in this matter, had provided personal guarantees for the loan. A crucial aspect of their guarantee was a clause restricting their total liability to a capped amount of ₹112.50 lakhs, which was to be shared among all the lending banks on a pari passu, or pro-rata, basis.
When the company defaulted, Federal Bank initiated recovery proceedings (OA No.1717/1998) at the DRT, which ruled in the bank’s favour. The current appeal, RA No. 7/2004, was filed by the guarantors challenging this order, arguing that their liability to Federal Bank should be limited to their proportionate share of the total capped guarantee.
