J.S. Arora vs State Bank Of Hyderabad

Ranjit Singh, J

Through this appeal, the appellant J.S. Arora and others have impugned the order passed by DRT-I, Delhi, whereby their S.A. has been dismissed. Appellants are subsequent purchasers of the property over which the respondent bank had a charge when they purchased the same. Their right therefore has to be examined in the light of this position.

Respondent No. 1 bank granted Working Capital facility of Rs. 375 lacs and a Term Loan facility of Rs. 95 lacs to respondent No. 2 Mr.Hardeep Singh Thapar on 23.12.2005. Respondents 3 and 4 gave guarantee for these loan facilities. The loan became Non Performing Asset (NPA) on 30.6.2003, when the bank filed O.A. No. 44/2008 on 18.8.2008 for recovery of Rs. 1,32,96,949,46. A sum of Rs. 33,39,037/- was allegedly outstanding in the Term Loan account and Rs. 99,57,912.46 in the Cash Credit account. The Cash Credit account was statedly secured by mortgage of property No. K-H, Hauz Khas, New Delhi whereas the Term Loan was secured by the mortgage of property No. 47-B, Kalu Sarai, Hauz Khas, New Delhi. During May 2007, respondents 2 to 4 approached the appellants through a broker for sale of Kalu Sarai property comprising first, second and third floors with roof rights. It appears that the deal was struck for a total consideration of Rs. 95 lacs. Appellants state to have paid part of consideration of Rs. 5 lacs through cheque dated 13.5.2007 and another Rs. 15 lacs through cheque dated 31.5.2007. Appellants would allege that respondents 2 to 4 never told them that the said property was mortgaged with respondent No. 1 bank. Subsequently, however, respondent No. 2 introduced appellant No. 1 to the AGM and Manager of the respondent bank for showing the title deeds and also for getting loan from the said bank for buying the property. Respondent No. 1 bank sanctioned a loan of Rs. 95 lacs to the appellants but refused to disburse the same on the ground that respondent No. 2 had to clear the outstanding dues of the bank.

As per appellants, on 9.6.2007, they have borrowed money from Citi Bank and issued three cheques, two for Rs. 22 lacs each and the third cheque of Rs. 19 lacs, in favour of respondent No. 2. Appellant had made an endorsement on the cheques that these were for the purchase of the first, second and third floors of the Kalu Sarai property. On 30.10.2007, three separate sale deeds were executed by respondent No. 2 qua the Kalu Sarai property in favour of the appellants. On that date, respondent No. 2 also gave an undertaking in favour of the appellants.

Respondent No. 1 bank issued a notice under section 13(2) of the SARFAESI Act on 12.2.2008. Copy of this notice was served on appellant No. 1 as well, which contained an averment that the search carried out in the office of Sub-Registrar had revealed that the Kalu Sarai property had been sold by respondent No. 2 to the appellants. The appellants would urge that notice under section 13(2) of the SARFAESI Act was totally silent as and when the account became NPA. Reference is made to the documents on record of the O.A., which would show that the account became NPA on 30.6.2008 and it is accordingly urged that notice under section 13(2) of the SARFAESI Act issued on 12.2.2008 would be bad in law, as on the said date of notice the loan account had hot become NPA.

In the notice dated 12.2.2008, a sum of Rs. 31,16,796/- was demanded by the bank from respondent No. 2. Subsequently, however, respondent bank issued another notice on 5.7.2008. It is alleged that this notice has surfaced for the first time in evidence which was filed before the DRT on 23.8.2010, but was never pleaded either in the O.A. or in the S.A. The appellants would allege that the O.A. filed by the bank is silent about the fact that the first, second and third floors with terrace of Kalu Sarai property had already been sold by respondent No. 2 to the appellant. Reference is made to the statement of account filed with the O.A. where it is mentioned that a credit of Rs. 22 lacs plus Rs. 22 lacs was received by the respondent bank from respondent No. 2. The appellants would claim that this amount was paid by them while purchasing the said property and the balance in the Term Loan account was only Rs. 21,55,904/-. As per the appellants, the bank subsequently, illegally debited Rs. 20 lacs from the Term Loan account and credited the same to the Cash Credit account. It is alleged that had it not been done by the bank, the outstanding dues in the Term Loan account would have been different.

A public notice was published in the newspaper on 27.8.2008 declaring respondent No. 2 as proclaimed offender. Appellants also allege that a complaint against respondents 2 to 4 was lodged with the police in P.S Malviya Nagar on 4.10.2008. On 3.9.2008, the Tribunal below passed an interim order restricting the selling, transferring or alienating the Kalu Sarai property. As per the appellants, this order was obtained by the bank concealing the fact that the said property already stood sold. When the appellants learnt about it, they filed an application (I.A. No. 640/2008) for being impleaded in the O.A. as a parties. In the meantime, the possession notice under section 13(4) of the SARFAESI Act was issued on 5.11.2008. This notice was not issued to the appellants but to their tenant, respondent No. 5. When the tenant informed the appellants about this notice, they approached the DRT under section 17 of the SARFAESI Act on 4.12.2008 The Presiding Officer of the DRT rejected the prayer for interim relief on 22.12.2008. An appeal was filed before this Tribunal against the said order, but the same was dismissed on 8.1.2010. Appellants then filed a Writ Petition before the Hon'ble High Court, which was allowed on 18.5.2010. In this background, on 5.10.2010, the Tribunal below dismissed the S.A. filed by the appellants, against which the present appeal is now filed.

It is noticed that the issues which are required to be considered in this case had been crystallized by this Tribunal vide its order dated 3.12.2010 while considering the application field by the appellants under section 13 of the SARFAESI Act praying for waiver of the condition of pre-deposit. While admitting the appeal, this Tribunal noticed that there were arguable points raised in the appeal and these were whether it was incumbent upon the bank to explain to the borrowers that they had withdrawn the earlier notice and were sending the fresh notice; whether the subsequent notice itself goes to show that the previous notice sood automatically withdrawn; and whether it was necessary for the bank to inform the appellants, subsequent purchasers, regarding the subsequent notice.

In fact, the counsel for the appellants had mainly concentrated on two aspects during the course of' arguments. The counsel would emphasize that there was no notice dated 5.7.2008 issued by the bank and the only notice served was dated 12.2.2008 and since the account was declared NPA only on 30.6.2008, the notice dated 12.2.2008 would be bad in law. The counsel has further emphasized that there was no pleading ever made by the bank in regard to the notice dated 5.7.2008 and this notice, in fact, was even not available on record.

When the pleadings in this regard are examined, it transpire that the bank though had made a mention of notice dated 12.2.2008, but had led in evidence the notice elated 5.7.2008. When asked to explain this, the counsel for the bank was very forthright in conceding that this mistake was on the part of the counsel and the date of the notice was just a typographical mistake. The intention was to mention and rely upon the notice dated 5.7.2008, but, inadvertently, the date 12.2.2008 was got typed in the reply filed by the bank. Whether this explanation is genuine and can be accepted by this Tribunal is the question? While leading the evidence, the bank had produced the notice dated 5.7.2008 and not the notice dated 12.2.2008. The examination of evidence placed by the parties reveals that on record in evidence is notice dated 5.7.2008. The explanation offered by the respondent bank appears reasonable and plausible and thus cannot be rejected outrightly.

When the record revealed that bank had led in evidence the notice dated 5.7.2008 without objection, the counsel for the appellants took a stand that this would lead to another illegality. As per the counsel, leading evidence of notice dated 5.7.2008 and placing the said notice on record would mean that the evidence has been led beyond the pleadings which, according to the counsel, is impermissible. As per the counsel, this piece of evidence as such cannot be read in evidence in support of the case of respondent bank. In this regard, the counsel has made reference to a judgment in the case of Prataprai N. Kothari vs. John Braganza, AIR 1999 SC 1666. Attempt to seek support from this judgment where it is observed that it is a settled law that in the absence of any plea no evidence is admissible. It is further noticed that the single Judge of the High Court overlooked that when there was no plea or issue on the question of title, no evidence was admissible regarding the same. The Court has further observed that single Judge acted beyond his jurisdiction in permitting additional evidence to be filed in appeals.

These observations are made in different context and may not support the contention of the counsel for the appellants. This was a case where the learned single Judge of the High Court, while hearing the appeal, had started dictating the judgement but, thereafter, heard the parties again and recorded additional evidence about title and then completed the rest of judgment. The observation noted above was made in this context. Moreover, this was a case where no plea had been raised in regard to the title of the property and the trial Court while deciding the case had framed no issue regarding the title. Still the single Judge while hearing the appeal recorded additional evidence regarding title. These observations as such were made in this context and thus cannot help the cause of the appellants.

To substantiate that notice under section 13(2) of the SARFAESI Act was bad in law, the counsel has referred to the judgment in the case of IFCI Ltd. & Ors. vs. S.R. Resorts Pvt. Ltd., I (2014) BC 23. (NULL). There is no dispute with the proposition that classification of the account as NPA is a sine que non for taking measure under the SARFAESI Act. But, in this case, what is required to be seen is whether notice dated 5.7.2008 can be held to be a valid notice or not. The crux of submissions made by the counsel for the appellants flows from the fact that notice was issued on 12.2.2008 and the subsequent notice dated 5.7.2008 has just been fed in evidence without there being any plea raised in the reply. It is in this context that this Tribunal had formulated the issues which required consideration, as has already been noticed above. No doubt, the account in this case was declared NPA on 30.6.2008 and if the notice dated 12.2.2008 is held to be the only valid notice, then the said notice may not be sustained. As per the bank, it had issued another notice on 5.7.2008. Whether the bank was required to explain to the borrower that the bank had withdrawn the notice and has sent a fresh notice thus may require consideration here. No submissions were made before me in this regard and also in regard to any legal position which would bar the bank to issue more than one notice. This issue, of course, was raised before the Tribunal below where it is recorded that on coming to know of their mistake the respondent bank had withdrawn their notice dated 12.2.2008 and had issued another notice dated 5.7.2008, which was the only notice exhibited on record, i.e., Exhibit HW-1/12. I find that the photocopy of the receipt dated 5.7.2008 showing despatch of notice to the borrower had been placed on record. I have not been able to convince myself that there was any defect in the action taken by the bank in issuing a notice dated 5.7.2008. If a mistake is committed, which is stated to' be a just typographical mistake in the pleadings, it would be too harsh to hold that such mistake would be immune from correction. The fact that the bank had relied upon a notice dated, 5.7.2008 is further established from the evidence on record when this was the only notice which was exhibited in evidence. Nothing has been pointed out before me to show if any objection was raised before the Tribunal below when' the bank placed this piece of evidence on record. More appropriately, the respondent bank could be expected to seek permission to amend the pleadings but that, apparently, escaped the attention because no such objection was ever raised before the Tribunal below. Even in the rejoinder filed by the appellants, this aspect was not emphasized in any manner. Once the finding of fact has been recorded by the Tribunal that the earlier notice was withdrawn and the notice dated 5.7.2008 had been led in evidence, the issue formulated by this Tribunal whether it was necessary to inform the borrower, in my view, would become redundant. Incidentally, it is not the borrower who is in appeal before this Tribunal. Such a complaint, if any, ought to have been made and agitated by the borrower. It is possible to view that when a subsequent notice was sent to the borrower, which has been proved by the bank to have been so sent, the previous notice dated 12.2.2008 would, obviously, stand withdrawn. I have riot been able to find any provision which would require the bank to inform the subsequent purchaser about the notice. In fact, to an extent, this issue was considered and commented upon by this Tribunal while considering the plea of the appellants for grant of waiver of the pre-deposit. The record would show that the appellants at the time of purchasing this property was aware that this property had been mortgaged with the bank. The appellants despite being aware of this position chose to undertake this venture and as such they cannot now be permitted to turn around and complain that the bank was at fault in not informing the subsequent purchasers in any manner May be that the appellants had moved an application for becoming a party, but unless some obligation is cast on the bank to inform the subsequent purchasers in terms of law, the bank cannot be fastened with the responsibility to do so.

The counsel for the appellant has made reference to the case of LIC of India & Anr. vs. Rain Pal Singh Bison, JT 2010 (3) SC 53, where it is observed that mere admission of document in evidence or mere marking of exhibit on document does not dispense with its proof. How this proposition is attracted in this case, cannot be made out. The notice date 5.7.2008 has been exhibited and is marked as exhibit. There is no dispute between the parties about the contents of the notice which needed to be proved. This ratio thus has no concern with this case. The observations picked up and relied upon the judgment of Anil Vasudev Salgaonkar vs. Naresh Kushali Shigaonkar, JT 2009 (10) SC 684 that material facts must be pleaded in support of case set up by him within the period of limitation are made in the context of election law which contains special provision regarding the manner of pleadings and about limitation etc. These observations are to be appreciated in the background of special law under the Representation of People Act. Rather, I find that the observation relied upon by the counsel for the respondent bank in the case of Abdul Azeez Sons and Company represented by its Managing partner, Mr. K. Iqbal Ahmed vs. Indian Bank represented by its Authorised Officer and the Branch Manager, Indian Bank by Madras High Court in W.P. No. 2431/2007 and M.P. No. 1/2007, decided on 5.12.2007 has relevance where issuance of second notice during pendency of earlier notice is held proper.

So far as the liability relating to the rights of the subsequent purchasers is concerned, this seems to have clearly been settled as noticed by this Tribunal in its order dated 3.12.2010. As per section 48 of the Transfer of Property Act, the later created right shall be binding on the earlier transferees and it shall be subject to the right previously created. A judgement in the case of Sh. Ishar Das Malhotra vs. Dhanwant Singh & Ors., AIR 1985 DELHI 83 (DB), has been referred to in this regard. It would be or benefit to reproduce the relevant observation as already noted, by the Tribunal in the order dated 3.12.2008.

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. S. 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 S. 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 Herjeet 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.

Reference has also been made to Mohan Lal Vs. Anandbai, AIR 1971 S.C. 2177 and The State v. Rajah Ram Varu, AIR 1966, AP 233(DB). Thus, where a specific charge is created on an immovable property, an equitable charge or 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 is to take priority over the second.

This Tribunal, however, has also shown a way to the appellants, as was observed, that they are not remediless. It is rightly observed that in case they are working in cahoots with the borrower, then they do not deserve any sympathy and this Tribunal will have no concern whether they have or does not have remedy. It was also observed that they did not make proper enquiry and act in a prudent manner at the time of purchase of the property and purchased the same for a value much less than the market value, which would show that they were working hand in glove with the borrower. In this case there is evidence on record that the appellants had entered into this venture after being fully aware that the property is under a charge and was mortgaged to the bank.

In view of the above discussion, I find no merit in the appeal. The appeal is accordingly dismissed.

Copy of this order be furnished to the parties as per law.