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2016 DIGILAW 465 (KER)

FEDERAL BANK LIMITED v. STATE OF KERALA

2016-06-02

A.M.SHAFFIQUE

body2016
JUDGMENT : A.M. Shaffique, J. 1. Petitioner Bank, has taken proceedings under the SARFAESI Act (hereinafter referred to as ‘the Act’) for recovering the amounts due from respondents 6 and 7 by sale of the secured assets. The secured asset was notified for sale on 31-12-2015 and purchased by the 9th respondent and sale certificate issued on 14-1-2016. When steps were taken by the petitioner Bank for conveying the property and draft deed for conveyance had been prepared, on enquiry with the Sub Registrar office, it was noticed that the property had already been sold by respondents 6 and 7 in favour of the 8th respondent as per Ext.P-8 sale deed dated 11-10-2010. 2. According to the petitioner Bank, the property was mortgaged on 8-3-2008 and it is during the pendency of the mortgage, that the property was sold. It is also submitted that notice was issued on 25-2-2010 to the borrower under Section 13 (2) of the Act and possession was taken on 25-6-2010. The main contention urged by the petitioner Bank is that there is no right on the borrower to sell the property in terms of Section 13(13) of the Act during the period when proceedings were taken under Section 13(2) of the Act. No permission has been given under Section 13 (13) of the Act to effect sale of property and therefore the sale in favour of the 8th respondent is void and is not binding on the petitioner Bank. It is contended that when a draft sale deed was prepared and enquiry was made with the Sub Registrar, he expressed an opinion the sale deed, cannot be registered, as the property is in the name of 8th respondent. 3. Counter-affidavit has been filed by respondents 6 and 7 inter-alia stating that when attempts were made to take possession of the property, they filed S.A. No. 174/2011 before the Debt Recovery Tribunal, Ernakulam. It is stated that during the pendency of the application, the loans were re-scheduled. According to them, they received notice of sale on 12-6-2011 informing about the sale of the property. Respondents filed another S.A. No. 311/2011 and substantial amounts were paid, and the overdraft facility was closed as per the direction of the Debt Recovery Tribunal. It is stated that during the pendency of the application, the loans were re-scheduled. According to them, they received notice of sale on 12-6-2011 informing about the sale of the property. Respondents filed another S.A. No. 311/2011 and substantial amounts were paid, and the overdraft facility was closed as per the direction of the Debt Recovery Tribunal. Thereafter, the petitioner took steps under Section 14 of the Act and as per the directions issued by the Chief Judicial Magistrate Court, the respondents were forcibly evicted from the residential building. It is stated that there is substantial illegality and irregularity in the steps taken for sale of property and therefore the securitisation application has been amended for setting aside the sale, which is pending consideration before tire Tribunal. 4. 8th respondent has filed a counter-affidavit wherein it is contended that he is a bona fide purchaser for value and that he had purchased the property without knowing about the mortgage and the steps taken by the petitioner Bank under Section 13(2) of the Act. It is also contended that the sale deed in favour of the 8th respondent is not void and therefore if at all the bank has any right, it has to be established before the Civil Court and the right of the 8th respondent cannot be taken away by filing a writ petition. The restriction imposed under Section 13(13) of the SARFAESI Act will not affect the right of a bona fide purchaser. That apart, it is contended that Sub Registrar is justified in not permitting registration and if at all the petitioner is aggrieved by such refusal, the remedy is to prefer an appeal before the Registrar. 5. Learned Government Pleader, on instructions, would submit that the Sub Registrar did not permit registration on account of the fact that, in various decisions, this Court had observed that the Sub Registrar should be very careful in registering the document and the right of the seller has to be verified before proceeding with registration of the document. 6. Heard the learned counsel on either side. First question to be decided is the maintainability of the writ petition. The writ petition is filed on the allegation that the Sub Registrar is refusing to register a sale deed on account of the existence of Ext.P-8 sale deed. 6. Heard the learned counsel on either side. First question to be decided is the maintainability of the writ petition. The writ petition is filed on the allegation that the Sub Registrar is refusing to register a sale deed on account of the existence of Ext.P-8 sale deed. Sub Registrar being a statutory authority under the Registration Act is amenable to the jurisdiction of this court under Article 226 of the Constitution of India. The validity of Ext.P-8 executed by respondents 6 and 7 in favour of the 8th respondent is thus an ancillary question which has to considered in this proceedings, and there are no disputed facts which requires consideration. Hence the writ petition is maintainable. 7. One fact which is not disputed is that, the property has been mortgaged in favour of the petitioner Bank prior to respondents 6 and 7 executing sale-deed No. 2556/2010 on 11-10-2010. Again it is not in dispute that before 11-10-2010, the date of execution of sale deed, notice under Section 13(2) of the Act had been served on the borrowers i.e. respondents 6 and 7. Section 13(13). of the Act reads as under; “13(13): No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.” 8. According to the Bank, without knowing about the fact that there is a sale of property, they have taken steps under Section 13(4) of the Act and the authorised officer has proceeded to effect sale of the property. Sale has to be conducted in terms of Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as ‘the Rules’). According to the Bank, they have conducted sale in accordance with the procedure prescribed and the sale has been confirmed in terms of Rule 9(6) of the Rules. Respondents 6 and 7, however has a contention that there is irregularity and illegality in the conduct of sale and the sale is liable to be set aside. I do not think that there is any necessity for me to go into the validity of the sale, as matters stand today, since the Bank has already issued a sale certificate in favour of the 9th respondent. I do not think that there is any necessity for me to go into the validity of the sale, as matters stand today, since the Bank has already issued a sale certificate in favour of the 9th respondent. Whether the sale and its confirmation is in accordance with law, is a matter to be considered by the Tribunal in the pending application. Any observation in this judgment shall not preclude the Tribunal from considering the same as per the procedure prescribed. 9. In the present writ petition, I am only concerned with the question whether the right of the petitioner Bank in affecting sale of the secured asset under the SARFAESI Act, will be lost in the light of Ext.P-8 sale deed, and whether the Sub Registrar can register the sale deed presented by the Bank ignoring the encumbrance created by Ext.P-8. The reliefs sought for in the writ petition are as under: “(A) Declare that the third respondent is bound to register the original of Ext.P-10 sale deed executed by the petitioner Bank in favour of the 9th respondent in exercise of the petitioner's statutory duties under the Securitization Act and issue a writ of Mandamus or other appropriate writ or order commanding the third respondent to register the same forthwith or within a time limit prescribed by this Hon'ble Court. (B) Pass an order directing the third respondent to make appropriate entries in its Register and its encumbrance certificates effacing the entry of Ext.P-8 sale deed or enter such other appropriate entries recording the invalidity of Ext.P-8 sale deed. (C) Direct the respondents 4 and 5 to effect the necessary consequential mutation entries relating to the transfer of property in the revenue records pursuant to the registration of the original of Ext.P-10 in favour of the 9th respondent within such time as prescribed by this Hon'ble court from the date of registration of Ext.P-10.” 10. It is not in dispute that there was a restriction imposed on respondents 6 and 7 not to effect sale of mortgaged property after notice is issued by the petitioner Bank under Section 13(13) of the Act, without the consent of the petitioner Bank. The argument of the learned counsel for the petitioner is that if the sale is effected, it is an illegal sale and is in violation of the provisions under the Act. The argument of the learned counsel for the petitioner is that if the sale is effected, it is an illegal sale and is in violation of the provisions under the Act. If the sale is illegal, the sale becomes unenforceable in terms of Section 11 read with Section 2(g) of the Contract Act. Even otherwise, it is against public policy and no document can be created against the statutory restrictions imposed under a statute. 11. To understand the arguments raised by the learned counsel for the petitioner, it would be useful to refer the following Sections under the Contract Act: “(i) 2(g). An agreement net enforceable by law is said to be void. (ii) Who are competent to contract - Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.” 12. The question to be considered is whether respondents 6 and 7 are persons coming under the meaning of “disqualified from contracting by any law.” It cannot be disputed that if a person is disqualified from contracting by any law to which he is subject to, the contract will become unenforceable. The SARFAESI Act in which we are concerned imposes a restriction as engrafted under Section 13(13) which prohibits a borrower from transferring by way of sale, lease or otherwise, any of the secured assets. 13. Before proceeding further, it would be useful to refer to certain provisions in the Transfer of Property Act (hereinafter referred as the TP Act). Section 7 refers to a person competent to transfer which reads as under: “7. Persons competent to transfer - Every person competent to contract and entitled to transferable property, or authorised to dispose off transferable property not his own, is competent to transfer such property either wholly or in part, and either absolutely or conditionally, in the circumstances, to the extent and in the manner, allowed and prescribed by any law for the time being in force.” Section 6 of TP Act, imposes certain restrictions on transfer. Though it states that property of any kind may be transferred. Section 6(h) reads as under: “6. Though it states that property of any kind may be transferred. Section 6(h) reads as under: “6. What may be transferred - Property of any kind may be transferred, except as otherwise provided by this Act or by any other law for the time being in force: (a)............. (h) No transfer can be made (1) in so far as it is opposed to the nature of the interest affected thereby, or (2) for an unlawful object or consideration within the meaning of Section 23 of the Indian Contract Act, 1872 (9 of 1872) to a person legally disqualified to be transferee.” Section 23 of the Indian Contract Act, which is referred to in Section 6(h) of the TP Act reads as under: “23. What consideration and objects are lawful, and what not - The consideration or object of an agreement is lawful, unless: it is forbidden by law. is of such a nature that, if permitted, it would defeat the provisions of any law: or is fraudulent: or involves or implies, injury to the person or property of another; or he Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.” The word ‘competent to contract’ in Section 6 has to be considered with reference to Section 11 of the Contract Act. In Mulla, Transfer of Property Act, 10th Edition, commentary on ‘Disqualified to Contract’ is summarised as under: “A statutory disqualification to contract imports, as in the case of a minor, inability to transfer. Such a disqualification ensues when the owner's property is under the management of the Court of Wards, or of an officer appointed under Encumbered Estates Act. A judgment-debtor whose property is being sold in execution by the Collector is also incompetent to alienate.” Therefore, even under the TP Act, if a person is not competent to enter into a contract, it will not amount to a valid transfer. 14. Coming back to Section 11, the word “disqualification” virtually incapacitates a person from entering into a contract. A judgment-debtor whose property is being sold in execution by the Collector is also incompetent to alienate.” Therefore, even under the TP Act, if a person is not competent to enter into a contract, it will not amount to a valid transfer. 14. Coming back to Section 11, the word “disqualification” virtually incapacitates a person from entering into a contract. In Rajaram Pal vs. Hon'ble Speaker, Lok Sabha, (2007) 3 SCC 184 ; the Constitution Bench of the Apex Court, while considering the constitutional powers with reference to expulsion of a member held that “disqualification of a member strikes at the very root of the candidate's qualification and renders him or her unable to occupy a member seat.” In Mumford vs. Hardy mid Another, (1956) 1 All ER 337 (QB); it was held that a person who is prohibited by reason of his age from driving a motor vehicle is a person disqualified though he has, in fact, obtained a licence by falsely stating his age. In yet another judgment of the Madras High Court, the words “disqualification” imposed by law came up for consideration. Learned judges in G. Narayanaswamy Naidu vs. C. Krishnamoorthi and Another, AIR 1958 Madras 343; held that a disqualification would be imposed by a law made by Parliament when parliamentary statute directly indicates the disqualification or impose a prohibition upon certain persons who stand for election. In Lal Chandradwaj Deo vs. Lal Artraran Deo, AIR 1936 Nagpur 15 ; it was held that a person whose estate is under the Courts of Wards is incompetent to enter into any contract involving pecuniary liability under Section 31 of the Central Provinces Court of Wards Act, 1899. The Court was considering a question relating to the validity of promissory note executed by the defendant. It came to light that the defendant's estate was under the superintendence of the Court of Wards in 1920 and was released only in 1921. By virtue of Section 31 of the Central Provinces Court of Wards Act of 1899, the ward is incompetent to enter into any contract which may involve pecuniary liability and his property is not liable under Section 65 of the Contract Act. By virtue of Section 31 of the Central Provinces Court of Wards Act of 1899, the ward is incompetent to enter into any contract which may involve pecuniary liability and his property is not liable under Section 65 of the Contract Act. It was held that the promisory note was advanced at a time when the defendant's estate was under the superintendence of the Court of Wards and therefore the defendant was incompetent to enter into any contract which would make him liable. The Court considered certain earlier judgments especially Mt. Salu Bal vs. Bajat Khan, 1917 Nag. 215; wherein reference was made to Kamta Prasad vs. Sheo Gopal Lal, (1904) 26 All. 342. It was held that a transaction in violation of Section 11 is not merely voidable or void or subject to equitable principles as underlying in Sections 64 and 65 of the Indian Contract Act, but is an absolute nullity affording no foundation for any legal or equitable interpretation or enforcement of it by a Court of Law. The Court, referred to Mohori vs. Dharmodas, (1903) 30 Cal. 539; wherein the judicial committee observed as under: “The question whether a contract is void or voidable pre-supposes the existence of a contract within the meaning of the Act, and cannot arise in the case of an infant.” Thereafter, the Court, in Lal Chandradwaj Deo (supra), held as under: “It appears to us to be equally true that it cannot arise in the case of a person who is disqualified from contracting by any law to which he is subject.” 15. Viewed in the light of the statutory provision under the Contract Act, it is evident that the respondents 6 and 7 were disqualified to contract on account of the prohibition Section 13 (13) of the Act. The sale deed, therefore, executed in favour of the 8th respondent in violation of the statutory mandate is illegal and therefore unenforceable. Therefore, I am of the view that the sale deed, Ext.P-8 is a nullity in the eye of law and the petitioner Bank is entitled to proceed further ignoring Ext.P-8 and consequently the Sub Registrar can permit registration of the sale deed ignoring Ext.P-8, if properly presented, by the petitioner. 16. In the said circumstances, this writ petition is disposed of as under: (i) That Ext.P-8 sale deed is unenforceable and not binding on the petitioner or the 9th respondent. 16. In the said circumstances, this writ petition is disposed of as under: (i) That Ext.P-8 sale deed is unenforceable and not binding on the petitioner or the 9th respondent. (ii) The petitioner is at liberty to present sale deed in terms of the sale certificate issued in favour of the 9th respondent and the 3rd respondent is directed to register the deed ignoring Ext.P-8, provided the document is otherwise in accordance with the procedure prescribed. (iii) Sale certificate issued by the Bank and registration of the sale deed will, however, be subject to any further orders that may be passed by the Tribunal in S.A. No. 311/2011.