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Judgment
Ashok Menon, Chairperson
This is an application filed by the Appellants in the aforesaid appeal seeking an interlocutory order of stay over the impugned order passed by DRT-2 Mumbai in I.A. No.1227/2022 in S.A. No. 187/2021 dated 12/05/2022.
The applicants are partners in a partnership firm named Indus Engineering Company with Respondents Nos. 3 to 5 as the other partners. The firm was constituted by virtue of a Partnership Deed dated 01/04/1992. Each of the partners has a 20% share in the firm. The firm purchased extensive extents of landed properties from 1968 to 1972. The business conducted by the partnership firm was assigned on 01/04/1997 to the 2nd Respondent company named Indus Projects Ltd. by virtue of an MOU. The applicants and respondents 3 to 5 are closely related. The management of the Company is with Respondents 3 to 5 and they are the major shareholders and directors of the Company having 90% shares while the applicants are minority shareholders having only 10% shares. The applicants are father and son while Respondents 3 to 5 are the paternal nephews of the 1st applicant. Though the business of the firm was transferred to the company, as stated above, the property still belongs to the firm with all partners holding equal undivided shares. The applicants have no role in the management of the 2nd respondent company. As per the MOU, the 2nd respondent company is to pay compensation to the firm for the usage of the plant and machinery installed. The applicants came to know about some malpractices practiced by respondents 3 to 5, and therefore, sent a notice to them on 31/01/2020 seeking dissolution of the partnership and consequent partition and distribution of the assets belonging to the firm. The notice was also published in a newspaper. The Appellants came to know that from out of the property belonging to the firm, a total area of more than one acre has been mortgaged by the company in favour of the 1st respondent financial institution, namely Fullerton India Credit Co Ltd and availed a loan. On inquiries made by the applicants, it was revealed that the 5th respondent as a partner of the firm had executed a lease agreement on 19/04/2005, regarding the subject property in favour of the 2nd respondent company, holding himself as the representative of the firm, without the knowledge or consent of the applicants. The partnership deed makes it adequately clear that no partner can without the consent of the other partners, except in the ordinary course of business, dispose of by loan, pledge, sale or otherwise any part of the partnership property or assign or change his interest in the firm. The applicants allege that respondents 3 to 5 have committed fraud upon them by creation of the lease of the property belonging to the firm in favour of the company and thereafter obtained a loan from the 1st respondent by mortgaging the property belonging to the firm by falsely claiming that the 2nd respondent is the absolute owner of the property in mortgage deed dated 06/04/2016. It is stated that the 1st respondent was aware of the rights of the applicants in the property, who had little role in the affairs of company. It is with that knowledge that a pre-disbursal clause was included in the loan sanction letter to obtain a No Objection Certificate and undertaking from the applicants prior to the disbursement of the loan.
The 2nd respondent company defaulted payment of the amount due from them to the 1st respondent and proceeded against the company under the provisions of the SARFAESI Act. An auction notice was published on 20/03/2021, suppressing the fact that the 2nd respondent was only a lessee. Hence, it is clear that the act of publishing of an auction notice suppressing material facts is a fraudulent act with the intention to cheat prospective buyers. The firm was neither a beneficiary of the loan nor did any amount come into account of the firm. Under the circumstances, it cannot be said that the firm is a co-borrower. It is also pointed out that the partnership firm had earlier, for the purpose of its business taken a loan from the Corporation Bank by depositing the original title deeds of the land and those documents are still lying with the said Bank. The recital in the mortgage deed that the original title deed of the property has been handed over to the 1st respondent is a falsity. When the applicants came to know about the mortgage, they caused a notice to be issued to the 1st respondent on 15/04/2020 to which they had sent a reply on 28/04/2020, stating that the firm is a co-borrower, knowing full well that no amount was disbursed to the firm. The applicant also sent a rejoinder notice to the 1st respondent’s reply on 29/06/2020. The applicant state that they have not been served with any demand notice under Section 13 (2) of the SARFAESI Act. Respondents Nos. 3 to 5 had colluded with the 1st respondent to defeat the applicants’ right in the subject property. It is further contended that the subject property has not been demarcated and set apart from the rest of the property belonging to the firm. Because of the pandemic lockdown, the Appellants could not take appropriate action on time. They also waited for an amicable settlement with respondents 3 to 5. When the respondents did not do anything to settle the issues, the applicants were constrained to file the Securitisation Application No. 187 of 2021, before the DRT. Pending proceedings, the applicants sought an interlocutory order to get the auction stayed, but the same was rejected by the learned PO. Aggrieved with that order dated 12/05/2022 in I.A. No. 227 of 2022, the applicants are in appeal. Pending appeal, the Appellants seek an interlocutory order to set aside the auction notice dated 30/05/2022 and restrain the 1st respondent from proceeding further with the auction of the property or from proceeding with any measures under the SARFAESI Act against the subject property.
The respondents were all served, but none except the 1st respondent appeared and filed an affidavit in reply to the interlocutory application No. 224 of 2022 inter alia contending thus:
The 1st respondent is a Non-Banking finance company registered with the Department of Non--Banking under the supervision of Reserve Bank of India. Respondents 2 to 5 are the borrowers and have created a security interest in favour of the 1st respondent. It is stated that respondents numbers 2 to 5, along with other borrowers had approached the 1st respondent for a secured loan, which was sanctioned and the 1st respondent disbursed a sum of Rs.125,000,000/-vide a loan agreement dated 30/03/2016. The subject property was mortgaged. Respondents 2 to 5 defaulted payment and accordingly, the loan amount was classified as Non-Performing Asset (NPA) with effect from 30/11/2019 in accordance with the guidelines issued by the Reserve Bank of India. The authorised officer of the 1st respondent issued a notice under Section 13 (2) of the SARFAESI Act to the respondents 2 to 5 on 05/12/2019, demanding a sum of Rs.12,04,85,978.02 as on 03/12/2019, together with future interest within a period of 60 days from the date of the notice. The demand notice was also published in two local newspapers in English and Marathi. Respondents 2 to 5 sent a reply raising objections to the aforesaid notice and the 1st respondent has also sent a reply to that objection. Failure on the part of respondents 2 to 5 to respond positively to the demand notice, led to further SARFAESI measures and symbolic possession of the property was taken under subsection (4) of Section 13 of the SARFAESI Act. The possession notice was issued on 18/02/2020, followed by a publication in two local newspapers. An application was filed before the Chief Metropolitan Magistrate as S.C. No. 409/ 2021 under Section 14 of the SARFAESI Act. The applicants have not approached the DRT with clean hands. Their allegations are vague, false and misleading. The applicants are partners of the firm Indus Engineering Co., which is one of the co-borrowers in the loan agreement dated 30/03/2016, and in consequence of that, a simple mortgage was registered on 16/04/2016. The original registered lease deed was deposited with the 1st respondent by respondents 2 to 5. Being partners of the firm, Indus Engineering Company, the applicants are bound by the mortgage and therefore, the NOC / undertaking was not required to be taken from them. Though the applicants contend that they are not aware of the execution of the lease deed dated 19/04/2005 and that it was executed behind their back, they have not taken any legal action against respondents 2 to 5, for perpetrating fraud on them. The 1st respondent is not bound to issue a notice under Section 13 (2) of the SARFAESI Act to the applicants because they are not parties to the loan agreement, which was executed between the 1st respondent and respondents numbers 2 to 5. There is no infirmity in the impugned order rejecting the application filed by the applicants for reliefs pending disposal of S.A No. 187 of 2021. It is therefore prayed that I.A. No. 224 of 2002 may be dismissed.
Heard Mr. Yeshwanth Shenoy the learned counsel for the applicants, and Mr. Rajesh Nagori, the learned counsel for the 1st respondent. The rest of the respondents did not appear, despite being served with notice. Perused records.
Mr. Shenoy, the learned counsel for the Appellants argued in terms of the averments raised in the Memorandum of Appeal. It is submitted that the subject property belongs to the firm named viz. Indus Engineering Company and each of the partners have 20% shares. The Applicants would, therefore, have a total share of 40%. The learned counsel submitted that a Memorandum of Undertaking (MoU in short) was executed between the partners for transferring the entire business of the firm Indus Engineering Company to the 2nd Respondent Company viz. Indus Projects Ltd. The subject property continued to remain in the possession and ownership of the firm. However, as per the MoU for using the property for the purpose of the 2nd Respondent company, the company paid compensation to the firm. The allegation of Mr. Shenoy is that behind the back of the Applicants, the other partners of the firm who are the majority shareholders of the 2nd Respondent company, created a Lease Deed with respect to the subject property in favour of the 2nd Respondent company. The Appellants were not informed about such a Lease Deed, contends Mr. Shenoy. Thereafter using the said Lease Deed as the ‘Title Deed’, the 2nd Respondent company created a simple mortgage of the lease-hold rights in favour of the 1st Respondent financial institution without the knowledge of the Applicants. The Mortgage Deed, however, does not state that it is the lease-hold right which is being mortgaged. There is a specific recital in the Mortgage Deed that the mortgagors are exclusive owners of the property. Mr. Shenoy draws the attention of this Tribunal to terms in the simple Mortgage Deed which is produced. The learned counsel would also point out the pre-disposal condition of the loan which specifically states that the No Objection Certificate / Undertaking of the Applicants needs to be obtained before disbursing the loan. Admittedly, no such NOC / Undertaking was obtained before the loan was disbursed. The learned counsel also draws the attention of this Tribunal to the sale notice dated 30/05/2022 issued by the 1st Respondent bringing the property to sale. In that notice also there is no mention of the right of the mortgagor over the property put up for sale. The sale notice would indicate that it is the proprietary right of the mortgagors in the property that is being brought to the sale, and not the lease-hold right. The learned counsel submits that it is only in the reply filed by the 1st Respondent that they now admit that it is the lease-hold right that was mortgaged by the company and that the firm Indus Engineering Company is a co-borrower, and hence, the Applicants being partners of the firm are bound by the mortgage. To this submission, Mr. Shenoy submits that nowhere the Respondents Nos.2 to 5 indicate that they had obtained permission from the Applicants in mortgaging the subject property. The learned counsel, Mr. Shenoy, also points out the provisions u/ss 18, 19 (2) (g) and u/s 22 of the Indian Partnership Act, 1932, wherein a partner representing the firm is considered an agent of the firm. But Section 19 states that subject to the provisions of Section 22, only the act of a partner which is done to carry on, in the usual way, the business of the kind carried on by the firm, binds the firm. The authority of the partner to bind the firm conferred by this section is called his “implied authority”. But u/s 19 (2) in the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to transfer immovable property belonging to the firm. In the instant case, Respondents Nos.3 to 5 could not have claimed to have implied authority to mortgage the property since it is hit by the provision of section 19 (2) (g) of the Indian Partnership Act. Moreover, the learned counsel submits that mortgaging the property belonging to the firm was not with the scope to carry on, in the usual way, therefore, it does bind the firm. Mr. Shenoy submits that the disbursal clause which was referred to earlier specifically states that the NOC / undertaking of the Applicants has to be obtained before the loan is disbursed is an indicator that the 1st Respondent is aware of the involvement of the Applicants as partners of the firm and found it necessary to get their sanction. However, the said clause was not followed in letter and spirit when the loan was disbursed. Mr. Shenoy also draws the attention of this Tribunal to the Partnership Deed which indicates that a partner cannot to the detriment of the firm mortgage or lease or sell the property belonging to the firm. The Respondents Nos.3 to 5 were not at any point in time authorized to mortgage or lease the property belonging to the firm and, therefore, the learned counsel submits the Applicants have a very strong prima facie case and the balance of convenience would be in the interest of stalling the procedure pertaining to the Sarfaesi measures taken by the 1st Respondent.
Per contra the learned counsel Mr. Rajesh Nagori submits on behalf of the First Respondent submits that even though there was a clause in the Sanction Letter to get the NOC of the Applicants, it was found not necessary in view of the fact that the majority (60%) of the partners and 90% of the shareholders had approved the decision to mortgage the property.
After having heard the submissions made on both sides, I find that the Ld. P.O. did not in the impugned order, discuss anything about the authority of Respondent Nos.3 to 5 to either create a lease or to mortgage the subject property. I am in agreement with the learned counsel, Mr. Shenoy, that prima facie the mortgage is bad because the mortgage does not state the right which has been mortgaged. The title deed pertaining to the proprietary right over the subject property has not been deposited with the 1st Respondent, admittedly. It is the Lease Deed which was deposited indicating that it is the lease-hold right of the 2nd Respondent company which is the mortgaged. But neither the Mortgage Deed nor the Sale Notice indicates that it is the lease-hold right which is mortgaged and put to sale. The said sale notice would definitely mislead the prospective purchasers who would assume that the 2nd Respondent mortgagor has an exclusive proprietary right over the subject property. It is submitted by the learned counsel Mr. Shenoy that the Title Deed was pledged with the Corporation Bank by the firm in connection with another loan and that has now been returned to the firm on redemption. Under the circumstances, the recitals in the mortgage that the Title Deed has been handed over to the 1st Respondent by the 2nd Respondent is apparently a falsity. The Ld. P.O. has not gone into the details of the documents and the right of the parties. The impugned Order finds fault with the Applicants for having approached the D.R.T. with one application after the other. The Ld. P.O. has also found fault with the Applicants for not having approached the D.R.T. in the first instance, and delayed action. It has to be borne in mind that the Applicants were not served with any notice. It cannot be presumed that they were aware of the public notice that was published in the newspapers. Even after getting to know about the alleged mortgage, the Applicants were interested to see that the matter is settled with Respondents Nos.3 to 5 who are closely related to them. Under the circumstances, the Applicants cannot be found at fault for the delay in approaching the D.R.T.
The upshot of the discussions made above is that the Appellants are entitled to the reliefs in this I.A. No. 224/2022. But on going through the reliefs sought, it is seen that relief (a) seeks to set aside the auction notice dated 30.05.2022 and to restrain Defendant bank from proceeding further with the said notice. No such order can be passed at this stage as the S.A. No. 187/2021 is still pending consideration.
However, I am inclined to pass an order stalling all further proceedings under the SARFAESI Act initiated by the 1st Respondent with regard to the subject property till disposal of this Appeal and the S.A pending before the DRT.