Abhinav Kumar And Ors vs Oriental Bank Of Commerce

P.K. Bhasin, J

The appellants in these two appeals claiming themselves to be tenants in two separate floors of a property in a posh area (Diplomatic Enclave, West End Colony) of New Delhi under the same landlord Shri G.R. Kohli w.e.f. 01.10.2015 for a period of 18 years approached the Debts Recovery Tribunal(DRT) with an application under Section 17(1) read with sub-section 4-A of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest act, 2002 ('SARFAESI ACT' in short) when the respondent bank wanted to take physical possession of the floors in their occupation in exercise of its powers under Section 13(4) and 14 of the said Act. That action was initiated when its borrower M/s. Krishan Chander Ramesh Chander Pvt. Ltd., of which Shri G.R. Kohli, whom the appellants claim to be their landlord, was one of the directors, defaulted in re-payment of the financial facilities advanced to it. Re-payment of the bank's money was secured by way of equitable mortgage of the property in which the appellants claim to be in occupation as tenants. In those applications (being S.A. Nos. 60/2016 & 61/2016) the appellants had sought quashing of the measures taken under these Sections of SARFAESI Act, are still pending disposal before the DRT and the appellants had also prayed for interim injunction restraining the bank from dispossessing them from the portions of the mortgaged property in dispute claiming that they could not be dispossessed under SARFAESI Act being lawful tenants.

The DRT declined to grant any interim relief to the appellants vide its order dated 19th September, 2016 which has now been challenged by the appellants by filing these statutory appeals under Section 18 of SARFAESI Act which are being disposed of by this common order since same point of law is involved and they arise out of the order of the same date passed by the DRT on identical lines and I had heard them also analogously.

Mr. S.K. Sharma, learned counsel for the appellants in both these appeals arising out of the common order passed in both the S.As. by the DRT and which are being disposed of by this common order as common points are involved and were heard also analogously, did not dispute the fact that the money which was being sought to be realised by the respondent Bank by exercising its rights under the SARFAESI Act is 'public money' and is to the tune of crores of rupees. He also did not dispute that the Bank must make all efforts to recover its dues from the borrower as well the guarantors and the Bank is fully justified in taking steps to recover its dues by selling the property in which the appellants are tenants under the alleged mortgagor Shri G.R. Kohli, who is now in any case dead. However, learned counsel also submitted, the Bank cannot sell the property mortgaged in its favour after dispossessing the appellants and throwing them out on the road from the portions under their tenancies. The submission was that the Bank in exercise of its rights as a mortgagee can simply sell the asset on 'as is where is basis' with the appellants in possession and the buyer of the property in dispute will then become their landlord in law though even now this tribunal could direct them to start paying the contractual rent to the Bank as a condition of grant of interim relief to them against their dispossession and the appellants will comply with that condition.

The respondent bank contested the S.As. inter alia on the ground, and which ground was urged before this tribunal also by its learned counsel, that the alleged tenancies were bogus and the lease deeds were forged documents and in any case the mortgage was created by Shri G.R. Kohli in the year 2002 whereas the alleged tenancies were created by him in 2015 and immediately thereafter, according to the appellants, he had died.

Before proceeding further to see if the DRT had committed any illegality in declining to stay the measures initiated by the mortgagee bank under the SARFAESI Act to take physical possession of its secured asset at the instance of the two appellants I deem it appropriate to refer to the views expressed by the Hon'ble Supreme Court in two its judgments rendered while dealing with cases in which stay of recoveries of public money by the public authorities was sought.

In "Assistant Collector of Central Excise Chandan Nagar vs. Dunlop India Ltd. and Ors." [1985 SCR (2) 190] it was observed by the Apex Court that:-

"It is indeed a great pity-and, we wish we did not have to say it but we are afraid we will be signally failing in our duty if we do not do so-some courts, of late, appear to have developed an unwarranted tendency to grant interim orders-interim orders with a great potential for public mischief-for the mere asking..................

In several other cases, Siliguri Municipality v. Amelendu Das, Titagur Paper Mills Co. Ltd. State of Orissa, (3) Union (1) [1985] 2 S.C.R. 24. (2) [1983] 2 S.C.C. 436 (3) [1983] 2 S.C.C. 433 Union of India v. Oswal Woollen Mills Ltd., Union of India v. Jain Shudh Vanaspati Ltd. (a), this Court was forced to point out how wrong it was to make interim orders so soon as an application was but presented, when a second thought (or a second's thought) would expose the impairment of the public interest ........................

In Siliguri Municipality v. Amalendu Das (supra) A.P. Sen and M.P. Thakkar, JJ. had to deal with an interlocutory order passed by the Calcutta High Court restraining the Siliguri Municipality from recovering a graduated consolidate rate on the annual value of buildings in terms of the amended provisions of the Bengal Municipal Act. We reiterate the following observations made therein: "We are constrained to make the observations which follows as we do feel dismayed at the tendency on the part of some of the High Courts to grant interlocutory orders for the mere asking. Normally, the High Court should not, as a rule, in proceedings under Article 226 of the Constitution grant any stay of recovery of tax save under very exceptional circumstances. The grant of stay in such matters, should be an exception and not a rule.

.................... We have come across cases where the collection of public revenue has been seriously jeopardised and budgets of Governments and Local Authorities affirmatively prejudiced to the point of precariousness consequent upon interim orders made by courts. In fact instances have come to our knowledge where Governments have been forced to explore further sources for raising revenue, sources which they would rather well leave alone in the public interest, because of the stays granted by courts ................ All this is not to say that interim orders may never be 198 made against public authorities. There are, of course, cases which demand that interim orders should be made in the interests of justice. Where gross violations of the law and injustices are perpetrated or are about to be perpetrated, it is the bounden duty of the court to intervene and give appropriate interim relief. In cases where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen's faith in the impartiality of public administration, a Court may well be justified in granting interim relief against public authority. But since the law presumes that public authorities function properly and bona fide with due regard to the public interest, a court must be circumspect in granting interim orders of far reaching dimensions or orders causing administrative, burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the Court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and fast rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of the public interest. There are many such factors worthy of consideration. .....................................................................

We desire to add and as was said in Cassel and Co. Ltd. v. Broome we hope it will never be necessary for us to say so again that 'in the hierarchical system of Courts' which exists in our country, 'it is necessary for each lower tier', including the High Court, 'to accept loyally the decisions of the higher tiers'. "It is inevitable in a hierarchical system of Courts that there are decisions of the Supreme appellate tribunal which do not attract the unanimous approval of all members of the judiciary ............... But the judicial system only works if someone is allowed to have the last word and that last word, once spoken, is loyally accepted"(2). The better wisdom of the Court below must yield to the higher wisdom of the Court above. That is the strength of the hierarchical judicial system."

Thus, the Apex Court had not only expressed clearly that stay against recovery of public dues is not to be granted merely on the asking and further that all Courts/tribunals in the country are expected to follow its decisions as it has the final word in judicial system of the country.

Then after the enactment of SARFAESI Act and Recovery of Debts Due to Banks and Financial Institutions Act,1993 specifically dealing with recovery of banks' dues it was observed in "United Bank of India vs. Satyawati Tondan & Ors." [(2010) 8 SCC 110] as under:-

"2. With a view to give impetus to the industrial development of the country, the Central and State Governments encouraged the banks and other financial institutions to formulate liberal policies for grant of loans and other financial facilities to those who wanted to set up new industrial units or expand the existing units. Many hundred thousand took advantage of easy financing by the banks and other financial institutions but a large number of them did not repay the amount of loan, etc. Not only this, they instituted frivolous cases and succeeded in persuading the Civil Courts to pass orders of injunction against the steps taken by banks and financial institutions to recover their dues. Due to lack of adequate infrastructure and non-availability of manpower, the regular Courts could not accomplish the task of expeditiously adjudicating the cases instituted 2 by banks and other financial institutions for recovery of their dues. As a result, several hundred crores of public money got blocked in unproductive ventures. In order to redeem the situation, the Government of India constituted a committee under the chairmanship of Shri T. Tiwari to examine the legal and other difficulties faced by banks and financial institutions in the recovery of their dues and suggest remedial measures. The Tiwari Committee noted that the existing procedure for recovery was very cumbersome and suggested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the Recovery Officer for expeditious execution of orders made by adjudicating bodies. The issue was further examined by the Committee on the Financial System headed by Shri M. Narasimham. In its First Report, the Narasimham Committee also suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions.

After considering the reports of the two Committees and taking cognizance of the fact that as on 30-9-1990 more than 15 lakh cases filed by public sector banks and 304 cases filed by financial institutions were pending in various Courts for recovery of debts, etc. amounting to Rs. 6000 crores, the Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short, 'the DRT Act'). The new legislation facilitated 3 creation of specialised forums i.e., the Debts Recovery Tribunals and the Debts Recovery Appellate Tribunals for expeditious adjudication of disputes relating to recovery of the debts due to banks and financial institutions.

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For few years, the new dispensation worked well and the officers appointed to man the Tribunals worked with great zeal for ensuring that cases involving recovery of the dues of banks and financial institutions are decided expeditiously. However, with the passage of time, the proceedings before the Tribunals became synonymous with those of the regular Courts and the lawyers representing the borrowers and defaulters used every possible mechanism and dilatory tactics to impede the expeditious adjudication of such cases. The flawed appointment procedure adopted by the Government greatly contributed to the malaise of delay in disposal of the cases instituted before the Tribunals.

The survey conducted by the Ministry of Finance, Government of India revealed that as in 2001, a sum of more than Rs. 1,20,000/- crores was due to the banks and financial institutions and this was adversely affecting the economy of the country. Therefore, the Government of India asked the Narasimham Committee to suggest measures for expediting the recovery of debts due to banks and financial institutions. In its Second Report, the Narasimham Committee noted that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee noted that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of that the economy could not reap full benefits of the reform process. The Committee made various suggestions for bringing about radical changes in the existing 5 adjudicatory mechanism. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues. The Andhyarujina Committee constituted by the Central Government for examining banking sector reforms also considered the need for changes in the legal system. Both, the Narasimham and Andhyarujina Committees suggested enactment of new legislation for securitisation and empowering the banks and financial institutions to take possession of the securities and sell them without intervention of the court. The Government of India accepted the recommendations of the two committees and that led to enactment of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the SARFAESI Act'), which can be termed as one of the most radical legislative measures taken by the Parliament for ensuring that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take steps for recovery of their dues without intervention of the Courts or Tribunals.

............................... Normally, this Court does not interfere with the discretion exercised by the High Court to pass an interim order in a pending matter but, having carefully examined the matter, we have felt persuaded to make an exception in this case because the order under challenge has the effect of defeating the very object of the legislation enacted by the Parliament for ensuring that there are no unwarranted impediments in the recovery of the debts, etc. due to banks, other financial institutions and secured creditors.

................................ It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters. ....................................

It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."

If these were the views expressed by the Hon'ble Supreme Court in respect of the exercise of the powers of even High Courts in the matter of grant of stays of recoveries of public money the Debts Recovery Tribunals cannot afford to grant stays in such like matters in a routine manner and merely on the asking of some litigant, as the two appellants in this matter expected from the DRT.

The appellants' case is that they are tenants in the property in dispute from October, 2015 while their landlord had mortgaged his property in favour of the respondent bank 2002 to secure the repayment of financial facilities availed of by his Company. The appellants' grievance is that they were never made aware of the mortgage by their landlord. But then for that concealment of the prior mortgage the respondent bank cannot be made to suffer. The appellants' remedy lies against their landlord and if actually he has expired immediately after letting the property to them, as is also being claimed by them, then against his legal representatives whom they only have to find out and no action would lie against the secured creditor which is proceeding to recover public money under SARFAESI Act.

To reject this appeal only one ground is sufficient and the same is that the lease deeds being relied upon by the appellants to avoid the SARFAESI measures initiated by the respondent bank executed after the creation of mortgage by their landlord were for a period of 18 years and their landlord was incompetent to create tenancies of the property already mortgaged by him for a period exceeding three years in terms of the provisions of Section 65-A of the Transfer of Property Act. Therefore, no legal tenancies came into existence in favour of the appellants. Consequently, the appellants cannot avoid the consequences of the bank initiating measures against them to take possession of its secured asset from them and that will be act in accordance with law.

Section 17(4-A) of the SARFAESI Act, upon which reliance is being placed by the appellant, reads as under:-

"(4A) Where-

(i) any person, in an application under sub-section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy, -

(a) has expired or stood determined; or

(b) is contrary to section 65-A of the Transfer of Property Act, 1882 (4 of 1882); or

(c) is contrary to terms of mortgage; or

(d) is created after the issuance of notice of default and demand by the Bank under sub-section (2) of section 13 of the Act; and

(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause(c) or sub-clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act."

The submission of the learned counsel for the appellants was that if the case of the appellants fits in in one of the aforesaid sub-clauses of sub-section (4-A) of Section 17, the DRT will have to hold that the concerned tenant cannot be evicted under the SARFAESI provisions. It was contended that since undisputedly the tenancy in favour of appellants were for a period of 18 years commencing from October 2015, there was no question of leases having expired or stood determined and, therefore, the case of the appellants gets covered under Section 17(4-A)(i)(a). However, prima facie, this interpretation cannot be accepted to be the correct interpretation of sub-section (4-A) since sub-section (4-A)(ii) clearly states that in case the case of a tenant approaching the DRT falls within any of the above-referred four sub-clauses of sub-section (4-A)(i), the DRT may pass such order as it may deems fit in accordance with the provisions of the law. In the present case, as noticed already, the alleged tenancies in favour of the appellants were created subsequent to the creation of mortgage in favour of the respondent bank by the landlord of the appellants and the tenancies having been created for a period of more than three years, sub-clause (b) of sub-section (4-A)(i) comes into play and the DRT has to hold that the tenancies in favour of the appellants being contrary to Section 65-A of the Transfer of Property Act, 1882 cannot give any protection to the appellants and deprive the bank of its authority under the SARFAESI Act to take over the possession of its secured assets. In case the interpretation being put by the appellants is to be accepted, that will kill the very object behind the enactment of the SARFAESI Act by the Parliament and which object was to ensure speedy recovery of public money due to banks and financial institutions without the intervention of courts or tribunals, by authorizing the banks and financial institutions to straightaway take over the possession of the mortgaged assets.

These appeals are accordingly dismissed but since the same arise out of only interim orders of the DRT, nothing observed hereinabove will be used by the DRT while finally disposing of the S.As. and at that stage independent decision will be taken by the DRT on all the points which may be urged before it from either side.