2006 (7) TMI 693 - HC - Companies Law

Summary

Issues Involved:
1. Validity of mortgage of Flat No. 902.
2. Jurisdiction and authority of the Debts Recovery Tribunal (DRT) under Section 19(25) of the RDB Act.
3. Availability and effectiveness of remedies under Sections 20, 30, and 29 of the RDB Act.
4. Applicability of the Code of Civil Procedure (CPC) provisions to DRT proceedings.
5. Rights of third parties not party to the original proceedings before the DRT.

Detailed Analysis:

1. Validity of Mortgage of Flat No. 902:
The petitioners challenged the attachment of Flat No. 902, asserting their legal title supported by documentary evidence such as share certificates, receipts, and electric bills. They contended that the flat was not validly mortgaged to the respondent bank, contrary to the DRT's declaration. The petitioners provided a detailed history of agreements and possession letters to substantiate their claim of ownership.

2. Jurisdiction and Authority of the DRT under Section 19(25) of the RDB Act:
The petitioners filed Misc. Application No. 52 of 2005 under Section 19(25) of the RDB Act for rectification/modification/correction of the DRT's order dated September 15, 2004. The court emphasized that Section 19(25) allows the DRT to make orders and give directions necessary to prevent abuse of its process or secure the ends of justice. This provision was interpreted to include the authority to address claims of third parties whose property rights are affected by DRT orders.

3. Availability and Effectiveness of Remedies under Sections 20, 30, and 29 of the RDB Act:
The court analyzed the remedies available under the RDB Act:
- Section 20: Allows "any person aggrieved" by a DRT order to appeal. However, the court noted this remedy might not be effective for third parties since the appellate tribunal would be limited to the existing record, which might not include the third party's claims or evidence.
- Section 30: Provides for challenging Recovery Officer's orders. However, the Recovery Officer cannot question the correctness of the DRT's certificate, making this remedy ineffective for third parties disputing the validity of the mortgage.
- Section 29: Applies provisions of the Income-tax Act for execution of recovery certificates. The court noted that this section does not provide an effective remedy for third parties challenging the validity of the mortgage itself.

4. Applicability of CPC Provisions to DRT Proceedings:
The court referred to Order 21, Rule 58 of the CPC, which allows objections to property attachment by third parties. However, Section 22(1) of the RDB Act states that the DRT is not bound by CPC procedures but guided by principles of natural justice. The court highlighted that the DRT has powers similar to those under the CPC but is not strictly bound by them, emphasizing the DRT's flexibility to address third-party claims under Section 19(25).

5. Rights of Third Parties Not Party to the Original Proceedings Before the DRT:
The court recognized the predicament of third parties whose property is declared mortgaged without their participation in the proceedings. It concluded that such parties could invoke Section 19(25) of the RDB Act to seek redress from the DRT, which must consider their claims to prevent abuse of its process and secure justice.

Conclusion and Directions:
The court ruled that the petitioners' Misc. Application No. 52 of 2005 is maintainable and directed the DRT to dispose of it according to the law. The court restrained the respondent bank from taking further steps based on the May 30, 2006 order pending the application's final disposal. Additionally, the court prohibited the petitioners from creating third-party rights in Flat No. 902 during this period. If the DRT's decision on the application is adverse to the petitioners, the order will not be acted upon for four weeks to allow for further legal recourse.

Final Order:
The rule was made absolute without any order as to costs.