Punjab & Sind Bank vs M/s Montari Industries Ltd

P.K. Bhasin, Chairperson

The appellant is aggrieved by the final order dated 31.10.2018 passed by the Debts Recovery Tribunal(DRT) in its Original Application(O.A.) no.104/2013 under Section 19 the Recovery of Debts Due to Banks & Financial Institutions Act,1993(now renamed as The Recovery of Debts and Bankruptcy Act,1993, whereby its claim for recovery of outstanding dues has been decreed in its favour but its case of property no. 28-A, Plot no. 14, Prithvi Raj Road, New Delhi being mortgaged in its favour and for passing of an order for sale of this property has been rejected. The present appeal has been filed only to challenge rejection of its case of mortgage of the said property. As far as simple money decree passed DRT is concerned the same has not been challenged by any of the defendants-borrowers in the O.A. and so it has attained finality. However quite shockingly it has not been executed and money unrecovered so far, for which necessary report from the Recovery Officer will be called as to why he has not been able to execute the recovery certificate issued by DRT when legislature has conferred stringent powers on him to recover public money including harsh step of arresting the certified debtors against whom recovery certificate stands issued.

The facts in detail leading to the filing of the O.A. by the bank for recovery of over fourteen crores plus have been noticed by the DRT in its final order and to avoid repetition I deem it appropriate to re-produce the order of DRT.

The order of learned DRT reads as under:-

"Punjab & Sind Bank (hereinafter referred to as the applicant bank) has filed this Original Application (for short, the O.A.) under Section 19 of the Recovery of Debts Due to Banks and Financial institutions Act, 1993 for recovery of Rs. 14,11,46,165.64 (Rupees fourteen crores eleven lacs forty six thousand one hundred sixty five and paisa sixty four only) along with pendent lite and future interest @ 15% per annum with rests from defendants no 1 to 3 jointly and severally.

It is pertinent to mention here that during the proceedings of the present O A defendant no.2, namely, Bhai Mohan Singh died and his Legal Representatives, namely. Bhai Manjit Singh (who was also arrayed as defendant no.3), Bhai Analjit Singh and Ms. Avtar Mohan Singh were impleaded as defendants no.2 (A), 2(B) & 2(C) respectively Later on, defendant no.2(C) also expired and her legal heirs namely, Bhai Manjit Singh and Bhai Analjit Singh have also been arrayed as defendants no.2(C)(i) & 2(C)(ii) respectively in the array of the parties.

Pithily, the case of the applicant bank, as seen from the averments made in the O.A. is as follows:

(i) Defendant no.1 is the principal borrower and defendants no. 2 & 3 are the guarantors, whereas defendants no.4 to 13 are the member of the Consortium of banks for advancing and lending financial assistance to defendant no 1. Upon the request of M/s Montari Chemicals Limited, which later on was merged with M/s Montari Industries Limited- defendant no 1 herein (for short, defendant Company), in the month of September, 1989, the applicant bank sanctioned and allowed Cash Credit (Hypothecation) facility of Rs.90 lacs and Inland / Foreign Letter of Credit Limit of Rs. 100 lacs and bank guarantee limit of Rs.5 lacs. In consideration the Cash Credit Limit of Rs.90 lacs, on 18thAugust, 1989 defendant Company through defendant no.3 had executed documents viz. (a) Form No. 14 Demand Promissory Note, (b) Form No. 122 agreeing to render assistance to the bank and permit the bank for periodical inspections of the goods, (c) Form No.106 regarding waiving presentation of the Demand Promissory Note,

(d) Form No. 126 confirming the grant of Cash Credit Limit, (e) Form No. 291 agreeing to pay penal interest @ 2.5% per annum in addition to the rate normally payable, (f) Letter of Undertaking and authority to increase the rate of interest at any time without previous consent, (g) Letter of authorization to debit expenses, (h) Letter of Continuity, (i) Form No.192 revised i.e. Deed of Hypothecation of goods to secure the cash credit limit and (i) Deed of Hypothecation of book debts in favour of the applicant bank. Likewise n respect of the inland / Foreign Letter of Credit Limit of Rs 100 lacs, defendant no.1 through defendant no.3 had executed similar documents in favour of the applicant bank. Similarly, the said defendants also executed the following documents in respect of the bank Guarantee Facility of Rs.5 lacs:

• Demand Promissory Note,

• Form no.126 confirming the grant of cash credit limit.

• Form no.291 agreeing to pay penal interest @ 2.5% per annum in addition to to the rate normally payable.

• Letter of Undertaking and authority to increase the rate of interest in the Cash Credit Account at any time without previous consent.

• Letter of authorization to debit expenses

• Letter of Continuity.

• Form No.192 revised i.e. Deed of Hypothecation of goods to secure the Cash Credit.

• Deed of Hypothecation of book debts

It is further the case of the applicant bank that defendant no.3 stood as guarantor for defendant Company by executing Deed of Continuing Guarantee on that very day i.e. September 18, 1989 for the aforesaid credit facilities, to secure the dues of the applicant bank. Consequent upon the merger of Montari Chemicals Limited into the defendant Company, the latter and defendant no.3 had executed the requisite fresh loaning and documents in favour of the applicant bank on 24thSeptember, 1991

(ii) The applicant bank further submits that upon enhancement-cum-renewal of the Cash Credit Limit for Rs.1.50 crores, Letter of Credit for Rs.1 crore and Bank Guarantees Facility for Rs 5 lacs, the defendant Company through defendant no. 3 had executed various requisite loaning / security documents in favour of the applicant bank on 15thJuly, 1992 and to secure the dues of the applicant bank, defendant no.3 executed Deed of Continuing Guarantee on that very day in favour of the applicant bank.

(iii) It is further the case of the applicant bank that again upon enhancement-cum-renewal of the credit facilities i.e. Cash Credit for Rs. 1.90 crores, Letter of Credit for Rs.1.50 crore and Bank Guarantee Facility of Rs. 44 lacs, the defendant Company through defendant no.3 had executed various loaning / security documents in respect of each facility on 28thJuly, 1993 in favour of the applicant bank. Apart from that, defendant no.3 stood as guarantor for the defendant Company and also executed Deed of Continuing Guarantee on that very day to secure the dues of the applicant bank. The applicant bank further submits that in continuation of the abovementioned credit facilities, on 2nd August, 1993 defendant no.1 executed various requisite loaning/ defendant no 3 execution Deed of Continuing Guarantee for Rs.3.84 crores to secure its dues in favour of the applicant bank. On 5thApril, 1996 defendants no 1 & 3 also confirmed the execution of the documents and also acknowledged and confirmed debit balance of Rs.2,72 85,359/- in Cash Credit Account and Rs.79,03,895/- in Working Capital Demand Loan, outstanding as on 31stMarch, 1996 It is further pleaded that on 12th March, 1999 they further confirmed debit balance of Rs.6,39,46,040/- as on 28th February, 1999 and as per banking norms and procedure executing the following documents on that very day in favour of the applicant bank:

Ø   Demand Promissory Note (Form No 14) agreeing to pay a sum of Rs.6,39,46,040/- with interest thereon @ 4% per annum above the prime lending rate subject to minimum of 17.5% plus interest tax with quarterly rests.

Ø   Form No.106 agreeing to waive rights with regard to the presentment of the Demand Promissory Note.

Ø   Form No. 122 inter-alia agreeing hypothecating the stocks and book debts,

Ø   Form no.126, inter-alia, authorizing the bank to recall the loan advanced without any notice,

Ø   Form No.291 agreeing to pay penal interest upto 2.5% per annum in addition to the normally payable in terms of the documents in case of the irregularity as envisaged in the form no.291

Ø   Form No.412 inter-alia undertaking that the bank shall have a right to recall the entire loan amount without any notice

Ø   Form No. 159 i.e. Letter of Continuity

Ø   Form No. 192 revised.

Ø   Deed of Hypothecation of goods to secure demand Cash Credit.

Ø   Deed of hypothecation of book debts.

Defendant no. 3 also continued as guarantor for defendant Company and accordingly executed Deed of Continuing Guarantee for the aforesaid amount on that very day e. 12thMarch, 1999 to secure the dues of the applicant bank.

(iv) The applicant bank further pleads that the defendant Company created a charge upon its entire fixed assets including land and building, plant and machinery, furniture and fixtures and other assets to secure its dues and other consortium members, including the mortgaged properties i.e.

(a) Property No 28-A, built on Plot No. 14, Prithvi Raj Road, New Delhi belonging to defendant no. 3 (hereinafter referred to Delhi property)

(b) Immovable property situated at village Toansa, Hadbast No 417. Tehsil Balachur, District Hoshiarpur, Punjab, bearing Khewat / Khatoni No 244/36 2, Khasra No. 71/7/1(1-7). 82 (1-7), 9/1(1-7), 106 (1-4), 11(7-4), 12(8-0). 13(8-0), 14(8-0),17(8-0) 18(8-0),19(8-0), 20(7-4), 21(7-4), 22(8-0), 23(8-0), 24(8-0), 75/1(7-4), 2(8-0), 3(8-0), 4(8-0), 712(3-11) 8/1(3-11),9/2(3-11) and 10/1(3-4), total measuring 143 kanals 18 marlas belonging to defendant no 1 (hereinafter referred to Toansa property).

To further secure the dues of the applicant bank and other members of the consortium, defendants no. 2 & 3 also stood as guarantors and executed Deed of Guarantee on Form-8 dated 8thJanuary, 1996 for a sum of Rs 24 crores in favour of State Bank of Patiala i.e. defendant no 7. Defendant Company vide its letter dated October 20, 1994 confirmed their Cash Credit Limit with the applicant bank amounting to Rs 190 lacs which was overdrawn by approximately Rs 100 lacs and sought repayment as per the schedule given in the letter. It is further averred that vide its letter dated 22ndMay, 2000 defendant Company sought utilization of letter of Cash Credit Limits. As per the applicant bank, defendant Company was decreased sick on 4th March, 1997 and ultimately was wound up by the BIFR on 5thDecember, 2002 and prior to that defendant Company had submitted theproposed rehabilitation scheme to the BIFR. The applicant bank further submits that defendant Company finally acknowledged the cues of the applicant bank in its Annual Report for the year 1998-99 i.e. for the year ending 31stMarch. 1999.

(v) The applicant bank has further pleaded that a total sum of Rs. 14,11,46,165.14 (Rs. 12,91,07,795/- + Rs. 1,20,38,370.64/- alongwith interest @ 15.50% per annum with monthly rests were due and payable by defendants no.1 to 3, as per the Statement of Account duly certified under the Bankers' Book of Evidence Act, 1891. Hence, by filing the present O A., the applicant bank has sought Recovery Certificate for recovery of the aforesaid amount alongwith future interest @ 15% per annum with monthly rests till realization from defendants no.1 to 3, jointly and severally.

Opposing the claim of the applicant bank, defendant Company in its Written Statement has contended that though the order passed by the BIFR recommending its winding up has been upheld by the Appellate Authority vide order dated 15thJune, 2011, but till date the said recommendation has not been confirmed by the Hon'ble High Court of Punjab and Haryana at Chandigarh and, as such, the Written Statement has been signed and verified by defendant no.1 in the capacity of its Managing Director. Taking various preliminary capacity objections it is contended that the applicant bank has no valid and legally enforceable charge over Delhi property and even no charge over Delhi property is prima-facie established as the pleadings are contradictory with respect to ownership rights over it. It is further contended that even if there is any charge, then it be restricted to its 2/7th portion. Execution of personal guarantee deeds is also denied the claim of mortgage is also alleged to be barred by limitation. The present OA is also stated to be non-joinder of parties as the applicant bank has not impleaded co-owners of the property as a party in the capacity of mortgagors. It is further contended that no valid mortgage could have been created over Delhi property without the approval of L&DO as per the terms of the perpetual lease deed according to which no charge on a part of the larger property could be created without the prior approval of the L&DO. The answering defendant Company further contends that Delhi property is of Hindu Undivided Family. The claim of the applicant bank is stated to be highly exaggerated. While maxing additional submissions contended that the officials of the applicant bank had got a series of papers untilled printed performas, blank letter heads signed in blank by exercising misrepresentations, commercial duress and coercion and without even giving an opportunity to read or understand the nature and contents thereof and those documents have been mis-utilized by the applicant bank. The answering defendant Company further contends that the applicant bank has charged exorbitant rate of interest. Denying all other contra allegations, the answering of interest defendant Company has prayed for dismissal of the present OA with costs.

The other defendants viz. defendant no 3. who is also Legal Representative of deceased defendants no 2 and 2(C) and defendant no. 2(B) = 2(C)(ii), who is also Legal Representative of the deceased defendants, have also resisted the claim of the applicant bank on the similar grounds as raised by the defendant Company. In order to avoid repetition, the assertions raised by them are not being reproduced here.

Defendant  no.  13  Punjab  State  Industrial  Development Corporation's also filed separate Written Statement stating therein that it is also one of the lenders of defendant Company, which failed to repay the loan amount alongwith interest and expenses and as on 31st January, 2012 a sum of Rs 25,73,99,137/- was due and payable by the defendant Company through defendants no 2 & 3 who are also personally liable to repay the same along with future interest. It is submitted that in case the applicant bank recovers excess amount from the sale of the assets of defendant Company, then the residue may kindly be disbursed to it.

It s pertinent to mention here that defendant Company is under liquidation and has been ordered to be wound up by the Hon'ble High Court of Punjab and Haryana, at Chandigarh on 14th August. 2015, Company Petition No 83 of 2010 on the recommendation of BIFR and the Official Liquidator attached to the said Court has been appointed as its Liquidator with a directions to take over the movable and immovable assets of the Company and further steps in accordance with law. Accordingly, the Official Liquidator has filed its status report in compliance with the orders of the Hon'ble High Court, he took the charge of the factory premises of defendant Company (under liquidation) situated at Bhai Mohan Singh Nagar, Tonasa, Tensil Balachur, District Nawanshehr (Punjab) on 29th and 30th January, 2016 and moved an application before the Hon'ble High Court seeking permission to sell movable and immovable assets of the Company and the same was allowed. Thereafter, the sale notice was published in the newspapers and also invited claims from the secured / unsecured creditors and workmen. It is further submitted that the Official Liquidator has also filed an application seeking confirmation of the sale of the movable and immovable assets of defendant Company (under liquidation). which is pending before the Hon'ble High Court and notices have been issued to the respondents including respondent no. 6 Punjab & Sind Bank, applicant herein Vide order dated 2nd June, 2017 passed in CA. No 35 of 2017, the Hon'ble High Court has confirmed the sale of assets situated at Bhai Mohan Singh Nagar, Village Tonasa, Tehsil Balachur, District Nawanshehr (Punjab) in favour of M/s Chirag & Company Pvt. Ltd. for a total sale consideration of Rs. 10,25,50,000/. On payment of 75% amount of the sale consideration, the Official Liquidator has been permitted to hand over the possession of the assets to the purchaser and accordingly. The possession of the land and building and plant and machinery & miscellaneous assets of the Company (in liquidation was handed over to the said auction purchaser through its Representative on 21st August 2017. The Official liquidator further submits that the applicant bank has submitted claim form no 66 in the office of the Official Liquidator on 9th May 2018 and the Official liquidator has sent its reply dated 23rd May 2018. It is further submitted that as per the provisions of Section 456(2) of the Companies Act, the assets of defendant Company (in liquidation) is in the custody of the Hon'ble High Court of Punjab and Haryana, at Chandigarh with effect from 14th August, 2015 and the applicant bank may be directed to obtain permission from the Hon'ble High Court of Punjab and Haryana, at Chandigarh, before proceeding further in the matter or, in the alternative, he may be at liberty to file a claim before the Official Liquidator along with order for condonation of delay in accordance with law subject to approval by the Hon'ble High Court.

In order to substantiate ìts case, the applicant bank has filed evidence affidavit of Gurminder Singh Puri, its Senior Manager and additional evidence affidavit of Mr Ashok Kumar, its Manager and has also exhibited documents as Exs. AW-1/1 to AW-1/13. AW-1/10 t0 AW-1/57 AW-1/60 to AW-1/148, AW-1/150 to AW-1/159, AW-1/162 to AW-1/190, AW-1/192 to AW-1/216 and AW-1/219 to AW-1/236. On the other hand, defendant no 3. who is also defendant no 2(A) = 2(C)(i) being LR of defendants no 2 and 2(C) as well as defendant no. 2(B) = 2(C) being LR of the said deceased defendants have also filed their respective evidence affidavits and have also marked documents as DW-2(b)1 and DW-2(b)2, DW-1/1 to DW-1/5 in Support of their case.

I have heard the counsel for the parties and have also gone through the pleadings and evidence on record.

Now the points for consideration are whether the applicant bank is entitled to recover a sum of Rs 14,11,46,165.64 from defendants no. 1 & 3, jointly and severally, (ii) whether the applicant bank is sell the mortgaged properties and (iii) whether applicant bank is entitled to sell the hypothecated goods as prayed for, and (iv) to what relief?

The contention of the applicant bank is that defendant Company is the principal borrower and defendants no 2 & 3 are the guarantors, and defendant no 3 is also the mortgagor of 2/7th share of the Delhi property i.e. 28-A, Prithviraj Road, New Delhi. It is further contended that defendant Company also mortgaged its immovable property situated at village Toansa, Hadbast No 417, Tehsil Balachur, District hoshiarpur, Punjab, bearing Khewat / Khatoni No 244/362 Khasra No 71/7/1 (1-7), 8/2 (1-7), 9/1(1-7), 10/6 (1-4), 11(7-4), 12(8-0), 13(8-0), 14(8-0), 17(8-0), 18(8-0),19(8-0), 20(7-4), 21(7-4), 22(8-0), 23(8-C), 24(8-0), 75/1(7-4), 2(8-0), 3(8-0), 4(8-0), 7/2(3-11), 8/1(3-11), 9/2(3-11), and 101(3-4) total measuring 143 kanals 18 marlas for securing the credit facilities availed by it. Applicant bank further contends that originally Montari Chemicals was the borrower, which later on was merged into defendant Company and after that the applicant bank sanctioned / renewed / enhanced various credit facilities which were availed by defendant Company after executing various loaning / security documents, which are Exs Aw-1/16 to AW-1/199. He has further canvassed that defendants no. 1 & 3 confirmed the execution of the loaning / security documents and the debt balance by executing documents AW-1/201 to AW-1/205. It is further the contention of the applicant bank that the 1/205 loaning documents of the year 1999 are Exs AW-1/206 to AW-1/216 and the Deeds of Guarantee executed by defendants no 2 & 3 are Exs AW-1217 & AW-1/218. The applicant bank further submits that the defendant Company became a sick unit and submitted a proposal before the BIFR and the amount due to the applicant bank is reflected in the documents Exs. AW-1/222 to AW-1/236.

On the other hand, the contentions of the contesting defendants are that the applicant bank has no charge over the Delhi property and since the all the owners of Delhi property have been arrayed as a party in the present OA., therefore the same is liable to be dismissed. It is further contended that the alleged mortgage is illegal and the pleadings in the present O.A. are contradictory and further that the applicant has not filed any title document of the purported mortgage properties and, as such, no valid mortgage is proved and hence, the present OA. is liable to be dismissed in respect of Delhi property.

In the instant case, the Official Liquidator has filed Status Report to the effect that defendant Company is under liquidation and has been ordered to be wound up by the Hon'ble High Court of Punjab and Haryana, at Chandigarh, on 14th August, 2015, in Company Petition No 83 of 2010 on the recommendation of BIFR and he has been appointed as its Liquidator with a directions to take over the movable and immovable assets of the Company under liquidation and to take further steps in accordance with law. He has further submitted that pursuant to the order of the Hon'ble High Court of Punjab and Haryana at Chandigarh, he took the charge of the factory premises of defendant Company (under liquidation) situated at Bhai Mohan Singh Nagar, Tonasa, Tehsil Balachur. District Nawanshehr (Punab) on 29 and 30th January, 2016 and moved an application seeking permission to sell its movable and immovable assets and the same was allowed. Thereafter, the sale notice was published in the newspapers and also invited claims from the secured / unsecured creators and workmen. It is further submitted that the Official Liquidator has also filed an application seeking confirmation of the sale of the movable and immovable assets of defendant Company under liquidation), which is pending before the Hon'ble High Court and notices have been issued to the respondents including respondent no6 Punjab & Sind Bank, applicant herein. Vide order dated 2nd June, 2017 passed in C.A. No 35 of 2017, the Hon'ble High Court has confirmed the sale of assets situated at Bhai Mohan Singh Nagar Village Tonasa, Tehsil Balachur, District Nawanshehr Punjab) in favour of M/s Chirag & Company Pvt. Ltd. for a total sale consideration of Rs. 10,25,50,000/. On payment of 75% amount of the sale consideration, the Official Liquidator has been permitted to hand over the possession of the assets to the purchaser and accordingly, the possession of the land, building and plant and machinery & miscellaneous assets of the Company (in liquidation) was handed over to the said auction purchaser through its Representative, on 21st August, 2017. The Official liquidator further submits that the applicant bank has submitted claim form no.66 in the office of the Official Liquidator on 9th May, 2018 and the Official Liquidator has sent its reply dated 23rd May, 2018. It is further submitted that as per the provisions of Section 456(2) of the Companies Act, the assets of defendant Company (in liquidation) is in the custody of the Hon'ble High Court of Punjab and Haryana, at Chandigarh, with effect from 14th August, 2015 and the applicant bank may be directed to obtain permission from the Hon'ble High Court of Punjab and Haryana at Chandigarh, before proceeding further in the matter or, in the alternative, he may be at liberty to file a claim before the Official Liquidator alongwith order for condonation of delay in accordance with law subject to approval by the Hon'ble High Court and the applicant bank has to file Execution Petition before the Hon'ble High Court of Punjab & Haryana at Chandigarh, which will be determined in accordance with law.

In the present case, the properties of defendant no.1 were sold 14 and the sale proceeds are available with the Hon'ble High Court of Punjab and Haryana at Chandigarh in Company Petition No 83 of 2010. So far as the proof of mortgage over Delhi property is concerned, the applicant bank has not filed any title document in respect thereof. It has only relied upon letter dated 8th September, 1992 submitting the pari-passu charge letters of defendants no. 4 and 6 to 9 creating pari-passu charge with regard to the properties of defendant Company amongst the consortium members and the said letters are Exs AW-1/128 to AW-1/133. Mere filing of the said letters is not sufficient to prove a valid mortgage-and what the applicant bank was to do, it had to summon the original title deeds of the mortgaged property from the charge holders and to prove deposit of certified copies thereof with it and in the absence of the same, I am of the considered opinion that the applicant bank has miserably failed to prove its claim of mortgage over the mortgaged properties. Though the applicant bank has failed to prove mortgage over the properties in question, but has established its claim for recovery Rs 14,11,46,165.64 by filing and exhibiting the loaning documents Exs AW-1/16 to AW.1/236. For the reasons best known to the applicant bank, it has failed to summon the original title documents relating to the mortgage in respect of Delhi property. Even the letter dated 8th September, 1992 Ex.AW-1/128 of defendant Company in respect of pari-passu charge over its properties does not prove creation of charge in respect of Delhi property in favour of the applicant bank.

In the facts and circumstances, I am of the considered opinion that the applicant bank has miserably failed to prove mortgage in respect of Delhi property and the applicant bank is entitled for a simple money decree. So far the liability of legal heirs of deceased defendant no 2 is concerned, they are liable only to the extent of their shares inherited by them in the estate left by him. Since the applicant bank has been able to prove the Guarantee Deeds executed by defendant no 3, therefore, defendant no 3 is also personally liable for the outstanding dues of the applicant bank in the defendant Company.

So for as the future rate of interest is concerned, the applicant bank has claimed the same @ 15% per annum. However, since the defendant Company is under liquidation and its assets have been sold by the Official Liquidator and the sale proceeds thereof are lying with the Hon'ble High Court of Punjab and Haryana at Chandigarh and as pe the ration of law laid down by the Hon'ble Apex Court in the case of Central Bank of India vs. Ravindra and others reported as AIR 2001 SC 3095 and also the provisions of Section 19(20) of the RDDBFI Act and in the interest of justice, future interest is allowed @10% per annum simple from the date of filing of the present O.A. till realization.

In the result:

(i) the present O.A. is allowed with costs. The applicant bank is held entitled to recover a sum of Rs.14,11,46,165.64 from the defendants no.1, 3 & LRs of deceased defendant no.2, alongwith future interest @10% per annum simple from the date of filing of the present O.A. till realization on principal amount adjudged. Since the properties/assets of defendant no.1 Company, which is under liquidation, have been sold by the Official Liquidator and the sale proceeds are lying with the Hon'ble High Court of Punjab and Haryana at Chandigarh in Company Petition No.83 of 2010, therefore, the applicant bank may file its claim before the said Hon'ble High Court. So far as the liability of legal heirs of defendant no.2 is concerned, they are liable only to the extent of their shares inherited by them in the estate left by the deceased defendant no.2. The applicant bank has failed to prove its charge of mortgage over Delhi property i.e. property bearing No.28-AW, Prithviraj Road, New Delhi belonging to defendant no.3, but it has proved Guarantee Deeds executed by him in favour of the applicant bank and , as such, he is also liable for the claim of the applicant bank.

ii. The applicant bank is directed to file the revised statement of account before the Recovery Officer, DRT-II, Delhi

iii. The Recovery Certificate be issued forthwith and be sent to Recovery Officer, Debts Recovery Tribunal-II, Delhi

iv. The Registry of this Tribunal is hereby directed to issue free copy of this order and send to the both parties.

v. Parties are directed to appear before the learned Recovery Officer, DRT-II, Delhi on 3rd January, 2019.

vi. File be consigned to records."

As noticed already, the dispute in this appeal is whether the borrowers created equitable mortgage or property 28-A built over plot no.18, Prithviraj Road, New Delhi to secure re-payment of loan facilities obtained by a consortium of banks including the appellant bank herein and with State Bank of India as the lead bank.

Separate legal proceedings were initiated by separate consortium members for recovery their respective outstanding dues. With some of the banks the borrowers have settled outside court.

As per case of the appellant urged before this tribunal orally by Mr. A.K.Matta, learned senior counsel, as well in the written submissions filed on behalf of Bhai Manjit Singh. Respondent no.3, that original title deeds were deposited with the lead bank, State Bank of Patiala, now merged with State Bank of India, on behalf of all the consortium members as the originals could not be expected to be deposited with every consortium member bank. Thus, submitted Ms. Seema Gupta, learned counsel for the appellant bank, learned DRT has on flimsy ground and casually rejected the case of mortgage that no title deeds were proved by the bank. Ms. Seema Gupta, learned counsel for the appellant drew my attention to certain paragraphs of the written statement filed by defendants 1 and 3 wherein in reply to the averments made by the appellant bank that equitable mortgage had been created, admitted in no uncertain words they had executed some documents in favour of the bank. Counsel submitted that the learned DRT did not even refer to those pleadings of the defendants from which the only inference which could be reasonably drawn is that debt in question was secured inter alia by mortgage of property no. 28, Prithviraj Road, New Delhi.

On the other hand, Mr. A.K.Matta, learned senior counsel assisted by Ms. Jayashree Shukla Dasgupta, advocate supported the decision of the learned DRT and reasoning to reject the case of the appellant bank that its debt was secured by equitable mortgage on the ground that it has neither prove on record original title deeds in respect of the property at Prithviraj Road, New Delhi. Besides, some other reasons were put forth in support of the alternative plea that the alleged mortgage was invalid because it was created without the permission of L & DO, the lessor of land over which building is constructed. It was also argued that since the property in question is a HUF property even as per the case of appellant bank the same could not be mortgaged without the permission of co-owners and without their impleadment O.A. was in case liable to be dismissed as they were necessary parties.

In this regard let me notice here as to what was the stand of defendant no.3 Bhai Manjit Singh in respect of the claim of the appellant that he had created equitable mortgage, in the written statement filed by him before the DRT. This is what he had pleaded:-

"3. In this regard it is relevant to state that the Defendant No.3 and his predecessors including collaterals although belonging to a very modern family, however with strong belief and following of Hindu family structure, with a long history of the paternal head being always regarded as the "de facto'" and "de jure" head of the "Clan" being the determining individual who's writ would run unquestioned. It is submitted that at this stage without intending to make any comment, observation or submission on the averments made in the plaint, there can be no meaningful determination of the issues raised in the suit unless the factual backdrop of the family relations in their effective content is not brought to the notice of this Hon'ble Court.

Indeed like the Defendant No.3 and his family as referred to above, hundreds and thousands of families from the northern India's gangetic plains have since time immemorial lived with such a family structure with the voluntary participation of all members. The Family Settlement dated 30.12.1989 (hereinafter referred to as the Settlement) as arrived at, amongst the members of the Larger HUF of Bhai Mohan Singh also clearly records the said fact and specifically provides that de hors the division and participation of assets amongst the various groups as identified under the Settlement, Late Bhai Mohan Singh, who expired on 27.03.2006, would have overall control and supervision during his lifetime on all business interests and assets. The same is specifically provided for an recorded in Clause 3 the Settlement. Furthermore, in terms of Clause 23 of the Settlement it was further agreed that in case of any dispute, reference would first be made to Late Bhai Mohan Singh, who would act as the sole Arbitrator and whose decision would be final and binding on all the parties.

The settlement then proceeded (for historical reasons) to arbitral adjudication that resulted in an Award dated 24.05.1994 (hereinafter referred to as the Award) passed by the former Chief Justice of India. The award echoes this reality and reproduces the above mentioned clauses of the Settlement which acknowledges and records the fact of late Bhai Mohan Singh being the head of the family and therefore continuing to have overall control and supervision during his lifetime on all business interests and assets.

In this regard it is relevant to state that passage of time, births, deaths and marriages, notwithstanding, the real family structure continued to follow the same pattern with heads being substituted by successors. This mindset is ingrained on the mental psyche and was happily and voluntarily followed by the members of the families. The family of Defendant No.3 was no exception as well. The father of Defendant No.3, Late Bhai Mohan Singh was a pioneer even during his days in Pakistan and the family on migration to India continued to build on his entrepreneurial skills and genius. Despite vertical and horizontal growth of Late Bhai Mohan Singh and his family, till his very last he was treated as the undisputed and acknowledged patriarchal head, an expression that found recognition in the Settlement and also in the Award.

Though with passage of time, growth of family of Dr. Parvinder Singh, the Defendant No.3 and Mr. Analjit Singh resulted in putting pressures, which modern day life only aggravated, yet the growing families tried to retain their historical cultural values and the attempt to resolve disputes, courtesy such pressures, resulted in the Award which without much dispute became a Rule of the Court on 06.12.1995.

The Award crystallizes the split in the ownership and business as far as the Settlement was concerned, giving respective duties and responsibilities to the heads of each group and the defendant No.3 accordingly was on advice and opinion of friends well wishers, family and advisors, under the legitimate belief that he had become in the same manner as his innumerable predecessors, the head of his "Clan" for his lifetime. Based on the above and continuing to live with that belief, the Defendant No.3 bonafidely believed that he could individually execute documents pertaining to the suit property and other assets and properties.

Based on past family history and culture which was also recognized and reproduced in the Settlement the Defendant No.3, subsequent to the signing of the Settlement, continued to act for all practical purposes as the head of his "Clan' and labored under the bonafide impression and belief that the properties could continue to be dealt for personal use as well.

In this regard it is relevant to mention that during the year 1994-1995, the Defendant No.1 along with the other consortium lenders started putting pressures on the Defendant No.3 for creation of some sort of security interest in the suit property. In this regard series of discussions were held in 1994-1995, wherein it was duly pointed out that being the sole residential house it is impossible to create any interest over the same. However, the Bank and its concerned officers assured the Defendant no.3 that the documents sought to be executed are only for the purpose of creating comfort and not for the purpose of creation of mortgage or security interest over the said property.

Based on the said assurance given by the Applicant Bank on behalf of all the consortium lenders, being the consortium leader, the Defendant No.3 executed and deposited some documents with the only intent and purpose of creating comfort and not with the purpose of creation of mortgage over the suit property. During the series of discussions held in this regard between the officers of the Applicant Bank and Defendant No.3, the Applicant Bank was informed about the Settlement, the disputes which arose between a section of the family, reference of the same to the Arbitrator, passing of Award and Award becoming the Rule of the Court. The said developments were duly brought to the notice of Applicant Bank at appropriate stages.

That during the course of discussions between Defendant No.1 and Defendant No.3 held in 1994-1995, disputes had initially arisen between a section of the family in 1992 which were referred to the Arbitrator, wherein claim was filed in February 1993 and who gave his award on 24.05.1994. As the Award was yet to be made Rule of the Court (06.12.1995), during the time the discussions as referred were taking place, the Applicant Bank insisted upon creation of comfort by deposit of documents based on original Gift Deed executed by the wife of Late Bhai Mohan Singh in favour of her three sons including the Defendant No.3.

In this background, in January 1996 some documents were executed, without any intent either of the executants or the Bank of creating mortgage of any nature including equitable mortgage in favour of Applicant Bank and the other consortium lenders. Thus there is no valid or existing mortgage over the said property."(HIGHLIGHNG BY ME)

After reading this part of the written statement of Bhai Manjit Singh I feel that the learned counsel for the appellant was well justified in her submission that the DRT had not even taken the trouble to read the written statement filed by this defendant. Pleadings of both the parties have a very important role to play in civil proceedings. In this case the learned DRT has not read the written statement in full and has considered only that part were the defendant had pleaded that the bank has not placed on record title document of property in question.

Learned counsel for the bank Ms. Seema Gupta had also submitted that DRT has not considered a very important aspect that even if the bank had not placed on record the title document to prove that it had been kept with lead bank and if the defendants/borrowers were disputing that they could have very well produced the original title document and that would have been end of the controversy about creation of mortgage by deposit of title deeds.

It was submitted by Mr. A.K.Matta, learned senior counsel that the mortgage of leasehold property even otherwise could not have been created without prior permission of L&DO, superior lessor of the land underneath the building. The defendant/respondent Bhai Manjit Singh had taken this objection in written statement but not considered by the DRT. Another objection taken was that the property in question being a HUF property all the co-owners ought to have been impleaded as necessary parties in the O.A. but DRT has not dealt with this objection also and disposed of the O.A. on one ground only and if that ground were to be rejected by this Tribunal then other objections will remain without any finding and on those grounds also the borrowers cOULD succeed. I am in agreement with argument. The DRT should have dealt with all the pleas taken by the defendant Bhai Manjit Singh in written statement.

I am, thus, of the view that this a fit case for remanding back the matter for a fresh decision on the point of mortgage taking into consideration all the pleas of bank and Bhai Manjit Singh which I have noticed above and on which no finding have been rendered.

This appeal, therefore, succeeds and the finding of the DRT regarding equitable mortgage of property no.28A, Plot no. 14, Prithviraj Road, New Delhi is set aside and the matter is remanded back to DRT for fresh decision on the controversy of mortgage keeping in mind the observations made hereinabove and uninfluenced by the findings already given in the impugned order. The parties shall appear before the DRT on 01.11.2021 when the case shall be taken up at 2 p.m. for fixing the date for arguments.