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Judgment
P.K. Bhasin, J
This appeal has been filed by Punjab and Sind Bank against the order dated 19.4.2017 passed by the Tribunal below in S.A. No. 249/2011, which stood disposed of way back on 29.8.2012, whereby one application moved by a third party by the name of M/s. Indicon Micro Engineers Ltd., respondent No. 2 herein, under Section 17(7) of SARFAESI Act read with Section 19(25) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was allowed. That application (being I.A. No. 1858/2016) was filed before the DRT by the said third party seeking a direction to the appellant Bank to return Rs. 2 crores with interest which it had deposited with the appellant Bank with the permission of the DRT during the pendency of the S.A. filed by the Bank's defaulting borrower/mortgagor whose property was going to be auctioned for the recovery of Bank's dues. The money was deposited by the said third party to purchase the mortgaged property in question directly from the mortgagor by way of private treaty, of course, with the permission and intervention of the DRT and for which purpose there was executed an agreement to sell also by the respondent No. 1 herein (borrower) and respondent No. 2 (third party prospective purchaser). The DRT had permitted the third party purchaser vide order dated 10.2.2012 to make the initial deposit of Rs. 2 crores with the appellant Bank which it did same day, and that money was directed to be kept in a no-lien interest bearing account and to be adjusted against the total sale consideration of Rs. 21,74,40,220.98 which was offered by the third party, in the event of the deal materializing in favour of the said third party prospective purchaser. The appellant Bank's Counsel had at that time agreed to accept the said payment which was being directed to be kept in a no lien account but with a rider that it be also ordered that in case of the final sale not taking place in favour of the said prospective purchaser the borrower Company will pay Rs. 2 crores to the Bank in lieu of the said amount of two crores which the third party purchaser will be depositing with the Bank. It appears from the records that the private deal finally did not materialize for the reasons which are no relevant for deciding the present appeal, and the said third party approached the appellant Bank for the refund of Rs. 2 crores which it had deposited on 10.2.2012. However, the appellant Bank did not return that money to the third party and in fact claimed that the money had been adjusted towards the dues of the Bank payable by its defaulting borrower M/s. Anjney Loys Pvt. Ltd., respondent No. 1 herein, which had filed S.A. No. 249/2011. That stand taken by the appellant Bank led to the third party prospective purchaser of the mortgaged asset in question approaching the DRT with an Application No. 1858/2016 and sought a direction to the appellant Bank to refund the amount of Rs. 2 crores with interest and the DRT allowed that application vide impugned order and directed the Bank to refund that amount with interest thereon @ 9% p.a. and feeling aggrieved the Bank has now approached this Appellate Tribunal by filing this appeal under Section 18 of SARFAESI Act.
The impugned order dated 19.4.2017 passed by the learned Presiding Officer of DRT which sets out the background facts leading to the third party filing I.A. No. 1858/2016 is re-produced below:
"The present application has been filed by Indocon Micro Engineer Ltd. for refund of money deposited by it for purchase of the secured asset and the brief case of the applicant as per averment made in the above LA (M) is as follows:
The applicant submits that M/s. Anjney Loys Pvt. Ltd. and Smt. Sona Goyal approached the applicant for purchase of property bearing No. 9, Rajpur Road, Civil Lines, Delhi-110054 admeasuring 2,080 sq. yds. For a sum of Rs. 21,74,40,220.98 which was mortgaged with Punjab and Sind Bank by stating that except the said mortgage there was no other encumbrance on the said property and same would be handed over to the applicant on settling of the due of the Bank. As per order dated 13.9.2011 in SA No. 249 of 2011 liberty was granted to bring a purchaser for property in question. Thereafter the applicant agreed to purchase the above mentioned property and executed two agreements to sell dated 9.2.2012. The Clause 6 of the agreement is as follows:
Clause 6: That the vendor has assured the vendee that apart from the mortgage with the Punjab and Sind Bank, referred to hereinabove, there is no further encumbrance on the said property and that on the aforementioned consideration amount being deposited with the Bank, the property in this regard at the condition that the property would be transferred to the vendee free from all encumbrances. [...]
Besides the Agreements to Sell the parties also executed a Tripartite Agreement on 9.2.2012 and Clause H of the Tripartite Agreement provides as follows:
"H. The vendors have assured the purchaser that apart from the mortgage mentioned hereinabove there is no other encumbrance on the said property and the parties to the present agreement have agreed that on the aforementioned consideration being paid the property would be transferred to the purchaser free from all encumbrances."
In furtherance of this agreement, the applicant preferred IA No. 150/2012 wherein the applicant pleaded as follows:
"(c) The aforementioned amount deposited by the applicant may be initially kept in an interest bearing 'no line account' by Punjab and Sind Bank."
"(g) That for any unforeseen reason the aforementioned transaction is not completed, the amount retained in the no lien account shall be refunded to the applicant along with accumulated interest within 2 weeks. M/s. Anjney Loys Pvt. Ltd. and Smt. Sona Goyal undertake that they shall also pay in that event interest @ 24% per annum over and above any other claims that the proposed purchaser may be entitled in law."
While so the applicant handed over two drafts bearing No. 024312 dated 9.2.2012 for Rs. 25 lacs and No. 24313 dated 9.2.2012 for Rs. 1.75 crore to the Counsel for the respondent Bank in the Tribunal itself. Thus the applicant handed over Rs. 2 crores to the Bank as advance for purchase of the property.
Thereafter this Tribunal on 20.3.2012 appointed a Receiver in LA No. 292/2012 to demarcate, delineate and take actual physical possession of the 2,080 sq. yds. of the property bearing No. 9, Rajpur Road, Civil Lines, Delhi and when the Receiver visited the place, one Shri Kamal Gupta disputed the common area of the property in question and the officer could not take possession of 2,080 sq. yds.
The applicant filed an LA dated 26.3.2012 praying for vacant and peaceful possession to the applicant over the property in question with following:
...Though as stated hereinabove the applicant has made requisite arrangement for the payment of the consideration amount however in the absence of the aforementioned assurances the applicant would not be willing to purchaser the aforementioned property.
...Unless the said assurances are provided which would be in terms of the agreement entered into between the parties, the applicant herein would request for being released from its obligation and the amount deposited by it as recorded in order dated 10.2.2012 may kindly be directed to be refunded to the applicant with interest.
Subsequently Shri Uma Khanna and Shri Tilak Raj Khanna claiming to be tenants and residents of the said property intervened through Mr. B.L. Mehta, Counsel and disputed the possession over the common area in the said property.
Thereafter on various occasion the applicant expressed his intention to withdraw from the transaction since the borrower failed to ensure the transfer of the property free from all encumbrances and sought to press the application for refund of the amount deposited by him.
Subsequently this Tribunal vide order dated 29.8.2012 allowed the Bank to auction the property. While so the Advocate for the applicant had wrongly noted the date of hearing and could not present on 29.8.2012 and the said fact came to the notice of the applicant only in May, 2014.
The applicant addressed a letter dated 21.5.2014 to the Bank for refund of the amount deposited by him and the borrower had also given no objection for the amount to be refunded. The applicant through its representative followed up with the Bank on various occasions, but the Bank neither denied the ownership of the applicant over the money nor refunded the money. The applicant again addressed a letter dated 1.8.2016 but no response received from the Bank and the applicant constrained to prefer the present application for refund of Rs. 2 crores along with interest accrued which was deposited with PSB in no lien account and there is no fault of the applicant as the purchase could not be completed due to the fact that Bank failed to secure 2,080 sq. yds. of the property free from encumbrance. Hence the present application to direct the respondent Bank to return the amount deposited by the applicant.
The respondent Bank filed reply contending that the present application is hopelessly barred by time and purported deposit is made on 10.2.2012 and the refund of the amount is sought in the year 2016 and applicant was not a party to the lis pending before this Tribunal and application cannot be entertained by this Tribunal and the remedy of the applicant does not lie before this Tribunal and the answering respondent is not a party to agreement to sell dated 9.2.2012.
It is further submitted that the respondent Bank filed an O.A. before DRT-II for recovery of Rs. 26,17,77,616.98 and by final order dated 4.8.2014 the same was allowed and the defendant filed an Appeal under Section 20 of the RDDBFI Act and while complying to Section 21 of the RDDBFI Act regarding pre-deposit to maintain the Appeal, the Counsel for the Securitisation Applicant i.e. appellant before Hon'ble DRAT stated that Rs. 2 crores is lying deposited with the respondent Bank and sought adjustment of the said amount towards the liability of the appellants. Thus vide order dated 12.3.2015 the Hon'ble DRAT has taken into account the adjustment of Rs. 2 crores towards adjustments of the liability of the appellant therein i.e. the borrower and the waiver application was accordingly allowed. As a consequence of the aforesaid order the amount of Rs. 2 crores has since been appropriated and adjusted towards the recovery in the account of the Securitisations Applicant and the applicant is not entitled for refund of the amount.
Heard both sides. Now the point for determination is whether the applicant is entitled for refund of amount of Rs. 2 crores with interest as prayed for?
The learned Counsel for the applicant strenuously canvass that the Bank appropriated the amount deposited by the third party without notice. The learned Counsel for the applicant relied upon the decision in the case of Asit Kr. Kar v. State of West Bengal & Ors., I (2009) SLT 696 : (2009) 2 SCC 703 wherein the Hon'ble Apex Court has held that:
"It is a basic principle of justice that no adverse orders should be passed against a party without hearing him and this is a fundamental principle of natural justice and a basic canon of jurisprudence."
In the present case the respondent Bank appropriated Rs. 2 crores with interest without issuing any notice to the applicant/depositor. The law provides regarding the forfeiture of the amount paid in advance by the auction purchaser as per the provision of Second Schedule of Income Tax Act, 1961 as well as Code of Civil Procedure.
Rule 58 of the Second Schedule of Income Tax Act, 1961 relates to the procedure in default of payment. This Rule provides that:
"In default of payment within the period mentioned in the preceding rule, the deposit may, if the Tax Recovery Officer, thinks fit, after defraying the expenses of the sale be forfeited to the Government, and the property shall be resold, and the defaulting purchaser shall forfeit all the claims to the property or to any part of the sum for which it may consequently be sold."
Similar provision is also there in Order 21 Rule 86 of the Code of Civil Procedure, which reads as under:
"Procedure in default of payment-In default of payment within the period mentioned rule, the deposit may, if the Court thinks fit, after defraying the expenses of the sale, be forfeited to the Government and the property to the Government, and the property shall be re-sold, and the defaulting purchase shall forfeit all claim to the property or to any part of the sum for which it may subsequently be sold."
Both the provisions regarding forfeiture are in pari materia that in case the Tribunal wants to forfeit the amount paid in advance in default of the remaining payment or deposit the only remedy provided by the Legislature is forfeiture to the Government and no remedy is provided for appropriation of the deposit towards the liability account of the borrower.
The Hon'ble High Court of Andhra Pradesh in the case of K. Chandrasekhar v. Government of India represented by its Secretary, Ministry of Finance & Ors., 2016 (1) ALT 167 (Division Bench) has held that:
"Only when respondent No. 3 issued letter dated 6.11.2012, confirming sale of the property in favour of the petitioner for a total. Sale consideration of Rs. 26,50,000/- a clause was incorporated therein that sale confirmation was subject to the outcome of the SA pending before the DRT. This conduct of the respondents is sufficient enough to accede to the request of the petitioner in setting aside the forfeiture letter, which the respondents sought to construe that it was an order of forfeiture dated 6.2.2013. Thus, we have no hesitation to set aside the letter of forfeiture dated 6.2.2013 forfeiting the amount of Rs. 6,62,500/- which was deposited by the petitioner towards 25% of the sale price of the bid and direct respondent No. 1 to 3 to return the said amount to the petitioner."
The learned Counsel for the respondent Bank submitted that the applicant has no locus standi to file this application but the Hon'ble High Court of Bombay in the case of Dr. Anil Nandkishor Tibrewala v. J&K Bank Ltd., I (2007) BC 6 has held that:
"What is the remedy available to a party who is not a party in proceedings before the debts Recovery Tribunal, but whose property has been declared by the Tribunal to be validly mortgaged in favour of a Financial Institution?
The Hon'ble High Court of Bombay further held that:
"The expression "prevent abuse of its Process" "or to secure the ends of justice" in our opinion would be wide enough to cover case where a financial institution has obtained an order or the certificate pursuant to a mortgage created by the judgment debtor based on a fraudulent document like for instance the property not belonging to the judgment debtor. If such party comes before the Court and points out to the Court that the mortgage created is sham and/or bogus, the Tribunal to prevent abuse of its process, can assume jurisdiction under Section 19(25) to decide that issue and for that purpose exercise powers conferred under Section 22 of the Act."
In the present case adjustment of Rs. 2 crores by the Bank was made behind the back of the applicant without any notice. I am of the considered opinion that the application is perfectly maintainable by the applicant, further the Hon'ble Supreme Court in the matter of Mathew Varghese v. Amritha Kumari, III (2014) BC 657 : VII (2014) SLT 17 : 2014(2) DRATC 27 (SC), has held that:
"Intending purchaser should hove entire details about property brought for sale, in Order to rule out any possibility of bidder later on to express ignorance about factors connected with the asset in question."
In the present case even after the appointment of Receiver the property of 2,080 sq. yds. Could not be ascertained and there are claims of the tenant also. Thus, the property is not free from encumbrance and the adjustment of Rs. 2 crores deposited by the applicant which is directed to kept in no lien interest bearing account cannot be adjusted without notice to the applicant and the adjustment is illegal and liable to set aside.
Accordingly, the present LA is allowed and the adjustment made by the respondent Bank in respect of Rs. 2 crores and accrued interest to the account of the borrower is hereby set aside and the respondent Bank is directed to refund the amount of Rs. 2 crores and the accrued interest till date of adjustment and thereafter interest @ 9% p.a. from the date of adjustment till realization to the applicant herein.
With the above direction, the present application being IA (M) No. 1858 of 2016 is allowed and disposed of.
File be consigned to records."
From the aforesaid narration it becomes clear that respondent No. 2 (third party prospective purchaser of one of the mortgaged properties involved in the loan transaction) had entered into a private agreement to sell with the mortgagor. However, since the subject property was mortgaged with the appellant Bank and litigation was going on before the DRT at the instance of the defaulting borrower, the property obviously could not have been sold by the borrower/mortgagor to the said third party prospective purchaser. Therefore, to get a green signal from the DRT where the litigation was pending, the said third party prospective purchaser had moved an application volunteering to purchase the property by way of a private treaty. As noticed already, the appellant Bank had given its no-objection and consequently, vide order dated 10.2.2012, the learned DRT permitted the third party prospective purchaser to make the initial deposit of Rs. 2 crores with the Bank, which it did. Time for making balance payment of sale consideration was also fixed. However, the DRT had not specified any consequences in the event of the private deal not getting materialized for any reason. The borrower's S.A. came to be dismissed in default on 29.8.2012 and some miscellaneous applications which had also been moved by the third party prospective purchaser other than I.A. 1858/2016 also came to be dismissed as having become infructuous. This applicant was also not represented on that date. Consequently, no orders in respect of the deposit made by the third party prospective purchaser came to be passed at the time of dismissal of the S.A. of the borrower.
However, subsequently, when the third party prospective purchaser filed an application for a direction to the appellant Bank to refund the amount of Rs. 2 crores which it had deposited with the Bank pursuant to the permission granted by the DRT, its application was accepted vide impugned order. The grievance of the Bank against the impugned order is that after dismissal of the S.A. in which the third party prospective purchaser was not even a party, the DRT could not have entertained its application for a direction to the Bank to pay to it the amount of Rs. 2 crores. However, I do not find any substance in this argument of the appellant's Counsel. Even though the third party prospective purchaser was not a party in the S.A. of the Bank's borrower, but, still, the DRT had entertained its application for permitting it to purchase the property in question by way of a private treaty and at that time the, appellant Bank had not raised any such objection that the applicant had no locus standi to seek such a permission from the DRT. After giving no-objection at that time for the sale of the property in question by way of a private treaty between the Bank's borrower and the third party prospective purchaser and after having accepted the initial payment of Rs. 2 crores towards sale consideration offered by the third party prospective purchaser, the appellant Bank cannot now turn around and say that the third party prospective purchaser could not have moved application for refund of its money by the Bank. The Bank cannot be permitted to approbate and reprobate. The third party prospective purchaser had no other forum to approach for refund of its money except the DRT with whose permission it had deposited with the Bank Rs. 2 crores.
The appellant Bank has also taken a stand that the amount of Rs. 2 crores deposited by the third party prospective purchaser in any event stood appropriated by it in the borrower's account which owed crores of rupees to the Bank. It was submitted by the learned Counsel for the appellant Bank that during the pendency of the S.A. the Bank had also filed Original Application (O.A.) under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 for recovery of its dues from the defaulting borrower and guarantors/mortgagors. That O.A. (being O.A. No. 172/2013) came to be finally decided in favour of the Bank and a recovery certificate was issued. The borrower, however, challenged that final order of the DRT in the Bank's O.A by filing an appeal before this Tribunal. At the time of preliminary consideration of the appeal a question arose about the pre-deposit for the entertainment of the appeal and at that time it was brought to the notice of this Tribunal that one of the properties had been sold and sale proceeds of that property could be taken into consideration for entertaining the appeal. Counsel for the appellant in that appeal (borrower) had also informed this Tribunal that the Bank was also having with it a sum of Rs. 2 crores which the third party prospective purchaser had deposited and that amount should also be appropriated by the Bank. Accepting those submissions, this Tribunal had entertained the appeal without requiring the borrower appellant therein to make any further payment to the Bank.
It is not in dispute that when this Tribunal had entertained the borrower's appeal, it was not informed to this Tribunal that the amount of Rs. 2 crores which was lying with the Bank did not, in fact, belong to the borrower and had been deposited by the third party prospective purchaser with the Bank with the permission of the DRT and which was to be kept in a no-lien interest-bearing account. Both the parties, thus, at that time had concealed this material aspect from this Tribunal. Therefore, just because the Bank had proceeded to appropriate that amount in the borrower's account will not debar the third party prospective purchaser from claiming the refund of that amount from the Bank. The Bank, in fact, on its own ought to have returned that amount to the third party prospective purchaser once the sale by private treaty failed. By concealing from this Tribunal that the amount of Rs. 2 crores was lying with it in a no-lien account, the Bank cannot be permitted to get enriched by a wrongful method.
For the aforesaid reasons, I find no infirmity in the impugned order of the learned DRT and, consequently, this appeal is dismissed. This order will, however, not affect the rights, if any, of the Bank's borrower under the agreement to sell which it had entered into with the respondent No. 2 third party to whom the DRT has directed the Bank to pay Rs. 2 crores with interest. That can be a subject matter of separate legal between the two parties to the agreement to sell and it is clarified that this Tribunal has not expressed any view in respect of that transaction between the respondents 1 and 2 herein. Similarly the appellant Bank's rights as secured creditor will not get affected with the return of two crores to the respondent No. 2 herein since its borrower will still remain liable to make that payment to it as its defaulter and if it fails to make that payment to the Bank, the Bank can always have recourse to measures under the SARFAESI Act if mortgaged assets are still available or to have its other assets attached and sold in execution of the Recovery Certificate which was issued by the DRT in the Bank's O.A.