Janak Raj Chouhan vs Bank Of India And Ors.

Ranjit Singh, J

The appellant herein is a third party who is neither the borrower nor the guarantor. He had moved an application under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) against the action taken by the respondent Bank under Section 13(4) of the SARFAESI Act. The appellant has based his claim on an agreement to sell entered into with Mr. Jitender Chouhan, respondent No. 4, and Mr. Chetan Chouhan. respondent No. 5, for purchase of land measuring 43.25 Marias situated at Basti Methu, Karnal Road, Jalandhar for an amount of Rs. 87 lacs. This agreement was allegedly executed on 12.8.2008 and a sum of Rs. 10 lacs was paid as earnest money. The sale deed was to be executed on or before 31.12.2008. It is pleaded that the appellant was regularly paying the amount to the respondents. Since the property was mortgaged, the respondents had assured the appellant that on receipt of the payment they would clear the dues of the Bank and after getting the property redeemed, would execute the sale deed in favour of the appellant. The appellant would plead that respondents 3 to 5 played fraud with him and the Bank and even after receiving the amount from the appellant, they did not deposit the same with the Bank and so they failed to redeem the property. The sale deed therefore could not be executed in his favour.

During this period only, the Bank initiated proceedings under the SARFAESI Act and issued notice to respondents 3 to 5, under Section 13(4) of the Act. The grievance of the appellant is that no notice was served on him. The appellant also filed a suit for possession by way of specific performance of agreement to sell dated 12.8.2008 entered into between appellant and respondents 3 to 5. Respondent No. 1 was also impleaded as party in the suit. The plea in the suit was that the appellant was ready to make payment directly to the Bank and would recover the same from respondent Nos. 3 to 5.

The Bank filed written statement stating that it did not have any objection if the outstanding amount was paid to the Bank by the appellant which the appellant may subsequently recover from respondent Nos. 3 to 5.

The appellant claims that he visited the Bank many times to make payment, but the respondent Bank did not consider his request and rather threatened him saying that the property would be put to sale. The appellant states that he came to learn that the property had already been auctioned on 7.12.2010 in favour of respondent No. 6, i.e., Mr. Arun Sharma. He then also came to know that the possession-cum-sale notice was issued on 30.10.2010 for auction to be held on 7.12.2010. Aggrieved against this action, the appellant had filed this S.A. alleging that the outstanding amount was only Rs. 19,14,000/- as per notice for which there was no need to put the entire property to sale for a sum of Rs. 71 lacs. The appellant would allege that there were only two bidders, including the auction purchaser and the auction held in favour of successful bidder would be illegal on the ground that in the pending civil suit the appellant had expressed his readiness to make payment of Rs. 87 lacs to respondents 3 to 5. The appellant accordingly prayed for direction to stay the confirmation of sale in favour of the auction purchaser.

In response to the notice, the Bank filed reply challenging the focus of the appellant to claim this relief against the action taken by the respondent Bank. It was alleged that the Bank had no privity of contract with the appellant as it had given the credit facilities to respondents 3 to 5 and the property in question was mortgaged with the Bank to secure the said facilities. It was pointed out by the Bank that the appellant was having dispute with respondent Nos. 3 to 5 only and the Bank had no option but to put the property to sale and it cannot be compelled to undo the sale in favour of the auction purchaser.

Respondent Nos. 3 to 5 also filed reply pleading that the appellant is the cousin brother of Mr. Pawan Kumar Chauhan who is husband of respondent No. 3 and father of respondent Nos. 4 and 5. The respondents had pleaded that the appellant and respondent Nos. 3 to 5 owned the land situated at Jalandhar in equal one half share each. The appellant, his sons, their wives, answering respondents and Mr. Pawan Kumar Chauhan had created and executed a partnership deed on 27.2.2008 for carrying out the development of the properties and for construction of flats etc. and all transactions were made through the account opened with Bank of India, but the answering respondents as well as Mr. Pawan Kumar Chauhan fell short of funds. The appellant being cousin brother offered the required amount as loan and to secure the same he suggested the respondents to create an agreement to sell as a security document for the loan. As per the respondents, the said agreement to sell was not to be acted upon and the loan amount, if any, was to be returned to the appellant as and when the flats were sold. It was also alleged that no money had changed hands and the amount mentioned in the agreement to sell was never paid.

The auction purchaser, respondent No. 6, had also filed reply pleading that he had made a bid for the property and had deposited 25% of the bid amount. As per the auction purchaser, the authorized officer refused to accept the balance amount due to interim orders passed by the Tribunal below. Respondent No. 6 would also submit that the appellant in his S.A. filed has not been able to point out to any violation of rules in conducting the auction and, therefore, would plead that the S.A. be dismissed.

The Tribunal, after considering the pleadings before it, dismissed the S.A. with a cost of Rs. 1 lac, which was directed to be deposited within 15 days. Aggrieved against this order, the present appeal is filed.

When this case came up for final hearing before this Tribunal, the issue about the locus of the appellant to file the S.A. and to maintain this appeal had arisen. Counsel for the appellant was therefore required to satisfy this Tribunal as to how he would have right to file the S.A. basing his claim only on the agreement to sell, which is also seriously disputed by respondent Nos. 3 to 5 with whom the appellant had allegedly entered into this agreement to sell, The Counsel took time to satisfy this Tribunal in this regard. When the case was called for hearing in the morning, a request for pass-over was made, and was granted. The case was taken up at the end of the board, but again a request for pass-over is made, which is declined. Since the Counsel have been heard on the aspect of locus, it is not considered appropriate to further adjourn the case or to wait for the Counsel for the appellant. The Counsel, however, has subsequently appeared.

The Counsel for the appellant could not satisfy me in any manner if he had locus to challenge the auction sale in favour of respondent No. 6, he being neither the borrower nor the guarantor and thus having no concern with the property. Concededly, the appellant is a third party and claims to have entered into an agreement to sell with respondent Nos. 3 to 5 who are the borrowers in this case. Even the agreement to sell is denied by the borrower/respondents 3 to 5 and they have explained the position in their response to the notice issued in the S.A. filed by the appellant. The first question, therefore, that may require consideration is whether the appellant would have any right and locus to file this S.A. merely on the basis of an agreement to sell when he is neither the borrower nor the guarantor nor had any concern with the loan advanced by the Bank to respondent Nos. 3 to 5, (the borrowers). The Bank, in my view, has rightly projected that there is no privity of contract between the Bank and the appellant and as such the appellant has no locus to file this application either to challenge notice under Section 13(4) of the SARFAESI Act or the auction that has been held. The Bank had every right, to put the property to sale it being a secured asset of the Bank. The Tribunal below, of course, failed to take notice and consider this aspect of locus on the part of the appellant. The appellant, however, cannot be allowed to ignore the aspect of his locus either to file the S.A. or to maintain the present appeal.

Let us first consider as to who can file an application under Section 17 of SARFEASI ACT. Any person, aggrieved by any measure referred to in Sub-section (4) of Section 13 taken by secured creditor may make an application under Section 17 of the Act. The appellant may be covered as any person but he cannot be a person who is aggrieved by the measure taken by the Bank under Section 13(4) of the SARFAESI Act. Thus the approach by the appellant in filling SA apparently was lacking in locus. He is neither a borrower nor a guarantor. He has no interest in the property which is put to auction. The appellant can not claim any interest in the auctioned property only on the basis of an agreement to sell and that agreement to sell which is seriously disputed.

The issue that the person entering into agreement to sell does not have right was considered to an extent by the Hon'ble Supreme Court in the case of K. Basavarajappa v. Tax Recovery Commissioner, Bangalore & Ors., (1996) 11 SCC 632. The Court in this case has clearly held that the agreement to sell creates no interest in the property. This was also a case where after receipt of notice under Rule 2 of Schedule II of the Income Tax Act defaulter had entered into an agreement to sell the property with the appellant in the case before the Supreme Court. This appellant before the Supreme Court had also filed a suit for specific performance of the agreement. During the pendency of the suit, the R.O. attached the defaulter's property and after necessary proclamation, put the same to auction sale. The successful bidder became the auction purchaser, but the appellant filed an application under Rule 60 for setting aside the sale. The appellant before the Apex Court annexed a letter from the general power-of-attorney-holder of the defaulter authorizing him to deposit the amount of tax arrears. This application was rejected by the department authority. This order was initially quashed by the Single Judge of the High Court in a writ petition filed jointly by the appellant and the general power-of-attorney-holder of the defaulter, but the said order was upheld by the Division Bench which held that the appellant's application was not maintainable. Against this, two SLPs were filed jointly by the appellant and the general power-of-attorney-holder of the defaulter but during the proceedings, at the notice stage the latter withdrew from the contest and the appellant alone pursued the two appeals as the sole appellant. The appellant before the Supreme Court contended that his application, being backed up by the letter of the power-of-attorney-holder of the defaulter authorizing him to deposit the tax amount on his behalf, was perfectly maintainable. The plea was that he had interest in the property as his suit for specific performance was not only pending on the date of the auction sale but had got decreed by consent on the very next day of moving such application. As per the appellant, once the full claim of the revenue was deposited, it could not insist on such a technicality that the appellant's application was not maintainable qua the auction purchaser. Rejecting this condition and dismissing the appeal, the Supreme Court held that the application was moved by the appellant and not by the defaulter or its power-of-attorney-holder. The letter annexed to the application could by no stretch of imagination be considered an application under Rule 60 moved by the defaulter or its power-of-attorney-holder. The Court has observed that the appellant was putting forward his own claim as prospective purchaser of the property. On the date of application he was not armed with any decree granting specific performance of the agreement. The contention of the auction purchaser was accepted that when equities are to be balanced between the two rival claimants, the prospective purchaser of the auctioned property under an agreement to sell on the one hand and the auction purchaser who had purchased the property in the tax recovery proceedings on the other, it has to be seen whether the appellant could claim any legal interest and even a preferential interest in the property which would entitle him to get the auction sale set aside. Rule 16(2) was noticed and was found clearly to have hit the said agreement. The Court found that by entering into such agreement to sell his property, the defaulter had clearly committed breach of Rule 16(1) and had bypassed the procedure laid down therein for getting permission of the Tax Recovery Officer. The Court ultimately held that the appellant had no locus standi to move the application for getting the auction sale set aside. The Court also noticed that he had no legal interest in the said property on the date of application. As per the Court, it is axiomatic that mere agreement to sell creates no legal interest or right in the property which is the subject matter of the agreement. By mere agreement to sell a person gets no interest in the property put to auction to enable him to apply for setting aside such auction under Rule 60 and especially when his transaction was hit by Rule 16(1) read with Rules 51 and 48. The Court finally held that he could not be said to be having any legal interest to entitle him to move such an application.

The situation in the present case is rather worse for the appellant. The agreement to sell relied upon by him seems to be one-sided. In the case before the Hon'ble Supreme Court at least the suit for specific performance had also been allowed (sic) the basis of consent given by the defaulter. Here, only suit has been filed and the respondents Nos. 3 to 5 have denied this agreement. They have explained the background under which this agreement came to be executed and this was only to secure the money advanced by the appellant to them. As per the Supreme Court, mere agreement to sell creates no legal interest or right in the property which is the subject matter of the agreement. By mere agreement to sell a person gets no interest in the property put to auction to enable him to apply for setting aside such auction The appellant has not even filed any objection while the property was being put to auction. In my view, on the basis of this agreement to sell, the appellant has no right to maintain the S.A. to challenge the auction held in favour of respondent No. 6. His plea has otherwise also been rejected on merit as the Tribunal below found that the appellants have tried to mislead the Tribunal and even a cost of Rs. 1 lac has been imposed on the appellant. In view of the fact that appellant is found not having any locus to file this S.A., he, in my view, cannot be permitted to maintain the present appeal, The appeal is accordingly dismissed.