2017 (6) TMI 186 - SC - Indian Laws

Default by Educational Trust - Maharaji Educational Trust had taken a loan of approximately ₹ 75 crores from Housing & Urban Development Corporation Ltd.( HUDCO ) and mortgaged properties - Held that - Educational Trust is a wilful defaulter and has built the property, colleges, hospitals from the money borrowed from HUDCO. It was the bounden duty of the Educational Trust to pay back the money to HUDCO. Thus no equitable principle comes to their rescue as despite running the institutions for the last 22 years, they have not paid back the amount. Once they want to run their colleges, hospitals etc. built up with the help of money advanced by HUDCO, obviously they must honestly ooze out the advantage which they are deriving from the institutions but it has become a general scenario that the persons who earn money with help of hefty loans, in spite of running institutions which have been set up by the money lent to them, they are not making payment of dues. Consequently, they will have no right to run the institutions in such a dishonest manner. The increase of non-performing assets in banks is one of the offshoots of such murky deals. It is shocking that despite having means, earning profits, they are not interested in making payment. Time has come when they have to be dealt with sternly and with an iron hand so as to make them pay public dues. We expect the Educational Trust to make payment of the amount which has swelled up to approximately to ₹ 480 crores by now and make payment otherwise they will have to face the consequences. Not only that, they have taken the money from HUDCO but from other incumbents i.e. SGS Constructions also but not interested in making payment in spite of running several institutions. It is made clear that in case the Educational Trust wants to run institutions, they are bound to make payment and as they are liable to pay, they should pay in all fairness all sums which they have borrowed sans any ifs and buts. It is what is expected of them. Otherwise courts will have to step in and take action in case dues remain unpaid and bottlenecks are created by one way or the other in realization of dues. It is not only startling but also shocking to note that a giant institution which is imparting education to about 3000 students involving manpower of about 700 personnel is finding it difficult to pay the loaned amount and is coming up with lame excuses to shirk its responsibility. Thus we direct as under (1) That Educational Trust is directed to settle scheme of repayment with HUDCO within one month and to start payment of dues w.e.f. month of June, 2017. (2) On failure of Education Trust as per aforesaid direction or in case of default it would be open to HUDCO to sale approximately 43 acres of the land which was mortgaged with it to realize its dues in the legally permissible manner. (3) In case the proceeds from sale of approximately 43 acres of land are not sufficient to satisfy the dues of HUDCO, it would be open to sale property No.1 to 5 or its part which may be necessary for realization of the outstanding dues. (4) However, 21 acres of property which has been obtained in exchange from Awas Parishad cannot be sold. It is only in the circumstance if Arbitrator disallows the claim of SGS Constructions for purchase of 21 acres of said property can be sold not otherwise. That too if dues of HUDCO remain outstanding after sale of approximately 43 acres of land out of Item No.6 mortgaged initially and property item No.1 to 5 which are under mortgage. Let the Arbitrator also expedite the matter and decide the proceedings as far as possible within two months.

Issues Involved:
1. Legality of the exchange of mortgaged property by the Educational Trust.
2. Validity and enforceability of the agreement to sell between the Educational Trust and SGS Constructions.
3. Rights of HUDCO as a mortgagee.
4. Applicability of the doctrine of accession under Section 70 of the Transfer of Property Act.
5. Status of the property under the SARFAESI Act.
6. Conduct and obligations of the Educational Trust regarding loan repayment.
7. Jurisdictional issues concerning the High Court orders.
8. Directions for the sale of mortgaged properties to recover dues.

Detailed Analysis:

1. Legality of the Exchange of Mortgaged Property:
The Educational Trust exchanged 21 acres of mortgaged property with Avas Parishad, which led to a dispute on whether the exchanged land should be considered mortgaged. The Trust's action was deemed improper as it violated the status quo order by the DRT. The Supreme Court noted that the exchanged property should be treated as an accession under Section 70 of the Transfer of Property Act.

2. Validity and Enforceability of the Agreement to Sell:
The Educational Trust entered into an agreement to sell property item No.6 with SGS Constructions for ?154 crores, out of which ?9.01 crores was paid upfront. The agreement aimed to settle HUDCO's dues. The arbitration tribunal ordered maintaining the status quo on this property, which was still in effect. The Supreme Court upheld the arbitrator's order and noted that the agreement-holder (SGS Constructions) has a right to object to the sale of the property.

3. Rights of HUDCO as a Mortgagee:
HUDCO, as the mortgagee, has the first charge on the mortgaged properties. The Supreme Court affirmed HUDCO's right to sell the mortgaged properties to recover the dues. However, it was clarified that HUDCO could not sell the exchanged 21 acres of land unless the arbitrator disallows SGS Constructions' claim.

4. Applicability of the Doctrine of Accession:
The Supreme Court discussed the doctrine of accession under Section 70 of the Transfer of Property Act, concluding that the 21 acres of land obtained in exchange could not be considered an accession. The exchanged property was not an addition to the existing mortgaged property, and its identity was distinct.

5. Status of the Property under the SARFAESI Act:
The Supreme Court noted that property item No.6, being agricultural land, could not be sold under the SARFAESI Act. The Court directed that only the non-agricultural properties (items 1 to 5) should be sold first to satisfy HUDCO's dues.

6. Conduct and Obligations of the Educational Trust:
The Educational Trust was declared a willful defaulter by HUDCO. The Trust's conduct in delaying payments and misleading authorities was criticized. The Supreme Court emphasized that the Trust must settle its dues promptly, considering its substantial assets and operational institutions.

7. Jurisdictional Issues:
The Supreme Court set aside the order of the Lucknow Bench of the Allahabad High Court due to lack of territorial jurisdiction. The matter was directed to be decided by the DRT in Delhi, where the objections of SGS Constructions were pending.

8. Directions for the Sale of Mortgaged Properties:
The Supreme Court directed the Educational Trust to settle the repayment scheme with HUDCO within one month. If the Trust fails, HUDCO is permitted to sell approximately 43 acres of the initially mortgaged land and, if necessary, properties Nos.1 to 5 to recover the dues. The 21 acres of exchanged property can only be sold if the arbitrator disallows SGS Constructions' claim.

Conclusion:
The Supreme Court's judgment provided a comprehensive resolution to the disputes involving the Educational Trust, HUDCO, and SGS Constructions. The Court balanced the rights of the mortgagee (HUDCO), the agreement-holder (SGS Constructions), and the obligations of the Educational Trust, ensuring that the recovery of public money is prioritized while adhering to legal principles and jurisdictional propriety.

← Previous Next →