Canara Bank vs Madan Lal Radhu And Ors

P.K. Bhasin, J

The appellant Bank is aggrieved by an order passed by the learned Presiding Officer of DRT-II, Delhi in S.A. No. 206/2017 on 21.12.2017 whereby while permitting the appellant to take over physical possession of 1st and IInd floors of House No. C-681, New Friends Colony, New Delhi, which house was equitably mortgaged in its favour respondent No. 2 herein to secure the re-payment of financial facilities to the tune of over twenty crores of rupees extended to a Company by the name of M/s. Ishvakoo India Ltd., which appears to be a family concern of respondents herein and is into the business of construction, the Bank has been restrained from taking over possession of ground and mezzanine floors in exercise of its powers as a secured creditor under Section 13(4) of SARFAESI Act.

Respondent No. 1 herein, who happens to be father of respondents 2 and 4 and grandfather of other four respondents, had filed Securitisation Application (SA) under Section 17(1) of SARFAESI Act when the appellant Bank had initiated action under SARFAESI Act to recover its outstanding dues of over twenty crores of rupees from the aforesaid borrower Company by selling the above referred residential property in New Friends Colony after taking over its physical possession through the machinery provided under Section 14 of SARFAESI Act by approaching the Chief Metropolitan Magistrate and obtaining an order of possession with police aid. Before the filing of S.A. by respondent No. 1 the borrower Company had also filed one S.A. (being S.A. No. 202/2017) in which also interim injunction was prayed for against the threat of the Bank to dispossess the occupants of the mortgaged house including the respondent No. 1 herein but that interim relief was rejected on 21.12.2017 by the same learned Presiding Officer who has passed the impugned order in the S.A. of respondent No. 1 herein on the same date. That shows that while the borrower Company was not found by the learned Presiding Officer entitled to an interim relief respondent No. 1, who happens to be the Head of Radhu family and father and grandfather of other respondents who appear to be the Directors of the borrower Company and personal guarantors also, has been permitted to stay in a part of the mortgaged house.

I was told during the course of hearing by the Counsel for the Bank that for going to the first and second floors one has to pass through ground floor which strangely enough has been permitted by the Presiding Officer to be retained by respondent No. 1. Counsel also submitted that though the Bank has sealed two floors, possession whereof has been permitted to be taken over by the Bank, but that way virtually the Bank cannot make any use of the two floors and a meaningless interim arrangement has been worked out and the Bank has not even been permitted to sell those floors and simply has been permitted to keep their possession subject to the outcome of the main S.A.

While denying the borrower Company and guarantors, who are also respondent Nos. 2 to 6 in the present appeal and happen to be the sons and grandsons of respondent No. 1, the security applicant, interim relief the learned Presiding Officer observed in his order dated 21.12.2017 as under:

"1. Ishvakoo India Pvt. Ltd. and five others have filed this Securitization Application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with a prayer to hold the entire recovery action taken by the respondent under the SARFAESI Act as illegal, void and bad in law and also to quash and set aside the impugned demand notice dated 10th March, 2017 under Section 13(2) of the SARFAESI Act, 2002, impugned possession notice dated 1st September, 2017, impugned order dated 15th September, 2017 passed by the learned CMM, impugned notice dated 14th November, 2017 issued by the Court Receiver, to restrain the respondent from invoking and prosecuting proceedings under the SARFAESI Act, 2002 in respect of the property bearing No. C-681, New Friends Colony, New Delhi - 110065 and from selling and taking any other enforcement measure qua it and also to award compensation of Rs. 25 crores to them.

Concisely, the case of the security applicants is that security applicant No. 1 is a Company incorporated under the Companies Act, 1956 having its registered office at C-681, New Friends Colony, New Delhi - 110065 and security applicant No. 2 is one of its Directors and is authorized and empowered to do all acts in its interest Security Applicant Nos. 2 to 6 are the alleged guarantors to the credit facility sanctioned by respondent No. 1 Bank, Security Applicant No. 2 is the owner of the subject property i.e. C-681, New Friends Colony, New Delhi - 110065 in which applicant No. 2 to along with their respective families reside and have no other residential property or abode. On 26th January, 2013 applicant No. 11 was awarded construction contract by J & K Cooperative Housing Corporation Ltd. (for short, the said Corporation) on Public Private Participation Basis for development of 1,500 Kanals of land for a project named "River Valley Project" at Jammu on the banks of Tawi River and for the completion of which, it had approached the respondent Bank for availing Working Capital Facility to the tune of Rs. 20 crores which was sanctioned vide sanction letter dated March 26, 2013 against hypothecation of book debts and was utilized. However, the said Corporation when asked for release of payment towards the cost of construction of embankment in the project, told that the payment of the bills would be made after the first Monsoon and thereafter applicant No. 1 submitted proposal dated June 27, 2014 for renewal of the said facility, which was renewed in the month of January, 2015 and enhanced the rate of interest which was unexpected and unwarranted. Prior to that there was heavy floods in Jammu and Kashmir due to which the course Tawi river got altered leading to destruction of the construction work which was carried out by the security applicant No. 1 under the project. As per the security applicants, the said Corporation vide its letter dated October 17, 2014 instruction applicant No. 1 to take up the road work as well as rectification of embankment work which was necessitated due to rise of water level during floods. The applicants were made to append their signatures on blank printed formats without being afforded any opportunity of understanding and contents, intent and purport thereof and the said blank documents have later on been filled up and manufactured into loaning and security documents upon which the respondent Bank has sought to place reliance. Thereafter, vide its letter the said Corporation conveyed to the respondent that the contractual payments due to applicant No. 1 would fall due after the completion of the project and from out of the sale proceeds. However, it was submitted by the said Corporation that the embankments and earth work were badly damaged during floods and vide its letter dated 25th March, 2016 informed the respondent Bank that the payments would be released to applicant No. 1 on execution of development works in the aforesaid project. As per the security applicants, vide sanction letter dated 6th July, 2016 the respondent Bank renewed the said credit facility with change in contractual rate of interest and as a consequence of aforesaid illegal, unwarranted and unjustifiable change in terms and conditions of the loan facility, applicant No. 1 which was already reeling under financial stress became exposed to high interest rated as 19 to 20 percent per annum, but despite that it continued to service interest and keeping the outstanding within permissible, limit. However, on 30th November, 2016 the respondent Bank, in violation of the RBI guidelines and the rules relating to income recognition classified and declared the said credit facility as NPA and the action of the respondent Bank is in brazen violation of Master Circular dated 1st July, 2017 of the RBI. The applicant No. 1 vide its letter dated 17th January, 2017 requested the respondent Bank for financial restructuring, but refused and issued demand notice dated March 10, 2017 under Section 13(2) of the SARFAESI Act demanding Rs. 21,75,90,966.13 and thereafter issued legal notice dated 29th April, 2017 claiming a sum of Rs. 19,99,77,093/- along with interest @ 14.35% per annum with effect from November 30, 2016 plus penal interest @ 2% per annum compounded monthly, it is further the case of the security applicants that security applicant No. 1 raised objections against the Demand Notice dated 10th March, 2017 by submitting representation dated 11th May, 2017, which has been rejected by the respondent Bank vide its letter dated 18th May, 2017, it is further the case of the security applicants that when security applicant No. 1 vide its letter dated 24th July, 2017 requested the respondent Bank to consider the proposal of Mr. Sandeep Bayana for purchasing the subject property, but the respondent Bank called upon it to submit a concrete repayment plan. However, applicant No. 1 in order to bring the dispute to a quietus submitted OTS dated August 30, 2017 for a sum of Rs. 13 crores, but the respondent Bank issued notice dated 31.8.2017 under Section 13(4) of the SARFAESI Act, 2002 and on the strength of the order dated 15th September, 2017 the Court Receiver issued impugned notice dated November 14, 2017 threatening to take possession of the subject property on December 5, 2017 at 12 noon and feeling aggrieved the security applicants filed a Writ Petition (Civil) No. 10523 of 2017 titled as Kamal Radhu and Ors. v. Canara Bank and Anr. which was disposed of by the Hon'ble High Court of Delhi with a direction to approach this Tribunal within one week during which period, no coercive step would be taken qua the subject property. According to the security applicants, father of applicant Nos. 2 and 4 has filed a Civil Suit No. 349/2017 titled as Madan Lal Radhu v. Kamal Radhu and Anr. For partition of the subject property which is pending adjudication and vide order dated 29th November, 2017 the Civil Court has restrained security applicant Nos. 2 and 4 from creating any third party interest qua it by way of sale/transfer/mortgage etc. The security applicants have challenged the action of the respondent Bank taken under the provision of the SARFAESI Act being violative against its provision and Security Interest (Enforcement) Rules, 2002, illegal and are liable to be quashed. As an interim prayer, the security applicants have requested to pass an order to restrain the respondent Bank from selling the subject property and initiating further coercive action/steps under the SARFAESI Act, 2002.

On the other hand, the respondent Bank has filed its reply contending that the applicant No. 1 Company availed credit limit i.e. OD facility of Rs. 20 crores against hypothecation of book debts C-681, New Friends Colony, admeasuring 475 sq. yards in the name of applicant No. 1 in its favour by way of collateral security besides plant, machineries and other fixed assets and raw machineries final goods and semi finished goods etc. Apart from above, the said credit facility was also secured by the personal and continuing that applicant No. 1 Company was required to maintain the financial discipline. However, on the renewed the said facility time and again. However, the loan account had remained over drawn since August 31, 2016 and due to irregularities into account, the same was classified as NPA on 30th November, 2016 under intimation to applicant No. 1 vide notice dated 7th December, 2016 wherein applicant No. 1 company was asked to clear the outstanding liability but it failed to do the needful. It is further contended that after issuance of demand notice under Section 13(2) of the SARFAESI Act to the borrower, guarantors and mortgagors to pay a sum of Rs. 21,75,90,966.13 the applicant No. 1 Company had filed objections against the same, but the same were dismissed and thereafter applicant No. 1 Company had given an offer for OTS of Rs. 13 crores and in reply thereto, the answering respondent Bank had again reiterated its stand of clearance of entire liability and on failure of the applicants to clear their liability, the respondent Bank took symbolic possession of the mortgaged property on 15th September, 2017 On getting no response from applicant No. 1 Company to clear the outstanding liability, the respondent Bank approached the learned CMM for taking physical possession of the mortgaged property and accordingly obtained orders for taking physical possession on 1st December, 2017 and on informing about the same to the applicant No. 1 Company, the latter vide its letter dated 1st December, 2017 made an offer of Rs. 17 crores as a buyer was ready to purchase the mortgaged property on the said amount, but the answering respondent Bank has contended that the loan account of applicant No. 1 company had already become overdrawn and no credits were received since 1st January, 2016 and there was no loan transaction in the account. The interest was serviced only from personal sources and there were no genuine third party transactions and, as such, it was observed that no option was left for the answering respondent Bank to declare the loan account as NPA on 30th November, 2016. All other contra allegations have been denied. Ultimately, it submitted that no case for interim order is made out and the same is liable to be rejected.

Heard Counsel for the security applicants.

Now the point for consideration is whether the security applicant are entitled for restraining the respondent Bank from taking possession of the subject property as an interim relief as prayed for?

The first main and foremost contention of the learned Counsel for the security applicants is that the account of applicant No. 1 Company was classified as NPA unlawfully and against the guidelines of RBI and, as such the notice under Section 13(2) of the SARFAESI Act is unlawful and further proceedings subsequent thereto are also null and void and are liable to be set aside. The next contention of the security applicants is that there is temporary injunction granted by the Civil Court restraining Sections 2 and 4 from interfering with the possession of the security applicant in S.A. No. 206 of 2017. It is further contended that applicant No. 1 company is a Construction Company and had entered into an agreement with the said corporation which had entrusted development work of 1,500 Kanals of land for a project named "Rever Valley Project" and applicant No. 1 Company approached the respondent Bank to avail working capital facility to the tune of Rs. 20 crores which was sanctioned vide sanction letter dated 26th March, 2013 by the respondent Bank against book debts and the applicant No. 1 Company availed the same and started construction work as per the contract but due to flood the construction work was damaged as per contract the applicant No. 1 Company is entitled to the sale proceeds of the units after the construction work on the project is over and when the units are not sold due to is major, there was loss for the entire and the security applicant No. 1 is entitled only on sale of the units. Meanwhile, declaration of the account by the respondent Bank is unlawful and against Paragraphs 2.1.2, 2.1.3 and 2.2 of the Master Circular dated July 1, 2015 and consequently all other measures adopted by the respondent Bank are also void ab initio, unlawful and illegal and, as such, are liable to be quashed. Learned Counsel for the security applicants has also contended that as per guidelines contained in Paragraph 4, 2, 3 of the respondent Bank without taking into consideration the same declared the account as NPA and on this ground also, the action of the respondent Bank is liable to be set aside.

On the other hand, learned Counsel for the respondent Bank has contended that several notices were issued and there was correspondence with the security applicant before declaring the account as NPA and in spite of several opportunities granted to them to fulfill their obligations, their account became irregular and was classified as NPA when they failed to make the payment and ultimately after non-service of the principal and interest for 90 days, the account was classified as NPA which is legal one and the security applicants have failed to make out any case for granting interim relief and, as such, the respondent Bank is entitled to take physical possession of the property in question.

In the case in hand, a perusal of the record and the correspondence in between the security applicants the respondent Bank at Pages 233 to 280 of the S.A. and at Pages 58 to 119 of the reply thereto, reveals that the account of applicant No. 1 Company was classified as NPA after all the efforts made by the respondent Bank to persuade the security applicants to discharge their liability proved futile and the respondent Bank had cautioned them regarding the account becoming NPA. Thus, the security applicants have failed to make out any case about the wrong declaration of the account as NPA by the respondent Bank.

For completion of pleadings and evidence by both the parties, the matter be posted before the Registrar on 29.1.2018."

Respondents 2 to 6 have not challenged this order.

Now, let's see how the learned Presiding Officer in the present case has dealt with the prayer of grant of interim relief made by the respondent No. 1 herein in the S.A. The impugned order dated 21.12.2017 reads as under:

"1. Security applicant Mr. Madan Lal Rodhu has filed this Securitization Application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 seeking quashing and setting aside the impugned order dated 15th September, 2017 passed by the learned Chief Metropolitan Magistrate and also the impugned notice dated November 14, 2017 issued by the Receiver for taking possession of the property and for restraining the 1st respondent Bank from invoking and prosecuting proceedings under the SARFAESI Act in respect of the property viz. C-681, New Friends Colony, New Delhi-110065 (for short, the property in question) in which the applicant has 1/3rd un-demarcated share and as an interim relief the security applicant has sought an order restraining 1st respondent Bank from taking physical possession of the property in question.

The brief case of the security applicant is that a plot measuring 475 sq. yards located at C-681, New Friends Colony, New Delhi, was sub-leased to Mrs. Savitri Devi by the New Friends Cooperative House Building Society Ltd., which was jointly purchased by the security applicant and respondent Nos. 2 and 4 out of the joint corpus of the family and after execution of agreement to purchase, possession of the said plot was handed over to the parties and a residential house was constructed from the joint funds of the family kitty and after construction the entire family of the security applicant and respondent Nos. 2 and 4 is living. However, the Conveyance Deed has been duly registered as document No. 2417 in Addl. Book I, Vol. No. 162 on Pages 61 to 63 on December 30, 1994 and subsequently there was a family settlement on 24th May, 2012 in between the security applicant and respondent Nos. 2 to 6 to unite in estate and interest and decided to remain together and form one family. However, respondent Nos. 2 and 4 taking advantage of old age of the security applicant started proclaiming themselves to be the sole and absolute owners and authority with regard to the property and sought illegal control over it. The security applicant then instituted Civil Suit bearing No. 349/2017 titled as Madan Lal Radhu v. Kamal Radhu and Anr., for partition of the property in question and the Civil Court vide its order dated 29th November, 2017 granted interim injunction in favour of the security applicant and against respondent Nos. 2 and 4 from creating any third party interest by way of sale, mortgage, handing over its possession till further orders. Meanwhile, Mr. Chandan Rai Chawla, Advocate, was appointed as a Receiver by the Court of learned Chief Metropolitan Magistrate, Saket District Courts and the said Receiver visited to take over the possession of the property on account of the fact that it has been mortgaged by respondent Nos. 2 to 6 with 1st respondent Bank for recovery of Rs. 21,68,29,094/- which constrained the security applicant to file the present Securitization Application.

On the other hand, though 1st respondent Bank has not filed its reply, but its Counsel has vehemently contended that the Bank is not a party to the Civil Suit and since proceedings are collusive in nature, therefore, the same are not binding on it and that the 1st respondent Bank is entitled to take possession of the property in question ignoring the proceedings pending in between the security applicant and respondent Nos. 2 to 6.

Heard Counsel for the security applicants.

Now the point for consideration is whether the security applicant is entitled for interim relief as prayed for?

In the case in hand, the security applicant has placed on record copy of the perpetual lease as Annexure 'A', which reveals that lease of the plot over which the property in question is constructed in favour of Smt. Savitri Devi and New Friends Cooperative Housing Building Society; photographs of the security applicant reflecting his possession over one floor of the property in question as Annexure 'B'. Annexure 'C is the copy of General Power of Attorney executed by Savitri Devi in favour of respondent No. 4, whereas Annexure 'D' is the copy of the Conveyance Deed of the property in question. The security applicant has also produced a copy of the Family Settlement dated May 24, 2012 as Annexure 'E', copy of plaint of Civil Suit No. 349/2017 and copy of the order passed therein as Annexures 'F' and 'G' respectively as well as copy of the notice dated November 14, 2017 issued by the Receiver as Annexure 'H' along with copy of the order passed by the learned CMM, Delhi.

Learned Counsel for the security applicant has vehemently contended that by virtue of family settlement dated 24th May, 2012, the security applicant is in possession of 1/3rd share of the property in question jointly and he has filed a Civil Suit before Civil Court for partition wherein injunction has been granted from dispossession against respondent Nos. 2 and 4 and the 1st respondent being mortgagee on behalf of respondent Nos. 2 to 6 has no right to dispossess him. However, the 1st respondent Bank contends that it is not a party to the suit and as such the ad interim injunction granted by the Civil Court is not binding on it. However, in the present case, learned Counsel for the security applicant submits that the security applicant is aged about 90 years and is claiming 1/3rd share in the property in question. It is further submitted that there are three floors over the property in question. If the ground floor is left for possession of the security applicant, I am of the considered opinion that the purpose of the security applicant from dispossession and for his stay, in the facts and circumstances of the present case, would meet the ends of justice and as there are huge dues of about Rs. 21 crores, the 1st respondents Bank should be permitted to take possession of at least two floors of the property in question.

In the above facts and circumstances, interim relief in respect of the ground floor with mezzanine of the property in question is granted in favour of the security applicant, whereas 1st respondent Bank is permitted to take possession of at least two floors i.e. 1st and 2nd floors of the property in question, subject to the result of this pending S.A.

For competition of pleadings, the matter be posted before the Registrar on 29th January, 2018."

Feeling aggrieved with the direction given by the DRT to the Bank not to take physical possession of the ground and mezzanine floors which even as per the respondents is in joint occupation of the joint Radhu family of which respondent No. 1 is the Head and to whom the DRT itself in their separate S.A. denied to give any relief, this appeal was filed by the Bank. The grievance of the Bank is that though vide the impugned order conditional interim relief has been granted by DRT but in fact it is unconditional since the two floors taken over by the Bank have no separate entry and exit doors and even sale thereof has not been permitted.

Notice of the appeal was given to the respondents and they entered appearance.

Father entered appearance through his independent Advocate while his children entered appearance through a separate Advocate.

Considering the grievance of the Bank that unjustifiably the learned Presiding Officer of DRT had permitted respondent No. 1 in this appeal to continue to occupy ground and mezzanine floors to be prima facie justified this Tribunal, while fixing the appeal for final hearing, gave a show cause notice to the respondents to show cause as to why appropriate orders as contemplated under Section 19(18) and (25) of the Recovery of Debts and Bankruptcy Act, 1993, which includes appointment of Receiver etc., read with Section 17(7) of SARFAESI Act be not passed during the pendency of the appeal. Respondent No. 1 submitted his independent written response while other members of his family filed a separate but joint response, perhaps to give an impression that they are genuinely at logger heads with respondent No. 1 who had filed a suit for partition in respect of the mortgaged property in question claiming himself to be 1/3rd owner with his two sons of house in question.

None of the respondents have challenged the authority of this Appellate Tribunal to issue show cause notice to them to enable them to submit their view points as to why steps should not be taken to take possession of even the ground and mezzanine floors also. However, their common stand is that there is no justification for taking that stringent and harsh step in the facts and circumstances of this case. It was contended that this is not a case where the Tribunal below has granted unconditional stay in the matter and on the contrary a very tough condition in the nature of a mandatory direction to the Bank to take over physical possession of first and second floors has been passed and the Bank has already taken and thus equities stand balanced between the parties by protecting the interest of the Bank as well as by giving some interim protection to old respondent No. 1 who has been cheated by his own children by creation of a mortgage of a joint family property by one of his sons for his personal gain.

Mr. Pallav Saxena, learned Counsel for the children and grand children of the respondent No. 1, who is the security applicant before the DRT and are also the guarantors for the repayment of huge amount of public money, submitted that these respondents have to recover huge amount of money from J & K Co-operative Housing Corporation Ltd. under some contract which it had awarded to the borrower Company and as soon as they get their dues from the said Government owned Corporation they will immediately repay the dues of the appellant Bank. When it was put to Mr. Saxena as to why his clients who are sons and grandsons of the respondent No. 1, who is now facing the danger of being thrown out from the property in question on account of non-payment of debt by his children and grandchildren are not coming forwarded to save him from being thrown on the road the answer was that it was his headache how to save himself from that situation and since already he is fighting his legal battle against his sons so why should his sons come to his help. As far the respondent No. 1 is concerned his stand is that his one son, respondent No. 2 herein, had no authority to mortgage the property in dispute which is a joint family property and already a suit for partition is pending in Civil Court. Thus, the entire Radhu family is putting stiff resistance to the appointment of Receiver etc. and at the same time are not disputing their liability to repay loan which their family concern took from the appellant Bank but when it came to repayment they have taken the shelter under the family disputes going on in Civil Court and non-recovery of their money from J & K Government run one Corporation. It was also submitted by the respective Counsel for the respondents that this Tribunal having already fixed the main appeal itself for final hearing on 28.6.2018 the endeavour of everyone should be to ensure that the appeal itself is heard finally on the said date and final order is also pronounced by this Tribunal as early as possible instead of deciding at an interim stage whether a Receiver in respect of property in question should be appointed to remove the occupants of the property in question which if ordered will render the entire legal battle meaningless. However, when it was put to learned Counsel as to why the mortgaged property should remain in occupation of defaulters without their even coming forward to shell out money and pay to the lending Bank there was no response except that let money should first be released by J & K Government owned and managed Corporation and then only money could be paid to the Bank since the loan itself was granted to the borrower Company in view of the contract awarded to it by the aforesaid Corporation which project of earth filling and embankment work on the Banks of river Tawi, known as 'River Valley Project' the Bank had considered to be profitable enough to sanction huge loan.

After giving my due consideration to the rival submissions I am of the view that decision as to whether this Tribunal should appoint a Receiver or not to remove the occupants from the house in question respondent No. 1, the security applicant, should be directed to pay a sum of Rs. ten crores out of the total demand of over twenty crores raised by the Bank for the time being to the appellant Bank without prejudice to the pleas which are being raised by him in this litigation and as a condition for not staying the operation of the impugned order of the DRT directing the Bank not to take possession of the entire mortgaged house in question and deferring the examination and decision on the question whether Receiver should be appointed or not.

Accordingly, respondent No. 1 is directed, and which direction will not be construed as a rejection of any of the pleas being raised from both sides which decision shall be taken later on, to pay to the appellant Bank ten crores of rupees subject to further orders to be passed in this appeal, within a week. Proof of payment to the Bank shall be submitted in the Registry of this Tribunal immediately on payment and if payment is tendered it shall not be refused by the Bank and if made the same shall be kept by the Bank in an interest bearing no lien account.

The matter shall now be listed on 29.5.2018 to see if respondent No. 1 has complied with the said direction of the Tribunal being given to him or not. In case of non-compliance of the direction this Tribunal will proceed to pass further appropriate orders in the matter.