Madras High Court
M/S.Dinakar Trading Company vs J.Sekar on 21 March, 2025
Author: S.S. Sundar
Bench: S.S. Sundar
O.S.A.Nos.22 & 25 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 09.01.2025
Pronounced on : 21.03.2025
CORAM :
THE HONOURABLE MR. JUSTICE S.S. SUNDAR
AND
THE HONOURABLE MR. JUSTICE P. DHANABAL
O.S.A.Nos.22 & 25 of 2020
and
C.M.P.No.24128 of 2024
O.S.A.No.22 of 2020 :
M/s.Dinakar Trading Company
Represented by its Proprietor
A.Balaganesan
No.25, Anna Pillai Street,
Chennai – 600 001. ... Appellant
Vs.
1.J.Sekar
2.Indian Overseas Bank,
Asset Recovery Management Branch,
Central Office, Annex Building, I Floor,
763, Anna Salai,
Chennai – 600 002,
Represented by its Authorised Officer
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O.S.A.Nos.22 & 25 of 2020
3.B.Subash
4.S.Venkateswaran
5.SPN.Sathyamurthy
6.SPN.Krishnamurthy ... Respondents
Original Side Appeal filed under Order XXXVI Rule 1 of Original
Side Rules r/w. Clause 15 of the Letters Patent against the judgment and
decree dated 04.10.2019 in C.S.No.1134 of 2008 on the Original Side of
this Court.
For Appellant : Mr.R.Balachandran
For R1 : Mr.K.V.Babu
For R2 : Mr.F.B.Benjamin George
(No appearance)
R3 and R4 : No such person
R5 and R6 : Mr.S.Rajendra Kumar
O.S.A.No.25 of 2020 :
1.S.P.N.Sathyamurthy
2.S.P.N.Krishnamurthy ... Appellants
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O.S.A.Nos.22 & 25 of 2020
Vs.
1.J.Sekar
2.Indian Overseas Bank,
Assets Recovery Management Branch,
Central Office Annex Building,
I Floor, 763, Anna Salai,
Chennai – 600 002,
Represented by its Authorised Officer
3.M/s.Dinakar Trading Company
Represented by its Proprietor
A.Balaganesan
No.25, Anna Pillai Street,
Chennai – 600 001.
4.B.Subash
5.S.Venkateswaran ... Respondents
Original Side Appeal filed under Order XXXVI Rule 1 of Original
Side Rules r/w. Clause 15 of the Letters Patent against the judgment and
decree dated 04.10.2019 in C.S.No.1134 of 2008 on the Original Side of
this Court.
For Appellants : Mr.S.Rajendra Kumar
For R1 : Mr.K.V.Babu
For R2 : Mr.F.B.Benjamin George
(No appearance)
For R3 : Mr.R.Balachandran
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O.S.A.Nos.22 & 25 of 2020
R4 : No such person
R5 : Door Locked
COMMON JUDGMENT
S.S. SUNDAR, J.
The above Original Side Appeals have been preferred by M/s.Dinakar
Trading Company, the 2nd defendant, and defendants 5 and 6, respectively,
as against the judgment and decree of the learned Single Judge of this Court
dated 04.10.2019 in C.S.No.1134 of 2008. While the Appeal in
O.S.A.No.22 of 2020 is preferred by the 2nd defendant in the suit, the Appeal
in O.S.A.No.25 of 2020 is preferred by defendants 5 and 6 in the suit.
2.The 1st respondent, as plaintiff, filed the suit in C.S.No.1134 of
2008 for the following reliefs :
“[a] for a declaration declaring that the sale deed dated
07/04/2005, registered as Document No. 1121 of 2005 in
Book I in the office of the Sub Registrar, Mylapore, executed
by the 2nd defendant and others in favour of the 3rd
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Defendant herein, in so far as it relates to the suit schedule
mentioned property, as sham and nominal;
[b] for a declaration, declaring that the power of Attorney
dated 18/02/2008, registered as document No. 325 of 2008 in
Book IV in the office of the District Registrar, South Chennai,
executed by the 3rd Defendant in favour of the 4th Defendant
as null and void in so far as it relates to the suit schedule
mentioned property;
[c] for a consequential declaration, declaring that the sale
deed 20/02/2008 Registered as document No.379 of 2008 in
Book I in the office of the Sub Registrar, Mylapore, executed
by the 4th Defendant in his Capacity as power Agent of 3rd
Defendant in favour of 5th and 6th Defendants is null and
void, Sham and nominal and not binding on the plaintiff in so
far as it is relates to the suit schedule mentioned property;
[d] consequently direct the defendants 5 and 6 herein to
handover vacant possession of the suit schedule mentioned
property to the plaintiff herein;
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[e] directing the Defendants 5 and 6 herein to pay damages
for use and occupation at Rs.1,00,000/- per month from the
date of plaint till handing over possession;
[f] direct the 1st Defendant to pay interest at commercial
rate of interest towards the entire sale consideration held by
them from the date of issuing the sale Certificate to till the
date the plaintiff is put in vacant peaceful possession of the
suit property;
[g] for the cost of the suit; and
[f] for any other relief or reliefs as this Hon'ble Court may
deem fit and proper in the circumstances of the case and thus
render justice.”
The suit property is described as 50% of Undivided Share and interest over
the land measuring an extent of 7,518 sq.ft. along with entire First Floor of
the entire superstructure bearing Old No.53, New No.152, Ganesh Bhavan,
Greenways Road, Kesavaperumalpuram, Chennai – 28.
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3.Since both the Appeals arise out of the judgment and decree in the
suit in C.S.No.1134 of 2008, they are disposed of by this common
judgment.
4.Brief facts that are necessary for the disposal of these Appeals are
as follows :
4.1.The appellant in O.S.A.No.22 of 2020, who is the 2nd defendant in
the suit, availed certain credit facilities from the 1st defendant Bank with its
Branch at Broadway. Since the 2nd defendant committed default in repaying
the loan, the 1st defendant Bank declared the account as NPA. The loan
advanced to the 2nd defendant was secured by the suit property belongs to
the Proprietor of the 2nd defendant. Hereinafter, reference to 2nd defendant
would mean the 2nd defendant and its Proprietor. Hence, the 1st defendant
invoked the provisions of the SARFAESI Act and issued a notice of demand
on 10.08.2002. It is stated by the 1st defendant that the borrower neither
raised any objection nor paid the amount. The 1st defendant took symbolic
possession of the Secured Asset on 02.12.2003 by issuing a notice.
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4.2.The 2nd defendant borrower challenged the proceedings initiated
by the 1st defendant by filing writ petitions in W.P.Nos.5306 of 2004 and
5607 of 2004. However, the said writ petitions were dismissed giving
liberty to the borrower to avail the alternative remedy.
4.3.Meanwhile, the 1st defendant filed an application in O.A.No.5 of
2003 on the file of Debts Recovery Tribunal-II, Chennai, under Section 19
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993,
to recover a sum of Rs.67,12,099.61 together with subsequent interest at the
applicable rate from 27.09.2001, to save limitation. Later, the 1st defendant
brought the Secured Asset for sale under SARFAESI Act by issuing a sale
notice on 16.12.2004. When the sale notice was issued, there was no
challenge. However, the sale proposed on 25.01.2005 did not go through
for want of bidders.
4.4.When the Bank had already initiated proceedings under
SARFAESI Act, after taking symbolic possession, the 1st defendant came to
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know that a sale deed dated 27.04.2005 had been executed by the
borrower/2nd defendant in favour of 3rd defendant in respect of the Secured
Asset, namely, the suit property. As per the sale deed dated 27.04.2005, the
Secured Asset along with the remaining share was sold for a sum of
Rs.2,77,00,000/-. Immediately, the 1st defendant Bank lodged a criminal
complaint on the file of Additional City Metropolitan Magistrate Court
under Section 200 of Cr.P.C. against the Proprietor of 2nd defendant by name
Balaganesan and the 3rd defendant under Section 420 of IPC and Section 29
of the SARFAESI Act on 23.06.2005.
4.5.Thereafter, on 16.06.2005, Balaganesan filed a writ petition
bearing W.P.No.27168 of 2005 forbearing the 1st defendant Bank from
interfering with the possession of the Secured Asset. Another writ petition
was also filed by him in W.P.No.8380 of 2006 for issuing a Writ of
Mandamus against the 1st defendant Bank to withdraw the Original
Application in O.A.No.5 of 2003 on the file of the Debts Recovery
Tribunal-II, Chennai. Both the writ petitions were disposed of on
16.06.2006 giving liberty to the borrower to avail the alternative remedy.
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4.6.Since symbolic possession of the Secured Asset was taken on
02.12.2003 and the physical possession remained with the borrower, the 1st
defendant filed an application under Section 14 of the SARFAESI Act
before the Chief Metropolitan Magistrate, seeking his assistance for taking
physical possession by the 1st defendant Bank in Crl.M.P.No.120 of 2007.
The said petition was allowed by an order dated 20.01.2007 appointing an
Advocate Commissioner to take physical possession of the property in
question and to hand over the same to the 1st defendant. Though it is
recorded that the Advocate Commissioner had executed the warrant on
01.02.2007, it is admitted that access to the suit property, i.e., the First Floor
of the building, was closed with brick wall. Since the 1 st defendant came to
know that the access to the First Floor was closed, the 1st defendant filed a
Miscellaneous Petition in Crl.M.P.No.120 of 2007 on the file of the Chief
Metropolitan Magistrate, praying to direct the Advocate Commissioner to
break open the entrance and deliver vacant possession to the 1st defendant.
However, in the said application, no order has been passed.
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4.7.After the order dated 20.01.2007 passed by the Chief
Metropolitan Magistrate for taking physical possession of the property, in
the application filed by the Bank under Section 14 of the SARFAESI Act, a
second sale notice was issued by the 1st defendant Bank, fixing the date for
tender-cum-auction on 24.03.2007 at 11.00 a.m. The plaintiff, pursuant to
the tender-cum-auction notice dated 15.02.2007 published by the 1st
defendant Bank, participated in the auction dated 24.03.2007 conducted by
the Authorised Officer of the 1st defendant Bank. The plaintiff was the
successful bidder who had bid the suit property for a sum of
Rs.1,61,50,000/-. As per the conditions laid down under the tender-cum-
auction sale notice dated 15.02.2007, the plaintiff paid 25% of the bid
amount after deducting the Earnest Money Deposit of Rs.15,00,000/- by a
cheque drawn in favour of 1st defendant Bank dated 24.03.2007.
4.8.The 3rd defendant, who had purchased the property from the
mortgagor 2nd defendant, filed an application in SARFAESI Application
No.97 of 2007 before the Debts Recovery Tribunal-II, Chennai, praying for
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an order of injunction restraining the 1st defendant from alienating the entire
suit property measuring an extent of 7,518 sq.ft., even though he has bought
only the Undivided Half Share together with First Floor of the building.
The Debts Recovery Tribunal-II, Chennai, while granting interim stay on
12.03.2007, passed a conditional order directing the 3rd defendant to deposit
a sum of Rs.67,20,520.61 on or before 23.03.2007. The 1st defendant Bank
was directed to defer the sale in case the 3rd defendant deposits the said sum.
The 3rd defendant was also directed to deposit a further sum of
Rs.30,60,138.43 towards part of interest subject to final adjudication.
4.9.However, the 3rd defendant challenged the order by filing an
Appeal in (IN)S.A.No.168 of 2007 challenging the conditional order of
Debts Recovery Tribunal-II, Chennai, dated 12.03.2007, in SARFAESI
Application No.97 of 2007. It was contended by the 3rd defendant that he is
not liable to pay the said amount and further, time granted by Debts
Recovery Tribunal-II, Chennai, is too short to make arrangements to pay the
amount. Since it was mentioned by the 3rd defendant that the sale was
posted on 24.03.2007, the Debts Recovery Appellate Tribunal, Chennai, by
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order dated 22.03.2007, granted interim stay on condition that the 3rd
defendant should deposit a sum of Rs.35,00,000/- with the respondent
Bank, out of which, a sum of Rs.5,00,000/- should be deposited on or
before 23.03.2007 and further sum of Rs.15,00,000/- should be deposited
on or before 20.04.2007 and the balance of Rs.15,00,000/- on or before
20.05.2007.
4.10.Meanwhile, the 1st defendant Bank preferred a Civil Revision
Petition in C.R.P.No.839 of 2007 before this Court to strike off the
proceedings in SARFAESI Application No.97 of 2007 on the file of the
Debts Recovery Tribunal-II, Chennai. Even during the pendency of the
Civil Revision Petition, this Court was pleased to permit the 1st defendant to
go ahead with the auction sale, but not to confirm the sale until further
orders from this Court in the main Civil Revision Petition. Thereafter, the
Civil Revision Petition was allowed and the SARFAESI Application No.97
of 2007 before the Debts Recovery Tribunal-II, Chennai, was struck off by
this Court by order dated 21.07.2007, after taking note of the fact that the
mortgaged property had been sold in the auction to the plaintiff for the bid
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amount of Rs.1,61,50,000/-.
4.11.As against the order of this Court in the Civil Revision Petition
in C.R.P.No.839 of 2007, dated 21.07.2007, the 3rd defendant preferred a
Special Leave Petition before the Hon'ble Supreme Court. It is to be noted
that the 3rd defendant has not even impleaded the auction purchaser before
the Hon'ble Supreme Court.
4.12.The Hon'ble Supreme Court, by order dated 06.08.2007, has
passed the following order :
“We find no merit in this petition. However, since an
offer is made for settlement we make it clear that the
petitioner shall deposit the amount of debt calculated till
today with interest in this Registry within four weeks from
today. If the amount is not deposited, the special leave
petition shall stand dismissed.”
4.13.Later, the Hon'ble Supreme Court in its order dated 17.09.2007,
directed the 3rd defendant, who is the petitioner in Special Leave Petition, to
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implead the highest bidder, the plaintiff in the present suit.
4.14.It is stated by the 3rd defendant that he has paid the entire loan
amount as determined by the 1st defendant, pursuant to the directions of the
Hon'ble Supreme Court, on 03.09.2007. However, the Hon'ble Supreme
Court dismissed the Special Leave Petition by order dated 07.12.2007 with
a direction regarding refund of money deposited.
4.15.After the dismissal of Special Leave Petition by Hon'ble
Supreme Court, the plaintiff deposited the balance of consideration of
Rs.1,21,12,500/- on 25.01.2008 with the 1st defendant Bank in terms of the
original auction sale notice and pursuant to the letter of the 1st defendant
Bank dated 11.01.2008. Thereafter, the plaintiff, by letter dated 25.01.2008,
requested the 1st defendant Bank to arrange for handing over of physical
possession of the suit property along with sale certificate. The 1st defendant
issued a sale certificate on 31.01.2008 specifically mentioning that the
physical possession of the suit property is being handed over to the plaintiff.
Thereafter, the plaintiff, on many occasions, addressed letters to the 1st
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defendant Bank to take steps to hand over vacant possession of the suit
property. However, it is admitted even in the written statement filed by the
1st defendant that physical possession of the suit property was not handed
over to the plaintiff by the Bank. It is also admitted in the pleadings that
the physical possession of the property is with third parties. The plaintiff
was further surprised after seeing the Encumbrance Certificate which
revealed that the suit property has been dealt with by the 3rd defendant. By
a sale deed dated 20.02.2008, the 3rd defendant sold the property in favour
of defendants 5 and 6 through his Power of Attorney Agent who has been
impleaded as 4th defendant in the suit. The said Power of Attorney is dated
18.02.2008. By the said sale deed, the Power of Attorney Agent of the 3rd
defendant has sold the suit property along with the Ground Floor building
and the remaining 50% of the land in favour of the defendants 5 and 6.
5.It is in the factual background, the suit in C.S.No.1134 of 2008 is
laid by the 1st respondent plaintiff for recovery of possession and for
declaration declaring the sale deed dated 07.04.2005, the Power of Attorney
dated 18.02.2008, and the sale deed dated 20.02.2008, as null and void; and
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for other reliefs.
6.The 2nd defendant mortgagor, the appellant in O.S.A.No.22 of 2020,
filed a written statement describing the sale certificate in favour of the
plaintiff as fraudulent, illegal and void, as the sale certificate was issued
without the knowledge of the mortgagor. It is contended that the 2nd
defendant came to know about the sale certificate only on 16.02.2012 and
therefore, he is taking steps to get the sale certificate set aside, by initiating
independent action. He contended that the Ground Floor and First Floor
portion of the building with Undivided 50% Share was given to him and his
brother by his father and the settlees cannot sell any portion of the whole
plot and building to third parties without giving option to the other sharer to
purchase the other 50% share. He also contended that Balaganesan,
mortgagor, by a letter dated 03.09.2007, through the 3rd defendant, offered
to make a payment of a sum of Rs.1,71,00,000/- to the 1 st defendant Bank
towards full and final settlement of the entire claim amount and requested
the 1st defendant to return all the documents of title to the 3rd defendant.
Since the 1st defendant accepted the offer, the 3rd defendant paid the entire
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amount to the 1st defendant Bank on 03.09.2007 instead of depositing the
sum before the Registry of the Hon'ble Supreme Court as per the directions
of the Hon'ble Supreme Court. Though the 2nd defendant admits the
dismissal of Special Leave Petition, it is contended by the 2nd defendant that
the order of Hon'ble Supreme Court gives no right to the 1st defendant Bank
to violate the statutory obligation of the 1st defendant Bank to credit the
payment made by the 3rd defendant in the loan account of the 2nd defendant
and discharge the suit property from the mortgage. It is reiterated that
Balaganesan, in his capacity as mortgagor, through the 3rd defendant,
deposited the entire amount due. The 2nd defendant contended that the 1st
defendant Bank is bound to adjust the payment made by the 2nd defendant
and discharge the mortgage created by Balaganesan. It was, therefore,
contended that the confirmation of sale on 11.01.2008 and the sale
certificate issued in favour of the plaintiff is illegal, void and fraudulent.
Apart from questioning the sale, the 2nd defendant pleaded collusion
between plaintiff and 1st defendant in issuing the sale certificate in favour of
the plaintiff without actual possession being handed over. Every averment
in the plaint is denied as false.
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7.Defendants 5 and 6, the appellants in O.S.A.No.25 of 2020, have
filed an independent written statement reiterating almost all the contentions
that are raised by the 2nd defendant. The defendants 5 and 6, in their written
statement, refer to an agreement of sale, dated 05.07.2007, regarding the
sale of suit property, and claimed to have paid a huge sum without the
knowledge of the mortgage. It is their contention that the owner of the
property divulged that the property was under mortgage with the Standard
Chartered Bank, Armenian Street, Chennai-1 and the owners had obtained a
loan of Rs.2,30,00,000/-. When defendants 5 and 6 requested the owners to
clear the mortgage loan and execute the sale deed in their favour, they
executed a sale deed through their Power of Attorney Agent by sale deed
dated 20.02.2008. It is learnt from the sale deed that the 3rd defendant had
purchased the entire land along with the whole building from Balaganesan
and the legal heirs of his brother by the document of sale dated 27.04.2005.
The total consideration for the property is Rs.3,00,00,000/-, out of which,
Rs.50,00,000/- was paid as advance and remaining balance was to be
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adjusted towards the mortgage loan availed by the 3rd defendant by
mortgaging the entire property in favour of Standard Chartered Bank.
There is a reference to the mortgage created by the 3rd defendant by
mortgaging the entire property for a sum of Rs.2,50,00,000/-.
8.Defendants 5 and 6, in their written statement, have further stated that the
total amount due towards mortgage in favour of Standard Chartered Bank
was a sum of Rs.2,23,21,771/-. It is stated that the defendants 5 and 6 are
negotiating with the Bank for clearing the entire loan under One Time
Settlement. Though defendants 5 and 6 admit that 50% Undivided Share
along with First Floor portion had already been sold in public auction that
was held on 24.03.2007, it is contended that the sale in favour of the
plaintiff is void. While contending that the 3rd defendant had not divulged
the mortgage of portion of the property with the 1st defendant Bank, it is
contended that the 3rd defendant should indemnify and clear the property
from mortgage dues in respect of the property and that the defendants 5 and
6 are entitled to make use of the deposit made by the 3rd defendant to the
tune of Rs.1,71,00,000/-. As purchasers, they claim that they are also
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entitled to compel the 1st defendant Bank to adjust the amount deposited by
the 3rd defendant against the mortgage due. Defendants 5 and 6 also
reiterate that the 1st defendant Bank ought not to have executed the sale
certificate in favour of the plaintiff, especially when balance amount had not
been paid by the auction purchaser, the plaintiff in the suit, violating the
statutory provisions.
9.The 4th defendant also filed an independent written statement.
However, as Power of Attorney Agent of the 3rd defendant, his version is
limited to the knowledge he had about the dispute among the parties in the
present litigation.
10.Learned Single Judge framed the following issues :
“(1) Whether the sale deed dated 27.04.2005 executed
by the second defendant and others in favour of the third
defendant is a sham and nominal document in so far as it
relates to the suit schedule property?
(2) Whether the Power of Attorney dated 18.02.2008
executed by the third defendant in favour of the fourth
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defendant is null and void in so far as it relates to the suit
schedule property ?
(3) Whether the sale deed dated 20.02.2008 executed
by the fourth defendant in his capacity as power agent of the
third defendant in favour of the defendants 5 & 6 without
divulging the inherent defects of the property is a sham and
nominal document ? If it is so whether it will not bind upon
the plaintiff insofar as it relates to the suit schedule
property ?
(4) Whether the plaintiff is entitled to have the vacant
possession of the suit schedule property from the hands of the
defendants 5 and 6 ?
(5) Whether the plaintiff is entitled to have the relief of
damages to the extent of Rs.1,00,000/- for use and
occupation of the suit schedule property per month till date
of handing over the possession by the defendants 5 and 6 ?
(6) Whether the plaintiff is entitled to the relief of
declaration that he is the owner of the entire first floor of
superstructure with 50% of UDS when there is no first floor
in the suit property ?
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(7) Is the suit maintainable since 50% UDS alone has
been mortgaged by the third defendant in favour of the first
defendant ?
(8) Is the plaintiff a bonafide purchaser of suit
property?
(9)Is the suit suffering from non-joinder of necessary ?
(10) To what other reliefs, are the parties entitled to ?”
11.Additional issues were also framed by the learned Single Judge on
28.08.2018, which are as follows :
“(1) Whether the suit is maintainable in the light of the
bar set out under Section 34 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (SARFAESI) ?
(2) Whether the suit claim is to be accepted in the light
of the provisions of Section 13 (8) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Securities Interest Act, 2002 (SARFAESI) ?
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(3) What is the effect of non-registration of sale
certificate dated 30.01.2008, filed under Ex.P.17 ?”
12.Even though it was not specifically raised in the written statement
filed by the contesting defendants, the learned Judge has considered the
maintainability of the suit by referring to Section 34 of the SARFAESI Act.
After relying upon several precedents, on the point, the learned Judge held
that the prayers in the suit fall outside the jurisdiction of Debts Recovery
Tribunal and the issues between parties raised in the present suit cannot be
decided by the Tribunal. The learned Single Judge, therefore, held that the
suit is not barred under Section 34 of the SARFAESI Act. Hence, the
objection raised by the contesting defendants relying upon Section 34 was
rejected and the Additional Issue No.1 was answered in favour of the
plaintiff.
13.In Additional Issue No.2, the learned Judge found that the 2nd
defendant borrower had not challenged the proceedings initiated under
SARFAESI Act right from the issuance of notice under Section 13(2)
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followed by subsequent proceedings. When the 2nd defendant was not ready
and willing to tender his money to the Secured Creditor in order to save the
property being brought to sale, and when the confirmation of sale and sale
certificate issued in favour of plaintiff is not under challenge in any forum,
the learned Single Judge observed that the borrower is bound by the sale.
Referring to the fact that Hon'ble Supreme Court had dismissed the Special
Leave Petition, the learned Judge held that the alleged right of redemption,
which was indirectly rejected by the Hon'ble Supreme Court, cannot be
availed now in the present suit where there is no challenge to the sale.
Referring to the factual position above narrated and considering the scope
of Section 13(8) read with Rules 8 and 9, Additional Issue No.2 was also
answered in favour of the plaintiff. The contention that transfer of title has
not passed on to the plaintiff for want of physical possession was also
negatived by the learned Judge. It is held that the sale becomes complete
and right in the property vests with the auction purchaser once auction sale
is confirmed and Sale Certificate is issued. Learned Judge also held that
there was no valid tender and hence, the contention that the mortgage
should be treated as discharged, was negatived.
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14.By referring to the factual sequence, the learned Judge held that, in
view of pendency of SARFAESI proceedings pursuant to issuance of notice
under Section 13(2) of SARFAESI Act, and after taking symbolic
possession, there is no scope for saving the sale deed dated 27.04.2005
executed by the 2nd defendant in favour of 3rd defendant. After a detailed
discussion on the scope of provisions of Section 13(6) of SARFAESI Act,
Rules 8 and 9 of SARFAESI Act, the learned Judge held the sale in favour
of 3rd defendant is void and is not binding on the plaintiff. On similar lines,
the Power of Attorney executed by the 3rd defendant in favour of 4th
defendant, dated 18.02.2008, and the sale deed dated 20.02.2008 executed
by the Power of Attorney Agent of the 3rd defendant in favour of defendants
5 and 6, were held to be void. Accordingly, Issues (1) to (3) were answered
in favour of the plaintiff.
15.In view of the findings on Issues (1) to (3), Issues (4) to (8) were
also answered against the defendants and in favour of the plaintiff, holding
that the plaintiff is a bona fide purchaser and is entitled to have his share to
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which the borrower was entitled to.
16.Similarly, Issues (9) and (10) were decided as unnecessary, having
regard to the specific findings on all other issues.
17.The learned Judge, therefore, decreed the suit by granting the
prayers (a) to (d). In respect of prayers (e) and (f), the suit was dismissed.
The learned Judge observed that it is open to the plaintiff to get the sale
certificate registered to safeguard the plaintiff's interest, within a period of
eight weeks.
18.Aggrieved by the judgment and decree of the learned Single
Judge, the 2nd defendant and the defendants 5 and 6 have respectively
preferred the above Appeals in O.S.A.Nos.22 and 25 of 2020.
19.Learned counsel for the appellant in O.S.A.No.22 of 2020, namely,
the 2nd defendant, has reiterated the following facts :
(a) Under Exs.P1 and P2 notices, the 1st defendant has reserved its right
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to accept or decline the highest bid. Before confirmation of sale
under Ex.P7, stay was granted in Civil Revision Petition in pending
C.R.P.No.839 of 2007. When auction was conducted on 24.03.2007,
the plaintiff took part in the auction knowing that the validity of sale
is questioned. Even though there is no provision to pay interest on
the 25% bid amount to the successful bidder, the Bank has calculated
interest on the 25% of bid amount in favour of the plaintiff at the
request of plaintiff. By a communication dated 26.04.2007, the
plaintiff requested the 1st defendant Bank to keep 25% of the bid
amount in an interest bearing account in his name and to pay the
accrued interest to him. Since there is no statutory requirement to
pay interest on the 25% of the bid amount by keeping the amount in
an interest bearing account in the name of plaintiff himself, it is
contended by the learned counsel appearing for the appellant/2nd
defendant that the sale is void for the reason that the plaintiff had not
paid the amount as required by the provisions of the Statute. In other
words, it is contended that the sale in favour of the plaintiff, who got
the 25% of the bid amount deposited by him immediately after
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auction transferred from the loan account to an interest bearing
account in the name of plaintiff, is invalid.
(b) Since the entire amount due to the Bank is deposited by the 3 rd
defendant, the learned Judge ought to have held that the whole
mortgage is discharged. This submission is based on pre-amended
Section 13(8) of SARFAESI Act.
20.Learned counsel appearing for the appellants in O.S.A.No.25 of
2020, namely, defendants 5 and 6, has raised the following grounds :
(a) Under Section 34 of SARFAESI Act, no Civil Court shall have
jurisdiction to entertain any suit or proceedings in respect of any
matter which the Debts Recovery Tribunal or the Appellate Tribunal
is empowered under the Act to determine and no injunction shall be
granted by any Court.
(b) The suit filed by the plaintiff/1st respondent is barred under Section
34 and Section 14 of the SARFAESI Act.
(c) The plaintiff is not entitled to get the sale confirmed in his favour, as
the interest on the 25% of the bid amount was transferred to an
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interest bearing account at the request of plaintiff and that the interest
accrued on such amount was returned to the plaintiff.
(d) Since the entire money due under the mortgage was received by the
1st defendant Bank pursuant to the directions of Hon'ble Supreme
Court and such payment was received even before confirmation of
sale, the mortgage shall be treated as discharged.
21.Even though several grounds were raised in the Appeals, the
learned counsels appearing for the appellants confined their arguments to
certain points. Hence, considering the submissions of all the parties to these
Appeals, this Court finds it appropriate to frame the following points for
determination :
(1)Whether the Civil Court has jurisdiction to entertain the
suit, in view of the bar under Section 14 and Section 34 of
SARFAESI Act ?
(2)Whether the plaintiff, who got the bid amount of 25%
transferred to an interest bearing account, is entitled to get
the sale confirmed in his favour ?
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(3)Whether the payment made on 03.09.2007 by the 3rd
defendant pursuant to the directions of Hon'ble Supreme
Court should be accepted by the 1st defendant to discharge
the mortgage in compliance with the pre-amended Section
13(8) of SARFAESI Act ?
Issue No.(1) :
22.On the first issue, it is relevant to extract Section 14 and Section
34 of the SARFAESI Act, for convenience :
“14.Chief Metropolitan Magistrate or District
Magistrate to assist secured creditor in taking possession of
secured asset.—(1) Where the possession of any secured
assets is required to be taken by the secured creditor or if any
of the secured assets is required to be sold or transferred by
the secured creditor under the provisions of this Act, the
secured creditor may, for the purpose of taking possession or
control of any such secured assets, request, in writing, the
Chief Metropolitan Magistrate or the District Magistrate
within whose jurisdiction any such secured asset or other
documents relating thereto may be situated or found, to take
possession thereof, and the Chief Metropolitan Magistrate or,
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as the case may be, the District Magistrate shall, on such
request being made to him -
(a) take possession of such asset and documents
relating thereto; and
(b) forward such asset and documents to the secured
creditor: Provided that any application by the secured
creditor shall be accompanied by an affidavit duly affirmed
by the authorised officer of the secured creditor, declaring
that—
(i) the aggregate amount of financial assistance
granted and the total claim of the Bank as on the date
of filing the application;
(ii) the borrower has created security interest
over various properties and that the Bank or Financial
Institution is holding a valid and subsisting security
interest over such properties and the claim of the Bank
or Financial Institution is within the limitation period;
(iii) the borrower has created security interest
over various properties giving the details of properties
referred to in sub-clause (ii)above;
(iv) the borrower has committed default in
repayment of the financial assistance granted
aggregating the specified amount;
(v) consequent upon such default in repayment of
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the financial assistance the account of the borrower
has been classified as a non-performing asset;
(vi) affirming that the period of sixty days notice
as required by the provisions of sub-section (2) of
section 13, demanding payment of the defaulted
financial assistance has been served on the borrower;
(vii) the objection or representation in reply to
the notice received from the borrower has been
considered by the secured creditor and reasons for
non-acceptance of such objection or representation
had been communicated to the borrower;
(viii) the borrower has not made any repayment
of the financial assistance in spite of the above notice
and the Authorised Officer is, therefore, entitled to take
possession of the secured assets under the provisions of
sub-section (4) of section 13 read with section 14 of the
principal Act;
(ix) that the provisions of this Act and the rules
made thereunder had been complied with:
Provided further that on receipt of the affidavit from
the Authorised Officer, the District Magistrate or the
Chief Metropolitan Magistrate, as the case may be,
shall after satisfying the contents of the affidavit pass
suitable orders for the purpose of taking possession of
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the secured assets within a period of thirty days from
the date of application:
Provided also that if no order is passed by the Chief
Metropolitan Magistrate or District Magistrate within
the said period of thirty days for reasons beyond his
control, he may, after recording reasons in writing for
the same, pass the order within such further period but
not exceeding in aggregate sixty days.
Provided also that the requirement of filing affidavit
stated in the first proviso shall not apply to proceeding
pending before any District Magistrate or the Chief
Metropolitan Magistrate, as the case may be, on the
date of commencement of this Act.
(1A) The District Magistrate or the Chief Metropolitan
Magistrate may authorise any officer subordinate to him,—
(i) to take possession of such assets and documents
relating thereto; and
(ii) to forward such assets and documents to the
secured creditor.
(2) For the purpose of securing compliance with the
provisions of sub-section (1), the Chief Metropolitan
Magistrate or the District Magistrate may take or cause to be
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taken such steps and use, or cause to be used, such force, as
may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the
District Magistrate any officer authorised by the Chief
Metropolitan Magistrate or District Magistrate done in
pursuance of this section shall be called in question in any
court or before any authority.
...
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).”
23.Section 34 of the SARFAESI Act bars the Civil Court from
entertaining any suit or proceedings in respect of any matter which the
Debts Recovery Tribunal or the Appellate Tribunal is empowered to decide
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under the SARFAESI Act. No injunction can also be granted by any Court
in respect of any action taken or to be taken in exercise of any power
conferred under the SARFAESI Act or under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993.
24.The present suit is for recovery of possession of property from
strangers who claimed to be in possession on the basis of a void sale deed
executed by the mortgagor during subsistence of mortgage and after
symbolic possession was taken. In this case, it is not in dispute that the
borrower failed to discharge his liability after receiving notice under Sub-
Section (2) of Section 13 of the SARFAESI Act and that the Bank had taken
symbolic possession of the Secured Asset. Under Sub-Section (6) of
Section 13, any transfer of Secured Asset after taking possession thereof
under Sub-Section (4) of Section 13 by the Secured Creditor shall vest in
the transferee all rights or in relation to the Secured Asset transferred as if
the transfer had been made by the owner of such Secured Asset. There is a
statutory prohibition under Sub-Section (13) of Section 13 to the effect that
no borrower, after the receipt of notice referred to in Sub-Section (2) of
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Section 13, can transfer by way of sale or lease or otherwise any of his
Secured Asset without prior written consent of the Secured Creditor. It is
by virtue of the statutory prohibition, the sale deed executed by the 2nd
defendant in favour of 3rd defendant is void.
25.Similarly, it is admitted that the appellants have closed the entry to
the First Floor preventing the Advocate Commissioner from handing over
physical possession of the suit property to the plaintiff. It is in the stated
circumstances, the suit is laid for declaring all the transactions in relation to
the Secured Asset as null and void. The scope of Section 34 of the
SARFAESI Act is limited and that does not bar the present suit filed by the
1st respondent for the reliefs which cannot be granted by the Debts Recovery
Tribunal or the Appellate Tribunal and no provision is prescribed under the
Act to deal with such situations.
26.Section 14 is an enabling provision, by which, physical possession
can be forcibly taken by the Secured Creditor. When a suit is filed for
recovery of possession from a third party stranger, the Court is not granting
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any order preventing any authority from taking any action in exercise of its
powers conferred under the Act. Therefore, the argument is wholly
misconceived. There is no substance in the argument. The learned Single
Judge elaborately considered this aspect and held that the suit is not barred
under Section 34 of the SARFAESI Act. This Court has no reason to take a
different view and is not impressed by any of the submissions made by the
learned counsels for the appellants. Therefore, Issue No.(1) is answered
against the appellants.
Issue No.(3) :
27.Very interestingly, the 1st defendant has given some additional
particulars which are also relied upon by the plaintiff/1st respondent. The
2nd defendant alienated the suit property in favour of the 3rd defendant
during the subsistence of mortgage after the issuance of notice under
Section 13(2) of SARFAESI Act. It was the 3rd defendant, as purchaser
pending proceedings, initiated various proceedings upto Hon'ble Supreme
Court. It is true that, during pendency of Special Leave Petition before the
Hon'ble Supreme Court, a sum of Rs.1.71 Crores was deposited with the 1st
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defendant Bank. However, the 1st defendant Bank filed an affidavit before
the Hon'ble Supreme Court regarding the deposit made with the Bank
instead of depositing with the Registry. Later, the Hon'ble Supreme Court
dismissed the Special Leave Petition after holding that there is no merit. A
direction was also issued to the 1st defendant Bank to return the said amount
to the 3rd defendant. The 1st defendant Bank was unable to touch the money
to refund the money to the 3rd defendant, as the said amount was attached by
the Government of India, Ministry of Finance, Enforcement Directorate, on
the allegation that the 3rd defendant got the money in an illegal manner from
Hong Kong, which resulted in action being initiated under the Prevention of
Money Laundering Act. It is to be seen that, subsequently, the 1st defendant
Bank was forced to file a writ petition challenging the attachment, citing the
Enforcement Directorate and the 3rd defendant as respondents. However,
the attachment was held to be valid while dismissing the writ petition. Even
the amount of Rs.1.71 Crores is not available for the Bank. In all
probabilities, the 3rd defendant has used the ill-gotten money for purchasing
the property.
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28.It is also pertinent to mention that the defendants 5 and 6, the
appellants in O.S.A.Nos.25 of 2020, have purchased the property when
another mortgage in respect of other 50% of the property was subsisting.
The 3rd defendant appears to have created another mortgage to borrow a
sum of Rs.2,30,00,000/-. Therefore, the entire sale consideration was
directed to be deposited to settle the mortgage. Even in the sale deed, there
is no reference to the mortgage of property with the 1st defendant. This
Court is unable to appreciate the bona fides of any one of the purchasers,
either the 3rd defendant or the defendants 5 and 6, having regard to the
peculiar circumstances and the time line.
29.No doubt, it is true that the 3rd defendant had an opportunity to
discharge the mortgage at the time when the sale was not confirmed. He
could have certainly availed the benefit under Section 13(8) of SARFAESI
Act. It is to be seen that the auction sale in favour of the plaintiff is dated
24.03.2007. In the auction conducted on 24.03.2007, the plaintiff became
the successful bidder and deposited 25% of the bid amount as per the
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document marked as Ex.P9. However, the confirmation of sale was delayed
on account of the pendency of SARFAESI Application No.97 of 2007.
Though the Debts Recovery Tribunal-II, Chennai, passed an order on
12.03.2007 directing the Bank to defer the sale on condition to deposit the
entire principal due along with interest within a period of three weeks from
24.03.2007, the said order was also under challenge at the instance of 3rd
defendant before the Debts Recovery Appellate Tribunal and the Appellate
Tribunal passed a conditional order again on 22.03.2007, granting interim
stay to proceed with the auction on condition to deposit a sum of
Rs.35,00,000/-. However, this Court, by order dated 21.07.2007 in
C.R.P.No.839 of 2007, struck off the proceedings in SARFAESI Application
No.97 of 2007 on the file of the Debts Recovery Tribunal-II, Chennai. The
Hon'ble Supreme Court has confirmed the order of this Court in
C.R.P.No.839 of 2007 by order dated 07.12.2007. Therefore, the
confirmation of sale was delayed only on account of the pendency of the
proceedings initiated by the 3rd defendant. The 2nd defendant never paid any
money. Even though the 2nd defendant has sold the property in 2005 after
symbolic possession was taken by the 1st defendant Bank, no amount was
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deposited towards discharge of mortgage out of the sale consideration.
Therefore, the contention of the 2nd defendant before this Court at this
length of time taking advantage of the proceedings at the instance of the 3 rd
defendant to delay confirmation of sale, cannot be given any credence in
equity. The law is settled even before amendment to the effect that the
borrower cannot avail the benefit of Section 13(8) of SARFAESI Act once
sale is confirmed. The sale was confirmed in favour of the plaintiff on
11.01.2008, immediately after the dismissal of Special Leave Petition by
Hon'ble Supreme Court and the Sale Certificate was issued on 31.01.2008.
At the risk of repetition, this Court has no hesitation to hold that either the
3rd defendant or the subsequent purchasers cannot take advantage of this
delay on account of challenge to the sale and interim orders to contend that
the amount deposited pursuant to the direction of the Hon'ble Supreme
Court should be taken into consideration to declare that the mortgage itself
is discharged.
30.As far as the plaintiff/auction purchaser is concerned, it is not as if
he does not have any right. The plaintiff, whose bid was accepted and had
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paid 25% of the auction amount as per the terms and conditions of the
auction, has a legitimate expectation to get the sale confirmed in his favour.
But he could not get it done due to the intervention of the 3 rd defendant by
getting orders. The conduct of the 3rd defendant is relevant. Even though a
conditional order was passed while granting stay by the Debts Recovery
Tribunal-II, Chennai, on 12.03.2007, the 3rd defendant did not deposit any
amount. However, he filed an Appeal before the Debts Recovery Appellate
Tribunal, Chennai, and the Appellate Tribunal stayed the whole
proceedings, however subject to condition that the 3rd defendant should
deposit a sum of Rs.35,00,000/- with the respondent Bank. It is pertinent to
mention that the 3rd defendant did not pay any money pursuant to the
conditional order. However, as admitted by the parties, even in the Civil
Revision Petition filed by the 1st defendant, there was an interim stay
staying the confirmation of sale until further orders. Though the Civil
Revision Petition was allowed by order dated 21.07.2007 by this Court, a
Special Leave Petition was filed and the Hon'ble Supreme Court, by order
dated 06.08.2007, after holding that there is no merit in the petition, gave an
opportunity to the 3rd defendant to deposit the entire amount and debt before
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the Registry of Supreme Court within four weeks. This order is probably to
find out whether the plaintiff and 1st defendant would agree for any terms.
It is, therefore, when the matter was heard on 17.09.2007, the Hon'ble
Supreme Court directed the Bank to file counter and directed the 3rd
defendant to implead the highest bidder, the plaintiff herein, as party
respondent to the Special Leave Petition. This Court is unable to see from
the cause title whether the plaintiff was impleaded as party before the
Hon'ble Supreme Court. Probably, after the hearing the 1st defendant Bank
and the plaintiff, the Hon'ble Supreme Court dismissed the Special Leave
Petition by order dated 07.12.2007. This order has become final. But for
the pendency of proceedings before Hon'ble Supreme Court and the interim
order by this Court in the Civil Revision Petition, the sale could have been
confirmed in favour of plaintiff in March, 2007. Therefore, the plaintiff,
who has paid the entire sale consideration, is made to wait from 2008 to get
possession from strangers who have purchased the property after the
dismissal of Special Leave Petition preferred by the 3rd defendant by
Hon'ble Supreme Court. Admittedly, during the pendency of SARFAESI
proceedings, despite conditional stay was granted, no amount was paid.
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Again, there was stay of confirmation of sale when Civil Revision Petition
was pending. Once the Civil Revision Petition in C.R.P.No.839 of 2007
filed by the Bank to strike down the proceedings in S.A.No.97 of 2007 for
want of jurisdiction is allowed and the order is confirmed by Hon'ble
Supreme Court, no deposit pursuant to the direction of Supreme Court by
3rd defendant can be considered as a valid tender for redemption. After the
confirmation of sale as on date, in a litigation of this nature, the litigants,
who have not shown their bona fides in the previous litigation, cannot take
advantage of the delay in proceedings to deprive the legitimate right of an
individual who is caught in the middle. Therefore, the contention of the
learned counsels appearing for the appellants that the mortgage itself shall
be deemed to be discharged by virtue of payment made by 3rd defendant
pursuant to the directions of Hon'ble Supreme Court, has no merit. As
pointed out by the learned counsels appearing for the 1st defendant and the
plaintiff, even the amount that was deposited was later attached by
proceedings initiated against the 3rd defendant under Prevention of Money
Laundering Act. Therefore, absolutely, there is no justification for the
defendants to resist the plaintiff from taking physical possession of the suit
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property. Accordingly, Issue No.(3) is answered against the appellants.
Issue No.(2) :
31.It is an unfortunate case where the plaintiff, who had deposited
25% of the amount in compliance with the terms and conditions of the sale
and paid the entire balance upon confirmation of sale, is unable to get
possession of the property. In the sale certificate issued by the 1 st defendant
in favour of plaintiff, it is specifically mentioned that possession is handed
over to the plaintiff. However, the 1st defendant admitted that “possession”
referred to in the document is “symbolic possession”. The plaintiff is now
forced to file a suit to recover possession of the property. The question
whether the plaintiff was paid interest for the 25% of the amount and
whether the plaintiff is entitled to interest on such amount, is a matter
between the plaintiff and the 1st defendant Bank. Assuming for a moment
that the 2nd defendant, as mortgagor, is entitled to canvass this aspect, it will
not vitiate the sale in favour of the plaintiff. At best, liberty can be
preserved to the 1st defendant to canvas this point in case steps are taken to
recover any balance, if required, from the 3rd defendant. This Court
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preserves the right of the 2nd defendant to ensure that the entire amount
payable by the plaintiff as an auction purchaser is accounted and made
available and credited to the 2nd defendant's loan account, as per the terms
and conditions of the sale. Accordingly, Issue No.(2) is answered against
the appellants.
32.In view of the conclusions reached, we find no merit in the
Appeals preferred by the 2nd defendant, as well the defendants 5 and 6, the
subsequent purchasers. The judgment and decree of the learned Single
Judge in C.S.No.1134 of 2008, dated 04.10.2019, is upheld and confirmed
in all respects.
33.As a result, these Original Side Appeals are dismissed.
However, there is no order as to costs. Consequently, connected
miscellaneous petition is closed.
(S.S.S.R., J.) (P.D.B., J.)
21.03.2025
mkn
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Internet : Yes
Index : Yes
Neutral Citation : Yes
Note to Registry : Issue order copy by 01.04.2025
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S.S. SUNDAR, J.
and
P. DHANABAL, J.
mkn
Judgment in
O.S.A.Nos.22 & 25 of 2020
21.03.2025
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