2004 (7) TMI 350 - HC - Companies Law

Fresh Notice Required for Mortgagee Rights: Legal Heirs and Bona Fide Purchaser Status

Kundanben Jayantilal Sanghvi Versus State Bank of Saurashtra

Kundanben Jayantilal Sanghvi Versus State Bank of Saurashtra - [2004] 56 SCL 456 (GUJ.) Issues Involved:1. Validity of the notice issued under the repealed Ordinance.2. Rights of the petitioners as purchasers under Section 53A of the Transfer of Property Act.3. Bona fide purchaser status of the petitioners.4. Requirement of notice to legal heirs of the deceased guarantor.5. Availability and adequacy of alternative remedy under Section 17 of the Act.Issue-wise Detailed Analysis:1. Validity of the notice issued under the repealed Ordinance:The petitioners contended that the notice issued under the repealed 'Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002' was invalid. The respondent Bank argued that the substance of the notice, which aligns with Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, should be considered. The judgment concluded that the reference to the repealed Ordinance was not of much relevance and directed the Bank to issue a fresh notice under the Act.2. Rights of the petitioners as purchasers under Section 53A of the Transfer of Property Act:The petitioners claimed protection under Section 53A of the Transfer of Property Act, asserting their right to possession against the Bank. The judgment clarified that the petitioners, holding only an agreement to sell without a registered sale deed, did not acquire lawful interest in the property. The Bank, as the mortgagee, has an overriding right under Section 13(1) of the Act, rendering the petitioners' claim under Section 53A inapplicable against the Bank.3. Bona fide purchaser status of the petitioners:The petitioners claimed to be bona fide purchasers, unaware of the mortgage. The judgment noted that determining the bona fide nature of the purchase involves questions of fact, unsuitable for examination under Article 226 of the Constitution. It highlighted that the agreement to sell was on an outdated stamp paper and unregistered, raising doubts about its genuineness. The appropriate forum for such determination would be the Debt Recovery Tribunal (DRT).4. Requirement of notice to legal heirs of the deceased guarantor:The petitioners argued that notice should have been served to the legal heirs of the deceased guarantor. The judgment stated that this issue should be addressed through the remedy available under Section 17 of the Act, as per the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India. The Court refrained from examining this aspect, emphasizing the self-imposed restriction when an efficacious remedy exists.5. Availability and adequacy of alternative remedy under Section 17 of the Act:The petitioners contended that the remedy under Section 17 of the Act would be illusory if they were dispossessed. The judgment, referencing the Supreme Court's decision in Mardia Chemicals Ltd., upheld that the remedy under Section 17 is adequate and should be pursued after the Bank takes action under Section 13(4) of the Act. The Court declined to interfere at this stage under Article 226 of the Constitution.Conclusion:The Court disposed of the petition with specific directions:1. The Bank is permitted to issue a fresh notice under Section 13(2) of the Act to the legal heirs of the guarantor.2. The petitioners may make a representation to the Bank, which the Bank should consider before taking action under Section 13(4) of the Act.3. After action under Section 13(4), the petitioners can approach the DRT under Section 17 of the Act.4. The DRT will decide independently, uninfluenced by this judgment.The petition was disposed of with no order as to costs, and the interim deposit made by the petitioners was ordered to be refunded.