Union Bank Of India vs A.S. Services And Solutions And Ors

P.K. Bhasin, J

The appellant Bank is aggrieved by the final dated 4th March, 2015 passed by Mr. Ashish Kalia, the then Presiding Officer of Debts Recovery Tribunal-III, Delhi ('DRT' in short) while disposing of Original Application No. 86/2009 (O.A.) filed by appellant herein under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short 'RDDBFI Act') against the respondents herein to recover its money which it had advanced as loan during the year 2006 to respondent 1, a proprietorship Firm of respondent No. 2, and to secure which loan respondent No. 2 had mortgaged with the Bank his property in Indira Puram, Ghaziabad and his wife, respondent No. 3 herein, had also given her personal guarantee. From the impugned judgment as well as the record of the DRT in respect of O.A. No. 86/2009 what emerges is that on different dates in the year 2006 the appellant Bank had advanced some financial facilities to respondent No. 1 Firm and thereafter this respondent failed to re-pay the loan money to the Bank and its account was classified as Non-Performing. Asset. (NPA) in May, 2008 and then a notice dated 13th June, 2008 was given to it under Section 13(2) of SARFAESI Act demanding Rs. 28,06,238/- plus interest and upon its failure to clear the dues the Bank took recourse to its remedies under Sections 13(4) and 14 of the SARFAESI Act to recover its money by putting to sale the mortgaged property of the proprietor of this borrower Firm Sanjeev Singh. Then came to be filed S.A. No. 445/2008 under Section 17(1) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) by respondent No. 4 before the DRT-III, Delhi in which he claimed that he had purchased the mortgaged property from respondent No. 2 herein in the year 2008 but at the time of selling the property to him the respondent No. 2 had not disclosed that it was mortgaged with the appellant Bank and regarding the original title deed/lease deed in his favour he had represented that it had been misplaced and will be given to him (respondent No. 4). However, subsequently the respondent No. 4 came to know that he had been defrauded by Sanjeev Singh and the Bank was threatening to sell the property which Sanjeev Singh had sold to him without disclosing that the same was already mortgaged with the appellant Bank.

During the pendency the S.A. of respondent No. 4 (being S.A. No. 445/2008) the appellant Bank filed O.A. No. 86/2009 impleading the borrower Firm, its proprietor Sanjeev Singh as the mortgagor and his wife Archana Singh (respondent No. 3 herein, as a guarantor. Respondent No. 4 was impleaded since he was claiming to have purchased the mortgaged property from respondent No. 2 herein and the Bank also impleaded his brother, respondent No. 5 herein, also but it is not clear from the O.A. as well as the impugned judgment as to why he was impleaded as a defendant in the O.A.

Respondents 1, 2 and 3 did not enter appearance in the O.A. despite service of notices on them. Respondents 4 and 5 filed a joint written statement claiming that Sanjeev Singh had sold the mortgaged property to respondent No. 4 in 2008 without disclosing to him that he had already mortgaged the same in favour of the appellant Bank herein.

At one stage the O.A. of the Bank and the S.A. of respondent No. 4 came to be listed together before the DRT on every date of hearing and finally the S.A. as well as the O.A. were decided also on the same date i.e. 4.3.2015 though by separate judgments.

During the pendency of the S.A. and the O.A. the DRT passed the following order on 7.6.2010 in both the cases which is referred to and relied upon by the learned Presiding Officer in his impugned judgment also and that order is reproduced below:

"The petitioner has acquired the Bank's interest in the secured asset; the some petitioner has deposited with the Bank a sum of rupees five lacs not as the borrower; but as the third party. The Bank's real borrowers have not made their appearance and have not disclosed anything reliable to the Bank so that its recovery can be eased. The facts and materials collected directly by this Tribunal sufficiently indicate the interplay between the allegation and the counter allegation to be raised by the Bank and the petitioner. The property which has been acquired by the petitioner has been the sole source of the recovery of the Bank. The present market value of the property is not so much attractive to the Bank if the property is approached from the prudent man's angle.

If Shri Rajan Jha, the petitioner is directed to deposit with the Bank another sum of rupees fifteen lacs together with the simple, reducing balance based interest at the rate of 10% to be imposed upon the NPA amount as arrived at by the Bank in connection with the cash credit, the term loan sanctioned by the Bank on March 3, 2006, the Bank would not be looser at this juncture because the residential flat No. 15, in Gyan Khand IV (GK-IV/15), Indira Puram, Ghaziabad U.P. which the Bank has at the paragraph No. 5.d Page 7 accepted and described as the flat to be used by the middle income group. The property has also been in the out skirt of Delhi, the property has also been acquired by Mr. Sanjeev Singh whom this Tribunal has personally met in exercise of the power given under Rule 18 of Order XVIII of the First Schedule to the Code of Civil Procedure J 908 on Saturday, May 23, 2009 on which day it has been assured by Mr. Singh of his appearance before this Tribunal. His proprietorship concerned named M/s. A.S. Services and Solutions has been out of existence; Shri Sanjeev Singh has also been found that day working under another person; that day it has also met the close relatives of Mr. Singh. The deposit by Shri Rajan Jha the above amount alongwith the above interest shall certainly ensure the Bank's immediate recovery without any thorough trial; but not to the maximum extent.

This Tribunal intends to have the Bank's view on the above factors that have emerged before itself for the reason of arriving at the above amount. Shri U.N. Singh's claim that Mr. Singh, the learned Advocate appointed by this Tribunal as the special officer of itself, the Bank's officials, the petitioner have also visited the places of Shri Sanjay Singh to comply with the Tribunal's order; but without any success cannot be neglected in any manner.

Shri Anil Mittal, the present Assistant General Manager of the Bank, Mr. Sanjay Dubey, the law Manager, Shri Rajan Jha, the petitioner shall appear on the next date for the purpose of reconciliation to be conducted in between the Bank and the petitioner himself.

With the above direction, let Tuesday, June 15, 2010 be fixed as the next day and date for hearing.

(D.C. Thakur)

Presiding Officer

DRT-III, Delhi."

I was told by the Counsel for the appellant Bank during the course of arguments that respondent No. 4 had not made the payment to the Bank as directed by DRT in its order dated 7.6.2016 and only in 2015 he made payment of Rs. 25 lacs and the same was accepted by the Bank without prejudice since the Bank had not accepted the decision of the DRT in that regard.

After completion of pleadings by the Bank and respondents 4 and 5 and filing of affidavits by them by way of evidence and hearing the arguments of their Counsel the DRT disposed of the O.A. vide impugned judgment dated 4.3.2015 which is reproduced below:

"1. The present Original Application has been filed by the Applicant Bank on 27.4.2009 under Section 19 of the Recovery of Debts Due to Banks and financial Institution Act, 1993 against the defendants for recovery of a sum of Rs. 32,29,357/- (Rupees Thirty Two Lacs Twenty Nine Thousand Three Hundred & Fifty Seven Only) along with cost and future interest @ 12.75% per annum with monthly rests from the date of filing of the application till its realization.

That the present application is filed through Mrs. Neelam Bakshi, Senior Manager of the applicant Bank who is competent to sign, verify and file the present application for and on behalf of the Applicant Bank and against the Defendants.

The brief facts of the case are that the defendant No. 1 through defendant No. 2 approached the Bank for grant of credit facilities for its business.

In consideration thereof the applicant Bank has sanctioned a term loan of Rs. 27.00 lacs and letter of Bank guarantee of Rs. 5.00 lacs to the defendant No. 1.

To secure the aforesaid credit facilities, the defendant No. 2 has mortgaged its residential flat No. 15, in Gyankhand IV (GK-IV/15), Indira Puram, Ghaziabad-UP by depositing original title deed and also offered personal guarantee in favour of the applicant Bank.

Besides the above, the defendants have signed and executed various loan documents such as demand promissory note, letter of continuity, hypothecation agreement of goods and debts, letter of undertaking and consent letter for takeover penalty etc. in favour of the applicant Bank.

It is submitted that the defendants availed and utilized the above facilities for their business requirements and after availing the facilities upto maximum, the defendants failed to adhere to the financial discipline. Despite several requests and reminders, the defendants did not bother and neglected to regularize the loan account inspite of repeated assurances and promises was made by the defendants but he failed to honour their commitments therefore the account of the defendants declared as 'Non Performing Asset' on 31.5.2008. Thereafter, the applicant Bank has issued a demand notice 13.6.2008 thereby calling to clear the outstanding dues of the applicant Bank but no positive response was received from them and ultimately the applicant Bank left no alternative but to approach this Hon'ble Tribunal for recovery of their dues.

Notices on this O.A., were issued to the defendants but the defendant Nos. 1 to 3 have chosen not to appear before this Tribunal. The defendant Nos. 4 and 5 put appearance and claiming the right over the property in question being a bona fide purchaser of the same.

It is pertinent to mention herein that the defendant No. 4 has filed a securitization application before this Tribunal which has been decided and the liability of the defendant Nos. 4 & 5 is fixed Rs. 20.00 plus 10% interest simple from the date of NPA till its actual realization.

In view of the above facts and circumstances, the present O.A. is allowed against the defendant Nos. 1, 2, & 3 along with 10% simple interest from the date of filing of the present application till realization in full.

As regard to the defendant Nos. 4 and 5 are concerned their liability to the extent of Rs. 20.00 lacs plus 10% simple interest from the date of NPA till its actual realization shall be paid within 30 days along with costs and expenses allowed.

Since the issues raised before this Tribunal is already decided by learned Predecessor of this Tribunal vide order dated 7.6.2010. Thus, I do not find any reason to disagree with the order passed by my learned Predecessor.

In view of the above facts and circumstances, in case of failure by the defendants to deposit the aforesaid amount, the applicant Bank may approach to this Tribunal for issuance of Recovery Certificates against the defendants.

All the applications pending in this matter are hereby rejected being infructuous.

Parties are direct to appear before the learned Recovery Officer, DRT-III, Delhi on 13.5.2015.

File be consigned to records.

Sd/-

(Ashish Kalia)

Presiding Officer

DRT-III, Delhi

(Pronounced in Open Court)

Dated: 4.3.2015"

The appellant Bank feeling aggrieve by this judgment of the DRT filed the present appeal notice of which was given to all the respondents but no appearance was put in by respondents 1 and 2. Though Counsel for respondents 4 and 5 had been appearing on some dates but on the date of final arguments he did not appear. Counsel for respondent No. 3 appeared on that date and simply submitted that this respondent had moved an application before the DRT for setting aside the ex-parte judgment passed against her. So, arguments were advanced only by the Counsel for the appellant Bank.

The grievances urged before this Court by the learned Counsel for the appellant Bank were that the DRT after Accepting the Bank's claim against the borrower Firm (respondent No. 1 herein) its proprietor and mortgagor Sanjeev Singh (respondent No. 2 herein) and the guarantor Archana Singh (respondent No. 3 herein) was not justified in disposing of the O.A. simply by fixing their liability without issuing recovery certificate and giving the liberty to the Bank to approach the DRT again for issuance of recovery certificate and that too only in case of default in payment of the amount determined to be payable by respondents 4 and 5 herein, out of whom respondent No. 4 was claiming to be the bona fide purchaser of the mortgaged property but whose title was not found to be legal and superseding the Bank's right over the mortgage I property as a prior mortgagee. Further submission was that there was no reason for not issuing recovery certificate against respondents 1 to 3 for the amount of debt determined to be recoverable from them and deferment of issuance of recovery certificate is totally unknown procedure adopted by the learned Presiding Officer of DRT and there is glaring illegality committed by the DRT in not permitting the Bank to sell the mortgaged property since the O.A. was filed for recovery of Bank's dues which are secured by way of an equitable mortgage of the mortgaged property created by respondent No. 2 Sanjeev Singh. The learned Counsel further submitted that all these infirmities in the so called judgment of the DRT can be cured by this Tribunal itself since the record of the DRT which includes entire pleadings as well as the evidence adduced by the Bank and respondents 4 and 5 is before this Tribunal.

After going through the impugned order, which as per the Counsel for the Bank is totally perfunctory, and other material on record and considering the submissions of the learned Counsel for the appellant Bank I have come to the conclusion the Bank's grievances raised in this appeal are well justified and this Tribunal should itself undo the material irregularities committed by the DRT while disposing of the O.A.

The learned Presiding Officer of DRT had to issue a recovery certificate against the respondents 1 to 3 for the amount of debt which was accepted by him to be due from them towards the applicant Bank after accepting the ex-parte evidence adduced by the Bank and that direction could not have been deferred for some future date. Learned Counsel for the appellant Bank was right in submitting that deferment of issuance of recovery certificate at the time of final disposal of a petition under Section 19 of RDDBFI Act even after coming to the conclusion that the borrower as well as the guarantor/mortgagor were defaulters and liable to pay the amount of debt determined to be recoverable from them is unknown in law applicable to such like cases coming up before DRTs.

Undisputed facts emerging from the pleadings of the contesting parties, namely, appellant Bank and respondent No. 4, and the record of the DRT are that before the filing of the present O.A. by the appellant Bank respondent No. 4 had approached the DRT with an application under Section 17(1) of SARFAESI Act claiming that he had purchased the property in question from its owner Sanjeev Singh, respondent No. 2 herein but the appellant Bank had initiated action for selling that property since the respondent No. 1 herein had failed to repay the Bank's loan money which was secured by equitable mortgage of that property. The grievance of respondent No. 4 in that petition was that he had been cheated by vendor Sanjeev Singh by not disclosing to him at the time of selling the property in question to him that it was already mortgaged in favour of the appellant Bank and that he had become its owner as a bona fide purchaser the same could not be sold by the Bank. In that S.A. the DRT passed an interim order on 7.6.2010 which has already been reproduced by me and based on which order, which also not complied with by respondent No. 4 herein, the S.A. was finally disposed of by DRT simply be permitting the said subsequent purchaser, who was not even found to be a bona fide purchaser, to make the payment of Rs. 20 lacs to the Bank which direction, according to the grievance of the Bank, in an indirect way amounted to recognition of the right of so called subsequent purchaser to be good enough, to resist the Bank's action under SARFAESI Act. The appellant Bank had challenged the final order passed in that S.A. also and this Tribunal has already allowed that appeal and rejected the S.A. of respondent No. 4 instead of remanding the matter back to the DRT for a fresh decision, after holding that the purchase of the mortgaged property by respondent No. 4 herein from the mortgagor Sanjeev Singh after creation of equitable mortgage of that property in favour of the Bank conferred no right in his favour which could defeat the rights of the Bank as a prior mortgagee. This conclusion was arrived at by this Tribunal relying upon Section 48 of Transfer of Property Act and two judgments of Hon'ble Delhi High Court one of which was in "Ishwar Dass Malhotra v. Dhanwant Singh & Ors., 26 (1984) DLT 377 (DB) : AIR 1985 Delhi 83 in which it was held that in case a property is mortgaged before its sale by the mortgagor in favour of a third party then that subsequent purchaser cannot be called a bona fide purchaser and that sale of the mortgaged property by the mortgagor after creation of mortgage in favour of the Bank cannot affect the Bank's/mortgagee's rights created prior in time. The other judgment which unreported one, was rendered on 19 November, 2013 in CS (OS) 188 of 2011 "Ritu Gupta Anr. v. Usha Dhand & Ors., reported in I (2014) BC 167" wherein the former judgment of the Division Bench was followed by the Single Judge Bench. Same controversy was involved in the Bank's O.A. also and, therefore, the defence of the so called subsequent purchaser who claims to be a bona fide purchaser, has also to meet the same fate and deserves to be rejected and it is held that he (respondent No. 4 herein) cannot defeat the right of the Bank as a prior mortgagee of the property which he claims to have purchased.

I am also of the view that the DRT was not at all justified in accepting the Bank's case against respondents 1 to 3 and not giving final relief of issuance of recovery certificate against respondents 1 to 3 herein and indirectly giving relief to respondent No. 4 by virtually accepting his status of a bona fide purchaser in total ignorance of and contrary to the provisions of Section 48 of Transfer of Property Act.

When it was put to the learned Counsel for the appellant Bank as to how it could claim recovery certificate against respondents 4 and 5 whom the Bank was not even recognising as borrowers there was no reply to that legal query and the submission was that since respondent No. 4 was claiming to have purchased the mortgaged property he was impleaded in the O.A. so that if his claim also had to be adjudicated the same could be done in these proceedings itself once for all.

In my view, the learned DRT was not justified at all in fixing any liability of respondents 4 and 5 who had nothing to do with the Bank's dues which it had to recover from respondents 1 to 3. The DRT has also wrongly observed in the impugned order that the liability of respondents 4 and 5 had been fixed at Rs. 20 lacs with interest @ 10%, vide order dated 7.6.2010. That order has already been reproduced in this order and the same cannot be interpreted to be a determination of liability of respondents 4 and 5 in any manner. It was only an observation of the DRT at an interim stage of the proceedings that in case respondent No. 4 herein, who was claiming himself to be a subsequent bona fide purchaser of the mortgaged property and also a victim of fraud played upon him by the owner of the mortgaged property by not disclosing to him about the prior mortgage, is directed to pay Rs. 20 lacs to the Bank, the Bank's interest would be protected to a great extent since the borrowers/guarantors were not even appearing in the matter. That circumstance has been subsequently used by the learned DRT while decreeing the Bank's claim in the O.A. No liability of respondent No. 4 could be fixed in the O.A. in any event and no direction could be given to respondents 4 and 5 to make payment of Rs. 20 lacs with interest, as has been done in the impugned order, and, similarly, it could not be said that in case of failure to make payment by these two respondents, the appellant Bank would be at liberty to approach the Tribunal for issuance of recovery certificate against the defendants in the O.A. As observed already, the DRT was required to pass a recovery certificate in favour of the Bank upon coming to the conclusion that respondents 1 to 3 herein were liable to pay the amount of money claimed by the Bank in the O.A., which was to the tune of Rs. 32,29,357/- with future interest @ 12.75% p.a. with monthly rests. However, the DRT had reduced the rate of interest @ 10% per annum simple and with which reduction the Bank has not felt aggrieved. In view of the foregoing discussion and conclusion, this appeal is allowed to the extent that there will now be a direction for payment of the amount held to be due from respondents 1 to 3 in the impugned order of DRT within a period of one month and in default of payment, the Bank will be at liberty to sell the mortgaged property. As far as the liability of respondents 4 and 5, as fixed by the DRT, is concerned, the impugned order to that extent stands set aside. The DRT shall now issue recovery certificate accordingly against respondents 1 to 3 herein and respondent No. 4 will be at liberty to claim from the appellant Bank whatever money he has paid to it either in terms of any order of the DRT or otherwise.