Oriental Bank Of Commerce vs Canara Bank And Ors.

J.M. Malik, J

The whole controversy swirls round the question when the Banks or financial institutions or securitisation/ reconstruction companies or qualified institutional buyers are up in arms, inter se, under the SRFAESI Act, whether the learned DRT is armed with the power to adjudicate their dispute?

The abovementioned two appeals arise out of the judgments dated 23.9.2010 and 15.11.2010. In these two appeals, three Banks, namely, Oriental Bank of Commerce, Andhra Bank and Canara Bank are the parties. Each of these claims a finger in the pie in respect of the mortgaged property bearing House No. 69 built over land measuring 90 Sq. Mtrs. situated in Pocket No. 9, Sector 22, Rohini, Delhi.

The case of Oriental Bank of Commerce is this. The Bank had sanctioned a Housing Loan of Rs. 18,50,000/- in the name of Mr. Vipin Kumar and Mrs. Rajni Gosain for the purchase of a house - first floor of the property bearing No. 69, built over land admeasuring 90 Sq. Mtrs. situated in Pocket -9, Sector- 22, Rohini, Delhi-110085. The borrowers created equitable mortgage in respect of the said property and deposited the Original Sale Deed dated 8.2.2010 executed in their favour by Mrs. Monika Verma, wife of Mr. Sanchin Kumar and Original Sale Deed dated 8.10.2009 executed in favour of Mrs. Monika Verma by Mrs. Madhu Malti, wife of Mr. Ashok Jaiswal, previous owner of the property along with other documents. The borrowers, Mr. Vipin Kumar and Mrs. Rajni Gosain made default in the repayment of the loan right from the beginning itself. The Bank made efforts to contact the borrowers to enquire about their commitment regarding repayment of the loan and visited the mortgaged property. During the visit to the property, the officials of the Bank came to know from a notice under Section 13(2) of the SRFAESI Act, affixed on the property, that Canara Bank is intending to take the possession of the said property in respect of a loan sanctioned by it to Mrs. Monika Verma who had sold the property to Mr. Vipin Kumar and Mrs Rajni Gosain. The appellant Oriental Bank of Commerce subsequently received a letter dated 30.7.2010 from Canara Bank intimating that actual possession of the property in dispute had been taken over by it. Immediately thereafter, Oriental Bank of Commerce filed an appeal under Section 17 of the SRFAESI Act against Canara Bank and others. The DRT disposed of the appeal by order dated 15.11.2010. Aggrieved by the order the Oriental Bank of Commerce has filed the first appeal.

Facts of the second appeal as narrated by the appellant Andhra Bank are as under. Andhra Bank had sanctioned a loan of Rs. 22,00,000/- to Mr. Sachin Kumar and Mrs. Monica Verma to purchase the property First Floor without roof rights on Plot No. 69, Pocket-9, Sector 22, Rohini, Delhi in question on 10.11.2009. Mr. Vipin Kumar was co-obligant. Various documents were executed, and mortgage in respect of the said property was created on 9.12.2009 by deposit of sale deed. It came to the knowledge of Andhra Bank that Canara Bank had initiated proceedings under the SRFAESI Act against the property in question for a loan granted to M/s. Bhagwati Enterprises through its proprietor Mr. Sachin Kumar on 12.2.2010 in which Mrs. Monika Verma had mortgaged the said property as owner. The said mortgage was created on 12.2.2010. Andhra Bank informed Canara Bank to take note of the mortgage of the abovesaid property in favour of Andhra Bank before taking any further action. It issued recall notice to the borrowers and filed a S.A. before the DRT. Andhra Bank during the proceedings before the DRT came to know that Oriental Bank of Commerce had also filed an S.A. with respect to the said property. Aggrieved by the order passed by the learned DRT on 23.9.2010/ 15.11.2010 the Andhra Bank has filed the second appeal.

It is surprising to note that the learned Trial Court decided the OAs and SAs vide single judgment dated 15.11.2010 and the following extracts of the impugned order are relevant:

The open cash credit account as sanctioned by Canara Bank for an amount of rupees twenty lacs had been, on Friday, February 12, 2010, the bad account The case of Canara Bank has been referred to here as the example. To strive a balance between the interest of such Banks, this Tribunal has revised its order passed, on Friday, June 18, 2010, in O.A. No. 148 of 2010 thus: it appoints this day a committee for the lawful sale to be conducted over the above property; such committee shall consist of the three authorized officers of such Banks; the committee shall be headed by the authorized officer of the petitioning Bank in S.A. No. 379 of 2010. All such officers are further more the learned Receivers of this Tribunal.

For all the above facts, the Banks' petitions have been disposed of with the specific direction that the sale proceeds shall be distributed in between such Banks on the basis of the absolute NPA amount; after the satisfaction of the NPA amount, if there has been found any surplus, that surplus shall also be distributed in between the Banks on an equal basis.

Since there is a dispute between the Banks inter se, therefore, I am of the considered view that the learned DRT did not have the jurisdiction to try the Securitisation Application under the SRFAESI Act. Recently, the attention of the Court was invited towards Section 11 of the SRFAESI Act which runs as follows:

Resolution of disputes--Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the Bank, or financial institution, or securitisation company or reconstruction company or qualified institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly.

Consequently, it is clear that the previous view taken in this regard that DRT has the jurisdiction to try such disputes appears to be incorrect. The order passed by the learned DRT under the SRFAESI Act in this case is without jurisdiction. I, therefore, set aside the order to that extent. It is made clear that the Banks will approach the Hon'ble High Court and make a request to the Hon'ble High Court to appoint an arbitrator for the adjudication of this case.

In the present case, if all the Banks agree, they may sell the mortgaged property as ordered by the lower Court. The sale proceeds may be kept in one of the abovesaid Banks to which the parties agree and the sale proceeds may be kept in FDR till the matter stands decided by the arbitrator.

The orders regarding the O.As. filed by the Banks are also set aside because both the S.As. and O.As. cannot be decided under one proceeding. Recovery certificates were not issued in respect of these O.As. The amounts did not stand adjudicated. Secondly, there is no provision for appointment of arbitrator so far as the matter pending under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is concerned. The procedures laid down in both the cases are different. The O.As. filed by the Bank stand revived. The Banks are permitted to pursue the same. They are directed to appear before the learned DRT-III for the said purpose on 9.5.2011 The DRT-III is directed to proceed with the O.As. as per law and notify all the concerned parties regarding the pending case before it. Consequently, the appeals are disposed of accordingly.

Copies of this order be furnished to the parties as per law and one copy be sent to the learned DRT forthwith.