Narula Solvex vs State Bank Of Patiala And Ors.

Ranjit Singh, J

The appellant who is a subsequent purchaser of the property has filed this appeal against the order passed by DRT-II, Chandigarh dismissing the S.A. filed by it. The Tribunal below has also sent the order to the District Magistrate to provide necessary assistance to the Bank for taking back possession and for registration of FIR against the borrowers/mortgagors/seller.

Appellant had purchased 16 Kanals of land situated in village Sarup Singhwala, Firozepur on 2.6,1998 from Ms. Surender Kaur. As per the appellant, the seller had represented that there was no encumbrances over the property The appellant purchased another piece of adjoining land measuring 16 Kanal 8 Marlas on 23.7.1998 from Mr. Sukhdarshan Singh, respondent No. 4 who was power of attorney holder of the owner of said land The appellant states that it had made necessary inquiries from revenue record before purchasing this land and had found no encumbrances having been recorded in the revenue record. The total land was purchased for a sum of Rs. 5.67 lacs. As per the appellant, it has thereafter spent huge amount of Rs. 1.25 crore approx. for construction and installation of plant and machinery for running a rice sheller. Appellant would state that the present value of the property is more than Rs. 5 crores.

As a matter of fact, Ms. Surender Kaur and others had obtained a loan of Rs. 5 lacs for construction of godown on this piece of land for being leased to Punjab State Warehousing Corporation. To secure this loan, the land measuring 33 Kanals 8 Marlas was offered as equitable mortgage. The financial facilities were later on enhanced to Rs. 6.45 lacs. The borrower defaulted in making the payment to the Bank and the Bank therefore had to file a civil suit on 26.2.1986 for recovery of Rs. 8,95,571.37. This suit was ultimately decreed on 8.2.1988. The Bank had to file an appeal for modification of this order as the suit was decreed by the trial Court only for recovery of the amount without upholding the right of the Bank to recover the money through the mortgaged property.

The Bank had also filed execution proceedings which were transferred to DRT on 22.12.2004 and treated as O.A./E.A. No. 66/2006. Grievance of the appellant is that this execution is still continuing even after lapse of 23 years. As already noticed, the Bank had filed an appeal against the decree passed by the trial Court for modifying the decree. The Appellate Court modified the decree on 23.10.2009 and dismissed the cross-objection filed by the borrower. This is stated to be the main cause of delay in execution proceedings.

During this time only, the Bank issued notice to the borrower under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act) on 18.9.2010. The Bank also took possession of the property on 25.4.2011.The appellant filed a complaint with Senior of Superintendent of Police against the Bank and the vendors and also field an S.A. under Section 17 of the SARFAESI Act on 27.4.2011. On 4.5.2011, the Tribunal granted partial interim relief staying the sale of the property and also directed status quo on the issue of FIR, but did not giant permission to the appellant to run its rice sheller. The appellant filed an appeal against the same and the Appellate Tribunal when, vide its order 20.5.2011, the Appellate Tribunal permitted the appellant to shell the paddy.

The appellant had approached the Punjab and Haryana High Court by filing a writ petition challenging the interim orders passed by the Tribunal below and this Tribunal, which was disposed of on 14.2.2012. On 31.5.2012, the DRT dismissed the S.A. filed by the appellant, which the appellant again impugned by filing a writ petition before the High Court. The said writ petition was disposed of with liberty to the appellant to approach this Tribunal by way of appeal and accordingly the appellant has filed this appeal to impugn the order passed by the Tribunal below dismissing its S.A.

On 2.4.2014, during the course of arguments, the Counsel for the respondent pointed out that the Tribunal below has dismissed the S.A. on the ground of limitation as no prayer for condoning the delay had been made. The Counsel for the respondent further pointed out that the appellant has not raised any challenge to contest the finding returned by the Tribunal while dismissing the S.A. on the ground of limitation. The Counsel had then prayed for time and had amended the memo to raise challenge on this ground as well. The notice on the application seeking permission for amending the appeal was issued, but on 22.8.2014, the Counsel for the appellant submitted before this Tribunal that he would raise a plea of marshalling as available under Section 56 of the Transfer of Property Act. The Counsel had pleaded that there were a large number of properties mortgaged with the Bank and the loan could be realised by selling those properties and if there was any shortfall then the property of the appellant could be put to sale and the appellant would be prepared to discharge the remaining liability, if any. The Counsel for the Bank required the appellant to give such proposal in writing to which the Counsel for the appellant consented. In this back ground, the case has now been heard.

The appellant thus has mainly pressed its plea of marshalling which, of course, has been opposed by the Counsel for the Bank as well as by the Counsel appearing for respondents 5 to 7. The Counsel for the respondents would point out to the fact that this property was mortgaged with the Bank on 18.2.1980 whereas the appellant had purchased the property only in the year 1998. The Counsel would urge the first sale deed of 16 Kanals was by Ms. Surender Kaur whereas the second sale in favour of the appellant was done by a power of attorney holder of the owner. This power of attorney was executed 21.7.1998 and the sale deed in favour of the appellant on the basis of attorney was executed on 23.7 1998. The Counsel would refer to the contents of the power of attorney which clearly notes the encumbrance on the property. The Counsel would also point out that a little effort on the part of the appellant would have made him to the know that the property was a mortgaged property with the Bank against which even suit had been filed in the year 1986 which had been decreed in the year 1988. Even the execution application had also been filed, but, still, the appellant took no action in this regard till the time it filed the present S.A. in the year 2011. The Counsel for the Bank would submit that the sale deed of 16 Kanal and 8 Marlas in favour of the appellant is under challenge in a civil suit filed by Mr. Daljit Singh on the ground that this land was illegally sold by the GPA holder. In addition, Daljit Singh admitted that the land had been mortgaged with the Bank and that this land was illegally sold during the recovery proceedings. Bank would plead that the appellant had concealed these facts from the Tribunal below and had sought the relief against the Bank.

To answer the plea that the Bank had taken no action to recover the amount form the property mortgaged, the Counsel for the Bank would point out that the Bank had sought modification of the decree by filing an appeal which was decided only on 23.10.2009 and thereafter the Bank had initiated recovery proceedings under the SARFAESI Act and took possession of the property. The Counsel for the Bank would also plead that the appellant is not entitled to any relief in law or equity and in this regard would refer to the provisions of Section 52 of the Transfer of Property Act which talks of transfer of property pending suit relating thereto. As per this section, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party thereto during the pendency of the suit in which any right of immovable property is directly or specifically in question. Plea further is that the sale in favour of the appellant was prohibited and thus was not legally valid and it cannot claim any protection under the garb that it is bona fide transferee without notice.

The Counsel for respondents 5 to 7 has referred Section 59A of the Transfer of Property Act to submit that person deriving title from the vendor enters into the shoes of a vendor and he does not derive any better title than that of the vendor. The Counsel would also refer to Section 48 of the Transfer of Property Act which deal with the priority of rights created by transfer. The Counsel accordingly would contend that the legal position is clear that transfers/encumbrances shall have effect in a simple chronological manner i.e., the prior one will have a prior right whereas the subsequent one shall have a subsequent right.

Since the Counsel for the appellant had virtually given up all the other grounds in support of his appeal and had primarily restricted to his plea of marshalling, the Counsel was asked to satisfy this Tribunal whether any such plea had been raised before the Tribunal below or in the present appeal.

In the appeal, the appellant has made reference to Section 56 of the Transfer of Property Act, but apparently no such plea was raised before the Tribunal below as this cannot be made out from the impugned order or the pleading. Despite this fact, the Counsel has pressed his plea of marshalling hard and rather has raised this as sole ground while arguing the appeal. After making reference to Section 56 of the Transfer of Property Act, which talks of marshalling by the subsequent purchaser, the Counsel for the appellant has placed before me the judgment passed by the Hon'ble Delhi High Court in Rakesh Kumar & Anr. v. Saroj Marwah & Anr., 207 (2014) DLT 777. In this case, plea by the defendant was for rejection of the plaint under Order 7, Rule 11 , CPC on the ground that the matter was sub-judice before the DRT. The plaintiff who had filed the suit was not party to the proceedings initiated before the DRT being a third party and not being a debtor. The High Court accordingly found that the respondent-plaintiffs had a right to approach the Civil Court and accordingly pleaded that the plaint could not be rejected. While noticing the fact, the Court has recorded that the plaintiffs had urged that they are the absolute and lawful owners of the suit property and bona fide purchasers for consideration. The plaintiffs had also averred that as per their apprehension defendant may sell suit property and may cause irreparable damage to the plaintiffs. The plaintiffs accordingly pleaded that before taking adverse steps to deprive the plaintiffs of their rights, the Bank would have to follow the principle of marshalling as provided in the Section 56 of the Transfer of Property Act. The plea was that there were six other properties mortgaged with the Bank and they should sell those properties and if despite sale of the said properties debt is not liquidated, then the Bank should sell the suit property.

The Court in this case has referred to the judgment of the Supreme Court in J.P. Builders v. A. Ramadas Rao & Anr., VIII (2010) SLT 546 = IV (2010) CLT 492 (SC) = JT 2010 (12) SC 588 where the relief of marshalling from the Civil Court was sought and where the Court had made certain observations. The Hon'ble Delhi High Court, after making reference to this judgment, has observed that the legal position shall follow that the DRT Act is not a bar for a Civil Court to apply the relief such as Section 56 of the Transfer of Property Act as it was held that no prejudice is caused to the Bank inasmuch as it only directs that other properties be sold first to satisfy the mortgaged debt. The Counsel then has referred to the case of J.P. Builders (supra) where the Hon'ble Supreme Court has discussed the issue of marshalling and in this regard has upheld the order passed by the High Court. The Counsel would accordingly plead that the plea of marshalling as raised by him need to be considered and allowed and the appellant would undertake to discharge the entire liability, if any, remaining after the sale by the Bank of the other mortgaged property.

Counsel for the Bank, however, points out that except for the property in question the other properties mortgaged with the Bank are agricultural land which are not amenable to the proceedings under the SARFAESI Act. The only other property mortgaged with the Bank is 100 sq. yds. of house where one old lady is residing and the Bank had not considered it appropriate to proceed against that property in fairness it being abode of old lady.

Counsel for respondents 5 to 7 has raised number of pleas to oppose the prayer of the appellant. The Counsel would first challenge the plea that the appellant is a bona fide purchaser. He would refer to various documents on record to show that the appellant seems to have purchased the property at throw-away price while being fully aware and conscious of the fact that it was a mortgaged property. As per the Counsel, the original title deeds were not taken by the appellant and he had purchased 2 acre land for a sum of Rs. 5.60 lac though the value of property as claimed by the appellant is over Rs.5 crores

The Counsel would then submit that the plea of marshalling under Section 56 of the Transfer of Property Act is not applicable or cannot be made applicable in this case. Reference is made to Section 56 of the Transfer of Property Act to urge that if owner of a two or more properties had mortgaged these to one person and then he sells one or more to another, the buyer of the property is entitled to have the mortgaged debt satisfied out of the property or the properties not sold to him but not so as to prejudice to the rights of the mortgagee. Counsel submits that the appellant was required to lay down basis in the pleadings to show that the mortgagor has some other properties apart from the one sold to the appellant to satisfy the debt to make a plea for marshalling, Counsel contends that the plea of marshalling is required to be raised before the Court before the passing of a decree and if the plea of marshalling advanced by the appellant is now considered it would lead to nullify the decree which the appellant has not challenged in any manner. The Counsel in this regard would rely on observation made in the case of State Bank of India v. Messrs. Index Poart Registered, 1992 (SLT Soft) 293 = II (1992) BC 243 (SC) = AIR 1992 SC 1740, where the Court has observed that it is the right of the decree-holder to proceed with it in a way he likes. Counsel also submits that the there is cloud over the title of the appellant and even part of the property purchased by him is subject matter of challenge in a civil suit. The Counsel would refer to the order passed by Hon'ble Punjab and Haryana High Court in a writ petition filed by the appellant where it was observed that the appellant may not be aware of the decree passed in favour of the Bank being a subsequent purchaser of the property but doctrine of lis pendence would apply. Counsel submits that this decree has attained finality and has not been challenged. As per the Counsel, the doctrine of lis pendence would directly stare at the appellant and would bind it with the order and the decree passed by the Civil Court. The Counsel would finally submit that if the property of the appellant is having a more value than what is the amount due to the Bank, then the property can be auctioned and sold in parts and if the amount due to the Bank is recovered from the sale of part of the property, then the sale of the remaining part can be halted.

I have considered the plea raised by the appellant which primarily is to press for marshalling. The Counsel has relied upon the case of J.P. Builders & Ors. (supra) but the Counsel for respondents 5 to 7 has made an attempt to say that the plea of marshalling is not available in the facts situation of the present case at the time of appeal. The Counsel has also referred to the concept of marshalling as explained by the Supreme Court in the above case. The illustration given by the Supreme Court goes as under:

"28. The concept of marshalling by subsequent purchaser can be explained by the following illustration. Suppose A owns properties X and Y. Both these properties are mortgaged to C. Later, A sells property X to B, Now, B will be entitled to insist that his vendor A, shall satisfy his mortgage debt out of property Y (unsold) in the first instance as far as possible. If after property Y is exhausted there still remains balance of debt, only then property X will be drawn upon. As stated earlier, Section 56 deals with the concept of marshalling in a transaction involved in subsequent sale, on the other hand, Section 81 is applicable only to mortgages. The doctrine of marshalling rests upon the principle that a creditor who has the means of satisfying his debt out of several funds shall not, by the exercise of his right, prejudice another creditor whose security comprises only one of the funds."

From the example it would be clear that the mortgaged property should be of one person out of which he sells one of the properties to another person. The buyer of this property can insist on his vendor i.e. the mortgagor, to satisfy his mortgaged debt out of the unsold property in the first instance as far as possible. The subsequent buyer cannot insist with the mortgagee to satisfy his claim out of the other property which is not owned by the subsequent purchaser. Subsequent purchaser has a right to insist with the mortgagor to discharge the liability out of the unsold assets. Obviously, once the mortgagee has obtained a decree execution of which is sought by him, right to seek marshalling at that stage, that too, against the mortgagee would not be available as it may lead to nullifying the decree as such. The Counsel for respondents 5 to 7 is justified in pleading that Executing Court or any Court or Tribunal at the stage of execution cannot go behind the decree when it has not been challenged in any manner and has attained finality. Under these circumstances, it would not be fair to accept the plea of marshalling as pleaded by the appellant which in the facts and circumstances in this case is certainly not a fair plea. The appellant has failed to satisfy the Tribunal below and this Tribunal about its claim that it is a bona fide purchaser of the property. He certainly has not laid down any basis in regard to marshalling. In fact, the appellant has purchased the property against which there is a decree already passed and there were enough tell-tale signs in the power of attorney on the basis of which it had purchased part of the property that the same was under some sort of encumbrance. In para 5 of the power of attorney it is clearly mentioned that the attorney may deposit money in the Bank in accounts, withdraw money, take loan against this land from Bank and will be fully empowered to deal with SBOP Branch Zira regarding loans of godown and do settlement or to pursue the case for loan waiver. How in this background the appellant can plead that it was not aware of the mortgage is left to no guess. The Tribunal below is justified in observing that the appellant was dishonest and had resorted to false pleas and that it knew fully well about the mortgage of the property. The Tribunal below has found this to be an attempt to divert the attention with the aim to escape liability. The appellant has approached the Tribunal below by suppressing the power of attorney for sale of part of property in his favour which is nothing but misleading.

Accordingly I do not find any merit in the plea raised by the appellant and would dismiss the appeal.