AI Drafter 
TaxTMI 
TaxTMI 
2018 (12) TMI 1543
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....avroj Seervai, Senior Advocate with Ms.Ankita Singhania, Mr.Adhish Sharma i/b. Khaitan & Khaitan JUDGMENT G.S. Kulkarni, J. The point which falls for consideration in this batch of appeals is as to whether the plaints against the appellant/defendant-Axis Bank Limited (for short 'the Bank') are required to be rejected under the provisions of Order 7 Rule 11(d) of the Code of Civil Procedure, in view of the bar created by section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, " Securitisation Act"). 2. These appeals arise from a common order passed by the learned Single Judge on five Notice of Motions which were filed by the bank in the five Civil Suits in question, invoking the provisions of Order VII Rule 11(d), seeking rejection of the plaint qua the Bank. By the impugned order, the Notice of Motions are rejected by the learned Single Judge. 3. The contesting respondents in these appeals are the original plaintiffs (referred as "plaintiffs"). The other respondents are the developers M/s.Orbit Corporation Ltd. (for short, "Orbit"). 4. Succinctly put, the material facts giving rise ....
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....ng a notice dated 19 August 2016 under Section 13(2) of the Securitisation Act to Orbit, seeking recovery of an amount of Rs. 161,03,92,020.26 as on 12 August 2016 together with interest. The bank also issued public notices dated 10 August 2016 and 13 September 2016 inter alia cautioning the public that all charges/claims on the project shall be subject to the rights of the bank as mortgagee. Some claims were received from plaintiffs, however, the bank by its letter dated 4 October 2016 denied the said claims. As there was non-compliance of the notice issued by the bank under Section 13(2) of Securitisation Act, by Orbit, its guarantors and mortgagors, on 7 November 2016, the bank took symbolic possession of the project, namely the semi-constructed Orbit Haven Project. Thereafter an application was filed by the bank under Section 14 of the Securitisation Act, before the learned Metropolitan Magistrate at Mumbai, who passed an order dated 8 March 2017 allowing the bank to take forcible possession of the suit project. Also an original application No.1453 of 2016 was filed by the bank before the Debt Recovery Tribunal at Mumbai, for recovery of the said dues of Rs. 165,96,91,559.26 pa....
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....s. 11. In the notice of motions filed by the bank under Order 7 Rule 11(d) of the Code of Civil Procedure 1908, the bank contends that a reading of the plaint demonstrates that the cause of action to implead the bank is principally on the project being mortgaged to the bank and the bank taking measures under Section 13(4) and 14 of the Securitisation Act, which according to the bank are being indirectly questioned by the plaintiffs in the suits, despite a specific remedy being available to the plaintiffs under Section 17 of the Securitisation Act namely of a right to file an appeal before the Debts Recovery Tribunal (for short DRT). It is contended that such a right is conferred on any person who is aggrieved by any of the measures referred to in Sub-Section (4) of Section 13, taken by a secured creditor, by making an application to the DRT. The bank contended that it would be the jurisdiction of the DRT to determine as to whether any of the measures referred to in Sub-Section (4) of Section 13, taken by the secured creditor for enforcement of securities are validly taken. The bank contended that Section 34 of the Securitisation Act barred the jurisdiction of Civil Court to ente....
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.... against Orbit and for which the bank was a necessary party, as it would be required to confirm the transfer of the said flats in favour of the plaintiffs. It was also contended that the plaintiffs were protected under the provisions of The Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) Act, 1963 (for short "the MOFA"). Referring to the provisions of Section 4, 4A, 5 and 9 of the MOFA Act, it was contended that by virtue of these provisions protection is granted to the purchasers of the flats being constructed for the plaintiffs. In view of these provisions the bank cannot claim any higher rights than that of the flat purchasers. 13. Considering the rival pleas the learned Single Judge by the impugned order rejected the bank's notice of motions inter alia holding that there were sufficient averments in the plaint of collusion between the officers of bank and Orbit, which supports a case of fraud as pleaded by the plaintiff and falling within the exception as culled out in the decision of the Supreme Court in Maradia Chemicals warranting trial. It is held that under the provisions of MOFA the bank was under an obligati....
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....ed by the bank, as per the requirement of the provisions of Order VI Rule 4 of the CPC. It is submitted that also there is no plea of fraud with regard to the creating of security interest in banks favour. It is submitted that the bare plea, that bank is hand-in-glove with Orbit, is not sufficient to maintain the suit against the Bank. On merits it is contended that an unregistered MOU as entered by Orbit with the plaintiffs to purchase the flat would not create any right of the plaintiff in the project so as to affect the security interest of the bank. In any case, even going by the MOU once the plaintiffs have concurred in the MOU and acknowledged the mortgage as made in favour of the Axis Bank, it cannot be said that any fraud is played by the bank, so as to carve out an exception for maintaining a civil suit on the Mardia principle and overcome the bar created by Section 34 of the Securitisation Act. Referring to the prayers in the plaint, it is pointed out that there is no prayer in the alternative against the bank and the averments which are made against the bank in the plaint are not in aid of any relief. It is submitted that there is no claim for damages which is made again....
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....and thus, the plain consequence of Sections 4 and 9 of the MOFA cannot be avoided, in the absence of a registered agreement. Section 9 of the MOFA cannot be pressed into service in vacuum and without any sequitur. In support of his submission, Mr. Dada has placed reliance on the decision of Madras High Court in Arasa Kumar v. Nallammal [2005] 57 SCL 5; (ii) the decision of the Supreme Court in Hansa V. Gandhi v. Deep Shankar Roy [2013] 12 SCC 776; (iii) the decision of the Division Bench of this Court in State Bank of India v. Jigishaben B. Sanghavi 2011 (3) BCR 187; (iv) the decision of the Supreme Court in the case Mardia Chemicals Ltd. (supra) Submissions in Appeal No.362 of 2017 16. Mr. Tulzapurkar, learned Senior Counsel for the bank in Appeal No.362 of 2017 has made the following submissions: (I) The plaint is clearly barred by the provisions of section 34 of the Securitisation Act. The plaintiffs have no case to sustain the plaint against the bank. It is difficult to believe that the plaintiffs are bona fide flat purchasers as for years together the plaintiffs never demanded an agreement from Orbit though extraordinary/substantial money of about 9 crores is cl....
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....de of an amount of Rs. 1,76,00,000/- the dates being 16 April 2009, 28 April 2009, 16 May 2009 and 16 May 2009, it is submitted that no receipts were issued by Orbit or taken by the plaintiff immediately. This clearly shows that this is not a conduct of a bonafide purchaser. No bonafide purchaser would wait for a receipt to be given at the sweet will of a developer. It is submitted that the allotment letter also appeared to be anti-dated and the same was procured later, this for the reason that payments did not tally with the allotment letter. It is submitted that though the allotment letter records that an agreement would be entered within six months, however, no such agreement was executed. These were clear traits of a financial transaction of loan being advanced to Orbit by the plaintiff and the deal was far from a bonafide transaction for purchase of flat. It is further submitted considered from this background this is a clear case of clever drafting of the plaint whereby a plaint which otherwise is barred by law against the bank is being impressed to be valid and that too by subsequently incorporating amendments by making averments of fraud against the bank. A reference in thi....
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....found in the loan granted by the bank to Orbit and the measures as available to the bank under the Securitisation Act being resorted on default in repayment of the advances by Orbit. It is contended that in the fact situation, the rights of the plaintiff in any case cannot be subservient to the rights of the bank as the bank has followed the law by advancing the loan under a valid mortgage agreement entered with Orbit. It is submitted that in any case the plaintiffs would not succeed in getting any relief unless the mortgage as entered by the bank with Orbit is declared to be unenforceable, for which the only forum to assail any rights preventing the bank from resorting to the measures under Securitisation Act was to approach the DRT under Section 17 of the Securitisation Act. The DRT is not precluded from considering the arguments of the plaintiffs under MOFA, while considering whether the measures as adopted by the bank under Section 13 of the Securitisation Act, could be resorted or not. A reference is made to Section 5(b), (c), 5A and Section 6 of the Banking Regulation Act, 1949 to submit that these provisions are clearly indicative of the kind of business the bank can underta....
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....e plaintiff to bring a civil suit against the bank is only when a clear case of fraud is made out against the bank as per the Mardia principle. Our attention is drawn to paragraphs 23 and 28 to contend that the averments as contained in these paragraphs is the only case of fraud which is pleaded against the bank. It is submitted that a plain reading of these averments can never be accepted to be a case of a fraud as played by the bank in advancing loan. The plaintiffs by merely saying that no public notice was given by the bank before advancing of loan facilities, cannot amount to a fraud by the bank. Our attention is drawn to the prayer clause in the plaint in Suit No.60 of 2017 and more particularly to prayer clause (c)(iii) which is a relief that the plaintiffs have the first charge in respect of the suit property, it is submitted that this only prayer, as made against the bank, clearly falls within the jurisdiction of DRT under Section 17 of Securitisation Act. Submissions in Appeal Nos.171 of 2017 and 172 of 2017 18. Mr. Tamboli, learned Counsel for the appellant/Axis Bank in Appeal Nos.171 of 2017 and 172 of 2017 would submit that the case of the plaintiffs against the ....
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....s submitted that all these issues are required to be gone into at the trial of the suit and for adjudication of these issues bank is a necessary party. It is contended that DRT is not a civil court and it cannot entertain proceedings for a relief of specific performance of the agreement against Orbit Corporation, who has entered into a collusive mortgage with the bank, without undertaking any due diligence. The bank is thus a necessary party to the suit. Thus, the subject matter of the suit cannot be decided by D.R.T. under section 17 of the Securitisation Act. It is submitted that fraud is only one of the aspects and there are several other aspects which would be relevant when an entitlement of a party to file a suit which is subject matter of consideration. (ii) Referring to the plaint in Commercial Suit No. 192 of 2017 it is submitted that there are sufficient averments of fraud and/or collusion made in the plaint against the bank and thus, applying the principles of law as laid down in the decision of the Supreme Court in Mardia Chemicals Ltd.'s case (supra), the plaint against the bank is maintainable and not barred by law. Referring to the provisions of section 1....
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....bank would be a necessary party as and when a conveyance is required to be executed by Orbit in case a decree for specific performance was to be granted. It is thus, necessary that the bank is a necessary party to the suit. 20. In support of the submissions Mr. Seervai has placed reliance on the decisions in (i) Nahar Industrial Enterprises Ltd. v. Hongkong & Shanghai Banking Corpn. [2009] 8 SCC 646; (ii) Indian Bank v. ABS Marine Products (P.) Ltd. [2006] 5 SCC 72; (iii) Arasa Kumar's case (supra); (iv) Jagdish Singh's case (supra); (v) Saleem Bhai v. State of Maharashtra 2002 (9) SCALE; (vi) Chhotanben v. Kiritbhai Jalkrushnabhai 2018 SCC online SC 352; (vii) Bhau Ram v. Janak Singh [2012] 8 SCC 701; (viii) Gopal Srinivasan v. National Spot Exchange. 2016 (4) Bom C.R.492; (ix) National Spot Exchange v. P.D. Agro 2015 SCC online Bom 6412; (x) State Bank of India's case (supra); (xi) Wander Ltd.'s case (supra); (xii) Avitel Post Studioz Ltd. v. HSBC PI Holdings 2014 SCC online 929; 21. In support of the submissions Mr. Vaishnava, learned Counsel for the plaintiffs /respondents has placed reliance on the decisions in (i) Master Circular by Reserve Bank of India....
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....ould not interfere, with the exercise of the discretion by the court, and substitute its discretion. We do not agree. 25. This submission as made on behalf of the plaintiffs that the impugned order is a discretionary order, cannot be accepted. This for the reason that Rule 11 of Order 7 of CPC does not confer a discretion on the court, moreover it creates an obligation on the Court to reject the plaint if the requirements as set out in the rule are satisfied. The provisions of Order 7 Rule 11 of CPC are mandatory. The opening words of Rule 11 are material which say that "The plaint shall be rejected in the following cases", this clearly indicates that it is an obligation on the Court to reject a plaint in the event the requirement of clauses (a) to (f) are satisfied. It also cannot be disputed that such an application would require adjudication. Thus, when there is an adjudication by the court in this context and if the requirements as provided in the different clauses in the rule are satisfied, then, there is no occasion for any discretion to be exercised by the Court and more so it is an obligation on the Court to reject the plaint. In making these observations, we are also su....
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....is an adjudication of such an application, there is no question of Court exercising discretion under Order 7 Rule 11 of CPC, relying on the observations of the Division Bench of this Court in the case Hiralal Parbhudas (supra), is well founded. The following observations of the Division bench in paragraph 21 of the decision would also support our conclusion: "21. It was finally urged by Mr. Kale that the discretion exercised by the Deputy Register under Section 56 of the Act in the respondents' favour should not be lightly disturbed and the appellate Court should therefore not disturb the judgment and order of the learned single Judge. We ask ourselves. Pray where at all arises the question of discretion. To start with, the Deputy Registrar did not exercise any discretion under Section 56 in rejecting the appellants' application for rectification. It must be remembered that the concept of discretion is distinct from that of adjudication. When the Deputy Registrar rejected the appellants' application for rectification on the ground that the two marks are not deceptively similar, she did not use any discretion but adjudicated upon the rival contentions of the par....
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....ere was an arbitration agreement between the parties. 30. The decision of the Division Bench in Avitel Post Studioz Ltd.'s case (supra) which in the facts of the case referred to the principles as laid down in Wander Ltd.'s case (supra), is also not applicable as this was also a case where the Court was considering an injunction order passed by the learned Single Judge, under Section 9 of the Arbitration and Conciliation Act,1996. 31. Reliance on behalf of the plaintiffs on the decision of the learned Single Judge of Rajasthan High Court in Sahina v. Returning Officer (Panchayat) Gram Panchayat Jhiwana 2017 LawSuit (Raj) 569 is also not well founded. This decision cannot be said to be an authority on the proposition that the orders which would be passed by the Court under Order 7 Rule 11 of CPC, are discretionary orders. In this case, the Court refused to entertain a second application under Order 7 Rule 11 of CPC, in view of rejection of the first application filed on the same ground. It is in that context the Court made an observation that the learned trial Judge has exercised discretion in rejecting the second application. There was no adjudication on the applicati....
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.... between the plaintiffs and Orbit, however, the suits are filed only after the bank adopted the measures under the Securitization Act, to realize its dues from the mortgaged property, in which security interest was created in the bank by Orbit. In such a situation, if rights of the bank to resort to such measures under the Securitization Act are to be contested or some other rights as against the bank are required to be asserted by the plaintiffs, then the law clearly confers a jurisdiction on the D.R.T. under section 17 of the Securitization Act. On a plain reading of the said provision it is clear that 'any person' can invoke the remedy under section 17 of the Act. It is not in dispute that the bank is impleaded and brought into picture only due to the mortgage of the project assets in its favour by Orbit and for no other reason. The plaintiffs have no direct legal connection of any nature or privity with the bank. 34. In Mardia Chemicals Ltd.'s case (supra), the Supreme Court considering the rights of the secured creditors under section 13 (4) and the implications of the provisions of section 34 of the Securitization Act, held that to a very limited extent, the ju....
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....surd and un-tenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India namely, V. Narasimhachariar, AIR at pp 141 and 144, a judgment of the learned single Judge where it is observed as follows in para 22 (AIR p. 143)" "22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are two-fold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale 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 a mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought. Adams v. Scott: (1859) 7 WR 213.249. I need not point out that this restraint on the exercise of the power of sa....
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....ffs and Orbit, an amount of Rs. 21,03,75,000/- was paid by the plaintiffs to Orbit towards part consideration of the purchase price. This payment was acknowledged by issuance of a receipt by Orbit. The amounts were paid by cheques between 3 August 2009 to 25 June 2010. A letter of allotment dated 26 June 2010 was issued for sale of the said flat. The allotment letter recorded that the plaintiffs have agreed to pay Orbit, the balance price as per the agreement for sale 'to be executed. Thereafter, Orbit by its letter dated 23 December 2010 demanded from the plaintiffs an amount of Rs. 1,91,25,000/-. The said amount was paid by the plaintiffs to Orbit. On 25 February 2011 a further amount of Rs. 1,91,25,000/- was paid as demanded by Orbit. An amount of Rs. 9,84,938/- was also paid as service tax on 20 July 2011. In or about 2013 the plaintiffs were informed by Orbit that it had obtained loan from Axis Bank and that there was term loan agreement dated 21 January 2013, an indenture dated 20 February 2013 under which the project property was mortgaged to the bank. However, Orbit assured the plaintiffs that the rights of the plaintiffs in the suit project shall not be diluted in a....
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....he rights of the plaintiffs. The only averments as made in the plaint against the bank (defendant no.2) can be found in paragraphs 16, 23 and 28 of the plaint which read thus:- "16. The plaintiffs state that the defendant no.2 issued a public notice in the Economic times dated 13th September 2016 whereby the defendant no.2 informed the public that the residential project named Orbit Haven formerly known as Avasi House has been mortgaged with the defendant no.2 and that any person dealing with the said property without the consent of the 2nd defendant shall be doing so at their sole risk and that such dealing shall not in any manner affect the rights of the 2nd defendant over the said property. Hereto annexed and marked Exhibit L is a copy of the said public notice." "23. Without prejudice to the aforesaid the Plaintiffs state that at the request of the Defendant No.1, the Defendant no.2 has already granted it's no objection for sale of the said premises in favour of the 1st Plaintiff. The Defendant No.2 cannot now back out from its commitment for the reasons alleged in the said letter dated 4th October, 2016 or otherwise. In any event the Plaintiffs submit tha....
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....laintiffs within the time that may be fixed by this Hon'ble Court and to do all such other acts, deeds, and things as may be necessary for the specific performance of the Plaintiffs' Agreement." II. Commercial Appeal No.361 of 2017 arising out of Suit No.60 of 2017 (Mrs.Manisha Saraf v. M/s Orbit Corporation & anr) 41. This appeal arises from the impugned order dealing with the plaintiffs case in suit no.60 of 2017. The plaintiff is Mrs.Manisha Saraf. M/s. Orbit Corporation is defendant no.1 and the bank is defendant no.2. The plaintiff in this case is similarly situated like the plaintiffs in the above suit. The plaintiff approached Orbit and its directors intending to purchase duplex flats on the 28th and 29th floors of the said project consisting of a living room, five bed rooms and a attached terrace aggregating 7,555 sq.ft saleable area, comprising 4,168 carpet area and a terrace area of 2481 sq ft alongwith five car parking spaces, for an aggregate sum of Rs. 24 crores. In token of purchase of said duplex flats, the plaintiff paid Rs. 2,70,00,000/- by cheque dated 25.7.2009 which issued by the plaintiffs husband. A Memorandum of Understanding (MOU) dated 28.9.20....
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....s and objections of the public by publishing public notice before granting loan for such a huge amount." 28. The plaintiff submits that the defendant no. 1 and defendant no.2 are hand in glove and they have in connivance and in conspiracy with each other attempted to deprive the plaintiff from her valuable rights in the said premises." 42. Although the plaint contains no specific prayers against the bank, however, learned counsel for the plaintiff has referred to prayer clause (a) and prayer clauses (c-iii) to be relevant against the bank (defendant no.2). These prayers read thus : (a) this Hon'ble Court be pleased to declare by an order and decree that there is a valid and subsisting plaintiffs agreement dated 28th September 2009 for the said premises more particularly described in Exhibit A hereto and the same is binding on the defendants; ........................ (c-iii): It may be declared that the plaintiff is having first charge on the said premises for payment of the said sum of Rs. 22,81,19,396/- together with interest on Rs. 14,65,00,000/- at the rate of 9% per annum as per the particulars of claim in Exhibit I hereto and Rs....
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....tgaged. Hereto annexed and marked Exhibit F is the public notice dated 13th September 2016. On learning the same, the flat owners by their respective letters giving the details of the allotment letter by defendant no.1 to them and the details of the payment made each of them to the defendant no.1. Hereto annexed and marked Exhibit G is the copy of letter dated 29th September 2016 sent by plaintiff to defendant no.15. 17. On receipt of the said letter, the defendant no.15 intimated that that they would look into the matter and revert back in due course. Hereto annexed and marked Exhibit H is the copy of the said letter dated 29th September 2016 issued by defendant no.15. The defendant no.15 ultimately by their letter dated 4th October 2016 stated that they do not recognize any such transaction as there is a mortgage created by defendant no.1 in their favour and that the allotment letter cannot be considered as a sufficient document as an evidence of ownership over the mortgaged property unless sufficient and documentary evidence such as registration of sale deed prior to mortgage date submitted to the bank. The defendant no.15 ultimately through their attorneys sent a lette....
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.... submit that it seems that the Defendant No.1 in collusion with the officers of Defendant No.15 Bank have mortgaged the said property in spite of having no right to mortgage the same. It is also pertinent to note that the Defendant No.15 have also not carried out any due diligent search as on enquiry by the Bank with Defendant No.1 and from their records it would certainly disclose that all the flats are sold and that no flat is available to be mortgaged with the Defendant No.15. The Defendant No.15 Bank is also aware about the factum of the flats being allotted by virtue of allotment letters as is also evident from the fact that Flat No.2501 is not registered and to the knowledge of the Plaintiff, there is only a letter of allotment/booking in respect of Flat No.2501 and Defendant No. 11 in their Public Notice have clearly stated that they have mortgaged the suit property except the Flat Nos.2301, 2401 and 2501. The Defendant No.15 were certainly aware about the pre-existing rights of all flat purchasers. 24(a) "The Plaintiff states that the alleged mortgage as claimed by Defendant No.15 is contrary to law and it is contrary to the provisions of Maharashtra Ownership Flat....
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....le of the flat and hand over vacant and peaceful possession and also to enter into Agreement as provided under MOFA. Merely because Defendant No.1 have not executed a regular Agreement with some of the flat owners and have not registered the same, would not permit them to mortgage the flats without the written consent of the flat owners as the rights were already created in favour of the plaintiff prior to the so called mortgage. The plaintiff states that there is absolute collusion between the Defendant No.1 and the officers of Defendant No.15 in allegedly mortgaging the said property. If the Defendant No.15 would have verified the records, they would certainly be able to get the details from Defendant No.1 that the flats are encumbered and that the Defendant No.1 have sold the flats to the respective flat purchasers. The Plaintiff has always been ready and willing to perform her part of contract and is still ready and willing to perform her part of contract and obligation. The plaintiff further state that the mortgage if any with Defendant No.1, cannot take away the pre-existing rights of the flat purchasers including Plaintiff protected by the provisions of law." The prayer i....
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....tal consideration was paid, at which stage, the plaintiff was informed at the time of signing of the MOU that M/s Orbit Corporation had availed loan facility from the bank in 2013 for mortgaging the said project including its receivables. The plaintiff has stated that the suit premises were already allotted to Mr.Ratan Jindal Director of the plaintiff well before creation of the mortgage in favour of the bank. The plaintiff learnt about the bank's public notice dated 13.9.2016 of the mortgage of the suit project in favour of the bank. The plaintiff responded to the said public notice by its letter dated 9.11.2016 inter alia recording that the suit premises were allotted to the plaintiff well before the loan was availed by Orbit Corporation. The plaintiffs state that the bank however did not respond to the said letter and in fact went ahead by pasting a notice under section 13 (4) of the Securitisation Act at the said project. The averments made in the plaint, relevant to the bank (defendant no.2) and the alleged act of fraud, stated to be committed by the bank, are contained in paragraph 13,14,15,16, 17 and 22 of the plaint which read thus:- "13. The plaintiff company ....
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....aluable rights in the said premises." 45. The substantive prayer as made against the bank (defendant no.2) is prayer clause (c) and an interim prayer is prayer clause (f). These prayers read thus: "(c) the Defendant no.2 be specifically directed to confirm the sale of the said premises to Plaintiff and Defendant no.1 may be directed to hand over the vacant and peaceful possession of the suit premises to the Plaintiff within the specific timeline as defined by this Hon'ble Court and to do all such acts, deeds, things and such other matters as per the said MOU; ... ... ... (f) that the Defendant No. 1 & Defendant No.2 including its assignees, associates, servants, employees and other persons acting on its behalf be restrained by and under an order of this Hon'ble Court for taking possession of the said premises or any part thereof;" V. Commercial Appeal No.172 of 2017 arising in Commercial Suit No.450 of 2017 (Axis Bank Limited v. Niraj Dilip Jiwrajka & ors) 46. The plaintiff is Mr.Niraj Dilip Jivrajka. Defendant no. 1 is Orbit Corporation. The bank is impleaded as defendant no.3. Defendant No.2 is another flat purchaser. Defendant nos.4 and 5 are c....
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....stituted by the plaintiff with the other persons who have purchased flats in the project. 24. The plaintiff having purchased the suit property in the project prior to the mortgage thereof by the defendant no. 1 to the defendant no.3 the question of the defendant no.3 having a first charge in respect of the suit property does not arise. It appears that the defendant no.1 has not provided the defendant on.3 with complete and accurate information in respect of the project in which the suit property is comprised which would have enabled it to carry out proper due diligence in respect of the security for the loan viz., the project at the time of advancing monies to the defendant no.1 and executing the documents in respect of the mortgage so created. If the defendant no.3 had carried out the due diligence as required, it would have discovered the fact that the plaintiff and other flat purchasers had already purchased various flats in the project. The defendant no.1 having already sold the suit property to the plaintiff was no longer the owner of the suit property, had no right, title or interest therein and therefore could not have mortgaged the same to the defendant no.3. Furth....
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....be construed strictly. In Kamla Mills v. State of Bombay 50 AIR 1965 SC 1942, a Constitution Bench (Seven Judge's Bench) of the Supreme Court considered the question as to when and in what circumstances, can a suit of civil nature be said to be barred by a Special Statute. The court in paragraphs 30 and 32 held as under:- "30 the question about the exclusion of the jurisdiction of civil courts either expressly or by necessary implication must be considered in the light of the words used in the statutory provision on which the plea is rested, the scheme of the relevant provisions, their object and their purpose. ... ... ... 32. ... ... ... Whenever it is urged before a civil court that its jurisdiction is excluded either expressly or by necessary implication to entertain claims of a civil nature, the Court naturally feels inclined to consider whether the remedy afforded by an alternative provision prescribed by a special statute is sufficient or adequate. In cases where the exclusion of the civil courts' jurisdiction is expressly provided for, the consideration as to the scheme of the statute in question and the adequacy or the sufficiency of the remedies p....
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....inancial assistance; (ha) "debt" shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) (k) "financial assistance" means any loan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of credit established or any other credit facility extended by any bank or financial institution; (zc) "secured asset" means the property on which security interest is created; 17. Application against measures to recover secured debts-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, [may make an application along with such fee, as may be prescribed] to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures 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 decla....
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....acts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy,- (a) has expired or stood determined; or (b) is contrary to section 65-A of the Transfer of PropertyAct,1882(4of1882); or (c) is contrary to terms of mortgage; or (d) is created after the issuance of notice of default and demand by the Bank under sub-section (2) of section 13 of the Act; and (ii) the Debt Recovery Tribunal is satisfied that tenancy right or lease hold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.] ............................ 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....
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....he Secrutisation Act. It was observed that the situation as prevailed in 1882 when the Transfer of Property Act was enacted, has undergone a sea-change and what was conceived to be correct in the situation then prevailing, may not be so in the present day scenario. It was observed that functions of different institutions including the banking and financial institutions have changed and new functions have been introduced for financing the industries etc., and a new economic and fiscal environment exits, after more than 100 years after the enactment of the Transfer of Property Act was initially brought into force. The Court referred to the report of Rajamannar Committee appointed by Government of India which submitted its report in 1977 indicating the effect of the changed situation and the efficacy of the provisions of the Transfer of Property Act. The Court also examined the Narasimham Committee Report 1998 which advocates for a legal framework which should clearly define the rights and liabilities of the parties to the contract and provisions for speedy resolution of disputes, being a sine qua non for efficient trade and commerce, especially for financial intermediation. A referen....
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.... by Mr. Salve one of the counsel for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say, the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which ....
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.... matter of fact the proceedings under Section 17 of the Securitisation Act are in lieu of a civil suit, which remedy is ordinarily available, but for the bar under Section 34 of the Securitisation Act. 55. In Transcore v. Union of India [2007] 73 SCC 11 the Supreme Court again had an occasion to examine the provisions of Securitisation Act as also referring to the decision in Mardia Chemicals Ltd.'s case (supra). The Supreme Court held that Securitisation Act was enacted to enforce the interest in the "financial assets" which belong to banks or financial institutions by virtue of contract between the parties or by operation of common law principles. It was held that the Securitisation Act enables the banks and financial institutions to realise long term assets, manage problems of liquidity, asset liability mis- match and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction. One of the object of the Act was recovery by non-adjudicatory process by enforcement of security interest, on default of the borrower to repay the debt or failure to maint....
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.... OD facilities of 130 crores and OD facilities of Rs. 35 crores). These amounts as advanced are secured in favour of the Axis bank by a registered indenture of mortgage dated 28 February 2013 and subsequently by indenture of mortgage dated 17 September 2013 and the indenture of mortgage dated 17 June 2015. Thus, a 'security interest' as clearly falling within the meaning and purview of Section 2(zf) of the Securitisation Act, is created in favour of the bank in regard to these advances made in favour of Orbit. It is also not in dispute that the entire project in question (land and building) are the subject matter of the said mortgage. Once there is a valid and legal mortgage in operation and there is default on the part of Orbit in repayment of the said advances and the account of Orbit becoming non-performing assets (NPA), there can be no fault or any impediment in law and/or any illegality on the part of the bank to take recourse to the provisions of the Securitisation Act namely by issuing notice under Section 13(2) and taking measures under Section 13(4) to enforce the security interest and realise the amounts due and payable to the bank by Orbit, from the mortgaged ass....
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....dvise itself as respects the manner of dealing with these matters appointed a committee by Government Resolution in the Urban Development and Public Health Department No. S. 248-79599-F, dated the 20th May 1960, to inquire into and report to the State Government on the several matters referred to aforesaid with the purpose of considering measures for their amelioration; AND WHEREAS, the aforesaid Committee has submitted its report to Government in June 1961, which report has been published for general information; AND WHEREAS, it is now expedient after considering the recommendations and suggestions made therein, to make provision during the period of such shortage of housing, for the regulation of the promotion of the construction, sale and management and transfer, of fiats taken on a ownership basis in the State of Maharashtra; It is hereby enacted in the Fourteenth Year of the Republic of India as follows:.. ... ." The notes on the clauses of the provisions of MOFA reads thus:- "Clause 4- This contains the provision for compulsory registration of the agreement for sale of the flat. ............................ Clause 8- This clause....
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.... the liability of the promoter to construct it according to the plans and specifications approved by the local authority where such approval is required under any law for the time being in force ; (ii) the date by which the possession of the flat is to be handed over to the purchaser; (iii) the extent of the carpet area of the flat including the area of the balconies which should be shown separately; (iv) the price of the flat including the proportionate price of the common areas and facilities which should be shown separately, to be paid by the purchaser of flat; and the intervals at which installments thereof may be paid; (v) the precise nature of the organisation to be constituted of the persons who have taken or are to take the flats; (vi) the nature, extent and description of the common areas and facilities; (vii) the nature, extent and description of limited common areas and facilities, if any; (viii) percentage. of undivided interest in the common areas and facilities appertaining to the flat agreed to be sold; (ix) statement of the use for which the flat is intended and restriction on its use, if any; ....
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....officer and admit the execution of the document, the registering officer shall cause a summons to be issued under section 36 of the Registration Act requiring the executants to appear at the registration office, either in person or by duly authorised agent, at a time fixed in the summons if the executant fails to appear in compliance with the summons, the execution of the document shall be deemed to be admitted by him and the registering officer may proceed to register the document accordingly. If the executant appears before the registering officer as required by the summons but denies execution of the document, the registering officer shall, after giving him a reasonable opportunity of being heard, if satisfied that the document has been executed by him, proceed to register the document accordingly.] SECTION 4A: EFFECT OF NON-REGISTRATION OF AGREEMENT REQUIRED TO BE REGISTERED UNDER SECTION 4 - Where an agreement for sale entered into under sub-section 4, whether entered into before or after the commencement of the Maharashtra Ownership Flats (Regulation of the promotion of construction, sale, management and transfer) (Amendment and Validating Provisions) Act, 1....
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....their application to the given facts, inasmuch as the plaintiffs contend that the legislation provides for valuable rights referring to Section 4, 4A, Sections 5 and 9 of the MOFA. 61. We find it difficult to accept the said contention as urged on behalf of the plaintiffs that these provisions of the MOFA would in any manner assist the plaintiffs. The plaintiffs who have parted with substantial amounts, are not ordinary flat purchasers. For the reasons best known to them, the plaintiffs never felt to have a benefit of a registered agreement of sale of their respective flats which would require payment of proper stamp duty nor they called upon Orbit to do so. This possibly in view of the nature of the relations the plaintiffs stood with Orbit, the plaintiff thought it wiser to remain in that position. In the context of the MOFA Act the non-registration of an agreement to purchase/sale of a flat in fact goes to the root of the matter. Thus when we consider the argument of the applicability of the provisions of MOFA and a protection as claimed by the plaintiffs under the provisions of the said Act the basic compliance of the provisions MOFA would not only be germane but a requireme....
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....have no application in the facts of the present case. This for the reason that primarily there is no agreement for sale executed by Orbit in favour of the plaintiffs to sell any of these flats and when no such agreement to sale is executed, there was no embargo on Orbit not to mortgage the project to the bank and to receive the term loans and the other borrowings. Conversely in such a situation there was also no embargo on the bank to advance a loan and receive the project assets as a mortgage/security for repayment of loan from Orbit. As there was no registered agreement as prescribed under Section 4 of the MOFA, there was no question of the rights of the plaintiffs/purported flat purchasers being protected so as to legally override the charge created by the bank on the project assets. In the absence of the basic compliance under MOFA by Orbit and plaintiffs it cannot be presumed that the money which was received by Orbit from plaintiffs was towards purchase of flats for the applicability of the MOFA. In Hansa V. Gandhi's case (supra), the Court examining the provisions of Section 4 of the MOFA held that the agreement executed between the plaintiff and the developer ought to h....
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.... under Section 13 of the Securitisation Act in the year 2017, the plaintiffs woke up and instituted these suits. It is surprising that despite such large amount being advanced, no steps whatsoever were taken by the plaintiffs, to resort to any legal remedy against Orbit, prior to institution of this suit, which a bonafide flat purchaser in the normal course would do. We see no correspondence entered between the plaintiffs and Orbit or any other material which would show that the plaintiffs had any grievance in Orbit not undertaking completion of the project or not registering an agreement with the plaintiffs for sale of the flats. 67. From the MOU entered by one of the plaintiffs (Madhav Prasad Aggarwal- plaintiff in Suit No.62 of 2017) it is clear that this plaintiff was made aware about the mortgage of the said project in favour of the bank and this was accepted in totality by the said plaintiff. Thus there was a clear intention of the said plaintiff not to get the agreement registered and/or to take any steps to safeguard any of the legal rights which if at all had accrued to the plaintiff. It is also astonishing as to why before the bank adopted measures under the Securitisa....
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....sion that the plaint as against the bank is barred by the provisions of Section 34 of the Securitisation Act. 71. We now consider whether the plaint(s) in any of these suits fall within the exceptions as carved out in paragraph 51 of the decision of the Supreme Court in Mardia Chemicals Ltd's case (supra), namely whether the case of the plaintiffs as made out in the plaint is such that the action of the bank ( secured creditor) can be said to be fraudulent or the bank's claim is so absurd and untenable that it may not require any probe whatsoever, so as to hold that the plaints in these suits are maintainable against the bank, by overcoming the bar of Section 34 of the Securitisation Act. 72. In the foregoing paragraphs we have categorically noted the averments in each of the plaints as made against the bank, which the plaintiffs interalia say, are allegations of fraud as played by the bank in granting loan to Orbit and accepting the mortgage of the project assets. It is well settled that the parties pleading fraud must set forth full particulars, general allegations are insufficient even to amount to an averment of fraud, however strong the language in which such ave....
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....mbiguous, to hold that these averments can at all be considered to be averments of fraud as played by the bank against the plaintiffs. We thus see much substance in the contention as urged on behalf of the bank that by clever drafting and by making unsubstantiated allegations of fraud, the bank has been impleaded as a party defendant to the suit. The bank would thus be correct in its contention that in the absence of an unsubstantiated plea of fraud against the bank, the plaint against the bank is liable to be rejected following the principles as laid down in paragraph 51 in Maradia Chemicals Ltd's case (supra). The nature of the prayer clauses as noted above in all these plaints also makes it clear that the principal relief is of specific performance of the agreement against Orbit. There is no case in the alternative of any damages or any mandatory claim being made against the bank. Thus, the statements which are made in the plaint against the bank cannot be said to be in aid of any relief prayed against the bank. 75. The case as urged on behalf of the plaintiff that the bank ought to have undertaken due diligence, is also of no avail as there are no registered agreements b....
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....vil suit in question. 78. As regards the plaintiffs contention that in view of Section 9 of the MOFA the plaintiffs would have prior rights to that of the bank qua the project as mortgaged to the Axis bank, also cannot be accepted as noted above. In fact by this plea the plaintiffs indirectly question the security interest of the bank and the entitlement of the bank to resort to the measures under Section 13 of Securitisation Act. The plaintiffs therefore necessarily should have availed of a remedy under Section 17 of the Securitisation Act which permits "any person" who is aggrieved by any of the measures referred to in sub-section 4 of Section 13 taken by the secured creditor or his authorised officer, by making an application to the Debts Recovery Tribunal against such measures. As held by the Supreme Court in Mardia Chemicals Ltd.'s case (supra), the proceedings in an appeal under Section 17 is that of a suit in the court of first instance under the Code of Civil Procedure, as observed in paragraph 59 and 62 of the said decision. 79. In supporting the contention that the bank would be required to be joined in the conveyance in case the plaintiffs succeeds in obtaining....
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.... taking review of law on the issue, in paragraphs 9 and 14 observed thus:- "9. We have given our earnest consideration to this matter and we do not see why where a plaint discloses no cause of action against some of the defendants it cannot be rejected against those defendants. We can understand that a plaint has to be rejected in toto in the sense that a Court cannot reject one part of the plaint against all the defendants and carry on with the rest of the plaint against them, but we cannot understand why the Court cannot reject the entire plaint against a particular defendant and carry on with the entire plaint against others. In such a case, there is a total rejection of the plaint so far as a particular defendant is concerned. There being such a total rejection of the plaint so far as the particular defendant is concerned, we are of the opinion that such an order would be open to appeal as a decree. ..... 14. We are, therefore, of opinion that in the first place, we do not see anything in O.7 R.11(a) or (d) which forbids a Court from rejecting the plaint as a whole against some of them. We are of the opinion that it is possible for the Court to reject....
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....prayed for rejection of the plaint as a whole for the reason that it does not disclose a cause of action and not fulfilling the statutory provisions. In addition to the same, it is brought to our notice that this contention was not raised before the High Court and particularly in view of the factual details, the said decision is not applicable to the case in hand. 30. In the light of the above discussion, in view of the shortfall in the plaint averments and statutory provisions, namely, Order 7 Rule 11, Rule 14(1) and Rule 14(2), Forms 47 and 48 in Appendix A of the Code which are statutory in nature, we hold that the learned Single Judge of the High Court has correctly concluded that in the absence of any cause of action shown as against the first defendant, the suit cannot be proceeded either for specific performance or for the recovery of money advanced which according to the plaintiff was given to the second defendant in the suit and rightly rejected the plaint as against the first defendant. Unfortunately, the Division Bench failed to consider all those relevant aspects and erroneously reversed the decision of the learned Single Judge. We are unable to agree with the ....
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....e are afraid as to how this decision would assist the plaintiffs, when the question in the present proceedings is completely distinct, namely whether the jurisdiction of the civil court is barred in view of Section 34 of the Securitisation Act, as a closer scrutiny of the plaints as framed against the bank indicates that the issue as set up in the plaint against the bank are the measures adopted by the bank under Section 13(4) of Securitisation Act. 85. The reliance on behalf of the plaintiffs on the decision in Indian Bank's case (supra) is also not well founded. In the said case the issue before the Supreme Court was 'whether a civil suit filed against the bank in Calcutta High Court for recovery of certain amount as damages for non-disbursal of loan with interest, could be transferred to the Debt Recovery Tribunal in view of Section 19 of the the Debts Due to Banks and Financial Institutions Act. The plea of the bank was rejected by the High Court. The contention of the bank was that the recovery proceedings initiated by the bank against the respondent and the respondent's suit for damages, were inextricably connected and although the suit of the respondent was pr....
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....n favour of the bank, nor any security created in favour of the bank as against rights of HUF of which plaintiffs were members. The Division Bench examining the provisions of Securitisation Act and the principles of law as laid down in Mardia Chemicals Ltd.'s case (supra), held that Securitisation Act provides a comprehensive scheme. It was held that the provisions of Securitisation Act explicitly were applicable to challenge the measures taken under Section 13(4) of the Securitisation Act and the challenge thus fell necessarily before the tribunal by an appeal under Section 17 after the measures are taken. It was held that once the measures were adopted under Section 13(4), the statutory remedy is available not only to the borrowers but to "any person", aggrieved by the measures. Referring to the Decision of the Supreme Court in Authorised Officer, Indian Overseas Bank v. Ashok Saw Mills 2009 (7) TMI 765, the Court observed that wide powers were conferred upon the banks and financial institutions and any person who is aggrieved by the measures taken under Section 13(4) can approach the DRT. The Court observed that the intention of the legislation in making the said provision w....
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....o be construed. Essentially, in the present case, the averments in the plaint are that: (i) The HUF was a co-owner/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 VBC 26 app244.10-8.12 First Defendant had no security interest and no secured assets and, therefore, was not entitled to invoke the provisions of Sub-section (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....
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....sion "in respect of any matter" referred to in Section 34 would take within its ambit the "measures" provided under sub-section (4) of Section 13 of the Securitisation Act. It was held that any grievance against any measures taken by the borrower under sub-section (4) of Section 13 of the Securitisation Act a remedy is open to the aggrieved party to approach the DRT or the appellate tribunal and not the civil court, as the civil court had no jurisdiction to entertain any suit or proceedings in respect of the matter which fall under Section 13(4) of the Securitisation Act and more particularly when Section 35 provides for overriding effect over the other laws, if they are inconsistent with the provisions of the Securitisation Act, which takes within its purview Section 9 of the Code of Civil Procedure as well. It was held that the bank had proceeded only against the secured assets of the borrowers on which no rights of respondents therein have been crystallized, before creating security interest in respect of the secured assets. 89. In a recent decision of the Supreme Court in the case "Authorised Officer, State Bank of India vs. Allwyn Alloys Pvt.Ltd. & Ors (2018)8 SCC 120", the....