TaxTMI 
TaxTMI 
2018 (3) TMI 275
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....ritization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act") for the prayers as prayed for in detail iner alia that appropriate writ, order or direction may be issued quashing and setting aside the impugned notice dated 12.07.2014 issued by Respondent No.1 - Bank of Baroda, Ashram Road Branch, Ahmedabad in exercise of power under the SARFAESI Act on the ground stated in the memo of petition. 2. The facts of the case briefly summarized are as follows. 3. The petitioners in this group of petitions are the members of the scheme constructed by the respondent Shukan Gold Corporation in the land bearing Survey No. 236, Town Planning Scheme No.33, Final Plot No. 64/B. Respondent No.2 - M/s Shukan Gold Corporation, a partnership firm, executed various agreement to sale in favour of the Petitioners and other members, assigning rights over the constructed properties referred to in detail at AnnexureA and they have been allotted the units / flats. The petitioners have also taken the loan against the individual units / flats allotted to them. It is averred that the title clearance certificate has been obtaine....
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....ow about the same. Therefore, the reply was given by the members of the Society i.e. Shukan Gold Housing Service Society through lawyer dated 22.04.2014 produced at AnnexureI. Thereafter, as stated in detail, a criminal complaint was also came to be filed by one of the members of the petitioners against the partners of Respondent No.2 - M/s Shakun Gold Corporation. Therefore, the contentions are raised that it is the case of the petitioners that with a mala fide intention and in collusive manner, the mortgage deed is entered between the Respondent No.1 and Respondent No.2 inter se without any intimation to the members of the Cooperative Society i.e. the petitioners. It is therefore contended that such collusive act may affect the rights of the present petitioners, and the Respondent No.1 Bank has also not taken care at the time of entering into the mortgage deed with Respondent No.2 regarding actual physical verification regarding any transaction or purchase of the said properties. It is specifically contended that the Reserve Bank of India has published a Circular dated 27.08.2009 making it compulsory for the builders to publish the details of mortgage in the brochure or in the ne....
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....ar newspaper inviting attention of public at large that the property owned by Respondent No.2 i.e. M/s Shukan Gold Corporation at village Gota with construction thereon is mortgaged with Respondent No.1Bank. It is therefore contended that all the persons concerned should inter into such transaction in respect of such property with open eye. It is also contended that as Respondent No.2 - Shukan Gold Corporation has failed to make the payment of the loan, their account has become Non Performing Asset, and therefore, demand notice under SARFAESI Act was given by Respondent No.2 Bank in Divya Bhaskar on 12.07.2014. It is therefore contended that the bank has issued a statutory power under Section 13(4) of the SARFAESI Act and the persons like petitioners cannot claim any right merely because they have been a members by booking the flats or the units. The demand notice has been published for taking over possession of the property for valuation to repay the loan. Therefore, it is contended that all transactions which have been done by Respondent No.1 with an intention to defeat the case of the present Respondent and such a petition deliberately filed to defeat the interest of Respondent ....
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.... having accepted the terms and conditions for sanction of the loan, has, in connivance with the Petitioners by joining hands with the petitioners has sold the flats and handed over the possession without depositing the consideration received in escrow account. It is therefore contended that no possession of the flats or the shops could have been given by Respondent No.2 except after obtaining the NOC from Respondent No.1 Bank. It is reiterated that only in respect of 50 flats NOC has been obtained and thereafter Respondent No.2 has adopted the practice with an intention to commit fraud with the Bank and had handed over the possession to such flat owners without depositing the amount in escrow account and thereby caused prejudice to the rights of Respondent No.1 Bank and therefore notice has been issued under the SARFAESI Act. It is therefore contended that the petition may not be entertained. It is also contended that the defence of bona fide purchaser would not be applicable. 5. The Hon'ble Apex Court in a judgment in case of Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. & Ors. reported in (2014) 6 SCC 1 has made a reference to other judgment an....
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....ent No.2 and Respondent No.1 is required to be considered. Learned Senior Counsel Shri Shalin Mehta submitted that the Bank which is said to have advanced the loan has not taken care or exercised a care which normally a prudent man would exercise, only with a view to favour Respondent No.2. Learned Senior Counsel Shri Shalin Mehta submitted that the mortgage of the land executed has not been registered and thereafter Shukan Cooperative Housing Society has been made in 2012. He submitted that the petitioners who are the members of such Housing Society would not be aware of any mortgage and since it has not been registered till 2014, the date of registration could not relate back to the previous years. He strenuously submitted that if such interpretation is accepted it would be against the principle of fairness and equity. He pointedly referred to the papers. Learned Senior Counsel Shri Shalin Mehta therefore submitted that the contention about maintainability of the petition under Article 226 of the Constitution of India is misconceived even if there is an alternative remedy. It has been clearly observed while deciding the judgment in case of Whirlpool Corporation Vs. Registrar of T....
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....ticularly page 223 and submitted that it supports the say of the petitioners that the Bank is aware and could not have permitted Respondent No.2 to enter into the transaction as the amount paid by the purchaser was required to be deposited in escrow account. Learned Senior Counsel Shri Shalin Mehta submitted that had the Bank been following the procedure and vigilant, the amount could not have been siphoned off in another account which is now stated in the affidavit by Respondent No.1 Bank. He submitted that the negligence or connivance with builder Respondent No.2 may not be at the cost of the petitioners who are bona fide purchaser. He referred to the Circular of the RBI and submitted that Respondent No.1 Bank had to follow it strictly. 11. Learned Senior Counsel, Shri S.I. Nanavati appearing with learned advocate, Mrs.V.D. Nanavati for the petitioners of Special Civil Application Nos.17807, 18825, 19443, 19481, 20630 & 20631 to 20672 of 2015 submitted that it is a case of abuse of the statutory powers when the respondent no.1 has in connivance with the respondent no.2 failed to protect the interest of the bank and now the persons like petitioners, who are bonafide purchasers ....
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....and if the public institution like the respondent no.1bank has mortgaged created in the favour, necessary entry including the registration is required to be made and they cannot have any excuse that it might have been left when the banks have their panel of lawyers as well as legal advisers and the legal 21 67 department. Learned Senior Counsel, Shri Nanavati therefore submitted that such excuses are rather over simplification to conceal the misdeeds of the respondent no.1bank and its officers. 12. Learned Senior Counsel, Shri Nanavati submitted that it is in this background, the submissions made with much emphasis on the alternate remedy and exercise of discretionary jurisdiction under Article 226 of the Constitution of India are required to be considered. He submitted that since the mortgage was not created or was not brought to the notice and, therefore, transaction has taken place, the persons like petitioners cannot be saddled with liability. He submitted that if before the Debt Recovery Tribunal, it is relegated, the persons like petitioners having purchased after proper procedure without any notice or mortgage or in many cases also, no objection from the respondent no.1ba....
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....ed. Learned Senior Counsel, Shri Nanavati also referred to the judgment of the Hon'ble Division Bench of the High Court of Gujarat in case of Pranjivan Purishottam Zaveri & Anr. Vs. Dena Bank Through Authorised Officer & Ors., reported in 2011 (3) GLH 632 and submitted that on the contrary, as observed in Paragraph No.17, it has been clearly observed that it cannot be said that by affording protection in given set of evidence, the object of SARFAESI Act is defeated. He emphasized the observation, "justice cannot be done by doing injustice with someone." 14. Learned advocate, Shri Rao for the respondent no.1bank has referred to the papers and also the provisions of the SARFAESI Act. Learned advocate, Shri Rao submitted that there is registered mortgage dated 16.08.2011 and, therefore, any transaction which has taken placed, will be subject to this mortgage. He also referred to the judgment of the Hon'ble Apex Court in case of Dilboo (Smt.) (Dead) by Lrs. (supra) and emphasized the observations made therein. He referred to the documents produced on record and also referred to document produced at AnnexureC regarding the mortgage with deposit of title deeds. He submitted that once ....
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....ad with Section 13(2) of the SARFAESI Act. He submitted that the Rule 4 provides for the detailed procedure and Rule 8 refers to the immovable property, which is secured by the bank. He submitted that as provided in Rule read with Section 13(2) of the SARFAESI Act, notice has been given and, therefore, the persons like petitioners cannot be said to be bonafide purchasers. He again emphasized that title clearance certificate is not proper as had the title clearance certificate been obtained with proper verification, it would have revealed about the mortgage with the bank. Learned advocate, Shri Rao also referred to the provision of the Transfer of Property Act. He referred to Section 37 as also Section 55 of the Transfer of Property Act. He submitted that rights and liability of the buyer and seller are provided in Section 55 of the Transfer of Property Act and if the requirements of Transfer of Property Act are not fulfilled, sale will be subject to the mortgage and/or such sale will not affect the right. He also submitted that if the buyer or seller has committed any irregularity by not disclosing to the buyer like the petitioners, it cannot bind the bank as it is a matter between....
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....Recovery Tribunal. He submitted that if the lease or the transaction is created and the person is put into possession earlier then, he has to show possession that he was inducted prior to creation of the mortgaged. Therefore, learned advocate, Shri Rao submitted that again it would require examination and scrutiny of the material and evidence based on the details with regard to every transaction and, therefore, the present petition may not be entertained and the application may be allowed to make necessary application before the Debt Recovery Tribunal with appropriate direction. 17. Learned advocate, Shri Rao also submitted that the judgment of the Hon'ble Apex Court in case of Harshad Govardhan Sondagar (supra) cannot be made applicable in the facts of the case. He submitted that the provision of Section 17 of the SARFAESI Act has been amended on 01.09.2016 and the judgment of the Hon'ble Apex Court with the aforesaid observations is dated 03.04.2014. He, therefore, submitted that the Legislature has therefore provided by proper amendment right to such third party and, therefore, this judgment would not apply in view of the amendment in the Act. 18. Learned advocate, Shri Ra....
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....itted that as no notice has been given, it would amount to violation of natural justice as it causes prejudice to the rights of the petitioners and, therefore only on that count, the petitions deserve to be allowed. Learned Senior Counsel, Shri Shalin Mehta submitted that alternate remedy is not bar to exercise the discretionary jurisdiction under Article 226 of the Constitution of India in certain circumstances, which are considered as exception to the general rules as discussed in the judgment of Whirlpool Corporation (supra). He, therefore, strenuously submitted that the petitioners, who are bonafide purchasers for a value, have right and cannot be evicted without even notice or even opportunity and they would have otherwise saddled with liability for payment of the fraud of others though they have purchased for a consideration with the payment. Learned Senior Counsel, Shri Shalin Mehta again submitted that in many cases, it is prior to mortgage or registration of the mortgage and the amount has been paid by cheque to the respondent no.2, which should have been in the escrow account, which is required to be maintained. He, therefore, submitted that if the escrow account is not v....
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....t have been exercised without following procedure and without issuing notice coupled with the facts that the mortgage was not registered, which would put anybody to the notice and, therefore, now the submissions that the mortgaged created earlier would relate back to earlier date of mortgage will cause prejudice to the persons like petitioners, are therefore not justified. Learned Senior Counsel, Shri Shalin Mehta strenuously emphasized about the conduct of the respondents, particularly, the respondent no.1 and submitted that atleast the respondent no.1 as a public institution was obliged to verify and remain alert when there is escrow account that the amount is deposited in that account or not. He submitted that if the amount has been shifted, it cannot be without notice of the bank and there is connivance with the respondent no.2 and the officers of the bank and, therefore, the persons like petitioners may not be put to any kind of liability and/or prejudice. 23. In view of these rival submissions and having regard to the background of the facts, it is required to be considered whether the present petition deserves consideration. 24. As could be seen from the facts recorded....
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....ondent no.2. 25. On the other hand, learned advocate for the respondent no.1bank has emphasized about the right of the respondent no.1bank to proceed against the petitioners under the provision of the SARFAESI Act for the recovery of the outstanding amount. It is also argued that the property over which such flat/unit have been constructed, has been mortgaged with the respondent no.1bank by the respondent no.2 and, therefore, any right, title, interest or the charge created in favour of any third party will be subject to the provision of the SARFAESI Act and the persons like the petitioners having purchased the flat/unit despite such mortgage in favour of the respondent no.1bank cannot make any claim in view of the mortgage of the property with the respondent no.1bank. It is also contended that the respondent no.1bank is entitled to proceed against the mortgaged property for recovery of the outstanding loan amount and the persons like the petitioners having purchased with the knowledge after the public notice cannot claim any right. In fact, it has been contended that at the instance of the respondent no.2 (builder), the petitioners have in collusion filed such petition to cause....
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....earned advocate for the bank are to be accepted, it would mean that they would saddle with the additional liability for not only units but also liability of the loan of the builder and the provision of the SARFAESI Act have to be considered with reference to Article 300 of the Constitution of India. Learned Senior Counsel, Shri Shalin Mehta has pointedly referred to and emphasized as to how they are bonafide purchasers for a value and has pointedly referred to the relevant aspects that though the mortgage is said to have been made by the respondent no.2 with regard to the land in question with the respondent no.1 for the loan in question in the year 2011, same has not been registered till 2014 and the petitioners, who are the members of the society have obtained title clearance certificate with necessary verification made with the office of the SubRegistrar and as there has not been any mortgage or entry regarding the mortgage, they have also obtained loan from other banks or financial institutions. Therefore, he strenuously emphasized that the petitioners are bonafide purchasers and there is no question of any collusion. At the same time, much emphasis has been given on the Circul....
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....rtgage, which has been made in favour of the bank. Such a mortgage is created to protect the right and interest of the bank in such property, which is mortgaged in favour of the bank. In other words, the purpose of creating mortgage in favour of the Institution like the bank is to protect their loan or advances, which is a public money and, therefore, the Institution like the respondent no.1bank cannot afford to be indifferent and it is only reflecting the casual approach. It is not only this fact but as stated, the title clearance certificates have been obtained by the petitioners in the year 2014 and at that time, as there was no entry with the Registrar, they have proceeded further and they have obtained loan from other financial institution including other banks. Had there been an entry, it would have stopped or it would have been clarified with regard to the charge of the respondent no.1bank qua the property in question. Therefore it is this very aspect which has been taken so casually and on that top of that, it was argued that the bank is not aware as to why the entry is not made and the bank cannot be blamed is too difficult to digest. 29. Further the Reserve Bank of Ind....
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....bank. There is no explanation on this aspect as to how the builders could have not deposited the amount of consideration received by him towards the sale consideration of the respective flat and/or unit deposited in another account instead of escrow account. In many cases, the persons like petitioners or the buyers of the respective flat or unit have taken loan or advance from the bank or financial institution and then in that case, they would have given cheque or amount, which would have been deposited by the respondent no.2 in the escrow account. The arguments that how the builder has accepted directly and deposited in another account, the respondent no.1bank may not be aware, is rather over simplification. On one hand, when the respondent no.1bank is claiming charge over the property, there is an escrow account and on the other hand, it is not believable that the respondent no.2 could have dealt with the flats/units in the manner suggested by the bank and ignorance played by the respondent no.1bank on such transactions that how the amount has been deposited or siphoned away by the respondent no.2 (builder) in another bank is not known, is difficult to digest. It may not be out o....
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....ons have to be read and made applicable visavis the background of the facts and other issues raising not only the question marked on the conduct of the bank and also justification for exercise of the statutory provisions. In a given set of facts like in the present case, the respondent no.1bank would be estopped from claiming any right and/or any such submissions on the ground of public interest having failed to discharge the statutory obligation and reasonable care to protect the amount of loan or advance. As discussed above, apart from being vigilant, the respondent no.1bank has shown indifferent attitude and negligence for the advance made by it resulting in such litigation, for which, even if the respondent no.2 is the defaulter or manipulator, the respondent no.1bank cannot be allowed to escape from its own liability. It is paramount duty of the respondent no.1bank like Nationalize Bank to safeguard and protect the interest of public money with which they are dealing and they cannot afford to remain indifferent to the circular of Reserve Bank of India, common sense and also the procedural safeguard, which they are required to follow to protect their own money. In fact, in some....
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....third party rights are not also put to such situation. A useful reference can be made to the judgment of the Hon'ble Apex Court in case of Southern Petrochemical Industries Co. Ltd. Vs. Electricity Inspector & ETIO and ors., reported in (2007) 5 SCC 447. Referring to the Administrative Law by Wade, (6th Edition), it could be stated that "there is ample room within the legal boundaries for radical differences of opinion in which neither side is unreasonable." 32. One further aspect which is pressed into service is regarding the right and interest in the property with reference to Article 300 of the Constitution of India will also have to be considered when much emphasis is made on the provision of the SARFAESI Act. The Courts are required to strike balance between the individual rights of the persons like the petitioners and the right of public financial institution like the bank claiming the authority or power under the SARFAESI Act. Therefore when such issues are raised, it clearly reveals that it is the negligence or lack of mechanism and necessary regulatory framework causes such issue and problem coupled with softpedalling by the officer of the public financial institution o....
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....the Hon'ble Apex Court in case of Harshad Govardhan Sondagar (supra) require a closer scrutiny inasmuch as as stated, the persons like petitioners who are third party, may have remedy before the Debt Recovery Tribunal in view of the amendment to Section 17 of the SARFAESI Act, which provides "any aggrieved person". At the same time, much emphasis given by learned Senior Counsel, Shri Mehta as well as learned Senior Counsel, Shri Nanavati for the petitioners with regard to the rights of the petitioners as a bonafide purchasers for a value without notice and also denial of any opportunity result in violation of natural justice, is required to be considered. The submissions which have been made by learned advocate, Shri Rao with reference to the Transfer of Property Act, particularly, Sections 37 and 55 have to be read in context and background of the facts as well as the statutory provision of the SARFAESI Act. In fact, when the Hon'ble Apex Court has made observations in a judgment in case of Harshad Govardhan Sondagar (supra), it has clearly made reference to earlier judgment of the Hon'ble Apex Court in case of Transcore Vs. Union of India & Anr., reported in (2008) 1 SCC 125 maki....
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....r the secured creditor, declaring that " 36. Thus this proviso imposes an obligation upon the secured creditor like the bank to disclose by affidavit relevant details as stated or enumerated in Section 14 of the SARFAESI Act. Rule 9 of the Security Interest (Enforcement) Rules, 2002 referred to the procedure before the public notice of sale is given. In the instant case as recorded, an application does not seem to have been filed by the respondent no.1bank with details and affidavit as provided and referred to proviso to Section 14 of the SARFAESI Act and same aspect has been considered by the Hon'ble Apex Court in a judgment in case of Harshad Govardhan Sondagar (supra), wherein the Hon'ble Apex Court considering Section 13 of the SARFAESI Act and the enforcement of the security interest has referred to issuance of notice to the borrower and the consideration of his objection. It has also been provided in Section 13(4) of the SARFAESI Act that when the borrower fails to discharge his liability as provided in subsection (2), the secured creditor like the bank may have a recourse for the recovery of the secured debt as referred to in Section 13(4) of the Act. It has also been obs....
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....in favour of the bank and learned Senior Counsel, Shri Nanavati has made emphasis on the NOC given by the respondent no.1bank itself, it would stare in the face raising an issue of estoppel and legitimate expectation. Further as rightly emphasized by learned Senior Counsel, Shri Mehta with reference to the Circular of the Reserve Bank of India and the escrow account, the details could be verified on the basis of the material before the Debt Recovery Tribunal, which would have to be explained by the bank. Therefore, the impugned notice cannot be sustained and deserves to be quashed and set aside. However, the matter is remanded back to the Debt Recovery Tribunal for examination of material with every detail afresh with reference to the provision of the SARFAESI Act as well as other material on the basis of which, the rights are claimed by the purchasers like petitioners as a bonafide purchasers. 39. Therefore having regard to the aforesaid background, as the respondent no.1bank has failed to protect the public interest and as the public money is involved, it would be in the fitness of things that the matter is remanded back to the Debt Recovery Tribunal to adjudicate such issues ....