2016 (11) TMI 1315 - HC - Indian Laws

Invalid Sale Deed Void; Bank's Consent Essential

The Court held that the sale deed executed after the initiation of proceedings under the SARFAESI Act was void as it lacked the Bank's consent, rendering ... Restraining the Bank from proceeding further with eauction with respect to the mortgaged property in question - Held that:- Though the original applicant claims to have purchased the mortgaged property in question by registered sale deed on 25.04.2014 and on payment of sale consideration and though according to him when the Bank took the actual, physical possession on 12.06.2014 pursuant to the order psased by the learned District Magistrate under Section 14 of the SARFAESI Act, from the panchnama it appears that at the time when the Bank Officers went to take the possession of the mortgaged property in question, in the month of February 2016, wife of the original owner / mortgagor was present in the bungalow / mortgaged property and the original applicant was not in possession of the mortgaged property in question. From the panchnama it appears that at that time the wife of the original mortgagor after seeing the officers who had came to take the possession ran away. That thereafter the Bank had taken the actual, physical possession by drawing the panchnama and doing the videography. From the aforesaid it can be said that a systematic fraud has been committed by the mortgagor in connivance with the original applicant with malafide intention only with a view to dupe the legitimate dues of the Bank and the realization of large sum of amount by the Bank to the extent of ₹ 3,46,55,433 + further interest charges etc. It is required to be noted that even the original borrower / mortgagor, M/s. Shukan Palace Infrastructure and its partners have duped so many investors who have purchased the residential bungalows in the scheme viz. Shukan Palace – I, Ghatlodiya, Ahmedabad. The possession was taken over from the wife of the mortgagor / mortgagor and not from the original applicant. The aforesaid has not been appreciated by the learned Tribunal while passing the impugned order. Considering the above Tribunal has materially erred in passing the impugned order restraining the Bank from proceeding further with eauction of the mortgaged property which was mortgaged by the mortgagor while taking the huge loan / credit / financial assistance. So far as the submission on behalf of the original applicant that as against the impugned order the petitioner Bank has a statutory remedy available by way of appeal before the Debts Recovery Tribunal, Mumbai and therefore, the present petition may not be entertained is concerned, at the outset it is required to be noted that as such the post of Member/s of Debts Recovery Appellate Tribunal, Mumbai is vacant and there is no incumbent and therefore, the petitioner is justified in approaching this Court. Even otherwise considering the impugned order passed by the learned Tribunal and as observed hereinabove the learned Tribunal has exceeded in its jurisdiction in entertaining the securitization application and passing the impugned order at the instance of the original applicant, the transaction in whose favour is a nullity, we are of the opinion that this is a fit case to entertain the petition and exercise the powers under Article 226 of the Constitution of India. Impugned order passed by the learned Debts Recovery Tribunal – I, Ahmedabad in Securitization Application is hereby quashed and set aside and the petitioner Bank is permitted to proceed ahead with eauction of the mortgaged property in question viz. Bungalow No.15, Shukan Palace – I, Ghatlodiya, Ahmedabad. Rule is made absolute to the aforesaid extent. No costs. Issues Involved:1. Validity of the sale deed executed after the initiation of proceedings under the SARFAESI Act.2. Jurisdiction of the Debts Recovery Tribunal in entertaining the securitization application.3. Legality of the order passed by the District Magistrate under Section 14 of the SARFAESI Act.4. Right of the Bank to proceed with the e-auction of the mortgaged property.5. Availability of alternative remedy to the petitioner Bank.Detailed Analysis:1. Validity of the Sale Deed Executed After the Initiation of Proceedings under the SARFAESI Act:The core issue revolves around the sale deed dated 25.04.2014 executed in favor of the respondent, which was challenged by the petitioner Bank. The Court observed that the sale deed was executed after the Bank had initiated proceedings under Section 13(2) of the SARFAESI Act on 18.01.2014. As per Section 13(13) of the SARFAESI Act, any transaction by way of sale, lease, or otherwise concerning the secured assets after the notice under Section 13(2) is void unless prior written consent from the secured creditor is obtained. The Court held that the sale deed in favor of the respondent was nullity and void since it was executed without the Bank's consent, making it incapable of conferring any right, title, or interest in the mortgaged property to the respondent.2. Jurisdiction of the Debts Recovery Tribunal in Entertaining the Securitization Application:The petitioner Bank contended that the Debts Recovery Tribunal (DRT) erred in entertaining the securitization application filed by the respondent, whose transaction was a nullity. The Court agreed, stating that the DRT should not have entertained the application or granted an interim order restraining the Bank from proceeding with the e-auction. The Tribunal's decision to entertain the application and issue the interim order was deemed beyond its jurisdiction, as the respondent had no locus standi to challenge the securitization proceedings based on a void sale deed.3. Legality of the Order Passed by the District Magistrate under Section 14 of the SARFAESI Act:The respondent argued that the order passed by the District Magistrate under Section 14 of the SARFAESI Act, authorizing the Bank to take possession of the property, was illegal. However, the Court noted that the original mortgagor did not challenge the order of possession. The possession was taken from the wife of the mortgagor, not from the respondent. The Court found no merit in the respondent's argument, emphasizing that the possession taken by the Bank was lawful and followed due procedure under the SARFAESI Act.4. Right of the Bank to Proceed with the E-auction of the Mortgaged Property:The Court upheld the petitioner Bank's right to proceed with the e-auction of the mortgaged property. It was noted that the Bank had taken symbolic possession on 12.06.2014 and actual physical possession on 13.02.2016 following the necessary formalities. The interim order by the DRT restraining the Bank from conducting the e-auction was quashed, allowing the Bank to proceed with the auction to realize its dues.5. Availability of Alternative Remedy to the Petitioner Bank:The respondent argued that the petitioner Bank had a statutory remedy available by way of appeal before the Debts Recovery Appellate Tribunal (DRAT). However, the Court noted that the post of Member of the DRAT, Mumbai, was vacant, making the alternative remedy unavailable. Given the circumstances, the Court exercised its powers under Article 226 of the Constitution of India to entertain the petition, setting aside the impugned order passed by the DRT.Conclusion:The petition was allowed, and the impugned order dated 11.03.2016 passed by the DRT was quashed. The petitioner Bank was permitted to proceed with the e-auction of the mortgaged property. Special Civil Application No.17901/2015 was dismissed as withdrawn with liberty to the petitioners to avail any other remedy at an appropriate stage. The interim order granted by the Tribunal was directed to continue till 23.10.2016 to allow the respondent to approach a higher forum, with a direction to maintain the status quo regarding the property.