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TMI Blog2014 (8) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... s properties (secured assets) for sale. Such properties, inter alia, included a 3-storied residential cum commercial building known as Medilife, located in Ward No. 6 of Siliguri Municipal Corporation, P.O. and P.S. Siliguri, District Darjeeling together with such area of vacant land as delineated in the notice. The petitioners were the successful bidders and in due course of time the requisite amount having been made over to the third respondent, sale certificate in the statutory form (Appendix V) read with Rule 9(6) of the 2002 Rules was issued. The material portion of the sale certificate reads as follows: "Whereas The undersigned being the authorized Officer of the Central Bank of India, Asset Recovery Branch, Kolkata under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest' 2002 and in the exercise of the powers conferred under Section 13 read with rule 12 of the Security Interest (Enforcement) Rules, 2002 sold on behalf of the Central Bank of India, Siliguri Branch in favour of Sri Mahendra Mahato & Ms. Sarita Agarwal the immovable property shown in the schedule below secured in favour of the Central Bank of India, Siliguri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -is basis and that the sale certificate had been issued in their favour. Referring to the statutory form in which the sale certificate was issued, being Appendix V, it was contended by him that the secured creditor while issuing the same declared that the secured asset was free from all encumbrances known to them and so long possession is not made over to the petitioners, the liability of the respondents does not cease. Relying on several decisions of the Apex Court and the various High Courts of the country, Mr. Roy contended that it is the duty of the respondents to initiate steps for taking physical possession of the secured asset and to put the petitioners in peaceful and vacant possession thereof. The following decisions were cited by Mr. Roy in support of his submissions: (i) AIR 2007 SC 712: M/s. Transcore v. Union of India & ors.; (ii) AIR 2007 Kerala 114: Business India Builders & Developers Ltd. v. Union Bank of India & ors.; (iii) AIR 2008 Kerala 179: Kottakkal Co-operative Urban Bank v. T. Balakrishnan & anr.; (iv) Bharatbhai Ramniklal v. Collector and District Magistrate, an unreported decision of the Gujarat High Court dated October 29, 2009; (v) AIR 2010 Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial institutions under the SARFAESI Act were challenged. The questions which came up for consideration were formulated in paragraph 4. Only question 5 and the answer thereto have some relevance for the present purpose. Question 5 is quoted below: "5. Whether recourse to take possession of the secured assets of the borrower in terms of Section 13(4) of the Act is the power to take actual physical possession of immovable property?" Such question was answered in the following words: "43. in Section 14 of the Act or after the sale is confirmed in terms of Rule 9 Therefore, we have notice under Section 13(4) of the Act so as to defeat the adjudication of his no hesitation in holding that the borrower or any other person in possession of the immovable property cannot be physically dispossessed at the time of issuing representation or objection by the Debts Recovery Tribunal. The physical possession can be taken by the bank or the financial institution by following the procedure laid down particularly subrule (9) of Rule 9 of Security Interest (Enforcement) Rules, 2002." 11. The Apex Court decision in M/s. Transcore (supra) answered 3 (three) questions that arose for decision. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he authorised officer shall issue a sale certificate in favour of the purchaser in the form given in Appendix V to the 2002 Rules. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. (Emphasis supplied). Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred, the secured creditor may, for the purpose of taking possession, request in writing to the District Magistrate to take possession thereof. Section 17(1) of NPA Act refers to right of appeal. Section 17(3) states that if the DRT as an appellate authority after examining the facts and circumstances of the case comes to the conclusion that any of the measures under Section 13(4) taken by the secured creditor are not in accordance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid, and consequently, restore possession to the borrower and can also restore management of the business of the borrower. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by Rule 8 read with Rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place in the scheme of the NPA Act read with the 2002 Rules." 12. The Hon'ble Division Bench of the Kerala High Court in Business India Builders & Developers Ltd. (supra) was considering an intra-court writ appeal. The writ petition had been preferred by the appellant seeking a declaration that the word "encumbrances" enumerated in Rule 9(9) of the 2002 Rules does not include tenancy arrangements with respect to the secured assets sold as per Rule 8 and also for a declaration that the provisions of the 2002 Rules do not authorise the eviction of tenants in occupation of secured assets and also for other consequential reliefs. Also under challenge was a notice dated October 31, 2006, received from the bank, directing the petitioner to hand over vacant possession of the premises to the bank failing which the petitioner was informed that coercive steps would be taken to evict him from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upon hearing the parties, the learned judge held as follows: "7. While there is a vesting of right, exclusively with the transferee under a sale in terms of Section 13(6), such vesting of sale gives the transferee the right to demand the secured creditor for actual physical possession. Such vesting, by operation of Section 13(6), is in relation to the secured asset as if the transfer had been made by the owner of such secured asset. Such deemed vesting, by operation of law, gives the entitlement to the transferee to insist that the secured creditor puts the transferee in de facto possession by dispossessing the secured debtor who continues in de facto possession only by the choice of the secured creditor to take only de jure possession, leaving the secured debtor with actual possession. Therefore, the secured creditor, who has taken over de jure possession continues to be a secured creditor, duty bound to give the transferee de facto possession and such liability of the secured creditor gives sufficient standing to sustain the application for dispossession of the secured debtor, of de facto possession over the security interest, by recourse to Section 14 of the Act. On this count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Act was brought for recovering the amount in speedy manner in taking possession of the properties and in realising the money. The third party, who comes forward to purchase the secured asset, must have a confidence that he would get the title to the property at the earliest. If the transferring of the property by way of title is going to be delayed endlessly, then the object of the Act which is meant for speedy recovery, would be defeated in whole. Therefore, as contended by the learned counsel for the banks, that if interpretation is given by taking the words in isolation from section 14, it would defeat the whole object. Only on a combined reading of section 14 along with the other sections, it would give a clear picture of the object.*** 20. A reading of the dictum laid down in the above judgments would give a clear picture that the mechanical way of interpreting the provisions made in the statute will lead to defeat the object of the Act. Here, when the object is to speedy recovery of debt, by way of taking possession on transferring the property in favour of third party and issued a sale certificate, it cannot be contended that once the sale certificate is issued, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the stipulation in the auction notice that the secured asset is being put up for sale on as-is-where-is basis, which the petitioners missed, is indeed decisive and is the distinctive feature that dissuades me to apply the ratio of a couple of decisions cited by Mr. Roy. 21. The Supreme Court in numerous decisions has had the occasion to consider issues arising out of sales made on as-is-where-is basis. I shall now take a look at a few of them. 22. In the decision reported in (2009) 4 SCC 486: AI Champdany Industries Ltd. v. Official Liquidator, the purchaser of a property put for sale on as-is-where-is basis was called upon by a local authority to pay unpaid taxes by the erstwhile owner. While reversing the decisions of this Court and allowing the appeal of the purchaser, meaning of the word 'encumbrance' was traced and ultimately it was held as follows: "12. The terms and conditions of the sale must be read as a whole. It must be given a purposive meaning. The word 'encumbrance' in relation to the word 'immovable property' carries a distinct meaning. It ordinarily cannot be assigned a general and/or dictionary meaning. 13. We may, however, notice s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;as-is-where-is' basis, they are estopped from contending that the basic amenities like parking, lights, roads, water, sewerage, etc. were not provided by PUDA when the plots were allotted." 24. Applying the said meaning to the issue under consideration and allowing the appeal before it by reversing the decision of the High Court, the Apex Court in the decision reported in (2013) 5 SCC 470: Rajasthan State Industrial Development & Investment Corpn. v. Diamond & Gem Development Corpn. Ltd., observed as follows: "30. The terms and conditions incorporated in the lease deed reveal that the allotment was made on 'as-is-where-is' basis. The same was accepted by the respondent Company without any protest whatsoever. The lease deed further enabled the appellant to collect charges, in case it decided to provide the approach road. Otherwise, it would be the responsibility of the respondent Company to use its own means to develop such road, and there was absolutely no obligation placed upon the appellant to provide to the respondent the access road. As the respondent Company was responsible for the creation of its own infrastructure, it has no legal right to maintain the writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, he cannot expect a better deal that he was not assured of on the day he offered his bid. It might well be so that had the secured creditor represented in the auction notice that sale on as-is-where-is basis would be followed by making over vacant physical possession of the property put up for auction (secured asset), more and more people would have been interested and that would have ensured wider participation. Without there being any such representation in the notice, the petitioners cannot now turn around and claim a mandamus on the respondents to take steps for making over vacant and peaceful physical possession of the secured asset to them while alleging that their legal right of being delivered such possession has been infringed. If an encumbrance exists, say the secured creditor has only been in symbolic possession with the borrowers in actual possession of the secured asset, and the prospective purchaser bids with full knowledge of such encumbrance, it is not open to him after the sale certificate is issued to contend that it carries with it the duty of the secured creditor to put him in actual possession of the secured asset. There is no reason as to why the principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red futile. 30. Insofar as the statutory form is concerned, it records handing "over the delivery and possession of the" secured asset to the purchasers, i.e. the petitioners. The secured asset having been put up for sale on as-is-where-is basis, and the sale being "made free from all encumbrances" would imply that there is no burden or charge on the property except that which could be seen or felt on inspection of the secured asset. 31. None of the cited decisions dealt with a secured asset put up for sale on as-iswhere- is basis. The law laid down in the decisions in Kottakkal Co-operative Urban Bank (supra) and Kathikkal Tea Plantations (supra) do not fit in the facts of the present case and, thus, the decisions are factually distinguishable and, therefore, do not aid the petitioners. I, accordingly, hold that there has been no occasion for a legitimate grievance of the petitioners to be redressed. 32. However, in an appropriate case it would require consideration in view of the decision of the Apex Court reported in (2013) 9 SCC 620: Standard Chartered Bank v. V. Noble Kumar, as to whether a secured creditor would be empowered to put up an immovable property (secured asset) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it in exercise of power conferred by Section 13(4) read with Section 14 of the SARFAESI Act. 34. Two thoughts that come to my mind on reading paragraph 36 of V. Noble Kumar (supra) may be shared. It seems from the above extract that (i) issuance of notice under Rule 8(1) of the 2002 Rules [in Appendix IV] before possession of the secured asset is taken over and (ii) handing over of possession of the secured asset to the secured creditor, have been construed as conditions precedent for taking steps for preservation, valuation and sale thereof under Rule 8(4) thereof and the following sub-rules. According to the Court (see paragraph 36.1), if no resistance is faced after issuance of the notice under Rule 8(1), the secured creditor "will proceed to take steps as stipulated under Rule 8(2) onwards to take possession and thereafter for sale of the secured assets ***." Paragraph 36.2 reiterates that the notice under Rule 8(1), if followed by resistance, the secured creditor is free to proceed under Section 14 of the SARFAESI Act for activating the relevant magistrate to take possession of the secured asset through its authorised officer. My reading of Rule 8(1) of the 2002 Rules with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he secured assets and had in fact been doing so, and the person aggrieved could approach the Tribunal even after symbolic possession were taken by the secured creditor without there being any physical dispossession. However, the decision in V. Noble Kumar (supra), on interpretation of Sections 13 and 17 has deferred the time for exercise of the right of a person aggrieved to approach the Tribunal under Section 17 only after physical possession of the secured asset is handed over to the secured creditor. With respect, I may not agree with the said view in V. Noble Kumar (supra), yet, it is binding on me and has necessarily to be applied in cases that come up for decision. 36. The questions are, thus, answered by holding that (i) the respondents do not owe a duty to hand over vacant and peaceful physical possession of the secured asset to the petitioners and (ii) making a direction in this behalf does not arise. 37. Before concluding the hearing, I had enquired from Mr. Roy whether a direction on the respondents to remit the purchase value to the petitioners with such amount of interest the Court may award would satisfy them or not. Mr. Roy upon taking instructions submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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