Sanjay Sharma vs Kotak Mahindra Bank Ltd. And Ors.

Ranjit Singh, J

The appellant who is an auction purchaser has filed this appeal to challenge the order dated 30.8.2012 passed by the Tribunal below permitting Mr. Raj Kumar Vij to redeem the property on payment of the dues.

Facts noticed, in brief, are that the appellant had purchased a property which is a piece and parcel of land measuring 55.7 sq. yds. and building of basement of house property bearing No. 2/22. Old Rajinder Nagar, New Delhi, He had purchased this properly in a public auction held by respondent - Kotak Mahindra Bank on 21.12.2010. Sale notice for the auction of this property was published on 20.11.2010 for the auction to be held on 21.12.2010. In the auction so held, the appellant participated and was declared as successful bidder. He deposited 25% of the amount immediately. He also deposited the remaining 75% of the amount on 22.12.2010 when the sale was confirmed in his favour. The physical possession of the property was also handed over to him. The sale certificate was issued in favour of the appellant on 27.12.2010. Two years thereafter the impugned order dated 30.8.2012 was passed holding that the respondent is entitled to redeem the property under Section 13(8) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, the SARFAESI Act). Respondent Mr. Raj Kumar Vij claimed himself to be the owner of the said secured asset claiming that he had purchased the same from borrower's son named Mr. Chandu Bhai. As per the said respondent, he had purchased the property prior to the date of auction. The Tribunal below had permitted Mr. Raj Kumar Vij to deposit the money along with simple contractual rate of interest within 30 days from the date of the order and on this basis set aside the auction held in favour of the auction purchaser. This order is impugned in the present appeal.

The Counsel for the appellant would contend that there was a valid mortgage created in favour of the respondent Bank. The respondents 2 to 6 had allegedly purchased the secured asset from the borrower without repayment of the mortgaged debt. Disclosing the background in this regard, it is averred that Ms. Champa Behn who was the borrower and had taken loan from M/s. Associated India Financial Service P. Ltd. had mortgaged her property bearing No. 2/22, Old Rajinder Nagar, New Delhi on 16.6.2001. The complete chain of documents were handed over to the said finance company. This company was taken over by M/s. Citi Financial Consumer India Ltd. which ultimately assigned its debt to Kotak Mahindra Bank. It is alleged that by playing fraud with the financial institution which had in its possession the original documents, the borrower Ms. Champa Behn through an unregistered documents showed and created a sale of a different portion of the secured asset in favour of her associates who are third parties. It is pointed out that the basement of the secured asset was shown to have sold in favour of her son Chandu Bhai. Said Chandu Bhai created an unregistered document to show the sale of basement of the secured asset in favour of Mr. Satnam Singh and Mr. Surinder Wadhwa on 30.3.2001. These two persons created unregistered document to show the sale of the basement in favour of Mr. Raj Kumar Vij on 23.4.2001. As per the Counsel, bare perusal of the document, which he has placed on record, would show that these persons had indulged in these sham transactions by creating documents with sole intention to play fraud on the financial institution. The auction purchaser accordingly would challenge the right of Mr. Raj Kumar Vij to redeem this property. Besides, the Counsel would also plead that Mr. Raj Kumar Vij was given repeated right and opportunities to deposit the said amount, but failed to take advantage of the same and hence the Tribunal below was not justified in permitting him to redeem this property after two years of sale having been confirmed in his favour.

This is a case where the borrowers failed to make any payment of the loan and they were served with the demand notice under Section 13 of the SARFAESI Act on 28.10.2006. The borrowers failed to comply with the demand and the Bank got the secured assets attached and took possession thereof by getting a Receiver appointed under Section 14 of the Act in terms of order dated 6 9.2007 passed by the Chief Metropolitan Magistrate. In November 2007, physical possession of the entire property was taken over by the Bank. Respondents 2 to 6 had filed application (S.A.) under Section 17 of the SARFAESI Act claiming themselves the successor-in-interest of the borrower being purchaser of the property. The said respondents had filed a common application through a common Advocate. The Tribunal below, vide its order dated 23.11.2007, directed the respondents 2 to 6 to deposit a sum of Rs. 2 lac each up to 26.11.2007. The Tribunal further directed that upon payment of such amount the Bank shall restore the possession to respondents 2 to 6.

In compliance of this order, respondents 3 to 6 deposited the amount, but respondent No. 2, Mr. Raj Kumar Vij, did not deposit any amount in terms of the said order. The Tribunal below disposed of the S.A. on 8.9.2009 by issuing certain directions. Aggrieved against the said order, respondent Nos. 3 to 6 herein approached this Tribunal by way of Appeal No. 3/2010 Mr. Raj Kumar Vij (respondent No. 2), however, did not file any appeal but was impleaded as proforma respondent in the said appeal. This appeal was filed by the same Counsel who represented all the respondents before the Tribunal below. When this appeal came up for hearing on 2.6.2010, Counsel for the appellants and the Bank were heard. It was pointed out before this Tribunal that out of five portions one basement portion was lying vacant and was in possession of the respondent Bank. Since the parties agreed, this Tribunal directed the said basement portion be auctioned. If the claim of the Bank stood satisfied by this auction then the Bank was directed not to take any action against the appellants. If any action was to be taken against the appellants due to non satisfaction of the total amount, the Bank was to give the appellants before this Tribunal 15 days time for proceeding under the SARFAESI Act. The appellants, if felt aggrieved, were given liberty to approach the Tribunal again and get their appeal revived. The appellant were also given liberty to bid during the auction.

The respondent Bank, thereafter, took action to auction the property in question and auction notice was published on 20.11.2010 for the auction to be held on 21.12.2010. Respondent No. 2, Mr. Raj Kumar Vij, never raised any objection or otherwise took legal action to seek stay of the auction In this manner, the auction of the basement portion of the property was held where the appellant was declared as successful bidder, who deposited the amount leading to confirmation and issuance of sale certificate on 22.12.2010.

It is alleged that thereafter respondent No. 2, Mr. Raj Kumar Vij, forcibly broke into the house and took possession, for which FIR was registered against him. Having done so, and after eight months of the order passed by this Tribunal on 2.6.2010, he filed an application in Appeal No. 3/2010 without making the appellant a party. The appellant would allege that respondent No. 2 misled this Tribunal to believe that he was in possession of the basement portion and thereafter got an order from this Tribunal for remanding the case back to the Tribunal below.

The Tribunal has noticed that respondent No. 2 was not summoned while passing the order dated 2.6.2010. It is also noticed that the Tribunal below had directed five persons who had filed the S.A. to deposit Rs. 12,78,879/- in total whereas four persons had deposited an amount of about Rs. 8 lacs but Mr. Raj Kumar Vij did not deposit any amount. In an appeal filed by the remaining four persons, an agreed order dated 2.6.2010 was passed for auctioning the property which was claimed by Mr. Raj Kumar Vij under his ownership. It was pointed out that before this Tribunal that the property had already been auctioned whereas respondent No. 2 did state that he had not allowed the possession of the property to be taken. This Tribunal left all these questions open and the Tribunal below was required to find out what would be the effect of non-deposit of his share by Mr. Raj Kumar Vij. The Tribunal, however, made it clear that the appellant and Mr. Raj Kumar Vij would be liable to pay the interest on reducing balance basis. All these question were kept open. The Tribunal was directed to decide the matter if Mr. Raj Kumar Vij made an approach before it till 1.3.2011. It was also observed that the order passed by the Tribunal directing the Bank to auction the basement would not come in the way but the Bank and the auction purchaser were given liberty to defend this order before the Tribunal below. It is in this background, the Tribunal has now passed the impugned order which is put to challenge by the appellant auction purchaser.

Counsel for the auction purchaser has raised three-fold legal submission. Besides, he would also challenge the right of the respondent Mr. Raj Kumar Vij to redeem this property, he being neither borrower nor owner of the property. Counsel would further contend that once the sale stood confirmed in his favour, the right to redeem the part of the property by Mr. Raj Kumar Vij was not legally permissible. As per the Counsel, respondent Mr. Raj Kumar Vij who was not even the borrower (294) had been given sufficient time to pay the amount, but he did not do so for years. Counsel would accordingly contend that he cannot be given unfettered right to deposit the amount at any time at his convenience. Counsel for the appellant has also taken me through the documents on the basis of which Mr. Raj Kumar Vij and others have claimed the title of the property being subsequent purchaser. Counsel would contend that these unregistered documents would create no right in their favour and these were sham transactions entered into with the connivance only to circumvent the right of the financial institution and the Bank. As per the Counsel, the right to redeem, if any, could be exercised at any time before the date fixed for sale or transfer and not thereafter. In this regard, he has referred to the provisions of Section 13(8) of the SARFAESI Act which provides:

"If the due on the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset."

As per the Counsel, while moving this application Mr. Raj Kumar Vij did not tender to the secured creditor charges and expenses or costs etc. and as such he also did not comply with the mandate of this provision to get his right to redeem the property.

Counsel for the appellant would also point out that the respondent Mr. Raj Kumar Vij has till date not deposited the amount as directed by the Tribunal below in the impugned order as he has only deposited an amount of Rs. 4,78,878/-, but not the interest which was also payable. Thus, even till now said Mr. Raj Kumar Vij has not complied with the order which is impugned in the present appeal.

Mr. Anand Aggarwal appearing for respondent No. 2, however, would contend that the order passed by this Tribunal on 2.6.2010 would suffer from violation of principles of natural justice inasmuch as despite being impleaded as party respondent, no effort was made to effect service on respondent No. 2, whereas, the order to his prejudice was passed directing the Bank to sell the property which was in his ownership. It is because of this reason that respondent No. 2 filed an application in the appeal, which was disposed of and the order dated 21.2.2011 came to be passed remitting the case to the Tribunal below. The Tribunal below has thereafter passed the impugned order which is perfectly justified as the respondent had right to redeem the property, being a subsequent purchaser of the same from the borrower.

I have considered the submission made before me. The sole submission on behalf of respondent No. 2 is that the auction of the property was directed by this Tribunal without putting the respondent No. 2 to notice while passing the order. The order dated 2.6.2010 passed by this Tribunal may have been passed without hearing respondent No. 2 as he was impleaded as proforma respondent. Let us see if this aspect will make any difference. In my view this aspect may not be of much significance because this Tribunal corrected this infirmity, if any, by passing the order dated 21.2.2011. Respondent No. 2, thus, cannot have any grievance on the basis that he was not put to any notice Today what is required to be seen is whether the order passed by the Tribunal below, impugned in the present appeal, can be legally sustained or not.

It is not much in dispute that the respondent was given more than one opportunity to deposit the amount, but failed to take advantage of the order in its favour. The other respondent owning different portions of the property, however, took advantage of this order passed by the Tribunal below and deposited the requisite amounts with the Bank as directed by the Tribunal. Accordingly, they have been able to save their property. Respondent No. 2 had not been vigilant enough to protect his right. The first opportunity to make deposit was given to him vide order dated 26.11.2007. Each of the respondents was required to deposit Rs. 2 lacs and they were to get the possession back on doing so. Respondent No. 2 did not deposit this amount. Even thereafter, the Tribunal on 8.9.2009 decided the S.A. by accepting the submission made by the Counsel for Mr. Raj Kumar Vij who had till then not deposited the ordered amount, and directed him to pay Rs. 2.50 lacs approx. with the Bank within a period of 60 days from the date of receipt of the order. In case of default in this payment and if the other respondents made payment of the remaining amount, being Rs. 4,78,878/-, within this period, they were held entitled to be the absolute owner of the property. Mr. Raj Kumar Vij was held to be puisne person under the other respondents who shall be having unfettered discretion. Despite this, respondent No. 2 did not deposit his share. Thus, the entire amount became payable. In this background the Bank had sold the property in question in 2010. The sale certificate in favour of the appellant was also issued on 27.12.2010. The auction purchaser has purchased this part of the property for Rs. 7.53 lacs. The Tribunal, thereafter, took note of the order dated 21.2.2011 passed by this Tribunal and has observed that in view of this order, the Tribunal below was to see the effect and non-deposit of his share by Mr. Raj Kumar Vij. Thereafter, the Tribunal below has held that respondent No. 2 was having the right of redemption of the property in terms of Section 13(8} of the SARFAESI Act on payment of the dues. The Tribunal has also held that the judgment in the case of Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana & Anr., 183 (2011)DLT 1 (SC) = VII (2011) SLT 494 = IV (2011) CLT 8 (SC) = 2011 (11) Scale 438, is prospective in its application and thus the applicant had right over the property in question. The Tribunal accordingly directed respondent No. 2 to deposit the money with simple interest on reducing balance basis with the respondent Bank within 30 days. The appellant auction purchaser was held entitled to interest @ 9% simple on the amount deposited by him.

I find that the Tribunal has failed to consider the legal issues which arose in this case. The Counsel for the appellant is justified in stating that respondent No. 2 could not be given an unfettered right to deposit the amount at any time according to his convenience. It cannot be denied that respondent No. 2 was given sufficient time and opportunity to make the payment. There is serious dispute in regard to the title of respondent No. 2 being a subsequent purchaser of the property. The Tribunal below, in my view, ought to have considered all these submissions before holding the respondent No. 2 entitled to redeem this property. In view of this failure on the part of the Tribunal to consider the legal submission and the validity of right and title of respondent No. 2 in respect of the property, the case could have been remitted back to the Tribunal below for considering the issue afresh. However, that would not be necessary in view of the fact that in this case there is a clear violation of the provisions of Section 13(8} of the SARFAESI Act as well. The right to redeem the property clearly was till the date fixed for sale or transfer as can be noticed from Section 13(8) of the Act This right could not have been allowed in the manner the Tribunal has done. The prayer could have been considered only if the dues of the secured creditor together with cost, charges and expenses had been tendered. This aspect again escaped the notice of the Tribunal below. In my view, the right of respondent No. 2 to redeem this property was not considered in terms of legal provisions under Section 13(8) of the SARFAESI Act.

In view of legal position as noticed above, the impugned order cannot be sustained and is set aside. The appeal is accordingly allowed. The appellant if not in possession of the property in question would be entitled to get possession of the same in accordance with law.