Praveen Arora vs I.D.B.I. And Ors.

Ranjit Singh, J

The Recovery Officer (R.O.) passed an order on 18th April, 2012 attaching property No. C-551, 2nd Floor, Defence Colony, New Delhi. The appellant filed objection against the attachment of the property on the ground that the same was sole residential house of the appellant and hence would be exempt from attachment under Proviso (ccc) to Section 60(1) of C.P.C. The Recovery Officer dismissed the said objection by observing that the protection by this provision of C.P.C. would not extend to any property specially charged. Aggrieved against the order so passed by the Recovery Officer, the appellant filed an Appeal before the Tribunal below under Section 30 of the RDDBFI Act. The Tribunal below, while agreeing with the finding returned by the Recovery Officer, has dismissed the Appeal. The appellant has accordingly impugned this order passed by the Tribunal below by filing the present Appeal.

The facts, in brief, are that the respondent Bank had filed an Original Application for recovery of Rs. 2,08,03,034.70. This Original Application was allowed on 28th January, 2010 and R.C. for the recovery of the amount claimed was issued. The recovery proceedings accordingly commenced before the Recovery Officer when the Recovery Officer attached this property on 18th April, 2012.

As already noticed, the Recovery Officer as well as the Tribunal below have rejected the claim of the appellant by holding that the charge was created over the property in question and hence the objection raised by the appellant on the ground that this was the sole residential house is not sustainable.

By referring to the relevant part of the order passed in the Original Application, the Counsel for the appellant would plead that the property in question is not a mortgaged property and the Tribunal below had recorded the finding to this effect. This part of the order reads as under:

"The Bank has nowhere pleaded that these documents have been deposited with the Bank by defendants. Even otherwise the agreement to sell has been entered into with Smt. Parveen Arora, the defendant No. 3 whereas the above undertaking has been given by defendant No. 2 Shri M.P. Arora. Property No. C-551, Defence Colon}', New Delhi is still an asset of the defendant No. 3, who is also a partner of the defendant No. 1. The Hon'ble Supreme Court in Kakkoo Shah Uttam Chand v. Kamlawati, A.I.R. 1969 Delhi 120, has held that a mortgage by deposit of title deeds requires three ingredients:

(i) the existence of a debt, in present or in future,

(ii) the deposit of title deeds; and

(iii) an intention that the title deeds shall be security for the debt.

In the case in hand the title deeds have not been deposited and hence the mortgage has remained incomplete but this does not absolve the defendants of their liability. The property can still be taken to task for recovery of the loan amount as an asset along with other assets of the defendants."

Thus, the Tribunal held that though the property in question was not a mortgaged property, but, still, this property could be taken to task for recovery of the loan amount as an asset along with other assets of the defendants. The question that would, therefore, arise is whether this observation would be sufficient to create a charge over the property in question. Another aspect which would emerge from the finding returned by the Tribunal while deciding the Original Application is that the undertaking stated to have been given was not by the appellant but her husband M.P. Arora. The property in question was the asset of the appellant. Whether the undertaking given by M.P. Arora, husband of the appellant, can lead to creating a charge over the property thus would be another question which may call for consideration.

The Recovery Officer had taken note of the undertaking Exhibit AW-1/25 and the affidavit Exhibit 1/24 by the husband of the appellant. This has been taken to be such which unequivocally was to create a charge/lien over the property. The Recovery Officer has thus mainly relied upon this affidavit and the undertaking which was held to be with an intention, to create a lien in respect of the property. The Recovery Officer, after referring to the judgment placed before it, has held that the property was offered as security to the Bank by way of affidavit undertaking and the deposit of photocopy of the title deed of the property with the Bank and so it was with an intention to create mortgage. This finding apparently is beyond the scope of finding given by the Tribunal below while allowing the Original Application. Once the Tribunal below has held that the Bank had nowhere pleaded that these documents were deposited with the Bank and that mortgage had remained incomplete, the Recovery Officer could not have travelled beyond the finding recorded by the Tribunal below while holding the execution proceeding by recording the finding that it was a case of mortgage. This finding returned by the Recovery Officer and upheld by the Tribunal below thus cannot be sustained.

After recording the observation about the mortgage of this property, the Recovery Officer has referred to Section 100 of the Transfer of Property Act and has held that even if the deposit of photocopy of the title deed was not an equitable mortgage, still a charge was created when an intention to mortgage has been given by CD No. 3, the husband of the appellant, who was the Power of Attorney holder at the point of time. On this account, the Recovery Officer held that the objection raised on the strength of Proviso (ccc) to Section 60(1) of C.P.C. cannot be sustained. This part of the finding is upheld by the Tribunal below.

The Counsel for the appellant would find serious fault with this finding to urge that the undertaking relied upon by the Recovery Officer and the Tribunal below cannot be taken to have created a charge over the property in question, which belonged to the appellant, and the same could not have been so charged with the liability by a person who may be the husband of the appellant. To highlight as to what would be the condition for valid creation of a charge, the Counsel has placed before me two judgments of the Hon'ble Supreme Court titled; Bank of India v. Abhay D. Narottam (2005) 11 SCC 520 and Haryana Financial Corporation v. Gurcharan Singh, 1 (2014) BC 242 (SC) : I (2014) SLT 152 : 2014(1) CTC 98.

Section 100 of the Transfer of Property Act defines charge as:

"Where immovable property of one person is by act of parties or operation of law made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property; and all the provisions herein before contained which apply to a simple mortgage shall, so far as may be, apply to such charge."

A charge is nothing but a devise to create security which is enforceable in law. Charge is defined Fisher and Lightwood's Law of Mortgage as:

"A charge is a security whereby real or personal property is appropriated for the discharge of a debt or other obligation, but which does not pass either an absolute or a special property in the subject of the security to the creditor, nor any right to possession, but only a right of realization by judicial process in case of non-payment of the debt."

In short, a charge is an obligation to make payment out of the property specified. A charge is generally created by a settlement or Will by which the property of the settler or testator is specifically appropriated to the discharge of a portion or legacy or debt, or the support of a religious or charitable endowment. In order to create a charge it is not necessary to employ any technical or any particular form of expression. All that is required is that there should be a clear intention to make a particular property a security for the payment of money. Thus, creation of enforceable security is the essence of a charge either in respect of immovable property or in respect of movables.

The Hon'ble Supreme Court in Bank of India case (supra) has considered the aspect both of mortgage and the condition of valid creation of charge. The Court has observed that without transfer of interest there is no question of there being a mortgage. The Court has further observed that mere undertaking to create a mortgage is not sufficient to create any interest in any immovable property. While considering the condition of creating a charge, the Court has held that without transfer of interest there is no question of there being a charge and a mere undertaking to create a charge is not sufficient to create any interest in any immovable property.

The Hon'ble Supreme Court in this case was considering the issue whether the Bank had prior charge in respect of a property claimed to belong to Company, respondent No. 2. The Court while referring to Section 58-A of the Transfer of Property Act which defines mortgage, has held that without transfer of interest there is no question of there being a mortgage. It is observed that the same principle would apply to charge under Section 100 of the Transfer of Property Act. This section further provides that all the provisions which apply to mortgage shall so far as may be, apply to such charge. The definition of simple mortgage in Section 58(b) of the Transfer of Property Act merely speaks of the procedure and describes that species of mortgage. The Court accordingly has held that mere undertaking to create a mortgage is not sufficient to create any interest in any immovable property. The Court has also held that a contract for sale of immovable property does not of itself create any interest in or charge over such property. In this regard, provisions of Section 54 of the Transfer of Property Act are referred to as well-settled law. The agreement for sale which was deposited by the respondent with the Bank was not an agreement by which respondent had agreed for sale of the property, but an agreement to sell the flat to the said respondent. The Court found that no interest was created in favour of the respondent which could have been transferred by way of security in favour of the respondent Bank.

In Haryana Financial Corporation case (supra), the Court has again considered the aspect whether a charge can be created by an undertaking. The Court has held that a conjoint reading of Sections 100 and 59 of the Transfer of Property makes it clear that if by act of parties, any immovable property is made security for payment of money to another and it does not amount to mortgage, then all the provisions which apply to simple mortgage, as far as may be, apply to such charge. The Court has further held that consequently in view of Section 59 of the Transfer of Property Act when there is no mortgage other than a mortgage by deposit of title deeds, it can be effected only by a registered, instrument. In the case before the Supreme Court, no registered mortgage deed was executed. Mere undertaking that a person would not dispose of the property mentioned during the pendency of the loan was held not conferring any charge on the immovable property mentioned therein. The relevant observation of the Hon'ble Supreme Court reads as under:

"11. A conjoint reading of Section 100 with Section 59 of the T.P. Act makes it clear that if by act of parties, any immovable property is made security for the payment of money to another and it does not amount to mortgage, then all the provisions which apply to a simple mortgage, as far as may be, apply to such charge. Consequently, in view of Section 59 of the T.P. Act when there is a mortgage other than a mortgage by deposit of the title deeds, it can be effected only by a registered instrument. So far as the present case is concerned, no registered mortgage deed was executed by the first respondent and not title deed of the property was handed over by the first respondent to the Corporation. The mere undertaking that a person would not dispose of the properties mentioned, during the currency of the loan, would not confer any charge on the immovable properties mentioned therein. In other words, a mere undertaking to create a mortgage is not sufficient to create an interest in any immovable property. This legal position has been settled by various judgments of this Court. In K. Muthuswami Gounder (supra), this Court was dealing with the legal validity of a security bond by which parties undertook that they would not alienate the properties till the decree was discharged. Referring the said document, this Court held as follows:

"17. The document, Exhibit A-6, security bond does not in substance offer Suit property by way of security Even giving the most liberal construction to the document, we cannot say that a charge as such has been created in respect of the Suit property for money to be decreed in the Suit. All that it states is that in the event of a decree being passed not to alienate the property till the decree is discharged, which is a mere undertaking without creating a charge. Therefore, we agree with the finding of the High Court that the document at Exhibit A-6 is not a charge. If that is so, the Suit filed by the appellant has got to be dismissed."

The Counsel for the respondent guarantor, however, would strenuously canvass that the charge in the case was created. He would rely upon the decision of the Delhi High Court in the case of Sushil Prasad v. Vinod Motors (Pvt.) Ltd., 20 (1981) DLT 85 : 0984) 55 Comp. Cas. 52 (Delhi). The Court in this case was considering a question whether the petitioner was a secured creditor or not. The petitioner with his father and brother was the owner of the property known as Swiss Hotel. In order to clear the dues of Central Bank of India, the petitioner and his father agreed to sell this hotel. The Company had agreed that the money which was to be paid would result in a mortgage or charge being created by the Company of its property at Indore in favour of the petitioner. The hotel was sold and Bank appropriated to itself the amount which was due by the Company. In this background, the petitioner, in place of the Bank, became the creditor of the Company. The question which arose for consideration was that whether a charge is compulsorily registrable or not. In this regard, the Hon'ble High Court has observed as under:

"(8) The first question which arises for consideration is whether a charge is compulsorily registrable or not. Previously the view of some of the High Courts was that a valid charge cannot be created, under the provisions of the Transfer of Property Act itself, orally and the charge could be created only by instrument which was duly registered. This was so held by Madras High Court in Pt. Shiva Rao v. D.A. Shunmughasundraswami, Official Liquidator, A.I.R. 1940 Mad. 140. In arriving at this conclusion reference was made by the Madras High Court to Sees. 59 and 100 of the Transfer of Property Act and it was held that though charge was not the same thing as mortgage but nevertheless in view of the provisions of Section 100, which inter alia stated that all the provisions regarding simple mortgage but nevertheless in view of the provisions regarding simple mortgage would apply to a charge, the provisions of Section 59 became applicable and a charge could be effected only by a registered instrument executed in the manner provided by Section 59. The Supreme Court, however, in a decision reported as M.L. Abdul Jabbar Sahib v. H. Venkata Shastri and Sons etc., (1969) 3 S.C.R. 513, came to the conclusion that a charge is not compulsorily registrable under the Registration Act. The Supreme Court held that the provisions of Section 59 were not attracted in the creation of the charge. It was observed by the Supreme Court that a charge could be created orally. It was, however, stated that if a charge was created by a written document then the provisions of the Registration Act would have to be complied with and the document registered."

The Counsel for the respondent has highlighted this observation to say that the charge could even be created orally. This observation recorded by the High Court in the year 1981 will have to be read in the light of the law laid down by the Hon'ble Supreme Court and relied upon by the Counsel for the appellant.

In any case, it is not clear whether it was a case pleaded by the respondent Bank that the appellant or her husband had created a charge over the property. The pleading in the Original Application apparently was that the husband of the appellant had undertaken to create a mortgage. No doubt, the appellant being CD, the property in question can be subjected to recovery of the dues against the appellant. This property, no doubt, can be taken to task for the recovery but that to be in accordance with law. This property has been held to be not a mortgaged property. Whether this undertaking given by the husband of the appellant would lead to creating charge over the property in question has not been considered either by the Recovery Officer or by the Tribunal below. The Tribunal may have also to consider whether the charge created by the husband of the appellant in respect of her property can be held to be a valid charge.

In Vasantha v. Chandran, AIR 2003 Mad. 214, charge was sought to be created by wife on some property admittedly purchased by her father-in-law when her husband was minor and there was no evidence of husband's contribution in purchase of the Suit property and making constructions thereon. As such the relief of creation of charge by wife on the property of her father-in-law for claiming maintenance from her husband could to be granted.

All these issues may have to be considered afresh on the basis of the legal provisions and the law laid down by the Apex Court, I am, therefore, inclined to remand this case back to the Tribunal below for considering the issues of charge and whether it could be validity created on the basis of an undertaking by the husband of the appellant.

The present Appeal is accordingly disposed of in the light of the observations made above. The case is remanded back to the Tribunal below to reconsider the issues regarding validity of charge and then consider the objection raised by the appellant on the strength of Proviso (ccc) to Section 60(i) of C.P.C. Before concluding it may call for a notice here that Rajeeve Mehra, learned Senior Counsel appearing of the appellant has stated that he would make every endeavour to settle the issue with the Bank and ensure that the appellant will discharge the settled liability by arranging funds. The Tribunal would be at liberty to consider this aspect while deciding the case on remand.