2017 (3) TMI 748 - HC - Indian Laws

Court directs Recovery Officer to decide on objections regarding Property No. 6 within 3 months. SARFAESI Act applications ruled on.

The court directed the Recovery Officer to decide on objections raised by SGS Constructions and others regarding Property No.6 within three months. The ... Objections under the recovery certificate - jurisdiction and procedure of the Recovery Officer under the RDDBFI Act - protection of aggrieved persons under Section 17 of the SARFAESI Act - competence of DRT to adjudicate measures taken under Section 13 of the SARFAESI Act - relation between proceedings under RDDBFI Act and SARFAESI Act - admissibility of amendment of objections and adducing evidence under Schedule II to the Income Tax ActObjections under the recovery certificate - jurisdiction and procedure of the Recovery Officer under the RDDBFI Act - admissibility of amendment of objections and adducing evidence under Schedule II to the Income Tax Act - Validity of the Recovery Officer's order dated 01.07.2015 and the consequent orders of DRT and DRAT denying amendment of SGS Constructions' objections and refusing to decide its supplementary material. - HELD THAT: - The Court held that the Recovery Officer is bound by Section 29 of the RDDBFI Act to conduct inquiries in the manner prescribed by the Second and Third Schedules to the Income Tax Act and to afford objectors an opportunity to be heard. SGS Constructions had filed objections in 2011 and supplementary objections in 2013 and sought amendment to place on record subsequent events (including the Exchange Deed and registration/stamping developments). Rule 11(3) of Schedule II entitles an objector to adduce evidence to establish interest in the property. In the factual matrix, and in light of the Supreme Court's directions that such questions are for the Recovery Officer (not for writ jurisdiction), the Recovery Officer's refusal to permit amendment and to consider additional material was held to be contrary to law. Consequently, the impugned orders of the Recovery Officer dated 01.07.2015 and the confirming orders of DRT and DRAT dated 10.07.2015 and 20.07.2015 were set aside and the application for amendment was allowed. [Paras 50, 51, 52]Order dated 01.07.2015 of the Recovery Officer and the confirming orders of DRT and DRAT are set aside; SGS Constructions' application to amend its objections is allowed and the Recovery Officer must decide the objections in accordance with law.Protection of aggrieved persons under Section 17 of the SARFAESI Act - competence of DRT to adjudicate measures taken under Section 13 of the SARFAESI Act - relation between proceedings under RDDBFI Act and SARFAESI Act - Whether applications under Section 17(1) of the SARFAESI Act pending before DRT (including the claim that the land is agricultural and hence outside SARFAESI) must be adjudicated before any sale or enforcement step is taken. - HELD THAT: - The Court emphasised that Transcore permits a secured creditor to invoke SARFAESI during pendency of recovery proceedings, but Section 17(2) casts a duty on the DRT to examine whether measures under Section 13 are in accordance with the SARFAESI Act and Rules; DRT may direct restoration of possession if measures are not in consonance with Section 13(4). The Court noted that statutory timelines under Section 17(5) require disposal within 60 days (with limited extension), yet the DRT had not adjudicated the pending Section 17 applications. The order of DRAT dated 25.06.2013 cannot preclude DRT from deciding those applications; that DRAT order cannot render the Section 17 applications redundant. Therefore DRT must decide all pending Section 17(1) applications, including the contention that Property No.6 is agricultural and outside SARFAESI, in accordance with law within the time directed by this Court. [Paras 44, 45, 46, 54]DRT shall decide all pending Section 17(1) applications (including the agricultural land contention) in accordance with law within three months.Jurisdiction and procedure of the Recovery Officer under the RDDBFI Act - objections under the recovery certificate - Scope and final forum for adjudication of inter se disputes and demarcation questions relating to the 21 acres said to have been exchanged (i.e., whether the High Court could decide those rights in writ jurisdiction). - HELD THAT: - The Court recorded that the Supreme Court in Maharaji Educational Trust v. SGS Construction & Development Pvt. Ltd. & Ors. held that the High Court erred in adjudicating property-rights and demarcation and that such questions fall within the Recovery Officer/DRT's purview where recovery proceedings are pending. Consequently, the impugned writ remedies are inappropriate to resolve inter se property disputes and demarcation; those contentious issues must be decided by the Recovery Officer in the execution/recovery proceedings. The present judgment follows that direction and entrusts the Recovery Officer to determine the nature of the 21 acres and related objections in accordance with law. [Paras 49, 50, 53, 54]All inter se disputes and demarcation issues (including the character of the 21 acres) shall be adjudicated by the Recovery Officer; writ jurisdiction is inappropriate for deciding those property-rights.Final Conclusion: The challenge to the Recovery Officer's order dated 01.07.2015 and the confirming orders of DRT and DRAT is allowed; SGS Constructions' amendment application is permitted. The Recovery Officer shall decide all objections in respect of Property No.6 in accordance with the procedure in the Second and Third Schedules to the Income Tax Act within three months. DRT shall decide all pending Section 17(1) SARFAESI applications (including the agricultural land contention) within three months. Interim orders passed by this Court are vacated and status quo as on today in respect of Properties Nos.1 to 6 is to be maintained until adjudication is complete. Issues Involved:1. Mortgage and Recovery Proceedings2. Validity of the Agreement of Sale3. Jurisdiction and Maintainability of Writ Petitions4. Status and Nature of Property No.65. Proceedings under SARFAESI Act vs. RDDBFI Act6. Interim Orders and AppealsDetailed Analysis:1. Mortgage and Recovery Proceedings:The Trust had taken a loan from HUDCO in 1995 by mortgaging six properties, including Property No.6, a vacant land. Upon default, HUDCO initiated proceedings before the Debt Recovery Tribunal (DRT) under the RDDBFI Act. The DRT issued a Recovery Certificate for Rs. 148.08 crores in 2008, which was upheld by the Debt Recovery Appellate Tribunal (DRAT). The Recovery Officer initiated steps to recover the debt by selling the mortgaged properties.2. Validity of the Agreement of Sale:SGS Constructions entered into an agreement of sale with the Trust for Property No.6 in 2010. The Trust contended that the agreement, being unregistered, did not confer any right or title to SGS Constructions as per Section 54 of the Transfer of Property Act and Section 49 of the Registration Act as amended by the State of U.P. SGS Constructions, however, argued that the agreement was later duly stamped and registered, thus conferring rights over the property.3. Jurisdiction and Maintainability of Writ Petitions:Several writ petitions were filed by different parties, including SGS Constructions, KM Realcon Pvt. Ltd., and the Trust, seeking various reliefs related to the sale and recovery proceedings. The Supreme Court held that the High Court of Allahabad had erred in adjudicating property rights under writ jurisdiction and directed that such disputes be resolved by the DRT and Recovery Officer.4. Status and Nature of Property No.6:A significant contention was whether Property No.6 was agricultural land, which would exclude it from the purview of the SARFAESI Act as per Section 31(i). SGS Constructions claimed it was agricultural land, while HUDCO and the Trust argued it was residential land, supported by various documents. The Supreme Court directed that the nature and character of the land be adjudicated by the Recovery Officer.5. Proceedings under SARFAESI Act vs. RDDBFI Act:HUDCO initiated proceedings under the SARFAESI Act for enforcing the security interest in the mortgaged properties. The Supreme Court in Transcore v. Union of India held that financial institutions could take recourse to the SARFAESI Act even when recovery proceedings under the RDDBFI Act were pending. The DRT was directed to consider whether the measures taken by HUDCO under the SARFAESI Act were in accordance with the law.6. Interim Orders and Appeals:Various interim orders were passed by the Single Judge, which were challenged through LPAs. The court observed that SGS Constructions was not given a fair opportunity to address its objections before the Recovery Officer. The orders of the Recovery Officer and subsequent confirmations by DRT and DRAT were set aside, and the Recovery Officer was directed to consider the objections afresh.Conclusion:The court directed the Recovery Officer to consider and decide the objections raised by SGS Constructions and other objectors regarding Property No.6 within three months. The DRT was also directed to decide all applications under Section 17(1) of the SARFAESI Act, including the claim that Property No.6 was agricultural land. All interim orders were vacated, and status quo regarding the properties was to be maintained until appropriate orders were passed. W.P.(C) No.3047/2016 was allowed, and the other writ petitions and LPAs were disposed of accordingly.