AI Structured Summary
Not yet generated for this judgment
Judgment
Ashok Menon, Chairperson
This is an appeal filed u/s 18 of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, in short) impugns the judgment dated 30.09.2008 dismissing Appeal No. 65/2007 on the files of Debts Recovery Tribunal-I, Ahmedabad (DRT), filed by the appellants herein challenging the measures initiated by the respondent bank against the secured asset namely residential Flat No. 1004, Jivabhai Towers, Kamalbhumi Co-operative Housing Society Ltd., Vastrapur, Ahmedabad(subject flat).
The facts required for consideration of this appeal could be encapsulated thus:
This is a classic case where a public sector bank was found to be susceptible to the ingenious act of a fraudster who cheated not only the respondent bank but also other banks and the appellants.
The subject flat was mortgaged by the erstwhile owner of the flat Ashokbhai Trikambhai Parekh (borrower) with the Mahesana Co-operative Bank for availing a loan. The appellants offered to buy the property. The borrower agreed, and together, they approached the Mahesana Co-operative Bank. The bank too agreed that the borrower could sell the property provided, the outstanding dues to the bank were cleared. Accordingly, the appellants entered into a registered agreement for sale with the borrower on 19.01.2002. The sale consideration was fixed at ₹ 6 lakhs and ₹ 1,85,000/- was paid in cash. The sale agreement was to be executed by 31.03.2002 and by then, the borrower agreed to make the property marketable and free from charges. Consequent to the said agreement to sale, a paper publication was made by an advocate on 24.01.2002 informing the public in general that Ashokbhai the owner and occupier of the subject flat intends to sell it, and in case there was any objection from any corner, it should be intimated to the undersigned. None responded to the said notice.
Thereafter, the borrower proceeded to execute a sale deed concerning the subject flat in favour of the appellants on 27.02.2002. The entire sale consideration was paid and the possession of the subject property was handed over to the appellants. They have been in possession of the flat ever since.
On the very same day, the borrower Ashokbhai very ingeniously deposited an allotment letter and a share certificate purportedly issued to him by the society before the respondent bank had allegedly created an equitable mortgage. The repayment of the debt was defaulted resulting in the respondent bank initiating action against the aforesaid borrower Ashokbhai for recovery of debt under the SARFAESI Act. The notice for taking symbolic possession of the subject property was affixed at the subject premises which made the appellants realise the existence of such a mortgage created by their assignor.
Aggrieved by the Sarfaesi measures initiated against the subject flat which they had purchased, the appellants approached the DRT with the aforesaid Appeal No. 65/2007 u/s 17 of the SARFAESI Act.
The impugned order observes that on 27.02.2002 the borrower deposited the title deeds of the subject flat consisting of the allotment letter in favour of the borrower as also the share certificate purportedly issued by the society and drew a memorandum of entry. A letter addressed by the respondent bank to the society was answered in favour of the bank indicating that there was no encumbrance on the property and that it belonged to the borrower. An endorsement of the purported office bearers of the society overleaf the share certificate also satisfied the respondent bank to create a mortgage and disburse the money to the borrower.
It is rather surprising that the respondent bank did not bother to conduct an actual inspection of the property which would have revealed that the property was in actual possession of someone other than the borrower.
Per contra, there are overwhelming facts to indicate that the property was sold to the appellants. Even before the creation of the mortgage, there was a registered agreement to sell the property vide the document dated 19.01.2002. A receipt has been produced by the appellants to indicate that the amount was handed over to the owner.
The Ld. Counsel appearing for the respondent bank would contend that there are discrepancies galore in the documentary evidence relied upon by the appellants. The receipt purportedly issued by the erstwhile owner Ashokbhai in favour of Ajaybhai Modi was for ₹ 1,85,000/- on 26.12.2001 and the sale consideration agreed to be paid within 30 days was ₹ 8,35,000/-. It is pointed out that no evidence regarding payment of such an amount is produced. The sale deed purportedly executed on 27.02.2002 mentions the share certificate No.
110 but there is no mention of the allotment letter and the sale consideration is mentioned as ₹ 6 lakhs and not ₹ 8.35 lakhs as mentioned in the receipt. It is also submitted by the Ld. Counsel for the respondent that the sale deed does not mention anything about the mortgage in favour of Mahesana Co-operative Bank. It is also indicated that the consideration of ₹ 1,85,000/- is referred to as the earnest money paid in cash. When it was paid is not indicated. It is further indicated by the Ld. Counsel appearing for the bank that even the agreement for sale dated 19.01.2002 does not indicate the existence of the mortgage with the Mahesana Co-operative Bank. On the other hand, it is pointed out that the property is free from charges. The Ld. Counsel also submits that the paper publication dated 31.01.2002 was not published by the appellants but it was by an advocate. On behalf of whom that publication was made, is not clarified.
The Ld. Counsel appearing for the respondent bank also submits that there is no mention of the derivation of title in the sale deed dated 27.02.2002. Pointing out to the deposition of the present secretary of the society, the Ld. Counsel for the respondent submits that the witness does not know who was the secretary or the chairman of the society before his period.
On perusal of the agreement and the sale deed dated 19.01.2002, it does not state regarding the existence of a mortgage with the Mahesana Co-operative Bank but paragraph 4 of the agreement states that the property would be delivered free from all charges and would be marketable. The subsequent sale deed which was executed on 27. 02.2002 gives a breakup of how the payments were made towards sale consideration. It states that ₹1,85,000/- was paid in cash. ₹ 3,49,363/- was paid to Mahesana Co-operative Bank and the balance ₹ 65,637/- was paid by way of a bankers’ cheque dated 26.02.2002.
The share certificate produced by the appellants has an endorsement overleaf regarding the transfer of the property to the appellants on 07.08.2002 and on 22.06.2009, the name of Lilaben was deleted as she expired on 01.04.2009. Had the respondent bank conducted due diligence, it could have easily found the existence of the sale deed and the agreement to sell. The redemption of the mortgage in favour of Mahesana Co-operative Bank was by a registered document. Even that is not taken note of by the respondent bank. The society has produced records indicating that the chairman and the secretary of the society during the years 2002-03 were Shri Arvindbhai N. Pandya and Shri Pankajbhai N. Mehta respectively. An affidavit filed at Exhibit-Q by the erstwhile owner Ashokbhai admits that he has sold the subject flat to the appellants by the registered sale deed executed on 27.01.2002. It is also interesting to note that the erstwhile owner had not only availed loan from the respondent bank but also availed a loan from the UCO Bank which was also defaulted, and UCO Bank had initiated action. UCO Bank had sent a letter to the secretary of the society on 02.12.2005 stating that on physical examination they found that the appellants were in possession of the subject flat. To this letter, the secretary of the society sent a reply on 20.12.2005 stating that the subject flat stands in the name of the appellants and that the change in the membership of the society was brought about on 03.06.2002. A copy of the membership register is also produced to indicate the change in membership. Surprisingly, the respondent did not care to conduct an inquiry regarding the facts. The documents obtained from the Sub-Registrar’s office indicate that there was a reconveyance of the mortgage on 27.02.2002 in favour of the borrower Ashokbhai by the Mahesana Co-operative Bank. It also indicates the existence of a registered sale agreement on 19.01.2002 as well as a registered sale deed on 27.02.2002.
Without going into all these details regarding the property, the respondent bank was negligent and callous in advancing the loan to the borrower. The Ld. Presiding Officer has not delved deep into these aspects. Despite overwhelming evidence indicating the appellants are bonafide purchasers of the subject flat, their application was dismissed.
The Ld. Counsel appearing for the respondent has submitted that even if there is a question on the legality of the mortgage, it cannot be determined by the DRT in a proceeding challenging the Sarfaesi measures. It is submitted that all that the DRT is only concerned with is the correctness of the Sarfaesi measures and cannot, therefore, go into the validity of the mortgage created in favour of the bank.
The Hon’ble High Court of Gujarat has in the decision Pranjivan Purushottam Zaveri & Anr. versus Dena Bank, Through Authorized Officer & Assistant & Ors. (2011) SCC OnLine 2354 held that all grounds regarding the validity of the mortgage and the security interest created in favour of the bank can be questioned and challenged in the proceedings u/s 17 of the SARFAESI Act and the DRT has powers to adjudicate the issue of legality and validity of the mortgage and the validity of the security interest created in favour of the bank. The Hon’ble Bombay High Court has also in Mr Rajesh Bansraj Chauhan & Ors. versus M/s. Tata Capital Finance Service Ltd. (2019) SCC OnLine Bom 9515 held that the DRT has to deal with the submissions of fraud encompassing challenges to the creation of a mortgage in the proceedings u/s 17 of the SARFAESI Act.
The present Appeal as well as Appeal No. 65/2007 are, therefore, allowed and this Tribunal finds that Sarfaesi measures initiated by the respondent bank against the subject flat are not sustainable and therefore, quashed and set aside for want of a proper security interest concerning the subject flat. The original title deeds od the subject flat produced by the appellants before this Tribunal shall be returned to them on proper acknowledgement.