2021 (12) TMI 276 - HC - Indian Laws

Equitable Mortgage - seeking to direct the petitioner Bank to deposit before the court the whole of the auction amount received in the SARFAESI sale proceedings - HELD THAT - To enable the decree holder to participate in the assets of a judgment debtor, the following conditions are to be satisfied by the decree holder; namely, (i) decree holder claiming share in the rateable distribution should have applied for execution of his decree to the appropriate Court, (ii) such application should have been made prior to the receipt of the assets by the Court, (iii) the assets of which a rateable distribution is claimed must be assets held by the Court, (iv) the attaching creditor as well as the decree holder claiming to participate in the assets should be holders of decrees for the payment of money, and (v) such decrees should have been obtained against the same judgment debtor. Therefore, no rateable distribution can be claimed unless all the aforesaid conditions are fulfilled. All the aforesaid conditions have not been satisfied and so the learned Munsiff could not have passed Exts.P7 order on that ground also. Even otherwise, the attachment which has been affected after the mortgage has been created in respect of the property, will have no effect and hence on the said ground alone, the order is liable to be set aside - Petition allowed - decided in favor of appellant.

Summary

Issues:
Violation of SARFAESI Act and Transfer of Property Act in passing orders, legality of Ext.P7 order and Ext.P8 communication, jurisdiction of the court, effect of subsequent attachment on equitable mortgage, compliance with Section 73 of CPC for rateable distribution.

Analysis:

The judgment pertains to a petition filed against orders Ext.P7 and Ext.P8 issued by the Additional Munsiff-III in a case involving the petitioner Bank and a borrower. The Bank had sanctioned an overdraft cash credit facility to the borrower, who defaulted on the loan. Subsequently, the Bank proceeded under the SARFAESI Act for recovery. The borrower's properties were auctioned, but the Bank was unable to recover the entire outstanding amount. The respondent obtained a decree against the borrower and filed for execution, seeking the Bank to deposit the auction amount. The petitioner Bank challenged this, alleging that Ext.P7 and Ext.P8 were passed without jurisdiction and in violation of SARFAESI and Transfer of Property Acts.

The petitioner contended that the orders were illegal and arbitrary, citing provisions of the SARFAESI Act and Transfer of Property Act. The petitioner argued that subsequent attachments do not affect proceedings under the SARFAESI Act, as seen in previous court decisions. The petitioner highlighted that the property in question was sold in auction, and the Bank no longer had possession or title over it. The court noted that Ext.P7 order was passed without considering these crucial aspects, leading to a violation of legal principles.

Additionally, the petitioner challenged the application of Section 73 of the CPC for rateable distribution. The court observed that the mandatory requirements under Section 73 were not fulfilled in this case. Referring to previous judgments, the court emphasized that for rateable distribution, specific conditions must be met, including applying for execution before assets come into court custody. As these conditions were not satisfied, the court held that Ext.P7 order could not be justified on the grounds of rateable distribution.

In conclusion, the court allowed the original petition, setting aside Ext.P7 order. The judgment emphasized the importance of adhering to legal provisions, especially regarding the SARFAESI Act, Transfer of Property Act, and Section 73 of the CPC, in matters of execution and distribution of assets in cases involving financial institutions and borrowers.