Karur Vysya Bank Ltd. vs Kanchan Wahi And Ors

I.A.NO.58/2019

For the reasons given in this application the delay of two days in filing of this appeal is condoned. This application stands disposed of accordingly.

APPEAL NO. 26/2019

The appellant bank was aggrieved by the order dated 03.07.2018 passed by the Tribunal below(DRT) whereby the Securitisation Application filed by the respondent no.1 herein under Section 17(1) of the SARFAESI Act was allowed and the action taken by the appellant bank under Section 13(4) of SARFAESI Act to recover its dues amounting to over a crore of rupees from its defaulting borrower/guarantors, respondents 3 to 5 herein, by taking physical possession of ground floor of property no.D-3/16, Krishan Nagar, Delhi - 110051, which respondent no.1 was claiming to be owned by her and not mortgaged with the appellant bank for any loan while the appellant was claiming the same to have been equitably mortgaged in its favour, was quashed.

The relevant facts which need to be noticed are that the appellant claimed to be the owner one shop on the ground floor of property no. D-3/16, Krishna Nagar, Delhi(hereinafter to be referred to as 'the shop in question') having got the same by way of a gift from Vikas Wahi & Sons HUF vide registered gift deed dated 15.07.2015. The gift deed was executed in favour of the respondent no.1 Kanchan Wahi by her husband Vikas Wahi in his capacity as the karta of Vikas Wahi & Sons(HUF). Originally the entire property no. D-3/16, of which the shop in question was only a part, was owned by respondents no. 3 to 5 herein as a joint property. As per the case of respondent no.1 they effected partition amongst themselves sometime in the year 2001. The shop in question fell to the share of respondent no.3 Prabh Dayal Singh. It was the further case of the respondent no.1 herein, security applicant before the DRT, that Prabh Dayal Singh appointed her husband Vikas Wahi as his general attorney vide irrevocable and registered power of attorney dated 27.09.2011. Thereafter her husband exercising his authority under that general power of attorney executed a gift deed in respect of the shop in question in her favour on 15.07.2015. That way respondent no.1 Kanchan Wahi claims to have become the absolute owner in possession of the shop in question.

Now, the facts leading to the filing of the S.A. before the DRT by respondentno.1 herein may also be noted. It appears that respondent no.5 Inder Pal Singh, who is the brother of respondent no.3 Prabh Dayal took a loan from the appellant Bank in the name of his Firm by the name of M/s Lovely Selection House sometime in the year 2014. As a security for the repayment of the loan respondents 3 Ranjit Kaur and her son Prabh Dayal Singh, respondent no. 4 herein created an equitable mortgage in respect of their shares in the ground floor and basement of property no. D-3/16 which included the shop in question also(the present litigation centres around only ground floor). The borrower Firm, however, failed to repay the loan when demanded by the appellant Bank its account was declared as NPA and in exercise of its powers as a secured creditor under Section 13(4) of SARFAESI Act physical possession of the mortgaged property was taken by the appellant so that its outstanding dues of Rs. 1,31,20,131/-, which amount stood increased to Rs. 1,47,93,606.08, when evidence was adduced by the appellant bank before the DRT, could be recovered from its sale by auction. At that stage the respondent no.1 claiming that she had been illegally dispossessed from the shop in question, which was with a tenant, who happened to be the defaulting borrower of the appellant bank i.e. respondent no. 4 Inder Pal Singh and who had been inducted as a tenant by her husband Vikas Wahi vide rent agreement dated 19.06.2014 and who subsequently had allegedly attorned in her favour on 08.08.2015 after the shop was gifted to her by her husband, approached the DRT by filing the S.A. out which the present appeal has arisen.

The case of the respondent no.1, security applicant, pleaded by her in the S.A. was that Prabh Dayal Singh after appointing her husband as his general attorney by way of a registered irrevocable power attorney and which power of attorney was for a consideration of Rs. ten lacs, had ceased to be the owner of the shop in question and so he could not mortgage the shop in question in favour of the appellant Bank and consequently the appellant could not claim the shop in question to be its secured asset possession whereof it had illegally taken on 17.02.2017 as a secured creditor by taking orders from CMM under Section 14 of SARFAESI Act.

Before proceeding further it may also be noted that in the S.A. the respondent no.1 herein had also impleaded Dewan Housing Finance Corproration Ltd., another Financial Institution since it was also claiming to have advanced loan of over two crores of rupees to respondent Inder Pal Singh, who is being claimed to be the tenant of respondent no.1 and who is the borrower of the appellant bankas well as Dewan Housing Finance Corporation against the equitable mortgage of all the floors of property no. D-3/16 including the shop in question of the ground floor. Since the dues of this respondent were also not paid back it also had initiated measures under SARFAESI Act and had obtained possession order from CMM, Karkardooma Courts, in respect of all the floors. However, it could not get the possession of the ship in question since the appellant Bank had already taken possession of the shop in question on the ground floor pursuant to the earlier order passed by the same CMM at the instance of the appellant herein. As noticed already, the present case is only in respect of the shop in question.

The learned DRT allowed the S.A. of respondent no.1 and rejected the claim of the appellant of its being secured creditor in respect of the shop in question. Feeling aggrieved the present appeal came to be filed by the appellant bank.

After this appeal was filed the respondent no.1 had moved a miscellaneous application before the DRT for a direction to the appellant bank to restore back the possession of the shop in question to her. The DRT, however, did not pass that direction since the matter was sub judice before this appellant Tribunal. Respondent no.1 did not file reply to the appeal.

The relevant portions of the impugned order dated 03.11.2018 are re-produced below:-

"Security Applicant, namely, Ms. Kanachan Wahi (hereinafter referred to as the Security Applicant) has filed the present Securitization Application (for short, the SA) under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. 2002 (for short, the SARFAESI Act, 2002) with a prayer to set quash / aside the impugned possession proceedings dated 17th February, 2017 carried out by respondent no. 2 and order dated 4th January, 2017 passed by the learned Chief Metropolitan Magistrate, Karkardooma Courts, District Courts, Delhi and also the order dated 15th October, 2016 obtained by respondent no. 1 Financial institution from the said Chief Metropolitan Magistrate and all the steps taken by the respondent bank till date qua the property situated at D-3/16, Ground Floor, Krishan Nager, Delhi - 110051 admeasuring 55.73 sq. meters (for short, the said property as wrong, illegal and void. A prayer has also been made to direct respondents no. 1 & 2 to restore the actual possession of the said property to her and also to award compensation and costs.

Pithily, the case of the Security Applicant, as is made out from the averments made in the SA is as follow:

The security applicant is neither a borrower nor a guarantor or mortgagor of the said property and has nothing to do with respondents no. 1 & 2, but she is being unnecessarily harassed by the officers of the said respondents alleging that the said property which belongs to her is allegedly mortgaged with them by respondents no. 3 to 5. She further submits that she is the sole absolute and lawful owner of the said property as per registered Gift Deed dated July 15, 2015 executed by its erstwhile owner Mr. Vikash Mahi & Sons HUF through its Karta Shri Vikas Wahi who had purchased the same from respondent no. 3 Sardar Prabh Dayal Singh vide registered Irrevocable GPA dated 27th September, 2001 and after that said Mr. Vikash Wahi & Sons HUF had leased out the same to respondent no. 4 on 19th June, 2014 for fixed period fo two years commencing from 1st June, 2014 on a monthly rent of Rs. 30,000/- excluding electricity, water and other charges. Pursuant to the Gift deed dated July 15, 2015 in favour of the security applicant, respondent no. 4 through his letter dated 8th August, 2015 accepted her as his lawful owner and undertook to pay the rent in future to her, but he did not honour his commitment and did not make payment of the monthly rent to the security applicant.........., However, on 17th February, 2017 the security applicant was shocked and stunned when she telephonically came to know through a neighbourer that the officials respondent no. 2 were standing in the said property with an intention to seal the same. The security applicant requested the officials of respondent no. 2 bank to give an advance notice, but her request was declined by them and without notice to her and even without affixing any notice of the said property, the Authorized Officer of respondent no. 2 bank took actual physical possession of the said property. Thereafter, the security applicants tried to contact respondents no. 3 & 4, but they were not found available at their last known address and were stated to be behind the bars. The alleged demand notice dated 16th June, 2016 and 9th June, 2016 issued by respondents no. 1& 2 respectively revealed that both of them had granted credit facilities to respondents no. 3 to 5 on 31st March, 2014 against the mortgage of entire property consisting of ground, first, second and third floors of the said property, whereas it is a matter of record that respondent no. 3 had already sold the ground floor to Mr. Vikas Wahi & Sons HUF on 30th September, 2011. However, the concerned bank officials in collusion with each other and respondents no. 3 to 5 have deliberately and wrongly failed to verify the ownership and title documents of the said property and granted credit facility to respondents no. 3 & 4. It is further submitted that the transfer of the said property in favour of Vikash Wahi & sons (HUF) was not subject to any mortgage in as much Vikas Wahi & sons (HUF) was a bona fide purchaser............................

In its reply, respondent no. 1 Financial Institution has resisted the present O.A. contending that the possession of the ground floor of the said property is with respondent no. 2 Karur Vyasya Bank and not with it. Stating the facts, it is submitted that respondent no. 4 who is the main borrower, alongwith the co-borrowers had availed certain credit facilities of Rs. 2,71,10,000/- by executing loan agreement dated 31st March, 2014 and at that time the borrowers / guarantors / mortgagors also executed an undertaking and affidavits unequivocally stating that the property sought to be mortgaged was free from encumbrance and further that with the passage of time they started defaulting in making payments in the loan accounts, which were declared as NPA. It is further contended that despite repeated attempts, there was no payment in the loan accounts and the answering respondent FI was constrained to issue a notice under Section 13(2) of the SARFAESI Act demanding a sum of Rs. 2,87,54,141/- to be paid within sixty days, but even thereafter no payments were received.

...............................................................................................

In its separate reply, respondent no. 2 Vyasa Bank has also contested the present SA. It is submitted that it has filed an OA for recovery of a sum of Rs. 1,47,93,606.08 as on 11th April, 2017 alongwith interest @14.80%per annum, against Mr. Inder Pal Singh, proprietor of M/s Lovely Collection House, Smt. Ranjit Kaur and Mr. Prabh Dayal Singh, respondents no. 4, 5, 3 respectively herein, and they mortgaged their respective shares in the immovable property consisting of ground and basement of part of said property for the purpose of securing repayment of the amounts due and outstanding to the answering respondent bank. The answering respondent bank submits that the transfer of the shop on the ground floor measuring 10 X 60 feet i.e. 600sq. feet has been made after creation of the mortgage in its favour in conspiracy in between the mortgagor and the security applicant to deprive the answering respondent bank to recover its legitimate dues and right to the mortgaged property. ............. The answering respondent bank further contends that the borrowers failed to make payment of the amounts due in the loan account and declaring the account as NPA on 2nd April, 2016, it issued demand notice dated 5th April, 2016 under Section 13(2) of the SARFAESI Act demanding a sum of Rs. 1,31,20,131/- alongwith future interest but they failed to pay the same and then the answering respondent bank took symbolic possession of the Basement and Ground Floor of the said property.......................................................................

Now, the points for consideration is whether there is valid mortgage in favour of respondents no. 1 &2 from respondent no. 3 in respect of the ground floor of the property bearing no. D-3/16, Krishan Nagar, Radhe Puri, New Delhi?

The contention of the security applicant is that Vikas Wahi and Sons HUF through its Karta purchased the said property from respondent no. 3 vide irrevocable GPA dated 27th September, 2011,........... It is further contended that the security applicant became absolute owner of the ground floor of the said property vide registered Gift Deed dated July 15, 2015 It is further the contention of the security applicant that she came to know that respondent no. 2 issued a demand notice dated 9th June, 2016 to respondents no. 3 to 5 claiming to the mortgagee of the said property and respondent no. 1 FI issued demand notice dated 16th June, 2016 wherein it is mentioned that the loan was granted by it to them on 31st March, 2014 whereas respondent no. 3 has already sold the property in question on 30th September, 2011 and hence there is no question of creating valid mortgage in its favour.........................................

On the other hand, the contention of respondent no. 1 FI is that respondent no. 3 to 5 purchased the said property in the year 1999 and on 29th June, 2001 the same was partitioned. On 27th September, 2011 GPA was executed by respondent no. 3 in favour of Mr. Vikas Wahi and Sons (HUF) granting him rights to sell / mortgage / gift the ground floor of the said property. It is further contended that it granted non-housing loan of Rs. 2,71,10,000/- by creating security interest on ground, first and second floors of the said property vide loan agreement. Meanwhile, a lease deed was executed by Vikas Wahi & Sons (HUF) in favour of respondent no. 4, who executed Gift deed dated 15th July, 2015 in favour of the security applicant. It is further contended that the loan account was classified as NPA by respondent no. 1 FI, which issued notice under Section 13(2) of the SARFAESI Act followed by notice under Section 13(4). It is further contended that respondent no. 1 FI obtained order under Section 14 of the SARFAESI Act for taking possession of the mortgaged property and in SA no. 89 of 2016 filed by respondent no. 3, respondent no. 1 FI was allowed to take possession of three floors of the said property, except the ground floorand respondent no. 3 was directed to pay the entire amount and as he failed to pay the same, respondent no. FI was given liberty to take possession of the ground floor also and in the meanwhile respondent no. 2 obtained possession of the mortgaged property. It is contended that there was valid creation of mortgage in favour of the first respondent FI and the applicant is not entitled for any relief and the same is liable to be dismissed.

On the other hand, the cosntention of respondent no. 2 bank is that is filed OA against Mr. Inderpal Singh, Ms. Ranjit Kaur and Mr. Prabh Dayal, which is pending before the DRT, wherein Mr. Inderpal Singh is the principal borrower and Ms. Ranjit Kaur and Mr. Prabh Dayal are the guarantors and they not only stood as guarantors but also mortgagors of the property consisting of ground and basement part of the said property as they deposited title deeds of the same on 2nd August, 2014 and the security applicant is claiming her right through Gift Deed Dated July 15, 20125 much after the mortgage and, as such, the security applicant is not entitled for any relief and the present SA is liable to be dismissed.

In the present case, both respondents no. 1 & 2 have not denied the Irrevocable General Power of Attorney dated 27th September, 2011 executed by respondent no. 3 in favour of Mr. Vikash Wahi & Sons, which is a registered one. A perusal of the said GPA reveals that it is an Irrevocable Power of Attorney for a valid valuable consideration and it is not a mere GPA. Furthermore, there is another registered document i.e. lease deed executed in favour of respondent no. 4 and it is also a registered one. A perusal of the Loan Agreement filed by respondent no. 1 FI itself reveals at page 31 the description of the mortgaged property as D-3/16, 1st and 2nd floors, Krishan Nagar, Delhi. Thus, the Loan Agreement filed by the respondent no. 1 in respect of the ground floor of the said property is untenable and invalid. Even otherwise, it seems that both respondents no. 1 and 2 have constructive notice of the GPA dated 27th September, 2011 as well as lease deed dated 19th June, 2014 as both these documents are registered documents. It seems that both the respondents no. 1 & 2 are guilty of lawful abstention from enquiry or inspection of the said registered documents. A person who omits a proper investigation of title deeds, may be affected with notice of all the facts which he would have discovered upon a proper investigation of title. Where a person in his own interest ought to make an enquiry and see certain deeds, his omission to ascertain the contents of those deeds should be constructed as wilful abstention from an enquiry which he ought to have made. So, where the circumstances are such that, if the transferee takes the slightest pain to investigate the title of the transferor, he must certainly discover a charge but he abstains from making an enquiry, he should be taken to have had constructive notice,.......................................................................................

In the instant case also, the alleged mortgage by respondent no. 2 bank is subsequent to the execution of the registered Irrevocable General Power of Attorney by respondent no. 3 in favour of Mr. Vikas Wahi & Sons (HUF) for consideration and lease deed executed by Mr. Vihas Wahi & Sons in favour of respondent no. 4 and due to negligence of respondent no. 2 bank, these documents could not be taken note by respondent no. 2 and, if the same are taken note, respondent no. 2 bank could not have accepted the property as mortgage. Learned counsel for respondent no. 1 has relied upon a judgment in the matter of Suraj Lamp and Industries Pvt Ltd. Vs State of Haryana and others (2012) SCC 656 to say that General Power of Attorney does not create any interest in the in the property. However, in the present case, there is Irrevocable General Power of Attorney coupled with interest and even before mortgage is accepted, the property was leased out by the GPA holder vide a registered Lease Deed and had these two documents been noticed by respondent no. 2 bank, there would not have been any acceptance of the mortgage and, as such, the security applicant is a banafide purchaser for value. Hence, it is held that initiation of the SARFAESI proceedings in respect of the said property is not valid and binding n the security application.

In the result, the present S.A. is allowed and the SARFAESI proceedings initiated by respondents no. 1 & 2 qua the ground floor of the said property bearing no. D-3/16, Krishina Nagar, Delhi are hereby set aside. However respondents no. 1 & 2 are given liberty to proceed under the SARFAESI Act with regard to the other floors of the said property "(emphasis supplied)

I have heard counsel for the parties and also perused the material placed before the DRT and examined by the DRT and also what was brought on record before this appeal and which material is not in controversy.

It is clear from a bare reading of the impugned order of the DRT that the S.A. was decided against the appellant bank primarily for the reason that once the respondent Prabh Dayal Singh, appointed Vikas Wahi & Sons(HUF) as his general attorney by way of an irrevocable and registered power of attorney dated 27.09.2011 in respect of the shop in question Vikas Wahi & Sons HUF he could not thereafter in August,2014 mortgage the same in favour of the appellant bank and, therefore, the equitable mortgage created by him after giving power of attorney for consideration to Vikas Wahi was not a valid mortgage and consequently the action of the appellant bank in dispossessing the respondent no.1 Kanchan Wahi was totally illegal and an arbitrary exercise of powers conferred upon secured creditors under SARFAESI Act which the appellant bank never was. Same arguments were raised in this appeal also bylearned counsel for respondent no.1.

In my view however, the learned DRT as well as the learned counsel for the respondent no.1 did not appreciate the correct legal position. Prabh Dayal Singh cannot be said to have ceased to be the owner of shop in question with the execution of the power of attorney in favour of Vikas Wahi despite thefact that the power of attorney in favour of Vikas Wahi was irrevocable. Vikas Wahi could not claim that shop in question stood sold to him and DRT also could not have held it to be so. He simply became the agent of Prabh Dayal Singh and before he could exercise his powers/authority under the power of attorney Prabh Dayal Singh mortgaged the shop in question in favour of the appellant bank in August, 2014 to secure the repayment of loan of crores of rupees obtained from this bank by his brother Inder Pal Singh, who is claimed to be a tenant also f respondent no.1. That way the appellant bank became the secured creditor of Inder Pal Singh and acquired security interest in the shop in question which it could enforce in exercise of its powers as a secured creditor under the SARFAESI Act and accordingly when it took physical possession of the shop in question after declaring the account of Inder Pal Singh as NPA no illegality was committed by it.

The view of the learned DRT, which was adopted by the learned counsel for the respondent no.1 also that after the execution of irrevocable power of attorney by Prabh Dayal Singh in favour of Vikas Wahi he(Vikas Wahi) became the owner of the shop in question and so Prabh Dayal Singh could not have created equitable mortgage of the shop in question, iscontrary to the judgement dated 11.10.2011 of Hon'ble Supreme Court in the case of "Suraj Lamp Industries(P)Ltd. vs State of Haryana"reported in (2012) 1 SCC 656in which it was clearly held that even in case of irrevocable power of attorney transactions title in respect of an immovable property does not get transferred in favour of the attorney. That view has been reiterated by the Apex Court in a recent judgment dated 28 January, 2016 in the case of "Tmt. Kasthuri Radhakrishnan & Ors vs M.Chinniyan & Anr" reported in (2016) 3 SCC 296.

The impugned order of the DRT, therefore, cannot be sustained. This appeal is accordingly allowed. The impugned order of DRT allowing the S.A. of the respondent no.1 is set aside and consequently the S.A. of the respondent no.1 will now stand dismissed.