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Judgment
THE APPELLATE TRIBUNAL:
Instant appeal has been filed against judgment and order dated 16th December, 2024, passed by DRT-II, Hyderabad allowing S.A. 59 of 2024 (Smt. Sabbineni Sarojini -vs- Punjab National Bank).
As per pleadings of the parties, a Securitization Application, under Section 17 of the SARFAESI Act, 2002 (hereinafter referred to as the 'Act') was filed by the Respondent herein, namely, Smt. Sabbineni Sarojini, stating that she is the Class-I legal heir of her late husband, Sri Sabbineni Papaiah, who purchased the schedule property out of the joint family funds. Hence, Securitization Applicant, namely, Smt. Sabbineni Sarojini, is the 1/3rd shareholder as per Sections 8 and 10 the Hindu Succession Act. It is further alleged that late husband of the Securitization Applicant, namely, Sabbineni Papaiah, had no right to create mortgage of 1/3rd share of the Securitization Applicant in the secured assets wherein a commercial loan was sanctioned to M/s. Coastal Project Limited by the consortium of Bank, including Punjab National Bank, the Appellant herein.
It is further alleged that no Demand Notice, Possession Notice or Notice under Section 8 (6) Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as the 'Rules') was served upon the Securitization Applicant which is in violation of the mandatory provisions of the Act and Rules.
Opposition to the Securitization Application, filed by the Bank have denied the fact that the Securitization Applicant was having (1/3rd) share in the secured assets. It is submitted that the secured assets were not purchased by Sabbineni Papaiah out of the joint family funds rather it was his exclusive property wherein equitable mortgage was created for various financial facilities sanctioned to Coastal Project Limited.
Demand Notice dated 24.02.2023, sent to the Securitization Applicant, was returned as 'unserved'; hence, the same was published in two newspapers on 06.3.2023. One of the legal heirs, namely Sabbineni Surendra, sent a letter to withdraw the notice. Thereafter, Possession Notice was issued on 01.6.2023 which was sent to the Securitization Applicant through registered post and was also was affixed on the secured assets and published in two newspapers. E-auction Sale Notice dated 9.6.2023 was also sent to the Securitization Applicant and was also published on 4.8.2023. Further, e-auction Sale Notice dated 20.10.2023, fixing the e-auction on 24.11.2023, was served upon the Securitization Applicant although auction could not be held.
It is further stated that in the O.A. 814 of 2018, filed by the Bank, decided on 30th October, 2023 by DRT-I, Hyderabad, it was held that the secured assets are not the joint family property. Daughter of the Applicant was one of the Defendants in the O.A. Two S.A.s, S.A. 183 of 2023 and S.A. 174 of 2023, were filed by Smt. N. Swaroopa Rani, daughter of the Securitization Applicant. Accordingly, Securitization Application is liable to be dismissed.
Learned DRT framed the following two issues:
Whether the applicant has made out any valid ground to quash the measures of the respondent bank in respect of the SA schedule property under the SARFAESI Act, 2002 as prayed for?
To what relief?
In issue No. 1 Learned DRT held that the Securitization Applicant was not a party in the O.A. 814 of 2018. Accordingly, the judgment and the decree, passed in the O.A., is not binding upon her. It was further observed that since the Securitization Applicant was not a party in the O.A., the Secured Creditor waived their right in respect of the Securitization Applicant.
It was further held that the Original Suit No. 375 of 2024 is filed by the Securitization Applicant before the Civil Court for declaration of her 1/3rd share in the secured assets where the Bank is also a party and the DRT has no jurisdiction to decide the civil rights which is pending adjudication before the competent Court. Accordingly, Learned DRT set aside the action initiated by the Bank in respect of the secured assets as far as the share of the Appellant is concerned.
Feeling aggrieved by the impugned judgment, Appellant Bank preferred the appeal.
I have heard the Learned Counsel for the parties and perused the record.
Learned Counsel for Appellant would submit that the Bank is at liberty either to proceed against its Borrowers simultaneously under Recovery of Debts and Bankruptcy Act, 1993 (in short 'RDB Act') as well as SARFAESI Act, 2002.
Learned Counsel for the Appellant would submit that admittedly equitable mortgage was created by Sabbineni Papaiah, who died on 27.7.2016. It is submitted that the S.A. was filed by the Respondent claiming her (1/3rd) share but no action was taken by the Securitization Applicant during the life time of Sabbineni Papaiah. Partition suit was filed pending S.A. since O.A., filed by the Bank, is allowed which was not even challenged by the legal heirs of the said Sabbineni Papaiah; hence, now the Bank has every right to proceed under the SARFAESI Act.
Learned Counsel would further submit that findings recorded by the Learned DRT regarding O.A. proceedings are against law. Learned Counsel would further submit that there is no evidence on record that the secured assets were purchased out of the Hindu Undivided Family (in short 'HUF') Fund. In alternative, it is also submitted that even if it is HUF property, Karta of the family has a right to sell the same. Accordingly, Learned Counsel for the Appellant submits that the impugned judgment suffers from material irregularity and is liable to be set aside.
Per contra, Learned Counsel for Respondent would submit that admittedly, the Securitization Applicant was not a party to the O.A. 814 of 2018. It was well within the knowledge of the Bank that she is the wife of the deceased Sabbineni Papaiah and is one of the legal heirs but was not impleaded as a Defendant in the O.A. proceedings. Accordingly, as far as the findings and decree of the O.A. are concerned, it will not have any binding effect over the Appellant.
It is further contended that the Bank, by not impleading the Securitization Applicant in the O.A., has waived its rights as far as liability of the Securitization Applicant, as Guarantor, being the legal heir of Sabbineni Papaiah, are concerned.
Learned Counsel would further submit that now the only issue to be looked into is as to whether action under the Securitization Act can be initiated against the Securitization Applicant by the Bank despite the fact of her being not impleaded as Defendant in the Original Application, filed under Section 19 of the RDB Act?
Learned Counsel would further submit that till the Demand Notice was issued on 24.02.2023 and the O.A. 814 of 2018 was allowed on (20th) October, 2023, the Demand Notice, under Section 13 (2) of the Act, could not be issued after adjudication of the O.A., filed under Section 19 of the RDB Act. Bank could not proceed against the Securitization Applicant in pursuance of the Demand Notice dated 24.2.2023. It is further submitted that the Demand Notice stands superseded by the judgment in the O.A.
Learned Counsel would further submit that the Securitization Applicant has approached the Civil Court for partition of her share on the ground that she has (1/3rd) share in the secured assets as the same was purchased from joint family funds. Hence, the proceedings under the SARFAESI Act could not proceed till the pending Civil proceedings.
It is further submitted that since the Securitization Applicant was not impleaded as Defendant in the O.A. proceedings, Bank is estopped from exercising its right, if any, against the Securitization Applicant.
Learned Counsel would further submit that since no appeal is preferred against the Bank against the judgment of the O.A., the finding recording ( 1/3rd ) share in the O.A. attained finality. Both the S.A.s filed by the daughter of the Appellant does not have any bearing on the matter as they were dismissed as infructuous.
It is not in dispute that Sabbineni Papaiah was the Guarantor-cum-Mortgagor of the Appellant Bank which mortgage was created on 09.8.2006. It is also not in dispute that Sabbineni Papaiah died on 27.7.2016. It is also not in dispute that the Respondent herein, Smt. Sabbineni Sarojini, is the wife of deceased Sabbineni Papaiah. Sabbineni Papaiah left behind him one daughter, Smt. N. Swaroopa Rani and one son, Sabbineni Surendra.
When the account became N.P.A., the debt became due, an O.A. No. 814 of 2018 was filed by the consortium of the Banks, including the Appellant Bank, against the Defendants, including Sabbineni Surendra, son and Smt. N. Swaroopa Rani, daughter of Sabbineni Papaiah only.
Undisputedly, wife of Sabbineni Papaiah, namely, Smt. Sabbineni Sarojini, Respondent herein, was not impleaded as a Defendant in the O.A. proceedings, filed under Section 19 of the RDB Act. O.A. was filed against the daughter and son of Sabbineni Papaiah on the basis of the Deed of Personal Guarantee. Even in the O.A., the daughter, Smt. N. Swaroopa Rani, in her written statement alleged that O.A. schedule property is the part of ancestral property held by Joint Hindu Family and she is one of the coparceners of the same, although this plea did not find favour from the Learned DRT. Pertinently, it is to be observed that the Respondent herein, Smt. Sabbineni Sarojini, who is wife of Sabbineni Papaiah, was not made a party to the O.A. proceedings. Hence, the finding of Learned DRT in O.A. proceedings will not be binding upon the Respondent herein as she was not a party to the O.A. Law is well settled that any finding recorded in any proceedings will be binding upon the parties to the proceedings. Judgment of O.A. is a judgment in personam and not a judgment in rem. Hence, it has no binding effect upon the Respondents herein.
Two S.A.s, S.A. 183 of 2023 and S.A. 174 of 2023, were filed by the daughter and son of the Respondent herein but even in those S.A.s, Respondent herein, Smt. Sabbineni Sarojini, although was a party but did not put in appearance and the S.A.s were also dismissed without finally adjudicating the issues. In this background, we may observe that in the proceedings of the O.A., Respondent herein was not made a party. Accordingly, when the O.A. was filed on the basis of the Guarantee Agreement, executed by Sabbineni Papaiah and the Respondent herein, was not impleaded as Defendant in the O.A., impliedly, Bank waived its rights so far as Guarantee of Sabbineni Papaiah to the extent of Respondent herein is concerned. Further, the decree passed in O.A. 814 of 2018 will not be binding upon the Respondent herein.
Now, only question remains to be looked into as to whether any liability can be imposed upon the Respondent herein? What will be effect of the original suit filed by the Respondent for declaration of her share?
Admittedly, in the S.A. no declaration was sought for by the Respondent rather the relief sought for was for quashing the Notices under Section 13 (2) and 13 (4) of the Act issued by the Bank. Admittedly, a Civil Suit No. 375 of 2024 is filed by the Respondent before the Civil Court for declaration of her 1/3rd share in the secured asset. As far as 2/3rd share is concerned, that is neither challenged in this matter nor can be adjudicated upon in this proceedings.
As far as issue of 1/3rd share of the Respondent is concerned, it has to be looked into whether the DRT has any jurisdiction to declare such share? Answer to the same would be in negative. But at the same time, a plea is raised that the property was purchased out of the Joint Hindu Family Funds which is also pending before the Civil Court. Documents to that effect are also filed by the Respondent.
When the issue of validity of the mortgage to the extent of the share of the Respondent herein is under challenge, the action of the Bank, to the extent of the Respondent's share under the SARFAESI Act, cannot proceed. Bank has a right to proceed against the remaining shareholders but since, in the O.A. proceedings itself, Bank impliedly waived its rights against the Respondent herein, now when the issue of share of Respondent is pending before the Civil Court, it could not be proceeded against by the Bank. Enforceability of the security interest qua, the Respondent herein, is depending upon the outcome of the Civil Court decision which will be having bearing upon the matter.
Learned Counsel for Appellant has placed reliance upon the decision of the Hon'ble Apex Court in N.S. Balaji -vs- Presiding Officer, Debts Recovery Tribunal (2023 SCC OnLine SC 1266) wherein it was held that the Karta has a right to sell/dispose of/alienate an HUF property even if a minor of the family has undivided interest. In the present case, although the Bank is challenging even the property being of Hindu Undivided Family but reliance of the judgment is misplaced as this is a case wherein the issue of 1/3rd share of Respondent is in dispute.
Reliance is also placed on the decision of the Hon'ble Apex Court in Sandeep Goenka -vs- Yes Bank Limited (2025 SCC OnLine Cal 1559) wherein it was held that issue of substantive relief on declaration of title and legal validity of the documents pertaining to the loan cannot be adjudicated upon by the Tribunal under Section 17 of the SARFAESI Act. This is trite law that DRT has no jurisdiction to decide the title rather the jurisdiction of the DRT is limited to the measures undertaken by the Secured Creditor under Section 13 (4) of the Act.
In the present case Learned DRT has rightly held that it has no jurisdiction to decide the title of the Respondent herein.
In Central Bank of India -vs- Smt. Prabha Jain [(2025) 4 SCC 38] it was held that jurisdiction to declare a sale deed or a mortgage deed being illegal is vested with the Civil Court under Section 9 of the Civil Procedure Code. DRT does not have the jurisdiction to grant a declaration in respect of the mortgage deed or the sale deed. Hon'ble Apex Court in Authorised Officer State Bank of India -vs- Allwyn Alloys Private Limited [(2018) 8 SCC 120] it was held that the mandate of Section 13 and, in particular, Section 34 of the SARFAESI Act, 2002 clearly bars filing of a civil suit. For, no civil court can exercise jurisdiction to entertain any suit or proceedings in respect of any matter which a DRT or DRAT is empowered by or under this Act to determine and no injunction can be granted by any court or authority in respect of any action taken to be taken in pursuance of any power conferred by or under the Act.
Respondent herein is claiming herself to be 1/3rd shareholder of the secured asset which fact is also admitted by the Bank in their reply filed before the DRT. It is also admitted by the Bank that Late Sabbineni Papaiah gave an affidavit declaring his legal heirs wherein a declaration dated 9.8.2006 was given to the effect that Smt. Sabbineni Sarojini and Sabbineni Surendra, being wife and son are his legal heirs. It means that the share of the Respondent herein is accepted by the Bank. When the Respondent herein is the shareholder of the secured asset and the issue of declaration is pending before the Civil Court there is no hesitation in accepting the submission that the DRT had no jurisdiction to decide the share of the Respondent. Further, DRT has rightly held that enforceability of security interest can be decided only upon adjudication of the civil suit pending before the Civil Court. Accordingly, we do not find any illegality in the impugned judgment of the Learned DRT. Appeal lacks merits and is liable to be dismissed.
ORDER
Appeal is dismissed. Judgment and order dated 16th December, 2024, passed by DRT-II, Hyderabad allowing S.A. 59 of 2024 (Smt. Sabbineni Sarojini -vs- Punjab National Bank), is hereby affirmed.
File be consigned to Record room.
Copy of the Judgment/Final Order be uploaded in the Tribunal's Website.
Order signed, dated and pronounced in open Court.