Geetaben Nareshbhai Shah vs Mashreq Bank Ltd. & Ors

Ashok Menon, Chairperson

Appeal No. 176 of 2008 is filed by the 7th defendant in Original Application (O.A.) No. 280 of 1997 on the files of the Debts Recovery Tribunal-I, Ahmedabad (D.R.T.) who is aggrieved by the judgment and order dated 25.08.2008 allowing the O.A. and issuing a Recovery Certificate to realise the amount from out of the secured properties under the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDB & FI Act”, for short).

Appeal No. 123 of 2012 is filed by the very same Appellant challenging  the  order  dated  27.04.2012  dismissing  Securitisation  Application (S.A.) No. 3 of 2012 on the files of the aforesaid D.R.T. filed under the provisions of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) by the Appellant.

The facts in brief can be encapsulated thus:

The first Respondent Mashreq Bank Ltd. is the Applicant in the aforesaid O.A. The first defendant (second Respondent in the appeals) is a company named Hydron Enviro System Ltd. presently under liquidation and represented by the Official Liquidator, High Court of Gujarat. The company was run by defendants Nos. 2 & 3 as its directors. The Applicant bank had advanced credit facilities to the company and various security documents including hypothecation of movables and an equitable mortgage of immovable properties were created to secure the debt. Defendants Nos. 2 and 3 had executed personal guarantees while defendants Nos. 4 to 6 pledged shares of Rushab Capital and Finance Services Ltd. with the intent to create collateral security. The third defendant (the fourth Respondent herein) Mr Nimesh B Shah, who is the director of the company created an equitable mortgage of his residential property namely 21, Ashvamegh Bungalows, Part III, Satellite, Ahmedabad (subject property). The borrowers defaulted on repayment of the debts. The company went into liquidation and ceased to function. An amount of ₹18,72,507/- in fixed deposit with the bank was appropriated towards the debt. The bank issued notices to the debtors. There was no response, and hence, the bank filed the O.A. for the realisation of the amount due. Geetaben N. Shah (Appellant herein) who is the wife of Nimesh B. Shah got herself impleaded as the seventh defendant claiming the exclusive right title and interest over the subject property and challenged the mortgage.

The third defendant had raised several contentions in the O.A. and sought to be exonerated from his liability as a guarantor because of gross misconduct and negligence on the part of the bank. He also contended that he had not created any equitable mortgage concerning the subject property.

The seventh defendant (Appellant) had after getting herself impleaded in the O.A. filed a written statement contending that she is neither a borrower nor a guarantor or a mortgagor. She claims to be the exclusive owner in possession of the subject property which is alleged to have been mortgaged by her husband, the third defendant. She claims that the entire consideration for purchasing the subject property was paid by her. Her husband’s name was entered as a co-owner only for administrative purposes by the society. It is contended that the third defendant has no right title or interest over the subject property and that her absolute title to the property has been upheld by the nominee court in Lavad Case No. 34 of 2007 under the Cooperative Societies Act. She, therefore, sought the dismissal of the O.A. concerning the subject property.

After considering the rival contentions raised by the parties, the Ld. Presiding Officer concluded that there was a valid equitable mortgage created concerning the subject property in favour of the bank. The contentions raised by defendants Nos. 3 & 7 about the subject property were disregarded. It was also held that the bank not being a party to the Lavad Case No. 34 of 2007, was not bound by the finding therein. The claim of the 7th  defendant that the entire sale consideration for the subject property was paid by her alone was found not proved. The O.A. was allowed against defendants Nos. 1 to 6. The Appellant is aggrieved and hence, in appeal.

After obtaining the Recovery Certificate in the O.A., the bank proceeded to issue a demand notice under Sec. 13(2) of the SARFAESI Act on 11.04.2011. The Appellant responded to that notice by sending a reply staking her exclusive claim over the subject property. Thereafter, the bank took symbolic possession of the subject property on 26.11.2011. Being aggrieved by the Sarfaesi measures initiated by the bank on the premise that there was no valid mortgage, the Appellant filed S.A. No. 03 of 2012 before the D.R.T. Vide order dated 27.04.2012 the S.A. was dismissed holding that the mortgage created concerning the subject property was already found to be valid and a charge decree was granted in favour of the bank by the D.R.T. after due adjudication in the O.A. The Appellant is aggrieved by the dismissal of the S.A. as well, and hence, filed Appeal No. 123 of 2012.

Since the issue involved in both appeals is about the independent title set up by the Appellant over the subject property and the validity of the mortgage, the appeals are being heard and disposed of by a common order.

Heard Mr Gaurang Kinkhabwala, the Ld. Counsel appearing for the Appellant in both the appeals and Mr Huzefa Khokhawala, the Ld. Counsel appearing for the Respondent bank. Records perused.

The Appellant contends that she has not created any security in favour of the bank by depositing the title deeds of the subject property with the intent to create an equitable mortgage. It is also contended that the Board of Nominee has in Lavad Case No. 34 of 2007 declared that the Appellant was the exclusive owner in possession of the subject property. It is pointed out that the bank had vide letter dated 24.09.1996 asked the borrower company to finalise the formalities of the mortgage by producing the relevant documents. The borrower company had in reply to that vide letter dated 05.10.1996 informed the bank that the residential property was not available for mortgage and requested the bank to proceed with the mortgage of the commercial property alone. To that, the bank again sent a reply on 07.10.1996 informing that a mortgage be created concerning both the residential as well as commercial property. The company vide letter dated 10.10.1996 reiterated that the residential property was not available for mortgage and that the commercial property was offered as security in place of the residential property. Again, on 15.10.1996, the bank informed the company that due to a rule change, the mortgage of this initial property could now be affected. It was also informed that mortgaging the property on a single mortgage deed would save ₹50,000/- to the company. According to the Appellant, the above-mentioned correspondences between the bank and the company would demonstrate that the mortgage of the residential property was not created till 28.05.1997. The finding of the D.R.T. that the alleged mortgage was created on 24.08.1996 overlooking the overwhelming evidence produced by the Appellant is erroneous, submits the Ld. Counsel appearing for the Appellant. Moreover, it is submitted that the finding of the board of nominees declaring the Appellant as the absolute owner of the property has become final since nobody has challenged it. The society was also directed to issue the share certificate in the name of the Appellant, deleting the name of the 4th Respondent from the records since she is the exclusive owner of the property. It is also pointed out that any agreement or memorandum of agreement relating to the deposit of title deeds of any property has to be affixed with the stamp as per Article 6 or 40 of the Bombay Stamp Act, 1958 (Stamp Act). Any document which is not sufficiently stamped cannot be admitted in evidence for any purpose as per section 34 of the Stamp Act. The bank relies on a letter dated 24.08.1996 alleged to have been signed by the 4th Respondent. The said letter is written on plain paper and is not admissible in evidence, submits Mr Kinkhabwala. Despite the infirmity being pointed out, the D.R.T. has relied upon the said letter to find that there is a valid mortgage concerning the subject property. It is, therefore, prayed that the impugned judgment and order of the D.R.T. may be set aside and quashed.

In Appeal No. 123 of 2012, it is contended and argued by the Ld. Counsel Mr Kinkhabwala that the bank was aware that the order passed by the D.R.T. in the O.A. was challenged by the Appellant before this Tribunal. No Security interest has been created concerning the subject property and therefore, no measures under the provisions of the SARFAESI Act could have been initiated by the bank. It is submitted that the S.A. was dismissed only on the ground that there is a finding in the O.A. in favour of the bank about the creation of a mortgage in respect of the subject property.

Per  contra,  the  Ld.  Counsel  for  the  Respondent  bank,  Mr Huzefa Khokawala contends that the Appellant’s husband Nimesh Shah, the fourth respondent, was a managing director of M/s Hydron Environ Systems Limited (under liquidation), the second respondent herein. As the managing director of the company, Nimesh Shah had negotiated with the bank for a loan transaction for the company in the year 1995 against the security of pledged shares of the company. With the decrease in the value of the shares in the share market, the bank demanded collateral security for his residential bungalow, 21 Ashwamegh-3, Satellite, Ahmedabad and also the commercial property belonging to the company. Before the creation of the legal mortgage of the properties in August 1996, Nimesh Shah had sent the original share Certificate, original possession letter, copy of the resolution of the co-operative society in which the bungalow is situated and his certificate certifying that he is the owner of the residential bungalow and that he has no objection to the creation of an equitable mortgage in favour of the bank. The mortgage by deposit of title deeds in favour of the bank was created till a mortgage deed was executed. However, Nimesh Shah failed to execute a mortgage deed concerning the immovable properties including the bungalow. Nevertheless, there was an equitable mortgage created in favour of the bank. Nimesh and his wife the Appellant had demanded the return of the title deeds of the bungalow, which was never returned by the bank and thus, the equitable mortgage was never redeemed. Nimesh Shah demanded a duplicate Certificate to be issued from the society stating that the original Certificate was misplaced. This misrepresentation was not accepted by the society and hence, no duplicate Certificate was issued. In the letter addressed to this society dated 28.02.1998, Nimesh Shah admitted that the original papers were with the bank. The respondent contends that Nimesh Shah has in collusion with the Appellant projected the story that he is the exclusive owner of the property and that he had the authority to create a mortgage. To prevent the bank from recovering the public money, Nimesh Shah clandestinely executed a release deed in favour of his wife the Appellant. The said document is not even properly stamped and is also not registered. Such a document is inadmissible in evidence. The collusive suit was filed as Lavad Suit No. 34/2007 before the Board of Nominees constituted under the Cooperative Societies Act by the Appellant seeking a declaration that she was the sole owner of the bungalow. The bank was not made a party to that suit. The application for execution of the said order obtained in the Lavad Suit has been filed by the Appellant. The society filed an appeal before the Gujarat Cooperative Tribunal. However, there was a delay in filing that Appeal and the same was never condoned. The challenge before the Hon’ble High Court also failed. It is also contended that the Appellant’s name in the Certificate was clandestinely added by Nimesh Shah when he got it from the bank under the guise of taking a Xerox copy. The original possession showed the name of Nimesh Shah alone as the sole owner of the property. The electricity bills, tax bills and maintenance bills obtained in the name of the Appellant are all of the year 2000 and thereafter. The Appellant was never a member of the society from 1991 to 1996 as per the affidavit of the chairman of the society. The mortgage was created in the year 1996 and the Lavad Suit is of the 2007. The Appellant had filed an application for getting herself impleaded in the O.A. only after 10 years with the deliberate intention to delay the disposal of the O.A. There is no allegation against the bank to the effect that the original share Certificate and the title deeds produced before the bank were concocted or forged. Nimesh Shah has never challenged the Sarfaesi measures initiated by the bank against the secured assets. On the above submissions, the Ld. Counsel for the respondent submits that the appeal deserves to be dismissed.

The Appellant claims exclusive right over the subject property stating that the property was purchased by her with her funds and that her husband did not contribute anything towards the sale consideration for the purchase of the bungalow. It is contended that her husband’s name was included in the records of the society merely for convenience. She requested the society to remove the name of her husband which the society refused as a result she filed the Lavad Suit 34/2007 before the Board of Nominees and obtained a declaration against the society for alteration of the name in the records. It is pertinent to note that in the application filed by her to get herself impleaded in the O.A., she has specifically stated that the mortgaged property belongs to her husband and her jointly. Her husband has executed the released deed relinquishing his share in the property in her favour resulting in her becoming the absolute owner. The said document was never registered nor was it drawn on the requisite stamp papers. Hence, the said document of relinquishment of the document by Nimesh Shah has no effect whatsoever. It is also pertinent to note that the request for change in the name of the ownership, the filing of the Lavad Suit and the execution of the purported relinquishment deed, were all executed after the repayment of the debt defaulted. Hence, it is adequately clear that the documents and action taken by the Appellant were in collusion with her husband.

The question that remains to be determined is whether there was a valid mortgage in favour of the bank concerning the subject property. There is no registered title deed pertaining to the subject property either in the name of the Appellant or in the name of Nimesh Shah. The allotment letter, the share certificate and the records from the society indicating the exclusive title of Nimesh Shah the mortgagor, were produced before the bank with the intent to create a mortgage. In the decision of Syndicate Bank vs. Estate Officer & Manager (Recoveries) Andhra Pradesh Industrial Infrastructure Corporation Ltd. & Ors. (2023) 3 SCC 736, the question of whether a mortgage can be created by deposit of documents which may not be title deeds or registered document of title was not answered by the Hon’ble Supreme Court on reference but it was held that the allottee having allowed the mortgagor to enjoy the property and create a mortgage was estopped from challenging the mortgageable title of the mortgagor.

The Hon’ble Supreme Court has in Hill Properties Ltd. vs. Union Bank of India & Ors. (2014)1 SCC 635 held that the right of a flat owner in a Multi-storied Co-operative Housing Society is exclusively that of his which is transferable and heritable. The flat owner can sell, donate, leave by will or let out or hypothecate his right. It was held that a legal bar on the saleability or transferability of such a species of interest would create chaos and confusion.

The Appellant has not challenged the genuineness of the documents submitted by her husband to create a mortgage. She cannot pretend to be ignorant about the actions taken by her husband. There were absolutely no documents available in her exclusive name till the action was taken by the bank to recover the amount. The argument of the Ld. Counsel for the Appellant that the letters addressed by the bank to the fourth Respondent calling upon him to produce the documents and create a mortgage as undertaken by him is of no consequence. The mortgage which was intended to be created for the residential and commercial properties was only to fortify the claim of the bank over the properties. An equitable mortgage was already created in favour of the bank as is evident from his letters to the bank. The intention to exclude the residential property had only come as an afterthought and it is evident that Nimesh Shah, the mortgagor had colluded with his wife to thwart the claim of the bank. The decision of the Lavad Suit is not binding on the bank so long the bank is not made a party. The order in the Lavad Suit indicates that Nilesh Shah had supported his wife’s claim of having exclusive title over the property. This action indicates the collusive nature of the Lavad Suit.

For the foregoing reasons, I am in agreement with the D.R.T. regarding finding that there is a valid mortgage created concerning the subject property. There is, therefore, no reason to interfere with the findings in the O.A. An O.A. is an adjudicatory process by which the mortgagor’s title and his right to mortgage the property has been determined. An action under the SARFAESI Act is not an adjudicatory process. The challenge raised to the Sarfaesi measures taken against the bank by the Appellant is based on the claim that there was no valid security created. Once there is a finding by the D.R.T. in the O.A. determining that there was valid security created concerning the mortgaged property in favour of the bank, nothing precludes the bank from proceeding against the secured assets resorting to the quicker remedy available to it under the SARFAESI Act. The D.R.T. had no other option but to hold in favour of valid security while considering the S.A. as there was already a finding in the O.A. which could not have been re-agitated in the S.A. There were no other grounds raised in challenging the Sarfaesi measures. The S.A. was, therefore, rightly dismissed by the D.R.T. I have no reason to interfere with the findings in the S.A. as well. The Appeals have no merit and are, therefore, dismissed.