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2019 DIGILAW 184 (AP)

Kamireddi Atchuthamba v. State Bank of India

2019-08-13

J.UMA DEVI, M.SEETHARAMA MURTI

body2019
JUDGMENT : M. Seetharama Murti, J. 1. This writ petition, under Article 226 of the Constitution of India, is filed by the petitioners challenging the order, dated 08.12.2017, of the Debts Recovery Appellate Tribunal, Kolkata, passed in Appeal No. 17 of 2014/245, whereby the order, dated 13.01.2014 of the Debt Recovery Tribunal, Visakhapatnam, in S.A. No. 303 of 2012 was confirmed. A request was also made to set aside the same and consequently direct the respondents to desist from proceeding against the flats purchased by the petitioners viz., Flat Nos. 2A, 3A, 5A & 5B of Sri Raj Enclave Apartment constructed in Rs. Nos. 4/1 & 4/2 of Gavaravaram village, Sanivarapurpet Panchayat, Eluru. 2. We have heard the submissions of Sri N. Subba Rao, learned counsel, appearing for the writ petitioners and of Sri C. Subodh, learned standing counsel appearing for the 1st respondent bank. There is no representation for the 2nd respondent. We have perused the material record. 3. The case of the petitioners is this: -'The petitioners purchased from the 2nd respondent, who is the owner of the above said flats ('subject flats', for brevity), for valid considerations, under registered sale deeds, dated 02.07.2012, bearing document Nos. 2401/2012 to 2404/2012. They had obtained copies of encumbrance certificates and other material as well as opinion of an advocate before purchasing the subject flats. The encumbrance certificates obtained by them do not reflect any mortgage over the subject flats. The petitioners were under the bona fide impression that there are no encumbrances on the property. Being in possession of the flats, the petitioners developed their respective flats by making improvements. While so, the 1st respondent bank initiated action under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, ['the SARFAESI Act', for short]. In the notice issued under Section 13(2) of the said Act, it was stated that the 2nd respondent obtained a loan by mortgaging the property, which was sold to the petitioners. There is no valid mortgage deed subsisting as per the records of the Sub Registrar. As per the circular instructions of the Reserve Bank, equitable mortgage is required to be registered with the Registrar concerned in order to prevent the mortgagors from selling the mortgaged properties and acting detrimental to the interests of the bankers. No such registered mortgage was obtained by the 1s' respondent bank. As per the circular instructions of the Reserve Bank, equitable mortgage is required to be registered with the Registrar concerned in order to prevent the mortgagors from selling the mortgaged properties and acting detrimental to the interests of the bankers. No such registered mortgage was obtained by the 1s' respondent bank. For the said lapse, the 1st respondent bank is disentitled to recover money by proceeding against the flats purchased by the petitioners, who are bona fide purchasers. The 1st respondent bank having failed to follow the procedure in the above regard initiated proceedings against the petitioners, while the petitioners are in possession and enjoyment of the properties pursuant to their sale deeds. After issuance of notice under Section 13(2), the same was published, on 15.10.2012, indicating that M/s. Sai Krishna Enterprises obtained a loan from the 1st respondent bank and that the 2nd respondent and others stood as guarantors for the said loan. Soon after the publication of the said notice, the petitioners submitted representations and informed all the facts including the fact that the encumbrance certificates obtained prior to their purchases, on 18.06.2012, do not indicate the existence of any mortgage and that the mortgage deed, if any, in favour of the bank is not valid and that for the fault of the bank, the petitioners cannot be penalised. When the 1st respondent bank failed to consider the said representation, the petitioners filed SA No. 303 of 2012 before the DRT. In the said SA, it is also contended that though the bank said that it has taken symbolic possession, the petitioners are in continuous possession and enjoyment of their respective flats and that the 1st respondent bank issued a demand notice to the borrower but not affixed any notice on the properties. The petitioners also contended that under Section 53(1) of Transfer of Property Act, the rights of the petitioners, who are bona fide purchasers, are not hampered and that their rights are not affected. The petitioners also contended that under Section 53(1) of Transfer of Property Act, the rights of the petitioners, who are bona fide purchasers, are not hampered and that their rights are not affected. However, the Tribunal dismissed the SA of the petitioners erroneously holding that the petitioners could not point out any irregularities or illegalities committed by the 1st respondent bank in the entire proceedings initiated under the provisions of the SARFAESI Act and the rules made under the said Act and that the contentions of the petitioners are devoid of merit and that the 1st respondent bank is entitled to have recourse to the measures under the SARFAESI Act. Aggrieved thereof, the petitioners preferred aforestated appeal before the DRAT. The appellate Tribunal erroneously dismissed the said appeal holding that the Tribunal recorded categorical findings that the property was mortgaged with the bank as security and that despite the said fact, the property, which is a mortgaged property, was purchased by the petitioners and finally confirmed the finding of the DRT that the borrower and the petitioners have colluded and defrauded the bank and got the sale deeds executed and that the petitioners are not bona fide purchasers. Aggrieved thereof, the present writ petition is filed. There is no valid mortgage obtained by the 1st respondent bank in respect of the subject flats. The 1st respondent bank failed to obtain a registered mortgage as required under law. The finding of the Tribunal and the appellate Tribunal that the petitioners are not bona fide purchasers is incorrect as the petitioners purchased their respective flats for valuable considerations after obtaining encumbrance certificate, which do not disclose any mortgage over the said flats. The Tribunal and the appellate Tribunal ought to have seen that for the fault of the bank in not obtaining a registered mortgage deed, the petitioners cannot be penalised and faulted. The Tribunal and the appellate Tribunal erroneously held that there is collusion between the borrower and the petitioners, who are the purchasers of the flats, while, in-fact, there was collusion between the banker and the 2nd respondent. The said aspect is evident from the fact that the bank is not proceeding against the 2nd respondent but is only proceeding against the flats of the petitioners. The said aspect is evident from the fact that the bank is not proceeding against the 2nd respondent but is only proceeding against the flats of the petitioners. Mere deposit of title deeds without any valid mortgage by a registered document does not create any rights in favour of the 1st respondent bank to enforce the mortgage against the subject flats. These petitioners brought to the notice of the 1st respondent bank that there are other substantial properties owned by the principal borrower but the 1st respondent bank did not take steps to proceed against the said properties; and the bank is proceeding only against the subject flats of these petitioners. These petitioners paid Rs. 5.00 lakhs each, pending adjudication of the appeal, pursuant to the orders of this Court. Mandatory provisions of SARFAESI Act are violated. There are no findings that the notices under Sections 13(2) and 13(4) of the SARFAESI Act were served on the borrowers and guarantors. Reliance was placed merely on the averments in the counter of the 1st respondent bank without further proof of the pleadings in the said counter. The order of the appellate tribunal is not a reasoned order and is liable to be set aside.' 4. The case of the 1st respondent bank, in brief, is this: - 'The subject flats were mortgaged with the 1st respondent bank, on 31.03.2011 and 14.05.2011 by the borrower. Subsequently sale deeds were created in collusion between the petitioners & others with the borrower/mortgagor. Their sale deeds admittedly are after the above said mortgage transaction. The Tribunal and the appellate Tribunal came to right conclusions after going through the entire material. The Tribunal and the appellate Tribunal rightly held that the petitioners colluded with the borrower to defraud the bank. Examination of title basing on encumbrance certificate is highly incorrect. The petitioners are not bona fide purchasers. Before obtaining the sale deeds for the subject flats, the petitioners ought to have verified the original title deeds of the subject property and ought to have enquired as to in whose custody the original title deeds of the subject flats are available. Neither the petitioners nor the borrower has a right to dictate to the 1st respondent bank to proceed against a particular secured asset only. The contention that the order of the appellate Tribunal is not a reasoned order is incorrect. Neither the petitioners nor the borrower has a right to dictate to the 1st respondent bank to proceed against a particular secured asset only. The contention that the order of the appellate Tribunal is not a reasoned order is incorrect. After going through the entire material placed before it, the appellate Tribunal while dismissing the appeal confirmed the order of the Tribunal. The bank initiated action under Section 14 of the SARFAESI Act to take physical possession of the secured asset and to proceed with sale of the secured assets to recover the outstanding/unpaid dues by the borrower, that is, M/s. Sai Krishna enterprises. The mortgage is a mortgage by way of deposit of title deeds and for such mortgage, registration is not mandatory. Since registration is not mandatory and registration need not be done for such mortgages by deposit of title deeds, such mortgages will not be reflected in the encumbrance certificates. The allegations that bank colluded with the borrower and the other allegations related to collusion etcetera against the bank are false. Since concurrent findings of fact are recorded by the Tribunal and the appellate Tribunal, the present writ petition under Article 226 of the Constitution of India is not maintainable and the orders impugned of the Tribunal and the appellate Tribunal do not warrant interference.' 5. Submissions are made by the learned counsel for both the sides in line with the respective pleadings. 6. The principal contention of the petitioners is that by mere deposit of title deeds there cannot be a valid mortgage against the subject flats purchased by the petitioners under regular registered sale deeds, for valuable considerations. Per contra, the case of the 1st respondent bank is that loan was advanced to the principal borrower after execution of the documents by the borrower and the guarantors on creation of an equitable mortgage by deposit of title deeds and that the said mortgage transaction took place on 31.03.2011 and 14.5.2011. Admittedly, the original title deeds of the properties are with the bank. The petitioners contend that they purchased the subject flats from the 2nd respondent after obtaining legal opinion and the encumbrance certificate, which did not disclose any mortgages. However, admittedly their sale deeds, dated 02.07.2012, are subsequent to the equitable mortgage in respect of the subject flats in favour of the bank. The petitioners contend that they purchased the subject flats from the 2nd respondent after obtaining legal opinion and the encumbrance certificate, which did not disclose any mortgages. However, admittedly their sale deeds, dated 02.07.2012, are subsequent to the equitable mortgage in respect of the subject flats in favour of the bank. The petitioners did not admittedly verify the original title deeds as the title deeds are already deposited by the principal borrower with the bank at the time of creation of equitable mortgage by deposit of title deeds. Hence, it is not possible to accept the contentions of the petitioners that they are bona fide purchasers. 7. Now the next question is as to whether a mortgage by deposit of title deeds is a valid mortgage even in the absence of any registered document. 8. In Rachpal v. Bhagwandas AIR 1950 SC 272 the Supreme Court held as follows: "4. A mortgage by deposit of title-deeds is a form of mortgage recognized by S. 58(f), T.P. Act which provides that it may be effected in certain towns (including Calcutta) by a person delivering to his creditor or his agent documents of title to immovable property with intent to create a security thereon. That is to say, when the debtor deposits with the creditor the title-deeds of his property with intent to create a security, the law implies a contract between the parties to create a mortgage, and no registered instrument is required under S. 59 as in other forms of mortgage. But if the parties choose to reduce the contract to writing, the implication is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. As the deposit alone is not intended to create the charge and the document, which constitutes the bargain regarding the security, is also necessary and operates to create the charge in conjunction with the deposit, it requires registration under S. 17, Registration Act 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. The time factor is not decisive." 9. In United Bank of India v. Ms. Lekharam Sonaram, AIR 1965 SC 1591 the Supreme Court held as follows: "7. The time factor is not decisive." 9. In United Bank of India v. Ms. Lekharam Sonaram, AIR 1965 SC 1591 the Supreme Court held as follows: "7. It is essential to bear in mind that the essence of a mortgage by deposit of title-deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding security requires registration under Section 17 of the Indian Registration Act, 1908, as a non-testamentary instalment creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either. Bearing in mind the principles aforesaid, we proceed to consider the facts of the present case. It is relevant here to state that letter dated 29th March, 2007 of the Finance Commissioner inter alia makes instrument of deposit of title-deeds compulsorily registerable under Section 17(1)(c) of the Registration Act. In such contingency, registration fee and stamp duty would be leviable. But the question is whether mortgage by deposit of title-deeds is required to be done by an instrument at all. In our opinion, it may be effected in specified town by the debtor delivering to his creditor documents of title to immoveable property with the intent to create a security thereon. No instrument is required to be drawn for this purpose. However, the parties may choose to have a memorandum prepared only showing deposit of the title-deeds. In such a case also registration is not required. But in a case in which the memorandum recorded in writing creates right, liability or extinguishes those, same requires registration. No instrument is required to be drawn for this purpose. However, the parties may choose to have a memorandum prepared only showing deposit of the title-deeds. In such a case also registration is not required. But in a case in which the memorandum recorded in writing creates right, liability or extinguishes those, same requires registration. In our opinion, the letter of the Finance Commissioner would apply in cases where the instrument of deposit of title-deeds incorporates terms and conditions in addition to what flow from the mortgage by deposit of title-deeds. But in that case there has to be an instrument which is an integral part of the transaction regarding the mortgage by deposit of title-deeds. A document merely recording a transaction which is already concluded and which does not create any rights and liabilities does not require registration." 10. From the above precedential guidance, it is clear that a mortgage can be created by deposit of title deeds and it is one of the mortgages recognised by law and that a document merely recording a transaction, which is already concluded and which does not create any rights & liabilities, does not require registration. To put it in other words, a memorandum, merely evidentiary in nature and which records deposit of title deeds earlier made, for token of remembrance, does not require registration. Therefore, the contention based on the decisions in Siddhi Vegetable Oil Products and others v. Government of A.P. and others, 2007 (4) ALT 130 : AIR 2007 A.P. 196 and Satti Venkateswara Reddy v. Mallidi Venkata Reddy, AIR 2016 A.P. 24 that the mortgage by deposit of title deeds requires registration is untenable. 11. The petitioners who purchased the subject flats, which are subject to mortgage, even without verifying the original title deed and without making an enquiry as to with whom the original title deed/s related to the subject flats was/were lying cannot be heard to say that they are bona fide purchasers. 11. The petitioners who purchased the subject flats, which are subject to mortgage, even without verifying the original title deed and without making an enquiry as to with whom the original title deed/s related to the subject flats was/were lying cannot be heard to say that they are bona fide purchasers. When once the purchase transactions of the petitioners in regard to the subject flats are subsequent to the mortgage in favour of the 1st respondent bank, they being third parties to the mortgage transaction and their title being subject to the mortgage, they cannot have any valid objection for the bank taking statutory measures against the borrower and/or guarantors and they cannot challenge the action of the bank initiated by the bank after due invocation of the statutory procedure under the SARFAESI Act and the rules made thereunder. The Tribunal, which had an occasion to deal with all the factual aspect, in detail, recorded a finding that there is no material irregularity or illegality committed by the 1st respondent in the entire proceedings initiated under the SARFAESI Act and the rules made thereunder and that the petitioners could not substantiate their contentions warranting interference with the proceedings initiated by the bank under the SARFAESI Act and that the bank/secured creditor also established that the recourse taken by the secured creditor under Section 13(4) of the Act is in accordance with the provisions of the SARFAESI Act and the rules made thereunder. 12. For the afore-stated reasons, we find that the writ petition is devoid of merit more particularly in view of the narrow scope of Article 226 of the Constitution of India. 13. In the result, the Writ Petition is dismissed. As a sequel, pending miscellaneous petitions, if any, shall stand dismissed. No order as to costs.