2018 (3) TMI 275 - HC - Indian Laws

Maintainability of petition - SARFAESI Act - the contentions are raised that it is the case of the petitioners that with a mala fide intention and in collusive manner, the mortgage deed is entered between the Respondent No.1 and Respondent No.2 inter se without any intimation to the members of the Cooperative Society i.e. the petitioners - on one hand, the petitioners are claiming as bonafide purchasers for a value and on the other hand, the respondent no.1bank is claiming rights under the provision of the special statute like SARFAESI Act on the basis of the mortgage - Held that - the balance is required to be struck between two competing claims. Therefore having regard to the provision of the SARFAESI Act, which is enacted by the Legislature with an aim to protect the interest of public financial institution like the bank, it has to be considered with balance with the principle of equality and fairness. If the provision of the SARFAESI Act are pressed into service by the respondent no.1bank, it is also obligatory for the bank to have a strict adherence to necessary procedure and cannot afford to remain indifferent, particularly when, the principle of estopppel and legitimate expectation are staring in the face that the financial institution like the bank claiming exercise of rights under the special statute like the SARFAESI Act are also under the obligation to adhere to the norms and the procedure to protect their own interest. The doctrine of estoppel and legitimate expectation would require public financial institution or the bank to have certain amount of clarity as well as procedural safeguard by evolving necessary regulatory frame work or mechanism that third party rights are not also put to such situation. It is well settled that alternate remedy is not a bar to exercise the discretionary jurisdiction under Article 226 of the Constitution of India. An application does not seem to have been filed by the respondent no.1bank with details and affidavit as provided and referred to proviso to Section 14 of the SARFAESI Act - It has also been provided in Section 13(4) of the SARFAESI Act that when the borrower fails to discharge his liability as provided in subsection (2), the secured creditor like the bank may have a recourse for the recovery of the secured debt as referred to in Section 13(4) of the Act. The mortgage qua land over which the construction has been made and the claim made by the petitioner that they have purchased bonafide could be considered on the basis of the material that could be produced before the Debt Recovery Tribunal with every detail with regard to the escrow account, which the bank was obliged to maintain and the respondent no.2 (builder) was obliged to deposit the consideration and also the Circular of the Reserve Bank of India as stated above, which the bank was obliged to follow - the matter is remanded back to the Debt Recovery Tribunal for examination of material with every detail afresh with reference to the provision of the SARFAESI Act as well as other material on the basis of which, the rights are claimed by the purchasers like petitioners as a bonafide purchasers. Petition allowed by way of remand.

Summary

Issues Involved:
1. Maintainability of the petition under Article 226 of the Constitution of India.
2. Alleged collusion between the bank and the builder.
3. Rights of bona fide purchasers.
4. Compliance with SARFAESI Act provisions.
5. Role of the Reserve Bank of India Circular.
6. Necessity of notice to the purchasers.
7. Examination of disputed questions of fact.
8. Alternative remedy before the Debt Recovery Tribunal (DRT).

Detailed Analysis:

1. Maintainability of the Petition under Article 226:
The petitioners argued that their petitions are maintainable under Article 226 of the Constitution of India, citing violations of fundamental rights and principles of natural justice. They referenced the Supreme Court's judgment in "Whirlpool Corporation Vs. Registrar of Trade Marks," which allows for the exercise of discretionary jurisdiction under Article 226 in cases of fundamental rights violations, natural justice breaches, or when the authority acts without jurisdiction.

2. Alleged Collusion between the Bank and the Builder:
The petitioners contended that the mortgage deed between the bank and the builder was executed without their knowledge and was not registered until 2014, despite being executed in 2011. They alleged that the bank failed to take necessary precautions and acted in collusion with the builder, allowing the builder to siphon off funds meant for the escrow account. The bank's casual approach and failure to register the mortgage deed in a timely manner were highlighted as evidence of negligence or collusion.

3. Rights of Bona Fide Purchasers:
The petitioners claimed to be bona fide purchasers for value without notice of the mortgage. They argued that they obtained title clearance certificates and took loans from other financial institutions based on the clear title. They emphasized that the bank's failure to register the mortgage deed and publish necessary notices deprived them of any knowledge of the mortgage, making them bona fide purchasers.

4. Compliance with SARFAESI Act Provisions:
The bank argued that the petitions were not maintainable under Article 226 due to the availability of an alternative remedy before the Debt Recovery Tribunal (DRT). They contended that the petitioners' claims involved highly disputed questions of fact that could not be adjudicated in a writ petition. The bank emphasized its statutory right to recover dues under the SARFAESI Act and argued that the petitioners' transactions were subject to the mortgage created in favor of the bank.

5. Role of the Reserve Bank of India Circular:
The petitioners highlighted a Circular issued by the Reserve Bank of India on 27.08.2009, which made it mandatory for builders to publish details of mortgages in brochures or newspapers. They argued that the bank failed to ensure compliance with this Circular, further supporting their claim of being bona fide purchasers without notice.

6. Necessity of Notice to the Purchasers:
The petitioners argued that the bank failed to issue notice to the occupants, violating principles of natural justice. They contended that the bank should have given notice to the petitioners, who were in possession of the flats, before proceeding under the SARFAESI Act. The lack of notice deprived them of an opportunity to be heard and protect their interests.

7. Examination of Disputed Questions of Fact:
The court acknowledged that the case involved disputed questions of fact, particularly regarding the bank's negligence, the builder's actions, and the petitioners' status as bona fide purchasers. The court emphasized the need for a detailed examination of these issues, which could be better addressed by the Debt Recovery Tribunal.

8. Alternative Remedy before the Debt Recovery Tribunal (DRT):
The court recognized the availability of an alternative remedy before the Debt Recovery Tribunal (DRT) for the petitioners. It directed the petitioners to make appropriate applications before the DRT, which would issue notices to all parties and decide the matter afresh. The court emphasized that the DRT should consider the material and evidence in detail, including the bank's compliance with the SARFAESI Act and the petitioners' claims as bona fide purchasers.

Conclusion:
The court quashed the impugned notices and orders issued by the bank and the Collector & District Magistrate. It remanded the matter to the Debt Recovery Tribunal for a fresh examination of the issues, directing the DRT to decide the matter within six months. The court also protected the petitioners' possession of the flats until the DRT's decision, emphasizing the need for a balanced approach between the bank's statutory rights and the petitioners' rights as bona fide purchasers.