TaxTMI 
TaxTMI 
2015 (4) TMI 984
X X X X Extracts X X X X
X X X X Extracts X X X X
....rty. The property in contention is CTS No.1194/27­A admeasuring 552 sq.mtrs. situated at Shivajinagar, Pune which was mortgaged to the Defendant Bank as a security against the loan amount of one M/s. Pratam Motors. The Defendant Bank was pleased to sanction a loan of Rs. 2,50,00,000/­ with interest @ 18% p.a. and repayable in 48 installments and a loan of Rs. 1,00,00,000/­ with interest @ 36% and repayable in 12 installments to the said M/s. Pratham Motors. To secure the due repayment of the amounts advanced to the said M/s. Pratham Motors, the said property was mortgaged to the Defendant Bank by one Rajiv Yeshwant Bhale, who was the Managing Partner of the said M/s. Pratham Motors and two others under a registered Deed of Mortgage thereby the said mortgagors have mortgaged their right, title and interest in the said property known as "Yashomala". On default being committed by the said M/s. Pratham Motors in repayment of the said loan amounts, the account maintained by the Defendant Bank was classified as a Non Performing Asset. The Authorized Officer of the Defendant Bank thereafter issued notice under Section 13(2) of the Securitisation and Reconstruction of Financial....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the Plaintiff by suppressing the said material fact from the Plaintiff. It is the case of the Plaintiff that it is for want of the explanation from the Defendant that the Plaintiff withheld the further amount and waited for the necessary explanation from the Defendant. It is further the case of the Plaintiff that a substantial interest is created in its favour in the said property, and despite the same and with the deliberate intention of deceit, the Defendant has re­advertised the said property for auction, on account of which the Plaintiff was constrained to file the suit in question. 5 The Applicant herein i.e. the original Defendant filed an Application under Section 9A of the Civil Procedure Code. After stating the antecedent facts leading to the auction sale and thereafter cancellation of the sale made in favour of the Plaintiff and forfeiture of the amount paid by the Plaintiff, the Defendant raised a preliminary issue as regards jurisdiction of the Civil Court to entertain the suit on the touchstone of Section 34 of the SARFAESI Act. The jurisdiction of the Civil Court was questioned on the ground that the action taken by the Defendant was a measure taken under Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... case the mortgage created in favour of the bank by the father was called in question by his sons on the ground that mortgaged property was a joint family property and the father had no exclusive right to mortgage the same and had therefore sought partition of the property. The sons had also alleged that there was a collusion between the Bank officials and their father. It is in the said circumstance that the learned Single Judge held that the issue of partition etc of the property which was put to auction can only be tried by the Civil Court. B] That the remedy under Section 17 of the SARFAESI Act is available to the Plaintiff as the expression "any person" appearing in Section 17 is held to be having a wide amplitude in view of the judgments of this Court as well as the judgments of the Apex Court. C] That the judgment in Mardia Chemicals Ltd.'s case (supra) carves out a very restricted exception, it is only when a fraud is alleged in respect of the mortgage which is created, that a suit would lie and merely because in the instant case it is alleged by the Plaintiff that a fraud has been committed would not entitle the Plaintiff to maintain a suit when the remedy under Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Industrial Enterprises Limited v/s. Hong Kong Shanghai Banking Corporation (2009) 8 SCC 646 and the judgment of a learned Single Judge of this Court in the case of State Bank of India's case (supra). iii] That the Rules in question are mandatory and any infringement thereof would amount to violation of the rights of the Plaintiff, and would therefore entitle the Plaintiff to file a suit and seek appropriate reliefs in the said suit. In support of the said contention, the learned counsel for the Respondent/Plaintiff has placed reliance on the following judgments of the Apex Court :­ (A) Mathew Varghese's v/s. M. Amritha Kumar and ors. (2014) 5 SCC 610 (B) J. Rajiv Subramaniyan and another v/s. Pandiyas and ors (2014) 5 SCC 651 (C) Vasu P Shetty v/s. Hotel Vandana Palace and others (2014) 5 SCC 660 CONSIDERATION :­ 9 The issue that arises for consideration in the above Civil Revision Application is, whether the suit filed for permanent injunction against reauctioning of the property in question is maintainable. Hence the vexed issue whether a suit against the measures taken under Section 13 of the SARFAESI Act is maintainable has once again attracted the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iminal breach of trust, and, therefore, this suit." (Emphasis supplied) 11 Since the Defendant has raised a preliminary issue regarding maintainability of the suit on the touchstone of Section 34 of the SARFAESI Act against a measure taken under Section 13, and since it is also the contention of the Defendant that the Plaintiff could take recourse to Section 17 of the said Act against the auction of re­advertising of the property in question. It would be necessary to refer to Sections 13, 17 and 34 of the SARFAESI Act which for the sake of ready reference are reproduced herein under :­ "13. Enforcement of security interest (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured cred....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub­section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5­A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorized by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5­B) Where the secured creditor, referred to in subsection (5­A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the am....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub­section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529­A of that Act: Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....easure had been taken: Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower. Explanation : For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub­section. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub­section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub­section(4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r. "34. Civil Court not to have jurisdiction­­­­ No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)." It would also be necessary to refer to Rule 8 of the Security Interest (Enforcement) Rules 2002 which also has a bearing on the instant matter. The said Rule 8 clause (f) is therefore reproduced herein under for the sake of ready reference :­ "8. Sale of immovable secured assets (1) Where the secured asset is an immovable property, the authorised officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix­IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web­site of the secured creditor on the Internet. (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. A reading of section 13 of the SARFAESI Act makes it clear that any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal. In the event the borrower fails to discharge his liability in full within the period specified, the secured creditor is entitled to take recourse to transfer by way of lease assignment or sale for realizing the secured assets. In so far as the measure that is taken under Section 13 is concerned, Section 17 provides for an application to be made by any person aggrieved by any of the measures referre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought : Adams v. Scott (1859) 7 WR (Eng) 213 (249). I need not point out that this restraint on the exercise of the power of sale will be exercised by Courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Rashbehary Ghose Law of Mortgages, Vol. II, Fourth Edn., page 784)" Hence in so far as invoking the jurisdiction of the Civil Court is concerned, a very limited exception is carved out by the Apex Court where the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe. In the said context a useful reference could be made to the judgment of the Division Bench of this Court in Jigishaben B Sanghavi's case (supra). Paragraphs 21 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was a co­owner/tenant in common of the residential flat; (ii) The Bank has taken recourse to proceedings for recovery to which the HUF was not a party; (iii) The Plaintiffs had, in the course of the recovery proceedings, raised an objection before the Recovery Officer to the tenability of the action taken by the Bank; (iv) The Bank had taken recourse to its remedy under the Securitization Act without awaiting the result of the objection raised by the Plaintiffs; (v) The action under Section 13(2) was initiated in disregard to the provisions of the Securitization Act; (vi) The mortgage executed by the Second, Third and Fourth Defendants was defective because the original Share Certificates were not with the Bank; (vii) The First Defendant had no security interest and no secured assets and, therefore, was not entitled to invoke the provisions of Sub­section (4) of Section 13 against the right claimed by the HUF; (viii) A 'systematic fraud' was played by the First Defendant to pressurise the Plaintiffs; and (ix) There was an absence of legal necessity which would vitiate the mortgage alleged to have been created by the Second Defendant as Karta of the HUF. The reliefs ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Supreme Court in Mardia Chemicals case, (2004) 4 SCC 311. Pointing that Court has duty to see if such allegations of fraud are thrown just for the purpose of maintaining a suit, in Punjab National Bank v. J. Samsath Beevi, 2010 (3) CTC 310 : LNIND 2010 Mad 1331 : (2010) 3 MLJ 439, Justice V. Ramasubramanian held as under: ­ "8. But at the same time, the Court has a duty to see, if such allegations of fraud are thrown, just for the purpose of maintaining a suit and ousting the jurisdiction of the Tribunal and to keep the Banks and Financial Institutions at bay. If by clever drafting, the plaintiff creates an illusion of a cause of action, the Court is duty bound to nip it in the bud. To find out if it is just a case of clever drafting, the Court has to read the plaint, not formally, but in a meaningful manner. So is the dictum of the Apex Court in T.Arivandandam vs. T.V.Satyapal [1977 (4) SCC 467]. It was again reiterated by the Court in I.T.C. Ltd vs. Debts Recovery Appellate Tribunal [1998 (2) SCC 70], by holding that clever drafting, creating illusions of cause of action are not permitted in law. The ritual of repeating a word or creation of an illusion in the plaint can ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of fraud and collusion between the borrowers and those making such claims." We fully endorse the above views of the learned single Judge." The Division Bench of Madras High Court has therefore held that the Court which is dealing with the suit questioning the measure taken under Section 13 is required to consider whether by clever drafting an illusion of cause of action is created and the suit is sought to be brought within the ambit of the exception carved out by the Apex Court in Mardia Chemicals Ltd.'s case (supra). 14 In the instant case, as indicated above, the relevant averments in the plaint are in Paragraphs 6 11 and 12. The allegations in the said paragraphs have been made on the basis that the Defendant in the auction notice and in terms of the conditions of the auction has not disclosed or suppressed the factum of there being an attachment of the Income Tax Department on the secured asset. The plaint does not contain any complicated facts leading to the case of fraud or how the action of the Defendant Bank is fraudulent. There are therefore no complicated issues of fact which are to be tried. It would have to be borne in mind that the auction was on "as is where....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions. 14. A right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide Lachhman Dass v. Jagat Ram and State of M.P. v. Narmada Bachao Andolan ) Thus, the condition precedent for taking away someone's property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions. 28. In view of the above, the law can be 44ummarized to the effect that the recovery of the public dues must be made strictly in accordance with the procedure prescribed by law. The liability of a surety is coextensive with that of the principal debtor. In case there are more than one surety the liability is to be divided equally" 43. The above principles laid down by this Court also makes it clear that though the recovery of public dues should be made expeditiously, it should be in accordance with the procedure prescribed by law and that i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to in sub­section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of the said Act and Rules made thereunder. The Debts Recovery Tribunal is therefore vested with the jurisdiction to adjudicate whether the measures taken are in accordance with the Act and Rules. Hence apart from the fact that in the light of the averments made in the plaint of the instant suit, they cannot be said to fall in the exception carved out in Mardia Chemicals Ltd.'s case (supra). It would also have to be held that in the instant case the suit is not maintainable in view of the fact that in the instant case there is no issue which cannot be adjudicated upon by the Debts Recovery Tribunal. 17 Having come to the conclusion that the grievance of the Plaintiff can be addressed under Section 17 of the SARFAESI Act. It would be relevant to refer to the judgments of the Apex Court cited on behalf of the Defendant on the point of efficacy of the remedy available under Section 17 of the SARFAESI Act as also the exhaustion of the said remedy by the borrower or the aggrieved person, though in the context of exercise of the writ jurisdiction....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court held that the expression `any person' appearing in Section 17 of the Act, 2002 is of very wide amplitude and would also cover the Petitioner therein. The learned Single Judge of the Delhi High Court relied upon the judgment of the Apex Court in Jagdish Singh v/s. Heeralal and others (2014) 1 Comp LJ 307 (SC) wherein the Apex Court has held that irrespective of the question whether the civil suit is maintainable or not, under the Securitisation Act itself, a remedy is provided to such persons so that they can invoke the provisions of section 17 of the Securitisation Act, in case the bank (secured creditor) adopts any measure including the sale of the secured assets, on which the Plaintiffs claim interest. Relying upon the said judgment, the learned Single Judge of the Delhi High Court held that the Plaintiff would have to file an appeal/application under section 17 of the SARFAESI Act. Hence except where the cases fall within the exception carved out in Mardia Chemicals Ltd.'s case (supra), the weight of the judgments of the Apex Court is on the aggrieved persons invoking the remedy under section 17 of the SARFAESI Act. 18 The Trial Court as can be seen from the impu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e property at throw away price and the same was fraudulent. The Plaintiffs' claim was based on the said averments and had sought the relief for declaration that the notice dated 8/2/2010 issued by the Defendant No.3 Bank was fraudulent and void ab­initio and hence a permanent injunction was claimed against the Defendant No.3 Bank from proceeding to deal with the property in accordance with the provisions of the said Act. A preliminary issue was raised objecting to the maintainability of the said suit on the touchstone of Section 34 of the said Act as also in view of the fact that the remedy under Section 17 was available to the Plaintiffs. On behalf of the Plaintiffs, the judgment in Mardia Chemicals Ltd.'s case (supra) was relied upon to contend that where the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and entertainable, which may not require any probe whatsoever. The learned Single Judge whilst adjudicating the preliminary issue of the maintainability of the suit has observed that the Debts Recovery Tribunal under Section 17 of the SARFAESI Act cannot adjudicate upon the question as to whether the Defendant Nos. 1 and 2 we....