AI Structured Summary
Not yet generated for this judgment
Judgment
These appeal assail the order dated 26.12.2017 passed by the Tribunal below(DRT-II, Delhi) in Securitisation Application No.22/1010 filed under Section 17(1) of SARFAESI Act by respondent no.1 herein against the measures taken by the appellant herein(assignee of IDBI Bank) under Section 13(4) of SARFAESI Act to recover its outstanding dues from respondent M/s Intercorp Industries Ltd. by way of sale of the property mortgaged in its favour to secure the loan re-payment by the said borrower Company(to be referred as 'the borrower').
The detailed facts leading to the filing of the S.A. have been narrated by the DRT in the final impugned order whereby the S.A. of respondent M/s International Engineers & Project Consultants Ltd. (hereinafter referred as 'the owner/lessor of the property in question') and to avoid repetition the relevant portions of that order are being re- produced below:-
"At the very outset, it is pertinent to mention that originally M/s International Engineers and Project Consultants Limited (hereinafter referred to as the security applicant) had filed the present Securitization Application ( for short, the S.A.) under section 17(1) of the Securitization & Reconstruction of Financial Assets & Enforcement of Security Interest Act,2002 (hereinafter called as the SARFAESI ACT) against the respondent Kotak Mahindra Bank with a prayer to quash and set aside possession notice dated 3rd February,2010 under section 13(4) of the SARFAESI ACT,2002 issued by respondent no.1 bank and the direction issued by any of its officer for taking possession of its property situated at village Dugadha, TahsilBehror, District Alwar, Rajasthan, measuring 2.29 hectares bearing Khasra no. 406, 407, 408 & 410 (hereinafter referred to the property in question) for recovery of any loan and restraining the respondent bank from taking any action against it or against any of its properties including the property in question , but after filing reply to the S.A. by the respondent bank, the security applicant moved an application bearing I.A. No. 168 of 2011 for amendment of the S.A, which was allowed and accordingly the security applicant filed amended S.A. vide Diary No. 3060 dated 17th April, 2014. By way of amended S.A, the security applicant has prayed for setting aside the sale certificate/ auction notice dated 24th January, 2011 and also sought direction for M/s Siddharth Automat India Pvt. Ltd. to handover the possession of the property to it.
Succinctly, the case of the security applicant, as seen from the averments made in the amended S.A., is as follows;
The security applicant is a limited Company incorporated under the Companies Act on 17th April, 1982 having seven directors , including Mr. AnandSrivastava. In the very first year of its incorporation, its first shareholders / subscribers belonged to the same family members, namely, VisheshwarShrivastav, Gyaneshwar Prasad Shrivastav, ShriAnandShrivastav, ShriPadmashriShrivastav, Smt. Raj Rani Shrivastav, ShriUmeshwarShrivastav and ShriSarveshwarShrivastava, who were the Directors.......... It is further submitted that Mr. AnandShrivastav remained as Director of the security applicant Company since the day of inception till November 1993. As per the security applicant bank, Mr. AnandShrivastav as the Managing Director of M/s Intercop Industries Ltd. respondent no.2 had approached M/s Industrial Development Bank of India, the assignor of the respondent bank, and took a term loan from them by executing loan agreement dated 2nd December,1994 for putting up an Integrated Biotech Project at Alwar Rajasthan. It is further averred that in the year 1993 Mr. AnandShrivastav had the security applicant had approachedfor taking the property in question on lease and got a lease deed executed on 13th December,1994 by which respondent no. 2 M/s intercop Industries became a lessee of the property in question.............Respondent no.2 also did not honour in terms of the lease and left the premises and the security applicant took possession of the same. The security applicant is neither a party to any loan transaction pertaining to respondent no.2 nor is liable for the same as they are a separate and distinct entity............. The security applicant has not created any lien or pledge or mortgage with IDBI Bank of any of its properties qua the loan transaction between respondent no.2 and IDBI. Considering that the subscribers of respondent no.2 and the security applicant as common at the time of incorporation of respondent no.2 in the year 1990, the respondent bank is trying to snatch away and illegally sell the property of the security applicant. Thereafter, to know the true nature of the controversy in between respondents no. 1 to 3, the security applicants had moved application bearing I.A.No. 183/2010 for becoming a party in O.A. No. 567 of 1999 instituted by IDBI against Mr. AnandShrivastav and respondent no. 2. The security applicant is the owner of the property in question and the same cannot be disturbed by misuse of the provisions of the SARFAESI ACT,2002 by the respondent no.1 bank. However to the utter stock and dismay of the security applicant on February 21, 2011 the counsel for the respondent bank informed that the bank had sold the property in question ............ The security applicant further pleads that on 3rd February, 2010one Mr.Raina posing himself as an officer of the respondent bank came with five-six persons and told the watchman that they had come to take possession of the property in question for being sold for recovery of the loan amount due to the respondent bank.It is further submitted that the security applicant neither took any loan from the respondent bank nor stood as a guarantor by mortgage / hypothecation / pledge of any of its immovable properties with it. However, its employee, who was present at the gate, did not give entry to them to the property in question and called several persons from the neighbourhood, but the so-called officer of the respondent bank told him that the auction was being taken under the SARFAESI ACT, 2002 by the respondent bank for recovery of some loan. On coming to know about this illegal action of the respondent bank, the security applicant was perplexed and shocked and immediately thereafter, the security applicant lodged a complaint with the police. In the meanwhile the security applicant had also filed Writ Petition No. 746 of 2010 before the Hon'ble High Court at Delhi, but later on the same was withdrawn. However, during the course of proceedings in the said Writ Petition. The security applicant came to know about O.A. No. 567 of 1999 pending against the M/s Intercorp Industries Ltd. and after inspection of the file of the said O.A. the security applicant was astonished to see that the respondents were seeking sale of the property of the security applicant even though the security applicant has no privity / relationship with the said loan transaction in between IDBI and M/s Intercorp Industries Ltd. it is further submitted that neither there is any shred of paper to show any deed of hypothecation/ pledge / mortgage nor there is any document to show that the security applicant had created any type of mortgage by deposit of title deeds or creation of any charge thereto. It is further submitted that within minutes of the withdrawal of the said Writ Petition by the security applicant, the respondents sent ten persons to enter into the premises and so much so that police had to be called. According to the security applicant, the respondents have clandestinely either entered into some kind of a shady agreement with some unscrupulous party for illegal sale of the land or under some conspiracy, they are in the process of doing the same. It is further submitted that in view of the flagrant violation of the provisions of the SARFAESI ACT and also on the touchstone of equity, good conscious and law, the said possession notice is bad ab initio and the samedeserves to be quashed and set aside being illegal and the respondent bank cannot take possession of the property in question because the security applicant neither took any loan from the respondent bank nor stood as a guarantor by creating any mortgage or hypothecation/ pledge and further that the title deeds of the property in question have never been deposited with the respondent bank.
In its reply to the amended S.A., the respondent bank has contended that the present S.A. is liable to be dismissed as the Original Application No. 567 of 1999 has been decreed upholding its right to recover the decretal amount as well as upholding the due creation of mortgage and the order passed in the said O.A. has attained finality. The security applicant has intentionally not disclosed that the property in question was leased out by it to M/s Intercorp Industries Limited, borrower herein vide registered lease deed dated December 13, 1994 by which, under clause (I), a specific right was given to the borrower Company to mortgage the same in favour of the Bank and Financial Institutions. Furthermore, the security applicant Company also did not disclose that it and the borrower Company M/s Intercorp Industries Limited are family concerns of Mr. AnandShrivastav. The answering respondent bank further contends that the conduct of the borrowers remained malafideand after it took over possession of the mortgaged property, the borrowers forcefully interfered with the possession the threatened the security person, which forced the respondent bank to file a criminal complaint against the borrowers and its family concerns. The answering respondent has sold the mortgaged property on 12th January 2011 in accordance with law under the SARFAESI ACT and has issued the Sale Certificate on January 24, 2011 in favour of the successful bidder. It is a matter of record that the borrowers have been adopting delaying tactics and have dragged O.A. No. 567 of 1999 for more than 15 years and due to that the answering respondent bank has landed in a situation where even after sale of the mortgaged property, a huge amount is due and payable by the borrowers and there is no security left to recover the same. It is further contended that the security applicant is trying to take advantage by complicating the matter by introducing new wrong facts that they have no relevance to the present proceedings. On merits, the respondent bank denied that if it is holding any illegal action whatsoever or that any unwarranted force has been used by it at any point of time. It is further denied that the answering respondent bank is intending to enter into any shady transaction or that a property in question is being sold in any unwarranted manner. It is contended that the action initiated by the answering respondent bank is absolutely correct and is within all its limits to recover the outstanding liabilities through sale of the property in question in accordance with law. Ultimately, it is submitted that there is no merit in the present S.A. and the same is liable to be dismissed with costs.
Now the points for consideration are (I) whether the security applicant is entitled for quashing of the possession notice dated 3rd February,2010 issued by the respondent bank and the consequential proceedings , (ii)whether the security applicant is entitled for setting aside the sale certificate in pursuance of the auction held on 24th January,2011 and (iii) whether the security applicant is entitled for direction to direct M/s SiddharthAutomat IndiaPvt. Ltd. to hand over the possession of the property to the applicant herein as prayed for
Initially, the security applicant had filed the present S.A. challenging measures under section 13(4) of the SARFAESI ACT relating to taking into possession of the property by the respondent bank but during the pendency of the present S.A. the property in question was auctioned by the respondent bank and as such the security applicant got amended the present S.A. and included further relief of setting aside the sale and for recovery of the possession of the property. The present S.A. is resisted by the respondent bank mainly on the ground that the security applicant has suppressed the execution of the lease deed in favour of respondent no.2 and power of respondent no.2 to mortgage the same and, as such, the present S.A. is liable to be dismissed in limine.
In the present case, the challenge was made to the very mortgage of the security interest involved in this case. The contention of the security applicant is that it purchased the property in question measuring 2.29 Hectares bearing Khasra nos. 406, 407, 408 and 410 on January 08, 1993 from Ms. Anjana by way of registered sale deed. It is further contend that Mr. Anand Shrivastav respondent no.3 had approached the security applicant Company for taking the property in question on lease and a lease deed was executed in December 1994 and M/s Intercorp Industries became a lessee of the property in question. The security applicant is not promoter of respondent no.2 Company and it only owns only 1,45,000 shares which it had subscribed out of Intercorp's total shareholding consisting of 7,613,500 shares. ..............................and that to its utter stock and dismay, the counsel for the respondent bank informed this Tribunal on February 21, 2011 that the respondent bank had sold the property in question and also filed related documents across the board. The security applicant challenged the securitization proceedings in respect of its property contending that the auction conducted by the respondent bank is in violation of the rights guaranteed under Articles 14 & 21 of the Constitution of India. It is further contended that the security applicant is neither a borrower nor guarantor nor mortgagee of the property in question and the title deeds of the property in question have not been deposited with the respondent bank and the action initiated by the respondent bank is totally contrary to law. ........................................................................................
As against the same, the major contention of the respondent bank is that the lease deed executed by the security applicant creates a specific right to the lessee to mortgage the property in question in favour of the Financial Institution as per Clause (I) of the lease deed............................. Thus, the contention of the respondent bank is that the security applicant Company and respondent no. 2 Company belong to the same family and the security applicant has deliberately suppressed the fact that it has leased out the property in question to respondent no.2 with specific rights to mortgage the same and has dragged the recovery for more than 11 years and a sum of Rs. 52,22,36,034.03 is payable by the borrowers and the security applicant has resorted to delaying tactics and there are no merits in the present S.A., which is liable to be dismissed with costs.
In none of the documents filed by the respondent bank, there was any permission from the security applicant Company to mortgage the properties in favour of the borrower Company. In the present case, even as per the respondent bank, both the Companies are incorporated Companies Act. The respondent bank mainly depends for its claim even against the security applicant Company on the basis of clause (I) of the lease deed executed by it in favour of the borrower Company / respondent no.2 but the respondent bank seems to have failed or observed that clause (I) of the lease deed provides for prior permission of the security applicant Company in case of mortgage by the respondent no.2 Company for the reasons best known to the respondent bank but it did not obtain and file permission letter granted by the security applicant Company permitting respondent no.2 Company to mortgage the property in question. In the absence of such permission even as per clause (I) the mortgage is not a valid mortgage. Further, when the security applicant Company has challenged that there was no valid creation of mortgage, the respondent bank did not choose to file memorandum of deposit of title deed or permission letter from the security applicant Company or the charges registered with the Registrar of Companies to prove the valid creation of mortgage. Though there is clause (I) of the lease deed Mark RW-1/3, but the respondent bank has failed to provide permission granted by the security applicant Company to the borrower Company permitting creation of valid mortgage in favour of respondent no.2 or its assignor.........................
...................Thus, in the absence of permission of the security applicant Company permitting the borrower/ respondent no.2 Company, the respondent bank has failed to prove valid creation of the mortgage in respect of the property in question with the IDBI.
Learned counsel for the respondent bank has vehemently contended that as per the final order passed in O.A No.567 of 1999 dated 22nd August,2013 this Tribunal has upheld the mortgage but the security applicant Company is not a party to the said O.A. and in the absence of impleading the security applicant Company which admittedly was owner of the property, as a party to the said O.A., I am of the considered opinion that the said final order is not binding on the security applicant Company.Thus, the respondent bank has failed to establish valid creation of the mortgage of the property in question in the absence of permission to mortgage from the applicant security Company and as such the contention of the security applicant Company that it is neither mortgagor nor borrower and that the action of the respondent bank in taking possession and sale of the property in question is not binding on it, is upheld.
Viewed from any angle, I am of the considered opinion that there was no valid creation of mortgage of the property in question in this case. Furthermore, in B.D. Aggarwal and another Vs Official Assignee, High Court, Bombay, Bombay and another 2011 (2) D.R.T.C 498 (Bom,) it has been held that ''Section 17 give right to any person including borrower to file an appeal in D.R.T. if he is aggrieved by any measures taken under Section 13 (4) of the Act and the proceedings under Section 17 being in lieu of a suit and all possible grievance can be raised before D.R.T,,,,,,''
On the other hand, the security applicant has filed Annexures 1 to 14, which were exhibited and establish that it did not permit respondent no.2 Company to mortgage the property in question. The claim of the security applicant Company is that it purchased the property in the year 1993 and is still owner of the same and there was no transfer transaction about the same in between it and respondent no.2 Company and further that the lease deed mandates that in case respondent no.2 intends to mortgage the property, prior permission of the security applicant Company must be taken. It is categorical case of the security applicant Company that no permission was granted and exhibited by respondent no.1 bank. In the facts and circumstances of the case and in the absence of permission as required under Clause (I) of the Lease Deed, mortgage, if any, created by respondent no. 2 Company is void and, as such, I am of the considered opinion that there is no valid creation of mortgage and in the absence of the same, taking of possession of the property by the respondent bank and sale of the same are untenable and all the SARFAESI ACT in respect of the property in question are liable to be quashed.
In view of the above discussion, the present S.A. is allowed and since there is no valid mortgage of the property in question in this case, therefore all the actions under SARFAESI ACT initiated by the respondent bank qua the property in question are hereby quashed... "
From a bare reading of this order of the DRT and the submissions made at the Bar by the learned counsel for the parties the undisputed position which emerges is that the owner of the property in question, as described by the DRT in the impugned order, is respondent no.1 in Appeal No.50/2018(securitisation applicant). It was, however, not the borrower of the appellant Bank(in Appeal No. 50/2018) which had initiated measures under SARFAESI Act to recover the loan money which initially was advanced to the borrower Company M/s Intercoprp Industries Ltd., by IDBI Bank which subsequently had assigned the right to recover the unpaid loan money from the said borrower Company in favour of the appellant Kotak Mahindra Bank. It is also undisputed that securitisation applicant had leased out the property in question for a period of 99 years vide a registered lease deed in favour of Intercorp Industries Ltd. It is also undisputed that many of the directors of the borrower Company and its lessor, securitisation applicant, were for many years common belonging to one family of Srivastavas with one Mr. Anand Srivastava as the head and at the helm of affairs of the borrower Company as well as the owner/lessor of the property in question. The borrower Company had mortgaged its leasehold rights to secure the repayment of loan which it had taken from the IDBI Bank, by placing at the disposal of the this bank the lease deed executed by owner of the land its favour for a period of 99 years.
The learned DRT has quashed the measures taken by the appellant Kotak Mahindra Bank under SARFAESI Act and auction sale in favour of the appellant in Appeal No. 292/2018, M/s Sidharth Automat India Private Ltd., which was the successful bidder having given the bid for Rs.3.56 crores in the auction held on 12.01.2011, has been set aside. Feeling aggrieved, Kotak Mahindra Bank as well as the said auction purchaser have come up in appeal by filing separate appeals. Appeal No. 50/2018 is by Kotak Mahindra Bank while Appeal No. 292/2018 is by the auction purchaser.
The auction purchaser was not a party in the S.A. but since the sale of leasehold rights in its favour has been set aside it could file an appeal against the order passed by the DRT in the S.A. being an aggrieved party which right of its was not even disputed on behalf of the securitisation applicant during the course of hearing of these appeals which were heard analogously.
The learned DRT has accepted the case of the securitisation applicant that there was no valid creation of mortgage in favour of the IDBI Bank since no prior permission for mortgage was obtained from the lessor, respondent no.1 in Appeal No.50/2018. In this regard the securitisation applicant as well as the learned DRT placed reliance on the following Clause in the lease deed between the securitisation applicant and the borrower, respondent no.2 in Appeal No. 50/2018, M/s Intercorp Industries Limited :-
"(l) That the Lessee shall not, without the previous consent in writing of the Lessor, transfer, sublet, relinquish, mortgage or assign his interest in the demised premises or the building standing thereon or both and every such transfer, assignment, relinquishment, mortgage or subletting shall be subject to and the transferees, or assignees shall be bound by all the covenants and conditions herein contained and be answerable to the Lessor to in all respect therefore and in no case consent of the Lessor to assign, relinquish, mortgage, sublet, transfer or part with possession of any portion less than the whole of the demised premises or raising any subdivision thereof by metes and bounds or otherwise shall be granted."
The entire case of the owner/lessor of the mortgaged property, securitisation applicant before the DRT, was based only on this Clause in the Lease Deed and the same has been accepted also by the DRT in the impugned order.
The submission of the learned counsel for the appellant Bank was that the learned DRT has blindly accepted the case of the securitisation applicant without going through the second proviso to the above quoted Clause of the lease deed which reads as under:-
"Provided also that the prior permission as aforesaid shall not be necessary in the even to mortgage or mortgage without possession in favour either of any Government or of any Financial Institution (viz. IDBI, IFCL, CLG etc.) or any Bank (viz. SBI, PNB etc.)
Referring to this proviso learned counsel for the appellants in these two appeals had submitted, and in my view rightly so, that no prior permission of the lessor/owner, securitisation applicant before the DRT, was required to be obtained for the creation of mortgage by the borrower Company/lessee of unexpired period of the leasehold rights as the loan was taken from IDBI Bank and for securing the repayment of loan by the borrower mortgage of leasehold rights under the perpetual lease deed in favour of the IDBI Bank was permissible under the lease deed itself which Clause however, the learned Presiding Officer of the DRT did not even refer to while allowing the S.A. of the respondent no.1 on the sole ground taken in the S.A. that for want of prior permission of the owner/lessor of the property in question the mortgage created by the lessee Company in favour of IDBI Bank was not a legal mortgage.
The case of the owner/lessor, securitisation applicant as highlighted in the reply to the appeal of the Bank, however, was that as per the further Clauses of the lease deed the lessee in any event was liable to pay unearned increase in the premium i.e. the difference in the premium money at the time of creation of the lease and the date when the leasehold rights were being sought to be transferred in favour of the auction purchaser and that in regard to the premium vale at that time the decision of the owner/lessor was to be final but the authorised officer of the appellant Bank never approached it before putting up the leasehold rights for auction for finding out the premium value of the property in question and, therefore, there was a violation of an important and vital term of the lease and which violation has deprived a very valuable financial benefit to the owner/lessor. Reliance in this regard is placed on the following proviso:-
"Provided that in the event of the sale or for closure of the mortgaged property, the Lessor shall be entitled to claim and recovery such percentage of the unearned increase foo the market value of the property i.e. the difference between the premium paid and the market value of the demised premises at the time of transfer as the Lessor may decide from time to time. The decision of the Lessor with the regard to the market value at the time of transfer shall be final and binding of the Lessee."
However, in my considered view this grievance of the securitisation applicant cannot even be considered since, as noticed already, the entire case pleaded in the S.A. was that its prior permission for mortgage of leasehold rights was not obtained so the very creation mortgage was illegal. In the S.A. it was not pleaded that the sale of the leasehold rights was illegal since the owner/lessor had been deprived of its share in the unearned increase in the premium. The case not pleaded in the S.A. cannot be raised in these appeals. The pleadings of the parties form the foundation of their case and it is not open to them to give up the case set out in the pleadings and propounds a new and different case.
It was also sought to be projected by the securitisation applicant that the appellant bank had in fact by claiming that the borrower had deposited with it title deeds in respect of the property in question while the same were always with it(owner) had conveyed the title of the property in question in favour of the auction purchaser which was beyond the competence of the Bank. In my view, however, this is also a totally misconceived and meritless submission since the Bank had mentioned in the sale proclamation that the property being auctioned was leasehold. Even the learned counsel for the auction purchaser had accepted the position that all that the auction purchaser had acquired was only unexpired leasehold rights of the bank's borrower, Intercorp Industries Ltd. and not the ownership rights at all as the property was not mortgaged by the owner/lessor and that the auction purchaser was not even claiming ownership rights over the property in question.
In view of the aforesaid discussion these appeals deserve to be allowed and I need not go into the submissions made on behalf of the appellants that the S.A. was a collusive affair between the securitization applicant and the bank's borrower both of which Companies belonged to one family of Srivastavas.
These appeals, therefore, are allowed and the impugned order stands, set aside. Consequently, the S.A. of International Engineers & Project Consulates Limited (being S.A. No.22/2010) allowed by the DRT will now stand rejected.