Neeraj Vaid vs Indian Overseas Bank And Ors.

Ranjit Singh, J

The S.A. filed by the appellant Mr. Neeraj Vaid has been dismissed by the Tribunal below. Aggrieved against the same, the appellant has filed the present appeal. Respondent Indian Overseas Bank had sanctioned a credit limit of Rs. 3.8 crore in favour of M/s. Angelo Brothers Company (India) Ltd. (respondent No. 2) through letter dated 9.9.2003. The credit facilities were insured by collateral security given by respondent No. 2 and this included property owned by appellant, bearing No. A-701, Phillips Co-operative Group Housing Society situated at Plot No. 3, Sector 23, Dwarka, Delhi and property bearing No. KG/1/201, Vikaspuri, New Delhi. As per the appellant, the first charge against the limit was on raw materials, work in progress, finished goods and receivables which were worth more than Rs. 4 crore.

The appellant claims to have resigned as Director of respondent No. 2 company on 20.9.2004. At that time, the entire liability of respondent No. 2 towards respondent No. 1 was Rs. 3.8 crore. The resignation of the appellant was accepted and intimation in this regard was also sent to the Registrar of Firms.

Respondent No. 1 enhanced the credit limit to Rs. 9.55 crore on 3.12.2004 on the personal guarantee of the appellant, which he had earlier provided. Since the appellant had already resigned as Director of the company, respondent No. 1 realising its fault had waived the guarantee of the appellant on 14.12.2004 and had directed respondent No. 2 to substitute the guarantee of the appellant with another guarantee furnished by respondent No. 6. A letter of hypothecation dated 15.12.2004 was executed by respondent No. 3 and 6 on behalf of Respondent 2. As per the appellant, despite this, the Bank did not return the document relating to the property of the appellant, which was held as collateral security, for want of no-objection by respondent No. 2.

It is clearly made out from the record that the guarantee offered by the appellant was waived by imposing the following conditions:-

"(a) The personal guarantee of Mr. Balraj Sakhuja (net worth of Rs. 540 lacs) stipulated in addition to the existing guarantee of Mr. Pradeep Saxena, Mrs. Anju Saxena and Mr. P.N. Saxena (for an amount of Rs. 21.50 lacs).

(b) Mr. Balraj Sakhuja should infuse capital of Rs. 50 lacs before December 2004. A certificate from Chartered Accountant should be submitted."

The appellant would submit that Mr. Balraj Sakhuja had tendered his personal guarantee of Rs. 540 lac and infused Rs. 40 lac in the account of respondent No. 2 to secure the credit limit. Despite this, the respondent Bank did not release the documents relating to the property owned by the appellant which was held as collateral security. With these pleas and the plea that the appellant cannot be held liable and responsible for the enhanced credit facility, the appellant had filed the present S.A.

The Bank filed written statement urging that the allegation of connivance between the company and defendants 10 and 11 had no basis and was an attempt to derail the securitisation proceedings. The Bank had pointed out that whatever property had been sold before the filing of the O.A., the same had been adjusted and the O.A. had been filed after adjustment of the amount so received. As per the stand of the Bank the appellant in his. reply to O.A. No. 31/2010, had admitted the mortgage of the property in question. It urged that the resignation by the appellant would not absolve him of the responsibility of guarantee which he had executed. It was also pointed out that the appellant had executed the deed of guarantee on 27.9.2004 and created supplementary mortgage on the said date.

While adjudicating the S.A. the Tribunal below has observed that the appellant has to stand on his own leg and prove the averments made in the S.A. beyond reasonable doubt. The Tribunal below has further observed that the appellant then would have met the defences raised by the respondent Bank. As per the Tribunal, the sole issue requiring decision in this case was if the property in question had been validly mortgaged and whether there was any connivance between respondent No. 3 and respondents 10 and 11, i.e. the officers of the defendant Bank. The Tribunal, after considering this issue, has held that the issue of guarantee could not be gone into in the proceedings under Section 17(1) of the SARFAESI Act. As per the Tribunal, the scope of the SARFAESI Act is limited to the realization from the secured assets by a creditor. In this regard, the Tribunal has held that the reference made to Writ Petition No. 9590/2006-Central Bank of India v. Kailash Chandra Gaur, decided by the High Court of Karnataka has no relevance in the facts and circumstances of the present case. Rather, the Tribunal has referred to the case of M/s. Digivision Electronics Limited v. Indian Bank, IV (2005) BC 502 (DB): 2005 (3) CTC 513:2005 (3) Law Weekly 269, where the Division Bench of the Madras High Court has held that there was no equity in favour of the petitioner in the case before the High Court, who had borrowed money and hence, they have to return the same with interest. After making reference to this case, the Tribunal has dismissed the S.A.

The grievance of the appellant in the present appeal is that the Tribunal below was not justified in ignoring to decide his plea of waiver of mortgage and guarantee as raised by the appellant. The appellant has raised this plea and has placed relevant documents on record. On 14.12.2004, the Bank had written to respondent No. 2 M/s. Agelo Brothers for amending the terms and conditions of sanction advice dated 4.12.2004. The Bank had clearly written in this letter that the present guarantee of the appellant stood waived. The collateral security of the flat property at Dwarka valued at Rs. 15.64 lac belonging to the appellant was also waived. This waiver by the Bank, however, was subject to the following two conditions which have been reproduced above and are renoted hereunder for easy reference:-

"(a) The personal guarantee of Mr. Balraj Sakhuja (net worth of Rs. 540 lacs) stipulated in addition to the existing guarantee of Mr. Pradeep Saxena, Mrs. Anju Saxena and Mr. P.N. Saxena (for an amount of Rs. 21.50 lacs).

(b) Mr. Balraj Sakhuja should infuse capital of Rs. 50 lacs before December 2004. A certificate from Chartered Accountant should be submitted."

The Counsel for the Bank would refer to another letter dated 7.2.2006 where the Bank had informed the appellant that release of residential property mortgaged with the Bank was subject to the conditions which were noted and referred to above. As per the Bank, the Chartered Accountant's certificate dated 31.7.2005 disclosed that Mr. Balraj Sakhuja had infused capital of Rs. 40 lac only and the condition of no Objection Certificate from the company for release of the property had not been complied with. The Bank accordingly treated the matter closed. Relying on this communication, the Counsel for the Bank would contend that the appellant is not justified in pleading his discharge due to waiver as pleaded by him.

I have considered the submission made by the Counsel for the parties. The plea raised by the appellant that his personal guarantee and mortgage be waived has simply been noticed by the Tribunal below and is ignored by observing that this cannot be gone into in S.A. proceedings filed under Section 17(1) of the SARFAESI Act. If any mortgagor, borrower or guarantor comes up with the plea that the mortgage of property or personal guarantee given by him had been waived by the Bank, then this could be a valid ground to plead against the action initiated under the SARFAESI Act against the mortgaged property. The Tribunal has not given any reason as to why this plea cannot be raised in the S.A. The stand of the Bank is that the waiver of mortgage and guarantee was allowed on conditions and thus was a conditional one and since those conditions were not fulfilled, the plea of waiver raised in this manner by the appellant would not rescue him. It is not the finding returned by the Tribunal which has not considered this plea and has simply ignored it. The Tribunal below was required to consider if the conditions imposed for waving the mortgage and personal guarantee of the appellant were complied with or not and whether the respondent company was justified in declining to issue no Objection Certificate in this background.

The plea by the Bank that Mr. Balraj Sakhuja had infused additional capital of only Rs. 40 lac instead of Rs. 50 lac, which was one of the conditions, would also need to be examined to see if this would satisfy the condition imposed or would be enough decline waiver of the mortgage and personal guarantee. Since these issues have not been considered at all by the Tribunal below, it can be said that the Tribunal below has not decided the SA in satisfactory and fair manner. Once the plea is raised it is required to be dealt with. Even if such a plea is not maintainable in S.A. the reason must be recorded in the order in support of this view. The impugned order passed in the S.A., therefore, cannot be sustained.

It is noticed that the O.A. filed by the Bank is still pending adjudication before the Tribunal below. In fact, the Tribunal, while deciding the S.A. filed by the appellant has made extensive reference to the stand of the appellant projected in the O.A. In the O.A., Mr. Balraj Sakhuja is also impleaded as a party. It is pointed out that Mr. Balraj Sakhuja has also filed an S.A. before the Tribunal below. It is, therefore, appropriate to remand this S.A. to the Tribunal below to consider the same along with pending O.A. or other proceedings, if any, pending regarding the same transaction.

The present appeal is accordingly allowed. The impugned order passed by the Tribunal below is set aside. The case is remanded back to the Tribunal below to consider all the pleas raised by the appellant in his S.A. and this S.A. can be adjudicated along with the O.A. filed by the Bank, which is pending before the Tribunal below. Since the case is remanded back, the application filed by applicant highest bidder for being impleaded as party respondent is rendered in-fructuous. Once he has not been impleaded as party, question of considering his prayer for refund of bid amount would not arise. Such a plea by highest bidder in an appeal filed by borrower/guarantor would not otherwise be maintainable.