In Auction sale are the banks obliged to handover the Title Deed to the Purchaser?
Table of Content:-
- Background of the case
- Issues raised
- Statutory provisions involved
- Submissions of the parties
- Judgment analysis
- Conclusion
- Case Laws:-
- Transcore vs. Union of India & Anr
- Overseas Bank & Anr. Vs. Ashok Saw Mill
- Standard Chartered Bank vs. Dharminder Bhohi & Ors.
- Axis Bank vs. SBS Organics Private Limited & Anr.
Tripower Enterprises Pvt. Ltd. vs The State Bank of India [Civil Appeal No. 2373/ 2020 Arising Out of SLP (C) No. 30392/ 2019]
Background of the case
The State Bank of India had granted a financial credit to Respondent No. 3, i.e. M/S Rukmini Mills Ltd. (the borrower) and for that purpose Respondent No. 2, i.e. M/S Associated Trading Corporation Pvt. Ltd. had offered its immovable property as mortgage to the bank and becomes the guarantor. The borrower, that is, M/S Rukmini Mills Ltd. committed a default, and as a result, the bank declared the borrower as a non-performing asset and then filed it before the DRT at Madurai. On 13th May 2008 bank also issued a notice for taking symbolic possession of the mortgaged property. On 15th October 2008, after considering the reply of the guarantor, took symbolic possession of the secured asset.
M/S Associated Trading Corporation Pvt. Ltd. (the guarantor) filed a petition before DRT Madurai against possession notice of the bank. The notice was issued under section 13 (4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. But the petition of the guarantor was rejected by the DRT Madurai. The guarantor filed an appeal against the decision of the DRT. On 8th February 2013, the appeal filed was rejected on the mere ground of non-payment of pre-deposit amount.
The bank put the secured asset on public auction in order to recover the outstanding amount sum of Rs. 350.12 lacs. The E-Auction conducted by the bank and the appellant of the present case was the highest bidder and purchased that property. On 29th April 2017, the Bank issued a sale certificate in respect of the purchase of the secured asset by the appellant. The bank had already filed an application before DRT in order to get original documents related to the concerned property so that the same can be hand over to the auction purchaser upon issuance of the sale certificate. On 9th November 2018, the DRT rejected the application of the bank on the ground that the contention of the guarantor that there was no valid mortgage and equitable mortgage in respect of the concerned property had been created by an incompetent person. The counsel of Respondent No. 10 had argued that if the original documents will be hand over to the auction purchaser before the final decision it will create great trouble and amounts to the multiplicity of proceedings and therefore petition is liable to be dismissed.
The DRT held that “The petitioner bank has filed the original application OA No. 11/2008 against the Respondents 1 to 11 herein, who are the DEFENDANTS−1 to 11, for recovery of the sum of RS.25,49,19,820.41PS/− with future interest thereon. The contention of the petitioner bank with regard to the creation of equitable mortgage over the OA B Schedule mentioned properties by R−4 company, in favor of the petitioner bank for the above-said loan facilities availed by R−1 company has been stoutly denied by R−4 company, in its written statement, filed in the OA. There is no dispute with regard to the sale of some of the OA B Schedule mentioned properties in the e−auction held on 28.02.17 under the SARFAESI proceedings initiated by the petitioner bank herein, to M/s. Tripower Enterprise Pvt. Ltd., Chennai− 115.
The mere reason that R−4 company and R−10 have not raised the above-said issue during the SARFAESI proceedings, cannot be a valid reason to strengthen the contention of the petitioner bank that R−4 company & R− 10 cannot raise this objection in the original application, since the SARFAESI proceedings are of summary proceedings in nature. In the original application, all the contesting defendants have filed their written statement, and that OA has reached the stage for inquiry. Therefore, this Tribunal is of the considered view that the issue as to whether there is valid creation of equitable mortgage over the OA B schedule mentioned properties has to be decided only in the original application, along with the issue as to whether the petitioner bank is entitled to recovery of the sum of RS.25,49,19,820.41PS/− and with future interest thereon. Further, the documents, which are sought for by the petitioner bank, have already been marked as EXH.A−110 to A−114. Therefore, passing an order in this petition for the return of the above-mentioned documents to the petitioner bank would cause prejudice, at this stage, to decide the vital issue as to whether a valid mortgage has been created over some of the OA B schedule properties by R−4 Company.”
The bank filed an appeal against the decision of the DRT in DRAT at Chennai. The DRAT reversed the decision of the DRT. The DRAT had observed that the records reveal that the financial credit had taken decades ago and the OA was filed by the bank in the year 2008 and therefore the bank had a right to recover the money. Therefore it is right to acknowledge the recovery made by the Bank under SARFAESI Act. The DRAT ordered that bank has to receive five documents after taking the Photostat copy of these documents on record on the ground that the bank has its own responsibility towards the auction purchaser.
The guarantor filed a writ petition before High Court after being aggrieved by the decision of the DRAT. The High Court after taking all facts and circumstances into consideration restore the decision of the DRT. Feeling aggrieved by the decision of the High Court the auction purchaser (the present appellant) filed the present appeal by way of a special leave petition.
Issues Raised
- Whether the auction purchaser entitled to get the original documents of the purchased property when the same was in dispute before the DRT?
- Whether the mortgage deed made in respect of financial credit is valid?
Statutory Provisions Involved
- Section 13 (4) of the Securitisation and Reconstruction of Financial Assets and “Enforcement of Security Interest Act, 2002
“In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset;
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) Require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.”
Submissions of the Parties
The Contention of the Appellant
- After purchasing the property from the public auction conducted by the bank and receiving the sale certificate, then the appellant is entitled to get the original documents of the concerned property.
- It was argued that the guarantor firstly filed the writ petition before the High Court challenging the decision of the DRAT, secondly, the guarantor filed another petition in which it was prayed that a restraint order has been issued against the bank to desist from the proceedings of the public auction.
- It was submitted that by the way of the affidavit he had admitted that the mortgage in question and one of the directors of the guarantor company also offered to pay the outstanding amount and asked for some time.
The contention of the Respondents
- The respondent guarantor argued that he had not taken any loan from the concerned bank.
- The borrow had borrowed money from the bank by depositing the sale deed and equitable mortgage deed which was created on 12th April 1984 but the bank has further given the loan in 1990 and 1992 in which he was not a party.
- It was also argued that the equitable mortgage deed was not executed by an authorized person of the guarantor.
- It was also contended that the jurisdiction of the DRT under the 2002 Act was only supervisory against the action of the bank under section 13 of the Act.
- The respondent relied upon the ruling of the Transcore vs. Union of India & Anr. [n 1 (2008) 1 SCC 125]; Overseas Bank & Anr. Vs. Ashok Saw Mill; Standard Chartered Bank vs. Dharminder Bhohi & Ors.; Axis Bank vs. SBS Organics Private Limited & Anr.It was also urged that the principle of Res Judicata was also not applicable to the opinion of DRT and DRAT.
- It was argued that the DRT can only examine the issues regarding the procedural irregularities on the part of the bank and doesn’t have the power to decide the dispute between the parties regarding the validity of the concerned mortgage deed.
Judgment Analysis
In respect of the validity of the mortgage deed, the court firstly refers to the decision of the DRT on the petition filed by the guarantor against the possession notice issued by the bank under section 13 (4) of the 2002 Act. From the records submitted by the bank it can be seen that the applicant company join the loan transaction and given the disputed property as collateral security towards the loan credited to the M/S Rukmini Mills Ltd. It was clearly evident from the facts that the former director of the applicant company executed an equitable mortgage deed in favor of the respondent bank in lieu of the loan provided to M/S Rukmini Mills Ltd.
The court takes all the documents submitted by the respondent bank into consideration satisfied that the disputed property has been provided as collateral to the respondent bank. The court also stated the fact that the directors who had executed the equitable mortgage deed were actually the directors and there is no proof submitted in that regard. The respondent bank had submitted the balance sheet of the company which was signed by them in order to prove that both of them were then directors of the company.
The court is of opinion that the respondent bank has a right to initiate proceedings under the provisions of the SARFAESI Act, 2002. Hence the court observed that the mortgage deed is valid.
The court also observed that the direct interest of the appellant to claim the relief prayed cannot be ignored. Further, the court added that the guarantor cannot claim the same plea again and again.
Conclusion
In respect of the application moved by the respondent bank to get the original documents related to the disputed property, the court held that this was an indisputable fact of this case as the sale certificate was also issued to the auction purchaser now the bank is under obligation to hand over the document to the purchaser.
With that, the Hon’ble Supreme Court had reversed the impugned judgment of the High Court and bring the order of the DRAT into effect by stating that the application filed by the bank is partly allowed by returning the original documents to the respondent bank.