2016 (4) TMI 676 - HC - Indian Laws

Prevailing rights of recovery - whether mortgage inuring in its favour had to prevail over the PSB s claim in execution of a money decree and directing that proceeds from the sale of a property by the Recovery Officer be used first to satisfy MMTC s claim - Held that - This Court does not have the benefit of evidence one way or the other to conclude that an enforceable mortgage claim existed. It is also noteworthy that neither of the authorities below us undertook this line of inquiry. Accordingly the Court deems that remand is the most appropriate course of action to take. This conclusion is based primarily on the fact that a blind application of M.R. Satwaji Rao (2008 (4) TMI 737 - SUPREME COURT) or Booz Allen (2012 (10) TMI 459 - SUPREME COURT) does not result in the invalidation of the Award, which has attained finality, inter parties (as far as MMTC and its borrowers) vis- -vis the issue of liability of the said borrowers and guarantors are concerned. However, because of Order XXXIV Rule 14, the route adopted by MMTC to enforce that award is not correct. At the same time, any observations on the merits of the potential claim of MMTC in a suit for sale ought to be avoided. Limitation in the filing of the suit - Held that - Here, it would be relevant to notice that having upheld PSB s contention that by reason of Order XXXIV Rule 14 and the decision in M.R. Satwaji Rao (supra) as well as Booz Allen (supra), the corollary is not that a further action is barred on the ground of limitation. The limitation for such a suit for sale, under Order XXXIV Rule 14 would be an issue that would arise in case it is filed by MMTC. Advisedly this court refrains from pronouncing on that eventuality, because the issue does not arise for consideration. Furthermore, such an issue would involve decision on a question of fact, which should not be adjudicated in writ proceedings. The sale ordered by the executing court is declared a nullity. As this court does not have the benefit of the record before the executing court, it does not express itself on the execution proceedings. The matter is remanded back to the Learned Recovery Officer to determine whether there is evidence to show that PSB has some interest in, or was possessed of, the property in question . Consequent to his findings, the Recovery Officer shall then proceed in accordance with provisions of law.

Summary

Issues Involved:
1. Priority of mortgage claims between MMTC and PSB.
2. Validity and enforceability of the arbitral award as a mortgage claim.
3. Applicability of Order 34 Rule 14 of CPC and Section 48 of the Transfer of Property Act.
4. Limitation for filing a suit for foreclosure and sale of mortgaged property.

Analysis and Conclusions:

1. Priority of Mortgage Claims:
The primary issue was the priority of mortgage claims between MMTC and PSB over the disputed property. MMTC claimed priority based on a mortgage created by the deposit of title deeds, whereas PSB claimed priority based on its recovery certificate. The Appellate Tribunal held that MMTC had a prior claim by virtue of Section 48 of the Transfer of Property Act, which states that earlier created rights take precedence over later rights.

2. Validity and Enforceability of Arbitral Award:
The arbitral award in favor of MMTC was treated as a decree under the Arbitration and Conciliation Act, 1996. However, the court noted that the award itself did not deal with any mortgage-based claim but was a simple money decree determining the liability of the respondents. Consequently, the enforcement of the award as a mortgage claim was not appropriate without a separate suit for foreclosure and sale.

3. Applicability of Order 34 Rule 14 of CPC and Section 48 of the Transfer of Property Act:
Order 34 Rule 14 of CPC mandates that a mortgagee cannot bring the mortgaged property to sale without instituting a suit for sale in enforcement of the mortgage. The court held that the arbitral award could not be enforced as a mortgage claim through execution proceedings. The Recovery Officer and the DRT correctly concluded that the enforcement of the mortgage debt by sale must be through a separate civil suit. However, the Recovery Officer erred in ignoring the mortgage altogether.

4. Limitation for Filing a Suit for Foreclosure and Sale:
The court refrained from pronouncing on the limitation for filing a suit for foreclosure and sale, noting that it would be an issue to be determined if MMTC decides to file such a suit. The limitation period for such a suit would involve questions of fact, which should not be adjudicated in writ proceedings.

Conclusion:
The court declared the sale ordered by the executing court as a nullity and remanded the matter back to the Recovery Officer to determine whether PSB had any interest in the property. The Recovery Officer was directed to proceed in accordance with the provisions of law based on his findings. MMTC was granted the liberty to initiate any proceeding it deemed fit, and both parties were allowed to urge all rights and contentions in such eventuality.