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State Bank Of India Versus Samneel Engineering Company And.

1995 (11) TMI 467 - DELHI HIGH COURT

Dated:- 27-11-1995 - R C. Lahoti, J. JUDGMENT R.C. Lahoti, (1) The review application under consideration raises an important question as to the jurisdiction of Debt Recovery Tribunal to hear, try and dispose of the mortgage suits. (2) The plaintiff bank has instituted a civil suit for recovery of an amount of ₹ 1,53,60,063.41 with costs and interest against the defendants. There are several transactions between the parties. One of them is a mortgage by deposit of title deeds with the plai .....

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the Debt Recovery Tribunal on the ground that the suit lay within the jurisdiction of the Debt Recovery Tribunal (herein after referred to as the Tribunal', for short). The order was made at the stage of preliminary hearing in the suit when the defendants were yet to be noticed. The defendants have now sought for review and recall of the above said order dated 1.5.95 submitting that the order was not warranted inasmuch as the suit was within the jurisdictional competence of the civil court a .....

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after 24.6.93, the date on which the act has come into force; the Tribunal having been constituted too. (6) Apart from the counsel for the parties Mr Rajiv Mehra Advocate sought leave of the court for intervention at the hearing. He too has been heard. He has supported the stand taken by the counsel for defendants/ review-applicants. (7) It is submitted by the learned counsel for the defendants-applicants that there is a distinction between a debt and a mortgage debt. The term "debt" .....

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rience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and .....

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gested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfilll a long-felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 filed by the financial institutions were pending in various courts, recovery of d .....

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plain in detail the provisions of the Bill." (10) The Preamble to the Act reads that it is "an act to provide for the establishment of the Tribunal for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto." I may have a brief resume of the salient features and relevant provisions of the Act in so far as necessary for the purpose of answering the question posed. 10.1 The term "debt" .....

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der a decree or order of any civil court or otherwise and subsisting on, and legally recoverable on, the date of the application." 10.2. Sections 3 and 4 deal with establishment and composition of the Tribunal. Section 17 provides that jurisdiction, power and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions shall be exercised by a Tribunal on and from the appointed date. Then no court .....

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o recover any debt from any person in the prescribed form. Sub section (6) vests the Tribunal with a power to make an interim order whether by way of injunction or stay against the defendant to debar him from transferring alienating or otherwise dealing with or disposing of any property and assets belonging to him without the prior permission of the Tribunal. Sub -section (7) provides that presiding officer shall issue a certificate under his signatures on the basis of the order of the Tribunal .....

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sions of the Act over any other law or instrument in force if they be inconsistent with the provisions contained in the Act. Section 35 makes provision for removal of difficulties in effectuating the provisions of the Act. 10.3 Chapter V makes provision for recovery of debt determined by the Tribunal. It contemplates a Recovery Officer with power, inter alia, to attach and sell movable or immovable property of the defendant. (11) What is a mortgage ? 11.1 Fisher & Lightwoods in their Law of .....

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the payment of a debt or the discharge of some other obligation for which it is given." 11.3 "The mortgagor's interest under a mortgage consists of two elements- his contractual right to sue for the debt and his proprietary rights in the security. A mortgage debt is usually a speciality debt, and in accordance with the rule as to such debts, it is situate where the mortgage deed happens to be". (Fisher & Lightwoods- Law of Mortgage, p.19) 11.4 "The mortgagee's rem .....

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out of the rents and profits. Or, without entering into possession, he can appoint a receiver. Realisation of the security is effected by sale, or the mortgagee may, by foreclosure, deprive the mortgagor of his equity of redemption, and himself become the owner of the property. Thus, the mortgagee's remedies are: (1) action on the debt; (2) appointment of a receiver; (3) possession; (4) sale; and (5) foreclosure. The remedies by action for the debt, or by a receiver, or by sale, or by forecl .....

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the character of specialty. The principal secured by the mortgage, and the interest thereon, are distinct debts, and may be separately recovered." ( ibid p. 306) 11.6 Ghose in Law on Mortgage ( 6th Edn. Tll, at page 61) states : - TLL- Tagore Law LECTURE. "A mortgage may be viewed in two aspects. In the first place it is a promise by the debtor to repay the loan and as such it is a contract which creates a personal obligation. Secondly, it is also a conveyance, since it passes to the .....

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f an interest in specified immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan and an existing or future debt or performance of an acknowledgement which may give rise to a liability. Clause (b) to (g) of Section 58 proceed to define different kinds of mortgages. 13.1 The characteristic features of mortgages is that right in the property created by the transfer is accessory to the right to recover the debt. The debt subsists in a mortgage .....

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t by the rules which apply to interests in personality". It is stated by Sir William Grant in Jones v. Gibbons (1804)9 Ves 407,410,: a mortgage consists partly of the estate in the land, partly of the debt. So far as it conveys the estate the assignment"- that is of the mortgage- "is absolute and complete the moment it is made according to the forms of law. Undoubtedly it is not necessary to give notice to the mortgagor, that the mortgage has been assigned in order to make it vali .....

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on 2(6) of the Displaced Persons ( Debt Adjustment) Act, 1951 came up for the consideration of their Lordships. This Act defines "debt" to mean any pecuniary liability, whether payable presently or in future or in a decree or order of civil or revenue court or otherwise or whether ascertained or to be ascertained. It was contended that a mortgage debt was not a pecuniary liability and, therefore, did not fall within the definition. Rejecting the contention as of no force, their Lordshi .....

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mortgage, obviously creates a pecuniary liability. It is true that a mortgage in addition to creating the pecuniary liability also transfers interest in the specific immovable property to secure that liability; none the less the loan or debt to secure which the mortgage is created will remain a pecuniary liability of the person creating the mortgage. Therefore, a mortgage debt would create a pecuniary liability upon the mortgagor and would be covered by the definition of the word "debt&quo .....

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been paid. The transfer of interest represented by the mortgage was for a certain purpose and that was to secure payment of money advanced by way of loan. A security cannot exist after the loan had been paid up. If any interest in the property continues to vest in the mortgagee subsequent to the payment of the mortgage money to him, it would be an interest different from that of a mortgagee's interest. The mortgage as a transfer of an interest in immoveable property for the purpose of secur .....

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riate the rents and profits collected by him in lieu of interest or in payment of the mortgage money, or partly in lieu of interest or partly in lieu of payment of the mortgage money. When the mortgage money has been paid up, no question of appropriating the rents and profits accruing from the property towards interest or mortgage money can arise. It is clear therefore that on the payment of the mortgage money by the mortgagor to the mortgagee the mortgage comes to an end and the right of the mo .....

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e transaction of mortgage itself. " 15.5 In Manik Chand v. Baldeo, Air 1951 Patna 527, the Division Bench has taken the following view :- "A mortgage is a transfer of an interest in specific immovable property as security for the repayment of a debt. The debt subsists in a mortgage whereas a transaction by which a debt is extinguished is not a mortgage but a sale." 15.6 A Division Bench of Patna High Court has held in Dwarkadas Marwari vs Kalipada Dey Ilr 38 Patna 538 : "It i .....

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( Air 1953 Orissa 338) are all Division Bench decisions wherein different High Courts have in the context of debt laws held mortgage' included in loan' and suit based on mortgage to be a suit for recovery of loan. 15.8 It is, therefore, clear that debt is an essential ingredient of a mortgage. There may be a debt without a mortgage but there can be no mortgage without a debt. Properties are offered as security only for securing recovery of debt. If debt is repaid the mortgage ceases to .....

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or being a bank or a financial institute or a consortium of the two. The liability may be in cash or otherwise. It may be secured or unsecured. A decree or order of any civil court or otherwise may intervene or not; the only rider being that the liability must be legally recoverable. The definition would cover all the cases where the liability is secured by a mortgage, charge, hypothecation or in any other manner known to law. An effort at carving out a mortgage away and out of the definition of .....

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t of title deeds. The Statement of Objects and Reasons in the Act reveals the experience of the Parliament to considerable difficulties being faced by the banks and financial institutions in recovering loans and enforcement of securities. In spite of the banks and financial institutions trying to play as safe as possible the outstandings recoverable to them had mounted to more than ₹ 5622 crores in the field of public sector banks alone. This was virtually causing an economic crisis preven .....

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providing another argument in the mouth of critics speaking of legendary delay in disposal of court cases. (17) The establishment of the Tribunal and vesting it with summary jurisdiction and proceeding for procedure consistent with the principles of natural justice only is sure to accelerate the recovery of debts. Provisions of the Act must, therefore receive an object oriented interpretation. 17.1 It is a recognised rule of interpretation of statutes that expressions used therein should ordinar .....

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s with the subject of enactment and the object which the legislature has in view. Their meaning is found not so much in a strictly grammatical or etymological propriety of language, nor even in its popular use, as in the subject or in the occasion on which they are used and the object to be attained. ( Workmen of Dimakuchi Tea Estate vs Management of Dimakuchi Tea Estate, The preamble of a statute like a long title is a part of the Act is an admissible aid to construction. Although not an enacti .....

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Reasons as permissible for extending the background, antecedents, state of affairs, surroundings circumstances in relation to the statute, and the evil which the statute was sought to remedy (Sanjivi Jivraj Gherwar Chand ). In Shashikant Laxman Kale vs Uoi, , their Lordships of the Supreme Court have held :- SEE para 16 For determining the purpose or object of the legislation, it is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessit .....

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or was contrary to the constitution. In that decision for determining the question, even affidavit on behalf of the State of " the circumstances which prevailed at the time when the law there under consideration had been passed and which necessitated the passing of that law" was relied on. It was reiterated in State of West Bengal v. Union of India, - that the Statement and Objects and Reasons accompanying a Bill, when introduced in Parliament, can be used for the limited purpose of un .....

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ery type within its meaning; I have also held that even if the term debt would not have been defined in the Act, it would have included mortgage within it. Having regard to the historical background of enactment, the Statements of Objects and Reasons the preamble, spelling out the mischief which is sought to be cured and prevented by the Act, the object with which the Act has been enacted, the Act has to be so interpreted as "to give the laws its claws". So has to be assigned the term .....

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liquidated so long as the recovery of debts was possible otherwise. It is submitted that such rights and safeguards would meet with a smiling goodbye before the Tribunal vested with summary jurisdiction. This argument though attractive is devoid of any merit. It is one thing to say that a suit for recovery of a debt based on a mortgage is excluded from the cognizance of the Tribunal; it is another thing to say that if not so excluded what will be the exact procedure to be adopted at the stage o .....

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dopted by the recovery officer while effecting recovery of debts determined by the Tribunal consistently with the nature of the debt transactions usually entered into by the banks and financial institutions. Be that as it may, so far as the question of jurisdictional competence of the Tribunal to try a claim for recovery of debt based on a mortgage is concerned, I am clearly of the opinion that a mortgage debt is included within the meaning of the debt as defined under section 2(g) of the Act. A .....

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ery of the loan and the suit filed on the basis of such a deed ceases to be a suit for recovery of a debt. It was further submitted that in a usufructuary mortgage or anomalous mortgage or a mortgage by way of conditional sale there is no personal liability to pay and a suit based on such mortgage would not be a suit for recovery of a debt. Reliance was also placed on Full Bench decision in Palaniappa vs. Narayanan Air 1936 Madras 34, wherein it has been held : "A mortgage suit for sale may .....

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s the amount into Court and (ii) if the payment is not so made; but both the directions relate only to the property mortgaged. The plaintiff's right to the other relief is not tried either at the stage or even at the stage of the final decree; so that the final decree under Order 34 Rule 5 Cpc, cannot be said to involve any " adjudication" as to this part of the suit and much less to have "completely disposed" of it. After ascertainment of the deficiency arising on the sa .....

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nd relief of personal decree cannot be granted in the first instance. So if the plaintiff mortgagee chooses to seek a relief of personal decree then he has to specifically abandon all other reliefs ( which can be granted only by a civil court by reference to Order 34 CPC) before the plaintiff may opt to invoke the jurisdiction of the Tribunal. (21) None of the submissions so made has impressed me. Firstly, I have already taken the view that a suit based on a mortgage is a suit essentially and ba .....

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ial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction - (a) the defendant, or each of the defendants where there are more than one, at the time of making application, actually and voluntarily resides, or carries on business or personally works for gain; or (b) any of defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business, o .....

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nder his signatures on the basis of the order of the Tribunal, to the Recovery Officer for recovery of the amount of debt specified in the certificate. Chapter No. V of the Act is devoted to recovery of debt determined by the Tribunal. The modes of recovery are provided by Sections 24 and 28 of the Act. Section 25 provides as under : "25.Modes of recovery of debts.- The Recovery Officer shall, on receipt of the copy of the certificate under sub-section (7) of Section 19 proceed to recover t .....

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id down in Third Schedule of the Income Tax Act 1961. 21.2 A perusal of the several provisions contained in Chapter V goes to show the object and intention of the legislature is to secure recovery of money due to the banks and financial institutions without regard to the nature of transaction between the parties. In certain kinds of mortgage such as usufructuary mortgage, remedy of foreclosure is available, still by virtue of the provisions as contained in the Act, the remedy of attachment and s .....

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ns under the substantive law on mortgage contained in the Transfer of Property Act. Here the word "and" occurring between attachment' and sale' in clause (a) of Section 25 shall have to be read as "or". In case of hypothecation and mortgage it would not be necessary to effect an attachment of the property and the Recovery Officer may straightaway proceed to hold a sale of the property. This power of sale would be available to Recovery Officer, if the words attachment .....

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been conferred by reference to cause of action and not by reference to the nature of the relief sought for. Section 19 of the Act vesting territorial jurisdiction in the Tribunal deserves to be read in juxtaposition with Section 16 of the CPC. The situs of the property is irrelevant and the Tribunal acquires jurisdiction to hear an application by reference to the residence of the defendant or the place where cause of action arose. Section 31 of the Act also attracts transfer of the pending cases .....

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ceed to pronounce actual foreclosure or sale of the property determining the rights of the mortgagor while the procedure prescribed by the Act permits sale straightaway of the mortgaged property. This is yet another reason why a distinction should be drawn between a suit seeking a personal decree and a suit based on a mortgage seeking the relief of foreclosure or sale. This contention is also to be rejected for several reasons. 23.1 Order 34 Civil Procedure Code is procedural merely. It does not .....

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