TMI Blog2018 (3) TMI 275X X X X Extracts X X X X X X X X Extracts X X X X ..... dherence to necessary procedure and cannot afford to remain indifferent, particularly when, the principle of estopppel and legitimate expectation are staring in the face that the financial institution like the bank claiming exercise of rights under the special statute like the SARFAESI Act are also under the obligation to adhere to the norms and the procedure to protect their own interest. The doctrine of estoppel and legitimate expectation would require public financial institution or the bank to have certain amount of clarity as well as procedural safeguard by evolving necessary regulatory frame work or mechanism that third party rights are not also put to such situation. It is well settled that alternate remedy is not a bar to exercise the discretionary jurisdiction under Article 226 of the Constitution of India. An application does not seem to have been filed by the respondent no.1bank with details and affidavit as provided and referred to proviso to Section 14 of the SARFAESI Act - It has also been provided in Section 13(4) of the SARFAESI Act that when the borrower fails to discharge his liability as provided in subsection (2), the secured creditor like the bank may hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of petition. 2. The facts of the case briefly summarized are as follows. 3. The petitioners in this group of petitions are the members of the scheme constructed by the respondent Shukan Gold Corporation in the land bearing Survey No. 236, Town Planning Scheme No.33, Final Plot No. 64/B. Respondent No.2 M/s Shukan Gold Corporation, a partnership firm, executed various agreement to sale in favour of the Petitioners and other members, assigning rights over the constructed properties referred to in detail at AnnexureA and they have been allotted the units / flats. The petitioners have also taken the loan against the individual units / flats allotted to them. It is averred that the title clearance certificate has been obtained by them before getting the loan, for which, such a title clearance certificate in respect of one of the member is produced on record at AnnexureB of Special Civil Application No.11944/2014. Similarly, some of the members are also allotted by registered sale deed executed by Respondent No.2. Reference is made to one such example in respect of Flat No. E101 in favour of one Mohandasan Pannanchikal and some other named Parekh Jitendrakumar Ishwarlal in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fide intention and in collusive manner, the mortgage deed is entered between the Respondent No.1 and Respondent No.2 inter se without any intimation to the members of the Cooperative Society i.e. the petitioners. It is therefore contended that such collusive act may affect the rights of the present petitioners, and the Respondent No.1 Bank has also not taken care at the time of entering into the mortgage deed with Respondent No.2 regarding actual physical verification regarding any transaction or purchase of the said properties. It is specifically contended that the Reserve Bank of India has published a Circular dated 27.08.2009 making it compulsory for the builders to publish the details of mortgage in the brochure or in the newspaper, copy of which is produced at AnnexureM of Special Civil Application No.11944/2014. Therefore, it is contended that it was the duty cast upon Respondent No.1 to direct Respondent No.2 to publish any such details in its brochure as they have failed to discharge the statutory obligation. The petitioners right may not be prejudiced as they were not aware of execution of such mortgage deed. It is specifically stated that Respondent No.1 Bank may hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan, their account has become Non Performing Asset, and therefore, demand notice under SARFAESI Act was given by Respondent No.2 Bank in Divya Bhaskar on 12.07.2014. It is therefore contended that the bank has issued a statutory power under Section 13(4) of the SARFAESI Act and the persons like petitioners cannot claim any right merely because they have been a members by booking the flats or the units. The demand notice has been published for taking over possession of the property for valuation to repay the loan. Therefore, it is contended that all transactions which have been done by Respondent No.1 with an intention to defeat the case of the present Respondent and such a petition deliberately filed to defeat the interest of Respondent No.1Bank may not be entertained. It is contended that Respondent No.2 has mislead the Bank as it was disclosed by the partners that out of 278 flats, they have got booking for 77 flats and 12 shops. It was also undertaken by the partners of Respondent No.2 firm that they will not give possession of the said flats and shops to the respective holders without obtaining prior permission and NOC from the Respondent No.1 Bank. However, Respondent No.2 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that only in respect of 50 flats NOC has been obtained and thereafter Respondent No.2 has adopted the practice with an intention to commit fraud with the Bank and had handed over the possession to such flat owners without depositing the amount in escrow account and thereby caused prejudice to the rights of Respondent No.1 Bank and therefore notice has been issued under the SARFAESI Act. It is therefore contended that the petition may not be entertained. It is also contended that the defence of bona fide purchaser would not be applicable. 5. The Hon'ble Apex Court in a judgment in case of Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. Ors. reported in (2014) 6 SCC 1 has made a reference to other judgment and it is contended that the Bank has not colluded with Respondent No.2, and therefore, the protection given by the Hon'ble Apex Court in the aforesaid judgment will not help the case of the petitioners on the ground of bona fide purchaser. It is therefore contended that the allegation made by the petitioners against the Bank are not correct and on the contrary the petitioners are trying to divert the attention of the court including the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Society has been made in 2012. He submitted that the petitioners who are the members of such Housing Society would not be aware of any mortgage and since it has not been registered till 2014, the date of registration could not relate back to the previous years. He strenuously submitted that if such interpretation is accepted it would be against the principle of fairness and equity. He pointedly referred to the papers. Learned Senior Counsel Shri Shalin Mehta therefore submitted that the contention about maintainability of the petition under Article 226 of the Constitution of India is misconceived even if there is an alternative remedy. It has been clearly observed while deciding the judgment in case of Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai Ors., reported in (1998) 8 SCC 1 . Learned Senior Counsel Shri Shalin Mehta submitted that there are no disputed questions of fact as the facts are very much on record which would establish about the violation of fundamental rights and principles of natural justice. Therefore, he submitted that as there is no notice given to the occupants like the petitioners who are affected, such a notice cannot be implemented. Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is now stated in the affidavit by Respondent No.1 Bank. He submitted that the negligence or connivance with builder Respondent No.2 may not be at the cost of the petitioners who are bona fide purchaser. He referred to the Circular of the RBI and submitted that Respondent No.1 Bank had to follow it strictly. 11. Learned Senior Counsel, Shri S.I. Nanavati appearing with learned advocate, Mrs.V.D. Nanavati for the petitioners of Special Civil Application Nos.17807, 18825, 19443, 19481, 20630 20631 to 20672 of 2015 submitted that it is a case of abuse of the statutory powers when the respondent no.1 has in connivance with the respondent no.2 failed to protect the interest of the bank and now the persons like petitioners, who are bonafide purchasers for a value without notice, are harassed. Learned Senior Counsel, Shri Nanavati referred to the background of the facts with much details and submitted that as stated by learned Senior Counsel, Shri Mehta, the mortgaged deed was not registered initially and even after the verification or the search with the revenue authority, it could not be recovered and, therefore, even after the title clearance certificate was obtained by the perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal the misdeeds of the respondent no.1bank and its officers. 12. Learned Senior Counsel, Shri Nanavati submitted that it is in this background, the submissions made with much emphasis on the alternate remedy and exercise of discretionary jurisdiction under Article 226 of the Constitution of India are required to be considered. He submitted that since the mortgage was not created or was not brought to the notice and, therefore, transaction has taken place, the persons like petitioners cannot be saddled with liability. He submitted that if before the Debt Recovery Tribunal, it is relegated, the persons like petitioners having purchased after proper procedure without any notice or mortgage or in many cases also, no objection from the respondent no.1bank, now cannot be dragged into litigation in Debt Recovery Tribunal. He submitted that if money has to be realized by the respondent no.1bank, it has to be from the mortagee and can have appropriate remedy and the petitioners cannot be saddled with the liability, who have taken loans and again cannot be made to discharge the liability of the respondent no.2 in the name of public money. Learned Senior Counsel, Shri Nanavati referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, the object of SARFAESI Act is defeated. He emphasized the observation, justice cannot be done by doing injustice with someone. 14. Learned advocate, Shri Rao for the respondent no.1bank has referred to the papers and also the provisions of the SARFAESI Act. Learned advocate, Shri Rao submitted that there is registered mortgage dated 16.08.2011 and, therefore, any transaction which has taken placed, will be subject to this mortgage. He also referred to the judgment of the Hon ble Apex Court in case of Dilboo (Smt.) (Dead) by Lrs. (supra) and emphasized the observations made therein. He referred to the documents produced on record and also referred to document produced at AnnexureC regarding the mortgage with deposit of title deeds. He submitted that once this mortgage deed is executed, it will relate back to the date of transaction and no right, title, interest can be said to have been created in favour of the petitioners, who claimed to be bona fide purchasers. Learned advocate, Shri Rao also referred to the judgment of the Hon ble Apex Court in case of Muddasani Venkata Narsaiah (dead) Through Legal Representatives Vs. Muddasani Sarojana, reported in (2016) 12 SCC 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance certificate is not proper as had the title clearance certificate been obtained with proper verification, it would have revealed about the mortgage with the bank. Learned advocate, Shri Rao also referred to the provision of the Transfer of Property Act. He referred to Section 37 as also Section 55 of the Transfer of Property Act. He submitted that rights and liability of the buyer and seller are provided in Section 55 of the Transfer of Property Act and if the requirements of Transfer of Property Act are not fulfilled, sale will be subject to the mortgage and/or such sale will not affect the right. He also submitted that if the buyer or seller has committed any irregularity by not disclosing to the buyer like the petitioners, it cannot bind the bank as it is a matter between two individual and cannot prejudice the rights of the bank as a mortgagor. He submitted that if the seller like builder has not disclosed to other party that there is mortgage with the bank, it would not alter or affect the right of the bank. He submitted that the buyer may proceed against the seller and/or for any kind of mischief played. He submitted that in the instant case, the criminal case is also pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the present petition may not be entertained and the application may be allowed to make necessary application before the Debt Recovery Tribunal with appropriate direction. 17. Learned advocate, Shri Rao also submitted that the judgment of the Hon ble Apex Court in case of Harshad Govardhan Sondagar (supra) cannot be made applicable in the facts of the case. He submitted that the provision of Section 17 of the SARFAESI Act has been amended on 01.09.2016 and the judgment of the Hon ble Apex Court with the aforesaid observations is dated 03.04.2014. He, therefore, submitted that the Legislature has therefore provided by proper amendment right to such third party and, therefore, this judgment would not apply in view of the amendment in the Act. 18. Learned advocate, Shri Rao has also referred the judgment of the Hon ble Apex Court in case of Ramesh Dutt Others Vs. State of Punjab Ors. , reported in (2009) 15 SCC 429 . 19. In rejoinder, learned Senior Counsel, Shri Shalin Mehta has referred to the provisions of the SARFAESI Act, more particularly, Section 17 of the SARFAESI Act and submitted that Section 17 provides that any person aggrieved by measures referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances, which are considered as exception to the general rules as discussed in the judgment of Whirlpool Corporation (supra) . He, therefore, strenuously submitted that the petitioners, who are bonafide purchasers for a value, have right and cannot be evicted without even notice or even opportunity and they would have otherwise saddled with liability for payment of the fraud of others though they have purchased for a consideration with the payment. Learned Senior Counsel, Shri Shalin Mehta again submitted that in many cases, it is prior to mortgage or registration of the mortgage and the amount has been paid by cheque to the respondent no.2, which should have been in the escrow account, which is required to be maintained. He, therefore, submitted that if the escrow account is not verified and if the amount is not deposited by the respondent no.2, the petitioners are not at fault and, therefore, once the possession is with the petitioners, it is required to be protected. Learned Senior Counsel, Shri Shalin Mehta referred to Sections 13(4A) and 13(2) of the SARFAESI Act and submitted that as stated above, the notice is not issued to the petitioners, who are the occupants and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Shalin Mehta strenuously emphasized about the conduct of the respondents, particularly, the respondent no.1 and submitted that atleast the respondent no.1 as a public institution was obliged to verify and remain alert when there is escrow account that the amount is deposited in that account or not. He submitted that if the amount has been shifted, it cannot be without notice of the bank and there is connivance with the respondent no.2 and the officers of the bank and, therefore, the persons like petitioners may not be put to any kind of liability and/or prejudice. 23. In view of these rival submissions and having regard to the background of the facts, it is required to be considered whether the present petition deserves consideration. 24. As could be seen from the facts recorded and the submissions recorded hereinabove, the respondent no.2 is the borrower and the respondent no.1bank is said to have advanced the loan. Thereafter, the construction has been made for the units or the flats by the respondent no.2 known as Shukan and the petitioners, who are the members, have purchased the flats/units. It is required to be stated that the petitioners have also taken loan aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent no.2 and, therefore, any right, title, interest or the charge created in favour of any third party will be subject to the provision of the SARFAESI Act and the persons like the petitioners having purchased the flat/unit despite such mortgage in favour of the respondent no.1bank cannot make any claim in view of the mortgage of the property with the respondent no.1bank. It is also contended that the respondent no.1bank is entitled to proceed against the mortgaged property for recovery of the outstanding loan amount and the persons like the petitioners having purchased with the knowledge after the public notice cannot claim any right. In fact, it has been contended that at the instance of the respondent no.2 (builder), the petitioners have in collusion filed such petition to cause prejudice to the rights of the respondent no.1bank and thereby it affects the public money and public interest. It is also contended that the High Court in exercise of discretionary jurisdiction under Articles 226 and 227 of the Constitution of India may not entertained the petition and at the most, relegated the petitioners to the Debt Recovery Tribunal, where such issues can be considered on ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w they are bonafide purchasers for a value and has pointedly referred to the relevant aspects that though the mortgage is said to have been made by the respondent no.2 with regard to the land in question with the respondent no.1 for the loan in question in the year 2011, same has not been registered till 2014 and the petitioners, who are the members of the society have obtained title clearance certificate with necessary verification made with the office of the SubRegistrar and as there has not been any mortgage or entry regarding the mortgage, they have also obtained loan from other banks or financial institutions. Therefore, he strenuously emphasized that the petitioners are bonafide purchasers and there is no question of any collusion. At the same time, much emphasis has been given on the Circular of the Reserve Bank of India dated 27.08.2009 and submitted that it makes it obligatory for the builder to give public notice in the newspaper, which has not been done. Therefore the moot question is that the submissions which have been made by the learned Senior Counsel, Shri Mehta claiming the petitioners being the bonafide purchasers and the submission made by learned advocate, Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no.1bank cannot afford to be indifferent and it is only reflecting the casual approach. It is not only this fact but as stated, the title clearance certificates have been obtained by the petitioners in the year 2014 and at that time, as there was no entry with the Registrar, they have proceeded further and they have obtained loan from other financial institution including other banks. Had there been an entry, it would have stopped or it would have been clarified with regard to the charge of the respondent no.1bank qua the property in question. Therefore it is this very aspect which has been taken so casually and on that top of that, it was argued that the bank is not aware as to why the entry is not made and the bank cannot be blamed is too difficult to digest. 29. Further the Reserve Bank of India has published Circular dated 27.08.2009 making it obligatory for the builder to publish details of mortgage under the brochure or in the newspaper. Admittedly it has not been done. Assuming that the respondent no.2 may not be interested but the respondent no.1 which is a Nationalize Bank dealing with the public money is oblige to follow the Circular issued by the Reserve Bank of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or financial institution and then in that case, they would have given cheque or amount, which would have been deposited by the respondent no.2 in the escrow account. The arguments that how the builder has accepted directly and deposited in another account, the respondent no.1bank may not be aware, is rather over simplification. On one hand, when the respondent no.1bank is claiming charge over the property, there is an escrow account and on the other hand, it is not believable that the respondent no.2 could have dealt with the flats/units in the manner suggested by the bank and ignorance played by the respondent no.1bank on such transactions that how the amount has been deposited or siphoned away by the respondent no.2 (builder) in another bank is not known, is difficult to digest. It may not be out of place of mention about the fact that after huge amount of the respondent no.1bank has been duped initially, complaints have not been filed by the banks to safeguard their interest or the amount of advance. It is the persons like petitioners, who have been duped and harassed, have lodged the complaints. The cumulative effect of all aforesaid circumstances will lead to prima facie in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lic interest having failed to discharge the statutory obligation and reasonable care to protect the amount of loan or advance. As discussed above, apart from being vigilant, the respondent no.1bank has shown indifferent attitude and negligence for the advance made by it resulting in such litigation, for which, even if the respondent no.2 is the defaulter or manipulator, the respondent no.1bank cannot be allowed to escape from its own liability. It is paramount duty of the respondent no.1bank like Nationalize Bank to safeguard and protect the interest of public money with which they are dealing and they cannot afford to remain indifferent to the circular of Reserve Bank of India, common sense and also the procedural safeguard, which they are required to follow to protect their own money. In fact, in some of the cases, no objection has been given, which would imply that even No Objection is required from the bank and, therefore, there could have been mechanism evolved by the respondent no.1bank or it is required to be evolved to protect the interest of such Nationalize Bank that no allotment or transaction for the agreement to sale or any transaction in the form of creating rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies for radical differences of opinion in which neither side is unreasonable. 32. One further aspect which is pressed into service is regarding the right and interest in the property with reference to Article 300 of the Constitution of India will also have to be considered when much emphasis is made on the provision of the SARFAESI Act. The Courts are required to strike balance between the individual rights of the persons like the petitioners and the right of public financial institution like the bank claiming the authority or power under the SARFAESI Act. Therefore when such issues are raised, it clearly reveals that it is the negligence or lack of mechanism and necessary regulatory framework causes such issue and problem coupled with softpedalling by the officer of the public financial institution or the officers of such institution like the respondent no.1bank. 33. It is in this background, submissions made by learned advocate, Shri Rao that the petition may not be entertained as it is involved the disputed questions of fact and there is alternate remedy, cannot be accepted at the face value. However, it is well settled that alternate remedy is not a bar to exercise the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel, Shri Mehta as well as learned Senior Counsel, Shri Nanavati for the petitioners with regard to the rights of the petitioners as a bonafide purchasers for a value without notice and also denial of any opportunity result in violation of natural justice, is required to be considered. The submissions which have been made by learned advocate, Shri Rao with reference to the Transfer of Property Act, particularly, Sections 37 and 55 have to be read in context and background of the facts as well as the statutory provision of the SARFAESI Act. In fact, when the Hon ble Apex Court has made observations in a judgment in case of Harshad Govardhan Sondagar (supra), it has clearly made reference to earlier judgment of the Hon ble Apex Court in case of Transcore Vs. Union of India Anr. , reported in (2008) 1 SCC 125 making the observation about the reservation for exercise of the right under the SARFAESI Act as well as the right of other third party in possession. The Hon ble Apex Court considering interplay of both statute i.e. the Transfer of Property Act and SARFAESI Act and also taking note of the provision of the SARFAESI Act, it states that notwithstanding contained anything in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase as recorded, an application does not seem to have been filed by the respondent no.1bank with details and affidavit as provided and referred to proviso to Section 14 of the SARFAESI Act and same aspect has been considered by the Hon ble Apex Court in a judgment in case of Harshad Govardhan Sondagar (supra) , wherein the Hon ble Apex Court considering Section 13 of the SARFAESI Act and the enforcement of the security interest has referred to issuance of notice to the borrower and the consideration of his objection. It has also been provided in Section 13(4) of the SARFAESI Act that when the borrower fails to discharge his liability as provided in subsection (2), the secured creditor like the bank may have a recourse for the recovery of the secured debt as referred to in Section 13(4) of the Act. It has also been observed with reference to the provision of Sections 13 and 14 that, There is, however, no mention in subsection (4) of Section 13 of the SARFAESI Act that a lease made by the borrower in favour of a lessee will stand determined on the secured creditor deciding to take any of the measures mentioned in Section 13 of the said Act. Subsection (13) of Section 13 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he details could be verified on the basis of the material before the Debt Recovery Tribunal, which would have to be explained by the bank. Therefore, the impugned notice cannot be sustained and deserves to be quashed and set aside. However, the matter is remanded back to the Debt Recovery Tribunal for examination of material with every detail afresh with reference to the provision of the SARFAESI Act as well as other material on the basis of which, the rights are claimed by the purchasers like petitioners as a bonafide purchasers. 39. Therefore having regard to the aforesaid background, as the respondent no.1bank has failed to protect the public interest and as the public money is involved, it would be in the fitness of things that the matter is remanded back to the Debt Recovery Tribunal to adjudicate such issues of legality and validity of the claim based on mortgage and security interest created in favour of the bank and claim made by the petitioners as bonafide purchasers for a value without notice. 40. Therefore, the impugned notice dated 12.07.2014 of Special Civil Application No.11944 of 2014 and Special Civil Application No.18740 of 2017 is hereby quashed and set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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