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2023 DIGILAW 1492 (BOM)

Jaylon Impex Pvt Ltd v. Punjab National Bank

2023-07-11

G.S.PATEL, NEELA GOKHALE

body2023
JUDGMENT/ORDER G.S.PATEL, J. - Admit. 2. The 1st Respondent is the Punjab National Bank ("PNB"). The 2nd Respondent is a cooperative society, and the 3rd Respondent is a developer. 3. To put the controversy into a summarized context, there is no dispute that a residential flat in the Society belongs to Petitioners Nos 2 to 4 and is validly mortgaged to the PNB as security for the repayment of a loan PNB gave Petitioner No.1. The Society's building and structure is dilapidated and requires redevelopment or reconstruction. The Petitioners have asked the PNB to consent to the redevelopment. The PNB apprehends that its security will be lost, even if transitorily, while the redevelopment is going on. It maintains that without an entirely fresh set of documentation such a permission is not contemplated in law. It also expresses the apprehension that it would be impossible to create a fresh mortgage of a redeveloped residential unit that is yet to be brought into existence. Nobody has any quarrel about the statement regarding the condition of the building or that it requires redevelopment. Nobody questions the debt to the bank or the mortgage in favour of the bank. The only question is how to balance the competing equities so that the interests of all are adequately protected. 4. We noted some of these aspects in our previous order of 28/6/2023 which reads thus:- "1. The Punjab National Bank is represented before us. It undoubtedly has a mortgage in respect of Flat No. 9 on the 2nd floor of the Nugget Cooperative Housing Society at Plot No. 62, Chitrakar Dhurandhar Marg, 18th Road, Khar West, Mumbai 400 052. It has commenced recovery proceedings. The flat is in a society that desires to undergo re-development. That redevelopment is currently not possible for want of a no objection from the Punjab National Bank, the 1st Respondent. 2. Mr Varanasi, learned Advocate for the Punjab National Bank, expresses an apprehension that if this redevelopment is permitted, then the specified property which is the subject matter of the mortgage deed will cease to exist in the course of that redevelopment. This is likely to create several complications for the bank in recovery as the very subject of the mortgage deed will no longer exist at least for a temporary period. This is likely to create several complications for the bank in recovery as the very subject of the mortgage deed will no longer exist at least for a temporary period. He further submits that the Punjab National Bank to give a blanket no objection to such a redevelopment proposal. The Punjab National Bank is answerable to the Reserve Bank of India and requires to report on recovery proceedings. There are governing master circulars and policies in place as well. 3. In our view, we cannot compel the No Objection Certificate from the Punjab National Bank. At the same time, we see that there is a requirement for redevelopment of lthe building itself and that there are others who are unconnected with the Petitioner and the Punjab National Bank, i.e., other society members who might be adversely affected. 4. Mr Varanasi seeks time to put in a short Affidavit in Reply. We will permit that. The Affidavit in Reply is to be filed and served by Monday, 3/7/2023. We will take up the petition for disposal on merits on 5/7/2023." 5. The Affidavit in Reply is now on record. While it opposes the relief sought in the Petition, it fairly points out that draft consent terms were in fact exchanged as were discussed between the parties. 6. For completeness of record, a compact statement of facts will suffice. In 2010, PNB extended credit facilities to the 1st Petitioner for Rs.24.00 crores and this was secured by equitable mortgage of flat No. 9 on the second floor of the 2nd Respondent Society at Khar (West) Mumbai, 400 022. By 2018, the 1st Petitioner's account was declared a Non Performing Asset ("NPA"). PNB initiated recovery proceedings. 7. In August 2020, the Society received a notice from the Municipal Corporation of Greater Mumbai under Sec. 353B of the Mumbai Municipal Corporation Act, 1888 stating that the building had become old, dilapidated, dangerous and unfit for human habitation. The Society was directed to take immediate steps. It appointed a structural auditor and the resultant report showed that there was extensive damage including fractured plumbing, vegetation growth due to leakage, cracked columns and more. The Society's committee of office-bearers held meetings with the general body and ultimately at the special general body meeting on 29/9/2021, the 3rd Respondent was appointed a developer for the redevelopment of the building. The Society's committee of office-bearers held meetings with the general body and ultimately at the special general body meeting on 29/9/2021, the 3rd Respondent was appointed a developer for the redevelopment of the building. Many members of the society had to obtain no objections from various banks which have charges on specific flats. As is usual, these charges were notified to or lodged with the 2nd Respondent Society. 8. The Petitioners wrote on 25/10/2021 and 18/11/2021 to PNB, asking for just such a no objection for flat No. 9. PNB replied on 18/11/2021 saying that it could not issue an NOC as the account was declared an NPA. More importantly, this letter said, and this seems to be the heart of the problem today, that an NOC of the kinds sought by the Petitioners would dilute PNB's rights over the mortgaged flat. The Petitioner sent another letter on 25/4/2022, this time with an undertaking and here what the Petitioners said is summarized in sub-paragraphs (h) and sub-paragraphs from (a) to (d) at page 9. We reproduce sub-paragraphs (h)(a) to (h)(b):: "(h) The Petitioners state that in order to prevent any dilution of rights of Respondent No. 1 over the subject property, the Petitioners issued another letter dtd. 25/4/2022 alongwith an Undertaking from the Petitioners interalia stating that:. (a) Respondent No.1's charge over the subject property is continuing and shall further continue even in the new allotted flat received from Respondent No. 3 in lieu of the old flat; (b) Respondent No. 2 shall mark lien of Respondent No. 1 in this regard on the new flat in the proposed new building to be allowed to Petitioner No. 2 to 4." 9. There was no reply. The Petitioners sent another reminder. On 5/7/2022, PNB responded saying that the NOC could not be granted because there were proceedings pending in the Debt Recovery Tribunal ("DRT"). A third reminder from the Petitioners followed on 6/10/2022. 10. At this point, the Petitioners also said to PNB that they would go a step further. The developer has agreed to pay Petitioner Nos. 2 to 4 Rs.29,98,200.00 as hardship compensation. The Petitioners agreed that this would be credited directly into the subject account of the 1st Petitioner with PNB. 11. By 7/1/2023, the situation was that of the 32 flat owners, 30 members have obtained NOCs and submitted these. The developer has agreed to pay Petitioner Nos. 2 to 4 Rs.29,98,200.00 as hardship compensation. The Petitioners agreed that this would be credited directly into the subject account of the 1st Petitioner with PNB. 11. By 7/1/2023, the situation was that of the 32 flat owners, 30 members have obtained NOCs and submitted these. For Flat No. 9, while there was the consent of the owners (Petitioner Nos. 2 to 4), the NOC from the PNB was awaited. Incidentally, there is another Flat No. 29 that remains without consent altogether. We are not concerned with that flat. 12. There is an additional Affidavit on behalf of the Petitioners from page 108. It is affirmed by one Karan Kaushik, director of 1st Petitioner and himself Petitioner No. 3. This Affidavit points to the DRT proceedings and the fact that the present 3rd Respondent had filed an Intervention Application in the DRT proceedings seeking an appropriate direction against PNB. The Affidavit says that by an email of 13/3/2023, PNB had agreed to grant the NOC subject to fulfilment of certain conditions set out in that email. We are not concerned with what was said or done before the DRT but the contents of the email from PNB at page 116 are interesting. Here the PNB supposedly says that it has in principle no objection to an NOC subject to six conditions. (1) Possession of the newly re-developed flat would be handed over to the bank as a secured creditor. (2) New share certificate and other documents would be handed over to the bank by the society and the builder. (3) If there was any transit rent being paid by the developer to the flat owners then this amount would be deposited with the bank and would be adjusted towards the bank's dues. (4) A corpus fund was also to be deposited with the bank and the bank would be entitled to adjust this towards its total outstanding file. (5) Mortgage charge would be duly entered and updated in the records of the society as well as any office of the Sub Registrar and (6) The NOC would be issued on a without prejudice basis and would not constitute a waiver of any rights, remedies or defences against PNB. 13. The Affidavit in Reply by PNB is from (wrongly numbered) page 108. The history of the dispute is set out. 13. The Affidavit in Reply by PNB is from (wrongly numbered) page 108. The history of the dispute is set out. There is a reference to the DRT proceedings. There is also a mention of the offer to transfer the hardship compensation of Rs.25,92,200.00. It is then urged that there can be no Writ of Mandamus issued against the PNB. 14. Having considered the matter, we are of the view that not only are the competing equities required to be balanced, but we must ensure that the value of the security to the PNB is not compromised or lost. We understand the concerns of the PNB, and we have therefore, asked for the Affidavit in Reply so that there is no ambiguity about this. But it seems to us not in PNB's interest that it should try to enforce a security over for a property that is constantly and daily degrading in value. If there is a way to ensure that the charge of the PNB is not in any way compromised, and in lieu of the existing dilapidated tenement it gets a higher value redeveloped tenement, then surely the interests of PNB are well, or even better, served by such an exercise. In addition, we note the offer made on Affidavit by Petitioner No. 3 to deposit the hardship compensation with the PNB. We also note the other conditions by the PNB in their email and which appear to us to be utterly reasonable. It is impossible to accept a situation that the Petitioners would get transit rent or corpus and not route this into the subject account of Petitioner No. 1 with PNB. Obviously, there would be a need to ensure that the security itself in favour of PNB continues unbroken not only for the old flat but for the newly redeveloped flat also. In fact, to make things even easier the proposed redeveloped flat already has a unique identifying number, A301. 15. We do not require the PNB to execute a fresh mortgage deed. To that extent the PNB is correct. No Writ of Mandamus can be issued against the PNB compelling it to execute a fresh mortgage. But it is our finding today that no such fresh mortgage is in fact necessary. There is no challenge to the mortgage deed itself. We do not require the PNB to execute a fresh mortgage deed. To that extent the PNB is correct. No Writ of Mandamus can be issued against the PNB compelling it to execute a fresh mortgage. But it is our finding today that no such fresh mortgage is in fact necessary. There is no challenge to the mortgage deed itself. The old Flat No. 9 is simply being substituted with Flat No. A301, one that is clearly identified. The mortgagors have no objection and specifically consent on Affidavit and before us that the mortgage over Flat No. 9 is, will continue and will always be treated as the mortgage over Flat No. A301. 16. We believe this should be sufficient protection, but in addition, it is entirely permissible for PNB to lodge an authenticated or certified copy of this order for registration should the need arise and to complete its documentation. We clarify that no additional stamp duty is liable to be paid since this merely clarifies an existing position. 17. A few other directions are undoubtedly necessary. The corpus amount is payable in installments. A cheque for the first instalment is with the attorneys for the Society. This will be taken back or returned. The developer will transfer the instalments of corpus / hardship compensation periodically and when due directly into the subject account of the PNB by online remittance. The details of that account will be provided by the Advocates for PNB to the developer. 18. Similarly, all other amounts whether as transit rent or otherwise are to be similarly deposited directly by the developer with the PNB. A copy of the payments made periodically will be sent to the Petitioners for record purposes. 19. It is open to the PNB to adjust or credit the amounts received in accordance with law. We are making no directions in that regard. 20. When the redevelopment is complete, the developer and the Society will ensure that unless there is a redemption of the mortgage, possession of the flat will be delivered to the representatives of the PNB and an appropriate possession letter or Panchnama will have to be drawn up in the presence of representatives of the Petitioner. For the purposes of completion of documentation, the original of the Permanent Alternative Accommodation Agreement ("PAAA"), duly signed, executed and registered will be lodged with the PNB. For the purposes of completion of documentation, the original of the Permanent Alternative Accommodation Agreement ("PAAA"), duly signed, executed and registered will be lodged with the PNB. We say this because the original mortgage itself was an equitable mortgage by deposit of title deeds and the PAAA will also be required to be deposited for this purpose. 21. Mr Varanasi for the PNB confirms that the original share certificate of the Society is still with the PNB. If a fresh share certificate is to be issued, this also will be deposited with the PNB, and before us all are agreed that these deposits (including the PAAA and any replacement share certificate) with the PNB are with intent to create security on Flat A301. 22. The Society, developer and debtors are also all before us and there is no doubt that the Society records will reflect this order and the charge of the bank. 23. The payments made by the developer to the bank will operate as a discharge of the developer's obligations to Petitioner Nos. 2 to 4 as the original owners of flat No. 9. 24. With this, the PNB can have no objection to the redevelopment proceeding. For good order, it will issue the no objection formally if necessary. Even if not formally issued, we record that PNB being fully protected, its written no objection is no longer necessary. 25. The Petition is disposed of in these terms. There will be no order as to costs.