LIC Housing Finance Ltd vs State Bank of India & Ors

Ashok Menon, Chairperson

These appeals filed by LIC Housing Finance Ltd. and Canara Bank (erstwhile Syndicate Bank) respectively assail the judgment dated 27.12.2011 in Appeal No. 8 of 2011 by the Debts Recovery Tribunal-I, Ahmedabad (D.R.T.) under Sec.30 of the Recovery of Debts Due to Banks & Financial Institutions Act, 1994 (“RDDB&FI Act”, for short) challenging the order of the Recovery Officer, D.R.T.-I dated 21.04.2011 rejecting the claim of the State Bank of India(SBI) concerning the secured property namely flat No. 804 in the building named Anand Hari Tower, Bodakdev, Ahmedabad in Recovery Proceedings No. 223 of 2008 in Original Application (O.A.) No. 89 of 2007 filed by the Syndicate Bank for execution of the recovery certificate obtained on 24.12.2008. The flat was sold in auction and possession was handed over to the 6th respondent, the auction purchaser. the sale consideration is lying in deposit with the R.O.

A similar claim was also raised by LIC Housing Finance Ltd. concerning the subject flat, which was allowed in part by the R.O. The SBI filed Appeal No. 8 of 2011 which was allowed by the D.R.T. and the Recovery Officer was directed to release the auction sale proceeds obtained on the sale of the subject flat to the State Bank of India (SBI). The D.R.T. further directed LIC Housing Finance Ltd. to release the subject flat to the auction purchaser through the Recovery Officer. LIC Housing Finance Ltd. and the Syndicate Bank were aggrieved, and hence these appeals.

The facts as required for disposal of these appeals in brief are thus:

The subject flat was allegedly mortgaged to the SBI by a person named Rohit R. Mehta for securing a loan advanced to a proprietorship named Aiwa Polyplast owned by Vasantbhai Manilal Patel for which the aforesaid Rohit Mehta stood as guarantor in the year 2000. The repayment was defaulted as a result of which the SBI filed O.A. No.51 of 2003 which was allowed ex-parte.

The very same flat was allegedly mortgaged by a person named Satish Vrajlal Vora (respondent No. 5) in favour of LIC Housing Finance Ltd. on availing a loan in the year 2001. The repayment was defaulted by him and the account was classified as a non-performing asset (NPA) and physical possession of the property was taken by the LIC Housing Finance under the provisions of Sec. 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short).

The Syndicate Bank had also lent money to two persons named Harkahben P. Thakore and her husband Prahaladbhai Hiraji Thakore (respondents Nos. 3 and 4). The fifth respondent Satish Vora secured the said loan by standing guarantee and mortgaged the subject flat in favour of the Syndicate Bank in the year 2005. Repayment was defaulted and the Syndicate Bank filed O.A. No. 89 of 2007 for realisation of the dues and the O.A. was allowed on 23.12.2008 with a charge over the subject flat. The Syndicate Bank filed Recovery Proceeding (R.P.) No. 223 of 2008 and the Recovery Officer issued the order of attachment of the subject flat.

Coming to know about the attachment of the flat in the Recovery Proceedings initiated by the Syndicate Bank, the SBI as well as LIC Housing Finance raised claims over the subject flat. The Ld. Recovery Officer vide order dated 21.04.2011 rejected the claim of the SBI while allowing the claim of LIC Housing Finance Ltd. in part permitting them to realise their dues from out of sale proceeds, and the balance amount was directed to be released to Syndicate Bank for appropriation towards their dues. The SBI was aggrieved and hence, filed the aforesaid Appeal No. 8 of 2011.

The justification given by the D.R.T. for allowing the appeal was based on the principles under Sec. 48 of the Transfer of Property Act giving priority to the SBI which had created the mortgage concerning the subject flat in the year 2000 and that the mortgages in favour of the LIC Housing Finance Ltd. and the Syndicate Bank were only created subsequently in the years 2001 and 2005 respectively. It was also observed that the SBI has already earned a recovery certificate in their favour in O.A. No. 51 of 2003 on 08.09.2008. Though an attempt was also made to sell the subject flat in Recovery Proceedings No. 133 of 2008 by the SBI, it failed.

Since the State Bank of India has raised a claim of priority of mortgage concerning the subject flat, the Ld. Presiding Officer did not go into the question of the validity of the mortgage concerning the title of the mortgagors. The mortgage in favour of SBI was created by Rohit R. Mehta claiming to be the owner whereas the mortgages in favour of the LIC Housing Finance and the Syndicate Bank were created by the fifth Respondent Satish Vora.

When a claim petition is filed by a third party in a Recovery Proceedings before the Recovery Officer under Rule 11 to the Second Schedule of the Income Tax Act, the claimant is expected to prima facie establish a better title over the attached property.

In the instant case, the SBI relies on receipts and a purported allotment letter allegedly issued to Rohit .R. Mehta in the year 1999 by the organisers and builder namely Sachania Corporation. A Share Certificate purportedly issued by the Anand Hari Owners Association was also relied upon by the SBI to accept the mortgage. A title report was also obtained from the solicitors namely Jani & Co.

The appellants would rely on a share certificate issued by the very same society in favour of Satish Vora. The record maintained with the society was also examined by the Commissioner appointed by the Recovery Officer and it was noted that all the documents maintained with the society were issued in the name of Satish Vora. Tax was also being collected from Satish Vora. An allotment letter was issued by the Owners Association of Anand Hari building evidencing allotment of the subject flat in favour of Satish Vora. The organiser and builder namely Sachania Corporation had also issued a letter to LIC Housing Finance regarding the sale of the subject flat to Satish Vora vide agreement dated 24.11.2000 for a consideration of ₹7.70 lakhs. The present Secretary and Chairman of the society have produced the list of the occupants/owners of the flats in the building which indicates that the flat No. 804 stands in the name of Satish Vora. The D.R.T. could not have turned a blind eye to the overwhelming evidence indicating Satish Vora as the owner of the subject flat. As against this, the contra evidence relied upon by the SBI is scanty. It is also pertinent to note that in O.A. No. 51 of 2003, the SBI as the applicant submitted that the mortgaged properties were sold and conceded that a personal decree against the defendants would be sufficient. Considering this submission by the SBI, in the operative portion of the judgment dated 08.09.2008, the D.R.T. observes thus:

“3. Applicant shall be entitled to sell the secured properties described in para ‘A’ of the application, if not already sold, for realizing the certified dues. Applicant shall be at liberty to adopt other legal modes of recovery as laid down in the Act.”

A reading of the aforesaid portion of the order indicates that it was only a conditional order of creating a charge over the subject property and therefore, there was no charge decree against the subject property in favour of the SBI.

Under the circumstances, the D.R.T. was not justified in allowing the appeal in favour of the SBI. The impugned order of the D.R.T. dated 27. 12.2011 in Appeal No. 8 of 2011 is, therefore, quashed and set aside. The order of the Recovery Officer dated 21.04.2011 in R.P. No.223 of 2008 is restored.

The appeals are allowed as above.