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Judgment
Ashok Menon, Chairperson
The appellant claims to be the purchaser of the secured asset namely Plot No. 254-A admeasuring 3025.25 sq. meters, known as ‘Anjali’ at Sector N-3, Survey No. 12 Part, Near Jain Mandir, CIDCO, Aurangabad against which the respondent bank is proceeding under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) for recovery of a debt due from the respondent Nos. 2 & 3, the borrowers. The appellant challenges the dismissal of the Securitisation Application (S.A.) No. 88/2021 by the Debts Recovery Tribunal, Aurangabad (D.R.T.) vide judgment dated 26.08.2022. The facts are encapsulated hereunder.
The subject property belongs to CIDCO and was leased to the 3rd respondent for ninety years, effective from 01.01.1986, as per the lease deed dated 29.07.1988. The leasehold right of the 3rd respondent was mortgaged in favour of the 1st respondent bank for a debt incurred by the 2nd respondent company of which the 3rd respondent was a director. A mortgage by deposit of title deeds was created in favour of the 1st respondent.
The appellant, a government servant, allegedly purchased the subject property from the third respondent for a sale consideration of ₹ 1.15 crores as per the agreement dated 10.01.2019 which was later modified and a registered agreement assigning the property was executed on 16.02.2019. The possession of the subject property was also handed over to the appellant. ₹ 3 lakh was paid by the appellant to the 3rd respondent on 17.01.2019 and thereafter a further amount of ₹ 18,50,000/- was paid. The balance was to be paid on 07.05.2019. To raise the amount for payment of the balance sale consideration, the appellant obtained a loan of ₹ 93,50,000/- from the State Bank of India. Being a state government employee, the appellant also obtained a departmental loan of ₹ 30 lakhs. However, despite seeking completion of the agreement to sell, the 3rd respondent did not perform her part of the contract by receiving balance sale consideration as a result of which, the appellant filed a Civil Suit No. 189/2020 before the Civil Judge (Senior Division), Aurangabad. An order was obtained from the Civil Court under Order 39 Rule 3 of the Code of Civil Procedure directing the parties to maintain the status quo.
Respondents Nos. 2 & 3 defaulted payment of the debt due to the bank as a result of which a demand notice was issued for recovery of ₹ 1,91,92,806.73 u/s 13(2) of the SARFAESI Act to them as there was no payment forthcoming. The bank took further action u/s 13(4) of the SARFAESI Act. The symbolic possession of the property was taken on 23.06.2021. The publication was made in the newspapers as required under the rules. The appellant came to know about the Sarfaesi measures initiated by the bank and hence approached the bank by offering to pay a substantial amount towards the debt. The bank did not agree and hence, the appellant filed the S.A. as an aggrieved person challenging the Sarfaesi measures. The appellant contends that given the offer made by the appellant about clearing the dues, the bank should have accepted the offer under the provisions of Section 13(4)(d) of the SARFAESI Act. The appellant is also entitled to redeem the debt u/s 13(8) of the SARFAESI Act.
The respondent bank opposed the S.A. by contending that the appellant has absolutely no right to challenge the Sarfaesi measures taken by the bank. There is no dispute that the residential building belonged to the borrowers/respondents Nos. 2 & 3 had created a mortgage concerning the subject property by depositing the original title deeds of the property with the respondent bank on 17.08.2012. The appellant is, therefore, not a bona fide purchaser. He has not conducted due diligence before purchasing the subject property. Hence, he is not entitled to any protection and cannot challenge the Sarfaesi measures initiated by the bank.
Respondents Nos. 2 & 3 also appeared and challenged the S.A. stating that the appellant did not perform his part of the contract as a result of which the 3rd respondent had repudiated the contract and also returned the advance amount received by her to the appellant. The Civil Suit No. 189/2020 is being contested by her and the D.R.T. has no jurisdiction to decide the dispute regarding the specific performance of a contract between the appellant and the 3rd respondent.
The Ld. Presiding Officer, D.R.T. on filing the S.A. granted interim protection to the appellant from being dispossessed subject to payment of ₹ 40 lakhs to the respondent bank on 13.09.2021. Subsequently, vide impugned judgment dated 26.08.2022, the S.A. was dismissed holding that the appellant cannot challenge the Sarfaesi measures and has no right to pay the amount on behalf of the borrowers to redeem the mortgage.
Aggrieved by the dismissal of the S.A., the appellant filed this appeal. The appellant deposited ₹ 50 lakhs on 16.11.2023 and 17. 11.2023 and again on 24.04.2024 ₹ 1.97 crores was deposited before this Tribunal. Thus, a total sum of ₹ 2.47 crores was deposited by the appellant to prove his bona fide intention to redeem the property. That apart, ₹40 lakhs is already lying in deposit with the respondent bank which is still not appropriated towards the debt. At the time of arguments, the Ld. Counsel appearing for the bank submitted that there is an outstanding dues of ₹ 2.47 crores.
The Ld. Counsel appearing for the appellant submits that the demand notice u/s 13(2) was issued only on 06.04.2021 whereas the agreement for sale was executed on 16.02.2019 and therefore the embargo u/s 13(13) will not preclude the borrowers from transferring the property to the appellant. However, the encumbrance of the mortgage in favour of the bank would continue. The sale in favour of the appellant would be subject to that encumbrance.
The question that arises for consideration in this appeal is whether the appellant has the right to redeem the property which has been mortgaged in favour of the respondent bank. Section 91 of the Transfer of the Property Act reads thus:
“ 91. Persons who may sue for redemption.—
Besides the mortgagor, any of the following persons may redeem, or institute a suit for redemption of, the mortgaged property, namely:—
(a) any person (other than the mortgagee of the interest sought to be redeemed) who has any interest in, or charge upon, the property mortgaged or in or upon the right to redeem the same;
(b) any surety for the payment of the mortgage debt or any part thereof; or
(c) any creditor of the mortgagor who has in a suit for the administration of his estate obtained a decree for sale of the mortgaged property.”
The words “ besides the mortgagor” indicate that persons other than the mortgagor also can redeem the mortgage. Section 13(4)(d) of the SARFAESI Act states thus:
“(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:—
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”
Thus, the creditor can ask the transferee of the property to pay the amount from any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
There is no evidence of the borrowers’ repaying the advance amount borrowed. The registered agreement for sale cannot be revoked unilaterally except by due process of law. Admittedly, a suit of specific performance is pending and the right of the appellant to get the property assigned to him absolutely will be decided in the suit. The property is not yet sold and therefore, the right of redemption u/s 13(8) of the SARFAESI Act is still available.
Section 13(8) reads thus;
“(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,
(i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and
(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this subsection, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.”
The Section does not state that the amount of dues of the secured creditor together with the interest to the parties and expenses incurred by him is to be tendered to the secured creditor ‘by the borrower’ before the date of publication of notice of public auction indicating thereby any person who is interested in the property and who is aggrieved by the Sarfaesi measures can invoke the provisions u/s 13(8) to get redemption of the property.
However, it is also relevant that the dispute between the appellant and the seller is sub judice before the Civil Court in Civil Suit No. 189/2020. The right of the appellant to get the property assigned will have to be decided in that suit.
The respondent bank is only concerned with the clearing of the dues. The appellant has already deposited the entire dues towards the debt. The borrowers have not so far offered payment of any amount towards the debt.
Under the circumstances, it is in the interest of justice that the amount tendered by the appellant towards the debt due be appropriated towards the debt by the respondent bank and the Sarfaesi measures dropped.
However, the title deeds which are the subject matter of Civil Suit No. 189/2020 before the Civil Judge (Senior Division), Aurangabad, shall be returned to the appellant or the 3rd respondent in accordance with the decision of the Civil Court. Leaving the contentions between the appellant and the 3rd respondent open to consideration by the Civil Court, the amount tendered by the appellants shall be appropriated towards the debt and the debt due from the respondents Nos. 2 & 3 shall be closed. In case there is an excess amount after adjustment towards the debt, it shall be refunded back to the appellant, and if there is any shortfall, the appellant shall make good that amount to the bank.
The appeal is allowed as above.