M/S Tripower Enterprises … vs State Bank Of India on 24 April, 2020
Supreme Court of India
M/S Tripower Enterprises … vs State Bank Of India on 24 April, 2020
Author: A.M. Khanwilkar
Bench: A.M. Khanwilkar, Dinesh Maheshwari
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2373/2020
(Arising out of SLP(C) No. 30392/2019)
M/s. Tripower Enterprises
(Private) Limited …Appellant(s)
Versus
State Bank of India & Ors. ...Respondent(s)
JUDGMENT
A.M. Khanwilkar, J.
1. Leave granted.
2. This appeal takes exception to the judgment and order
dated 6.9.2019 passed by the High Court of Judicature at
Madras (for short, “the High Court”) in Writ Petition No.
11522/2019, whereby the High Court reversed the order dated
29.3.2019 passed by the Debts Recovery Appellate Tribunal (for
short, “the DRAT”) at Chennai in M.A. No. 90/2018 allowing the
application filed by the respondent No. 1 State Bank of India
Signature Not Verified
Digitally signed by
DEEPAK SINGH
Date: 2020.04.24
15:21:48 IST
Reason:
(for short, “the Bank”) before the Debts Recovery Tribunal (for
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short, “the DRT”) at Madurai being I.A. No. 995/2017 in O.A. No.
11/2008, directing return of original documents – Exhibits A110
to A114 deposited by the Bank before the DRT in O.A. No.
11/2008. In other words, the High Court affirmed the order of
the DRT rejecting subject application.
3. Shorn of unnecessary factual matrix, suffice it to observe
that the respondent No. 3 – M/s. Rukmini Mills Ltd. (for short,
“the borrower”) had availed of financial credit from the Bank, for
which the respondent No. 2 – Associated Trading Corporation
Pvt. Ltd. (for short, “the guarantor”) had offered its immovable
property by way of mortgage to the Bank. The borrower
committed default, as a result of which the Bank declared it as a
NonPerforming Asset (for short, “NPA”) and then proceeded to
file O.A. No. 11/2008 before the DRT at Madurai. The Bank also
issued notice for taking symbolic possession of the secured
assets, on 13.5.2008 and after considering the reply of the
guarantor, took symbolic possession of the secured assets on
15.10.2008. The guarantor filed a petition being SA No.
225/2008 before the DRT at Madurai, challenging the possession
notice dated 15.10.2008 issued by the Bank under Section 13(4)
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of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short, “the 2002
Act”), which came to be rejected by the DRT on 10.2.2011. The
guarantor then filed an appeal being AIR(SA) No. 222/2011
against this decision, which was dismissed on 8.2.2013 on the
ground of nonpayment of predeposit amount. The guarantor
did not carry that matter any further.
4. The secured assets offered by the guarantor were eventually
put up for public auction by the Bank for recovery of outstanding
dues to the extent of Rs.350.12 lakhs. The appellant ultimately
turned out to be the highest bidder in the eauction conducted by
the Bank on 28.2.2017. Sale certificate in respect of the secured
assets purchased by the appellant in public auction conducted
by the Bank, was issued on 29.4.2017. Before the auction was
finalised in favour of the appellant, the Bank had already moved
an application before the DRT being I.A. No. 995/2017 in O.A.
No. 11/2008 for return of the original documents deposited with
the DRT, as the Bank would be obliged to hand over the same to
the auction purchaser upon issue of sale certificate. That
application was rejected by the DRT on 9.11.2018, essentially on
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the ground that the issue raised by the guarantor that there was
no valid mortgage in respect of the secured assets referred to as
‘B’ schedule properties and that equitable mortgage in respect of
the said properties have been created by incompetent persons,
was still to be examined by the DRT in the main proceedings
being O.A. No. 11/2008. The DRT rejected the application for the
following reasons:
“4……. it was decided that the property absolutely
belonged to them and that therefore, any mortgage
created in respect of their property is illegal and void and
that the petitioner bank has itself stated in para5 & 6 of
the counter proof affidavit that D10 & D11 have been
added as parties to the OA, since they claim over a part of
the ‘B’ schedule property mortgaged by D4 company and
that in order to avoid multiplicity of proceedings, D8 to
D11 have been added as parties to the Original
Application for better adjudication of respective claim over
the mortgaged properties. The Ld. Counsel for R10
further contended that the marked documents cannot be
returned unless final order is passed in the main OA and
that if the documents are handed over to the auction
purchaser, before passing of final order, it will create
more problems and multiplicity of proceedings and that
therefore, the petition is liable to be dismissed.
5. Even though, R2 & R3 who are said to represent the
R1 mill used to appear before in person before this
Tribunal for all hearings, neither filed any counter
statement nor did advance any argument. Similarly, the
R5, who is represented by his counsel neither filed any
counter statement nor did advance argument.
6. The petitioner bank has filed the original application
OA No. 11/2008 against the Respondents 1 to 11 herein,
who are the Defendants1 to 11, for recovery of sum of
Rs.25,49,19,820.41ps/ with future interest thereon. The
contention of the petitioner bank with regard to creation
of equitable mortgage over the OA ‘B’ Schedule mentioned
properties by R4 company, in favour of the petitioner
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bank for the above said loan facilities availed by R1
company has been stoutly denied by R4 company, in its
written statement, filed in the OA. There is no dispute
with regard to sale of some of the OA ’B’ Schedule
mentioned properties in the eauction held on 28.02.17
under the SARFAESI proceedings initiated by the
petitioner bank herein, to M/s. Tripower Enterprise Pvt.
Ltd., Chennai115.
7. R4 company has filed its written statement in the OA,
wherein it has been alleged that no valid mortgage over
OA ‘B’ schedule properties had been created by R4
company and that equitable mortgage over the above said
properties had been created by incompetent persons on
behalf of R4 company by fabricating false records. But
the rival contention of the petitioner bank is that valid
equitable mortgage has been created over the above said
properties by R4 company. This vital issue has to be
decided only after conclusion of the inquiry in the original
application pending before this Tribunal. In the
meanwhile, this petition has been filed for return of the
original documents, which have been marked as Exh. A
110 to A114.
8. The mere reason that R4 company and R10 have not
raised the above said issue during the SARFAESI
proceedings, cannot be a valid reason to strengthen the
contention of the petitioner bank that R4 company & R
10 cannot raise this objection in the original application,
since the SARFAESI proceedings are of summary
proceedings in nature. In the original application, all the
contesting defendants have filed their written statement
and that OA has reached the stage for inquiry. Therefore,
this Tribunal is of the considered view that the issue as to
whether there is valid creation of equitable mortgage over
the OA ‘B’ schedule mentioned properties, has to be
decided only in the original application, along with the
issue as to whether the petitioner bank is entitled for
recovery of sum of Rs.25,49,19,820.41ps/ and with
future interest thereon. Further the documents, which
are sought for by the petitioner bank, have already been
marked as Exh.A110 to A114. Therefore, passing an
order in this petition for return of the above mentioned
documents to the petitioner bank would cause prejudice,
at this stage, to decide the vital issue as to whether valid
mortgage has been created over some of the OA ‘B’
schedule properties by R4 company.
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In view of the foregoing reasons, this petition stand
dismissed.”
The Bank carried the matter in appeal before the DRAT at
Chennai by way of M.A. No. 90/2018. The DRAT, however,
reversed the decision of the DRT and observed thus:
“7. On careful perusal of pleadings of parties and
submission of counsel of parties and record, it becomes
clear that R4 has preferred an appeal against order
passed in SA 225/2008. But it was dismissed for want of
compliance OD predeposit. On 09.06.2015, in OA
11/2008 by way of IA 357, 3544448, 359,
Mr. Balasubramanian and Mr. Thiagarajan brought some
facts on record regarding objections pertains to signature
of memorandum of deposit of titles deeds by
unauthorised persons. The record reveals that
borrowers/guarantors availed loan from appellant bank
decaded ago (i.e.) in the years 1990, relationship between
bank and guarantor had taken and for loan of R1
company R4 company stood as guarantor and behind
both companies the same person was the instrument. It
can safely be presumed and inferred that loan was
availed by common predecessor of
respondents/defendants who floated various Companies
according to need and convenience in such a background
if OA filed in the year 2008 was kept pending even after
10 years, then bank had a right for recovery of money. In
this background, bank had proceeded for sale of property
in the year 2017 and bonfire auction purchaser has spent
more than Rs.60 crores on it. In such a situation, the
memo of part satisfaction of IA should have been taken on
record in that spirit only.
8. In so far as disputes regarding ownership of the
company between brothers and extended relatives should
not adversely affect the right of recovery. Such disputes
are endless. Bonafides of defaulters can be perceived and
presumed if they were willing to repay the dues. During
the course of arguments also it was transpired that R4 is
not feeling himself liable for any repayment whatsoever.
The SARFASEI appeal filed by R4 in the year 2008 itself
had attained finality. In such a situation recovery made
by bank under SARFAESI Act should be acknowledged
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and respected for all purposes. The dispute/battle
between family members of defaulters should not create
or cause or prejudice against bank or bonfire purchaser.
When seeing the gestures of repayments to be made by
respondents, their objection cannot be created as a sign
of honesty and bonfires. Rather they can be presumed as
a culprit and deferring the recovery proceedings.
9. In this back drop, IA filed by bank deserves to be
allowed and it should have been allowed by presiding
officer. The bank has to receive the relevant five
documents after keeping the photocopy of documents on
record because bank has also a responsibility towards
auction purchaser who had spent [sic] a sum of more
than Rs.60 crores about two years ago.
10. Hence, Appeal stands allowed and impugned order
is set aside. It is made clear that this tribunal has not
expressed any opinion about legality of mortgage. The
presiding officer will decide this issue on merits after
hearing of parties according to law without being
influenced by this order at all. Simply in view of the fact
that bank had a recovery of a sum of Rs.60 crores and
defaulters are not willing and has no capacity of sum of
Rs.60 crores and defaulters are not willing and has no
capacity of such payment, impugned order is set aside.
DRT will return the documents to the bank for further
proceedings and presiding Officer will adjudicate the OA
after hearing both parties according to law.
11. Impugned order is set aside.”
Accordingly, the DRAT allowed the application preferred by the
Bank and directed return of the original documents Exhibits
A110 to A114 to the Bank.
5. Feeling aggrieved, the guarantor filed a writ petition before
the High Court, being Writ Petition No. 11522/2019. The High
Court, after considering the factual matrix, was pleased to restore
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the order passed by the DRT, rejecting the application preferred
by the Bank. For doing so, the High Court observed as follows:
“10. On a careful consideration of the materials
available on record, the judgment relied upon by the
learned counsel appearing for the 1st respondent and the
submissions made by the learned counsel on either side,
it could be seen that O.A. No. 11 of 2008 was filed by the
1st respondentBank for recovery of a sum of
Rs.25,49,19,820.41 together with future interest.
Schedule ‘B’ in the Schedule of properties mentioned in
O.A. No. 11 of 2008 was sold in eauction on 28.02.2017
for a sale consideration of Rs.60,25,00,000/ under the
SARFAESI proceedings to the auction purchaser, viz.,
M/s. Tripower Enterprises Private Limited and the sale
certificate was also issued in their favour. However, the
auction purchaser, is not a party either in the Original
Application or in this Writ Petition. The 1 st respondent
also filed a memo for recording part satisfaction.
11. It is also not in dispute that the sale made in favour
of M/s. Tripower Enterprises Private Limited by the 1st
respondentBank has not been challenged by the
petitioner Company, who claimed title to the property.
The petitioner has challenged the possession notice dated
10.02.2011 in S.A. No. 225 of 2008 and the same was
dismissed by the Debts Recovery Tribunal. However, the
Tribunal did not go into the other issues relating to the
subsequent extension of the mortgage done by the
persons, since the proceedings under Section 17 of the
SARFAESI Act is summary proceedings.
12. The petitioner contended that there is no valid
creation of mortgage or extension of mortgage over the
Schedule ‘B’ property. The respondents 10 and 11
claimed that the property originally belonged to their
father and by virtue of the decree granted by a competent
Civil Court, declaring them as absolute owners of an
extent of 1.80 acres, they became the absolute owners.
Further, the 10th respondent has stated that out of the
extent of 1.80 acres, an extent of 1.40 acres was
acquired by the Government for Thillai Ganga Nagar
Subway and in the remaining 40 cents, some extent of
properties were sold to third parties and therefore, the
petitioner could not have mortgaged an extent of 1.80
acres with the 1st respondentBank. The petitioner also
9
contended that there was no valid mortgage in respect of
Schedule ‘B’ property mentioned in O.A.No.11 of 2008
and the mortgage was created by an incompetent person
on behalf of the petitioner Company by fabricating false
records.
13. The case put up by the respective parties is a
matter for evidence and the same can be decided only
after the conclusion of the trial in the Original Application
pending before the Debts Recovery Tribunal. The original
documents were marked as Exs.A110 to A114 in
O.A.No.11 of 2008. The Debts Recovery Tribunal, while
disposing of the application, observed that the Original
Application has reached the stage of inquiry and
therefore, the Tribunal was of the view that the issue as
to whether there was valid creation of equitable mortgage
over the Schedule ‘B’ property mentioned in the O.A.
No.11 of 2008 has to be decided only in the Original
Application, along with the issue as to whether the 1st
respondentBank is entitled for recovery of the amount
with future interest.
14. That apart, when the documents were marked as
Exs.A110 to A114 before the Debts Recovery Tribunal the
documents cannot be allowed to be returned even before
the disposal of the Original Application. The Debt
Recovery Appellate Tribunal without considering the case
of the parties had set aside the order of the Debts
Recovery Tribunal finding that the sale made in favour of
the auction purchaser has become final. When the core
issue is with regard to creation of mortgage, the same can
be decided only in the Original Application, the order
passed by the Debt Recovery Appellate Tribunal without
considering the same cannot stand. If the Debts
Recovery Tribunal, after trial, ultimately comes to the
conclusion that there was no valid mortgage in respect of
the Schedule ‘B’ property mentioned in O.A. No.11 of
2008, in that case, it would further complicate the
dispute. The Appellate Tribunal, instead of setting aside
the order passed by the Debts Recovery Tribunal, should
have directed the Debts Recovery Tribunal to dispose of
the appeal, within a time frame and further directed the
Debts Recovery Tribunal to consider the application in
I.A. No.995 of 2017 along with the Original Application.
15. In these circumstances, we are of the considered
view that in the interest of justice, the Debts Recovery
Tribunal should retain the documents marked as
Exs.A110 to A114 till the disposal of O.A.No.11 of 2008
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and a direction can be given to the Debts Recovery
Tribunal to dispose of the Original Application within a
time frame.”
The High Court, however, after setting aside the order of DRAT at
Chennai, directed remand of I.A. No. 995/2017 in O.A. No.
11/2008 to the DRT at Madurai for deciding the same afresh and
to dispose of the main matter bearing O.A. No. 11/2008 together,
on merits and in accordance with law within four months from
the date of receipt of the said order.
6. Feeling aggrieved, the appellant being the auction
purchaser, has assailed the aforesaid decision of the High Court
in the present appeal by way of special leave. The Bank has
supported the stand of the appellant. The thrust of the argument
of the appellant is that it having purchased the property in a
public auction conducted by the Bank and upon complying with
necessary formalities and further, having received the sale
certificate in that regard, in law, was entitled to get the original
title documents in respect of the stated properties, which were
lying with the DRT in O.A. No. 11/2008. According to the
appellant, the guarantor had filed writ petition before the High
Court challenging the direction issued by the DRAT vide order
dated 29.3.2019 for return of original documents despite in the
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past it had unsuccessfully challenged the notice for taking
possession of the stated properties. Another petition filed by the
guarantor for issue of restraint order against the Bank to desist
from proceeding with the public auction, was also rejected.
Similarly, the guarantor had unsuccessfully challenged the
auction concluded in favour of the appellant. In all these
proceedings, the very contention about the mortgage in question
being invalid and created by incompetent persons was raised and
negatived. According to the appellant, the guarantor on affidavit
had admitted the factum of mortgage in question created in
favour of the Bank, and one of its Directors had also offered to
pay the outstanding dues of Rs.350.12 lakhs, if some more time
for payment was granted. Considering all these aspects,
contends the appellant, the High Court should not have shown
any indulgence to the guarantor and the writ petition filed by it
ought to have been rejected. Further, the High Court misdirected
itself by taking into account matters disregarding the consistent
opinion recorded against the guarantor by the DRT and the DRAT
and in certain proceedings, by the High Court and even this
Court.
12
7. The guarantor, on the other hand, would urge that it had
not taken any loan from the Bank. The borrower had been
borrowing money from the bank against the security by deposit of
title deeds and equitable mortgage created on 12.4.1984.
However, the Bank extended further loans to the borrower in
1990 and 1992, to which the guarantor was not a party. As a
matter of fact, the equitable mortgage was not created by the
authorised person of the guarantor nor it was party to the
extensions of mortgage. In the proceedings before the DRT, it
has been observed in order dated 9.6.2015 that the documents
for extension of the alleged mortgage dated 12.4.1984, were
signed by Mr. S. Balasubramaniam (personal
guarantor/respondent No. 4). It is asserted that he was never a
Director of the respondent No. 2 company/guarantor and was a
stranger to it. It is urged that the jurisdiction of DRT under the
2002 Act is only supervisory over the actions initiated by the
Bank under Section 13 of that Act. It cannot decide the
substantial issues and disputes regarding the genuineness or
validity of the mortgage itself. Reliance is placed on Transcore
vs. Union of India & Anr.1, Authorised Officer, Indian
1 (2008) 1 SCC 125 (paragraph 30)
13
Overseas Bank & Anr. Vs. Ashok Saw Mill2, Standard
Chartered Bank vs. Dharminder Bhohi & Ors.3, Axis Bank
vs. SBS Organics Private Limited & Anr.4, M.D. Frozen Foods
Exports Private Limited & Ors. vs. Hero Fincorp Limited 5
and Shakeena & Anr. vs. Bank of India & Ors.6. It is then
urged that the principle of res judicata will have no application to
the opinion already recorded by the DRT or DRAT and at the
same time, the guarantor cannot be denuded from pursuing the
objection regarding validity of the mortgage in appropriate
proceedings including in pending O.A. The guarantor has
pointed out the similarities and dissimilarities in the 2002 Act,
the Transfer of Property Act, 1882 and the Code of Civil
Procedure, 1908 to contend that the remedy under Section 13(4)
of the 2002 Act is only an enabling provision, pending final
adjudication of liability. It is urged that at least the cases
wherein the validity of mortgage is put in issue or the factum of
existence of mortgage itself is in dispute, will have to be dealt
with in a different manner than a case where the factum of
2 (2009) 8 SCC 366 (paragraph 37)
3 (2013) 15 SCC 341 (paragraph 36)
4 (2016) 12 SCC 18 (paragraph 12)
5 (2017) 16 SCC 741 (paragraphs 27 and 33)
6 2019 SCC OnLine SC 1059 (paragraph 21)
14
existence of mortgage is admitted. The DRT can only examine
the issues regarding procedural irregularities committed by the
Bank and not decide the disputed question about the existence
or validity of the mortgage itself, unlike in proceedings under the
Recovery of Debts and Bankruptcy Act, 1993 (for short, “the 1993
Act”). Reliance is placed on E. Subbulakshmi vs. State of
Tamil Nadu through Secretary to Government & Ors. 7 and
M.D. Frozen Foods Exports Private Limited (supra). It is then
urged that there is no warranty of title in a Court auction, much
less in a public auction, wherein the doctrine of caveat emptor
applies. Reliance is placed on The Ahmedabad Municipal
Corporation of the City of Ahmedabad vs. Haji Abdulgafur
Haji Hussenbhai8 to buttress the argument that it is imperative
for the purchaser to ascertain and satisfy himself about the title
of the property. It is then urged that the order passed by the
DRT which was subject matter of challenge before the High Court
was only an interlocutory order, for which reason this Court
should be loath to interfere, especially when the High Court has
only remanded the matter with direction to expeditiously dispose
7 (2017) 1 SCC 757
8 (1971) 1 SCC 757 (paragraph 3)
15
of the main proceedings pending before the DRT since 2008. No
prejudice would be caused to the appellant, especially when the
question regarding the validity of the mortgage of title in respect
of the stated properties itself would be decided in the original
proceedings, namely, O.A. No. 11/2008.
8. The respondent No. 11 (A.R. Sridharan) has more or less
raised the same objection, but additionally urged that the
material facts were not brought to the notice of the DRT, namely,
that the ancestors of respondent Nos. 11 (A.R. Sridharan) and 12
(A.R. Kannan) were the owners and in possession of land to the
extent of 1.80 acres at Adampakkam Village at old Survey, which
was known as Paimash No. 722/4. The factum of ownership of
the respondent Nos. 11 and 12 has been decided in O.A. Suit No.
186/1976, filed by their father and after his demise, the same
was pursued by them. The suit was decreed in their favour in
respect of 1.80 acres land at Paimash No. 722/4 and which
decree had attained finality by dismissal of special leave petition
by this Court on 11.5.1992 in view of the concurrent decisions of
the trial Court dated 16.2.1990, of the first appellate Court dated
3.1.1992 and of the High Court in Second Appeal dated 6.4.1992.
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Besides the civil proceedings which have attained finality,
reliance is also placed on criminal proceedings making reference
to the stated property (Paimash No. 722/4). Notwithstanding
this position, it is urged by the respondent No. 11 (A.R.
Sridharan) that the sale certificate issued by the Bank refers to
land admeasuring 1.80 acres bearing Paimash No. 722/4, which
cannot be countenanced. He stoutly urged that land bearing
Paimash No. 722/4 admeasuring 1.80 acres was not and could
not have been made the subject matter of mortgage in favour of
the Bank, as the guarantor had no title whatsoever qua that
property when mortgage was created by it. Thus, besides praying
for dismissal of the appeal, he has prayed that it be clarified that
the mortgage and the sale certificate could not have and had not
included the property bearing Paimash No. 722/4 admeasuring
1.80 acres, and for directing that all proceedings conducted in
whichever Court/forum must proceed on the basis that sale
certificate issued by the Bank is subject to the decree in favour of
the respondent No. 11 dated 16.2.1990 in O.S. No. 186/1976.
9. We have heard Mr. Vinay Prabhakar Navare, learned senior
counsel for the appellant, Mr. Tushar Mehta, learned Solicitor
17
General for the respondent No. 1 (the Bank), Mr. V. Giri, learned
senior counsel for the respondent No. 2 (the guarantor) and Mr.
Gopal Sankaranarayanan, learned senior counsel for the
respondent No. 11.
10. Considering the fact that the guarantor had filed writ
petition before the High Court assailing the order passed by the
DRAT, dated 29.3.2019, allowing the application filed by the
Bank for return of original documents, we must first address the
argument of the appellant (auction purchaser) that the guarantor
cannot be allowed to approbate and reprobate and moreso, in
view of the unambiguous affidavit admitting the mortgage and
offer given by its Director to pay the outstanding dues of the
Bank in the earlier proceedings including the findings recorded
by the DRT/DRAT against it in relation to the plea of validity of
the mortgage in question.
11. For that, we may first refer to the decision of the DRT, in
earliest point of time, on the petition moved by the guarantor
being S.A. No. 225/2008 challenging the possession notice dated
15.10.2008 issued by the Bank under Section 13(4) of the 2002
Act. In these proceedings, the guarantor had specifically urged
18
that the person who created equitable mortgage in respect of
subject property, was not an authorised person of the guarantor.
This issue was considered by the DRT in its final order dated
10.2.2011 in the following manner:
“(i) The Applicant is a Private Limited Company
registered under the Company Act under the name and
style of Associated Trading Corporation Pvt. Ltd. having
the identification (SIN) No. U51909IN194) PTC000011.
The Respondent 2 is the borrower company, who has
availed various credit facilities from the 1st Respondent
(Respondent Bank) to meet the business requirements
since 1954. Therefore, it is clear that the Applicant is a
Private Ltd. Company, a legal person in the eye of law,
has filed the present Application challenging the
Possession Notice dated 15.10.2008 issued u/s 13(4) of
the SARFAESI Act, 2002 and prayed for other reliefs as
aggrieved person through the Authorised Signatory Mr.
Tamilselvam…..
(ii) While negotiating the aspect of creating of financial
asset, it is seen from the records submitted by the
Respondent Bank that the Applicant Company has joined
the loan transaction with respondent 1 and 2 as
guarantor and offered the schedule mentioned property
as collateral security to the advance granted to M/s.
Rukmani Mills Limited on 12.4.1984. Mr. M.
Shanmugam, the then Director of the Applicant
Company has created unregistered equitable mortgage
in favour of the Respondent Bank, by deposit of title
deeds relating to the Applicant Company for the due
repayment and discharge of liability and indebtedness
of M/s. Rukmani Mills Ltd. to the Respondent Bank in
respect of credit facilities extended by the bank to the
M/s. Rukmani Mills Ltd. for 350.12 lakhs inclusive of all
interest discount, commission, charges and cost and
expenses payable to and incurred by the bank in relation
to and for all other indebtedness and liabilities of the
Company, viz M/s. Rukmani Mills Ltd. The executants
of the mortgage also acknowledged the maximum
indebtedness to be secured by the said mortgage
created as aforesaid on 12.04.1984 was for, the
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purpose of Section 79 of the TE Act, 1882, but for no
other purpose and without prejudice to fill liability to
the Bank under the said mortgage fixed at 350.12
lakhs and the said charges created in favour of the
Respondent Bank on 12.04.1984 still continues and
not satisfied so far. Therefore, taking into consideration
of the documents submitted by the Respondent Bank, I
am of the considered view that the aforesaid financial
asset has been created in favour of the Respondent Bank.
The Respondent Bank in the course of proving their claim
on the mortgage has produced additional documents,
Form8 dated 26.04.1984 and other documents dated
07.03.1985, 04.03.1985, 29.04.1988 and 27.09.1988
along with random of Balance Sheets, with Director’s
Report and Auditors. Report periodically filed before ROC
from the year 1985 to 1996. But it is pertinent to note
that Mr. Balasubramanian and Mr. Kumarappan, who
have signed these documents as Directors, no proof is
submitted that they are the Directors as per the records
of ROC. However, the Ld. Counsel for the Respondent
Bank would argue that the Balance sheets have been
periodically filed by the company with ROC have been
signed by Mr. Balasubramanian and Mr. Kumarappan
and the same have been accepted by the ROC and
kept in the records. (Relevant documents produced
by the Respondent Bank. Therefore, it is claimed by the
Ld. Counsel for the Respondent Bank that the periodical
balance sheets filed by the Company up to 1996 prove
that they are the people who are in charge, of the affairs
of the Company and secured loans and the financial
facilities, availed from the respondent Bank since the
same are reflected in the Balance Sheets and the same
would amount to acknowledgment of debts. Therefore,
the Bank is entitled to enforce the securities, of
mortgaged properties for the recovery of the
outstanding dues. Hence, I am of the considered view
that the Respondent Bank has the right to initiate
action/measures under the SARFAESI Act, 2002.
Accordingly, the demand notice dated 13.05.2008 u/s
13(2) of the Act has been issued to the
borrower/guarantors. Hence, the Question No. 2 is
answered in favour of the Respondent Bank.”
(emphasis supplied)
20
The DRT clearly opined that the Bank had initiated measures
under the 2002 Act by issuing a demand notice dated 13.5.2008
under Section 13(2) followed by possession notice dated
15.10.2008 under Section 13(4) of that Act. It also opined that
all parties involved in the mortgage transactions were trying to
supress or avoid giving material facts and information and have
not approached the DRT with clean hands. What is significant to
notice is the fact recorded by the DRT in this very order in the
following words:
“(iii)………..
On behalf of the Applicant Company, Mr. S.
Thiagarajan one of the Directors of the Applicant
company has filed an Affidavit on 27.01.2011 stating
that the Applicant company is willing to pay a sum of
Rs.350.12 lacs within the time frame fixed by the
Tribunal (Minimum 6 months is required) subject to
the Respondent Bank releasing the charge on the
property of the Applicant Company in order to give
quietus to the matter. In my considered view this
aspect is to be settled among the parties and the
designated court DRT under the Act does not have scope
to enter into the question of settlement as the SARFAESI
Act, 2002 specifies that the DRT has to come to the
conclusion as to whether any violation has been
committed by the respondent Bank while negotiating the
measures taken by them under the SARFAESI Act, 2002.
However, it is left open to the Applicant to take up the
matter with Respondent Bank as still the Applicant has
the scope to redeem the property by invoking the Section
13(8) of the SARFAESI Act, 2002. Hence, the Applicant is
advised accordingly.”
(emphasis supplied)
21
The guarantor (the applicant therein) had not disputed the
correctness of the aforementioned finding of fact recorded by the
DRT. Mr. M. Shanmugham (respondent No. 7’s deceased father),
Mr. S. Balasubramaniam (respondent No. 4), Mr. S. Kumarappan
(respondent No. 5) and Mr. S. Thiagarajan (respondent No. 8)
were the Directors of the guarantor company. One of them – Mr.
S. Thiagarajan (respondent No. 8) had even filed affidavit before
the DRT on 27.1.2011 stating that the guarantor company was
willing to pay the sum of Rs.350.12 lakhs within the time frame
fixed by the DRT to be minimum six months. These facts clearly
belie the claim of the guarantor. The guarantor cannot be
permitted to resile from the admission of its liability. Similarly,
the guarantor had filed a detailed counter affidavit in Writ
Petition No. 710/1997, admitting the mortgage of the property
with the Bank, but had alleged fraud and fabrication of
documents by the respondent No. 11 (A.R. Sridharan). That,
however, cannot come to the aid of the guarantor who had
otherwise admitted its liability and the mortgage in question, in
particular.
22
12. As aforesaid, the finding/opinion recorded by the DRT vide
order dated 10.2.2011 has attained finality with the dismissal of
the appeal (filed by the guarantor) before the DRAT on 8.2.2013
albeit on the ground of failure to comply with the predeposit
condition. The guarantor cannot be allowed to approbate and
reprobate from the commitment made in successive proceedings
before the DRT and the High Court, as referred hitherto.
13. Notably, even in the subsequent proceedings before the
DRTIII at Chennai, bearing S.I.A. SR No. 581/2015 in S.A. No.
356/2014 filed by the guarantor, for grant of injunction to
restrain the Bank from bringing the scheduled property to sale
till the disposal of S.A. No. 356/2014, the guarantor raised the
same issue about the validity of the subject mortgage. That was
answered against the guarantor by the DRT vide order dated
2.2.2015, in the following words:
“8. During the course of the submissions, the Ld.
Counsel for the Petitioner/Applicant harped upon the
second prayer in the SA at page 13 of his typed set of
papers, wherein it is prayed “To restrain the first
respondent from taking any action in respect of the
schedule mentioned property under the provisions of the
SARFAESI Act since no security interest has been validly
created”, and therefore as that point is not adjudicated or
fell for consideration before this tribunal, his cause
survives and that the present sale notice is only an off
shoot of it and further that his SA is still pending enquiry,
23
he need not file a fresh SA and can continue the
proceedings through this IA.
9. From a plain reading of the above it is distinctly
evident that the said statement can only be a ground for
agitating the sale notice and not any relief, although it is
mentioned in the prayer column. As it is only a ground
for agitating the sale notice which has become
infructuous for want of bidders and a fresh sale notice
has been issued, the cause of auction initiated in SA
356/2014 ceased and is no longer surviving. Whereas
the Ld. Counsel is of the firm opinion that owing to the
ground which he had put up at Para 2 of in the relief
column that there is no valid security interest that is
created he says the lis survives, which this Tribunal is
not able to concede to and feel that this application is not
maintainable at this stage, however, not averting to
earlier litigation of the finding of the Hon’ble DRT,
Madurai holding that a valid mortgage has indeed been
created by the petitioner/applicant vide its order dated
10.2.2011 passed in SA No. 225/2008, which was carried
in appeal but was not prosecuted owing to non payment
of the ordered predeposit and wherein also the Hon’ble
DRAT vide its order dated 28.1.2013 had upheld the
findings of the Hon’ble DRT, Madurai and insisted for a
predeposit of 50% of the amount demanded, which was
not complied upon and hence the appeal failed.
10. This concludes that the mortgage in favour of
the respondent bank is held to be valid and this
Tribunal while examining the present application has
only felt that the petitioner is running litigation and
thwarting the lawful demands of the bank by taking
advantage of its own latches, which were also dealt in
detail by the Hon’ble DRT, Madurai. The contention
of the petitioner that no valid security interest is
created and that the Memorandum of Association and
the Articles of Association of the Private Limited
Company are not empowering the mortgagors is also
discussed by the Ld. Presiding Officer, DRT, Madurai
taking into the consideration the concept of Doctrine
of Indoor Management. However the Ld. Counsel did
not inform this Tribunal or submitted any of these issues
at the time of hearing but had only submitted that no
valid mortgage is created and that the land values had
raised meteorically.”
(emphasis supplied)
24
Even this decision has become final and must operate against the
guarantor. The guarantor filed yet another application being I.A.
No. 23/2018 in O.A. No. 11/2008 for impleadment of the
appellant herein as the twelfth (12th) defendant in O.A. No.
11/2008, raising the same plea of validity of mortgage in
question. That has been noted and negatived in paragraph 8 of
the order of the DRT at Madurai, dated 15.2.2019 in the following
words:
“8. The petitioner company filed SA No. 225/2008
challenging the possession notice dated 15.10.08 issued
by the Rbank. One of the contentions raised by the
petitioner company is that there is no valid creation of
mortgage over the properties, which are the subject
matter of OA ‘B’ Schedule. This Tribunal passed order in
above SA on 10.02.11 by holding that there are no
violations of provisions of the SARFAESI Act 2002 in
respect of issuance of the possession notice. A finding
has been given in the above said order that valid security
interest has been created over the above said properties.
Admittedly, it cannot be disputed that the appeal
preferred by the petitioner company against the above
order of this Tribunal before the Hon’ble DRAT, Chennai
was dismissed for non compliance of the conditional order
passed by the Hon’ble DRAT, to satisfy the 2 nd proviso u/s
18 of the SARFAESI Act 2002. Therefore, the order of this
Tribunal passed in SA No. 225/2008 still holds good.”
The guarantor continued to raise the same plea in the application
being M.A. No. 92/2017 in SASR No. 4969/2017 filed before the
DRTIII at Chennai, challenging the auction sale notice dated
9.2.2017, sale held on 28.2.2017 and consequential sale
25
certificate issued to the appellant herein on 29.4.2017. That
application was, however, rejected vide order dated 6.5.2019 on
the ground of proceedings being barred by limitation.
14. Suffice it to observe that the guarantor has successively
raised the issue regarding the validity of subject mortgage in
different proceedings unsuccessfully. As aforestated, the
concerned forum/Court unambiguously rejected the same. More
importantly, the guarantor through its Director(s) having offered
to pay the entire outstanding dues and also admitting on affidavit
the factum of existence of subject mortgage in favour of the Bank,
the question of showing any indulgence to the guarantor (by the
High Court) did not arise. The guarantor cannot be allowed to
raise the same plea repeatedly on every occasion/in every
proceeding. Notably, the auction sale stands concluded and
followed by issuance of sale certificate in favour of the appellant.
Resultantly, the Bank is under legal obligation to handover the
title deeds or original documents being Exhibits A110 to A114 to
the appellant for completion of the formalities of sale.
15. Thus understood, the High Court should have been loath in
entertaining the writ petition filed by the guarantor, raising the
26
same plea ad nauseam. The reason weighed with the High Court,
in our opinion, is flimsy and untenable. That cannot be
countenanced at the instance of the guarantor. The inevitable
effect of entertaining the stated plea of guarantor will entail
encouraging vexatious plea and procrastination of the concluded
auction sale by delaying handing over of title documents to the
highest bidder, in whose favour sale certificate has already been
issued. It is a different matter that the direction for handing over
of original documents would ostensibly appear to be in reference
to an interim application in the pending O.A., but that course is
inevitable in the fact situation of the present case.
16. The next question is: whether despite the decree of a Court
of competent jurisdiction in favour of respondent No. 11 (A.R.
Sridharan) concerning land bearing Paimash No. 722/4
admeasuring 1.80 acres, can the documents pertaining to that
land be still made over to the appellant/auction purchaser,
merely because sale certificate has been issued by the Bank in
that regard? The sale certificate, as issued by the Bank, does
make reference to land bearing survey No. 282, which inter alia,
consists of old Paimash No. 722/4. Therefore, to the extent of
27
land referred to in the decree dated 16.2.1990 passed by the
Court of District Munsiff, Chengalpattu in O.S. No. 186/1976 in
favour of the respondent No. 11 (A.R. Sridharan), despite the
issuance of sale certificate, the title document in respect of old
Paimash No. 722/4 ought not to be released until the final
decision in O.A. No. 11/2008. We say so because the decree
passed by the Court of competent jurisdiction, which had
attained finality with the dismissal of the special leave petition by
this Court on 11.5.1992 cannot be disregarded. The fact that
other proceedings, including about the title in respect of land
admeasuring 1.80 acres bearing Paimash No. 722/4 are pending
between the parties, cannot be the basis to overlook the claim of
the respondent No. 11 (A.R. Sridharan) until a Court of
competent jurisdiction declares that the respondent No. 11 (A.R.
Sridharan) had no subsisting right, title or interest in that
property.
17. Reverting to the argument canvassed before us by the
learned counsel for the contesting respondents that the appeal by
the appellant ought not to be entertained, in our opinion, the
same deserves to be rejected. We say so because the appellant is
28
the auction purchaser and sale certificate has also been issued in
its favour by the Bank. As a consequence thereof, the appellant
is entitled to receive the title documents in respect of the
properties referred to in the sale certificate. The fact that the
Bank did not challenge the impugned decision of the High Court,
cannot undermine the direct interest of the appellant in getting
the relief which was claimed by the Bank to fulfil its obligation of
handing over the original documents to the auction purchaser.
Admittedly, the appellant is party to the O.A., as well as, in the
application filed by the Bank for return of documents. The Bank
has supported the stand taken by the appellant. We find no
infirmity in the appellant having approached this Court instead
of the Bank, the applicant before the DRT. Even the appellant
could have itself approached the DRT for this very relief. Taking
any view of the matter, the objection under consideration is of no
avail to the contesting respondents.
18. It was faintly urged by the contesting respondents that the
Bank had filed the application in question for return of original
documents, on 11.11.2016, even before the auction sale in which
the appellant turned out to be the highest bidder was conducted
29
on 28.2.2017, or the sale certificate issued on 29.4.2017. This
argument, in our opinion, is an argument of desperation. The
same overlooks the factual matrix and the background in which
the subject application was moved by the Bank on 11.11.2016.
By that time, the Bank had already commenced the auction sale
process. It is a different matter that the auction process had to be
repeated as no fair offer was forthcoming. In other words, the
subject application was filed by the Bank in anticipation that the
auction would be concluded and by the time the application was
decided, the sale certificate in favour of the highest bidder would
have been issued. There is nothing wrong in Bank moving such
application before the conclusion of the auction process and
issuance of a sale certificate, in anticipation. No provision has
been brought to our notice, which prohibits such a course to be
adopted by the Bank. Accordingly, even this objection of the
respondents is rejected.
19. Both sides have invited our attention to the decisions of this
Court on the proposition whether the DRT is competent to
answer the question regarding validity of the subject mortgage
and also res judicata. We do not wish to dilate on the said
decisions as the factum of validity of mortgage need not detain
30
us, in the facts of the present case. Similarly, the issue of res
judicata will be of no avail in light of the unambiguous stand
taken by and on behalf of the guarantor, acknowledging the
mortgage in question and also offering to pay all the outstanding
dues of the Bank. Further, the O.A. is still pending before the
DRT, in which both the parties would be free to urge all
contentions, as may be permissible in law. The DRT may
consider those contentions appropriately. In the present appeal,
we must confine our consideration as to whether the DRT ought
to have allowed the application filed by the Bank for return of
original documents in view of peculiar indisputable facts of this
case. For the reasons already recorded, we have no hesitation in
reversing the decision of the High Court and hold that it ought
not to have entertained the writ petition filed by the guarantor.
20. Although we are inclined to reverse the impugned decision
of the High Court, however, for the nature of controversy brought
before us, it may be appropriate to modify the operative order of
the DRAT to the effect that the application filed by the Bank
being I.A. No. 995/2017 in O.A. No. 11/2008 is partly allowed by
ordering return of the original documents, except in respect of
the land bearing Paimash No. 722/4 admeasuring 1.80 acres
being subject matter of decree in O.S. No. 186/1976. This
31
arrangement will meet the ends of justice in the facts of the
present case.
21. We make it clear that the parties are free to raise all
contentions available to them on facts and in law before the DRT
in the pending O.A. No. 11/2008, which need to be decided on
their own merits in accordance with law. In other words, the
DRT will be free to pass appropriate directions in respect of the
stated documents including in respect of the title documents
made over to the appellant herein in terms of this order, if
necessary.
22. Accordingly, we partly allow this appeal in the above terms
with no order as to costs. Pending interlocutory applications, if
any, shall also stand disposed of.
…………………………….J.
(A.M. Khanwilkar)
…………………………….J.
(Ajay Rastogi)
New Delhi;
April 24, 2020.