Harsh Vardhan Land Limited vs Kotak Mahindra Bank Limited & Ors.
2012 Latest Caselaw 5704 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI


+                           Date of Decision: 21 .09.2012


%       W.P. (C) No. 5930/2012

        HARSH VARDHAN LAND LIMITED
                                                             ..... Appellant
                              Through:    Mr. Hashmat Nabi, Advocate
                         Versus

        KOTAK MAHINDRA BANK LIMITED & ORS.
                                                           ..... Respondents
                              Through:    Mr. Ashwini Kumar Mata, Sr. Adv.
                                          with Mr. Suresh Dobhal and
                                          Mr.Rahul Tyagi, Advocates for
                                          Respondent No. 1

        CORAM:
        HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
        HON'BLE MR. JUSTICE VIPIN SANGHI


VIPIN SANGHI, J. (Oral)

C.M. No. 12221/2012 (Exemption)

Exemption allowed, subject to just exceptions

Caveat No. 960/2012

Caveator/respondent no. 1 has entered appearance. The caveat is,

accordingly, discharged.

W.P. (C) No. 5930/2012

1. The petitioner assails the order dated 30.07.2012 passed by the

Debts Recovery Appellate Tribunal, Delhi (DRAT) in I.A. No.475/2012

preferred by the petitioner in Appeal No.113/2012, rejecting the said

application seeking interim protection against the taking over of the

possession of the commercial property in question admeasuring 3650 sq. ft.

situated on the 9th floor of Gopaldass Bhawan, 28 Barakhamba Road, New

Delhi, wherein the petitioner claims itself to be a tenant on a monthly rent

of Rs.2 lacs under a registered lease deed dated 19.08.2009 for a tenure of

three years.

2. Respondent Nos. 2 to 6 herein (hereinafter referred to as the

'borrowers') availed of loans/facilities from ICICI Bank by creating

equitable mortgage of the property in question, as well as other immovable

properties, and also the hypothecation of their movable assets. The

property in question is owned by respondent No.6 i.e. R.L.Varma & Sons

(HUF) (hereinafter referred to as the 'HUF')

3. Since the borrowers failed to repay the said loan/facility, ICICI

Bank approached the Debt Recovery Tribunal (DRT), by filing two

separate Original Applications being O.A. No. 34/2003 and O.A. No.

36/2003 under Section 19(1) of the Recovery of Debts due to Banks and

Financial Institutions Act, 1993 (hereinafter referred to as the RDDBFI

Act). The DRT vide order dated 02.05.2003 restrained respondent No. 6

from selling, alienating, disposing off, transferring or parting with the

possession in any manner or creating third party interest in respect of the

mortgaged properties. Later, ICICI assigned the aforesaid debt and the

incidental rights together with the Security interest held by it to respondent

No. 1 Bank i.e., M/s Kotak Mahindra Bank Limited.

4. Respondent No. 1 Bank initiated proceedings for recovery by

issuing notice under Section 13(2) of the Securitization and Reconstruction

of Financial Assets and Enforcement of Security Interest Act, 2002

(SARFAESI Act). The HUF filed Securitization Appeal No. 80/2008

before the DRT under Section 17 of SARFAESI Act. While the said

Securitization Appeal was pending, the HUF and the petitioner, despite

restrain order dated 2.5.2003, entered into the aforesaid registered lease

deed.

5. Though the rent of the said commercial property was shown as

Rs.2 lacs per month, it is clear that the real transaction was worth much

more. On the same day, the parties executed two other instruments,

namely, a loan agreement and a special power of attorney in favour of the

petitioner. Under the loan agreement, a loan of Rs.4.5 crores was advanced

by the petitioner/lessee to the lessor i.e. the HUF with interest at the rate of

2.92% per month. The special power of attorney vested comprehensive

rights in favour of the petitioner to deal with the said property.

6. From the said three instruments, as also the fact that the

possession of the said property was parted with by the HUF in favour of the

petitioner, it is clear that it was not a plain and simple lease agreement

executed between the parties at arm's length. It is clear that the rent was

deliberately suppressed at Rs.2 lacs per month, whereas the consideration

that was passing from the petitioner to the HUF, for grant of the lease was

much more.

7. The said Securitization Appeal No. 80/2008 came to be dismissed

by the DRT, against which the HUF filed an appeal before the DRAT. In

the meantime, Respondent No. 1 Bank and the Borrowers entered into a

compromise and, accordingly, moved an application before the DRT in the

pending O.A. No. 34/2003 and O.A. No. 36/2003. The DRT in terms of the

joint compromise passed a consent decree vide order dated 3.2.2011.

8. Alleging default in payment by the borrowers, in terms of the

aforesaid compromise, respondent No. 1 Bank moved an application under

Section 14 of the SARFAESI Act before the DRT for seeking assistance in

taking possession of the mortgaged properties.

9. It appears that the borrowers filed Securitization Appeal against

the same before the DRT. However, the learned DRT declined to grant

interim relief. Subsequently, WP(C) No. 7653/2011 was filed before this

Court, wherein, it appears, the borrowers offered to liquidate their dues by

bringing in purchasers. However, the borrowers did not live up to their

representations. This Court vide order dated 10.2.2012 dismissed the

application filed by the borrowers in the aforesaid writ petition, seeking

extension of time to sell the property. It was observed that the borrowers

have not only cheated and mislead the respondent No. 1 Bank, but have

even tried to overreach this Court by not disclosing to this court that they

had created third party interest in respect of various portions of mortgaged

properties.

10. At this stage, we may note that the aforesaid facts have not been

pleaded and disclosed in the present writ petition. The petitioner has merely

filed some documents from which we have been able to gather the same.

11. In the meantime, upon motion by respondent No. 1 Bank, learned

ACMM (Special Acts) Central, Tis Hazari Court, Delhi, vide order dated

20.1.2012 appointed a court receiver to take possession of the mortgaged

properties which included the property in question. Accordingly, a notice

in respect of taking physical possession of the secured asset was served

upon the borrowers by the Court appointed receiver on 13.3.2012.

12. The petitioner herein, while being in possession of the property in

question, filed Securitization Appeal being 15/2012, under Section 17 of

the SARFAESI Act impugning the aforesaid notice. The same came to be

dismissed by the DRT vide order dated 30.3.2012. Against the said

dismissal, the petitioner filed an appeal being No. 113/2012 before the

DRAT along with an application being I.A. No. 475/2012 seeking interim

protection against the taking of possession of the property in question by

the court receiver. The DRAT vide the impugned order dated 30.7.2012

declined interim protection and dismissed the application on the following

grounds:

(a) Property in question was leased out to the petitioner in violation of

the DRT's restraint order dated 2.5.2003;

(b) The alleged tenancy of the petitioner does not appear to be in

conformity with the provisions of Section 65A of the Transfer of

Property Act, 1882 (T.P. Act);

(c) The borrowers, in terms of the compromise entered into with the

respondent No. 1 Bank - had agreed that the bank could take

physical possession of the mortgaged properties, including the

property in question.

13. Against the aforesaid dismissal, the petitioner has preferred the

present writ petition.

14. The primary submission of the learned counsel for the petitioner

is that the joint application filed before the DRT itself recorded that the

respondent no. 1 bank would be entitled to receive lease rental arising out

the property in question. Having so consented, the respondent no. 1 bank

cannot now take a plea that the tenancy in question was in violation of the

restraint order dated 02.05.2003. It is further submitted that the said tenancy

had been entered into on 19.08.2009, much prior to the compromise

application dated 12.01.2011 moved by the respondent no. 1 bank and the

borrowers, and as such the respondent no. 1 bank was aware of the same

and had, accordingly, accorded its consent and acceptance. He argues that

the only right of the respondent No. 1 Bank is to receive the rent towards

satisfaction of the outstands of the borrowers.

15. The learned counsel for the petitioner further submits that the

aforesaid tenancy had been executed in the ordinary course of management,

vide a registered lease deed, at a monthly rental of Rs. 2 Lacs. The amount

of Rs. 4.5 Crores referred to as security deposit in lease deed had actually

been advanced to the HUF as a loan, vide a separate agreement, which had

to be repaid on the expiry of the terms of 36 months. The said loan amount

carried an interest of 2.92% to be paid monthly. The same, therefore, was

not in the nature of a premium and as such the tenancy was not in violation

Section 65A of the T.P. Act.

16. Learned counsel also submits that this court itself vide order dated

09.08.2010 in C.S. (OS) 1690/2010, filed by the petitioner herein seeking

permanent injunction against the borrowers from dispossessing the

petitioner from the property in question, was pleased to grant interim

protection to the petitioner.

17. Per contra, learned senior counsel for the respondent no. 1 Bank,

Mr. Matta, vehemently opposes the present petition and submits that the

same deserves to be dismissed at the very threshold. He submits that the

said tenancy, relied upon by the petitioner, is in utter violation of the

restrain order dated 02.05.2003 of the DRT. The same has been entered into

between the petitioner and the HUF in collusion, with a clear fraudulent

intent to avoid/defeat the right of the respondent no. 1 bank and siphon the

mortgaged property in question, which was also taken note of by this Court

in its order dated 10.02.2012 in W.P.(C) No. 7653/2011.

18. It is further submitted that the tenancy in question was not made

in the ordinary course of management of the property, as provided for in

Section 65A of the T.P. Act. Considering the terms and conditions of the

agreements executed between the petitioner and the HUF, the transaction of

Rs. 4.5 Crores, though nomenclatured as a loan, was in the true sense- a

premium paid in respect of the property in question and, thus, the protection

of Section 65A is not available to the petitioner.

19. Even otherwise, it is submitted by the learned senior counsel that,

in terms of the joint compromise entered into between respondent no. 1

bank and the borrowers, the symbolic possession of the mortgaged

properties already vested with the respondent no. 1 bank and the physical

possession of the same could be taken by it as per its own discretion and as

and when it deemed so fit. The tenancy of the premises having expired on

18.09.2012, and the possession being taken over by the respondent no. 1

bank after the passing of the impugned order, the petitioner herein has no

legs to seek any interim protection in respect of the property in question.

20. Having heard the counsels for the parties and perused the record,

we find no merit whatsoever in the present petition and are inclined to

dismiss the same.

21. As noted hereinabove, the DRT vide order dated 02.05.2003 had

in clear terms restrained the borrowers from creating any third party interest

in the mortgaged properties, including the property in question. The said

order was never modified or set aside in any proceedings thereafter.

However, despite the same, tenancy with respect to the property in question

came to be entered into between the petitioner herein and the HUF. This

clearly demonstrates the fraudulent conduct, not only of the borrowers, but

also of the petitioner who colluded with the borrowers. The collusion

becomes even more evident from the nature of transaction entered into by

the petitioner with the HUF. It is evident that the said transaction is not

transaction at arm's length. The tenancy agreement cannot be looked at in

isolation from the loan transaction and the Special Power of Attorney

which, inter alia, permits the petitioner/lessee to deal with the property in

question and seeks to perpetuate its occupation of the property in question

even beyond the tenancy period.

22. The said tenancy was not only in utter disregard of the DRT's

order but was also in the teeth of the provisions of Section 65 A of the T.P.

Act. Section 65A of the T.P. Act provides for the mortgagor's power to

lease mortgaged property, which is in its lawful possession. The said lease

should be such as is in made in the ordinary course of management of the

property concerned and in accordance with any local law, custom or usage.

While the lease shall reserve the best rent that it can reasonably obtain, no

premium shall be paid or promised and no rent shall be payable in advance

under it. The tenancy in question, however, was not on such lines. A

perusal of the same, as noted hereinabove, reveals a flow of consideration

of Rs. 4.5 Crores, under the guise and garb of a loan and security deposit,

which was much more than the otherwise agreed rental amount. As per the

terms of the tenancy and the loan agreement, not only would the said

amount fetch a monthly interest of 2.92% to the petitioner but in the event

of default of the payment of the same, the petitioner would have the right to

dispose of the leased premises through a public auction and recover the

amount. Considering the conduct and inability of the borrowers to pay of its

principal loans/facilities as noted hereinabove, the terms and conditions of

the said lease and loan agreement, were in effect that of a virtual sale. The

said amount was nothing but a premium paid in respect of the said property

and as such violative of Section 65A of the T.P. Act. Therefore, the

protection of the said provision would not be available to the tenancy in

question.

23. The next submission of the petitioner that the compromise entered

into between the borrowers and the respondent bank no. 1 provided for a

deemed approval to the factum of the tenancy in question and as such

cannot be overridden by the mortgage created in favour of the respondent

no. 1 bank, also has no merit whatsoever. The said compromise, as noted

hereinabove, also gave symbolic possession of the mortgaged properties to

respondent no. 1 bank, with the discretionary right to the take possession as

and when it deemed fit. Even if one were to accept the plea of the

petitioner, that the compromise (decreed by the DRT) accorded a deemed

approval to the tenancy in question and in effect over-rid the earlier restrain

order of the DRT, the same would have to be subject and conditional to the

aforesaid possessory rights of the respondent no. 1 bank's, which formed a

part of the same compromise. The terms of the said compromise have to be

read in harmony with each other and not in contra-distinction. For this

reason as well, the said submission of the petitioner also stands rejected.

24. Moreover, the tenancy in question also stands extinguished and

possession restored to the respondent no. 1 bank. In view of the same,

nothing survives in the present petition. Grievances, if any, that the

petitioner may have, in view of recovery of possession by the respondent

no. 1 bank before the expiry of the tenancy in question, are matters which

are to be raised in independent appropriate proceedings and can only be

against the HUF. Since the respondent No. 1 Bank has no privity of

contract with the petitioner, the petitioner cannot claim any relief against

the respondent No. 1 Bank.

25. In view of the aforesaid, the present petition is dismissed with

costs, being the fee incurred by respondent no. 1 bank in engaging of the

learned senior counsel along with the counsels on record. The same should

be paid within one week of the memos of fees being filed on record with

copies to the petitioner.

C.M. No. 12220/2012 (For Stay)

In view of the aforesaid, no orders are called for in this application and the

same is accordingly dismissed.

VIPIN SANGHI, J.

SANJAY KISHAN KAUL, J.

SEPTEMBER 21, 2012 sr