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Madhya Pradesh High Court · body

2016 DIGILAW 644 (MP)

Ashish Mittal v. Bank of Baroda

2016-08-02

S.C.SHARMA

body2016
ORDER : S.C. Sharma, J. 1. Regard being had to the similitude in the controversy involved in the present cases, the writ petitions were analogously heard and by a common order, they are being disposed of by this Court. Facts of Writ Petition No.2174/2016 are narrated hereunder. 2. The petitioner before this Court is aggrieved by the order dated 09.03.2016 (Annexure P/11) passed by the Tehsildar, Tehsil and District Ujjain in case No.107/B/121/15-16. 3. The petitioner’s contention is that he is a resident of Ujjain and is neither a borrower, nor a guarantor. He has further stated that he has never availed any financial assistance from Bank of Baroda. The petitioner has further stated that one Suresh Kumawat was the owner of the property i.e. house No.B-2/18, MIG, situated at Vasant Vihar, Scheme-1, Nanakheda and the property was leased out by Suresh Kumawat vide lease deed dated 02.05.2014 (Annexure P/1). 4. The petitioner has further stated that the respondent bank took symbolic possession of the mortgaged property and thereafter, the petitioner was shocked to receive a letter dated 12.11.2014, which was in respect of taking over the physical possession of the property. Thereafter, the petitioner immediately came before this Court by filing W.P.No.8419/2014 and this Court by order dated 20.11.2014 has granted an interim protection and thereafter, the petition was finally disposed of on 08.04.2015 with a direction to the learned District Magistrate to take decision in the matter. The petitioner further stated that he has approached the District Magistrate, however, an ex-parte order has been passed on 18.11.2015 by the learned Additional District Magistrate, Ujjain and the petitioner thereafter, filed an application for review on 01.12.2015. 5. The petitioner has further stated that on account of order passed by the Additional District Magistrate, Tehsildar has issued notice to the petitioner. The petitioner’s contention is that action of the respondents is violative of right guaranteed under Article 300-A of the Constitution of India and the petitioner has a right to enjoy the property in terms of lease deed (Annexure P/1) and the petitioner further stated that the lease deed has been executed prior to issuance of demand notice and therefore, as the lease is in existence, the petitioner cannot be evicted by the respondents. 6. 6. The petitioner placed heavy reliance upon the judgment delivered by the Hon’ble Supreme Court in the case of Vishal N. Kalsaria v. Bank of India & Ors., reported in AIR 2010 SC 530. 7. On the other hand, learned counsel for the Bank of Baroda has argued before this Court that respondent No.5 Shri Suresh Kumawat, Son of Late Shri Rajmal Kumawat is the guarantor of M/s Venkateshwara & Co., a borrower firm and bank has to recover a sum of Rs. 3,29,00,000/- from the borrower. It has been further stated that respondent No.5 Shri Suresh Kumawat has mortgaged his property by deposit of title deed in respect of house No.B-2/18, MIG, Basant Vihar, Ujjain and the mortgaged deed was created by deposit of title deed as provided under Section 58(f) of the Transfer of Property Act, 1882. The respondent has further stated that the guarantor has created the mortgage in favour of the respondent. In furtherance of the declaration, notarization was done on 12.12.2012. 8. Attention of this Court has been drawn towards para 11 of the declaration of the guarantor and the same reads as under: “Guarantor has undertaken inter alia not to lease out the said house during currency of the said loan without permission of the respondent bank.” 9. Learned counsel for the respondent/Bank of Baroda has placed reliance upon the judgment delivered by the Hon’ble Supreme Court in the case of Harshad Govardhan Sondagar v. International Assets Reconstruction Company Ltd. & Ors., reported in (2014) 6 SCC 1 and his contention is that the Hon’ble Supreme Court in the aforesaid case has certainly made observations for grant of protection to valid lease-deed holders. He vehemently argued before this Court that the lease-deed of property was without the consent of the bank and is no longer binding on the bank. Learned Counsel for the respondent/Bank of Baroda prays for dismissal of the writ petition. 10. Heard learned counsel for the parties at length and perused the record. 11. In the present writ petition, it is an undisputed fact that respondent No.5 has created a lease-deed in the year 2014. Mortgage deed was executed in the year 2012, the lease-deed is under Section 65 (a) of the Transfer of Property Act, 1882. It is also an undisputed fact that the petitioner is residing in the house in question which is owned by the Guarantor. Mortgage deed was executed in the year 2012, the lease-deed is under Section 65 (a) of the Transfer of Property Act, 1882. It is also an undisputed fact that the petitioner is residing in the house in question which is owned by the Guarantor. The Guarantor, in his declaration dated 12.12.2012 has given a declaration which read as under: “ I further undertake that no mortgage, charge, lien or other encumbrance whatsoever including by way of lease will be created on the properties comprised in the mortgage security save and except with the permission of the Lenders” 12. Learned counsel for the petitioner has placed heavy reliance upon the judgment delivered by the Hon’ble Supreme Court in the case of Vishal N. Kalsaria v. Bank of India & Ors., reported in AIR 2010 SC 530 and para 29 of the aforesaid judgment read as under: “As far as granting leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. We have already taken this view in the case of Harshad Govardhan Sondagar (supra). We have not stated anything to the effect that the tenancy created after mortgaging the property must necessarily be registered under the provisions of the Registration Act and the Stamp Act.” 13. The apex Court in para 12 of the aforesaid judgment has dealt with the observations made in the judgment of Harshad Govardhan Sondagar (Supra). The judgment delivered in the said case of Harshad Govardhan Sondagar (supra) in para 12, read as under: 12. “After the mortgage of an immovable property is created by the borrower in favour of a secured creditor, the right of the borrower to lease a mortgaged property is regulated by Section 65A of the Transfer of Property Act. Section 65A of the Transfer of Property Act is extracted herein below: “65A. Mortgagor’s power to lease.- (1) Subject to the provisions of sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee. (2)(a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage. (2)(a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage. (b) Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent shall be payable in advance. (c) No such lease shall contain a covenant for renewal. (d) Every such lease shall take effect from a date not later than six months from the date on which it is made. (e) In the case of a lease of buildings, whether leased with or without the land on which they stand, the duration of the lease shall in no case exceed three years, and the lease shall contain a covenant for payment of the rent and a condition of re-entry on the rent not being paid within a time therein specified. (3) The provisions of sub-section (1) apply only if and as far as a contrary intention is not expressed in the mortgage-deed; and the provisions of sub-section (2) may be varied or extended by the mortgage-deed and, as so varied and extended, shall, as far as may be, operate in like manner and with all like incidents, effects and consequences, as if such variations or extensions were contained in that sub-section. Thus, sub-section (1) of Section 65A of the Transfer of Property Act states that the mortgagor has the power to make lease of a mortgaged property while he is in lawful possession of the same subject to the provisions of subsection (2) of Section 65A of the Transfer of Property Act and such lease is binding on the mortgagee. Sub-section (3) of Section 65A further provides that such a power is available with the mortgagor to make a lease of the mortgage property only if and as far as a contrary intention is not expressed in the mortgage-deed. Thus, so long as the mortgage-deed does not prohibit a mortgagor from making a lease of the mortgaged property and so long as the lease satisfies the requirements of subsection (2) of Section 65A, a lease made by a borrower as a mortgagor will not only be valid but is also binding on the secured creditor as a mortgagee.” 14. Thus, so long as the mortgage-deed does not prohibit a mortgagor from making a lease of the mortgaged property and so long as the lease satisfies the requirements of subsection (2) of Section 65A, a lease made by a borrower as a mortgagor will not only be valid but is also binding on the secured creditor as a mortgagee.” 14. Not only this, the Co-ordinate Bench of this Court in the matter of M/s Mauriya Udhyog Ltd. v. State Bank of India & Ors., while dealing with the similar controversy in para 2 to para 20 has held as under: “(2) In brief, the case of the petitioner is that he is the lessee of respondent No.5 M/s. Laxmi Ventures (India) Ltd. The respondent No.5 had taken loan from the respondent No.1 bank and had mortgaged the properties in question with the bank. Thereafter vide lease deed dated 27th December, 2013, the respondent No.5 had leased out the properties in question which include solvent extraction plants and oil refinery, stearine plant and the superstructures etc to the petitioner. Since the account of the respondent No.5 had become NPA, therefore, the notice dated 20th March, 2014 was given by the respondent No.1 bank to the respondent No.5 u/S.13(2) of the SARFAESI Act. Thereafter the respondent bank had filed an application u/S. 14 of the SARFAESI Act before the District Magistrate, Dewas. The District Magistrate without giving notice to the petitioner, had passed the order dated 24/12/2014 u/S.14 of the SARFAESI Act directing the SDO, Dewas to take physical possession of the mortgaged property. The petitioner had filed an application for modification of the order and the District Magistrate vide order dated 31/3/2015 had modified its earlier order and had permitted the bank to obtain only symbolic possession of the mortgaged properties and also permitted the bank to continue the sale proceedings but till the finalisation of sale, petitioner was allowed to operate the factory and on the finalisation of the sale, the respondent bank was permitted to receive its actual physical possession. The respondent bank had filed the application for review on the ground that the factory is not in operation. The District Magistrate vide order dated 3/7/2015 has reviewed and cancelled its subsequent order dated 31/3/2015 and restored the earlier order dated 13/1/2015 permitting the SDO to take actual physical possession of the mortgaged property. The respondent bank had filed the application for review on the ground that the factory is not in operation. The District Magistrate vide order dated 3/7/2015 has reviewed and cancelled its subsequent order dated 31/3/2015 and restored the earlier order dated 13/1/2015 permitting the SDO to take actual physical possession of the mortgaged property. (3) Learned counsel for petitioner submits that the impugned order dated 13/1/2015 u/S.14 of SARFAESI Act has been passed without giving an opportunity of hearing to the petitioner and the District Magistrate had no power to review his earlier order and the lease deed in favour of the petitioner is a valid lease deed and the District Magistrate has committed an error in holding that the factory is not running on the spot ignoring that the seasonal work is being carried on in the leased premises. (4) Learned counsel for respondent bank has submitted that due opportunity of hearing has been given to the petitioner before the District Magistrate and that the lease in favour of the petitioner was invalid and District Magistrate has rightly found that there is no factory running on the spot. He has further submitted that after mortgaging the properties, the respondent No.5 was not competent to leased out the property to the petitioner without the consent of the bank, therefore, such a lease deed is invalid. (5) Learned counsel for respondent No.5 has submitted that the lease in favour of the petitioner was executed prior to issuance of the notice u/S.13(2) and that material on record indicates that the factory is running on the spot and the lease deed in favour of the petitioner was a valid lease deed. (6) I have heard the learned counsel for parties and perused the record. (7) So far as the issue of opportunity of hearing is concerned, though while passing the order dated 13/1/2015, no opportunity of hearing was given to the petitioner but when the petitioner had filed the application for modification of this order, the District Magistrate had given due opportunity of hearing to the petitioner and had modified the earlier order dated 13/1/2015 while passing the order dated 31/3/2015 permitting the petitioner to run the factory till the finalisation of the sale. Thereafter, the respondent bank had filed an application for review and while deciding the said review application, the petitioner has again been heard and the order dated 31/3/2015 has been reviewed/cancelled vide subsequent order dated 3/7/2015. Thus, an effective hearing has already been given to the petitioner by the District Magistrate, therefore, considering the above facts as also the subsequent development, the order passed by the District Magistrate on 13/1/2015 cannot be faulted on the ground that no opportunity of hearing was given to the petitioner. (8) The petitioner has also raised an issue that the District Magistrate had no power to review its order but such an argument of the petitioner is a double edged sword because on the petitioner’s application for modification, the District Magistrate had reviewed/modified the earlier order dated 13/1/2015 and passed the order dated 31/3/2015 permitting the petitioner to run the factory till the finalisation of the sale. The petitioner in the writ petition is seeking restoration of the order dated 31/3/2015 which has later been cancelled. Since the order dated 31/3/2015 itself was passed in favour of the petitioner while exercising the power of review, therefore, it is not open to the petitioner to contend that the District Magistrate had no power to review. Even if the petitioner’s contention is accepted then both the subsequent orders i.e. 31/3/2015 and 3/7/2015 cannot be sustained and result will be restoration of original order dated 13/1/2015 which has already been done by the District Magistrate. (9) The next question is about the validity of the lease executed by the respondent No.5 in favour of the petitioner. In the present case, the respondent No.5 while obtaining the loan from the bank had created the mortgage of the properties by depositing the title deeds. Section 58(f) of the Transfer of Properties Act, 1882 provides for creation of mortgage by deposit of title deed. (10) When the debtor deposits with the creditor title deeds of the property for the purpose of security, it becomes mortgaged in terms of Section 58(f) of the Transfer of Properties Act and no registered instrument is required u/S.59 thereof as in other classes of mortgage. [See judgment of the supreme court in the matter of State of Punjab and others v. Pagro Food Ltd and others dated 7/10/2013 in Civil Appeal No.9030/2013]. [See judgment of the supreme court in the matter of State of Punjab and others v. Pagro Food Ltd and others dated 7/10/2013 in Civil Appeal No.9030/2013]. In the present case also the properties in question were mortgaged by the respondent No.5 with the bank in terms of Section 58(f) of the Transfer of Properties Act. (11) The mortgaged properties were leased out by the respondent No.5 to the petitioner vide lease deed dated 27th December, 2013 which was prior to issuance of notice dated 20/3/2014 u/S.13(2) of the SARFAESI Act. In terms of the judgment of the supreme court in the matter of Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited and others reported in (2014) 6 SCC 1 , when lease is created after creation of mortgage but prior to the receipt of notice u/S.13(2), such lease would not stand automatically determined upon action being initiated u/S.13 and 14 of the Act and the lessee in possession under such lease cannot be evicted by secured creditor unless and until the lease is validly terminated and to retain possession under such a lease beyond a period of one year from the date on which such lease commenced, vide mandate of Section 107 of the Transfer of Properties Act, such lessee would have to produce proof of execution of a proper registered lease deed to secured creditor or the District Magistrate. Therefore, it need to be examined if a valid lease was executed by respondent No.5 (mortgagor) in favour of petitioner. (12) The power of the mortgagor to give mortgaged property on lease is contained u/S.65-A which reads as under:- “65A. Mortgagor’s power to lease.-(1) Subject to the provisions of sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee. (12) The power of the mortgagor to give mortgaged property on lease is contained u/S.65-A which reads as under:- “65A. Mortgagor’s power to lease.-(1) Subject to the provisions of sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee. (2) (a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage, (b) Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent shall be payable in advance, (c) No such lease shall contain a covenant for renewal, (d) Every such lease shall take effect from a date not later than six months from the date on which it is made, (e) In the case of a lease of buildings, whether leased with or without the land on which they stand, the duration of the lease shall in no case exceed three years, and the lease shall contain a covenant for payment of the rent and a condition of re-entry on the rent not being paid with a time therein specified. (3) The provisions of sub-section (1) apply only if and as far as a contrary intention is not expressed in the mortgage-deed; and the provisions of sub-section (2) may be varied or extended by the mortgage-deed and, as so varied and extended, shall, as far as may be, operate in like manner and with all like incidents, effects and consequences, as if such variations or extensions were contained in that sub-section”.] (13) In the present case, the issue is if the respondent No.5 had leased out the mortgaged properties satisfying the conditions contained in Section 65-A. As per sub-section (1) a lease made by the mortgagor in lawful possession of the mortgaged property complying with the requirement of sub-section (2) is binding on the mortgagee but in terms of subsection (3) in case if a contrary intention is expressed in the mortgage deed, then sub-section (1) will have no application. In the present case, loan agreement was executed between the respondent No.5 with the bank on 6/5/2008 and in clause 11 of the agreement, the respondent No.5 had agreed that without the prior written permission of the bank it will not lease or sell or create any third party right of any kind upon or over the mortgaged properties or on its undertaking and assets. Clause 11 of the agreement reads as under:- “11. The borrower declares and assures that all immovable properties to be mortgaged and all goods book-debts movables and other assets to be hypothecated and/or pledged to the Bank are the absolute properties of the Borrower at the sole disposal of the Borrower and free from any prior charge lien or encumbrance except such charge lien or encumbrance as have been notified to the Bank and accepted by it as having priority over its charge and that all the future immovable properties and goods book-debts movables and other assets to be given as security to the Bank shall be likewise the encumbered absolute and disposable property of the Borrower and the Borrower shall not without the Bank’s prior written permission lease or sell or exchange or create any mortgage, charge, lien or encumbrance of any kind upon or over the same or on its undertaking and assets (including uncalled share capital or any part thereof) except to the Bank nor suffer any such mortgage, charge lien or encumbrance to affect the same or any part thereof nor do or allow anything that may prejudice the security while the Borrower remains indebted or liable to the Bank in any manner”. (14) Since in the present case, the mortgage was created by deposit of title deed u/S.58(f) and the respondent No.5 in furtherance thereof had executed the agreement dated 6/5/2008 containing the aforesaid clause, therefore, it was not open to the respondent No.5 to lease out the mortgaged properties to the petitioner and sub-section (3) of Section 65-A is clearly attracted in the matter which excludes the applicability of sub-section (1) of Section 65-A, therefore, in the facts of the present case the lease deed executed by the respondent No.5 in favour of the petitioner after mortgaging the properties, was not binding on the bank in view of the combined reading of Section 65-A(3) and Section 65-A(1) and clause 11 of the agreement. (15) The Supreme Court in the matter of Harshad Govardhan Sondagar (supra), after considering Sec-65-A has held that so long as the mortgage deed does not prohibit a mortgagor from making a lease of the mortgaged property and so long as the lease satisfies the requirements of sub-section (2) of Section 65-A, a lease made by a borrower as a mortgagor is not only valid but is also binding on the secured creditor as a mortgagee. (See para 17 of the judgment). In the present case, the lease in favour of petitioner has been found to be invalid and not binding on the bank, therefore, in terms of the judgment of the Supreme Court also petitioner is not entitled for any protection. (16) The respondent bank has also pointed out circumstances indicating that even conditions mentioned in sub-section (2) of Sec-62-A are not satisfied since the lease by the respondent No.5 in favour of the respondent No.1 is not in ordinary course of management of the property and the best rent has not been reserved since the property worth rupees 80 crore was leased out for a meager sum of rupees two lakhs per month. (17) Thus, it is held that the petitioner is not entitled to the benefit of Section 65-A of the Transfer of Properties Act and the lease deed executed by the respondent No.5 in favour of the petitioner contrary to the agreement between the respondent No.5 will not affect right of the bank to take possession u/S.14 of the Act. (18) The next issue is if there is a running factory in the leased premises. The District Magistrate vide order dated 13/1/2015 passed u/S.14 of the Act had allowed the prayer made by respondent bank and directed the SDO to take possession of the mortgaged properties. The application for modification was moved by the petitioner before the District Magistrate on the ground that the petitioner is running a factory in the mortgaged property and the interest of the workers is required to be protected. Considering this aspect, the District Magistrate vide order dated 31/3/2015 had modified its earlier order and permitted the petitioner to run the factory till the finalisation of sale by delivering only symbolic possession to the bank. Considering this aspect, the District Magistrate vide order dated 31/3/2015 had modified its earlier order and permitted the petitioner to run the factory till the finalisation of sale by delivering only symbolic possession to the bank. In the subsequent order dated 3/7/2015, the District Magistrate has found that the factory is lying closed, there is no employee and no production is going on. In view of this finding, the District Magistrate has recalled its earlier order dated 31/3/2015 and restored its original order dated 13/1/2015 permitting actual physical possession of the mortgaged properties. The District Magistrate had passed the order dated 3/7/2015 after getting the spot inspection done through the SDO and considering the joint spot inspection report of the SDO and the Tehsildar dated 26/6/2015 revealing that the factory is lying closed without any production and employment. The plea of the petitioner in the rejoinder is that the work of soyabeen crushing plant is seasonal and the factory remains in operation only when soyabeen is available and the cycle of season is October to March-April and for remaining time the factory remains shut for maintenance. In support of the said plea, the petitioner has filed several documents but the authenticity of those documents cannot be ascertained in exercise of writ jurisdiction. There is no reason to disbelieve the finding which has been recorded by the District Magistrate on the basis of spot inspection report in respect of non functioning of the factory. (19) Even otherwise u/S.14 of the SARFAESI Act, the power of the District Magistrate is limited relating to taking over of the possession of the assets if the requisite conditions are satisfied. In the present case, traveling beyond the provisions of Section 14, the District Magistrate had permitted the petitioner to run the factory till the finalisation of sale. Therefore, the said order has rightly been recalled by the subsequent order dated 3/7/2015. (20) In view of the aforesaid analysis, I am of the considered opinion that no ground for interference in the impugned order passed by the District Magistrate is made out. The writ petition is accordingly dismissed.” 15. In light of the aforesaid judgment of the Supreme Court and judgment of Co-ordinate Bench of this Court, the District Magistrate was justified in passing the impugned order and Tehsildar was also justified in passing the order dated 09.03.2016 and issuance of notice on 16.03.2016. 16. The writ petition is accordingly dismissed.” 15. In light of the aforesaid judgment of the Supreme Court and judgment of Co-ordinate Bench of this Court, the District Magistrate was justified in passing the impugned order and Tehsildar was also justified in passing the order dated 09.03.2016 and issuance of notice on 16.03.2016. 16. No case for interference is made out in the matter, the writ petition is accordingly dismissed along with another connected petition which is arising out of the same dispute. Certified copy as per rules.