The Authorised Officer, Canara Bank vs Yogeshchandra C Purohit & Ors

Ashok Menon, Chairperson

The Canara Bank (erstwhile Syndicate Bank) is in appeal impugning the judgment and order dated 27.10.2015 allowing Securitisation Application (S.A.) No. 70 of 2010 by the Debts Recovery Tribunal-II, Ahmedabad (DRT) quashing the Sarfaesi measures initiated by the Syndicate Bank for recovery of debt allegedly due from respondents Nos. 1 and 2 herein under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act, for short).

The facts can be summarised thus:

Respondents Nos. 1 and 2 who are husband and wife, approached the Syndicate Bank on 07.01.2005 for a housing loan to construct a house in RS No. 10, block No.24 Gajanand Park Society, Gotri, Baroda to be constructed by Gajanand Developers, the fourth respondent. Respondents Nos. 1 and 2 allegedly purchased the property vide registered sale deed No. 9074 on 08.02.2005. A copy of the sale deed was also produced and deposited with the bank for creating an equitable mortgage. The other documents which were deposited were the revenue records pertaining to the survey number. Building permission and approved layout plan, zone certificate issued by VUDA and irrevocable power of attorney executed by Jashwantsinh Chauhan in favour of M/s Gajanand Developers. There was also an agreement of sale executed by the aforesaid Jashwantsinh Chauhan in favour of respondents Nos. 1 and 2. The title clearance certificate was also produced. Based on these documents of title produced by the borrowers, the Syndicate Bank sanctioned the loan on 04.02.2005 subject to execution of loan and mortgage documents for the creation of security interest. Payments were made to the fourth respondent directly by the bank. Repayments were to be made by equated monthly instalments (EMI). The borrowers did pay some amount but thereafter defaulted resulting in the account being classified as a non-performing asset (NPA). A demand notice was issued on 08.05.2009 under Sec. 13(2) of the SARFAESI Act to the borrowers. They did not pay the amount despite having received the notice. An application was filed by the bank under Sec. 14 before the District Magistrate for taking physical possession of the subject property. The borrowers had appeared before the District Magistrate and an order was passed on 12.04.2010. In consequence of the said order, physical possession of the property was taken on 28.05.2010. Challenging the Sarfaesi measures, respondents Nos. 1 and 2 filed the S.A.

In the S.A., the applicants had challenged the very existence of the mortgage or the availing of the housing loan by them. It was contended that the documents allegedly produced for the creation of the mortgage were all forged and fabricated. The applicants contend that some other persons had impersonated them to avail of the loan. It is further contended that the applicants had mortgaged the property in favour of the third respondent ICICI Bank Ltd. and availed a loan. Hence, the purported mortgage in favour of the Syndicate Bank is not valid. After coming to know about the Sarfaesi measures, they filed a Civil Suit No. 779 of 2009 to declare that the mortgage in favour of the Syndicate Bank was not valid and also sought a consequential injunction to restrain the bank from proceeding under the SARFAESI Act. The application for interim protection was declined by the Civil Court. Thereafter, the aforesaid S.A. was filed.

Though ICICI Bank Ltd. had contested the S.A. stating that a mortgage was created concerning the property in its favour, no documents were produced and the description of the property allegedly mortgaged to ICICI Bank Ltd. also appears to be different. No action whatsoever has been taken by ICICI Bank Ltd. for recovery of the money due from the borrowers.

After considering the material placed before the DRT, the impugned order was passed holding that though the Syndicate Bank had succeeded in establishing the existence of the loan, evidence would indicate that the title deed produced by the bank was false and fabricated. Information was obtained from the concerned Registration Office at Gorwa that the seal affixed on the documents was forged and the Sub-Registrar had informed that no sale deed No. 9074 was registered in favour of the applicants on 08.02.2005 as alleged by the bank. Hence, the DRT concluded that the title deed was defective and forged. No valid mortgage could have been created in favour of the bank based on such a forged document.

The DRT had observed that it was the applicants in the S.A. who had borrowed the money and produced the documents. But, since the documents were not valid, no mortgage could be said to have been created in favour of the bank. The bank should have pursued the matter before the Criminal Court against the applicants opined the DRT. The appellant bank is aggrieved and hence, in appeal.

The question that arises for consideration in this appeal is whether a valid equitable mortgage was created by respondents Nos.1 and 2 in favour of the appellant bank. The appellant had all the documents produced by the borrowers examined by a handwriting expert and obtained an opinion that the signatures on those documents were put by the borrowers. The appellant bank had also disbursed the loan to the fourth respondent builder for the construction of the house. The initial EMIs were also paid by the borrowers from out of their accounts. All these would indicate that the borrowers had availed the loan from the bank after producing documents to indicate that they had valid titles. The fact regarding the title deed being fabricated was only revealed later. The essential ingredients for the creation of an equitable mortgage are the existence of a loan, the deposit of title deeds and the intention to create a mortgage concerning the property.

There is no doubt in this matter that respondents Nos. 1 and 2 had availed the loan. But, surprisingly, the Syndicate Bank was led to believe a forged document as the title deed concerning the property for advancing the loan. Due diligence should have exposed the documents produced by the borrowers. An encumbrance certificate obtained from the Sub-Registrar’s Office would have revealed the existence of the earlier title deed executed in favour of the borrowers in the year 2003 and would also have proved that the document of title produced by the borrowers for availing the loan was a forged one. Without ascertaining all these facts, the bank was naive enough to advance the loan. Since they have proved the existence of the debt, the bank could have proceeded to recover it under the provisions of the Recovery of the Debts Due to the Bank and Financial Institutions Act, 1993 (“RDDB & FI Act”, for short) but to proceed under the provisions of the SARFAESI Act there must essentially be a security interest created in favour of the bank. Unfortunately, the bank had accepted a forged and fabricated document to advance the loan. Since there was no security interest created in favour of the bank, no measures under the SARFAESI Act were possible. I find that no reason to interfere with the findings of the judgment.

In the result, the appeal is without merits and hence, dismissed.