G.R. Malhotra And Ors. vs Canara Bank And Ors.

J.M. Malik, J

The key question which falls for consideration in this appeal is whether the well established equitable maxim "qui prior est tempore potior est jure", meaning thereby that the transferor cannot prejudice the rights of the transferee by any subsequent dealing with the property, has any application in the case in hand.

Vide order dated 13.5.2010, the securitisation application moved by the appellants Mr. G.R. Malhotra and his wife Mrs. Kamal Malhotra was dismissed. The appellants are, admittedly, the subsequent purchasers of the property bearing No. 401, First Floor, Gagan Vihar, New Delhi -110051. The appellants had purchased the said property from Smt. Rashmi Shrivastava, the borrower in this case, for value vide registered sale deed dated 7.11.2003. Smt. Rashmi Shrivastava had purchased the said property from her mother Smt. Nirman Kaur on 15.1.2001. At the time of sale Smt. Rashmi Shrivastava had represented to and assured the appellants that the said property was free from all kinds of encumbrances and liabilities. She had also assured the appellants that she would hand over the title deeds of the property to the appellants on the day of execution of the sale deed. She had also shown the title deeds to the appellants. However, on the day of execution of original sale deed, Smt. Rashmi Shrivastava did not hand over the title deeds on one pretext or the other. Subsequently, she informed the appellants that her documents were destroyed in a fire that was set at her office.

The notice for taking over the possession of the aforesaid property was pasted on the premises in dispute by Canara Bank, respondent in this case, on 14.11.2008. It transpired that the above said property had been mortgaged by deposit of title deeds by Smt. Rashmi Shrivastava to secure the repayment of a housing loan of Rs. 2 lakh and OCC limit of Rs. 13 lakh. It also came to light that the respondent Bank had filed application under Section 14 of the SRFAESI Act informing that it intended to take over the physical possession of both the secured properties situated at Kundan Nagar as well as Gagan Vihar. However, the notice under Section 13(2) of the SRFAESI Act produced along with the application pertained only to the property at Kundan Nagar.

The appellants lodged complaint against Smt. Rashmi Shrivastava at Preet Vihar Police Station on 19.11.2008 and on the same day application under Section 17 of the SRFAESI Act was also filed. It is submitted that pursuant to the order of the Court the appellants have deposited a considerable amount.

I have heard the Counsel for the parties. The Counsel for the appellants vehemently urged that this appeal is a mercy petition before this Court. It was also urged that Mr. G.R. Malhotra, appellant No. 1, is a senior citizen and a resident of Delhi. He is a retired engineer from CPWD, Delhi and a Gandhian of belief and leads a retired life devoted to social cause, especially to the upliftment of the weaker sections of society. Smt. Kamal Malhotra, appellant No. 2, is his wife.

The learned Counsel for the appellants argued that notice under Section 13(2) of the SRFAESI Act was not served upon the appellants. Copy of the notice dated 5.2.2008 under Section 13(2) of the SRFAESI Act did not pertain to the property in question. The proof of postal receipts also pertains to the other property. It is, however, notable that the description of the other property was not mentioned in the written submission filed by the appellants. Again no copy of the notice dated 5.2.2008 was even referred, mentioned or filed in the proceedings under Section 14. No proof of service was filed during the proceedings under Section 14 of the SRFAESI Act. It was also argued that in the Mardia Chemicals Ltd. v. Union Bank of India, II (2004) BC 397 (SC): 110 (2004) DLT 665 (SC) case, the Apex Court held that application under Section 17(1) of the SRFAESI Act was in nature of a suit The respondent Bank did not give details of all these facts in its reply/written statement.

I am unable to locate any substance in these submissions. Record of the lower Court goes to reveal that two notices dated 5.2.2008 were placed before the lower Court. Notice under Section 13(2) dated 5.2.2008 appearing at page 231 clearly, specifically and unequivocally mentions various properties which were mortgaged with the Bank. It also mentions borrowers resident of 401, First Floor, Gagan Vihar, Delhi-110051. Secondly, these notices were served through registered ADs on 6.2.2008. The respondent Bank had eleven addresses in the names of Mrs. Rashmi Shrivastava, Mr. Raj Kamal Shrivastava and M/s. Sai Power Passion (P) Ltd. The case of the respondent Bank is that all the notices of two mortgaged properties were sent in one envelope and all the eleven postal receipt were placed on the record which are available at page No. 155 of the trial Court's file. It may be assumed that after purchase the appellants have stepped into the shoes of the original mortgagor, yet, it must be borne in mind that it is the mortgagor, borrower or his successor who is to carry the ball in proving that the said notice was not served upon her.

In Basant Singh and Another v. Roman Catholic Mission, : AIR 2002 SC 3557, the Hon'ble Apex Court was pleased to hold:

Once it is proved that summons were sent by registered post to a correct and given address, the appellant's own conduct becomes important. Before the trial Court, the appellants were allowed to lead evidence in support of their contentions. An order to that effect was passed by the trial Court. The premises in question was occupied by two defendants jointly. One defendant appeared and examined himself stating that he did not receive the registered letter. However, the appellant B did not appear and no evidence whatsoever, on his behalf, had been led to rebut the presumption in regard to service of summons sent to him under registered post with acknowledgement due. His own conduct showed that the registered summons had been duly served on him. As already noticed, the defendant appeared and save and except the bald statement that registered letter was never tendered to him, no evidence, whatsoever, was led to rebut the presumption. He could have examined the postman, who would have been the material witness and whose evidence would have bearing for proper adjudication. He had failed to discharge the onus cast upon him by the statute. That apart, it was inherently improbable that the registered summons were duly served on appellant but not to the other defendant when they occupied the tenanted premises jointly.

Again the Apex Court in another case Madan and Co. v. Wazir Jaiver Chandra, : AIR 1989 SC 630, was pleased to observe:-

The proviso insists that before any amount of rent can be said to be in arrears, a notice has to be served through post. All that a landlord can do to comply with this provision is to post a prepaid registered letter (acknowledgement due or otherwise) containing the tenant's correct address. Once he does this and the letter is delivered to the Post Office, he has no control over it. It is then presumed to have been delivered to the addressee under Section 27 of the General Clauses Act.

This must be borne in mind that the appellants, who may be the successors of original mortgagor are otherwise strangers to the agreement entered into between the Bank and the borrowers. The borrowers were reported to be absconded and the allegation is that they have left for a foreign country. The best evidence which could have been produced by the appellants was either their production before the trial Court or the affidavit filed by them to the effect that they had never received the registered notice. Keeping in view all the facts and circumstances, I find that the appellants have failed to discharge the onus of proof, as such the Court will presume that notice under Section 13(2) of the SRFAESI Act was served upon the borrowers.

It was also argued that the original borrowers had obtained financial facilities to the extent of limited amount of Rs. 15 lacs i.e. Rs. 13 lacs CC limit and housing loan of Rs. 2 lacs.

This argument is devoid of merit. The Bank's right of lien will have to be accepted. Pendente lite and future interest are to be added.

It was contended that the appellants were bona fide purchasers of the property in question and had purchased the property for consideration in the sum of Rs. 3 lakh. Smt. Rashmi Shrivastava had herself purchased the property in the year 2001 for a sum of Rs. 2 lakh and as such the consideration of Rs. 3 lakh paid for the purchase of the property in the year 2003 is in line and in consonance with the prevailing market rate. It is, however, surprising to note that the said property worth Rs. 2 to 3 lakh was accepted by the Bank as security for repayment of loan of more than Rs. 75 lakh. The Bank has not produced any documentary evidence which may suggest that at the time of alleged enhancement of credit facilities any revaluation of the property was carried out to justify the mortgage of the very same property to the enhanced credit facilities. All these facts and circumstances clearly go to show that the officials of the Bank were working in hand in hand with Smt. Rashmi Shrivastava and have caused loss not only to the appellants but also to the respondent Bank. It was argued that Section 48 of the Transfer of Property Act cannot come into the aid of Bank to push the legitimate rights of the appellants. It is explained that the judgment cited by the learned Counsel for the Bank in case Sh. Ishar Dass Malhotra v. Dhanwant Singh and Others, : 26 (1984) DLT 377 (DB): AIR 1985 Delhi 83 (DB) is distinguishable. It was argued that the appellants were not given an opportunity to redeem the adjudicated mortgaged debt.

The most important argument urged by the learned Counsel for the appellants was that it was in the knowledge of the Bank that the borrowers had sold the property in favour of the appellants. It was argued that the Bank did not intentionally make the subsequent purchasers, the appellants herein, as parties to the proceedings in the O.A. The O.A. was filed against the borrowers only. The learned Counsel for the appellants vehemently argued that since the year 1911 till date it is well settled that where a mortgagee is aware or has reason to believe at the time of instituting a suit on his mortgage, that property has already been sold to any person, and in spite of this knowledge or belief, fails to implead the purchaser as a party to the suit, the mortgage decree obtained against the mortgagor is inoperative as against the purchaser of the mortgaged property the purchaser has a right to a declaration that the decree is inoperative against him. In support of his argument he has cited various authorities reported in NGA PAW E v. NGA SIN, (1911) S.C. U.B.R. 1 92; Chet Singh and Another v. Allahditta and Another, 1912 S.C. 31 P.W.R. ; Suraj Din and Others v. Saiyid Wajid Ali, Second Civil Appeal No. III of 1915; Sayed Tasadduq Husain v. Syed Asghar Husain, Second Civil Appeal No. 143 of 1917; Sulleman Hashim and Another v. Esso and Others, AIR 1926 Sind 145; Mayappa v. Kolandaivelu, AIR 1926 Mad 597; (Chinta) Chandramma v. Gunna Seethan Naidu, : AIR 1931 Mad 542; Md. Mehar Talukdar and Others v. Rash Behari Majumdar and Others, : AIR 1932 Cal 561; Periakaruppa Pillai v. (Minor) Satyanarayanamoorthi, : AIR 1937 Mad 136; Jasraj Faooji v. Sugrabai w/o Badruddin and Another, AIR 1940 Sind 195; Bhuyah Shyam Sunder Mohapatra and Another v. Ch. Nilakantha Das and Others, 1956 Ori 165 (AIR V 43 C 48 Sept.); Nagubai Ammal and Others v. B. Shama Rao and Others, 1956 SC 593 (S) : AIR V 43 C 103 Oct.); Aneshwar Prasad and Another v. Misri Lull and Others, : AIR 1961 Pat 28 (V 48 C 7); Gudarmal v. Bansilal and Another, : AIR 1971 Raj 175 (V 58 C 40); Soni Bhailal Damji v. M/s. Hiralal Lakhamshi, AIR 1981 Guj 120; Shyam Swarup Sharma & Anr. v. Canara Bank & Ors., : 99 (2002) DLT 475 (DB); The Tax Recovery Officer 11, Sadar, Nagpur v. Gangadhar Vishwanath Ranede (dead) through Mrs. Shobha Ravindra Nemiwant, : AIR 1999 SC 427 and decision dated 10.9.2009 of my predecessor in : I (2010) BC 93=Miscellaneous Appeal No. 63/2006 [S.A. No. 5/2006 (Delhi-II)], Bank of Baroda v. Ms. Veena Chandyoke and Another.

The learned Counsel for the appellants submitted that the appellants could have taken action under Section 13(10) of the SRFAESI Act.

It was also argued that the appellants are the bona fide purchasers of the property. They are in possession of the said residential house as owners thereof since 2003. They could not get the original sale deed as per their version detailed above. Reference was made to the case of Raghunath Rai and Anr. v. Jageshwar Prashad Sharma and Another, : 81 (1999) DLT 228: AIR 1999 Delhi 383. The fact that the Bank officers are in connivance with Rashmi Shrivastava and conspired with her to deceive and commit fraud on the appellants is apparent. The issue with regard to the creation of mortgage as claimed by the Bank requires investigation and the concerned officers of the Bank are to be permitted to be cross-examined.

All these facts have left no impression upon the Court. On the contrary, it is apparent that the appellants are working in cahoots with the borrowers. The prime reason which goes against the appellants is that they did not obtain the original sale deed from the borrowers. The story propounded by them can be created at any time. Their story does not just stack up. It is made out of whole cloth. The appellants should have refused to enter into agreement without getting the original sale deed. That circumstance is of paramount importance particularly in this cosmopolitan city where such like incidents happen every now and then. Most of the cases pending before this Court pertain to the subsequent purchases. The state is also aware of such like problem. Section 20 of the SRFAESI Act mentions about the Central Registry. However, it is unfortunate that the Government has not taken any steps in this regard.

Moreover, the above said property was sold in favour of the appellants for a song. This property according to the appellants' own pleading is valued at more than Rs. 15 lacs. This fact also brings out the collusion between the appellants and the borrowers.

It is also surprising to note that neither the appellant or the Bank made frantic efforts to know about the present where abouts of the borrowers. Mere lodging of the complaint with police is not enough. The relatives and nears and dears of the borrowers or the property dealer must be knowing about their where abouts. No effort in this context was ever made. The explanation given by the Bank is somewhat satisfactory. The Bank did not try to find out their where abouts because it was holding the secured asset on behalf of the borrowers.

This must be borne in mind that the Court is not concerned with the question that the appellants are bona fide purchasers or not. However, the above said facts and circumstances also go to show that the appellants were not bona fide purchasers. Even if, it is assumed that they were bona fide purchasers that fact will not come to their rescue. The present case is clearly covered by Section 48 of the Transfer of Property Act. Section 48 of the Transfer of Property Act runs as follows:-

Priority of rights created by transfer--Where a person purports to create by transfer at different times rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.

This section reproduces the well-established equitable maxim qui prior est tempore potior est jure and lays down that the transferor cannot prejudice the rights of the transferee by any subsequent dealing with the property. In other words, if there are successive transfers of the same property, the later transfer is subject to the prior transfer. It follows that in the case of two successive mortgages, or a mortgage and a sale the later or puisne mortgage or sale is subject to the prior mortgage. In the case reported in Sh. Ishar Dass Malhotra v. Dhanwant Singh and Others (supra), Their Lordships, HMJ Dalip K. Kapur and HMJ D.P. Wadhwa were pleased to hold:

8....It will thus be seen that a mortgage by deposit of title deeds is like any other mortgage and there is a transfer of interest in the property mortgaged to the mortgagee. The question, therefore, of the subsequent purchaser having bought the property subject to a mortgage by deposit of title deeds bona fide, with or without notice, is of no relevance. The subsequent purchaser cannot avoid the mortgage by leading evidence to show that he made all reasonable inquiries to find out if the property was subject to a mortgage by deposit of title deeds or not. Section 48 of the Transfer of Property Act does not admit of any such exception. According to this section, when a person purports to create, by transfer at different times, rights in or over the same immovable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created. Further, proviso to Section 48 of the Registration Act enacts that a mortgage by deposit of title deeds shall take effect as against any mortgage deed subsequently executed and registered relating to the same property. Thus, a subsequent sale cannot have priority over a mortgage by deposit of title deeds created before the sale. In my view, therefore, the Trial Court fell in an error in holding that Harjeet Singh Dhanjal the subsequent purchaser of the mortgaged property; was not liable on the ground that he took all reasonable care and acted in good faith.

In Mohan Lal v. Anandbai, : AIR 1971 SC 2177, it was held in Para 13:

13....Both those Courts also lost sight of the fact that, on the record, the appellant was shown to be the only creditor of Bhiwa; there were no other creditors. As a creditor, he could not be defrauded, because his loans was secured by the mortgage deeds dated 23rd March, 1949 and 26th June, 1949. A gift by Bhiwa in respect of properties already mortgaged could not in any way defeat or delay the mortgagee's right, because the donee under the gift deed could only take the properties subject to the mortgages. The transfer by the deed of gift could not in any way affect the mortgagee's rights under the mortgages.

In The State v. Rajah Ram Varu, : AIR 1966 AP 233 (DB), it was held in Para 20:

Thus, the foregoing discussion makes it clear that where a specific charge is created on immovable property, an equitable charge or a floating charge if any, created cannot have priority. Even if there be any other specific charge created on the same property, the specific charge which is the first in point of time taken priority over the second. In a case where buildings are constructed or machinery is fixed to the earth for its beneficial use after mortgaging the land, the buildings and the machinery or plant would constitute immovable property as an accession to the land, and form part of mortgagee's security. So that, the mortgagee can claim security not merely in respect of the land mortgaged but also the buildings and the machinery fixed to the earth subsequently.

In a recent authority reported in T. Vijendra Dass v. M. Subramanian, 2007 Raj LR 585 (SC) it was held that sale to subsequent buyer during the pendency of the case was not valid.

The argument that despite having acquired knowledge that the appellants had purchased the property subsequently, they were not impleaded as parties, pales into insignificance for the following reason. The above said authorities for not impleading the new purchaser in the suit has got no application in this case. The appellants themselves filed application under Section 17 of the SRFAESI Act. They placed their case before the DRT and the Court was aware of their rights and obligations. Under the circumstances it cannot be said that any certificate or any order passed by the learned trial Court is not applicable to the appellants since they were not parties to the case pending before the learned DRT.

No other argument was urged before me. There lies no rub for the appellants to pay off the entire debt of the borrowers and get back the title deed from the Bank. The appeal filed by the appellants is lame of strength, The same is dismissed. No order as to costs.

Copies of this order be furnished to the parties as per law and another copy be sent to the learned DRT.