Sadanand Properties Pvt. Ltd And ... vs Punjab National Bank And Others
2010 Latest Caselaw 592 Del

$~15
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                            Date of decision: 03.02.2010
+      CS(OS) 358/2009

       SADANAND PROPERTIES PVT. LTD AND OTHERS           ..... Plaintiffs
                         Through : Mr. Harish Malhotra, Sr. Advocate with Mr. Rajat Aneja with Mr.
                         Chand Zafar, Advocates.
                  versus

       PUNJAB NATIONAL BANK AND OTHERS                   ..... Defendants
                           Through : Mr. T.K. Ganju, Advocate, for Defendant No.1.
                           Mr. R.S. Sahni, Advocate, for Defendant No.2.
                           Mr. Rajeev Kumar Jha, Advocate, for Defendant No.3.
                           Mr. Deepak Khadaria, Advocate, for DDA.
       CORAM:
       MR. JUSTICE S. RAVINDRA BHAT

1.

Whether the Reporters of local papers Yes.

may be allowed to see the judgment?

2.     To be referred to Reporter or not?      Yes.

3.     Whether the judgment should be          Yes.
       reported in the Digest?

S.RAVINDRA BHAT, J. (OPEN COURT)



I.A. Nos. 2470/2009, 3827/2009 and 11740/2009

1. The present order will dispose of three applications - two filed by the plaintiffs, I.A. No.

2470/2009 (seeking temporary injunction under Order 39 Rule 1 and 2) and I.A. No. 11740/2009

(under Section 151 CPC, for urgent orders), and the defendants' application seeking rejection of

the plaint under Order 7 Rule 11 (I.A. No. 3827/2009), which was also heard and is being dealt

with by this common order.

2. The plaintiffs seek a declaration that the mortgage of the suit property, i.e. 87-A, Naraina,

measuring 309.9 square yards claimed by Defendant No.1 (hereafter referred to as the "the

PNB") is null and void and unenforceable. Consequent permanent injunction is also sought.

3. The plaintiffs claim to be builders, who purchased major portions of the suit property

through the Sale Deed dated 10.04.2008 (in this, the vendor was the third defendant and the

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 1 portion sold was the terrace), for Rs.15,00,000/-; the second Sale Deed was executed on

17.10.2008 for a consideration of Rs.1.25 crores, and the subject matter of the conveyance were

the first and second floors of the said property. It is contended that the property had been

mortgaged with the Oriental Bank of Commerce (OBC) and the plaintiffs discharged the said

dues to that bank on 07.04.2008, by paying Rs.45 lakhs.

4. The plaintiffs, in support of the case for ad interim injunction rely upon the flow of title

through an original Perpetual Lease Deed dated 23.01.1971, issued in favor of vendee purchaser

(Defendant Nos. 2 and 3) purchaser. Reliance is also placed upon the registered Conveyance

Deed dated 22.12.2006 executed by the Delhi Development Authority (DDA) (which had

permitted conversion of the leasehold rights of the suit property, into freehold). The plaintiffs

emphasize that the Perpetual Lease Deed (dated 23.01.1971) was cancelled pursuant to

cancellation of the Conveyance Deed. Learned senior counsel also took pains to submit that this

is apparent from a look at the Perpetual Lease Deed, which clearly shows cancellation of the

documents. The plaintiffs contend that even though the transaction with the second and third

defendants was that actual title to the property was in respect of the first two floors and terrace

rights, the third defendant retained ownership rights in respect of the ground floor. The plaintiffs

further state that in accordance with an understanding to reconstruct the property, (which

included the ground floor), a fresh sanction for the structure proposed to be built was applied for

with the local authority, i.e. the Municipal Corporation of Delhi (MCD) and that the same was

granted on 29.07.2008. It is submitted that when matters stood thus, the plaintiff learned in

January 2009 about a notice issued inter alia to the third party borrower and to Defendant Nos. 2

and 3 under Section 13(2) of the SARFAESI Act, 2002, by the Punjab National Bank (PNB),

demanding that certain dues were payable on account of a loan transaction stating that Defendant

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 2 Nos. 2 and 3 were mortgagers of the suit property. The plaintiffs also refer to a claim made on

27.01.2009 before the Debt Recovery Tribunal (DRT) by the PNB, impleading Defendant Nos. 2

and 3 and the principal borrower; the relief claimed was for a decree of Rs.1,50,68,000/- odd on

the basis of the alleged mortgage security claimed by the PNB.

5. The plaintiffs submit, in support of the request for temporary injunction that an

examination of the rival documents placed on record would show that:

(a) The Perpetual Lease Deed dated 23.01.1971 placed on the record was cancelled

on the Conveyance Deed being executed by the DDA.

(b) It is highlighted that the PNB's reliance on another so-called Perpetual Lease

Deed dated 23.01.1971 in respect of the same property is of no avail since that is not cancelled

by the lessor/DDA.

(c) It is stated that the Conveyance Deed executed by the vendors, Defendant Nos. 2

and 3, in favor of the plaintiffs bear their photographs. In support of the statement that this

registered document is genuine, the plaintiffs also annexed copies of the Voter/Election Identity

Card of the Vendors, Defendant Nos. 2 and 3 (at pages 185-186) of the list of documents filed

along with the suit. It is submitted that the Conveyance Deed placed on the record by the

defendants (page 172 L) of the list of documents further shows photographs of two ladies wholly

unconnected with the property and having no concern with it, are fixed on it.

6. The plaintiffs rely upon an order of this Court dated 06.03.2009. Apparently, the Court

had heard submissions on behalf of the parties and directed verification of the rival documents.

The relevant extract of the order reads as follows:

"XXXXXX XXXXXX XXXXXX

The counsel for the defendant No.4 has argued that he has been

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 3 improperly impleaded. All the said pleas may be taken in the written statement. The counsels for the defendants No. 1, 2 and 4 to file their written statements/replies within two weeks. Replication, rejoinder thereto be filed within two weeks, thereafter. The counsel for the defendant No.5 DDA has been requested to have examined/compared the original title documents of the property which the plaintiffs claim to be in their possession and the original title documents which the defendant No.1 Bank has filed before the DRT-III and to report as to which of them are the original/correct documents executed by the DDA pertaining to the property. For this purposes, the Registrar, DRT-III is directed to produce/bring the original documents in his custody and filed in O.A. No.16/2009 pertaining to the property before the Joint Registrar on 1st April, 2009 at 11.00 a.m. on which date the official of the DDA shall inspect the same along with the documents to be produced by the plaintiffs. The report by the DDA be submitted before the next date.

XXXXXX XXXXXXX XXXXXXX"

7. Pursuant to these directions, the DDA filed an affidavit of Mr. S.S. Gill, Director

(Residential Land) on 18.04.2009. That affidavit enclosed the Inspection Report of Mr. Narayan

Mandal, Assistant Director (Counselling) and the official who had signed the Conveyance Deed

dated 22.12.2006, pertaining to the suit property. The said inspection report reads as follows:

       "XXXXXX                        XXXXXX                         XXXXXX

       Suit No.CS(OS) 358/2009

Sadanand Properties Pvt. Ltd. Vs. Punjab National Bank & Ors. Property No.A-87, Naraina Vihar

REPORT OF INSPECTION

On 1.4.09, I, Narayan Mandal presently working as Asstt.

Director/Counselling attended the office of Joint Registrar of Hon'ble High Court. Earlier I was posted as Assistant Dir/Lease Administration Officers in LAB (Residential Branch). Two Conveyance Deed Papers in respect of property No.A-87, Naraina Vihar presented before me one from the office of DRT and one from plaintiff and following differences have been found.

C.D. Presented by the office by DRT

(1) Flow of the signature on photograph is different.

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 4 (2) Signatures above the stamps of lease administration officers at the bottom of pages are very different.

(3) Stamps affixed on C.D. is very different.

(4) Signatures at pages No.1, 2 & 3 on C.D. on the bottom are very different and all signature are not tallying each others.

(5) The signature at page No.4 above the stamp of LAO is very different. (6) Photographs of one lady is different which has been affixed on right top corner of CD.

(7) Perpetual lease deed has not been cancelled.

Plaintiff

(1) Perpetual Lease Deed has been cancelled by me.

(2) Wherever signature appears on CD have signed by me and also tallying from the original CD lying in the DDA file.

(3) Photographs of two lady affixed on right top corner are tallying with CD lying in DDA record.

(4) Site plan is not attached with perpetual Lease Deed.

Hence C.D. Paper produced by the plaintiff has been verified by me and found genuine.

XXXXXX XXXXXXX XXXXXXX"

8. Learned counsel submits that the PNB's objection as to the maintainability of the suit

cannot prevail at this stage since it is based on Sections 34 and 35 of the SARFAESI Act, which

has been relieved in clear terms where the Court is confronted with facts that point to fraud or

some other factors which would vitiate the entire transaction upon which the banks invoke

jurisdiction under that enactment. Reference is made to the decision reported as Mardia

Chemicals Ltd. v. Union of India (UOI) and Ors. 2004 (4) SCC 311, particularly para 51, which

is as follows:

"XXXXXX XXXXXX XXXXXX

51. However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 5 fraudulent or their claim may be so absurd and untenable 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 (supra) p.135 at p.141 and 144, a judgment of the learned single Judge where it is observed as follows in para 22:

"The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are twofold 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 mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought: 'Adams v. Scott, (1859) 7 WR (Eng.) 213 (Z49). I need not point out that this restraint on the exercise of the power of sale will be exercised by Courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Rashbehary Ghose Law of Mortgages, Vol.II, Fourth Edn., page 784).

52. The other decision on which reliance has been placed is A.Batcha Saheb Vs. Nariman K.Irani & Anr., AIR 1955 Madras DB p.491 more particularly on paragraph 8.

XXXXXX XXXXXXX XXXXXXX"

Learned counsel also relied upon the decision of the Supreme Court reported as Nahar

Industrial Enterprises Ltd. v.Hong Kong and Shanghai Banking Corporation 2009 (8) SCC 646.

9. Learned senior counsel submitted that having regard to the overall circumstances,

particularly, the report of the land owning agency, which executed the Conveyance Deed, prima

facie there is material to conclude that the mortgage claim of PNB is unsustainable, to say the

least. As to whether fraud was played by the defendants is a matter of trial. In view of these

prima facie facts, say the plaintiffs, an appropriate order entitling them to deal with the property

in a suitable manner and at the same time securing the interests of the bank in the event of the

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 6 claim not succeeding, may be made. The plaintiffs' counsel submitted that the Court may make

such directions, including an order to deposit any amount of money, either here in Court or in the

bank itself in a no lien interest bearing account may be made.

10. Learned counsel for the PNB opposed the plaintiffs' application for temporary injunction

or any such orders and urged that the suit is not maintainable. He stated that the bar under

Sections 34 and 35 of the SARFAESI Act, 2002 would clearly apply. Learned counsel

highlighted that the notice under Section 13(2) of the SARFAESI Act, 2002 was issued in

January 2009 and soon thereafter on 29.01.2009 a claim was made before the Debt Recovery

Tribunal. It is also stated that the order under Section 13(4) was in fact issued by the bank.

Learned counsel submitted that in the proceedings before the DRT, the plaintiffs as well as

Defendant Nos. 2 and 3 have been impleaded as parties. Therefore, it is open for them to raise

such contentions as are available in law, including the genuineness of the mortgage transaction

upon which the claim before the DRT has been made, by the PNB.

11. It is contended that the Court cannot, at this stage, probe into the veracity of the rival

documents. Learned counsel highlighted that the cancellation of the original Perpetual Lease

Deed dated 23.01.1971 relied upon by the plaintiffs is also suspect since it purports to have been

made on 25.12.2006, which was undeniably a public holiday. It was also argued that the

Perpetual Lease Deed and the Conveyance Deed relied upn by the bank are genuine documents.

12. Learned counsel submitted that the DDA's role in this whole episode is itself suspect and

the Court cannot rule-out the possibility of the officials of that agency having colluded with the

parties in this case. It was argued that the officer who is supposed to have inspected the two

documents and made his report has not cared to file any affidavit and any lacunae in his conduct

was cured by the affidavit furnished by his superior office, Mr. S.S. Gill. Learned counsel

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 7 submitted that Mr. Narayan Mandal, the official of the DDA who inspected the documents

nowhere stated that the documents relied upon by the bank were forged or fabricated. He further

argued that the Lease Deed relied upon by the plaintiffs does not contain any Site Plan, whereas

the documents relied upon by the bank says so, and this aspect has not been commented by Mr.

Narayan Mandal, who is said to have executed the Conveyance Deed.

13. It is further submitted by the defendant bank that the suit is not maintainable and requires

to be dismissed in view of the bar contained in Section 34. It is argued here that there is no

material on record to show that the OBC was paid any amount by the plaintiffs as consideration

as is sought to be urged today. The PNB further argues that in any event, this Court cannot pass

any interim order as it would conflict with the existing order of the DRT dated 09.02.2009 in the

pending claim made by it (the PNB) restraining the plaintiffs from dealing with or creating any

third-party rights in respect of the suit property.

14. The above discussion would show that the plaintiffs are claiming to be owners of the suit

property except the ground floor. The plaintiffs' claim is premised upon two registered Sale

Deeds dated 10.04.2008 and 17.10.2008. It is contended that the vendor (Defendant Nos. 2 and

3) based their title upon the registered Lease Deed of 23.01.1971 and a Conveyance executed by

the DDA on 22.12.2006. The originals of these latter documents are on the record. The

Defendant Nos. 2 and 3 support the plaintiffs' contentions. The PNB's contention, however, is

that it is a prior mortgagee and has substantial interest in respect of the very same property and,

consequently, the plaintiffs cannot be permitted to deal with it as that would imperil the

mortgage security it holds. The defendant bank has, in support of this contention, filed the

originals of the same documents dated 23.01.1971 and 22.12.2006. With a view to ascertain

which of the two sets of documents is genuine, this Court had by its order dated 06.03.2009,

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 8 directed their scrutiny/verification by the concerned agency, which ostensibly executed the

Conveyance Deed, i.e. the DDA.

15. A facial reading of the Conveyance Deed would show that the officer of the DDA, who

executed it was Mr. Narayan Mandal, Assistant Director, DDA. The said official apparently

inspected both sets of documents and furnished a report dated 16.04.2009; the same has been

filed in Court along with the affidavit of Mr. S.S. Gill, Director (Residential Lands). The

Inspection Report categorically asserts that the documents produced and relied upon by the

plaintiffs were in fact executed by the said Mr. Narayan Mandal. Equally categorically the report

states that the documents relied upon by the PNB were not executed by him and that the

Conveyance relied upon consequently is not a genuine document. That the report itself does not

state that the latter documents are not genuine, is irrelevant. What this Court has to see is that in

the overall circumstances which of the two sets of documents is prima facie genuine.

16. Apart from the report of Mr. Narayan Mandal, what is apparent from the two sets of

documents is that the Perpetual Lease Deed dated 23.01.1971 relied upon by the defendants has

not been cancelled - a point which cannot be glossed over. The practice of the DDA (and a fairly

universal one at that) is that once a Conveyance Deed is executed after conversion of the

property from leasehold to freehold, the existing instrument of title, i.e. the Lease Deed is

cancelled. The Perpetual Lease Deed relied upon by the plaintiffs clearly bears such a

cancellation endorsement. The PNB's endeavor to discount this by contending that the date of

25.12.2006 by saying that it was a public holiday, in the opinion of the Court, is not of much

significance because as between two documents, the existence of an uncancelled document

(relied upon by the defendants) tends to raise more suspicion than the date of endorsement

cancelling the instrument. It lends weight to the report of Mr. Narayan Mandal that the

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 9 documents produced by the defendants cannot be relied upon and do not appear to be genuine.

Similarly, the plaintiffs' argument that the Conveyance Deed contains the photographs of the

true vendors are not denied by Defendant Nos. 2 and 3. The plaintiffs have also relied on their

photo identity cards. Most crucially, the officer of the DDA who signed the document produced

by them, attested to their genuineness.

17. As regards the defendants' contention being essentially based on the bar contained in

Sections 34 and 35 of the The Securitisation and Reconstruction of Financial Assets and

Enforcement Of Security Interest Act, 2002 (SARFAESI) is concerned, it would be relevant here

to extract the relevant provisions, which are as follows:

"XXXXXX XXXXXX XXXXXX

34. Civil Court not to have jurisdiction

No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).

35. The provisions of this Act to override other laws

The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

XXXXXX XXXXXXX XXXXXXX"

18. A prima facie reading of the above would indicate that the Civil Court's jurisdiction is

barred. This Court, however, pertinently would recollect the decision of the three-Judge Bench of

the Supreme Court in Mardia Chemicals Ltd. v. Union of India (UOI) and Ors.(supra), where it

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 10 was held that in a small category of cases - concededly exceptional in nature - it is always open

to the litigant to approach Civil Court for equitable or such relief, if there is case of fraud or

vitiating factor. This was reiterated in Nahar Industrial Enterprises Ltd. v.Hong Kong and

Shanghai Banking Corporation (supra).

19. In view of the above submissions and having regard to the Inspection Report made

pursuant to the orders of this Court dated 06.03.2009 and the affidavit of the DDA, which is, in

the circumstances of the case, clear enough that the documents produced and relied upon by the

plaintiffs appear to be genuine, this Court has no hesitation in concluding that the assertion of the

PNB that it holds mortgage, does not prima facie appear to be well-founded. Now coming to the

objection that if this Court were to make any order pertaining to the suit property, the same

would be in conflict with the DRT order dated 09.02.2009, what can be said is that the DRT was

not seized of all the facts at that stage; concededly, the order of 06.03.2009 of this Court did not

exist then as also the Inspection Report of the DDA. The DDA is represented today and supports

the affidavit filed by it as also the Inspection Report.

20. In the circumstances and having regard to the plaintiffs' contention that the defendant

PNB's interests would be appropriately secured and that any orders in this regard would be

complied with, this Court is of the opinion that a suitable interim order is required to be made

today. Accordingly, following directions are issued:

(a) The plaintiffs are at liberty to deal with the portions of the suit property to which

they prima facie have title, in any manner they choose to, whatsoever, i.e. the first floor, the

second floor and the terrace. This would include the right to reconstruct or carry such

constructions as are permitted by the municipal authorities, in accordance with the Sanction

Plans said to have been issued.

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 11

(b) The said above directions are subject to the plaintiffs depositing Rs.1.5 crores

with the PNB, to secure latter's interest in the ultimate event of the plaintiffs not able to prove

their case.

(c) The above amount shall be deposited as a condition for permission granted in

direction no. (a) above, within six weeks from today.

(d) The PNB is directed to ensure that the sum so deposited is kept in an interest

bearing Fixed Deposit Receipt, in a separate account to be appropriated in accordance with the

final orders, in the suit. It is made clear that the PNB's rights at this stage have not been

determined and would be subject to the final decree of the Court after the trial.

(e) In the event of the plaintiffs choosing to sell the property or transferring it to any

third party, the pendency of the present proceeding shall be disclosed to the latter. Similarly, the

plaintiffs shall also intimate to the Court through an appropriate affidavit about such transaction.

21. I.A. Nos. 2470/2009 and 11740/2009, filed by the plaintiffs are disposed of in terms of

the above directions. I.A. No. 3827/2009, filed by the defendants, is, therefore, for the same

reasons, rejected.

CS (OS) 358/2009

The parties are directed to admit/deny each others' documents within four weeks from

today, by filing affidavit.

List on 26.04.2010 before the Joint Registrar, for scrutiny.

List before the Court on 23.11.2010.

S. RAVINDRA BHAT (JUDGE) FEBRUARY 03, 2010 'ajk'

I.A. Nos. 2470/2009, 3827/2009 and 11740/2009 in CS(OS) 358/2009 Page 12