2013 (10) TMI 996 - SC - Companies Law

Proceedings for Realization of Payment under SARFAESI Act Held that - The right, title, interest over a flat conveyed is a species of property, whether that right had been accrued under the provisions of the Articles of Association of a Company or through the bye-laws of a Cooperative Society - The people in this country, especially in urban cities and towns are now accustomed to flat culture, especially due to paucity of land - Multi-storeyed flats are being constructed and sold by Companies registered under the Companies Act as well as the Cooperative Societies registered under the Registration of Cooperative Societies Act, etc. Flats are being purchased by people by either becoming members of the Cooperative Society or shareholders of the Company and the flat owners have an independent right as well as the collective right over the flat complex - Flat owners right to dispose of its flat is also well recognized, and one can sell, donate, leave by will or let out or hypothecate his right - These rights are even statutorily recognized by many State Legislatures by enacting Apartment Ownership Acts - Such a legislation exists in the State of Maharashtra as well. Neither the Companies Act nor any other statute make any provision prohibiting the transfer of species of interest to third parties or to avail of loan for the flat owners benefit - A legal bar on the saleability or transferability of such a species of interest will create chaos and confusion - The right or interest to occupy any such flat is a species of property and hence has a stamp of transferability and consequently we find no error with the warrant of attachment issued by the DRT on the flat in question - the appellant will certainly have the right of pre-emption, but not at any value lesser than the market value of the suit flat at the time of the sale - Various directions already given by the High Court will stand - The appeal was dismissed and the amount, if any, deposited by the Appellant be refunded to him.

Summary

Issues:
Saleability of a flat under attachment in execution proceedings before Debt Recovery Tribunal.

Analysis:
The case involved the saleability of a flat under attachment in execution proceedings before the Debt Recovery Tribunal (DRT), Mumbai. The Union Bank of India had advanced financial assistance to a party, with others standing as personal guarantors. An associate company mortgaged the flat in question to the bank for repayment. The Appellant sought release of the flat from attachment through legal proceedings, arguing that the shareholder of the company had no right to mortgage the flat without permission. The Division Bench of the Bombay High Court upheld the lower court's decision, finding no illegality in the order. The Appellant appealed to the Supreme Court, challenging the legality of the attachment and sale of the flat.

The Supreme Court examined the nature of property rights over flats in the context of ownership by members of companies or cooperative societies. It recognized the transferability of such rights, allowing owners to sell, let, mortgage, or hypothecate their flats without requiring permission from the builder, society, or company. The Court emphasized the transferability and heritability of the rights over flats, stating that such rights are exclusive to the owner. Referring to legal principles established in previous judgments, the Court emphasized that unless there is a clear legal provision prohibiting transfer, the right to transfer property interests remains valid.

The Court cited precedents to support its findings, highlighting that the right to transfer property interests is inherent in ownership rights and can only be restricted by specific statutes. It clarified that the Articles of Association of a company do not have the force of law to restrict the right of a shareholder to mortgage property. The Court concluded that there was no legal impediment to the attachment and sale of the flat in question, as the right to occupy the flat was deemed a transferable species of property. The appeal was dismissed, with directions for the refund of any deposited amount to the Appellant and no order as to costs.