Mr. Mohammed Shahid Rafi vs HDFC Bank & Ors

Ashok Menon, Chairperson

This Appeal is filed by the Applicant in the Securitization Application (S.A. for short) No. 342 of 2019 on the files of Debts Recovery Tribunal No. II, Mumbai, (the DRT for short) challenging the impugned order dated 24.05.2022 in Interlocutory Application (I.A. for short) No. 1332 of 2022 filed in aforesaid S.A. I.A. No.210 of 2022 is an application for stay of the impugned Order and for staying the Sarfaesi proceedings initiated by the First Respondent Bank against the secured assets over which the Appellant claims an exclusive title. The facts, as may be required to determine this Application, in brief, are as thus:

The Appellant's father was the owner of a plot of land in Bandra, and consequent to his demise, the property devolved upon the Legal Heirs. In 1986, they entered into a contract to demolish the existing bungalow and in its place, construct a five-story structure. The Appellant became the owner of one of the residential flats located in that building bearing No. 501, Rafi Mansion, where he continued to reside with his family.

On 29.11.2017 the Appellant entered into an Agreement to Sell the flat to the 3rd Respondent Company named Nimbus Industries, represented by its Directors Respondent Nos.4 to 6. The sale consideration was fixed at Rs.3.20 Crores and advance sale consideration of Rs.50.50 Lakhs was received by the Appellant and for the balance amount, after deducting taxes payable, a cheque was handed over by Respondent No.3 company to the Appellant. There was a condition in that agreement that the sale would become absolute and possession handed over to the 3rd Respondent only after the payment of the entire sale consideration. The Appellant and his family thus continued to reside in the flat.

On 24.05.2018 the 3rd Respondent sent a letter to the Appellant admitting default of payment of the balance sale consideration and informing that the company is unable to pay the balance amount due to financial constraints, and on 19.06.2018 yet another letter was sent by Respondent No.3 to the Appellant requesting him to prepare a draft Cancellation Deed so that the parties could rescind from the agreement to sale. Eventually, on 10. 12.2018 the Appellant and Respondent Nos.3 to 6 agreed on cancelling the agreement to sell and executed the document to that effect. The advance consideration of Rs.50.50 Lakhs paid by the 3rd Respondent was forfeited by the Appellant. Apart from the Cancellation Deed, the 3rd Respondent also executed Indemnity-cum-Declaration admitting that the sale consideration could not be paid in full and that the Appellant continues in possession of the flat and further indemnifying him to any loss, damage, or injury that may be caused to him.

The Appellant contends that Respondent Nos.3 to 6 never revealed to him about the property being mortgaged to the first Respondent Bank to avail loan and was kept in the dark about it.

On coming to know about the mortgage of the flat by Respondent Nos.3 to 6 to Respondent Nos.1 and 2, the Appellant issued a notice to the 1st Respondent Bank on 04.05.2019 informing that he is the real owner in possession of the property and that the Agreement to Sell did not materialize due to non-payment of the sale consideration in full. However, the Bank did not refrain from proceedings against the subject flat to realize the amount which was defaulted by Respondent Nos.3 to 6. The Appellant realized that the 3rd Respondent company had colluded with the 1st Respondent Bank and defrauded him with the specific intention to usurp his property. The Appellant also realized that Respondent Nos.3 to 6 had defrauded several others of their assets similarly. He filed a complaint on 15.04.2019 before the Police against Respondent Nos.3 to 6. He was also called upon by the Economic Offence Wing (E.O.W. for short) of Mumbai Police, and his statement was recorded.

Suppressing the rightful claim of the Appellant over the property, the 1st Respondent Bank initiated Sarfaesi measures, and on 03.07.2019 obtained an order to take physical possession of the secured asset. In consequence of that, the Court Commissioner affixed a notice outside the Appellant's flat on 24.07.2019 and 23.08.2019.

To defend his possession of the flat, he approached the Hon'ble High Court of Judicature at Bombay with a Suit (L) No.922 of 2019 and took the Notice of Motion (L) No. 2035 of 2919 for interim reliefs to stall the proceedings before the Chief Metropolitan Magistrate (the C.M.M. for short). After hearing the Appellant, the Hon'ble Single Bench of Hon'ble High Court of Judicature at Bombay dismissed the application on 17.09.2019 directing the Appellant to pursue the alternate remedy available to him under the SURFAESI Act. A caveat was filed by Respondent No.1 to avoid any adverse interim orders in the Appeal intended to be filed by the Appellant before the Hon'ble Division of the Hon'ble High Court of Judicature at Bombay. A Caveat was also filed by Respondent No.1 to prevent the Appellant from getting any interim orders from the D.R.T. The Appellant filed Appeal (L) No. 450 of 2019 before the Hon'ble Division of the Hon'ble High Court of Judicature at Bombay challenging the order of the Hon'ble Single Judge dated 17.09.2019. The Appeal was dismissed on 24.09.2019.

The Appellant thereafter approached D.R.T. by filing S.A. No. 342 of 2019 seeking to quash and set aside the Demand Notice issued by the 1st Respondent Bank u/s 13 (2) of the SARFAESI Act and all consequent Sarfaesi measures u/s 13 (4) and 14. He also filed I.A. No. 1332 of 2022 on 17.05.2022 seeking an injunction to restrain the taking over of possession of the subject flat scheduled on 24.05.2022. There was a subsequent order by the Ld. C.M.M. dated 26.11.2021 u/s 14 of the SARFAESI Act and the Appellant filed I.A. No. 1332 of 2022 to incorporate the said proceedings also in the S.A. by way of an amendment. The amendment petition is still pending.

The Ld. P.O. dismissed I.A. No. 1332 of 2022 vide the impugned Order dated 24.05.2022 and declined to grant any stay concerning the Sarfaesi measures initiated by the 1st Respondent Bank. Aggrieved from that order, the Appellant is in Appeal before this Tribunal.

Respondents No.1 and 2 appeared and filed an Affidavit in Reply stating that the Appeal itself is misconceived, baseless, and frivolous. The Ld. P.O. had declined to grant the relief sought by the Appellant to stall the proceedings under the SARFAESI Act pending before the C.M.M. Court. Finding that there was no prima facie case made out by the Appellant to establish that he was the exclusive owner in possession of the secured asset, the application was dismissed. The Appellant had sought an amendment of the S.A. by filing I.A. No. 1332 of 2022 and 1346 of 2022, which if allowed would completely alter the relief sought in the S.A. No. 342 of 2019 which was initially filed challenging the order of the C.M.M. dated 03.07.2019 along with the validity of the notices issued u/s 13 (2) and 13 (4) of the SARFAESI Act. The present relief sought in the Appeal pertains to a subsequent order of the C.M.M. dated 26.11.2021 which could not be entertained until the amendment to the S.A. No. 342 of 2019 is allowed. It is also pertinent to note that earlier order dated 10.10.2019 was challenged by the Appellant by filing Appeal (L) No. 1980 of 2019 and he has not bothered to pursue that Appeal. The Bank contends that the 3rd Respondent company had approached the Bank seeking a Cash Credit Facility of Rs.5 Crores during November 2017 and the Agreement of Sale which was registered between the Appellant and the Respondent No.3 was also deposited by the 3rd Respondent on 23.12.2017 and a Memorandum of Entry was executed by the 3rd Respondent about the deposit of the title deeds. It is pointed out that the Agreement of Sale indicates that the consideration agreed upon by the parties was Rs.3.20 Crores less the applicable taxes deducted at the source. After deducting the taxes it is specifically mentioned in that instrument that the 3rd Respondent had paid the entire sale consideration of Rs.3,16,80,000/- to the Appellant and the Deed was registered. It is submitted that upon execution and registration of the Agreement to Sell the right, title, and interest in the premises stood transferred to Respondent No.3 and it was a complete sale. The Bank had conducted due diligence regarding the property and was satisfied that there was a valid sale, and there was nothing to suspect. As consequence, to that, a loan was sanctioned and disbursed. Respondents No.3 to 6, however, defaulted payment, and consequently, a Notice u/s 13 (2) of the SARFAESI Act was issued to the 3rd Respondent on 17.11.2018. The notice was also published in the newspapers such as Free Press Journal and Navshakti on 05.12.2018. The first Respondent contends that the Agreement of Sale dated 29.11.2017 does not have a clause for cancellation of the document or forfeiture of the part consideration paid. The Deed of Cancellation purportedly executed between the Appellant and Respondent Nos.3 to 6 on 10.12.2018 is, therefore, contrary to the terms of the Agreement of Sale. It is only post-issuance of notice of intimation to take possession dated 07.02.2019 that the 3rd Respondent colluded with the Appellant and registered the Cancelation Deed on 11.02.2019. It is further stated that the Appellant had filed a Suit (L) No. 922 of 2019 for a declaration that he is the absolute owner of the secured asset and had taken out a Notice of Motion before the Hon'ble High Court of Bombay and the Single Judge had after hearing both sides observed that in fact by executing the Deed of Cancellation the Plaintiff (Appellant herein) was trying to ensure that the property had not conveyed and transferred to Defendant No.1 (3rd Respondent herein). If the property had not been so conveyed, the Hon'ble High Court observed that there was no need of executing the Deed of Cancellation and of obtaining the declaration contained therein. The Appellant challenged the order of the Single Judge before the Division Bench of Hon'ble High Court of Bombay and failed to get any favourable orders. In the impugned order the Ld. P.O. has observed that the rights of unpaid sellers would lie in filing a suit before the Civil Court and not by filing the Securitization Application to stall the proceedings initiated by the Bank for recovery of the amount due to them. The Respondent also further states that executing the Deed of Cancellation as well as the declaration-cum-indemnity which entitles the Appellant to claim compensation for any loss, damage, or injury that may be caused by the 3rd Respondent company, the Appellant has restricted his right to claim the damage. The 1st Respondent, therefore, submits that the Appellant is not entitled to any relief at the hands of this Tribunal and the same may, therefore, be dismissed.

Heard Advocate Mr. Rishabh Shah for the Appellant and Mr. Ismail Nasikwala for the 1st Respondent Bank. The rest of the Respondents have not appeared.

The Appellant claims to stall the Sarfaesi proceeding initiated by the Respondent Bank on the ground that he is continuing in possession and that the Agreement of Sale which he has executed in favour of the 3rd Respondent did not come into force and was also cancelled subsequently.

Even though both sides have argued the case in much detail and at great length which would have been sufficient to even dispose of the original Appeal, I am not at this juncture inclined to go into the minor details of the allegations made by both sides for this determination of this stay application. A Prima facia case has to be made by the Appellant when he seeks an interlocutory relief to stall the proceedings initiated against the secured asset by the first Respondent Bank.

The objection raised by the Respondent Bank is that there is collusion between the borrowers who are Respondent Nos.3 to 6 and the Appellant. The Agreement of Sale was executed on 29. 11.2017 and being an Agreement for Sale executed on payment of the entire Stamp Duty, the document is as good as the Sale Deed and it is not just an Agreement to Sell the property which has not concluded into the sale. The agreement specifically states that the entire sale consideration has been received by the Appellant. In Exhibit 'A' the Agreement to Sale is produced by the Appellant and it contains a receipt which states that the Appellant has received of and from the within named "Purchaser the entire sum of Rs.3,16,80,000/- (Rs. Three crores sixteen lakhs and eighty thousand only)" by way of cheque No. 480439 of IndusInd Bank Ltd. dated 24.11.2017 in respect of the said premises as per the terms and condition of this agreement. The receipt has been signed in the presence of the Registrar before whom the document was registered. The original title deed of the property was also handed over to the 3rd Respondent. The 3rd Respondent thereafter deposited the title deeds on 23.12.2017 and obtained the loan. The argument of Mr. Shah that the Appellant continued to remain in possession and was also paying the electricity bills indicates that the sale had not taken place. The learned counsel for the 1st Respondent relied on the decision of the Hon'ble Supreme Court in Dahiben Vs. Arvindbhai Kalyani Bhanusali (Gajra) Dead through Legal Representative & Ors. (2020) 7 SCC 366 to argue that when the Sale Deed records that the cheques covering the entire sale consideration were paid to the plaintiff through a particular period it would mean that the sale consideration has been paid and the sale has been completed. The Hon'ble Apex Court relied on an earlier decision of the Supreme Court in Vidyadhar Vs. Manikrao & Anr. 14 (1991) 3 SCC 573 wherein the Hon'ble Supreme Court held that the words "price paid or promised or part paid and part promised" indicates that actual payment of the whole of the price at the time of the execution of the Sale Deed is not a sine qua non for completion of the sale. Even if the whole of the price is not paid, but the document is executed and thereafter registered, the sale would be complete, and the title would pass on to the transferee under the transaction. The non-payment of a part of the sale price would not affect the validity of the sale. Once the title to the property has already passed, even if the balance sale consideration is not paid, the sale could not be invalidated on this ground. To constitute a "sale", the parties must intend to transfer the ownership of the property, on the agreement to pay the price either in praesenti or in the future. The intention is to be gathered from the recitals of the sale deed, the conduct of the parties, and the evidence on record. The Hon'ble Supreme Court in Dahiben (supra) was deciding whether the averment taken by the Plaintiffs therein that the entire sale consideration had not been paid, could be a ground for cancellation of the Sale Deed. It was held that the Plaintiffs may have other remedies in law for recovery of the balance consideration, but could not be granted the relief of cancellation of the registered Sale Deed and it was ultimately found that the suit filed by the Plaintiffs is vexatious, meritless, and does not disclose a right to sue. In the instant case, it is pertinent to note that the Appellant had approached the Hon'ble High Court of Bombay by filing Suit (L) No. 922 of 2019 and also had sought interim relief regarding the Sarfaesi proceedings to prevent his dispossession. The Hon'ble High Court of Bombay observed that the Plaintiffs had signed the receipt for the entire sale consideration under the Agreement of Sale but stated that he had only received a sum of Rs.1,95,90,000/- and that the balance amount of Rs.1,20,90,000/- has not been paid. Observing the Agreement of Sale together with the Deed of Cancellation, it was found that the Deed of Cancellation records concerning certain other business transactions between the Appellant and certain entities such as M/s. India Fashion House and M/s. M. M. Boutique Pvt. Ltd., both are stated to be the group entities of the 3rd Respondent and given certain adjustments between the Appellant and these entities, part of the amount paid towards the purchase price now stands adjusted to the credit of the 3rd Respondent leaving balance sum of Rs.50,50,000/- repayable by the Appellant to the 3rd Respondent, but this amount is not payable on account on account of loss and damage caused to the Appellant due to the failure to make the payment of purchase price. Hence, the sum of Rs.50,50,000/- is said to have been forfeited. The Hon’ble High Court of Bombay found prima facie that there is no fault in the Bank’s claim that validity of equitable mortgage was credited to secure facilities granted to the 3rd Respondent and the relief sought was not granted and the Appellant was directed to seek other reliefs available to him to challenge the order passed by the C.M.M. under the provisions of the SARFAESI Act. That is how the Appellant happens to file the present S.A. No. 342 of 2019 and also sought stay which was declined by the Ld. P.O.

It is pertinent to note that the Deed of Cancellation, though prepared on 10.12.2018, was registered only on 11.02.2019 i.e. after the notice of possession was issued from the C.M.M. Court on 07.02.2019. This would indicate that the Cancellation Deed was created by the Appellant with the help of the 3rd Respondent to stall the proceedings against the secured assets. Even if there was an unpaid amount as per the Sale Deed, the remedy of the Appellant lies elsewhere and not before the D.R.T. under the SARFAESI Act, particularly when there is an indemnity agreement signed by the 3rd Respondent in favour of the Appellant indemnifying him against any loss, injury or damage that he may suffer due to the acts of the 3rd Respondent. Under the circumstances, I find that the Appellant is not entitled to any reliefs at this stage since no prima facie case has been out in favour of the Appellant to seek a stay of the proceedings initiated by the first Respondent Bank under the SARFAESI Act.

In the result, I.A. No. 210/2022 is dismissed.