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TMI Blog2016 (4) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... vations on the merits of the potential claim of MMTC in a suit for sale ought to be avoided. Limitation in the filing of the suit - Held that:- Here, it would be relevant to notice that having upheld PSB's contention that by reason of Order XXXIV Rule 14 and the decision in M.R. Satwaji Rao (supra) as well as Booz Allen (supra), the corollary is not that a further action is barred on the ground of limitation. The limitation for such a suit for sale, under Order XXXIV Rule 14 would be an issue that would arise in case it is filed by MMTC. Advisedly this court refrains from pronouncing on that eventuality, because the issue does not arise for consideration. Furthermore, such an issue would involve decision on a question of fact, which should not be adjudicated in writ proceedings. The sale ordered by the executing court is declared a nullity. As this court does not have the benefit of the record before the executing court, it does not express itself on the execution proceedings. The matter is remanded back to the Learned Recovery Officer to determine whether there is evidence to show that PSB has some ‘interest in, or was possessed of, the property in question’. Consequent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate findings. Mr. Justice Ranganathan held that Himanshu was liable to pay MMTC ₹ 14,73,973/-; Mr. Justice Khanna concurred with that award. Mr. Tulsi, on the other hand, held that Himanshu was not liable. In the result, by the award dated 21.12.2002, Himanshu was held liable to pay ₹ 14,73,973/- plus interest and costs. 4. Meanwhile, unbeknown to MMTC and independent of Himanshu s agreement with it, the latter had approached PSB for credit facilities, in 1994. PSB granted Packing credit facility to the extent of ₹ 20 lakhs, Foreign Bill Purchase facility to the tune of ₹ 40 lakhs and Bank guarantee to the extent of ₹ 60 lakhs. PSB alleges that the borrower, i.e. Himanshu failed to maintain financial discipline in regard to repayment of dues. These defaults constrained PSB to move the Debt Recovery Tribunal ( DRT ) claiming ₹ 1,39,91,244/- with overdue interest at 25% p.a. with quarterly rests and future interest, as overdue payments, against Himanshu in an application (O.A. 330/1997) dated 23.05.1997. This application was allowed by final order dated 11.12.1998 (hereafter the DRT decree ). 5. Since the arbitral award in favour of MMTC ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dence over the above referred property is hereby rejected. 7. MMTC felt aggrieved by the above order of the Recovery Officer and appealed to DRT, under Section 30 (1) of the Recovery Act, contending that it had prior rights over the disputed property, since the mortgage by deposit of title deeds was prior in point of time to PSB s transactions with Himanshu and the other respondents. It invoked Section 48 of the Transfer of Property Act, 1882 ( TPA ) in support its argument. The DRT accepted the contention of PSB that by virtue of Order 34 Rule 14, CPC, a mortgage suit had to be instituted to enforce a mortgage debt (by sale of the property) and that in its absence the mortgage could not claim overriding rights. In so concluding, the DRT relied on a judgment of the Supreme Court reported as M.R. Satwaji Rao v B. Shama Rao2008 (5) SCC 124 to the effect that ..Rule 14 of Order XXXIV CPC which prohibits the mortgagee to bring the mortgaged property to sell otherwise than by instituting a suit for sale in enforcement of the mortgage. Admittedly, the said suit by the mortgagee was not in terms of Rule 14 of Order XXXIV. Therefore, bringing the mortgaged property for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties and are, therefore, non-arbitrable. The following observations were especially relied on: 28. A decree for sale of a mortgaged property as in the case of a decree for order of winding up, requires the court to protect the interests of persons other than the parties to the suit/petition and empowers the court to entertain and adjudicate upon rights and liabilities of third parties (other than those who are parties to the arbitration agreement). Therefore, a suit for sale, foreclosure or redemption of a mortgaged property, should only be tried by a public forum, and not by an arbitral tribunal. Consequently, it follows that the court where the mortgage suit is pending, should not refer the parties to arbitration. 11. It is also argued on behalf of PSB that the Appellate Tribunal fell into error in holding that a suit for foreclosure could be initiated after a longer period of 30 years. In this context, it was urged that the time for filing a suit to enforce the mortgage claim was within three years of the award and that suit had been rendered time barred. Counsel for the PSB lastly urged that the MMTC could not have successfully argued to avoid the consequences of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Recovery Act is cloaked with the same powers as the Income Tax Recovery Officer. By Section 29 of the Recovery Act, the Second Schedule to the Income Tax Act, 1961 (entitled Procedure for Recovery of Tax ) is made applicable. 16. It is useful to extract the provisions of law applicable to the present dispute. Rule 11 of the Second Schedule to the Income Tax Act, 1961 which is applicable in this regard, is as follows: Investigation by Tax Recovery Officer. 11. (1) Where any claim is preferred to, or any objection is made to the attachment or sale of, any property in execution of a certificate, on the ground that such property is not liable to such attachment or sale, the Tax Recovery Officer shall proceed to investigate the claim or objection : Provided that no such investigation shall be made where the Tax Recovery Officer considers that the claim or objection was designedly or unnecessarily delayed. (2) Where the property to which the claim or objection applies has been advertised for sale, the Tax Recovery Officer ordering the sale may postpone it pending the investigation of the claim or objection, upon such terms as to security or otherwise as the Tax Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money in satisfaction of a claim arising under the mortgage, he shall not be entitled to bring the mortgaged property to sale otherwise than by institution a suit for sale in enforcement of the mortgage. 19. Order 34 Rule 14 of the CPC is clear that the enforcement of a mortgage debt by way of sale of the mortgaged property can only be by filing a separate suit, and not by means of execution proceedings of the earlier decree. By virtue of Section 36 of the Arbitration Act, the arbitral award has the force of a decree. Consequently, the property can only be brought to sale by filing a civil suit, and not in execution proceedings. As M. R. Satwaji Rao v B. Shama Rao 2008 (5) SCC 124 is clear authority to that effect, the order of the learned executing Civil Court dated 18.11.2006 cannot be said to be good in law. 20. The Recovery Officer and the DRT proceeded on the correct understanding that the enforcement of mortgage debt by sale must be in accordance with a procedure prescribed by law, and the sale ordered by the executing civil court must have no effect. Their conclusion however, is, that the mortgage must be ignored altogether. 21. The learned DRAT below us, in rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims to the property in dispute; but, subject to the result of such suit (if any), the order of the Tax Recovery Officer shall be conclusive. ). 25. In this case, though the MMTC has placed on record a copy of the memo through which the title deeds to the suit property were handed over to it, the Award does not deal with any mortgage based claim. Therefore, the award itself is a simple money decree, to the extent it determines liability of the second and third respondents. In that sense, the position is similar to M.R. Satwaji Rao (supra) where it was held that: We have already referred to Rule 14 of Order XXXIV CPC which prohibits the mortgagee to bring the mortgaged property to sell otherwise than by instituting a suit for sale in enforcement of the mortgage. Admittedly, the said suit by the mortgagee was not in terms of Rule 14 of Order XXXIV. Therefore, bringing the mortgaged property for sale by the appellants in execution of the decree passed in O.S. No. 120/51-52 and purchasing the same by the appellants in public auction is clearly barred under Order XXXIV Rule 14 CPC. This Court does not have the benefit of evidence one way or the other to conclude that an e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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