2018 (9) TMI 189 - HC - Indian Laws

Property rights upheld, SARFAESI Act questioned, interim protection granted

Rajanala Kusuma Kumari, Enugala Manjula And Bhukya Shakuntala Versus The State of Telangana rep. by its Principal Secretary, Industries and Commerce Department and others

The court concluded that the petitioners had a legitimate claim to their properties and that APSFC's actions under the SARFAESI Act were questionable. It ... Illegal occupants - the petitioners presently dispute the right of the APSFC to proceed against their house properties on the ground that their title would prevail over that claimed by Kusam Eshwaraiah and Kusam Ramesh, the guarantors, who created a security interest in the property allegedly purchased by them in the year 1995 - Whether the APSFC can claim to have a security interest in the subject house properties or claim to be a secured creditor in the context thereof? - SARFAESI Act. Held that:- Though Section 5 of the RDDB Act prescribes that a person shall not be qualified to be appointed as a Presiding Officer of a Tribunal unless he is, or has been, or is qualified to be, a District Judge, the recent change brought about by the Government of India allows persons with no legal background whatsoever also to be appointed as Presiding Officers. Matters of complicated civil nature, such as the cases on hand, cannot be relegated to someone who has no legal wherewithal - Another aspect that requires to be noted is that, though Section 17(5) of the SARFAESI Act prescribes the outer time limits for disposal of securitization applications filed under Section 17(1), Tribunals have not lived up to this statutory mandate. It is rare, if at all, to find a securitization application filed under Section 17(1) being disposed of in terms of the temporal mandate of Section 17(5) thereof. The writ petitions are disposed of permitting the petitioners to invoke the jurisdiction of the competent civil Court within four weeks from the date of receipt of a copy of this order. Issues Involved:1. Ownership of the properties in dispute.2. Legality of the eviction notices issued by APSFC.3. Applicability of the SARFAESI Act.4. Jurisdiction of the Civil Court vs. Debts Recovery Tribunal (DRT).5. Relief sought by the petitioners.Detailed Analysis:1. Ownership of the Properties in Dispute:The petitioners, Rajanala Kusuma Kumari, Enugala Manjula, and Bhukya Shakuntala, claimed ownership of their respective properties through registered sale deeds. They argued that they had legally purchased and constructed houses on these plots, paying necessary property taxes and residing there peacefully. APSFC, however, claimed that these properties were offered as collateral security by Kusam Eshwaraiah and Kusam Ramesh for a loan taken by Sudhamalla Venkat Swamy, and therefore, the properties were subject to recovery proceedings under the SARFAESI Act.2. Legality of the Eviction Notices Issued by APSFC:The dispute began when APSFC issued eviction notices to the petitioners, claiming that the properties were collateral for a defaulted loan. The petitioners responded with legal notices asserting their ownership and denying any connection with the loan or the individuals involved. Despite this, APSFC continued to issue demand and possession notices, ultimately taking symbolic possession of the properties and threatening physical eviction.3. Applicability of the SARFAESI Act:The core issue was whether APSFC could claim a security interest in the properties and proceed under the SARFAESI Act. The petitioners argued that the SARFAESI Act was not applicable as they were not borrowers or guarantors, and the properties were not secured assets. They alleged that the documents used by APSFC to claim a security interest were fraudulent. APSFC contended that the properties were legally mortgaged and the petitioners were illegally occupying them.4. Jurisdiction of the Civil Court vs. Debts Recovery Tribunal (DRT):APSFC argued that the petitioners should approach the DRT under Section 17(1) of the SARFAESI Act, as the measures under Section 13(4) had already been initiated. The petitioners, relying on the precedent set in D. RAM REDDY v. ASSET RECONSTRUCTION CO. (INDIA) PVT. LTD., argued that the civil court had jurisdiction since the applicability of the SARFAESI Act itself was in question. The court agreed with the petitioners, noting that when the very status of the secured asset is in doubt, the jurisdiction of the civil court is not ousted by Section 34 of the SARFAESI Act.5. Relief Sought by the Petitioners:The petitioners sought a declaration that APSFC's actions were fraudulent and unconstitutional, and an injunction against APSFC from proceeding against their properties. The court, recognizing the complexity of the title dispute and the need for a full-fledged trial, directed the petitioners to approach the competent civil court within four weeks. The court also extended interim protection to the petitioners for six weeks or until their stay applications were disposed of by the civil court.Conclusion:The court concluded that the petitioners had a legitimate claim to their properties and that the APSFC’s actions under the SARFAESI Act were questionable. It permitted the petitioners to seek redress in the civil court, maintaining interim protection to prevent their dispossession until the civil court could adjudicate the matter. The decision underscored the importance of determining the validity of the security interest and the applicability of the SARFAESI Act before proceeding with recovery measures.