Shri G.R. Malhotra And Anr. vs Canara Bank And Ors.
2015 Latest Caselaw 3632 Del

$~36
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                    Decided on : 06.05.2015
+      W.P.(C) 3459/2011

       SHRI G.R. MALHOTRA & ANR.                  ..... Petitioners
                     Through : Sh. Rajeeve Mehra, Sr. Advocate with
                     Ms. Shruti Aggarwal, Advocates.

                          versus

       CANARA BANK & OTHERS                    ..... Respondents

Through : Sh. Pradeep Dewan, Sr. Advocate with Ms. Anupam Dhingra and Sh. Ankur Rai, Advocates.

Sh. Kamal Nijhawan, Advocate, amicus curiae.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K. GAUBA

MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)

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1. The present writ petition impugns an order of the Debts Recovery Appellate Tribunal (DRAT) dated 02.05.2011 which had declined to interfere with the order of the Debts Recovery Tribunal (DRT) dated 31.05.2010 in SA 61/2008. In view of the final order that this Court proposes to make, elaborate facts would not be discussed.

2. The petitioner claims to be a bonafide purchaser of the property, being No. 401, First Floor, Gagan Vihar, New Delhi (hereafter referred to as "the suit property") through a registered sale deed dated 07.11.2003. The suit

W.P.(C) 3459/2011 Page 1 property became subject matter of proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). In 2008, this led to the petitioner filing SA 61/2008 before the DRT. He asserted inter alia that he had valid and perfect title to the property and that the respondent bank's contention of being a prior mortgagee could not prevail. The bank resisted the proceeding under Section 17 of the SARFAESI, contending that a valid equitable mortgage had been created in its favour by virtue of deposit of the borrower's title deed dated 15.01.2001, by creating an equitable mortgage under Section 58(f) of the Transfer of Property Act, 1882 on 16.07.2002, i.e. prior to the petitioner's sale deed. The facts on the record also establish that the original limit sanctioned on the basis of the loan document and equitable mortgage created on 16.07.2002 was for `15 lakhs (`13 lakhs being cash credit limit and `2 lakhs being housing loan). This limit was extended on various dates, i.e. 21.11.2003, 25.05.2004, 09.09.2004, 19.10.2004, 07.11.2005, 20.11.2006 and 14.04.2007 - on the last occasion, the limit being raised to `1.35 crores. The rival contentions on this score are - according to the petitioner - that it was a fresh mortgage created after he purchased the property; and according to the bank, that these were additional mortgages enhancing the financial exposure of the mortgagor/borrower.

3. This Court had, on an earlier occasion, an opportunity to deal with the subject matter of the present dispute in W.P.(C) 5565/2010. That petition was directed against another previous order by DRAT imposing pre-deposit condition. The Court recorded the submissions of the petitioner in the following terms:

W.P.(C) 3459/2011 Page 2 "Mr. Mehra, learned senior counsel for the petitioners states that he would proceed on the premise that the petitioners may not be the bonafide purchasers inasmuch as the petitioners did not act as with reasonable caution and prudence. He, however, submits that even if it is presumed, the petitioners still have a right to contest quantum of demand raised by the respondent/bank in the impugned notice. In this behalf his submission is that amount which is sought to be recovered would not be legitimately due to the respondent/bank in as much as respondent/bank kept on enhancing the limits in favour of principal borrower and extending the mortgage. Even while enhancing these limits due care in evaluating the property etc. was not taken by the respondent/bank. In support of this plea, learned senior counsel for the petitioners has taken us to various documents. It is also pleaded that the petitioners have equitable right of redemption of the mortgaged property after repaying the amount which is legitimately due to the bank and the quantum of due payable to the bank are yet to be adjudicated. He further pleads that it was only during the pendency of this writ petition that learned counsel for the respondent bank had revealed that the bank has also filed original application (OA) under Section 19 of the Recovery of Debts due to Banks and Financial Institution Act, 1993 against the principal borrower and Smt. Rashmi Srivastava guarantor/mortgager which OA has been allowed/decreed.

His submission is that when the petitioners had approached the DRT by moving an application under Section 17 of SARFAESI Act and those proceedings were pending to the knowledge of the respondent/bank, it was incumbent of the respondent/bank to implead the petitioners as well in those proceedings and, therefore, the petitioners are not bound by the orders passed by the DRT in the said OA.

It is also submitted by learned senior counsel for the petitioners that the provisions of the Act required minimum deposit of 25% and the respondent bank has already

W.P.(C) 3459/2011 Page 3 recovered this much amount. In this behalf, it is pointed out that a sum of `15 lacs is already deposited by the petitioners against one more property which was mortgaged with the bank and bank has received a sum of `22 lacs and has released the said property.

It is also pleaded that the petitioner no.1 is a retired Government officer and petitioner No.2 is a housewife. The petitioners are surviving on the pension which is being received by petitioner no.1. They have no means to deposit the amount as directed by the DRAT in the impugned order. On the directions of this Court contained in order dated 21.09.2010 an affidavit is filed stating the financial condition of the petitioners.

In these proceedings we are concerned only with the directions of the DRAT vide which the petitioners are directed to make payment of 50% amount demanded by the respondent bank. Having regard to the aforesaid submissions made by learned senior counsel for the petitioners, we are of the opinion that there are triable issues raised by the petitioners which need due consideration in the appropriate proceedings including in the appeal preferred by the petitioners. The petitioners have also, on an affidavit, stated their pitiable financial condition. Having regard to all these circumstances and the fact that the statutory condition of making payments of 25% of the demanded amount stands satisfied. "

4. Apparently, after the above order, the bank had relied upon several documents. To counter these, the petitioner sought leave to amend the pleadings in SA 61/2008. The DRT, however, rejected that application in the light of the DRAT's order which had then remanded the matter for its consideration within a time limit and held that the merits of the pleas urged in the amendment application would be considered at the final hearing stage. The petitioner's plea was that the extension/enhancement of subsequent

W.P.(C) 3459/2011 Page 4 limits after the sale deed in his favour on 07.11.2003 absolved him of any liability and that at best the bank could claim amounts arising from the mortgage by deposit of title deeds prior to the sale deed, i.e. only in respect of loans advanced as on 16.07.2002. The bank argued otherwise. The DRT and DRAT, however, rejected the petitioner's contention. The petitioner has made elaborate submissions on the applicability of Section 48 of the Transfer of Property Act and urged that the bank's conduct, revealed from the records, disentitles it to any relief in respect of the subsequent liabilities of the borrowers on account of the extension of the credit limits afforded by the bank after 07.11.2003. The pointed argument made here is that on the occasion of each enhancement, the bank was under a duty to verify whether there was any encumbrance or cloud on the title of the mortgagor/borrower. Learned senior counsel invited the attention of the Court to the records made available to the DRT and submitted that only two valuation reports dated 19.09.2005 and 06.12.2006 were placed on the record and that there was no material to show that a search was conducted on each of the occasions, to ensure that no encumbrance had been created in the meanwhile. It was submitted that on account of these critical lapses as well as others, the bank cannot insist upon enforcing any liabilities other than that directly arising or limited to the one created as on 16.07.2002. Learned senior counsel relied upon Section 78 of the Transfer of Property Act and the decision of the Madras High Court in S. Arunachalam Asari (Died) v. Sivan Perumal Asari And Anr. AIR 1970 Mad 226.

5. Sh. Diwan, learned senior counsel for the bank argued that the petitioner's submissions are unfounded and meritless. He submitted that

W.P.(C) 3459/2011 Page 5 Section 41 of the Transfer of Property Act casts a duty upon the petitioner to satisfy himself as to whether any encumbrance or cloud over the title existed at the point in time when the sale deed was executed in his favour. Since the petitioner did not care to exercise such due diligence, demonstrable from the fact that the previous title deed of the mortgagor/borrower was not in his possession and that the same continued with the bank, he could not claim any relief in equity or law. Learned counsel relied upon the decision reported as Catholic Mission Presentation Convent Coimbatore v. Subbanna Goundan AIR 1948 Mad 320.

6. We have heard contentions of the parties and are of the opinion that it would not be appropriate for this Court to record factual findings on this aspect. Concededly, the order of this Court dated 10.11.2010 had observed that serious triable issues existed which had to be gone into by DRT. If one were to put together that view with the fact that in the meanwhile, the bank had relied upon several documents and materials, the petitioner's request for amendment was not only reasonable but warranted. The DRT instead rejected the application for amendment which procedurally it was bound to grant, given the nature of serious factual disputes which the parties were grappling with but also the contended error in proceeding to consider the merits of the pleadings after its rejection, in the form of arguments. Surely, this was a plainly impermissible course of action. The petitioner quite naturally complains that his contentions were not dealt with in accordance with law.

7. We are of the opinion that the appropriate corrective course would be to allow the amendments, grant the respondent bank opportunity to rebut the

W.P.(C) 3459/2011 Page 6 amended pleadings by appropriate reply and in the light of these pleadings, direct the DRT to consider the materials on record and render specific findings. We are informed that during the pendency of these writ proceedings, charge sheet has been filed against the bank officials and other accused persons on 17.12.2013; the same is part of the record of this Court. The DRT is directed to take the said charge sheet and its accompanying documents on the record and consider merits of the rival submissions made there as well as other materials. The petitioner is at liberty to make appropriate amendments with respect to inclusion of these materials, i.e. the development relating to filing of charge sheet etc. in support of his case.

8. The DRT is directed to record specific and reasoned findings on the merits of such arguments, especially with regard to whether the petitioner's submissions that the bank is disentitled to enforce any claims arising out of the additions/enhancements of limits to the borrower subsequent to 07.11.2003 is merited and correct them in the context of Sections 48 and 78 of the Transfer of Property Act; as well as the bank's submission that in the circumstance of the case, the petitioner is not entitled to make such arguments, by reason of Section 41 of the Transfer of Property Act. All rights and contentions of the parties to urge the pleas available to them in law are expressly kept open. The impugned orders are hereby set aside. The DRT shall proceed to render findings in accordance with law uninfluenced by the observations made in the said impugned order. The bank is restrained from proceeding under the SARFAESI Act pursuant to Recovery Certificate issued against the suit property, till the final decision of the DRT. The DRT shall endeavour to complete its proceedings at its earliest convenience

W.P.(C) 3459/2011 Page 7 preferably within six months from today. The writ petition is disposed off in the above terms.

9. The parties are directed to appear before the DRT on 20.05.2015.

S. RAVINDRA BHAT (JUDGE)

R.K. GAUBA (JUDGE) MAY 6, 2015 'ajk'

W.P.(C) 3459/2011 Page 8