T.R. Vadhiraja vs Bank of Baroda

S. Ravi Kumar, Chairperson

This Appeal is against Order dated 04.08.2014 in SA 468/2013 of DRT, Bangalore.

Brief facts leading to this Appeal are as follows:-

Appellant herein filed above referred Securitisation Application (SA) along with two others, contending that first and second Petitioners in the SA are Tenants and third Petitioner in the SA is owner of Schedule mentioned property. SA is filed initially to set aside Order of II Additional Chief Metropolitan Magistrate (CMM), Bangalore, issued under Section 14 of SARFAESI Act, 2002, for a direction to remove lock and seal from the Schedule property and handover possession to first and second Petitioners in SA, namely Tenants. Subsequently, SA is amended after first and second Petitioners in SA have withdrawn from contest by including the relief to remove lock and seal from the Schedule property and handover possession to third Petitioner in SA, and to declare that no security interest is created in favour of Respondent Bank and Respondent Bank has no right to take any action under the provisions of SARFAESI Act, 2002, in respect of Scheduled property.

Said Application is resisted by Bank, contending first that the Application is not maintainable, and secondly that the Bank followed all the provisions of SARFAESI Act and Rules made thereunder, and took possession of property purely in accordance with law. Bank also contended that the Applicant has no locus standi to file the Application. Bank contended that one Sri Savinay S. S/o K. M. Somashekar, borrowed Rs.20 Lakhs from Bank and Schedule property is offered as security for said loan by depositing original title deeds, on 24.01.2004, and as Borrower committed default, loan account was declared as Non-Performing Asset (NPA), and Bank issued Notice under Section 13(2) of SARFAESI Act, 2002, and took symbolic possession on 06.08.2011, and thereafter, approached Additional CMM, Bangalore, for taking physical possession, and as per the Orders of Learned Additional CMM, dated 03.08.2012, physical possession was taken on 30.08.2012 under Panchanama. It is further contended that said Sri Savinay S. S/o K. M. Somashekar, is the principal Borrower, and he during subsistence of mortgage, has created fraudulent document, by virtue of which, third Applicant is claiming right, and the Application is not maintainable.

On a consideration of contentions and rival contentions of both parties, Tribunal below dismissed the SA 468/2013; aggrieved by which, present Appeal is preferred.

Appellant filed Written Arguments and Advocate for Appellant reiterated the same at the time of oral submissions. Advocate for 1st Respondent Bank (Respondent Bank) rebutted the arguments of Appellant, and after hearing both sides, this matter is posted for Orders to 15.11.2023.

One of the arguments advanced by Advocate for Appellant in this matter is that the Tribunal below decided Securitisation Application taking into consideration the reliefs originally claimed, but not looked into the amended Securitisation Application, by virtue of which, a specific declaratory relief is prayed for. On a scrutiny of record, it is found that, Tribunal below has not gone into the aspect of declaratory relief, therefore, the matter is reopened, and put to Advocate for Appellate whether this Tribunal can decide that point or it should be remitted back to the Tribunal below for a fresh consideration, for which, Advocate for Appellant submitted that, the point of declaratory relief can be decided by this Tribunal, and sought time to advance arguments on the said aspect. Accordingly, the matter is further heard and both sides advanced their arguments.

So far as the reliefs claimed in Securitisation Application prior to amendment, Appellant contended that, Bank has not followed the provisions of SARFAESI Act, 2002, in obtaining Order under Section 14 of SARFAESI Act, 2002, therefore, physical possession taken in pursuance of said Order, is to be set aside, and possession has to be delivered back to Appellant. This aspect is dealt with meticulously by Tribunal below and recorded a finding that Bank followed the provisions of SARFAESI Act and Rules made thereunder in taking physical possession of property, and I do not find any wrong in the findings of Tribunal below in respect of that issue.

In respect of dispute regarding title, the Tribunal below recorded a finding that Appellant has to approach Civil Court to resolve his title dispute in the light of judgements of Hon’ble Supreme Court, Hon’ble High Court of Madras and Hon’ble High Court of Karnataka. Main contention of Advocate for Appellant is that, the Appellant has not prayed for any declaration in respect of title over property, but prayed for declaration in respect of security interest, and such relief can be claimed in DRT only, and not in Civil Court, and to support his arguments, he relied on the judgements of Hon’ble Supreme Court, but mainly referred to the judgement in Jagdish Sing Vs. Heeralal and Ors., reported in (2014) 1 SCC 479, wherein it is clarified that the dispute relating to security interest has to be determined by DRT only.

Now, it has to be seen whether the contention of Appellant with regard to declaratory relief, is established or not. According to Appellant, he purchased Schedule property from Smt. K. Sweta and Sri K. V. Krishna, through a registered Sale Deed dated 03.02.2012. It is the contention of Appellant that said K. Sweta and K. V. Krishna purchased said property from Sri Savinay S. S/o K. M. Somashekar through a registered Sale Deed dated 07.05.2008. According to Appellant, said Savinay S. S/o K.M. Somashekar, purchased said property from Sri Chandrakanth Rajesh Babu through a registered Sale Deed dated 18.08.2004. According to Appellant, said Sri Chandrakanth Rajesh Babu purchased the property through a registered Sale Deed dated 01.12.2003 from Sri M. L. Krishna and others. Advocate for Appellant mainly harped on the point that Sri M. L. Krishna and others, having sold the property in favour of Sri Chandrakanth Rajesh Babu through a registered Sale Deed dated 01.12.2003, have no right to again sell the property through a registered Sale Deed dated 26.12.2003, which is the basis for claim of Bank. He submitted, Tribunal below failed to examine this aspect, and Borrower cannot create security interest in favour of Bank, therefore, Appellant is entitled for declaration prayed for. He submitted, Tribunal below failed to notice that Sri Savinay S. S/o K.M. Somashekar had no title over the Schedule property, over which, mortgage is created in favour of Respondent Bank and title dated 26.12.2003 has no validity in the eye of law. Advocate for Appellant further submitted that the Bank did not take proper care before accepting the title deed produced by Borrower, had the Bank verified the encumbrance certificate, there would not have been any occasion for Bank to accept it, because title dated 01.12.2003 is reflected in the encumbrance certificate.

On the other hand, Advocate for Respondent Bank submitted, Appellant is not a bonafide purchaser, because he purchased the property in the year 2012, but mortgage is created way back in the year 2004. He submitted, if Appellant really verified the encumbrance, he ought not to have purchased the property, because Sale Deed dated 26.12.2003 and subsequent transactions are figured in the encumbrance certificate. He submitted, the Schedule to both documents, the boundaries for document dated 01.12.2003 would differ from the boundaries in document on the basis of which mortgage is created. It is further submitted, if a close scrutiny is made and compared document dated 01.12.2003 with document dated 26.12.2003, one can easily infer that, the document dated 01.12.2003 relied on by Appellant, is to be held as suspicious. He further submitted that without cancelling the registered document in favour of Borrower, entire argument of Appellant, cannot be accepted. He further submitted that, till now, no competent authority cancelled the registered document dated 26.12.2003 nor any Court granted declaration holding said document is not valid under law. He submitted, Tribunal below rightly dismissed Securitisation Application and there are no grounds to interfere with.

As already referred to above, the declaration prayed by Appellant is to declare that no security interest has been created in favour of Respondent Bank, and as such, Bank has no right to proceed against said property as per the provisions of SARFAESI Act, 2002. Now, it may be necessary to examine the definition of ‘security interest’ under the provisions of SARFAESI Act, 2002. Section 2 (zf) defines ‘security interest’, which is as follows:-

Definitions

(1) …………..

(a) ……………..

……………..

………………

(zf) “security interest” means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes—

(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or

(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;]

(zg) …………”

From a plain reading of the definition, it is clear that ‘security interest’ means right, title or interest of any kind, created in favour of Secured Creditor. Here in this case, Borrower created security interest in favour of Respondent Bank by creating mortgage through deposit of registered Sale Deed dated 26.12.2003 which conveys title to Borrower. As per the provisions of Transfer of Property Act, a transfer in case of tangible immovable property where the value of one hundred rupees or more, shall be only by a registered instrument. So, here in this case, through a instrument dated 26.12.2003, transfer of ownership in respect of tangible immovable property is conveyed in favour of Borrower. As rightly pointed out by Advocate for Respondent Bank, said registered document is not cancelled by any competent authority nor any Court declared it as invalid. So, for creation of security interest, Borrower must have title, and admittedly, DRT cannot give any declaration in respect of title over property.

Further, Appellant, admittedly, purchased the property from Smt. K. Sweta and Sri K. V. Krishna, who in turn purchased the property from Sri. Savinay S. S/o K.M. Somashekar. This Savinay S.S/o K.M. Somashekar, created mortgage over the very same property in favour of Bank for the loan obtained in the year 2004. So, ultimately, Appellant’s Vendors’ title traces back to Savinay S.  S/o K.M. Somashekar, who is the Borrower. When that is the factual situation, objection of Advocate for Appellant in respect of Sale Deed dated 26.12.2003, with reference to Sale Deed dated 01.12.2003, cannot be accepted. Though it is not necessary to examine them, just to verify the correctness of the contention, I have examined both the documents. In the Sale Deed dated 01.12.2003, the property referred to is as follows:-

“SCHEDULE”

All piece and parcel of the immovable property Nos. 3, 4, 5, 6 & 7 out of measuring to an extent of 1 acre 31 guntas situated in Sy. No. 24, Vasanthpura Village, Uttarahalli Hobli,

Bangalore South Taluk, vide converted No. UDS/AL/SR/(S)179/2003-04 dt. 3-9-2003 the deputy commissioner, Bangalore Urban District measuring East to west 160-150/2; North to South 40 total measuring 6200 Sq. Ft. and the entire composite property is bounded as follows:

East by : property in Sy. No. 25

West by : by BWSSB pipe line road

North by : Road

South by : Site Nos.8, 9,10,11, 12, 13”

As per above Schedule, the property conveyed under this document is total extent 6200 Sq. Ft., for a sale consideration of Rs.4.34 Lakhs.

According to Appellant, the Sale Deed dated 26.12.2003 is not valid, because by that time, under Sale Deed dated 01.12.2003, the property is already conveyed. The Schedule in Sale Deed dated 26.03.2003 is as follows:-

“SCHEDULE A

(Schedule of the Composite Property)

All piece and parcel of the immovable Property measuring to an extent of 1 acre 31 guntas situated in Sy. No. 24, of Vasanthpura Village, Uttarahalli Hobli, Bangalore South Taluk, converted into residential Sites of various dimensions and the entire composite property is bounded as follows:

East – by Property in Sy. No. 25

West – by BWSSB pipe line Road,

North – by Bikasipura Village Boundary

South – by Sri. Munibyrappa property in the remaining land in Sy. No. 24

SCHEDULE B

(Property conveyed under this sale deed)

All that piece and parcel of immovable Property bearing residential site No.6 with dimensions measuring East to West 30 feet, North to South 40 feet, formed in the Schedule A land referred about situated in Sy. No. 24 in Vasanthapura village, Uttarahalli Hobli, Bangalore south Taluk, presently within the limits of Subramanyapura village panchayat and bounded on;

East – by Site No.7

West- - by Site No.5

North - by 30 feet Road

South - by site No.9”

As per this document, Schedule ‘B’, which is part of total extent of Schedule ‘A’, is sold, that is, an extent of property sold under this document, is 1200 Sq.Ft. for a sale consideration of Rs.14.40 Lakhs. Appellant contends that, Vendors’ Vendor of Appellant, purchased the property for Rs.4.34 Lakhs comprising 5 plots in an extent of 6200 Sq.Ft, whereas in the same month, 1200 Sq. Ft. comprising only one plot in the very same Survey Number, is conveyed for Rs.14.40 Lakhs. So, as rightly pointed out by Advocate for Respondent Bank, which document is suspicious, one can easily determine. When Sri. Savinay S. S/o K.M. Somashekar, on the basis of Sale Deed for an extent of 1200 Sq. Ft., obtained loan from the Bank, and very same Savinay S. S/o K.M. Somashekar, conveyed same property to Smt. K. Sweta and Sri K. V. Krishna, through a registered document from whom Appellant claims to have purchased, would reveal how bonafide Appellant is? As rightly contended by Respondent Bank, the Appellant cannot be termed as bonafide purchaser. As rightly pointed out by Advocate for Respondent Bank, had the Appellant verified the encumbrance certificate, both Sale Deeds dated 01.12.2003 and 26.12.2003 must have been reflected, in which case, the Appellant ought not have ventured to go for the transaction. So, as rightly pointed out by Advocate for Respondent Bank, this also indicates the bonafide nature of Appellant. Further, even under Section 17 of SARFAESI Act, 2002, it is the duty of Appellant to place convincing evidence. When he prayed for declaration, minimum expected from him, is to place evidence; but here, except relying on the documents referred to above, no evidence is produced. Documents produced are zerox copies or certified copies, no original title deeds are produced. As already referred to above, when there is a large variation as to the value of property as on December, 2003, without any convincing evidence, the contention of Appellant, cannot be accepted.

Therefore, on a scrutiny of entire material, I am of the considered view that, Appellant failed to substantiate that the Borrower has not created any security interest over the Schedule property, in favour of Respondent Bank and that Respondent Bank cannot proceed against that property under the provisions of SARFAESI Act, 2002, as such he has to be non prosecuted.

In view of my discussions and findings, it is held that, the Appeal is devoid of merits and that there are no grounds to interfere with the impugned Order 04.08.2014 and the Appeal is liable to be dismissed.

In the result, the Appeal in RA (SA) 29/2022 is dismissed. Both parties shall bear their own costs. All pending IAs, if any, stand closed.