State Bank Of India vs Federal Bank Ltd. And Ors

P.K. Bhasin, J

This appeal by State Bank of India is against the order dated 7th March, 2018 passed by the Debt Recovery Tribunal-I, Chandigarh ('DRT') disposing of this Bank's Securitisation Application (S.A.) No. 206/2014 under Section 17(1) of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 ('SARFAESI Act' in short). The relevant portions of the impugned order which give the factual background of the matter and the points of controversy between two Banks, the appellant herein and respondent No. 1 - The Federal Bank Ltd. are re-produced below:

"4. Counsel for the applicant has argued that respondent Nos. 3 to 5 has availed certain facilities by mortgaging of property by way of deposit of title deeds for which charge of the Bank was also duly noted into the Revenue Record. Narrating history, the Counsel for the applicant stated that respondent Nos. 4 and 5 being principal borrower approached the applicant Bank for Housing Loan Facilities in the shape of TL of Rs. 11 lakh which was sanctioned and disbursed after executing the documents and deposit of title deeds of immovable property with the Bank on 18.2.2008 with intent to create mortgage.......................... Since the respondent Nos. 4 and 5 failed to adhere to the financial norms, the account was declared NPS on 23.6.2011 as per guidelines in this regard. Thereafter the applicant filed civil suit in Kangra against respondent Nos. 4 and 5 and others, for recovery of its dues.

The Counsel for the applicant further argued that on 3.2.2012, the applicant Bank also initiated proceedings under The SARFAESI Act and issued Demand Notice under Section 13(2) to "respondent Nos. 4 and 5 in response to which the respondent Nos. 4 and 5 promised to liquidate the entire dues. Therefore, the Demand Notice was withdrawn. But the respondent Nos. 4 and 5 after depositing of Rs. 50,000/- on 11.8.2012, stopped making payment and the Bank again issued Notice dated 3.3.2014 under Section 13(2) upon the respondent Nos. 4 and 5 through registered post and through publication for which Counsel for the applicant relied upon Annexure A6. But the respondents by misleading the Court in SARR 6186 of 2014 title Shivani Raina & Anr. v. State Bank of India & Anr. got status quo order on 26.6.2014.

The Counsel for the applicant Bank further argued that the applicant Bank was surprised to know that respondent Nos. 1 and 2 had taken physical possession of the aforesaid both secured assets/mortgaged properties under Section 13(4) of the Act. The applicant took up the matter with the respondent Bank No. 2 vide Legal Notice dated 17.10.2014 questioning the action of respondent Nos. 1 and 2. But the respondent No. 2 in reply to legal notice dated 5.11.2014 intimated that the respondent Nos. 3 to 5 had availed CC limit of Rs. 20 lakh from them on 12.1.2011 against certified copies of title deeds which are lying mortgage with them since 12.1.2011. Since the account of respondent Nos. 3 to 5 was classified NPA, the respondent No. 1 initiated proceedings under the SARFAESI Act and issued notice under Section 13(2) dated 8.8.2013 and then under Section 13(4) on 16.5.2014 they took over symbolic possession of the above properties and further under Section 14 since they had got permission from DM Kungra, they took physical possession of the property on 15.9.2014. Now, the sale notice has been issued for sale on 11.11.2014 which was duly under prior and valid charge of the applicant Bank.

The prayer of the applicant Bank is that since charge of the applicant Bank is prior to respondent Nos. 1 and 2, hence the action taken by the respondent Nos. 1 and 2 is bad in the eyes of law.

On the other hand side, Counsel of the respondent Bank Nos. 1 and 2, besides filing detailed reply, prayed that since due procedure has been followed by them after the default of respondent Nos. 3 to 5 and declaring of their account as NPA on 30.6.2013. The respondent Bank first issued Notice under Section 13(2) on 8.8.2013 and thereafter Notice under Section 13(4) on 16.5.2014 which was published on 20.5.2014. The Counsel for the respondent Bank arguing further stated that the respondent Bank after taking symbolic possession got DM's permission and took over possession of the assets on 15.9.2014. The Counsel for the respondent Bank stated that since it has the first change over the assets, it should be allowed to recover its dues by sale of mortgaged properties. It was also argued by respondent Nos. I and 2 that respondent Nos. 3 to 5 has committed fraud by not depositing original title deeds with the respondent Bank nor they disclosed that they have already taken loan from SBI and that original title deeds are lying with the SBI.

The Counsel for the respondent Bank prayed that since the respondent Bank has acted as per the law, the SA should be dismissed and it should be allowed to recover its dues.

I have heard arguments of both the Counsel and perused the record.

Before prayer of the applicant could be considered, it is worth mentioning that watching inter se fighting of both the Banks, an order dated 3.12.2014 was passed, the operative part of which is reproduced as under:

"........The claim of the applicant that property which are prior to the mortgage of respondent No. 1/Bank being having first charge should have to be given the benefit and the sale now fixed by respondent Nos. 1 and 2 should have to be stayed.

I have perused the record and satisfied that Annexure A-7 which is an order passed by this Court in SARR No. 686/14 and it seems that respondent Nos. 4 and 5 by concealing the facts from this Court has taken certain advantage which should not have go unchecked further. Since the stake of all Financial Institutions are involved and respondent Nos. 1 and 2 has already fixed sale which is already on maturity side therefore any order of stay will be not only fatal to the sale of the property but ultimately recovery to the Banks therefore let this sale proceeds till the further order, however applicant is liberty to participate in the auction if it requires...."

Not only this, taking into consideration of this fact that unsuccessful attempts were made by respondent Nos. 1 and 2 in selling the property, of detailed order was again passed on 10.3.2015 which is reproduced hereunder:

".....since Counsel for the respondent Nos. 1 and 2 has informed that earlier sale could not mature where physical possession of the property is still with them, I deem it fit that the national resources should not be further stuck up in fighting of both the financial by respondent Nos. 1 and 2.

Let the charge of the property be handed over to the Authorised Officer of the applicant Bank who will also try his luck and put the property on sale through tenders by giving a vast publicity and physical possession of the property in the meantime by the Authorised Officer of respondent Nos. 1 and 2 be handed over to the Authorised Officer of applicant Bank within one week from today who in response will complete all the formalities within 30 days to put the property on sale within 30 days, thereafter"

But surprisingly despite giving a free hand to both the Banks, it has been found that when the applicant was directed to put the property on sale, a blunder mistake was committed by the concerned Authorised Officer of the applicant Bank who after receipt of 25% of money from the intending bidder released the same in violation of terms and conditions of its own sale notice which is clearly reflecting from order dated 8.7.2016 and 21.7.2016 and even Sh. K.C. Bhatia, Advocate who was appointed observed for conduction new sale was kept at a distance and the concerned Authorised Officer Sh. Parbhat Singh Rana ignoring the order kept the proceedings at the back of the commission. An affidavit filed by the Court Auctioner/Observer is a glaring example of neglecting the orders of the Court and instruction of the LC appointed who took an initiative to get recoveries of the Bank in an effective manner. But since this is purely in the domain of the concerned higher authorities of the Bank to check lapses on the part of concerned officers Sh. Piara Singh and Sh. Parbhat Singh Rana and take appropriate action for delay in recovery and deliberate mistake committed on their part and by returning of 25% of money received from the intending purchaser which should otherwise have been forfeited and not informing the Court observe which should be taken on serious note for disobeying the orders of the Court and showing disrespect to the commission.

Now as this stage without going into all these aspects, it has duly been proved that the applicant Bank with whom entire original documents have been deposited on 18.2.2008 to create equitable mortgage whereas respondent Bank Nos. 1 and 2 have itself admitted that they do not have original documents. Moreover, mortgage with respondent Nos. 1 and 2 is a subsequent mortgage. The applicant Bank has duly proved its case but has failed to get the recoveries effected due to the deliberate attempt of the above named officers who put loss to the institution.

Since both, applicant and respondent Bank are financial institutions and fighting for their recovery of public money giving different meaning, this SA is disposed of with the direction to the officer of both the Banks to sit together and resolve the issue and get the property sold to recover the dues. Any application pending stands disposed of."

(Highlighting is by me)

From a reading of this order of the learned DRT it is clear and undisputed position that same set of persons had obtained loans from the appellant Bank as well as respondent No. 1 Bank at different points of time by creating equitable mortgage of same property. The appellant Bank was delivered original documents of time and it had disbursed loan of Rupees eleven lacs. Respondent No. 1 gave loan of Rupees twenty lacs but at its disposal its borrowers had deposited only certified copies of title documents. Both the accounts with the two Banks were declared as NPAs and both these Banks after declaring the accounts of their respective borrowers as NPAs served demand notices under Section 13(2) of SARFAESI Act and upon failure of the borrowers to clear the dues of the Banks both the Banks took recourse to Section 13(4) of SARFAESI Act for taking physical possession of the mortgaged asset which was common property in both the loan transactions. However, respondent No. 1 succeeded in taking over physical possession first and initiated steps for selling the same to recover its dues. Upon coming to know about those steps having been initiated by respondent No. 1 Bank the appellant Bank served a notice upon it not to proceed ahead with those steps. Respondent No. 1, however, did not accede to that request of the appellant Bank. Then the appellant Bank invoked the remedy under Section 17(1) of SARFAESI Act by filing an S.A. before the Tribunal below. The DRT, however, did not grant any interim relief to the appellant Bank and so respondent No. 1 Bank continued to make attempts to sell the mortgaged property in dispute hut could not succeed in getting any buyer. The DRT asked the respondent No. 1 Bank to deliver the possession of the mortgaged property to the appellant Bank so that it could also make efforts to find some buyer.

The appellant Bank found one buyer but that buyer after making initial deposit of 25% of the bid amount backed out and the Bank forfeited his EMD. Since the Banks were not succeeding in getting buyers the DRT directed that the auction should be conducted under the supervision of a Court Observer and accordingly it appointed one Advocate as the Court Observer for the auction to be conducted by the Authorised Officer of the appellant Bank.

Though after the appointment of the Court Observer also auction took place at the instance of appellant Bank and bids were also received and the appellant Bank wanted to confirm the sale in favour of the highest bidder but some controversy arose as to whether or not auction was conducted under the supervision of the Court Observer. The appellant Bank claimed before the DRT that the Court Observer himself had expressed his inability to the Authorised Officer of appellant Bank to remain present on 17.9.2016 at the time of auction and so auction process was concluded by the Authorised Officer in the absence of the Court Observer. The Court Observer's stand on the other hand was that he was not associated with the auction process conducted on 17.9.2016. The learned Presiding Officer after expressing his displeasure against the Authorised Officer by not following Tribunal's direction for conducting the auction under the supervision of Court Observer finally disposed of the S.A. with a kind of advice to the two Banks to sit together and resolve the controversy between them. Feeling aggrieved by the non-disposal of its S.A. State Bank of India has come up in appeal and in fact can be said that unnecessarily it has been forced to file this appeal.

The DRT did not dispose of the S.A. as provided under Section 17(3) of the SARFAESI Act according to which the DRT is expected to return a finding after examining the case of the rival parties and evidence adduced by them as to whether the action of the secured creditor which in this case was respondent No. 1 Bank, whose action was being challenged by the appellant Bank claiming itself also as the secured creditor is in fact is prior mortgagee.

In my view the learned Presiding Officer by passing such an order has abdicated his statutory duty entrusted to him by the Parliament by not deciding himself the dispute between the two Banks and telling to resolve their dispute themselves. This kind of disposal of matters is neither desirable nor permissible in law as also the indictment of senior officer of the Bank without taking the litigation before the Tribunal to trial, may be summary. Indictment of the Authorised Officer in particular was not justified since the learned Presiding Officer has himself also observed that though at one stage the Court Observer had raised some grievance that he was not involved in the auction conducted on 17.9.2016 but subsequently the Court Observer had softened his stand. His report is on record of DRT where the Observer had mentioned that there appeared to be some misunderstanding if factual position between him and the Authorised Officer. Now, what happens when the Banks have not been able to resolve their rights and entitlement as mortgagees. One of them will have to start fresh litigation and in that process recovery of public money gets unnecessarily delayed though DRTs were created to ensure expeditious recovery of public monies. This appeal is accordingly allowed and the impugned order dated 7th March, 2018 of the DRT-I, Chandigarh is set aside and the matter is remanded back to DRT to proceed further in the appellant Bank's S.A. from the stage where it had reached when the S.A. was abruptly disposed of simply by directing both the Banks to try to settle the their claims against each other, and then to decide the appellant Bank's S.A. afresh in accordance with law and uninfluenced by any observations made in the impugned order which has now been set aside. The DRT shall take up the matter now on 30.7.2018 at 2 p.m. for further appropriate directions.

Record of DRT be sent back with a copy of this order.