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TMI Blog2006 (9) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... owers/debtors of the financial institutions or the purchasers from the debtors of the financial institution, to whom the financial institutions have marked a copy of the demand notice, while sending the demand notices to the original creditors; or by the guarantors. 4. While W. P. No. 34022 of 2005, 35859 of 2005, 40817 of 2005 have been filed by the guarantors, W. P. Nos. 12407 to 12410 of 2006 and 12841 of 2006, have been filed by the purchasers of the secured property from the debtors of the financial institution and W. P. Nos. 16513 to 16515 of 2006, have been filed by the debtors themselves. 5. In W. P. No. 34022 of 2005, the petitioner submits that the impugned notice has been issued to him, under the guise that he offered his residence, as security, for the loan obtained by Kaashyap Radiant Systems Ltd. This petitioner submits that he never offered his immovable property as security for the loan sanctioned by the respondent/LIC Housing Finance Ltd., to the said Kaashyap Radiant System Ltd. When the said company approached the respondent with a request to sanction a corporate loan of Rs. 200 lakhs, this petitioner offered his immovable property as security for the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was taken by the second respondent/Ind. Bank Housing Ltd.; that for more than ten years now, they have been exercising all rights of ownership over the said flats. The second respondent herein filed C.S. No. 209 against the said Mohammed Yaseen and these petitioners, for recovery of a sum of Rs. 14,96,158 and a perusal of the schedule to the said suit, would reveal that the alleged mortgage was only in respect of land and only on receipt of summons, they came to know that there was an alleged mortgage, by deposit of title deeds, which had been apparently done by Mohammed Yaseen. These petitioners have taken a stand that they are bona fide purchasers without notice of the alleged mortgage. Now, pending the suit, the impugned notice under section 13(2) of the SARFAESI Act has been issued to the borrower and therefore, only the borrower is entitled to give an explanation to the same. But the notice has been marked to these petitioners, for information, and therefore, the impugned notice cannot be treated as a show-cause notice to these petitioners, though their rights are being infringed upon and since they are in possession of the property, the impugned notices threaten to take pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the alleged dues, without withdrawing the said civil suits, the banks could not proceed under the provisions of the SARFAESI Act; that as per section 19(1) of the Act 51 of 1993, before taking any action under the SARFAESI Act, the banks should apply for permission to the hon ble High Court, wherein the civil suits are pending, to withdraw the suits, otherwise, it would not only amount to parallel proceedings but also abuse of due process of law. 12. By filing the above writ petitions, the petitioners got interim stay of the impugned orders, which are sought to be vacated by filing vacate stay petitions. 13. The LIC Housing Finance Ltd., has filed counter affidavits, in W. P. Nos. 34022, 35859 and 40817 of 2005, denying the allegations of the writ petitioners and further submitting that this respondent is a housing finance company; that by a notification dated 10-11-2003, issued by the Department of Economic Affairs, Ministry of Finance, this respondent is notified as a financial institution within the meaning of the SARFAESI Act and therefore, they are entitled to invoke the provisions of the said Act; that the loans availed of by the writ petitioners remain unpaid fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of Property Act, for non-disclosure of mortgage, amounting to fraud, and have also not taken steps to set aside the sale and claim damages and therefore, these writ petitions are liable to be dismissed. The very fact, that these petitioners have not chosen to implead Mr. Mohammed Yaseen, proprietor of Coronet Constructions, itself would demonstrate that the version of these petitioners is lacking bona fides. The mere perusal of the sale deeds would show that the sale deeds were executed by the power of attorney of the owners of the land, who was also the promoter of the property. Clause 7 of the power of attorney executed in favour of Mr. Mohammed Yaseen, proprietor, Coronet Constructions, by the land owners clearly reveal, that he was given powers to mortgage the property. That being so, it is highly improbable that the petitioners have not verified as to whether a mortgage has been created on the land, which was being purchased by them. Even otherwise, the sale of the property to the petitioners, is subsequent to the creation of equitable mortgage and therefore, the mortgage is subsisting and valid and the contention, that the petitioners had purchased the property, withou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., or the LIC Housing Finance Ltd., are not the notified financial institutions and therefore, as such, they are incompetent to invoke the jurisdiction of the SARFAESI Act; ( ii )that for the recovery of the amounts alleged as due, either the Ind. Bank or the LIC Housing Finance Ltd., had filed civil suits before this court and that being the position, without withdrawing those suits, issuing notice under section 13(2) of the SARFAESI Act is not maintainable since it would amount to double jeopardy; and ( iii )that before invoking section 13(2) of the SARFAESI Act, they should have opted their election, to choose the provisions of the SARFAESI Act, if applicable, or to maintain the civil suits, the position being so, according to them, they cannot proceed for the same relief under two different fora, for which they are estopped. 20. All the writ petitions, are opposed by the contesting respondents, inter alia, on the grounds, viz., : ( i )that the financial institutions, viz., Ind. Bank and LIC are notified under the SARFAESI Act, and therefore, they are competent to invoke the jurisdiction of the SARFAESI Act; ( ii )that the writs are premature, as well as no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners, though had urged originally that the financial institutions, viz., the Ind. Bank Housing Ltd., and the LIC Housing Ltd., which have invoked the provisions of the SARFAESI Act are not notified, then, fairly conceded, on seeing the materials that they are the financial institutions, notified for the purpose of the SARFAESI Act and therefore, it is to be seen, whether they are competent to issue notices in view of the admitted position, civil suits have been already filed and pending. 24. It is an admitted position, though the Ind. Bank Housing and LIC Housing are notified financial institutions under the SARFAESI Act, the provisions of Act 51 of 1993 are not made applicable to them. Therefore, on the basis of section 19(1) of Act 51 of 1993, question of withdrawal of the cases pending before the civil court as mandatory may not be absolutely necessary, since the proviso ( i ) to section 19(1) of the Act 51 of 1993 reads : "Provided that the bank or financial institution may, with the permission of the Debts Recovery Tribunal, on an application made by it, withdraw the application, whether made before or after the Enforcement of Security Interest and Recovery of De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n chooses to take action under the SARFAESI Act, they should seek the permission of the Debts Recovery Tribunal concerned, to withdraw the original application pending therein. This kind of situation is not available, admittedly, in this case, since the financial institutions have not filed any original applications before the Debts Recovery Tribunal, which they cannot do also, because of the admitted position, that the financial institutions are not notified under Act 51 of 1993 also. 28. It is the submission of learned counsel appearing for the financial institutions that the remedy sought by them before the civil court is essentially different from the remedy now claimed under the SARFAESI Act and therefore, the doctrine of election is not applicable and in aid my attention was drawn to a decision in Andhra Pradesh State Financial Corpn. v. Gar Re-rolline Mills [1994] 80 Comp. Cas. 140, wherein the Apex Court has ruled : "The doctrine of election clearly suggests that when two remedies are available for the same relief, the party to whom the said remedies are available, has the option to elect either of them but that doctrine would not apply to cases where the ambit an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., without prejudice to the provisions of section 29 of this Act . While the Corporation cannot simultaneously pursue the two remedies, it is under no disability to take recourse to the rights and remedy available to it under section 29 of the Act even after an order under section 31 has been obtained but without executing it and withdrawing from those proceedings at any stage. The use of the expression without prejudice to the provisions of section 29 of the Act in section 31 cannot be read to mean that the Corporation after obtaining a final order under section 31 of the Act from a court of competent jurisdiction, is denuded of its rights under section 29 of the Act. To hold so would render the above-quoted expression as redundant in section 31 of the Act and the courts do not lean in favour of rendering words used by the Legislature in the statutory provisions redundant. The Corporation which has the right to make the choice may make the choice initially whether to proceed under section 29 of the Act or section 31 of the Act, but its rights under section 29 of the Act are not extinguished, if it decides to take recourse to the provisions of section 31 of the Act. It can aban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoking section 13 was the subject-matter. Considering the provisions of section 101 of the Maharashtra Co-operative Societies Act, as well as section 37 of the SARFAESI Act and the remedy provided under section 13, as well as seeking aid from Mardia Chemicals Ltd. v. Union of India [2004] 120 Comp. Cas. 373 1 (SC), the Division Bench of the Bombay High Court has ruled, negativing the contention of the borrower, as follows : "The contention raised by the petitioner expressing that it ought to be held that the bank does not have the remedy available under section 13 of the Securitisation Act since recourse will render the scheme of the recovery of dues under section 101 of the Act redundant, is a submission which is based on total illusion. No question of such nature is now left open for any further adjudication in view of Mardia Chemicals Ltd. s case [2004] 120 Comp. Cas. 373; AIR 2004 SC 2371; [2004] 4 SCC 311." (p. 36) 34. This principle is squarely applicable to the case on hand also. 35. Per contra, learned counsel appearing for some of the writ petitioners, inviting my attention to a Division Bench decision of the Punjab and Haryana High Court in Kalyani S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2006, dated 3-3-2006, which reads : "There will be stay of the operation of the impugned order insofar as it relates to the applications pending before the introduction of the proviso in section 19." 37. By going through the judgments of both the Division Benches, viz., Kerala and Punjab and Haryana High Courts, in my opinion, the reasons assigned by the Kerala High Court appears to be well-considered, since section 37 of the SARFAESI Act was elaborately considered therein, which is not the case in Punjab and Haryana Division Bench case, except a passing reference. Therefore, following the same, I conclude, it is not necessary or mandatory for the financial institutions to invoke section 13, only after withdrawing the civil suits, pending before the civil court. 38. The submission of learned counsel for the contesting respondents, that the writ petitions, as such, are not maintainable, has valid force, for its acceptance since it has the support of settled position of law. A notice issued under section 13(2) of the SARFAESI Act, if it is not otherwise shown, basically without jurisdiction, not liable to be challenged invoking article 226 of the Constitution, which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the secured asset, whether the third party is an aggrieved person or not, or the property is not liable for the debt, then only, alleging that the appellate authority constituted under the SARFAESI Act has no jurisdiction to decide those points, the jurisdiction of this Court could be invoked, to set right the alleged illegality, if any, under article 226 of the Constitution of India. 40. Under section 17(2) of the SARFAESI Act, the Debts Recovery Tribunal is competent to decide, whether any of the measures referred to in section 13 of the SARFAESI Act, taken by the secured creditor, for enforcement of security are in accordance with the provisions of the Act and the rules made therein. Therefore, I am of the considered opinion, whether the property purchased by the third parties could be proceeded as secured asset also could be decided by the Tribunal, since that falls within section 13(4) of the SARFAESI Act because of the fact, section 13(4)(a) reads : "(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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