State Bank of India vs IDBI Bank Ltd. & Anr

Ashok Menon, Chairperson

The Appellant, State Bank of India (SBI) is aggrieved by the judgment and order dated 06/06/2019 of the Debts Recovery Tribunal-I, Mumbai (D.R.T.) dismissing the Securitisation Application (S.A.) No. 162 of 2012. Hence this appeal.

The questions that arise for consideration in this appeal are whether the D.R.T. has jurisdiction to decide whether the documents submitted with the bank for the creation of a mortgage are fabricated and unacceptable.

The facts as required for disposal of this appeal in brief are thus: M/s Triumph Steel Udyog Pvt. Ltd. approached the SBI for credit facilities from time to time to the tune of ₹30 crores and executed various documents in favour of the SBI to secure the loan. The 2nd Respondent created an equitable mortgage in favour of the Appellant concerning flat No. 101 admeasuring 2270 ft² equivalent to 210.97 m² constructed in the year 1993 on the 1st floor of an apartment named ‘Kinjalk’ in Mulund, Mumbai. To create a mortgage, a memorandum of entry for creation of charge was executed on 18/06/2009 to secure the credit limits up to ₹20 crores. That apart, a declaration dated 19/06/2009 confirming the creation of the mortgage in favour of the Appellant, a letter of confirmation of even date, addressed to the Appellant by the 2nd Respondent confirming the creation of a mortgage was sent. A memorandum of entry was executed on 03/04/2010 recording an extension of the equitable mortgage that secured the enhanced limits of ₹30 crores. A declaration was also executed by the 2nd Respondent on the very same date confirming the extension of the mortgage charge. A letter of confirmation was also addressed to the Appellant as done previously concerning the enhanced limits of the mortgage. The Articles of Agreement dated 02/0 6/ 2009 executed between M/s S.N. Developers, the builders of the apartment, and the 2nd Respondent as the purchaser was also deposited with the Appellant. The builders had also issued a no-objection certificate on 09/06/2009. The Appellant had also obtained a certified copy of the Articles mentioned above of the Agreement from the Sub-Registrar’s office.

The borrower defaulted payment of the debt and hence, the Appellant was constrained to file O.A. No. 259/2012 against the borrower and the mortgagor 2nd Respondent before the D.R.T. for recovery of ₹33,51,46,484.08 together with interest which is pending adjudication. The Appellant also initiated measures under the Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’, for short) to enforce the security interest. Notice was issued on 28/06/2011 under section 13(2) of the SARFAESI Act. Steps under section 13(4) for physical possession  of  the  flat  was  taken  on  05/10/2011.  Photographs evidencing symbolic possession and newspaper cuttings about the taking over of possession of the secured flat were also relied upon by the Appellant. An order was obtained on 27/03/2012 under section 14 of the SARFAESI Act from the court of the Chief Metropolitan Magistrate, Esplanade for taking physical possession. However, physical possession could not be taken as the 1st Respondent IDBI had already taken possession of the flat claiming a mortgage right allegedly created on 22/10/2009 after the mortgage right was created in favour of the Appellant on 18/06/2009. A public notice of auction dated 30/04/2015 issued by the 1st Respondent intending to sell the subject flat in a public auction on 06/06/2015 in pursuance to the Sarfaesi measures initiated by the 1st Respondent came to the notice of the Appellant. Challenging the Sarfaesi measures initiated by the 1st Respondent IDBI, the Appellant filed the aforesaid S.A. No. 162/2012.

The IDBI contested the S.A. by filing a reply stating that the 2nd Respondent had as the sole proprietor of M/s Hem Steel Industries availed credit facilities from the IDBI to the extent of ₹ 5 crores and created an equitable mortgage concerning the aforementioned flat No.101 on 22/10/2009. A deed of declaration dated 07/07/2009 and an Articles of Agreement dated 20/06/1993 executed between the builders S.N. Developers and two persons named Gopal Maruti Kadav and Neeta Gopal Kadav as purchasers the flat, as well as the original agreement for sale dated 03/08/2009 executed between the aforesaid two persons in favour of the 2nd Respondent, was also obtained to secure the loan. A no-objection certificate issued by the society in favour of the IDBI together with the possession letter issued by the builder on 11/11/1993 is also relied upon. It is contended that the Kadavs owned the flat till 07/07/2009. The loan account of the 2nd Respondent was classified as non-performing assets (NPA) on 18/05/2011. Subsequently, the IDBI issued a notice under section 13(2) and took symbolic possession of the flat on 21/12/2012 under section 13 (4). Pursuance to the order of the Chief Metropolitan Magistrate (CMM) dated 11/06/2013 under section 14 of the SARFAESI Act, the IDBI took physical possession of the subject flat. It was contended that the Articles of Agreement dated 02/06/2009 relied upon by the Appellant was fabricated and concocted. It is contended that the 2nd Respondent had cheated the Appellant by producing a fabricated document to create a mortgage.

The Appellant would contend that the sale deed in favour of Gopal and Neeta Kadav dated 20/06/1993 allegedly executed by S.N. Developers is an unregistered document prepared on a stamp paper of ₹50/- dated 14/06/1993. Only on 31/01/2009 was the adjudicated stamp duty of ₹1,36,300/- paid on the market value of ₹18,88,000/-with a penalty of ₹1000/-. The deed of declaration in favour of the 2nd Respondent was registered on 07/07/2009 and the unregistered sale deed dated 20/06/1993 was annexed thereto. Thereafter, an agreement for sale was registered by Kadavs in favour of the 2nd Respondent on 03/08/2009. Consequently, the purported mortgage was created in favour of IDBI on 22/10/2009. M/s S.N. Developers had sent a complaint to the Mulund police on 22/08/2012 alleging that a person named Mohan Jabaji Gaikwad fraudulently representing himself as a partner executed an agreement for sale in favour of a person named Ajay Gandhi (the 2nd  Respondent herein). It is further contended that the mortgage was created in favour of the IDBI without due diligence. There was already an agreement executed in favour of the 2nd Respondent on 02/06/2009 and the mortgage in favour of the Appellant was created on 18/06/2009. The Appellant had on the other hand conducted due diligence and found no encumbrances were created on flat No. 101. The Articles of Agreement dated 20/06/1993 in favour of Kadavs was never registered and therefore, the existence of such a document would not have come to the fore. It is pointed out that the letter dated 22/08/2012 addressed by M/s S.N. Developers to the police states that the information regarding the execution of the sale deed by Mohan Gaikwad in favour of the 2nd Respondent was received upon a search conducted at the Sub Registrar’s office. A similar search by the IDBI could have revealed the existence of the Articles of Agreement dated 02/06/2009. Despite knowing the existence of the document dated 02/06/2009, neither M/s S.N. Developers nor the IDBI took any measures to have that document declared null and void before a competent forum.

During the pendency of the S.A., the 1st Respondent had sold the property in a public auction held on 28/08/2015 in favour of one Bhumi Warehouse Pvt. Ltd. subject to the outcome of the S.A. The sale proceeds received on auction have been deposited with the D.R.T.

Heard the learned counsel appearing for the Appellant and the first respondent. Records perused.

This is a litigation between two banks vying to recover their debt due from the common borrower from out of the property alleged to have been mortgaged to both. The IDBI Bank had initiated Sarfaesi measures against the subject property, and the property was sold. Aggrieved by the Sarfaesi measures initiated by IDBI, the Appellant SBI has approached the D.R.T. with the aforementioned S.A. No. 162 of 2012 seeking a declaration that the sale notice dated 30.04.2015 putting up the property for public auction on 06.06.2015 concerning the subject flat is illegal, unreasonable, arbitrary and unjustified and therefore, sought to quash and set aside the sale. The Appellant would contend that the mortgage created concerning the flat in favour of the Appellant was prior in point of time and therefore, the mortgage in favour of the first Respondent is subject to the earlier charge created in favour of the Appellant. It is also contended that the title deeds deposited with the first Respondent are not genuine as all the original documents were already deposited with the SBI. The IDBI did not carry out proper verification and due diligence before sanctioning of loan to the borrower based on the security of the subject flat. The IDBI contends that the documents produced for creating a mortgage with SBI are not valid and genuine.

There is no dispute that the landed property on which the apartment was constructed, originally belonged to Mr Gopal Maruti Kadav and Mrs Neeta Gopal Kadav. There is also no dispute that the said original owners had granted development rights to M/s S. N. Developers who are the builders for redevelopment of the building. The existing building named ‘Mani Bhavan’ was demolished and the builder constructed a multi-storied apartment building. As per the original agreement executed between the original owners and the developers, the developers were at liberty to sell flats/shops/parking places/garages  to  the  extent  of  66.5%  of  the  total  saleable  area. Accordingly, on 02/06/2009, the builder executed a sale agreement in favour of the second Respondent. It is one Mohan Jabaji Gaikwad claiming to be a representative of a builder who executed the documents in favour of the second Respondent. There is a dispute regarding his authority to execute any document for a builder. On 22/08/2012, a complaint was lodged on behalf of a builder by one Suresh Bhinde before the Senior Police Inspector, Mulund (west), Police Station alleging fraud by the aforesaid Mohan Gaikwad. It is specifically alleged that M/s S. N. Developers had never sold any property to anyone and that M/s Mohan Gaikwad was an imposter. On 03/08/2009, the original owners Gopal and Nita Kadav sold the subject flat to the second Respondent who is carrying on business in the premises as the sole proprietor M/s Hem Steel Industries. He executed the mortgage and other documents in favour of the first Respondent on 22/10/2009 and the loan amount was disbursed to him on the security of the subject flat. On committing default, the flat was sold in the Recovery Proceedings to M/s Bhumi Warehouse Pvt. Ltd. which in turn was sold it to Smt. Aruna Manoj Vora and Mr Manoj Vora for a sale consideration of ₹1,94,40,000/-

The dispute is whether the mortgage in favour of the SBI or that in favour of the IDBI is the valid one. The mortgagor of both the banks is the second respondent. The title deeds of the second respondent is however derided from two different sources. The original owners namely, Kadavs had allegedly got the allotment of the subject falt from the builder in accordance with the redevelopment agreement they had entered into with them. On the other hand, a person named Mohan Gaikwad claiming to be the representative of the builder assigned the subject flat again innfavour of the second respondent. The builder states that the said assingnemt was without authority, and a police complaint was filed.

It will have to be decided whether the assignment by the Kadavs or the assignment by Mohan Gaikwad is the valid one. The D.R.T. exercising jurisdiction under the SARFAESI Act has no adjudicatory powers to declare the validity of a document or the title to a property. It is for the civil court of competent jurisdiction to determine these facts and pass a declaratory decree. It is settled law that an application under Sec. 17 of the SARFAESI Act is confined to the validity of the measures taken by the bank. In case there is an allegation of fraud, the civil court’s jurisdiction is not ousted.

No case under Sec.17 of the SARFAESI Act is made out by the Appellant in the S.A. and hence, the D.R.T. has rightly dismissed the S.A. There is reason for interference in appeal.

The Appeal is dismissed.