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TMI Blog2015 (4) TMI 984X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. In fact in the instant matter the Plaintiff in Paragraph 6 of the plaint accepts the position that the attachment of the Income-Tax Department does not mean that there is a bar for the sale of the said property which is under attachment. In so far as the conduct of the auction is concerned, Rule 8 applies and in terms of clause (f) thereof the authorized officer is required to disclose any other thing which the authorized officer considers it material for a purchaser to know. Hence assuming that there was a non-disclosure by the Defendant of the attachment of the Income¬Tax Department at the time of auctioning the secured assets, the same at the highest may amount to the auction being conducted in violation of Rule 8 of the Rules of 2002, and for the said reason also the instant suit does not fall within the exception carved out by Mardia Chemicals Ltd.'s case (2004 (4) TMI 294 - SUPREME COURT OF INDIA). Rules of 2002 are mandatory in nature and if the requirements of the Rules have not been waived by the borrower, the consequences would have to follow. As indicated above, in the instant case though it has been alleged against the Defendant that the sale was carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruled that his Court is having the jurisdiction to try and entertain the suit in question. 3 The facts giving rise to filing of the above Civil Revision Application, in brief, can be stated thus : The Respondent herein is the original Plaintiff who has filed the suit in question being Regular Civil Suit No.1756 of 2014 seeking a permanent injunction for restraining the Applicant herein i.e. the Defendant Bank from reauctioning the property. The property in contention is CTS No.1194/27 A admeasuring 552 sq.mtrs. situated at Shivajinagar, Pune which was mortgaged to the Defendant Bank as a security against the loan amount of one M/s. Pratam Motors. The Defendant Bank was pleased to sanction a loan of ₹ 2,50,00,000/ with interest @ 18% p.a. and repayable in 48 installments and a loan of ₹ 1,00,00,000/ with interest @ 36% and repayable in 12 installments to the said M/s. Pratham Motors. To secure the due repayment of the amounts advanced to the said M/s. Pratham Motors, the said property was mortgaged to the Defendant Bank by one Rajiv Yeshwant Bhale, who was the Managing Partner of the said M/s. Pratham Motors and two others under a registered Deed of Mortgage the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the Income Tax Department. The Plaintiff therefore immediately asked for a explanation regarding the said attachment levied by the Income Tax Department. It is further the case of the Plaintiff that though there is no bar for sale of the said property which is under attachment, however, the Defendant by hiding the same, declared the auction and also accepted the Plaintiff's bid and accepted the amount of ₹ 2,12,75,000/ from the Plaintiff by suppressing the said material fact from the Plaintiff. It is the case of the Plaintiff that it is for want of the explanation from the Defendant that the Plaintiff withheld the further amount and waited for the necessary explanation from the Defendant. It is further the case of the Plaintiff that a substantial interest is created in its favour in the said property, and despite the same and with the deliberate intention of deceit, the Defendant has re advertised the said property for auction, on account of which the Plaintiff was constrained to file the suit in question. 5 The Applicant herein i.e. the original Defendant filed an Application under Section 9A of the Civil Procedure Code. After stating the antecedent facts lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icated above it is the said order dated 27/11/2014 which is taken exception to by way of the above Civil Revision Application. 7 SUBMISSIONS ON BEHALF OF THE APPLICANT - ORIGINAL DEFENDANT BY THE LEARNED COUNSEL DR.BIRENDERA SARAF. A] That the Trial Court has erred in relying on the judgment rendered in State Bank of India's case (supra) as the facts in the said case stand apart from the facts of the present case as in the said case the mortgage created in favour of the bank by the father was called in question by his sons on the ground that mortgaged property was a joint family property and the father had no exclusive right to mortgage the same and had therefore sought partition of the property. The sons had also alleged that there was a collusion between the Bank officials and their father. It is in the said circumstance that the learned Single Judge held that the issue of partition etc of the property which was put to auction can only be tried by the Civil Court. B] That the remedy under Section 17 of the SARFAESI Act is available to the Plaintiff as the expression any person appearing in Section 17 is held to be having a wide amplitude in view of the judgments of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Plaintiff in the matter of taking measures under Section 13(2) or 13(4) of the SARFAESI Act. In the instant case since a fraud has been alleged by the Plaintiff in the matter of carrying out the auction on account of non disclosure, hence the suit is maintainable. In support of the said contention reliance is placed on the judgments of the Apex Court in Mardia Chemicals Ltd.'s case (supra), and in the case of Nahar Industrial Enterprises Limited v/s. Hong Kong Shanghai Banking Corporation (2009) 8 SCC 646 and the judgment of a learned Single Judge of this Court in the case of State Bank of India's case (supra). iii] That the Rules in question are mandatory and any infringement thereof would amount to violation of the rights of the Plaintiff, and would therefore entitle the Plaintiff to file a suit and seek appropriate reliefs in the said suit. In support of the said contention, the learned counsel for the Respondent/Plaintiff has placed reliance on the following judgments of the Apex Court : (A) Mathew Varghese's v/s. M. Amritha Kumar and ors. (2014) 5 SCC 610 (B) J. Rajiv Subramaniyan and another v/s. Pandiyas and ors (2014) 5 SCC 651 (C) Vasu P S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deliberate intention of the deceit, the Defendant has re advertised the auction of the said property to be held on 29th October, 2014; and, therefore, the Plaintiff has been constrained to file the present suit against the defendant. (12) Plaintiff submits that the action of the defendant of re advertising the auction of the said property is totally ultra vires, unlawful, illegal and further amounts to criminal breach of trust, and, therefore, this suit. (Emphasis supplied) 11 Since the Defendant has raised a preliminary issue regarding maintainability of the suit on the touchstone of Section 34 of the SARFAESI Act against a measure taken under Section 13, and since it is also the contention of the Defendant that the Plaintiff could take recourse to Section 17 of the said Act against the auction of re advertising of the property in question. It would be necessary to refer to Sections 13, 17 and 34 of the SARFAESI Act which for the sake of ready reference are reproduced herein under : 13. Enforcement of security interest (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5 A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im under or pursuant to sub section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than threefourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529 A of that Act: Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrower), aggrieved by any of the measures referred to in sub section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application alongwith such fee, as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which such measure had been taken: Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower. Explanation : For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub section. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the rules made thereunder. 34. Civil Court not to have jurisdiction No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). It would also be necessary to refer to Rule 8 of the Security Interest (Enforcement) Rules 2002 which also has a bearing on the instant matter. The said Rule 8 clause (f) is therefore reproduced herein under for the sake of ready reference : 8. Sale of immovable secured assets (1) Where the secured asset is an immovable property, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold; (c) reserve price, below which the property may not be sold; (d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) depositing earnest money as may be stipulated by the secured creditor; (f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property. (7) Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorised officer deems it fit, put on the web site of the secured creditor on the Internet. (8) Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing. A reading of section 13 of the SARFAESI Act makes it clear that any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal. In the event the borrower fails to discharge his liability in full within the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved as follows in 22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are two fold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought : Adams v. Scott (1859) 7 WR (Eng) 213 (249). I need not point out that this restraint on the exercise of the power of sale will be exercised by Courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Rashbehary Ghose Law of Mortgages, Vol. II, Fourth Edn., page 784) Hence in so far as invoking the jurisdiction of the Civil Court is concerned, a very limited exception is carved out by the Apex Court w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act merely by a stray reference to an allegation of fraud or, as in the present case, by an averment in paragraph 15 of the plaint of a systematic fraud . The entirety of the plaint has to be construed. Essentially, in the present case, the averments in the plaint are that: (i) The HUF was a co owner/tenant in common of the residential flat; (ii) The Bank has taken recourse to proceedings for recovery to which the HUF was not a party; (iii) The Plaintiffs had, in the course of the recovery proceedings, raised an objection before the Recovery Officer to the tenability of the action taken by the Bank; (iv) The Bank had taken recourse to its remedy under the Securitization Act without awaiting the result of the objection raised by the Plaintiffs; (v) The action under Section 13(2) was initiated in disregard to the provisions of the Securitization Act; (vi) The mortgage executed by the Second, Third and Fourth Defendants was defective because the original Share Certificates were not with the Bank; (vii) The First Defendant had no security interest and no secured assets and, therefore, was not entitled to invoke the provisions of Sub section (4) of Section 13 agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have shown that the transaction is fraudulent or claim of secured creditor is so absurd so as to attract the jurisdiction of the Civil Court. 29. By clever and astute drafting, the plaintiff might create an illusion of cause of action by trying to bring civil suit within the parameters laid down by the Supreme Court in Mardia Chemicals case, (2004) 4 SCC 311. Pointing that Court has duty to see if such allegations of fraud are thrown just for the purpose of maintaining a suit, in Punjab National Bank v. J. Samsath Beevi, 2010 (3) CTC 310 : LNIND 2010 Mad 1331 : (2010) 3 MLJ 439, Justice V. Ramasubramanian held as under: 8. But at the same time, the Court has a duty to see, if such allegations of fraud are thrown, just for the purpose of maintaining a suit and ousting the jurisdiction of the Tribunal and to keep the Banks and Financial Institutions at bay. If by clever drafting, the plaintiff creates an illusion of a cause of action, the Court is duty bound to nip it in the bud. To find out if it is just a case of clever drafting, the Court has to read the plaint, not formally, but in a meaningful manner. So is the dictum of the Apex Court in T.Arivandandam vs. T.V.Satyap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... z., (i) out of frustration, the Banks agree for one time settlements, or (ii) third party rights get created by taking advantage of the situation. Therefore, the Courts have a greater responsibility to scan the pleadings and see if the allegations of fraud and collusion made in the Plaint are actually a product of fraud and collusion between the borrowers and those making such claims. We fully endorse the above views of the learned single Judge. The Division Bench of Madras High Court has therefore held that the Court which is dealing with the suit questioning the measure taken under Section 13 is required to consider whether by clever drafting an illusion of cause of action is created and the suit is sought to be brought within the ambit of the exception carved out by the Apex Court in Mardia Chemicals Ltd.'s case (supra). 14 In the instant case, as indicated above, the relevant averments in the plaint are in Paragraphs 6 11 and 12. The allegations in the said paragraphs have been made on the basis that the Defendant in the auction notice and in terms of the conditions of the auction has not disclosed or suppressed the factum of there being an attachment of the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) : 42. In Ram Kishun (supra), paragraphs 13, 14 and 28 are relevant for our purpose, which are as under: 13. Undoubtedly, public money should be recovered and recovery should be made expeditiously. But it does not mean that the financial institutions which are concerned only with the recovery of their loans, may be permitted to behave like property dealers and be permitted further to dispose of the secured assets in any unreasonable or arbitrary manner in flagrant violation of the statutory provisions. 14. A right to hold property is a constitutional right as well as a human right. A person cannot be deprived of his property except in accordance with the provisions of a statute. (Vide Lachhman Dass v. Jagat Ram and State of M.P. v. Narmada Bachao Andolan ) Thus, the condition precedent for taking away someone s property or disposing of the secured assets, is that the authority must ensure compliance with the statutory provisions. 28. In view of the above, the law can be 44ummarized to the effect that the recovery of the public dues must be made strictly in accordance with the procedure prescribed by law. The liability of a surety is coextensive with that of the prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion therefore that arises is, whether the Debts Recovery Tribunal can adjudicate upon the matter under Section 17 of the SARFAESI Act. The said provision, especially sub section (2) thereof confers the jurisdiction on the Debts Recover Tribunal to consider, whether any of the measures referred to in sub section (4) of Section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of the said Act and Rules made thereunder. The Debts Recovery Tribunal is therefore vested with the jurisdiction to adjudicate whether the measures taken are in accordance with the Act and Rules. Hence apart from the fact that in the light of the averments made in the plaint of the instant suit, they cannot be said to fall in the exception carved out in Mardia Chemicals Ltd.'s case (supra). It would also have to be held that in the instant case the suit is not maintainable in view of the fact that in the instant case there is no issue which cannot be adjudicated upon by the Debts Recovery Tribunal. 17 Having come to the conclusion that the grievance of the Plaintiff can be addressed under Section 17 of the SARFAESI Act. It would be relevant to refer to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been accepted was informed that his bid has been treated as cancelled and 25% of the amount deposited was forfeited. Against the said action, the bidder had invoked the writ jurisdiction of the Delhi High Court under Article 226 of the Constitution. The learned Single Judge of the Delhi High Court held that the expression `any person' appearing in Section 17 of the Act, 2002 is of very wide amplitude and would also cover the Petitioner therein. The learned Single Judge of the Delhi High Court relied upon the judgment of the Apex Court in Jagdish Singh v/s. Heeralal and others (2014) 1 Comp LJ 307 (SC) wherein the Apex Court has held that irrespective of the question whether the civil suit is maintainable or not, under the Securitisation Act itself, a remedy is provided to such persons so that they can invoke the provisions of section 17 of the Securitisation Act, in case the bank (secured creditor) adopts any measure including the sale of the secured assets, on which the Plaintiffs claim interest. Relying upon the said judgment, the learned Single Judge of the Delhi High Court held that the Plaintiff would have to file an appeal/application under section 17 of the SARFAESI Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the creation of mortgage was not for the benefit of the family, but was for the purposes of satisfying the vices of the Defendant No.1. It was further alleged that the creation of mortgage was in collusion with the Defendant No.3 Bank and the third parties, which are interested in purchasing the property at throw away price and the same was fraudulent. The Plaintiffs' claim was based on the said averments and had sought the relief for declaration that the notice dated 8/2/2010 issued by the Defendant No.3 Bank was fraudulent and void ab initio and hence a permanent injunction was claimed against the Defendant No.3 Bank from proceeding to deal with the property in accordance with the provisions of the said Act. A preliminary issue was raised objecting to the maintainability of the said suit on the touchstone of Section 34 of the said Act as also in view of the fact that the remedy under Section 17 was available to the Plaintiffs. On behalf of the Plaintiffs, the judgment in Mardia Chemicals Ltd.'s case (supra) was relied upon to contend that where the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and entertainable, which may not req ..... X X X X Extracts X X X X X X X X Extracts X X X X
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