Gujarat High Court
Central Bank Of India vs Gujarat Industrial Development ... on 9 September, 2025
NEUTRAL CITATION
C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 10250 of 2025
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
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Approved for Reporting Yes No
✔
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CENTRAL BANK OF INDIA
Versus
GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION & ANR.
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Appearance:
MR SANDIP C BHATT(6324) for the Petitioner(s) No. 1
MR CHINMAY GANDHI for the Respondent(s) No. 1
MR AMAN MIR(10881) for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 09/09/2025
ORAL JUDGMENT
1. By way of this writ petition under Articles 226 and 227 of the Constitution of India, the petitioner - bank has approached this Court for quashing and setting aside the auction / sale notice issued by the respondent No.1 - GIDC as well as for declaration that the petitioner - bank has got first charge over the property mortgaged by the respondent No.2 in view of Section 26(E) of the Securitization and Reconstruction of Financial Assets Act, 2002 (for short 'the SARFAESI Act').
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2. Short facts of the case can be stated as under :
2.1 The respondent No.2 - a Private Limited Company, is lessee in connection with the land being situated at Plot No.457, GIDC Phase-II, Jamnagar by virtue of registered sale deed No.6592 dated 14.8.1997. The respondent No.1 herein -
GIDC is the lessor of the said property. The respondent No.2, during the course of business, required financial assistance, thus, approached the petitioner - bank for a Cash Credit facility of Rs.4 crores. The petitioner - bank considered the request and sanctioned the said Cash Credit facility of Rs.4 crores upon execution of collateral security / security documents. The mortgage deed came to be executed by the respondent No.2 in favour of petitioner - bank to secure the Cash Credit facility.
2.2 The charge over the said property was also registered with CERSAI portal. The respondent No.2 having defaulted in repayment of the aforesaid Credit Facility, the petitioner - bank classified the account as NPA on 28.1.2019.
2.3 The petitioner - bank had initiated the recovery proceedings under the provision of the SARFAESI Act on 3.5.2019 by issuing notice under Section 13(2) of the SARFAESI Act upon the original borrower with a demand of amount of Rs.4,52,25,105/-.
2.4 It is the case of the petitioner that on 5.8.2019, the Page 2 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined possession of the property was taken over by the bank under the provision of the SARFAESI Act. The petitioner - bank also published possession notice in two leading newspapers under Rule 8(2) of the Security Interest Enforcement Rules, 2002, informing public at large not to deal with the property as the same is charged with the petitioner - bank.
2.5 On 6.9.2023, the petitioner - bank requested the respondent No.1 - GIDC to provide a copy of 2R permission, since the said permission was not found by the petitioner - bank in its record.
2.6 On 25.9.2023, the respondent No.1 - GIDC wrote a letter to the petitioner - bank that the possession of the plot in question has already been taken over by the GIDC and thereby, allottee / respondent No.2 has got no right, title or interest.
2.7 On 1.8.2024, the petitioner bank issued public notice with regard to public auction of the property in question scheduled on 19.8.2024. The respondent No.1 - GIDC vide letter dated 14.8.2024 informed the petitioner - bank that the corporation had not issued any 2R/2S permission either to allottee or to the bank and thus, if the auction is held, then the GIDC will not transfer the land in favour of auction purchaser.
2.8 According to the petitioner, despite it is within the knowledge of respondent No.1 authority that the property is mortgaged with the petitioner - bank and the petitioner - bank has already taken the possession on 5.8.2019, the sale Page 3 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined notice dated 25.7.2025 came to be issued by the respondent No.1 - GIDC putting the property for public auction.
3. Thus, being aggrieved and dissatisfied by the aforesaid, the petitioner has approached this Court for the reliefs stated therein.
4. Heard Mr.S.C. Bhatt learned advocate for the petitioner and Mr.Chinmay Gandhi learned advocate for the respondent No.1.
5. Mr.S.C. Bhatt learned advocate for the petitioner has, made the following submissions :
(1) Mr.Bhatt learned advocate submitted that the petitioner is the bank, which has advanced the financial assistance in lieu of mortgage deed for the property in question. The said mortgage deed is registered deed being No.6961 dated 11.7.2012. It is further submitted that the petitioner has also got registered the charge over the property in question by registering all the documents in compliance of the provision of Section 20 of the SARFAESI Act. Thus, according to Mr.Bhatt, once the charge is created under the SARFAESI Act on the property in question, in view of provision of Section 26(E) of the SARFAESI Act, the petitioner being a secured creditor has got priority over the other debts, revenues, taxes, cess payable to the Central Government or the State Government or the local authority. Accordingly Mr.Bhatt submitted that the petitioner bank having charge over the property in question, the respondent No.1 - GIDC putting the property on Page 4 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined auction is in contravention of the provision of the SARFAESI Act. Mr.Bhatt, therefore, urged this Court to quash and set aside the impugned action on part of respondent No.1 - GIDC of putting the property on auction which is mortgaged with the petitioner - bank.
(2) Mr.Bhatt learned advocate submitted that merely because the 2R permission was not obtained by original lessee
- respondent No.2 herein and/or not insisted upon by the bank at the time of advancement of financial assistance, it would not render the mortgage deed invalid. According to Mr.Bhatt, while the lease deed is in existence, the mortgage is also said to be valid and thereby, enforceable in the eye of law.
(3) Mr.Bhatt learned advocate submitted that the loan account of the respondent No.2 was classified as NPA on 28.1.2019 and thereafter, the steps under the provision of the SARFAESI Act were undertaken by issuing notice dated 3.5.2019 under Section 13(2) of the SARFAESI Act as well as symbolic possession was taken over under Section 13(4) of the SARFAESI Act on 5.8.2019. It is further submitted that on 7.8.2014, a public notice was also issued by the petitioner - bank informing the public at large that the possession of the property of respondent No.2 has been taken over. Despite the aforesaid, the respondent No.1 - GIDC has never raised any objection against the possession notice and/or not taken any steps thereof. However, according to Mr.Bhatt, it is only when the petitioner - bank published an advertisement dated 1.8.2024 for public auction of the property in question on 19.8.2024, the respondent No.1 - GIDC by way of letter dated Page 5 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined 21.9.2022 and 14.8.2024 informed that the possession of the property in question was taken over on 21.9.2022 by invoking the provision of the Gujarat Public Premises (Eviction of Unathorised Occupants) Act, 1972 (for short 'the Act of 1972'). Thus, the learned advocate for the petitioner submitted that the actin on part of the GIDC of taking over the possession unilaterally is also bad in law and the same deserves to be quashed and set aside.
(4) Lastly, Mr.Bhatt learned advocate submitted that the bank being a secured creditor has got first priority over the other dues including that of sovereign debts and thereby, the statutory right created in favour of petitioner - bank cannot be frustrated by the respondent No.1 and thus, the action on part of respondent No.1 of taking over the possession as well as putting the property in auction, deserves to be quashed and set aside.
5.1 By making above submissions, Mr.Bhatt learned advocate for the petitioner urged this Court to allow the present petition.
6. Per contra, Mr.Chinmay Gandhi learned advocate for the respondent No.1, who appeared on advance copy, while opposing the present petition, has made the following submissions:
(1) Mr.Gandhi learned advocate submitted that the petitioner - bank, while advancing the financial assistance to the respondent No.2, has materially erred and/or ignored the Page 6 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined fundamental document i.e. lease deed between the present respondent No.1 and the respondent No2. According to Mr.Gandhi learned advocate, covenant 2(r) of the lease deed dated 14.8.1997 provides that there shall not be any transfer, assignment whole or any part with the possession of the demised premises or any interest therein without the previous permission of the lessor i.e. GIDC. According to Mr.Gandhi learned advocate, therefore, it is incumbent on part of respondent No.2 to take previous permission of the respondent No.1 before mortgaging the premises with the petitioner - bank. Similarly, it was also the duty of the bank to carefully understand the covenant of the lease deed and in turn, ought to have called upon the respondent No.2 to obtain the previous permission of the GIDC before executing any mortgage deed. Mr.Gandhi learned advocate further submitted that there is a sheer lapse and/or negligency on part of the bank in not giving due importance to the terms and conditions - 2(r) of the lease deed and thereby, any subsequent transaction and/or action ubdertaken by the bank does not stand within the four corners of law. Thus, the present petition deserves no consideration and accordingly, Mr.Gandhi learned advocate urged this Court to dismiss the petition.
(2) Mr.Gandhi learned advocate further submitted that the possession of the plot in question from the lessee was taken over by the respondent No.1 in accordance with the procedure as envisaged under the provision of the GPP Act of 1972. Learned advocate further submitted that the steps under the provision of the Act of 1972 were taken i.e. on Page 7 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined
7.5.2022 under Section 4(1), on 21.6.2022 under Section 5(1) and on 6.8.2022 under Section 5(2). Finally, on 21.9.2022, the possession was taken over by drawing panchnama. Mr.Gandhi learned advocate further submitted that on 14.8.2024, the said facts were brought to the notice of the bank; however, thereafter also, the bank has not raised any objection and/or not raised any dispute against the said taking over the possession till filing of this petition. Mr.Gandhi learned advocate submitted that it is only when the GIDC published its intention to auction the property in question, the present petition has been filed at such a belated stage. Mr.Gandhi learned advocate submitted that it is glaring example of lackadaisical action on part of petitioner - bank. Mr.Gandhi, therefore, submitted that the present petition does not deserve to be entertained.
(3) Lastly, Mr.Gandhi learned advocate submitted that the entire case of the petitioner is based on the mortgage deed dated 11.7.2012. However, according to Mr.Gandhi, said mortgage itself is not valid in view of and in absence of required permission as envisaged under covenant 2(r) of the lessor. Mr.Gandhi submitted that admittedly, the respondent No.1 is the owner of the property. Thus, the respondent No.2 has merely a leasehold right and the said aspect is well withing the knowledge of the petitioner while granting the loan and thereby, the petitioner - bank ought not to have casually granted the loan to the respondent No.2 against the property owned by the respondent No.1, that too without any prior permission.
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7. Having heard the learned advocates appearing for the respective parties and having gone through the material produced on record, a short question that falls for consideration of this Court is whether the petitioner - bank is entitled to claim priority under Section 26(E) of the SARFAESI Act where the mortgage for the leasehold property executed in violation of the principal document i.e. lease agreement between the lessor and the lessee?
8. So as to decide the aforesaid question, the basic facts of the present case deserve to be considered. The undisputed facts are, thus, stated as under :
(1) The respondent No.2 is a lessee and the respondent No.1 is a lessor pursuant to the lease deed dated 14.8.1997.
One of the main covenant i.e. 2(r) since relevant is reproduced, thus:
"2(r) That he will not transfer, assign, underlet or part with the possession of the demised premise or any part thereof or any interest therein without the previous permission of the Lessor. For the purposes of this covenant, any change in the constitution of the lessee shall be deemed to be a transfer by the lessee of his interest in the demised premises in favour of another person, provided that where the lessee is a body corporate, a change in its Board of Directors or Managing Committee by whatever name called shall not be deemed to be a change in the constitution of the lessee. Provided further that where the lessee, for the purpose of constructing a building on the demised premises, is not obtain loan from a bank or other financial institution by mortgaging his leasehold interest in the demised premises in Page 9 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined favour of such bank or institution, permission of the lessor shall be deemed to have been given subject to the conditions :
(a) That such mortgage shall not affect the right and powers of the Lessor under this Lease Deed and
(b) that the Lessor before exercising his rights and powers under the Lease Deed will consult the bank or as the case may be, the financial institution concerned."
(2) In view of aforesaid lease deed, as per covenant 2(r), admittedly, it is the duty on part of lessee i.e. respondent No.2 to take permission of a lessor i.e. respondent No.1 prior to any transfer, assignment or parting with the possession of the premises. Importantly, it further appears that, the mortgage is permissible against the loan for the construction of a building on the premises. However, in the present case, the loan which has been granted by the bank is not for the construction of a building but as a cash credit facility.
(3) Upon classifying the account as NPA on 28.1.2019, the proceedings under the SARFAESI Act were availed up-till Section 13(4) only and thereafter, no possession under Section 14 has been taken over by the petitioner - bank. As against the aforesaid, the respondent No.1 - GIDC has already obtained the possession from the original lessee way back on 21.9.2022 by following the procedure as envisaged under the provision of the Act of 1972. On 1.8.2024, a public notice is issued by the bank with an intention to auction the property declared by the bank, to which the respondent No.1 vide letter dated 14.8.2024 informed that the possession of the Page 10 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined property which is sought to be auctioned, has been taken over on 21.9.2022 by following the procedure under the provision of the Act of 1972. Despite the said information, the bank has not challenged any such orders under the Act of 1972 till today.
(4) It is only when the respondent No.1 - GIDC sought to auction the property, under the guise of provision of the SARFAESI Act, the petitioner - bank has approached this Court claiming the statutory rights under Section 26(E) of the SARFAESI Act.
9. At this stage, it is relevant to take note of the provision of Section 26E of the SARFAESI Act, which reads, thus:
"Section 26E: Priority to secured creditors. "Notwithstanding anything contained in any other law for the time being in force, after the registration of security interest, the debts due to any secured creditor shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the Central Government or State Government or local authority.
Explanation.--For the purposes of this section, it is hereby clarified that on or after the commencement of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), in cases where insolvency or bankruptcy proceedings are pending in respect of secured assets of the borrower, priority to secured creditors in payment of debt shall be subject to the provisions of that Code.]"
10. In the view of the aforesaid, there cannot be any dispute with regard to the proposition of law pertaining to SARFAESI Act, more particularly the right of a secured creditors in terms of prior charge over the property of a debtor vis-a-vis other Page 11 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined creditors and/or sovereign dues. The purpose and object underlying the SARFAESI Act is to facilitate speedy recovery of loan and non-performing assets of bank and financial institutions. The main purpose behind enactment of SARFAESI Act is to provide legal provision for facilitating securitisation of financial assets of bank and financial institutions. By virtue of provision of the SARFAESI Act, the banks and the financial institutions are empowered to make fastest recovery of their dues by liquidating the properties of the defaulters. However, in my view, at the same time, the banks and the financial institutions who are empowered under the SARFAESI Act and given a status of first charge holder, cannot be expected and/or allowed to act carelessly, impulsively and incautiously. Under the SARFAESI Act, the banks and financial institutions are enjoying statutory protection and/or right to recover the dues as a first charge holder. Therefore, if the right and the protection is flowing from the Statute, in that event, to claim such right and/or protection, the bank and/or financial institution has to act in accordance with the Statute and in absolute due diligence. The bank and the financial institution should not levitate itself under the guise of right and protection enshrined under the provision of the SARFAESI Act. The facts of the present case are considered, the present one is a glaring example where the petitioner - bank has not only acted lackadaisically but absolutely ignoring the standards of due diligence.
11. In view of the aforesaid backdrop, this Court is of the considered opinion that from the inception, the bank has shown complete casual approach while granting the financial Page 12 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined assistance without any due diligence. I say so because the bank appears to have completely ignored the principal document i.e. lease deed and its covenant 2(r) which is the most relevant. Had the bank carefully gone through the lease deed, the bank could have noticed that in covenant 2(r), there is a clear stipulation with regard to the prior permission of the lessor before any transaction of loan. Further, it also could have been noticed by the bank that the financial assistance under the head of 'cash credit facility' is not permissible. As per covenant 2(r), the lessee appears to have permitted to obtain loan for the construction of building on the demise premises and only for that purpose, the mortgage was permitted subject to conditions. However, admittedly, the lessee has, before availing financial assistance, not obtained prior permission of the lessor, so also the bank remained casual in not insisting the lessee to obtain prior permission from the lessor. In my view, therefore, the bank, who is dealing with the public money, has acted in a great haste to extend the financial assistance to the respondent No.2. Therefore, merely the bank has got executed the mortgage in its favour and same got registered, would not, per se, entitle the bank to take shelter of the provision of the SARFAESI Act. If the bank and/or financial institutions are given special entitlement under the provision of the SARFAESI Act, then, to avail such special protection and/or rights, the bank and/or financial institution shall have to act in due diligence. The provisions of the SARFAESI Act shall not be meant to be misused by the bank and/or financial institution where the extension of financial assistance itself is without any due diligence. In other words, the provisions of the SARFAESI Act Page 13 of 14 Uploaded by V.J. SATWARA(HC00170) on Wed Sep 10 2025 Downloaded on : Thu Sep 11 00:44:49 IST 2025 NEUTRAL CITATION C/SCA/10250/2025 JUDGMENT DATED: 09/09/2025 undefined do not permit the bank and/or financial institution to extend financial assistance in absolute haphazard manner and then, take shelter of the SARFAESI Act claiming a status of first charge holder. The protection and/or rights flowing from the provision of the SARFAESI Act cannot be enforced by the bank and/or financial institutions those who have acted carelessly, impulsively and incautiously in the matter of sanctioning the loan.
11. In view of the aforesaid discussion, in my considered opinion, in the facts of this case, the mortgage of leasehold right property cannot be said to be legal being completely in violation of the principal document i.e. lease deed and thereby, the security created by virtue of such mortgage deed would not be valid in terms of the provisions of the SARFAESI Act and that the petitioner - bank cannot claim any priority of dues as envisaged under Section 26(E) of the SARFAESI Act.
I answer the question accordingly.
12. Accordingly, the present petition being bereft of any merits, deserves to be dismissed and is hereby dismissed, with no order as to costs.
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