Ruchir s/o Sharad Goenka v. Girish s/o Gangadhar Agrawal
2017-07-06
SHALINI PHANSALKAR JOSHI
body2017
DigiLaw.ai
JUDGMENT : 1. Legality, validity and propriety of the order dated 14.10.2014 passed by Principal District Judge, Akola in Miscellaneous Civil Appeal No. 15/2014 arising out of the order 21.12.2013 passed below Exh.86 in Insolvency Petition No. 1/2008 passed by the Civil Judge, Senior Division, Akola, is challenged in the Revision. 2. Brief facts of the revision are to the effect that: Respondent nos. 1 to 4 herein had filed Insolvency Petition before trial Court under Section 7 of the Provincial Insolvency Act, 1920 against respondent Nos. 5 to 17. During pendency of the said petition, respondent no.1 filed an application at Exh.86 under Order-I Rule-10 of the Code of Civil Procedure for addition of party and under Order-VI Rule-17 read with Section 151 of the Code of Civil Procedure for amendment of Insolvency Petition. It was contended by respondent no.1 that the present applicant, in collusion with Akola Urban Co-operative Bank Limited, Akola and the debtors, purchased the property mentioned in para13-A of the application, as per sale certificate dated 20.5.2011. It was further alleged that the Akola Urban Co-operative Bank could not have given go bye to the insolvency proceedings and the bank ought to have claimed its dues in in solvency petition itself. It was further submitted that the said property was already attached by Sales Tax Department for recovery of amount of Sales Tax dues. Thus, respondent nos. 5 to 7 in collusion with the Akola urban Co-operative Bank by making a show of taking action under the provision of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, sold the property to the applicant and hence, it was necessary to join both the applicant and the Akola bank as party respondents in the insolvency petition. 3. This application came to be resisted strongly by the present applicant contending that applicant is a bona fide purchaser for value and, therefore, the transaction entered into by him cannot be challenged in insolvency petition. It was submitted that the property purchased by him in the auction was the secured asset of the Akola bank and as the debtor M/s Baheti Automobiles failed to repay the amount of loan, interest etc.
It was submitted that the property purchased by him in the auction was the secured asset of the Akola bank and as the debtor M/s Baheti Automobiles failed to repay the amount of loan, interest etc. to the bank and as the account became N.P.A., the bank issued notice under Section 13(2) of the SARFAESI Act and Rule-9 of the Security Interest (Enforcement) Rules, there by demanding the amount. As the amount was not paid in pursuance of the notice, the bank has taken the possession of the property in exercise of powers conferred on the bank under the provisions of Section 13(2) of the Securitisation Act. Thereafter, bank published a notice under Section 8(1) of the Security Interest Rules. That notice was widely published in the newspaper, as required by law and thereafter following due procedure, the bank has sold the property to the applicant for valuable consideration of Rs. 3.25 crores. An amount of Rs.16,25,000/- was paid by the applicant towards stamp duty and Rs.30,000/- towards registration fees. Thus, it was submitted that the bank has acted within its power to dispose of the mortgaged property for realization of its dues and the applicant being the bona fide purchaser of the said property, in the insolvency petition his transaction of purchase of property cannot be challenged. 4. Further it was submitted that, as the property was sold by bank by auction under the provisions of SARFAESI Act, the jurisdiction of the Civil Court is expressly barred as per Section 34 of the said Act. 5. On this application, the learned trial Court heard both the parties and by its order dated 21.12.2013 allowed the application holding that, whether the transaction of the purchase of the property by applicant was bona fide and in good faith can be decided only after trial. It was also required to be examined while deciding the insolvency petition, whether the transfer of immovable property was made by the debtor with intent to defeat or delay his creditors and transferors and hence it was held that the impleadment of the bank and the applicant was necessary to resolve the dispute involved in the case. 6.
It was also required to be examined while deciding the insolvency petition, whether the transfer of immovable property was made by the debtor with intent to defeat or delay his creditors and transferors and hence it was held that the impleadment of the bank and the applicant was necessary to resolve the dispute involved in the case. 6. As regards the jurisdiction of the Civil Court, it was held that as the proceeding was under the provisions of Insolvency Act, Civil Court alone has jurisdiction to determine the good faith, bona fides or mala fides, if any, in the transaction whereby the original respondents have sold the property mortgaged to the bank. Hence, it was held by the trial Court that presence of the applicant and the bank was very much necessary. 7. The applicant challenged the said order before the District Court, Akola by preferring Misc. Appeal No. 15 of 2014. However, learned first appellate Court rejected the said appeal by holding that it was for the trial Court to decide whether the property belonged to the respondents and whether transfer would be an act of insolvency. It was further held that as the Akola bank is already made party to the insolvency proceeding and it has not challenged the said order, for the proper protection of transfer of the property made in favour of the applicant and to protect the rights of the applicant himself his joining as party respondent was much more necessary and hence, impugned order passed by the trial Court adding the applicant as party was legal. Accordingly, the appeal came to be dismissed. 8. While challenging the impugned order passed by trial Court and the confirmed by the First Appellate Court, learned counsel for applicant has submitted that, both the Courts below have failed to properly appreciate the scope of insolvency proceeding. It is submitted that under the insolvency proceeding only the voluntary transfers can be challenged under Section 53 the Act and not involuntary transfers of the property, like the present one, where the Akola bank has attached and sold the property in auction to applicant for recovery of its dues. It is submitted that when the applicant is the bona fide purchaser of property for valuable consideration, his transaction could not be challenged in insolvency proceeding, hence his becoming party to the suit is not necessary.
It is submitted that when the applicant is the bona fide purchaser of property for valuable consideration, his transaction could not be challenged in insolvency proceeding, hence his becoming party to the suit is not necessary. Further, it is submitted that as the sale has taken place under the provision of SARFAESI Act, Civil Court has no jurisdiction to set aside the auction sale. Hence, according to learned counsel for the applicant the impugned order passed by the trial Court and confirmed by the first appellant Court of impleading the applicant in the insolvency proceeding as party is not legal and correct. It is, therefore, required to be quashed and set aside. 9. Per contra, learned counsel for respondent no.1 has supported the impugned order of the lower Courts and challenged the maintainability of Revision itself by submitting that it is against the order passed under Order-I Rule-10 and Order-VI Rule-17 of the Code of Civil Procedure. Hence, no Revision can lie against it. According to him, the reasons which are given by the trial Court and first appellant Court are sufficient to show that the presence of the applicant is necessary in the proceeding in order to protect his interest also, as the Akola bank is already joined in the proceeding and therefore, according to him, no interference is warranted in the impugned order of the trial Court, especially when it is not deciding the rights of the parties finally. 10. In the light of these submissions advanced before me by learned counsel for the parties, the first and foremost point arising for my consideration is whether the present revision is maintainable because according to learned counsel for respondent no.1, as the order under Order-I Rule-10 or Order-6 and Ruke-17 CPC does not terminate the proceedings pending before the trial Court, such order cannot be the subject matter of the revision. However, in my considered opinion, as rightly submitted by learned counsel for applicant, so far as applicant is concerned, the order passed by trial Court and confirmed by the first appellate Court, has the effect of proceedings against him coming to an end and therefore, in respect of the applicant, such order can be the subject of the revision. 11.
However, in my considered opinion, as rightly submitted by learned counsel for applicant, so far as applicant is concerned, the order passed by trial Court and confirmed by the first appellate Court, has the effect of proceedings against him coming to an end and therefore, in respect of the applicant, such order can be the subject of the revision. 11. As per undisputed factual position on record, in order to recover its dues from the Non Performing Account of M/s Baheti Automobiles, the Akola Urban Co-operative Bank Limited, which was a secured creditor of the property has, after adopting due procedure, as laid down under section 13(4) of the SARFAESI Act attached the property of M/s Baheti Automobiles and thereafter issuing and publishing the notice under Rule-8( c) of the Security Interest Enforcement Rule--s, sold the paid property by auction. In the said auction, the applicant has purchased it for valuable consideration of Rs.2.35 crore. He has also paid the requisite stamp duty and registration charges and under the provisions of SARFAESI Act only, he has become the owner of the said property. Therefore, transaction under which the applicant has become the owner of the property is not a voluntary transaction of sale of property but it is an involuntary transaction which was conducted by the bank of Akola, to recover its dues from the debtor-Baheti Automobiles. The question raised for consideration is whether in such a case, when the transaction is involuntary or compulsory acquisition of the property by bank and its sale by the bank is, on the face of it also, bona fide for valuable consideration, whether such truncation can be the subject matter of insolvency proceeding? 12. In this respect, the provisions of section 53 of the Insolvency Act are relevant which are as under: “53…. Avoidance of voluntarily transfer: “Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser of in cumbrancer in good faith or for valuable consideration shall, if the transferor is adjudged insolvent (on a petition presented) within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court”. 13.
13. Therefore, it is clear that as per this section, only voluntary transfer can be the subject matter of insolvency proceeding, if it is proved that such voluntary transfer was not made in good faith or for valuable consideration, Involuntary transfer or compulsory acquisition and auction sale of the property cannot become subject matter of the insolvency proceeding, even assuming that there was absence of good faith. The very title of section 53 suggests that it is applicable to only voluntary transfers. 14. Here in the case, the property was sold in auction by the bank and that too, after following all the requisite procedure laid down under the provisions of SARFACIE Act. The property was, also, sold for valuable consideration. In such circumstances, when the property is not voluntarily transferred, the question of it being the subject matter of insolvency proceeding does not arise at all. Such property, which is compulsorily acquired in auction sale, by following due process of law, therefore, cannot be challenged or set aside under Section 53 of the Act as the said section speaks of the avoidance of voluntarily transfers. In these type of transactions, which are compulsory acquisition and conducted by auction sale, the Court cannot look into aspect whether it was in good faith and for valuable consideration. Those aspects are already taken care of by the provisions under which the auction sale has taken place through the authority provided under the particular law. Here, in the present case, as the property was sold by the bank and purchased by the applicant under the provisions of SARFAESI Act, the authorities prescribed under the said Act had taken proper care to ensure that it is bona fide and for valuable consideration. Therefore, as the applicant has become the auction purchaser under the provisions of SARFAESI Act, his transaction cannot be the subject matter of the Insolvency Proceedings. 15. In such situation, if transaction itself cannot be cannot be questioned in insolvency proceeding, there is no question of joining the applicant in the insolvency proceeding. 16. Moreover, as the applicant has become the owner of the property by way of auction purchase under the provisions of SARFAESI Act, the bar under Section 34 of the said Act can definitely be attracted, if the transaction executed under the provisions of SARFAESI Act is sought to be challenged before the Civil Court.
16. Moreover, as the applicant has become the owner of the property by way of auction purchase under the provisions of SARFAESI Act, the bar under Section 34 of the said Act can definitely be attracted, if the transaction executed under the provisions of SARFAESI Act is sought to be challenged before the Civil Court. The legal position is well settled that section 34 of SARFAESI Act contains express bar to the jurisdiction of Civil Court in respect of challenge to any measures taken under Section 13(4) of the SARFAESI Act. Here in, admittedly, the transaction was under the provisions of Section 13(4) of the SARFAESI Act. Hence, the jurisdiction of the Civil Court is expressly barred even to decide whether the auction sale was in good faith and for valuable consideration. If at all respondent no.1 has any grievance about the same, the proper remedy is available to him to challenge it before the appropriate authority under the SARFAESI Act but the jurisdiction of the Civil Court cannot be invoked in view of the express bar contained Section 34 of the SARFAESI Act. Otherwise, in every auction sale conducted under the provisions of SARFAESI Act, the jurisdiction of the Civil Court will be invoked, on the bare averments that the transaction was not in good faith, and on the plea that, only Civil Court can decide bona fides and otherwise. The very object and purpose of the SARFAESI Act would be then frustrated, which has sought to give finality to the measures taken under the said Act. Therefore, on this count also the application filed by the respondent no.1 challenging the transaction of purchase of the property by the applicant should have been rejected by the trial Court and the first appellate Court. 17. As regards the submission of learned counsel for respondent no.1 that in order to give go bye to the dues by the Sale Tax Department, the property was sold by Akola bank to the applicant, in my considered opinion, this contention also cannot be raised in the Civil Court. As stated above, if respondent no.1 is having grievance on that score, then he should have raised that contention when notice under Rule-8 was issued and published. According to learned counsel for respondent no.1, he has raised that grievance but nothing has happened which indicates that it was not found to be worth considering.
As stated above, if respondent no.1 is having grievance on that score, then he should have raised that contention when notice under Rule-8 was issued and published. According to learned counsel for respondent no.1, he has raised that grievance but nothing has happened which indicates that it was not found to be worth considering. In such situation when the Sales Tax Department which has attached the property is also not making any grievance and when bank of Akola Urban Co-operative Bank has, after adopting proper procedure sold the property under SARFAESI Act and the applicant has acquired the same, as the transaction is involuntary and under the SARFAESI Act, such tarnation cannot be the subject matter of insolvency petition. 18. Therefore, the impugned order passed by the trial Court and confirmed by the First Appellate Court of imp leading the applicant as necessary party to the proceeding cannot be just, legal and correct. The Revision therefore, succeeds and allowed. The impugned order of the trial Court which was confirmed by the District Court is quashed and set aside to the extent of applicant as bank of Akola Urban Co-operative Bank Limited, Akola has not challenged it.