S.D. Kapoor And Ors. vs State Bank Of India

Ranjit Singh, J

State Bank of India, respondent herein, had filed OA No. 511 of 1997 against the appellants and others which was allowed on March 30, 2006. The appellants along with the other defendants were held jointly and severally liable for a sum of Rs. 14,87,39,288/- along with pendente lite and future interest @ 10% from the date of filing of the OA. The appeal against this order was filed but was dismissed as the same was not prosecuted and this order was allowed to attain finality. Subsequently, recovery proceedings were initiated and the property No. C-31 Soami Nagar, New Delhi was sought to be put to sale. Objections were filed before the Recovery Officer. The Recovery Officer passed an order on March 19, 2009 noticing the contention of the Bank that the property is under charge of the Bank and can be put to sale. CDs, however, pointed out that the order passed by the Tribunal was subject-matter of appeal and review was filed by the CDs against the said order. The Counsel for the Bank pointed out that the appeal had been preferred for limited purpose and did not cover the sale of the property and the review application had not been adjudicated upon and that there was no stay of the recovery proceedings. Request of the Bank for putting the property to sale was allowed. This order was impugned by way of appeal before the Presiding Officer, who has passed the impugned order setting aside the order passed by the Recovery Officer with a direction that the Recovery Officer shall put the asset of the Company M/s. Flitex Magnetics Ltd. to sale and in the event, any amount still remains due and payable, the same would be recovered by sale of property bearing No. C-31, Soami Nagar, New Delhi as already ordered in the order dated July 6, 2009 passed in Appeals No. 39 of 2006 and No. 6 of 2007. The Counsel for the appellant would urge that the residential property of the appellant, which is being put to sale, was not the mortgaged property nor had any valid charge thereupon and, thus, the Recovery Officer and the Tribunal below are not justified in permitting the sale of the said property. The Counsel would further contend that this is the only residential house occupied by the appellant and his objection that this house would be exempt from attachment and sale in terms of Section 60(1)(ccc) of the Code of Civil Procedure has not been considered rendering the order bad on that count.

To substantiate his submission that the property is not mortgaged and, thus, was not under any charge for being put to sale, the Counsel has drawn my attention to that part of the order where this finding is recorded in order dated March 30, 2006 passed in OA No. 511 of 1997. The part of the order to which reference is made reads as under:

"31. Defendants have taken a defence in their written submissions that in order to create an equitable mortgage the mortgagor should deposit the title deeds of the property intended to be mortgaged. However, in the instant case, the title deeds of the property were never deposited with the applicant Bank which is an admitted fact therefore there is not a valid charge in favour of applicant Bank. So far as mortgage of property being C-31, Soami Nagar, New Delhi-17 is concerned, the witness of the applicant Bank namely Sh. Baldev Narang (P.W. - 1) has admitted in his cross-examination that they did not have the title deeds of this property nor the defendants have deposited the title deeds of this property. So, in my opinion, is not a mortgaged property. However, defendant No. 2 had given an undertaking dated 30.11.1992 to create equitable mortgage in favour of the applicant Bank and the said undertaking has been proved by the deponent of applicant Bank as Ex. P.W. 1/38. So, in these circumstances now the defendant No. 2 is estopped from taking this plea that the applicant Bank cannot realize its amount by disposing of this property also as the defendant No. 2 has given his personal guarantee and negative lien/charge has been created by defendant No. 2 with regard to the property in question in favour of the applicant Bank."

No doubt, this residential property was held to be not the mortgaged property, but the finding by the Tribunal below is that the appellant No. 1 has given his personal guarantee and negative lien/charge has been created by him with regard to the property in question in favour of the appellant Bank. The Counsel for the appellant did make an attempt to plead that there was no charge created and agreement to mortgage, by no stretch of imagination, can lead to creation of a charge and, thus, made an attempt to challenge the finding recorded by the Tribunal in OA No. 511 of 1997. To canvass on these lines the Counsel had to show that he can validly challenge the findings in OA No. 511 of 1997 in these proceedings once he had filed an appeal against the same order passed by the Tribunal below on 30th March, 2006, but did not prosecute the said appeal and allowed the order to become final. The appeal was dismissed due to non-compliance of the requirement of pre-deposit.

There is some murmur made in this regard whether this appeal was dismissed for non-prosecution or on account of not making the pre-deposit, but the fact that the appeal was dismissed, is not contested in any manner.

Issue whether in the present appeal finding returned by the Tribunal below in OA No. 511 of 1997 decided vide order dated March 30, 2006 can now be permitted to be put to challenge in the present proceedings has to invite serious considerations. Right or wrong the finding returned by the Tribunal below in OA No. 511 of 1997 is that the appellant has given personal guarantee and negative lien/charge had been created by him with regard to the property in question. This finding is final and binding. In my view, the appellant cannot be now permitted to raise a challenge against this finding in this manner once they have not prosecuted their appeal, which was filed but was dismissed. The Counsel for the appellant did make more than normal efforts to show that there was no charge created on the property or it could not be created in the manner as has been held by the Tribunal or that for creating the charge registration thereof under the Registration Act was must, but all such pleas ought to have been raised in the appeal filed against the order in OA No. 511 of 1997 and the appellant cannot now be heard in this regard.

The Counsel has made reference to some judgments in support of his plea but this, in my view, would not require consideration once the order passed by the Tribunal regarding this finding is not under challenge. To be fair to the Counsel, reference may be made to these judgments. In this regard, the Counsel has referred to the case of J.K. (Bombay) (P.) Ltd. v. New Kaiser-I-Hind SPG. & Wvg. Co. Ltd. & Ors., etc., (1969) 2 SCR 866. The Counsel has made reference to a very small part of this lengthy judgment where the Court has observed that:

"The distinction between a charge and a mortgage is clear. While in the case of a charge there is no transfer of property or any interest therein, but only the creation of a right of payment out of the specified property, a mortgage effectuates transfer of property or an interest therein."

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"No particular form of words is necessary to create a charge and all that is necessary is that there must be a clear intention to make a property security for payment of money in praesenti."

The perusal of the paragraph from where the above quoted portion has been drawn may give an indication of charge created on a property. The contention before the Hon'ble Supreme Court in the case it was that irrespective of the second mortgage which the company had to execute, Schedule 'B' creditors had already become entitled to a charge on the company's assets. Argument was that where an agreement specifies a property out of which a debt is to be payable and is coupled with an intention to subject such property to a charge, the property becomes to a charge in praesenti even though a regular charge is to be executed at some future date. Such an intention, the learned Attorney General argued, in the said case was demonstrated by the agreement that (1) the debts were to be paid out of profits and (2) the engagement by the company not to deal with its assets. The count thus observed that the distinction between charge and mortgage is clear and that in case of change there is no transfer, etc.

The Court has also made reference to the Privy Council decision. Where while disagreeing with, the High Court it is held that specific performance of the agreement compelling the respondent to execute the mortgage could be granted before accounts between the parties were made up and the amount due thereunder was ascertained as there was a valid agreement charging the property mortgaged with whatever was actually due. Some of these observations have been made on the facts situation in the said case. The Court has made reference to the scheme before it in the said case which only contains agreement to mortgage and mode of repayment which was for the sale of shares and a promise to postpone repayment in consideration of a second mortgage to be consolidated by the company. The Court thus observed that in its view, neither the scheme nor the said agreement shows any intention to subject to the company's assets to charge in praesenti. This was not held to be a charge under Section 100 of the Transfer of Property Act. These observations were made in the facts situation in the said case.

In support of his submission, the Counsel for the appellant has also referred to State Bank of India v. Smt. Kusum Vallabhdas Thakkar, (1944) 1 GLR 655. The Court in this case had considered the issue on agreement to mortgage being capable of specific performance or not. The Court has observed that in an agreement to execute mortgage, if there is any promise by the creditor to advance monies on creation of such mortgage, there cannot be specific performance of the contract to lend money. But when the lender has advanced the money and the debtor has agreed to create a mortgage, that agreement is specifically enforceable. This proposition was found to have been laid down in the case of Meenakshi Sundara v. Rathnaswami, AIR 1919 Madras 322. The Privy Council in the case of Hukamchand Kasliwal v. Radha Kishan has held that the document in that case did not constitute a mortgage or a charge, but that agreement created a right to obtain another document, i.e. regular deed of mortgage. The Court itself has noticed that these are the observations of Privy Council that the question was not directly for consideration in that case.

To tide over the tight situation in which the Counsel himself found due to earlier order passed in the OA No. 511 of 1997 having become final, the Counsel has made reference to some judgment to urge that dismissal of a suit and subsequent appeal on technical ground would not operate as bar to subsequent suit. The Counsel apparently seems to contend that dismissal of the appeal would not be a bar for him to raise this plea in the present appeal. For this purpose only, he has referred to two judgments in the cases of State of Maharashtra and Another v. M/s. National Construction Company, Bombay and Another, AIR 1996 SC 2367 and Ajmer Central Co-operative Bank Ltd., Ajmer v. Prescribed Authority, under the Rajasthan Shops and Co. Establishment Act, Ajmer and Others AIR 1996 SC 2911. Both the judgments, in my view, will not apply to the facts situation in the present case. Issue in this case is not filing of any subsequent suit or proceedings to see if earlier order would act as res judicata but here is a case in which recovery proceedings are in progress pursuant to the order which has acquired finality and is not under any challenge.

The Counsel would then revert back to his second plea that his only residential house would be exempt from attachment and sale in terms of the provisions of Section 60(1)(ccc), C.P.C. Initially, the Counsel has pleaded that this limb of his submission has not been considered by any of the Tribunals or Recovery Officer, but this fact was effectively countered by the Counsel for the respondent by inviting my attention to the order passed by the Recovery Officer where this specific ground was noted and considered, but rejected. The Counsel for the respondent has referred to the order passed by the Presiding Officer in Appeal No. 39 of 2006 and Appeal No. 6 of 2007 in RC No. 39 of 2006 where the order passed by the Recovery Officer was under challenge. Appeal No. 39 of 2006 was preferred against the order dated 10.10.2006. The Recovery Officer had dismissed the petition filed by the appeal CDs relating to property No. C-31, Soami Nagar, New Delhi and the CDs had pleaded that the property in question is not mortgaged and being single dwelling house is exempt from attachment as per Section 60(1)(ccc), C.P.C. The Counsel has taken me through the finding recorded in this case by the Presiding Officer where he has considered this ground while permitting the recovery by sale of the property in question i.e. house No. C-31 Soami Nagar, New Delhi. Submission that issue arising on account of the provisions of Section 60(1)(ccc) has not been considered by the Tribunal below, therefore, is not made out.

To further counter this submission, the Counsel for the respondent has taken support from the provisions of Section 60(1)(ccc) besides placing reliance on some of the judgments passed by the different High Courts. Section 60(1)(ccc), C.P.C. is as under:

(ccc) "One main residential house and other buildings attached to it (with the material and sites thereof and the land immediately appurtenant thereto and necessary for this enjoyment) belonging to a judgment debtor other than a agriculturist and occupied by him:

Provided that the protection afforded by this clause shall not extend to any property specifically charged with the debt sought to be recovered."

Reading of the proviso would show that protection afforded by this clause will not extend to any property specifically charged with the debt to be recovered. The submission made by the Counsel for the respondent is that the house in question was specifically charged which finding is final. So, the protection under Section 60(1)(ccc) would not be available to the appellant in view of the provisions of Section 60(1)(ccc) of C.P.C. The Counsel for the respondent has also sought support from the case Sher Singh v. State Bank of Patiala and Anr., I (2003) BC 311 where the Court has held that the protection from attachment afforded to the residential house has not been extended to a property specifically charged with the debt sought to be recovered. It is further observed that if JD has created a lien or charge over a residential house then the same shall not be granted for protection postulated by Section 60(1)(ccc).

In this regard, the Counsel for the respondent would also refer to a case Punjab National Bank v. Shri Suresh Kumar Jain & Ors., 2000 (53) DRJ 432. The Court in this case held that exemption to residential house from sale of property is applicable only in relation to money decreed and not to decrees for enforcement of mortgage.

Besides this, the Counsel for the respondent has also placed before me a judgment on the aspect relating to creation of charge. In this regard, the Counsel would refer to Dau Bhairoprasad Duryodhansao and Others v. Jugalprasad Toksingh Kurmi and Others, AIR 1941 Nagpur 102. Issue before the Court in this case was regarding creation of charge. The defendants had admitted the liability through a document and in respect of that liability he under took to execute charge bond over a specified share and rights in a village called Nawagaon together with the sir land. The Court in this background has held undertaking which either did or did not amount to charge, was an undertaking binding from moment document was executed. It is further held that mere bare undertaking not to alienate property necessarily creates charge therefore this document creates charge. Mere fact, the JD had undertaken to give charge bond and had undertaken to get sanction for transfer of sir and had undertaken not to assign certain property until above were carried out would be enough to create change.

The Counsel has referred to Vasudev Dhanjbhai Modi v. Rajabhai Abdul Rehman and Ors., AIR 1970 SC 1475 in support his plea that the Court executing the decree cannot go behind the decree. The Counsel would contend that while deciding this appeal, the Tribunal cannot go behind the decree which is being executed while hearing the appeal. I have considered the submissions made by the Counsel for the parties, but I am unable to accept the submission pursued by the Counsel for the appellant. The appellant in a way is some how wanting to impugn the finding returned by the Tribunal below holding that the appellant has given personal guarantee and negative lien/charge has been created by him with regard to the property in question. The whole line of submission by the Counsel for the appellant was that charge had not been validly created and there was defect in the same inasmuch as the same ought to have been registered. All these pleas were available to the appellant while challenging the order passed in OA No. 511 of 1997. Indeed the appellant did file this appeal but failed to prosecute the same. The same appeal was dismissed as a result the finding returned by the Tribunal below in OA No. 511 of 1997 has become final. Once that finding is final, the present appeal has to be considered only in the background that the property was under charge. If that be so, even Section 60(1)(ccc), C.P.C. would not come to the rescue of the appellant. Proviso under the said section is clear in its terms and provides that protection under the said section is not available when the property is under charge. On both these submissions the appellant cannot succeed. Plea that none of the Tribunals has considered the objection raised on the point of Section 60(1)(ccc) is also not borne out from record. In any event, this would not make any substantial difference once it is view that the residential house is under charge. Protection under Section 60(1)(ccc), CPC, therefore, would go in view of the proviso contained thereunder. Accordingly, there is no merit in any of the pleas raised by the appellant and the appeal is, therefore, dismissed.