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2016 (1) TMI 281 - DELHI HIGH COURT

2016 (1) TMI 281 - DELHI HIGH COURT - TMI - Validity of proceedings under SARFAESI Act - taking possession or interfering with the rights and ownership of the petitioner in property - It is averred that the petitioner was shocked to see the said notice as the petitioner had not taken any loan on the said property in question nor mortgaged the property to respondent No.1 Federal Bank Limited. It is urged that the petitioner is not an overnight inductee, inducted by the borrower to defeat the righ .....

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petitioner about illegality of the order of CMM dated 6.7.2015.

The petitioner has an alternative remedy which he has availed. Hence, this Writ Petition would not be maintainable [(Re: Kanaiyalal Lalchand Sachdev & Ors. v. State of Maharashtra & Ors. (2011 (2) TMI 1277 - SUPREME COURT OF INDIA)]. It would be open for the petitioner to raise all his objections before the DRT in the petition under Section 17(1) which is pending being SA 43/2015. The concerned Tribunal may deal with the .....

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ore DRT. However, respondent No. 1 is given liberty to approach DRT with an appropriate application for vacation/modification of the present directions passed by us in case it so desires. - W.P.(C) 7344/2015 - Dated:- 6-11-2015 - MR. JAYANT NATH, J. For The Appellant : Mr.M.K.Ghosh, Advocate. For The Respondent : Mr. S.N.Relan, Mr. Puneet Relan and Mr. Abhinav Thereja, Advocates, Mr.Prasanta Varma, Advocate, Mr.Anurag Ahluwalia, CGSC with Mr.Arunava Mukherjee, Advocate or UOI/R-3. JAYANT NATH, .....

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eferred to as CMM‟), Saket District Court under Section 14 SARFAESI Act as illegal and void and for directions to restrain respondent No.2/Receiver appointed from taking possession or interfering with the rights and ownership of the petitioner in property No.A-27, East of Kailash, New Delhi without due process of law. Other reliefs are also sought. 2. The brief facts which led to filing of the writ petition are that the petitioner claims to be the owner of the ground floor, first floor and .....

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ound floor of the property from one Shri Satinder Singh on payment of the sale consideration of ₹ 1.10 crores vide registered sale deed dated 10.06.2011. The first floor was purchased from Shri Rakesh Jain after payment of a sale consideration of ₹ 1 crore vide registered sale deed dated 10.06.2011. The second floor is stated to have been purchased from Shri Tirath Singh and Smt.Gulshan Kaur on payment of sale consideration of ₹ 50 lacs vide registered sale deed dated 7.7.2011. .....

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cted by the borrower to defeat the rights of respondent No.1. The petitioner aggrieved by the notice dated 19.2.2015 filed an appeal under section 17 of SARFAESI Act before the Debt Recovery Tribunal, Delhi (hereinafter referred to as DRT‟), on 23.03.2015. It was urged that all the original documents regarding the property are in possession of the petitioner and that the respondent No.1 Bank does not have any valid equitable mortgage in its favour. Interim relief was also prayed for. Some .....

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e said notice that the petitioner learnt that the Chief Metropolitan Magistrate had passed the order on 6.7.2015 in exercise of powers under Section 14 of SARFAESI Act. It is urged that before the Chief Metropolitan Magistrate, respondent No.1/Bank intentionally concealed that an appeal under section 17 of the SARFAESI Act filed by the petitioner is pending before the DRT and notice has already been issued on the same. It is further urged that in the affidavit filed by the concerned Chief Manage .....

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s to challenge the constitutional validity of section 14 of the SARFAESI Act and this issue is no more res integra in view of the judgment of the Supreme Court in Mardia Chemicals Ltd. vs. Union of India, (2004) 4 SCC 311 which upheld the constitutional validity of the entire act except section 17(2). It is also pointed out that the property was mortgaged by late Shri Anand Kumar Chona, owner of the property with respondent No.1 as a collateral security for the credit facilities availed by M/s.S .....

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f Respondent No.1 Bank on 17.3.2008. It is further urged that respondent No.1 took possession of the mortgaged property on 19.2.2015, which action was challenged by the petitioner before DRT under section 17(1) of the SARFAESI Act. Hence, no relief can be sought by the petitioner on this aspect before this Court. It is further urged that the orders of CMM passed under section 14 of the SARFAESI Act could also have been challenged by the petitioner before DRT. It is stated that as the petitioner .....

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(2010) 8 SCC 110. It is further urged that even if the contention of the petitioner is taken on merits, respondent No.1 had filed a suit for recovery of its dues and foreclosure of mortgage before this Court in 1997. The petitioner claims to have bought the suit property sometimes in 2011. Hence it is urged that doctrine of lis pendens would apply as provided under section 52 of the Transfer of Property Act and the alleged sale in any case would be subject to directions passed by the appropriat .....

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thout prejudice to the above contention if for some reason this Court does not accept the said contention, then in any case the order passed by CMM dated 6.7.2015 is illegal inasmuch as no notice was issued to the petitioner before passing the impugned order. He relies upon the judgment of the Supreme Court in the case of Harshad Govardhan Sondagar vs. International Assets Reconstruction Company Limited and Others., (2014) 6 SCC 1. It is urged that in view of the said judgment of the Supreme Cou .....

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he order of the CMM can be challenged before this Court only. 8. Learned counsel appearing for respondents No.1 and 3 have strenuously urged that the petitioner has an alternate remedy as explained above and the present writ petition would not be maintainable. 9. We may first look at some of the relevant provisions of the statute. Section 13(4) and section 14 of the SARFAESI Act reads as follows:- 13(4) In case the borrower fails to discharge his liability in full within the period specified in .....

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f lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which .....

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red to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chi .....

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f the Bank as on the date of filing the application; (ii) The borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period; (iii) The borrower has created security interest over various properties giving the details of properties referred to in subclause (ii) above; (iv) The borrower has committed .....

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ce received from the borrower has been considered by the secured creditor and reasons for non acceptance of such objection or representation had been communicated to the borrower; (viii) The borrower has not made any repayment of the financial assistance inspite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of Sub-section (4) of Section 13 read with section 14 of the principal Act. (ix) That the provisions of .....

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Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act. (1A) The District Magistrate or the Chief Metropolitan Magistrate may authorize any officer subordinate to him- (i) to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magi .....

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acts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures ref .....

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ESI Act, in case the borrower fails to discharge his liability, the secured creditor can take recourse to Section 13 (4) of the Act and take steps to recover the secured debt in any manner stated thereunder. In the present case we are concerned with Section 13(4)(a) of the SARFAESI Act inasmuch as respondent No.1 seeks to take possession of the secured asset including the right to transfer the same by way of sale. Section 17(1) provides a right of appeal to any person (including borrowers) aggri .....

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or as invalid and restore possession of the secured assets to the borrower. 11. While dealing with the various provisions of the SARFAESI Act, and with regard to challenge to the SARFAESI Act, the Supreme Court in Mardia Chemicals Ltd. & Ors. vs. Union of India & Ors., (supra) stated the procedure to be followed as stipulated in the Act as follows:- 80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures und .....

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of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The rea .....

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e Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose. 4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to .....

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to the constitutional validity of section 14 is concerned reference may be had to the judgment of the Supreme Court in Mardia Chemicals Ltd. vs. Union of India (supra). In that case the Supreme Court was dealing with the validity of the SARFAESI Act. The Court struck down section 17(2) of the Act as ultra vires Article 14 of the Constitution of India. Regarding the other provisions of the statute the Supreme Court held as follows:- 81. In view of the discussion held in the judgment and the findi .....

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ailability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest. 82. We, therefore, subject to what is provided in paragraph 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires Article 14 of the Constitution of India. 13. Clearly, the constitutional validity of the Act has been upheld by the Supreme .....

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ndent No.1 had pleaded that the notices issued under Section 13 be quashed because no action had been taken against the principal borrower for recovery of the outstanding dues. The High Court had passed an appropriate injunction order. In that factual background, the Supreme Court held as follows:- 42. There is another reason why the impugned order should be set aside. If respondent No. 1 had any tangible grievance against the notice issued under Section 13(4) or action taken under Section 14, t .....

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s thus evident that the remedies available to an aggrieved person under the SARFAESI Act are both expeditious and effective. 15. Similarly, reference may also be had to the judgment of the Supreme Court in the case of TRANSCORE vs. Union of India & Anr., 2008 (1) SCC 125. The Supreme Court while dealing with Section 14 and 17 of the SARFAESI Act held as follows:- 74. .....Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured cr .....

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rdance with the provisions of the Act, it may by order declare that the recourse taken to any one or more measures is invalid, and consequently, restore possession to the borrower and can also restore management of the business of the borrower. Therefore, the scheme of Section 13(4) read with Section 17(3) shows that if the borrower is dispossessed, not in accordance with the provisions of the Act, then the DRT is entitled to put the clock back by restoring the status quo ante. Therefore, it can .....

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Court noted the procedure to be followed by the CMM while dealing with a petition under Section 14 of the Act. The Court stated as follows: 24. Under the scheme of Section 14, a secured creditor who desires to seek the assistance of the State's coercive power for obtaining possession of the secured asset is required to make a request in writing to the Chief Metropolitan Magistrate or District Magistrate within whose jurisdiction, secured asset is located praying that the secured asset and o .....

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er Section 14 before the CMM would be accompanied by an affidavit containing various information as stipulated in the proviso. The Supreme Court on the newly added proviso in the aforesaid judgment of Standard Chartered Bank (supra), stated as follows: 28. The satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) necessarily requires the Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the tran .....

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Rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinize the application as provided in Section 14, .....

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rate will thereafter scrutinize the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forwards them to the secured creditor as under Clause (ii) above. 17. Reference may also be had to judgment of the Supreme Court in the case of Kanaiyalal Lalchand Sachdev & Ors. v. State of Maharashtra & Ors., (2011) 2 SCC 782. This was a case in which the secured creditor issued notice under Section 13 (2) o .....

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ection 14 of the Act provides that the secured creditor can file an application before the Chief Metropolitan Magistrate or the District Magistrate, within whose jurisdiction, the secured asset or other documents relating thereto are found for taking possession thereof. If any such request is made, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, is obliged to take possession of such asset or document and forward the same to the secured creditor. (See: United Ban .....

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ection 17(1) of the SARFAESI Act, if successful, is (under Section 17(3)) of restoration of possession/ management of the secured asset to the borrower and to pass such order as it may consider appropriate and necessary in relation to the recourse taken by the Banks /Financial Institution under Sub-Section (4) of Section 13 of the SARFAESI Act. This relief also, we find, the DRT within whose jurisdiction the secured asset to be so restored to the borrower is situated, to be the most competent to .....

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can be filed after the Bank has filed application under Section 14, even if possession / management has not been taken. In such a situation, DRT may be required to issue direction to the CMM / DM approached by the Bank /Financial Institution…. 19. The above judgments of the Supreme Court and this Court also negate the second contention of the petitioner that the CMM was obliged to issue notice to the petitioner before disposing off the petition under Section 14 of the Act. In the case of .....

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in case any person has a grievance against an action taken under section 13(4) or section 14 of the Act, the remedy is to file an application under section 17(1) before DRT. To the same effect is the judgment of the Supreme Court in Kanaiyalal Lalchand Sachdev & Ors. v. State of Maharashtra & Ors. (supra) and the full bench of this High Court in Amish Jain vs. ICICI Bank Ltd. (supra). 21. The reliance of the petitioner on the judgment of the Supreme Court in the case of Harshad Govardhan .....

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ned when the secured creditor decided to take measures under Section 13 of the said Act. The court further held that without the determination of a valid lease, the possession of the lessee is lawful and such lawful possession of the lessee has to be protected by all courts and tribunals. The court further held that the possession of the secured asset from a lessee in lawful possession under a valid lease is not required to be taken under the SARFAESI Act and the CMM does not have any power unde .....

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hout knowledge of the prior alleged mortgage by the borrower in favour of respondent No.1. The contentions of the petitioner would necessarily have to be adjudicated upon under Section 17 of the SARFAESI Act by the DRT. It would not be for the CMM to adjudicate on the rights of the petitioner. Hence, there is no merit in the submission of the petitioner about illegality of the order of CMM dated 6.7.2015. 23. In the light of the above, we see no merits in the present petition. The petitioner has .....

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nto the facts of the case, as pleaded on record. Respondent No.1 has issued the appropriate notice under Section 13(4) of the SARFAESI Act on 19.02.2015. The petitioner aggrieved by the said notice filed an appeal being SA No. 43/2015 under Section 17 of the Act before DRT on 23.03.2015. No interim orders have been passed in favour of the petitioner by DRT. 25. It appears that simultaneously respondent No.1 has on 09.03.2015 initiated action under Section 14 of the SARFAESI Act before the CMM, S .....

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hat the possession would be taken over on or before 06.08.2015. Copy of the notice has also been sent to the petitioner though the petitioner was not a party before the CMM. The notice of respondent No.2 as to why the petitioner was served with the notice, is stated as follows:- Note. The copy of the notice has been issued by the Court Appointed Receiver to Mr. Onil Sadh on the written request of the Federal Bank for the reason that in SA No.43/2015 filed by Sh.Onil Sadh vs. Federal Bank before .....

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.2008. Respondent No.1 has not brought out as to whether any interim orders were passed before the civil court when the suit for recovery was pending. There appears to have been no attempt to protect the property during this long period of litigation which has been pending since 1997. 27. It is also strongly contended by the petitioner that there is no mortgage in favour of respondent No.1 as the original title documents are in his possession. This fact is not denied by respondent No.1 in the co .....

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